Internet Gold Reports Second Quarter 2011 Financial Results

-Bezeq Delivers Another Strong Quarter-

-Bezeq’s Significant Regular and Special Dividends Continue to Boost the Cash Position of the Company's Subsidiary BCOM-

RAMAT GAN, Israel--(BUSINESS WIRE)--Internet Gold Ltd. (NASDAQ Global Select Market and TASE: IGLD) today reported its financial results for the quarter ended June 30, 2011 and its cash position and loan repayment status as of June 30, 2011.

Bezeq delivers another strong quarter

The Bezeq Group reported another strong, stable quarter, delivering revenues of NIS 2.9 billion (US$ 849 million) and operating profit of NIS 935 million (US$ 274 million) in the second quarter. Bezeq’s EBITDA for the second quarter of 2011 totaled NIS 1.3 billion (US$ 381 million), representing an EBITDA margin of 44.35%, and cash flow from operating activities reached NIS 670 million (US$ 196 million).

Dividends Received from Bezeq

On May 19, 2011, Internet Gold's subsidiary, B Communications, received two dividends from Bezeq totaling NIS 520 million (US$ 152 million). The dividends consisted of:

• Current dividend totaling NIS 363 million (US$ 106 million), representing B Communications' share of Bezeq’s net profit for the second half of 2010; and
• Special dividend totaling NIS 157 million (US$ 46 million), the first of six equal special dividends to be paid with no interest or index adjustments on a semi-annual basis through 2013, totaling approximately NIS 3 billion (US$ 878 million) over a three year period, as declared by Bezeq's Board of Directors and approved by the Israeli Court.

Cash Position

As of June 30, 2011, Internet Gold's unconsolidated cash and cash equivalents totaled NIS 343 million (US$ 100 million), and its unconsolidated gross debt was NIS 1.06 billion (US$ 309 million). Having increased its ownership interest in B Communications during the second quarter, Internet Gold currently holds (indirectly) 24.39% of the outstanding shares of Bezeq.

Internet Gold's Unconsolidated Balance Sheet Data*

	As of June 30, 2011
	(NIS millions)	(US$ millions)
Short term liabilities	134	39
Long term liabilities	922	270
Total liabilities	1,056	309
Cash and cash equivalents	343	100
Total net debt	713	209

* Does not include the balance sheet of B Communications.

Internet Gold Second Quarter Financial Results

Internet Gold's revenues for the second quarter were NIS 2,895 million (US$ 848 million), an increase of 12% compared with NIS 2,586 million (US$ 751 million) reported in the second quarter of 2010. For both the current and the prior-year periods, Internet Gold's revenues consisted mostly of Bezeq’s revenues. However, for the second quarter of 2011, Internet Gold's revenues reflected Bezeq's revenues for the entire quarter, while during the second quarter of 2010, Internet Gold began to consolidate its share of Bezeq’s revenues commencing April 14, 2010, the date of B Communications’ acquisition of the controlling interest in Bezeq.

Internet Gold’s net loss for the second quarter totaled NIS 33 million (US$ 10 million) compared with a net loss of NIS 43 million (US$ 13 million) in the second quarter of 2010. This net loss reflected the impact of two significant expenses:

• Amortization of tangible and identifiable intangible assets resulting from the Bezeq acquisition: According to the standards of business combination accounting, the total purchase price of Bezeq was allocated to Bezeq’s tangible and identifiable intangible assets based on their estimated fair values. During the second quarter of 2011, Internet Gold's subsidiary, B Communications, recorded amortization expenses of NIS 310 million (US$ 91 million) related to the Bezeq purchase price allocation (“Bezeq PPA”). B Communications is amortizing certain of the acquired identifiable intangible assets in accordance with the economic future benefits expected from such assets using an accelerated method of amortization under which approximately 16% of the acquired identifiable intangible assets were amortized during 2010 and an additional 15% will be amortized during 2011.
• Financial expenses: B Communications’ financial expenses, net for the second quarter totaled NIS 98 million (US$ 29 million). These expenses consisted primarily of interest on the long-term loans incurred to finance the Bezeq acquisition, which totaled NIS 86 million (US$ 25 million), and expenses related to its debentures, which totaled NIS 14 million (US$ 4 million). In addition, Internet Gold incurred financial expenses, net totaling NIS 27 million (US$ 8 million), reflecting the interest payments it made during the period to holders of its two series of outstanding debentures.

Internet Gold Unconsolidated Financial Results

	Q2 2011
	(NIS millions)		(US$ millions)
Revenues	-		-
Financial expenses	(27	)	(8	)
Tax and other expenses	2		-
Interest in BCOM's net loss	(8	)	(2	)
Net loss	(33	)	(10	)

Comments of Management

Commenting on the results, Mr. Eli Holtzman, CEO of Internet Gold, said, “The second quarter was another period of progress during which we continued to accelerate the debt repayment plan of our subsidiary, B Communications, due primarily to the significant current and special dividends that it received on May 19 from Bezeq. From April 14, 2010 through June 30, 2011, B Communications repaid approximately NIS 1.5 billion (US$ 439 million) of its bank debt, comprised in part of NIS 1,307 million (US$ 383 million) of principal, and its finance plan continues to progress ahead-of-schedule. We are also very pleased with developments at Bezeq, and continue to focus on the smooth execution of our loan repayment plan. In parallel, we continue looking for opportunities to create additional value for our shareholders."

Consolidation of Bezeq Results

• Bezeq results consolidated for entire second quarter of 2011: Internet Gold’s results for the second quarter of 2011 reflect the consolidation of the operations of Bezeq for the entire three-month period. However, Internet Gold’s results for the comparative period of 2010 included Bezeq’s results commencing April 14, 2010, the date of the acquisition.
• Supplemental unconsolidated results table: To provide investors with transparent insight into its business, Internet Gold has also provided its results on an unconsolidated basis. Internet Gold’s interest in B Communications’ net income is presented as a single line item in the unconsolidated table (see above, “Internet Gold’s Unconsolidated Q2 Financial Results”).

Bezeq Group’s Q2 Financial Results

To provide further insight into its results, we have provided the following summary of the consolidated financial report of the Bezeq Group’s quarter ended June 30, 2011. For a full discussion of Bezeq’s results for the quarter, please refer to http://ir.bezeq.co.il.

Bezeq Group's revenues for the second quarter of 2011 amounted to NIS 2.9 billion (US$ 849 million), a decrease of 3.0% compared to the second quarter of 2010. Bezeq Fixed-Line revenues and Pelephone revenues were negatively affected by the reduction in mobile termination rates that came into effect on January 1, 2011. The decrease in revenues was moderated by growth in Pelephone's revenues from equipment sales and by the consolidation of Walla! (commencing April 25, 2010).

Bezeq Group's operating profit in the second quarter of 2011 amounted to NIS 935 million (US$ 274 million), a decrease of 5.6% compared with the second quarter of 2010. Net profit attributable to the owners of Bezeq in the second quarter amounted to NIS 585 million (US$ 171 million), a decrease of 8.3% compared with the corresponding quarter. EBITDA for the second quarter amounted to NIS 1.28 billion (US$ 375 million) (EBITDA margin of 44.3%), a decrease of 4.1% compared with the corresponding quarter (EBITDA margin of 44.9%). In the second quarter of 2010, a one-time gain of NIS 57 million (US$ 17 million) was recorded as a result of the consolidation of Walla's operations by Bezeq International. After adjustment for the one-time gain growth was recorded in each of the above parameters.

Cash flow from operating activities in the second quarter of 2011 was down 31.4% compared with the corresponding quarter in 2010, and amounted to NIS 670 million (US$ 196 million), mainly due to the sharp rise in sales of smartphones and the significant increase in supplier payments whereas subscriber payments for those handsets are made in 36 installments.

Gross investments (CAPEX) in the second quarter of 2011 amounted to NIS 495 million (US$ 145 million), an increase of 15.9% compared with the corresponding quarter in 2010. The increase stemmed, among other things, from the investment in a submarine cable by Bezeq International. The CAPEX to sales ratio was 17.1% in the second quarter of 2011, compared with 14.3% in the second quarter of 2010.

As a result of the decrease in cash flow from operating activities and the increase in CAPEX, free cash flow in the second quarter of 2011 amounted to NIS 264 million (US$ 77 million), compared with NIS 606 million (US$ 177 million) in the corresponding quarter in 2010, a decrease of 56.4%.

As of June 30, 2011, the net financial debt of the Bezeq Group was NIS 6.5 billion (US$ 1.9 million), compared with NIS 5.0 billion (US$ 1.5 billion) on June 30, 2010. The increase was attributable to the issuance of NIS 2.8 billion (US$ 820 million) of debt, of which NIS 2 billion (US$ 586 million) was issued in the second quarter of 2011. In contrast, NIS 1.4 billion (US$ 410 million) of debt was repaid. At the end of June 2011, the ratio of the Bezeq Group's net debt to EBITDA was 1.33, compared with 1.07 at the end of June 2010. We note that an issue of NIS 2.7 billion (US$ 791 million) of debentures at the end of June 2011 is not included in the Bezeq Group's balance sheet since the consideration was received after the balance sheet date.

Bezeq Group (Consolidated)^1	Q2 2011		Q2 2010		Change
	(NIS millions)
Revenues	2,893		2,981		-3.0	%
Operating profit	935		990		-5.6	%
EBITDA	1,283		1,338		-4.1	%
EBITDA margin	44.3	%	44.9	%
Net profit attributable to Company shareholders	585		638		-8.3	%
Diluted EPS (NIS)	0.21		0.24		-12.5	%
Cash flow from operating activities	670		976		-31.4	%
Capex payments, net^2	406		370		9.7	%
Free cash flow^3	264		606		-56.4	%
Net debt/EBITDA (end of period)^4	1.33		1.07
Net debt/shareholders' equity (end of period)	2.66		0.92

¹ Bezeq Group results reflect the consolidation of Walla! as of April 25, 2010.
² Capex data reflects payments related to capex and are based on the cash flow statements.
³ Free cash flow is defined as cash flow from operating activities less net capex payments.
⁴ EBITDA in this calculation refers to the trailing twelve months.

Notes:

A.	Convenience Translation to Dollars: For the convenience of the reader, certain of the reported NIS figures of June 30, 2011 and for the periods then ended, and for the comparative periods have been presented in millions of U.S. dollars, translated at the representative rate of exchange as of June 30, 2011 (NIS 3.415 = U.S. Dollar 1.00). The U.S. Dollar ($) amounts presented should not be construed as representing amounts receivable or payable in U.S. Dollars or convertible into U.S. Dollars, unless otherwise indicated.
B.	Use of non-IFRS Measurements: We and Bezeq’s management regularly internally use supplemental non-IFRS financial measures to understand, manage and evaluate our business and make operating decisions. We believe these non-IFRS financial measures provide consistent and comparable measures to help investors understand Bezeq’s current and future operating cash flow performance. These non-IFRS financial measures may differ materially from the non-IFRS financial measures used by other companies.
	EBITDA is a non-IFRS financial measure generally defined as earnings before interest, taxes, depreciation and amortization. Bezeq defines EBITDA as net income before financial income (expenses), net, impairment and other charges, expenses recorded for stock compensation in accordance with IFRS 2, income tax expenses and depreciation and amortization. We present Bezeq’s 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, tax positions (such as the impact 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).
	EBITDA should not be considered in isolation or as a substitute for net income or other statement of operations or cash flow data prepared in accordance with IFRS as a measure of 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 press release, may not be comparable to similarly titled measures reported by other companies due to differences in the way that these measures are calculated.

About Internet Gold - Golden Lines Ltd.

Internet Gold is Israel’s leading telecommunications group. Internet Gold’s main asset is its control of Bezeq, the Israel Telecommunication Corp. (http://ir.bezeq.co.il) (TASE: BZEQ), Israel’s largest telecommunications service provider, which is based on its approximately 78.11% ownership of B Communications Ltd. (Nasdaq and TASE: BCOM), the holder of the controlling interest (31.23%) and board control of Bezeq.

Internet Gold is controlled by Eurocom Communications, a leading privately-held investment group headquartered in Ramat-Gan, Israel. Internet Gold’s shares are traded on the NASDAQ Global Select Market (Nasdaq: IGLD) and the Tel Aviv Stock Exchange (TASE: IGLD) where its share price is tracked as part of the TA-100 Index.

For more information, please visit the following Internet sites:
http://ir.bezeq.co.il
http://www.eurocom.co.ilhttp://www.bcommunications.co.il

Forward-Looking Statements

This press release contains forward-looking statements that are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, general business conditions in the industry, changes in the regulatory and legal compliance environments, the failure to manage growth and other risks detailed from time to time in B Communications’s filings with the Securities Exchange Commission. These documents contain and identify other important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements. Stockholders and other readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update publicly or revise any forward-looking statement.

Internet Gold - Golden Lines Ltd.
Consolidated Statements of Financial Position
		Convenience
		translation into
		U.S. dollars
	June 30	June 30	June 30	December 31
	2011	2011	2010	2010
	(Unaudited)	(Unaudited)	(Unaudited)	(Audited)
	NIS millions	US$ millions	NIS millions	NIS millions
Assets
Cash and cash equivalents	548	160	365	404
Investments including derivatives	675	198	547	1,029
Trade receivables	2,855	836	2,689	2,701
Other receivables	237	69	284	228
Inventory	277	81	169	177
Current tax assets	2	1	-	3
Assets classified as held-for-sale	151	44	38	219
Total current assets	4,745	1,389	4,092	4,761
Investments including derivatives	112	33	138	129
Long-term trade receivables	1,474	432	940	1,114
Property, plant and equipment	7,487	2,192	5,514	7,392
Intangible assets	8,643	2,531	14,932	9,163
Deferred and other expenses	396	116	687	423
Investments in equity-accounted investee (mainly loans)	1,050	307	1,136	1,084
Deferred tax assets	259	76	337	254
Total non-current assets	19,421	5,687	23,684	19,559
Total assets	24,166	7,076	27,776	24,320

Internet Gold - Golden Lines Ltd.
Consolidated Statements of Financial Position
		Convenience
		translation into
		U.S. dollars
	June 30	June 30	June 30	December 31
	2011	2011	2010	2010
	(Unaudited)	(Unaudited)	(Unaudited)	(Audited)
	NIS millions	US$ millions	NIS millions	NIS millions
Liabilities
Short-term bank credit, current maturities of long-term liabilities and debentures	1,789	524	2,155	1,501
Trade payables	1,005	294	1,033	1,066
Other payables including derivatives	996	292	774	817
Dividend payable	668	196	-	-
Current tax liabilities	309	90	254	346
Deferred income	39	11	33	34
Provisions	253	74	371	251
Employee benefits	488	143	454	269
Liabilities classified as held-for-sale	4	1	-	21
Total current liabilities	5,551	1,625	5,074	4,305
Debentures	3,692	1,081	2,817	3,546
Bank loans	6,651	1,948	5,869	6,138
Loans from institutions and others	546	160	-	541
Dividend payable	941	276	-	-
Employee benefits	267	78	295	305
Deferred income and other liabilities	155	45	5	150
Provisions	70	20	73	69
Deferred tax liabilities	1,361	399	2,474	1,555
Total non-current liabilities	13,683	4,007	11,533	12,304
Total liabilities	19,234	5,632	16,607	16,609
Equity
Total equity attributable to Company's shareholders	38	11	432	295
Non-controlling interest	4,894	1,433	10,737	7,416
Total equity	4,932	1,444	11,169	7,711
Total liabilities and equity	24,166	7,076	27,776	24,320

Internet Gold - Golden Lines Ltd.
Consolidated Statements of Operations
	Six months period ended						Three months period ended						Year ended
	June 30,						June 30,						December 31,
			Convenience						Convenience
			translation						translation
			into						into
			U.S. dollars						U.S. dollars
	2011		2011		2010		2011		2011		2010		2010
	NIS millions		US$ millions		NIS millions		NIS millions		US$ millions		NIS millions		NIS millions
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Audited)
Revenues	5,809		1,701		2,605		2,895		848		2,586		8,732
Cost and expenses
Depreciation and amortization	1,399		409		485		699		205		484		2,295
Salaries	1,075		315		439		540		158		437		1,500
General and operating expenses	2,268		664		1,089		1,135		332		1,076		3,711
Other operating expenses (income), net	276		81		(54	)	29		9		(11	)	(3	)
	5,018		1,469		1,959		2,403		704		1,986		7,503
Operating income	791		232		646		492		144		600		1,229
Financing expenses, net	287		84		189		153		45		136		389
Income after financing expense, net	504		148		457		339		99		464		840
Share in losses of equity-accounted investee	137		40		83		72		21		83		235
Income before income tax	367		108		374		267		78		381		605
Income tax	204		60		168		116		34		147		385
Net income	163		48		206		151		44		234		220
Attributable to:
Owners of the Company	(97	)	(28	)	(77	)	(33	)	(10	)	(43	)	(209	)
Non-controlling interest	260		76		283		184		54		277		429
Net income	163		48		206		151		44		234		220
Income (loss) per share, basic
Net income (loss) per share	(5.10	)	(1.49	)	(4.07	)	(1.68	)	(0.49	)	(2.22	)	(11.11	)
Income (loss) per share, diluted
Net income (loss) per share	(5.15	)	(1.51	)	(4.07	)	(1.72	)	(0.50	)	(2.32	)	(11.23	)