Exhibit 1
MATAV – CABLE SYSTEMS MEDIA LTD.
NOTICE OF SPECIAL GENERAL MEETING
OF SHAREHOLDERS
TO BE HELD ON JUNE 27, 2006
NOTICE IS HEREBY GIVEN that the Special General Meeting (the “Meeting”) of Shareholders of Matav – Cable Systems Media Ltd. (“we,” the “Company” or “Matav”) will be held on Tuesday June 27, 2006 at 11:00 a.m. (Israel time) at the management offices of HOT, The Spain Building, Fourth Floor, Europark Industrial Area, Kibbutz Yakum, 60972, Israel.
The agenda of the Meeting is as follows:
| (1) | To approve a series of transactions set forth in an Acquisition Agreement between the Company and a group of entities (the “Target Group”) which constitute, together with the Company all of the owners of Israel’s cable television operations, dated May 8, 2006, as amended on May 22, 2006 (the “Acquisition Agreement”) pursuant to which the Company will acquire all of the operations and activities relating to the provision of cable television and fixed-line telecommunications services provided by the Target Group (the “Acquisition”); the Acquisition to be carried out by the Company’s purchase directly or indirectly of all of the outstanding shares, partners’ rights, or assets and liabilities of each of the entities in the Target Group, in consideration for the assumption, directly or indirectly of the financial liabilities of the entities of the Target Group as of December 31, 2005, in an aggregate amount equal to approximately NIS 3 billion (the “Consideration Debt”) and the issuance to the direct or indirect owners of the Target Group, an aggregate of approximately 45,600,000 ordinary shares of the Company (the “Shares”) constituting approximately 60% of the Company’s issued and outstanding share capital immediately following the completion of the Acquisition. |
| IMPORTANT NOTE: THE MATTERS SET OUT IN AGENDA PROPOSALS 4 AND 5 BELOW FOR SHAREHOLDER APPROVAL ARE AN INTEGRAL PART OF THE PROPOSED ACQUISITION. UNDER ISRAELI LAW, THESE MATTERS REQUIRE SEPARATE APPROVAL BY THE COMPANY’S SHAREHOLDERS. HOWEVER, THE CONSUMMATION OF THE ACQUISITION AGREEMENT IS CONDITIONED ON THE APPROVAL BY THE COMPANY’S SHAREHOLDERS OF BOTH OF THESE MATTERS. IF ANY OF THE MATTERS SET FORTH IN PROPOSALS 4 AND 5 BELOW IS NOT APPROVED BY THE COMPANY’S SHAREHOLDERS, THE PARTIES WILL BE ENTITLED NOT TO CLOSE THE ACQUISITION AGREEMENT. THEREFORE, ANY SHAREHOLDER VOTING IN FAVOR OF PROPOSAL 1 (APPROVING THE ACQUISITION AGREEMENT) IS STRONGLY URGED ALSO TO VOTE IN FAVOR OF PROPOSALS 4 AND 5. |
| (2) | To increase the Company’s authorized share capital from NIS 100,000,000, divided into 100,000,000 ordinary shares, par value NIS 1.00 per share, by NIS 50,000,000 to NIS 150,000,000 divided into 150,000,000 ordinary shares, par value NIS 1.00 per share, and to amend Article 2 of the Company’s Articles of Association accordingly. |
| (3) | Subject to the consummation of the Acquisition, to change the name of the Company to “HOT – Cable Systems Media Ltd.” |
| (4) | Subject to the consummation of the Acquisition, to adopt certain amendments to the Company’s articles of association (the “Articles of Association”) as follows: |
| — | to amend the title and Article 1 of the Articles of Association to reflect the change in the name of the Company to HOT – Cable Systems Media Ltd. |
| — | to amend Article 13 of the Articles of Association such that the Company’s board of directors shall be comprised (in addition to the Company’s external directors) of four classes of directors of up to two directors per class who shall be elected by the Company’s shareholders to hold office for a renewable term which shall continue until no later than the annual general meeting occurring in the fourth calendar year following election ,and in such a manner that only the directors of one class may be elected at any annual meeting of the Company’s shareholders. |
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| The proposed amendments to the Articles of Association are attached to this Proxy Statement asAnnex A. |
| (5) | Subject to the consummation of the Acquisition, to dismiss from their office on the board of directors of the Company, as of the closing of the Acquisition, each of the Company’s current directors with the exception of Messrs. Yair Keusch and Yeshayahu Drori, the Company’s external directors and elect or re-elect (as applicable) the following individuals to serve as members of the Company’s board of directors for the term and to the class designated as follows: |
| Mr. Amos Lasker, Class I – to serve until our annual general meeting to be held in 2007 |
| Mr. Shilo Debeer, Class I – to serve until our annual general meeting to be held in 2007 |
| Mr. Asaf Bartfeld, Class II – to serve until our annual general meeting to be held in 2008 |
| Mr. Meir Srebernik, Class II – to serve until our annual general meeting to be held in 2008 |
| Mr. Yinon Engel, Class III – to serve until our annual general meeting to be held in 2009 |
| Mr.Tal Menipaz, Class III – to serve until our annual general meeting to be held in 2009 |
| Dr. David Tadmor, Class IV – to serve until our annual general meeting to be held in 2010 |
| Mr. Gilad Shavit, Class IV – to serve until our annual general meeting to be held in 2010 |
The close of business on May 28, 2006 is the record date for the determination of shareholders entitled to notice of, and to vote at, the Meeting. All shareholders are cordially invited to attend the Meeting in person. Shareholders who do not expect to attend the Meeting in person are requested to mark, date, sign and return the enclosed proxy as promptly as possible (and no later than 24 hours prior to the time set for the Meeting) in the enclosed envelope.
Joint holders of shares should take note that, pursuant to Article 12(e) of the Articles of Association of the Company, in the absence of any notice from the joint holders to the contrary, the vote of the senior holder of the joint shares who tenders a vote, in person or by proxy, will be accepted to the exclusion of the vote(s) of the other joint holder(s). For this purpose seniority will be determined by the order in which the names stand in the Company’s Register of Shareholders.
You may revoke your proxy at any time before it is voted. Please review the Proxy Statement accompanying this notice and all annexes hereto for more complete information regarding the meeting and the matters proposed for your consideration at the meeting. If you have any questions, please feel free to call Mr. Ori Gur-Arieh, the Company’s General Counsel and Company Secretary, at +972-777-077 031. Our board of directors recommends that you vote “FOR” approval of all matters listed above.
| Ori Gur-Arieh General Counsel and Company Secretary |
Date: May 23, 2006
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TABLE OF CONTENTS
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PROXY STATEMENT
Matav - Cable Systems Media Ltd.
42 Pinkas Street
North Industrial Area
Netanya, Israel
SPECIAL GENERAL MEETING OF SHAREHOLDERS
This Proxy Statement is furnished to holders of Ordinary Shares, par value NIS 1.00 per share (the “Ordinary Shares”), and the holders of American Depositary Shares (each representing two ordinary shares, the “ADSs”) of Matav – Cable Systems Media Ltd. in connection with the solicitation by the Board of Directors of the Company (the “Board of Directors”) for use at the Special General Meeting or at any adjournment thereof, pursuant to the accompanying Notice of the Special Meeting of Shareholders. The Meeting will be held on Tuesday June 27, 2006 at 11:00 a.m. (Israel time) at the management offices of HOT, The Spain Building, Fourth Floor, Europark Industrial Area, Kibbutz Yakum, 60972, Israel.
We expect to solicit proxies by mail and to mail this proxy statement and the accompanying proxy card to shareholders on or about June 5, 2006. We will bear the cost of the preparation and mailing of these proxy materials and the solicitation of proxies. We will, upon request, reimburse banks, brokerage houses, other institutions, nominees, and fiduciaries for their reasonable expenses in forwarding solicitation materials to beneficial owners. A copy of our annual report on Form 20-F for the year ended December 31, 2004 (the “2004 Annual Report”) has been mailed to the shareholders together with this Proxy Statement.
PURPOSE OF THE SHAREHOLDERS MEETING
At the Meeting, the shareholders will be asked to consider and vote upon the following proposals:
| (1) | To approve a series of transactions set forth in an Acquisition Agreement between the Company and a group of entities (the “Target Group”) which constitute, together with the Company all of Israel’s cable television operators, dated May 8, 2006, as amended on May 22, 2006 (the “Acquisition Agreement”) pursuant to which the Company will acquire all of the operations and activities relating to the provision of cable television and fixed-line telecommunications services provided by the Target Group (the “Acquisition”); the Acquisition to be carried out by the Company’s purchase directly or indirectly of all of the outstanding shares, partners’ rights, or assets and liabilities of each of the entities in the Target Group, in consideration for the assumption, directly or indirectly of the financial liabilities of the entities of the Target Group as of December 31, 2005, in an aggregate amount equal to approximately NIS 3 billion (the “Consideration Debt”) and the issuance to the direct or indirect owners of the Target Group, an aggregate of approximately 45,600,000 ordinary shares of the Company (the “Shares”) constituting approximately 60% of the Company’s issued and outstanding share capital immediately following the completion of the Acquisition. |
| IMPORTANT NOTE: THE MATTERS SET OUT IN AGENDA PROPOSALS 4 AND 5 BELOW FOR SHAREHOLDER APPROVAL ARE AN INTEGRAL PART OF THE PROPOSED ACQUISITION. UNDER ISRAELI LAW, THESE MATTERS REQUIRE SEPARATE APPROVAL BY THE COMPANY’S SHAREHOLDERS. HOWEVER, THE CONSUMMATION OF THE ACQUISITION AGREEMENT IS CONDITIONED ON THE APPROVAL BY THE COMPANY’S SHAREHOLDERS OF BOTH OF THESE MATTERS. IF ANY OF THE MATTERS SET FORTH IN PROPOSALS 4 AND 5 BELOW IS NOT APPROVED BY THE COMPANY’S SHAREHOLDERS, THE PARTIES WILL BE ENTITLED NOT TO CLOSE THE ACQUISITION AGREEMENT. THEREFORE, ANY SHAREHOLDER VOTING IN FAVOR OF PROPOSAL 1 (APPROVING THE ACQUISITION AGREEMENT) IS STRONGLY URGED ALSO TO VOTE IN FAVOR OF PROPOSALS 4 AND 5. |
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| (2) | To increase the Company’s authorized share capital from NIS 100,000,000, divided into 100,000,000 ordinary shares, par value NIS 1.00 per share, by NIS 50,000,000 to NIS 150,000,000 divided into 150,000,000 ordinary shares, par value NIS 1.00 per share, and to amend Article 2 of the Company’s Articles of Association accordingly. |
| (3) | Subject to the consummation of the Acquisition, to change the name of the Company to “HOT – Cable Systems Media Ltd.” |
| (4) | Subject to the consummation of the Acquisition, to adopt certain amendments to the Company’s Articles of Association as follows: |
| — | to amend the title and Article 1 of the Articles of Association to reflect the change in the name of the Company to HOT – Cable Systems Media Ltd. |
| — | to amend Article 13 of the Articles of Association such that the Company’s board of directors shall be comprised (in addition to the Company’s external directors) of four classes of directors of up to two directors per class who shall be elected by the Company’s shareholders to hold office for a renewable term which shall continue until no later than the annual general meeting occurring in the fourth calendar year following election, and in such a manner that only the directors of one class may be elected at any annual meeting of the Company’s shareholders. |
The proposed amendments to the Articles of Association are attached to this Proxy Statement asAnnex A.
| (5) | Subject to the consummation of the Acquisition, to dismiss from their office on the board of directors of the Company, as of the closing of the Acquisition, each of the Company’s current directors with the exception of Messrs. Yair Keusch and Yeshayahu Drori, the Company’s external directors and elect or re-elect (as applicable) the following individuals to serve as members of the Company’s board of directors for the term and to the class designated as follows: |
Mr. Amos Lasker, Class I – to serve until our annual general meeting to be held in 2007
Mr. Shilo Debeer, Class I – to serve until our annual general meeting to be held in 2007
Mr. Asaf Bartfeld, Class II – to serve until our annual general meeting to be held in 2008
Mr. Meir Srebernik, Class II – to serve until our annual general meeting to be held in 2008
Mr. Yinon Engel, Class III – to serve until our annual general meeting to be held in 2009
Mr. Tal Menipaz, Class III – to serve until our annual general meeting to be held in 2009
Dr. David Tadmor, Class IV – to serve until our annual general meeting to be held in 2010
Mr. Gilad Shavit, Class IV – to serve until our annual general meeting to be held in 2010
The consummation of the Acquisition is subject to the fulfillment of certain closing conditions, including reaching an agreement with our creditors and banks as well as the banks and other creditors of the Target Group, addressing among other things, the assignment of certain of the current debts and securities to us, and our future financing, as well as receipt of approvals required under applicable law, including the approvals of the Ministry of Communications, the Cable and Satellite Broadcasting Council (the “Council”), and the Tel-Aviv District Court, Israel. For further information relating to the necessary approvals and conditions, see“The Acquisition – Principal Conditions to Closing.”
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VOTING
The record date for determining which of our shareholders entitled to notice of, and to vote at, the meeting is established as of the close of business on May 28, 2006. Currently, we have outstanding 30,224,818 Ordinary Shares, or ADSs representing Ordinary Shares with voting rights. Those shareholders holding our Ordinary Shares or ADSs representing Ordinary Shares with voting rights (“Record Shares”) as of the record date, will be entitled to vote at the Meeting (“Record Holders”).
Each Ordinary share, or two Ordinary Shares represented by an ADS, is entitled to one vote on each matter to be voted on at the meeting. Subject to the terms of applicable law, two or more shareholders present, personally or by proxy, who hold or represent together at least 40% of the voting rights of our issued share capital will constitute a quorum for the meeting. If within half an hour from the time appointed for the meeting a quorum is not present, the meeting shall stand adjourned until July 5, 2006 at the same hour and place, without it being necessary to notify our shareholders. If a quorum is not present at the adjourned date of the meeting within half an hour of the time fixed for the commencement thereof, subject to the terms of applicable law, at least two Record Holders present shall constitute a quorum.
Each shareholder voting at the Meeting or prior thereto by means of the enclosed proxy card is requested to notify us if it has a personal interest in connection with the Proposal, as a condition for its vote to be counted with respect to the Proposal. If any shareholder casting a vote in connection with the Proposal fails to notify us whether it has a personal interest, such shareholder’s vote with respect to the Proposal will be disqualified.
THE PROXY
The enclosed proxy is being solicited for use at the Meeting, or at any postponement or adjournment thereof. This Proxy Statement and the accompanying form of proxy are being mailed to the shareholders on or about June 5, 2006. We will bear the cost of the preparation and mailing of the proxy materials and the solicitation of proxies. Copies of solicitation materials will be furnished to brokerage firms, nominees, fiduciaries and other custodians for forwarding to their principals, and the reasonable fees and expenses of such forwarding agents will be borne by us.
All Record Shares represented by properly executed proxies received by us up to 24 hours prior to the time fixed for the Meeting, will, unless such proxies have been previously revoked, be voted at the Meeting in accordance with the directions on the proxies. A shareholder may vote in favor of a Proposal or against a Proposal or may abstain from voting on a Proposal. Shareholders should specify their choice on the accompanying proxy card. If no direction is indicated on a properly executed proxy, the shares will be voted in favor of the resolution proposed at the Meeting, unless the shareholder fails to notify us as to whether it has a personal interest. With respect to ADSs, if the Depositary does not receive instructions from an ADS holder 24 hours prior to the time fixed for the Meeting, the Depositary shall vote the Ordinary Shares of the holder in proportion to the votes cast by the holders of all of our Ordinary Shares, including the holders of our ADSs.
A shareholder returning a proxy may revoke it at any time up to 24 hours prior to the time fixed for the Meeting, by communicating such revocation in writing to our Chief Financial Officer. In addition, any person who has executed a proxy and is present at the Meeting may vote in person instead of by proxy, thereby canceling any proxy previously given, whether or not written revocation of such proxy has been given. Any written notice revoking a proxy should be sent to: Matav – Cable Systems Media Ltd., c/o HOT, The Spain Building, Fourth Floor, Europark Industrial Area, Kibbutz Yakum, 60972, Israel. Attention: Ori Gur-Arieh, General Counsel and Company Secretary.
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Our shareholders must approve the Acquisition Agreement, pursuant to the requirements of the Israel Companies Law, 1999 (the “Law”) which requires shareholder approval of any transaction of a public company which meets all of the following conditions: (a) it involves the offering of at least twenty percent of the voting rights in the company prior to such issuance; (b) the transaction will increase the relative holdings of a shareholder that holds five percent or more of the company’s outstanding share capital (assuming the exercise of all of the securities convertible into shares held by that person), or that will cause any person to become, as a result of the issuance, a holder of five percent or more of the company’s outstanding share capital; and (c) all or part of the consideration for the offering is not cash or registered securities, or the private placement is not being offered at market terms.
Proposals 2-5 to be presented at the Meeting, require the affirmative vote of shareholders present in person or by proxy and holding our ordinary shares amounting in the aggregate a majority of the votes actually cast with respect to each such proposal.
As a result of (i) an undertaking by certain of those entities which will become our major shareholders to take all required actions to ensure that the group of companies led by Mr. Eliezer Fishman (the “Fishman Group”) will become our largest shareholder immediately following the completion of the Acquisition (Yedioth Communications Ltd., (“Yedioth”) may elect with the consent of the Fishman Group to become our largest shareholder in place of the Fishman Group); and (ii) a Right of First Refusal Agreement the parties to which intend to execute simultaneously with the completion of the Acquisition. As a result of this Right of First Refusal Agreement, certain of our shareholders and directors may be deemed by the Law to have a “Personal Interest” in the Acquisition. Consequently, Proposal 1, to be presented at the Meeting requires the affirmative vote of shareholders present in person or by proxy and holding our ordinary shares amounting in the aggregate to (a) the majority of the votes actually cast with respect to such proposal including at least one-third of the voting power of those shareholders who do not have a “Personal Interest” who are present in person or by proxy and vote on such proposal, or (b) the majority of the votes cast on such proposal at the Meeting, provided that the total votes cast in opposition to such proposal by those shareholders who do not have a “Personal Interest” does not exceed 1% of all the voting power in our company. For more information on (x) the agreement of certain major shareholders relating to their post Acquisition shareholdings, see “The Acquisition –Principal Conditions to Closing – Largest Shareholder Following the Acquisition” and (y) the Right of First Refusal Agreement, see“The Acquisition – Principal Conditions to Closing – Right of First Refusal Agreement.”
Pursuant to the Law, a “Personal Interest” of a shareholder, (i) includes the personal interest of any members of his/her immediate family (including the spouses thereof), or a personal interest of a body corporate in which the shareholder or such family member thereof serves as a director or the chief executive officer, owns at least 5% of its issued share capital or its voting rights or has the right to appoint a director or chief executive officer, and (ii) excludes a personal interest that arises solely from the fact of holding our ordinary shares or the shares of any body corporate.
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In accordance with the Law, you are entitled to provide us with a “position paper” stating your position on the Acquisition and your arguments supporting your position. Should we receive your “position paper” by June 7, 2006 (the “Final Date”), we will post its full text on the web site of the Israel Securities Authority, “(ISA”), atwww.magna.isa.gov.il and the Tel Aviv Stock Exchange (“TASE”) atwww.maya.tase.co.il. We are entitled to respond to any “position paper” which we receive by the Final Date, by no later than June 12, 2006, by posting our response on the ISA and TASE websites. We will also distribute all “position papers” which we receive up until the Final Date, to all of our Record Holders who hold our shares in their name. If you would like to submit a position paper, please send it to Matav – Cable Systems Media Ltd., c/o HOT, The Spain Building, Fourth Floor, Europark Industrial Area, Kibbutz Yakum, 60972, Israel. Attention: Ori Gur-Arieh, General Counsel and Company Secretary. We are entitled to charge a reasonable fee to those shareholders submitting a “position paper” in order to cover the expenses which we incur in connection with their distribution.
IF YOU ARE A SHAREHOLDER WITH AN ADDRESS IN ISRAEL YOU WILL RECEIVE TOGETHER WITH THIS PROXY STATEMENT A SHORT DOCUMENT IN THE HEBREW LANGUAGE. THIS ACCOMPANYING DOCUMENT IS ALSO AVAILABLE ON THE WEBSITES OF THE ISA AND TASE.
WE ARE REQUIRED TO PROVIDE THIS ACCOMPANYING DOCUMENT TO OUR SHAREHOLDERS WITH AN ADDRESS IN ISRAEL BY THE ISRAEL SECURITIES LAW 1968 AND THE REGULATIONS PROMULGATED THEREUNDER. THE DOCUMENT PROVIDES A SUMMARY IN HEBREW OF CERTAIN INFORMATION CONTAINED IN THIS PROXY STATEMENT IN A PARTICULAR FORMAT SPECIFIED UNDER THE SECURITIES LAW AND REGULATIONS.
THE ACCOMPANYING DOCUMENT ALSO INCLUDES A PROXY CARD IN THE HEBREW LANGUAGE WITH WHICH A SHAREHOLDER WITH AN ADDRESS IN ISRAEL IS ENTITLED TO VOTE. THIS HEBREW PROXY CARED IS IN LIEU OF THE PROXY CARD INCLUDED IN THIS PROXY STATEMENT ASANNEX D.
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PROPOSALS FOR THE SPECIAL GENERAL MEETING
PROPOSAL
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION
The following questions and answers are intended to address some commonly asked questions regarding the proposed Acquisition Agreement. These questions and answers may not address all questions that may be important to you as a shareholder of the Company. Please refer to the more detailed information contained elsewhere in this Proxy Statement, the annexes to this Proxy Statement and the documents referred to in this Proxy Statement.
Except as otherwise specifically noted in this Proxy Statement, “we,” “our,” “us” and similar words used in this Proxy Statement refer to the Company.
In this Proxy Statement, references to “$,” “US$,” “US dollars” and “dollars” are to United States dollars and references to “NIS” and “shekels” are to New Israeli Shekels. The representative exchange rate as published by the Bank of Israel on May 22, 2006 was NIS 4.4860= US$ 1.00.
In the Acquisition Agreement, the number of multi-channel television subscribers of each of the entities constituting the Group is derived from the number of the subscribers reported by each entity to HOT Vision Ltd. (HOT Vision produces television content for the Group – for a description of the activities of HOT Vision, see Item 4B of our 2004 Annual Report). Accordingly, the number of multi-channel television subscribers for each of the entities presented in this Proxy Statement is based on such reports. We advise you that the definition of multi-channel television subscriber as reported to HOT Vision differs from the definition we have used in our previous annual reports. The difference in the definitions has no affect on our financial results.
Q: What am I being asked to vote on?
A: You are being asked to vote on resolutions to approve the Acquisition Agreement and all of the transactions contemplated by the Acquisition Agreement, at the closing of which, we will own whether directly or indirectly (i) all of the issued and outstanding share capital or (ii) partners’ rights; or (iii) all of the assets and liabilities, of the entities constituting together with our company all of the Israeli cable television operators, and in consideration for the Acquisition, such entities, or their direct or indirect owners, will be issued with Ordinary Shares of the Company constituting approximately 60% of all of our issued and outstanding share capital immediately following the consummation of the Acquisition.
In addition, you are being asked to approve (i) an increase in our authorized share capital from NIS 100,000,000, divided into 100,000,000 ordinary shares, par value NIS 1.00 per share, by NIS 50,000,000 to NIS 150,000,000 divided into 150,000,000 ordinary shares, par value NIS 1.00 per share, and to amend our Articles of Association accordingly, (ii) subject to the completion of the Acquisition, a change in our name to “HOT – Cable Systems Media Ltd.”, (iii) subject to the completion of the Acquisition, certain amendments to our Articles of Association, pursuant to which (a) the amended Articles of Association will reflect our name change; and (b) we will operate a staggered board, whereby we will create four classes of directors so that only one quarter of the available places for membership will be eligible for election each year, and (iv) subject to the completion of the Acquisition the election of eight individuals to serve as members of our board of directors, each of whom shall be allocated to one of the classes of our directors.
By signing and mailing the enclosed proxy card you also authorize the named proxies to vote on such other business as may properly come before the general meeting, including on any resolution to adjourn a meeting at which a quorum is present to a later time to permit further solicitation of proxies if necessary to obtain additional votes in favor of any of the foregoing proposals.
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Q: Can I vote in favor of the Acquisition Agreement but against some of the other matters on the agenda?
A: You are entitled to vote in favor of the Acquisition Agreement and against some of the other matters on the agenda; however, Proposals 4 and 5 are integral parts of the series of transactions contemplated by the Acquisition Agreement. Under Israeli law, these other matters require separate shareholder approval. However, the consummation of the Acquisition Agreement is conditioned on obtaining shareholder approval for all matters set forth in Proposals 4 and 5. If either of these matters is not approved, the parties will be entitled not to consummate the Acquisition Agreement. For this reason, any shareholder who favors the Acquisition Agreement is strongly urged to vote in favor of the other matters on the agenda.
Q: What are the transactions contemplated in the Acquisition Agreement?
A: In addition to our Company and its subsidiaries, (together, the “Matav Group”), Israel’s cable television operations are carried out directly and indirectly by the following entities: Tevel International Telecommunications Ltd. (“Tevel”), Gvanim Cable Television Ltd. (“Gvanim Cable”), Gvanim Krayot Cable Television Ltd. (“Gvanim Krayot” and together with Tevel and Gvanim Cable, the “Tevel Group”), South Sharon Communications Ltd. (“Sharon”), Isracable Ltd. (“Isracable”), T.L.M Subscriber Television Ltd. (“TLM”), Golden Channels GP (“Golden Channels”), Idan Israel Cable Systems (Holdings) 1987 Ltd. (“Idan Holdings”), Idan Israel Cable Systems Ltd. (“Idan Cable”) and Edom Channels Ltd. (“Edom Channels”, and together with Sharon, Isracable, TLM, Golden Channels, Idan Holdings and Idan Cable, the “Golden Channels Group”). The Matav Group, the Tevel Group and the Golden Channels Group (collectively, the “Group,” or “Cable Operators” ), also established certain partnerships, namely Golden Telecom 2001 LP (“Golden Telecom”), Mafil Pnim Artzi LP, (“MAPA”), Matav Infrastructure 2001 LP (“Matav Infrastructure”) and Hot Telecom LP (“Hot Telecom”) operate the fixed-line telecommunications activities of the Group. Upon the consummation of the Acquisition Agreement we will purchase all of the assets and liabilities of the Tevel Group entities (including all of their subscribers) and all of the shares of the Golden Channels Group entities, including the partners’ rights in Golden Channels GP. The cut-off date for calculating the value of the assets and liabilities being purchased shall be December 31, 2005 (the “Cut-Off Date”), consequently, the Acquisition will be effected retroactively as of January 1, 2006, such that the business operating results of the merged activity commencing as of that date will be assumed by our company. Pursuant to the Acquisition Agreement, certain preparatory actions will be taken by certain of the entities, so as to facilitate the transactions described above. Following the series of transactions contemplated by the Acquisition Agreement, we shall hold, directly or indirectly, either all of the shares, partners’ rights (the shares and partners’ rights shall be referred to collectively in this Proxy Statement, as “Target Shares”) or all of the assets and liabilities (the “Target Assets and Liabilities”) of all of the entities constituting the Group. For further information on the Acquisition, see “The Acquisition–Principal Terms”.
Q: What is the consideration for the Acquisition?
A: The consideration for the Acquisition is based on the aggregate number of television subscribers of the Group as of September 30, 2005 (the “Subscribers”). In consideration for the Target Shares and Target Assets and Liabilities, we will issue an aggregate of approximately 45,600,000 of our ordinary shares and assume, directly or indirectly, the liabilities of each of the entities constituting the Target Group, as of the Cut-Off Date (the “Consideration Debt”), in accordance with their relative proportion of the Subscribers. The Consideration Debt which we will be assuming as of the Cut-Off Date is approximately NIS 3 billion. The Shares will be distributed among the direct and indirect owners of the entities constituting the Group (the “Owners”) in accordance with the relative proportion of Subscribers registered with each applicable entity. For further information on the calculation of the debt and the consideration, see “The Acquisition–Principal Terms”.
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Q: How is the company funding the Acquisition?
A: We will be funding the Acquisition through a credit facility, the terms of which will be based on term sheet which we agreed upon with a number of major Israeli banks, dated May 8, 2006 (the “Term Sheet”). The execution of a definitive agreement for the provision of the credit facility is a condition to the closing of the Acquisition. For more information on the credit facility, see “The Acquisition – The Credit Facility.”
Q: Does the Acquisition differ from the merger previously considered by the Cable Operators?
A: In Item 4A of our 2004 Annual Report and elsewhere in this proxy statement, we describe the considerations of the Cable Operators in connection with their decision in principle to merge into a single entity and the actions taken by the Cable Operators in order to advance that goal. As a result of certain technical and legal issues, the Cable Operators decided that the Acquisition was the best method for achieving the purposes contemplated originally in connection with the merger. The reasons previously considered for carrying out a merger are identical to the reasons underlying the contemplated Acquisition and the regulatory approvals already sought by the Group and in some cases received for the merger are also applicable to the Acquisition. The result of the Acquisition will be the combining of all of the operations, assets and liabilities of the Cable Operators within our company, which will achieve the same objectives as those contemplated originally in connection with the merger.
Q: What is the recommendation of our audit committee and board of directors?
A: Our audit committee and board of directors has determined that the Acquisition Agreement and all of the transactions contemplated thereby and the other matters that you are being asked to vote on are advisable, fair to and in the best interests of our company and our shareholders. Our audit committee and board of directors recommends that shareholders vote “FOR” approval of the Acquisition Agreement and all of the transactions contemplated thereby and the other matters that you are being asked to vote on. For further information regarding the factors considered by our audit committee and board of directors, see“The Acquisition –Factors Considered by our Audit Committee and Board of Directors.”
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Q: What factors did our audit committee and board of directors consider in making its recommendation?
A: Our audit committee and board of directors, at their meetings on April 30, 2006 respectively received a presentation and report from Trigger Foresight Ltd. (“TF”) one of Israel’s leading financial consultants to the telecommunications and media industry, in which it calculated the anticipated market value of the Group following the completion of the Acquisition. For more information on the factors considered and methods used by TF, see “The Acquisition – Report by Trigger Foresight Ltd.” In making its recommendation, our audit committee and board of directors examined the factors raised in the presentation and report provided by TF and also took into account the fact that in 1999 we began discussing with Israel’s other multi-channel cable television operators, the need for a merger. In light of changes relating to the provision of multi-channel television and fixed-line telecommunication services in Israel, the owners and the management of each of the Cable Operators determined that a transaction of this type would best facilitate the ability of the Cable Operators to provide a superior service to their customers thereby enabling them to compete effectively in these markets. To that end, in 2001 the members of the Group began acting in order to merge their activities, and in April 2002 we commenced cooperation with the other cable television operators. In April 2003 we and the other cable television operators agreed on a final version of an agreement, which set forth the structure and conditions of a legal merger. However, until recently, restrictions ordered by the Bank of Israel, curtailed the activities of certain of the Owners, and as a result of these restrictions the Group was unable to complete the legal merger. As a result of these restrictions, in June 2004, we performed an operational merger with the other Israeli cable television operators in order to create a joint management for the operation of marketing, sales, engineering customer service, operations and activities of the Cable Operators. Recently, as a result of the change in structure for carrying out the merger and a reduction of the levels of debt to Israeli banks of certain of the Owners, we are now able to complete the merger through the consummation of the Acquisition. Consequently, our audit committee and board of directors believe that the Acquisition would complete the process of merging Israel’s multi-channel television Cable Operators. Our audit committee and board of directors believe that by combining all of the activities, assets and liabilities of the Group within a single unified entity, we will be able to operate in a more efficient manner and as a result of the consolidation of the sources of revenue, assets and infrastructure of the whole Group, we will find it easier to operate the combined business of the Group and the new structure should facilitate our ability to raise funds, through equity or debt financing, on beneficial terms, as well as currently enabling us to receive a credit facility on preferential terms which should enable us to achieve the objectives of our long-term business plan. Our audit committee and board determined that further to the operational merger, the proposed transaction will also expand our ability to provide additional telecommunications services, and to compete successfully with our major competitors in the fields of domestic fixed line telecommunication and multi-channel television services. It was determined that the proposed transaction will also enable us to better operate in various areas including the purchase of content, marketing, sales, facilitate the operation of unified networks and effect substantial cost savings. Our audit committee and board of directors also took into account the fact that the proposed transaction requires the satisfaction of certain conditions. Our audit committee and board of directors were also aware of the personal interests of certain directors and major shareholders in the proposed transaction, as described below. For further information regarding the factors considered by our audit committee and board of directors, see“The Acquisition –Factors Considered by our Audit Committee and Board of Directors” -. For further information regarding the background to the Acquisition, see “The Acquisition – Background.”
Q: What if any or all of the conditions to the Acquisition are not satisfied?
A: If any or all of the conditions to which the Acquisition is subject are not satisfied or waived, the Acquisition will not be completed and we intend to continue to carry on our business as presently conducted, although we would have limited financial resources to do so. For additional information regarding the conditions for consummating the Acquisition, see “The Acquisition – Principal Conditions to Closing.”
Q: When will the Acquisition be consummated?
A: We are working to consummate the Acquisition as quickly as possible. In addition to the approval of our shareholders, the Acquisition requires to obtain the approval of (i) certain regulatory authorities, (ii) the Tel-Aviv District Court (the “Court”) in connection with the Tevel Group recovery program, (iii) the Court in connection with the Tevel Group’s plan of arrangement under which the Acquisition is being made, and (iv) the creditors of certain members of the Target Group. Additionally, prior to the consummation of the Acquisition the entities constituting the Target Group will need to obtain the approval of their banks and we will need to enter into a long term financing agreement with our banks. If our shareholders approve the proposed Acquisition, we expect to consummate the Acquisition Agreement as soon as practicable after such approval. For additional information regarding the conditions for consummating the Acquisition, see“The Acquisition- Principal Conditions to Closing.”
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Q: What vote is required to approve the Acquisition Agreement and the other matters submitted to shareholders' approval?
A: All of the Proposals to be presented at the meeting, require the affirmative vote of shareholders present in person or by proxy and holding our Ordinary Shares or ADSs representing our Ordinary Shares amounting in the aggregate a majority of the votes actually cast with respect to each such proposal. Since certain of our shareholders have an interest in the Acquisition, approval of the Acquisition Agreement is deemed by the Law to be a transaction that involves a “personal interest” of our largest shareholder, and is therefore subject to additional approval procedures required under Israeli law for such transactions. Accordingly, the proposed transaction will also be subject to the approval of at least one-third of all of the votes cast by the Record Holders who are represented in person or by proxy at the Meeting and do not have a “personal interest” in the Acquisition; alternatively, the votes cast against the Acquisition Agreement must not exceed 1% of our outstanding shares. As of the close of business on May 22, 2006, we had 30,224,818 Ordinary Shares or ADSs representing our Ordinary Shares issued and outstanding.
Q: What should I do now?
A: You should carefully read this Proxy Statement. In addition, please take the time to vote your shares by completing, signing and promptly mailing the enclosed proxy card to us in the enclosed, postage-paid envelope.
Q: What happens if I do not deliver my proxy or if I abstain from voting?
A: The failure to return your proxy card, to vote your Ordinary Shares, using the procedures set forth on the proxy form supplied by your broker, bank or other nominee (if your shares are held through a broker, bank or other nominee) by 24 hours prior to the Meeting (or in the event that you are Record Holder resident in Israel using the Hebrew proxy card, by no later than 72 hours prior to the Meeting) or to vote at the Meeting will mean that your shares will not be voted nor will they be counted in calculating whether a quorum is present at the Meeting. However, if you are a holder of our ADSs and you fail to return your proxy card by 5:00 PM (EST) on June 20, 2006 or to vote at the Meeting, the Depositary shall vote your ADS in proportion to the votes cast by the holders of all of our Ordinary Shares, including the holders of our ADS. If you or your broker return your properly executed proxy without indicating a vote with respect to any of the matters submitted to the vote of shareholder at the Meeting, the Ordinary Shares represented by such proxy shall be counted in determining whether a quorum is present at the Meeting and shall be voted FOR all matters being submitted to the vote of the shareholders at the Meeting as to which a vote is not indicated on the proxy and if you are the holder of ADSs, the absence of a vote with respect to a particular resolution will be voted in proportion to the votes cast by the holders of all of our Ordinary Shares, including the holders of our ADS. Our ordinary shares Ordinary Shares or ADSs representing our Ordinary Shares that are represented in person or by proxy at the Meeting and that are voted “ABSTAIN” will be counted for purposes of determining the presence of a quorum but will not be included in the aggregate number of shares voted at the Meeting.
Q: May I change my vote after I have mailed my signed proxy card?
A: Yes. You may change your vote at any time up to 24 hours before the Meeting (or 72 hours if you are an Record Holder resident in Israel using the Hebrew proxy card, or by 5:00 PM (EST) on June 20, 2006 if you are the holder of our ADSs) by (1) submitting a completed and signed proxy bearing a later date with respect to the same shares, (2) delivering a written revocation to the chairman of the our board of directors or (3) attending the general meeting in person and voting your shares at the Meeting. Attendance at the Meeting will not in and of itself constitute a revocation of a proxy. If you have instructed a broker to vote your shares, you must follow your broker’s directions to change those instructions.
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Q: If my shares are held in "street name" by my broker, will my broker vote my shares for me?
A: Your broker will vote your shares only if you provide instructions on how to vote. You may instruct your broker to vote your shares by following the instructions provided by your broker.
Q: May I vote in person?
A: Yes. You may attend the Meeting and vote your shares in person, rather than completing, signing and promptly mailing the proxy card. If you wish to vote in person and your shares are held by a broker, bank or other nominee, you need to obtain a proxy from the broker, bank or other nominee authorizing you to vote your shares held in the broker’s, bank’s or other nominee’s name.
Q: What happens if I sell my ordinary shares before the general meeting?
A: The record date for the general meeting is earlier than the date the Acquisition Agreement is expected to be consummated. If you transfer your Ordinary Shares or ADSs after the record date but before the Meeting, you will retain your right to vote at the Meeting.
Q: How will I know whether the Acquisition has occurred?
A: If the Acquisition occurs, we will promptly make a public announcement of this fact.
Q: What should I do if I receive more than one set of voting materials?
A: You may receive more than one set of voting materials, including multiple copies of this Proxy Statement and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please take the time to ensure that you vote all of your shares properly by completing, signing and promptly mailing each proxy card to us in the provided postage-paid envelopes.
Q: Will the consummation of the Acquisition have any tax consequences for shareholders?
A: The consummation of the Acquisition is not expected to have any tax consequences for our shareholders under Israeli, U.S. or any other law. However, you are encouraged to consult your tax advisors with respect to the Acquisition and whether the consummation thereof may have any consequences to you. For further information on the potential tax consequences, see – “Risk Factors.”
Q: Am I entitled to appraisal rights?
A: No. Under Israeli law, our shareholders are not entitled to appraisal rights in connection with the Acquisition Agreement.
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Q: Whom should I call with questions or to obtain additional copies of this Proxy Statement?
A: You should call Ori Gur-Arieh, our General Counsel, at +972-777-077 031
BENEFICIAL OWNERSHIP OF SECURITIES
BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of April 30, 2006, concerning (i) the only persons or entities known to the Company to own beneficially more than 5% of the Company’s outstanding ordinary shares, and (ii) the number of ordinary shares beneficially owned by all directors and officers as a group:
| Names | Number of Shares | Percent | ||||||
|---|---|---|---|---|---|---|---|---|
| Delek Investments and Properties Ltd.(1) | 12,088,618 | 40 | % | |||||
| All directors and officers as a group (4 persons) (2) | 2,751,977 | 9.1 | % | |||||
(1) Delek is a wholly-owned subsidiary of Delek Group Ltd., a public company whose shares are traded on the Tel Aviv Stock Exchange. As of May 2006, Delek Group Ltd. is controlled by Mr. Yitzhak Sharon (“Tshuva”). According to information which we have received from Delek, Mr. Tshuva holds indirectly approximately 62.25% of the shares of Delek Group Ltd.
(2) Includes shares held directly or indirectly by certain of our directors and officers.
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MARKET PRICE DATA
Our share capital consists of ordinary shares, which have been listed for trading on the Tel Aviv Stock Exchange since October 1993 and ADSs, which have been listed for quotation on the Nasdaq National Market since June 12, 1996, under the symbol “MATV”. Each ADS represents two ordinary shares.
The tables below set forth, for the periods indicated, the high and low closing market prices for our ordinary shares and ADSs, as reported by the Tel Aviv Stock Exchange and the Nasdaq National Market, respectively.
| Nasdaq ($ per ADS) | Nasdaq (NIS per ADS) | Tel Aviv Stock Exchange ($ per ordinary share) | Tel Aviv Stock Exchange (NIS per ordinary share) | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| High | Low | High | Low | High | Low | High | Low | |||||||||||||||||||
| Most recent five full financial years | ||||||||||||||||||||||||||
| 2001 | 34.25 | 9.74 | 140.70 | 38.45 | 17.02 | 5.22 | 69.90 | 22.75 | ||||||||||||||||||
| 2002 | 18.58 | 8.34 | 83.11 | 42.19 | 9.20 | 4.27 | 40.82 | 20.58 | ||||||||||||||||||
| 2003 | 16.59 | 9.91 | 74.26 | 48.43 | 8.13 | 4.96 | 36.31 | 24.22 | ||||||||||||||||||
| 2004 | 20.39 | 15.0 | 92.88 | 66.08 | 10.21 | 7.07 | 46.16 | 31.55 | ||||||||||||||||||
| 2005 | 18.45 | 13.84 | 80.46 | 64.52 | 9.36 | 6.76 | 40.82 | 30.87 | ||||||||||||||||||
| 2004 | ||||||||||||||||||||||||||
| First Quarter | 20.25 | 15.0 | 90.78 | 66.08 | 10.0 | 7.68 | 44.98 | 33.82 | ||||||||||||||||||
| Second Quarter | 20.39 | 17.0 | 92.88 | 78.17 | 10.21 | 9.02 | 46.16 | 40.47 | ||||||||||||||||||
| Third Quarter | 19.39 | 15.01 | 87.02 | 67.64 | 9.63 | 7.59 | 43.21 | 34.45 | ||||||||||||||||||
| Fourth Quarter | 16.79 | 14.1 | 74.43 | 62.46 | 8.59 | 7.07 | 37.90 | 31.55 | ||||||||||||||||||
| Most recent six months | ||||||||||||||||||||||||||
| 2005 | ||||||||||||||||||||||||||
| November | 14.88 | 14.00 | 69.94 | 66.23 | 7.69 | 6.77 | 36.08 | 32.09 | ||||||||||||||||||
| December | 15.25 | 13.84 | 70.19 | 64.52 | 7.67 | 7.17 | 35.27 | 33.41 | ||||||||||||||||||
| 2006 | ||||||||||||||||||||||||||
| January | 15.92 | 13.61 | 72.86 | 63.39 | 7.92 | 7.00 | 36.28 | 32.64 | ||||||||||||||||||
| February | 14.66 | 11.85 | 68.99 | 55.6 | 7.35 | 6.57 | 34.65 | 30.97 | ||||||||||||||||||
| March | 15.00 | 13.63 | 70.75 | 64.1 | 7.75 | 7.17 | 36.39 | 33.52 | ||||||||||||||||||
| April | 14.7 | 14.54 | 67.79 | 67.91 | 7.67 | 7.37 | 35.31 | 33.51 | ||||||||||||||||||
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The closing per share sale price of (i) our ADSs, as reported on the Nasdaq National Market on April 28, 2006 the last full trading day before the public announcement of the Acquisition Agreement was $14.62; and (ii) our ordinary shares as reported on the Tel Aviv Stock Exchange, on April 27, 2006, the last full trading day in Israel before the public announcement of the Acquisition Agreement, and NIS 33.58.
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THE ACQUISITION
Following is a summary of the material provisions of the Acquisition Agreement.
Background
In the early 1990‘s, multi-channel television services were provided by a number of Israeli companies which operated under exclusive geographically based franchises granted by the Ministry of Communications. During the mid-1990‘s the individual companies began a process of mergers and acquisitions, with the result being the emergence of three groups of companies, each of which had common organization and ownership. In the early years of the current decade, the multi-channel television market and telecommunications markets were opened to competition leading to the emergence of the first satellite television license for the provision of national multi-channel satellite television services, as well as the provision for the first time of fixed-line telecommunications activities services by the Cable Operators. In this new environment, it became a commercial imperative for the Cable Operators to merge their operations in order to compete with YES, the satellite television operator in the multi-channel television market and with Bezeq in the fixed-line telecommunications activities market. As a result, in 1999 we began discussing with Israel’s other multi-channel cable television operators, the need for a merger. In 2001 the members of the Group began acting in order to merge their activities, and in April 2002 we commenced cooperation with the other cable television operators. In April 2003 we and the other cable television operators agreed on a final version of an agreement, which set forth the structure and conditions of a legal merger. However, until recently, restrictions ordered by the Bank of Israel, curtailed the activities of certain of the Owners, and as a result of these restrictions the Group was unable to complete the legal merger. As a result of these restrictions, in June 2004, we performed an operational merger with the other Israeli cable television operators in order to create a joint management for the operation of marketing, sales, engineering customer service, operations and activities of the Cable Operators. Recently as a result of the change in structure for carrying out the merger and a reduction of the levels of debt to Israeli banks of certain of the Owners, we are now able to complete the Acquisition, which is the final stage of this consolidation process and will facilitate the more efficient operating of the Group’s multi-channel television and telecommunications services. For more information on the operational merger, see Item 4B of our 2004 Annual Report.
Principal Terms
Pursuant to the Acquisition Agreement we will purchase, directly or indirectly: (i) all of the assets and liabilities of the entities constituting the Tevel Group (ii) all of the issued and outstanding Target Shares as of the date of the consummation of the Acquisition, of (a) each of the Target Shares of the entities constituting the Golden Channels Group, with the exception that, prior to the completion of the acquisition of the partners’ rights in Golden Channels, we will purchase directly all of the assets and part of the debt as of the Cut-Off Date of Golden Channels.
In consideration for the shares or assets and liabilities of each of the other entities of the Group, we will be assuming the Consideration Debt in an amount of approximately NIS 3 billion, and will be distributing approximately 45,600,000 of our ordinary shares.
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Following the consummation of the Acquisition Agreement, our ordinary shares will be held by the direct or indirect owners of the Group (including our shareholders), in direct proportion to the number of Subscribers of each of the members of the Group. The basis for this distribution is the assumption that the value of each entity of the Group is reflected by the number of Subscribers of the Group as of September 30, 2005, when ascribing to each Subscriber a fixed level of financial debt. This fixed level of debt was fixed at NIS 4,037.5 per Subscriber. Given that our current level of financial debt per each of our Subscribers is lower than NIS 4,037.5, we agreed as part of the Acquisition Agreement to purchase from the Tevel Group, immediately prior to the consummation of the Acquisition, approximately 124,300 of its Subscribers, in consideration for NIS 6,277.5 for each of these Subscribers. We will finance this purchase through bank credit which will result in our average debt per subscriber, as of the Cut- Off Date, being NIS 4,037.5. As result of this purchase the proportionate share of our existing shareholders’ in our company following the consummation of the Acquisition will be greater than our current proportion of Subscribers.
Immediately prior to the consummation of the Acquisition, the entities constituting the Target Group will conclude arrangements with their banks and owners such that the liabilities of each of the entities as of the Cut-Off Date will equal NIS 4,037.5 multiplied by the number of Subscribers of each entity.
For the purposes of calculating the level of our financial debt, it was agreed that the net value of our holdings in Partner Communications Co. Ltd. and Barak I.T.C. (1995) – The International Telecommunications Services Corp. Ltd., would be taken into account. As a result the calculated level of our financial debt arising out of our cable television and fixed-line telecommunications activities was decreased.
The amount of Consideration Debt and the number of the Shares we will be issuing to each of the other entities or the direct or indirect owners of each of the other entities of the Group, is described in Tables 1 and 2 below:
Table 1
| Name1 | Type of Purchase2 | No. of Subscribers (As of 9.30.05) | Total Liabilities Assumed in NIS (As of 12.31.05) | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Tevel | A | 104,229 | 420,824,587 | .5 | |||||||
| Gvanim Cable | A | 39,841 | 160,858,037 | .5 | |||||||
| Gvanim Krayot | A | 31,284 | 126,309,150 | ||||||||
| Sharon | S | - | |||||||||
| Isracable | S | - | |||||||||
| TLM | S | 97,464 | 393,510,900 | ||||||||
| Golden Channels | A/S3 | 178,128 | 4 | 719,191,800 | |||||||
| Idan Cable | S | 98,342 | 397,055,825 | ||||||||
| Idan Holdings | S | - | |||||||||
| Edom Channels | S | 5 - | |||||||||
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The Consideration Debt acquired from each entity in the table may change if a due diligence review conducted by an unaffiliated third party, determines that the number of Subscribers or the Consideration Debt as described in the Acquisition Agreement are not accurate. For more information on the due diligence review, see “The Acquisition – Principal Conditions to Closing- Due Diligence.”
1Entity includes all of its shareholders/partners. See table below for distribution of our ordinary shares among the shareholders/partners of each of the entities.
2A = purchase of assets and liabilities; S = share purchase or partner’s rights.
3Includes assets and liabilities purchased immediately prior to the consummation of the Acquisition and purchase of all partners’ rights in Golden Channel upon completion of the Acquisition.
4Includes Subscribers of Edom.
5Included in the number of Subscribers of Golden Channels.
Our largest shareholders of the Company following the closing of the Acquisition will be the Fishman Group, Yedioth Communications Ltd., Delek Investments and Properties Ltd., and Bank Leumi Le'Israel Ltd.
The table below sets out the number of our ordinary shares to be held by our public shareholders and each of the Owners and the Banks, immediately following the Acquisition. The numbers in the table above represent the number of shares which would be held by each of the Owners, if each owner received our ordinary shares pursuant to its current shareholding or partnership share in the applicable entity. The table does not take into account any actions that certain of the Owners will take in order to ensure that the Fishman Group or Yedioth will be our largest shareholder immediately following the completion of the Acquisition.
| Name | No. of shares beneficially held post Acquisition*1 | Percentage of shares beneficially held post Acquisition | ||||||
|---|---|---|---|---|---|---|---|---|
| Fishman Group | 11,057,297 | 14.587 | % | |||||
| Yedioth Communications Ltd. | 12,656,177 | 16.696 | % | |||||
| Delek Investments and Properties Ltd. | 12,088,618 | 15.947 | % | |||||
| Hed Hakrayot Ltd. | 287,873 | 0.380 | % | |||||
| Bank Leumi Le'Israel Ltd. | 11,629,217 | 15.341 | % | |||||
| Bank Hapoalim Ltd. | 4,004,010 | 5.282 | % | |||||
| First International Bank of Israel Ltd. | 3,844,062 | 5.071 | % | |||||
| Discount Bank of Israel Ltd. | 2,101,310 | 2.772 | % | |||||
| Public | 18,136,200 | 23.924 | % | |||||
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*The number of shares in the table may change if a due diligence review conducted by an unaffiliated third party, determines that the number of Subscribers or the Consideration Debt as described in the Acquisition Agreement are not accurate. For more information on the due diligence review, see “The Acquisition–Principal Conditions to Closing- Due Diligence.”
1A person is deemed to be a beneficial owner of securities that can be acquired by such person within 60 days from the filing of this report upon the exercise of options and warrants or conversion of convertible securities. Each beneficial owner’s percentage ownership is determined by assuming that options, warrants and convertible securities that are held by such person (but not held by any other person) and that are exercisable or convertible within 60 days from the filing of this report have been exercised or converted. Except as otherwise indicated, and subject to applicable community property and similar laws, each of the persons named has sole voting and investment power with respect to the shares shown as beneficially owned. All percentages are determined based on 75,804,764 shares issued and out standing immediately following the completion of the Acquisition.
Pursuant to the Acquisition, we will be purchasing, whether directly or indirectly the contingent liabilities related to the broadband cable television and fixed-line communication business of the Target Group (the “Business”), which also includes any current or future claims made against any of the entities constituting the Target Group in connection with the Business (collectively, the “Contingent Liabilities”). In order to take the Contingent Liabilities into account in calculating the Consideration Debt, the entities constituting the Target Group made certain reserves in their accounting books. If, following a due diligence review currently being conducted, it is determined that the reserves do not accurately reflect the level of the Contingent Liabilities, the appropriate adjustments will be made to the Consideration Debt. For more information on the due diligence review, see“Closing Conditions – Due Diligence.”
Additionally, if, in the future we are required to pay on account of the Contingent Liabilities sums in excess of the reserves that we have currently made, this may materially adversely affect our financial results. Such a scenario is not currently reflected in our pro forma condensed consolidated financial statements included with this Proxy Statement asAnnex C.
Diagrams 1 and 2 below describe the structure of the Group prior to and immediately following the Acquisition:
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Diagram 1 – Structure of Group Immediately Prior to Acquisition
* This Diagram does not include holdings in certain inactive corporations. The described holdings are effective holdings only.
** The general partner is Matav Infrastructure Ltd., wholly owned by Matav.
*** 17% of Monitin's holdings in Isracable are held in trust for it.
22
Diagram 2 – Structure of Group Immediately Following Acquisition
| *Includes | Maariv Hotza'at Modiin Ltd., Gibstein Group, Shimon Hefetz Group. |
23
Principal Conditions to Closing
The completion of the Acquisition is subject to the occurrence or fulfillment of certain conditions, which, if applicable, the parties to the Acquisition Agreement may waive. In the event that (a) any of the closing conditions are not fulfilled and the parties to the Acquisition Agreement (to the extent that the condition did not apply to them) elect not to waive the condition; (b) any of the conditions which are applicable by Israeli law are not fulfilled; or (c) any of the parties to the Acquisition Agreement terminate it in accordance with its terms, then the Acquisition Agreement shall be terminated and considered voidab initio.
Regulatory Approvals
The Group conducts its operations pursuant to licenses granted by the Council and the Ministry of Communications. In order to complete the Acquisition certain approvals must be received from the Council and the Ministry of Communications.
We may need to receive the approval of the Controller for the changes in shareholdings of our company resulting from the consummation of the Acquisition.
Third party approvals
The Acquisition is also subject to the prior approval of (a) the relevant corporate bodies of the entities of the Group; (b) the Court supervising the Tevel Group recovery program (; (c) the Court approval of the Tevel creditors’ arrangement; (d) the creditors of certain members of the Group; and (e) trustee of our debenture holders.
Additional closing conditions
The Acquisition is also subject to the fulfillment of certain closing conditions, including (i) the absence of litigation in connection with any of the members of the Group, which would materially affect the value of the Acquisition; and (ii) execution of the Credit Facility, based upon the terms of the Term Sheet.
Additionally, the Acquisition is subject to the completion of the Target Group of the restructuring of their financial liabilities such that the financial liabilities of each of the entities as of the Cut-Off Date will equal NIS 4,037.5 multiplied by the number of Subscribers of each of the entities as of September 30, 2005.
Due Diligence
The Group has agreed to an unaffiliated third party (the “Auditor”) conducting a due diligence review of the entities constituting the Group prior to the completion of the Acquisition in order to ascertain whether (i) the number of Subscribers, and (ii) the Consideration Debt, as set forth in the Acquisition Agreement, is accurate. In the event of a discrepancy between the Acquisition Agreement and the Auditor’s review, the parties shall take the necessary measures so that the debt to be acquired by our company pursuant to the Acquisition will be equal to the Consideration Debt, or the number of our ordinary shares to be issued to each of the Owners in connection with the Acquisition Agreement shall be adjusted so that their holding will reflect the applicable proportion of the total number of Subscribers of the Group, as of September 30, 2005. In the event that the Auditor or any of the Owners, on the basis of the Auditor’s report, determines that the Acquisition Agreement requires amendment by up to NIS 5 million of Consideration Debt with respect to any member of the Group, the Owners have agreed to amend the Acquisition Agreement accordingly. In the event that the amendment required is greater than NIS 5 million of Consideration Debt, the Owner which is adversely affected by the determination may refer it to an agreed upon third party, which will decide within fourteen days what amendment to the Acquisition Agreement is necessary for the purposes of carrying out the appropriate adjustment. Following the completion of the Acquisition, the Auditor will also carry out a due diligence review of the liabilities which the entities constituting the Group incurred between the Cut-Off Date and the closing of the Acquisition.
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Largest Shareholder Following Completion of the Acquisition
The completion of the Acquisition is also subject to the completion of any actions by some of the Owners, which may be necessary to ensure that the Fishman Group will be our largest shareholder immediately following the closing of the transaction (Yedioth may elect with the consent of the Fishman Group to become our largest shareholder in place of the Fishman Group).
Right of First Refusal Agreement
The direct and indirect owners of the Target Group, our largest shareholder Delek and the Target Banks (the “Parties”), have entered into an agreement (the “ROFR Agreement”) pursuant to which, in the event that the Acquisition is completed, for a period of five years each of the Parties will have a right of first refusal with respect to certain sales of our ordinary shares by any of the other Parties. Pursuant to the ROFR Agreement, for a period of five years, , any offers to sell our ordinary shares by the Parties to any third party with the exception of certain sales (the “Tendered Shares”) will require the selling Party to offer the Tendered Shares to each of the other Parties, who will have a right to purchase a portion of the Tendered Shares, in proportion to the number of our ordinary shares each Party holds as of the date of the completion of the Acquisition (the “Right of First Refusal”). The ROFR Agreement provides that each of the Parties will be entitled to sell on the public market, up to 10% of our ordinary shares held by them as of the date of the completion of the Acquisition, each year for five years following the completion of the Acquisition, without triggering the Right of First Refusal. In the event that not all of the Tendered Shares are purchased by the other Parties, any Parties wishing to purchase more than their pro rata portion of the Tendered Shares will be entitled to purchase additional Tendered Shares.
Termination of the Acquisition Agreement
The parties to the Acquisition Agreement (the “Merging Parties”) have agreed that any Merging Party may elect to terminate the Acquisition Agreement in the event of the occurrence of certain events, including: (i) a determination prior to completion of the Acquisition, that, as a result of the completion of the Acquisition, any of the Merging Parties, or parties to the Right of First Refusal Agreement (or any of their controlling shareholders) will be deemed to be, whether alone or with any other parties, a “Sole Borrower” or “Group of Borrowers” as defined in Israel’s Rules on Proper Banking Procedures, thereby causing any of the Banks to (a) deviate from the Bank of Israel directive concerning restrictions on certain borrowing activities, (b) breach the Israeli Banking Law (Licensing) 1981, or (c) deviate from any other Bank of Israel procedures (collectively, “Deviation from the Borrowing Laws”), and the Merging Parties cannot agree, prior to the completion of the Acquisition, on an amendment to the Acquisition Agreement which would avoid such a Deviation from the Borrowing Laws; (ii) a determination prior to completion of the Acquisition, that, as a result of the completion of the Acquisition, any of the Merging Parties, or any of their controlling shareholders, with the exception of any of the entities constituting the Fishman Group or Yedioth (in the event that Yedioth elects with the agreement of the Fishman Group, to become our largest shareholder following the completion of the Acquisition), will be defined, whether alone or with any other parties, a “Sole Borrower” or “Group of Borrowers” in such a way as not to cause Deviation from the Borrowing Laws, and the Merging Parties cannot agree prior to the completion of the Acquisition, on an amendment to the Acquisition Agreement which would prevent such a definition from being applied; (iii) the initiation of bankruptcy proceedings against any of the Merging Parties or Edan or TLM, which have not been dismissed or withdrawn within 60-days from the commencement of such proceedings ; (iv) a decision by a court or by a governmental body which would prevent the completion of the Acquisition and which is not withdrawn within the earlier of 60-days of such a decision being taken, or by August 15, 2006 or such other later date as agreed by the Merging Parties (the “Final Completion Date”); or (v) failure to meet all of the closing conditions which have not been waived, where applicable, by the Merging Parties. In all events, should the Acquisition not be completed by the Final Completion Date, the Merging Parties may elect to terminate the Acquisition Agreement (provided that a Merging Party requesting the termination is not the party responsible for the delay in completing the Acquisition).
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Post-Closing Covenants
In order to comply with Israeli regulatory requirements which apply to our company, all of the infrastructure of the Group must be transferred following the Acquisition to HOT Telecom. Accordingly, following the consummation of the Acquisition, pursuant to a series of transactions, HOT Telecom will purchase from various entities of the Group such entities’ cable television infrastructure, including the set-top boxes. In addition Hot Telecom will purchase all of the domestic private Internet subscribers of Golden Telecom, MAPA and Matav infrastructure. Following the purchase, Hot Telecom shall own all the infrastructures of the Group and all the assets and liabilities related to the fixed-line telecommunications services. In addition, each of Golden Telecom, MAPA and Matav will be liquidated. Pursuant to its license HOT Telecom undertook to the Israeli regulatory authorities to finalize its purchase by June 30, 2006 (the “Deadline”). Should the completion of the Acquisition not occur prior to such date, HOT Telecom will apply to the Israeli regulatory authorities for an extension of the Deadline. For more information on the application of Israeli regulatory requirements to our company see Item 4B of the 2004 Annual Report.
The Credit Facility
In May 2006 we agreed to a Term Sheet with the Banks (the “Term Sheet”) in connection with the financing of the Acquisition and the future funding requirements of the unified entity (the “Credit Facility”). The Term Sheet contains the principal financial terms of the Credit Facility and provides that the parties will enter into a definitive agreement (the “Definitive Agreement”) which will contain all of the final provisions of the Credit Facility, prior and as a condition to the consummation of the Acquisition. Described below are the principal terms of the Credit Facility, as set forth in the Term Sheet.
Our debt towards the Banks (prior to the consummation of the Acquisition) as of December 31, 2005 was approximately NIS 587 million. The aggregate debt of the Group (including our debt) toward the Banks and certain additional banks which currently provide banking services to certain members of the Target Group (the “Additional Banks”) is approximately NIS 3 billion, as of December 31, 2005.
The Sub-Facilities
Pursuant to the Term Sheet, the Credit Facility is divided into sub-facilities for funding existing and future debt of the Group as follows:
| — | Facility A: NIS 2.42 billion for the funding of existing debt ("Facility A") |
| — | Facility B: NIS 600 million for the funding of existing debt ("Facility B") |
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| — | Facility C: NIS 370 million – for the funding of existing debt which will be classified as revolving credit facility for the funding of working capital, documentary credit and bank guarantees (“Facility C”) |
| — | Facility D: up to NIS 640 million for the funding of investments in telecommunications and other ordinary-course investments (“Facility D”) |
| — | Facility E: up to NIS 100 million for the funding of future contingent liabilities ("Facility E") |
Facility A
The debt repayable under Facility A will be repaid quarterly over eight years from July 1, 2010. No repayments on account of the principal amount will be due for the first four years. The repayments from the fifth year onwards will equal to an agreed percentage of the debt funded by this facility, which will change from year to year.
Facility B
Facility B will be repaid out of the proceeds of a future offering to the public or to private investors, of securities of our company, but in no event later than June 30 2009. In the event that the debt funded under Facility B is not repaid by June 30, 2009 the debt will be repaid according to a repayment schedule to be agreed between us the Banks and the Additional Banks.
Facility C
There are no restrictions regarding the timing of or the amounts that may be drawn down under Facility C, up to the maximum amount. The facility will provide credit on a revolving basis over 12 years from July 1, 2006.
Facility D
Draw-downs under this facility can be made before December 31, 2008 and will be conditional upon us achieving certain milestones which will be determined in an agreed business plan (the “Business Plan”) and provided a “Event of Default” (as this term will be defined in the Definitive Agreement) will not have occurred. We will also be required to provide reports to the Banks regarding our use of the funds which we have drawn-down. The facility will be repaid quarterly over six years, from July 1, 2009. No repayments on account of the principal amount will be due for the first three years. The repayments from the fourth year onwards will equal an agreed percentage which will change from year to year.
Facility E
Draw-downs under this facility can be made before December 31, 2009 and will be conditional upon there not having occurred an “Event of Default” (as this term will be defined in the Definitive Agreement). The facility will be repaid quarterly over five years from the third anniversary of the draw-downs under this facility. No repayments on account of the principal amount will be due for the first three years.
Interest
Interest will be payable to the Banks and the Additional Banks as agreed upon between the parties
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Commissions
Annual commission charges will be charged on certain of the sub-facilities.
Certain annual commissions will be paid to the facility agent and the securities’ trustee, in an amount to be agreed in the Definitive Agreement.
Definitive Agreement
The Definitive Agreement will contain certain covenants relating (among other) to the following
| — | the permitted maximum ratio between the debt under the Credit Facility and our EBIDTA |
| — | service of the debt under the Credit Facility |
| — | level of shareholder equity |
| — | future fund raising |
| — | the type of securities that will have to be made available to the Banks for the Credit Facility |
| — | acceleration of repayments |
The Banks have agreed to provide the Credit Facility; provided that we will have arrangements with the Additional Banks regarding their participation in Facilities A, B and C and on terms that will be accepted by the Banks.
Under the Definitive Agreement, we will also agree to register a charge in favor of the Banks and the Additional Banks over all of the assets purchased pursuant to the Acquisition Agreement.
Effective Time of the Acquisition
The Acquisition will be consummated on the third business day following the date on which all conditions to consummation of the Acquisition are met or waived in accordance with the terms of the Acquisition, including approval by the our shareholders and receipt of all regulatory approvals for the Acquisition, all as set forth in the Acquisition Agreement.
The parties are working to complete the Acquisition as quickly as possible. However, the Acquisition is subject to various closing conditions. No assurances can be given that the parties will obtain the necessary approvals or that such approvals will be obtained in a timely manner.
No Expected Tax Consequences to our Shareholders
The Acquistion is not expected to have any tax consequences to our shareholders under Israeli, US or any other law. However, there is a possibility that you may suffer adverse tax consequences as a result of the change in ownership in our company and consequently you are encouraged to consult your tax advisors with respect to the Acquistion and whether the consummation thereof may have any consequences to you.
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Tax Consequences to our Company
The Acquisition is of assets and liabilities in accordance with Israeli tax law without reliance on any exemptions or special dispensations. The tax liability to the extent that it applies, will apply to the entities selling their assets to us in connection with the Acquisition. The size and extent of the amortization of the assets being purchased for tax purposes will be determined after the completion of a review that we are currently conducting for the purposes of determining their fair value and a evaluation of the period of the applicable amortization of these assets. With respect to the second stage of the Acquisition as described in “The Acquisition – Post Closing Covenants”, according to which Hot Telcom will acquire the infrastructure and final-end equipment from the other entities in the Group following the Acquisition, in accordance with the regulatory requirements, this Acquisition will be executed without reliance on any exemptions or special dispensations, while taking advantage of the costs of the acquired assets and transferred tax losses. From initial analyses, neither we nor the other members of the Target Group which are selling assets to HOT Telecom expect to incur any substantial tax obligations.
Registration of the Shares
We have not undertaken to register the Shares that we are issuing pursuant to the Acquisition Agreement. Consequently, and in the absence of any future registration of the Shares, resales in the United States by the entities receiving the Shares pursuant to the Acquisition will be subject to certain restrictions as to the time and volume of sales pursuant to United States Federal and state securities laws. The length and extent of these restrictions may vary depending on the recipient of the Shares pursuant to the Agreement and the place in which such Shares are to be resold.
Israeli securities laws do not provide for the registration of shares for trading in Israel. Consequently, resales of the Shares issued pursuant to the Acquisition Agreement in Israel will also be subject to certain restrictions as to timing and volume of sales pursuant to Israeli securities laws. These restrictions will cease to apply in no less than fifteen months and no more than three years following the issuance, depending on the recipient of the Shares. The restrictions are not affected by any future registration of the Shares in the United States.
Factors Considered by Our Audit Committee and Board of Directors
At the meetings of our audit committee and board of directors on April 30, 2006, the following factors were considered by our directors in arriving at their decision to approve the Acquisition Agreement:
| — | The technological changes, regulatory trends, shifts in the competitive landscape and other developments in the telecommunications industry since 1999; which have created a reality in which only a large well resourced company with national deployment, can compete effectively against companies such as YES and Bezeq; |
| — | The need to create a more efficient and streamlined structure in order to compete effectively and provide a superior service to the customers of the Group; |
| — | The current structure of the Group; which fails to optimize the strengths of each of the entities constituting the Group, since, among other things, financial management is not centralized and the decision making processes require complex coordination; |
| — | The fact that the Group commenced an operational merger in 2004, in order to achieve the efficiencies described above and provide a greater range and quality of services, as a first step towards unifying the Cable Operators within a single legal framework and thereby enabling the Group to compete with the other multi-channel television operator and providers of fixed-line telephony services, principally Bezeq; |
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| — | The fact that the contemplated Acquisition is the means of completing the process which began in 1999 with our discussions with the other Cable Operators of the need for a merger and which continued with our increased levels of cooperation during the early years of the decade culminating in the operational merger in 2004; |
| — | The fact that the Acquisition enables us to obtain the Credit Facility on preferential terms, which should enable us to achieve the objectives of our long-term business plan, which we would otherwise not have been able to realize. |
| — | The report of TF relating to the telecommunications market in Israel. |
In light of these factors, our audit committee and board of directors concluded that:
| — | We will be capable of providing our customers with a superior service once we are operating in a unified legal structure, rather than as a group of several entities which perform the same functions; |
| — | By unifying the members of Group within one unified legal structure, we will achieve significant operational advantages, which will enable us to operate more efficiently – including the streamlining of the decision making processes – thereby facilitating improvements in the provision and range of our services at lower relative costs, decreasing customer churn, increasing customer loyalty and retention and improving profitability; |
| — | That combining all of the activities, assets and liabilities of the Group within a single unified legal structure will facilitate our ability to raise funds, through equity or debt financing, on beneficial terms; |
| — | The Acquisition may also expand our ability to provide additional telecommunications services, and to compete successfully with our major competitors in the fields of domestic fixed line telecommunication and multi-channel television services as well as enabling us to better operate in various areas including the purchase of content, marketing, sales, and to facilitate the operation of unified networks and effect substantial cost savings; |
| — | Should the Acquisition not be completed, the regulatory approvals which enable us to maintain the operational merger may terminate, in which case we would have to continue our activities as a significantly smaller enterprise which could not take advantage of the economies of scale enjoyed by larger companies. |
As described earlier, our audit committee and board of directors received a report of TF, which had been hired by the Group to produce a valuation of the Group. The reportconcluded that the Group’s operating value is at a level of NIS 5,348 million to NIS 6,230 million, which reflects a value per Subscriber of approx. $1,286 – $1,415, which valuation took into account all of the operations and services of the Group in the television and fixed-line communication market. For more information on the report of TF, see “The Acquisition –Report of Trigger Foresight Ltd.”
On the basis of the conclusions of the report, our audit committee and board of directors determined that the terms of the Acquisition Agreement as well as the terms of our acquisition of certain Subscribers from the Tevel Group, immediately prior to the completion of the Acquisition were fair from a financial perspective to our unaffiliated shareholders. For more information on the acquisition of certain Subscribers from the Tevel Group, see”The Acquisition – Principal Terms.”
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Our audit committee and board of directors were also aware of the personal interests of certain directors and major shareholders in the Acquisition, as a result of (i) an undertaking by certain of our major shareholders to take all required actions to ensure that the Fishman Group will become our largest shareholder immediately following the completion of the Acquisition (Yedioth may elect with the consent of the Fishman Group to become our largest shareholder in place of the Fishman Group); and (ii) the Right of First Refusal Agreement which certain shareholders of the Group intend to execute simultaneously with the completion of the Acquisition. For more information on (i) the agreement of certain major shareholders relating to the post Acquisition shareholdings, see “The Acquisition –PrincipalConditions to Closing – Largest Shareholder Following the Acquisition” and (ii) the Right of First Refusal Agreement, see – “The Acquisition –Principal Conditions to Closing – Right of First Refusal”.
Report by Trigger-Foresight Ltd.
Credentials of TF
TF is one of Israel’s leading strategic and business consulting firms with vast experience in the technology, media and telecommunications (“TMT”) industries. TF provides strategic consulting services as well as financial services, which include valuations, due diligence, financial modeling and business planning. TF is the Israeli representative of the Yankee Group, a global leader in TMT research. TF’s customers include some of Israel’s largest telecommunications and media companies.
TF was retained by the Group to render a valuation of the Assets which we will be purchasing in connection with the Acquisition and will receive a fee that is not contingent upon the the consummation of the Acquisition. In addition we have agreed to indemnify TF for damages that may arise out of rendering its opinion.
TF is not affiliated with any of our major shareholders.
Scope of Review
In arriving at its opinion, TF reviewed and analyzed:
| — | The financial results of the Group for the year ended December 31, 2005; |
| — | Publicly available information about the Group and our competitors; |
| — | The results of the cooperation between the members of the Group and TF in developing the Group's long-term business plan; |
| — | Published forecasts relating to the telecommunications industry in general and the multi-channel television industry in particular; |
| — | Discussions with our management and other sources in the telecommunications industry. |
TF’s valuation was carried out in reliance upon the cash flow capitalisation method (DCF –discounted cash flow analysis), while structuring a detailed forecast for 2006-2014, and was based on certain factors, including assumptions and forecasts regarding the markets in which we operate and our market share, profitability rate and future investments.
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The DCF method provides a detailed analysis which includes:
| — | A detailed view of the Israeli communications market; |
| — | An in-depth analysis of the Israeli multi-channel television market, including its structure, size and principal trends; |
| — | Forecasts regarding the Israeli multi-channel television market, including number of subscribers, market share and average revenue per subscriber (“ARPU”); |
| — | Model for calculating the expenses of the Group during the forecast period, for each area of activity of the Group; |
| — | Model for calculating the profitability of the Group for the forecast period, for each area of the Group's activity; |
| — | Detailed cashflow and profit and loss reports for the forecast period. |
TF assumed in the valuation that the Group is continuing to lose its market share in view of the competition from YES (from a current market share of 64% to a market share of approximately 56% as of the end of the forecast period). On the other hand, the Group is increasing its market share in the fast internet and fixed-line telephony markets. The ARPU is expected to grow principally as a result of the continued movement of analogue subscribers to the Group’s digital service as well as the increased penetration of advanced services such as VOD.
TF determined that the operating profitability level is gradually exceeding current operating loss levels which it determined will reach a level of 17% at the end of the forecast period, with EBITDA (earnings before interest, tax, depreciation and amortization) increasing from a level of approximately 18% in 2005 to approximately 40% at the end of the forecast period. TF concluded that the increase in profitability derives both from the increase in revenues (as a result of the increase in the revenues from content on demand) as well as from the improvement in the Group’s operational deployment as seen, among other things, in the significant improvement in the ratio of content expenses to turnover.
TF assumed that the investments of the Group primarily derive from the procurement of final-end equipment (set-top converters and modems) and are based on the rate of the transfer of subscribers from analogue to digital, and also an increase in the average number of set-top converters per household. The investment as a percentage of turnover declines throughout the forecast and stabilizes at approximately 15% at the end of the forecast period.
TF calculated our representative growth rate as 2% and the weighted capital price (weighted average cost of capital) used for the purposes of the valuation model, as approximately 9.5%, reflecting an unleveraged value of 1.1.
According to the assumptions made by TF and summarized above, the Group’s operating value is approximately NIS 5,348 million to NIS 6,230 million, which reflects a value per subscriber of approx. $ 1,286 – $ 1,415 (according to a US Dollar – New Israeli Shekel exchange rate of NIS 4.65).
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THE GROUP
About our Company
We are one of three groups of operators and providers of broadband cable television services in Israel. The other two cable television operators are the Tevel Group, and the Golden Channels Group. We market our cable television services and engage in content-related activities and other telecommunication activities together with Tevel and Golden Channels under the brand name “HOT”. We also provide access to High-Speed Internet services to private domestic users through our closely held partnership Matav Infrastructure. Our access to High-Speed Internet services to the business sector, fixed-line telecommunication and other telecommunication services are provided by HOT Telecom, a limited partnership held jointly by our company and certain of the entities constituting the Target Group. As of December 31, 2005, HOT Telecom had approximately 91,180 telephone subscribers. As of December 31, 2005, Matav Infrastructure has approximately 110,500 subscribers. Additional information about us can be found in our 2004 Annual Report which has been mailed to our shareholders together with this Proxy Statement and can also be found at the website of the United States Securities and Exchange Commission (“SEC”),www.sec.gov
As announced in our Current Report on Form 6-K filed for the month of February filed on February 23, 2006, we intend to delist voluntarily from the Nasdaq National Market and terminate our American Depositary Receipt (“ADR”) program. Concurrently with delisting from Nasdaq, we intend to file a Form 15 with the S.EC to terminate the registration of our ADRs and ordinary shares, thereby suspending our obligation to file annual and other reports with the SEC. At that time, we will begin making public reports in accordance with the Israeli securities laws and regulations applicable to companies whose shares are traded solely on the Tel Aviv Stock Exchange. We expect the delisting and deregistration to occur no later than June 30, 2006.
We have described below certain material events that have occurred since the filing of the 2004 Annual Report, which was filed with the United States Securities and Exchange Commission on June 30, 2005.
Recent Developments
Termination of agreement with Lucent
On July 9, 2004, Hot Telecom, our subsidiary jointly owned with other members of the Group, signed an agreement with an Israeli entity in the global Lucent Int. Group (“Lucent”) for the establishment of a telephony network based on the cable infrastructure. The agreement was a framework agreement for 100,000 subscribers and, as of March 31, 2005, we have issued orders for the establishment of a network for approximately 91,000 telephony subscribers in consideration for an estimated amount of US$ 27 million. To secure the payments to Lucent, HOT Telecom provided a letter of credit in the amount of approximately $110,000. In December 2005, HOT Telecom notified Lucent that it would not be requiring maintenance services from Lucent from March 1, 2006 and in February 2006, HOT Telecom terminated the agreement. Pursuant to the termination settlement agreement entered into on March 9, 2006, between HOT Telecom and Lucent, Lucent has transferred to HOT Telecom full ownership rights over all parts supplied by Lucent and contained in the system, spare parts supplied by Lucent for sub-systems and all the equipment supplied by Lucent which is located at HOT Telecom’s technical laboratory in Petach Tikva, Israel. Pursuant to the termination settlement agreement HOT Telecom paid Lucent $4 million in settlement of all outstanding sums.
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Approval by the Council
The conditions pursuant to which the Council has provided its approval of the Acquisition, are described in Item 4B of our 2004 Annual Report, Business Overview – “Government Regulation”. In November 2005, the Group requested that the Council amend certain of the conditions. In March 2006, the Council notified us that the following changes had been made to the conditions for its approval of the Acquisition: (i) the requirement that the unified entity fix a maximum subscriber fee for the basic packages (digital or analog), was cancelled; (ii) the requirement that at least 20% of the means of control of the broadcast companies be held by unrelated third parties, was delayed and will only apply in March 2007 unless certain conditions stipulated in the approval shall occur prior to that time; and (iii) the obligation requiring the Group to provide a guarantee of NIS 45 million to cover the obligations of the unified entity has been amended such that there will be no need for any additional guarantees in excess of the NIS 28.7 million that the Cable Operators provided to the Council as a guarantee for its compliance with the terms of the cable broadcast licenses (the “Cable Broadcasting Licenses”), granted by the Council. For more information relating to the terms of the Cable Broadcast Licenses, see our Annual Report – Item 4B “Business Overview.”
Approval of the Israel Controller of Restrictive Business Practices
On April 22, 2002, the Controller of Restrictive Business Practices (the “Controller”) granted an approval to the merger of the Group. The Controller’s approval (the “Approval”) of the merger is subject to terms and conditions and has been extended and amended from time to time. Following our letter dated January 1, 2006 in which we requested the termination and amendment of certain of the terms and conditions of the Approval, including the termination of the requirement that by no later than April 22, 2006, 20% of the means of control of the Cable Operators be held by unrelated third parties, the Controller informed us in a letter dated May 5, 2006, that having performed a preliminary examination of our request, it did not for the time being see any reason to terminate the means of control requirement. In its letter, the Controller further informed us that since it was still examining our request and the April 22, 2006 dead-line had passed, it would not, for the time being, require the Group to comply with the requirement relating to the means of control. For more information relating to the Controller’s Approval, see our Annual Report – Item 4B “Business Overview.”
On January 16, 2006, in response to a letter from the Group, in which it was argued that there was no need for an additional approval for the consummation of the merger the Controller stated that based, among other things, on the current condition of the Cable Operators, they would not be required to submit a notice of merger to the Controller. Nevertheless, in its letter, the Controller stated that should the merger not be consummated within a number of months, the Controller retained the right to re-examine its position.
Cable Operators
Voice-Over Broadband (VOB)
The deliberations of the Ministry of Communications regarding the formulation of policy for future licensing of telephony services by VOB access, and the response of HOT Telecom to these deliberations, are described in Item 4A of our 2004 Annual Report – History and Development of the Company – “Important events in the development of the cable television and telecommunications industry and our business.” The Ministry of Communications has stated that it intends to invite HOT Telecom for a hearing on HOT Telecom’s response. As of the date of this Proxy Statement, a date has not been set for the hearing and no final decision has been made by the Ministry of Communications.
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Since the initial issuance of its policy principles in connection with VOB in November 2004, the Ministry of Communications has been issuing licenses for commercial trials of VOB services. Such licenses have been provided to 012 Golden Lines, Barak I.T.C., Bezeq International and Internet Gold as well as to the cellular phone operators Partner Communications Co. Ltd., Cellcom Israel, and Pelephone Communications.
Purchase of certain operations of Cabletec
In January 2006, our wholly owned subsidiary Matav Investments Ltd. “(Matav Investments”), entered into an agreement with Cabletec Ltd. (“Cabletec”), an Israeli company, controlled by one of our affiliates pursuant to which we agreed to purchase on behalf of the Group all of Cabletec’s multi-channel cable television operations in the West Bank. Cabletec provides services to approximately 4,000 subscribers in this region The consideration for the purchase will be calculated by multiplying the number of Cabletec subscribers who will execute agreements with Matav Investments during an interim period of 60 days (which may be extended to up to six months) by $750. In the event that that certain conditions are fulfilled and subject to the completion of the Acquisition, Cabletec will be entitled to an additional payment of up to $150 per each subscriber purchased in the transaction. The completion of the Acquisition is subject to the satisfaction of certain conditions. As of the date of this Proxy Statement, these conditions have yet to be satisfied. Since the transaction was entered into on behalf of the Group, the number of television subscribers and debts and liabilities of Cabletec will not be considered in calculating the consideration payable pursuant to the Acquisition. If the Acquisition is not consummated all of the operations of Cabletec will be distributed among the members of the Group. Should the transaction be completed prior to the consummation of the Acquisition, the purchased operations of Cabletec will be held in trust and in the event that the Acquisition does not occur, the operations shall be transferred to a company jointly held by the Cable Operators or their Owners.
Personal Video Recorder
We began providing Personal Video Recorder (“PVR”) services to subscribers to our digital services in October 2005 under the brand name Hot Magic. The services are provided through a special digital set-top box and allow the viewers to decide what content to record along with providing them with the convenience of being able to watch such content whenever they want. PVR services also allow the viewer to stop, pause, fast-forward, rewind and restart the viewing, in a similar manner to the operation of a video tape recorder.
Changes in Regulations Affecting the Telecommunications Industry
The principal regulations affecting the telecommunications industry in Israel are described in Item 4B of our 2004 Annual Report Business Overview – “Government Regulation”.
As part of its economic policy for 2006, in August 2005, the Israeli government adopted a resolution, to allow consumers, by no later than January 1, 2007, to purchase from a multi-channel television operator a basic package of services which will include connection to the infrastructure of such operator and reception of the Israeli Broadcasting Authority channels (Channels “1” and “33), the commercial broadcasts channels (channels “2” and “10”), the “Parliament Channel”, the Educational Television channel (channel “23”) and the dedicated channels (channels “9” and “24”) (the “Reduced Programming Package”), without being obliged to purchase any other services. The resolution also called for the appointment of an inter-ministerial committee to determine by no later than March 1, 2006 the maximum price payable by the consumers for the said package, to be based on the cost of access to the infrastructure and the cost of distribution of the said channels, plus reasonable profit to the relevant operator. In accordance with this resolution, an amendment to the Telecommunications Law was submitted to the Knesset’s Finance Committee. The amendment incorporates the resolution within the framework of the Arrangements Bill for the Country’s Economy for the year 2006. According to the said amendment: (1) the Cable Broadcast Licensee (“Licensee”) shall be obliged to offer the Reduced Programming Package to its subscribers, without conditioning the provision of said Reduced Programming Package upon the purchase of any other broadcasts or services; (2) the Minister of Telecommunications, with the consent of the Minister of Finance, and after having consulted with the Council may determine the maximum price that a general Licensee for Cable Television Broadcast may demand for the provision of the Reduced Programming Package, based on the cost of the provision of said Reduced Programming Package plus a reasonable profit for the Licensee; and (3) the Minister may, after having consulted with the Council, instruct such Licensee with respect of the activities which said Licensee will be demanded to undertake for the purpose of providing the Reduced Programming Package. The entry into force of the said amendment, if approved by the Knesset, shall be from January 1, 2007.
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On the basis of reports from our representatives who attended a meeting of the Economics Committee of the Knesset on May 22, 2006, we understand that the Committee decided to remove the proposed amendment from the Arrangements Bill altogether and submit it at a later date as a separate Bill. We are still awaiting receipt of an official protocol of the meeting. We do not know at this stage, when or if the Bill will be submitted or whether or to what extent the proposed amendment, if it becomes law, will affect our business or profitability.
Also in August 2005, the Israeli government adopted a resolution to procure the establishment of a digital, nationwide, terrestrial distribution system which will broadcast and enable the free terrestrial reception of the following channels: the Israeli Broadcasting Authority channels (Channels “1” and “33), the commercial broadcasts channels (channels “2” and “10”) and the “Parliament Channel” (channel “99”) (“DTT System”). This resolution further provided for the appointment of an inter-ministerial tenders committee that shall publish a tender designed to enable that committee to choose a single winning bidder who shall design, establish and operate the DTT System. According to the resolution such tender shall be published by no later than January 1, 2006, the announcement of the chosen winner shall be made by no later than April 1, 2006 and said DTT System shall commence operation no later than January 1, 2007. In May 2006, the inter-ministerial tenders committee published an invitation to any interested parties to submit position papers with respect to the proposed tender. We intend to submit shortly our position paper with respect to the tender.It is not clear to us when the tender will be published, or what its conditions may be.
Fixed Line Telephony Services
As described in Item 4A of our 2004 Annual Report, – History and Development of the Company, HOT Telecom, a limited partnership owned by certain entities of the Group, began providing commercial domestic fixed-line telephony services from the end of November 2004. These telephony services are provided using Voice-Over IP technology. In October 2005, HOT Telecom completed the national deployment of its cable infrastructure and began providing its telephony service throughout the country. In addition to its core telephone service, HOT Telecom also provides voice mail, call-waiting, caller ID, redial and international call blocking services. On December 21, 2005, March 5, 2006 and April 23, 2006 012 Telecom Ltd., Global Communications LP and Cellcom Israel, respectively, were granted “general specific” licenses for providing fixed-line telecommunications services.
Purchase of CMTS cards from Netcom Ltd.
During 2005, HOT Telecom entered into an agreement with Netcom Ltd., an Israeli company, for the purchase of Cable Modem Termination System (CMTS) cards and certain other equipment for the continued development of our telephony network and for the supply of certain equipment manufactured by Cisco, in the amount of $11.6 million. Simultaneous with this agreement, HOT Telecom entered into a master lease agreement with a member company of the Hewlett Packard group (“HP”) for the financing of the equipment. The Group provided Cisco with a guarantee regarding the payments by HOT Telecom.
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Potential Changes in the Video on Demand Market
As described in Item 3D of our 2004 Annual Report, we commenced providing Video On Demand (“VOD”) services on a commercial basis in January 2005. VOD, is a service that allows television viewers to instantaneously select and view various contents (such as library movies, current movies, series, contents for children, contents for adults, sports content, entertainment and leisure contents) at any time they choose. VOD services also allow the viewer to stop, pause, fast-forward, rewind and restart the viewing, in a similar manner to the operation of a video tape recorder, thereby allowing the viewer to determine and control exclusively the timing and the speed in which he would like to watch the selected content. The VOD service gives the subscriber direct and instant access to a variety of content-libraries via a friendly access portal for the user. The Cable Operators are currently the only providers of VOD services in Israel. However, D.B.S. Satellite Services (1998) Ltd., the Israeli satellite multi-channel television operator and our major competitor (“YES”) have requested that the Ministry of Communications approve its application to provide VOD services over the ADSL network of Bezeq – Israel Telecommunications Corporation Ltd. (“Bezeq”), the principal shareholder of YES and our major competitor in the telecommunications field. In October 2005, the Ministry of Communications requested that the Group provide its written response to YES’ application. In January 2006, we provided the Ministry of Communications with our written response, in which we set out our arguments why the approval should not be given. While to the best of our knowledge no decision has yet been made, following our letters to the Ministry of Communications, on April 25, 2006, we received a letter from it in which we were informed that it intended to grant YES permission to conduct a year-long technical trial for providing VOD services over ADSL among a restricted focus group of 300 participants, for no charge. According to certain newspaper reports, all of the participants in the technical trial are Bezeq employees and the anticipated permission to be granted by the Ministry of Communications will have no bearing on any final decision that it may make in connection with the application of YES to provide VOD services on a commercial basis. Nevertheless, should YES receive the approval of the Ministry of Communications to provide VOD services, then the Group will no longer be the exclusive provider of such services. Additionally, should Bezeq engage in the provision of content together with YES, this could have a material affect on our business and operating results.
About the Target Group
Following our purchase of the Target Shares or the Target Assets and Liabilities of the Target Group, pursuant to the Acquisition, all of the multi-channel cable television and fixed-line telecommunication operations and activities of the Group will be combined into a unified structure. There follows a description of the current activities of the Group, followed by a short description of each of the entities constituting the Target Group, including a description of the Target Assets and Liabilities.
Joint Management
In order to strengthen the cooperation of the three Israeli cable television operators, we, Tevel and Golden Channels agreed to perform an operational merger in June 2004. To this effect, a joint management was appointed to oversee the joint operation of the marketing, sales, engineering, customer service, operations and information systems activities of the three cable television operators. The joint management currently conducts and manages our activities in the ordinary course of business in the areas of the joint activities. Material decisions applicable to the operational merger require our approval as well as the approval of Tevel and Golden Channels. Our approval is subject to the decision of our board of directors and other corporate bodies, as required by law. Since the appointment of the joint management and the commencement of the operational merger, we, Tevel and Golden Channels have operated jointly on a regular basis. The three cable television operators have agreed in principle that the allocation of the expenses deriving from the joint activity among themselves shall be proportional to the number of subscribers of each party. The operational merger did not include transfer of assets from any of the three cable television operators to a merged entity or from any of the three cable television operators to another cable operator.
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Each of the three cable television operators remains the sole owner of its assets and is entitled to the revenue generated from its own subscribers. Furthermore, the joint activity does not include transfer of liabilities owed to third parties, including, inter alia, banks or other creditors.
Since all of our management and operational activities are also applicable to the Target Assets and Liabilities, we refer you generally to our 2004 Annual Report Item 4A and 4B, and to our Current Report on Form 6-K for the month of March, dated March 16, 2005, which contain a report of our financial results for 2005.
Additionally, the following contains certain summary information regarding the Tevel Group and the Golden Channels Group and their business operations based on information we received from them. Although we have no knowledge that any such information is untrue, we cannot give you any assurance as to its accuracy or completeness.
The Principal Assets
Like our company, the Target Group operated under certain licenses: (i) Cable Broadcast Licenses held by each of the Tevel Group entities and each of Golden Channels, Idan and TLM, (ii) Broadcasting Head-End licenses held by Golden Channels and Tevel and; (iii) additional special licenses (collectively, the “Licenses”). Additionally, all of the entities in the Target Group have direct or indirect holdings in HOT Telecom which holds a Telecom Infrastructure License, pursuant to which the entities within the Target Group provide their fixed-line telecommunications services. The domestic Internet services for private users which form part of the fixed-line telecommunication services of the Target Group, are provided by either MAPA or Telecom Zahav. These services are identical to the telecommunications services provided by Matav Infrastructure.
The Licenses are identical in all material respects to our licenses and those of our subsidiaries, with the exception of certain differences with respect to the prices charged to subscribers to the Target Group’s analogue cable television services, and regarding the geographic regions that they cover. For a description of our licenses, see Item 4B of our 2004 Annual Report Business Overview – “Government Regulation”.
All of the entities in the Target Group also have direct or indirect shareholdings in HOT Vision Ltd., which produces television content for the Group. For a description of the activities of HOT Vision, see Item 4B of our 2004 Annual Report – “Business Overview – HOT Vision and Cooperation of Cable Television Operators in Production of Broadcasting”.
Pursuant to the Acquisition, we will be purchasing all of the operations of the Target Group, which includes directly or indirectly the Licenses, their television and access to Internet subscribers and directly or indirectly their holdings in HOT Vision, HOT Telecom, MAPA and Telecom Zahav.
The Tevel Group
As a result of certain cash flow problems, in April 2002, the Tevel Group sought court protection against creditors, in an effort to formulate and institute a recovery plan. On April 22, 2002 the Tel Aviv District Court (the “Court”) granted the application and halted repayment of all the debts of the Tevel Group that were incurred prior to the Court order. The Court appointed a trustee (the “Trustee”) to manage the Tevel Group and to supervise an arrangement with its creditors. In September 2003, the creditors agreed to an arrangement pursuant to which the debts of the unsecured creditors will be repaid in whole or in part, subject to a differential repayment schedule to the various types of unsecured creditors, and any unpaid debt was written off.
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The debts of the Tevel Group to its secured creditors, namely Bank Leumi Le’Israel Ltd., Bank Hapoalim Ltd., First International Bank of Israel Ltd., and Israel Discount Bank Ltd. (the “Tevel Banks”), have yet to be satisfied, and will be repaid out of any surpluses arising out of its ongoing operations or out of the consideration to be received form the sale of its activities including by way of merger. In addition, as a result of the creditors’ arrangement, the Tevel Banks in addition to a certain minority shareholder are now entitled to all of the Tevel Group’s outstanding shares part of which are currently held on their behalf by the Trustee. Since the Acquisition is considered to be a sale of the Tevel Group, the consideration due to the Tevel Group shall be distributed to the Tevel Banks (with the exception that part of the consideration due to Gvanim Krayot shall be distributed to its minority shareholder).
As of the current date and until the sale of the Tevel Group, its operations are still supervised by the Trustee and the Court.
The Acquisition constitutes a sale of the assets of Tevel Group, which is subject, among other things, to approval by the Court.
In accordance with the creditor’s arrangement, the Tevel Group’s financial debt that will be assumed by us as part of the Acquisition will also include part of the debts to the Tevel Banks.
| (a) | Tevel |
Tevel is an Israeli privately held company which owns Cable Broadcast Licenses for three regions: Tel Aviv-Givatayim, Ashdod-Ashkelon and Nazareth-Jesreel Valley and as of September 30, 2005, had registered an aggregate of 182,354 Subscribers. In addition Tevel also holds a Broadcasting Head End License.
Tevel holds 24% of HOT Vision’s issued and outstanding shares.
Tevel holds 35% of the partners’ rights in Golden Channels.
Tevel holds 61% of the partners’ rights of MAPA which holds 32.36% of the partners’ rights in HOT Telecom. MAPA provides access to High-Speed Internet to the private sector in the geographic regions covered by the Tevel’ Group’s Cable Broadcast Licenses, and as of December 31, 2005 had 137,172 domestic Internet subscribers.
| (b) | Gvanim Cable |
Gvanim Cable is a wholly owned Israeli subsidiary of Tevel. It owns Cable Broadcast Licenses for three regions: Rishon Letzion, Modiin and Lod-Ramle and the vicinity and as of September 30, 2005, had registered an aggregate of 67,021 Subscribers.
Gvanim Cable holds 13.4% of HOT Vision’s issued and outstanding shares.
Gvanim Cable holds 21% of the partners’ rights in MAPA.
| (c) | Gvanim Krayot |
Gvanim Krayot is an Israeli company owned by by Gvanim Cable (90%) and Hed HaKrayot Ltd. (10%). Gvanim Krayot owns Cable Broadcast Licenses in the “krayot” area for the Haifa Bay, in the Western Galilee, in Karmiel and Maalot and in the Lower Galilee. As of September 30, 2005, Gvanim Grayot had registered an aggregate of 50,260 Subscribers.
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Gvanim Krayot holds 18% of the partners’ rights in MAPA.
We present below certain items from the results of operations of the Tevel Group for the periods indicated. All of the information is based on the audited consolidated financial statements of the Tevel Group which are included in this Proxy Statement asAnnex B(2). The information provided was prepared by the Tevel Group and delivered to us by the management of Tevel.
Industry trends affecting the Tevel Group are comparable to those affecting our company, which are described in our public filings. In addition, as with our financial statements, the financial results of the Tevel Group are not consolidated with Hot Telecom (of which approximately 32.36% is held by the Tevel Group).
Operating Highlights of the Tevel Group
As of December 31, 2005, the Tevel Group provided cable television services to 299,220 Subscribers, representing approximately 33% of all cable television subscribers in Israel. As of December 31, 2005, the Tevel Group provided access to high-speed Internet services to 137,172 subscribers.
Results of Operations
The following table sets forth certain items from the results of operations of the Tevel Group for the periods indicated:
| Years ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2003 | 2004 | 2005 | |||||||||
| in NIS in millions | |||||||||||
| Revenues | 703 | 721 | 687 | ||||||||
| Operating expenses | 377 | 376 | 394 | ||||||||
| Production and programming expenses | 247 | 246 | 254 | ||||||||
| Gross profit | 79 | 99 | 39 | ||||||||
| Selling and marketing expenses | 65 | 92 | 70 | ||||||||
| General and administrative expenses | 134 | 131 | 121 | ||||||||
| Operating loss | (120 | ) | (124 | ) | (152 | ) | |||||
| Financial expenses, net | 242 | 180 | 188 | ||||||||
| Loss after financial expenses | (362 | ) | (304 | ) | (340 | ) | |||||
| Other income (expenses), net | (46 | ) | 280 | (6 | ) | ||||||
| loss before taxes on income | (408 | ) | (24 | ) | (346 | ) | |||||
| Taxes on income | 6 | 2 | 7 | ||||||||
| loss after taxes on income | (414 | ) | (26 | ) | (353 | ) | |||||
| Equity in earnings of affiliated companies, net | (37 | ) | (67 | ) | (86 | ) | |||||
| Net loss | (451 | ) | (93 | ) | (439 | ) | |||||
| EBITDA* | 159 | 163 | 134 | ||||||||
* Since the results for the year 2003 do not include proportional consolidation with HOT Vision, for comparison purposes, the EBITDA is presented assuming no consolidation with HOT Vision.
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Condensed results of operations
The net loss for 2005 was NIS 439 million compared to a net loss of approximately NIS 93 million in 2004. The bulk of the Tevel Group’s loss derives from depreciation and amortization costs amounting to NIS 294 million, financing costs of NIS 188 million and equity losses in investee companies totaling NIS 86 million. The net loss in 2004 was attributable to two main factors: the write-off of a creditor’s debt following a creditors’ arrangement, amounting to approximately NIS 202 million, and a capital gain from the sale of investee companies amounting to approximately NIS 119 million.
The development of the results of business activity may be examined on the basis of EBITDA, which more accurately reflects the Tevel Group’s operational business results.
Revenues
The following information sets forth the revenues of the Tevel Group according to its various business segments for the periods indicated:
| Years ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2003 | 2004 | 2005 | |||||||||
| in NIS in millions | |||||||||||
| Cable TV | 675 | 663 | 622 | ||||||||
| Internet | 28 | 58 | 65 | ||||||||
| Total revenues | 703 | 721 | 687 | ||||||||
The Tevel Group’s revenues in 2005 were approximately NIS 687 million compared to approximately NIS 721 million in 2004. The decrease in the Tevel Group’s income derives primarily from the downturn in subscriptions for multi-channel television, which fell by approximately NIS 33 million. Private Internet service, however,, contributed approximately NIS 65 million to the Tevel Group’s turnover for the period, compared to approximately NIS 58 million for the year 2004. The Tevel Group’s turnover for the preceding year included approximately NIS 7 million in respect of its equity in the turnover of GlobeCall Ltd. (an Israeli company in which it held approximately a 50% equity stake), which it sold pursuant to the creditors’ settlement.
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The following table sets forth the distribution of subscribers for the periods covered:
| 2003 | 2004 | 2005 | % Change 2003 vs. 2004 | % Change 2004 vs. 2005 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Average of total number of | |||||||||||||||||
| subscribers for cable TV | |||||||||||||||||
| services | 330,658 | 314,842 | 304,269 | (4.8 | ) | (3.4 | ) | ||||||||||
| Average of total number of | |||||||||||||||||
| subscribers with access to | |||||||||||||||||
| High Speed Internet services | 37,655 | 87,435 | 120,675 | 132.2 | 38.0 | ||||||||||||
| Average monthly revenue per | |||||||||||||||||
| cable subscriber (ARPU) in | |||||||||||||||||
| NIS (excluding VAT) | 170.1 | 175.5 | 170.4 | 3.2 | (2.9 | ) | |||||||||||
| Average monthly revenue per | |||||||||||||||||
| internet subscriber (ARPU) | |||||||||||||||||
| in NIS (excluding VAT) | 62.0 | 55.3 | 44.9 | (10.8 | ) | (18.8 | ) | ||||||||||
Operating Expenses
The Tevel Group’s operating results in 2005 were approximately NIS 394 million, compared to approximately NIS 376 million in 2004. Depreciation expenses accounted for approximately NIS 204 million out of the operating expenses in 2005, compared to NIS 208 million in 2004. The increase is mostly attributed to the improvements in the Tevel Group’s customer service departments.
Production and programming expenses
The Tevel Group’s production and programming expenses in 2005 were approximately NIS 254 million, compared to NIS 246 million in 2004. A substantial proportion of the Tevel Group’s content costs consists of the per-viewer fixed rate (revenue share). Due to the emergence of an improved digital service, content costs have risen, along with the establishment of new channels during the course of the year.
Selling, marketing and administrative expenses
The Tevel Group’s selling, marketing and administrative expenses in 2005 were approximately NIS 191 million compared to NIS 223 million in 2004. Depreciation expenses out of the total aforesaid expenses were approximately NIS 90 million in 2005 compared to NIS 97 million in 2004. The decrease in marketing expenses (approximately NIS 13 million) derives primarily from the large marketing budgets in 2004 that were created for the purpose of launching the “HOT” brand, and introducing it to households in Israel. In addition, a decrease was recorded in a number of components, including payroll costs and consultation costs, among others.
Operating profit
The Tevel Group’s operating loss in 2005 increased to approximately NIS 152 million as compared with NIS 124 million in 2004.
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EBITDA for 2005 was approximately NIS 134 million compared to approximately NIS 163 million in 2004. The decrease in EBITDA derives from the changes outlined in the income and expense items shown above.
EBITDA calculation:
| 2003 | 2004 | 2005 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Operating loss | (120 | ) | (124 | ) | (152 | ) | |||||
| Net of the effect of proportional consolidation | (2 | ) | (5 | ) | |||||||
| Depreciation and amortization (including income from | |||||||||||
| amortization of deposits for converters) | 279 | 289 | 291 | ||||||||
| EBITDA - not including proportional consolidation | 159 | 163 | 134 | ||||||||
Financing expenses
The Tevel Group’s net financing expenses in 2005 were approximately NIS 188 million compared to approximately NIS 180 million in 2004. Short-term loans bear interest at an annual rate of prime plus 0.2%. Long-term loans are linked to the Israeli Consumer Price Index and bear annual interest at a rate of between 5.6% and 5.87%.
The financial debt did not decrease as a result of the creditors’ arrangement.
Other expenses
Other expenses in 2005 were approximately NIS 6 million compared to NIS 40 million in 2004.
The 2004 figures reflect the Tevel Group’s share in respect of an indemnification agreement between the Cable Operators in relation to the debt awarded in favor of a content supplier, amounting to NIS 29 million, and also a NIS 9 million allowance for the impairment of fixed assets and the write-off of the balance of the cost of leasehold improvements on exiting a property, which amounted to NIS 2 million. In 2005, the bulk of the expenses derived from the updating of the allowance created in respect of the content supplier.
Capital gains and the write-off of debts following a creditors’ arrangement
Capital gains in 2004 derived from the sale by the Tevel Group of the companies GlobalCall Ltd. and NetVision Ltd. (an Israeli company in which it held a 50% equity stake) for the sum of NIS 119 million, and the write-off of unsecured creditors’ debts in the framework of the creditors’ arrangement, in the amount of NIS 201 million.
Tevel Group’s equity in losses of associated companies
The Tevel Group’s equity in losses of associated companies was approximately NIS 86 million in 2005 compared to approximately NIS 67 million in 2004. The increase derives in its entirety from the Tevel Group’s equity in the losses of Golden Channels and Hot Telecom.
Cash Flow
Below is a condensed presentation of certain aspects of the cash flow the Tevel Group for the periods indicated.
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| Years ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2004 | 2005 | |||||||
| in NIS in millions | ||||||||
| Net cash provided by (used in) operating activities | (75 | ) | 33 | |||||
| Net cash provided by (used in) investing activities | 27 | (258 | ) | |||||
| Net cash used in finance activities | (90 | ) | 207 | |||||
| Increase (decrease) in cash and cash equivalents | (138 | ) | (18 | ) | ||||
| Cash and cash equivalents at beginning of year | 224 | 86 | ||||||
| Cash and cash equivalents at end of year | 86 | 68 | ||||||
The combined cash flow which resulted from regular operations amounted to approximately NIS 33 million in 2005, compared to NIS 74 million that were used for regular operations in 2004. The main source for this increase in the combined cash flow from joint operations was payments to creditors in connection with the creditors’ arrangement in addition to interest payments to banks in 2004.
During 2005 the Tevel Group focused on developing and expanding its business particularly with relation to the upgrading of the network and developing digital services. In 2004, cash flow from investment activities was positive due to the sale of the Tevel Group’s holdings in affiliate companies with a combined value of NIS 131 million. Additionally, during the course of 2004 the Tevel Group repaid credit to regular suppliers and secured film rights as a result of the settlement with creditors, in the amount of approximately NIS 103 million, as well as repaying loans from shareholders in the amount of approximately NIS 24 million.
The Golden Channels Group
(a) Golden Channels
Golden Channels is a registered general partnership that holds Cable Broadcast Licenses for Jerusalem, Ramat Gan and Petach Tikva. Golden Channels is held by Yedioth Communications Ltd. (47.5%), Tevel (35%) and Fishman Properties Ltd. (17.5%). As of September 30, 2005, Golden Channels had registered an aggregate of 174,895 Subscribers.
Golden Channels holds a Broadcasting Head-End License
Golden Channels holds 20% of the issued and outstanding share capital of HOT Vision.
Golden Channels holds 46.6% of the partners’ rights of Telecom Zahav which holds 41.07% of the partners’ rights in HOT Telecom. Telecom Zahav, which is a domestic operator that provides access to High-Speed Internet to the private sector in the geographic regions covered by the Golden Channels Group’s Cable Broadcast Licenses. As of December 31, 2005, Golden Channels had 155,122 domestic Internet subscribers.
(b) Idan Holdings
Idan Holdings is an inactive holding company that holds approximately 51% of Idan Cable. Golden Channels holds 75%, and Fishman Properties holds 25%, of Idan Holding’s share capital and voting power.
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(c) Idan Cable
Idan Cable is an Israeli private company which is owned by Idan Holdings (51%), Golden Channels (36.76%) and Fishman Properties Ltd (12.24%).Idan Cable holds the Cable Broadcast Licenses for Rehovot-Ness Ziona, Beer Sheba, Acre and Nahariya and as of September 30, 2005, had registered an aggregate of 98,342 Subscribers
Idan Cable holds 11% of the issued and outstanding share capital of HOT Vision.
Idan Cable holds 27.2% of the partners’ rights of Telecom Zahav which holds 41.05% of the partners’ rights in HOT Telecom.
(d) Edom Channels
Edom Channels is a wholly owned Israeli subsidiary of Golden Channels which holds Cable Broadcast Licenses for the city of Maaleh Adumim, and as of September 30, 2005, had registered an aggregate of 3,233 Subscribers.
(e) Isracable
Isracable is an inactive holding company that holds approximately 15% of the issued and outstanding shares of TLM
(f) Sharon
Sharon is an inactive holding company which directly holds 61.225% of the share capital of TLM, and indirectly holds a further 6.225% of TLM’s issued and outstanding share capital through its holdings in Isracable.
(g) TLM
TLM is an Israeli company that holds licenses for Cable Broadcast Licenses for the southern part of the Sharon region (Raanana, Herzliya, Ramat Hasharon and Hod Hasharon), Yoav Eshkol (northern Negev), Negev Mountain and Eilat. As of September 30, 2006, had registered an aggregate of 97,464 Subscribers.
TLM is directly and indirectly held by Sharon and Isracable, through Monitin Ltd. (32.55%), Yedioth Communication Ltd. (33.725%) and Fishman Asset Management Ltd. (33.725%).
TLM holds 10% of the issued and outstanding share capital of Hot Vision.
TLM holds 26.2% of the partners rights of Telecom Zahav.
As of December 31, 2005, the Golden Channels Group provided cable television services to 373,842 subscribers, representing approximately 41% of all cable television subscribers in Israel. As of December 31, 2005, the Golden Channels Group provided access to high-speed Internet services to 169,639 subscribers. (The number of subscribers is calculated based on the number of connected customers indicated in internal billing system records.)
We present below a discussion of certain items from the results of operations of the Golden Channels Group for the periods indicated. All of the information is based on the audited consolidated financial statements of the Golden Channels Group which are included in this Proxy Statement asAnnex B(3). The information provided was prepared by the Golden Channels Group and delivered to us by the management of Golden Channels.
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Industry trends affecting the Golden Channels Group are comparable to those affecting our company, which are described in our public filings. In addition, as with our financial statements, the financial results of the Golden Channels Group are not consolidated with HOT Telecom (of which approximately 41.05% is held by the Golden Channels Group).
Operating Highlights of Golden Channels Group
As of December 31, 2005, the Golden Channels Group provided cable television services to 373,842 subscribers, representing approximately 41% of all cable television subscribers in Israel. As of December 31, 2005, the Golden Channels Group provided access to high-speed Internet services to 169,639 subscribers.
The following table sets forth certain items from the results of operations of the Golden Channels Group for the periods indicated:
| In NIS (in millions) | Years ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2003 | 2004 | 2005 | |||||||||
| Revenues | 837 | 888 | 856 | ||||||||
| Operating expenses | 715 | 769 | 817 | ||||||||
| Gross profit (loss) | 122 | 119 | 39 | ||||||||
| Selling and marketing expenses | 68 | 94 | 84 | ||||||||
| General and administrative expenses | 37 | 36 | 36 | ||||||||
| Operating income (loss) | 17 | (11 | ) | (81 | ) | ||||||
| Financial expenses, net | 148 | 84 | 90 | ||||||||
| Loss after financial expenses | (131 | ) | (95 | ) | (171 | ) | |||||
| Other income (expenses), net | 0 | 35 | 7 | ||||||||
| Income (loss) before taxes on income | (131 | ) | (130 | ) | (164 | ) | |||||
| Taxes on income | 0 | 7 | 3 | ||||||||
| Income (loss) after taxes on income | (131 | ) | (137 | ) | (167 | ) | |||||
| Equity in earnings of affiliated companies, net | (0 | ) | (5 | ) | (14 | ) | |||||
| Net income (loss) | (131 | ) | (142 | ) | (181 | ) | |||||
| EBITDA* | 243 | 225 | 167 | ||||||||
* Since the results for the year 2003 do not include proportional consolidation with HOT Vision, for comparison purposes, the EBITDA is presented assuming no consolidation with HOT Vision. EBITDA is presented because it is a measure commonly used in the telecommunications industry and is presented solely in order to improve the understanding of operating results and to provide perspective regarding these results. EBITDA, however, should not be considered as an alternative to operating income or income for the period or as an alternative to cash flow from operating activities or as a measure of liquidity. EBITDA is not a measure of financial performance under generally accepted accounting principles and may not be comparable to other similarly titled measures for other companies. EBITDA may not be indicative of historical operating results nor is it meant to be predictive of potential future results.
A reconciliation between the operating profit in the financial statements and EBITDA, is presented below.
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EBITDA calculation:
| 2003 | 2004 | 2005 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Operating income (loss) | 17 | (11 | ) | (81 | ) | ||||||
| Net of the effect of proportional consolidation | (4 | ) | (6 | ) | |||||||
| Depreciation and amortization (including income | |||||||||||
| from amortization of deposits for converters) | 220 | 234 | 248 | ||||||||
| Other (Management fees) | 6 | 6 | 6 | ||||||||
| EBITDA - not including proportional consolidation | 243 | 225 | 167 | ||||||||
Revenues according to business segments
The following information sets forth the revenues of the Golden Channels Group according to its various business segments for the periods indicated:
Revenues
| Years ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2003 | 2004 | 2005 | |||||||||
| in NIS in millions | |||||||||||
| Cable TV | 789 | 807 | 780 | ||||||||
| Internet | 48 | 81 | 76 | ||||||||
| Total revenues | 837 | 888 | 856 | ||||||||
Revenues from cable TV activities are derived from monthly subscription fees, Pay-Per-View services, interactive services, depreciation of subscribers’ deposits for set-top boxes, installation fees, payments from the Shopping Channel and other minor sources such as VOD.
Revenues Analysis for Cable TV
During 2004, there was an increase of 5% in the average revenue per user (“ARPU”) and a decrease of 4% in the total number of subscribers, which resulted in an increase of NIS 18 million in revenues.
During 2005, there was an increase of 0.3% in the ARPU and a decrease of 3% in the total number of subscribers which resulted in a decrease of NIS 27 million in revenues.
Revenues Analysis for Internet
During 2004, there was a decrease of 16.5% in the ARPU and an increase of 102% in the total number of subscribers resulting in an increase of NIS 33 million in revenues.
During 2005, there was a decrease of 27.9% in the ARPU and an increase of 30% in the total number of subscribers resulting in a decrease of NIS 5 million in revenues.
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The following table sets forth the distribution of subscribers for the periods covered:
| 2003 in thousands | 2004 in thousands | 2005 in thousands | % Change 2003 vs. 2004 | % Change 2004 vs. 2005 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Average of total number of | |||||||||||||||||
| subscribers for cable TV | |||||||||||||||||
| services* | 407 | 391 | 378 | (4 | )% | (3 | )% | ||||||||||
| Average of total number of | |||||||||||||||||
| subscribers with access to | |||||||||||||||||
| High Speed Internet services* | 57 | 115 | 149 | 102 | % | 30 | % | ||||||||||
| Average monthly revenue | |||||||||||||||||
| cable TV per subscriber | |||||||||||||||||
| (ARPU) in NIS (excluding VAT) | 161.76 | 169.86 | 170.37 | 5 | % | 0.3 | % | ||||||||||
| Average monthly revenue | |||||||||||||||||
| High Speed Internet | |||||||||||||||||
| services*per subscriber | |||||||||||||||||
| (ARPU) in NIS (excluding VAT) | 70.35 | 58.77 | 42.37 | (16.46 | )% | (27.9 | )% | ||||||||||
*The average number of subscribers is based on the internal monthly report to Hot Vision
Cable TV and Internet operating expenses are comprised of:
| Years ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2003 | 2004 | 2005 | |||||||||
| in NIS in millions | |||||||||||
| Cable TV programming expenses | 285 | 318 | 311 | ||||||||
| Depreciation and amortization of fixed assets | 223 | 239 | 256 | ||||||||
| Other operating expenses from Cable TV activities | 176 | 172 | 200 | ||||||||
| Total | 684 | 729 | 767 | ||||||||
In 2005 the Golden Channels Group’s production and programming expenses were approximately NIS 311 million, compared to NIS 318 million in 2004 and NIS 285 million in 2003. A substantial proportion of the Golden Channels Group’s content costs consist of the per-viewer fixed rate (revenue share). Due to the emergence of an improved digital service, content costs have risen, along with the establishment of new channels during the course of the year.
The Golden Channels Group’s other operating expenses from Cable TV activities amounted in 2005 to NIS 200 million, compared to NIS 172 million in 2004. The increase in other operating expenses from Cable TV activities is mostly attributed to the improvements made in the Company’s customer service departments, such as VOD.
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Selling and marketing expenses
The decrease in marketing expenses of approximately NIS 10 million derives primarily from large marketing budgets in 2004 that were created for the purpose of launching the “HOT” brand, and introducing it to households in Israel.
Other expenses
Other expenses in 2005 were approximately NIS 7 million compared to NIS 35 million in 2004. In light of an indemnification agreement between HOT Vision and the Cable Operators, including the Golden Channels Group, the other expenses in 2004 include an allowance for the share of the Golden Channels Group of a debt awarded to a content supplier.
In 2005 the Golden Channels Group made an allowance in respect of lawsuits in amount of NIS 13 million.
Financing expenses
The Golden Channels net financing expenses in 2005 were NIS 90 million as compared with NIS 84 million in 2004. The Golden Channels Group’s net financing expenses in 2004 were an aggregate of NIS 84 million compared to an aggregate amount of NIS 148 million in 2003. Short-term loans during 2003 bear interest at an average annual rate of 7.48% compared to 4.19% during 2004. In addition, the difference of interest above prime was decreased from 2.1% in 2003 to 1.7% in 2004.
Cash Flow
Below is a condensed presentation of certain aspects of the cash flow the Golden Channels Group for the periods indicated.
| Years ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2005 | ||||||||||
| in adjusted NIS in millions | |||||||||||
| Net cash provided by (used in) operating activities | 165 | 62 | |||||||||
| Net cash provided by (used in) investing activities | (179 | ) | (285 | ) | |||||||
| Net cash used in finance activities | 15 | 229 | |||||||||
| Increase (decrease) in cash and cash equivalents | 1 | 6 | |||||||||
| Cash and cash equivalents at beginning of year | 4 | 5 | |||||||||
| Cash and cash equivalents at end of year | 5 | 11 | |||||||||
In 2005, the Golden Channels Group’s net cash provided by operating activities was an aggregate of NIS 62 million compared to an aggregate amount of NIS 165 million in 2004. The decrease is mostly attributed to the changes in operating assets and liability items.
In 2005, the Golden Channels Group’s cash used in investing activities was an aggregate of NIS 285 million compared to an aggregate amount of NIS 179 million in 2004. The increase is mostly attributed to the purchase of fixed assets and an investment in HOT Telecom’s telephony services which was financed through loans.
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CONSOLIDATED FINANCIAL DATA
INCLUDING UNAUDITED CONSOLIDATED HISTORICAL PRO FORMA FINANCIAL
DATA
We have included with this Proxy Statement asAnnexes B(1) – (5): (a)the consolidated audited financial statements for the year ended December 31, 2005 and related notes, of our company, the Tevel Group (which include the financial data of Tevel, Gvanim Krayot and Gvanim Cable and other entities held by them) and the Golden Channels (which include the financial data of Golden Channels, Idan Cable, Edom Channels and other entities held by them); and (b) the audited financial statements for the year ended December 31, 2005 of TLM and HOT Telecom,. The included financial statements cover all of the Target Assets and Liabilities which we are acquiring with the exception of those of Idan Holdings, Sharon and Isracable which are inactive holding companies with no material assets or liabilities),
In 2005, 2004 and 2003 each of the members of the Group, with the exception of the Holding Companies, prepared their consolidated financial statements for the year ended December 31, 2005, 2004 and 2003, respectively in accordance with accounting principles generally accepted in Israel (“Israeli GAAP”).
Our financial statements are prepared in accordance with generally accepted accounting principles in Israel (“Israeli GAAP”). Israeli GAAP varies in certain respects from generally accepted accounting principles in the U.S. (“U.S. GAAP”).
The principal relevant differences between US GAAP and Israeli GAAP that our directors believe would have a material effect on our financial position or results of operations as of December 31, 2004 are described in Note 26 of our 2004 Annual Report. We have not prepared our financial information in accordance with US GAAP and, accordingly, cannot offer any assurance that the differences described below are complete or would in fact be the accounting principles creating the greatest differences between our financial information prepared under Israeli GAAP and US GAAP.
The differences described in Note 26 of our 2004 Annual Report reflect only those differences in accounting policies in force at the time of the preparation of our financial statements as of December 31, 2004. There has been no attempt to identify differences with respect to our and the Target Group’s financial position or results of operations as of December 31, 2005 and for the year then ended, pro-forma results and any other future differences between Israeli GAAP and US GAAP as the result of prescribed changes in accounting standards, transactions or events that may occur in the future. The organizations that promulgate Israeli GAAP and US GAAP have significant ongoing projects that could have a significant impact on future comparisons such as this one between Israeli GAAP and US GAAP. Future developments or changes in either Israeli GAAP or US GAAP may give rise to additional differences between Israeli GAAP and US GAAP which could have a significant impact on us and the Target Group.
Our management is currently conducting a review in order to (a) determine how the cost of the assets to be purchased in connection with the Acquisition will be allocated among the tangible assets, intangible assets and liabilities; and (b) evaluate the rate of amortization of these assets for the purposes of their accounting treatment in our financial statements. We have hired an unaffiliated third party financial expert Itzhak Swary Ltd., to provide its opinion in connection with this review. We have agreed that the professional liability of Itzhak Swary Ltd., for its opinion is limited to $250,000 and we have agreed to indemnify it in the event that successful claims are made against it by third parties, in excess of this sum. We also intend to hire the services of a unaffiliated third party engineer to perform an evaluation of the life-span of the fixed assets we are acquiring.
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We have also included with the Proxy Statement asAnnex C our unaudited pro forma condensed consolidated financial statements to give effect to the Acquisition, had it occurred on January 1 2005, and are derived from the unaudited pro forma financial statements and related notes which are included with this Proxy Statement. The pro forma combined condensed financial statements were prepared in accordance with Israeli GAAP.
The preliminary allocation of the purchase price in the acquisition as reflected in these unaudited pro forma combined condensed financial statements has been prepared based upon preliminary estimates of the fair value of the assets acquired and liabilities assumed as of the date of the acquisition, which have been derived from the initial results of the management review described above. This preliminary allocation of the purchase price is dependent upon certain estimates and assumptions, some of which cannot be made prior to the completion of the acquisition, and are subject to change upon the acquisition date and finalization of the valuation of the acquired assets and liabilities.
For the reasons mentioned in the preceding paragraph, a final determination of the fair values of the other assets and liabilities of the Target Group, which cannot be made prior to the date of this Proxy Statement, will be based on the actual net tangible and intangible assets of the Target Group that exist as of the date of the consummation of the Acquisition and are based on the results of the review which we are currently conducting in cooperation with independent experts. Consequently, amounts preliminarily allocated to goodwill and identifiable intangibles could change significantly from those used in the pro forma combined condensed financial statements presented in Annex C and could result in a material change in amortization of acquired intangible assets.
RISK FACTORS
We encourage you to consider, among other matters, the risk factors contained in Item 3 of our 2004 Annual Report, which will continue to apply following the Acquisition, as well as the following before deciding whether to approve the Acquisition described in Proposal 1:
Our existing shareholders will have a reduced ownership and voting interest after the Acquisition and will exercise less influence over management of the combined company.
After the effective time of the Acquisition, our shareholders will own in aggregate a significantly smaller percentage of our company than they currently own. Following completion of the Acquisition, our shareholders will own approximately 40% of our company. Consequently, our shareholders as a general matter, may have less influence over our management and policies than they currently exercise.
We may not realize the full benefits in the Acquisition, which may harm our business and the value of our ordinary shares.
The diversion of management’s attention and any delays or difficulties encountered in connection with the Acquisition and the legal integration of the assets and liabilities of all of the Target Group entities could result in the disruption of our ongoing businesses or inconsistencies in the standards, controls, procedures and policies of the entities that could negatively affect our ability to conduct our business.
Among the factors considered by our audit committee and board of directors in connection with their respective approvals of the Acquisition were the efficiencies and financial advantages that could result from the Acquisition. These efficiencies and financial advantages may not be realized within the time periods contemplated or at all. If we are able to successfully achieve these efficiencies or obtain the financial advantages, the anticipated benefits of the Acquisition may not be realized fully or at all or may take longer to realize than expected.
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We will incur significant transaction costs in connection with the Acquisition.
We expect to incur a number of non-recurring transaction fees and other costs associated with completing Acquistion. These fees and costs will be substantial. Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the legal integration of all of the businesses of the Group will offset the incremental transaction related costs over time, this net benefit may not be achieved in the near term, or at all.
The Acquisition will substantially increase the level of our indebtedness
We will assume substantial additional debt in order to finance the Acquisition at an agreed level of financial debt per Subscriber, which is higher by approximately NIS 1,100 per Subscriber as compared to our debt per Subscriber as of December 31, 2005. Our ability to meet these debt obligations will depend on (i) whether, we will be able to continue to implement our strategy and successfully deliver the results contemplated in our long-term business plan, and (ii) financial, competitive, regulatory and technical factors, including some factors that are beyond our control. If we are unable to generate sufficient cash flow from operations to meet principal and interest payments on our debt, we may have to refinance all or part of our indebtedness. Furthermore, while we agreed a set of principles with respect to the Credit Facility, we cannot give any assurance that the final terms of the Credit Facility will accord with our current expectations and financial forecasts.
Following the Acquisition our financial liabilities will be significantly increased.
Prior to the Acquisition, our financial obligations with respect to the activities of the Group, were limited to our proportionate share of the entire business of the Group. For instance, as a condition for its approval of the merger, the Group was required by the Controller to supply fixed line telephony services over cable infrastructure to the Israeli public and to invest in fixed line telephony cable infrastructure an aggregate of not less than NIS 350 million. Our portion of that obligation, which was funded through HOT Telecom was NIS 93 million. Following the Acquisition, since we will hold, directly or indirectly, all of the partners’ rights in HOT Telecom, we will be obliged to invest the full remaining amount. We cannot assure that our financial situation will enable us to meet any and all of our existing and new financial obligations.
The Bank of Israel directives to banks may limit our ability to borrow following the Acquisition
The sums that will be deemed to have been borrowed by us when taken together with our other shareholders following the Acquisition is not anticipated to exceed the maximum borrowing limit of a single borrower or group of borrowers under Israeli banking laws. However, should the Bank of Israel issue a different directive in the future, or should we or our shareholders assume significant additional debt from Israeli banks, this may be considered to exceed the maximum borrowing limit and materially restrict our ability to receive loans from Israeli banks. In addition, following the Acquisition we may be subject to additional limitations in connection with the receipt of loans from Israeli banks due to restrictions under Israeli Banking laws pertaining to the maximum borrowing by a group of borrowers and their shareholders.
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PROPOSAL 1
At the Meeting, you will be requested to approve the Acquisition Agreement and all of the transactions contemplated thereby.
Our board shall submit to the vote of our shareholders the following Proposal 1:
| To approve a series of transactions set forth in an Acquisition Agreement between the Company and a group of entities (the “Target Group”) which constitute, together with the Company, the owners of all of Israel’s cable television operations, dated May 8, 2006, as amended on May 22, 2006 (the “Acquisition Agreement”) pursuant to which the Company will acquire all of the assets and liabilities and activities relating to the provision of cable television and fixed-line telecommunications services provided by the Target Group (the “Acquisition”); the Acquisition to be carried out by the Company’s purchase directly or indirectly of all of the outstanding shares, partners’ rights, or assets and liabilities of each of the entities in the Target Group, in consideration for the assumption, directly or indirectly of the financial liabilities of the entities of the Target Group as of December 31, 2005, in an aggregate amount equal to approximately NIS 3 billion (the “Consideration Debt”) and the issuance to the direct or indirect owners of the Target Group, an aggregate of approximately 45,600,000 ordinary shares of the Company (the “Shares”) constituting approximately 60% of the Company’s issued and outstanding share capital immediately following the completion of the Acquisition. |
As a result of (i) the undertaking by certain of those entities which will become our major shareholders to take all required actions to ensure that the group of companies led by Mr. Eliezer Fishman (the “Fishman Group”) will become our largest shareholder immediately following the completion of the Acquisition (Yedioth may elect with the consent of the Fishman Group to become our largest shareholder in place of the Fishman Group); and (ii) the Right of First Refusal Agreement the parties to which intend to execute simultaneously with the completion of the Acquisition. As a result of the Right of First Refusal Agreement, certain of our shareholders and directors may be deemed by the Law to have a “Personal Interest” in the consummation of the Acquisition. Consequently, Proposal 1 requires the affirmative vote of shareholders present in person or by proxy and holding our ordinary shares amounting in the aggregate to (i) the majority of the votes actually cast with respect to such proposal including at least one-third of the voting power of those shareholders who do not have a “Personal Interest” who are present in person or by proxy and vote on such proposal, or (ii) the majority of the votes cast on such proposal at the Meeting, provided that the total votes cast in opposition to such proposal by those shareholders who do not have a “Personal Interest” does not exceed 1% of all the voting power in our company.
Each Record Holder voting at the Meeting or prior thereto by means of the enclosed proxy card is requested to notify us if it has a “Personal Interest” in connection with Proposal 1, as a condition for its vote to be counted with respect to Proposal 1. If any Record Holder casting a vote in connection with Proposal 1 does not notify us, such shareholder’s vote shall be disqualified.
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PROPOSAL 2
At the Meeting, our shareholders will be requested to approve an increase in our authorized share capital, and amend Article 2 of our Articles of Association accordingly. Currently we have approximately 65,000,000 ordinary shares available for issuance. Article 8 of our Articles of Association permits our shareholders to resolve to increase our authorized share capital from time to time. Pursuant to the Acquisition Agreement, at the consummation of the Acquisition, we will issue to the shareholders or partners of the entities constituting the Target Group, approximately 45,600,000 of our ordinary shares. Our board of directors believes that in order to ensure greater flexibility in pursuing future transactions involving our share capital, such as financing transactions, it is advisable to further increase our authorized share capital. Consequently, in order to issue the Shares pursuant to the Acquisition and retain flexibility for the purposes of pursuing future transactions, our board of directors proposed that the shareholders approve an increase of the Company’s authorized share capital by NIS 50,000,000 to NIS 150,000,000 divided into 150,000,000 ordinary shares, par value NIS 1.00 per share.
Our board shall submit to the vote of our shareholders the following Proposal 2:
| RESOLVED: to increase the Company’s authorized share capital from NIS 100,000,000, dividedinto 100,000,000 ordinary shares, par value NIS 1.00 per share, by NIS 50,000,000 to NIS150,000,000 divided into 150,000,000 ordinary shares, par value NIS 1.00 per share, and amendArticle 2 of the Company’s Articles of Association accordingly. |
| The proposed amendment to Article 2 of the Articles of Association is included in Annex A to this Proxy Statement. |
The affirmative vote of the holders of a majority of the voting power represented at the Meeting in person or by proxy is necessary for approval of the foregoing resolution. The audit committee of the board of directors and the board of directors each approved the foregoing resolution. The board of directors recommends that the shareholders vote “FOR” approval of the foregoing resolution.
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PROPOSAL 3
At the meeting, our shareholders will be requested to approve a change in our name from Matav – Cable Systems Media Ltd., to HOT – Cable Systems Media Ltd.
Our board shall submit to the vote of our shareholders the following Proposal 3:
| RESOLVED: subject to the consummation of the Acquisition, to change in the Company's name from Matav – Cable Systems Media Ltd., to HOT – Cable Systems Media Ltd. |
The affirmative vote of the holders of a majority of the voting power represented at the Meeting in person or by proxy is necessary for approval of the foregoing resolution. The audit committee of the board of directors and the board of directors each approved the foregoing resolution. The board of directors recommends that the shareholders vote “FOR” approval of the foregoing resolution.
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PROPOSAL 4
At the Meeting our shareholders will be requested to approve certain amendments to our Articles of Association:
In order to reflect the change in our name proposed in Proposal 3, we are required, subject to the consummation of the Acquisition, to amend the title and Article 1 of our Articles of Association.
Additionally, we currently have a board of directors which is comprised of 9 directors, including two external directors, as required by Israeli law and the listing requirements of the Nasdaq National Market. Under Israeli law, our external directors serve for fixed periods of three years, and may serve two consecutive three year periods. Our remaining directors are elected to serve on our board of directors until the following annual general meeting of our shareholders. Pursuant to the Acquisition Agreement, we have agreed, subject to its consummation, that we will amend our Articles of Association so that in addition to our external directors we will have four classes of directors. Each class of directors will be comprised of two directors, who will be elected to hold office for a renewable term which shall continue until no later than the annual general meeting occurring in the fourth calendar year following election. The election of each class of directors shall be staggered so that at each of our annual shareholders’ meetings the terms of the members of only one class of directors will expire and our shareholders will be asked to elect (or re-elect) two individuals to serve as members of that class of our directors to hold office until no later than the annual general meeting occurring in the fourth calendar year following election. The term of the initial Class I directors will expire at our annual shareholders’ meeting to be held in 2007. The term of the initial Class II directors will expire at our annual shareholders’ meeting to be held in 2008. The term of the initial Class III directors will expire at our annual shareholders’ meeting to be held in 2009. The term of the initial Class IV directors will expire at our annual shareholders’ meeting to be held in 2010. The terms of service of our external directors shall continue, in accordance with the provisions of Israeli law.
Our board shall submit to the vote of our shareholders the following Proposal 4:
| RESOLVED: Subject to the consummation of the Acquisition, to adopt certain amendments to theCompany’s articles of association (the “Articles of Association”) as follows: |
| — | to amend the title and Article 1 of the Articles of Association to reflect a change in the name of the Companyto HOT – Cable Systems Media Ltd. |
| — | to amend Article 13 of the Articles of Association such that the Company’s board of directors shall becomprised (in addition to the Company’s external directors) of four classes ofdirectors of up to two directors per class who shall be elected by the Company’sshareholders for terms of up to four years, in such a manner that only the directorsof one class may be elected at any annual meeting of the Company’s. |
| The proposed amendments to the Articles of Association are contained in Annex A to thisProxy Statement. |
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The affirmative vote of the holders of a majority of the voting power represented at the Meeting in person or by proxy is necessary for approval of the foregoing resolution. The audit committee of the board of directors and the board of directors each approved the foregoing resolution. The board of directors recommends that the shareholders vote “FOR” approval of the foregoing resolution.
APPROVAL BY THE SHAREHOLDERS OF THE COMPANY OF PROPOSAL 4 IS A CONDITION TO OUR OBLIGATION TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED BY THE ACQUISITION AGREEMENT. ACCORDINGLY, IF PROPOSAL 4 IS NOT APPROVED BY THE OUR SHAREHOLDERS, THE PARTIES WILL BE ENTITLED NOT TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED BY THE ACQUISITION AGREEMENT.
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PROPOSAL 5
Subject to the consummation of the Acquisition and an affirmative vote of a majority of the voting power represented at the Meeting in connection with Proposal 4 contained in this Proxy Statement, Article 13 of our Articles of Association shall be amended in order to provide for the establishment of a staggered board of directors with four classes of directors. Therefore, our board of directors recommends that subject to the consummation of the Acquisition the Meeting, (i) dismiss all of our current directors with the exception of Messrs. Yair Keusch and Yeshayahu Drori, our external directors and (ii) elect or re-elect (as applicable) to our board of directors, the following nominees; each nominee to be elected to the class of directors and for the term set forth next to his name in the proposed resolution.
The Company is not aware of any reason why any of the nominees, if elected, would be unable to serve as a Director.
A brief biography of each nominee follows:
Meir Srebernik, age 46, has been a director of the Company since March 2002 and its Chairman since September 2004. Mr. Srebernik was the Chief Executive Officer of Dankner Investments Ltd., from February 2002 to August 2004. Mr. Srebernik served as a director of various other companies, including Matav Investments Ltd., HOT Telecom Ltd., and HOT Vision. Between 1995 and 2000, he was the president and Chief Executive Officer of Netia Holding SA, a leading Polish alternative fixed line telecommunications company. He has also served as the head of the cable television division of the Israeli Ministry of Communications from 1987 to 1993, as Vice President of Telecommunications of Dankner Investments Ltd. from 1993 to 1994 and as a director of Pelephone Communications Ltd., one of the four mobile phone service providers in Israel, in 2001. Mr. Srebernik holds a B.A. degree in economics and business administration from the Hebrew University, Jerusalem.
Asaf Bartfeld, age 53, has been a director of the Company since June 2004. Mr. Bartfeld is currently the President and CEO of Delek Group Ltd., and the CEO of Delek Investments and Properties Ltd. Prior to holding his current positions in the Delek Group he was CFO of Delek Group Ltd. Mr. Bartfeld serves as the chairman of the board of directors of Delek Real Estate Ltd., Gadot Biochemical Industries Ltd., Delek Belron International Ltd., and is a member of the board of directors of several other entities within the Delek Group. Mr. Bartfeld holds a B.A. degree in economics from Tel Aviv University.
Gilad Shavit, age 39 served as the Deputy-CEO of The Israel Corporation Ltd.(TASE:ILCO) until May 2006 in connection with which he also he served as a member of the board of directors of several of its affiliates including, Israel Chemicals Ltd., ZIM Integrated Shipping Services Ltd. and the Oil Refineries Ltd. Prior to his position with The Israel Corporation Ltd., Mr. Shavit was the CEO of Kol 1 Investments In Communications (H.L) Ltd. the telecommunications arm of The Israel Corporation, through which he served as chairman of the board of directors of two foreign telecommunication networks PSINet Europe Ltd. and RSL.COM Finland.. Prior to joining The Israel Corporation, Mr. Shavit served as VP of Economics and a member of the senior management of Bezeq. Mr. Shavit holds a B.A. in economics from Tel Aviv University, and a Masters degree in business administration from Tel Aviv University.
Tal Menipaz, age 37 serves as the CEO of Foriland Investments Ltd. and as a member of the board of directors of several private companies, principally in the technology and venture capital field. Mr. Menipaz is a certified public accountant in Israel and holds a B.A. in accounting and economics from Tel Aviv University, and a Masters degree in business administration from Tel Aviv University.
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Yinon Engel, age 63 is currently the Deputy Managing Director of Yedioth Ahronoth Ltd. Mr. Engel also serves as a director of several companies in the Yedioth Ahronoth Ltd. and Yedioth Communications Group. Mr. Engel is a certified public accountant in Israel.
Dr. David Tadmor, age 46 is the founding partner of Tadmor & Co. Law Offices in Israel. Between 2002 and 2005, Dr. Tadmor was a senior partner at Caspi & Co. Law Offices, in Tel-Aviv. From 1997 until 2001, Dr. Tadmor was the Director General of the Israel Antitrust Authority. Dr. Tadmor practiced with the law firm of Wachtell, Lipton, Rosen and Katz in New York between 1988 and 1992 and was a founding partner of the law firm of Levy & Tadmor, in Tel Aviv, where he worked between 1993 and 1997. Dr. Tadmor holds an L.L.B from the Hebrew University, and an L.L.M and a doctorate from the University of New York.
Shilo Debeer, age 38 has been serving as content and media manager at the Yedioth Ahronoth Group since 2005. Prior to holding his position at Yedioth Ahronoth Group, Mr. Debeer was one of the founders of Channel 10 News, where between 2003 and 2005, he served as head of its editorial division and VP of Content. Between 2002 and 2003, Mr. Debeer served as an independent consultant to several companies in the media industry, and lectured at the College of Management in Rishon Le-Zion, Israel. Between 2000 and 2001, Mr. Debeer held a senior management position at the media company Log-On Ltd. Between 1992 and 2000, Mr. Debeer served at Yedioth Ahronoth newspaper in several senior positions including head of the News Desk and news editor. Mr. Debeer has a B.A. in Communications and Political science from Tel-Aviv University.
Amos Lasker, age 56 is currently the CEO of Gilat Satcom Ltd., prior to which he served as CEO of Mediterranean Nautilus (Israel) Ltd. and CEO of Globscom Ltd. Mr. Lasker is also a Director of several private companies in the media, technology and venture capital industries. In addition, Mr. Lasker is a director of Gilat Satcom Ltd. and Satcom Systems Ltd. Mr. Lasker has a B.A in Economics from Tel-Aviv University, an M.B.A. and a Masters in Operation Research from Tel-Aviv University.
Our board shall submit to the vote of our shareholders the following Proposal 5:
| RESOLVED: Subject to the consummation of the Acquisition,to dismiss from their office on the board ofdirectors of the Company, effective as of the closing of the Acquisition, each of the Company’s currentdirectors with the exception of Messrs. Yair Keusch and Yeshayahu Drori, the Company’s externaldirectors and elect or re-elect (as applicable) the following individuals to serve as members of theCompany’s board of directors for the term and class designated as follows: |
Mr. Amos Lasker, Class I – to serve until our annual general meeting to be held in 2007
Mr. Shilo Debeer, Class I – to serve until our annual general meeting to be held in 2007
Mr. Asaf Bartfeld, Class II – to serve until our annual general meeting to be held in 2008
Mr. Meir Srebernik, Class II – to serve until our annual general meeting to be held in 2008
Mr. Yinon Engel, Class III – to serve until our annual general meeting to be held in 2009
Mr. Tal Menipaz, Class III – to serve until our annual general meeting to be held in 2009
Dr. David Tadmor, Class IV – to serve until our annual general meeting to be held in 2010
Mr. Gilad Shavit, Class IV – to serve until our annual general meeting to be held in 2010
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The affirmative vote of the holders of a majority of the voting power represented at the Meeting in person or by proxy is necessary for approval of the foregoing resolution. The audit committee of the board of directors and the board of directors each approved the foregoing resolution. The board of directors recommends that the shareholders vote “FOR” approval of the foregoing resolution.
APPROVAL BY THE SHAREHOLDERS OF THE COMPANY OF PROPOSAL 5 IS A CONDITION TO OUR OBLIGATION TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED BY THE ACQUISITION AGREEMENT. ACCORDINGLY, IF PROPOSAL 5 IS NOT APPROVED BY THE OUR SHAREHOLDERS, THE PARTIES WILL BE ENTITLED NOT TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED BY THE ACQUISITION AGREEMENT.
OTHER MATTERS
Shareholders are urged to complete and return their proxies promptly in order to, among other things, ensure action by a quorum and to avoid the expense of additional solicitation. If the accompanying proxy is properly executed and returned in time for voting, and a choice is specified, the shares represented thereby will be voted as indicated thereon. If no specification is made, the proxy will be voted in favor of each of the Proposals described in this Proxy Statement.
Where to Find More Information
You may read and copy any reports, statements or other information that the Company files with or submits to the Securities and Exchange Commission at the SEC’s public reference room at the following location:
| Public Reference Room |
| 450 Fifth Street, N.W., Room 1024 |
| Washington, D.C. 20549 |
Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. These SEC filings and submissions are also available to the public from commercial document retrieval services and at the Internet at http://www.sec.gov.
The documents set forth below, as well as reports submitted by us with the SEC after the date of this Proxy Statement, contain important information about us and our financial condition:
Annual Report on Form 20-F for the fiscal year ended December 31, 2004 (a copy of which is being mailed to the Company’s shareholders herewith); and
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Reports of Foreign Issuer on Form 6-K as follows:
| Month/Year | Date |
|---|---|
| May 2006 | 1, 8, 18, 19, 23 May 2006 |
| April 2006 | 11 April 2006 |
| March 2006 | 1, 14, 16, 22, 29 March 2006 |
| February 2006 | 15, 22, 23, 28 February 2006 |
| January 2006 | 17 January 2006 |
| December 2005 | 27 December 2005 |
| November 2005 | 22 (two reports) 28, November 2005 |
| October 2005 | 31 October 2005 |
| August 2005 | 2, 19, 24 (two reports), 29 August 2005 |
| July 2005 | 8, 21, 26 July 2005 |
OUR 2004 ANNUAL REPORT CONTAINS A DETAILED DESCRIPTION OF OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION AND INCLUDES OUR FINANCIAL STATEMENTS AND SCHEDULES.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROXY STATEMENT OR THE INFORMATION FURNISHED TO YOU IN CONNECTION WITH THIS PROXY STATEMENT TO VOTE ON THE TRANSACTION. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS DOCUMENT. THIS PROXY STATEMENT IS DATED MAY 23, 2006. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS DOCUMENT IS ACCURATE AS OF ANY DATE OTHER THAN MAY 23, 2006, AND THE MAILING OF THIS DOCUMENT TO SHAREHOLDERS SHOULD NOT CREATE ANY IMPLICATION TO THE CONTRARY.
| By Order of the Board of Directors, Ori Gur-Arieh General Counsel and Company Secretary |
Date: May 23, 2006
61
Annex A
Proposed Amendments to the Company’s Articles of Association
The name of the Articles of Association shall be changed from “Matav – Cable Systems Media Ltd. – Articles of Association”to “HOT – Cable Systems Media Ltd. – Articles of Association.”
In Article 1(a) the words “the Company” – Matav – Cable Systems Media Ltd; shall be replaced by the following:
| “the Company” – HOT – Cable Systems Media Ltd; |
Article 2(a) shall be terminated and replaced by the following:
| 2(a) | The Company’s share capital is NIS 150,000,000 (one hundred and fifty million) divided into 150,000,000 (one hundred and fifty million) ordinary shares of NIS 1 n.v. each. |
Article 13 shall be terminated and replaced by the following:
| 13. | Board of Directors |
| 13(a) | The number of the members of the Company’s board of directors shall be ten (10). The board of directors shall be comprised of eight (8) ordinary directors and two (2) external directors, whose appointment shall be as required pursuant to the Companies Law. In any event, the number of the members of the board of directors who are not external directors shall not be less than four (4) members. |
| 13(b) | The appointment of the Company’s directors, who are not external directors, shall be effected in a resolution of the Company’s general meeting with an ordinary majority, pursuant to the provisions of this article 13 below. The elected directors shall take up their positions at the time they are elected, unless otherwise determined by the general meeting. The appointment of the external directors shall be effected in accordance with the provisions of the Companies Law. |
| 13(c) | The Company’s general meeting which shall first elect the directors according to the staggered board mechanism provided herein (“the Original Meeting”), shall appoint as a single slate, directors who are not external directors and shall divide them into four groups of two directors each, as set forth below, in accordance with the allocation contained in the proposal for appointment of directors at the Original Meeting – |
| 13(c)(i) | The members of the first group shall be elected for a term of office which shall last until the Company’s annual general meeting that shall be held in the calendar year first following the Original Meeting. |
| 13(c)(ii) | The members of the second group shall be elected for a term of office that shall last consecutively until the Company’s annual general meeting that shall be held in the second calendar year following the Original Meeting. |
| 13(c)(iii) | The members of the third group shall be elected for a term of office that shall last consecutively until the Company’s annual general meeting that shall be held in the third calendar year following the Original Meeting. |
| 13(c)(iv) | The members of the fourth group shall be elected for a term of office that shall last consecutively until the Company’s annual general meeting that shall be held in the fourth calendar year following the Original Meeting. |
| 13(d) | Commencing from the annual general meeting which shall be held in the first calendar year following the calendar year in which the Original Meeting has been held, the general meeting shall, in the place of every director whose office terminated at such meeting pursuant to the provisions of article 13(c) above, elect a director who shall serve consecutively from the time of his election until the Company’s fourth annual meeting following the meeting at which he was elected and so on, whenever the term of office shall come to an end. For the avoidance of doubt, it is expressed that the general meeting may, pursuant to this article, reappoint a director whose office has terminated in consequence of the conclusion thereof for a further term of office as aforesaid. |
| 13(e) | The board of directors can fill every director’s position that has become vacant pursuant to the provisions of article 13(i) below by a resolution that shall be passed by an ordinary majority of the board of directors, even if at such time the board of directors comprises a number of directors that is less than the minimum number required pursuant to article 13(a) of the articles of association. |
| Every director who shall be elected by the board of directors to occupy the position of a director that was vacated, as provided in this article 13(e) above, shall be placed in the same group in which the outgoing director served and for the remaining term for members of the group in which he is placed. |
| 13(f) | Each member of the board of directors may appoint an alternate for himself (“Alternate Director”), provided that a person who is not qualified to be appointed as a director and also a person who serves as a director or an Alternate Director in the Company shall not be appointed as an Alternate Director. |
| The appointment or termination of the office of an Alternate Director shall be effected in a written instrument signed by the director who appointed him; however, in any event, the office of an Alternate Director shall come to an end if one of the events specified in the sub-clauses of article 13(i) below occur to the Alternate Director or if the office of the member of the board of directors in whose stead he serves as an alternate shall be vacated for any reason whatsoever. |
| 13(g) | For so long as the appointment of an Alternate Director is in effect, the Alternate Director shall have all the powers and rights conferred upon the member of the board of directors who appointed him, including the right to receive invitations to every board of directors’ meeting (in addition to the right of the appointing director to receive invitations) and the right to participate in and vote at every board of directors’ meeting at which the appointing director is absent. |
| 13(h) | The office of an Alternate Director shall be automatically vacated upon the termination of the office of the appointing director. |
| 13(i) | The office of a member of the board of directors shall be automatically vacated in each of the following cases: |
| 13(i)(1) | on his death; |
| 13(i)(2) | if he becomes insane or mentally ill; |
| 13(i)(3) | if he goes into bankruptcy; |
| 13(i)(4) | if he resigns from his office by written notice to the Company; |
| 13(i)(5) | in any other case prescribed in the Law. |
| 13(j) | In the event that the position of a director shall become vacated, the remaining members of the board of directors may act in every matter for so long as their number shall not be less than that prescribed in article 13(a) above. |
| If their number falls below the minimum number set forth in Article 13(a), they shall not be entitled to act save in urgent cases or in order to elect new members of the board of directors pursuant to the provisions of article 13(e) or to convene a special meeting or an annual meeting. |
| 13(k) | The members of the board of directors shall receive a fee from the Company for their service as members of the board of directors, if the Company so resolves in accordance with the provisions of law. Each member of the board of directors shall be able to receive his reasonable expenses for travel, subsistence and other expenses relating to his participating in the board of directors’ meetings and in carrying out his position as a member of the board of directors, all as shall be resolved subject to the provisions of every law. |
| 13(l) | If a member of the board of directors, who is so willing, will be required to provide the Company with special services or to make special efforts for one of the Company’s purposes by traveling abroad or staying there or in another manner, the Company shall pay him a fee in an amount that shall be determined pursuant to the provisions of every law and such fee shall be added to the fixed fee (if there shall be such) or shall replace it. |
| 13(m) | The chairman of the board of directors shall be elected by an ordinary resolution by the board of directors’ members at the meeting of the Company’s board of directors following the annual meeting, or the board of directors meeting that appointed him to serve as a director. |
| 13(n) | A body corporate shall not be qualified to serve as a director of the Company. |
Annex B(1)
MATAV – CABLE SYSTEMS MEDIA LTD.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2005
INDEX
 | n | Kost Forer Gabbay & Kasierer | n | Phone: 972-3-6232525 |
| 3 Aminadav St. Tel-Aviv 67067, Israel | Fax: 972-3-5622555 |
REPORT OF INDEPENDENT AUDITORS
To the shareholders of
MATAV – CABLE SYSTEMS MEDIA LTD.
We have audited the accompanying balance sheets of Matav – Cable Systems Media Ltd. (“the Company”) as of December 31, 2005 and 2004 and the consolidated balance sheets as of such dates and the related statements of operations, changes in shareholders equity and cash flows – of the Company and consolidated – for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company’s board of directors and management. Our responsibility is to express an opinion on these financial statements based on our audits.
We did not audit the financial statements of a jointly controlled company whose assets included in consolidation constitute approximately 4.8% and 4.9% of total consolidated assets as of December 31, 2005 and 2004, respectively, and whose revenues included in consolidation constitute approximately 0.9% and 1% of total consolidated revenues for the years ended December 31, 2005 and 2004, respectively. Also, we did not audit the financial statements of certain affiliates, the investment in which, at equity, amounted to NIS 78,869 thousand and NIS 100,334 thousand as of December 31, 2005 and 2004, respectively, and the Company’s equity in their earnings (losses) amounted to NIS (2,099) thousand, NIS 14,401 thousand and NIS 42,105 thousand for the years ended December 31, 2005, 2004 and 2003, respectively. The financial statements of those companies were audited by other auditors, whose reports have been furnished to us, and our opinion, insofar as it relates to amounts included for those companies, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing standards in Israel, including those prescribed by the Auditors’ Regulations (Auditor’s Mode of Performance), 1973. 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 audits and the reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position – of the Company and consolidated – as of December 31, 2005 and 2004 and the results of operations, changes in shareholders equity and cash flows – of the Company and consolidated – for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in Israel. Furthermore, in our opinion, the financial statements referred to above are prepared in accordance with the Securities Regulations (Preparation of Annual Financial Statements), 1993.
As described in Note 2, the financial statements as of the dates and for the reported periods subsequent to December 31, 2003, are presented in reported amounts, in conformity with Accounting Standards of the Israel Accounting Standards Board. The financial statements for the year ended December 31, 2003, are presented in values that were adjusted until that date according to the changes in the general purchasing power of the Israeli currency, in accordance with pronouncements of the Institute of Certified Public Accountants in Israel.
Without qualifying our opinion, we draw attention to Note 18 regarding contingent liabilities and claims filed against the Company and its investees.
| Tel-Aviv, Israel | KOST FORER GABBAY & KASIERER |
| March 16, 2006 | A Member of Ernst & Young Global |
2
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| CONSOLIDATED BALANCE SHEETS |
| December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | ||||||||||
| Note | Reported NIS in thousands (1) | ||||||||||
| ASSETS | |||||||||||
| CURRENT ASSETS: | |||||||||||
| Cash and cash equivalents | 3 | 13,184 | 24,250 | ||||||||
| Short-term deposit | 11b(2) | 27,196 | 50 | ||||||||
| Trade receivables | 4 | 74,699 | 75,458 | ||||||||
| Other accounts receivable | 5 | 20,381 | 20,010 | ||||||||
| 135,460 | 119,768 | ||||||||||
| LONG-TERM INVESTMENTS AND RECEIVABLES: | |||||||||||
| Investments in affiliates | 6b | 79,040 | 101,736 | ||||||||
| Investment in another company | 6b(2) | 19,278 | - | ||||||||
| Investment in limited partnerships | 7 | 669 | 1,656 | ||||||||
| Rights to broadcast films and programs | 8 | 23,918 | 26,509 | ||||||||
| Other receivables | 317 | 601 | |||||||||
| 123,222 | 130,502 | ||||||||||
| FIXED ASSETS, NET | 9 | 814,408 | 825,511 | ||||||||
| OTHER ASSETS, NET | 10 | 2,525 | 3,101 | ||||||||
| 1,075,615 | 1,078,882 | ||||||||||
| (1) | See Note 2. |
The accompanying notes are an integral part of the financial statements.
3
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| CONSOLIDATED BALANCE SHEETS |
| December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | ||||||||||
| Note | Reported NIS in thousands (1) | ||||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
| CURRENT LIABILITIES: | |||||||||||
| Credit from banks and others | 11 | 551,742 | 465,339 | ||||||||
| Current maturities of debentures | 14 | 34,596 | 34,005 | ||||||||
| Trade payables | 12 | 105,187 | 104,282 | ||||||||
| Jointly controlled entity - current account | 15,648 | 18,112 | |||||||||
| Other accounts payable | 13 | 101,525 | 201,943 | ||||||||
| 808,698 | 823,681 | ||||||||||
| LONG-TERM LIABILITIES: | |||||||||||
| Loans from banks and others | 15 | 75,464 | 101,457 | ||||||||
| Debentures | 14 | - | 33,201 | ||||||||
| Deferred taxes | 17 | 4,695 | - | ||||||||
| Customers' deposits for converters, net | 16,074 | 20,279 | |||||||||
| Accrued severance pay liability, net | 16 | 3,327 | 2,483 | ||||||||
| 99,560 | 157,420 | ||||||||||
| CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES AND CHARGES | 18 | ||||||||||
| SHAREHOLDERS' EQUITY | 19 | 167,357 | 97,781 | ||||||||
| 1,075,615 | 1,078,882 | ||||||||||
| (1) | See Note 2. |
The accompanying notes are an integral part of the financial statements.
| March 16, 2006 —————————————— Date of approval of the financial statements | —————————————— Meir Srebernik Chairman of the Board and CEO | —————————————— Tal Peres Chief Financial Officer |
4
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| BALANCE SHEETS - THE COMPANY |
| December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | ||||||||||
| Note | Reported NIS in thousands (1) | ||||||||||
| ASSETS | |||||||||||
| CURRENT ASSETS: | |||||||||||
| Cash and cash equivalents | 3 | 6,364 | 21,602 | ||||||||
| Short-term deposit | 11b(2) | 27,196 | - | ||||||||
| Trade receivables | 4 | 33,835 | 37,398 | ||||||||
| Other accounts receivable | 5 | 12,801 | 15,321 | ||||||||
| 80,196 | 74,321 | ||||||||||
| LONG-TERM INVESTMENTS AND RECEIVABLES: | |||||||||||
| Investments in subsidiaries and long-term accounts | 6a | 276,772 | 254,100 | ||||||||
| Investments in affiliates | 6b | 77,814 | *) | 99,183 | |||||||
| Other receivables | 317 | 601 | |||||||||
| 354,903 | *) | 353,884 | |||||||||
| FIXED ASSETS, NET | 9 | 545,452 | 557,487 | ||||||||
| OTHER ASSETS, NET | 10 | 172 | 616 | ||||||||
| 980,723 | *) | 986,308 | |||||||||
| *) | Reclassified. |
| (1) | See Note 2. |
The accompanying notes are an integral part of the financial statements.
5
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| BALANCE SHEETS - THE COMPANY |
| December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | ||||||||||
| Note | Reported NIS in thousands (1) | ||||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
| CURRENT LIABILITIES: | |||||||||||
| Credit from banks and others | 11 | 510,252 | 424,992 | ||||||||
| Current maturities of debentures | 14 | 34,919 | 34,005 | ||||||||
| Trade payables | 12 | 76,203 | 74,917 | ||||||||
| Subsidiaries - current account | 16,979 | 18,619 | |||||||||
| Other accounts payable | 13 | 86,193 | *) | 179,965 | |||||||
| 724,546 | *) | 732,498 | |||||||||
| LONG-TERM LIABILITIES: | |||||||||||
| Loans from banks and others | 15 | 75,464 | 101,457 | ||||||||
| Debentures | 14 | - | 34,005 | ||||||||
| Excess of losses over investment in subsidiaries | 6a | - | *) | 4,643 | |||||||
| Customers' deposits for converters, net | 11,838 | 14,901 | |||||||||
| Accrued severance pay liability, net | 16 | 1,518 | 1,023 | ||||||||
| 88,820 | *) | 156,029 | |||||||||
| CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES AND CHARGES | 18 | ||||||||||
| SHAREHOLDERS' EQUITY | 19 | 167,357 | 97,781 | ||||||||
| 980,723 | *) | 986,308 | |||||||||
| *) | Reclassified. |
| (1) | See Note 2. |
The accompanying notes are an integral part of the financial statements.
| March 16, 2006 —————————————— Date of approval of the financial statements | —————————————— Meir Srebernik Chairman of the Board and CEO | —————————————— Tal Peres Chief Financial Officer |
6
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| CONSOLIDATED STATEMENTS OF OPERATIONS |
| Year ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | 2003 | ||||||||||||
| NIS in thousands (except per share amounts) | ||||||||||||||
| Note | Reported (1) | Adjusted (2) | ||||||||||||
| Revenues | 2k | 542,968 | 584,564 | 545,480 | ||||||||||
| Operating expenses: | ||||||||||||||
| Depreciation and amortization | 141,795 | 144,902 | 160,521 | |||||||||||
| Other operating expenses | 21a | 339,765 | 327,586 | 306,165 | ||||||||||
| Total operating expenses | 481,560 | 472,488 | 466,686 | |||||||||||
| Gross profit | 61,408 | 112,076 | 78,794 | |||||||||||
| Selling, marketing, general and administrative | ||||||||||||||
| expenses: | 21b | |||||||||||||
| Selling and marketing expenses | 53,318 | 63,676 | 43,954 | |||||||||||
| General and administrative expenses | 42,133 | *) | 45,023 | *) | 42,122 | |||||||||
| 95,451 | *) | 108,699 | *) | 86,076 | ||||||||||
| Operating income (loss) | (34,043 | ) | *) | 3,377 | *) | (7,282 | ) | |||||||
| Financial expenses, net | 21c | 50,645 | 50,333 | 83,958 | ||||||||||
| Other income (expenses), net | 21d | 153,526 | (42,680 | ) | *) | 83,001 | ||||||||
| Income (loss) before taxes on income | 68,838 | *) | (89,636 | ) | *) | (8,239 | ) | |||||||
| Taxes on income | 17 | (6,736 | ) | *) | 7,649 | *) | 38,118 | |||||||
| Income (loss) after taxes on income | 75,574 | (97,285 | ) | (46,357 | ) | |||||||||
| Equity in earnings (losses) of investees, net | 6 | (6,000 | ) | 14,301 | 40,907 | |||||||||
| Net income (loss) | 69,574 | (82,984 | ) | (5,450 | ) | |||||||||
| Net earnings (loss) per Ordinary share (in NIS) | 22 | 2.30 | (2.74 | ) | (0.19 | ) | ||||||||
| *) | Reclassified. |
| (1) | See Note 2. |
| (2) | Adjusted to the NIS of December 2003. |
The accompanying notes are an integral part of the financial statements.
7
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| STATEMENTS OF OPERATIONS - THE COMPANY |
| Year ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | 2003 | ||||||||||||
| NIS in thousands (except per share amounts) | ||||||||||||||
| Note | Reported (1) | Adjusted (2) | ||||||||||||
| Revenues | 2k | 345,819 | 370,275 | 367,326 | ||||||||||
| Operating expenses: | ||||||||||||||
| Depreciation and amortization | 104,524 | 103,715 | 116,878 | |||||||||||
| Other operating expenses | 21a | 240,465 | 223,632 | 207,205 | ||||||||||
| Total operating expenses | 344,989 | 327,347 | 324,083 | |||||||||||
| Gross profit | 830 | 42,928 | 43,243 | |||||||||||
| Selling, marketing, general and administrative | ||||||||||||||
| expenses: | 21b | |||||||||||||
| Selling and marketing expenses | 31,399 | 34,988 | 26,878 | |||||||||||
| General and administrative expenses | 27,607 | *) | 30,050 | *) | 27,853 | |||||||||
| 59,006 | *) | 65,038 | *) | 54,731 | ||||||||||
| Operating loss | (58,176 | ) | *) | (22,110 | ) | *) | (11,488 | ) | ||||||
| Financial expenses, net | 21c | 35,068 | 45,961 | 79,387 | ||||||||||
| Other income (expenses), net | 21d | 157,911 | (41,976 | ) | *)86,602 | |||||||||
| Income (loss) before taxes on income | 64,667 | *) | (110,047 | ) | *) | (4,273 | ) | |||||||
| Taxes on income | 17 | (5,779 | ) | *) | 4,806 | *) | 37,592 | |||||||
| Income (loss) after taxes on income | 70,446 | (114,853 | ) | (41,865 | ) | |||||||||
| Equity in earnings (losses) of investees, net | 6 | (872 | ) | 31,869 | 36,415 | |||||||||
| Net income (loss) | 69,574 | (82,984 | ) | (5,450 | ) | |||||||||
| Net earnings (loss) per Ordinary share (in NIS) | 22 | 2.30 | (2.74 | ) | (0.19 | ) | ||||||||
| *) | Reclassified. |
| (1) | See Note 2. |
| (2) | Adjusted to the NIS of December 2003. |
The accompanying notes are an integral part of the financial statements.
8
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY |
| Share capital | Additional paid-in capital | Accumulated deficit | Cost of Company shares held by subsidiary | Total | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Number of shares | Amount | |||||||||||||||||||
| Adjusted NIS in thousands (2) | ||||||||||||||||||||
| Balance at January 1, 2003 | 30,204 | 48,882 | 401,329 | (238,222 | ) | (64,917 | ) | 147,072 | ||||||||||||
| Sale of Company shares held | ||||||||||||||||||||
| by subsidiary | - | - | (25,791 | ) | - | 64,917 | 39,126 | |||||||||||||
| Loss for the year | - | - | - | (5,450 | ) | - | (5,450 | ) | ||||||||||||
| Balance at December 31, 2003 | 30,204 | 48,882 | 375,538 | (243,672 | ) | - | 180,748 | |||||||||||||
| Reported NIS in thousands (1) | ||||||||||||||||||||
| Balance at January 1, 2004 | 30,204 | 48,882 | 375,538 | (243,672 | ) | - | 180,748 | |||||||||||||
| Exercise of stock options by | ||||||||||||||||||||
| employees | 17 | 17 | - | - | - | 17 | ||||||||||||||
| Loss for the year | - | - | - | (82,984 | ) | - | (82,984 | ) | ||||||||||||
| Balance at December 31, 2004 | 30,221 | 48,899 | 375,538 | (326,656 | ) | - | 97,781 | |||||||||||||
| Exercise of stock options by | ||||||||||||||||||||
| employees | 2 | 2 | - | - | - | 2 | ||||||||||||||
| Net income | - | - | - | 69,574 | - | 69,574 | ||||||||||||||
| Balance at December 31, 2005 | 30,223 | 48,901 | 375,538 | (257,082 | ) | - | 167,357 | |||||||||||||
| (1) | See Note 2. |
| (2) | Adjusted to the NIS of December 2003. |
The accompanying notes are an integral part of the financial statements.
9
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| Year ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | 2003 | |||||||||
| NIS in thousands | |||||||||||
| Reported (1) | Adjusted (2) | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | 69,574 | (82,984 | ) | (5,450 | ) | ||||||
| Adjustments to reconcile net income (loss) to net cash provided by | |||||||||||
| (used in) operating activities (a) | (91,359 | ) | 204,244 | 101,503 | |||||||
| Net cash provided by (used in) operating activities | (21,785 | ) | 121,260 | 96,053 | |||||||
| Cash flows from investing activities: | |||||||||||
| Investment in short-term deposits, net | (27,146 | ) | (50 | ) | - | ||||||
| Investment by granting loans to Hot Telecom | (51,820 | ) | (12,209 | ) | - | ||||||
| Investment in limited partnerships | (12 | ) | (87 | ) | - | ||||||
| Newly consolidated jointly controlled entity (b) | - | - | 1,980 | ||||||||
| Investment in affiliate | (27,656 | ) | - | - | |||||||
| Purchase of fixed assets | (151,285 | ) | (95,217 | ) | (56,642 | ) | |||||
| Collection of long-term loans from affiliate | - | - | 292 | ||||||||
| Proceeds from sale of investment in affiliate, net | 244,249 | - | 114,440 | ||||||||
| Proceeds from sale of fixed assets | 112 | 1,393 | 1,700 | ||||||||
| Grant of long-term loan for the purchase of fixed assets | - | - | (1,394 | ) | |||||||
| Collection of long-term loans granted for the purchase of fixed | |||||||||||
| assets | 277 | 277 | - | ||||||||
| Issuance of capital note and long-term account with affiliate | (142 | ) | (68 | ) | - | ||||||
| Net cash provided by (used in) investing activities | (13,423 | ) | (105,961 | ) | 60,376 | ||||||
| Cash flows from financing activities: | |||||||||||
| Exercise of stock options into shares by employees | 2 | 17 | - | ||||||||
| Sale of Company shares held by subsidiary | - | - | 39,126 | ||||||||
| Receipt of long-term loans from banks and others | - | 3,759 | 31,676 | ||||||||
| Repayment of long-term loans from banks and others | (27,816 | ) | (45,965 | ) | (73,522 | ) | |||||
| Redemption of debentures | (34,585 | ) | (34,107 | ) | (33,701 | ) | |||||
| Short-term credit from banks, net | 86,541 | 47,299 | (89,664 | ) | |||||||
| Net cash provided by (used in) financing activities | 24,142 | (28,997 | ) | (126,085 | ) | ||||||
| Increase (decrease) in cash and cash equivalents | (11,066 | ) | (13,698 | ) | 30,344 | ||||||
| Cash and cash equivalents at beginning of year | 24,250 | 37,948 | 7,604 | ||||||||
| Cash and cash equivalents at end of year | 13,184 | 24,250 | 37,948 | ||||||||
| (1) | See Note 2. |
| (2) | Adjusted to the NIS of December 2003. |
The accompanying notes are an integral part of the financial statements.
10
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| Year ended December 31, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | 2003 | |||||||||||
| NIS in thousands | |||||||||||||
| Reported (1) | Adjusted (2) | ||||||||||||
| (a) | Adjustments to reconcile net income (loss) to net cash | ||||||||||||
| provided by (used in) operating activities: | |||||||||||||
| Income and expenses not involving cash flows: | |||||||||||||
| Equity in losses (earnings) of investees, net | 3,434 | (22,652 | ) | *) | (62,840 | ) | |||||||
| Depreciation and amortization | 158,440 | 146,488 | 171,820 | ||||||||||
| Deferred taxes, net | (19,286 | ) | 8,351 | *) | 15,630 | ||||||||
| Increase in accrued severance pay, net | 844 | 377 | 1,685 | ||||||||||
| Loss (gain) from: | |||||||||||||
| Changes in shareholding in affiliate (including from sale | |||||||||||||
| of shares of affiliate) | (164,647 | ) | - | (96,662 | ) | ||||||||
| Write-off of investment in another company | - | 16,241 | - | ||||||||||
| Sale of fixed assets | 6 | 197 | 1,428 | ||||||||||
| Linkage differences on debentures | 1,975 | 1,467 | 355 | ||||||||||
| Linkage differences on long-term loans from banks and others | |||||||||||||
| and accounts receivable, net | 1,692 | (1,097 | ) | (3,647 | ) | ||||||||
| (17,542 | ) | 149,372 | *) | 27,769 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||||
| Decrease in trade receivables | 759 | 7,693 | 9,718 | ||||||||||
| Decrease in rights to broadcast movies and programs | |||||||||||||
| (including amortization of investment in limited | |||||||||||||
| partnerships) | 3,590 | 8,418 | - | ||||||||||
| Increase in other accounts receivable | (371 | ) | (245 | ) | (29 | ) | |||||||
| Increase (decrease) in trade payables | 5,328 | 9,717 | (1,832 | ) | |||||||||
| Increase (decrease) in jointly controlled entity - current | |||||||||||||
| account | (2,464 | ) | 422 | 15,008 | |||||||||
| Increase (decrease) in other accounts payable | (76,454 | ) | 34,263 | *) | 50,003 | ||||||||
| Increase (decrease) in customers' deposits for converters, net | (4,205 | ) | (5,396 | ) | 866 | ||||||||
| (73,817 | ) | 54,872 | *) | 73,734 | |||||||||
| (91,359 | ) | 204,244 | 101,503 | ||||||||||
| *) | Reclassified. |
| (1) | See Note 2. |
| (2) | Adjusted to the NIS of December 2003. |
The accompanying notes are an integral part of the financial statements.
11
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| CONSOLIDATED STATEMENTS OF CASH FLOWS |
| Year ended December 31, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | 2003 | |||||||||||
| NIS in thousands | |||||||||||||
| Reported (1) | Adjusted (2) | ||||||||||||
| (b) | Newly consolidated jointly controlled entity: | ||||||||||||
| Working capital, net (except cash and cash equivalents) | - | - | 38,745 | ||||||||||
| Fixed assets, net | - | - | (1,142 | ) | |||||||||
| Investment in limited partnerships | - | - | (2,057 | ) | |||||||||
| Rights to broadcast movies and programs | - | - | (34,927 | ) | |||||||||
| Long-term liabilities | - | - | 737 | ||||||||||
| Investment in affiliate (prior to consolidation) | - | - | 624 | ||||||||||
| - | - | 1,980 | |||||||||||
| (c) | Significant non-cash activity: | ||||||||||||
| Purchase of fixed assets on credit | 11,590 | 16,833 | 35,512 | ||||||||||
| (1) | See Note 2. |
| (2) | Adjusted to the NIS of December 2003. |
The accompanying notes are an integral part of the financial statements.
12
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| STATEMENTS OF CASH FLOWS - THE COMPANY |
| Year ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | 2003 | |||||||||
| NIS in thousands | |||||||||||
| Reported (1) | Adjusted (2) | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | 69,574 | (82,984 | ) | (5,450 | ) | ||||||
| Adjustments to reconcile net income (loss) to net cash provided by | |||||||||||
| (used in) operating activities (a) | (146,107 | ) | 147,052 | 42,870 | |||||||
| Net cash provided by (used in) operating activities | (76,533 | ) | 64,068 | 37,420 | |||||||
| Cash flows from investing activities: | |||||||||||
| Investment in short-term deposits, net | (27,196 | ) | - | - | |||||||
| Investment by granting loans to Hot Telecom | (51,820 | ) | (12,209 | ) | - | ||||||
| Purchase of fixed assets | (94,904 | ) | (50,511 | ) | (12,311 | ) | |||||
| Collection of long-term loans granted to subsidiaries, net | - | 11,817 | 54,396 | ||||||||
| Proceeds from sale of investment in affiliate, net | 244,249 | - | 113,709 | ||||||||
| Proceeds from sale of fixed assets | 83 | 1,117 | 1,077 | ||||||||
| Grant of long-term loan for the purchase of fixed assets | - | - | (1,394 | ) | |||||||
| Collection of long-term loans granted for the purchase of fixed | |||||||||||
| assets | 277 | 278 | - | ||||||||
| Investment in investees (including issuance of capital notes), net | (32,393 | ) | - | - | |||||||
| Net cash provided by (used in) investing activities | 38,296 | (49,508 | ) | 155,477 | |||||||
| Cash flows from financing activities: | |||||||||||
| Exercise of stock options into shares by employees | 2 | 17 | - | ||||||||
| Receipt of long-term loans from banks and others | - | 3,759 | 31,676 | ||||||||
| Repayment of long-term loans from banks and others | (27,816 | ) | (45,965 | ) | (73,522 | ) | |||||
| Redemption of debentures | (34,585 | ) | (34,107 | ) | (33,701 | ) | |||||
| Short-term credit from banks, net | 85,398 | 47,459 | (89,646 | ) | |||||||
| Receipt of long-term loans from subsidiary | - | - | 731 | ||||||||
| Net cash provided by (used in) financing activities | 22,999 | (28,837 | ) | (164,462 | ) | ||||||
| Increase (decrease) in cash and cash equivalents | (15,238 | ) | (14,277 | ) | 28,435 | ||||||
| Cash and cash equivalents at beginning of year | 21,602 | 35,879 | 7,444 | ||||||||
| Cash and cash equivalents at end of year | 6,364 | 21,602 | 35,879 | ||||||||
| (1) | See Note 2. |
| (2) | Adjusted to the NIS of December 2003. |
The accompanying notes are an integral part of the financial statements.
13
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| STATEMENTS OF CASH FLOWS - THE COMPANY |
| Year ended December 31, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | 2003 | |||||||||||
| NIS in thousands | |||||||||||||
| Reported (1) | Adjusted (2) | ||||||||||||
| (a) | Adjustments to reconcile net income (loss) to net cash | ||||||||||||
| provided by (used in) operating activities: | |||||||||||||
| Income and expenses not involving cash flows: | |||||||||||||
| Equity in earnings of investees, net | (444 | ) | (40,219 | ) | *) | (58,348 | ) | ||||||
| Depreciation and amortization | 107,555 | 102,098 | 126,350 | ||||||||||
| Deferred taxes, net | (19,448 | ) | 8,351 | *) | 15,630 | ||||||||
| Increase in accrued severance pay, net | 495 | 319 | 1,109 | ||||||||||
| Loss (gain) from: | |||||||||||||
| Changes in shareholding in subsidiary and affiliate | |||||||||||||
| (including from sale of shares of affiliate) | (164,647 | ) | - | (97,876 | ) | ||||||||
| Write-off of investment in another company | - | 16,227 | - | ||||||||||
| Sale of fixed assets | 7 | 81 | 938 | ||||||||||
| Linkage differences on debentures | 1,494 | 1,014 | (116 | ) | |||||||||
| Linkage differences on long-term loans from banks and others | |||||||||||||
| and accounts receivable, net | 801 | (1,097 | ) | (3,386 | ) | ||||||||
| Erosion of long-term accounts and capital note | - | - | 82 | ||||||||||
| (74,187 | ) | 86,774 | *) | (15,617 | ) | ||||||||
| Changes in operating assets and liabilities: | |||||||||||||
| Decrease in trade receivables | 3,563 | 8,002 | 2,235 | ||||||||||
| Decrease (increase) in other accounts receivable | 2,520 | 4,110 | (5,781 | ) | |||||||||
| Increase (decrease) in trade payables | 1,076 | 14,160 | (4,268 | ) | |||||||||
| Increase (decrease) in subsidiaries - current accounts | (1,640 | ) | 2,631 | 13,973 | |||||||||
| Increase (decrease) in other accounts payable | (74,376 | ) | 35,356 | *) | 51,793 | ||||||||
| Increase (decrease) in customers' deposits for converters, net | (3,063 | ) | (3,981 | ) | 535 | ||||||||
| (71,920 | ) | 60,278 | *) | 58,487 | |||||||||
| (146,107 | ) | 147,052 | 42,870 | ||||||||||
| (b) | Significant non-cash activity: | ||||||||||||
| Purchase of fixed assets on credit | 6,406 | *) | 6,981 | 28,602 | |||||||||
| *) | Reclassified. |
| (1) | See Note 2. |
| (2) | Adjusted to the NIS of December 2003. |
The accompanying notes are an integral part of the financial statements.
14
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 1: | – | GENERAL |
| a. | A General Description of the Group |
| 1. | Matav – Cable Systems Media Ltd. (the “Company”) was incorporated in June 1987. The Company operates independently and through a wholly owned subsidiary and investee partnership in two principal fields: multi channel TV broadcasting to subscribers (provided since 1990) and access to high speed internet over cables services to the private sector (provided since April 2002). The Company also holds interests (about 26.6%) in an affiliated partnership that provides nationwide fixed line telephony service and access to high speed internet over cables and other telecom services to the business sector. |
| 2. | Multi channel TV broadcasting |
| The Company and its wholly owned subsidiary, Cable Systems Media Haifa-Hadera Ltd. (“Matav Haifa”) supply multi channel TV broadcasting to subscribers in various sites in central and northern Israel. The Company, including Matav Haifa, is one of three groups that hold general non-exclusive cable broadcast licenses (the “Broadcast Licenses”). The two other groups are the Tevel group and the Golden Channels group. Since July 2001, upon the approval of amendment (No. 25) to the Israeli Telecommunications Law, 1982, the Company and Matav Haifa conduct their operation pursuant to long-term, non-exclusive Broadcast Licenses. The Broadcast Licenses are effective for a period of 15 years that may be extended for additional periods of 10 years each. |
| In July 2001 the Company and Matav Haifa began to provide digital broadcasting services, in addition to the analog broadcasting services which were provided all along. The Company and Matav Haifa offer their digital subscribers the digital Basic Package. In addition, the digital subscribers may receive at their choice for additional consideration, additional content products that include, inter alia, a variety of additional channels and channel packages. |
| The Broadcast Licenses stipulate the fee the Company and Matav Haifa may charge the analog subscribers for the Basic broadcasts in the different areas. The Broadcast licenses do not stipulate fees for digital subscribers. Pursuant to the Telecommunication Law the Company and Matav Haifa may determine the subscriber fees for digital subscribers and the Minister of Communication may direct the Company and Matav Haifa to adjust such fees if he finds, inter alia, that they are harmful to competition, discriminatory or misleading. Additional digital services (channel packages, single channels, pay per view and video on demand services) are subject to additional charge. |
| 3. | Access to High Speed internet and Telephony Services |
| a) | On March 27, 2002, the Ministry of Communication granted Matav Infrastructures 2001 Limited Partnership (“Matav Infrastructures”) which is controlled by the Company, a Telecommunication Infrastructure License (the “Infrastructure License”) for the provision of access to high speed internet services. In April 2002, Matav Infrastructures began to provide high speed internet over cable services under the said license. |
15
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 1: | – | GENERAL (Cont.) |
| In July 2002, the Cable Companies filled a request for a license to provide domestic fixed communication services to the general Israeli public. In October 2003, the Cable Companies signed an agreement for the establishment of a limited partnership, Hot Telecom (“Hot Telecom”) which is 26.6% owned by Matav Investments Ltd. (a wholly owned subsidiary of the Company). In November 2003 the Ministry of communication granted Hot Telecom an Infrastructure License which replaced and terminated the Infrastructure License of Matav Infrastructures, including, among others, a license to provide high speed internet services, fixed telephony services, various data communication services and various data transmission services. The Infrastructure License was granted for a period of 20 years that may be extended by the Minister of Communication for additional periods of 10 years each. |
| On March 16, 2005, the Minister of the Communications amended Hot Telecom Infrastructure License thereby allowing Hot Telecom to provide access to High Speed Internet services, by the former Infrastructure Licensees of the Cable Companies, including inter alia, Matav Infrastructures, whilst the said services shall be deemed to have been provided by Hot Telecom, until the consummation of the merger of the Cable Companies. |
| As of the date of the financial statements, the internet activity in the private sector is performed by Matav Infrastructures and the internet activity in the business sector is preformed by Hot Telecom. |
| b) | Telephony services provided by Hot Telecom |
| Since the first quarter of 2005, Hot Telecom began to provide, in addition to access to high speed internet to the business sector, as described above, commercial fixed line telephony services using VOIP technology. |
| In this context, Hot Telecom is required to make substantial investments in order to provide telephony services and various related services that will be offered to the entire public in Israel. According to the approval of the Controller of Restrictive Business Practices (“the Controller”) to the merger of the Cable Companies (detailed below) it was determined, among others, that Hot Telecom’s comprehensive investment in fixed line telephony infrastructure shall be in an amount of not less than NIS 350 million (the Company’s share in that amount totals approximately NIS 93 million) and it shall be invested as follows: an amount not less than NIS 190 million by June 30, 2005 and not less than NIS 160 million until June 30, 2006 and any additional amount that will be required for the finance of the business plan. The Controller also determined a minimal number of telephony subscribers between 2005 and 2007. The Company believes that as of the date of the approval of the financial statements, Hot Telecom is complying with the conditions set forth by the Controller regarding the amount of investments and of subscribers. |
16
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 1: | – | GENERAL (Cont.) |
| 4. | Ownership of the cable network |
| According to the Telecommunications Law, the grant of an Infrastructure License to Hot Telecom was contingent on the holders of the broadcasting licenses (Cable Companies) transferring to the owners of the Infrastructure Licenses, the ownership of the cable network. According to the Infrastructure License, Hot Telecom is entitled to use the cable network which is owned by the Cable Companies and to perform any operation thereon, according to the law, during an interim period. According to an amendment to the Infrastructure License from November 2005, the interim period shall terminate once the merger between the Cable Companies is consummated or June 30, 2006, whichever periods ends first. The Cable Companies intend to transfer the ownership of the cable network to Hot Telecom at the end of the interim period. As of the date of the approval of the financial statements, the ownership of the cable network was not yet transferred to Hot Telecom. |
| On September 15, 2005, the Cable Companies (including the Company) and Hot Telecom signed agreements according to which the Cable Companies rendered Hot Telecom exclusive leasehold rights in the cable network. Furthermore, the former holders of domestic fixed communication licenses (subsidiaries of the Cable Companies) assigned their rights and commitments according to the broadcast distribution agreements to Hot Telecom. The payment for the right to use the cable network and the payment for the services that Hot Telecom shall provide to the Cable Companies was not yet determined. |
| 5. | Structural Separation |
| The Broadcast Licenses and Hot Telecom Infrastructure License contain provisions as to the existence of a structural separation between holders of broadcasting licenses and the holder of the Infrastructure License. According to these provisions, there are restrictions limiting the identity and number of directors that are permitted to serve in both the infrastructure entity (and its general partner), and the Cable Broadcast Companies. Further, according to these licenses, in the earlier event of the following: another entity is granted general broadcasting license through the cable network or in the event the number of access to high speed internet subscribers reaches 450,000, or in the event the number of telephone lines operated by Hot Telecom reaches 250,000 or December 31, 2007 (an additional term in the Broadcast Licenses), the holders of the licenses shall carry out a structural separation in a format specified in the licenses including, among others, separation of the management of the holders of licenses, separation of the assets of the holders of licenses and separation of the employees of the holders of licenses. |
17
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 1: | – | GENERAL (Cont.) |
| 6. | Hot Vision Ltd. |
| In 1989, the Cable Companies (including the Company) formed Hot Vision Ltd. (“Hot Vision”) which, as of December 31, 2005 is approximately 26.3% owned by the Company (as of December 31, 2004 – approximately 26.2%). The holding rate in Hot Vision is determined according to the relative share of each company in total cable subscribers in the market. The shareholders of Hot Vision have a contractual arrangement for joint control over Hot Vision. Hot Vision is engaged in editing and preparing content to be screened and broadcasted by the Cable Companies. Hot Vision also purchases and produces local programs for the Cable Companies. The said activity is conducted by the Cable Companies through Hot Vision according to the approval of the Controller to the merger between the Cable Companies. |
| In the past, Hot Vision executed agreements with certain shareholders regarding the provision of content which it purchased from the owners of said content. Such agreement between Hot Vision and Tevel is in force until December 31, 2006. The shareholders are entitled to extend the agreement for additional periods of 12 months each, on terms to be determined by the parties. The scope of the transactions in 2005 and 2004 totaled approximately NIS 26 million and NIS 68 million, respectively. |
| 7. | The operational merger between the Cable Companies: |
| Since 2001, the Cable Companies, including the Company, act to gradually merge their operations and activities. The purpose of the merger is to, among others, enable the merged entity to consolidate, expand and facilitate its position as a national entity in the field of multi channel TV broadcasting and internet access services so to be able to compete more effectively against its competitors (mainly Bezeq, Israel’s national telecom operator and its subsidiary, the satellite company, “YES”), cooperate in various areas, including purchase of content, sales and marketing so as to achieve substantial savings in operational costs. |
| The merger received approvals under applicable law from the Council for Cable and Satellite (the “Council”), the Controller and the Income Tax Commissioner. |
| According to the position of the Supervisor of Banks, the merger of the cable television operators and the formation of the merged cable entity would constitute a deviation from the directives of the Bank of Israel and of “Proper Bank management Directives” of the Supervisor of Banks regarding, among other things, restrictions on debt amounts to a “Group of Borrowers” as such term is defined in “Proper Bank Management Directives”. The relevant directives deal with certain limits applicable to loan amounts given by banking corporations to “Sole Borrower”, and/or “Group of Borrowers” and as a result, attribution of the merged company’s debt, among other things, to an indirect controlling shareholder of the Company and the other cable television operators. |
18
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 1: | – | GENERAL (Cont.) |
| In order to strengthen the cooperation between the Cable Companies, in June 2004, the operational merger between the Cable Companies (including the Company) began to be fully implemented. To this effect, a joint management was appointed to oversee the full operational merger of the marketing, sales, engineering, customer service, operations and information systems activities of the Cable Companies (including Hot Telecom). |
| The joint management conducts and manages the Company’s activities in the ordinary course of business in the areas of the joint activities. Nonetheless, material decisions require the approval of the board and other corporate bodies, as required by law, of each of the Cable Companies. The Cable Companies have agreed on principles for the allocation of expenses according to the relative share of each company in total cable subscribers in the market. The operational merger does not constitute a legal merger and does not include the transfer of assets or liabilities from any of the Cable Companies to the joint entity or from one cable company to another. Each cable company remains the sole owner of its assets and is entitled to the revenues received from its subscribers, see also 8 below. |
| 8. | The Legal Merger |
| As part of the negotiations that took place regarding the merger of the Cable Companies, on February 21, 2006, the Company, Fishman Group and Yediot Communication Group (controlling shareholders of the Golden Channels Group) and the banks that hold Tevel shares reached a verbal understanding in regard to the major principles relating to the legal merger of the Cable Companies, except for the issue of the financing conditions of the merged company in respect of which no agreement has been reached yet (“the agreement in principle”). |
| In the context of the merger, inter alia, the Company will purchase the operations and assets of the other Cable Companies in the field of cable television broadcasting and fixed domestic communication services by purchasing the operations and interest in entities and companies of the Golden Channels and Tevel groups at a price of $ 1,350 per cable TV subscriber (“a cable TV subscriber”). The consideration is to be paid by way of assuming certain financial debt of the Golden Channels and Tevel groups (credit from banks and working capital, net as defined by the parties to the merger) representing a total of $ 850 per cable TV subscriber purchased by the Company through the merger process and by issuing shares to the shareholders of the Golden Channels and Tevel groups. The holding ratios in the Company’s shares following the merger shall be in accordance with the relative pro rata number of cable TV subscribers contributed by each party to the merger upon the date which will be determined by the parties, thus determining the amount of shares to be allocated to each party. The merger will be effected retroactively as of January 1, 2006 such that the business operating results of the merged activity as of that date will be attributed to the merged company. |
19
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 1: | – | GENERAL (Cont.) |
| The merger transaction described above, requires that the financial debt level in the Company, prior to the consummation of the merger, will be at the level of $ 850 per cable TV subscriber. Thus, prior to the consummation of the merger, the Company, which has a lower financial debt compared to the required $ 850 level, shall purchase (through a 100% bank credit) approximately 125,000 subscribers from Tevel Group at a price reflecting an enterprise value of $ 1,350 per cable TV subscriber. Upon completion of this initial transaction, the Company’s share in the total cable TV subscribers base on Israel will increase to approximately 40%. |
| The parties are also discussing arrangements, which have not yet been settled, regarding the manner of nominating directors in the Company once the merger is consummated and the rights in connection with the sale of the Company’s shares held by the banks after the consummation of the merger. The financing terms of the bank debt following the merger have not yet been determined. |
| The agreement in principle between the parties is subject, inter alia, to the execution of definitive documents by the parties, an agreement on the merged company terms of financing, the corporate approval of the relevant parties including the approval of the Company’s shareholders as well as various regulatory approvals. There is no assurance that these conditions will be satisfied or that the proposed merger will be consummated under these conditions or under any other terms. |
| The Company’s management is examining the consequences of the merger in its present format and the accounting treatment in the Company’s financial statements. The merger will be accounted for (if and when consummated) on the date upon which all the prerequisites are met (as detailed above). |
| 9. | The financial conditions and operating results of the Company |
| Over the recent years, the Company incurred operating losses due to the intensified competition in the cable TV market. The Company financed its operating activities (mainly investments in infrastructure, network, customer premises equipment and investments in Hot Telecom), among others, by its own sources (cash flow from operating activities), short-term borrowings from banks and proceeds derived from the sale of Partner’s shares in 2002, 2003 and 2005 (in 2005, the Company sold a substantial part of its investment in Partner in consideration of approximately NIS 250 million, so that as of December 31, 2005, the Company holds approximately 1.2% of Partner’s shares, see also Note 6b(2)). The Company therefore has a working capital deficiency of approximately NIS 644 million (which, as above, was mostly financed by short-term borrowings from banks). |
20
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 1: | – | GENERAL (Cont.) |
| In 2005, the Company incurred operating losses due to several principal reasons which include, among others, aggravation of the competition in the cable TV market which caused loss of subscribers and decrease in average revenue per subscriber, increase in expenses relating to customer service and increase in operating expenses as a result of new services that the Company launched (such as VOD). The Company’s management estimates that launching a service package which integrates cable TV, internet and telephony (triple play strategy) concurrently with a substantial investment in infrastructure and network (including investments in telephony that are made through Hot Telecom) will, in the future, stimulate growth in revenues and in the Company’s share in the communication market in Israel and achieve a considerable improvement in the Company’s operating income. |
| The Company’s management is examining different financing sources (banks and others) in order to finance its working capital deficiency and investments that are needed for its current and planned activities and for the activity of Hot Telecom. |
| In furtherance to the above, subsequent to the balance sheet date, the Company signed agreements that settle the validity of the banks’ credit facilities, according to which the banks granted the Company short-term credit facilities (including documentary credit) up to a total amount of approximately NIS 524 million that is due on March 31, 2007 provided that none of the events specified in the above agreements occurs, see also Note 11c. |
| As of December 31, 2005, the banks provided the Company short-term credit in the amount of approximately NIS 482 million (out of the above credit facility), whose terms were settled subsequent to the balance sheet date as part of these agreements. |
| In view of all of the aforesaid, the Company believes that in the future it will be able to either renew or repay all of its liabilities when due, including by raising external capital from either bank or other financial sources. The Company’s management estimates that a comprehensive financing arrangement for the Company’s debt will be reached as part of the agreements for the legal merger, if and when consummated. |
| 10. | Delisting the Company’s shares from the stock exchange in the U.S. |
| In February 2006, the Company announced its intention to voluntarily delist its ADRs from the NASDAQ, a process which is expected to be completed no later than the end of June 2006. |
21
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 1: | – | GENERAL (Cont.) |
| 11. | On August 9, 2005, as part of its economical policy for the year 2006, the Israeli Government adopted the following Resolutions – |
| a) | Resolution no. 4121 – To procure the establishment of a digital, nationwide, terrestrial distribution system which will broadcast and enable the free terrestrial reception of the following channels: the Israeli Broadcasting Authority channels (Channels “1” and “33), the commercial broadcasts channels (channels “2” and “10”) and the “Parliament Channel” (channel “99”) (“DTT System”). This resolution further provides for the appointment of a multi-ministerial tenders committee that shall publish a tender designed to enable that committee to choose a single bidding winner who shall design, establish and operate the said DTT System. According to the resolution such tender shall be published by not later than January 1, 2006, the announcement of the chosen winner shall be made by not later than April 1, 2006 and said DTT System shall commence operation by no later than January 1, 2007; |
| b) | Resolution no. 4095 – (i) To allow consumers, by no later than January 1, 2007, to purchase from a multi-channel television operator a basic package of services which will include connection to the infrastructure of such operator and reception of the aforementioned channels, the Educational Television channel (channel “23”) and the Dedicated Channels (channels “9" and “24”) (the “Basic Package”), without being obliged to purchase any other services; (ii) To appoint an inter-ministerial committee which will determine by no later than March 1, 2006 the maximum price payable by the consumers for the said package. Such price shall be based on the cost of access to the infrastructure and the cost of distribution of the said channels, plus reasonable profit to the relevant operator; (iii) to perform the necessary legislation amendments in order to implement said Resolution. In accordance with Resolution no. 4095, an amendment to the Telecommunications Law was submitted to the Knesset’s Finance Committee. The amendment incorporates Resolution no. 4095 within the framework of the Arrangements Bill for the Country’s Economy for the year 2006 (as section 37 of the Telecommunications chapter). According to the said amendment: (1) the Cable Broadcast Licensee (“Licensee”) shall be obliged to offer the Basic Package to its subscribers, without conditioning the provision of said Basic Package upon the purchase of any other broadcasts or services; (2) the Minister of Telecommunications, with the consent of the Minister of Finance, and after having consulted with the Council may determine the maximum amount that a general Licensee for Cable Television Broadcast may demand for the provision of the Basic Package, based on the cost of the provision of said Basic Package plus a reasonable profit for the Licensee; (3) the Minister may, after having consulted with the Council, instruct such Licensee with respect of the activities which said Licensee will be demanded to undertake for the purpose of providing the Basic Package. |
| The entry into force of the said amendment, if approved by the Knesset, shall be as from January 1, 2007. |
22
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 1: | – | GENERAL (Cont.) |
| As of the date of the financial statements, the Company is not able to evaluate the impact of realization the Government decisions on its business results. |
| b. | Definitions: |
| In these financial statements: |
| Subsidiaries and consolidated partnerships | – | companies or limited partnerships in which more than 50% of the voting equity is owned or controlled by the Company (as defined in Opinion 57 of the Institute of Certified Public Accountants in Israel) and whose accounts are consolidated with those of the Company. |
| Jointly controlled entity | – | a company owned by various entities that have a contractual arrangement for joint control, and whose accounts are consolidated with those of the Company using the proportionate consolidation method. |
| Affiliates and affiliated partnerships | – | companies or limited partnerships that are not subsidiaries and over which the Company has significant influence. The Company's investment therein is included using the equity method of accounting. |
| Investees | – | subsidiaries and consolidated partnerships, a jointly controlled entity and affiliates and affiliated partnerships. |
| Another company | – | a company that is not an investee and the investment therein is presented at cost. |
| The Group | – | the Company and its subsidiaries, including consolidated partnerships. |
| Related parties | – | as defined in the Securities Regulations (Preparation of Annual Financial Statements), 1993 and as defined in Opinion 29 of the Institute of Certified Public Accountants in Israel. |
| Cable Companies | – | Tevel International Communications Ltd. and its subsidiaries, Golden Channels Group, including Golden Channels and Co. partnership. |
23
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 2: | – | SIGNIFICANT ACCOUNTING POLICIES |
| The financial statements are prepared in accordance with the Securities Regulations (Preparation of Annual Financial Statements), 1993. |
| The significant accounting policies applied in the preparation of the financial statements on a consistent basis, are as follows: |
| a. | Reporting basis of the financial statements: |
| 1. | General: |
| Until December 31, 2003, the Company prepared its financial statements based on the historical cost convention, adjusted for the changes in the general purchasing power of the Israeli currency (“New Israeli Shekel” or “NIS”) based on the changes in the Israeli Consumer Price Index (“Israeli CPI”). In accordance with Accounting Standard No. 12 with respect to the discontinuance of the adjustment of financial statements, the adjustment of financial statements for the effects of inflation was discontinued beginning January 1, 2004. The adjusted amounts, as included in the balance sheet as of December 31, 2003 (the transition date), served as a starting point for nominal financial reporting beginning January 1, 2004. Additions made after the transition date are included at nominal values. |
| 2. | Definitions: |
| Adjusted amount – historical nominal amount adjusted for the Israeli CPI as of December 2003, according to the provisions of Opinions No. 23 and No. 36 of the Institute of Certified Public Accountants in Israel. |
| Reported amount – adjusted amount as of the transition date, plus additions in nominal values after the transition date and less amounts deducted after the transition date. |
| Cost– cost in these financial statements represents cost in the reported amount. |
| 3. | Balance sheet: |
| a) | Non-monetary items are presented in reported amounts. |
| b) | Monetary items are presented in nominal values as of the balance sheet date. |
| c) | The book value of investments in investees is determined based on the financial statements of these companies in reported amounts. |
| d) | The amounts for non-monetary assets do not necessarily represent realizable value or current economic value, but only the reported amounts for those assets. |
24
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 2: | – | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| 4. | Statement of operations: |
| a) | Income and expenses relating to non-monetary items are derived from the change in the reported amounts between the opening balance and the closing balance. |
| b) | Other items in the statement of operations are presented in nominal values. |
| c) | The equity in the results of operations of investees is determined based on the financial statements of these companies in reported amounts. |
| 5. | Comparative data for 2003 are presented after adjustment for the Israeli CPI as of the transition date (the Israeli CPI for December 2003). |
| 6. | Condensed financial data of the Company in nominal historical values for tax purposes is presented in Note 27. |
| b. | Consolidated financial statements: |
| The consolidated financial statements include the accounts of companies over which the Company exercises control. A jointly controlled entity is included by the proportionate consolidation method. Significant intercompany balances and transactions between the Group companies have been eliminated in the consolidated financial statements. |
| c. | Investments in investees: |
| 1. | The investments in investees are presented by the equity method of accounting. |
| 2. | The Company evaluates in each reporting period the necessity to record an impairment loss, in accordance with the provisions of Accounting Standard No. 15 (see i below). |
| 3. | Investment in another company: |
| Investment in another company is stated at cost, net of impairment losses for declines in value if they are judged by the Company’s management to be other than temporary, see i(2) below. |
| 4. | Investments in limited partnerships: |
| The investments in limited partnerships producing films, in which the Company is a limited partner, are stated at cost. The investments in the partnerships are written down when actual broadcasting takes place. |
| d. | Cash equivalents: |
| The Group considers all highly liquid investments, including unrestricted short-term bank deposits purchased with original maturities of three months or less, to be cash equivalents. |
25
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 2: | – | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| e. | Short-term deposits: |
| Short-term bank deposits are deposits purchased with original maturities of more than three months. |
| f. | Allowance for doubtful accounts: |
| The allowance for doubtful accounts is principally determined in respect of specific debts whose collection, in the opinion of the Company’s management, is doubtful based on the age of the customers’ debt. |
| g. | Fixed assets: |
| 1. | Fixed assets are stated at cost net of accumulated depreciation. The Company evaluates in each reporting period the necessity to record an impairment loss, in accordance with the provisions of Accounting Standard No. 15 (see i below). |
| 2. | Depreciation is calculated by the straight-line method at annual rates which are deemed adequate to depreciate the assets over their estimated useful lives, as follows: |
| % | ||
|---|---|---|
| Buildings | 2 - 4 (mainly 2%) | |
| Cable network | 8.33;10 | |
| Headend (primarily electronic equipment) and studio equipment | 15 - 20 (mainly 15%) | |
| Converters and modems | 10 | |
| Computers and peripheral equipment | 15 - 33 | |
| Office furniture and equipment | 6 - 10 | |
| Vehicles | 15 |
| 3. | Leasehold improvements are depreciated by the straight-line method over the term of the lease or the estimated useful life of the improvements, whichever is shorter. |
| h. | Long-term receivables and other assets: |
| 1. | Expenses relating to the issuance of debentures are amortized over the term of the debentures, in proportion to the outstanding amounts of debentures. The amortization is included in financial expenses, net. |
| 2. | Other assets include payment made in respect of non exclusive license to provide stationary communication services within Israel. The license charges are amortized by the straight-line method over the period of the license (15 years). |
| 3. | The remaining lease fees under financial lease (net of the interest component) are presented in other long-term receivables and amortized over the period of the lease (5 years). |
26
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 2: | – | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| i. | Impairment of assets: |
| 1. | Impairment of fixed and intangible assets: |
| The Company applies Accounting Standard No. 15, “Impairment of Assets”. The Standard applies to the assets included in the balance sheet other than inventories, assets arising from construction contracts, assets arising from employee benefits, deferred tax assets and financial assets (with the exception of investments in affiliates). According to the Standard, whenever there is an indication that an asset may be impaired, the Company should determine if there has been an impairment of the asset by comparing the carrying amount of the asset to its recoverable amount. The recoverable amount is the higher of an asset’s net selling price or value in use, which is determined based on the present value of estimated future cash flows expected to be generated by the continuing use of an asset and by its disposal at the end of its useful life. If the carrying amount of an asset exceeds its recoverable amount, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. An impairment loss recognized should be reversed only if there have been changes in the estimates used to determine the asset’s recoverable amount since the impairment loss was recognized. |
| 2. | Impairment of investment in another company: |
| The Company generally evaluates the fair value of its investment in each reporting period and whenever changes in circumstances or occurrence of other events indicate a decline in value that is other than temporary. |
| The evaluation of the fair value takes into consideration, among others, the market value of the investment, estimates of analysts and valuations of the investment, the conditions of the industry in which the portfolio company is operating, the portfolio company’s business condition, off-market transactions in the portfolio company’s securities and prices of equity transactions in the portfolio company. |
| Based on the results of the above evaluation, the Company, if necessary, recognizes an impairment loss that is other than temporary in the statement of operations. |
| j. | Deferred taxes: |
| 1. | As of January 1, 2005, the Company applies Accounting Standard No. 19, “Taxes on Income” (“the Standard”). The Standard prescribes the principles for recognition, measurement, presentation and disclosures of taxes on income and deferred taxes in the financial statements. |
| Deferred taxes are computed in respect of temporary differences between the amounts included in the financial statements and the amounts allowable for tax purposes, other than a limited number of exceptions described in the Standard. |
27
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 2: | – | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| Deferred tax balances are measured using the enacted tax rates expected to be in effect when the differences are expected to reverse, based on the applicable tax laws at balance sheet date. The amount for deferred taxes in the statement of operations represents the changes in said balances during the reported year. |
| 2. | Taxes that would apply in the event of the sale of investments in investees (except the investment in Partner) have not been taken into account in computing the deferred taxes, as long as it is probable that the sale of the investments in investees is not expected in the foreseeable future. |
| As for the investment in Partner’s shares – in 2003, the Company’s management revised its plans as to the investment in Partner’s shares such that the sale of Partner’s shares may be expected in the foreseeable future. In view of the change in the plans of the Company’s management as to the sale of the investment in Partner’s shares, in accordance with the provisions of Opinion 68 of the Institute of Certified Public Accountants in Israel, the Company recorded a deferred tax liability (see also Note 6b(2)). |
| 3. | As it is not probable that there will be taxable income in the future, no deferred tax assets have been recorded in the financial statements. |
| k. | Revenue recognition: |
| 1. | Revenues from subscription fees, including revenues from lease fees relating to converters, are recognized on a monthly basis as the service is provided. |
| 2. | See l below (amortization of customers’ deposits for converters). |
| 3. | As for the disclosure of the effect of Accounting Standard No. 25 in the period prior to its adoption, see v3 below. |
| l. | Customers’ deposits for converters: |
| The Company and Matav Haifa collect deposits from their subscribers in respect of converters installed by them in an amount not exceeding the cost of the converters. The Company and Matav Haifa partially refund the deposit when the converter is returned. The refund amount (which is linked to the Israeli CPI) is amortized to reflect 10% of the cost of converter to the Company for each year or a portion thereof in which the subscriber used the converter. |
| The amortization of the deposits is included in the statement of operations as revenues. |
| m. | Advertising expenses: |
| Advertising expenses are charged to the statement of operations as incurred. |
28
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 2: | – | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| n. | Rights to broadcast films and programs: |
| The cost includes the cost to purchase rights to broadcast films and TV programs with the addition of direct costs in order to adjust the films and programs for broadcasting in Israel. |
| Cost of rights are amortized when actual broadcasting takes place, while giving a relatively greater weight to primary broadcasting. |
| o. | Monetary balances presented at present value: |
| Monetary balances which do not bear interest are stated at their present value, which is computed based on the prevailing market rate when the monetary balances were originally recognized. |
| p. | Net earnings (loss) per share: |
| Net earnings (loss) per share are computed based on the weighted average outstanding share capital during the year. |
| As for Accounting Standard No. 21, see v5 below. |
| q. | Exchange rate and linkage basis: |
| 1. | Assets and liabilities in or linked to foreign currency are presented according to the representative exchange rates published by the Bank of Israel at balance sheet date. |
| 2. | Assets and liabilities linked to the Israeli CPI are presented according to the relevant index for each linked asset or liability. |
| Below are data about the exchange rates of the U.S. dollar and the Israeli CPI: |
| As of | Representative exchange rate of U.S. dollar | Israeli CPI for December | ||||||
|---|---|---|---|---|---|---|---|---|
| NIS | Points *) | |||||||
| December 31, 2005 | 4.603 | 185.1 | ||||||
| December 31, 2004 | 4.308 | 180.7 | ||||||
| December 31, 2003 | 4.379 | 178.6 | ||||||
| December 31, 2002 | 4.737 | 182.0 | ||||||
| Change during the year ended | % | % | ||||||
| December 31, 2005 | 6.8 | 2.4 | ||||||
| December 31, 2004 | (1.6 | ) | 1.2 | |||||
| December 31, 2003 | (7.6 | ) | (1.9 | ) | ||||
| *) | The index on an average basis of 1993 = 100. |
29
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 2: | – | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| r. | Derivative financial instruments: |
| The Company purchases options (call options combined in certain cases with put options) designated to offset the effect of possible fluctuation in the NIS/dollar exchange rate on the NIS amount of certain dollar cash outflows. |
| The options are not treated as hedge transactions and are presented at fair value. Gains and losses on the options are recorded in financing expenses. |
| s. | Use of estimates for the preparation of financial statements: |
| The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities in the financial statements and the amounts of revenues and expenses during the reported years. Actual results could differ from those estimates. |
| t. | Fair value of financial instruments: |
| The carrying amount of cash and cash equivalents, short-term investments, trade receivables, other accounts receivable, short-term credit from banks and others, trade payables, other accounts payable and debentures approximate their fair value. As for long-term loans, see Note 15. |
| u. | Long-term liabilities to banks in respect of borrowed debt securities: |
| Debt to banks that represents borrowing of debt securities is recorded at fair value with changes in fair value recorded in earnings. |
| v. | Disclosure of the effects of new Accounting Standards prior to their adoption: |
| 1. | Accounting Standard No. 22, “Financial Instruments: Disclosure and Presentation”: |
| In July 2005, the Israel Accounting Standards Board issued Accounting Standard No. 22, “Financial Instruments: Disclosure and Presentation” (“the Standard”). The Standard will be applicable to financial statements for periods commencing on or after January 1, 2006 (“the effective date “). |
| This Standard prescribes principles for the presentation of financial instruments and identifies the information that should be disclosed about them in the financial statements. The presentation principles apply to the classification of financial instruments or their component parts, on initial recognition as a financial liability, financial asset or equity instrument; the classification of related interest, dividends, losses and gains; and the circumstances in which a financial asset and a financial liability should be offset. |
30
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 2: | – | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| The Company believes that the effect of the new Standard on its financial position, results of operations and cash flows is not expected to be material. |
| 2. | Accounting Standard No. 24, “Share-Based Payment”: |
| In September 2005, the Israel Accounting Standards Board issued Accounting Standard No. 24, “Share-Based Payment” (“the Standard”). The Standard will be applicable to financial statements for periods commencing on or after January 1, 2006 (“the effective date”). |
| This Standard requires the Company to recognize share-based payment transactions in its financial statements in respect to the purchase of goods or services. Such transactions include transactions with employees or other parties that must be settled in the Company’s equity instruments or in cash. Concurrently with the recognition of the goods or services received, it is necessary to recognize in the financial statements an increase in shareholders’ equity when the share-based payment transaction will be settled in equity instruments and the incurrence of a liability when this transaction will be settled in cash. This contrasts with the situation prevailing prior to the effective date in which certain types of the above mentioned transactions were not reflected in the financial statements. |
| The Standard prescribes that transactions with employees or others which supply similar services in return for equity instruments should be measured according to their fair value on the date in which such equity instruments were granted. The Standard also prescribes certain requirements if the terms of an option or share grant are modified. As for share-based transactions with parties other than employees, the fair value of the goods or services received must be measured upon receipt. Furthermore, if the equity instruments granted do not vest until the counterparty completes a specified period of service, the services will be recognized in the financial statements over the vesting period. |
| For equity-settled share-based payment transactions, the Standard is applicable to grants made subsequent to March 15, 2005, and which had not yet vested as of the effective date. The Standard will also be applicable to modifications that were made to the terms of equity-settled transactions subsequent to March 15, 2005, even if the modifications relate to grants that were made before this date. In the financial statements for 2006, comparative data in the financial statements for 2005 shall be restated in order to reflect the expense relating to the aforementioned grants. |
| For liabilities arising from share-based payment transactions existing as of the effective date, it will be necessary to apply the provisions of the Standard retrospectively. Comparative data will be restated, including adjusting the opening balance of retained earnings for the earliest period in which comparative data are presented. |
| The Company believes that the effect of the Standard on its financial position, results of operations and cash flows is not expected to be material. |
31
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 2: | – | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| 3. | Accounting Standard No. 25, “Revenues”: |
| In February 2006, the Israel Accounting Standards Board published Accounting Standard No. 25, “Revenues” (“the Standard”). |
| The Standard deals with the recognition of revenue from three types of transactions: sale of goods, rendering of services and revenue from interest, royalties and dividends and prescribes the criteria for recognizing each type of revenue. The basic principle is that revenues should be measured at the fair value of the consideration received and/or receivable. If the consideration is not received on the date of the transaction, the revenue should be measured by discounting the future consideration using the prevailing market rate of interest. The Standard also prescribes that in cases where components of one transaction may be separately identified, revenue should be measured separately for each component if that reflects the substance of the transaction. The Standard stipulates that revenues recognized in the financial statements should only include the amounts received and/or receivable by the Company on its own account. Accordingly, amounts collected on behalf of a third party are not revenues of the Company. |
| In order to determine whether the Company is required to report its revenues on a gross basis (since it acts as a principal supplier) or on a net basis (since it performs as an agent), Interpretation No. 8, “Reporting Revenues on a Gross or Net Basis” was published concurrently with this Standard (“the Interpretation”). Pursuant to the Interpretation, recognition of revenues on a gross or net basis shall be determined in accordance with the distribution of the risks and rewards resulting from the transaction. The Interpretation sets forth indicators which should be taken into consideration in determining the basis of reporting (gross or net). |
| The Standard and Interpretation will be applicable to financial statements for periods beginning on January 1, 2006 and thereafter. |
| As for amounts reported as revenues but represent amounts collected on behalf of a third party in accordance with the Standard, or for revenues which had not been reported on a gross or net basis, as required by the Interpretation, the relevant provisions of the Standard and Interpretation are to be applied retrospectively, including a restatement of the comparative data. Assets and liabilities included in the balance sheet as of December 31, 2005, are to be adjusted, as of January 1, 2006, to the amounts that would have been recognized in accordance with the provisions of the Standard, with the effect of the adjustment being recorded in the statement of income for the period beginning as of that date (“cumulative effect of change in accounting principle”). |
| The Company believes that the effect of the new Standard on its financial position, results of operations and cash flows is not expected to be material. |
32
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 2: | – | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| 4. | Accounting Standard No. 20 (Revised), “Accounting for Goodwill and Intangible Assets upon Acquisition of Investee”: |
| In March 2006, the Israel Accounting Standards Board published Accounting Standard No. 20 (Revised), “Accounting for Goodwill and Intangible Assets upon Acquisition of Investee” (“the Standard”). The Standard is applicable to financial statements for periods commencing on January 1, 2006 (“the effective date”). |
| The Standard determines that the excess of cost of an investment in an investee should also be attributed to the investee’s identifiable intangible assets, as opposed to the rules applied so far according to which the excess of cost of an investment was generally only attributed to tangible assets. Cost of the acquisition is allocated to an intangible asset only if it satisfies the Standard’s criteria for recognition as an intangible asset which include, inter alia, identifiability and the ability to reliably measure the fair value. The Standard distinguishes between intangible assets with a finite useful life and intangible assets with an indefinite useful life. Prior to the issuance of the Standard, there were no specific principles for identifying and allocating the cost of an acquisition to an investee’s intangible assets. |
| The Standard further determines that negative goodwill created upon the acquisition, after deduction of the investee’s intangible and non-monetary assets, should be immediately recognized upon the date of acquisition as a gain in the statement of income and not systematically amortized as was required prior to the effective date of the Standard. |
| Positive goodwill and intangible assets with an indefinite useful life will no longer be amortized. The Standard requires an annual assessment, or more frequently if certain indicators exist, of an impairment in goodwill in respect of a subsidiary or a jointly controlled entity, or of intangible assets with an indefinite useful life. Furthermore, each period, events and circumstances should be reviewed to determine whether they continue to support an assessment that the useful life of the assets is indefinite. Intangible assets with a finite useful life are to be systematically amortized and will also be subject to an evaluation for impairment. The impairment of goodwill in respect of an affiliate will be accounted for in the context of the evaluation of impairment of the entire investment. The accounting for impairment is to be performed in accordance with Accounting Standard No. 15, “Impairment of Assets”. |
| The transition provisions prescribe that comparative data for the periods prior to the effective date should not be restated. The balance of goodwill as of the effective date will no longer be amortized and, from that date, the impairment of goodwill will be evaluated as described above. The balance of negative goodwill as of December 31, 2005, is to be derecognized as of the effective date with a corresponding adjustment to the opening balance of retained earnings. |
| The Company believes that the effect of the Standard on its financial position, results of operations and cash flows is not expected to be material. |
33
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 2: | – | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| 5. | Accounting Standard No. 21, “Earnings per Share”: |
| In February 2006, the Israel Accounting Standards Board published Accounting Standard No. 21, “Earnings per Share” (“the Standard”), which prescribes the principles for the computation and presentation of earnings (loss) per share in the financial statements and supersedes Opinion No. 55 of the Institute of Certified Public Accountants in Israel. |
| According to the Standard, earnings per share are to be computed based on the number of ordinary shares (and not per NIS 1 par value of the shares as computed until the effective date). Basic earnings per share are to include only shares which are outstanding during the period whereas convertible securities (such as convertible debentures and options) are to be included in the computation of diluted earnings per share, in contrast to the principles applied until the effective date according to which in cases where a convertible security is likely to be converted, it is included in the computation of basic earnings per share. In addition, convertible securities which had been converted during the period, are to be included in diluted earnings per share up to the date of conversion and are to be included in basic earnings per share from that date. Pursuant to the Standard, options will be included in diluted earnings when their exercise results in the issuance of shares for a consideration which is less than the market price of the shares. The amount of dilution is the market price of the shares minus the amount that would have been received as a result of the conversion of the options into shares. This is in contrast to the method of computation prescribed by Opinion No. 55, which also includes adjustments to earnings. |
| In the event that the Company has various types of ordinary shares with different rights, earnings per share are to be presented separately for each type of share, in accordance with the method of calculation prescribed by the Standard. The investor’s share of earnings of an investee is to be included based on the investor’s share in the earnings per share of the investee multiplied by the number of shares held by the investor. |
| This Standard is applicable to financial statements for periods beginning on January 1, 2006 and thereafter. Comparative data for earnings per share are to be retrospectively restated. |
| NOTE 3: | – | CASH AND CASH EQUIVALENTS |
| Consolidated | The Company | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, | December 31, | |||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||
| Reported NIS in thousands | ||||||||||||||
| Cash | 6,966 | 4,155 | 147 | 1,507 | ||||||||||
| Short-term deposits from banks | 6,218 | 20,095 | 6,217 | 20,095 | ||||||||||
| 13,184 | 24,250 | 6,364 | 21,602 | |||||||||||
34
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 4: | – | TRADE RECEIVABLES |
| Consolidated | The Company | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, | December 31, | |||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||
| Reported NIS in thousands | ||||||||||||||
| Open accounts (1), (2) | 74,355 | 75,030 | 33,540 | 37,074 | ||||||||||
| Checks receivable | 344 | 428 | 295 | 324 | ||||||||||
| 74,699 | 75,458 | 33,835 | 37,398 | |||||||||||
| (1) Net of allowance for doubtful accounts | 4,296 | 3,238 | 3,328 | 2,546 | ||||||||||
| (2) Including credit card receivables | 18,074 | 19,576 | 12,306 | 13,084 | ||||||||||
| NOTE 5: | – | OTHER ACCOUNTS RECEIVABLE |
| Cable Companies - current account | 5,246 | 4,180 | 4,065 | 2,999 | ||||||||||
| Prepaid expenses | 5,720 | 6,424 | 6,024 | 7,010 | ||||||||||
| Income receivable (1) | 7,133 | 3,136 | 2,029 | 2,267 | ||||||||||
| Advances to suppliers | 1,733 | 5,236 | 683 | 2,473 | ||||||||||
| Other | 549 | 1,034 | - | 572 | ||||||||||
| 20,381 | 20,010 | 12,801 | 15,321 | |||||||||||
| (1) | Comprises of a receivable in respect of the settlement regarding the Hop Channel: |
| In 2000, Matav Investments was granted a call option for the purchase of 50% of the share capital of Hop Channel Ltd. (“Hop”) in consideration for $ 50 thousand. Due to regulatory provisions in the Controller’s approval to the merger of the Cable Companies, Matav Investments was required to transfer the option to the full and exclusive ownership of a third party so that it will have no interest in Hop. This option was sold to YBZ Holdings Ltd. (“YBZ”) in consideration for an amount equivalent to 95% of the amount that will be actually received upon the sale of the option to a third party (independent and unaffiliated to the parties) or, alternatively, 95% of the value of the shares underlying the exercise of the option by a third party. In August 2003, YBZ entered into an agreement with an independent unaffiliated entity (the “Buyer”) for the sale of the option for the total consideration of approximately $ 1.8 million (the “Agreement for the Sale of the Option”). The share of Matav Investments totals approximately $ 1.7 million. This agreement was not executed in 2003 and 2004, since the existing shareholder in Hop refused to accept the validity of the rights that Matav Investments assigned to the buyer. |
35
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 5: | – | OTHER ACCOUNTS RECEIVABLE (Cont.) |
| On December 31, 2005, after the buyer filed with the Tel Aviv District Court two claims (regarding the rights assigned to it by Matav Investments) against the existing shareholder in Hop and after discussions in which the existing shareholder denied the arguments of the buyer and of Matav Investments as to the validity of the option, the parties involved reached a final and definite compromise settlement according to which the agreement for the sale of the option including all its conditions becomes null and the existing shareholders in Hop will pay Matav Investments, among others, approximately $ 1 million (an amount of approximately $ 0.8 million was paid subsequent to the balance sheet date and the balance is payable to the Company in three equal annual payments from December 31, 2006). In return Matav Investments and others undertook to waive any claim or demand as to their rights in Hop. Accordingly, a capital gain in the amount of approximately NIS 4.6 million was recorded in the financial statements for the year 2005. |
| NOTE 6: | – | INVESTMENTS IN SUBSIDIARIES, AFFILIATES AND ANOTHER COMPANY |
| a. | Investments in subsidiaries, consolidated partnerships and long-term accounts (excess oflosses over investment in subsidiaries) |
| 1. | Composition of investments: |
| The Company | ||||||||
|---|---|---|---|---|---|---|---|---|
| December 31, | ||||||||
| 2005 | 2004 | |||||||
| Reported NIS in thousands | ||||||||
| Cost of shares | 8,362 | 8,362 | ||||||
| Equity in accumulated losses, net | (114,029 | ) | *) | (108,154 | ) | |||
| (105,667 | ) | *) | (99,792 | ) | ||||
| Long-term loan (1) | 38,237 | 37,346 | ||||||
| Long-term accounts (2) | 344,202 | 315,254 | ||||||
| Capital notes (3) | - | (3,351 | ) | |||||
| 276,772 | *) | 249,457 | ||||||
| *) | Reclassified. |
| (1) | The loan is linked to the Israeli CPI, bears no interest and its repayment date has not yet been determined. |
| (2) | Long-term balances are linked to the Israeli CPI and their repayment date has not yet been determined. |
| (3) | As of December 31, 2004, the capital notes are not linked to the Israeli CPI and bear no interest. These capital notes were repaid in December 2005. |
| (4) | The balance of investments in subsidiaries and long-term accounts as of December 31, 2005 includes an amount of approximately NIS 4,643 thousand which is presented in long-term liabilities. |
| (5) | As for investment in jointly controlled entity, see c below. |
36
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 6: | – | INVESTMENTS IN SUBSIDIARIES, AFFILIATES AND ANOTHER COMPANY (Cont.) |
| 2. | The changes in investments in 2005 and 2004 are as follows: |
| The Company | ||||||||
|---|---|---|---|---|---|---|---|---|
| December 31, | ||||||||
| 2005 | 2004 | |||||||
| Reported NIS in thousands | ||||||||
| Balance at the beginning of the year | *) | 249,457 | 236,570 | |||||
| Change during the year: | ||||||||
| Equity in earnings (losses) | (5,875 | ) | *) | 24,772 | ||||
| Repayment of capital notes | 3,351 | - | ||||||
| Increase (decrease) in long-term accounts, net | 28,948 | (12,328 | ) | |||||
| Linkage differences of long-term loan | 891 | *) | 443 | |||||
| Balance at the end of the year | 276,772 | *) | 249,457 | |||||
| *) | Reclassified. |
| b. | Investments in affiliates |
| 1. | Composition of investments: |
| Consolidated | The Company | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, | December 31, | |||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||
| Reported NIS in thousands | ||||||||||||||
| Partner, see (2) below | - | 91,334 | - | *) | 73,283 | |||||||||
| Nonstop Ventures, see (3) below | 171 | 1,402 | 13,785 | 13,691 | ||||||||||
| Hot Telecom, see (4) below | 51,213 | 9,000 | 64,029 | 12,209 | ||||||||||
| Barak, see (5) below | 27,656 | - | - | - | ||||||||||
| 79,040 | 101,736 | 77,814 | *) | 99,183 | ||||||||||
| *) | Reclassified. |
37
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 6: | – | INVESTMENTS IN SUBSIDIARIES AFFILIATES AND ANOTHER COMPANY (Cont.) |
| The changes in investments in 2005 and 2004 are as follows: |
| Consolidated | The Company | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, | December 31, | ||||||||||||||
| 2005 | 2004 | 2005 | 2004 | ||||||||||||
| Reported NIS in thousands | |||||||||||||||
| Balance at the beginning of the | |||||||||||||||
| year | 101,736 | 66,807 | *) | 99,183 | 75,992 | ||||||||||
| Change during the year: | |||||||||||||||
| Investment in Hot Telecom | 51,820 | 12,209 | 51,820 | 12,209 | |||||||||||
| Equity in earnings (losses) | (3,434 | ) | 22,616 | 6,319 | *) | 10,878 | |||||||||
| Issuance of capital note | - | 68 | - | 68 | |||||||||||
| Provision for expected loss from | |||||||||||||||
| decrease in shareholding upon | |||||||||||||||
| conversion of convertible | |||||||||||||||
| securities in affiliate | - | 36 | - | 36 | |||||||||||
| Investment in Barak | 27,656 | - | - | - | |||||||||||
| Sale of investment in affiliate | (79,602 | ) | - | (79,602 | ) | - | |||||||||
| Transfer from investment in | |||||||||||||||
| affiliate to investment in | |||||||||||||||
| another company (see c below) | (19,278 | ) | - | - | - | ||||||||||
| Increase in long-term account | 142 | - | 94 | - | |||||||||||
| Balance at the end of the year | 79,040 | 101,736 | 77,814 | *) | 99,183 | ||||||||||
| *) | Reclassified. |
| 2. | Partner: |
| a) | Composition of the investment: |
| Shares: | |||||||||||||||
| Cost of shares | 552 | 2,437 | - | - | |||||||||||
| Equity in accumulated | |||||||||||||||
| earnings | 18,726 | 89,131 | - | *) | 73,517 | ||||||||||
| Provision for expected | |||||||||||||||
| loss from decrease in | |||||||||||||||
| shareholding upon | |||||||||||||||
| conversion of | |||||||||||||||
| convertible securities | |||||||||||||||
| in affiliate | - | (234 | ) | - | (234 | ) | |||||||||
| Transfer of the | |||||||||||||||
| investment in Partner | |||||||||||||||
| to investment in | |||||||||||||||
| another company (see c | |||||||||||||||
| below) | (19,278 | ) | - | - | - | ||||||||||
| - | 91,334 | - | *) | 73,283 | |||||||||||
| *) | Reclassified. |
38
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 6: | – | INVESTMENTS IN SUBSIDIARIES, AFFILIATES AND ANOTHER COMPANY (Cont.) |
| b) | The Company holds, through Matav Investments, 1,884,926 Ordinary shares of Partner Communications Ltd. (“Partner”), representing about 1.2% of the share capital of Partner as of December 31, 2005 (the Company held about 5.3% as of December 31, 2004 following the sale in 2003 of about 2.1% of Partner’s shares). Partner provides cellular communication services and its shares are traded on the stock exchanges in the U.S., London and Israel. Until April 2005, the investment in Partner was presented by the equity method of accounting since the Company had significant influence over Partner (including the right to nominate directors), as defined in Opinion 68 of the Institute of Certified Public Accountants in Israel. |
| c) | On April 20, 2005, the Company sold to Partner 7,783,444 of Partner’s shares (representing about 80% of the Company’s total holdings in Partner) in consideration of approximately NIS 250 million. The capital gain, before taxes on income, from the sale of Partner’s shares, as described above, which is included in the Company’s statement of operations for the year 2005, as other income, is approximately NIS 164.6 million. As for the capital gain after the tax effect, see d below. |
| In light of this sale, as above, which resulted in a significant decrease in the Company’s holding in Partner’s shares, the remaining investment in Partner (in the amount of NIS 19,278 thousand as of December 31, 2005) is presented, from the above date of sale, at cost, net of impairment losses for decline in value if judged by the Company’s management to be other than temporary. |
| The market value of Partner’s shares which are held by the Company is approximately NIS 73 million as of December 31, 2005 (approximately NIS 358 million as of December 31, 2004). |
| The remaining Partner shares that Matav Investments holds are subject to Israeli limitations under the Partner’s communications license according to which the shares may be sold to a third party that is an Israeli resident, as defined in that license. |
| d) | Further to the sale of Partner’s shares by the Company and further to long discussions with the Tax Authorities regarding the tax aspects of the sale of Partner’s shares by Matav Investments in 2002 and 2003, in the context of which as a result of lack of agreement an order was issued against Matav Investments with respect to the 2002 tax year, on July 31, 2005, the Company and Matav Investments reached a settlement with the Tax Authorities which was validated by a court decree regarding the tax to be paid on Partner's shares sold in 2002, 2003 and 2005. |
39
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 6: | – | INVESTMENTS IN SUBSIDIARIES, AFFILIATES AND ANOTHER COMPANY (Cont.) |
| Pursuant to the settlement, a portion of the gain that was recognized by Matav Investments from the sale of Partner’s shares, in the amount of approximately NIS 208 million will be offset against its carryforward tax losses. The remaining tax liability from the sale of Partner’s shares, net of prepayment previously made to the Tax Authorities, in the amount of approximately NIS 106 million (including interest and linkage differences), was fully paid by Matav Investments in 2005. |
| In light of this settlement, the capital gain, net of selling expenses and including the tax effect resulting from the sale of the shares and settlement with the tax authorities, as described above, which is included in the Company’s 2005 financial statements, is approximately NIS 170 million. |
| 3. | Nonstop Ventures: |
| a) | Composition of the investment: |
| Consolidated | The Company | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, | December 31, | |||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||
| Reported NIS in thousands | ||||||||||||||
| Shares: | ||||||||||||||
| Cost of shares | 5 | 5 | - | - | ||||||||||
| Equity in accumulated | ||||||||||||||
| losses | (13,619 | ) | (12,294 | ) | - | - | ||||||||
| Long-term loans and | ||||||||||||||
| capital note *) | 13,785 | 13,691 | 13,785 | 13,691 | ||||||||||
| 171 | 1,402 | 13,785 | 13,691 | |||||||||||
| *) | Includes long-term loans (bearing interest at the Prime rate) and capital notes that bear no interest and are unlinked, effective from January 2002. The date of repayment of the above capital notes and long-term loans has not yet been determined. |
| b) | Nonstop ventures is 50% owned by the Group and 50% owned, directly and indirectly (mainly (45%) by Dankner Investments Ltd), by the shareholders of the Company as of December 31, 2005 and 2004. |
| Nonstop Ventures has performed, in previous years, investments in companies and entrepreneurs whose main activities are in the area of internet, cable and data communications. |
40
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 6: | – | INVESTMENTS IN SUBSIDIARIES, AFFILIATES AND ANOTHER COMPANY (Cont.) |
| 4. | Hot Telecom: |
| a) | Composition of the investment: |
| Consolidated | The Company | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, | December 31, | |||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||
| Reported NIS in thousands | ||||||||||||||
| Equity in accumulated losses | (12,816 | ) | (3,209 | ) | - | - | ||||||||
| Long-term debt (1) | 64,029 | 12,209 | 64,029 | 12,209 | ||||||||||
| 51,213 | 9,000 | 64,029 | 12,209 | |||||||||||
| (1) | The long-term debt is unlinked to the Israeli CPI, bears no interest and its repayment date has not yet been determined. |
| b) | Hot Telecom was established by the Cable Companies in November 2003. As for the business activity of Hot Telecom, investments in equipment etc., see also Note 1a(3) and (4). |
| c) | The shareholders of Hot Telecom, including the Company, are committed to give Hot Telecom the financing that is needed for its operating activity over a period of three years. The banks gave their approval in principle to grant the Cable Companies in favor of Hot Telecom a credit facility of approximately $ 37 million. In 2005, Hot Telecom through the Cable Companies addressed the banks with a request to increase the credit facility by approximately an additional $ 38 million. Most of the banks gave their verbal agreement in principle. |
| d) | According to the provisions of the Infrastructure License which was granted to Hot Telecom, Hot Telecom will pay the State of Israel royalties at the rate of about 3.5% of its revenues. |
| e) | As for guarantees that the Company provided in favor of Hot Telecom, see Note 18. |
41
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 6: | – | INVESTMENTS IN SUBSIDIARIES, AFFILIATES AND ANOTHER COMPANY (Cont.) |
| 5. | Barak: |
| a) | Composition: |
| Consolidated | The Company | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, | December 31, | |||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||
| Reported NIS in thousands | ||||||||||||||
| Cost of shares of Barak | ||||||||||||||
| I.T.C. (1995) - International | ||||||||||||||
| Telecommunications | ||||||||||||||
| Services Corp. Ltd. | ||||||||||||||
| ("Barak") | 52,859 | 25,203 | - | - | ||||||||||
| Less - impairment loss | 25,203 | 25,203 | - | - | ||||||||||
| Total balance of | ||||||||||||||
| investment *) | 27,656 | - | - | - | ||||||||||
| *) Including excess of | ||||||||||||||
| cost created upon | ||||||||||||||
| acquisition (1) | 102,094 | - | - | - | ||||||||||
| (1) | At this stage the Company is examining the allocation of excess of cost created upon acquisition based on the fair value of Barak’s assets and liabilities. |
| b) | The Company holds, indirectly through Matav Investments, about 18.5% of the share capital of Barak as of December 31, 2005 (about 10% as of December 31, 2004), which is engaged in the provision of internet services and international communication solutions. Until December 2005, the investment in Barak was included in the financial statements at cost. In this context, and after an examination of the necessity to recognize an impairment loss, the investment in Barak was written down (a total of approximately NIS 25 million) in 2004 and 2002 due to the operating results and shareholders’ deficiency of Barak and based on a work of a valuation expert received in 2004 which determined the fair value of Barak. |
| c) | On December 21, 2005, the shareholders, Matav Investments and Clal signed a shareholders agreement (“the agreement”) according to which Clal and Matav Investments will pay Barak a total of approximately $ 32.3 million in return for 100% of the issued share capital of Barak. |
42
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 6: | – | INVESTMENTS IN SUBSIDIARIES, AFFILIATES AND ANOTHER COMPANY (Cont.) |
| The share of Matav Investments in said funding totals approximately $ 6 million and its share in the share capital of Barak after such funding is about 18.5%. According to the agreement, Matav Investments is entitled to appoint one board member (out of five board members) provided that its holding in Barak is not below about 12.5%. In view of the aforesaid, since the date of the investment, as above, the investment in Barak is included by the equity method of accounting. |
| d) | Further, Matav Investments was granted a Put option to sell all of its shares in Barak to Clal in consideration of approximately $ 6 million (which bears interest at the rate of 5% per anum from the effective date). The option is exercisable by September 30, 2006. Concurrently, Clal was granted a Call option to purchase all of the shares of Barak held by Matav Investment in consideration of approximately $ 7 million (which bears interest at the rate of 5% per anum from the effective date). The option is exercisable by September 30, 2006. As for a charge on the above option, see Note 18c(2). |
| c. | 1. | Investment in a company consolidated by the proportionate consolidation method |
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | |||||||
| Reported NIS in thousands | ||||||||
| Current assets | 26,455 | 24,044 | ||||||
| Non-current assets | 25,482 | 29,202 | ||||||
| Current liabilities | 50,674 | 57,594 | ||||||
| Long-term liabilities | 648 | 605 | ||||||
| Year ended December 31, | ||||||||
| 2005 | 2004 | |||||||
| Reported NIS in thousands | ||||||||
| Revenues | 4,860 | 5,852 | ||||||
| Expenses | 3,419 | 1,291 | ||||||
| 2. | As for the activity of Hot Vision (which as of December 31, 2005 is 26.3% held by the Company), see Note 1a(6). |
43
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 7: | – | INVESTMENT IN LIMITED PARTNERSHIPS |
| The jointly controlled entity invests in limited partnerships that are engaged in the production of films in Israel. The limited partnerships received an approval from a committee at the Ministry of Industry and Trade which deals with withholding tax of films under the Income Tax Regulations (Withholding of Investors Income from Israeli Films), 1990. |
| The jointly controlled entity is a limited partner in these partnerships. |
| As of December 31, 2005, Hot Vision has an obligation to perform additional investments in these partnerships of NIS 109 thousand (December 31, 2004 – NIS 190 thousand). |
| NOTE 8: | – | RIGHTS TO BROADCAST FILMS AND PROGRAMS |
| Consolidated | |||||
|---|---|---|---|---|---|
| December 31, 2005 | |||||
| Reported NIS in thousands | |||||
| Balance at the beginning of the year | 26,509 | ||||
| Additions during the year | 26,013 | ||||
| Amortization during the year | (28,604 | ) | |||
| Balance at the end of the year | 23,918 | ||||
44
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 9: | – | FIXED ASSETS |
| a. | Consolidated: |
| Land (including construction plans) (1, (2) | Cable network | Headend (primarily electronic equipment) | Studio equipment | Converters and modems | Computers and peripheral equipment | Office furniture and equipment | Vehicles | Total | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Reported NIS in thousands | |||||||||||||||||||||||||||||
| Cost: | |||||||||||||||||||||||||||||
| Balance at January 1, 2005 | 65,575 | 1,366,751 | 155,428 | 15,331 | 434,161 | 66,206 | 14,815 | 793 | 2,119,060 | ||||||||||||||||||||
| Additions during the year | 730 | 33,250 | 25,956 | 269 | 81,122 | 4,961 | 591 | - | 146,879 | ||||||||||||||||||||
| Disposals during the year | - | - | - | - | - | - | - | 436 | 436 | ||||||||||||||||||||
| Balance at December 31, 2005 | 66,305 | 1,400,001 | 181,384 | 15,600 | 515,283 | 71,167 | 15,406 | 357 | 2,265,503 | ||||||||||||||||||||
| Accumulated depreciation: | |||||||||||||||||||||||||||||
| Balance at January 1, 2005 | 17,613 | 910,481 | 113,792 | 12,947 | 169,688 | 57,855 | 10,590 | 583 | 1,293,549 | ||||||||||||||||||||
| Additions during the year | 1,731 | 79,134 | 14,458 | 963 | 44,014 | 4,112 | 672 | 68 | 145,152 | ||||||||||||||||||||
| Disposals during the year | - | - | - | - | - | - | - | 318 | 318 | ||||||||||||||||||||
| Balance at December 31, 2005 | 19,344 | 989,615 | 128,250 | 13,910 | 213,702 | 61,967 | 11,262 | 333 | 1,438,383 | ||||||||||||||||||||
| Depreciated cost at December 31, | |||||||||||||||||||||||||||||
| 2005 | 46,961 | 410,386 | 53,134 | 1,690 | 301,581 | 9,200 | 4,144 | 24 | 827,120 | ||||||||||||||||||||
| Less - impairment loss, net | 12,712 | - | - | - | - | - | - | - | 12,712 | ||||||||||||||||||||
| Balance of depreciated cost at | |||||||||||||||||||||||||||||
| December 31, 2005 | 34,249 | 410,386 | 53,134 | 1,690 | 301,581 | 9,200 | 4,144 | 24 | 814,408 | ||||||||||||||||||||
| Depreciated cost at December 31, | |||||||||||||||||||||||||||||
| 2004 | 47,962 | 456,270 | 41,636 | 2,384 | 264,473 | 8,351 | 4,225 | 210 | 825,511 | ||||||||||||||||||||
45
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 9: | – | FIXED ASSETS (Cont.) |
| b. | The Company: |
| Land (including construction plans) (1), (2) | Cable network | Headend (primarily electronic equipment) | Studio equipment | Converters and modems | Computers and peripheral equipment | Office furniture and equipment | Vehicles | Total | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Reported NIS in thousands | |||||||||||||||||||||||||||||
| Cost: | |||||||||||||||||||||||||||||
| Balance at January 1, 2005 | 30,264 | 990,463 | 73,717 | 3,561 | 306,969 | 59,039 | 8,784 | 420 | 1,473,217 | ||||||||||||||||||||
| Additions during the year | 516 | 1,131 | 13,798 | - | 74,794 | 4,546 | 381 | - | 95,166 | ||||||||||||||||||||
| Disposals during the year | - | - | - | - | - | - | - | 324 | 324 | ||||||||||||||||||||
| Balance at December 31, 2005 | 30,780 | 991,594 | 87,515 | 3,561 | 381,763 | 63,585 | 9,165 | 96 | 1,568,059 | ||||||||||||||||||||
| Accumulated depreciation: | |||||||||||||||||||||||||||||
| Balance at January 1, 2005 | 10,459 | 664,116 | 59,087 | 3,561 | 120,785 | 51,407 | 6,048 | 267 | 915,730 | ||||||||||||||||||||
| Additions during the year | 1,042 | 59,690 | 5,259 | - | 32,919 | 3,616 | 349 | 42 | 102,917 | ||||||||||||||||||||
| Disposals during the year | - | - | - | - | - | - | - | 234 | 234 | ||||||||||||||||||||
| Balance at December 31, 2005 | 11,501 | 723,806 | 64,346 | 3,561 | 153,704 | 55,023 | 6,397 | 75 | 1,018,413 | ||||||||||||||||||||
| Depreciated cost at December 31, | |||||||||||||||||||||||||||||
| 2005 | 19,279 | 267,788 | 23,169 | - | 228,059 | 8,562 | 2,768 | 21 | 549,646 | ||||||||||||||||||||
| Less - impairment loss, net | 4,194 | - | - | - | - | - | - | - | 4,194 | ||||||||||||||||||||
| Balance of depreciated cost at | |||||||||||||||||||||||||||||
| December 31, 2005 | 15,085 | 267,788 | 23,169 | - | 228,059 | 8,562 | 2,768 | 21 | 545,452 | ||||||||||||||||||||
| Depreciated cost at December 31, | |||||||||||||||||||||||||||||
| 2004 | 19,805 | 326,347 | 14,630 | - | 186,184 | 7,632 | 2,736 | 153 | 557,487 | ||||||||||||||||||||
46
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 9: | – | FIXED ASSETS (Cont.) |
| (1) | Including cost of buildings on leased land (consolidated – approximately NIS 21.9 million and cost of buildings in the Company). The lease in respect of most of the land is for a period of 49 years ending in 2040, with an option to renew the lease for an additional 49 years. Registration of the leases with the Land Registry Office has not yet been completed. |
| (2) | a. | In 1989, the Company signed an agreement with the Israel Lands Administration (“the Administration”) for the development of land with a total area of about 2,500 sq.m. in Bat Yam. The lease agreement is conditional upon the Company’s fulfillment of the obligations stipulated by the above development agreement. According to the provisions of the development agreement with the Administration, the Company had to fulfill its obligations by June 2006. According to the development agreement, the Company has undertaken that in the event of failure to comply with the conditions of the development agreement, it may be required to return the land to the Administration and pay compensation as set forth in the development agreement with the Administration. Currently the Company is acting to extend the development period. |
| In view of the uncertainty regarding the Company’s fulfillment of the development agreement, as above, the Company recognized an impairment loss in the statement of operations for the year 2005 as other expenses. |
| b. | In the context of the operational merger of the Cable Companies, which includes, among others, consolidation of headquarters and activity, the Company intends to sell part of the land that is owned by a subsidiary. According to a valuation of an independent expert who was requested to examine the fair value of the land, the Company recognized an impairment loss of approximately NIS 8.5 million. This provision is included in the statement of operations for the year 2005 as other expenses. |
| c. | As for charges, see Note 18. |
| NOTE 10: | – | OTHER ASSETS, NET |
| Consolidated | The Company | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, | December 31, | |||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||
| Reported NIS in thousands | ||||||||||||||
| Debentures issuance expenses: | ||||||||||||||
| Original amount | 11,393 | 11,393 | 11,393 | 11,393 | ||||||||||
| Less - accumulated amortization | 11,221 | 10,777 | 11,221 | 10,777 | ||||||||||
| 172 | 616 | 172 | 616 | |||||||||||
| Non-exclusive license (see Note 2h): | ||||||||||||||
| Original amount | 3,972 | 3,972 | - | - | ||||||||||
| Less - accumulated amortization | 1,619 | 1,487 | - | - | ||||||||||
| 2,353 | 2,485 | - | - | |||||||||||
| 2,525 | 3,101 | 172 | 616 | |||||||||||
47
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 11: | – | SHORT-TERM CREDIT FROM BANKS AND OTHERS |
| a. | Composition: |
| Weighted interest rate | Consolidated | The Company | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2005 | December 31, | December 31, | ||||||||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||||||||
| % | Reported NIS in thousands | |||||||||||||||||||
| Short-term credit | ||||||||||||||||||||
| from banks | 6.09 | 523,570 | 437,029 | 482,080 | 396,682 | |||||||||||||||
| Current maturities | ||||||||||||||||||||
| of long-term | ||||||||||||||||||||
| loans (see Note 15) | 28,172 | 28,310 | 28,172 | 28,310 | ||||||||||||||||
| 551,742 | 465,339 | 510,252 | 424,992 | |||||||||||||||||
| b. | Financial covenants |
| 1. | In 2003, the Company undertook toward a bank which had granted it credit facilities in the total of approximately NIS 87 million (of which as of December 31, 2005, the Company used approximately NIS 86.4 million, see also 2 below) to fulfill certain financial covenants. As of December 31, 2005, the Company did not comply with certain financial covenants, as detailed below: |
| a) | The number of cable TV subscribers. |
| b) | Operating surplus, as defined in the credit facility agreement, mentioned above, including excess of operating income in relation to the credit facilities used by the Company and in relation to debt, as defined in the credit facility agreement. |
| On February 20, 2006, the Company received a letter from the bank according to which the bank does not deem the non-compliance with the financial covenants, as described above, a violation of the Company’s undertaking to maintain financial ratios until March 31, 2007. |
| 2. | The Company invested approximately NIS 27.2 million in a short-term deposit which is used as a security for part of the Company’s credit facilities from such bank. |
| c. | Agreements settling the validity of the credit facilities |
| During February 2006, the Company signed agreements with banks which provide it with credit facilities, according to which the banks are committed to provide the Company short-term credit facilities (including documentary credit) up to a total amount of approximately NIS 524 million which is due on March 31, 2007, provided that none of the events, as specified in these agreements, occurs (among which is a liquidation request filed against the Company, discontinuance of the Company’s business activity etc.). |
| As of December 31, 2005, the banks provided to the Company short-term credit in the amount of approximately NIS 482 million, whose terms were settled subsequent to the balance sheet date as part of the above agreements. |
48
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 11: | – | SHORT-TERM CREDIT FROM BANKS AND OTHERS (Cont.) |
| d. | A bank has demanded that Hot Vision repay its outstanding short-term credit amounting to NIS 78 million (the Company’s share totals approximately NIS 20 million). Hot Vision is holding negotiations with the bank to extend the credit period. |
| e. | As for collaterals, see Note 18. |
| NOTE 12: | – | TRADE PAYABLES |
| Consolidated | The Company | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, | December 31, | |||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||
| Reported NIS in thousands | ||||||||||||||
| Open accounts | 60,481 | 66,255 | 42,841 | 45,681 | ||||||||||
| Checks payable | 44,706 | 38,027 | 33,362 | 29,236 | ||||||||||
| 105,187 | 104,282 | 76,203 | 74,917 | |||||||||||
| NOTE 13: | – | OTHER ACCOUNTS PAYABLE |
| Employees and payroll accruals | 7,170 | 6,754 | 5,417 | 4,710 | ||||||||||
| Provision for vacation pay | 4,838 | 5,114 | 3,425 | 3,761 | ||||||||||
| Government authorities (1) | 14,981 | 103,779 | 8,638 | 97,448 | ||||||||||
| Advances from Cable Companies | 2,403 | 2,738 | - | - | ||||||||||
| Royalties to the Government of Israel | 6,224 | 11,069 | 6,224 | 11,069 | ||||||||||
| Interest payable | 572 | 1,381 | 572 | 1,381 | ||||||||||
| Accrued expenses (2) | 38,686 | 22,695 | 35,313 | 18,153 | ||||||||||
| Provision for verdict under appeal (see | ||||||||||||||
| Note 18(a)(3)) | 26,053 | 23,400 | 26,053 | 23,400 | ||||||||||
| Deferred taxes (see Note 17e) | - | 23,981 | - | *) | 19,448 | |||||||||
| Others | 598 | 1,032 | 551 | 595 | ||||||||||
| 101,525 | 201,943 | 86,193 | *) | 179,965 | ||||||||||
| *) | Reclassified. |
| (1) | As of December 31, 2004, included mainly a provision for taxes in respect of the sale of Partner shares in 2002 and 2003. |
| In view of the settlement with the Tax Authorities, the remaining tax of approximately NIS 106 million relating to the Company’s liability to the Tax Authorities for the sale of Partner’s shares was paid in 2005. |
| (2) | As of December 31, 2004, includes a provision relating to expenses to be paid to a related party in the amount of NIS 1,300 thousand. |
49
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 14: | – | DEBENTURES |
| a. | According to a prospectus dated August 28, 1997, the Company issued NIS 200 million par value of debentures (series A), for redemption in seven equal annual installments on August 20 in each of the years 2000 to 2006, and 2,850,000 stock options (series 1). The debentures (principal and interest) are linked to the Israeli CPI and bear annual interest at the rate of 3.7%. Debentures with a par value of NIS 30,700 thousand were purchased by a wholly-owned subsidiary, upon issuance. In August 2001, the subsidiary sold the remaining debentures held by it for NIS 23,268 thousand. The debentures are traded on the Tel Aviv Stock Exchange. Expenses relating to the issuance of debentures are presented in the balance sheets as deferred charges. See Notes 2h and 10. |
| b. | Composition: |
| Consolidated | The Company | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, | December 31, | |||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||
| Reported NIS in thousands | ||||||||||||||
| Debentures outstanding | 34,919 | 68,010 | 34,919 | 68,010 | ||||||||||
| Less - discount for sale of debentures | ||||||||||||||
| by subsidiary | 323 | 804 | - | - | ||||||||||
| 34,596 | 67,206 | 34,919 | 68,010 | |||||||||||
| Less - current maturities | 34,596 | 34,005 | 34,919 | 34,005 | ||||||||||
| - | 33,201 | - | 34,005 | |||||||||||
50
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 15: | – | LONG-TERM LOANS FROM BANKS AND OTHERS |
| a. | Composition: |
| Interest rate | Consolidated and the Company | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2005 | December 31, | ||||||||||
| 2005 | 2004 | ||||||||||
| % | Reported NIS in thousands | ||||||||||
| From banks - linked to the dollar | - | 1,206 | |||||||||
| From banks - linked to the Israeli CPI | 5.75 - 6.2 | 103,334 | 125,937 | ||||||||
| From others - linked to the dollar | Libor + 1.75 | 302 | 1,140 | ||||||||
| From others - unlinked (1) | - | 1,484 | |||||||||
| 103,636 | 129,767 | ||||||||||
| Less - current maturities | 28,172 | 28,310 | |||||||||
| 75,464 | 101,457 | ||||||||||
| (1) | Amounts received from sale of credit card receivables with recourse. |
| (2) | The Libor rate as of December 31, 2005 was 4.84% (as of December 31, 2004 – 3.1%). |
| b. | The loans (net of current maturities) are repayable in the following years subsequent to the balance sheet date: |
| Consolidated and the Company | ||||||||
|---|---|---|---|---|---|---|---|---|
| December 31, | ||||||||
| 2005 | 2004 | |||||||
| Reported NIS in thousands | ||||||||
| Second year | 60,380 | 27,922 | ||||||
| Third year | 15,084 | 58,847 | ||||||
| Fourth year | - | 14,688 | ||||||
| 75,464 | 101,457 | |||||||
| c. | As for financial covenants that the Company has undertaken to maintain, see also Note 11b. |
| d. | As for collaterals, see Note 18. |
51
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 16: | – | ACCRUED SEVERANCE PAY, NET |
| a. | Composition: |
| Consolidated | The Company | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, | December 31, | |||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||
| Reported NIS in thousands | ||||||||||||||
| Accrued severance pay | 21,188 | 19,477 | 14,339 | 14,368 | ||||||||||
| Less - amounts funded | 17,861 | 16,994 | 12,821 | 13,345 | ||||||||||
| 3,327 | 2,483 | 1,518 | 1,023 | |||||||||||
| b. | The liabilities of the Group companies for severance pay are computed on the basis of the employees most recent salary as of the balance sheet date and in accordance with the Severance Pay Law and are fully covered by current payments to insurance companies as well as by the balance sheet accrual. |
| c. | The amounts accumulated in managers’ insurance companies on behalf of the employees in order to cover the Company’s liabilities for severance pay and the respective liabilities are not included in the balance sheet as they are not under the control and management of the Company. |
| d. | The amounts funded in severance pay funds include profits accrued through the balance sheet date. The amounts deposited can be withdrawn only after compliance with the obligations under the Severance Pay Law or labor agreements. |
| NOTE 17: | – | TAXES ON INCOME |
| a. | Tax laws applicable to the Group companies: |
| Income Tax (Inflationary Adjustments) Law, 1985 |
| According to the law, the results for tax purposes are measured based on the changes in the Israeli CPI. The Group is taxed under this law. |
| Capital gains/losses |
| Pursuant to the provisions of the Law for Amendment of the Income Tax Ordinance (No. 132), 2003 (“the reform law”), tax at a reduced rate of 25% will apply on capital gains accrued after January 1, 2003, instead of the regular tax rate. In case of the sale of properties purchased before the adoption of the reform law, the reduced tax rate will apply only to the portion of the profit which accrued after the adoption of the law, as computed according to the law. Further, the reform law states that capital losses carried forward for tax purposes may be offset against capital gains indefinitely. The reform law also provides for the possibility to offset capital losses from sales of properties outside Israel against capital gains in Israel. |
52
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 17: | – | TAXES ON INCOME (Cont.) |
| b. | Tax rates applicable to the income of the Group companies |
| Until December 31, 2003, the regular tax rate applicable to income of companies was 36%. In June 2004, an amendment to the Income Tax Ordinance (No. 140 and Temporary Provision), 2004 was passed by the “Knesset” (Israeli parliament) and on July 25, 2005, another law was passed, the amendment to the Income Tax Ordinance (No. 147) 2005, according to which the corporate tax rate is to be progressively reduced to the following tax rates: 2004 – 35%, 2005 – 34%, 2006 – 31%, 2007 – 29%, 2008 – 27%, 2009 – 26%, 2010 and thereafter – 25%. |
| c. | Tax assessments |
| The Company received final tax assessments through 1996, a subsidiary through 2002 and other Group companies received final tax assessments through 1997. |
| As for tax assessments received by the Company and its subsidiary for 1997 to 2002, see Note 18a(2)(e). |
| As for a compromise agreement with the Income Tax Authorities which finally and definitely settled the Group’s dispute with the Income Tax Authorities regarding the tax liability of the Group from the sale of Partner’s shares in 2002 and 2003 and the tax expense relating to the sale of Partner’s shares in 2005, see Note 6b(2). |
| d. | Carryforward losses for tax purposes |
| Carryforward tax losses of the Company (after implementing the principles of the compromise settlement as detailed in Note 6b(2)) total approximately NIS 343 million as of December 31, 2005 (approximately NIS 408 million as of December 31, 2004). Carryforward tax losses of subsidiaries total approximately NIS 138 million as of that date (approximately NIS 125 million as of December 31, 2004). The amount of carryforward losses for tax purposes is conditional upon the outcome of the Company’s appeal on the orders and assessments which the Company and a subsidiary received (see Note 18a(2)(e)). |
| Deferred tax assets relating to these losses – consolidated and the Company – of approximately NIS 120 and NIS 86 million, respectively, were not recorded due to the uncertainty of their utilization in the foreseeable future. |
53
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 17: | – | TAXES ON INCOME (Cont.) |
| e. | Deferred taxes |
| 1. | Composition and change as presented in the balance sheet are as follows: |
| Consolidated | The Company | |||||||
|---|---|---|---|---|---|---|---|---|
| Deferred taxes computed in respect of temporary differences - investment in affiliate | ||||||||
| Reported NIS in thousands | ||||||||
| Balance as of January 1, 2004 | (15,630 | ) | (15,630 | ) | ||||
| Changes during the year: | ||||||||
| Adjustment due to change in tax rate | 868 | 868 | ||||||
| Deferred tax liabilities (1) | (9,219 | ) | *) | (4,686 | ) | |||
| Balance as of December 31, 2004 | (23,981 | ) | *) | (19,448 | ) | |||
| Changes during the year: | ||||||||
| Adjustment due to change in tax rate | 1,088 | - | ||||||
| Deferred tax liabilities (1) | (2,566 | ) | (1,316 | ) | ||||
| Reversal of deferred tax liability due to sale | ||||||||
| of investment in Partner | 20,764 | 20,764 | ||||||
| Balance as of December 31, 2005 | (4,695 | ) | - | |||||
| *) | Reclassified. |
| (1) | The deferred tax liability is presented in equity in earnings of investees. |
| Consolidated | The Company | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, | December 31, | |||||||||||||
| 2005 | 2004 | 2005 | 2004 | |||||||||||
| Reported NIS in thousands | ||||||||||||||
| Short-term liabilities | ||||||||||||||
| (other accounts payable) | - | (23,981 | ) | - | *) | (19,448 | ) | |||||||
| Long-term liabilities | (4,695 | ) | - | - | - | |||||||||
| (4,695 | ) | (23,981 | ) | - | *) | (19,448 | ) | |||||||
| 2. | Deferred taxes as of December 31, 2005 are measured at the tax rate of 25% (the tax rates expected to be in effect based on the applicable tax laws at balance sheet date). |
| *) | Reclassified. |
54
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 17: | – | TAXES ON INCOME (Cont.) |
| f. | Taxes on income included in the statements of operations |
| Consolidated | The Company | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year ended December 31, | Year ended December 31, | |||||||||||||||||||
| 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | |||||||||||||||
| NIS in thousands | ||||||||||||||||||||
| Reported | Adjusted | Reported | Adjusted | |||||||||||||||||
| Current taxes | 14,721 | - | 41,799 | 14,721 | - | 41,799 | ||||||||||||||
| Deferred taxes | (20,764 | ) | - | (6,303 | ) | (20,764 | ) | - | (6,303 | ) | ||||||||||
| Taxes in respect of | ||||||||||||||||||||
| prepayments due to | ||||||||||||||||||||
| surplus expenses | ||||||||||||||||||||
| paid | 395 | *) | 368 | *) | 2,542 | 264 | *) | 290 | *) | 2,096 | ||||||||||
| Adjustment of | ||||||||||||||||||||
| deferred tax | ||||||||||||||||||||
| balances due to | ||||||||||||||||||||
| change in tax rates | (1,088 | ) | - | - | - | - | - | |||||||||||||
| Taxes in respect of | ||||||||||||||||||||
| previous years | - | 7,281 | 80 | - | 4,516 | - | ||||||||||||||
| (6,736 | ) | *) | 7,649 | *) | 38,11 | 8 | (5,779 | ) | *) | 4,806 | *) | 37,59 | 2 | |||||||
| *) | Reclassified. |
| Current taxes for the reported year were computed based on the compromise settlement with the Income Tax Authorities, as described in Note 6b(2). |
55
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 17: | – | TAXES ON INCOME (Cont.) |
| g. | Below is a reconciliation between the theoretical tax expense (benefit) assuming all of the Group’s income is taxed at the statutory tax rates applicable to companies in Israel and the income tax expense (benefit) as reported in the statements of operations. |
| Consolidated | The Company | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year ended December 31, | Year ended December 31, | |||||||||||||||||||
| 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | |||||||||||||||
| NIS in thousands | ||||||||||||||||||||
| Reported | Adjusted | Reported | Adjusted | |||||||||||||||||
| Income (loss) before | ||||||||||||||||||||
| taxes on income | 68,838 | *) | (89,636 | ) | *) | (8,239 | ) | 64,667 | (110,047 | ) | *) | (4,273 | ) | |||||||
| Statutory tax rate | 34 | % | 35 | % | 36 | % | 34 | % | 35 | % | 36 | % | ||||||||
| Tax expenses | ||||||||||||||||||||
| (benefit) computed | ||||||||||||||||||||
| at the statutory | ||||||||||||||||||||
| tax rate | 23,404 | *) | (31,373 | ) | *) | (2,966 | ) | 21,987 | *) | (38,516 | ) | *) | (1,538 | ) | ||||||
| Increase (decrease) | ||||||||||||||||||||
| in taxes expenses | ||||||||||||||||||||
| (benefit) | ||||||||||||||||||||
| resulting from: | ||||||||||||||||||||
| Adjustment of | ||||||||||||||||||||
| deferred tax | ||||||||||||||||||||
| balances due to | ||||||||||||||||||||
| change in tax rate | (1,088 | ) | - | - | - | - | - | |||||||||||||
| Nondeductible expenses | 4,679 | *) | 6,258 | *) | 1,065 | 1,850 | *) | 6,170 | *) | 617 | ||||||||||
| Taxes in respect of | ||||||||||||||||||||
| prepayments due to | ||||||||||||||||||||
| surplus expenses | ||||||||||||||||||||
| paid | 395 | *) | 368 | *) | 2,542 | 264 | *) | 290 | *) | 2,096 | ||||||||||
| Tax losses for which | ||||||||||||||||||||
| deferred taxes | ||||||||||||||||||||
| were not provided | 35,325 | 24,759 | *) | 36,685 | 32,349 | *) | 25,218 | *) | 33,805 | |||||||||||
| Taxes in respect of | ||||||||||||||||||||
| partnership's | ||||||||||||||||||||
| earnings | - | - | - | 7,361 | 6,919 | *) | 2,370 | |||||||||||||
| Utilization of losses | ||||||||||||||||||||
| for which deferred | ||||||||||||||||||||
| taxes were not | ||||||||||||||||||||
| provided in the | ||||||||||||||||||||
| past (see | ||||||||||||||||||||
| Note 6b(2)) | (69,644 | ) | - | - | (69,644 | ) | - | - | ||||||||||||
| Temporary differences | ||||||||||||||||||||
| for which deferred | ||||||||||||||||||||
| taxes were not | ||||||||||||||||||||
| provided | 193 | 356 | *) | 712 | 54 | 209 | *) | 242 | ||||||||||||
| Taxes in respect of | ||||||||||||||||||||
| previous years | - | 7,281 | 80 | - | 4,516 | - | ||||||||||||||
| (6,736 | ) | *) | 7,649 | *) | 38,118 | (5,779 | ) | *) | 4,806 | *) | 37,592 | |||||||||
| *) | Reclassified. |
56
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 18: | – | CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES AND CHARGES |
| a. | Contingent liabilities |
| 1. | Claims and petitions for approval of class actions |
| a) | On April 22, 1999, a personal lawsuit and motion to approve the claim as a class action were filed against the Company with the Tel-Aviv-Jaffa District Court by a customer of the Company who seeks approval as class action, thereby representing all of the Company’s subscribers. |
| In the claim, it is alleged that the Company constitutes a monopoly, and that it adversely exploits its position in the market, in a manner which is, or may be, damaging to the general public, among others, by setting and collecting unreasonable and unfair prices for the services it provides. If the class action is approved, the court will be requested to require the Company to reduce the subscriber fees that it collects and to pay its subscribers, compensation in connection with the subscriber fees collected from May 10, 1996 to April 1, 1999. In this context, the petitioner claims that he has sustained damages in a sum of reported NIS 1,387 and further claims that the sum of compensation due to all of the members of the class included in the class action, if approved, amounts to reported NIS 360 million. |
| On February 16, 2006, the District Court denied the motion to approve the claim as a class action. |
| b) | On August 28, 2002, a lawsuit and motion to approve the claim as a class action were filed with the Tel-Aviv Jaffa District Court against the Cable Companies on behalf of the residents of peripheral settlements. The claim is for indemnification in respect to these settlements not being connected to the cable networks within six years of the date on which the former franchises were granted. The plaintiffs are seeking that the Company and the other Cable Companies pay compensation to all of the members of the class in action, if certified as a class action. In accordance with the lawsuit the Company’s share in this claim amounts to approximately NIS 141 million. |
| The Company and Golden Channels filed a motion to dismiss the suit without prejudice due to the dismissal of a lawsuit identical in substance to the aforementioned suit. The Court determined that the motion for dismissal of the suit without prejudice will be heard together with the motion to approve the claim as a class action. The Company and Golden Channels filed a reply to the motion to approve the claim as a class action. The plaintiff’s request to join the hearing as creditors of Tevel was dismissed by the Court and the motion to approve the claim as a class action and the reply on behalf of the Cable Companies were amended accordingly. On January 29, 2006 a hearing was held in the matter of the motion to dismiss the suit. As of the date of the approval of the financial statements, the Court’s has not yet rendered a ruling in this issue was yet not given. |
57
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 18: | – | CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES AND CHARGES (Cont.) |
| According to the opinion of the Company’s management, based on the opinion of its legal counsels, it is not possible to estimate the chances of the claim. Therefore, no provision was recorded in respect to the aforesaid claim in the Company’s financial statements. |
| c) | On December 3, 2002, a lawsuit and motion to approve the claim as a class action were filed with the Tel-Aviv Jaffa District Court by seven plaintiffs, representing about 1,050,000 subscribers of the Cable Companies. |
| According to the claim, the Cable Companies violated the terms of the approval of the Council for the transmission of the pay sport channel (offered to subsidiaries through the Tiering services) since the Company and the other Cable Companies did not maintain certain programs in the original sport channel which was part of the basic package offered to subscribers. The plaintiffs requested the Court to instruct all three Cable Companies to compensate the subscribers by a total amount of approximately NIS 302 million (as of the date the claim was filed) and by an additional amount of NIS 25.2 million for each month from the date the claim was filed until a ruling is rendered by the Court. The Company’s proportionate share based on the subscribers ratio is estimated at approximately NIS 80 million, in addition to a monthly amount of approximately NIS 6.7 millions accumulating from the date the claim was filed until a ruling is rendered. |
| On May 27, 2004, the Court denied the motion to approve the claim as a class action. On July 5, 2004, the plaintiffs submitted an appeal to the Supreme Court. Following an amendment to the Consumer Law and the consent of the parties the Supreme Court ordered that the District Court shall rule in the matter of the motion to approve the claim as a class action. Thus, without prejudice to the parties claims. |
| In December 2005, the plaintiffs filed a revised motion to approve the claim as a class action against the Company and Golden Channels, jointly and severally. The claim according to the revised motion (which is not against Tevel) totals approximately NIS 199 million and approximately NIS 16.6 million for each month from December 3, 2002 and thereafter. |
| According to the opinion of the Company’s management, based on the opinion of its legal counsels, it is not possible to estimate the chances of the claim. Therefore, no provision was recorded in respect to the aforesaid claim in the Company’s financial statements. |
58
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 18: | – | CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES AND CHARGES (Cont.) |
| 2. | Other claims |
| a) | On March 28, 2000, a claim was filed in the Tel-Aviv-Jaffa District Court against the Cable Companies, including the Company, by the Association for the International Collective Management of Audiovisual Works (“AGICOA”), for alleged breach of copyrights. The aggregate sum of the claim is not less than approximately $ 170.2 million and for the purpose of court fees was limited to sum of $ 20 million. |
| The Cable Companies argue, inter alia, that in view of the Anti Trust laws in Israel, the claimant has no right to file a claim in Israel and that the period of time on which the claim relies exceeds, at least partially, what is prescribed by law. The Cable Companies also argue that the amounts of the claim are groundless and exaggerated. |
| In January 2005, the parties completed the discovery proceedings and therefore in the context of the preliminary proceedings, disclosing additional information and questionnaires remain to be completed. |
| According to the opinion of the Company’s management, based on the opinion of its legal counsels, it is not possible to estimate the chances of the claim. Therefore, no provision was recorded in respect to the aforesaid claim in the Company’s financial statements. |
| b) | In June 2004, Eshkolot – The Israeli Artists Society for Performers’ Rights Ltd., (“Eshkolot”) filed a claim, and notice of arbitration, against the Cable Companies, including the Company, for payment of fees and royalties alleging violation of copyright and use of rights of performers without authorization. |
| The amount of the claim (which was filed within the arbitration proceedings which significantly exceeds the amounts that were paid previously to Eshkolot by the Cable Companies pursuant to the agreement that was valid until 2002), is NIS 8.5 million for 2003 and a similar amount plus 10% for each of the years 2004 to 2006. |
| The statement of defense on behalf of the Cable Companies was filed on August 3, 2004, and in their defense, the Cable Companies refute Eshkolot’s arguments. The Cable Companies argued, inter alia, that the fees that should be paid to Eshkolot are significantly lower than the fees paid by the Cable Companies to Eshkolot in 2002 and no more than the said amount plus a minimal addition. On March 7, 2006 the hearing was conducted. The parties shall file their summations by the beginning of July 2006. |
59
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 18: | – | CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES AND CHARGES (Cont.) |
| According to the opinion of the Company’s management, based on the opinion of its legal counsels and in the view of the preliminary stage of the proceedings, it is not possible, at this stage, to estimate the chances of the claim. Nevertheless, the Company’s management included in the financial statements a provision, which in its opinion reflects adequately the Company’s exposure in respect of this claim. |
| c) | On April 11, 2005, the Israeli Records and Cassettes Federation (“the Federation”) filed in the District Court of Haifa a claim and a request for payment of temporary royalties against the three Cable Companies, including the Company. Within the said claim the Federation seeks a permanent injuction that shall prohibit the Cable Companies to use the compositions, which are included in the Federation repertoire. |
| The Cable Companies argue that this claim was not submitted in good faith, since in 2003 the Cable Companies already extended interim payments to the claimant on account of 2003 and in 2004 to 2005 the Cable Companies wanted to continue to pay interim payments, however the claimant refused to accept them and addressed the Court. The Cable Companies also argue that the amounts requested from them are significantly higher compared to the amounts paid to the Federation during the term of the agreement. |
| On July 6, 2005, a hearing was held in the matter of the interim payments. At the end of the hearing, the Court rendered a decision according to which the temporary royalties shall be at this stage placed at $ 380 thousand (plus VAT) per each year (approximately NIS 1.7 million). The Court also determined that the Cable Companies shall receive a license in the scope of the actual use made by the Cable Companies. The said amount is due in respect of 2003 and thereafter until a final decision is rendered by the Court. Additional affidavits on behalf of the parties shall be submitted by May 1, 2006. |
| According to the opinion of the Company’s management, based on the opinion of its legal counsels, it is not possible, at this stage, to estimate the chances of the claim. Nevertheless, the Company’s management included in the financial statements a provision, which in its opinion reflects adequately the Company’s exposure in respect of this claim. |
| d) | The Company is involved in several additional claims that are not included in this section and which do not exceed the aggregate of NIS 5.5 million. The Company’s management estimation, based on the opinion of its legal counsel, is that no provision should be included in the financial statements in respect of such claims. |
| e) | The Company and Matav Haifa have received assessments for the years 1997 to 2001. In view of the disputes that arose between the Company and Matav Haifa and the Income Tax Authorities, which have not yet been settled, the Income Tax Authorities issued orders for those years during 2002 and 2004. In addition, the Company filed an objection to the assessment for the tax year 2001 which it had received during 2005. |
60
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 18: | – | CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES AND CHARGES (Cont.) |
| The orders and the assessment, as described above, include requirements from the Company and Matav Haifa to pay an additional tax amount totaling approximately NIS 44.7 million (not including interest and linkage differences) and to decrease their carryforward losses for the years 2000 and 2001 by approximately NIS 170.6 million. The Company and Matav Haifa object to these orders and assessment, as discussed above. |
| The Company’s management estimates, based on the opinion of its independent advisors, that the Company has well founded arguments against the issued orders and assessment and the Company intends to continue to object to these orders and assessment. In view of previously non-concluded discussions and understandings with the Income Tax Authorities, the Company recorded in the financial statements (for 2004) a provision of approximately NIS 6.5 million with respect to the aforementioned orders which, in the opinion of the Company, reflects the Company’s exposure in respect of the tax years to which the orders refer. |
| 3. | Claims against the Cable Companies and the indemnification settlement with Hot Vision |
| a) | On November 27, 2002, International Television Distribution (“Warner”) filed a lawsuit against Tevel in the District Court in California seeking, among others, a monetary compensation of approximately $ 17 million, contending that the agreement for the purchase of rights between Warner and Tevel was breached. |
| The Court in Israel determined that Warner’s claim cannot be materialized or enforced in the boundaries of the state of Israel. Warner appealed to the Supreme Court which on February 9, 2005 decided that although it believes that the prospects of Warner’s appeal to prevail are remote, the factual situation shall be irreversible if the stay of performance is not granted. In this context, the Court instructed that Tevel’s trustee reserve an amount of approximately $ 4 million in favor of Warner until a final decision in the appeal is given. The hearing in the appeal was scheduled for May 19, 2006. |
| Tevel’s management believes, based on the opinion of its legal counsels, that the chances of the appeal, as discussed above, are remote. In view of the above, no provision has been recorded in the financial statement in respect of this claim. |
| b) | On December 9, 2002, Warner filed a lawsuit against Golden Channels in the District Court in California seeking monetary compensation of approximately $ 25 million, contending breach of agreement for the purchase of content. On September 29, 2004, the District Court in California, ruled in favour of Warner. The District Court awarded Warner damages in the amount of approximately $ 19.3 million (excluding attorney fees) and rejected Golden Channels’ counterclaims in the matter. The said amount, including legal expenses, may reach approximately $ 21.7 million. |
61
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 18: | – | CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES AND CHARGES (Cont.) |
| On March 7, 2005, Golden Channels filed a notice of appeal, pursuant to which, it appeals to the Unites States Court of Appeals for the Ninth Circuit from the Final Amended Judgment, including other prior orders and decisions granted by the Court. |
| On March 21, 2005, Warner filed a notice of cross appeal pursuant to which, it appeals to the United States Court of Appeals for the Ninth Circuit from the order of the District Court denying Warner’s motion to amend the judgment to add prejudgment interest, as reflected in the Final Amended Judgment, including all orders and decisions pertaining thereto that are or may be merged into the Final Amended Judgment. |
| On August 3, 2005, the opening brief in respect of the appeal was filed on behalf of Golden Channels. |
| On October 24, 2005, the Appellee’s Brief was filed on behalf of Warner. Warner withdrew the cross appeal which was filed on its behalf. |
| In January 2006, a response to the appeal mentioned above was submitted by Golden Channels. |
| As of the date of the financial statements, a decision in the appeal was not rendered. |
| c) | In June 2003, the Cable Companies and Hot Vision signed an agreement according to which the Cable Companies have agreed that they are committed, one towards the other, to jointly and fully finance through Hot Vision the amounts that Hot Vision may be liable to in respect of the claim between Tevel and Golden Channels and Warner (as detailed in a and b above) as regarding the purchase of content to channels “HOT 3” and “HOT Movies” (including the amounts of new guarantees provided to the major studios) and all expenses regarding legal proceedings, as defined in this agreement. The agreement stipulates, among other things, that each of the Cable Companies shall pay such expenses according to the relative share of each company in total subscribers in the market at that time. The commitments of the Cable Companies to Hot Vision, as above, may be revoked in the occurrence of events as detailed in the agreement (including upon the merger of the Cable Companies). The Company’s share in the above indemnification is about 26.6% of total amounts awarded in favor of Warner up to a maximal amount of approximately $ 5.8 million. Close to the filing of the claims mentioned in a and b above, Warner forfeited bank guarantees each in the amount of approximately $ 5 million which were provided by Tevel and Golden Channels. |
62
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 18: | – | CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES AND CHARGES (Cont.) |
| The agreement further stipulates that the commitments of the Cable Companies shall be revoked in the following cases: (1) if the Cable Companies release Hot Vision in writing from its obligations under this agreement (2) if Tevel, Golden Channel and the Company merge into another cable company (the “Merged Company”) and the Merged Company assumes, in writing and without any condition, the commitments of all of the Cable Companies towards Hot Vision under this agreement even if Hot Vision is not released from all of its said obligations given that the Merged Company holds all of the issued share capital of Hot Vision and that its commitments cover all of Hot Vision’s obligations under the agreement. |
| In view of the abovementioned, the Company has made a provision in the financial statements for Warner’s claim (as detailed in b above) in the amount of approximately NIS 26 million which reflects its relative share in the amounts awarded in favor of Warner, including interest and linkage differences to the U.S. dollar. This provision was included in the 2004 financial statements as other expenses. |
| b. | Commitments |
| 1. | Royalties and other payments to the Government |
| a) | The Company, Matav Haifa and Matav Infrastructures are obligated to pay royalties to the Government of Israel amounting to 3.5% of their gross revenues (excluding VAT) from the provision of broadcasting services and internet services. |
| b) | In July 2001, the Cable Companies, including the Company, signed an agreement with the State of Israel which settles the disputes between the Cable Companies and the State of Israel regarding the right of each company to operate the cable network existing in each of the license areas after the license period ends. The agreement prescribes that the State waives all its arguments and rights regarding the cable network so that each cable company will own all the rights, including proprietary rights, to the cable network in its license area and the right to operate it also at the end of the license period. In consideration, it was determined that each company shall make payments to the State over a period of 12 years (beginning on January 1, 2003) equal to its relative share in an amount determined by multiplying certain revenues (as specified in the agreement) of all Cable Companies by a gradual percentage which is between 0% to 4% (according to the amount of such revenues). The relative share of each company may be changed by an agreement between the Cable Companies. It was also determined that each company shall pay over a period of 12 years up to 12% of total revenues from the sale of any activity related to the cable network or a right related to such activity (as defined in the agreement). |
63
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 18: | – | CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES AND CHARGES (Cont.) |
| 2. | Other royalties |
| In the context of the Group’s current activity in the area of broadcasting, the Group enters into arrangements and agreements by virtue of which the Group pays royalties to various performers entities. In this respect, total royalties paid in 2005, 2004 and 2003 total approximately NIS 3.8 million, NIS 3.6 million and NIS 2.7 million, respectively. |
| 3. | Under the Telecommunications Law and in accordance with the Council’s resolution, the Group is required to invest in locally produced programs which are initially broadcast by the Group, up to 8% of its total annual revenues from subscriber fees (beginning in April 2002). The above also applies to the years 2006 and 2007. The Company’s management estimates that the percentage which was invested in locally produced programs in 2005, 2004 and 2003 was more than 8%. |
| 4. | Lease commitments |
| The Group entered into agreements for the lease of buildings and motor vehicles for various periods ending in 2008. The future minimum lease fees under the lease agreements as of December 31, 2005, not including the renewal option are as follows: |
| NIS in thousands | ||||||
|---|---|---|---|---|---|---|
| 2006 | 4,852 | |||||
| 2007 | 4,239 | |||||
| 2008 | 3,747 | |||||
| 2009 | 6,203 | |||||
| 19,041 | ||||||
| c. | Charges and guarantees |
| 1. | As collateral for the Company’s liabilities to banks and holders of debentures which at December 31, 2005 amounted to approximately NIS 620 million, a first ranking floating charge was placed on all of the Company’s assets. |
| 2. | In February 2006, against obtaining a long-term loan from a bank, the Company pledged its contractual entitlements to amounts in connection with Call and Put options in respect of Barak shares (as detailed in Note 6b(5)). |
| 3. | In order to ensure the Group’s compliance with the obligations as prescribed in the agreement with the State for the grant of licenses, the following guarantees have been provided: |
| a) | A bank guarantee in favor of the Ministry of Communications in the amount of approximately NIS 12.2 million valid until December 2007 pursuant to the Infrastructure License granted to Hot Telecom. |
64
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 18: | – | CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES AND CHARGES (Cont.) |
| On March 23, 2006 the Ministry of Communications reduced the bank guarantee to a 60% of its original amount. |
| b) | A guarantee in favor of the Council in the amount of approximately NIS 9.5 million (linked to the Israeli CPI) valid until April 2007 pursuant to the broadcasting license. |
| c) | A bank guarantee in favor of the Controller in the amount of approximately NIS 2.4 million valid until December 2007 pursuant to the Company’s compliance with the terms of the merger as approved by the Controller. |
| 4. | The Company provided Hot Vision with unlimited guarantee in favor of a bank at the rate of up to 25% of Hot Vision’s total indebtedness to that bank. In accordance with the resolution of Hot Vision’s Board of directors, it was determined that the total credit to be extended to Hot Vision by the bank shall not exceed the approximate amount of $ 35 million. Any excess amount shall be approved in writing by the Company’s Board of directors. The Company’s share in this guarantee amounted to approximately $ 4.6 million. |
| In addition, the Company guarantees Hot Vision’s liabilities to another bank in a varying amount which ranges between $ 4.2 million to $ 6.4 million. |
| 5. | As collateral for the Company’s liabilities to a supplier, the Company pledged equipment purchased from that supplier in a total amount of NIS 0.5 million. |
| 6. | The Company provided Barak a guarantee in the amount of $ 200 thousand. In addition, according to the agreement for the purchase of Barak’s shares (as detailed in Note 6), it was determined that the Company shall increase its guarantees by approximately $ 170 thousand, based on the new shareholding. The Company has not yet provided that guarantee. |
| 7. | Guarantees to Hot Telecom |
| a) | The Company and Tevel provided, jointly and severally, a guarantee in a total amount of $ 4.5 million to secure the payments of Hot Telecom to Cisco. The Cable Companies signed an indemnification agreement in respect of the mentioned guarantee. |
| b) | The Cable Companies provided a guarantee in the amount of NIS 200 million to secure the liabilities of Hot Telecom in respect of a lease agreement that was signed with a third party. The Company’s relative share in this guarantee amounts to approximately NIS 53 million. |
65
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 19: | – | SHAREHOLDERS’ EQUITY |
| a. | Composition of share capital |
| December 31, 2005 | December 31, 2004 | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Authorized | Issued and outstanding | Authorized | Issued and outstanding | |||||||||||
| Number of shares | ||||||||||||||
| Ordinary shares NIS 1 par value each | 100,000,000 | 30,222,775 | 100,000,000 | 30,220,477 | ||||||||||
| b. | The Company’s shares are traded on the Tel-Aviv Stock Exchange (“TASE”). |
| The Company’s ADSs are listed on the NASDAQ under the symbol “MATV”. Each ADS represents two of the Company’s Ordinary shares of NIS 1 par value. As for the Company’s intention to be delisted from the NASDAQ, see also Note 1a(10). |
| c. | Issuance of options to senior employees |
| 1. | In December 2003, the Company’s Board approved a stock option plan for 50 of the Company’s employees (“the 2003 Plan”). According to this Plan, 770,000 options that are exercisable into 770,000 Ordinary shares of NIS 1 par value of the Company were issued (including 85,000 options granted to a related party), in three equal annual tranches over a vesting period of three years from the date of grant. The share market price on the date of grant of the options was NIS 34.4. The exercise price shall not be actually paid to the Company and shall be used for the computation of the benefit component only, meaning the employees will be allotted shares in consideration for their par value only, in the amount which fair value reflects the element of the benefit embodied in the options as calculated at the time of exercise. It was also determined in the plan that on the occurrence of certain events as they are defined, such as: a merger and a change in control, the Board of Directors and the committee on its behalf have the authority to determine, at their exclusive and final discretion, regarding the acceleration of the vesting dates of all or part of the options for which the vesting date has not yet occurred, the rights holders will be entitled to exercise these options to shares 10 days from the occurrence of the aforesaid events. |
| The stock options which were granted in three tranches are exercisable as follows: |
| a. | The first tranche is exercisable from January 31, 2004, in consideration for an exercise price of NIS 26.82 (on the basis of 85% of the average price of the Company’s share during 30 trading days before the date of the approval of the 2003 Plan). |
| b. | The second tranche is exercisable from January 31, 2005, in consideration for an exercise price of NIS 30.43 (on the basis of 90% of the average price of the Company’s share during 30 trading days before the end of the vesting period of the second tranche). |
66
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 19: | – | SHAREHOLDERS’ EQUITY (Cont.) |
| c. | The third tranche is exercisable from January 31, 2006, in consideration for an exercise price of NIS 31.32 (on the basis of 90% of the average price of the Company’s share during 30 trading days before the end of the vesting period of the third tranche). |
| The above stock options are exercisable for a period of 36 months from the end of each of the above periods. Options not exercised shall expire after the exercise period. |
| The fair value of each option at the date of grant (computed by the Black & Scholes formula) is approximately NIS 13.096 – NIS 14.474. |
| 2. | On November 16, 2004, a special meeting of the Company’s shareholders approved the grant of 302,205 stock options under the 2003 Plan to the chairman of the Company’s Board of Directors. The exercise price of said stock options was determined at NIS 38 per share. According to this plan, the stock options are exercisable at the ratio of one to thirty six of total options at the end of each month from the beginning of employment of the chairman as long as he continues to be employed by the Company, so that by the end of three years of employment all options become exercisable. In certain events, as they are defined in the employment agreement and the options agreement, in which the termination of the employment of the Chairman of the Board of Directors occurs, the Chairman of the Board of Directors will be entitled to exercise all of the aforesaid stock options under certain circumstances and conditions. |
| The fair value of each option at the date of grant (computed based on Monte-Carlo model) is approximately NIS 14.01. |
| The main assumptions used in this calculation were: exercise price, as mentioned above, expected volatility from 35% to 45%; risk free interest rate of 2.5%, the stock price on grant date (NIS 35.45) and expected life of 5-7 years. |
| 3. | In the reported year, the Company’s Board of Directors approved the issuance of additional 70,000 options to the Company’s employees (under the 2003 Plan, as specified above). The terms for 30,000 stock options are identical (except the vesting periods of these stock options) to those detailed in 1 above whereas the terms for the remaining 40,000 stock options are identical to those detailed in 1 above, except the exercise price which was determined at approximately NIS 38 and the vesting periods of these stock options. |
| The fair value of each option at the date of grant (computed based on Monte-Carlo model) is approximately NIS 11.53 – NIS 16.35. |
| The main assumptions used in this calculation were: exercise price, as mentioned above, expected volatility from 36% to 44%; risk free interest rate of 2.7% – 3.2%, the stock price on grant date (NIS 36.62) and expected life of 3-5 years. |
| 4. | As of December 31, 2005, under the 2003 Plan, 1,142,205 options were issued to 48 employees, 46,749 options were exercised and 97,250 options were forfeited. |
| 5. | The 2003 Plan is subject to section 102 to the Income Tax Ordinance. |
67
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 20: | – | LINKAGE TERMS OF MONETARY ITEMS |
| Consolidated: |
| December 31, 2005 | December 31, 2004 | |||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In or linked to foreign currency | Linked to the Israeli CPI | Unlinked | Total | In or linked to foreign currency | Linked to the Israeli CPI | Unlinked | Total | |||||||||||||||||||
| Reported NIS in thousands | ||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Cash and cash equivalents | 92 | - | 13,092 | 13,184 | 70 | 20,095 | 4,085 | 24,250 | ||||||||||||||||||
| Short-term deposit | - | - | 27,196 | 27,196 | - | - | 50 | 50 | ||||||||||||||||||
| Trade receivables | 1,318 | - | 73,381 | 74,699 | 2,060 | - | 73,398 | 75,458 | ||||||||||||||||||
| Other accounts receivable | 648 | - | 12,280 | 12,928 | 320 | - | 12,210 | 12,530 | ||||||||||||||||||
| Loan, long-term debts and capital note to | ||||||||||||||||||||||||||
| affiliates | - | - | 77,814 | 77,814 | - | - | 25,900 | 25,900 | ||||||||||||||||||
| Other receivables | - | - | 317 | 317 | - | - | 601 | 601 | ||||||||||||||||||
| 2,058 | - | 204,080 | 206,138 | 2,450 | 20,095 | 116,244 | 138,789 | |||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Credit from banks | 20,317 | - | 503,253 | 523,570 | 20,115 | - | 416,914 | 437,029 | ||||||||||||||||||
| Trade payables | 19,930 | - | 85,257 | 105,187 | 28,362 | - | 75,920 | 104,282 | ||||||||||||||||||
| Jointly controlled entity - current account | - | - | 15,648 | 15,648 | - | - | 18,112 | 18,112 | ||||||||||||||||||
| Other accounts payable | 27,259 | 6,706 | 64,563 | 98,528 | 27,936 | 94,758 | 52,530 | 175,224 | ||||||||||||||||||
| Loans from banks and others (including | ||||||||||||||||||||||||||
| current maturities) | 302 | 103,334 | - | 103,636 | 2,346 | 125,937 | 1,484 | 129,767 | ||||||||||||||||||
| Debentures (including current maturities) | - | 34,596 | - | 34,596 | - | 67,206 | - | 67,206 | ||||||||||||||||||
| Customers' deposits for converters, net | - | 16,074 | - | 16,074 | - | 20,279 | - | 20,279 | ||||||||||||||||||
| 67,808 | 160,710 | 668,721 | 897,239 | 78,759 | 308,180 | 564,960 | 951,899 | |||||||||||||||||||
68
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 20: | – | LINKAGE TERMS OF MONETARY ITEMS (Cont.) |
| The Company: |
| December 31, 2005 | December 31, 2004 | |||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| In or linked to foreign currency | Linked to the Israeli CPI | Unlinked | Total | In or linked to foreign currency | Linked to the Israeli CPI | Unlinked | Total | |||||||||||||||||||
| Reported NIS in thousands | ||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Cash and cash equivalents | 92 | - | 6,272 | 6,364 | 70 | 20,095 | 1,437 | 21,602 | ||||||||||||||||||
| Short-term deposit | - | - | 27,196 | 27,196 | - | - | - | - | ||||||||||||||||||
| Trade receivables | - | - | 33,835 | 33,835 | - | - | 37,398 | 37,398 | ||||||||||||||||||
| Other accounts receivable | 648 | 358,228 | 5,446 | 364,322 | 320 | 352,600 | 5,518 | 358,438 | ||||||||||||||||||
| Loan, long-term debts and capital note to | ||||||||||||||||||||||||||
| investees | - | - | 77,814 | 77,814 | - | - | 25,900 | 25,900 | ||||||||||||||||||
| Other receivables | - | - | 317 | 317 | - | - | 601 | 601 | ||||||||||||||||||
| 740 | 358,228 | 150,880 | 509,848 | 390 | 372,695 | 70,854 | 443,939 | |||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Credit from banks | - | - | 482,080 | 482,080 | 1,245 | - | 395,437 | 396,682 | ||||||||||||||||||
| Trade payables | 13,877 | - | 62,326 | 76,203 | 22,490 | - | 52,427 | 74,917 | ||||||||||||||||||
| Subsidiaries - current account | - | - | 16,979 | 16,979 | - | - | 18,619 | 18,619 | ||||||||||||||||||
| Other accounts payable | 26,053 | 3,846 | 55,742 | 85,641 | 26,771 | 92,043 | 38,965 | 157,779 | ||||||||||||||||||
| Loans from banks and others (including | ||||||||||||||||||||||||||
| current maturities) | 302 | 103,334 | - | 103,636 | 2,346 | 125,937 | 1,484 | 129,767 | ||||||||||||||||||
| Debentures (including current maturities) | - | 34,919 | - | 34,919 | - | 68,010 | - | 68,010 | ||||||||||||||||||
| Customers' deposits for converters, net | - | 11,838 | - | 11,838 | - | 14,901 | - | 14,901 | ||||||||||||||||||
| Capital notes to subsidiaries | - | - | - | - | - | - | *) | 3,351 | *) | 3,351 | ||||||||||||||||
| 40,232 | 153,937 | 617,127 | 811,296 | 52,852 | 300,891 | 510,283 | 864,026 | |||||||||||||||||||
| *) | Reclassified. |
69
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 21: | – | SUPPLEMENTARY INFORMATION OF THE STATEMENTS OF OPERATIONS ITEMS |
| a. | Other operating expenses: |
| Consolidated | The Company | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year ended December 31, | Year ended December 31, | |||||||||||||||||||
| 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | |||||||||||||||
| NIS in thousands | ||||||||||||||||||||
| Reported | Adjusted | Reported | Adjusted | |||||||||||||||||
| Payroll and related | ||||||||||||||||||||
| expenses | 42,717 | 34,550 | 32,131 | 25,308 | 18,894 | 18,840 | ||||||||||||||
| Royalties and other | ||||||||||||||||||||
| payments to the | ||||||||||||||||||||
| Government of | ||||||||||||||||||||
| Israel | 21,971 | 22,879 | 24,242 | 13,978 | 14,659 | 15,925 | ||||||||||||||
| Royalties in respect | ||||||||||||||||||||
| of films and | ||||||||||||||||||||
| programs - paid to | ||||||||||||||||||||
| Hot Vision | 48,009 | 51,647 | 53,994 | 38,069 | 37,759 | 38,129 | ||||||||||||||
| Programs and other | ||||||||||||||||||||
| broadcasts | 151,930 | 157,104 | *) | 141,500 | 110,956 | 107,987 | 98,957 | |||||||||||||
| Subscribers maintenance | 36,884 | 27,589 | 22,845 | 24,083 | 19,369 | 14,380 | ||||||||||||||
| Vehicle maintenance | 7,095 | *) | 5,320 | *) | 4,592 | 5,165 | *) | 3,706 | *) | 3,141 | ||||||||||
| Other | 31,159 | *) | 28,497 | *) | 26,861 | 22,906 | *) | 21,258 | *) | 17,833 | ||||||||||
| 339,765 | 327,586 | 306,165 | 240,465 | 223,632 | 207,205 | |||||||||||||||
| b. | Selling, marketing, general and administrative expenses: |
| Selling and marketing: | ||||||||||||||||||||
| Payroll and related | ||||||||||||||||||||
| expenses | 22,640 | 19,121 | 15,539 | 10,171 | 9,631 | 10,446 | ||||||||||||||
| Advertising | 22,502 | 32,791 | 14,698 | 14,873 | 19,444 | 8,457 | ||||||||||||||
| Sales promotion | 8,176 | 11,764 | 13,717 | 6,355 | 5,913 | 7,975 | ||||||||||||||
| 53,318 | 63,676 | 43,954 | 31,399 | 34,988 | 26,878 | |||||||||||||||
| General and | ||||||||||||||||||||
| administrative: | ||||||||||||||||||||
| Payroll and related | ||||||||||||||||||||
| expenses | 14,826 | 19,309 | 16,596 | 10,249 | 13,792 | 12,718 | ||||||||||||||
| Office rent and | ||||||||||||||||||||
| maintenance | 11,388 | 9,635 | 7,894 | 6,254 | 5,318 | 4,692 | ||||||||||||||
| Professional and | ||||||||||||||||||||
| legal consulting | 7,067 | *) | 8,562 | *) | 6,992 | 4,863 | *) | 7,774 | *) | 6,627 | ||||||||||
| Write down of excess | ||||||||||||||||||||
| of investment cost | ||||||||||||||||||||
| in Matav Haifa | - | - | 894 | - | - | - | ||||||||||||||
| Doubtful accounts and | ||||||||||||||||||||
| bad debts | 3,844 | 1,928 | 5,300 | 3,030 | 1,256 | 3,590 | ||||||||||||||
| Other | 5,008 | *) | 5,589 | *) | 4,446 | 3,211 | *) | 1,910 | *) | 226 | ||||||||||
| 42,133 | *) | 45,023 | *) | 42,122 | 27,607 | *) | 30,050 | *) | 27,853 | |||||||||||
| 95,451 | *) | 108,699 | *) | 86,076 | 59,006 | *) | 65,038 | *) | 54,731 | |||||||||||
| *) | Reclassified. |
70
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 21: | – | SUPPLEMENTARY INFORMATION OF THE STATEMENTS OF OPERATIONS ITEMS (Cont.) |
| c. | Financial expenses, net: |
| Consolidated | The Company | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year ended December 31, | Year ended December 31, | |||||||||||||||||||
| 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | |||||||||||||||
| NIS in thousands | ||||||||||||||||||||
| Reported | Adjusted | Reported | Adjusted | |||||||||||||||||
| In respect of | ||||||||||||||||||||
| debentures and | ||||||||||||||||||||
| long-term loans | 10,767 | 15,068 | 11,214 | 10,767 | 15,068 | 11,214 | ||||||||||||||
| In respect of | ||||||||||||||||||||
| short-term credit **) | 25,978 | 22,251 | 51,637 | 21,848 | 20,062 | 49,272 | ||||||||||||||
| Bank and credit card | ||||||||||||||||||||
| companies commissions | 6,326 | 7,394 | 7,473 | 4,899 | 5,609 | 5,296 | ||||||||||||||
| Other, net | 7,574 | 5,620 | *) | 13,634 | (2,446 | ) | 5,222 | 13,605 | ||||||||||||
| 50,645 | 50,333 | 83,958 | 35,068 | 45,961 | 79,387 | |||||||||||||||
| **) | In 2003, including purchasing loss in respect of monetary items. |
| d. | Other income (expenses), net: |
| Gain (loss) from: | ||||||||||||||||||||
| Gain from sale of | ||||||||||||||||||||
| shares of affiliate (1) | 164,647 | - | 96,662 | 164,647 | - | 97,876 | ||||||||||||||
| Write-off of | ||||||||||||||||||||
| investment in other company | - | (16,241 | ) | - | - | (16,227 | ) | - | ||||||||||||
| Gain (loss) from sale | ||||||||||||||||||||
| and write-off of | ||||||||||||||||||||
| fixed assets (including | ||||||||||||||||||||
| impairment loss) | (16,206 | ) | 51 | *) | (9,956 | ) | (7,248 | ) | 168 | (7,638 | ) | |||||||||
| Provision for claims | ||||||||||||||||||||
| and settlement of claim (3) | - | (24,292 | ) | - | - | (24,751 | ) | - | ||||||||||||
| Expenses relating to | ||||||||||||||||||||
| the merger of the | ||||||||||||||||||||
| Cable Companies | (224 | ) | (812 | ) | (4,487 | ) | (224 | ) | (812 | ) | (4,487 | ) | ||||||||
| Gain from sale of | ||||||||||||||||||||
| option in Hop Channel (2) | 4,574 | - | - | - | - | - | ||||||||||||||
| Adjustment of | ||||||||||||||||||||
| amortization of | ||||||||||||||||||||
| liabilities for | ||||||||||||||||||||
| deposits for | ||||||||||||||||||||
| converters and others | - | - | (4,001 | ) | - | - | (2,803 | ) | ||||||||||||
| Refund of royalties | ||||||||||||||||||||
| from previous years | - | - | 4,151 | - | - | 4,151 | ||||||||||||||
| Other | 735 | (1,386 | ) | *) | 632 | 736 | (354 | ) | *) | (497 | ) | |||||||||
| 153,526 | (42,680 | ) | *) | 83,001 | 157,911 | (41,976 | ) | *) | 86,602 | |||||||||||
| *) | Reclassified. |
| (1) | See Note 6b(2). |
| (2) | See also Note 5(1). |
| (3) | See Note 18a(3). |
71
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
NOTE 22:- NET EARNINGS (LOSS) PER SHARE
| Number of shares and net income (loss) used in the computation of net earnings (loss) per Ordinary share: |
| Year ended December 31, | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | 2003 | ||||||||||||||||||
| Weighted number of shares | Net income | Weighted number of shares | Net loss | Weighted number of shares | Net loss | |||||||||||||||
| In thousands | Reported NIS in thousands | In thousands | Reported NIS in thousands | In thousands | Adjusted NIS in thousands | |||||||||||||||
| Number of shares and net | ||||||||||||||||||||
| income (loss), according | ||||||||||||||||||||
| to the statements of operations | 30,222 | 69,574 | 29,360 | (82,984 | ) | *) | 29,347 | (5,450 | ) | |||||||||||
| *) | Less Company shares held by subsidiary. |
| In the computation of net earnings (loss) per share, options whose conversion is not probable were not taken into consideration since their effect is immaterial, this in accordance with the provisions of Opinion 55 of the Institute of Certified Public Accountants in Israel. |
| NOTE 23: | – | BUSINESS SEGMENTS |
| a. | General: |
| The Group companies operate in two principal business segments: cable TV and internet. |
| b. | All income and expenses are attributed directly to business segments. There were no significant intersegment transactions. |
| c. | The Company does not charge Matav Infrastructures for the usage of the cable infrastructures and other facilities of the Company by the internet segment since a fee mechanism has not been determined yet. Accordingly, the results of the internet segment do not include the above expenses and the depreciation of the cable infrastructure equipment is fully recorded as part of the cable TV segment results. The results of the internet segment include direct expenses only. |
| d. | Segment’s assets include all operating assets used in the segment and mainly consist of trade receivables and fixed assets. Most of the assets can be attributed to a certain segment. The amounts of certain assets that are used by both segments, are allocated between the segments on a reasonable basis. |
| e. | The segment’s liabilities include all operating liabilities deriving from its operating activities and mainly consist of trade payables and other accounts payable. Segment’s assets and liabilities do not include income tax assets and liabilities. |
72
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 23: | – | BUSINESS SEGMENTS (Cont.) |
| Year ended December 31, 2005 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Internet | Cable TV | Total consolidated | |||||||||
| Reported NIS in thousands | |||||||||||
| Sales to external customers | 59,632 | 483,336 | 542,968 | ||||||||
| Segments results (operating income (loss)) | 31,428 | (65,471 | ) | (34,043 | ) | ||||||
| Financial expenses, net | (50,645 | ) | |||||||||
| Other income, net | 153,526 | ||||||||||
| Taxes on income | (6,736 | ) | |||||||||
| Income after taxes on income | 75,574 | ||||||||||
| Equity in losses of affiliates | (6,000 | ) | |||||||||
| Net income | 69,574 | ||||||||||
| Other information: | |||||||||||
| Segment assets | 151,222 | 824,709 | 975,931 | ||||||||
| Unallocated assets | 99,684 | ||||||||||
| Total consolidated assets | 1,075,615 | ||||||||||
| Segment liabilities | 15,603 | 219,129 | 234,732 | ||||||||
| Unallocated liabilities | 673,526 | ||||||||||
| Total consolidated liabilities | 908,258 | ||||||||||
| Capital expenditure | 49,251 | 97,628 | 146,879 | ||||||||
| Depreciation and amortization | 7,759 | 137,524 | 145,283 | ||||||||
73
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 23: | – | BUSINESS SEGMENTS (Cont.) |
| Year ended December 31, 2004 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Internet | Cable TV | Total consolidated | |||||||||
| Reported NIS in thousands | |||||||||||
| Sales to external customers | 65,659 | 518,905 | 584,564 | ||||||||
| Segments results (operating income (loss)) | 28,457 | *) | (25,080 | ) | *) | 3,377 | |||||
| Financial expenses, net | (50,333 | ) | |||||||||
| Other expenses, net | (42,680 | ) | |||||||||
| Taxes on income | *) | 7,649 | |||||||||
| Loss after taxes on income | (97,285 | ) | |||||||||
| Equity in earnings of affiliates | 14,301 | ||||||||||
| Net loss | (82,984 | ) | |||||||||
| Other information: | |||||||||||
| Segment assets | 112,863 | 839,401 | 952,264 | ||||||||
| Unallocated assets | 126,618 | ||||||||||
| Total consolidated assets | 1,078,882 | ||||||||||
| Segment liabilities | 17,445 | 210,916 | 228,361 | ||||||||
| Unallocated liabilities | 752,740 | ||||||||||
| Total consolidated liabilities | 981,101 | ||||||||||
| Capital expenditure | 8,165 | 87,263 | 95,428 | ||||||||
| Depreciation and amortization | 6,871 | 138,412 | 145,283 | ||||||||
| *) | Reclassified. |
74
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 23: | – | BUSINESS SEGMENTS (Cont.) |
| Year ended December 31, 2003 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Internet | Cable TV | Total consolidated | |||||||||
| Adjusted NIS in thousands | |||||||||||
| Sales to external customers | 34,403 | 511,077 | 545,480 | ||||||||
| Segments results (operating income (loss)) | 10,436 | *) | (17,718 | ) | *) | (7,282 | ) | ||||
| Financial expenses, net | (83,958 | ) | |||||||||
| Other income, net | *) | 83,001 | |||||||||
| Taxes on income | *) | 38,118 | |||||||||
| Loss after taxes on income | (46,357 | ) | |||||||||
| Equity in earnings of affiliates | 40,907 | ||||||||||
| Net loss | (5,450 | ) | |||||||||
| Other information: | |||||||||||
| Segment assets | 78,090 | *) | 940,663 | *) | 1,018,753 | ||||||
| Unallocated assets | *) | 123,799 | |||||||||
| Total consolidated assets | 1,142,552 | ||||||||||
| Segment liabilities | 15,963 | 184,141 | 200,104 | ||||||||
| Unallocated liabilities | 761,700 | ||||||||||
| Total consolidated liabilities | 961,804 | ||||||||||
| Capital expenditure | 38,131 | 17,524 | 55,655 | ||||||||
| Depreciation and amortization | 6,792 | 153,729 | 160,521 | ||||||||
75
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 24: | – | BALANCES AND TRANSACTIONS WITH RELATED PARTIES |
| a. | Balances: |
| Consolidated | ||||||||
|---|---|---|---|---|---|---|---|---|
| December 31, | ||||||||
| 2005 | 2004 | |||||||
| Reported NIS in thousands | ||||||||
| Balances included in trade payables | 1,644 | 2,721 | ||||||
| Consolidated | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year ended December 31, | ||||||||||||
| 2005 | 2004 | 2003 | ||||||||||
| NIS in thousands | ||||||||||||
| Reported | Adjusted | |||||||||||
| b. Salaries and profit sharing grant | ||||||||||||
| 1. To directors not employed by the | ||||||||||||
| Company: | ||||||||||||
| Payments | 139 | 142 | 142 | |||||||||
| Number of recipients | 2 | 5 | 3 | |||||||||
| 2. To directors employed by the Company: | ||||||||||||
| Cost of salaries (1) | 1,181 | 2,481 | 1,116 | |||||||||
| Number of recipients | 2 | 2 | 1 | |||||||||
| c. Expenses: | ||||||||||||
| Rental fees and services | 144 | 119 | 141 | |||||||||
| Purchases of infrastructure and services from | ||||||||||||
| suppliers | 18,996 | 10,095 | 13,936 | |||||||||
| Professional services | 47 | 87 | 2,728 | |||||||||
| (1) | For the year ended December 31, 2004, including a provision in the amount of NIS 1,300 thousand. |
76
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 25: | – | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT |
| a. | Foreign exchange risk management: |
| The Company enters into foreign exchange contracts designated to hedge against the risk of the possible fluctuations of the exchange rate of the NIS in relation to the dollar due to future negative dollar cash outflows. |
| As of December 31, 2005, the Company had call options to buy $ 22 million (December 31, 2004 – $ 24 million). The options are presented in the balance sheet at market value (see c below). |
| Those hedges were not designated as hedge transactions for accounting purposes; hence all changes in their fair value in the amount of NIS 191 thousand, NIS 1,000 thousand and NIS 11,218 thousand were recorded in 2005, 2004 and 2003 in financing, respectively. |
| b. | Concentration of credit risks: |
| As of December 31, 2005 and 2004, the Group’s cash and cash equivalents were deposited mainly with Israeli banks. The Group estimates that the credit risk in respect of these balances is remote. |
| The Group’s revenues derive from a large number of cable TV and high-speed internet subscribers in the license areas. Consequently, the exposure to credit risk relating to trade receivables is limited. The Group performs ongoing credit evaluations of its customers for the purpose of determining the appropriate allowance for doubtful accounts. |
| c. | Fair value of financial instruments: |
| The fair value of the financial instruments included in the working capital of the Group usually approximates their carrying amount. As for long-term loans granted and the fair value of long-term loans from banks, see Notes 11 and 15. |
| The fair value of debentures as of December 31, 2005 and 2004 amounted to NIS 34.8 million and NIS 67 million, respectively, which represents the price of the debentures on the Tel Aviv Stock Exchange. |
77
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 26: | – | SUBSEQUENT EVENTS |
| a. | In January 2006, Matav Investments and Cable Tech Ltd. (“Cable Tech”), a company controlled by a related party in the Company, signed an agreement by virtue of which Matav Investments will purchase the activity of Cable Tech in the supply of cable TV services in a number of settlements in Judea and Samaria. |
| Several other agreements were also signed between the Cable Companies whereby the acquisition will be carried out in trust on behalf of the Company as the merged cable company. In the event that the merger is not effected, the acquired activity shall be transferred to a jointly held cooperation of the Cable Companies and/or their shareholders. The closing of the transaction with Cable Tech is contingent on the occurrence of several prerequisites (the significant of which include obtaining the approval of the Controller, which has already been granted, obtaining licenses from the civil administration, receiving certain agreements from the local councils of the relevant settlements and arranging the bank financing for the transaction with the bank and the owner of the pledge on Cable Tech’s assets). |
| These prerequisites have not been met in full as of the date of the signing of the financial statements. In the context of the transaction, Cable Tech’s cable TV subscribers, estimated at about 4,000, will be purchased at a price representing an enterprise price of $ 750 per subscriber. The consideration will be paid in respect of Cable Tech subscribers who will enter into actual engagements with the buyer during an intermediate period of 60 days which may be extended up to six months at the most. The agreement also defines a mechanism according to which, provided that certain conditions are fulfilled and subject to the completion of the merger of the Cable Companies, the seller will be entitled to an additional consideration of up to $ 150 per each subscriber purchased in the transaction. |
| On March 16, 2006, the Company’s audit committee and Board and Matav Investments’general meeting approved the agreement. |
| b. | On January 25, 2006, a third party filed with the Court a request to enforce an arbitration award and a request to appoint an arbitrator for the Cable Companies, including the Company. In the context of the claim, the third party argues that an amount of approximately NIS 15 – NIS 20 million is owed to it by the Cable Companies. As of the date of the financial statements, the Cable Companies are preparing to file their response. |
| The Company’s management estimates, based on the opinion of its legal counsels, that the outcome of this proceeding will not result in material amounts, if any, to the Company and, accordingly, no provision has been recorded in the financial statements. |
78
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 26: | – | SUBSEQUENT EVENTS (Cont.) |
| c. | To the best of the Company’s management knowledge on March 1, 2006, the Knesset approved the Law for Class Actions, 2006 (the “Law”). The Law shall come into force upon it’s publication in the Government gazzette. The Law prescribes a general and uniform arrangement for filling class actions according to Israeli law and voids the specific arrangements in respect of class actions, which were anchored in several specific laws prior to the approval of the Law. The Law significantly expands, inter alia, the grounds for filing class actions, the list of plaintiffs, which are entitled to file a motion to approve a claim as a class action. Furthermore, the Law removes various procedural barriers for filling a motion to approve a claim as a class action. In the opinion of the Company’s management the publication of the Law, as detailed above, may increase the number of motions to approve as class actions claims against the Group and may increase the Group’s legal exposure. |
| d. | See Note 1a(8) regarding the legal merger between the Cable Companies. |
| NOTE 27: | – | CONDENSED FINANCIAL DATA IN NOMINAL HISTORICAL VALUES FOR TAX PURPOSES |
| a. | The Company provides nominal historical data for income tax purposes only. |
| b. | The financial statements have been prepared in accordance with generally accepted accounting principles based on the historical cost convention, without taking into consideration the changes in the general purchasing power of the Israeli currency. |
| c. | Balance sheets – the Company: |
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | |||||||
| NIS in thousands | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | 6,364 | 21,602 | ||||||
| Short-term deposit | 27,196 | - | ||||||
| Trade receivables | 33,835 | 37,398 | ||||||
| Other accounts receivable | 12,801 | 15,321 | ||||||
| 80,196 | 74,321 | |||||||
| LONG-TERM INVESTMENTS AND RECEIVABLES: | ||||||||
| Investments in subsidiaries and long-term accounts | 264,938 | 239,974 | ||||||
| Investment in affiliates | 77,814 | *) | 95,584 | |||||
| Other receivables | 317 | 601 | ||||||
| 343,069 | *) | 336,159 | ||||||
| FIXED ASSETS, NET | 514,987 | 514,088 | ||||||
| OTHER ASSETS AND DEFERRED CHARGES, NET | 147 | 525 | ||||||
| 938,399 | *) | 925,093 | ||||||
| *) | Reclassified. |
79
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 27: | – | CONDENSED FINANCIAL DATA IN NOMINAL HISTORICAL VALUES FOR TAX PURPOSES (Cont.) |
| December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | |||||||
| NIS in thousands | ||||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Credit from banks and others | 510,252 | 424,992 | ||||||
| Current maturities of debentures | 34,919 | 34,005 | ||||||
| Trade payables | 76,203 | 74,917 | ||||||
| Subsidiaries - current account | 16,979 | 18,619 | ||||||
| Other accounts payable | 86,193 | *) | 178,881 | |||||
| 724,546 | 731,414 | |||||||
| LONG-TERM LIABILITIES: | ||||||||
| Loans from banks and others | 75,464 | 101,457 | ||||||
| Debentures | - | 34,005 | ||||||
| Excess of losses over investment in subsidiaries | - | *) | 5,557 | |||||
| Customers' deposits for converters, net | 11,838 | 14,901 | ||||||
| Accrued severance pay liability, net | 1,518 | 1,023 | ||||||
| 88,820 | *) | 156,943 | ||||||
| SHAREHOLDERS' EQUITY | 125,033 | 36,736 | ||||||
| 938,399 | 925,093 | |||||||
| *) | Reclassified. |
80
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 27: | – | CONDENSED FINANCIAL DATA IN NOMINAL HISTORICAL VALUES FOR TAX PURPOSES (Cont.) |
| d. | Statements of operations – the Company: |
| Year ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | 2003 | |||||||||
| NIS in thousands | |||||||||||
| Revenues | 345,819 | 370,275 | 372,202 | ||||||||
| Operating expenses | 334,143 | 312,627 | 304,573 | ||||||||
| Gross profit | 11,676 | 57,648 | 67,629 | ||||||||
| Selling, marketing, general and administrative | |||||||||||
| expenses: | |||||||||||
| Selling and marketing expenses | 31,399 | 34,988 | 27,236 | ||||||||
| General and administrative expenses | 27,607 | *) | 30,050 | *) | 28,229 | ||||||
| 59,006 | *) | 65,038 | *) | 55,465 | |||||||
| Operating income (loss) | (47,330 | ) | *) | (7,390 | ) | *) | 12,164 | ||||
| Financial expenses, net | (35,029 | ) | (40,787 | ) | (71,181 | ) | |||||
| Other income (expenses), net | 163,049 | (42,201 | ) | *) | 90,177 | ||||||
| Income (loss) before taxes on income | 80,690 | *) | (90,378 | ) | *) | 31,160 | |||||
| Taxes on income | (5,706 | ) | *) | 4,806 | *) | 38,626 | |||||
| Income (loss) after taxes on income | 86,396 | (95,184 | ) | (7,466 | ) | ||||||
| Equity in earnings of investees, net | 1,899 | 32,844 | 62,734 | ||||||||
| Net income (loss) | 88,295 | (62,340 | ) | 55,268 | |||||||
| *) | Reclassified. |
81
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO FINANCIAL STATEMENTS |
| NOTE 27: | – | CONDENSED FINANCIAL DATA IN NOMINAL HISTORICAL VALUES FOR TAX PURPOSES (Cont.) |
| e. | Statements of changes in shareholders’ equity: |
| Share capital | Additional paid-in capital | Accumulated deficit | Cost of Company shares held by subsidiary | Total | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| NIS in thousands | |||||||||||||||||
| Balance at January 1, 2003 | 30,204 | 318,350 | (281,851 | ) | (62,294 | ) | 4,409 | ||||||||||
| Sale of Company shares | |||||||||||||||||
| held by subsidiary | - | (22,911 | ) | - | 62,294 | 39,383 | |||||||||||
| Net income | - | - | 55,268 | - | 55,268 | ||||||||||||
| Balance at December 31, 2003 | 30,204 | 295,439 | (226,583 | ) | - | 99,060 | |||||||||||
| Exercise of stock options by employees | 16 | - | - | - | 16 | ||||||||||||
| Loss for the year | - | - | (62,340 | ) | - | (62,340 | ) | ||||||||||
| Balance at December 31, 2004 | 30,220 | 295,439 | (288,923 | ) | - | 36,736 | |||||||||||
| Exercise of stock options | |||||||||||||||||
| by employees | 2 | - | - | - | 2 | ||||||||||||
| Net income | - | - | 88,295 | - | 88,295 | ||||||||||||
| Balance at December 31, 2005 | 30,222 | 295,439 | 200,628 | - | 125,033 | ||||||||||||
82
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| APPENDIX TO FINANCIAL STATEMENTS |
LIST OF PRINCIPAL INVESTEES
| Name of company | Ownership and control as of December 31, 2005 | |
|---|---|---|
| Cable System Media Haifa-Hadera Ltd. | 100% | subsidiary |
| Matav Investments Ltd. | 100% | subsidiary |
| Matav Infrastructures 2001 - Limited Partnership | 100% | subsidiary |
| Matav Properties Ltd. | 100% | subsidiary |
| Hot Vision Ltd. | 26.3% | jointly controlled entity |
| Nonstop Ventures Ltd. | 50% | affiliate |
| Hot Telecom - Limited Partnership | 26.6% | affiliate |
| Barak I.T.C. (1995) - International Telecommunication Services Corp. Ltd. | 18.5% | affiliate |
83
Annex B(2)
Tevel Israel International
Communications Ltd.
(under Creditors Arrangement)
and its Subsidiaries
Financial Statements
For the Year Ended
December 31, 2005
|
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries |
|
Financial Statements as at December 31, 2005 |
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|
8 | |
|
|
11 | |
|
|
13 |
Auditors’ Report to the Shareholders of
Tevel Israel International Communications Ltd.(under creditors arrangement)
We have audited the accompanying balance sheets of Tevel Israel International Communications Ltd. (under creditors arrangement) (hereinafter – the Company) as at December 31, 2005 and 2004, and the consolidated balance sheets of the Company and its subsidiaries (hereinafter – consolidated) as at such dates, and the related statements of income, changes in shareholders’ equity and of cash flows – Company and consolidated – for each of the three years the last of which ended December 31, 2005. These financial statements are the responsibility of the Company’s Management and the Special Manager. Our responsibility is to express an opinion on these financial statements based on our audits.
We have not audited the financial statements of a proportionately consolidated company whose assets included in the consolidation represented 7% and 6% of total consolidated assets as at December 31, 2005 and 2004, respectively, and income included in consolidation represented 0.4% and 0.5% of total consolidated income for the years ended December 31, 2005 and 2004, respectively. Similarly, we have not audited the financial statements of affiliated companies the investment in which totaled NIS 62,909 thousand and NIS 136,113 thousand as at December 31, 2005 and 2004, respectively, and the Company’s equity in their operating results were a loss of NIS 85,788 thousand in 2005, a loss of NIS 66,539 thousand in 2004 and a loss of NIS 36,578 thousand in 2003. The financial statements of those companies were audited by other auditors whose reports were furnished to us and our opinion insofar as it relates to data included in respect of those companies, is based on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing standards in Israel, including standards prescribed by the Auditors Regulations (Manner of Auditor’s Performance), 1973. Such standards require that we plan and perform the audit to obtain reasonable assurance that 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 the Board of Directors and by Management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinions.
In our opinion, based on our audits and on the reports of the above mentioned other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the Company and the consolidated financial position of the Company and its subsidiaries as at December 31, 2005 and 2004 and the results of the operations, changes in the shareholders’ equity and cash flows – Company and consolidated – for each of the three years the last of which ended December 31, 2005, in conformity with generally accepted accounting principles (“GAAP”) in Israel. Furthermore, these statements have, in our opinion, been prepared in accordance with the Securities Regulations (Preparation of Annual Financial Statements) – 1993.
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.
Without qualifying our opinion, we would draw attention to the following:
|
|
1. | Note 1B in respect of the creditors arrangement reached between the Company and its creditors. |
|
|
2. | Note 6 D(4) in respect of the conditions for the continued current operations and payment of debts of the Golden channels partnership (affiliated company). |
|
|
3. | Note 16B(9) in respect of the lack of a system for charging Hot Telecom with usage and maintenance fees of the cable network. |
|
|
4. | Note 16A regarding class action claims which have been filed against Golden Channels partnership. |
|
|
5. | Note 1F(2) regarding the statutory merger between the Cable Television companies and the uncertainty as to whether the merger will be completed according to those or other conditions. |
Somekh Chaikin
Certified Public Accountants (Isr.)
April 27, 2006
|
Reported amounts*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2005 |
| 2004 |
| |||
|
|
|
|
|
| |||||
|
| Note |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
| ||||||
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
| 3 |
|
| 68,020 |
|
| 86,407 |
|
Trade receivables |
|
| 4 |
|
| 25,277 |
|
| 35,625 |
|
Other receivables |
|
| 5 |
|
| 7,994 |
|
| 33,340 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 101,291 |
|
| 155,372 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
Long-term receivables |
|
|
|
|
| 915 |
|
| 2,578 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
Investments in investee and other companies |
|
| 6A |
|
| 131,795 |
|
| 144,237 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
Fixed assets |
|
| 7 |
|
| 737,831 |
|
| 785,266 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
Other assets and deferred expenses |
|
| 8 |
|
| 226,809 |
|
| 314,420 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Zvi Yochman, CPA |
|
|
|
|
|
|
|
|
|
|
Trustee and Special Manager of the Tevel Group (under creditors arrangement). |
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,198,641 |
|
| 1,401,873 |
|
|
|
|
|
|
|
| ||||
April 27, 2006
|
|
* | Regarding discontinuance of the adjustment for the effect of inflation based on the CPI for December 2003 - see Note 2C. |
|
|
** | Restated (see Note 2X). |
|
|
*** | Reclassified |
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2005 |
|
| 2004 |
|
|
|
|
|
|
|
| ||||
|
|
| Note |
|
| NIS thousands |
|
| NIS thousands |
|
|
|
|
|
| ||||||
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank credit |
|
| 9 |
|
| 2,814,900 |
|
| 2,448,517 |
|
Trade payables |
|
| 10 |
|
| 125,205 |
|
| 145,892 |
|
Other payables |
|
| 11 |
|
| 124,477 |
|
| 95,907 |
|
Short-term loans from shareholders | �� |
|
|
|
| 28,771 |
|
| 27,472 |
|
Current maturities of long-term loans |
|
| 12 |
|
| 149,459 |
|
| 143,998 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,242,812 |
|
| 2,861,786 |
|
|
|
|
|
|
|
| ||||
Long-term liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term loans |
|
| 12 |
|
| 207,378 |
|
| 347,497 |
|
Customer deposits |
|
|
|
|
| 29,361 |
|
| 36,974 |
|
Liabilities for employee severance benefits, net |
|
| 13 |
|
| 1,851 |
|
| 5,404 |
|
Liability in respect of benefit granted to employees |
|
| 6B |
|
| - |
|
| 143 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 238,590 |
|
| 350,018 |
|
|
|
|
|
|
|
| ||||
| ||||||||||
Shareholders’ loans |
|
| 14 |
|
| 61,029 |
|
| 55,132 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingent liabilities |
|
| 16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
| 17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital |
|
|
|
|
| 38,249 |
|
| 38,249 |
|
Premium on shares |
|
|
|
|
| 42,560 |
|
| 42,560 |
|
Capital reserve |
|
|
|
|
| 219,303 |
|
| 219,303 |
|
Accumulated losses |
|
|
|
|
| (2,643,902 | ) |
| (2,205,175 | ) |
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,343,790 | ) |
| (1,905,063 | ) |
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,198,641 |
|
| 1,401,873 |
|
|
|
|
|
|
|
| ||||
|
|
* | Regarding discontinuance of the adjustment for the effect of inflation based on the CPI for December 2003 - see Note 2C. |
|
|
** | Restated (see Note 2X). |
The notes to the financial statements form an integral part thereof.
3
|
Reported amounts*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2005 |
|
| 2004 |
|
|
|
|
|
|
|
| ||||
|
|
| Note |
|
| NIS thousands |
|
| NIS thousands |
|
|
|
|
|
| ||||||
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
| 3 |
|
| 56,656 |
|
| 82,824 |
|
Trade receivables |
|
| 4 |
|
| 5,755 |
|
| 6,706 |
|
Other receivables |
|
| 5 |
|
| 122,814 |
|
| *** 117,079 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 185,225 |
|
| 206,609 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
Long-term receivables |
|
|
|
|
| 915 |
|
| 2,276 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in investee and other companies |
|
| 6A |
|
| 106,273 |
|
| 136,577 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
Fixed assets |
|
| 7 |
|
| 457,125 |
|
| 502,862 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
Other assets and deferred expenses |
|
| 8 |
|
| 2,434 |
|
| - |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Zvi Yochman, CPA |
|
|
|
|
|
|
|
|
|
|
Trustee and Special Manager of the Tevel Group in (under creditors arrangement) |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 751,972 |
|
| 848,324 |
|
|
|
|
|
|
|
| ||||
April 27, 2006
|
|
* | Regarding discontinuance of the adjustment for the effect of inflation based on the CPI for December 2003 - see Note 2C. |
|
|
** | Restated (see Note 2X). |
|
|
*** | Reclassified |
Tevel Israel International Communications Ltd. (under creditors arrangement)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2005 |
|
| 2004 |
|
|
|
|
|
|
|
| ||||
|
|
| Note |
|
| NIS thousands |
|
| NIS thousands |
|
|
|
|
|
| ||||||
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank credit |
|
| 9 |
|
| 2,145,572 |
|
| 1,877,842 |
|
Trade payables |
|
| 10 |
|
| 113,455 |
|
| 124,344 |
|
Other payables |
|
| 11 |
|
| 107,737 |
|
| 86,952 |
|
Short-term loans from shareholders |
|
|
|
|
| 28,771 |
|
| 27,472 |
|
Current maturities of long-term loans |
|
| 12 |
|
| 115,210 |
|
| 110,645 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,510,745 |
|
| 2,227,255 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term loans |
|
| 12 |
|
| 181,691 |
|
| 289,129 |
|
Customer deposits |
|
|
|
|
| 18,571 |
|
| 23,696 |
|
Liabilities for employee severance benefits, net |
|
| 13 |
|
| 1,037 |
|
| 4,658 |
|
Liability in respect of investment in subsidiary |
|
| 6B |
|
| 322,689 |
|
| 153,374 |
|
Liability in respect of benefit granted to employees |
|
|
|
|
| - |
|
| 143 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 523,988 |
|
| 471,000 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ loans |
|
| 14 |
|
| 61,029 |
|
| 55,132 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingent liabilities |
|
| 16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital |
|
|
|
|
| 38,249 |
|
| 38,249 |
|
Premium on shares |
|
|
|
|
| 42,560 |
|
| 42,560 |
|
Adjustments from translation of financial statements of an autonomous investee company |
|
|
|
|
| 219,303 |
|
| 219,303 |
|
Accumulated loss |
|
|
|
|
| (2,643,902 | ) |
| (2,205,175 | ) |
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,343,790 | ) |
| (1,905,063 | ) |
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 751,972 |
|
| 848,324 |
|
|
|
|
|
|
|
| ||||
|
|
* | Regarding discontinuance of the adjustment for the effect of inflation based on the CPI for December 2003 - see Note 2C. |
|
|
** | Restated (see Note 2X). |
The notes to the financial statements form an integral part thereof.
4
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries
|
Consolidated Statements of Income for the Year Ended December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2005 |
| 2004 |
| 2003 |
| |||
|
|
|
|
|
|
|
| ||||||
|
|
|
|
| Reported |
| Reported |
| In terms of |
| |||
|
|
|
|
|
|
|
| ||||||
|
| Note |
| NIS thousands |
| NIS thousands |
| NIS thousands |
| ||||
|
|
|
|
|
| ||||||||
| |||||||||||||
Income |
|
| 18 |
|
| 686,687 |
|
| 720,734 |
|
| 702,617 |
|
|
|
|
|
|
|
|
| ||||||
Operating expenses |
|
| 19 |
|
| 394,291 |
|
| *** 375,586 |
|
| 376,571 |
|
Production and programming expenses |
|
| 20 |
|
| 253,659 |
|
| 246,100 |
|
| 247,267 |
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
| 647,950 |
|
| 621,686 |
|
| 623,838 |
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
|
|
| 38,737 |
|
| 99,048 |
|
| 78,779 |
|
|
|
|
|
|
|
|
| ||||||
Selling and marketing expenses |
|
| 21 |
|
| 69,473 |
|
| 92,330 |
|
| 65,132 |
|
General and administrative expenses |
|
| 22 |
|
| 120,486 |
|
| *** 130,598 |
|
| 133,645 |
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
| 189,959 |
|
| 222,928 |
|
| 198,777 |
|
|
|
|
|
|
|
|
| ||||||
Loss for the year before financing expenses, net |
|
|
|
|
| (151,222 | ) |
| (123,880 | ) |
| (119,998 | ) |
Financing expenses, net |
|
| 23 |
|
| (188,121 | ) |
| (180,045 | ) |
| (242,381 | ) |
Other income (expenses), net |
|
| 24 |
|
| (6,340 | ) |
| ***(40,001 | ) |
| 42,959 |
|
Capital gain and write off of debts following creditors arrangement |
|
| 1B |
|
| - |
|
| 319,523 |
|
| - |
|
Write-down o2f investment in other company |
|
| 6D(3 | ) |
| - |
|
| - |
|
| (88,819 | ) |
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes on income |
|
|
|
|
| (345,683 | ) |
| (24,403 | ) |
| (408,239 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes on income |
|
| 15 |
|
| (7,256 | ) |
| (1,638 | ) |
| (5,742 | ) |
|
|
|
|
|
|
|
| ||||||
| |||||||||||||
Loss after taxes on income |
|
|
|
|
| (352,940 | ) |
| (26,041 | ) |
| (413,981 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company’s equity in losses of affiliated companies |
|
|
|
|
| (85,788 | ) |
| (66,539 | ) |
| (36,578 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest in losses of subsidiary |
|
|
|
|
| - |
|
| - |
|
| 329 |
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year |
|
|
|
|
| (438,727 | ) |
| (92,580 | ) |
| (450,230 | ) |
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| NIS |
|
| NIS |
|
| NIS |
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per NIS 1 par value of ordinary share capital |
|
| 26 |
|
| (28.98 | ) |
| (6.12 | ) |
| (29.74 | ) |
|
|
|
|
|
|
|
| ||||||
|
|
* | Regarding discontinuance of the adjustment for the effect of inflation based on the CPI for December 2003 - see Note 2C. |
|
|
** | Restated (see Note 2X). |
|
|
*** | Reclassified |
The notes to the financial statements form an integral part thereof.
5
Tevel Israel International Communications Ltd. (under creditors arrangement)
|
Company’s Statements of Income for the Year Ended December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2005 |
| 2004 |
| 2003 |
| |||
|
|
|
|
|
|
|
| ||||||
|
|
|
|
| Reported |
| Reported |
| In terms of |
| |||
|
|
|
|
|
|
|
| ||||||
|
| Note |
| NIS thousands |
| NIS thousands |
| NIS thousands |
| ||||
|
|
|
|
|
| ||||||||
| |||||||||||||
Income |
|
| 18 |
|
| 393,362 |
|
| 413,439 |
|
| 404,043 |
|
|
|
|
|
|
|
|
| ||||||
Operating expenses |
|
| 19 |
|
| 197,542 |
|
| *** 184,270 |
|
| 176,176 |
|
Production and programming expenses |
|
| 20 |
|
| 160,250 |
|
| 151,832 |
|
| 149,132 |
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
| 357,792 |
|
| 336,102 |
|
| 325,308 |
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
|
|
| 35,570 |
|
| 77,337 |
|
| 78,735 |
|
|
|
|
|
|
|
|
| ||||||
Selling and marketing expenses |
|
| 21 |
|
| 35,325 |
|
| 45,439 |
|
| 34,123 |
|
General and administrative expenses |
|
| 22 |
|
| 15,049 |
|
| *** 21,832 |
|
| 27,562 |
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
| 50,374 |
|
| 67,271 |
|
| 61,685 |
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year before financing expenses, net |
|
|
|
|
| (14,804 | ) |
| 10,066 |
|
| 17,050 |
|
Financing expenses, net |
|
| 23 |
|
| (139,341 | ) |
| (142,752 | ) |
| (183,315 | ) |
Other income (expenses), net |
|
| 24 |
|
| (5,054 | ) |
| ***(25,304 | ) |
| 28,960 |
|
Capital gain and write off of debts following creditors arrangement |
|
| 1B |
|
| - |
|
| 319,523 |
|
| - |
|
Write-down of investment in affiliated company |
|
|
|
|
| - |
|
| - |
|
| (88,819 | ) |
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes on income |
|
|
|
|
| (159,199 | ) |
| 161,533 |
|
| (226,124 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes on income |
|
| 15 |
|
| (6,564 | ) |
| (520 | ) |
| - |
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss after taxes on income |
|
|
|
|
| (165,763 | ) |
| 161,013 |
|
| (226,124 | ) |
Company’s equity in losses of investee companies |
|
|
|
|
| (272,964 | ) |
| (253,593 | ) |
| (224,106 | ) |
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year |
|
|
|
|
| (438,727 | ) |
| (92,580 | ) |
| (450,230 | ) |
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| NIS |
|
| NIS |
|
| NIS |
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per NIS 1 par value of ordinary share capital |
|
| 26 |
|
| (28.98 | ) |
| (6.12 | ) |
| (29.74 | ) |
|
|
|
|
|
|
|
| ||||||
|
|
* | Regarding discontinuance of the adjustment for the effect of inflation based on the CPI for December 2003 - see Note 2C. |
|
|
** | Restated (see Note 2X). |
|
|
*** | Reclassified |
The notes to the financial statements form an integral part thereof.
6
Tevel Israel International Communications Ltd. (under creditors arrangement)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Share |
| Premium on |
| Capital |
| Adjustments |
| Retained |
| Total |
| ||||||
|
|
|
|
|
|
|
| ||||||||||||
| In terms of shekels of December 2003 |
| |||||||||||||||||
|
| ||||||||||||||||||
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| NIS thousands |
| NIS thousands |
| NIS thousands |
| ||||||
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at January 1, 2003 |
|
| 38,249 |
|
| 42,560 |
|
| - |
|
| (963 | ) |
| **(1,662,365 | ) |
| **(1,582,519 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (450,230 | ) |
| (450,230 | ) |
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at December 31, 2003 |
|
| 38,249 |
|
| 42,560 |
|
| - |
|
| (963 | ) |
| (2,112,595 | ) |
| (2,032,749 | ) |
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Reported amounts* |
| ||||||||||||||||
|
|
| |||||||||||||||||
|
|
|
| ||||||||||||||||
Balance as at January 1, 2004 |
|
| 38,249 |
|
| 42,560 |
|
| - |
|
| (963 | ) |
| (2,112,595 | ) |
| (2,032,749 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during 2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital reserve from transaction with control holders |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (92,580 | ) |
| (92,580 | ) |
Loss for the year |
|
| - |
|
| - |
|
| 219,303 |
|
| - |
|
| - |
|
| 219,303 |
|
Adjustments from translation of financial statements of an autonomous investee company |
|
| - |
|
| - |
|
| - |
|
| 963 |
|
| - |
|
| 963 |
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at December 31, 2004 |
|
| 38,249 |
|
| 42,560 |
|
| 219,303 |
|
| - |
|
| (2,205,175 | ) |
| (1,905,063 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes during 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (438,727 | ) |
| (438,727 | ) |
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at December 31, 2005 |
|
| 38,249 |
|
| 42,560 |
|
| 219,303 |
|
| - |
|
| (2,643,902 | ) |
| (2,343,790 | ) |
|
|
|
|
|
|
|
| ||||||||||||
|
|
* | Regarding discontinuance of the adjustment for the effect of inflation based on the CPI for December 2003 - see Note 2C. |
|
|
** | Restated (see Note 2X). |
The notes to the financial statements form an integral part thereof.
7
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries
|
Consolidated Statements of Cash Flows for the Year Ended December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
| 2005 |
| 2004 |
| 2003 |
| |||
|
|
|
|
| ||||||
|
| Reported |
| Reported |
| In terms of |
| |||
|
|
|
|
| ||||||
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
| ||||||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
Net loss for the year |
|
| (483,727 | ) |
| (92,580 | ) |
| (450,230 | ) |
Adjustments to reconcile net loss to net cash flows generated by operating activities (Appendix A) |
|
| 471,677 |
|
| *** 17,875 |
|
| 620,183 |
|
|
|
|
|
| ||||||
Net cash provided by (used in) operating activities |
|
| 32,950 |
|
| (74,705 | ) |
| 169,953 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
Investment in cable network and fixed assets |
|
| (188,349 | ) |
| (123,527 | ) |
| (94,099 | ) |
Proceeds from sale of fixed assets |
|
| 719 |
|
| 83 |
|
| (79 | ) |
Initial proportional consolidation of affiliated company (Appendix D) |
|
| - |
|
| - |
|
| 2,451 |
|
Net proceeds from sale of investment in affiliated company |
|
| - |
|
| 89,100 |
|
| - |
|
Loan to affiliated limited partnership |
|
| (65,462 | ) |
| ***(12,028 | ) |
| - |
|
Investment in limited partnerships |
|
| (14 | ) |
| (126 | ) |
| - |
|
Acquisition of broadcasting rights of films and programs |
|
| - |
|
| (98 | ) |
| - |
|
Sale of former subsidiary (Appendix C) |
|
| - |
|
| 42,480 |
|
| - |
|
Credit to an affiliated company for production rights |
|
| (9,405 | ) |
| (9,336 | ) |
| (69,491 | ) |
Collection of credit given to affiliated company for production rights |
|
| 4,025 |
|
| 16,834 |
|
| 87,145 |
|
Payment of designated deposit |
|
| - |
|
| 23,677 |
|
| - |
|
Collection of long-term loans |
|
| - |
|
| 28 |
|
| 26 |
|
Payment of loans and other long-term liabilities, net |
|
| - |
|
| - |
|
| 5 |
|
|
|
|
|
| ||||||
Net cash used in investing activities |
|
| (258,486 | ) |
| 27,087 |
|
| (74,042 | ) |
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
Customer deposits net of refunds |
|
| (3,843 | ) |
| (6,385 | ) |
| (15,056 | ) |
Repayment of long-term loans |
|
| - |
|
| (245 | ) |
| (982 | ) |
Short-term bank credit, net |
|
| 221,524 |
|
| 43,147 |
|
| 577 |
|
Repayment of credit from fixed assets suppliers |
|
| (10,532 | ) |
| (84,603 | ) |
| - |
|
Repayment of credit from film rights suppliers |
|
| - |
|
| (18,313 | ) |
| - |
|
Repayment of shareholders’ loans |
|
| - |
|
| (23,677 | ) |
| - |
|
|
|
|
|
| ||||||
Net cash provided by financing activities |
|
| 207,149 |
|
| (90,076 | ) |
| (16,615 | ) |
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
| (18,387 | ) |
| (137,694 | ) |
| 79,296 |
|
Cash and cash equivalents at beginning of year |
|
| 86,407 |
|
| 224,101 |
|
| 144,805 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
| 68,020 |
|
| 86,407 |
|
| 224,101 |
|
|
|
|
|
| ||||||
|
|
* | Regarding discontinuance of the adjustment for the effect of inflation based on the CPI for December 2003 - see Note 2C. |
|
|
** | Restated (see Note 2X). |
|
|
*** | Reclassified |
The notes to the financial statements form an integral part thereof.
8
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries
|
Consolidated Statements of Cash Flows for the Year Ended December 31 (cont’d) |
|
|
|
|
|
|
|
|
|
|
|
|
| 2005 |
| 2004 |
| 2003 |
| |||
|
|
|
|
| ||||||
|
| Reported |
| Reported |
| In terms of |
| |||
|
|
|
|
| ||||||
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
| ||||||
|
|
|
|
|
|
|
| |||
Appendix A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income and expenses not involving cash flows: |
|
|
|
|
|
|
|
|
|
|
Income from deposits |
|
| (3,770 | ) |
| (6,522 | ) |
| (9,858 | ) |
Depreciation and amortization |
|
| 298,488 |
|
| 306,673 |
|
| 295,664 |
|
Provision for impairment of value of fixed assets |
|
| - |
|
| 11,578 |
|
| - |
|
Deferred taxes, net |
|
| - |
|
| - |
|
| 742 |
|
Inflationary erosion and adjustment in value of long-term loans and liabilities, net |
|
| 10,201 |
|
| 3,979 |
|
| (13,362 | ) |
Inflationary erosion and adjustment in value of short-term loans and liabilities, net |
|
| - |
|
| - |
|
| 41,753 |
|
Write off of debts to unsecured creditors |
|
| - |
|
| (200,323 | ) |
| - |
|
Capital gain from realization of investments |
|
| - |
|
| (119,199 | ) |
| - |
|
Liability in respect of benefit granted to employees |
|
| (143 | ) |
| (2,070 | ) |
| 588 |
|
Decrease in liabilities for employee severance benefits, net |
|
| (3,537 | ) |
| (4,717 | ) |
| (5,236 | ) |
Company’s equity in income (losses) of affiliated companies |
|
| 85,788 |
|
| 66,539 |
|
| 36,118 |
|
Capital losses (gains) |
|
| (42 | ) |
| (83 | ) |
| 244 |
|
Write-down in value of investment in other company |
|
| - |
|
| - |
|
| 89,274 |
|
Interest on shareholders’ loans |
|
| 7,196 |
|
| 4,202 |
|
| 5,760 |
|
Minority share in losses of subsidiary |
|
| - |
|
| - |
|
| (329 | ) |
|
|
|
|
| ||||||
|
|
| 394,181 |
|
| 60,057 |
|
| 441,358 |
|
|
|
|
|
|
|
|
|
|
|
|
Changes in asset and liability items: |
|
|
|
|
|
|
|
|
|
|
Decrease in trade receivables |
|
| 10,348 |
|
| 4,212 |
|
| 13,239 |
|
Decrease (increase) in other receivables |
|
| 25,346 |
|
| ***(5,806 | ) |
| (6,162 | ) |
Decrease (increase) in long-term receivables |
|
| 1,663 |
|
| (1,205 | ) |
| (195 | ) |
Increase in partners’ accounts |
|
| (812 | ) |
| (447 | ) |
| (22,964 | ) |
Increase (decrease) in inventory |
|
| - |
|
| 8 |
|
| (206 | ) |
(Decrease) increase in trade payables |
|
| 19,469 |
|
| (42,973 | ) |
| (5,809 | ) |
Increase (decrease) in other payables |
|
| 21,482 |
|
| 4,029 |
|
| (15,711 | ) |
Increase in interest payable |
|
| - |
|
| - |
|
| 219,407 |
|
Increase (decrease) in payables in respect of long-term management fees |
|
| - |
|
| - |
|
| (2,774 | ) |
|
|
|
|
| ||||||
| ||||||||||
|
|
| 471,677 |
|
| 17,875 |
|
| 620,183 |
|
|
|
|
|
| ||||||
|
|
* | Regarding discontinuance of the adjustment for the effect of inflation based on the CPI for December 2003 - see Note 2C. |
|
|
** | Restated (see Note 2X). |
|
|
*** | Reclassified |
The notes to the financial statements form an integral part thereof.
9
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries
|
Consolidated Statements of Cash Flows for the Year Ended December 31 (cont’d) |
Appendix B - Non-cash transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2005 |
| 2004 |
| 2003 |
| |||
|
|
|
|
|
| ||||||
|
|
| Reported |
| Reported |
| In terms of |
| |||
|
|
|
|
|
| ||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
| |||
1. | Fixed assets |
|
| 11,657 |
|
| 36,774 |
|
| 24,016 |
|
|
|
|
|
|
| ||||||
2. | Programming rights |
|
| 4,025 |
|
| 9,405 |
|
| 6,718 |
|
|
|
|
|
|
| ||||||
3. | Shareholders’ loan to investee company |
|
| 620,183 |
|
| 17,875 |
|
| 620,183 |
|
|
|
|
|
|
| ||||||
Appendix C - Sale of investment in former subsidiary
|
|
|
|
|
|
| Year ended |
| |
|
|
| ||
|
| Reported |
| |
|
|
| ||
|
| NIS thousands |
| |
|
|
| ||
|
|
|
| |
Working capital (excluding cash) |
|
| (14,026 | ) |
Capital gain on sale of investment in subsidiary |
|
| 39,211 |
|
Fixed assets |
|
| 15,441 |
|
Other assets |
|
| 2,322 |
|
Liabilities for employees severance benefits, net |
|
| (468 | ) |
|
|
| ||
|
|
|
|
|
|
|
| 42,480 |
|
|
|
| ||
Appendix D - Initial proportional consolidation
|
|
|
|
|
|
| Year ended |
| |
|
|
| ||
|
| In terms of |
| |
|
|
| ||
|
| NIS thousands |
| |
|
|
| ||
|
|
|
| |
Working capital (excluding cash) |
|
| (43,050 | ) |
Fixed assets |
|
| 1,414 |
|
Other assets |
|
| 45,771 |
|
Long-term liabilities |
|
| (913 | ) |
Investment in affiliated company |
|
| (771 | ) |
|
|
| ||
|
|
|
|
|
|
|
| 2,451 |
|
|
|
| ||
|
|
* | Regarding discontinuance of the adjustment for the effect of inflation based on the CPI for December 2003 - see Note 2C. |
|
|
** | Restated (see Note 2X). |
|
|
*** | Reclassified |
10
Tevel Israel International Communications Ltd. (under creditors arrangement)
|
Company’s Statements of Cash Flows for the Year Ended December 31 |
|
|
|
|
|
|
|
|
|
|
|
|
| 2005 |
| 2004 |
| 2003 |
| |||
|
|
|
|
| ||||||
|
| Reported |
| Reported |
| In terms of |
| |||
|
|
|
|
| ||||||
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
| ||||||
|
|
|
|
|
|
|
| |||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
Loss for the year |
|
| (438,727 | ) |
| (92,580 | ) |
| (450,230 | ) |
Adjustments to reconcile net loss to net cash flows generated by operating activities (Appendix A) |
|
| 435,527 |
|
| 24,394 |
|
| 534,227 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
| (3,200 | ) |
| (68,186 | ) |
| 83,997 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
Investment in cable network and fixed assets |
|
| (96,007 | ) |
| (84,227 | ) |
| (74,816 | ) |
Proceeds from sale of fixed assets |
|
| 622 |
|
| 83 |
|
| 18 |
|
Proceeds from sale of previously consolidated subsidiary |
|
| - |
|
| 44,100 |
|
| - |
|
Net proceeds from sale of investment in affiliated company |
|
| - |
|
| 89,100 |
|
| - |
|
Repayment (grant) of credit to affiliated company for filing rights |
|
| (5,380 | ) |
| 7,498 |
|
| 17,655 |
|
Repayment of designated deposit |
|
| - |
|
| 23,677 |
|
| - |
|
Loans to an affiliated company |
|
| (65,462 | ) |
| ** (12,028 | ) |
| - |
|
Collection of loan given to a subsidiary |
|
| - |
|
| - |
|
| 681 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
| (166,227 | ) |
| 68,203 |
|
| (56,462 | ) |
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
Customer deposits net of refunds |
|
| (2,673 | ) |
| (4,894 | ) |
| (10,178 | ) |
Short-term bank credit, net |
|
| 156,464 |
|
| 47,779 |
|
| - |
|
Repayment of credit from fixed asset suppliers |
|
| (10,532 | ) |
| (72,703 | ) |
| - |
|
Repayment of credit from film rights suppliers |
|
| - |
|
| (18,313 | ) |
| - |
|
Repayment of shareholders loans |
|
| - |
|
| (23,678 | ) |
| - |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
| 143,259 |
|
| (71,809 | ) |
| (10,178 | ) |
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents |
|
| (26,168 | ) |
| (71,972 | ) |
| 17,357 |
|
Cash and cash equivalents at beginning of year |
|
| 82,824 |
|
| 154,796 |
|
| 137,439 |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
| 56,656 |
|
| 82,824 |
|
| 154,796 |
|
|
|
|
|
| ||||||
* | Regarding discontinuance of the adjustment for the effect of inflation based on the CPI for December 2003 - see Note 2C. |
|
|
** | Restated (see Note 2X). |
|
|
*** | Reclassified |
The notes to the financial statements form an integral part thereof.
11
|
Tevel Israel International Communications Ltd. (under creditors arrangment) |
|
Company’s Statements of Cash Flows for the Year Ended December 31 (cont’d) |
|
|
|
|
|
|
|
|
|
|
|
| |
|
| 2005 |
| 2004 |
| 2003 |
| |||||
|
|
|
|
| ||||||||
|
| Reported |
| Reported |
| In terms of |
| |||||
|
|
|
|
| ||||||||
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||||
|
|
|
|
| ||||||||
Appendix A |
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
| ||
Adjustments to reconcile net loss to net cash flows from operating activities |
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
| ||
Income and expenses not involving cash flows: |
|
|
|
|
|
|
|
|
|
| ||
Income from deposits |
|
| (2,451 | ) | (4,282 | ) |
| (6,782 | ) | |||
Depreciation and amortization |
|
| 122,933 |
| 121,775 |
|
| 1,117,016 |
| |||
Provision for impairment in value of fixed assets |
|
| - |
| 9,066 |
|
| - |
| |||
Inflationary erosion and adjustments in value of long-term loans and liabilities, net |
|
| 8,393 |
| 3,023 |
|
| (13,186 | ) | |||
Inflationary erosion and adjustment in value of short-term loans and liabilities, net |
|
| - |
| - |
|
| 32,550 |
| |||
Write off of debts to unsecured creditors |
|
| - |
| (200,323 | ) |
| - |
| |||
Capital gain from sale of investments |
|
| - |
| (119,198 | ) |
| - |
| |||
Liability in respect of benefit granted to employees |
|
| (143 | ) | (2,070 | ) |
| 587 |
| |||
Decrease in liabilities for employee severance benefits, net |
|
| (3,605 | ) | (4,484 | ) |
| (5,462 | ) | |||
Company’s equity in losses of investee companies |
|
| 272,965 |
| 253,593 |
|
| 224,106 |
| |||
Interest on shareholders’ loans |
|
| 7,196 |
| 4,202 |
|
| 5,760 |
| |||
Impairment in value of investment in other company |
|
| - |
| - |
|
| 88,819 |
| |||
Capital (gains) losses |
|
| 23 |
| (83 | ) |
| 104 |
| |||
|
|
|
|
| ||||||||
|
|
| 405,311 |
| 61,219 |
|
| 443,512 |
| |||
|
|
|
|
|
|
|
|
|
|
| ||
Changes in asset and liability items: |
|
|
|
|
|
|
|
|
|
| ||
Decrease (increase) in trade receivables |
|
| 951 |
| 3,264 |
|
| 2,409 |
| |||
Decrease in other receivables |
|
| (8,297 | ) | (22,362 | ) |
| (46,765 | ) | |||
Decrease (increase) in long term receivables |
|
| 1,359 |
| (1,091 | ) |
| (566 | ) | |||
Increase in partners accounts |
|
| (812 | ) | (447 | ) |
| (22,964 | ) | |||
Increase in trade payables |
|
| 23,318 |
| (33,067 | ) |
| 927 |
| |||
Increase in other payables |
|
| 13,697 |
| 16,698 |
|
| (9,017 | ) | |||
Increase in interest payable |
|
| - |
| - |
|
| 171,319 |
| |||
Increase in payables in respect of long-term management fees |
|
| - |
| - |
|
| (2,774 | ) | |||
|
|
|
|
| ||||||||
|
|
| 435,527 |
| 24,214 |
|
| 534,227 |
| |||
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
| |
Appendix B – Non-cash transactions |
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
| ||
1. | Fixed assets |
|
| 11,657 |
| 29,951 |
|
| 19,191 |
| ||
|
|
|
|
|
| |||||||
2. | Programming rights |
|
| 4,025 |
| 9,405 |
|
| 6,718 |
| ||
|
|
|
|
|
| |||||||
3. | Inland operators license |
|
| 2,562 |
| - |
|
| - |
| ||
|
|
|
|
|
| |||||||
4. | Shareholders’ loan to investee company |
|
| 7,072 |
| - |
|
| - |
| ||
|
|
|
|
|
| |||||||
|
|
* | Regarding discontinuance of the adjustment for the effect of inflation based on the CPI for December 2003 - see Note 2C. |
|
|
** | Restated (see Note 2X). |
The notes to the financial statements form an integral part thereof.
12
|
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries |
|
Note 1 – General
|
|
|
| A. | Description of the Company |
|
|
|
| 1. | Tevel Israel International Communications Ltd. (under creditors arrangement) (hereinafter – “the Company”) holds 100% of the share capital of Gvanim Cable Television Ltd. (under creditors arrangement) (hereinafter – “Gvanim”), and Gvanim holds 90% of the share capital of Gvanim Krayot Cable Television (1989) Ltd. (under creditors arrangement) (hereinafter – “Gvanim Krayot”). The activities of Gvanim and Gvanim Krayot and integrated with those of the Company, and they operate as one business group (hereinafter together – “the Tevel Group”). |
|
|
|
| 2. | The Tevel Group holds Inland Operator Limited Partnership (hereinafter – “the Infrastructure Partnership”), which was set up on December 30, 2001, which the Company, Gvanim and Gvanim Krayot hold at the rates of 60.999%, 21% and 18% and the general partner, Inland Operator (2001) Ltd., holds 0.001%. The general partner, Inland Operator (2001) Ltd., is an investee company of the Company, Gvanim and Gvanim Krayot held by them at the rates of 61%, 21% and 18%, respectively (see also Note 6C(3)). |
|
|
|
| 3. | The Tevel Group holds 32.36% of the Hot Telecom Partnership (hereinafter - Hot Telecom) which was established together with the other cable television companies in November 2003 for the purpose of erection and operation of inland communication services over the cable network (see also Note 1D below). |
|
|
|
| 4. | The Tevel Group has general licenses for cable TV broadcasting, by virtue of which the Tevel Group provides cable television broadcasts to its customers (hereinafter – “the Broadcasting Licenses”). The Company has a Broadcasting License for the Tel-Aviv–Givataim, Nazareth-Jezreel Valley, and Ashdod–Ashkelon areas. Gvanim and Gvanim Krayot have Broadcasting Licenses for Rishon Le Zion, Modiin, Ramle, Lod, the Krayot area of the Haifa Bay, the Western Galilee, Carmiel, Maalot, the Lower Galilee and their surrounding areas. |
|
|
|
|
| The Broadcasting Licenses were granted in July 2002 for a 15-year period, where the Cable and Satellite Television Broadcasting Council (hereinafter – “the Council”) is permitted to extend them, at the request of the license holder, for additional periods of ten years each. |
|
|
|
| 5. | The Company holds 35% of the rights in the Golden Channels partnership. Golden Channels has Broadcasting Licenses for the Ramat-Gan, Petah-Tikva, Bet-Shean and Jerusalem area. Golden Channels holds 75% of the share capital of Idan Israel Cable Systems Ltd. (hereinafter - Idan), which has Broadcasting Licenses for the Rehovot, Beer Sheva and Acco-Naharia areas. Similarly, Golden Channels holds 100% of the share capital of Edom Channels Ltd. (hereinafter - Edom) which provides broadcasting in Maale Adumim (Golden Channels, Idan and Edom are hereinafter called the “Golden Channels Group”). In addition, the Golden Channels Group holds 70% of Telecom Gold 2001, Limited Partnership, which has an inland communications license. |
|
|
|
|
| The Golden Channels group operates in a similar business and regulatory environment as does the Tevel Group. |
|
|
|
|
| As at December 31, 2005, the Golden Channels Group had a deficit on equity in the sum of NIS 495 million (December 31, 2004 - NIS 335 million) and a working capital deficit totaling approximately NIS 1,491 million (December 31, 2004 - NIS 1,382 million). |
13
|
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries |
|
Notes to the Financial Statements |
Note 1 – General (cont’d)
|
|
|
| A. | Description of the Company (cont’d) |
|
|
|
|
| During 2005, the Golden Channels Group recorded operating losses in the sum of approximately NIS 58.9 million and net losses of NIS 126.8 million and positive cash flows from operations of approximately NIS 68 million (2004 - the operating profit of the Golden Channels group totaled approximately NIS 1.4 million, net losses were NIS 93.3 million and the positive cash flows from operations totaled approximately NIS 145 million). |
|
|
|
|
| Golden Channels notes in its financial statements as at December 31, 2005 that the financing of the deficit in working capital, payment of liabilities and continuation of the current operations of the Golden Channels group is dependent upon compliance with a business plan including positive cash flow from operations in the coming years, and the agreement of the banks not to demand repayment of loans granted or the granting of alternative credit. In the opinion of the partnership’s management, the banks will extend the credit period until at least January 1, 2007 and, similarly, the group expects to have positive operating cash flows. |
|
|
|
|
| In order to secure its liabilities to banks, Golden Channels undertook to comply with financial and other covenants relating, among others, to compliance with financial ratios, profitability and the number of subscribers to Idan. As at December 31, 2005, Golden Channels is not in compliance with some of these covenants. |
|
|
|
|
| Consequently, Golden Channels long-term loan in the sum of NIS 4,650 thousand has been classified as part of short-term liabilities in the item “Bank credit”. |
|
| Golden Channels management is acting to alter the above mentioned conditions and does not expect that the bank will demand immediate repayment of the above loans. |
|
|
|
|
| Similarly, the group estimates that the launching of combined cable TV, internet and telephone services together with significant investment in network and infrastructure (including investment in telephony through Hot Telecom) will, in the future, lead to an increase in revenue and market share of the group in the communications market in Israel while achieving a recognizable improvement in the group’s operating profit. |
|
|
|
| 6. | During 1989, the Cable Companies (including the Company) established Hot Vision Ltd. (hereinafter - Hot Vision), held 32.92% by the Company as at December 31, 2005 (32.8% as at December 31, 2004). Hot Vision is active in acquiring content and producing the channels “Hot 3” and “Hot Films” jointly for the Cable TV companies. Hot Vision’s activities are carried out in accordance with an approval of the Commissioner of Restrictive Practices. |
|
|
|
|
| In the past, Hot Vision signed agreements with some of its shareholders in respect of the provision of content acquired from the suppliers of rights. These agreements expire on December 31, 2005, with the shareholders having the rights to renew the agreements for further 12 months periods on terms to be agreed between the parties. The scope of transactions during 2005 and 2004 was of approximately NIS 26 million and NIS 68 million, respectively. Such an agreement between Hot Vision and Golden Channels is valid until December 31, 2006 and the agreement between Hot Vision and the Company expired on December 31, 2005 following the end of the commitment between the Company and the content supplier. |
14
|
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries |
|
Notes to the Financial Statements |
Note 1 – General (cont’d)
|
|
|
|
| B. | The stay of proceedings order, the appointment of a trustee and the creditors arrangement | |
|
|
|
|
| 1. | In April 2003, Tevel Group requested the appointment of a trustee and special manager in accordance with Sections 350A through 350C of the Companies Law | |
|
|
|
|
|
| Following this request, the Court granted the Tevel Group an order staying proceedings until June 27, 2002 and, since then, it has been extended a number of times, until January 11, 2004 (hereinafter – “the Order” and “the Stay of Proceedings Period”, respectively). | |
|
|
|
|
|
| In the framework of the Order, a trustee and special manager (hereinafter - the Trustee) was appointed for the purpose of managing the business of the Tevel Group in the Stay of Proceedings Period and for purposes of preparation and approval of an arrangement and compromise plan between it and its creditors and shareholders. | |
|
|
|
|
|
| According to the Order, the Tevel Groups debts as at the date of the granting of the Order, including interest and linkage thereon would be paid as part of a creditors arrangement. | |
|
|
|
|
| 2. | The trustee formulated a creditors arrangement which was presented to creditors and shareholders meetings of the Tevel Group and approved by them. In September 11, 2003, the arrangement was authorized by the court and on January 8, 2004, the creditors arrangement was enforced after receiving the approval of the Commissioner, the Supervisor of Banks, the Council for Cable and Satellite Broadcasting and the Ministry of Communications, all to the satisfaction of the trustee and the banking creditors of the Tevel Group. | |
|
|
|
|
| 3. | The principles of the creditors arrangement and their implementation up to December 31, 2005 is as follows: | |
|
|
|
|
|
| A. | According to the creditors arrangement, the debts of the Tevel Group to creditors with ownership reservations would be paid at the rate of up to 75% of the original debt in quarterly payments. Five quarterly payments remain to be paid during 2006 and the first quarter of 2007 in the sum of approximately NIS 12.3 million. |
|
|
|
|
|
| B. | According to the creditors arrangement, the debts of Gvanim and Gvanim Krayot to unsecured creditors were fully paid out of surplus cash accrued by the trustee. The debts of Gvanim and Gvanim Krayot to their unsecured creditors (approximately NIS 21 million) were paid in three installments spread over two years. The third and final payment was implemented during 2005. |
|
|
|
|
|
| C. | In accordance with the arrangement, the Company’s debts to unsecured creditors totaling approximately NIS 391 million were partially paid out of the proceeds received from the sale of the Company’s holdings in Netvision Ltd. and Globcall Communications Ltd. |
|
|
|
|
|
|
| Following the sale of Netvision and Globcall, the Company made a partial payment to unsecured creditors in the sum of approximately NIS 104 million. The balance of the proceeds received from the sale of Netvision and Globcall in the sum of approximately NIS 32 million (an amount which includes interest and linkage from the date of sale) remains in the Company until final clarification regarding two claims of debt, and will be distributed in the future between the claimants and the creditors based on the outcome of this clarification. |
15
|
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries |
|
Notes to the Financial Statements |
Note 1 – General (cont’d)
|
|
|
|
| B. | The stay of proceedings order, the appointment of a trustee and the creditors arrangement (cont’d) | |
|
|
|
|
|
| D. | Proceeds from the cable tv activities and proceeds from the sale of assets used in these activities (other than the sale of the holdings in Netvision and Globcall as mentioned above) will be used to repay the Group’s debts to secured creditors (approximately NIS 3.1 billion) and for payment of other debts as defined in the arrangement, including part of the debt to creditors with ownership claims and part of the debt in respect of shareholders’ loans to one of the principal shareholders as detailed in E below. |
|
|
|
|
|
|
| During 2005, the Company transferred approximately NIS 144 million to banks out of the trustee’s accrued funds as payment of current interest relating to 2005. |
|
|
|
|
|
| E. | The creditors arrangement determines that most of the debt of the Company in respect of loans granted by the principal shareholders of the Company (approximately NIS 174 million) will be regarded as if converted to shares, and the balance of the debt, in the sum of approximately NIS 54 million will be repaid after Tevel’s debts to the secured banks have been fully repaid, this should there remain any balance to distribute. The debt to shareholders in respect of management fees was written off. |
|
|
|
|
|
|
| Consequently, during 2004, the Company wrote off the balance of the debt to shareholders in respect of management fees in the sum of NIS 45 million and most of its debts in respect of shareholders’ loans in the sum of NIS 174 million. |
|
|
|
|
|
|
| The write off of Company debts to shareholders in the total sum of NIS 219 million was recorded as a capital reserve in accordance with Securities Regulations. |
|
|
|
|
|
| F. | Upon implementation of the creditors arrangement, most of the claims and legal proceedings against the Company in the courts and relating to its debts in the period prior to the stay of proceedings order, including class action claims, were written off or ceased (see Note 16). |
|
|
|
|
| C. | Financing of continued activities | |
|
|
|
|
| The Company is negotiating with the banks in respect of the receipt of credit to finance its activities and investments and those of Hot Telecom for 2006. In respect of the Group’s investments in Hot Telecom for 2006, the group expects to receive credit in the sum of approximately NIS 36 million. | ||
16
|
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries |
|
Notes to the Financial Statements |
Note 1 – General (cont’d)
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|
|
| D. | Hot Telecom - Limited Partnership |
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|
| 1. | Through the Inland Operator Partnership, the Tevel Group holds 32.36% of Hot Telecom Limited Partnership (hereinafter - Hot Telecom) which was established together with the other cable tv companies in November 2003 for the purpose of erecting and operating inland communication services over the cable network. Hot Telecom commenced its activities on January 1, 2004. |
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| On November 25, 2003, the Ministry of Communications granted the partnership a general license for the provision of inland stationary Bezeq services (hereinafter - the inland operators license), including telephony services, internet service provider access, infrastructure services for cable tv broadcasting, data communications and binary transmissions and other services. The license is for a 20 year period, where the Minister of Communications has the right to extend it for further periods of 10 years each. |
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|
| The Inland Operations License was instead of (and cancelled) the previous Licenses granted in 2002 to the partnerships of the cable companies (hereinafter - the previous licenses). |
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|
| On March 16, 2005 the License granted to Hot Telecom was altered to allow Hot Telecom to enter agreements with subscribers, including subscribers of the previous license holders (among these the Inland Operators Partnership) for the purpose of supplying access services to internet operators, through the previous license holders, such services to be regarded as services provided by Hot Telecom for a period from the date of grant of the license until the date of merger between the cable companies. As at the date of the financial statements the private sector internet activities are being operated through the Inland Operators Partnership whereas the business sector internet activities are being carried out through Hot Telecom. |
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|
| The approval of the Commissioner of Restrictive Practices for the merger of the cable companies as of April 22, 2002, as amended and extended from time to time (“the Commissioners terms for the merger”) determines that the amount of investment in telephony by Hot Telecom will be in a sum not less than NIS350 million plus any amount necessary to realize Hot Telecom’s business plan for the provisions of telephony services fully competing with those of Bezeq. According to the Commissioner’s terms Hot Telecom will have to invest the sum of at least NIS 190 million by June 30, 2005. By June 30, 2006 the further sum of NIS 160 million will have to be invested, plus any sum necessary to realize Hot Telecoms business plan for the provision of telephony services. Similarly, the Commissioners terms for merger determines minimum numbers of subscriber connections to Hot Telecom services for the years 2005-2007. |
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|
| As at the date of authorization of those financial statements Hot Telecom is in compliance with the terms determined by the Commissioner relating to the amount of investments and number of subscribers. As at the date of authorization of the financial statements the amount of Hot Telecom’s investments totaled approximately NIS 309 million. |
17
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Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries |
|
Notes to the Financial Statements |
Note 1 – General (cont’d)
|
|
|
| D. | Hot Telecom - Limited Partnership (cont’d) |
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|
| According to the Communications Law, the grant of the license to Hot Telecom was conditional upon the transfer by the broadcast license holders to a body holding the inland operations license of the rights to the cable network they use for their broadcasts. Nevertheless, the inland operations license granted to the partnership and subsequently the license granted to Hot Telecom determined that for a transition period which would end no later than June 30, 2006 or on the date of merger between the cable broadcasting license owners, whichever is earlier, and based on an agreement between Hot Telecom and the broadcasting license owners, Hot Telecom would have the exclusive right, among others, to use the network, operate, maintain, develop and improve it and to carry out any activity according to the license and the Communications Law. |
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| At the end of the transition period the cable companies will have to transfer ownership of the cable network to Hot Telecom. As at the date of authorization of these financial statements ownership of the cable network has not yet been transferred to Hot Telecom. |
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| 2. | On September 15, 2005 an agreement was signed between Hot Telecom and the cable companies according to which the cable companies granted exclusive network rental rights to Hot Telecom. Rights assignment rates and obligations were also signed according to which the previous license holders assigned their rights and obligations according to the agreements for cable distributions rights signed in the past between the cable companies and the previous license holders to Hot Telecom. The rental charge has not yet been determined. |
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| This agreement is in effect retroactive to November 25, 2003 and until the end of the transition period as defined above. The Consideration for the right of use of the network and consideration for the services to be provided by Hot Telecom to the cable companies has not yet been determined. |
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| According to the founders agreement of the General Partner to the partnership (Hot Telecom Ltd.), the shareholders undertook to provide Hot Telecom with the necessary finance for the partnerships activities for a period of 3 years from the date of approval of the business plan, at dates and in amounts to be approved by the Board of Directors (“the basic finance”). After providing the basic finance the parties agreed to provide further credit necessary for the continued operation of Hot Telecom, in accordance with the business plan. |
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|
| During May 2005, the cable companies presented a business plan to the banks for the authorization of an inclusive credit framework of NIS 534 million which would be used to finance the planned activities of Hot Telecom. |
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|
| In July 2004, the cable companies applied to the banks to authorize credit facilities for 2004 in the sum of 37 million dollars. The banks granted approval in principle for the financing of the first stage of the investment plan presented as part of Hot Telecom’s business plan. The credit facility to be made available for the first stage was in the sum of 37 million dollars. |
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| In September 2005, some of the cable companies approached the banks with a request to extend further credit facilities of 38 million dollars (per their share) to cover Hot Telecom’s 2005 investments according to the business plan. Most of the banks granted oral approval in principle and most of the sums requested were received. In conjunction, Hot Telecom is active, together with the cable companies, in the search for further sources of finance. |
18
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Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries |
|
Notes to the Financial Statements |
Note 1 – General (cont’d)
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|
| E. | Structural separation | |
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| |
| The broadcasting and inland operator licenses contain instructions relating to the existence of structural separation between the owners of the two types of license. In accordance with these instructions there are limitations on the identity and number of directors’ active on the boards of broadcasting license owners and of the general partner of an inland operations license. | ||
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| |
| In addition, and in accordance with the relevant licenses, if a further general broadcasting license over the cable network is granted, or if the numbers of internet subscribers reaches 450,000, or if the numbers of Hot Telecom telephone subscribers reaches 250,000, or on December 31, 2007 (a condition appearing only in the broadcasting licenses) then the license owners will establish structural separation on the basis detailed in the licenses, including, inter alia, separation between the managements of the license owners, separation between the assets of the license holders and separation between the employees of the license holders. | ||
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| |
| F. | Merger of the Cable Companies | |
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| |
| 1. | Operational merger between the Cable companies | |
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| |
|
| As from 2001, the Cable companies have acted to gradually merge their activities. The merger is intended, among others, to allow the merged entity to consolidate, streamline and expand its activities as a national body in the area of multi-channel television broadcasting, to compete more effectively with competitors (particularly the satellite company “YES”), to cooperate in various sectors of activity, including purchase of content, marketing and sales and in order to achieve significant savings in operating costs. | |
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| |
|
| Approvals for the merger of the cable companies were received from the Commissioner of Restrictive Practices, the Council for Cable and Satellite Broadcasting and the tax authorities. In accordance with the position of the Supervisor of Banks at the Bank of Israel, the merger of the cable companies and the establishment of a merged cable company represents a deviation from Bank of Israel regulations and the “correct banking procedures” of the Supervisor of Banks, among others, as related to the “group of borrowers” restriction as this term is defined in the “correct banking procedures” instructions. | |
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| |
|
| This position of the Supervisor has repercussions in respect of the granting of credit by a banking corporation and the allocation of the debts of the merged company, inter alia, to an indirect control holder of Matav and the other cable companies. | |
19
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Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries |
|
Notes to the Financial Statements |
Note 1 – General (cont’d)
|
|
|
| F. | Merger of the Cable Companies (cont’d) |
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| In June 2004, the operational merger between the cable companies (including the Company) commenced, with the purpose of increasing cooperation between the cable companies. |
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|
| For this purpose, a joint administrative body was set up in order to supervise the operating merger and activities related to marketing, sales, engineering, customer service, operations and information systems of the cable companies (including Hot Telecom). The Company’s normal business activities in areas where cooperation is required are subject to decisions reached by the joint administration. However, significant decisions are subject to the authorization of the board of directors and the other accredited bodies of each of the cable companies as required by law. The cable companies agreed on principles for the allocation of costs according to the relative proportion of each company of all industry subscribers. The operational merger does not represent a statutory merger and does not include the transfer of assets and liabilities from a cable company to a joint entity or from one cable company to another. Each cable company remains the sole owner of all its assets and has the rights to the income received from its subscribers, see also section 2 below. |
|
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|
| 2. | The statutory merger |
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|
| As part of the negotiations carried out in respect of the merger of the cable companies, on February 21, 2006 an agreement was reached between Matav - Cable Communication Systems Ltd. (hereinafter - “Matav”), the Fishman group, the Yediot Ahronot group and the banking corporations owning Tevel’s shares as to the principles for the merger of the cable companies other than the issue of the financing terms of the merged company in respect of which agreement was not yet reached (hereinafter - “the agreement in principle”). |
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|
| According to the above mentioned agreements, Matav will absorb the activities and assets of the other cable companies in the sector of cable tv broadcasting and in the sector of inland communications by acquiring the activities and corporations belonging to the other cable groups for the consideration of US$ 1,350 per cable tv subscriber (hereinafter - “catv subscriber”) which will be paid by taking over financial debt of the merging companies (bank debt and other net finance debt as defined by the merging parties) in the amount of US$ 850 per catv subscriber acquired as part of the merger, and by the issue of shares to shareholders of the merging companies. The relative holdings in Matav’s shares after the merger will be in accordance with the relative number of catv subscribers of each party as at a date to be determined by the parties and consequently this will determine the number of shares to be issued to each party. The merger will take effect retroactively to January 1, 2006 so that the operating results of the merged activity as from that date will be attributed to the merged company. |
|
|
|
|
| Immediately prior to the merger, Matav, which has a lower financial debt as compared to the other cable companies, will acquire (through bank facilities) 125,000 subscribers from Tevel at a price which reflects a gross consideration of US$ 1,350 per each catv subscriber. On completion of this pre-merger transaction, Matav will have approximately 40% of all catv subscribers of the cable companies. |
20
|
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries |
|
Notes to the Financial Statements |
Note 1 – General (cont’d)
|
|
|
| F. | Merger of the Cable Companies (cont’d) |
|
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|
|
| In addition, the parties are negotiating arrangements relating to the appointment of directors of Matav following completion of the merger, and in respect of the rights of sale of Matav shares held by the banking corporations after the merger. These matters have not yet been agreed upon. |
|
|
|
|
| The finance terms in respect of the bank debt which Matav will have following the merger have not yet been determined. |
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|
| The agreement in principle between the parties is conditional, inter alia, on signature on final documents between the parties, an agreement relating to Matav’s financing terms after the merger, approval of the Boards of Directors and managements of interested bodies, including approval of the general meeting of Matav as well as other regulatory approvals. There is no certainty that these conditions will be fulfilled or that the proposed merger will be completed under these or other terms. |
|
|
|
| G. | During November 2005, a proposed law was published as part of which it was proposed to amend the Communications Law in such a way as to oblige the cable tv companies to supply a basic package to their subscribers without the possibility of conditioning such supply on the purchase of broadcasts or other services which are not included in the basic package. |
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|
| The Proposed Law also determines that the Minister of Communications, with the agreement of the Minister of Finance and after taking advice from the Council, can fix a price ceiling for the above mentioned basic package, based on the costs of supplying the package and the addition of reasonable profit to the cable tv companies. According to the proposed law, the amendment to the Communications Law should become effective as of January 1, 2007. |
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|
| Company management estimates that should the amendment be accepted, it is liable to cause changes in the habits of subscribers of multi-channel television. As at the date of authorization of these financial statements the Company is unable to estimate the effects of the proposed legislation on its future operating results. |
|
|
|
| H. | During October 2005, the Ministry of Communications requested that the cable tv companies present their position in respect of the request of YES to provide services using Bezeq’s infrastructure. The cable tv companies position was presented to the Ministry of Communications in January 2006, and to the best of the Company’s knowledge there has since been no change in the status of this matter. |
|
|
|
|
| In the estimation of management of the Company, in the event that YES will commence to provide services in the future using this technology then the cable tv companies will not be the only suppliers of this service, and as long as Bezeq will be allowed to supply content in cooperation with YES, then there may be a material adverse effect on the Company’s business and its future operating results. |
21
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Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries |
|
Notes to the Financial Statements |
Note 1 – General (cont’d)
|
|
|
| I. | During August 2005, the Government decided to promote the erection of a terrestrial digital unified network with a national spread, for the free distribution to the public of the Broadcasting Authority’s television channels (Channels 1 and 33), the commercial television channels (Channel 2 and 10) and the Knesset channel (Channel 99). |
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|
| According to the above mentioned Government decision, an inter-departmental tender committee was appointed to choose the entity which would plan, erect and operate the distribution of the above mentioned channels. The Government decision also determined that the tender committee would require the winner of the tender to undertake that commencement of the distribution of broadcasts in the above mentioned manner would commence no later than January 1, 2007. |
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|
| In the estimation of Company management, should the Government’s decision be implemented, this may cause changes in the habits of subscribers of multi-channel television. As at the date of authorization of these financial statements, the Company cannot estimate the effect that implementation of the Government decision will have on its future operating results. |
Note 2 – Reporting Principles and Accounting Policies
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|
|
| A. | General |
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|
|
| The financial statements have been prepared in accordance with the Securities Regulations (Preparation of Annual Financial Statements) - 1993. | |
|
|
|
| B. | Definitions |
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|
|
| In these financial statements: | |
|
|
|
| (1) | Subsidiaries – companies, whose financial statements have been fully consolidated with those of the Company, whether directly or indirectly. |
|
|
|
| (2) | Proportionally consolidated companies – companies, whose financial statements have been proportionately consolidated with those of the Company, whether directly or indirectly. |
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|
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| (3) | Affiliates – companies other than subsidiaries or proportionally consolidated companies, the Company’s investment in which is included on the equity basis, whether directly or indirectly. |
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|
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| (4) | Investee companies – subsidiaries, proportionately consolidated companies and affiliates. |
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| (5) | Related parties – as defined in opinion 29 of the Institute of Certified Public Accountants in Israel (the “ICPAI”). |
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|
|
| (6) | Interested parties – as defined in paragraph (1) of the definition of “an interested parties” in a company in Section 1 of the Israeli Securities Law – 1968. |
22
|
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries |
|
Notes to the Financial Statements |
Note 2 – Reporting Principles and Accounting Policies (cont’d)
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|
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| B. | Definitions (cont’d) |
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| (7) | Controlling shareholders – as defined in Israeli Securities Regulations (Financial Statement Presentation of Transactions between a Company and a Controlling Shareholder Therein) – 1996. |
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|
|
| (8) | CPI – The Israeli Consumer Price Index as published by the Central Bureau of Statistics. |
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| (9) | Adjusted amount – The nominal historical amount adjusted in accordance with the provisions of Opinions 23 and 34 and Opinions 36 and 37. |
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| (10) | 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. |
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| (11) | Adjusted financial reporting – Financial reporting based on the provisions of Opinions 23, 34, 36, 37 and 50. |
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| (12) | Nominal financial reporting – Financial reporting based on reported amounts. |
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|
| C. | Financial statements in reported amounts |
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|
|
| (1) | 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 to the effect of inflation 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 Company has implemented the provisions of the standard and has accordingly discontinued the adjustment as of January 1, 2004. |
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|
|
| (2) | In the past the Company prepared its financial statements on the basis of historical cost adjusted for the changes in the CPI. 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. Any additions made during the period are included in their nominal values. |
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|
| (3) | Amounts of non-monetary assets do not necessarily reflect their realizable value or current economic value, but only the reported amounts of such assets. |
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| (4) | The term “cost” in these financial statements means the reported amount of cost. |
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| (5) | All the comparative data for periods prior to January 1, 2004 are stated adjusted to the CPI of December 2003. |
23
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries
|
Note 2 – Reporting Principles and Accounting Policies (cont’d)
|
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|
| D. | Reporting principles | |
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| |
| (1) | Balance sheets: | |
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| |
|
| a. | Non-monetary items (mainly – fixed assets, inventory, inventory of work in progress, investments presented at cost) are stated at reported amounts. |
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|
|
| b. | Monetary items are stated in the balance sheet at their nominal historical values as at balance sheet date. |
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| (2) | Statements of operations: | |
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| |
|
| a. | Income and expenses deriving from non-monetary items (such as: depreciation and amortization, changes in inventory, prepaid expenses, deferred income, etc.) or from provisions included in the balance sheet are derived from the difference between the reported amount of the opening balance and the reported amount of the closing balance. |
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| b. | All other operating items (such as: sales, purchases, current manufacturing costs, etc.) are stated at their nominal values. |
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| (3) | Statement of changes in shareholders’ equity: | |
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| |
|
| A dividend declared in the period of the report is stated in nominal values. | |
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|
| E. | Use of estimates | |
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| |
|
| The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements and the reported amounts of revenues and expenses during the current period. Actual results may differ from such estimates. | |
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| |
| F. | Consolidated financial statements | |
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| |
| 1. | The consolidated financial statements include the financial statements of the Company and companies over which the Company has control. Jointly controlled companies are consolidated in the financial statements by the proportionate consolidation method. | |
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| |
| 2. | For the purpose of consolidation, the amounts appearing in the financial statements of the subsidiaries were included after the adjustments required by application of the uniform accounting policies used by the Group. | |
24
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries
|
Note 2 – Reporting Principles and Accounting Policies (cont’d)
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|
| F. | Consolidated financial statements (cont’d) | |
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| |
| 3 | a) | Unallocated excess of cost (after tax allocations due to timing differences) is included in the consolidated financial statements in the item “other assets”. |
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| b) | Excess of cost allocated to assets and liabilities have been included in the relevant balance sheet items. |
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|
| 4. | As from January 1, 2004, the Company applies Accounting Standard No. 20 regarding the amortization period of goodwill. Goodwill is presented in the consolidated balance sheet under the item of “other assets and deferred expenses” and is systematically amortized over the period of its useful life. The amortization period reflects the best possible estimate of the period over which the Company anticipates to obtain future economic benefits from the goodwill. (See Note 2W(5)). | |
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| |
| 5. | Intercompany balances and transactions were eliminated upon consolidation, as was profit from intercompany sales not yet realized outside the Group. | |
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| |
| 6. | a. | The consolidated financial statements include the proportionate parts of assets, liabilities, expense and revenue items, of proportionately consolidated companies according to the rates of holding therein. |
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| b. | Profits from sales of the holding company to proportionately consolidated companies that were not yet realized outside the Group were eliminated according to the rates of holding therein. |
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| c. | Profits from sales of the proportionately consolidated companies to the holding company that were not yet realized outside the Group were eliminated at the full amount of the holding company’s profit. |
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| G. | Investments in affiliates | |
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| 1. | Investments in affiliated companies are stated on the equity basis unless otherwise indicated. When calculating the Company’s equity, losses in respect of the expected realization of convertible securities issued by affiliated companies are taken into account, if such conversion or realization is probable. | |
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| 2. | See Note 2F(4) above regarding amortization policy of unallocated excess of cost. | |
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| 3. | Regarding impairment in value of investments in affiliates - see Note 2U. | |
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| 4. | Losses in excess of its shareholders’ equity have been suffered by an affiliated company. The Company has recorded its share in the losses of the affiliate up to the level of its investment in that company plus losses it is likely to suffer as a result of a guarantee granted by the Company to the affiliate. | |
25
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries
|
Note 2 – Reporting Principles and Accounting Policies (cont’d)
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|
|
| H. | Investments in other companies |
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|
|
| Investments in other companies are stated at cost unless there has been an impairment in value which is not of a temporary nature. Write-downs in respect of the decline in value of these investments, which are determined in accordance with the opinion of management based on an examination of the overall relevant aspects and the significance of each and which are not of a temporary nature, are charged to the statement of income. | |
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| |
| I. | Exchange rates and linkage bases |
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| 1. | Assets and liabilities in foreign currency, or linked thereto, are included in the financial statements according to the representative rates of exchange published by Bank of Israel as at the balance sheet date. |
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| 2. | Below are details of representative exchange rates and of the CPI: |
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| For the year ended December 31 |
| |||||||
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| ||||||||
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|
| 2005 |
| 2004 |
| 2003 |
| |||
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|
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|
|
| ||||||
| CPI in points (2000 average basis) |
|
| 117.04 |
|
| 114.32 |
|
| 112.95 |
|
| Exchange rate of the U.S. dollar (in NIS) |
|
| 4.603 |
|
| 4.308 |
|
| 4.379 |
|
| Rate of increase (decrease) in CPI |
|
| 2.38 | % |
| 1.21 | % |
| (1.88 | )% |
| Rate of increase (decrease) in rate of exchange of the U.S. dollar |
|
| 6.85 | % |
| (1.62 | )% |
| (7.56 | )% |
|
|
|
| J. | Income recognition |
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|
|
| 1. | Subscription income is included in the statement of income on a monthly basis as realized. Income is stated net of discounts the Company grants to its customers from time to time. |
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|
|
| 2. | Income from deposits is recognized through amortization at the annual rate of 10%, of the original deposit linked according to the terms of the franchise and the license which replaced it. See Note 2N. |
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|
| 3. | Communication services - Income from the sale and rental of telephone exchanges are recognized following installation at the customers’ premises or over the rental period respectively. |
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|
| K. | Cash and cash equivalents |
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|
|
| Cash and cash equivalents include bank deposits the date of maturity of which at the time of their deposit was not in excess of three months. | |
26
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries
|
Note 2 – Reporting Principles and Accounting Policies (cont’d)
|
|
|
| L. | Fixed assets |
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|
|
| Fixed assets are stated at cost. Depreciation is computed by the straight-line method, based on the estimated useful life of the asset. | |
|
| |
| Annual depreciation rates are as follows: | |
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|
|
|
|
| % |
|
|
|
| |
| Buildings | 4 |
|
| Electronic equipment, computers and communications systems | 8-33 |
|
| Converters | 15–20 |
|
| Cables | 3-11 |
|
| Motor vehicles | 15 |
|
| Office furniture and equipment | 6-10 |
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|
|
| Improvements in leasehold premises are amortized over the rental period, not exceeding the period of economic benefit to the Company. Leasehold rights are amortized over the lease period. |
|
|
| Depreciation of the “head ends” is computed according to the average annual depreciation rate of electronic equipment of 15. |
|
|
| The annual rate of depreciation of the cable network is computed on the basis of components of the network, electronic equipment and cables. The weighted average rate of depreciation is 11.58%. |
|
|
| The investment in the cable network constructed by Bezeq was calculated at the construction cost of infrastructure per kilometer of network multiplied by the length of the cable network segments that were supplied to the Company. Recording of the said cable network that was constructed by Bezeq was made against a long-term loan, in accordance with the contract between the parties. |
|
|
| The investment in the cable network which was set up by other contractors is recorded based on actual cost. |
|
|
| Fixed assets that are leased under capital leases are stated as assets of the Company at ordinary purchase prices (without the financing component), and are depreciated at the rates relevant for such assets. |
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|
|
| M. | Other assets and deferred expenses |
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|
|
| 1. | Other assets |
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|
|
| Unallocated excess of cost relating to consolidated companies – as stated in Note 2F(4). |
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|
|
| 2. | Deferred expenses |
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|
| Costs paid in connection with obtaining of licenses, are amortized over the period of the license. |
27
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries
|
Note 2 – Reporting Principles and Accounting Policies (cont’d)
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|
|
| M. | Other assets and deferred expenses (cont’d) |
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|
| 3. | Broadcasting rights for movies and programs |
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|
| Cost includes amounts committed for with suppliers of movies and television program broadcasting rights, plus direct costs expended for altering the relevant moves and programs for broadcast in Israel. |
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|
|
| 4. | Investment in limited partnerships |
|
|
|
|
| Investment is limited partnerships active in movie productions, where a proportionately consolidated company (HotVision Ltd.) is a limited partner, are presented at cost. The investments in such partnerships are amortized based on actual screenings. |
|
|
|
| 5. | Inland Operators License |
|
|
|
|
| Costs paid in order to receive an Inland Operators License and those expended towards this end and the erection of inland communication systems are amortized on the straight line basis over the license period. During 2005, the license was transferred to Tevel which continues amortization over the same period. |
|
|
|
| N. | Customer deposits |
|
|
|
| Under the terms of the franchise and the license which replaced it, the Company collects deposits from customers for converters. The balance of these deposits is linked to the CPI from the date they were received by the Company according to the latest known index as at the balance sheet date (hereinafter – “the Linked Deposit”). The Company recognizes income at the annual rate of 10% from the value of the linked deposit. | |
|
|
|
| O. | Deferred taxes |
|
|
|
| During July 2004, the Israel Accounting Standards Board published Standard No. 19 - “Taxes on Income”. The Standard determines that deferred tax liabilities have to be recognized in respect of all tax liable temporary differences, except for a small number of exceptions. Similarly, deferred tax assets have to be recognized for all tax deductible temporary differences, tax losses and benefits which have not yet been utilized, should it be probable that there will be taxable increase against which these could be utilized, other than a small number of exceptions. | |
|
|
|
| Deferred taxes are computed in respect of timing differences between amounts included in the adjusted financial statements and amounts reported for tax purposes. | |
28
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries
|
Note 2 – Reporting Principles and Accounting Policies (cont’d)
|
|
|
| O. | Deferred taxes (cont’d) |
|
|
|
| Deferred tax balances (asset or liability) are calculated at tax rates which will be applicable at the time of utilization of the deferred taxes, or utilization of the benefits, based on tax rates and laws whose enactment has been completed as at the balance sheet date. | |
|
|
|
| The main items in respect of which deferred taxes were not calculated are as follows: | |
|
|
|
| (a) | A temporary difference created upon the initial recognition of goodwill. |
|
|
|
| (b) | Investments in investee companies, since it is the intention of the Company to hold such investments and not to sell them. |
|
|
|
| (c) | Deferred tax assets in respect of temporary differences where the probability of realization of the deferred tax asset is doubtful. |
|
|
|
| (d) | Deferred taxes in respect of temporary differences relating to land that were created in business combinations. |
|
|
|
| P. | Provision for doubtful debts |
|
|
|
| The provision for doubtful debts is computed mainly at a variable rate in accordance with the age of the receivables. | |
|
|
|
| Q. | Interested and related parties |
|
| �� |
| Details in respect of interested and related parties have been included in accordance with the requirements of Opinion 29 of the Institute of Certified Public Accountants in Israel and Chapter 8 of the Securities Regulations (Preparation of Annual Financial Statements), 1993. | |
|
|
|
| R. | Earnings per share |
|
|
|
| Earnings per share have been calculated in accordance with Opinion No. 55 of the Institute of Certified Public Accountants in Israel. | |
|
|
|
| S. | Intercompany allocations |
|
|
|
| As from 2000, the employees of Gvanim and Gvanim Krayot became employees of the Company. | |
|
|
|
| Salaries and related expenses, liabilities for employee severance benefits and the provisions for vacation pay and for employee vacation expense allowance are allocated to the above-mentioned companies in accordance with an agreement with the Company. The allocation rates appropriately reflect the personnel services provided by the Company. All other joint expenses are allocated according to usage rates. | |
29
|
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries |
|
Notes to the Financial Statements |
Note 2 – Reporting Principles and Accounting Policies (cont’d)
|
|
|
| T. | Derivative financial instruments |
|
|
|
| (1) | Gains and losses on derivative financial instruments held for purposes of hedging existing assets and liabilities are recorded on the statement of income in correspondence with the results of the assets and liabilities which they hedge. |
|
|
|
| (2) | Gains and losses on derivative financial instruments held as a hedge with respect to firm commitments are deferred and are recognized on the statement of income in the same period in which the gains and losses from the hedged transactions are recognized. |
|
|
|
| (3) | Derivative financial instruments, not held for hedging, are stated in the financial statements at their fair value. Changes in fair value are recognized as incurred as part of the financing item. |
|
|
|
|
| The fair value of derivative financial instruments is determined on the basis of their market values or the quotations of financial institutions. In the absence of a market value or financial institution quotations, the fair value is determined on the basis of a valuation model. |
|
|
|
| U. | Impairment in value of assets |
|
|
|
| The Company applies Accounting Standard No. 15 - Impairment in Value of Assets (hereinafter – the standard). The standard provides procedures which a company must apply in order to ensure that its assets in the consolidated balance sheet (to which the standard applies), are not presented at an amount which is in excess of their recoverable value, which is the higher of the net selling price and the use value (the present value of the estimated future cash flows expected to be derived from use and disposal of the asset). | |
|
| |
| The standard applies to all the assets in the consolidated balance sheet, except inventory of buildings for sale, tax assets and monetary assets (excluding monetary assets which are investments in investee companies that are not subsidiaries). In addition, the standard provides rules for presentation and disclosure with respect to assets whose value has declined. When the value of an asset in the consolidated balance sheet is higher than its recoverable value, the Company recognizes a loss from the impairment in value in the amount of the difference between the book value of the asset and its recoverable value. The loss thus recognized will be cancelled only in the event of changes occurring in the estimates that were used to determine the recoverable value of the asset since the date on which the most recent loss from the decline in value was recognized. | |
|
| |
| In September 2003 the Israel Accounting Standards Board published Clarification No. 1 regarding the accounting treatment of an impairment in value of an investment in an investee company that is not a subsidiary (hereinafter – the clarification). The clarification provides that in the periods following the period in which a provision was created for the first time in respect of the impairment in value of an investee company that is not a subsidiary, the investment in the investee company should be presented at the lower of the recoverable value and the amount of the investment based on the equity method, with the recoverable amount being calculated in each reporting period in which there are indicators that there has been a change in the recoverable value. Losses from impairment in value of an investee company that is not a subsidiary, which were recognized or cancelled in the period, are included in the item of the Company’s equity in the earnings (losses) of affiliated companies. | |
30
|
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries |
|
Notes to the Financial Statements |
Note 2 – Reporting Principles and Accounting Policies (cont’d)
|
|
|
| U. | Impairment in value of assets (cont’d) |
|
|
|
| In February 2005, the Israel Accounting Standards Board published clarification No. 6 regarding the accounting treatment of an impairment in value of the assets of an investee company that is not a subsidiary. The clarification requires determination of the recoverable value of each one of the cash generating units or identified assets of the affiliated company, for which there are indications of an impairment in value or indications that a loss from impairment that was recognized in prior years no longer exists or has decreased. The decline or increase in value will be examined from the point of view of the holding company. | |
|
| |
| In 2004, the financial statements include a loss from impairment in value of NIS 11,578 thousand and NIS 6,667 thousand, consolidated and company, respectively. The write down includes an impairment in value of analog converters in the sum of NIS 8,530 thousand and NIS 6,019 thousand, consolidated and company, respectively, and write-off of leasehold improvements due to vacation of a building in Tel-Aviv in the sum of NIS 2,398 thousand and additional amortization of cable network of NIS 648 thousand, due to its replacement. | |
|
| |
| V. | Effect of changes in foreign currency exchange rates |
|
|
|
| As of January 1, 2004, the Company implements Accounting Standard No. 13, “Effect of Changes in Exchange Rates of Foreign Currency”. The standard discusses the translation of transactions in foreign currency and the translation of financial statements of foreign operations for the purpose of including them in the financial statements of the reporting entity. The standard provides rules for classifying foreign operations as an autonomous foreign investee or as an integrated investee, on the basis of the indications described in the standard and the use of discretion, and it provides the method for translating the financial statements of autonomous foreign investees. | |
|
| |
| 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. | |
31
|
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries |
|
Notes to the Financial Statements |
Note 2 – Reporting Principles and Accounting Policies (cont’d)
|
|
|
| W. | Disclosure of effect of new accounting standards in the period prior to their implementation |
|
|
|
| (1) | In July 2005 the Israel Accounting Standards Board published Accounting Standard No. 22, “Financial Instruments: Disclosure and Presentation” (hereinafter – the Standard). The Standard provides rules for presenting financial instruments in the financial statements and specifies the proper disclosure required in respect thereto. Furthermore, the Standard provides the method for classifying financial instruments as financial liabilities and as shareholders’ equity, for classifying the interest, dividends, losses and gains related to them and the circumstances for offsetting financial assets and financial liabilities, and it annuls Opinion 53, “The Accounting Treatment of Convertible Liabilities” and Opinion 48, “The Accounting Treatment of Options”. The new standard will apply to financial statements for periods beginning on January 1, 2006 or thereafter. The Standard provides that it is to be adopted on a prospective basis. |
|
|
|
|
|
|
| (2) | In September 2005 the Israel Accounting Standards Board published Accounting Standard No. 24, “Share- Based Payments” (hereinafter – the Standard). The Standard requires that share-based payment transactions, including transactions with employees or other parties that are to be settled by equity instruments, cash or other assets, be recognized in the financial statements. In accordance with the Standard, share-based payment transactions in which goods or services are received will be recognized at their fair value. Furthermore, the Standard provides various disclosure requirements regarding the nature and extent of the share-based payment arrangements that existed during the period, and regarding the method by which the fair value of such arrangements was determined. The Standard will apply to financial statements for periods beginning as from January 1, 2006 and early implementation is recommended. The instructions of the Standard should be applied to each share-based payment transaction executed after March 15, 2005 that has not yet vested until the effective date of the Standard. Furthermore, it is required that comparative data relating to periods after March 15, 2005 be restated. With respect to share-based payments classified as liabilities (such as phantom plans) that exist on the effective date of the Standard, the Standard is to be implemented retroactively and the comparative data is to be restated. Changes in the terms of a share-based payment transaction being settled by means of equity instruments and executed after March 15, 2005 are to be treated in accordance with the instructions of the new Standard, and comparative data relating to periods after March 15, 2005 is to be restated. |
|
|
|
|
| Implementation of the new Standard is not anticipated to have a material effect on the Company’s results of operations and financial position. |
|
|
|
| (3) | In February 2006, the Israel Accounting Standards Board published Accounting Standard No. 21, “Earnings per Share (hereinafter – the Standard). The Standard provides that an entity should calculate basic earnings per share with respect to the earnings or loss attributable to the ordinary shareholders of the reporting entity and that the entity should calculate basic earnings per share with respect to the earnings or loss from continuing operations attributable to the ordinary shareholders of the reporting entity if such earnings or loss is presented. The basic earnings per share will be calculated by dividing the earnings or loss attributable to the ordinary shareholders of the reporting entity (the numerator) with the weighted average number of ordinary shares outstanding (the denominator) during the period. In order to calculate the diluted earnings per share an entity will adjust the earnings or loss attributable to the ordinary shareholders of the reporting entity, and the weighted average number of outstanding ordinary shares in respect of the effects of all the dilutive potential ordinary shares. The Standard will apply to financial statements for periods beginning on January 1, 2006 or thereafter. The instructions of the Standard regarding earnings per share are to be implemented retroactively on comparative data for prior periods. |
32
|
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries |
|
Notes to the Financial Statements |
Note 2 – Reporting Principles and Accounting Policies (cont’d)
|
|
|
| W. | Disclosure of effect of new accounting standards in the period prior to their implementation (cont’d) |
|
|
|
| (3) | (cont’d) |
|
|
|
|
| Implementation of the new Standard is not anticipated to have a material effect on the Company’s results of operations and financial position. |
|
|
|
| (4) | In February 2006, the Israel Accounting Standards Board published Accounting Standard No. 25, “Revenues” (hereinafter – the Standard). The Standard provides the required accounting treatment (recognition, measurement, presentation and disclosure principles) of revenues deriving from the selling of goods, the rendering of services, and the use of the entity’s assets by others, which generate interest, royalties and dividends. The Standard provides that an entity is to measure its revenues according to the fair value of the proceeds received and/or the proceeds the entity is entitled to receive. The Standard will apply to financial statements for periods beginning on January 1, 2006 or thereafter. An entity that in the past did not present its revenues according to the requirements of the Standard regarding the reporting of gross or net revenues, will implement the requirements of the Standard retroactively with respect to its revenues for all the periods reported as comparative figures in the financial statements for periods beginning from the date the Standard comes into effect. |
|
|
|
|
| Implementation of the new Standard is not anticipated to have a material effect on the Company’s results of operations and financial position. |
|
|
|
| (5) | In March 2006, the Israel Accounting Standards Board published an amendment to Accounting Standard No. 20, “The Accounting Treatment of Goodwill and Intangible Assets when Purchasing an Investee Company” (hereinafter – the Standard). The new Standard replaces Accounting Standard No. 20, “Goodwill Amortization Period”. In accordance with the Standard, goodwill and intangible assets with an unlimited useful life, which were identified at the time of purchasing an investee company, will not be amortized. Instead, an examination of impairment in value should be performed once a year or more frequently if events or changes in circumstances indicate that there may have been an impairment in the value of goodwill or of an intangible asset with an unlimited useful life. The Standard applies to financial statements for periods beginning on January 1, 2006 or thereafter. The transition date for discontinuing the amortization of goodwill is January 1, 2006 according to this Standard. Accordingly, an entity is to discontinue amortizing goodwill included in the financial statements, including goodwill included in the balance of an investment in an investee company that is not a subsidiary, as from the financial statements for periods beginning on the day after the transition date. |
|
|
|
33
|
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries |
|
Notes to the Financial Statements |
Note 2 – Reporting Principles and Accounting Policies (cont’d)
|
|
|
| X. | Restatement |
|
|
|
| Following the determination of the Securities Authority in accordance with Matav’s application, the Company ceased the proportional consolidation of the Hot Telecom partnership. 2004 comparative data was restated. | |
|
| |
|
| |
| Effect on the consolidated balance sheet as at December 31, 2004 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As originally reported |
| Effect of restatement |
| As reported in |
| |||
|
|
|
|
|
| ||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
|
| ||||||
| |||||||||||
| Cash and cash equivalents |
|
| 87,142 |
|
| (735 | ) |
| 86,407 |
|
| Trade receivables |
|
| 35,158 |
|
| 467 |
|
| 35,625 |
|
| Debtors and debit balances |
|
| 31,202 |
|
| 14,166 |
|
| 45,368 |
|
| Long-term debit balances |
|
| 2,593 |
|
| (15 | ) |
| 2,578 |
|
| Fixed assets |
|
| 801,179 |
|
| (15,913 | ) |
| 785,266 |
|
| Other assets and deferred expenses |
|
| 311,470 |
|
| 2,950 |
|
| 314,420 |
|
| Bank credit |
|
| (2,444,125 | ) |
| (4,392 | ) |
| (2,448,517 | ) |
| Suppliers and service providers |
|
| (152,440 | ) |
| 6,548 |
|
| (145,892 | ) |
| Creditors and credit balances |
|
| (96,644 | ) |
| 737 |
|
| (95,907 | ) |
| Liabilities for cessation of employee/employer relations, net |
|
| (5,481 | ) |
| 77 |
|
| (5,404 | ) |
| Excess of Company’s share in losses of affiliate over investment |
|
| - |
|
| (3,904 | ) |
| (3,904 | ) |
| Related parties |
|
| (82 | ) |
| 82 |
|
| - |
|
| Shareholders’ equity |
|
| 1,905,131 |
|
| (68 | ) |
| 1,905,063 |
|
|
|
| The effect on accumulated losses as at January 1, 2003 |
|
|
|
|
|
|
|
|
| NIS thousands |
| |
|
|
|
| ||
|
|
|
|
| |
| As originally reported |
|
| (1,662,433 | ) |
|
|
|
|
|
|
| Effect of restatement |
|
| 68 |
|
|
|
|
| ||
|
|
|
|
|
|
| As reported in these financial statements |
|
| (1,662,365 | ) |
|
|
|
| ||
34
|
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries |
|
Notes to the Financial Statements |
Note 3 – Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| Company |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| December 31 |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| NIS thousands |
| ||||
|
|
|
|
|
|
| ||||||||
| ||||||||||||||
| Israeli currency |
|
| 55,406 |
|
| 37,801 |
|
| 44,042 |
|
| 34,226 |
|
| Foreign currency |
|
| 12,614 |
|
| 48,606 |
|
| 12,614 |
|
| 48,598 |
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 68,020 |
|
| 86,407 |
|
| 56,656 |
|
| 82,824 |
|
|
|
|
|
|
|
| ||||||||
Note 4 – Trade Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Company |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| December 31 |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| NIS thousands |
| ||||
|
|
|
|
|
|
| ||||||||
| ||||||||||||||
| Current debts |
|
| 29,708 |
|
| 45,146 |
|
| 8,936 |
|
| 11,945 |
|
| Credit to customers |
|
| 1,833 |
|
| 1,860 |
|
| 1,069 |
|
| 1,180 |
|
|
|
|
|
|
|
| ||||||||
|
|
|
| 31,541 |
|
| 47,006 |
|
| 10,005 |
|
| 13,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less: provision for doubtful debts |
|
| (6,264 | ) |
| (11,381 | ) |
| (4,250 | ) |
| (6,419 | ) |
|
|
|
|
|
|
| ||||||||
| ||||||||||||||
|
|
|
| 25,277 |
|
| 35,625 |
|
| 5,755 |
|
| 6,706 |
|
|
|
|
|
|
|
| ||||||||
Note 5 – Other Receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Company |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| December 31 |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| NIS thousands |
| ||||
|
|
|
|
|
|
| ||||||||
| Prepaid expenses |
|
| 2,923 |
|
| 2,842 |
|
| 4,067 |
|
| 4,087 |
|
| Advances to suppliers and other receivables |
|
| 4,059 |
|
| 11,761 |
|
| 2,541 |
|
| 7,273 |
|
| Government institutions |
|
| 611 |
|
| 6,266 |
|
| 512 |
|
| 7,449 |
|
| Consolidated companies |
|
| - |
|
| - |
|
| 115,588 |
|
| 82,159 |
|
| Affiliated companies |
|
| - |
|
| * 8,163 |
|
| - |
|
| * 8,163 |
|
| Receivables from use of programming rights (1) |
|
| - |
|
| 3,961 |
|
| - |
|
| 7,850 |
|
| Employees |
|
| 146 |
|
| 123 |
|
| 106 |
|
| 93 |
|
| Other receivables |
|
| 255 |
|
| 224 |
|
| - |
|
| - |
|
|
|
|
|
|
|
| ||||||||
| ||||||||||||||
|
|
|
| 7,994 |
|
| 33,340 |
|
| 122,814 |
|
| 117,074 |
|
|
|
|
|
|
|
| ||||||||
|
|
|
| (1) | See Note 16B(11). |
|
|
|
| * | Reclassified |
35
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries
|
Notes to the Financial Statements |
Note 6 – Investee and Other Companies
|
|
|
| A. | Investments in investee and other companies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Company |
| |||||||||
|
|
|
|
|
|
| |||||||||||
|
|
|
|
| December 31 |
| December 31 |
| December 31 |
| December 31 |
| |||||
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
| Note |
| NIS thousands |
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||||
|
|
|
|
|
|
|
| ||||||||||
| |||||||||||||||||
| In long-term balances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investment in Hot Telecom Limited Partnership |
|
| 6D(1 | ) |
| 61,886 |
|
| 8,124 |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As part of current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investment in Netvision Ltd. |
|
| 6D(2 | ) |
| - |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investment in Inland Operator Limited Partnership |
|
| 6C(3 | ) |
| - |
|
| - |
|
| 35,900 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investment in HotVision |
|
| 6C(4 | ) |
| - |
|
| - |
|
| *464 |
|
| * 464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investment in Golden Channels & Co. |
|
| 6D(3 | ) |
| 69,909 |
|
| 136,113 |
|
| 62,909 |
|
| 136,113 |
|
|
|
|
|
|
|
|
|
|
|
| |||||||
| |||||||||||||||||
|
|
|
|
|
|
| 131,795 |
|
| 144,237 |
|
| 106,273 |
|
| * 136,577 |
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
| B. | Liability for investment in investee company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Company |
| |||||||||
|
|
|
|
|
|
| |||||||||||
|
|
|
|
| December 31 |
| December 31 |
| December 31 |
| December 31 |
| |||||
|
|
|
|
|
|
|
|
| |||||||||
|
|
| Note |
| NIS thousands |
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||||
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
| As part of current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investment in Tevel – Telecom Ltd. |
|
| 6C(2 | ) |
| - |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| In long-term balances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investment in Inland Operator Limited Partnership |
|
| 6C(3 | ) |
| - |
|
| - |
|
| - |
|
| (11,692 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investment in Gvanim Cable Television Ltd. |
|
| 6C(1 | ) |
| - |
|
| - |
|
| (322,689 | ) |
| *(141,682 | ) |
|
|
|
|
|
|
|
|
|
| ||||||||
| |||||||||||||||||
|
|
|
|
|
|
| - |
|
| - |
|
| (322,689 | ) |
| (153,374 | ) |
|
|
|
|
|
|
|
|
|
| ||||||||
* Restated (See Note 2(X)).
36
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries
|
Notes to the Financial Statements |
Note 6 – Investee and Other Companies (cont’d)
|
|
|
| C. | Investments in subsidiaries |
|
|
|
| (1) | Investment in Gvanim |
|
|
|
|
| Composition of investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Percentage |
| The Company |
| |||||
|
|
|
|
| |||||||
|
|
|
| December 31 |
| December 31 |
| ||||
|
|
|
|
|
| ||||||
|
|
| % |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
| |||
| Cost |
|
| 100 |
|
| 959,701 |
|
| 959,701 |
|
| Equity in losses from date of acquisition (not including amortization of unallocated excess of cost accumulated from the date of acquisition) |
|
|
|
|
| (464,147 | ) |
| *(365,134 | ) |
| Amortization of unallocated excess of cost accumulated from the date of acquisition |
|
|
|
|
| (628,614 | ) |
| (546,620 | ) |
| Less: dividend received |
|
|
|
|
| (189,629 | ) |
| (189,629 | ) |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (322,689 | ) |
| *(141,682 | ) |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2005 |
| December 31, 2004 |
| ||||
|
|
|
|
| ||||||
|
|
| Original |
| Balance |
| Original |
| Balance |
|
|
|
|
| |||||||
|
|
|
|
|
|
| ||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| NIS thousands |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| Balance of unallocated excess of cost |
| 819,932 |
| 191,318 |
| 819,932 |
| 273,311 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| See Note 2E(3) regarding the amortization of unallocated excess of cost. |
|
|
|
|
| ||||
37
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries
|
Notes to the Financial Statements |
Note 6 – Investee and Other Companies (cont’d)
|
|
|
| C. | Investments in subsidiaries (cont’d) |
|
|
|
| (1) | Investment in Gvanim (cont’d) |
|
|
|
|
|
|
|
|
|
| Changes in investment: |
|
|
|
|
| ||
| ||||||||
|
|
| 2005 |
| 2004 |
| ||
|
|
|
|
| ||||
|
|
| NIS thousands |
| NIS thousands |
| ||
|
|
|
|
| ||||
|
|
|
|
|
|
| ||
| Balance at the beginning of the year |
|
| *(141,682 | ) |
| * 41,780 |
|
|
|
|
|
|
|
|
|
|
| Changes during the year: |
|
|
|
|
|
|
|
| Equity in losses for the year |
|
| (99,012 | ) |
| (101,487 | ) |
| Amortization of unallocated excess of cost |
|
| (81,995 | ) |
| (81,995 | ) |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| Balance at the end of the year |
|
| (322,689 | ) |
| *(141,682 | ) |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| * Restated. |
|
|
|
|
|
|
|
|
|
|
| (2) | Investment in Tevel Telecom Ltd.: |
|
|
|
|
| Until March 16, 2004, Tevel Telecom held 50% of the share capital of Globcall Communications Ltd., which is engaged in the provision of switchboard and private network services). |
|
|
|
|
| On March 16, 2004, as part of the implementation of the creditors arrangement and in order to realize the Company’s investments in Globcall, the Company sold its shares in Tevel Telecom to Discount Investment Corporation Ltd. According to the agreement between the parties, the Company received NIS 45 million for the share of Tevel Telecom and in payment of a loan balance the Company had extended to Globcall. The shareholders loan extended to Tevel Telecom was written off. Following the sale, the Company recorded profit in the sum of NIS 39 million. |
|
|
|
|
| Composition of investment: |
|
|
|
|
|
|
|
|
| December 31 |
| |
|
|
|
| ||
|
|
|
| ||
|
|
| NIS thousands |
| |
|
|
|
| ||
| |||||
| Cost |
|
| (40,497 | ) |
| Equity in losses from date of acquisition (not including amortization of unallocated excess of cost accumulated from the date of acquisition) |
|
| (1,130 | ) |
| Amortization of unallocated excess of cost |
|
| (130 | ) |
| Sale of Company shares |
|
| 41,757 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
| ||
38
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries
|
Notes to the Financial Statements |
Note 6 – Investee and Other Companies (cont’d)
|
|
|
| C. | Investments in subsidiaries (cont’d) |
|
|
|
| (3) | Investment in Inland Operator, Limited Partnership: |
|
|
|
|
| The Tevel Group holds Inland Operator Limited Partnership (hereinafter – “the Infrastructure Partnership”), which was set up on December 30, 2001, where the Company, Gvanim and Gvanim Krayot hold at the rates of 60.999%, 21% and 18%, respectively, and the general partner, Inland Operator (2001) Ltd., holds 0.001%. The general partner, Inland Operator (2001) Ltd., is an investee company of the Company, Gvanim and Gvanim Krayot held by them at the rates of 61%, 21% and 18%, respectively. |
|
|
|
|
| On March 17, 2002, the Minister of Communications gave the Infrastructure Partnership a general license for operating local stationary Bezeq services which includes, among other things, a license to provide access services to Internet suppliers and infrastructure services for distribution of cable television broadcasts. On November 15, 2002, at the request of the Infrastructure Partnership, the license was expanded to include the provision of data communication, digital transmission and optical transmission services. |
|
|
|
|
| The local license partnership commenced its operations on January 1, 2003. Up to this date, the Partnership’s activities were carried on by the Tevel Group with the agreement of all partners in Limited Partnership. The license granted to Inland Operator was replaced by the license granted to Hot Telecom. As at the date of authorization of these financial statements the private sector internet activity had not been transferred to Hot Telecom and this is still carried out by Inland Operator. |
|
|
|
|
| In respect of the change in the inland operators license on March 16, 2005, see Note 1D. |
|
|
|
|
|
|
|
|
|
|
|
| Company |
| ||||
|
|
|
| |||||
|
|
| December 31 |
| December 31 |
| ||
|
|
|
|
| ||||
|
|
| NIS thousands |
| NIS thousands |
| ||
|
|
|
|
| ||||
| Composition of investment: |
|
|
|
|
|
|
|
| Cost |
|
| - |
|
| - |
|
| Share in losses accumulated from inception |
|
| (41,590 | ) |
| (23,720 | ) |
| Long-term loan to affiliated company* |
|
| 77,490 |
|
| ** 12,028 |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| 35,900 |
|
| (11,692 | ) |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| Company |
| ||||
|
|
|
| |||||
|
|
| December 31 |
| December 31 |
| ||
|
|
|
|
| ||||
|
|
| NIS thousands |
| NIS thousands |
| ||
|
|
|
|
| ||||
| Changes in investment: |
|
|
|
|
|
|
|
| Balance at the beginning of the year |
|
| (11,692 | ) |
| (17,483 | ) |
| Changes during the year: |
|
| (17,870 | ) |
| (6,237 | ) |
| Share in loss for the year |
|
| 65,462 |
|
|
|
|
| Grant of loan to affiliated company |
|
|
|
|
| ** 12,028 |
|
|
|
|
|
| ||||
|
|
|
| 35,900 |
|
| (11,692 | ) |
|
|
|
|
| ||||
|
|
|
|
|
| * | The Partnership granted a loan through the parent company to the Hot Telecom partnership (affiliated partnership). The loan is unlinked, bears no interest and is without a repayment date. |
| |||
|
| ** | Reclassified |
39
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries
|
Notes to the Financial Statements |
Note 6 – Investee and Other Companies (cont’d)
|
|
|
| C. | Investments in subsidiaries (cont’d) |
|
|
|
| (4) | Investment in Hot Vision Ltd. (formerly ICP, hereinafter - “Hot Vision”) |
|
|
|
|
| The Company holds approximately 30% of the preferred share capital and 19.83% of the ordinary share capital of Hot Vision (the Company and Gvanim together hold 32.92% of the ordinary share capital of Hot Vision). |
|
|
|
|
| The preferred shares grant their owners exclusive liquidation profit distribution rights up to a sum of approximately NIS 17 million. Other profit will be divided among the shareholders in proportion to their holdings. |
|
|
|
|
| The holdings in ordinary shares are determined annually based on the relative proportion of the shareholders in the total number of catv subscribers. |
|
|
|
|
| Following the Commissioners approval for continued cooperation of the cable tv companies under the Hot brand name (see Note 1C) and the cable tv companies preparations for broadcasting merger, there were changes in the character of operations and management of Hot Vision so that this reflects joint control of the cable tv companies in Hot Vision. Consequently, as from December 31, 2003, Hot Vision is proportionately consolidated (see Note 2E16) in respect of the Company’s relative proportion of Hot Vision’s assets and liabilities). |
|
|
|
|
| An indemnity agreement was signed between Hot Vision and the cable companies according to which the cable companies have undertaken to jointly bear payments in respect of agreements, disagreements and legal proceedings between any of the cable companies and movie suppliers. |
|
|
|
|
| In respect of a claim filed by a movie supplier against Golden Channels and in respect of which Hot Vision is entitled, according to the agreement, to indemnity from the other cable companies, see Note 16A(3)(D). |
|
|
|
|
| The Group is a guarantor to banking corporations in respect of Hot Vision’s liabilities, also in excess of the Group’s share in Hot Vision (see Note 16C(7)). |
|
|
|
|
| Hot Vision has received a demand from Bank Hapoalim to repay its credit balances in the sum of approximately NIS 78 million. Hot Vision is working with Bank Hapoalim in order to extend the period of the credit facility. |
|
|
|
|
|
|
|
|
|
|
|
| Company |
| ||||
|
|
|
| |||||
|
|
| December 31 |
| December 31 |
| ||
|
|
|
|
| ||||
|
|
|
|
| ||||
|
|
| NIS thousands |
| NIS thousands |
| ||
|
|
|
|
| ||||
| ||||||||
| Composition of investment: |
|
|
|
|
|
|
|
| Cost |
|
| 80 |
|
| * 80 |
|
| Share in losses accumulated from inception |
|
| 384 |
|
| * 384 |
|
|
|
|
|
| ||||
| ||||||||
|
|
|
| 464 |
|
| * 464 |
|
|
|
|
|
| ||||
40
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries
|
Notes to the Financial Statements |
Note 6 – Investee and Other Companies (cont’d)
|
|
|
| C. | Investments in subsidiaries (cont’d) |
|
|
|
| (4) | Investment in Hot Vision Ltd. (formerly ICP, hereinafter - “Hot Vision”) |
|
|
|
|
|
|
|
|
|
|
|
| Company |
| ||||
|
|
|
| |||||
|
|
| December 31 |
| December 31 |
| ||
|
|
|
| |||||
|
|
|
|
| ||||
|
|
| NIS thousands |
| NIS thousands |
| ||
|
|
|
|
| ||||
| ||||||||
| Changes in investment: |
|
|
|
|
|
|
|
| Balance at the beginning of the year |
|
| 464 |
|
| 464 |
|
| Changes during the year: |
|
|
|
|
|
|
|
| Share in loss for the year |
|
| - |
|
| - |
|
|
|
|
|
| ||||
| Balance at the end of the year |
|
| 464 |
|
| 464 |
|
|
|
|
|
| ||||
|
|
|
| D. | Investments in affiliated companies |
|
|
|
| (1) | Investment in Hot Telecom Limited Partnership (hereinafter - “Hot Telecom”) |
|
|
|
|
| The Tevel Group, through Inland Operators Partnership, owns 32.36% of the Hot Telecom Partnership which was established in November 2003 for the erection and operation of inland communication services on the cable network and commenced its activities on January 1, 2004. |
|
|
|
|
| The other partners in Hot Telecom are the other cable companies Matav and Golden Channels who hold 26.59% and 41.05% in Hot Telecom, respectively. An extra 1% of Hot Telecom is held by Hot Telecom Ltd. which is held by the three cable companies based on the same proportion, and it acts as the General Partner of Hot Telecom. |
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| ||||
|
|
|
| |||||
|
|
| December 31 |
| December 31 |
| ||
|
|
|
| |||||
|
|
|
|
| ||||
|
|
| NIS thousands |
| NIS thousands |
| ||
|
|
|
|
| ||||
|
|
|
|
|
|
| ||
| Composition of investment: |
|
|
|
|
|
|
|
| Equity in accumulated losses |
|
| (15,602 | ) |
| (3,904 | ) |
| Long-term loan |
|
| 77,488 |
|
| 12,028 |
|
|
|
|
|
| ||||
|
|
|
| 61,886 |
|
| 8,124 |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| ||||
|
|
|
| |||||
|
|
| 2005 |
| 2004 |
| ||
|
|
|
|
| ||||
|
|
| NIS thousands |
| NIS thousands |
| ||
|
|
|
|
| ||||
|
|
|
|
|
|
| ||
| Changes of investment: |
|
|
|
|
|
|
|
| Balance at the beginning of the year |
|
| 8,124 |
|
| - |
|
| Changes during the year: |
|
|
|
|
|
|
|
| Equity in loss for the year |
|
| (11,700 | ) |
| (3,904 | ) |
| Investment in loans |
|
| 65,462 |
|
| 12,028 |
|
|
|
|
|
| ||||
|
|
|
| 61,886 |
|
| 8,124 |
|
|
|
|
|
| ||||
| * Reclassified |
|
|
|
|
|
|
|
41
|
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries |
|
Notes to the Financial Statements |
Note 6 – Investee and Other Companies (cont’d)
|
|
|
| C. | Investments in subsidiaries (cont’d) |
|
|
|
| D. | Investments in affiliated companies (cont’d) |
|
|
|
| (2) | Investment in Netvision Ltd. (hereinafter - “Netvision”) |
|
|
|
|
| Until March 16, 2004, the Company held 50% of the control rights in Netvision, and 45.66% of the share capital as at that date (after taking account of employee options exercised). |
|
|
|
|
| Part of the shares in Netvision were acquired on April 5, 2000. |
|
|
|
|
| In respect of this acquisition, no agreement was signed and the value of the acquisition was estimated according to a previous transaction carried out. During 2003, the parties to the transaction came to an agreement regarding the consideration, which was paid by way of setoff. |
|
|
|
|
| The consideration determined was lower than the previous estimate used to record the transaction. The difference was treated as a change in estimate of the balance of the unallocated original difference. |
|
|
|
|
| On March 16, 2004, as part of the implementation of the creditors arrangement, the Company sold its shares of Netvision to Discount Investment Corporation Ltd. in consideration of NIS 90 million. As a result of this sale, the Company recorded profit of approximately NIS 80 million. |
|
|
|
|
| See Note 2E(3) regarding the amortization of unallocated excess of cost. |
|
|
|
| (2) | Investment in Netvision Ltd. (hereinafter – “Netvision”) |
|
|
|
|
| Changes in investment: |
|
|
|
|
|
|
|
|
| Consolidated |
| |
|
|
|
| ||
|
|
| 2004 |
| |
|
|
|
| ||
|
|
| NIS thousands |
| |
|
|
|
| ||
|
|
|
|
| |
| Balance at the beginning of the year |
|
| 8,352 |
|
|
|
|
|
|
|
| Changes during the year: |
|
|
|
|
|
|
|
|
|
|
| Equity in income for the year |
|
| 199 |
|
| Sale of Company shares |
|
| (8,551 | ) |
|
|
|
| ||
|
|
|
|
|
|
| Balance at the end of the year |
|
| - |
|
|
|
|
| ||
42
|
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries |
|
Notes to the Financial Statements |
Note 6 – Investee and Other Companies (cont’d)
|
|
|
| C. | Investments in subsidiaries (cont’d) |
|
|
|
| D. | Investments in affiliated companies (cont’d) |
|
|
|
| Investment in Golden Channels & Co. (cont’d) | |
|
|
|
| On November 2, 2000, an agreement was signed whereby the Company acquired 35% of the rights in Golden Channels & Co., General Partnership (hereinafter – Golden Channels) for the total consideration of approximately 185 million dollars. | |
|
|
|
| The transaction was conditional upon receipt of all approvals required by law, including the approval of the Commissioner and the Council. | |
|
|
|
| By June 9, 2003, all the required approvals had been received and all the conditional terms for completion of the transaction had been complied with. During June 2003, the Company appointed two of its representatives to the management committee of Golden Channels and commenced its involvement in the management of Golden Channels. | |
|
|
|
| Golden Channels has broadcasting licenses for the Ramat-Gan, Petah Tikva, Beit Shean and Jerusalem areas. Golden Channels holds 75% of the share capital of Idan Cable Systems Ltd. (hereinafter - “Idan”) which has broadcasting licenses for the Rehovot, Beer-Sheva and Akko-Naharia areas. | |
|
|
|
| Similarly, Golden Channels holds 100% of the share capital of Edom Channels Ltd. (hereinafter - “Edom”) which supplies broadcasts to the Ma’ale Adumim municipality (Golden Channels, Idan and Edom are from now referred to as “Golden Channels Group”). In addition, the Golden Channels Group holds 70% of Telecom Gold 2001, limited partnership, which has an inland operator’s license. | |
|
|
|
| Golden Channels operates in a similar business and regulatory environment to that in which the Tevel group operates. | |
|
|
|
| In respect of Golden Channels, see also Note 1A(3). | |
|
|
|
| On completion of the Golden Channels transaction, the Company was exposed to the liabilities, contingent liabilities and claims of Golden Channels. As Golden channels is a general partnership the Company’s exposure to Golden Channels liabilities is not limited to its share in the partnership. For details of the contingent liabilities and claims filed against Golden Channels, see Note 16. | |
43
|
Tevel Israel International Communications Ltd. (under creditors arrangement) and its Subsidiaries |
|
Notes to the Financial Statements |
|
|
|
Note 6 – Investee and Other Companies (cont’d) | ||
| ||
| D. | Investments in affiliated companies (cont’d) |
|
|
|
| Investment in Golden Channels & Co. (cont’d) | |
|
| |
| Composition of investment: | |
|
|
|
|
|
|
|
|
|
|
|
| Company and Consolidated |
| ||||
|
|
|
| |||||
|
|
| December 31 |
| December 31 |
| ||
|
|
|
|
| ||||
|
|
| NIS thousands |
| NIS thousands |
| ||
|
|
|
|
| ||||
|
|
|
|
|
|
| ||
| Investment in shares - cost |
|
| 827,678 |
|
| 827,678 |
|
| Partners account |
|
| 24,223 |
|
| 23,411 |
|
| Share in losses accrued from date the investment is presented on the equity basis (without amortization of unallocated excess of cost accrued from the same date) |
|
| (95,717 | ) |
| (51,427 | ) |
| Amortization of unallocated excess of cost accrued from the date the investment is presented on the equity basis |
|
| (74,495 | ) |
| (44,697 | ) |
| Shareholders’ loan |
|
| 7,072 |
|
| - |
|
| Loss from impairment in value of investment |
|
| (618,852 | ) |
| (618,852 | ) |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| 69,909 |
|
| 136,113 |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2005 |
| ||||
|
|
|
| |||||
|
|
| Original sum |
| Balance |
| ||
|
|
|
|
| ||||
|
|
| NIS thousands |
| NIS thousands |
| ||
|
|
|
|
| ||||
|
|
|
|
|
|
| ||
| Unallocated excess of cost not yet fully amortized |
| 283,083 |
| 223,487 |
| ||
|
|
|
|
| ||||
|
|
| In respect of the amortization of the unallocated excess of cost, see Note 2E(3). |
|
|
| Movement during the year: |
|
|
|
|
|
|
|
|
|
|
|
| Company and Consolidated |
| ||||
|
|
|
| |||||
|
|
| December 31 |
| December 31 |
| ||
|
|
|
|
| ||||
|
|
| NIS thousands |
| NIS thousands |
| ||
|
|
|
|
| ||||
|
|
|
|
|
|
| ||
| Balance at beginning of year |
|
| 136,113 |
|
| 198,102 |
|
| Increase in partners account |
|
| 812 |
|
| 447 |
|
| Shareholders’ loan |
|
| 7,072 |
|
| - |
|
| Equity in losses for the year (without amortization of unallocated excess of cost |
|
| (44,290 | ) |
| (32,638 | ) |
| Amortization of unallocated excess of cost |
|
| (29,798 | ) |
| (29,798 | ) |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| Balance at the end of the year |
|
| 69,909 |
|
| 136,113 |
|
|
|
|
|
| ||||
44
|
Tevel Israel International Communications Ltd. (under stay of proceedings) and its Subsidiaries |
|
Notes to the Financial Statements |
|
|
Note 7 – Fixed Assets | |
| |
| Consolidated: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Buildings |
| Broadcast |
| Cable |
| Converters |
| Motor |
| Furniture, |
| Leasehold |
| Total |
| ||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| NIS thousands |
| ||||||||||||||||||||||
|
|
| |||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at December 31, 2004 |
|
| 4,440 |
|
| 154,631 |
|
| 1,627,387 |
|
| 548,945 |
|
| 1,089 |
|
| 112,487 |
|
| 18,226 |
|
| 2,467,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions |
|
| - |
|
| 14,921 |
|
| 70,566 |
|
| 68,160 |
|
| - |
|
| 6,238 |
|
| 2,505 |
|
| 162,390 |
|
Disposals |
|
| - |
|
| - |
|
| (1,121 | ) |
| (8,429 | ) |
| (544 | ) |
| - |
|
| - |
|
| (10,094 | ) |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at December, 31, 2005 |
|
| 4,440 |
|
| 169,552 |
|
| 1,696,832 |
|
| 608,676 |
|
| 545 |
|
| 118,725 |
|
| 20,731 |
|
| 2,619,501 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation as at December 31, 2004 |
|
| 1,635 |
|
| 115,345 |
|
| 1,068,917 |
|
| 375,977 |
|
| 1,036 |
|
| 95,904 |
|
| 13,947 |
|
| 1,672,761 |
|
Current depreciation |
|
| 132 |
|
| 14,642 |
|
| 114,714 |
|
| 74,609 |
|
| 12 |
|
| 5,836 |
|
| 918 |
|
| 210,863 |
|
Depreciation in respect of disposals |
|
| - |
|
| - |
|
| (562 | ) |
| (8,343 | ) |
| (512 | ) |
| - |
|
| - |
|
| (9,417 | ) |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
as at December 31, 2005 |
|
| 1,767 |
|
| 129,987 |
|
| 1,183,069 |
|
| 442,243 |
|
| 536 |
|
| 101,740 |
|
| 14,865 |
|
| 1,874,207 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for impairment in value ** |
|
| - |
|
| - |
|
| 648 |
|
| 8,530 |
|
| - |
|
| - |
|
| - |
|
| 9,178 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Payments on account of fixed assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value as at December 31, 2005 |
|
| 2,673 |
|
| 39,565 |
|
| 513,115 |
|
| 157,903 |
|
| 9 |
|
| 16,985 |
|
| 5,866 |
|
| 737,831 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value as at December 31, 2004 |
|
| 2,805 |
|
| 39,286 |
|
| 557,822 |
|
| 164,438 |
|
| 53 |
|
| 16,583 |
|
| 4,279 |
|
| 785,266 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
* | Leased land – lands leased from the Israel Lands Authority are stated at the total cost of NIS 1,067 thousand. The lease periods will end between the years 2041 and 2045. The Company has capitalized the lease payments. |
|
|
** | In respect of the provision for impairment in value, see Note 2U. |
45
|
Tevel Israel International Communications Ltd. (under stay of proceedings) and its Subsidiaries |
|
Notes to the Financial Statements |
|
|
Note 7 – Fixed Assets (cont’d) | |
| |
| The Company: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Buildings |
| Broadcast |
| Cable |
| Converters |
| Motor |
| Furniture, |
| Leasehold |
| Total |
| ||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| NIS thousands |
| ||||||||||||||||||||||
|
|
| |||||||||||||||||||||||
|
|
|
| ||||||||||||||||||||||
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at December 31, 2004 |
|
| 4,440 |
|
| 93,881 |
|
| 952,642 |
|
| 398,678 |
|
| 84 |
|
| 77,108 |
|
| 6,597 |
|
| 1,533,430 |
|
Additions |
|
| - |
|
| 5,633 |
|
| 41,690 |
|
| 23,340 |
|
| - |
|
| 3,004 |
|
| 2,331 |
|
| 75,998 |
|
Disposals |
|
| - |
|
| - |
|
| (1,121 | ) |
| (8,429 | ) |
| - |
|
| - |
|
| - |
|
| (9,550 | ) |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at December 31, 2005 |
|
| 4,440 |
|
| 99,514 |
|
| 993,211 |
|
| 413,589 |
|
| 84 |
|
| 80,112 |
|
| 8,928 |
|
| 1,599,878 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation as at December 31, 2004 |
|
| 1,635 |
|
| 69,211 |
|
| 597,000 |
|
| 280,386 |
|
| 80 |
|
| 69,103 |
|
| 6,486 |
|
| 1,023,901 |
|
Current depreciation |
|
| 132 |
|
| 9,148 |
|
| 63,614 |
|
| 46,641 |
|
| 1 |
|
| 3,170 |
|
| 99 |
|
| 122,805 |
|
Depreciation in respect of disposals |
|
| - |
|
| - |
|
| (562 | ) |
| (8,343 | ) |
| - |
|
| - |
|
| - |
|
| (8,905 | ) |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Accumulated depreciation as at December 31, 2005 |
|
| 1,767 |
|
| 78,359 |
|
| 660,052 |
|
| 318,684 |
|
| 81 |
|
| 72,273 |
|
| 6,585 |
|
| 1,137,801 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for impairment in value ** |
|
| - |
|
| - |
|
| 648 |
|
| 6,019 |
|
| - |
|
| - |
|
| - |
|
| 6,667 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Payments on account of fixed assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value as at December 31, 2005 |
|
| 2,673 |
|
| 21,155 |
|
| 332,511 |
|
| 88,886 |
|
| 3 |
|
| 7,839 |
|
| 2,343 |
|
| 457,125 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value as at December 31, 2004 |
|
| 2,805 |
|
| 24,670 |
|
| 354,994 |
|
| 112,273 |
|
| 4 |
|
| 8,005 |
|
| 111 |
|
| 502,862 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
* | Leased land – lands leased from the Israel Lands Authority are stated at the total cost of NIS 1,067 thousand. The lease periods will end between the years 2041 and 2045. The Company has capitalized the lease payments. |
|
|
** | In respect of the provision for impairment in value, see Note 2U. |
46
Note 8 – Other Assets and Deferred Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Company |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| December 31 |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| NIS thousands |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
| Other assets: |
|
|
|
|
|
|
|
|
| ||||
| Unallocated excess of cost in subsidiaries that has not yet been fully amortized (1) |
|
| 191,318 |
|
| 273,313 |
|
| - |
|
| - |
|
| Rights to provide communication services (2) |
|
| 30,041 |
|
| 32,689 |
|
| - |
|
| - |
|
| Investment in movie partnerships (3) |
|
| 841 |
|
| 2,041 |
|
| - |
|
| - |
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Deferred expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gvanim and Gvanim Krayot (4) |
|
| 2,175 |
|
| 3,762 |
|
| - |
|
| - |
|
| Inland Operators License (5) |
|
| 2,434 |
|
| 2,615 |
|
| 2,434 |
|
| - |
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 226,809 |
|
| 314,420 |
|
| 2,434 |
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
| (1) | See Note 2F(4) regarding the amortization of unallocated excess of cost. |
|
|
|
| (2) | See Note 2M(3) regarding rights to provide communication services. |
|
|
|
| (3) | See Note 2M(4) regarding movie partnerships. |
|
|
|
| (4) | See Note 2M(2) regarding deferred expenses. |
|
|
|
| (5) | See Note 2M(5) regarding Inland Operators License. |
Note 9 – Bank Credit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Company |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| December 31 |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| NIS thousands |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
| Revolving credit (2)(3)(4) |
|
| 2,558,754 |
|
| 2,336,162 |
|
| 1,941,044 |
|
| 1,813,474 |
|
| Short-term loans - unlinked with variable interest (1)(5) |
|
| 226,149 |
|
| 73,992 |
|
| 200,600 |
|
| 50,000 |
|
| Short-term loans - linked to the dollar with variable interest (6) |
|
| 25,518 |
|
| 21,211 |
|
| - |
|
| - |
|
| Interest payable |
|
| 4,479 |
|
| 17,152 |
|
| 3,928 |
|
| 14,368 |
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,814,900 |
|
| 2,448,517 |
|
| 2,145,572 |
|
| 1,877,842 |
|
|
|
|
|
|
|
| ||||||||
47
Note 9 – Bank Credit (cont’d)
|
|
|
| (1) | During 2005, the Company received bank finance of NIS 200.6 million to finance its investment arising from business expansion and that of Hot Telecom in the telephony sector (during 2004, NIS 50 million was received from the banks). |
|
|
|
| (2) | In the Stay of Proceedings Period, the Company did not make principal and interest payments to the banks with respect to loans as at the date of the order. The balance of the revolving credit as at December 31, 2005, includes balances of principal and interest in respect of long-term loans which reached their repayment dates based on the original loan terms. During 2005, the Tevel Group paid the banks NIS 144 million as payment of current interest for 2005 (2004 - NIS 170 million). |
|
|
|
| (3) | According to an agreement between the Company and the banks providing finance, in respect of overdrafts the Company will pay interest at the annual rate of Prime + 0.2%. This interest rate will also apply to balances of principal and interest in respect of long-term loans whose repayment date has fallen due, this from the date of repayment according to the original loan agreements. |
|
|
|
| (4) | In respect of payment of these loans according to the creditors arrangement, see note 1B(3). |
|
|
|
| (5) | Short-term loans from banks to a proportionately consolidated company are unlinked and bear annual interest at rates of between 6.85% and 8.85%. |
|
|
|
| (6) | Short-term loan from banks to a proportionately consolidated company are linked to the dollar and bear annual variable interest at the rate of 7.125%. |
|
|
|
| (7) | See Note 16C regarding liens. |
48
Note 10 – Trade Payables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Company |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| December 31 |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| NIS thousands |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
| On open account |
|
| 64,862 |
|
| 120,335 |
|
| 58,712 |
|
| 103,312 |
|
| Checks and notes payable |
|
| 60,343 |
|
| 25,557 |
|
| 54,743 |
|
| 21,032 |
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 125,205 |
|
| 145,892 |
|
| 113,455 |
|
| 124,344 |
|
|
|
|
|
|
|
| ||||||||
| Of which: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts denominated in foreign currency |
|
| 26,375 |
|
| 60,637 |
|
| 26,375 |
|
| 50,206 |
|
|
|
|
|
|
|
| ||||||||
Note 11 – Other Payables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Company |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| December 31 |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| NIS thousands |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
| Accrued expenses |
|
| 101,028 |
|
| 70,666 |
|
| 87,626 |
|
| 64,578 |
|
| Related parties |
|
| 4,762 |
|
| 92 |
|
| 4,558 |
|
| 92 |
|
| Consolidated company |
|
| - |
|
| - |
|
| - |
|
| 1,278 |
|
| Liabilities to employees and other salary related liabilities |
|
| 6,485 |
|
| 9,681 |
|
| 6,153 |
|
| 9,088 |
|
| Liability in respect of benefit granted to employees |
|
| - |
|
| 61 |
|
| - |
|
| 61 |
|
| Provision for vacation pay and for employee vacation expense allowance (1) |
|
| 3,917 |
|
| 4,394 |
|
| 3,917 |
|
| 4,396 |
|
| Government institutions |
|
| 370 |
|
| 893 |
|
| - |
|
| - |
|
| The State of Israel in respect of royalties |
|
| 5,591 |
|
| 7,008 |
|
| 4,131 |
|
| 5,396 |
|
| Deposits from customers |
|
| 2,324 |
|
| 3,112 |
|
| 1,352 |
|
| 2,063 |
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 124,477 |
|
| 95,907 |
|
| 100,737 |
|
| 86,952 |
|
|
|
|
|
|
|
| ||||||||
|
|
|
| (1) | See Note 2S. |
49
Note 12 – Long-Term Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Company |
| |||||||||
|
|
|
|
| |||||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| December 31 |
| |||||
|
|
|
|
|
|
| |||||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||||
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
| |||||
| A. | Composition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| CPI linked: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
| bank loans |
|
| 356,837 |
|
| 491,495 |
|
| 296,901 |
|
| 399,774 |
| |
| Less: current maturities |
|
| 149,459 |
|
| 143,998 |
|
| 115,210 |
|
| 110,645 |
| |
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
| 207,378 |
|
| 347,497 |
|
| 181,691 |
|
| 289,129 |
| |
|
|
|
|
|
|
| |||||||||
|
|
|
| Regarding liens – see Note 17C. | |
|
| |
| (1) | In an agreement between the Company and the financing banks it was provided that the long-term bank loans shall bear interest based on the rates stipulated in the original loan terms. Accordingly, the loans bear annual interest linked to the CPI at rates between 5.6% - 5.87%. |
|
|
|
| (2) | In the Stay of Proceedings Period, the Company did not make principal and interest payments to the banks regarding debts as at the date of the order. The long-term loans which reached their repayment dates based on the original loan terms are presented in the category “bank credit”. These loans are converted into short-term loans renewed every two weeks. Interest in respect of short and long-term loans is added as new short-term loans. The interest payments made every quarter reduce the balances of these short-term loans. |
|
|
|
| (3) | In respect of repayment of these loans according to the arrangement, see Note 1B(3). |
|
|
|
| (4) | Regarding liens - see Note 16C. |
|
|
|
| B. | Repayment schedule based on original repayment schedule (see (2), above): |
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Company |
| ||
|
|
|
|
| ||||
|
|
| December 31 |
| December 31 |
| ||
|
|
|
|
| ||||
|
|
| NIS thousands |
| NIS thousands |
| ||
|
|
|
|
| ||||
|
|
|
|
|
|
| ||
| Second year |
|
| 121,176 |
|
| 95,489 |
|
| Third year |
|
| 33,060 |
|
| 33,060 |
|
| Fourth year |
|
| 34,937 |
|
| 34,937 |
|
| Fifth year |
|
| 18,205 |
|
| 18,205 |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| Total long term loans, net |
|
| 207,378 |
|
| 181,691 |
|
|
|
|
|
| ||||
50
Note 13 – Liabilities for Employee Severance Benefits, Net
|
|
| The Company’s liabilities for severance pay to its employees are covered partly by current deposits in the name of employees in recognized severance pay funds, but mainly by deposits in central severance pay funds. The amounts deposited as mentioned are not under the control or management of the Company and therefore they are not reflected in the balance sheet. Similarly, the liability which they cover is also not reflected. The liabilities included in the balance sheet represent the unfunded portion of the liability for severance pay as stated above. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Company |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| December 31 |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| NIS thousands |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Liabilities in respect of employee severance benefits |
|
| 21,577 |
|
| 23,286 |
|
| 20,763 |
|
| 22,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less – amounts funded |
|
| (19,726 | ) |
| (17,882 | ) |
| (19,726 | ) |
| (17,882 | ) |
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,851 |
|
| 5,404 |
|
| 1,037 |
|
| 4,658 |
|
|
|
|
|
|
|
| ||||||||
Note 14 – Shareholders’ Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated and Company |
| ||||||||
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
| December 31 |
| December 31 |
| ||||
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
| NIS thousands |
| NIS thousands |
| ||||
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loan from shareholders |
|
|
|
|
|
|
|
| 55,132 |
|
| 55,132 |
|
| Interest |
|
|
|
|
|
|
|
| 5,897 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 61,029 |
|
| 55,132 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
| During 2001, one of the Company’s principal shareholders granted it a shareholders’ loan in the amount of $47.5 million. The loan is a dollar loan and bears interest at the variable rate of Libor+2% p.a. | |
|
| |
| Based on the stay of proceedings order, these loans constitute past debts. | |
|
| |
| The creditors arrangement determined that most of the Company’s debt in respect of loans granted by the Company’s principal shareholders (approximately NIS 174 million) would be regarded as if converted into shares and the balance of the debts of approximately NIS 55 million would be repaid after full repayment of the Company’s debt to the secured banks, should any balance remain to be distributed. | |
| ||
| Consequently the Company wrote off the majority of its debts in respect of shareholders loans in the sum of approximately NIS 174 million. The write-off of Company debt to shareholders, together with the write-off of management fees due to shareholders, was credited to a capital reserve in accordance with the Securities Regulations. | |
51
|
|
|
Note 15 – Taxes on Income | ||
| ||
| A. | Taxation under inflationary conditions |
|
|
|
| The Income Tax (Inflationary Adjustments) Law, 1985 (hereinafter - the Law), in effect from 1985, provides for the measurement of business results on a real (net of inflation) basis. The various adjustments required by the Law are intended to adjust for tax purposes the business results, which are in historical terms, to end-of-year NIS according to changes in the CPI. Nevertheless, the adjustment of the historical profit according to the above mentioned law is not always identical to reported income according to the standards of the Israel Accounting Standards Board. As a result, differences arise between reported income for financial reporting purposes and the adjusted income for income tax purposes. | |
|
| |
| B. | Amendments to the Income Tax Ordinance and the land Appreciation Tax Law |
|
|
|
| (1) | 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 – Amendment 140). 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%. |
|
|
|
|
| Current and deferred tax balances as at December 31, 2004 are calculated in accordance with the tax rates specified in Amendment 140 as aforementioned. The consolidated financial statements as at the beginning of 2004 were not affected by this change. |
|
| |
| (2) | On July 25, 2005 the Knesset passed the Law for the Amendment of the Income Tax Ordinance (No. 147 and Temporary Order) – 2005 (hereinafter – Amendment 147). The Amendment provides for a gradual reduction in the company tax rate in the following manner: in 2006 the tax rate will be 31%, in 2007 the tax rate will be 29%, in 2008 the tax rate will be 27%, in 2009 the tax rate will be 26% and from 2010 onward the tax rate will be 25%. Furthermore, as from 2010, upon reduction of the company tax rate to 25%, real capital gains will be subject to tax of 25%. |
|
|
|
|
| Current and deferred tax balances as at December 31, 2005 are calculated in accordance with the new tax rates specified in Amendment 147 as aforementioned. The effect of the change on the consolidated financial statements as at the beginning of 2005 is not material. |
52
|
|
|
Note 15 – Taxes on Income | ||
|
|
|
| C. | Theoretical tax |
|
|
|
| Consolidated | |
|
| |
| Below is reconciliation between the theoretical tax on pre-tax inflation adjusted loss and the tax expense presented in the statement of income: | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the year ended |
| |||||||
|
|
|
| ||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| |||
|
|
|
|
|
| ||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Statutory tax rate |
|
| 34 | % |
| 35 | % |
| 36 | % |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Pre-tax loss as reported in the statement of income |
|
| (345,683 | ) |
| (28,307 | ) |
| (408,239 | ) |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Theoretical tax on above amount per tax rate applicable to the Company |
|
| (117,532 | ) |
| (9,907 | ) |
| (146,966 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| Increase (decrease) in tax liability resulting from: |
|
|
|
|
|
|
|
|
|
|
| Differences in definition of capital and non-monetary assets for tax purposes |
|
| 25,511 |
|
| 16,224 |
|
| 2,259 |
|
| Differences in depreciation and amortization |
|
| (8,246 | ) |
| 1,474 |
|
| 884 |
|
| Taxes in respect of prior years |
|
| 7,256 |
|
| 1,638 |
|
| 5,000 |
|
| Non-deductible expenses |
|
| 499 |
|
| 621 |
|
| 29,014 |
|
| Reversal of expenses adjusted in prior years |
|
| - |
|
| (70,113 | ) |
| - |
|
| Amortization of unallocated excess of cost |
|
| 27,958 |
|
| 29,225 |
|
| 29,748 |
|
| Timing differences in respect of which deferred taxes were not created |
|
| (4,876 | ) |
| (17,239 | ) |
| (2,941 | ) |
| Capital (gain) loss |
|
| 6 |
|
| (433 | ) |
| 89 |
|
| Cancellation of deferred taxes recorded in prior years |
|
| - |
|
| - |
|
| (904 | ) |
| Utilization of tax benefits and losses for which deferred tax was not created |
|
| (27 | ) |
| - |
|
| (3,918 | ) |
| Company’s share in partnership losses |
|
| (9,117 | ) |
| (11,423 | ) |
| (7,352 | ) |
| Losses in respect of which deferred taxes were not created |
|
| 85,824 |
|
| 61,571 |
|
| 100,829 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Tax expense per statement of income |
|
| 7,256 |
|
| 1,638 |
|
| 5,742 |
|
|
|
|
|
|
| ||||||
53
|
|
|
Note 15 – Taxes on Income (cont’d) | ||
|
|
|
| C. | Theoretical tax (cont’d) |
|
|
|
| The Company | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the year ended |
| |||||||
|
|
|
| ||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| |||
|
|
|
|
|
| ||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Statutory tax rate |
|
| 34 | % |
| 35 | % |
| 36 | % |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Pre-tax profit (loss) as reported in the statement of income |
|
| (159,199 | ) |
| 161,534 |
|
| (226,124 | ) |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Theoretical tax on above amount per tax rate applicable to the Company |
|
| (54,128 | ) |
| 56,537 |
|
| (81,404 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| Increase (decrease) in tax liability resulting from: |
|
|
|
|
|
|
|
|
|
|
| Differences in definition of capital and non-monetary assets for tax purposes |
|
| 18,852 |
|
| 13,104 |
|
| 2,096 |
|
| Differences in depreciation and amortization |
|
| (5,207 | ) |
| 2,620 |
|
| (659 | ) |
| Non-deductible expenses |
|
| 260 |
|
| 322 |
|
| 28,624 |
|
| Reversal of expenses adjusted in prior years |
|
| - |
|
| (70,113 | ) |
| - |
|
| Timing differences in respect of which deferred taxes were not created |
|
| (3,874 | ) |
| (17,462 | ) |
| (2,941 | ) |
| Capital (gain) loss |
|
| 6 |
|
| (433 | ) |
| 37 |
|
| Taxes in respect of prior years |
|
| 6,564 |
|
| 520 |
|
| - |
|
| Company’s share in partnership losses in respect of |
|
| (12,718 | ) |
| (12,757 | ) |
| (13,648 | ) |
| Losses in respect of which deferred taxes were not created |
|
| 56,809 |
|
| 28,182 |
|
| 67,895 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Tax expense per statement of income |
|
| 6,564 |
|
| 520 |
|
| - |
|
|
|
|
|
|
| ||||||
54
Note 15 – Taxes on Income (cont’d)
|
|
|
| D. | Tax assessments |
|
|
|
| On September 11, 2003 the Company signed a compromise agreement with the tax authorities in respect of assessments up to and including the 2001 tax year. In accordance with the agreement the Company paid income tax of NIS 10 million and the carried forward losses of the Company for tax purposes were reduced by the sum of NIS 250 million. | |
|
|
|
| On the same day Gvanim signed a compromise agreement with the tax authorities in respect of assessments up to and including the 2000 tax year. In accordance with the agreement Gvanim paid income tax of NIS 5 million and its losses for tax purposes as at December 31, 2000 were annulled. | |
|
|
|
| The tax payments are net, after taking into account the effects of the creditors arrangement on these past debts. | |
|
|
|
| The consolidated company Hot Vision has received final tax assessments up to and including the 2001 tax year. | |
|
|
|
| E. | Tax losses to be carried forward |
|
|
|
| As at the balance sheet date, there are tax loss carry-forwards in the amount of NIS 685 million in the Company’s financial statements and of NIS 1,181 million in the consolidated financial statements. The Company’s losses for tax purposes include the Company’s share in the losses of the Golden Channels partnership. | |
|
|
|
| The Company did not create deferred tax assets in respect of these accumulated losses. | |
|
|
|
| F. | Taxes on income included in the statement of income |
|
|
|
| Consolidated | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the year ended |
| |||||||
|
|
|
| ||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| |||
|
|
|
|
|
| ||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
|
| ||||||
| Current taxes |
|
| - |
|
| - |
|
| 742 |
|
| Taxes in respect of prior years |
|
| 7,256 |
|
| 1,638 |
|
| 5,000 |
|
|
|
|
|
|
| ||||||
|
|
|
| 7,256 |
|
| 1,638 |
|
| 5,742 |
|
|
|
|
|
|
| ||||||
The Company
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| For the year ended |
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| ||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| |||
|
|
|
|
|
| ||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
|
| ||||||
| Current taxes |
|
| - |
|
| - |
|
| - |
|
| Taxes in respect of prior years |
|
| 6,564 |
|
| 520 |
|
| - |
|
|
|
|
|
|
| ||||||
|
|
|
| 6,564 |
|
| 520 |
|
| - |
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|
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|
|
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| ||||||
55
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Note 16 – Claims, Contingent Liabilities, Commitments and Liens | |||
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| A. | Claims | |
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| 1. | Under the creditors’ arrangement (see Note 1B(3)), most of the claims filed against the Tevel Group, the grounds for which preceded the issue of the Stay of Proceedings Order, were erased. These claims can be considered terminated claims and the Company has informed the relevant courts of this termination (hereinafter – “terminated claims”). | |
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| |
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| Claims that were filed against the Trustee’s ruling concerning the proof of debt are still being clarified (hereinafter – “on-going claims”), and financial liabilities in respect thereof, if and when they are prescribed, will be repaid as part of the creditors’ arrangement. The principal on-going claim is the claim filed by the Warner Entertainment Company (hereinafter – “Warner”) against the Company (see Note 16A(3)(c)). | |
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| In addition, the plaintiffs in the claim filed by AGICOA against the Company (see Note 16A(3)(b)) have applied to the court against notice issued by the Company that their claim is a terminated claim. | |
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| 2. | Upon completion of the Golden Channels transaction (see Note 6D(3)), the Company was exposed to liabilities, to contingent liabilities and to claims by Golden Channels. Since Golden Channels is a general partnership, the Company’s exposure to Golden Channels’ liabilities is not limited to its share of the partnership. | |
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| 3. | The following details the principal claims facing the Company and its investee companies: | |
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| (A) | On September 8, 1998, Charlton filed a claim against the cable companies, including the Company and Golden Channels, for payment of compensation in the amount of NIS 30.4 million which had been made available for the purpose of a fee in the sum of NIS 7.6 million, in respect of a breach of agreement and unjust enrichment, in the matter of broadcasting rights for the Spanish football league games. |
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| In the matter of Tevel, an application was filed with the court to suspend legal proceedings against it in accordance with the creditors’ arrangement. Based on the opinion of its legal counsel, Golden Channels’ management is of the opinion that the outcome and implications of the claim cannot be estimated, so that no provision was made in Golden Channels’ financial statements. |
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| (B) | On March 28, 2000, The Association for the Collective Management of Audiovisual Works (hereinafter – AGICOA) filed a claim with the Tel-Aviv – Jaffa District Court against all the cable companies in Israel, including the Tevel Group and Golden Channels Group. |
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| The plaintiff claims an alleged violation of the copyrights of producers of programs that are received in foreign countries by satellite, by the broadcasting of these programs on their secondary channels through the cable network without the producers’ permission. |
56
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Note 16 – Claims, Contingent Liabilities, Commitments and Liens (cont’d) | |||
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| A. | Claims (cont’d) | |
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| (B) | (cont’d) |
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| The plaintiff values the claim at a minimum of $171 million, however for purposes of court fees stated it at the initial amount of $20 million, while reserving the right to increase the amount of the claim. Tevel and Golden Channels reject all the plaintiff’s claims. |
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| The cable companies contend that the plaintiff is not entitled to file a claim in Israel in view of the Anti-trust laws, and that the time period on which the plaintiff bases its claim deviates, at least partially, from that prescribed in the law. The cable companies further contend that the sums claimed from them are exaggerated and unfounded. |
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| Tevel’s share of this claim is to be erased as part of the creditors’ arrangement, although the court has granted AGICOA the possibility of filing a debt claim to the Trustee in respect of statutory compensation only. |
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| Accordingly, AGICOA filed a debt claim to the Trustee in the amount of NIS 30 million. On January 10, 2005, the Trustee submitted his decision whereby the debt claim is cleared outright. On February 22, 2005 AGICOA appealed against the Trustee’s decision. The District Court decided to reject the appeal filed against this decision. On December 13, 2005, AGICOA appealed to the Supreme Court. On January 19, 2006 the case was summed up and it was determined that AGICOA must submit a summary of its allegations by July 11, 2006 and that the respondents to the appeal must submit a summary of their response by September 11, 2006. A final hearing of the oral arguments was set for November 15, 2006. |
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| Parallel to the appeal, AGICOA filed an application with the District Court to postpone the allocation of dividends by the Trustee until a decision is made on its appeal. On November 29, 2005, the Trustee submitted his response objecting to this application and on February 8, 2006 the Receiver submitted its response to this request. On February 13, 2006, AGICOA asked to respond to the Receiver’s response, and this request was accepted by the Court. |
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| AGICOA has yet to respond to the Receiver’s reply, and no decision has yet been made regarding the request to postpone the dividend allocation. |
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| On the subject of Golden Channels, since the Company and its legal advisors believe that the Group has a strong, valid case, no provision was made in the financial statements. |
57
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Note 16 – Claims, Contingent Liabilities, Commitments and Liens (cont’d) | |||
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| A. | Claims (cont’d) | |
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| (C) | On November 27, 2002, Warner Entertainment Company (hereinafter – “Warner”) filed a claim in a Californian court against the Company wherein it requested, among other things, cash compensation, in the amount of $17 million (hereinafter - Warner’s California Claim), based on the contention that the agreement, dated July 13, 1999, pursuant to which the Company (and through it all the cable companies) acquired movie broadcasting rights from Warner television, was breached by the Company and as a result was voided by Warner. |
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| Subsequent to the filing of Warner’s California Claim and other action taken by Warner, on December 5, 2002 the Trustee applied to the Tel Aviv District Court, asking the Court to instruct Warner to take any necessary action to suspend the California claim, and this, in part, in view of the Stay of Proceedings Order in the matter of Tevel (which prohibits the initiation of new proceedings against Tevel without obtaining permission from the Tel Aviv District Court) and in view of the proof of debt submitted to the Trustee by Warner on the same grounds. |
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| On February 10, 2003, the Court ruled on the Trustee’s request. The Court rejected Warner’s position and accepted the Trustee’s request. The Court ruled, inter alia, that Warner had initiated unlawful proceedings in the US, and in circumstances that cast doubts on its good faith, and that such a move shall have no force and shall be unenforceable within the boundaries of the State of Israel. On March 25, 2003, the Trustee issued his decision in connection with Warner’s proof of debt, rejecting most of the proof of debt. On April 24, 2003, Warner appealed the Trustee’s decision regarding the proof of debt at the District Court, and pursuant to decisions granted on the subject of the appeal, on June 4, 2003, Warner filed a revised appeal against the Trustee’s decision concerning the proof of debt. |
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| On October 21, 2003, the Supreme Court rejected Warner’s appeal against the Court’s decision from February 10, 2003, subject to the right of Warner and the Trustee to present their arguments on the subject of the law to be applied to clarification of the debt within the context of Warner’s appeal against the Trustee’s decision on the proof of debt. The Court also ordered Warner to file a revised appeal containing the argument that Californian law shall apply to clarification of the claim. The revised appeal was filed and the Trustee subsequently filed his response to the appeal. |
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| On September 1, 2004, the District Court rejected the revised appeal on the proof of debt. In view of the irregular circumstances and the number of hearings, the District Court ruled that Warner shall pay Tevel costs and lawyers’ fees in the sum of NIS 100,000 plus VAT. On October 5, 2004, Warner appealed to the Supreme Court and also filed an application with the District Court to place a stay of execution on the ruling from September 1, 2004. On February 9, 2005 the Supreme Court ruled that although the chances of Warner’s appeal succeeding were remote, it would place a stay on execution of the ruling issued by the District Court on September 1, 2004 until a decision is made by the Supreme Court. The date for the Supreme Court hearing was set for October 10, 2006. As a direct result, the sum of the proceeds from the realization of Netvision and Globcall is to be retained until final clarification of the claim and will not be allocated among the creditors. The financial statements therefore contain no provision for this claim. See Note 1B(3). |
58
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Note 16 – Claims, Contingent Liabilities, Commitments and Liens (cont’d) | |||
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| A. | Claims (cont’d) | |
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| (D) | On December 9, 2002, Warner filed for compensation against Golden Channels at the Los Angeles District Court, California in the US in respect of losses incurred by Warner allegedly as a result of a breach of the agreements for the purchase of broadcasting rights for television series (hereinafter – “the agreements”), as well as a claim for declaratory relief, as specified in the statement of claim. |
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| On January 17, 2003, a revised statement of claim was filed in which context Warner asked the Court, among other things, to oblige Golden Channels to pay it compensation of no less than $16 million plus costs that also include minimum payments determined in the contract between the parties. Furthermore, declarative remedies and a temporary injunction were also applied for. |
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| Within the context of the testimony hearings held in January and February 2004, Warner applied to the Court requesting compensation in respect of losses allegedly incurred in the sum of $25 million. At the same time, Golden Channels filed an application to the Court requesting a refund of costs and a request for compensation in the amount of $3 million. |
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| On February 14, 2003, Golden Channels filed a statement of defense and a counter claim. The counter claim contended that it was Warner who had violated the agreements, unlawfully forfeited the bank guarantees provided by Golden Channels in the sum of $5 million, and asked to refrain from broadcasting programs which had already been paid for. In its counter claim, Golden Channels asked the Court to order payment of compensation, to grant declarative relief and a mandatory injunction as well as temporary injunctions against Warner. |
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| On September 29, 2004, the California District Court ruled that Golden Channels must pay the plaintiff $19.3 million. The total cost to the Company, including legal costs, may reach $21.7 million. |
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| On March 7, 2005, Golden Channels appealed against the ruling at the Appeals Court. As at the date of the financial statements, no decision on this appeal has been made. |
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| In September 2004, the California District Court ruled that the Golden Channels partnership must pay Warner $21.7 million. The total cost including legal costs, may reach $22.5 million. Hot Vision (formerly I.C.P.), which is responsible for this claim, made provision of $2 million in its books in 2003. Under the indemnity agreement signed during 2003 between Hot Vision (formerly I.C.P.) and the cable companies (hereinafter – the Agreement) whereby the cable companies agree that they bear a mutual obligation to share the costs of the aforementioned legal proceedings as well as the costs of conducting them, each of the cable companies made provision in its books according to its share. Tevel recorded a provision of NIS 32 million. The provision was included as part of other costs, net, in the profit and loss statement. Golden Channels recorded provision of NIS 27 million. |
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| Hot Vision reserves the right to charge the satellite company its relative share of the costs of this claim. |
59
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Note 16 – Claims, Contingent Liabilities, Commitments and Liens (cont’d) | |||
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| A. | Claims (cont’d) | |
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| (E) | On December 31 2003, Eshkolot – Israeli Artists Society for Performers’ Rights Ltd. (hereinafter – “Eshkolot”) filed a claim at the Tel Aviv District Court against the cable companies in Israel (including the Tevel and Golden Channels Groups) in an effort to instruct and declare that Eshkolot is entitled to royalties from the cable companies. |
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| Eshkolot alleges that as of January 1, 2003, the cable companies have broadcast programs that use the rights of Israel’s performing artists, owned by Eshkolot. This, according to Eshkolot, without its permission or consent and without the cable companies paying any royalties for such use. |
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| On May 11, 2004, with the parties’ consent, Eshkolot filed an application to erase the proceedings from the court in an effort to transfer the case to arbitration. Moreover, the application for a temporary injunction was similarly removed and will not be heard as part of the arbitration. On June 25, 2004, Eshkolot submitted a statement of claim to the arbitrator. The claim is in the amount of NIS 8,500,000 against all the cable companies for the year 2003, and a similar sum plus 10% for each of the years 2004-2006. The total claim is NIS 36,550,000. At the same time, Eshkolot and the cable companies signed an interim agreement whereby the cable companies transferred to Eshkolot NIS 3,000,000 plus VAT (Tevel’s share was NIS 971,000 and Golden Channels’ share was NIS 1,231,000 plus VAT). This sum and an additional sum of NIS 479,000 that was transferred to Eshkolot in 2003 by all the cable companies will be on account of the royalties that the cable companies owe Eshkolot as of January 1, 2003. This payment should not be deemed an admission by any of the parties regarding the amount of royalties that the cable companies must pay Eshkolot. |
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| On January 30, 2005, Eshkolot applied to the arbitrator, asking him to instruct the cable companies to pay it an interim payment of NIS 11,500,000 for the years 2003-2005 (in addition to the NIS 3,480,000 that had been paid to it as an interim payment immediately prior to the onset of the arbitration process). On October 31, 2005 the arbitrator issued its decision rejecting the request for an interim payment, ruling that against the background of the factual and judicial disagreements between the parties on the subject of the dispute, the parties must wait until the substance of the dispute is fully clarified. |
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| Evidence hearings in the principal case were concluded in March 2006. |
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| The ruling is therefore expected to be given in the coming months. |
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| Considering all the aforementioned, the Company’s management, the management of Golden Channels and their legal counsel are, at this stage, unable to estimate the chances of the claim and they therefore estimate that the provision made in their books is adequate. |
60
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Note 16 – Claims, Contingent Liabilities, Commitments and Liens (cont’d) | |||
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| A. | Claims (cont’d) | |
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| (F) | At the end of 2002, an agreement between Israel’s cable companies, including the Tevel and Golden Channels Groups, and the Israel Federation of Phonograms & Cassettes (IFPI) (hereinafter – “IFPI”) terminated. Upon termination of the agreement, the parties negotiated to renew or extend the agreement for an additional period. In this context, the parties reached an interim agreement whereby the cable companies would pay IFPI on account for 2003 an aggregate of 75% of the sum paid to IFPI in 2002. On November 2, 2004, the last mediating session was held at which the mediator submitted to the parties a proposal aimed at arranging the users’ license for the period 2003-2008. The cable companies found this proposal to be unreasonable and therefore refused to accede. On December 13, 2004, the IFPI informed the cable companies that since no agreement had been reached, it viewed the use of its repertoire as a violation of its rights and that it intended to take legal steps to prevent such violation. On December 27, 2004 the IFPI sent the cable companies a request for payment in the sum of NIS 24 million (plus VAT). Pursuant to sending this request, the IFPI is entitled to initiate legal proceedings against the cable companies should they refuse to accept it. The cable companies responded on January 23, 2005, noting the unreasonableness of the request and suggested payment on account of the full amount paid in 2002. On January 30, 2005, the IFPI replied, rejecting the proposed payment. On April 11, 2005, the IFPI filed a statement of claim against the three cable companies as well as a request to oblige the respondents to pay temporary license fees. In the statement of claim, IFPI claims relief by way of a permanent injunction (cash relief was not requested), prohibiting the cable companies from making any use of the music included in the IFPI’s repertoire prior to the parties reaching agreement. The IFPI further announced that it would be willing to concede the claim for a permanent injunction if a users’ license fee is paid at the rate it demanded or at any other rate set by the Court. The IFPI is of the opinion that the cable companies have violated its rights as of March 15, 2004, due to the fact that the users’ license agreements issued to the cable companies have terminated. The plaintiff announced that it would be willing for the court to issue a compromise ruling and it also consented in advance to refer the process to arbitration. |
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| In an application for interim payment – the IFPI requested that the cable companies pay it temporary license fees until a ruling is issued on the principal suit. The plaintiff presented two key models for calculating the license fee: (A) payment of annual royalties at a rate of between 0.26% - 0.3% of the cable companies’ revenues (plus VAT); (B) payment of annual royalties at a fixed amount per subscriber (plus VAT). The IFPI further alleges that the royalties vary taking into account the number of subscribers connected to the sound channels, due to the fact that these channels use its rights on a large scale. |
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| In their response to the request for interim payments, the cable companies claim that this is a request for temporary relief based on a lack of good faith and considerable delay, since as early as 2003 the cable companies paid the applicant interim payments on account of 2003, and in 2004-2005 the cable companies sought to continue to pay the applicant interim payments for those years, but the applicant refused to accept them, instead applying to the courts unnecessarily. |
61
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Note 16 – Claims, Contingent Liabilities, Commitments and Liens (cont’d) | |||
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| A. | Claims (cont’d) | |
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| (F) | (cont’d) |
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| The cable companies further contend that the application is extremely unreasonable, as the sum specified in the claim is eleven times higher than the highest sum of agreed royalties paid to the applicant during the years of the agreement. No satisfactory explanation was given for this dramatic surge in the requested rate of royalties, all the more so as part of an application for temporary relief only. In this instance, the cable companies contend that temporary relief may only be requested up to the sum of the agreement paid to IFPI during the years in which there was a valid agreement with it (in the amount of $200,000). Relief in the aforementioned amount preserves the status quo, which the applicants were willing, of their own initiative, to pay the IFPI without the need for legal proceedings. |
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| On July 6, 2005 a hearing on the request for interim payment took place. At the end of the hearing, the court issued its ruling whereby the temporary license fee would, at this stage, be US $380,000 (plus VAT), per annum. The court further ruled that in this context, the cable companies would be granted a user’s license on a scale currently applicable. |
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| The aforementioned amount shall be paid for the years 2003 onwards, until the court rules otherwise (it should be noted that in 2003, the cable companies paid IFPI an advance payment of $150,000 – plus VAT). This advance should therefore be deducted from the sum total set forth in the ruling from July 6, 2005 for 2003). Alongside this ruling, the court instructed that documents be disclosed by both parties within 30 days. The parties are currently completing the disclosure procedures. |
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| On January 11, 2006 a further pre-trial took place, in which context additional arrangements were made concerning completion of the documents disclosure process by the parties, including third parties. The date for submitting declarations of evidence and opinions for the plaintiff was set for March 20, 2006. The submittal date for the respondent was set for May 1, 2006. A further pre-hearing took place on March 22, 2006. |
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| In view of the early stages of the process, the Company and its legal counsel are at present unable to estimate the chances of the claim. The Company operates in accordance with an interim arrangement issued on July 6, 2005. |
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| (G) | In June 2004 Bezeq, the Israel Telecommunications Corp. Ltd. (hereinafter – “Bezeq”), filed an application to the High Court of Justice against the Minister of Communications and others against Article 10 (temporary order) of the articles to amend Amendment no. 3, 2004 of the Communications Regulations (Bezeq and broadcasts) (payment for reciprocal connections), 5764-2004, that prescribes a temporary arrangement whereby no charge will be made in respect of reciprocal connections between Bezeq and Hot Telecom for a limited period as determined in the Article. |
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| Hot Telecom’s legal counsel is unable, at this stage, to estimate the chances of the application. Consequently no provision was made in Hot Telecom’s books. |
62
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Note 16 – Claims, Contingent Liabilities, Commitments and Liens (cont’d) | |||
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| A. | Claims (cont’d) | |
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| (H) | On November 15, 2005, Sigma Plus filed a claim against Tevel in the amount of NIS 562,000. |
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| The plaintiff is a company that markets advertising time in movie theaters. The claim for payment is in respect of 30-second advertising clips on the cinema screens. The defense and a third-party statement against Muse Media, which mediated between Tevel and the plaintiff, were submitted on January 23, 2006. A pre-trial was set for June 5, 2006. |
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| (I) | On March 27, 2003 an application was filed at the Tel Aviv District Court to approve a class action in the amount of NIS 10,000,00 against the Golden Channels partnership (hereinafter - “Golden Channels”). Grounds for the claim are the unlawful collection of payment for an additional channel, in the amount of NIS 11 per month. |
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| On June 15, 2003, Golden Channels filed an application to the effect that there is no legislation that allows a class action of this nature to be filed, and that even regarding the substance of the issue, the applicant has no grounds for his case. During the course of 2005 the parties reached a compromise approved by the court. Under the agreement, any customers who joined Golden Channels’ digital service between July 2001 and June 2002, in which context subscribers received additional channels free while they were still subscribers to Golden Channels, are entitled to an additional channel free of charge for a period of two years, in aggregate, from July 2002 onwards. Under the agreement, Golden Channels is required to pay six index-linked payments of NIS 80,000 each, of which one payment has already been made. |
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| Golden Channels published an advertisement in the press and sent individual notification to all those who had enrolled during the campaign in connection with the compromise agreement. |
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| On January 8, 2006, an application was filed to approve a class action against Idan, a subsidiary of Golden Channels & Co. (hereinafter – “Idan”), in the amount of NIS 23.7 million, in respect of letters sent to Idan’s subscribers informing them that they are entitled to a bonus promised to Golden Channels’ subscribers. After some time, letters were sent to Idan subscribers informing them that this was an error and that they are not entitled to the aforementioned bonus. |
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| Based on the opinion of its legal counsel, Idan’s management believes at this stage that the chances of the claim cannot be estimated so that no provision was made in the financial statements. |
63
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Note 16 – Claims, Contingent Liabilities, Commitments and Liens (cont’d) | |||
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| A. | Claims (cont’d) | |
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| (J) | In September 2003, an application was filed at the Tel Aviv District Court to approve a class action against Golden Channels & Co. (hereinafter – “Golden Channels”) in the amount of NIS 10.5 million. The grounds for the claim is the failure to comply with the terms of the license obliging Golden Channels to provide the public with a toll-free number (1-800) and the failure to publicize the number after making it available to the public. |
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| Based on the opinion of its legal counsel, the chances of the claim and its implications for Golden Channels cannot be estimated, so that no provision was made in the financial statements. |
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| (K) | On August 28, 2002, an application was filed at the Tel Aviv District Court to approve a class action against Golden Channels & Co (hereinafter – “Golden Channels”) and Matav, estimated at NIS 310,000,000 (Golden Channels’ share of the claim is estimated at NIS 170,000,000). The claim contends that they failed to comply with their obligation pursuant to the terms of their franchises to supply cable services in peripheral areas six years after the granting of the concession. Golden Channels and Matav filed a request to reject the approval application outright. The court ruled that the request to reject the suit outright will be heard together with the actual request for approval. Golden Channels and Matav filed a request to reject the approval application outright. The court ruled that the application for outright rejection will be heard together with the actual request for approval. Golden Channels and Matav submitted a response to the request for approval. As at the date of the financial statements the court had not yet ruled on the case. |
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| Based on the opinion of its legal counsel, management believes that it is impossible to estimate the chances of the claim, so that no provision was made in the financial statements. |
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| (L) | On August 2, 2001 the High Court passed a declarative judgment which was upheld in a further hearing on June 16, 2004 in the matter of Tele-Event’s claim against the cable television companies. The judgment determined that the transmission of broadcasts through sub-broadcasting could also be regarded as a branch of copyright, if third party rights are included as part of those transferred broadcasts, and those third parties had not authorized broadcast in Israel. On August 25, 2004 a meeting was held between the parties at which meeting Tele-Event raised a demand for compensation from the cable television companies in the sum of approximately NIS 4,603 thousand (the group’s and partnership’s share in the claim is of NIS 1,392 thousand and NIS 903 thousand, respectively). Since that date until the date of authorization of these financial statements there has been no real development in this matter. |
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| In management’s opinion based on the opinion of its legal counsel, the quality of the contention or reasonability of the compensations cannot be estimated, or the chances of a monetary claim were such claim to be filed. Consequently, no provision has been made in this respect in the financial statements. |
64
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Note 16 – Claims, Contingent Liabilities, Commitments and Liens (cont’d) | |||
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| A. | Claims (cont’d) | |
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| (M) | During 2001, a claim was filed against the Golden Channels partnership (hereinafter – “the partnership”) in the Tel Aviv District Court in the sum of NIS 5,050 thousand by the company operating the cable television network in Givat Ze’ev, Jerusalem. The core of the claim is the claimant’s demand that its agreement with the partnership for the supply of cable television services (hereinafter – “the agreement”) be cancelled or alternatively that it should be declared that the partnership is in fundamental breach of the contract and that consequently the claimant is entitled to cancel it, or, alternatively, that it is entitled to acquire the signal from any other source and is also entitled to further monetary relief. |
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| During March 2003, the claimant lodged a request for a temporary injunction which would prevent the partnership from supplying certain digital services, or the background of the monetary disputes between the parties. The parties reached an interim arrangement until the commencement of arbitration proceedings. From January 2005, negotiations are continuing between the parties outside the courts and, in conjunction, various regulatory matters are being investigated with the district administrator and the Givat Ze’ev Council. A court hearing has been set for May 18, 2006. |
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| In the opinion of the partnership’s management, based on legal counsel’s opinion, the results of the claim and its effect on the partnership cannot be estimated. Consequently, no provision in respect of this matter has been included in the financial statements. |
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|
|
| (N) | A number of additional claims have been filed in various matters against the Golden Channels group, in respect of which some of the results cannot be estimated and others total NIS 9.3 million. In the opinion of the partnerships management no loss will be suffered by the group in respect of these claims and consequently no provisions have been made. |
|
|
|
|
| B. | Commitments and contingent liabilities | |
|
|
|
|
| 1) | Under the terms of the broadcasting licenses, Tevel and the Golden Channels Group are obliged to pay royalties at the rate of 4% for 2003 and 3.5% from 2004 onwards, of the total income included in this calculation based on the conditions of the license and the Bezeq Regulations. These royalties’ rates are effective after a change was approved in the Bezeq Regulations (concessionaires) on June 16, 2003, reducing the royalty rate retroactively as of January 1, 2002. | |
|
|
|
|
|
| As a result of this retroactive change, in 2003 the Company received refunds by way of a set off that was included as part of other income. | |
|
|
|
|
| 2) | Hot Telecom is required to pay royalties from 2004 onwards, calculated at a rate of 3.5% of total income resulting from the rendering of Bezeq services, under the LTO license it was granted. | |
65
|
|
|
Note 16 – Claims, Contingent Liabilities, Commitments and Liens (cont’d) | ||
|
|
|
| B. | Commitments and contingent liabilities (cont’d) |
|
|
|
| 3) | On June 17, 2002, the Council, under the powers invested in it in accordance with the Communications Law, determined that the cable companies must invest in domestic TV productions during the period 2003-2004 at least 8% of their revenues from subscription fees in respect of cable broadcasts during that period. |
|
|
|
| 4) | On July 11, 2001, an agreement was signed between the cable companies and the State (hereinafter – “the Royalties Agreement”) which provides for payment of the consideration to the State for the rights of all the cable companies, including recognition of their proprietary right in the cable infrastructure in the areas of their franchises and also provides the right to operate the cables infrastructure even after the end of the franchise period, transfer of cable television broadcasts and Bezeq services. |
|
|
|
|
| Consideration was set as a gradual rate of income and payable over 12 years as of January 1, 2003. |
|
|
|
| 5) | In 1990, the Company signed an agreement with Bezeq Israel Telecommunications Company Ltd. (hereinafter – “Bezeq”), effective from January 1, 1990, for the construction, installation, and maintenance of the cable network. The operating equipment and the cables for establishing the network are supplied by the Company. The cable network is installed on the Bezeq infrastructure and is owned by the Company. |
|
|
|
|
| In consideration for the installation and maintenance of the network, the Company pays Bezeq CPI-linked quarterly payments over a 12-year period, commencing from the construction date of each section of the cable network. Following the 12-year period (48 quarterly installments) from the delivery of each section of the network to the Company, the Company will pay quarterly payments for that section reduced by 65% in respect of maintenance services only. A similar agreement was signed between Golden Channels and Bezeq. |
|
|
|
| 6) | On July 9, 2004, Hot Telecom signed an agreement with an Israeli corporation belonging to the global Lucent Group to establish a telephony network on the cable network. |
|
|
|
|
| This is an agreement encompassing 100,000 subscribers, where in the initial stage orders were issued to establish a network for 36,000 telephony subscribers for an estimated payment amounting to $16 million. |
|
|
|
|
| As at December 31, 2005, the guarantees provided by the partnership for the benefit of supplier amounted to $116,000. |
|
|
|
| 7) | In connection with investment liabilities by Hot Telecom towards the Commissioner and the partnership’s right to use the cable network, see Note 1D. |
|
|
|
| 8) | The LTO license granted to Hot Telecom includes, among other things, a license to render telephony services, access to internet providers, data communications and digital transmission. |
|
|
|
|
| As at the date of approving the financial statements, some of the internet activity had not been transferred to Hot Telecom and it is performed by the previous licensees (with regard to the Tevel Group, this refers to the LTO partnership) who provided this service prior to the granting of the LTO license. |
66
|
|
|
Note 16 – Claims, Contingent Liabilities, Commitments and Liens (cont’d) | ||
|
|
|
| B. | Commitments and contingent liabilities (cont’d) |
|
|
|
|
| On March 16, 2005, the LTO license that had been granted to Hot Telecom was amended, allowing Hot Telecom to enter into agreement with subscribers, including subscribers of the previous licensees, for the purpose of providing access services to internet providers through the previous licensees, and who view the rendering of the service as a service provided by Hot Telecom, until the date on which the cable companies complete their merger. |
|
|
|
| 9) | By virtue of the LTO license, Hot Telecom has the sole right to use, operate, develop, and improve the cable network as well as to perform any other action in accordance with the LTO license and by law. The cable companies have not yet determined a mechanism for charging Hot Telecom a user fee and maintenance fee for the network. At this stage, Hot Telecom’s management is unable to estimate the scope and date of the charge and these financial statements contain no costs for the network’s user fee and maintenance fee. |
|
|
|
| 10) | The Company signed contracts with leading movie distribution companies. One of the contracts ends on September 30, 2005 whereas the contractual undertakings to the second movie supplier under this contract aggregate $30 million. |
|
|
|
|
| In connection with claims filed by a movie supplier against the Company and Golden Channels, see Note 16A(3)(d). |
|
|
|
| 11) | The Company entered into agreement with an affiliated company in connection with the provision of content that it purchased (movie rights) to be used by the affiliated company for the purpose of running the shared channels. |
|
|
|
|
| Under the agreement, the affiliated company will pay the Company all the direct and indirect purchase costs in respect of the movie rights. |
|
|
|
|
| The agreement is until December 31, 2001, when the Company may extend this agreement for further 12 month periods each. The contract for the acquisition of a program pertaining to an affiliated company ends in September 2005. Consequently, the contract with the affiliated company was not extended beyond 2005. |
|
|
|
|
| In March 2001, the Company signed an agreement with an outside producer whereby the Company will sell movie rights that it purchased for the purpose of broadcasting them as part of the movie channels that it produces. |
|
|
|
|
| Under the agreement between the parties, the producer will pay the Company all the direct and indirect acquisition costs in respect of the movie rights. |
|
|
|
| 12) | Bank Hapoalim Ltd. has asked Hot Vision to repay the balance of its credit in the amount of NIS 78 million. Hot Vision is negotiating with the bank to extend the credit period. |
67
|
|
|
Note 16 – Claims, Contingent Liabilities, Commitments and Liens (cont’d) | ||
|
|
|
| B. | Commitments and contingent liabilities (cont’d) |
|
|
|
| 13) | On July 8, 2004, Hot Vision signed a lease agreement for the purpose of moving to a new building. To this end, Hot Vision provided guarantees in the amount of NIS 377,000 and the bank placed a lien for collateral in the amount of NIS 190,000. Due to the cost of the move, Hot Vision decided not to move to the new building. Consequently, it incurred costs amounting to NIS 1,652,000 resulting from payment of a fine equal to three months rent as well as payment of 6 months rent. It should be noted that at the same time, Hot Vision reached an understanding with the owners of the present building to reduce the rent by 40%. |
|
|
|
| 14) | On September 25, 2005, Hot Telecom partnership signed a rental agreement with Yakum Development Ltd. to lease land on an area of 19,000 sq.m. in the industrial park adjacent to Kibbutz Yakum, in a building known as the Spanish House, in additional areas in a building known as Holland House, and in parking lots, for a 10-year period with an option to extend for a further two five-year periods. The land will be used for the operations of the partnership and the other cable companies. Within the context of the transaction, the cable companies guarantee to uphold the undertakings of Hot Telecom according to the rental agreement, up to a sum of NIS 200 million. |
|
|
|
|
| The rent as determined in the agreement aggregates NIS 13 million annually, a sum to be divided between the partnership and the other cable companies. In 2006 the partnership’s share of the rent amounted to NIS 1.3 million. As of 2007, the partnership’s share of the rent will be calculated according to the ratio of the partnership’s revenues relative to the total income of the cable companies. |
|
|
|
| 15) | The contractual rent for the forthcoming five years (calculated according to the rent as at December 31, 2005), linked to the US dollar exchange rate is as follows: |
|
|
|
|
|
|
|
|
| NIS thousands |
| |
|
|
|
| ||
|
|
|
|
| |
| 2006 |
|
| 5,174 |
|
| 2007 |
|
| 4,760 |
|
| 2008 |
|
| 3,042 |
|
| 2009 |
|
| 1,229 |
|
| 2010 and later |
|
| 930 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| 15,135 |
|
|
|
|
| ||
68
Note 16 – Claims, Contingent Liabilities, Commitments and Liens (cont’d)
|
|
|
| B. | Commitments and contingent liabilities (cont’d) |
|
|
|
| 16) | On December 14, 2004 Bezeq appealed against the decision of the Communications Minister prohibiting it from entering into agreement with business customers, offering them discounts and financing for long-term communications equipment, and against the decision to demand that Bezeq cancels such agreements and forfeits NIS 8 million of the bank guarantees that Bezeq provided for the benefit of the State should it fail to cancel the agreements. Hot Telecom was added to its request as a respondent to the application. On December 28, 2004, at Bezeq’s request, an interim order was issued instructing that the Ministry of Communication’s decision be withheld until a ruling is handed down on the application, and on March 28, 2005 the order was amended to apply only to the part of the decision instructing cancellation of the agreements and not to the part pertaining to the possibility of forfeiting the guarantees. On November 2005 a hearing was held on the application following which the parties submitted supplementary claims in writing. As at the date of approval of the financial statements, no decision had been made on the application. |
|
|
|
| 17) | Bezeq and D.B.S. Satellite Services filed applications to the High Court of Justice against the Minister of Communications, the cable companies and Hot Telecom as respondents, against the minister’s decision on the subject of an infusion of funds from Bezeq to the satellite companies. The hearing on the applications took place on October 11, 2005 but a decision has not yet been made. |
|
|
|
| 18) | The Hot Telecom partnership reached agreement in principle, as a supplement to the financing leasing agreement for the lease of telephony cards (CMTS) and related equipment in the overall amount of $4.2 million (NIS 19 million). A written agreement has yet to be signed. As at the date of the financial statements, equipment in the amount of $1 million has been received as part of this agreement. |
|
|
|
| 19) | In November 2004, the cable tv companies entered into an agreement with a supplier for the purchase of 40,000 digital converters (the group’s portion being 13,200 converters, Golden Channels – 12,200 converters). It was also determined that the supplier was entitled to supply up to 100,000 converters to the cable tv companies. Nevertheless, it was also determined that this right could be cancelled by the cable tv companies should they acquire at least 50,000 converters from the supplier, subject to adequate notice and payment of agreed damages of US$500 thousand to the supplier (the group’s share being US$165 thousand, Golden Channels US$150 thousand). As at the balance sheet date the Company had acquired 990 converters from the supplier and Golden Channels had acquired 3,100 converters. |
|
|
|
| 20) | In January 2006, the cable tv companies reached an understanding with two suppliers to acquire 150,000 digital converters (the company’s share being 50,000 converters, Golden Channels 45,000 converters), during the two year period following the end of the development of the converters. This commitment is conditional upon one of the suppliers solving problems discovered in digital converters purchased up to March 15, 2006. In the opinion of the management of the group and Golden Channels, as at the date of authorization of these financial statements, the supplier had not yet solved the problems and thus had not complied with the terms of the understanding. |
69
|
|
|
Note 16 – Claims, Contingent Liabilities, Commitments and Liens (cont’d) | ||
| ||
| C. | Liens and guarantees (cont’d) |
|
|
|
| 21) | In June 2004, the cable tv companies reached an agreement for the supply of a program system for digital converters an upgraded system for user interface and an update of the head ends of the company for the consideration of approximately US$3 million. The cost to Golden Channels – US$1.5 million. As at December 31, 2005, the balance of this liability totals approximately US$0.4 million (Company – US$130 thousand, Golden Channels – US$120 thousand.). |
|
|
|
| 22) | The cable tv companies entered into a maintenance and repair agreement in respect of converters and modems for a two year period commencing August 1, 2007 for the minimum consideration of NIS 13 million per year (the group’s share being NIS 4.3 million, Golden Channels NIS 4 million). |
|
|
|
| 23) | The Company entered into agreements for the purchase of fixed assets. As at December 31, 2005 the balance in respect of this commitment was of approximately NIS 21, 837 thousand. |
|
|
|
|
| The Golden Channels partnership entered into similar commitments totaling NIS 45,707 thousand. |
|
|
|
| C. | Liens and guarantees |
|
|
|
| Bank guarantees | |
|
|
|
| 1) | In accordance with the conditions of the general cable broadcasting license, in July 2002 the Company and Gvanim provided the Ministry of Communications with a bank guarantee in the amount of NIS 9.5 million. The guarantee was given to secure compliance with the conditions of the new licenses and the franchises and will be in effect for 3 years. The Company also undertook to extend the guarantee for additional periods of 3 years each for a total of 16 years. |
|
|
|
| 2) | The Company has bank guarantees for the benefit of the Anti-trust Authority in respect of the company’s compliance with the terms of the merger as prescribed by the Commissioner, in the amount of NIS 3.2 million, valid until December 2007. |
|
|
|
| 3) | Under the conditions of the LTO license, Tevel provided the Ministry of Communications with a bank guarantee in the amount of NIS 14.9 million to secure Hot Telecom’s undertakings within the context of the telephony license. |
|
|
|
| 4) | The Company extended documentary credit in the amount of NIS 8 million in favor of overseas suppliers. |
70
|
|
|
Note 16 – Claims, Contingent Liabilities, Commitments and Liens (cont’d) | ||
|
|
|
| C. | Liens and guarantees (cont’d) |
|
|
|
| Other guarantees | |
|
|
|
| 5) | In addition to the aforementioned, the Company provided different entities with bank guarantees as at December 31, 2005, in the overall amount of NIS 1.2 million, and consolidated in the amount of NIS 1.4 million. |
|
|
|
| 6) | The Golden Channels Group gave the Ministry of Communications a bank guarantee in the amount of NIS 9.5 million to secure the Group’s commitments within the context of the broadcasting license, and NIS 19 million to secure Hot Telecom’s commitments within the context of the telephony license. |
|
|
|
| 7) | The cable companies, including the Company and Gvanim, provided a guarantee to secure all the sums owed to the bank by Hot Vision (an affiliated company). |
|
|
|
|
| Under the conditions of the guarantee, the guarantee is limited to $16 million to cover one guarantor’s share of the shareholders in Hot Vision that fails to repay its share. Consequently, the Company’s maximum share of this guarantee as at December 31, 2005 is $6 million (consolidated $9.5 million). |
|
|
|
|
| To guarantee payment of all the amounts that Hot Vision owes another bank, the cable companies, including the Company and Gvanim, provided a guarantee for an unlimited sum. The Company’s maximum share of this guarantee as at December 31, 2005, is $3.7 million (consolidated $6.1 million). |
|
|
|
|
| Golden Channels’ maximum share of these guarantees is $14 million. |
|
|
|
|
| As at the balance sheet date, Hot Vision’s debt to the banks aggregates $34.4 million. |
|
|
|
| 8) | The Company is a guarantor for the loans of debts of Gvanim to the banks. |
|
|
|
| 9) | To secure its liabilities to the banks, Golden Channels placed a lien on all its holdings in Idan. |
|
|
|
| 10) | The Company is owned by 4 Israeli banks (see Creditors’ Arrangement Note 1(B)). Consequently, all the Group’s assets are mortgaged to the banks. |
|
|
|
| 11) | The Company and Matav are guarantors, together and severally, in the accrued amount of $7.4 million to secure payments by the Hot Telecom partnership to an equipment supplier. The cable companies signed an indemnity agreement regarding the aforementioned guarantee. In addition all the cable companies including the Company, are jointly and severally liable as guarantors up to an additional amount of US$4.5 million to secure payments by the Hot Telecom partnership in further transaction with the same supplier. |
|
|
|
| 12) | The cable companies gave a guarantee in the amount of NIS 200 million to secure the liabilities of the Hot Telecom partnership towards a third party with which a rental agreement was signed. The Company’s relative share of this guarantee is NIS 66 million. |
71
Note 17 – Share Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Authorized |
| Issued |
| Fully paid |
| ||||||||||||
|
|
|
|
|
| |||||||||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| December 31 |
| December 31 |
| December 31 |
| ||||||
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| Ordinary shares of NIS 1 par value |
|
| 30,000,000 |
|
| 30,000,000 |
|
| 15,137,704 |
|
| 15,137,704 |
|
| 15,137,704 |
|
| 15,137,704 |
|
|
|
|
|
|
|
|
|
| ||||||||||||
Note 18 – Income
Composition:
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the year ended |
| |||||||
|
|
|
| ||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| |||
|
|
|
|
|
| ||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
| |||
| Subscriptions |
|
| 567,643 |
|
| 600,774 |
|
| 605,529 |
|
| Installations |
|
| 4,267 |
|
| 5,695 |
|
| 4,379 |
|
| Deposits and hire of converters |
|
| 19,222 |
|
| 18,153 |
|
| 14,069 |
|
| Management fees |
|
| - |
|
| - |
|
| 4,465 |
|
| Pay per view movie sales |
|
| 16,340 |
|
| 14,921 |
|
| 11,097 |
|
| Communication services |
|
| - |
|
| 7,202 |
|
| 31,252 |
|
| Internet access subscriptions |
|
| 65,229 |
|
| 58,208 |
|
| 28,010 |
|
| Interactive services |
|
| 4,123 |
|
| 4,272 |
|
| 1,720 |
|
| Other |
|
| 9,863 |
|
| 11,509 |
|
| 2,096 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 686,687 |
|
| 720,734 |
|
| 702,617 |
|
|
|
|
|
|
| ||||||
The Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the year ended |
| |||||||
|
|
|
| ||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| |||
|
|
|
|
|
| ||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Subscriptions |
|
| 348,505 |
|
| 367,782 |
|
| 366,191 |
|
| Installations |
|
| 1,157 |
|
| 1,595 |
|
| 970 |
|
| Deposits and hire of converters |
|
| 11,978 |
|
| 11,522 |
|
| 9,395 |
|
| Pay per view movie sales |
|
| 9,568 |
|
| 8,786 |
|
| 6,738 |
|
| Management fees |
|
| 18,454 |
|
| 18,935 |
|
| 18,315 |
|
| Interactive services |
|
| 2,523 |
|
| 2,602 |
|
| 986 |
|
| Other |
|
| 1,177 |
|
| 2,217 |
|
| 1,448 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 393,362 |
|
| 413,439 |
|
| 404,043 |
|
| �� |
|
|
|
| ||||||
|
|
|
| * | Restated. |
72
Note 19 – Operating Expenses
Composition:
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the year ended |
| |||||||
|
|
|
| ||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| |||
|
|
|
|
|
| ||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Salaries and related expenses |
|
| 69,271 |
|
| 56,932 |
|
| 57,257 |
|
| Maintenance of cable network |
|
| 39,384 |
|
| 37,870 |
|
| 35,045 |
|
| Depreciation and amortization |
|
| 203,818 |
|
| *** 199,155 |
|
| 195,269 |
|
| Royalties to the State of Israel |
|
| 23,547 |
|
| 27,369 |
|
| 20,339 |
|
| Communication services |
|
| - |
|
| 5,979 |
|
| 9,773 |
|
| Other operating expenses |
|
| 58,271 |
|
| 48,281 |
|
| 49,888 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 394,291 |
|
| 375,586 |
|
| 376,571 |
|
|
|
|
|
|
| ||||||
The Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the year ended |
| |||||||
|
|
|
| ||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| |||
|
|
|
|
|
| ||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Salaries and related expenses * |
|
| 29,612 |
|
| 27,740 |
|
| 25,871 |
|
| Maintenance of cable network |
|
| 5,683 |
|
| 5,021 |
|
| 3,842 |
|
| Depreciation and amortization |
|
| 119,274 |
|
| *** 115,131 |
|
| 106,003 |
|
| Royalties to the State of Israel |
|
| 8,581 |
|
| 10,605 |
|
| 12,595 |
|
| Other operating expenses |
|
| 34,392 |
|
| 25,773 |
|
| 27,865 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 197,542 |
|
| 184,270 |
|
| 176,176 |
|
|
|
|
|
|
| ||||||
|
|
|
| * | See Note 2S. |
|
|
|
| ** | Restated. |
|
|
|
| *** | Reclassified. |
73
Note 20 – Production and Programming Expenses
Composition:
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the year ended |
| |||||||
|
|
|
| ||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| |||
|
|
|
|
|
| ||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Salaries and related expenses |
|
| 2,457 |
|
| 2,234 |
|
| - |
|
| Fees for film screening and broadcasting rights |
|
| 182,984 |
|
| 176,329 |
|
| 195,425 |
|
| Local productions |
|
| 50,904 |
|
| 50,004 |
|
| 39,775 |
|
| Pay per view expenses and screening rights |
|
| 11,097 |
|
| 10,109 |
|
| 7,147 |
|
| Depreciation |
|
| 449 |
|
| 649 |
|
| 623 |
|
| Other production and programming expenses |
|
| 5,768 |
|
| 6,775 |
|
| 4,297 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 253,659 |
|
| 246,100 |
|
| 247,267 |
|
|
|
|
|
|
| ||||||
The Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the year ended |
| |||||||
|
|
|
| ||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| |||
|
|
|
|
|
| ||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Salaries and related expenses * |
|
| 149 |
|
| 189 |
|
| - |
|
| Fees for film screening and broadcasting rights |
|
| 118,796 |
|
| 111,583 |
|
| 118,163 |
|
| Local productions |
|
| 31,151 |
|
| 30,119 |
|
| 23,809 |
|
| Pay per view expenses and screening rights |
|
| 6,477 |
|
| 5,612 |
|
| 4,428 |
|
| Depreciation |
|
| 93 |
|
| 162 |
|
| 350 |
|
| Other production and programming expenses |
|
| 3,584 |
|
| 4,167 |
|
| 2,382 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 160,250 |
|
| 151,832 |
|
| 149,132 |
|
|
|
|
|
|
| ||||||
|
|
|
| * | See Note 2S. |
|
|
|
| ** | Restated. |
74
Note 21 – Selling and Marketing Expenses
Composition:
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the year ended |
| |||||||
|
|
|
| ||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| |||
|
|
|
|
|
| ||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Salaries and related expenses |
|
| 26,453 |
|
| 34,580 |
|
| 29,391 |
|
| Advertising |
|
| 27,088 |
|
| 40,314 |
|
| 18,942 |
|
| Collection commissions |
|
| 7,940 |
|
| 8,909 |
|
| 8,104 |
|
| Depreciation |
|
| - |
|
| - |
|
| 1 |
|
| Other selling and marketing expenses |
|
| 7,992 |
|
| 8,527 |
|
| 8,694 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 69,473 |
|
| 92,330 |
|
| 65,132 |
|
|
|
|
|
|
| ||||||
The Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the year ended |
| |||||||
|
|
|
| ||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| |||
|
|
|
|
|
| ||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Salaries and related expenses * |
|
| 11,773 |
|
| 16,201 |
|
| 14,648 |
|
| Advertising |
|
| 15,334 |
|
| 21,168 |
|
| 10,155 |
|
| Collection commissions |
|
| 4,098 |
|
| 4,395 |
|
| 4,812 |
|
| Other selling and marketing expenses |
|
| 4,120 |
|
| 3,675 |
|
| 4,508 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 35,325 |
|
| 45,439 |
|
| 34,123 |
|
|
|
|
|
|
| ||||||
|
|
|
| * | See Note 2S. |
|
|
|
| ** | Restated. |
75
Note 22 – General and Administrative Expenses
Composition:
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the year ended |
| |||||||
|
|
|
| ||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| |||
|
|
|
|
|
| ||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Salaries and related expenses |
|
| 9,378 |
|
| 11,112 |
|
| 13,175 |
|
| Depreciation and amortization |
|
| 8,363 |
|
| ** 12,177 |
|
| 16,441 |
|
| Amortization of unallocated excess of cost |
|
| 81,995 |
|
| 82,154 |
|
| 82,618 |
|
| Bad and doubtful debts |
|
| 4,928 |
|
| 5,193 |
|
| 710 |
|
| Other general and administrative expenses |
|
| 15,822 |
|
| 19,962 |
|
| 20,701 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 120,486 |
|
| 130,598 |
|
| 133,645 |
|
|
|
|
|
|
| ||||||
The Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the year ended |
| |||||||
|
|
|
| ||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| |||
|
|
|
|
|
| ||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Salaries and related expenses* |
|
| 2,286 |
|
| 7,597 |
|
| 8,057 |
|
| Depreciation and amortization |
|
| 3,568 |
|
| ** 6,761 |
|
| 9,671 |
|
| Bad and doubtful debts |
|
| 3,630 |
|
| 3,097 |
|
| 355 |
|
| Other general and administrative expenses |
|
| 5,565 |
|
| 6,244 |
|
| 13,455 |
|
| Less: subsidiaries’ participation in expenses |
|
| - |
|
| (1,867 | ) |
| (3,976 | ) |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 15,049 |
|
| 21,832 |
| �� | 27,562 |
|
|
|
|
|
|
| ||||||
|
|
|
| * | Restated. |
|
|
|
| ** | Reclassified |
76
Note 23 – Financing Expenses, Net
Composition:
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the year ended |
| |||||||
|
|
|
| ||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| |||
|
|
|
|
|
| ||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Real financing expenses on long-term loans received |
|
| 38,017 |
|
| 34,059 |
|
| 32,150 |
|
| Other financing expenses and exchange rate differences, net |
|
| 150,104 |
|
| 145,986 |
|
| 210,231 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 188,121 |
|
| 180,045 |
|
| 242,381 |
|
|
|
|
|
|
| ||||||
The Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the year ended |
| |||||||
|
|
|
| ||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| |||
|
|
|
|
|
| ||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Real financing expenses on long-term loans received |
|
| 29,327 |
|
| 27,308 |
|
| 24,068 |
|
| Other financing expenses and exchange rate differences, net |
|
| 110,014 |
|
| 115,444 |
|
| 159,247 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 139,341 |
|
| 142,752 |
|
| 183,315 |
|
|
|
|
|
|
| ||||||
|
|
|
| * | Restated. |
77
Note 24 – Other Income (Expenses), Net
Composition:
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the year ended |
| |||||||
|
|
|
| ||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| |||
|
|
|
|
|
| ||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Capital gain (loss), net |
|
| (18 | ) |
| 1,236 |
|
| (244 | ) |
| Refund of prior years royalties (1) |
|
| - |
|
| - |
|
| 5,211 |
|
| Impairment in value of assets |
|
| - |
|
| **(9,178 | ) |
| (986 | ) |
| Golden Channels interest and management fees (2) |
|
| - |
|
| - |
|
| 26,978 |
|
| Expense refund - Golden Channels (3) |
|
| - |
|
| - |
|
| 12,000 |
|
| Legal claim |
|
| (3,312 | ) |
| (29,119 | ) |
| - |
|
| Other |
|
| (3,010 | ) |
| (2,940 | ) |
| - |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (6,340 | ) |
| (40,001 | ) |
| 42,959 |
|
|
|
|
|
|
| ||||||
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the year ended |
| |||||||
|
|
|
| ||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| |||
|
|
|
|
|
| ||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Capital gain (loss), net |
|
| (18 | ) |
| 1,236 |
|
| (104 | ) |
| Legal claim |
|
| (2,026 | ) |
| (17,469 | ) |
| - |
|
| Refund of prior years royalties (1) |
|
| - |
|
| - |
|
| 3,072 |
|
| Impairment in value of assets |
|
| - |
|
| **(6,667 | ) |
| (986 | ) |
| Golden Channels prior year management fees and interest (2) |
|
| - |
|
| - |
|
| 26,978 |
|
| Other |
|
| (3,010 | ) |
| (2,404 | ) |
| - |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (5,054 | ) |
| 25,304 |
|
| 28,960 |
|
|
|
|
|
|
| ||||||
|
|
|
| (1) | On June 16, 2003, the Knesset Economic Committee authorized a change in the Bezeq (Licensing) Regulations which reduced the royalty rate paid to the state retroactively as from January 1, 2002. Accordingly, during 2003, the Company received refunds in respect of the prior year from the Ministry of Communications by way of set-off. |
|
|
|
| (2) | Upon completion of the Golden Channels transaction (see Note 6D(3)), the Company, during 2003, recorded its share in management fees and interest to which it was entitled as a partner in Golden Channels from the date of acquisition until the date of completion of the transaction. |
|
|
|
| (3) | During 2003, the Company received, by way of set-off, NIS 12 million in respect of Golden Channels participation in the activities of Tevel Telecom in prior years. |
|
|
|
| * | Restated. |
|
|
|
| ** | Reclassified |
78
Note 25 – Linkage Terms of Monetary Balances
|
|
|
| A. | Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2005 |
| ||||||||||
|
|
|
| |||||||||||
|
|
| Linked to the |
| In foreign |
| Unlinked |
| Total |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| NIS thousands |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents |
|
| - |
|
| 12,614 |
|
| 55,406 |
|
| 68,020 |
|
| Trade receivables |
|
| - |
|
| - |
|
| 25,277 |
|
| 25,277 |
|
| Debtors and debit balances |
|
| 106 |
|
| - |
|
| 7,888 |
|
| 7,994 |
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total assets |
|
| 106 |
|
| 12,614 |
|
| 88,571 |
|
| 101,291 |
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Bank credit |
|
| - |
|
| (25,519 | ) |
| (2,789,381 | ) |
| (2,814,900 | ) |
| Creditors and credit balances |
|
| - |
|
| (64,496 | ) |
| (59,981 | ) |
| (124,477 | ) |
| Suppliers and service providers |
|
| - |
|
| (39,575 | ) |
| (85,630 | ) |
| (125,205 | ) |
| Short-term shareholders’ loans |
|
| - |
|
| (28,771 | ) |
| - |
|
| (28,771 | ) |
| Current maturities of long-term loans |
|
| (149,459 | ) |
| - |
|
| - |
|
| (149,459 | ) |
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Long-term liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Long-term loans |
|
| (207,378 | ) |
| - |
|
| - |
|
| (207,378 | ) |
| Customer deposits |
|
| (29,361 | ) |
| - |
|
| - |
|
| (29,361 | ) |
| Shareholders loans |
|
| - |
|
| (61,029 | ) |
| - |
|
| (61,029 | ) |
| Liability for cessation of employee/employer relations, net |
|
| - |
|
| - |
|
| (1,851 | ) |
| (1,851 | ) |
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total liabilities |
|
| (386,198 | ) |
| (219,390 | ) |
| (2,936,843 | ) |
| (3,542,431 | ) |
|
|
|
|
|
|
| ||||||||
79
Note 25 – Linkage Terms of Monetary Balances
|
|
|
| B. | Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2005 |
| ||||||||||
|
|
|
| |||||||||||
|
|
| Linked to the |
| In foreign |
| Unlinked |
| Total |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| NIS thousands |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents |
|
| - |
|
| 12,614 |
|
| 44,042 |
|
| 56,656 |
|
| Trade receivables |
|
| - |
|
| - |
|
| 5,755 |
|
| 5,755 |
|
| Debtors and debit balances |
|
| 87,285 |
|
| - |
|
| 35,529 |
|
| 122,814 |
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total assets |
|
| 87,285 |
|
| 12,614 |
|
| 85,326 |
|
| 185,225 |
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Bank credit |
|
| - |
|
| - |
|
| (2,145,572 | ) |
| (2,145,572 | ) |
| Creditors and credit balances |
|
| - |
|
| (64,496 | ) |
| (43,241 | ) |
| (107,737 | ) |
| Suppliers and service providers |
|
| - |
|
| (26,375 | ) |
| (87,080 | ) |
| (113,455 | ) |
| Short-term shareholders’ loans |
|
| - |
|
| (28,771 | ) |
| - |
|
| (28,771 | ) |
| Current maturities of long-term loans |
|
| (115,210 | ) |
| - |
|
| - |
|
| (115,210 | ) |
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Long-term liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Long-term loans |
|
| (181,691 | ) |
| - |
|
| - |
|
| (181,691 | ) |
| Customer deposits |
|
| (18,571 | ) |
| - |
|
| - |
|
| (18,571 | ) |
| Shareholders loans |
|
| - |
|
| (61,029 | ) |
| - |
|
| (61,029 | ) |
| Liability for cessation of employee/employer relations, net |
|
| - |
|
| - |
|
| (1,037 | ) |
| (1,037 | ) |
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total liabilities |
|
| (315,472 | ) |
| (180,671 | ) |
| (2,276,930 | ) |
| (2,773,073 | ) |
|
|
|
|
|
|
| ||||||||
80
Note 26 – Balances and Transactions with Related and Interested Parties
|
|
|
| A. | General |
As part of the creditors arrangement, 48.5% of the shares of the Company which were held by Discount Investment Corporation Ltd. were transferred to the trustee for the banking creditors. Consequently, as at the balance sheet date most of the Company’s shares are held by or on behalf of the banks financing the Company.
Details of the transactions with related and interested parties, as detailed below, do not include transactions with these shareholders as transactions between them and the Company was made in the ordinary course of business and at market terms.
|
|
|
| B. | Expenses and income with related and interested parties |
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the year ended |
| |||||||
|
|
|
| ||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| |||
|
|
|
|
|
| ||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Expenses and income |
|
|
|
|
|
|
|
|
|
|
| Management fee income |
|
| (1,221 | ) |
| (1,505 | ) |
| (27,626 | ) |
| Rent and other expenses |
|
| - |
|
| - |
|
| 172 |
|
| Rental income |
|
| - |
|
| - |
|
| (169 | ) |
| Interest and exchange differences, net |
|
| - |
|
| - |
|
| (7,039 | ) |
| Maintenance expenses |
|
| - |
|
| - |
|
| 748 |
|
| Acquisitions from interested parties |
|
| - |
|
| - |
|
| 37 |
|
| Salary to interested party employed by the Company |
|
| 1,071 |
|
| 1,968 |
|
| 7,182 |
|
| Others |
|
| 277 |
|
| - |
|
| 117 |
|
The Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the year ended |
| |||||||
|
|
|
| ||||||||
|
|
| December 31 |
| December 31 |
| December 31 |
| |||
|
|
|
|
|
| ||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Expenses and income |
|
|
|
|
|
|
|
|
|
|
| Management fee income |
|
| (18,478 | ) |
| (14,929 | ) |
| (48,182 | ) |
| Participation in expenses of subsidiary |
|
| 277 |
|
| - |
|
| - |
|
| Rental income |
|
| - |
|
| - |
|
| (169 | ) |
| Interest and linkage differences, net |
|
| (3,526 | ) |
| (689 | ) |
| (8,445 | ) |
| Maintenance and other expense |
|
| - |
|
| - |
|
| 433 |
|
| Acquisitions from related companies |
|
| 43,404 |
|
| - |
|
| - |
|
| Salary to interested party employed by the Company |
|
| 357 |
|
| 510 |
|
| 4,308 |
|
81
|
|
Note 26 – | Balances and Transactions with Related and Interested Parties (cont’d) |
|
|
|
| C. | Balances with related and interested parties |
|
|
|
|
|
|
|
|
|
| Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31 |
|
| December 31 |
|
|
|
|
| 2005 |
|
| 2004 |
|
|
|
|
|
| ||||
|
|
|
| NIS thousands |
|
| NIS thousands |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| Balances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current liabilities (unlinked) |
|
| (4,972 | ) |
| (4,367 | ) |
| Loan to affiliated company |
|
| 77,490 |
|
| - |
|
| Shareholders’ loan to investee company |
|
| 7,072 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| The Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31 |
|
| December 31 |
|
|
|
|
| 2005 |
|
| 2004 |
|
|
|
|
|
| ||||
|
|
|
| NIS thousands |
|
| NIS thousands |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| Balances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loan to affiliated company |
|
| 77,490 |
|
| - |
|
| Shareholders’ loan to investee company |
|
| 7,072 |
|
| - |
|
| Current assets (mainly unlinked) |
|
| 115,885 |
|
| 102,269 |
|
| Current liabilities (unlinked) |
|
| (15,261 | ) |
| (4,408 | ) |
|
|
Note 27 – | Earnings Per Share |
|
|
|
| A. | The weighted number of shares used to compute the loss per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the year ended |
| |||||||
|
|
|
| ||||||||
|
|
|
| December 31 |
|
| December 31 |
|
| December 31 |
|
|
|
|
| 2005 |
|
| 2004 |
|
| 2003 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
| |||
| Basic |
|
| 15,137,704 |
|
| 15,137,704 |
|
| 15,137,704 |
|
|
|
|
|
|
| ||||||
|
|
|
| B. | Loss used to compute the earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
| Composition: |
|
|
| |||||||
|
|
|
|
| |||||||
|
|
| For the year ended |
| |||||||
|
|
|
| ||||||||
|
|
|
| December 31 |
|
| December 31 |
|
| December 31 |
|
|
|
|
| 2005 |
|
| 2004 |
|
| 2003 |
|
|
|
|
|
|
| ||||||
|
|
| NIS thousands |
| NIS thousands |
| NIS thousands |
| |||
|
|
|
|
|
| ||||||
| Loss from statement of income |
|
| (438,727 | ) |
| (92,580 | ) |
| (450,230 | ) |
|
|
|
|
|
| ||||||
| Loss used in the computation of basic earnings per share |
|
| (438,727 | ) |
| (92,580 | ) |
| (450,230 | ) |
|
|
|
|
|
| ||||||
|
|
|
| C. | Basic loss per NIS 1 par value of shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the year ended |
| |||||||
|
|
|
| ||||||||
|
|
|
| December 31 |
|
| December 31 |
|
| December 31 |
|
|
|
|
| 2005 |
|
| 2004 |
|
| 2003 |
|
|
|
|
|
|
| ||||||
|
|
| NIS |
| NIS |
| NIS |
| |||
|
|
|
|
|
| ||||||
|
|
|
| (28.98 | ) |
| (6.12 | ) |
| (29.74 | ) |
|
|
|
|
|
| ||||||
82
|
|
Note 28 – | Post Balance Sheet Date Events |
|
|
|
| 1) | The Hot Telecom partnership and a supplier for the construction of a telephone network (hereinafter - “Lucent”) signed an agreement whereby from March 9, 2006 Lucent had completed the works according to a contract dated July 9, 2004 and would not provide guarantee and maintenance services to the system. According to the agreement, Lucent would transfer full ownership on all system components supplied to the Partnership including spare parts to sub-systems and all equipment at the Petah Tikva test site. According to the agreement, Lucent will be entitled to payment of approximately US$3.1 million relating to orders delivered and authorized for payment by the partnership and to US$0.9 million which will be paid as a compromise agreement in respect of works to be carried out by Lucent, for test equipment and various spare parts delivered to the partnership, after offset of damages caused to the partnership by delays in the timetable and the non-delivery of orders. |
|
|
|
| 2) | On February 14, 2006, 5 scriptwriters and various directors filed a claim against the cable companies claiming that the broadcast of product detailed in their claim on the cable channels and over VOD had been made without payment by the cable companies of royalties either directly or through the Tali company, such broadcast being in breach of their creative rights. |
|
|
|
|
| The claim is in the sum of approximately NIS 1.7 million (for court fee purposes) and is based on a contended calculation as to the number of broadcasts or the number of broadcasted minutes multiplied by a “tariff” contended to represent the payment tariff for each broadcast or minute broadcasted, as relevant. |
|
|
|
|
| The defense and response to this injunction has not yet been filed, however, the Company’s response is that the broadcast of this product was made by law in accordance with valid agreements between the producers of those programs and the cable companies as part of which the full rights allowing broadcast of the product in the format currently used had been sold to the cable companies for full consideration. |
|
|
|
|
| Due to the early stages of the principal action, the Company’s legal advisors are unable to estimate the chances of the claim and thus no provision in respect thereof was made in the Company’s books. |
|
|
|
| 3) | On January 25, 2006, a third party filed a demand in court to enforce arbitration proceedings and a request to appoint an arbitrator for the cable companies, including the Company. As part of the demand, the third party contends that the cable companies owe a debt to him in the sum of NIS 15- NIS 20 million which has not been paid. As at the date of authorization of these financial statements the cable companies are preparing their response. |
|
|
|
|
| In Managements estimation, based on the advice of legal counsel, the results of this proceeding will not lead to significant sums falling due, if at all and therefore no provision has been made in this respect in the financial statements. |
|
|
|
| 4) | To the best of the knowledge of Company management, on March 1, 2006 the Knesset authorized the Class Action Law, 2006 (“the law”). The law will become effective upon its official publication. The law deals with the method of making a class action claim under Israeli law and annuls the specific instructions relating to class actions which were included in various laws prior to authorization of the law. The law materially broadens, among others, the list of claimants with the right to file a request to have a claim recognized as a class action. In addition, the law removed certain procedural limitations to the filing of a claim to recognize a class action. In the opinion of Company management, the publication of the law as described above may increase the number of requests to authorize claims against the group as class actions and is liable to increase the group’s legal exposure. |
|
|
|
| 5) | In 2005 Hot Vision filed a claim against Yes in the amount of NIS 1.8 million in respect of an amount that was offset by Yes from the payment it was required to make to Hot Vision. In March 2006, Yes filed a statement of defense and a counterclaim in the amount of NIS 2.5 million (for purposes of court fees). The basis for the counterclaim is Yes’s allegation that over the years Hot Vision had unlawfully charged Yes with management fess in the amount of NIS 6.8 million, including interest and linkage as at the date of filing the counterclaim. Yes also alleged that if its allegation is accepted with respect to the amount that was offset as aforementioned, it also claims that amount (NIS 1.7 million with the addition of interest and linkage differences). |
83
|
|
Note 29 – | Nominal Historical Data for Tax Purposes |
|
|
|
| A. | Accounting principles used in presenting nominal historical data for tax purposes |
|
|
|
| 1. | These financial statements were prepared on the historical cost basis. |
|
|
|
| 2. | These financial statements include Company data only, without presentation of consolidated financial statements as required according to generally accepted accounting principles. |
|
|
|
|
|
|
| B. | Balance sheets |
|
|
|
|
|
|
|
|
|
|
|
|
| December 31 |
|
| December 31 |
|
|
|
|
| 2005 |
|
| 2004 |
|
|
|
|
|
| ||||
|
|
|
| NIS thousands |
|
| NIS thousands |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents |
|
| 56,656 |
|
| 82,824 |
|
| Trade receivables |
|
| 5,755 |
|
| 6,706 |
|
| Other receivables |
|
| 122,814 |
|
| 129,105 |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| 185,225 |
|
| 218,635 |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| Long-term receivables |
|
| 915 |
|
| 2,274 |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| Investments in investee companies |
|
| 118,123 |
|
| 146,737 |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| Fixed assets |
|
| 422,653 |
|
| 461,311 |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| Other assets |
|
| 2,434 |
|
| - |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| 729,350 |
|
| 828,957 |
|
|
|
|
|
| ||||
84
|
|
Note 29 – | Nominal Historical Data for Tax Purposes (cont’d) |
|
|
|
| B. | Balance sheets (cont’d) |
|
|
|
|
|
|
|
|
|
|
|
|
| December 31 |
|
| December 31 |
|
|
|
|
| 2005 |
|
| 2004 |
|
|
|
|
|
| ||||
|
|
|
| NIS thousands |
|
| NIS thousands |
|
|
|
|
|
| ||||
| Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Bank credit |
|
| 2,145,572 |
|
| 1,877,842 |
|
| Trade payables |
|
| 113,455 |
|
| 124,344 |
|
| Other payables |
|
| 107,737 |
|
| 86,952 |
|
| Short-term loans from interested parties |
|
| 28,771 |
|
| 27,472 |
|
| Current maturities of long-term loans |
|
| 115,210 |
|
| 110,645 |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| 2,510,745 |
|
| 2,227,255 |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| Long-term liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Long-term loans |
|
| 181,691 |
|
| 289,129 |
|
| Customer deposits |
|
| 18,571 |
|
| 23,694 |
|
| Liabilities in respect of employee severance benefits, net |
|
| 1,037 |
|
| 4,658 |
|
| Liabilities in respect of investments in affiliated companies |
|
| 344,795 |
|
| 199,860 |
|
| Liability in respect of benefit granted to employees |
|
| - |
|
| 144 |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| 546,094 |
|
| 517,485 |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| Shareholders’ loans |
|
| 61,029 |
|
| 55,132 |
|
|
|
|
|
| ||||
| Shareholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Share capital |
|
| 15,138 |
|
| 15,138 |
|
| Premium on shares |
|
| 18,080 |
|
| 18,080 |
|
| Capital reserve |
|
| 219,303 |
|
| 219,303 |
|
| Accumulated loss |
|
| (2,641,039 | ) |
| *(2,223,436 | ) |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| (2,388,518 | ) |
| (1,970,915 | ) |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| 729,350 |
|
| 828,957 |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| * Restated. |
|
|
|
|
|
|
|
85
|
|
Note 29 – | Nominal Historical Data for Tax Purposes (cont’d) |
|
|
|
| C | Statements of income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the year ended |
| |||||||
|
|
|
| ||||||||
|
|
|
| December 31 |
|
| December 31 |
|
| December 31 |
|
|
|
|
| 2005 |
|
| 2004 |
|
| 2003 |
|
|
|
|
|
|
| ||||||
|
|
|
| NIS thousands |
|
| NIS thousands |
|
| NIS thousands |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Income |
|
| 393,362 |
|
| 413,439 |
|
| 412,393 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Operating expenses |
|
| 190,443 |
|
| 182,675 |
|
| 167,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Production and programming expenses |
|
| 160,242 |
|
| 151,817 |
|
| 150,982 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 350,685 |
|
| 334,492 |
|
| 318,872 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Gross profit |
|
| 42,677 |
|
| 78,947 |
|
| 93,521 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Selling and marketing expenses |
|
| 35,325 |
|
| 45,439 |
|
| 34,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| General and administrative expenses |
|
| 15,069 |
|
| 22,813 |
|
| 27,632 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 50,394 |
|
| 68,252 |
|
| 62,183 |
|
|
|
|
|
|
| ||||||
| |||||||||||
| Profit (loss) for the year before financing expenses, net |
|
| (7,717 | ) |
| 10,695 |
|
| 31,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Financing expenses, net |
|
| (139,341 | ) |
| (142,987 | ) |
| (136,095 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| Capital gain and write off of debts according to creditors arrangement |
|
| - |
|
| 323,482 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other expenses, net |
|
| (5,054 | ) |
| (17,153 | ) |
| (62,777 | ) |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Profit (loss) before taxes on income |
|
| (152,112 | ) |
| 174,037 |
|
| (167,534 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| Taxes on income |
|
| (6,564 | ) |
| (520 | ) |
| - |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Profit (loss) after taxes on income |
|
| (158,676 | ) |
| 173,517 |
|
| (167,534 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| Company’s equity in losses of investee companies |
|
| (258,927 | ) |
| (236,516 | ) |
| *(180,732 | ) |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Loss for the year |
|
| (417,603 | ) |
| (62,999 | ) |
| (348,266 | ) |
|
|
|
|
|
| ||||||
86
|
|
Note 29 – | Nominal Historical Data for Tax Purposes (cont’d) |
|
|
|
| D. | Statement of changes in shareholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Share |
|
| Premium on |
|
|
|
|
| Accumulated |
|
| Total |
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
| NIS thousands |
|
| NIS thousands |
|
| NIS thousands |
|
| NIS thousands |
| NIS thousands |
| |
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance as at January 1, 2003 |
|
| 15,138 |
|
| 18,080 |
|
| - |
|
| (1,812,171 | ) |
| (1,778,953 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Changes during 2003: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss for the year |
|
| - |
|
| - |
|
| - |
|
| (348,266 | ) |
| (348,266 | ) |
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance as at December 31, 2003 |
|
| 15,138 |
|
| 18,080 |
|
| - |
|
| (2,160,437 | ) |
| (2,127,219 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Changes during 2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Capital reserve from transaction with control holder |
|
| - |
|
| - |
|
| 219,303 |
|
| - |
|
| 219,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss for the year |
|
| - |
|
| - |
|
| - |
|
| (62,999 | ) |
| (62,999 | ) |
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance as at December 31, 2004 |
|
| 15,138 |
|
| 18,080 |
|
| 219,303 |
|
| (2,223,436 | ) |
| (1,970,915 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Changes during 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss for the year |
|
| - |
|
| - |
|
| - |
|
| (417,603 | ) |
| (417,603 | ) |
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance as at December 31, 2005 |
|
| 15,138 |
|
| 18,080 |
|
| 219,303 |
|
| (2,641,039 | ) |
| (2,388,518 | ) |
|
|
|
|
|
|
|
| ||||||||||
|
|
|
| * | Restated. |
87
Annex B(3)
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
2005 ANNUAL REPORT
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
2005 ANNUAL REPORT
TABLE OF CONTENTS
|
|
|
|
|
|
| Page |
| |||
| 2-3 | ||
|
|
| |
FINANCIAL STATEMENTS: |
|
| |
|
|
|
|
|
| 4-5 | |
|
|
|
|
|
| 6 | |
|
|
|
|
| Statements of changes in the Partnership’s capital deficiency |
| 7 |
|
|
|
|
|
| 8-10 | |
|
|
|
|
|
| 11-71 | |
|
|
|
|
| Kesselman & Kesselman |
To the partners of
GOLDEN CHANNELS & CO.(Registered Partnership)
We have audited the financial statements of Golden Channels & Co. – Registered Partnership (hereafter - the Partnership) and the consolidated financial statements of the Partnership and its subsidiary entities and proportionately consolidated companies (collectively – the Group): balance sheets as of December 31, 2005 and 2004, and the statements of income (loss), changes in the Partnership’s capital deficiency and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Partnership’s partners and management. Our responsibility is to express an opinion on these financial statements based on our audits.
We did not audit the financial statements of certain subsidiary entities and proportionately consolidated entities, whose assets included in consolidation constitute approximately 41% and 39% of total consolidated assets as of December 31, 2005 and 2004, respectively, and whose revenues included in consolidation constitute approximately 43%, 43% and 40% of total consolidated revenues for the years ended December 31, 2005, 2004 and 2003, respectively. We did not audit the financial statements of an associated entity, the Partnership’s interest in the profits of which amount to NIS 215,000 in 2003. The financial statements of the above subsidiary entities, proportionately consolidated entities and associate dentity were audited by other auditors, whose reports have been furnished to us, and our opinion, insofar as it relates to amounts included for those entities, is based on the reports of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted in Israel, including those prescribed by the Israeli Auditors (Mode of Performance) Regulations, 1973. 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 the Partnership’s partners and management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the financial position - of the Partnership and consolidated - - as of December 31, 2005 and 2004 and the results of operations, changes in the Partnership’s capital deficiency and cash flows - of the Partnership and consolidated - for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in Israel. Furthermore, in our opinion, the financial statements referred to above are prepared in accordance with the Israeli Securities (Preparation of Annual Financial Statements) Regulations, 1993.
As explained in note 1b, the financial statements, as of dates and for reporting periods subsequent to December 31, 2003, are presented in new Israeli shekels, in conformity with accounting standards issued by the Israel Accounting Standards Board. The financial statements as of dates and for reporting periods ended prior to, or on, the above date are presented in values that have been adjusted for the changes in the general purchasing power of the Israeli currency through that date, in accordance with pronouncements of the Institute of Certified Public Accountants in Israel.
2
Without qualifying our opinion, we draw attention to the following matters:
|
|
a. | In the years 2005, 2004 and 2003, the Group incurred losses of NIS 127 million, NIS 93 million and NIS 89 million, respectively, and also had a capital deficiency and a working capital deficit as of December 31, 2005 of NIS 459 million and NIS 1,491 million, respectively. The settlement of the Group’s liabilities and the continuation of its operating activities are dependent on, among other things, the banks agreeing not to demand repayment of the loans before January 1, 2007 at the earliest or on their readiness to grant alternative credit, as well as on positive cash flows being generated from operating activities. See note 1a(7) with regard to management’s assessment with regard to the above. |
|
|
b. | Uncertainty exists with regard to the Group’s contingent liabilities and to petitions for the certification of six claims as class actions, as referred to in note 13b to the financial statements. With regard to some of these contingent liabilities, provisions have been included in the financial statements, which, in management’s opinion, are sufficient to cover the liability that might materialize as a result thereof; with regard to those contingent liabilities, whose amounts cannot be estimated or whose outcome cannot be assessed at this stage, no provisions have been included in the financial statements. |
|
|
c. | As of December 31, 2005, a company that is a related party has an outstanding debt to the Group of NIS 131 million. This company has losses, a capital deficiency and a working capital deficit. Collection of this debt is contingent upon the ability of the above company to continue its operating activities and to settle its liabilities. Such ability is dependent on, among other things, the banks agreeing not to demand repayment of the loans granted to the above company before January 1, 2007 at the earliest or on their readiness to grant alternative credit. See note 12b with regard to management’s assessment with regard to the above. |
|
|
d. | As of December 31, 2005, an associated entity has outstanding debts to the Group and to the Partnership of NIS 92 million and NIS 91 million, respectively. The associated entity aforementioned has losses, a capital deficiency and a working capital deficit. Collection of this debt is contingent upon the associated entity’s attainment of positive cash flows from its operating activities and profits from its operations in the future. As to management’s opinion concerning the aforesaid, see note 4. |
|
|
e. | The financial statements for 2004 have been restated in order to reflect, with retroactive effect, a correction in respect of the proportionate consolidation of HOT Vision Ltd.’s financial statements with those of the Partnership. Previously, the investment in the aforesaid company was presented in the Partnership’s consolidated financial statements by the equity method – see also note 1p. |
|
|
f. | Within the framework of the negotiations that took place regarding the merger of the cable television entities (hereafter – the CTV entities), a verbal agreement was reached on February 21, 2006 concerning the main principles for the merger of the CTV entities. No certainty that the merger will be closed in accordance with these, or other, principles. See note 1a(8)(b). |
Tel-Aviv, Israel
April 26, 2006
3
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Partnership |
| |||||||||
|
|
|
|
|
| |||||||||||
|
|
|
| December 31 |
| December 31 |
| |||||||||
|
|
|
|
|
| |||||||||||
|
| Note |
| 2005 |
| 2004* |
| 2005 |
| 2004 |
| |||||
|
|
|
|
|
|
| ||||||||||
|
|
|
| NIS in thousands |
| NIS in thousands |
| |||||||||
|
|
|
|
|
| |||||||||||
|
|
|
|
|
|
|
| |||||||||
A s s e t s |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
| 1n |
|
| 7,731 |
|
| 3,414 |
|
| 38 |
|
| 563 |
|
Short-term deposits |
|
| 2 |
|
| 53 |
|
| 115 |
|
| 53 |
|
| 58 |
|
Accounts receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade |
|
|
|
|
| 29,600 |
|
| 24,482 |
|
| 3,901 |
|
| 3,143 |
|
Other |
|
|
|
|
| 9,130 |
|
| 11,347 |
|
| 6,165 |
|
| 5,601 |
|
|
|
|
|
|
|
|
|
| ||||||||
T o t a l current assets |
|
|
|
|
| 46,514 |
|
| 39,358 |
|
| 10,157 |
|
| 9,365 |
|
|
|
|
|
|
|
|
|
| ||||||||
INVESTMENTS IN INVESTEE ENTITIES AND LONG-TERM RECEIVABLES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term deposits |
|
| 2 |
|
| 147 |
|
| 174 |
|
| 147 |
|
| 174 |
|
Investments in subsidiary entities and in a proportionately consolidated company |
|
| 3 |
|
|
|
|
|
|
|
| 68,029 |
|
| **74,325 |
|
Investments in an associated entity |
|
| 4 |
|
| 71,930 |
|
| 13,585 |
|
|
|
|
|
|
|
Investment in limited partnerships |
|
| 6 |
|
| 770 |
|
| 1,880 |
|
|
|
|
|
|
|
Film and program screening rights |
|
| 7 |
|
| 27,513 |
|
| 30,097 |
|
|
|
|
|
|
|
Related parties |
|
| 12b |
|
| 130,849 |
|
| 145,309 |
|
| 90,721 |
|
| 39,410 |
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
| 231,209 |
|
| 191,045 |
|
| 158,897 |
|
| 113,909 |
|
|
|
|
|
|
|
|
|
| ||||||||
NEGATIVE MINORITY INTEREST IN SUBSIDIARY ENTITY |
|
| 5 |
|
| 57,260 |
|
| 50,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
FIXED ASSETS: |
|
| 8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost |
|
|
|
|
| 1,925,593 |
|
| 1,777,098 |
|
| 1,158,516 |
|
| 1,048,405 |
|
L e s s - accumulated depreciation |
|
|
|
|
| 1,215,078 |
|
| 1,061,780 |
|
| 706,622 |
|
| 605,414 |
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
| 710,515 |
|
| 715,318 |
|
| 451,894 |
|
| 442,991 |
|
|
|
|
|
|
|
|
|
| ||||||||
OTHER ASSETS AND DEFERRED CHARGES, net of accumulated amortization |
|
| 9 |
|
| 111,710 |
|
| 153,900 |
|
| 7,913 |
|
| 11,738 |
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
| 1,157,208 |
|
| 1,149,761 |
|
| 628,861 |
|
| 578,003 |
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
| |||
Yediot Communications Ltd. |
| Fishman Family Assets Ltd. |
| Tevel Israel International |
|
|
|
|
|
|
|
| ||
| Ram Belinkov |
| Israel Lederberg |
|
Date of approval of the financial statements: April 26, 2006.
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Partnership |
| |||||||||
|
|
|
|
|
| |||||||||||
|
|
|
| December 31 |
| December 31 |
| |||||||||
|
|
|
|
|
| |||||||||||
|
| Note |
| 2005 |
| 2004* |
| 2005 |
| 2004 |
| |||||
|
|
|
|
|
|
| ||||||||||
|
|
|
| NIS in thousands |
| NIS in thousands |
| |||||||||
|
|
|
|
|
| |||||||||||
Liabilities, net of the Partnership’s capital deficiency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit and loans from banks |
|
| 12c |
|
| 1,215,867 |
|
| 1,077,680 |
|
| 715,869 |
|
| 623,088 |
|
Accounts payable and accruals: |
|
| 12d |
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade |
|
|
|
|
| 212,005 |
|
| 216,711 |
|
| 166,812 |
|
| 168,349 |
|
Other |
|
|
|
|
| 109,721 |
|
| 126,541 |
|
| 73,955 |
|
| **83,497 |
|
|
|
|
|
|
|
|
|
| ||||||||
T o t a l current liabilities |
|
|
|
|
| 1,537,593 |
|
| 1,420,932 |
|
| 956,636 |
|
| 874,934 |
|
|
|
|
|
|
|
|
|
| ||||||||
LONG-TERM LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer deposits in respect of decoders, net of accumulated amortization |
|
| 1i |
|
| 23,243 |
|
| 29,502 |
|
| 15,597 |
|
| 19,771 |
|
Liability for employee rights upon retirement, net of amount funded |
|
| 10 |
|
| 9,826 |
|
| 4,989 |
|
| 5,423 |
|
| 2,180 |
|
Another liability, net of current maturity |
|
| 11 |
|
| 7,632 |
|
| 10,406 |
|
| 7,632 |
|
| 10,406 |
|
Related parties |
|
| 12e |
|
| 24,829 |
|
| 6,476 |
|
| 57,819 |
|
| 5,300 |
|
Excess of share in losses of subsidiary company over the investment therein |
|
| 3 |
|
|
|
|
|
|
|
| 45,002 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
T o t a l long-term liabilities |
|
|
|
|
| 65,530 |
|
| 51,373 |
|
| 131,473 |
|
| 37,657 |
|
|
|
|
|
|
|
|
|
| ||||||||
COMMITMENTS AND CONTINGENT LIABILITIES |
|
| 13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
T o t a l liabilities |
|
|
|
|
| 1,603,123 |
|
| 1,472,305 |
|
| 1,088,109 |
|
| 912,591 |
|
|
|
|
|
|
|
|
|
| ||||||||
MINORITY INTERESTS |
|
|
|
|
| 13,333 |
|
| 12,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
THE PARTNERSHIP’S CAPITAL DEFICIENCY |
|
|
|
|
| (459,248 | ) |
| (334,588 | ) |
| (459,248 | ) |
| (334,588 | ) |
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
| 1,157,208 |
|
| 1,149,761 |
|
| 628,861 |
|
| 578,003 |
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
* | Restated, see note 1p. |
| |
** | Reclassified. |
The accompanying notes are an integral part of the financial statements.
5
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
STATEMENTS OF INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| C o n s o l i d a t e d |
| T h e P a r t n e r s h i p |
| ||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||
|
| Note |
| 2005 |
| 2004* |
| 2003 |
| 2005 |
| 2004 |
| 2003 |
| |||||||
|
|
|
|
|
|
|
|
| ||||||||||||||
|
|
|
|
| NIS in thousands (see note 1b) |
| NIS in thousands (see note 1b) |
| ||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||
REVENUES |
|
| 12f |
|
| 643,409 |
|
| 667,255 |
|
| 621,830 |
|
| 359,803 |
|
| 374,458 |
|
| 369,285 |
|
OPERATING EXPENSES |
|
| 12g |
|
| 610,623 |
|
| 569,860 |
|
| **535,742 |
|
| 339,369 |
|
| **313,281 |
|
| **296084 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
GROSS PROFIT |
|
|
|
|
| 32,786 |
|
| 97,395 |
|
| 86,088 |
|
| 20,434 |
|
| 61,177 |
|
| 73,201 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
SELLING, MARKETING, ADMINISTRATIVE AND GENERAL EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
| 12h |
|
| 63,829 |
|
| 70,647 |
|
| 51,894 |
|
| 35,108 |
|
| 40,939 |
|
| 31,176 |
|
Administrative and general |
|
| 12i |
|
| 27,818 |
|
| 25,341 |
|
| **25,394 |
|
| 13,300 |
|
| **11,500 |
|
| **13,870 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
| 91,647 |
|
| 95,988 |
|
| 77,288 |
|
| 48,408 |
|
| 52,439 |
|
| 45,046 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
INCOME (LOSS) FROM OPERATIONS BEFORE FINANCIAL AND OTHER EXPENSES |
|
|
|
|
| (58,861 | ) |
| 1,407 |
|
| 8,800 |
|
| (27,974 | ) |
| 8,738 |
|
| 28,155 |
|
FINANCIAL EXPENSES, net |
|
| 12j |
|
| (65,643 | ) |
| (59,215 | ) |
| (101,863 | ) |
| (46,823 | ) |
| (40,253 | ) |
| (62,925 | ) |
OTHER INCOME (EXPENSES), net |
|
| 12k |
|
| 8,511 |
|
| (26,010 | ) |
| 63 |
|
| 4,602 |
|
| (16,418 | ) |
| 4 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
LOSS FROM OPERATIONS BEFORE TAXES ON INCOME |
|
|
|
|
| 115,993 |
|
| 83,818 |
|
| 93,000 |
|
| 70,195 |
|
| 47,933 |
|
| 34,766 |
|
TAXES |
|
| 14 |
|
| 1,785 |
|
| 3,453 |
|
| 115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
LOSS AFTER TAXES |
|
|
|
|
| 117,778 |
|
| 87,271 |
|
| 93,115 |
|
| 70,195 |
|
| 47,933 |
|
| 34,766 |
|
SHARE IN LOSSES OF ASSOCIATED ENTITY |
|
| 4 |
|
| 14,842 |
|
| 4,952 |
|
| 144 |
|
|
|
|
|
|
|
| 94 |
|
SHARE IN LOSSES OF SUBSIDIARY ENTITIES, net |
|
| 3 |
|
|
|
|
|
|
|
|
|
|
| 56,594 |
|
| 45,319 |
|
| 54,336 |
|
MINORITY INTERESTS IN PROFITS (LOSSES) OFSUBSIDIARY ENTITIES, net |
|
| 5 |
|
| (5,831 | ) |
| 1,029 |
|
| (4,063 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
LOSS FOR THE YEAR - CARRIED TO THE PARTNERSHIP’S CAPITAL DEFICIENCY |
|
|
|
|
| 126,789 |
|
| 93,252 |
|
| 89,196 |
|
| 126,789 |
|
| 93,252 |
|
| 89,196 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
* | Restated, see note 1p. |
|
|
** | Reclassified. |
The accompanying notes are an integral part of the financial statements.
6
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
STATEMENTS OF CHANGES IN THE PARTNERSHIP’S CAPITAL DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Yediot |
| Tevel Israel |
| Fishman |
| Total |
| ||||
|
| ||||||||||||
|
| N I S i n t h o u s a n d s (s e e n o t e 1 b) |
| ||||||||||
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT JANUARY 1, 2003 |
|
| (74,545 | ) |
| (54,743 | ) |
| (27,371 | ) |
| (156,659 | ) |
CHANGES DURING 2003: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees* |
|
| 1,723 |
|
| 1,270 |
|
| 635 |
|
| 3,628 |
|
Payments of income tax in respect of the partners |
|
| (273 | ) |
| (202 | ) |
| (101 | ) |
| (576 | ) |
Loss |
|
| (42,368 | ) |
| (31,219 | ) |
| (15,609 | ) |
| (89,196 | ) |
|
|
|
|
|
| ||||||||
BALANCE AT DECEMBER 31, 2003 |
|
| (115,463 | ) |
| (84,893 | ) |
| (42,446 | ) |
| (242,803 | ) |
CHANGES DURING 2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees* |
|
| 1,718 |
|
| 1,266 |
|
| 633 |
|
| 3,617 |
|
Payments of income tax in respect of the partners |
|
| (1,021 | ) |
| (752 | ) |
| (377 | ) |
| (2,150 | ) |
Loss |
|
| (44,295 | ) |
| (32,638 | ) |
| (16,319 | ) |
| (93,252 | ) |
|
|
|
|
|
| ||||||||
BALANCE AT DECEMBER 31, 2004 |
|
| (159,061 | ) |
| (117,018 | ) |
| (58,509 | ) |
| (334,588 | ) |
CHANGES DURING 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees* |
|
| 1,625 |
|
| 1,196 |
|
| 599 |
|
| 3,420 |
|
Payments of income tax in respect of the partners |
|
| (613 | ) |
| (452 | ) |
| (226 | ) |
| (1,291 | ) |
Loss |
|
| (60,225 | ) |
| (44,376 | ) |
| (22,188 | ) |
| (126,789 | ) |
|
|
|
|
|
| ||||||||
BALANCE AT DECEMBER 31, 2005 |
|
| (218,274 | ) |
| (160,650 | ) |
| (80,324 | ) |
| (459,248 | ) |
|
|
|
|
|
| ||||||||
* As to the payment of management fees, see note 13a(6).
The accompanying notes are an integral part of the financial statements.
7
(Continued) - 1
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Partnership |
| ||||||||||||||
|
|
|
| ||||||||||||||||
|
| 2005 |
| 2004* |
| 2003 |
| 2005 |
| 2004 |
| 2003 |
| ||||||
|
|
|
|
|
|
|
| ||||||||||||
|
| NIS in thousands (see note 1b) |
| NIS in thousands (see note 1b) |
| ||||||||||||||
|
|
|
| ||||||||||||||||
|
|
|
|
|
| ||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year |
|
| (126,789 | ) |
| (93,252 | ) |
| (89,196 | ) |
| (126,789 | ) |
| (93,252 | ) |
| (89,196 | ) |
Adjustments required to reflect the cash flows from operating activities (a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income and expenses not involving cash flows |
|
| 245,264 |
|
| 224,457 |
|
| 164,735 |
|
| 169,143 |
|
| 134,632 |
|
| 135,841 |
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
| 118,475 |
|
| 131,205 |
|
| 75,539 |
|
| 42,354 |
|
| 41,380 |
|
| 46,645 |
|
Changes in operating asset and liability items |
|
| (50,435 | ) |
| 14,672 |
|
| 1,168 |
|
| (19,907 | ) |
| 21,221 |
|
| (542 | ) |
|
|
|
|
|
|
|
| ||||||||||||
Net cash provided by operating activities |
|
| 68,040 |
|
| 145,877 |
|
| 76,707 |
|
| 22,447 |
|
| 62,601 |
|
| 46,103 |
|
|
|
|
|
|
|
|
| ||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Withdrawal of deposits - net |
|
| 89 |
|
| 37 |
|
| 110 |
|
| 32 |
|
| 94` |
|
| 110 |
|
Purchase of fixed assets |
|
| (155,140 | ) |
| (117,574 | ) |
| (105,207 | ) |
| (109,931 | ) |
| (64,404 | ) |
| (66,044 | ) |
Amounts carried to other assets and deferred charges |
|
| (28 | ) |
| (360 | ) |
| (421 | ) |
| (200 | ) |
| (575 | ) |
| (480 | ) |
Proceeds from the sale of fixed assets |
|
| 1,336 |
|
| 115 |
|
| 6,395 |
|
| 1,306 |
|
| 115 |
|
| 4,043 |
|
Investment in limited partnerships |
|
| (13 | ) |
| (99 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Proportionately consolidated subsidiary company consolidated for the first time (c) |
|
|
|
|
|
|
|
| *2,231 |
|
|
|
|
|
|
|
|
|
|
Change in balances with related parties - net |
|
| 11,902 |
|
| (23,425 | ) |
| (11,904 | ) |
| (54,176 | ) |
| 6,017 |
|
| 19,234 |
|
Collection of loans from investee entities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 216 |
|
Grant of loans to investee entities |
|
| (73,186 | ) |
| (18,539 | ) |
|
|
|
| (9,922 | ) |
| (14,059 | ) |
| (8,415 | ) |
|
|
|
|
|
|
|
| ||||||||||||
Net cash used in investing activities |
|
| (215,040 | ) |
| (159,845 | ) |
| (108,796 | ) |
| (172,891 | ) |
| (72,812 | ) |
| (51,336 | ) |
|
|
|
|
|
|
|
| ||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments of income tax in respect of the partners |
|
| (1,291 | ) |
| (2,150 | ) |
| (576 | ) |
| (1,291 | ) |
| (2,150 | ) |
| (576 | ) |
Receipt of loans from related parties |
|
| 16,132 |
|
|
|
|
| 6,641 |
|
| 59,457 |
|
|
|
|
| 5,496 |
|
Change in deposits from customers for decoders - net |
|
| (1,708 | ) |
| (1,382 | ) |
| 1,144 |
|
| (1,027 | ) |
| (732 | ) |
| 907 |
|
Short-term credit from banks - net |
|
| 138,184 |
|
| 37,019 |
|
| 8,471 |
|
| 92,780 |
|
| 32,053 |
|
| (19,093 | ) |
Proceeds from short-selling (consideration for acquiring) marketable debentures |
|
|
|
|
| (18,798 | ) |
| 18,774 |
|
|
|
|
| (18,798 | ) |
| 18,774 |
|
|
|
|
|
|
|
|
| ||||||||||||
Net cash provided by financing activities |
|
| 151,317 |
|
| 14,689 |
|
| 34,454 |
|
| 149,919 |
|
| 10,373 |
|
| 5,508 |
|
|
|
|
|
|
|
|
| ||||||||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
| 4,317 |
|
| 721 |
|
| 2,365 |
|
| (525 | ) |
| 162 |
|
| 275 |
|
BALANCE OF CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR |
|
| 3,414 |
|
| 2,693 |
|
| 328 |
|
| 563 |
|
| 401 |
|
| 126 |
|
|
|
|
|
|
|
|
| ||||||||||||
BALANCE OF CASH AND CASH EQUIVALENTS AT END OF YEAR |
|
| 7,731 |
|
| 3,414 |
|
| *2,693 |
|
| 38 |
|
| 563 |
|
| 401 |
|
|
|
|
|
|
|
|
| ||||||||||||
8
(Continued) - 2
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Partnership |
| ||||||||||||||
|
|
|
| ||||||||||||||||
|
| 2005 |
| 2004* |
| 2003 |
| 2005 |
| 2004 |
| 2003 |
| ||||||
|
|
|
|
|
|
|
| ||||||||||||
|
| NIS in thousands (see note 1b) |
| NIS in thousands (see note 1b) |
| ||||||||||||||
|
|
|
| ||||||||||||||||
|
|
|
|
|
| ||||||||||||||
(a) Adjustments required to reflect the cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income and expenses not involving cash flows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and management fees to partners |
|
| 3,420 |
|
| 3,617 |
|
| 3,628 |
|
| 3,420 |
|
| 3,617 |
|
| 3,628 |
|
Minority interest in profits (losses) of subsidiary entities - net |
|
| (5,831 | ) |
| 1,029 |
|
| (4,063 | ) |
|
|
|
|
|
|
|
|
|
Share in losses of subsidiary entities - net |
|
|
|
|
|
|
|
|
|
|
| 56,594 |
|
| 45,319 |
|
| 54,336 |
|
Share in losses of associated entity |
|
| 14,842 |
|
| 4,952 |
|
| 144 |
|
|
|
|
|
|
|
| 94 |
|
Depreciation and amortization |
|
| 198,036 |
|
| 178,523 |
|
| 164,854 |
|
| 106,941 |
|
| 90,154 |
|
| 78,811 |
|
Loss from non-return of decoders and installation costs in respect of customers that have left |
|
| 1,774 |
|
| 4,643 |
|
| 5,860 |
|
| 1,115 |
|
| 2,424 |
|
| 3,446 |
|
Liability for employee rights upon retirement - net |
|
| 4,837 |
|
| (2,040 | ) |
| 1,375 |
|
| 3,242 |
|
| (1,680 | ) |
| 833 |
|
Capital losses (gains) on the sale of fixed assets |
|
| (98 | ) |
| (115 | ) |
| 27 |
|
| (98 | ) |
| (115 | ) |
| 84 |
|
Revaluation of customers’ deposits for decoders |
|
| (4,551 | ) |
| (5,642 | ) |
| (5,810 | ) |
| (3,147 | ) |
| (3,837 | ) |
| (4,021 | ) |
Write-down of investment in limited partnerships |
|
| 1,119 |
|
| 537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of film screening rights |
|
| 32,456 |
|
| 39,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses in respect of the reduction of other liabilities |
|
| (1,202 | ) |
| (1,124 | ) |
| (1,143 | ) |
|
|
|
|
|
|
|
|
|
Linkage differences and interest in respect of long-term loans from shareholders |
|
| 462 |
|
| 78 |
|
|
|
|
| 1,769 |
|
| 45 |
|
|
|
|
Loss (gain) on marketable debentures short-sold |
|
|
|
|
| 163 |
|
| (137 | ) |
|
|
|
| 161 |
|
| (137 | ) |
Exchange differences and interest in respect of long-term loans granted |
|
|
|
|
|
|
|
|
|
|
| (693 | ) |
| (1,456 | ) |
| (1,233 | ) |
|
|
|
|
|
|
|
| ||||||||||||
|
|
| 245,264 |
|
| 224,457 |
|
| 164,735 |
|
| 169,143 |
|
| 134,632 |
|
| 135,841 |
|
|
|
|
|
|
|
|
| ||||||||||||
Changes in operating asset and liability items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade |
|
| (5,118 | ) |
| (6,386 | ) |
| (609 | ) |
| (755 | ) |
| (498 | ) |
| 1,829 |
|
Other |
|
| 2,217 |
|
| (478 | ) |
| (2,864 | ) |
| (570 | ) |
| 1,629 |
|
| (2,229 | ) |
Increase in film and screening rights |
|
| (29,872 | ) |
| (30,582 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in accounts payable and accruals: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade |
|
| 730 |
|
| (6,444 | ) |
| (5,102 | ) |
| (7,468 | ) |
| (18,451 | ) |
| (3,194 | ) |
Other |
|
| (17,233 | ) |
| 60,457 |
|
| 12,708 |
|
| (9,955 | ) |
| 40,405 |
|
| 6,017 |
|
Decrease in another liability - net |
|
| (1,159 | ) |
| (1,895 | ) |
| (2,965 | ) |
| (1,159 | ) |
| (1,864 | ) |
| (2,965 | ) |
|
|
|
|
|
|
|
| ||||||||||||
|
|
| (50,435 | ) |
| 14,672 |
|
| 1,168 |
|
| (19,907 | ) |
| 21,221 |
|
| (542 | ) |
|
|
|
|
|
|
|
| ||||||||||||
|
|
| 194,866 |
|
| 239,130 |
|
| 165,903 |
|
| 149,240 |
|
| 155,853 |
|
| 135,299 |
|
|
|
|
|
|
|
|
| ||||||||||||
9
(Concluded) - 3
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Partnership |
| ||||||||||||||
|
|
|
| ||||||||||||||||
|
| 2005 |
| 2004* |
| 2003 |
| 2005 |
| 2004 |
| 2003 |
| ||||||
|
|
|
|
|
|
|
| ||||||||||||
|
| NIS in thousands (see note 1b) |
| NIS in thousands (see note 1b) |
| ||||||||||||||
|
|
|
| ||||||||||||||||
|
|
|
|
|
| ||||||||||||||
(b) Supplementary information on investing activities not involving cash flows- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of fixed assets with suppliers’ credit |
|
| 59,407 |
|
| 60,537 |
|
| 34,698 |
|
| 49,721 |
|
| 45,511 |
|
| 23,986 |
|
|
|
|
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| ||||||||||||
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(c) Proportionately consolidated subsidiary company consolidated for the first time: |
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Assets and liabilities of the proportionally consolidated subsidiary company at date of being consolidated for the first time: |
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|
|
|
|
|
|
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|
|
Working capital (excluding cash and cash equivalents) |
|
|
|
|
|
|
|
| (42,836 | ) |
|
|
|
|
|
|
|
|
|
Investment in limited partnerships |
|
|
|
|
|
|
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| 2,317 |
|
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|
|
|
|
|
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|
|
Film and program screening rights |
|
|
|
|
|
|
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| 39,352 |
|
|
|
|
|
|
|
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|
|
Fixed assets, net |
|
|
|
|
|
|
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| 1,287 |
|
|
|
|
|
|
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|
|
Long-term liabilities |
|
|
|
|
|
|
|
| (831 | ) |
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|
|
|
|
|
|
|
|
Carrying amount of investment in this company prior to the consolidation |
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|
|
|
|
|
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| (1,520 | ) |
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|
|
|
|
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|
|
|
|
|
|
|
|
|
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| ||
|
|
|
|
|
|
|
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| (2,231 | ) |
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| ||
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* | Restated, see note 1p. |
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** | Reclassified. |
The accompanying notes are an integral part of the financial statements.
10
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
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NOTE 1 – | SIGNIFICANT ACCOUNTING POLICIES | ||||
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| The financial statements are drawn up in conformity with accounting principles generally accepted in Israel and in accordance with the Israeli Securities (Preparation of Annual Financial Statements) Regulations, 1993. The significant accounting policies, which, except for the changes required by the transition to nominal financial reporting in 2004 (see b. below), the increase in the depreciation rate of decoders in 2004 and the discontinuance in 2005 of amortizing installation costs, net, in respect of installations no longer in use (see e. below), were applied on a consistent basis, after giving retroactive effect to the proportionate consolidation of HOT Vision Ltd. in the consolidated financial statements, are as follows: | ||||
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| a. | General: |
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| |
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| 1) | Definitions: |
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| Associated entity | - | an entity (which is not a subsidiary entity or a proportionately consolidated company), over whose financial and operational policy the Partnership exerts material influence, the investment in which is presented by the equity method. Material influence is deemed to exist when the percentage holding in said entity is 20% or more, unless there are circumstances that contradict this assumption |
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| Bezeq | - | Bezeq – The Israel Telecommunication Corp. Ltd. |
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| Commissioner | - | the Anti-Trust Commissioner |
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| Council | - | the Cable and Satellite Broadcast Council |
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| CTV | - | cable television |
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| DO license | - | general license for domestic static telecommunication services |
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| Entity | - | a legal body that is either a company or a partnership |
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| Fishman | - | Fishman Family Assets Ltd. |
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| Goodwill | - | the difference between the cost of the investment in the subsidiary entities and the Partnership’s share in the fair value of their underlying assets (excluding the franchise), net of the fair value of their underlying liabilities, at date of acquisition, net of related taxes |
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| Group | - | the Partnership, subsidiary entities and the proportionately consolidated company |
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| Gvanim | - | Gvanim Cable Television Ltd. |
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| HOT Telecom | - | HOT Telecom Limited Partnership – an associated entity |
11
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
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NOTE 1 – | SIGNIFICANT ACCOUNTING POLICIES (continued): | ||||
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| HOT Vision | - | HOT Vision Ltd. – a proportionately consolidated company |
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| Idan | - | Idan Israeli Cable Television Ltd. |
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| Interested parties | - | as defined in the Israeli Securities (Preparation of Annual Financial Statements) Regulations, 1993 |
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| Investee entity | - | An entity that is a subsidiary entity or a proportionately consolidated company or an associated entity |
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| Israeli CPI | - | the Israeli consumer price index |
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| Matav | - | Matav Cable Systems Media Ltd. |
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| Partnership | - | the Golden Channels partnership |
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| Proportionately consolidated company | - | a jointly controlled company, none of whose shareholders holds exclusive control, the financial statements of which are consolidated with those of the Partnership by the proportionate consolidation method |
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| Edom | - | Edom Channels Ltd. – a subsidiary entity |
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| Related parties | - | as defined in Opinion 29 of the Institute of Certified Public Accountants in Israel (hereafter – the Israeli Institute) |
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| TLM | - | Subscriber Television Company Ltd. – a related party of Golden Channels |
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| Subsidiary entity | - | an entity over which the Partnership has control and over 50% of the ownership, the financial statements of which have been consolidated with the financial statements of the Partnership (and which is included by the equity method in the Partnership’s solo financial statements), which is not a proportionately consolidated company. |
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| Telecom | - | Golden Telecom 2001 Limited Partnership – a Domestic Operator entity – a subsidiary entity |
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| Telecommunications | - | the Bezeq Law, 1982, whose name was changed to the Telecommunications (Bezeq and Broadcasts) Law, 1982 |
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| Tevel | - | Tevel International Broadcasting Ltd. |
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| Trade Restrictions |
| the Trade Restrictions Law, 1988 |
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| Warner | - | Warner Brothers International |
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| Yediot | - | Yediot Communications Ltd. |
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| YES | - | DBS Satellite Services (1998) Ltd. |
12
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
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NOTE 1 – | SIGNIFICANT ACCOUNTING POLICIES(continued): | ||||
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| 2) | Use of estimates in the preparation of financial statements | ||
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| The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. | ||
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| 3) | Information concerning the Group’s activities: | ||
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| The Group is active in two fields, as follows: | ||
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| a) | The Partnership, Idan and Edom are active in the field of cable television: | |
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| (i) | Within the framework of general licenses for cable broadcasting (hereafter – the Broadcasts), which were granted in April 2002 for a 15-year period, the Partnership and Idan provide Broadcasts to subscribers in return for monthly subscription fees in the following regions of Israel: Ramat Gan, Petah Tikva, Jerusalem, Beit She’an, Be’er Sheva, Acco, Naharia and Rehovot. The Council is authorized to extend the period of the above licenses, on each occasion, by a further 10-year period. |
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| Broadcasts are provided to the town of Ma’ale Edumin by Edom within the framework of a license agreement granted to the regional operator. On December 16, 2002, the Head of the Civil Administration decided to extend the period of the license of the regional operator license for Ma’ale Edumin until December 31, 2006. In June 2005, an agreement was signed between Edom and the Efrat Local Council, pursuant to which Edom is to supply various services and communication broadcasts in Efrat. The agreement is for a 10-year period. |
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| As to guarantees that the Group has provided in relation to the above licenses, see note 13b(20)(b). |
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| (ii) | On May 2, 2002, the Ministry of Communications granted the Partnership a license to operate a main broadcasting center and a secondary broadcasting center using both analog and digital technologies. The license is for a 15-year period or for so long as the licenses of the CTV entities are valid – whichever is the earlier. |
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| |
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| b) | Telephony, fast Internet services over cable, and data transmission and communication services activities: | |
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| (i) | The services are provided through HOT Telecom, which was established together with the other CTV entities in November 2003 for the purpose of setting-up and operating domestic communication services over the cable networks, and began its operations in this field on January 1, 2004 (see note 4). |
13
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
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NOTE 1 – | SIGNIFICANT ACCOUNTING POLICIES (continued): | ||||
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| On November 25, 2003, the Ministry of Communications granted HOT Telecom a general license for domestic static telecommunication services (hereafter – DO license), including the provision of telephony services, portal services to Internet providers, infrastructure services for the distribution of CTV services, data communications, digital transmissions, , The DO license was granted for a 20-year period, with the Minister of Communications authorized to extend it for additional periods, each of 10 years. |
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| The DO license replaces and cancels the previous DO licenses granted in 2002 to Telecom. |
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| On March 16, 2005, the DO license granted to HOT Telecom was amended to enable HOT Telecom to enter into agreements with subscribers, including subscribers of the former license holders, in order to provide a portal service to Internet providers, via the former license holders. The provision of this service is to be considered as a service to be provided by HOT Telecom, this being for the duration of the period from the date of the grant of the DO license through to the date on which the merger of the CTV entities takes place. As of the date of the financial statements, Internet operations in the private sector are carried out by the former license holders, while Internet operations in the business sector are carried out by HOT Telecom. |
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| In the approval for the merger of the CTV entities, which was granted by the Commissioner on April 22, 2002 and as amended from time to time (“the Commissioner’s Conditions for the Merger”), it is stated that the telephony investment by HOT Telecom is to be an amount of not less than NIS 350 million and any additional amount necessary to fulfill HOT Telecom’s business plan to provide telephony services that can compete fully with the telephony services provided by Bezeq. Pursuant to the Commissioner’s Conditions for the Merger, HOT Telecom had until June 30, 2005 to invest an amount of at least NIS 190 million, and until June 30, 2006, it has to invest a further amount of at least NIS 160 million and any additional amount necessary to fulfill HOT Telecom’s business plan to provide telephony services. The Commissioner’s Conditions for the Merger also prescribe a minimum quantity of subscribers that have to be connected to HOT Telecom’s telephony services for the years 2005-2007. |
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| As of the date of the approval of the financial statements of HOT Telecom (in March 2006), HOT Telecom was in compliance with the conditions stipulated by the Commissioner with regard to the investment level and the number of subscribers to be connected. As of the aforesaid date, HOT Telecom’s investment amounted to NIS 309 million. |
14
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
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NOTE 1 – | SIGNIFICANT ACCOUNTING POLICIES (continued): | ||||
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| (ii) | Ownership of the cable network |
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| Pursuant to the Telecommunications Law, the grant of the DO license to HOT Telecom is conditional on the holders of the Broadcast licenses transferring to the entity, which serves as the holder of the DO license, the rights to the cable network used for their Broadcasts. Nevertheless, it is stated in the DO license granted to Telecom, and subsequently in the DO license granted to HOT Telecom, that during a certain transition period, which is to end not later than June 30, 2006 or, in the event of a merger between the general license holders for cable broadcasting, on the date that said merger takes place, whichever is the earlier, that - in accordance with the agreement between HOT Telecom and the Broadcast license holders - HOT Telecom shall have the exclusive right to, among other things, make any improvement to the cable network and perform any action allowed under the terms of the DO license and the Telecommunications Law. |
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| At the end of the transition period, the CTV entities are required to transfer the title to the cable network to HOT Telecom. As of the date of the approval of the financial statements, title to the cable network had not yet been transferred to HOT Telecom. |
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| On September 15, 2005, agreements were signed between HOT Telecom and the CTV entities, pursuant to which the CTV entities granted HOT Telecom the exclusive rental rights to the network. Rights and obligations assignment deeds were also signed, pursuant to which the former license holders are assigning to HOT Telecom their rights and obligations under agreements for the provision of cable distribution services, which had previously been signed between the CTV entities and the former license holders. The rental fees have yet to be determined. |
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| The agreement is effective retroactively from November 25, 2003 until the end of the transition period as defined above. The considerations for the network usage rights and also for the services that HOT Telecom is to provide to the CTV entities have yet to be determined. |
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| In management’s opinion, the effect of determining the above considerations, net of the Group’s share in HOT Telecom’s expenses, is not material. |
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| (iii) | Financing |
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| Pursuant to the founders’ agreement of the Partnership’s general partner (HOT Telecom Ltd.), its shareholders have undertaken to provide HOT Telecom with the financing needed for its operating activities during the 3-year period commencing from the date of approval of its business plan. The financing is to be provided in the amounts and at the times approved by the board of directors (“the basic financing”). Following provision of the basic financing, the parties have undertaken to provide the additional financing needed for the continuation of HOT Telecom’s activities, in accordance with its business plan. |
15
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
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NOTE 1 – | SIGNIFICANT ACCOUNTING POLICIES (continued): | ||||
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| In May 2004, the CTV entities submitted to banks a business plan for the approval of a credit facility in the aggregate amount of NIS 534 million, which is to serve the planned activities of HOT Telecom. As of December 31, 2005, the CTV entities have an approved credit facility in the aggregate amount of $75 million, which enabled HOT Telecom to carry out the initial stages of the aforementioned business plan. In parallel, HOT Telecom is working with the CTV entities to find additional sources of finance. |
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| (iv) | Structural separation |
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| The Broadcast licenses and the DO license contain provisions requiring that a structural separation be made between the holders of the Broadcast licenses and the holder of the DO license. Pursuant to these provisions, restrictions apply to the identity and the number of the directors who serve on the board of a Broadcast license holder and of the general partner of the DO License holder. |
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| Additionally, pursuant to the aforementioned licenses, if another general license is granted for cable broadcasts over the cable network, or if the number of Internet subscribers reaches 450,000, or if the number of telephone lines operated by HOT Telecom reaches 250,000, or on December 31, 2007 (an additional condition that appears only in the Broadcast licenses) – then the license holders shall make a structural separation in the manner detailed in the licenses, including, among other things, a separation between the managements of the license holders, a separation between the assets of the license holders and also a separation between the employees of the license holders. |
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| (v) | On December 18, 2003, the Partnership provided a bank guarantee in connection with the above DO license (see note 13b(20)(b)). |
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| 4) | Bill for the provision of a basket of basic services | ||
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| In November 2005, a draft of the Settlements in the State Economy (Legislative Amendments to Attain the Budgetary Targets and Economic Policies for the 2006 Fiscal Year) Law, 2005 was published. Within the framework of this bill, there is a proposal to amend the Telecommunications Law whereby the Cable TV entities would be required to provide a basket of basic services to their subscribers, without conditioning the provision of the basket on the purchase of broadcasts or services not included therein. | ||
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| The aforementioned bill also provides that the Minister of Communications, with the agreement of the Minister of Finance and on the advice of the Council, shall be authorized to determine the maximum amount to be paid for said basket of basic services, basing his determination on the cost of providing the basket and with the addition of a reasonable margin for the CTV entities. Pursuant to the aforementioned bill, the proposed amendment to the Telecommunications Law will become effective on January 1, 2007. | ||
16
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
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NOTE 1 – | SIGNIFICANT ACCOUNTING POLICIES (continued): | ||||
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| In the opinion of the Partnership’s management, in the event that the aforementioned bill is passed, this could result in changes in the consumer habits of multi-channel television subscribers. As of the date of approval of the financial statements, the Partnership is unable to assess the effect of the proposed legislation on its future business results. | ||
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| 5) | Application by YES to provide VOD services | ||
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| In October 2005, The Ministry of Communications asked the CTV entities to present their position with regard to YES’s application to provide a VOD service over Bezeq’s ADSL network. The CTV entities’ position was submitted to the Ministry of Communications in January 2006, since which time, to the best of the Partnership’s knowledge, no change has occurred in the status of this issue. | ||
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| In the opinion of the Partnership’s management, in the event that YES should begin to provide a VOD service using the aforementioned technology, the CTV entities would no longer be the sole providers of this service, and thus, as Bezeq will begin acting as a content provider as part of its alliance with YES, this could have a material detrimental effect on the Partnership’s business and on its future business results. | ||
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| 6) | Terrestrial digital network | ||
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| In August 2005, the Government decided to promote the establishment of a homogeneous terrestrial (land) digital network, throughout Israel, that would be used to distribute to the public, free of charge, the television channels of the Broadcasting Authority (Channels 1 and 33), the commercial television channels (Channels 10 and 22) and the Knesset Channel (Channel 99). | ||
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| Pursuant to the aforementioned Government decision, an inter-ministerial tenders committee was formed to select the party that would plan, construct and operate the distribution network for the above broadcasts. The Government decision also prescribes that the tenders committee shall require the winner of the tender to take the necessary steps so that the distribution of broadcasts in the aforementioned format shall commence no later than January 1, 2007. | ||
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| In the opinion of the Partnership’s management, if the Government decision were to be realized, this could result in changes in the consumer habits of multi-channel television subscribers. As of the date of approval of the financial statements, the Partnership is unable to assess the effect of the realization of the Government decision on its future business results. | ||
17
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
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NOTE 1 – | SIGNIFICANT ACCOUNTING POLICIES (continued): | ||||
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| 7) | Losses and working capital deficit | ||
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| In the years 2005, 2004 and 2003, the Group incurred losses of NIS 127 million, NIS 93 million and NIS 89 million, respectively, and also had a capital deficiency and a working capital deficit as of December 31, 2005 of NIS 459 million and NIS 1,491 million, respectively. The funding of the working capital deficit, the settlement of the Group’s liabilities and the continuation of its operating activities are dependent on the achievement of the business plan, including the generation of positive cash flows from operating activities in the coming years and the banks agreeing not to demand repayment of the loans granted or on their readiness to grant alternative credit (see also note 16e). In the opinion of the Partnership’s management, the banks will extend the credit period until at least January 1, 2007 and the Group also anticipates that positive cash flows will be generated from operating activities. | ||
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| The Group also believes that the launch of an integrated services package (comprising CTV, Internet and telephony), together with significant infrastructure and network investment (including telephony investment through HOT Telecom, see (3)(b)(i) above), will result in an increase in future revenues and in the Group’s share of the Israeli telecommunications market, which will also cause a marked improvement in the Group’s operating profit. | ||
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| During 2005, the main banks that finance the Group approved an increase in the credit facility and also actually made loans available both in 2005 and through to the date of approval of these financial statements. For the purpose of the aforesaid increase, the Group had provided various collateral as of the date of approval of the financial statements (see note 16c). | ||
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| As to the merger of the CTV entities, see also (8) below. | ||
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| As to the situations of a related company and an associated entity, which have outstanding debts to the Group amounting to NIS 131 million and NIS 90 million, respectively, see notes 12b and 4d. | ||
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| 8) | Merger of the CTV entities: | ||
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| a) | The operational merger | |
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| Since 2001, the CTV entities have progressively been taking steps to merge their operations. Among other objectives, the merger is intended to enable the merged entity to consolidate, improve and expand its operations as a national body in the field of multi-channel television broadcasts, to compete more effectively with its competitors (primarily, the satellite company, YES), to form alliances in various fields, including the purchasing of content, marketing and sales, and also to achieve significant savings in operating expenses. | |
18
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
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NOTE 1 – | SIGNIFICANT ACCOUNTING POLICIES (continued): | ||||
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| Approvals for the merger of the CTV entities have been received from the Anti-Trust Commissioner, the Cable and Satellite Broadcast Council and the tax authorities. Pursuant to the position of the Bank of Israel’s Supervisor of Banks (hereafter – the Supervisor), the merger of the CTV entities and the establishment of the merged cable company (see (b) below) constitutes a deviation from the Bank of Israel’s directives and the Proper Banking Management Provisions. The aforementioned position of the Supervisor has implications with regard to the attribution of the indebtedness of the merged company to, among others, the indirect control holders of the CTV entities. | |
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| In June 2004, implementation commenced of the operational merger between the CTV entities (including the Partnership), with the objective of strengthening the cooperation between the CTV entities. To further this objective, a joint management was appointed whose task it is to oversee the operational merger and the activities of the CTV entities (including those of HOT Telecom) in the field of marketing, sales, engineering, customer service, operations, and IT. The Partnership’s activities during the normal course of business, in relation to the matters being handled cooperatively, are subject to decisions taken by the joint management. This notwithstanding, significant decisions are subject to the approval of the board of directors and the other authorized bodies of each of the CTV entities, as legally required. The CTV entities have agreed on the principles for allocating costs, this being pro rata to each entity’s share of the sector’s total number of subscribers. The operational merger does not constitute a legal merger and does not include the transfer of assets or liabilities from a particular CTV entity to the joint entity or from a particular CTV entity to another. Each of the CTV entities remains the sole owner of its assets and the rights to the income that is received from its cable subscribers (for further details, see sub-section (b) below). | |
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| b) | The legal merger | |
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| Within the context of the negotiations held concerning the merger of the CTV entities, oral accords were reached on February 21, 2006, between Matav, Fishman, Yediot, and the banks that hold the shares in Tevel, with regard to principles of the merger between the CTV entities. | |
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| Pursuant to the above accords, Matav is to absorb the activities and assets of the other CTV entities in the field of cable television broadcasts and in the field of domestic telecommunication services, by means of acquiring the activities and acquiring the entities that belong to the other CTV entities – this being for a consideration of $1,350 per cable television subscriber (hereafter – CTV subscriber), which is to be paid by means of (i) assuming the financial debts of the merging entity (the bank debt and the net working capital, as defined between the parties to the merger) in the amount of $850 in respect of each CTV subscriber acquired in the merger, and (ii) allotting shares to the shareholders/partners of the merging entities. The holdings ratio in the shares of Matav following the merger shall be based proportionately on the number of CTV subscribers of each party to the merger as of the date determined by the parties; the number of shares to be allotted to each of the parties as aforesaid will be determined in accordance with this ratio. | |
19
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
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NOTE 1 – | SIGNIFICANT ACCOUNTING POLICIES (continued): | ||||
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| The merger shall be effected retroactively from January 1, 2006, whereby the operating results from the business activities being merged shall be attributed to the merged company from the aforesaid date. | |
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| Additionally, the parties are discussing arrangements for appointing the directors of Matav once the merger is closed and also the rights with regard to the sale of Matav shares by the banks subsequent to the merger. These matters have not yet been finalized. | |
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| The financing terms in relation to the bank indebtedness that Matav will have subsequent to the merger have not yet been determined. | |
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| The agreement in principle between the parties is subject, among other matters, to the parties signing the final documents, to an agreement regarding the terms of Matav’s financing subsequent to the merger, to the approval of the management council and the management of the parties involved, including the approval of Matav’s general meeting, and also to various regulatory approvals. There is no certainty that these conditions will be fulfilled or that the proposed merger will be closed according to these or other terms. | |
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| As to guarantees provided by the Group in relation to the above merger, see note 13b(20)(c). | |
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| 9) | Declaration that the Group is a monopoly | |
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| On November 9, 1999, the Commissioner declared that each of the entities engaged in the CTF sector is operating a monopoly in the provision of multi-channel television broadcasts for payment within each of its license regions. | |
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| 10) | As to various obligations and restrictions imposed on the activities of the Partnership, see also notes 3 and 4. | |
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| b. | Financial statements presentation basis: | |||
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| The Partnership draws up and presents its financial statements in Israeli currency (hereafter - shekels or NIS). | |||
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| 1) | Transition to nominal financial reporting in 2004 | ||
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| With effect from January 1, 2004, the Partnership has adopted the provisions of Israel Accounting Standard No. 12 – “Discontinuance of Adjusting Financial Statements for Inflation” – of the Israel Accounting Standards Board (hereafter – the IASB) and, pursuant thereto, the Partnership has discontinued, from the aforesaid date, the adjustment of its financial statements for the effects of inflation in Israel. | ||
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| The amounts adjusted for the effects of inflation in Israel (see (2) below), presented in the financial statements as of December 31, 2003 (hereafter – the transition date), were used as the opening balances for the nominal financial reporting in the following periods. Additions made after the transition date have been included in the financial statements at their nominal values. | ||
20
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
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NOTE 1 – | SIGNIFICANT ACCOUNTING POLICIES (continued): | ||||
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| Accordingly, the amounts reported for 2003, as well as reported amounts for subsequent periods, that relate to non-monetary assets (including the depreciation and amortization thereon) and equity items, which originate from the period that preceded the transition date, are based on the adjusted-for-inflation data (based on the Israeli CPI for December 2003), as previously reported. All the amounts originating from the period after the transition date are included in the financial statements at their nominal values. | ||
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| Through December 31, 2003, the Partnership prepared its financial statements on the basis of historical cost adjusted for the changes in the general purchasing power of Israeli currency (“NIS”), based upon changes in the consumer price index (hereafter – the Israeli CPI), in accordance with pronouncements of the Israeli Institute. | ||
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| In 2003, the components of the income statements were, for the most part, adjusted as follows: the components relating to transactions carried out during the reported period – revenues, operating expenses, labor costs, etc. - were adjusted on the basis of the index for the month in which the transaction was carried out, while those relating to non-monetary balance sheet items (mainly - changes in inventories and depreciation) were adjusted on the same basis as the related balance sheet item. The financing component represents financial income and expenses in real terms and the erosion of balances of monetary items during the year. | ||
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| 2) | The amounts of non-monetary assets do not necessarily represent realization value or current economic value, but only the reported amounts of such assets, as described in (1) above. In these financial statements, the term “cost” signifies cost in reported amounts. | ||
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| 3) | Condensed nominal-historical Israeli currency data of the Partnership, for tax purposes, are presented in note 20. | ||
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| c. | Principles of consolidation: | |||
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| 1) | The consolidated financial statements include the accounts of the Partnership and its subsidiary entities. | ||
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| 2) | In addition to the fully consolidated entities as above, the consolidated financial statements include a company under common control that has been consolidated by the proportionate consolidation method, as prescribed by Opinion 57 of the Israeli Institute. As to data relating to said company included in these consolidated financial statements - see note 3e(3). | ||
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| 3) | Goodwill is presented in the consolidated balance sheets under “other assets and deferred charges” and is amortized in equal annual installments at the rate of 10% per annum, commencing in the year of acquisition. The Partnership’s management considers that that the amount at which the goodwill is presented in the balance sheet does not exceed its realizable value. | ||
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| Pursuant to an amendment to Israel Accounting Standard No. 20, which was issued in March 2006, the amortization of goodwill is to be discontinued from January 1, 2006 – see p(3) below. | ||
21
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
NOTE 1 – | SIGNIFICANT ACCOUNTING POLICIES (continued): |
|
|
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| 4) | Inter-entity balances and transactions (of subsidiary entities and the proportionately consolidated company) have been eliminated. |
|
|
|
|
| d. | Investment in investee entities: | |
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|
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| 1) | The Partnership’s share in the results of operating entities and the investments in these entities are presented in the Partnership’s accounts by the equity method. |
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| 2) | With regard to the goodwill of subsidiary entities, see c(3) above. |
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| 3) | The associated entity is included in the consolidated statements by the equity method. |
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| 4) | The investment in limited partnerships that produce films, in which a proportionately consolidated company is a limited partner, are presented at cost. The investment in the partnerships is written down on the basis of actual screenings. |
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| e. | Film and program screening rights | |
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|
| The cost includes the amounts paid to the suppliers of the film and program screening rights, with the addition of direct costs incurred in adapting such films and programs for screening in Israel. | |
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|
| The rights are amortized on the basis of actual screenings, with a proportionally greater weighting being given to the first screening. | |
|
|
|
|
| f. | Fixed assets: | |
|
|
|
|
|
| 1) | The Group’s fixed assets are stated at cost. |
|
|
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|
|
| 2) | The cost of the CTV array includes the capitalization of construction expenses, overheads and subscribers’ initial installation expenses (net of part of the installation revenues). |
|
|
|
|
|
| 3) | Fixed assets are depreciated by the straight-line method, on the basis of their estimated useful life. Depreciation of the CTV array is calculated by the straight-line method, according to the estimated lifespan of the assets. |
22
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
NOTE 1 – | SIGNIFICANT ACCOUNTING POLICIES(continued): |
|
|
|
| 4) | The cost of decoders and modems installed on the premises of subscribers who have not responded to requests for their return, the costs of decoders that have been lost and also the cost of analog decoders that are no longer in general use have been charged to operating expenses. The deposits relating to the decoders that have been lost have been credited to revenues. |
|
|
|
|
| Other components of the CTV array, which are no longer in general use, have also been written off. |
|
|
|
| 5) | As of January 1, 2005, the Group depreciates installation costs, net, in respect of connection points no longer in use by the straight-line method, in accordance with their estimated lifespan. This is based on management’s expectations of receiving revenues from third parties or from the provision of other services over the same infrastructure. Until the aforesaid date, these costs were charged to operating expenses. |
|
|
|
|
| Annual rates of depreciation are as follows: |
|
|
|
|
|
|
|
|
| % |
| |
|
|
|
| ||
| CTV array* |
|
| 8-15 |
|
| End-user equipment and hubs |
|
| 15 |
|
| Leasehold improvements* |
|
| 10 |
|
| Computers, office furniture and equipment |
|
| 6-33 |
|
| Buildings |
|
| 4 |
|
| Vehicles |
|
| 15 |
|
|
|
|
|
|
|
|
| Leasehold improvements are depreciated by the straight-line method over the lease period or over the estimated useful life of the improvements, whichever is the shorter. | |
|
|
|
|
|
|
|
| * | On January 1, 2004, management amended its assessment of the annual depreciation rate for digital decoders, increasing the rate from 10% to 15% from that date forward. This change had a negative effect on the Partnership’s and the consolidated statements of income (loss) for 2004, increasing expenses by NIS 11.270 million. |
|
|
|
|
|
| g. | Other assets and deferred charges | ||
|
|
| ||
|
| Other assets – Presented at amortized cost based on the straight-line method. | ||
|
|
| ||
|
| Annual rates of amortization are as follows: | ||
|
|
|
|
|
|
|
|
| % |
| |
|
|
|
| ||
| Goodwill, see c(3) above |
|
| 10 |
|
| Licenses |
|
| 7 |
|
|
|
|
| (approximately) |
|
23
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
NOTE 1 – | SIGNIFICANT ACCOUNTING POLICIES (continued): | |
|
|
|
|
| Deferred charges are amortized by the straight-line method, as follows: |
|
|
|
|
|
|
|
| |
|
|
| % |
| |
|
|
|
| ||
| Lease fees paid in advance (based on the lease period) |
|
| 8.33 |
|
| Leasehold improvements (based on the lease period) |
|
| 10 |
|
| Expenses capitalized during the construction period (based on the average depreciation period of the CTV array) |
|
| 10 |
|
|
|
|
| (approximately) |
|
| Programs for broadcasting (based on the term of the program acquisition contract) |
|
| 16.66-20 |
|
|
|
|
| h. | Impairment of assets |
|
|
|
|
| The Group reviews - at each balance sheet date - whether any events have occurred or changes in circumstances have taken place, which might indicate that there has been an impairment of fixed assets and identifiable intangibles, including goodwill. When such indicators of impairment are present, the Group evaluates whether the carrying value of the asset in the Group’s accounts can be recovered from the cash flows anticipated from that asset, and, if necessary, records an impairment provision up to the amount needed to adjust the carrying amount to the recoverable amount. |
|
|
|
|
| The recoverable value of an asset is determined according to the higher of the net selling price of the asset or its value in use to the Group. The value in use is determined according to the present value of anticipated cash flows from the continued use of the asset, including those expected at the time of its future retirement and disposal. |
|
|
|
|
| When it is not possible to assess whether an impairment provision is required for a particular asset on its own, the need for such a provision is assessed in relation to the recoverable value of the cash-generating unit to which that asset belongs. A cash-generating unit includes goodwill allocated to that unit, and any impairment loss relating to that unit is initially allocated to the goodwill and then to the other assets. |
|
|
|
|
| The impairment loss is carried directly to income. Where indicators are present that beneficial events have occurred or beneficial changes in circumstances have taken place, the impairment provision in respect of the asset (other than goodwill) may be cancelled or reduced in the future, so long as the recoverable value of the asset has increased, as a result of changes in the estimates previously employed in determining such value. |
|
|
|
|
| Pursuant to an amendment to Accounting Standard No. 20 that was published in March 2006, goodwill and certain intangible assets have to be tested for impairment at least once a year. |
24
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
|
NOTE 1 – | SIGNIFICANT ACCOUNTING POLICIES (continued): | ||
|
|
|
|
| i. | Customer deposits in respect of decoders | |
|
|
|
|
|
| The Group receives deposits from its customers for the decoders installed on their premises, in an amount that does not exceed the cost of the decoders. These deposits are linked to the Israeli CPI (based on the “known” index, viz. the Israeli CPI known on the relevant date). Pursuant to the terms of the customer’s agreement, if a subscriber cancels his subscription, he shall be entitled to the refund of a proportion of the deposit (linked as stated), up to a period of ten or three years, in accordance with the agreement with him. | |
|
|
|
|
| j. | Deferred taxes: | |
|
|
|
|
|
| 1) | Commencing January 1, 2005, the Group applies the IASB’s Accounting Standard No. 19 – “Taxes on Income” that prescribes the accounting treatment (recognition criteria, measurement, presentation and disclosure) required for taxes on income. |
|
|
|
|
|
|
| For the most part, the provisions of this standard are the same as the accounting principles that the Group applied prior to implementing the new standard. |
|
|
|
|
|
| 2) | In accordance with the standard, the Group recognizes deferred taxes in respect of temporary differences between the amounts of assets and liabilities as reported in the financial statements and those taken into account for tax purposes; the standard requires that full recognition be given to deferred taxes in respect of all taxable temporary differences, except for the temporary difference resulting from the initial recognition of goodwill and the temporary difference resulting from the initial recognition of an asset or a liability that has no effect on the profit or loss, whether for accounting or tax purposes, at that time. |
|
|
|
|
|
|
| Deferred tax assets are recognized for all temporary differences that are tax deductible, up to the amount of the differences that are expected to be utilized in the future, against taxable income. |
|
|
|
|
|
| 3) | As the subsidiary companies and the proportionately consolidated company have carryforward losses for tax purposes from previous years that exceed the other temporary differences (net), and taking into account the fact that Group management is not convinced that the subsidiary companies and the proportionately consolidated company will be able to utilize the above losses in the foreseeable future, the subsidiary companies and proportionately consolidated company have not included deferred income taxes in their accounts. |
|
|
|
|
| k. | Allowance for doubtful accounts | |
|
|
|
|
|
| The allowance for doubtful accounts is determined mainly on the basis of a percentage of the overdue trade receivables. | |
25
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
|
NOTE 1 – | SIGNIFICANT ACCOUNTING POLICIES (continued): | ||
|
|
|
|
| L. | Revenue recognition: | |
|
|
|
|
|
| 1) | Revenues from current subscription fees, net of discounts, are recognized as services are provided to the subscribers. |
|
|
|
|
|
| 2) | The amount of revenues from installation fees that exceeds the direct selling expenses is recognized at the time that the installation is performed. |
|
|
|
|
|
| 3) | As to revenues from deposits, see 1i above. |
|
|
|
|
|
| 4) | Revenues from Internet access services are recognized, on a monthly basis, as services are provided to the subscribers. |
|
|
|
|
| m. | Derivatives | |
|
|
|
|
|
| Gains and losses on derivatives that are hedging existing assets or liabilities are recognized in income commensurate with the results from those assets or liabilities. Gains and losses on derivatives that are not hedging existing assets or liabilities are recognized as current income. | |
|
|
|
|
| n. | Cash equivalents | |
|
|
|
|
|
| The Group considers all highly liquid investments, which include short-term bank deposits (up to three months from date of deposit), which are not restricted as to withdrawal or use, to be cash equivalents. | |
|
|
|
|
| o. | Recently issued accounting pronouncements in Israel: | |
|
|
|
|
|
| 1) | In August 2005, the IASB issued Israel Accounting Standard No. 22 – “Financial Instruments: Disclosure and Presentation”, which is based on International Accounting Standard No. 32. This standard prescribes the rules for the presentation of financial instruments and the proper disclosure required therefor. The standard prescribes the rules pursuant to which financial instruments are to be classified and are to be presented as a liability (while broadening the definition of a financial liability) or as an equity instrument (presented within partners’ capital). The standard also prescribes rules for bifurcating and classifying compound financial instruments (that include both an equity component and a liability component), the circumstances under which the offsetting of financial assets and financial liabilities is permitted, and the treatment of the costs of issuing financial instruments. The standard also prescribes that interest, dividends, losses and gains relating to financial instruments shall be recorded as income or expense in the income statements when the instrument is classified as a financial liability, or as an equity movement when the instrument is classified as an equity instrument, respectively. |
26
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
|
NOTE 1 – | SIGNIFICANT ACCOUNTING POLICIES (continued): | ||
|
|
|
|
|
|
| This accounting standard is to be applied to financial statements for periods commencing on or after January 1, 2006, and is to be applied prospectively. Upon initial implementation of the standard, all the financial instruments existing at the transition date will be classified and presented in accordance with the classification and presentation rules prescribed by the standard; compound financial instruments will be bifurcated into their components, prior to said classification, in accordance with the transitional provisions prescribed by the standard. Comparative data will not be restated. |
|
|
|
|
|
|
| When the standard takes effect, the Israeli Institute’s Opinion 48 – “Accounting Treatment of Option Warrants”, and Opinion 53 – “Accounting Treatment of Convertible Liabilities” will be revoked. |
|
|
|
|
|
|
| Implementation of this standard is not expected to have a material effect on the Partnership’s financial statements in future periods. |
|
|
|
|
|
| 2) | In February 2006, the IASB issued Israel Accounting Standard No. 25 - “Revenue”, which is based on International Accounting Standard No. 18. This standard prescribes recognition, measurement, presentation and disclosure criteria for revenues originating from the sale of goods purchased or manufactured by the Group, the provision of services, as well as revenues deriving from the use of the Group’s assets by others (interest income, royalties or dividends). |
|
|
|
|
|
|
| The principal issue in accounting for revenue is determining the timing of revenue recognition. Revenue from the sale of goods shall be recognized when all the following conditions have been satisfied: (a) the significant risks and rewards of ownership of the goods have been transferred to the buyer; (b) the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; (c) the amount of revenue can be measured reliably; (d) it is probable that the economic benefits associated with the transaction will flow to the Group; and (e) the costs incurred or to be incurred in respect of the transaction can be measured reliably. |
|
|
|
|
|
|
| Revenue from the provision of services shall be recognized by reference to the stage of completion of the transaction at the balance sheet date, subject to the satisfaction of conditions (c) through (e) above, and only when the stage of completion of the transaction at the balance sheet date can be measured reliably. |
|
|
|
|
|
|
| A clarification of said standard was issued by the IASB in February 2006: Clarification No. 8 - “Reporting of Revenue on a Gross or Net Basis”. According to the clarification, an entity acting as an agent or an intermediary, without bearing the risks and rewards resulting from the transaction, will present its revenue on a net basis (as profit or commission). However, an entity that acts as a principal supplier and bears the risks and rewards resulting from the transaction will present its revenue on a gross basis, distinguishing the turnover from the related expenses. |
27
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
NOTE 1 – | SIGNIFICANT ACCOUNTING POLICIES (continued): |
|
|
|
|
| Standard 25 shall be applicable to financial statements for periods commencing on or after January 1, 2006. The standard is to be applied prospectively; nevertheless, in accordance with the transitional provisions of the standard, the classification and presentation of revenue on a gross or net basis, as above, shall be applied with retroactive effect, including the restatement of revenues and expenses appearing in the comparative figures in the financial statements for periods commencing on the effective date of the standard. |
|
|
|
|
| Until the publication of said standard and the related clarification, there were no accounting pronouncements in Israel concerning revenue, and the accounting treatment of this issue was mostly based on generally accepted accounting practices and foreign accounting pronouncements; nevertheless, as the principles applied by the Group do not differ materially from the directives of the standard, its implementation is not expected to have a material effect on the financial statements of the Group in future periods. |
|
|
|
| 3) | In March 2006, the IASB issued Israel Accounting Standard No. 20 (Revised) - “The Accounting Treatment of the Goodwill and Intangible Assets of Investee Companies”. According to this standard, as of January 1, 2006, the amortization of goodwill and other intangible assets with indefinite useful lives is to be discontinued; in the future, such assets shall be subject to an impairment test, which is to be performed at least once a year, or more frequently, in the presence of events or circumstances indicating a possible impairment in the value of such assets. |
|
|
|
| p. | Restatement |
|
|
|
|
| The consolidated financial statements for 2004 have been restated, in order to reflect, with retroactive effect, a correction in respect of the proportionate consolidation of HOT Vision Ltd.’s financial statements with those of the Partnership, with effect from December 31, 2003. This correction was made in order to match the accounting treatment adopted by the Group with that followed by the other CTV entities. Previously, the investment in the aforesaid company was presented in the Partnership’s consolidated financial statements by the equity method. In management’s opinion, the above entities exercise joint control over HOT Vision. |
28
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
NOTE 1 – | SIGNIFICANT ACCOUNTING POLICIES (continued): |
|
|
|
|
|
|
|
|
|
|
|
|
| The effect of this restatement on the consolidated financial statements to December 31, 2004 is as follows: |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, as |
| Add - |
| Balance, as |
| |||
|
|
|
|
|
| ||||||
|
|
| NIS in thousands |
| |||||||
|
|
|
| ||||||||
| A s s e t s |
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents |
|
| 693 |
|
| 2,721 |
|
| 3,414 |
|
|
|
|
|
|
| ||||||
| Short-term deposits |
|
| 58 |
|
| 57 |
|
| 115 |
|
|
|
|
|
|
| ||||||
| Accounts receivable: |
|
|
|
|
|
|
|
|
|
|
| Trade |
|
| 15,224 |
|
| 9,258 |
|
| 24,482 |
|
|
|
|
|
|
| ||||||
| Other |
|
| 7,650 |
|
| 3,697 |
|
| 11,347 |
|
|
|
|
|
|
| ||||||
| Investment in an associated entity |
|
| 15,105 |
|
| (1,520 | ) |
| 13,585 |
|
|
|
|
|
|
| ||||||
| Investment in limited partnerships |
|
|
|
|
| 1,880 |
|
| 1,880 |
|
|
|
|
|
|
|
|
| ||||
| Film and program screening rights |
|
|
|
|
| 30,097 |
|
| 30,097 |
|
|
|
|
|
|
|
|
| ||||
| Fixed assets |
|
| 714,141 |
|
| 1,177 |
|
| 715,318 |
|
|
|
|
|
|
| ||||||
| L i a b i l i t i e s |
|
|
|
|
|
|
|
|
|
|
| Credit and loans from banks |
|
| (1,031,917 | ) |
| (45,763 | ) |
| (1,077,680 | ) |
|
|
|
|
|
| ||||||
| Accounts payable and accruals: |
|
|
|
|
|
|
|
|
|
|
| Trade |
|
| (217,369 | ) |
| 658 |
|
| (216,711 | ) |
|
|
|
|
|
| ||||||
| Other |
|
| (124,966 | ) |
| (1,575 | ) |
| (126,541 | ) |
|
|
|
|
|
| ||||||
| Liability for employee rights upon retirement, net of amount funded |
|
| (4,302 | ) |
| (687 | ) |
| (4,989 | ) |
|
|
|
|
|
| ||||||
|
|
NOTE 2 – | DEPOSITS |
|
|
| The deposits serve as collateral for loans granted to members of the Partnership by the banks with which they were deposited. These deposits are linked to the Israel CPI and bear 3% interest as at December 31, 2005. |
29
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
NOTE 3 – | INVESTMENTS IN SUBSIDIARY ENTITIES AND IN A PROPORTIONATELY CONSOLIDATED COMPANY: |
|
|
|
|
| a. | Composition of investments and changes therein: | |
|
| 1) | Composed and presented in the balance sheets as follows: |
|
|
|
|
|
|
|
|
|
|
|
| The Partnership |
| ||||
|
|
|
| |||||
|
|
| December 31 |
| ||||
|
|
|
| |||||
|
|
| 2005 |
| 2004 |
| ||
|
|
|
|
| ||||
|
|
| NIS in thousands |
| ||||
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
| Under investments: |
|
|
|
|
|
|
|
| Idan, see b. below |
|
|
|
|
| *18,253 |
|
| Red, see c. below |
|
| 2,640 |
|
| 3,491 |
|
| Telecom, see d. below |
|
| 64,929 |
|
| 52,121 |
|
| HOT Vision, see e. below |
|
| 460 |
|
| *460 |
|
|
|
|
|
| ||||
|
|
|
| 68,029 |
|
| 74,325 |
|
|
|
|
|
| ||||
| Under long-term liabilities: |
|
|
|
|
|
|
|
| Idan, see b. below |
|
| (45,002 | ) |
|
|
|
|
|
|
|
| ||||
|
|
|
| 23,027 |
|
| 74,325 |
|
|
|
|
|
| ||||
|
|
|
| 2) | The changes in the investments during 2005 are as follows: |
|
|
|
|
|
|
|
|
| The Partnership |
| |
|
|
|
| ||
|
|
| 2005 |
| |
|
|
|
| ||
| Balance at beginning of year |
|
| 74,325 |
|
| Changes during the year: |
|
|
|
|
| Share in losses - net |
|
| (18,690 | ) |
| Amortization of goodwill |
|
| (37,904 | ) |
| Idan’s share in another liability (see b(3)(b) below) |
|
| (1,202 | ) |
| Linkage and interest differences in respect of long-term loans |
|
| 693 |
|
| Decrease in current account - non-current portion |
|
| (4,124 | ) |
| Grant of long-term loans - net |
|
| 9,922 |
|
|
|
|
| ||
| Balance at end of year |
|
| 23,027 |
|
|
|
|
| ||
|
|
|
| * | Reclassified. |
30
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
NOTE 3 – | INVESTMENTS IN SUBSIDIARY ENTITIES AND IN A PROPORTIONATELY CONSOLIDATED COMPANY (continued): |
|
|
|
|
| b. | Idan: |
|
| |||
|
| 1) | Composed as follows: |
|
|
|
|
|
|
|
|
|
|
|
| The Partnership |
| ||||
|
|
|
| |||||
|
|
| December 31 |
| ||||
|
|
|
| |||||
|
|
| 2005 |
| 2004 |
| ||
|
|
|
|
| ||||
|
|
| NIS in thousands |
| ||||
|
|
|
| |||||
| Shares: |
|
|
|
|
|
|
|
| Cost (a) |
|
| 407,121 |
|
| 407,121 |
|
| Dividend received since the acquisition |
|
| (48,710 | ) |
| (48,710 | ) |
| Share in losses accumulated since the acquisition - net (a) |
|
| (453,814 | ) |
| (394,582 | ) |
|
|
|
|
| ||||
|
|
|
| (95,403 | ) |
| (36,171 | ) |
| Capital notes (b) |
|
| 24,943 |
|
| 24,943 |
|
| Current account - non-current portion (d) |
|
| 3,740 |
|
| *27,081 |
|
| Long-term loans (c) |
|
| 21,718 |
|
| 2,400 |
|
|
|
|
|
| ||||
|
|
|
| (45,002 | ) |
| 18,253 |
|
|
|
|
|
| ||||
| a) Including goodwill as follows: |
|
|
|
|
|
|
|
| Original amount: |
|
|
|
|
|
|
|
| From the acquisition on March 3, 1998 |
|
| 163,704 |
|
| 163,704 |
|
| From the acquisition on December 30, 1998 |
|
| 214,916 |
|
| 214,916 |
|
|
|
|
|
| ||||
|
|
|
| 378,620 |
|
| 378,620 |
|
| Accumulated amortization |
|
| (277,302 | ) |
| (239,442 | ) |
|
|
|
|
| ||||
| Original amount after amortization |
|
| 101,318 |
|
| 139,178 |
|
|
|
|
|
| ||||
|
|
|
| b) | The capital notes are unlinked and bear no interest. The notes can be redeemed only in the event of a legal process involving Idan’s management, a liquidation or restructuring of Idan, and do not confer any other rights upon their holders. The capital notes are held as a long-term investment and are therefore presented at cost. Their nominal value is NIS 9,458,000. |
|
|
|
| c) | Including a CPI-linked and interest free loan in the amount of NIS 2,494,000, (December 31, 2004 - NIS 2,400,000) and an unlinked loan in the amount of NIS 19,224,000, bearing annual interest at the rate of 5.2% as of December 31, 2005. The loans are repayable upon demand, but not before January 1, 2007, unless otherwise determined in the merger agreement, when such is signed (see note 1a(8)(b)). |
|
|
|
| d) | The balance is unlinked and as at December 31, 2005 bears annual interest rate of 4.8% (December 31, 2004 - 5.8%). |
31
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
NOTE 3 – | INVESTMENTS IN SUBSIDIARY ENTITIES AND IN A PROPORTIONATELY CONSOLIDATED COMPANY (continued): |
|
|
|
| 2) | The changes in the investments during 2005 are as follows: |
|
|
| The Partnership |
| |
|
|
|
| ||
|
|
| NIS in thousands |
| |
|
|
|
| ||
| Balance at beginning of year |
|
| 18,253 |
|
| Changes during the year - linkage differences in respect of long-term loans |
|
| 94 |
|
| Decrease in current account - non-current portion |
|
| (4,117 | ) |
| Share in losses |
|
| (20,170 | ) |
| Idan’s share in another liability (see (3)(b) below) |
|
| (1,202 | ) |
| Amortization of goodwill |
|
| (37,860 | ) |
|
|
|
| ||
| Balance at end of year |
|
| (45,002 | ) |
|
|
|
| ||
|
|
|
| * | Reclassified. |
|
|
|
|
| 3) | Additional information: | |
|
| a) | Idan operates in the field of cable television and provides multi-channel TV broadcasting to subscribers for monthly subscription fees. The company’s broadcasting licenses are in Be’er Sheva, Acre-Naharia and Rehovot. |
|
|
|
|
|
| b) | Within the context of obtaining the approval granted by the Council for Cable and Satellite Broadcasting for the acquisition made on December 30, 1998, the Partnership has undertaken, among other things, to produce another channel, at an annual cost of NIS 4 million. As part of the cost of acquisition, the Partnership recorded a provision in its books in respect of the said share in this liability over a period of 10 years. The liability was computed according to its present value (at a dollar interest of 6%) and amounted to NIS 29,566,000, see also note 11. |
|
|
|
|
|
| c) | With respect to the lien placed on Idan’s shares and the restrictions imposed in connection therewith to secure short-term credit from banks, see note 16. |
|
|
|
|
|
| d) | The Partnership’s ownership and control in Idan is 75%. |
32
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
NOTE 3 – | INVESTMENTS IN SUBSIDIARY ENTITIES AND IN A PROPORTIONATELY CONSOLIDATED COMPANY(continued): |
|
|
|
|
| c. | Edom: | |
| |||
|
| 1) | Composed as follows: |
|
|
|
|
|
|
|
|
|
|
|
| The Partnership |
| ||||
|
|
|
| |||||
|
|
| December 31 |
| ||||
|
|
|
| |||||
|
|
| 2005 |
| 2004 |
| ||
|
|
|
|
| ||||
|
|
| NIS in thousands |
| ||||
|
|
|
| |||||
| Shares: |
|
|
| ||||
| Cost (a) |
|
| 897 |
|
| 897 |
|
| Share in losses accumulated since the acquisition - net (a) |
|
| (3,707 | ) |
| (2,853 | ) |
|
|
|
|
| ||||
|
|
|
| (2,810 | ) |
| (1,956 | ) |
| Long-term loans (b) |
|
| 5,450 |
|
| 5,447 |
|
|
|
|
|
| ||||
|
|
|
| 2,640 |
|
| 3,491 |
|
|
|
|
|
| ||||
| a) Including goodwill as follows: |
|
|
|
|
|
|
|
| Original amount |
|
| 445 |
|
| 445 |
|
| Accumulated amortization |
|
| (312 | ) |
| (268 | ) |
|
|
|
|
| ||||
| Original amount after amortization |
|
| 133 |
|
| 177 |
|
|
|
|
|
| ||||
|
|
|
| b) | The loans are unlinked and as at December 31, 2005, bear annual interest of 4.8% (December 31, 2004 - 5.5%). The loans are repayable upon demand, but not before January 1, 2007, unless otherwise determined in the merger agreement, when such is signed (see note 1a(8)(b)). |
|
|
|
| 2) | The changes in the investments during 2005 are as follows: |
|
|
|
|
|
|
|
|
| The Partnership |
| |
|
|
|
| ||
|
|
| NIS in thousands |
| |
|
|
|
| ||
| Balance at beginning of year |
| 3,491 |
|
|
| Changes during the year: |
|
|
|
|
| Repayment of long-term loans |
| (67 | ) |
|
| Interest in respect of long-term loans granted |
| 70 |
|
|
| Share in losses |
| (810 | ) |
|
| Amortization of goodwill |
| (44 | ) |
|
|
|
|
|
| |
| Balance at end of year |
| 2,640 |
|
|
|
|
|
|
| |
|
|
|
|
| 3) | Additional information: | |
|
|
|
|
|
| a) | Edom (which has a regional operating license) has an agreement with the Municipality of Ma’ale Edumin for cable broadcasting operations in the region, as well as an agreement with the Regional Council of Efrat, pursuant to which Edom provides various communication and broadcasting services in Efrat. Edom operates in the field of cable television and provides multi-channel cable broadcasting for monthly subscription fees. |
|
|
|
|
|
| b) | The Partnership’s ownership and control in Edom is 100%. |
33
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
NOTE 3 – | INVESTMENTS IN SUBSIDIARY ENTITIES AND IN A PROPORTIONATELY CONSOLIDATED COMPANY(continued): |
|
|
|
|
| d. | Telecom: | |
|
|
|
|
|
| 1) | Composed as follows: |
|
|
|
|
|
|
|
|
|
|
|
| The Partnership |
| ||||
|
|
|
| |||||
|
|
| December 31 |
| ||||
|
|
|
| |||||
|
|
| 2005 |
| 2004 |
| ||
|
|
|
|
| ||||
|
|
| NIS in thousands |
| ||||
|
|
|
| |||||
| Shares: |
|
|
| ||||
| Share in profits accumulated since the establishment |
|
| 23,712 |
|
| 21,422 |
|
| Long-term loans* |
|
| 41,217 |
|
| 30,699 |
|
|
|
|
|
| ||||
|
|
|
| 64,929 |
|
| 52,121 |
|
|
|
|
|
| ||||
|
|
|
| * | The loans are unlinked and as at December 31, 2005, bear annual interest of 4.8% (December 31, 2004 - 5.5%). Repayment shall be upon demand, but not before January 1, 2007. |
|
|
|
| 2) | The changes in the investments during 2005 are as follows: |
|
|
|
|
|
| The Partnership |
|
|
|
| |
|
| NIS in thousands |
|
|
|
| |
| Balance at beginning of year | 52,121 |
|
| Changes during the year: |
|
|
| Grant of a long-term loan | 9,989 |
|
| Interest in respect of long-term loans | 529 |
|
| Share in profits | 2,290 |
|
|
|
| |
| Balance at end of year | 64,929 |
|
|
|
|
|
|
|
|
| 3) | Additional information | |
|
|
|
|
|
| Other partners in Telecom, other than the Partnership, are Idan and TLM. With respect to the DO license and a possible structural separation, see note 1a(3)(b). Pursuant to the partnership agreement, the share in Telecom’s rights, which is directly and indirectly held by the Group, was set at 73.8% (the share in Telecom’s rights, which is directly held by the Partnership, was set at 46.6%). | |
|
|
|
| e. | HOT Vision (a proportionately consolidated company): |
|
|
|
| 1) | Composed as follows: |
|
|
|
|
|
|
|
|
|
|
|
| The Partnership |
| ||||
|
|
|
| |||||
|
|
| December 31 |
| ||||
|
|
|
| |||||
|
|
| 2005 |
| 2004 |
| ||
|
|
|
|
| ||||
|
|
| NIS in thousands |
| ||||
|
|
|
| |||||
| Shares: |
|
|
| ||||
| Cost |
|
| 54 |
|
| 54 |
|
| Share in undistributed profits accumulated since the establishment - net |
|
| 406 |
|
| 406 |
|
|
|
|
|
| ||||
|
|
|
| 460 |
|
| 460 |
|
|
|
|
|
| ||||
34
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
NOTE 3 – | INVESTMENTS IN SUBSIDIARY ENTITIES AND IN A PROPORTIONATELY CONSOLIDATED COMPANY(continued): |
|
|
|
|
| 2) | Additional information: | |
|
|
|
|
|
| a) | HOT Vision is engaged in editing and preparation of content to be screened and broadcast by the CTV entities and in the acquisition of film and program screening rights. In addition, HOT Vision acquires and produces “original productions” for CTV entities. |
|
|
|
|
|
| b) | The Group’s share in the operating results of HOT Vision is determined according to its relative share in the total number of subscribers in the CTV market. This ratio is computed at each year-end based on the average for the entire year. At December 31, 2005, this ratio is 30.2% and that of the Partnership is 19.5% (for 2004: Consolidated - 30.1% and the Partnership - 19.6%; for 2003: Consolidated - 30% and the Partnership - 19.5%). |
|
|
|
|
|
| c) | The Group has provided guarantees in respect of HOT Vision’s liabilities to banks, also in excess of the Group’s share in HOT Vision (see note 13b(20)(a)). |
|
|
|
|
|
| d) | With respect to agreements signed with HOT Vision, see note 13a(5) and 13b(9). |
|
|
|
|
| 3) | Following are HOT Vision’s data - on the basis of the Group’s percentage of holding - as reflected in the Partnership’s consolidated financial statements: | |
|
|
|
|
|
| a) | Balance sheet data: |
|
|
|
|
|
|
|
|
|
|
|
| December 31 |
| ||||
|
|
|
| |||||
|
|
| 2005 |
| 2004 |
| ||
|
|
|
|
| ||||
|
|
| NIS in thousands |
| ||||
|
|
|
| |||||
| Assets: |
|
|
|
|
|
|
|
| Current assets |
|
| 24,558 |
|
| 15,736 |
|
| Non-current assets |
|
| 29,313 |
|
| 33,153 |
|
|
|
|
|
| ||||
|
|
|
| 53,871 |
|
| 48,889 |
|
|
|
|
|
| ||||
| Liabilities: |
|
|
|
|
|
|
|
| Current liabilities |
|
| 64,755 |
|
| 62,288 |
|
| Long-term liabilities |
|
| 745 |
|
| 687 |
|
|
|
|
|
| ||||
|
|
|
| 65,500 |
|
| 62,975 |
|
|
|
|
|
| ||||
|
|
|
| b) | Operating results data: |
|
|
|
|
|
|
|
|
|
|
|
| 2005 |
| 2004 |
| ||
|
|
|
|
| ||||
|
|
| NIS in thousands |
| ||||
|
|
|
| |||||
| Income |
|
| 5,591 |
|
| 6,644 |
|
|
|
|
|
| ||||
| Costs and expenses: |
|
| 65,425 |
|
| 68,988 |
|
|
|
|
|
| ||||
35
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
NOTE 4 – | INVESTMENT IN AN ASSOCIATED ENTITY |
|
|
|
| a. | Composed as follows: |
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| ||||
|
|
|
| |||||
|
|
| December 31 |
| ||||
|
|
|
| |||||
|
|
| 2005 |
| 2004 |
| ||
|
|
|
|
| ||||
|
|
| NIS in thousands |
| ||||
|
|
|
| |||||
| Share in losses accumulated since the establishment |
|
| (19,794 | ) |
| (4,952 | ) |
| Long-term loans (see d. below) |
|
| 91,724 |
|
| 18,537 |
|
|
|
|
|
| ||||
|
|
|
| 71,930 |
|
| 13,585 |
|
|
|
|
|
| ||||
|
|
|
| b. | The changes in the investments during 2005 are as follows: |
|
|
|
|
|
|
|
|
| Consolidated |
| |
|
|
|
| ||
|
|
| NIS in thousands |
| |
|
|
|
| ||
| Balance at beginning of year |
| 13,585 |
|
|
| Changes during the year: |
|
|
|
|
| Share in losses |
| (14,842 | ) |
|
| Grant of long-term loans |
| 73,187 |
|
|
|
|
|
|
| |
| Balance at end of year |
| 71,930 |
|
|
|
|
|
|
| |
|
|
|
| c. | As to an investment in HOT Telecom, which is indirectly held by the Partnership (through Telecom) at 41.05%, see note 1a(3)(b)(ii). |
|
|
|
| d. | The loans do not bear interest or linkage and the date of their repayment has not yet been fixed. See also note 1a(3)(b)(iii). |
|
|
|
|
| HOT Telecom has recorded losses in each of the years 2005 and 2004, in the amount of NIS 36 million and NIS 12 million, respectively. In addition, as at December 31, 2005, HOT Telecom has a shareholders’ deficiency in the amount of NIS 48 million and a working capital deficit in the amount of NIS 69 million. The repayment of the loan provided by the Group is conditional upon HOT Telecom attaining positive cash flows from operating activities and operating profitability in the future. |
|
| |
|
| In management’s opinion, HOT Telecom’s substantial investment in the telephony network will lead to an increase in revenues and in its share in the communications market in Israel, as well as an improvement in its cash flows from operating activities and in its operating profit. |
36
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
NOTE 5 – | NEGATIVE MINORITY INTERESTS (MINORITY INTERESTS) IN SUBSIDIARY ENTITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| ||||||||||
|
|
|
| |||||||||||
|
|
| December 31 |
| ||||||||||
|
|
|
| |||||||||||
|
|
| 2005 |
| 2004 |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| NIS in thousands |
| ||||||||||
|
|
|
| |||||||||||
|
|
| Telecom* |
| Idan** |
| Total |
| Total |
| ||||
|
|
|
|
| �� |
| ||||||||
| Balance at beginning of year |
|
| (12,044 | ) |
| 50,140 |
|
| 38,096 |
|
| 39,125 |
|
| Changes during the year - minority’s share in losses (undistributed profits) - net |
|
| (1,289 | ) |
| 7,120 |
|
| 5,831 |
|
| (1,029 | ) |
|
|
|
|
|
|
| ||||||||
|
|
|
| (13,333 | ) |
| 57,260 |
|
| 43,927 |
|
| 38,096 |
|
|
|
|
|
|
|
| ||||||||
|
|
|
| * | The minority shareholder is a corporate related party. |
|
|
|
| ** | With respect to the guarantees provided by the minority in favor of Idan, see note 16d. |
|
|
NOTE 6 – | INVESTMENT IN LIMITED PARTNERSHIPS |
|
|
| The proportionately consolidated company invests in limited partnerships that are engaged in the production of Israeli films. The limited partnerships received an approval from the committee of the Ministry of Industry and Trade that deals with tax shelters in films, pursuant to the Income Tax Regulations (Deductions from the Income of Investors in Films in Israel), 1990. |
|
|
| The proportionately consolidated company is a limited partner in the above partnerships. |
|
|
NOTE 7 – | FILM AND PROGRAM SCREENING RIGHTS: |
|
|
|
|
|
|
|
|
|
|
|
| December 31 |
| ||||
|
|
|
| |||||
|
|
| 2005 |
| 2004* |
| ||
|
|
|
|
| ||||
|
|
| NIS in thousands |
| ||||
|
|
|
| |||||
| At beginning of year |
|
| 30,097 |
|
| 39,653 |
|
| Additions during the year |
|
| 29,872 |
|
| 30,582 |
|
| Amortization during the year |
|
| (32,456 | ) |
| (40,138 | ) |
|
|
|
|
| ||||
| At end of year |
|
| 27,513 |
|
| 30,097 |
|
|
|
|
|
| ||||
|
|
|
| * Restated, see note 1p. |
|
37
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
NOTE 8 – | FIXED ASSETS | |
|
| |
| Composition of assets and the accumulated depreciation thereon, grouped by major classifications, and changes therein in 2005, are as follows: | |
|
| |
| a. | Consolidated: |
|
| CTV |
| Centers |
| End |
| Computers |
| Equipment |
| Buildings |
| Vehicles |
| Leaseholds |
| Total |
| Total |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
| NIS in thousands |
| ||||||||||||||||||||||||||||
|
|
| |||||||||||||||||||||||||||||
Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balance at beginning of year* |
|
| 1,092,087 |
|
| 254,489 |
|
| 347,706 |
|
| 36,956 |
|
| 34,181 |
|
| 3,855 |
|
| 252 |
|
| 7,572 |
|
| 1,777,098 |
|
| 1,653,310 |
|
Additions during the year |
|
| 55,280 |
|
| 30,981 |
|
| 55,284 |
|
| 7,989 |
|
| 309 |
|
| 8 |
|
|
|
|
| 4,159 |
|
| 154,010 |
|
| 143,436 |
|
Retirements during the year** |
|
| (823 | ) |
|
|
|
| (4,580 | ) |
|
|
|
|
|
|
|
|
|
| (112 | ) |
|
|
|
| (5,515 | ) |
| (19,648 | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Balance at end of year |
|
| 1,146,544 |
|
| 285,470 |
|
| 398,410 |
|
| 44,945 |
|
| 34,490 |
|
| 3,863 |
|
| 140 |
|
| 11,731 |
|
| 1,925,593 |
|
| 1,777,098 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year* |
|
| 722,407 |
|
| 144,448 |
|
| 125,272 |
|
| 34,066 |
|
| 27,721 |
|
| 3,591 |
|
| 152 |
|
| 4,123 |
|
| 1,061,780 |
|
| 938,911 |
|
Additions during the year |
|
| 63,079 |
|
| 35,324 |
|
| 51,590 |
|
| 2,462 |
|
| 1,877 |
|
| 22 |
|
| 28 |
|
| 1,419 |
|
| 155,801 |
|
| 137,874 |
|
Retirements during the year** |
|
| (227 | ) |
|
|
|
| (2,194 | ) |
|
|
|
|
|
|
|
|
|
| (82 | ) |
|
|
|
| (2,503 | ) |
| (15,005 | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Balance at end of year |
|
| 785,259 |
|
| 179,772 |
|
| 174,668 |
|
| 36,528 |
|
| 29,598 |
|
| 3,613 |
|
| 98 |
|
| 5,542 |
|
| 1,215,078 |
|
| 1,061,780 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Depreciated balance |
|
| 361,285 |
|
| 105,698 |
|
| 223,742 |
|
| 8,417 |
|
| 4,892 |
|
| 250 |
|
| 42 |
|
| 6,189 |
|
| 710,515 |
|
| 715,318 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
|
* | Restated, see note 1p. |
** | Includes fixed assets, which have become obsolete (see also note 1f(4). |
38
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
NOTE 8 – | FIXED ASSETS (continued): | |
|
| |
| Composition of assets and the accumulated depreciation thereon, grouped by major classifications, and changes therein in 2005, are as follows: | |
|
| |
| b. | The Partnership: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| CTV |
| Centers |
| End |
| Computers |
| Equipment |
| Buildings |
| Vehicles |
| Leaseholds improvements |
| Total |
| Total |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
| NIS in thousands |
| ||||||||||||||||||||||||||||
|
|
| |||||||||||||||||||||||||||||
Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
| 564,437 |
|
| 206,289 |
|
| 228,202 |
|
| 30,250 |
|
| 16,043 |
|
| 230 |
|
| 118 |
|
| 2,836 |
|
| 1,048,405 |
|
| 976,391 |
|
Additions during the year |
|
| 36,024 |
|
| 27,824 |
|
| 38,115 |
|
| 7,989 |
|
| 121 |
|
| 8 |
|
|
|
|
| 4,060 |
|
| 114,141 |
|
| 85,928 |
|
Retirements during the year* |
|
| (823 | ) |
|
|
|
| (3,207 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (4,030 | ) |
| (13,915 | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Balance at end of year |
|
| 599,638 |
|
| 234,113 |
|
| 263,110 |
|
| 38,239 |
|
| 16,164 |
|
| 238 |
|
| 118 |
|
| 6,896 |
|
| 1,158,516 |
|
| 1,048,405 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
| 364,849 |
|
| 111,901 |
|
| 87,624 |
|
| 27,629 |
|
| 12,140 |
|
| 35 |
|
| 62 |
|
| 1,174 |
|
| 605,414 |
|
| 529,203 |
|
Additions during the year |
|
| 34,696 |
|
| 30,258 |
|
| 33,629 |
|
| 2,343 |
|
| 965 |
|
| 9 |
|
| 18 |
|
| 996 |
|
| 102,914 |
|
| 87,702 |
|
Retirements during the year* |
|
| (227 | ) |
|
|
|
| (1,479 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,706 | ) |
| (11,491 | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Balance at end of year |
|
| 399,318 |
|
| 142,159 |
|
| 119,774 |
|
| 29,972 |
|
| 13,105 |
|
| 44 |
|
| 80 |
|
| 2,170 |
|
| 706,622 |
|
| 605,414 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Depreciated balance |
|
| 200,320 |
|
| 91,954 |
|
| 143,336 |
|
| 8,267 |
|
| 3,059 |
|
| 194 |
|
| 38 |
|
| 4,726 |
|
| 451,894 |
|
| 442,991 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
|
* | Including fixed assets, which have become obsolete (see also note 1f(4)). |
As to a change in the estimate of the depreciation of digital decoders and a change in the depreciation of net installation costs in respect of connection points no longer in use, see note 1f. As to agreements in respect of fixed assets - see note 13a(8)(b).
39
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
NOTE 9 – | OTHER ASSETS AND DEFERRED CHARGES: | |
|
| |
| a. | Consolidated: |
|
|
|
|
| Composition of other assets and deferred charges, grouped by major classifications, and changes therein in 2005, are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Goodwill |
| Rent |
| Leasehold |
| Licenses |
| Programs |
| Total |
| Total |
| |||||||
|
|
|
|
|
|
|
|
| ||||||||||||||
Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost at the beginning of year |
|
| 139,355 |
|
| 9,492 |
|
| 2,264 |
|
| 2,549 |
|
| 240 |
|
| 153,900 |
|
| 194,200 |
|
Additions during the year |
|
|
|
|
| 33 |
|
|
|
|
|
|
|
|
|
|
| 33 |
|
| 353 |
|
Amortization for the year |
|
| (37,904 | ) |
| (1,628 | ) |
| (2,246 | ) |
| (205 | ) |
| (240 | ) |
| (42,223 | ) |
| (40,653 | ) |
|
|
|
|
|
|
|
|
| ||||||||||||||
Amortized cost at the end of year |
|
| 101,451 |
|
| 7,897 |
|
| 18 |
|
| 2,344 |
|
| -,- |
|
| 111,710 |
|
| 153,900 |
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
|
|
| b. | The Partnership: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Rent |
| Leasehold |
| Programs |
| Total |
| Total |
| |||||
|
|
|
|
|
|
|
| ||||||||||
| Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amortized cost at the beginning of year |
|
| 9,320 |
|
| 2,264 |
|
| 154 |
|
| 11,738 |
|
| 13,615 |
|
| Additions during the year |
|
| 202 |
|
|
|
|
|
|
|
| 202 |
|
| 575 |
|
| Amortization for the year |
|
| (1,627 | ) |
| (2,246 | ) |
| (154 | ) |
| (4,027 | ) |
| (2,452 | ) |
|
|
|
|
|
|
|
| ||||||||||
| Amortized cost at the end of year |
|
| 7,895 |
|
| 18 |
|
| -,- |
|
| 7,913 |
|
| 11,738 |
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
NOTE 10 – | EMPLOYEE RIGHTS UPON RETIREMENT: | ||
|
| ||
| a. | Severance pay: | |
|
|
| |
|
| 1) | Labor laws and agreements require the Group to pay severance pay to employees dismissed or retiring from their employ in certain other circumstances. |
|
|
|
|
|
|
| The Group’s severance pay liability to their employees is covered mainly by regular deposits in the employees’ names by purchase of managerial insurance policies. The amounts funded as above are not reflected in the balance sheets since they are not under the control and management of the Group. |
|
|
|
|
|
| 2) | The amount of the liability for severance pay presented in the balance sheets (see b. below) reflects that part of the liability not covered by the insurance policies mentioned in (1) above, in accordance with the Severance Pay Law. |
|
|
|
|
|
| 3) | The Group funds, at its discretion, monies to cover liabilities, which are not covered by current deposits, as stated in 2 above. The monies so funded are deposited with a recognized severance pay fund, which is managed by an Israeli bank. The fund’s management is regulated by law, and its assets primarily comprise Israeli government bonds. |
40
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
NOTE 10 – | EMPLOYEE RIGHTS UPON RETIREMENT (continued): | |
|
| |
| b. | The balance sheet liability for employee rights upon retirement is composed as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Partnership |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| December 31 |
| December 31 |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| 2005 |
| 2004* |
| 2005 |
| 2004 |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
| NIS in thousands |
| NIS in thousands |
| ||||||||
|
|
|
|
| ||||||||||
| For severance pay |
|
| 10,148 |
|
| 5,265 |
|
| 5,437 |
|
| 2,193 |
|
| L e s s - amount funded in central severance pay fund |
|
| 322 |
|
| 276 |
|
| 14 |
|
| 13 |
|
|
|
|
|
|
|
| ||||||||
|
|
|
| 9,826 |
|
| 4,989 |
|
| 5,423 |
|
| 2,180 |
|
|
|
|
|
|
|
| ||||||||
|
|
* | Restated, see note 1p. |
|
|
NOTE 11 – | ANOTHER LIABILITY: |
|
|
|
|
|
|
|
|
|
|
|
| Consolidated and the |
| ||||
|
|
|
| |||||
|
|
| December 31 |
| ||||
|
|
|
| |||||
|
|
| 2005 |
| 2004 |
| ||
|
|
|
|
| ||||
|
|
| NIS in thousands |
| ||||
|
|
|
| |||||
| a. Composition: |
|
|
|
|
|
|
|
| Liability in respect of the production of another channel - linked to the dollar, bearing 6% interest (see also note 3b(3)) |
|
| 11,119 |
|
| 13,480 |
|
| Net of current maturity |
|
| 3,487 |
|
| 3,074 |
|
|
|
|
|
| ||||
|
|
|
| 7,632 |
|
| 10,406 |
|
|
|
|
|
| ||||
| b. The liability is repayable after balance sheet dates, as follows: |
|
|
|
|
|
|
|
| First year - current maturity |
|
| 3,487 |
|
| 3,074 |
|
|
|
|
|
| ||||
| Second year |
|
| 3,702 |
|
| 3,263 |
|
| Third year |
|
| 3,930 |
|
| 3,465 |
|
| Fourth year |
|
|
|
|
| 3,678 |
|
|
|
|
|
| ||||
|
|
|
| 7,632 |
|
| 10,406 |
|
|
|
|
|
| ||||
|
|
|
| 11,119 |
|
| 13,480 |
|
|
|
|
|
| ||||
41
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
NOTE 12 – | SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION: |
|
|
| Balance sheets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Partnership |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| December 31 |
| December 31 |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| 2005 |
| 2004* |
| 2005 |
| 2004 |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
| NIS in thousands |
| NIS in thousands |
| ||||||||
|
|
|
|
| ||||||||||
| a. Accounts receivable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1) Trade: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Open accounts |
|
| 30,357 |
|
| 25,029 |
|
| 4,260 |
|
| 3,374 |
|
| Less - allowance for doubtful accounts |
|
| 757 |
|
| 547 |
|
| 359 |
|
| 231 |
|
|
|
|
|
|
|
| ||||||||
|
|
|
| 29,600 |
|
| 24,482 |
|
| 3,901 |
|
| 3,143 |
|
|
|
|
|
|
|
| ||||||||
| 2) Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Prepaid expenses - spare parts |
|
|
|
|
| 2,681 |
|
|
|
|
| 1,736 |
|
| Income receivable |
|
| 2,693 |
|
| 1,125 |
|
| 2,455 |
|
| 1,025 |
|
| Prepaid expenses |
|
| 843 |
|
| 764 |
|
| 140 |
|
| 58 |
|
| Suppliers’ debit balances |
|
| 1,466 |
|
| 4,573 |
|
| 1,462 |
|
| 1,430 |
|
| Sundry |
|
| 4,128 |
|
| 2,204 |
|
| 2,108 |
|
| 1,352 |
|
|
|
|
|
|
|
| ||||||||
|
|
|
| 9,130 |
|
| 11,347 |
|
| 6,165 |
|
| 5,601 |
|
|
|
|
|
|
|
| ||||||||
| b. Long-term receivables - related parties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance in respect of related company** |
|
| 130,849 |
|
| 145,309 |
|
|
|
|
| 22,046 |
|
| Balance in respect of associated entity - unlinked and bearing no interest |
|
|
|
|
|
|
|
| 90,721 |
|
| 17,364 |
|
|
|
|
|
|
|
| ||||||||
|
|
|
| 130,849 |
|
| 145,309 |
|
| 90,721 |
|
| 39,410 |
|
|
|
|
|
|
|
| ||||||||
|
|
|
| * | Restated, see note 1p. |
|
|
|
| ** | The related company recorded losses in each of the years 2005 and 2004, in the amount of NIS 48 million and NIS 41 million, respectively, as well as a shareholders’ deficiency and a working capital deficit in 2005 in the amount of NIS 266 million and NIS 438 million, respectively. |
|
|
|
|
| The related company has a debt to the minority in the amount of NIS 53 million. Repayment of the above debts in the amount of NIS 131 million and the continued ongoing operation of the related company are conditional upon attaining a positive cash flow from operating activities in the next few years and upon the banks’ consent not to demand the repayment of the loans that were granted or to provide alternative credit. In the opinion of the management of the related company, the banks will extend the period of credit at least until January 1, 2007. In addition, under the business plan that was submitted to the banks, the related company expects a positive cash flow from operating activities. |
|
|
|
|
| The balances are unlinked and as at December 31, 2005, bear 5.5% interest (December 31, 2004 - 5.8%). Repayment will be upon demand, but not before January 1, 2007, unless otherwise determined in the merger agreement, when such is signed (see note 1a(8)(b)). |
42
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
|
NOTE 12 – | SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued): | ||
|
| ||
| c. | Credit and loans from banks: | |
|
|
| |
|
| 1) | Classified by currency, linkage terms and interest rates, the short-term credit is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Partnership |
| ||||||||
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
| December 31 |
| December 31 |
| ||||||||
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
| 2005 |
| 2004* |
| 2005 |
| 2004 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||||||
| Linkage |
| Weighted |
| Amount |
| Amount |
| |||||||||
|
|
|
|
| |||||||||||||
|
|
| % |
| NIS in thousands |
| NIS in thousands |
| |||||||||
|
|
|
|
|
| ||||||||||||
| Dollar |
|
| 7.13 |
|
| 23,371 |
|
| 21,533 |
|
|
|
|
|
|
|
| Japanese Yen |
|
| 3.07 |
|
| 25,494 |
|
| 27,313 |
|
| 25,494 |
|
| 27,313 |
|
| Israeli CPI |
|
| 5.05 |
|
| 4,651 |
|
| 10,280 |
|
| 4,651 |
|
| 10,280 |
|
| Unlinked |
|
| 6.28 |
|
| 1,162,351 |
|
| 1,018,554 |
|
| 685,724 |
|
| 585,495 |
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
| 1,215,867 |
|
| 1,077,680 |
|
| 715,869 |
|
| 623,088 |
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
| 2) | As to pledges to secure short-term loans and the terms in respect thereof, see note 16. |
|
|
|
|
| d. | Accounts payable and accruals: | |
|
|
| |
|
| 1) | Trade (including suppliers of fixed assets and other assets): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Partnership |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| December 31 |
| December 31 |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| 2005 |
| 2004* |
| 2005 |
| 2004 |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
| NIS in thousands |
| NIS in thousands |
| ||||||||
|
|
|
|
| ||||||||||
| In NIS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Corporate related parties |
|
| 38,835 |
|
| 49,914 |
|
| 48,941 |
|
| 55,434 |
|
| Checks payable |
|
| 5,390 |
|
| 10,952 |
|
| 2,346 |
|
| 6,055 |
|
| Other |
|
| 103,365 |
|
| 93,087 |
|
| 63,356 |
|
| 59,862 |
|
| In foreign currency |
|
| 64,415 |
|
| 62,758 |
|
| 52,169 |
|
| 46,998 |
|
|
|
|
|
|
|
| ||||||||
|
|
|
| 212,005 |
|
| 216,711 |
|
| 166,812 |
|
| 168,349 |
|
|
|
|
|
|
|
| ||||||||
|
|
* | Restated, see note 1p. |
43
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
NOTE 12 – | SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued): | |
|
|
|
| 2) | Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Partnership |
| ||||||||
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
| December 31 |
| December 31 |
| ||||||||
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
| 2005 |
| 2004* |
| 2005 |
| 2004 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
| Note |
| N I S i n t h o u s a n d s |
| N I S i n t h o u s a n d s |
| |||||||||
|
|
|
|
|
| ||||||||||||
| Employees and institutions in respect of salaries |
|
|
|
|
| 10,077 |
|
| 10,806 |
|
| 5,559 |
|
| 7,031 |
|
| Provision for vacation and recreation |
|
|
|
|
| 6,326 |
|
| 5,898 |
|
| 3,829 |
|
| 3,991 |
|
| Provision in respect of contingent liability |
|
| 13 | b(2) |
| 4,200 |
|
| 15,726 |
|
| 2,599 |
|
| 9,042 |
|
| Accrued expenses in respect of programs for broadcast |
|
|
|
|
| 16,333 |
|
| 18,023 |
|
| 11,038 |
|
| 11,894 |
|
| Payable royalties |
|
| 13 | a |
| 10,280 |
|
| 13,143 |
|
| 7,615 |
|
| 8,793 |
|
| Other accrued expenses |
|
|
|
|
| 20,348 |
|
| 21,761 |
|
| 17,574 |
|
| **16,762 |
|
| Special liability in respect of content provider |
|
| 13 | b(9) |
| 31,226 |
|
| 28,048 |
|
| 19,201 |
|
| 17,263 |
|
| Current maturity of another liability |
|
| 11 |
|
| 3,487 |
|
| 3,074 |
|
| 3,487 |
|
| 3,074 |
|
| Institutions |
|
|
|
|
| 7,179 |
|
| 9,575 |
|
| 2,790 |
|
| 5,307 |
|
| Sundry |
|
|
|
|
| 265 |
|
| 487 |
|
| 263 |
|
| 340 |
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
| 109,721 |
|
| 126,541 |
|
| 73,955 |
|
| 83,497 |
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| e. | Long-term payables – related and interested parties (1): |
|
|
|
|
|
|
| ||||||||||
|
| Unlinked balances (2) |
|
|
|
|
| 16,411 |
|
|
|
|
| 57,762 |
|
|
|
|
|
|
| Israeli CPI-linked balances |
|
|
|
|
| 11,474 |
|
| 6,476 |
|
| 5,442 |
|
| 5,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
| 27,885 |
|
| 6,476 |
|
| 63,204 |
|
| 5,300 |
| |
|
| L e s s – current account |
|
|
|
|
| 3,056 |
|
|
|
|
| 5,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
| 24,829 |
|
| 6,476 |
|
| 57,819 |
|
| 5,300 |
| |
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
| 1) | Repayment is not before January 1, 2007, unless otherwise determined in the merger agreement, when such is signed (see note 1a(8)(b)). |
|
|
|
| 2) | Consolidated –the whole sum bears annual interest at Libor + 0.2% (December 31, 2005 - 6.35%); the Partnership - NIS 15,188,000 bears annual interest at Libor + 0.2% (6.35% at December 31, 2005) and NIS 42,574,000 bears annual interest at 4.8%. |
|
|
|
| Income statements: | |
|
|
|
| f. | Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Partnership |
| ||||||||||||||
|
|
|
|
| ||||||||||||||||
|
|
| 2005 |
| 2004* |
| 2003 |
| 2005 |
| 2004 |
| 2003 |
| ||||||
|
| �� |
|
|
|
|
|
| ||||||||||||
|
|
| NIS in thousands |
| NIS in thousands |
| ||||||||||||||
|
|
|
|
| ||||||||||||||||
| Current subscription fees |
|
| 535,021 |
|
| 563,036 |
|
| 559,529 |
|
| 341,665 |
|
| 361,467 |
|
| 358,188 |
|
| Income from grant of film screening rights |
|
| 5,591 |
|
| 6,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Installation fees |
|
| 3,574 |
|
| 4,689 |
|
| 6,864 |
|
| 507 |
|
| 750 |
|
| 928 |
|
| Deposit fees |
|
| 22,362 |
|
| 10,450 |
|
| 8,305 |
|
| 13,748 |
|
| 6,747 |
|
| 5,646 |
|
| Internet access services |
|
| 73,120 |
|
| 77,346 |
|
| 40,992 |
|
|
|
|
|
|
|
|
|
|
| Other income |
|
| 3,741 |
|
| 5,090 |
|
| 6,140 |
|
| 3,883 |
|
| 5,494 |
|
| 4,523 |
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
| 643,409 |
|
| 667,255 |
|
| 621,830 |
|
| 359,803 |
|
| 374,458 |
|
| 369,285 |
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
| * | Restated, see note 1p. |
| ** | Reclassified. |
44
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
NOTE 12 – | SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued): | |
| ||
| g. | Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Partnership |
| ||||||||||||||||
|
|
|
|
| ||||||||||||||||||
|
|
| 2005 |
| 2004* |
| 2003 |
| 2005 |
| 2004 |
| 2003 |
| ||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||
|
|
| N I S i n t h o u s a n d s |
| N I S i n t h o u s a n d s |
| ||||||||||||||||
|
|
|
|
| ||||||||||||||||||
| ||||||||||||||||||||||
| Payroll and related expenses |
|
| 88,931 |
|
| **68,584 |
|
| **62,229 |
|
| 43,463 |
|
| **35,354 |
|
| **40,049 |
| ||
| Programs for broadcast |
|
| 223,065 |
|
| 229,302 |
|
| 209,562 |
|
| 150,137 |
|
| 152,073 |
|
| 134,709 |
| ||
| Depreciation and amortization |
|
| 156,371 |
|
| **138,818 |
|
| **126,109 |
|
| 104,647 |
|
| **89,085 |
|
| **78,589 |
| ||
| Infrastructure services for the network and maintenance |
|
| 78,501 |
|
| **67,523 |
|
| 73,324 |
|
| 62,303 |
|
| **50,197 |
|
| 51,843 |
| ||
| Goodwill amortization |
|
| 37,904 |
|
| 37,904 |
|
| 37,904 |
|
|
|
|
|
|
|
|
|
| ||
| Franchise fees and royalties |
|
| 24,674 |
|
| 26,287 |
|
| 28,660 |
|
| 12,972 |
|
| 13,507 |
|
| 16,445 |
| ||
| Computer expenses |
|
| 3,630 |
|
| **1,747 |
|
| **1,017 |
|
| 3,585 |
|
| **1,649 |
|
| **1,017 |
| ||
| Vehicle maintenance and overseas travel |
|
| 16,361 |
|
| 10,738 |
|
| 8,790 |
|
| 11,992 |
|
| 7,400 |
|
| 6,172 |
| ||
| Loss of decoders and installation expenses in respect of subscribers that have left |
|
| 1,774 |
|
| 4,643 |
|
| 5,860 |
|
| 1,115 |
|
| 2,424 |
|
| 3,446 |
| ||
| Other operating costs |
|
| 18,669 |
|
| 8,861 |
|
| 4,330 |
|
| 11,766 |
|
| 1,876 |
|
|
|
| ||
| L e s s - participation in expenses by related entities |
|
| (39,257 | ) |
| (24,547 | ) |
| (22,043 | ) |
| (62,611 | ) |
| (40,284 | ) |
| (36,186 | ) | ||
|
|
|
|
|
|
|
|
| ||||||||||||||
|
|
|
| 610,623 |
|
| 569,860 |
|
| 535,742 |
|
| 339,369 |
|
| 313,281 |
|
| 296,084 |
| ||
|
|
|
|
|
|
|
|
| ||||||||||||||
|
|
|
| h. | Selling and marketing expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Payroll and related expenses |
|
| 26,315 |
|
| 26,681 |
|
| 28,826 |
|
| 19,653 |
|
| 19,373 |
|
| 15,294 |
| ||
| Advertising and sales promotion |
|
| 37,507 |
|
| 51,591 |
|
| 27,172 |
|
| 35,777 |
|
| 48,830 |
|
| 26,068 |
| ||
| Vehicle maintenance and overseas travel |
|
| 5,522 |
|
| 6,668 |
|
| 5,145 |
|
| 3,770 |
|
| 3,261 |
|
| 3,245 |
| ||
| Collection expenses |
|
| 3,731 |
|
| 5,770 |
|
| 4,157 |
|
| 2,418 |
|
| 4,297 |
|
| 2,722 |
| ||
| Other |
|
| 2,281 |
|
|
|
|
|
|
|
| 2,280 |
|
|
|
|
|
|
| ||
| L e s s - participation in expenses |
|
| (11,527 | ) |
| (20,063 | ) |
| (13,406 | ) |
| (28,790 | ) |
| (34,822 | ) |
| (16,153 | ) | ||
|
|
|
|
|
|
|
|
| ||||||||||||||
|
|
|
| 63,829 |
|
| 70,647 |
|
| 51,894 |
|
| 35,108 |
|
| 40,939 |
|
| 31,176 |
| ||
|
|
|
|
|
|
|
|
| ||||||||||||||
|
|
|
| i. | Administrative and general expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Payroll and related expenses |
|
| 10,160 |
|
| **10,303 |
|
| **12,004 |
|
| 8,832 |
|
| **9,396 |
|
| **11,354 |
| ||
| Management fees |
|
| 3,888 |
|
| 4,102 |
|
| 4,120 |
|
| 3,420 |
|
| 3,617 |
|
| 3,628 |
| ||
| Office rent and maintenance |
|
| 7,813 |
|
| **9,613 |
|
| **7,309 |
|
| 5,308 |
|
| **7,698 |
|
| **7,056 |
| ||
| Consulting and professional fees |
|
| 7,893 |
|
| **5,527 |
|
| **6,623 |
|
| 7,316 |
|
| **4,108 |
|
| **6,396 |
| ||
| Depreciation and amortization |
|
| 3,747 |
|
| **1,809 |
|
| **839 |
|
| 2,294 |
|
| **1,068 |
|
| **222 |
| ||
| Vehicle maintenance and overseas travel |
|
| 895 |
|
| 1,059 |
|
| 1,324 |
|
| 621 |
|
| 906 |
|
| 1,324 |
| ||
| Doubtful accounts and bad debts |
|
| (736 | ) |
| 791 |
|
| 1,526 |
|
| (1,290 | ) |
| 296 |
|
| 735 |
| ||
| L e s s - participation in expenses by subsidiary entity |
|
|
|
|
|
|
|
|
|
|
| (1,124 | ) |
| (1,015 | ) |
| (1,098 | ) | ||
| L e s s - participation in expenses |
|
| (5,842 | ) |
| (7,863 | ) |
| (8,351 | ) |
| (12,077 | ) |
| (14,574 | ) |
| (15,747 | ) | ||
|
|
|
|
|
|
|
|
| ||||||||||||||
|
|
|
| 27,818 |
|
| 25,341 |
|
| 25,394 |
|
| 13,300 |
|
| 11,500 |
|
| 13,870 |
| ||
|
|
|
|
|
|
|
|
| ||||||||||||||
|
|
* | Restated, see note 1p. |
** | Reclassified. |
45
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
NOTE 12 – | SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued): |
|
|
|
| j. | Financial expenses - net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Partnership |
| ||||||||||||||
|
|
|
|
| ||||||||||||||||
|
|
| 2005 |
| 2004* |
| 2003 |
| 2005 |
| 2004 |
| 2003 |
| ||||||
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
| N I S i n t h o u s a n d s |
| N I S i n t h o u s a n d s |
| ||||||||||||||
|
|
|
|
| ||||||||||||||||
| Financial expenses (income) in respect of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Short-term loans from banks |
|
| 60,199 |
|
| 59,942 |
|
| 105,901 |
|
| 33,492 |
|
| 33,581 |
|
| 63,548 |
|
| Bank charges and commissions |
|
| 1,786 |
|
| 1,576 |
|
| 3,233 |
|
| 217 |
|
| 1,108 |
|
| 1,853 |
|
| Future contracts |
|
|
|
|
| (542 | ) |
| 2,050 |
|
|
|
|
| (542 | ) |
| 2,050 |
|
| Another liability |
|
| 1,698 |
|
| 783 |
|
| (644 | ) |
| 1,698 |
|
| 783 |
|
| (644 | ) |
| Balances with related parties entities, net |
|
| (1,588 | ) |
| (2,551 | ) |
| (8,710 | ) |
| 8,414 |
|
| 5,463 |
|
| (3,345 | ) |
| Others - net |
|
| 3,548 |
|
| 7 |
|
| 33 |
|
| 3,002 |
|
| (140 | ) |
| (537 | ) |
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
| 65,643 |
|
| 59,215 |
|
| 101,863 |
|
| 46,823 |
|
| 40,253 |
|
| 62,925 |
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
| k. | Other income (expenses) - net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Expenses in respect of content supplier** |
|
| (3,113 | ) |
| (26,726 | ) |
|
|
|
| (1,939 | ) |
| (17,263 | ) |
|
|
|
| Reduction in provision in respect of lawsuits*** |
|
| 11,526 |
|
|
|
|
|
|
|
| 6,443 |
|
|
|
|
|
|
|
| Other |
|
| 98 |
|
| 716 |
|
| 63 |
|
| 98 |
|
| 845 |
|
| 4 |
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
| 8,511 |
|
| (26,010 | ) |
| 63 |
|
| 4,602 |
|
| (16,418 | ) |
| 4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| * | Restated, see note 1p. |
| ** | See note 13b(9). |
| *** | The update was made according to management’s estimates, which are based on past experience and the opinion of its legal counsel. |
|
|
NOTE 13 – | COMMITMENTS AND CONTINGENT LIABILITIES: |
|
|
|
|
|
| a. | Commitments: | ||
|
|
|
|
|
|
| 1) | Royalties to the Ministry of Communications: | |
|
|
|
|
|
|
|
| a) | The Partnership and Idan are committed to pay royalties to the State on their income from broadcast services. On June 16, 2003, an amendment to the Telecommunications (Bezeq and Broadcasts) (Concessions) Regulations, 1987 was passed, reducing the rate of royalties to 4% in 2002 and 2003, and to 3.5% in 2004 and thereafter. |
|
|
|
|
|
|
|
| b) | On July 10, 2001, the CTV entities signed an agreement with the State, providing for the amount to be paid to the State for each of the CTV entities’ rights, including the recognition of the proprietary rights in the cable infrastructure in their areas of concession, and stipulating an arrangement with respect to the right to continue operating the cable infrastructure subsequent to the termination of the franchise period for purposes of cable television broadcasts and Bezeq services, as defined in the Telecommunications Law. |
46
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
NOTE 13 – | COMMITMENTS AND CONTINGENT LIABILITIES (continued): |
|
|
|
|
|
|
|
| The amount of payment is determined at a graduated percentage of the joint income of the CTV entities (0%-2.3%) and is payable over 12 years, commencing on January 1, 2003. Each of the CTV entities pays its share in the payment according to the rate determined in the agreement. The Group’s share in said amount is 28.6% (Partnership - 18.6%). In addition to the above, each CTV entity makes payments in respect of income from the sale of assets, which are computed on the basis of the remaining period from the date of sale to the end of the payment period, divided by the payment period and multiplied by 12%. | |
|
|
|
| |
| 2) | Royalties in respect of copyrights | ||
|
|
| ||
|
| The Partnership is committed to pay royalties to various bodies in Israel and overseas in respect of the copyrights pertaining to programs that are transmitted or broadcasted via CTV, in accordance with the agreements signed with such bodies. At the end of 2002, some of the agreements between the Partnership and the copyright bodies had expired. The Partnership is negotiating an arrangement with said bodies with respect to future payment commitments between the parties (see also note 13b(13) below). | ||
|
|
| ||
| 3) | Royalties in respect of broadcasts in the Ma’ale Edumin area | ||
|
|
| ||
|
| Edom is committed to pay royalties on its income from the provision of CTV services, as follows: | ||
|
|
| ||
|
| a) | To the Ma’ale Edumin municipality - royalties of 10% of its gross income. | |
|
|
|
| |
|
| b) | To the Civil Administration - royalties of 2.5% of its income. | |
|
|
|
| |
| 4) | Agreement for the deployment and maintenance of a cable network | ||
|
|
| ||
|
| In 1990, the Partnership entered into an agreement with Bezeq, effective from January 1, 1990, for the deployment and maintenance of the cable network in all the concession areas, as shall be determined by the Partnership. The operating equipment and cables are supplied by the Partnership. The cable network is deployed through Bezeq’s infrastructure and is owned by the Partnership. | ||
|
|
| ||
|
| In consideration for the deployment and maintenance of the network, the Partnership has undertaken to make quarterly payments to Bezeq, linked to the cost-of-living index, over a period of 12 years starting from the date of delivery of every network segment, based on the length of the segment deployed. After 12 years from the delivery of each network segment to the Partnership, the quarterly payment to Bezeq for the maintenance of such segments shall amount to 35% of the original quarterly payment. To date, the Company pays the reduced quarterly amount, as above, in respect of certain segments. The expense carried to operating expenses for the year in respect of said agreement amounted to NIS 14.5 million (consolidated) and NIS 14.2 million (the Partnership). | ||
47
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
NOTE 13 – | COMMITMENTS AND CONTINGENT LIABILITIES (continued): |
|
|
|
|
| 5) | Agreements with content providers overseas (Majors): | |
|
|
| |
|
| a) | On July 13, 1999, the Partnership entered into a long-term agreement for the acquisition of rights to broadcast TV series from Warner. Under this agreement, the Company has committed to make minimum purchases. |
|
|
|
|
|
|
| Warner has exercised the option granted to it to extend the agreement for an additional period until November 30, 2004. Accordingly, the Partnership was obligated to make minimum purchases during such additional period. |
|
|
|
|
|
|
| The Partnership provided Warner with a bank guarantee in the amount of $5 million with respect to said agreements. In December 2002, Warner has called-in the guarantee, claiming that the agreement has been breached, inter alia, as a result of the alleged failure to make the minimum payments referred to above, see note 13b(9). |
|
|
|
|
|
| b) | The Partnership entered into another agreement with Columbia TriStar International - Television (hereafter - Columbia) for the acquisition of rights to broadcast TV series. |
|
|
|
|
|
| c) | The Partnership entered into an agreement under which the Group transferred to HOT Vision the liability in relation to the agreements with the aforementioned content providers. Accordingly, HOT Vision paid the amounts referred to in (a) and (b) above and will continue paying them in the future. HOT Vision charges content production costs of the CTV entities in proportion to the number of subscribers (see also note 3e). As to another agreement signed between HOT Vision and the CTV entities, see also b(9) below. |
|
|
|
|
| 6) | Management fees: | |
|
|
| |
|
| a) | The Partnership credits the partners with annual management fees at the rate of 1% of its income from subscription fees. |
|
|
|
|
|
| b) | Idan credits the partners with annual management fees at the rate of 1% of its income from subscription fees. |
|
|
|
|
| 7) | Content and original productions in Israel | |
|
|
| |
|
| As part of its commitment to produce original productions and other content, the Group has entered into various agreements with content providers in Israel, for varying periods for the acquisition of the required content. | |
|
|
| |
|
| Pursuant to Amendment No. 25 to the Telecommunications Law, the Council has required the Group under the terms of the General Broadcasting Licenses to complement past charges from the concession period in respect of compliance with obligations and minimum content requirements. It was determined that these charges shall be payable over 10 years, starting two years from the date of grant of the licenses. The Council has set the amount of financial investment in respect of past debts at approximately $6 million. To the date of these financial statements, the debt balance of the Group and the Partnership in respect of the above is $660,000 and $420,000, respectively. | |
48
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
| |||
NOTE 13 – | COMMITMENTS AND CONTINGENT LIABILITIES(continued): | |||
|
|
|
| |
|
| In management’s opinion, since the production of programs in accordance with the aforementioned requirement may reduce the future costs in respect of the production and acquisition of other programs, no provision has been included in the financial statements. | ||
|
|
| ||
|
| In accordance with the Telecommunications Law and the Council’s resolution, the Group is, inter alia, obligated to invest in local productions, to be initially broadcast by the Group, approximately 8% of its annual income from subscription fees (as from April 2002). This shall also apply to the years 2006-2007. In the opinion of the Partnership’s management, the rate of investment in original productions in 2005, 2004 and 2003 exceeded 8%. | ||
|
|
| ||
| 8) | Fixed assets: | ||
|
|
| ||
|
| a) | As to the undertaking by HOT Telecom to a minimum investment in the preparations for the provision of telephony services, see note 1a(3)(b)(ii). | |
|
|
|
| |
|
| b) | The Partnership has entered into agreements for the purchase of fixed assets. As of December 31, 2005, the balance in respect of said commitment amounts to NIS 45,707,000. | |
|
|
|
| |
| 9) | Lease and rent agreements: | ||
|
|
| ||
|
| a) | On September 25, 2005, HOT Telecom entered into an agreement with an interested party for the lease of real estate with an area of 19,000 Sq.m. in the industrial park adjacent to Kibbutz Yakum, as well as for additional premises and parking spaces, for a ten-year period, with an option to extend for two additional periods of 5 years each. The real estate is to be used in the activities of HOT Telecom and the other CTV entities. The CTV entities have guaranteed the fulfillment of HOT Telecom’s obligations under the lease agreement, up to NIS 200 million (the Group’s share is NIS 60.7 million, see note 13b(19). | |
|
|
|
| |
|
|
| In addition, the Group rents buildings that are used as service centers, offices and broadcast centers. The lease fees are linked mainly to the Israeli CPI and partly to the exchange rate of the U.S. dollar. | |
49
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
NOTE 13 – | COMMITMENTS AND CONTINGENT LIABILITIES (continued): |
|
|
| The projected rental payments for the coming years, at rates in effect at December 31, 2005, are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Partnership |
| ||||||||||||||
|
|
|
| ||||||||||||||||
|
| NIS in thousands |
| NIS in thousands |
| ||||||||||||||
|
|
|
| ||||||||||||||||
|
| CPI-linked |
| Dollar- |
| Total |
| CPI-linked |
| Dollar- |
| Total |
| ||||||
|
|
|
|
|
|
|
| ||||||||||||
2006 |
|
| 5,709 |
|
| 870 |
|
| 6,579 |
|
| 2,359 |
|
| 783 |
|
| 3,142 |
|
2007 |
|
| 5,510 |
|
| 829 |
|
| 6,339 |
|
| 2,359 |
|
| 773 |
|
| 3,132 |
|
2008 |
|
| 5,310 |
|
| 688 |
|
| 5,998 |
|
| 2,359 |
|
| 661 |
|
| 3,020 |
|
2009 |
|
| 4,875 |
|
| 64 |
|
| 4,939 |
|
| 2,359 |
|
| 36 |
|
| 2,395 |
|
2010 and thereafter |
|
| 21,975 |
|
| 106 |
|
| 22,081 |
|
| 14,153 |
|
| 90 |
|
| 14,243 |
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
| 43,379 |
|
| 2,557 |
|
| 45,936 |
|
| 23,589 |
|
| 2,343 |
|
| 25,932 |
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
| b) | The Group has entered into operating lease agreements for the vehicles it uses. The agreements expire in 2006, 2007 and 2008. The lease fees are linked to the CPI. |
|
|
|
|
|
|
| The projected rental payments for the next two years, at rates in effect at December 31, 2005, are approximately NIS 15.3 million (consolidated). |
|
|
|
|
| 10) | Agreements with various suppliers | |
|
|
| |
|
| a) | In November 2004, the CTV entities entered into an agreement with a supplier for the acquisition of 40,000 digital decoders (the Group’s share - 12,100 decoders). The agreement further entitles the supplier to supply to the CTV entities with up to 100,000 decoders. At the same time, the agreement determines that the supplier’s entitlement, as above, may be cancelled by the CTV entities if the latter had purchased at least 50,000 decoders from the supplier and subject to appropriate notice and the payment of the agreed-upon compensation of $ 500,000 to the supplier (the Group’s share - $ 150,000). To the date of these financial statements, the Group has acquired 3,100 digital decoders from the supplier. |
|
|
|
|
|
| b) | In January 2006, the CTV entities signed a memorandum of understanding with two suppliers in connection with the acquisition of 150,000 digital decoders (the Group’s share - 45,000) over two years from the completion of the development of the decoders. This commitment is subject to the resolution by one of the suppliers of the defects found in digital decoders purchased until March 15, 2006. In the opinion of the Partnership’s management, to the date of approval of the financial statements, the supplier had not yet resolved these defects and is therefore in non-compliance with the terms of the memorandum of understanding. |
50
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
NOTE 13 – | COMMITMENTS AND CONTINGENT LIABILITIES (continued): | ||||
|
|
|
|
|
|
|
|
| c) | In June 2004, the CTV entities entered into an agreement for the supply of software for digital decoders, an upgraded user interface system and an upgrade of the service centers of the Group and TLM, for a consideration of approximately $1.5 million. As of December 31, 2005, the balance of the commitment in respect of said agreement is approximately $0.4 million (the Group’s share - approximately $120,000). | |
|
|
|
|
| |
|
|
| d) | The CTV entities have entered into an agreement for the maintenance and repair of decoders and modems during the two-year period ending August 1, 2007, for a minimum annual consideration of approximately NIS 13 million per year (the Group’s share - NIS 4 million). | |
|
|
|
|
| |
| b. | Contingent liabilities: | |||
|
|
| |||
|
| 1) | On September 8, 1998, a claim was filed with the Tel-Aviv District Court against the CTV entities, including the Partnership, for the payment of compensation of NIS 30,400,000, which for filing fee purposes has been set at NIS 7,600,000 (the share of the Group and the Partnership in the claim is approximately NIS 2,300,000 and NIS 1,400,000, respectively), in respect of the alleged breach of an agreement concerning the broadcasting rights of the Spanish soccer league games. Evidentiary hearings were held in 2004 and 2005. | ||
|
|
|
| ||
|
|
| In management’s opinion, which is based on the opinion of its legal counsel, the chances of the claim and its effect on the Group cannot be estimated. Accordingly, no provision has been included in the financial statements in respect thereof. | ||
|
|
|
| ||
|
| 2) | a) | Under the arrangement between the Group and the Ministry of Communications, concerning the discount, equal to the full amount of subscription fees in respect of the basic package, which is provided for in the directives of the concessions in respect of retirement homes that are non-profit organizations and effective until the expiration of such concessions, as of December 31, 2003 the Group has paid part of the amounts under said arrangement and has included a provision in its accounts, which management believes to be sufficient to cover the remaining liabilities with respect to said arrangement. | |
|
|
|
|
| |
|
|
| b) | (i) | On December 9, 2001, the Group and TLM filed a petition by means of an originating motion with the Jerusalem District Court against the Ministry of Communications and the Director of the Subscriber Multi-Channel Broadcasting Division in the Ministry of Communications. As part of the petition, the Court is requested to order and declare, inter alia, that, for purposes of the discount under the concessions the term “retirement home” shall be exclusive of “sheltered accommodation” or at least does not include the tenants of the “sheltered accommodations”. Additionally, a definition was suggested for the term “public institution” that appears in the relevant clauses of the concessions. |
51
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
| ||||
NOTE 13 – | COMMITMENTS AND CONTINGENT LIABILITIES (continued): | ||||
|
|
|
|
| |
|
|
|
| The basis of the claim is the disagreement between the parties as to the correct interpretation of the discount provisions included in the concession and with regard to the interpretation of a letter of consent signed between the parties in June 2000. The questions regarding these interpretations have a bearing on the liability of the Group and TLM to provide free viewing services to “sheltered accommodations” and the tenants therein, as distinct from “retirement homes” that are entitled to a discount by virtue of the letter of consent. | |
|
|
|
|
| |
|
|
|
| On July 4, 2005, the Jerusalem District Court issued a ruling, stating, inter alia, that public “sheltered accommodations”, which are both “public institutions” and “non-profit organizations”, were entitled to receive from the Partnership the same full-rate discount that had been granted to public retirement homes, this through to April 30, 2002. As to the public “sheltered accommodations” that had received services from Idan, it was determined that, for the purpose of entitlement to such discount, their “public institution” status was sufficient. The ruling does not provide definitions of the terms used therein and does not determine the type of discount that should have been granted. On October 6, 2005, the Group and TLM appealed said ruling. The appeal is scheduled to be heard on July 10, 2006. | |
|
|
|
|
| |
|
|
| (ii) | The tenants of a “sheltered accommodation” in Jerusalem and the tenants of a senior living facility in Kfar Saba filed claims against the Partnership, arguing that they are tenants of “retirement homes” and as such should pay subscription fees in zero amount. The plaintiffs claim that the Partnership should refund in full the amounts that they allege that they were unlawfully charged with. The claims amount to NIS 602,000. Following a discussion held on September 11, 2005, the parties have agreed to stay the proceedings until a ruling is issued in the appeal referred to in (1) above. | |
|
|
|
|
| |
|
|
| The Group has included a provision in its accounts in an amount that management believes is sufficient to cover the liabilities in respect of the matters discussed in (i) and (ii) above. | ||
|
|
|
| ||
| 3) | On August 2, 2001, the Supreme Court issued a declaratory judgment that was upheld in another hearing held on June 16, 2004, with respect to Tele Event’s claim against the CTV entities. The judgment rules that retransmission could amount to breach of copyright if third parties have copyrights in the programs transmitted, and such parties have not approved the broadcasting of the programs in Israel. On August 25, 2004, a meeting was held between the parties, in which Tele Event claimed indemnification of approximately NIS 4,603,000 (the share of the Group and the Partnership in the claim is approximately NIS 1,392,000 and NIS 903,000, respectively). Since said date, through to the date of approval of the financial statements, there have been no significant developments in said claim. | |||
|
|
| |||
|
| In management’s opinion, which is based on the opinion of its legal counsel, the merits of the allegations or the reasonability of the required compensation and the chances of a financial claim, if such is submitted in this matter, cannot be estimated. Therefore, no provision has been included in the financial statements in respect thereof. | |||
52
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
NOTE 13 – | COMMITMENTS AND CONTINGENT LIABILITIES (continued): | ||||
|
|
|
|
|
|
|
| 4) | On March 28, 2000, AGICOA (an organization which claims to represent producers whose works are broadcast, among others, on cable) filed a claim against the CTV entities, including the Group. At the basis of the claim is the alleged breach of copyright of the producers represented by AGICOA in sub-broadcasts transmitted by cable. The claim also alleges unlawful enrichment. The total amount of the claim against all CTV entities is at least $ 170.2 million, which for filing fee purposes has been limited to $ 20 million. | ||
|
|
|
|
|
|
|
|
| Due to the early stage of the proceedings, the chances of the claim cannot be estimated. Nevertheless, in the opinion of the Group’s management, which is based on the opinion of its legal counsel, despite the ruling in the Tele Event claim (see (3) above), the Group has substantial and good defense arguments; accordingly, no provision has been included in the financial statements. | ||
|
|
|
|
|
|
|
| 5) | In 2001, a claim against the Partnership in the amount of NIS 5,050,000 was filed with the Tel-Aviv District Court by the company that operates the cable television network in Givat Zeev, Jerusalem. At the heart of the claim is the plaintiff’s petition for the issue of a declaratory relief for the cancellation of the agreement between the plaintiff and the Partnership for the provision of CTV services (hereafter - the agreement) or, alternatively, for a declaration that the Partnership is in fundamental breach of the agreement and therefore the plaintiff is entitled to cancel it or, alternatively, is entitled to purchase the “signal” from any other party and is also entitled to additional financial remedies. | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| In March 2003, the plaintiff filed a petition for a preliminary injunction to prevent the provision of certain digital services by the Partnership, this in view of financial disputes between the parties. The parties have reached an interim arrangement to be valid until the commencement of arbitration proceedings. Since January 2005, negotiations are being held between the parties outside of court, along with the examination of regulatory issues with the regional manager and the Givat Zeev Council. A Court session has been scheduled for May 18, 2006. | ||
|
|
|
|
|
|
|
|
| In management’s opinion, which is based on the opinion of its legal counsel, the chances of the claim and its implications on the Partnership cannot be estimated. Therefore, no provision has been included in the financial statements in respect thereof. | ||
|
|
|
|
|
|
|
| 6) | On August 6, 2002, a claim for the payment of NIS 460 was filed against Idan with the Tel-Aviv District Court. Additionally, a petition was filed to approve the claim as a class action in the estimated amount of NIS 200,000, with the addition of legal costs and lawyers’ fees. The claim is based on the allegation that, under the terms of the concession granted to Idan, Idan was required to grant a 25% discount to the subscribers residing in a condominium in which 2/3 of the tenants have subscribed. This discount was cancelled by the Minister of Communication’s resolution dated May 25, 1994, which determined, inter alia, that the changes that had been approved are applicable to new subscribers and new requests as from the date of said resolution. According to the plaintiffs, Idan should have continued granting the discount to all the customers who had engaged with Idan prior to the date of the resolution that cancelled the discount. | ||
53
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
NOTE 13 – | COMMITMENTS AND CONTINGENT LIABILITIES(continued): | ||||
|
|
|
|
|
|
|
|
| On July 14, 2004, the Court issued its ruling, rejecting the claim in limine. On October 18, 2004, the plaintiffs filed an appeal with the Supreme Court against the ruling of the District Court. In a hearing held on November 21, 2005, at the advice of the Court, the appellants withdrew their appeal. On January 29, 2006, one of the appellants filed a petition with the Supreme Court for the consensual rescission of judgment. On February 27, 2006, Idan submitted its response to the rescission petition and on March 6, 2006 the appellant responded thereto. To the date of approval of the financial statements, a ruling has yet to be issued on the petition. | ||
|
|
|
|
|
|
|
|
| In the opinion of management, which is based on the opinion of its legal counsel, the chances of the petition for the rescission of judgment cannot be estimated; accordingly, no provision has been included in the financial statements. | ||
|
|
|
|
|
|
|
| 7) | On August 28, 2002, a petition to certify a class action against the Partnership and Matav, estimated at NIS 310,000,000 (the Partnership’s share - approximately NIS 170,000,000), has been filed with the Tel-Aviv District Court. The cause of the claim is the failure to connect settlements in the periphery to the cable network 6 years subsequent to the grant date of the franchises. The Partnership and Matav have filed a request for the rejection in limine of the certification petition. The Court has decided that the request for rejection in limine will be discussed together with the merits of the petition. The Partnership and Matav have submitted a response to the certification petition. To the date of approval of the financial statements, the Court has not yet ruled in the matter. | ||
|
|
|
|
|
|
|
|
| In the opinion of management, which is based on the opinion of its legal counsel, the chances of the claim cannot be estimated; accordingly, no provision has been included in the financial statements. | ||
|
|
|
|
|
|
|
| 8) | On December 3, 2002, a petition was submitted to the Tel-Aviv District Court for the certification of a class action, estimated at NIS 302,400,000, with the addition of NIS 25,200,000 for every month following the filing of the petition, against the CTV entities, including the Group (the Group’s share is estimated at NIS 94,000,000, with the addition of a monthly amount of approximately NIS 7.8 million, which would be accrued from the date of filing of the petition until a ruling is issued in the class action). The cause of the class action is the non-compliance with the terms stipulated by the Council in connection with the broadcasting of Channel 5+ (sports) by the CTV entities. The class action also includes the Council and the Ministry of Communications. On May 27, 2004, the certification petition was rejected by the Tel-Aviv District Court. On July 5, 2004, the plaintiffs filed an appeal with the Supreme Court. | ||
|
|
| In December 2005, an amended petition was submitted for the certification of the claim against the Group and Matav, together and severally, as a class action. The amount claimed under the amended petition (which does not include Tevel) is approximately NIS 199 million and NIS 16.6 million for every month starting from December 3, 2002 and thereafter (the Group’s share - approximately NIS 87 million and NIS 7 million, respectively). | ||
|
|
|
|
|
|
|
|
| In the opinion of the Partnership’s management, which is based on the opinion of its legal counsel, the chances of the claim and its implications on the Group cannot be estimated at this stage. Therefore, no provision has been included in the financial statements of the Partnership. | ||
54
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
NOTE 13 – | COMMITMENTS AND CONTINGENT LIABILITIES (continued): | ||||
|
|
|
|
|
|
|
| 9) | a) | On December 9, 2002, Warner filed a legal claim against the Partnership with the Los Angeles District Court in California, USA, claiming, inter alia, financial damages in the amount of $ 25 million in respect of the breach of the agreements for the acquisition of rights to broadcast TV series (hereafter - the agreements) and a claim for the granting of declaratory reliefs, as stipulated in the statement of claim. On September 29, 2004, the Los Angeles District Court ruled in favor of Warner, awarding it damages, including court fees of $ 2.7 million, and rejecting the counterclaims filed by the Partnership in this matter. | |
|
|
|
|
|
|
|
|
|
| On March 7, 2005, the Partnership filed an appeal notice with the US Court of Appeals. To the date of the financial statements, a ruling has yet to be issued in the appeal. | |
|
|
|
|
|
|
|
|
| b) | In accordance with an agreement signed in 2003 between HOT Vision and the CTV entities, including the Group (hereafter - the agreement), the CTV entities are mutually committed to jointly bear the results of the legal proceedings described in (a) above, as well as the conduct thereof. | |
|
|
|
|
|
|
|
|
|
| In light of the agreement, and taking into account the additional interest and legal costs that may be incurred, the financial statements as of December 31, 2005 include a provision of NIS 31,226,000 and NIS 19,201,000, respectively, for the share of the Group and the Partnership in the results of the claim (out of said amounts, NIS 26,726,000 and NIS 17,263,000, respectively, were charged to other expenses in the financial statements for 2004). | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 10) | In June 2004, as part of arbitration proceedings, Eshkolot - The Israel Artists Society for Performers Rights Ltd. (hereafter - Eshkolot) filed a statement of claim against the CTV entities, including the Group, for the payment of monies and royalties in respect of the alleged breach of copyrights and unlicensed use of their rights. | ||
|
|
|
|
|
|
|
|
| Eshkolot also requested a permanent injunction against the CTV entities that will prohibit the broadcast of protected performances employing performers’ rights held by Eshkolot and a temporary injunction to prohibit the CTV entities from broadcasting performances employing performers’ rights held by Eshkolot, until a ruling in the case is given. | ||
|
|
|
|
|
|
|
|
| The amount of the claim, which is significantly higher than the amounts previously paid to Eshkolot by the CTV entities under an agreement that expired in 2002, is NIS 8.5 million for 2003 and a similar amount plus 10% for each of the years 2004-2006. | ||
|
|
|
|
|
|
|
|
| On August 3, 2004, the CTV entities filed a statement of defense, rejecting the claims of Eshkolot. | ||
|
|
|
|
|
|
|
|
| It has been further clarified that the CTV entities have paid Eshkolot the amount that is not in dispute for 2003. | ||
|
|
|
|
|
|
|
|
| The evidentiary hearings in the claim were concluded in March 2006. | ||
55
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
NOTE 13 – | COMMITMENTS AND CONTINGENT LIABILITIES (continued): | ||||
|
|
|
|
|
|
|
|
| In management’s opinion, which is based on the opinion of its legal counsel, the chances of the claim cannot be estimated. Accordingly, no provision has been included in the financial statements. | ||
|
|
|
|
|
|
|
| 11) | On March 27, 2003, a petition was filed with the Tel-Aviv District Court for the certification of a class action in the amount of NIS 10,000,000 against the Partnership. The claim is in respect of the unlawful charge of a monthly payment of NIS 11 for an additional connection point. | ||
|
|
|
|
|
|
|
|
| On June 15, 2003, the Partnership filed a petition, claiming that there is no legislation that enables the filing of a class action such as that filed by the petitioner, and that the claim has no merits. In 2005, the parties reached a compromise agreement, which has been approved by the Court. Pursuant to the agreement, anyone who had joined the Partnership’s digital service between July 2001 and June 2002 as part of the special offer of free additional connection points to subscribers, and is still a subscriber of the Partnership, would be entitled to receive a free additional connection point for a cumulative period of two years, starting from July 2002 and thereafter. Under the agreement, the Partnership is required to make 6 Israeli CPI-linked payments of NIS 80,000 each, of which one payment has been made. | ||
|
|
|
|
|
|
|
|
| The Partnership has placed an announcement in newspapers and has sent personal notices to all the subscribers that had joined the services as part of the special offer that is the subject of the compromise agreement. | ||
|
|
|
|
|
|
|
|
| On January 8, 2006, a motion to approve a claim as a class action was filed against Idan in the amount of approximately NIS 23.7 million in respect of letters sent to the Idan’s subscribers announcing that the subscribers are entitled to receive the benefit assured to the Partnership’s subscribers. Some time later, letters were sent to Idan’s subscribers announcing that a mistake had been made and that they are not entitled to the above benefit. | ||
|
|
|
|
|
|
|
|
| As part of their negotiations, the parties have filed a petition for the application of a compromise agreement with principles similar to those of the compromise agreement that had been signed with the Partnership, as above. | ||
|
|
|
|
|
|
|
|
| In the opinion of Idan’s management, which is based on the opinion of its legal counsel, the chances of such compromise agreement being applied to Idan are good and, accordingly, no provision has been recorded in the financial statements. | ||
|
|
|
|
|
|
|
| 12) | In September 2003, a petition was filed with the Teal-Aviv District Court for the certification of a class action against the Partnership in the amount of NIS 105 million. The grounds for the claim are the non-compliance with a term stipulated in the license, which obligates the Partnership to make a free telephone number (1-800) available to the public and the failure to publicly announce the availability of such number. | ||
|
|
|
|
|
|
|
|
| In management’s opinion, which is based on the opinion of its legal counsel, the chances of the claim and its implications on the Partnership cannot be estimated. Accordingly, no provision has been included in the financial statements. | ||
56
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
NOTE 13 – | COMMITMENTS AND CONTINGENT LIABILITIES (continued): | ||||
|
|
|
|
|
|
|
| 13) | On April 11, 2005, the Israeli Records and Cassettes Federation (hereafter - the Federation) filed a claim and a request for payment of temporary royalties against the CTV entities, including the Partnership. Within the said claim, the Federation seeks a permanent injunction that shall prohibit the CTV entities from using the compositions, which are included in the Federation repertoire, unless the parties reach an agreement. The Federation has announced that it would be willing to waive the injunction against the payment of license fees. It has also announced that it would be willing to accept a compromise ruling by the Court and has given its consent in advance to the matter being referred to arbitration. According to the request for interim payments, the Federation is requesting that the CTV entities be required to pay it temporary royalties at an annual rate of $ 2 for every subscriber who is not connected to the audio channels and $ 5 for every subscriber who is connected to the audio channels, until a ruling in the primary lawsuit is handed down. | ||
|
|
|
|
|
|
|
|
| On July 6, 2005, a hearing was held in the matter of the interim payments and the Court rendered a decision according to which the temporary royalties shall be at this stage set at $ 380,000 per year. The Court further ruled that, within this framework, the CTV entities shall be granted a usage license according to their current scope of utilization (i.e., a license that includes all the current uses, including audio channels). The amount mentioned above has been paid for the years 2003 and thereafter, pending another ruling by the Court, net of an advance of $ 150,000 that had been paid by the CTV entities in respect of 2003. | ||
|
|
|
|
|
|
|
|
| In management’s opinion, which is based on the opinion of its legal counsel, it is not possible, at this stage, to estimate the chances of the claim and its implications on the Partnership. Accordingly, no provision has been included in the financial statements. | ||
|
|
|
|
|
|
|
| 14) | On November 13, 2005, a demand was received from DST Holdings for the repayment of the CTV entities’ debt of NIS 11 million (the Group’s share is NIS 3.3 million), as well as a petition for arbitration. The CTV entities denied the existence of said debt. On January 25, 2006, DST filed a petition with the Tel-Aviv-Jaffa District Court for the enforcement of a stipulation for arbitration in the agreement and a petition for the appointment of an arbitrator against the CTV entities. In the petition, DST has denoted various amounts: in one place in the petition, DST claimed that the CTV entities’ debt amounts to NIS 20 million and in another place DST denoted an amount of NIS 15 million. | ||
|
|
|
|
|
|
|
|
| In the opinion of the Partnership’s management, based on the opinion of its legal advisors, at this preliminary stage, it is not possible to assess the chances of the petition and therefore no provision in respect thereof was included in the financial statements. | ||
57
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
NOTE 13 – | COMMITMENTS AND CONTINGENT LIABILITIES (continued): | ||||
|
|
|
|
|
|
|
| 15) | In December 2005, TALI The Royalties Company of Film and Television Makers in Israel Ltd. (hereafter - TALI), an organization that represents the copyrights of screenwriters and directors in Israel, submitted a payment demand to the CTV entities in the aggregate amount of approximately NIS 63 million (the Group’s share is approximately NIS 19 million) in respect of royalties to which the members of TALI are allegedly entitled for the use of the scripts and the directing work of the TALI members by the CTV entities. The allegations relate to broadcasts made until December 31, 2005. In addition, the CTV entities were required to cease any use of the scripts and directing work of any of the TALI members, and to reach an agreement with regard to future broadcasts. | ||
|
|
|
|
|
|
|
|
| Furthermore, additional letters of demand have been sent to the CTV entities by other makers represented by TALI, aggregating approximately NIS 5 million (the Group’s share is approximately NIS 1.5 million). | ||
|
|
|
|
|
|
|
|
| Since no claims have been filed, but only letters of demand have been received without evidentiary materials, documents, data and computations to support such demands, management, based on the opinion of its legal counsel, believes that under these circumstances the chances of the proceedings, to the extent that such proceedings are initiated in this matter, cannot be estimated. Accordingly, no provision has been included in the financial statements. | ||
|
|
|
|
|
|
|
|
| In connection with and in addition to the above, in February 2006, five different screenwriters and directors (hereafter - the claimants) filed a claim in the amount of NIS 1.7 million (for fee purposes only), against the CTV entities, arguing that the use of the scripts and work of the claimants, without royalties being paid by the CTV entities to the claimants, constitutes a fundamental breach of their copyrights. | ||
|
|
|
|
|
|
|
|
| According to management, based on the opinion of its legal advisors, in view of the proceedings still being in the preliminary stages, it is not possible to assess the chances of the claim and its repercussion on the Partnership and therefore no provision in respect thereof was included in the financial statements. | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| 16) | In 2005, Hot Vision filed a claim in the amount of approximately NIS 1.8 million against YES in respect of the amount deducted by YES from a payment that it was obligated to make to Hot Vision. In March 2006, YES submitted a statement of defense and a counterclaim in the amount of NIS 2.5 million (for fee purposes). The grounds for said claim is the allegation by YES that over the years Hot Vision has unlawfully charged management fees of YES, in the amount of approximately NIS 6.8 million, including interest and linkage differences as of the date of filing of the counterclaim. YES further stated that, in the event that Hot Vision’s claim as to the aforementioned deduction is accepted, it would add to its claim the amount of the deduction (NIS 1.7 million, with the addition of interest and linkage differences). | ||
|
|
|
|
|
|
|
|
| In management’s opinion, which is based on the opinion of its legal counsel, in view of the preliminary stage of said claim, and since Hot Vision has yet to submit a statement of defense in respect of the counterclaim, the chances of the claims being accepted cannot be estimated. Accordingly, no provision has been included in the financial statements. | ||
58
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
NOTE 13 – | COMMITMENTS AND CONTINGENT LIABILITIES (continued): | ||||
|
|
|
|
|
|
|
| 17) | On March 22, 2005, the CTV entities sent a notification to the Mega Film Channel, concerning the revocation of production agreements dated April 30, 2005. On April 23, 2005, the channel submitted its response stating, among other things, that following the unilateral decision of the CTV entities to revoke the agreements, the channel shall have to return to court to claim its rights and damages. The channel was taken off the air on May 1, 2005. | ||
|
|
|
|
|
|
|
|
| According to the Partnership’s management, based on the opinion of its legal advisors, at this stage it is not possible to assess the chances of the claim, if and when it is filed, and therefore no provision in respect thereof was included in the financial statements. | ||
|
|
|
|
|
|
|
| 18) | Several additional claims concerning various matters were filed against the Group. With respect to some claims it is not possible to assess the results while others amount to a total of NIS 9.3 million. In management’s opinion, the Group shall not sustain any losses from the above claims and accordingly, no provision was made in respect thereof. | ||
|
|
|
|
|
|
|
| 19) | The Partnership is a signatory to letters of undertaking for the indemnification of officers in the Partnership: the chairman of the board of directors, its VP of finance and other officers. Pursuant to the main terms of the letters of undertaking, the Partnership shall indemnify the officers in respect of certain events that are covered in the letter of undertaking for indemnification, in the amount of $ 25 million in one calendar year, for the all the officers in the Partnership, collectively. | ||
|
|
|
|
|
|
|
|
| In addition, Idan is a signatory to letters of undertaking, which are identical in terms to the above letters of undertaking. | ||
|
|
|
|
|
|
|
| With respect to the passing of the Class Actions Law, 2006, after the date of approval of the financial statement, see note 19c. | |||
59
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
NOTE 13 – | COMMITMENTS AND CONTINGENT LIABILITIES (continued): | ||||
|
|
|
|
|
|
|
| 20) | Guarantees: | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Partnership |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| December 31 |
| December 31 |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| 2005 |
| 2004 |
| 2005 |
| 2004 |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
| NIS in thousands |
| NIS in thousands |
| ||||||||
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Guarantees provided in favor of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Proportionately consolidated company (a) |
|
| 61,794 |
|
| 59,086 |
|
| 42,811 |
|
| 40,865 |
|
| The Ministry of Communications (b) |
|
| 28,433 |
|
| 34,047 |
|
| 28,433 |
|
| 34,047 |
|
| The Commissioner |
|
| 3,701 |
|
| 25,706 |
|
|
|
|
|
|
|
| Associated company (d) |
|
| 60,700 |
|
|
|
|
| 39,180 |
|
|
|
|
| Supplier of equipment for HOT Telecom (e) |
|
| 6,287 |
|
|
|
|
| 4,058 |
|
|
|
|
| Other |
|
| 582 |
|
| 2,122 |
|
| 140 |
|
| 2,012 |
|
|
|
|
|
|
|
| ||||||||
|
|
|
| 161,497 |
|
| 120,961 |
|
| 114,622 |
|
| 76,924 |
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
| a) | The Group has provided guarantees to banks in respect of 40% (the Partnership - 27%) of HOT Vision’s current obligations to the same banks. At December 31, 2005 and 2004, HOT Vision’s current obligations to said banks amounted to NIS 158 million and NIS 151 million, respectively, see also note 3e(2)(iii). | |
|
|
|
|
|
|
|
|
| b) | The Group has provided bank guarantees in favor of the Ministry of the Communications in the amount of NIS 9.5 million, to secure the fulfillment of the obligations of the Group and the CTV entities under the Broadcast License and in the amount of NIS 19 million to secure the fulfillment of HOT Telecom’s obligations under the DO License. | |
|
|
|
|
|
|
|
|
| c) | The Group has provided a bank guarantee in favor of the Commissioner to secure the fulfillment of the obligations of the Group and the CTV entities under the terms of the merger of the CTV entities (see note 1a(8)). | |
|
|
|
|
|
|
|
|
| d) | The amount represents the share of the Group and the Partnership in the guarantee, which the CTV entities have provided to secure HOT Telecom’s obligations to the interested party with which a lease agreement was signed. | |
|
|
|
|
|
|
|
|
| e) | The Partnership, Matav and Tevel guarantee, collectively and separately, the payment of $ 4.5 million to secure HOT Telecom’s payments to an equipment supplier. In addition, Matav and Tevel guarantee, collectively and separately, the payment of $ 7.4 million to secure HOT Telecom’s payments to said equipment supplier. | |
|
|
|
|
|
|
|
|
|
| Pursuant to the indemnification agreements signed between the CTV entities, the CTV entities have undertaken to be collectively responsible for making the payments in accordance with said guarantees, each entity according to its relative share in the holdings of HOT Telecom (the Group’s share is $ 3.6 million). | |
60
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
NOTE 14 – | TAXES ON INCOME: | ||||
|
|
|
|
|
|
| Consolidated: | ||||
|
|
|
|
|
|
| a. | Measurement of results for tax purposes under the Income Tax (Inflationary Adjustments) Law, 1985 (hereafter - the inflationary adjustments law) | |||
|
|
|
|
|
|
|
| Under the inflationary adjustments law, results for tax purposes are measured in real terms, having regard to the changes in the Israeli CPI. The subsidiary companies are taxed under this law. | |||
|
|
|
|
|
|
| b. | Tax rates | |||
|
|
|
|
|
|
|
| The income of the subsidiary companies is liable to corporate tax at the regular rate. Through December 31, 2003, the corporate tax rate was 36%. In July 2004, Amendment No. 140 to the Income Tax Ordinance was enacted. One of the provisions of this amendment was that the corporate tax rate was to be gradually reduced from 36% to 30%. In August 2005, a further amendment (No. 147) was published, which makes a further revision to the corporate tax rates prescribed by Amendment No. 140. As a result of the aforementioned amendments, the corporate tax rates for 2004 and thereafter are as follows: 2004 – 35%, 2005 – 34%, 2006 – 31%, 2007 – 29%, 2008 – 27%, 2009 – 26% and for 2010 and thereafter – 25%. | |||
|
|
|
|
|
|
| c. | The Partnership and Telecom are not assessed for tax purposes and accordingly tax expenses (savings) and deferred taxes in respect of the above amounts are taken into account in the partners’ financial statements and not in the financial statements of the Partnership and Telecom. | |||
|
|
|
|
|
|
| d. | Losses for tax purposes, carried forward to future years | |||
|
|
|
|
|
|
|
| Carryforward losses and the balance of the deduction for inflation in respect of the subsidiary companies aggregate NIS 264 million at December 31, 2005 (December 31, 2004 – NIS 235 million). No deferred tax assets have been included by the subsidiary companies in respect of these losses, as it is not probable that they will be utilized in the foreseeable future. Under the inflationary adjustments law, carryforward losses and the deduction for inflation are linked to the Israeli CPI. | |||
|
|
|
|
|
|
| e. | Tax assessments | |||
|
|
|
|
|
|
|
| Edom has received final assessments through the year ended December 31, 2002. | |||
|
|
|
|
|
|
|
| Idan has received final assessments through the year ended December 31, 2001. | |||
61
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
NOTE 15 – | LINKAGE TERMS OF MONETARY BALANCES IN THE CONSOLIDATED BALANCE SHEET: | ||||
|
|
|
|
|
|
| a. | As follows: |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2005 |
| ||||||||||
|
|
|
| |||||||||||
|
|
| In foreign currency |
|
|
|
|
| ||||||
|
|
|
|
|
|
|
| |||||||
|
|
| U.S. |
| Other currencies |
| Linked to |
| Unlinked |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
| N I S i n t h o u s a n d s |
| ||||||||||
|
|
|
| |||||||||||
| Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents |
|
| 26 |
|
|
|
|
|
|
|
| 7,705 |
|
| Short - term deposits |
|
|
|
|
|
|
|
| 53 |
|
|
|
|
| Trade receivables |
|
|
|
|
|
|
|
|
|
|
| 29,600 |
|
| Other receivables |
|
| 121 |
|
|
|
|
|
|
|
| 9,009 |
|
| Long-term receivables: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Long-term deposits |
|
|
|
|
|
|
|
| 147 |
|
|
|
|
| Within the framework of the investment in an associated entity |
|
|
|
|
|
|
|
|
|
|
| 91,724 |
|
| Corporate related party |
|
|
|
|
|
|
|
|
|
|
| 130,849 |
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
| 147 |
|
|
|
|
| 200 |
|
| 268,887 |
|
|
|
|
|
|
|
|
|
| ||||||
| Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Credit from banks |
|
| 23,371 |
|
| 25,494 |
|
| 4,651 |
|
| 1,162,351 |
|
| Trade payables |
|
| 69,943 |
|
| 1,353 |
|
|
|
|
| 140,709 |
|
| Other payables and accruals |
|
| 36,001 |
|
|
|
|
| 4,200 |
|
| 66,033 |
|
| Long-term liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Customer deposits in respect of decoders, net of accumulated depreciation |
|
|
|
|
|
|
|
| 23,243 |
|
|
|
|
| Corporate related parties |
|
|
|
|
|
|
|
| 11,474 |
|
| 13,355 |
|
| Other liabilities (including |
|
|
|
|
|
|
|
|
|
|
|
|
|
| current maturities) |
|
| 11,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
| 140,436 |
|
| 26,847 |
|
| 43,568 |
|
| 1,382,448 |
|
|
|
|
|
|
|
| ||||||||
62
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
NOTE 15 – | LINKAGE TERMS OF MONETARY BALANCES IN THE CONSOLIDATED BALANCE SHEET (continued): | ||||
|
|
|
|
|
|
| b. | Data regarding the exchange rate and the Israeli CPI: | |||
|
|
|
|
|
|
|
|
|
|
|
| Exchange rate |
| Published |
| ||
|
|
|
|
| ||||
| At end of year: |
|
|
|
|
|
|
|
| 2005 |
|
| NIS 4.603 |
|
| 185.05 points |
|
| 2004 |
|
| NIS 4.308 |
|
| 180.74 points |
|
| Increase (decrease) during the years: |
|
|
|
|
|
|
|
| 2005 |
|
| 6.8 | % |
| 2.3 | % |
| 2004 |
|
| (1.6 | %) |
| 1.2 | % |
|
|
|
|
|
|
|
| * | Based on index published for the month ending on each balance sheet date, on the basis of 1993 average = 100. | ||
|
|
|
|
|
|
NOTE 16 – | LIABILITIES SECURED BY PLEDGES AND RESTRICTIONS PLACED IN RESPECT OF LIABILITIES: | ||||
|
|
|
|
|
|
| a. | At balance sheet date, balances of liabilities and guarantees of the Partnership and the Group, which are secured by pledges, are as follows: | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Partnership |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| December 31 |
| December 31 |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| 2005 |
| 2004 |
| 2005 |
| 2004 |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
| NIS in thousands |
| NIS in thousands |
| ||||||||
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Short-term credit from banks |
|
| 1,215,867 |
|
| 1,077,680 |
|
| 715,869 |
|
| 623,088 |
|
|
|
|
|
|
|
| ||||||||
| Guarantees (see note 13b(20)) |
|
| 161,497 |
|
| 120,961 |
|
| 114,622 |
|
| 76,924 |
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
| b. | To secure the credit granted by banks for the purpose of acquiring 50% of the shares of Idan, the Partnership has placed a lien on Idan’s shares (see also note 3b). | |||
|
|
|
|
|
|
| c. | To secure the credit granted by banks to it, the Partnership has placed a lien on the network and the centers that it owns, on its future revenues from broadcast customers, on the Partnership’s rights in Telecom and on 25% of Idan’s shares, which had not been pledged (see also note 3b). Telecom has also placed a lien on its rights in HOT Telecom. | |||
|
|
|
|
|
|
| d. | To secure the short-term indebtedness of the Group, Fishman (the minority shareholder in Idan) and Yediot have provided guarantees for $ 29.5 million on behalf of Idan. | |||
63
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
NOTE 16 – | LIABILITIES SECURED BY PLEDGES AND RESTRICTIONS PLACED IN RESPECT OF LIABILITIES (continued): | ||||
|
|
|
|
|
|
| e. | The terms of bank loans received by the Partnership, the outstanding balance of which, as of December 31, 2005, is NIS 716 million, contain restrictions (as to the pledge or sale of certain assets of the Partnership, changes in the identity of the partners, the provision of guarantees and to the holding percentage in Idan). The terms of the loans impose certain additional restrictions, including the requirement to comply with covenants, the principal of which are described below: | |||
|
|
|
|
|
|
|
| 1) | The total of the Partnership’s debts and obligations to banks and financial institutions, with the addition of the Partnership’s debts and obligations in respect of and/or in relation to permitted guarantees (hereafter – the amount of the obligo), in accordance with the definition of these terms in loan agreements with the banks, shall not exceed 5 times the EBITDA (pre-tax income, depreciation and amortization, and management fees to the partners). | ||
|
|
|
|
|
|
|
| 2) | In the event that the Partnership’s obligo shall exceed 3.5 times the Partnership’s EBITDA, no management fees and/or payments on account of partners’ loans to the Partnership, shall be repaid and/or paid to the partners and/or to entities under the partners’ control. | ||
|
|
|
|
|
|
|
| 3) | If Idan’s profit falls below a certain stated amount, or if the number of subscribers drops below a certain stated number, then all the loans shall fall due for immediate repayment. | ||
|
|
|
|
|
|
|
| The parameters that have to be complied with in the covenants vary and are measured each quarter. Failure to comply with the covenants confers on the banks the right to demand early repayment of the loans granted to the Partnership. | |||
|
|
|
|
|
|
|
| As of December 31, 2005, the Partnership is not in compliance with some of the aforesaid terms. The Group’s management is taking action to amend the above demands and does not expect that the bank will call for the immediate repayment of the aforementioned loans. | |||
|
|
|
|
|
|
| f. | To secure all of the existing and future debts and liabilities of Idan to banks, Idan has registered a floating charge on its plant, all its assets and its rights of all kinds and nature, current or future, as well as a fixed charge, unlimited in amount, on its unpaid share capital and goodwill. | |||
|
|
|
|
|
|
| g. | To secure all of the existing and future debts and liabilities of Idan to another bank, Idan has placed charges, unlimited in amount, on its rights under the concession for the operation of a cable television system in certain areas. | |||
64
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
|
|
|
NOTE 17 – | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT: | ||||
|
|
|
|
|
|
| a. | Foreign exchange risk management | |||
|
|
|
|
|
|
|
| The Partnership has limited involvement with derivative financial instruments (hereafter – derivatives). The Partnership enters into foreign currency derivatives - forward contracts – virtually all of which are in order to protect itself from the risk that the cash flows in dollars resulting from purchases of goods or services will be affected by changes in exchange rates. | |||
|
|
|
|
|
|
| b. | Concentrations of credit risks | |||
|
|
|
|
|
|
|
| The Group’s cash and cash equivalents and deposits at December 31, 2005 and 2004 are deposited with Israeli and U.S. banks. The Group is of the opinion that the credit risk in respect of these balances is remote. | |||
|
|
|
|
|
|
|
| Most of the Group’s revenues derive from a large number of customers in the areas licensed for the operation of cable television broadcasts. Consequently the Group does not have any material concentration of credit risks on its trade receivables. An appropriate allowance for doubtful accounts is included in the financial statements. | |||
|
|
|
|
|
|
| c. | Fair value of financial instruments | |||
|
|
|
|
|
|
|
| 1) | The fair value of the financial instruments included in working capital of the group is usually identical or close to their carrying value. The fair value of short-term balances with related parties, loans granted and long-term receivables and long-term loans payable and other long-term liabilities also approximates the carrying value, since they bear interest at rates close to the prevailing market rates. | ||
|
|
|
|
|
|
|
| 2) | The fair value of long-term balances with related parties, which do not have a set repayment date, are linked to the Israeli CPI and are non-interest bearing, is less than their carrying value, and it is not practicable to estimate their fair value (see note 12e). | ||
65
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
|
NOTE 18 – | RELATED AND “INTERESTED PARTIES” - TRANSACTIONS AND BALANCES: | ||
|
| ||
| a. | Transactions with related and interested parties: | |
|
|
| |
|
| 1) | Expenses (revenues): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Partnership |
| ||||||||||||||
|
|
|
|
| ||||||||||||||||
|
|
| 2005 |
| 2004 |
| 2003 |
| 2005 |
| 2004 |
| 2003 |
| ||||||
|
|
|
|
|
|
|
|
| ||||||||||||
|
|
| N I S i n t h o u s a n d s |
| N I S i n t h o u s a n d s |
| ||||||||||||||
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues - other income |
|
| (4,851 | ) |
|
|
|
|
|
|
| 1,401 |
|
| 1,458 |
|
| 1,473 |
|
| Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Programs for broadcasting |
|
|
|
|
| * |
|
| 55,161 |
|
| 35,862 |
|
| 37,738 |
|
| 34,422 |
|
| Other expenses |
|
| 14,473 |
|
| 9,264 |
|
| 7,712 |
|
| 7,792 |
|
| 1,001 |
|
| 793 |
|
| Participations received |
|
| (35,767 | ) |
| (24,547 | ) |
| (22,043 | ) |
| (59,121 | ) |
| (40,285 | ) |
| (36,196 | ) |
| Selling and marketing expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other expenses |
|
| 747 |
|
|
|
|
|
|
|
| 747 |
|
|
|
|
|
|
|
| Participations received |
|
| (17,055 | ) |
| (20,063 | ) |
| (13,406 | ) |
| (34,317 | ) |
| (34,822 | ) |
| (16,153 | ) |
| Administrative and general expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Wages and salary to another interested party employed in the Company |
|
| 498 |
|
| 492 |
|
| 283 |
|
| 320 |
|
| 317 |
|
| 182 |
|
| Management fees to related parties (see note 13a(6)) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Lease fees (see note 13a(9)(a)) |
|
| 3,888 |
|
| 4,102 |
|
| 4,120 |
|
| 3,420 |
|
| 3,617 |
|
| 3,628 |
|
| Other expenses |
|
|
|
| 1,617 |
|
| 2,172 |
|
|
|
| 1,617 |
|
| 2,127 |
| ||
| Management fees from subsidiary entity |
|
| 1,989 |
|
| 279 |
|
| 1,635 |
|
| 1,976 |
|
| 279 |
|
| 1,635 |
|
| Participations received |
|
|
|
|
|
|
|
|
|
|
| (1,123 | ) |
| (1,105 | ) |
| (1,098 | ) |
| Financial expenses - |
|
| (6,448 | ) |
| (7,863 | ) |
| (8,351 | ) |
| (12,712 | ) |
| (12,217 | ) |
| (15,747 | ) |
| Fixed assets and equipment inventory -acquisition of fixed assets |
|
| 3,166 |
|
|
|
|
|
|
|
| 3,166 |
|
|
|
|
|
|
|
|
|
* | Restated, see note 1p. |
|
|
| The Partnership incurs expenses for the Group as a whole and for a related party; as a consequence, the related parties active in the CTV and Internet sectors participate in these expenses on the basis of their relative shares of the total number of the Group’s subscribers. |
66
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
|
NOTE 18 – | RELATED AND “INTERESTED PARTIES” - TRANSACTIONS AND BALANCES (continued): | ||
|
| ||
|
| 2) | As to guarantees provided by interested parties, see note 16d. |
|
|
|
|
|
| 3) | As to a lease agreement signed with interested parties, see note 13a(9). |
|
|
|
|
|
| 4) | As to a letter of undertaking to indemnify officers, see note 13b(18). |
|
|
|
|
|
| 5) | As to the allocation of costs between the CTV entities, see note 1a(8)(a). |
|
|
|
|
| b. | Balances with related and interested parties: | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Partnership |
| ||||||||
|
|
|
| ||||||||||
|
| December 31 |
| December 31 |
| ||||||||
|
|
|
| ||||||||||
|
| 2005 |
| 2004 |
| 2005 |
| 2004 |
| ||||
|
|
|
|
|
| ||||||||
|
| NIS in thousands |
| NIS in thousands |
| ||||||||
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1) Current debts – presented in the balance sheets in the line item “trade receivables” - balance at balance sheet date |
|
| 11,027 |
|
| 5,185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
2) Long-term receivables (before deducting current maturities) - balance at balance sheet date |
|
| 130,849 |
|
| 145,309 |
|
| 90,721 |
|
| 39,410 |
|
|
|
|
|
|
| ||||||||
3) Long-term receivables - presented in the balance sheets in the line item “investment in subsidiary entities”: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at balance sheet date |
|
|
|
|
|
|
|
| 22,964 |
|
| 27,088 |
|
|
|
|
|
|
|
|
|
|
| ||||
Highest balance during the year |
|
|
|
|
|
|
|
| 42,455 |
|
| 27,088 |
|
|
|
|
|
|
|
|
|
|
| ||||
4) Long-term receivables - presented in the balance sheets in the line item “investment in an associated entity”: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at balance sheet date |
|
| 91,724 |
|
| 18,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Highest balance during the year |
|
| 91,724 |
|
| 18,537 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
5) Long-term liability - loans from corporate related parties |
|
| 24,829 |
|
| 6,476 |
|
| 57,819 |
|
| 5,300 |
|
|
|
|
|
|
| ||||||||
6) Current liabilities - presented in the balance sheets among “accounts payable and accruals – trade” |
|
| 38,835 |
|
| 49,914 |
|
| 48,941 |
|
| 55,434 |
|
|
|
|
|
|
| ||||||||
67
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
NOTE 19 – | SUBSEQUENT EVENTS: | |
|
| |
| a. | As to the legal merger between the CTV entities, see note 1a(8). |
|
|
|
| b. | As to claims filed in February and March 2006 against the CTV entities, see note 13b(18) and 13b(19). |
|
|
|
| c. | To the best of the knowledge of the Partnership’s management, the Knesset (the Israeli parliament) passed the Class Actions Law, 2006 (hereafter – the Law), on March 1, 2006. The Law will become effective on the date that it is published in the Official Gazette. The Law sets out the manner for filing class actions under Israeli law and revokes the specific provisions relating to class actions that were based on various laws in effect prior to the passing of the Law. Among its provisions, the Law significantly expands the list of claimants that may file a petition for the certification of a claim as a class action. In addition, the Law removes certain procedural restrictions on the filing of a petition for the certification of a claim as a class action. In the opinion of the Partnership’s management, the publication of the Law as described above might increase the number of petitions for the certification of claims as class actions and might increase the Group’s legal exposure. |
68
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
|
NOTE 20 – | NOMINAL-HISTORICAL DATA OF THE PARTNERSHIP FOR TAX PURPOSES: | |
|
| |
| a. | Balance sheet data: |
|
|
|
|
|
|
|
|
|
|
|
| Nominal NIS |
| ||||
|
|
|
| |||||
|
|
| December 31 |
| ||||
|
|
|
| |||||
|
|
| 2005 |
| 2004 |
| ||
|
|
|
|
| ||||
| A s s e t s |
|
|
|
|
|
|
|
| Current assets: |
|
|
|
|
|
|
|
| Cash and cash equivalents |
|
| 38 |
|
| 563 |
|
| Short-term deposits |
|
| 53 |
|
| 58 |
|
| Accounts receivable: |
|
|
|
|
|
|
|
| Trade |
|
| 3,901 |
|
| 3,143 |
|
| Other |
|
| 6,165 |
|
| 5,660 |
|
|
|
|
|
| ||||
|
|
|
| 10,157 |
|
| 9,424 |
|
|
|
|
|
| ||||
| Investments in investee entities and long-term receivables: |
|
|
|
|
|
|
|
| Long-term deposits |
|
| 147 |
|
| 174 |
|
| Investments in subsidiary entities and in a proportionately consolidated company |
|
| 67,743 |
|
| *67,753 |
|
| Related parties |
|
| 90,721 |
|
| 39,410 |
|
|
|
|
|
| ||||
|
|
|
| 158,611 |
|
| 107,337 |
|
|
|
|
|
| ||||
| Fixed assets, net of accumulated depreciation |
|
| 436,183 |
|
| *422,668 |
|
|
|
|
|
| ||||
| Other assets and deferred charges, net of accumulated amortization |
|
| 7,078 |
|
| 10,375 |
|
|
|
|
|
| ||||
|
|
|
| 612,029 |
|
| 549,804 |
|
|
|
|
|
| ||||
| Liabilities, net of the Partnership’s capital deficiency |
|
|
|
|
|
|
|
| Current liabilities: |
|
|
|
|
|
|
|
| Credit from banks |
|
| 715,869 |
|
| 623,088 |
|
| Accounts payable and accruals |
|
|
|
|
|
|
|
| Trade |
|
| 166,812 |
|
| 168,349 |
|
| Other |
|
| 73,955 |
|
| *83,497 |
|
|
|
|
|
| ||||
|
|
|
| 956,636 |
|
| 874,934 |
|
|
|
|
|
| ||||
| Long-term liabilities: |
|
|
|
|
|
|
|
| Customer deposits in respect of decoders, net of accumulated amortization |
|
| 15,597 |
|
| 19,771 |
|
| Liability for employee rights upon retirement, net |
|
| 5,423 |
|
| 2,180 |
|
| Another liability, net of current maturity |
|
| 7,632 |
|
| 10,406 |
|
| Excess of losses of subsidiary company over the investment therein |
|
| 47,897 |
|
|
|
|
| Corporate related parties |
|
| 57,819 |
|
| 5,300 |
|
|
|
|
|
| ||||
|
|
|
| 134,368 |
|
| 37,657 |
|
|
|
|
|
| ||||
| Total liabilities |
|
| 1,091,004 |
|
| 912,591 |
|
|
|
|
|
| ||||
| The Partnership’s capital deficiency |
|
| (478,975 | ) |
| (362,787 | ) |
|
|
|
|
| ||||
|
|
|
| 612,029 |
|
| 549,804 |
|
|
|
|
|
| ||||
|
|
* | Reclassified. |
69
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
NOTE 20 – | NOMINAL-HISTORICAL DATA OF THE PARTNERSHIP FOR TAX PURPOSES |
|
|
|
| b. | Operating results data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nominal NIS in thousands |
| |||||||
|
|
|
| ||||||||
|
|
| 2005 |
| 2004 |
| 2003 |
| |||
|
|
|
|
|
| ||||||
| Revenues |
|
| 359,803 |
|
| 374,458 |
|
| 374,507 |
|
| Operating expenses |
|
| 335,560 |
|
| *308,071 |
|
| *293,138 |
|
|
|
|
|
|
| ||||||
| Gross profit |
|
| 24,243 |
|
| 66,387 |
|
| 81,369 |
|
|
|
|
|
|
| ||||||
| Selling, marketing expenses, administrative and general expenses: |
|
|
|
|
|
|
|
|
|
|
| Selling and marketing expenses |
|
| 35,108 |
|
| 40,938 |
|
| 31,225 |
|
| Administrative and general expenses |
|
| 12,012 |
|
| *11,373 |
|
| *13,063 |
|
|
|
|
|
|
| ||||||
|
|
|
| 47,120 |
|
| 52,311 |
|
| 44,288 |
|
|
|
|
|
|
| ||||||
| Income (loss) from ordinary operations |
|
| (22,877 | ) |
| 14,076 |
|
| 37,081 |
|
| Financial expenses - net |
|
| 46,877 |
|
| 40,223 |
|
| 54,141 |
|
| Other expenses (income) - net |
|
| (4,602 | ) |
| 16,418 |
|
| (313 | ) |
|
|
|
|
|
| ||||||
| Loss from the Partnership’s operations |
|
| 65,152 |
|
| 42,565 |
|
| 16,747 |
|
| Share in losses of subsidiary entities - net |
|
|
|
|
|
|
|
| 40,294 |
|
| Share in losses (profits) of associated entities |
|
| 53,165 |
|
| 40,892 |
|
| (1,252 | ) |
|
|
|
|
|
| ||||||
| Loss for the year – nominal – carried to the Partnership’s capital deficiency |
|
| 118,317 |
|
| 83,457 |
|
| 55,789 |
|
|
|
|
|
|
| ||||||
|
|
|
| * | Reclassified. |
70
GOLDEN CHANNELS &. CO.
REGISTERED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (continued)
|
|
NOTE 20 – | NOMINAL-HISTORICAL DATA OF THE PARTNERSHIP FOR TAX PURPOSES |
|
|
|
| c. | Changes in the Partnership’s capital deficiency: |
|
|
| Nominal NIS in thousands |
| ||||||||||
|
|
|
| |||||||||||
|
|
| Yediot |
| Tevel |
| Fishman |
| Total |
| ||||
|
|
|
|
|
|
| ||||||||
| Balance at January 1, 2003 |
|
| (109,779 | ) |
| (80,860 | ) |
| (40,430 | ) |
| (231,069 | ) |
| Changes during 2003: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Exchange differences and management fees |
|
| 3,158 |
|
| 2,324 |
|
| 1,162 |
|
| 6,644 |
|
| Payments of income tax |
|
| (277 | ) |
| (204 | ) |
| (102 | ) |
| (583 | ) |
| Loss |
|
| (26,500 | ) |
| (19,526 | ) |
| (9,763 | ) |
| (55,789 | ) |
|
|
|
|
|
|
| ||||||||
| Balance at December 31, 2003 |
|
| (133,398 | ) |
| (98,266 | ) |
| (49,133 | ) |
| (280,797 | ) |
| Changes during 2004: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Exchange differences and management fees |
|
| 1,718 |
|
| 1,266 |
|
| 633 |
|
| 3,617 |
|
| Payments of income tax |
|
| (1,021 | ) |
| (752 | ) |
| (377 | ) |
| (2,150 | ) |
| Loss |
|
| (39,642 | ) |
| (29,210 | ) |
| (14,605 | ) |
| (83,457 | ) |
|
|
|
|
|
|
| ||||||||
| Balance at December 31, 2004 |
|
| (172,343 | ) |
| (126,962 | ) |
| (63,482 | ) |
| (362,787 | ) |
| Changes during 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Exchange differences and management fees |
|
| 1,625 |
|
| 1,196 |
|
| 599 |
|
| 3,420 |
|
| Payments of income tax |
|
| (613 | ) |
| (452 | ) |
| (226 | ) |
| (1,291 | ) |
| Loss |
|
| (56,200 | ) |
| (41,411 | ) |
| (20,706 | ) |
| (118,317 | ) |
|
|
|
|
|
|
| ||||||||
| Balance at December 31, 2005 |
|
| (227,531 | ) |
| (167,629 | ) |
| (83,815 | ) |
| (478,975 | ) |
|
|
|
|
|
|
| ||||||||
|
|
|
| * | Reclassified. |
|
|
| Comments: |
|
|
| The above nominal data provide the basis for the Partnership’s Adjustments Report for Tax Purposes, and are presented within these financial statements for that reason alone. These data are based on the Partnership’s accounting records that are maintained in nominal-historical shekels. The accounting policies that are applied in drawing-up and presenting the above nominal data are identical to those that serve as the basis for the drawing-up of the financial statements. |
|
71
Annex B(4)
T.L.M. SUBSCRIBERS TV LTD.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2005
INDEX
|
|
| Page |
| |
|
|
2 - 3 | |
|
|
4 - 7 | |
|
|
8 - 9 | |
|
|
10 | |
|
|
11 - 13 | |
|
|
14 - 59 |
|
|
|
|
|
|
|
|
|
|
|
n | Kost Forer Gabbay & Kasierer | n | Phone: 972-3-6232525 | |
3 Aminadav St. | Fax: 972-3-5622555 | |||
| Tel-Aviv 67067, Israel |
|
| |
|
|
|
|
To the shareholders of
T.L.M. SUBSCRIBERS TV LTD.
We have audited the accompanying balance sheets of T.L.M. Subscribers TV Ltd. (“the Company”) as of December 31, 2005 and 2004, and the consolidated balance sheets as of such dates and the related statements of operations, changes in shareholders’ deficiency and cash flows - of the Company - for each of the three years in the period ended December 31, 2005, and the consolidated statements of operations, changes in shareholders’ deficiency and cash flows for each of the two years in the period ended December 31, 2005. These financial statements are the responsibility of the Company’s board of directors and management. Our responsibility is to express an opinion on these financial statements based on our audits.
We did not audit the financial statements of a jointly controlled company whose assets included in consolidation constitute approximately 6.4% and 6.5% of total consolidated assets as of December 31, 2005 and 2004, respectively, and whose revenues included in consolidation constitute approximately 0.9% and 1.1% of total consolidated revenues for the years ended December 31, 2005 and 2004, respectively. Also, we did not audit the data relating to the Company’s equity in the results of an affiliate for 2003. The financial statements of those companies were audited by other auditors, whose reports have been furnished to us, and our opinion, insofar as it relates to amounts included for those companies, is based solely on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing standards in Israel, including those prescribed by the Auditors’ Regulations (Auditor’s Mode of Performance), 1973. 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 audits and the reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position - of the Company and consolidated - as of December 31, 2005 and 2004, and the results of operations, changes in shareholders’ deficiency and cash flows - of the Company - for each of the three years in the period ended December 31, 2005, and the consolidated results of operations, changes in shareholders’ deficiency and cash flows for each of the two years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in Israel. Furthermore, in our opinion, the financial statements referred to above are prepared in accordance with the Securities Regulations (Preparation of Annual Financial Statements), 1993.
As described in Note 2, the financial statements as of the dates and for the reported periods subsequent to December 31, 2003, are presented in reported amounts, in conformity with Accounting Standards of the Israel Accounting Standards Board. The financial statements for the year ended December 31, 2003, are presented in values that were adjusted until that date according to the changes in the general purchasing power of the Israeli currency, in accordance with pronouncements of the Institute of Certified Public Accountants in Israel.
- 2 -
|
|
|
|
|
|
|
|
|
|
n | Kost Forer Gabbay & Kasierer | n | Phone: 972-3-6232525 | |
3 Aminadav St. | Fax: 972-3-5622555 | |||
| Tel-Aviv 67067, Israel |
|
| |
|
|
|
|
|
|
| Without qualifying our opinion, we draw attention to the following: |
|
|
1. | The Company incurred losses amounting to approximately NIS 48 million, NIS 41 million and NIS 35 million on the years ended December 31, 2005, 2004 and 2003, respectively. Furthermore, the Company has a shareholders’ deficiency of approximately NIS 268 million and working capital deficiency of approximately NIS 413 million as of December 31, 2005. Financing of the working capital deficiency, repayment of liabilities and continuing the ongoing operations of the Company are dependent upon maintaining positive cash flows from operating activities in the coming years as well as upon the consent of the banks not to demand repayment of loans granted or to provide substitute loans. The Company’s management believes that the banks will extend the period of the credit facility to at least January 1, 2007, and that the Company is expected to have positive cash flows from operating activities, see Note 1a(6). |
|
|
2. | As discussed in Note 17d, the Company and the Cable Companies are parties to legal proceedings, including class action lawsuits, of material amounts in respect of which, at this stage, it is not possible to estimate their ultimate outcome or amounts. |
|
|
3. | The financial statements for 2004 and as of December 31, 2003 were restated in order to retroactively reflect the change resulting from the consolidation of the accounts of Hot Vision Ltd. with those of the Company using the proportionate consolidation method. The investment in this company was previously accounted for in the Company’s financial statements by the equity method. |
|
|
4. | As part of the continuing negotiations regarding the merger of the Cable Companies, on February 21, 2006, a verbal understanding was reached in regard to the major principles relating to the merger of the Cable Companies, see also Note 1a(1)b(6). |
|
|
Tel-Aviv, Israel | KOST FORER GABBAY & KASIERER |
April 26, 2006 | A Member of Ernst & Young Global |
- 3 -
|
T.L.M. SUBSCRIBERS TV LTD. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, |
| ||||
|
|
|
|
|
| |||||
|
|
|
|
| 2005 |
| 2004 (2) |
| ||
|
|
|
|
|
|
| ||||
|
| Note |
| Reported NIS in thousands (1) |
| |||||
|
|
|
| |||||||
| ||||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
|
|
| 2,920 |
|
| 1,146 |
|
Short-term deposit |
|
|
|
|
| - |
|
| 20 |
|
Trade receivables |
|
| 3 |
|
| 11,071 |
|
| 8,767 |
|
Other accounts receivable |
|
| 4 |
|
| 1,654 |
|
| 2,955 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 15,645 |
|
| 12,888 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM INVESTMENTS AND LOANS: |
|
|
|
|
|
|
|
|
|
|
Investment in limited partnerships |
|
| 5d |
|
| 274 |
|
| 665 |
|
Related parties |
|
| 6 |
|
| 43,236 |
|
| 688 |
|
Rights to broadcast movies and programs |
|
| 5e |
|
| 9,773 |
|
| 10,654 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 53,283 |
|
| 12,007 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
FIXED ASSETS: |
|
| 7 |
|
|
|
|
|
|
|
Cost |
|
|
|
|
| 800,780 |
|
| 761,804 |
|
Less - accumulated depreciation |
|
|
|
|
| 501,737 |
|
| 441,870 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 299,043 |
|
| 319,934 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
OTHER ASSETS, NET |
|
| 8 |
|
| - |
|
| 87 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 367,971 |
|
| 344,916 |
|
|
|
|
|
|
|
| ||||
|
|
(1) | See Note 2. |
|
|
(2) | Restated - See Note 2s. |
The accompanying notes are an integral part of the financial statements.
- 4 -
|
T.L.M. SUBSCRIBERS TV LTD. |
CONSOLIDATED BALANCE SHEETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, |
| ||||
|
|
|
|
|
| |||||
|
|
|
|
| 2005 |
| 2004 (2) |
| ||
|
|
|
|
|
|
| ||||
|
| Note |
| Reported NIS in thousands (1) |
| |||||
|
|
|
| |||||||
LIABILITIES AND SHAREHOLDERS’ DEFICIENCY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
Credit from banks |
|
| 9 |
|
| 379,005 |
|
| 345,860 |
|
Trade payables |
|
| 10 |
|
| 16,721 |
|
| 12,514 |
|
Other accounts payable |
|
| 11 |
|
| 32,747 |
|
| 53,924 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 428,473 |
|
| 412,298 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
Excess of loans over investment from affiliated partnership |
|
| 5b |
|
| 39,550 |
|
| 25,288 |
|
Customers’ deposits for converters, net |
|
| 2h |
|
| 11,406 |
|
| 14,388 |
|
Related parties |
|
| 12 |
|
| 154,201 |
|
| 111,146 |
|
Accrued severance pay |
|
| 13 |
|
| 400 |
|
| 291 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
| �� |
|
|
|
|
|
|
|
|
|
|
| 205,557 |
|
| 151,113 |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES AND CHARGES |
|
| 17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ DEFICIENCY |
|
| 14 |
|
| (266,059 | ) |
| (218,495 | ) |
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 367,971 |
|
| 344,916 |
|
|
|
|
|
|
|
| ||||
|
|
(1) | See Note 2. |
|
|
(2) | Restated - See Note 2s. |
The accompanying notes are an integral part of the financial statements.
April 26, 2006 |
|
|
|
|
|
|
|
|
| ||||
Date of approval of the |
|
|
| Ram Belinkov |
| Israel Lederberg |
financial statements |
| Chairman of the Board |
| Chairman of the Senior |
| Chief Financial Officer |
|
|
|
| Management |
|
|
- 5 -
|
T.L.M. SUBSCRIBERS TV LTD. |
BALANCE SHEETS – THE COMPANY |
|
|
|
|
|
|
|
|
|
|
|
| December 31, |
| ||
|
|
|
|
| |||
|
|
|
| 2005 |
| 2004 |
|
|
|
|
|
|
| ||
|
| Note |
| Reported NIS in thousands (1) |
| ||
|
|
|
| ||||
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS: |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
| 213 |
| 183 |
|
Trade receivables |
| 3 |
| 1,310 |
| 256 |
|
Other accounts receivable |
| 4 |
| 1,018 |
| 1,647 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
| 2,541 |
| 2,086 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
LONG-TERM INVESTMENTS AND LOANS: |
|
|
|
|
|
|
|
Investment in jointly controlled entity |
| 5a |
| 251 |
| 251 |
|
Related parties |
| 6 |
| 43,236 |
| 688 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
| 43,487 |
| 939 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
FIXED ASSETS: |
| 7 |
|
|
|
|
|
Cost |
|
|
| 798,307 |
| 759,397 |
|
Less - accumulated depreciation |
|
|
| 499,629 |
| 439,879 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
| 298,678 |
| 319,518 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
OTHER ASSETS, NET |
| 8 |
| - |
| 87 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
| 344,706 |
| 322,630 |
|
|
|
|
|
|
| ||
|
|
(1) | See Note 2. |
The accompanying notes are an integral part of the financial statements.
- 6 -
|
T.L.M. SUBSCRIBERS TV LTD. |
BALANCE SHEETS – THE COMPANY |
|
|
|
|
|
|
|
|
|
|
|
| December 31, |
| ||
|
|
|
|
| |||
|
|
|
| 2005 |
| 2004 |
|
|
|
|
|
|
| ||
|
| Note |
| Reported NIS in thousands (1) |
| ||
|
|
|
| ||||
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ DEFICIENCY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
Credit from banks |
| 9 |
| 362,066 |
| 329,660 |
|
Trade payables |
| 10 |
| 11,772 |
| 7,513 |
|
Other accounts payable |
| 11 |
| 31,634 |
| 53,082 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
| 405,472 |
| 390,255 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES: |
|
|
|
|
|
|
|
Excess of loans over investment from affiliated partnership |
| 5b |
| 39,550 |
| 25,288 |
|
Customers’ deposits for converters, net |
| 2h |
| 11,406 |
| 14,388 |
|
Shareholders |
| 12 |
| 154,201 |
| 111,146 |
|
Accrued severance pay |
| 13 |
| 136 |
| 48 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
| 205,293 |
| 150,870 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES AND CHARGES |
| 17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ DEFICIENCY |
| 14 |
| (266,059 | ) | (218,495 | ) |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
| 344,706 |
| 322,630 |
|
|
|
|
|
|
| ||
|
|
(1) | See Note 2. |
The accompanying notes are an integral part of the financial statements.
|
|
|
|
|
|
|
April 26, 2006 |
|
|
|
|
|
|
|
|
| ||||
Date of approval of the |
|
|
| Ram Belinkov |
| Israel Lederberg |
financial statements |
| Chairman of the Board |
| Chairman of the Senior Management |
| Chief Financial Officer |
- 7 -
|
T.L.M. SUBSCRIBERS TV LTD. |
|
|
|
|
|
|
|
|
|
|
|
| Year ended |
| ||
|
|
|
|
| |||
|
|
|
| 2005 |
| 2004 |
|
|
|
|
|
|
| ||
|
| Note |
| Reported NIS in thousands (1) |
| ||
|
|
|
| ||||
|
|
|
|
|
|
|
|
Revenues |
| 15a |
| 212,562 |
| 220,603 |
|
Operating expenses |
| 15b |
| 206,107 |
| *) 198,835 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
Gross profit |
|
|
| 6,455 |
| 21,768 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
Selling and marketing expenses |
| 15c |
| 20,254 |
| 23,627 |
|
General and administrative expenses |
| 15d |
| 8,586 |
| *) 10,951 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
| 28,840 |
| 34,578 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
Operating loss |
|
|
| (22,385 | ) | (12,810 | ) |
Financial expenses, net |
| 15e |
| 24,258 |
| 23,976 |
|
Other expenses, net |
| 15f |
| 1,058 |
| 9,213 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
Loss before taxes on income |
|
|
| (47,701 | ) | (45,999 | ) |
Taxes on income |
| 16 |
| 1,153 |
| 3,869 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
Loss after taxes on income |
|
|
| (48,854 | ) | (49,868 | ) |
Equity in earnings of affiliated partnership |
| 5b |
| 1,290 |
| 8,601 |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
Net loss |
|
|
| (47,564 | ) | (41,267 | ) |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
Net loss per NIS 1 par value of Ordinary shares (in NIS) |
|
|
| (39.6 | ) | (34.4 | ) |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
Number of shares used in the computation of net loss per share |
|
|
| 1,200,016 |
| 1,200,016 |
|
|
|
|
|
|
| ||
|
|
*) | Reclassified. |
|
|
(1) | See Note 2. |
The accompanying notes are an integral part of the financial statements.
- 8 -
|
T.L.M. SUBSCRIBERS TV LTD. |
STATEMENTS OF OPERATIONS – THE COMPANY |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year ended December 31, |
| ||||
|
|
|
|
| |||||
|
|
|
| 2005 |
| 2004 |
| 2003 |
|
|
|
|
|
|
|
| |||
|
|
|
| NIS in thousands |
| ||||
|
|
|
|
| |||||
|
| Note |
| Reported (1) |
| Adjusted (2) |
| ||
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
Revenues |
| 15a |
| 210,576 |
| 218,251 |
| 215,265 |
|
Operating expenses |
| 15b |
| 207,651 |
| *) 199,531 |
| *) 179,147 |
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
| 2,925 |
| 18,720 |
| 36,118 |
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
Selling and marketing expenses |
| 15c |
| 19,278 |
| 22,317 |
| 16,464 |
|
General and administrative expenses |
| 15d |
| 7,720 |
| *) 10,130 |
| *) 11,566 |
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| 26,998 |
| 32,447 |
| 28,030 |
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
| (24,073 | ) | (13,727 | ) | 8,088 |
|
Financial expenses, net |
| 15e |
| 22,570 |
| 23,236 |
| 46,502 |
|
Other expenses (income), net |
| 15f |
| 1,058 |
| 9,036 |
| (267 | ) |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
Loss before taxes on income |
|
|
| (47,701 | ) | (45,999 | ) | (38,147 | ) |
Taxes on income |
| 16 |
| 1,153 |
| 3,869 |
| 11 |
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
Loss after taxes on income |
|
|
| (48,854 | ) | (49,868 | ) | (38,158 | ) |
Equity in earnings of jointly controlled entity and affiliated partnership |
| 5b |
| 1,290 |
| 8,601 |
| 3,626 |
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
| (47,564 | ) | (41,267 | ) | (34,532 | ) |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
Net loss per NIS 1 par value of Ordinary shares (in NIS) |
|
|
| (39.6 | ) | (34.4 | ) | (28.8 | ) |
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
Number of shares used in the computation of net loss per share |
|
|
| 1,200,016 |
| 1,200,016 |
| 1,200,016 |
|
|
|
|
|
|
|
| |||
|
|
*) | Reclassified. |
|
|
(1) | See Note 2. |
|
|
(2) | Adjusted to the NIS of December 2003. |
The accompanying notes are an integral part of the financial statements.
- 9 -
|
T.L.M. SUBSCRIBERS TV LTD. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Ordinary |
| Management |
| Management |
| Management |
| Capital |
| Accumulated |
| Total |
|
|
|
|
|
|
|
|
|
| |||||||
|
| Adjusted NIS in thousands (2) |
| ||||||||||||
|
|
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2003 |
| 3,326 |
| - |
| - |
| - |
| 1,008 |
| (147,030 | ) | (142,696 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| - |
| - |
| - |
| - |
| - |
| (34,532 | ) | (34,532 | ) |
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003 |
| 3,326 |
| - |
| - |
| - |
| 1,008 |
| (181,562 | ) | (177,228 | ) |
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Reported NIS in thousands (1) |
| ||||||||||||
|
|
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2004 |
| 3,326 |
| - |
| - |
| - |
| 1,008 |
| (181,562 | ) | (177,228 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| - |
| - |
| - |
| - |
| - |
| (41,267 | ) | (41,267 | ) |
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004 |
| 3,326 |
| - |
| - |
| - |
| 1,008 |
| (222,829 | ) | (218,495 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| - |
| - |
| - |
| - |
| - |
| (47,564 | ) | (47,564 | ) |
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 |
| 3,326 |
| - |
| - |
| - |
| 1,008 |
| (270,393 | ) | (266,059 | ) |
|
|
|
|
|
|
|
|
| |||||||
|
|
*) | Represents an amount lower than NIS 1 thousand. |
|
|
(1) | See Note 2. |
|
|
(2) | Adjusted to the NIS of December 2003. |
The accompanying notes are an integral part of the financial statements.
- 10 -
|
T.L.M. SUBSCRIBERS TV LTD. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Company |
| ||||||||
|
|
|
| ||||||||||
|
| Year ended December 31, |
| Year ended December 31, |
| ||||||||
|
|
|
| ||||||||||
|
| 2005 |
| 2004 |
| 2003 |
| 2005 |
| 2004 |
| 2003 |
|
|
|
|
|
|
|
|
| ||||||
|
| NIS in thousands |
| ||||||||||
|
|
| |||||||||||
|
| Reported (1) |
| Adjusted (2) |
| Reported (1) |
| Adjusted (2) |
| ||||
|
|
|
|
|
| ||||||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| (47,564 | ) | (41,267 | ) | (34,532 | ) | (47,564 | ) | (41,267 | ) | (34,532 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities (a) |
| 61,982 |
| 68,124 |
| 56,787 |
| 60,897 |
| 69,552 |
| 56,787 |
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
| 14,418 |
| 26,857 |
| 22,255 |
| 13,333 |
| 28,285 |
| 22,255 |
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of fixed assets |
| (44,834 | ) | (50,016 | ) | (37,773 | ) | (44,728 | ) | (49,904 | ) | (37,773 | ) |
Proceeds from sale of fixed assets |
| 11 |
| - |
| 230 |
| - |
| - |
| 230 |
|
Investment in partnerships |
| (5 | ) | (35 | ) | - |
| - |
| - |
| - |
|
Short-term deposit |
| 20 |
| (20 | ) | - |
| - |
| - |
| - |
|
Deferred charges, net |
| - |
| - |
| 6 |
| - |
| - |
| 6 |
|
Loan to related parties |
| - |
| - |
| (641 | ) | - |
| - |
| (641 | ) |
Credit to related parties |
| (56,517 | ) | - |
| - |
| (56,517 | ) | - |
| - |
|
Investment in jointly controlled entity (b) |
| - |
| - |
| 796 |
| - |
| - |
| - |
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
| (101,325 | ) | (50,071 | ) | (37,382 | ) | (101,245 | ) | (49,904 | ) | (38,178 | ) |
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receipt of loans from affiliated partnership |
| 15,552 |
| 23,377 |
| 11,809 |
| 15,552 |
| 23,377 |
| 11,809 |
|
Short-term credit from banks, net |
| 33,145 |
| (832 | ) | 10,971 |
| 32,406 |
| (768 | ) | 10,971 |
|
Related companies and related parties, net |
| 40,769 |
| 1,488 |
| (1,246 | ) | 40,769 |
| (480 | ) | (1,246 | ) |
Repayment of long-term loans from banks |
| - |
| - |
| (5,462 | ) | - |
| - |
| (5,462 | ) |
Customers’ deposits for converters, net |
| (785 | ) | (597 | ) | (72 | ) | (785 | ) | (455 | ) | (72 | ) |
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
| 88,681 |
| 23,436 |
| 16,000 |
| 87,942 |
| 21,674 |
| 16,000 |
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
| 1,774 |
| 222 |
| 873 |
| 30 |
| 55 |
| 77 |
|
Cash and cash equivalents at beginning of year |
| 1,146 |
| 924 |
| 51 |
| 183 |
| 128 |
| 51 |
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
| 2,920 |
| 1,146 |
| 924 |
| 213 |
| 183 |
| 128 |
|
|
|
|
|
|
|
|
| ||||||
|
|
(1) | See Note 2. |
|
|
(2) | Adjusted to the NIS of December 2003. |
The accompanying notes are an integral part of the financial statements.
- 11 -
|
T.L.M. SUBSCRIBERS TV LTD. |
STATEMENTS OF CASH FLOWS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Company |
| |||||||||
|
|
|
| |||||||||||
|
| Year ended December 31, |
| Year ended December 31, |
| |||||||||
|
|
|
| |||||||||||
|
| 2005 |
| 2004 |
| 2003 |
| 2005 |
| 2004 |
| 2003 |
| |
|
|
|
|
|
|
|
| |||||||
|
| NIS in thousands |
| |||||||||||
|
|
| ||||||||||||
|
| Reported (1) |
| Adjusted (2) |
| Reported (1) |
| Adjusted (2) |
| |||||
|
|
|
|
|
| |||||||||
(a) | Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income and expenses not involving cash flows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Depreciation and amortization |
| 61,277 |
| 65,771 |
| 61,364 |
| 61,131 |
| 65,618 |
| 61,364 |
|
| Depreciation and amortization in partnerships in respect of rights to broadcast movies |
| 11,925 |
| 14,404 |
| - |
| - |
| - |
| - |
|
| Amortization of deposits |
| (2,197 | ) | (2,911 | ) | (1,994 | ) | (2,197 | ) | (3,053 | ) | (1,994 | ) |
| Capital loss |
| - |
| - |
| (61 | ) | - |
| - |
| (61 | ) |
| Equity in earnings of jointly controlled entity and affiliated partnership |
| (1,290 | ) | (8,601 | ) | (3,626 | ) | (1,290 | ) | (8,601 | ) | (3,626 | ) |
| Increase (decrease) in value of loans and long-term receivables, net |
| 454 |
| 396 |
| (1,415 | ) | 454 |
| 2,414 |
| (1,415 | ) |
| Accrued severance pay, net |
| 109 |
| (86 | ) | 20 |
| 88 |
| (32 | ) | 20 |
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 70,278 |
| 68,973 |
| 54,288 |
| 58,186 |
| 56,346 |
| 54,288 |
|
|
|
|
|
|
|
|
|
| ||||||
| Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Decrease (increase) in trade receivables |
| (2,304 | ) | (1,424 | ) | 551 |
| (1,054 | ) | 106 |
| 551 |
|
| Increase in rights to broadcast movies and programs |
| (10,648 | ) | (10,838 | ) | - |
| - |
| - |
| - |
|
| Decrease (increase) in other accounts receivable |
| 1,382 |
| (185 | ) | (400 | ) | 712 |
| 763 |
| (400 | ) |
| Increase (decrease) in trade payables |
| 1,974 |
| (7,727 | ) | (2,635 | ) | 2,024 |
| (6,927 | ) | (2,635 | ) |
| Increase in other accounts payable |
| 1,300 |
| 19,325 |
| 4,983 |
| 1,029 |
| 19,264 |
| 4,983 |
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (8,296 | ) | (849 | ) | 2,499 |
| 2,711 |
| 13,206 |
| 2,499 |
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 61,982 |
| 68,124 |
| 56,787 |
| 60,897 |
| 69,552 |
| 56,787 |
|
|
|
|
|
|
|
|
|
| ||||||
|
|
(1) | See Note 2. |
|
|
(2) | Adjusted to the NIS of December 2003. |
The accompanying notes are an integral part of the financial statements.
- 12 -
|
T.L.M. SUBSCRIBERS TV LTD. |
STATEMENTS OF CASH FLOWS |
|
|
|
|
|
|
|
|
| Year ended |
| |
|
|
| 2003 |
| |
|
|
|
| ||
|
|
| Adjusted NIS |
| |
|
|
|
| ||
(b) | Newly consolidated jointly controlled entity: |
|
|
|
|
|
|
|
|
|
|
| The entity’s assets and liabilities at date of consolidation: |
|
|
|
|
|
|
|
|
|
|
| Working capital (except cash and cash equivalents) |
|
| (15,389 | ) |
| Investment in partnerships |
|
| 826 |
|
| Rights to broadcast movies and programs |
|
| 14,023 |
|
| Fixed assets, net |
|
| 458 |
|
| Long-term liabilities |
|
| (295 | ) |
| Investment in the company prior to consolidation |
|
| (419 | ) |
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| (796 | ) |
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Company |
| |||||||||
|
|
|
| |||||||||||
|
| Year ended December 31, |
| Year ended December 31, |
| |||||||||
|
|
|
| |||||||||||
|
| 2005 |
| 2004 |
| 2003 |
| 2005 |
| 2004 |
| 2003 |
| |
|
|
|
|
|
|
|
| |||||||
|
| NIS in thousands |
| |||||||||||
|
|
| ||||||||||||
|
| Reported (1) |
| Adjusted (2) |
| Reported (1) |
| Adjusted (2) |
| |||||
|
|
|
|
|
| |||||||||
(c) | Significant non-cash activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Purchase of fixed assets on credit |
| 10,450 |
| 14,974 |
| 7,672 |
| 10,450 |
| 14,974 |
| 7,672 |
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Assignment of affiliate’s debt |
| 125,099 |
| 102,293 |
| 79,082 |
| 125,099 |
| 102,293 |
| 79,082 |
|
|
|
|
|
|
|
|
|
| ||||||
|
|
(1) | See Note 2. |
|
|
(2) | Adjusted to the NIS of December 2003. |
The accompanying notes are an integral part of the financial statements.
- 13 -
|
T.L.M. SUBSCRIBERS TV LTD. |
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|
|
NOTE 1:– | GENERAL |
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| ||
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| ||
| a. | Company description: | |||
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|
| |||
|
| T.L.M. Subscribers TV Ltd. (“the Company”) was incorporated and registered on May 14, 1989. | |||
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|
| |||
|
| 1. | The Company operates in two principal fields as follows: | ||
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|
| ||
|
|
| a) | Multi channel TV broadcasting: | |
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|
|
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| |
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|
|
| The Company holds general cable broadcasting licenses by virtue of which the Company provides multi channel TV broadcasting to the Company’s subscribers. The Company has licenses to broadcast in the following areas in Israel: South Hasharon, Yoav Eshkol, Har Hanegev and Har Eilat. The broadcasting licenses replaced various former licenses by virtue of which the Company operated until April 2002. The broadcasting licenses are effective for a period of 15 years and upon the request of the licensee and the approval of the Council for Cable and Satellite Broadcasting, may be extended for additional periods of 10 years each. | |
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|
|
|
| |
|
|
| b) | Access to high speed internet and telephone services: | |
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|
|
|
| |
|
|
|
| Telecom Gold 2001 Limited Partnership (“Telecom”) and Hot Telecom Limited Partnership (“Hot Telecom”) operate in the fields of telephone services, high speed internet services over cable, data communication services and data transmission services. | |
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|
|
|
| |
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|
|
| 1) | Telecom was established by the Company, Golden Channels and Co. (“Golden Channels”) and Idan Cable Systems Israel Ltd. (“Idan”) in 2001 for the purpose of receiving a license from the Ministry of Communication to provide domestic fixed communication services. |
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|
|
| On March 6, 2002, the Ministry of Communication granted Telecom a general license to provide domestic fixed communication services in areas that match the broadcast sites (“the Domestic Operator’s License”). |
|
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|
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|
|
| Hot Telecom, a partnership owned by a group of cable companies (“the Cable Companies”), was established on November 13, 2003, for the purpose of continuing to provide telecommunication services and to provide telephone services. The partners of Hot Telecom are the Cable Companies, namely, Telecom on behalf of Golden Channels Group, Domestic Operator - Limited Partnership on behalf of Tevel, Matav Investments Ltd. on behalf of Matav and Hot Telecom Ltd. - General Partner. The partners’ rights in Hot Telecom are as follows: 41.05%, 32.36%, 26.54% and 0%, respectively. |
- 14 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
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|
NOTE 1:– | GENERAL (Cont.) | ||||
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| ||||
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| On November 25, 2003, the Ministry of Communication granted Hot Telecom a general license to provide domestic fixed communication services (“the telephone license”). This license replaced and terminated the license granted to Telecom and the domestic operator companies of Matav and Tevel. The license was granted for a period of 20 years. The Minister of Communication may extend the term of the above license for additional periods of 10 years each. |
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| The types of services that Hot Telecom may provide under the telephone license includes domestic fixed telephone services, cable infrastructure services, access to high speed internet services, data communication services, optical transmission services and Internet Virtual Private Network (“IVPN”) services. |
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|
| On March 16, 2005, the Domestic Operator’s License was amended thereby allowing Hot Telecom to provide access to high speed internet services to subscribers, including to subscribers of the former licensees, which services shall be deemed to have been provided by Hot Telecom, until the consummation of the merger of the Cable Companies. |
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|
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|
|
| As of the date of the financial statements, the internet activity in the private sector was not transferred to Hot Telecom and it is performed by the Cable Companies which provided this service before the Domestic Operator’s License was granted, whereas the internet activity in the business sector is preformed by Hot Telecom. |
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|
|
|
|
|
|
| 2) | Telephone services provided by Hot Telecom: |
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|
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|
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|
|
| As part of the conditions stipulated by the Controller of Restrictive Business Practices and the Merger of Cable Companies Board (see 2 below), Hot Telecom is required to provide fixed telephone services over the cable network no later than November 20, 2004 and to make minimum investments for the preparation necessary to provide telephone services in an amount of not less than approximately NIS 350 million and any additional amount as will be required to implement Hot Telecom’s business plan to provide telephone services that will fully compete with Bezeq’s telephone services. According to the terms stipulated by the Controller of Restrictive Business Practices, by June 30, 2005, Hot Telecom is to have invested an amount not less than NIS 190 million, and by June 30, 2006 - not less than NIS 160 million and any other amount required to implement Hot Telecom’s business plan to provide telephone services. The Controller also determined a minimum number of telephone subscribers of Hot Telecom between 2005 and 2007 and that Hot Telecom is required to connect subscribers to the telephone network equally with no discrimination between those who are existing subscribers of the Cable Companies and others who are not subscribers of the Cable Companies. During February 2005, Hot Telecom began business operations. As for structural separation, see 4 below. |
- 15 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
|
|
|
|
NOTE 1:– | GENERAL (Cont.) | ||||
|
| ||||
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|
|
|
| As of the date of the approval of the financial statements, Hot Telecom is in compliance with the terms stipulated by the Controller of Restrictive Business Practices regarding the amount of the investments and connection of subscribers. Hot Telecom’s investments as of the date of the approval of the financial statements approximates NIS 309 million. |
|
|
|
|
|
|
|
|
|
|
| According to the founders’ agreement of the general partner in the partnership (Hot Telecom Ltd.), the shareholders have undertaken to supply Hot Telecom with the financing necessary for the operations of the partnership for a period of three years commencing from the date of the approval of the business plan, in amounts and on dates as approved by the board of directors (“the basic financing”). After the basic financing is provided, the parties have undertaken to provide the additional financing necessary for the continued operation of Hot Telecom pursuant to the business plan. |
|
|
|
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|
|
|
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|
|
| In May 2004, the Cable Companies submitted a business plan to the banks for the approval of a credit facility in the aggregate amount of NIS 534 million to be use in order to obtain financing for Hot Telecom’s planned activities. In July 2004, the Cable Companies requested that the banks approve a credit facility for 2004 in the amount of $ 37 million. The banks gave their agreement in principle to the financing of the first stage of the investment plan included Hot Telecom’s business plan. The amount of the credit facility to be provided for the first stage is approximately $ 37 million. In September 2005, some of the Cable Companies requested that the banks increase the credit facility by an additional $ 38 million (according to their proportionate shares) in order to implement Hot Telecom’s investment budget for 2005 based on the business plan. Most of the banks gave their verbal agreement in principle and the majority of the amount was provided. Hot Telecom is concurrently working with the Cable Companies to locate other financing sources. |
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|
|
|
|
|
|
|
|
| 3) | Ownership of the cable network: |
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|
|
|
|
|
|
|
|
|
| According to the Telecommunications Law, the grant of a Domestic Operator’s License to Hot Telecom was contingent on the holders of the broadcasting licenses transferring to the rights over the cable network a corporation that will act as the owner of the Domestic Operator’s License. Yet, according to the Domestic Operator’s License granted to the partnership, and later granted to Hot Telecom and based on an agreement between Hot Telecom and the owners of the licenses, Hot Telecom is entitled to use the cable network and to operate, maintain, develop and improve it, according to the Domestic Operator’s License and the telecommunications law, during a transition period ending no later than the earlier of June 30, 2006, or if a merger has occurred between the owners of the general cable broadcasting licenses, the date the merger takes place. The Cable Companies must transfer the ownership of the cable network to Hot Telecom at the end of the transition period. As of the date of the approval of the financial statements, the ownership of the cable network was not yet transferred to Hot Telecom. |
- 16 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
|
|
|
|
NOTE 1:– | GENERAL (Cont.) | ||||
|
| ||||
|
|
|
|
| On September 15, 2005, the Cable Companies and Hot Telecom signed agreements according to which the Cable Companies assigned to Hot Telecom exclusive leasehold rights in the cable network. Furthermore, the former holders of licenses assigned to Hot Telecom their rights and obligations according to the broadcasting distribution agreements with the Cable Companies. The lease fees have not yet been determined. The agreement is effective retroactively from November 25, 2003, until the end of the transition period described above. The payment for the right to use the cable network and the payment for the services that Hot Telecom shall provide to the Cable Companies has not yet been determined. The amount and timing of the payment and its date can not be estimated at this stage and, accordingly, the financial statements do not include any provision in respect thereof. |
|
|
|
|
|
|
|
|
|
| 4) | Organizational separation: |
|
|
|
|
|
|
|
|
|
|
| The broadcasting licenses in the Domestic Operator’s License contain provisions as to the existence of an organizational separation between holders of the broadcasting licenses and the holder of the Domestic Operator’s License. According to these provisions, there are restrictions limiting the identity and number of directors that are permitted to serve as such for both the owner of the broadcasting license and for the general partner of the owner of Domestic Operator’s license. Further, according to these licenses, upon the occurrence of one of the following: another general broadcasting license is granted for broadcasting through the cable network, the number of internet subscribers reaches 450,000, the number of telephone lines operated by Hot Telecom reaches 250,000 or December 31, 2007 (another condition which only appears in the broadcasting licenses), the holders of the licenses shall implement an organizational separation in the format specified in the licenses including separation of the managements, assets and employees of the holders of licenses. |
|
|
|
|
|
|
|
|
|
| 5) | The merger of operations among the Cable Companies: |
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|
|
|
|
|
|
|
|
|
| In furtherance of the approval of the Controller of Restrictive Business Practices to the merger of the Cable Companies from April 2002 (on January 16, 2006, the Controller extended the validity of the merger approval without a specific time limitation) and in furtherance of the approval of the Cable and Satellite Broadcasting Board (“the Board”) to the merger of the Cable Companies, since 2001, the Cable Companies, including the Company, have progressively taken actions to merge their operations. The purpose of the merger is to, among others, enable the merged entity to consolidate, expand and facilitate its position as a national entity in the field of multi channel TV broadcasting and internet access services so as to be able to compete more effectively against its competitors (mainly, the satellite company, “YES”) in the field of multi channel TV broadcasting and against Bezeq, in the field of domestic fixed telephone services and high speed internet. Furthermore, the purpose of the merger is to collaborate in various areas, including the purchase of content, sales and marketing and to reduce operating costs significantly. |
- 17 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
|
|
|
|
NOTE 1:– | GENERAL (Cont.) | ||||
|
| ||||
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|
|
|
| Approvals to merge the Cable Companies have been received from the Controller of Restrictive Business Practices, the Cable and Satellite Broadcasting Board and the tax authorities. According to the Supervisor of Banks, the merger of the Cable Companies and the establishment of the merged cable entity represents an exception from the directives of the Bank of Israel and the directives for “Bank Management Standards”. The position taken of the Supervisor of Banks has consequences regarding the provision of credit by a bank and the attribution of the merged entity’s debts, among others, to an indirect controlling shareholder of the Cable Companies. |
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|
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| In order to strengthen the cooperation between the Cable Companies, in June 2004, the merger of operations between the Cable Companies (including the Company) began to be implemented. For this purpose, a joint administration was appointed to supervise the merger of the operations and the activities of marketing, sales, engineering, customer service, operations and information systems of the Cable Companies (including Hot Telecom). The activities of the Company in the ordinary course of business in the areas that are under cooperation are subject to the decisions made by the joint administration. However, significant decisions are subject to the approval of the Board of Directors and other authorized bodies of each of the Cable Companies, as required by law. The Cable Companies have agreed on principles for the allocation of expenses based on each company’s proportional share of the general subscriber population. The merger of operations does not constitute a legal merger and does not include the transfer of assets or liabilities from any of the Cable Companies to the joint entity or from one cable company to another. Each cable company remains the sole owner of its assets and is entitled to the revenues received from its subscribers (see also 6 below). |
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|
|
| 6) | The legal merger: |
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|
|
| As part of the negotiations that took place regarding the merger of the Cable Companies, on February 21, 2006, Matav, Fishman Group and Yediot Communication Group and the banks that hold Tevel shares reached a verbal understanding in regard to the major principles relating to a legal merger of the Cable Companies (“the agreement in principle”). |
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|
| According to said understandings, Matav will absorb the operations and assets of the other Cable Companies in the field of cable television broadcasting and fixed domestic communication services by purchasing the operations and the rights of the companies of the other Cable Companies in consideration of $ 1,350 per cable TV subscriber (“a Cable Companies subscriber”). The consideration is to be paid by the assumption of certain financial debts of the merged companies (credit from banks and net working capital as defined by the parties to the merger) representing a total of $ 850 per Cable Companies subscriber purchased through the merger process and by the issuance of shares to the shareholders of the merged companies. The proportion of ownership of Matav’s shares following the merger is to be in accordance with the proportionate number of Cable Companies subscribers contributed by each party to the merger on the date to be determined by the parties, thus determining the number of shares to be issued to each party. The merger will be effected retroactively as of January 1, 2006, such that the operating results of the merged business activities commencing from that date will be attributed to Matav. |
- 18 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
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|
NOTE 1:– | GENERAL (Cont.) | ||||
|
| ||||
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|
|
| The parties are also discussing arrangements, which have not yet been finalized, regarding the appointment of directors of Matav once the merger is consummated, and the rights for the sale of Matav’s shares held by the banks after the consummation of the merger. |
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| The terms and conditions relating to the bank debt of Matav following the merger have not yet been determined. |
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|
| The agreement in principle between the parties is subject, among others, to the execution of definitive documents by the parties, an agreement on the terms of financing Matav after the merger, the approvals of the boards of directors and of the managements of the parties involved, including the approval of Matav’s shareholders as well as various regulatory approvals. There is no assurance that these conditions will be fulfilled or that the proposed merger will be consummated under these conditions or under any other terms. |
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|
|
| 7) | Declaration of Cable Companies as a monopoly: |
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|
| On November 8, 1999, the Controller of Restrictive Business Practices declared that each of the companies operating in the cable TV sector is a monopoly in the field of the provision of paid multi channel TV broadcasting, each in its own license site. |
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|
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|
|
| 2. | In November 2005, a draft bill, “Arrangements in the State’s Economy (Legislative Amendments for the Achievement of the Budget’s Objectives and the Economic Policy for the Fiscal Year 2006), 2005, was published. According to the bill, it was proposed to amend the Communication Law in such a manner that will oblige the Cable Companies to provide a basic package of products to their subscribers, without making the provision of the basic package conditional upon the purchase of any other broadcasts or services. | ||
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|
| It was further stipulated in the above bill that the Minister of Communication, with the consent of the Minister of Finance, and after having consulted with the Board may determine the maximum payment for the basic package, based on the cost of providing the basic package plus a reasonable profit for the Cable Companies. According to the above bill, the proposed amendment to the Communication Law would be effective as of January 1, 2007. | ||
- 19 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
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|
NOTE 1:– | GENERAL (Cont.) | ||||
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|
|
| Company’s management estimates, that if the bill is approved, it could result in a change in the consumption habits of the multi channel TV subscribers. As of the date of the approval of the financial statements, the Company is not able to evaluate the impact of the proposed legislation on its results of operations. | ||
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|
|
|
| |
|
| 3. | In October 2005, the Ministry of Communication requested that the Cable Companies to present their position regarding the request of YES to provide VOD services over Bezeq’s ADSL network. In January 2006, the Cable Companies’ position was furnished to the Ministry of Communication and, to the best of the Company’s knowledge, no changes in the status of the matter have since occurred. | ||
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|
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| |
|
|
| Company’s management estimates that should YES in the future begin providing VOD services using the aforementioned technology, the Cable Companies will no longer be the sole providers of such service and, should Bezeq start to operate also as a content provider in collaboration with YES, then this could have a material adverse effect on the Company’s business and its results of operations. | ||
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|
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| |
|
| 4. | In August 2005, the Israeli Government resolved to promote the establishment of a digital nationwide terrestrial distribution network (land-based) which will enable free broadcasting to the public of the Israeli Broadcasting Authority channels (Channels “1” and “33”), the commercial broadcasting channels (channels “2” and “10”) and the “Parliament Channel” (channel “99”). | ||
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|
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| |
|
|
| This resolution provides for the appointment of a multi-ministerial tender committee that will choose an entity to design, establish and operate the distribution network. It was further stipulated in the Government’s resolution that the tender committee should require the winner of the tender to commence broadcasting in the above format by no later than January 1, 2007. | ||
|
|
|
|
| |
|
|
| Company’s management estimates that should the Government’s resolution be implemented, it could result in a change in the consumption habits of the multi channel TV subscribers. As of the date of the approval of the financial statements, the Company is not able to evaluate the impact of the implementation of the Government’s resolution on its results of operations. | ||
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|
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|
| |
|
| 5. | To the best of management’s knowledge, on March 1, 2006, the Israeli Parliament approved the Law of Class Action Lawsuits, 2006 (“the Law”). The Law will come into effect on the date of its publication in the public records. The Law arranges the manner of submission of class action lawsuits pursuant to the Israeli law and supersedes the specific provisions regarding class actions that were stipulated in certain laws prior to the approval of the Law. The Law materially expands, among other things, the list of plaintiffs who are entitled to request the approval of a lawsuit as a class action. Furthermore, the Law removes certain procedural limitations for submitting a request to approve a lawsuit as a class action. Management believes that the publication of the Law as described above could increase the number of requests to approve class action lawsuits against the Group and consequently increase the Group’s legal exposure. | ||
- 20 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
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|
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|
|
NOTE 1:– | GENERAL (Cont.) | ||||
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|
|
| 6. | The financial position and operating results of the Company: | ||
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|
|
| The Company incurred losses amounting to approximately NIS 48 million, NIS 41 million and NIS 35 million in the years ended December 31, 2005, 2004 and 2003, respectively. Furthermore, the Company has a shareholders’ deficiency of approximately NIS 266 million and working capital deficiency of approximately NIS 413 million as of December 31, 2005. Financing of the working capital deficiency, repayment of liabilities and continuing the ongoing operations of the Company are dependent upon maintaining positive flows from operating activities in the coming years as well as the consent of the banks not to demand repayment of loans granted or to provide substitute loans. | ||
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|
|
| The Company’s management believes that the banks will extend the period of the credit facility to at least January 1, 2007, and that the Company is expected to have positive cash flows from operating activities. The Company’s management also believes that launching a service package that integrates the cable TV, internet and telephone services concurrently with a substantial investment in infrastructure and network (including investments in telephone services that are made through Hot Telecom) will, in the future, stimulate growth in revenues and in the Company’s share of the telecommunication market in Israel and achieve a considerable improvement in the Company’s operating income. As to the financial position of Hot Telecom Limited Partnership that is held by an affiliated partnership, see Note 5b(2). | ||
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|
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|
|
| b. | Definitions: | |||
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|
|
| In these financial statements: |
| |
|
|
|
|
| The Company | - | T.L.M. Subscribers TV Ltd. |
|
|
|
|
| Jointly controlled entity | - | Hot Vision Ltd. (“Hot Vision”), a company owned by various entities that have a contractual arrangement for joint control. |
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|
|
| Affiliated partnership | - | Telecom Gold 2001 - Limited Partnership (“Telecom”) was established in order to be granted a license for the provision of access to internet services. |
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|
|
| Hot Telecom | - | a limited partnership owned by Telecom. |
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|
|
| Investees | - | jointly controlled entity and affiliated partnership (see above). |
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|
|
| Related parties | - | as defined in the Securities Regulations (Preparation of Annual Financial Statements), 1993 and as defined in Opinion 29 of the Institute of Certified Public Accountants in Israel. |
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|
|
| Bezeq | - | Bezeq Israel Telecommunications Corporation Ltd. |
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|
| YES | - | YES DBS TV Satellite Services (1998) Ltd. |
- 21 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
NOTE 1:– | GENERAL (Cont.) |
|
|
|
Matav | - | Matav - Cable Systems Media Ltd. |
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|
|
Tevel | - | Tevel International Communications Ltd. |
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|
|
Golden Channels | - | Golden Channels and Co. - Registered Partnership. |
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|
|
Idan | - | Idan Cable Services Ltd. |
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|
|
The Group | - | Idan, Golden Channels and the Company (see above). |
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|
|
Cable Companies | - | Matav, Tevel and the Group. |
|
|
NOTE 2:– | SIGNIFICANT ACCOUNTING POLICIES |
|
|
| The financial statements are prepared in accordance with the Securities Regulations (Preparation of Annual Financial Statements), 1993. |
|
|
| The significant accounting policies applied in the preparation of the financial statements on a consistent basis, are as follows: |
|
|
|
|
| a. | Reporting basis of the financial statements: | |
|
|
| |
|
| 1. | General: |
|
|
|
|
|
|
| Until December 31, 2003, the Company prepared its financial statements based on the historical cost convention, adjusted for the changes in the general purchasing power of the Israeli currency (“New Israeli Shekel” or “NIS”) based on the changes in the Israeli Consumer Price Index (“Israeli CPI”). In accordance with Accounting Standard No. 12 with respect to the discontinuance of the adjustment of financial statements, the adjustment of financial statements for the effects of inflation was discontinued beginning January 1, 2004. The adjusted amounts, as included in the balance sheet as of December 31, 2003 (the transition date), served as a starting point for nominal financial reporting beginning January 1, 2004. Additions made after the transition date are included at nominal values. |
|
|
|
|
|
| 2. | Definitions: |
|
|
|
|
|
|
| Adjusted amount - historical nominal amount adjusted for the Israeli CPI as of December 2003, according to the provisions of Opinions No. 23 and No. 36 of the Institute of Certified Public Accountants in Israel. |
|
|
|
|
|
|
| Reported amount - adjusted amount as of the transition date, plus additions in nominal values after the transition date and less amounts deducted after the transition date. |
|
|
|
|
|
|
| Cost- cost in these financial statements represents cost in the reported amount. |
- 22 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
NOTE 2:– | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|
|
|
|
| 3. | Balance sheet: | |
|
|
|
|
|
| a) | Non-monetary items are presented in reported amounts. |
|
|
|
|
|
| b) | Monetary items are presented in nominal values as of the balance sheet date. |
|
|
|
|
|
| c) | The book value of investments in investees is determined based on the financial statements of these companies in reported amounts. |
|
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|
|
|
| d) | The amounts for non-monetary assets do not necessarily represent realizable value or current economic value, but only the reported amounts for those assets. |
|
|
|
|
| 4. | Statement of operations: | |
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|
|
|
|
| a) | Income and expenses relating to non-monetary items are derived from the change in the reported amounts between the opening balance and the closing balance. |
|
|
|
|
|
| b) | Other items in the statement of operations are presented in nominal values. |
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|
|
|
|
| c) | The equity in the results of operations of investees is determined based on the financial statements of these companies in reported amounts. |
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|
|
|
| 5. | Comparative data for 2003 are presented after adjustment for the Israeli CPI as of the transition date (the Israeli CPI for December 2003). | |
|
|
|
|
| 6. | Condensed financial data of the Company in nominal historical values for tax purposes is presented in Note 19. | |
|
|
|
| b. | Consolidated financial statements: |
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|
|
| The consolidated financial statements include the accounts of a jointly controlled entity by the proportionate consolidation method. Significant intercompany balances and transactions between the Group companies have been eliminated in the consolidated financial statements. |
|
|
|
| c. | Cash equivalents: |
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|
|
|
| The Company considers all highly liquid investments, including unrestricted short-term bank deposits purchased with original maturities of three months or less, to be cash equivalents. |
|
|
|
| d. | Allowance for doubtful accounts: |
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|
|
|
| The allowance for doubtful accounts is principally determined at a certain percentage of customer debts. |
- 23 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
NOTE 2:– | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|
|
|
|
| e. | Fixed assets: | |
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|
|
|
|
| 1. | Fixed assets are stated at cost net of accumulated depreciation. The Company evaluates in each reporting period the necessity to record an impairment loss, in accordance with the provisions of Accounting Standard No. 15 (see f below). |
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|
|
|
|
| 2. | Cost of a cable TV system includes capitalization of expenses during the period of construction, indirect expenses and initial installation expenses for subscribers. |
|
|
|
|
|
| 3. | Depreciation is calculated by the straight-line method at annual rates which are deemed adequate to depreciate the assets over their estimated useful lives, as follows: |
|
|
|
|
|
| % |
|
|
|
| |
| |||
| Cable network | 8.33 - 15 (mainly 8.33%) |
|
| Computers | 15 - 33 |
|
| Headend | 15 |
|
| Equipment of end users | 15 |
|
| Vehicles | 15 |
|
| Office furniture and equipment | 6 - 15 |
|
| Buildings | 4 |
|
| Leasehold improvements *) | 10 |
|
|
|
|
| *) | Leasehold improvements are depreciated by the straight-line method over the term of the lease or the estimated useful life of the improvements, whichever is shorter. |
|
|
|
| f. | Impairment of assets: |
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|
|
| Impairment of fixed and intangible assets: |
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|
|
| The Company applies Accounting Standard No. 15, “Impairment of Assets”. The Standard applies to the assets included in the balance sheet other than inventories, assets arising from construction contracts, assets arising from employee benefits, deferred tax assets and financial assets (with the exception of investments in affiliates). According to the Standard, whenever there is an indication that an asset may be impaired, the Company should determine if there has been an impairment of the asset by comparing the carrying amount of the asset to its recoverable amount. The recoverable amount is the higher of an asset’s net selling price or value in use, which is determined based on the present value of estimated future cash flows expected to be generated by the continuing use of an asset and by its disposal at the end of its useful life. If the carrying amount of an asset exceeds its recoverable amount, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. An impairment loss recognized should be reversed only if there have been changes in the estimates used to determine the asset’s recoverable amount since the impairment loss was recognized. |
- 24 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
NOTE 2:– | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|
|
|
|
| g. | Deferred taxes: | |
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|
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|
|
| 1. | As of January 1, 2005, the Company applies Accounting Standard No. 19, “Taxes on Income” (“the Standard”). The Standard prescribes the principles for recognition, measurement, presentation and disclosures of taxes on income and deferred taxes in the financial statements. |
|
|
|
|
|
|
| Deferred taxes are computed in respect of temporary differences between the amounts included in the financial statements and the amounts allowable for tax purposes, other than a limited number of exceptions described in the Standard. |
|
|
|
|
|
|
| Deferred tax balances are measured using the enacted tax rates expected to be in effect when the differences are expected to reverse, based on the applicable tax laws at balance sheet date. The amount for deferred taxes in the statement of operations represents the changes in said balances during the reported year. |
|
|
|
|
|
| 2. | Taxes that would apply in the event of the sale of investments in investees have not been taken into account in computing the deferred taxes, as long as it is probable that the sale of the investments in investees is not expected in the foreseeable future. |
|
|
|
|
|
| 3. | As it is not probable that there will be taxable income in the future, no deferred tax assets have been recorded in the financial statements. |
|
|
|
|
| h. | Customers’ deposits for converters: | |
|
|
|
|
|
| The Company collects deposits from part of its subscribers in respect of converters installed by it. The deposits are linked to the Israeli CPI and are amortized for each year or a portion thereof according to agreements with customers. The Company refunds the deposit after linkage to the known CPI and net of accumulated amortization when the converter is returned by the subscriber. The amortization of the deposits is included in the statement of operations as revenues. | |
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|
|
|
| i. | Revenue recognition: | |
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|
|
|
|
| 1. | Revenues from current subscription fees, less discounts, are recognized in revenues as the services are provided to the subscribers. |
|
|
|
|
|
| 2. | Revenues from deposits, see h above. |
|
|
|
|
|
| 3. | As for the disclosure of the effect of Accounting Standard No. 25 in the period prior to its adoption, see r3 below. |
- 25 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
NOTE 2:– | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|
|
|
| j. | Cost of revenues - supplier discounts: |
|
|
|
|
| Supplier discounts received on a periodic basis and in respect of which the Company is not obligated to comply with certain targets, are recognized in the financial statements as the purchases which entitle the Company to said discounts are made. |
|
|
|
| k. | Investment in investee corporations: |
|
|
|
|
| The investments in investee corporations are presented by the equity method of accounting. |
|
|
|
| l. | Advertising expenses: |
|
|
|
|
| Advertising expenses are charged to the statement of operations as incurred. |
|
|
|
| m. | Rights to broadcast movies and programs: |
|
|
|
|
| The cost includes the cost of purchasing rights to broadcast movies and TV programs with the addition of direct costs in order to adapt the movies and programs for broadcasting in Israel. |
|
|
|
|
| The rights to use content by the jointly controlled entity which was made available by its shareholders, is also included as part of this item. |
|
|
|
|
| Cost of rights are amortized when actual broadcasting takes place, while giving a relatively greater weight to primary broadcasting. |
|
|
|
| n. | Net loss per share: |
|
|
|
|
| Net loss per share is computed in accordance with Opinion No. 55 of the Institute of Certified Public Accounts in Israel. |
|
|
|
|
| As for Accounting Standard No. 21, see s5 below. |
|
|
|
| o. | Exchange rate and linkage basis: |
|
|
|
|
|
| 1. | Assets and liabilities in or linked to foreign currency are presented according to the representative exchange rates published by the Bank of Israel at balance sheet date. |
|
|
|
|
|
| 2. | Assets and liabilities linked to the Israeli CPI are presented according to the relevant index for each linked asset or liability. |
- 26 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
NOTE 2:– | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|
|
| Following are data regarding the exchange rates of the primary currencies with which the Company transacts and the Israeli CPI |
|
|
|
|
|
|
|
|
|
|
|
|
| As of |
| Representative |
| Representative |
| Israeli CPI |
| |||
|
|
|
|
| |||||||
|
|
| NIS |
| NIS |
| Points *) |
| |||
|
|
|
|
|
|
|
| ||||
| December 31, 2005 |
|
| 5.447 |
|
| 4.603 |
|
| 185.1 |
|
| December 31, 2004 |
|
| 5.877 |
|
| 4.308 |
|
| 180.7 |
|
| December 31, 2003 |
|
| 5.533 |
|
| 4.379 |
|
| 178.6 |
|
| December 31, 2002 |
|
| 4.970 |
|
| 4.737 |
|
| 182.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Change during the year |
| % |
| % |
| % |
| |||
|
|
|
|
| |||||||
| 2005 |
| (7.3 | ) |
| 6.8 |
|
| 2.4 |
|
|
| 2004 |
| 6.2 |
|
| (1.6 | ) |
| 1.2 |
|
|
| 2003 |
| 11.3 |
|
| (7.6 | ) |
| (1.9 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| *) | The index on an average basis of 1993 = 100. |
|
|
|
| p. | Fair value of financial instruments: |
|
|
|
|
| The carrying amount of cash and cash equivalents, trade receivables, other accounts receivable, short-term credit from banks, trade payables and other accounts payable approximate their fair value. |
|
|
|
| q. | Use of estimates for the preparation of financial statements: |
|
|
|
|
| The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities in the financial statements and the amounts of revenues and expenses during the reported years. Actual results could differ from those estimates. |
|
|
|
| r. | Disclosure of the effects of new Accounting Standards prior to their adoption: |
|
|
|
|
|
| 1. | Accounting Standard No. 22, “Financial Instruments: Disclosure and Presentation”: |
|
|
|
|
|
|
| In July 2005, the Israel Accounting Standards Board issued Accounting Standard No. 22, “Financial Instruments: Disclosure and Presentation” (“the Standard”). The Standard will be applicable to financial statements for periods commencing on or after January 1, 2006 (“the effective date ”). |
|
|
|
|
|
|
| This Standard prescribes principles for the presentation of financial instruments and identifies the information that should be disclosed about them in the financial statements. The presentation principles apply to the classification of financial instruments or their component parts, on initial recognition as a financial liability, financial asset or equity instrument; the classification of related interest, dividends, losses and gains; and the circumstances in which a financial asset and a financial liability should be offset. |
- 27 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
NOTE 2:– | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|
|
| The Standard will be applied prospectively. Comparative data presented in financial statements for periods beginning on the Standard’s effective date will not be restated or reclassified. Financial instruments that were issued prior to the Standard’s effective date will be classified and presented in accordance with the provisions of the Standard beginning on the Standard’s effective date. Compound financial instruments which were issued in prior periods and were not yet converted or redeemed as of the Standard’s effective date, will be classified according to their components, beginning on the Standard’s effective date. A loss provision included in the financial statements of an investor on the effective date of the Standard will be cancelled at such date with a corresponding adjustment by a cumulative effect. |
|
|
| The Company believes that the effect of the new Standard on its financial position, results of operations and cash flows is not expected to be material. |
|
|
|
| 2. | Accounting Standard No. 24, “Share-Based Payment”: |
|
|
|
|
| In September 2005, the Israel Accounting Standards Board issued Accounting Standard No. 24, “Share-Based Payment” (“the Standard”). The Standard will be applicable to financial statements for periods commencing on or after January 1, 2006 (“the effective date”). |
|
|
|
|
| This Standard requires the Company to recognize share-based payment transactions in its financial statements in respect to the purchase of goods or services. Such transactions include transactions with employees or other parties that must be settled in the Company’s equity instruments or in cash. Concurrently with the recognition of the goods or services received, it is necessary to recognize in the financial statements an increase in shareholders’ equity when the share-based payment transaction will be settled in equity instruments and the incurrence of a liability when this transaction will be settled in cash. This contrasts with the situation prevailing prior to the effective date in which certain types of the above mentioned transactions were not reflected in the financial statements. |
|
|
|
|
| The Standard prescribes that transactions with employees or others which supply similar services in return for equity instruments should be measured according to their fair value on the date in which such equity instruments were granted. The Standard also prescribes certain requirements if the terms of an option or share grant are modified. As for share-based transactions with parties other than employees, the fair value of the goods or services received must be measured upon receipt. Furthermore, if the equity instruments granted do not vest until the counterparty completes a specified period of service, the services will be recognized in the financial statements over the vesting period. |
|
|
|
|
| For equity-settled share-based payment transactions, the Standard is applicable to grants made subsequent to March 15, 2005, and which had not yet vested as of the effective date. The Standard will also be applicable to modifications that were made to the terms of equity-settled transactions subsequent to March 15, 2005, even if the modifications relate to grants that were made before this date. In the financial statements for 2006, comparative data in the financial statements for 2005 shall be restated in order to reflect the expense relating to the aforementioned grants. |
- 28 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
NOTE 2:– | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|
|
| For liabilities arising from share-based payment transactions existing as of the effective date, it will be necessary to apply the provisions of the Standard retrospectively. Comparative data will be restated, including adjusting the opening balance of retained earnings for the earliest period in which comparative data are presented. |
|
|
| The Company believes that the effect of the Standard on its financial position, results of operations and cash flows is not expected to be material. |
|
|
|
| 3. | Accounting Standard No. 25, “Revenues”: |
|
|
|
|
| In February 2006, the Israel Accounting Standards Board published Accounting Standard No. 25, “Revenues” (“the Standard”). |
|
|
|
|
| The Standard deals with the recognition of revenue from three types of transactions: sale of goods, rendering of services and revenue from interest, royalties and dividends and prescribes the criteria for recognizing each type of revenue. The basic principle is that revenues should be measured at the fair value of the consideration received and/or receivable. If the consideration is not received on the date of the transaction, the revenue should be measured by discounting the future consideration using the prevailing market rate of interest. The Standard also prescribes that in cases where components of one transaction may be separately identified, revenue should be measured separately for each component if that reflects the substance of the transaction. The Standard stipulates that revenues recognized in the financial statements should only include the amounts received and/or receivable by the Company on its own account. Accordingly, amounts collected on behalf of a third party are not revenues of the Company. |
|
|
|
|
| In order to determine whether the Company is required to report its revenues on a gross basis (since it acts as a principal supplier) or on a net basis (since it performs as an agent), Interpretation No. 8, “Reporting Revenues on a Gross or Net Basis” was published concurrently with this Standard (“the Interpretation”). Pursuant to the Interpretation, recognition of revenues on a gross or net basis shall be determined in accordance with the distribution of the risks and rewards resulting from the transaction. The Interpretation sets forth indicators which should be taken into consideration in determining the basis of reporting (gross or net). |
|
|
|
|
| The Standard and Interpretation will be applicable to financial statements for periods beginning on January 1, 2006 and thereafter. |
- 29 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
NOTE 2:– | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|
|
|
|
| As for amounts reported as revenues but represent amounts collected on behalf of a third party in accordance with the Standard, or for revenues which had not been reported on a gross or net basis, as required by the Interpretation, the relevant provisions of the Standard and Interpretation are to be applied retrospectively, including a restatement of the comparative data. Furthermore, assets and liabilities included in the balance sheet as of December 31, 2005, are to be adjusted, as of January 1, 2006, to the amounts that would have been recognized in accordance with the provisions of the Standard, with the effect of the adjustment being recorded in the statement of income for the period beginning as of that date (“cumulative effect of change in accounting principle”). |
|
|
|
|
| The Company believes that the effect of the new Standard on its financial position, results of operations and cash flows is not expected to be material. |
|
|
|
| 4. | Accounting Standard No. 20 (Revised), “Accounting for Goodwill and Intangible Assets upon Acquisition of Investee”: |
|
|
|
|
| In March 2006, the Israel Accounting Standards Board published Accounting Standard No. 20 (Revised), “Accounting for Goodwill and Intangible Assets upon Acquisition of Investee” (“the Standard”). The Standard is applicable to financial statements for periods commencing on January 1, 2006 (“the effective date”). |
|
|
|
|
| The Standard determines that the excess of cost of an investment in an investee should also be attributed to the investee’s identifiable intangible assets, as opposed to the rules applied so far according to which the excess of cost of an investment was generally only attributed to tangible assets. Cost of the acquisition is allocated to an intangible asset only if it satisfies the Standard’s criteria for recognition as an intangible asset which include, inter alia, identifiability and the ability to reliably measure the fair value. The Standard distinguishes between intangible assets with a finite useful life and intangible assets with an indefinite useful life. |
|
|
|
|
| The Standard further determines that negative goodwill created upon the acquisition, after deduction of the investee’s intangible and non-monetary assets, should be immediately recognized upon the date of acquisition as a gain in the statement of income and not systematically amortized as was required prior to the effective date of the Standard. |
|
|
|
|
| Positive goodwill and intangible assets with an indefinite useful life will no longer be amortized. The Standard requires an annual assessment, or more frequently if certain indicators exist, of an impairment in goodwill in respect of a subsidiary or a jointly controlled entity, or of intangible assets with an indefinite useful life. Furthermore, each period, events and circumstances should be reviewed to determine whether they continue to support an assessment that the useful life of the assets is indefinite. Intangible assets with a finite useful life are to be systematically amortized and will also be subject to an evaluation for impairment. The impairment of goodwill in respect of an affiliate will be accounted for in the context of the evaluation of impairment of the entire investment. The accounting for impairment is to be performed in accordance with Accounting Standard No. 15, “Impairment of Assets”. |
- 30 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
NOTE 2:– | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|
|
|
|
| The transition provisions prescribe that comparative data for the periods prior to the effective date should not be restated. The balance of goodwill as of the effective date will no longer be amortized and, from that date, the impairment of goodwill will be evaluated as described above. The balance of negative goodwill as of December 31, 2005, is to be derecognized as of the effective date with a corresponding adjustment to the opening balance of retained earnings. |
|
|
|
|
| The Company believes that the effect of the Standard on its financial position, results of operations and cash flows is not expected to be material. |
|
|
|
| 5. | Accounting Standard No. 21, “Earnings per Share”: |
|
|
|
|
| In February 2006, the Israel Accounting Standards Board published Accounting Standard No. 21, “Earnings per Share” (“the Standard”), which prescribes the principles for the computation and presentation of earnings (loss) per share in the financial statements and supersedes Opinion No. 55 of the Institute of Certified Public Accountants in Israel. |
|
|
|
|
| According to the Standard, earnings per share are to be computed based on the number of Ordinary shares (and not per NIS 1 par value of the shares as computed until the effective date). Basic earnings per share are to include only shares which are outstanding during the period whereas convertible securities (such as convertible debentures and options) are to be included in the computation of diluted earnings per share, in contrast to the principles applied until the effective date according to which in cases where a convertible security is likely to be converted, it is included in the computation of basic earnings per share. In addition, convertible securities which had been converted during the period, are to be included in diluted earnings per share up to the date of conversion and are to be included in basic earnings per share from that date. Pursuant to the Standard, options will be included in diluted earnings when their exercise results in the issuance of shares for a consideration which is less than the market price of the shares. The amount of dilution is the market price of the shares minus the amount that would have been received as a result of the conversion of the options into shares. This is in contrast to the method of computation prescribed by Opinion No. 55, which also includes adjustments to earnings. |
|
|
|
|
| This Standard is applicable to financial statements for periods beginning on January 1, 2006 and thereafter. Comparative data for earnings per share are to be retrospectively restated. |
|
|
|
| s. | Restatement: |
|
|
|
|
| The financial statements for 2004 and as of December 31, 2003, were restated in order to retroactively reflect the change resulting from the consolidation of the accounts of Hot Vision Ltd. with those of the Company using the proportionate consolidation method. The investment in this company was previously accounted for in the Company’s financial statements by the equity method. |
- 31 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
NOTE 2:– | SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
|
|
|
|
|
|
|
|
|
|
|
|
| The effect of the restatement on the consolidated balance sheet is as follows: |
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2004 |
| |||||||
|
|
|
| ||||||||
|
|
| As |
| As |
| The effect of |
| |||
|
|
|
|
|
| ||||||
|
|
| Reported NIS in thousands |
| |||||||
|
|
|
| ||||||||
| Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current assets |
|
| 12,888 |
|
| 2,086 |
|
| 10,802 |
|
| Long-term investments and loans |
|
| 12,007 |
|
| 939 |
|
| 11,068 |
|
| Fixed assets, net |
|
| 319,934 |
|
| 319,518 |
|
| 416 |
|
|
|
|
|
|
| ||||||
| |||||||||||
|
|
|
| 344,829 |
|
| 322,543 |
|
| 22,286 |
|
|
|
|
|
|
| ||||||
| Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current liabilities |
|
| 412,298 |
|
| 390,255 |
|
| 22,043 |
|
| Long-term liabilities |
|
| 151,113 |
|
| 150,870 |
|
| 243 |
|
|
|
|
|
|
| ||||||
| |||||||||||
|
|
|
| 563,411 |
|
| 541,125 |
|
| 22,286 |
|
|
|
|
|
|
| ||||||
|
|
NOTE 3:– | TRADE RECEIVABLES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Company |
| |||||||||
|
|
|
|
| |||||||||||
|
|
| December 31, |
| December 31, |
| |||||||||
|
|
|
|
| |||||||||||
|
|
| 2005 |
| 2004 |
| 2005 |
| 2004 |
| |||||
|
|
|
|
|
|
| |||||||||
|
|
| Reported NIS in thousands |
| |||||||||||
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Open accounts *) |
|
| 10,981 |
|
| 8,658 |
|
| 1,221 |
|
| 147 |
| |
| Checks receivable |
|
| 89 |
|
| 109 |
|
| 89 |
|
| 109 |
| |
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
| 11,071 |
|
| 8,767 |
|
| 1,310 |
|
| 256 |
| |
|
|
|
|
|
|
| |||||||||
| |||||||||||||||
| *) | Net of allowance for doubtful accounts |
|
| 255 |
|
| 136 |
|
| 255 |
|
| 136 |
|
|
|
|
|
|
|
|
| ||||||||
|
|
NOTE 4:– | OTHER ACCOUNTS RECEIVABLE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Government authorities |
|
| 394 |
|
| 76 |
|
| 394 |
|
| 3 |
| |
| Prepaid expenses and accrued income |
|
| 365 |
|
| 1,358 |
|
| 242 |
|
| 1,314 |
| |
| Related company |
|
| 83 |
|
| 2 |
|
| 83 |
|
| 2 |
| |
| Advances to suppliers and other receivables |
|
| 812 |
|
| 1,519 |
|
| 299 |
|
| 328 |
| |
|
|
|
|
|
|
| |||||||||
| |||||||||||||||
|
|
|
| 1,654 |
|
| 2,955 |
|
| 1,018 |
|
| 1,647 |
| |
|
|
|
|
|
|
| |||||||||
- 32 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
|
NOTE 5:– | INVESTMENT IN AFFILIATE (EXCESS OF LOANS OVER INVESTMENT FROM AFFILIATED PARTNERSHIP) | |
|
|
|
| a. | Investments in Hot Vision: |
|
|
|
|
| Composition: |
|
|
|
|
|
|
|
|
| The Company |
| |
|
|
|
| ||
|
|
| December 31, |
| |
|
|
|
| ||
|
|
| Reported NIS |
| |
|
|
|
| ||
| Cost of shares |
|
| - |
|
| Retained earnings from date of establishment |
|
| 251 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| 251 |
|
|
|
|
| ||
|
|
|
|
| 1. | Hot Vision is engaged in editing and preparing content to be screened and broadcast by the Cable Companies and in purchasing rights to broadcast movies and programs. Hot Vision also purchases and produces local programs for the Cable Companies. | |
|
|
|
|
| 2. | The Company’s share in the operating results of Hot Vision is determined according to the relative share of each company in total cable subscribers in the market (10.71% in 2005, 10.53% in 2004 and 10.50% in 2003). This ratio is computed at each year-end based on the average in the entire year. | |
|
|
|
|
| 3. | As for the guarantees that the Company provided in favor of Hot Vision’s liabilities to banks, see also Note 17b(1). | |
|
|
|
|
| 4. | Below is the Company’s relative share in Hot Vision’s assets, liabilities and results of operations as included in the Company’s consolidated financial statements: | |
|
|
|
|
|
| a) | Balance sheets: |
|
|
|
|
|
|
|
|
|
|
|
| December 31, |
| ||||
|
|
|
| |||||
|
|
| 2005 |
| 2004 |
| ||
|
|
|
|
| ||||
|
|
| Reported NIS in thousands |
| ||||
|
|
|
| |||||
| Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current assets |
|
| 13,105 |
|
| 10,805 |
|
| Long-term receivables |
|
| 10,047 |
|
| 11,319 |
|
| Fixed assets, net |
|
| 366 |
|
| 417 |
|
|
|
|
|
| ||||
| ||||||||
|
|
|
| 23,518 |
|
| 22,541 |
|
|
|
|
|
| ||||
| Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current liabilities |
|
| 23,002 |
|
| 20,878 |
|
| Long-term liabilities |
|
| 265 |
|
| 243 |
|
|
|
|
|
| ||||
| ||||||||
|
|
|
| 23,267 |
|
| 21,121 |
|
|
|
|
|
| ||||
- 33 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
|
|
NOTE 5:– | INVESTMENT IN AFFILIATE (EXCESS OF LOANS OVER INVESTMENT FROM AFFILIATED PARTNERSHIP) (Cont.) | ||
|
|
|
|
|
| b) | Statements of operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year ended |
| ||||
|
|
|
| |||||
|
|
| 2005 |
| 2004 |
| ||
|
|
|
|
| ||||
|
|
| Reported NIS in thousands |
| ||||
|
|
|
| |||||
| ||||||||
| Revenues |
|
| 1,986 |
|
| 2,352 |
|
| Cost of revenues |
|
| 18,618 |
|
| 20,225 |
|
| Selling, general and administrative expenses |
|
| 1,842 |
|
| 2,132 |
|
| Financial expenses, net |
|
| 1,688 |
|
| 740 |
|
| Other expenses, net |
|
| - |
|
| 177 |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| Loss |
|
| (20,162 | ) |
| (20,922 | ) |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| b. | Golden Telecom 2001 - Limited Partnership (“Telecom”): | |
|
|
|
|
|
| 1. | According to the partnership’s agreement, Telecom is 26.2% held by the Company. |
|
|
|
|
|
|
| Composition (Consolidated and the Company): |
|
|
|
|
|
|
|
|
|
|
|
| December 31, |
| ||||
|
|
|
| |||||
|
|
| 2005 |
| 2004 |
| ||
|
|
|
|
| ||||
|
|
| Reported NIS in thousands |
| ||||
|
|
|
| |||||
|
|
|
|
| ||||
| Retained earnings from date of establishment |
|
| 13,305 |
|
| 12,015 |
|
| Loans (1) |
|
| (52,855 | ) |
| (37,303 | ) |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| (39,550 | ) |
| (25,288 | ) |
|
|
|
|
| ||||
|
|
|
|
|
| (1) | The loans are not indexed and bear annual interest at the rate of 5.5% (2004 - 5.7%). Their repayment date shall be upon demand, but not before January 1, 2007. |
|
|
|
|
| 2. | Telecom holds 41.05% of Hot Telecom which was established by the Cable Companies in November 2003 in order to construct and operate domestic communication services over the cable network (see also Notes 1a(1b)(2), (3) and (4)). | |
|
|
| |
|
| Hot Telecom incurred business losses amounting to approximately NIS 36 million and NIS 12 million for the years ended December 31, 2005 and 2004, respectively. Hot Telecom has also deficiency in partners’ accounts amounting to approximately NIS 48 million and working capital deficiency amounting to approximately NIS 69 million as of December 31, 2005. Management estimates that Hot Telecom’s substantial investment in the telephony infrastructure will lead to a growth in revenues and in its market share in the telecommunications market in Israel while improving Hot Telecom’s cash flows from operating activities and operating income. | |
- 34 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
|
NOTE 5:– | INVESTMENT IN AFFILIATE (EXCESS OF LOANS OVER INVESTMENT FROM AFFILIATED PARTNERSHIP (Cont.) | |
|
|
|
| c. | Change in investments in 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Company |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| Affiliated |
| Jointly |
| Affiliated |
| Total |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
| Reported NIS in thousands |
| ||||||||||
|
|
|
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at the beginning of the year |
|
| (25,288 | ) |
| 251 |
|
| (25,288 | ) |
| (25,037 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Change during the year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loans |
|
| (15,552 | ) |
| - |
|
| (15,552 | ) |
| (15,552 | ) |
| Equity in earnings, net |
|
| 1,290 |
|
| - |
|
| 1,290 |
|
| 1,290 |
|
|
|
|
|
|
|
| ||||||||
| ||||||||||||||
| Balance at the end of the year |
|
| (39,550 | ) |
| 251 |
|
| (39,550 | ) |
| (39,299 | ) |
|
|
|
|
|
|
| ||||||||
|
|
|
| d. | Investment in limited partnerships (consolidated): |
|
|
|
|
| The jointly controlled entity invests in limited partnerships that are engaged in the production of movies in Israel. |
|
|
|
|
|
|
| e. | Rights to broadcast movies and programs: |
|
|
|
|
|
|
| ||
|
|
| Consolidated |
| ||||
|
|
|
| |||||
|
|
| December 31, |
| ||||
|
|
|
| |||||
|
|
| 2005 |
| 2004 |
| ||
|
|
|
|
| ||||
|
|
| Reported NIS in thousands |
| ||||
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
| As of beginning of year |
|
| 10,673 |
|
| 14,036 |
|
|
|
|
|
|
|
|
|
|
| Additions during the year |
|
| 10,629 |
|
| 10,825 |
|
| Amortization during the year |
|
| (11,529 | ) |
| (14,207 | ) |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| As of end of year |
|
| 9,773 |
|
| 10,654 |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
NOTE 6:– | RELATED PARTIES |
|
|
| The balance of related parties is unlinked and bears interest at the annual rate of 4.8%. The repayment is upon demand but not before January 1, 2007. |
- 35 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
NOTE 7:– | FIXED ASSETS |
|
|
|
| a. | Consolidated: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cable |
| Headend |
| Equipment |
| Office |
| Computers |
| Vehicles |
| Buildings |
| Leasehold |
| Total |
| |||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
| Reported NIS in thousands |
| |||||||||||||||||||||||||
|
|
| ||||||||||||||||||||||||||
Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2005 |
|
| 573,866 |
|
| 15,669 |
|
| 155,226 |
|
| 2,043 |
|
| 1,257 |
|
| 48 |
|
| 171 |
|
| 13,524 |
|
| 761,804 |
|
Additions during the year |
|
| 19,327 |
|
| 48 |
|
| 18,291 |
|
| 64 |
|
| - |
|
| - |
|
| - |
|
| 2,580 |
|
| 40,310 |
|
Disposals during the year |
|
| - |
|
| - |
|
| (1,294 | ) |
| - |
|
| - |
|
| (40 | ) |
| - |
|
| - |
|
| (1,334 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 |
|
| 593,193 |
|
| 15,717 |
|
| 172,223 |
|
| 2,107 |
|
| 1,257 |
|
| 8 |
|
| 171 |
|
| 16,104 |
|
| 800,780 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2005 |
|
| 364,967 |
|
| 11,805 |
|
| 59,397 |
|
| 1,687 |
|
| 803 |
|
| 32 |
|
| 66 |
|
| 3,113 |
|
| 441,870 |
|
Additions during the year |
|
| 35,162 |
|
| 1,188 |
|
| 21,768 |
|
| 100 |
|
| 183 |
|
| 3 |
|
| 7 |
|
| 2,191 |
|
| 60,602 |
|
Disposals during the year |
|
| - |
|
| - |
|
| (706 | ) |
| - |
|
| - |
|
| (29 | ) |
| - |
|
| - |
|
| (735 | ) |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 |
|
| 400,129 |
|
| 12,993 |
|
| 80,459 |
|
| 1,787 |
|
| 986 |
|
| 6 |
|
| 73 |
|
| 5,304 |
|
| 501,737 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciated cost at December 31, 2005 |
|
| 193,064 |
|
| 2,724 |
|
| 91,764 |
|
| 320 |
|
| 271 |
|
| 2 |
|
| 98 |
|
| 10,800 |
|
| 299,043 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciated cost at December 31, 2004 |
|
| 208,899 |
|
| 3,864 |
|
| 95,829 |
|
| 356 |
|
| 454 |
|
| 16 |
|
| 105 |
|
| 10,411 |
|
| 319,934 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
- 36 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
NOTE 7:– | FIXED ASSETS (Cont.) |
|
|
|
| b. | The Company: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cable |
| Headend |
| Equipment |
| Office |
| Computers |
| Buildings |
| Leasehold |
| Total |
| ||||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| Reported NIS in thousands |
| ||||||||||||||||||||||
|
|
| |||||||||||||||||||||||
Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2005 |
| *) | 572,782 |
| *) | 15,669 |
| *) | 155,226 |
| *) | 953 |
| *) | 1,257 |
|
| 171 |
| *) | 13,339 |
|
| 759,397 |
|
Additions during the year |
|
| 19,290 |
|
| 48 |
|
| 18,291 |
|
| - |
|
| - |
|
| - |
|
| 2,575 |
|
| 40,204 |
|
Disposals during the year |
|
| - |
|
| - |
|
| (1,294 | ) |
| - |
|
| - |
|
| - |
|
| - |
|
| (1,294 | ) |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 |
|
| 592,072 |
|
| 15,717 |
|
| 172,223 |
|
| 953 |
|
| 1,257 |
|
| 171 |
|
| 15,914 |
|
| 798,307 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2005 |
| *) | 364,094 |
| *) | 11,805 |
| *) | 59,397 |
| *) | 750 |
|
| 803 |
|
| 66 |
| *) | 2,964 |
|
| 439,879 |
|
Additions during the year |
|
| 35,087 |
|
| 1,188 |
|
| 21,768 |
|
| 39 |
|
| 183 |
|
| 7 |
|
| 2,184 |
|
| 60,456 |
|
Disposals during the year |
|
| - |
|
| - |
|
| (706 | ) |
| - |
|
| - |
|
| - |
|
| - |
|
| (706 | ) |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 |
|
| 399,181 |
|
| 12,993 |
|
| 80,459 |
|
| 789 |
|
| 986 |
|
| 73 |
|
| 5,148 |
|
| 499,629 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciated cost at December 31, 2005 |
|
| 192,891 |
|
| 2,724 |
|
| 91,764 |
|
| 164 |
|
| 271 |
|
| 98 |
|
| 10,766 |
|
| 298,678 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciated cost at December 31, 2004 |
|
| 208,688 |
|
| 3,864 |
|
| 95,829 |
|
| 203 |
|
| 454 |
|
| 105 |
|
| 10,375 |
|
| 319,518 |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
| *) | Reclassified. |
- 37 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
NOTE 8:– | OTHER ASSETS, NET |
|
|
| Composition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated and the Company |
| |||||||
|
|
|
| ||||||||
|
|
| Deferred charges |
| Deferred charges |
| Total |
| |||
|
|
|
| ||||||||
|
|
| Reported NIS in thousands |
| |||||||
|
|
|
| ||||||||
|
|
|
|
| |||||||
| Original amount: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance as of December 31, 2005 and 2004 |
|
| 191 |
|
| 1,618 |
|
| 1,809 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at January 1, 2005 |
|
| 191 |
|
| 1,531 |
|
| 1,722 |
|
| Additions during the year |
|
| - |
|
| 87 |
|
| 87 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 2005 |
|
| 191 |
|
| 1,618 |
|
| 1,809 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Amortized cost at December 31, 2005 |
|
| - |
|
| - |
|
| - |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Amortized cost at December 31, 2004 |
|
| - |
|
| 87 |
|
| 87 |
|
|
|
|
|
|
| ||||||
|
|
|
NOTE 9:– | CREDIT FROM BANKS | |
|
| |
| a. | Composition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
| Consolidated |
| The Company |
| |||||||||
|
|
|
|
|
| ||||||||||||
|
|
|
| December 31, |
| December 31, |
| ||||||||||
|
|
|
|
|
| ||||||||||||
|
|
| 2005 |
| 2005 |
| 2004 |
| 2005 |
| 2004 |
| |||||
|
|
|
|
|
|
|
| ||||||||||
|
|
| % |
| Reported NIS in thousands |
| |||||||||||
|
|
|
|
| |||||||||||||
| Short-term loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Linked to the Israeli CPI |
|
| (1) |
|
| 8,302 |
|
| 8,578 |
|
| - |
|
| - |
|
| Unlinked |
|
| 6.4 |
|
| 370,703 |
|
| 337,282 |
|
| 362,066 |
|
| 329,660 |
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 379,005 |
|
| 345,860 |
|
| 362,066 |
|
| 329,660 |
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
| *) | As of December 31, 2005. |
|
|
|
| (1) | The loan bears interest of Libor + 2.75% (as of December 31, 2005 - 7.6%). |
|
|
|
| b. | As for securities, see Note 17b. |
|
|
NOTE 10:– | TRADE PAYABLES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Company |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| December 31, |
| December 31, |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| 2005 |
| 2004 |
| 2005 |
| 2004 |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
| Reported NIS in thousands |
| ||||||||||
|
|
|
| |||||||||||
| ||||||||||||||
| Open accounts |
|
| 16,073 |
|
| 11,477 |
|
| 11,549 |
|
| 7,412 |
|
| Checks payable |
|
| 648 |
|
| 1,037 |
|
| 223 |
|
| 101 |
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 16,721 |
|
| 12,514 |
|
| 11,772 |
|
| 7,513 |
|
|
|
|
|
|
|
| ||||||||
- 38 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
NOTE 11:– | OTHER ACCOUNTS PAYABLE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| Consolidated |
| The Company |
| |||||||||
|
|
|
|
| |||||||||||
|
|
| December 31, |
| December 31, |
| |||||||||
|
|
|
|
| |||||||||||
|
|
| 2005 |
| 2004 |
| 2005 |
| 2004 |
| |||||
|
|
|
|
|
|
| |||||||||
|
|
| Reported NIS in thousands |
| |||||||||||
|
|
|
| ||||||||||||
| Employees and payroll accruals |
|
| 456 |
|
| 348 |
|
| 348 |
|
| 156 |
| |
| Related companies and related parties (1) |
|
| - |
|
| 22,477 |
|
| - |
|
| 22,477 |
| |
| Government authorities |
|
| 5,129 |
|
| 3,960 |
|
| 4,992 |
|
| 3,960 |
| |
| Provision for vacation and recreation pay |
|
| 185 |
|
| 114 |
|
| 185 |
|
| 114 |
| |
| Others and accrued expenses (2) |
|
| 26,977 |
|
| 27,025 |
|
| 26,109 |
|
| 26,375 |
| |
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
| 32,747 |
|
| 53,924 |
|
| 31,634 |
|
| 53,082 |
| |
|
|
|
|
|
|
| |||||||||
|
|
|
| (1) | The balance is linked to the Israeli CPI. |
|
|
|
| (2) | The balance includes an amount of NIS 4,662 thousand (2004 - NIS 4,522 thousand) in respect of royalties payable to the Ministry of Communication and an amount of NIS 14,205 thousand (2004 - NIS 13,122 thousand) in respect of provision for claims. See also Note 17d. |
|
|
NOTE 12:– | SHAREHOLDERS |
|
|
| Composition: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
| Consolidated and |
| |||||
|
|
|
|
| |||||||
|
|
|
| December 31, |
| ||||||
|
|
|
|
| |||||||
|
|
| 2005 |
| 2005 |
| 2004 |
| |||
|
|
|
|
|
| ||||||
|
|
| % |
| Reported NIS in thousands |
| |||||
|
|
|
|
| |||||||
| Unlinked *) |
|
| 5.5 |
|
| 125,274 |
|
| 108,001 |
|
| Linked to the Israeli CPI (1) |
|
|
|
|
| 28,927 |
|
| 3,145 |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 154,201 |
|
| 111,146 |
|
|
|
|
|
|
|
|
| ||||
|
|
|
| *) | As of December 31, 2005. |
|
|
|
| (1) | On December 31, 2005, the shareholders assigned credit balances of approximately NIS 25.2 million, which were linked to the Israeli CPI, into shareholders loans. The repayment date for the loans will not be before January 1, 2007 unless otherwise determined in the merger agreement. |
- 39 -
|
|
|
T.L.M. SUBSCRIBERS TV LTD. | ||
NOTES TO FINANCIAL STATEMENTS | ||
|
|
|
NOTE 13:– | ACCRUED SEVERANCE PAY | |
|
| |
| a. | The Company’s liabilities for severance pay are computed on the basis of the employees most recent salary as of the balance sheet date and in accordance with the Severance Pay Law and are fully covered by current payments to insurance companies and pension fund as well as by the balance sheet accrual. |
|
|
|
| b. | The amounts accumulated in managers’ insurance companies and pension fund on behalf of the employees and the respective liabilities are not included in the balance sheet as they are not under the control and management of the Company. |
|
|
|
NOTE 14:– | SHARE CAPITAL | |
|
|
|
|
|
|
|
|
| December 31, |
| |
|
|
|
| ||
|
|
| Authorized, issued and outstanding |
| |
|
|
|
| ||
|
|
| Number of shares |
| |
|
|
|
| ||
|
|
|
|
| |
| Ordinary shares of NIS 1 par value each |
|
| 1,200,000 |
|
| Management A shares of NIS 1 par value each |
|
| 8 |
|
| Management B shares of NIS 1 par value each |
|
| 4 |
|
| Management C shares of NIS 1 par value each |
|
| 4 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| 1,200,016 |
|
|
|
|
| ||
|
|
|
NOTE 15:– | SUPPLEMENTARY INFORMATION OF THE STATEMENTS OF OPERATIONS ITEMS | |
|
|
|
| a. | Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Company |
| |||||||||||
|
|
|
|
| |||||||||||||
|
|
| Year ended December 31, |
| Year ended December 31, |
| |||||||||||
|
|
|
|
| |||||||||||||
|
|
| 2005 |
| 2004 |
| 2005 |
| 2004 |
| 2003 |
| |||||
|
|
|
|
|
|
|
| ||||||||||
|
|
| NIS in thousands |
| |||||||||||||
|
|
|
| ||||||||||||||
|
|
| Reported |
| Reported |
| Adjusted |
| |||||||||
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Subscription fees |
|
| 199,628 |
|
| 211,872 |
|
| 199,628 |
|
| 211,872 |
|
| 209,099 |
|
| Equipment of end users |
|
| 9,375 |
|
| 4,850 |
|
| 9,375 |
|
| 4,850 |
|
| 4,043 |
|
| Installation fees |
|
| 368 |
|
| 532 |
|
| 368 |
|
| 532 |
|
| 792 |
|
| Grant of rights to broadcast movies |
|
| 1,986 |
|
| 2,352 |
|
| - |
|
| - |
|
| - |
|
| Other |
|
| 1,205 |
|
| 997 |
|
| 1,205 |
|
| 997 |
|
| 1,331 |
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 212,562 |
|
| 220,603 |
|
| 210,576 |
|
| 218,251 |
|
| 215,265 |
|
|
|
|
|
|
|
|
| ||||||||||
- 40 -
|
|
|
T.L.M. SUBSCRIBERS TV LTD. | ||
NOTES TO FINANCIAL STATEMENTS | ||
|
|
|
NOTE 15:– | SUPPLEMENTARY INFORMATION OF THE STATEMENTS OF OPERATIONS ITEMS (Cont.) | |
|
| |
| b. | Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Company |
| |||||||||||
|
|
|
|
| |||||||||||||
|
|
| Year ended December 31, |
| Year ended December 31, |
| |||||||||||
|
|
|
|
| |||||||||||||
|
|
| 2005 |
| 2004 |
| 2005 |
| 2004 |
| 2003 |
| |||||
|
|
|
|
|
|
|
| ||||||||||
|
|
| NIS in thousands |
| |||||||||||||
|
|
|
| ||||||||||||||
|
|
| Reported |
| Reported |
| Adjusted |
| |||||||||
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Payroll and related expenses |
|
| 1,423 |
|
| 1,623 |
|
| 837 |
|
| 1,045 |
|
| 1,055 |
|
| Vehicle maintenance |
|
| 300 |
|
| 190 |
|
| 300 |
|
| 190 |
|
| 240 |
|
| Rent and maintenance |
|
| 10,763 |
| *) | 9,691 |
|
| 10,763 |
| *) | 9,691 |
| *) | 9,520 |
|
| Depreciation and amortization |
|
| 60,591 |
| *) | 63,608 |
|
| 60,517 |
| *) | 63,525 |
| *) | 58,783 |
|
| Royalties |
|
| 8,125 |
|
| 8,742 |
|
| 8,125 |
|
| 8,742 |
|
| 9,532 |
|
| Programs consumption |
|
| 87,518 |
|
| 88,401 |
|
| 89,719 |
|
| 89,758 |
|
| 75,645 |
|
| Participation in related companies’ expenses (1) |
|
| 36,822 |
|
| 24,550 |
|
| 36,822 |
|
| 24,550 |
|
| 21,980 |
|
| Loss from extensions and converters |
|
| 568 |
|
| 2,030 |
|
| 568 |
|
| 2,030 |
|
| 2,392 |
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 206,107 |
|
| 198,835 |
|
| 207,651 |
|
| 199,531 |
|
| 179,147 |
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
| *) | Reclassified. |
| |||
| c. | Selling and marketing expenses: | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Payroll and related expenses |
|
| 1,047 |
|
| 785 |
|
| 681 |
|
| 431 |
|
| 260 |
|
| Participation in related companies’ expenses (1) |
|
| 17,055 |
|
| 20,063 |
|
| 17,055 |
|
| 20,063 |
|
| 13,355 |
|
| Billing expenses |
|
| 1,347 |
|
| 1,535 |
|
| 1,347 |
|
| 1,535 |
|
| 1,656 |
|
| Other |
|
| 805 |
|
| 1,244 |
|
| 195 |
|
| 288 |
|
| 1,193 |
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 20,254 |
|
| 23,627 |
|
| 19,278 |
|
| 22,317 |
|
| 16,464 |
|
|
|
|
|
|
|
|
|
|
|
|
| d. | General and administrative expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Company |
| |||||||||||
|
|
|
|
| |||||||||||||
|
|
| Year ended December 31, |
| Year ended December 31, |
| |||||||||||
|
|
|
|
| |||||||||||||
|
|
| 2005 |
| 2004 |
| 2005 |
| 2004 |
| 2003 |
| |||||
|
|
|
|
|
|
|
| ||||||||||
|
|
| NIS in thousands |
| |||||||||||||
|
|
|
| ||||||||||||||
|
|
| Reported |
| Reported |
| Adjusted |
| |||||||||
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
| |||||||||
| Management and consulting fees |
|
| 2,092 |
|
| 2,276 |
|
| 2,092 |
|
| 2,203 |
|
| 2,153 |
|
| Payroll and related expenses |
|
| 264 |
|
| 251 |
|
| - |
|
| - |
|
| 261 |
|
| Depreciation and amortization |
|
| 118 |
| *) | 133 |
|
| 46 |
| *) | 63 |
| *) | 189 |
|
| Doubtful accounts and bad debts, net |
|
| (803 | ) |
| (52 | ) |
| (803 | ) |
| (52 | ) |
| 575 |
|
| Participation in related companies’ expenses (1) |
|
| 5,976 |
|
| 7,863 |
|
| 5,976 |
|
| 7,863 |
|
| 8,290 |
|
| Other |
|
| 939 |
| *) | 480 |
|
| 409 |
| *) | 53 |
| *) | 98 |
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 8,586 |
|
| 10,951 |
|
| 7,720 |
|
| 10,130 |
|
| 11,566 |
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
| *) | Reclassified. |
- 41 -
|
|
|
T.L.M. SUBSCRIBERS TV LTD. | ||
NOTES TO FINANCIAL STATEMENTS | ||
|
|
|
NOTE 15:– | SUPPLEMENTARY INFORMATION OF THE STATEMENTS OF OPERATIONS ITEMS (Cont.) | |
|
| |
| e. | Financial expenses, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Company |
| |||||||||||
|
|
|
|
| |||||||||||||
|
|
| Year ended December 31, |
| Year ended December 31, |
| |||||||||||
|
|
|
|
| |||||||||||||
|
|
| 2005 |
| 2004 |
| 2005 |
| 2004 |
| 2003 |
| |||||
|
|
|
|
|
|
|
| ||||||||||
|
|
| NIS in thousands |
| |||||||||||||
|
|
|
| ||||||||||||||
|
|
| Reported |
| Reported |
| Adjusted |
| |||||||||
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
| |||||||||
| In respect of long-term loans |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 870 |
|
| In respect of balances with related parties, net |
|
| 3,527 |
|
| 2,899 |
|
| 3,527 |
|
| 2,899 |
|
| 7,337 |
|
| In respect of short-term items, net |
|
| 20,731 |
|
| 21,077 |
|
| 19,043 |
|
| 20,337 |
|
| 38,295 |
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 24,258 |
|
| 23,976 |
|
| 22,570 |
|
| 23,236 |
|
| 46,502 |
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
| f. | Other expenses (income), net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Legal claims |
|
| 1,058 |
|
| 9,586 |
|
| 1,058 |
|
| 9,409 |
|
| - |
|
| Capital gain, net |
|
| - |
|
| (373 | ) |
| - |
|
| (373 | ) |
| (267 | ) |
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,058 |
|
| 9,213 |
|
| 1,058 |
|
| 9,036 |
|
| (267 | ) |
|
|
|
|
|
|
|
|
|
|
| |
| (1) | The operating, marketing, general and administrative expenses of the Company, Golden Channels and Idan, other than expenses relating to the cable TV network are allocated among these companies in accordance with the relative number of subscribers of each company which adequately reflects the services rendered. | |
|
|
|
|
|
|
NOTE 16:– | TAXES ON INCOME |
|
|
|
|
| |
| a. | Tax laws applicable to the Group companies: | |
|
|
| |
|
| Income Tax (Inflationary Adjustments) Law, 1985: | |
|
|
| |
|
| According to the law, the results for tax purposes are measured based on the changes in the Israeli CPI. The Company is taxed under this law. | |
|
|
| |
|
| Capital gains/losses: | |
|
|
| |
|
| Pursuant to the provisions of the Law for Amendment of the Income Tax Ordinance (No. 132), 2003 (“the reform law”), tax at a reduced rate of 25% will apply on capital gains accrued after January 1, 2003, instead of the regular tax rate. In case of the sale of properties purchased before the adoption of the reform law, the reduced tax rate will apply only to the portion of the profit which accrued after the adoption of the law, as computed according to the law. Further, the reform law states that capital losses carried forward for tax purposes may be offset against capital gains indefinitely. The reform law also provides for the possibility to offset capital losses from sales of properties outside Israel against capital gains in Israel. | |
- 42 -
|
|
|
T.L.M. SUBSCRIBERS TV LTD. | ||
NOTES TO FINANCIAL STATEMENTS | ||
|
|
|
NOTE 16:– | TAXES ON INCOME (Cont.) | |
|
| |
| b. | Tax rates applicable to the income of the Company: |
|
|
|
|
| Until December 31, 2003, the regular tax rate applicable to income of companies was 36%. In June 2004, an amendment to the Income Tax Ordinance (No. 140 and Temporary Provision), 2004 was passed by the “Knesset” (Israeli parliament) and on July 25, 2005, another law was passed, the amendment to the Income Tax Ordinance (No. 147) 2005, according to which the corporate tax rate is to be progressively reduced to the following tax rates: 2004 - 35%, 2005 - 34%, 2006 - 31%, 2007 - 29%, 2008 - 27%, 2009 - 26%, 2010 and thereafter - 25%. |
|
|
|
| c. | Taxes on income included in the statements of operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated and the Company |
| |||||||
|
|
|
| ||||||||
|
|
| Year ended December 31, |
| |||||||
|
|
|
| ||||||||
|
|
| 2005 |
| 2004 |
| 2003 |
| |||
|
|
|
|
|
| ||||||
|
|
| NIS in thousands |
| |||||||
|
|
|
| ||||||||
|
|
| Reported |
| Adjusted |
| |||||
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Taxes in respect of previous years |
|
| 1,153 |
|
| 3,869 |
|
| 11 |
|
|
|
|
|
|
| ||||||
|
|
|
| d. | Below is a reconciliation between the theoretical tax expense assuming all income is taxed at the statutory tax rates applicable to companies in Israel and the tax expense as reported in the statements of operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Company |
| |||||||||||
|
|
|
|
| |||||||||||||
|
|
| Year ended December 31, |
| Year ended December 31, |
| |||||||||||
|
|
|
|
| |||||||||||||
|
|
| 2005 |
| 2004 |
| 2005 |
| 2004 |
| 2003 |
| |||||
|
|
|
|
|
|
|
| ||||||||||
|
|
| NIS in thousands |
| |||||||||||||
|
|
|
| ||||||||||||||
|
|
| Reported |
| Reported |
| Adjusted |
| |||||||||
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss before taxes on income |
|
| (47,701 | ) |
| (45,999 | ) |
| (47,701 | ) |
| (45,999 | ) |
| (38,147 | ) |
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Statutory tax rate |
|
| 34 | % |
| 35 | % |
| 34 | % |
| 35 | % |
| 36 | % |
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Tax saving computed at the statutory tax rate |
|
| (16,218 | ) |
| (16,100 | ) |
| (16,218 | ) |
| (16,100 | ) |
| (13,733 | ) |
| Taxes in respect of previous years |
|
| 1,153 |
|
| 3,869 |
|
| 1,153 |
|
| 3,869 |
|
| 11 |
|
| Losses for tax purposes in respect of which deferred taxes and other differences were not recorded |
|
| 16,218 |
|
| 16,100 |
|
| 16,218 |
|
| 16,100 |
|
| 13,733 |
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Taxes on income |
|
| 1,153 |
|
| 3,869 |
|
| 1,153 |
|
| 3,869 |
|
| 11 |
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
| e. | Tax assessments: |
|
|
|
|
| The Company and the jointly controlled entity received final tax assessments through 2001. |
|
|
|
|
| Subsequent to the balance sheet date, the Company reached an agreement with the Assessment Officer according to which the Company has to pay an amount of approximately NIS 5 million in respect of tax assessments for 1997 to 2001. |
- 43 -
|
|
|
|
T.L.M. SUBSCRIBERS TV LTD. | |||
NOTES TO FINANCIAL STATEMENTS | |||
|
|
|
|
NOTE 16:– | TAXES ON INCOME (Cont.) | ||
|
| ||
| f. | Carryforward losses for tax purposes: | |
|
|
| |
|
| As of December 31, 2005, the Company has carryforward losses for tax purposes which amount to approximately NIS 291.7 thousand. A deferred tax asset in respect of carryforward losses as above was not included since its utilization in the foreseeable future is not probable. | |
|
|
| |
NOTE 17:– | CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES AND CHARGES | ||
|
| ||
| a. | Commitments: | |
|
|
| |
|
| 1. | The Company is obligated to pay royalties to the Ministry of Communication at a rate of 4% of its gross revenues from the provision of cable broadcasting services. On June 16, 2003, the Finance Committee of the Knesset approved a reduction in the rate of royalties to 3.5% effective from January 1, 2004. |
|
|
|
|
|
| 2. | On July 10, 2001, the Cable Companies, including the Company, signed an agreement with the State of Israel (“the royalties agreement”) which provides for an arrangement of the payment to the State of the consideration for the rights of the Cable Companies, including recognition of the proprietary rights to the cable network in their license areas and the right to operate the network after the end of the license period, to transmit cable TV broadcasting and telephone services. The consideration is to be paid, based on a progressive rate of revenues over a period of 12 years beginning on January 1, 2003. The Company is in negotiations with the Ministry of Finance regarding the above payments. Each Cable Company is to pay its relative share of the consideration based on a percentage set forth in the agreement. Each Cable Company is also required to pay consideration in respect of its income from the sale of assets, which is to be calculated based on the portion of the period remaining from the date of sale to the end of the payment period in relation to the total payment period, multiplied by 12%. |
|
|
|
|
|
|
| On June 6, 2004, the Company reached an agreement with the State according to which the payment of the above consideration for 2003, which was not remitted on time, will be paid in seven equal quarterly installments, plus interest and linkage differences up to January 21, 2006. As of the date of the approval of the financial statements, the Company has paid the installments in accordance with the above arrangements. |
|
|
|
|
|
| 3. | The Company is obligated to pay royalties to various entities in Israel and abroad in respect of copyrights on programs transmitted or broadcasted on cable TV, as stipulated in the agreements with those entities. At the end of 2002, a number of agreements which the Company signed with the copyright organizations expired. Currently the Company is in negotiations with these organizations regarding the future arrangements between the parties. |
|
|
|
|
|
| 4. | The Company pays to its shareholders annual management fees in an amount equal to 1% of revenues from subscriber fees. |
- 44 -
|
|
|
|
T.L.M. SUBSCRIBERS TV LTD. | |||
NOTES TO FINANCIAL STATEMENTS | |||
|
|
|
|
NOTE 17:– | CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES AND CHARGES (Cont.) | ||
|
| ||
|
| 5. | As a result of Amendment No. 25 to the Communication Law, the Board demanded that the Group, as part of the terms of conditions for the general cable broadcasting licenses, fulfill past obligations arising from the period of the franchise in respect of compliance with obligations and quotas as to the content of the broadcasts. It was determined that such obligations will be fulfilled over a period of 10 years commencing at the end of two years from the date the licenses were granted. The Board determined that the amount of the monetary investment in respect of past obligations should be approximately U.S.$6 million. As of the date of the preparation of the financial statements, the outstanding amount due from Golden Channels Group amounts to approximately U.S.$420 thousand (Company’s share - U.S.$110 thousand). |
|
|
|
|
|
|
| Since in management’s opinion, it is expected that the production of programs according to the above demand will reduce future costs for productions and purchases of other programs, a provision in the financial statements in respect thereof was not recorded. |
|
|
|
|
|
|
| According to the Telecommunications Law and the Board’s decisions, the Group is obligated, among others, to invest in local productions which it will initially broadcast, in amounts representing about 8% of its total annual revenues from subscribers (starting April 2002). The above will also apply to 2006 and 2007. Management of the Company estimates that the rate of investment in local productions in 2005, 2004 and 2003 exceeded 8%. |
|
|
|
|
|
| 6. | In November 2004, the Company and the Cable Companies entered into an agreement with a supplier for the purchase of 40,000 digital converters (the Company’s share is approximately 4,200 converters). It was further stipulated that the supplier is entitled to sell to the Cable Companies up to 100,000 converters. |
|
|
|
|
|
|
| Notwithstanding the above, the agreement states that the Cable Companies may cancel the supplier’s right, as described above, provided that the Cable Companies purchase at least 50,000 converters from the supplier, an appropriate notification is given and agreed upon damages of up to $500 thousand is paid to the supplier (the Company’s share is approximately U.S.$53 thousand). As of the date of the financial statements, Golden Channels Group purchased 4,200 digital converters from the supplier. |
|
|
|
|
|
| 7. | In January 2006, the Company and the Cable Companies entered into a memorandum of understanding with two other suppliers for the purchase of 150,000 digital converters (the Company’s share is approximately 15,200 converters) over a period of two years commencing from the date of completion of development of the converters. This commitment is dependent upon the supplier resolving problems discovered in the digital converters purchased by March 15, 2006. Company’s management believes that as of the date of approval of the financial statements, the supplier has not yet resolved the problems discovered and, therefore, the supplier is not meeting the terms of the above memorandum of understanding. |
- 45 -
|
|
|
|
T.L.M. SUBSCRIBERS TV LTD. | |||
NOTES TO FINANCIAL STATEMENTS | |||
|
|
|
|
NOTE 17:– | CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES AND CHARGES (Cont.) | ||
|
| ||
|
| 8. | In June 2004, the Company and Golden Channels Group entered into an agreement for the supply of a software system for digital converters, an upgraded system of user interface and an upgrading of the Company’s service centers in consideration of approximately U.S.$1.5 million. As of December 31, 2005, the outstanding commitment in respect thereof amounts to approximately U.S.$0.4 million (the Company’s share is U.S. $0.1 million). |
|
|
|
|
|
| 9. | The Company and the Cable Companies entered into an agreement for the maintenance and repair of converters and modems for a period of two years ending on August 1, 2007 in consideration for a minimum annual fee of approximately NIS 13 million (the Company’s share is NIS 1.4 million). |
|
|
|
|
|
| 10. | On September 25, 2005, Hot Telecom entered into an agreement with a related party for the lease of real estate comprising a total area of about 19 thousand sq.m. in an industrial park close to Kibbutz Yakum, other areas and parking space for a period of ten years, including renewal options for two additional periods of five years each. The real estate will be used for the activities of Hot Telecom and the other Cable Companies. The Cable Companies have guaranteed the fulfillment of Hot Telecom’s obligations under the lease agreement up to the amount of NIS 200 million (the Company’s share is approximately NIS 21 million). |
|
|
|
|
|
|
| The Company also leases buildings that are used as service centers, offices and headends. Most of the lease agreements are linked to the Israeli CPI and some are linked to the exchange rate of the U.S. dollar. |
|
|
|
|
|
|
| The minimum annual lease fees that the Company is obligated to pay based on its share under the above agreement and under other lease agreements for service centers, offices and headends are as follows: |
|
|
|
|
|
|
|
|
| Reported NIS |
| |
|
|
|
| ||
|
|
|
|
| |
| 2006 |
|
| 1,754 |
|
| 2007 |
|
| 1,627 |
|
| 2008 |
|
| 1,589 |
|
| 2009 |
|
| 1,589 |
|
| 2010 and thereafter |
|
| 7,832 |
|
|
|
|
|
|
| 11. | Golden Channels entered into agreements for the purchase of fixed assets. The balance of these commitments as of December 31, 2005, totals NIS 45.7 million (the Company’s share is NIS 12.1 million). |
|
|
|
|
| b. | Guarantees: | |
|
|
| |
|
| 1. | As of the balance sheet date, the Company has provided guarantees in respect of the liabilities to banks of a jointly controlled entity in the aggregate amount of approximately NIS 8.1 million. |
- 46 -
|
|
|
|
T.L.M. SUBSCRIBERS TV LTD. | |||
NOTES TO FINANCIAL STATEMENTS | |||
|
|
|
|
NOTE 17:– | CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES AND CHARGES (Cont.) | ||
|
| ||
|
| 2. | As for the Company’s guarantee in respect of the liabilities of Hot Telecom under an agreement for the lease of offices in Yakum Industrial Park, the Company provided the lessor (a related party) with a guarantee amounting to approximately NIS 21 million (see also a(11) above). |
|
|
|
|
|
| 3. | As of the balance sheet date, the shareholders have provided guarantees amounting to U.S.$15 million in order to secure credit received from banks. |
|
|
|
|
|
| 4. | Matav, Tevel and Golden Channels have guaranteed, jointly and severally, Hot Telecom’s obligations to a supplier of equipment, in the amount of U.S.$4.5 million. Furthermore, Matav and Tevel have guaranteed, jointly and severally, Hot Telecom’s obligations to the aforementioned supplier in the amount of U.S.$74 million. |
|
|
|
|
|
|
| According to indemnification agreements signed among the Cable Companies, the Cable Companies have joint responsibility for the payments pursuant to the guarantees mentioned above, according to each party’s relative share of the ownership of Hot Telecom (the Company’s share is approximately $1.3 million). |
|
|
|
|
| c. | Charges: | |
|
|
| |
|
| As collateral for all of the Company’s existing and future liabilities to banks, the Company placed a floating charge on its plant, all of its assets and rights of any type and class whatsoever that the Company has or my have in the future and a fixed charge in an unlimited amount, on the unpaid share capital and on its goodwill. | |
|
|
|
|
| d. | Contingent liabilities: | |
|
|
| |
|
| 1. | On December 26, 1999, a lawsuit and a motion to approve the lawsuit as a class action, in the estimated aggregate amount of approximately NIS 149 million, were filed against the Company. The essence of the lawsuit is the plaintiff’s argument that the Company was not entitled to charge its customers deposit and usage fees for the converters and for not granting a discount which is required by law. |
|
|
|
|
|
|
| On September 13, 2001, the Court rendered its decision, according to which the Court rejected the plaintiff’s argument that there was no basis to charge fees for the converters that the Company supplied to its customers. The Court also rejected the additional argument of the plaintiff that the Company was required to give a discount to its subscribers. The plaintiff submitted a request to appeal. |
|
|
|
|
|
|
| As a result of a ruling in another legal proceeding in Israel, following which the parties were requested to resubmit their arguments taking into consideration the effect of the ruling on the continuation of the appeal proceeding, it was decided to continue the appeal in a hearing before the Supreme Court on July 31, 2006. The Company’s statement of defense will be presented after the decision in the appeal, if and as far as the appeal is accepted and the need to present a statement of defense arises. |
- 47 -
|
|
|
|
T.L.M. SUBSCRIBERS TV LTD. | |||
NOTES TO FINANCIAL STATEMENTS | |||
|
|
|
|
NOTE 17:– | CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES AND CHARGES (Cont.) | ||
|
| ||
|
|
| The Company’s management believes, based on the opinion of its legal counsel, that it is not possible to predict the outcome of the above lawsuit and appeal, and accordingly, no provision was recorded in respect thereof in the financial statements. |
|
|
|
|
|
| 2. | On September 8, 1998, a monetary claim was filed against the Cable Companies for the payment of compensation in the amount of NIS 30.4 million which, for the purpose of court fees, was limited to an amount of NIS 7.6 million (the Company’s share is approximately NIS 800 thousand) for breach of an agreement regarding the broadcast rights of the Spanish soccer league matches. Hearings took place in 2004 and 2005. |
|
|
|
|
|
|
| The Company’s management believes, based on the opinion of its legal counsel, that it is presently unable to predict the outcome of the claim and, accordingly, no provision was recorded in the financial statements in respect thereof. |
|
|
|
|
|
| 3. | Pursuant to an approved arrangement between the Company and the Ministry of Communication regarding the matter of a discount for the entire amount of the subscriber fee for the base package, which discount is stipulated in the provisions of the franchise agreement in respect of retirement homes that are not-for-profit organizations, for the entire term of the franchise, the Company paid part of the amount due under the arrangement. The Company also recorded a provision which, in the opinion of the Company’s management, is sufficient to cover the remaining obligations under this arrangement. |
|
|
|
|
|
|
| On December 9, 2001, the Company and Golden Channels filed a claim by way of opening motion with the Jerusalem District Court against the Ministry of Communication and the Director of the Multi Channel Subscribers Department. at the Ministry of Communication. As part of the claim, the Court was asked to instruct and affirm, among others, that the term “retirement home” for the purpose of the discount sections in the franchise does not include “protected tenancy” and, unfortunately, it does not include the “residents of protected tenancy”. Also, a definition of the term “public institution” which appears in the relevant sections in the franchise agreement was suggested. |
|
|
|
|
|
|
| The fundamental issue of the claim is a dispute between the parties regarding the correct interpretation of directives addressing discounts in the franchise agreement and regarding the interpretation of the letter of agreements signed between the parties in June 2000. These issues distinguish between the Company’s and Golden Channels’ responsibility to provide free viewing services to protected tenancy and to protected residents of the protected tenancy, in contrast to retirement homes that are entitled to a discount by virtue of the letter of agreements. |
- 48 -
|
|
|
|
T.L.M. SUBSCRIBERS TV LTD. | |||
NOTES TO FINANCIAL STATEMENTS | |||
|
|
|
|
NOTE 17:– | CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES AND CHARGES (Cont.) | ||
|
| ||
|
|
| On July 4, 2005, the Jerusalem District Court rendered a verdict which determines, among others, that institutions that are public “protected tenancy” institutions (in contrast to private “protected tenancy” institutions which, as implied by the verdict, are not entitled to a discount), which received services from the Company and are also a “public institution” and also “operate not-for-profit” were entitled to the full rate of the discount, for which public retirement homes were entitled, up to April 30, 2002. As for public “protected tenancy” institutions that received services from Idan, for the purpose of receiving the above discount, it was determined in the verdict that it is sufficient that they qualify as a “public institution”. The verdict does not give definitions to the terms “public institution” and “operate not-for-profit” which constitute a mandatory condition to receive the discount according to the verdict. The verdict also does not reach a decision on the issue of precisely which discount the public retirement homes were entitled to according to the terms of the franchise agreement (only in respect of the terminals in the public areas in the institution or also in respect of the terminals in the private apartments). |
|
|
|
|
|
|
| On October 6, 2005, the Company and Golden Channels filed an appeal against the above verdict. The hearing on the appeal was scheduled for July 10, 2006. |
|
|
|
|
|
|
| The Company’s financial statements include a provision, which in management’s opinion, is sufficient. |
|
|
|
|
|
| 4. | On August 2, 2001, the Supreme Court rendered a declaratory judgment, which also remained in effect after another hearing on June 16, 2004, regarding the claim of Tele Event against the Cable Companies and which determined that transmission of broadcasts by sub-broadcasting may also constitute violation of copyrights if the transmitted broadcasts embody copyrights of third parties who did not permit their transmission in Israel. In a meeting of the parties on August 25, 2004, Tele Event demanded compensation in the amount of approximately NIS 4.6 million (the Company’s share of the claim is approximately NIS 0.5 million). Through the date of the approval of the financial statements, no significant developments in the above claim, have since occurred.. |
|
|
|
|
|
|
| The Company’s management believes, based on the opinion of its legal counsel, that it is not possible to estimate the soundness of the claim or the reasonableness of the compensation demanded nor the possible outcome of a monetary lawsuit, if and to the extent it is filed in this issue, and accordingly, no provision in respect thereof as recorded in the financial statements. |
- 49 -
|
|
|
|
T.L.M. SUBSCRIBERS TV LTD. | |||
NOTES TO FINANCIAL STATEMENTS | |||
|
|
|
|
NOTE 17:– | CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES AND CHARGES (Cont.) | ||
|
| ||
|
| 5. | On March 28, 2000, a claim was filed against the Cable Companies, including the Company, by AGICOA (an organization which represents producers whose works are broadcast, among others, on cable), for alleged breach of copyrights held by producers represented by AGICOA, in respect of sub-broadcasts transmitted by cable. Further, the grounds for the claim are unlawful enrichment. The aggregate amount of the claim against all Cable Companies is not less than approximately U.S.$170 million, and for the purpose of court fees was limited to $20 million (the Company’s share is approximately U.S.$2.1 million). |
|
|
|
|
|
|
| The proceeding is still in preliminary stages and, therefore, at this stage the outcome of the claim can not be predicted. However, the Company’s management believes, based on the opinion of its legal counsel, that the Company has valid and substantial defense arguments, and accordingly, no provision in respect thereof was recorded in the financial statements. |
|
|
|
|
|
| 6. | On December 3, 2002, a lawsuit and motion to approve the claim as a class action were filed with the Tel-Aviv Jaffa District Court by seven plaintiffs, representing about 1,050,000 subscribers of the Cable Companies. |
|
|
|
|
|
|
| According to the claim, the Cable Companies violated the terms of the license granted by the Board (the transfer of programs from Channel “5” to channel “5+”) regarding the payment for the sport channel which is part of the basic package offered to the Cable Companies’ subscribers. The plaintiffs requested the Court to instruct all three Cable Companies to compensate the subscribers in the aggregate amount of approximately NIS 302 million (as of the date the claim was filed) and by an additional amount of NIS 25.2 million for each month from the date the claim was filed until a ruling is rendered by the Court. (The Company’s proportionate share based on its share of the number of subscribers is estimated at approximately NIS 32 million, plus a monthly amount of approximately NIS 2.7 million accumulating from the date the claim was filed until a ruling is rendered.) |
|
|
|
|
|
|
| On May 27, 2004, the Court denied the motion to approve the claim as a class action. On July 5, 2004, the plaintiffs submitted an appeal to the Supreme Court. |
|
|
|
|
|
|
| In December 2005, the plaintiffs filed a revised motion to approve the claim as a class action against Matav and Golden Channels, jointly and severally. The claim according to the revised motion (which is not against Tevel) totals approximately NIS 199 million and approximately NIS 16.6 million for each month from December 3, 2002 and thereafter (the Company’s share is approximately NIS 30.7 million and NIS 2.6 million, respectively). |
|
|
|
|
|
|
| The Company’s management believes, based on the opinion of its legal counsel, that at this stage it is not possible to predict the outcome of the above claim, and accordingly, no provision in respect thereof was recorded in the financial statements. |
- 50 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
NOTE 17:– | CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES AND CHARGES (Cont.) |
|
|
|
| 7. | On March 10, 2003, Eshkolot - The Israeli Artists Society for Performers’ Rights Ltd., (“Eshkolot”) representing all the artists and performers in Israel submitted a claim to the Board stating that the Cable Companies, including the Company, did not reach an agreement with Eshkolot as to the amount of royalties that Eshkolot is entitled to receive from the Cable Companies in respect of 2003 and thereafter. |
|
|
|
|
| On March 19, 2003, the Cable Companies presented their response in which they argued that, de facto, Eshkolot is a monopoly, that is requesting to impose upon the Cable Companies an annual amount of royalties that is six times higher than the amount of royalties paid to it in the previous year. |
|
|
|
|
| On December 31, 2003, Eshkolot filed a lawsuit in the District Court of Tel Aviv-Jaffa against the Cable Companies in order to instruct and affirm that Eshkolot is entitled to receive from the Cable Companies royalties of NIS 8.5 million for 2003 (the Company’s share is approximately NIS 0.9 million), plus interest and linkage differences (net of payments already transferred to Eshkolot). Additionally, Eshkolot requested to oblige the Cable Companies to pay statutory damages, as set in the Copyrights Law, in the total amount of approximately NIS 24 million (the Company’s share is approximately NIS 2.5 million). Eshkolot also requested a permanent injunction against the Cable Companies that will prohibit the broadcast of protected performances employing performers’ rights held by Eshkolot and a temporary injunction to prohibit the Cable Companies from broadcasting performances employing performers’ rights held by Eshkolot, until a ruling in the case is made. |
|
|
|
|
| During 2004, the parties’ submitted the lawsuits and letters of defense to arbitration. The lawsuit is in the amount of NIS 8.5 million for 2003 and a similar amount plus 10% for each of the years 2004 to 2006. |
|
|
|
|
| The Company’s management believes, based on the opinion of its legal counsel, that it is not possible to predict the outcome of the claim and its effects on the Company, and accordingly, no provision in respect thereof was recorded in the financial statements. |
|
|
|
| 8. | On April 11, 2005, the Israeli Records and Cassettes Federation (“the Federation”) filed a claim and a request for payment of temporary royalties against the Cable Companies, including the Company. The Federation seeks a permanent injunction that shall prohibit the Cable Companies from using the compositions, which are included in the Federation repertoire, unless the parties reach an agreement. |
|
|
|
|
| According to the request for interim payments, the Federation is requesting to oblige the Cable Companies to pay it temporary royalties at the annual amount of U.S.$2 per subscriber who has not subscribed to the audio channels and U.S. $5 per subscriber who has subscribed to the audio channels until a ruling in the lawsuit is made. |
- 51 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
NOTE 17:– | CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES AND CHARGES (Cont.) |
|
|
|
|
| On July 6, 2005, a hearing was held in the matter of the interim payments and the Court rendered a decision according to which the temporary royalties shall be, at this stage, U.S. $ 380 thousand per year. This amount is to be paid in respect of 2003 and thereafter until another decision is rendered by the Court. A provision to cover this liability was recorded in the financial statements. |
|
|
|
|
| The Company’s management believes, based on the opinion of its legal counsel, that it is not possible, at this stage, to predict the outcome of the claim and its effects, and accordingly, no additional provision has been recorded in the financial statements. |
|
|
|
| 9. | In 2003, Hot Vision and the Cable Companies, including the Company, signed an agreement according to which the Cable Companies have agreed that they are obligated among themselves, to jointly finance the outcome of the lawsuit that Warner filed against Golden Channels seeking monetary compensation contending breach of agreement for the purchase of rights to broadcast TV series as well as declaratory reliefs as specified in the lawsuit filed on December 9, 2002. |
|
|
|
|
| On September 29, 2004, the District Court in California, ruled in favour of Warner. The District Court awarded Warner damages, including legal expenses, in the amount of approximately U.S.$ 21.7 million (the Company’s share is approximately U.S.$ 2.3 million) and rejected Golden Channels’ counterclaims in the matter. |
|
|
|
|
| On March 7, 2005, Golden Channels filed a notice of appeal, with the U.S. Court of Appeals. On March 21, 2005, Warner filed with the Court of Appeals a notice of cross appeal pursuant to which, it appeals the order of the District Court denying Warner’s motion to amend the judgment to add prejudgment interest. |
|
|
|
|
| In view of the above and taking into consideration the additional interest and the legal expenses that may be incurred as a result of Warner’s appeal, the Company recorded in the financial statements as of December 31, 2005, a provision in the amount of NIS 10,467 thousand for its share in the outcome of the claim. |
|
|
|
| 10. | On November 13, 2005, a request from D.S.T. Holdings for the payment of NIS 11 million (the Company’s share is approximately NIS 1.2 million) was received. Furthermore a request for arbitration was also received. The Cable Companies have rejected this claim. On January 25, 2006, D.S.T. presented to the Tel Aviv Jaffa District Court a request to enforce arbitration against the Cable Companies and nominate an arbitrator. In the claim, D.S.T. specifies differing amounts. In one instance, D.S.T. claims that the debt of the Cable Companies is NIS 20 million and in another instance it is specifies NIS 15 million. |
|
|
|
|
| The Company’s management believes, based on the opinion of its legal counsel, that it is not possible, at this early stage, to predict the outcome of the request, and accordingly, no provision in respect thereof was recorded in the financial statements. |
- 52 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
NOTE 17:– | CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES AND CHARGES (Cont.) |
|
|
|
| 11. | In February 2006, five screenwriters and directors filed a claim in the amount of approximately NIS 1.7 million (for the purpose of court fees only, the Company’s share is approximately NIS 0.2 million), against the Cable Companies contending that broadcasting of certain production for which no royalties were paid, constitutes a fundamental breach of the respective copyright on the part of the Cable Companies. |
|
|
|
|
| The Company’s management believes, based on the opinion of its legal counsel, that it is not possible, at this early stage, to predict the outcome of the claim, and accordingly, no provision in respect thereof was recorded in the financial statements. |
|
|
|
| 12. | On January 8, 2006, a motion to approve a claim as a class action was filed against the Company in the amount of approximately NIS 23.7 million in respect of letters sent to the Company’s subscribers in which the subscribers were informed that they were entitled to receive the benefit promised to Golden Channels’ subscribers. After some time, letters were sent to the Company’s subscribers informing them that a mistake had been made and that they were not entitled to the above benefit. |
|
|
|
|
| In the context of negotiations held between the parties, a request was filed on behalf of the parties for the application of a settlement according to which all those who subscribed to the digital service during the relevant period and were subscribers of the Company upon the date of the approval of the settlement are entitled to an additional free extension only if they are active subscribers, for a cumulative period of two years starting July 2002 and thereafter. |
|
|
|
|
| The Company’s management believes, based on the opinion of its legal counsel, that the chances that the settlement will apply to the Company are reasonable and, accordingly, no provision was included in the financial statements. |
|
|
|
| 13. | On March 22, 2005, the Cable Companies sent the Mega Film Channel a notice regarding the cancellation of production agreements in effect from April 30, 2005. On April 23, 2005, the Channel’s response was received stating, among others, that due to the unilateral decision of the Cable Companies to cancel the agreements, the Channel is compelled to turn to the courts and argue its rights and damages. The Channel was cancelled on May 1, 2005. |
|
|
|
|
| The Company’s management believes, based on the opinion of its legal counsel, that it is not possible, at this stage, to predict the outcome of the claim, if and to the extent it is filed and, accordingly, no provision in respect thereof was recorded in the financial statements. |
- 53 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
NOTE 17:– | CONTINGENT LIABILITIES, COMMITMENTS, GUARANTEES AND CHARGES (Cont.) |
|
|
|
| 14. | During December 2005, Tali, the Israel Royalty Corporation of Film and Television Makers Ltd. (“Tali”), an organization which incorporates the copyright of screenwriters and directors in Israel, submitted a demand for payment of approximately NIS 63 million (the Company’s share is approximately NIS 7 million) to the Cable Companies for alleged royalties to which members of Tali are entitled for making use of scripts of the Cable Companies and the directing works of members of Tali by the Cable Companies. The claims refer to arrangements made up to December 31, 2005. The Cable Companies are also requested to cease making any use whatsoever of any scripts or directing works of any member of Tali and to reach an agreement for future broadcasting. |
|
|
|
|
| Additional letters were delivered by other artists who are members of Tali against the Cable Companies demanding a total of approximately NIS 5 million (the Company’s share is approximately NIS 0.5 million). |
|
|
|
|
| The letters mentioned above are only letters demanding payment. No lawsuits containing evidence, documents, data or calculations which are supposed to back these demands have been filed. Management, based on legal counsel, believes that under these circumstances, the chances of any proceedings, if and as far as they are filed in the matter, cannot be assessed and, accordingly, no provision was included in their respect in the financial statements. |
|
|
|
| 15. | The Company has signed letters of indemnification for officers of Golden Channels of up to U.S.$ 25 million per calendar year for all of the officers of Golden Channels together. According to the principal terms of the indemnification letters, the Company shall indemnify said officers in respect of certain events as detailed in the letters of indemnification. |
- 54 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
NOTE 18:– | TRANSACTIONS AND BALANCES WITH RELATED COMPANIES AND RELATED PARTIES |
|
|
|
| a. | Revenues and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Company |
| |||||||||||
|
|
|
|
| |||||||||||||
|
|
| Year ended December 31, |
| Year ended December 31, |
| |||||||||||
|
|
|
|
| |||||||||||||
|
|
| 2005 |
| 2004 |
| 2005 |
| 2004 |
| 2003 |
| |||||
|
|
|
|
|
|
|
| ||||||||||
|
|
| NIS in thousands |
| |||||||||||||
|
|
|
| ||||||||||||||
|
|
| Reported |
| Reported |
| Adjusted |
| |||||||||
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
| |||||||||
| Programs consumption |
|
| - |
|
| - |
|
| 19,366 |
|
| 23,701 |
|
| 21,130 |
|
| Expenses relating to management fees |
|
| 2,092 |
|
| 2,180 |
|
| 2,092 |
|
| 2,180 |
|
| 2,153 |
|
| Financial expenses, net |
|
| 3,527 |
|
| 2,899 |
|
| 3,527 |
|
| 2,899 |
|
| 7,337 |
|
| Participation in expenses, net |
|
| 59,853 |
|
| 52,476 |
|
| 59,853 |
|
| 52,476 |
|
| 43,625 |
|
|
|
|
| b. | Balances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated |
| The Company |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| December 31, |
| December 31, |
| ||||||||
|
|
|
|
| ||||||||||
|
|
| 2005 |
| 2004 |
| 2005 |
| 2004 |
| ||||
|
|
|
|
|
|
| ||||||||
|
|
| Reported NIS in thousands |
| ||||||||||
|
|
|
| |||||||||||
|
|
|
|
| ||||||||||
| Trade receivables |
|
| 7,241 |
|
| 6,518 |
|
| - |
|
| - |
|
| Other accounts receivable |
|
| 83 |
|
| 2 |
|
| 83 |
|
| 2 |
|
| Long-term receivables |
|
| 43,236 |
|
| 688 |
|
| 43,236 |
|
| 688 |
|
| Credit balances |
|
| - |
|
| 22,477 |
|
| - |
|
| 22,477 |
|
| Long-term liabilities |
|
| 207,056 |
|
| 148,449 |
|
| 207,056 |
|
| 148,449 |
|
|
|
|
| c. | Benefits to related parties employed by the Company: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year ended December 31, |
| |||||||
|
|
|
| ||||||||
|
|
| 2005 |
| 2004 |
| 2003 |
| |||
|
|
|
|
|
| ||||||
|
|
| NIS in thousands |
| |||||||
|
|
|
| ||||||||
|
|
| Reported |
| Adjusted |
| |||||
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Salaries and related expenses to CEO employed by Golden Channels *) |
|
| 175 |
|
| 173 |
|
| 100 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
| *) | See Note 15(1). |
|
|
|
|
| d. | As for guarantees in favor of related companies, see Note 17b. | |
|
|
| |
| e. | As for participation in expenses, see also Note 15(1). | |
|
|
| |
| f. | As for letters of liability for the indemnification of officers, see Note 17d(14). | |
- 55 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
NOTE 19:– | LINKAGE TERMS OF MONETARY ITEMS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated: |
|
|
|
|
| ||||||||||||||||||||
|
|
|
|
| December 31, 2005 |
| December 31, 2004 |
| ||||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||
|
|
|
|
| In or linked |
| Linked to |
| Unlinked |
| Total |
| In or linked |
| Linked to |
| Unlinked |
| Total |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
| Reported NIS in thousands |
| ||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
|
|
| Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash |
|
| - |
|
| - |
|
| 2,920 |
|
| 2,920 |
|
| - |
|
| - |
|
| 1,146 |
|
| 1,146 |
|
|
|
| Short-term deposit |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 20 |
|
| 20 |
|
|
|
| Trade receivables |
|
| - |
|
| - |
|
| 11,071 |
|
| 11,071 |
|
| - |
|
| - |
|
| 8,767 |
|
| 8,767 |
|
|
|
| Other accounts receivable |
|
| 43 |
|
| - |
|
| 1,611 |
|
| 1,654 |
|
| 67 |
|
| - |
|
| 2,888 |
|
| 2,955 |
|
|
|
| Long-term receivables |
|
| - |
|
| - |
|
| 43,236 |
|
| 43,236 |
|
| - |
|
| - |
|
| 688 |
|
| 688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 43 |
|
| - |
|
| 58,838 |
|
| 58,881 |
|
| 67 |
|
| - |
|
| 13,509 |
|
| 13,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Short-term credit from banks |
|
| 8,302 |
|
| - |
|
| 370,703 |
|
| 379,005 |
|
| 7,583 |
|
| - |
|
| 338,277 |
|
| 345,860 |
|
|
|
| Trade payables |
|
| 3,686 |
|
| - |
|
| 13,035 |
|
| 16,721 |
|
| 36 |
|
| - |
|
| 12,478 |
|
| 12,514 |
|
|
|
| Other accounts payable |
|
| 12,692 |
|
| 3,245 |
|
| 16,810 |
|
| 32,747 |
|
| 12,013 |
|
| 25,724 |
|
| 16,187 |
|
| 53,924 |
|
|
|
| Long-term liabilities |
|
| - |
|
| 40,333 |
|
| 178,529 |
|
| 218,862 |
|
| - |
|
| 17,534 |
|
| 145,303 |
|
| 162,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 24,680 |
|
| 43,578 |
|
| 579,077 |
|
| 647,335 |
|
| 19,632 |
|
| 43,258 |
|
| 512,245 |
|
| 575,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Excess of liabilities over assets |
|
| (24,637 | ) |
| (43,578 | ) |
| (520,239 | ) |
| (588,454 | ) |
| (19,565 | ) |
| (43,258 | ) |
| (498,736 | ) |
| (561,559 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
- 56 -
|
T.L.M. SUBSCRIBERS TV LTD. |
NOTES TO FINANCIAL STATEMENTS |
|
|
NOTE 20:– | CONDENSED FINANCIAL DATA IN NOMINAL HISTORICAL VALUES FOR TAX PURPOSES |
|
|
|
| a. | The Company provides nominal historical data for income tax purposes only. |
|
|
|
| b. | The financial statements have been prepared in accordance with generally accepted accounting principles based on the historical cost convention, without taking into consideration the changes in the general purchasing power of the Israeli currency. |
|
|
|
| c. | Balance sheets - the Company: |
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
| December 31, |
| ||||||
|
|
|
|
|
| |||||||
|
|
|
|
| 2005 |
| 2004 |
| ||||
|
|
|
|
|
|
| ||||||
|
|
|
|
| NIS in thousands |
| ||||||
|
|
|
|
|
| |||||||
|
|
| ASSETS |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
|
| CURRENT ASSETS: |
|
|
|
|
|
|
| ||
|
|
| Cash and cash equivalents |
|
| 213 |
|
| 183 |
| ||
|
|
| Trade receivables |
|
| 1,310 |
|
| 256 |
| ||
|
|
| Other accounts receivable |
|
| 1,018 |
|
| 1,595 |
| ||
|
|
|
|
|
|
| ||||||
|
|
|
|
|
| 2,541 |
|
| 2,034 |
| ||
|
|
|
|
|
|
| ||||||
|
|
| LONG-TERM INVESTMENTS AND LOANS: |
|
|
|
|
|
|
| ||
|
|
| Investment in jointly controlled entity |
|
| 201 |
|
| 201 |
| ||
|
|
| Related parties |
|
| 43,236 |
|
| 688 |
| ||
|
|
|
|
|
|
| ||||||
|
|
|
|
|
| 43,437 |
|
| 889 |
| ||
|
|
|
|
|
|
| ||||||
|
|
| FIXED ASSETS, NET |
|
| 284,803 |
|
| 300,608 |
| ||
|
|
|
|
|
|
| ||||||
|
|
| DEFERRED CHARGES, NET |
|
| - |
|
| 81 |
| ||
|
|
|
|
|
|
| ||||||
|
|
|
|
|
| 330,781 |
|
| 303,612 |
| ||
|
|
|
|
|
|
| ||||||
|
|
| LIABILITIES AND SHAREHOLDERS’ DEFICIENCY |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
| ||
|
|
| CURRENT LIABILITIES: |
|
|
|
|
|
|
| ||
|
|
| Credit from banks |
|
| 362,066 |
|
| 329,660 |
| ||
|
|
| Trade payables |
|
| 11,772 |
|
| 7,513 |
| ||
|
|
| Other accounts payable |
|
| 31,634 |
|
| 53,082 |
| ||
|
|
|
|
|
|
| ||||||
|
|
|
|
|
| 405,472 |
|
| 390,255 |
| ||
|
|
|
|
|
|
| ||||||
|
|
| LONG-TERM LIABILITIES: |
|
|
|
|
|
|
| ||
|
|
| Excess of loans over investment from affiliated partnership |
|
| 39,587 |
|
| 25,323 |
| ||
|
|
| Customers’ deposits for converters |
|
| 11,406 |
|
| 14,388 |
| ||
|
|
| Related parties |
|
| 154,201 |
|
| 111,146 |
| ||
|
|
| Accrued severance pay |
|
| 136 |
|
| 48 |
| ||
|
|
|
|
|
|
| ||||||
|
|
|
|
|
| 205,330 |
|
| 150,905 |
| ||
|
|
|
|
|
|
| ||||||
|
|
| SHAREHOLDERS’ DEFICIENCY |
|
| (280,021 | ) |
| (237,548 | ) | ||
|
|
|
|
|
|
| ||||||
|
|
|
|
|
| 330,781 |
|
| 303,612 |
| ||
|
|
|
|
|
|
| ||||||
- 57 -
|
|
T.L.M. SUBSCRIBERS TV LTD. | |
NOTES TO FINANCIAL STATEMENTS | |
| |
NOTE 20:– | CONDENSED FINANCIAL DATA IN NOMINAL HISTORICAL VALUES FOR TAX PURPOSES (Cont.) |
|
|
|
| d. | Statements of operations - the Company: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year ended December 31, |
| |||||||
|
|
|
| ||||||||
|
|
| 2005 |
| 2004 |
| 2003 |
| |||
|
|
|
|
|
| ||||||
|
|
| NIS in thousands |
| |||||||
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues, net |
|
| 210,576 |
|
| 218,251 |
|
| 218,387 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating |
|
| 202,571 |
| *) | 190,741 |
| *) | 167,593 |
|
| Selling and marketing |
|
| 19,278 |
|
| 22,312 |
|
| 16,545 |
|
| General and administrative |
|
| 7,709 |
| *) | 10,118 |
| *) | 11,557 |
|
| Financing, net |
|
| 22,570 |
|
| 23,236 |
|
| 39,836 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 252,128 |
|
| 246,407 |
|
| 235,531 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Operating loss |
|
| (41,552 | ) |
| (28,156 | ) |
| (17,144 | ) |
| Other income (expenses), net |
|
| (1,058 | ) |
| (9,036 | ) |
| 283 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Loss before taxes on income |
|
| (42,610 | ) |
| (37,192 | ) |
| (16,861 | ) |
| Taxes on income |
|
| 1,153 |
|
| 3,869 |
|
| 11 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Loss after taxes on income |
|
| (43,763 | ) |
| (41,061 | ) |
| (16,872 | ) |
| Equity in earnings of jointly controlled entity and affiliated partnership |
|
| 1,290 |
|
| 8,603 |
|
| 4,371 |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
| (42,473 | ) |
| (32,458 | ) |
| (12,501 | ) |
|
|
|
|
|
| ||||||
|
|
|
| *) | Reclassified. |
- 58 -
|
|
T.L.M. SUBSCRIBERS TV LTD. | |
NOTES TO FINANCIAL STATEMENTS | |
| |
NOTE 20:– | CONDENSED FINANCIAL DATA IN NOMINAL HISTORICAL VALUES FOR TAX PURPOSES (Cont.) |
|
|
|
| e. | Statements of changes in shareholders’ deficiency: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Ordinary shares |
| Management A shares *) |
| Management B shares *) |
| Share capital |
| Additional |
| Accumulated deficit |
| Total |
| |||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
|
| NIS in thousands |
| |||||||||||||||||||
|
|
|
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at January 1, 2003 |
|
| 1,200 |
|
| - |
|
| - |
|
| - |
|
| 511 |
|
| (194,300 | ) |
| (192,589 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (12,501 | ) |
| (12,501 | ) |
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 2003 |
|
| 1,200 |
|
| - |
|
| - |
|
| - |
|
| 511 |
|
| (206,801 | ) |
| (205,090 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (32,458 | ) |
| (32,458 | ) |
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 2004 |
|
| 1,200 |
|
| - |
|
| - |
|
| - |
|
| 511 |
|
| (239,259 | ) |
| (237,548 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| (42,473 | ) |
| (42,473 | ) |
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 2005 |
|
| 1,200 |
|
| - |
|
| - |
|
| - |
|
| 511 |
|
| (281,732 | ) |
| (280,021 | ) |
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
|
|
| *) | Represents an amount lower than NIS 1 thousand. |
- 59 -
Annex B(5)
Hot Telecom Limited Partnership
Financial Statements
For the Year Ended
December 31, 2005
| Hot Telecom Limited Partnership |
| Financial Statements as at December 31, 2005 |
Contents
| Page | |||||
|---|---|---|---|---|---|
| Auditors' Report | 2 | ||||
| Balance Sheets | 3 | ||||
| Statements of Income | 4 | ||||
| Statements of Changes in Partnership Equity | 5 | ||||
| Statements of Cash Flows | 6 | ||||
| Notes to the Financial Statements | 8 | ||||
Auditors' Report to the Partners of
Hot Telecom Limited Partnership
We have audited the accompanying balance sheets of Hot Telecom Limited Partnership (hereinafter – the Partnership) as at December 31, 2005 and 2004, and the related statements of income, changes in Partnership equity and of cash flows for each of the two years the last of which ended December 31, 2005. These financial statements are the responsibility of the Partnership’s Management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards in Israel, including standards prescribed by the Auditors Regulations (Manner of Auditor’s Performance), 1973. Such standards require that we plan and perform the audit to obtain reasonable assurance that 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 audits provide a reasonable basis for our opinions.
In our opinion, based on our audits, the financial statements referred to above present fairly, in all material respects, the financial position of the Partnership and the financial position of the Partnership as at December 31, 2005 and 2004 and the results of the operations, changes in the Partnership equity and cash flows for each of the two years the last of which ended December 31, 2005, in conformity with generally accepted accounting principles (“GAAP”) in Israel. Furthermore, these statements have, in our opinion, been prepared in accordance with the Securities Regulations (Preparation of Annual Financial Statements) – 1993.
As explained in Note 2, the financial statements referred to above are stated in reported amounts, in accordance with the accounting standards of the Israel Accounting Standards Board.
Without qualifying our opinion, we would draw attention to Note 20B regarding the lack of a system for charging the Partnership with usage and maintenance fees of the cable network.
Somekh Chaikin
Certified Public Accountants (Isr.)
March 12, 2006
| Hot Telecom Limited Partnership |
| Balance Sheets as at December 31 |
| 2005 | 2004 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Note | NIS thousands | NIS thousands | |||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | 3 | 1,600 | 3,095 | ||||||||
| Trade receivables | 4 | 20,404 | 6,948 | ||||||||
| Other receivables | 5 | 4,201 | 924 | ||||||||
| 26,205 | 10,967 | ||||||||||
| Long-term receivables | 422 | 47 | |||||||||
| Fixed assets | 6 | 272,390 | 49,524 | ||||||||
| Other assets | 7 | 418 | 374 | ||||||||
| 299,435 | 60,912 | ||||||||||
—————————————— Ram Belinkov – CEO |
—————————————— Israel Lederberg – CFO |
March 12, 2006
| Hot Telecom Limited Partnership |
| Balance Sheets as at December 31 |
| 2005 | 2004 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Note | NIS thousands | NIS thousands | |||||||||
| Current liabilities | |||||||||||
| Bank credit and current maturities | 8 | 6,309 | 5 | ||||||||
| Trade payables | 9 | 57,284 | 24,430 | ||||||||
| Other payables | 10 | 31,604 | 2,975 | ||||||||
| 95,197 | 27,410 | ||||||||||
| Long-term liabilities | |||||||||||
| Liabilities for employee severance benefits, net | 12 | 1,146 | 442 | ||||||||
| Related parties | 18 | 226,814 | 45,123 | ||||||||
| Long-term liabilities | 11 | 24,496 | - | ||||||||
| 252,456 | 45,565 | ||||||||||
| Contingent liabilities and commitments | 20 | ||||||||||
| Partners' equity | (48,218 | ) | (12,063 | ) | |||||||
| 299,435 | 60,912 | ||||||||||
The notes to the financial statements form an integral part thereof.
3
| Hot Telecom Limited Partnership |
| Statements of Profit and Loss for the Year Ended December 31 |
| 2005 | 2004 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Note | NIS thousands | NIS thousands | |||||||||
| Income from sales and services | 13 | 67,592 | 8,809 | ||||||||
| Cost of sales and services | 14 | 77,342 | 12,288 | ||||||||
| Gross loss | (9,750 | ) | (3,479 | ) | |||||||
| Selling and marketing expenses | 15 | (13,129 | ) | (4,035 | ) | ||||||
| General and administrative expenses | 16 | (9,094 | ) | (3,512 | ) | ||||||
| (22,223 | ) | (7,547 | ) | ||||||||
| Loss from operations | (31,973 | ) | (11,026 | ) | |||||||
| Financing expenses, net | 17 | (4,182 | ) | (1,037 | ) | ||||||
| Loss for the year | (36,155 | ) | (12,063 | ) | |||||||
The notes to the financial statements form an integral part thereof.
4
| Hot Telecom Limited Partnership |
| Statements of Changes in Partnership Equity |
| Accumulated loss | Total | |||||||
|---|---|---|---|---|---|---|---|---|
| NIS thousands | NIS thousands | |||||||
| Balance as at January 1, 2004 | - | - | ||||||
| Loss for the year | (12,063 | ) | (12,063 | ) | ||||
| Balance as at December 31, 2004 | (12,063 | ) | (12,063 | ) | ||||
| Loss for the year | (36,155 | ) | (36,155 | ) | ||||
| Balance as at December 31, 2005 | (48,218 | ) | (48,218 | ) | ||||
The notes to the financial statements form an integral part thereof.
5
| Hot Telecom Limited Partnership |
| Statements of Cash Flows for the Year Ended December 31 |
| 2005 | 2004 | |||||||
|---|---|---|---|---|---|---|---|---|
| NIS thousands | NIS thousands | |||||||
| Cash flows from operating activities | ||||||||
| Loss for the year | (36,155 | ) | (12,063 | ) | ||||
| Adjustments to reconcile net loss to net cash flows | ||||||||
| from operating activities (Appendix A) | 26,526 | 779 | ||||||
| Net cash used in operating activities | (9,629 | ) | (11,284 | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of fixed assets | (202,586 | ) | (29,096 | ) | ||||
| Amounts allocated to other assets | (66 | ) | (388 | ) | ||||
| Net cash used in investing activities | (202,652 | ) | (29,484 | ) | ||||
| Cash flows from financing activities | ||||||||
| Short-term bank credit, net | 16 | 5 | ||||||
| Receipt of long-term liabilities | 32,105 | - | ||||||
| Repayment of long-term liabilities | (3,026 | ) | - | |||||
| Increase in long-term loans to related parties | 181,691 | 43,858 | ||||||
| Net cash provided by financing activities | 210,786 | 43,863 | ||||||
| Increase (decrease) in cash and cash equivalents | (1,495 | ) | 3,095 | |||||
| Cash and cash equivalents at beginning of year | 3,095 | - | ||||||
| Cash and cash equivalents at end of year | 1,600 | 3,095 | ||||||
The notes to the financial statements form an integral part thereof.
6
| Hot Telecom Limited Partnership |
| Statements of Cash Flows for the Year Ended December 31 (cont'd) |
| 2005 | 2004 | |||||||
|---|---|---|---|---|---|---|---|---|
| NIS thousands | NIS thousands | |||||||
| Appendix A | ||||||||
| Adjustments to reconcile net loss to net cash flows from | ||||||||
| operating activities | ||||||||
| Income and expenses not involving cash flows: | ||||||||
| Depreciation and amortization | 21,176 | 488 | ||||||
| Increase in liabilities for employee severance benefits, net | 704 | 442 | ||||||
| Revaluation of long-term liabilities | 1,705 | - | ||||||
| Changes in asset and liability items | ||||||||
| Increase in trade receivables | (13,456 | ) | (5,683 | ) | ||||
| Increase in other receivables | (3,277 | ) | (924 | ) | ||||
| Increase in long-term receivables | (375 | ) | (47 | ) | ||||
| Increase in trade payables | 14,724 | 2,975 | ||||||
| Increase in other payables | 5,325 | 3,528 | ||||||
| 26,526 | 779 | |||||||
| Appendix B | ||||||||
| Non-cash transactions | ||||||||
| Purchase of fixed assets on suppliers' credit | 62,336 | 20,902 | ||||||
| Assignment of customer balance from related parties to the Partnership | - | 1,265 | ||||||
The notes to the financial statements form an integral part thereof.
7
| Hot Telecom Limited Partnership |
| Notes to the Financial Statements |
| Note 1 | – | General |
| 1. | Hot Telecom Limited Partnership (hereinafter – the Partnership) was founded by the Israeli cable companies in November 2003 for the purpose of establishing and operating inland communication services on the cable network, and it commenced operations on January 1, 2004. |
| 2. | On November 25, 2003, the Ministry of Communications granted the partnership a general license for the provision of inland stationary Bezeq services (hereinafter – the inland operators license), including telephony services, internet service provider access, infrastructure services for cable tv broadcasting, data communications and binary transmissions and other services. The license is for a 20 year period, where the Minister of Communications has the right to extend it for further periods of 10 years each. |
| The Inland Operations License was instead of (and cancelled) the previous Licenses granted in 2002 to the partnerships of the cable companies (hereinafter – the previous licenses). |
| As at the date of signing the financial statements, the Partnership provides commercial telephony services in all areas covered by the cable network. |
| The Partnership is intended to serve as the joint infrastructure entity of the cable companies and it is required to comply with the conditions stipulated by the Commissioner of Restrictive Trade Practices (hereinafter – the Commissioner) in the merger approval that was granted to the cable companies. Two of the conditions were that the Partnership provide stationary telephony services on the cable network no later than November 20, 2004 and that it invest at least NIS 350 million in preparations for providing telephone services and any additional amount required in order to carry out the business plan of the Partnership to provide telephone services that are fully competitive with the telephone services of Bezeq. According to the conditions of the Commissioner to the merger, the Partnership is required to invest at least NIS 190 million until June 30, 2005, an additional NIS 160 million until June 30, 2006 and any additional amount required in order to carry out the business plan of the Partnership to provide telephony services. Furthermore, the Commissioner set for the Partnership a minimum number of telephone subscribers for the years 2005 through 2007. The Commissioner has made it clear to the Partnership that it is required to connect subscribers to the telephone network on an equal basis without any discrimination between subscribers of the cable companies and those who are not subscribers of the cable companies. |
| In the opinion of the partners, as at the date of authorization of these financial statements the Partnership is in compliance with the conditions of the Commissioner regarding the amount of investments and the connection of subscribers. |
| In accordance with the Inland Operator License, the Partnership is entitled to use the cable network of the cable companies in any way permitted by law during the transition period. According to the amendment to the Inland Operator License from November 2005, the transition period will end when the merger of the cable companies is completed or on June 30, 2006, whichever earlier. At the end of the transition period the cable companies are required to transfer ownership over the cable network to the Partnership. As at the date of authorization of these financial statements the ownership over the cable network has not yet been transferred to the Partnership. |
8
| Hot Telecom Limited Partnership |
| Notes to the Financial Statements |
| Note 1 | – | General (cont’d) |
| 2. | (cont’d) |
| On September 15, 2005 an agreement was signed between Hot Telecom and the cable companies according to which the cable companies were granted exclusive network rental rights to Hot Telecom. Rights assignment rates and obligations were also signed according to which the previous license holders assigned their rights and obligations according to the agreements for cable distribution rights signed in the past between the cable companies and the previous license holders to Hot Telecom. The rental charge has not yet been determined. |
| This agreement is in effect retroactive to November 25, 2003 and until the end of the transition period as defined above. The Consideration for the right of use of the network and consideration for the services to be provided by Hot Telecom to the cable companies has not yet been determined. |
| 3. | According to the founders agreement of the General Partner to the partnership (Hot Telecom Ltd.), the shareholders undertook to provide Hot Telecom with the necessary finance for the partnerships activities for a period of 3 years from the date of approval of the business plan, at dates and in amounts to be approved by the Board of Directors (“the basic finance”). After providing the basic finance the parties agreed to provide further credit necessary for the continued operation of Hot Telecom, in accordance with the business plan. |
| During May 2005, the cable companies presented a business plan to the banks for the authorization of an inclusive credit framework of NIS 534 million which would be used to finance the planned activities of Hot Telecom. |
| In July 2004, the cable companies applied to the banks to authorize credit facilities for 2004 in the sum of 37 million dollars. The banks granted approval in principle for the financing of the first stage of the investment plan presented as part of Hot Telecom’s business plan. The credit facility to be made available for the first stage was in the sum of 37 million dollars. |
| In September 2005, some of the cable companies approached the banks with a request to extend further credit facilities of 38 million dollars (per their share) to cover Hot Telecom’s 2005 investments according to the business plan. Most of the banks granted oral approval in principle and most of the sums requested were received. In conjunction, Hot Telecom is active, together with the cable companies, in the search for further sources of finance. |
| 4. | On November 30, 2004 the Ministry of Communications (hereinafter – the Ministry) published a document specifying the principles of the policy for granting licenses to provide broadband telephone services (VoB) (hereinafter – the policy principles). In accordance with the policy principles, the provision of inland stationary VoB services will be arranged in the framework of a special inland operator license, which will enable the provision of telephone services by means of VoIP technology while using the broadband access service of an inland operator (presently either Bezeq or the Partnership). The policy principles provide that licenses to provide VoB services will be granted in 2005 so that it will be possible to begin operating according to the license on May 1, 2005. It was also provided that for now the holder of a VoB license will not have to pay the inland operator for the use of the inland operator’s network. The Ministry states in the policy principles that it intends to complete in the near future preparation of its policy regarding the provision of VoB services by means of a broadband access network of a mobile radio and telephone operator. Furthermore, in accordance with the policy principles, Bezeq will be entitled to provide VoB services as from May 1, 2007 or after its share of stationary telephone customers (business or private sector) falls below 85%, whichever earlier, and a subsidiary of Bezeq will be entitled to provide VoB services subject to the restrictions provided in the special inland operator license. The Ministry stated that regarding this matter a hearing proceeding would be held in the forthcoming weeks for the relevant parties. |
9
| Hot Telecom Limited Partnership |
| Notes to the Financial Statements |
| Note 1 | – | General (cont’d) |
| 4. | (cont’d) |
| At the same time as publishing the policy principles, the Ministry began granting licenses to a number of internet service providers to conduct a marketing test for paid VoB services, including to 012 Golden Lines, Barak, Bezeq International and Internet Gold and later on also to the cellular companies Cellcom and Partner. |
| On December 31, 2005 a special inland operator license was granted to 012 Telecom Ltd. which at this stage does not include a license to provide VoB services. In March 2006 the Ministry of Communications granted a special inland operator license also to Globecall Communication. The licenses include providing inland stationary communication services without any requirement to provide the service all over the country, subject to the conditions of the licenses. |
| On December 29, 2004, following requests from Bezeq and the Partnership, the Ministry of Communications sent a letter to various entities including Bezeq and the Partnership, by which it allowed them to present their position regarding the effects of the policy principles on them. The Partnership responded to the letter of the Minister of Communications and presented a detailed position paper in which it requested to revoke the policy principles on the grounds that they constitute a deviation from the policy that is the basis for arranging the communications market in Israel with respect to competition that is based on independent infrastructures, and that the decision of the Ministry of Communications to allow VoB services using the infrastructures of the inland operator illegally impair the proprietary right of the infrastructure owner. It was also contended that the decision by which a VoB operator will not be required to pay for the use of the inland operator’s infrastructure was made without authority, is unreasonable and creates economic distortions, and the Ministry is required to allow payment of access fees to the inland operator in respect of the use of its infrastructure for providing VoB services. Alternatively, the Partnership requested to postpone the date for providing VoB licenses until the Partnership reaches a market share of 5% in the stationary telephone market. Furthermore, the Partnership contended that the decision of the Ministry to allow use of the inland operator’s infrastructure in order to provide cellular VoB services, without concurrently allowing the Partnership to provide VoB services on the infrastructures of the mobile radio and telephone operators is unreasonable and discriminates between the operators. With respect to the provision of VoB services by Bezeq, the Partnership requested that Bezeq not be allowed to provide, directly and/or through a subsidiary, VoB services for as long as it is a monopoly in the stationary telephone market, meaning – for as long as it holds a 50% market share of the stationary telephone market. |
| The Ministry of Communications stated that it intends to invite the representatives of the Partnership to an oral hearing on the matter. As at the date of approving the financial statements, no such meeting has as yet been held and the Ministry of Communications has not yet published a new decision. |
10
| Hot Telecom Limited Partnership |
| Notes to the Financial Statements |
| Note 1 | – | General (cont’d) |
| 5. | On March 31, 2004 the Ministry of Communications published policy principles regarding the Bezeq License – Size Discounts and Marketing of Service Packages, by which: (a) Bezeq will be allowed to offer size discounts of up to 10% beginning from the date an inland operator starts providing telephone services on a commercial basis, and (b) Bezeq will be allowed to request that its license be amended so as to allow it to market packages of services that include telephone services and multi-channel television services that are provided by a subsidiary, when its market share in the stationary telephone market (private or business sector) falls below 85%, in respect of the same sector of customers. It was also provided that if as a result of a competitor marketing service packages that include, inter alia, telephone services, the competitive situation of Bezeq’s subsidiary significantly deteriorates even before the market share of Bezeq has fallen below 85%, the Minister will consider amending the license of Bezeq in accordance with the aforementioned. In this respect, the Minister has provided that a significant deterioration in the competitive situation of “Yes” will be a situation in which its market share in the multi-channel broadcasting market falls below 25% of all subscribers. |
| On January 9, 2005, following additional hearing proceedings the Ministry of Communications held on the matter, the Ministry decided to raise the threshold for a significant deterioration in the competitive situation of “Yes” from 25% to 29%. |
| Note 2 | – | Reporting Principles and Accounting Policies |
| A. | General |
| The financial statements have been prepared in accordance with the Securities Regulations (Preparation of Annual Financial Statements) – 1993. |
| B. | Definitions |
| In these financial statements: |
| (1) | Related parties – as defined in opinion 29 of the Institute of Certified Public Accountants in Israel (the “ICPAI”). |
| (2) | Interested parties – as defined in paragraph (1) of the definition of “an interested parties” in a company in Section 1 of the Israeli Securities Law – 1968. |
| (3) | Controlling shareholders – as defined in Israeli Securities Regulations (Financial Statement Presentation of Transactions between a Company and a Controlling Shareholder Therein) – 1996. |
| (4) | The partners of the Partnership – Inland Operator Limited Partnership, Matav Investments Ltd., Telecom Gold 2001 Limited Partnership and Hot Telecom Ltd. (the general partner). |
11
| Hot Telecom Limited Partnership |
| Notes to the Financial Statements |
| Note 2 | – | Reporting Principles and Accounting Policies |
| B. | Definitions (cont’d) |
| (5) | The cable companies – The Tevel Israel International Communications Ltd. Group (including Gvanim Cable Television Ltd. and Gvanim Krayot Cable Television (1989) Ltd.), the Golden Channels & Co, Group (including T.L.M. Television for Subscribers Ltd. and Idan Cable Systems Israel Ltd.) and the Matav Group Ltd. (including Haifa-Hadera Cable Communication Systems Ltd.). |
| (6) | CPI – The Israeli Consumer Price Index as published by the Central Bureau of Statistics. |
| C. | 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 Partnership prepares its financial statements in reported amounts. Since the Partnership began operating in 2004 the reported amounts constitute amounts based on historical cost. |
| Amounts of non-monetary assets do not necessarily reflect their realizable value or current economic value, but only the reported amounts of such assets. |
| 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 reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements and the reported amounts of revenues and expenses during the current period. Actual results may differ from such estimates. |
| E. | Cash and cash equivalents |
| Cash and cash equivalents include bank deposits the date of maturity of which at the time of their deposit was not in excess of three months. |
| F. | Provision for doubtful debts |
| The financial statements include specific provisions for doubtful debts, which, in Management’s opinion, adequately reflect the loss included in those debts the collection of which is doubtful. Management’s determination of the adequacy of the provision is based, inter alia, on an evaluation of the risk, by considering the available information on the financial position of the debtors, the volume of their business and an evaluation of the security received from them. Doubtful debts, which according to Partnership Management opinion, are unlikely to be collected are written-off the Partnership’s books, based on a Management resolution, or if they exceed a certain amount the Management’s recommendation to write them off is brought before the Board of Directors for its approval. The financial statements also include a general provision for doubtful debts. |
12
| Hot Telecom Limited Partnership |
| Notes to the Financial Statements |
| Note 2 | – | Reporting Principles and Accounting Policies |
| G. | Revenue recognition |
| Revenues from communication services are recognized on a current monthly basis. The revenues are presented net of discounts the Partnership grants to its customers from time to time. |
| H. | Fixed assets |
| (1) | The fixed assets are presented at cost. |
| (2) | The Partnership includes in its fixed assets costs related to the construction of the telephone infrastructure and other related costs. |
| (3) | Depreciation is calculated by the straight line method on the basis of the estimated useful lives of the assets. |
| The annual depreciation rates are as follows: |
| % | |||||
|---|---|---|---|---|---|
| Centers | 15 | ||||
| IP infrastructure and transmission networks | 8.33-15 | ||||
| End user equipment | 15 | ||||
| Installations | 8.33-10 | ||||
| Information systems | 33 | ||||
| Furniture and communications equipment | 7-15 | ||||
| Leasehold improvements are amortized over the shorter of the lease period or the estimated useful life. |
| (4) | Fixed assets under a capital lease are stated as assets of the Partnership on the basis of ordinary purchase prices (without the financing component), and they are depreciated according to the usual rates of depreciation applicable to such assets. The lease payments payable in the forthcoming years, net of the interest component included in them, are included in liabilities. The interest in respect of such amounts is accrued on a current basis and is charged to earnings. |
| I. | Other assets |
| Expenses incurred in order to obtain an inland operator license and to construct an inland communications infrastructure. These expenses are amortized according to the straight line method over the remaining period of the license. |
| J. | Interested and related parties |
| Details in respect of interested and related parties have been included in accordance with the requirements of Opinion 29 of the Institute of Certified Public Accountants in Israel and Chapter 8 of the Securities Regulations (Preparation of Annual Financial Statements), 1993. |
13
| Hot Telecom Limited Partnership |
| Notes to the Financial Statements |
| Note 2 | – | Reporting Principles and Accounting Policies |
| K. | Foreign currency and linkage |
| Assets and liabilities in foreign currency or linked thereto are stated in the financial statements on the basis of the representative exchange rates published by Bank of Israel as at balance sheet date. |
| Assets and liabilities that are linked to the Consumer Price Index (CPI) are stated on the basis of the contractual linkage terms of each balance. |
| Below are details of the CPI and the exchange rates: |
| December 31 2005 | December 31 2004 | Rate of change 2005 | Rate of change 2004 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| CPI in points | 117.04 | 114.32 | 2.38 | 1.2 | ||||||||||
| Exchange rate of US dollar (in NIS) | 4.603 | 4.308 | 6.85 | (1.6 | ) | |||||||||
| L. | Impairment in value of assets |
| The Partnership applies Accounting Standard No. 15 – Impairment in Value of Assets (hereinafter – the standard). The standard provides procedures which an entity must apply in order to ensure that its assets in the balance sheet (to which the standard applies), are not presented at an amount which is in excess of their recoverable value, which is the higher of the net selling price and the use value (the present value of the estimated future cash flows expected to be derived from use and disposal of the asset). |
| The standard applies to all the assets in the balance sheet, except inventory of buildings for sale, tax assets and monetary assets (excluding monetary assets which are investments in investee companies that are not subsidiaries). In addition, the standard provides rules for presentation and disclosure with respect to assets whose value has declined. When the value of an asset in the balance sheet is higher than its recoverable value, the Partnership recognizes a loss from the impairment in value in the amount of the difference between the book value of the asset and its recoverable value. The loss thus recognized will be cancelled only in the event of changes occurring in the estimates that were used to determine the recoverable value of the asset since the date on which the most recent loss from the decline in value was recognized. |
| M. | Disclosure of effect of new accounting standards in the period prior to their implementation |
| (1) | In July 2005 the Israel Accounting Standards Board published Accounting Standard No. 22, “Financial Instruments: Disclosure and Presentation” (hereinafter – the Standard). The Standard provides rules for presenting financial instruments in the financial statements and specifies the proper disclosure required in respect thereto. Furthermore, the Standard provides the method for classifying financial instruments as financial liabilities and as shareholders’ equity, for classifying the interest, dividends, losses and gains related to them and the circumstances for offsetting financial assets and financial liabilities, and it annuls Opinion 53, “The Accounting Treatment of Convertible Liabilities” and Opinion 48, “The Accounting Treatment of Options”. The new standard will apply to financial statements for periods beginning on January 1, 2006 or thereafter. The Standard provides that it is to be adopted on a prospective basis. |
| Implementation of the new Standard is not anticipated to have a material effect on the Partnership’s results of operations and financial position. |
14
| Hot Telecom Limited Partnership |
| Notes to the Financial Statements |
| Note 2 | – | Reporting Principles and Accounting Policies |
| M. | Disclosure of effect of new accounting standards in the period prior to their implementation(cont’d) |
| (2) | In September 2005 the Israel Accounting Standards Board published Accounting Standard No. 24, “Share- Based Payments” (hereinafter – the Standard). The Standard requires that share-based payment transactions, including transactions with employees or other parties that are to be settled by equity instruments, cash or other assets, be recognized in the financial statements. In accordance with the Standard, share-based payment transactions in which goods or services are received will be recognized at their fair value. Furthermore, the Standard provides various disclosure requirements regarding the nature and extent of the share-based payment arrangements that existed during the period, and regarding the method by which the fair value of such arrangements was determined. The Standard will apply to financial statements for periods beginning as from January 1, 2006 and early implementation is recommended. The instructions of the Standard should be applied to each share-based payment transaction executed after March 15, 2005 that has not yet vested until the effective date of the Standard. Furthermore, it is required that comparative data relating to periods after March 15, 2005 be restated. With respect to share-based payments classified as liabilities (such as phantom plans) that exist on the effective date of the Standard, the Standard is to be implemented retroactively and the comparative data is to be restated. Changes in the terms of a share-based payment transaction being settled by means of equity instruments and executed after March 15, 2005 are to be treated in accordance with the instructions of the new Standard, and comparative data relating to periods after March 15, 2005 is to be restated. |
| Implementation of the new Standard is not anticipated to have a material effect on the Partnership’s results of operations and financial position. |
| (3) | In February 2006, the Israel Accounting Standards Board published Accounting Standard No. 25, “Revenues” (hereinafter – the Standard). The Standard provides the required accounting treatment (recognition, measurement, presentation and disclosure principles) of revenues deriving from the selling of goods, the rendering of services, and the use of the entity’s assets by others, which generate interest, royalties and dividends. The Standard provides that an entity is to measure its revenues according to the fair value of the proceeds received and/or the proceeds the entity is entitled to receive. The Standard will apply to financial statements for periods beginning on January 1, 2006 or thereafter. An entity that in the past did not present its revenues according to the requirements of the Standard regarding the reporting of gross or net revenues, will implement the requirements of the Standard retroactively with respect to its revenues for all the periods reported as comparative figures in the financial statements for periods beginning from the date the Standard comes into effect. |
| Implementation of the new Standard is not anticipated to have a material effect on the Partnership’s results of operations and financial position. |
15
| Hot Telecom Limited Partnership |
| Notes to the Financial Statements |
| Note 2 | – | Reporting Principles and Accounting Policies |
| L. | Disclosure of effect of new accounting standards in the period prior to their implementation(cont’d) |
| (4) | In February 2006 the Israel Accounting Standards Board published Clarification No. 8, “Reporting Revenues on a Gross or Net Basis” (hereinafter – “the Clarification”). The Clarification provides that an entity acting as an agent or intermediary without bearing the risks and enjoying the rewards arising from the transaction will present its revenues on a net basis. On the other hand, an entity acting as a principal supplier that bears the risks and enjoys the rewards arising from the transaction will present its revenues on a gross basis. The Clarification provides a list of indications that have to be examined in order to determine whether the revenues should be reported on a gross or net basis. The Clarification applies to financial statements for periods beginning on or after January 1, 2006. The entity is required to retroactively implement the instructions of the Clarification with respect to its revenues for all the periods reported as comparative data, which were not treated as prescribed in the Clarification. Implementation of the new Clarification is not expected to have any effect on the results of operations and financial position of the Partnership. |
| Note 3 | – | Cash and Cash Equivalents |
| December 31 2005 | December 31 2004 | |||||||
|---|---|---|---|---|---|---|---|---|
| NIS thousands | NIS thousands | |||||||
| Israeli currency | 1,594 | 3,065 | ||||||
| Foreign currency | 6 | 30 | ||||||
| 1,600 | 3,095 | |||||||
| Note 4 | – | Trade Receivables |
| December 31 2005 | December 31 2004 | |||||||
|---|---|---|---|---|---|---|---|---|
| NIS thousands | NIS thousands | |||||||
| On open account | 22,779 | 6,740 | ||||||
| Checks and notes payable | 759 | 877 | ||||||
| 23,538 | 7,617 | |||||||
| Less: provision for doubtful debts | (3,134 | ) | (669 | ) | ||||
| 20,404 | 6,948 | |||||||
16
| Hot Telecom Limited Partnership |
| Notes to the Financial Statements |
| Note 5 | – | Other Receivables |
| December 31 2005 | December 31 2004 | |||||||
|---|---|---|---|---|---|---|---|---|
| NIS thousands | NIS thousands | |||||||
| Government institutions | 1,816 | 674 | ||||||
| Advances to suppliers | 1,618 | 232 | ||||||
| Prepaid expenses | 313 | - | ||||||
| Other receivables | 454 | 18 | ||||||
| 4,201 | 924 | |||||||
17
| Hot Telecom Limited Partnership |
| Notes to the Financial Statements |
| Note 7 | – | Fixed Assets |
| Centers | IP infrastructure and transmission networks | End user equipment | Installations | Information systems | Office furniture and equipment, and improvements to leasehold premises | Total | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| NIS thousands | NIS thousands | NIS thousands | NIS thousands | NIS thousands | NIS thousands | NIS thousands | |||||||||||||||||
| Cost | |||||||||||||||||||||||
| Balance as at December 31, 2004 | * | 24,020 | * | 17,278 | 17 | * | 3,934 | 4,133 | 616 | 49,998 | |||||||||||||
| Additions | 83,125 | 75,119 | 39,753 | 29,375 | 15,820 | 828 | 244,020 | ||||||||||||||||
| Balance as at December, 31, 2005 | 107,145 | 92,397 | 39,770 | 33,309 | 19,953 | 1,444 | 294,018 | ||||||||||||||||
| Accumulated depreciation | |||||||||||||||||||||||
| Balance as at December 31, 2004 | - | (265 | ) | - | - | - | (209 | ) | (474 | ) | |||||||||||||
| Additions | (9,246 | ) | (3,496 | ) | (2,705 | ) | (1,493 | ) | (4,209 | ) | (5 | ) | (21,154 | ) | |||||||||
| Balance as at December, 31, 2005 | (9,246 | ) | (3,761 | ) | (2,705 | ) | (1,493 | ) | (4,209 | ) | (214 | ) | (21,628 | ) | |||||||||
| Net book value as at December 31, 2005 | 97,899 | 88,636 | 37,065 | 31,816 | 15,744 | 1,230 | 272,390 | ||||||||||||||||
| Net book value as at December 31, 2004 | * | 24,020 | * | 17,013 | 17 | * | 3,934 | 4,133 | 407 | 49,524 | |||||||||||||
* Reclassified
18
| Hot Telecom Limited Partnership |
| Notes to the Financial Statements |
| Note 7 | – | Other Assets |
| Cost | Accumulated depreciation | December 31 2005 | December 31 2004 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| NIS thousands | NIS thousands | NIS thousands | NIS thousands | |||||||||||
| Cost | 454 | (36 | ) | 418 | 374 | |||||||||
| (1) | See Note 2H. |
| Note 8 | – | Bank Credit and Current Maturities |
| Annual interest rate | December 31 2005 | December 31 2004 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| NIS thousands | NIS thousands | ||||||||||
| Revolving credit | Prime + 6% | 21 | 5 | ||||||||
| 21 | 5 | ||||||||||
| Current maturities of long-term liabilities | Dollar-linked + 4.6% | 6,288 | - | ||||||||
| Total bank credit | 6,309 | 5 | |||||||||
| Note 9 | – | Trade Payables |
| December 31 2005 | December 31 2004 | |||||||
|---|---|---|---|---|---|---|---|---|
| NIS thousands | NIS thousands | |||||||
| On open account | 55,731 | 18,539 | ||||||
| Checks and notes payable | 1,553 | 5,891 | ||||||
| 57,284 | 24,430 | |||||||
19
| Hot Telecom Limited Partnership |
| Notes to the Financial Statements |
| Note 10 | – | Other Payables |
| December 31 2005 | December 31 2004 | |||||||
|---|---|---|---|---|---|---|---|---|
| NIS thousands | NIS thousands | |||||||
| Liabilities to employees and other salary related liabilities | 2,469 | 1,589 | ||||||
| Government institutions | 733 | 14 | ||||||
| Accrued expenses | 26,841 | 423 | ||||||
| Provision for vacation pay and for employee vacation expense | 1,561 | 916 | ||||||
| Other | - | 33 | ||||||
| 31,604 | 2,975 | |||||||
| Note 11 | – | Long-Term Liabilities |
| A. | In the current period the Partnership entered into an agreement to lease telephone cards (CMTS) and related equipment for the total price of $ 7.4 million (about NIS 34 million). In accordance with the provisions of the agreement the consideration will be paid in 20 quarterly payments of $ 418 thousand each. On the basis of the terms of the transaction it was recorded on the books of the Partnership as a financing lease transaction. |
| B. | Repayment schedule |
| December 31 2005 | |||||
|---|---|---|---|---|---|
| NIS thousands | |||||
| 2007 | 6,592 | ||||
| 2008 | 6,910 | ||||
| 2009 | 7,243 | ||||
| 2010 | 3,751 | ||||
| Total long term loans, net | 24,496 | ||||
20
| Hot Telecom Limited Partnership |
| Notes to the Financial Statements |
| Note 12 | – | Liabilities for Employee Severance Benefits, Net |
| The Partnership’s liability for the payment of retirement benefits and severance pay to its employees is mainly covered by current deposits in the names of the employees in recognized severance pay funds and/or the purchase of insurance policies. The amounts deposited as stated above are not included in the balance sheet as these are not under the control or management of the Partnership. |
| The liability for employee severance benefits that is included in the balance sheet reflects the balance of the liability that is not covered by deposits and/or insurance policies as aforementioned. |
| Note 13 | – | Revenues from Sales and Services |
| Composition: |
| For the year ended December 31 | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | |||||||
| NIS thousands | NIS thousands | |||||||
| Revenues from internet subscription fees | 9,978 | 1,648 | ||||||
| Revenues from transmission fees | 18,171 | 6,982 | ||||||
| Revenues from telephone services | 31,114 | - | ||||||
| Revenues from installations | 8,234 | 179 | ||||||
| Other | 95 | - | ||||||
| 67,592 | 8,809 | |||||||
| Note 14 | – | Cost of Sales and Services |
| For the year ended December 31 | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | |||||||
| NIS thousands | NIS thousands | |||||||
| Salaries and related expenses | 19,433 | 3,264 | ||||||
| Participation in logistics and salaries | 1,446 | 3,649 | ||||||
| Royalties | 2,148 | 341 | ||||||
| Rent and maintenance | 3,134 | * 1,071 | ||||||
| Communication operators | 12,302 | - | ||||||
| Network maintenance | 10,770 | 2,119 | ||||||
| Depreciation | 20,991 | 223 | ||||||
| Vehicle maintenance and travel abroad | 3,215 | 1,506 | ||||||
| Other | 3,903 | * 115 | ||||||
| 77,342 | 12,288 | |||||||
* Reclassified
21
| Hot Telecom Limited Partnership |
| Notes to the Financial Statements |
| Note 15 | – | Selling and Marketing Expenses |
| For the year ended December 31 | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | |||||||
| NIS thousands | NIS thousands | |||||||
| Salaries and related expenses | 6,472 | 2,571 | ||||||
| Advertising and sales promotion | 6,366 | 1,289 | ||||||
| Collection commissions | 250 | 13 | ||||||
| Other selling and marketing expenses | 41 | 162 | ||||||
| 13,129 | 4,035 | |||||||
| Note 16 | – | General and Administrative Expenses |
| For the year ended December 31 | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | |||||||
| NIS thousands | NIS thousands | |||||||
| Salaries and related expenses | 3,082 | 1,177 | ||||||
| Participation in Directors' salaries | 818 | 111 | ||||||
| Bad and doubtful debts | 2,465 | 669 | ||||||
| Professional services | 742 | 860 | ||||||
| Office rent and maintenance | 1,247 | 413 | ||||||
| Depreciation and amortization | 186 | 265 | ||||||
| Other general and administrative expenses | 554 | 17 | ||||||
| 9,094 | 3,512 | |||||||
| Note 17 | – | Financing Expenses, Net |
| For the year ended December 31 | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | |||||||
| NIS thousands | NIS thousands | |||||||
| Bank charges | 367 | 317 | ||||||
| Related parties | (916 | ) | 20 | |||||
| Financing expenses on long-term liability | 2,818 | - | ||||||
| Other financing expenses | 1,913 | 700 | ||||||
| 4,182 | 1,037 | |||||||
22
| Hot Telecom Limited Partnership |
| Notes to the Financial Statements |
| Note 18 | – | Related Parties and Interested Parties |
| A. | The amounts in the balance sheet include balances with related and interested parties as follows: |
| December 31 2005 | December 31 2004 | |||||||
|---|---|---|---|---|---|---|---|---|
| NIS thousands | NIS thousands | |||||||
| Long-term liabilities | 226,814 | 45,123 | ||||||
| The balances with related parties do not bear interest or linkage and as yet have no fixed date of repayment. |
| B. | The amounts in the statement of operations include transactions with related and interested parties as follows: |
| For the year ended December 31 | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2005 | 2004 | |||||||
| NIS thousands | NIS thousands | |||||||
| Participation in salaries and traveling expenses | (5,057 | ) | (967 | ) | ||||
| Financing income | (916 | ) | - | |||||
| Participation in rent and vehicle maintenance | 4,393 | 5,309 | ||||||
| Participation in other financing expenses, net | (5,819 | ) | 1,724 | |||||
| Note 19 | – | Taxes on Income |
| The Partnership is not assessed for tax purposes and its tax results are attributed to the partners. Accordingly the financial statements do not include provisions and liabilities for taxes on income. |
| Note 20 | – | Contingent Liabilities and Commitments |
| A. | The Inland Operator License that was granted to the Partnership includes, inter alia, a license to provide telephone services, access to internet service providers, data communication services and digital transmission services. |
| On March 16, 2005, the Inland Operator License that had been granted to Hot Telecom was amended, allowing Hot Telecom to enter into agreements with subscribers, including subscribers of the previous licensees, for the purpose of providing access services to internet providers through the previous licensees, and who view the rendering of the service as a service provided by Hot Telecom, until the date on which the cable companies complete their merger. |
23
| Hot Telecom Limited Partnership |
| Notes to the Financial Statements |
| Note 20 | – | Contingent Liabilities and Commitments (cont’d) |
| B. | By virtue of the Inland Operator License, Hot Telecom has the sole right to use, operate, develop, and improve the cable network as well as to perform any other action in accordance with the Inland Operator License and by law. The cable companies have not yet determined a mechanism for charging Hot Telecom a user fee and maintenance fee for the network. At this stage, Hot Telecom’s management is unable to estimate the scope and date of the charge and these financial statements contain no costs for the network’s user fee and maintenance fee. |
| C. | In June 2004 Bezeq, the Israel Telecommunications Corp. Ltd. (hereinafter – “Bezeq”), filed an application to the High Court of Justice against the Minister of Communications and others against Article 10 (temporary order) of the articles to amend Amendment no. 3, 2004 of the Communications Regulations (Bezeq and broadcasts) (payment for reciprocal connections), 5764-2004, that prescribes a temporary arrangement whereby no charge will be made in respect of reciprocal connections between Bezeq and Hot Telecom for a limited period as determined in the Article. |
| On April 14, 2005 following the recommendation of the Court, Bezeq withdrew its petition to the High Court of Justice with respect to the reciprocal connections. |
| D. | On July 9, 2004 the Partnership signed an agreement with a supplier for the construction of a telephone network on the cable network. As at December 31, 2005 the guarantee provided by the Partnership in favor of the supplier amounted to $ 116 thousand (see also Note 21B). |
| E. | On September 25, 2005, Hot Telecom partnership signed a rental agreement with Yakum Development Ltd. to lease land on an area of 19,000 sq.m. in the industrial park adjacent to Kibbutz Yakum, in a building known as the Spanish House, in additional areas in a building known as Holland House, and in parking lots, for a 10-year period with an option to extend for a further two five-year periods. The land will be used for the operations of the partnership and the other cable companies. Within the context of the transaction, the cable companies guarantee to uphold the undertakings of Hot Telecom according to the rental agreement, up to a sum of NIS 200 million. |
| The rent as determined in the agreement aggregates NIS 13 million annually, a sum to be divided between the partnership and the other cable companies. In 2006 the partnership’s share of the rent will be of NIS 1.3 million. As of 2007, the partnership’s share of the rent will be calculated according to the ratio of the partnership’s revenues relative to the total income of the cable companies. |
| F. | On December 14, 2004 Bezeq appealed against the decision of the Communications Minister prohibiting it from entering into agreement with business customers, offering them discounts and financing for long-term communications equipment, and against the decision to demand that Bezeq cancels such agreements and forfeits NIS 8 million of the bank guarantees that Bezeq provided for the benefit of the State should it fail to cancel the agreements. Hot Telecom was added at its request as a respondent to the application. On December 28, 2004, at Bezeq’s request, an interim order was issued instructing that the Ministry of Communication’s decision be withheld until a ruling is handed down on the application, and on March 28, 2005 the order was amended to apply only to the part of the decision instructing cancellation of the agreements and not to the part pertaining to the possibility of forfeiting the guarantees. In November 2005 a hearing was held on the application following which the parties submitted supplementary claims in writing. As at the date of approval of the financial statements, no decision had been made on the application. |
24
| Hot Telecom Limited Partnership |
| Notes to the Financial Statements |
| Note 20 | – | Contingent Liabilities and Commitments (cont’d) |
| G. | Bezeq and D.B.S Satellite Services filed petitions with the High Court of Justice against the Minister of Communications, the cable companies and Hot Telecom with respect to the decision of the Ministry of Communications regarding funding by Bezeq to the satellite company. Hearings were held on the petitions on October 11, 2005 but no decision has as yet been made. |
| H. | Three claims in the total amount of NIS 82 thousand were filed against the Partnership during the year. In the opinion of management of the Partnership, the claims are in preliminary stages and at this stage it cannot evaluate their chances. In accordance with management’s assessment no provision was included in the financial statements in respect of these claims. |
| I. | The Partnership agreed in principle to an addition to the financing lease agreement by which it would lease telephony cards (CMTS) and related equipment for a total consideration of $ 4.2 million (about NIS 19 million). An agreement in writing has yet to be signed. As at balance sheet date equipment in the amount of $ 1 million has been received according to this commitment. |
| Note 21 | – | Subsequent Events |
| A. | In the course of the negotiations being held with respect to the merger of the cable companies, an oral understanding was reached on February 21, 2006 between the Fishman Group, the Yediot Ahronot Group, Matav and the banks holding shares of Tevel, regarding the main principles of the merger between the cable companies, other than the terms of financing the merged company regarding which no understanding has as yet been reached (“in-principle understanding”). In the framework of the merger, Matav will purchase the operations and assets of all the other cable companies and will issue shares of the merged company to the shareholders of the other cable companies according to each company’s number of subscribers to multi-channel TV services (“subscribers”). |
| Before the merger is completed, Tevel is expected to sell to Matav 125,000 subscribers at a price reflecting a gross value of $ 1,350 per subscriber, and the banks have agreed to finance this purchase. |
| The banks are expected to hold shares of the merged company separate from each other, and at a cumulative rate of up to 30% of the issued share capital of Matav. |
| The in-principle understanding between the parties is subject, inter alia, to the parties signing final agreements, an agreement being reached regarding the financing terms of the merged company, approval by the boards of directors and managements of the parties involved including the approval of Matav’s general meeting, and various regulatory approvals. There is no certainty that these conditions will be fulfilled or that the proposed merger will be completed on these or other terms. |
25
| Hot Telecom Limited Partnership |
| Notes to the Financial Statements |
| Note 21 | – | Subsequent Events (cont’d) |
| B. | The Hot Telecom partnership and a supplier for the construction of a telephone network (hereinafter – “Lucent”) signed an agreement whereby from March 9, 2006 Lucent had completed the works according to a contract dated July 9, 2004 and would not provide guarantee and maintenance services to the system. According to the agreement, Lucent would transfer full ownership on all system components supplied to the Partnership including spare parts to sub-systems and all equipment at the Petah Tikva test site. According to the agreement, Lucent will be entitled to payment of approximately US$ 3.1 million relating to orders delivered and authorized for payment by the partnership and to US$ 0.9 million which will be paid as a compromise agreement in respect of works to be carried out by Lucent, for test equipment and various spare parts delivered to the partnership, after offset of damages caused to the partnership by delays in the timetable and the non-delivery of orders. |
26
Annex C
| MATAV – CABLE SYSTEMS MEDIA LTD. |
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
STATEMENTS
The statements contained in this section may be deemed to be forward-looking statements within the meaning of Section 21E of the Exchange Act and Section 27A of the Securities Act. Forward- looking statements are typically identified by the words “except”, “anticipate”, “intend”, “estimate” and similar expressions. These forward-looking statements are based largely on management’s expectations and are subject to a number of uncertainties. Actual results could differ materially from these forward-looking statements. Neither Matav nor the other Israeli Cable Television Operators (as defined in Note 1b) undertake any obligation to update publicly or revise any forward-looking statements. For a more complete discussion of the risks and uncertainties which may affect such forward-looking statements, please refer below.
The unaudited combined condensed pro forma balance sheet combines the historical consolidated balance sheet of Matav- Cable Systems Media Ltd. (“the Company” or “Matav”) and the historical consolidated balance sheet of the other Israeli Cable Television Operators giving effect to Matav’s acquisition of all the operations and activities relating to the provision of cable television and fixed line telecommunications services provided by the other Israeli Cable Television Operators (“the Acquisition”) as if it had occurred on December 31, 2005. The unaudited pro forma combined condensed statements of operations combine the historical consolidated statement of operations of the Company and the other Israeli Cable Television Operators for the year ended December 31, 2005 giving effect to the Acquisition as if the Acquisition had occurred as of January 1, 2005.
The unaudited pro forma combined condensed financial statements of Matav’s and the other Israeli Cable Television Operators financial statements (upon which the pro forma was based) included herein, were prepared in accordance with generally accepted accounting principles in Israel (“Israeli GAAP”).
For purpose of calculating the purchase price, the fair value of Matav’s securities, which will be issued to the owners of the other Israeli Cable Television Operators, was determined by the price of the Initial Acquisition (as defined below), which was an arms length transaction and such price was supported by the valuation rendered by Trigger-Foresight Ltd. (one of Israel’s leading financial consultants in the telecommunication and media market and the Israeli representative of the Yankee Group, a global leader in TMT research) (“TF”) of the assets which Matav is expected to purchase in connection with the Acquisition.
The preliminary allocation of the purchase price in the Acquisition as reflected in these unaudited pro forma combined condensed financial statements has been prepared based upon preliminary estimates of the fair value of the assets acquired and liabilities assumed as of the date of the Acquisition. This preliminary allocation of the purchase price is dependent upon certain estimates and assumptions, some of which cannot be made prior to the completion of the Acquisition, and are subject to change upon the Acquisition Date and finalization of the valuation of the acquired assets and liabilities.
A final determination of the fair values of the other Israeli’s Cable Television Operators assets and liabilities, which cannot be made prior to the date of this proxy to which this is annexed, will be based on the actual net tangible and intangible assets of the other Israeli’s Cable Television Operators that exists as of the Acquisition Date and based on a review currently being conducted by Matav with independent experts. Upon completion of the transaction, the actual financial position and results of operations will differ, perhaps significantly, from the pro forma amounts reflected herein due to variety of factors, including access to additional information, changes in value not currently identified and changes in operating results between the dates of the unaudited pro forma combined condensed financial information and the Acquisition Date.
The unaudited pro forma combined condensed financial statements do not include the effects of liabilities resulting from integration planning (including effects such as expenses for the retirement and dismissal of employees and senior employees, acceleration of employee option etc.) as these are not presently estimable. In addition to the completion of the valuation, the impact of ongoing integration activities and the timing of completion of the transaction could cause material differences in the information presented.
The unaudited pro forma combined condensed financial statements are provided for illustrative purposes only and are not necessarily and should not be assumed to be indicative of the results that would have been achieved had the transaction been completed as of the dates indicated or that may be achieved in the future. The unaudited pro forma combined condensed financial statements do not reflect any operating efficiencies and cost savings that the Company may achieve with respect to the combined companies.
The unaudited pro forma combined condensed financial statements do not reflect activity subsequent to the periods presented and therefore do not reflect future results.
The unaudited pro forma combined condensed financial statements should be read in conjunction with the respective historical financial statements and the accompanying notes thereto of both Matav and the other Israeli Cable Television Operators, which are included herein.
- 2 -
| DECEMBER 31, 2005 | |||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Historical | Proforma | Proforma | Historical | ||||||||||||||||||||||||||||||||
| Matav | Initial Acquisition Of Tevel cable TV subscribers(*) | Matav After Initial Acquisition | Tevel Group After Initial Acquisition (Appendix 1) | Golden Channels Group (Appendix 2) | Hot Telecom | Consolidation Adjustments (**) | Pro-forma Adjustments | Note | Pro-forma Combined | U.S. dollars Convenience translation (Note 1c) | |||||||||||||||||||||||||
| Reported NIS in millions | |||||||||||||||||||||||||||||||||||
| ASSETS | |||||||||||||||||||||||||||||||||||
| CURRENT ASSETS: | |||||||||||||||||||||||||||||||||||
| Cash and cash | |||||||||||||||||||||||||||||||||||
| equivalents | 13 | - | 13 | 68 | 10 | 2 | - | (35 | ) | 3n | 58 | 13 | |||||||||||||||||||||||
| Short - term deposit | 27 | - | 27 | - | - | - | - | - | 27 | 6 | |||||||||||||||||||||||||
| Trade receivables | 75 | - | 75 | 25 | 41 | 20 | (52 | ) | - | 109 | 23 | ||||||||||||||||||||||||
| Other accounts | |||||||||||||||||||||||||||||||||||
| receivable | 20 | - | 20 | 8 | 11 | 4 | (40 | ) | - | 3 | 1 | ||||||||||||||||||||||||
| 135 | - | 135 | 101 | 62 | 26 | (92 | ) | (35 | ) | 197 | 43 | ||||||||||||||||||||||||
| LONG-TERM INVESTMENT | |||||||||||||||||||||||||||||||||||
| AND RECEIVABLES: | |||||||||||||||||||||||||||||||||||
| Investments in | |||||||||||||||||||||||||||||||||||
| affiliates | 79 | - | 79 | 132 | 72 | - | (255 | ) | - | 28 | 6 | ||||||||||||||||||||||||
| Investment in another | |||||||||||||||||||||||||||||||||||
| company | 19 | - | 19 | - | - | - | - | - | 19 | 4 | |||||||||||||||||||||||||
| Related parties | - | - | - | - | 1 | - | (1 | ) | - | - | - | ||||||||||||||||||||||||
| Rights to broadcast | |||||||||||||||||||||||||||||||||||
| films and programs | 24 | 12 | 36 | 18 | 37 | - | - | - | 91 | 20 | |||||||||||||||||||||||||
| Other receivables | 1 | - | 1 | 1 | 1 | 1 | - | - | 4 | 1 | |||||||||||||||||||||||||
| 123 | 12 | 135 | 151 | 111 | 1 | (256 | ) | - | 142 | 31 | |||||||||||||||||||||||||
| FIXED ASSETS, NET | 814 | 389 | 1,203 | 395 | 1,009 | 272 | 1 | 195 | 3d | 3,075 | 668 | ||||||||||||||||||||||||
| GOODWILL, NET | - | 327 | 327 | 191 | 101 | - | 224 | 856 | 3e | 1,699 | 369 | ||||||||||||||||||||||||
| OTHER ASSETS, NET | 3 | 94 | 97 | 5 | 11 | - | - | 397 | 3d | 510 | 111 | ||||||||||||||||||||||||
| 1,075 | 822 | 1,897 | 843 | 1,294 | 299 | (123 | ) | 1,413 | 5,623 | 1,222 | |||||||||||||||||||||||||
| (*) | Includes the allocation of purchase price in the Initial Acquisition to goodwill (NIS 327 million), fair value step up of fixed assets (NIS 46 million) and other assets (NIS 94 million). See also Note 2 |
| (**) | See Note 3a. |
- 3 -
| DECEMBER 31, 2005 | |||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Historical | Proforma | Proforma | Historical | ||||||||||||||||||||||||||||||||
| Matav | Initial Acquisition Of Tevel cable TV subscribers(*) | Matav After Initial Acquisition | Tevel Group After Initial Acquisition (Appendix 1) | Golden Channels Group (Appendix 2) | Hot Telecom | Consolidation Adjustments (**) | Pro-forma Adjustments | Note | Pro-forma Combined | U.S. dollars Convenience translation (Note 1c) | |||||||||||||||||||||||||
| Reported NIS in millions | |||||||||||||||||||||||||||||||||||
| CURRENT LIABILITIES: | |||||||||||||||||||||||||||||||||||
| Credit from banks and | |||||||||||||||||||||||||||||||||||
| others | 552 | - | 552 | 2,305 | 1,595 | - | - | (4,452 | ) | 3c,3m | - | - | |||||||||||||||||||||||
| Current maturities of | |||||||||||||||||||||||||||||||||||
| debentures | 35 | - | 35 | - | - | - | - | 35 | 8 | ||||||||||||||||||||||||||
| Trade payables | 105 | 92 | 197 | 33 | 267 | 57 | (69 | ) | 485 | 105 | |||||||||||||||||||||||||
| Other accounts payable | 117 | - | 117 | 125 | 105 | 32 | (34 | ) | (35 | ) | 3n | 310 | 67 | ||||||||||||||||||||||
| 809 | 92 | 901 | 2,463 | 1,967 | 89 | (103 | ) | (4,487 | ) | 830 | 180 | ||||||||||||||||||||||||
| LONG TERM LIABILITIES: | |||||||||||||||||||||||||||||||||||
| Loans from banks and | |||||||||||||||||||||||||||||||||||
| others | 75 | 688 | 763 | 207 | - | - | - | 2,127 | 3c,3m | 3,097 | 673 | ||||||||||||||||||||||||
| Customers' deposits for | |||||||||||||||||||||||||||||||||||
| converters, net | 16 | 12 | 28 | 17 | 34 | - | 1 | - | 80 | 17 | |||||||||||||||||||||||||
| Accrued severance pay | |||||||||||||||||||||||||||||||||||
| liability, net | 3 | - | 3 | 2 | 10 | 1 | - | - | 16 | 4 | |||||||||||||||||||||||||
| Related parties | - | - | - | 61 | 58 | 227 | (285 | ) | (61 | ) | 3b | - | - | ||||||||||||||||||||||
| Deferred taxes | 5 | - | 5 | - | - | - | - | 5 | 1 | ||||||||||||||||||||||||||
| Liability to the | |||||||||||||||||||||||||||||||||||
| Government | - | 30 | 30 | - | - | - | - | 130 | 3d | 160 | 36 | ||||||||||||||||||||||||
| Others | - | - | - | - | 8 | 30 | - | - | 38 | 8 | |||||||||||||||||||||||||
| 99 | 730 | 829 | 287 | 110 | 258 | (284 | ) | 2,196 | 3,392 | 739 | |||||||||||||||||||||||||
| SHAREHOLDERS' EQUITY | 167 | - | 167 | (1,907 | ) | (783 | ) | (48 | ) | 264 | 3,704 | 3f | 1,397 | 303 | |||||||||||||||||||||
| 1,075 | 822 | 1,897 | 843 | 1,294 | 299 | (123 | ) | 1,850 | 5,623 | 1,222 | |||||||||||||||||||||||||
| (*) | Includes the allocation of purchase price in the Initial Acquisition to liability to the Government in the amount of NIS 30 million. See also Note 2. |
| (**) | See Note 3a. |
- 4 -
| YEAR ENDED DECEMBER 31, 2005 | ||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Historical | ||||||||||||||||||||||||||||||||
| Matav | Tevel Group | Golden channels Group (Appendix 2) | Hot telecom | Consolidation Adjustments (**) | Pro-forma adjustments | Note | Pro-forma combined | U.S. dollars convenience translation (Note 1c) | ||||||||||||||||||||||||
| Reported NIS in millions (except per share amounts) | ||||||||||||||||||||||||||||||||
| Revenues: | 543 | 687 | 856 | 68 | 2 | - | 2,156 | 468 | ||||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | 142 | 204 | 255 | 21 | - | 6 | 3k | 628 | 137 | |||||||||||||||||||||||
| Other operating expenses | 340 | 444 | 562 | 56 | 3 | (18 | ) | 3k | 1,387 | 300 | ||||||||||||||||||||||
| Total operating expenses | 482 | 648 | 817 | 77 | 3 | (12 | ) | 2,015 | 437 | |||||||||||||||||||||||
| Gross profit (loss) | 61 | 39 | 39 | (9 | ) | (1 | ) | 12 | 141 | 31 | ||||||||||||||||||||||
| Selling, marketing, general and | ||||||||||||||||||||||||||||||||
| administrative expenses: | ||||||||||||||||||||||||||||||||
| Selling and marketing expenses | 53 | 69 | 84 | 13 | - | - | 219 | 48 | ||||||||||||||||||||||||
| General and administrative expenses | 42 | 120 | 37 | 9 | 29 | (117 | ) | 3l | 120 | 26 | ||||||||||||||||||||||
| Amortization of goodwill and other | ||||||||||||||||||||||||||||||||
| intangible assets | - | - | - | - | - | 133 | 3j | 133 | 29 | |||||||||||||||||||||||
| Operating loss | (34 | ) | (150 | ) | (82 | ) | (31 | ) | (30 | ) | (4 | ) | (331 | ) | (72 | ) | ||||||||||||||||
| Financial expenses, net | 51 | 188 | 90 | 4 | - | (119 | ) | 3m,3i | 214 | 46 | ||||||||||||||||||||||
| Other income (expenses), net | 154 | (6 | ) | 8 | - | - | - | 156 | 34 | |||||||||||||||||||||||
| Income (loss) before taxes on income | 69 | (344 | ) | (164 | ) | (35 | ) | (30 | ) | 115 | (389 | ) | (84 | ) | ||||||||||||||||||
| Taxes on income | 7 | (7 | ) | (3 | ) | - | - | - | (3 | ) | (1 | ) | ||||||||||||||||||||
| Income (loss) after taxes on income | 76 | (351 | ) | (167 | ) | (35 | ) | (30 | ) | 115 | (392 | ) | (85 | ) | ||||||||||||||||||
| Equity in earnings (losses) of investees, net | (6 | ) | (86 | ) | (15 | ) | - | 110 | - | 3 | 1 | |||||||||||||||||||||
| Net income (loss) | 70 | (437 | ) | (182 | ) | (35 | ) | 80 | 115 | (389 | ) | (84 | ) | |||||||||||||||||||
| Net earning (loss) per Ordinary share (in | ||||||||||||||||||||||||||||||||
| NIS) | 2.30 | - | - | - | - | - | 4 | (5.13 | ) | (1.11 | ) | |||||||||||||||||||||
| Net earning (loss) per ADS (in NIS) | 6.60 | - | - | - | - | - | 4 | (10.26 | ) | (2.22 | ) | |||||||||||||||||||||
| (*) | For convenience reasons, the consolidated results of operations of Tevel Group acquired in the context of the Initial Acquisition by Matav were not included in Matav’s statement of operations. |
| (**) | See Note 3a. |
- 5 -
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS |
| NOTE 1: | – | BASIS OF PRO FORMA PRESENTATION |
| a. | General |
| The unaudited combined condensed pro forma balance sheet as of December 31, 2005 and the unaudited pro forma combined condensed statements of operations for the year ended December 31, 2005 are based on the historical financial statements of the Company and other Israeli Cable Television Operators after giving effect to the Acquisition (including the issuance of shares of the Company to the direct or indirect owners of the other Israeli Cable Television Operators) |
| The Acquisition will be accounted for in accordance with opinion No. 57 of the Institute of Certified Public Accountants in Israel and in accordance with Standard No. 20 (Revised), “Accounting for Goodwill and Intangible Assets upon Acquisition of Investee”, of the Israel Accounting Standards Board. Accordingly, Matav will allocate the purchase price of the Acquisition to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over the fair value of tangible and identifiable intangible assets, net of the fair value of liabilities assumed will be recorded as goodwill. Matav’s management has made significant assumptions and estimates in determining the preliminary allocation of purchase price in the unaudited pro forma condensed combined financial statements. The final determination of such assumptions and estimates cannot be made until the completion of the Acquisition. |
| The unaudited pro forma condensed combined financial statements are not intended to represent or be indicative of the consolidated results of operations or financial position of Matav that would have been reported had the Acquisition and the issuance of Matav’s shares been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial position of Matav. The unaudited pro forma combined condensed financial statements do not reflect any operating efficiencies and cost savings that the Matav may achieve with respect to the combined companies. |
| The preliminary purchase price allocation does not include the effects of possible liabilities to be assumed in the course of the operational activity of the combined companies in the Interim Period (as defined in b below) which will be, retroactively, fully attributed to Matav as if the Acquisition had occurred and completed, effectively, as of January 1, 2006. |
| The unaudited pro forma combined condensed financial statements and the financial statements of Matav and the other Israeli Cable Television Operators (upon which the pro forma was based) included herein, are prepared in accordance with Israeli GAAP. |
| The unaudited pro forma combined condensed financial statements should be read in conjunction with the respective historical financial statements and the accompanying notes thereto of both Matav and the other Israeli Cable Television Operators, which are included herein. |
- 7 -
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS |
| NOTE 1: | – | BASIS OF PRO FORMA PRESENTATION (Cont.) |
| b. | Definitions |
| In these pro forma combined condensed financial statements: |
| Tevel Group | – | Tevel International Communications Ltd. ,Gvanim Cable Television Ltd. and Gvanim Krayot Cable Television Ltd. | |
| Matav or the Company | – | Matav- Cable Systems Media Ltd. and Cable Systems Media Haifa-Hadera Ltd. | |
| Golden Channel Group | – | Golden Channel GP, South Sharon Communications Ltd., Isracable Ltd., T.L.M Subscriber Television Ltd. , Idan Israel Cable System (Holdings) 1987 Ltd., Idan Israel Cable System Ltd. and Edom Channels Ltd. | |
| Target Group or the other Israeli Cable Television Operators | – | Tevel Group and Golden Channel Group. | |
| Hot Vision | – | Hot Vision Ltd which is engaged in editing, preparing, purchasing and producing content (for 2 channels- films and series) to be screened and broadcasted by the Cable Companies and which is held by the Cable Companies under arrangement for joint control (and accordingly is consolidated, under the proportionate consolidation method by each of the Cable Companies). | |
| Hot Telecom | – | Hot Telecom is a limited partnership which provides access to high speed internet in the business sector and fixed line services. Hot Telecom is wholly owned by the Cable Companies and is included using the equity method of accounting in the historical financial statements of the Cable Companies. In the pro forma combined condensed financial statements Hot Telecom is consolidated since it is a wholly owned partnership of the combined companies. | |
| Cable Companies | – | Matav and the Target Group. | |
| Initial Acquisition | – | the purchase (through the assumption of bank credit and of other financial liabilities) of approximately 124.3 thousands cable TV subscribers from Tevel Group prior to the consummation of the Acquisition | |
| The Acquisition | – | The acquisition according to the Acquisition Agreement dated May 8, 2006 ("the Acquisition Agreement") pursuant to which the Company will acquire all the operations and activities relating to the provision of cable television and fixed line telecommunications services provided by the Target Group including the Initial Acquisition transaction. | |
| The Acquisition Date | – | The date upon which all the closing conditions in the Acquisition Agreement are met. | |
| Interim Period | – | The period from January 1, 2006, until the date on which all closing conditions for the Acquisition are fulfilled (pursuant to the Acquisitions Agreement), namely until the Acquisition Date (as defined above). | |
- 8 -
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS |
| NOTE 1: | – | BASIS OF PRO FORMA PRESENTATION (Cont.) |
| The Financial Debt, net- |
| 1. | Pursuant to the Acquisition Agreement, the Financial Debt, net (including working capital items) per subscriber as of December 31, 2005 (NIS 4,037.5 per cable TV subscriber) (which, among others, is subject to certain adjustments, as determined in the Acquisition Agreement) is defined as the total financial liabilities (all short and long term liabilities, except customers’ deposits for converters, etc. as determined in the Acquisition Agreement) net of total financial assets (total current assets, long term receivables and except, among others, rights to broadcast movies and programs, other assets and receivables of shareholders) per subscriber. The Acquisition Agreement stipulates that in order to calculate the financial assets and liabilities of each entity to the Acquisition, the relative share of each entity to the Acquisition in the financial assets and liabilities of Hot Vision and Hot Telecom, shall be added. |
| 2. | In addition to the Financial Debt, net that shall be transferred to Matav as of January 1, 2006 in accordance with the Acquisition Agreement, the parties agreed that all the assets, expenses, liabilities, investments, receipts, payments, revenues and other operating results relating to the acquired assets and operations, whether monetary or other (including credit provided by banks for financing investments of telecommunication infrastructures operations and broadcasts, financial expenses, and other expenses relating to the credit, as above) accumulated by the entities transferring the assets and operations and by Matav during the Interim Period will be fully attributed to Matav as if the Acquisition has occurred and completed effectively on January 1, 2006. |
| Since the Acquisition will be accounted for in Matav’s financial statements upon the Acquisition Date, the above mentioned will have an effect, perhaps significantly, on the purchase price allocation (mainly goodwill). |
| c. | Accounting Period Presented |
| 1. | The unaudited pro forma combined condensed balance sheet of the Company and the other Israeli Cable Television Operators as of December 31, 2005 is presented as if the Acquisition had taken place on December 31, 2005 and combines the historical balance sheets of the combined companies as of December 31, 2005. |
| 2. | The unaudited pro forma combined condensed statement of operations of the Company and the other Israeli Cable Television Operators for the year ended December 31, 2005 is presented as if the Acquisition had taken place on January 1, 2005 and combines the historical results of the combined companies for the year ended December 31, 2005. |
| 3. | Certain historical balances of the other Israeli Cable Television Operators have been reclassified to conform to the pro forma combined presentation. |
- 9 -
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS |
| NOTE 1: | – | BASIS OF PRO FORMA PRESENTATION (Cont.) |
| 4. | Significant intercompany balances and transactions between the combined companies have been eliminated in the pro forma combined condensed financial statements. |
| 5. | In March 2006, the Israel Accounting Standards Board published Accounting Standard No. 20 (Revised), “Accounting for Goodwill and Intangible Assets upon Acquisition of Investee” (“the Standard”). The Standard is applicable to financial statements for periods commencing on January 1, 2006 (“the effective date”). The Standard determines that goodwill will no longer be amortized and that the company should review once per year, or more frequently, of whether there are indicators for goodwill impairment. In view of the fact that the pro forma combined condensed statements of operations, which are presented above, presents the operational results of the Company for the year ended December 31, 2005 in order to reflect the Acquisition from January 1, 2005, they include goodwill amortization of NIS 85 million (at an annual rate of 5%) according to Accounting Standard Number 20 (prior to its amendment by Accounting Standard Number 20 (Revised). Effective January 1, 2006, the Company’s financial statements shall not include such amortization in accordance with the provisions of Accounting Standard Number 20 (Revised). |
| 6. | Convenience translation into U.S dollars: the pro forma condensed combined financial statements have been translated into U.S dollars using the representative exchange rate of the U.S dollars as of December 31, 2005 (U.S $ 1=NIS 4.603). The translation was made solely for the convenience of the readers. The U.S dollar amounts presented in the pro forma condensed combined financial statements should not be construed to represent amounts receivable or payable in dollars, or convertible into dollars. |
| d. | Basis of Purchase Price and Preliminary Allocation |
| The preliminary allocation of the purchase price used in the unaudited pro forma condensed combined financial statements was based upon preliminary estimates. The estimates and assumptions, some of which cannot be made prior to completion of the Acquisition, are subject to change upon the Acquisition Date and finalization of the valuation of the assets and liabilities acquired. The final determination of the allocation of the purchase price will be based on the actual intangible assets and tangible net assets that exist as of the Acquisition Date. |
| The final valuation of identifiable intangible assets (which will be finalized upon the final determination of the allocation of the purchase price) may change significantly from Matav’s preliminary estimates, which could result in a material change in the amortization of intangible assets. |
- 10 -
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS |
| NOTE 1: | – | BASIS OF PRO FORMA PRESENTATION (Cont.) |
| The purchase price to be paid by Matav was determined by the price of the Initial Acquisition, which was an arms length transaction and such price was supported by a valuation report from TF who was hired by the Cable Companies to produce a valuation of all the assets that will be acquired within the framework of the Acquisition and in which it calculated the anticipated market value of the Cable Companies following the completion of the Acquisition. The report, which is included in the Proxy as Annex B, concluded that the value of the assets is between NIS 5,980-6,580 per cable TV subscriber, taking into account all the operation and services of the Cable Companies in the television and fixed-line communication market. On the basis of the conclusions of the valuation, the parties to the Acquisition agreed that the value of the assets acquired will be determined based on the value of NIS 6,277.5 per cable TV subscriber. |
| The unaudited pro forma combined condensed financial statements do not include the effects of liabilities resulting from integration planning (including effects such as expenses for the retirement and dismissal of employees and senior employees etc.) as these are not presently estimable. In addition to the completion of the valuation, the impact of ongoing integration activities and the timing of completion of the transaction could cause material differences in the information presented. |
| The preliminary purchase price allocation does not include effects of possible liabilities to be assumed in the course of the operational activity of the combined companies in the Interim Period which will be, retroactively, fully attributed to Matav as if the Acquisition has occurred and completed, effectively, on January 1, 2006 since it is impossible to estimate such effects at this stage. |
| NOTE 2: | – | THE ACQUSITION |
| a. | General |
| In the context of the Acquisition the Company will , inter alia, purchase the operations and assets of the Target Group in the field of cable television broadcasting and fixed domestic communication services by purchasing the operation and interest in entities and companies of the Golden Channels Group and Tevel Group in consideration for NIS 6,277.5 per cable TV subscriber as of the date of the Acquisition Agreement (“a cable TV subscriber”), based on the cable TV subscribers of the Target Group as of September 30, 2005. The consideration, after giving effect to the Initial Acquisition described below, will be paid by way of assuming certain Financial Debt, net of the Golden Channels Group and Tevel Group representing a total Financial Debt, net of NIS 4,037.5 per cable TV subscriber purchased and by issuing shares (approximately 45.6 million shares) to the owners of the Golden Channels Group and Tevel Group. |
- 11 -
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS |
| NOTE 2: | – | THE ACQUSITION (Cont.) |
| The Acquisition transaction described above requires that the Financial Debt, net level, as defined in the Acquisition Agreement, in the Company, prior to the consummation of the Acquisition, will be at the level of NIS 4,037.5 per cable TV subscriber. Thus, prior to the consummation of the Acquisition, the Company, which has a lower Financial Debt, net compared to the required NIS 4,037.5 level, shall purchase (through assuming bank credit and other financial liabilities) in an initial acquisition approximately 124.3 thousand cable TV subscribers from Tevel Group at a price reflecting a value (at the Acquisition date) of NIS 6,277.5 per cable TV subscriber. |
| The holding ratios in the Company’s shares following the Acquisition shall be in accordance with the relative pro rata number of cable TV subscribers contributed by each party to the Acquisition as of September 30, 2005, after taking into consideration the number of cable TV subscribers to be purchased by the Company in the Initial Acquisition, thus determining the amount of shares to be allocated. Upon completion of the Initial Acquisition and the Acquisition, the Company’s share in the total cable TV subscribers will increase approximately from 26% up to 40%. |
| Immediately prior to the consummation of the Acquisition, the entities constituting the Target Group will conclude arrangements with their banks and owners such that the total Financial Debt, net, as defined in the Acquisition Agreement, of each of the entities as of December 31, 2005 (and which will be acquired by Matav) will equal 4,037.5 per cable TV subscriber (calculated based on the aggregate cable TV subscribers of each of the Target Group companies as of September 30, 2005). |
| The Acquisition will be accounted for in the Company’s financial statements upon the Acquisition Date. |
| The consummation of the Acquisition is subject to the fulfillment of certain closing conditions, including reaching an agreement with Matav’s banks as well as the banks and other creditors of the Target Group, execution of the credit facility agreement regarding Matav’s future financing, as well as receipt of approvals required under applicable law, including the approvals of the Ministry of Communications, the Cable and Satellite Broadcasting Council and the Tel-Aviv District Court, Israel. |
- 12 -
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS |
| NOTE 2: | – | THE ACQUSITION (Cont.) |
| In addition to signing of the Acquisition Agreement in May 8, 2006, the Cable Companies agreed to a Term Sheet with the Banks (the “Term Sheet”) in connection with the financing of the Acquisition and the future funding requirements of the combined company (the “Credit Facility”). The Term Sheet contains the principal terms of the Credit Facility and provides that the parties will enter into a definitive agreement which will contain all of the final provisions of the Credit Facility, prior to the consummation of the Acquisition and which principally relates to the repayments and interests rates of the remaining original bank credit that existed in Matav prior to the Acquisition and the bank credit assumed by Matav in the course of the Acquisition, effective January 1, 2006. Described below are the principal terms of the Credit Facility, as set forth in the Term Sheet: |
| 1. | As to a balance of a bank debt of NIS 2.4 billion – the principal shall be repaid commencing 2010 over 8 years (as agreed by the parties). |
| 2. | As to a balance of a bank debt of NIS 0.6 billion – the principal shall be repaid out of receipts from an issuance of debentures or shares on June 30, 2009, at the latest. |
| 3. | As to a balance of a bank debt of NIS 130 million – the principal shall be repaid at the end of 12 years. |
| The Credit Facility with the banks was not yet signed and is expected to include financial covenants, which were not yet agreed upon, in respect of the bank credit terms and its repayment date. |
| The pro forma combined condensed financial statements reflect the level of the bank credit in the combined company based on (for purposes of presenting the bank credit in the pro forma combined condensed financial statements under short and long term liabilities in accordance with the terms of the Term Sheet) the abovementioned Term Sheet with the banks (which was no yet signed) and reducing the level of the bank credit included in each entity prior to the Acquisition in order to adjust the level of the Financial Debt, net in each entity which shall be transferred to Matav to NIS 4,037.5 per cable TV subscriber. |
| b. | Basis of Purchase Price |
| In the context of the Acquisition, Matav will purchase from the Target Group all of its assets, directly or indirectly, its operations, assets, rights, liabilities and debts relating to the provision of broadcasts and communications infrastructures operations (except for assets, rights and/or liabilities in respect to which it was expressly determined in the Acquisition Agreement that such will remain with the selling parties, as above) in consideration for NIS 6,277.5 per cable TV subscriber (the total of 673.6 thousand cable TV subscribers, including the subscribers expected to be purchased in the Initial Acquisition). The consideration reflects a total purchase amount of NIS 4.2 billion (including the purchased amounts in the Initial Acquisition).. |
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| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS |
| NOTE 2: | – | THE ACQUSITION (Cont.) |
| The transaction will be performed as follows: |
| NIS In millions | ||||||||
|---|---|---|---|---|---|---|---|---|
| Assumption of bank credit and other | ||||||||
| financial debts for the purpose of the | ||||||||
| Initial Acquisition of 124.3 thousand cable | ||||||||
| TV subscribers from Tevel Group | 780 | See the section 1, as follows | ||||||
| Assumption of a Financial Debt, net | ||||||||
| (including bank credit) from the Target | ||||||||
| Group | 2,218 | See also section 2, as follows | ||||||
| Issuance of share capital in Matav to the | ||||||||
| owners of Target Group | 1,230 | See section 3 as follows | ||||||
| Total purchase consideration | 4,228 | |||||||
| The finance of the Acquisition and its stages will be performed as follows: |
| 1. | As detailed above prior to the consummation of the Acquisition, the Company, which has a lower Financial Debt, net in comparison with the required NIS 4,037.5 level per cable TV subscribers, shall purchase approximately 124.3 thousands cable TV subscribers from the Tevel Group at a price reflecting a value of NIS 6,277.5 per cable TV subscriber or for a total consideration of approximately NIS 780 million. The consideration will be paid through the assumption of bank credit and other financial debts totaling NIS 780 million. See also appendix 1. |
- 14 -
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS |
| NOTE 2: | – | THE ACQUSITION (Cont.) |
| 2. | As mentioned above, subsequent to the Acquisition the amount of Financial Debt, net in the combined company will be NIS 4,037.5 per cable TV subscribers described as follows: |
| NIS In millions | Commet | |||||||
|---|---|---|---|---|---|---|---|---|
| Financial Debt, net prior to the | ||||||||
| Initial Acquisition and the | Total original Financial Debt in Matav, | |||||||
| principal Acquisition | 690 | net | ||||||
| Additional Financial Debt, net | ||||||||
| assumed in the Initial Acquisition | 780 | |||||||
| Additional Financial Debt, net | ||||||||
| assumed in the Acquisition | 2,218 | |||||||
| Total cable TV subscribers of the Cable | ||||||||
| Companies (totaled, as of September 30, | ||||||||
| 2005 at 913.5 thousands cable TV | ||||||||
| Total Financial Debt, net in | subscribers) multiplied by NIS 4,037.5. | |||||||
| Matav as the combined company | 3,688 | |||||||
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| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS |
| NOTE 2: | – | THE ACQUSITION (Cont.) |
| The composition of the Financial Debt, net after the Acquisition will be as follows: |
| NIS In millions | Commet | |||||||
|---|---|---|---|---|---|---|---|---|
| A residual value received in order to | ||||||||
| adjust the level of the Financial Debt | ||||||||
| net in each company to the level of | ||||||||
| Financial Debt, net as determined in the | ||||||||
| Bank credit | 3,097 | Acquisition Agreement, as above. | ||||||
| Working Capital (part of which was | ||||||||
| Working Capital, net | 591 | assumed from the Target Group) | ||||||
| Total Financial Debt, net | 3,688 | |||||||
| 3. | The remaining balance of the purchase price shall be made by issuing shares in Matav to the owners of the Target Group. The total capital to be issued by the Company amounts to NIS 1.2 billion. In this context, the Company is expected to issue immediately after the consummation of the Acquisition approximately 45.6 million shares of NIS 1 par value each. |
| The calculation of capital to be issued is as follows: |
| Purchase price of cable TV subscriber in NIS | 6,277.5 | ||||
| Financial Debt, net per cable TV subscriber in NIS | 4,037.5 | ||||
| Excess of purchase price over Financial Debt, net | |||||
| assumed per cable TV subscriber in NIS | 2,240 | ||||
| Total cable TV subscribers acquired by Matav in | |||||
| thousands | 549.2 | ||||
| Capital issuance in NIS millions | 1,230 | ||||
| c. | Allocation of Purchase Price |
| The estimated purchase price allocation below is preliminary (for the reasons described above) and is based upon a preliminary valuation. Accordingly, Matav’s estimates and assumptions are subject to change upon the finalization of the valuation. |
- 16 -
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS |
| NOTE 2: | – | THE ACQUSITION (Cont.) |
| The total purchase price will be allocated to the Target Group tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as determined by TF valuation. The excess of the purchase price over the fair value of tangible and identifiable intangible assets, net of fair value liabilities assumed, will be recorded as goodwill. |
| For purposes of pro forma financial statements, Matav has used the Target Group assets and liabilities as of December 31, 2005 as the basis for developing Matav’ fair value estimates. |
| The allocation was in accordance with Standard No. 20 (Revised), “Accounting for Goodwill and Intangible Assets upon Acquisition of Investee”, of the Israel Accounting Standards Board. |
| The total purchase price of NIS 4.2 billion has been calculated and preliminary assigned to the tangible and intangible assets acquired (including the amounts in the Initial Acquisition) as follows: |
| Net tangible assets (*) | 2,198 | ||||
| Identifiable intangible assets | 491 | ||||
| Liability to the Government | (160 | ) | |||
| Goodwill | 1,699 | ||||
| Total preliminary purchase price allocation | 4,228 | ||||
| (*) | Net Tangible Assets include, in addition to the historical book value of the net tangible assets of the Target Group as of December 31, 2005, a fair value step-up in fixed assets in the amount of approximately NIS 241 million which is amortized over an estimated average useful life of 5.5 years using the straight line method. |
| Identifiable intangible assets: |
| Matav expects identifiable intangible assets acquired to include: |
| 1. | Brand name of “HOT” (valued at approximately NIS 41 million was valued based on the actual cost of the establishment of the brand name considering the fact that the brand name is at its early stages and in accordance with the Relief from Royalty Method. |
| 2. | Customer relations -(valued at approximately NIS 450 million) which were valued based on the fair value of existing customers and based on relationship with them using the “Multi- Period Excess Earnings” Method. |
| Intangible assets are being amortized using the straight-line method. |
| Matav believes that the most substantial changes that will be made to the purchase price allocation will relate to the valuation of intangible assets. However, Matav is unable to quantify the effect of these adjustments until it completes the Acquisition. |
- 17 -
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS |
| NOTE 2: | – | THE ACQUSITION (Cont.) |
| The estimated useful lives of intangible assets are as follows (calculated by the straight-line method at annual rates): |
| % | |||||
|---|---|---|---|---|---|
| Customer relations | 10 | % | |||
| Brand name | 8.33 | % | |||
| Goodwill: |
| Goodwill represents the excess of purchase price over the estimated fair value of tangible and identifiable assets, net of the fair value of liabilities assumed that Matav will acquire. As for the amortization of goodwill in the pro form combined condensed statements of operations See Note 1(b)5. |
| If Matav’s management should change the assumption used in the valuation, amounts preliminary allocated to goodwill may significantly decreased or be eliminated, and amounts allocated to intangible assets with definite lives may increase significantly, which could result in a material increase in amortization of intangible assets. |
| Fixed Assets: |
| The fixed assets were valued based on the actual current cost that will be incurred should the entire Cable network and other equipment be repurchased taking into account amortization which reflects economical and technological depreciation. |
| It is the intention of the Cable Companies management to re evaluate the estimated economic useful life of fixed assets (mainly Cable Network and Converters) by no later than the consummation of the Acquisition using a third party valuation (which will be conducted by an expert in this field). This re evaluation is expected to be completed until the Acquisition Date.. Accordingly, the pro forma combined condensed financial statements include depreciation expenses recorded in the historical financial statements of the Cable Companies in addition to the depreciation of the value adjustments of the fixed assets based on the amortization period used in the historical financial statements. |
| At this stage it is impossible to estimate the effects of this re- evaluation, which may change significantly the depreciation expenses in the pro forma combined condensed financial statements and in the coming years, and the fair value of the purchased fixed assets as of the Acquisition Date. |
- 18 -
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS |
| NOTE 2: | – | THE ACQUSITION (Cont.) |
| Deferred taxes: |
| No amount of the purchase price was allocated to deferred tax liabilities relating to the step- up of assets considering the amounts of carryforward losses for which no deferred tax asset exist. |
| Liability to the Government: |
| In July 2001 the Cable Companies signed an agreement with the state of Israel which states that the Government waives all its rights regarding the cable network so that the Cable Companies will own all the rights, including proprietary rights in the cable network. According to the agreement each of the Cable Companies, independently, is committed to pay to the Government payments, as defined in the agreement, for a limited period (as described below) and the Government has dismiss, in return, its demands as to the intangible rights embedded in the cable infrastructure, so that each company will own for an unlimited period, exclusively, the infrastructure in the respective regions, including the rights to the intangible assets. As for the consideration, it was determined that the Cable Companies will pay, as stipulated in the agreement, to the Government for the period of 12 years (beginning 1/1/2003). The fair value of such liability was valued based on the present value of the expected remaining future payments which will be paid to the Government under that agreement. |
| Pre-acquisition contingencies: |
| Pursuant to the Acquisition Agreement, it was determined that upon consummating the Acquisition, Matav shall be in the place of the selling parties, or anyone on their behalf, in connection with lawsuits (as defined in the Acquisition Agreement between the parties) regarding any legal proceeding taking place against the selling parties or by them with respect to the combined assets. |
| Matav has currently not identified any pre-acquisition contingencies where a liability is probable and the amount of the liability can be reasonably estimated (for which a provision was not recorded in the historical financial statements of the Target Group as of December 31, 2005). Such accruals and/or adjustments recorded in the period of one year subsequent to the end of the year in which the Acquisition Date occurs (“preliminary period”) would change the allocation of the purchase price consideration as an adjustment to goodwill. Accruals and/or adjustments associated with these litigation contingencies which will be recorded after the preliminary period will be included in the Company’s results of operations in the period in which a liability, if any, is deemed probable and reasonably estimable. |
- 19 -
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS |
| NOTE 3: | – | PRO FORMA ADJUSTMENTS |
| The following pro forma adjustments are included in the unaudited pro forma condensed combined balance sheet: |
| a. | Consolidation adjustments: |
| Elimination of investment in Hot Telecom and in Golden Channel GP and elimination of significant intercompany balances and transactions between the combined companies. |
| b. | Elimination of balances with related parties. The financial statements of Golden Channels and T.L.M include loans with related parties (at a total of NIS 61 millions) that are not transferred to the combined company and therefore were cancelled in the pro forma combined condensed balance sheet. |
| c. | Adjustment of the bank credit in Matav, according to the provisions of the Acquisition Agreement in order to adjust the total Financial Debt net in Matav after the Acquisition to NIS 4,037.5 per TV subscriber and in order to reflect the reclassification from short term credit to long term credit in accordance with Credit Facility which has not yet been signed. See also m below. |
| d. | To record the preliminary fair value of intangible assets and liabilities assumed (see also Note 2c) including amounts which were recorded by Matav in the Initial Acquisition (other assets in the amount of NIS 94 million, step-up value of fixed assets of NIS 46 million and liability to the Government in the amount of NIS 30 million). |
| e. | To eliminate the Target Group historical goodwill and record goodwill resulting from the Acquisition, including goodwill in the amount of NIS 327 million which was recorded by Matav in the Initial Acquisition (see also Note 2c). |
| (NIS in millions) | Historical amount, net | Preliminary fair value | Increase | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Goodwill | 516 | 1,699 | 1,183 | ||||||||
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| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS |
| NOTE 3: | – | PRO FORMA ADJUSTMENTS (Cont.) |
| f. | Elimination of all components of the Target Group shareholders equity and issuance of shares of Matav (see also Note 2b): |
| NIS in millions | |||||
|---|---|---|---|---|---|
| Elimination of all components of the Target Group | |||||
| shareholders equity(*) | 2,474 | ||||
| Issuance of capital | 1,230 | ||||
| Total adjustment | 3,704 | ||||
| (*) | Share Holders Equity after the changes made to the Target Group short term and long term bank credit as explained in m below. |
| g. | No effect was given to possible accounting policy differences which may exist, since information to identify and quantify such differences was not available. |
| h. | No effect was given to liabilities resulting from integration planning (Including effects such as expenses for the retirement and dismissal of employees and senior employees, acceleration of employee options etc). |
| The following pro forma adjustments are included in the unaudited pro forma condensed combinedstatements of operations: |
| i. | Elimination of transactions with related parties |
| The financial statements of Golden Channels and T.L.M include a payment of management fees (total of NIS 5 millions) to shareholders and interest on shareholders’ loans (at a total amount of NIS 1 million). For purposes of pro forma combined condensed statements of operations, these transactions were eliminated since the Acquisition Agreement terminated these arrangements as of January 1, 2006. |
- 21 -
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS |
| NOTE 3: | – | PRO FORMA ADJUSTMENTS (Cont.) |
| j. | To adjust the Target Group historical amortization of goodwill (see k and j below) and record annual amortization, based on the fair value of goodwill (at annual rate of 5%) and to record amortization of intangible assets recorded as part of the purchase price allocation (see also Note 2c) as follows: |
| NIS in millions | |||||
|---|---|---|---|---|---|
| Amortization of goodwill | 85 | ||||
| Amortization of intangible assets recorded as part of the | |||||
| purchase price allocation | 48 | ||||
| Total adjustment | 133 | ||||
| k. | Adjustments to the Operating expenses are as follows: |
| NIS in millions | |||||
|---|---|---|---|---|---|
| Amortization of historical goodwill (see j above) | (38 | ) | |||
| Depreciation of valuation fixed assets step-up | 44 | ||||
| 6 | |||||
| Amortization liability to the Government | |||||
| (see also Note 2c) | (18 | ) | |||
| Total adjustment | (12 | ) | |||
| l. | Adjustments to the General and administrative expenses are as follows: |
| m. |
| NIS in millions | |||||
|---|---|---|---|---|---|
| Amortization of historical goodwill (see j above) | (112 | ) | |||
| Elimination of management fee (see i above) | (5 | ) | |||
| Total adjustment | (117 | ) | |||
| m. | To record interest expenses. The pro forma condensed combined statements of operations do not assume reduction in interest based on actual and anticipated principal repayments of Matav’s borrowings or a change in interest rates should Matav refinance its borrowings in the future. |
- 22 -
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS |
| NOTE 3: | – | PRO FORMA ADJUSTMENTS (Cont.) |
| As describe above, Immediately prior to the consummation of the Acquisition, the entities constituting the Target Group will conclude arrangements with their banks and owners such that the total Financial Debt, net, as defined in the Acquisition Agreement, of each of the entities as of December 31, 2005 (and which will be acquired by Matav) will equal 4,037.5 per cable TV subscriber (calculated based on the aggregate cable TV subscribers of each of the Target Group companies as of September 30, 2005). The arrangements and adjustments of the Financial Debt, net in the Target Group as 0f January 1, 2006 will be carried out as follows: |
| 1. | Tevel International Communications Ltd. will not transfer to Matav a bank credit which exceeds the Financial Debt, net (approximately NIS 1.3 billion will be transferred to Matav out of approximately NIS 3.2 billion). |
| 2. | Golden Channel Group- the owners of Golden Channel Group will transfer funds to the relevant entities within the Group (approximately NIS 0.4 billion) prior to the Acquisition, in order to adjust the required Financial Debt, net which will be transferred to Matav. |
| Total original Debt NIS in millions | Average current interest rate(**) | Interest expenses | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Combined Bank Credit and interest expenses | 5,015 | 5.9 | % | 317 | |||||||
| Reducing the level of bank credit to the level | |||||||||||
| of the required Financial Debt, net and | |||||||||||
| financial expenses | (*) | (1,918 | ) | (118 | ) | ||||||
| Total bank credit expected to remain in the | |||||||||||
| combined company as performed in the pro- | |||||||||||
| forma | 3,097 | 199 | |||||||||
| (*) Comprised of: | 4,452 | ||||
| Reduction of short term credit: | |||||
| Increase in long term credit, net of elimination of | |||||
| debt not carried over to the combined company | (2,127 | ) | |||
| Total adjustment | (1,918 | ) | |||
| (**) | The pro forma combined condensed statement of operation does not include adjustments to the expected interest rate as will be determined in the frame of the Credit Facility. Accordingly the interest expenses were calculated based on average historical interest rate during 2005 multiplied by the adjusted bank credit that will be carried by Matav. |
- 23 -
| MATAV - CABLE SYSTEMS MEDIA LTD. |
| NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS |
| NOTE 3: | – | PRO FORMA ADJUSTMENTS (Cont.) |
| n. | Short term deposit (in the amount of NIS 35 million) and accruals (in the amount of NIS 35 million) that will not be transferred to Matav as agreed by the parties to the Acquisition. Such deposits and accruals will remain in Tevel Group due to arrangements that Teval Group has with its creditors. |
| NOTE 4: | – | LOSS PER SHARE AND PER AMERICAN DEPOSITARY SHARES (“ADS”) |
| The unaudited pro forma net loss per share and per ADS are based on the weighted average number of shares and ADS of Matav’s ordinary shares and ADS outstanding and are adjusted for additional ordinary shares and ADS issued to the Target Group shareholders as part of the Acquisition. |
| (in thousands) | Weighted Average number of ADS | Weighted Average number of Shares | ||||||
|---|---|---|---|---|---|---|---|---|
| Basic, as reported | 15,111 | 30,222 | ||||||
| Shares issued in connection with the Acquisition | 22,800 | 45,600 | ||||||
| Basic pro forma | 37,911 | 75,822 | ||||||
- 24 -
MATAV - CABLE SYSTEMS MEDIA LTD.
| APPENDIX 1 | – | TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS |
| Historical | Proforma | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Tevel Group before Matav's Initial Acquisition | Initial Acquisition | Tevel Group After effect of Initial Acquisition | |||||||||
| CURRENT ASSETS: | |||||||||||
| Cash and cash equivalents | 68 | - | 68 | ||||||||
| Trade receivables | 25 | - | 25 | ||||||||
| Other accounts receivable | 8 | - | 8 | ||||||||
| 101 | - | 101 | |||||||||
| LONG-TERM INVESTMENT AND RECEIVABLES: | |||||||||||
| Investments in affiliates | 132 | - | 132 | ||||||||
| Rights to broadcast films and programs | 30 | (12 | ) | 18 | |||||||
| Other receivables | 1 | - | 1 | ||||||||
| 163 | (12 | ) | 151 | ||||||||
| FIXED ASSETS, NET | 738 | (343 | ) | 395 | |||||||
| OTHER ASSETS, NET | 196 | - | 196 | ||||||||
| 1,198 | (355 | ) | 843 | ||||||||
| CURRENT LIABILITIES: | |||||||||||
| Credit from banks and others | 2,993 | (688 | ) | 2,305 | |||||||
| Trade payables | 125 | (92 | ) | 33 | |||||||
| Other accounts payable | 125 | - | 125 | ||||||||
| 3,243 | (780 | ) | 2,463 | ||||||||
| LONG - TERM LIABILITIES: | |||||||||||
| Loans from banks and others | 207 | - | 207 | ||||||||
| Customers' deposits for converters, net | 29 | (12 | ) | 17 | |||||||
| Accrued severance pay liability, net | 2 | - | 2 | ||||||||
| Related parties | 61 | - | 61 | ||||||||
| 299 | (12 | ) | 287 | ||||||||
| SHAREHOLDERS' EQUITY | (2,344 | ) | 437 | (1,907 | ) | ||||||
| 1,198 | (355 | ) | 843 | ||||||||
| (*) | Since the Initial Acquisition will be executed at a price reflecting a value of NIS 6,277.5 per cable TV subscriber, which is higher than the book value of the assets and liabilities purchased by Matav in the Initial Acquisition, the Shareholders Equity was adjusted in the amount of the excess of the purchase price over the book value of the assets and liabilities acquired (NIS 437 million). |
- 25 -
MATAV - CABLE SYSTEMS MEDIA LTD.
| APPENDIX 2 | – | TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS |
| December 31 2005 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Historical | Proforma | |||||||||||||
| Golden Channels | T.L.M | Consolidation Adjustments | Golden Channels Group | |||||||||||
| Adjustment NIS million | ||||||||||||||
| CURRENT ASSETS | ||||||||||||||
| Cash and cash equivalents | 7 | 3 | - | 10 | ||||||||||
| Trade receivables | 30 | 11 | - | 41 | ||||||||||
| Other accounts receivable | 9 | 2 | - | 11 | ||||||||||
| 46 | 16 | - | 62 | |||||||||||
| LONG-TERM INVESTMENT AND RECEIVABLES: | ||||||||||||||
| Investments in affiliates | 72 | - | - | 72 | ||||||||||
| Investment in limited partnerships | 1 | - | - | 1 | ||||||||||
| Related parties | 132 | 43 | (174 | ) | 1 | |||||||||
| Rights to broadcast films and programs | 27 | 10 | - | 37 | ||||||||||
| 232 | 53 | (174 | ) | 111 | ||||||||||
| Minority Interest | 57 | - | (57 | ) | - | |||||||||
| FIXED ASSETS, NET | 710 | 299 | - | 1,009 | ||||||||||
| OTHER ASSETS, NET | 112 | - | - | 112 | ||||||||||
| 1,157 | 368 | (231 | ) | 1,294 | ||||||||||
| CURRENT LIABILITIES: | ||||||||||||||
| Credit from banks and others | 1,216 | 379 | - | 1,595 | ||||||||||
| Trade payables | 212 | 17 | 38 | 267 | ||||||||||
| Other accounts payable | 110 | 33 | (38 | ) | 105 | |||||||||
| 1,538 | 429 | 0 | 1,967 | |||||||||||
| LONG - TERM LIABILITIES: | ||||||||||||||
| Commitments in respect of an additional channel | 8 | - | - | 8 | ||||||||||
| Deferred taxes | - | - | - | - | ||||||||||
| Customers' deposits for converters, net | 23 | 11 | - | 34 | ||||||||||
| Accrued severance pay liability, net | 10 | - | - | 10 | ||||||||||
| Related parties | 25 | 154 | (121 | ) | 58 | |||||||||
| Excess of losses over investment in subsidiary | - | 40 | (40 | ) | - | |||||||||
| 66 | 205 | (161 | ) | 110 | ||||||||||
| Minority interest | 13 | - | (13 | ) | - | |||||||||
| SHAREHOLDERS' EQUITY | (460 | ) | (266 | ) | (57 | ) | (783 | ) | ||||||
| 1,157 | 368 | (231 | ) | 1,294 | ||||||||||
- 26 -
MATAV - CABLE SYSTEMS MEDIA LTD.
| APPENDIX 2 | – | TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS |
| December 31 2005 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Historical | Proforma | |||||||||||||
| Golden Channels | T.L.M | Consolidation Adjustments | Golden Channels Group | |||||||||||
| Adjustment NIS million | ||||||||||||||
| Revenues: | 643 | 213 | - | 856 | ||||||||||
| Operating expenses: | ||||||||||||||
| Depreciation and amortization | 194 | 61 | - | 255 | ||||||||||
| Other operating expenses | 417 | 145 | - | 562 | ||||||||||
| Total operating expenses | 611 | 206 | - | 817 | ||||||||||
| Gross profit | 32 | 7 | - | 39 | ||||||||||
| Selling, marketing, general and administrative | ||||||||||||||
| expenses: | ||||||||||||||
| Selling and marketing expenses | 64 | 20 | - | 84 | ||||||||||
| General and administrative expenses | 28 | 9 | - | 37 | ||||||||||
| Operating income (loss) | (60 | ) | (22 | ) | - | (82 | ) | |||||||
| Financial expenses, net | 66 | 24 | - | 90 | ||||||||||
| Other income (expenses), net | 9 | (1 | ) | - | 8 | |||||||||
| Income (loss) before taxes on income | (117 | ) | (47 | ) | - | (164 | ) | |||||||
| Taxes on income | (2 | ) | (1 | ) | - | (3 | ) | |||||||
| Income (loss) after taxes on income | (119 | ) | (48 | ) | - | (167 | ) | |||||||
| Equity in earnings (losses) of investees, net | (15 | ) | 1 | (1 | ) | (15 | ) | |||||||
| Minority interest in profit of subsidiary | 6 | 0 | (6 | ) | - | |||||||||
| Net income (loss) | (128 | ) | (47 | ) | (7 | ) | (182 | ) | ||||||
- 27 -
Annex D
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| a “Personal Interest” of a shareholder, (i) includes the personal interest of any members of his/her immediate family (including the spouses thereof), or a personal interest of a body corporate in which the shareholder or such family member thereof serves as a director or the chief executive officer, owns at least 5% of its issued share capital or its voting rights or has the right to appoint a director or chief executive officer, and (ii) excludes a personal interest that arises solely from the fact of holding our ordinary shares or the shares of any body corporate. | |||
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| 1. | To approve the Acquisition Agreement described in the Proxy Statement. | ||
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| (1a) | Do you have a Personal Interest in the transaction (must be completed for vote to be counted)? | ||
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| 2. | To increase the Company’s authorized share capital to NIS 150,000,000 divided into 150,000,000 ordinary shares par value NIS 1.00, and amend Article 2 of the Company’s Articles of Association accordingly. | ||
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| 3. | Subject to the consummation of the Acquisition Agreement, to change the Company’s name to HOT – Cable Systems Media Ltd. | ||
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| 4. | Subject to the consummation of the Acquisition Agreement, to make the following amendments to the Company’s Articles of Association: | ||
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| • | Amend the Title and Article 1 of the Articles of Association to change the name of the Company to HOT – Cable Systems Media Ltd. | |
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| • | Amend Article 13 of the Articles of Association to create a staggered board in accordance with the proposed amendment included in the Proxy Statement Annex A. | |
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| 5. | Subject to the consummation of the Acquisition Agreement to dismiss the Company’s serving directors with the exception of Messrs. Yair Keusch and Yeshayahu Drori (the Company’s external directors) and, elect the following individuals to serve as directors for the term and class designated in the Proposal: | ||
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| Mr. Amos Lasker, Class I – to serve until our annual general meeting to be held in 2007 | ||
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| Mr. Shilo Debeer, Class I – to serve until our annual general meeting to be held in 2007 | ||
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| Mr. Asaf Bartfeld, Class II – to serve until our annual general meeting to be held in 2008 | ||
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| Mr. Meir Srebernik, Class II – to serve until our annual general meeting to be held in 2008 | ||
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| Mr. Yinon Engel, Class III – to serve until our annual general meeting to be held in 2009 | ||
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| Mr. Tal Menipaz, Class III – to serve until our annual general meeting to be held in 2009 | ||
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| Dr. David Tadmor, Class IV – to serve until our annual general meeting to be held in 2010 | ||
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| Mr. Gilad Shavit, Class IV – to serve until our annual general meeting to be held in 2010 | ||
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o | € | DETACH PROXY CARD HERE | € |
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| YES | NO |
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The Voting Instruction must be signed by the person in whose name the relevant Receipt is registered on the books of the Depositary. In the case of a Corporation, the Voting Instruction must be executed by a duly authorized Officer or Attorney. |
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| Date | Share Owner sign here |
| Co-Owner sign here |
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| Matav-Cable Systems Media Ltd. |
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| Instructions to The Bank of New York, as Depositary |
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| (Must be received prior to 5:00 PM on June 20, 2006) |
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| The undersigned registered owner of American Depositary Shares hereby requests and instructs The Bank of New York, as Depositary, to endeavor, insofar as practicable, to vote or cause to be voted the amount of shares or other Deposited Securities represented by such Shares of Matav-Cable Systems Media Ltd. registered in the name of the undersigned on the books of the Depositary as of the close of business on May 26, 2006 at the Special General Meeting of the Shareholders of Matav-Cable Systems Media Ltd. to be held at management offices of HOT, Spain Building, Fourth Floor Europark Industrial Area, Kibbutz Yakum, Israel on June 27, 2006, or any postponement or adjournment thereof in respect of the resolutions specified on the reverse. |
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| NOTE: |
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| Instructions as to voting on the specific resolutions should be indicated by an X in the appropriate box. If the depositary does not receive instructions from the owner of a Receipt before June 20, 2006, the Depositary shall vote such Deposited Securities in proportion to the votes cast by holders of all Shares, including Shares evidenced by Receipts. |
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| To include any comments, please mark this box. o |
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| Please complete and date this proxy on the reverse side and return it promptly in the accompanying envelope. |
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Exhibit 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
Commission file number: 0-28556
MATAV – CABLE SYSTEMS MEDIA LTD.
(Exact name of Registrant as specified in its charter)
Israel
(Jurisdiction of incorporation or organization)
|
42 Pinkas Street |
|
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
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| American Depositary Shares |
| Ordinary Shares* |
* Not for trading, but only in connection with the registration of American Depositary Shares representing such ordinary shares, pursuant to the requirements of the Securities and Exchange Commission.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:
Ordinary Shares of NIS 1.00 each 30,220,476
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
Yes x No o
Indicate by check mark which financial statement item the Registrant has elected to follow:
Item 17 o Item 18 x
TABLE OF CONTENTS
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121 | ||
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121 | ||
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 121 | |
121 | ||
121 | ||
121 | ||
121 | ||
122 | ||
123 | ||
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | 123 | |
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123 | ||
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124 | ||
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126 | ||
3
INTRODUCTION
As used herein, references to “we,” “our,” “us,” “Matav” or the “Company” are references to Matav-Cable Systems Media Ltd., Matav Investments Ltd., Cable Systems Media Haifa-Hadera Ltd., Nonstop Internet (1999) Ltd., Matav Assets Ltd., Matav Infrastructure Ltd. and Matav Infrastructure 2001, L.P., all of which are wholly owned subsidiaries, and Nonstop Ventures, Ltd., except as the context otherwise requires
In this document, references to “$,” “US$,” “US dollars” and “dollars” are to United States dollars and references to “NIS” and “shekels” are to New Israeli Shekels. This annual report contains translations of NIS amounts into US dollars at specified rates solely for the convenience of the reader. No representation is made that the amounts referred to in this annual report as convenience translations could have been or could be converted from NIS into US dollars at these rates, at any particular rate or at all. The translations of NIS amounts into US dollars appearing throughout this annual report have been made at the representative exchange rate on December 31, 2004 of NIS 4.308= US$ 1.00 as published by the Bank of Israel, unless otherwise specified. See “Item 3A. Key Information – Selected Financial Data – Exchange Rate Data.”
We maintain our financial books and records in shekels and present our financial statements in conformity with generally accepted accounting principles in Israel, or Israeli GAAP. As applicable to our financial statements, Israeli GAAP and U.S. GAAP vary in certain respects, as described in Note 26 to the financial statements. We present our historical statements in shekels that have been adjusted to reflect changes in purchasing power due to changes in the Israeli consumer price index. Unless otherwise specified in this annual report, all financial data relating to us are presented in shekels adjusted to December 31, 2004 purchasing power (“adjusted NIS”). See “Item 5B. Liquidity and Capital Resources - Impact of Inflation and Exchange Rate Fluctuations” and Note 23 to the financial statements.
FORWARD-LOOKING STATEMENTS
This annual report includes forward-looking statements within the meaning of Section 27A of the US Securities Act of 1933, as amended, Section 21E of the US Securities Exchange Act of 1934, as amended, and the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties and assumptions about us.
Words such as “believe,” “anticipate,” “expect,” “intend,” “seek,” “will,” “plan,” “could,” “may,” “project,” “goal,” “target” and similar expressions often identify forward-looking statements but are not the only way we identify these statements. All statements other than statements of historical fact included in this annual report, including the statements in the sections of this annual report entitled “Item 3D. Key Information – Risk Factors,” “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects” and located elsewhere in the annual report regarding our future performance, plans to increase revenues or margins or preserve or expand market share in existing or new markets, reduce expenses and any statements regarding other future events or our future prospects, are forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including all the risks discussed in “Item 3D. Key Information – Risk Factors,” “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects”. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this annual report might not occur.
4
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IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | |
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Not applicable. | |
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OFFER STATISTICS AND EXPECTED TIMETABLE | |
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Not applicable. | |
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KEY INFORMATION | |
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SELECTED FINANCIAL DATA |
The following table sets forth our selected consolidated financial data as at and for each of the years in the five-year period ended December 31, 2004. The selected consolidated financial data for the years ended December 31, 2000, 2001, 2002, 2003 and 2004 are based on consolidated financial statements that have been prepared in accordance with Israeli generally accepted accounting principles, or GAAP. As applied to our consolidated financial statements, Israeli GAAP and U.S. GAAP vary in certain respects, as described in Note 26 to the financial statements.
We were incorporated on June 28, 1987. The selected consolidated financial data set forth below should be read in conjunction with “Item 5. Operating and Financial Review and Prospects”, and the financial statements and notes thereto included elsewhere in this report on Form 20-F. The financial data for the year ended at December 31, 2004 have been translated into US dollars using the representative rate of exchange of the US dollar to the New Israeli Shekel, as published by the Bank of Israel, at December 31, 2004 (NIS4.308 = US$ 1.00). The translation is solely for convenience and should not be construed as a representation that Israeli currency amounts actually represent, or could be converted into US dollars.
Significant changes in accounting
The financial statements as of December 31, 2003 and for reported periods through that date were presented on the basis of the historical cost convention adjusted for the changes in the general purchasing power of the Israeli currency (“New Israeli Shekel” or “NIS”). The Company and its subsidiaries maintain their accounts in nominal NIS. The nominal figures were adjusted to NIS of equivalent purchasing power (NIS of December 2003) in conformity with principles prescribed by Statements of the Institute of Certified Public Accountants in Israel, on the basis of changes in the Consumer Price Index (“CPI”).
During the reported period, we recorded equity in losses of HOT Telecom L.P., which commenced its operations during 2004.
5
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| 2000 |
| 2001 |
| 2002 |
| 2003 |
| 2004 |
| 2004 |
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(adjusted NIS) |
| NIS (in |
| NIS (in |
| NIS (in |
| NIS (in |
| NIS (in |
| $ (in |
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Revenues |
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| 474,670 |
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| 469,389 |
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| 495,536 |
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| 545,480 |
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| 584,564 |
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| 135,693 |
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Operating income (loss) |
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| (61,612 | ) |
| (129,851 | ) |
| (98,681 | ) |
| (7,819 | ) |
| 3,009 |
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| 698 |
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Financial expenses, net |
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| 34,324 |
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| 52,088 |
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| 48,089 |
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| 83,958 |
|
| 50,333 |
|
| 11,684 |
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Other income (expenses), net |
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| 1,007 |
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| 3,053 |
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| 278,535 |
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| 80,996 |
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| (42,680 | ) |
| (9,907 | ) |
Income (loss) before taxes on income |
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| (94,930 | ) |
| (178,886 | ) |
| 131,765 |
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| (10,781 | ) |
| (90,004 | ) |
| (20,893 | ) |
Equity in earnings (losses) of affiliated companies, net |
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| (128,554 | ) |
| (78,822 | ) |
| 10,910 |
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| 40,907 |
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| 14,301 |
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| 3,320 |
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Net income (loss), under Israeli GAAP |
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| (223,654 | ) |
| (257,274 | ) |
| 33,824 |
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| (5,450 | ) |
| (82,984 | ) |
| (19,263 | ) |
Net income (loss) per ordinary share, under Israeli GAAP |
|
| (7.7 | ) |
| (8.9 | ) |
| 1.2 |
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| (0.2 | ) |
| (2.74 | ) |
| (0.64 | ) |
Net income (loss) per ADS, under Israeli GAAP |
|
| (15.4 | ) |
| (17.8 | ) |
| 2.4 |
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| (0.4 | ) |
| (5.48 | ) |
| (1.28 | ) |
Weighted average number of shares outstanding in thousands, basic, under Israeli GAAP |
|
| 28,914 |
|
| 28,834 |
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| 28,860 |
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| 29,347 |
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| 30,217 |
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| 30,217 |
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ADS shares outstanding in thousands, basic – under Israeli GAAP |
|
| 14,457 |
|
| 14,417 |
|
| 14,430 |
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| 14,674 |
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| 15,108 |
|
| 15,108 |
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Net income (loss), under US GAAP |
|
| (219,400 | ) |
| (215,639 | ) |
| 27,451 |
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| (38,093 | ) |
| (98,434 | ) |
| (22,849 | ) |
Net income (loss) per ordinary share, under US GAAP |
|
| (7.7 | ) |
| (7.4 | ) |
| 1.0 |
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| (1.3 | ) |
| (3.26 | ) |
| (0.76 | ) |
Net income (loss) per ADS, under US GAAP |
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| (15.4 | ) |
| (14.8 | ) |
| 2.0 |
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| (2.6 | ) |
| (6.52 | ) |
| (1.52 | ) |
Weighted average number of shares outstanding in thousands, basic, under US GAAP |
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| 28,604 |
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| 29,286 |
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| 28,860 |
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| 29,347 |
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| 30,217 |
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| 30,217 |
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ADS shares outstanding in thousands, basic, under US GAAP |
|
| 14,302 |
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| 14,643 |
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| 14,430 |
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| 14,674 |
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| 15,108 |
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| 15,108 |
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Capital expenditures |
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| 394,206 |
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| 272,817 |
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| 116,841 |
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| 55,655 |
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| 95,428 |
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| 22,151 |
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Balance Sheet Data: |
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Fixed assets, net |
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| 912,346 |
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| 1,038,087 |
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| 991,998 |
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| 876,825 |
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| 825,511 |
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| 191,623 |
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Total assets, net |
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| 1,163,059 |
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| 1,183,732 |
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| 1,132,626 |
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| 1,142,552 |
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| 1,078,882 |
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| 250,437 |
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Short-term credit (including current maturities of bank loans and debentures) |
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| 249,657 |
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| 561,365 |
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| 547,853 |
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| 469,104 |
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| 499,344 |
|
| 115,911 |
|
Long-term bank loans |
|
| 233,300 |
|
| 186,154 |
|
| 142,085 |
|
| 127,403 |
|
| 101,457 |
|
| 23,551 |
|
Debentures |
|
| 142,479 |
|
| 132,457 |
|
| 99,462 |
|
| 66,145 |
|
| 33,201 |
|
| 7,707 |
|
Shareholders equity under Israeli GAAP |
|
| 367,694 |
|
| 112,273 |
|
| 147,072 |
|
| 180,748 |
|
| 97,781 |
|
| 22,698 |
|
Shareholders equity under US GAAP |
|
| 299,831 |
|
| 102,552 |
|
| 281,409 |
|
| 352,601 |
|
| 273,549 |
|
| 63,498 |
|
Accumulated other comprehensive income under US GAAP |
|
| – |
|
| – |
|
| 150,376 |
|
| 220,338 |
|
| 237,212 |
|
| 55,063 |
|
Total assets, net under US GAAP |
|
| 1,103,642 |
|
| 1,186,468 |
|
| 1,353,161 |
|
| 1,425,233 |
|
| 1,363,356 |
|
| 316,471 |
|
EBITDA** |
|
| 44,504 |
|
| 256 |
|
| 56,735 |
|
| 146,992 |
|
| 139,644 | *** |
| 32,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
* The data set forth in the table above is expressed in NIS or US dollars, as applicable, except for data set forth in the table regarding numbers of shares and ADSs, as applicable.
** EBITDA is presented because it is a measure commonly used in the telecommunications industry and is presented solely in order to improve the understanding of the Company’s operating results and to provide perspective regarding these results. EBITDA, however, should not be considered as an alternative to operating income or income for the period or as an alternative to cash flow from operating activities or as a measure of liquidity. EBITDA is not a measure of financial performance under generally accepted accounting principles and may not be comparable to other similarly titled measures for other companies.
EBITDA may not be indicative of the historic operating results of the Company nor is it meant to be predictive of potential future results. Reconciliation between the operating profit in the financial statements and EBITDA is presented in “Item 5A. Operating and Financial Review and Prospects – Operating Results”.
*** Since the results for the year 2003 do not include proportional consolidation with HOT Vision Ltd., for comparison purposes, the EBITDA is presented assuming no consolidation with HOT Vision Ltd. For information regarding HOT Vision Ltd., see also “Item 4B. Business Overview.”
Exchange Rate Data
The following table sets forth, for the years indicated, exchange rates between the shekel and the US dollar, expressed as shekels per US dollar and based upon the daily representative rate of exchange on the last day of each year as published by the Bank of Israel.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2000 |
| 2001 |
| 2002 |
| 2003 |
| 2004 |
| 2005(2) |
| ||||||
|
|
|
|
|
|
|
| ||||||||||||
Average(1) |
|
| 4.077 |
|
| 4.214 |
|
| 4.736 |
|
| 4.512 |
|
| 4.483 |
|
| 4.364 |
|
High |
|
| 4.198 |
|
| 4.416 |
|
| 4.994 |
|
| 4.924 |
|
| 4.634 |
|
| 4.416 |
|
Low |
|
| 3.967 |
|
| 4.041 |
|
| 4.437 |
|
| 4.283 |
|
| 4.308 |
|
| 4.299 |
|
End of period |
|
| 4.041 |
|
| 4.416 |
|
| 4.737 |
|
| 4.379 |
|
| 4.308 |
|
| 4.416 |
|
|
|
(1) | Calculated based on the average of the exchange rates on the last day of each month during the relevant period. |
(2) | Through May 31, 2005. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| December |
| January |
| February |
| March |
| April |
| May |
| ||||||||||||||
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
| 2004 |
| 2005 |
| 2005 |
| 2005 |
| 2005 |
| 2005 |
| ||||||||||||||
|
|
|
|
|
|
|
| ||||||||||||||||||||
High |
|
|
| 4.374 |
|
|
|
| 4.414 |
|
|
|
| 4.392 |
|
|
| 4.379 |
|
| 4.395 |
|
| 4.416 |
| ||
Low |
|
|
| 4.308 |
|
|
|
| 4.352 |
|
|
|
| 4.357 |
|
|
| 4.299 |
|
| 4.360 |
|
| 4.348 |
| ||
At May 31, 2005, the representative rate of exchange was NIS 4.416 per US dollar, as published by the Bank of Israel. Changes in the exchange rate between the shekel and the US dollar could affect our financial results.
Payment of Dividends to Shareholders
Our board of directors decided, on December 27, 1999, to distribute an interim cash dividend to our shareholders who held shares on January 11, 2000, in the nominal amount of NIS 7.576 (approximately US$ 1.82) per ordinary share, for a total nominal amount of approximately NIS 222.0 million paid to the shareholders on January 26, 2000. Distribution of this dividend was approved as a final dividend for the year 1999 at our annual general meeting of shareholders held on December 31, 2000. No dividends were declared in 2000, 2001, 2002, 2003 or 2004.
|
|
CAPITALIZATION AND INDEBTEDNESS. | |
|
|
Not applicable. | |
7
|
|
REASONS FOR THE OFFER AND USE OF PROCEEDS. | |
|
|
Not applicable. | |
8
| 3D. | RISK FACTORS |
Risks relating to our business and our industry
In order to operate our business, we must have and maintain valid licenses.
We conduct our operations pursuant to two general non-exclusive cable broadcast licenses, referred to as the Cable Broadcasting Licenses, granted by the Council of Cable and Satellite Broadcasting, or the Council, on April 30, 2002, and a special broadcasting HeadEnd license, referred to as the Broadcasting HeadEnd License, granted by the Israeli Minister of Communications on May 2, 2002. In addition, we received a non-exclusive telecommunications infrastructure license, referred to as the Telecommunications Infrastructure License, from the Minister of Communications in March 27, 2002. On November 2003, the Minister of Communications granted to HOT Telecom L.P., or HOT Telecom, a limited partnership owned approximately 26.6% by us, with the remainder owned by the other two Israeli cable television operators, Tevel Israel International Ltd. Group, or Tevel, and Golden Channels & Co. Group, or Golden Channels, an infrastructure license, referred to as the HOT Telecom Infrastructure License, covering the same services covered by the Telecommunications Infrastructure License and also including the provision of domestic fixed communications services over cable networks including basic telephony services, to subscribers. The HOT Telecom Infrastructure License replaced and cancelled the Telecommunications Infrastructure License granted to us in 2002.
The Cable Broadcast Licenses are effective for a period of fifteen years, and the HOT Telecom Infrastructure License is effective for a period of twenty years, and each can be extended by additional ten-year periods if the Council, in respect of the Cable Broadcast Licenses, or the Minister of Communications, or the Minister, in respect of the HOT Telecom Infrastructure License, determine that we, or HOT Telecom, as applicable, have:
| — | complied with the terms and conditions of the licenses and the applicable law and regulations; |
| — | complied with the instructions of the Council and the Minister; |
| — | continuously acted in a manner to improve our broadcasts, the technology of the broadcasts and the scope, availability and quality of our telecommunications services and our network technology; |
| — | the ability to continue to provide the broadcasts and to invest in improvements of the broadcasts in the future, and the ability to continue to provide the telecommunications services and make necessary investments in order to update our technology and the scope, availability and quality of our telecommunications services; and |
| — | continued to comply with the conditions upon which our licenses were granted. |
Our Broadcasting HeadEnd License is valid for so long as our Cable Broadcast Licenses remain in force, but in any event no later than May 30, 2017, although we may apply for an extension of the Broadcasting HeadEnd License beyond this date.
In order to ensure compliance with our obligations pursuant to our Cable Broadcast Licenses, applicable law and regulatory bodies, we have provided a bank guarantee in the amount of NIS 9.3 million to the Council. In order to ensure compliance with the HOT Telecom Infrastructure License, we and the other two Israeli cable television operators provided bank guarantees in the aggregate amount of US$ 14 million to the Minister. The bank guarantee provided by us was in the total amount of US$ 3.72 million.
Each of the Minister and the Council has the authority to exercise the guarantees in the event that the licensee does not fulfill its obligations, and to cover any damage, loss or cost that the Council, the Minister or the government may incur as a result of any breach of obligations under the licenses, and to ensure any payments by the licensee, including royalty payments and payments of fines imposed by the Council or the Minister. The exercise of the guarantee does not derogate from the authority of the Council or the Minister to cancel the licenses, to amend the terms and conditions of the licenses or to impose other sanctions, including fines for certain stipulated breaches or actions.
The Council or the Minister, as applicable, have the authority to amend the terms of our licenses or the HOT Telecom Infrastructure License, at any time, and, in relation to the Cable Broadcast Licenses, the Council must take into account any prejudice to the licensee that would result from such amendment. Further, the licenses may be cancelled for material breach of their provisions, or non-compliance with legal requirements, or the failure to remedy of an immaterial breach. The HOT Telecom Infrastructure License can further be cancelled by the Minister for non-supply of services, non-fulfillment of the conditions of receipt of the license, breach of the restrictions upon the means of control of HOT Telecom, breach of cross ownership restrictions or breach of obligations to provide information to the Minister. HOT Telecom is also required to meet certain requirements pursuant to the HOT Telecom Infrastructure License regarding the laying down of network infrastructure.
Although we believe that we are currently in compliance with all material requirements of our licenses, the interpretation and application of the standards used to measure these requirements are not certain, and disagreements may arise in the future between us and the Minister or the Council.
9
We are subject to special regulatory restrictions applicable to monopolies, which limit our ability to control the conduct of our business.
On November 8, 1999, the Controller of Restrictive Business Practices, or the Controller, declared that we, and all the other cable television operators in Israel, constitute a monopoly in the provision of multi-channel cable television services in our then respective franchise areas (which are the same areas in which we operate pursuant to our current licenses). On December 28, 1999, we filed an appeal of this declaration in the Restrictive Business Practices Court, which was dismissed in October 2004. As a result, we are and will continue to be subject to the supervision of the Restrictive Business Practices Authority, in addition to the existing supervision of the Minister and the Council, including in the areas of pricing, quality of broadcasting services, agreements with our subscribers, agreements with content providers and the use of our cable television network.
There can be no assurance that the operational merger will result in a successful integration of the operations of us, Tevel and Golden Channels, or whether the operational merger will enhance our profits and competitiveness.
As of 2001, the cable television operators are acting in order to merge their activities. The purpose of the merger, among other things, is to enable us to provide additional telecommunications services, to increase our ability to compete successfully with Bezeq in the field of domestic fixed line services, including telephony, and, to cooperate in various areas, including purchase of content, marketing, sales and unified networks and effect substantial cost savings. In order to strengthen the cooperation of the three Israeli cable television operators, we, Tevel and Golden Channels agreed to perform an operational merger in June 2004. To this effect, a joint management was appointed to oversee the joint operation of the marketing, sales, engineering, customer service, operations and information systems activities of the three cable television operators. The joint management conducts and manages the Company’s activities in the ordinary course of business in the areas of the joint activities. Material decisions applicable to the operational merger require our approval as well as the approval of Tevel and Golden Channels. Our approval is subject to the decision of our board of directors and other corporate bodies, as required by law. Since the appointment of the joint management and the commencement of the operational merger, we, Tevel and Golden Channels have operated jointly on a regular basis. The three cable television operators have agreed in principle that the allocation of the expenses deriving from the joint activity among themselves shall be proportional to the number of subscribers of each party. The operational merger does not include transfer of assets from any of the three cable television operators to a merged entity or from any of the three cable television operators to another cable operator. Each of the three cable television operators remains the sole owner of its assets and is entitled to the revenue generated from its own subscribers. Furthermore, the joint activity does not include transfer of liabilities owed to third parties, including, inter alia, banks or other creditors. There can be no assurance that the operational merger will result in a successful integration of the operations of us, Tevel and Golden Channels, or whether the operational merger will enhance our profits and competitiveness or whether it will result in a legal merger among the parties, as described in the annual report. In addition, should the operational merger not be successful, our overall expenses may increase, since we may no longer benefit from reduced costs, which result from our joint activities with the other two cable television operators, and we may need to incur additional capital expenditures in order to operate our business as a separate entity, independent from the other two cable television operators.
We and the other cable television operators have agreed on the terms of a merger. The legal merger might not be consummated, and if it is, we might not be able to realize any anticipated benefits from the merger.
In February 2003, we and the other Israeli cable television operators agreed on a final version of an agreement outlining the structure and conditions of a merger among us. To date, the final merger agreement has not been signed, and we cannot predict when and if it will be signed.
Prior to the merger we will need to reach an agreement with the major Israeli banks, which are creditors of the parties to the merger, addressing among other things, the assignment of certain of the current debts and securities to the merged entity, and its future financing. The merger must also receive approvals under applicable law, including the approvals of the Council, the Income Tax Commission, the Controller, and by an Israeli court, after receiving the approvals of certain creditors and the relevant corporate bodies of the relevant parties. To date, approvals have been granted, subject to terms and conditions, from the Council, the Controller and the Income Tax Commission. Subject to the final terms of the merger, further approval of the Income Tax Commission to the merger may be required. The Supervisor of Banks of the Bank of Israel, or the Supervisor of Banks, has yet to agree that the proposed merger is not in breach of certain limitations under Israeli banking laws applicable to the Israeli banks, which are creditors of the merged entity.
According to the position of the Supervisor of Banks, the merger of the cable television operators and the formation of a merged cable entity would constitute a deviation from the directives of the Bank of Israel and of “Proper Bank Management Directives” of the Supervisor of Banks regarding, among other things, restriction on debt amounts to a “Group of Borrowers” as such term is defined in the “Proper Bank Management Directives”. The relevant directives deal with certain limits applicable to loan amounts given by banking corporations to “Sole Borrower” and/or “Group of Borrowers” and as a result, attribution of the merged company’s debts, among other things, to an indirect controlling shareholder of us and the other cable television operators.
10
In November 2004, we concluded preliminary discussions with Tevel and its shareholders regarding the purchase by us of all of Tevel’s assets, including Tevel’s holdings in Golden Channels. If we were to acquire Tevel’s assets, we would have over 560,000 cable subscribers, representing approximately 60% of the Israeli cable television market, and we would hold 35% of Golden Channels, subject to certain terms. We have not signed a binding agreement with Tevel, and cannot be certain that this transaction will be completed, or if completed, on what timeframe or on what terms and conditions, including price. If this transaction were to take place, we would likely incur or assume substantial additional indebtedness. If we were to acquire all of Tevel’s assets as aforesaid, there is no assurance that the proposed merger of the three Israeli cable television operators will be completed in its current proposed form.
In the event that the merger is not consummated, it will be more difficult for us to realize our objectives and to compete effectively. In addition, should the merger not be consummated, our overall expenses may increase, since we may no longer benefit from reduced costs, which result from our joint activities with the other two Israeli cable television operators.
If the merger is consummated, there can be no assurance whether: (i) the conditions of the merger will enable the merged entity to successfully compete; (ii) there will be a successful integration between the merged entities; and (iii) the combined entity will be able to compete effectively against current or future competitors and will realize the anticipated benefits of the merger.
If the merger is consummated, we face the following risks:
| q | As a result of the merger, we may be characterized as a passive foreign investment company, and as a result our U.S. shareholders may suffer adverse tax consequences. Generally, if for any taxable year 75% or more of our gross income is passive income, or at least 50% of our assets are held for the production of, or produce, passive income, we may be characterized as a passive foreign investment company for U.S. federal income tax purposes. This characterization could result in adverse U.S. tax consequences to our shareholders, including having gain realized on the sale of our shares be treated as ordinary income, as opposed to capital gain income, and having potentially punitive interest charges apply to such sales proceeds. U.S. shareholders should consult with their own U.S. tax advisors with respect to the U.S. tax consequences of investing in our ordinary shares. |
| q | As a result of the merger, we may be deemed to be an ‘investment company’ under the Investment Companies Act of 1940. A significant part of our assets may constitute ‘investment securities’ as defined in the Investment Company Act. If we were deemed to be an ‘investment company,’ then we would be required to be registered as such. In that case there would be a substantial risk that we would be in violation of the Investment Company Act because of the practical inability of a non-U.S. company to register under the Investment Company Act. If we were deemed to be an unregistered ‘investment company’ under the Investment Company Act, our contracts may be voidable, we might not be allowed to offer securities in the United States, and we may also be subject to other materially adverse consequences. |
| q | The sums that will be deemed to have been borrowed by the merged entity may exceed the maximum borrowing limit of a single borrower under Israeli banking laws, which might materially restrict the ability of the merged entity to receive loans from Israeli banks. In addition, we, the merged entity and the other parties to the merger may be subject to additional limitations in connection with the receipt of loans from Israeli banks due to restrictions under Israeli Banking laws pertaining to the maximum borrowing by a group of borrowers. |
| q | The goodwill contributed to the merged entity by the merging entities could result in accounting expenses under Israeli GAAP in the years following the consummation of the merger that would reduce our shareholders’ equity and would have an adverse effect on the public market for our shares and ADS’s, and may negatively affect our ability to pay dividends to our shareholders. A material reduction in our shareholders’ equity could cause our shares to be delisted from the Tel Aviv Stock Exchange and Nasdaq National Market. |
| q | For the merger, including certain ancillary actions performed in the framework of the merger, to qualify, pursuant to the approval of the Israeli Income Tax Commission, as a tax-free transaction under Sections 103, 104 and 105 of the Israeli Income Tax Ordinance, the merging entities and their respective shareholders (including us) are required to comply with certain restrictions, including restrictions on certain issuances of shares of the merged entity and restrictions on the number of shares that may be sold by the shareholders of the merged entity. In addition, the merged entity may not sell a majority of the assets (as defined in the Income Tax Ordinance) transferred to it by the merging entities during this restricted period, and no actions, transfers, provision of guarantees or any other activities may be performed between the merged entity and the other entities that participated in the merger, including their respective shareholders. In the event that any of these conditions or restrictions are not complied with, the tax exemption may be retroactively cancelled and the merger may be subject to tax, plus a consumer price index linkage adjustment and interest. These restrictions may deter an acquisition of the merged entity, and prevent us from selling or disposing of our shares in the merged entity. Additionally, subject to the final terms of the merger, further approval of the Income Tax Commission to the merger may be required and additional conditions or restrictions may be imposed on the merged entity, the merging entities and their respective shareholders. |
11
| q | The terms and conditions of the approvals that we have received to date to the merger affect the ability of the merged entity to manage its business, and restrict the ability of the merged entity to utilize some of the potential competitive advantage it may otherwise have. |
| q | In the event that the Controller considers there to be a material decline in the multi-channel television market as a result of the consummation of the merger, he has the power to oblige the merged entity to allow other broadcast license holders (including D.B.S. Satellite Services (1998) Ltd., commonly known as YES, the Israeli satellite multi-channel television operator) usage of the network infrastructure to access all potential subscribers, and not only to the subscribersof the merged entity. |
| q | A condition of the approval of the Controller to the merger is an obligation upon the merged entity to begin to supply fixed line telephony services over cable infrastructure to the Israeli public not later than November 20, 2004. As of the end of November 2004, HOT Telecom has gradually commenced to provide commercial domestic fixed telephony services. The merged infrastructure entity is obligated to invest in fixed line telephony cable infrastructure an aggregate of not less than NIS 350 million, that shall be invested as follows: not less than NIS 190 million until June 30, 2005, not less than NIS 160 million until June 30, 2006 and any other amount as shall be required for the fulfillment of its business plan for the provision of telephony services which fully compete with those of Bezeq. The Company’s portion of the infrastructure investment commitments (NIS 350 million), pro rata to its proportionate share in HOT Telecom is estimated to be approximately NIS 93 million. In addition, according to the amendment to the Controller’s approval, the Controller increased the minimum number of subscribers to whom the merged entity is obliged to provide telephony services by the end of the consecutive years 2005, 2006 and 2007. The approval of the Controller to the merger is conditional upon the provision of a bank guarantee in the amount of US$ 15 million to ensure compliance with the terms of the approval. In the event that the Controller decides, in his discretion, that there has been a material breach of the terms of the approval, he may fully or partially exercise the guarantee. We have provided our pro rata portion of this amount, by giving a guarantee in the amount of US$ 3.75 million. |
Our joint activities with the other two Israeli cable television operators is subject to regulation and antitrust review, which limits the joint activities, causes us significant expenses and makes the future of these joint activities uncertain.
On April 22, 2002, the Controller granted an approval to the merger the cable television operators. The Controller’s approval to the merger is subject to terms and conditions. The Controller’s approval to the merger was extended and amended from time to time.
On December 15, 2004, the Controller granted us and the other cable television operators an additional extension of the merger approval from April 2002 until January 29, 2005, which was further amended on January 30, 2005 until the earlier of January 29, 2006 or the consummation of the merger. There can be no assurance that the Controller will agree to further extend the approval. If the approval will not be further extended upon its expiration, we may be required to cease our joint activities with the other two cable television operators. The approval of the Council to the merger was granted on March 7, 2002 and amended on February 13, 2003. For more information on the terms and conditions of the approvals of the Council and Controller, see “Item 4B. Business Overview”.
On January 30, 2005, the Controller granted us and the other cable television operators an exemption from the requirement to receive an approval of a restrictive arrangement in relation to the ongoing cooperation between the cable television operators. The exemption was granted for a period of one year, until January 30, 2006. Pursuant to the exemption, the cable television operators may continue their cooperation in the multi-channel TV broadcasting operations, including marketing, content acquisition and content production, and in building infrastructure and providing fixed line telecommunication services, including access to High Speed Internet and telephony. This exemption is conditional upon, among other things, the cable television operators’ compliance with the terms of the Controller’s approval to the merger and all of the cable television operators refraining from taking any irreversible actions which would prevent them from being able to undertake separate and independent activities in the event that the merger will not be completed. If the merger is not consummated, it will be necessary for us to receive an extension of this exemption. There can be no assurance that the Controller will continue to grant us this exemption. If this exemption will not be extended, we may be required to cease our joint activities with the other two cable television operators.
The terms and conditions of the approvals of the Council and the Controller to the proposed merger also impose significant restrictions on the activity of the merged entity in relation to all areas of our business, including programming, marketing and broadcasting. We currently have the obligation to fulfill most of the conditions of the Controller’s approval of the proposed merger.
12
The telecommunications industry in Israel is highly regulated which limits our flexibility to manage our business.
Our business is subject to regulation under the Israeli Telecommunications Law as amended, or the Telecommunications Law, regarding, among other things:
| q | licenses; |
| q | royalties and other payments to be paid by licensees to the government; |
| q | content and scope of programming; |
| q | the subscriber charges set by cable television operators for their cable television services; |
| q | our cable infrastructure that will become a public telecommunications network; and |
| q | the nature of telecommunications services. |
Changes in laws, regulations or government policy affecting our business activities could adversely affect our business and operations. We cannot make any assurance that the Minister will not intervene in relation to the amounts we charge our subscribers.
As a result of the changing regulatory environment we have lost the competitive advantage we previously enjoyed as a holder of exclusive franchises, and we face competition from a variety of sources. This has lowered the entry barriers for potential new competitors and may affect our ability to compete in the market.
The Israeli telecommunications market has been transformed, moving to a more liberalized environment in which various markets are being gradually opened to competition. Amendments to the Telecommunications Law, which replaced the previous system of exclusive franchises by general non-exclusive licenses, have significantly reduced the barriers to entry into our market and imposed conditions upon us, thereby increasing competition.
In January 1999, the Ministry of Communications granted a license for the provision of television broadcasts to subscribers in Israel via satellite to YES. YES began to operate and market its broadcasts in July 2000. Bezeq – Israel Telecommunications Corporation Ltd., or Bezeq, is a principal shareholder of YES. Bezeq was declared as a monopoly by the Controller over the provision of basic telephony services, telecommunications infrastructure services, data transmission services and ancillary services and access to High Speed Internet. Bezeq has great financial resources, which it may place at the disposal of YES, thereby allowing YES to offer its services at low prices and use aggressive marketing strategies, including providing set-top boxes free of charge. For these reasons, we may not be able to successfully compete with YES. We also have an obligation to lease our inside wiring to YES, and YES is under a reciprocal obligation to us, pursuant to directives issued by the Minister of Communications. Such competition from YES has affected our income, reduced the number of our subscribers and caused us increased expenses, mainly in marketing and programming. In particular, the purchasing power of YES has raised the cost of content purchasing from the major production companies.
The Telecommunications Law, our licenses and the terms of the approvals we have received to date from the regulatory authorities with regard to the proposed merger of the Israeli cable television operators, also may impose upon us an ‘unbundling’ obligation, the purpose of which is to encourage competition in accordance with, and subject to the conditions of our licenses and applicable law. The obligation allows other broadcasting licensees access to our subscribers through our network infrastructure on terms that are not inferior to the terms that will be provided by HOT Telecom under the HOT Telecom Infrastructure Licensee, to our Cable Broadcast Licensees; and also allows other telecommunications licensees (who may therefore be providers of, among other things, other value added services) to have access to our infrastructure. Furthermore, pursuant to the terms of the approvals we have received in relation to the proposed merger between the Israeli cable television operators, in the event that the Controller considers there to be a material decline in competition in the multi-channel television market we may be instructed to allow YES, or other broadcast licensees, usage of our network infrastructure to all potential subscribers, and not only to our subscribers, so long as our cable network infrastructure reaches their premises. If YES ceases to operate due to insolvency, this will be deemed to be a material decline in competition in the multi-channel television market and we may be instructed to allow YES or its successor usage of our network infrastructure as mentioned above.
Pursuant to our licenses and the Telecommunications Law, we are obliged to reserve and allow one sixth of our broadcasting network capacity for broadcasts of channels produced by special cable broadcast licensees to our subscribers. According to the Telecommunications Law, without derogating from the general unbundling obligation referred to above, and taking into account the obligation to reserve one sixth of our network capacity, the Minister has the authority to direct HOT Telecom to designate network capacity for the transmission of broadcast and other telecommunications services of a third party.
We cannot anticipate how and to what extent these obligations may affect our income and expenses, or our subscriber base in the future.
13