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FORMULA SYSTEMS (1985) LTD.

(FORTY)
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Formula Systems (1985) Ltd : Formula Systems Reports Second Quarter Results for 2013 with Net Income of $4.9 Million, an Increase of 21% Year over Year

08/15/2013 | 05:05am EDT

OR YEHUDA, Israel, Aug. 15, 2013 /PRNewswire/ -- Formula Systems (1985) Ltd. (NASDAQ: FORTY) a leading provider of software consulting services, computer-based business solutions, and proprietary software products, today announced its results for the second quarter of 2013.

Financial Highlights for the Second Quarter Ended June 30, 2013

    --  Revenues for the second quarter ended June 30, 2013, increased 8% to
        $201.2 million compared to $186.1 million in the same period last year.
    --  Operating income for the second quarter ended June 30, 2013, increased
        11% to $15.4 million, compared to $13.9 million in the same period last
        year; Non-GAAP operating income for the second quarter ended June 30,
        2013, decreased 1% to $17.7 million, compared to $17.8 million in the
        same period last year.
    --  Net income for the second quarter ended June 30, 2013, increased 21% to
        $4.9 million (or $0.34 per fully diluted share) compared to $4.0 million
        (or $0.28 per fully diluted share) in the same period last year.
        Non-GAAP Net income for the second quarter ended June 30, 2013,
        increased 2% to $6.1 million compared to $6.0 million in the same period
        last year.
    --  On June 10, 2013, we declared a cash dividend in the amount of US $0.37
        per share and in the aggregate amount of approximately US $5.5 million
        paid on July 2, 2013.

Financial Highlights for the Six-Month Period Ended June 30, 2013

    --  Revenues for the six-month period ended June 30, 2013, increased 7% to
        $389.9 million compared to $364.4 million in the same period last year.
    --  Operating income for the six-month period ended June 30, 2013, increased
        3% to $28.6 million compared to $27.8 million in the same period last
        year; Non-GAAP operating income for the six-month period ended June 30,
        2013, decreased 3% to $34.5 million compared to $35.5 million in the
        same period last year.
    --  Net income for the six-month period ended June 30, 2013, decreased 23%
        to $9.1 million (or $0.64 per fully diluted share) compared to $11.8
        million (or $0.84 per fully diluted share) in the same period last year;
        Net income in 2012 included a net gain of $3.4 million resulting from
        the remeasurement of the Company's investments, attributable to
        regaining controlling interest in Sapiens. Non-GAAP net income for the
        six-month period ended June 30, 2013, decreased 21% to $12.4 million
        compared to $15.7 million in the same period last year
    --  Formula's consolidated cash and short term and long term investments in
        marketable securities totaled approximately $127.2 million, as of June
        30, 2013.
    --  Total equity on June 30, 2013 was $479.8 million, representing 53% of
        the total balance sheet.

Comments of Management

Commenting on the results, Guy Bernstein, CEO of Formula Systems, said, "I am happy to report the second quarter results which reflect continuing strong financial performance across all of our subsidiaries, a direct result of our effective resource management and long-term growth strategy. During this quarter, Matrix has improved its gross profit, operating profit and net income by rapidly responding to changing market conditions and declared a cash dividend of approximately NIS16.8 million (or NIS0.28 per share). Sapiens reached record quarterly revenues of $33.1 million thanks to increasing demand for its solutions across its major markets and continues to make investments in its business to keep its market-leading position. Magic which continued its double-digit growth rate by winning new and repeat business and expanding its professional service activities has just announced a dividend for the first half of 2013 in the amount of approximately $3.4 million (or $0.09 per share) reflecting its strong financial position."

Non-GAAP Financial Measures

This release includes non-GAAP operating income, net income, basic and diluted earnings per share and other non-GAAP financial measures. These non-GAAP measures exclude the following items:

    --  Amortization of intangible assets derived from acquisitions;
    --  Research and development capitalization and related amortization;
    --  Share-based compensation;
    --  Unwinding of discount in connection with liabilities due to
        acquisitions; and
    --  Related tax effect of the above items.

Formula's management believes that the purpose of such adjustments is to give an indication of Formula's performance exclusive of non-cash charges and other items that are considered by management to be outside of Formula's core operating results.

This non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles. Formula believes that non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with Formula's results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Formula's results of operations in conjunction with the corresponding GAAP measures. Please refer to the Reconciliation of Selected Financial Metrics from GAAP to Non-GAAP tables below.

About Formula

Formula Systems (1985) Ltd. is a global information technology company principally engaged, through its subsidiaries and affiliates, in providing software consulting services, developing proprietary software products, and providing computer-based business solutions.

For more information, visit www.formulasystems.com.

Press Contact:

Formula Systems (1985) Ltd.
+972-3-5389487
ir@formula.co.il

Except for any historical information contained herein, matters discussed in this press release might include forward-looking statements that involve a number of risks and uncertainties. Regarding any financial statements, actual results might vary significantly based upon a number of factors including, but not limited to, risks in product and technology development, market acceptance of new products and continuing product conditions, both locally and abroad, release and sales of new products by strategic resellers and customers, and other risk factors detailed in Formula's most recent annual report and other filings with the Securities and Exchange Commission. These forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.


    FORMULA SYSTEMS (1985) LTD.

    CONSOLIDATED CONDENSED STATEMENTS OF INCOME

    U.S. dollars in thousands (except per share data)


                                                          Three months ended     Six months ended

                                                               June 30,              June 30,
                                                               --------              --------

                                                                           2013                  2012        2013        2012
                                                                           ----                  ----        ----        ----

                                                               Unaudited             Unaudited
                                                               ---------             ---------

    Revenues                                                            201,158               186,124     389,928     364,429

    Cost of revenues                                                    152,710               142,017     296,120     278,353


    Gross profit                                                         48,448                44,107      93,808      86,076

    Research and development costs, net                                   3,873                 2,772       7,980       5,211

    Selling, general and administrative expenses                         29,121                27,506      57,241      53,113

    Other income (expenses), net                                            (11)                   74          (2)         74


    Operating income                                                     15,443                13,903      28,585      27,826


    Financial income (expenses), net                                     (2,091)               (2,265)     (3,566)     (3,759)


    Income before taxes on income                                        13,352                11,638      25,019      24,067

    Taxes on income                                                       2,253                 1,610       4,039       3,652


    Income after taxes                                                   11,099                10,028      20,980      20,415

    Equity in gains (losses) of affiliated companies, net                   (34)                    -         (23)      3,719


    Net income                                                           11,065                10,028      20,957      24,134

    Change in redeemable non controlling interests                          605                 1,343       1,357       1,343

    Net income attributable to non-controlling interests                  5,579                 4,666      10,479      10,970


    Net income attributable to Formula's shareholders                     4,881                 4,019       9,121      11,821


    Earnings per share (basic)                                             0.36                  0.30        0.67        0.87

    Earnings per share (diluted)                                           0.34                  0.28        0.64        0.84


    Number of shares used in computing earnings per share            13,654,478            13,596,000  13,625,239  13,596,000
    (basic)


    Number of shares used in computing earnings per share            14,094,366            13,808,000  13,921,454  13,778,000
    (diluted)


    FORMULA SYSTEMS (1985) LTD.

    RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION

    U.S. dollars in thousands (except per share data)


                                                                                       Three months ended         Six months ended

                                                                                            June 30,                  June 30,
                                                                                             --------                  --------

                                                                                           2013            2012        2013            2012
                                                                                           ----            ----        ----            ----

                                                                                             Unaudited                 Unaudited
                                                                                             ---------                 ---------


    GAAP operating income                                                                15,443          13,903      28,585          27,826

    Amortization of capitalized software and other intangible assets                      4,215           4,784       8,983           9,493

    Capitalization of software development                                               (3,001)         (2,026)     (5,319)         (4,128)

    Stock-based compensation                                                              1,078           1,169       2,223           2,357
                                                                                          -----           -----       -----           -----

    Total adjustments to GAAP                                                             2,292           3,927       5,887           7,722

    Non-GAAP operating income                                                            17,735          17,830      34,472          35,548
                                                                                         ======          ======      ======          ======



    GAAP net income attributable to Formula's shareholders                                4,881           4,019       9,121          11,821

    Amortization of capitalized software and other intangible assets                      4,215           4,784       8,983           9,493

    Capitalization of software development                                               (3,001)         (2,026)     (5,319)         (4,128)

    Stock-based compensation                                                              1,078           1,169       2,223           2,357

    Non-controlling interest in amortization intangible assets                             (672)         (1,437)     (2,032)         (2,841)

    Unwinding of discount in connection with liabilities due to acquisitions 8 - 215             -

    Deferred taxes on the above items                                                      (402)           (530)       (815)         (1,006)
                                                                                           ----            ----        ----          ------

    Total adjustments to GAAP                                                             1,226           1,960       3,255           3,875

    Non-GAAP net income attributable to Formula's shareholders                            6,107           5,979      12,376          15,696
                                                                                          =====           =====      ======          ======



    Non-GAAP earnings per share (basic)                                                    0.45            0.44        0.91            1.15
                                                                                           ====            ====        ====            ====

    Weighted average number of shares used in

       computing earnings per share (basic)                                          13,654,478      13,596,000  13,625,239      13,596,000
                                                                                     ----------      ----------  ----------      ----------


    Non-GAAP earnings per share (diluted)                                                  0.41            0.41        0.84            1.07
                                                                                           ====            ====        ====            ====

    Weighted average number of shares used in

       computing earnings per share (diluted)                                        14,718,782      14,719,000  14,718,782      14,719,000
                                                                                     ----------      ----------  ----------      ----------


    FORMULA SYSTEMS (1985) LTD.

    CONSOLIDATED CONDENSED BALANCE SHEETS

    U.S. dollars in thousands

                                      June 30,                  December 31,
                                      --------                  ------------

                                                           2013                 2012
                                                           ----                 ----

                                    (Unaudited)
                                     ----------

    ASSETS

    CURRENT ASSETS:

                            Cash and cash equivalents   110,550              111,238

                            Marketable securities        16,177               14,866

                            Trade receivables           195,030              201,886

                            Other accounts receivable    46,655               41,012

    Total current assets                                368,412              369,002
                                                        -------              -------


    LONG-TERM INVESTMENTS:

                            Marketable securities           426                  331

                            Deferred Taxes               14,537               13,618

                             Investments in affiliated
                             companyies                   3,223                3,022

                             Prepaid expenses and other
                             accounts receivable         11,095                5,285

    Total long-Term Investments                          29,281               22,256
                                                         ------               ------


    SEVERANCE PAY FUND                                   68,831               66,799
                                                         ------               ------


    PROPERTY, PLANTS AND EQUIPMENT,
     NET                                                 22,860               21,459
                                                         ------               ------


    NET INTANGIBLE ASSETS AND GOODWILL                  412,000              401,404
                                                        -------              -------


    TOTAL ASSETS                                        901,384              880,920
                                                        =======              =======


    CURRENT LIABILITIES:

                            Liabilities to banks         22,220               23,607

                            Debentures                        -               15,735

                            Trade payables               48,033               51,943

                            Deferred revenues            46,200               33,998

                            Other accounts payable       95,624               98,009

    Total current liabilities                           212,077              223,292
                                                        -------              -------


    LONG-TERM LIABILITIES:

                             Liabilities to banks and
                             others                      74,420               64,659

                            Deferred revenue              5,861                1,346

                            Other long-term payables     21,322               19,010

                            Accrued severance pay        84,548               81,832

    Total long-term liabilities                         186,151              166,847
                                                        -------              -------


    REDEEMABLE NON-CONTROLLING
     INTEREST                                            23,371               22,363
                                                         ------               ------


    EQUITY

                             Formula shareholders'
                             equity                     251,114              245,067

                            Non-controlling interests   228,671              223,351
                                                        -------

    Total equity                                        479,785              468,418


    TOTAL LIABILITIES AND EQUITY                        901,384              880,920
                                                        =======              =======

SOURCE Formula Systems (1985) Ltd.


© PRNewswire 2013
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