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Formula Systems Reports Results for Third Quarter of 2013 with Net Income of $5.2 Million, a Year over Year Increase of 10%

November 13, 2013

Third Quarter Revenues Increased by 8% Year-Over-Year to $197.3

OR YEHUDA, Israel, Nov. 13, 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 third quarter of 2013.

Financial Highlights for the Third Quarter Ended September 30, 2013

    --  Revenues for the third quarter ended September 30, 2013, increased 8% to
        $197.3 million compared to $182.0 million in the same period of 2012.
    --  Operating income for the third quarter ended September 30, 2013,
        increased 5% to $14.8 million, compared to $14.0 million in the same
        period of 2012; Non-GAAP operating income for the third quarter ended
        September 30, 2013, decreased 2% to $17.5 million, compared to $17.9
        million in the same period of 2012. Operating income was negatively
        impacted by seasonality, with the early timing of holidays compared to
        2012.
    --  Net income for the third quarter ended September 30, 2013, increased 10%
        to $5.2 million (or $0.36 per fully diluted share) compared to $4.7
        million (or $0.33 per fully diluted share) in the same period of 2012.
        Non-GAAP net income for the third quarter ended September 30, 2013,
        increased 10% to $7.4 million compared to $6.7 million in the same
        period of 2012.

Financial Highlights for the Nine-Month Period Ended September 30, 2013

    --  Revenues for the nine-month period ended September 30, 2013, increased
        7% to $587.2 million compared to $546.5 million in the same period of
        2012.
    --  Operating income for the nine-month period ended September 30, 2013,
        increased 4% to $43.4 million compared to $41.9 million in the same
        period of 2012; Non-GAAP operating income for the nine-month period
        ended September 30, 2013, decreased 3% to $52.0 million compared to
        $53.5 million in the same period of 2012.
    --  Net income for the nine-month period ended September 30, 2013, decreased
        13% to $14.3 million (or $0.99 per fully diluted share) compared to
        $16.5 million (or $1.18 per fully diluted share) in the same period of
        2012; Net income in 2012 included a net gain of $3.4 million resulting
        from the remeasurement of the Company's investments, attributable to
        regaining a controlling interest in Sapiens. Non-GAAP net income for the
        nine-month period ended September 30, 2013, decreased 13% to $19.5
        million compared to $22.5 million in the same period of 2012.
    --  Formula's consolidated cash and short-term and long-term investments in
        marketable securities totaled approximately $126.0 million, as of
        September 30, 2013.
    --  Total equity on September 30, 2013 was $495.9 million, representing 54%
        of the total balance sheet.

Comments of Management

Commenting on the results, Guy Bernstein, CEO of Formula Systems, said, “I am happy to report Formula’s third quarter results which reflect continuing strong financial performance across all of our subsidiaries, with both Sapiens and Magic recording record-breaking top-line results for the first nine months of 2013. During this quarter, Matrix has continued to benefit from its on-going investments in broadening its software service offerings and from winning new projects. Sapiens reached record-breaking revenues of $34.6 million for the third quarter with 20% year-over-year growth in revenues for the first nine months, thanks to increasing demand for its solutions across North America, Europe and Asia-Pacific, creating a strong financial foundation for its continued future growth. And with record income of $6.0 million from operating activity in the third quarter, Magic continues to reap the results of recent enhancements it has made to enrich its enterprise mobility, integration and services offerings, strengthening its position in these growth markets. “

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         Nine months ended

                                                                         September 30,             September 30,
                                                                          -------------             -------------

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

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

    Revenues                                                           197,285         182,035     587,213         546,464

    Cost of revenues                                                   149,113         136,592     445,233         414,945

    Gross profit                                                        48,172          45,443     141,980         131,519

    Research and development costs, net                                  3,879           3,722      11,859           8,933

    Selling, general and administrative expenses                        29,525          27,688      86,768          80,727

    Operating income                                                    14,768          14,033      43,353          41,859

    Financial income (expenses), net                                    (1,447)         (1,072)     (5,013)         (4,831)

    Income before taxes on income                                       13,321          12,961      38,340          37,028

    Taxes on income                                                      1,602           1,518       5,641           5,170

    Income after taxes                                                  11,719          11,443      32,699          31,858

    Equity in gains (losses) of affiliated companies, net                  (68)              -         (91)          3,719

    Net income                                                          11,651          11,443      32,608          35,577

    Change in redeemable non controlling interests                         388           1,448       1,745           2,791

    Net income attributable to non-controlling interests                 6,048           5,272      16,527          16,242

    Net income attributable to Formula's shareholders                    5,215           4,723      14,336          16,544

    Earnings per share (basic)                                            0.38            0.34        1.05            1.22

    Earnings per share (diluted)                                          0.36            0.33        0.99            1.18

    Number of shares used in computing earnings per share (basic)   13,806,522      13,596,000  13,685,667      13,596,000
                                                                    ==========      ==========  ==========      ==========

    Number of shares used in computing earnings per share (diluted) 14,195,053      13,749,000  14,085,244      13,769,000
                                                                    ==========      ==========  ==========      ==========


    FORMULA SYSTEMS (1985) LTD.

    RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION

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

                                                                                          Three months ended        Nine months ended

                                                                                             September 30,            September 30,
                                                                                             -------------            -------------

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

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

    GAAP operating income                                                                 14,768          14,033      43,353          41,859

    Amortization of capitalized software and other intangible assets                       4,190           4,603      13,173          14,096

    Capitalization of software development                                                (2,466)         (1,861)     (7,785)         (5,989)

    Stock-based compensation                                                               1,005           1,141       3,228           3,498
                                                                                           -----           -----       -----           -----

    Total adjustments to GAAP                                                              2,729           3,883       8,616          11,605

    Non-GAAP operating income                                                             17,497          17,916      51,969          53,464
                                                                                          ======          ======      ======          ======

    GAAP net income attributable to Formula's shareholders                                 5,215           4,723      14,336          16,544

    Amortization of capitalized software and other intangible assets                       4,190           4,603      13,173          14,096

    Capitalization of software development                                                (2,466)         (1,861)     (7,785)         (5,989)

    Stock-based compensation                                                               1,005           1,141       3,228           3,498

    Non-controlling interest in amortization intangible assets                            (1,535)         (1,351)     (3,403)         (4,090)

    Unwinding of discount in connection with liabilities due to acquisitions 50 - 265             -

    Deferred taxes on the above items                                                        934            (522)       (278)         (1,528)
                                                                                             ---            ----        ----          ------

    Total adjustments to GAAP                                                              2,178           2,010       5,200           5,987

    Non-GAAP net income attributable to Formula's shareholders                             7,393           6,733      19,536          22,531
                                                                                           =====           =====      ======          ======

    Non-GAAP earnings per share (basic)                                                     0.54            0.50        1.43            1.66
                                                                                            ====            ====        ====            ====

    Weighted average number of shares used in

       computing earnings per share (basic)                                           13,806,522      13,596,000  13,685,667      13,596,000
                                                                                      ----------      ----------  ----------      ----------

    Non-GAAP earnings per share (diluted)                                                   0.50            0.49        1.33            1.64
                                                                                            ====            ====        ====            ====

    Weighted average number of shares used in

       computing earnings per share (diluted)                                         14,718,782      13,749,000  14,718,782      13,769,000
                                                                                      ----------      ----------  ----------      ----------


    FORMULA SYSTEMS (1985) LTD.

    CONSOLIDATED CONDENSED BALANCE SHEETS

    U.S. dollars in thousands

                                          September 30,       December 31,
                                          -------------       ------------

                                                         2013               2012
                                                         ----               ----

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

    ASSETS

    CURRENT ASSETS:

      Cash and cash equivalents                       108,981            111,238

      Marketable securities                            16,619             14,866

      Trade receivables                               198,462            201,886

      Other accounts receivable                        43,860             38,863

      Inventories                                       3,415              2,149

    Total current assets                              371,337            369,002
                                                      -------            -------

    LONG-TERM INVESTMENTS:

      Marketable securities                               437                331

      Deferred Taxes                                   13,966             13,618

      Investments in affiliated
       companyies                                       3,226              3,022

      Prepaid expenses and
       other accounts
       receivable                                      11,254              5,285

    Total  long-Term
     Investments                                       28,883             22,256
                                                       ------             ------

    SEVERANCE PAY FUND                                 71,283             66,799
                                                       ------             ------

    PROPERTY, PLANTS AND
     EQUIPMENT, NET                                    23,684             21,459
                                                       ------             ------

    NET INTANGIBLE ASSETS AND
     GOODWILL                                         415,402            401,404
                                                      -------            -------

    TOTAL  ASSETS                                     910,589            880,920
                                                      =======            =======

    CURRENT LIABILITIES:

      Liabilities to banks                             28,123             23,607

      Debentures                                            -             15,735

      Trade payables                                   48,069             51,943

      Deferred revenues                                40,652             33,998

      Other accounts payable                           90,177             98,009

    Total current liabilities                         207,021            223,292
                                                      -------            -------

    LONG-TERM LIABILITIES:

      Liabilities to banks and
       others                                          71,676             64,659

      Deferred revenue                                  5,116              1,346

      Other long-term payables                         19,743             19,010

      Accrued severance pay                            87,274             81,832

    Total long-term
     liabilities                                      183,809            166,847
                                                      -------            -------

    REDEEMABLE NON-
     CONTROLLING INTEREST                              23,872             22,363
                                                       ------             ------

    EQUITY

      Formula shareholders'
       equity                                         260,306            245,067

      Non-controlling
       interests                                      235,581            223,351
                                                      -------            -------

    Total equity                                      495,887            468,418

    TOTAL LIABILITIES AND
     EQUITY                                           910,589            880,920
                                                      =======            =======

SOURCE Formula Systems


Source: PR Newswire