¨
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REGISTRATION STATEMENT PURSUANT
TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF
1934
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ý
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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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¨
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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¨
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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
|
|
Ordinary
Shares, par value NIS 0.01 per
share
|
New
York Stock Exchange (“NYSE”)
|
Page
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||
PART
I
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||
Item
1.
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Identity
of Directors, Senior Management and Advisers
|
5
|
Item
2.
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Offer
Statistics and Expected Timetable
|
5
|
Item
3.
|
Key
Information
|
5
|
Item
4.
|
Information
on the Company
|
24
|
Item
4A
|
Unresolved
Staff Comments
|
61
|
Item
5.
|
Operating
and Financial Review and Prospects
|
61
|
Item
6.
|
Directors,
Senior Management and Employees
|
89
|
Item
7.
|
Major
Shareholders and Related Party Transactions
|
105
|
Item
8.
|
Financial
Information
|
110
|
Item
9.
|
The
Offer and Listing
|
116
|
Item
10.
|
Additional
Information
|
118
|
Item
11.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
131
|
Item
12.
|
Description
of Securities Other than Equity Securities
|
133
|
PART
II
|
||
Item
13.
|
Defaults,
Dividend Arrearages and Delinquencies
|
133
|
Item
14.
|
Material
Modifications to the Rights of Security Holders and Use of
Proceeds
|
133
|
Item
15.
|
Controls
and Procedures
|
133
|
Item
16A.
|
Audit
Committee Financial Expert
|
134
|
Item
16B.
|
Code
of Ethics
|
135
|
Item
16C.
|
Principal
Accountant Fees and Services
|
135
|
Item
16D.
|
Exemptions
from the Listing Standards for Audit Committees
|
136
|
Item
16E.
|
Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers
|
136
|
PART
III
|
||
Item
17.
|
Financial
Statements
|
136
|
Item
18.
|
Financial
Statements
|
136
|
Item
19.
|
Exhibits
|
136
|
Financial
Statements
|
F-1
|
Year Ended December
31,
|
||||||||||||||||||||||||
2003
|
2004
|
2005
|
2006
|
2007
|
2007
(In $)
|
|||||||||||||||||||
(In
NIS millions, except per share data)
|
||||||||||||||||||||||||
Income
Statement Data:
|
||||||||||||||||||||||||
Revenues
|
5,261 | 5,600 | 5,114 | 5,622 | 6,050 | 1,573 | ||||||||||||||||||
Cost
of revenues
|
* 3,029 | * 3,256 | * 3,081 | * 3,273 | 3,372 | 877 | ||||||||||||||||||
Selling
and marketing expenses
|
613 | 661 | 623 | 656 | 685 | 178 | ||||||||||||||||||
General
and administrative expenses
|
682 | 684 | 656 | 659 | 652 | 169 | ||||||||||||||||||
Operating
income
|
937 | 999 | 754 | 1,034 | 1,341 | 349 | ||||||||||||||||||
Financial
income (expense), net
|
(216 | ) | (45 | ) | 24 | (155 | ) | (156 | ) | (41 | ) | |||||||||||||
Other
income (expenses), net
|
1 | 1 | *(13 | ) | *(6 | ) | (3 | ) | (1 | ) | ||||||||||||||
Income
tax
|
* 262 | * 296 | * 234 | * 314 | 309 | 80 | ||||||||||||||||||
Net
income
|
460 | 659 | 531 | 559 | 873 | 227 | ||||||||||||||||||
Basic
earnings per share
|
* 4.72 | * 6.76 | * 5.44 | * 5.73 | 8.95 | 2.33 | ||||||||||||||||||
Diluted
earnings per share
|
* 4.72 | * 6.76 | * 5.44 | * 5.73 | 8.87 | 2.31 | ||||||||||||||||||
Weighted
average ordinary shares used in calculation of basic earnings per
share
|
97,500,000 | 97,500,000 | 97,500,000 | 97,500,000 | 97,500,482 | 97,500,482 | ||||||||||||||||||
Weighted
average ordinary shares used in calculation of diluted earnings per
share
|
97,500,000 | 97,500,000 | 97,500,000 | 97,500,000 | 98,441,260 | 98,441,260 | ||||||||||||||||||
*
Restated due to initial implementation of a new Israeli Accounting
Standard No. 27 (see note 2.U.2 to our consolidated financial statements
included elsewhere in this annual report).
|
||||||||||||||||||||||||
U.S. GAAP Data(1):
|
||||||||||||||||||||||||
Net
income
|
441 | 620 | 491 | 494 | 869 | 226 | ||||||||||||||||||
Basic
earnings per share
|
4.52 | 6.36 | 5.04 | 5.07 | 8.91 | 2.32 | ||||||||||||||||||
Diluted
earnings per share
|
4.52 | 6.36 | 5.04 | 5.07 | 8.83 | 2.30 |
As at December
31,
|
||||||||||||||||||||||||
2003
|
2004
|
2005
|
2006
|
2007
|
2007
(In $)
|
|||||||||||||||||||
(In
NIS millions, except per share data)
|
||||||||||||||||||||||||
Other
Data:
|
||||||||||||||||||||||||
EBITDA(2)
|
1,890 | 1,914 | 1,643 | 1,864 | 2,115 | 550 | ||||||||||||||||||
Capital
expenditures
|
658 | 739 | 747 | 521 | 573 | 149 | ||||||||||||||||||
Dividends
declared per share
|
— | — | 34.87 | 4.41 | 13.90 | 3.61 | ||||||||||||||||||
Net
cash provided (used) by operating activities
|
1,393 | 1,471 | 1,272 | 1,477 | 1,644 | 427 | ||||||||||||||||||
Net
cash provided (used) in investing activities
|
(508 | ) | (852 | ) | (619 | ) | (633 | ) | (571 | ) | (148 | ) | ||||||||||||
Net
cash provided (used) by financing activities
|
(603 | ) | (1,068 | ) | 1,114 | (2,560 | ) | (218 | ) | (57 | ) | |||||||||||||
Subscribers(3)
|
2,300 | 2,450 | 2,603 | 2,884 | 3,073 | |||||||||||||||||||
Period
churn rate(4)
|
27.3 | % | 19.9 | % | 15.0 | % | 16.8 | % | 16.3 | % | ||||||||||||||
ARPU
(in NIS)(5)
|
162 | 174 | 151 | 149 | 149 | 39 |
As at December
31,
|
||||||||||||||||||||
2003
|
2004
|
2005
|
2006
|
2007
|
||||||||||||||||
(In
NIS millions)
|
||||||||||||||||||||
Balance
Sheet Data:
|
||||||||||||||||||||
Cash
|
454 | 5 | 1,772 | 56 | 911 | |||||||||||||||
Working
capital
|
(361 | ) | (138 | ) | 1,909 | 237 | 771 | |||||||||||||
Total
assets
|
* 6,158 | * 5,607 | * 7,361 | * 5,323 | 6,272 | |||||||||||||||
Shareholders’
equity
|
* 2,702 | * 3,361 | * 3,897 | * 597 | 830 | |||||||||||||||
U.S. GAAP Data(2):
|
||||||||||||||||||||
Total
assets
|
— | 5,610 | 11,100 | 8,998 | 9,902 | |||||||||||||||
Shareholders’
equity
|
— | 3,312 | 4,490 | 4,134 | 4,368 | |||||||||||||||
*
Restated due to initial implementation of a new Israeli Accounting
Standard No. 27 (see note 2.U.2 to our consolidated financial statements
included elsewhere in this annual report).
|
(1)
|
Under
U.S. GAAP, DIC’s acquisition of our shares in 2005 is treated as a
purchase that requires a revaluation of our assets and liabilities,
leading to increased amortization expense of intangible assets, offset by
decreased depreciation expense of tangible assets under U.S.
GAAP. In addition, we were required to push down certain DIC
debt and the interest expense relating to such debt incurred to finance
the acquisition until it was repaid in early 2006, leading to increased
financial expense under U.S. GAAP. See note 28 to our
consolidated financial statements. As a result of this
accounting treatment, U.S. GAAP data presented for the year ended and as
at December 31, 2005, for the year ended and as at December 31, 2006 and
for the year ended and as at December 31, 2007 are not comparable with the
data presented for the previous
periods.
|
(2)
|
EBITDA is a non-GAAP measure and
is defined as income before financial income (expenses), net; other income
(expenses), net; income tax; depreciation and amortization. We
present EBITDA as a supplemental performance measure because we believe
that it facilitates operating performance comparisons from period to
period and company to company by backing out potential differences caused
by variations in capital structure (most particularly affecting our
interest expense given our significant debt), tax positions
(such as the impact on periods or companies of changes in effective tax
rates or net operating losses) the age of, and depreciation expenses
associated with fixed assets. EBITDA should not be considered
in isolation or as a substitute for operating income or other statement of
operations or cash flow data prepared in accordance with GAAP as a measure
of our profitability or liquidity. EBITDA does not take into
account our debt service requirements and other commitments, including
capital expenditures, and, accordingly, is not necessarily indicative of
amounts that may be available for discretionary uses. In
addition, EBITDA, as presented in this annual report, may not be
comparable to similarly titled measures reported by other companies due to
differences in the way that these measures are
calculated.
|
|
The
following is a reconciliation of net income to
EBITDA:
|
Year
Ended December 31,
|
||||||||||||||||||||
2003
|
2004
|
2005
|
2006
|
2007
|
||||||||||||||||
(In
NIS millions)
|
||||||||||||||||||||
Net
income
|
460 | 659 | 531 | 559 | 873 | |||||||||||||||
Financial
expense (income), net
|
216 | 45 | (24 | ) | 155 | 156 | ||||||||||||||
Other
expenses (income)
|
(1 | ) | (1 | ) | 13 | 6 | 3 | |||||||||||||
Income
taxes
|
262 | 296 | 234 | 314 | 309 | |||||||||||||||
Depreciation
and amortization
|
953 | 915 | 889 | 830 | 774 | |||||||||||||||
EBITDA
|
1,890 | 1,914 | 1,643 | 1,864 | 2,115 |
(3)
|
Subscriber
data refer to active subscribers. Until June 30, 2006, we had a
three-month method of calculating our subscriber base, which means that we
deducted subscribers from our subscriber base after three months of no
revenue generation or activity on our network by or in relation to both
our post-paid and pre-paid subscribers. Commencing July 1, 2006, we
adopted a six-month method of calculating our subscriber base, since many
subscribers that were inactive for three months become active again before
the end of six months. We have not restated our prior
subscriber data presented in this table to reflect this change. The
six-month method is, to the best of our knowledge, consistent with the
methodology used by other cellular providers in Israel. This
change in methodology
|
(4)
|
Churn
rate is defined as the total number of voluntary and involuntary permanent
deactivations in a given period expressed as a percentage of the number of
subscribers at the beginning of the period. Involuntary
permanent deactivations relate to subscribers who have failed to pay their
arrears for the period of six consecutive months. Voluntary
permanent deactivations relate to subscribers who terminated their use of
our services.
|
(5)
|
Average
monthly revenue per subscriber (ARPU) is calculated by dividing revenues
from cellular services for the period by the average number of subscribers
during the period and by dividing the result by the number of months in
the period. Revenues from inbound roaming services are included
even though the number of subscribers in the equation does not include the
users of those roaming services. Inbound roaming services are
included because ARPU is meant to capture all service revenues generated
by a cellular network, including roaming services. Revenues
from sales of extended warranties are included because they represent
recurring revenues generated by cellular subscribers, but revenues from
sales of handsets, repair services and transmission and landline services
are not. We and industry analysts, treat ARPU as a key
performance indicator of a cellular operator, because it is the closest
meaningful measure of the contribution to service revenues made by an
average subscriber.
|
|
We
have set out below the calculation of ARPU for each of the periods
presented:
|
Year
Ended December 31,
|
||||||
2003
|
2004
|
2005
|
2006
|
2007
|
2007
(in$)
|
|
(In
NIS millions, except number of subscribers and months)
|
||||||
Revenues
|
5,261
|
5,600
|
5,114
|
5,622
|
6,050
|
1,573
|
less revenues from equipment
sales
|
498
|
646
|
565
|
636
|
663
|
173
|
less other
revenues*
|
22
|
21
|
38
|
61
|
93
|
24
|
adjustments to the Israeli
CPI**
|
(62)
|
—
|
—
|
—
|
—
|
—
|
Revenues
used in ARPU calculation (in NIS millions)
|
4,803
|
4,933
|
4,511
|
4,925
|
5,294
|
1,376
|
Average
number of subscribers
|
2,477,316
|
2,368,919
|
2,489,453
|
2,757,133
|
2,955,855
|
2,955,855
|
Months
during period
|
12
|
12
|
12
|
12
|
12
|
12
|
ARPU
(in NIS, per month)***
|
162
|
174
|
151
|
149
|
149
|
39
|
|
**
|
Pursuant to Israeli GAAP, until
December 31, 2003, we prepared our financial statements on the basis of
historical cost adjusted for the changes in the general purchasing power
of Israeli currency, the NIS, based upon changes in the Israeli
CPI. We reverse these adjustments in presenting
ARPU.
|
***
|
ARPU
for 2006 was restated to reflect the full impact of the change in the
methodology of calculating our subscriber base implemented in July 2006,
to allow comparison with 2007. If the change in methodology of calculating
our subscriber base had not changed in July 2006, ARPU for the year ended
December 31, 2006 and for the year ended December 31, 2007 would have been
NIS 153.
|
Month
|
High
(NIS)
|
Low
(NIS)
|
||||||
September
2007
|
4.137 | 4.013 | ||||||
October
2007
|
4.047 | 3.966 | ||||||
November
2007
|
3.969 | 3.830 | ||||||
December
2007
|
4.008 | 3.841 | ||||||
January
2008
|
3.861 | 3.625 | ||||||
February
2008
|
3.655 | 3.578 |
Year
|
Average
(NIS)
|
|||
2003
|
4.512 | |||
2004
|
4.483 | |||
2005
|
4.503 | |||
2006
|
4.442 | |||
2007
|
4.085 |
·
|
reduce
tariffs, including interconnect and roaming tariffs, limit our ability to
raise tariffs or otherwise intervene in the pricing policies for our
products and services;
|
·
|
increase
the number of competitors in the cellular market, including by providing
MVNO licenses and/or mobile WiMAX licenses; limit our ability to compete,
including by limiting our ability to develop our network, by preferring
new and/or small competitors in the allocation of new frequencies,
including those designated to the 4th
generation of cellular services;
|
·
|
regulate
the termination of predefined term agreements, including requiring us to
disconnect subscribers once the initial term
expires;
|
·
|
impose
new safety or health-related
requirements;
|
·
|
impose
additional restrictions and/or requirements on the construction and
operation of cell sites;
|
·
|
impose
restrictions on the provision of content
services;
|
·
|
limit
or otherwise intervene with the services or products that we may sell;
or
|
·
|
set
higher service standards.
|
·
|
Pelephone’s
offering of certain services jointly with its parent company, Bezeq, the
incumbent landline operator; although Bezeq and Pelephone may not offer
integrated or combined packages of cellular and landline telephone and
other telecommunication services currently, the Ministry of Communications
has stated that once Bezeq’s share of the Israeli landline telephone
market falls below 85%, it would be permitted to offer certain services
jointly with its subsidiaries subject to regulatory limitations; In
February 2008 the Ministry of Communications determined (after receiving
information from the landline operators) that Bezeq's current market share
is 88.2% in the private sector and 92.6% in the business
sector.
|
·
|
the
launch of a UMTS/HSPA network by Pelephone (expected in 2009), as it would
strengthen Pelehone’s ability to compete in the provision of inbound and
outbound roaming services as well as improve its competitive position in
the market.
|
·
|
the
entry into the Israeli cellular market by mobile virtual network
operators, or MVNOs, could increase competition and thus may have material
adverse affect on our revenues; See "Item 4. Information on the Company –
B. Business Overview – Government Regulations – Mobile Virtual Network
Operator"for additional details;
|
·
|
a
proposed amendment to the Israeli Restrictive Trade Practices Law, 1988 to
grant the Commissioner of Restrictive Trade Practices broader authority to
take action against oligopolies where there is insufficient competition,
including the authority to issue orders to remove or to ease entry or
transfer barriers, should the Commissioner conclude that this would
increase competition; if the Commissioner were to decide that the Israeli
cellular market was oligopolistic and insufficiently competitive, this
could lead to measures by the Commissioner which could limit our freedom
to manage our business, increase the competitive pressures that we face
and adversely affect our results of operations;
and
|
·
|
the
entry into the cellular market of mobile WiMAX technology (by a new
entrant or by a cellular operator); The Ministry of Communications held a
hearing on WiMAX frequencies allocation in November 2007 and is expected
to publish a WiMAX frequencies tender in
2008.
|
·
|
our
founding shareholder, Discount Investment Corporation Ltd., or DIC (or its
transferee or transferees, if approved in advance by the Ministry of
Communications as “founding shareholders”), must own at least 26% of each
of our means of control;
|
·
|
Israeli
citizens and residents among our founding shareholders (or their approved
transferees) must own at least 20% of our outstanding share capital
|
·
|
a
majority of our directors must be Israeli citizens and
residents;
|
·
|
at
least 20% of our directors must be appointed by Israeli citizens and
residents among our founding shareholders;
and
|
·
|
we
are required to have a committee of our Board of Directors that deals with
matters relating to state security, which must be comprised of at least
four directors (including an external director) having the requisite
security clearance by Israel’s General Security
Service.
|
·
|
increasing
our vulnerability to adverse economic, industry or business conditions,
including increases in the Israeli Consumer Prices Index, or
CPI;
|
·
|
limiting
our flexibility in planning for, or reacting to, changes in our industry
and the economy in general;
|
·
|
requiring
us to dedicate a substantial portion of our cash flow from operations to
service our debt, thus reducing the funds available for operations and
future business development; and
|
·
|
limiting
our ability to obtain additional financing to operate, develop and expand
our business.
|
Year
Ended December 31,
|
||||||||||||||||||||
2003
|
2004
|
2005
|
2006
|
2007
|
||||||||||||||||
Subscribers
(end of period) (in thousands)(1)
|
2,300 | 2,450 | 2,603 | 2,884 | 3,073 | |||||||||||||||
Revenues
(in NIS millions)
|
5,261 | 5,600 | 5,114 | 5,622 | 6,050 | |||||||||||||||
(1)
|
Subscriber
data refer to active subscribers. Until June 30, 2006, we had a
three-month method of calculating our subscriber base, which means that we
deduct subscribers from our subscriber base after three months of no
revenue generation or activity on our network by or in relation to both
the post-paid and pre-paid subscribers. Commencing July 1,
2006, we adopted a six-month method of calculating our subscriber base
since many subscribers that were inactive for three months become active
again before the end of six months. We have not restated our prior
subscriber data presented in this table to reflect this change. The
six-month method is, to the best of our knowledge, consistent with the
methodology used by other cellular providers in Israel. This
change in methodology resulted in an increase of our number of reported
subscribers by approximately 80,000 compared to the prior methodology and
affected our other key performance indicators
accordingly.
|
|
We
also revised our subscriber calculation methodology and 2005 but we have
not restated prior subscriber data to conform to the new
presentation. We estimate that the change in methodology in
2005 led to an increase in our reported subscriber numbers of
approximately 84,000.
|
Population
(millions)
|
7.24
|
GDP
($ billions) (PPP adjusted)
|
182.9
|
GDP
per capita ($)(PPP adjusted)
|
26,884
|
Exports
of goods & services ($ billions)
|
70.8
|
CPI
change
|
3.4%
|
Long-term
local currency sovereign credit rating by S&P
|
AA-
|
Unemployment
rate (December 31, 2007)
|
7.4%
|
December
31,
|
||||||||||||||||||||
2003
|
2004
|
2005
|
2006
|
2007
|
||||||||||||||||
Total
subscribers (millions)
|
6.6 | 7.2 | 7.8 | 8.4 | 9.0 | |||||||||||||||
Cellular
penetration (%)
|
98 | 105 | 112 | 118 | 124 |
1986
|
Bezeq
and Motorola create a joint venture called “Pelephone”, which becomes
Israel's first cellular operator. Pelephone launches N-AMPS
services
|
1994
|
Cellcom
awarded a license and launches TDMA services
|
1997
|
Cellcom
introduces first pre-paid plan to the market
|
1998
|
Partner
awarded a license and launches GSM services
|
1998
|
Pelephone
launches CDMA services
|
2001
|
Ministry
of Communications allocates additional 2G and 3G cellular frequencies for
existing cellular operators and for the licensing of a new
operator
|
2001
|
MIRS
becomes Israel's fourth cellular operator with iDEN
services
|
2002
|
Cellcom
launches GSM/GPRS services
|
2003
|
Cellcom
launches EDGE services
|
2004
|
Partner
launches UMTS services
Pelephone
launches EVDO services
|
2006
|
Cellcom
launches full scale UMTS/HSDPA services
Partner
begins deploying HSDPA
|
2008
|
Cellcom
launches HSPA services
|
·
|
Combination of leading market
position and strong operational momentum. In 2007, we have
maintained market-leading revenues from services, EBITDA and EBITDA margin
growth while steadily strengthening our cash flows. Leveraging
a series of brand, customer service and content initiatives and a
rationalization of our management structure, our senior management team
has managed to preserve Cellcom’s leading market position as reflected in
our subscriber base, revenues from services and EBITDA while controlling
capital expenditures.
|
·
|
Strong and distinctive own
brand. Our established brand enjoys strong recognition
in Israel. We consider the enhancement of our image among
consumers a top priority and continue to invest substantial resources to
maintain Cellcom as a local cellular company with a warm personal
touch. Our focus on music and music-related content services,
particularly our “Cellcom Volume” initiative, is our leading marketing
theme and one that associates us with the important growth opportunity
presented by advanced cellular content and data
services.
|
·
|
Transmission infrastructure
and landline services. We have an advanced fiber-optic
transmission infrastructure that consists of over 1,300 kilometers of
inland fiber-optic cable, which, together with our complementary
microwave-based infrastructure, connects the majority of our cell sites
and provides for substantially all of our backhaul
services. Our transmission infrastructure significantly reduces
our operational reliance on Bezeq, the incumbent landline operator in
Israel, while also saving us substantial infrastructure-leasing cash
costs. As our transmission network has transmission and data
capacity in excess of our own backhaul needs, and covers the majority of
Israel’s business parks, we offer transmission and data services to
business customers and telecommunications providers. In addition, since
July 2006, following the receipt of a landline transmission, data and
telephony services license, we offer landline telephony services to
selected businesses and as of
|
·
|
Strategic relationship with
one of Israel’s leading business groups. Our ultimate
parent company, IDB, is one of the largest business groups in
Israel. We enjoy access, through our management services
agreement, to the senior management of the IDB group, who are some of the
most experienced managers in Israel. These managers, including
veterans of the Israeli telecommunications market, provide us with
financial, managerial and strategic
guidance.
|
·
|
Strong management
team. Since IDB acquired control of us in September
2005, we have put in place a team of seasoned managers with significant
experience and solid track records in previous managerial
positions. Our Chairman, Mr. Ami Erel, is a veteran of the
Israeli communications market and previously served as the chief executive
officer of Bezeq. Our chief executive officer, Mr. Amos
Shapira, has been chief executive officer of Kimberly-Clark’s Israeli
subsidiary and of El Al Airlines, where he was credited with its
successful restructuring and improvements in customer
service. Our chief financial officer, Mr. Tal Raz, has
extensive experience in the Israeli cellular market, as he was involved in
the formation of one of our main competitors, Partner, and served as a
member of its board of directors. Our VP Marketing, Mr. Adi
Cohen had been marketing manager of Shufersal, Israel's largest retail
chain, and previously, Partner's marketing manager. Under the leadership
of Messrs. Erel, Shapira, Raz and Cohen, we have demonstrated significant
improvements in our operating results and believe that we are well
positioned to continue this trend and to execute our business
strategy.
|
·
|
Strong cash flow
generation. We have a proven track record of strong
financial performance and profitability with cash operating margins that
have been higher than those of our principal competitors. As a result, we
have been able to invest in our business and deploy advanced network
technology so that we can offer advanced services and applications, as
well as distribute dividends to our
shareholders.
|
·
|
Maximize customer
satisfaction, retention and growth. Our growth strategy
is focused on retaining our subscribers and expanding the selection of
services and products we offer to our subscribers in order to enhance
customer satisfaction and increase average revenues per
user. We strive to continually improve and enhance the
flexibility of our customer service to shorten the time required to
fulfill subscriber requests. During the second half of 2007, as part of
our strategy to constantly improve service level and customer satisfaction
and in preparation for the implementation of number portability, we
enlarged our work force. Thereafter, we began to reduce the workforce
recruited in preparation for number portability, while maintaining an
enlarged customer
|
·
|
Grow and develop our Internet,
content and data services. The usage of cellular content
and data services in Israel is currently relatively low compared to
western European countries. The usage of our Internet, content and data
services are relatively low in comparison to our competitors since we
launched our content and data services 18 months after our competitors and
we believe that we have significant growth potential in this
field. As of December 31, 2007 approximately 419,000 of our
subscribers are 3G subscribers, all post paid. We intend to continue to
invest in the improvement and upgrade of our high speed UMTS/HSPA network,
mainly to enhance its capacity and increase its speed, in order to permit
higher-quality and higher-speed multimedia content
transmission.
|
·
|
Grow roaming
revenues. We have experienced steady growth in roaming
revenues since 2003 and believe that roaming presents an important source
of future revenue and profit growth for us. As of December 31,
2007, we have GSM roaming agreements with 499 operators in 171 countries,
of which 84 operators in 38 countries are also 3G operators, and we aim to
increase our number of relationships. In particular, we intend to pursue
additional agreements with 3G operators, allowing our and their
subscribers to benefit from advanced content and data services when
traveling.
|
·
|
Further develop and strengthen
the Cellcom brand. External market surveys that we have
commissioned indicate that brand recognition has become an increasingly
important factor in subscriber selection of, and loyalty to, a cellular
operator. Due to our extensive efforts in the past few years,
we believe that we have established the Cellcom brand as one of the most
recognized and respected consumer brands in Israel. We plan to
continually enhance our brand through maintaining our high network
quality, the provision of innovative products and services, quality
customer service and investments in advertising and promotional
campaigns. We believe these enhancements are key to maintaining
our competitive advantage, differentiating our services from those of our
competitors and establishing and maintaining a successful relationship
with our subscribers.
|
·
|
Optimize our cost
structure. We intend to continue our efforts to control
costs so that we can improve profitability while also improving the
quality of our services. In addition, having already built our
own fiber-optic and microwave infrastructure reduces our operating cash
costs, as our network maintenance
|
·
|
Capitalize on our existing
infrastructure to selectively provide landline telephony
services. Our over 1,300 kilometer inland fiber-optic
network and our microwave infrastructure provide us with the ability to
offer cost-efficient landline telecommunications solutions. We
hold a license to operate a landline service in Israel and, since July
2006, we offer our landline telephony service to selected businesses. As
of February 2008, we offer additional advanced landline services to
selected businesses, through our NGN system, such as video calls and a
remote private operator, which will enable us to penetrate the residential
sector as well, should we choose to do
so.
|
·
|
Our
principal service is basic cellular telephony. In addition we
offer many other services with enhancements and additional features to our
basic cellular telephony service. These services include voice mail,
cellular fax, call waiting, call forwarding, caller identification,
conference calling, “Push-and-Talk” service (which allows subscribers to
initiate a call with one or more other persons using a designated button
in their handset without having to dial a number), “Talk 2” (two handsets
sharing the same number, thus allowing our subscribers to own both a
handset and a car phone), additional number service (enables our
subscribers to add a second phone number to their handset) and collect
call service (a self-developed service protected by our U.S.
patent).
|
·
|
We
also offer both an outbound roaming service to our subscribers when
traveling outside of Israel and an inbound roaming to visitors to Israel
who can
|
·
|
In
addition to basic cellular telephony services, we offer many value-added
services. Value-added services are important to our business as
they enable us to differentiate ourselves from our competitors, strengthen
our brand and increase subscriber usage, ARPU and subscriber
satisfaction. We offer those services that we believe are
likely to be popular with subscribers and benefit our
business. Some of the value-added services that we offer are
available only to subscribers who have supporting handset
models. The principal advanced value-added services that we
currently offer, some of which are exclusive to us,
are:
|
·
|
marketing
and branding campaigns aimed at enhancing market leadership, perceived
value, brand recognition and loyalty among our existing and potential
subscriber base;
|
·
|
investing
resources in improving customer service and retention, as well as
supporting information technology
systems;
|
·
|
introducing
innovative value-added services and identifying popular niches among
various subscriber groups;
|
·
|
investing
in improving our network technology to ensure our ability to offer quality
services and advanced services, both cellular and landline
services;
|
·
|
using
innovative sales campaigns for attracting new subscribers by offering
subsidies on handsets to new subscribers such as “1+1” (buy one, get one
free) campaigns; and
|
·
|
offering
attractive calling plans to subscribers, adapted to their needs and
preferences (for instance, we were the first cellular operator to offer
calling plans charged by one-second airtime charging unit, as opposed to
the then customary 12-second airtime charging
unit).
|
·
|
The
license may be modified, cancelled, conditioned or restricted by the
Ministry of Communications in certain instances, including: if required to
ensure the level of services we provide; if a breach of a material term of
the license occurs; if DIC (or a transferee or transferees, if approved by
the Ministry of Communications), in its capacity as our founding
shareholder, holds, directly or indirectly, less than 26% of our means of
control; if our founding shareholders who are Israeli citizens and
residents hold, directly or indirectly, less than 20% of our
means of control (DIC, as founding shareholder, has undertaken to comply
with this condition); if at least 20% of our directors are not appointed
by Israeli citizens and residents from among our founding shareholders or
if less than a majority of our directors are Israeli citizens and
residents; if any of our managers or directors is convicted of a crime of
moral turpitude and continues to serve; if we commit an act or omission
that adversely affects or limits competition in the cellular
communications market; or if we and our 10% or greater shareholders fail
to maintain combined shareholders’ equity of at least $200
million. For the purpose of the license, “means of control” is
defined as voting rights, the right to appoint a director or general
manager, the right to participate in distributions, or the right to
participate in distributions upon
liquidation;
|
·
|
It
is prohibited to acquire (alone or together with relatives or with other
parties who collaborate on a regular basis) or transfer our shares,
directly or indirectly (including a transfer by way of foreclosing on a
pledge), in one transaction or a series of transactions, if such
acquisition or transfer will result in a holding or transfer of 10% or
more of any of our means of control, or to transfer any of our means of
control if as a result of such transfer, control over our company will be
transferred from one party to another, without the prior approval of the
Ministry of Communications. For the purpose of the license,
“control” is defined as the direct or indirect ability to direct our
operations whether this ability arises from our articles of association,
from written or oral agreement or from holding any means of control or
otherwise, other than from holding the position of director or
officer;
|
·
|
It
is prohibited for any of our office holders or anyone holding more than 5%
of our means of control, to hold, directly or indirectly, more than 5% of
the means of control in Bezeq or another cellular operator in Israel, or,
for any of the foregoing to serve as an office holder of one of our
competitors, subject to certain exceptions requiring the prior approval of
the Ministry of Communications;
|
·
|
We,
our office holders or interested parties may not be parties to any
arrangement whatsoever with Bezeq or another cellular operator that is
intended or is likely to restrict or harm competition in the field of
cellular services, cellular handsets or other cellular
services. For the purpose of the license, an “interested party”
is defined as a 5% or greater holder of any means of
control;
|
·
|
We
are subject to the guidelines of Israel’s General Security Services, which
may include requirements that certain office holders and holders of
certain other positions be Israeli citizens and residents with security
clearance. For example, our Board of Directors is required to appoint a
committee to deal with matters concerning state security. Only directors
who have the requisite security clearance by Israel’s General Security
Services may be members of this committee. In addition, the
Minister of Communications is entitled under our license to appoint a
state employee with security clearance to act as an observer in all
meetings of our Board of Directors and its
committees;
|
·
|
During
the entire period of operation under the license, we are required to have
agreements with a manufacturer of cellular network equipment which must
include, among other things, a know-how agreement and an agreement
guaranteeing the supply of spare parts for our network equipment for a
period of at least seven years;
|
·
|
We
are required to interconnect our network to other public
telecommunications networks in Israel, on equal terms and without
discrimination, in order to enable subscribers of all operators to
communicate with one another;
|
·
|
We
may not give preference in providing infrastructure services to a license
holder that is an affiliated company over other license holders, whether
in payment for services, conditions or availability of services or in any
other
|
·
|
The
license sets forth the general types of payments that we may collect from
our subscribers, the general mechanisms for setting tariffs, the reports
that we must submit to the Ministry of Communications and the obligation
to provide notice to our customers and the Ministry of Communications
prior to changing tariffs. The Ministry of Communications is
authorized to intervene in setting tariffs in certain
instances;
|
·
|
The
license requires us to maintain a minimum standard of customer service,
including, among other things, establishing call centers and service
centers, maintaining a certain service level of our network, collecting
payments pursuant to a certain procedure, protecting the privacy of
subscribers and obtaining an explicit request from our subscribers to
provide services, whether by us or by third parties, as a precondition to
providing and charging for such
services;
|
·
|
The
license or any part thereof may not be transferred, pledged or encumbered
without the prior approval of the Ministry of Communications. The license
also sets forth restrictions on the sale, lease or pledge of any assets
used for implementing the license;
|
·
|
We
are required to obtain insurance coverage for our cellular
activities. In addition, the license imposes statutory
liability for any loss or damage caused to a third party as a result of
establishing, sustaining, maintaining or operating our cellular
network. We have further undertaken to indemnify the State of
Israel for any monetary obligation imposed on the State of Israel in the
event of such loss or damage. For the purpose of guaranteeing
our obligations under the license, we have deposited a bank guarantee in
the amount of $10 million with the Ministry of Communications, which may
be forfeited in the event that we violate the terms of our
license.
|
·
|
The
maximum interconnect tariff payable by a landline operator or a cellular
operator for the completion of a call on another cellular network was
decreased as of March 1, 2005 from NIS 0.45 to NIS 0.32 per minute; as of
March 1, 2006, to NIS 0.29 per minute; as of March 1, 2007, to NIS 0.26
per minute; and as of March 1, 2008 to NIS 0.22 per
minute.
|
·
|
The
maximum interconnect tariff payable by an international call operator for
the completion of a call on a cellular network is NIS 0.25 per
minute. This tariff was reduced to NIS 0.22 per minute as of
March 1, 2008.
|
·
|
The
maximum interconnect tariff payable by a cellular operator for sending an
SMS message to another cellular network was decreased as of March 1, 2005
from NIS 0.285 to NIS 0.05 per message; and as of March 2006, to NIS 0.025
per message.
|
·
|
building
permits from the local planning and building committee or the local
licensing authority (if no exemption is
available);
|
·
|
approvals
for construction and operation from the commissioner of environmental
radiation of the Ministry of Environmental
Protection;
|
·
|
permits
from the Civil Aviation Authority (in most
cases);
|
·
|
permits
from the Israel Defense Forces (in certain cases);
and
|
·
|
other
specific permits necessary where applicable, such as for cell sites on
water towers or agricultural land.
|
Year
Ended December 31,
|
||||||||||||||||
2003
|
2004
|
2005
|
2006
|
|||||||||||||
(In
NIS millions)
|
||||||||||||||||
Decrease
in depreciation expense
|
46 | 46 | 52 | 53 | ||||||||||||
Decrease
(increase) in deferred tax expense
|
(17 | ) | (4 | ) | (2 | ) | (10 | ) | ||||||||
Increase
in capital loss
|
— | — | (2 | ) | (1 | ) | ||||||||||
Increase
in net income
|
29 | 42 | 48 | 42 | ||||||||||||
Increase
in basic and diluted earnings per ordinary shares
|
0.30 | 0.43 | 0.49 | 0.43 |
Year
Ended December 31,
|
Change*
|
|||||||||||||||||||
2005
|
2006
|
2007
|
2006
vs. 2005
|
2007
vs. 2006
|
||||||||||||||||
Subscribers
at end of period(1) (in thousands)
|
2,603 | 2,884 | 3,073 | 10.8 | % | 6.6 | % | |||||||||||||
Period
churn rate(1)(2)
|
15.0 | % | 16.8 | % | 16.3 | % | 1.8 | pp | (0.5 | pp%) | ||||||||||
Average
monthly usage per subscriber (MOU) (in minutes)(1)(3)
|
321 | 333 | 348 | 3.7 | % | 4.5 | % | |||||||||||||
Average
monthly revenue per subscriber (ARPU) (1)(4) (in NIS)
|
151 | 149 | 149 | (1.3 | %) | 0.0 | % | |||||||||||||
Operating
income (in NIS millions) **
|
754 | 1,034 | 1,341 | 37.1 | % | 29.7 | % | |||||||||||||
Net
income (in NIS millions) **
|
531 | 559 | 873 | 5.3 | % | 56.2 | % | |||||||||||||
EBITDA(5)
(in NIS millions)
|
1,643 | 1,864 | 2,115 | 13.5 | % | 13.5 | % | |||||||||||||
Operating
income margin(6) **
|
14.7 | % | 18.4 | % | 22.1 | % | 3.7 | pp | 3.7 | pp | ||||||||||
EBITDA
margin(7)
|
32.1 | % | 33.2 | % | 35.0 | % | 1.1 | pp | 1.8 | pp |
*
|
pp
denotes percentage points and this measure of change is calculated by
subtracting the 2005 measure from the 2006 measure and the 2006 measure
from the 2007 measure,
respectively.
|
**
|
Restated
due to initial implementation of a new Israeli Accounting Standard No. 27
(see note 2.U.2. to our consolidated financial statements included
elsewhere in this annual report).
|
(1)
|
Subscriber
data refer to active subscribers. Until June 30, 2006, we had a
three-month method of calculating our subscriber base, which means that we
deducted subscribers from our subscriber base after three months of no
revenue generation or activity on our network by or in relation to both
the post-paid and pre-paid subscriber. Commencing July 1, 2006,
we adopted a six-month method of calculating our subscriber base, since
many subscribers that were inactive for three months become active again
before the end of six months. We have not restated our prior subscriber
data presented in this table to reflect this change. The six-month method
is, to the best of our knowledge, consistent with the methodology used by
other cellular providers in Israel. This change in methodology
resulted in an increase of our number of reported subscribers by
approximately 80,000 compared to the prior methodology and affected our
other key performance indicators accordingly. We also revised our
subscriber calculation methodology in 2005 but we have not restated prior
subscriber data to conform to the new presentation. We estimate
that the change in methodology in 2005 led to an increase in our reported
subscriber numbers of approximately
84,000.
|
(2)
|
Churn
rate is defined as the total number of voluntary and involuntary permanent
deactivations in a given period expressed as a percentage of the number of
subscribers at the beginning of such period. Involuntary
permanent deactivations relate to subscribers who have failed to pay their
arrears for the period of six consecutive months. Voluntary
permanent deactivations relate to subscribers who terminated their use of
our services.
|
(3)
|
Average
monthly minutes of use per subscriber (MOU) is calculated by dividing the
total billable minutes (of outgoing and incoming calls from other
networks, excluding roaming usage) during the month, by the average number
of subscribers during such month, and by dividing the sum of such results
for all months in the reported period by the number of months in the
period. MOU for 2006 was restated to reflect the impact of the change in
the methodology of calculating our subscriber base implemented in July
2006, to allow comparison with 2007. If the methodology of
calculating our subscriber base had not changed in July 2006, the MOU for
the years ended December 31, 2006 and December 31, 2007, would have been
343 and 357 minutes, respectively, which represents an increase of 6.9%
and 11.2%, respectively, compared with the corresponding period in
2005.
|
(4)
|
Average
monthly revenue per subscriber (ARPU) is calculated by dividing revenues
from cellular services for the period by the average number of subscribers
during the period and by dividing the result by the number of months in
the period. Revenues from inbound roaming services are included
even though the number of subscribers in the equation does not include the
users of those roaming services. Inbound roaming services are
included because ARPU is meant to capture all service revenues generated
by a cellular network, including roaming services. Revenues
from sales of extended warranties are included because they represent
recurring revenues generated by subscribers, but revenues from sales of
handsets, repair services and transmission services are
not. We, and industry analysts, treat ARPU as a key performance
indicator of a cellular operator because it is the closest meaningful
measure of the contribution to service revenues made by an average
subscriber. ARPU for 2006 was restated to reflect the impact of the change
in the methodology of calculating our subscriber base implemented in July
2006, to allow comparison to 2007. If the methodology of calculating our
subscriber base had not changed in July 2006, the ARPU for the year ended
December 31, 2006 and for the year ended December 31, 2007 would have been
NIS 153, which represents an increase of 1.3% compared with the
corresponding period in 2005.
|
|
We
have set out below the calculation of ARPU for each of the periods
presented:
|
Year
Ended December 31,
|
||||||||||||
2005
|
2006
|
2007
|
||||||||||
(In
NIS millions, except number of subscribers and months)
|
||||||||||||
Revenues
|
5,114 | 5,622 | 6,050 | |||||||||
less revenues from equipment
sales
|
565 | 636 | 663 | |||||||||
less other
revenues*
|
38 | 61 | 93 | |||||||||
Revenues
used in ARPU calculation (in NIS millions)
|
4,511 | 4,925 | 5,294 | |||||||||
Average
number of subscribers
|
2,489,453 | 2,757,133 | 2,955,855 | |||||||||
Months
during period
|
12 | 12 | 12 | |||||||||
ARPU
(in NIS, per month)**
|
151 | 149 | 149 |
**
|
ARPU
for 2006 was restated to reflect the full impact of the change in the
methodology of calculating our subscriber base implemented in July 2006,
to allow comparison with 2007. If the change in methodology of calculating
our subscriber base had not changed in July 2006, ARPU for the year ended
December 31, 2006 and for the year ended December 31, 2007 would have been
NIS 153.
|
(5)
|
EBITDA
is a non-GAAP measure and is defined as income before financial income
(expenses), net; other income (expenses), net; income tax; depreciation
and amortization. We present EBITDA as a supplemental
performance measure because we believe that it facilitates operating
performance comparisons from period to period and company to company by
backing out potential differences caused by variations in capital
structure (most particularly affecting our interest expense given our
recently incurred significant debt), tax positions (such as the impact on
periods or companies of changes in effective tax rates or net operating
losses) and the age of, and depreciation expenses associated with, fixed
assets (affecting relative depreciation expense and the impact of purchase
accounting (affecting depreciation and amortization
expense). EBITDA should not be considered in isolation or as a
substitute for operating income or other statement of operations or cash
flow data prepared in accordance with Israeli GAAP as a measure of our
profitability or liquidity. EBITDA does not take into account
our debt service requirements and other commitments, including capital
expenditures, and, accordingly, is not necessarily indicative of amounts
that may be available for discretionary uses. In addition, EBITDA, as
presented in this annual report, may not be comparable to similarly titled
measures reported by other companies due to differences in the way these
measures are calculated.
|
Year
Ended December 31,
|
||||||||||||
2005
|
2006
|
2007
|
||||||||||
(In
NIS millions)
|
||||||||||||
Net
income
|
* 531 | * 559 | 873 | |||||||||
Financial
expenses (income), net
|
(24 | ) | 155 | 156 | ||||||||
Other
expenses (income), net
|
* 13 | * 6 | 3 | |||||||||
Income
taxes
|
* 234 | * 314 | 309 | |||||||||
Operating
income
|
* 754 | * 1,034 | 1,341 | |||||||||
Depreciation
and amortization
|
* 889 | * 830 | 774 | |||||||||
EBITDA
|
1,643 | 1,864 | 2,115 |
|
* Restated due to initial implementation of a new Israeli Accounting
Standard No. 27 (see note 2.U.2. to our consolidated financial statements
included elsewhere in this annual
report).
|
(6)
|
Operating
income margin is defined as operating income as a percentage of total
revenues for each of the applicable
periods.
|
(7)
|
EBITDA
margin is defined as EBITDA as a percentage of total revenues for each of
the applicable periods.
|
Year
Ended December 31,
|
||||||||||||
2005
|
2006
|
2007
|
||||||||||
Revenues
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
Cost
of revenues
|
60.2 | % | 58.2 | % | 55.7 | % | ||||||
Gross
profit
|
39.8 | % | 41.8 | % | 44.3 | % | ||||||
Selling
and marketing expenses
|
12.2 | % | 11.7 | % | 11.3 | % | ||||||
General
and administrative expenses
|
12.8 | % | 11.7 | % | 10.8 | % | ||||||
Operating
income
|
14.8 | % | 18.4 | % | 22.2 | % | ||||||
Financial
income (expenses), net
|
0.5 | % | (2.8 | %) | (2.6 | %) | ||||||
Other
income (expenses), net
|
(0.3 | %) | (0.1 | %) | (0.1 | %) | ||||||
Income
before taxes
|
15.0 | % | 15.5 | % | 19.5 | % | ||||||
Income
tax
|
4.6 | % | 5.6 | % | 5.1 | % | ||||||
Net
income
|
10.4 | % | 9.9 | % | 14.4 | % |
Year
Ended December 31,
|
Change
|
|||||||||||||||||||
2005
|
2006
|
2007
|
2006
vs. 2005
|
2007
vs. 2006
|
||||||||||||||||
(In
NIS millions)
|
||||||||||||||||||||
Revenues
|
5,114 | 5,622 | 6,050 | 9.9 | % | 7.6 | % |
2005
|
2006
|
2007
|
||||||||||||||||||||||
Revenues
|
%
of Total Revenues
|
Revenues
|
%
of Total Revenues
|
Revenues
|
%
of Total Revenues
|
|||||||||||||||||||
(NIS
in millions)
|
(NIS
in millions)
|
(NIS
in millions)
|
||||||||||||||||||||||
Voice
services:
|
||||||||||||||||||||||||
Outgoing
air time*
|
2,552 | 49.9% | 2,683 | 47.7% | 2,833 | 46.8% | ||||||||||||||||||
Incoming
air time
|
1,072 | 21.0% | 1,145 | 20.4% | 1,188 | 19.7% | ||||||||||||||||||
Roaming
|
300 | 5.9% | 379 | 6.7% | 424 | 7.0% | ||||||||||||||||||
Total
voice services
|
3,924 | 76.8% | 4,207 | 74.8% | 4,445 | 73.5% | ||||||||||||||||||
Content
and value added services**
|
255 | 5.0% | 338 | 6.0% | 492 | 8.1% | ||||||||||||||||||
Other
services***
|
370 | 7.2% | 441 | 7.9% | 450 | 7.4% | ||||||||||||||||||
Total
services
|
4,549 | 89.0% | 4,986 | 88.7% | 5,387 | 89.0% | ||||||||||||||||||
Handsets
and accessories
|
565 | 11.0% | 636 | 11.3% | 663 | 11.0% | ||||||||||||||||||
Total
|
5,114 | 100.0% | 5,622 | 100.0% | 6,050 | 100.0% |
*
|
Including air time packages and
interconnect.
|
**
|
Consists
of content services, text messages and data
services.
|
***
|
Consists
of fixed monthly subscription fees, extended warranty fees, transmission
and landline services and others.
|
2005
|
2006
|
2007
|
||||||||||||||||||||||
Revenues
|
%
of Total Revenues
|
Revenues
|
%
of Total Revenues
|
Revenues
|
%
of Total Revenues
|
|||||||||||||||||||
(NIS
in millions)
|
(NIS
in millions)
|
(NIS
in millions)
|
||||||||||||||||||||||
Individual*
|
2,805 | 54.8% | 4,029 | 71.7% | 4,377 | 72.3% | ||||||||||||||||||
Business*
|
2,137 | 41.8% | 1,437 | 25.5% | 1,524 | 25.2% | ||||||||||||||||||
Other**
|
172 | 3.4% | 156 | 2.8% | 149 | 2.5% | ||||||||||||||||||
Total
|
5,114 | 100.0 | 5,622 | 100.0% | 6,050 | 100.0% |
*
|
We now
classify our SOHO (Small Office Home Office) derived revenues
as private (Individual) or Business. Previously, all SOHO revenues were
presented as revenues related to Business subscribers. Revenues for 2006
were reclassified . We didn’t reclassify revenues
for 2005 and therefore, the Individual and Business revenues for 2005 are
not comparable to those for 2006 and
2007.
|
**
|
Consists
of revenues from inbound roaming services and other
services.
|
2005
|
2006
|
2007
|
||||||||||||||||||||||
Revenues
|
%
of Total Revenues
|
Revenues
|
%
of Total Revenues
|
Revenues
|
%
of Total Revenues
|
|||||||||||||||||||
(NIS
in millions)
|
(NIS
in millions)
|
(NIS
in millions)
|
||||||||||||||||||||||
Pre-paid
|
682 | 13.3% | 714 | 12.7% | 729 | 12.0% | ||||||||||||||||||
Post-paid
|
4,260 | 83.3% | 4,752 | 84.5% | 5,172 | 85.5% | ||||||||||||||||||
Other*
|
172 | 3.4% | 156 | 2.8% | 149 | 2.5% | ||||||||||||||||||
Total
|
5,114 | 100.0% | 5,622 | 100.0% | 6,050 | 100.0% |
Year
Ended December 31,
|
Change
|
|||||||||||||||||||
2005
|
2006
|
2007
|
2006
vs. 2005
|
2007
vs. 2006
|
||||||||||||||||
(In
NIS millions)
|
||||||||||||||||||||
Cost
of revenues-services
|
* 2,398 | * 2,493 | 2,572 | 4.0% | 3.2% | |||||||||||||||
Cost
of revenues-equipment
|
683 | 780 | 800 | 14.2% | 2.6% | |||||||||||||||
Total
cost of revenues
|
3,081 | 3,273 | 3,372 | 6.2% | 3.0% | |||||||||||||||
Gross
profit
|
2,033 | 2,349 | 2,678 | 15.5% | 14.0% | |||||||||||||||
*
Restated due to initial implementation of a new Israeli Accounting
Standard No. 27 (see note 2.U.2 to our consolidated financial statements
included elsewhere in this annual report).
|
Year
Ended December 31,
|
Change
|
|||||||||||||||||||
2005
|
2006
|
2007
|
2006
vs. 2005
|
2007
vs. 2006
|
||||||||||||||||
(In
NIS millions)
|
||||||||||||||||||||
Selling and marketing
expenses
|
623 | 656 | 685 | 5.3 | % | 4.4 | % | |||||||||||||
General and administrative
expenses
|
656 | 659 | 652 | 0.5 | % | (1.1 | %) | |||||||||||||
Total
|
1,279 | 1,315 | 1,337 | 2.8 | % | 1.7 | % |
Year
Ended December 31,
|
||||||||||||
2005
|
2006
|
2007
|
||||||||||
(In
NIS millions)
|
||||||||||||
Financial
income (expenses), net
|
24 | (155 | ) | (156 | ) | |||||||
Other
income (expenses), net
|
*(13 | ) | *(6 | ) | (3 | ) | ||||||
*
Restated due to initial implementation of a new Israeli Accounting
Standard No. 27 (see note 2.U.2 to our consolidated financial statements
included elsewhere in this annual report).
|
Year
Ended December 31,
|
Change
|
|||||||||||||||||||
2005
|
2006
|
2007
|
2006
vs. 2005
|
2007
vs. 2006
|
||||||||||||||||
(In
NIS millions)
|
||||||||||||||||||||
Income
tax
|
* 234 | * 314 | 309 | 34.2 | % | (1.6 | %) | |||||||||||||
*
Restated due to initial implementation of a new Israeli Accounting
Standard No. 27 (see note 2.U.2 to our consolidated financial statements
included elsewhere in this annual report).
|
||||||||||||||||||||
Year
Ended December 31,
|
Change
|
|||||||||||||||||||
2005
|
2006
|
2007
|
2006
vs. 2005
|
2007
vs. 2006
|
||||||||||||||||
(In
NIS millions)
|
||||||||||||||||||||
Net
income
|
* 531 | * 559 | 873 | 5.3 | % | 56.2 | % | |||||||||||||
*
Restated due to initial implementation of a new Israeli Accounting
Standard No. 27 (see note 2.U.2 to our consolidated financial statements
included elsewhere in this annual report).
|
||||||||||||||||||||
Total
|
2008
|
2009- 2011 | 2012-2013 |
2014
and Beyond
|
||||||||||||||||
Long-term
debt obligations (including interest)(1)(2)
|
4,684 | 537 | 1,663 | 879 | 1,605 | |||||||||||||||
Capital
(finance) lease obligations
|
— | — | — | — | — | |||||||||||||||
Operating
lease obligations
|
1,626 | 243 | 596 | 230 | 557 | |||||||||||||||
Purchase
obligations
|
235 | 235 | — | — | — | |||||||||||||||
Other
long-term liabilities reflected on our balance sheet under
GAAP
|
— | — | — | — | — | |||||||||||||||
Total
|
6,545 | 1,015 | 2,259 | 1,109 | 2,162 |
Total
|
2008
|
2009- 2011 | 2012-2013 |
2014
and Beyond
|
||||||||||||||||
Long-term
debt obligations (including interest)(1)(2)
|
5,422 | 879 | 1,434 | 1,057 | 2,052 | |||||||||||||||
Capital
(finance) lease obligations
|
— | — | — | — | — | |||||||||||||||
Operating
lease obligations
|
1,626 | 243 | 596 | 230 | 557 | |||||||||||||||
Purchase
obligations
|
235 | 235 | — | — | — | |||||||||||||||
Other
long-term liabilities reflected on our balance sheet under
GAAP
|
— | — | — | — | — | |||||||||||||||
Total
|
7,283 | 1,357 | 2,030 | 1,287 | 2,609 |
(1)
|
Interest
on our credit facilities is calculated using two-month LIBOR plus a margin
of 0.8% and two-month TELBOR plus a margin of 0.97%, using LIBOR and
TELBOR in effect in November 2007. Because the interest rate
under the credit facility is variable, actual payments may
differ.
|
(2)
|
Interest
does not include (a) payments that could be required under our
interest-rate swap agreements; such payments will depend upon changes in
interest rates and could vary significantly, or (b) any increase in
interest that would be required based on increases in the Israeli
CPI.
|
·
|
cash
flows attributed to the asset
group;
|
·
|
future
cash flows for the asset group, including estimates of residual values,
which incorporate our views of growth rates for the related business and
anticipated future economic conditions;
and
|
·
|
period
of time over which the assets will be held and
used.
|
·
|
In
accordance with IFRS a provision should be created if as at balance sheet
date it is more likely than not that a commitment will be fulfilled. In
accordance with Israeli GAAP, we create a provision if it is probable that
economic resources will be used to settle the
liability.
|
·
|
In
accordance with IFRS, embedded derivatives are separated from hybrid
instruments. The separated embedded derivatives are measured according to
fair value at each balance sheet date, with the changes in fair value
being recognized in the income statement for the period. Israeli GAAP does
not require the separation of embedded derivatives from hybrid
instruments.
|
Name
|
Age
|
Position
|
||
Ami
Erel (2), (3)
|
60
|
Chairman
of the Board
|
||
Nochi
Dankner (3)
|
53
|
Director
|
||
Isaac
Manor
|
66
|
Director
|
||
Shay
Livnat (2), (3)
|
49
|
Director
|
||
Raanan
Cohen (1), (2), (4)
|
40
|
Director
|
||
Oren
Lieder (1), (2)
|
59
|
Director
|
||
Avraham
Bigger
|
61
|
Director
|
||
Rafi
Bisker (2) (4)
|
56
|
Director
|
||
Shlomo
Waxe (1), (2), (4)
|
61
|
Independent
Director
|
||
Joseph
Barnea (1), (2), (3), (4)
|
72
|
Independent
/ External Director
|
||
Ronit
Baytel (1)
|
40
|
Independent
/ External Director
|
||
Amos
Shapira
|
58
|
President
and Chief Executive Officer
|
||
Tal
Raz
|
46
|
Chief
Financial Officer
|
||
Adi
Cohen
|
42
|
Vice
President of Marketing
|
||
Eliezer
(Lipa) Ogman
|
54
|
Chief
Technology Officer
|
||
Isaiah
Rozenberg
|
47
|
Vice
President of Engineering and Network Operation
|
||
Itamar
Bartov
|
45
|
Vice
President of Executive and Regulatory Affairs
|
||
Refael
Poran
|
59
|
Vice
President of Business Customers
|
||
Meir
Barav
|
50
|
Vice
President of Sales and Services
|
||
Ronit
Ben-Basat
|
40
|
Vice
President of Human Resources
|
||
Amos
Maor
|
44
|
Vice
President of Operations and Supply Chain
|
||
Liat
Menahemi-Stadler
|
41
|
General
Legal Counsel
|
||
Gil
Ben-Itzhak
|
42
|
Controller
|
(1)
|
Member
of our Audit Committee; As of February 2008, the Audit Committee consists
of independent directors solely: Messrs. Barnea (chairman), Baytel and
Waxe.
|
(2)
|
Member
of our Cost Analysis Committee.
|
(3)
|
Member
of our Option Committee. Mr. Barnea was appointed to the option committee
in January 2008.
|
(4)
|
Member
of our Security Committee.
|
·
|
an
employment relationship;
|
·
|
a
business or professional relationship maintained on a regular
basis;
|
|
· |
control;
and
|
|
· |
service
as an office holder, excluding service as a director in a private company
prior to its initial public offering if such director was appointed in
order to serve as an external director following the
offering.
|
·
|
at
least one-third of the shares of non-controlling shareholders voted at the
meeting vote in favor of the election of the external director;
or
|
·
|
the
total number of shares of non-controlling shareholders voted against the
election of the external director does not exceed 1% of the aggregate
voting rights in the company.
|
·
|
information
on the appropriateness of a given action brought for his or her approval
or performed by virtue of his or her position;
and
|
·
|
all
other important information pertaining to these
actions.
|
·
|
refrain
from any conflict of interest between the performance of his or her duties
in the company and his or her other duties or personal
affairs;
|
·
|
refrain
from any activity that is competitive with the
company;
|
·
|
refrain
from exploiting any business opportunity of the company to receive a
personal gain for himself or herself or others;
and
|
·
|
disclose
to the company any information or documents relating to the company’s
affairs which the office holder received as a result of his or her
position as an office holder.
|
·
|
other
than in the ordinary course of
business;
|
·
|
that
is not on market terms; or
|
·
|
that
is likely to have a material impact on the company’s profitability, assets
or liabilities.
|
·
|
at
least one-third of the shareholders who have no personal interest in the
transaction and who vote on the matter must vote in favor of the
transaction; or
|
·
|
the
shareholders who have no personal interest in the transaction who vote
against the transaction may not represent more than 1% of the voting
rights in the company.
|
·
|
an
amendment to the articles of
association;
|
·
|
an
increase in the company’s authorized share
capital;
|
·
|
a
merger; and
|
·
|
approval
of related party transactions that require shareholder
approval.
|
·
|
the
securities issued amount to 20% or more of the company’s outstanding
voting rights before the issuance;
|
·
|
some
or all of the consideration is other than cash or listed securities or the
transaction is not on market terms;
and
|
·
|
the
transaction will increase the relative holdings of a shareholder that
holds 5% or more of the company’s outstanding share capital or voting
rights or that will cause any person to become, as a result of the
issuance, a holder of more than 5% of the company’s outstanding share
capital or voting rights.
|
Number
of Full-Time Equivalent Positions
|
||||||||||||
Unit
|
December
2005**
|
December
2006**
|
December
2007**
|
|||||||||
Management
and headquarters
|
39 | 32 | 34 | |||||||||
Human
resources
|
105 | 44 | 46 | |||||||||
Marketing
|
86 | 73 | 74 | |||||||||
Customers*
|
2,560 | 2,597 | 3,709 | |||||||||
Finance
|
140 | 120 | 113 | |||||||||
Technologies
|
898 | 700 | 654 | |||||||||
Total
|
3,828 | 3,566 | 4,630 |
Shares
Beneficially Owned
|
||||||||
Name
of Beneficial Owner
|
Number
|
Percent
|
||||||
Discount
Investment Corporation Ltd.*
|
56,650,000 | 58.10 | % | |||||
Directors
and executive officers as a group (21 persons)**
|
57,089,392 | 58.55 | % |
*
|
Includes
24,375,855 ordinary shares held by two wholly-owned subsidiaries of DIC
(namely, PEC Israel Economic Corporation, a Maine corporation, and DIC
Communication and Technology Ltd., an Israeli company) and 5,362,500
ordinary shares, representing 5.5% of our issued and outstanding shares,
held by four shareholders whose voting rights are vested in DIC. DIC is a
majority-owned subsidiary of IDB Development Corporation Ltd., or IDB
Development, which in turn is a majority-owned subsidiary of
IDB. IDB, IDB Development and DIC are public Israeli companies
traded on the Tel Aviv Stock
Exchange.
|
·
|
Ganden
Holdings Ltd., or Ganden, a private Israeli company controlled by Nochi
Dankner (who is also the Chairman of the board of directors and Chief
Executive Office of IDB, the Chairman of the board of directors of IDB
Development and DIC and one of our directors) and his sister Shelly
Bergman, holds, directly and through a wholly-owned subsidiary,
approximately 52.04% of the outstanding shares of
IDB;
|
·
|
Shelly
Bergman, through a wholly-owned company, holds approximately 4.23% of the
outstanding shares of IDB;
|
·
|
Avraham
Livnat Ltd., or Livnat, a private company controlled by Avraham Livnat
(one of whose sons, Zvi Livnat, is a director and Executive Vice President
of IDB, a director and Deputy Chairman of the board of directors of IDB
Development and a director of DIC, and another son, Shay Livnat, is one of
our directors and a director of IDB Development) holds, directly and
through a wholly-owned subsidiary, approximately 12.36% of the outstanding
shares of IDB; and
|
·
|
Manor
Holdings BA Ltd., or Manor, a private company controlled by Ruth Manor
(whose husband, Isaac Manor, is one of our directors a director and Deputy
Chairman of the board of directors of IDB, and a director of IDB
Development and DIC, and their son Dori Manor is a director of IDB, IDB
|
**
|
Includes
439,392 shares issuable upon the exercise of stock options that
are exercisable on, or within 60 days following, February 29, 2008.
However, the terms of the 2006 Share Inventive Plan provide for a net
exercise mechanism, the result of which is to require us to issue a
smaller number of ordinary shares than represented by the outstanding
options. Unless the Board of Directors otherwise approves, the
number of ordinary shares issuable by us upon the exercise of an option
will represent a market value that equals the difference between the
market price of the ordinary
shares and the option
exercise price of the exercised options, at the date of
exercise. Also includes the 56,650,000 shares held, directly or
indirectly, by DIC, which may be deemed to be beneficially owned by Nochi
Dankner by virtue of his control of IDB. Each of our directors who is
affiliated with IDB or DIC disclaims beneficial ownership of
such shares.
|
High
|
Low
|
|||||||
NIS
|
NIS
|
|||||||
Annually
|
133.80 | 95.24 | ||||||
2007
|
||||||||
Quarterly
|
||||||||
2007
|
||||||||
Third
Quarter
|
110.77 | 95.24 | ||||||
Fourth
Quarter
|
133.80 | 95.48 | ||||||
Monthly
|
||||||||
2007
|
||||||||
September
|
102.40 | 95.24 | ||||||
October
|
103.29 | 95.48 | ||||||
November
|
121.50 | 100.93 | ||||||
December
|
133.80 | 119.60 | ||||||
2008
|
||||||||
January
|
126.30 | 103.90 | ||||||
February
|
117.50 | 107.50 |
High
$
|
Low
$
|
|||||||
Annually
|
||||||||
2007
|
34.11 | 16.81 | ||||||
Quarterly
|
||||||||
2007
|
||||||||
Second
Quarter
|
25.34 | 16.81 | ||||||
Third
Quarter
|
25.50 | 22.60 | ||||||
Fourth
Quarter
|
34.11 | 23.52 | ||||||
Monthly
|
||||||||
2007
|
||||||||
September
|
24.46 | 23.16 | ||||||
October
|
25.91 | 23.52 | ||||||
November
|
32.40 | 25.24 | ||||||
December
|
34.11 | 29.98 | ||||||
2008
|
||||||||
January
|
32.12 | 28.96 | ||||||
February
|
32.86 | 30.00 |
·
|
a
breach of his or her duty of care to us or to another
person;
|
·
|
a
breach of his or her duty of loyalty to us, provided that the office
holder acted in good faith and had reasonable grounds to assume that his
or her act would not prejudice our
interests;
|
·
|
a
financial liability imposed upon him or her in favor of another person
concerning an act performed in the capacity as an office
holder.
|
·
|
a
financial liability imposed on or incurred by an office holder in favor of
another person by any judgment, including a settlement or an arbitrator’s
award approved by a court concerning an act performed in the capacity as
an office holder. Such indemnification may be approved (i)
after the liability has been incurred or (ii) in advance, provided that
the undertaking is limited to types of events which our Board of Directors
deems to be foreseeable in light of our actual operations at the time of
the undertaking and limited to an amount or criterion determined by our
Board of Directors to be reasonable under the circumstances, and further
provided that such events and amounts or criterion are set forth in the
undertaking to indemnify;
|
·
|
reasonable
litigation expenses, including attorney’s fees, 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 him or
her and either (A) concluded without the imposition of any financial
liability in lieu of criminal proceedings or (B) concluded with the
imposition of a financial liability in lieu of criminal proceedings but
relates to a criminal offense that does not require proof of criminal
intent; and
|
·
|
reasonable
litigation expenses, including attorneys’ fees, incurred by the office
holder or charged to him or her by a court, in proceedings instituted by
us or on our behalf or by another person, or in a criminal indictment from
which he or she was acquitted, or a criminal indictment in which he or she
was
|
·
|
a
breach by the office holder of his or her duty of loyalty unless, with
respect to insurance coverage or indemnification, the office holder acted
in good faith and had a reasonable basis to believe that the act would not
prejudice the company;
|
·
|
a
breach by the office holder of his or her duty of care if the breach was
done intentionally or recklessly;
|
·
|
any
act or omission done with the intent to derive an illegal personal
benefit; or
|
·
|
any
fine or penalty levied against the office
holder.
|
·
|
a
citizen or resident of the United
States;
|
·
|
a
corporation, or other entity taxable as a corporation, created or
organized in or under the laws of the United States or any political
subdivision thereof; or
|
·
|
an
estate or trust the income of which is subject to U.S. federal income
taxation regardless of its source.
|
·
|
When
the value of a company’s equity, as calculated under the Inflationary
Adjustments Law, exceeds the depreciated cost of its fixed assets (as
defined in the Inflationary Adjustments Law), a deduction from taxable
income is permitted equal to the product of the excess multiplied by the
applicable annual rate of inflation. The maximum deduction
permitted in any single tax year is 70% of taxable income, with the unused
portion permitted to be carried forward, linked to the increase in the
Israeli CPI.
|
·
|
If
the depreciated cost of a company’s fixed assets exceeds its equity, the
product of the excess multiplied by the applicable annual rate of
inflation is added to taxable
income.
|
·
|
Subject
to certain limitations, depreciation deductions on fixed assets and losses
carried forward are adjusted for inflation based on the increase in the
Israeli CPI.
|
As
of December 31
|
||||||||||||||||||||||||
2005
|
2006
|
2007
|
||||||||||||||||||||||
Par
Value
|
Fair
Value
|
Par
Value
|
Fair
Value
|
Par
Value
|
Fair
Value
|
|||||||||||||||||||
(In
NIS millions)
|
||||||||||||||||||||||||
Forward
contracts on exchange rate
(mainly US$– NIS) |
654 | 1 | 507 | (26 | ) | 537 | (28 | ) | ||||||||||||||||
Forward
contracts on Israeli CPI rate
|
— | — | 500 | (15 | ) | 1,800 | 24 | |||||||||||||||||
Options
on the exchange rate
(mainly US$– NIS) |
925 | 4 | 659 | (1 | ) | 530 | 1 | |||||||||||||||||
Compounded
foreign currency and interest swap
|
— | — | 718 | (70 | ) | 792 | (61 | ) | ||||||||||||||||
1,579 | 5 | 2,384 | (112 | ) | 3,659 | (64 | ) |
·
|
an
increase of 0.1% of the Israeli CPI would result in
an increase of approximately NIS 3.1 million in our financial
expenses;
|
·
|
a
devaluation of the NIS against the U.S. dollar of 1.0% would increase our
financial expenses by approximately NIS 5 million;
and
|
·
|
an
increase in NIS interest rates of 100 basis points would increase our
annual interest expense by approximately NIS 3 million ($0.8
million). An increase in U.S. dollar interest rates of
100 basis points would increase our annual interest expense by
approximately
$0.85 million.
|
·
|
Pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transaction and dispositions of the assets of the
company;
|
·
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and
directors of the company; and
|
·
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use of disposition of the company’s assets that
could have a material effect on the financial
statements.
|
2007
|
2006
|
|||||||
(NIS
in thousands)
|
||||||||
Audit Fees
|
1,535 | 786 | ||||||
Audit-Related Fees
(1)
|
872 | 3,600 | ||||||
Tax Fees
|
71 | 48 | ||||||
Total
|
2,478 | 4,434 |
(1)
|
“Audit-related
fees” includes mainly fees for services performed in connection with our
registration statement on Form F-1 for our offering in February 2007.
The registration statement expenses were reimbursed to the Company by the
shareholders who sold shares during the
offering.
|
Exhibit
Number
|
Description
|
||
1.1
|
Articles
of Association and Memorandum of Association †
|
||
2.1
|
Form
of Ordinary Share Certificate†
|
||
4.1
|
Series
A Indenture dated December 21, 2005 and an addendum dated February 27,
2006 between Cellcom and Aurora Fidelity Trust Ltd.
†
|
||
4.2
|
Series
B Indenture dated December 21, 2005 and an addendum dated February 27,
2006 between Cellcom and Hermetic Trust (1975) Ltd.
†
|
Exhibit
Number
|
Description
|
||
4.3
|
Series
C Indenture dated September 20, 2007, between Cellcom and Aurora Fidelity
Trust Ltd.*
|
||
4.4
|
Series
D Indenture dated September 20, 2007, between Cellcom and Hermetic Trust
(1975) Ltd.*
|
||
4.5
|
2006
Share Incentive Plan†
|
||
4.6
|
Registration
Rights Agreement dated March 15, 2006 among Cellcom, Goldman Sachs
International, DIC, DIC Communication and Technology Ltd. and PEC Israel
Economic Corporation†
|
||
4.7
|
Amended
Non-Exclusive General License for the Provision of Mobile Radio Telephone
Services in the Cellular Method dated June 27, 1994*
|
||
8.1
|
Subsidiaries
of the Registrant†
|
||
12.1
|
Certification
of Principal Executive Officer pursuant to 17 CFR 240.13a-14(a), as
adopted pursuant to §302 of the Sarbanes-Oxley Act *
|
||
12.2
|
Certification
of Principal Financial Officer pursuant to 17 CFR 240.13a-14(a), as
adopted pursuant to §302 of the Sarbanes-Oxley Act *
|
||
13.1
|
Certification
of Principal Executive Officers pursuant to 18 U.S.C. §1350, as adopted
pursuant to §906 of the Sarbanes-Oxley Act *
|
||
15
|
Consent
of Independent Registered Public Accounting
Firm*
|
*
|
Filed
herewith.
|
†
|
Incorporated
by reference to our registration statement on Form F-1 (registration no.
333-140030) filed with the SEC on January 17,
2007.
|
Cellcom
Israel Ltd.
|
|||
By:
|
/s/
Amos Shapira
|
||
Name:
|
Amos
Shapira
|
||
Title:
|
President
and Chief Executive Officer
|
Cellcom
Israel Ltd. and Subsidiaries
|
Consolidated
Balance Sheets
|
All
amounts are in millions except for share and per share
data
|
Convenience
translation
into
U.S.
dollar
(Note
2C)
|
||||||||||||||||
December
31
2006
|
December
31
2007
|
December
31
2007
|
||||||||||||||
Note
|
NIS
|
NIS
|
US$
|
|||||||||||||
Current
assets
|
||||||||||||||||
Cash
and cash equivalents
|
3 | 56 | 911 | 237 | ||||||||||||
Trade
receivables, net
|
4 | 1,242 | 1,385 | 360 | ||||||||||||
Other
receivables
|
5 | 123 | 133 | 34 | ||||||||||||
Inventory
|
6 | 131 | 245 | 64 | ||||||||||||
1,552 | 2,674 | 695 | ||||||||||||||
Long-term
receivables
|
7 | 526 | 545 | 142 | ||||||||||||
Property,
plant and equipment, net
|
8 | (**)(*) 2,550 | 2,368 | 616 | ||||||||||||
Intangible
assets, net
|
9 | (**) 695 | 685 | 178 | ||||||||||||
Total
assets
|
5,323 | 6,272 | 1,631 | |||||||||||||
Current
liabilities
|
||||||||||||||||
Short-term
credit
|
10 | - | 353 | 92 | ||||||||||||
Trade
payables and accrued expenses
|
11 | 819 | 1,007 | 262 | ||||||||||||
Other
current liabilities
|
12 | 496 | 543 | 141 | ||||||||||||
1,315 | 1,903 | 495 | ||||||||||||||
Long-term
liabilities
|
||||||||||||||||
Long-term
loans from banks
|
13 | 1,208 | 343 | 89 | ||||||||||||
Debentures
|
14 | 1,989 | 2,983 | 776 | ||||||||||||
Deferred
taxes
|
24 | (*) 212 | 196 | 51 | ||||||||||||
Other
long-term liabilities
|
2 | 17 | 4 | |||||||||||||
3,411 | 3,539 | 920 | ||||||||||||||
Commitments
and contingent liabilities
|
16 | |||||||||||||||
Shareholders’
equity
|
17 | |||||||||||||||
Ordinary
shares of NIS 0.01 par value as of December 31, 2006 and 2007: Authorized
– 300,000,000 shares at December 31, 2006 and 2007; issued and outstanding
97,500,000 and 97,504,721 shares at December 31, 2006 and 2007,
respectively
|
1 | 1 | - | |||||||||||||
Capital
reserve
|
(24 | ) | (4 | ) | (1 | ) | ||||||||||
Retained
earnings
|
(*) 620 | 833 | 217 | |||||||||||||
Total
shareholders’ equity
|
597 | 830 | 216 | |||||||||||||
Total
liabilities and shareholders’ equity
|
5,323 | 6,272 | 1,631 |
(*)
|
Restated
due to initial implementation of a new Israeli Accounting Standard (See
Note 2U(2))
|
(**)
|
Reclassified
due to initial implementation of a new Israeli Accounting Standard (See
Note 2U(4))
|
Cellcom
Israel Ltd. and Subsidiaries
|
Consolidated
Income Statements
|
All
amounts are in millions except for share and per share
data
|
Convenience
translation
into
U.S.
dollar
(Note
2C)
|
||||||||||||||||||||
Year
ended December 31
|
Year
ended December 31
|
|||||||||||||||||||
2005
|
2006
|
2007
|
2007
|
|||||||||||||||||
Note
|
NIS
(Note 2B)
|
US$
|
||||||||||||||||||
Revenues
|
18 | 5,114 | 5,622 | 6,050 | 1,573 | |||||||||||||||
Cost
of revenues
|
19 | * 3,081 | * 3,273 | 3,372 | 877 | |||||||||||||||
Gross
profit
|
2,033 | 2,349 | 2,678 | 696 | ||||||||||||||||
Selling
and marketing expenses
|
20 | 623 | 656 | 685 | 178 | |||||||||||||||
General
and administrative expenses
|
21 | 656 | 659 | 652 | 169 | |||||||||||||||
Operating
income
|
754 | 1,034 | 1,341 | 349 | ||||||||||||||||
Financial
income (expenses), net
|
22 | 24 | (155 | ) | (156 | ) | (41 | ) | ||||||||||||
Other
expenses, net
|
23 | * 13 | * 6 | 3 | 1 | |||||||||||||||
Income
before income tax
|
765 | 873 | 1,182 | 307 | ||||||||||||||||
Income
tax
|
24 | * 234 | * 314 | 309 | 80 | |||||||||||||||
Net
income
|
531 | 559 | 873 | 227 | ||||||||||||||||
Earnings
per share
|
||||||||||||||||||||
Basic
earnings per share in NIS (see Note 2T)
|
* 5.44 | * 5.73 | 8.95 | 2.33 | ||||||||||||||||
Diluted
earnings per share in NIS (see Note 2T)
|
* 5.44 | * 5.73 | 8.87 | 2.31 | ||||||||||||||||
Weighted-average
number of shares used in the
|
||||||||||||||||||||
calculation
of basic earnings per share
|
||||||||||||||||||||
(in
thousands)
|
97,500 | 97,500 | 97,500 | 97,500 | ||||||||||||||||
Weighted-average
number of shares used in the
|
||||||||||||||||||||
calculation
of diluted earnings per share
|
||||||||||||||||||||
(in
thousands)
|
97,500 | 97,500 | 98,441 | 98,441 |
(*)
|
Restated
due to initial implementation of a new Israeli Accounting Standard (See
Note 2U(2))
|
Cellcom
Israel Ltd. and Subsidiaries
|
Consolidated
Statements of Changes in Shareholders’ Equity
|
All
amounts are in millions
|
Share
capital amount
|
Capital
reserve
|
Cash
dividend declared subsequent to balance sheet date
|
Retained
earnings
|
Total
|
Convenience
translation into U.S. dollar (Note 2C)
|
|||||||||||||||||||
NIS
(Note 2B)
|
US$
|
|||||||||||||||||||||||
Balance
as of January 1, 2005
|
- | - | - | * 3,361 | 3,361 | 874 | ||||||||||||||||||
Changes
in the year ended December 31, 2005
|
||||||||||||||||||||||||
Movement
in capital reserve in respect of hedging transactions, net
|
- | 5 | - | - | 5 | 1 | ||||||||||||||||||
Cash
dividend declared subsequent to balance sheet date
|
- | - | 3,400 | (3,400 | ) | - | - | |||||||||||||||||
Net
income
|
- | - | - | * 531 | 531 | 138 | ||||||||||||||||||
Balance
as of December 31, 2005
|
- | 5 | 3,400 | 492 | 3,897 | 1,013 | ||||||||||||||||||
Changes
in the year ended December 31, 2006
|
||||||||||||||||||||||||
Allotment
to dividend share (Note 17B)
|
1 | - | - | (1 | ) | - | - | |||||||||||||||||
Movement
in capital reserve in respect of hedging transactions, net
|
- | (29 | ) | - | - | (29 | ) | (7 | ) | |||||||||||||||
Cash
dividend paid
|
- | - | (3,400 | ) | (430 | ) | (3,830 | ) | (996 | ) | ||||||||||||||
Net
income
|
- | - | - | * 559 | 559 | 145 | ||||||||||||||||||
Balance
as of December 31, 2006
|
1 | (24 | ) | - | 620 | 597 | 155 | |||||||||||||||||
Changes
in the year ended December 31, 2007
|
||||||||||||||||||||||||
Influence
of first time implementation of new accounting standards as of January 1,
2007 (ARO- Note 2U(2))
|
- | - | - | (5 | ) | (5 | ) | (1 | ) | |||||||||||||||
Movement
in capital reserve in respect of hedging transactions, net
|
- | (9 | ) | - | - | (9 | ) | (2 | ) | |||||||||||||||
Stock
based compensation
|
- | 29 | - | - | 29 | 7 | ||||||||||||||||||
Cash
dividend paid
|
- | - | - | (655 | ) | (655 | ) | (170 | ) | |||||||||||||||
Cash
dividend declared subsequent to balance sheet date
|
- | - | 700 | (700 | ) | - | - | |||||||||||||||||
Net
income
|
- | - | - | 873 | 873 | 227 | ||||||||||||||||||
Balance
as of December 31, 2007
|
1 | (4 | ) | 700 | 133 | 830 | 216 |
(*)
|
Restated
due to initial implementation of a new Israeli Accounting Standard (See
Note 2U(2))
|
Cellcom
Israel Ltd. and Subsidiaries
|
Consolidated
Statements of Cash Flows
|
All
amounts are in millions
|
Convenience
translation
into
U.S.
dollar
(Note
2C)
|
||||||||||||||||
Year
ended December 31
|
Year
ended December 31
|
|||||||||||||||
2005
|
2006
|
2007
|
2007
|
|||||||||||||
NIS
(Note 2B)
|
US$
|
|||||||||||||||
Cash
flows from operating activities:
|
||||||||||||||||
Net
income
|
* 531 | * 559 | 873 | 227 | ||||||||||||
Addition
required to present cash flows from
|
||||||||||||||||
operating
activities (a)
|
* 741 | * 918 | 771 | 200 | ||||||||||||
Net
cash provided by operating activities
|
1,272 | 1,477 | 1,644 | 427 | ||||||||||||
Cash
flows from investing activities:
|
||||||||||||||||
Addition
to property, plant and equipment
|
**(473 | ) | **(526 | ) | (466 | ) | (121 | ) | ||||||||
Proceeds
from sales of property, plant and equipment
|
12 | 15 | 4 | 1 | ||||||||||||
Investment
in intangible assets
|
**(158 | ) | **(122 | ) | (97 | ) | (25 | ) | ||||||||
Investment
in long term deposit
|
- | - | (12 | ) | (3 | ) | ||||||||||
Net
cash used in investing activities
|
(619 | ) | (633 | ) | (571 | ) | (148 | ) | ||||||||
Cash
flows from financing activities:
|
||||||||||||||||
Repayments
under short-term bank credit facility
|
(4,953 | ) | (1,222 | ) | - | - | ||||||||||
Borrowings
under short-term bank credit facility
|
4,894 | 1,222 | - | - | ||||||||||||
Borrowings
of long-term loans from banks
|
- | 2,155 | - | - | ||||||||||||
Payment
of long-term loans from banks
|
(533 | ) | (1,175 | ) | (645 | ) | (168 | ) | ||||||||
Proceeds
from issuance of debentures, net of issuance costs
|
1,706 | 290 | 1,066 | 277 | ||||||||||||
Paid
dividend
|
- | (3,830 | ) | (639 | ) | (166 | ) | |||||||||
Net
cash provided by (used in) financing activities
|
1,114 | (2,560 | ) | (218 | ) | (57 | ) | |||||||||
Increase
(decrease) in cash and cash equivalents
|
1,767 | (1,716 | ) | 855 | 222 | |||||||||||
Balance
of cash and cash equivalents at beginning of the period
|
5 | 1,772 | 56 | 15 | ||||||||||||
Balance
of cash and cash equivalents at end of the period
|
1,772 | 56 | 911 | 237 |
(*)
|
Restated
due to initial implementation of a new Israeli Accounting Standard (See
Note 2U(2))
|
(**)
|
Reclassified
due to initial implementation of a new Israeli Accounting Standard (See
Note 2U(4))
|
Cellcom
Israel Ltd. and Subsidiaries
|
Consolidated
Statements of Cash Flows
|
All
amounts are in millions
|
Convenience
translation
into
U.S.
dollar
(Note
2C)
|
||||||||||||||||
Year
ended December 31
|
Year
ended December 31
|
|||||||||||||||
2005
|
2006
|
2007
|
2007
|
|||||||||||||
NIS
(Note 2B)
|
US$
|
|||||||||||||||
(a) Adjustments
required to present cash flows from
|
||||||||||||||||
operating
activities
|
||||||||||||||||
Income
and expenses not involving cash flows
|
||||||||||||||||
Depreciation
and amortization
|
* 889 | * 830 | 774 | 201 | ||||||||||||
Deferred
taxes
|
*(4 | ) | *(20 | ) | (4 | ) | (1 | ) | ||||||||
Exchange
and linkage differences on long-term liabilities
|
- | (109 | ) | (7 | ) | (2 | ) | |||||||||
Capital
losses from sale of property, plant and equipment
|
* 4 | * 6 | 4 | 1 | ||||||||||||
Change
in provision for decline in value of land - held for sale
|
4 | - | (10 | ) | (2 | ) | ||||||||||
Stock
based compensation
|
- | - | 29 | 7 | ||||||||||||
Change
in other long term liabilities
|
- | - | 2 | - | ||||||||||||
893 | 707 | 788 | 204 | |||||||||||||
Changes
in assets and liabilities
|
||||||||||||||||
Increase
in trade receivables (including long-term amounts)
|
(37 | ) | (75 | ) | (139 | ) | (36 | ) | ||||||||
Decrease
(increase) in other receivables
|
||||||||||||||||
(including
long- term amounts)
|
(60 | ) | 22 | (18 | ) | (5 | ) | |||||||||
Decrease
(increase) in inventories
|
(19 | ) | (13 | ) | (114 | ) | (29 | ) | ||||||||
Increase
(decrease) in trade payables and accrued expenses (including long-term
amounts)
|
(15 | ) | 4 | 178 | 46 | |||||||||||
Increase
(decrease) in other payables and credits
|
||||||||||||||||
(including
long-term amounts)
|
(21 | ) | 273 | 76 | 20 | |||||||||||
(152 | ) | 211 | (17 | ) | (4 | ) | ||||||||||
741 | 918 | 771 | 200 | |||||||||||||
(b) Non-cash
investing and financing activities
|
||||||||||||||||
Acquisition
of property, plant and equipment and intangible assets on
credit
|
314 | 197 | 216 | 56 | ||||||||||||
Receivables
in respect of issuance of debentures
|
46 | - | - | - | ||||||||||||
Tax
withheld regarding cash dividend
|
- | - | 16 | 4 | ||||||||||||
Supplemental
information:
|
||||||||||||||||
Income
taxes paid
|
275 | 267 | 313 | 81 | ||||||||||||
Interest
paid
|
51 | 124 | 175 | 46 |
(*)
|
Restated
due to initial implementation of a new Israeli Accounting Standard (See
Note 2U(2))
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
A.
|
Cellcom
Israel Ltd. (“the Company”) was incorporated in Israel on January 31,
1994. The Company commenced its operations on June 27, 1994, after
receiving a license from the Ministry of Communications (“the MOC”) to
establish, operate and maintain a cellular mobile telephone system and
provide cellular mobile telephone services in Israel. The Company began
providing cellular mobile telephone services to the Israeli public on
December 27, 1994. The initial
license granted to the Company was for a period of 10 years and was
thereafter extended until the year
2022.
|
|
On
July 1, 2007, the Company listed its ordinary shares, which are traded on
the NYSE, on the Tel Aviv Stock Exchange
(“TASE”).
|
|
B.
|
On
April 23, 2006, Cellcom Fixed Line Communication L.P. a limited
partnership 100%-owned, directly and indirectly, by Cellcom Israel Ltd.
(hereinafter - "Cellcom Partnership") received a special general license
from the Ministry of Communications for provision of land-line
communications services. The license does not require Cellcom Partnership
to provide a universal service. Cellcom Partnership focuses on offering
services to the business sector.
|
|
A.
|
Basis
of presentation
|
|
1.
|
The
functional currency of the Company is the local currency, New Israeli
Shekels (“NIS”). The Company prepares and presents its
financial statements in NIS. Transactions denominated in foreign
currencies are recorded at the prevailing exchange rate at the time of the
transactions.
|
2. | Transition to nominal financial reporting in 2004. | |
Through
December 31, 2003, the Company prepared its financial statements on the
basis of historical cost adjusted for the changes in the general
purchasing power of Israeli currency -NIS, based upon changes in the
Israeli Consumer Price Index (“CPI”), in accordance with pronouncements of
the Institute of Certified Public Accountants in
Israel.
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
The
amounts of non-monetary assets do not necessarily represent realization
value or current economic value, but only the reported amounts of such
assets. In these financial statements, the term “cost” refers to cost in
reported amounts.
|
December
31,
|
December
31,
|
December
31,
|
||||||||||
2005
|
2006
|
2007
|
||||||||||
CPI
(in points)
|
185.1 | 184.9 | 191.2 | |||||||||
Exchange
rate of U.S.$ in NIS
|
4.603 | 4.225 | 3.846 | |||||||||
2005
|
2006
|
2007
|
||||||||||
CPI
|
2.4 | % | (0.1 | %) | 3.4 | % | ||||||
Exchange
rate of U.S.$ in NIS
|
6.9 | % | (8.2 | %) | (9.0 | %) | ||||||
|
C.
|
Convenience
translation into U.S. dollars (“dollars” or
“$”)
|
|
D.
|
Use
of estimates
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
G.
|
Allowance
for doubtful accounts
|
|
H.
|
Inventory
|
|
I.
|
Property,
plant and equipment
|
|
(1)
|
Property,
plant and equipment are stated at cost, including direct costs necessary
to prepare the asset for its intended use, and are measured at cost net of
accumulated depreciation minus impairment
losses.
|
|
(2)
|
Upon
the initial recognition of property, plant and equipment, the Company
includes in the cost of the asset all the costs it will be required to
incur in respect of a liability to dismantle and remove the asset and to
restore the site on which it was
located.
|
|
(3)
|
See
Note 2O for details regarding interest costs capitalized to property,
plant and equipment.
|
|
(4)
|
Maintenance
and repair costs are charged to expense as incurred. The cost of
significant renewals and improvements is capitalized to the carrying
amount of the respective fixed
asset.
|
|
(5)
|
Depreciation
is calculated using the straight-line method. If the property, plant and
equipment consists of several components with different estimated useful
lives, the individual significant components are depreciated over their
individual useful lives. The annual depreciation rates are as
follows:
|
%
|
||||
Network
and transmission equipment
|
5-20 | |||
Control
and testing equipment
|
15-25 | |||
Vehicles
|
15 | |||
Computers
and hardware
|
15-33 | |||
Furniture
and office equipment
|
6-15 |
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
I.
|
Property,
plant and equipment (cont'd)
|
|
J.
|
Impairment
of assets
|
K.
|
Intangible
assets
|
(1)
|
Intangible
assets are stated at cost, including direct costs necessary to prepare the
asset for its intended use. A group of similar intangible assets are
measured at cost net of accumulated amortization minus impairment
losses.
|
(2)
|
The
Company capitalizes certain costs incurred in connection with developing
or obtaining internal use software in accordance with generally accepted
accounting standards. Capitalized costs include direct development costs
associated with internal use software, including internal direct labor
costs and external costs of materials and services. These capitalized
software costs are included in "intangible assets, net" in the
consolidated balance sheets and are amortized on a straight-line basis
over the period of their expected use. Costs incurred during the
preliminary project stage, as well as maintenance and training costs, are
expensed as incurred.
|
(3)
|
Deferred
expenses in respect of commissions regarding the acquisition of new
subscribers are recognized as intangible assets, if the costs can be
measured reliably, incremental to the contract and directly attributable
to obtaining a specific subscriber. If the costs do not meet the
aforementioned criteria, they are recognized immediately as
expenses.
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
K.
|
Intangible
assets (cont'd)
|
(4)
|
Amortization
is calculated using the straight-line method. If the intangible assets
consist of several components with different estimated useful lives, the
individual significant components are amortized over their individual
useful lives. The annual amortization rates are as
follows:
|
%
|
|||||
Licenses
|
5-6 |
(mainly
6%)
|
|||
Information
systems
|
25 | ||||
Software
|
25 |
|
L.
|
Revenue
recognition
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
1.
|
Israeli Accounting Standard No
26, “Inventory” (“Standard No.
26”)
|
|
2.
|
Israeli Accounting Standard No.
27, “Property, plant and equipment” (“Standard No.
27”)
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
U.
|
Effect
of new Israeli Accounting Standards
(cont’d)
|
|
2.
|
Israeli
Accounting Standard No. 27, “Property, plant and equipment” (cont'd)
|
|
(a)
|
It
measured the said liability as at January 1, 2007 in accordance with
generally accepted accounting principles, at the amount of NIS 12
million.
|
|
(b)
|
It
calculated the amount that would have been included in the cost of the
asset on the date on which the liability was initially incurred by
capitalizing the amount of the liability mentioned in item (a) above to
the date on which the liability was initially incurred (hereinafter - the
capitalized amount) at the amount of NIS 9 million. The liability was
capitalized using the best estimate of the historical capitalization rates
suitable to the risk that was relevant to that liability during the
expired period; and,
|
|
(c)
|
It
calculated the accumulated depreciation on the capitalized amount as at
January 1, 2007 on the basis of the useful life of the asset as at that
date at the amount of NIS 4
million;
|
|
(d)
|
It recorded a tax asset in the
amount of NIS 2 million.
|
|
(e)
|
The
difference between the amount that was charged to the asset in accordance
with items (b) and (c) above, and the amount of the liability in
accordance with item (a) above, and the tax asset in accordance with item
(d) above, in the amount of NIS 5 million, was included in retained
earnings as at January 1, 2007.
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
U.
|
Effect
of new Israeli Accounting Standards
(cont’d)
|
|
2.
|
Israeli
Accounting Standard No. 27, “Property, plant and equipment”
(cont’d)
|
As
originally reported
|
Effect
of restatement |
As
reported in these financial
statements |
|||||||||||||
NIS
millions
|
NIS
millions
|
NIS
millions
|
|||||||||||||
(1) |
The effect on the
consolidated balance
sheet as at December
31, 2006
|
||||||||||||||
Property,
plant and equipment, net
|
** 2,153 | 397 | 2,550 | ||||||||||||
Long-term
liabilities -
|
|||||||||||||||
Deferred
taxes
|
105 | 107 | 212 | ||||||||||||
Shareholders’
equity
|
307 | 290 | 597 | ||||||||||||
The
effect on the shareholders equity as at January 1, 2005
|
3,161 | 200 | 3,361 | ||||||||||||
**
|
Reclassified
due to initial implementation of a new Israeli Accounting Standard (See
Note 2U(4))
|
||||||||||||||
(2) |
The effect on net
income
|
For
the year ended December
31, 2005 |
For
the year ended December
31, 2006 |
|||||||
NIS
millions
|
NIS
millions
|
|||||||
Net
income as previously reported
|
483 | 517 | ||||||
Effect of restatement:
|
||||||||
Decrease in depreciation expenses
|
52 | 53 | ||||||
Increase in capital losses
|
(2 | ) | (1 | ) | ||||
Increase in deferred tax expenses
|
(2 | ) | (10 | ) | ||||
Net income as reported in these financial statements
|
531 | 559 |
(3)
|
|
The effect on basic
and diluted earnings per ordinary
share
|
Basic and diluted earnings per ordinary share as reported in the
past
|
4.95 | 5.30 | ||||||
Effect of restatement
|
0.49 | 0.43 | ||||||
Basic and diluted earnings per ordinary share as reported in these
financial statements
|
5.44 | 5.73 |
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
U.
|
Effect
of new Israeli Accounting Standards
(cont’d)
|
|
3.
|
Israeli
Accounting Standard No. 23, “The Accounting Treatment of Transactions
between an Entity and the Controlling Interest Therein” (“Standard No.
23”)
|
|
4.
|
Israeli
Accounting Standard No. 30, "Intangible Assets" ("Standard No.
30")
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
U.
|
Effect
of new Israeli Accounting Standards
(cont’d)
|
|
5.
|
Israeli
Accounting Standard No. 29, "Adoption of International Financial Reporting
Standards ("IFRS") (“Standard No.
29”)"
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
U.
|
Effects
of new Israeli Accounting Standards
(cont'd)
|
|
5.
|
Israeli
Accounting Standard No. 29, "Adoption of International Financial Reporting
Standards" (cont'd)
|
January
1, 2007
|
December
31, 2007
|
|||||||||||||||||||||||||||||||||||
Effect
of applying IFRS
|
||||||||||||||||||||||||||||||||||||
Israeli
GAAP as
reported
prior to
the
adoption of
new
Israeli
accounting
standards
in
2007
|
Effects
reflected
upon
the
adoption
of new
Israeli
accounting
standards
in
2007
|
Israeli
GAAP as
reported
after
the
adoption of
new
Israeli
accounting
standards
in
2007
|
Other
effect of
applying
IFRS
|
IFRS
|
Israeli
GAAP
|
Effect
of
applying
IFRS
|
IFRS
|
|||||||||||||||||||||||||||||
Note
|
NIS
millions
|
NIS
millions
|
NIS
millions
|
NIS
millions
|
NIS
millions
|
NIS
millions
|
NIS
millions
|
NIS
millions
|
||||||||||||||||||||||||||||
Current
assets
|
||||||||||||||||||||||||||||||||||||
Cash
and cash equivalents
|
56 | - | 56 | - | 56 | 911 | - | 911 | ||||||||||||||||||||||||||||
Trade
receivables, net
|
1,242 | - | 1,242 | - | 1,242 | 1,397 | - | 1,397 | ||||||||||||||||||||||||||||
Other
receivables
|
A, B | 123 | - | 123 | (50 | ) | 73 | 133 | (37 | ) | 96 | |||||||||||||||||||||||||
Inventory
|
131 | - | 131 | - | 131 | 245 | - | 245 | ||||||||||||||||||||||||||||
Total
current assets
|
1,552 | - | 1,552 | (50 | ) | 1,502 | 2,686 | (37 | ) | 2,649 | ||||||||||||||||||||||||||
Long-term
receivables
|
C | 526 | - | 526 | 21 | 547 | 533 | 30 | 563 | |||||||||||||||||||||||||||
Property,
plant and
|
||||||||||||||||||||||||||||||||||||
equipment,
net
|
C, D | 2,390 | 165 | * 2,555 | (23 | ) | 2,532 | 2,368 | (33 | ) | 2,335 | |||||||||||||||||||||||||
Intangible
assets
|
D | 458 | 237 | 695 | - | 695 | 685 | - | 685 | |||||||||||||||||||||||||||
Total
non-current assets
|
3,374 | 402 | 3,776 | (2 | ) | 3,774 | 3,586 | (3 | ) | 3,583 | ||||||||||||||||||||||||||
Total
assets
|
4,926 | 402 | * 5,328 | (52 | ) | 5,276 | 6,272 | (40 | ) | 6,232 |
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
U.
|
Effects
of new Israeli Accounting Standards
(cont'd)
|
|
5.
|
Israeli
Accounting Standard No. 29, "Adoption of International Financial Reporting
Standards" (cont'd)
|
January
1, 2007
|
December
31, 2007
|
|||||||||||||||||||||||||||||||||||
Effect
of applying IFRS
|
||||||||||||||||||||||||||||||||||||
Israeli
GAAP as
reported
prior
the
adoption of
new
Israeli
accounting
standards
in
2007
|
Effects
reflected
upon
the
adoption
of new
Israeli
accounting
standards
in
2007
|
Israeli
GAAP as
reported
after
the
adoption of
new
Israeli
accounting
standards
in
2007
|
Other
effect of
applying
IFRS
|
IFRS
|
Israeli
GAAP
|
Effect
of
applying
IFRS
|
IFRS
|
|||||||||||||||||||||||||||||
Note
|
NIS
millions
|
NIS
millions
|
NIS
millions
|
NIS
millions
|
NIS
millions
|
NIS
millions
|
NIS
millions
|
NIS
millions
|
||||||||||||||||||||||||||||
Current
liabilities
|
||||||||||||||||||||||||||||||||||||
Short-term
credit
|
- | - | - | - | - | 353 | - | 353 | ||||||||||||||||||||||||||||
Trade
payables and accrued expenses
|
819 | - | 819 | - | 819 | 1,007 | - | 1,007 | ||||||||||||||||||||||||||||
Current
taxation liabilities
|
E | - | - | - | 117 | 117 | - | 122 | 122 | |||||||||||||||||||||||||||
Other
current liabilities
|
E | 496 | - | 496 | (117 | ) | 379 | 543 | (122 | ) | 421 | |||||||||||||||||||||||||
Total
current liabilities
|
1,315 | - | 1,315 | - | 1,315 | 1,903 | - | 1,903 | ||||||||||||||||||||||||||||
Long-term
loans from banks
|
1,208 | - | 1,208 | - | 1,208 | 343 | - | 343 | ||||||||||||||||||||||||||||
Debentures
|
1,989 | - | 1,989 | - | 1,989 | 2,983 | - | 2,983 | ||||||||||||||||||||||||||||
Other
long-term liabilities
|
D | 2 | 12 | * 14 | - | 14 | 17 | - | 17 | |||||||||||||||||||||||||||
Deferred
tax liabilities
|
A, B, D, F | 105 | 105 | * 210 | (57 | ) | 153 | 196 | (47 | ) | 149 | |||||||||||||||||||||||||
Total
non-current liabilities
|
3,304 | 117 | 3,421 | (57 | ) | 3,364 | 3,539 | (47 | ) | 3,492 | ||||||||||||||||||||||||||
Total
liabilities
|
4,619 | 117 | 4,736 | (57 | ) | 4,679 | 5,442 | (47 | ) | 5,395 | ||||||||||||||||||||||||||
Shareholders
equity
|
||||||||||||||||||||||||||||||||||||
Share
capital
|
1 | - | 1 | - | 1 | 1 | - | 1 | ||||||||||||||||||||||||||||
Capital
reserves
|
G | (24 | ) | - | (24 | ) | - | (24 | ) | (4 | ) | (29 | ) | (33 | ) | |||||||||||||||||||||
Cash
dividend declared subsequent to
|
||||||||||||||||||||||||||||||||||||
the
balance sheet date
|
I | - | - | - | - | - | 700 | (700 | ) | - | ||||||||||||||||||||||||||
Retained
earnings
|
A,
C, D, G, H
|
330 | 285 | * 615 | 5 | 620 | 133 | 736 | 869 | |||||||||||||||||||||||||||
Total
shareholders’ equity
|
D | 307 | 285 | 592 | 5 | 597 | 830 | 7 | 837 | |||||||||||||||||||||||||||
Total
liabilities and shareholders’ equity
|
4,926 | 402 | 5,328 | (52 | ) | 5,276 | 6,272 | (40 | ) | 6,232 |
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
U.
|
Effects
of new Israeli Accounting Standards
(cont'd)
|
|
5.
|
Israeli
Accounting Standard No. 29, "Adoption of International Financial Reporting
Standards" (cont'd)
|
Adjustment of the earnings for 2007 | ||||||||||||||||
Effect
of
|
||||||||||||||||
Israeli
|
applying
to
|
|||||||||||||||
GAAP
|
IFRS
|
IFRS
|
||||||||||||||
Note
|
NIS
millions
|
NIS
millions
|
NIS
millions
|
|||||||||||||
Revenues
|
6,050 | - | 6,050 | |||||||||||||
Cost
of revenues
|
A | 3,372 | 5 | 3,377 | ||||||||||||
Gross
profit
|
2,678 | (5 | ) | 2,673 | ||||||||||||
Selling
and marketing expenses
|
685 | - | 685 | |||||||||||||
General
and administrative expenses
|
C | 652 | 1 | 653 | ||||||||||||
Other
expenses
|
J | - | 3 | 3 | ||||||||||||
Operating
income
|
1341 | (9 | ) | 1,332 | ||||||||||||
Financing
expenses
|
(287 | ) | - | (287 | ) | |||||||||||
Financing
income
|
A | 131 | 9 | 140 | ||||||||||||
Financing
costs, net
|
(156 | ) | 9 | (147 | ) | |||||||||||
Other
income expenses
|
J | 3 | (3 | ) | - | |||||||||||
Income
before income tax
|
1,182 | 3 | 1,185 | |||||||||||||
Income
tax
|
A,C,F | 309 | 1 | 310 | ||||||||||||
Net
income
|
873 | 2 | 875 | |||||||||||||
Earnings
per share
|
||||||||||||||||
Basic
earnings per share (in NIS)
|
8.95 | 0.02 | 8.97 | |||||||||||||
Diluted
earnings per share (in NIS)
|
8.88 | 0.02 | 8.89 |
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
U.
|
Effects
of new Israeli Accounting Standards
(cont'd)
|
|
5.
|
Israeli
Accounting Standard No. 29, "Adoption of International Financial Reporting
Standards" (cont'd)
|
|
A.
|
In
accordance with Israeli GAAP, no separation of embedded derivatives is
required, as is required in accordance with IFRS, when the Company enters
into commercial contracts (mainly for cell site leases) in which a foreign
currency derivative instrument is “embedded” within the contract. This
embedded derivative is separated from the host contract and carried at
fair value in accordance with IFRS, when (1) the embedded derivative
possesses economic characteristics that are not clearly and closely
related to the economic characteristics of the host contract and (2) a
separate, stand-alone instrument with the same terms would qualify as a
derivative instrument. The embedded foreign currency derivatives are
marked to market each reporting period against net income. The effect of
applying IFRS as at January 1, 2007 includes an increase in other
receivables in the amount of NIS 10 million, an increase in deferred tax
liabilities in the amount of NIS 3 million and an increase in retained
earnings in the amount of NIS 7 million (net of tax). The effect of
applying IFRS as at December 31, 2007 includes an increase in other
receivables in the amount of NIS 14 million, an increase in deferred tax
liabilities in the amount of NIS 4 million and an increase in retained
earnings in the amount of NIS 10 million (net of tax). In addition, the
cost of revenues increased in the amount of NIS 5 million, financing
income increased in the amount of NIS 9 million, and tax expenses
increased in the amount of NIS 1 million for the year ended December 31,
2007.
|
|
B.
|
In
accordance with Israeli GAAP, deferred tax assets or liabilities were
classified as current assets or current liabilities and non-current assets
or non-current liabilities according to the classification of the assets
or liabilities for which they were created. In accordance with IFRS,
deferred tax assets are classified as non-current assets or non-current
liabilities even if it is anticipated that they will be realized in the
short term. Therefore, upon applying IFRS, short-term deferred tax assets
as at January 1, 2007 and December 31, 2007 in the amount of NIS 60
million and NIS 51 million, respectively, were reclassified from the item
of other receivables under current assets to the item of deferred tax
liabilities under non-current
liabilities.
|
|
C.
|
In
accordance with Israeli GAAP, lands leased from the Israel Lands
Administration ("ILA") are classified as property, plant and equipment and
are not depreciated. In accordance with IFRS, when these lands are not
considered owned by the Company, the lease payments are classified as
long-term receivables and are amortized over the lease period, including
the optional extension period if on the date of signing the lease
agreement it was reasonably certain that the option will be exercised.
Accordingly, as at January 1, 2007 the Company recorded an increase in
long-term receivables in the amount of NIS 21 million, a decrease in
property, plant and equipment in the amount of NIS 23 million, and a
decrease in retained earnings in the amount of NIS 2 million. As at
December 31, 2007 the Company recorded an increase in long-term
receivables in the amount of NIS 30 million, a decrease in property, plant
and equipment in the amount of NIS 33 million, and a decrease in retained
earnings in the amount of NIS 3 million. The amortization of lease
payments was reflected in an increase in amortization expense in the
amount of NIS 1 million for the year ended December 31,
2007.
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
U.
|
Effects
of new Israeli Accounting Standards
(cont'd)
|
|
5.
|
Israeli
Accounting Standard No. 29, "Adoption of International Financial Reporting
Standards" (cont'd)
|
|
D.
|
See
notes 2(U)2 and 2(U)4 regarding the adoption of Standard No. 27
and Standard No. 30 respectively.
|
|
E.
|
In
accordance with Israeli GAAP, current taxation liabilities were classified
as other current liabilities. In accordance with IFRS, current taxation
liabilities are presented as a separate item in current liabilities.
Therefore, upon applying IFRS, current taxation liabilities as at January
1, 2007 and December 31, 2007 in the amount of NIS 117 million and
NIS 122 million, respectively, were reclassified from the item of other
current liabilities under current liabilities to the item of current
taxation liabilities under current
liabilities.
|
|
F.
|
The
deferred tax liability as presented hereunder has changed based on the
aforementioned changes. The changes in the deferred taxes were calculated
on the basis of tax rates that are expected to be in effect when the
temporary differences reverse:
|
January
1
|
December
31
|
|||||||||||
2007
|
2007
|
|||||||||||
Note
|
NIS
millions
|
NIS
millions
|
||||||||||
Property,
plant and equipment, net
|
D | 105 | - | |||||||||
Other
receivables
|
A | 3 | 4 | |||||||||
Deferred
tax liabilities
|
B | (60 | ) | (51 | ) | |||||||
48 | (47 | ) |
|
G.
|
In
accordance with Israeli GAAP, expenses recognized regarding share-based
payment transactions were recorded against a capital reserve in the
shareholders' equity. In accordance with IFRS, and on the basis of the
accounting policy applied by the Company, the Company has reclassified
this capital reserve to the retained earnings. Accordingly, the balance of
the capital reserve decreased as of December 31, 2007 in the amount of NIS
29 million, and the retained earnings increased in the amount of NIS 29
million.
|
|
H.
|
The
effect of the aforementioned adjustments (net of tax) on the retained
earnings:
|
January
1
|
December
31
|
|||||||||||
2007
|
2007
|
|||||||||||
Note
|
NIS
millions
|
NIS
millions
|
||||||||||
Property,
plant and equipment, net
|
D | 285 | - | |||||||||
Other
receivables
|
A | 7 | 10 | |||||||||
Lands
leased from the ILA
|
C | (2 | ) | (3 | ) | |||||||
Classification
of surplus resulting
|
||||||||||||
from
share base payment
|
G | - | 29 | |||||||||
Dividend
declared subsequent to
|
||||||||||||
balance
sheet date
|
I | - | 700 | |||||||||
290 | 736 |
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
U.
|
Effects
of new Israeli Accounting Standards
(cont'd)
|
|
5.
|
Israeli
Accounting Standard No. 29, "Adoption of International Financial Reporting
Standards (cont'd)
|
|
I.
|
In
accordance with Israeli GAAP, a dividend declared subsequent to the
balance sheet date and before the approval date of the financial
statements was appropriated within shareholders’ equity as a separate item
“Dividend declared subsequent to balance sheet date” against a decrease in
retained earnings. In accordance with IFRS, such a dividend only requires
disclosure and does not require any equity reclassification. Accordingly,
as at December 31, 2007 the balance of retained earnings increased and the
dividend declared subsequent to the balance sheet date that is presented
in shareholders’ equity decreased by the amount of NIS 700
million.
|
|
J.
|
In
accordance with Israeli GAAP, gains and losses from the sale of property,
plant and equipment net and other income / expenses were not included in
operating income. In accordance with IFRS, these items are included in
operating income. The effect of applying IFRS for the year ended December
31, 2007 is reflected in a reclassification of these items so as to be
included in the operating income, in the amount of an expense
of NIS 3 million.
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
December
31
|
||||||||
2006
|
2007
|
|||||||
NIS
millions
|
NIS
millions
|
|||||||
Israeli
currency - NIS
|
45 | 901 | ||||||
Foreign
currency (mainly USD)
|
11 | 10 | ||||||
56 | 911 |
December
31
|
||||||||
2006
|
2007
|
|||||||
NIS
millions
|
NIS
millions
|
|||||||
Open
accounts and unbilled revenue
|
691 | 768 | ||||||
Checks
and credit cards receivables
|
165 | 158 | ||||||
856 | 926 | |||||||
Current
maturity of long-term receivables
|
565 | 626 | ||||||
1,421 | 1,552 | |||||||
Less
– allowance for doubtful accounts
|
179 | 167 | ||||||
1,242 | 1,385 |
December
31
|
||||||||
2006
|
2007
|
|||||||
NIS
millions
|
NIS
millions
|
|||||||
Prepaid
expenses
|
54 | 49 | ||||||
Deferred
taxes
|
60 | 51 | ||||||
Derivative
financial instruments
|
- | 30 | ||||||
Other
|
9 | 3 | ||||||
123 | 133 |
December
31
|
||||||||
2006
|
2007
|
|||||||
NIS
millions
|
NIS
millions
|
|||||||
Handsets
|
98 | 195 | ||||||
Accessories
|
7 | 18 | ||||||
Spare
parts
|
26 | 32 | ||||||
131 | 245 |
|
B.
|
Inventories
of handsets, accessories and spare-parts as at December 31, 2007, are
presented net of a provision for decline in value in the amount of NIS 2
million (December 31, 2006 – NIS 10
million).
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
December
31
|
||||||||
2006
|
2007
|
|||||||
NIS
millions
|
NIS
millions
|
|||||||
Open
accounts (a)
|
913 | 974 | ||||||
Credit
cards receivables (a)
|
171 | 180 | ||||||
Other
|
57 | 67 | ||||||
Total
|
1,141 | 1,221 | ||||||
Less
deferred interest income (b)
|
46 | 47 | ||||||
1,095 | 1,174 | |||||||
Less
- Allowance for doubtful accounts
|
4 | 3 | ||||||
1,091 | 1,171 | |||||||
Less
current maturities
|
565 | 626 | ||||||
526 | 545 |
|
Maturity
dates are as follows:
|
December
31
|
||||
2007
|
||||
NIS
millions
|
||||
Second
year
|
362 | |||
Third
year
|
134 | |||
Fourth
year and thereafter
|
49 | |||
545 |
|
(a)
|
The
long-term trade receivables arise from the sale of handsets on a
contractual installment basis (primarily 36 monthly
payments).
|
|
(b)
|
The
deferred interest income constitutes the difference between the amount of
the long-term receivables and their discounted value based on the relevant
imputed interest rate at the date of the transaction. The annual interest
rate used by the Company in 2006 and 2007 was
5%.
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
Land*
|
Network
and
transmission
equipment
|
Control
and
testing
equipment
|
Vehicles
|
Computers,
furniture
and
office
equipment
|
Leasehold
improvements
|
Total
|
||||||||||||||||||||||
NIS
millions
|
NIS
millions
|
NIS
millions
|
NIS
millions
|
NIS
millions
|
NIS
millions
|
NIS
millions
|
||||||||||||||||||||||
For
the year ended December 31, 2007
|
||||||||||||||||||||||||||||
Cost
|
||||||||||||||||||||||||||||
Balance
at January 1, 2007
|
33 | 7,445 | 261 | 16 | 1,853 | 176 | 9,784 | |||||||||||||||||||||
Reclassification
to Intangible Assets
|
||||||||||||||||||||||||||||
(See
note 2U(4))
|
- | - | - | - | (680 | ) | - | (680 | ) | |||||||||||||||||||
Balance
at January 1, 2007
|
33 | 7,445 | 261 | 16 | 1,173 | 176 | 9,104 | |||||||||||||||||||||
Assets
Retirement Obligations- impact of first time adoption (See note
2U(2))
|
- | 9 | - | - | - | - | 9 | |||||||||||||||||||||
Additions
|
- | 324 | 23 | 2 | 63 | 15 | 427 | |||||||||||||||||||||
Dispositions
|
- | (33 | ) | (1 | ) | (2 | ) | (285 | ) | - | (321 | ) | ||||||||||||||||
Balance
at December 31, 2007
|
33 | 7,745 | 283 | 16 | 951 | 191 | 9,219 | |||||||||||||||||||||
Accumulated
Depreciation
|
||||||||||||||||||||||||||||
Balance
at January 1, 2007
|
- | 5,343 | 210 | 6 | 1,324 | 104 | 6,987 | |||||||||||||||||||||
Reclassification
to Intangible Assets
|
||||||||||||||||||||||||||||
(See
note 2U(4))
|
- | - | - | - | (443 | ) | - | (443 | ) | |||||||||||||||||||
Balance
at January 1, 2007
|
- | 5,343 | 210 | 6 | 881 | 104 | 6,544 | |||||||||||||||||||||
Assets
Retirement Obligations- impact of first time addition (See note
2U(2))
|
- | 4 | - | - | - | - | 4 | |||||||||||||||||||||
Depreciation
for the period
|
- | 473 | 18 | 2 | 108 | 15 | 616 | |||||||||||||||||||||
Dispositions
|
- | (28 | ) | - | (1 | ) | (284 | ) | - | (313 | ) | |||||||||||||||||
Balance
at December 31, 2007
|
- | 5,792 | 228 | 7 | 705 | 119 | 6,851 | |||||||||||||||||||||
Provision
for decline in value of land held for sale **
|
||||||||||||||||||||||||||||
Balance
at January 1,2007
|
(10 | ) | - | - | - | - | - | (10 | ) | |||||||||||||||||||
Reversal
of impairment losses
|
10 | - | - | - | - | - | 10 | |||||||||||||||||||||
Balance
at December 31, 2007
|
- | - | - | - | - | - | - | |||||||||||||||||||||
Net
Depreciated cost as at December 31, 2007
|
33 | 1,953 | 55 | 9 | 246 | 72 | 2,368 | |||||||||||||||||||||
Net
Depreciated cost as at December 31, 2006
|
23 | 2,102 | 51 | 10 | 292 | 72 | 2,550 |
*
|
Represents
land that was leased from the Israel Lands Administration, a capital lease
for the period of 49 years, commencing from November
2001.
|
|
|
**
|
On
December 31, 2006, the Company had a provision for the decline in value of
land in the amount of NIS 10 millions. On December 10, 2007, the Company
signed an agreement (containing generally accepted terms) for the sale of
rights in the land to Bayside Land Corporation Ltd., which is controlled
by the controlling shareholder of the Company, (the "Buyer") for the sum
of NIS 39 million plus value added tax. The agreement was subject to all
corporate approvals of both parties, as required under Israeli Companies
Law and came into force only after these approvals were obtained
subsequent to the balance sheet date, in February
2008.
|
|
The
transfer of rights in the land to the Buyer is subject to the consent of
the Israeli Land Authority ("ILA"). In case the ILA does not give its
consent to the transfer of rights, each party will be entitled to
terminate the agreement, in which case any sums previously paid or placed
in escrow by the Buyer will be returned to the Buyer. In case the ILA
demands consent fees and/or any other payment following a claim (if made)
as to the Company's alleged failure to comply with the terms of the
development and/or lease agreements signed with the ILA, the parties will
contest such demands. If such demands are not revoked, the Company will
bear their cost. The
Company has the right to terminate the agreement, should such payment to
ILA exceed 3% of the consideration plus value added tax, unless the
parties or either of them, decides to pay the difference between the said
3% and the ILA’s demands.
|
|
On
December 31, 2007, as result of the agreement signed with the Buyer, the
Company fully reversed the impairment provision in respect of the land
that was previously made.
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
B.
|
Additional
information
|
|
1.
|
The
accumulated cost of the network as at December 31, 2007 includes direct
costs incurred to construct the cellular mobile telephone system, in the
amount of NIS 258 million (December 31, 2006 – NIS 245 million)
including capitalized engineering, professional consulting
fees, direct salaries and financing
expenses.
|
|
2.
|
Depreciation
in respect of property, plant and equipment totaled NIS 775 million,
NIS 702 million and NIS 616 million for the years ended December
31, 2005, 2006 and 2007,
respectively.
|
|
3.
|
Regarding
liens – see Note 16D.
|
|
Note
9 - Intangible Assets, Net
|
Licenses
|
Information
Systems
|
Software
|
Deferred
expenses
|
Total
|
||||||||||||||||
NIS
millions
|
NIS
millions
|
NIS
millions
|
NIS
millions
|
NIS
millions
|
||||||||||||||||
Cost
|
||||||||||||||||||||
Balance
at January 1, 2006
|
549 | - | - | 13 | 562 | |||||||||||||||
Reclassification
from Property, Plant and Equipment, Net (See note 2U(4))
|
- | 396 | 187 | - | 583 | |||||||||||||||
Balance
at January 1, 2006
|
549 | 396 | 187 | 13 | 1,145 | |||||||||||||||
Additions
|
1 | 63 | 34 | - | 98 | |||||||||||||||
Dispositions
|
- | - | - | (4 | ) | (4 | ) | |||||||||||||
Balance
at December 31, 2006
|
550 | 459 | 221 | 9 | 1,239 | |||||||||||||||
Balance
at January 1, 2007
|
550 | 459 | 221 | 9 | 1,239 | |||||||||||||||
Additions
|
- | 87 | 38 | 21 | 146 | |||||||||||||||
Dispositions
|
- | (7 | ) | - | (9 | ) | (16 | ) | ||||||||||||
Balance
at December 31, 2007
|
550 | 539 | 259 | 21 | 1,369 | |||||||||||||||
Accumulated
Amortization
|
||||||||||||||||||||
Balance
at January 1, 2006
|
56 | - | - | 13 | 69 | |||||||||||||||
Reclassification
from Property, Plant and Equipment, Net (See note 2U(4))
|
- | 232 | 95 | - | 327 | |||||||||||||||
Balance
at January 1, 2006
|
56 | 232 | 95 | 13 | 396 | |||||||||||||||
Amortization
for the period
|
36 | 76 | 40 | - | 152 | |||||||||||||||
Dispositions
|
- | - | - | (4 | ) | (4 | ) | |||||||||||||
Balance
at December 31, 2006
|
92 | 308 | 135 | 9 | 544 | |||||||||||||||
Balance
at January 1, 2007
|
92 | 308 | 135 | 9 | 544 | |||||||||||||||
Amortization
for the period
|
39 | 73 | 42 | 2 | 156 | |||||||||||||||
Dispositions
|
- | (7 | ) | - | (9 | ) | (16 | ) | ||||||||||||
Balance
at December 31, 2007
|
131 | 374 | 177 | 2 | 684 | |||||||||||||||
Net
amortized cost as at January 1, 2006
|
493 | 164 | 92 | - | 749 | |||||||||||||||
Net
amortized cost as at December 31, 2006
|
458 | 151 | 86 | - | 695 | |||||||||||||||
Net
amortized cost as at December 31, 2007
|
419 | 165 | 82 | 19 | 685 |
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
B.
|
Additional
information
|
|
1.
|
The
accumulated cost of the information systems as at December 31, 2007
includes cumulative capitalized development costs of software for internal
use in the amount of NIS 491 million (December 31, 2006 –
NIS 459 million).
|
|
2.
|
Amortization
in respect of the intangible assets other than licenses totaled NIS 109
million, NIS 116 million, and NIS 117 million for the years ended December
31, 2005, 2006 and 2007,
respectively.
|
|
3.
|
License
amortization expenses for the years ended December 31, 2005, 2006 and 2007
totaled NIS 29 million, NIS 36 million and NIS 39 million,
respectively.
|
December
31
|
||||
2007
|
||||
NIS
millions
|
||||
2008
|
35 | |||
2009
|
32 | |||
2010
|
29 | |||
2011
|
29 | |||
2012
|
29 | |||
2013
|
29 |
|
Composition
|
December
31
|
||||||||
2006
|
2007
|
|||||||
NIS
millions
|
NIS
millions
|
|||||||
Current
maturities of long-term loans
|
- | 232 | ||||||
Current
maturities of debentures
|
- | 121 | ||||||
- | 353 |
|
Composition
|
December
31
|
||||||||
2006
|
2007
|
|||||||
NIS
millions
|
NIS
millions
|
|||||||
Open
accounts:
|
||||||||
In
Israeli currency
|
204 | 249 | ||||||
In
foreign currency (mainly in U.S. dollars)
|
118 | 194 | ||||||
Accrued
expenses (mainly in NIS)
|
497 | 564 | ||||||
819 | 1,007 |
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
Composition
|
December
31
|
||||||||
2006
|
2006
|
|||||||
NIS
millions
|
NIS
millions
|
|||||||
Employees
and related liabilities
|
113 | 126 | ||||||
Government
institutions
|
117 | 156 | ||||||
Accrued
expenses
|
119 | 128 | ||||||
Deferred
revenue
|
30 | 38 | ||||||
Derivative
financial instruments
|
112 | 94 | ||||||
Advances
from customers
|
5 | 1 | ||||||
496 | 543 |
|
Note
13 - Long-term Loans from Banks
|
December
31
|
||||||||
2006
|
2006
|
|||||||
NIS
millions
|
NIS
millions
|
|||||||
In
or linked to USD
|
718 | 327 | ||||||
In
NIS - unlinked
|
507 | 253 | ||||||
1,225 | 580 | |||||||
Less
debt issuance cost
|
(17 | ) | (5 | ) | ||||
Total
|
1,208 | 575 | ||||||
Less
current maturities
|
- | (232 | ) | |||||
1,208 | 343 |
December
31
|
||||
2007
|
||||
NIS
millions
|
||||
2008
|
232 | |||
2009
|
232 | |||
2010
|
116 | |||
580 |
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
C.
|
Credit
facility agreement
|
December
31
|
December
31
|
|||||||||||
2006
|
2007
|
|||||||||||
Interest
rate %
|
NIS
millions
|
NIS
millions
|
||||||||||
Debentures
(Series A) – linked to the Israeli CPI
|
5.00 | % | 1,065 | 1,092 | ||||||||
Debentures
(Series B) – linked to the Israeli CPI
|
5.30 | % | 925 | 948 | ||||||||
Debentures
(Series C) – linked to the Israeli CPI
|
4.60 | % | - | 245 | ||||||||
Debentures
(Series D) – linked to the Israeli CPI
|
5.19 | % | - | 827 | ||||||||
Unamortized
premium on debentures
|
3 | 1 | ||||||||||
Unamortized
discount on debentures
|
- | (3 | ) | |||||||||
1,993 | 3,110 | |||||||||||
Less
current maturities
|
- | (121 | ) | |||||||||
Less
- Deferred issuance expenses
|
(4 | ) | (6 | ) | ||||||||
1,989 | 2,983 |
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
Note
14 – Debentures (cont'd)
|
December
31
|
||||
2007
|
||||
NIS
millions
|
||||
2008
|
121 | |||
2009
|
297 | |||
2010
|
297 | |||
2011
|
297 | |||
2012
|
297 | |||
More
than 5 years
|
1,801 | |||
3,110 |
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
A.
|
The
Company’s liability for severance pay for its Israeli employees is
calculated pursuant to Israeli severance pay law based on the most recent
salary of the employees multiplied by the number of years of employment as
of the balance sheet date. After completing one full year of employment,
the Company’s Israeli employees are entitled to one month’s salary for
each year of employment or a portion thereof. The Company’s liability is
fully provided by monthly deposits with severance pay funds, insurance
policies and by an accrual. For the majority of the Company employees the
payments to the pension funds and insurance companies discharge the
Company’s obligation to the employees as required by the Severance Pay Law
in connection with Section 14. Accumulated amounts in the pension funds
and with the insurance companies are not under the control or
administration of the Company, and accordingly, neither those amounts nor
the corresponding accrual for severance pay are reflected in the balance
sheet. The obligation of the Company, under law and labor agreements, for
termination benefits to employees not covered by the aforementioned
pension or insurance plans is NIS 2 millions and NIS 3 million as of
December 31, 2006 and 2007 respectively as included in the balance sheet,
under other long term liabilities.
|
|
B.
|
The
severance pay expenses for the years ended December 31, 2005, 2006
and 2007 were approximately NIS 27 million, NIS 27 million and NIS 28
million, respectively.
|
|
C.
|
In
January 2008, subsequent to the balance sheet date, under an order issued
by the Ministry of Industry, Commerce and Labor, all Israeli employers are
obligated to contribute to a pension plan amounts equal to a certain
percentage of the employee's wages, for all employees, after a certain
minimum period of employment. The Company is complying with this
obligation. Under the new order, additional employees are entitled to
contribution to a pension plan, which shall increase gradually until 2013
and up to 5% of the employee’s wages, with additional identical
contribution for severance pay. A provision in the Company's financial
reports covers severance pay to those employees who were not entitled to
managers’ insurance or other pension arrangements or for the balance
between future severance pay according to the law and the contribution for
severance payment, made according to said
order.
|
|
A.
|
Contingent
liabilities
|
|
1.
|
In
December 2002, a purported class action lawsuit was filed against the
Company and another cellular operator in the District Court of
Tel-Aviv–Jaffa in connection with the Company’s incoming call tariff to
subscribers of other operators when calling the Company’s subscribers
during the period prior to the regulation of interconnect fees. If the
lawsuit is certified as a class action, the amount claimed is NIS 1.6
billion. Based on advice of counsel, management believes that the Company
has a good defense against the certification of the lawsuit as a class
action. Accordingly, no provision has been included in the financial
statements in respect of this
claim.
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
A.
|
Contingent
liabilities (cont'd)
|
|
2.
|
In
August 2001, a purported class action lawsuit was filed against the
Company in the District Court of Tel-Aviv-Jaffa by one of the Company’s
subscribers in connection with air time tariffs and subscriber fees that
were allegedly collected not in accordance with the agreement of
undertaking signed by the Company’s subscribers at the time of joining the
Company’s network. If the lawsuit is certified as a class action, the
amount claimed is NIS 1.26 billion plus punitive damages at a rate of not
less than 100% of the amount of the judgment. In February 2004, the motion
for certification as a class action was denied. In March 2004, this
decision was appealed to the Israeli Supreme Court. In January 2006, the
Supreme Court approved the plaintiff’s motion to amend his complaint to
reflect the amendment to the Consumer Protection Law and return to the
District Court in order to examine the amendment’s effect, if any, on the
District Court ruling, which remains in effect. In October 2006, a
separate motion was granted allowing the plaintiff to further revise his
complaint, as a result of enactment of the Class Action Claims Law. Based
on advice of counsel, management believes that the Company has good
defenses against the certification of the lawsuit as a class action.
Accordingly, no provision has been included in the Company's financial
statements in this respect.
|
|
3.
|
In
September 2000, a purported class action lawsuit was filed against the
Company in the District Court of Tel-Aviv–Jaffa by one of the Company’s
subscribers in connection with VAT charges in respect of warranty premiums
and the provision of warranty services that were allegedly provided not in
accordance with the law. If the lawsuit is certified as a class action,
the amount of the claim is NIS 402 million. In February 2006, the motion
for certification as a class action was denied. In March 2006, an appeal
was filed with the Supreme Court challenging the dismissal. Based on
advice of counsel, management believes that the Company has a good defense
against the appeal. Accordingly, no provision has been included in the
Company’s financial statements in respect of this
claim.
|
|
4.
|
In
August 2001, a purported class action lawsuit was filed against the
Company in the District Court of Tel-Aviv–Jaffa by one of the Company’s
subscribers in connection with the Company outgoing call tariffs for the
‘Talkman’ (pre-paid) plan and the collection of a distribution fee for
‘Talkman’ calling cards. If the claim is certified as a class action, the
amount claimed is NIS 135 million. In June 2004, the motion for
certification as a class action was denied. In September 2004, this
decision was appealed to the Israeli Supreme Court. In July 2007, pursuant
to the appeal, the Israeli Supreme Court granted a petition filed by both
parties with mutual consent, in light of the Israeli Class Action Law,
2006, to resubmit the purported class action lawsuit for consideration in
the District Court of Tel Aviv-Jaffa. Based on advice of counsel,
management believes that the Company has a good defense against the
certification of the lawsuit as a class action. Accordingly, no provision
has been included in the Company’s financial statements in respect of this
claim.
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
A.
|
Contingent
liabilities (cont'd)
|
|
5.
|
A
dispute exists between the Company and the Ministry of Communications with
respect to the payment of fees for its use of the GSM and UMTS
frequencies. The amount in dispute as at December 31, 2007, is
approximately NIS 69 million (including interest and CPI linkage
differences). Until a final decision on this matter, the Company has
deposited approximately half of this amount with the Ministry of
Communications. Based on advice of counsel, management believes that the
method the Company applies in the calculation of the fees is the lawful
method. Accordingly, no provision has been included in the Company's
financial statements in respect of the amount in dispute. The amount the
Company has deposited is refundable upon the favorable resolution of the
dispute. The Company has applied to the courts regarding this
issue.
|
|
6.
|
In
April 2003, a purported class action lawsuit was filed against two other
cellular operators and the Company with the District Court of
Tel-Aviv–Jaffa in connection with the Company’s incoming SMS tariff to
subscribers of other operators when sending SMS messages to the Company’s
subscribers during the period before the regulation of SMS interconnect
fees. If the lawsuit is certified as a class action, the amount claimed is
NIS 90 million, without the specification of the amount claimed from the
Company. Based on advice of counsel, management believes that the Company
has a good defense against the certification of the lawsuit as a class
action. Accordingly, no provision has been included in the Company's
financial statements in respect of this
claim.
|
|
7.
|
In
August 2003, a purported class action lawsuit was filed against the
Company in the District Court of Tel-Aviv–Jaffa and later transferred to
the District Court of Central Region by one of the Company’s subscribers
in connection with the Company method of rounding the rates of calls, the
Company method of linking rates of calls to the consumer price index and
that a certain rate that was approved by the Ministry of Communications in
1996 was unlawfully approved. If the lawsuit is certified as a class
action, the amount claimed is NIS 150 million. In March 2006, the
plaintiff filed an amended statement of its claim, following the amendment
to the Consumer Protection Law in December 2005, to which the Company has
replied. Based on advice of counsel, management believes that the Company
has a good defense against the certification of the lawsuit as a class
action. Accordingly, no provision has been included in the Company
financial statements in respect of this
claim.
|
|
8.
|
In
January 2004, a purported class action lawsuit was filed against the
Company in the District Court of Tel-Aviv–Jaffa by one of its subscribers,
with respect to the rates of calls made from the cellular voice mail using
the “Boomering” service through use of one of the marketing programs the
Company offered to its subscribers. If the claim is certified as a class
action, the amount claimed is NIS 10 million. Based on advice of counsel,
management believes that the Company has a good defense against the
certification of the claim as a class action. Accordingly, no provision
has been included in the Company's financial statements in respect of this
claim.
|
|
9.
|
In
March 2005, a purported class action lawsuit was filed against the Company
in the District Court of Tel-Aviv–Jaffa by one of its subscribers alleging
that the Company’s marketing campaigns are misleading. In December 2007,
the motion for certification as a class action and the lawsuit were
denied. Had the lawsuit been certified as a class action, the total amount
claimed was NIS 10 million.
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
A.
|
Contingent
liabilities (cont’d)
|
|
10.
|
In
April 2005, a lawsuit was filed against the Company in the District Court
of Tel-Aviv–Jaffa by one of the Company's former dealers and importers for
the amount of NIS 28 million (reduced for court fee purposes from
approximately NIS 38 million), alleging that the Company breached an
agreement between the parties. Based on advice of counsel, management
believes that the Company has a good defense against the lawsuit.
Accordingly, no provision has been made in the Company financial
statements in respect of this
claim.
|
|
11.
|
In
October 2005, a purported class action lawsuit was filed against the
Company in the District Court of Tel-Aviv–Jaffa by one of its subscribers,
alleging the Company has mislead in regard to refunds, with respect to the
use of air-time in various marketing plans. If the lawsuit is certified as
a class action, the amount claimed is NIS 10 million. In November 2007,
the motion for certification as a class action and the lawsuit were
denied. In January 2008, subsequent to the balance sheet date, this
decision was appealed to the Israeli Supreme Court. Based on advice of
counsel, management believes that the Company has a good defense against
the appeal. Accordingly, no provision has been made in the Company
financial statements in respect of this
claim.
|
|
12.
|
The
Company has undertaken to indemnify the Company’s directors and officers,
as well as certain other employees for certain events listed in the
indemnifications letters given to them. The aggregate amount payable
to all directors and officers and other employees who may have been or
will be given identical indemnification letters is limited to the amounts
the Company receives from the Company’s insurance policy plus 30% of the
Company’s shareholders’ equity as of December 31, 2001 or NIS 486 million,
and to be adjusted by the Israeli
CPI.
|
|
13.
|
In
August 2006, a purported class action lawsuit was filed against the
Company and two other cellular operators in the District Court of
Tel-Aviv–Jaffa by one of the Company’s subscribers in connection with sums
allegedly unlawfully charged for a segment of a call that was not actually
carried out. If the lawsuit is certified as a class action, the total
amount claimed is estimated by the plaintiffs as exceeding NIS 100
million, without specifying the amount claimed from the Company
individually. Based on advice of counsel, management believes, that the
Company has a good defense against the certification of the claim as a
class action. Accordingly, no provision has been included in the Company’s
financial statements in respect of this claim. In November 2006 a similar
purported class action was filed against the Company, two other cellular
operators and two landline operators in the District Court of
Tel-Aviv–Jaffa by four plaintiffs claiming to be subscribers of the three
cellular operators. The latter was withdrawn in October 2007, by the
plaintiffs, with regards to the Company and the other two cellular
operators, following a procedural agreement reached between the plaintiffs
in the latter lawsuit and the plaintiffs in former purported class action
lawsuit (the two lawsuits will be heard together). Had the withdrawn
lawsuit been certified as a class action, the amount claimed from the
Company and each of the other cellular operators by the plaintiffs would
have been approximately NIS 53 million (the amount claimed from all five
defendants was estimated by the plaintiffs to be approximately NIS 159
million).
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
A.
|
Contingent
liabilities (cont’d)
|
|
14.
|
In
November 2006, a purported class action lawsuit was filed against the
Company, a third party that had provided services to customers of the
Company (“the Supplier”) and other parties allegedly related to the
supplier, in the District Court of Tel-Aviv–Jaffa by a subscriber of the
Company. The lawsuit is in connection with sums allegedly charged by the
Company in respect of content services of the Supplier without the
subscriber’s consent. If the lawsuit is certified as a class action, the
total amount claimed from the Company, the Supplier and other parties is
estimated by the plaintiffs as approximately NIS 18 million, in addition
to another NIS 10 million for mental anguish. Based on advice
of counsel, management believes, that the Company has a good defense
against the certification of the claim as a class action. Accordingly, no
provision has been included in the Company’s financial statements in
respect of this claim.
|
|
15.
|
In
January 2007 a lawsuit was filed against the Company in an arbitration
proceeding for the amount of approximately NIS 35 million by a company
(the “Plaintiff”) that purchased cellular services from the Company in
order to sell the services to its customers, alleging, among other things,
that the Company has breached agreements between the parties and making
claims concerning the Company's conduct. The Company rejects all claims
made by the Plaintiff against the Company. Based on advice of counsel,
management believes, that the Company has a good defense against the
claim. Accordingly, no provision has been made in the financial statements
in respect of this claim.
|
|
16.
|
In
January 2007 a purported class action lawsuit was filed against the
Company, two other cellular operators and two landline operators in the
District Court of Jerusalem by three plaintiffs, claiming to be
subscribers of some of the defendants, in connection with an alleged
violation of the defendants' statutory duty to allow their subscribers to
transfer with their number to another operator, thus, allegedly causing
monetary damage to the subscribers. In March 2008, subsequent to balance
sheet date, the motion for certification as a class action was dismissed
without prejudice and the lawsuit was dismissed with prejudice, following
request of the plaintiffs to withdraw their claim. Had the lawsuit been
certified as a class action, the total amount claimed was estimated by the
plaintiffs to be at least NIS 10.6
billion.
|
|
17.
|
In
February 2007, a purported class action was filed against the Company in
the District Court of Tel-Aviv, by a plaintiff claiming to be a customer
of the Company. The plaintiff claimed that the Company unlawfully
collected VAT amounts from subscribers who are residents of Eilat. In May
2007, the motion for certification as a class action and the lawsuit were
denied. Had the lawsuit been certified as a class action, the amount
claimed from the Company was estimated by the plaintiff at approximately
NIS 33 million
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
A.
|
Contingent
liabilities (cont’d)
|
|
18.
|
In
February 2007, a purported class action lawsuit was filed against the
Company and two other cellular operators in the District Court of Tel-Aviv
by plaintiffs claiming to be subscribers of the three cellular operators,
in connection with amounts that were allegedly overcharged not in
accordance with the cellular operators’ licenses, based on charge units
larger than the charge units the Company was allegedly authorized to
charge under the Company's licenses for calls initiated or received by
subscribers outside of Israel. If the lawsuit is certified as a class
action, the total amount claimed from the cellular operators is estimated
by the plaintiffs to be approximately NIS 449 million, of which
approximately NIS 193 million is attributed to the Company. Based on
advice of counsel, management believes that the Company has a good defense
against the certification of the claim as a class action. Accordingly, no
provision has been made in the financial statements in respect of this
claim.
|
|
19.
|
In
April 2007, a purported class action lawsuit was filed against the Company
in the District Court of Tel-Aviv-Jaffa, by two plaintiffs who claim to be
subscribers of the Company. The claim alleges that the Company, unlawfully
and in violation of its license, raised its rates in pricing plans that
include a commitment to purchase certain services for a fixed period. In
February 2008, subsequent to the balance sheet date, the motion for
certification as a class action and the lawsuit were denied. Had the
lawsuit been certified as a class action, the amount claimed was estimated
by the plaintiffs at approximately NIS 230
million.
|
|
20.
|
In
May 2007, a purported class action lawsuit was filed against the Company
in the District Court of Tel-Aviv-Jaffa, by two plaintiffs who claim to be
subscribers of the Company. The claim alleges that the Company, unlawfully
and in violation of its license, raised its rates in pricing plans that
include a commitment to purchase certain services for a fixed period. If
the claim is recognized as a class action, the amount claimed is
approximately NIS 875 million. Based on the advice of the Company's legal
counsel, management believes that the Company has a good defense against
the certification of the lawsuit as a class action. Accordingly, no
provision has been included in the Company's financial statements in
respect of this claim.
|
|
21.
|
In
May 2007, a purported class action lawsuit was filed against the Company
and another cellular operator in Israel, in the District Court of
Jerusalem, by plaintiffs who claim to be subscribers of the defendants.
The claim alleges that the defendants charged the subscribers for calls
initiated or received while in Israel, through a foreign cellular network,
with roaming rates which are higher than those agreed in the defendants'
pricing plans for local calls. If the claim is recognized as a class
action, the amount claimed from the defendants is estimated by the
plaintiffs as approximately NIS 34 million, of which the amount attributed
to the Company is estimated to be approximately NIS 12 million. Based on
the advice of the Company's legal counsel, management believes that the
Company has a good defense against the certification of the lawsuit as a
class action. Accordingly, no provision has been included in the Company's
financial statements in respect of this
claim.
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
22.
|
In
September 2007, a purported class action lawsuit was filed against the
Company and two other cellular operators in the District Court of
Jerusalem, by three plaintiffs who claim to be subscribers of the
defendants. The plaintiffs claim that the defendants charged their
subscribers for SMS messages sent by them to subscribers who disabled
their ability to receive SMS messages and/or misled the senders by an
indication on their cell phones that such messages were sent. If the claim
is certified as a class action, the amount claimed from all three
defendants is estimated by the plaintiffs to be approximately NIS 182
million, without specifying the amount claimed from the Company
specifically. At this preliminary stage, before the Company has submitted
its response, management believes, based on the advice of the Company's
legal counsel, that the Company has a good defense against the
certification of the lawsuit as a class action. Accordingly, no provision
has been made in the financial statements in respect of this
claim.
|
|
23.
|
In
November 2007, a purported class action lawsuit was filed against the
Company in the District Court of Central Region, by a plaintiff who claims
to be a subscriber of the Company. The plaintiff claims that the Company
charged its subscribers for content services without obtaining their
specific consent, in a manner which complies with the provisions of its
general license. If the lawsuit is certified as a class action, the amount
claimed is estimated by the plaintiff to be NIS 432 million. At this
preliminary stage, before the Company has submitted its response,
management believes, based on the advice of the Company's legal counsel,
that the Company has a good defense against the certification of the
lawsuit as a class action. Accordingly, no provision has been made in the
financial statements in respect of this
claim.
|
|
24.
|
In
December 2007, the Company was served with a petition filed with the
Israeli High Court of Justice against the Israeli Minister of
Communications and another cellular operator. seeking to retroactively
apply the amendment to cellular operators' general license, effected
September 2007, which prevents the Company from offering subscribers
calling plans using airtime charging units other than the basic airtime
charging unit, or alternatively, to retroactively cancel any charges which
may be imposed on subscribers when transferring, before the lapse of a
predetermined period, to calling plans based on the basic airtime charging
unit. The Company and one other cellular operator were joined as formal
respondents. The court has instructed only the Ministry of Communications
to submit its response. In its recently submitted response, the Ministry
of Communications opposes the petition. At this preliminary stage, before
the court has decided to conduct a hearing and before the Company has
submitted any response, management believes, based of advice of counsel,
the court will not grant the remedies sought. Accordingly, no provision
has been made in the financial statements in respect of this claim. For
additional details regarding the amendment to the general license refer to
note 16.B.2.
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
25.
|
In
December 2007, a purported class action lawsuit was filed against the
Company and two other cellular operators in the District Court of Tel
Aviv, by plaintiffs who claim to be residing next to cell sites of the
defendants which the plaintiffs claim were built in violation of the law.
The plaintiffs allege that the defendants have created environmental
hazards by unlawfully building cell sites and, therefore, demand that the
defendants compensate the public for damages (other than personal damages,
such as depreciation of property and/or health related damages which are
excluded from the purported class action), demolish existing unlawfully
built cell sites and refrain from unlawfully building new cell sites. If
the lawsuit is certified as a class action, the compensation claimed from
the defendants (without any allocation of this amount among the
defendants) is estimated by the plaintiffs to be NIS 1 billion. At this
preliminary stage, before the Company has submitted its response,
management believes, based on the advice of the Company's legal counsel,
that the Company has a good defense against the certification of the
lawsuit as a class action . Accordingly, no provision has been made in the
financial statements in respect of this
claim.
|
|
26.
|
In
December 2007, a purported class action lawsuit was filed against the
Company in the District Court of Central Region, by plaintiffs claiming to
be the subscribers of the Company, in connection with sums the Company
allegedly overcharged, when the Company raised its tariffs in certain
calling plans. If the lawsuit is recognized as a class action, the amount
claimed is estimated by the plaintiffs to be approximately NIS 44 million.
At this preliminary stage, the Company is unable to assess the lawsuit's
chances of success. Accordingly, no provision has been made in the
financial statements in respect of this
claim.
|
|
27.
|
In
February 2008, subsequent to balance sheet date, a purported class action
lawsuit was filed against the Company in the District Court of Central
Region, by plaintiffs claiming to be subscribers of the Company, in
connection with sums the Company allegedly overcharged, when the Company
raised its tariffs for SMS packages. If the lawsuit is recognized as a
class action, the amount claimed is estimated by the plaintiffs to be
approximately NIS 43 million. At this preliminary stage, the Company is
unable to assess the lawsuit's chances of success. Accordingly, no
provision has been made in the financial statements in respect of this
claim.
|
|
28.
|
In
March 2008, subsequent to balance sheet date, a purported class action
lawsuit was filed against the Company in the District Court of Central
Region, by plaintiffs claiming to be the Company's subscribers. The
plaintiffs claim that the Company has unlawfully charged its' subscribers
for providing them with call details records. If the lawsuit is certified
as a class action, the total amount claimed from the Company is estimated
by the plaintiffs to be approximately NIS 440 million. At this
preliminary stage the Company is unable to assess the lawsuit's chances of
success. Accordingly, no provision has been made in the financial
statements in respect of this
claim.
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
B.
|
Effects
of new legislation and standards
|
|
1.
|
National
Zoning Plan 36 is in the process of being revised. Current proposed
changes would impose additional restrictions and/or requirements on the
construction and operation of cell sites and could, if adopted, harm the
Company's ability to construct new cell sites, make the process of
obtaining building permits for the construction and operation of cell
sites more cumbersome and costly and may delay the future deployment of
the Company's network.
|
|
(a)
|
The
Company estimates, based on the opinion of the Company legal advisors,
that there are currently no legal grounds for indemnification with respect
to sites established based on a permit issued under the NZP, prior to the
entry of the aforementioned amendment. Attempts, which have yet to be
decided, are being made to assert such grounds for legal
claims.
|
|
(b)
|
As
part of the Company's considerations for establishment of new cell sites,
the Company will also examine the potential for a claim under Section
197. To the best of management’s knowledge, at this point no
court decision has been made indicating a decline in the value of property
due to the construction of a cell
site.
|
|
(c)
|
The
need to dismantle and remove existing sites, and the difficulties in
establishing alternative sites, could have an adverse effect on the
Company’s results of operations.
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
B.
|
Effects
of new legislation and standards
|
|
(d)
|
The
Company is unable to estimate the future impact of the indemnification
requirement, as detailed in sections a and b. Despite this, if the Company
shall be required to make substantial payments under the indemnity
letters, it may have an adverse effect on the Company’s financial
results.
|
|
2.
|
On
December 5, 2004, certain changes to the Communications Regulations
(Telecommunications and Broadcasting) (Payments for Interconnecting),
2000, provided for the following:
|
|
(a)
|
A
gradual decline in the rate of interconnection tariffs received from other
cellular networks or from landline network operators, as follows: as of
March 1, 2005, the rate of NIS 0.45 per minute will decrease to a maximum
rate of NIS 0.32 per minute; as of March 1, 2006, to a maximum rate of NIS
0.29 per minute; as of March 1, 2007, to a maximum rate of NIS 0.26 per
minute, and as of March 1, 2008, to a maximum rate of NIS 0.22 per
minute.
|
|
(b)
|
A
decrease in the rate of interconnection tariffs received from
international network operators, from the current rate of NIS 0.25 per
minute, to a maximum rate of NIS 0.22 per minute, as of March 1,
2008.
|
|
(c)
|
A
decrease, as of March 1, 2005, in the rate of SMS interconnection tariffs
received from other cellular operators from the rate of NIS 0.285 per
message, to a maximum rate of NIS 0.05 per message, and an additional
decrease to a maximum rate of NIS 0.025 per message as of March 1,
2006.
|
|
(d)
|
The
aforementioned tariffs in items a through c do not include Value Added Tax
and linkage to the CPI, and they are annually updated, based on the annual
change in the CPI, as of March 1, 2005, in accordance with the provisions
of the aforementioned regulations.
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
B.
|
Effects
of new legislation and standards
|
|
3.
|
As a
result of an amendment to the Communications Law in March 2005, cellular
and landline telephone operators were required to implement number
portability by September 1, 2006. Despite efforts to introduce
the requisite technology and coordinate the transition to number
portability by September 1, 2006, no cellular or landline operator has
implemented number portability by that date. Number portability was
implemented in Israel in December 2007. Number portability permits
cellular and landline network subscribers in Israel to change network
operators (from one cellular operator to another and from one landline
operator to another) without having to change their telephone
numbers.
|
|
C.
|
Commitments
|
|
1.
|
The
Company has commitments regarding the license it was granted in 1994, most
of which are:
|
|
a.
|
Not
to pledge any of the assets used to execute the license without the
advance consent of the Ministry of
Communications.
|
|
b.
|
To
pay the State of Israel royalties equal to 2.5% of the Company’s revenues
generated from telecommunications services, less payments transferred to
other license holders for interconnect fees or roaming services, sale of
handsets and losses from bad debt. The rate of these royalties has
decreased in recent years, from 4.5% in 2002, to 4% in 2003, to 3.5% in
2004 and 2005, to 3% in 2006 and to 2.5% in 2007. The royalty rate will
continue to be reduced by 0.5% per year, until reaching a rate of
1%.
|
|
c.
|
The
Company’s shareholders’ joint equity, combined with the Company’s equity,
shall not amount to less than $ 200 million. Regarding this stipulation, a
shareholder holding less than 10% of the rights to the Company’s equity is
not taken into account.
|
|
2.
|
In
September 2005, the Company signed an agreement with Ericsson Israel Ltd.
according to which the Company will acquire a UMTS radio access network
and ancillary products and services. The Company is obligated to purchase
maintenance services for 5 years from the launch of the system (until
2011) and the Company has an option to purchase additional maintenance
services for 20 years from the launch of the Systems (until 2026),
including all the required services for establishment and maintenance of
the system (including receipt of updates and upgrades for the system). The
Company agreed to purchase 60% of cell sites the Company purchases by
September 2010 from Ericsson. The aggregate scope of the agreement is
$27.5 million payable over five years. Under the agreement the parties
generally have limited liability for direct damages of up to 40% of the
value of the agreement.
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
3.
|
Be’eri
Printers provides the Company’s printing supplies and invoices as well as
the distribution, packaging and delivery of invoices and other mail to the
postal service distribution centers. The Company entered into an agreement
with Be’eri Printers - Limited Partnership and with Be’eri Technologies
(1977) Ltd., or together Be’eri, for printing services in August 2003.
Under the terms of the agreement, the Company committed to purchase from
Be’eri a minimum monthly quantity of production and distribution services
which may be reduced if the Company modifies its printed invoice delivery
policy. The agreement is valid until July
2008.
|
|
4.
|
As
at December 31, 2007, the Company has commitments to purchase equipment
for the communications’ network and cellular telephone equipment, at an
amount estimated at
NIS 221 million.
|
|
a.
|
Office
buildings and warehouses – there are lease agreements for periods of up to
21 years and ten months.
|
|
b.
|
Switching
stations – there are lease agreements for switching station locations for
periods of up to 12 years.
|
|
c.
|
Cell
sites – there are lease agreements for cell sites for periods of up to 28
years and eleven month.
|
|
d.
|
Service
centers, retail stores and stands – there are lease agreements for service
and installation centers and stands for periods of up to 14 years and
three months.
|
|
e.
|
Transmission
services for cell sites and
switches.
|
December
31
|
||||
2007
|
||||
NIS
millions
|
||||
2008
|
243 | |||
2009
|
228 | |||
2010
|
208 | |||
2011
|
160 | |||
2012
|
127 | |||
2013
and thereafter
|
660 | |||
1,626 |
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
a. |
To
the Government of Israel (to guarantee performance of the License) – U.S.
$10 million.
|
|
|
b.
|
To
the Government of Israel (to guarantee performance of the License for
Cellcom Fixed Line Communication L. P.) - NIS 10
million.
|
c. |
To
suppliers and government institutions – NIS 13
million.
|
December
31, 2007
|
||||||||
Issued
and
|
||||||||
Authorized
|
Paid-up
|
|||||||
NIS
|
NIS
|
|||||||
Ordinary
shares of NIS 0.01 par value each
|
3,000,000 | 975,047 |
December
31, 2006
|
||||||||
Issued
and
|
||||||||
Authorized
|
Paid-up
|
|||||||
NIS
|
NIS
|
|||||||
Ordinary
shares of NIS 0.01 par value each
|
3,000,000 | 975,000 |
|
A.
|
On
June 7, 2007, September 6, 2007 and December 3, 2007, the Company
distributed to its shareholders a cash dividend in the amount of NIS 198
million, NIS 201 million and NIS 256 million,
respectively.
|
|
B.
|
The
earnings per share and the number of shares used in the calculation of
earnings per share have been retroactively adjusted to reflect the
increase in the authorized share capital, stock split and allotments of
bonus shares discussed below in accordance with Israeli Standard No.
22.
|
|
1)
|
To
reorganize the share capital so that each ordinary share of NIS 0.1 par
value would be split into 10 ordinary shares of NIS 0.01 par
value.
|
|
2)
|
To
increase the authorized share capital from 100,000,000 ordinary shares of
NIS 0.01 par value to 300,000,000 ordinary shares of NIS 0.01 par
value.
|
|
3)
|
To
allot 96,360,000 fully paid share dividend of NIS 0.01 par value to all
shareholders, pro rata.
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
C.
|
Share
Based Incentive Plan
|
|
·
|
weighted
average expected life of the options of 4.25
years;
|
|
·
|
risk
free, annual interest rate of 5.01%, which represents the risk− free
interest rate of zero-coupon U.S. Government Bonds;
and
|
|
·
|
expected
average volatility of 26.69%, which represents a weighted average standard
deviation rate for the stock prices of similar publicly traded
companies.
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
C.
|
Share
Based Incentive Plan (cont'd)
|
|
The
changes in the balance of the options in 2007 were as
follows:
|
Number
of options
|
Weighted
average of exercise price (US Dollars)
|
|||||||
Balance
as at January 1, 2007
|
2,414,143 | 10.93 | ||||||
Granted
during the year
|
30,786 | 10.93 | ||||||
Forfeited
during the year
|
(40,078 | ) | - | |||||
Exercised
during the year
|
*(7,955 | ) | 30.18 | |||||
Total
options outstanding as at December 31, 2007
|
2,396,896 | 10.93 | ||||||
Total
of exercisable options as at December 31, 2007
|
588,270 | 10.93 |
|
*
|
In
accordance with the net exercisable method, 4,721 ordinary shares were
issued from the exercising of 7,955
options.
|
|
The
weighted average of the remaining contractual life of options outstanding
as at December 31, 2007, is 4 years and 10
months.
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
Year
ended December 31
|
||||||||||||
2005
|
2006
|
2007
|
||||||||||
NIS
millions
|
NIS
millions
|
NIS
millions
|
||||||||||
Revenues
from handsets, net
|
565 | 636 | 663 | |||||||||
Revenues
from services
|
4,549 | 4,986 | 5,387 | |||||||||
5,114 | 5,622 | 6,050 | ||||||||||
Additional
information
|
||||||||||||
Revenues
from handsets on an installments basis
|
527 | 569 | 596 |
Year
ended December 31
|
||||||||||||
2005
|
2006
|
2007
|
||||||||||
NIS
millions
|
NIS
millions
|
NIS
millions
|
||||||||||
According
to source of income:
|
||||||||||||
Cost
of revenues from handsets
|
683 | 780 | 800 | |||||||||
Cost
of revenues from services
|
* 2,398 | * 2,493 | 2,572 | |||||||||
3,081 | 3,273 | 3,372 | ||||||||||
According
to its components:
|
||||||||||||
Purchase
of handsets
|
649 | 782 | 906 | |||||||||
Changes
in inventory
|
(18 | ) | (13 | ) | (113 | ) | ||||||
Write-down
of inventory
|
52 | 11 | 7 | |||||||||
683 | 780 | 800 | ||||||||||
Rent
and related expenses
|
286 | 305 | 300 | |||||||||
Salaries
and related expenses
|
142 | 156 | 158 | |||||||||
Fees
to other operators and others
|
825 | 918 | 980 | |||||||||
Cost
of value added services
|
160 | 211 | 324 | |||||||||
Depreciation
and amortization
|
* 629 | * 582 | 532 | |||||||||
Royalties
and fees (see Note 16C1)
|
112 | 179 | 172 | |||||||||
Other
|
244 | 142 | 106 | |||||||||
2,398 | 2,493 | 2,572 | ||||||||||
3,081 | 3,273 | 3,372 |
Year
ended December 31
|
||||||||||||
2005
|
2006
|
2007
|
||||||||||
NIS
millions
|
NIS
millions
|
NIS
millions
|
||||||||||
Salaries
and related expenses
|
236 | 258 | 286 | |||||||||
Commissions
|
122 | 151 | 124 | |||||||||
Advertising
and public relations
|
118 | 96 | 121 | |||||||||
Depreciation
and amortization
|
9 | 6 | 7 | |||||||||
Other
|
138 | 145 | 147 | |||||||||
623 | 656 | 685 |
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
Year
ended December 31
|
||||||||||||
2005
|
2006
|
2007
|
||||||||||
NIS
millions
|
NIS
millions
|
NIS
millions
|
||||||||||
Salaries
and related expenses
|
148 | 145 | 160 | |||||||||
Depreciation
and amortization
|
251 | 242 | 235 | |||||||||
Rent
and maintenance
|
75 | 74 | 77 | |||||||||
Data
processing and professional services
|
81 | 70 | 67 | |||||||||
Allowance
for doubtful accounts
|
19 | 45 | 16 | |||||||||
Other
|
82 | 83 | 97 | |||||||||
656 | 659 | 652 |
Year
ended December 31
|
||||||||||||
2005
|
2006
|
2007
|
||||||||||
NIS
millions
|
NIS
millions
|
NIS
millions
|
||||||||||
Balance
at beginning of the period
|
173 | 158 | 183 | |||||||||
Write-offs
|
(34 | ) | (20 | ) | (29 | ) | ||||||
Additional
allowance
|
19 | 45 | 16 | |||||||||
Balance
at end of the period
|
158 | 183 | 170 |
Year
ended December 31
|
||||||||||||
2005
|
2006
|
2007
|
||||||||||
NIS
millions
|
NIS
millions
|
NIS
millions
|
||||||||||
Expenses
for long-term liabilities:
|
||||||||||||
Debentures
|
(2 | ) | (94 | ) | (166 | ) | ||||||
Long-term
loans
|
(43 | ) | (77 | ) | (72 | ) | ||||||
Total
expenses for long-term liabilities
|
(45 | ) | (171 | ) | (238 | ) | ||||||
Short-term
loans
|
(2 | ) | (22 | ) | - | |||||||
Transactions
in derivative financial instruments
|
11 | (32 | ) | (37 | ) | |||||||
Transactions
involving installment sales imputed
|
||||||||||||
interest
on market installment sales
|
62 | 48 | 41 | |||||||||
Income
(expenses) for foreign exchange differences
|
(3 | ) | (4 | ) | 67 | |||||||
Other
items
|
1 | 26 | 11 | |||||||||
24 | (155 | ) | (156 | ) |
Year
ended December 31
|
||||||||||||
2005
|
2006
|
2007
|
||||||||||
NIS
millions
|
NIS
millions
|
NIS
millions
|
||||||||||
Capital
gain (loss) from sale of property,
|
||||||||||||
plant
and equipment
|
*(4 | ) | *(6 | ) | (4 | ) | ||||||
Other
income (expenses), net **
|
(9 | ) | - | 1 | ||||||||
(13 | ) | (6 | ) | (3 | ) | |||||||
** Includes
change in provision for decline in value of land -held for
sale
|
(4 | ) | - | 10 |
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
A.
|
The
Company is assessed for tax purposes on the basis of unconsolidated tax
returns. The tax is computed on the basis of the Company’s results in
Israeli currency as determined for statutory
purposes.
|
|
B.
|
The
Company is assessed for tax purposes according to the Income Tax Law
(Adjustments for Inflation), 1985 (hereinafter "the Law"), the purpose of
which is to measure the results for tax purposes on a real basis and to
prevent taxation of inflationary profits. The adjustment of nominal profit
for tax purposes is not necessarily the same as the adjustment according
to opinions of the Israeli Accounting Standards Board and, as a result,
differences occur between the income reported in the financial statements
and the adjusted income for tax
purposes.
|
|
C.
|
On
July 25, 2005, the Knesset passed the Law for Amendment of the Income Tax
Ordinance (No. 147 and Temporary Order) (“Amendment 147”), which
provides for an additional gradual reduction of the Corporate tax rates in
the following manner: in 2006 the tax rate will be 31%, in 2007 the tax
rate will be 29%, in 2008 the tax rate will be 27% and from 2009 the tax
rate will be 26% and from 2010 onward the tax rate will be 25%. In
addition, commencing from 2010, upon reduction of the Companies Tax rate
to 25%, every real capital gain will be subject to tax at the rate of
25%.
|
Year
ended December 31
|
||||||||||||
2005
|
2006
|
2007
|
||||||||||
NIS
millions
|
NIS
millions
|
NIS
millions
|
||||||||||
Income
before income taxes as per the
|
||||||||||||
income
statement
|
* 765 | * 873 | 1,182 | |||||||||
Tax
rate
|
34 | % | 31 | % | 29 | % | ||||||
Tax
calculated according to the main tax rate
|
260 | 271 | 343 | |||||||||
Increase
(decrease) in tax resulting from:
|
||||||||||||
Non-deductible
interest expenses (see Note 24I)
|
- | 56 | (56 | ) | ||||||||
Other
non-deductible expenses and non taxable
|
||||||||||||
income,
net
|
4 | 4 | 13 | |||||||||
Taxes
in respect of prior years
|
- | 3 | - | |||||||||
Change
in deferred tax balances due to
|
||||||||||||
reduction
in tax rate
|
*(31 | ) | *(6 | ) | - | |||||||
Other,
net
|
1 | (14 | ) | 9 | ||||||||
234 | 314 | 309 |
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
December
31
|
||||||||
2006
|
2007
|
|||||||
NIS
millions
|
NIS
millions
|
|||||||
Provisions
for employee benefits, net
|
- | (1 | ) | |||||
Allowance
for doubtful debts
|
53 | 46 | ||||||
Hedging
transactions
|
10 | 11 | ||||||
Property,
plant and equipment and intangible assets
|
*(215 | ) | (201 | ) | ||||
(152 | ) | (145 | ) |
December
31
|
||||||||
2006
|
2007
|
|||||||
NIS
millions
|
NIS
millions
|
|||||||
Other
receivables (short-term)
|
60 | 51 | ||||||
Deferred
taxes (long-term)
|
*(212 | ) | (196 | ) | ||||
(152 | ) | (145 | ) |
Year
ended December 31
|
||||||||||||
2005
|
2006
|
2007
|
||||||||||
NIS
millions
|
NIS
millions
|
NIS
millions
|
||||||||||
Current
taxes
|
238 | 331 | 313 | |||||||||
Prior
year taxes
|
- | 3 | - | |||||||||
Deferred
taxes
|
*(4 | ) | *(20 | ) | (4 | ) | ||||||
234 | 314 | 309 |
|
G.
|
Taxes
recorded to shareholders’ equity
|
Year
ended December 31
|
||||||||||||
2005
|
2006
|
2007
|
||||||||||
NIS
millions
|
NIS
millions
|
NIS
millions
|
||||||||||
Deferred
taxes in respect of
|
||||||||||||
hedging
transactions
|
2 | (12 | ) | (1 | ) |
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
December
31, 2006
|
December
31, 2007
|
|||||||||||||||||||||||
In
or linked
|
In
or linked
|
|||||||||||||||||||||||
to
foreign
|
to
foreign
|
|||||||||||||||||||||||
currencies
|
Linked
to
|
currencies
|
Linked
to
|
|||||||||||||||||||||
(mainly
|
the
Israeli
|
(mainly
|
the
Israeli
|
|||||||||||||||||||||
dollars)
|
CPI
|
Unlinked
|
dollars)
|
CPI
|
Unlinked
|
|||||||||||||||||||
NIS
millions
|
NIS
millions
|
NIS
millions
|
NIS
millions
|
NIS
millions
|
NIS
millions
|
|||||||||||||||||||
Assets
|
11 | 18 | 1,849 | 10 | 18 | 2,885 | ||||||||||||||||||
Liabilities
|
839 | 2,071 | 1,626 | 522 | 3,199 | 1,537 |
December
31, 2006
|
December
31, 2007
|
|||||||||||||||
Par
value
|
Fair
value
|
Par
value
|
Fair
value
|
|||||||||||||
NIS
millions
|
NIS
millions
|
NIS
millions
|
NIS
millions
|
|||||||||||||
Forward
contracts on exchange rate (mainly dollar– NIS)
|
507 | (26 | ) | 537 | (28 | ) | ||||||||||
Forward
contracts on Israeli CPI
|
500 | (15 | ) | 1,800 | 24 | |||||||||||
Options
on the exchange rate (mainly dollar– NIS)
|
659 | (1 | ) | 530 | 1 | |||||||||||
Compounded
foreign currency and interest swap
|
718 | (70 | ) | 792 | (61 | ) | ||||||||||
2,384 | (112 | ) | 3,659 | (64 | ) |
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
December
31
|
||||||||
2006
|
2007
|
|||||||
NIS
millions
|
NIS
millions
|
|||||||
Beginning
accumulated derivative in capital reserve
|
5 | (24 | ) | |||||
Net
(gain) loss reclassified to earnings
|
(1 | ) | 19 | |||||
Net
change in the revaluation of hedging transactions
|
(28 | ) | (28 | ) | ||||
Ending
accumulated derivative in capital reserve
|
(24 | ) | (33 | ) |
December
31, 2006
|
December
31, 2007
|
|||||||||||||||
Book
value
|
Fair
value
|
Book
value
|
Fair
value
|
|||||||||||||
NIS
millions
|
NIS
millions
|
NIS
millions
|
NIS
millions
|
|||||||||||||
Debentures
(1)
|
1,989 | 2,056 | 2,983 | 3,237 |
|
(1)
|
The
fair value of the debentures is based upon their quoted market price as of
the date of the balance sheet.
|
December
31
|
||||||||
2006
|
2007
|
|||||||
NIS
millions
|
NIS
millions
|
|||||||
Current
assets*
|
47 | - | ||||||
Current
liabilities
|
1 | - | ||||||
Long-term
liability – debentures
|
60 | 142 | ||||||
Stock
based compensation
|
- | 11 |
|
*
The largest balance during the year ended December 31, 2007 – NIS 94
million.
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
B.
|
Transactions
with related and interested parties executed in the ordinary course of
business at regular commercial
terms:
|
Year
ended December 31
|
||||||||||||
2005
|
2006
|
2007
|
||||||||||
NIS
millions
|
NIS
millions
|
NIS
millions
|
||||||||||
Expenses:
|
||||||||||||
Salaries
and related expenses to related parties
|
* 17 | 3 | ** 16 | |||||||||
Professional
services and other
|
2 | 2 | 4 |
|
*
|
For
the year ended December 31, 2005, includes benefits and grants in respect
of retirement in the total amount of NIS 11 million and a signing
bonus in the total amount of NIS 3 million.
|
**
|
Includes
compensation expenses related to options granted that were recognized
during the year ended December 31,2007 in the total amount
of NIS 11 million.
|
|
C.
|
An
agreement with DIC
|
|
D.
|
An
agreement with Netvision 013 Barak
|
A.
|
On
March 10, 2008, subsequent to the balance sheet date, the Company
voluntarily prepaid the balance of the outstanding amounts under its
credit facility, in a principal amount of $140 million (comprising of $85
million denominated in US$ and approximately NIS 253 million denominated
in NIS), following which, the credit facility was terminated. For more
information refer to Note 13C.
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
B.
|
In
February 2008, subsequent to the balance sheet date, the Company issued,
in a private placement to institutional investors, additional debentures
of Series C, in a principal amount of NIS 81 million and additional
debentures of Series D debentures in a principal amount of approximately
NIS 493.8 million, in exchange for a total consideration of NIS 600
million. For additional details in regards to the existing debentures
refer to Note 14C.
|
C.
|
On
March 17, 2008, the Company’s Board of Directors declared a cash dividend
in the amount of NIS 7.18 per share, totaling approximately NIS 700
million, to be paid on April 14, 2008, to the shareholders of the Company
of record at the end of the trading day in the NYSE on March 31, 2008. The
dividend is presented under a separate item of shareholders’
equity.
|
|
A.
|
The
effect of the differences between Israeli and US GAAP on the financial
statements
|
Year
ended December 31
|
||||||||||||
2005
|
2006
|
2007
|
||||||||||
NIS
millions
|
NIS
millions
|
NIS
millions
|
||||||||||
Net
income as reported, according
|
||||||||||||
to
Israeli GAAP
|
*531 | *559 | 873 | |||||||||
Temporary
differences resulting from recognition
|
||||||||||||
of
revenue arising from application of
|
||||||||||||
EITF
00-21 – Note 28C(4)
|
14 | 5 | 1 | |||||||||
Depreciation
of property, plant and equipment (*)
|
* - | * - | - | |||||||||
Embedded
Derivatives – Note 28C(3)
|
9 | (17 | ) | 52 | ||||||||
AROs
– Note 28C(5)
|
(2 | ) | 2 | - | ||||||||
Amortization
of rights in land- Note 28C(7)
|
- | (1 | ) | (2 | ) | |||||||
Reversal
of impairment previously made- Note 28C(7)
|
- | - | (10 | ) | ||||||||
Push
down accounting adjustments - Note 28C(2):
|
||||||||||||
Elimination
of deferred revenue
|
(10 | ) | - | - | ||||||||
Depreciation
expenses of property, plant
|
||||||||||||
and
equipment
|
25 | 103 | 96 | |||||||||
Amortization
expenses of intangible assets
|
(50 | ) | (167 | ) | (140 | ) | ||||||
Interest
expenses on push down debt
|
(43 | ) | (17 | ) | - | |||||||
Income
tax effect of US GAAP adjustments
|
* 17 | * 27 | (1 | ) | ||||||||
Net
income according to US GAAP
|
491 | 494 | 869 |
(*)
|
As a
result of the retroactive initial implementation of the new Israeli
Standard No. 27, no differences remain between Israeli GAAP and US GAAP,
relating to the depreciation methodology of property, plant and equipment
for all periods presented (See Note
2U(2)).
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
A.
|
The
effect of the differences between Israeli and US GAAP on the financial
statements (cont'd)
|
December
31
|
December
31
|
|||||||
2006
|
2007
|
|||||||
NIS
millions
|
NIS
millions
|
|||||||
Shareholders'
equity as reported, according to Israeli GAAP
|
* 597 | 830 | ||||||
Temporary
differences resulting from recognition of revenue arising
from
|
||||||||
application
of EITF 00-21 – Note 28C(4)
|
(1 | ) | - | |||||
Depreciation
of property, plant and equipment (*)
|
*- | - | ||||||
Embedded
Derivatives – Note 28C(3)
|
(38 | ) | 14 | |||||
AROs
– Note 28C(5)
|
(8 | ) | - | |||||
Amortization
of rights in land- Note 28C(7)
|
(1 | ) | (3 | ) | ||||
Reversal
of impairment previously made- Note 28C(7)
|
- | (10 | ) | |||||
Push
down accounting adjustments – Note 28C(2):
|
||||||||
Push
down of the acquisition
|
3,652 | 3,652 | ||||||
Push
down of DIC’s debt
|
- | - | ||||||
Elimination
of deferred revenue
|
(22 | ) | (22 | ) | ||||
Cumulative
depreciation of property, plant and equipment
|
131 | 227 | ||||||
Cumulative
amortization expenses of intangible assets
|
(217 | ) | (357 | ) | ||||
Income
tax effect of US GAAP adjustments
|
* 41 | 37 | ||||||
Shareholders’
equity according to US GAAP
|
4,134 | 4,368 |
(*)
|
As a
result of the retroactive initial implementation of the new Israeli
Standard No. 27, no differences remain between Israeli GAAP and US GAAP,
relating to the depreciation methodology of property, plant and equipment
for all periods presented (See Note
2U(2)).
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
December
31
|
December
31
|
|||||||
2006
|
2007
|
|||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
56 | 911 | ||||||
Trade
receivables, net
|
1,242 | 1,385 | ||||||
Other
receivables
|
123 | 147 | ||||||
Inventory
|
131 | 245 | ||||||
1,552 | 2,688 | |||||||
Long-term
receivables
|
548 | 565 | ||||||
Property,
plant and equipment, net
|
* 1,955 | 1,856 | ||||||
Other
assets, net
|
* 1,660 | 1,510 | ||||||
Goodwill
|
3,283 | 3,283 | ||||||
Total
assets
|
8,998 | 9,902 | ||||||
Current
liabilities
|
||||||||
Short-term
bank credit
|
- | 353 | ||||||
Trade
payables and accrued expenses
|
819 | 1,007 | ||||||
Other
current liabilities
|
534 | 543 | ||||||
1,353 | 1,903 | |||||||
Long-term
liabilities
|
||||||||
Long-term
loans from banks
|
1,208 | 343 | ||||||
Debentures
|
1,989 | 2,983 | ||||||
Deferred
taxes
|
300 | 288 | ||||||
Other
long-term liabilities
|
14 | 17 | ||||||
3,511 | 3,631 | |||||||
Shareholders’
equity
|
4,134 | 4,368 | ||||||
Total
liabilities and shareholders’ equity
|
8,998 | 9,902 |
(*)
|
Reclassified
NIS 237 millions from property, plant and equipment to intangible assets
in connection with adoption standard No.30, see note
2U(4)
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
January
1
|
September
22
|
|||||||||||||||
through
|
through
|
Year
ended
|
Year
ended
|
|||||||||||||
September
21
|
December
31
|
December
31
|
December
31
|
|||||||||||||
2005
|
2005
|
2006
|
2007
|
|||||||||||||
Revenues
|
3,713 | 1,405 | 5,627 | 6,051 | ||||||||||||
Cost
of revenues
|
2,141 | 972 | 3,341 | 3,421 | ||||||||||||
Gross
profit
|
1,572 | 433 | 2,286 | 2,630 | ||||||||||||
Selling
and marketing expenses
|
434 | 189 | 656 | 685 | ||||||||||||
General
and administrative expenses
|
502 | 167 | 666 | 667 | ||||||||||||
Operating
income
|
636 | 77 | 964 | 1,278 | ||||||||||||
Financial
income (expenses), net
|
21 | (27 | ) | (184 | ) | (99 | ) | |||||||||
Income
before income tax
|
657 | 50 | 780 | 1,179 | ||||||||||||
Income
tax
|
205 | 11 | 286 | 310 | ||||||||||||
Net
income
|
452 | 39 | 494 | 869 | ||||||||||||
Earnings
per share
|
||||||||||||||||
Basic
earnings per share in NIS
|
4.64 | 0.40 | 5.07 | 8.91 | ||||||||||||
Diluted
earnings per share in NIS
|
4.64 | 0.40 | 5.07 | 8.83 | ||||||||||||
Weighted-average
number of shares used in
|
||||||||||||||||
calculation
of basic earnings per share
|
||||||||||||||||
(in
thousands)
|
97,500 | 97,500 | 97,500 | 97,500 | ||||||||||||
Weighted-average
number of shares used in
|
||||||||||||||||
calculation
of diluted earnings per share
|
||||||||||||||||
(in
thousands)
|
97,500 | 97,500 | 97,500 | 98,441 |
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
Additional
|
||||||||||||||||
Share
|
paid-in
|
Retained
|
||||||||||||||
Amount
|
capital
|
earnings
|
Total
|
|||||||||||||
Balance
as of January 1, 2005
|
- | - | 3,312 | 3,312 | ||||||||||||
Changes
in the year ended December 31, 2005
|
||||||||||||||||
Movement
in capital reserve in respect of hedging
|
||||||||||||||||
transactions,
net, for the period from January 1, 2005
|
||||||||||||||||
through
September 21, 2005
|
- | 5 | - | 5 | ||||||||||||
Net
income for the period from January 1, 2005 through
|
||||||||||||||||
September
21, 2005
|
- | - | 452 | 452 | ||||||||||||
Elimination
of historical equity on acquisition at
|
||||||||||||||||
September
21, 2005
|
- | 3,764 | (3,764 | ) | - | |||||||||||
Push-down
of the acquisition – Note 28C(2b5)
|
- | 3,652 | - | 3,652 | ||||||||||||
Push-down
of DIC’s debt – Note 28C(2b6)
|
- | (2,970 | ) | - | (2,970 | ) | ||||||||||
Net
income for the period from September 22, 2005
|
||||||||||||||||
through
December 31, 2005
|
- | - | 39 | 39 | ||||||||||||
Balance
as of December 31, 2005
|
- | 4,451 | 39 | 4,490 | ||||||||||||
Changes
in the year ended December 31, 2006
|
||||||||||||||||
Movement
in capital reserve in respect of hedging
|
||||||||||||||||
transactions,
net
|
- | (29 | ) | - | (29 | ) | ||||||||||
Cash
dividend paid
|
- | (3,570 | ) | (260 | ) | (3,830 | ) | |||||||||
Allotment
to dividend share
|
1 | - | (1 | ) | - | |||||||||||
Repayment
of DIC’s push-down debt and interest,
|
||||||||||||||||
net
of deemed dividend
|
- | 3,009 | - | 3,009 | ||||||||||||
Net
income
|
- | - | 494 | 494 | ||||||||||||
Balance
as of December 31, 2006
|
1 | 3,861 | 272 | 4,134 | ||||||||||||
Changes
in the year ended December 31, 2006
|
||||||||||||||||
Movement
in capital reserve in respect of hedging
|
- | (9 | ) | - | (9 | ) | ||||||||||
transactions,
net
|
||||||||||||||||
Cash
dividend paid
|
- | - | (655 | ) | (655 | ) | ||||||||||
Amortization
of compensation related to employee stock option grants
|
- | 29 | - | 29 | ||||||||||||
Net
income
|
- | - | 869 | 869 | ||||||||||||
Balance
as of December 31, 2007
|
1 | 3,881 | 486 | 4,368 | ||||||||||||
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
January
1
|
September22
|
|||||||||||||||
through
|
through
|
Year
ended
|
Year
ended
|
|||||||||||||
September
21
|
December 31
|
December
31
|
December
31
|
|||||||||||||
2005
|
2005
|
2006
|
2007
|
|||||||||||||
NIS
millions
|
NIS
millions
|
NIS
millions
|
NIS
millions
|
|||||||||||||
Net
income according to US GAAP
|
452 | 39 | 494 | 869 | ||||||||||||
Derivative
net gain (loss) reclassified to earnings
|
(1 | ) | (2 | ) | (1 | ) | 19 | |||||||||
Adjustments
in respect of derivatives, net
|
6 | 2 | (28 | ) | (28 | ) | ||||||||||
Total
comprehensive income
|
457 | 39 | 465 | 860 |
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
January
1
|
September
22
|
|||||||||||||||
through
|
through
|
Year
ended
|
Year
ended
|
|||||||||||||
September
21
|
December 31
|
December
31
|
December
31
|
|||||||||||||
2005
|
2005
|
2006
|
2007
|
|||||||||||||
NIS
millions
|
NIS
millions
|
NIS
millions
|
NIS
millions
|
|||||||||||||
Net
income
|
452 | 39 | 494 | 869 | ||||||||||||
Adjustments
to reconcile net income to net cash
|
||||||||||||||||
provided
by operating activities:
|
||||||||||||||||
Depreciation
and amortization
|
645 | 269 | 892 | 816 | ||||||||||||
Deferred
income taxes
|
(3 | ) | (17 | ) | (48 | ) | (1 | ) | ||||||||
Exchange
and linkage differences (erosion of)
|
||||||||||||||||
long-term
liabilities
|
- | 2 | (107 | ) | (7 | ) | ||||||||||
Interest
on push-down debt (see Note 28C(2c3))
|
- | 43 | 17 | - | ||||||||||||
Capital
losses (gains)
|
3 | (1 | ) | 6 | 4 | |||||||||||
Change
in liability for employee severance pay
|
- | - | - | 1 | ||||||||||||
Stock
based compensation
|
- | - | - | 29 | ||||||||||||
Change
in other long term liabilities
|
- | - | - | 1 | ||||||||||||
Provision
for decline in value of land - held for sale
|
4 | - | - | - | ||||||||||||
649 | 296 | 760 | 843 | |||||||||||||
Changes
in operating assets and liabilities, net
|
||||||||||||||||
of
effects of acquisitions:
|
||||||||||||||||
Decrease
(increase) in trade receivables
|
||||||||||||||||
(including
long-term amounts)
|
65 | (102 | ) | (75 | ) | (140 | ) | |||||||||
Decrease
(increase) in other receivables
|
||||||||||||||||
(including
long-term amounts)
|
(41 | ) | (19 | ) | 24 | (30 | ) | |||||||||
Decrease
(increase) in inventories
|
(43 | ) | 24 | (13 | ) | (114 | ) | |||||||||
Increase
(decrease) in trade payables and accrued expenses
|
(69 | ) | 54 | 4 | 178 | |||||||||||
Increase
(decrease) in other payables and
|
||||||||||||||||
credits
(including long-term amounts)
|
6 | (39 | ) | 283 | 38 | |||||||||||
(82 | ) | (82 | ) | 223 | (68 | ) | ||||||||||
Net
cash provided by operating activities
|
1,019 | 253 | 1,477 | 1,644 |
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
January
1
|
September
22
|
|||||||||||||||
through
|
through
|
Year
ended
|
Year
ended
|
|||||||||||||
September
21
|
December
31
|
December
31
|
December
31
|
|||||||||||||
2005
|
2005
|
2006
|
2007
|
|||||||||||||
Net
cash used in investing activities
|
(444 | ) | (175 | ) | (633 | ) | (571 | ) | ||||||||
Net
cash provided by (used in) financing activities
|
(536 | ) | 1,650 | (2,560 | ) | (218 | ) | |||||||||
Increase
(decrease) in cash and cash equivalents
|
39 | 1,728 | (1,716 | ) | 855 | |||||||||||
Balance
of cash and cash equivalents at beginning
|
||||||||||||||||
of
the period
|
5 | 44 | 1,772 | 56 | ||||||||||||
Balance
of cash and cash equivalents at end
|
||||||||||||||||
of
the period
|
44 | 1,772 | 56 | 911 |
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
September
21
|
||||
2005
|
||||
NIS
millions
|
||||
Current
assets
|
1,051 | |||
Property,
plant and equipment
|
1,338 | |||
Other
assets
|
301 | |||
Liabilities
|
(1,098 | ) | ||
Definite
life intangible assets acquired licenses
|
346 | |||
Definite
life intangible assets acquired customer base
|
714 | |||
Indefinite
life brand name
|
468 | |||
Goodwill
|
3,283 | |||
Deferred
taxes
|
(134 | ) | ||
Total
cash consideration paid for equity interests, including
direct
|
||||
acquisition
cost.
|
6,269 |
|
(1)
|
The
reduction of the carrying value of property, plant and equipment, which
have been recorded using the estimated replacement cost fair market
value;
|
|
(2)
|
The
recording of a value for brand
name;
|
|
(3)
|
The
recording of a value for customer
base;
|
|
(4)
|
Adjustment
to deferred tax assets resulting from the above
changes;
|
|
(5)
|
The
recording of a value for goodwill;
|
|
(6)
|
The
recording NIS 2,970 millions of push-down
debt;
|
|
(7)
|
The
elimination of deferred revenue;
|
|
(8)
|
An
increase to the shareholders equity in respect of these
adjustments.
|
|
(1)
|
A
decrease in costs of revenue due to lower level of depreciation from the
reduced depreciable base of property, plant and
equipment;
|
|
(2)
|
An
increase in costs of revenue due to amortization of the acquired customer
base;
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
|
Upon
adoption of push-down accounting, the new basis of accounting resulted in
new recorded values for customer base as of September 21, 2005 to reflect
their estimated fair values. The Company amortizes the customer base over
7 years according to the economic benefit expected from those customers
each period.
|
|
The
Company is required to perform impairment tests for long-lived assets in
accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of
Long- Lived Assets" (“SFAS No. 144”), when the Company determines that
indicators of impairment are present. Declines in market value of its
business or the value of its customer base that may be incurred
prospectively may also require additional impairment charges. No
impairment of the recorded values was
required.
|
|
Amortization
expenses relating to customer base for the year ended December 31, 2006
and the year ended December 31, 2007 were NIS 167 million and NIS 140
million, respectively, the cumulative amortization expenses of customer
base as of December 31, 2007 is NIS 357
million.
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|
All
amounts are in millions except for share and per share
data
|
Cellcom
Israel Ltd. and Subsidiaries
|
Notes
to the Financial Statements
|