o
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
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x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
o
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Title of each class
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Name of each exchange on which registered
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Ordinary Shares, NIS 0.1 Par Value
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NASDAQ Global Select Market
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Large accelerated filer
o
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Accelerated filer
x
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Non-accelerated filer
o
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U.S. GAAP
o
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International Financial Reporting Standards as issued by the International Accounting Standards Board
x
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Other
o
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Page | ||
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1 | |
1
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1
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1
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A.
Selected Financial Data
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1
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B.
Capitalization and Indebtedness
|
3
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C.
Reasons for the Offer and Use of Proceeds
|
3
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D.
Risk Factors
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3
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15
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||
A.
History and Development of the Company
|
15
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B.
Business Overview
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19
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C.
ORGANIZATIONAL STRUCTURE
|
70
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D.
PROPERTY, PLANTS AND EQUIPMENT
|
70
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|
70
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||
71
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||
A.
Operating Results
|
71
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B.
Liquidity and Capital Resources
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85
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|
C.
Research and Development, Patents and Licenses
|
91
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D.
Trend Information
|
92
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E.
Off-Balance Sheet Arrangements
|
92
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F.
Tabular Disclosure of Contractual Obligations
|
92
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G.
Bezeq The Israel Telecommunication Corp. Limited
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92
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|
120
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||
A.
Directors and Senior Management
|
120
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B.
Compensation
|
122
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|
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C.
Board Practices
|
123
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D.
Employees
|
131
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E.
Share Ownership
|
132
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|
133
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||
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A. M
ajor Shareholders
|
133
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|
B.
Related Party Transactions
|
135
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C.
Interests of Experts and Counsel
|
137
|
|
138
|
||
A.
Consolidated Statements and Other Financial Information
|
138
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|
B.
Significant Changes
|
146
|
|
146
|
||
A.
Offer and Listing Details
|
146
|
|
B.
Plan of Distribution
|
147
|
|
C.
Markets
|
147
|
|
D. Selling Shareholders
|
147
|
|
E. Dilution
|
147
|
|
|
F. Expense of the Issue
|
147
|
147
|
||
A.
Share Capital
|
147
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|
|
B. Memorandum and Articles of Association
|
147
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|
C. Material Contracts
|
152
|
|
D. Exchange Controls
|
152
|
|
E. Taxation
|
153
|
|
F. Dividends and Paying Agents
|
159
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|
G. Statement by Experts
|
159
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|
H. Documents on Display
|
159
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I. Subsidiary Information
|
159
|
159
|
||
159
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161 | |
161
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161
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162
|
||
163
|
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163
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163
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163
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164
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164
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164
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164
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165 | |
165
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165
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166
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A.
|
Selected Financial Data
|
IFRS
|
||||||||||||||||
Consolidated Statement Income Data:
|
Year Ended December 31,
|
||||||||||||||||
2008
|
2009
|
2010
|
2010
|
|||||||||||||
(NIS in millions, except share
and per share data)
|
(US$ in millions,
except share
and per share data)
|
|||||||||||||||
Revenues
|
1,106 | 1,173 | 8,657 | 2,439 | ||||||||||||
Depreciation and amortization
|
112 | 98 | 2,294 | 646 | ||||||||||||
Salaries
|
161 | 158 | 1,488 | 419 | ||||||||||||
General and operating expenses
|
694 | 749 | 3,640 | 1,026 | ||||||||||||
Other operating expenses
|
7 | 2 | 5 | (1 | ) | |||||||||||
Operating income
|
132 | 166 | 1,230 | 347 | ||||||||||||
Finance expense
|
65 | 49 | 600 | 169 | ||||||||||||
Finance income
|
(8 | ) | (85 | ) | (313 | ) | (88 | ) | ||||||||
Income after financing expenses (income), net
|
75 | 202 | 943 | 266 | ||||||||||||
Share of losses in equity-accounted investee
|
- | - | 235 | 66 | ||||||||||||
Income before income tax
|
75 | 202 | 708 | 200 | ||||||||||||
Income tax
|
22 | 55 | 385 | 109 | ||||||||||||
Net income for the year
|
53 | 147 | 323 | 91 | ||||||||||||
Income (loss) attributable to
:
|
||||||||||||||||
Owners of the company
|
53 | 147 | (140 | ) | (39 | ) | ||||||||||
Non-controlling interests
|
- | - | 463 | 130 | ||||||||||||
Net income for the year
|
53 | 147 | 323 | 91 | ||||||||||||
Basic earnings (loss) per share.
|
2.08 | 5.81 | 4.83 | 1.36 | ||||||||||||
Diluted earnings (loss) per share
|
2.08 | 5.81 | 4.93 | 1.39 |
IFRS
|
||||||||||||||||
Statements of Financial Position:
|
||||||||||||||||
Year Ended December 31,
|
||||||||||||||||
2008
|
2009
|
2010
|
2010
|
|||||||||||||
(NIS in millions)
|
(US$ in millions)
|
|||||||||||||||
Cash and cash equivalents
|
61 | 940 | 383 | 108 | ||||||||||||
Total assets
|
1,581 | 2,410 | 24,034 | 6,772 | ||||||||||||
Total current liabilities
|
477 | 1,146 | 4,157 | 1,171 | ||||||||||||
Non-current liabilities
|
384 | 342 | 11,534 | 3,250 |
U.S. GAAP
|
||||||||
Statement of Operations Date:
|
Year Ended December 31,
|
||||||||
2006
|
2007
|
|||||||
(NIS in millions, except share and per share data)
|
||||||||
Revenues
|
343 | 1,103 | ||||||
Cost of revenues
|
225 | 762 | ||||||
Selling and marketing
|
60 | 157 | ||||||
General and administrative
|
23 | 58 | ||||||
Impairment and other charges
|
10 | 11 | ||||||
Operating income
|
25 | 115 | ||||||
Financial income (expenses), net
|
(17 | ) | (52 | ) | ||||
Income before income taxes
|
8 | 63 | ||||||
Income tax expense
|
10 | 23 | ||||||
Net income (loss)
|
(2 | ) | 40 | |||||
Basic and diluted earnings (loss) per share
|
(0.11 | ) | 2.05 | |||||
Weighted average number of ordinary shares used in calculation
of basic and diluted earnings (loss) per share
|
18,370,000 | 19,493,329 |
U. S. GAAP
|
||||||||
Statements of Financial Position Data:
|
||||||||
As of December 31,
|
||||||||
(NIS in millions)
|
||||||||
2006
|
2007
|
|||||||
Cash and cash equivalents
|
38 | 230 | ||||||
Total assets
|
1,372 | 1,554 | ||||||
Total short-term debt
|
343 | 112 | ||||||
Total long-term loans (net of current maturities)
|
3 | 440 |
Period
|
Average
|
High
|
Low
|
At Period End
|
||||||
Year ended December 31, 2006
|
4.453
|
4.725
|
4.176
|
4.225
|
||||||
Year ended December 31, 2007
|
4.110
|
4.342
|
3.830
|
3.846
|
||||||
Year ended December 31, 2008
|
3.586
|
4.022
|
3.230
|
3.802
|
||||||
Year ended December 31, 2009
|
3.923
|
4.256
|
3.690
|
3.775
|
||||||
Year ended December 31, 2010
|
3.732
|
3.894
|
3.549
|
3.549
|
Period
|
High
|
Low
|
|||
December 2010
|
3.665
|
3.549
|
|||
January 2011
|
3.710
|
3.528
|
|||
February 2011
|
3.713
|
3.602
|
|||
March 2011
|
3.635
|
3.481
|
|||
April 2011
|
3.473
|
3.395
|
|||
May 2011
|
3.538
|
3.377
|
|||
June 2011 (through June 29) | 3,485 | 3,363 |
B.
|
Capitalization and Indebtedness
|
C.
|
Reasons for the Offer and Use of Proceeds
|
D.
|
Risk Factors
|
Type of Activity
|
Bezeq
|
IDB
|
Partner
|
Hot – Mirs
|
||||
Cellular telephony
|
Pelephone
|
Cellcom
|
Partner
|
Mirs
|
||||
Fixed-line telephony
|
Bezeq
|
Cellcom
Netvision
|
Partner/012 Smile
|
HOT Telecom
|
||||
Internet infrastructure
|
Bezeq/ Pelephone
|
Cellcom
|
Partner
|
HOT Telecom
|
||||
Internet access (ISP)
|
Bezeq International
|
Cellcom
Netvision
|
Partner/012 Smile
|
HOT-Net
|
||||
International calls
|
Bezeq International
|
Netvision
|
012 Smile
|
-
|
||||
Multi-channel television
|
(DBS)
|
-
|
-
|
HOT Broadcasts
|
|
·
|
Cross officerships, directorships and share ownership
. The ownership interests of our directors in the ordinary shares of Internet Gold could create, or appear to create, conflicts of interest when directors and executive officers are faced with decisions that could have different implications for the two companies. For example, these decisions could relate to the nature, quality and cost of services rendered to us by Internet Gold and Eurocom Communications, disagreements over the desirability of a potential acquisition opportunity or employee retention or recruiting. In addition, Internet Gold may take an opportunity for itself or preclude us from taking advantage of a corporate opportunity; and
|
|
·
|
Intercompany transactions
. From time to time, Internet Gold, Eurocom Communications or other companies within the Eurocom group may enter into transactions with us or our subsidiaries or other affiliates. Although the terms of any such transactions will be established based upon negotiations between employees of such companies and us and, when appropriate, subject to the approval of our independent directors or a committee of disinterested directors and in some instances a vote of shareholders, the terms of any such transactions may not be as favorable to us or our subsidiaries or affiliates as may otherwise be obtained in arm’s-length negotiations with unaffiliated third parties.
|
|
●
|
Quarterly variations in our operating results, which beginning in the 2010 second quarter include the operations of Bezeq;
|
|
●
|
Global economic conditions;
|
|
●
|
Price movements in the market price of Bezeq’s ordinary shares;
|
|
●
|
Operating results that vary from the expectations of securities analysts and investors;
|
|
●
|
Changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;
|
|
●
|
Regulatory changes that impact pricing of services and competition in Bezeq’s markets;
|
|
●
|
Changes in market valuations of other communications companies;
|
|
●
|
Announcements of technological innovations or new services by Bezeq or its competitors;
|
|
●
|
Announcements by Bezeq or its competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;
|
|
●
|
Changes in the status of Bezeq’s intellectual property rights;
|
|
●
|
Announcements by third parties of significant claims or proceedings against us or Bezeq;
|
|
●
|
Additions or departures of key personnel;
|
|
●
|
Future sales of our ordinary shares; and
|
|
●
|
Stock market price and volume fluctuations.
|
A.
|
History and Development of the Company
|
|
●
|
Bezeq – domestic fixed-line communications.
This segment primarily includes Bezeq’s operation as a domestic operator, including fixed-line telephony services, Internet services, transmission services and data communications.
|
|
·
|
Pelephone – cellular telephone.
Cellular mobile telephone services (cellular communications), marketing of end-user equipment, installation, operation and maintenance of cellular communications equipment and systems.
|
|
·
|
Bezeq International– Internet, international communications and network endpoint, or NEP, services.
Bezeq International is an Internet service provider, or ISP, and also provides international communications services and NEP services.
|
|
·
|
D.B.S. Satellite Services (1998) Ltd
. - Provides multi-channel broadcast and value added services via satellite.
|
Percentage of holdings
|
||||||||||||
Shareholders
|
At March 31, 2011
|
At June 16,
201
1
|
With full dilution at June 16, 2011
1
|
|||||||||
B Communications (through SP2)
|
31.36 | % | 31.23 | % | 30.13 | % | ||||||
The public
|
68.64 | % | 68.77 | % | 69.87 | % |
____________________
|
(1)
|
The calculation of full dilution assumes that the granted options will be exercised for shares. In view of the mechanism of exercise of stock appreciation rights in the plan for managers and senior employees in the Bezeq Group, this assumption is theoretical only, since in practice, under the terms of the plan and according to the outline, offerees who exercise the options will not be allocated the full number of shares underlying the options, only the number of shares that reflect the amount of the financial benefit embodied in the options.
|
|
·
|
At least 19% of each of the means of control of SP2 must be held by an Israeli Party at all times; or
|
|
·
|
At least 19% of the rights to vote at the general meeting of shareholders of SP2 and the rights to appoint directors of SP2 must be held by an Israeli Party at all times; and
|
|
·
|
The right to appoint at least one-fifth of the directors in Bezeq and Bezeq’s subsidiaries and not less than one director in each such company will be held by an Israeli Party at all times, provided that the percentage of the Israeli Party’s direct or indirect shareholdings in Bezeq is not less than 3% of any of the means of control of Bezeq. Indirect shareholdings will be calculated as the product of the Israeli Party’s lowest rate of holdings in each of the means of control in SP2, multiplied by the percentage of the holdings of the parties to the control permit in each of the means of control in Bezeq.
|
B.
|
Business Overview
|
|
·
|
Limitations on the transfer and acquisition of means of control, which includes a ban on holding 5% or more of means of control of a certain kind without the prior written approval of the Prime Minister and the Minister of Communications, or the Ministers.
|
|
·
|
Transfer or acquisition of control in Bezeq requires the approval of the Ministers by means of a Control Permit. The Control Permit establishes the minimum holding percentage in each of the means of control in Bezeq by the holder of the Control Permit where a transfer of shares or an issuance of shares by Bezeq, as a result of which the percentage of ownership of the Control Permit holder will fall below the minimum percentage, is prohibited without the prior approval of the Ministers, subject to permitted exceptions (including, an issuance to the public under a prospectus, or sale or private placement to institutional investors).
|
|
·
|
Holdings not approved in compliance with the Communications Order will be considered "exceptional holdings" and any exercise of a right by virtue of exceptional holdings will not be valid. The Communications Order also contains provisions authorizing the Ministers and Bezeq to apply to the courts with an application for the enforced sale of exceptional holdings.
|
|
·
|
A duty to report to the Ministers upon demand is imposed on Bezeq with respect to any information on matters relating to provision of an essential service.
|
|
·
|
75% of the members of the Board of Directors of Bezeq must be Israeli citizens and residents who have a security clearance as determined by the General Security Service.
|
|
·
|
The Chairman of the Board of Directors of Bezeq, the external directors, the chief executive officer, the deputy chief executive officer and other office-holders in Bezeq as listed in the Communications Order, must be Israeli citizens and residents and have a security clearance appropriate to their functions.
|
|
·
|
Nationality requirements are established for the controlling shareholder in Bezeq: an individual must be an Israeli Entity (as defined in the Communications Order); a corporation must be incorporated in Israel, the center of its business must be in Israel, and an Israeli Entity must hold at least 19% of the means of control of such company.
|
|
·
|
The approval of the Ministers is required for granting rights in certain assets of Bezeq (switches, cable network, transmission network and data bases and banks). In addition, the grant of rights in means of control in subsidiaries of Bezeq, including allotment of more than 25% of the shares in the subsidiary, requires the approval of the Ministers.
|
|
·
|
Provisions were established for the protection of computerized systems and the purchase of hardware and software.
|
|
·
|
Certain actions of Bezeq require the approval of the Minister of Communications, including voluntary liquidation, a settlement or arrangement between Bezeq and its creditors, a change or reorganization of the structure of Bezeq and a merger or split of Bezeq.
|
|
·
|
Changes in the fixed-line sector.
The Minister of Communications decided that the Ministry of Communications will prepare the regulatory and pricing infrastructure for the establishment of a wholesale market for fixed-line communications (including resale and the provision of access to infrastructure), including arrangements for local loop unbundling, or LLU.
|
|
·
|
Sale of service packages that cannot be unbundled by the subsidiaries.
It was recommended that after implementation of the wholesale market arrangement, the subsidiaries of Bezeq would be granted a permit to provide service bundles that cannot be unbundled (i.e. bundles in which the separate services cannot necessarily be purchased on the same terms as those at which they are offered in the bundle).
|
|
·
|
Flexibility in the approval of alternative payment packages for Bezeq.
The tariffs for Bezeq’s controlled services (telephony and others) which are fixed in regulations were updated in accordance with a linkage formula less an efficiency factor consisting of linkage to the Israeli consumer price index, or the CPI, plus an efficiency factor), as provided in the regulations, so that on average, Bezeq’s controlled tariffs will erode in real terms.
|
|
·
|
Alternative payment packages
. Under the Communications Law, if tariffs are fixed for the controlled services, the Minister of Communications may, with the consent of the Minister of Finance, approve the request made by the licensee for an alternative payment package for a service package. The approval mechanism was simplified in December 2010, so that the Bezeq Group may offer an alternative payment package after the period defined in the law unless the Minister of Communications or the Minister of Finance announces his objection. An alternative payment package will be approved only it is worthwhile for 30% or more of the subscribers who consume the services offered in the package.
|
|
·
|
Promotion of grant of MVNO licenses to virtual cellular operators.
In January 2009, the Israeli Government decided to promote the entry of MVNOs into Israel’s cellular market and on January 20, 2010, the Minister of Communications signed regulations allowing the grant of MVNO licenses. MVNO licenses were recently granted to a number of companies and applications have been submitted to the Ministry of Communications by other companies for such licenses.
|
|
·
|
Structural separation
. It was decided to enforce structural separation within the HOT Group (nevertheless, the license of HOT Telecom was amended in June 2009 and exceptions were made with respect to the structural separation obligation between it and HOT Broadcasts) and to leave the structural separation in Bezeq Group as long as there are only two companies that own a nationally deployed fixed-line infrastructure.
|
|
·
|
Entry of cellular operators into the international telephony market
. It was decided to allow all cellular operators to enter the international telephony market.
|
|
·
|
Reduction of the rate of royalties.
The committee recommended a gradual reduction in the rate of royalties applicable to license-holders, until their eventual cancellation. Nevertheless the rate of royalties was raised in 2010 contrary to this recommendation.
|
|
·
|
Compulsory structural separation in fixed-line and other areas of the communications industry would be cancelled, except for the structural separation in multi-channel television, which would be cancelled after operation in the television market is enabled on the Internet infrastructure.
|
|
·
|
Control of Bezeq's wholesale tariff would be determined by setting a maximum tariff. The Committee, which proposed that this arrangement be implemented immediately, is also considering ending control by means of setting tariffs by means of a transition to a methodology wherein a license holder may demand reasonable payments, which increases will be implemented gradually
|
|
·
|
Holders of general domestic carrier licenses will provide service and allow use of all the infrastructures required to enable other license-holders to provide service for end-users (including, passive infrastructure, transmission lines in various technologies, and others).
|
|
·
|
Broadband access service will be immediately provided in a manner that will enable a service provider that does not have its own infrastructure to manage the service. The infrastructure provider will be required to provide everything needed beyond the line itself, so as to permit the transparency needed for control and management of the service.
|
|
·
|
Holders of general domestic carrier licenses will reach agreements with other license-holders for the use of the types of services referred to in the above bullet-point. The agreements will be forwarded to the regulating entity and will be made known to the public.
|
|
·
|
In the absence of an agreement between the parties and to the extent required, the regulating entity will intervene to put in place the arrangements that the Hayek Committee intends to formulate
|
|
·
|
Holders of general domestic carrier licenses will regularly inform other license-holders of the deployment of the existing infrastructures.
|
|
·
|
The perceived need to advance the use of the infrastructure of the Israel Electric Corporation to provide wholesale services and that the terms of implementation should be applied equally to the entity that will be established as part of this initiative and to other general domestic carrier license-holders.
|
|
·
|
The cancellation of structural separation is conditional upon and will be implemented immediately upon fulfillment of the following terms:
|
|
o
|
Implementation of the third, fifth and eighth bullet points above.
|
|
o
|
On the earlier of six months from the date on which agreements as referred to in fifth bullet point are signed, or from the date on which the holders of general domestic carrier licenses start to provide the wholesale services as provided in those agreements.
|
|
o
|
Deposit of autonomous bank guarantees in significant amounts(hundreds of millions of shekels) by general domestic carrier license-holders to assure the existence of a wholesale market.
|
|
·
|
The service packages must be able to be unbundled, meaning that a service included in a package will be offered separately and on the same terms; and
|
|
·
|
At the time a request for approval of a service packages is submitted, there must be a group of services in similar format being marketed to a private subscriber as a package by a license-holder who is not a subsidiary of Bezeq, or there is a group that includes license-holders who provide a private subscriber with all the services included in the joint service packages.
|
|
·
|
an obligation to maintain complete structural separation among Bezeq and its subsidiaries pertaining to corporate structure and management systems, including finance, marketing, manpower, assets and data;
|
|
·
|
supervision and regulation of part of Bezeq’s tariffs; and
|
|
·
|
an obligation to provide “access” infrastructure services to other licensees on an equal, non-discriminatory basis and a prohibition on granting Bezeq’s subsidiaries advantageous terms when providing such services.
|
|
·
|
separating infrastructure and service providers;
|
|
·
|
granting new licenses and encouraging new and innovative technologies such as VoB; and
|
|
·
|
mandating number portability.
|
|
·
|
Bezeq domestic fixed-line communications
- Primarily includes Bezeq’s operation as a domestic operator, including telephony services, Internet services, transmission services and data communications.
|
|
·
|
Pelephone Communications Ltd.
- Provides cellular services (cellular communications), marketing of end-user equipment, installation, operation and maintenance of cellular communications equipment and systems.
|
|
·
|
Bezeq International Ltd.
- Provides international communications services, Internet access (ISP) services, and NEP services.
|
|
·
|
D.B.S. Satellite Services (1998) Ltd
. - Provides multi-channel broadcast and value added services via satellite.
|
2008
|
2009
|
2010
|
||||||||||
Revenues from line telephony
|
3,572 | 3,333 | 3,160 | |||||||||
Percentage out of total Bezeq income
|
64.97 | % | 62.85 | % | 60.04 | % | ||||||
Revenues from Internet infrastructure services
|
790 | 863 | 977 | |||||||||
Percentage out of total Bezeq income
|
14.36 | % | 16.27 | % | 18.56 | % | ||||||
Revenues from transmission and communication services
|
811 | 851 | 882 | |||||||||
Percentage out of total Bezeq income
|
14.75 | % | 16.04 | % | 16.76 | % | ||||||
Revenues from other services
|
325 | 256 | 244 | |||||||||
Percentage out of total Bezeq income
|
5.92 | % | 4.84 | % | 4.64 | % | ||||||
Total income from domestic fixed-line communications services segment
|
5,498 | 5,303 | 5,263 |
2008
|
2009
|
2010
|
||||||||||
Revenues from private customers
|
3,303 | 3,165 | 3,128 | |||||||||
Revenues from business customers
|
2,195 | 2,138 | 2,134 | |||||||||
Total revenues
|
5,498 | 5,303 | 5,263 |
|
·
|
Exchanges
- Used for switching calls and transferring them from their origin to their destination based on the signal received from the subscriber.
|
|
·
|
Transmission network
- A system through which there is connectivity between exchanges. This system actually functions as a national backbone that connects the local networks, each consisting of an exchange and an access network to it. The transmission network is based primarily on fiber-optic systems and to a lesser degree on wireless systems.
|
|
·
|
Data communications networks
- Networks for the provision of data communication services at various speeds and communication protocols.
|
|
·
|
Access network
- A system that connects subscriber NEPs to the exchange. The network is based on copper pairs, fiber-optic cables and to a lesser degree on wireless systems.
|
|
·
|
Terminal equipment
- Equipment installed at the subscriber site (such as telephones, private exchanges, fax machines, modems, routers, etc.) through which the subscriber receives the service.
|
|
·
|
Scope of license
- Bezeq must provide its services to all on equal terms for each type of service, irrespective of the location or unique cost. The license is unlimited in time; the Minister may modify or cancel the license or make it contingent; the license and any part of it cannot be transferred, no charge can be imposed on it, nor can it be subject to attachment.
|
|
·
|
Principles of structural separation -
Bezeq employs various means or compliance with these principles among its employees, including training sessions and periodic refresher courses on the relevant procedures. In 2009, the Ministry of Communications notified Bezeq that it was considering imposing a monetary sanction on Bezeq in the amount of NIS 15 million in respect of alleged violation of the provisions of the license relating to structural separation, due to the ostensible transfer of commercial information about its customers to its subsidiaries. Soon after the date of the notice, Bezeq submitted its detailed response to the notice, stating that it had not violated the provisions of the license and the imposition of a monetary sanction was unjustified.
|
|
·
|
Marketing joint service bundles -
An amendment of the domestic carrier license enables Bezeq to request permission to market joint service bundles subject to limitations, see above.
|
|
·
|
Tariffs-
Bezeq provides a service or package of services for which no tariff is set under the Communications Law, at a reasonable price and offers them to all, without discrimination and at a uniform tariff.
|
|
·
|
Operations of networks and service standards -
Bezeq is required to maintain and operate the network and provide its services at all times, including at times of emergency, in an orderly and proper manner commensurate with the technical requirements and the nature of the service, and to work towards improving its services. The license includes an appendix, “Service Standards for the Subscriber”, which is to be amended after Bezeq provides the Ministry with data. Bezeq submitted to the Ministry its proposal for amendment of the appendix, adapting it to the current state of affairs and the licenses of other operators, but the amendment has not yet been made.
|
|
·
|
Interconnect and use –
Bezeq is required to provide interconnect services to another public switching network and to provide the option of use by another license-holder; Bezeq has a duty to provide infrastructure services to another license-holder on reasonable and equal terms and must refrain from preferring a license-holder that is a company with an interest.
|
|
·
|
Security arrangements-
Provisions have been made for the operation of Bezeq's network in times of emergency. Bezeq is required to set up and operate its network in a way that prevents its collapse in an emergency and enables a reduction of activity in certain sectors. Bezeq is required to provide telecommunications services and set up and maintain the terminal equipment infrastructure for the security forces in Israel and abroad, as provided in its agreements with the security forces. Bezeq provides special services to the security forces. Bezeq will take action to ensure that each purchase and installation of hardware in its telecommunications installations, except for terminal equipment, will be made in full compliance with instructions given to Bezeq according to the Communications Law, the amendment of which was split off from the Arrangements Law, the main point of which was the imposition of financing certain operations according to the requirements of the security forces on the license holder. Bezeq submitted its position, which opposes the proposed amendment, to the Knesset Foreign Affairs and Security Committee. Bezeq is required to appoint a security officer and to comply fully with the security instructions contained in the appendix to the license.
|
|
·
|
Supervision and reporting -
Extensive reporting duties are imposed on Bezeq, such as filing the reports specified in the license and information and reports on-demand on various matters. In addition, the Director General of the Ministry of Communications is granted the authority to enter the facilities and offices used by Bezeq and to seize documents.
|
|
·
|
Miscellaneous -
The domestic carrier license includes limitations on the acquisition, maintenance and transfer of means of control pursuant to the Communications Order, as well as on cross-ownership, which are mainly a ban on cross-holding by entities with an interest in another material domestic carrier, and limitations on cross-holding by entities with domestic carrier licenses or general licenses in the same segment of operation.
|
|
·
|
Bezeq is required to prepare the text of the agreement it plans to offer to subscribers, and to submit it to the Director General upon demand. The Director General has the authority to instruct that changes be made. Bezeq is in an ongoing process of preparing such an agreement.
|
|
·
|
Bezeq is required to submit to the Director General a bank guarantee for securing the fulfillment of the terms of the license and for indemnifying the State of Israel against any loss it may incur due to their violation, in a sum equal to US $10 million. Bezeq provided such a guarantee. The Minister may render the guarantee or part of it forfeit on terms set out in the license.
|
|
·
|
The Director General has the power to impose a monetary sanction for violation of any of the terms of the license.
|
|
·
|
During a calendar year, Bezeq may invest up to 25% of its annual income in activities not intended for providing its services (the income of its subsidiaries are not considered income for this purpose). The Minister of Communications is authorized to permit a variance from that percentage.
|
|
·
|
Limitations on the transfer and acquisition of means of control in a company, which includes a ban on holding 5% or more of means of control of a certain kind without the prior written approval of the Prime Minister and the Minister of Communications, or the Ministers.
|
|
·
|
Transfer or acquisition of control in a company requires the approval of the Ministers, or the Control Permit. The Control Permit sets the minimum holding percentage in each of the means of control in Bezeq by the holder of the Control Permit. A transfer of shares or an issuance of shares by a company, as a result of which the ownership percentage of the Control Permit holder will fall below the minimum percentage, is prohibited without the prior approval of the Ministers, subject to permitted exceptions (among them – an issuance to the public under a prospectus, or sale or private placement to institutional investors).
|
|
·
|
Holdings not approved as provided above will be considered "exceptional holdings", and the Communications Order states that exercise of a right by virtue of exceptional holdings will not be valid. The Communications Order also contains provisions authorizing the Ministers and Bezeq to apply to the courts with an application for the enforced sale of exceptional holdings.
|
|
·
|
A duty to report to the Ministers upon demand is imposed on Bezeq, with respect to any information on matters relating to provision of an essential service.
|
|
·
|
75% of the members of the Board of Directors in Bezeq must be Israeli citizens and residents who have security clearance and security compatibility as determined by the General Security Service. The Chairman of the Board of Directors of Bezeq , the external directors, the chief executive officer, the deputy chief executive officer and other office-holders in Bezeq as listed in the Communications Order, must be Israeli citizens and residents and have security clearance appropriate to their functions.
|
|
·
|
Nationality requirements are established for the controlling shareholder in Bezeq: an individual –must be an Israeli Entity (as defined in the Communications Order); a corporation – must be incorporated in Israel, the center of its business must be in Israel, and an Israeli Entity must hold at least 19% of the means of control of such company.
|
|
·
|
The approval of the Ministers is required for granting rights in certain assets of Bezeq (switches, cable network, transmission network and data bases and banks). In addition, the grant of rights in means of control in subsidiaries of Bezeq, including allotment of more than 25% of the shares in the subsidiary, requires the approval of the Ministers.
|
|
·
|
Provisions were established for the protection of computerized systems and the purchase of hardware and software.
|
|
·
|
Certain actions of Bezeq require the approval of the Minister of Communications, among them voluntary liquidation, a settlement or arrangement between Bezeq and its creditors, a change or reorganization of the structure of Bezeq, a merger and split of Bezeq.
|
Description of employment framework
|
Number of employees
|
|||||||
At December 31, 2009
|
At December 31, 2010
|
|||||||
Senior managers excluded from application of the Company’s collective bargaining agreements. The terms of their employment are set in personal agreements.
|
63 | 65 | ||||||
Permanent employees employed under collective agreements.
|
3,073 | 3,290 | ||||||
Employees employed under personal agreements that are not part of the collective agreements.
|
684 | 664 | ||||||
Employees employed under individual agreements on the terms of the collective agreement ("Rank Rating Contracts").
|
8 | 26 | ||||||
Employees employed in accordance with the special collective agreement of December 2006, on an hourly basis ("Hourly Collective Agreement".
|
2,038 | 2,195 | ||||||
Employees employed under the special collective agreement of December 2006, on a monthly basis ("Monthly Collective Agreement").
|
1,350 | 1,124 | ||||||
Total
|
7,216 | 7,364 |
|
·
|
Extension of the retirement arrangements under the collective agreement to December 31, 2016. Under these retirement arrangements, Bezeq may, at its discretion, terminate the employment of up to 245 permanent employees in each of the years 2010 – 2016.
|
|
·
|
Definition of "New Permanent Employee", the terms of whose employment differ from those of a veteran permanent
employee
of Bezeq under the collective agreement: an employee whose wage model is according to Bezeq's wage policy and market wages; at the end of employment with Bezeq the employee is entitled to increased severance pay only (depending on the number of years of employment).
|
|
·
|
Agreement of the union to a distribution by Bezeq to its shareholders that is in excess of profits of up to NIS 3 billion ($ 845 million), subject to the approval of a court of law pursuant to Section 303 of the Israeli
Companies
Law and subject to an allotment of options to employees as described below and subject to confirmation from the ratings companies S&P Maalot and Midroog that the rating of Bezeq's debt after the distribution will not fall below AA and Aa2, respectively.
|
|
·
|
Bezeq granted to employees, subject to the approval of the general meeting of the shareholders, without any monetary consideration, options to purchase 70,000,000 ordinary shares of NIS 1 par value each (in a mechanism for the exercise of stock appreciation rights), accounting for approximately 2.61% of the issued capital of Bezeq (before the grant of such options), at an exercise price of NIS 7.457 ($2.101), which will be adjusted for changes in the share capital and for distribution of a dividend.
|
|
·
|
Bezeq will pay its employees a one-time performance bonus in 2010, amounting to approximately NIS 52 million ($15 million), which will be paid in two equal installments in January 2011 and January 2012.
|
2010
|
2009
|
2008
|
2002
|
|||||||||||||
(
in thousands)
|
||||||||||||||||
Number of subscribers
|
9,814 | 9,560 | 9,204 | 6,069 | ||||||||||||
Penetration rate
|
127% | 127% | 126% | 92% |
Products and services
|
2010
|
2009
|
2008
|
|||||||||
Revenue from services
|
4,550 | 4,256 | 4,020 | |||||||||
Percentage of total revenue
|
79.4 | % | 79.2 | % | 85.3 | % | ||||||
Revenue from terminal equipment
|
1,182 | 1,120 | 693 | |||||||||
Percentage of total revenue
|
21 | % | 21 | % | 15 | % | ||||||
Total revenue
|
5,732 | 5,376 | 4,713 |
2010
|
2009
|
2008
|
||||||||||
Revenue from content and data
|
725 | 541 | 397 | |||||||||
Revenue from texts (SMS)
|
289 | 241 | 208 | |||||||||
Total revenue from value added services
|
1,014 | 782 | 605 |
|
·
|
CDMA technology, which developed in the 2.5 generation to 1X and in the third generation to EVDO (CDMA technology).
|
|
·
|
GSM technology, which developed in the 2.5 generation to GPRS, in the third generation to UMTS, and in the 3.5 generation to HSPA. Pelephone’s principal competitors in Israel use this technology.
|
|
·
|
UMTS/HSPA, a digital technology based on the GSM standard. This technology is globally widespread, and enables subscriber identification and the provision of service by means of a SIM card, which can be transferred from one handset to another. In May 2010 an upgrade for UMTS/HSPA was launched – HSPA+. Among the advantages of this technology are its support for download speeds of up to 21 Mbps and upload speeds of up to 5.7 Mbps.
|
|
·
|
CDMA/EVDO digital technology, which is less widespread than UMTS/HSPA and in which subscriber identification is by the identification of details burned onto his or her terminal equipment rather than by means of a SIM card. The CDMA network operates nationwide and enables speech, data communication and value added services.
|
At December 31, |
Pelephone
|
Partner
|
Cellcom
|
Mirs
|
Total in market
|
|||||
2009
|
No. of subscribers
|
2,766
|
3,042
|
3,292
|
460
|
|
9,560
|
|||
Market share
|
29 % | 32 % | 34 % | 5 % | ||||||
2010
|
No. of subscribers
|
2,825
|
3,133
|
3,376
|
480
|
9,814
|
||||
Market share
|
29 % | 32 % | 34 % | 5 % |
|
2008
|
2009
|
2010
|
Revenues from private customers
|
2,437
|
2,751
|
2,899
|
Revenues from business customers
|
2,276
|
2,625
|
2,833
|
Total revenue
|
4,713
|
5,376
|
5,732
|
December 31,
2010
|
2011
|
2012
|
2013
|
2014 onwards
|
||||||||||||||||
Call minute completion tariff
|
25.1 | 6.87 | 6.34 | 5.91 | 5.55 | |||||||||||||||
SMS (text) completion tariff
|
2.85 | 0.16 | 0.15 | 0.14 | 0.13 |
December 31,
|
||||||||
2009
|
2010
|
|||||||
Management and HQ
|
283 | 262 | ||||||
Content and product marketing
|
88 | 92 | ||||||
Service – Private customers
|
2,398 | 2,235 | ||||||
Business customers
|
547 | 545 | ||||||
Operation and logistics
|
253 | 262 | ||||||
Engineering and information systems
|
623 | 589 | ||||||
Total
|
4,192 | 3,985 |
|
·
|
Internet access services;
|
|
·
|
International telephony services;
|
|
·
|
NEP services; and
|
|
·
|
Data and Information and Communication Technology, or ICT, solutions.
|
2008
|
2009
|
2010
|
||||||||||
Revenues from international carrier services
|
502 | 502 | 501 | |||||||||
% of total Bezeq International revenues
|
38.4 | % | 38.1 | % |
36.3
|
% | ||||||
Revenues from Internet and communication services for businesses (ISP, ICT, data)
|
804 | 816 | 879 | |||||||||
% of total Bezeq International revenues
|
61.6 | % | 61.9 | % | 63.7 | % | ||||||
Total revenue
|
1,306 | 1,318 | 1,380 |
2008
|
2009
|
2010
|
||||||||||
Revenues from private customers
|
513 | 520 | 523 | |||||||||
Revenues from business customers
|
793 | 798 | 857 | |||||||||
Total revenues
|
1,306 | 1,318 | 1,380 |
|
·
|
Voice services for the business sector – decrease in August and during the Passover / Tabernacle holidays.
|
|
·
|
Voice services for the private sector – increase in the summer months and towards the end of the calendar year.
|
|
·
|
Internet services and NEP equipment – increased sales usually achieved in the fourth quarter.
|
|
·
|
Internet services for the business sector – a decrease in the summer months owing to the closure of educational institutions (customers in this sector are not billed for the Internet services to which they subscribe during the summer vacation).
|
Number of employees
|
||||||||
Dec. 31, 2009
|
Dec. 31, 2010
|
|||||||
Head office employees
|
995
|
968 | ||||||
Sales and service representatives
|
1,450
|
1,144 | ||||||
Total
|
2,445
|
2,112 |
|
·
|
No change, direct or indirect, in the trustee’s holdings of the means of control in DBS may be made without the prior written approval of the Minister of Communications, after he has consulted with the Council.
|
|
·
|
The trustee will not act in accordance with guidance received from any party which has a direct or indirect interest in an area of regulation by the Ministry of Communications, unless it has received the approval from the Ministry of Communications.
|
|
·
|
Any transaction between DBS and the Eurocom Group concerning satellite terminal equipment will be considered an extraordinary transaction as defined in the Israeli Companies Law and therefore, such transactions will be subject to the approval proceedings applicable to DBS and Bezeq pursuant the Israeli Companies Law.
|
|
·
|
All discussions by the board of directors of DBS concerning transactions as described in the above paragraph, must be documented in detail, and comprehensive minutes signed by the chairman of the meeting must be submitted to the Director General of the Ministry of Communications for his review.
|
2009
|
2010
|
|||
Revenues from broadcasts and multi-channel television services to subscribers
|
1,530
|
1,583
|
||
Percentage out of revenue
|
Approx. 98%
|
Approx. 98%
|
|
·
|
Quality, differentiation, innovation and originality in the content, variety, branding and packaging of its broadcasts.
|
|
·
|
Provision of television services while using advanced technologies such as personal television services, and in particular, VOD services and PVR and HDPVR devices.
|
|
·
|
Offers of service packages of communications services including television services and other services such as telephony services and Internet services.
|
|
·
|
High level of customer service.
|
|
·
|
Brand strength and identification of DBS with quality, innovation and industry-leading content and services.
|
|
·
|
Sales persons employed by DBS who recruit subscribers.
|
|
·
|
Call centers operated by DBS employees that receive telephone enquiries from customers wishing to obtain DBS services, as well as telemarketing campaigns to potential subscribers.
|
|
·
|
DBS utilizes external resellers who recruit approximately fifty percent of the subscribers recruited by all external resellers and a significant proportion of their work focuses on the recruitment of a particular target population.
|
2008
|
2009
|
2010
|
||||||||
Subscribers
|
Market share
|
Subscribers
|
Market share
|
Subscribers
|
Market share
|
|||||
559,613
|
38%
|
570,000
|
38%
|
577,700
|
39%
|
December 31
|
||||||||
Department
|
2009
|
2010
|
||||||
Marketing Department
|
31 | 35 | ||||||
Customer Service
(1)
|
1,705 | 1,752 | ||||||
Content Department
|
72 | 78 | ||||||
Engineering Department
|
92 | 97 | ||||||
Finance and Operations Department
|
117 | 115 | ||||||
Human Resources Department
|
43 | 48 | ||||||
Regulation and Legal Management Department
|
3 | 3 | ||||||
Information Systems Department
|
88 | 94 | ||||||
Management and Spokesperson
|
7 | 7 | ||||||
Total
|
2,158 | 2,229 |
C.
|
ORGANIZATIONAL STRUCTURE
|
D.
|
PROPERTY, PLANTS AND EQUIPMENT
|
A.
|
Operating Results
|
December 31,
2009
|
||||
Cash and cash equivalents
|
1 | |||
Trade and other receivable
|
225 | |||
Long-term trade receivable
|
6 | |||
Property and equipment
|
159 | |||
Intangible assets
|
631 | |||
Employee benefits
|
13 | |||
Deferred expenses
|
327 | |||
1,362 |
December 31,
2009
|
||||
Trade and other payables
|
234 | |||
Deferred income
|
4 | |||
Related parties payables
|
2 | |||
Current maturities of long-term liabilities
|
- | |||
Deferred tax liabilities
|
30 | |||
270 |
|
·
|
Bezeq domestic fixed-line communications
- Primarily includes Bezeq’s operation as a domestic operator, including telephony services, Internet services, transmission services and data communications.
|
|
·
|
Pelephone Communications Ltd.
- Provides cellular services (cellular communications), marketing of end-user equipment, installation, operation and maintenance of cellular communications equipment and systems.
|
|
·
|
Bezeq International Ltd.
- Provides international communications services, Internet access (ISP) services, and NEP services.
|
|
·
|
D.B.S. Satellite Services (1998) Ltd
. - Provides multi-channel broadcast and value added services via satellite.
|
Network equipment and computers
|
15%-33%
|
Furniture and office equipment
|
7%-15%
|
Motor vehicles
|
15%
|
Leasehold improvements
|
shorter of the lease term or the useful lives of the asset (generally 10 years)
|
Licenses
|
20 years
|
Subscribers acquisition costs
|
1-3 years
|
Customers relationship
|
8-10 years
|
Capitalized software costs
|
5 years
|
NGN equipment
|
12%
|
Digital switching equipment
|
25%
|
Transmission and power equipment
|
20%
|
Network equipment
|
4%
|
Terminal equipment (cellular)
|
33%
|
Subscriber equipment
|
20%
|
Motor vehicles
|
15%
|
Internet equipment
|
20%
|
Furniture and other equipment
|
10%
|
Electronic equipment, computers and internal communication system
|
33%
|
Cellular infrastructure equipment
|
10%
|
Buildings
|
4%
|
Capitalized development expenses
|
4-7 years
|
Other rights
|
3-10 years, depending on the useful life
|
Subscribers acquisition costs
|
Depending on the contractual commitment with the subscriber
|
Frequency usage rights
|
Over the term of the license for 13.6 years, starting from the use of the frequencies
|
Computer programs and software licenses
|
Over the term of the license, or the estimated period of use of the program
|
Customer relationships
|
10 years
|
Year ended December 31,
|
||||||||||||||||||||||||
2008
|
2009
|
2010
|
||||||||||||||||||||||
NIS
|
%
|
NIS
|
%
|
NIS
|
%
|
|||||||||||||||||||
Revenues
|
1,106 | 100 | % | 1,173 | 100 | % | 8,657 | 100 | % | |||||||||||||||
Depreciation and amortization
|
112 | 10 | % | 98 | 8 | % | 2,294 | 28 | % | |||||||||||||||
Salaries
|
161 | 15 | % | 158 | 13 | % | 1,488 | 17 | % | |||||||||||||||
General and operating expenses
|
694 | 63 | % | 749 | 64 | % | 3,640 | 42 | % | |||||||||||||||
Other operating expenses
|
7 | 1 | % | 2 | - | 5 | - | |||||||||||||||||
Operating income
|
132 | 12 | % | 166 | 14 | % | 1,230 | 12 | % | |||||||||||||||
Finance expense
|
65 | 6 | % | 49 | 4 | % | 600 | 6 | % | |||||||||||||||
Finance income
|
(8 | ) | (1 | )% | (85 | ) | (7 | )% | (313 | ) | (3 | )% | ||||||||||||
Income after financing expenses (income), net
|
75 | 7 | % | 202 | 17 | % | 943 | 9 | % | |||||||||||||||
Share of losses in equity-accounted investee
|
- | - | - | - | 235 | 3 | % | |||||||||||||||||
Income before income tax
|
75 | 7 | % | 202 | 17 | % | 708 | 6 | % | |||||||||||||||
Income tax
|
22 | 2 | % | 55 | 5 | % | 385 | 4 | % | |||||||||||||||
Income (loss) for the year
|
53 | 5 | % | 147 | 13 | % | 323 | 2 | % | |||||||||||||||
Income (loss) attributable to owners of the Company
|
53 | 5 | % | 147 | 13 | % | (140 | ) | (2 | )% | ||||||||||||||
Income (loss) attributable to non-controlling interest
|
- | - | - | - | 463 | 4 | % | |||||||||||||||||
Income (loss) for the year
|
53 | 5 | % | 147 | 13 | % | 323 | 2 | % | |||||||||||||||
Basic earnings (loss) per share
|
(0.85 | ) | 3.39 | (4.83 | ) | |||||||||||||||||||
Diluted earnings (loss) per share
|
(0.89 | ) | 3.39 | (4.93 | ) |
|
·
|
Bezeq domestic fixed-line communications - NIS 3.776 billion (approximately $331 million);
|
|
·
|
Pelephone Communications Ltd. – NIS 4.143 billion (approximately $1.167 billion);
|
|
·
|
Bezeq International Ltd. - NIS 987 million (approximately $278 million);
|
Year ended
December 31,
|
Israeli inflation
rate %
|
NIS depreciation
(appreciation)
rate %
|
Israeli inflation
adjusted for depreciation
(appreciation) %
|
|||||||||
2006
|
(0.1 | ) | (8.2 | ) | 8.1 | |||||||
2007
|
3.4 | (9.0 | ) | 12.4 | ||||||||
2008
|
3.8 | (1.1 | ) | 4.9 | ||||||||
2009
|
3.9 | (11.2 | ) | 15.1 | ||||||||
2010
|
2.7 | (6.0 | ) | 8.7 |
|
·
|
Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
|
|
·
|
The parties with joint control have rights to the assets and obligations for the liabilities, relating to the arrangement. The accounting treatment of joint operations is similar to the accounting treatment in IAS 31 for jointly controlled assets and operations. This means that assets, liabilities and transactions are recognized and accounted for according to the relevant standards.
|
|
·
|
Joint operations
include
joint arrangements that are not structured in a separate vehicle (like jointly controlled assets and jointly controlled operations per their definition in IAS 31), and joint arrangements in which there is a separate vehicle but the legal form, contractual arrangement or other signs indicate that the parties with joint control have rights to the assets and obligations for the liabilities, relating to the arrangement.
|
|
·
|
Joint ventures – The parties with joint control have rights to the net assets of the arrangement.
|
|
·
|
Joint ventures shall only be accounted for using the equity method, meaning that the option to apply the proportionate consolidation method is removed. Joint ventures are joint arrangements structured in a separate vehicle that the legal form, contractual arrangement or other signs indicate that the parties with joint control do not have rights to the assets and obligations for the liabilities, relating to the arrangement. Accounting treatment of loss of joint control when significant influence is retained – IAS 28 eliminates the existing requirement to remeasure to fair value the retained interest in the associate on the date of losing joint control.
|
B.
|
Liquidity and Capital Resources
|
|
·
|
The second distribution of NIS 0.5 billion will be made by the end of November 2011, and to the extent possible together with the regular dividend distribution ( if such dividend will be approved) relating to Bezeq's financial statements as of June 30, 2011;
|
|
·
|
The third distribution of NIS 0.5 billion will be made by the end of May 2012, and to the extent possible together with the regular dividend distribution ( if such dividend will be approved) relating to Bezeq's financial statements as of December 31, 2011;
|
|
·
|
The fourth distribution of NIS 0.5 billion will be made by the end of November 2012, and to the extent possible together with the regular dividend distribution ( if such dividend will be approved) relating to Bezeq's financial statements as of June 30, 2012;
|
|
·
|
The fifth distribution of NIS 0.5 billion will be made by the end of May 2013, and to the extent possible together with the regular dividend distribution ( if such dividend will be approved) relating to Bezeq's financial statements as of December 31, 2012; and
|
|
·
|
The sixth distribution of NIS 0.5 billion will be made by the end of November 2013, and to the extent possible together with the regular dividend distribution ( if such dividend will be approved) relating to Bezeq's financial statements as of June 30, 2013.
|
|
·
|
On the closing date of the acquisition of our Bezeq interest, our indirect fully owned-subsidiary SP2, which holds the Bezeq interest, received a bank loan from certain banking and financial institutions led by Bank Hapoalim Ltd., or Bank Hapoalim, in a total principal amount of NIS 4.6 billion (approximately $1.3 billion). The loan is divided into four tranches, as follows:
|
|
(i)
|
Credit A - a “bullet” floating rate loan, in the amount of NIS 700 million (approximately $197.2 million); with principal and interest that was payable on November 30, 2010. Credit A is indexed to Bank Hapoalim’s prime interest rate, plus a margin of 2%. Bank Hapoalim Prime on the date of the closing was equal to 1.62%. We repaid this loan in full following our receipt of the dividend from Bezeq on May 3, 2010.
|
|
(ii)
|
Credit B –This tranche is divided into two parts. The first part, in the amount of NIS 1.1 billion (approximately $0.3 billion), is a floating loan indexed to the Bank Hapoalim prime interest rate; and the second part, in the amount of NIS 900 million (approximately $253.6), is a fixed rate loan, linked to the Israeli consumer price index. Both parts of Credit B are payable in 13 equal semi-annual installments of both principal and interest, with the first payments due on November 30, 2010. The interest rate on the first part of Credit B is 4.58% and the interest rate on the second part of Credit B is 4.35%.
|
|
(iii)
|
Credit C – a “bullet” loan, in the principal amount of NIS 700 million (approximately $197.2 million), is a floating rate loan, indexed to the Bank Hapoalim prime interest rate, at an interest rate of 4.73%. The principal of Credit C will be paid in one payment on November 30, 2016; and the interest will be paid in 13 semi-annual installments, the first of which is due on November 30, 2010.
|
|
(iv)
|
Credit D - two “bullet” loans, the principal of which will be paid in one payment on May 30, 2017 and the interest will be paid in 13 semi-annual installments, the first of which is due on November 30, 2010. The first loan of Credit D is in the principal amount of NIS 800 million (approximately $225 million) and is a floating rate loan, indexed to the Bank Hapoalim prime interest rate, at a rate of 4.75%. The second loan is in the principal amount of NIS 400 million (approximately $112.7 million) and is a fixed rate loan, linked to the Israeli consumer price index, at a rate of 5.4%.
|
|
·
|
A floating charge on all the SP2 assets, property (current and fixed) and its present and future rights (with the exception of additional shares of Bezeq which may be purchased) and a first-ranking fixed charge on the share capital of SP2, which has not yet been realized and/or which has been exercised and not yet realized, on SP2’s goodwill and its rights to a tax exemption and/or tax relief and/or tax dispensation.
|
|
·
|
A fixed lien, assignment by way of lien and a floating charge on the rights and assets of SP2, as set forth below:
|
|
o
|
All of SP2’s rights in the SP2 account, and all the monies and/or assets deposited and/or located and/or to be deposited and/or located in SP2 account and/or credited and/or to be credited thereto, including securities and income and proceeds which SP2 has and is to have with respect to and in connection with SP2 account, the aforementioned monies, securities and/or assets, and the profits, all with the exception of additional shares of Bezeq which may be purchased.
|
|
o
|
SP2’s rights under the Bezeq’s shares purchase agreement.
|
|
·
|
The failure of: (i) Bezeq to maintain minimum shareholders equity and minimum ratio of shareholder equity; (ii) Bezeq to exceed certain thresholds relating to the ratio of financial debt to EBITDA; and (iii) our wholly-owned subsidiary that directly holds the Bezeq interest to maintain a minimum ratio of debt to EBITDA and a debt service coverage ratio.
|
|
·
|
Material breach of an undertaking or representation; certain restructuring, insolvency or debt restructuring events of SP2 or Bezeq; any material change in the nature of Bezeq’s activities; certain changes in control of SP2 or dilution of SP2’s holdings in Bezeq or if SP2 ceases to control Bezeq; if Bezeq’s general license is adversely modified; if any of the permits or approvals issued in connection with our acquisition of controlling interest in Bezeq ceases to be in force or was amended; and if Bezeq or certain subsidiaries of Bezeq fail to make certain payments when due.
|
Year ended December 31,
|
||||||||||||
2008
|
2009
|
2010
|
||||||||||
(NIS in millions)
|
||||||||||||
Net cash provided by operating activities
|
217 | 248 | 2,606 | |||||||||
Net cash (used in) provided by investing activities
|
(345 | ) | 63 | (6,083 | ) | |||||||
Net cash (used in) provided by financing activities
|
(21 | ) | 562 | 2,920 | ||||||||
Net (decrease) increase in cash and cash equivalents
|
(149 | ) | 873 | (557 | ) | |||||||
Effect of exchange rate changes
|
(20 | ) | 6 | - | ||||||||
Cash and cash equivalents at beginning of period
|
230 | 61 | 940 | |||||||||
Cash and cash equivalents at end of period
|
61 | 940 | 383 |
C.
|
Research and Development, Patents and Licenses
|
D.
|
Trend Information
|
E.
|
Off-Balance Sheet Arrangements
|
F.
|
Tabular Disclosure of Contractual Obligations
|
Contractual Obligations
|
Payments due by period
(NIS in millions)
|
|||||||||||||||||||
Total
|
less than 1 year
|
1-3 years
|
3-5 years
|
more than 5 years
|
||||||||||||||||
Long-term debt obligations (including interest)(1)
|
13,035 | 1,709 | 2,100 | 4,386 | 4,480 | |||||||||||||||
Operating lease obligations
|
781 | 233 | 319 | 148 | 81 | |||||||||||||||
Purchase obligations
|
897 | 891 | 6 | - | - | |||||||||||||||
Total
|
14,713 | 2,833 | 2,425 | 4,534 | 4,921 |
G.
|
Bezeq The Israel Telecommunication Corp. Limited
|
Year Ended December 31,
|
||||||||||||||||||||
2010
|
2009
|
2008
|
2007
|
2006
|
||||||||||||||||
Consolidated Statements of Income Data:
|
(NIS in millions)
|
|||||||||||||||||||
Continuing operations
|
||||||||||||||||||||
Revenue
|
11,987 | 11,519 | 11,015 | 11,136 | 12,232 | |||||||||||||||
Costs and expenses
|
8,243 | 8,547 | 8,375 | 8,815 | 10,648 | |||||||||||||||
Operating profit
|
3,744 | 2,972 | 2,640 | 2,321 | 1,584 | |||||||||||||||
Financing expenses
|
391 | 398 | 494 | 616 | 713 | |||||||||||||||
Financing income
|
(282 | ) | (429 | ) | (354 | ) | (434 | ) | (356 | ) | ||||||||||
Financing expenses (income), net
|
109 | (31 | ) | 140 | 182 | 357 | ||||||||||||||
Profit after financing expenses (income), net
|
3,635 | 3,003 | 2,500 | 2,139 | 1,227 | |||||||||||||||
Share of profits (losses) of equity accounted
|
||||||||||||||||||||
Investees
|
(261 | ) | (34 | ) | 5 | 6 | 11 | |||||||||||||
Profit before income tax
|
3,374 | 2,969 | 2,505 | 2,145 | 1,238 | |||||||||||||||
Income tax
|
932 | 807 | 719 | 666 | 488 | |||||||||||||||
Profit for the year from continuing operations
|
2,442 | 2,162 | 1,786 | 1,479 | 750 | |||||||||||||||
Discontinued operations
|
||||||||||||||||||||
Profit (loss) for the year from discontinued operations
|
- | 1,379 | (265 | ) | (118 | ) | -- | |||||||||||||
Profit for the year
|
2,442 | 3,541 | 1,521 | 1,361 | 750 | |||||||||||||||
Attributable to:
|
||||||||||||||||||||
Owners of the Company
|
||||||||||||||||||||
Profit for the year from continuing operations
|
2,443 | 2,157 | 1,781 | 1,398 | - | |||||||||||||||
Profit (loss) for the year from discontinued operations
|
- | 1,446 | (154 | ) | (68 | ) | - | |||||||||||||
Shareholders of the Company
|
- | - | - | - | 809 | |||||||||||||||
Non-controlling interests
|
- | - | - | - | (59 | ) | ||||||||||||||
2,443 | 3,603 | 1,627 | 1,330 | 750 | ||||||||||||||||
Non-controlling interests
|
||||||||||||||||||||
Profit (loss) from continuing operations
|
(1 | ) | 5 | 5 | 81 | - | ||||||||||||||
Loss from discontinued operations
|
- | (67 | ) | (111 | ) | (50 | ) | - | ||||||||||||
(1 | ) | (62 | ) | (106 | ) | 31 | - | |||||||||||||
Profit for the year
|
2,442 | 3,541 | 1,521 | 1,361 | - | |||||||||||||||
Earnings per share
|
||||||||||||||||||||
Basic earnings per share
|
||||||||||||||||||||
Earnings from continuing operations
|
0.91 | 0.82 | 0.68 | 0.54 | 0.31 | |||||||||||||||
Earnings (loss) from discontinued operations
|
- | 0.55 | (0.06 | ) | (0.03 | ) | - | |||||||||||||
0.91 | 1.37 | 0.62 | 0.51 | 0.31 | ||||||||||||||||
Diluted earnings per share
|
||||||||||||||||||||
Profit from continuing operations
|
0.90 | 0.80 | 0.68 | 0.53 | 0.31 | |||||||||||||||
Profit (loss) from discontinued operations
|
- | 0.54 | (0.07 | ) | (0.03 | ) | - | |||||||||||||
0.90 | 1.34 | 0.61 | 0.50 | 0.31 |
As of December 31,
|
||||||||||||||||||||
2010
|
2009
|
2008
|
2007
|
2006
|
||||||||||||||||
Consolidated Balance Sheet Data:
|
||||||||||||||||||||
Cash and cash equivalents
|
365 | 580 | 786 | 1,203 | 2,612 | |||||||||||||||
Property and equipment, net
|
5,610 | 5,428 | ** | 6,208 | ** | 6,604 | 6,492 | |||||||||||||
Total assets
|
10,731 | 10,242 | 10,719 | 10,686 | 11,251 |
Domestic fixed line communications
|
Mobile radio telephone
|
International communications, Internet services and NEP
|
Multi-channel television
|
Others
|
Adjustments to consolidated**
|
Consolidated
|
||||||||||||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||||||||||||||
Total revenues:
|
||||||||||||||||||||||||||||
From externals
|
4,990 | 5,474 | 1,333 | 1,578 | 178 | (1,578 | ) | 11,975 | ||||||||||||||||||||
From other segments of operation in the corporation
|
273 | 258 | 47 | 5 | 32 | (603 | ) | 12 | ||||||||||||||||||||
Total income
|
5,263 | 5,732 | 1,380 | 1,583 | 210 | (2,181 | ) | 11,987 | ||||||||||||||||||||
Total costs attributable to:
|
||||||||||||||||||||||||||||
Variable costs attributable to segment of operation*
|
1,414 | 2,311 | 668 | 553 | 97 | |||||||||||||||||||||||
Fixed costs attributable to segment of operation*
|
1,806 | 2,038 | 392 | 852 | 99 | |||||||||||||||||||||||
Total costs
|
3,220 | 4,349 | 1,060 | 1,405 | 196 | (1,987 | ) | 8,243 | ||||||||||||||||||||
Costs that do not constitute revenue in another segment of operation
|
2,957 | 4,145 | 926 | 1,393 | 194 | (1,377 | ) | 8,238 | ||||||||||||||||||||
Costs that constitute revenue of another segment of operation
|
263 | 204 | 134 | 12 | 2 | (610 | ) | 5 | ||||||||||||||||||||
Total costs
|
3,220 | 4,349 | 1,060 | 1,405 | 196 | (1,987 | ) | 8,243 | ||||||||||||||||||||
Profit from ordinary operations attributable to owners of the Company
|
2,043 | 1,383 | 320 | 88 | 11 | (104 | ) | 3,741 | ||||||||||||||||||||
Profit from ordinary operations attributable to rights that do not grant control
|
- | - | - | 90 | 3 | (90 | ) | 3 | ||||||||||||||||||||
Total assets attributable to operations at December 31, 2010
|
6,352 | 4,892 | 1,038 | 1,243 | 375 | 338 | 14,238 | |||||||||||||||||||||
Total liabilities attributable to segment of operation at December 31, 2010
|
7,964 | 1,930 | 304 | 4,665 | 241 | (6,236 | ) | 8,868 |
*
|
The Bezeq Group companies that are companies providing services (as opposed to manufacturing companies), do not manage a dedicated price system, which differentiates between fixed and variable costs. The above distinction was made for purposes of this report only. Variable costs are costs for which the companies have flexible management and control in the short-term and which directly affect output, compared with fixed expenses, which are not flexible in the short term and do not directly affect output.
|
**
|
Details of adjustments to consolidated – Transactions between segments of operation and transactions in multi-channel television.
|
|
2009:
|
Domestic fixed line communications
|
Mobile radio
telephone
|
International
communications,
Internet services and NEP
|
Multi-channel
television
|
Others
|
Adjustments to
consolidated**
|
Consolidated
|
||||||||||||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||||||||||||||
Total revenues:
|
||||||||||||||||||||||||||||
From externals
|
5,039 | 5,130 | 1,273 | 1,529 | 54 | (1,529 | ) | 11,496 | ||||||||||||||||||||
From other segments of operation in the corporation
|
264 | 246 | 45 | 1 | 20 | (553 | ) | 23 | ||||||||||||||||||||
Total income
|
5,303 | 5,376 | 1,318 | 1,530 | 74 | (2,082 | ) | 11,519 | ||||||||||||||||||||
Total costs attributable to:
|
||||||||||||||||||||||||||||
Variable costs attributable to segment of operation*
|
1,774 | 2,153 | 635 | 498 | 47 | |||||||||||||||||||||||
Fixed costs attributable to segment of operation*
|
2,006 | 2,033 | 422 | 784 | 23 | |||||||||||||||||||||||
Total costs
|
3,780 | 4,186 | 1,057 | 1,282 | 70 | (1,828 | ) | 8,547 | ||||||||||||||||||||
Costs that do not constitute revenues in another segment of operation
|
3,543 | 4,003 | 934 | 1,259 | 66 | (1,259 | ) | 8,546 | ||||||||||||||||||||
Costs that constitute revenues in other segments of operation
|
237 | 183 | 123 | 23 | 4 | (569 | ) | 1 | ||||||||||||||||||||
Total costs
|
3,780 | 4,186 | 1,057 | 1,282 | 70 | (1,828 | ) | 8,547 | ||||||||||||||||||||
Profit from ordinary operations attributable to owners of the Company
|
1,523 | 1,190 | 261 | 123 | 5 | (130 | ) | 2,972 | ||||||||||||||||||||
Profit from ordinary operations attributable to rights that do not grant control
|
- | - | - | 125 | (1 | ) | (125 | ) | (1 | ) | ||||||||||||||||||
Total assets attributable to operations at December 31, 2010
|
6,368 | 4,990 | 1,106 | 1,206 | 85 | 186 | 13,941 | |||||||||||||||||||||
Total liabilities attributable to segment of operation at December 31, 2010
|
6,390 | 2,440 | 404 | 4,314 | 22 | (6,167 | ) | 7,403 |
*
|
The Bezeq Group companies that are companies providing services (as opposed to manufacturing companies), do not manage a dedicated price system, which differentiates between fixed and variable costs. The above distinction was made for purposes of this report only. Variable costs are costs for which the companies have flexible management and control in the short-term and which directly affect output, compared with fixed expenses, which are not flexible in the short term and do not directly affect output.
|
**
|
Details of adjustments to consolidated – Transactions between segments of operation and transactions in multi-channel television.
|
|
2008:
|
Domestic fixed line communications
|
Mobile radio telephone
|
International communications, Internet services and NEP
|
Multi-channel television
|
Others
|
Adjustments to consolidated**
|
Consolidated
|
||||||||||||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||||||||||||||
Total revenues:
|
||||||||||||||||||||||||||||
From externals
|
5,179 | 4,448 | 1,243 | 1,506 | 31 | (1,506 | ) | 10,901 | ||||||||||||||||||||
From other segments of operation in the corporation
|
319 | 265 | 63 | 7 | 44 | (584 | ) | 114 | ||||||||||||||||||||
Total income
|
5,498 | 4,713 | 1,306 | 1,513 | 75 | (2,090 | ) | 11,015 | ||||||||||||||||||||
Total costs attributable to:
|
||||||||||||||||||||||||||||
Variable costs attributable to segment of operation*
|
1,785 | 1,849 | 622 | 555 | 53 | |||||||||||||||||||||||
Fixed costs attributable to segment of operation*
|
2,238 | 1,931 | 442 | 781 | 22 | |||||||||||||||||||||||
Total costs
|
4,023 | 3,780 | 1,064 | 1,336 | 75 | (1,903 | ) | 8,375 | ||||||||||||||||||||
Costs that do not constitute revenue in another segment of operation
|
3,743 | 3,614 | 928 | 1,222 | 73 | (1,212 | ) | 8,368 | ||||||||||||||||||||
Costs that constitute revenue in other segments of operation
|
280 | 166 | 136 | 114 | 2 | (691 | ) | 7 | ||||||||||||||||||||
Total costs
|
4,023 | 3,780 | 1,064 | 1,336 | 75 | (1,903 | ) | 8,375 | ||||||||||||||||||||
Profit from ordinary operations attributable to owners of the Company
|
1,475 | 933 | 242 | 88 | (1 | ) | (97 | ) | 2,640 | |||||||||||||||||||
Profit from ordinary operations attributable to rights that do not grant control
|
- | - | - | 89 | 1 | (89 | ) | 1 | ||||||||||||||||||||
Total assets attributable to operations at December 31, 2010
|
6,281 | 4,644 | 994 | 1,132 | 100 | 1,163 | 14,314 | |||||||||||||||||||||
Total liabilities attributable to segment of operations at December 31, 2010
|
6,037 | 2,552 | 284 | 4,024 | 29 | (2,856 | ) | 10,070 |
*
|
The Bezeq Group companies that are companies providing services (as opposed to manufacturing companies), do not manage a dedicated price system, which differentiates between fixed and variable costs. The above distinction was made for purposes of this report only. Variable costs are costs for which the companies have flexible management and control in the short-term and which directly affect output, compared with fixed expenses, which are not flexible in the short term and do not directly affect output.
|
**
|
Details of adjustments to consolidated – Transactions between segments of operation and transactions in multi-channel television.
|
2010
|
2009
|
2008
|
||||||||||
Revenues (NIS millions)
|
5,263 | 5,303 | 5,498 | |||||||||
Operating profit (NIS millions)
|
2,043 | 1,523 | 1,475 | |||||||||
Net profit (NIS millions)
|
1,426 | 1,107 | 950 | |||||||||
Number of active subscriber lines at the end of the period* (in thousands)
|
2,352 | 2,476 | 2,603 | |||||||||
Average monthly income per line (NIS) (ARPL)**
|
82 | 82 | 83 | |||||||||
Number of outgoing minutes (in millions)
|
10,699 | 12,017 | 13,260 | |||||||||
Number of incoming minutes (in millions)
|
6,547 | 6,718 | 6,691 | |||||||||
Number of Internet subscribers at the end of the period* (in thousands)
|
1,066 | 1,035 | 1,005 | |||||||||
Rate of subscribers using NGN services out of total Internet subscribers (%)
|
34 | % | 12 | % |
NA
|
|||||||
Average monthly revenue per Internet subscriber *** (NIS)
|
75 | 69 | 67 | |||||||||
Average bandwidth per Internet subscriber (Mbps)
|
4.3 | 2.7 | 2.2 | |||||||||
Churn rate*****
|
12.6 | % | 12.1 | % | 12.5 | % |
*
|
Inactive subscribers are subscribers whose Bezeq lines have been physically disconnected (except for a subscriber during (roughly) the first three months of the collection process)
|
**
|
Excluding revenues from transmission and data communication, Internet services, services to communications operators and contract and other works: calculated according to average lines for the period
|
***
|
Total revenues from Internet services after eliminating revenues from a business directory, divided by the average Internet subscribers. Until September 30, 2010, average revenue was calculated without eliminating revenue from the business directory. In light of the change in the definition of Internet services for purposes of calculating the ARPU as aforesaid, the data for the period to September 30, 2010 (inclusive) were recalculated and are shown in the above table in accordance with the updated definition.
|
****
|
The number of telephony subscribers who left Bezeq Fixed-line during the period, divided by the average number of registered subscribers in the period.
|
2010
|
2009
|
2008
|
||||||||||
Revenues from fixed - line telephony
|
3,160 | 3,333 | 3,572 | |||||||||
Percentage out of total revenue
|
60.04 | % | 62.85 | % | 64.97 | % | ||||||
Revenues from Internet infrastructure services
|
977 | 863 | 790 | |||||||||
Percentage out of total revenue
|
18.56 | % | 16.27 | % | 14.36 | % | ||||||
Revenues from transmission and communication
s
ervices
|
882 | 851 | 811 | |||||||||
Percentage out of total revenue
|
16.76 | % | 16.04 | % | 14.75 | % | ||||||
Revenues from other services
|
244 | 256 | 325 | |||||||||
Percentage out of total revenue
|
4.64 | % | 4.84 | % | 5.92 | % | ||||||
Total income from domestic fixed-linecommunications services segment
|
5,263 | 5,303 | 5,498 |
2010
|
2009
|
2008
|
||||||||||
Revenue from services (NIS millions)
|
4,550 | 4,256 | 4,020 | |||||||||
Revenues from sale of terminal equipment (NIS millions)
|
1,182 | 1,120 | 693 | |||||||||
Total revenue (NIS millions)
|
5,732 | 5,376 | 4,713 | |||||||||
Operating profit (NIS millions)
|
1,383 | 1,190 | 933 | |||||||||
Net profit (NIS millions)
|
1,033 | 875 | 682 | |||||||||
Number of subscribers at the end of the period (thousands)*
|
2,857 | 2,766 | 2,649 | |||||||||
Average number of minutes per subscriber per month (MOU)**
|
349 | 333 | 352 | |||||||||
Average monthly revenue per subscriber (NIS) (ARPU)***
|
135 | 132 | 126 | |||||||||
Number of HSPA subscribers at the end of the period (thousands)
|
1,325 | 676 |
NA
|
|||||||||
% revenues from value added services and content out of revenue from cellular services
|
23.8 | % | 19.6 | % | 16.3 | % | ||||||
Subscriber churn rate****
|
15.3 | % | 13.8 | % | N/A |
*
|
Subscriber data does not include subscribers connected to Pelephone services for six months or more but who are inactive. An inactive subscriber is one who in the past six months has not received or made at least one call or who has no paid for Pelephone services.
|
**
|
Average monthly use per subscriber (in minutes) is calculated by the average monthly total outgoing minutes and incoming minutes in the period, divided by the average number of subscribers in the same period.
|
***
|
Average monthly revenue per subscriber is calculated by dividing total revenues from cellular services (airtime, usage fees, call completion fees, roaming fees, value added services, and other), repair and other services in the period, by the average number of active subscribers in the same period.
|
****
|
The churn rate is calculated at the ratio of subscribers who disconnected from the company's services and subscribers who became inactive during the period, to the average number of active subscribers during the period.
|
Products and services
|
2010
|
2009
|
2008
|
|||||||||
Revenue from services
|
4,550 | 4,256 | 4,020 | |||||||||
Percentage of total revenue
|
79.4 | % | 79.2 | % | 85.3 | % | ||||||
Revenue from content and data
|
725 | 541 | 397 | |||||||||
Revenue from texts (SMS)
|
289 | 241 | 208 | |||||||||
Total revenue from value added services
|
1,014 | 782 | 605 | |||||||||
Revenue from terminal equipment
|
1,182 | 1,120 | 693 | |||||||||
Percentage of total revenue
|
21 | % | 21 | % | 15 | % | ||||||
Revenues from private customers
|
2,899 | 2,751 | 2,437 | |||||||||
Revenues from private customers
|
2,833 | 2,625 | 2,276 | |||||||||
Total revenue
|
5,732 | 5,376 | 4,713 |
2010
|
2009
|
2008
|
||||||||||
Revenue (NIS millions)
|
1,380 | 1,318 | 1,306 | |||||||||
Operating profit (NIS millions)
|
320 | 261 | 242 | |||||||||
Depreciation and amortization (NIS)
|
94 | 84 | 80 | |||||||||
Net profit (NIS millions)
|
253 | 200 | 178 | |||||||||
Cash flow from operating activities (NIS millions)
|
292 | 320 | 163 | |||||||||
Payments for investments in property, plant and equipment and intangible assets (NIS millions)*
|
180 | 120 | 119 | |||||||||
Free cash flow (in NIS millions)**
|
112 | 200 | 45 | |||||||||
Churn rate***
|
12.7 | % | 14.8 | % |
NA
|
*
|
The item also includes long-term investments in long-term assets.
|
**
|
Cash from operating activities less purchase of property, plant and equipment and intangible assets, net.
|
***
|
The number of Internet subscribers who left Bezeq International during the period, divided by the average number of registered Internet subscribers in the period.
|
2010
|
2009
|
2008
|
||||||||||
Revenue (NIS millions)
|
1,583 | 1,530 | 1,513 | |||||||||
Operating profit(NIS millions)
|
178 | 248 | 177 | |||||||||
Net profit (loss) (NIS millions)
|
(314 | ) | (222 | ) | (265 | ) | ||||||
Number of subscribers* (at the end of the period, in thousands)
|
578 | 571 | 560 | |||||||||
Average monthly revenues per subscriber (ARPU)*** (NIS)
|
230 | 226 | 228 | |||||||||
Churn rate****
|
13.0 | % | 13.3 | % | N/A |
*
|
Subscriber – one household or small business customer. Where a business customer has many reception points or many decoders (such as a hotel, kibbutz or gym), the number of subscribers is calculated by dividing the total payment received from the business customer by the average revenue per small business customer.
|
**
|
Monthly ARPU is calculated by dividing total DBS revenues (from content and equipment, premium channels, technical service, advanced products, one-tom sale of content, revenues from channels, Internet and other)by average number of customers.
|
***
|
Number of DBS subscribers who left DBS during the period, divided by the average number of DBS registered subscribers in the period.
|
|
·
|
Loans in the amount of NIS 1.1 billion, which are unlinked and bear variable interest of prime minus 0.21%, are repayable in four equal annual payments of the principal between 2013 and 2016. The interest on the loans is payable twice a year.
|
|
·
|
A loan in the amount of NIS 200 million, which is unlinked and bears variable interest of prime minus 0.33%, is repayable in six equal annual payments of the principal between 2012 and 2017.
|
|
·
|
Loans in the amount of NIS 800 million, which are unlinked and bear average fixed interest of 5.56%, are repayable in four equal annual payments of the principal between 2013 and 2016. The interest on the loans is payable twice a year.
|
|
·
|
Loans in the amount of NIS 500 million, which are unlinked and bear average fixed interest of 5%, are repayable in four equal annual payments of the principal between 2012 and 2017.
|
|
·
|
A declaration that Pelephone will not encumber its assets (as may be from time to time), in whole or in part, in any manner including by means of a floating lien or a fixed lien of any type or rank, in favor of any third party, without the prior written consent of the credit providers.
|
|
·
|
Compliance with the following financial covenants:
|
|
o
|
An undertaking that Pelephone's debt will not exceed three times its equity and an undertaking that as long as that ratio exceeds 2.5, dividends will not be distributed and management fees will not be paid to the shareholders.
|
|
o
|
Pelephone undertook that the amount of its debts will not exceed NIS 3.8 billion (linked to the CPI known in January 2002).
|
|
o
|
An undertaking towards a certain bank that its total debt to it will not exceed 40% of its total debts to all the financial entities.
|
Year ended December 31,
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
(NIS in thousands)
|
||||||||||||
Net cash provided by operating activities
|
3,696 | 3,916 | 3,405 | |||||||||
Net cash (used in) provided by investing activities
|
(1,484 | ) | (1,632 | ) | (1,213 | ) | ||||||
Net cash (used in) provided by financing activities
|
(2,427 | ) | (2,490 | ) | (2,609 | ) | ||||||
Net (decrease) increase in cash and cash equivalents
|
(215 | ) | (206 | ) | (417 | ) | ||||||
Cash and cash equivalents at beginning of period
|
580 | 786 | 1,203 | |||||||||
Cash and cash equivalents at end of period (*)
|
365 | 580 | 786 |
NGN equipment
|
12 | % | ||
Digital switching equipment
|
25 | % | ||
Transmission and power equipment
|
20 | % | ||
Network equipment
|
4 | % | ||
Terminal equipment (cellular)
|
33 | % | ||
Subscriber equipment
|
20 | |||
Motor vehicles
|
15 | % | ||
Internet equipment
|
20 | % | ||
Furniture and other equipment
|
10 | % | ||
Electronic equipment, computers and internal communication system
|
33 | % | ||
Cellular infrastructure equipment
|
10 | % | ||
Buildings
|
4 | % |
Capitalized development costs
|
4-7 years
|
Other rights
|
3 - 10 years, depending on the useful life
|
Subscriber acquisition costs
|
Depending on the contractual commitment with the subscriber
|
Frequency usage right
|
Over the term of the license for 13.6 years starting from the date of use of the frequencies
|
Computer programs and software licenses
|
Over the term of the license or the estimated time of use of the program
|
ITEM 6.
DIRECTORS, SENIOR MANA
GE
MENT AND EMPLOYEES
|
A. Directors and Senior Management
|
Name
|
Age
|
Position
|
||
Shaul Elovitch(1)
|
63
|
Chairman of the Board of Directors
|
||
Eli Holtzman
|
63
|
Chief Executive Officer
|
||
Moshe Rosenthal (1)(2)(3)
|
52
|
Outside Director
|
||
Debbie Saperia (2)(3)
|
44
|
Outside Director
|
||
Aliza Schloss(1)(3)
|
58
|
Director
|
||
Doron Turgeman(3)
|
43
|
Chief Financial Officer
|
||
Anat Winner(2)(3)
|
52
|
Director
|
Name
|
Age
|
Position
|
||
Shaul Elovitch
|
63
|
Chairman of the Board of Directors of Bezeq
|
||
Abraham Gabbay
|
44
|
Chief Executive Officer of Bezeq
|
B. Compensation
|
C. Board Practices
|
|
·
|
The majority of shares voting on the matter (not including abstentions), including at least a majority of the shares of the non-controlling shareholders (and of shareholders who do not have a personal interest in the election of the outside director as a result of their relationship with the controlling shareholder) voting on the matter, vote in favor of the outside director; or
|
|
·
|
The majority of shares voting on the matter (not including abstentions) vote in favor of the outside director and the total number of ordinary shares held by non-controlling shareholders (and of shareholders who do not have a personal interest in the election of the outside director as a result of their relationship with the controlling shareholder) that voted against the election of the outside director does not exceed 2% of all of the voting rights in the company.
|
|
·
|
One or more shareholders holding at least 1% of the voting rights in the company nominated the outside director for an additional term of office and the appointment was approved by a majority of the shares voting on the matter, not including votes of controlling shareholders or shareholders who have a personal interest in the election of the outside director as a result of their relationship with the controlling shareholder; and provided that the total number of shares held by non-controlling persons and by persons who have no personal interest in the appointment of the outside director as a result of their relationship with the controlling shareholder, who voted in favor of the election of the nominee, exceeds 2% of the voting rights in the company; or
|
|
·
|
The board of directors proposed the nominee for an additional term of office, and the election was approved by the general meeting of shareholders by the majority required for the election of an outside director for a first term of office, as described above.
|
|
·
|
A breach of his or her duty of care to the company or to another person;
|
|
·
|
A breach of his or her duty of loyalty to the company, provided that the office holder acted in good faith and had reasonable cause to assume that his act would not prejudice the company’s interests; and
|
|
·
|
A financial liability imposed upon the office holder in favor of another person.
|
|
·
|
A financial liability imposed on the office holder in favor of another person by any judgment, including a settlement or an arbitrator’s award approved by a court;
|
|
·
|
Reasonable litigation expenses, including attorney’s fees, actually incurred by the office holder as a result of an investigation or proceeding instituted against him or her by a competent authority, provided that such investigation or proceeding concluded without the filing of an indictment against the office holder or the imposition of any financial liability in lieu of criminal proceedings, or concluded without the filing of an indictment against the office holder and a financial liability was imposed on the officer holder in lieu of criminal proceedings with respect to a criminal offense that does not require proof of criminal intent; and
|
|
·
|
Reasonable litigation expenses, including attorneys’ fees, incurred by such office holder or which were imposed on him by a court, in proceedings the company instituted against the office holder or that were instituted on the company’s behalf or by another person, or in a criminal charge from which the office holder was acquitted, or in a criminal proceeding in which the office holder was convicted of a crime which does not require proof of criminal intent.
|
|
·
|
Undertake in advance to indemnify an office holder, except that with respect to a financial liability imposed on the office holder by any judgment, settlement or court-approved arbitration award, the undertaking must be limited to types of occurrences, which, in the opinion of the company’s board of directors, are, at the time of the undertaking, foreseeable due to the company’s activities and to an amount or standard that the board of directors has determined is reasonable under the circumstances; and
|
|
·
|
Retroactively indemnify an office holder of the company.
|
|
·
|
a breach by the office holder of his duty of loyalty, except with respect to insurance coverage or indemnification if the office holder acted in good faith and had reasonable grounds to assume that the act would not prejudice the company;
|
|
·
|
a breach by the office holder of his duty of care if such breach was committed intentionally or recklessly, unless the breach was committed only negligently;
|
|
·
|
any act or omission committed with intent to derive an unlawful personal gain; and
|
|
·
|
any fine, civil fine, administrative monetary sanction or forfeiture imposed on the office holder.
|
|
·
|
A higher shareholder approval threshold must be attained to permit a chief executive officer to also serve as chairman of the board and vice versa. In addition, the chairman will not have the ability to serve a company in any capacity other than as the chief executive officer;
|
|
·
|
The majority of the members of the audit committee must be “independent” (as such term is defined under the Israeli Companies Law) and the chairman of the audit committee must be an outside director. In addition, the following persons may not serve as members of the audit committee: the chairman, any director employed by the company or by its controlling shareholder or by an entity controlled by the controlling shareholder, a director who regularly provides services to the company or to its controlling shareholder or to an entity controlled by the controlling shareholder, and any director who derives most of his or her income from the controlling shareholder;
|
|
·
|
The functions to be performed by the audit committee will be expanded to include, among other things: (i) determination whether certain related party actions and transactions are “material” or “extraordinary” for the purposes of the requisite approval procedures; (ii) assessment of the scope of work and compensation of the company’s independent accountant; (iii) assessment of the company’s internal audit system and the performance of its internal auditor; and (iv) establish whistle blower procedures (including protections afforded to whistle blowers);
|
|
·
|
The threshold to elect outside directors will be increased, such that the election of outside directors will require a majority vote at a shareholders’ meeting, provided that either: (i) at least a majority (previously, one-third) of the shares of non-controlling shareholders voted at the meeting on the matter vote in favor of the election of the outsider director, or (ii) the total number of shares of non-controlling shareholders voted against the election of the outside director does not exceed 2% (previously, 1%) of the voting rights in the company;
|
|
·
|
The independence requirements of outside directors will be enhanced such that an individual may not be appointed as an outside director: (i) in a company that does not have a 25% shareholder, if he has an affiliation (as such term is defined in the Israeli Companies Law) with any person, at the time of his appointment, who is the chairman, the chief executive officer, a 5% shareholder or the chief financial officer, or (ii) if he or his relative, partner, employer, supervisor or an entity he controls has other than negligible business or professional relations with any of the persons with whom he may not be affiliated;
|
|
·
|
Outside directors will be able to be re-elected for up to two (previously, one) additional three-year terms. Re-election of an external director will be effected through one of the following mechanisms: (i) the board of directors proposed the nominee and his appointment was approved by the shareholders in the manner required to appoint outside directors for their initial term (which was the only available way to re-elect external directors prior to the adoption of Amendment No. 16), or (ii) a shareholder holding 1% or more of the voting rights proposed the reelection of the nominee, and the nominee is approved by a majority of the votes cast by the shareholders of the company on the matter who are not the controlling shareholders and those who have a personal interest in the matter as a result of their relationship with any controlling shareholder, provided that the aggregate votes cast by such non-excluded shareholders in favor of the reelection constitute more than 2% of the voting rights in the company;
|
|
·
|
The terms of employment of an officer will now require the approval of the audit committee as well as the board of directors; and
|
|
·
|
The threshold to approve extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest will be increased, such that: (i) at least a majority (previously one-third) of the votes cast by shareholders who have no personal interest in the transaction are voted in favor of the transaction, or (ii) the votes cast by shareholders who have no personal interest in the transaction against the transaction do not represent more than 2% (previously 1%) of the voting rights in the company. In addition, any such extraordinary transaction whose term is more than three years will require approval every three years, unless (with respect to transactions not involving management fees or employment terms) the audit committee approves that a longer term is reasonable under the circumstances; and With respect to full tender offers (tender offers for the acquisition of all outstanding shares in a company), the time-frame for a shareholder to a request appraisal rights with respect to the tender offer will be extended from three to six months following the consummation of a tender, but the acquirer will be permitted to stipulate that tendering shareholders forfeit their appraisal rights.
|
D. Employees
|
E. Share Ownership
|
ITEM 7.
MAJOR SHAREHO
LD
ERS AND RELATED PARTY TRANSACTIONS
|
A.
Major Shareholders
|
Name
|
Number of
Ordinary
Shares
Beneficially
Owned (1)
|
Percentage of
Ownership
(2)
|
|||
Eurocom Communications Ltd.(3)
|
23,756,997
|
79.48
%
|
|||
Internet Gold
|
23,346,997
|
78.11
%
|
|||
Clal Insurance Enterprises Holdings Ltd.(4)
|
1,631,159
|
5.46
%
|
(1)
|
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Ordinary shares relating to options currently exercisable or exercisable within 60 days of the date of this table, are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them.
|
(2)
|
The percentages shown are based on 29,889,045 ordinary shares outstanding (not including 19,230 shares held as treasury stock) as of June 16, 2011.
|
(3)
|
Eurocom Communications is the controlling shareholder of Internet Gold, holding 77.80% of its ordinary shares. Eurocom Communications is 50.33% owned by Eurocom Holdings and 49% of its shares are held by four holding companies, which are 80% owned by Mr. Shaul Elovitch. The remaining 0.67% interest in Eurocom Communications is directly owned by Mr. Shaul Elovitch. Mr. Shaul Elovitch holds 80% of Eurocom Holdings’ shares and 75% of Eurocom Holdings’ management shares. Mr. Shaul Elovitch also serves as the chairman of the board of directors of Internet Gold, Eurocom Communications and Eurocom Holdings. Accordingly, Mr. Shaul Elovitch may be deemed to have the sole voting and dispositive power over our ordinary shares beneficially owned by Eurocom Communications. In addition, Mr. Shaul Elovitch may be deemed to be the beneficial owner of 3,177 ordinary shares of our company that are held of record by his wife. In addition, Mr. Shaul Elovitch may be deemed to be the beneficial holder of 26,893 ordinary shares of Internet Gold held of record by Mrs. Shaul Elovitch. In addition, 8,300 ordinary shares of Internet Gold are held by other family members of Mr. Shaul Elovitch.
|
(4)
|
Based solely upon, and qualified in its entirety with reference to, a Schedule 13G/A filed with the Securities and Exchange Commission on February 14, 2011. Clal Insurance Enterprises Holdings Ltd., or Clal, is controlled by IDB Development Corporation Ltd., or IDB Development, which is a wholly-owned subsidiary of IDB Holding Corporation, or IDB Holding. By reason of the controlling interest of IDB Development and IDB Holding (through IDB Development) in Clal, and by reason of the interests in, and relationships among them, with respect to IDB Holding, of Mr. Nochi Dankner, Mrs. Shelly Bergman, Mrs. Ruth Manor and Mr. Avraham Livnat, all such entities and persons, collectively referred to together with Clal as the Reporting Persons, may each be deemed a beneficial owner of the 1,631,159 ordinary shares deemed beneficially owned by Clal; however the Schedule 13G/A should not be construed as an admission by the Reporting Persons that they are the beneficial owners of any of the ordinary shares covered by the Schedule 13G/A. None of the 99,901 Ordinary Shares reported in the Schedule 13G/A as beneficially owned by Clal Finance Ltd., a wholly-owned subsidiary of Clal, are held for its own account and the Schedule 13G/A should not be construed as an admission by Clal Finance Ltd. that it is the beneficial owner of any of the ordinary shares covered by the Schedule 13G/A.
|
B. Related Party Transactions
|
|
·
|
On March 31, 2007, Internet Gold provided us with a long-term loan of NIS 100.6 million ($28.3 million), bearing the prime interest rate published from time to time by the Bank of Israel. As of December 31, 2009, we had an outstanding balance payable to Internet Gold of NIS 326 million ($86.4 million). On March 24, 2010, NIS 302 million ($85.1 million) of the loan was repaid from the proceeds from Internet Gold’s participation in our March 2010 private placement. On May 12, 2010, we repaid the remaining outstanding balance of NIS 31.5 million ($8.9 million).
|
|
·
|
In November 2009, Internet Gold provided to us a NIS 217.5 million ($61.3 million) loan, which bears interest equal to the yield on Israel Government bonds with an average maturity that is closest to the maturity date of the loan, as such yield is reflected in the average closing price of Israel Government bonds for the seven trading days preceding the grant of the loan. On March 24, 2010, the loan was fully repaid from proceeds from Internet Gold’s participation in our March 2010 private placement.
|
C. Interests of Experts and Counsel
|
ITEM 8.
FINAN
CIAL INFORMATION
|
A. Consolidated Statements and Other Financial Information
|
|
·
|
In September 2000, a lawsuit was filed in the Jerusalem Regional Labor Court against Bezeq by 2,423 retired employees of Bezeq. The plaintiffs were seeking declaratory relief to determine that grossed up compensation for tax purposes, clothing allowance and incentive payments are considered part of the regular salary and therefore should be considered as part of determining wages for the purpose of calculating their pension and payments made to them upon retirement. The plaintiffs were also seeking declaratory relief to determine that their last determining salary for pension should be calculated according to the last salary actually paid and not according to the average staff grade held by them. The claim was subsequently amended so that the request for declaratory relief relating to the plaintiff’s pension rights was deleted and the plaintiffs also narrowed their claim to the incentive pay component and withdrew their claim with respect to grossing up compensation and clothing allowance. In January 2007, an additional claim was filed by 85 retired employees of Bezeq who were seeking declaratory relief to determine that grossed up compensation for tax purposes, clothing allowance and incentive pay should be included in the determining salary for their rights pursuant to the Hours of Work and Rest Law and the Annual Vacation Law. This claim was consolidated with the above claim. On December 16, 2008, the Court denied the claim. The plaintiffs filed an appeal against the Courts decision on March 3, 2009 and the appeal proceedings are continuing.
|
|
·
|
In February 2002, a notice of a party to a collective agreement, or Party Notice, was filed in the Jerusalem Regional Labor Court by the labor union that represents Bezeq’s employees in the name of all of Bezeq employees. The applicant alleges that grossed up consideration for tax purposes, the salary component for on-call duty and clothing allowances which were paid to Bezeq’s employees constitute regular pay which forms part of the determining salary of each employee, including for the calculation of payments upon retirement. The Israeli Attorney General joined the claim. In April 2006, the Court issued its decision, denying all parts of the Party Notice. An appeal was filed against the decision, in which it was alleged that the decision is procedurally void, and the hearing was returned, with the consent of the parties and the Attorney General, to the Regional Labor Court. On February 10, 2010, a new party notice was filed, referring only to the on-call duty component and requesting that the Court determine that such component be included in the hourly rate for the purpose of calculating the remuneration for overtime hours and the redemption of annual leave. A preliminary hearing has been scheduled for July 2010.
|
|
·
|
In January 2004, a claim was filed in the Tel Aviv District Labor Court against the Company and against the Makefet Fund, by 320 employees who retired under a retirement agreement signed in November 1997. The plaintiffs allege that they chose the Pension Track B after having been promised an increment pursuant to the "Yellow Note" agreement, and that this promise was not kept. On December 11, 2008, the Court denied the claim. An appeal filed by the plaintiffs was denied on January 1, 2010. Following denial of the claim and the appeal, on June 6, 2010 a petition filed by the plaintiffs in the High Court of Justice to set aside the decision of the National Labor Court was denied.
|
|
·
|
In 2003, Bezeq filed a lawsuit in the Tel Aviv Regional Labor Court against the Makefet Fund (a pension fund) for compensation for the alleged breach of agreements between Bezeq and the Makefet Fund relating to the calculation of the cost of early retirement of retired employees of Bezeq. Bezeq is seeking compensation in the amount of approximately NIS 280 million ($78.9 million). The trial is currently ongoing.
|
|
·
|
Four claims filed in 2003 and 2005 by various plaintiffs are pending against Bezeq, Israel Broadcasting Corporation and the State of Israel, for compensation in respect of bodily injury and property damage caused, according to the plaintiffs, by prohibited radiation from the Hillel broadcasting station. Three of the claims are for bodily injury and are being heard in the Central District Court (the amount of the first claim is "more than NIS 15 million", the second does not provide an amount, and the third claim is for NIS 46 million ($13 million). The plaintiffs in these three claims filed a motion to consolidate the hearings. The Court instructed that the proceedings be halted, and reopened if necessary only after the plaintiffs comply with the Court's decision in the matter of filing documents and affidavits. The fourth claim is being heard in the Tel Aviv District Court and plaintiffs are alleging property and money damages. The amount of the original claim was approximately NIS 141 million ($40 million), but due to non-payment of the court fee by some of the plaintiffs and denial of their motion for exemption from the fee, some of the plaintiffs were struck from the claim so that its current amount is approximately NIS 23 million ($6 million).
|
|
·
|
In November 2006, a claim was filed in the Tel Aviv District Court against Bezeq, seeking certification as a class action, in the amount of approximately NIS 189 million ($153 million), alleging unlawful collection of money in cases of disconnection of service due to non-payment. Following Bezeq’s opposition to the plaintiff’s effort to broaden the claim, the plaintiff filed an additional claim in the Central District Court in February 2011, with an application for its certification as a class action, for approximately NIS 44 million ($12 million), in the matter of rebate of payment for "associated services" in respect of the period in which the line was disconnected.
|
|
·
|
In November 2006, a claim and motion for certification as a class action were filed in the Tel Aviv District Court against Bezeq, Pelephone, HOT, Cellcom and Partner, in the amount of NIS 158 million ($45 million). The plaintiffs allege that when completing a call made from a cellular line to a fixed line, if the call is disconnected by the fixed line call recipient (and not by the cellular line call initiator), Bezeq and HOT delay sending the disconnection signal for approximately 60 seconds, and as a result, they incur a charge which is reflected in airtime costs and interconnect fees. In a procedural arrangement reached between the parties, it was decided that the claim would be heard against Bezeq and HOT, while the claim against Pelephone, Partner and Cellcom would be heard as part of a similar claim filed against them in August 2006 for NIS 100 million. On October 28, 2010 the Court denied the application and on December 16, 2010 the plaintiffs filed an appeal against the decision in the Supreme Court.
|
|
·
|
In October 2008, one of the shareholders of DBS initiated arbitration proceedings against Bezeq and another DBS shareholder, alleging that she incurred losses as a result of the management of DBS and the use of DBS for promoting purposes not provided for in the shareholders agreement to which she is a party. The plaintiff is seeking cancellation of the agreement, restitution and compensation in the amount of NIS 160 million ($45.1 million). On June 30, 2010, following the parties’ application for a stay of the arbitration proceedings in light of the plaintiff's execution of an agreement for the sale of its shares in DBS, the arbitrator decided to stay the arbitration proceedings until receipt of other notification from the parties. According to the plaintiff's notice, upon fulfillment of the preconditions in the agreement and it taking force, it will discontinue the proceeding.
|
|
·
|
In July 2010, a lawsuit and motion for certification as a class action were filed against Bezeq in the Central District Court, alleging that Bezeq offers its customers calling plans for a fixed monthly payment which results in loss of money for the customers for whom the calling plans are not worthwhile, and misleads them. The plaintiff is claiming restitution of the difference between the amount paid by the customers under the monthly calling plan and the amount that they would have paid for a standard calling plan, a sum it estimates at "tens of millions of shekels," as well as compensation of NIS 1,500 ($423) per customer for alleged intrusion of privacy.
|
|
·
|
In September 2010, a lawsuit was filed against Bezeq in the Jerusalem District Court by the Ministry of Communications, the Commander of IDF Forces in Judea and Samaria, and the Civil Administration in Judea and Samaria, in the matter of payment of fees for setting up and operating microwave arteries in Judea and Samaria, in the amount of NIS 74 million ($20.9 million).
|
|
·
|
In October 2010, a lawsuit and motion for certification as a class action were filed against Bezeq in the Tel Aviv District Court in which it is alleged that Bezeq is operating in violation of the Consumer Protection Law in that it fails to provide its customers with a written document stating the details required under that law at the time it effects a change or addition to an ongoing transaction. The plaintiff is petitioning for an order and declaratory relief instructing Bezeq to comply with the aforementioned provisions of the law as well as monetary relief (financial and non-financial) commencing October 10, 2008 through the date of filing the lawsuit, in the amount of NIS 98 million ($27.6 million). In October 2010, similar claims were filed by plaintiffs represented by the same lawyer against Pelephone, Bezeq International and DBS.
|
|
·
|
In January 2011, the following four claims together with applications for their certification as class actions were filed against Bezeq arising from a malfunction in its network on January 25, 2011: (i) a claim estimated at NIS 104 million ($29 million) in the Nazareth District Court; (ii) a claim estimated at NIS 135 million ($38 million) in the Central District Court; (iii) a claim estimated at NIS 84 million ($24 million) in the Haifa District Court, and (iv) a claim estimated at NIS 217 million ($61 million) in the Tel Aviv District Court.
|
|
·
|
In December 2000, the State of Israel filed a lawsuit in the Tel Aviv District Court, which was subsequently transferred to the Central Region District Court, against Pelephone relating to royalties payable by Pelephone to the State of Israel on Pelephone’s revenues allegedly owed by it to the State of Israel for the period from January 1994 until February 1996. The State is seeking payment in the amount of NIS 260 million ($73.3 million), including principal, linkage differences and interest. An examination conducted as part of a mediation procedure found that the maximum amount of royalties with respect to Pelephone’s revenues from January 1, 1994 to February 7, 1996 was NIS 118 million ($33.3 million) before interest, linkage differences and the sum actually paid. Bezeq undertook to reimburse Pelephone any amount that Pelephone is ordered to pay the State in a final decision for royalties with respect to Pelephone’s revenues for the period from January 1, 1994 to October 10, 1994. Bezeq’s position is that it already paid such royalties to the State of Israel under a settlement agreement between Bezeq and the State of Israel from November 29, 1995 relating to various matters, including royalty payments. In September 2010, a decision was rendered against Pelephone, in which some of the State's allegations were allowed. The sum that Pelephone was required to pay was NIS 150 million ($44.3 million), including principal, linkage and interest, and was paid in October 2010. Pelephone filed an appeal against the ruling in the Supreme Court in October 2010.
|
|
·
|
In September 2001, a lawsuit was filed in the Ramallah District Court by the General Public Palestinian Communications Company Ltd. against Pelephone and another company. The plaintiff alleges that Pelephone and the other defendant have unlawfully been operating landline and cellular communication services in the Palestinian Authority, while allegedly the exclusive right to provide such services has been granted to the plaintiff. The plaintiff is seeking a permanent injunction preventing the defendants from providing such communications services in the areas of the Palestinian Authority, as well as compensation in the amount of NIS 676 million ($190.5 million) solely from Pelephone. Pelephone was informed that the Ramallah Court may have issued a decision in the lawsuit. Enforcement of decisions rendered by a court of the Palestinian Authority may only be executed if approved by the Israeli Ministry of Justice. Pelephone is of the opinion that if such a decision was rendered, it was rendered without jurisdiction. If an attempt is made to serve the decision for the approval of the Israeli Ministry of Justice or to enforce it in any way whatsoever, Pelephone will act to prevent such approval and/or enforcement.
|
|
·
|
In August 2006, a lawsuit and motion for certification as a class action were filed in the Tel Aviv District Court against Pelephone, Cellcom and Partner. The plaintiffs allege that when Bezeq or HOT customers initiate the termination of a call made to the customer from a cellular network there is an excess charge until the call is actually disconnected. The total amount sought in the lawsuit, if certified as a class action, is approximately NIS 100 million ($28.2 million). In a procedural arrangement reached between the parties, it was determined that this lawsuit would be combined with a similar lawsuit filed against the defendants in November 2006, as described above. The hearing on the motion to certify the lawsuit as a class action is underway.
|
|
·
|
In December 2007, a lawsuit and motion for certification as a class action were filed in the Tel Aviv District Court against Pelephone, Cellcom and Partner. The plaintiffs claim that the defendants have exposed them to radiation from cellular antennae that were allegedly unlawfully established and as a result, have caused damage to their health. The total amount sought in the lawsuit, if certified as a class action, is approximately NIS 1 billion ($282 million). The hearing on the motion to certify the lawsuit as a class action is underway
.
|
|
·
|
In July 2008, a lawsuit and motion for certification as a class action were filed in the Tel Aviv District Court. The plaintiffs are seeking the refund of amounts that they allege was unlawfully collected from Pelephone’s subscribers in connection with “dial-on” calls from Bezeq’s information service, late payments and for services provided at Pelephone’s service centers, in violation of Pelephone’s license. The total amount sought in the lawsuit, if certified as a class action, is approximately NIS 240 million ($67.6 million). A decision on the motion is pending.
|
|
·
|
In August 2009, a lawsuit and motion for certification as a class action were filed in the Central Region District Court. The plaintiffs are seeking declaratory relief that Pelephone unlawfully saves text messages sent via its network, an order that Pelephone delete the information, an injunction to prevent Pelephone from saving text messages in the future and monetary relief in an amount to be determined by the Court. The parties are waiting for the Attorney General to provide his position with respect to a settlement reached by the parties.
|
|
·
|
In August 2009, a lawsuit and motion for certification as a class action were filed in the Tel Aviv District Court against Pelephone, Shamir Systems Ltd., or Shamir, and Unicell Advanced Cellular Solutions Ltd., or Unicell. The plaintiffs are seeking the refund of amounts allegedly unlawfully collected by the respondents (which are charged through the cellular bill issued by Pelephone) for data services provided by Shamir and Unicell. The total amount sought in the lawsuit, if certified as a class action, is approximately NIS 200 million ($56.4 million). The plaintiffs are also seeking an order instructing the respondents to discontinue the collection of such amount. The hearing on the motion to certify the lawsuit as a class action is underway.
|
|
·
|
In October 2009, a lawsuit and motion for certification as a class action were filed in the Tel Aviv District Court against Pelephone, alleging that Pelephone is in violation of its license in connection with benefits offered to customers and customer commitment periods. The plaintiff is seeking compensation in a total amount, if the lawsuit if certified as a class action, of approximately NIS 331 million ($93.3 million). The hearing on the motion to certify the lawsuit as a class action is underway.
|
|
·
|
In March 2010, a lawsuit and motion for certification as a class action were filed in the Tel Aviv District Court against Pelephone and Cellcom. The plaintiffs have asserted an unjust enrichment claim against Pelephone on the basis that in alleged violation of its license, Pelephone has allegedly failed to procure insurance covering liability for bodily harm caused by exposure to cellular radiation. The total amount sought in the lawsuit, if certified as a class action, is approximately NIS 4.2 billion ($1.18 billion), of which NIS 2.1 billion ($509 million) is sought from Pelephone. The plaintiffs are also seeking an order instructing Pelephone to obtain such insurance. The hearing on the motion to certify the lawsuit as a class action is underway and the next court date is scheduled for October 2011.
|
|
·
|
In May 2010, a lawsuit and motion for certification as a class action were filed in the Central District Court against Pelephone and three other cellular operators. The plaintiffs claim that the defendants violated their duty to establish cellular antenna sites in the required amount and spread, that they violated their duty to test, repair and provide notice regarding levels of non-ionizing radiation emitted from cellular phones after they have been repaired, and also violated their duty to provide a warning with respect to the hazard involved in the holding of cellular phones. The plaintiffs are seeking aggregate compensation from Pelephone of approximately NIS 3.68 billion ($1.04 billion) and aggregate compensation from all of the defendants of approximately NIS 12 billion ($3.38 billion). The next hearing on the motion to certify the lawsuit as a class action has not been scheduled.
|
|
·
|
In June 2010, a lawsuit and motion for certification as a class action were filed in the Central District Court against Pelephone, alleging that Pelephone unlawfully charges its customers for several services that were not requested by the customers and transferred customers’ details to third party suppliers without their consent. The plaintiff is seeking compensation for personal damages in the amount of NIS 958 (approximately $270). The total amount of the lawsuit if certified as a class action was not indicated in the lawsuit, but the lawsuit estimates it would be hundreds of millions of NIS. The hearing on the motion to certify the lawsuit as a class action is underway and the next court date is scheduled for October 2011.
|
|
·
|
In August 2010, a lawsuit and motion for certification as a class action were filed in the Central District Court against Pelephone. The amount of the claim is not stated, but the application is estimated in the tens of millions of NIS. According to the plaintiff, Pelephone should refrain from collecting Value Added Tax from customers who use its services when they are outside Israel. The plaintiff is also seeking an order instructing Pelephone to cease charging its customers VAT on the services they use outside Israel, and an order instructing that the VAT collected to date on those services be reimbursed.
|
|
·
|
In October 2010, a lawsuit and motion to certify it as a class action were filed in the Tel Aviv District Court against Pelephone. The plaintiff alleged that Pelephone is operating in contravention of the Consumer Protection Law, by failing to provide its customers with a written document containing the details required under the Consumer Protection Law, when entering into an agreement for changing or adding to a continuing transaction. The plaintiff is applying for a writ of mandamus and declaratory relief which will direct Pelephone to comply with the provisions of such law and for monetary damages of NIS 98 million ($28 million) for the period from October 2008 until the date the claim was filed.
|
|
·
|
In January 2011, a lawsuit and motion for certification as a class action were filed in the Jerusalem District Court against Pelephone. The plaintiff alleged that he purchased two Samsung handsets but was unable to use them for surfing the Internet even though he purchased surfing services The plaintiff is seeking damages in the amount of NIS 150 million ($28 million).
|
|
·
|
On June 6, 2011, a lawsuit and motion to certify it as a class action were filed in the Tel Aviv District Court against Pelephone and three other cellular phone companies. The plaintiff alleged that the defendants sold and continue to sell accessories designed to allow mobile devices to be worn on one’s body in a manner that is contrary to the instructions of the mobile device manufacturers and the Ministry of Health’s recommendations on radiation. According to the plaintiff, he suffered personal damage of NIS 1,000 and is also entitled to reimbursement for the cost of the accessories. In the plaintiff’s estimation, the total amount sought from Pelephone is approximately NIS 503 million ($42 million).
|
|
·
|
The following four lawsuits and motions for certification as a class action were filed against Bezeq International by plaintiffs who claim that Bezeq International’s international calling cards to certain foreign destinations provide less than the amount of time indicated on the cards. The plaintiffs in each of the lawsuits also allege that Bezeq International unlawfully deducted the time spent when unsuccessfully attempting to call someone from the card and formed a cartel with other international communication companies that raised the prices of calling cards. The plaintiffs in each of the lawsuits also petitioned the Court to order Bezeq International to cease the foregoing acts. The hearing on the motion to certify the lawsuits as a class action is underway. The lawsuits are being heard together in the Tel Aviv District Court, although their proceedings have not formally been consolidated.
|
|
o
|
In April 2008, a lawsuit and motion for certification as a class action were filed in the Tel Aviv District Court against Bezeq International, with respect to international calling cards to Nepal. The plaintiffs’ are seeking compensation in the aggregate amount of NIS 115 million ($32.4 million), if the lawsuit is certified as a class action.
|
|
o
|
In April 2008, a lawsuit and motion for certification as a class action were filed in the Tel Aviv District Court against Bezeq International with respect to international calling cards to the Philippines. The plaintiffs’ are seeking compensation in the aggregate amount of NIS 566 million ($159.5 million), if the lawsuit is certified as a class action.
|
|
o
|
In April 2008, a lawsuit and motion for certification as a class action was filed in the Central Region District Court against Bezeq International with respect to international calling cards to Thailand. The lawsuit was subsequently transferred to the Tel Aviv District Court. The plaintiffs are seeking compensation in the aggregate amount of NIS 478 million ($134.7 million), if the lawsuit is certified as a class action.
|
|
o
|
In June 2008, a lawsuit and motion for certification as a class action was filed in the Tel Aviv District Court against Bezeq International with respect to international calling cards to Thailand. The plaintiffs are seeking compensation in the aggregate amount of NIS 478 million ($134.7 million), if the lawsuit is certified as a class action.
|
|
·
|
On May 4, 2009, a lawsuit and motion for certification as a class action were filed in the Tel Aviv District Court against Bezeq International. The plaintiff is seeking reimbursement of excess amounts allegedly unlawfully collected by Bezeq International for services that the plaintiff claims he did not order and for the increase of the rate for Internet access after the first year. The plaintiff is seeking personal compensation in the amount of NIS 2.8 billion ($789 million) and if certified as a class action, in the amount of NIS 216 million ($60.9 million) for the entire class. On June 12, 2011, the court approved the withdrawal of the plaintiff from the lawsuit.
|
|
·
|
On January 24, 2010, a lawsuit and motion for certification as a class action were filed in the Central Region District Court against Bezeq International and four other communication licensees. The plaintiffs are seeking reimbursement of the amounts allegedly unlawfully collected for calls made to the technical support call centers. The total amount of the claim against Bezeq International, if certified as a class action, is NIS 105 million ($29.6 million). The hearing on the motion to certify the lawsuit as a class action is underway.
|
|
·
|
In October 2010, a lawsuit and motion for certification as a class action were filed against Bezeq International in the Tel Aviv District Court, seeking damages in the amount of NIS 39 million ($11 million). The claim alleges that Bezeq International does not provide its customers with a written document as required under the Consumer Protection Law, when entering into an agreement for changing or adding to a continuing transaction. Similar claims by other plaintiffs (represented by the same lawyer) were also filed against the Bezeq International, Pelephone and DBS.
|
|
·
|
On October 3, 2007, a lawsuit and motion for certification as a class action were filed in the Tel Aviv District Court against DBS. The plaintiff claims that due to reception disturbances in DBS’s broadcasts in September 2007, daily malfunctions and long interruptions in television broadcasts were caused to DBS’s subscribers and that DBS’s service center was not operational during such time. The plaintiffs are seeking aggregate compensation of approximately NIS 121 million ($34.1 million), if the lawsuit is certified as a class action. The hearing on the motion to certify the lawsuit as a class action is underway.
|
|
·
|
On October 7, 2010, a lawsuit was filed in the Tel Aviv District Court against DBS seeking damages of NIS 98 million ($28 million). According to the plaintiff, DBS did not live up to its obligation to provide the plaintiff and its other customers with a document that outlines their right to cancellation should they make a change and/or addition to the service provided to them under the "ongoing transactions" with it, and according to the plaintiff the result was that he incurred financial damages of NIS 124 ($35), which is the difference between the payment made in respect of the new converter and the amount paid for the converter prior to the change over a period of three months, and non-financial damage of NIS 50 million ($ 14 million) in respect of harm to personal autonomy. The plaintiff estimated that the total number of members of the relevant group is approximately one million subscribers. The motion is pending. Similar claims (by plaintiffs represented by the same attorney) were also filed against Bezeq, Pelephone and Bezeq International.
|
|
·
|
On November 1, 2010, a motion for certification of a class action was filed against DBS in the Tel Aviv District Court for NIS 258 million ($73 million). According to the plaintiff, DBS materially violated the provisions of the Consumer Protection Law regarding a transaction for a defined period of time, due to the failure to send a notice to its customers of the end of their term of commitment and its collection of improper payments at the end of the term of commitment. The plaintiff alleged that DBS conditioned the return of the payments unlawfully collected from the customers in the engagement on another long-term commitment. The plaintiff argues that as a result she incurred financial damages of NIS 568 ($160), which is the full amount she paid as subscriber fee after the end of the term of commitment. In addition, the plaintiff is suing for NIS 5,000 ($1,409) as exemplary damages and/or damages in respect of non-financial damage incurred in respect of the alleged breaches of the provisions of the Consumer Protection Law. The plaintiff estimates that the relevant group for the application for certification is 570,000 customers. On March 31, 2011, DBS filed its response to the motion for certification by refuting the plaintiff’s arguments, indicating: that it had adopted detailed procedures to comply with the provisions of the Consumer Protection Law; that it is in compliance with the obligation imposed on it to notify its customers when an offer ends; and that an error had occurred with respect to the plaintiff which led to her not being identified by DBS's system as a customer approaching the end of her term of commitment. On April 14, 2011, the court approved a motion filed by the parties to withdraw and dismiss the claim.
|
|
·
|
On December 13, 2010, a motion for certification of a class action was filed against DBS in the Tel Aviv District Court seeking NIS 600 million ($169 million) in damages. The plaintiff alleged that DBS violated its obligation to its customers by omitting broadcasts it was committed to air in its “Basic Package,” removed channels without approval, did not comply with the obligation to invest in quality programming and violated its obligations regarding the broadcast of commercials, promos and marketing and commercial content. The plaintiff alleged that as a result, he incurred damages estimated at NIS 2,180 ($614). This amount consists of NIS 1,680 ($473) (10% of the total subscription fee the applicant paid in the seven years he was a subscriber of DBS as damages in respect of the damage he incurred due to non-broadcast of the programming DBS was obligated to air) and non-financial damages of NIS 500 ($141) in respect of harm to personal autonomy. The plaintiff defined the group as all of the DBS's subscribers during the seven years prior to the filing of the action. He estimates that the group numbers 800,000 subscribers. The hearing on the motion to certify the lawsuit as a class action is underway.
|
|
·
|
On December 16, 2010, a motion for certification of a class action was filed against DBS in the Tel Aviv District Court seeking NIS 50 million in damages. The plaintiff alleged that DBS violated its obligation to its hearing impaired subscribers in that it did not comply with is obligations under the Equal Rights for Persons with Disabilities Law (1998) and under the Television Broadcasting (Subtitles and Sign Language) Law (2005) and violated the directives of the Council in this regard. In accordance with that allegation, the amount of damages claimed per customer is NIS 10,000. According to the estimate of the plaintiff at least 25,000 of the persons suffering from hearing impairment (of the 50,000 he claims are defined as hearing impaired) are DBS customers. DBS has not yet filed its response to the motion for certification.
|
B. Significant Changes
|
ITEM 9.
THE OFFER AND L
IS
TING
|
A. Offer and Listing Details
|
NASDAQ Global Market
|
Tel Aviv Stock Exchange
|
|||||||||||||||
Year
|
High
|
Low
|
High
|
Low
|
||||||||||||
2007
|
$ | 13.11 | $ | 11.53 |
NIS
52.64
|
NIS 46.59 | ||||||||||
2008
|
$ | 12.77 | $ | 3.80 | NIS 50.85 | NIS 13.97 | ||||||||||
2009
|
$ | 22.63 | $ | 4.96 | NIS 85.47 | NIS 18.78 | ||||||||||
2010
|
$ | 38.19 | $ | 21.13 | NIS 133.7 | NIS 81.59 |
NASDAQ Global Market
|
Tel Aviv Stock Exchange
|
|||||||||||||||
High
|
Low
|
High
|
Low
|
|||||||||||||
2009
|
||||||||||||||||
First Quarter
|
$ | 6.34 | $ | 4.96 | NIS 25.33 | NIS 18.78 | ||||||||||
Second Quarter
|
$ | 9.04 | $ | 5.49 | NIS 36.56 | NIS 22.79 | ||||||||||
Third Quarter
|
$ | 12.30 | $ | 8.22 | NIS 44.45 | NIS 32.26 | ||||||||||
Fourth Quarter
|
$ | 22.63 | $ | 10.43 | NIS 85.47 | NIS 38.93 | ||||||||||
2010
|
||||||||||||||||
First Quarter
|
$ | 34.60 | $ | 22.50 | NIS 125.60 | NIS 84.50 | ||||||||||
Second Quarter
|
$ | 34.99 | $ | 23.20 | NIS 127.50 | NIS 91.00 | ||||||||||
Third Quarter
|
$ | 27.23 | $ | 21.13 | NIS 101.40 | NIS 81.65 | ||||||||||
Fourth Quarter
|
$ | 38.79 | $ | 26.03 | NIS 133.70 | NIS 96.95 | ||||||||||
2011
|
||||||||||||||||
First Quarter
|
$ | 39.48 | $ | 29.61 | NIS 136.90 | NIS 109.10 | ||||||||||
Second Quarter (through June 29)
|
$ | 35.00 | $ | 24.08 | NIS 121.70 | NIS 86.00 |
NASDAQ Global Market
|
Tel Aviv Stock Exchange
|
|||||||||||||||
High
|
Low
|
High
|
Low
|
|||||||||||||
December 2010
|
$ | 39.79 | $ | 28.88 | NIS 133.70 | NIS 114.90 | ||||||||||
January 2011
|
$ | 39.48 | $ | 31.11 | NIS 136.90 | NIS 118.00 | ||||||||||
February 2011
|
$ | 34.38 | $ | 30.55 | NIS 124.10 | NIS 116.10 | ||||||||||
March 2011
|
$ | 35.79 | $ | 29.56 | NIS 109.10 | NIS 102.50 | ||||||||||
April 2011
|
$ | 35.00 | $ | 31.57 | NIS 121.70 | NIS 110.00 | ||||||||||
May 2011
|
$ | 33.00 | $ | 28.61 | NIS 108.50 | NIS 99.00 | ||||||||||
June 2011 (through June 29)
|
$ | 29.90 | $ | 24.08 | NIS 99.00 | NIS 86.00 |
B. Plan of Distribution
|
C. Markets
|
D. Selling Shareholders
|
E. Dilution
|
F. Expense of the Issue
|
ITEM 10.
ADDITIONAL INFO
RM
ATION
|
A. Share Capital
|
B. Memorandum and Articles of Association
|
D. Exchange Controls
|
E. Taxation
|
|
·
|
who qualifies as a resident of the United States within the meaning of the U.S.-Israel tax treaty; and
|
|
·
|
who is entitled to claim the benefits available to the person by the U.S.-Israel tax treaty.
|
|
·
|
broker-dealers,
|
|
·
|
financial institutions,
|
|
·
|
certain insurance companies,
|
|
·
|
regulated investment companies,
|
|
·
|
investors liable for alternative minimum tax,
|
|
·
|
tax-exempt organizations,
|
|
·
|
non-resident aliens of the U.S. or taxpayers whose functional currency is not the U.S. dollar,
|
|
·
|
persons who hold the ordinary shares through partnerships or other pass-through entities,
|
|
·
|
persons who acquired their ordinary shares through the exercise or cancellation of employee stock options or otherwise as compensation for services,
|
|
·
|
certain expatriates or former long-term residents of the United States,
|
|
·
|
investors that own or have owned, directly, indirectly or by attribution, 10 percent or more of our voting shares, and
|
|
·
|
investors holding ordinary shares as part of a straddle or appreciated financial position or a hedging or conversion transaction.
|
|
·
|
an individual who is a citizen or, for U.S. federal income tax purposes, a resident of the United States;
|
|
·
|
a corporation or other entity created or organized in or under the laws of the United States or any political subdivision thereof;
|
|
·
|
an estate whose income is subject to U.S. federal income tax regardless of its source; or
|
|
·
|
a trust that (a) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons or (b) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
|
|
·
|
you will be required to allocate income recognized upon receiving certain dividends or gain recognized upon the disposition of ordinary shares ratably over the holding period for such ordinary shares,
|
|
·
|
the amount allocated to each year during which we are considered a PFIC other than the year of the dividend payment or disposition would be subject to tax at the highest individual or corporate tax rate, as the case may be, in effect for that year and an interest charge would be imposed with respect to the resulting tax liability allocated to each such year, and
|
|
·
|
the amount allocated to the current taxable year and any taxable year before we became a PFIC would be taxable as ordinary income in the current year.
|
|
·
|
A direct or indirect owner of a pass-through entity, including a trust or estate, that is a direct or indirect shareholder of a PFIC,
|
|
·
|
A shareholder of a PFIC that is a shareholder of another PFIC, or
|
|
·
|
A 50%-or-more shareholder of a foreign corporation that is not a PFIC and that directly or indirectly owns stock of a PFIC.
|
F. Dividends and Paying Agents
|
G. Statement by Experts
|
H. Documents on Display
|
I. Subsidiary Information
|
ITEM 11.
QUANTIT
AT
IVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
|
ITEM 12.
DESCRIPTION OF SECURITIES OTH
E
R THAN EQUITY SECURITIES
|
ITEM 13.
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|
ITEM 14.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|
ITEM 15.
CONTROLS AND P
RO
CEDURES
|
ITEM 16.
[RESERV
ED
]
|
Year Ended December 31,
|
||||
Services Rendered
|
2009
|
2010
|
||
Audit (1)
|
NIS 480,000
|
NIS 4,168,000
|
||
Audit-related(2) |
NIS 962,000
|
NIS 332,000
|
||
Tax (3) | NIS 40,000 | NIS 242,000 | ||
Total
|
NIS 1,482,000
|
NIS 4,742,000
|
(1)
|
Audit fees are for audit services for each of the years shown in the table, including fees associated with the annual audit and audit services provided in connection with other statutory and regulatory filings.
|
(2)
|
Audit related fees are the aggregate fees billed for assurance and related services that are not reported under audit fees. These fees include internal controls review serviced as well as agreed upon procedures for certain regulatory matters.
|
(3)
|
Tax fees are the aggregate fees billed for professional services rendered for tax compliance and tax advice.
|
EXEMPTIONS FROM
THE LISTING
STANDARDS FOR AUDIT COMMITTEES
|
|
·
|
The requirement that the majority of the company’s board of directors qualify as independent directors, as defined under the NASDAQ Listing Rules. Instead, we follow Israeli law and practice which requires that we appoint at least two outside directors, within the meaning of the Israeli Companies Law, to our board of directors. In addition, we have the mandated three independent directors, within the meaning of the rules of the Securities and Exchange Commission and NASDAQ, on our audit committee. See Item 6C. “Directors, Senior Management and Employees - Board Practices - Outside and Independent Directors.”
|
|
·
|
The requirement that the compensation of the chief executive officer and all other executive officers be determined, or recommended to the board of directors for determination, either by (i) a majority of the independent directors or (ii) a compensation committee comprised solely of independent directors. Under the Israeli Companies Law, arrangements as to compensation of office holders who are not directors require approval by the board of directors, provided that they are not deemed extraordinary transactions, unless otherwise provided in the articles of association. Our articles of association do not provide otherwise. Any compensation arrangement with an office holder who is not a director, the exemption of such office holder from liability, the insurance of such office holder and the indemnification of such office holder, or an undertaking to indemnify such office holder, require both audit committee and board of directors approval. The compensation, exemption, indemnification and insurance of office holders who are directors must be approved by our audit committee, board of directors and shareholders. If the office holder is a controlling shareholder or a relative of a controlling shareholder, any extraordinary transaction, compensation, exemption, indemnification and insurance of the office holder must be approved by our audit committee, board of directors and shareholders, supported by the vote of at least a majority of the shares of the shareholders that have no personal interest in the transaction voting on the matter, or provided that the total number of shares held by shareholders that have no personal interest in the transaction that voted against the proposal did not exceed 2% of all of the voting rights in the company.
|
|
·
|
The requirement that director nominees either be selected or recommended for the board of directors’ selection, either by (a) a majority of independent directors or (b) a nominations committee comprised solely of independent directors. Instead, we follow Israeli law and practice, in accordance with which directors may be recommended by our board of directors for election by our shareholders.
|
|
·
|
If the “controlled company” exemptions cease to be available to us under the NASDAQ Listing Rules, we may instead elect to follow Israeli law instead of the foregoing NASDAQ requirements, as described below.
|
ITEM 17.
FINANCIAL STATEMENTS
|
ITEM 18.
FINANCIAL STATEMENTS
|
Consolidated Financial Statements of B Communications Ltd.
|
||
Index to Consolidated Financial Statements
|
F - 1
|
|
|
Report of Independent Registered Public Accounting Firm
|
F - 2
|
Consolidated Statements of Financial Position
|
F - 4
|
|
Consolidated Statements of Income
|
F - 6
|
|
Consolidated Statements of Comprehensive Income
|
F - 7
|
|
Consolidated Statements of Changes in Equity
|
F - 8
|
|
Consolidated Statements of Cash Flows
|
F – 10
|
|
Notes to the Consolidated Financial Statements
|
F - 12
|
Consolidated Financial Statements of Bezeq The Israel Telecommunication Corp Limited.
|
||
Index to Consolidated Financial Statements
|
BF - 1
|
|
Report of Independent Registered Public Accounting Firm
|
BF - 2
|
|
Consolidated Statements of Financial Position
|
BF – 3
|
|
Consolidated Statements of Income
|
BF - 5
|
|
Consolidated Statements of Comprehensive Income
|
BF - 7
|
|
Consolidated Statements of Changes in Equity
|
BF - 8
|
|
Consolidated Statements of Cash Flows
|
BF - 11
|
|
Notes to the Consolidated Financial Statements
|
BF - 13
|
Consolidated Financial Statements of DBS Satellite Service (1998) Ltd. | ||
Index to Consolidated Financial Statements
|
DF - 1
|
|
Report of Independent Registered Public Accounting Firm
|
DF - 2
|
|
Consolidated Statements of Financial Position
|
DF - 3
|
|
Consolidated Statements of Income
|
DF - 5
|
|
Consolidated Statements of Comprehensive Income
|
DF - 6
|
|
Consolidated Statements of Changes in Equity
|
DF - 7
|
|
Consolidated Statements of Cash Flows
|
DF – 9
|
|
Notes to the Consolidated Financial Statements
|
DF - 11
|
ITEM 19.
EX
HI
BITS
|
Exhibit
|
Description
|
|
1.1
|
Memorandum of Association of the Registrant. (1)
|
|
1.2
|
Amended and Restated Articles of Association of the Registrant (2)
|
|
2.1
|
Specimen of Ordinary Share Certificate (1)
|
|
4.1
|
Trust Deed between the Registrant and Shiff Hezenfortz Trustees (2004) Ltd. dated March 8, 2007 (1)
|
|
4.2
|
Form of Smile.Communications Series A Debenture Certificate for Notes issued in March and May 2007 (1)
|
|
4.3
|
Form of Registration Rights Agreement among the Registrant, Internet Gold-Golden Lines Ltd. and Eurocom Communications Ltd. (1)
|
|
4.4
|
Share Purchase Agreement dated October 25, 2009, between the Registrant and Ap.Sb.Ar. Holdings Ltd (3)
|
|
4.5
|
First Amendment to the Share Purchase Agreement dated as of March 28, 2010, between B Communications (SP2) Ltd. and Ap.Sb.Ar. Holdings Ltd. (4)
|
|
4.6
|
Asset Purchase Agreement dated November 16, 2009, between Ampal Communication 2010 Ltd., the Registrant and Merhav Ampal Energy Ltd., as Guarantor (5)
|
|
4.7
|
English translation of Bezeq Control Permit issued by the Prime Minister of Israel and Israeli Minister of Communication to members of the Eurocom Group on April 13, 2010 (6)
|
|
4.8
|
English translation of Credit Agreement dated February 11, 2010 between B Communications (SP2) Ltd. and Bank Hapoalim Ltd. (as Lender, Facility Agent and Security Trustee), Bank Leumi le-Israel BM, Amitim (Senior Pension Funds), Israel Discount Bank Ltd., Mizrahi Tefahot Bank Ltd., HSBC Bank PLC, First International Bank of Israel Ltd. and Union Bank of Israel (as Lenders) (7)
|
|
4.9
|
English translation of Loan Agreement dated February 18, 2010, between B Communications (SP1) Ltd. and entities within the Migdal Insurance and Financial Holdings Ltd. group (8)
|
|
4.10
|
English translation of Addendum and Amendment No. 1 the Credit Agreement dated February 11, 2010, dated April 14, 2010, between B Communications (SP2) Ltd. and Bank Hapoalim Ltd. (as Lender, Facility Agent and Security Trustee), Bank Leumi le-Israel BM, Israel Discount Bank Ltd., Mizrahi Tefahot Bank Ltd., HSBC Bank PLC, First International Bank of Israel Ltd., Union Bank of Israel, Central Benefits Fund of Histadrut Employees Ltd. (under special management), Makefet Fund Pension and Provident Center - AS Ltd. Pension Fund, Makefet Fund Pension and Provident Center - AS Ltd. (under special management) – Other-Purpose Funds, Mivtachim The Workers Social Insurance Fund Ltd. (under special management) - Pension Fund, Mivtachim The Workers Social Insurance Fund Ltd. (under special management) Illness and Accident Provident Fund, Hadassa Employees Pension Fund Ltd. (under special management), “Egged” Members Pension Fund Ltd. (under special management) – Pension Track and “Egged” Members Pension Fund Ltd. (under special management) – Full Pension Track (as Lenders) (9)
|
4.11
|
English translation of Addendum and Amendment No. 2 the Credit Agreement dated February 11, 2010, dated June 26, 2011, between B Communications (SP2) Ltd. and Bank Hapoalim Ltd. (as Lender, Facility Agent and Security Trustee) and the Lenders
|
|
4.12
|
English translation of Addendum and Amendment No. 1 the Loan Agreement dated February 18, 2010, dated April 14, 2010, between B Communications (SP1) Ltd. and entities within the Migdal Insurance and Financial Holdings Ltd. group (10)
|
|
4.13
|
2007 Equity Incentive Plan (1)
|
|
4.14
|
English translation of Deed of Trust dated August 31, 2010 between the Registrant and Reznik, Paz, Nevo Trustees Ltd.
|
|
4.15
|
English translation of Addendum to the Deed of Trust of August 31, 2010 dated September 20, 2010 between the Registrant and Reznik, Paz, Nevo Trustees Ltd
|
|
8.1
|
List of Subsidiaries of the Registrant
|
|
12.1
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended
|
|
12.2
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act 1934, as amended
|
|
13.1
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002
|
|
13.2
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002
|
|
15.1
|
Consent of Somekh Chaikin, a member firm of KPMG International, Independent Registered Public Accounting Firm ( with respect to B Communications Ltd.)
|
|
15.2
|
Consent of Somekh Chaikin, a member firm of KPMG International, Independent Registered Public Accounting Firm ( with respect to Bezeq The Israel Telecommunication Corporation Limited)
|
|
15.3
|
Consent of Somekh Chaikin, a member firm of KPMG International, Independent Registered Public Accounting Firm ( with respect to DBS Satellite Service (1998) Ltd.)
|
(1)
|
Filed as an exhibit to the Registrant’s Registration Statement on Form F-1, Registration Number 333-146645, filed with the Securities and Exchange Commission, and incorporated herein by reference.
|
|
(2)
|
Filed as Exhibit 1.2 to the Registrant’s Report on Form 20-F for the year ended December 31, 2009, and incorporated herein by reference.
|
|
(3)
|
Filed as Exhibit 4.4 to the Registrant’s Report on Form 20-F for the year ended December 31, 2009, and incorporated herein by reference.
|
|
(4)
|
Filed as Exhibit 4.5 to the Registrant’s Report on Form 20-F for the year ended December 31, 2009, and incorporated herein by reference.
|
|
(5)
|
Filed as Exhibit 99.2 to Registrant’s Report on Form 6-K for the month of May 2010 submitted to Securities and Exchange Commission on May 24, 2010, and incorporated herein by reference.
|
|
(6)
|
Filed as Exhibit 4.7 to the Registrant’s Report on Form 20-F for the year ended December 31, 2009, and incorporated herein by reference.
|
|
(7)
|
Filed as Exhibit 4.8 to the Registrant’s Report on Form 20-F for the year ended December 31, 2009, and incorporated herein by reference.
|
|
(8)
|
Filed as Exhibit 4.9 to the Registrant’s Report on Form 20-F for the year ended December 31, 2009, and incorporated herein by reference.
|
|
(9)
|
Filed as Exhibit 4.10 to the Registrant’s Report on Form 20-F for the year ended December 31, 2009, and incorporated herein by reference.
|
|
(10)
|
Filed as Exhibit 4.11 to the Registrant’s Report on Form 20-F for the year ended December 31, 2009, and incorporated herein by reference.
|
B Communications Ltd.
|
Consolidated Financial Statements
|
Contents
|
Page
|
|
F - 2
|
|
F - 4
|
|
F - 6
|
|
F - 7
|
|
F - 8
|
|
F - 10
|
|
F - 12
|
/s/ Somekh Chaikin
|
|
Somekh Chaikin
|
|
Certified Public Accountants (Isr.)
|
|
Member Firm of KPMG International
|
|
Tel Aviv, Israel
|
|
June 30, 2011
|
B Communications Ltd.
|
(In millions)
|
December 31
|
Convenience translation into U.S. dollars
(Note 2D) |
||||||||||||||
2009
|
2010
|
2010
|
|||||||||||||
NIS
|
NIS
|
US$
|
|||||||||||||
Assets
|
|||||||||||||||
Cash and cash equivalents
|
8 | 940 | 383 | 108 | |||||||||||
Investments, including derivatives
|
9 | 99 | 789 | 222 | |||||||||||
Trade receivables
|
10 | – | 2,701 | 761 | |||||||||||
Other receivables
|
10 | 8 | 228 | 65 | |||||||||||
Inventory
|
– | 177 | 50 | ||||||||||||
Current tax assets
|
– | 3 | 1 | ||||||||||||
Assets classified as held-for-sale
|
7 | 1,362 | 194 | 55 | |||||||||||
Total current assets
|
2,409 | 4,475 | 1,262 | ||||||||||||
Investments, including derivatives
|
9 | – | 129 | 36 | |||||||||||
Long-term trade and other receivables
|
10 | – | 1,114 | 314 | |||||||||||
Property, plant and equipment
|
11 | – | 7,392 | 2,083 | |||||||||||
Intangible assets
|
12 | – | 9,163 | 2,582 | |||||||||||
Deferred and other expenses
|
13 | – | 423 | 119 | |||||||||||
Investment in equity-accounted investee (mainly loans)
|
14 | – | 1,084 | 305 | |||||||||||
Deferred tax assets
|
21 | 1 | 254 | 71 | |||||||||||
Total non-current assets
|
1 | 19,559 | 5,510 | ||||||||||||
Total assets
|
2,410 | 24,034 | 6,772 |
B Communications Ltd.
|
Consolidated Statements of Financial Position as at (cont’d)
|
(In millions)
|
December 31
|
Convenience translation into U.S. dollars
(Note 2D) |
||||||||||||||
2009
|
2010
|
2010
|
|||||||||||||
Note
|
NIS
|
NIS
|
US$
|
||||||||||||
Liabilities
|
|||||||||||||||
Short-term bank credit, current maturities of long-term liabilities and debentures
|
15 | 506 | 1,380 | 389 | |||||||||||
Trade payables
|
16 | – | 1,061 | 299 | |||||||||||
Other payables, including derivatives
|
16 | 21 | 816 | 229 | |||||||||||
Loans from parent company
|
33 | 326 | – | – | |||||||||||
Current tax liabilities
|
24 | 346 | 98 | ||||||||||||
Deferred income
|
– | 34 | 9 | ||||||||||||
Provisions
|
17 | – | 251 | 71 | |||||||||||
Employee benefits
|
20 | – | 269 | 76 | |||||||||||
Liabilities classified as held-for-sale
|
7 | 270 | – | – | |||||||||||
Total current liabilities
|
1,147 | 4,157 | 1,171 | ||||||||||||
Debentures
|
15 | 342 | 2,776 | 782 | |||||||||||
Bank loans
|
15 | – | 6,138 | 1,730 | |||||||||||
Loans from institutions and others
|
15 | – | 541 | 152 | |||||||||||
Employee benefits
|
20 | – | 305 | 86 | |||||||||||
Other liabilities
|
15 | – | 150 | 42 | |||||||||||
Provisions
|
17 | – | 69 | 20 | |||||||||||
Deferred tax liabilities
|
21 | – | 1,555 | 438 | |||||||||||
Total non-current liabilities
|
342 | 11,534 | 3,250 | ||||||||||||
Total liabilities
|
1,489 | 15,691 | 4,421 | ||||||||||||
Equity
|
25 | ||||||||||||||
Share capital
|
3 | 3 | 1 | ||||||||||||
Share premium
|
618 | 1,057 | 298 | ||||||||||||
Treasury shares
|
(* | ) | (* | ) | ( ** | ) | |||||||||
Other reserves
|
1 | (22 | ) | (6 | ) | ||||||||||
Retained earnings
|
299 | 174 | 49 | ||||||||||||
Total equity attributable to equity holders of the Company
|
921 | 1,212 | 342 | ||||||||||||
Non-controlling interests
|
– | 7,131 | 2,009 | ||||||||||||
Total equity
|
921 | 8,343 | 2,351 | ||||||||||||
Total liabilities and equity
|
2,410 | 24,034 | 6,772 |
*
|
Represent an amount less than NIS 1.
|
**
|
Represent an amount less than US$ 1.
|
B Communications Ltd.
|
(In millions, except share data)
|
Convenience translation into U.S. dollars
(Note 2D) |
|||||||||||||||||||
2008
|
2009
|
2010
|
2010
|
||||||||||||||||
Note
|
NIS
|
NIS
|
NIS
|
US$
|
|||||||||||||||
Revenues
|
26 | 1,106 | 1,173 | 8,657 | 2,439 | ||||||||||||||
Cost and expenses
|
|||||||||||||||||||
Depreciation and amortization
|
112 | 98 | 2,294 | 646 | |||||||||||||||
Salaries
|
27 | 161 | 158 | 1,488 | 419 | ||||||||||||||
General and operating expenses
|
28 | 694 | 749 | 3,640 | 1,026 | ||||||||||||||
Other operating expenses, net
|
29 | 7 | 2 | 5 | 1 | ||||||||||||||
974 | 1,007 | 7,427 | 2,092 | ||||||||||||||||
Operating income
|
132 | 166 | 1,230 | 347 | |||||||||||||||
Financing expenses (income)
|
|||||||||||||||||||
Finance expenses
|
65 | 49 | 600 | 169 | |||||||||||||||
Finance income
|
(8 | ) | (85 | ) | (313 | ) | (88 | ) | |||||||||||
Finance expenses (income), net
|
30 | 57 | (36 | ) | 287 | 81 | |||||||||||||
Income after financing expenses (income), net
|
75 | 202 | 943 | 266 | |||||||||||||||
Share of losses in equity-accounted investee
|
14 | – | – | 235 | 66 | ||||||||||||||
Income before income tax
|
75 | 202 | 708 | 200 | |||||||||||||||
Income tax
|
21 | 22 | 55 | 385 | 109 | ||||||||||||||
Net income for the year
|
53 | 147 | 323 | 91 | |||||||||||||||
Income (loss) attributable to:
|
|||||||||||||||||||
Owners of the company
|
53 | 147 | (140 | ) | (39 | ) | |||||||||||||
Non-controlling interests
|
– | – | 463 | 130 | |||||||||||||||
Net income for the year
|
53 | 147 | 323 | 91 | |||||||||||||||
Earnings per share
|
|||||||||||||||||||
Basic income (loss) per share
|
32 | 2.08 | 5.81 | (4.83 | ) | (1.36 | ) | ||||||||||||
Diluted income (loss) per share
|
32 | 2.08 | 5.81 | (4.93 | ) | (1.39 | ) |
B Communications Ltd.
|
(In millions)
|
Convenience translation into U.S. dollars
(Note 2D) |
|||||||||||||||||||
2008
|
2009
|
2010
|
2010
|
||||||||||||||||
Note
|
NIS
|
NIS
|
NIS
|
US$
|
|||||||||||||||
Net income for the year
|
53 | 147 | 323 | 91 | |||||||||||||||
Other comprehensive income
|
|||||||||||||||||||
Net change in fair value of available-for-sale financial assets
|
(21 | ) | 54 | – | – | ||||||||||||||
Net change in fair value of available-for-sale financial assets transferred to profit or loss
|
2 | (35 | ) | (1 | ) | (* | ) | ||||||||||||
Defined benefit plan actuarial gains (losses), net
|
20 | (5 | ) | (1 | ) | 15 | 4 | ||||||||||||
Income tax on other comprehensive income
|
21 | 6 | (4 | ) | (2 | ) | (1 | ) | |||||||||||
Other comprehensive income for the year, net of tax
|
(18 | ) | 14 | 12 | 3 | ||||||||||||||
Total comprehensive income for the year
|
35 | 161 | 335 | 94 | |||||||||||||||
Attributable to:
|
|||||||||||||||||||
Owners of the Company
|
35 | 161 | (137 | ) | (39 | ) | |||||||||||||
Non-controlling interests
|
– | – | 472 | 133 | |||||||||||||||
Total comprehensive income for the year
|
35 | 161 | 335 | 94 |
B Communications Ltd.
|
(in millions except share data)
|
Share capital
|
Capital reserve for financial | |||||||||||||||||||||||||||
Number of Shares(*)
|
|
Share
|
Treasury
|
assets available-
|
Retained
|
|
||||||||||||||||||||||
NIS 0.1 par |
Amount
|
premium | Shares |
for-sale
|
earnings |
Total
|
||||||||||||||||||||||
value
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
||||||||||||||||||||||
Balance as at January 1, 2008
|
25,360,000 | 3 | 612 | – | – | 96 | 711 | |||||||||||||||||||||
Changes during 2008:
|
||||||||||||||||||||||||||||
Share-based compensation
|
– | – | – | – | – | 3 | 3 | |||||||||||||||||||||
Other comprehensive income, net of tax
|
– | – | – | – | (14 | ) | (4 | ) | (18 | ) | ||||||||||||||||||
Net income for the year
|
– | – | – | – | – | 53 | 53 | |||||||||||||||||||||
Comprehensive income for the year
|
– | – | – | – | (14 | ) | 49 | 35 | ||||||||||||||||||||
Balance as at December 31, 2008
|
25,360,000 | 3 | 612 | – | (14 | ) | 148 | 749 | ||||||||||||||||||||
Balance as at January 1, 2009
|
25,360,000 | 3 | 612 | – | (14 | ) | 148 | 749 | ||||||||||||||||||||
Changes during 2009:
|
||||||||||||||||||||||||||||
Share-based compensation
|
– | – | – | – | – | 5 | 5 | |||||||||||||||||||||
Treasury shares at cost
|
(19,230 | ) | – | – | (* | ) | – | – | (* | ) | ||||||||||||||||||
Contributions by parent company and ultimate parent company
|
– | – | 6 | – | – | – | 6 | |||||||||||||||||||||
Other comprehensive income, net of tax
|
– | – | – | – | 15 | (1 | ) | 14 | ||||||||||||||||||||
Net income for the year
|
– | – | – | – | – | 147 | 147 | |||||||||||||||||||||
Comprehensive income for the year
|
– | – | – | – | 15 | 146 | 161 | |||||||||||||||||||||
Balance as at December 31, 2009
|
25,340,770 | 3 | 618 | (* | ) | 1 | 299 | 921 |
B Communications Ltd.
|
Consolidated Statements of Changes in Equity (cont’d)
|
(in millions except share data)
|
Attributable to owners of the Company
|
Convenience | |||||||||||||||||||||||||||||||||||||||
Share capital
|
translation | |||||||||||||||||||||||||||||||||||||||
Number of | Non- | into U.S. | ||||||||||||||||||||||||||||||||||||||
Shares (1) |
|
Share | Treasury | Other | Retained | Controlling | Total | dollars | ||||||||||||||||||||||||||||||||
NIS 0.1 par | Amount | premium | Shares | reserves (2) | earnings | Total | interests | equity | (Note 2D) | |||||||||||||||||||||||||||||||
value | NIS | NIS | NIS | NIS | NIS | NIS | NIS | NIS | US$ | |||||||||||||||||||||||||||||||
Balance as at January 1, 2010
|
25,340,770 | 3 | 618 | (* | ) | 1 | 299 | 921 | – | 921 | 260 | |||||||||||||||||||||||||||||
Changes during 2010:
|
||||||||||||||||||||||||||||||||||||||||
Exercise of options
|
1,100,000 | (* | ) | 40 | – | – | – | 40 | – | 40 | 11 | |||||||||||||||||||||||||||||
Share-based compensation
|
– | – | – | – | – | 11 | 11 | – | 11 | 3 | ||||||||||||||||||||||||||||||
Share-based compensation in subsidiary
|
– | – | – | – | – | – | – | 52 | 52 | 15 | ||||||||||||||||||||||||||||||
Issuance of shares, net
|
3,448,275 | (* | ) | 399 | – | – | – | 399 | – | 399 | 113 | |||||||||||||||||||||||||||||
Increase in the rate of holding in a subsidiary
|
– | – | – | – | (2 | ) | – | (2 | ) | (9 | ) | (11 | ) | (3 | ) | |||||||||||||||||||||||||
Non-controlling interests with respect to the acquisition of Bezeq
|
– | – | – | – | – | – | – | 9,118 | 9,118 | 2,569 | ||||||||||||||||||||||||||||||
Exercise of options in a subsidiary
|
– | – | – | – | (20 | ) | – | (20 | ) | 30 | 10 | 3 | ||||||||||||||||||||||||||||
Non-controlling interests with respect to other business combination
|
– | – | – | – | – | – | – | 63 | 63 | 18 | ||||||||||||||||||||||||||||||
Dividends to Non-controlling interests
|
– | – | – | – | – | – | – | (2,597 | ) | (2,597 | ) | (732 | ) | |||||||||||||||||||||||||||
Transfers by non-controlling interests
|
– | – | – | – | – | – | – | 2 | 2 | – | ||||||||||||||||||||||||||||||
Other comprehensive income, net of tax
|
– | – | – | – | (1 | ) | 4 | 3 | 9 | 12 | 3 | |||||||||||||||||||||||||||||
Net income (loss) for the year
|
– | – | – | – | – | (140 | ) | (140 | ) | 463 | 323 | 91 | ||||||||||||||||||||||||||||
Comprehensive income for the year
|
– | – | – | – | (1 | ) | (136 | ) | (137 | ) | 472 | 335 | 94 | |||||||||||||||||||||||||||
Balance as at December 31, 2010
|
29,889,045 | 3 | 1,057 | (* | ) | (22 | ) | 174 | 1,212 | 7,131 | 8,343 | 2,351 |
(1)
|
Net of shares held by the Company.
|
(2)
|
Including translation reserve, reserve from available-for-sale assets and reserve from transaction with non controlling interest.
|
*
|
Represent and amount less than NIS 1.
|
B Communications Ltd.
|
(In millions)
|
Convenience
|
||||||||||||||||
translation into
|
||||||||||||||||
U.S. dollars
|
||||||||||||||||
(Note 2D) | ||||||||||||||||
2008
|
2009
|
2010
|
2010
|
|||||||||||||
NIS
|
NIS
|
NIS
|
US$
|
|||||||||||||
Cash flows from operating activities
|
||||||||||||||||
Net income for the year
|
53 | 147 | 323 | 91 | ||||||||||||
Adjustments:
|
||||||||||||||||
Depreciation
|
43 | 33 | 1,065 | 300 | ||||||||||||
Amortization of intangible assets
|
42 | 41 | 1,209 | 341 | ||||||||||||
Amortization of deferred and other expenses
|
27 | 24 | 20 | 5 | ||||||||||||
Share of losses of equity accounted investees
|
– | – | 235 | 66 | ||||||||||||
Finance expenses (income), net
|
75 | (41 | ) | 321 | 90 | |||||||||||
Capital gain, net
|
– | – | (29 | ) | (8 | ) | ||||||||||
Expenses for derivatives, net
|
– | – | 10 | 3 | ||||||||||||
Share-based compensation
|
3 | 5 | 63 | 18 | ||||||||||||
Income tax expenses
|
22 | 55 | 385 | 109 | ||||||||||||
Gain on redemption of Company’s debentures
|
(3 | ) | – | – | – | |||||||||||
Proceeds from derivatives, net
|
– | – | 10 | 3 | ||||||||||||
Change in inventory
|
– | – | 5 | 2 | ||||||||||||
Change in trade and other receivables
|
(14 | ) | (3 | ) | (126 | ) | (35 | ) | ||||||||
Change in trade and other payables
|
(4 | ) | 21 | 71 | 19 | |||||||||||
Changes in provisions
|
– | – | (207 | ) | (58 | ) | ||||||||||
Changes in employee benefits
|
(3 | ) | (4 | ) | (192 | ) | (54 | ) | ||||||||
Change in deferred income
|
(* | ) | (* | ) | – | – | ||||||||||
Net income tax paid
|
(23 | ) | (30 | ) | (557 | ) | (157 | ) | ||||||||
Net cash provided by operating activities
|
218 | 248 | 2,606 | 735 | ||||||||||||
Cash flows from investing activities
|
||||||||||||||||
Bezeq acquisition net of cash acquired
|
– | – | (5,344 | ) | (1,506 | ) | ||||||||||
Acquisitions of other subsidiaries, net of cash acquired
|
– | – | (144 | ) | (41 | ) | ||||||||||
Purchase of property, plant and equipment
|
(47 | ) | (46 | ) | (998 | ) | (281 | ) | ||||||||
Investment in intangible assets and deferred expenses
|
(46 | ) | (112 | ) | (254 | ) | (72 | ) | ||||||||
Proceeds from the sale of property, plant and equipment and other assets
|
– | – | 115 | 33 | ||||||||||||
Change in investments, net
|
(258 | ) | 214 | (679 | ) | (191 | ) | |||||||||
Proceeds from sale of the Company’s legacy communication business
|
– | – | 1,196 | 337 | ||||||||||||
Proceeds from disposal of investments and long-term loans
|
– | – | 8 | 2 | ||||||||||||
Acquisition of investments and long term loans
|
– | – | (3 | ) | (1 | ) | ||||||||||
Interest received
|
6 | 7 | 20 | 6 | ||||||||||||
Net cash (used in) provided by investing activities
|
(345 | ) | 63 | (6,083 | ) | (1,714 | ) |
B Communications Ltd.
|
Consolidated Statements of Cash Flows for the Year Ended December 31 (cont’d)
|
(In millions)
|
Convenience
|
||||||||||||||||
translation into
|
||||||||||||||||
U.S. dollars
|
||||||||||||||||
(Note 2D)
|
||||||||||||||||
2008
|
2009
|
2010
|
2010
|
|||||||||||||
NIS
|
NIS
|
NIS
|
US$
|
|||||||||||||
Cash flows from financing activities
|
||||||||||||||||
Loans received
|
– | 217 | 7,725 | 2,176 | ||||||||||||
Proceeds from issuance of debentures, net
|
– | – | 395 | 112 | ||||||||||||
Repayment of debentures
|
– | (55 | ) | (547 | ) | (154 | ) | |||||||||
Redemption of Company’s debentures
|
(16 | ) | – | – | – | |||||||||||
Repayment of loans and long-term Liabilities
|
(3 | ) | (3 | ) | (1,395 | ) | (393 | ) | ||||||||
Net short-term borrowing
|
(3 | ) | 448 | (450 | ) | (127 | ) | |||||||||
Interest paid
|
– | (45 | ) | (346 | ) | (97 | ) | |||||||||
Dividends paid by Bezeq to non-controlling interests
|
– | – | (2,597 | ) | (732 | ) | ||||||||||
Transfers by non-controlling interests
|
– | – | 2 | 1 | ||||||||||||
Increase in the rate of holding in a subsidiary
|
– | – | (14 | ) | (4 | ) | ||||||||||
Exercise of options
|
– | – | 50 | 14 | ||||||||||||
Proceeds from issuance of shares, net
|
– | – | 97 | 26 | ||||||||||||
Purchase of treasury shares
|
– | (* | ) | – | – | |||||||||||
Net cash (used in) provided by financing activities
|
(22 | ) | 562 | 2,920 | 822 | |||||||||||
Net increase (decrease) in cash and cash equivalents
|
(149 | ) | 873 | (557 | ) | (157 | ) | |||||||||
Cash and cash equivalents as at the beginning of the year
|
230 | 61 | 940 | 265 | ||||||||||||
Effect of exchange rate fluctuations on cash and cash equivalents
|
(20 | ) | 6 | – | – | |||||||||||
Cash and cash equivalents as at the end of the year
|
61 | 940 | 383 | 108 |
B Communications Ltd. (hereinafter - “the Company”) is an Israeli resident company incorporated in Israel. The address of the Company’s registered office is 2 Dov Friedman Street, Ramat-Gan, Israel. The consolidated financial statements of the Company as at and for the year ended December 31, 2010 include the accounts of the Company and its subsidiaries. The Company is a majority-owned subsidiary of Internet Gold - Golden Lines Ltd. (hereinafter - IGLD or Internet-Gold) and its ultimate parent is Eurocom Holdings (1979) Ltd. (hereinafter - Eurocom).
|
|
In January 2010, the Company completed the sale of its legacy communication business to a wholly-owned subsidiary of Ampal-American Israel Corporation (hereinafter - Ampal). For more details see Note 7.
|
|
On April 14, 2010, the Company completed the acquisition of 30.44% of the outstanding shares of Bezeq The Israel Telecommunications Corp. Limited (hereinafter - Bezeq) and became the controlling shareholder of Bezeq. Bezeq securities are registered for trade on the Tel Aviv Stock Exchange. As at December 31, 2010 the Company held 30.31% of the outstanding shares of Bezeq. For more details see Note 5.
|
|
The securities of the Company are registered for trade on the NASDAQ Global Select Market and on the Tel Aviv Stock Exchange.
|
A.
|
Statement of compliance
|
|
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs), as issued by the International Accounting Standards Board (IASB).
|
||
The consolidated financial statements were authorized to be issued by the Company’s Board of Directors on June 29, 2011.
|
||
B.
|
Definitions
|
|
In these financial statements –
|
||
(1)
|
International Financial Reporting Standards (IFRS) – Standards and interpretations that were adopted by the IASB and which include international financial reporting standards and international accounting standards (IAS), along with the interpretations to these standards of the International Financial Reporting Interpretations Committee (IFRIC) or interpretations of the Standing Interpretations Committee (SIC), respectively.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
B.
|
Definitions (cont’d)
|
|
(2)
|
The Company: B Communications Ltd.
|
|
(3)
|
The Group: B Communications Ltd. and its subsidiaries, as listed in Note 14 - Investees.
|
|
(4)
|
Parent company: Internet Gold - Golden Lines Ltd.
|
|
(5)
|
Bezeq: Bezeq The Israel Telecommunication Corporation Limited.
|
|
(6)
|
Bezeq Group: Bezeq The Israel Telecommunication Corporation Limited and its subsidiaries, as listed in Note 14 – Investees.
|
|
(7)
|
Pelephone: Pelephone Communications Ltd.
|
|
(8)
|
Subsidiaries: Companies including a partnership, whose financial statements are fully consolidated, directly or indirectly, with the financial statements of the Company.
|
|
(9)
|
Jointly controlled companies: Companies owned by various entities that have a contractual agreement for common control, and whose financial statements are consolidated with those of the Company using the proportionate consolidation method.
|
|
(10)
|
Associated companies, including a partnership, in which the Group’s investment is included, directly or indirectly, in the consolidated financial statements on an equity basis.
|
|
(11)
|
Investees: Subsidiaries, Jointly-controlled companies or associates.
|
|
(12)
|
Related party - As defined in IAS 24, Related Party Disclosures.
|
|
(13)
|
Israeli CPI - The consumer price index as published by the Israeli Central Bureau of Statistics.
|
|
C.
|
Functional currency and presentation currency
|
|
The consolidated financial statements are presented in NIS, which is the Group’s functional currency, and have been rounded to the nearest million. The NIS is the currency that represents the principal economic environment in which the Group operates.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
D.
|
Convenience translation into U.S. dollars (“dollars” or “$”)
|
|
For the convenience of the reader, the reported NIS figures as at December 31, 2010, have been presented in dollars, translated at the representative rate of exchange as at December 31, 2010 (NIS 3.549 = US$1.00). The dollar amounts presented in these financial statements are merely supplementary information and should not be construed as complying with IFRSs translation method or as representing amounts that are receivable or payable in dollars or convertible into dollars, unless otherwise indicated.
|
||
E.
|
Basis of measurement
|
|
The consolidated financial statements have been prepared on the historical cost basis except for the following items:
|
||
●
|
Financial instruments, including financial derivatives, at fair value through profit or loss.
|
|
●
|
Financial assets classified as available-for-sale at fair value.
|
|
●
|
Equity accounted investments.
|
|
●
|
Deferred tax assets and liabilities.
|
|
●
|
Provisions.
|
|
●
|
Liabilities for employee benefits.
|
|
●
|
Liabilities for cash-settled share-based payment arrangements.
|
|
The methods used to measure fair value are explained in Note 4. For further information regarding the measurement of these assets and liabilities see Note 3 regarding significant accounting policies.
|
||
F.
|
Operating cycle
|
|
The Group’s operating cycle is up to one year. As a result, the current assets and current liabilities include items the realization of which is intended and anticipated to take place within one year from the date of the financial statements.
|
||
G.
|
Classification of expenses recognized in the statement of income
|
|
The classification of costs and expenses recognized in the statement of income is based on the nature of the expenses. Classification is compatible with the understanding of the Group’s businesses, which address a wide range of services using common infrastructure. All of the costs and expenses are used to provide services.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
H.
|
Use of estimates and judgment
|
|
The preparation of financial statements in conformity with IFRS requires management to make judgments and use estimates and assumptions that affect application of accounting policies and the reported amounts of assets, liabilities, income and expenses. It is clarified that actual results may differ from these estimates.
|
||
The preparation of accounting estimates used in the preparation of the Group’s financial statements requires management to make assumptions regarding circumstances and events that involve considerable uncertainty. Management of the Company prepares the estimates on the basis of past experience. In exercising its judgment when making the estimates, management relies on past experience, various facts, external circumstances, and reasonable assumptions according to the pertinent circumstances of each estimate.
|
||
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
|
||
Information about critical estimates made by the management while implementing accounting policies and which have the most significant effect on the financial statements is included in the following notes:
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
The accounting policies set out
below have been applied consistently by Group entities to all periods presented in these consolidated financial statements.
|
||
A.
|
Basis of consolidation
|
|
(1)
|
Business combinations
|
|
The Group has opted for early application of IFRS 3 – Business Combinations (revised) and IAS 27 - Consolidated and Separate Financial Statements (2008) as from January 1, 2008.
|
||
Business combinations are accounted for by applying the acquisition method. According to this method, the identifiable assets and liabilities of the acquired business are recognized and recorded at fair value on the acquisition date.
|
||
The acquisition date is the date on which the acquirer obtains control over the acquire. Control exists when the Company is able to govern the financial and operating policies of the entity so as to obtain benefits from its activities. In assessing control, potential voting rights were taken into account if they confer de facto control.
|
||
The cost of the acquisition is the aggregate fair value of the assets transferred, liabilities incurred and equity interests issued by the acquirer on the date of acquisition. In addition, the consideration transferred includes the fair value of any contingent consideration. After the acquisition date, the Group recognizes changes in fair value of the contingent consideration in the statement of income. Contingent consideration is stated as a financial liability in the statement of financial position. On the acquisition date the acquirer recognizes a liability assumed in a business combination if there is a present obligation resulting from past events and its fair value can be reliably measured.
|
||
In a step acquisition, the difference between the fair value at the acquisition date of the Group’s pre-existing equity rights in the acquire and the carrying amount at that date is recognized in the statement of income under other operating income.
|
||
The Group recognizes goodwill at acquisition according to the fair value of the consideration transferred, including any amounts recognized in respect of rights that do not confer control in the acquiree as well as the fair value at the acquisition date of any pre-existing equity right of the acquirer in the acquiree, less the net amount of the identifiable assets acquired and the liabilities assumed. After initial recognition, goodwill is measured at cost less any accumulated impairment losses and is not systematically amortized. For assessment of impairment of goodwill, see section I below.
|
||
Costs associated with the acquisition that were incurred by the acquirer in the business combination such as finder’s fees, advisory, legal, valuation and other professional or consulting fees, other than those associated with an issue of debt or equity instruments connected to the business combination, are recognized as expenses in the period the services are received.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
A.
|
Basis of consolidation (cont’d)
|
|
(2)
|
Subsidiaries
|
|
Subsidiaries are entities controlled by the Company. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities due to legal control and de facto control. The financial statements of the subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of the subsidiaries have been changed when necessary to align them with the policies adopted by the Group.
|
||
(3)
|
Jointly-controlled companies
|
|
The consolidated financial statements comprise the financial statements of the jointly-controlled company where the shareholders have a contractual arrangement that establishes common control and whose financial statements are consolidated with those of the Groups using the proportionate consolidation method. The Group combines in its consolidated financial statements its share of the assets, liabilities, income and expenses of the jointly-controlled company with similar items in its financial statements. Significant intra group balances and transactions and profits or losses resulting from transactions between the Group and the jointly-controlled company are eliminated to the extent of the interest in the jointly-controlled company.
|
||
(4)
|
Non-controlling interests
|
|
Non-controlling interests comprise the equity of subsidiaries that cannot be attributed, directly or indirectly, to the parent company and they include additional components such as share-based payments that will be settled with equity instruments of subsidiaries and share options of subsidiaries. Non-controlling interests that are instruments that give rise to a present ownership interest and entitle the holder to a share of net assets in the event of liquidation (for example, ordinary shares), are measured at the date of the business combination at fair value or at their proportionate interest in the identifiable assets and liabilities of the acquire, on a transaction-by-transaction basis.
|
||
Profit or loss and any part of other comprehensive income are allocated to the owners of the Company and the non-controlling interests, even when the result is a negative balance of the non-controlling interests.
|
||
Transactions with non-controlling interests, while retaining control, are accounted for as equity transactions. Any difference between the consideration paid or received for change in non-controlling interests is recognized in capital reserve for transactions with non-controlling interests.
|
||
(5)
|
Put option granted to non-controlling shareholders
|
|
The Group granted non-controlling shareholders a put option to sell part or all of their interests in several subsidiaries to the Group for a specified period of time. On the date of grant, the options that were granted to the non-controlling interests were classified as a financial liability. The Group recognizes, at each reporting date, financial liabilities measured by the estimated present value of the consideration when exercising the put option. Changes therein are recognized in the statement of income. If the option is exercised in subsequent periods, the consideration from the exercise is accounted for as a settlement of a liability. If the option expires, the expiry is accounted for as sale of the investment in subsidiary.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
A.
|
Basis of consolidation (cont’d)
|
|
(6)
|
Special purpose entity
|
|
Special purpose entities (SPE) are consolidated if, based on an evaluation of the substance of their relationship with the Group and the SPEs’ risks and rewards, the Group concludes that it controls the SPE’s.
|
||
(7)
|
Associates (accounted for by the equity method)
|
|
Associates are those entities in which the Group has significant influence, but not control, over financial and operating policy. Associates are accounted for using the equity method and are recognized initially at cost or at their fair value at the date significant influence is obtained. The investment includes goodwill calculated at the acquisition date and is presented net of accumulated impairment losses. The consolidated financial statements include the Group’s share in the income and expenses of equity-accounted investees and adjustments to align the accounting policy with that of the Group, from the date that significant influence commences until the date that significant influence no longer exists. When the Group’s share of losses exceeds its interest in an associate, the carrying amount of that interest is reduced to zero and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the associate.
|
||
When the Group holds additional long-term interests in the associate, which are a part of the Group’s net investment in the associate, and when the Group’s proportionate share in the additional interests is different from the Group’s share in the equity of the associate, the Group recognizes its share in the additional losses of the associate based on its proportionate share in the additional interests according to the percentage of the Company’s participation in all the levels of the additional interests and according to the order of priority of the additional levels of interests. If, subsequently, the Group recognizes its share in the profits of the associate, the Company recognizes its share in the profits up to the amount of the cumulative profits previously recognized.
|
||
In respect of equity-accounted investments, goodwill is included in the carrying amount of the investment. Impairment loss for these investments is attributable to the entire investment and not to assets comprising the investment, such as goodwill. Therefore, the Group recognizes the reversal of losses recognized for equity-accounted investments when their recoverable amount increases.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
A.
|
Basis of consolidation (cont’d)
|
|
(8)
|
Transactions eliminated on consolidation
|
|
Intra-group balances and any unrealized income and expenses arising from intra-group transactions, are eliminated in the preparation of the consolidated financial statements. Unrealized gains arising from transactions with associates are eliminated against the investment to the extent of the Group’s interest in these investments. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.
|
||
B.
|
Foreign currency transactions
|
|
Transactions in foreign currency are translated into the functional currency of the Group at the exchange rate on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies on the reporting date are retranslated to the functional currency at the exchange rate at that date. | ||
C.
|
Financial instruments
|
|
(1)
|
Non-derivative financial instruments
|
|
Non-derivative financial instruments comprise investments in shares and debentures, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables, and debentures issued and loans taken by the Group.
|
||
Initial recognition of financial assets
|
||
The Group initially recognizes financial assets at the date the Group becomes a party to contractual provisions of the instrument, meaning the date that the Group fulfils its obligations under the contract.
|
||
Derecognition of financial assets
|
||
Financial assets are derecognized when the contractual rights of the Group to the cash flows from the asset expire, or the Group transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
C.
|
Financial instruments (cont’d)
|
|
(1)
|
Non-derivative financial instruments (cont’d)
|
|
The Group classifies financial assets as follows:
|
||
Cash and cash equivalents
|
||
Cash comprises cash balances available for immediate use and call deposits. Cash equivalents comprise short-term highly liquid investments (with original maturities of three months or less) that are readily convertible into known amounts of cash and are exposed to insignificant risks of change in value.
|
||
Financial assets at fair value through profit or loss
|
||
A financial asset is classified at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Upon initial recognition, attributable transaction costs are recognized in the statement of income as incurred. These financial assets are measured at fair value and changes therein are recognized in the statement of income.
|
||
Available-for-sale financial assets
|
||
The Group’s investments in shares and certain debt instruments are classified as available-for-sale financial assets. Subsequent to initial recognition, these investments are measured at fair value and changes therein, other than impairment losses and foreign currency differences are recognized directly in other comprehensive income and presented within equity in a reserve for available-for-sale financial assets. A dividend received for available-for-sale financial assets is recognized in the statement of income on the date the entity’s right to receive the dividend is established. When an investment is derecognized, the cumulative gain or loss in the reserve for available-for-sale financial assets is transferred to profit or loss.
|
||
Loans and receivables
|
||
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, net of impairment losses.
|
||
Non-derivative financial liabilities
|
||
The Group has non-derivative financial liabilities as follows: debentures, loans and borrowings from banks, trade and other payables.
|
||
Financial liabilities are initially recognized at fair value net of any attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
C.
|
Financial instruments (cont’d)
|
|
(1)
|
Non-derivative financial instruments (cont’d)
|
|
Non-derivative financial liabilities (contd.)
|
||
Financial liabilities are derecognized when the obligation of the Group, as specified in the agreement, expires or when it is discharged or cancelled.
|
||
An exchange of debt instruments having substantially different terms, between an existing borrower and lender are accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability at fair value. Furthermore, a substantial modification of the terms of the existing financial liability or part of it is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.
|
||
The terms are substantially different if the discounted present value of the cash flows according to the new terms, including any commissions paid, less any commissions received and discounted using the original effective interest rate, is different by at least ten percent from the discounted present value of the remaining cash flows of the original financial liability.
|
||
In addition to the aforesaid quantitative criterion, the Group examines, among other things, whether there have been changes also in various economic parameters inherent in the exchanged debt instruments, therefore exchanges of Israeli CPI-linked debt instruments with unlinked instruments are considered exchanges with substantially different terms even if they do not meet the aforementioned quantitative criterion.
|
||
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.
|
||
(2)
|
Derivative financial instruments
|
|
The Group holds derivative financial instruments to hedge its exposure to foreign currency, the Israeli CPI and copper prices. Hedge accounting is not applied to derivative instruments that economically hedge financial assets and liabilities. Derivative instruments are recognized initially at fair value; attributable transaction costs are recognized in the statement of income as incurred. Subsequent to initial recognition, derivative financial instruments are measured at fair value and the changes in fair value are recognized in the statement of income as incurred.
|
||
Embedded derivatives are separated from the host contract and accounted for separately if: (a) the economic characteristics and risks of the host contract and the embedded derivative are not closely related; (b) a separate instrument with the same terms as the embedded derivative would meet the definition of the derivative; (c) the combined instrument is not measured at fair value through profit or loss.
|
||
Changes in the fair value of separable embedded derivatives are recognized in the statement of income as financing income or expense as incurred.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
C.
|
Financial instruments (cont’d)
|
|
(3)
|
Israeli CPI-linked assets and liabilities that are not measured at fair value
|
|
The value of Israeli CPI-linked financial assets and liabilities, which are not measured at fair value, is revaluated in each period according to the actual increase in the Israeli CPI.
|
||
(4)
|
Share capital
|
|
Ordinary shares
|
||
Incremental costs directly attributable to the issue of ordinary shares are recognized as a deduction from equity.
|
||
Treasury shares
|
||
When share capital recognized as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, and is recognized as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase in equity, and the resulting surplus or deficit on the transaction is carried to share premium.
|
||
D.
|
Property, plant and equipment
|
|
(1)
|
Recognition and measurement
|
|
Property and equipment items are measured at cost less accumulated depreciation and accumulated impairment losses.
|
||
Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of direct labor, any other costs directly attributable to bringing the assets to a working condition for their intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.
|
||
When major components of property and equipment (including costs of major periodic inspections) have different useful lives, they are accounted for as separate items (major components) of property and equipment.
|
||
Gains and losses on disposal of property and equipment are determined by comparing the proceeds from disposal with the carrying amount of the property and equipment, and are recognized net within other income in profit or loss.
|
||
(2)
|
Subsequent costs
|
|
The cost of replacing a component of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefit embodied in the replaced item will flow to the Group and its cost can be measured reliably. The costs of day-to-day servicing are recognized in the statement of income as incurred.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
D.
|
Property, plant and equipment (cont’d)
|
|
(3)
|
Capitalization of borrowing costs
|
|
Specific and non-specific borrowing costs are capitalized as qualifying assets throughout the period required for completion and construction until they are ready for their intended use. Non-specific borrowing costs are capitalized using a rate which is the weighted-average cost of the credit sources which were not specifically capitalized. Other borrowing costs are recognized in the statement of income as incurred.
|
||
(4)
|
Depreciation
|
|
Depreciation is a systematic allocation of the depreciable amount of an asset over its useful life. The depreciable amount is the cost of the asset, or other amount substituted for cost, less its residual value.
|
||
Depreciation is recognized in the statement of income on a straight-line basis over the estimated useful life of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Leased assets under finance lease agreements are depreciated over the shorter of the lease term and their useful lives. Depreciation of an asset starts when it is ready for use, meaning when it reaches the location and condition necessary for it to be capable of operating in the manner intended by management.
|
||
Leasehold improvements are depreciated over the shorter of the lease term (including the extension option held by the Group and intended to be exercised) and the expected life of the improvement.
|
||
The estimated useful lives for the current and comparative periods are as follows:
|
Years
|
Principal depreciation rate (%)
|
|||||
NGN equipment
|
8 | 12 | ||||
Digital switching equipment
|
4-10 | 25 | ||||
Transmission and power equipment
|
5-10 | 20 | ||||
Network equipment
|
5-25 | 4 | ||||
Terminal equipment (cellular)
|
2-3 | 33 | ||||
Subscriber equipment
|
5 | 20 | ||||
Vehicles
|
7 | 15 | ||||
Internet equipment
|
4-7 | 20 | ||||
Office equipment
|
5-16 | 10 | ||||
Electronic equipment, computers and internal
communication systems
|
3-7 | 33 | ||||
Cellular network
|
5-10 | 10 | ||||
Buildings
|
25 | 4 |
Depreciation methods, useful lives and residual values are reviewed at least at each reporting year and adjusted as required.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
E.
|
Assets held for sale
|
|
Assets which are expected to be realized by way of sale rather than ongoing use are classified as assets held for sale. These assets are presented at the lower of the carrying amount and fair value, less selling costs. Impairment losses at the time of initial classification of an asset held for sale, and subsequent gains or losses resulting from remeasurement, are recognized in the statement of income. Gains are recognized up to the cumulative amount of impairment loss recorded in the past.
|
||
F.
|
Intangible assets
|
|
(1)
|
Goodwill and brand name
|
|
Goodwill and brand name that arise upon the acquisition of subsidiaries are included in intangible assets. For information on measurement of goodwill and brand name at initial recognition, see Section A(1) above.
|
||
In subsequent periods goodwill and brand name are measured at cost less accumulated impairment losses.
|
||
(2)
|
Software development costs
|
|
Software development costs are recognized as an intangible asset only if the development costs can be measured reliably; the software is technically and commercially feasible; and the Group has sufficient resources to complete the development and intends to use the software. The costs recognized as an intangible asset include the cost of the materials, direct labor and overhead expenses directly attributable to preparation of the asset for its intended use. Other development costs are recognized in the statement of income as incurred.
|
||
Capitalized development costs are measured at cost less amortization and accumulated impairment losses.
|
||
(3)
|
Subscriber acquisition
|
|
Direct sale commissions paid to dealers and salespersons in respect of sales and upgrades to subscribers who have entered into a contract with the Company to purchase services are recognized as an intangible asset. Fees are capitalized if the Company is entitled to a refund in respect of those fees from services contracts. Amortization expenses are recognized in the statement of income over the period of the subscribers’ commitments (between 12 and 36 months), on a straight line basis. When the subscriber terminates the agreement period, the balance of the asset is amortized immediately.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
F.
|
Intangible assets (cont’d)
|
|
(4)
|
Software
|
|
The Group’s assets include computer systems consisting of hardware and software. Software that is an integral part of the hardware, which cannot function without the programs installed on it, is classified as property, plant and equipment. However, licenses for stand-alone software, which adds functionality to the hardware, is classified (mainly) as intangible assets. Software depreciation is recognized in the statement of income using the straight-line method over the estimated useful life of the asset.
|
||
(5)
|
Rights to frequencies
|
|
Rights to frequencies refer to Pelephone’s rights to cellular communication frequencies according to a Ministry of Communications tender. Depreciation of the asset is recognized in the statement of income on the straight line method over the license term, which is 13 years and 7 months starting from the date of use of the frequencies.
|
||
(6)
|
Other intangible assets
|
|
Other intangible assets acquired by the Group, which have a definite useful life, are measured at cost less amortization and accumulated impairment losses.
|
||
(7)
|
Subsequent expenditure
|
|
Subsequent expenditure is recognized as an intangible asset only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure relating to generated goodwill and brands, is recognized in the statement of income as incurred.
|
||
(8)
|
Amortization
|
|
Amortization is the systematic allocation of the amortizable amount of an intangible asset over its useful life. The amortizable amount is the cost of an asset, or another amount substituted for the cost, less its residual value.
|
||
Amortization, except for goodwill, brand name and customer relationships, is recognized in profit or loss on a straight-line basis over the estimated useful life of the intangible assets, from the date on which the assets are available for use. Goodwill and brand name are not systematically amortized but are reviewed for impairment.
|
||
Customer relationships are amortized according to the economic benefit expected from those customers each period, which results in accelerated amortization during the early years of the relationship.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
F.
|
Intangible assets (cont’d)
|
|
Estimated useful lives for the current and comparative periods are as follows:
|
Capitalized development costs
|
4 - 7 years
|
Other rights
|
3 - 10 years, depending on the useful life
|
Subscriber acquisition costs
|
Depending on the contractual commitment with the subscriber
|
Frequency usage right
|
Over the term of the license for 13.6 years starting from the date of use of the frequencies
|
Computer programs and software licenses
|
Over the term of the license or the estimated time of use of the program
|
Customer relationships
|
10 years
|
Amortization methods and useful lives are reviewed at each reporting date and adjusted if appropriate.
|
G.
|
Leased assets
|
|
Leases where the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to the asset.
|
||
At inception or upon reassessment of an arrangement, the Group determines whether such an arrangement is or contains a lease. A specific asset is the subject of a lease if fulfillment of the arrangement is dependent on the use of that specified asset or assets. An arrangement conveys the right to use the asset if the arrangement conveys to the Group the right to control the use of the asset. At inception or upon reassessment of the arrangement, the Group separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values.
|
||
Transactions for acquiring an indefeasible right of use (IRU) of seabed cable capacities are accounted for as service transactions. The prepaid expense is amortized on a straight-line basis as stated in the agreement and no more than the expected estimated useful life of those capacities.
|
||
Other leases are operating leases and the leased assets are not recognized in the Group’s statement of financial position.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
H.
|
Inventory
|
|
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the moving average principle. Slow-moving inventory of terminal equipment, accessories and spare parts are stated net of the provision for impairment.
|
||
The inventories of a subsidiary include terminal equipment and accessories intended for sale and service, as well as spare parts used for repairs in the repair service it provides to its customers.
|
||
I.
|
Impairment
|
|
(1)
|
Financial assets
|
|
The Group tests a financial asset for impairment when objective evidence indicates that one or more loss events have had a negative effect on the estimated future cash flows of that asset.
|
||
When testing available-for-sale financial assets that are equity instruments for impairment, the Group also examines the difference between the fair value of the asset and its original cost, the length of time the fair value of the asset is lower than its original cost and changes in the technological, economic or legal environment or in the market environment in which the issuer of the instrument operates. In addition a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.
|
||
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows, discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its fair value.
|
||
Significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed for impairment collectively, in groups that share similar credit risk characteristics. The financial statements include specific provisions and Group provisions for doubtful debts, which properly reflect, in the estimation of the management, the loss inherent in debts for which collection is in doubt.
|
||
All impairment losses are recognized in the statement of income. Any cumulative loss in respect of an available-for-sale financial asset recognized previously in equity is transferred to the statement of income.
|
||
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized cost and available-for-sale financial assets that are debt securities, the reversal is recognized in the statement of income. For available-for-sale financial assets that are equity securities, the reversal is recognized directly in other comprehensive income.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
I.
|
Impairment (cont’d)
|
|
(2)
|
Non-financial assets
|
|
The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the recoverable amount of the asset is estimated. The Group assesses the recoverable amount of goodwill, brand name and assets which are unavailable for use once a year, or more frequently if there and indications of impairment.
|
||
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its net selling price (fair value less costs to sell). In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, the assets are grouped together into the smallest group of assets that generates cash from continuing usage that are largely independent of other assets or groups of assets (“cash-generating unit”). For purposes of goodwill impairment testing, cash-generating units to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes, but in any event is not larger than an operating segment. Goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units that are expected to generate benefits from the synergies of the combination.
|
||
Impairment losses are recognized if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognized in the statement of income. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amounts of the other assets in the cash-generating unit on a pro rata basis.
|
||
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
|
||
Goodwill that forms part of the carrying amount of an investment in an associate is not recognized separately, and therefore is not tested for impairment separately. If objective evidence indicates that the value of the investment may have been impaired, the investment is tested for impairment.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
J.
|
Employee benefits | ||
(1)
|
Post-employment benefits | ||
The Group has a number of post-employment benefit plans. The plans are usually financed by deposits with insurance companies and they are classified as defined contribution plans and defined benefit plans. | |||
A.
|
Defined contribution plans
|
||
The Group’s obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in the statement of income in the periods during which services are rendered by employees. See Note 20A below.
|
|||
B.
|
Defined benefit plans
|
||
The Group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is stated at present value and the fair value of any plan assets and the cost of past service not yet recognized are deducted. The discount rate is the yield at the reporting date on government bonds denominated in the same currency that have maturity dates approximating the terms of the Group’s obligation. The calculation is performed by a qualified actuary. See Note 20B below.
|
|||
When the calculation results in a net asset for the Group, an asset is recognized up to the net present value of economic benefits received in the form of a refund from the plan or a reduction in future contributions to the plan.
|
|||
Gains or losses resulting from curtailments or settlements of a defined benefit plan are recognized in the statement of income. Such gains or losses include any resulting change in the present value of the obligation.
|
|||
The Group has executive insurance policies that were issued before 2004 according to which the profit in real terms is linked to the Israeli CPI and accumulated on the severance pay component that will be paid to the employees upon their retirement. In respect of such policies, plan assets include both the balance of the severance pay component and the balance of the profit in real terms (if any) on the severance pay deposits that accumulated until the reporting date, and are presented at fair value.
|
|||
These plan assets are for a defined benefit plan that includes two liability components: The defined benefit plan for compensation, which is calculated actuarially as aforesaid, and liability for payment of any retained earnings accumulated at the date of severance. This component is measured at the balance of the actual profit in real terms that accumulated at the reporting date.
|
|||
The Group recognizes immediately, directly in retained earnings through other comprehensive income, all actuarial gains and losses arising from defined benefit plans.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
J.
|
Employee benefits (cont’d)
|
|
(2)
|
Other long-term employee benefits
|
|
The Group’s net obligation in respect of long-term employee benefits other than pension plans is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The amount of these benefits is stated at its present value. The discount rate is the yield at the reporting date on government bonds denominated in the same currency, that have maturity dates approximating the terms of the Group’s obligations. The calculation is performed using the projected unit credit method. Any actuarial gains or losses are recognized in the statement of income in the period in which they arise.
|
||
(3)
|
Benefits for early retirement and dismissal
|
|
Employment termination benefits are recognized as an expense when the Group is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date. Termination benefits for voluntary redundancies are recognized as an expense if the Group has communicated an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.
|
||
(4)
|
Short-term benefits
|
|
A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. In the statement of financial position the employee benefits are classified as current benefits or as non-current benefits according to the time the liability is due to be settled.
|
||
(5)
|
Share-based payments
|
|
The fair value on the grant date of options for Group shares granted to employees is recognized as a salary expense with a corresponding increase in equity over the period during which the employee becomes entitled to the options. The amount recognized as an expense is adjusted to reflect the actual number of share options that are expected to vest.
|
||
For share-based payment awards with non-vesting conditions, the fair value of the share-based payment awards is measured to reflect such conditions, and therefore the Group recognized an expense in respect of the awards whether or not the conditions have been met.
|
||
The fair value of the amount payable to employees in respect of share-based payments, which are settled in cash, is recognized as an expense with a corresponding increase in liabilities, over the period that the employees become entitled to payment. The liability is remeasured at each reporting date until the settlement date. Any changes in the fair value of the liability are recognized as an expense or income in the statement of income.
|
||
K.
|
Provisions
|
|
A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows. The carrying amount of the provision is adjusted each period to reflect the time that has passed and is recognized as a financing expense. |
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
K.
|
Provisions (cont’d)
|
|
(1)
|
Legal claims
|
|
Contingent liabilities are accounted for according to IAS 37 and its related provisions. Accordingly, the claims are classified by likelihood of realization of the exposure to risk, as follows:
|
A.
|
More likely than not – more than 50% probability
|
||
B.
|
Possible – probability higher than unlikely but less than 50%
|
||
C.
|
Remote – probability of 10% or less
|
||
For claims which the Group has a legal or constructive obligation as a result of a past event, which are more likely than not to be realized, the financial statements include provisions which, in the opinion of the Group, based, among other things, on the opinions of its legal advisers retained in respect of those claims, are appropriate to the circumstances of each case, despite the claims being denied by the Group companies. There are also a few recently commenced legal proceedings for which the risks cannot be assessed at this stage, therefore no provisions have been
made.
|
|||
Note 22 describes the amount of additional exposure due to contingent liabilities that are likely to be realized and contingent liabilities that are unlikely to be realized, however the maximum possible loss from the claim could place the continuation of the Group’s operations at risk in the current format.
|
|||
(2)
|
Onerous contracts
|
||
A provision for onerous contracts is recognized when the benefits expected to be derived by the Group from the contracts are lower than the unavoidable cost of meeting its obligations according to the contracts. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract.
|
|||
(3)
|
Site dismantling and clearing costs
|
||
A provision in respect of an obligation to dismantle and clear sites is made in accordance with IAS 37. The provision is made for those rental agreements in which the Group has undertaken to restore the rental property to its original state at the end of the rental period, after dismantling and transferring the site, and restoring it as necessary.
|
|||
(4)
|
Warranty
|
||
A subsidiary recognizes a provision for warranty in respect of the first-year of free maintenance for cellular handsets. The warranty is limited to technical malfunctions defined by the subsidiary, and does not include warranty as a result of customer damage. However, an asset exists in respect of the manufacturer’s warranty for those handsets, which is limited to technical malfunctions defined by the manufacturer.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
L.
|
Revenues
|
|
Prior to the Bezeq acquisition revenues derived from usage of the Company’s networks, including business, residential and carrier long distance traffic, data and Internet traffic services. Revenue was recognized when the services were provided, the amount of revenue could be measured reliably and recovery of the consideration was probable.
|
||
For traditional voice services, revenue is earned based on the number of minutes of a call and is recorded upon completion of a call.
|
||
For broadband and data services, revenue is earned on a fixed monthly fee basis for the provision of services.
|
||
Revenues from sales of equipment such as routers, that are not contingent upon the delivery of additional products or services are recognized when products are delivered to and accepted by customers and all other revenue recognition criteria are met.
|
||
After the Bezeq acquisition the Group’s revenues are mainly composed from revenues for fixed-line communication services, cellular services, international communication services, customer center services, communication services for other operators, sales and installation of communication equipment and internet services. Revenue is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates.
|
||
(1)
|
Equipment sales
|
|
Revenue from sales of terminal equipment is recognized in the statement of income when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably and the Group companies have no continuing involvement with the goods.
|
||
Revenue from the sale of terminal equipment to subscribers in long-term credit arrangements is recognized upon delivery to the customer at the present value of the future cash flows expected from them, at the market interest rate for transactions of this kind. Financing income in respect of these transactions is recognized in the statement of income over the period of the installments by the interest method.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
L.
|
Revenues (cont’d)
|
|
(2)
|
Revenues from services
|
|
Revenue from services rendered is recognized in the statement of income proportionately over the term of the agreement or upon providing the service if the flow of the economic benefits associated with providing the service is likely. Revenue from calls, including revenue from prepaid call cards, is recognized when the call is made by the customer.
|
||
(3)
|
Multi-component sales agreements
|
|
For multi-component transactions in which terminal equipment is sold together with the customer’s undertaking to receive services, the Group applies the relative fair value method. Allocation of the revenue to a supplied component is limited to the amount of the consideration that is not contingent upon the supply of additional components.
|
||
(4)
|
Reporting of gross or net revenues
|
|
When the Group acts as an agent or intermediary without bearing the risks and rewards deriving from the transaction, its revenue is recognized on a net basis. However, when the Group acts as a main supplier and bears the risks and rewards deriving from the transaction, its revenue is recognized on a gross basis.
|
||
M.
|
Financing income and expenses
|
|
Financing income comprises interest income from deposits, dividend income, interest income accrued using the effective interest method in respect of the sale of terminal equipment in installments, gains on the disposal of available-for-sale financial assets, changes in the fair value of financial assets at fair value through profit or loss, foreign currency gains and gains on derivative instruments that are recognized in the statement of income (except for gains from hedging copper prices recognized in other operating income). Interest income is recognized as it accrues using the effective interest method. Dividend income is recognized on the date that the Group’s right to receive payment is established
|
||
Changes in the fair value of financial assets at fair value through the statement of income also include income from dividends and interest.
|
||
Financing expenses comprise interest expense on borrowings, debentures issued, commissions paid, changes in time value of provisions, changes in the fair value of financial assets at fair value through the statement of income, impairment losses recognized on financial assets (except for a provision for doubtful debts, which is recognized under operating and general expenses), financing expenses for legal claims and losses on hedging instruments that are recognized in the statement of income.
|
||
Foreign currency gains and losses are reported on a net basis as either financing income or financing expenses depending on whether foreign currency movements are in a net gain or net loss position.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
N.
|
Income tax expense
|
|
Income tax expense consists of current and deferred tax. Income tax expenses are recognized in the statement of income except to the extent that they relate to a business combination, or are recognized directly in equity or in other comprehensive income to the extent they relate to items recognized directly in equity or in other comprehensive income.
|
||
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and include changes in the tax payments relating to prior years.
|
||
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The Group does not recognize deferred taxes for the following temporary differences: initial recognition of goodwill, initial recognition of assets and liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, carry-forward losses that are not expected to be utilized in the foreseeable future, and differences arising from investment in subsidiaries if it is probable that they will not reverse in the foreseeable future.
|
||
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. The Group sets off deferred tax assets and liabilities if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.
|
||
A deferred tax asset is recognized for carry-forward losses, tax benefits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
|
||
O.
|
Earnings per share
|
|
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise warrants and share options granted to employees.
|
||
P.
|
Segment reporting
|
|
An operating segment is a component of the Group that meets three conditions as follows:
|
||
(1)
|
It engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components.
|
|
(2)
|
Its operating results are reviewed regularly by the Group’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance.
|
|
(3)
|
Separate financial information is available in its respect.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
Q.
|
Transactions with a controlling shareholder | ||
Assets and liabilities included in a transaction with a controlling shareholder are measured at fair value on the date of the transaction. As the transaction is on the equity level, the Company includes the difference between the fair value and the consideration from the transaction in its equity. | |||
R.
|
New standards and interpretations not yet adopted | ||
(1)
|
IFRS 9 (2010) – Financial Instruments. This Standard is one of the stages in a comprehensive project to replace IAS 39 – Financial Instruments: Recognition and Measurement (“IAS 39”) and it replaces the requirements included in IAS 39 regarding the classification and measurement of financial assets and financial liabilities. | ||
In accordance with the Standard, there are two principal categories for measuring financial assets: amortized cost and fair value, with the basis of classification for debt instruments being the entity’s business model for managing financial assets and the contractual cash flow characteristics of the financial asset. | |||
The Standard generally preserves the instructions regarding classification and measurement of financial liabilities that are provided in IAS 39. | |||
The Standard is effective for annual periods beginning on or after January 1, 2013. Early application is permitted, subject to disclosure and subject to parallel adoption of other IFRSs, set out in the appendix to the Standard. The Standard is to be applied retrospectively other than in a number of exceptions. The Group is examining the effect of adopting the Standard on the financial statements. | |||
(2)
|
IAS 24 (2009) Related Party Disclosures . The new standard includes changes in the definition of a related party and changes with respect to disclosures required by entities related to government. The Standard is to be applied retrospectively for annual periods beginning on or after January 1, 2011. The Group is in the process of reassessing its relationships with related parties for the purpose of examining the effects of adopting the Standard on its financial statements. | ||
(3)
|
A new suite of accounting standards on Consolidation, Joint Arrangements and Disclosure of Involvement with Other Entities. | ||
Presented hereunder are the new standards that were issued: | |||
A)
|
IFRS 10 Consolidated Financial Statements (hereinafter –IFRS 10). IFRS 10 replaces the requirements of IAS 27 Consolidated and Separate Financial Statements and the requirements of SIC-12 Consolidation – Special Purpose Entities with respect to the consolidation of financial statements, so that the requirements of IAS 27 will continue to be valid only for separate financial statements.
|
||
IFRS 10 introduces a new single control model for determining whether an investor controls an investee and should therefore consolidate it. This model is implemented with respect to all investees. According to the model, an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with that investee, has the ability to affect those returns through its power over that investee (and there is a link between power and return).
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
R.
|
New standards and interpretations not yet adopted (cont’d)
|
Presented hereunder are certain key changes from the current consolidation guidance:
|
||||
•
|
IFRS 10 introduces a model that requires applying judgment and analyzing all the relevant facts and circumstances for determining who has control and is required to consolidate the investee. This is reflected in, among other things, the need to understand the design and purpose of an investee and the need to take into account evidence of power. Furthermore, the model explicitly requires identifying the investee’s activities as part of the control assessment.
|
|||
•
|
IFRS 10 introduces a single control model that is to be applied to all investees, both those presently in the scope of IAS 27 and those presently in the scope of SIC-12.
|
|||
•
|
De facto power should be considered when assessing control. This means that the existence of de facto control could require consolidation.
|
|||
•
|
When assessing control, all “substantive” potential voting rights will be taken into account. The structure, reasons for existence and conditions of potential voting rights should be considered.
|
|||
•
|
IFRS 10 provides guidance on the determination of whether a decision maker is acting as an agent or as a principal when assessing whether an investor controls an investee.
|
|||
•
|
IFRS 10 provides guidance on when an investor would assess power over portion of the investee (silos), that is over specified assets of the investee.
|
|||
•
|
IFRS 10 provides a definition of protective rights.
|
|||
•
|
The exposure to risk and rewards of an investee does not, on its own determine that the investor has control over an investee, rather it is one of the factor of control analysis.
|
|||
IFRS 10 is effective for annual periods beginning on or after January 1, 2013. Early adoption is permitted provided that the entire consolidation suite is adopted at the same time.
|
||||
B)
|
IFRS 11 Joint Arrangements (hereinafter – IFRS 11). IFRS 11 replaces the requirements of IAS 31 Interests in Joint Ventures (hereinafter – IAS 31) and amends part of the requirements in IAS 28 Investments in Associates. | |||
IFRS 11 defines a joint arrangement as an arrangement over which two or more parties have joint control. Joint arrangements are divided into two types: a joint operation and a joint venture. | ||||
The key changes from current guidance are as follows: | ||||
•
|
Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
|
|||
•
|
Joint operations – The parties with joint control have rights to the assets and obligations for the liabilities, relating to the arrangement.
|
|||
The accounting treatment of joint operations is similar to the accounting treatment in IAS 31 for jointly controlled assets and operations. This means that assets, liabilities and transactions are recognized and accounted for according to the relevant standards.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
R.
|
New standards and interpretations not yet adopted (cont’d)
|
|
Joint operations include joint arrangements that are not structured in a separate vehicle (like jointly controlled assets and jointly controlled operations per their definition in IAS 31), and joint arrangements in which there is a separate vehicle but the legal form, contractual arrangement or other signs indicate that the parties with joint control have rights to the assets and obligations for the liabilities, relating to the arrangement.
|
|||
•
|
Joint ventures – The parties with joint control have rights to the net assets of the arrangement.
|
|||
Joint ventures shall only be accounted for using the equity method, meaning that the option to apply the proportionate consolidation method is removed.
|
||||
Joint ventures are joint arrangements structured in a separate vehicle that the legal form, contractual arrangement or other signs indicate that the parties with joint control do not have rights to the assets and obligations for the liabilities, relating to the arrangement.
|
||||
•
|
Accounting treatment of loss of joint control when significant influence is retained – IAS 28 eliminates the existing requirement to remeasure to fair value the retained interest in the associate on the date of losing joint control.
|
|||
IFRS 11 is applicable retrospectively for annual periods beginning on or after January 1, 2013, but there are specific requirements for retrospective implementation in certain cases. Early adoption is permitted providing that disclosure is provided and that the entire consolidation suite is adopted at the same time. | ||||
C)
|
IFRS 12 Disclosure of Involvement with Other Entities (hereinafter – IFRS 12). IFRS 12 contains disclosure requirements for entities that have interests in subsidiaries, joint arrangements (i.e. joint operations or joint ventures), associates and/or unconsolidated structured entities. | |||
Structured entities are entities that are designed so that voting or similar rights are not the dominant factor in deciding who controls the entity (Special Purpose Entities under current guidance are likely to meet the definition of structured entities). The definition of rights in IFRS 12 is broad and includes contractual and/or non-contractual involvement that exposes an entity to variability of returns from the performance of the other entity. | ||||
The purpose of the new disclosure requirements is to enable the users of the financial statements to understand the nature and the risks associated with its interests in other entities, and to understand the effect of such interests on the entity’s financial position, results of operations and cash flows. This is reflected in broad and extensive disclosure requirements, including among other: significant judgments and assumptions made in determining the nature of interests in entities and arrangements, interests in subsidiaries, interests in joint arrangements and in associates and interests in structured entities. | ||||
IFRS 12 is applicable retrospectively for annual periods beginning on or after January 1, 2013. Early adoption is permitted providing that the entire consolidation suite is adopted at the same time. |
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
R.
|
New standards and interpretations not yet adopted (cont’d)
|
Nevertheless, it is permitted to voluntarily provide the additional disclosures required by IFRS 12 prior to its adoption without early adopting the other standards. |
The Group has not yet started assessing the effects of adopting IFRS 10, 11 & 12 and related amended standards in its financial statements.
|
||
(4)
|
IFRS 13 Fair Value Measurement (hereinafter – IFRS 13). IFRS 13 replaces the fair value measurement guidance contained in individual IFRSs with a single source of fair value measurement guidance. It defines fair value, establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements. IFRS 13 does not introduce new requirements to measure assets or liabilities at fair value, nor does it eliminate the practicability exception to fair value measurement that currently exist in certain standards.
|
|
IFRS 13 applies to assets, liabilities and an entity’s own equity instruments that, under other IFRSs, are required or permitted to be measured at fair value or when disclosure of fair value is provided. Nevertheless, IFRS 13 does not apply to share-based payment transactions within the scope of IFRS 2 and leasing transactions within the scope of IAS 17. IFRS 13 does not apply to measurements that are similar to but not fair value (such as net realizable value and value in use).
|
||
IFRS 13 is applicable prospectively for annual periods beginning on or after January 1, 2013. Earlier application is permitted with disclosure of that fact. The disclosure requirements of IFRS 13 need not be applied in comparative information for periods before initial application.
|
||
The Group has not yet started assessing the effects of adopting IFRS 13 in its financial statements.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and / or disclosure purposes based on the following methods. Further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.
|
||
A.
|
Investment in securities
|
|
The fair value of investments in shares and debentures is determined by reference to their quoted closing bid price at the reporting date or with consideration of available market information (such as the use of interest curves).
|
||
B.
|
Trade receivables
|
|
The fair value of trade receivables is based on the present value of the future cash flows, discounted at the market interest rate on the transaction date. Subsequent to initial recognition, the fair value of trade and other receivables, for disclosure purposes only, is estimated as the present value of future cash flows, discounted at the market interest rate at the reporting date.
|
||
C.
|
Derivatives
|
|
The fair value of forward exchange contracts, the Israeli CPI or copper prices and foreign currency options is based on their quoted price, if available. If a quoted price is not available, then fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract, using an appropriate interest rate.
|
||
D.
|
Property, plant and equipment
|
|
The fair value of property, plant and equipment recognized as a result of a business combination is based on market values. The market value of fixed assets is the estimated amount for which property, plant and equipment could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction wherein the parties each acted knowledgeably. The fair value of items of plant, equipment, fixtures and fittings are valued by an external appraiser using the depreciated replacement cost method. Depreciated replacement cost estimates reflect adjustments for physical deterioration as well as functional and economic obsolescence of the fixed asset.
|
||
E.
|
Intangible assets
|
|
The fair value of a brand acquired in a business combination is based on the relief from royalty methodology, according to which the brand value is estimated by discounting the appropriate amount of the royalty payments, which the user of the asset would pay for the use of the asset had it not owned the asset. The fair value of customer relationships acquired in a business combination is determined using the multi-period excess earnings method, whereby the subject asset is valued after deducting a fair return on all other assets that are part of creating the related cash flows.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
F.
|
Non-derivative financial liabilities
|
|
Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date.
|
||
G.
|
Share-based payment transactions
|
|
The fair value of employees share options and of cash-settled share based payments is measured using the Black-Scholes model. The assumptions of the model include the share price on the date of measurement, the exercise price of the instrument, expected volatility (based on the weighted average of historical volatility, adjusted for changes expected due to publicly available information), the projected useful life of the instruments (based on past experience and the general behavior of the option-holders), expected dividends, and the risk-free interest rate (based on government bonds). Non-vesting conditions are taken into account in the calculation of fair value. See also Note 31.
|
||
Outstanding share options as at the date of a business combination of the acquiree that are fully vested are part of the non-controlling interest in the acquiree and were measured at their market-based measure using the Black-Scholes model. Those share options that are unvested were measured at their market-based measure (using the same model) as if the acquisition date were the grant date.
|
||
The market-based measure of unvested share-based payment transactions is allocated to the non-controlling interest on the basis of the ratio of the portion of the vesting period completed to the greater of the total vesting period or the original vesting period of the share-based payment transaction.
|
A.
|
Bezeq The Israel Telecommunication Corporation Limited
|
|
On April 14, 2010, the Company completed the acquisition of 30.44% of Bezeq’s outstanding shares, for an aggregate cash purchase price of approximately NIS 6.5 billion, and became the controlling shareholder of Bezeq. As a result the Company began consolidating Bezeq’s results into its financial statements as of the transaction date. The transaction was made through the Company’s wholly-owned subsidiary, B Communications (SP2) Ltd. (hereinafter - “SP2”).
|
||
The Company financed the Bezeq acquisition with a combination of (i) available cash, (ii) proceeds that the Company received from the sale of its legacy communications business, see Note 7 (iii) a NIS 4.6 billion loan from certain banking and financial institutions led by Bank Hapoalim Ltd received by SP2, see note 15B(1), and (iv) a NIS 500 loan from Migdal Insurance and Financial Holdings Ltd. received by B Communications (SP1) Ltd. (hereinafter - “SP1”), a wholly-owned subsidiary of the Company, see note 15B(2).
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
A.
|
Bezeq The Israel Telecommunication Corporation Limited (cont’d)
|
|
As part of the acquisition of the controlling interest in Bezeq, the Company was granted a Control Permit to control Bezeq, pursuant to the Israeli Communications Law (Telecommunications and Broadcasting), 1982 (the “Communications Law”) and the Communications Order (Determination Of Essential Service Provided By “Bezeq” The Israel Telecommunication Corp., Limited), 5757-1997 (the “Communications Order”). The Control Permit includes several conditions, including, among others, the parties to the Control Permit hold not less than 30% of any type of means of control of Bezeq and SP2. In addition, the Control Permit requires that a certain percentage of SP2 be held at all times by an “Israeli Party,” as defined in the Communications Order. The Control Permit also includes certain notice requirements regarding changes in the composition of the board of directors and certain holdings in the Company and IGLD.
|
||
The Company has elected an accounting policy of de facto control and therefore consolidates Bezeq.
|
||
The Company has de facto control over Bezeq based on the facts that the Company holds significantly more voting rights than any other shareholder, Bezeq’s other shareholders are widely dispersed and are not allowed to increase their holdings, appoint a director or the chief executive officer of Bezeq nor have any influence on Bezeq’s day-to-day operational decision making policies. In addition the Israeli law and regulations were formulated in order to ensure that no individual or entity will interfere with the control of Bezeq by the holder of the Control Permit. These regulations enable the Company to de facto nominate the majority of the board of directors of Bezeq.
|
||
The contribution of Bezeq to revenue and profit as from the beginning of the consolidation and through December 31, 2010 amounted to NIS 8,657 and NIS 1,712, respectively. If the acquisition had occurred on January 1, 2010, management estimates that consolidated revenue would have been NIS 11,987, and consolidated profit for the period would have been NIS 2,442, respectively. In determining these amounts management has assumed that the fair value adjustments that arose on the acquisition date would have been the same if the acquisition had occurred on 1 January 2010.
|
||
The assignment of a fair value to the assets acquired and liabilities assumed of Bezeq (and the related estimated lives of depreciable tangible and identifiable intangible assets) require a significant amount of judgment. The fair value of property, plant and equipment and identifiable intangible assets were determined based upon analysis performed by management. The fair value of long-term debt was determined by management based on a discounted cash flow analysis, using the rates and maturities of these obligations compared to terms and rates currently available in the long-term financing markets at the time of acquisition. All other fair value determinations, which consisted primarily of Bezeq’s current assets, current liabilities and deferred income taxes, were made by management.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
A.
|
Bezeq The Israel Telecommunication Corporation Limited (cont’d)
|
The following table summarizes the fair value of assets acquired and liabilities assumed in the acquisition:
|
Values
|
Convenience
|
|||||||
recognized at
|
translation into
|
|||||||
the acquisition
|
U.S. dollars
|
|||||||
date
|
(Note 2D)
|
|||||||
NIS
|
US$
|
|||||||
Assets acquired
|
||||||||
Current assets
|
4,493 | 1,266 | ||||||
Property, plant and equipment
|
7,480 | 2,108 | ||||||
Intangible assets
|
7,121 | 2,006 | ||||||
Other non-current assets
|
2,737 | 771 | ||||||
Total assets acquired
|
21,831 | 6,151 | ||||||
Liabilities assumed
|
||||||||
Current liabilities
|
3,414 | 962 | ||||||
Deferred taxes
|
1,709 | 482 | ||||||
Other non-current liabilities
|
3,762 | 1,060 | ||||||
Total liabilities assumed
|
8,885 | 2,504 | ||||||
Total net identifiable assets
|
12,946 | 3,647 |
The trade receivables comprise gross contractual amounts due of NIS 3,781, of which NIS 294 was expected to be uncollectible at the acquisition date.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
A.
|
Bezeq The Israel Telecommunication Corporation Limited (cont’d)
|
|
Goodwill was recognized as a result of the acquisition as follows:
|
Values
|
Convenience
|
|||||||
recognized at
|
translation into
|
|||||||
the acquisition
|
U.S. dollars
|
|||||||
Date
|
(Note 2D)
|
|||||||
NIS
|
US$
|
|||||||
Total consideration transferred
|
6,514 | 1,836 | ||||||
Non-controlling interests, based on their
proportionate interest in the recognized
amounts of the assets and liabilities of Bezeq
|
9,118 | 2,569 | ||||||
Less value of net identifiable assets
|
(12,946 | ) | (3,647 | ) | ||||
Goodwill
|
2,686 | 758 |
The goodwill is attributable mainly to the skills and technical talent of Bezeq’s work force and the value expected to be generated by the Company from its operation over time, for example, through the ongoing generation of new customers. None of the goodwill is expected to be deductible for income tax purposes.
|
||
Acquisition related costs:
|
||
The Group incurred acquisition-related costs of NIS 30 relating to external legal fees and due diligence costs. The legal fees and due diligence costs have been included in other operating expenses in the consolidated statement of income.
|
||
B
.
|
Walla! Communications Ltd. (Walla)
|
|
On April 25, 2010, Bezeq International Ltd., a wholly owned subsidiary of Bezeq (see Note 14B), acquired from Haaretz Newspaper Publishing Ltd. 32.55% of the issued and paid up share capital of Walla, in an off-floor transaction, for NIS 89. This acquisition is incremental to the 34.2% of Walla’s shares held by Bezeq international prior to that date. Following the step acquisition, Bezeq International is the controlling shareholder in Walla and as from April 25, 2010, Bezeq International consolidates Walla in its financial statements.
|
||
In September 2010, Bezeq International acquired additional shares of Walla (representing 5% of the issued and paid up share capital of Walla) through a special tender offer, at a price of NIS 6 per share and a total of NIS 13.6.
|
||
On September 21, 2010, after receiving approval from the Antitrust Commissioner for the merger with Walla, Bezeq acquired from Bezeq International all the shares held by Bezeq International, representing 71.76% of the issued and paid up share capital of Walla, for NIS 196.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
B
.
|
Walla! Communications Ltd. (Walla) (cont’d)
|
|
The contribution of Walla to profit and revenue as from the beginning of the consolidation and through to December 31, 2010 amounted to NIS 2 and NIS 131, respectively. Had the acquisition taken place on January 1, 2010, the revenue in the consolidated statement of income and the consolidated profit in the period would not have been materially different. Management assumes that the fair value adjustments at the acquisition date, which were determined, are fundamentally the same as the adjustments that would have been received had the acquisition taken place on January 1, 2010. The operations of Walla are included under other segments (see Note 6).
|
||
Acquisition of the Group’s assets and liabilities at the acquisition date had the following effect:
|
Values
recognized at
the acquisition
date
|
Convenience
translation into
U.S. dollars (Note 2D) |
|||||||
NIS
|
US$
|
|||||||
Identifiable assets and liabilities, net
|
111 | 31 | ||||||
Prior equity rights in an acquiree
|
(94 | ) | (26 | ) | ||||
Goodwill upon acquisition
|
70 | 20 | ||||||
Non-controlling interests
|
(57 | ) | (16 | ) | ||||
Cost of business combination
|
30 | 9 | ||||||
Proceeds paid in cash
|
(89 | ) | (25 | ) | ||||
Cash acquired
|
59 | 16 | ||||||
Cash paid, net
|
(30 | ) | (9 | ) |
The Group elected to measure non-controlling interests arising from acquisition of control in Walla according to their proportionate share in the net identifiable assets of Walla.
|
||
C.
|
Coral Tell Ltd.
|
|
In September 2010, Walla entered into an agreement with the shareholders of Coral-Tell Ltd. (“Yad2”), which operates an online classified ads platform. Walla acquired 75% of the share capital of Yad2 for NIS 117.5, plus an additional sum to be paid to the sellers, based on the total working capital of Yad2 and subject to adjustments. The transaction closed on September 2, 2010.
|
||
According to the acquisition agreement, Walla has a call option to acquire all the non-controlling interests at a price based on the value of Yad2 that is not less than a minimum of NIS 125 and not more than NIS 200. Additionally, Walla granted a put option for all of Walla shares, at a fixed price of NIS 125 based on the value of Yad2, to non-controlling interests in Yad2. The options are exercisable after three years from finalization of the transaction for a period of one year.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
C.
|
Coral Tell Ltd. (cont’d)
|
|
In addition, according to the purchase agreement, Walla and the non-controlling interest in Yad2 agreed to distribute a maximum dividend.
|
||
Due to the call and put options, the business combination was accounted for as an acquisition of 100% of the acquired rights and the consideration for the business combination includes the fair value of the liability expected to be paid to the non-controlling interests in Yad 2.
|
||
Walla carried out a temporary allocation of the acquisition cost in relation to the fair value of the assets and liabilities that were acquired in the business combination. The main intangible assets arising from acquisition are brand and goodwill. The brand is expected to be amortized on a straight line basis over nine years. The fair value of the acquired assets and liabilities is adjustable up to twelve months from the acquisition date. If relevant, at the final attribution date, adjustment will be made by restatement of the comparative information previously reported according to the temporary allocation.
|
||
Had the acquisition taken place at the beginning of the year, the revenue in the consolidated statement of income and the consolidated profit in the period would not have been materially different.
|
||
Acquisition of the Group’s assets and liabilities at the acquisition date had the following effect:
|
Values
recognized at
the acquisition
date
|
Convenience
translation into
U.S. dollars (Note 2D) |
|||||||
NIS
|
US$
|
|||||||
Identifiable assets and liabilities, net
|
81 | 22 | ||||||
Goodwill upon acquisition
|
77 | 22 | ||||||
Put option for non-controlling interests
|
(38 | ) | (11 | ) | ||||
Payables for investment and media services
|
(5 | ) | (1 | ) | ||||
Cost of business combination
|
115 | 32 | ||||||
Proceeds paid in cash
|
(116 | ) | (32 | ) | ||||
Cash acquired
|
1 | (* | ) | |||||
Cash paid, net
|
(115 | ) | (32 | ) |
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
Broadband
|
Traditional
Voice
|
Total
|
||||||||||
NIS
|
NIS
|
NIS
|
||||||||||
Total revenue
|
609 | 564 | 1,173 | |||||||||
Segment profit
|
274 | 95 | 369 | |||||||||
Unallocated expenses
|
203 | |||||||||||
Operating income
|
166 | |||||||||||
Finance expenses
|
49 | |||||||||||
Finance income
|
(85 | ) | ||||||||||
Income before income taxes
|
202 |
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
Year ended December 31, 2008
|
Broadband
|
Traditional
Voice
|
Total
|
||||||||||
NIS
|
NIS
|
NIS
|
||||||||||
Total revenue
|
549 | 557 | 1,106 | |||||||||
Segment profit
|
241 | 113 | 354 | |||||||||
Unallocated expenses
|
222 | |||||||||||
Operating income
|
132 | |||||||||||
Finance expenses
|
65 | |||||||||||
Finance income
|
(8 | ) | ||||||||||
Income before income taxes
|
75 |
From April 14, 2010, after completing the acquisition of 30.44% of the outstanding shares of Bezeq, the Group operates in various segments in the communications sector so that every company in the Group operates in one separate business segment. The primary reporting format, by business segments, is based on the Group’s management and internal reporting structure.
|
||
Each company provides services in the segment in which it operates, using the property, plant and equipment and the infrastructure it owns. The infrastructure of each company is used only for providing its services. Each of the companies in the Group is exposed to different risks and yield expectations, mainly in the matter of the technology and competition in the segment in which it operates. Accordingly, the separable component in the Group is each company in the Group.
|
||
Based on the above, the business segments of the Group are as follows:
|
||
-
|
Bezeq The Israel Telecommunication Corp. Ltd.: fixed line domestic communications
|
|
-
|
Pelephone Communications Ltd.: cellular communications
|
|
-
|
Bezeq International Ltd.: international communications, internet services and network end point
|
|
-
|
DBS Satellite Services (1998) Ltd.: multichannel television
|
|
The other companies in the Group are presented under the “Other” item. Other operations include call center services (Bezeq Online), portal operations and content sites and online trading sites (Walla). These operations are not recognized as reporting segments as they do not fulfill the quantitative thresholds. The Group’s investment in the Stage One venture capital fund is presented under adjustments.
|
||
Inter-segment pricing is set at the price determined in a transaction between unrelated parties.
|
||
The results, assets and liabilities of a segment include items directly attributable to that segment, as well as those that can be allocated on a reasonable basis.
|
||
Segment capital expenditure is the total cost incurred during the period for acquisition of property, plant and equipment and intangible assets.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
A.
|
Operating Segments
|
Year ended December 31, 2010
|
||||||||||||||||||||||||||||||||
Domestic fixed–line communications
|
Cellular telephone
|
International communications and Internet services
|
Multi-channel television
|
Others
|
Adjustments
|
Consolidated
|
Convenience translation into U.S. dollars (Note 2D)
|
|||||||||||||||||||||||||
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
US$
|
|||||||||||||||||||||||||
Revenue from external entities
|
3,581 | 3,957 | 949 | 1,187 | 162 | (1,187 | ) | 8,649 | 2,437 | |||||||||||||||||||||||
Inter-segment revenues
|
195 | 186 | 38 | 5 | 26 | (442 | ) | 8 | 2 | |||||||||||||||||||||||
Total revenue
|
3,776 | 4,143 | 987 | 1,192 | 188 | (1,629 | ) | 8,657 | 2,439 | |||||||||||||||||||||||
Depreciation and amortization
|
496 | 431 | 68 | 221 | 14 | 1,064 | 2,294 | 646 | ||||||||||||||||||||||||
Segment results - operating income
|
1,486 | 1,015 | 248 | 119 | 13 | (1,651 | ) | 1,230 | 347 | |||||||||||||||||||||||
Finance income
|
140 | 67 | 5 | – | – | 101 | 313 | 88 | ||||||||||||||||||||||||
Finance expenses
|
(229 | ) | (101 | ) | (9 | ) | (424 | ) | (3 | ) | 166 | (600 | ) | (169 | ) | |||||||||||||||||
Total finance income (expense), net
|
(89 | ) | (34 | ) | (4 | ) | (424 | ) | (3 | ) | 267 | (287 | ) | (81 | ) | |||||||||||||||||
Segment profit (loss) after finance expenses, net
|
1,397 | 981 | 244 | (305 | ) | 10 | (1,384 | ) | 943 | 266 | ||||||||||||||||||||||
Share in losses of equity-accounted investee
|
– | – | 5 | – | – | (240 | ) | (235 | ) | (66 | ) | |||||||||||||||||||||
Segment profit (loss) before income tax
|
1,397 | 981 | 249 | (305 | ) | 10 | (1,624 | ) | 708 | 200 | ||||||||||||||||||||||
Income tax
|
379 | 241 | 47 | 1 | 4 | (287 | ) | 385 | 109 | |||||||||||||||||||||||
Segment results - net profit (loss)
|
1,018 | 740 | 202 | (306 | ) | 6 | (1,337 | ) | 323 | 91 | ||||||||||||||||||||||
Additional information:
|
||||||||||||||||||||||||||||||||
Segment assets
|
6,352 | 4,892 | 1,032 | 1,243 | 291 | 6,307 | 20,117 | 5,669 | ||||||||||||||||||||||||
Goodwill
|
– | – | 6 | – | 141 | 2,686 | 2,833 | 798 | ||||||||||||||||||||||||
Investment in equity-accounted investee
|
– | – | – | – | – | 1,084 | 1,084 | 305 | ||||||||||||||||||||||||
Segment liabilities
|
7,964 | 1,930 | 304 | 4,665 | 241 | 587 | 15,691 | 4,421 | ||||||||||||||||||||||||
investments in property, plant and equipment and intangible assets
|
816 | 322 | 142 | 234 | 12 | (234 | ) | 1,292 | 364 |
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
B.
|
Adjustments for segment reporting of revenue, profit or loss, assets and liabilities
|
Year ended December 31,
|
||||||||
Convenience translation into
U.S. dollars (Note 2D) |
||||||||
2010
|
2010
|
|||||||
NIS
|
US$
|
|||||||
Revenue
|
||||||||
Revenue from reporting segments
|
10,098 | 2,845 | ||||||
Revenue from other segments
|
188 | 53 | ||||||
Elimination of revenue from inter-segment sales except for revenue from sales to an associate reporting as a segment
|
(442 | ) | (125 | ) | ||||
Elimination of revenue for a segment classified as an associate
|
(1,187 | ) | (334 | ) | ||||
Consolidated revenue
|
8,657 | 2,439 |
Year ended December 31,
|
||||||||
Convenience translation into
U.S. dollars (Note 2D) |
||||||||
2010
|
2010
|
|||||||
NIS
|
US$
|
|||||||
Profit or loss
|
||||||||
Operating income for reporting segments
|
2,868 | 808 | ||||||
Elimination of expenses from a segment classified as an associate
|
(119 | ) | (34 | ) | ||||
Financing expenses, net
|
(287 | ) | (81 | ) | ||||
Share in the losses of equity-accounted investees
|
(235 | ) | (66 | ) | ||||
Profit for operations classified in other categories
|
13 | 4 | ||||||
Other adjustments
|
(1,532 | ) | (431 | ) | ||||
Consolidated profit before income tax
|
708 | 200 |
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
B.
|
Adjustments for segment reporting of revenue, profit or loss, assets and liabilities (cont’d)
|
Year ended December 31,
|
||||||||
Convenience translation into
U.S. dollars (Note 2D) |
||||||||
2010
|
2010
|
|||||||
NIS
|
US$
|
|||||||
Assets
|
||||||||
Assets from reporting segments
|
13,525 | 3,811 | ||||||
Assets attributable to operations in other categories
|
432 | 122 | ||||||
Goodwill not attributable to segment assets
|
2,686 | 757 | ||||||
Investment in an equity-accounted investee (mainly loans) reported as a segment
|
1,084 | 305 | ||||||
Cancellation of assets for a segment classified as an associate
|
(1,243 | ) | (350 | ) | ||||
Less inter-segment assets
|
7,550 | 2,127 | ||||||
Consolidated assets
|
24,034 | 6,772 |
Year ended December 31,
|
||||||||
Convenience translation into
U.S. dollars (Note 2D) |
||||||||
2010
|
2010
|
|||||||
NIS
|
US$
|
|||||||
Liabilities
|
||||||||
Liabilities from reporting segments
|
14,863 | 4,188 | ||||||
Liabilities attributable to operations in other categories
|
241 | 67 | ||||||
Cancellation of liabilities for a segment classified as an associate
|
(4,665 | ) | (1,314 | ) | ||||
Less inter-segment liabilities
|
5,252 | 1,480 | ||||||
Consolidated liabilities
|
15,691 | 4,421 |
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
On October 25, 2009, as part of the Company’s decision to acquire the controlling interest in Bezeq, and as a result of Israeli regulatory requirements, the Company determined to sell its legacy communications business.
|
|
On November 16, 2009, the Company entered into an agreement to sell its legacy communications business to a subsidiary of Ampal for NIS 1.2 billion. The transferred assets include all of the assets, properties, subsidiary, contracts, intellectual property rights, licenses and permits related to and/or used in connection with its legacy communications business. In addition, substantially all of its executive officers and employees employed in such business, upon the effective date of the sale were hired by Ampal.
|
|
As a result of the abovementioned, as at December 31, 2009, the Company’s legacy communications business was classified as “held-for-sale”.
|
|
Regulatory approvals for the sale of its legacy communications business were obtained from the Israeli Ministry of Communications, Antitrust Commission, Income Tax Authority and the Israeli Court. The Company completed the sale of its legacy communications business to Ampal, effective as at January 1, 2010.
|
|
As at December 31, 2010 assets classified as held-for-sale include real property of Bezeq which is expected to be realized by way of sale rather than on going use.
|
|
Assets classified as held-for-sale:
|
|
December 31
|
Convenience translation into
U.S. dollars (Note 2D) |
|||||||||||||
Note
|
2009 |
2010
|
2010 | ||||||||||||
NIS
|
NIS
|
US$
|
|||||||||||||
Trade and other receivables
|
10 | 225 | – | – | |||||||||||
Long-term trade receivables
|
10 | 6 | – | – | |||||||||||
Property, plant and equipment
|
11 | 160 | 194 | 55 | |||||||||||
Intangible assets
|
12 | 631 | – | – | |||||||||||
Employee benefits
|
20 | 13 | – | – | |||||||||||
Deferred expenses
|
13 | 327 | – | – | |||||||||||
1,362 | 194 | 55 |
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
Liabilities classified as held-for-sale:
|
December 31
|
Convenience translation into
U.S. dollars (Note 2D) |
||||||||||||||
Note
|
2009
|
2010
|
2010
|
||||||||||||
NIS
|
NIS
|
US$
|
|||||||||||||
Trade and other payables
|
16 | 234 | – | – | |||||||||||
Deferred income
|
4 | – | – | ||||||||||||
Related parties payables
|
2 | – | |||||||||||||
Current maturities of long-term liabilities
|
(* | ) | – | – | |||||||||||
Deferred tax liabilities
|
21 | 30 | – | – | |||||||||||
270 | – | – |
*
|
Represent an amount less than NIS 1.
|
December 31
|
Convenience translation into U.S. dollars (Note 2D)
|
|||||||||||
2009
|
2010
|
2010
|
||||||||||
NIS
|
NIS
|
US$
|
||||||||||
Bank balances
|
8 | 64 | 18 | |||||||||
Call deposits
|
932 | 319 | 90 | |||||||||
Cash and cash equivalents
|
940 | 383 | 108 |
The Company’s exposure to interest rate and currency risks and a sensitivity analysis for financial assets and liabilities are disclosed in Note 19.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
Categories of financial assets
|
December 31
|
Convenience translation into
U.S. dollars (Note 2D) |
|||||||||||
2009
|
2010
|
2010
|
||||||||||
NIS
|
NIS
|
US$
|
||||||||||
Current investments
|
||||||||||||
Financial assets held for trading
|
80 | 608 | 171 | |||||||||
Available-for-sale financial assets
|
19 | 174 | 49 | |||||||||
Derivative instruments
|
– | 5 | 1 | |||||||||
Other investments
|
– | 2 | 1 | |||||||||
99 | 789 | 222 | ||||||||||
Non-current investments
|
||||||||||||
Bank deposit for providing loans to employees (1)
|
– | 83 | 23 | |||||||||
Available-for-sale financial assets
|
– | 31 | 9 | |||||||||
Derivative instruments
|
– | 10 | 3 | |||||||||
Other investments
|
– | 5 | 1 | |||||||||
– | 129 | 36 | ||||||||||
99 | 918 | 258 |
(1)
|
The deposit serves as a security for providing bank loans to Bezeq’s employees. The deposit is unlinked and the effective interest rate of the deposit at December 31, 2010 is 2.15%. Bezeq is liable for the loans to employees. The deposit is stated at its present value, taking into account the loan repayment schedule, based on a weighted average discount rate of 3.28%.
|
|
The Company’s exposure to currency and interest rate risks is also disclosed in Note 19.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
A.
|
Composition of trade and other receivables
|
December 31
|
Convenience
translation into
U.S. dollars (Note 2D) |
|||||||||||
2009
|
2010
|
2010
|
||||||||||
NIS
|
NIS
|
US$
|
||||||||||
Trade receivables
|
||||||||||||
Outstanding debts
|
95 | 719 | 203 | |||||||||
Credit cards and checks receivable
|
61 | 554 | 156 | |||||||||
Unbilled receivables
|
61 | 413 | 116 | |||||||||
Current maturities of long-term receivables
|
– | 992 | 280 | |||||||||
Related and interested parties
|
– | 23 | 6 | |||||||||
Total trade receivables (1)
|
217 | 2,701 | 761 | |||||||||
Receivables
|
||||||||||||
Prepaid expenses
|
5 | 119 | 34 | |||||||||
Other receivables
|
7 | 106 | 30 | |||||||||
Related and interested parties
|
– | 3 | 1 | |||||||||
Total other receivables (2)
|
12 | 228 | 65 | |||||||||
Long-term trade and other receivables
|
||||||||||||
Trade receivables – open debts (1) (3)
|
6 | 954 | 269 | |||||||||
Trade receivables – associate
|
– | 44 | 12 | |||||||||
Long term receivables
|
– | 116 | 33 | |||||||||
6 | 1,114 | 314 | ||||||||||
235 | 4,043 | 1,140 |
Trade and other receivables include NIS 38 for trade and other receivables denominated in the US dollars (in 2009, NIS 26).
|
||
The long-term trade and other receivables are repayable up to 2015.
|
||
(1)
|
As at December 31, 2009 presented under assets classified as held-for-sale.
|
|
(2)
|
As at December 31, 2009 presented under assets classified as held-for-sale, except for NIS 8 presented under other receivables.
|
|
(3)
|
For discount interest rate, see Note 19.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
B.
|
Change in provision for doubtful debts during the year
|
December 31 |
Convenience
translation into
U.S. dollars
(Note 2D) |
|||||||||||
2009
|
2010
|
2010
|
||||||||||
NIS
|
NIS
|
US$
|
||||||||||
Balance at January 1
|
13 | 15 | 4 | |||||||||
Disposals with respect to the sale of the Company’s legacy communication business
|
– | (15 | ) | (4 | ) | |||||||
Impaired loss recognized
|
6 | 44 | 12 | |||||||||
Lost debts
|
(4 | ) | – | – | ||||||||
Balance at December 31 (1)
|
15 | 44 | 12 |
(1)
|
As at December 31, 2009 presented under assets classified as held-for-sale.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
Motor
vehicles
|
Network
equipment
and
computers
|
Furniture
and office
equipment
|
Leasehold
improvements
|
Total
|
||||||||||||||||
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
||||||||||||||||
Cost
|
||||||||||||||||||||
Balance as at January 1, 2009
|
1 | 245 | 34 | 44 | 324 | |||||||||||||||
Additions
|
– | 51 | 4 | 1 | 56 | |||||||||||||||
Transfer to assets classified as held-for-sale (1)
|
(1 | ) | (296 | ) | (38 | ) | (45 | ) | (380 | ) | ||||||||||
Balance as at December 31, 2009
|
– | – | – | – | – |
Motor
vehicles
|
Network
equipment
and
computers
|
Furniture
and office
equipment
|
Leasehold
improvements
|
Total
|
||||||||||||||||
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
||||||||||||||||
Depreciation and impairment losses
|
||||||||||||||||||||
Balance as at January 1, 2009
|
* | 146 | 24 | 17 | 187 | |||||||||||||||
Depreciation for the year
|
* | 28 | 1 | 4 | 33 | |||||||||||||||
Transfer to assets classified as held-for-sale (1)
|
* | (174 | ) | (25 | ) | (21 | ) | (220 | ) | |||||||||||
Balance as at December 31, 2009
|
– | – | – | – | – | |||||||||||||||
Carrying amounts
|
||||||||||||||||||||
As at January 1, 2009
|
1 | 99 | 10 | 27 | 137 | |||||||||||||||
As at December 31, 2009
|
– | – | – | – | – |
(1)
|
See Note 7.
|
*
|
Represent an amount less than NIS 1.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
Land and buildings
|
Switching transmission, power, cellular and satellite equipment
|
Network equipment
|
Subscriber equipment
|
Vehicles
|
Office equipment and computers
|
Total
|
Convenience translation into U.S. dollars (Note 2D)
|
|||||||||||||||||||||||||
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
US$
|
|||||||||||||||||||||||||
Cost
|
||||||||||||||||||||||||||||||||
Balance as at January 1, 2010
|
– | – | – | – | – | – | – | – | ||||||||||||||||||||||||
Additions with respect to the acquisition of Bezeq
|
1,148 | 2,403 | 2,208 | 1,319 | 73 | 329 | 7,480 | 2,108 | ||||||||||||||||||||||||
Additions
|
48 | 355 | 423 | 80 | 70 | 66 | 1,042 | 293 | ||||||||||||||||||||||||
Disposals
|
(14 | ) | (2 | ) | (56 | ) | (9 | ) | – | – | (81 | ) | (23 | ) | ||||||||||||||||||
Transfer from assets held for sale
|
5 | – | – | – | – | – | 5 | 1 | ||||||||||||||||||||||||
Additions with respect to the acquisitions of other subsidiaries
|
3 | – | – | – | – | 10 | 13 | 4 | ||||||||||||||||||||||||
Balance as at December 31, 2010
|
1,190 | 2,756 | 2,575 | 1,390 | 143 | 405 | 8,459 | 2,383 |
Land and buildings
|
Switching transmission, power, cellular and satellite equipment
|
Network equipment
|
Subscriber equipment
|
Vehicles
|
Office equipment and computers
|
Total
|
Convenience translation Into U.S. dollars (Note 2D)
|
|||||||||||||||||||||||||
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
US$
|
|||||||||||||||||||||||||
Depreciation and impairment losses
|
||||||||||||||||||||||||||||||||
Balance as at January 1, 2010
|
– | – | – | – | – | – | – | – | ||||||||||||||||||||||||
Depreciation for the year
|
58 | 283 | 220 | 416 | 11 | 77 | 1,065 | 300 | ||||||||||||||||||||||||
Transfer from assets held for sale
|
2 | – | – | – | – | – | 2 | – | ||||||||||||||||||||||||
Balance as at December 31, 2010
|
60 | 283 | 220 | 416 | 11 | 77 | 1,067 | 300 | ||||||||||||||||||||||||
Carrying amounts
|
||||||||||||||||||||||||||||||||
As at December 31, 2010
|
1,130 | 2,473 | 2,355 | 974 | 132 | 328 | 7,392 | 2,083 |
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
A.
|
Residual value
: The residual value of Bezeq’s copper cables is assessed at the end of each reporting year. The residual value is NIS 689 as at December 31, 2010.
|
|
B.
|
Cost of dismantling and removal of assets
: The cost of items of property, plant and equipment includes dismantling and removal costs, as well as site restoration costs where Bezeq has an obligation. These costs are depreciated according to the expected useful life of the sites. Since April 14, 2010, the Group recognized, as part of the cost of property, plant and equipment, costs of NIS 4 for dismantling and removal of assets.
|
|
C.
|
The cost includes NIS 2 in the Group, representing finance expenses which were capitalized in the reporting period in respect of loans and credit in the construction period and calculated at an average interest rate of 4.6% per year.
|
|
D.
|
For details of installation of the UMTS/HSPA network, see Note 23E.
|
|
E.
|
Bezeq expects that most of the deployment of the NGN project (the project to replace the existing network) will be completed by the end of 2011.
|
|
F.
|
Bezeq depreciation committees reviewed the useful life of the property, plant and equipment, in order to determine the estimated useful life of these assets. The findings of the committees do not indicate a need to change the estimated useful life of the property, plant and equipment.
|
|
G.
|
Most of the real estate assets used by Bezeq were transferred to it by the State of Israel, according to the provisions in the asset transfer agreement signed between Bezeq and the State of Israel on January 31, 1984. Some of these assets were leased for 49 years, with an option for an extension for another 49 years, and others were rented for two years, renewable each time for another two years.
|
|
On May 15, 2003, Bezeq signed a settlement agreement with the Government of Israel on behalf of the State of Israel and the Israel Lands Administration, which regulated the dispute between them in the matter of the Company’s rights in the various real estate assets which were transferred to Bezeq when it commenced operation in 1984, under the asset transfer agreement.
|
||
The rights are amortized over the course of the lease period.
|
||
H.
|
At the reporting date, there are agreements to purchase property, plant and equipment amounting to NIS 300.
|
|
I.
|
See Note 24 for liens.
|
B Communications Ltd.
|
(All amounts are in millions except where otherwise stated)
|
Subscribers
|
||||||||||||||||||||||||||||||||
Customer
|
acquisition
|
Computer
|
||||||||||||||||||||||||||||||
Goodwill
|
Brand name
|
Relationships
|
costs
|
software
|
Licenses
|
Other
|
Total
|
|||||||||||||||||||||||||
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
|||||||||||||||||||||||||
Cost
|
||||||||||||||||||||||||||||||||
Balance as at January 1, 2009
|
411 | 90 | 145 | 4 | 53 | 4 | 15 | 722 | ||||||||||||||||||||||||
Additions
|
– | – | – | 31 | 15 | – | * | 46 | ||||||||||||||||||||||||
Transfer to assets classified as held-for-sale (1)
|
(411 | ) | (90 | ) | (145 | ) | (35 | ) | (68 | ) | (4 | ) | (15 | ) | (768 | ) | ||||||||||||||||
Balance as at December 31, 2009
|
– | – | – | – | – | – | – | – |
Subscribers
|
||||||||||||||||||||||||||||||||
Customer
|
acquisition
|
Computer
|
||||||||||||||||||||||||||||||
Goodwill
|
Brand name
|
Relationships
|
costs
|
software
|
Licenses
|
Other
|
Total
|
|||||||||||||||||||||||||
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
|||||||||||||||||||||||||
Amortization and impairment losses
|
||||||||||||||||||||||||||||||||
Balance as at January 1, 2009
|
– | – | 61 | 2 | 20 | 1 | 12 | 96 | ||||||||||||||||||||||||
Amortization for the year
|
– | – | 19 | 8 | 13 | * | 1 | 41 | ||||||||||||||||||||||||
Transfer to assets classified as held-for-sale (1)
|
– | – | (80 | ) | (10 | ) | (33 | ) | (1 | ) | (13 | ) | (137 | ) | ||||||||||||||||||
Balance as at December 31, 2009
|
– | – | – | – | – | – | – | – | ||||||||||||||||||||||||
Carrying amounts
|
||||||||||||||||||||||||||||||||
As at January 1, 2009
|
411 | 90 | 84 | 2 | 33 | 3 | 3 | 626 | ||||||||||||||||||||||||
As at December 31, 2009 (1)
|
– | – | – | – | – | – | – | – |
(1)
|
See Note 7.
|
|
*
|
Represents an amount less than NIS 1.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
Goodwill
|
Brand name
|
Customer Relationships
|
Subscribers acquisition costs
|
Computer software
|
Licenses
|
Other
|
Total
|
Convenience translation into U.S. dollars
(Note 2D) |
||||||||||||||||||||
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
US$
|
||||||||||||||||||||
Cost
|
||||||||||||||||||||||||||||
Balance as at January 1, 2010
|
– | – | – | – | – | – | – | – | – | |||||||||||||||||||
Addition with respect to the acquisition of Bezeq
|
2,686 | 1,197 | 5,133 | – | 391 | 387 | 13 | 9,807 | 2,764 | |||||||||||||||||||
Additions with respect to the acquisitions of other subsidiaries
|
147 | 113 | 30 | – | – | – | 43 | 333 | 94 | |||||||||||||||||||
Acquisitions or additions from independent development
|
– | – | – | 62 | 170 | – | – | 232 | 65 | |||||||||||||||||||
Balance as at December 31, 2010
|
2,833 | 1,310 | 5,163 | 62 | 561 | 387 | 56 | 10,372 | 2,923 |
Goodwill
|
Brand name
|
Customer Relationships
|
Subscribers acquisition costs
|
Computer software
|
Licenses
|
Other
|
Total
|
Convenience translation into U.S. dollars
(Note 2D) |
||||||||||||||||||||
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
US$
|
||||||||||||||||||||
Amortization and impairment loses
|
||||||||||||||||||||||||||||
Balance as at January 1, 2010
|
– | – | – | – | – | – | – | – | – | |||||||||||||||||||
Amortization for the year
|
– | 6 | 996 | 51 | 125 | 23 | 8 | 1,209 | 341 | |||||||||||||||||||
Balance as at December 31, 2010
|
– | 6 | 996 | 51 | 125 | 23 | 8 | 1,209 | 341 | |||||||||||||||||||
Carrying amounts
|
||||||||||||||||||||||||||||
As at December 31, 2010
|
2,833 | 1,304 | 4,167 | 11 | 436 | 364 | 48 | 9,163 | 2,582 |
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
Total value of goodwill attributable to each cash-generating unit:
|
December 31
|
Convenience translation into U.S. dollars
|
|||||||||||
2009
|
2010
|
(Note 2D)
|
||||||||||
NIS
|
NIS
|
US$
|
||||||||||
International communications and Internet services
|
411 | 181 | 51 | |||||||||
Domestic fixed-line communications
|
– | 1,283 | 362 | |||||||||
Cellular telephone
|
– | 1,217 | 343 | |||||||||
others
|
– | 152 | 42 | |||||||||
Total (1)
|
411 | 2,833 | 798 |
(1)
|
As at December 31, 2009, presented under assets classified as held-for-sale.
|
|
Goodwill impairment testing by the Company
|
||
For the purpose of impairment testing, goodwill is allocated to the Company’s cash generating units (hereinafter - “CGU”) which represent the lowest level within the Company at which the goodwill is monitored for internal management purposes. The annual impairment test date is December 31.
|
||
The recoverable amount of traditional voice and broadband CGUs was based on its value in use and was determined by management. The recoverable amount of each CGU was determined to be higher than their carrying amount and no impairment charges were recorded during any period presented.
|
||
The recoverable amount of each CGU was based on the Discounted Cash Flow (DCF) method under the Income Approach. Value in use of traditional voice and broadband CGUs was determined by discounting the future cash flows generated from the continuing use of the CGUs and was based on the following key assumptions:
|
||
Bezeq Fixed Line -
|
||
—
|
Cash flows were projected based on actual operating results and additional information received from Bezeq’s management upon request, and assumptions regarding changes in revenue mix (traditional telephony and internet) and investments required. The anticipated annual revenue growth included in the cash flow projections varied from about minus 5% to about minus 2.8% for the years 2011 to 2015.
|
|
—
|
A pre-tax discount rate of about 12.5% (equivalent to a post tax discount rate of 10.5%) was applied in determining the recoverable amount of the CGU.
|
|
—
|
The terminal year’s anticipated annual revenue growth included in the cash flow projections was 0.5%.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
Pelephone -
|
||
—
|
Cash flows were projected based on actual operating results and additional information received from Pelephone’s management upon request, and assumptions regarding changes in revenue mix (income from services and from end user devises) and investments required. The anticipated annual revenue growth included in the cash flow projections varied from about minus 9.5% to about a positive 3% for the years 2011 to 2015.
|
|
—
|
A pre-tax discount rate of 13.9% (equivalent to a post tax discount rate of 11%) was applied in determining the recoverable amount of the units.
|
|
—
|
The terminal year’s anticipated annual revenue growth included in the cash flow projections was 1%.
|
|
Bezeq International -
|
||
—
|
Cash flows were projected based on actual operating results and additional information received from Bezeq International’s management upon request, and assumptions regarding revenue growth and investments required. The anticipated annual revenue growth included in the cash flow projections varied from about 1% to 5.5% for the years 2011 to 2015.
|
|
—
|
A pre-tax discount rate of about 13.6% (equivalent to a post tax discount rate of 11%) was applied in determining the recoverable amount of the CGU.
|
|
—
|
The terminal year’s anticipated annual revenue growth included in the cash flow projections was 1%.
|
|
The values assigned to the key assumptions represent management’s assessment of future trends in the industry and are based on both external sources and internal sources (historical data).
|
December 31
|
Convenience
translation into
|
|||||||||||
2009
|
2010
|
2010
|
||||||||||
NIS
|
NIS
|
US$
|
||||||||||
Long-term prepaid expenses in respect of use of capacities (1)
|
327 | 419 | 118 | |||||||||
Other prepaid expenses
|
– | 4 | 1 | |||||||||
Total deferred and other expenses (2)
|
327 | 423 | 119 |
(1)
|
See Note 3G.
|
|
(2)
|
Total deferred and other expenses as at December 31, 2009 presented under current assets classified as held-for-sale.
|
|
The amount of amortization recognized in the statement of income is NIS 20 (in 2009 NIS 24).
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
A.
|
Equity-accounted associates
|
|
(1)
|
Below is a summary of main associates, without adjustment for ownership percentage held by the Group:
|
|
a.
|
Financial position
|
December 31, 2010
|
|||||||||||||||||||||||||||||||
Ownership %
|
Current assets
|
Non-current assets
|
Total assets
|
Current liabilities
|
Non-current liabilities
|
Total liabilities
|
Deficit
|
||||||||||||||||||||||||
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
|||||||||||||||||||||||||
DBS Satellite Services (1998) Ltd.
|
49.78 | % | 180 | 1,063 | 1,243 | 802 | 3,863 | 4,665 | (3,422 | ) | |||||||||||||||||||||
US$
|
US$
|
US$
|
US$
|
US$
|
US$
|
US$
|
|||||||||||||||||||||||||
Convenience translation into U.S. dollars (Note 2D)
|
50 | 300 | 350 | 226 | 1,088 | 1,314 | (964 | ) |
b.
|
Operating Results
|
Period started April 14, 2010 until December 31, 2010
|
|||||||||||||||||||
Ownership (%)
|
Revenues
|
Gross profit
|
Operating profit
|
Loss
|
|||||||||||||||
NIS
|
NIS
|
NIS
|
NIS
|
||||||||||||||||
2010
|
|||||||||||||||||||
DBS Satellite Services (1998) Ltd.
|
49.78 | % | 1,192 | 304 | 119 | (306 | ) | ||||||||||||
|
US$
|
US$
|
US$
|
US$
|
|||||||||||||||
Convenience translation into U.S. dollars (Note 2D)
|
336 | 86 | 34 | (86 | ) |
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
A.
|
Equity-accounted associates (cont’d)
|
||
(2)
|
Additional details regarding associates held indirectly by Bezeq
|
||
As at December 31, 2010, the investment in an associate includes Bezeq’s investments in shares, share options and loans to DBS.
|
|||
Bezeq’s subsidiaries have negligible investments in other associates.
|
|||
a.
|
Details of the Company’s loans to DBS, according to the terms of the loans:
|
December 31 2010
|
Convenience translation into U.S. dollars
(Note 2D) 2010 |
|||||||
NIS
|
US$
|
|||||||
Israeli CPI-linked loans
|
1,145 | 323 | ||||||
Israeli CPI-linked loans, bearing interest at a rate of 5.5%
|
286 | 81 | ||||||
Israeli CPI-linked loans, bearing interest at a rate of 11%
|
1,112 | 313 | ||||||
2,543 | 717 |
b.
|
Details of the carrying amount of the loans as stated in the financial statements:
|
December 31 2010
|
Convenience translation into U.S. dollars
(Note 2D) 2010 |
|||||||
NIS
|
US$
|
|||||||
Israeli CPI-linked loans
|
44 | 14 | ||||||
Israeli CPI-linked loans, bearing interest at a rate of 5.5%
|
172 | 48 | ||||||
Israeli CPI-linked loans, bearing interest at a rate of 11%
|
1,135 | 320 | ||||||
1,351 | 382 |
c.
|
Activity in the investment account of DBS:
|
December 31 2010
|
Convenience translation into U.S. dollars
(Note 2D) 2010 |
|||||||
NIS
|
US$
|
|||||||
Balance as at April 14, 2010
|
1,175 | 331 | ||||||
Interest and linkage differences
|
140 | 39 | ||||||
Company’s share in capital reserves
|
4 | 1 | ||||||
Company’s share in losses
|
(235 | ) | (66 | ) | ||||
Balance at December 31, 2010
|
1,084 | 305 |
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
A.
|
Equity-accounted associates (cont’d.) | ||
(2)
|
Additional details regarding associates held indirectly by Bezeq
|
||
d.
|
Bezeq’s Board of Directors approved the waiver of NIS 250 of the interest-free linked loans that Bezeq provided DBS, provided the other shareholder of DBS agrees to waive NIS 252 of the loan it provided to DBS.
|
||
The waiver is contingent on an arrangement between Bezeq and the Tax Authority and a waiver agreement signed by Bezeq with the other controlling shareholder before December 31, 2011. In addition, waiver of the debt requires the approval of the general meeting, which will be convened after the agreement has been signed.
|
|||
e.
|
DBS has a current debt to the Bezeq Group. The balance of DBS’s current debt to the Bezeq Group amounts NIS 59, of which NIS 47 is payable to Bezeq. See Note 33 below.
|
||
f.
|
For guarantees provided by Bezeq for DBS, see Note 24E and 24H.
|
||
B.
|
Subsidiaries held directly and indirectly by the Company
|
||
(1)
|
General
|
Country of
incorporation |
Ownership
interest |
||||
2010
|
|||||
Bezeq - The Israel Telecommunication Corp. Limited (1)
|
Israel
|
30.31 | % | ||
B Communications (SP1) Ltd.
|
Israel
|
100 | % | ||
B Communications (SP2) Ltd. (2)
|
Israel
|
100 | % | ||
Subsidiaries of Bezeq - The Israel Telecommunication Corp. Limited.
|
|||||
Pelephone Communications Ltd.
|
Israel
|
100 | % | ||
Bezeq International Ltd.
|
Israel
|
100 | % | ||
Bezeq Online Ltd.
|
Israel
|
100 | % | ||
Bezeq Zahav (Holdings) Ltd.
|
Israel
|
100 | % | ||
Walla! Communications Ltd. (3)
|
Israel
|
71.55 | % | ||
Stage One Venture Capital Fund
|
Israel
|
71.8 | % | ||
2009
|
|||||
012 Telecom Ltd.
|
Israel
|
100 | % |
(1)
|
Held by B Communications (SP2) Ltd.
|
|
(2)
|
Held by B Communications (SP1) Ltd.
|
|
(3)
|
Walla has investments in other subsidiaries that are not material.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
B.
|
Subsidiaries held directly by the Company (cont’d)
|
|
(
2
)
|
Details of Group entities
|
|
a.
|
B Communications (SP1) Ltd.
|
|
B Communications (SP1) Ltd. (“SP1”), founded in 2010, is a wholly-owned subsidiary of the Company. SP1 is the sole shareholder of B Communications (SP2) Ltd. (“SP2”) which directly holds the Bezeq controlling interest.
|
||
b.
|
B Communications (SP2) Ltd
.
|
|
B Communications (SP2) Ltd. (“SP2”) founded in 2010, is an indirect wholly-owned subsidiary of the Company, through SP1, and holds the Bezeq controlling interest.
|
||
c.
|
Bezeq- The Israel Telecommunications Corp. Ltd.
|
|
Bezeq is controlled by SP2 which holds 30.31% of Bezeq’s outstanding shares. Bezeq is the largest fixed line domestic communication services company in Israel.
|
||
d.
|
Pelephone Communications Ltd.
|
|
Pelephone Communications Ltd. (“Pelephone”) is a wholly-owned subsidiary of Bezeq. Pelephone provides cellular communication services and value added services and markets and repairs terminal equipment.
|
||
Pelephone operates under a general license for cellular services from the Ministry of Communications (“the License”). The License was issued on February 7, 1996. After Pelephone won an additional band of frequencies in December 2001, the term of the license was extended to 2022, with an option for a further extension, subject to the terms of the license, for an additional six years (“the additional period”) and for renewal for one or more additional periods of six years after the additional period.
|
||
e.
|
Bezeq International Ltd.
|
|
Bezeq International Ltd. (“Bezeq International”) is a wholly-owned subsidiary of Bezeq. Bezeq International was incorporated on April 5, 1995 to engage in international communications. Since 1999, Bezeq International has also been providing internet access services. Following the merger with BezeqCall Communications Ltd. (BezeqCall), BezeqCall’s network end point (NEP) license was assigned to Bezeq International.
|
||
On February 8, 2009, the Minister of Communications granted an operation license for domestic telecommunication services to BIP Communication Solutions Limited Partnership (“BIP”), a corporation owned by Bezeq International. The license is for the supply of domestic broadband telephony services (VoB) to private customers through BIP. On August 2, 2009, Bezeq International started to supply domestic broadband telephony services (VoB) to its private customers through BIP. On December 30, 2009, after the Ministry of Communications determined that Bezeq’s market share in domestic telephony in the business sector fell below 85%, the license was amended to permit Bezeq International to supply the services to its corporate customers as well.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
B.
|
Subsidiaries held directly by the Company (cont’d)
|
|
(2)
|
Details of Group entities (cont’d)
|
|
In August 2010, Bezeq started to sell service bundles, including Bezeq International’s internet services, following the amendment to the international operator license.
|
||
In March 2011, Bezeq’s Board of Directors approved the establishment by Bezeq International of a subsidiary in Italy, at an establishment cost of up to EUR 25 thousand and a subsidiary in the U.S. at an establishment cost of up to U.S. 150 thousand.
|
||
f.
|
Bezeq Online Ltd.
|
|
Bezeq Online Ltd. (“Bezeq Online”) is a wholly-owned subsidiary of Bezeq. Bezeq Online was established in December 2000 and commenced operations in 2001, providing call center outsourcing services.
|
||
g.
|
Bezeq Zahav (Holdings) Ltd.
|
|
Bezeq Zahav (Holdings) Ltd. (“Bezeq Zahav”) is wholly-owned and controlled by Bezeq. Bezeq Zahav was established in September 1995. Bezeq Zahav holds debentures issued by Bezeq.
|
||
h.
|
Walla!
Communications Ltd.
|
|
Walla! Communications Ltd. (“Walla”) is controlled by Bezeq. Bezeq holds 71.55% of Walla shares. Walla is a public company and its shares are traded on the Tel Aviv Stock Exchange. The market value of the Walla shares held by Bezeq as at December 31, 2010 is NIS 164. Walla provides internet, management and media services for a range of populations.
|
||
i.
|
Stage One Venture Capital Fund (Israel) L.P.
|
|
This is a venture capital fund in which the management rights are held by the SOCI (Stage One Capital Investment), and Bezeq has rights in the profits.
|
||
(3)
|
Dividend received from subsidiaries
|
December 31
2010 |
Convenience translation into
U.S. dollars (Note 2D) 2010 |
|||||
NIS
|
US$
|
|||||
Received by Bezeq from Pelephone Communications Ltd.
|
410 | 116 | ||||
Received by Bezeq from International Ltd.
|
216 | 61 | ||||
Received by Bezeq from Stage One Venture Capital Fund
|
10 | 3 | ||||
Received by the Company from Bezeq
|
1,135 | 320 |
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
B.
|
Subsidiaries held directly by the Company (cont’d)
|
|
(
4
)
|
Bezeq’s Dividend Distribution Policy
|
|
In August 2009, Bezeq’s Board of Directors resolved to implement a dividend policy to distribute dividends to its shareholders of 100% of the semi-annual profit (“profit for the period attributable to the shareholders of Bezeq”), in accordance with its consolidated financial statements. Application of the policy to distribute a dividend is subject to the provisions of the law, including the distribution criteria prescribed in the Companies Law, and the estimation of the Board of Directors of Bezeq regarding its ability to meet its existing and anticipated liabilities, taking into consideration the projected cash flow, its operations and liabilities, the cash balance, its plans and position as will be from time to time and subject to the approval of the its general shareholders meeting regarding any specific distribution, as set out in the articles of association of Bezeq. Since the date of the resolution, Bezeq’s dividend policy has not been changed.
|
||
(5)
|
Bezeq’s Request to distribute dividends exceeding its profits
|
|
On December 30, 2010, Bezeq’s Board of Directors resolved to approve and to recommend that the general meeting of its shareholders approve a distribution to its shareholders (“the planned distribution”) in the total amount of NIS 3 billion, a sum not in compliance with the profit test as defined in Section 302 of the Companies Law, 5759-1999. The amount of the planned distribution will be distributed to Bezeq’s shareholders in six equal semi-annual payments, from 2011 to 2013 (without interest or linkage payments), together with its regular dividend distribution. On January 24, 2011, the general meeting of Bezeq’s shareholders approved the planned distribution. On March 31, 2011, the court approved the planned distribution (please refer also to Note 34B).
|
||
The first payment of NIS 500 (which was reserved for payment at the record date of May 4, 2011) was paid to the shareholders on May 19, 2011.
|
||
The capitalization is according to the expected payment dates, using an interest capitalization between 3.81% -5.05%.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
C.
|
Dividends
|
|
Bezeq declared and paid dividends in 2010 as follows:
|
2010
|
Convenience translation into
U.S. dollars (Note 2D) |
||||
NIS
|
US$
|
||||
In May 2010, a cash dividend was distributed (NIS 0.917 per share)
|
2,453 | 691 | |||
In October 2010, a cash dividend was distributed (NIS 0.478 per share)
|
1,280 | 361 | |||
3,733 | 1,052 |
On April 13, 2011, subsequent to the reporting date, Bezeq’s general meeting of shareholders approved (further to recommendation of the board of directors of March 7, 2011) the distribution of a cash dividend to Bezeq’s shareholders amounting to NIS 1,163. The dividend was paid on May 19, 2011
.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
A.
|
Composition
|
December 31
|
Convenience translation into
U.S. dollars (Note 2D) |
|||||||||||
2009
|
2010
|
2010
|
||||||||||
NIS
|
NIS
|
US$
|
||||||||||
Current liabilities
|
||||||||||||
Short-term credit
|
448 | 11 | 3 | |||||||||
Current maturities of debentures
|
58 | 1,030 | 290 | |||||||||
Current maturities of bank loans
|
– | 329 | 93 | |||||||||
Current maturities of loans from institutions and others
|
– | 10 | 3 | |||||||||
Current maturities of long-term liabilities
|
(* | ) | – | – | ||||||||
506 | 1,380 | 389 | ||||||||||
Non-current liabilities
|
||||||||||||
Debentures
|
342 | 2,776 | 782 | |||||||||
Bank loans
|
– | 6,138 | 1,730 | |||||||||
Loans from institutions and others
|
– | 541 | 152 | |||||||||
Other liabilities
|
– | 150 | 42 | |||||||||
342 | 9,605 | 2,706 | ||||||||||
848 | 10,985 | 3,095 |
*
|
Represent an amount less than NIS 1.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
B.
|
Terms and debt repayment schedule
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
B.
|
Debt terms and repayment schedule (cont’d)
|
|||
Loans from banks and others:
|
||||
(1)
|
On April 14, 2010, SP2 received loans from certain banking and financial institutions led by Bank Hapoalim Ltd. (hereinafter- Bank Hapoalim), in a total principal amount of NIS 4.6 billion for the acquisition of the Bezeq shares as mentioned in Note 5A.
|
|||
The loan is divided into four tranches as follows:
|
||||
A.
|
Credit A - a “bullet” floating rate loan, in the amount of NIS 700, with principal and interest payable on November 30, 2010. Credit A was indexed to Bank Hapoalim’s prime interest rate, plus a margin of 0.62%. SP2 repaid this loan in full on May 3, 2010.
|
|||
B.
|
Credit B –This tranche is divided into two parts. The first part, in the amount of NIS 1.1 billion, is a floating loan indexed to Bank Hapoalim’s prime interest rate, plus a margin of 1.58%; and the second part, in the amount of NIS 900, is a fixed rate loan of 4.35%, linked to the Israeli consumer price index. Both parts of Credit B are payable in 13 equal semi-annual installments of both principal and interest, with the first payments due on November 30, 2010.
|
|||
C.
|
Credit C – a “bullet” loan, in the principal amount of NIS 700, is a floating rate loan, indexed to Bank Hapoalim’s prime interest rate, plus a margin of 1.73%. The principal of Credit C is payable in full on November 30, 2016; and the interest is payable in 13 semi-annual installments, the first of which was paid on November 30, 2010.
|
|||
D.
|
Credit D - two “bullet” loans, the principal of which is payable in full on May 30, 2017 and the interest is payable in 13 semi-annual installments, the first of which was paid on November 30, 2010. The first loan of Credit D is in the principal amount of NIS 800 and is a floating rate loan, indexed to Bank Hapoalim’s prime interest rate, plus a margin of 1.75%. The second loan is in the principal amount of NIS 400 and is a fixed rate loan, linked to the Israeli consumer price index, at a rate of 5.4%.
|
|||
Under the terms of the loan agreement covenants between SP2 and the Bank Hapoalim consortium, Bezeq must maintain certain minimum shareholders equity and minimum ratio of shareholder equity to the balance sheet and must exceed certain thresholds relating to the ratio of financial debt to EBITDA. In addition, minimum ratio of debt to EBITDA in SP2 and debt service coverage ratio of SP2 must be maintained.
|
||||
Transaction costs in the amount of NIS 45 were recorded against the loan amount and will be amortized using the effective interest method.
|
||||
As at December 31, 2010, SP2 was in compliance with the above mentioned covenants.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
B.
|
Debt terms and repayment schedule (cont’d)
|
|||
(2)
|
On February 18, 2010, SP1 entered into a loan agreement with certain entities associated with the Migdal Insurance and Financial Holdings Ltd. Group (hereinafter- Migdal). According to the Migdal loan agreement, on April 14, 2010, the closing date of the acquisition of the Bezeq interest, SP1 was provided with a NIS 500 loan for the acquisition of the Bezeq shares as mentioned in Note 5A. The loan bears annual interest at a rate of 6.81%-6.95% and is linked to Israeli CPI. The final interest rate will be calculated according to a formula that takes into account the amounts that the Company may pay in the event of the early repayment of the loan at Migdal’s demand.
|
|||
The Migdal facility agreement contains certain undertakings and covenants, including, among others, (i) certain undertakings for SP1 and its direct and indirect controlling shareholders to maintain (indirect) control in Bezeq, (ii) limitations on amendments to the SP2 loan described above; and (iii) an undertaking to comply with the terms of the regulatory approvals granted with respect to purchase of control in Bezeq.
|
||||
(3)
|
In 2010, Bezeq completed debt financings amounting to NIS 2.6 billion, through loans from banks in Israel. Of this amount, NIS 400 was used for the early repayment of bank loans received in March 2009. Loans in the amount of NIS 1.3 billion are at fixed interest and the balance of NIS 1.3 billion are at variable interest, which are payable as follows:
|
|||
A.
|
Loans in the amount of NIS 1.1 billion, which are unlinked to the Israeli CPI and bear variable interest of prime minus 0.21%, are repayable in four equal annual principal payments between 2013 and 2016. The interest on the loans is payable twice a year.
|
|||
B.
|
A loan in the amount of NIS 200, which is unlinked to the Israeli CPI and bears variable interest of prime minus 0.33%, is repayable in six equal annual principal payments between 2012 and 2017.
|
|||
C.
|
Loans in the amount of NIS 800, which are unlinked to the Israeli CPI and bear average fixed interest of 5.56%, are repayable in four equal annual principal payments l between 2013 and 2016. The interest on the loans is payable twice a year.
|
|||
D.
|
Loans in the amount of NIS 500, which are unlinked and bear average fixed interest of 5%, are repayable in four equal annual principal payments between 2012 and 2017.
|
|||
(4)
|
In connection with the sale of the Company’s legacy communications business to Ampal, the Company agreed to assume a long term loan due to one of the Company’s suppliers. This loan, which amounted to NIS 34 as of December 31 2010 and bears 3% fixed interest, is linked to the U.S. dollar and payable on a monthly basis until February 2014. |
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
B.
|
Debt terms and repayment schedule (cont’d)
|
Debentures:
|
|||
(1)
|
The Company has issued NIS 706,636,643 of Series A and Series B debentures to investors in Israel. The debentures are traded on the Tel Aviv Stock Exchange.
|
||
A.
|
Series A- The par value of debentures as of December 31 2010, is NIS 307, of NIS 1 par value each, repayable together with the accrued interest in eight equal payments on March 15 of each year until March 15, 2016. The debentures are linked to the Israeli CPI and bear annual interest at a rate of 4.75%.
|
||
B.
|
Series B - On September 21, 2010, the Company issued, at par value, NIS 400 Series B debentures to Israeli investors. The debentures are payable in four equal annual installments on March 31st of each of the years 2016 through 2019, unlinked to the Israeli CPI, bear interest at a fixed annual rate of 6.5%, payable semi-annually on March 31st and on September 30th of each of year during the years 2011 through 2019 (the first interest payment is payable on March 31, 2011, and the last interest payment is payable on March 31, 2019).
|
||
(2)
|
The par value of the Bezeq’s debentures is NIS 2,687, of which NIS 1,807 par value was issued to the public as follows:
|
||
A.
|
The par value of Bezeq’s Series 4 debentures is NIS 300 of NIS 1 par value each, repayable in 2011. The annual interest rate for these debentures is 4.8%.
|
||
B.
|
The par value of Bezeq’s Series 5 debentures is 2,387 of NIS 1 par value each, of which NIS 1,507 debentures were issued to the public and to institutional investors (partially through Bezeq Zahav) and the balance of NIS 880 were issued to Bezeq Zahav. The debentures are repayable in six equal annual payments in each of the years 2011 to 2016 and the annual interest rate for these debentures is 5.3%.
|
||
(3)
|
Pelephone issued three series of debentures in a private placement to institutional investors. The debentures, which were issued at par value, are linked to the Israeli CPI, bear annual interest of 4.4% - 5.2%, and are repayable in equal semi-annual payments up to 2015. The interest is paid on the unpaid balance of the principal. The balance of the debentures at December 31, 2010, is NIS 608.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
B.
|
Debt terms and repayment schedule (cont’d)
|
|
Other Obligations:
|
||
(1)
|
On April 14, 2010, SP2 issued phantom stock options to the banking and the financial institutions led by Bank Hapoalim, under which they received option units, which the “base price” Bezeq’s shares of each unit was NIS 8.62. The total amount payable by SP2 to the banks and the financial institutions was limited to NIS 125 (NIS 2.4289 per option unit) in the aggregate.
|
|
During the fourth quarter of 2010, the banking and the financial institutions exercised all the phantom stock options issued to them. Under the exercise terms, SP 2 is obligated to pay the lenders a total of NIS 124 in five equal annual installments beginning in May 2012. This liability is recorded at its present value as of December 31, 2010, in an amount of NIS 107, and is presented under other liabilities.
|
||
(2)
|
On September 2, 2010, Walla signed an agreement for the acquisition of 75% of the share capital of Coral Tell Ltd., a private company that operates the Yad 2 site on the Internet (“Yad 2”).
|
|
According to the transaction, Walla granted the minority shareholders of Yad 2 a put option to sell their shares in Yad2 to Walla, at a company value of NIS 125. As of December 31, 2010, the value of the put option is NIS 39 and is presented under other liabilities.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
C.
|
Liens, securities and financial covenants
|
||
(1)
|
The Bezeq shares held by SP2 and all of SP2’s other rights and assets (except such shares of Bezeq acquired after April 14, 2010) have been pledged to the lenders as security of SP2’s obligations under the loan agreements with Bank Hapoalim. In addition, SP1 has pledged to the lenders the entire equity it holds in SP2 and the debt owed to it by SP2.
|
||
SP2 undertook to make a cash deposit in an account held with Bank Hapoalim from the cash Bezeq pays and/or distributes to SP2 in the amount of NIS 150 (hereinafter, the “Encumbered Deposit”). SP2 was obliged to create and record in favor of the lenders a fixed first-ranking lien over the Encumbered Deposit
|
|||
SP2 has also created the following Liens in favor of Bank Hapoalim as security for its obligations under the loan agreements:
|
|||
1.
|
A floating charge on all its assets, property (current and fixed) and its present and future rights (with the exception of any additional shares of Bezeq which it may acquire) and a first-ranking fixed charge on its share capital, which has not yet been realized and/or which has been exercised and not yet realized, on its goodwill and rights to a tax exemption and/or relief and/or dispensation.
|
||
2.
|
A fixed lien, assignment by way of lien and a floating charge on its rights and assets, as set forth below:
|
||
a.
|
All of its rights in its deposit account with Bank Hapoalim, and all the monies and/or assets deposited and/or located and/or to be deposited in this account and/or credited and/or to be credited thereto, including securities and income and proceeds which it may receive with respect to and in connection with the account, (with the exception of any additional shares of Bezeq which it may acquire).
|
||
b.
|
SP2’s undertakings and limitations under the loan agreement include, among other things: (a) the obligation to provide the lenders with certain financial information; (b) limitations as to the use of amounts which will be received from Bezeq and the ability to withdraw and distribute the proceeds to SP2’s parent company; and (c) an undertaking to object to certain changes in Bezeq’s incorporation documents if the lenders find such changes would prejudice their rights. In certain situations, payments from Bezeq must be used for the early repayment of the loan or may not be withdrawn by SP2 to its parent company.
|
||
As at the date of these financial statements SP2 was in compliance with the covenants of above.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
C.
|
Liens, securities and financial covenants (cont’d) | |||
(2)
|
The Migdal loan to SP1 is secured by a first ranking pledge on SP1’s rights in the bank account (hereinafter - the Pledged Bank Account) into which all payments from SP2 are made, except for certain defined expenses. SP1 undertook to maintain minimum funds of NIS 22.5 (linked to the Israeli CPI) in the Pledged Bank Account. The Migdal facility agreement includes limitations on distributions and payments from the Pledged Bank Account (including conditions as to total debt to EBITDA ratios that relate to SP1).
|
|||
The Migdal loan agreement contains certain undertakings and covenants, including, among other things: (i) certain undertakings for SP1 and its direct and indirect controlling shareholders to maintain (indirect) control in Bezeq, (ii) limitations on amendments to the SP2 loan described above; and (iii) an undertaking to comply with the terms of the regulatory approvals granted with respect to purchase of control in Bezeq.
|
||||
As at the date of these financial statements SP
1
was in compliance with the covenants of above.
|
||||
(3)
|
The Company’s Series A debentures have the following terms:
|
|||
-
|
The Company is entitled to issue additional Series A debentures and to issue additional series on the same terms, providing that such issuance does not cause the credit rating of the outstanding debentures to decrease below the rating prior to the issuance.
|
|||
-
|
The Company is prohibited from creating any liens on its assets without the prior approval of the general meeting of the debenture holders.
|
|||
-
|
The Company may not repay all or any portion of its shareholders’ loans so long as the ratio of net debt (without the shareholders’ loans) to EBITDA (defined as operating income before financial expenses, taxes on income, depreciation and amortization) is greater than two for the prior four quarters.
|
|||
-
|
The Company is entitled to make an early redemption of the debentures, in whole or in part, in the last two weeks of each quarter. The amount payable will be the greater of: the principal plus accrued interest and linkage differences as at that date; or the present value of future cash flows as at that date based on a yield of Israeli Government Bonds + 0.3%.
|
|||
-
|
The debenture holders are entitled to demand the immediate redemption of the debentures under the following circumstances:
|
|||
a.
|
The winding-up, dissolution or liquidation of the Company.
|
|||
b.
|
Non-payment by the Company of the amounts required according to the terms of the debentures.
|
|||
c.
|
A foreclosure is imposed on the Company’s principal assets.
|
|||
d.
|
The breach of a material provision of the debentures.
|
|||
As at the date of these financial statements the Company was in compliance with the financial covenants of Series A debentures.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
C.
|
Liens, securities and financial covenants (cont’d) | ||
(4)
|
According to the financial covenants of the Series B debentures the Company is obligated to the following: | ||
1.
|
Not to issue any additional Series B debentures if such increase will decrease the A2 rating of the Series B debentures.
|
||
2.
|
To maintain the control of Bezeq.
|
||
3.
|
The investors will have the right to require the immediate repayment of the Series B debentures if Eurocom will no longer hold the controlling interest in the Company.
|
||
As at the date of these financial statements the Company was in compliance with the financial covenants of Series B debentures.
|
|||
(5)
|
The private debentures of Bezeq, whose carrying amount at December 31, 2010 was NIS 102, are secured by a token charge (whereby an insignificant amount is secured). In addition, Bezeq created a negative pledge in favor of the debenture holders and in favor of a bank, which include exceptions, among other things, for the matter of a lien on assets that are purchased or expanded by Bezeq, if the undertakings for which the charge serves as security is created for the purchase or expansion of those assets and as a token charge.
|
||
The lenders have a right to call for immediate payment of the debentures in the event Bezeq does not repay the debentures or breaches their terms, if a significant attachment is imposed on its assets, if a receiver is appointed for Bezeq’s assets or a liquidation order is given against Bezeq, if Bezeq ceases to run its business, or if the holder of another charge realizes the charge it has on the assets of Bezeq.
|
|||
In addition, some of the lenders, with a debenture balance of NIS 77 as at December 31, 2010, may call for immediate payment of the debentures after the State of Israel’s holdings in Bezeq’s equity fall below 26% (a condition which has existed since October 11, 2005). For this reason, the balance in the financial statements is stated under short-term liabilities.
|
|||
In Bezeq’s opinion, at the reporting date, it is in compliance with all the aforementioned terms, except for the term of the decrease of the State of Israel’s holdings in Bezeq.
|
|||
(6)
|
Bezeq provided a negative pledge in favor of the creditors for a bank debt of NIS 2.6 billion, as set out in section B(1) above.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
C.
|
Liens, securities and financial covenants (cont’d)
|
|||
(7)
|
a.
|
At December 31, 2010, Pelephone had NIS 775 of bank loans and debentures outstanding, which are secured by an irrevocable undertaking by Pelephone to the credit providers not to encumber its assets without their consent (a negative pledge). | ||
|
The undertaking includes:
|
|||
(1)
|
A declaration that Pelephone will not encumber its assets, in whole or in part, in any manner including by means of a floating lien or a fixed lien of any type or rank, in favor of any third party, without the prior written consent of the credit providers.
|
|||
(2)
|
Compliance with the following financial covenants:
|
|||
a.
|
An undertaking that Pelephone’s debt will not exceed three times its equity and an undertaking that as long as that ratio exceeds 2.5, dividends will not be distributed and management fees will not be paid to its shareholders.
|
|||
b.
|
Pelephone undertook that its debts will not exceed NIS 3.8 billion (linked to the Israeli CPI known in January 2002).
|
|||
c.
|
An undertaking towards a certain bank that its total indebtedness to it will not exceed 40% of its total indebtedness to financial entities.
|
|||
At the date of the financial statements, Pelephone is in compliance with the financial covenants and with its undertakings to the banks and the debenture holders. Non-compliance with these undertakings would allow the banks and the debenture holders to call for immediate repayment of the loans and debentures.
|
||||
b.
|
Under its general license for cellular services, Pelephone is not permitted to sell, lease or pledge any of its assets used for the implementation of the license, without the consent of the Minister of Communications, except for:
|
|||
(1)
|
A pledge on one of the license assets in favor of a bank operating lawfully in Israel, for receipt of bank credit, provided that it submits notice to the Ministry of Communications regarding the pledge it intends to register, noting that the pledge agreement includes a clause ensuring that in any event, exercise of the rights by the bank will not impair in any way the provision of the services pursuant to the license.
|
|||
(2)
|
Sale of items of equipment when implementing an upgrade, including sale of equipment by the trade-in method.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
C.
|
Liens, securities and financial covenants (cont’d)
|
||
(8)
|
According to the agreement between Walla and its subsidiary in respect to a loan taken by Walla from its subsidiary, amounting to NIS 70 at December 31, 2010, Walla undertook to meet the following financial covenants:
|
||
a.
|
Walla’s equity will not fall below NIS 70 at any time.
|
||
b.
|
The ratio between Walla’s equity and its statement of financial position will not fall below 25% at any time.
|
||
c.
|
The ratio between Walla’s available cash and its current maturities will not fall below 1.2.
|
||
d.
|
The ratio between Walla’s financial debt and its available cash will not exceed 4.
|
||
At December 31, 2010, Walla is in compliance with these financial covenants.
|
December 31
|
Convenience translation into
U.S. dollars (Note 2D) |
|||||||||||
2009
|
2010
|
2010
|
||||||||||
NIS
|
NIS
|
US$
|
||||||||||
Trade payables (open accounts) (1)
|
165 | 1,061 | 299 | |||||||||
Trade payables consisting of related and interested parties
|
– | 46 | 13 | |||||||||
Other payables
|
||||||||||||
Liabilities to employees and other liabilities for salaries
|
18 | 348 | 98 | |||||||||
Institutions
|
3 | 183 | 51 | |||||||||
Expenses due
|
39 | 113 | 32 | |||||||||
Accrued interest
|
15 | 132 | 37 | |||||||||
Derivatives
|
– | 10 | 3 | |||||||||
Related and interested parties
|
3 | 6 | 1 | |||||||||
Other payables
|
12 | 24 | 7 | |||||||||
Total other payables (1)
|
90 | 816 | 229 |
(1)
|
Total trade and other payables as at December 31, 2009 presented under liabilities classified as held-for-sale, except for NIS 21 other payables presented under short-term other payables.
|
|
The Company’s exposure to interest rate and currency risks and a sensitivity analysis for financial assets and liabilities are disclosed in Note 19 on financial instruments.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
Employee claims
|
Customer claims
|
Supplier and Communication Provider claims
|
Punitive claims
|
Enterprise and company claims
|
State and Authorities claims
|
Dismantling and clearing of sites
|
Liability, onerous contracts and others
|
Total
|
Convenience translation into U.S. Dollars
(Note 2D) |
|||||||||||||||||||||||||||||||
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
US$
|
|||||||||||||||||||||||||||||||
Balance as at January 1, 2010
|
– | – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||||
Addition in respect of the Bezeq acquisition
|
138 | 44 | 11 | 2 | 9 | 227 | 60 | 30 | 521 | 147 | ||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||
Provisions created in the period
|
2 | 11 | 1 | – | 1 | 16 | 8 | 4 | 43 | 12 | ||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||
Provisions used in the period
|
– | 1 | – | – | – | (153 | ) | – | (2 | ) | (154 | ) | (43 | ) | ||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||
Provisions cancelled in the period
|
(44 | ) | – | (7 | ) | – | – | (25 | ) | (4 | ) | (10 | ) | (90 | ) | (25 | ) | |||||||||||||||||||||||
Balance as at December 31, 2010
|
96 | 56 | 5 | 2 | 10 | 65 | 64 | 22 | 320 | 91 | ||||||||||||||||||||||||||||||
Current
|
96 | 56 | 5 | 2 | 10 | 65 | – | 17 | 251 | 71 | ||||||||||||||||||||||||||||||
Non-current
|
– | – | – | – | – | – | 64 | 5 | 69 | 20 |
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
A.
|
General
|
|
The Group is exposed to the following risks, arising from the use of financial instruments:
|
||
-
|
Credit risk
|
|
-
|
Liquidity risk
|
|
-
|
Market risk (which includes currency, interest, inflation and other price risks)
|
|
This Note provides information about the Group’s exposure to each of the above risks, an explanation as to how the risks are managed, and the measurement processes. Other quantitative disclosure is included in the other Notes to the financial statements.
|
||
B.
|
Framework for risk management
|
|
The Company’s Board of Directors has overall responsibility for the Company’s, SP1’s and SP2’s risk management. Bezeq’s Board of Directors has responsibility for the Bezeq Group risk management. The purpose of risk management in the Group is to define and monitor those risks constantly, and to minimize their possible effects arising from the exposure on the basis of assessments and expectations for parameters that affect the risks. The Company’s policy is to hedge, in part and where required, exposure from fluctuations in the Israeli CPI rates. Bezeq’s policy is to hedge, in part and where required, exposure from fluctuations in foreign exchange rates, copper prices, the Israeli CPI and interest rates.
|
||
C.
|
Credit risk
|
|
Credit risk is the risk of financial loss to the Group if a customer or the other party to a financial instrument fails to meet its contractual obligations, and it is derived mainly from debit balances of customers and other receivables and from investments in deposits and in securities.
|
||
Management monitors the Group’s exposure to credit risks on a regular basis. Cash and investments in deposits and securities are deposited in highly-rated banks. Credit assessments are made by Bezeq’s management on material customer balances.
|
||
Trade and other receivables
|
||
Bezeq’s management regularly monitors customer debts, and the financial statements include provisions for doubtful debts which properly reflect, in the management’s estimation, the loss inherent in doubtful debts. In addition, the balances of the trade receivables are widely spread.
|
||
Investments
|
||
The Company’s securities consist of Israeli government’s bonds, corporate debts securities and equity investments (stocks). The Company’s investment policy, approved by an Investment Committee, that was established by the Company’s Board of Directors, limits the amount the Company may invest in any one type of investment or issuer, thereby reducing credit risk concentrations. In addition, according to the Company’s investment policy, the percentage of equity investments on non-rated bonds will be limited to 15% of the Company’s portfolio.
|
||
According to the terms of the agreement between SP1 and Migdal (see Note 15C (2), SP1’s free cash can be deposited only in (a) an interest-bearing deposit and/or (b) a government bond investment and/or (c) a Treasury Bill (Makam) and/or (d) bonds assigned a rating of at least AA, issued by an Israeli bank in Israel and/or an Israeli insurer company.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
C.
|
Credit risk (cont’d)
|
|
Investments (cont’d)
|
||
According to the terms of the agreement between SP2 and certain banking and financial institutions led by Bank Hapoalim (see Note 15C(1)), SP2’s available cash can be deposited only in (1) deposits in banks and financial institutions lawfully authorized to engage in financial activity; and (2) a securities portfolio, comprised of solely Treasury Bills (Makam) and Israeli Government bonds.
|
||
Any investments by Bezeq in securities are made in Government securities and in investment-grade companies, which are liquid and marketable. Transactions involving derivatives are made with entities that have high credit ratings.
|
||
Guarantee
s
|
||
Bezeq’s policy is to provide tender, performance and legal guarantees. In addition, Bezeq provides bank guarantees, where necessary, for banking obligations of subsidiaries. At December 31, 2010, Bezeq has the guarantees described in Note 24.
|
||
At the reporting date, there is no material concentration of credit risks. The maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivatives, in the statement of financial position.
|
||
D.
|
Liquidity risk
|
|
Liquidity risk is the risk that the Group will be unable to honor its financial obligations on time. The Group’s policy for liquidity management is to ensure, as far as possible, that it will always have sufficient liquidity to honor those liabilities on time, without incurring undesirable losses. In addition, for debentures issued by the Company, see Note 15B(1) and for debentures issued by a subsidiaries, see Note 15B(2) and Note 15B(3).
|
||
E.
|
Market risks
|
|
Market risk is the risk that changes in market prices, such as foreign currency exchange rates, interest rates and the prices of securities, raw materials and other items, will influence the Group’s results or the value of its holdings in financial instruments. The purpose of market risk management is to manage and oversee the exposure to market risks within accepted parameters to prevent significant exposures to market risks that will influence the Group’s results, liabilities and cash flow in the short term (up to one year).
|
||
During the normal course of its business, Bezeq takes full or partial hedging action. The Group takes into account the effects of the exposure in its considerations for determining the type of loans it takes and in managing its investment portfolio.
|
||
Israeli CPI risk
|
||
Changes in the rate of Israeli inflation affect the Group’s profitability and its future cash flows, mainly due to its Israeli CPI-linked liabilities. The Group has surplus liabilities over assets linked to the Israeli CPI. In applying a policy of minimizing the exposure the Company has invested in bonds that are linked to the Israeli CPI in order to partially hedge the exposure to changes in the Israeli CPI. In addition, Bezeq makes forward transactions against the Israeli CPI. The duration of the forward transactions is the same as or shorter than the duration of the hedged exposures.
|
||
A considerable part of Bezeq’s cash balances is invested in deposits which are exposed to changes in their real value as a result of a change in the rate of the Israeli CPI.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
E.
|
Market risks (cont’d)
|
|
Foreign currency risk
|
||
Bezeq is exposed to foreign currency risks mainly due to dollar-linked and euro-linked payments for purchases of terminal equipment and property, plant and equipment. In addition, it provides services for customers and receives services from suppliers worldwide for which it is paid and it pays in foreign currency, mainly the dollar. Bezeq has surplus liabilities over assets in foreign currency. In applying a policy of minimizing the exposure, Bezeq makes forward transactions and purchases options against the dollar. The duration of the hedging transactions is the same as or shorter than the duration of the hedged exposures.
|
||
Interest risks
|
||
The Group is exposed to changes in the fair value of its liabilities as a result of borrowings at fixed rate. The Group is also exposed to changes in the Israeli interest rate as a result of borrowings at variable interest.
|
A.
|
Credit risk
|
|
The carrying amount of the financial assets represents the maximum credit exposure. Maximum exposure to credit loss at the reporting date:
|
December 31
|
||||||||
2009
|
2010
|
|||||||
NIS
|
NIS
|
|||||||
Cash and cash equivalents
|
940 | 383 | ||||||
Financial assets held for trading
|
80 | 597 | ||||||
Available-for-sale financial assets
|
19 | 205 | ||||||
Trade and other receivables
|
4 | 3,924 | ||||||
Bank deposit for providing loans to employees
|
– | 83 | ||||||
Assets and other investments
|
– | 7 | ||||||
Derivatives
|
3 | 15 | ||||||
1,046 | 5,214 |
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
B.
|
Impairment losses
|
|
The aging of financial assets at the reporting date was as follow:
|
December 31, 2010
|
||||||||
Gross
|
Impairment
|
|||||||
NIS
|
NIS
|
|||||||
Not past due
|
4,902 | (3 | ) | |||||
Past due up to one year
|
221 | (7 | ) | |||||
Past due one to two years
|
65 | (11 | ) | |||||
Past due more than two years
|
70 | (23 | ) | |||||
5,258 | (44 | ) |
C.
|
Liquidity risk
|
|
Below are the contractual repayment dates of financial liabilities, including estimated interest payments:
|
December 31, 2009
|
||||||||||||||||||||||||
Carrying amount
|
Contractual cash flow
|
6 months or less
|
1-3 years
|
3-5 years
|
More than 5 years
|
|||||||||||||||||||
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
|||||||||||||||||||
Non-derivative financial liabilities
|
||||||||||||||||||||||||
Short term bank credit
|
448 | 448 | 448 | – | – | – | ||||||||||||||||||
Loans from the parent company
|
326 | 332 | 332 | – | – | – | ||||||||||||||||||
Other payables
|
21 | 21 | 21 | – | – | – | ||||||||||||||||||
Debentures
|
399 | 460 | 61 | 144 | 133 | 122 | ||||||||||||||||||
Total
|
1,194 | 1,261 | 862 | 144 | 133 | 122 |
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
C.
|
Liquidity risk (cont’d)
|
December 31, 2010
|
||||||||||||||||||||||||||||
Carrying amount
|
Contractual cash flow
|
6 months or less
|
6-12 months
|
1-2 years
|
3-5 years
|
More than 5 years
|
||||||||||||||||||||||
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
||||||||||||||||||||||
Non-derivative financial liabilities
|
||||||||||||||||||||||||||||
Trade payables
|
1,061 | 1,061 | 1,061 | – | – | – | – | |||||||||||||||||||||
Other payables
|
806 | 806 | 794 | 12 | – | – | – | |||||||||||||||||||||
Bank loans
|
6,478 | 7,851 | 286 | 312 | 765 | 3,136 | 3,352 | |||||||||||||||||||||
Loans from institutions and others
|
551 | 769 | 19 | 23 | 46 | 119 | 562 | |||||||||||||||||||||
Debentures
|
3,806 | 4,113 | 927 | 92 | 621 | 1,653 | 820 | |||||||||||||||||||||
Other liabilities
|
107 | 125 | – | – | 25 | 75 | 25 | |||||||||||||||||||||
Total
|
12,809 | 14,725 | 3,087 | 439 | 1,457 | 4,983 | 4,759 | |||||||||||||||||||||
Financial liabilities-
derivatives
|
||||||||||||||||||||||||||||
Forward contracts on copper
prices
|
10 | 10 | 10 | – | – | – | – |
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
D.
|
Linkage and foreign currency risks
|
|
(1)
|
The exposure to linkage and foreign currency risk
|
|
The Company’s exposure to linkage and foreign currency risk was as follows based on notional amounts:
|
December 31, 2009
|
||||||||||||||||
Unlinked
|
Israeli
CPI-linked
|
Foreign currency linked
(mainly U.S. dollars)
|
Total
|
|||||||||||||
NIS
|
NIS
|
NIS
|
NIS
|
|||||||||||||
Cash and cash equivalents
|
936 | – | 4 | 940 | ||||||||||||
Investments, including derivatives
|
– | 99 | – | 99 | ||||||||||||
Other receivables
|
8 | – | – | 8 | ||||||||||||
Assets classified as held-for-sale
|
198 | – | 26 | 224 | ||||||||||||
Total assets
|
1,142 | 99 | 30 | 1,271 | ||||||||||||
Loans and borrowings
|
448 | 72 | – | 520 | ||||||||||||
Loans from parent company
|
326 | – | – | 326 | ||||||||||||
Other payables, including derivatives
|
6 | – | – | 6 | ||||||||||||
Liabilities classified as held-for-sale
|
128 | – | 83 | 211 | ||||||||||||
Debentures
|
– | 342 | – | 342 | ||||||||||||
Total liabilities
|
908 | 414 | 83 | 1,405 | ||||||||||||
Total exposure in the
statement of financial position
|
234 | (315 | ) | (53 | ) | (134 | ) |
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
D.
|
Linkage and foreign currency risks (cont’d)
|
|
(1)
|
The exposure to linkage and foreign currency risk (cont’d)
|
December 31, 2010
|
||||||||||||||||
Unlinked
|
Israeli
CPI-linked |
Foreign currency linked (mainly U.S. dollars)
|
Total
|
|||||||||||||
NIS
|
NIS
|
NIS
|
NIS
|
|||||||||||||
Current assets
|
||||||||||||||||
Cash and cash equivalents
|
356 | – | 27 | 383 | ||||||||||||
Trade receivables
|
2,629 | 34 | 38 | 2,701 | ||||||||||||
Other receivables
|
51 | 53 | – | 104 | ||||||||||||
Other investments, including derivatives
|
608 | 175 | 6 | 789 | ||||||||||||
Current tax assets
|
3 | – | – | 3 | ||||||||||||
Total current assets
|
3,647 | 262 | 71 | 3,980 | ||||||||||||
Non-current assets
|
||||||||||||||||
Long-term trade and other
receivables
|
949 | 161 | 4 | 1,114 | ||||||||||||
Investments and long-term
loans, including derivatives
|
87 | 10 | 30 | 127 | ||||||||||||
Equity-accounted investment
|
– | 1,351 | – | 1,351 | ||||||||||||
Total non-current assets
|
1,036 | 1,522 | 34 | 2,592 | ||||||||||||
Total assets
|
4,683 | 1,784 | 105 | 6,572 | ||||||||||||
Current liabilities
|
||||||||||||||||
Loans and borrowings
|
164 | 1,206 | 10 | 1,380 | ||||||||||||
Trade payables
|
887 | – | 174 | 1,061 | ||||||||||||
Other payables including derivatives
|
700 | 106 | 10 | 816 | ||||||||||||
Current tax liabilities
|
– | 346 | – | 346 | ||||||||||||
Deferred income
|
4 | – | – | 4 | ||||||||||||
Provisions
|
31 | 216 | – | 247 | ||||||||||||
Total current liabilities
|
1,786 | 1,874 | 194 | 3,854 | ||||||||||||
Non-current liabilities
|
||||||||||||||||
Debentures
|
395 | 2,381 | – | 2,776 | ||||||||||||
Bank loans
|
4,900 | 1,238 | – | 6,138 | ||||||||||||
Loans from institutions and others
|
– | 517 | 24 | 541 | ||||||||||||
Provisions and other liabilities
|
103 | 107 | 1 | 211 | ||||||||||||
Total non-current liabilities
|
5,398 | 4,243 | 25 | 9,666 | ||||||||||||
Total liabilities
|
7,184 | 6,117 | 219 | 13,520 | ||||||||||||
Total exposure in the statement of financial position
|
(2,501 | ) | (4,333 | ) | (114 | ) | (6,948 | ) | ||||||||
Currency futures transactions
|
||||||||||||||||
Israeli CPI forward transactions
|
(390 | ) | 390 | – | – |
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
D. | Linkage and foreign currency risks (cont’d) | |
(1)
|
The exposure to linkage and foreign currency risk (cont’d)
|
|
The Group has CPI forward transactions for the Israeli CPI:
|
December 31, 2010
|
|||||||||||||
Currency/ linkage
receivable
|
Currency/ linkage
payable
|
Expiry date
|
Par value
(currency)
|
Fair value
|
|||||||||
NIS
|
|||||||||||||
Instruments not used for
hedging:
|
|
||||||||||||
Israeli CPI forward contract
|
Israeli CPI
|
Israeli CPI
|
2011-2012 | 390 | 12 |
Information regarding the Israeli CPI and significant exchange rates:
|
Year ended December 31
|
December 31
|
|||||||||||||||||||||||
2008
|
2009
|
2010
|
2008
|
2009
|
2010
|
|||||||||||||||||||
Rate of change
|
Reporting date spot rate
|
|||||||||||||||||||||||
%
|
%
|
%
|
NIS
|
NIS
|
NIS
|
|||||||||||||||||||
1 US dollar
|
(1.14 | ) | (0.71 | ) | (5.99 | ) | 3.802 | 3.775 | 3.549 | |||||||||||||||
1 euro
|
(6.39 | ) | 2.73 | (12.94 | ) | 5.297 | 5.442 | 4.738 | ||||||||||||||||
Israeli CPI in points
|
3.80 | 3.92 | 2.66 | 125.50 | 130.42 | 133.89 |
A change of the CPI as at December 31, 2010 and 2009 would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2009.
|
Equity
|
Net income
|
|||||||||||
Change
|
NIS
|
NIS
|
||||||||||
December 31, 2010
|
||||||||||||
Increase in the CPI of
|
2.0 | % | (60 | ) | (60 | ) | ||||||
Increase in the CPI of
|
1.0 | % | (30 | ) | (30 | ) | ||||||
Decrease in the CPI of
|
(1.0 | )% | 30 | 30 | ||||||||
Decrease in the CPI of
|
(2.0 | )% | 60 | 60 | ||||||||
December 31, 2009
|
||||||||||||
Increase in the CPI of
|
2.0 | % | (4 | ) | (4 | ) | ||||||
Increase in the CPI of
|
1.0 | % | (2 | ) | (2 | ) | ||||||
Decrease in the CPI of
|
(1.0 | )% | 2 | 2 | ||||||||
Decrease in the CPI of
|
(2.0 | )% | 4 | 4 |
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
E.
|
Interest rate risk
|
|
1.
|
Profile
|
|
At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:
|
December 31
|
||||||||
2009
|
2010
|
|||||||
NIS
|
NIS
|
|||||||
Fixed rate instruments
|
||||||||
Financial assets
|
1,018 | 3,359 | ||||||
Financial liabilities
|
(1,074 | ) | (7,079 | ) | ||||
(56 | ) | (3,720 | ) | |||||
Variable rate instruments
|
||||||||
Financial assets
|
14 | 4 | ||||||
Financial liabilities
|
(114 | ) | (3,756 | ) | ||||
(100 | ) | (3,752 | ) |
2.
|
Fair value sensitivity analysis for fixed rate financial liabilities and derivatives
|
|
The Group does not account for any fixed rate financial liabilities at fair value through profit or loss, and the Group does not designate derivatives (interest swap contracts) as hedging instruments under a fair value hedge accounting model. Therefore a change in interest rates at the reporting date would not affect profit or loss.
|
||
3.
|
Sensitivity analysis of cash flow for instruments at variable interest
|
|
An increase of 100 basis points in the interest rates at the reporting date would have decreased shareholders’ equity and profit or loss by NIS 28.14 (2009: NIS 1).
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
F.
|
Fair value
|
|
(1)
|
Fair values versus carrying amounts
|
|
The table below shows the difference between the carrying amount and the fair value of groups of financial instruments. The carrying amount of other financial instruments does not differ significantly from their fair value.
|
December 31, 2009
|
December 31, 2010
|
|||||||||||||||
Carrying
|
Carrying
|
|||||||||||||||
amount
|
Fair value
|
amount
|
Fair value
|
|||||||||||||
NIS
|
NIS
|
NIS
|
NIS
|
|||||||||||||
Short-term credit
|
– | – | 11 | 11 | ||||||||||||
Secured loans from banks and others
|
||||||||||||||||
Israeli CPI-linked
|
– | – | 1,422 | 1,434 | ||||||||||||
Unlinked
|
– | – | 5,077 | 5,077 | ||||||||||||
Debentures
|
||||||||||||||||
Israeli CPI-linked
|
414 | 435 | 3,522 | 3,536 | ||||||||||||
Unlinked
|
– | – | 402 | 410 | ||||||||||||
414 | 435 | 10,434 | 10,468 |
The methods used to estimate the fair values of financial instruments are described in Note 4.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
F.
|
Fair value (cont’d)
|
|
(2)
|
Fair value hierarchy
|
|
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
|
||
—
|
Level 1: quoted prices (unadjusted) in active markets for identical instruments
|
|
—
|
Level 2: inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly
|
|
—
|
Level 3: inputs that are not based on observable market data (unobservable inputs)
|
|
As at December 31, 2009, all investments in trading and available-for-sale securities in the amount of NIS 99 are measured at fair value on a recurring basis using Level 1 inputs.
|
December 31, 2010
|
||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
NIS
|
NIS
|
NIS
|
NIS
|
|||||||||||||
Derivatives not used in hedging:
|
||||||||||||||||
CPI forward contract
|
– | 12 | – | 12 | ||||||||||||
Forward contracts on copper
|
– | (10 | ) | – | (10 | ) | ||||||||||
Trading and available-for-sale securities:
|
||||||||||||||||
Unmarketable shares
|
– | – | 29 | 29 | ||||||||||||
Marketable securities
|
782 | – | – | 782 | ||||||||||||
Other liabilities
|
– | (107 | ) | – | (107 | ) | ||||||||||
782 | (105 | ) | 29 | 706 |
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
F.
|
Fair value (cont’d)
|
|
(3)
|
Financial instruments measured at fair value on level 3
|
|
The table below reconciles the opening and closing balances in respect of financial instruments measured at fair value on level 3 in the fair-value hierarchy:
|
Employee benefits include post-employment benefits, other long-term benefits, termination benefits, short-term benefits and share-based payments. For details of share-based payments, see Note 31 below.
|
||
A.
|
Defined contribution plans
|
|
(1)
|
The pension rights of Bezeq employees for the period of their employment in the civil service through January 31, 1985, are covered by a pension fund (“the Makefet Fund”), which assumed the State of Israel’s obligation following an agreement between the Government of Israel, Bezeq, the Histadrut and the Makefet Fund.
|
|
(2)
|
Liabilities for employee benefits at retirement age in respect of the period of their service in Bezeq and its subsidiaries are covered in full by regular payments to pension funds and insurance companies.
|
|
(3)
|
The severance obligation to employees who leave their employment on terms entitling them to compensation is covered, for the period from February 1, 1985, by regular contributions to such pension funds and insurance companies (in accordance with Section 14 of the Severance Pay Law). Severance pay for the period of employment in the civil service through January 31, 1985, is paid by Bezeq, and the monies accumulated in the Makefet Fund for that period are kept in a fund that will be used for the employees’ rights. For some of its employees, Bezeq has an obligation to pay severance in excess of the amount accumulated in the compensation fund which is in the employees’ names. See section B(1) below.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
B.
|
Defined benefit plans
|
|
(1)
|
The severance obligation included in the statement of financial position represents the balance of the obligation not covered by contributions and/or insurance policies in accordance with the existing labor agreements, the Severance Pay Law, and the salary components which the managements of the companies believe entitle the employees to receive compensation. For this part of the obligation, there are deposits in the name of Group companies in a recognized compensation fund. The reserves in compensation funds include accrued linkage differentials and interest deposited in compensation funds, in banks and in insurance companies. Withdrawal of the reserve monies is contingent upon fulfillment of the provisions in the Severance Pay Law.
|
|
(2)
|
The collective agreement of December 2006 (see section D below), provides, among others, that employees who transferred from the civil service to Bezeq and are due to end their employment due to retirement after December 31, 2016, are entitled to a supplement to close the gap between the Civil Service Law and the regulations governing the Makefet Fund. The financial statements of the Company include the obligation for this benefit.
|
|
(3)
|
According to some of the personal employment agreements, a number of senior employees are entitled to early retirement terms (pension and retirement grants) which are not dependent on the existing retirement agreements for all employees. Accordingly, a liability is included in the financial statements.
|
|
(4)
|
Benefits for notice are paid upon severance. Accordingly, a liability is included in the financial statements in accordance with an employment agreement and an actuarial calculation.
|
|
(5)
|
Bezeq retirees receive, in addition to the pension payments, benefits which consist mainly of a holiday gift (linked to the dollar exchange rate), financing the upkeep of retiree clubs, and social activities. Bezeq’s liability for these costs accumulates during the employment period. The Company’s financial statements include the expected costs in the post- employment period, based on an actuarial calculation.
|
|
C.
|
Other long-term employee benefits
|
|
The financial statements include a provision in respect of redemption and use of sick leave. The right to accumulate sick leave was taken into account for all employees in the Group. Only employees eligible under the terms of the employment agreement may redeem sick leave. The provision was computed on the basis of an actuarial calculation, including the assumption of positive accumulation of days by most of the employees and use of days by the last in first out (LIFO) method.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
D.
|
Benefits for early retirement and dismissal
|
|
Bezeq has a number of collective agreements that include terms for early retirement. Below are details of the most recent agreement that was signed in December 2006 and an amendment to the agreement signed in December 2010:
|
||
(1)
|
The collective agreement of December 2006, between Bezeq and the union and the New Histadrut, regulates the labor relations in Bezeq following the transfer of control in Bezeq from the State of Israel, and delineates a new organizational structure for Bezeq. The amendment to the agreement of December 2010 regulates the labor relations in Bezeq following transfer of control in Bezeq to the Company. The agreement stipulates, among other things, that all the agreements, arrangements and procedures existing in Bezeq prior to signing the agreement will continue to apply only to the permanent long-standing employees in Bezeq.
|
|
(2)
|
Bezeq may, at its discretion, terminate the employment of 245 permanent employees in one or more of the years 2010-2016. The retirement terms that will be offered to the retirees will be largely the same as the retirement terms prevailing in Bezeq up to that date. The term of the agreement (after the amendment made in 2010) is from the date the agreement is signed through December 31, 2015. Bezeq has an option to extend it for another two years, through December 31, 2017. The term of the retirement section in the agreement will be through December 31, 2016.
|
|
On January 24, 2011, the Board of Directors of Bezeq approved a plan for early retirement of 260 employees at a cost of no more than NIS 281.5. This expense will be recognized in the financial statements in 2011.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
E.
|
Liabilities for employee benefits
|
December 31
|
Convenience translation into U.S. dollars
(Note 2D) |
|||||||||||
2009
|
2010
|
2010
|
||||||||||
NIS
|
NIS
|
US$
|
||||||||||
Unfunded obligations (1)
|
(* | ) | 225 | 63 | ||||||||
Funded obligations (2)
|
7 | 213 | 60 | |||||||||
Total present value of obligations
|
7 | 438 | 123 | |||||||||
Fair value of plan assets
|
(20 | ) | (152 | ) | (42 | ) | ||||||
Obligation for defined benefit plans (post-employment plans)
|
(13 | ) | 286 | 81 | ||||||||
Obligation for a special bonus
|
– | 26 | 7 | |||||||||
Obligation for holiday pay
|
– | 89 | 25 | |||||||||
Obligation for sick leave
|
– | 126 | 36 | |||||||||
Obligation for voluntary early retirement
|
– | 47 | 13 | |||||||||
Total employee benefits (3)
|
(13 | ) | 574 | 162 | ||||||||
Stated in the statement of financial position as:
|
||||||||||||
Short term (3)
|
(13 | ) | 269 | 76 | ||||||||
Long term
|
– | 305 | 86 | |||||||||
(13 | ) | 574 | 162 |
(1)
|
Unfunded obligations are those obligations for which the Company did not fund a reserve to finance its liabilities and they include a provision for notice, an obligation to the Company’s pensioners, an obligation for early retirement of senior employees in the Company and an obligation for employees transferred from the civil service.
|
|
(2)
|
Obligations for which the Group companies funded a reserve to finance its obligations (severance obligation)
|
|
(3)
|
Total employee benefits as at December 31, 2009, presented under assets classified as held-for-sale.
|
|
*
|
Represent an amount less than NIS 1.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
E.
|
Liabilities for employee benefits (cont’d)
|
Convenience
translation into
U.S. dollars
(Note 2D)
|
||||||||||||||
2009
|
2010
|
2010
|
||||||||||||
NIS
|
NIS
|
US$
|
||||||||||||
1. |
Change in an obligation in respect of defined benefit plans
|
|||||||||||||
Obligation in respect of a defined benefit plan as at January 1
|
6 | 7 | 2 | |||||||||||
Deduction with respect to the sale of the Company’s legacy communication business
|
– | (7 | ) | (2 | ) | |||||||||
Benefits paid according to the plans
|
(4 | ) | (30 | ) | (9 | ) | ||||||||
Costs of current service, interest and exchange rate differences (see section 3 below)
|
2 | 28 | 8 | |||||||||||
Retirement and curtailment of benefits (see section 3 below)
|
– | (8 | ) | (2 | ) | |||||||||
Actuarial losses (gains) charged to equity (see section 5 below)
|
3 | (17 | ) | (5 | ) | |||||||||
Additions with respect to the acquisition of Bezeq
|
– | 456 | 128 | |||||||||||
Addition with respect to other business combination
|
– | 9 | 3 | |||||||||||
Defined benefit obligation as at December 31
|
7 | 438 | 123 | |||||||||||
2. |
Change in plan assets and cost of past service
|
|||||||||||||
Fair value as at January 1
|
16 | 20 | 6 | |||||||||||
Deduction with respect to the sale of the Company’s legacy communication business
|
– | (20 | ) | (6 | ) | |||||||||
Deposits
|
4 | 9 | 3 | |||||||||||
Withdrawals
|
(2 | ) | (9 | ) | (3 | ) | ||||||||
Expected proceeds from plan assets (see section 3 below)
|
(* | ) | 4 | 1 | ||||||||||
Actuarial gains (losses) charged to equity (see section 5 below)
|
2 | (2 | ) | (** | ) | |||||||||
Amortization of past service cost, see section 3 below
|
– | (6 | ) | (2 | ) | |||||||||
Retirement
|
– | 1 | (** | ) | ||||||||||
Additions with respect to the acquisition of Bezeq
|
– | 148 | 41 | |||||||||||
Addition with respect to other business combination
|
– | 7 | 2 | |||||||||||
Fair value of plan assets as at December 31
|
20 | 152 | 42 |
* Represent an amount less than NIS 1.
|
|
** Represent an amount less than US$ 1. |
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
E.
|
Liabilities for employee benefits (cont’d)
|
Convenience
|
||||||||||||||||||
translation into
|
||||||||||||||||||
U.S. dollars
|
||||||||||||||||||
Year ended December 31
|
(Note 2D)
|
|||||||||||||||||
2008
|
2009
|
2010
|
2010
|
|||||||||||||||
NIS
|
NIS
|
NIS
|
US$
|
|||||||||||||||
3. |
Expense recognized in the statement of income
|
|||||||||||||||||
Cost of current service
|
2 | 2 | 12 | 3 | ||||||||||||||
Interest cost
|
(* | ) | (* | ) | 20 | 6 | ||||||||||||
Other
|
1 | – | (11 | ) | (3 | ) | ||||||||||||
3 | 2 | 21 | 6 | |||||||||||||||
The expense is included in the following items in the statement of income:
|
||||||||||||||||||
Salary expenses
|
3 | 2 | 10 | 3 | ||||||||||||||
Financing expenses
|
(* | ) | (* | ) | 11 | 3 | ||||||||||||
3 | 2 | 21 | 6 | |||||||||||||||
4. |
Actual return on plan
assets
|
(1 | ) | 2 | 3 | 1 | ||||||||||||
5. |
Actuarial losses (gains)
recognized directly in
other comprehensive
income (before tax)
|
|||||||||||||||||
Amount accrued as at
January 1
|
– | 5 | 6 | 1 | ||||||||||||||
Additions
|
– | – | 13 | 4 | ||||||||||||||
Amount recognized in the
period
|
5 | 1 | (15 | ) | (4 | ) | ||||||||||||
Amount accrued as at
December 31
|
5 | 6 | 4 | 1 | ||||||||||||||
6. |
Historical information
|
|||||||||||||||||
Adjustments for liabilities arising from past experience
|
4 | 3 | (17 | ) | (5 | ) | ||||||||||||
Adjustments for assets arising from past experience
|
– | – | (1 | ) | (** | ) |
In 2011, Bezeq expects to pay NIS 18 as a combination to a defined benefit plan.
|
|
* Represent an amount less than NIS 1.
|
|
** Represent an amount less than US$ 1. |
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
F.
|
Actuarial assumptions
|
|
Principal actuarial assumptions for defined benefit plans and for other long-term benefit obligations at the reporting date:
|
||
(1)
|
Mortality rates are based on the rates published in Insurance Circulars 6-3-2007 of the Ministry of Finance, except for early retirement, which was calculated according to the agreement with the insurance company, including future changes in the mortality rate.
|
|
(2)
|
Churn rates were determined on the basis of the past experience of Bezeq and the subsidiaries, distinguishing between different employee populations and taking into account the number of years of employment.
|
|
The main assumptions regarding the churn rate were determined with a distinction made between permanent employees (between 3.5% in the first year to 0.5% over 10 years), personal contract employees (5.5% per year), senior employees (20% per year), and temporary employees (between 34% in the first year and 25% for more than 7 years).
|
||
(3)
|
The real discounted rate is based on yield on government bonds at a fixed interest rate with a life equal to that of the gross liability.
|
December 31, 2010
|
||||
Average capitalization rate
|
||||
%
|
||||
Sick leave
|
1.9 | |||
Compensation
|
2 | |||
Retirement benefit – holiday gift *
|
4.3 | |||
Retirement benefit – clubs and activities
|
2.9 | |||
Early notice to senior employees
|
1.5 |
*
|
At a discount rate based on US corporate debentures.
|
(4)
|
Assumptions regarding salary increases were made on the basis of experience and management’s assessments, distinguishing between groups of employees The main assumptions (in real terms) regarding salary increases are as follows:
|
|
For permanent employees, the average salary increment is 3% for young employees, with a linear decrease to 1.5% per year up to age 60. For employees in a monthly collective agreement, the average salary increment is of 3% per year. For employees in a personal collective hourly employment agreement, the average salary increment is 7% per year. For employees in a personal employment agreement, the average salary increment is between 4% and 0.5%, depending on the age of the employee, and for senior employees, the average salary increment is 6% per year.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
G.
|
Actuarial assumptions (cont’d)
|
|
(5)
|
The forecasted growth rate of the assets accumulated in all Group companies is 2% in real terms for old pension funds in the administration and 5.57% in real terms for old pension funds that are not part of the arrangement. For new, subsidized pension funds, a guarantee of 4.86% is assumed for 30% of the assets. For officers’ insurance where the severance interest is not transferred to compensation and their start date is prior to 1989, guaranteed interest is 4.25% in real terms. The growth rate in other plans is the discount interest.
|
|
(6)
|
An obligation for voluntary early retirement includes an obligation for pension and grants. The obligation for pension is calculated according to the terms of the agreement of December 2006 (see section D above) and in accordance with the agreement with the insurance company. The obligation is affected by changes in the interest rates of debentures until the purchase of the policy and payment to the insurance company.
|
|
H.
|
Other
|
|
According to Bezeq’s collective agreements applicable to labor relations, and in accordance with agreements with the Makefet Fund, an option is reserved for Bezeq employees who are transferred employees, to retire under one of two retirement tracks. The method for calculating the cost of early retirement for the transferred employees was laid down in the provisions of a number of agreements and documents drawn up between Bezeq and the Makefet Fund between 1990 and 1996. Bezeq contends that the Makefet Fund violated the provisions of the agreements, and therefore, in 2003, Bezeq filed a claim against the Makefet Fund at the district labor court in Tel Aviv, in the amount of NIS 280. The Makefet Fund filed defense documents, in which it rejects the allegations of Bezeq and contends that it acted in accordance with the agreements between it and Bezeq. The case is in the evidentiary stage.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
A.
|
Composition of income tax expenses (income)
|
Convenience
|
||||||||||||||||
translation into
|
||||||||||||||||
U.S. dollars
|
||||||||||||||||
Year ended December 31
|
(Note 2D)
|
|||||||||||||||
2008
|
2009
|
2010
|
2010
|
|||||||||||||
NIS
|
NIS
|
NIS
|
US$
|
|||||||||||||
Current tax expenses
|
18 | 31 | 646 | 182 | ||||||||||||
Deferred tax expenses
|
4 | 24 | (261 | ) | (73 | ) | ||||||||||
Income tax expenses
|
22 | 55 | 385 | 109 |
B.
|
Reconciliation between the theoretical tax on the pre-tax income and the tax expense
|
Convenience
|
||||||||||||||||
translation into
|
||||||||||||||||
U.S. dollars
|
||||||||||||||||
Year ended December 31
|
(Note 2D)
|
|||||||||||||||
2008
|
2009
|
2010
|
2010
|
|||||||||||||
NIS
|
NIS
|
NIS
|
US$
|
|||||||||||||
Income before income tax
|
75 | 202 | 708 | 200 | ||||||||||||
Statutory tax rate
|
27 | % | 26 | % | 25 | % | 25 | % | ||||||||
Income tax at the statutory tax rate
|
20 | 53 | 177 | 50 | ||||||||||||
Differences in tax rate
|
1 | (* | ) | (7 | ) | (2 | ) | |||||||||
Expenses not recognized for tax purposes
|
1 | 2 | 51 | 14 | ||||||||||||
Adjusted tax calculated for the
Company’s share in equity- accounted investees
|
– | – | 59 | 17 | ||||||||||||
Utilization of tax losses and benefits from prior years for which deferred taxes were not created
|
– | 3 | – | – | ||||||||||||
Differences between the definition of capital and assets for Israeli tax purposes and other differences
|
(2 | ) | (4 | ) | 46 | 13 | ||||||||||
Current year tax losses and benefits for which deferred taxes were not created
|
2 | 1 | 59 | 17 | ||||||||||||
Taxes in respect of previous years
|
(* | ) | (* | ) | – | – | ||||||||||
Income tax expenses
|
22 | 55 | 385 | 109 |
* Represent an amount less than NIS 1.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
C.
|
Unrecognized deferred tax liabilities
|
|
The calculation of deferred taxes does not take into account the taxes that would be applicable in the case of the sale of investments in subsidiaries and associates, since the Group intends to retain the investments. Deferred taxes in respect of a distribution of profit in subsidiaries and associates were also not taken into account since the dividends are not taxable.
|
||
D.
|
Unrecognized deferred tax assets and carry-forward tax loss
|
|
As at December 31, 2010, the Company has tax loss carry-forwards in the amount of NIS 50 (2009: NIS 26). In addition, the Company’s subsidiaries have tax loss carry-forwards in the amount of NIS 8 (2009: NIS 28) and capital losses carry-forwards in the amount of NIS 57.
|
||
Deferred tax assets relating to carry-forward losses and tax benefits were not recognized because their utilization in the foreseeable future is not probable. The deductible temporary differences and tax losses do not expire under current tax legislation. Deferred tax assets have not been recognized in respect of these items since it is not probable that future taxable profit will be available against which the Group can utilize the benefits.
|
||
As a result, as at December 31, 2010, deferred taxes were not created on carry-forwards losses of the Company in the amount of NIS 41 (2009: NIS 13) and on carry-forwards capital losses of subsidiaries in the amount of NIS 57.
|
||
E.
|
Income tax recognized in equity
|
Year ended December 31
|
Convenience translation into U.S. dollars
(Note 2D) |
|||||||||||||||||||||||||||
2009
|
2010
|
|||||||||||||||||||||||||||
Before tax
|
Tax expenses (benefit)
|
Net of tax
|
Before tax
|
Tax expenses (benefit)
|
Net of tax
|
|||||||||||||||||||||||
NIS
|
US$
|
|||||||||||||||||||||||||||
Available-for-sale
|
(20 | ) | 5 | (15 | ) | 1 | – | 1 | – | |||||||||||||||||||
Defined benefit plan actuarial losses, net
|
1 | * | 1 | (15 | ) | 2 | (13 | ) | (3 | ) | ||||||||||||||||||
Contribution by parent company and ultimate parent company
|
(8 | ) | 2 | (6 | ) | – | – | – | – | |||||||||||||||||||
(27 | ) | 7 | (20 | ) | (14 | ) | 2 | (12 | ) | (3 | ) |
* Represent an amount less than NIS 1.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
F.
|
Recognized deferred tax assets and liabilities
|
|
Deferred tax assets and liabilities are attributable to the following items:
|
Property
|
Carry- | |||||||||||||||||||||||||||
equipment,
|
forward
|
Unrealized
|
||||||||||||||||||||||||||
and
|
Allowance
|
tax losses
|
losses on
|
|||||||||||||||||||||||||
intangible
|
Employee
|
for doubtful
|
and
|
marketable
|
||||||||||||||||||||||||
assets
|
benefits
|
debts
|
deductions
|
securities
|
Other
|
Total
|
||||||||||||||||||||||
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
||||||||||||||||||||||
Balance of deferred tax asset (liability) as at January 1, 2009
|
(25 | ) | (1 | ) | 5 | 13 | 7 | 2 | 1 | |||||||||||||||||||
Recognized in profit or loss
|
(9 | ) | (1 | ) | (* | ) | (10 | ) | (4 | ) | (* | ) | (24 | ) | ||||||||||||||
Recognized in equity
|
– | (* | ) | – | – | (5 | ) | (1 | ) | (6 | ) | |||||||||||||||||
Transfer to assets and liabilities classified as held-for-sale
|
35 | 2 | (6 | ) | – | – | (1 | ) | 30 | |||||||||||||||||||
Balance of deferred tax assets (liability)as at December 31, 2009
|
1 | – | (1 | ) | 3 | (2 | ) | (* | ) | 1 |
* Represent an amount less than NIS 1.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
F.
|
Recognized deferred tax assets and liabilities (cont’d)
|
Property,
|
||||||||||||||||||||||||||||||||||||||||||||
plant
|
Other |
Convenience
|
||||||||||||||||||||||||||||||||||||||||||
equipment,
|
Carry-
|
assets |
translation
|
|||||||||||||||||||||||||||||||||||||||||
and
|
Employee |
forward
|
and
|
into U.S.
|
||||||||||||||||||||||||||||||||||||||||
intangible
|
Doubtful
|
benefits
|
Share-based
|
tax
|
deferred
|
Brand
|
Customers
|
dollars
|
||||||||||||||||||||||||||||||||||||
assets
|
debts
|
plan
|
payments
|
Provisions
|
losses
|
expenses
|
name
|
relationship
|
Total
|
(Note 2D)
|
||||||||||||||||||||||||||||||||||
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
US$
|
||||||||||||||||||||||||||||||||||
Balance of deferred tax asset (liability) as at December 31, 2009
|
– | – | – | – | – | 3 | (2 | ) | – | – | 1 | – | ||||||||||||||||||||||||||||||||
Transfer from assets and liabilities classified as held-for-sale
|
(35 | ) | 6 | (2 | ) | – | – | – | 1 | – | – | (30 | ) | (8 | ) | |||||||||||||||||||||||||||||
Additions in respect of the acquisition of Bezeq
|
(564 | ) | 49 | 319 | 29 | 57 | 2 | (80 | ) | (216 | ) | (1,124 | ) | (1,528 | ) | (431 | ) | |||||||||||||||||||||||||||
Recognized in profit or loss
|
90 | (1 | ) | (49 | ) | (9 | ) | (28 | ) | (3 | ) | 15 | – | 246 | 261 | 74 | ||||||||||||||||||||||||||||
Recognized in equity
|
– | – | (2 | ) | – | – | – | – | – | – | (2 | ) | (1 | ) | ||||||||||||||||||||||||||||||
Balance of deferred tax assets (liability)as at December 31, 2010
|
(509 | ) | 54 | 266 | 20 | 29 | 2 | (66 | ) | (216 | ) | (878 | ) | (1,298 | ) | (366 | ) |
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
F.
|
Recognized tax assets and deferred tax liabilities (cont’d)
|
|
Deferred tax assets and tax liabilities are attributed to the following items:
|
Assets
|
Liabilities |
Net
|
Convenience translation into
U.S. dollars (Note 2D) |
|||||||||||||||||||||||||
2009
|
2010
|
2009
|
2010
|
2009
|
2010
|
2010
|
||||||||||||||||||||||
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
NIS
|
US$
|
||||||||||||||||||||||
Property, plant and equipment
|
– | – | – | (509 | ) | – | (509 | ) | (143 | ) | ||||||||||||||||||
Doubtful debts
|
– | 54 | – | – | – | 54 | 15 | |||||||||||||||||||||
Employee benefit plan
|
– | 266 | – | – | – | 266 | 75 | |||||||||||||||||||||
Share-based payments
|
– | 20 | – | – | – | 20 | 6 | |||||||||||||||||||||
Provisions
|
– | 29 | – | – | – | 29 | 8 | |||||||||||||||||||||
Carry-forward tax losses
|
3 | 2 | – | – | 3 | 2 | – | |||||||||||||||||||||
Other assets and deferred expenses
|
– | – | (2 | ) | (66 | ) | (2 | ) | (66 | ) | (19 | ) | ||||||||||||||||
Trade names and trade marks
|
– | – | – | (216 | ) | – | (216 | ) | (61 | ) | ||||||||||||||||||
Customer relationship
|
– | – | – | (878 | ) | – | (878 | ) | (247 | ) | ||||||||||||||||||
3 | 371 | (2 | ) | (1,669 | ) | 1 | (1,298 | ) | (366 | ) |
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
G.
|
Details regarding the tax environment of the Company
|
|
(1)
|
Amendments to the Income Tax Ordinance and the Land Appreciation Tax Law
|
|
On July 25, 2005, the Israeli Parliament passed the Law for the Amendment of the Income Tax Ordinance (No. 147 and Temporary Order) - 2005. This Amendment provides for a gradual reduction in the company tax rate in the following manner: in 2006 - 31%, in 2007 - 29%, in 2008 - 27%, in 2009 - 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%.
|
||
On July 14, 2009, the Knesset passed the Economic Efficiency Law (Legislation Amendments for Implementation of the 2009 and 2010 Economic Plan) - 2009, which provided, among other things, an additional gradual reduction in the Company tax rate to 18% as from 2016 tax year. In accordance with the aforementioned amendments, the Company tax rates applicable as from the 2009 tax year are as follows: In the 2009 tax year - 26%, in the 2010 tax year - 25%, in the 2011 tax year - 24%, in the 2012 tax year - 23%, in the 2013 tax year - 22%, in the 2014 tax year - 21%, in the 2015 tax year - 20% and as from the 2016 tax year the Company tax rate will be 18%.
|
||
Current and deferred tax balances for the periods reported in these financial statements are calculated in accordance with the new tax rates specified in the Economic Efficiency Law.
|
||
(2)
|
On September 17, 2009 Income Tax Regulations (Determination of Interest Rate with respect to Section 3(j)) (Amendment) - 2009 were published following which there was an extensive change in Income Tax Regulations (Determination of Interest Rate with respect to Section 3(j)) - 1986. The Amendment applies to loans granted as from October 1, 2009, and also includes transitional provisions regarding loans granted before the effective date of the Amendment.
|
|
With respect to Section 3(j) of the Ordinance, the interest rate applicable to in scope taxpayers granting a loan in NIS is 3.3% p.a. (this rate may change according to the overall average cost of unlinked credit granted to the public by the banks).
|
||
Conversely, when the loan is in foreign currency (as defined in the regulations) the interest rate with respect to Section 3(j) is according to the rate of change in the exchange rate of the relevant foreign currency plus 3%.
|
||
In addition, a special provision was included with respect to determination of the interest rate on a loan in NIS or in foreign currency that was granted in the 14 days before or after a loan with the same terms was received from a non-related party
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
G.
|
Details regarding the tax environment of the Company (cont’d)
|
|
(3)
|
On February 4, 2010, the Tax Authorities issued a Temporary Order for amendment to the Income Tax Ordinance for the 2007, 2008 and 2009 tax years, prescribing that accounting under IFRSs rules cannot determine taxable income even though the IFRS applies in the financial statements. The amendment has no effect on the Company’s financial statements.
|
|
H.
|
Final tax assessments
|
|
(1)
|
The Company has tax assessments considered to be final up to and including the tax year ended December 31, 200
5
. SP1 and SP2 have not been assessed since their inception.
|
|
(2)
|
Bezeq has received final tax assessments up to and including the tax year ended December 31, 2004.
|
|
(3)
|
Bezeq International has received final tax assessments up to and including the tax year ended December 31, 2005.
|
|
(4)
|
Pelephone, Walla and Bezeq Online have received final tax assessments up to and including the tax year ended December 31, 2006.
|
As part of the agreement with Ampal, as described in Note 7, all of the legal proceedings relating to the Company’s legacy communication business were fully assumed by Ampal.
|
|
As at December 31, 2010, contingent liabilities only include contingent liabilities relating to the Bezeq Group.
|
|
During the normal course of business, legal claims were filed against the Bezeq Group or there are pending claims (“hereinafter in this section: “legal claims”).
|
|
In the opinion of the managements of the Bezeq Group, which are based, among other things, on legal opinions as to the likelihood of success of the claims, the financial statements (Note 17 above) include appropriate provisions, where provisions are required to cover the exposure resulting from such claims.
|
|
In the opinion of the managements of the Bezeq Group, the additional exposure as at December 31, 2010, due to claims filed against Bezeq Group on various matters and which do not meet the more likely than not to be realized threshold, was NIS 15.7 billion (of which an amount of NIS 192 is for claims, which at this stage, cannot be assessed, as set out in sections B and E below). This amount and all the amounts of the additional exposures in this note are linked to the Israeli CPI and are stated net of interest. For updates subsequent to the reporting date, see Note 34C.
|
|
For motions for certification of class action suits to which Bezeq Group has exposure beyond the aforesaid (since the claims do not state an exact amount), see sections B and D below.
|
|
Following is a detailed description of Bezeq Group’s contingent liabilities at December 31, 2010, classified into groups with similar characteristics.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
A.
|
Employee claims
|
|
During the normal course of business, employees and former employees filed collective and individual claims against Bezeq. These are mainly claims concerning recognition of various salary components as pension components, recognition of various components in the determining salary for severance pay and pension rights. In addition, employees and former employees also filed various individual claims against the Bezeq Group.
|
||
In the financial statements signed on March 7, 2011, Bezeq assumed that at December 31, 2010, the additional exposure (beyond the provisions included in these financial statements) for these claims was NIS 2 billion and relates mainly to claims filed by groups of employees or individual claims with wide ramifications. Of this amount, approximately NIS 1.8 billion is related to a specific procedure (for which the amount claimed in it is not significant) and indirect wide ramifications that may result from the cause of actions that are included in the aforesaid procedure.
|
||
Regarding this procedure, subsequent to the signing date on the financial statements of Bezeq on March 7, 2011, Bezeq received an updated opinion that estimates the chances of the claim to be realized as of December 31, 2010 as remote.
|
||
Accordingly, the Company estimates that approximately NIS 1.8 billion of the aforesaid exposure is remote.
|
||
Therefore, as of December 31, 2010 the possible exposure amounts to approximately NIS 200, and it relates to the rest of the above claims.
|
||
In the opinion of the managements of the Bezeq Group, based, among other things, on legal opinions as to the likelihood of success of the claims, the financial statements include appropriate provisions of NIS 96, where provisions are required to cover the exposure resulting from such claims.
|
||
B.
|
Customer claims
|
|
During the normal course of business, customers of Bezeq Group filed claims against the Bezeq Group. These are mainly motions for certification of class actions concerning contentions of unlawful collection of payment and impairment of the service provided by the Bezeq Group. At December 31, 2010, the amount of the additional exposure for customer claims was NIS 7.1 billion (beyond the provisions included in these financial statements). Of these claims, there are claims amounting to NIS 169, which, at this stage, cannot yet be estimated. There are other claims for which Bezeq Group has additional exposure beyond the aforesaid, which cannot be quantified, as the exact amount of the claims is not stated in the claim. In the opinion of the managements of the Bezeq Group, based, among other things, on legal opinions as to the likelihood of success of the claims, the financial statements include appropriate provisions of NIS 56, where provisions are required to cover the exposure resulting from such claims.
|
||
In addition, subsequent to the reporting date, customers of the Bezeq Group filed a number of claims, amounting to NIS 2.1 billion, the exposure of which cannot be assessed at this stage, and customer claims of NIS 2.5 billion were eliminated.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
B.
|
Customer claims (cont’d)
|
|
In the second quarter of 2008, four claims were filed against Bezeq International in the Tel Aviv and Central District Courts, concerning the use of international calling cards for destinations in the Philippines, Thailand and Nepal, together with motions for certification of class actions. The plaintiffs have applied for their claims to be certified as class actions on behalf of groups that include every person who, during the seven years prior to filing the claim and during the claim’s proceeding, purchased phone cards of the type referred to in the claims. The plaintiffs estimate the loss sustained by all the members of the group at NIS 1.1 billion. In the opinion of the management of Bezeq International, based, among other things, on the opinion of its legal counsel, the maximum amount of the exposure (included in the abovementioned exposure), for all these claims is negligible compared to the amount of the claim.
|
||
C.
|
Supplier and communication provider claims
|
|
During the normal course of business, suppliers of goods and/or services and communications providers that the Bezeq Group supplies goods and/or services to or receives goods and/or services from filed various claims against the Bezeq Group. These claims are usually for compensation for alleged damage as a result of the supply of the service and/or the product. On December 31, 2010, the amount of the additional exposure (beyond the provisions included in these financial statements) for these claims was NIS 979. In the opinion of the managements of the Bezeq Group, which is based, among other things, on legal opinions as to the likelihood of success of the claims, the financial statements include appropriate provisions amounting to NIS 5, where provisions are required to cover the exposure arising from such claims.
|
||
D.
|
Claims for punitive damages
|
|
During the normal course of business, claims were filed against the Bezeq Group for alleged physical damage or damage to property caused by Bezeq Group (including in relation to environmental quality and radiation). At December 31, 2010, the amount of the additional exposure (beyond the provisions included in these financial statements) for punitive damages was NIS 5 billion. This amount does not include claims for which the insurance coverage is not disputed. In addition, there are other claims for which the Bezeq Group has additional exposure beyond the aforesaid, which cannot be quantified, as the exact amount of the claim is not stated in the claim.
|
||
In the opinion of the managements of the Bezeq Group, based, among other things, on legal opinions as to the likelihood of success of the claims, the financial statements include appropriate provisions of NIS 1.6, where provisions are required to cover the exposure resulting from such claims.
|
||
E.
|
Claims by developers and companies
|
|
During the normal course of business, claims were filed against certain of the entities within the Bezeq Group or their officers, claiming liability and/or negligence of Bezeq Group and/or their directors in respect of their activities and/or the investments made in various projects. On December 31, 2010, the additional exposure (beyond the provisions included in these financial statements) for these claims was NIS 320. In the opinion of the managements of the Bezeq Group, which is based, among other things, on legal opinions as to the likelihood of success of the claims, the financial statements include appropriate provisions amounting to NIS 10, where provisions are required to cover the exposure arising from such claims. Subsequent to the reporting date claims of NIS 65 were eliminated.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
F.
|
Claims by the State and authorities
|
|
During the normal course of business, various claims are pending against Bezeq Group companies by the State of Israel, government institutions and authorities (“the authorities”). These are mainly procedures related to regulations relevant to Bezeq Group and financial disputes concerning monies paid by the Bezeq Group to the authorities (including property taxes) or by the authorities to the Bezeq Group. At December 31, 2010, the additional exposure (in addition to the provisions included in these financial statements) for these claims amounted to NIS 275. Of these claims, there are claims amounting to NIS 16, which, at this stage, cannot yet be estimated. In the opinion of the managments of the Bezeq Group, based, among other things, on legal opinions as to the likelihood of success of the claims, the financial statements include appropriate provisions of NIS 65, where provisions are required to cover the exposure resulting from such claims.
|
||
F.
|
Claims by the State and authorities (cont’d)
|
|
In December 2000, the government filed a claim against Pelephone for royalties allegedly due from January 1994 to February 1996. The amount in the claim is NIS 260 at the date of the claim, including principal, linkage differences and interest. In September 2010, the court ruled against Pelephone, accepting some of the government’s claims. Pelephone was required to pay the government NIS 150, including principle, linkage differences and interest, which is included as a liability in these financial statements. This amount was paid in October 2010. Additionally, in October 2010 Pelephone filed an appeal against the ruling at the Supreme Court. Prior to the ruling, the Group included a provision for the claim in its financial statements, amounting to NIS 76.
|
A.
|
The Group has rental agreements. Contractual rental payments during the next five years, calculated according to the rent in effect at December 31, 2010, are as follows:
|
Year ended December 31
|
NIS
|
|||
2011
|
168 | |||
2012
|
165 | |||
2013
|
129 | |||
2014
|
85 | |||
2015 onwards
|
132 | |||
679 |
B.
|
The Group has a number of operating lease agreements for periods of up to three years in respect of vehicles it uses. The contractual annual lease payments, calculated according to the payments in effect at December 31, 2010, are NIS 102.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
C.
|
Most of the Group companies are required to pay royalties to the State of Israel. The rate of royalties paid was 1% in 2010.
|
|
In January 2010, an amendment to the Communications Regulations (Telecommunications and Broadcasts) (Royalties), 5761-2001 was issued. The regulations include clarification of the royalties that a licensee owes the State of Israel. The amendment includes an exemption for the payment of royalties for revenue from high-speed communication services which commenced on January 1, 2004.
|
||
In January 2011, an amendment to the Communications Regulations (Royalties) was issued. According to the amendment, the rate of royalties will increase to 1.75% in 2011 and to 2.5% in 2012. The adjusted rate for calculation of royalties is effective from January 19, 2011.
|
||
D.
|
Pelephone leases some of the sites from the Israel Lands Administration (“ILA”). Pelephone has an agreement with the ILA for use of the land to establish and operate communication sites. The agreement regulates payments to which the ILA is entitled for the period through December 31, 2008.
|
|
According to the agreement, at the end of the agreement period, and in the event of its annulment due to reasons set out in the agreement, Pelephone will evacuate the land. There is a similar agreement with the other cellular operators. The agreement was extended until December 31, 2010.
|
||
At the reporting date, Pelephone and the other cellular operators are in advanced stages of negotiations to extend the agreement, however the agreement has not yet been renewed.
|
||
If, for any reason, the agreement is not renewed or extended, this could have a material negative effect on Pelephone, among other things because Pelephone will be restricted in establishing sites on ILA land and it may also be required to vacate existing sites.
|
||
E.
|
Pelephone uses Ericsson UMTS/HSPA infrastructure equipment and Nortel and Motorola CDMA infrastructure equipment. Pelephone has multi-annual agreements for maintenance, support and upgrade of software for the UMTS/HSPA network and a maintenance agreement for the Nortel network with Ericsson. Pelephone believes that it could be dependent on Ericsson for network support.
|
|
F.
|
Pelephone has obligations to acquire terminal equipment amounting to NIS 455.
|
|
G.
|
In November 2010, Bezeq International signed an agreement with Alcatel-Lucent Submarine Networks to roll out a high speed submarine cable linking Israel to Italy. At the same time, Bezeq International acquired an indefeasible right of use of terrestrial infrastructure linking the cable in Italy to points of presence in western Europe.
|
|
H.
|
For agreements for the purchase of property, plant and equipment, see Note 11H above.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
A.
|
For securities, liens and stipulations given by the Company and subsidiaries in connection with loan covenants and borrowings, see Note 15.
|
|
B.
|
In May 2003, Bezeq provided, at the request of the Ministry of Communications, a bank guarantee of US$10 in connection with its general license for implementing telecommunications operations and for providing telecommunication services.
|
|
C.
|
Bezeq provided a guarantee in favor of banks in connection with credit of up to NIS 70 granted to Bezeq’s subsidiaries.
|
|
D.
|
Bezeq has received a demand for the forfeiture of a guarantee in the amount of approximately US$6 related to a project (HBTL) in a basic telephony tender in 1995 in India, in which Bezeq participated together with others. An appeal against an order given at the request of the developer, which prevents forfeiture of the guarantees, is being heard in the appeals department of the High Court in Delhi. Bezeq has applied to the court in India for release of the bank guarantees it provided. The court has yet to hear the application.
|
|
E.
|
Bezeq provided a guarantee of NIS 10 for DBS in respect of a bank guarantee of NIS 36, which DBS had provided in favor of the State of Israel, according to the terms of DBS’s license. The guarantee was valid until December 31, 2010. This guarantee was in accordance with the proportionate rate of Bezeq’s holdings in DBS when DBS was established. On January 24, 2011, Bezeq’s Board of Directors approved the replacement of this guarantee with a new guarantee according to the updated proportionate rate of the Bezeq’s holdings in DBS (approximately 49.8% out of a total bank guarantee of NIS 38). The validity of the bank guarantee provided by the bank to the Ministry of Communications has since been extended (up to the end of April 2011) to allow finalization of the documents for Bezeq’s new guarantee towards the bank that provided the bank guarantee.
|
|
F.
|
In February 2002 and May 2005, according to Ministry of Communications requirements, Bezeq International provided bank guarantees of NIS 9.4 and NIS 1.5 respectively, for fulfillment of all the terms of the license to provide international telecommunication services. In February 2009, according to Ministry of Communications requirements, Bezeq International provided a bank guarantee of NIS 10 to fulfill the terms of the special and general license for the provision of domestic operator services through the BIP Limited Partnership. At the reporting date, Bezeq International had provided additional bank guarantees in a total amount of NIS 16.
|
|
G.
|
Pelephone has bank guarantees of NIS 93 in favor of third parties, of which NIS 35 is in favor of the Ministry of Communications, in connection with a guarantee for fulfillment of the terms of its license.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
H.
|
The other shareholder in DBS has pledged its shares in favor of the banks. In view of a negative pledge of Bezeq, Bezeq provided the banks with a perpetual guarantee for payment of the debts of DBS. The guarantee is up to a maximum amount equal to the percentage of Bezeq’s holding in DBS, multiplied by the value of DBS as derived from realization of the pledged shares of the other shareholders. If Bezeq joins the sale when realizing the pledged shares of the other shareholders, the amount of the guarantee will not exceed the amount of the proceeds Bezeq will receive from realization of its shares in DBS. The note of guarantee includes numerous restrictions on Bezeq in realizing the shares it holds, and lists events of violation which, if committed, will enable the banks to call in the guarantee. Furthermore, Bezeq undertook to put its shares up for sale if the shares pledged to the bank are sold, and agreed that in the event of realization of collateral provided by the other shareholders, Bezeq would forgo repayment of shareholder loans provided for DBS and that the guarantee would also apply, with the required changes, to warrants which Bezeq will receive from DBS and to the right to receive them.
|
|
The shareholders in DBS, have made a commitment to the banks not to oppose the sale or other realization of their shares in DBS, which were pledged or for which a guarantee was provided (by Bezeq), in a way that will enable the banks to accomplish a friendly liquidation. Bezeq also undertook that if a negative pledge which Bezeq gave in favor of its creditors is released, Bezeq will pledge its shares in DBS in favor of the banks as a first lien.
|
||
I.
|
For the securities, liens and stipulations of DBS, see Notes 5, 7, 21(1) and 28 to the financial statements of DBS for 2010 attached to these financial statements.
|
A.
|
Equity
|
Issued
|
Registered and paid up
|
|||||||||||||||
December 31
|
December 31
|
December 31
|
December 31
|
|||||||||||||
2009
|
2010 |
2009
|
2010
|
|||||||||||||
Number of shares
|
Number of shares
|
|||||||||||||||
Ordinary shares of NIS 0.1 par value each
|
50,000,000 | 50,000,000 | 25,340,770 | 29,889,045 |
(1)
|
19,230 shares have been purchased according to a share buyback program which was authorized by the Company’s Board of Directors.
|
|
(2)
|
On March 24, 2010, the Company completed a private placement of 3,448,275 of its ordinary shares to Israeli institutional investors and IGLD. Based on Internet Gold’s irrevocable undertaking to subscribe for approximately 75% of the offering on the same terms and conditions negotiated with the third-party institutional investors, IGLD purchased 2,599,310 ordinary shares, which represent approximately 75% of the shares sold in the private placement.
|
|
(3)
|
Regarding share options to employees, managers and senior employees in the Group - see Note 31.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
B.
|
Description of the reserves
|
|
Translation reserve
|
||
A translation reserve includes all the foreign currency differences arising from translation of financial statements of a consolidated partnership whose functional currency is a foreign currency.
|
||
Capital reserve for assets classified as available-for-sale
|
||
The capital reserve for assets classified as available-for-sale includes the net cumulative change in the fair value of available-for-sale financial assets, up to the date of derecognition or impairment of the investment.
|
||
Reserve for transactions with non-controlling interests
|
||
The reserve for transactions with non-controlling interests, while retaining control includes differences between the considerations paid or received for changes in non-controlling interests.
|
Convenience
|
||||||||||||||||
translation into
|
||||||||||||||||
U.S. dollars
|
||||||||||||||||
Year ended December 31
|
(Note 2D)
|
|||||||||||||||
2008
|
2009
|
2010
|
2010
|
|||||||||||||
NIS
|
NIS
|
NIS
|
US$
|
|||||||||||||
Domestic fixed line communications
|
||||||||||||||||
Fixed line telephony
|
– | – | 2,202 | 621 | ||||||||||||
Internet - infrastructure
|
– | – | 708 | 199 | ||||||||||||
Transmission and data communication
|
– | – | 507 | 143 | ||||||||||||
Other services
|
– | – | 161 | 45 | ||||||||||||
– | – | 3,578 | 1,008 | |||||||||||||
Cellular
|
||||||||||||||||
Cellular services and terminal equipment
|
– | – | 2,376 | 669 | ||||||||||||
Value added services
|
– | – | 733 | 207 | ||||||||||||
Sale of terminal equipment
|
– | – | 850 | 239 | ||||||||||||
– | – | 3,959 | 1,115 | |||||||||||||
International communications, internet services and NEP
|
1,106 | 1,173 | 951 | 268 | ||||||||||||
Others
|
– | – | 169 | 48 | ||||||||||||
1,106 | 1,173 | 8,657 | 2,439 |
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
Convenience
|
||||||||||||||||
translation into
|
||||||||||||||||
U.S. dollars
|
||||||||||||||||
Year ended December 31
|
(Note 2D)
|
|||||||||||||||
2008
|
2009
|
2010
|
2010
|
|||||||||||||
NIS
|
NIS
|
NIS
|
US$
|
|||||||||||||
Salaries and incidentals:
|
||||||||||||||||
Operating
|
142 | 141 | 1,268 | 357 | ||||||||||||
General and administrative
|
22 | 22 | 495 | 139 | ||||||||||||
Share-based compensation
|
3 | 5 | 63 | 18 | ||||||||||||
Total salaries and incidentals
|
167 | 168 | 1,826 | 514 | ||||||||||||
Less - salaries recognized in investments in property, plant and equipment and in intangible assets
|
6 | 10 | 338 | 95 | ||||||||||||
161 | 158 | 1,488 | 419 |
Year ended December 31
|
Convenience translation into
U.S. dollars (Note 2D) |
|||||||||||||||
2008 | 2009 | 2010 | 2010 | |||||||||||||
NIS | NIS | NIS | US$ | |||||||||||||
Cellular telephone expenses
|
– | – | 1,364 | 384 | ||||||||||||
General expenses
|
654 | 703 | 1,097 | 309 | ||||||||||||
Materials and spare parts
|
– | – | 748 | 211 | ||||||||||||
Building maintenance
|
10 | 12 | 193 | 54 | ||||||||||||
Services and maintenance by sub- contractors
|
14 | 21 | 70 | 20 | ||||||||||||
Vehicle maintenance expenses
|
6 | 4 | 97 | 28 | ||||||||||||
Royalties to the State of Israel
|
5 | 3 | 55 | 15 | ||||||||||||
Collection fees
|
5 | 6 | 16 | 5 | ||||||||||||
694 | 749 | 3,640 | 1,026 |
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
Year ended December 31
|
Convenience translation into
U.S. dollars (Note 2D) |
|||||||||||||||
2008
|
2009
|
2010
|
2010
|
|||||||||||||
NIS
|
NIS
|
NIS
|
US$
|
|||||||||||||
Provision for severance pay in early retirement
|
– | – | 36 | 10 | ||||||||||||
Capital gain from sale of the Company’s legacy communication business, net
|
– | – | (10 | ) | (3 | ) | ||||||||||
Provision for contingent liabilities, net
|
– | – | (61 | ) | (18 | ) | ||||||||||
Expenses related to changes of Organization structure
|
7 | 2 | 31 | 9 | ||||||||||||
Loss from copper forward transactions
|
– | – | 10 | 3 | ||||||||||||
Impairment of long-term loans and others
|
– | – | (1 | ) | (* | ) | ||||||||||
7 | 2 | 5 | 1 |
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
Year ended December 31
|
Convenience translation into
U.S. dollars (Note 2D) |
|||||||||||||||
2008
|
2009
|
2010
|
2010
|
|||||||||||||
NIS
|
NIS
|
NIS
|
US$
|
|||||||||||||
Income on bank deposits, investments and others
|
(7 | ) | (78 | ) | (23 | ) | (6 | ) | ||||||||
Change in fair value of financial assets measured at fair value through profit or loss
|
– | – | (64 | ) | (18 | ) | ||||||||||
Income in respect of credit in sales, net of discount
|
– | – | (65 | ) | (18 | ) | ||||||||||
Foreign exchange differences
|
(1 | ) | (7 | ) | – | – | ||||||||||
Interest and linkage differences from loans to an associate
|
– | – | (141 | ) | (40 | ) | ||||||||||
Other finance income
|
(* | ) | (* | ) | (20 | ) | (6 | ) | ||||||||
Total financing income
|
(8 | ) | (85 | ) | (313 | ) | (88 | ) | ||||||||
Interest expenses on financial liabilities
|
22 | 22 | 363 | 102 | ||||||||||||
Linkage and exchange rate differences
|
30 | 22 | 162 | 46 | ||||||||||||
Finance expenses in respect of transactions with shareholders
|
6 | 3 | 1 | (** | ) | |||||||||||
Change in fair value of financial assets measured at fair value through profit or loss
|
5 | – | 24 | 7 | ||||||||||||
Financing expenses for employee benefits, net
|
– | – | 20 | 6 | ||||||||||||
Other finance expenses
|
2 | 2 | 30 | 8 | ||||||||||||
Total finance expenses
|
65 | 49 | 600 | 169 | ||||||||||||
Finance expense (income) recognized in profit or loss, net
|
57 | (36 | ) | 287 | 81 |
* |
Represent an amount less than NIS 1.
|
|
** |
Represent an amount less than US$1.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
A.
|
Company’s share-based payments
|
|
2007 Equity Incentive Plan
|
||
In February 2008, the Company’s Board of Directors approved a share based incentive plan for its employees, directors and service providers. Under its equity incentive plan, the Company may grant its directors, officers and employees restricted shares, restricted share units and options to purchase its ordinary shares. The initial total number of ordinary shares available for grant under the plan is 2,250,000.
|
||
Restricted shares, restricted share units and options granted under the equity incentive plan will generally vest over four years from the grant date, subject to the option committee decisions. Any option not exercised within seven years of the grant date will expire. If the Company terminates the employment of an employee for cause, as defined in the plan, all of his or her vested and unvested options expire immediately and all unvested restricted shares and unvested restricted share units expire immediately. If the Company terminates the employment of an employee for any other reason, the employee may exercise his or her vested options within 60 days of the date of termination and shall be entitled to any rights upon vested restricted shares and vested restricted share units to be delivered to the employee to the extent that they were vested prior to the date his or her employment terminates.
|
||
The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model that used the weighted average assumptions in the following table. Since the Company’s shares did not have enough trading history at grant date, expected volatility was computed based on the average historical volatility of similar entities with publicly traded shares.
|
||
During 2008, the Company issued 1,100,000 options to its employees. The risk-free rate for the expected term of the options was based on the Israeli treasury yield curve in effect at the time of grant.
|
February 2008
|
|||
Valuation assumptions
:
|
|||
Fair value of option at grant date
|
NIS 18.03
|
||
Share price at grant date
|
NIS 36.64
|
||
Exercise price
|
NIS 36.64
|
||
Expected dividend yield
|
0 | % | |
Expected volatility
|
52 | % | |
Expected term (years)
|
5 | ||
Risk-free interest rate
|
5.2 | % |
In connection with the sale of the Company’s legacy communications business to Ampal effective as of January 1, 2010, the vesting periods of 1,100,000 options granted to the Company’s former employees under 2007 plan were accelerated and the options became fully vested in accordance with the terms of the Plan. All of such options were subsequently exercised by the Company’s former employees (that had been hired by Ampal) and all of the issued shares were placed in trust due to Israeli tax requirements.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
A.
|
Company’s share-based payments (cont’d)
|
|
Stock option activity during the periods indicated is as follows:
|
Number of shares
|
Weighted average exercise price
|
Weighted average remaining contractual term
|
||||||||||
|
NIS
|
|||||||||||
Balance at January 1, 2008
|
– | – |
|
|||||||||
Granted
|
1,100,000 | 36.34 | ||||||||||
Balance at December 31, 2008, and 2009
|
1,100,000 | 36.34 | 6.25 | |||||||||
Exercised
|
(1,100,000 | ) | 36.34 | |||||||||
Balance at December 31, 2010
|
– | – | – |
The total grant date fair value of options granted during the year 2008 was NIS 20.
|
||
During 2010 an amount of NIS 11 was recognized in profit or loss with relation to share-based compensation arrangements granted under the Plan (2009 – NIS 5).
|
||
B.
|
Bezeq’s share-based payments
|
|
(1)
|
In February 2007, the Board of Directors of Bezeq approved an employee share options plan for 3% of the issued and paid up capital of Bezeq, under the collective agreement with the employees of December 2006. On March 25, 2007, 78,092,000 options were allocated, and on January 2, 2008 another 59,000 options were allocated to two employee-directors. The value of the grant was determined at February 22, 2007, the grant date. The expenses in respect of this grant were recorded in 2006, since in that year an undertaking was made to the employees, including the terms of the grant. According to this plan, the last date for exercising the options is March 24, 2012.
|
|
(2)
|
On November 20, 2007, the Board of Directors of Bezeq resolved to adopt a new share options plan for managers and senior employees in Bezeq and/or in associates, which would allocate up to 65,000,000 unmarketable options exercisable for up to 65,000,000 shares of Bezeq and representing 2.5% of the issued capital of Bezeq, and at full dilution, 2.37% of the share capital.
|
|
The options plan and the allocation of the options under it, were approved by the general meeting of Bezeq on January 31, 2008, in accordance with Bezeq’s Articles of Association. Exercise of the options under the plan was contingent upon obtaining the necessary approvals as prescribed in the provisions of the Telecommunications Order (Telecommunications and Broadcasts) (Determination of Essential Service Provided by Bezeq The Israel Telecommunication Corp. Ltd.), 5757-1997 (the Telecommunications Order) if the holdings of the controlling shareholder of Bezeq fall below the minimum prescribed in the Telecommunications Order (30%).
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
B.
|
Bezeq’s share-based payments: (cont’d) | ||
In February 2011, the Prime Minister and Minister of Communications approved the decrease of the holding below the negligible amount to 29%, provided the decrease arises from allocation of Bezeq’s shares in an exercise of employee options, for six months from the date of the decrease below the negligible rate. The approval is effective at the date of the decrease below the negligible rate. The approval will expire after six months and the negligible rate will remain in effect. | |||
The options will vest in three equal annual tranches. The vesting dates of each tranche will fall at the end of each of the first, second and third years after the grant date, respectively, and the expense for each tranche will be spread over its vesting period. In addition, the plan sets terms which, if met, accelerate the vesting date. Exercise of the options for shares will be by using a cashless exercise mechanism, unless the Board of Directors decides otherwise. | |||
Of the options for managers and senior employees, at the date of the financial statements, 65,250,000 options have actually been allocated (of this amount, 6,199,999 options have been forfeited and returned to the quantity of options for allotment), as follows | |||
(a)
|
56,250,000 options, with a theoretical economic value of NIS 156 of which 17,750,000 options, which were allotted in 2008 to the CEO of Bezeq and to senior officers who are key personnel in the Group with a theoretical economic value of NIS 45 and 100,000 options, which were allotted in 2009 to an employee director with a theoretical economic value of NIS 303,000. The grant date was set as the later of the date of the general meeting and the date of the notice to the employees.
|
||
The exercise price set for the allotment of 49,950,000 options (out of 56,250,000, as set out above), is NIS 5.5 (adjusted for distribution of a dividend in cash or in kind). On June 26, 2008, the Board of Directors of Bezeq resolved that the exercise price for future allotments of options, as will be approved by the Board of Directors from time to time, will be the same as the average closing price of Bezeq’s share on the stock exchange in the 30 trading days prior to the date of the board’s decision to allot options to these offerees.
|
|||
On December 31, 2009, the Board of Directors approved a retention plan for senior officers in the Group (CEOs of Bezeq, Pelephone and Bezeq International). According to the plan, their option agreements were amended so that in the event of dismissal within one year (compared to six months under the outline) from the date of transfer of control (April 14, 2010), the vesting period of the balance of the unvested options at the dismissal date will be accelerated. The amendment to the options agreements did not affect the financial statements of 2010 and is not expected to have any other material effect.
|
|||
(b)
|
On April 17, 2008, the Board of Directors of Bezeq resolved to allocate 9,000,000 options to the chairman of the Board of Directors for that period in accordance with the plan described above, subject to a number of changes relating to the terms of his options. The allocation to the chairman was approved by the general meeting of the shareholders of Bezeq on June 1, 2008.
|
||
The options will vest in 12 equal quarterly tranches. The vesting dates of each tranche will fall at the end of each quarter from the grant date, and the expense will be spread for each tranche in accordance with its vesting period. In addition, the plan sets terms which, if met, accelerate the vesting date.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
B.
|
Bezeq’s share-based payments: (cont’d)
|
The exercise price of each option is NIS 6.4405 per share. The price was set according to the share price on the date on which the chairman took up his post - September 4, 2007 (which was NIS 6.649 per share) and after adjustment for distribution of a net dividend in the amount of NIS 0.26 per share, for which the ex-dividend date was April 14, 2008. The closing price of Bezeq’s share on June 1, 2008, the date of approval by the general meeting, was NIS 6.494 per share.
|
(3)
|
On December 19, 2010, the Board of Directors of Bezeq approved the amendment to the collective agreement with the employees (see Note 17D) and resolved to adopt a share options plan for employees (“the 2010 options plan for employees”). According to the 2010 options plan for employees, Bezeq will allocate 70,000,000 unmarketable options exercisable for up to 70,000,000 Company shares, par value NIS 1 each, representing 2.61% of the issued capital of Bezeq (2.5% at full dilution).
|
|
On December 20, 2010, Bezeq published an outline for the allocation of share options from the plan, in accordance with the Securities Regulations (Details of an Outline Offer of Securities to Employees), 5760-2000, which described, among other things, the terms of the plan, and a private tender offer in accordance with the Securities Regulations (Private Placement of Securities in a Listed Company), 5760-2000
|
||
The options plan and the allocation of the options under it were approved by the general meeting of Bezeq in January 2011, in accordance with Bezeq’s Articles of Association. Exercise of the options under the plan was contingent upon obtaining the necessary approvals as prescribed in the provisions of the Telecommunications Order (Telecommunications and Broadcasts) (Determination of Essential Service Provided by Bezeq The Israel Telecommunication Corp. Ltd.), 5757-1997 (the Telecommunications Order) if the holdings of the controlling shareholder of Bezeq fall below the minimum prescribed in the Telecommunications Order (30%).
|
||
In February 2011, the Prime Minister and Minister of Communications gave his approval for such holdings to reach 29% in the event of dilution resulting from the exercise of stock options by Bezeq employees, for a period of six months commencing from the date such holdings fall below 30%. In addition, the control permit requires that a certain percentage of SP2 be held at all times by an “Israeli Party,” as defined in the Communications Order.
|
||
The options will vest in three equal annual tranches. The vesting dates of each tranche will fall at the end of each of the first, second and third years after the grant date, respectively, and the expense for each tranche will be spread over its vesting period. In addition, the plan sets terms which, if met, accelerate the vesting date. Exercise of the options for shares will be by using a cashless exercise mechanism.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
B.
|
Bezeq’s share-based payments: (cont’d)
|
|
Of the options for managers and senior employees, at the approval date of the financial statements, 67,464,814 options have actually been allocated, with a theoretical economic value of NIS 284, based on the Black and Scholes model. In addition, on January 25, 2011, Bezeq granted another 87,455 options, according to the plan, to two employee-directors. The grant date is the date of approval by the general meeting. The theoretic economic value is calculated, among other things, on the share price at the grant date. The date for recording the expense was set at December 19, 2010, the date the plan was approved by Bezeq’s Board of Directors. In March, 2011 Bezeq’s directors approved additional grants of 1,900,000 options to employees according to the 2010 plan..
|
||
(4)
|
In order to estimate the fair value of the employees’ outstanding stock options as of April 14, 2010 (“the Valuation Date”) the Black Scholes model was implemented. The valuation was conducted under the International Financial Reporting Standard No’ 2, “Share- based Payment”.
|
|
As of the Valuation Date the outstanding number of stock options for employees and managers were 22,004,603 and 38,612,833, respectively.
|
||
Vesting Period and Contractual life of the options:
|
||
Employees
- the vesting period of the options is 2 years and the contractual terms of the options are 5 years. The original grant date of the options for employees was March 25, 2007.
|
||
Managers
- The contractual terms of the options are 8 years. The options granted to managers are normally exercisable during a 3 year period equivalently. 9,000,000 options are exercisable during a 12 quarters period equivalently.
|
||
Settlement mechanism
– equity based payment with a cashless mechanism
|
||
The following table lists the total value of the options:
|
Convenience
|
||||||||||||
translation into
|
||||||||||||
Number of
|
Total |
U.S. dollars
|
||||||||||
options
|
value
|
(Note 2D)
|
||||||||||
NIS
|
US$
|
|||||||||||
Employee
|
22,004,603 | 188 | 53 | |||||||||
Managers
|
38,612,833 | 237 | 67 | |||||||||
Total
|
60,617,436 | 425 | 120 |
The valuation was conducted for each tranche according to the different vesting periods.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
B.
|
Bezeq’s share-based payments: (cont’d)
|
|
Inputs to the model used for the valuation date as of April 14, 2010:
|
||
Stock price
– the stock price was determined according to the closing price of Bezeq stock as of April 13, 2010 on the Tel Aviv Stock Exchange. The closing price as of the Valuation Date was NIS 10.44.
|
||
Exercise price
– the exercise prices are fully adjusted for dividends, therefore the Company applied the adjusted exercise price for each tranche.
|
||
Dividend yield
- the exercise prices are fully adjusted for dividend distribution, hence the dividend yield taken into consideration was 0%.
|
||
Risk free interest rate
– the risk-free interest rate was based on the yields available on Israeli government “shahar” and “memshalti shekeli” bonds as at the Valuation Date. The risk free rates chosen were calculated according to the expected life of the options, hence the range is between 2.4%-4.8%.
|
||
Expected term of the options
– all of the options that were granted to the employees were vested as of the valuation date. The expected term of the options as of the valuation date is 0.97 years. Regarding managers, the expected terms of the options as of the valuation date are 0.11- 5.45 years according to their vesting periods and grant dates.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
B.
|
Bezeq’s share-based payments (cont’d)
|
|
Expected volatility
– the expected volatility was based on the historical volatility of the share price over a period equivalent to the expected life of the options prior to its date of the Valuation Date, in a range of 22.6%- 25.8%.
|
||
(2)
|
Terms of the options for operating plans in Bezeq
|
Date of grant / eligible employees
|
No. of instruments
(in thousands) |
Vesting terms
|
Contractual life of the options
|
||||
A. Grant of options to employees on February 22, 2007
|
78,151 |
Immediate (subject to lock-up for two years)
|
5 years
|
||||
B. Grant of options to managers, senior employees and officers up to December 31, 2010
|
56,250 |
Three equal annual tranches
|
8 years
|
||||
C. Grant to the chairman of the Board of Directors on April 17, 2008
|
9,000 |
12 quarterly tranches
|
4 years
|
||||
D. Approval of 2010 option plan for employees
|
67,552 |
Three equal annual tranches
|
5 years
|
||||
Total share options granted
|
210,953 |
The options referred to in sections A are settled by way of physical delivery of shares. The other options are settled in a cashless exercise mechanism.
|
||
(3)
|
Salary expense for share-based payments
|
Year ended December 31
|
Convenience translation into U.S. Dollars
(Note 2D) |
|||||||||||
2009
|
2010
|
2010
|
||||||||||
NIS
|
NIS
|
US$
|
||||||||||
Equity-settled share options (1)
|
5 | 63 | 18 |
(1)
|
Calculation of the salary expense assumed 5% for forfeiture, for each year, for the options plan set out in section B(1) above, and 1% for the options plan for employees in 2010.
|
|
(4)
|
Subsequent to the reporting date and until June 30, 2011, the employees exercised additional 17,381 thousand options.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
Basic and diluted earnings per share
|
|
The calculation of basic and diluted earnings per share was based on income (loss) attributable to ordinary shareholders, and on a weighted average number of ordinary shares outstanding, calculated as follows:
|
Year ended December 31
|
||||||||||||
2008
|
2009
|
2010
|
||||||||||
NIS
|
NIS
|
NIS
|
||||||||||
Income (loss) attributable to ordinary shareholders
|
||||||||||||
Basic earnings (losses) for the year
|
53 | 147 | (140 | ) | ||||||||
Effect of diluted per share in a subsidiary
|
– | – | (3 | ) | ||||||||
Diluted earnings (losses) for the year
|
53 | 147 | (143 | ) |
Year ended December 31
|
||||||||||||
2008
|
2009
|
2010
|
||||||||||
Thousands of shares of NIS 0.1 par value
|
Thousands of shares of NIS 0.1 par value
|
Thousands of Shares of NIS 0.1 par value
|
||||||||||
Weighted average number of ordinary shares
|
||||||||||||
Balance as at January 1
|
25,360 | 25,360 | 25,341 | |||||||||
Effect of own shares held by the Company
|
– | (14 | ) | – | ||||||||
Effect of shares issued during the year
(private placement)
|
– | – | 2,664 | |||||||||
Effect of share options exercised
|
– | – | 711 | |||||||||
Weighted average number of ordinary shares at
December 31 (basic and diluted)
|
25,360 | 25,346 | 28,716 |
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
A.
|
Identity of interested and related parties
|
|
The Company’s interested and related parties are as defined in IAS 24 – Related Party Disclosures and include: Internet Gold, its ultimate parent Eurocom, and other Eurocom Group companies: related parties of Eurocom, Bezeq, Bezeq subsidiaries and affiliates and jointly-controlled entities; and associates, directors and key management personnel in the Company, Internet Gold, the Eurocom Group companies and persons who are close to a family member of any of these individuals.
|
||
In the ordinary course of business, some of our subsidiaries and affiliates engage in business activities with each other. Such business activities are primarily between Bezeq, or Bezeq subsidiaries and between other Eurocom Group companies, such as Eurocom Digital Communications, Eurocom Cellular Communications, Space-Communications, Gilat Satcom, Satlink Communications, and to a lesser extent other affiliated companies.
|
||
Such business activities primarily relate to the provision, purchase or sale of communications or digital services and products
,
including, the provision of related satellite or broadcasting services, cellular and electronic products and equipment, and Internet and telephony services.
|
||
The transactions among these related parties are made at prices and on terms equivalent to those charged in transactions with unrelated parties under similar conditions.
|
||
Ordinary course of business transactions are aggregated in this Note. This Note also includes detailed descriptions of material related party transactions.
|
||
B.
|
Balances with interested and related parties
|
December 31, |
Convenience
translation
|
|||||||||||
2009 | 2010 |
2010
|
||||||||||
NIS | NIS |
US
|
||||||||||
Receivables – associates, net
|
– | 58 | 16 | |||||||||
Loans to an associate, see section C below
|
– | 1,351 | 381 | |||||||||
Receivables from (Liabilities to) related parties, net *
|
4 | (102 | ) | (29 | ) | |||||||
Loan from the parent company, see section D below
|
(326 | ) | – | – | ||||||||
Loan from related parties to an associate *
|
– | (1,351 | ) | (381 | ) |
*
|
The amounts are for IGLD, its ultimate parent Eurocom, and related parties.
|
|
C.
|
Loans provided to an associate
|
|
For the loans provided to an associate, DBS, see Note 14.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
D.
|
Loans from the parent company | |||
1.
|
As at December 31, 2009, the Company’s current assets includes NIS 3 with respect to options to demand loans from Internet Gold and Eurocom, as described hereinafter: | |||
a.
|
On October 29, 2009 the Company’s approved the receipt of a loan of up to NIS 250 from Internet Gold in support of its acquisition of the controlling interest in Bezeq.
|
|||
The Company partially exercised this option. For more details see paragraph (2)b below.
|
||||
b.
|
For the purpose of financing the acquisition of the controlling interest in Bezeq, the Company received an undertaking by Eurocom, whereby Eurocom granted the Company an option to require it, at any time after 120 days, a loan of up to NIS 1.2 billion, bearing interest at the “risk-free” or lower rate and subordinated to any committed third-party financing for the abovementioned acquisition.
|
|||
The Company did not exercise this option.
|
||||
2.
|
The Company’s current liabilities includes loans from Internet Gold, as described hereinafter: | |||
a.
|
On March 31, 2007, Internet Gold provided the Company with a long-term loan of NIS 100.6, bearing the prime interest rate published from time to time by the Bank of Israel. Internet Gold and the Company agreed the due date would not be prior to October 1, 2008.
|
|||
b.
|
In November 2009, the Company partially exercised an option granted by Internet Gold for a NIS 217.5 loan, which bears interest at a rate equal to the yield on Israel Government Bonds with an average maturity that is closest to the maturity date of the loan, as such yield is reflected in the average closing price of Israel Government Bonds for the seven trade days preceding the grant of the loan. According to the option terms, the loan was repayable in full, plus accrued interest, nine months following the grant of the loan, the payment of which may be accelerated or extended by mutual written consent. For more details see paragraph (1)a above.
|
|||
c.
|
On March 24, 2010, the Company completed a private placement of 3,478,000 of its ordinary shares to Israeli institutional investors and Internet Gold (see Note 25A).
|
|||
The Company recorded the private placement proceeds attributable to IGLD as early repayments of shareholder’s loans from Internet Gold as follows:
|
||||
(a)
|
NIS 83.2 from the March 2007 loan.
|
|||
(b)
|
NIS 218.3 (including accrued interest) from the November 2009 loan (the loan was fully repaid).
|
|||
As at May 12, 2010, the remaining outstanding NIS 31.5 balance of the March 2007 loan was fully repaid.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
E.
|
Transactions with interested and related parties
|
Convenience
|
||||||||||||
translation
|
||||||||||||
into U.S. dollars
|
||||||||||||
Year ended December 31,
|
(Note 2D)
|
|||||||||||
2008
|
2009
|
2010
|
2010
|
|||||||||
NIS
|
NIS
|
NIS
|
NIS
|
|||||||||
Revenue
|
||||||||||||
From associates
|
– | – | 145 | 41 | ||||||||
From related parties *
|
7 | 12 | 6 | 2 | ||||||||
Expenses
|
||||||||||||
To related parties *
|
20 | 19 | 191 | 54 | ||||||||
Associate to related parties *
|
– | – | 106 | 30 | ||||||||
To associates
|
– | – | 5 | 1 | ||||||||
Investments
|
||||||||||||
Related parties *
|
– | – | 78 | 22 |
*
|
The amounts are for IGLD, Eurocom, and their related parties. | ||
F.
|
Extraordinary Transactions pursuant to section 270(4) of the Companies Law, 5769-1999 (“the Companies Law”). | ||
1.
|
Debt arrangements between Bezeq and Bezeq International and DBS
|
||
On May 20, 2010, the general meeting of Bezeq’s shareholders approved an arrangement for DBS’s debt to Bezeq for communication services, amounting to NIS 31.5 at July 31, 2009, which DBS will pay Bezeq in 36 equal monthly payments of NIS 1 each, plus VAT and interest at prime + 1.5% plus VAT.
|
|||
On October 14, 2010, the general meeting of Bezeq’s shareholders approved Bezeq’s an amendment to the debt arrangement with DBS from May 2010 and September 2006. Under the amendments, all the payments that are due from July 1, 2010 to December 31, 2011, will be deferred for 18 months, against payment of annual interest of prime + 3% plus VAT. The deferred payments amount to NIS 45.4.
|
|||
On October 14, 2010, the general meeting of Bezeq’s shareholders approved an amendment to the agreement of Bezeq International and DBS of January 2010 relating to DBS’s debt to Bezeq International. Under the original agreement NIS 8.37 was to be repaid in 24 equal monthly payments t commencing July 1, 2010, bearing interest at prime + 1% and VAT. Under the amendment, each of these payments will be deferred for 18 months, against payment of annual interest of prime + 3%, plus VAT. For the sake of caution, these transactions were approved as transactions in which a controlling shareholder in Bezeq has a personal interest, since the controlling shareholder of Eurocom DBS, a shareholder of DBS, is the controlling shareholder of Bezeq.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
F.
|
Extraordinary Transactions pursuant to section 270(4) of the Companies Law, 5769-1999 (“the Companies Law”) (cont’d)
|
|
2.
|
Management and consultation services
|
|
On June 10, 2010, the general meeting of Bezeq’s shareholders approved an agreement between Bezeq and Eurocom Communications, the indirect controlling shareholder of Bezeq. Under the agreement, Eurocom Communications agreed to provide Bezeq with ongoing management and consultation services for an annual fee of US$1.2 commencing from June 1, 2010 through to May 31, 2013, unless one of the parties announces its intention to terminate the agreement upon three-months advanced notice. The main services provided by the management company are consultation services for Bezeq’s operations, including strategy, business development, regulation, marketing and any other consultation that Bezeq requires as a communications company and as a group of companies, and ongoing management services.
|
||
The management company will provide professional and skilled human resources and other resources that are required to supply the services, including managers and consultants with a background in communications and with international experience, in order to provide the Bezeq Group with professional and high-quality service. In addition, according the consultation agreement, until otherwise decided, Bezeq’s directors, except for outside directors, independent directors and the chairman of the Board of Directors, will not receive directors’ compensation from Bezeq or its subsidiaries. Bezeq recognized expenses of NIS 2.541 for the management services in 2010.
|
||
3.
|
Agreement for acquisition and supply of Nokia products
|
|
On June 10, 2010, the general meeting of Bezeq’s shareholders approved an agreement between Pelephone and Eurocom Cellular Communications Ltd. for Nokia products sold to Pelephone (terminal equipment, spare parts and accessories) and maintenance services for these products. The agreement is valid from April 14, 2010 to December 31, 2012. The amount of the annual purchases under the agreement will not deviate from a cumulative amount of NIS 450 per year. Any purchases exceeding this amount will be subject to prior approval by law. An annual increase of up to NIS 45 will require the approval of Bezeq’s audit committee and Board of directors, as well as the approval of the certified organs of Pelephone and Eurocom. The controlling shareholder in Eurocom Cellular Communications Ltd. is Eurocom Communications Ltd., which is the parent company of IGLD. Pelephone recognized expenses of NIS 163 under the agreement in 2010.
|
||
4.
|
Authorization to sell routers
|
|
On October 14, 2010, the general meeting of Bezeq’s shareholders approved an agreement between Bezeq and DBS. Under the agreement, DBS will be allowed to sell its customers wireless router supplied by Bezeq, according to the terms of the agreement with Bezeq which are in effect at the time, and to deliver and install routers, at no charge. The agreement was approved as a transaction in which the controlling shareholder in Bezeq has a personal interest, since the controlling shareholder of Eurocom DBS (a shareholder of DBS) is the controlling shareholder of Bezeq. In the reporting year, the authorization was not implemented.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
F.
|
Extraordinary Transactions pursuant to section 270(4) of the Companies Law, 5769-1999 (“the Companies Law”) (cont’d) | ||
5.
|
Reciprocal marketing agreement between Bezeq and DBS
|
||
On October 14, 2010, the general meeting of Bezeq’s shareholders approved an arrangement between Bezeq and DBS for reciprocal marketing of products and services. According to the arrangement, Bezeq may market DBS services (satellite television) and DBS may market Bezeq’s services (ADSL internet, telephony and value added services). The transaction was approved as a transaction in which the controlling shareholder in Bezeq has a personal interest, since the controlling shareholder of Eurocom DBS (a shareholder of DBS) is the controlling shareholder of Bezeq. In the reporting year, the agreement was not implemented.
|
|||
6.
|
Reciprocal marketing agreement between Bezeq International and DBS
|
||
On October 14, 2010, the general meeting of Bezeq’s shareholders approved an arrangement between Bezeq International and DBS for reciprocal marketing of products and services. According to the arrangement, Bezeq International may market DBS services (satellite television) and DBS may market Bezeq International’s services (internet access, international calls, VoB and value added services). The transaction was approved as a transaction in which the controlling shareholder in the Bezeq has a personal interest, since the controlling shareholder of Eurocom DBS (a shareholder of DBS) is the controlling shareholder of Bezeq. In the reporting year, the agreement was not implemented.
|
|||
7.
|
Agreement for acquisition of converters
|
||
On July 29, 2010, the general meeting of Bezeq’s shareholders approved an agreement between DBS and Advanced Digital Broadcast SA and Eurocom Digital Communications Ltd. for the purchase of 47,500 yesMaxHD converters at a cost of US$9,796,400 from Eurocom Digital Communications and receipt of additional 60 days credit for payment for the converters. The general meeting resolved that the Bezeq should vote in favor of the transaction in the general meeting of the shareholders of DBS. For the sake of caution, the agreement was presented at the general meeting of Bezeq’s shareholders pursuant to section 275 of the Companies Law, in view of the terms set out in the Ministry of Communications’ approval, as a transaction for acquisition of control in Bezeq by the Company. The investment in the converters was stated in the financial statements of DBS in 2010 under property, plant and equipment.
|
|||
On March 7, 2011, Bezeq’s Board of Directors approved an agreement with DBS (after approval of Bezeq’s audit committee), as follows:
|
|||
(A)
|
The purchase of additional yesMaxHD converters from Eurocom Digital Communications and ADB, according to the framework agreement and any upgrade (partial or full, at the discretion of DBS) of the converter’s hard-drive, at a total cost of US$10.3. The agreement provides for delivery by ship and permits DBS to require earlier delivery that requires air shipment, upon the payment of any additional transportation cost for air delivery.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
F.
|
Extraordinary Transactions pursuant to section 270(4) of the Companies Law, 5769-1999 (“the Companies Law”) (cont’d) | ||
7.
|
Agreement for acquisition of converters (cont’d)
|
||
(B)
|
Payment terms from Eurocom Digital Communications that provide for an additional 60 days credit (“the additional credit period”) for purchase of the converters. The payment terms set out in the framework agreement is EOM + 35 and for the additional credit period, DBS will pay interest at a rate of 1% (6% in nominal annual terms). The scope of the credit is estimated at an average of NIS 11 and payment of the annual interest is estimated as NIS 578 thousand.
|
||
(C)
|
An order of power supplies for yesMaxHD converters from Eurocom Digital Communications and from ADB, until May 31, 2012, at a total cost of US$130 thousand.
|
||
For the sake of caution, the agreements were presented for approval at the general meeting under section 275 of the Companies Law, in view of the terms set out in the Ministry of Communications’ approval, as a transaction for acquisition of control in Bezeq by the Company.
|
|||
8.
|
Agreement to supply space segments to DBS by Space Communications Ltd. (“Spacecom”)
|
||
DBS has a series of agreements with Spacecom, a company controlled by Eurocom, for the use of space segments from the Amos 2 and Amos 3 satellites. DBS paid Spacecom usage fees of NIS 87 in 2010. These agreements were signed before the Company acquired control in Bezeq
|
|||
9.
|
Directors and officers insurance and indemnification
|
||
The Company’s articles of association allow it to insure, indemnify and exempt office holders to the fullest extent permitted by law, subject to the provisions of the Israeli Companies Law. The Company maintains a directors’ and officers’ liability insurance policy with liability coverage of up to $10 per claim and in the aggregate. The Company has undertaken to indemnify each of its directors and officers to the extent permitted by law, in an aggregate amount not to exceed $5, to the extent that their liability is not covered under the Company’s directors’ and officers’ liability insurance policy.
|
|||
G.
|
Key management personnel compensation (including directors)
|
||
In addition to their salaries, the Company also provides non-cash benefits to directors and executive officers (such as a car, medical insurance, etc.).
|
|||
Executive officers also participated in the Company’s share option program (see Note 31 regarding share-based payments).
|
G.
|
Key management personnel compensation (including directors) (cont’d)
|
|
Key management personnel compensation comprised:
|
Year ended December 31
|
Convenience translation into U.S. dollars
(Note 2D) |
|||||||||||||||
2008
|
2009
|
2010
|
2010
|
|||||||||||||
NIS
|
NIS
|
NIS
|
US$
|
|||||||||||||
Employee benefits
|
8 | 9 | 3 | 1 | ||||||||||||
Share-based payments
|
3 | 5 | 11 | 3 | ||||||||||||
|
11 | 14 | 14 | 4 |
A.
|
On March 10, 2011, subsequent to the balance sheet date, the Company purchased 15,072,168 ordinary shares of Bezeq at NIS 10.055 per share, increasing its ownership in Bezeq to 829,283,713 ordinary shares, or 30.84% of Bezeq’s outstanding shares (29.62% on a fully diluted basis). On March 14, 2011, the Company purchased an additional 14,590,000 ordinary shares of Bezeq at NIS 10.1716 per share, further increasing its ownership in Bezeq to 843,873,713 ordinary shares, or 31.37% of Bezeq’s outstanding shares (30.14% on a fully diluted basis). As of June 30, 2011, the Company’s ownership interest in Bezeq declined to 31.24% due to the exercising of options by Bezeq employees.
|
B.
|
On March 31, 2011, Bezeq received an approval from the Tel Aviv District Court for a NIS 3 billion distribution which will be distributed to Bezeq’s shareholders in six equal, semi-annual payments during the period 2011-2013. The approval was obtained following shareholder approval at the Bezeq General Meeting of Shareholders. Court approval was required as the amount of the distribution exceeds Bezeq’s accounting profits according to its financial statements.
|
The first distribution of NIS 0.5 billion, was announced on March 31, 2011 and was made on May 19, 2011. The Company received approximately NIS 157 with respect to such distribution.
|
|
On April 13, 2011, the general meeting of the shareholders of Bezeq approved the distribution of a cash dividend to its shareholders of NIS 1,163, which on the record date for the distribution (May 4, 2011) represented NIS 0.4305716 per share. The dividend was paid on May 19, 2011 (together with the special dividend, as described above). Accordingly, the Company received approximately NIS 364 as a dividend on the payment date.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
The distribution payment schedule (without any interest or CPI-linkage payments) with respect to the five remaining payments under the NIS 3 billion distribution is as follows:
|
|||
●
|
The second distribution of NIS 0.5 billion will be made by the end of November 2011, and to the extent possible together with the regular dividend distribution (if such dividend will be approved) relating to Bezeq’s financial statements as of June 30, 2011;
|
||
●
|
The third distribution of NIS 0.5 billion will be made by the end of May 2012, and to the extent possible together with the regular dividend distribution (if such dividend will be approved) relating to Bezeq’s financial statements as of December 31, 2011;
|
||
●
|
The fourth distribution of NIS 0.5 billion will be made by the end of November 2012, and to the extent possible together with the regular dividend distribution (if such dividend will be approved) relating to Bezeq’s financial statements as of June 30, 2012;
|
||
●
|
The fifth distribution of NIS 0.5 billion will be made by the end of May 2013, and to the extent possible together with the regular dividend distribution (if such dividend will be approved) relating to Bezeq’s financial statements as of December 31, 2012; and
|
||
●
|
The sixth distribution of NIS 0.5 billion will be made by the end of November 2013, and to the extent possible together with the regular dividend distribution (if such dividend will be approved) relating to Bezeq’s financial statements as of June 30, 2013.
|
C.
|
Legal Proceedings
|
■
In January 2011, the following four claims together with applications for their certification as class actions were filed against Bezeq arising from a malfunction in its network on January 25, 2011: (i) a claim estimated at NIS 104 in the Nazareth District Court; (ii) a claim estimated at NIS 135 in the Central District Court; (iii) a claim estimated at NIS 84 in the Haifa District Court, and (iv) a claim estimated at NIS 217 in the Tel Aviv District Court.
|
|
■
According to the plaintiffs, Bezeq’s customers were disconnected from its services and were unable to make proper use of their telephone lines, as a result of which they allegedly suffered various losses.
|
|
■
In January 2011, a lawsuit and motion for certification as a class action were filed in the Jerusalem District Court against Pelephone. The plaintiff alleged that he purchased two Samsung handsets but was unable to use them for surfing the Internet even though he purchased surfing services. The plaintiff is seeking damages in the amount of NIS 150.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
C.
|
Legal Proceedings (cont’d)
|
■
On June 6, 2011, Pelephone received a monetary claim and a Motion to Certify the Claim as a Class Action which was filed with the District Court in Tel Aviv against Pelephone and against the three other cellular phone companies (the “Other Defendants”). According to the Petitioner, Pelephone sold, and the Other Defendants sold and continue to sell accessories designed to allow mobile devices to be worn on one’s body in a manner that is contrary to the instructions of the mobile device manufacturers and the Ministry of Health’s recommendations on radiation (the “Accessories”), and he seeks to file suit against Pelephone and the Other Defendants in the name of the group of Accessories purchasers. According to the Petitioner, the personal damage he suffered is estimated at NIS 1,000, and he is also entitled to reimbursement for the cost of the purchase of the Accessories. Accordingly, in the Petitioner’s estimation, the total amount claimed from Pelephone aggregates to approximately NIS 503.
|
D.
|
Regulation
|
■
On March 2011, a committee appointed by the Israeli Ministers of Communications and Finance, the Hayek Committee, published its preliminary recommendations for public comments. The Hayek Committee’s recommendations relate to an array of fields in the Israeli Communications market. The final recommendations of the Hayek Committee, if adopted, may have a significant influence on competition in the markets in which the Bezeq Group operates.
|
|
■
In September 2010, the Ministry of Communications published a tender for the grant of frequencies and a license for new cellular operators that will own infrastructure. Existing operators (excluding Mirs), as well as their affiliates, were forbidden to bid in the tender. The tender includes various benefits for the winner, the purpose of which is to promote competition, remove barriers and to ease the entry of another operator.
|
|
■
In April 2011 Mirs Communication Ltd. (of the HOT-Mirs Group) and Marathon Telecommunications Ltd. (of the Xfone Group) won tenders for the grant of frequencies and a license for cellular operators that will own infrastructure. Under the terms of the tender, the new operators will be able to launch their operation after deploying a cellular network which initially will cover 10% of the population of Israel. After the deployment, the new operators will be able to use the networks of the existing operators for a period of seven years (with an extension option subject to approval for up to a further three years) based on a national roaming model. Pelephone anticipates that the entry of the new operators will intensify competition in the cellular market.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
E.
|
Other
|
On January 24, 2011 the Board of Directors of Bezeq approved an early retirement plan for 2011 (which includes completion of the quota for 2010), under which up to 260 employees will retire from Bezeq at a total cost not to exceed NIS 281.5, in accordance with the terms of the special collective agreement of December 2006 and its amendment in December 2010.
|
|
On December 19, 2010, an amendment to Bezeq’s collective agreement, which will be in effect until December 31, 2015 (with an option for an extension to December 31, 2017), was entered into. The main points of the amendment are:
|
|
■
Extension of the retirement arrangements under the collective agreement to December 31, 2016. Under these retirement arrangements, Bezeq may, at its discretion, terminate the employment of up to 245 permanent employees in each of the years 2010 – 2016.
|
|
■
Definition of “New Permanent Employee”, the terms of whose employment differ from those of a veteran permanent employee of Bezeq under the collective agreement: An employee whose wage model is according to Bezeq’s wage policy and market wages; at the end of employment with Bezeq the employee is entitled to increased severance pay only (depending on the number of years of employment).
|
|
■
Agreement of the union to a distribution by Bezeq to its shareholders that is in excess of profits of up to NIS 3 billion, subject to the approval of a court of law pursuant to Section 303 of the Companies Law and subject to an allotment of options to employees as described below and subject to confirmation from the ratings companies S&P Maalot and Midroog that the rating of Bezeq’s debt after the distribution will not fall below AA and Aa2 respectively.
|
|
■
Bezeq granted to employees, subject to the approval of the general meeting of the shareholders, without any monetary consideration, options to purchase 70,000,000 ordinary shares of NIS 1 par value each (in a mechanism for the exercise of stock appreciation rights), accounting for approximately 2.61% of the issued capital of Bezeq (before the grant of such options), at an exercise price of NIS 7.457, which will be adjusted for changes in the share capital and for distribution of a dividend.
|
|
■
Bezeq will pay its employees a one-time performance bonus in 2010, amounting to approximately NIS 52, which will be paid in two equal installments in January 2011 and January 2012.
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
E.
|
Other (cont’d)
|
Employee stock options plan – 2010. On December 19, 2010, the Board of Directors of Bezeq approved an employee stock option plan (also covering two employee-directors and excluding senior management), under which options to purchase 70,000,000 ordinary shares of NIS 1 par value each, will be allotted, (in a mechanism for the exercise of stock appreciation rights), accounting for approximately 2.61% of the issued capital of Bezeq (before the allotment), at an exercise price of NIS 7.457, which will be adjusted for changes in the share capital and for distribution of dividends. The options will vest in three equal annual installments. The vesting dates of each installment will be on the first, second and third anniversary of the date of grant. The options will be exercisable commencing two years from the date of grant and will terminate 5 years from the date of grant (and in any case, no later than the date on which the plan expires – December 31, 2018). The stock option plan was adopted following Bezeq’s undertaking pursuant to the December 2010 amendment to the 2006 collective agreement. The allotment of the options was approved at the general meeting of the shareholders on January 11, 2011. On March 1, 2011, options to purchase 67,552,262 shares had been allotted.
|
|
“Phantom” stock options plan for senior employees – 2010. On December 30, 2010, the Board of Directors of Bezeq adopted a “phantom” stock option plan under which 16,400,000 “phantom” options will be granted to senior managers of Bezeq, Pelephone and Bezeq International, and which will be exercisable for a monetary bonus (and not for Bezeq securities) in an amount equal to the difference between the average price per shares in the 30 day period prior to the date of grant (subject to adjustments) and the closing price of the shares on the trading day before the date of the notice of exercise. The options will vest in three equal annual installments. The vesting dates of each portion will fall on the first, second and third anniversary of the date of grant. The options can be exercised commencing from the end of the vesting period of each installment, until the lapse of five years from the date of grant. All the options under this plan were allotted on January 1, 2011.
|
|
●
In February 2011, Bezeq received a letter of undertaking from a bank in Israel for long-term credit amounting to up to NIS 1.5 billion to finance Bezeq’s cash flow requirements. The credit can be used for one year subject to the terms determined by the parties.
|
|
●
During May 2011 Bezeq completed finance Recruitment amounting to NIS 2 billion, through bank loans received from Israeli banks and an institutional body (a group). NIS 1.4 billion of the debt amount is a long term loan (duration of approximately 6.2 years) and NIS 600 of the debt amount is short term for a year. Bezeq committed to each of the banks that provided the credit (hereinafter : the funding bodies) with the following commitments:
|
B Communications Ltd.
|
Notes to the Consolidated Financial Statements
|
(All amounts are in millions except where otherwise stated)
|
E.
|
Other (cont’d)
|
1.
|
Commitment not to create additional liens on its assets (negative pledge) with terms identical to those given in the negative lien on behalf of the funding bodies subject to exceptions specified therein.
|
|
2.
|
The financing documents include generally accepted reasons that could cause an immediate repayment of credit. Including events that would result in the immediate repayment of credit, including events of breach, insolvency, liquidation proceedings or receivership proceedings, etc. and the right to immediate repayment if a third party lender should demand immediate repayment a debt him that amounts to more than the amount prescribed.
|
|
3.
|
Bezeq is committed that if it shall incur a new obligation towards a lender that includes financial covenants, the funding bodies will agree (under certain circumstance) to a request from Bezeq to undertake an identical commitment.
|
|
It should be noted that certain of the above financing actions were made in the exercise of the commitment letter for providing long-term credit that Bezeq received in February 2011 from a banking corporation described above, the scope of liability under the February 2011 commitment letter was reduced from NIS 1.5 billion to NIS 700.
|
2010
|
2009
|
2008
|
||||||||||||||
Note
|
NIS millions
|
NIS millions
|
NIS millions
|
|||||||||||||
Assets
|
||||||||||||||||
Cash and cash equivalents
|
6 | 365 | 580 | 786 | ||||||||||||
Investments, including derivatives
|
7 | 7 | 154 | 33 | ||||||||||||
Trade receivables
|
8 | 2,701 | 2,491 | 2,373 | ||||||||||||
Other receivables
|
8 | 224 | 171 | 211 | ||||||||||||
Inventory
|
178 | 263 | 158 | |||||||||||||
Current tax assets
|
3 | - | - | |||||||||||||
Assets classified as held for sale
|
29 | 40 | 34 | |||||||||||||
Total current assets
|
3,507 | 3,699 | 3,595 | |||||||||||||
Investments, including derivatives
|
7 | 129 | 130 | 187 | ||||||||||||
Trade and other receivables
|
8 | 1,114 | 887 | 576 | ||||||||||||
Broadcasting rights, net of rights exercised
|
- | - | 253 | |||||||||||||
Property, plant and equipment
|
10 | 5,610 | 5,428 | * | 6,208 | * | ||||||||||
Intangible assets
|
11 | 2,248 | 1,885 | 2,674 | ||||||||||||
Deferred and other expenses
|
12 | 292 | 301 | * | 239 | * | ||||||||||
Investments in equity-accounted investees
|
||||||||||||||||
(mainly loans)
|
13 | 1,084 | 1,219 | 32 | ||||||||||||
Deferred tax assets
|
9 | 254 | 392 | 550 | ||||||||||||
Total non-current assets
|
10,731 | 10,242 | 10,719 | |||||||||||||
Total assets
|
14,238 | 13,941 | 14,314 |
2010
|
2009
|
2008
|
||||||||||||||
Note
|
NIS millions
|
NIS millions
|
NIS millions
|
|||||||||||||
Liabilities
|
||||||||||||||||
Debentures, loans and borrowings
|
14 | 949 | 862 | 1,780 | ||||||||||||
Trade payables
|
15 | 1,061 | 1,091 | 1,381 | ||||||||||||
Other payables, including derivatives
|
15 | 770 | 697 | 850 | ||||||||||||
Current tax liabilities
|
267 | 118 | 45 | |||||||||||||
Deferred income
|
33 | 36 | 62 | |||||||||||||
Provisions
|
16 | 251 | 380 | 355 | ||||||||||||
Employee benefits
|
17 | 269 | 505 | 412 | ||||||||||||
Total current liabilities
|
3,600 | 3,689 | 4,885 | |||||||||||||
Debentures
|
14 | 1,967 | 2,716 | 3,943 | ||||||||||||
Bank loans
|
14 | 2,801 | 558 | 214 | ||||||||||||
Loans from institutions
|
- | - | 158 | |||||||||||||
Loans provided by non-controlling
interests in a subsidiary
|
- | - | 449 | |||||||||||||
Employee benefits
|
17 | 305 | 294 | 265 | ||||||||||||
Other liabilities
|
43 | 5 | 27 | |||||||||||||
Provisions
|
16 | 69 | 71 | 64 | ||||||||||||
Deferred tax liabilities
|
9 | 83 | 70 | 65 | ||||||||||||
Total non-current liabilities
|
5,268 | 3,714 | 5,185 | |||||||||||||
Total liabilities
|
8,868 | 7,403 | 10,070 | |||||||||||||
Equity
|
||||||||||||||||
Total equity attributable to equity holders of the Company
|
5,327 | 6,544 | 4,715 | |||||||||||||
Non-controlling interests
|
43 | (6 | ) | (471 | ) | |||||||||||
Total equity
|
21 | 5,370 | 6,538 | 4,244 | ||||||||||||
Total liabilities and equity
|
14,238 | 13,941 | 14,314 |
/s/ Shaul Elovitch
|
/s/ Avi Gabbay
|
/s/ Alan Gelman
|
||
Shaul Elovitch
|
Avi Gabbay
|
Alan Gelman
|
||
Chairman of the Board of Directors
|
CEO
|
Deputy CEO and CFO
|
*
|
Retrospective application by restatement, see Note 2H
|
2010
|
2009
|
2008
|
||||||||||||||
Note
|
NIS millions
|
NIS millions
|
NIS millions
|
|||||||||||||
Continuing operations
|
||||||||||||||||
Revenue
|
22 | 11,987 | 11,519 | 11,015 | ||||||||||||
Costs and expenses
|
||||||||||||||||
Depreciation and amortization
|
10,11,12 | 1,409 | 1,485 | 1,458 | ||||||||||||
Salaries
|
23 | 2,024 | 1,990 | 2,161 | ||||||||||||
General and operating expenses
|
24 | 5,026 | 4,871 | 4,660 | ||||||||||||
Other operating expenses (income), net
|
25 | (216 | ) | 201 | 96 | |||||||||||
8,243 | 8,547 | 8,375 | ||||||||||||||
Operating profit
|
29 | 3,744 | 2,972 | 2,640 | ||||||||||||
Financing income (expenses)
|
26 | |||||||||||||||
Financing expenses
|
391 | 398 | 494 | |||||||||||||
Financing income
|
(282 | ) | (429 | ) | (354 | ) | ||||||||||
Financing expenses (income), net
|
109 | (31 | ) | 140 | ||||||||||||
Profit after financing expenses (income), net
|
3,635 | 3,003 | 2,500 | |||||||||||||
Share of profits (losses) of equity accounted investees
|
13 | (261 | ) | (34 | ) | 5 | ||||||||||
Profit before income tax
|
3,374 | 2,969 | 2,505 | |||||||||||||
Income tax
|
9 | 932 | 807 | 719 | ||||||||||||
Profit for the year from continuing operations
|
2,442 | 2,162 | 1,786 | |||||||||||||
Discontinued operations
|
||||||||||||||||
Profit (loss) for the year from discontinued operations
|
13A(2) | - | 1,379 | (265 | ) | |||||||||||
Profit for the year
|
2,442 | 3,541 | 1,521 | |||||||||||||
Attributable to:
|
||||||||||||||||
owners of the Company
|
||||||||||||||||
Profit for the year from continuing operations
|
2,443 | 2,157 | 1,781 | |||||||||||||
Profit (loss) for the year from discontinued operations
|
- | 1,446 | (154 | ) | ||||||||||||
2,443 | 3,603 | 1,627 | ||||||||||||||
Non-controlling interests
|
||||||||||||||||
Profit (loss) from continuing operations
|
(1 | ) | 5 | 5 | ||||||||||||
Loss from discontinued operations
|
- | (67 | ) | (111 | ) | |||||||||||
(1 | ) | (62 | ) | (106 | ) | |||||||||||
Profit for the year
|
2,442 | 3,541 | 1,521 |
2010
|
2009
|
2008
|
||||||||||||||
Note
|
NIS
|
NIS
|
NIS
|
|||||||||||||
Earnings per share
|
28 | |||||||||||||||
Basic earnings per share)
|
||||||||||||||||
Earnings from continuing operations
|
0.91 | 0.82 | 0.68 | |||||||||||||
Earnings (loss) from discontinued operations
|
- | 0.55 | (0.06 | ) | ||||||||||||
0.91 | 1.37 | 0.62 | ||||||||||||||
Diluted earnings per share
|
||||||||||||||||
Profit from continuing operations
|
0.90 | 0.80 | 0.68 | |||||||||||||
Profit (loss) from discontinued operations
|
- | 0.54 | (0.07 | ) | ||||||||||||
0.90 | 1.34 | 0.61 |
2010
|
2009
|
2008
|
||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||
Profit for the year
|
2,442 | 3,541 | 1,521 | |||||||||
Other comprehensive income (loss) for the year, net of tax
|
13 | (11 | ) | (10 | ) | |||||||
Total comprehensive income for the year
|
2,455 | 3,530 | 1,511 | |||||||||
Attributable to:
|
||||||||||||
Owners of the Company
|
||||||||||||
Comprehensive income for the year from continuing operations
|
2,456 | 2,146 | 1,771 | |||||||||
Comprehensive income (loss) for the year from discontinued operations
|
- | 1,446 | (154 | ) | ||||||||
2,456 | 3,592 | 1,617 | ||||||||||
Non-controlling interests
|
||||||||||||
Comprehensive income (loss) for the year from continuing operations
|
(1 | ) | 5 | 5 | ||||||||
Comprehensive loss for the year from discontinued operations
|
- | (67 | ) | (111 | ) | |||||||
(1 | ) | (62 | ) | (106 | ) | |||||||
Total comprehensive income for the year
|
2,455 | 3,530 | 1,511 |
Share capital
|
Share premium
|
Capital reserve for options for employees
|
Capital reserve for a transaction between a corporation and a controlling shareholder
|
Other reserves *
|
Deficit
|
Total
|
Non-controlling interests
|
Total equity
|
||||||||||||||||||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||||||||||||||||||||
Attributable to owners of the Company
|
||||||||||||||||||||||||||||||||||||
Balance as at January 1, 2010
|
6,187 | 275 | 210 | 390 | (5 | ) | (513 | ) | 6,544 | (6 | ) | 6,538 | ||||||||||||||||||||||||
Profit for the year
|
- | - | - | - | - | 2,443 | 2,443 | (1 | ) | 2,442 | ||||||||||||||||||||||||||
Other comprehensive income for the year, net of tax
|
- | - | - | - | - | 13 | 13 | - | 13 | |||||||||||||||||||||||||||
Total comprehensive income for the year
|
- | - | - | - | - | 2,456 | 2,456 | (1 | ) | 2,455 | ||||||||||||||||||||||||||
Transactions with owners recognized directly in equity
|
||||||||||||||||||||||||||||||||||||
Dividends to Company shareholders
|
- | - | - | - | - | (3,733 | ) | (3,733 | ) | - | (3,733 | ) | ||||||||||||||||||||||||
Share-based payments
|
- | - | 39 | - | - | - | 39 | - | 39 | |||||||||||||||||||||||||||
Exercise of options for Company shares
|
26 | 103 | (103 | ) | - | - | - | 26 | - | 26 | ||||||||||||||||||||||||||
Transfers by non-controlling interests, net
|
- | - | - | - | - | - | - | 2 | 2 | |||||||||||||||||||||||||||
Non-controlling interests in a business combination
|
- | - | - | - | - | - | - | 57 | 57 | |||||||||||||||||||||||||||
Increase in the rate of holding in a subsidiary
|
- | - | - | - | (5 | ) | - | (5 | ) | (9 | ) | (14 | ) | |||||||||||||||||||||||
Balance as at December 31, 2010
|
6,213 | 378 | 146 | 390 | (10 | ) | (1,790 | ) | 5,327 | 43 | 5,370 |
*
|
Including translation reserve, reserve from available-for-sale assets and reserve from transactions with non-controlling interests
|
Share capital
|
Share premium
|
Capital reserve for options for employees
|
Capital reserve for a transaction between a corporation and a controlling shareholder
|
Other reserves *
|
Deficit
|
Total
|
Non-controlling interests
|
Total equity
|
||||||||||||||||||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||||||||||||||||||||
Attributable to owners of the Company
|
||||||||||||||||||||||||||||||||||||
Balance at January 1, 2009
|
6,132 | - | 362 | 390 | (4 | ) | (2,165 | ) | 4,715 | (471 | ) | 4,244 | ||||||||||||||||||||||||
Profit for the year
|
- | - | - | - | - | 3,603 | 3,603 | (62 | ) | 3,541 | ||||||||||||||||||||||||||
Other comprehensive income for the year, net of tax
|
- | - | - | - | (1 | ) | (10 | ) | (11 | ) | - | (11 | ) | |||||||||||||||||||||||
Total comprehensive income for the year
|
- | - | - | - | (1 | ) | 3,593 | 3,592 | (62 | ) | 3,530 | |||||||||||||||||||||||||
Transactions with owners recognized directly in equity
|
||||||||||||||||||||||||||||||||||||
Dividends to Company shareholders
|
- | - | - | - | - | (1,941 | ) | (1,941 | ) | - | (1,941 | ) | ||||||||||||||||||||||||
Share-based payments
|
- | - | 49 | - | - | - | 49 | - | 49 | |||||||||||||||||||||||||||
Exercise of options for Company shares
|
55 | 275 | (201 | ) | - | - | - | 129 | - | 129 | ||||||||||||||||||||||||||
Derecognition of non-controlling interests for
|
||||||||||||||||||||||||||||||||||||
deconsolidation of a subsidiary
|
- | - | - | - | - | - | - | 551 | 551 | |||||||||||||||||||||||||||
Dividends to non-controlling
|
||||||||||||||||||||||||||||||||||||
interests less transfers
|
- | - | - | - | - | - | - | (24 | ) | (24 | ) | |||||||||||||||||||||||||
Balance as at December 31, 2009
|
6,187 | 275 | 210 | 390 | (5 | ) | (513 | ) | 6,544 | (6 | ) | 6,538 |
Share capital
|
Capital reserve for options for employees
|
Capital reserve for a transaction between a corporation and a controlling shareholder
|
Other reserves *
|
Deficit
|
Total
|
Non-controlling interests
|
Total equity
|
|||||||||||||||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
|||||||||||||||||||||||||
Attributable to owners of the Company
|
||||||||||||||||||||||||||||||||
Balance as at January 1, 2008
|
6,132 | 287 | 390 | 4 | (2,276 | ) | 4,537 | (373 | ) | 4,164 | ||||||||||||||||||||||
Profit for the year
|
- | - | - | - | 1,627 | 1,627 | (106 | ) | 1,521 | |||||||||||||||||||||||
- | - | - | (8 | ) | (2 | ) | (10 | ) | - | (10 | ) | |||||||||||||||||||||
Comprehensive income for the year
|
- | - | - | (8 | ) | 1,625 | 1,617 | (106 | ) | 1,511 | ||||||||||||||||||||||
Transactions with owners recognized directly in equity
|
||||||||||||||||||||||||||||||||
Dividends to Company shareholders
|
- | - | - | - | (1,514 | ) | (1,514 | ) | - | (1,514 | ) | |||||||||||||||||||||
Share-based payments
|
- | 75 | - | - | - | 75 | - | 75 | ||||||||||||||||||||||||
Transfers by non-controlling interests
|
- | - | - | - | - | - | 8 | 8 | ||||||||||||||||||||||||
Balance at December 31, 2008
|
6,132 | 362 | 390 | (4 | ) | (2,165 | ) | 4,715 | (471 | ) | 4,244 |
*
|
Including translation reserve and reserve from available-for-sale assets
|
2010
|
2009
|
2008
|
||||||||||||||
Note
|
NIS millions
|
NIS millions
|
NIS millions
|
|||||||||||||
Cash flows from operating activities
|
||||||||||||||||
Profit for the year
|
2,442 | 3,541 | 1,521 | |||||||||||||
Adjustments:
|
||||||||||||||||
Depreciation
|
10 | 1,114 | 1,343 | * | 1,401 | * | ||||||||||
Amortization of intangible assets
|
11 | 269 | 266 | 282 | * | |||||||||||
Amortization of deferred and other expenses
|
12 | 26 | 22 | * | 20 | |||||||||||
Profit from deconsolidation of a subsidiary
|
13 | - | (1,538 | ) | - | |||||||||||
Profit from a controlling shareholder in an investee
|
5 | (57 | ) | - | - | |||||||||||
Share of losses (profits) of
equity accounted investees
|
13 | 261 | 34 | (5 | ) | |||||||||||
Financing expenses, net
|
26 | 113 | 362 | 561 | ||||||||||||
Capital gain, net
|
25 | (171 | ) | (64 | ) | (68 | ) | |||||||||
Expenses (income) for derivatives, net
|
12 | - | - | |||||||||||||
Share-based payments
|
27 | 35 | 49 | 75 | ||||||||||||
Income tax expenses
|
9 | 932 | 807 | 719 | ||||||||||||
Proceeds (payment) of derivatives, net
|
(2 | ) | 11 | (38 | ) | |||||||||||
Change in inventory
|
84 | (114 | ) | 42 | ||||||||||||
Change in trade and other receivables
|
8 | (300 | ) | (546 | ) | (54 | ) | |||||||||
Change in trade and other payables
|
15 | (21 | ) | 247 | (219 | ) | ||||||||||
Change in provisions
|
16 | (136 | ) | 36 | (34 | ) | ||||||||||
Change in broadcasting rights
|
- | (49 | ) | (11 | ) | |||||||||||
Change in employee benefits
|
17 | (215 | ) | 115 | (302 | ) | ||||||||||
Change in deferred and other income
|
- | (41 | ) | 50 | ||||||||||||
Net income tax paid
|
(690 | ) | (565 | ) | (535 | ) | ||||||||||
Net cash from operating activities
|
3,696 | 3,916 | 3,405 | |||||||||||||
Cash flow used in investing activities
|
||||||||||||||||
Investment in intangible assets and deferred expenses
|
11,12 | (343 | ) | (349 | ) | (469 | ) | |||||||||
Proceeds from the sale of property, plant and equipment and other assets
|
131 | 90 | 147 | |||||||||||||
Change in current investments, net
|
138 | (134 | ) | 321 | ||||||||||||
Purchase of property, plant and equipment
|
10 | (1,279 | ) | (1,363 | ) | (1,300 | ) | |||||||||
Proceeds from disposal of investments and long-term loans
|
11 | 93 | 19 | |||||||||||||
Acquisition of investments and long-term loans
|
(6 | ) | (4 | ) | (8 | ) | ||||||||||
Business combinations less cash acquired
|
(145 | ) | - | - | ||||||||||||
Dividends received
|
- | 6 | 13 | |||||||||||||
Interest received
|
9 | 29 | 64 | |||||||||||||
Net cash used in investing activities
|
(1,484 | ) | (1,632 | ) | (1,213 | ) |
*
|
Retrospective application by restatement, see Note 2H
|
2010
|
2009
|
2008
|
||||||||||||||
Note
|
NIS millions
|
NIS millions
|
NIS millions
|
|||||||||||||
Cash flows used in financing activities
|
||||||||||||||||
Bank loans received
|
14 | 2,670 | 400 | - | ||||||||||||
Repayment of debentures
|
14 | (697 | ) | (682 | ) | (714 | ) | |||||||||
Repayment of loans
|
14 | (448 | ) | (109 | ) | (148 | ) | |||||||||
Net short-term borrowing
|
14 | (6 | ) | 48 | (50 | ) | ||||||||||
Dividends paid
|
21 | (3,733 | ) | (1,941 | ) | (1,514 | ) | |||||||||
Interest paid
|
(237 | ) | (354 | ) | (243 | ) | ||||||||||
Net proceeds for derivatives
|
10 | 43 | 52 | |||||||||||||
Dividends paid to non-controlling interests
less transfers, net
|
2 | (24 | ) | 8 | ||||||||||||
Increase in the rate of holding in a subsidiary
|
(14 | ) | - | - | ||||||||||||
Proceeds from exercise of options
|
26 | 129 | - | |||||||||||||
Net cash used for financing activities
|
(2,427 | ) | (2,490 | ) | (2,609 | ) | ||||||||||
Net decrease in cash and cash equivalents
|
(215 | ) | (206 | ) | (417 | ) | ||||||||||
Cash and cash equivalents at January 1
|
580 | 786 | 1,203 | |||||||||||||
Cash and cash equivalents at end of year
|
6 | 365 | 580 | 786 |
|
A.
|
Bezeq – The Israel Telecommunication Corp. Limited (hereinafter “the Company”) is a company registered in Israel whose shares are traded on the Tel Aviv Stock Exchange. The consolidated financial statements of the Company as at December 31, 2010 include those of the Company and its subsidiaries (together referred to as “the Group”), as well as the Group’s interest in associates. The Group is a principal provider of communication services in Israel (see also Note 29 – Segment Reporting).
|
|
B
.
|
Beginning April 14, 2010, B Communications Ltd. (“B Communications”) (formerly 012 Smile Communications Ltd.) is the controlling shareholder of the Company, through B Communications (SP2) Ltd. (“B Communications SP2”), which is wholly owned and controlled (indirectly) by B Communications. At December 31, 2010, B Communications held 30.31% of the Company’s shares. The controlling shareholder of B Communications is Internet Gold-Golden Lines Ltd. The controlling shareholder of Internet Gold-Golden Lines Ltd. is Eurocom Communications Ltd. (“Eurocom Communications”). Eurocom Communications is owned by Eurocom Holdings (1979) Ltd., which is controlled by Shaul Elovitch.
|
|
C.
|
The Company is subject to various sets of laws that regulate and restrict its business activities, including its tariffs. The Company’s tariffs are regulated by provisions in the Communications Law. The Company’s service fees are regulated and updated according to a linkage formula. The Company was declared a monopoly in the main areas in which it operates. All the operating segments of the Group are subject to competition. The operations of the Group are subject, in general, to government regulation and supervision. The intensifying competition and changes in the communication market could have an adverse effect on the business results of the Group.
|
|
A.
|
Definitions
|
|
(1)
|
International Financial Reporting Standards (IFRS) – Standards and interpretations that were adopted by the International Accounting Standards Board (IASB) and which include international financial reporting standards and international accounting standards (IAS), along with the interpretations to these standards of the International Financial Reporting Interpretations Committee (IFRIC) or interpretations of the Standing Interpretations Committee (SIC), respectively.
|
|
(2)
|
The Company
: Bezeq The Israel Telecommunication Corporation Limited
|
|
(3)
|
The Group
: Bezeq The Israel Telecommunication Corporation Limited and its subsidiaries, as listed in Note 13 – Investees
|
|
(4)
|
Subsidiaries
: Companies, including a partnership whose financial statements are fully consolidated, directly or indirectly, with the financial statements of the Company.
|
|
(5)
|
Jointly-controlled companies
: Companies owned by various entities that have a contractual agreement for common control, and whose financial statements are consolidated with those of the Company using the proportionate consolidation method.
|
|
(6)
|
Associates
: Companies, including a partnership, in which the Group’s investment is included, directly or indirectly, in the consolidated financial statements on the equity basis.
|
|
(7)
|
Investees
: Subsidiaries, Jointly-controlled companies or associates
|
|
(8)
|
Related party
– As defined in IAS 24,
Related Party Disclosures
|
|
A.
|
Definitions (contd.)
|
|
(9)
|
Interested parties
: As defined in paragraph (1) of the definition of an “interested party” in section 1 of the Securities Law, 5728-1968
|
(10)
|
CPI
– The consumer price index as published by the Central Bureau of Statistics
|
|
B.
|
Statement of compliance
|
|
C.
|
Functional currency and presentation currency
|
|
D.
|
Basis of measurement
|
·
|
Financial instruments, including financial derivatives, at fair value through profit or loss
|
·
|
Financial assets classified as available-for-sale at fair value
|
·
|
Equity-accounted investments
|
·
|
Deferred tax assets and liabilities
|
·
|
Provisions
|
·
|
Liabilities for employee benefits
|
·
|
Liabilities for cash-settled share-based payment arrangements
|
|
E.
|
Operating cycle
|
|
F.
|
Classification of expenses recognized in the statement of income
|
|
G.
|
Use of estimates and judgment
|
·
|
Note 8
|
-
|
Provision for doubtful debts
|
|
·
|
Note 9
|
-
|
Use of losses for tax purposes and deferred tax assets and liabilities recognized
|
|
·
|
Note 10
|
-
|
Estimated useful life and residual value of items of property, plant and equipment and calculation of deemed cost
|
|
·
|
Note 11
|
-
|
Measurement of recoverable amounts of cash-generating units
|
|
·
|
Note 13
|
-
|
Investment in investees at fair value
|
|
·
|
Notes 16 and 18
|
-
|
Provisions and contingent liabilities
|
|
·
|
Note 17
|
-
|
Measurement of employee benefit liabilities
|
|
·
|
Note 27
|
-
|
Measurement of share-based payments
|
H.
|
Changes in accounting policies – Initial implementation of new accounting standards
|
|
A.
|
Basis of consolidation
|
|
(1)
|
Business combinations
|
|
(2)
|
Subsidiaries
|
|
A.
|
Basis of consolidation (contd.)
|
|
(3)
|
Jointly-controlled companies
|
|
(4)
|
Non-controlling interests
|
|
(5)
|
Put option granted to non-controlling shareholders
|
|
(6)
|
Loss of control
|
|
A.
|
Basis of consolidation (contd.)
|
|
(7)
|
Special purpose entity
|
|
(8)
|
Associates (accounted for by the equity method)
|
|
(9)
|
Transactions eliminated on consolidation
|
|
B.
|
Foreign currency transactions
|
|
C.
|
Financial instruments
|
|
(1)
|
Non-derivative financial instruments
|
|
C.
|
Financial instruments (contd.)
|
|
(1)
|
Non-derivative financial instruments (contd.)
|
|
(2)
|
Derivative financial instruments
|
|
(3)
|
CPI-linked assets and liabilities that are not measured at fair value
|
|
D.
|
Property, plant and equipment
|
|
(1)
|
Recognition and measurement
|
|
(2)
|
Subsequent costs
|
|
(3)
|
Capitalization of borrowing costs
|
|
(4)
|
Depreciation
|
|
D.
|
Property, plant and equipment (contd.)
|
|
(4)
|
Depreciation (contd.)
|
Years
|
Principal
depreciation
rate (%)
|
|||||||
NGN equipment
|
8 | 12 | ||||||
Digital switching equipment
|
4-10 | 25 | ||||||
Transmission and power equipment
|
5-10 | 20 | ||||||
Network equipment
|
5-25 | 4 | ||||||
Terminal equipment (cellular)
|
2-3 | 33 | ||||||
Subscriber equipment
|
5 | 20 | ||||||
Vehicles
|
7 | 15 | ||||||
Internet equipment
|
4-7 | 20 | ||||||
Office equipment
|
5-16 | 10 | ||||||
Electronic equipment, computers and internal communication systems
|
3-7 | 33 | ||||||
Cellular network
|
5-10 | 10 | ||||||
Buildings
|
25 | 4 |
|
E.
|
Non-current assets held for sale
|
|
F.
|
Intangible assets
|
|
(1)
|
Goodwill
|
|
(2)
|
Software development costs
|
|
F.
|
Intangible assets (contd.)
|
|
(3)
|
Subscriber acquisition
|
|
(4)
|
Software
|
|
(5)
|
Rights to frequencies
|
|
(6)
|
Other intangible assets
|
|
(7)
|
Subsequent expenditure
|
|
(8)
|
Amortization
|
Capitalized development costs
|
4-7 years
|
Other rights
|
3 - 10 years, depending on the useful life
|
Subscriber acquisition costs
|
Depending on the contractual commitment with the subscriber
|
Frequency usage right
|
Over the term of the license for 13.6 years starting from the date of use of the frequencies
|
Computer programs and software licenses
|
Over the term of the license or the estimated time of use of the program
|
|
G.
|
Leased assets
|
|
H.
|
Inventory
|
|
I.
|
Impairment
|
|
(1)
|
Financial assets
|
|
I.
|
Impairment (contd.)
|
|
(1)
|
Financial assets (contd.)
|
|
(2)
|
Non-financial assets
|
|
J.
|
Employee benefits
|
|
(1)
|
Post-employment benefits
|
A.
|
Defined contribution plans
|
B.
|
Defined benefit plans
|
|
(2)
|
Other long-term employee benefits
|
|
J.
|
Employee benefits (contd.)
|
|
(3)
|
Benefits for early retirement and dismissal
|
|
(4)
|
Short-term benefits
|
|
(5)
|
Share-based payments
|
|
K.
|
Provisions
|
|
(1)
|
Legal claims
|
|
A.
|
More likely than not – more than 50% probability
|
|
B.
|
Possible – probability higher than unlikely but less than 50%
|
|
C.
|
Unlikely – probability of 10% or less
|
|
K.
|
Provisions (contd.)
|
|
(2)
|
Onerous contracts
|
|
(3)
|
Site dismantling and clearing costs
|
|
(4)
|
Warranty
|
|
L.
|
Revenue
|
|
(1)
|
Equipment sales
|
|
(2)
|
Revenue from services
|
|
(3)
|
Multi-component sales agreements
|
|
(4)
|
Reporting of gross or net revenues
|
|
M.
|
Financing income and expenses
|
|
N.
|
Income tax expense
|
|
O.
|
Earnings per share
|
|
P.
|
Segment reporting
|
|
(1)
|
It engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components.
|
|
(2)
|
Its operating results are reviewed regularly by the Group’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance.
|
|
(3)
|
Separate financial information is available in its respect.
|
|
Q.
|
Transactions with a controlling shareholder
|
|
R.
|
Dividends declared subsequent to the reporting date
|
|
S.
|
New standards and interpretations not yet adopted
|
|
(1)
|
IFRS 9 (2010) – Financial Instruments (“the Standard”) This Standard is one of the stages in a comprehensive project to replace IAS 39 – Financial Instruments: Recognition and
Measurement
(“IAS 39”) and it replaces the requirements included in IAS 39 regarding the classification and measurement of financial assets and financial liabilities.
|
|
(2)
|
IAS 24 (2009)
Related Party Disclosures
(“the Standard”). The new standard includes changes in the definition of a related party and changes with respect to disclosures required by entities related to government. The Standard is to be applied retrospectively for annual periods beginning on or after January 1, 2011. The Group is in the process of reassessing its relationships with related parties for the purpose of examining the effects of adopting the Standard on its financial statements.
|
|
A.
|
Investment in securities
|
|
B.
|
Trade receivables
|
|
C.
|
Derivatives
|
|
D.
|
Property, plant and equipment
|
|
E.
|
Intangible assets
|
|
F.
|
Non-derivative financial liabilities
|
|
G.
|
Share-based payment transactions
|
|
A.
|
Walla! Communications Ltd. (Walla)
|
Values recognized at the acquisition date
|
||||
NIS millions
|
||||
Identifiable assets and liabilities, net
|
111 | |||
Prior equity rights in an acquiree
|
(94 | ) | ||
Goodwill upon acquisition
|
70 | |||
Non-controlling interests
|
(57 | ) | ||
Cost of business combination
|
30 | |||
Proceeds paid in cash
|
(89 | ) | ||
Cash acquired
|
59 | |||
Cash paid, net
|
(30 | ) |
|
B.
|
Coral Tell Ltd.
|
Values recognized at the acquisition date
|
||||
NIS millions
|
||||
Identifiable assets and liabilities, net
|
81 | |||
Goodwill upon acquisition
|
77 | |||
Put option for non-controlling interests
|
(38 | ) | ||
Payables for investment and media services
|
(5 | ) | ||
Cost of business combination
|
115 | |||
Proceeds paid in cash
|
(116 | ) | ||
Cash acquired
|
1 | |||
Cash paid, net
|
(115 | ) |
December 31, 2010
|
December 31, 2009
|
|||||||
NIS millions
|
NIS millions
|
|||||||
Bank balances
|
55 | 64 | ||||||
Call deposits
|
310 | 516 | ||||||
365 | 580 |
|
A.
|
Categories of financial assets
|
December 31, 2010
|
December 31, 2009
|
|||||||
NIS millions
|
NIS millions
|
|||||||
Current investments
|
||||||||
Derivative instruments
|
5 | 13 | ||||||
Financial assets held for trading (monetary reserve)
|
- | 141 | ||||||
Other investments
|
2 | - | ||||||
7 | 154 | |||||||
Non-current investments
|
||||||||
Bank deposit for providing loans to employees (2)
|
83 | 83 | ||||||
Available-for-sale financial assets (1)
|
31 | 37 | ||||||
Derivative instruments
|
10 | 10 | ||||||
Other investments
|
5 | - | ||||||
129 | 130 | |||||||
136 | 284 |
|
(1)
|
Sensitivity analysis – price risk of available-for-sale assets (shares and options)
|
|
(2)
|
The deposit serves as a security for providing bank loans to Company employees. The deposit is unlinked and the effective interest rate of the deposit at December 31, 2010 is 2.15% (in 2009, 2.73%). The Company is liable for the loans to employees. The deposit is stated at its present value, taking into account the loan repayment schedule, based on a weighted average discount rate of 3.28% (in 2009, 3.53%).
|
|
B.
|
Analysis of forecasted maturity dates
|
2011
|
2012
|
Undetermined
|
Total
|
|||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
|||||||||||||
Investments in available-for-sale financial assets
|
- | - | 31 | 31 | ||||||||||||
Bank deposit for providing loans to employees
|
- | - | 83 | 83 | ||||||||||||
Derivatives
|
5 | 10 | - | 15 | ||||||||||||
Other investments
|
2 | - | 5 | 7 | ||||||||||||
7 | 10 | 119 | 136 |
|
A.
|
Composition of trade and other receivables
|
December 31, 2010
|
December 31, 2009
|
|||||||
NIS millions
|
NIS millions
|
|||||||
Trade receivables
|
||||||||
Outstanding debts
|
719 | 681 | ||||||
Credit cards and checks receivable
|
554 | 492 | ||||||
Revenue receivable
|
413 | 398 | ||||||
Current maturities of long-term receivables
|
992 | 850 | ||||||
Related and interested parties
|
23 | 70 | ||||||
2,701 | 2,491 | |||||||
Receivables
|
||||||||
Prepaid expenses
|
119 | 88 | ||||||
Other receivables
|
105 | 83 | ||||||
224 | 171 | |||||||
Long-term trade and other receivables
|
||||||||
Trade receivables – open debts (1)
|
954 | 823 | ||||||
Trade receivables - associate
|
44 | 8 | ||||||
Long term receivables
|
116 | 56 | ||||||
1,114 | 887 | |||||||
4,039 | 3,549 |
|
B.
|
Aging of trade receivables at the reporting date:
|
December 31, 2010
|
December 31, 2009
|
|||||||||||||||
Trade receivables (gross)
|
Provision for doubtful debts
|
Trade receivables (gross)
|
Provision for doubtful debts
|
|||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
|||||||||||||
Not past due
|
3,423 | (39 | ) | 2,958 | (17 | ) | ||||||||||
Past due up to one year
|
294 | (80 | ) | 354 | (97 | ) | ||||||||||
Past due one to two years
|
127 | (73 | ) | 127 | (62 | ) | ||||||||||
Past due more than two years
|
176 | (129 | ) | 165 | (106 | ) | ||||||||||
4,020 | (321 | ) | 3,604 | (282 | ) |
|
C.
|
Change in provision for doubtful debts during the year:
|
December 31, 2010
|
December 31, 2009
|
|||||||
NIS millions
|
NIS millions
|
|||||||
Balance at January 1
|
282 | 311 | ||||||
Additions in respect of a business combination
|
5 | - | ||||||
Derecognition of discontinued operations
|
- | (9 | ) | |||||
Impairment loss recognized
|
62 | 55 | ||||||
Lost debts
|
(28 | ) | (75 | ) | ||||
Balance at December 31
|
321 | 282 |
|
A.
|
General
|
Year ended December 31
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||
Current tax expense
|
||||||||||||
For the current period
|
823 | 671 | 526 | |||||||||
Adjustments for prior years, net
|
- | (30 | ) | (4 | ) | |||||||
823 | 641 | 522 | ||||||||||
Deferred tax expense
|
||||||||||||
Creation and reversal of temporary differences
|
114 | 136 | 197 | |||||||||
Effect of change in tax rates
|
(5 | ) | 30 | - | ||||||||
109 | 166 | 197 | ||||||||||
Income tax expenses
|
932 | 807 | 719 |
|
B.
|
Reconciliation between the theoretical tax on the pre-tax profit and the tax expense
|
Year ended December 31
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||
Profit before income tax
|
3,374 | 2,969 | 2,505 | |||||||||
Statutory tax rate
|
25 | % | 26 | % | 27 | % | ||||||
Income tax at the statutory tax rate
|
844 | 772 | 676 | |||||||||
Differences in the tax rate
|
(8 | ) | 60 | 13 | ||||||||
Expenses not recognized for tax purposes
|
31 | (4 | ) | 35 | ||||||||
Adjusted tax calculated for the Company’s share in
equity-accounted investees
|
65 | 9 | (1 | ) | ||||||||
Taxes for previous years
|
- | (30 | ) | (4 | ) | |||||||
932 | 807 | 719 |
|
C.
|
Unrecognized deferred tax liabilities
|
|
D.
|
Unrecognized deferred tax assets
|
|
E.
|
Recognized tax assets and deferred tax liabilities
|
Assets
|
Liabilities
|
Net
|
||||||||||||||||||||||
2010
|
2009
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
|||||||||||||||||||
Property, plant and equipment
|
- | - | 149 | 130 | (149 | ) | (130 | ) | ||||||||||||||||
Doubtful debts
|
54 | 47 | - | - | 54 | 47 | ||||||||||||||||||
Employee benefit plan
|
264 | 338 | - | - | 264 | 338 | ||||||||||||||||||
Share-based payments
|
20 | 33 | - | - | 20 | 33 | ||||||||||||||||||
Provisions
|
29 | 38 | - | - | 29 | 38 | ||||||||||||||||||
Carry-forward tax losses
|
2 | 2 | - | - | 2 | 2 | ||||||||||||||||||
Other assets and deferred expenses
|
6 | 6 | 55 | 12 | (49 | ) | (6 | ) | ||||||||||||||||
375 | 464 | 204 | 142 | 171 | 322 |
|
F.
|
Changes in temporary differences during the year
|
Balance at January 1, 2009
|
Changes recognized in profit or loss
|
Changes recognized in
equity
|
Balance at December 31, 2009
|
Changes recognized in profit or loss
|
Changes recognized in
equity
|
Business combinations
|
Balance at December 31, 2010
|
|||||||||||||||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
|||||||||||||||||||||||||
Property, plant and equipment
|
(100 | ) | (30 | ) | - | (130 | ) | (19 | ) | - | - | (149 | ) | |||||||||||||||||||
Doubtful debts
|
47 | - | - | 47 | 7 | - | - | 54 | ||||||||||||||||||||||||
Employee benefit plans
|
366 | (31 | ) | 3 | 338 | (70 | ) | (4 | ) | - | 264 | |||||||||||||||||||||
Share-based payments
|
122 | (89 | ) | - | 33 | (13 | ) | - | - | 20 | ||||||||||||||||||||||
Provisions
|
48 | (10 | ) | - | 38 | (9 | ) | - | - | 29 | ||||||||||||||||||||||
Carry-forward tax losses
|
4 | (2 | ) | - | 2 | - | - | - | 2 | |||||||||||||||||||||||
Other assets and deferred expenses
|
(2 | ) | (4 | ) | - | (6 | ) | (5 | ) | (1 | ) | (37 | ) | (49 | ) | |||||||||||||||||
485 | (166 | ) | 3 | 322 | (109 | ) | (5 | ) | (37 | ) | 171 |
|
G.
|
Amendments to the Income Tax Ordinance
|
|
H.
|
Final tax assessments
|
|
(1)
|
The Company has received final tax assessments up to and including 2004.
|
|
(2)
|
Bezeq International has received final tax assessments up to and including 2005.
|
|
(3)
|
Pelephone, Walla and Bezeq Online have received final tax assessments up to and including 2006.
|
Composition and Activity:
|
Land and buildings
|
Switching, transmission, power, cellular and satellite equipment
|
Network equipment
|
Subscriber equipment
|
Vehicles
|
Office equipment and computers
|
Total
|
|||||||||||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||||||||||||||
|
||||||||||||||||||||||||||||
Cost or deemed cost
|
||||||||||||||||||||||||||||
Balance as at January 1, 2009
|
2,209 | 4,770 | 12,450 | 3,544 | 84 | 1,353 | 24,410 | |||||||||||||||||||||
Additions
|
54 | 558 | 346 | 207 | 37 | 92 | 1,294 | |||||||||||||||||||||
Disposals (D, below)
|
(180 | ) | (376 | ) | (6 | ) | (217 | ) | (24 | ) | (110 | ) | (913 | ) | ||||||||||||||
Transfer to assets held for sale
|
(10 | ) | - | - | - | - | - | (10 | ) | |||||||||||||||||||
Discontinued operations
|
(40 | ) | (232 | ) | - | (2,928 | ) | - | (74 | ) | (3,274 | ) | ||||||||||||||||
Balance as at December 31, 2009
|
2,033 | 4,720 | 12,790 | 606 | 97 | 1,261 | 21,507 | |||||||||||||||||||||
Balance as at January 1, 2010
|
2,033 | 4,720 | 12,790 | 606 | 97 | 1,261 | 21,507 | |||||||||||||||||||||
Additions
|
64 | 471 | 525 | 106 | 78 | 84 | 1,328 | |||||||||||||||||||||
Disposals (D, below)
|
(92 | ) | (223 | ) | (367 | ) | (256 | ) | (5 | ) | (9 | ) | (952 | ) | ||||||||||||||
Transfer from assets held for sale
|
40 | - | - | - | - | - | 40 | |||||||||||||||||||||
Addition in respect of a business combination
|
10 | - | - | - | - | 57 | 67 | |||||||||||||||||||||
Balance as at December 31, 2010
|
2,055 | 4,968 | 12,948 | 456 | 170 | 1,393 | 21,990 | |||||||||||||||||||||
Depreciation and impairment losses
|
||||||||||||||||||||||||||||
Balance at January 1, 2009
|
1,583 | 2,515 | 10,226 | 2,752 | 60 | 1,066 | 18,202 | |||||||||||||||||||||
Depreciation for the year
|
74 | 631 | 281 | 124 | 8 | 97 | 1,215 | |||||||||||||||||||||
Depreciation from discontinued operations
|
2 | 10 | - | 109 | - | 7 | 128 | |||||||||||||||||||||
Disposals (D, below)
|
(140 | ) | (376 | ) | (3 | ) | (206 | ) | (24 | ) | (110 | ) | (859 | ) | ||||||||||||||
Transfer to assets held for sale
|
(11 | ) | - | - | - | - | - | (11 | ) | |||||||||||||||||||
Discontinued operations
|
(29 | ) | (188 | ) | - | (2,331 | ) | - | (48 | ) | (2,596 | ) | ||||||||||||||||
Balance as at December 31, 2009
|
1,479 | 2,592 | 10,504 | 448 | 44 | 1,012 | 16,079 | |||||||||||||||||||||
Balance as at January 1, 2010
|
1,479 | 2,592 | 10,504 | 448 | 44 | 1,012 | 16,079 | |||||||||||||||||||||
Depreciation for the year
|
59 | 607 | 299 | 32 | 14 | 103 | 1,114 | |||||||||||||||||||||
Disposals (D, below)
|
(73 | ) | (222 | ) | (343 | ) | (246 | ) | (4 | ) | (9 | ) | (897 | ) | ||||||||||||||
Transfer from assets held for sale
|
30 | - | - | - | - | - | 30 | |||||||||||||||||||||
Additions in respect of a business combination
|
7 | - | - | - | - | 47 | 54 | |||||||||||||||||||||
Balance as at December 31, 2010
|
1,502 | 2,977 | 10,460 | 234 | 54 | 1,153 | 16,380 | |||||||||||||||||||||
Carrying amount
|
||||||||||||||||||||||||||||
January 1, 2009
|
626 | * | 2,255 | 2,224 | 792 | 24 | 287 | 6,208 | ||||||||||||||||||||
December 31, 2009
|
554 | * | 2,128 | 2,286 | 158 | 53 | 249 | 5,428 | ||||||||||||||||||||
December 31, 2010
|
553 | 1,991 | 2,488 | 222 | 116 | 240 | 5,610 |
|
A.
|
Determination of fair value as deemed cost:
Certain items of property, plant and equipment from switching, transmission and power equipment, mainly switching equipment, which were revalued to fair value on the date of transition to IFRS, were measured on the basis of their deemed cost, which was based on their fair value on the transition date (January 1, 2005), as assessed by the Group based on the valuation of an external appraiser.
|
|
B.
|
Residual value:
The residual value of the Group’s copper cables is assessed at the end of each reporting year. The residual value is NIS 689 million and NIS 598 million as at December 31, 2010 and December 31, 2009, respectively. The increase in residual value will decrease the depreciation expense of the Company by NIS 10 million in 2011.
|
|
C.
|
Cost of dismantling and removal of assets:
The cost of items of property, plant and equipment includes dismantling and removal costs, as well as site restoration costs where the Group has an obligation. These costs are depreciated according to the expected useful life of the sites. In 2010, the Group recognized, as part of the cost of property, plant and equipment, costs of NIS 5 million for dismantling and removal of assets (in 2009, NIS 5 million).
|
|
D.
|
Property, plant and equipment in the Group is derecognized at the end of each year upon reaching full depreciation, except for land, buildings, vehicles and copper cables, which are derecognized upon their sale. In 2010, the Group derecognized fully depreciated property at a cost of NIS 847 million (in 2009 NIS 661 million).
|
|
E.
|
The cost includes NIS 3 million in the Group, representing finance expenses which were capitalized in the reporting period in respect of loans and credit in the construction period and calculated at an average interest rate of 4.6% per year (in the prior year, 6.3%).
|
|
F.
|
For details of installation of the UMTS/HSPA network, see Note 19E. Depreciation commenced in January 2009, as the network was readied and became available for use.
|
|
G.
|
In July 2008, the Company launched the NGN project to replace the existing network. The Company expects that most of the deployment will be completed by the end of 2011.
|
|
H.
|
The Group companies reviewed the useful life of the property, plant and equipment through the depreciation committee, in order to determine the estimated useful life of their equipment. The findings of the committees do not indicate a need to change the estimated useful life of the property, plant and equipment.
|
|
J.
|
Most of the real estate assets used by the Company were transferred to it by the State of Israel, according to the provisions in the asset transfer agreement signed between the Company and the State on January 31, 1984. Some of these assets were leased for 49 years, with an option for an extension for another 49 years, and others were rented for two years, renewable each time for another two years.
|
|
K.
|
See Note 20 for liens.
|
Goodwill
|
Computer software and licenses and discounted development costs
|
Subscriber acquisition
|
Right of
use in communication and cellular frequencies (2)
|
Others
|
Total
|
|||||||||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
|||||||||||||||||||
Cost
|
||||||||||||||||||||||||
Balance at January 1, 2009
|
1,799 | 1,501 | 379 | 422 | 63 | 4,164 | ||||||||||||||||||
Acquisitions or additions from
|
||||||||||||||||||||||||
independent development
|
- | 198 | 95 | 2 | 1 | 296 | ||||||||||||||||||
Disposals (1)
|
- | (197 | ) | (46 | ) | - | - | (243 | ) | |||||||||||||||
Discontinued operations
|
(760 | ) | (135 | ) | (197 | ) | - | - | (1,092 | ) | ||||||||||||||
Balance as at December 31, 2009
|
1,039 | 1,367 | 231 | 424 | 64 | 3,125 | ||||||||||||||||||
Balance as at January 1, 2010
|
1,039 | 1,367 | 231 | 424 | 64 | 3,125 | ||||||||||||||||||
Acquisitions or additions
|
||||||||||||||||||||||||
from independent development
|
- | 218 | 81 | - | - | 299 | ||||||||||||||||||
Disposals (1)
|
- | (309 | ) | (160 | ) | - | - | (469 | ) | |||||||||||||||
Addition in respect of a business combination
|
194 | - | - | - | 187 | 381 | ||||||||||||||||||
Balance as at December 31, 2010
|
1,233 | 1,276 | 152 | 424 | 251 | 3,336 | ||||||||||||||||||
Amortization and impairment losses
|
||||||||||||||||||||||||
Balance at January 1, 2009
|
6 | 1,143 | 300 | - | 41 | 1,490 | ||||||||||||||||||
Amortization for the year
|
- | 146 | 65 | 29 | 9 | 249 | ||||||||||||||||||
Depreciation for discontinued operations
|
- | 5 | 12 | - | - | 17 | ||||||||||||||||||
Disposals (1)
|
- | (197 | ) | (46 | ) | - | - | (243 | ) | |||||||||||||||
Discontinued operations
|
- | (108 | ) | (165 | ) | - | - | (273 | ) | |||||||||||||||
Balance as at December 31, 2009
|
6 | 989 | 166 | 29 | 50 | 1,240 | ||||||||||||||||||
Balance as at January 1, 2010
|
6 | 989 | 166 | 29 | 50 | 1,240 | ||||||||||||||||||
Amortization for the year
|
- | 137 | 82 | 31 | 19 | 269 | ||||||||||||||||||
Disposals (1)
|
- | (309 | ) | (160 | ) | - | - | (469 | ) | |||||||||||||||
Addition in respect of a business combination
|
47 | - | - | - | 1 | 48 | ||||||||||||||||||
Balance as at December 31, 2010
|
53 | 817 | 88 | 60 | 70 | 1,088 | ||||||||||||||||||
Carrying amount
|
||||||||||||||||||||||||
January 1, 2009
|
1,793 | 358 | 79 | 422 | 22 | 2,674 | ||||||||||||||||||
December 31, 2009
|
1,033 | 378 | 65 | 395 | 14 | 1,885 | ||||||||||||||||||
December 31, 2010
|
1,180 | 459 | 64 | 364 | 181 | 2,248 |
|
(1)
|
Fully amortized intangible assets
|
|
(2)
|
Depreciation commenced in January 2009, as the network was readied and the frequencies became available for use.
|
|
Total value of goodwill attributable to each cash-generating unit:
|
2010
|
2009
|
|||||||
NIS millions
|
NIS millions
|
|||||||
Cellular communication – Pelephone Communications Ltd. (1)
|
1,027 | 1,027 | ||||||
Others
|
153 | 6 | ||||||
1,180 | 1,033 |
|
(1)
|
Goodwill impairment testing - Pelephone
|
December 31, 2010
|
December 31, 2009
|
December 31, 2008
|
||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||
Long-term prepaid expenses in respect of use of capacities **
|
288 | 296 | 234 | |||||||||
Other prepaid expenses
|
4 | 5 | 5 | |||||||||
292 | 301 | 239 |
*
|
Retrospective application by restatement, see Note 2H
|
**
|
See Note 3G
|
|
A.
|
Equity-accounted associates
|
|
(1)
|
Below is a summary of main associates, without adjustment for ownership percentage held by the Group:
|
a.
|
Financial position
|
December 31
|
||||||||||||||||||||||||||||||||
Ownership %
|
Current assets
|
Non-current assets
|
Total assets
|
Current liabilities
|
Non-current liabilities
|
Total liabilities
|
Revenue (deficit)
|
|||||||||||||||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||||||||||||||||||
2010*
|
||||||||||||||||||||||||||||||||
DBS Satellite Services (1998) Ltd.
|
49.78 | % | 180 | 1,063 | 1,243 | 802 | 3,863 | 4,665 | (3,422 | ) | ||||||||||||||||||||||
2009
|
||||||||||||||||||||||||||||||||
DBS Satellite Services (1998) Ltd.
|
49.78 | % | 171 | 1,035 | 1,206 | 903 | 3,411 | 4,314 | (3,108 | ) | ||||||||||||||||||||||
Walla! Communications Ltd.
|
34.24 | % | 149 | 31 | 180 | 78 | 8 | 86 | 94 |
b.
|
Operating Results
|
Year ended December 31
|
||||||||||||||||||||
Ownership (%)
|
Revenue
|
Gross profit
|
Operating profit (loss)
|
Profit (loss)
|
||||||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
|||||||||||||||||
2010*
|
||||||||||||||||||||
DBS Satellite Services (1998) Ltd.
|
49.78 | % | 1,583 | 454 | 178 | (314 | ) | |||||||||||||
2009
|
||||||||||||||||||||
DBS Satellite Services (1998) Ltd.
|
49.78 | % | 1,530 | 488 | 248 | (223 | ) | |||||||||||||
Walla! Communications Ltd.
|
34.24 | % | 132 | 73 | 28 | 20 |
*
|
In 2010, Walla Communications Ltd. was consolidated. See Note 5A.
|
|
A.
|
Equity-accounted associates (contd.)
|
|
(2)
|
Additional details regarding associates held indirectly by the Company
|
|
a.
|
Details of the Company’s loans to DBS, according to the terms of the loans:
|
December 31
|
||||||||
2010
|
2009
|
|||||||
NIS million
|
NIS million
|
|||||||
CPI-linked loans
|
1,145 | 1,119 | ||||||
CPI-linked loans, bearing interest at a rate of 5.5%
|
286 | 265 | ||||||
CPI-linked loans, bearing interest at a rate of 11%
|
1,112 | 979 | ||||||
2,543 | 2,363 |
|
b.
|
Details of the carrying amount of the loans as stated in the financial statements*:
|
December 31
|
||||
2010
|
||||
NIS millions
|
||||
CPI-linked loans
|
44 | |||
CPI-linked loans, bearing interest at a rate of 5.5%
|
172 | |||
CPI-linked loans, bearing interest at a rate of 11%
|
1,135 | |||
1,351 |
|
*
|
The fair value at the deconsolidation date, including interest and linkage differences accumulated from the deconsolidation date through to December 31, 2010.
|
|
c.
|
Activity in the investment account of DBS:
|
2010
|
||||
NIS millions
|
||||
Balance as at January 1, 2010
|
1,184 | |||
Interest and linkage differences
|
159 | |||
Company’s share in capital reserves
|
4 | |||
Company’s share in losses
|
(263 | ) | ||
Balance at December 31, 2010
|
1,084 |
|
A.
|
Equity-accounted associates (contd.)
|
|
(2)
|
Additional details regarding associates held indirectly by the Company
(contd.)
|
|
d.
|
The Company’s Board of Directors approved the waiver of NIS 250 million of the interest-free linked loans that the Company provided DBS, provided the other shareholder of DBS agrees to waive NIS 252 million of the loan it provided to DBS.
|
|
e.
|
DBS has a current debt to the Group companies. The balance of DBS's current debt to the Group companies amounts NIS 59 million, of which NIS 47 million is to the Company. See Note 30 below.
|
|
f.
|
For details of DBS’s financial position, see Notes 5 and 28 to the financial statements of DBS for 2010, which are attached to these financial statements. In addition, see Note 32 to the financial statements of DBS for subsequent events.
|
|
g.
|
For loans provided by the shareholders to DBS, see Note 16 to the financial statements of DBS, which are attached to these financial statements.
|
|
h.
|
For guarantees provided by the Company for DBS, see Note 20D and G.
|
|
i.
|
Deconsolidation of DBS in 2009
|
|
A.
|
Equity-accounted associates (contd.)
|
|
(2)
|
Additional details regarding associates held indirectly by the Company
(contd.)
|
|
i.
|
Deconsolidation of DBS in 2009 (contd.)
|
From January 1
to August 20 2009
|
Year ended
December 31 2008
|
|||||||
NIS millions
|
NIS millions
|
|||||||
Revenue
|
970 | 1,513 | ||||||
Cost of revenue
|
663 | 1,091 | ||||||
Gross profit
|
307 | 422 | ||||||
Selling and marketing expenses
|
79 | 128 | ||||||
General and administrative expenses
|
74 | 117 | ||||||
153 | 245 | |||||||
Operating profit
|
154 | 177 | ||||||
Finance expenses, net
|
313 | 441 | ||||||
Loss before income tax
|
(159 | ) | (264 | ) | ||||
Income tax
|
- | 1 | ||||||
Loss after income tax
|
(159 | ) | (265 | ) | ||||
Profit from deconsolidation of a subsidiary
|
1,538 | - | ||||||
Profit (loss) for the period from discontinued operations
|
1,379 | (265 | ) |
From January 1
to August 20 2009
|
Year ended
December 31 2008
|
|||||||
NIS millions
|
NIS millions
|
|||||||
Cash flow from operating activities
|
260 | 347 | ||||||
Cash flow used for
investing activities
|
(176 | ) | (237 | ) | ||||
Cash flow
used for financing activities
|
(84 | ) | (110 | ) | ||||
Cash flow from discontinued operations
|
- | - |
|
B.
|
Subsidiaries held directly by the Company
|
|
(1)
|
General
|
Amounts provided by the Company to subsidiaries
|
Investment
in
consolidated subsidiaries
|
||||||||||||||||
Country of
incorporation
|
Company’s
share
in capital
|
Loans
|
Guarantees
|
||||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
|||||||||||||||
2010
|
|||||||||||||||||
Pelephone Communications Ltd.
|
Israel
|
100 | % | - | - | 3,983 | |||||||||||
Bezeq International Ltd.
|
Israel
|
100 | % | - | 70 | 743 | |||||||||||
Bezeq Online Ltd.
|
Israel
|
100 | % | 5 | - | 30 | |||||||||||
Bezeq Zahav (Holdings) Ltd.
|
Israel
|
100 | % | 1,029 | - | 1,049 | |||||||||||
Walla! Communications Ltd. *
|
Israel
|
71.55 | % | - | - | 188 | |||||||||||
Stage One Venture Capital Fund
|
Israel
|
71.8 | % | - | - | 40 | |||||||||||
1,034 | 70 | 6,033 | |||||||||||||||
2009
|
|||||||||||||||||
Pelephone Communications Ltd.
|
Israel
|
100 | % | - | - | 3,570 | |||||||||||
Bezeq International Ltd.
|
Israel
|
100 | % | - | 70 | 710 | |||||||||||
Bezeq Online Ltd.
|
Israel
|
100 | % | 10 | - | 25 | |||||||||||
Bezeq Zahav (Holdings) Ltd.
|
Israel
|
100 | % | 1,006 | - | 1,033 | |||||||||||
Stage One Venture Capital Fund
|
Israel
|
71.8 | % | - | - | 43 | |||||||||||
1,016 | 70 | 5,381 |
|
(2)
|
Dividend received or receivable from subsidiaries
|
Year ended December 31
|
||||||||
2010
|
2009
|
|||||||
NIS million
|
NIS million
|
|||||||
From Pelephone Communications Ltd.
|
625 | 425 | ||||||
From Bezeq International Ltd.
|
216 | 210 | ||||||
From Stage One Venture Capital Fund
|
10 | 8 | ||||||
851 | 643 |
|
(3)
|
Details of Group entities
|
|
a.
|
Pelephone Communications Ltd.
|
|
B.
|
Subsidiaries held directly by the Company (contd.)
|
|
(3)
|
Details of Group entities (contd.)
|
|
b.
|
Bezeq International Ltd.
|
|
c.
|
Bezeq Online Ltd.
|
|
d.
|
Bezeq Zahav (Holdings) Ltd.
|
|
e.
|
Walla!
Communications Ltd.
|
|
f.
|
Stage One Venture Capital Fund (Israel) L.P.
|
|
A.
|
Composition:
|
December 31, 2010
|
December 31, 2009
|
|||||||
NIS million
|
NIS million
|
|||||||
Current liabilities
|
||||||||
Short-term credit
|
7 | - | ||||||
Current maturities of debentures
|
895 | 798 | ||||||
Current maturities of bank loans
|
47 | 64 | ||||||
|
||||||||
949 | 862 | |||||||
Non-current liabilities
|
||||||||
Debentures
|
1,967 | 2,716 | ||||||
Bank loans
|
2,801 | 558 | ||||||
4,768 | 3,274 | |||||||
5,717 | 4,136 |
|
B.
|
Terms and debt repayment schedule
|
December 31, 2010
|
December 31, 2009
|
||||||||||||||||||||||||
Nominal interest rate
|
Redemption
year
|
Par value
|
Carrying amount
|
Par value
|
Carrying amount
|
||||||||||||||||||||
Currency
|
%
|
NIS millions
|
NIS millions
|
NIS millions | NIS millions | ||||||||||||||||||||
Short-term credit
|
NIS
|
3.15 | 2011 | 7 | 7 | - | - | ||||||||||||||||||
Loans from banks and others:
|
|||||||||||||||||||||||||
Linked to the CPI
|
NIS
|
5.2– 4.45 | 2012-2015 | 153 | 178 | 194 | 222 | ||||||||||||||||||
Unlinked (1)
|
|||||||||||||||||||||||||
Variable interest
|
NIS
|
Prime + -0.33
|
|||||||||||||||||||||||
Up to prime + 0.2
|
2011-2019 | 1,370 | 1,370 | 400 | 400 | ||||||||||||||||||||
Fixed interest
|
NIS
|
5-5.6 | 2011-2017 | 1,300 | 1,300 | - | - | ||||||||||||||||||
2,855 | 622 | ||||||||||||||||||||||||
Debentures issued to the public:
|
|||||||||||||||||||||||||
Linked to the CPI (2)
|
NIS
|
4.8-5.3 | 2011-2016 | 1,807 | 2,163 | 2,107 | 2,476 | ||||||||||||||||||
Debentures issued to institutions and others:
|
|||||||||||||||||||||||||
Linked to the CPI (3)
|
NIS
|
4.4-5.95 | 2014-2015 | 593 | 699 | 898 | 1,038 | ||||||||||||||||||
Total interest-bearing liabilities
|
5,717 | 4,136 |
|
B.
|
Terms and debt repayment schedule (contd.)
|
|
(1)
|
In 2010, the Company completed debt financing amounting to NIS 2.6 billion, through loans from banks in Israel. Of this amount, NIS 400 million is against early repayment of bank loans from March 2009. Loans in the amount of NIS 1.3 billion are at fixed interest and the balance of NIS 1.3 billion are at variable interest, which are payable as follows:
|
|
A.
|
Loans in the amount of NIS 1.1 billion, which are unlinked and bear variable interest of prime minus 0.21%, are repayable in four equal annual payments of the principal between 2013 and 2016. The interest on the loans is payable twice a year.
|
|
B.
|
A loan in the amount of NIS 200 million, which is unlinked and bears variable interest of prime minus 0.33%, is repayable in six equal annual payments of the principal between 2012 and 2017.
|
|
C.
|
Loans in the amount of NIS 800 million, which are unlinked and bear average fixed interest of 5.56%, are repayable in four equal annual payments of the principal between 2013 and 2016. The interest on the loans is payable twice a year.
|
|
D.
|
Loans in the amount of NIS 500 million, which are unlinked and bear average fixed interest of 5%, are repayable in four equal annual payments of the principal between 2012 and 2017.
|
|
(2)
|
The par value of the Company’s debentures is NIS 2,686,967,000, of which NIS 1,806,867,000 par value was issued to the public as follows:
|
|
A.
|
The par value of debentures (Series 4) is 300,000,000 of NIS 1 par value each, repayable in 2011. The annual interest rate for these debentures is 4.8%.
|
|
B.
|
The par value of debentures (Series 5) is 2,386,967,000 of NIS 1 par value each, of which 1,506,867,000 debentures were issued to the public and to institutional investors (partially through Bezeq Zahav) and the balance of 880,100,000 were issued to Bezeq Zahav. The debentures are repayable in six equal annual payments in each of the years 2011 to 2016. The annual interest rate for these debentures is 5.3%.
|
|
(3)
|
Pelephone issued three series of debentures in a private placement to institutional investors. The debentures, which were issued at par value, are linked to the CPI, bear annual interest of 4.4% - 5.2%, and are repayable in equal semi-annual payments up to 2015. The interest is paid on the unpaid balance of the principal. The balance of the debentures at December 31, 2010, is NIS 597 million.
|
|
C.
|
Liens, securities and financial covenants
|
|
(1)
|
The private debentures of the Company, whose carrying amount at December 31, 2010 is NIS 102 million, are secured by a token charge. In addition, the Company created a negative pledge in favor of the debenture holders and in favor of a bank, which includes exceptions, inter alia, for the matter of a lien on assets that are purchased or expanded by the Company, if the undertakings for which the charge serves as security is created for the purchase or expansion of those assets and for the matter of a token charge.
|
|
(2)
|
The Company raised a negative pledge in favor of the creditors for a bank debt of NIS 2.6 billion, as set out in section B(1) above.
|
|
(3)
|
a.
|
At December 31, 2010, the bank loans and debentures of Pelephone have a carrying amount of NIS 775 million and are secured by an irrevocable undertaking by Pelephone to the credit providers not to encumber its assets without their consent (a negative pledge).
|
|
(1)
|
A declaration that Pelephone will not encumber its assets (as may be from time to time), in whole or in part, in any manner including by means of a floating lien or a fixed lien of any type or rank, in favor of any third party, without the prior written consent of the credit providers.
|
|
(2)
|
Compliance with the following financial covenants:
|
|
a.
|
An undertaking that Pelephone's debt will not exceed three times its equity and an undertaking that as long as that ratio exceeds 2.5, dividends will not be distributed and management fees will not be paid to the shareholders.
|
|
b.
|
Pelephone undertook that the amount of its debts will not exceed NIS 3.8 billion (linked to the CPI known in January 2002).
|
|
c.
|
An undertaking towards a certain bank that its total debt to it will not exceed 40% of its total debts to all the financial entities.
|
|
C.
|
Liens, securities and financial covenants
(contd.)
|
(3)
|
(contd.)
|
|
b.
|
Under its general license for cellular services, Pelephone is not permitted to sell, lease or pledge any of its assets used for the implementation of the license, without the consent of the Minister of Communications, except for:
|
(1)
|
A pledge on one of the license assets in favor of a bank operating lawfully in Israel, for receipt of bank credit, provided that it submitted notice to the Ministry of Communications regarding the pledge it intends to register, noting that the pledge agreement includes a clause ensuring that in any case, exercise of the rights by the bank will not impair in any way the provision of the services pursuant to the license.
|
(2)
|
Sale of items of equipment when implementing an upgrade, including sale of equipment by the trade-in method.
|
|
(4)
|
According to the agreement between Walla and its subsidiary for a loan to Walla, amounting to NIS 70 million at December 31, 2010, Walla undertook to meet financial covenants according to its consolidated financial statements, as set out below:
|
|
a.
|
Walla’s equity will not fall below NIS 70 million at any time.
|
|
b.
|
The ratio between Walla’s equity and the statement of financial position will not fall below 25% at any time.
|
|
c.
|
The ratio between Walla’s available cash and the current maturities will not fall below 1.2.
|
|
d.
|
The ratio between the financial debt and Walla’s available cash will not exceed 4.
|
December 31, 2010
|
December 31, 2009
|
|||||||
NIS million
|
NIS million
|
|||||||
Trade payables (open accounts)
|
1,061 | 1,091 | ||||||
Trade payables consisting of related and interested parties
|
46 | 8 | ||||||
Other payables
|
||||||||
Liabilities to employees and other liabilities for salaries
|
348 | 297 | ||||||
Institutions
|
183 | 200 | ||||||
Expenses due
|
112 | 85 | ||||||
Accrued interest
|
93 | 99 | ||||||
Derivatives
|
10 | 2 | ||||||
Other payables
|
24 | 14 | ||||||
Total other payables
|
770 | 697 |
Employee claims
|
Customer claims
|
Supplier and communication provider claims
|
Punitive claims
|
Enterprise and company claims
|
State and Authorities claims
|
Dismantling and clearing of sites
|
Liability, onerous contracts and others
|
Total
|
||||||||||||||||||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||||||||||||||||||||
Balance as at January 1, 2010
|
139 | 45 | 11 | 1 | 7 | 159 | 60 | 29 | 451 | |||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||
Provisions created in the period
|
2 | 11 | 1 | 1 | 3 | 16 | 8 | 5 | 47 | |||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||
Provisions used in the period
|
(1 | ) | - | - | - | - | (78 | ) | - | (2 | ) | (81 | ) | |||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||
Provisions cancelled in the period
|
(44 | ) | - | (7 | ) | - | - | (32 | ) | (4 | ) | (10 | ) | (97 | ) | |||||||||||||||||||||
Balance as at December 31, 2010
|
96 | 56 | 5 | 2 | 10 | 65 | 64 | 22 | 320 | |||||||||||||||||||||||||||
Current
|
96 | 56 | 5 | 2 | 10 | 65 | - | 17 | 251 | |||||||||||||||||||||||||||
Non-current
|
- | - | - | - | - | - | 64 | 5 | 69 |
|
A.
|
Defined contribution plans
|
|
(1)
|
The pension rights of Company employees for the period of their employment in the civil service through January 31, 1985, are covered by a pension fund ("the Makefet Fund"), which assumed the State's obligation following an agreement between the Government of Israel, the Company, the Histadrut and the Makefet Fund.
|
|
(2)
|
Liabilities for employee benefits at retirement age in respect of the period of their service in the Company and its subsidiaries are covered in full by regular payments to pension funds and insurance companies.
|
|
(3)
|
The severance obligation to employees who leave their employment on terms entitling them to compensation is covered, for the period from February 1, 1985, by regular contributions to such pension funds and insurance companies (in accordance with Section 14 of the Severance Pay Law). Severance pay for the period of employment in the civil service through January 31, 1985, is paid by the Company, and the monies accumulated in the Makefet Fund for that period are kept in a fund that will be used for the employees' rights. For some of the employees, the Company has an obligation to pay severance in excess of the amount accumulated in the compensation fund which is in the employees' names. See section B(1) below.
|
|
B.
|
Defined benefit plans
|
|
(1)
|
The severance obligation included in the statement of financial position represents the balance of the obligation not covered by contributions and/or insurance policies in accordance with the existing labor agreements, the Severance Pay Law, and the salary components which the managements of the companies believe entitle the employees to receive compensation. For this part of the obligation, there are deposits in the name of Group companies in a recognized compensation fund. The reserves in compensation funds include accrued linkage differentials and interest deposited in compensation funds, in banks and in insurance companies. Withdrawal of the reserve monies is contingent upon fulfillment of the provisions in the Severance Pay Law.
|
|
(2)
|
The collective agreement of December 2006 (see section D below), provides, among others, that employees who transferred from the civil service to the Company and are due to end their employment due to retirement after December 31, 2016, are entitled to a supplement to close the gap between the Civil Service Law and the regulations governing the Makefet Fund. The financial statements of the Company include the obligation for this benefit.
|
|
(3)
|
According to some of the personal employment agreements, a number of senior employees are entitled to early retirement terms (pension and retirement grants) which are not dependent on the existing retirement agreements for all employees. Accordingly, a liability is included in the financial statements.
|
|
(4)
|
Benefits for notice are paid upon severance. Accordingly, a liability is included in the financial statements in accordance with an employment agreement and an actuarial calculation.
|
|
(5)
|
Company retirees receive, in addition to the pension payments, benefits which consist mainly of a holiday gift (linked to the dollar exchange rate), financing the upkeep of retiree clubs, and social activities. The Company's liability for these costs accumulates during the employment period. The Company’s financial statements include the expected costs in the post- employment period, based on an actuarial calculation.
|
|
C.
|
Other long-term employee benefits
|
|
D.
|
Benefits for early retirement and dismissal
|
|
(1)
|
The collective agreement of December 2006, between the Company and the union and the New Histadrut, regulates the labor relations in the Company following the transfer of control in the Company from the State of Israel, and delineates a new organizational structure for the Company. The amendment to the agreement of December 2010 regulates the labor relations in the Company following transfer of control in the Company from Ap.Sb.Ar. Holdings Ltd. (“Ap.Sb.Ar.”) to B Communications Ltd. (“B Communications”). The agreement stipulates, inter alia, that all the agreements, arrangements and procedures existing in the Company prior to signing the agreement will continue to apply only to the permanent long-standing employees in the Company.
|
|
(2)
|
The Company may, at its discretion, terminate the employment of 245 permanent employees in one or more of the years 2010-2016. The retirement terms that will be offered to the retirees will be largely the same as the retirement terms prevailing in the Company up to that date. The term of the agreement (after the amendment made in 2010) is from the date the agreement is signed through December 31, 2015. The Company has an option to extend it for another two years, through December 31, 2017. The term of the retirement section in the agreement will be through December 31, 2016.
|
|
E.
|
Liabilities for employee benefits
|
December 31, 2010
|
December 31, 2009
|
|||||||
NIS million
|
NIS million
|
|||||||
Unfunded obligations (1)
|
225 | 250 | ||||||
Funded obligations (2)
|
213 | 203 | ||||||
Total present value of obligations
|
438 | 453 | ||||||
Fair value of plan assets
|
(152 | ) | (148 | ) | ||||
Obligation for defined benefit plans (post-employment plans)
|
286 | 305 | ||||||
Obligation for a special bonus
|
26 | - | ||||||
Obligation for holiday pay
|
89 | 89 | ||||||
Obligation for sick leave
|
126 | 122 | ||||||
Obligation for voluntary early retirement
|
47 | 283 | ||||||
Total employee benefits
|
574 | 799 | ||||||
Stated in the statement of financial position as:
|
||||||||
Short term
|
269 | 505 | ||||||
Long term
|
305 | 294 | ||||||
574 | 799 |
|
(1)
|
Unfunded obligations are those obligations for which the Company did not fund a reserve to finance its liabilities and they include a provision for notice, an obligation to the Company’s pensioners, an obligation for early retirement of senior employees in the Company and an obligation for employees transferred from the civil service.
|
|
(2)
|
Obligations for which the Group companies funded a reserve to finance its obligations (severance obligation)
|
|
F.
|
Defined benefit plans (post-employment plans)
|
2010
|
2009
|
||||||||
NIS millions
|
NIS millions
|
||||||||
1. |
Change in obligation in respect of defined benefit plans
|
||||||||
Obligation in respect of a defined benefit plan as at January 1
|
453 | 429 | |||||||
Benefits paid according to the plans
|
(32 | ) | (40 | ) | |||||
Costs of current service, interest and exchange rate differences (see section 3 below)
|
34 | 65 | |||||||
Retirement and curtailment of benefits
|
(9 | ) | (17 | ) | |||||
Actuarial losses (gains) charged to equity (see section 5 below)
|
(17 | ) | 24 | ||||||
Additions in respect of a business combination
|
9 | - | |||||||
Derecognition of discontinued operations
|
- | (8 | ) | ||||||
Defined benefit obligation as at December 31
|
438 | 453 | |||||||
2. |
Change in plan assets and cost of past service
|
||||||||
Fair value as at January 1
|
148 | 140 | |||||||
Deposits
|
10 | 11 | |||||||
Withdrawals
|
(9 | ) | (5 | ) | |||||
Expected proceeds from plan assets (see section 3 below)
|
5 | 6 | |||||||
Gains (losses) charged to equity (see section 5 below)
|
(2 | ) | 11 | ||||||
Amortization of past service cost, see section 3 below
|
(7 | ) | (12 | ) | |||||
Additions in respect of a business combination
|
7 | - | |||||||
Derecognition of discontinued operations
|
- | (3 | ) | ||||||
Fair value as at December 31
|
152 | 148 |
|
F.
|
Defined benefit plans (post-employment plans) (contd.)
|
|
G.
|
Actuarial assumptions
|
|
(1)
|
Mortality rates are based on the rates published in Insurance Circulars 6-3-2007 of the Ministry of Finance, except for early retirement, which was calculated according to the agreement with the insurance company, including future changes in the mortality rate.
|
|
(2)
|
Churn rates were determined on the basis of the past experience of the Company and the subsidiaries, distinguishing between different employee populations and taking into account the number of years of employment.
|
|
(3)
|
The real discounted rate is based on yield on government bonds at a fixed interest rate with a life equal to that of the gross liability.
|
December 31, 2010
|
December 31, 2009
|
December 31, 2008
|
||||||||||
Average capitalization rate
|
Average capitalization rate
|
Average capitalization rate
|
||||||||||
%
|
%
|
%
|
||||||||||
Sick leave
|
1.9 | 1.8 | 3.4 | |||||||||
Compensation
|
2 | 1.4 | 3.3 | |||||||||
Retirement benefit – holiday gift *
|
4.3 | 4.9 | 4.4 | |||||||||
Retirement benefit – clubs and activities
|
2.9 | 2.7 | 3.6 | |||||||||
Early notice to senior employees
|
1.5 | 1.4 | 3.1 |
|
*
|
At a discount rate based on US corporate debentures.
|
|
(4)
|
Assumptions regarding salary increases were made on the basis of experience and management’s assessments, distinguishing between groups of employees The main assumptions (in real terms) regarding salary increases are as follows:
|
|
(5)
|
The forecasted growth rate of the assets accumulated in all Group companies is 2% in real terms for old pension funds in the administration and 5.57% in real terms for old pension funds that are not part of the arrangement. For new, subsidized pension funds, a guarantee of 4.86% is assumed for 30% of the assets. For officers’ insurance where the severance interest is not transferred to compensation and their start date is prior to 1989, guaranteed interest is 4.25% in real terms. The growth rate in other plans is the discount interest.
|
|
(6)
|
An obligation for voluntary early retirement includes an obligation for pension and grants.
The obligation for pension is calculated according to the terms of the agreement of December 2006 (see section D above) and in accordance with the agreement with the insurance company. The obligation is affected by changes in the interest rates of debentures until the purchase of the policy and payment to the insurance company.
|
|
H.
|
Other
|
|
A.
|
Employee claims
|
|
B.
|
Customer claims
|
|
C.
|
Supplier and communication provider claims
|
|
D.
|
Claims for punitive damages
|
|
E.
|
Claims by developers and companies
|
|
F.
|
Claims by the State and authorities
|
|
A.
|
The Group companies have rental agreements. Contractual rental payments during the next five years, calculated according to the rent in effect at December 31, 2010, are as follows:
|
Year ended December 31
|
NIS millions
|
|||
2011
|
168 | |||
2012
|
165 | |||
2013
|
129 | |||
2014
|
85 | |||
2015 onwards
|
132 | |||
679 |
|
B.
|
The Group has a number of operating lease agreements for periods of up to three years in respect of vehicles it uses. The contractual annual lease payments, calculated according to the payments in effect at December 31, 2010, are NIS 102 million
|
|
C.
|
Most of the Group companies are required to pay royalties to the State of Israel. The rate of royalties paid was 1% in 2010, 1.5% in 2009 and 2% in 2008.
|
|
D.
|
Pelephone leases some of the sites from the Israel Lands Administration (“ILA”). Pelephone has an agreement with the ILA for use of the land to establish and operate communication sites. The agreement regulates payments to which the ILA is entitled for the period through December 31, 2008.
|
|
E.
|
Pelephone uses Ericsson UMTS/HSPA infrastructure equipment and Nortel and Motorola CDMA infrastructure equipment. Pelephone has multi-annual agreements for maintenance, support and upgrade of software for the UMTS/HSPA network and a maintenance agreement for the Nortel network with Ericsson. Pelephone believes that it could be dependent on Ericsson for network support.
|
|
F.
|
Pelephone has obligations to acquire terminal equipment amounting to NIS 455 million (at December 31, 2009, NIS 606 million).
|
|
G.
|
In November 2010, Bezeq International signed an agreement with Alcatel-Lucent Submarine Networks to roll out a high speed submarine cable linking Israel to Italy. At the same time, Bezeq International acquired an indefeasible right of use of terrestrial infrastructure linking the cable in Italy to points of presence in Western Europe.
|
|
H.
|
For agreements for the purchase of property, plant and equipment, see Note 10J above.
|
|
A.
|
In May 2003, the Company provided, at the request of the Ministry of Communications, a bank guarantee of USD 10 million in connection with its general license for implementing telecommunications operations and for providing telecommunication services.
|
|
B.
|
The Company provided a guarantee in favor of banks in connection with credit of up to NIS 70 million granted to a subsidiary.
|
|
C.
|
The Company has received a demand for the forfeiture of a guarantee in the amount of approximately USD 6 million related to a project (HBTL) in a basic telephony tender in 1995 in India, in which the Company participated together with others. An appeal against an order given at the request of the developer, which prevents forfeiture of the guarantees, is being heard in the appeals department of the High Court in Delhi. The Company has applied to the court in India for release of the bank guarantees it provided. The court has yet to hear the application.
|
|
D.
|
The Company provided a guarantee of NIS 10 million for DBS in respect of a bank guarantee of NIS 36 million, which DBS had provided in favor of the State of Israel, according to the terms of DBS’s license. The guarantee was valid until December 31, 2010. This guarantee was in accordance with the proportionate rate of the Company’s holdings in DBS when DBS was established. On January 24, 2011, the Company’s Board of Directors approved the replacement of this guarantee with a new guarantee according to the updated proportionate rate of the Company’s holdings in DBS (approximately 49.8% out of a total bank guarantee of NIS 38 million). The validity of the bank guarantee provided by the bank to the Ministry of Communications has since been extended (up to the end of April 2011) to allow finalization of the documents for the Company’s new guarantee towards the bank that provided the bank guarantee.
|
|
E.
|
In February 2002 and May 2005, according to Ministry of Communications requirements, Bezeq International provided bank guarantees of NIS 9.4 million and NIS 1.5 million respectively, for fulfillment of all the terms of the license to provide international telecommunication services. In February 2009, according to Ministry of Communications requirements, Bezeq International provided a bank guarantee of NIS 10 million to fulfill the terms of the special and general license for the provision of domestic operator services through the BIP Limited Partnership. At the reporting date, Bezeq International had provided additional bank guarantees in a total amount of NIS 16 million.
|
|
F.
|
Pelephone has bank guarantees of NIS 93 million in favor of third parties, of which NIS 35 million is in favor of the Ministry of Communications, in connection with a guarantee for fulfillment of the terms of its license.
|
|
G.
|
The other shareholder in DBS has pledged its shares in favor of the banks. In view of a negative pledge of the Company, the Company provided the banks with a perpetual guarantee for payment of the debts of DBS. The guarantee is up to a maximum amount equal to the percentage of the Company's holding in DBS, multiplied by the value of DBS as derived from realization of the pledged shares of the other shareholders. If the Company joins the sale when realizing the pledged shares of the other shareholders, the amount of the guarantee will not exceed the amount of the proceeds the Company will receive from realization of its shares in DBS. The note of guarantee includes numerous restrictions on the Company in realizing the shares it holds, and lists events of violation which, if committed, will enable the banks to call in the guarantee. Furthermore, the Company undertook to put its shares up for sale if the shares pledged to the bank are sold, and agreed that in the event of realization of collateral provided by the other shareholders, the Company would forgo repayment of shareholder loans provided for DBS and that the guarantee would also apply, with the required changes, to warrants which the Company will receive from DBS and to the right to receive them.
|
|
H.
|
For securities, liens and stipulations given by the Company and subsidiaries in connection with loan covenants and borrowings, see Note 14.
|
|
J.
|
For the securities, liens and stipulations of DBS, see Notes 5, 7, 21(1) and 28 to the financial statements of DBS for 2010 attached to these financial statements.
|
|
A.
|
Equity
|
Registered
|
Issued and paid up
|
|||||||||||||||
December 31, 2010
|
December 31, 2009
|
December 31, 2010
|
December 31, 2009
|
|||||||||||||
Number of shares
|
Number of shares
|
Number of shares
|
Number of shares
|
|||||||||||||
Ordinary shares of NIS 1 par value each
|
2,825,000,000 | 2,749,000,000 | 2,685,917,052 | 2,659,727,630 |
|
B.
|
Dividend Distribution Policy
|
|
C.
|
Request to distribute dividends exceeding the Company’s profits
|
|
D.
|
Dividends
|
2010
|
2009
|
|||||||
NIS millions
|
NIS millions
|
|||||||
In May 2009, a cash dividend was distributed (NIS 0.3 per share)
|
- | 792 | ||||||
In October 2009, a cash dividend was distributed (NIS 0.43 per share)
|
- | 1,149 | ||||||
In May 2010, a cash dividend was distributed (NIS 0.917 per share)
|
2,453 | - | ||||||
In October 2010, a cash dividend was distributed (NIS 0.478 per share)
|
1,280 | - | ||||||
3,733 | 1,941 |
E.
|
The Company also issued share options to employees, managers and senior employees in the Group (see Note 27).
|
|
F.
|
Description of the reserves
|
Year ended December 31
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||
Domestic fixed-line communications
|
||||||||||||
Fixed line telephony
|
3,074 | 3,247 | 3,472 | |||||||||
Internet - infrastructure
|
977 | 862 | 790 | |||||||||
Transmission, data communication and other
|
939 | 940 | 981 | |||||||||
4,990 | 5,049 | 5,243 | ||||||||||
Cellular
|
||||||||||||
Cellular services and terminal equipment
|
4,300 | 4,013 | 3,758 | |||||||||
Sale of terminal equipment
|
1,176 | 1,119 | 692 | |||||||||
5,476 | 5,132 | 4,450 | ||||||||||
International communications, internet services and NEP
|
1,334 | 1,276 | 1,263 | |||||||||
Others
|
187 | 62 | 59 | |||||||||
11,987 | 11,519 | 11,015 |
Year ended December 31
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||
Salaries and incidentals:
|
||||||||||||
Operating
|
1,764 | 1,670 | 1,660 | |||||||||
General and administrative
|
692 | 655 | 651 | |||||||||
Share-based payments
|
35 | 45 | 73 | |||||||||
Total salaries and incidentals
|
2,491 | 2,370 | 2,384 | |||||||||
Less – salaries recognized in investments in
|
||||||||||||
property, plant and equipment and in intangible assets
|
467 | 380 | 223 | |||||||||
2,024 | 1,990 | 2,161 |
Year ended December 31
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||
Cellular telephone expenses
|
1,866 | 1,750 | 1,725 | |||||||||
General expenses
|
1,184 | 1,140 | 1,008 | |||||||||
Materials and spare parts
|
1,049 | 1,003 | 831 | |||||||||
Building maintenance
|
265 | 295 | 204 | |||||||||
Services and maintenance by sub-contractors
|
107 | 146 | 312 | |||||||||
International communication expenses
|
325 | 313 | 272 | |||||||||
Vehicle maintenance expenses
|
132 | 124 | 158 | |||||||||
Royalties to the State of Israel
|
74 | 66 | 116 | |||||||||
Collection fees
|
24 | 34 | 34 | |||||||||
5,026 | 4,871 | 4,660 |
Year ended December 31
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||
Provision for severance pay on early retirement
|
36 | 267 | 165 | |||||||||
Capital gain from sale of property, plant and equipment (mainly real estate)
|
(171 | ) | (64 | ) | (18 | ) | ||||||
Profit from gaining control in an investee
|
(57 | ) | - | - | ||||||||
Provision for contingent liabilities, net
|
(35 | ) | (2 | ) | (5 | ) | ||||||
Loss from copper forward transactions
|
12 | - | - | |||||||||
Capital gain from sale of satellite communication operations
|
- | - | (50 | ) | ||||||||
Impairment of long-term loans and others
|
(1 | ) | - | 4 | ||||||||
(216 | ) | 201 | 96 |
Year ended December 31
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||
Interest expenses for financial liabilities
|
217 | 185 | 192 | |||||||||
Linkage and exchange rate differences, net
|
64 | 140 | 191 | |||||||||
Net change in fair value of financial assets measured at fair value through profit or loss
|
- | - | 24 | |||||||||
Financing expenses for employee benefits, net
|
20 | 24 | 52 | |||||||||
Other financing expenses
|
90 | 49 | 35 | |||||||||
Total financing expenses
|
391 | 398 | 494 | |||||||||
Interest and linkage differences from loans to an associate
|
159 | 198 | 189 | |||||||||
Interest revenue from bank deposits, investments and other
|
7 | 16 | 62 | |||||||||
Net change in fair value of financial assets measured at
|
||||||||||||
fair value in profit or loss (mainly for forward transactions)
|
2 | 61 | - | |||||||||
Income in respect of credit in sales, net of discount commission
|
87 | 83 | 69 | |||||||||
Revenue from financial assets classified as available for sale
|
- | 23 | - | |||||||||
Other financing income
|
27 | 48 | 34 | |||||||||
Total financing income
|
282 | 429 | 354 | |||||||||
Financing expenses (income), net (1)
|
109 | (31 | ) | 140 | ||||||||
(1)
Less discounted amounts
|
3 | 6 | 35 | |||||||||
Expenses recognized directly in other comprehensive income
|
- | - | 5 |
|
A.
|
In February 2007, the Board of Directors of the Company approved an employee share options plan for 3% of the issued and paid up capital of the Company, under the collective agreement with the employees of December 2006. On March 25, 2007, 78,092,000 options were allocated, and on January 2, 2008 another 59,000 options were allocated to two employee-directors. The value of the grant was determined at February 22, 2007, which is the grant date. The expenses in respect of this grant were recorded in 2006, since in that year an undertaking was made to the employees, including the terms of the grant. According to this plan, the last date for exercising the options is March 24, 2012.
|
|
B.
|
On November 20, 2007, the Board of Directors of the Company resolved to adopt a new share options plan for managers and senior employees in the Company and/or in associates, which would allocate up to 65,000,000 unmarketable options exercisable for up to 65,000,000 shares of the Company and representing 2.5% of the issued capital of the Company, and at full dilution, 2.37% of the share capital.
|
|
(1)
|
56,250,000 options, with a theoretical economic value of NIS 156 million of which 17,750,000 options, which were allotted in 2008 to the CEO of the Company and to senior officers who are key personnel in the Group with a theoretical economic value of NIS 45 million and 100,000 options, which were allotted in 2009 to an employee director with a theoretical economic value of NIS 303,000. The grant date was set as the later of the date of the general meeting and the date of the notice to the employees.
|
|
B.
|
(contd.)
|
|
(2)
|
On April 17, 2008, the Board of Directors of the Company resolved to allocate 9,000,000 options to the chairman of the Board of Directors for that period in accordance with the plan described above, subject to a number of changes relating to the terms of his options. The allocation to the chairman was approved by the general meeting of the shareholders of the Company on June 1, 2008.
|
|
C.
|
On December 19, 2010, the Board of Directors of the Company approved the amendment to the collective agreement with the employees (see Note 17D) and resolved to adopt a share options plan for employees (“the 2010 options plan for employees”). According to the 2010 options plan for employees, the Company will allocate 70,000,000 unmarketable options exercisable for up to 70,000,000 Company shares, par value NIS 1 each, representing 2.61% of the issued capital of the Company (2.5% at full dilution).
|
|
D.
|
Measurement of fair value at the grant date of the options
|
Employee options plan for 2010
|
Options for the chairman of the Board of Directors
|
Options for senior employees
|
||||||||||
Section C above
|
Section B(2) above
|
Section B(1) above
|
||||||||||
Weighted average of the fair value at the grant date
|
4.21 | 1.79 | 2.78 | |||||||||
Share price
|
10.45-10.62 | 6.494 | 6.18-10.1 | |||||||||
Exercise price
|
7.457 | 6.44 | 5.5-9.67 | |||||||||
Expected fluctuations
|
25.8%-26.3 | % | 23.11 | % | 22.7%-26.6 | % | ||||||
Contractual life of the option (in years)
|
2.5-4 | 4 | 4.5-5.6 | |||||||||
Risk-free interest rate (based on
government bonds)
|
3.2%-3.9 | % | 5.1 | % | 3.7%-5.7 | % |
|
E.
|
Terms of the options for operating plans in the Company
|
Date of grant / eligible employees
|
No. of instruments
(in thousands)
|
Vesting terms
|
Contractual life of the options
|
|||||||
A. |
Grant of options to employees on February 22, 2007 (section A above)
|
78,151 |
Immediate (subject to lock-up for two years)
|
5 years
|
||||||
B. |
Grant of options to managers, senior employees and officers up to December 31, 2010 (section B above)
|
56,250 |
Three equal annual tranches
|
8 years
|
||||||
C. |
Grant to the chairman of the Board of Directors on April 17, 2008 (section B above)
|
9,000 |
12 quarterly tranches
|
4 years
|
||||||
D. |
Approval of 2010 option plan for employees (section C above)
|
67,552 |
Three equal annual tranches
|
5 years
|
||||||
Total share options granted
|
210,953 |
|
F.
|
Number of options and weighted average of the exercise price
|
Year ended December 31
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
NIS thousands
|
NIS thousands
|
NIS thousands
|
||||||||||
Balance as at January 1
|
82,077 | 223,399 | 200,849 | |||||||||
Options granted during the year
|
1,000 | 2,700 | 61,550 | |||||||||
Options forfeited during the year
|
(933 | ) | (1,267 | ) | (4,000 | ) | ||||||
Options exercised during the year
|
(35,117 | ) | (142,278 | ) | (35,000 | ) | ||||||
Options expired during the year
|
- | (477 | ) | - | ||||||||
Balance at the end of the year
|
47,027 | 82,077 | 223,399 | |||||||||
Exercisable at the end of the period subject to lock up
|
- | - | 119,050 | |||||||||
Exercisable at the end of the period, not subject to lock up
|
27,741 | 43,777 | 48,299 |
|
G.
|
Salary expense for share-based payments
|
Year ended December 31
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||
Equity-settled share options (1)
|
35 | 45 | 73 |
|
(1)
|
Calculation of the salary expense assumed 5% for forfeiture, for each year, for the options plan set out in section B(1) above, and 1% for the options plan for employees in 2010.
|
|
H.
|
Subsequent to reporting date and until March 6, 2011, the employees exercised an additional 2,596,000 options.
|
|
I.
|
Cash-settled share-based payments
|
I.
|
Cash-settled share-based payments (contd.)
|
Weighted average of the fair value at the grant date
|
2.95 | |||
Share price
|
10.82 | |||
Exercise price
|
10.206 | |||
Expected fluctuations
|
25.79%-26.35 | % | ||
Contractual life of the option (in years)
|
3-4 | |||
Risk-free interest rate (based on government bonds)
|
3.47%-3.8 | % |
J.
|
For the options granted to the CEO of DBS, see Note 19 to the financial statements of DBS for 2010, which are attached to the Company’s financial statements.
|
2010
|
2009
|
2008
|
||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||
Profit attributable to ordinary shareholders
|
||||||||||||
Profit attributable to ordinary shares from continuing operations
|
2,443 | 2,157 | 1,781 | |||||||||
Profit (loss) attributable to ordinary shares from discontinued operations
|
- | 1,446 | (154 | ) | ||||||||
Basic and diluted earnings for the year
|
2,443 | 3,603 | 1,627 | |||||||||
Weighted average number of ordinary shares
|
||||||||||||
Weighted average number of ordinary shares (basic)
|
2,675 | 2,635 | 2,605 | |||||||||
Effect of share options exercised
|
42 | 49 | 44 | |||||||||
Weighted average number of ordinary shares
|
2,717 | 2,684 | 2,649 |
|
-
|
Bezeq The Israel Telecommunication Corp. Ltd.: fixed line domestic communications
|
|
-
|
Pelephone Communications Ltd.: cellular communications
|
|
-
|
Bezeq International Ltd.: international communications, internet services and network end point
|
|
-
|
DBS Satellite Services (1998) Ltd.: multichannel television
|
|
A.
|
Operating Segments
|
Year ended December 31, 2010
|
||||||||||||||||||||||||||||
Domestic
fixed–line communications
|
Cellular telephone
|
International communications and internet services
|
Multi-channel television
|
Others
|
Adjustments
|
Consolidated
|
||||||||||||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||||||||||||||
Revenue from external sources
|
4,990 | 5,474 | 1,333 | 1,578 | 178 | (1,578 | ) | 11,975 | ||||||||||||||||||||
Inter-segment revenue
|
273 | 258 | 47 | 5 | 32 | (603 | ) | 12 | ||||||||||||||||||||
Total revenue
|
5,263 | 5,732 | 1,380 | 1,583 | 210 | (2,181 | ) | 11,987 | ||||||||||||||||||||
Depreciation and amortization
|
690 | 601 | 94 | 285 | 15 | (276 | ) | 1,409 | ||||||||||||||||||||
Segment results – operating profit
|
2,043 | 1,383 | 320 | 178 | 14 | (194 | ) | 3,744 | ||||||||||||||||||||
Financing income
|
192 | 100 | 6 | 9 | - | (25 | ) | 282 | ||||||||||||||||||||
Financing expenses
|
(282 | ) | (111 | ) | (11 | ) | (500 | ) | (3 | ) | 516 | (391 | ) | |||||||||||||||
Total financing income (expenses), net
|
(90 | ) | (11 | ) | (5 | ) | (491 | ) | (3 | ) | 491 | (109 | ) | |||||||||||||||
Segment profit (loss) after financing expenses, net
|
1,953 | 1,372 | 315 | (313 | ) | 11 | 297 | 3,635 | ||||||||||||||||||||
Share in the (profits) losses of equity accounted investees
|
- | - | 3 | - | - | (264 | ) | (261 | ) | |||||||||||||||||||
Segment profit (loss) before income tax
|
1,953 | 1,372 | 318 | (313 | ) | 11 | 33 | 3,374 | ||||||||||||||||||||
Income tax
|
527 | 339 | 65 | 1 | 4 | (4 | ) | 932 | ||||||||||||||||||||
Segment results – net profit (loss)
|
1,426 | 1,033 | 253 | (314 | ) | 7 | 37 | 2,442 | ||||||||||||||||||||
Additional information:
|
||||||||||||||||||||||||||||
Segment assets
|
6,352 | 4,892 | 1,032 | 1,243 | 291 | (1,836 | ) | 11,974 | ||||||||||||||||||||
Goodwill
|
- | - | 6 | - | 84 | 1,090 | 1,180 | |||||||||||||||||||||
Investment in associates
|
- | - | - | - | - | 1,084 | 1,084 | |||||||||||||||||||||
Segment liabilities
|
7,964 | 1,930 | 304 | 4,665 | 241 | (6,236 | ) | 8,868 | ||||||||||||||||||||
Capital expenses/contractual investments in property, plant and equipment and intangible assets
|
1,041 | 431 | 160 | 295 | 13 | (295 | ) | 1,645 |
|
A.
|
Operating Segments (contd.)
|
Year ended December 31, 2009
|
||||||||||||||||||||||||||||
Domestic
fixed–line communications
|
Cellular telephone
|
International communications and internet services
|
Multi-channel television
|
Others
|
Adjustments
|
Consolidated
|
||||||||||||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||||||||||||||
Revenue from external sources
|
5,039 | 5,130 | 1,273 | 1,529 | 54 | (1,529 | ) | 11,496 | ||||||||||||||||||||
Inter-segment revenue
|
264 | 246 | 45 | 1 | 20 | (553 | ) | 23 | ||||||||||||||||||||
Total revenue
|
5,303 | 5,376 | 1,318 | 1,530 | 74 | (2,082 | ) | 11,519 | ||||||||||||||||||||
Depreciation and amortization
|
794 | 603 | 84 | 234 | 4 | (234 | ) | 1,485 | ||||||||||||||||||||
Segment results – operating profit
|
1,523 | 1,190 | 261 | 248 | 4 | (254 | ) | 2,972 | ||||||||||||||||||||
Financing income
|
310 | 90 | 15 | 8 | 23 | (17 | ) | 429 | ||||||||||||||||||||
Financing expenses
|
(295 | ) | (100 | ) | (12 | ) | (478 | ) | - | 487 | (398 | ) | ||||||||||||||||
Total financing income (expenses), net
|
15 | (10 | ) | 3 | (470 | ) | 23 | 470 | 31 | |||||||||||||||||||
Segment profit (loss) after financing expenses, net
|
1,538 | 1,180 | 264 | (222 | ) | 27 | 216 | 3,003 | ||||||||||||||||||||
Share in the (profits) losses of equity
|
||||||||||||||||||||||||||||
accounted investees
|
- | - | 7 | - | - | (41 | ) | (34 | ) | |||||||||||||||||||
Segment profit (loss) before income tax
|
1,538 | 1,180 | 271 | (222 | ) | 27 | 175 | 2,969 | ||||||||||||||||||||
Profit from discontinued operations
|
- | - | - | - | - | 1,379 | 1,379 | |||||||||||||||||||||
Income tax
|
431 | 305 | 71 | 1 | 2 | (3 | ) | 807 | ||||||||||||||||||||
Segment results – net profit (loss)
|
1,107 | 875 | 200 | (223 | ) | 25 | 1,557 | 3,541 | ||||||||||||||||||||
Additional information:
|
||||||||||||||||||||||||||||
Segment assets
|
6,368 | 4,990 | 1,066 | 1,206 | 85 | (2,026 | ) | 11,689 | ||||||||||||||||||||
Goodwill
|
- | - | 6 | - | - | 1,027 | 1,033 | |||||||||||||||||||||
Investment in associates
|
- | - | 34 | - | - | 1,185 | 1,219 | |||||||||||||||||||||
Segment liabilities
|
6,390 | 2,440 | 404 | 4,314 | 22 | (6,167 | ) | 7,403 | ||||||||||||||||||||
Capital expenses/contractual investments in property, plant and equipment and intangible assets
|
838 | 508 | 151 | 270 | 3 | (102 | ) | 1,668 |
|
A.
|
Operating Segments (contd.)
|
Year ended December 31, 2009
|
||||||||||||||||||||||||||||
Domestic
fixed–line communications
|
Cellular telephone
|
International communications and internet services
|
Multi-channel television
|
Others
|
Adjustments
|
Consolidated
|
||||||||||||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||||||||||||||
Revenue from external sources
|
5,179 | 4,448 | 1,243 | 1,506 | 31 | (1,506 | ) | 10,901 | ||||||||||||||||||||
Inter-segment revenue
|
319 | 265 | 63 | 7 | 44 | (584 | ) | 114 | ||||||||||||||||||||
Total revenue
|
5,498 | 4,713 | 1,306 | 1,513 | 75 | (2,090 | ) | 11,015 | ||||||||||||||||||||
Depreciation and amortization
|
852 | 523 | 80 | 250 | 3 | (250 | ) | 1,458 | ||||||||||||||||||||
Segment results – operating profit
|
1,475 | 933 | 242 | 177 | - | (187 | ) | 2,640 | ||||||||||||||||||||
Financing income
|
236 | 117 | 7 | 52 | 1 | (59 | ) | 354 | ||||||||||||||||||||
Financing expenses
|
(361 | ) | (115 | ) | (8 | ) | (493 | ) | (18 | ) | 501 | (494 | ) | |||||||||||||||
Total financing income (expenses), net
|
(125 | ) | 2 | (1 | ) | (441 | ) | (17 | ) | 442 | (140 | ) | ||||||||||||||||
Segment profit (loss) after financing expenses, net
|
1,350 | 935 | 241 | (264 | ) | (17 | ) | 255 | 2,500 | |||||||||||||||||||
Share in earnings of equity-accounted investees
|
- | - | 5 | - | - | - | 5 | |||||||||||||||||||||
Segment profit (loss) before income tax
|
1,350 | 935 | 246 | (264 | ) | (17 | ) | 255 | 2,505 | |||||||||||||||||||
Loss from discontinued operations
|
- | - | - | - | - | (265 | ) | (265 | ) | |||||||||||||||||||
Income tax
|
400 | 253 | 68 | 1 | - | (3 | ) | 719 | ||||||||||||||||||||
Segment results – net profit (loss)
|
950 | 682 | 178 | (265 | ) | (17 | ) | (7 | ) | 1,521 | ||||||||||||||||||
Additional information:
|
||||||||||||||||||||||||||||
Segment assets
|
6,281 | 4,644 | 956 | 1,132 | 100 | (624 | ) | 12,489 | ||||||||||||||||||||
Goodwill
|
- | - | 6 | - | - | 1,787 | 1,793 | |||||||||||||||||||||
Investment in associates
|
- | - | 32 | - | - | - | 32 | |||||||||||||||||||||
Segment liabilities
|
6,037 | 2,552 | 284 | 4,024 | 29 | (2,856 | ) | 10,070 | ||||||||||||||||||||
Capital expenses/contractual investments in property, plant and equipment and intangible assets
|
600 | 911 | 120 | 265 | 2 | - | 1,898 |
|
B.
|
Adjustments for segment reporting of revenue, profit or loss, assets and liabilities
|
Year ended December 31,
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||
Revenue
|
||||||||||||
Revenue from reporting segments
|
13,958 | 13,527 | 13,030 | |||||||||
Revenue from other segments
|
210 | 74 | 75 | |||||||||
Cancellation of revenue from inter-segment sales
|
||||||||||||
except for revenue from sales to an associate
|
||||||||||||
reporting as a segment
|
(603 | ) | (553 | ) | (584 | ) | ||||||
Cancellation of revenue for a segment classified as an associate
|
||||||||||||
(up to August 20, 2009 – discontinued operations)
|
(1,578 | ) | (1,529 | ) | (1,506 | ) | ||||||
Consolidated revenue
|
11,987 | 11,519 | 11,015 |
Year ended December 31,
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||
Profit or loss
|
||||||||||||
Operating profit for reporting segments
|
3,924 | 3,216 | 2,817 | |||||||||
Cancellation of expenses from a segment classified as
|
||||||||||||
an associate(up to August 20, 2009 – discontinued operations)
|
(178 | ) | (248 | ) | (177 | ) | ||||||
Financing income (expenses), net
|
(109 | ) | 31 | (140 | ) | |||||||
Share in the profits (losses) of
|
||||||||||||
equity-accounted investees
|
(261 | ) | (34 | ) | 5 | |||||||
Profit for operations classified in other categories
|
||||||||||||
Others
|
14 | 4 | - | |||||||||
Other adjustments
|
(16 | ) | - | - | ||||||||
Consolidated profit before income tax
|
3,374 | 2,969 | 2,505 |
|
B.
|
Adjustments for segment reporting of revenue, profit or loss, assets and liabilities (contd.)
|
December 31,
|
||||||||
2010
|
2009
|
|||||||
NIS millions
|
NIS millions
|
|||||||
Assets
|
||||||||
Assets from reporting segments
|
13,525 | 13,670 | ||||||
Assets attributable to operations in other categories
|
375 | 85 | ||||||
Goodwill not attributable to an operating segment
|
1,090 | 1,027 | ||||||
Investment in an equity-accounted investee (mainly loans) reported as a segment
|
1,084 | 1,185 | ||||||
Cancellation of assets for a segment classified as an associate
|
(1,243 | ) | (1,206 | ) | ||||
Less inter-segment assets
|
(593 | ) | (820 | ) | ||||
Consolidated assets
|
14,238 | 13,941 |
December 31,
|
||||||||
2010
|
2009
|
|||||||
NIS millions
|
NIS millions
|
|||||||
Liabilities
|
||||||||
Liabilities from reporting segments
|
14,863 | 13,548 | ||||||
Liabilities attributable to operations in other categories
|
241 | 22 | ||||||
Cancellation of liabilities for a segment classified as an associate
|
(4,665 | ) | (4,314 | ) | ||||
Less inter-segment liabilities
|
(1,571 | ) | (1,853 | ) | ||||
Consolidated liabilities
|
8,868 | 7,403 |
|
A.
|
Identity of interested and related parties
|
|
B.
|
Balances with interested and related parties
|
December 31,
|
||||||||
2010
|
2009
|
|||||||
NIS millions
|
NIS millions
|
|||||||
Payables – associates, net
|
58 | 70 | ||||||
Loans to an associate, see section C below
|
1,351 | 1,165 | ||||||
Liabilities to related parties, net *
|
(105 | ) | - | |||||
Loan from related parties to an associate *
|
(1,351 | ) | - |
|
*
|
The amounts are for B Communications, the controlling shareholder of the Company as from April 14, 2010, and its related parties.
|
|
C.
|
Loans provided to an associate
|
|
D.
|
Transactions with interested and related parties
|
Year ended December 31,
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||
Revenue
|
||||||||||||
From associates
|
172 | 224 | 302 | |||||||||
From the State of Israel **
|
- | - | 273 | |||||||||
From related parties *
|
6 | - | - | |||||||||
Expenses
|
||||||||||||
To related parties *
|
180 | - | - | |||||||||
Associate to related parties *
|
106 | - | - | |||||||||
To associates
|
5 | 3 | 7 | |||||||||
To the State of Israel (royalties) **
|
- | - | 102 | |||||||||
To the State of Israel (frequencies)**
|
- | - | 21 | |||||||||
Investments
|
||||||||||||
Rights to frequencies **
|
- | - | 181 | |||||||||
Related parties *
|
78 | - | - |
|
*
|
The amounts are for B Communications, the controlling shareholder of the Company as from April 14, 2010, and its related parties.
|
|
**
|
Up to September 25, 2008, when the State ceased to be an interested party in the Company. For other balances with related parties, see the relevant notes.
|
|
E.
|
Transactions with interested and related parties
|
|
(1)
|
Negligible transactions
|
|
a.
|
The amount of the transaction does not exceed NIS 10 million.
|
|
b.
|
The Company is not required to issue an immediate report for the transaction under Article 36 of the periodic reports regulations or any other law.
|
|
c.
|
The transaction does not address the employment terms (as set out in the Companies Law) of the interested party.
|
|
E.
|
Transactions with interested and related parties (contd.)
|
|
(2)
|
Transactions with controlling shareholders or in which the controlling shareholder has a personal interest, pursuant to section 270(4) of the Companies Law, 5769-1999 (“the Companies Law”).
|
A.
|
Debt arrangements between the Company and Bezeq International and DBS
|
B.
|
Approval of the settlement with Yacov Gelbard, former CEO of the Company
|
|
E.
|
Transactions with interested and related parties (contd.)
|
|
(2)
|
(contd.)
|
|
B.
|
Approval of the settlement with Yacov Gelbard, former CEO of the Company (contd.)
|
|
C.
|
Management services
|
|
E.
|
Transactions with interested and related parties (contd.)
|
|
(2)
|
(contd.)
|
|
D.
|
Agreement for acquisition and supply of Nokia products
|
|
E.
|
Authorization to sell routers
|
|
F.
|
Reciprocal marketing agreement between the Company and DBS
|
|
G.
|
Reciprocal marketing agreement between Bezeq International and DBS
|
|
E.
|
Transactions with interested and related parties (contd.)
|
|
(2)
|
(contd.)
|
|
H.
|
Agreement for acquisition of converters
|
|
(1)
|
An additional order of yesMaxHD converters from Eurocom Digital Communications and ADB, according to the framework agreement and any upgrade (partial or full, at the discretion of DBS) of the converter’s hard-drive, at a total cost of USD 10.3 million. This price is for sea shipment. Should DBS require earlier delivery that requires air shipment, DBS will pay Eurocom the extra cost for air delivery.
|
|
(2)
|
Receipt of dollar credit from Eurocom Digital Communications for an additional 60 days (“the additional credit period”) for purchase of the converters. The payment terms set out in the framework agreement is EOM + 35 and for the additional credit period, DBS will pay interest at a rate of 1% (6% in nominal annual terms). The scope of the credit is estimated at an average of NIS 11 million and payment of the annual interest is estimated as NIS 578,000.
|
|
(3)
|
An order of power supplies for yesMaxHD converters from Eurocom Digital Communications and from ADB, until May 31, 2012, at a total cost of USD 130,000.
|
|
I.
|
Officers insurance
|
|
E.
|
Transactions with interested and related parties (contd.)
|
|
(2)
|
(contd.)
|
|
J.
|
Undertaking to indemnify in advance for new directors in the Company
|
|
(1)
|
Undertaking to indemnify the Company’s officers for any liability or expense imposed on the officers due to their actions in their capacity as an officer in the Company (including their actions in subsidiaries), within the limitations provided in the Companies Law.
|
|
(2)
|
The total amount of the indemnity was limited to a ceiling of 25% of the equity of the Company as may be at the time of actually paying the indemnity.
|
|
K.
|
Continuation of the D&O liability insurance policy
|
|
(1)
|
Policy covering the liability of directors and officers in the Company, as they may be from time to time, including directors and officers who are or who are likely to be considered controlling shareholders in the Company, all the directors and officers in companies in which the Company holds 50% or more, directors and officers representing the Company in companies in which the Company holds less than 50%, and senior employees who are not officers for managerial actions taken by them.
|
|
(2)
|
Limits of liability: The liability limit is USD 50 million per claim and in total for all claims in the insurance period. In addition, USD 10 million per claim and in total for the each year of insurance for legal expenses in Israel only. The liability limit for subsidiaries is half of this amount (as part of that liability limit).
|
|
(3)
|
The annual premium for the policy is USD 140,000. The policy also covers directors who are controlling shareholders in the Company.
|
|
L.
|
Agreement for supply of space segments to DBS from Space Communications Ltd. (“Spacecom”)
|
|
E.
|
Transactions with interested and related parties (contd.)
|
|
(2)
|
(contd.)
|
|
M.
|
Framework transaction for D&O liability insurance
|
|
N.
|
D&O liability insurance policy
|
|
(3)
|
Transactions not included in section 270(4) of the Companies Law and are not negligible
|
|
A.
|
Raising of debt by DBS
|
|
E.
|
Transactions with interested and related parties (contd.)
|
|
(3)
|
(contd.)
|
|
B.
|
Acquisition of converters and settlement agreement to dismiss mutual claims
|
|
F.
|
Benefits for key managers
|
(1)
|
Key managers in the Group in 2010 include the chairman of the board and the CEO of the Company, as well as the CEOs of Pelephone and Bezeq International. In 2008, the CEO of DBS was also included among the key managers.
|
(2)
|
In 2010, the changes in other provisions (which are included in total salary) were not significant, except for a decrease in the provisions for early notice and leave for the chairman of the Board of Directors, in the amount of NIS 1.8 million. In 2009, the changes in the other provisions were not significant. In 2008, the changes in the other provisions were not significant, except for a decrease in the provision for notice for the CEO of the Company, in the amount of NIS 746,000, in accordance with his employment agreement.
|
(3)
|
The bonus for 2010 to the chairman of the board, amounting to NIS 3.507 million, requires the approval of the general meeting of the shareholders of the Company. In addition, the bonus includes a retention grant for the CEOs of the Company, Bezeq International and Pelephone, amounting to nine months salary, and was approved by the Company’s Board of Directors on December 31, 2009.
|
|
G.
|
Benefits for directors
|
Year ended December 31,
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
NIS thousands
|
NIS thousands
|
NIS thousands
|
||||||||||
Remuneration for directors who are not employed by the Company
|
966 | 705 | 619 | |||||||||
Number of directors receiving remuneration
|
5 | 2 | 3 | |||||||||
Salary of employee-directors (2)
|
1,332 | 1,450 | 1,120 | |||||||||
Number of directors receiving the salary
|
2 | 2 | 2 | |||||||||
Management fees to the controlling shareholder until April 14, 2010
|
1,285 | 4,692 | 4,238 | |||||||||
Management fees to the controlling shareholder from April 14, 2010 See section E(2)(c)
|
2,541 | - | - |
(1)
|
The directors serving on the Company’s Board of Directors, except for the outside directors and the independent directors, do not receive remuneration from the Company.
|
(2)
|
The salary is paid to employee-directors in respect of their work in the Company and they do not receive any additional pay in respect of their service as directors in the Company. For details of the options that were allocated to employee-directors according to the 2007 senior officers options plan, see Note 27B(1). For details of the additional allocation of options for employee-directors on January 25, 2011, see Note 27C.
|
(3)
|
In May 2005, the general meeting of the Company’s shareholders approved the exercise of an option to purchase a run-off policy for liability for officers who served in the Company up to transfer of control to Ap. Sr. Ar., meaning until October 11, 2005, for seven years from that date
|
(4)
|
In December 2007, the general meeting of the Company’s shareholders approved a framework transaction for the Company's engagement, during the normal course of business, in future insurance policies to cover the liability of directors and officers as may be from time to time, including directors and officers who are or who are likely to be considered controlling shareholders in the Company, all the officers in companies in which the Company holds 50% or more, officers representing the Company in companies in which the Company holds 50% or more, and senior employees who are not officer, for managerial actions taken by them, and all by way of a "framework transaction" as defined in the Companies Regulations (Reliefs in Transactions with an Interested Party), 5760-2000, at an annual premium of up to USD 510,000 plus a sum constituting up to 20% of that premium in respect of the current insurance cover.
|
|
G.
|
Benefits for directors (contd.)
|
(5)
|
In December 2009, the Board of Directors of the Company approved the renewal of a liability insurance policy for officers in the Company, under the framework agreement approved by the general meeting of the Company’s shareholders on December 26, 2007. This was effective from November 1, 2009 to October 10, 2010 (with an option to extend the policy until October 31, 2010, for no further consideration, subject to due approval). The liability limit is USD 100 million per claim and in total for all claims in the insurance period. In addition, the liability limit is up to USD 20 million per claim and in total for the insurance period for legal expenses in Israel only. The liability limit for subsidiaries is USD 50 million (as part of the aforementioned liability limit). The annual premium for the policy is USD
313,650.
|
(6)
|
In January 2010, the Board of Directors of the Company approved an agreement to purchase a D&O insurance policy, under the framework agreement that was approved by the general meeting of the Company's shareholders on December 26, 2007. This policy is effective from the expiry date of the D&O liability insurance policy (which is the date of transfer of control from Ap.Sb.Ar. Holdings Ltd. to 012 Smile Communications Ltd. as set out in the immediate report issued by the Company on January 31, 2010 regarding convening a general meeting) and up to October 10, 2010. The liability limit is up to USD 50 million for claims and in total for each insurance year. In addition, the liability limit is up to USD 10 million per claim and in total for the insurance period for legal expenses in Israel only. The liability limit for subsidiaries is half of this amount (as part of the above liability limit). The annual premium for the policy is up to USD 188,500. It is clarified that this policy replaces the existing insurance policy, which was approved by the Board of Directors of the Company on December 10, 2009.
|
(7)
|
For details of the approval of the general meeting held in March 2010 and November 2010 in respect of D&O liability insurance, see section E(2)(i) and E(2)(k) above, respectively.
|
(8)
|
For details of the approval of the Board of Directors in March 2011 in respect of the framework transaction for D&O liability insurance, see section E(2)(m) above.
|
(9)
|
For details of the decision of the audit committee and Board of Directors in respect of the approval in March 2011 in respect of the D&O liability insurance, see section E(2)(n) above.
|
(10)
|
In January 2007, the general meeting of the Company’s shareholders approved an undertaking to indemnify according to a deed of indemnity for all of the Company’s officers for any liability or expense imposed on the officers due to their actions in their capacity as an officer in the Company (including their actions in subsidiaries), within the limitations provided in the Companies Law. The amount of the indemnity was limited to a ceiling of 25% of the Company’s equity as may be at the time of actually paying the indemnity. The deed of indemnity will apply to events listed in the deed of indemnity, which is attached to the immediate report regarding notice of a general meeting to approve the undertaking to indemnify. In 2008-2010 and up to the publication date of this report, an undertaking to indemnify was approved for new officers who joined the Company. In the past seven years, the Company has granted indemnity to officers for the following issues:
|
|
G.
|
Benefits for directors
|
(10)
|
(contd.)
|
|
a.
|
Undertaking in advance to indemnify officers for any expense or financial liability imposed on them for litigation related to the Company’s prospectus of May 2004.
|
|
b.
|
Undertaking in advance to indemnify officers who served in the Company when the undertaking to indemnify was granted or who served during the seven years preceding this date, for expenses or financial liabilities arising from a claim of a shareholder who held at any time during the four years preceding the date of the liability 15% or more of the Company’s issued share capital.
|
|
c.
|
Undertaking in advance to indemnify officers who served in the Company when the undertaking to indemnify was granted or who served during the seven years preceding this date, to grant a loan to finance reasonable litigation expenses, including a class action. The loan will become a grant if the court does not impose liabilities on the officer in a peremptory ruling.
|
|
d.
|
Undertaking to officers that the insurance coverage for events covered in the D&O insurance policy acquired by the Company in 2003, will continue for seven years, provided the cost of the insurance premium is reasonable.
|
|
e.
|
The undertaking to indemnify as of April 6, 2005 for a financial liability that would be imposed on officers of the Company and in respect of reasonable litigation expenses which they would incur, relating directly or indirectly to the sale of the State's holdings in the Company.
|
|
f.
|
The undertaking to indemnify as of May 16, 2005, for officers who served in the seven years preceding the completion date of the sale of core control in the Company to Ap.Sb.Ar.
|
|
H.
|
For guarantees to related parties, see Note 20.
|
|
I.
|
For the allocation of phantom options to the CEOs of the Company, Pelephone and Bezeq International, see Note 27.
|
|
A.
|
General
|
|
·
|
Credit risk
|
|
·
|
Liquidity risk
|
|
·
|
Market risk (which includes currency, interest, inflation and other price risks)
|
|
B.
|
Framework for risk management
|
|
C.
|
Credit risk
|
|
D.
|
Liquidity risk
|
|
E.
|
Market risks
|
|
E.
|
Market risks (contd.)
|
|
A.
|
Credit risk
|
December 31,
|
||||||||
2010
|
2009
|
|||||||
NIS millions
|
NIS millions
|
|||||||
Cash and cash equivalents
|
365 | 580 | ||||||
Financial assets held for trading
|
- | 141 | ||||||
Available-for-sale financial assets
|
31 | 37 | ||||||
Trade and other receivables
|
3,920 | 3,461 | ||||||
Bank deposit for providing loans to employees
|
83 | 83 | ||||||
Assets and other investments
|
7 | - | ||||||
Derivatives
|
15 | 23 | ||||||
4,421 | 4,325 |
|
B.
|
Liquidity risk
|
December 31, 2010
|
||||||||||||||||||||||||||||
Carrying amount
|
Contractual cash flow
|
6 months or less
|
6-12 months
|
1-2 years
|
3-5 years
|
More than 5 years
|
||||||||||||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||||||||||||||
Non-derivative financial liabilities
|
||||||||||||||||||||||||||||
Trade payables
|
1,061 | 1,061 | 1,061 | - | - | - | - | |||||||||||||||||||||
Other payables
|
760 | 760 | 748 | 12 | - | - | - | |||||||||||||||||||||
Bank loans
|
2,855 | 3,320 | 69 | 83 | 310 | 1,778 | 1,080 | |||||||||||||||||||||
Debentures issued to the public
|
2,163 | 2,391 | 690 | - | 371 | 1,021 | 309 | |||||||||||||||||||||
Debentures issued to financial and other institutions
|
699 | 756 | 169 | * | 79 | 152 | 356 | - | ||||||||||||||||||||
7,538 | 8,288 | 2,737 | 174 | 833 | 3,155 | 1,389 | ||||||||||||||||||||||
Financial liabilities - derivatives
|
||||||||||||||||||||||||||||
Forward contracts on copper prices
|
10 | 10 | 10 | - | - | - | - |
|
*
|
Including debentures of the Company amounting to NIS 77 million, stated in the financial statements as short term due to non-compliance with financial covenants. See Note 14C (1)
|
|
B.
|
Liquidity risk (contd.)
|
December 31, 2009
|
||||||||||||||||||||||||||||
Carrying amount
|
Contractual cash flow
|
6 months or less
|
6-12 months
|
1-2 years
|
3-5 years
|
More than 5 years
|
||||||||||||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||||||||||||||
Non-derivative financial liabilities
|
||||||||||||||||||||||||||||
Trade payables
|
1,091 | 1,091 | 1,091 | - | - | - | - | |||||||||||||||||||||
Other payables
|
695 | 695 | 681 | 14 | - | - | - | |||||||||||||||||||||
Bank loans
|
622 | 681 | 32 | 51 | 138 | 441 | 19 | |||||||||||||||||||||
Debentures issued to the public
|
2,476 | 2,797 | 395 | - | 738 | 1,044 | 620 | |||||||||||||||||||||
Debentures issued to financial and other institutions
|
1,038 | 1,141 | 409 | * | 80 | 155 | 429 | 68 | ||||||||||||||||||||
5,922 | 6,405 | 2,608 | 145 | 1,031 | 1,914 | 707 | ||||||||||||||||||||||
Financial liabilities - derivatives
|
||||||||||||||||||||||||||||
Forward contracts on currencies
|
1 | 1 | 1 | - | - | - | - | |||||||||||||||||||||
Exchange rate options
|
1 | 1 | 1 | - | - | - | - | |||||||||||||||||||||
2 | 2 | 2 | - | - | - | - | ||||||||||||||||||||||
|
*
|
Including debentures of the Company amounting to NIS 94 million, stated in the financial statements as short term due to non-compliance with financial covenants. See Note 14C (1)
|
|
C.
|
CPI and foreign currency risks
|
|
(1)
|
Exposure to CPI and foreign currency risks
|
December 31, 2010
|
||||||||||||||||||||
Unlinked
|
CPI-linked
|
Foreign currency or linked thereto (mainly dollar)
|
Non-monetary balance
|
Total
|
||||||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||||||||
Current assets
|
||||||||||||||||||||
Cash and cash equivalents
|
339 | - | 26 | - | 365 | |||||||||||||||
Trade receivables
|
2,629 | 34 | 38 | - | 2,701 | |||||||||||||||
Other receivables
|
48 | 52 | - | 124 | 224 | |||||||||||||||
Other investments, including derivatives
|
2 | 2 | 3 | - | 7 | |||||||||||||||
Inventory
|
- | - | - | 178 | 178 | |||||||||||||||
Assets classified as held for sale
|
- | - | - | 29 | 29 | |||||||||||||||
Current tax assets
|
3 | - | - | - | 3 | |||||||||||||||
Non-current assets
|
||||||||||||||||||||
Long-term trade and other receivables
|
949 | 161 | 4 | - | 1,114 | |||||||||||||||
Investments and long-term loans, including:
|
||||||||||||||||||||
Derivatives
|
87 | 10 | 30 | 2 | 129 | |||||||||||||||
Property, plant and equipment
|
- | - | - | 5,610 | 5,610 | |||||||||||||||
Intangible assets
|
- | - | - | 2,248 | 2,248 | |||||||||||||||
Other deferred expenses
|
- | - | - | 292 | 292 | |||||||||||||||
Equity-accounted investments
|
- | 1,351 | - | (267 | ) | 1,084 | ||||||||||||||
Deferred tax assets
|
- | - | - | 254 | 254 | |||||||||||||||
Total assets
|
4,057 | 1,610 | 101 | 8,470 | 14,238 | |||||||||||||||
Current liabilities
|
||||||||||||||||||||
Loans and borrowings
|
7 | 942 | - | - | 949 | |||||||||||||||
Employee benefits – not in the scope of IFRS 7
|
269 | - | - | - | 269 | |||||||||||||||
Trade payables
|
887 | - | 174 | - | 1,061 | |||||||||||||||
Other payables, including derivatives
|
675 | 85 | 10 | - | 770 | |||||||||||||||
Current tax liabilities
|
- | 267 | - | - | 267 | |||||||||||||||
Deferred income
|
4 | - | - | 29 | 33 | |||||||||||||||
Provisions
|
31 | 216 | - | 4 | 251 | |||||||||||||||
Non-current liabilities
|
||||||||||||||||||||
Debentures
|
- | 1,967 | - | - | 1,967 | |||||||||||||||
Bank loans
|
2,670 | 131 | - | - | 2,801 | |||||||||||||||
Deferred revenue and other provisions
|
103 | - | 1 | 8 | 112 | |||||||||||||||
Deferred tax liabilities
|
- | - | - | 83 | 83 | |||||||||||||||
Employee benefits – not in the scope of IFRS 7
|
202 | 56 | 47 | - | 305 | |||||||||||||||
Total liabilities
|
4,848 | 3,664 | 232 | 124 | 8,868 | |||||||||||||||
Total exposure in the statement of financial position
|
(791 | ) | (2,054 | ) | (131 | ) | 8,346 | 5,370 | ||||||||||||
Currency futures transactions
|
||||||||||||||||||||
CPI forward transactions
|
(390 | ) | 390 | - | - | - |
|
C.
|
CPI and foreign currency risks (contd.)
|
|
(1)
|
Exposure to CPI and foreign currency risks (contd.)
|
December 31, 2009
|
||||||||||||||||||||
Unlinked
|
CPI-linked
|
Foreign currency or linked thereto (mainly dollar)
|
Non-monetary balance
|
Total
|
||||||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||||||||
Current assets
|
||||||||||||||||||||
Cash and cash equivalents
|
549 | - | 31 | - | 580 | |||||||||||||||
Trade receivables
|
2,396 | 30 | 65 | - | 2,491 | |||||||||||||||
Other receivables
|
72 | 5 | - | 94 | 171 | |||||||||||||||
Other investments, including derivatives
|
140 | 12 | 2 | - | 154 | |||||||||||||||
Inventory
|
- | - | - | 263 | 263 | |||||||||||||||
Assets classified as held for sale
|
- | - | - | 40 | 40 | |||||||||||||||
Non-current assets
|
||||||||||||||||||||
Long-term trade and other receivables
|
788 | 94 | 5 | - | 887 | |||||||||||||||
Long-term investments and loans, including derivatives
|
83 | 10 | 31 | 6 | 130 | |||||||||||||||
Property, plant and equipment
|
- | - | - | 5,428 | * | 5,428 | * | |||||||||||||
Intangible assets
|
- | - | - | 1,885 | 1,885 | |||||||||||||||
Other deferred expenses
|
- | - | - | 301 | * | 301 | * | |||||||||||||
Equity-accounted investments
|
1 | 1,166 | - | 52 | 1,219 | |||||||||||||||
Deferred tax assets
|
- | - | - | 392 | 392 | |||||||||||||||
Total assets
|
4,029 | 1,317 | 134 | 8,461 | 13,941 | |||||||||||||||
Current liabilities
|
||||||||||||||||||||
Loans and borrowings
|
17 | 845 | - | - | 862 | |||||||||||||||
Employee benefits – not in the scope of IFRS 7
|
505 | - | - | - | 505 | |||||||||||||||
Trade payables
|
833 | - | 258 | - | 1,091 | |||||||||||||||
Other payables, including derivatives
|
600 | 94 | 3 | - | 697 | |||||||||||||||
Current tax liabilities
|
- | 118 | - | - | 118 | |||||||||||||||
Deferred income
|
5 | - | - | 31 | 36 | |||||||||||||||
Provisions
|
30 | 338 | - | 12 | 380 | |||||||||||||||
Non-current liabilities
|
||||||||||||||||||||
Debentures
|
- | 2,716 | - | - | 2,716 | |||||||||||||||
Bank loans
|
383 | 175 | - | - | 558 | |||||||||||||||
Deferred revenue and other provisions
|
60 | - | - | 16 | 76 | |||||||||||||||
Deferred tax liabilities
|
- | - | - | 70 | 70 | |||||||||||||||
Employee benefits – not in the scope of IFRS 7
|
188 | 57 | 49 | - | 294 | |||||||||||||||
Total liabilities
|
2,621 | 4,343 | 310 | 129 | 7,403 | |||||||||||||||
Total exposure in the statement of financial position
|
1,408 | (3,026 | ) | (176 | ) | 8,332 | 6,538 | |||||||||||||
Currency futures transactions
|
||||||||||||||||||||
Dollar/shekel forward transactions
|
(32 | ) | - | 32 | - | - | ||||||||||||||
CPI forward transactions
|
(440 | ) | 440 | - | - | - | ||||||||||||||
Dollar/shekel sale options
|
- | - | (26 | ) | - | (26 | ) | |||||||||||||
Dollar/shekel purchase options
|
- | - | 26 | - | 26 | |||||||||||||||
(472 | ) | 440 | 32 | - | - |
|
*
|
Retrospective application by restatement, see Note 2H
|
|
C.
|
CPI and foreign currency risks (contd.)
|
|
(1)
|
Exposure to CPI and foreign currency risks (contd.)
|
December 31, 2010
|
||||||||||||||||
Currency/ linkage receivable
|
Currency/ linkage payable
|
Expiry date
|
Par value
|
Fair value
|
||||||||||||
NIS
Millions
|
NIS millions
|
|||||||||||||||
Instruments not used for hedging:
|
||||||||||||||||
CPI forward contract
|
CPI
|
CPI
|
2011-2012 | 390 | 12 |
December 31, 2009
|
||||||||||||||||
Currency/ linkage receivable
|
Currency/ linkage payable
|
Expiry date
|
Par value
|
Fair value
|
||||||||||||
NIS
Millions
|
NIS millions
|
|||||||||||||||
Instruments not used for accounting hedging:
|
||||||||||||||||
Forward exchange contracts
|
USD
|
NIS
|
2010-2011 | 7 | (1 | ) | ||||||||||
CPI forward contract
|
CPI
|
CPI
|
2010-2012 | 440 | 21 | |||||||||||
Foreign currency purchase options
|
USD
|
NIS
|
2010 | 7 | - | |||||||||||
Foreign currency put options
|
USD
|
NIS
|
2010 | 7 | (1 | ) | ||||||||||
19 |
Change (%)
|
Change (%)
|
Change (%)
|
||||||||||||||||||||||
December 31
|
December 31
|
December 31
|
December 31
|
December 31
|
December 31
|
|||||||||||||||||||
2010
|
2009
|
2008
|
2010
|
2009
|
2008
|
|||||||||||||||||||
CPI in points (*)
|
133.89 | 130.42 | 125.5 | 2.66 | 3.91 | 3.8 | ||||||||||||||||||
1 US dollar
|
3.549 | 3.775 | 3.802 | (5.99 | ) | (0.71 | ) | (1.14 | ) | |||||||||||||||
1 euro
|
4.738 | 5.442 | 5.297 | (12.94 | ) | 2.73 | (6.39 | ) |
|
D.
|
Interest rate risk
|
|
(1)
|
Type of interest
|
Carrying amount
|
Carrying amount
|
|||||||
2010
|
2009
|
|||||||
NIS millions
|
NIS millions
|
|||||||
Fixed-interest instruments
|
||||||||
Financial assets
|
2,551 | 2,341 | ||||||
Financial liabilities
|
(4,347 | ) | (3,736 | ) | ||||
(1,796 | ) | (1,395 | ) | |||||
Variable-interest instruments
|
||||||||
Financial liabilities
|
(1,370 | ) | (400 | ) |
|
(2)
|
Fair value sensitivity analysis for fixed rate instruments
|
|
(3)
|
Sensitivity analysis of cash flow for instruments at variable interest
|
|
E.
|
Fair value
|
|
(1)
|
Fair value compared to carrying amounts
|
December 31, 2010
|
December 31, 2009
|
|||||||||||||||
Carrying amount
|
Fair value
|
Carrying amount
|
Fair value
|
|||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
|||||||||||||
Short-term credit
|
7 | 7 | - | - | ||||||||||||
Secured loans from banks and others
|
||||||||||||||||
CPI-inked
|
180 | 192 | 223 | 235 | ||||||||||||
Unlinked
|
2,684 | 2,684 | 403 | 403 | ||||||||||||
Debentures issued to the public
|
||||||||||||||||
CPI-inked
|
2,249 | 2,387 | 2,548 | 2,707 | ||||||||||||
Debentures issued to financial institutions and others
|
||||||||||||||||
CPI-inked
|
712 | 760 | 1,058 | 1,079 | ||||||||||||
5,832 | 6,030 | 4,232 | 4,424 |
|
(2)
|
Interest rates used to determine fair value
|
|
E.
|
Fair value (contd.)
|
|
(3)
|
Fair value hierarchy
|
a.
|
Level 1: Quoted prices (unadjusted) in an active market for identical instruments
|
b.
|
Level 2: Observable market inputs, direct or indirect, other than Level 1 inputs
|
c.
|
Level 3: Inputs not based on observable market data
|
December 31, 2010
|
||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
|||||||||||||
Derivatives not used for hedging
|
12 | 12 | ||||||||||||||
Forward contracts on copper
|
- | (10 | ) | - | (10 | ) | ||||||||||
Available-for-sale financial assets:
|
||||||||||||||||
Unmarketable shares
|
- | - | 29 | 29 | ||||||||||||
- | 2 | 29 | 31 |
December 31, 2009
|
||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
NIS millions
|
|||||||||||||
Financial assets held for trading:
|
||||||||||||||||
Monetary fund
|
141 | - | - | 141 | ||||||||||||
Derivatives not used for hedging
|
||||||||||||||||
Options
|
- | (1 | ) | - | (1 | ) | ||||||||||
Forward contracts
|
- | 20 | - | 20 | ||||||||||||
Available-for-sale financial assets:
|
||||||||||||||||
Unmarketable shares
|
- | - | 31 | 31 | ||||||||||||
141 | 19 | 31 | 191 |
|
E.
|
Fair value (contd.)
|
|
(4)
|
Financial instruments measured at fair value on level 3
|
2010
|
2009
|
|||||||
Available-for-sale
financial assets
|
Available-for-sale
financial assets
|
|||||||
Non-marketable shares
|
Non-marketable shares
|
|||||||
NIS millions
|
NIS millions
|
|||||||
Balance as at January 1
|
31 | 50 | ||||||
Total profits recognized in the statement of income (*)
|
- | 23 | ||||||
Acquisitions
|
5 | 4 | ||||||
Disposal consideration
|
(10 | ) | (45 | ) | ||||
Capital reserve
|
3 | (1 | ) | |||||
Balance as at December 31
|
29 | 31 | ||||||
Total profits for the year included in the statement of income under financing income
|
7 | 9 |
|
1.
|
Pelephone Communications Ltd.
|
|
A.
|
Statement of financial position
|
December 31, 2010
|
December 31, 2009
|
|||||||
NIS millions
|
NIS millions
|
|||||||
Current assets
|
2,071 | 2,102 | ||||||
Non-current assets
|
2,821 | 2,888 | ||||||
4,892 | 4,990 | |||||||
Current liabilities
|
1,198 | 1,519 | ||||||
Non-current liabilities
|
732 | 921 | ||||||
Total liabilities
|
1,930 | 2,440 | ||||||
Equity
|
2,962 | 2,550 | ||||||
4,892 | 4,990 |
B.
|
Statement of income
|
Year ended December 31
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||
Revenue from services
|
4,550 | 4,256 | 4,020 | |||||||||
Revenue from terminal equipment sales
|
1,182 | 1,120 | 693 | |||||||||
Total revenue from services and sales
|
5,732 | 5,376 | 4,713 | |||||||||
Cost of services and sales
|
3,754 | 3,592 | 3,235 | |||||||||
Gross profit
|
1,978 | 1,784 | 1,478 | |||||||||
Selling and marketing expenses
|
468 | 461 | 405 | |||||||||
General and administrative expenses
|
127 | 133 | 140 | |||||||||
Operating profit
|
1,383 | 1,190 | 933 | |||||||||
Financing expenses
|
111 | 100 | 115 | |||||||||
Financing income
|
(100 | ) | (90 | ) | (117 | ) | ||||||
Financing expenses (income), net
|
11 | 10 | (2 | ) | ||||||||
Profit before income tax
|
1,372 | 1,180 | 935 | |||||||||
Income tax
|
339 | 305 | 253 | |||||||||
Net profit for the year
|
1,033 | 875 | 682 |
|
2.
|
Bezeq International Ltd.
|
|
A.
|
Statement of financial position
|
December 31, 2010
|
December 31, 2009
|
|||||||
NIS millions
|
NIS millions
|
|||||||
Current assets
|
447 | 547 | ||||||
Non-current assets
|
591 | 559 | ||||||
1,038 | 1,106 | |||||||
Current liabilities
|
279 | 367 | ||||||
Non-current liabilities
|
25 | 37 | ||||||
Total liabilities
|
304 | 404 | ||||||
Equity
|
734 | 702 | ||||||
1,038 | 1,106 |
B.
|
Statement of income
|
Year ended December 31
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
NIS millions
|
NIS millions
|
NIS millions
|
||||||||||
Revenue
|
1,380 | 1,318 | 1,306 | |||||||||
Operating expenses
|
822 | 777 | 780 | |||||||||
Gross profit
|
558 | 541 | 526 | |||||||||
Selling and marketing expenses
|
192 | 175 | 181 | |||||||||
General and administrative expenses
|
109 | 105 | 103 | |||||||||
Other, net
|
(63 | ) | - | - | ||||||||
Operating profit
|
320 | 261 | 242 | |||||||||
Financing expenses
|
11 | 12 | 8 | |||||||||
Financing income
|
(6 | ) | (15 | ) | (7 | ) | ||||||
Financing expenses (income), net
|
5 | (3 | ) | 1 | ||||||||
Share in earnings of equity-accounted investees
|
3 | 7 | 5 | |||||||||
Profit before income tax
|
318 | 271 | 246 | |||||||||
Income tax expense
|
65 | 71 | 68 | |||||||||
Net profit for the year
|
253 | 200 | 178 |
DF-2
|
|
DF-3 - DF-4
|
|
DF-5
|
|
DF-6
|
|
DF-7 -DF- 8
|
|
DF-9 - DF-10
|
|
DF-11 - DF-55
|
Somekh Chaikin
|
Certified Public Accountants
|
2010
|
2009
|
|||||||||||
Note
|
NIS thousands
|
NIS thousands
|
||||||||||
Assets
|
||||||||||||
Trade receivables
|
6 | 168,847 | 160,152 | |||||||||
Other receivables
|
6 | 11,150 | 11,197 | * | ||||||||
Total current assets
|
179,997 | 171,349 | ||||||||||
Property, plant and equipment, net
|
7 | 675, 888 | 682,473 | |||||||||
Intangible assets, net
|
8 | 82,769 | 67,043 | |||||||||
Broadcasting rights, net of rights exercised
|
9 | 304,490 | 284,766 | |||||||||
Total non-current assets
|
1,063,147 | 1,034,282 | ||||||||||
Total assets
|
1,243,144 | 1,205,631 |
2010
|
2009
|
|||||||||||
Note
|
NIS thousands
|
NIS thousands
|
||||||||||
Liabilities
|
||||||||||||
Borrowings from banks
|
10 | 135,438 | 283,698 | |||||||||
Current maturities for debentures
|
14 | 56,062 | 54,812 | |||||||||
Trade payables
|
11 | 355,771 | 405,389 | * | ||||||||
Other payables
|
12 | 164,951 | 150,420 | * | ||||||||
Provisions
|
13 | 89 ,266 | 9,079 | * | ||||||||
Total current liabilities
|
801,488 | 903,398 | ||||||||||
Debentures
|
14 | 1,030,973 | 625,741 | |||||||||
Loans from institutions
|
15 | - | 181,729 | |||||||||
Bank loans
|
10 | 470,810 | 607,036 | |||||||||
Loans from shareholders
|
16 | 2,300,387 | 1,981,887 | |||||||||
Long-term trade payables
|
17 | 54,264 | 9,001 | * | ||||||||
Employee benefits
|
18 | 6,696 | 5,599 | * | ||||||||
Total non-current liabilities
|
3,863,130 | 3,410,993 | ||||||||||
Total liabilities
|
4,664,618 | 4,314,391 | ||||||||||
Capital deficit
|
||||||||||||
Share capital
|
29 | 29 | ||||||||||
Share premium
|
85,557 | 85,557 | ||||||||||
Option warrants
|
48,219 | 48,219 | ||||||||||
Capital reserves
|
1,537,271 | 1,537,271 | ||||||||||
Capital reserve for share-based payments
|
9,391 | 6,931 | ||||||||||
Retained loss
|
(5,101,941 | ) | (4,786,767 | ) | ||||||||
Total
capital deficit
|
22 | (3,421,474 | ) | (3,108,760 | ) | |||||||
Total liabilities and capital
|
1,243,144 | 1,205,631 |
/s/ Ron Eilon
|
/s/ Katriel Moriah
|
|||
Ron Eilon
|
Katriel Moriah
|
|||
Authorized to sign on behalf of chairman of the board
(See Note 33).
|
CEO
|
CFO
|
2010
|
2009
|
2008
|
||||||||||||||
Note
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
|||||||||||||
Revenue
|
1,582,930 | 1,530,435 | 1,512,632 | |||||||||||||
Cost of revenue
|
23 | 1,128,848 | 1,042,101 | 1,091,171 | ||||||||||||
Gross profit
|
454,082 | 488,334 | 421,461 | |||||||||||||
Selling and marketing expenses
|
24 | 143,202 | 122,312 | 128,162 | ||||||||||||
General and administrative expenses
|
25 | 132,561 | 117,805 | 116,151 | ||||||||||||
275,763 | 240,117 | 244,313 | ||||||||||||||
Operating profit
|
178,319 | 248,217 | 177,148 | |||||||||||||
Financing expenses
|
181,584 | 177,900 | 229,650 | |||||||||||||
Financing income
|
(9,313 | ) | (8,347 | ) | (51,805 | ) | ||||||||||
Shareholders’ finance expenses
|
318,499 | 300,373 | 262,961 | |||||||||||||
Financing expenses, net
|
26 | 490,770 | 469,926 | 440,806 | ||||||||||||
Loss before income tax
|
(312,451 | ) | (221,709 | ) | (263,658 | ) | ||||||||||
Income tax
|
27 | 1,188 | 745 | 1,048 | ||||||||||||
Loss for the period
|
(313,639 | ) | (222,454 | ) | (264,706 | ) | ||||||||||
Basic and diluted loss per share (in NIS)
|
10,491 | 7,441 | 8,919 |
2010
|
2009
|
2008
|
||||||||||||||
Note
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
|||||||||||||
Loss for the period
|
(313,639 | ) | (222,454 | ) | (264,706 | ) | ||||||||||
Other items of comprehensive income:
|
||||||||||||||||
Actuarial gains (losses) from a defined benefit plan
|
18 | (1,535 | ) | 537 | 127 | |||||||||||
Other comprehensive profit (loss) for the year
|
(1,535 | ) | 537 | 127 | ||||||||||||
Total comprehensive loss for the year
|
(315,174 | ) | (221,917 | ) | (264,579 | ) |
Share capital
|
Share premium
|
Option warrants
|
Capital reserve
|
Capital reserve for share-based payments
|
Accrued deficit
|
Total
|
||||||||||||||||||||||||||
Note
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
|||||||||||||||||||||||||
Balance at January 1, 2010
|
29 | 85,557 | 48,219 | 1,537,271 | 6,931 | (4,786,767 | ) | (3,108,760 | ) | |||||||||||||||||||||||
Total comprehensive income for the year
|
||||||||||||||||||||||||||||||||
Loss for the year
|
- | - | - | - | - | (313,639 | ) | (313,639 | ) | |||||||||||||||||||||||
Other comprehensive loss for the year
|
- | - | - | - | - | (1,535 | ) | (1,535 | ) | |||||||||||||||||||||||
Total comprehensive loss for the year
|
- | - | - | - | - | (315,174 | ) | (315,174 | ) | |||||||||||||||||||||||
Transactions with owners recognized directly in equity
|
||||||||||||||||||||||||||||||||
Share-based payments
|
19 | - | - | - | - | 2,460 | - | 2,460 | ||||||||||||||||||||||||
Balance at December 31, 2010
|
29 | 85,557 | 48,219 | 1,537,271 | 9,391 | (5,101,941 | ) | (3,421,474 | ) | |||||||||||||||||||||||
Balance at January 1, 2009
|
29 | 85,557 | 48,219 | 1,537,271 | 1,636 | (4,564,850 | ) | (2,892,138 | ) | |||||||||||||||||||||||
Total comprehensive income for the year
|
||||||||||||||||||||||||||||||||
Loss for year
|
- | - | - | - | - | (222,454 | ) | (222,454 | ) | |||||||||||||||||||||||
Comprehensive income for the year
|
- | - | - | - | - | 537 | 537 | |||||||||||||||||||||||||
Total comprehensive loss for the year
|
- | - | - | - | - | (221,917 | ) | (221,917 | ) | |||||||||||||||||||||||
Transactions with owners recognized directly in equity
|
||||||||||||||||||||||||||||||||
Share-based payments
|
19 | - | - | - | - | 5,295 | - | 5,295 | ||||||||||||||||||||||||
Balance at December 31, 2009
|
29 | 85,557 | 48,219 | 1,537,271 | 6,931 | (4,786,767 | ) | (3,108,760 | ) |
Share capital
|
Share premium
|
Option warrants
|
Capital reserve
|
Capital reserve for share-based payments
|
Accrued deficit
|
Total
|
||||||||||||||||||||||||||
Note
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
|||||||||||||||||||||||||
Balance at January 1, 2008
|
29 | 85,557 | 48,219 | 1,537,271 | - | (4,300,271 | ) | (2,629,195 | ) | |||||||||||||||||||||||
Total comprehensive income for the year
|
||||||||||||||||||||||||||||||||
Loss for year
|
- | - | - | - | - | (264,706 | ) | (264,706 | ) | |||||||||||||||||||||||
Comprehensive income for the year
|
- | - | - | - | - | 127 | 127 | |||||||||||||||||||||||||
Total comprehensive loss for the year
|
- | - | - | - | - | (264,579 | ) | (264,579 | ) | |||||||||||||||||||||||
Transactions with owners recognized directly in equity
|
||||||||||||||||||||||||||||||||
Share-based payments
|
19 | - | - | - | - | 1,636 | - | 1,636 | ||||||||||||||||||||||||
Balance at December 31, 2008
|
29 | 85,557 | 48,219 | 1,537,271 | 1,636 | (4,564,850 | ) | (2,892,138 | ) |
2010
|
2009
|
2008
|
||||||||||
NIS thousands
|
NIS thousands
|
NIS thousands
|
||||||||||
Cash flows from operating activities
|
||||||||||||
Loss for the period
|
(313,639 | ) | (222,454 | ) | (264,706 | ) | ||||||
Adjustments:
|
||||||||||||
Depreciation and amortization
|
284,732 | 234,203 | 249,880 | |||||||||
Financing expenses, net
|
465,562 | 455,232 | 426,258 | |||||||||
gain
from sale of property, plant and equipment
|
(35 | ) | (236 | ) | (124 | ) | ||||||
Share-based payments
|
2,460 | 5,295 | 1,636 | |||||||||
Income tax expenses
|
1,188 | 745 | 1,048 | |||||||||
Change in trade receivables
|
(8,695 | ) | (7,277 | ) | (7,352 | ) | ||||||
Change in other receivables
|
(2,896 | ) | 84 | 5 | ||||||||
Change in trade payables
|
(2,731 | ) | (8,391 | )* | (69,189 | )* | ||||||
Change in other payables and provisions
|
83,659 | (14,898 | )* | 21,358 | * | |||||||
Change in broadcasting rights, net of rights exercised
|
(19,724 | ) | (31,433 | ) | (10,585 | ) | ||||||
Change in employee benefits
|
(438 | ) | (82 | ) | 3,871 | |||||||
803,082 | 633,242 | 616,806 | ||||||||||
Income tax paid
|
(1,188 | ) | (1,060 | ) | (5,073 | ) | ||||||
Net cash from operating activities
|
488,255 | 409,728 | 347,027 | |||||||||
Cash flows from investing activities
|
||||||||||||
Repayment of short-term deposits
|
3,259 | - | - | |||||||||
Interest received
|
- | - | 76 | |||||||||
Proceeds from sale of property, plant and equipment
|
1,589 | 949 | - | |||||||||
Purchase of property, plant and equipment
|
(226,728 | ) | (214,368 | ) | (198,208 | ) | ||||||
Acquisition of intangible assets
|
(14,897 | ) | (9,262 | ) | (12,643 | ) | ||||||
Payments for subscriber acquisition
|
(36,756 | ) | (37,931 | ) | (26,690 | ) | ||||||
Net cash used for investing activities
|
(273,533 | ) | (260,612 | ) | (237,465 | ) |
2010
|
2009
|
2008
|
||||||||||
NIS thousands
|
NIS thousands
|
NIS thousands
|
||||||||||
Cash flow from finance activities
|
||||||||||||
Repayment of loans from institutions
|
(115,731 | ) | - | - | ||||||||
Bank loans received
|
255,000 | - | - | |||||||||
Repayment of bank loans
|
(580,718 | ) | - | - | ||||||||
Repayment of debentures
|
(55,020 | ) | - | - | ||||||||
Short-term bank credit, net
|
41,232 | 13,532 | (50,471 | ) | ||||||||
Interest paid
|
(203,444 | ) | (162,648 | ) | (59,091 | ) | ||||||
Issue of debentures, net
|
443,959 | - | - | |||||||||
Net cash used for financing activities
|
(214,722 | ) | (149,116 | ) | (109,562 | ) | ||||||
Increase in cash and cash equivalents
|
- | - | - | |||||||||
Cash and cash equivalents at beginning of year
|
- | - | - | |||||||||
Cash and cash equivalents at end of year
|
- | - | - |
NOTE 1 – GENERAL
|
|
A.
|
Reporting entity
|
|
DBS Satellite Services (1998) Ltd. (“the Company”) was incorporated in Israel on December 2, 1998 and its head office is at 6, Hayozma St., Kfar Saba, Israel.
|
|
In January 1999, the Company received a license from the Ministry of Communications for satellite television broadcasts (“the License”). The License is valid until January 2017 and may be extended for further periods of six years each under certain conditions. The Company’s operations are subject to, inter alia, the Communications (Telecommunications and Broadcasts) Law 5742-1982 (“the Communications Law”) and its subsequent regulations and rules, and to the terms of the License.
|
|
Pursuant to the license of Bezeq The Israel Telecommunication Corporation Limited (“Bezeq”), Bezeq is required to maintain full structural separation between it and its subsidiaries, and between it and the Company. In May and June 2010, the licenses of Bezeq and the Company respectively were amended in a manner permitting them, under certain conditions, to market joint service packages.
|
|
In August 2009, the Supreme Court accepted the Antitrust Commissioner’s appeal of the ruling of the Antitrust Tribunal approving the merger (as defined in the Antitrust Law, 5748-1988) between the Company and Bezeq by exercising the options held by Bezeq in the Company, subject to certain conditions, and ruled against the merger
.
|
|
B.
|
Definitions
|
|
(1)
|
International Financial Reporting Standards (“IFRS”)
: Standards and interpretations adopted by the Israel Accounting Standards Board (IASB). These standards and interpretations include International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS) and the interpretations of these standards defined by the
International Financial Reporting Interpretations Committee
(IFRIC) or interpretations defined by the Standing Interpretations
Committee
(SIC)
|
|
(2)
|
The Company:
DBS Satellite Services (1998) Ltd.
|
|
(3)
|
Related party
: As defined in IAS 24,
Related Party Disclosures
|
|
(4)
|
Interested parties
: As defined in paragraph (1) of the definition of an “interested party” in section 1 of the Securities Law, 5728-1968
|
|
(5)
|
CPI
: The consumer price index as published by the Central Bureau of Statistics
|
NOTE 2 - BASIS OF PREPARATION
|
|
A.
|
Statement of compliance
|
|
These financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS) and with the provisions of the Israeli Securities Regulations (Annual Financial Statements), 2010
|
|
The Company adopted IFRS for the first time in 2006, with the date of transition to IFRS being January 1, 2005 (“the date of transition”).
|
|
The financial statements were approved by the Board of Directors on March 7, 2011.
|
NOTE 2 - BASIS OF PREPARATION (CONTD.)
|
|
B.
|
Functional and presentation currency
|
|
These financial statements are presented in NIS, which is the Company’s functional currency, and have been rounded to the nearest thousand. The NIS is the currency that represents the principal economic environment in which the Company operates.
|
|
C.
|
Basis of measurement
|
|
The consolidated financial statements have been prepared on the historical cost basis except for the following assets and liabilities: derivative financial instruments.
|
|
The amount recognized as a defined benefit obligation is the current value of the defined benefit obligation at the end of the reporting period less costs for any past service that has as yet not been recognized and less the fair value at the end of the reporting period of plan assets that will directly serve to settle the obligation.
|
|
The value of non-monetary assets and equity items that were measured on the historical cost basis was adjusted to changes in the CPI until December 31, 2003, since until that date Israel was considered a hyperinflationary economy.
|
|
D.
|
Use of estimates and judgments
|
|
The preparation of the financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
|
|
The preparation of accounting estimates used in the preparation of the Company’s financial statements requires management to make assumptions regarding circumstances and events that involve considerable uncertainty. Management of the Company prepares the estimates on the basis of past experience, various facts, external circumstances, and reasonable assumptions according to the pertinent circumstances of each estimate.
|
|
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
|
|
Information about critical estimates made by management while implementing accounting policies and which have the most significant effect on the financial statements is included in the following notes:
|
·
|
Contingent liabilities
: When assessing the possible outcomes of legal claims that were filed against the Company, the Company considered on the opinions of its legal counsel. These opinions are based on the best of their professional judgment, and take into consideration the current stage of the proceedings and the legal experience accumulated with respect to the various matters. As the outcomes of the claims are determined by the courts, these outcomes could differ from the assessments.
|
·
|
Impairment of assets
: The Company examines, at each reporting date, whether there have been any events or changes in circumstances which would indicate impairment of one or more non-monetary assets. When there are indications of impairment, the Company assesses whether the carrying amount of the investment in the asset can be recovered from the future discounted cash flows anticipated to be derived from the asset, and if necessary, it records an impairment provision up to the amount of the recoverable value. The estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. The estimates regarding cash flows are based on past experience with respect to this asset or similar assets, and on the best possible assessments of the Company regarding the economic conditions that will exist during the remaining useful life of the asset.
|
NOTE 2 - BASIS OF PREPARATION (CONTD.)
|
|
D.
|
Use of estimates and judgments (contd.)
|
·
|
Useful life
: The Company's items of fixed assets, intangible assets and broadcasting rights are amortized using the straight line method over the estimated useful life of the asset. The estimated useful life of these items is based on their estimated technical life and the condition of the equipment. Changes in these factors, which affect the estimated useful life of the asset, have a material impact on the Company's financial position and the results of its operations. The estimated useful life of the fixed assets and intangible assets are presented in Note 3(C) and Note 3(D) below.
|
|
E.
|
Changes in accounting policy
|
|
(1)
|
Presentation of the statement of changes in equity
|
|
(2)
|
Employee benefits
|
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
|
|
A.
|
Foreign currency transactions
|
|
Transactions in foreign currency are translated into the functional currency of the Company at the exchange rate on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies on the reporting date are retranslated to the functional currency at the exchange rate at that date.
|
|
B.
|
Broadcasting rights
|
|
Broadcasting rights are stated at cost, net of rights exercised.
|
|
The cost of broadcasting rights includes the amounts paid to the content provider. Broadcasting rights are amortized in accordance with the terms of the purchase agreement, based on actual broadcasts from the total number of expected broadcasts or permitted under the agreement (the part that has not been unamortized by the end of the agreement is amortized in full upon termination of the agreement), or according to the period of the rights agreement. The net adjustment of the broadcasting rights is presented as an adjustment of earnings as part of ongoing operations in the statement of cash flows.
|
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
|
|
C.
|
Property, plant and equipment
|
|
(1)
|
Recognition and measurement
|
|
(2)
|
Subsequent expenditure
|
|
(3)
|
Depreciation
|
Years
|
||||
Broadcasting and receiving equipment
|
6.67 | |||
Installation costs *
|
1-3,15 | |||
Digital satellite decoders
|
4,6,8 | |||
Office furniture and equipment
|
6.67-14.2 | |||
Computers
|
3 |
|
*
|
The costs of installation in apartments are depreciated over the term of the contract with the subscribers.
|
|
D.
|
Intangible assets
|
|
(1)
|
Acquisition of subscribers
|
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
|
|
D.
|
Intangible assets (contd.)
|
|
(3)
|
Research and development
|
|
(4)
|
Amortization
|
Years
|
||||
Software
|
3,5 | |||
Subscriber acquisition costs
|
1-3 | |||
Capitalized development costs
|
1-5 |
|
E.
|
Financial instruments
|
|
(1)
|
Non-derivative financial instruments
Non-derivative financial instruments comprise debt instruments, trade and other receivables, loans and borrowings, and trade and other payables.
|
|
Non-derivative financial instruments are recognized initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition, non-derivative financial instruments are measured as described below.
A financial instrument is recognized when the Company accepts the contractual terms of the instrument. Financial instruments are derecognized when the contractual rights of the Company to the cash flows from the asset expire, or the Company transfers to others the financial assets, without retaining control over the asset, or substantially transfers all the risks
and rewards arising from the asset. Regular way purchases and sales of financial assets are recognized on the trade date, meaning on the date the Company undertook to purchase or sell the asset. Financial liabilities are derecognized when the obligation of the Company, as specified in the agreement, expires or when it is discharged or cancelled.
|
|
(2)
|
Non-derivative financial liabilities
Non-derivative financial instruments are recognized initially on the date that they are created.All other financial liabilities (including financial liabilities recognized at fair value through profit or loss) are recognized initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument.
Financial liabilities are derecognized when the obligation of the Group, as specified in the agreement, expires or when it is discharged or cancelled.
|
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
|
|
E.
|
Financial instruments (contd.)
|
|
(2)
|
Non-derivative financial liabilities (contd.)
|
|
(3)
|
Derivative financial instruments
|
|
(4)
|
CPI-linked assets and liabilities that are not measured at fair value
|
|
F.
|
Impairment
|
|
(1)
|
Financial assets
A financial asset is tested for impairment when objective evidence indicates that one or more events had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. All impairment losses are recognized in profit or loss.
|
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
|
|
F.
|
Impairment (contd.)
|
|
(2)
|
Non-financial assets
|
|
G.
|
Employee benefits
|
|
(1)
|
Post-employment benefits
|
|
(A)
|
Defined contribution plans
The Company’s obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in the statement of income in the periods during which services are rendered by employees.
|
|
(B)
|
Defined benefit plans
The Company’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is presented at its present value less the fair value of any plan assets. The discount rate is the yield at the reporting date on government bonds denominated in the same currency that have maturity dates approximating the terms of the Company’s obligations. The calculation is performed by a qualified actuary using the projected unit credit method.
When the calculation results in an asset for the Company, an asset is recognized up to the net present value of economic benefits available in the form of a refund from the plan or a reduction in future contributions to the plan. An economic benefit in the form of refunds or reduction in future payments will be considered to be available when it can be exercised during the life of the plan or after settlement of the obligation.
When the minimum contribution requirement includes an obligation to pay additional amounts for services that were provided in the past, the Company recognizes an additional obligation (increases the net liability or decreases the net asset), if such amounts are not available as an economic benefit in the form of a refund from the plan or the reduction of future contributions.
When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognized as an expense in profit or loss on a straight-line basis over the average period until the benefits vest. To the extent that the benefits vest immediately, the expense is recognized immediately in profit or loss.
|
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
|
|
G.
|
Employee benefits (contd.)
|
|
(1)
|
Post-employment benefits (contd.)
|
|
(B)
|
Defined benefit plans (contd.)
The Company recognizes immediately, directly in retained earnings through other comprehensive income, all actuarial gains and losses arising from defined benefit plans.
The Company offsets an asset relating to one benefit plan from the liability relating to another benefit plan only when there is a legally enforceable right to use the surplus of one plan to settle the obligation in respect of the other plan, and there is intent to settle the obligation on a net basis or to simultaneously realize the surplus of one plan and settle the obligation in the other plan.
|
|
(2)
|
Short-term employee benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided or upon the actual absence of the employee when the benefit is not accumulated (such as maternity leave).
A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. In the statement of financial position the employee benefits are classified as current benefits or as non-current benefits according to the time the liability is due to be settled.
|
|
(3)
|
Other long-term employee benefits
The Company’s net obligation in respect of long-term employee benefits other than post-employment plans is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The benefit is discounted to determine its present value. The discount rate is the yield at the reporting date on government bonds denominated in the same currency, that have maturity dates approximating the terms of the Company’s obligations. The calculation is performed using the projected unit credit method. Any actuarial gains or losses are recognized in the statement of income in the period in which they arise.
|
|
(4)
|
Share-based payments
The grant date fair value of share-based payment awards granted to employees is recognized as a salary expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognized as an expense in respect of share-based payment awards that are conditional upon meeting service and non-market performance conditions, is adjusted to reflect the number of awards that are expected to vest.
Share-based payment arrangements in which the parent company grants to the employees of the Company rights to its equity instruments are accounted for by the Company as equity-settled share-based payment transactions, meaning that the fair value of the grant is recognized directly in equity, as set out above.
|
|
H.
|
Provisions
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.
|
|
(1)
|
Onerous contracts
|
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
|
|
H.
|
Provisions (contd.)
|
|
(2)
|
Legal claims
|
|
I.
|
Revenue
|
|
(1)
|
Revenue from services rendered is recognized in the statement of income according to straight line over the term of the agreement or on providing the service.
|
|
(2)
|
Revenue from rental of digital satellite decoders are attributed according to straight lineover the term of the agreement.
|
|
(3)
|
The Company charges a deposit for the digital satellite decoders rented by its customers. The customers are entitled to receive a proportional refund of the deposit on termination of the agreement, according to the terms in the agreement. The revenue from deposit deductions is attributed to the statement of income, according to the terms of the agreements with the customers.
|
|
(4)
|
Commissions: When the Company acts in the capacity of an agent rather than as the principal in a transaction, the revenue recognized is the net amount of commission made by the Company.
|
|
J.
|
Income tax expenses
Income tax expense comprises current and deferred tax. Current and deferred taxes are recognized in the statement of income except to the extent that it relates to a business combination, or are recognized directly in equity or in other comprehensive income to the extent they relate to items recognized directly in equity or in other comprehensive income.
Current tax is the expected tax payable (or receivable) on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date.
|
|
K.
|
Operating lease
The Company classifies lease agreements, under which the lessor substantially assumes all risks and rewards of ownership, as an operating lease. Payments made under operating leases are recognized in the statements of income on a straight line basis over the term of the lease.
|
|
L.
|
Loss per share
Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year.
|
|
M.
|
Financing income and expenses
Financing income comprises interest income on funds invested, foreign currency gains and gains on derivative instruments that are recognized in the statement of income. Interest income is recognized as accrued using the effective interest method.
Financing expenses comprise interest expense on borrowings, impairment losses of financial assets and losses on derivative instruments recognized in the statement of income. All borrowing costs are recognized in profit or loss using the effective interest method.
Foreign currency gains and losses are reported on a net basis as either financing income or financing expenses depending on whether foreign currency movements are in a net gain or net loss position.
|
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
|
|
N.
|
Transactions with a controlling shareholder
Assets and liabilities included in a transaction with a controlling shareholder are measured at fair value on the date of the transaction.
As this is a capital transaction, the differences between the fair value and the proceeds from the transaction are attributed to equity.
|
|
O.
|
New standards and interpretations not yet adopted
In the
Improvements to IFRSs
2010, in May 2010 the IASB published and approved 11 amendments to IFRS and to one interpretation on a wide range of accounting issues. Most of the amendments apply to periods beginning on or after January 1, 2011 and permit early adoption, subject to the specific conditions of each amendment.
Presented hereunder are the amendments that may be relevant to the Company and are expected to have an effect on the financial statements:
|
·
|
Amendment to IAS 34
Interim Financial Reporting
– Significant events and transactions (“the Amendment”) – The Amendment expanded the list of events and transactions that require disclosure in interim financial statements, such as the recognition of a loss from the impairment of financial assets and changes in the classification of assets as a result of changes in their purpose or use. In addition, the materiality threshold was removed from the minimum disclosure requirements included in the Standard before its amendment. The Amendment is effective for annual periods beginning on or after January 1, 2011.
|
·
|
Amendment to IAS 7
Financial Instruments:
Disclosures – Clarification of Disclosures
(“the Amendment”) – The Amendment requires adding an explicit declaration that the interaction between the qualitative and quantitative disclosures enables the users of the financial statements to better assess the company’s exposure to risks arising from financial instruments. Furthermore, the clause stating that quantitative disclosures are not required when the risk is immaterial was removed and certain disclosure requirements regarding credit risk were amended while others were removed. The Amendment is effective for annual periods beginning on or after January 1, 2011. Early implementation is permitted, with disclosure.
|
·
|
IFRS 9 (2010),
Financial Instruments
(“the Standard”). This Standard is one of the stages in a comprehensive project to replace IAS 39 –
Financial Instruments
:
Recognition and Measurement
(“IAS 39”) and it replaces the requirements included in IAS 39 regarding the classification and measurement of financial assets and financial liabilities.
|
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES (CONTD.)
|
|
P.
|
New standards and interpretations not yet adopted (contd.)
|
·
|
IAS 24 (2009)
Related Party Disclosures
(“the Standard”). The new standard includes changes in the definition of a related party and changes with respect to disclosures required by entities related to government. The Standard is to be applied retrospectively for annual periods beginning on or after January 1, 2011. The Company is in the process of reassessing its relationships with related parties for the purpose of examining the effects of adopting the Standard on its financial statements.
|
NOTE 4 – DETERMINATION OF FAIR VALUE
|
|
A.
|
Derivatives
The fair value of forward exchange contracts is based on their quoted price, if available.
|
|
B.
|
Non-derivative financial liabilities
Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date.
|
NOTE 4 – DETERMINATION OF FAIR VALUE (CONTD.)
|
|
C.
|
Share-based payment transactions
The fair value of employee share options for employees and of share appreciation rights is measured using the Black-Scholes formula. The assumptions of the model include the share price on the date of measurement, the exercise price of the instrument, expected volatility (based on the weighted average of historical volatility of the Company’s shares, over the expected term of the options, and adjusted for changes expected due to publicly available information), expected term of the instruments (based on past experience and the general behavior of the option-holders), expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value.
|
NOTE 5 – THE FINANCIAL POSITION OF THE COMPANY
|
|
A.
|
Since the beginning of its operations, the Company has accumulated substantial losses. The Company’s losses for 2010 and 2009 amounted to NIS 314 million and NIS 222 million, respectively. As a result of these losses, the Company's capital deficit and working capital deficit at December 31, 2010 amounted to NIS 3,421 million and NIS 621 million, respectively.
|
|
B.
|
1.
|
In March 2010, an amendment to the Company’s bank financing agreement was signed and entered into effect (“the Amendment Agreement”). Pursuant to the Amendment Agreement, another Israeli bank (“the Joining Bank”) joined the present syndicate of banks (“the Present Banks”). The Joining Bank provided the Company with its proportionate share of the Company’s ongoing credit facilities and also provided the Company with long-term credit of NIS 255 million, most of which was used for its addition (in its proportionate share) to the Company’s long-term credit facilities for repayment and early repayment of the Company’s debts to the Present Banks. The balance of NIS 46 million was used for the Company’s ongoing requirements.
Pursuant to the Amendment Agreement, the Company created a floating lien in favor of the Joining Bank, similar to the existing liens registered in favor of the Present Banks. The Joining Bank was also included in the fixed lien in favor of the Present Banks. The Company’s shareholders also signed amendments to bonds, mortgage deeds and letter of guarantee, as applicable, which they had previously signed in favor of the Present Banks, for the addition of the Joining Bank. Under the Amendment Agreement, the term of the bank loan repayment (both the long-term loans as well as the ongoing facilities) was extended until the end of 2015.
In November 2010, another amendment to the financing agreement took effect. According to the amendment, the Company is required to comply with the debt coverage ratio (based on the ratio between the Company’s cash balance and cash flow over the past 12 months and the principal and interest payments over the coming 12 months) and the maximum and minimum supplier credit covenant (after the amendment to the covenants in November 2010). These covenants replace the previous financial covenants that were applicable to the Company. The Company’s compliance with these covenants is measured quarterly, and failure to comply with these covenants, subject to extensions stipulated in the Financing Agreement, grants the banks the right to demand early repayment of the loans. According to the finance mechanism stipulated in the amendment, if the Company’s debentures (Series B) are downgraded below ilBBB (or its equivalent, whichever is lower), the annual interest paid to the banks will increase by 0.25% in respect of each notch on the rating scale, as long as the downgrade is in effect, subject to the terms set out in the financing agreement.
|
NOTE 5 – THE FINANCIAL POSITION OF THE COMPANY (CONTD.)
|
|
B. (contd.)
|
|
2.
|
During the year, the Company's credit rating was upgraded from ilBBB- to ilA-, among other reasons, in view of the expected improvement in the Company's liquidity in the short term following the issue of debentures (Series B) and in view of the amendment to the financing agreement that included spacing of the financial covenants with which the Company is required to comply
.
|
|
3.
|
At December 31, 2010, the Company is in compliance with the financial covenants stipulated in the financing agreements and the debentures.
|
|
4.
|
The Company's management believes that the financial resources at its disposal will be sufficient for the Company’s operations for the coming year, based on the cash flow forecast approved by the Company’s board of directors. If additional resources are required to meet its operational requirements for the coming year, the Company will adapt its operations to preclude the need for additional resources beyond those available to it.
In recent years, the Company has been required to raise external financing needed, inter alia, in order to expand its investments. At the reporting date, any significant increase in the Company’s investments will require an expansion of the financing sources at its disposal.
|
NOTE 6 – TRADE AND OTHER RECEIVABLES
|
December 31, 2010
|
December 31, 2009
|
|||||||
NIS thousands
|
NIS thousands
|
|||||||
Trade receivables (1)
|
|
|||||||
Outstanding debts
|
48,192 | 46,143 | ||||||
Credit companies
|
128,355 | 123,022 | ||||||
Less provision for doubtful debts
|
(7,700 | ) | (9,013 | ) | ||||
168,847 | 160,152 | |||||||
Other receivables (1)
|
||||||||
Prepaid expenses
|
3,156 | 1,520 | ||||||
Pledged deposits
|
77 | 3,020 | * | |||||
Others
|
7,917 | 6,657 | ||||||
* Reclassified
|
11,150 | 11,197 | ||||||
(1) Including trade and other receivables that are related and interested parties
|
77 | 52 |
NOTE 7 – PROPERTY, PLANT AND EQUIPMENT, NET
|
|
A.
|
Composition
|
Broadcasting and reception equipment
|
Capitalized
installation costs
|
Digital satellite decoders
|
Office furniture and equipment (including computers)
|
Leasehold improvements
|
Total
|
|||||||||||||||||||
NIS thousands
|
||||||||||||||||||||||||
Cost
|
||||||||||||||||||||||||
Balance at January 1, 2009
|
210,437 | 1,405,463 | 1,409,214 | 75,324 | 38,142 | 3,138,580 | ||||||||||||||||||
Additions during the year
|
22,045 | 76,964 | 103,588 | 10,335 | 3,144 | 216,076 | ||||||||||||||||||
Disposals during the year
|
- | (5,608 | ) | (1,793 | ) | (1,526 | ) | - | (8,927 | ) | ||||||||||||||
Balance at December 31, 2009
|
232,482 | 1,476,819 | 1,511,009 | 84,133 | 41,286 | 3,345,729 | ||||||||||||||||||
Additions during the year
|
4,641 | 99,617 | 115,829 | 10,658 | 4,358 | 235,103 | ||||||||||||||||||
Disposals during the year
|
- | (3,741 | ) | (638 | ) | (149 | ) | - | (4,528 | ) | ||||||||||||||
Balance at December 31, 2010
|
237,123 | 1,572,695 | 1,626,200 | 94,642 | 45,644 | 3,576,304 | ||||||||||||||||||
Accumulated depreciation
|
||||||||||||||||||||||||
Balance at January 1, 2009
|
166,653 | 1,142,319 | 1,086,557 | 44,219 | 27,169 | 2,466,917 | ||||||||||||||||||
Additions during the year
|
16,415 | 67,532 | 106,200 | 10,841 | 3,111 | 204,099 | ||||||||||||||||||
Disposals during the year
|
- | (5,608 | ) | (636 | ) | (1,516 | ) | - | (7,760 | ) | ||||||||||||||
Balance at December 31, 2009
|
183,068 | 1,204,243 | 1,192,121 | 53,544 | 30,280 | 2,663,256 | ||||||||||||||||||
Additions during the year
|
15,219 | 102,413 | 109,919 | 11,360 | 2,204 | 241,115 | ||||||||||||||||||
Disposals during the year
|
- | (3,741 | ) | (95 | ) | (119 | ) | - | (3,955 | ) | ||||||||||||||
Balance at December 31, 2010
|
198,287 | 1,302,915 | 1,301,945 | 64,785 | 32,484 | 2,900,416 | ||||||||||||||||||
Carrying amount
|
||||||||||||||||||||||||
At January 1, 2009
|
43,784 | 263,144 | 322,657 | 31,105 | 10,973 | 671,663 | ||||||||||||||||||
At January 1, 2010
|
49,414 | 272,576 | 318,888 | 30,589 | 11,006 | 682,473 | ||||||||||||||||||
At December 31, 2010
|
38,836 | 269,780 | 324,255 | 29,857 | 13,160 | 675,888 |
|
B.
|
Collateral
To secure its collateral and liabilities, the Company created liens on all its assets, including share capital (subject to the provisions of the Communications Law).
|
|
C.
|
Credit acquisitions of fixed assets
In the year ended December 31, 2010, credit for fixed asset acquisitions increased by NIS 10.191 million.
|
NOTE 8 – INTANGIBLE ASSETS, NET
|
Costs of acquisition of subscribers
|
Software licenses
|
Total
|
||||||||||
NIS thousands
|
||||||||||||
Cost
|
||||||||||||
Balance at January 1, 2009
|
189,318 | 132,380 | 321,698 | |||||||||
Additions during the year
|
33,812 | 20,365 | 54,177 | |||||||||
Balance as at December 31, 2009
|
223,130 | 152,745 | 375,875 | |||||||||
Additions during the year
|
32,440 | 27,884 | 60,324 | |||||||||
Disposals during the year
|
(1,816 | ) | - | (1,816 | ) | |||||||
Balance on December 31, 2010
|
253,754 | 180,629 | 434,383 | |||||||||
Accumulated depreciation
|
||||||||||||
Balance at January 1, 2009
|
165,705 | 113,023 | 278,728 | |||||||||
Additions during the year
|
21,461 | 8,643 | 30,104 | |||||||||
Balance as at December 31, 2009
|
187,166 | 121,666 | 308,832 | |||||||||
Additions during the year
|
33,105 | 10,512 | 43,617 | |||||||||
Disposals during the year
|
(835 | ) | - | (835 | ) | |||||||
Balance at December 31, 2010
|
219,436 | 132,178 | 351,614 | |||||||||
Carrying amount
|
||||||||||||
At January 1, 2009
|
23,613 | 19,357 | 42,970 | |||||||||
At January 1, 2010
|
35,964 | 31,079 | 67,043 | |||||||||
At December 31, 2010
|
34,318 | 48,451 | 82,769 |
NOTE 9 –BROADCASTING RIGHTS, NET OF RIGHTS EXERCISED
|
December 31,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
NIS thousands
|
NIS thousands
|
|||||||
Cost
|
600,385 | 511,027 | ||||||
Less - rights exercised
|
295,895 | 226,261 | ||||||
304,490 | 284,766 |
NOTE 10 - BANK CREDIT
|
December 31,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
NIS thousands
|
NIS thousands
|
|||||||
Short-term credit
|
85,735 | 44,504 | ||||||
Current maturities of bank loans
|
49,703 | 239,194 | ||||||
135,438 | 283,698 |
December 31,
|
||||
2010
|
||||
NIS thousands
|
||||
2011
|
49,703 | |||
2012
|
81,703 | |||
2013
|
129,702 | |||
2014
|
129,702 | |||
2015
|
129,702 | |||
520,512 |
NOTE 11 – TRADE PAYABLES
|
December 31,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
NIS thousands
|
NIS thousands
|
|||||||
Open accounts
|
290,516 | 292,411 | * | |||||
Notes and checks for repayment
|
65,255 | 112,978 | ||||||
355,771 | 405,389 | |||||||
Of which - related and interested parties
|
19,400 | 86,242 |
NOTE 12 – OTHER PAYABLES
|
December 31,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
NIS thousands
|
NIS thousands
|
|||||||
Employees and institutions with respect to wages
|
27,050 | 26,005 | ||||||
Provisions for leave and convalescence pay
|
11,423 | 10,161 | ||||||
Interest payable for debentures
|
30,282 | 28,225 | ||||||
Deposits from customers
|
5,631 | 8,027 | * | |||||
Institutions
|
41,540 | 39,835 | ||||||
Prepaid income
|
22,469 | 17,941 | ||||||
Others
|
26,556 | 20,226 | * | |||||
164,951 | 150,420 |
NOTE 13 - PROVISIONS
|
December 31,
|
||||
2010
|
||||
NIS thousands
|
||||
Balance at January 1, 2010
|
9,079 | * | ||
Provisions during the period
|
81,516 | |||
Provisions realized during the period
|
(124 | ) | ||
Provisions eliminated during the period
|
(1,205 | ) | ||
Balance at December 31, 2010
|
89,266 |
NOTE 14 – DEBENTURES
|
|
A.
|
On July 31, 2007, the Company issued debentures at a par value of NIS 620 million in a private issue to institutional investors. The debentures (Series A) were listed on the TACT-institutional system of the Tel Aviv Stock Exchange. The debentures were rated for the issuance by S&P Maalot (“the Rating Agency”) at BBB-/stable. In August 2008, the Rating Agency validated that rating. The proceeds from the issuance, net of costs, amounted to NIS 614 million.
|
|
The debentures (Series A) are repayable in eight annual payments of principal and interest on July 5
th
of each of the years 2010 to 2017. The principal payments in each of the years 2010 to 2013 will be at a rate of 8% of the par value of the debentures (Series A), and the principal payments in each of the years 2014 to 2017 will be 17% of the par value of the debentures (Series A). The debentures (Series A) are linked to the CPI commencing on June 2007, and bear annual linked interest at a rate of 8.4% per year (subject to various possible adjustments according to the terms of the debenture (Series A)), payable in semi-annual payments in January and July of each of the years 2009-2017.
|
|
The Company did not undertake to list the debentures (Series A) on the TASE, however, if they are listed, the annual interest paid on them will be reduced to 7.4% from that date. Pursuant to the terms set at the time of issuance of the debentures (Series A), since the debentures (Series A) were not listed by July 31, 2008, the annual interest rate they bear increased to 8.4% from that date. If the debentures (Series A) are listed for trading at a later date, then the annual rate of interest on them will decrease to 7.4% from that date.
|
|
In addition, if the Company fails to comply with the terms set out in the financing agreement with the banks, and as a condition for the banks ceding the breach, the Company will undertake to pay to the banks, for the bank credit, an additional margin on the bank interest, and if the debentures (Series A) are not listed at that time, then as long as the banks are paid the additional margin and the debentures (Series A) are not listed, the Company will pay the holders of the debentures (Series A) additional annual interest at the same rate.
|
|
In addition, Deed of Trust A stipulates standard events (such as insolvency proceedings, breach and exercise of liens on most of the Company's assets), which, should they occur, will allow immediate call for repayment pursuant to the provisions in the Deed of Trust, and establishes the right to call for immediate payment if the bank guarantees are exercised or another debenture series is called for immediate repayment, if the balance for settlement exceeds the amount set out in the Deed of Trust.
|
|
B.
|
In November 2010 the Company raised NIS 450 million in a private issue of debentures (Series B) to institutional investors. The debentures (Series B) are registered and listed on the TACT-institutional system of the TASE. S&P Maalot rated the debentures as ilA for the issuance.
|
|
Debentures (Series B) are repayable in seven annual payments of the principal, in November 2013 to 2019. The annual payments in each of the years 2013 through to 2017 will be at a rate of 14% of the par value of the debentures (Series B), and the payment of the principal for each of the years 2018 and 2019 will be at a rate of are 15% of the par value of the debentures (Series B). The debentures (Series B) are linked to the CPI commencing in September 2011, and bear annual linked interest at a rate of 5.85% per year (subject to various possible adjustments according to the terms of the Series B debenture), which are payable in semi-annual payments in May and November of each of the years from 2011 through to 2019.
|
|
The Company did not undertake to list the debentures (Series B) on the TASE, however, if they are listed, the annual interest paid on them will be reduced by 0.54% from the later of the listing date or two years after issuance of the debentures, as long as the debentures will be listed for trading. In addition, if debentures (Series B) are downgraded to ilBBB by Maalot scale or its equivalent scale of another grading company, the debenture holders will be entitled to an additional 0.5% on the annual interest rate, from the date of the downgrade and for as long as this is in effect. If the rating is downgraded to below ilBBB, holders of debentures (Series B) will be entitled to an additional 0.5% on the annual interest rate, for each notch on the rating scale, for as long as the downgraded rating is in effect. For this purpose, debentures (Series B) will be rated according to the lower of their ratings by the rating companies.
|
NOTE 14 – DEBENTURES (CONTD.)
|
|
B.
|
(contd.)
If Bezeq provides a guarantee for the Company’s debts towards the holders of debentures (Series B), under the terms stipulated in the deed of trust for these debentures, the annual interest rate of the debentures (Series B) will be reduced by 0.5% and any extra interest for the downgrading of these debentures will be cancelled.
|
|
Deed of trust (B) stipulates standard events which, should they occur (subject to the extension periods set out in the deed of trust), will allow immediate call for repayment of the debentures, subject to the provisions in the deed of trust. These events include the events set out in Deed of Trust A, with certain changes, including failure to deliver the financial statements to the trustee on the dates set out in the deed, a decrease in Bezeq’s holding in the Company below the minimum rate stipulated in the deed (provided the Company remains a private company), a merger with another company (except for with Bezeq or one of its subsidiaries), or the sale of most of its assets under conditions stipulated in the deed, cancellation of the broadcasting license or termination of communication activities, as well as non-compliance with the financial covenants set out in the deed, based on the ratio between the Company’s secured debts and its EBITDA (as defined in the deed of trust and subject to the amendment period set out in the deed).
|
|
Under the deed of trust, the Company’s right to distribute dividends and repay them at the expense of shareholders loans is contingent on compliance with the financial covenants, based on the ratio between the total secured debt and its EBITDA (as defined in Deed of Trust B, and subject to the amendment period set out in the deed). In respect of repayment of shareholders’ loans, there is a further restriction whereby the repayment amount will not exceed the Company’s cumulative net profit from the beginning of 2011 onwards, with neutralization of the Company’s financing expenses for the shareholders’ loans, and repayments and distributions.
|
|
According to the provisions in Deed of Trust B, if Trustee B receives a guarantee by Bezeq for the Company’s liabilities to holders of debentures (Series B), and the rating of Bezeq is not downgraded to lower than ilAA- or the corresponding rating with another rating company, whichever is higher, then from that date, and as long as Bezeq’s rating does not fall below that rating, the collaterals produced by the Company in favor of Trustee B will be cancelled, as well as the restriction on expansion of the series and the issue of additional securities secured by these collaterals, the limitation in regard to repayment of shareholders loans and distribution of divednds, and a number of causes for immediate redemption available to by Trustee B under Deed of Trust B (in addition to the decrease in the annual interest rate as set out above).
|
|
Debentures (Series A) and debentures (Series B) are each secured by a floating first lien, unlimited in amount, on all the Company’s assets (apart for exceptions pursuant to the Communications Law), as well as a fixed first lien of unlimited amount on the Company’s rights and assets, which were encumbered in favor of the banks (other than exceptions as dictated by the provisions of the Communications Law). Said liens are equal (pari passu) to the liens in favor of holders of debentures (Series A) and the liens in favor of holders of debentures (Series B), and between them and the floating liens and the fixed lien created by the Company in favor of the banks to secure the bank credit.
|
NOTE 14 – DEBENTURES (CONTD.)
|
December 31, 2010
|
||||||||||||||||
Nominal
interest (%)
|
Repayment
year
|
Par value
|
Carrying
amount
|
|||||||||||||
NIS thousands
|
||||||||||||||||
Debentures A
|
8.4 | 2011-2017 | 570,676 | 641,244 | ||||||||||||
Debentures B
|
5.85 | 2013-2019 | 450,000 | 445,791 |
December 31, 2010
|
||||
NIS thousands
|
||||
2011
|
56,063 | |||
2012
|
56,063 | |||
2013
|
119,298 | |||
2014
|
182,368 | |||
2015
|
182,368 | |||
2016 onwards
|
500,240 | |||
1,096,400 |
NOTE 15 – LONG-TERM LOANS FROM INSTITUTIONS
|
|
In 2005, the Company signed agreements with three institutions according to which the institutions would grant the Company loans in the total amount of NIS 100 million.
|
|
The loans were linked to the CPI and bear annual interest at a rate of 11%. The loans were repayable with the addition of interest and linkage differentials, on December 31, 2013, but were repayable at an earlier date, subject to partial repayment of the loans received from the banks, under the terms set out in this agreement.
|
|
On November 11, 2010, the Company repaid its loans from institutions through early repayment.
|
NOTE 16 – LOANS FROM SHAREHOLDERS
|
|
A.
|
December 31,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
NIS thousands
|
NIS thousands
|
|||||||
Balance of the loans based on their nominal terms:
|
|
|||||||
Old shareholders’ loans (1)
|
2,249,570 | 2,200,008 | ||||||
New shareholders’ loans (2)
|
||||||||
Loans received at 5.5% interest
|
379,929 | 351,598 | ||||||
Loans received at 11% interest
|
1,263,679 | 1,113,108 | ||||||
3,893,178 | 3,664,714 | |||||||
Net – received loan amounts in excess of the
|
||||||||
fair value upon receipt, after cumulative reduction
|
||||||||
(at the effective interest rate) (3)
|
(1,592,792 | ) | (1,682,827 | ) | ||||
2,300,386 | 1,981,887 |
|
(1)
|
The loans extended to the Company by its shareholders until July 10, 2002 (“the Old Shareholders’ Loans”), in the amount of NIS 2.25 million, are linked to the known CPI, do not have a repayment date and do not bear interest. These loans were received in accordance with their pro-rata holdings in the Company upon receipt of the loans.
|
|
(2)
|
Pursuant to the agreement between the shareholders and the Company as at December 30, 2002, it was decided that the loans extended by some of the Company's shareholders as from July 10, 2002 ("the New Shareholders Loans"), will have preference over the Old Shareholders Loans. In accordance with the agreement, the New Shareholders Loans will be eligible for full settlement by the Company before any dividend is distributed by the Company and/or the repayment of the Old Shareholders Loans extended to the Company by the shareholders, and subject to the Company's cash flows and liabilities under the agreements with the banks.
|
|
(3)
|
The shareholders loans were included in the financial statements at their fair value at the time received. The fair value of the loans was determined according to the current value of the expected cash flows for repayment of the loans, taking into consideration the dates on which the shareholders may make an initial request for repayment of the loans (in accordance with the restrictions that the shareholders consented to in the agreements with the banks and debentures holders), and the interest rates applicable to loans with similar risks upon receipt of the loans. The interest rate taken into account as aforesaid, which represents the effective interest rate for the loans, is 12%.
|
NOTE 16 – LOANS FROM SHAREHOLDERS
|
|
A.
|
(contd.)
|
|
(3)
|
(contd.)
In 2007, as part of rating the debentures with the Rating Agency, the Company undertook to the Rating Agency (and to it alone) that it shall not make payment on account of the shareholder loans before the end of the life of the debentures
The interest rate on the date of the change was determined in accordance with a professional opinion received by the Company from an external consultant, stating that the interest rate for discounting the interest-free shareholder loans is 15.63%, and the interest rate for discounting the shareholder loans bearing interest at a rate of 5.5% is 15.58%.
Based on these rates, the difference between the expected cash flows prior to the change which are discounted according to the 12% interest rate at the time the loans were received and their discounted value of 15.63% or 15.58% at the time of the change, accordingly, which amounted to NIS 213 million, was attributed to the financing income.
The difference between the current value of the expected cash flows based on the new repayment dates and the current value of the cash flows which were expected based on the repayment dates prior to any change is discounted according to the interest rate at the time of the change, 15.63% or 15.58%, which amounted to NIS 348 million, was attributed to capital reserves.
The Company’s right to distribute dividends for debentures (Series B) and repay them is contingent on the shareholders’ loans. See Note 14(B). This is not a material change in the terms as set out in section A, therefore it had no effect on the Company’s financial statements.
|
|
B.
|
In accordance with the agreement described in section 2 above, the shareholders that provided the new shareholders loans were awarded rights to receive additional shares in the Company or options exercisable for Company shares.
Accordingly, the shareholders were allocated additional shares in the Company or options exercisable for Company's shares. The options are exercisable at any time and without additional consideration, and they are negotiable as though they were shares, subject to the approval of the banks according to the financing agreements.
Exercise of the options allocated and changes in certain holdings in the Company are contingent on regulatory approvals.
As at the date of the approval of these financial statements, these approvals have not yet been received. Fur further details, see Note 1A.
|
NOTE 17 – LONG-TERM TRADE PAYABLES
|
December 31,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
NIS thousands
|
NIS thousands
|
|||||||
Open accounts with related parties
|
54,264 | 8,340 | ||||||
Notes and checks for repayment
|
- | 661 | ||||||
54,264 | 9,001 | * |
NOTE 18 – EMPLOYEE BENEFITS
|
December 31,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
NIS thousands
|
NIS thousands
|
|||||||
Current value of obligations
|
11,891 | 11,610 | ||||||
Fair value of plan assets
|
(5,195 | ) | (6,011 | ) | ||||
Liability recognized for a defined benefit plan
|
6,696 | 5,599 | ||||||
Other liabilities
|
14,731 | 11,641 | * | |||||
Total employee benefits
|
21,427 | 17,240 | ||||||
Presented under the following items:
|
||||||||
Other payables
|
14,731 | 11,641 | * | |||||
Long-term employees benefits
|
6,696 | 5,599 | * | |||||
21,427 | 17,240 |
NOTE 18 – EMPLOYEE BENEFITS (CONTD.)
|
|
A.
|
Change in the current value of the defined benefit obligations
|
2010
|
2009
|
|||||||
NIS thousands
|
NIS thousands
|
|||||||
Obligation in respect of a defined benefit plan at January 1
|
11,610 | 11,465 | * | |||||
Current service cost
|
1,346 | 1,015 | ||||||
Finance expenses with respect to obligations
|
650 | 503 | ||||||
Actuarial gains recognized in other comprehensive income
|
85 | (834 | ) | |||||
Benefits paid according to the plan
|
(1,800 | ) | (539 | ) | ||||
Balance of obligations at end of year
|
11,891 | 11,610 |
|
B.
|
Change in plan assets
|
2010
|
2009
|
|||||||
NIS thousands
|
NIS thousands
|
|||||||
Fair value of plan assets at January 1
|
6,011 | 5,246 | ||||||
Amounts deposited in the plan
|
929 | 785 | ||||||
Expected return on plan assets
|
353 | 318 | ||||||
Actuarial gains (losses) recognized in other comprehensive income
|
(1,450 | ) | (297 | ) | ||||
Benefits paid according to the plan
|
(648 | ) | (41 | ) | ||||
Fair value of plan assets at end of year
|
5,195 | 6,011 |
|
C.
|
Expense recognized in profit or loss
|
2010
|
2009
|
|||||||
NIS thousands
|
NIS thousands
|
|||||||
Current service cost
|
1,346 | 1,015 | ||||||
Interest for obligation
|
650 | 503 | ||||||
Expected return on plan assets
|
(353 | ) | (318 | ) | ||||
1,643 | 1,200 |
2010
|
2009
|
|||||||
NIS thousands
|
NIS thousands
|
|||||||
Cost of sales
|
738 | 558 | ||||||
Selling and marketing expenses
|
460 | 345 | ||||||
General and administrative expenses
|
148 | 112 | ||||||
1,346 | 1,015 |
NOTE 18 – EMPLOYEE BENEFITS (CONTD.)
|
|
D.
|
Actuarial gains and losses recognized directly in other comprehensive income
|
2010
|
2009
|
|||||||
NIS thousands
|
NIS thousands
|
|||||||
Amount accrued as at January 1
|
2,508 | 1,971 | ||||||
Amount recognized in the period
|
1,535 | 537 | ||||||
Amount accrued as at December 31
|
4,043 | 2,508 |
|
E.
|
Main actuarial assumptions
|
2010
|
2009
|
|||||||
%
|
%
|
|||||||
Discount rate at December 31
|
1.7 | 2.9 | ||||||
Future salary increases
|
2 | 3 |
|
F.
|
Historical information
|
December 31,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
NIS thousands
|
NIS thousands
|
|||||||
Present value of the defined benefit obligation
|
|
|||||||
Defined benefit
|
11,891 | 11,610 | ||||||
Fair value of plan assets
|
(5,195 | ) | (6,011 | ) | ||||
Deficit in the plan
|
6,696 | 5,599 |
|
G.
|
Post-employment benefit plans – defined contribution plan
|
December 31 | December 31 | |||||||
2010
|
2009
|
|||||||
NIS thousands
|
NIS thousands
|
|||||||
Amount recognized as an expense in respect of a defined deposit plan
|
9,526 | 9,381 |
NOTE 19 – SHARE-BASED PAYMENT
|
|
A.
|
Number of Bezeq options
|
Number of options
|
||||
2010
|
||||
(in thousands)
|
||||
Balance at January 1
|
4,250 | |||
Allocated during the period
|
- | |||
Balance at December 31
|
4,250 |
|
B.
|
Additional details
The fair value of the services received in consideration of the allocated options is based on the fair value of the allocated options, measured on the Black and Scholes model, based on the following parameters:
|
Fair value at the allocation date
|
10,280 | |||
Parameters taken into account in fair value
|
||||
Bezeq share price
|
6.18 | |||
Exercise price
|
5.24 | |||
Anticipated fluctuations (weighted average)
|
23.1%- 23.8% | |||
Useful life of the option (projected weighted average)
|
5 | |||
Risk-free interest rate
|
5.1%-5.3% | |||
Other information (not taken into account):
|
||||
Share price immediately before the board of directors’ decision
|
6.37 | |||
Share price immediately before the allocation
|
5.92 |
|
|
The anticipated fluctuations were based on historical fluctuations of Bezeq’s share prices. The life of the options was determined on the basis of management estimates regarding the period of time the employees will hold the options, taking into consideration their positions at the Company and the Company's previous experience regarding termination of employment. The risk-free interest rate was determined on the basis of the NIS government bonds, with the time to maturity being equal to the expected life of the options.
The total expense recorded for the options in the year ended December 31, 2010, and attributed to administrative and general expenses in the statement of income amounted to NIS 2.46 million.
|
|
C.
|
Benefits
In 2010, the CEO of the Company received payment in accordance with his revised employment contract.
|
NOTE 20 – AGREEMENTS
|
|
1.
|
At December 31, 2010, the Company has agreements for the acquisition of broadcasting rights. In the year ended December 31, 2010, acquisition of these rights amounted to NIS 94 million.
|
|
2.
|
At December 31, 2010, the Company has agreements for the acquisition of channels. In the year ended December 31, 2010, expenses for use of channels acquired by the Company amounted to NIS 253 million.
|
|
3.
|
The Company has a primary operational leasing contract for the building it occupies. The lease expires in 2014, with an option to extend the lease for another five years. The rental fees are linked to the CPI. The Company also has several other leasing contracts for various periods.
|
|
4.
|
Operating lease
|
|
A.
|
The Group has a number of operating lease agreements for periods of up to 36 months for the vehicles it uses. The balance of the contractual annual lease payments, calculated according to the payments in effect at December 31, 2010, is NIS 17 million
|
|
B.
|
In 2009, the Company purchased several vehicles from a vehicle importer. This transaction is accounted for as an operating lease. The expected annual payments amount to NIS 4.4 million.
|
|
5.
|
Royalties: In accordance with the terms of the license, the Company has a liability to pay royalties to the State of Israel, calculated on the basis of income from broadcasting services as described in the license.
The rate of royalties was amended in 2006 according to the Communications Regulations 5766-2006. Following the amendment, the rate of royalties applicable is as follows: 2008 - 2%, 2009 – 1.5%, 2010 and thereafter – 1%.
For information about the rate of royalties for 2011 and thereafter, see Note 32.
|
|
6.
|
In accordance with the licensing requirements and the regulations set forth by the Cable and Satellite Broadcasts Council (“the Council”), for each of the years 2006 through 2011, the Company is required to invest no less than 8% of its income from subscription fees in local production content broadcasts in that year (the Company is required to invest its share in certain broadcasts). In view of the Company’s shortfall in investing in certain categories of broadcasts, the Company is required to complete the shortfall in the relevant categories in 2010 and 2011.
|
|
7.
|
Agreement with NDS Limited ("NDS"): The Company engaged in several agreements with NDS to acquire services in respect of the Company's encoding, broadcasting and receiving systems and hardware for these services.
In 2010 and 2009, the Company's payments to NDS amounted to NIS 26.893 million and NIS 31.283 million, respectively.
|
NOTE 20 – AGREEMENTS (CONTD.)
|
|
8.
|
In August 2000, the Company engaged in a three-way contract to acquire decoders from Eurocom Marketing (1986) Ltd. ("Eurocom") and Advanced Digital Broadcast Ltd ("ADB"). Eurocom is an interested party of the Company. The contract included, inter alia, the supply of ongoing maintenance services and repair services (after the warrantee period) by ADB.
In 2010 and 2009, the Company's payments to Eurocom for the acquisition of decoders amounted to NIS 88 million and NIS 57 million, respectively.
|
|
9.
|
The Company has an agreement with Space Communications Ltd. (“Spacecom”) for the supply of space segments.
In 2010 and 2009, the Company's payments to Spacecom amounted to NIS 87 million and NIS 99 million, respectively.
|
|
10.
|
As from December 2010, subscribers can no longer be signed up for special offers that include a term of commitment by the subscriber to use the services for more than 18 months. This restriction does not apply to subscribers that signed up for special offers up to December 2010. It was also prohibited to offer subscribers various terms of commitment for different service components. In accordance with the decision of the Council, as of January 2011, the Company is entitled to collect the cost of the benefit from subscribers who signed up for a special offer that includes a term of commitment and ask to be disconnected from its broadcasts prior to the end of the term of commitment which equals the lower of the following two amounts: Return of the cost of the benefit stipulated in the special offer or the balance of the payments the subscriber would have had to pay had the subscriber remained connected to the Company’s services until the end of the term of commitment.
|
|
11.
|
In July 2010, the Company signed an agreement with HOT. According to the agreement, the Company will pay HOT an agreed amount to settle its demands in respect of the use of infrastructure in the subscriber’s home up to the end of 2010. In addition, according to the agreement, as from 2011, there will be no obligation for either company to pay the other for the use of wiring. In September 2010, the Company and HOT submitted a request to the Ministry of Communications concerning amendment of the administrative provisions, mainly cancellation of the duty to give the other licensee prior notice before connecting a subscriber in case a subscriber switches licensees so that a licensee to which a subscriber connects will forward the disconnection notice from the subscriber to the licensee from which the subscriber was disconnected only after the connection is made to the other licensee. The Ministry of Communications has not yet given its decision on the matter.
|
NOTE 21 – CONTINGENT LIABILITIES
|
|
1.
|
Guarantees
To assure its obligations, the Company placed collateral in the amount of NIS 40 million (including guarantees to the State of Israel in the amount of NIS 38 million).
|
|
2.
|
Legal claims
Legal claims were filed or are pending against the Company (hereinafter in this section: “legal claims”).
In the opinion of the management of the Company, which is based, inter alia, on legal opinions as to the likelihood of success of the claims, the financial statements (Note 13) include appropriate provisions, where provisions are required to cover the exposure resulting from such claims.
In the opinion of the management of the Company, the additional exposure at December 31, 2010, due to claims filed against the Company on various matters and which are likely to be realized, amounts to NIS 1,073,621,000. These amounts and all the amounts of the claims in this Note are before addition of interest.
|
NOTE 21 – CONTINGENT LIABILITIES (CONTD.)
|
|
2.
|
Legal claims (contd.)
Below are details of the material contingent claims of the Group at December 31, 2010, classified into groups with similar characteristics.
|
|
A.
|
Employee claims
|
|
B.
|
Customer claims
|
NOTE 21 – CONTINGENT LIABILITIES (CONTD.)
|
|
2.
|
Legal claims (contd.)
|
|
B.
|
Customer claims (contd.)
|
|
C.
|
Supplier and communication provider claims
|
|
3.
|
Other contingent liabilities
Pursuant to an immediate report issued by HOT Communication Services ("the Cable Company"), in July 2010, there was a ruling in the arbitration between the Cable Company and Association of Composers
,
Authors and Publishers of Music in Israel (ACUM) regarding a mechanism for calculation of the annual royalties for the use of works, the rights of which are protected by ACUM. According to this report, the arbitration ruling accepted, in principle, the model for calculation of royalties presented by ACUM in the proceeding, with the exception of certain changes, and determined that this model would also apply to the difference in royalties from 2003 onward, to be calculated by the parties to the arbitration in a settlement. The Cable Company announced that it intends to appeal the arbitrator’s ruling. Since the arbitrator’s ruling and the other arbitration documents were not submitted to the Company, the Company does not know which model was adopted and the reasoning behind the arbitrator’s ruling. However, pursuant to the agreements between the Company and ACUM, the royalties paid to ACUM since 2003 may be updated, inter alia, depending on the agreement to be reached by the Cable Company and ACUM, and according to ACUM, also subject to the arbitrator’s ruling.
|
NOTE 21 – CONTINGENT LIABILITIES (CONTD.)
|
|
3.
|
Other contingent liabilities (contd.)
Consequently, the Company's management believes that after the arbitration ruling, the Company could be required to pay significant sums retroactively. In view of the above, the Company revised its estimate of the royalties as from 2003. The updated estimate was prepared on the basis of model for calculation of royalties which was received from ACUM shortly after the arbitration ruling, with adjustments in accordance with the estimate of the Company’s management. This served as the basis for the material provisions that the Company included in its financial statements.
|
NOTE 22 – EQUITY
|
|
A.
|
Share capital
|
December 31,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
Nmber of shares and amount in NIS
|
||||||||
Issued and paid up share capital
|
29,896 | 29,896 | ||||||
Registered capital
|
39,000 | 39,000 |
|
B.
|
Option warrants for shareholders
|
NOTE 23 – COST OF REVENUES
|
Year ended December 31
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
NIS thousands
|
NIS thousands
|
NIS thousands
|
||||||||||
Wages and incidentals
|
148,545 | 132,172 | 117,294 | |||||||||
Content costs
|
350,688 | 295,608 | 278,285 | |||||||||
Utilized broadcasting rights
|
168,799 | 180,826 | 168,478 | |||||||||
Use of space segments
|
89,990 | 94,228 | 89,997 | |||||||||
Depreciation and amortization
|
237,260 | 200,679 | 217,873 | |||||||||
Car allowance
|
25,409 | 19,055 | 20,427 | |||||||||
Royalties
|
10,944 | 13,581 | 17,555 | |||||||||
Other
|
97,213 | 105,952 | 181,262 | |||||||||
1,128,848 | 1,042,101 | 1,091,171 |
NOTE 24 – SALES AND MARKETING EXPENSES
|
Year ended December 31
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
NIS thousands
|
NIS thousands
|
NIS thousands
|
||||||||||
Wages and incidentals
|
29,805 | 27,913 | 28,919 | |||||||||
Advertising
|
67,624 | 60,897 | 62,862 | |||||||||
Marketing consultation
|
1,729 | 1,603 | 1,791 | |||||||||
Car allowance
|
8,786 | 7,921 | 8,739 | |||||||||
Depreciation
|
32,165 | 20,862 | 21,510 | |||||||||
Other
|
3,093 | 3,116 | 4,341 | |||||||||
143,202 | 122,312 | 128,162 |
NOTE 25 – GENERAL AND ADMINISTRATIVE EXPENSES
|
Year ended December 31
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
NIS thousands
|
NIS thousands
|
NIS thousands
|
||||||||||
Wages and incidentals
|
54,347 | 45,490 | 49,119 | |||||||||
Share-based payment
|
2,460 | 5,295 | 1,636 | |||||||||
Professional consultation and fees
|
10,100 | 7,738 | 8,966 | |||||||||
Rental and maintenance fees
|
13,181 | 12,727 | 12,706 | |||||||||
Depreciation
|
15,307 | 12,662 | 10,497 | |||||||||
Provision for doubtful and bad debts
|
805 | 1,764 | 2,352 | |||||||||
Subcontractors (mainly for system maintenance)
|
20,462 | 19,648 | 18,726 | |||||||||
Other
|
15,899 | 12,481 | 12,149 | |||||||||
132,561 | 117,805 | 116,151 |
|
Recognized in profit or loss
|
Year ended December 31
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
NIS thousands
|
NIS thousands
|
NIS thousands
|
||||||||||
Income from interest on bank deposits
|
(316 | ) | (77 | ) | (178 | ) | ||||||
Change in fair value of financial assets at fair value through profit and loss
|
(351 | ) | (5,518 | ) | (35,883 | ) | ||||||
Income from linkage and other differentials
|
(8,646 | ) | (2,752 | ) | (15,744 | ) | ||||||
Financing income recognized in profit and loss
|
(9,313 | ) | (8,347 | ) | (51,805 | ) | ||||||
Expenses for shareholder loans
|
228,464 | 258,183 | 255,164 | |||||||||
Expenses for discounting of shareholder loans
|
90,035 | 42,190 | 7,797 | |||||||||
Change in fair value of financial assets at fair value through profit and loss
|
7,244 | 4,558 | 43,579 | |||||||||
Interest expenses for financial liabilities
|
||||||||||||
measured at reduced cost
|
127,544 | 124,189 | 127,392 | |||||||||
Expenses for linkage differences
|
19,449 | 29,343 | 34,163 | |||||||||
Expenses from exchange rate changes
|
277 | 3,253 | 12,825 | |||||||||
Other financing expenses
|
27,070 | 16,557 | 11,691 | |||||||||
Financing income recognized in profit and loss
|
500,083 | 478,273 | 492,611 | |||||||||
Net financing expenses recognized in profit and loss
|
490,770 | 469,926 | 440,806 |
NOTE 27 – INCOME TAX
|
|
A.
|
Income tax expense components
|
Year ended December 31
|
||||||||||||
2010
|
2009
|
2008
|
||||||||||
NIS thousands
|
NIS thousands
|
NIS thousands
|
||||||||||
Current tax expense
|
|
|
||||||||||
For the current period
|
1,188 | 972 | 1,048 | |||||||||
In respect of preceding years
|
- | (227 | ) | - | ||||||||
|
1,188 | 745 | 1,048 |
NOTE 27 – INCOME TAX (CONTD.)
|
|
B.
|
Deferred tax assets and liabilities
|
|
At the reporting date, the Company has losses and deductions for inflation of NIS 4.7 billion for tax purposes carried forward to the next year (in 2009, NIS 4.4 billion).
|
|
Loss balances and deductions carried forward to the next year are CPI linked to the end of 2007.
|
|
The deductible temporary differences and tax losses do not expire under current tax legislation. The Company does not create deferred tax assets since it is not probable that future taxable profit will be available against which the Group can utilize the benefits.
|
|
C.
|
Tax assessments
|
|
The Company has final tax assessments up to and including 2004 and tax assessments that are considered as final up to 2005.
|
|
D.
|
Tax authority hearings
|
|
In February 2010, the Company reported to the Tax Authority a payment deficit of NIS 2.85 million (tax principal), for value added tax for 2006 and thereafter, which was discovered in an internal audit by the Company for the yes-WOW venture (offering a service bundle including DBS television services, infrastructure connection to the internet provided by the Company and internet access services provided by Bezeq International Ltd.).
|
|
At the date of approval of the financial statements, this amount was paid to the tax authorities.
|
|
In August 2010, the Company received tax assessments in which the Tax Authority claimed NIS 9.6 million (including interest and linkage differences) for the period commencing in January 2006 and ending in July 2010.
|
|
The management of the Company believes, based, inter alia, on the opinion of its legal counsel, that it is likely that the assessment will be cancelled in full.
|
NOTE 28 – LIABILITIES SECURED BY LIENS AND RESTRICTIONS IMPOSED WITH RESPECT TO LIABILITIES
|
|
A.
|
The Company’s secured liabilities and collateral are as follows:
|
December 31,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
NIS thousands
|
NIS thousands
|
|||||||
Debentures
|
1,087,035 | 680,553 | ||||||
Borrowings from banks
|
606,248 | 890,734 | ||||||
Guarantees
|
40,319 | 39,460 |
|
B.
|
To secure these liabilities and collateral, the Company recorded a lien on all its assets, including share capital.
|
NOTE 28 – LIABILITIES SECURED BY LIENS AND RESTRICTIONS IMPOSED WITH RESPECT TO LIABILITIES (CONTD.)
|
|
C.
|
The terms of loans and credit facility that the Company received from banks (NIS 634 million at December 31, 2010) impose the following restrictions: the lien or sale of certain assets, receipt of credit from other banks (without the prior approval of the lending bank), distribution of a dividend, repayment of shareholder loans, transactions with interested parties, changes in the shareholding ratio of shareholders, the Company's compliance with various licenses granted to it, purchase of securities by the Company and the establishment of a subsidiary, and the issuance of shares or other securities of the Company. The parameters for compliance with the financial covenants are measured quarterly and the objectives of one of them change in each quarter. Non-compliance with the financial covenants (subject to the extension term set out in the agreement) awards the banks the right to demand early settlement of the loans that the Company received.
|
|
At December 31, 2010, the Company is in compliance with the covenants in the amended financing agreement.
|
NOTE 29 - FINANCIAL RISK MANAGEMENT
|
|
A.
|
General
The Company is exposed to the following risks from the use of financial instruments:
|
·
|
Credit risk
|
·
|
Liquidity risk
|
·
|
Market risk (including currency and interest risks)
|
|
B.
|
Credit risk
|
|
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises mainly from trade receivables.
|
|
Management has a credit policy and the Company's exposure to credit risks is monitored on a regular basis.
|
|
The Company regularly monitors trade receivables and the financial statements include provisions for doubtful debts which properly reflect, in management’s estimation, the loss inherent in debts for which collection is uncertain.
|
|
C.
|
Liquidity risk
|
|
Liquidity risk is the risk of the Company being unable to meet its financial liabilities repayable by cash or other financial asset. The Company’s approach to managing liquidity risk is to ensure, as far as possible, the degree of liquidity that is sufficient to meet its liabilities on time, under normal conditions and stressful conditions, without causing it unexpected losses or harming its goodwill.
|
|
D.
|
Market risk
|
|
Market risk is the risk that changes to market prices such as exchange rates and interest rates will impact the Company's income or the value of its holdings in financial instruments. The objective of market risk management is to manage and supervise the exposure to market risks under standard parameters, by maximizing the risk yield.
|
|
A.
|
Credit risk
|
|
(1)
|
Exposure to credit risk
|
December 31,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
Number of shares and amount in NIS
|
||||||||
Trade receivables
|
168,847 | 160,152 | ||||||
Other receivables
|
7,994 | 9,677 | * | |||||
176,841 | 169,829 |
|
(2)
|
Aging of debts and impairment losses
|
December 31,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
Number of shares and amount in NIS
|
||||||||
Not past due
|
166,200 | 156,061 | ||||||
Past due up to one year
|
10,106 | 8,152 | ||||||
Past due one to two years
|
2,925 | 7,693 | ||||||
Past due more than two years
|
5,233 | 3,917 | ||||||
184,464 | 175,823 | |||||||
Less provision for doubtful debts
|
(7,700 | ) | (9,013 | ) | ||||
Total
|
176,764 | 166,810 |
|
(3)
|
Changes in provision for doubtful and bad debts:
|
December 31,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
Number of shares and amount in NIS
|
||||||||
Balance at January 1
|
9,013 | 8,730 | ||||||
Increase (decrease)
|
(1,313 | ) | 283 | |||||
Balance at December 31
|
7,700 | 9,013 |
NOTE 30 - FINANCIAL INSTRUMENTS (CONTD.)
|
|
B.
|
Liquidity risk
Below are the contractual repayment dates of financial liabilities, including interest payments. This aging does not include the impact of netting agreements.
|
December 31, 2010
|
||||||||||||||||||||||||||||
Carrying amount
|
Contractual cash flows
|
6 months or less
|
6-12 months
|
1-2 years
|
2-5 years
|
More than five years
|
||||||||||||||||||||||
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
||||||||||||||||||||||
Non-derivative financial liabilities:
|
||||||||||||||||||||||||||||
Credit from banks at variable interest
|
85,735 | 85,735 | 85,735 | - | - | - | - | |||||||||||||||||||||
Credit from banks at variable interest – long-term loan
|
156,154 | 164,127 | 11,508 | 152,619 | - | - | - | |||||||||||||||||||||
Credit from banks at fixed interest
|
364,358 | 424,460 | 29,229 | 28,845 | 78,227 | 288,159 | - | |||||||||||||||||||||
Debentures, including accrued interest
|
1,117,317 | 1,635,507 | 40,368 | 96,130 | 136,791 | 459,126 | 903,092 | |||||||||||||||||||||
Loans from shareholders
|
2,300,387 | 3,893,207 | - | - | - | - | 3,893,207 | |||||||||||||||||||||
4,023,951 | 6,203,036 | 166,840 | 277,594 | 215,018 | 747,285 | 4,796,299 | ||||||||||||||||||||||
Derivative financial liabilities:
|
||||||||||||||||||||||||||||
Forward exchange contracts, net
|
2,929 | 2,929 | 2,929 | - | - | - | - |
NOTE 30 - FINANCIAL INSTRUMENTS (CONTD.)
|
|
B.
|
Liquidity risk (contd.)
|
December 31, 2009
|
||||||||||||||||||||||||||||
Carrying amount
|
Contractual cash flows
|
6 months or less
|
6-12 months
|
1-2 years
|
2-5 years
|
More than five years
|
||||||||||||||||||||||
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
||||||||||||||||||||||
Non-derivative financial liabilities:
|
||||||||||||||||||||||||||||
Credit from banks at variable interest
|
44,504 | 44,504 | 44,504 | - | - | - | - | |||||||||||||||||||||
Credit from banks at fixed interest
|
846,230 | 976,660 | 186,350 | 141,301 | 290,841 | 358,168 | - | |||||||||||||||||||||
Debentures, including accrued interest
|
708,778 | 985,762 | 29,013 | 83,352 | 107,761 | 357,452 | 408,184 | |||||||||||||||||||||
Loans from institutions
|
181,729 | 275,956 | - | - | - | 275,956 | - | |||||||||||||||||||||
Loans from shareholders
|
1,982,166 | 5,164,460 | - | - | - | - | 5,164,460 | |||||||||||||||||||||
3,763,407 | 7,447,342 | 259,867 | 224,653 | 398,602 | 991,576 | 5,572,644 | ||||||||||||||||||||||
Derivative financial liabilities:
|
||||||||||||||||||||||||||||
Forward exchange contracts, net
|
989 | 989 | 989 | - | - | - | - |
NOTE 30 - FINANCIAL INSTRUMENTS (CONTD.)
|
|
C.
|
CPI and foreign currency risks
|
|
(1)
|
Foreign currency and CPI risk for the Company’s financial instruments are as follows:
|
December 31, 2010
|
||||||||||||||||||||
Unlinked
|
CPI-linked
|
In foreign currency or foreign currency linked (mainly USD)
|
Non-financial items
|
Total
|
||||||||||||||||
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
||||||||||||||||
Assets
|
||||||||||||||||||||
Trade receivables
|
164,889 | - | 3,958 | - | 168,847 | |||||||||||||||
Other receivables
|
7,983 | 2 | 9 | 3,156 | 11,150 | |||||||||||||||
Total assets
|
172,872 | 2 | 3,967 | 3,156 | 179,997 | |||||||||||||||
Liabilities
|
||||||||||||||||||||
Borrowings from banks
|
135,438 | - | - | - | 135,438 | |||||||||||||||
Trade payables
|
243,135 | - | 112,636 | - | 355,771 | |||||||||||||||
Other payables
|
62,092 | 77,452 | 2,938 | 22,469 | 164,951 | |||||||||||||||
Debentures
|
- | 1,030,973 | - | - | 1,030,973 | |||||||||||||||
Current maturities for debentures
|
- | 56,062 | - | - | 56,062 | |||||||||||||||
Loans from shareholders
|
- | 2,300,387 | - | - | 2,300,387 | |||||||||||||||
Bank loans
|
470,810 | - | - | - | 470,810 | |||||||||||||||
Long-term trade payables
|
54,264 | - | - | - | 54,264 | |||||||||||||||
Total liabilities
|
965,739 | 3,464,874 | 115,574 | 22,469 | 4,568,656 | |||||||||||||||
Surplus liabilities over assets
|
792,867 | 3,464,872 | 111,607 | 19,313 | 4,388,659 |
NOTE 30 - FINANCIAL INSTRUMENTS (CONTD.)
|
|
C.
|
CPI and foreign currency risks (contd.)
|
|
(1)
|
Foreign currency and CPI risk for the Company’s financial instruments are as follows: (contd.)
|
December 31, 2009
|
||||||||||||||||||||
Unlinked
|
CPI-linked
|
In foreign currency or foreign currency linked (mainly USD)
|
Non-financial items
|
Total
|
||||||||||||||||
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
||||||||||||||||
Assets
|
||||||||||||||||||||
Trade receivables
|
155,111 | - | 5,041 | - | 160,152 | |||||||||||||||
Other receivables
|
9,634 | * | 2 | 41 | 1,520 | 11,197 | ||||||||||||||
Total assets
|
164,745 | 2 | 5,082 | 1,520 | 171,349 | |||||||||||||||
Liabilities
|
||||||||||||||||||||
Borrowings from banks
|
283,698 | - | - | - | 283,698 | |||||||||||||||
Trade payables
|
321,688 | * | - | 83,701 | - | 405,389 | ||||||||||||||
Other payables
|
56,392 | * | 76,087 | - | 17,941 | 150,420 | ||||||||||||||
Debentures
|
- | 625,741 | - | - | 625,741 | |||||||||||||||
Current maturities for debentures
|
- | 54,812 | - | - | 54,812 | |||||||||||||||
Loans from shareholders
|
- | 1,981,887 | - | - | 1,981,887 | |||||||||||||||
Loans from institutions
|
- | 181,729 | - | - | 181,729 | |||||||||||||||
Bank loans
|
607,036 | - | - | - | 607,036 | |||||||||||||||
Long-term trade payables
|
9,001 | - | * | - | - | 9,001 | ||||||||||||||
Total liabilities
|
1,277,815 | 2,920,256 | 83,701 | 17,941 | 4,299,713 | |||||||||||||||
Surplus liabilities over assets
|
1,113,070 | 2,920,254 | 78,619 | 16,421 | 4,128,364 |
|
(2)
|
CPI and exchange rates of material currencies:
|
December 31
|
December 31
|
Change (%)
|
Change (%)
|
|||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
CPI in points
|
113.51 | 110.57 | 2.7 | 3.9 | ||||||||||||
USD exchange rate
|
3.549 | 3.775 | (6.0 | ) | (0.7 | ) | ||||||||||
Euro exchange rate
|
4.738 | 5.442 | (12.9 | ) | 2.7 |
NOTE 30 - FINANCIAL INSTRUMENTS (CONTD.)
|
|
D.
|
Interest rate risk
Types of Interest of the Company's interest-bearing financial instruments:
|
Carrying amount
|
Carrying amount
|
|||||||
2010
|
2009
|
|||||||
NIS thousands
|
NIS thousands
|
|||||||
Fixed-interest instruments
|
|
|||||||
Other receivables
|
77 | 3,020 | ||||||
Financial liabilities
|
3,751,781 | 3,690,679 | ||||||
Variable-interest instruments
|
||||||||
Financial liabilities
|
241,889 | 43,816 |
|
E.
|
Fair value compared to carrying amounts
The carrying amount of assets and liabilities correspond with or are close to their fair values.
Fair value of financial assets and liabilities, which are not stated at fair value:
|
2010 | 2009 | |||||||||||||||
Carrying amount
|
Fair value
|
Carrying amount
|
Fair value
|
|||||||||||||
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
|||||||||||||
Bank loans
|
520,512 | 521,904 | 846,230 | 841,671 | ||||||||||||
Loans from institutions
|
- | - | 181,729 | 192,263 | ||||||||||||
Debentures, including accrued interest
|
1,117,317 | 1,293,986 | 708,778 | 714,603 | ||||||||||||
1,637,829
|
1,815,890 | 1,736,737 | 1,748,537 |
|
F.
|
Derivative financial instruments
The Company has limited involvement in derivative financial instruments. The Company contracts such transactions to hedge its cash flows. See details in Note 30B.
|
NOTE 30 - FINANCIAL INSTRUMENTS (CONTD.)
|
|
G.
|
Sensitivity test
Below are sensitivity tests for changes in the main market risks where changes will alter the values of assets and liabilities and affect the Company's net profit and equity.
|
|
(1)
|
Sensitivity to changes in the CPI
The Company has financial instruments that are sensitive to changes in the CPI such as loans, debentures and customer deposits. The sensitivity analysis of 5% and 10% refers to the rate of deviation from an inflation assessment of 2% per year, based on the Inflation Target Center at the Bank of Israel.
|
Deviation rate from inflationary goal
|
10% | 5% | (5%) | (10%) | ||||||||||||
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
|||||||||||||
Effect on equity and net profit
|
(7,343 | ) | (3,671 | ) | 3,671 | 7,343 |
Deviation rate from inflationary goal
|
10% | 5% | (5%) | (10%) | ||||||||||||
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
|||||||||||||
Effect on equity and net profit
|
(5,930 | ) | (2,965 | ) | 2,965 | 5,930 |
|
(2)
|
Sensitivity analysis of changes in the US dollar exchange rate
|
Change in NIS/USD exchange rate (in NIS)
|
10% | 5% | (5%) | (10%) | ||||||||||||
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
|||||||||||||
Effect on equity and net profit
|
(1,612 | ) | (806 | ) | 806 | 1,612 |
Change in NIS/USD exchange rate (in NIS)
|
10% | 5% | (5%) | (10%) | ||||||||||||
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
|||||||||||||
Effect on equity and net profit
|
(7,704 | ) | (3,852 | ) | 3,852 | 7,704 |
|
(3)
|
Sensitivity to change in interest rates
The Company has financial instruments that are sensitive to changes in interest rates such as financial liabilities to banks. The sensitivity analysis of 5% and 10% refers to the rate of change in the interest rate.
|
Rate of change in the interest rate
|
10% | 5% | (5%) | (10%) | ||||||||||||
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
|||||||||||||
Effect on equity and net profit
|
(5,169 | ) | (2,599 | ) | 2,628 | 5,287 |
Rate of change in the interest rate
|
10% | 5% | (5%) | (10%) | ||||||||||||
NIS thousands
|
NIS thousands
|
NIS thousands
|
NIS thousands
|
|||||||||||||
Effect on equity and net profit
|
(176 | ) | (88 | ) | 88 | 176 |
NOTE 31 – TRANSACTIONS WITH INTERESTED AND RELATED PARTIES
|
|
A.
|
Transactions with interested and related parties
|
December 31, 2010
|
December 31, 2009
|
|||||||
NIS thousands
|
NIS thousands
|
|||||||
Revenue (3)
|
1,165 | 12,196 | ||||||
Cost of revenue (1)
|
101,251 | 112,576 | ||||||
Administrative and general expenses
|
2,376 | 1,855 | ||||||
Financing expenses
|
320,032 | 302,303 | ||||||
Salary and benefits for interested parties employed by the Company (2)
|
5,802 | 8,367 |
|
(1)
|
The expenses primarily include costs of leasing space segments from an interested party and operating costs of Bezeq Online call center (see Note 20).
|
|
(2)
|
The Company's CEO participates in an options plan for shares in the parent company (see Note 19). In addition, on August 11, 2008, the Company's board of directors approved a two year options plan for the Company’s CEO for 2009 and 2010, based on compliance with certain goals defined in the plan.
|
|
(3)
|
Includes revenue from the sale of content to an interested party.
|
|
B.
|
Balances with related parties
|
December 31, 2010
|
December 31, 2009
|
|||||||
NIS thousands
|
NIS thousands
|
|||||||
Note 16 – Loans from Shareholders
|
2,300,387 | 1,981,887 | ||||||
Current liabilities
|
73,664 | 77,902 | ||||||
Non-current liabilities
|
54,253 | 8,340 | ||||||
Other receivables
|
77 | 52 |
|
C.
|
Additional details
|
|
(1)
|
The Company has an agreement for the import and maintenance of digital satellite decoders from a company that is an interested party (see Note 20).
The cost of acquisition and maintenance of decoders amounted to NIS 88 million (in 2009 – NIS 57 million).
|
|
(2)
|
For information about the options allocated to the Company's shareholders, see Note 16B.
|
NOTE 32 – MATERIAL EVENTS SUBSEQUENT TO THE REPORTING DATE
|
|
A.
|
In February 2011 the government decided, further to an review of the Ministry of Communications and Ministry of Finance, together with the Second Authority and the Council, to formulate legislative amendments to anchor the expansion of the DTT setup, in two stages, within 24 months from the entry into force of these legislative amendments. Pursuant to the decision, and subject to its terms and the terms to be determined in the legislation, a radio channel containing regional and national radio channels, an “Educational 23” channel, the designated Russian-language channel, the designated Israeli and Mediterranean music channel, an additional channel of the Israel Broadcasting Authority which will broadcast using HD technology, a designated Arabic channel, a designated news channel and a dedicated heritage channel will be added to the setup in two stages. Any of the above channels may be added upon its request with payment of a distribution charge. In accordance with the decision, the Minister of Communications may, in consultation with the Minister of Finance, the Council and the Second Authority, add more channels to the setup in accordance with applications from the channels and the regulations which will be determined in this matter. The government also decided that in January 2014, the ownership and operation of the DTT setup would be transferred from the Second Authority to another government or public body which does not supervise television broadcasts. An increase or variation in the number of channels to be distributed via this setup is likely, in the opinion of the Company, to increase the capability of the setup to offer substitutes for DBS's services and this is liable to cause material harm to its revenues.
|
|
B.
|
In January 2011, the Company and Bezeq signed agreements according to which the Company will market Bezeq’s telephony and internet infrastructure services, including as part of the service bundle, and Bezeq will market the Company’s television services, including as part of the service bundle. The agreements were approved as a transaction in which a controlling shareholder has a personal interest. At the reporting date, the parties have not yet implemented the provisions of these agreements.
|
|
C.
|
In January 2011, the Knesset Finance Committee approved an amendment to the Royalties (Satellite Broadcasts) Regulations so that in 2011 and 2012 the rate of royalties would be 1.75% and 2.5% of taxable income respectively, and would revert to 1% commencing 2013 or on the date when the terms laid down in the Regulations are met.
|
|
D.
|
The Company is examining the possibility of expanding the debentures series (Series B) by issuing additional debentures for NIS 120 million, according to orders it received from institutions, subject to the approval of the banks and confirmation from the rating company that the debentures will not be downgraded as a result. Fifty percent of the consideration from the issue is designated for early repayment of part of the Company’s long-term bank loans. At the reporting date, the expansion of the series has not yet been approved And the necessary approvals were not yet received.
|
|
E.
|
On January 9, 2011, a motion for certification of a class action against the Company was filed at the Tel Aviv-Jaffa district court for NIS 50 million. The plaintiff alleges that the Company violated its obligation, inter alia, pursuant to the Communications (Telecommunications and Broadcasts) Law 5742-1982 and the Regulations for Restricting Volume during Commercials, Promos and Other Broadcasts, 5769-2009. The plaintiff contends that these breaches are reflected in the volume in broadcasts of the Company’s commercials, promos and service announcements
.
The amount of the claim for each subscriber is NIS 100, and the plaintiff estimates that the group he seeks to represent includes approximately 500,000 subscribers. The Company has not yet responded to the motion for certification.
|
|
F.
|
On March 1, 2011, the Company received a rating of ilA- for additional debentures of NIS 120 million par value, to be issued in expansion of Series B.
|
NOTE 33 – APPOINTMENT OF THE CHAIRMAN OF THE BOARD FOR THE FINANCIAL STATEMENTS APPROVAL MEETING
|
B COMMUNICATIONS LTD.
|
|||
By:
|
/s/Eli Holtzman
|
||
Eli Holtzman
|
|||
Chief Executive Officer
|
|||
By:
|
/s/Doron Turgeman
|
||
Doron Turgeman
|
|||
Chief Financial Officer
|
1.
|
Secured Deposit
|
|
1.1.
|
In lieu of holding the deposit in cash, the Company may purchase a securities portfolio, which shall be comprised of the following instruments: (a) short-term loan and bonds of the State of Israel; (b) in an amount that shall not exceed NIS 75,000,000 – securities rated at least AA- (double-A-minus) (or an equivalent rating of another rating company), or which were issued by a corporation so rated, provided that not more than NIS 10,000,000 is invested in a single security and no investments are made in debentures, as follows: (1) debentures of communication companies; (2) debentures of companies controlled by Mr. Shaul Elovitch; (3) debentures with a duration exceeding 5 years.
|
|
1.2.
|
Subject to its satisfaction of the above conditions, the Company may manage the aforementioned securities portfolio, buy and sell securities from time to time (including by means of an automated trading system, provided that the proceeds from such transactions are deposited directly in the Company's account), without requiring the bank's specific approval for the transactions.
|
2.
|
Early Repayment
: With respect to the provisions of Sections 16 and 20 of the Loan Agreement and notwithstanding such provisions:
|
3.
|
Adjustment of Minimum Shareholdings of Bezeq
: With respect to the provisions of Section 24.17 of the Loan Agreement, and notwithstanding the provisions thereof:
|
4.
|
Adjustment of Structure of Credit B Amortization Table
: With respect to the provisions of Section 9.3 of the Loan Agreement, and notwithstanding the provisions thereof, the portion of the principal amount of Credit B which bears variable interest shall be repaid in accordance with the amortization table furnished to the Company by the Lenders, by means of the Manager, and not according to the Spitzer Amortization Table.
|
B. Communications (SP2) Ltd.
[lenders signatures]
|
WHEREAS
|
the Company' s Board of Directors approved, on August 31, 2010, the publication of a shelf prospectus (hereinafter: the "
Prospectus
" or the "
Shelf Prospectus")
, under which the Company may issue pursuant to shelf offering reports, inter alia, up to 3 series of debentures (series B to D), non-convertible to company shares, and up to 3 series of debentures (series E to G), convertible to company shares (hereinafter together: "
Debentures
");
|
WHEREAS
|
the Trustee is a limited shares company, dully incorporated in Israel, whose principal goal is to engage in trust;
|
WHEREAS
|
the Trustee declares that there that there is no impediment in accordance with the law (as defined hereinafter) to its entering into an engagement with the company pursuant to the present Deed of Trust, and that it fulfills all the requirements and conditions for competency set by law (as defined hereinafter) to serve as a trustee pursuant to this Deed of Trust;
|
WHEREAS
|
the Trustee has no substantive interest in the Company and the Company has no substantive interest in the Trustee;
|
WHEREAS
|
the Company declares that there is no is no impediment in accordance with any law, to its entering into an engagement with the Trustee as per the present Deed of Trust;
|
WHEREAS
|
the Company has requested that the Trustee serves, pursuant to the issuance of each of the debentures' series, as the trustee for the holders of the debentures, issued in this framework, and the Trustee has agreed thereto, all in accordance with the terms of this Deed of Trust, on condition that on the date of the offering of the debentures by the Company, the Company and the Trustee will examine the possibility to appoint the Trustee as Trustee of the offered debentures series, while taking into consideration the presence or absence of any conflict of interest between the relevant series holders, and this in conformance, amongst others, with the terms of this Deed of Trust, the guidelines of the Securities Authority and/or the law in force at that time;
|
WHEREAS
|
the Trustee agreed to sign on the present Deed of Trust and to act as Trustee for the Debentures Holders;
|
|
1.
|
Preamble, interpretation and definitions
|
|
1.1.
|
The preamble to this Deed of Trust constitutes an intrinsic part of the Deed.
|
|
1.2.
|
The division of this Deed of Trust into sections and the insertion of headings to the sections are for convenience
of reference only and shall not be used for interpretation.
|
|
1.3.
|
For the purpose of this Deed of Trust, the words in masculine gender shall include the feminine and neuter genders and vice versa, and the word "person" shall include companies, unless the present Deed contains other explicit and/or implicit provision and /or this is otherwise required by the contents of the statements or their context
|
|
1.4.
|
Whenever the terms of the Deed of Trust are inconsistent with the terms of the attached documents, the terms of the Deed of Trust shall prevail. Whenever the terms of the Prospectus concerning this Deed or/and the debentures are inconsistent with the terms of the Deed, the terms of this Deed shall prevail.
|
|
1.5.
|
For the purpose of this Deed of Trust, the following expressions will have the following meaning, unless another intention is implied by the context of the statements:
|
"Offering Report or "Shelf Offering Report"
|
The offering of debentures of each of the series as per the Shelf Prospectus, made by means of an Offering Report, pursuant to the provisions of Section 23 a of the Law (as defined hereinafter), wherein all the details that are specific to such offer will be completed, including the composition of the offered units, under the provisions of any law and in accordance with the Code and guidelines of the Tel Aviv Stock Exchange, prevailing at such time;
|
|
"The Law"
|
The Securities Law, 1968 and the regulations thereby, as issued from time to time.
|
|
"Register"
|
The Debentures Holders register, as per section 26 in this Deed.
|
|
"Stock Exchange"
|
The Tel Aviv Stock Exchange Ltd.
|
|
"Principal"
|
The total nominal value of the debentures, of the relevant series, in circulation
|
|
"Extraordinary Decision"
|
A decision received by the general meeting of the debentures holders of the relevant series,
who are attending by themselves or by proxy and together holding at least
fifty percent (50%) of the unsettled nominal value of the debentures, of the relevant series
in circulation at the date scheduled for the meeting, or in a
deferred meeting, of the holders
who are attending by themselves or by proxy and together holding at least
ten percent (10%) of the said nominal value, and that was received (either by the original meeting or by the deferred meeting) by a majority of at least seventy five percent (75%) of all the participating votes, excluding the abstainers.
|
|
"the Registration Company"
|
The registration
company
.
of Bank Hapoalim ltd
|
|
"Debentures Series"
|
Debentures series, to be named Series B to D, when each of those debentures series shall have a total nominal value of up to NIS 2,000,000,000 and/ or Series E to G, of Company debentures, where each of the above debentures series will have a total nominal value of NIS 500,000,000, registered, whose terms are in conformance with the debentures certificate of the same series, to be issued from time to time by the Company, at its discretion.
|
|
"Debentures of the relevant Series"
|
Debentures of a certain series, for which the Trustee acts as a trustee for their holders.
|
"Debentures Holders" and/ or "Debentures Owners"
and/ or the "Holders"
|
The persons whose names are registered at the said time in the Register as owners of the debentures, and for a number of joint holders, the joint holder first registered in the register.
|
|
Trade day
|
Any day on which trade is performed at the Tel Aviv Stock Exchange Ltd
|
|
Stock Exchange Clearing House
|
The Tel Aviv Stock Exchange Clearing House Ltd.
|
|
"Rating Company"
|
a rating company approved by the Commissioner of the Capital, Insurance and Savings Market at the Ministry of Finance
|
|
"date scheduled for the meeting"
|
A date to be set by the person convening the debentures holders meeting and published in the invitation notice. This date will be the relevant date for proving the ownership of a person on the debentures object of this meeting, that will give him the rights, pursuant to the ownership demonstration as above, to participate in the meeting and take a vote.
|
|
2.
|
General
|
|
2.1.
|
Unless otherwise stated, the provisions of this Deed are applicable separately to each and every one of the series of Debentures Series C to H, that may be offered pursuant to the Shelf Prospectus, and consider this DEED as being separately signed for each and every one of the series of the said Debentures.
|
|
2.2.
|
Unless otherwise explicitly stated in this Deed of Trust, the issuance of any of the series of the debentures mentioned in this Deed of Trust is not dependent on the others. Each of the Debentures Series is unconditional and independent of other Debentures Series that might be issued pursuant to the Shelf prospectus, and the present Deed of Trust will refer to each of the Debentures Series separately and independently of other Debentures Series.
|
|
2.3.
|
This Debentures Series is subject to the Stock Exchange rules that cannot be overruled.
|
|
3.
|
Debentures issuance
|
|
3.1.
|
The Company shall be entitled to issue, at its exclusive discretion, pursuant to the publication of a Shelf Offering Report, up to 3 series of Debentures (Series B to D), each with a total nominal value of NIS 2,000,000,000, registered to name , and repayable (principal) in one or several installments, but not more than four quarterly annual installments, as detailed in the Initial Offering Report, that shall be payable on each of the dates, all as detailed in the Offering Report pursuant to which each of the said Debentures Series are first offered (
Debentures Series B to D
). The linkage basis (or the absence thereof) and the type of interest (or the absence thereof) applicable to the principal of the Debentures in each of the aforementioned issued series will be specified in the Offer Report under which the aforesaid Debentures are initially offered. .For details on the linkage basis of Debentures Series B to D, applicable according to the Shelf Prospectus, and for details on the interest types applicable according to the Shelf Prospectus, please see sections 3.1.4 and 4 of the terms listed in the Debentures (Series B to D) overleaf, respectively. The interest rate applicable to the Debentures of each of the said series, to be issued pursuant to the Shelf Prospectus, or the margin above or under the base interest rate, the principal of the Debentures of each of the said series will bear, or the absence of interest on the principal of the Debentures of each of the said series, as applicable, will be specified in the Offering Report pursuant to which the said debentures are first offered, or be determined in a bid pursuant to which their first offering will take place. The interest, if any, on the principal of the Debentures Series B to D will be paid in a number of installments that will not exceed four quarterly annual installments, to be detailed in the Offering Report pursuant to which the said debentures would be initially offered. The dates and the number of principal payments , the linkage basis (or the absence thereof), the interest type, the interest rate and the manner of its determination, the interest payment dates (or absence of interest) of the Debentures Series B to D, as detailed in the Offering Report pursuant to which each of the said Debentures Series are first offered, will be determined by the Company shortly before the first offering of the Debentures of the relevant Series. (
"First Offering of Debentures Series B to D
"). For additional details please see also sections 3, 4 and 5 of the terms listed on the Debentures (Series B to D) overleaf.
|
|
3.2.
|
In addition, the Company might issue, at its exclusive discretion, pursuant to the publication of Shelf Offering Report, up to 3 series of Debentures (Series E to G), each with a total nominal value of NIS 500,000,000, registered on name, and repayable (principal) in one or several installments, but not more than four quarterly annual installments, as detailed in the Initial Offering Report, and payable on each of the dates, all as detailed in the Offering Report pursuant to which each of the said Debentures Series are first offered (
Debentures Series E to G
),. The linkage basis (or the absence thereof) and the type of interest (or the absence thereof), applicable to the principal of each of the said Debentures in each of the aforementioned Series to be issued, will be detailed in the Offering Report pursuant to which the aforementioned debentures are first offered. For details on the linkage basis of Debentures Series E to G, applicable according to the Shelf Prospectus, and for details on the interest types applicable according to the Shelf Prospectus, please see sections 3.1.4 and 4 of the terms listed on the Debentures (Series E to G) overleaf, respectively. The interest rate on the principal of the Debentures of each of the said series, to be issued pursuant to the Shelf Prospectus, or the margin above and below the base interest rate, the principal of the Debentures of each of the said series will bear, or the absence of interest on the principal of the Debentures of each of the said series, as applicable, will be specified in the Offering Report pursuant to which the said debentures are first offered. The interest, if any, on the principal of the Debentures of each of the said series will be paid in a number of installments that will not exceed four quarterly annual installments, to be detailed in the Offering Report pursuant to which the said debentures are first offered. The dates and the number of payments on the principal, the base for the linkage (or absence of linkage), the interest type, the interest rate and manner of its determination, the interest payment dates (or absence of interest) of the Debentures Series E to G, as detailed in the Offering Report, pursuant to which each of the said Debentures Series are first offered, will be determined by the Company shortly before the first offering of the Debentures of the relevant Series. (
"First Offering of Debentures Series E to G
"). The Debentures Series E to G will be convertible to ordinary Company shares of a nominal value of NIS 0.01 each, on each trade day, starting with the date the said Debentures were listed for trade on the Stock Exchange, and until a few days prior to the termination of the period of the Debentures of the same series, except for a number of days prior to the date scheduled for partial redemption, in conformance with the Stock Exchange provisions, in force at the date of the Offering Report, as defined in section 1.5 above, and until the date the partial redemption takes place , and this according to an exchange rate that should not be under the nominal value of the ordinary shares at the date of the Initial Offering Report of the Debentures Series E to G ( subject to adjustments as detailed in section 6.3 of the terms listed on the Debentures (Series E to G) overleaf, under the conditions and in the manner detailed in the Initial Offering Report of the Debentures of each of the said Series, as those details will be set forth by the Company prior to the first offering of the Debentures of the relevant Series.. For additional details please see also section 3, 4 and 5 of the terms listed on the Debentures (Series E to G) overleaf.
|
3.3.
|
Expansion of the Series
|
|
The Company is entitled to issue (in the framework of either a private or a public offering) at any time, and from time to time, at its exclusive discretion, without needing the consent of the Debentures holders or the Trustee, or the need to notify them, including the related corporation as defined in section 4.2 hereinafter, pursuant to the Law, additional Debentures of a certain Series, whose terms shall be identical to the terms of the Debentures already issued for this Series, at any price and in any manner it should consider, and this Deed shall be applicable as well to any additional Debentures, to be issued by the Company, and the status of the additional Debentures, as from the date of their issuance will be, with the required modifications, similar to the status of the Debentures issued in this issuance. The Trustee will act as Trustee for the Debentures of the issued series, as they shall be from time to time in circulation, and this in the event of the Series expansion as well, and the Trustee's consent to serve in the said position for the expanded series will not be required. However, in the event of the expansion of the Series of the obligation certificates of the relevant Series (in any manner whatsoever – either as private offer or as prospectus, or in any other manner , including but not only, the realization of debentures options) the trustee will be entitled to require an increase in its fees, relative to the series expansion, as detailed in appendix 20 to this Deed, and the Company gives its a priori consent, by entering this Deed, to increase the fees of the Trustee as said, as from the expansion date, and constantly until the termination of the trust period. In order to remove any doubt, the holders of the additional Debentures, as mentioned in this section above, will not be entitled to any interest for the interest periods whose determinant payment dates preceded the issue date
The Debentures (Series B to D) and the Debentures (Series E to G), may be issued at their nominal value, with discount or with premium.
Should the value of the discount rate set forth for Debentures of any Series following the expansion of the Debentures Series of the same series, be different from the discount rate of the Debentures Series of the same series in circulation at that time (if any), the Company shall apply to the Tax Authority, immediately before the expansion of the Debenture Series, in order to receive its approval that in regard to the deduction of the tax at source from the deduction fees for the said debentures, a uniform discount rate will be calculated for the said debentures, according to a weighted formula of the different discount rates of the said series, if any.
|
|
3.4
|
Issuance
of additional securities
|
|
4.
|
Purchase of
Debentures
by the Company and/ or by a related corporation
|
|
4.1.
|
The Company reserves the right to purchase, at any time and from time to time, Debentures from the Debentures Series, at any price at its choosing, and this without prejudice to the obligations of repayment of the Debentures held by others than the Company. Debentures purchased by the Company will be canceled upon their acquisition and will delisted from trade on the Stock Exchange, and the Company will not be entitled to reissue them. In the event of the purchase of Debentures by the Company, as stated, the Company will notify the Trustee, immediately after the acquisition, and will issue an immediate report on the subject. In the event the debentures are purchased as stated by the Company through the trading system of the Stock Exchange, the Company will request the Stock Exchange Clearing House to withdraw the certificates.
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|
4.2.
|
A subsidiary of the Company and/ or controlled company and/or the controlling shareholder of the Company (directly or indirectly), and/ or a company under the control of the controlling shareholder of the Company (except the Company, to which the contents of section 4.1 above apply) (hereinafter: "
Related Corporation
") will be entitled to purchase and/or to sell, at any time and from time to time, including by way of issuance by the Company, Debentures from the Debentures Series. Debentures thus held by a Related Corporation, will be considered as assets of the Related Corporation, they will not be delisted from trade on the Stock Exchange other than subject to the rules of the Stock Exchange, and will be transferrable , same as all other Company Debentures (subject to the provisions of the Deed of Trust and the Debenture). The provisions of section 1 and 6 (f) of the second addendum to the Deed of Trust will apply to the meeting of the Debentures Holders. Upon receiving the notification concerning the purchase as stated, the Company will publish the said purchase in an immediate report, provided it is bound by Law to do so. In addition, in relation to the legal number of voters at the general meeting of the Debentures Holders, the contents of section 6 (f) of the second addendum to this Deed will apply as well.
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|
4.3.
|
The contents of this section 4 should not be regarded as an obligation of the Company or the Debentures Holders to purchase Debentures, or to sell the Debentures in their possession.
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|
5.
|
The
Company's
obligations
|
|
6.
|
Collateral
Security
|
|
6
.1.
|
The Debentures Series C to H may or may not be secured by collateral security, by any encumbrances, or in any other manner. Details concerning the mechanism for securing the Debentures Series C to H, if secured by any collateral, mortgages or any encumbrances, or in any other manner, will be published in the first Shelf Offering Report of each of the Debentures Series, in a wording acceptable to the Trustee.
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|
6.2.
|
In order to remove any doubt
it
is clarified that the
Trustee has no obligation to examine, and in fact the Trustee had not examined, the necessity for providing any collateral security to secure the payments to the Debentures Holders. The Trustee was not required to perform, and the Trustee has not actually performed an economic, accounting or legal due diligence examination of the Company's or its subsidiaries business situation. By its entering into this Deed of Trust, and by agreeing to serve as a trustee for the Debentures Holders, the Trustee is not expressing its opinion, explicitly or impliedly, as to the ability of the Company to fulfill its obligations towards the Debentures Holders. The aforegoing provisions shall in no way detract from the trustees
'
obligations under any law and/ or the Deed of Trust, including the Trustee's obligations (should
this obligations be imposed on the Trustee by Law) to evaluate the impact of changes in the Company from the date of the issue onwards, to the extent that such changes could have an adverse effect on the Company’s ability to meet its obligations to the debenture holders.
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|
6.3.
|
The Company will be entitled to sell, lease, assign, transmit or otherwise transfer its assets, in whole or in part, in any manner, to any third party, without the necessity for obtaining approval
from the Debentures holders and/or the Trustee, and without notifying them.
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|
6.4.
|
The Company will be entitled to encumber its assets, in whole or in part, by any encumbrance and in any manner, to a third party, without the necessity for obtaining approval
from the Debentures holders and/or the Trustee.
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|
7.
|
Priority
ranking
|
|
8.
|
Immediate
repayment
|
|
8.1.
|
On the occurrence of one or more of the events in this section hereinafter, the provisions of section 8.2 hereinafter will apply, as applicable:
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|
8.1.1.
|
If the Company does not pay any amount that is due from it in relation with the Debentures of the relevant Series within 45 days from their due date
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|
8.1.2.
|
If a final or permanent liquidation order is granted by the court in relation with the Company
|
|
8.1.3.
|
If a provisional liquidation order is granted by the court, or a valid decision is adopted to liquidate the Company (or if a valid resolution is passed for the liquidation of the Company (apart from a liquidation for purposes of a merger with another company, and only when the board of directors approval was submitted to the Trustee, showing that
the
absorbing company has assumed the Company’s full obligations to the debenture holders and that there is no reasonable doubt that due to the merging, the absorbing company will not be able to fulfill on time, all its obligations towards the Debentures Holders, as arising from the Debentures ad this Deed, and the Trustee will not be required to verify the truthfulness of this approval and/or the changes in the structure of the Company) and the decree or decision as stated, were not cancelled within 60 days from the date the order was given or the resolution was passed, and on condition that as a result the payments to the holders of the Debentures of the relevant series, or their rights, were affected, or there is reasonable doubt they might be affected.
|
|
8.1.4.
|
If the Company's assets are foreclosed, and the foreclosure is not removed within 60 days of its performance.
|
|
8.1.5.
|
If execution procedures are carried out against the Company's assets, and the procedures are not cancelled within 60 days from the execution date.
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|
8.1.6.
|
If a permanent receiver is appointed to the Company and/or the Company's assets, and the appointment is not cancelled within 60 days
|
|
8.1.7.
|
If a temporary receiver is appointed to the Company and/or the Company's assets, and the appointment is not cancelled within 60 days.
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|
8.1.8.
|
If the Company stops or notifies its intention to stop the payment of its debts, or ceases or notifies its intention to cease its business, as those will be from time to time.
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|
8.1.9.
|
If decree for the freezing of the procedures is rendered, or if the Company applied for a settlement with the Company's creditors, as per section 350 of the Companies law, 1999 (
The Companies Law)
(excluding for the purpose of merging with another company, and only when the board of directors approval was submitted to the Trustee, showing that the surviving company undertook all the obligations towards the Debentures Holders and that there is no reasonable doubt that due to the merging, the surviving company will not be able to fulfill on time, all its obligations towards the Debentures Holders, as arising from the Debentures ad this Deed, and the Trustee will not be required to verify the truthfulness of this approval and/or the changes in the structure of the Company and/ or any other settlement that is not due to the financial difficulties of the Company)
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|
8.1.10.
|
If the Company is dissolute or written-off for any reason whatsoever.
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|
8.1.11.
|
In the event of fundamental breach of the terms of the debentures of the relevant series and the Deed, and if the Trustee notified the Company to remedy the breach and the Company failed do so within 30 days of the notification date, and on condition that the rights of the Debentures Holders were thereby affected.
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|
8.2.
|
|
8.2.1.
|
(a) On the occurrence of any of the events in sections 8.1.1 to 8.1.10 (inclusive) above, the Trustee will be required to convene a meeting of the Debentures Holders.
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|
8.3.
|
The date of the meeting, to be convened as per the provisions of section 8.2.1(a) or (b) above, will be 30 days following the date of its notification (or a shorter period as per the provisions of section 8.6 hereinafter) and that will have on its agenda a decision to call the immediate payment of all the unpaid balance of the Debentures of the relevant Series, due to one of the events detailed in section 8.1 above. The trustee will act in the said circumstances without delay and at the first reasonable possible date. The invitation notice will mention that should the company act to cancel or stop the event detailed in section 8.1 above, that constitutes the cause for convening the meeting, and notify the Trustee in writing, to the Trustee's reasonable satisfaction, and before the date of meeting, the invitation to the Debentures Holders meeting, as stated, will be cancelled. It is clarified that the aforegoing provision should not prevent in any way the Trustee from convening a meeting of the holders of the Debentures of the relevant series at an earlier date, should the Trustee consider that the 30 day period as mentioned above, will endanger the rights of the holders, provided that the Trustee is not entitled to call an immediate payment of the Debentures, but only pursuant to the dates detailed in this 8.3 section.
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|
8.4.
|
If, until the date of the meeting, any of the events detailed in section 8.1 above was not cancelled or removed, and the decision of the Debentures Holders meeting was received as an extraordinary decision (as defined in section 1.5 above) the Trustee will be required, within a reasonable period of time, and as soon as possible, to call the immediate payment of the whole unpaid balance of the Debentures of the relevant Series, on condition it gave the Company a 15 days written warning of its intention to do so, and the event for which the decision was received was not cancelled or removed during this period.
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|
8.5.
|
The notification of the extraordinary decision, as mentioned above, taken by the meeting of the Debentures Holders of the relevant series, as stated, will be sent by the trustee to the Company and will constitute an advance written warning to the Company as to its intention to call the immediate payment as stated.
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|
8.6.
|
The Trustee is entitled, at its discretion, to shorten the said 30 days period (in section 8.2.1 above), and/ or the said 15 warning days (in section 8.4 above) if the Trustee considers that a postponement in the immediate payment of the Company's debt, or any postponement in the invitation of the meeting endangers the rights of the Debentures Holders, but in any case the Trustee will not do so without sending the company a written prior notice , mentioning the reasons for the reduction, and on condition that no satisfactory answer was received from the Company on this matter within 2 business days from the said notice date.
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9.
|
Claims
and
procedures by the Trustee
|
|
9.1.
|
In addition to any provision of the Deed as a right and independent authorization, the Trustee shall, without giving additional notice, take all such steps, including legal proceedings, as it deems fit and subject to the provisions of any law, for purposes of safeguarding the rights of the debenture holders.
|
9.2.
|
Nothing in the foregoing shall prejudice and/or derogate from the Trustee’s rights to commence legal and/or other proceedings also if the Debentures have not been made immediately due and payable, all of which is intended to safeguard the debenture holders and/or for purposes of the grant of any order in relation to the affairs of the trust, and subject to the provisions of any law. Notwithstanding the contents of this Clause 9, it is clarified that the right to make the Debentures immediately due and payable shall only arise in accordance with the provisions of Clause 8 above and not pursuant to this Clause 9.
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|
9.3.
|
The Trustee is entitled, at its exclusive discretion, and without the need to notify the Company, to apply to the appropriate court of law to receive instructions concerning any matter related to this Deed and/ or resulting from it.
|
|
9.4.
|
The Trustee shall be bound to do as prescribed in subsection 9.1 above, should it be requested to do so by an extraordinary decision taken by the General meeting of the Holders of the Debentures of the relevant Series, unless it considered that in the circumstances it will not be rightful and/ or reasonable to do so, and applied to the Court to receive instructions on the matter in hand, on the first reasonable date.
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|
9.5.
|
The Trustee is entitled, prior to proceeding as stated above, to convoke a meeting of the Debentures Holders, of the series it serves as a Trustee for, in order for the Holders to decide, by an extraordinary decision, what steps should be taken for the realization of their rights, as arising from this Deed. The Trustee shall be entitled as well to re-convoke the meeting of the Holders of the Debentures of the relevant Series, in order to receive instructions concerning the management of the above steps. The Trustee will act in the above mentioned cases with no delay and at the first reasonably possible time, and in accordance with the provisions of the second addendum to the Deed, regarding the invitation of the Holders' Meeting. In order to remove any doubt it will be clarified that the Trustee is not entitled to delay steps for the demand of immediate payment the Debentures Holders meeting decided upon pursuant to section 8 above, if the delay might damage the holders' rights.
|
|
9.6.
|
Pursuant to the provisions of this Deed of Trust, the Trustee is entitled but not required to convoke at any time a General Meeting of the Holders of the Debentures its serves as a trustee for, in order to discuss and/ or to receive instructions on any matters concerning this Deed. In order to remove any doubt it is clarified that the Trustee shall not be entitled to delay the invitation to the meeting when this delay might damage the rights of the Holders of the Debentures of the relevant Series, and all pursuant to the provisions of the second addendum to the deed, concerning the Holders' Meeting.
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|
9.7.
|
Whenever the Trustee is required pursuant to the provisions of this Deed to engage in any action, including opening of procedures or filling a claim, as per the request of the Holders of the Debentures of the relevant Series, as stated in this section, the Trustee will e entitled to abstain from engaging in this action until it receives instructions from the holders' meeting and/ or instructions from the court of law it applied to, at its discretion, for instructions, when it considered that those instructions are necessary . In order to remove any doubt it will be clarified that the Trustee is not entitled to delay steps for the demand of immediate payment the Debentures Holders meeting decided upon pursuant to section 8 above, if the delay might damage the holders' rights.
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|
9.8.
|
In cases as stated in sections 9.5 and 9.7 above, the Trustee will convoke the meeting without delay, and will not abstain from acting (including actions necessary for the protection of the Debentures Holders of the relevant series rights) if this abstention might endanger the rights of the Holders of Debentures of the relevant series.
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10.
|
Distribution
of
the receipts
|
|
11.
|
Authority to
request
payment to holders through the Trustee
.
|
|
12.
|
Authority to delay cash distribution.
|
|
12.1.
|
Notwithstanding with the above section 10, should the monetary amount received as a result of the procedures stated above, to be distributed at any time, as stated in the same section, be less than 1 million NIS, the Trustee will not be required to distribute it, and it will be entitled to invest the said amount, in whole or in part, in investments allowed pursuant to this Deed, and to replace those investments from time to time with other allowed investments, at its discretion.
|
|
12.2.
|
Should the above mentioned investments, together with their profits and additional amounts to be received by the Trustee for payment to the Debentures Holders, if any, reach an amount sufficient for the payment the above mentioned total, the Trustee will be bound to use the said amount , according to the priorities in section 10 above, and distribute the said amount on the next date of the principal or the interest payment. Notwithstanding with the above, the payment of the Trustee fee and its expenses will be settled out of the said amounts, immediately on the due date of the fee payment and/ or immediately after the payment of the expenses by the trustee (as the case may be), even if the total amount received by the Trustee is less than 1 million NIS.
|
|
12.3.
|
Notwithstanding with the above, the Debentures Holders are entitled, upon an extraordinary decision, to request the Trustee to pay them the accumulated amounts, even when they did not reach 1 million NIS.
|
|
13.
|
Notice regarding
distribution
and deposit with the Trustee
|
|
13.1.
|
The Trustee will notify the Debentures Holders about the place and the time of any payment of the payments mentioned in sections 10 and 12 above, 14 days in advance, by a notification to be transmitted as set forth in section 24 hereinafter.
|
|
13.2.
|
After the determinant date in the notification, the Debentures Holders will be entitled to interests according the fixed rate of the Debentures, only for the remainder of the principal amount (if any), less the amount paid, or offered to them for payment as stated.
|
|
13.3.
|
The amounts distributed as per section 13.1 above, will be considered as payments on the account of the payment of the Debentures.
|
|
13.4.
|
Any amount due to a Debentures Holder that was not actually paid on the due date, for reasons not dependent on the Company, while the Company was willing to pay it, will not accumulate interest and linkage differences after the due date, and the Debenture Holder will be entitled to those amounts only, it was entitled to on the due date of the said payment on the principal, the interest or the linkage differences .
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|
13.5.
|
The Company will deposit with the Trustee within 15 business days from the date set forth for this payment, the payment amount that was not paid on time, as stated in subsection 13.4 above, and notify in writing, to the addresses known to it, the Debentures Holders about the said deposit, and the above deposit will be considered as settlement of that payment, and in case of complete repayment of the Debentures, as redemption of the Debentures as well.
|
|
13.6.
|
The Trustee will invest the money transferred to it as stated in subsection 13.4 above, in allowable investments pursuant to this Deed, as stated in section 16 hereinafter). Should it do so, it will owe the creditors of those funds only the compensation received from the realization of the investments, less reasonable expenses related to the said investment, including those related to the management of the trust accounts, the reasonable fees less mandatory payments related to the trust account and the Trustee's expenses. The Trustee will transfer money from the said funds to the Debentures Holders entitled to them, less its reasonable expenses as detailed above, and this as close as possible following the presentation, to the Trustee, of reasonable proofs and certificates showing their entitlement to those amounts, and, as the case may be, - reasonable profs and certificates , which will be to the satisfaction of the Trustee, concerning the removal of the obstacle for the actual payment to the Holders.
|
|
13.7.
|
The Trustee will keep these funds and invest them as stated, until the ending of one year from the final repayment of the Debentures (or until the payment date to the Debentures Holders, whichever occurs sooner). After this date, the Trustee will transfer to the Company the funds as stated in section 13.6 above, that were not distributed by it to the Holders and remained in its hands at that date. The Company will hold those funds in trust for the Debentures Holders, entitled to them, and in respect to the funds transferred to it by the Trustee as stated above, the provisions of subsection 13.6 above will apply, with the required modifications.
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|
13.8.
|
The Company will confirm to the Trustee in writing the holding of the funds by it, and their receipt in trust for the said Debentures Holders.
|
|
13.9.
|
The Company will hold those funds in trust for the Debentures Holders, entitled to them, for an additional year from the day they were transferred to it by the Trustee, and will not use them, and will invest them pursuant to the provisions of this Deed. Funds not demanded a Debentures Holder two years from the final repayment of the Debentures, will be transferred to the Company, and it will be entitled to use them for any purpose whatsoever.
|
14.
|
Receipt from the
Debentures
Holders and from the Trustee
.
|
|
14.1.
|
A receipt signed by the Trustee concerning the deposit of the sums of the principal, the interest and the linkage differences in its possession to the benefit of the Debenture Holders, will release the Company categorically in all matters related to payment of the sums stated on the receipt
.
|
|
14.2.
|
A receipt signed by Debenture Holder for the sums of the principal, the interest and the linkage differences that have been paid thereto by the Trustee for that Debenture will release the Trustee categorically in all matters related to payment of the sums stated on the receipt
.
|
|
14.3.
|
Funds distributed as stated in section 13 above will be considered as payment on the account of the repayment of the Debentures.
|
|
15.
|
Presentation of a Debenture to the Trustee and Noting Concerning Partial Payment
|
|
15.1.
|
The Trustee shall be entitled to demand that a Debenture Holder present to the Trustee, at the time of payment of any interest or partial payment of principal, interest and linkage differences in accordance with Sections 10,12 and 13 hereof, the debenture certificate for which the payments are being made, and the Debenture Holder shall be bound to present the debenture certificate as stated, without any obligation from the part of the Debentures Holders to any payment and/or expenditure and/or responsibility and/or liability.
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|
15.2.
|
The Trustee shall be entitled to note on the Debenture certificate a comment concerning the sums paid as above and the date of payment thereof.
|
|
15.3.
|
The Trustee shall be entitled, in any special case, at its discretion, to waive the presentation of the Debentures after it is given, by the Debenture Holder, a statement of indemnification letter and/or a sufficient guarantee, to its satisfaction, for damages that may be sustained, due to
not noting the said comment, as it deems fit.
|
|
15.4.
|
Notwithstanding the foregoing, the Trustee shall be entitled, at its discretion, to make notes in other ways concerning such partial payments.
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|
16.
|
Investments of
Funds
|
|
17.
|
Company's
undertakings
toward the Trustee
|
|
17.1.
|
To continue uninterruptedly to conduct its business in a regular and proper manner .
|
|
17.2.
|
To keep regular account books in accordance with generally accepted accounting principles. To keep the books and the documents used for them as references and allow any appointed representative of the Trustee to inspect at any reasonable time, to be coordinated with the Company in advance, any such book and/or document as required by the Trustee, and this to the extent required, in accordance with its reasonable discretion, for applying and exercising the authorities, powers and authorizations of the Trustee according to this Deed of Trust., provided the Trustee acts in good faith in conformance with the confidentiality obligations as stated in section 17.4 hereinafter. For this matter, an appointed representative of the Trustee is a person appointed by the Trustee for the aforementioned inspection, and this subject to a written notification of the Trustee to be delivered to the Company, as the case may be, and include the Trustee's confirmation that the aforementioned representative undertook towards the Trustee and the Company to keep in confidence any information that is given to it in the framework the activities performed for the Trustee.
|
|
17.3.
|
To notify the Trustee in writing at the earliest reasonably possible, and not later than 4 business days after it was informed, of any foreclosure of the Company's assets( as defined in section 8.1 above) appointment of a receiver for the Company's assets, a special director and or a temporary or permanent liquidator, and to take, at its own expenses, at the soonest, all the reasonable steps for the removal of such a foreclosure or the cancellation of the receivership, as the case may be.
|
|
17.4.
|
To notify the Trustee in writing, as soon as possible, and not later than 4 business days, of the occurrence of any event of the events detailed in section 8.1 above (including its subsections.
|
|
17.5.
|
To give the Trustee any copy of any document or information the Company transferred to the Debentures Holders of the relevant Series, if any.
|
|
17.6.
|
The Company shall give the Trustee or its appointed representative that shall be an advocate and/or a certified accountant (and that the Trustee shall notify the Company of its appointment) additional information on the Company (including explanations, documents and calculations related to the Company, its business or assets) and shall instruct its accountant and legal advisors to do so, as reasonably requested in writing by the Trustee, and this and this to the extent required, in accordance with its reasonable discretion, for applying and exercising the authorities, powers and authorizations of the Trustee and/ or its representatives according to this Deed of Trust, including information that may be essential and required for the protection of the rights of the Holders of the Debentures of the relevant Series, provided the Trustee acts in good faith in conformance with the confidentiality obligations as stated in section 17.4 hereinafter.
|
|
17.7.
|
To give the Trustee, not later than 30 days after the date of the publication of a Shelf Offering Report, or the expansion of the series (in any manner, including but not limited to a private issuance or by a Prospectus), a clearing schedule for the payment of the Debentures of the relevant Series (principal and interest) in an Excel file.
|
|
17.8.
|
To summon the Trustee to the General Meetings (whether regular General Meetings or Extraordinary General Meetings of the Company shareholders) without granting the Trustee voting rights in these meetings. The publication of the invitation to the General Meeting of the Company's shareholders in the MAGNA system of the Securities Authority, shall be construed as a faithful invitation for the requirements of this section.
|
|
17.9.
|
To give the Trustee the reports as detailed in section 29 hereinafter.
|
|
17.10.
|
To undertake any action reasonably required and/or necessary , as per the provisions of any law validating the exercise of the authorities, powers and authorizations of the Trustee and/ or its representatives according to this Deed of Trust.
|
|
17.11.
|
On each 31 of December of each year, and as long as this Deed is in force, the Company shall present to the Trustee a declaration stating that at its best knowledge, during the period starting with the Debentures issue date or the period starting with the date of the previous declaration presented to the Trustee as per this subsection, (the latest), and until the date of the presentation of the declaration, there was no fundamental breach of the provisions of the Deed of Trust and its appendices by the Company ( including in regard to the provisions of the specific sections in regard to which the Trustee requested the Company's declaration), unless this was stated in the said declaration.
|
|
17.12.
|
The Trustee undertakes, by its signature on this Deed of Trust, that it and all its employees will keep any information communicated as stated in this section 17 in confidence. It is clarified that subject to the law, the transfer of to the Debenture Holders for making a decision that is related to their rights in accordance with the Debentures or for giving a report on the state of the Company does not constitute a violation of its undertaking for confidentiality, to the extent that this information is reasonably needed for protecting their rights in accordance with the Debentures, this Deed and any law.
|
|
18.
|
Additional
Undertakings
|
|
18.1.
|
To the extent that it will be required according to the provisions of section 18.1 11, will transfer and submit to the Trustee the consideration for the Debentures called for repayment, as per their terms
|
|
18.2.
|
It will declare the declarations and/or sign all of the documents and/or execute and/or have executed all of the actions that are necessary and/or required by law for validating the exercise of the authorities, the powers and the authorizations of the Trustee and/or the agent thereof as per this Deed of Trust
|
|
18.3.
|
It will give all of the notices, the orders and the instructions that the Trustee considers beneficial and will demand them for the application of this Deed.
|
|
19.
|
Reporting by the
Trustee
|
|
19.1.
|
[deleted]
|
|
19.2.
|
The Trustee shall prepare, at the end of each calendar year from the date of the Shelf Offering report, an annual report on the trust affairs ("
The Annual Report
").
|
|
19.2.1.
|
Current details of the course of affairs of the Trust in the elapsing year;
|
|
19.2.2.
|
A report on extraordinary events concerning the Trust that have occurred during the elapsing year.
|
|
20.
|
The
Trustee's
fee
|
|
21.
|
Special
Authorities
|
|
21.1.
|
The Trustee is entitled, within the performance of the Trust affairs according to this Deed,, to order the opinion or written advice of any advocate, certified public accountant, appraiser, assessor, surveyor, mediator or other expert, whether such an opinion and/or advice has been prepared at the request of the Trustee and/or by the Company and shall be allowed to act in accordance with its conclusions, and the Trustee shall not be held accountable for any loss or damage caused as a result of any activity or failure undertaken by it when agreeing to the aforesaid advice or opinion, unless being found liable of negligence (except negligence exempted by law, as shall be from time to time) and/ or of bad faith and/of malice by a court ruling. The trustee will make available to the Company a copy of such an opinion or advice, to be reviewed by the Debentures Holders and the Company, upon demand, unless the Trustee considers that such a reviewed is detrimental to the Debentures Holders rights. The Company shall assume all the reasonable expenses for the employment of the advisors appointed as aforementioned, should the Trustee notify the Company in advance of its intention to receive an expert opinion or advice as aforesaid.
|
|
21.2.
|
Any such advice and/or opinion may be given, sent or received by a letter, telegram, facsimile and/or any other electronic data transfer medium and the Trustee shall not be held accountable for any activity undertaken by it by consenting to the advice or opinion or for any information sent by one of the above mentioned manners, should they include any errors or not be authentic, unless the errors or the lack of authenticity could have been found under a reasonable examination, and unless it did not act negligently (except negligence exempted by law, as shall be from time to time) and/ or in bad faith and/of maliciously. It is clarified that the documents shall be transferrable, on one hand, and the Trustee is entitle to relay upon them, on the other side, only where they are received in a clear manner, and when no difficulty is encountered in their reading. In any other case, the Trustee will be responsible to request their receipt in such a manner as to enable their proper reading and understanding.
|
21.3.
|
The Trustee will not be requested to notify any party of the signing of this Deed, and is not allowed to intervene in any manner in the management of the business or affairs of the Company. The provisions of this section do not limit the Trustees activities that should be performed according to this Deed of trust.
|
|
21.4.
|
The Trustee shall faithfully use the powers, authorizations and authorities granted by this Deed, as per its absolute consideration, and will not be responsible for any damage caused due to a misjudgment, unless the Trustee acted in negligently (except negligence exempted by law, as shall be from time to time) and/ or in bad faith and/of
maliciously.
|
|
22.
|
The Authority of the Trustee to employ proxies
|
|
23.
|
Indemnification
|
|
23.1.
|
The Company and the Debentures Holders (at the relevant determinant date as stated in section 23.5 hereinafter, each for its obligations as stated in section23.3 hereinafter) , as the case may be, undertake hereby to indemnify the Trustee and any person serving in its company, its employees and its shareholders ("
Entitled to indemnification")
:
|
|
23.1.1.
|
For any charge according to a court rule (for which no stalling of procedures was pronounced) or according to a compromise that was conclude (to the extent that if the compromise is related to the Company, the Company agreed to the compromise) on the account of activities performed by the persons entitled to indemnification, or that they have to perform pursuant to the provisions of the Deed and/or the law and/ or the provisions of a competent authority and/or any law and/or upon the request of the Debentures Holders and/or the Company; etc
|
|
23.1.2.
|
For the fees of the persons entitled to indemnification and any reasonable expenses incurred and/or to be incurred in the execution of the trust, that upon their reasonable opinion were required for the execution of the above and/or as a result of the exertion of authorities and authorizations pursuant to this Deed.
|
|
23.1.3.
|
The persons entitled to indemnification shall not request indemnification in advance on a matter that is urgent (this without prejudice to their rights to request indemnification post factum)
|
|
23.1.4.
|
The persons entitled to indemnification acted in good faith and this activity was performed within the fulfillment of their duty, according to the provisions of law and this Deed.
|
|
23.1.5.
|
The persons entitled to indemnification were not negligent (except negligence exempted by law, as it may be from time to time);
|
|
23.1.6.
|
The persons entitled to indemnification did not act maliciously;
|
|
23.1.7.
|
The trustee notified the Company in writing, immediately after he was informed, of any claim and/or request as stated, and enabled the Company to handle the procedures, unless the procedures are handled by the Trustee's insurance company or if the Company has a conflict of interests.
|
|
23.2.
|
Without prejudice to the "Indemnification Obligation", of section 23.1 above, whenever the Trustee will be required by the provisions of this Deed and/ or the law and /or the instructions of a competent authority and/or any law and/or upon the demand of the Debenture Holders and/or the demand of the Company to perform any action, including, but not limited to instigating proceedings or filing claims upon the demand of the Debenture Holders, as stated in this Deed, the Trustee shall be allowed to abstain from taking any such action until it receives, to its satisfaction, a monetary deposit for the covering of the "Indemnification Obligation" (
"the funding cushion
") as a first priority from the Company, and if the Company does not deposit for any reason whatsoever the funding cushion, in whole or in part, the Trustee will request the Debentures Holders, holding the Debentures on the determinant date (as per section 23.5 hereinafter) to deposit in its hands the amounts of the funding cushion (in whole or its balance, as applicable) each one according to its 'relative part' (as per the term definition hereinafter) , should the Debentures Holders not deposit the amounts of the funding cushion (in whole or part, as applicable), the Trustee shall not be required to perform the relevant action or procedures. However, the foregoing does not exempt the Trustee from taking urgent action necessary for preventing material infringement to the rights of the Debentures Holders.
|
|
23.3.
|
The "Indemnification Obligation":
|
|
23.3.1.
|
Will be applicable to the Company
for
(1
) any actions taken in conformance with the provisions of the Deed of Trust for the protection of the rights of the Debentures Holders (including upon the demand of a Holder, in the circumstances detailed in this Deed, necessary for protection as stated);
and (2)
any actions taken upon the Company's demand.
|
|
23.3.2.
|
Will be applicable to the Holders holding on the determinant date (as per section 23.5 hereinafter) for (1) any actions taken upon the demand of the Debentures Holders (excluding aforementioned actions taken upon the demand of the Holders, in the circumstances detailed in this Deed, for the protection of the rights of the Debentures Holders) ;
and (2)
in case of non-payment by the Company of the amounts of the "Indemnification Obligation", (in whole or in part, as applicable), as per its obligation pursuant to section 23.3.1 above (subject to the provisions of section 23.6 hereinafter).
|
|
23.4.
|
Whenever:
(a)
the Company
will not pay
the amounts needed for the covering of the "Indemnification Obligation", in whole or in part, or
will not deposit
the amounts of the 'funding cushion' in whole or in part, as applicable; and/or
(b)
the Indemnification Obligation applies to the Holders, pursuant to the provisions of section 23.3.2 above and/or the Holders were requested to deposit the amounts of the 'funding cushion' in whole or in part as per section 23.2 above, the following provisions shall be applicable:
|
|
23.4.1.
|
The funds will be collected as follows:
|
|
23.4.1.1.
|
First
– the funds will be financed from the interest amounts and/or the principal the Company must pay to the Debentures Holders after the date of the required activity, and the provisions of section 11 above will be applicable;
|
|
23.4.1.2.
|
Second
– if according to the Trustees opinion, the deposited amounts for the 'funding cushion' is not sufficient for covering the "Indemnification Obligation", the Holders holding on the determinant date (as per section 23.5 hereinafter) shall deposit, according to their relative part (as this term is defined), the missing amount into the hands of the Trustee.
|
|
23.5.
|
The determinant date for the determination of the obligations of the Holder in regard to the Indemnification Obligation and/or the payment of the 'funding cushion' is as follows:
|
|
23.5.1.
|
Whenever the Indemnification Obligation and/or the payment of the 'funding cushion' are required due to a decision or an urgent action, necessary for preventing a material infringement to the rights of the Debenture Holders, and this without any prior decision of the Debentures Holders Meeting – the determinant date for the obligation will be the closing of the Trade Day of the day the action is taken, or the day the decision for taking the action is received by the Trustee, and if this day is not a Trade Day, than the previous Trade Day.
|
|
23.5.2.
|
Whenever the Indemnification Obligation and/or the payment of the 'funding cushion' are required according to the decision of the Debentures Holders Meeting – the determinant date for the obligation will be the determinant date for the participation in this meeting (as set forth in the invitation notification to this meeting), and the obligation will apply as well to a Holder that did not attend or did not participate in this meeting.
|
|
23.6.
|
The payment made by the Holders instead of the Company of any amount due by the Company according to this section 23, does not exonerate the company from its obligations for the said payment. Whenever the Holders had paid any amount due by the Company, according to this section 23, instead of the Company, the Trustee shall take steps for the collection of the said amounts from the Company, and if successful, those sums will be kept by the Trustee in Trust and used by it for purposes in the order of priority detailed in section 10 above (and all – except if the Debentures Holders of the relevant series decided otherwise, by an extraordinary decision).
|
|
23.7.
|
In regard to the priority of the reimbursing of the Holders that undertook the payments as per this section, from the receivables held by the Trustee, the provisions of section 10 will apply.
|
|
24.
|
Notices
|
|
24.1.
|
Any notice from the Company and/or the trustee to the Debenture Holders will be made by way of publishing an immediate report in the MAGNA system of the Securities Authority (the trustee is entitled to instruct the Company, and the Company shall be required to report immediately in the MAGNA system in the name of the Trustee any report in the format as forwarded in writing by the Trustee to the Company); and in the cases detailed hereinafter, the notice will be published in two widely distributed daily newspapers that are published in Israel in Hebrew; (a) an arrangement or settlement under Section 350 of the Companies Law; (b) merging. Any notice to be published or sent as above will be considered as having been delivered to the Debentures Holder on the day of its said publication (in MAGNA or the newspapers, as the case may be).
|
|
24.2.
|
Should the Company cease to be a reporting corporation as defined by law, or a corporation reporting according to chapter 3 e of the law, any notice from the Company and/or the Trustee to the debentures Holders will be made by registered mail to the last address of the registered Debentures Holders, as detailed in the Debentures Holders register and/or by publishing it in two widely distributed daily newspapers that are published in Israel in Hebrew. Any notice sent by registered mail will be considered as having been delivered to the Debentures Holder three (3) business days after being sent by registered mail.
|
|
24.3.
|
Copies of the notices and the invitations sent by the Company to the Debentures Holders will be sent to the Trustee as well. It is clarified that, the said notices and invitation do not include current Company reports to the public. The copies of the notices and the invitations sent by the Trustee to the Debentures Holders will be sent by it to the Company as well.
|
|
24.4.
|
Any notice or demand from the Trustee to the Company or from the Company or on its behalf to the Trustee, may be sent by registered mail to the addresses sated in the Deed of Trust (or to another address to be notified by one party to the other in writing) or by e-mail, with a receipt confirmed by return e-mail (not automatic) by the receiving party, or by transmission by facsimile (with telephonic confirmation of the receipt by the addressee), or by courier, and any such notice or demand will be considered as having been received by the party to which the notice was sent: three business days from the day of mailing by registered mail, one business day from the day of its transmission by facsimile or by e-mail; or on the first business day from its sending by courier or on the offering thereof to the addressee for receipt, as relevant.
|
|
25.
|
Waivers, settlements and changes to the terms of the Debentures and the Deed of Trust
|
|
25.1.
|
Pursuant to the provisions of the law, the Trustee is entitled from time to time and at any time, if it is convinced that this does not in its opinion infringe upon the rights of the Debenture Holders of the relevant Series, to waive any violation or non-fulfillment of any of the debentures terms of the relevant Series, or this Deed of Trust by the Company.
|
|
25.2.
|
Pursuant to the provisions of the law and subject to prior approval by an extraordinary decision given by the general meeting of the Debentures Holders of the relevant Series, where two or more holders of the relevant Series
,
who are attending by themselves or by proxy and together holding at least
fifty percent (50%) of the unsettled nominal value of the balance of the principal of the debentures of the relevant series
in circulation at the date scheduled for the meeting, or by a
deferred meeting,
where two or more holders who are attending by themselves or by proxy and together holding at least
ten percent (10%) of the said balance
were present, the trustee will be entitled whether before or after the principal of the debentures is called for repayment, to settle with the Company concerning any right or claim of the Debenture Holders of the relevant series, and agree with the Company to any arrangement concerning their rights, including waiving any right or claim of the Debenture Holders of the relevant series, and/or the Trustee towards the Company .
|
|
25.3.
|
Subject to the provisions of the Law, the Company and the Trustee are entitled, whether before or after the principal of the debentures is called for repayment, to change the Deed of Trust and/or the conditions of the Debentures, if one of the following is fulfilled:
|
|
25.3.1.
|
The Trustee is satisfied that the change does not adversely affect the Debenture Holders of the relevant Series , except for changes regarding the payment dates according to the Debentures terms (but including technical changes in the dates or in the determinant date for their payment) and the reduction of the interest rate set forth in the Debentures, subject to its written notification to the Debentures Holders of the relevant Series, and the trustee will be entitled to the reimbursement of the expenses by the Company as per section 20 above.
|
|
25.3.2.
|
The suggested change was approved by an extraordinary decision received in the general meeting of the Debentures Holders, where two or more holders of the relevant Series, who are attending by themselves or by proxy and together holding at least
fifty percent
(50%) of the nominal value of the unsettled balance of the principal of the Debentures were present, or in a deferred meeting, where two or more holders who are attending by themselves or by proxy and together holding at least
ten percent
ten percent (10%) of the said balance were present.
|
|
25.4.
|
The Company will sent the debentures Holders a written notice of any change as per section 25.1, 25.2, or section 25.3 above, without delay and as soon as possible its execution.
|
|
25.5.
|
In any case of use of the right of the Trustee in accordance with this section, the Trustee shall be entitled to demand that the Debenture Holders of the relevant series give to it or to the Company their Debentures certificates, for noting a comment concerning any such settlement, waiver, change or amendment and according to the demand of the Trustee, the Company shall note such a comment in the certificates that are given to it. In any case of use of the right of the Trustee pursuant to this section, the Trustee shall announce this in writing, to the Debenture Holders of the relevant series without delay and as soon as possible.
|
|
26.
|
Register of Debenture Holders
|
|
26.1.
|
The Company shall keep and maintain in its registered office a register of the Debenture Holders, listing the names of the Debentures Holders, their addresses and the number and nominal value of the Debentures registered to their name. The register will also list any transfer of title to the Debentures. The Trustee and any Debenture Holder will be entitled, at any reasonable time, to inspect this Register. The Company is entitled to close the register from time to time, for a period or periods that do not exceed an aggregate of thirty days a year.
|
|
26.2.
|
The Company will not be required to note in the Registers of Debenture Holder any notice concerning explicit, implicit or putative Trust, or hypothecation or pledging of any kind or any equity, claim or offset right or any other right, concerning the Debentures. The Company will only recognize the ownership by the person whose name the Debentures are listed under. Its legal heirs, administrators of estate, or executors of the will of the registered owner, or any person who will be entitled to the Debentures due to the bankruptcy of any registered holder (and in the case of a corporation - due to its liquidation) will be entitled to register as the Holders thereof, after giving evidence that in the opinion of the Company is satisfactory for proving their right to be registered as the Holder.
|
|
27.
|
Certificates and certificates split
|
|
27.1.
|
For Debentures registered under the name of one Holder, one certificate will be issued, or, as per its request, several certificated will be issued (the certificates mentioned in this section will referred to hereinafter as: "
The Certificates
"), each in a minimum quantity of NIS 1,000 (one thousand) nominal value (hereinafter "
the minimum quantity
");
|
|
27.2.
|
Each Certificate may be split into Certificates in such a manner that the total nominal value of the debentures thereby included equals the total nominal value of the debentures that were included in the certificate whose split was requested, on condition that the nominal value of each certificate will not be lower than the minimum quantity. The split will be performed subject to a split request signed by the registered owner of the Debenture, object of the Certificate whose split is requested, against the presentation of the Certificate whose split is requested to the Company, at its registered office. The split will take place within 30 days from the end of the month in which the certificate was presented, together with the split request at the Company's registered office. The nominal value of each of the new Debentures certificates to be issued following the split will be given in whole NIS. All the expenses related to the split, including any imposts, if any, will be borne by the party requesting the split.
|
|
28.
|
Expiry of the Tenure of the Trustee
|
|
28.1.
|
The Trustee will be entitled to resign from its functions at any time, and after giving written notice to the Company two) months in advance, elaborating the reasons for resignation. Subject to any law, the Trustee resignation will take effect only after it is confirmed by the court, from the day established in the court confirmation. In ny case the Trustee that its tenure expired will continue to serve in its position until the appointment of another Trustee in its place for the same Series.
|
|
28.2.
|
The Securities Authority is allowed to apply to the Court with a motion to conclude the tenure of the Trustee, in accordance with Section 35 N of the Securities Law, or any other provision that will replace Section 35 N of the Securities Law.
|
|
28.3.
|
The trustee will cease to serve should it be revealed that it cannot continue to serve due to a change in the provisions of the law or the regulations applicable to its qualifications to serve as a Trustee, including the case when the obstacle is related to the listing of the Debentures for trade on the Stock Exchange. To this end, "obstacle" will also be considered a request from the Securities Authority for the conclusion of the Trustee's tenure. In this case, a new trustee will be appointed, that will be recommended by the Company, subject to the approval of the Debentures Holders Meeting, as stated in section 28.5 hereinafter. The Trustee will waive any claim and/or demand towards the Company concerning its replacement by another Trustee, should it cease to serve as a trustee subject to this subsection , and this without prejudice to the provisions of section 28 hereinafter.
|
|
28.4.
|
The Company will notify the Debenture Holders of any such event concerning the Trustee's tenure.
|
|
28.5.
|
The Holders of ten percent (10%) of the nominal value of the unsettled balance of the Debentures principal of the relevant series and/or the Company, are entitled to call a general meeting of the Debenture Holders of the relevant Series, and it is allowed to decide, according to a vote of two or more Holders, or their representatives, of at least seventy five percent (75%) of the said balance, for the transfer of Trustee from its duty. In this case the provisions of section 28.5 hereinafter will be applicable.
|
|
28.6.
|
In the case of expiry of the Trustee tenure, the court is entitled to appoint another Trustee that should be a registered company in Israel, whose main line of business is the performance of trusts, and that complies with the qualifications required by law and this for a period and under conditions as it deems fit. A trustee that its tenure had expired, will continue to serve in its position until the appointment of another Trustee in its place for the same Series.
|
|
28.7.
|
It is clarified that any appointment of a replacement Trustee according to the provisions of section this 28, will be subject to the approval of the meeting of the Debenture Holders of the relevant Series as well, in a decision to be approved by the vote of two (or more holders), or their representatives, holding together at least fifty percent (50%) of the nominal value of the unsettled balance of the principal of the Debentures of the relevant series.
|
|
28.8.
|
Each new trustee will have the same powers, authorities and other authorizations as the Trustee whose tenure expired, and may act in all senses as though appointed as the Trustee from the outset. It is clarified that the obligations of the Trustee to take actions pursuant to the Deed of Trust and the Debentures will not expire until the transfer of the trust funds, assets and rights, if any, to the new Trustee is completed. The Trustee undertakes to act in cooperation with the company and the replacing Trustee for the transfer thereof. It is clarified that the termination of the Trustee tenure should not detract from the rights, claims or complains the Company and /or the debentures Holders of the relative Series might have against the Trustee, if any, that their cause preceded the date of the expiration of the Trustee tenure, and it does exonerate the Company and/or the Debenture Holders of the relevant series, from any obligations under any law. In addition, the termination of the Trustee tenure should not detract from the rights, claims or complains the Trustee may have against the Company and /or the debentures Holders of the relative Series, if any, that their cause preceded the date of the expiration of the Trustee tenure, and it does exonerate the Company and/or the Debentures Holders of the relevant series, from any obligations under any law
|
|
28.9.
|
The Company will publish an Immediate Report in any event of Trustee resignation and/or appointment of another Trustee instead.
|
|
29.
|
Reporting to the Trustee
|
|
29.1.
|
In addition to the provisions of section 16 above, the Company will submit to the Trustee, as long as not all the Debentures are repaid:
|
|
29.1.1.
|
Controlled financial statements of the Company, for the fiscal year ended December 31 of the last year, immediately after their publication by the Company.
|
|
29.1.2.
|
Any publication of financial results of the Company, immediately after their publication by the Company.
|
|
29.1.3.
|
Copy of any document the Company submitted to the Debentures Holders.
|
|
29.1.4.
|
Reports on any change in the Debentures rating or the discontinuation of the rating.
|
|
29.2.
|
The publication of the reports and/or the above information in MAGNA by the Company shall be construed as forwarded to the Trustee , for the purposes of this section 29.
|
|
30.
|
Applicability of
the
Securities Law
|
|
31.
|
Meeting of
Debenture
Holders
|
|
32.
|
Early
redemption
of the Debentures (Series B to D), and the Debentures (Series E to G) initiated by the Stock Exchange
|
|
32.1.
|
Within 45 days of the decision of the Stock Exchange Board of Directors on the delisting from trade therein, the Company will announce a date for the early redemption, on which the Debenture (Series B to D) Holder and the Debenture (Series E to G) Holder would be allowed to redeem them. The Company will pay the Holder the principal with the addition of linkage differences and interest, as per the Debenture (Series B to D) terms and the Debenture (Series E to G) terms accrued until the actual redemption date.
|
|
32.2.
|
The announcement of the date of early redemption will be published in an immediate report to be forwarded to the Securities Authority and the Stock Exchange, and in two widely distributed daily newspapers that are published in Israel in Hebrew, and will be sent in writing to all the registered Debenture (Series B to D) holders and Debenture (Series E to G) holders.
|
|
32.3.
|
The date of early redemption of the Debentures in Series B to D shall not be earlier than 17 days from the date of publication of the announcement or later than 45 days of the said date, but shall not fall in the period between the determinant date for the payment of interest and the date of its actual payment. Notwithstanding with the above, the early redemption of Debentures in Series E to G only shall not be earlier than 30 days from the date of publication of the announcement or later than 45 days of the said date, but shall not fall in the period between the determinant date for the payment of interest and the date of its actual payment.
|
|
32.4.
|
On the date of early redemption, the Company will redeem the Debentures ( Series B to D) and the Debenture (Series E to G)for which the Holders have requested the redemption, at their nominal value balance, with the addition of linkage differences and the interest accrued on the principal until the date of the actual payment , (the calculation of interest will be based on a 365-day year).
|
|
32.5.
|
The scheduling of a date of early redemption, as above, does not detract from the redemption rights provided for in the Debentures of any of the Debenture Holders that do not redeem them on the date of early redemption as above, and in the case of Debentures in Series E to G only, does not detract from the conversion rights, but the Debentures (Series B to D) and the Debentures (Series F to I) will be delisted from trade on the Stock Exchange and shall be, inter alia, subject to the consequent tax implications.
|
|
32.6.
|
The early redemption of the Debentures (Series B to D) and the Debentures (Series F to I) as aforesaid will not confer upon the Holder of Debentures redeemed as above the right to receive interest in respect of the period subsequent to the date of redemption.
|
|
33.
|
Early
redemption
initiated by the Company
|
|
34.
|
Addresses
|
|
35.
|
Applicable Law
and
Jurisdiction
|
|
36.
|
Certification for
reporting
to MAGNA
|
|
37.
|
General
|
B communications Ltd. |
Reznik, Paz, Nevo Trustees Ltd
|
|
1.
|
This certificate attests that B communications Ltd.. (hereinafter: “the
Company
”) shall pay on _______ date ____ in each of the years _____ through _____ (inclusive) __% of the nominal value of the Debentures in this Certificate to any Holder (subject to the terms listed in the overleaf) registered on the Debenture on the determinant date for such payment, all subject to the terms listed in the overleaf and in the Deed of Trust of August 31, 2010 between the Company on one side and Reznik, Paz, Nevo Trustees Ltd, and/or whoever shal serve from time to time as trustee for the Debentures Holders as per the Deed of Trust (The
Trustee
and the
Deed of Trust
, respectively).
|
|
2.
|
This Debenture bears interest at the annual interest rate specified above and is payable on the dates, all subject to the terms listed in the overleaf.
|
|
3.
|
This Debenture will be [linked/unlinked], (principal and interest) all subject to the terms listed in the overleaf.
|
|
4.
|
This Debenture is issued as part of Debentures Series____ under terms that are identical to the terms of this Debenture, (the
Relevant Series
) which is issued pursuant to the terms listed in the overleaf and the Deed of Trust, and are not secured by any collaterals.
|
|
5.
|
It is clarified that the provisions of the Deed of Trust will form an integral part of the provisions of this Debenture and will be binding to the Company and to the Holders of Debentures included in said Series. In any case of a contradiction between the provisions of this Certificate and those of the Deed of Trust, the provisions of the Deed of Trust shall prevail.
|
|
6.
|
The payment on the principal and the last installment will be made against delivery of the Debenture to the Company at its registered office, as stipulated in the terms on the overleaf, or anywhere else as advised by the Company, not later than five Business Days before the payment due date.
|
|
7.
|
The Debentures in this Series will have an equal ranking among each other (pari passu) without a preferential right over one another.
|
|
8.
|
The Company is allowed, at any time and from time to time, (whether by private offering or by public offering), at its exclusive discretion, without needing the consent of the Debenture Holders or the Trustee or the need to report to any of them including to a Related Corporation, to issue, a different type of Debentures or additional Debentures Series or securities of any type and kind , whether granting a right of conversion into shares of the Company or not granting such right under interest, linkage, securities, payment and other terms, as the Company sees fit, whether they are preferable to the terms of the Debentures equal to them or inferior to them. In addition the Company reserves the rights to expand the Series, from time to time at its exclusive discretion, pursuant to the provisions of any law and Section 2.3 of the terms listed on the overleaf.
|
|
9.
|
Any transfer of Debentures is subject to the transfer limitations detailed in section 8 of the terms listed in the overleaf of the Debenture Certificate.
|
|
1.
|
This certificate attests that B communications Ltd.. (hereinafter: “the
Company
”) shall pay on _______ date ____ in each of the years _____ through _____ (inclusive) __% of the nominal value of the Debentures in this Certificate to any Holder (subject to the terms listed in the overleaf) registered on the Debenture on the determinant date for such payment, all subject to the terms listed in the overleaf and in the Deed of Trust of August 31, 2010 between the Company on one side and Reznik, Paz, Nevo Trustees Ltd, and/or whoever shall serve from time to time as trustee for the Debentures Holders as per the Deed of Trust (The
Trustee
and the
Deed of Trust
, respectively).
|
|
2.
|
This Debenture bears interest at the annual interest rate specified above and is payable on the dates, all subject to the terms listed in the overleaf.
|
|
3.
|
This Debenture will be [linked/unlinked], (principal and interest) all subject to the terms listed in the overleaf.
|
|
4.
|
This Debenture is issued as part of Debentures Series____ under terms that are identical to the terms of this Debenture, (the
Relevant Series
) which is issued pursuant to the terms listed in the overleaf and the Deed of Trust, and are not secured by any collaterals.
|
|
5.
|
It is clarified that the provisions of the Deed of Trust will form an integral part of the provisions of this Debenture and will be binding to the Company and to the Holders of Debentures included in said Series. In any case of a contradiction between the provisions of this Certificate and those of the Deed of Trust, the provisions of the Deed of Trust shall prevail.
|
|
6.
|
The payment on the principal and the last installment will be made against delivery of the Debenture to the Company at its registered office, as stipulated in the terms in the overleaf, or anywhere else, as advised by the Company not later than five Business Days before the payment due date.
|
|
7.
|
The Debentures in this Series will have an equal ranking among each other (pari passu) without a preferential right over one another.
|
|
8.
|
The Company is allowed, at any time and from time to time, (whether by private or public offering), at its exclusive discretion, without needing the consent of the Debenture Holders or the Trustee, or the need to report to any of them including to a Related Corporation, to issue, a different type of Debentures or additional Debentures Series or securities of any type and kind , whether granting a right of conversion into shares of the Company or not granting such right, under interest, linkage, securities, payment and other terms, as the Company sees fit, whether they are preferable to the terms of the Debentures, equal to them or inferior to them. In addition the Company reserves the rights to expand the Series, from time to time, at its exclusive discretion, pursuant to the provisions of any law and Section 2.3 of the terms listed in the overleaf.
|
|
9.
|
Any transfer of Debentures is subject to the transfer limitations detailed in section 8 of the terms listed in the overleaf of the Debenture Certificate.
|
1.
|
General
|
"the Company"
|
B Communications Ltd
|
|
"
This
Deed
or
Deed of Trust"
|
This Deed of Trust including the addendums and appendices attached to it that constitute an intrinsic part of it
|
|
"The Trustee"
|
The trustee mentioned in the Preamble of this Deed and/or any person acting from time to time as trustee for the holders of the debentures pursuant to this deed.
|
|
"the Shelf Prospectus"
|
A Shelf Prospectus of the Company expected to be published in September 2010.
|
|
"Offering Report or
"Shelf Offering Report"
|
The offering of debentures of each of the series as per the Shelf Prospectus, made by means of an Offering Report, pursuant to the provisions of Section 23 a of the Law, wherein all the details that are specific to such offer will be completed, including the composition of the offered units, under the provisions of any law and in accordance with the Code and guidelines of the Tel Aviv Stock Exchange, prevailing at such time;
|
|
"The Law"
|
The Securities Law, 1968 and the regulations thereafter, as issued from time to time.
|
|
"Register"
|
The Debentures Holders register, as per section 26 in this Deed.
|
|
"Stock Exchange"
|
The Tel Aviv Stock Exchange Ltd.
|
|
Consumers prices Index or the Index
|
The price index known by the name of "the Consumer Price Index” which includes fruit and vegetables, as published by the Central Bureau of Statistics and Economic Research, including that index even if published by another official body or institute, and including any official index that replaces it, whether composed of the same data as the existing index or not. If it is replaced by another index that is published by such a body or institute, and that body or institute did not determine the ratio between it and the index thus replaced, the ratio will be determined by the Central Bureau of Statistics, and in the case of such a ratio not being determined, it will be determined by the Trustee for the relevant series, following consultation with economic experts of his choice;
|
The Index known at a specific date
|
The last known index before the same date;
|
|
The Basic Index for each relevant Series
|
The index known on a certain day, detailed in the Initial Offer Report of that relevant Series.
|
|
The payment index
|
The index known on the date of making any payment on the account of the principal and/or the interest. The Company will specify in the Initial Offer Report whether the principal and/or the interest of the debentures
are secured, as detailed hereinafter:
If the Initial Offer Report of the relevant Series specifies that the principal and/or the interest are linked to the index and that the
principal and/or the interest of the debentures
are secured, i.e:
in the event that the known index on the date scheduled for the relevant payment is less than the basic index, the payment index shall be the basic index.
If the Initial Offer Report of the relevant Series specifies that the principal and/or the interest are linked to the index and that the
principal and/or the interest of the debentures
are
unsecured , i.e. the payment index shall be the known index on the date scheduled for the relevant payment, even if this index is less than the basic index; In the case the Company did not determine this in the Initial Offer Report
, the debentures are unsecured.
|
|
Business Day
|
A day on which most
of the banks in Israel are open for conducting transactions
|
|
Business day abroad
|
Any day when a quote is set for a basic interest rate regarding foreign currency published in the Reuters news service or any other source of information detailed in the Initial Offer Report for Debentures from the relevant series;
|
|
"Principal"
|
The total nominal value of the debentures, of the relevant series,
|
|
"Extraordinary Decision"
|
A decision received by the general meeting of the debentures holders of the relevant series,
who are attending by themselves or by proxy and together holding at least
fifty percent (50%) of the unsettled nominal value of the debentures, of the relevant series
in circulation at the date scheduled for the meeting, or in a
deferred meeting, of the holders
who are attending by themselves or by proxy and together holding at least
ten percent (10%) of the said nominal value, and that was received (either by the original meeting or by the deferred meeting) by a majority of at least seventy five percent (75%) of all the participating votes, excluding the abstainers.
|
"the Registration Company"
|
The registration
company
.
of Bank Hapoalim ltd
|
|
"Debentures Series"
|
Debentures series, to be named Series B to D, when each of those debentures series shall have a total nominal value of up to NIS 2,000,000,000 and/ or series E to G of Company debentures, where each of the above debentures series will have a total nominal value of NIS 500,000,000, registered, whose terms are in conformance with the debentures certificate of the same series, to be issued from time to time by the Company, at its discretion.
|
|
Trade Day
|
Any day on which transactions are executed on the Stock Exchange;
|
|
Stock Exchange Clearing House
|
The Tel Aviv Stock Exchange Clearing House Ltd.
|
|
Foreign Currency
|
Not more than one currency per each series of debentures, as shall be specified in the Initial Offer Report of the Debentures in the relevant Series;
|
|
Foreign Currency Exchange Rate
|
The representative exchange rate of the foreign currency published by the Bank of Israel, or any official exchange rate of the foreign currency in relation to Israeli currency that shall supersede the aforesaid representative exchange rate and that shall be applicable at such time with respect to government bonds that are linked to the exchange rate of the said foreign currency, and if not known, as agreed between the Company and the Trustee.
|
|
The exchange rate known at a specific date
|
The latest exchange rate determined by the Bank of Israel prior to such date. However, during a period in which the Bank of Israel does not customarily determine a representative exchange rate, the known exchange rate at a specific date shall be the rate most recently determined by the Minister of Finance together with the Governor of the Bank of Israel for government bonds that are linked to the exchange rate of the foreign currency, and if not known, as agreed between the Company and the Trustee.
|
|
The basic exchange rate for each relevant series
|
The rate known on a specific day to be specified in the Initial Offer Report of the same relevant Series
|
|
The payment exchange rate
|
The rate known on the actual payment day
|
|
Prime or Prime interest
|
For a specific day: the average prime interest for the said day as published by Bank Hapoalim ltd, Bank Leumi Ltd and Israel Discount Discount Ltd.
|
Bank of Israel interest
|
The interest rate for unlinked NIS , announced by the Governor of the Bank of Israel from time to time as the declared interest rate of the Bank of Israel, or any interest rate as determined by any competent authority instead of the said rate.
|
|
Telbor Interest Rate
|
Tel Aviv Interbank Offered Rate - The interest rate for interbank loans in NIS, which is calculated based on interest bids submitted by several banks in Israel, for a period that shall be determined in the Initial Offer Report of the Debentures in the relevant Series, and that appears on the Reuters data distribution system on the Sample Day (if on Mondays through Thursdays at 13:00 or shortly thereafter and if on Fridays at 12:00 or shortly thereafter) or on any other source of information that shall be agreed between the trustee and the Company and specified in the Initial Offer Report of the Debentures in the relevant Series.
|
|
Libor Interest Rate
|
London Interbank Offered Rate - The interest rate offered on the interbank market in London for dollar deposits for a period that shall be determined in the Initial Offering Report of the Debentures in the relevant Series (week, month, three months, six months etc.), as quoted on the Sample Date at 11:00 London time or shortly thereafter on the Libor01 Page published by the Reuters News Agency or, if this Page is replaced by another page, as quoted on the Sample Date, at the said time or shortly thereafter, on the replacement page.
|
|
Euribor Interest Rate
|
Euro Interbank Offered Rate- The interest rate (in annual terms) offered on the interbank market for euro deposits for a period that shall be determined in the initial offer report of the debentures in the relevant series,(a week, a month, three months, etc) as quoted on the Sample Date at 11:00 Central Europe Time (CET) or shortly thereafter on the Euribor01 Page published by the Reuters News Agency (or, if this Page is replaced by another page, as quoted at such time or shortly thereafter on the replacement page) or on any other source of information that shall be specified in the Initial Offering Report of the debentures in the relevant series
|
|
Government bonds - variable interest
|
A series of government bonds with variable interest issued under the State Loan Regulations (Bonds of the type Government Bonds – Variable Interest) 2006, as published by the Government Debt Management Unit at the Accountant General. The relevant government bonds series and its redemption date will be specified in the Initial Offering Report of the debentures in the same series
|
The Basic Interest
|
The Libor or the Telbor or the Euribor or the or the Bank of Israel or the Prime or the one year MAKAM yield, or the interest of a government bond with variable interest, as shall be determined in the Initial Offer Report of the Debentures in the relevant Series
|
|
MAKAM
|
Bonds issued in series by the State of Israel as short term loans, made by the State of Israel under the provisions of the Short-Term Loans Law 5744-1984, and/or any law that shall replace it and/or be added, listed for trade on the Tel Aviv Stock Exchange , and that are sold by a bid by the Bank of Israel and bear no interest and/or linkage differences.
|
|
One year MAKAM
|
A MAKAM series in circulation, whose redemption date was scheduled for the period closest to the 12 month period from the Sample Date (as defined hereinafter) on condition that its redemption date is at least 10 months from the Sample Date. In case on no MAKAM as stated is available on the Sample date, the one-year MAKAM will be another series of NIS government bonds that do not bear linkage differences and variable interest, listed for trade on the Tel Aviv Stock exchange, and whose redemption date was scheduled for the period closest to the 12 month period from the Sample Date. The relevant MAKAM series and its redemption date will be specified in the Initial Offering Report of the debentures.
|
|
Sample Date for a specific interest period
|
For the Libor or Eurobor interest – the Business Day Abroad that takes place two (2) Business Days prior to the first day of the said interest period; for the Telbor interest - the Banking Business Day that takes place two (2) Business Days prior to the first day of the said interest period; for the interest of the Bank of Israel, the Prime interest, MAKAM yield and the interest of government bonds with variable interest – the first day of any interest period.
|
|
"Date scheduled for the meeting"
|
A date to be set by the person convening the debentures holders meeting and published in the invitation notice. This date will be the relevant date for proving the ownership of a person on the debentures object of this meeting, that will give him the rights, pursuant to the ownership demonstration as above, to participate in the meeting and take a vote.
|
2.
|
The Debentures
|
|
2.1.
|
The Debentures in this Certificate is part of a Series of up to three (3) Series of Debentures (Series B to D), where each of the Series will have a total nominal value of up to 2,000,000,000 and up to three (3) Series of Debentures (Series E to G), where each of the Series will have a total nominal value of up to 500,000.000, registered to name. The conditions for repayment (principal) of Debentures of each of the said series, the linkage basis (or the absence thereof) and the type of interest (or the absence thereof), or the margin above or under the base interest rate applicable to the principal of the Debentures in each of the aforementioned series, (or the absence thereof) as applicable, will be as detailed in sections 3 – 5 hereinafter.
|
|
2.2.
|
The Debentures Series E to G will be convertible to regular Company shares of a nominal value of NIS 0.01 each, on each trade day, starting with the date the said Debentures were listed for trade on the Stock Exchange, and until a few days prior to the termination of the period of the Debentures of the same series, except for a number of days prior to the date scheduled for partial redemption, in conformance with the Stock Exchange provisions, in force at the date of the Offering Report, as defined in section 1.5 of the Deed of Trust and until the date the partial redemption takes place , and this according to an exchange rate that should not be less than the nominal value of the regular shares at the date of the Initial Offering Report of the Debentures in Series E to G ( subject to adjustments as detailed in sections 6.1 and 6.3 hereinafter), under the conditions and in the manner detailed in the Initial Offering Report of the Debentures of each of the said Series, as those details will be set forth by the Company prior to the first offering of the Debentures of the relevant Series.. For additional details please see also section 6 hereinafter.
|
|
2.3.
|
Series
Expansion
|
|
2.4.
|
Issuance
of additional Debentures
|
|
2.5.
|
Securities
|
3.
|
The Principal
|
|
3.1.
|
The principal of the Debentures in Series B to D and Series E to G offered under the Shelf Prospectus and the principal linkage bases
|
|
3.1.1.
|
The principal of the Debentures in Series B to D will be payable in one installment or several installments that will not exceed four quarterly annual installments, as detailed in the Initial Offering Report of the relevant series and subject to the linkage terms as stated in this section hereinafter.
|
|
3.1.2.
|
The principal of the Debentures in Series E to G will be payable in one installment or several installments that will not exceed four quarterly annual installments, as detailed in the Initial Offering Report of the relevant series and subject to the linkage terms as stated in this section hereinafter
|
|
3.1.3.
|
The principal of the Debentures may be pain in unequal installments.
|
|
3.1.4.
|
The principal of the Debentures in the relevant Series may be linked to one of the linkage bases detailed hereinafter or may be unlinked, all as specified in the Initial Offering Report of the said series, with reference to the definitions of the linkage bases detailed hereinafter:
|
3.1.4.1.
|
Linkage to the index
|
3.1.4.2
|
Linkage to Foreign Currency
|
3.1.4.3
|
Unlinked Debentures
|
4.
|
The Interest
|
|
4.1.
|
Interest on index-
linked
principal
|
|
4.2.
|
Interest on
unlinked
principal
|
|
4.2.1.
|
Fixed NIS interest -
interest at a fixed rate, as shall be stipulated in the Initial Offer Report of that Series and/or determined in a bid carried out under such Offer Report.
|
|
4.2.2.
|
Interest at a variable
rate
,
on a basis that if the bid is held on the unit price
, the margin above or below the Basic Interest is specified in the Initial Offering Report of the relevant Series, and if the unit price is set (without bid) in the Initial Offering Report of the relevant Series, the margin above or below the Basic Interest
will be determined by way of
a bid, where in both cases the Basic Interest is the Bank of Israel, or Telbor, or the Prime Interest, as set forth in that Offering Report
. – the interest rate for any interest period of the Debentures will be determined according to the said Basic Interest rate (Bank of Israel, or Telbor, or the Prime Interest, as set forth in that Offering Report) as quoted on the Sample date. The Company will submit an immediate report on the interest rate determined as above within four (4) days of the Sample Date (i.e: basic interest plus margin). It is emphasized that the interest rate of Bank of Israel , and/ or Telbor and/or Prime as stated is fixed on a specific Sample date solely in relation to any interest period. The interest rate of Bank of Israel , and/ or Telbor and/or Prime may change during the interest period (for example: as a result of inflationary or other changes) but the interest rate of Bank of Israel , and/ or Telbor and/or Prime determined on the Sample Date will not change during that interest period.
|
|
4.2.3.
|
Interest at a variable rate,
on a basis that if the bid is held on the unit price
, the margin above or below the Basic Interest is specified in the Initial Offering Report of the relevant Series, and if the unit price is set (without bid) in the Initial Offering Report of the relevant Series, the margin above or below the Basic Interest
will be determined by way of
a bid, where the Basic Interest is the one-year MAKAM yield, as specified in that Offering Report.-
|
|
the interest rate for any interest period will be determined according to a fixed rate margin above or below the one-year MAKAM yield, to be determined in the Initial Offering bid, by a bid on the margin as specified in section 2.4 of the Prospectus, or a fixed margin, as specified in the Initial Shelf Offering Report, in an bid offer for the unit price, as detailed in section 2.5 of the Prospectus, where the one-year MAKAM yield shall be calculated on the Sample Date, as the average of the one-year MAKAM yield for the number of Trade Days preceding the Sample Date, as determined in the Shelf Offering Report. The Company will submit an immediate report on the interest rate determined as above within four Trade Days of the Sample Date. It is emphasized that the rate of the one-year MAKAM yield as above, is determined on a specific Sample Date solely in relation to any interest period. The rate of the one-year MAKAM yield may change during the interest period (for example: as a result of inflationary or other changes), but the rate of the one-year MAKAM yield determined on the Sample Date will not change during that interest period.
|
|
4.2.4.
|
Interest at a variable rate,
on a basis that if the bid is held on the unit price
, the margin above or below the Basic Interest is specified in the Initial Offering Report of the relevant Series, and if the unit price is set (without bid) in the Initial Offering Report of the relevant Series, the margin above or below the Basic Interest
will be determined by way of
a bid, where the Basic Interest is the interest of a Government Bond – Variable Interest:
|
|
the interest rate for any interest period will be determined according to a fixed rate margin above or below the interest of a Government Bond – Variable Interest,, to be determined in the Initial Offering bid, by a bid on the margin as specified in section 2.4 of the Prospectus, or a fixed margin, as specified in the Initial Shelf Offering Report, in an bid on the margin rate, as specified in the Initial Shelf Offering Report in a bid offer for the unit price, , as detailed in section 2.5 of the Prospectus, The annual interest rate for each of the interest periods will be determined according to the interest rate that bears, on the Sample date, the relevant Government Bond – Variable Interest. The Company will publish in an immediate report, following the date of the publication of the variable rate interest by the Government Debt Management Unit at the Accountant. General, and not later than within four Trade Days from the beginning of each interest period, the interest rates such determined (Basic Interest plus margin). It is clarified that the interest payment dates to be determined by the Company in the Shelf Offering Report, will be scheduled not later than 14 days after the payment of the interest on the relevant Government Bond – Variable Interest, and the duration of the interest periods, except for the first interest period (that might be shorter) will be equal to the interest periods of the relevant Government Bond – Variable Interest.
|
|
4.3.
|
Fixed interest
on
foreign currency linked principal
|
|
4.3.1.
|
Fixed interest linked to Foreign Currency
- interest that is linked to a foreign currency, the fixed rate of which shall be determined in the Initial Offering Report of that Series and/or in a bid conducted under such Offering Report
|
|
4.3.2.
|
Interest at a variable rate,
on a basis that if the bid is held on the unit price
, the margin above or below the Basic Interest is specified in the Initial Offering Report of the relevant Series, and if the unit
price
is set (without bid) in the Initial Offering Report of the relevant Series, the margin above or below the Basic Interest
will be determined by way of
a bid, where the Basic Interest is the Libor or the Euribor Interest rate as specified in that Offering Report
- the interest rate for any interest period of the Debentures will be determined according to the said Basic Interest rate (the Libor, or the Euribor Interest, as set forth in that Offering Report) for a period to be specified in that Offering Report, as quoted on the Sample date. The Company will submit an immediate report on the interest rate determined as above within four (4) days of the Sample Date. The said Basic Interest will be the interest commonly used for the currency to which the Debentures principal is linked. It is emphasized that the Libor or the Euribor interest rates as stated are fixed on a particular Sample Date solely in relation to any interest period. The Libor or the Euribor interest rate may vary during the interest period (for example: as a result of inflationary or other changes) but the Libor or the Euribor interest rate that were fixed on the Sample Date shall not change during that interest period.
|
|
4.4.
|
Notwithstanding with contents of sections 4.1 to 4.3 above, it will be possible to offer Debentures of any Series, in the scope of a non-uniform offer, as specified in section 2.6 of the Prospectus,
and in such case the rate of interest or the margin above the base interest and the unit price will not be determined in a bid, but will be specified in the Shelf Offering Report
.
|
|
4.5.
|
The interest rate for the first interest period of the Debentures in the relevant Series, and the annual interest rate based on which it was fixed, will be specified in the Initial Offering Report of that Series and/or in a report that will be published by the Company with respect to the results of the bid related to the interest rate and/or the Debentures that bear a variable interest, according to the dates set on the Sample Date as defined above, as applicable.
|
|
4.6.
|
It is clarified that, for Debentures that bear a variable interest rate, it is to be expected that the rate of interest payable in respect of each interest period will be a different rate of interest as described above.
|
|
4.7.
|
The interest rate determined for each relevant Series will be an annual rate. If the conditions of the Debentures specify that the interest in respect thereof will be paid at more than one time in a year, payment of the interest that will be paid on each interest payment date will be calculated according to the annual rate of interest, divided by the number of payments per year that are specified according to the conditions of the Debentures of the relevant series. In the first offering report or in the report on the results of the issue, as the case may be, the Company will specify the annual rate of interest as well as the rate thereof where it is divided by the number of annual, half-yearly, or quarterly payments, as the case may be, in a case where the interest is payable on more than one date.
|
|
4.8.
|
The interest on the Debentures in the relevant Series will be payable a number of installments that will not exceed four quarterly annual installments, as shall be stipulated in the Initial Offering Report of the relevant Series in respect of the interest period ended on the date of the payment (
the interest period
). The first interest period of the Debentures in the relevant Series will commence on the Clearing Day, as specified in that Offering Report, and end the first date of payment. Any subsequent interest period of the Debentures in the relevant Series will commence on the first day following the end of the preceding interest period and end on the date of payment closest after to its date of commencement. The interest for the first interest period will be calculated according to the number of days in this period based on a 365-day year .
|
|
4.9.
|
The last payment on the interest on the principal of the Debentures in the relevant Series will be paid together with the last payment on account of the principal of the Debentures of that series, which shall be done against surrender to the Company of the certificates of Debentures of that series.
|
4.10.
|
In case the Debentures Series is rated and a change occurs in its rating, in the Shelf Offering Report and in the amendment to the Deed of Trust (if and as modified) reference will be made to the changes in the interest rates, is any, as a result of the change in the rating.
|
5.
|
Payment of the principal and the interest of the debentures
|
|
5.1.
|
The payments on account of the interest and/or the principal of the Debentures of the relevant series which shall be offered pursuant to this Shelf Prospectus will be paid to the persons whose names are registered in the register for that series at the times as specified in the Initial Offering Report of that series, in accordance with the provisions of the Stock Exchange Regulations as in force for the time being (
“the Effective Date for the Relevant Series”
), except for the last payment of the principal and the interest which will be made against surrender to the Company of the certificates of debenture of that series, on the last payment date, at the Company’s registered office or at such other place of which the Company shall give notice not later than five (5) business days before the date of the last payment.
|
|
5.2.
|
In every case in which the date for making the payment on account of principal and/or interest falls on a day which is not a business day, the date of payment will be postponed to the first following business day thereafter without an increment in payment, and “the Effective Date” for purposes of determining the entitlement to redemption or to interest will not change by virtue of this.
|
5.3.
|
The Company will be entitled to state in the Initial Shelf Offering Report in respect of each series of Debentures whether penalty interest will be payable in respect of a default in payment on account of principal and/or interest, and in a situation that such interest will be payable, the Company shall specify its rate in the Offering Report. If the Company has not specified as aforesaid, no penalty interest will be payable in respect of such default in payment.
|
|
5.4.
|
Payment of the principal and the interest will be made subject to the conditions of linkage as set forth
in
section 3 above, if any.
|
|
5.5.
|
Payment to the entitled persons will be made by check or by bank transfer to the credit of the bank account of the persons whose names are registered in the register with respect to the relevant series, which will be indicated in the details they will furnish in good time in writing to the Company, in accordance with the contents of section 26 of the Deed of Trust. If the Company fails to pay any amount to the persons entitled thereto, for a reason which is not dependent on it, the provisions of section 7 below will apply.
|
|
5.6.
|
A holder of Debentures of the relevant series shall notify the Company of the details of the bank account to be credited with payment to such holder in respect of the Debentures of that series as aforesaid, or about a change in the details of the aforesaid account or in his address, as the case may be, by way of written notice to be sent to the Company by registered mail. The Company will be obliged to act in accordance with the holder’s notification regarding such change after the elapse of fifteen (15) business days from the date on which the holder’s notification reached the Company.
|
|
5.7.
|
If a holder of the Debentures who is entitled to payment as aforesaid has not furnished the Company with details regarding his bank account in good time, every payment on account of the principal and the interest will be made by way of check, which will be sent by registered mail to his last address as recorded in the register for the relevant series. The sending of a check to the entitled person by registered mail as aforesaid shall for all intents and purposes be deemed to be payment of the amount denominated in the check on the date of its posting, provided that the check was met upon due presentation for collection.
|
|
5.8.
|
Any compulsory payment as required according to law will be deducted from every payment in respect of the Debentures of the relevant series.
|
|
6.
|
Right to convert Debentures of Series E to G into shares (“the Convertible Debentures”)
|
|
6.1.
|
Conversion conditions
|
|
6.1.1.
|
On any trading day commencing from the first listing for trading of each of the series of Convertible Debentures on the Stock Exchange and up to a number of days before the end of the period of the Debentures of that series, or up to another date to be set, in accordance with the directives of the Stock Exchange as applicable at the date of the first offering report in respect of that series and as will be detailed in the aforesaid offering report (
“the Conversion Period”
, and each trading day in the Conversion Period as aforesaid will hereinafter be referred to as
“the Conversion Date”
, and the last day of the Conversion Period will be referred to hereinafter as
“End of the Conversion Period”
), except a number of days before the effective date for partial redemption in accordance with the regulations and directives of the Stock Exchange as in force on the date of the aforesaid offering report, and up to the date partial redemption is made, the balance of the principal of the Convertible Debentures of that series which are in circulation at the time will be convertible into fully paid, registered ordinary shares of NIS 0.01 nominal value each of the Company (
“the Conversion Shares”
), according to a conversion rate, or several conversion rates, that will be specified in the Initial Offering Report, which shall not be less than the nominal value of the Company’s ordinary shares at the date of the aforesaid offering report (
“the Conversion Rate”
), subject to adjustments as described below, and in the manner and on the conditions as will be specified in the aforesaid offering report.
|
|
6.1.2.
|
Every holder of the Convertible Debentures of any series wishing to convert the balance of the nominal value of the principal of the Convertible Debentures of that series held by him into Conversion Shares (
“the Converting Party”
), shall submit directly to the Company at its registered office (if those Debentures are registered in the name of the Converting Party in the register of that series) or through the Stock Exchange member (in a case in which those Debentures are held by the Converting Party through such Stock Exchange member) on the Conversion Dates, and under all circumstances not later than the end of the Conversion Period with respect to that series a written application on a form as will be devised by the Company, accompanied by the certificates of the Convertible Debentures to which the application relates, (the
Conversion Notice
).
|
|
6.1.3.
|
Within a single Conversion Notice, the conversion of the nominal value balance of the principal of the number of Convertible Debentures of the same Series that are registered to the name of that Holder may be requested and must be accompanied by all the Certificates of the Convertible Debentures to which the Conversion Notice relates.
|
|
6.1.4.
|
In the event of conversion of Convertible Debentures into shares pursuant to this section that relates only to part of the nominal value sum of Convertible Debentures registered in the same Certificate, the Certificate of Convertible Debentures must first be split into the appropriate number of Debenture Certificates, such that the sum of all the nominal value amounts of the Debentures registered therein is equal to the nominal value sum of the Debenture Certificate divided up as aforesaid.
|
|
6.1.5.
|
The Conversion Notice forms are available at the registered office of the Company as well as in any other location advised by the Company.
|
|
6.1.6.
|
The Converter will, at any time, sign any document that may be required under any law and pursuant to the Company’s directives for the allocation of the Conversion Shares. The date on which the Company receives a Conversion Notice directly from the Converter (with respect to directly held Debentures), or the Stock Exchange Clearing House receives a notice of the conversion of the Convertible Debentures from a member of the Stock Exchange (with respect to Debentures held through the Registration Company), that fully complies with all the terms stipulated in the Prospectus, as appropriate, will be deemed as the date of conversion (“the
Conversion Date”
).
|
|
6.1.7.
|
In the event that the Converter does not fully comply with the terms for the conversion of the Convertible Debentures, the Conversion Notice will be deemed as void and the Certificates of the Convertible Debentures will be returned to the applicant.
|
|
6.1.8.
|
A Conversion Notice submitted to the Company may not be cancelled or altered.
|
|
6.1.9.
|
The Converter will not be entitled to the allocation of a part of a single Conversion Share, however any fractions of Conversion Shares that arise upon conversion, if any, will be sold on the Stock Exchange by a trustee that would be appointed by the Company for this purpose, within thirty (30) days of the accrual of such fractions into whole shares in a quantity that is reasonable for sale on the Stock Exchange, taking into consideration the costs involved, and the net consideration from the sale will be proportionately divided between the beneficiaries within fifteen (15) days of the selling date. A check will not be issued to any of the beneficiaries for an amount less than NIS 50; such amounts may be collected at the offices of the Company, on the regular working days and times. An entitled person as aforesaid who does not come to the Company’s offices to receive this amount as aforesaid within twelve (12) months from the date of sale will lose his right to this amount
|
|
6.1.10.
|
Conversion Shares will confer upon their holders full participation rights in any dividend and other distribution the determinant date for entitlement thereto is the Conversion Date or a later date, and will be equal in rights in all respects to the ordinary shares of a nominal value of NIS 0.01 outstanding in the Company’s equity on such date.
|
|
6.1.11.
|
Any Convertible Debentures that are converted will be removed from circulation on their Conversion Date and will be fully cancelled, with retroactive effect to the Conversion Date, from the date of allotment of Conversion Shares in their respect, and will not confer any right to any interest subsequent to the final date of payment of interest thereon, with respect to which the determinant date precedes the Conversion date, and will not confer any right to linkage differences accrued on the balance of the principal under the terms of linkage as stated in Section 3 above (and which would have been payable together with the principal of the Debentures had the applicant not exercised his right to convert the Convertible Debentures into shares as aforesaid).
|
|
6.1.12.
|
Any part of the Convertible Debentures of any Series that is not converted until the End of the Conversion Period of such Series will no longer confer upon its Holder any right to convert it into Conversion Shares, and the related conversion right will be null and void subsequent to said date.
|
|
6.1.13.
|
[deleted]
|
|
6.2.
|
Timetables for
the
conversion
|
|
6.2.1.
|
The bylaws of the Stock Exchange Clearing House known as of the date of publication of the Shelf Prospectus with respect to the timetable for the execution of an order for the conversion of the Convertible Debentures that are held through members of the Stock Exchange stipulate as follows:
|
|
6.2.2.
|
The notification by a client of a conversion that is received by 12:00 noon at the offices of the member of the Stock Exchange will be transmitted by that member of the Stock Exchange to the Clearing House not later than 12:00 noon on the following Trade Day.
|
|
6.2.3.
|
Having received a notification of a conversion from a member of the Stock Exchange by 12:00 noon, the Clearing House will debit the member of the Stock Exchange and credit the Registration Company accordingly, this not later than 12:00 noon on the following Trade Day.
|
|
6.2.4.
|
Having received a credit notification pursuant to Section 6.2.2 above by 12:00 noon, the Registration Company will transmit the Conversion Notice to the offices of the issuing company not later than 12:00 noon on the following Trade Day.
|
|
6.2.5.
|
Any notification as mentioned in Sections 6.2.1 through 6.2.3 above that is received after 12:00 noon on any Trade Date will be deemed as having been received by 12:00 noon of the following Trade Day.
|
|
6.2.6.
|
Notwithstanding the said above, on the last Conversion Date preceding final redemption or preceding an ex partial redemption date, as applicable, the members of the Stock Exchange are required to transmit to the Clearing House the final conversion applications by 12:00 noon. The conversion will be executed on the same date. Any member of the Stock Exchange that does not submit an application by said time will be deemed as not having exercised its right for the conversion of the Convertible Debentures in its possession.
In the event that the final date for the conversion of the Convertible Debentures of any Series, or the final date for conversion prior to partial redemption, falls on a day that is not a Trade Day, such date will be deferred to the following Trade Day.
It is hereby emphasized that the conversions of the Convertible Debentures shall be subject to the bylaws of the Stock Exchange Clearing House existing on the actual date of conversion.
Within one Trade Day of the Conversion Date, the Company will allot each Converter certificates in respect of the Conversion Shares due to him, and after approval is received for the listing for trade of the allotted Conversion Shares, the Company will take action to list the Conversion Shares for trade on the Stock Exchange within three (3) days of said date.
|
|
6.3.
|
Directives for the
protection
of the Holders of Convertible Debentures during the Conversion Period
|
|
6.3.1.
|
Distribution of
bonus
shares
|
6.3.1.1.
|
Subsequent to the determinant date for the entitlement to participate in such distribution, the number of Conversion Shares receivable by the Holder of Convertible Debentures in such Series upon their conversion would be increased by adding the number of shares to which the Holder would have been entitled as bonus shares had he converted the Convertible Debentures immediately before the aforesaid determinant date.
|
6.3.1.2.
|
The Holder of the Convertible Debentures will not be entitled to the allocation of a part of a bonus share as above, however any fractions of bonus shares that arise upon allotment, and accrue to whole shares, if any, will be sold on the Stock Exchange by a trustee that would be appointed by the Company for this purpose, within thirty (30) days of the aforesaid date of allotment, and the net consideration (less selling costs and compulsory payments and fees) will be divided between the beneficiaries within fifteen (15) days of the selling date. A check will not be issued to one beneficiary for an amount less than NIS 50; such amounts may be collected at the offices of the Company on the regular working days and times. An entitled person as aforesaid who does not come to the Company’s offices to receive this amount as aforesaid within twelve (12) months from the date of sale will lose his right to this amount
|
6.3.1.3.
|
Subject to the stated in the Code and guidelines of the Stock Exchange, the adjustment method may not be altered.
|
|
6.3.2.
|
Issuance of rights
|
6.3.2.1.
|
In the event that, between date of the Initial Offer Report of any of the Series of Convertible Debentures and the End of the Conversion Period of such Series, the Company should offer to its shareholders securities of any kind by way of the issuance of rights, the number of Conversion Shares receivable upon conversion of the Convertible Debentures in such Series that have not yet been converted into ordinary shares of the Company, will be adjusted on the determinant date for entitlement to purchase securities offered within the issuance of rights, according to the benefit component of the rights, as reflected in the ratio of the quoted price of the Company’s share on the Stock Exchange on the above determinant date, to the basic “ex rights” price. Subject to the stated in the Code and guidelines of the Stock Exchange, the adjustment method may not be altered.
|
|
6.3.3.
|
Adjustment with
respect
to dividend distribution
|
6.3.3.1.
|
The Conversion Rate will not be adjusted as a result of a distribution by the Company.
|
6.3.3.2.
|
Immediately following the determinant date, a deduction will be made from the conversion rate in respect of each share of an amount equivalent to the “ex” value as defined in the Stock Exchange trading regulations and in the directives issued pursuant thereto. The Company shall give notice of the adjusted conversion rate as aforesaid prior to the opening of the Trade on the day on which the Company’s shares are traded “ex dividend”.
|
6.3.3.3.
|
Commencing on the first Trade Day on which the Company’s shares are traded subsequent to the determinant date for distribution (ex dividend), the Conversion Ratio of the Convertible Debentures in circulation will be adjusted by its multiplication by the ratio of the price of the Company’s share on the Stock Exchange, as determined by the Stock Exchange, adjusted for the distribution (ex dividend price), to the closing price determined for the Company’s share by the Stock Exchange on the determinant date for distribution). The Company will announce the adjustment of the Conversion Ratio, as above, in an immediate report prior to the opening of the Trade on the day on which the Company’s shares are traded “ex dividend
|
6.3.3.4.
|
If the Company has failed to specify in the Initial Offering Report which of the alternatives mentioned above will apply to the conversion price of the Convertible Debentures, as aforesaid, the provisions of Paragraph 6.3.3.1 above will apply.
|
|
6.3.4.
|
Additional provisions for protection of holders of the Convertible Debentures in the Conversion
Period
|
6.3.4.1.
|
The Company shall retain a sufficient quantity of ordinary shares of NIS 0.01 nominal value in its authorized share capital to guarantee the allotment of all the shares likely to arise from a conversion of all the Convertible Debentures of that series which are in circulation from time to time, and to the extent necessary, the Company shall cause an increase of its authorized share capital accordingly.
|
6.3.4.2.
|
If the Company consolidates the ordinary shares of NIS 0.11 nominal value in its issued share capital into shares of a larger denomination, or sub-divides the shares into shares of a smaller denomination – the number of Conversion Shares that will be allotted in consequence of a conversion of the Convertible Debentures of that series will be reduced or increased, as the case may be, after such action. In such case the contents of Paragraph 6.1.9 above will apply, with the necessary changes
|
6.3.4.3.
|
The Company will make available for inspection of the holders of the Convertible Debentures of that series, a copy of its periodic reports and of its interim financial statement, at its registered office during normal working hours. On a request in writing from a registered holder of Convertible Debentures of that series, the Company will send him a copy of the aforesaid reports.
|
6.3.4.4.
|
In addition to said notice, not later than three (3) weeks and not earlier than four (4) weeks before the End of the Conversion Period in respect of said Series, the Company will publish a notice in two (2) widely distributed daily newspapers that are published in Israel in Hebrew, and will issue a written notice, with copies to the Stock Exchange and the Trustee of the Series, to the Holders registered in the Register in that Series, concerning the final date for the conversion of the Convertible Debentures in that Series. Such notice will specify the Conversion Rate, the number of Conversion Shares and the number of bonus shares to which the Holder of Convertible Shares would be entitled following a conversion at such time, all in relation to the abovementioned Series.
|
6.3.4.5.
|
The Company will not distribute nor offer to the holders of ordinary shares of a nominal value of NIS 0.01, a cash dividend or bonus shares or an offer of rights in any securities, unless the determinant date for their receipt is at least ten (10) trade days after the publication of the Company’s notice concerning the distribution or offer of rights, as appropriate.
|
6.3.4.6.
|
The Company will refrain from any action, including the distribution of bonus shares, which may result in the reduction of the price of a Conversion Share below its nominal value.
|
6.3.4.7.
|
In accordance with the Code and guidelines of the Stock Exchange, in force on the date of the Deed of Trust, the terms of the Convertible Debentures with respect to the Conversion Rate, the conversion dates and the linkage method cannot be changed; unless such change is effected within the framework of a settlement that has been approved by Court, under Section 350 of the Companies Law. Additionally, in accordance with the said Code and guidelines of the Stock Exchange, the Company may change the Conversion Rate as part of a procedure for the split of the Company or a procedure for the merger of the Company, provided that the change includes only those adjustments that are essential to such procedure.
|
6.3.4.8
|
For the removal of doubt, the aforegoing provisions shall in no way prevent the Company from altering the terms of the Debentures, provided the alterations are permitted under any law at the time they are made.
|
|
6.3.5.
|
Voluntary
liquidation
|
6.3.5.1.
|
In the event that a resolution is passed for the voluntary liquidation of the Company, the Company will issue a written notice to this effect to all the Holders of Convertible Debentures in circulation at the time, that are registered in the Register of the relevant Series of Convertible Debentures, and will additionally publish a notice in this regard in two (2) widely distributed daily newspapers that are published in Israel in Hebrew. Every Holder of Convertible Debentures shall be entitled, at his choice, to be considered as having exercised the conversion right pertaining to the Debentures shortly before the resolution was passed, provided that he notifies the Company of his choice within three (3) months of the said notice by the Company.
|
6.3.5.2.
|
In such case, the Holder of the Convertible Debentures shall be entitled to participate in the distribution of the excess assets of the Company upon liquidation (following the settlement of all its debts) between its shareholders, this in the amount that he would have received upon the liquidation of the Company had he been a shareholder in the Company shortly before the passing of the liquidation resolution by virtue of the conversion of the Convertible Debentures that are in his possession, with respect to which he had notified the Company as aforesaid, less the amount of interest that was paid for such Convertible Debentures on the date of the resolution or shortly thereafter (with the exception of interest that falls due prior to the date of the resolution, even if paid on the date of the resolution or thereafter); and the Holder of the Convertible debentures will not be entitled to any payment under the Debentures that falls due subsequent to the date of the resolution.
|
|
7.
|
Failure to make payment for a reason not dependent on the Company
|
|
8.
|
Transfer of the Debentures
|
8.1.
|
Pursuant to section 8.3 above, the Debentures are transferable in respect of any amount of nominal value, provided that this is in whole new shekels. Every transfer of Debentures shall be made in accordance with a deed of transfer drawn up in the usual form for the transfer of shares, duly signed by the registered owner or his legal representatives, and by the transferee or his legal representatives, which shall be delivered to the Company at its registered office accompanied by the certificates of the Debentures being transferred pursuant thereto, as well as any other reasonable proof that may be demanded by the Company for proving the transferor’s right to transfer them.
Subject to the foregoing, the procedural provisions contained in the Company’s Articles in regard to the manner of transfer of shares shall apply, with the required changes, as the case may be, with respect to the manner of transfer and transmission of the Debentures.
|
|
8.2.
|
If any mandatory payment applies to the deed of transfer of the Debentures, the company will be given proof of their payment by the requester of the transfer, which will be to the satisfaction of the Company
|
|
8.3.
|
In the case of a transfer of only part of the sum of the specified principal of the Debentures in the Certificate, the Certificate will be split first as specified in Section 9 below into a number of Debenture Certificates as required thereby, in such a manner that the total sums of the principal specified therein is equal to the sum of the specified principal of the said Debenture Certificate.
|
|
8.4.
|
After fulfillment of all of the conditions stated above, the transfer will be registered in the Register and all the conditions set forth in the Deed of Trust and in this Debenture will apply to the transferee.
|
|
8.5.
|
All the expenses and commissions connected with the transfer shall be borne by the person requesting the transfer
|
9.
|
Split of the Debentures Certificates
|
10.
|
Early redemption of the Debentures (Series B to D) and the Debentures (Series E to G) on the Stock Exchange initiative
|
11.
|
Early redemption
on the Company's initiative
|
12.
|
Purchase of Debentures by the Company and/ or by a related corporation
|
13.
|
General provisions
|
13.1.
|
The amount of the principal and the interest are payable and transferable without reference to any rights in equity or any right of set-off or counterclaim which exists or may exist between the Company and a previous holder, including the original holder of the Debentures
|
13.2.
|
Any person who becomes entitled to the Debentures as a result of the bankruptcy, or as a result of the liquidation proceedings, of a debenture holder ,will have the right, after having produced such evidence as the Company may demand from him from time to time, to be registered in the register as a holder of the Debentures, or, subject to the conditions set forth above in this certificate, to transfer same.
|
13.3.
|
The debenture holders will be entitled to exercise their rights under the Debentures and the Deed of Trust through the Trustee or in accordance with a resolution of a General Meeting of The Debenture Holders in the ways described in the debenture and in the Deed of Trust. Notwithstanding the foregoing, if the Trustee acts in a manner which is not in accordance with the provisions of the Deed of Trust and the Debenture, the Debenture Holders will be entitled to exercise their rights including in accordance with a resolution of the general meeting.
|
13.4.
|
The provisions of the Deed of Trust, including the right to make the Debentures immediately due and pay`able, as prescribed in section 8 of the Deed of Trust, shall be deemed to be an integral part of this debenture
|
14.
|
Waivers, settlements and changes to the terms of the Debentures
|
15.
|
General meetings of the Debentures Holders
|
16.
|
Receipts as proof
|
17.
|
Replacement of debenture certificate
|
18.
|
Notices
|
|
1.
|
The Trustee or the Company may call a Meeting of the Debenture Holders of the relevant Series. If the Company calls such a Meeting, it must send immediately a written notice to the Trustee, on the day and the time on which the Meeting will be held and on the matters to be brought for discussion therein. If the Trustee calls such a Meeting, it must send immediately a written notice to the Company, on the day and the time on which the Meeting will be held and on the matters to be brought for discussion therein.
|
|
2.
|
At the time of holding a meeting of debenture holders, the Trustee shall examine whether, in the circumstances of the matter, there is a conflict of interest amongst the Debenture Holders of the relevant Series, and shall decide – in accordance with the provisions of any law, decided cases, provisions of the Securities Law and the regulations and directives issued pursuant thereto , who amongst the participants has a conflicting interest, in relation to whom the provisions of the section below will apply.
|
|
(a)
|
The Trustee will be entitled to demand from a Debenture Holder wishing to attend a meeting of holders to deliver a declaration to the Trustee regarding the existence or absence of conflicting interests the Holders may have in regard with the matters to be brought for discussion therein. A holder who does not deliver such declaration, after being requested to do so, shall be deemed to have declared that it has no conflicting interest. For the examination and determination of the existence or absence of conflicting interests a Holder that delivered a declaration may have, the Trustee shall rely only on such declaration and will be not obliged to conduct an additional investigation or examination.
|
|
(b)
|
In this paragraph
“conflicting interest”
means: any additional material interest of a holder which goes beyond the interest arising from the holding of the Debentures in the series of the meeting of holders which has been convened, including a material personal interest of a family member and of another corporation in which it or a member of its family have an interest, or are controlling shareholders in and/or any additional interest of any of the above mentioned, that might be relevant to the matters to be brought for discussion therein, as the case may be.
|
|
(c)
|
The votes of: a related corporation as specified in section 4.2 of the Deed of Trust and a Debenture Holder the Trustee has ruled, according to the provisions of section 2 above, is someone who has a conflicting interest - will not be counted in the votes at a meeting of holders or at a class meeting, including for purposes of determining a legal quorum or for purposes of counting the votes.
|
|
(d)
|
Should the need for calling a Class meeting arise, the Trustee is entitled, at its exclusive discretion, to decide that a specific resolution shall require approval in the Class Meeting specified by the Trustee only, and not in any other Class Meeting including in the Meeting of all of the Holders.
|
|
3.
|
In regard to every meeting of debenture holders of the relevant Series, prior notice of at least 14 (fourteen) days shall be given to the Debenture Holders and to the Trustee, or in the event that the purpose of the meeting is to consider a proposal for the passing of the special resolution, prior notice of at least 21 (twenty-one) days. The prior notice shall specify the place, the day and the time of the meeting, and mention shall be made, in general terms, of the matters that will be considered at the meeting. Where the purpose of the meeting is to consider and pass a special resolution, the aforesaid prior notice shall also specify the main points of the proposed resolution. Where the meeting is called by the Trustee, such notice shall also be given to the Company.
|
|
4.
|
No resolution duly passed at a meeting called as aforesaid shall be invalidated, if notice of the meeting was inadvertently not given to all the holders of the relevant Series, or such notice was not received by such holders
|
|
5.
|
The chairman of the meeting will be a person appointed by the Trustee. If the Trustee does not appoint such chairman or if the person whom the Trustee has appointed as aforesaid is not present at the meeting, the Debenture Holders present (or represented by proxy) shall elect a chairman from amongst their number.
|
|
6.
|
A meeting of debenture holders shall be opened after it has been proved that the necessary quorum is present for the start of the meeting.
|
(a)
|
Subject to the necessary quorum for dismissal of a trustee according to any law, at meetings of debenture holders, except as stated in section 6 (e) below, a quorum shall be constituted if at least two debenture holders who jointly hold or represent at least ten percent (10%) of the nominal value of the unpaid balance of the principal of the Debentures, as it was at the time scheduled for the participation and voting at the meeting, as set forth by the Trustee during the meeting, are personally present or represented by proxy.
|
(b)
|
If within half an hour from the time appointed for the start of such meeting no quorum as aforesaid is present, the meeting shall be adjourned to the same day one week later, at the same place and at the same time (without the necessity for further notice) and if that day is not a business day, to the next business day (without the necessity for further notice), or to such other day, place and time as the party calling the meeting shall decide, on condition that the party calling the meeting shall give notice at least seven (7) days in advance with regard to the holding of such adjourned meeting, in the same manner in which notice of the holding of the original meeting was given, and shall indicate that if a quorum as aforesaid is not present at the adjourned meeting, the quorum will be any debenture holder personally present or represented by proxy, without reference to the nominal value of the Debentures held by them. Such notice may also be given in the notice pursuant to which the meeting that was adjourned was called.
|
(c)
|
With the consent of the holders of a majority of the nominal value of the unpaid balance of the principal of the Debentures who are personally present or represented by proxy at a meeting at which a quorum was present, the chairman may, and on a demand by the meeting shall be obliged to, adjourn the meeting from time to time and from place to place, as the meeting shall decide. (
hereinafter an adjourned meeting
) If the meeting is adjourned for ten days or more, notice of the adjourned meeting shall be given in the same manner as notice is given about the first meeting, provided that in a case in which the continuation of the holding of the meeting is adjourned to a time earlier than fourteen days, notice of the adjourned meeting shall be given by way of the publication of an immediate report in the MAGNA system only.. Save for the foregoing, the debenture holders will not be entitled to receive any notice about an adjourned meeting and/or about the matters that will be considered at the adjourned meeting. No matters shall be considered at the adjourned meeting except the matters it was possible to consider at the meeting at which it was decided on the adjournment, unless all the holders (100% of the nominal value) are present at the adjourned meeting.
|
(d)
|
The chairman of the meeting is allowed to decide during the meeting that the votes be made using a voting form or with a raise of hands. In case the chairman decided that the voting be made using a voting form, the voting form will be published in MAGNA and/or a notice will be published in MAGNA as to the manner in which the persons entitled to vote by a voting form may receive a copy of thereof, and a date will be set for the closing of the vote, prior to which the holders shall send the chairman the voting form filled and signed. It is clarified that at a vote using voting forms, a holder that was not present at the relevant meeting may also vote, provided proof is given of its entitlement to participate and vote at the meeting on the date set for the meeting.
In the voting form the chairman is allowed to specify that the holder must declare the existence or absence of conflicting interests as defined in section 2 (b) above. A holder that does not fill the written form as required shall be deemed as not having submitted the voting form, and as such chose not to participate in the vote on the matter/s included in the voting for.
|
(e)
|
At a meeting convened for the passing of any of the resolutions set forth below (hereinafter:
“Special Resolution”
), a quorum will be constituted if two or more holders who hold at least fifty percent (50%) of the nominal value of the unpaid balance of the principal of the Debentures, as it should be at the date scheduled for the participation and voting at the meeting, as determined by
****
during the meeting, are personally present or represented by proxy, or at an adjourned meeting of this meeting, at which two or more holders who hold at least ten percent (10%) of the aforesaid balance are personally present or represented by proxy:
|
(1)
|
Any amendment, alteration or material arrangement of the rights of the debenture holders of the relevant Series, whether such rights derive from the Debentures, from the Deed of Trust or otherwise, or any material compromise or waiver in connection with such rights
;
|
(2)
|
The making of the Debentures of the relevant Series immediately due and payable upon the fulfillment of one or more of the conditions mentioned in Clause 8 of the Deed of Trust;
|
(3)
|
Any resolution on another matter which was specified in the Deed of Trust or in the debenture as being subject to the passing of a special resolution.
|
(f)
|
It is clarified that in establishing a legal quorum for holding the general meeting for the adoption the resolution and in the counting of the voters in favor of the said resolution, the votes of the Debenture Holders that are a Related Corporation as specified in section 4.2 of the Deed of Trust will not be counted, and the said debentures will not confer to the Related Corporation voting rights at the General meeting of the Debentures Holders, and will not be counted for the determination of the legal quorum, as long as they are held by the Related Corporation.
|
|
7.
|
(a) The Debenture Holders are entitled to participate and to vote at any general meeting by themselves or by a proxy. In every vote of the debenture holders the vote shall be conducted by way of a poll, in such manner that each debenture holder or his proxy will be entitled to one vote in respect of each NIS 1 nominal value of the total unpaid nominal amount of the Debentures pursuant to which he is entitled to vote. In the case of joint holders, only the vote of the person whose name stands first amongst them in the register will be accepted, given either personally or by way of proxy.
|
|
8.
|
(a) The majority required for the passing of an ordinary resolution of the general meeting is a simple majority of the number of votes represented in the vote, voting for or against except the votes of the abstainers. The majority required for the passing of a special resolution at a meeting as referred to in section 6(e) above is a majority of not less than 75% of the number of votes represented in such a vote, voting in favor or against, except abstainers.
|
|
9.
|
(a) An appointment letter that appoints a proxy and/or a representative will be in writing and will be signed by the appointer or by the proxy thereof who is duly authorized to do so in writing. If the appointer is a corporation, the appointment will be made in writing and will be signed by the stamp of the corporation, along with the confirmation of the advocate as to the validity of the signature. A representative is not required to be a Debenture Holder by himself.
|
10.
|
The Trustee shall attend to the keeping of minutes of all deliberations and resolutions at every general meeting of the debenture holders, to the recording and preservation thereof in the minute book of meetings of debenture holders. Any minute signed by the chairman of the meeting at which the resolutions were passed and the deliberations took place, or by the chairman of the next meeting, shall serve as proof of the matters recorded therein, and until the contrary is proved, any resolution passed at such meeting shall be deemed to have been duly passed.
|
11.
|
A person or persons who are appointed by the Trustee, or the Company and any other person or persons authorized by the person that convoked the meeting – the Trustee or the Company (as the case may be) will be allowed to be present in Meetings of the Debenture Holders. In case that, at the reasonable, discretion of the Trustee, and on reasonable grounds, part of the meeting requires a discussion without the presence of the Company' representatives, then that part of the discussion will be held without the participation of the Company or anyone acting on its behalf.
|
12.
|
Every meeting of the Debenture Holders shall take place at the Company’s registered office or at such other place of which the notification shall be given in the invitation to the meeting. The Trustee shall be entitled to request the Company to hold a meeting of Debenture Holders at another address, subject to Company's agreement.
|
13.
|
Everything stated in this addendum is subject to the provision of the Deed of Trust.
|
B Communications Ltd ("the Company" – Appendix 20 –Trustee's Remuneration, attached to the Deed of trust of August 31, 2010 ("(the) Deed")
|
1.
|
A one-time payment for the Trustee's activities until the publication of the Prospectus: NIS 800 (VAT dully added). In case within 3 months of the date of publication of the Prospectus, the Debentures Series, the Trustee acts as trustee for, is issued, this amount will be deduced from the sum paid to the Trustee for the first trust year.
|
2.
|
For each Debentures series issued under the Shelf Prospectus, the Trustee serves as trustee for, the Trustee's remuneration will be as follows:
|
2.1.
|
Immediately after the Debentures series is issued, the Trustee shall be paid the amount of NIS28,000 (VAT dully added), for the first Trust Year.
|
2.2.
|
For the second Trust Year and onward, and so long as Debentures of that series yet unsettled are still in circulation, the amount of NIS 22,000 (linked to the Consumers Price Index known at the time of the issue of the series, but under no circumstances less than the said amount), VAT dully added.
|
2.3.
|
In case, after the initial issue of the Series, an additional issue of the debentures of the same series is performed, by way of expansion of the series (whether by public offering, by a private placement or under a Shelf Offer Report or otherwise, including but not limited to realization of debentures options) the Trustee's annual remuneration shall be increased by an amount that reflects the full increase rate in the series volume as a result of that expansion (VAT dully added), starting with the expansion date and uninterruptedly until the end of the trust period.
|
3.
|
In respect to the participation in the Company's Shareholders meeting or the Debentures Holders meeting, the Trustee shall be paid an additional fee of NIS 500 for each meeting (VAT dully added) linked to the Consumers Price Index known at the time of the issue..
|
4.
|
In respect to special activities and special works performed by the Trustee after the publication of the Shelf Prospectus, in addition to its current activities, the Company shall pay the Trustee NIS 600 per hour, VAT dully added.
|
5.
|
The Trustee's remuneration and expenses shall be paid to the Trustee up to the end of the trust period under this Deed, even if a receiver (or receiver and manager) has been appointed, or if the trust pursuant to this Deed is managed under the court's supervision.
|
6.
|
If there should be changes in the provisions of the law and the regulations, pursuant to which the Trustee is required to perform acts and/or examinations and/or the preparation of additional statements and reports, the Company undertakes to bear all the reasonable expenses that may be incurred by the Trustee in connection therewith, including a reasonable fee in respect of such actions.
|
7.
|
If the Trustee’s term of office has come to an end, as stated in Clause 28 of the Deed of Trust the Trustee will not be entitled to payment of its remuneration starting from the date of expiration of its term of office. If the Trustee’s term of office came to an end during the trust year, the remuneration that was paid in respect of the months in which the Trustee did not serve as a trustee for the Company, shall be refunded. The contents of this subsection shall not apply with respect the remuneration of the Trustee for the first year of trust.
|
8.
|
VAT
shall be added to the payments that are due to the Trustee in accordance with the provisions of this appendix and shall be paid by the Company.
|
9.
|
In the event the publication of the Shelf prospectus, or the issue of the Debentures under the Prospectus, are cancelled or postponed (for a period of 3 months or more), after the Trustee had already performed any activities in relation to the preparation of the documents related to the trust, amongst others, participated in deliberations with the Securities Authorities, the Trustee shall be paid a fee of NIS 600 per hour (VAT dully added) for the hours or work invested.
|
10.
|
This appendix is based on the assumption that the Debentures are issued with no collateral securities or other financial criterions or obligations attached, that the Trustee shall examine. In any other event, the Trustee's remuneration shall be set relative to the number hours the Trustee shall have to invest in the trust.
|
11.
|
All the amounts specified in this appendix 20 will have priority on the amounts due to the Debentures Holders.
|
WHEREAS
|
on August 31 2010, a Deed of Trust (hereinafter: "
Deed of Trust
") was signed between the parties, amongst others in relation to the Company Debentures (Series B) (hereinafter: "
Debentures (Series B)
or "
Debentures
");
|
WHEREAS
|
the Company published a shelf prospectus on September 1, 2010 (hereinafter: "
Shelf Prospectus")
pursuant to which it may issue in the future, amongst others, any of the debentures series (Series B to G), as set forth in the Deed of Trust;
|
WHEREAS
|
the Company intends to publish in September 2010, pursuing to its Shelf Prospectus, a Shelf Offering Report, according to which the Company will offer Debentures (Series B) (hereinafter: "Shelf Offering Report"), and for the publication of the said Shelf Offering Report, the parties are interested to add to the provisions of the Deed of Trust as detailed in this addendum;
|
WHEREAS
|
the parties wish to convey in writing in the framework of this addendum the terms and conditions specific to the Debentures (Series B), to be offered pursuant to the Shelf Offering Report, including additional understandings reached by the parties in relation to the Debentures (Series B) terms, as detailed in this addendum;
|
1.
|
Preamble, interpretation and definitions
|
1.1.
|
The preamble to this addendum constitutes an intrinsic part of the addendum.
|
1.2.
|
The division of this addendum into sections and the insertion of headings to the sections are for convenience
of reference only and shall not be used for interpretation.
|
1.3.
|
The terms in this addendum, that were defined in the Deed of Trust, will have the meaning set forth in the deed, unless explicitly stated otherwise.
|
2.
|
The validity of the Deed of Trust
|
3.
|
Debentures
(Series B)
|
4.
|
Interest on the Debentures (Series B)
|
4.1.
|
The interest on the Debentures (Series B) will be paid semi-annually, on March 31 and on September 30 of each year, starting with March 31, 2011 and until September 31, 2018, and on March 31, 2019, for a period of 6 months ended the day previous to the payment date, except for the first interest payment to be made for the period starting on the first trade day following the date of the closure of the signatures list, as detailed in the Shelf Offering Report, and ending March 31, 2011, and calculated based on a 365-days year, according to the number of days of this period.
|
4.2.
|
The Company will publish the annual interest rate as set in the tender, and the interest rate for the first interest period, in the framework of the immediate report to be published by it on the results of the issuance, object of the Shelf Offering Report. The interest payments following the first interest payment will be equal to the annual interest rate, divided into two (number of annual interest payments)
|
4.3.
|
Whenever the settlement date on the principal and/ or the interest of the Debentures is a non- business day, it will be postponed to the first next business day, with no additional payment.
|
4.4.
|
From each interest payment on the Debentures (Series B) , tax will be deduced as requested by law.
|
4.5.
|
the Debentures (Series B) are issued without discount. Should the Company issue in the future additional Debentures (Series B) (in the framework of the expansion of the said series) with discount, the Company will proceed according to paragraph 3.3 of the Deed of Trust.
|
5.
|
Payment of the principal and the interest on the Debentures (Series B)
|
5.1.
|
The payments of the principal on the Debentures will be made to the Debentures holders whose names are listed in the Debentures (Series B) holders register as holders on March 19 of each of the years 2016 to 2018, prior to the payment date of the relevant payment. The last payment of the principal on the Debentures (Series B) will be made on March 31, 2019 to persons whose names are listed in the Debentures (Series B) holders register on the payment day.
|
5.2.
|
The interest payments on the Debentures (Series B) will be made to persons whose names are listed in the Debentures (Series B) holders register as holders on March 19 and September 18 of each of the years 2011 to 2018, prior to the payment date of the relevant payment. The last payment of the interest on the Debentures (Series B) will be made on March 31, 2019 to persons whose names are listed in the Debentures (Series B) holders register on the payment day.
|
5.3.
|
The last payment of the principal and the interest will be made against the submittal of the Debentures (Series B) to the Company on payment day, at the registered office or at any other location notified by the Company. The said Company notification will be published not later than five (5) business days prior to the last payment date.
|
6.
|
Modifications to section 8.1 of the Deed of Trust; addition of reasons for immediate repayment
|
6.1.
|
The following modifications will be made to the subsections of section 8.1 of the Deed of Trust:
|
|
6.1.1.
|
In subsection 8.1.1 of the Deed of Trust, the period of 45 days set forth in those sections will be reduced to 14 days.
|
|
6.1.2.
|
In subsections 8.1.3 to 8.1.7 of the Deed of Trust, the period of 60 days set forth in those sections will be reduced to 45 days.
|
|
6.1.3.
|
In subsection 8.1.11- the wording : "and on condition that the rights of the debentures' holders were impaired as a result" will be deleted.
|
6.2.
|
Addition of reasons for immediate repayment
|
|
6.2.1.
|
In the event that Eurocom Communications Ltd, will not have (directly or indirectly) control on the Company.
|
|
6.2.2.
|
In the event the Company will not have (directly or indirectly) control or hold the control block at Bezeq, the Israel Communication Company Ltd (hereinafter:
Bezeq
).
|
|
6.2.3.
|
In the event the Company actually expanded the series of the Debentures (Series B), and as a result of the said expansion, the Debentures (Series B) rating company decided to award a lower rating to the Debentures (Series B), than that awarded to the Debentures (Series B) when initially issued, meaning rating A2 by Midroog Ltd, or an equivalent rating of another rating company on the date of the series expansion.
As per the date of signature of this addendum, Eurocom Communications Ltd holds about 77.99% of the Company's issued capital, and the Company holds about 30.41% of the issued capital of Bezeq.
In regard to this section 6.2 -
"
holdings
", "
control
" and "
control block
" as defined in the Companies Law, 1999
"
rating company
" – a rating company approved by the Commissioner of the Capital, Insurance and Savings market at the Ministry of Finance.
|
7.
|
Modification of section 16 of the Deed of Trust
|
8.
|
Securities
|
9.
|
Early redemption
|
10.
|
General conditions
|
10.1.
|
This addendum will come into force pursuant to the issuance of the Debentures (Series B). Should the issuance of the Debentures (Series B) be cancelled for any reason whatsoever, the validity of the provisions of this addendum will expire.
|
10.2.
|
No change will occur in the remaining provisions of the original Deed of Trust and its addendums, in regard to the Debentures (Series B).
|
10.3.
|
It is clarified that the modifications detailed in this addendum are applicable to the Debentures (Series B), and will not be applicable to other series of debentures the Company is entitled to offer pursuant to the Deed of Trust and the Shelf Prospectus.
|
11.
|
Certification for reporting to MAGNA
|
_______________________
B Communications Ltd
|
______________________
Reznik, Paz, Nevo Trustees Ltd
|
1.
|
I have reviewed this annual report on Form 20-F of B Communications Ltd.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
|
4.
|
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
|
5.
|
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent function):
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
|
1.
|
I have reviewed this annual report on Form 20-F of B Communications Ltd.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
|
4.
|
The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
|
5.
|
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent function):
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
|