Edgar Filing: FORMULA SYSTEMS (1985) LTD

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 6-K

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

of the Securities Exchange Act of 1934

For the month of June 2016

Commission File Number: 000-29442

FORMULA SYSTEMS (1985) LTD.

(Translation of registrant’s name into English)

5 HaPlada Street, Or-Yehuda, Israel

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F x Form 40-F ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨

PRESS RELEASE

Formula Systems Reports First Quarter Results for 2016 According to International Financial Reporting Standards

Or Yehuda, Israel, June 22, 2016 – Formula Systems (1985) Ltd. (NASDAQ: FORTY), a global information technology holding company engaged primarily, through its subsidiaries and affiliates, in providing software consulting services and computer-based business solutions and developing proprietary software, today announced its results for the first quarter of 2016 in accordance with International Financial Reporting Standards (IFRS).

In accordance with Formula’s May 2016 announcement that it will report its financial results under IFRS as of January 1, 2016 (date of adoption), the company’s Consolidated Statements of Financial Position and Consolidated Statements of Profit or Loss for the first quarter ended March 31, 2016 and the comparative periods of 2015 are also reported under IFRS. Up until the most recent reporting period, Formula’s reporting was based on US GAAP.

The main difference between IFRS and US GAAP reporting, as it applies to the Company, relates to the consolidation of the results of operations of subsidiaries. Under US GAAP, companies are evaluated for consolidation purposes based on voting interests, to determine whether the reporting entity controls and therefore consolidates them. Under US GAAP, the majority voting interest holder of a company (i.e., ownership of more than 50% of the outstanding voting shares of an entity) consolidates that company. Upon transitioning to reporting based on IFRS, the Company consolidated the results of operations of Sapiens International Corporation N.V. and Magic Software Enterprises Ltd. over which it has effective control (“de facto control”), as required under IFRS. “De facto control” exists when the Company’s rights in such entities are sufficient to give it power to have the practical ability to direct the relevant activities of such entities even where it does not have more than 50% of the voting power therein. The Company believes that consolidating the results of operations of entities over which it has “de facto control” provides more consistency in accounting treatment and financial reporting over future periods, whether or not the Company's interest in these entities exceeds 50% (but provided that, and for as long as, it has “de facto control” over such entities). The concept of “de facto control” does not exist under US GAAP. The Company believes that this change provides shareholders with information that better reflects the Company's operations through the subsidiaries that it effectively controls.

Financial Highlights for the First Quarter of 2016 (in accordance with IFRS)

Consolidated revenues for the first quarter ended March 31, 2016, increased 11% to $262.2 million, compared to $237.1 million in the same period last year.

Consolidated operating income for the first quarter ended March 31, 2016, increased 7% to $21.5 million, compared to $20.2 million in the same period last year.

Consolidated net income for the first quarter ended March 31, 2016, was $4.0 million, or $0.27 per fully diluted share, compared to $6.5 million, or $0.44 per fully diluted share, in the same period last year. Net income was negatively impacted by increased tax expenses recorded in Magic Software and in Sapiens and the appreciation of Formula's debentures nominated in New Israel Shekels as a result of exchange rate fluctuations.

As of March 31, 2016, Formula held 50.0%, 49.0% and 47.3% of the outstanding ordinary shares of Matrix, Sapiens and Magic, respectively.

Consolidated cash and short-term and long-term investments in marketable securities totaled approximately $325.1 million as of March 31, 2016.

Total consolidated equity as of March 31, 2016, was $717.1 million (representing 58% of the total balance sheet).

As of March 31, 2016, Formula was in compliance with all of its financial covenants.

Comments of Management

Commenting on the results, Guy Bernstein, CEO of Formula Systems, said, “We are very pleased to report another quarter of excellent results across our entire portfolio. Sapiens' revenues grew by 20.9% to $49.6 million for the first quarter. In addition, Sapiens launched several products including its new advanced analytics solution, Sapiens INTELLIGENCE, thereby continuing to expand its revenue base and enhance its competitive position. Matrix reported a tremendous first quarter, improving both its top and bottom line. Matrix’s growth is a direct result of having strategically identified future growth engines and executing its growth plan by investing in its offerings and infrastructure to target these high growth segments. Magic reported another quarter with double-digit revenue growth year over year while maintaining operational profitability at a solid 15%. Magic continues to invest in its products, receiving very positive customer feedback and strong uptake for its solutions, including its professional services for cloud and mobility solutions. We are looking forward to adding the results of our 50% stake in TSG – formerly a subsidiary and the military arm of Ness Technologies, which we acquired in equal parts with Israel Aerospace Industries (IAI) during May 2016. Engaged in the fields of command and control systems, intelligence, homeland security and cyber security, TSG adds a valuable fourth leg to our portfolio.”

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
	March 31,
	2016			2015
	Unaudited
Revenues		262,170			237,060
Cost of revenues		201,397			181,214

Gross profit		60,773			55,846
Research and development costs, net		4,516			3,825
Selling, marketing, general and administrative expenses		34,709			31,807

Operating income		21,548			20,214

Financial expenses, net		(3,846	)		(1,926	)

Income before taxes on income		17,702			18,288
Taxes on income		5,437			3,653

Income after taxes		12,265			14,635
Equity in gains of affiliated companies, net		-			5

Net income		12,265			14,640
Change in redeemable non-controlling interests		315			259
Net income attributable to non-controlling interests		7,908			7,886

Net income attributable to Formula's shareholders		4,042			6,495

Basic Earnings per share		0.28			0.46
Diluted Earnings per share		0.27			0.44

Number of shares used in computing earnings per share (basic)		14,177,747			14,017,356
Number of shares used in computing earnings per share (diluted)		15,479,736			14,603,859

FORMULA SYSTEMS (1985) LTD.

CONSOLIDATED CONDENSED BALANCE SHEETS

U.S. dollars in thousands

	March 31,		December 31,
	2016		2015
	(Unaudited)		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		255,293		249,141
Marketable securities		49,996		31,605
Short-term deposits		3,264		2,688
Trade receivables		250,562		257,631
Other accounts receivable and prepaid expenses		51,756		43,112
Inventories		4,664		4,807
Total current assets		615,535		588,984

LONG-TERM INVESTMENTS:
Marketable securities		16,542		30,875
Deferred Taxes LT		16,171		16,347
Prepaid expenses and other assets LT		12,838		11,506
Total long-Term Investments		45,551		58,728

PROPERTY, PLANTS AND EQUIPMENT, NET		23,729		22,003

NET INTANGIBLE ASSETS AND GOODWILL		560,540		545,677

TOTAL ASSETS		1,245,355		1,215,392

CURRENT LIABILITIES:
Liabilities to banks and others financial institutions		71,636		59,082
Debentures		410		213
Trade payables		67,029		68,051
Deferred revenues		51,903		39,694
Employees and payroll accrual		80,034		76,653
Other accounts payable		36,802		41,672
Dividend payable		4,997		4
Liability in respect of business combinations ST		4,768		2,866
Redeemable non-controlling interest		4,668		4,673
Total current liabilities		322,247		292,908

LONG-TERM LIABILITIES:
Liabilities to banks and others financial institutions		89,544		103,808
Other long term liabilities		8,440		7,811
Debentures		58,359		57,128
Deferred taxes Liability LT		22,924		22,667
Customer advances		5,640		4,396
Liability in respect of business combinations		4,394		3,434
Liabilities in respect of capital lease		272		494
Accrued severance pay, net		3,829		3,389
Redeemable non-controlling interest		12,615		9,513
Total long-term liabilities		206,017		212,640

EQUITY
Total equity attributable to Formula system (1985) shareholders' equity		335,512		331,738
Non-controlling interests		381,579		378,106
Total equity		717,091		709,844

TOTAL LIABILITIES AND EQUITY		1,245,355		1,215,392

FORMULA SYSTEMS (1985) LTD.

STANDALONE FINANCIAL DATA HIGHLIGHTS

U.S. dollars in thousands

	March 31,		December 31,
	2016		2015
	(Unaudited)


Debentures		58,770		57,341

Other financial liabilities		46,894		52,623

Formula shareholders' equity		335,512		331,738

Cash, cash equivalents and short term marketable securities		66,076		78,436

Fair market value of equity holdings in publicly traded subsidiaries		617,689		532,697

FORMULA SYSTEMS (1985) LTD.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME - RECONCILIATION OF US GAAP TO IFRS

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

	Year ended December 31, 2015
	US GAAP			Impact of transition to IFRS			IFRS
	(Unaudited)

Revenues		750,555			222,639			973,194
Cost of revenues		601,749			139,521			741,270
					0
Gross profit		148,806			83,118			231,924
Research and development costs, net		7,488			7,635			15,123
Selling, marketing, general and administrative expenses		94,722			46,221			140,943
Other income (expenses), net		(2	)		10			8
Operating income		46,594			29,272			75,866
					0
Financial expenses, net		(8,254	)		(549	)		(8,803	)
					0
Income before taxes on income		38,340			28,723			67,063
Taxes on income		10,988			4,996			15,984
					-
Income after taxes		27,352			23,727			51,079
Equity in gains (losses) of affiliated companies, net		65,096			(65,091	)		5
					0
Net income		92,448			(41,364	)		51,084
Change in redeemable non-controlling interests		255			609			864
Net income attributable to non-controlling interests		18,488			11,801			30,289
					0
Net income attributable to Formula's shareholders system (1985) Shareholders		73,705			(53,774	)		19,931

Basic Earnings per share		5.24			(3.83	)		1.41
Diluted Earnings per share		5.00			(3.66	)		1.34

Number of shares used in computing earnings per share (basic)		14,070,924			-			14,070,924
Number of shares used in computing earnings per share (diluted)		14,744,027			(102,867	)		14,641,160

FORMULA SYSTEMS (1985) LTD.

CONSOLIDATED CONDENSED BALANCE SHEETS - RECONCILIATION OF US GAAP TO IFRS

U.S. dollars in thousands

	January 1, 2015							December 31, 2015
	US GAAP		Impact of transition to IFRS			IFRS		US GAAP		Impact of transition to IFRS			IFRS
	(Unaudited)							(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		107,416		72,515			179,931		132,603		116,538			249,141
Marketable securities		15,784		11,915			27,699		11,011		20,594			31,605
Short-term deposits		6,454		-			6,454		11		2,677			2,688
Trade receivables		195,287		40,365			235,652		176,665		80,966			257,631
Other accounts receivable and prepaid expenses		31,297		3,173			34,470		32,584		10,528			43,112
Inventories		2,259		178			2,437		4,610		197			4,807
Total current assets		358,497		128,146			486,643		357,484		231,500			588,984

LONG-TERM INVESTMENTS:
Marketable securities		33,748		-			33,748		-		30,875			30,875
Deferred Taxes LT		17,901		(1,918	)		15,983		13,164		3,183			16,347
Investments in affiliated companies		169,143		(168,615	)		528		451,433		(451,433	)		-
Prepaid expenses and other accounts receivable LT		10,287		2,376			12,663		8,945		2,561			11,506
Total long-Term Investments		231,079		(168,157	)		62,922		473,542		(414,814	)		58,728

SEVERANCE PAY FUND		65,322		(65,322	)		-		54,631		(54,631	)		-

PROPERTY, AND EQUIPMENT, NET		20,126		1,985			22,111		14,199		7,804			22,003

NET INTANGIBLE ASSETS AND GOODWILL		450,100		84,119			534,219		167,093		378,584			545,677

TOTAL ASSETS		1,125,124		(19,229	)		1,105,895		1,066,949		148,443			1,215,392

CURRENT LIABILITIES:
Liabilities to banks and others financial institutions		43,190		2,853			46,043		59,069		13			59,082
Debentures		-		-			-		213		-			213
Trade payables		52,693		3,887			56,580		58,105		9,946			68,051
Deferred revenues		34,556		3,430			37,986		25,335		14,359			39,694
Employees and payroll accrual		63,172		7,284			70,456		51,390		25,263			76,653
Other accounts payable		23,325		10,214			33,539		16,502		25,170			41,672
Dividend payable		7,876		-			7,876		4		-			4
Liability in respect of business combinations ST		1,782		420			2,202		1,193		1,673			2,866
Redeemable non-controlling interest		-		4,266			4,266		-		4,673			4,673
Total current liabilities		226,594		32,354			258,948		211,811		81,097			292,908

LONG-TERM LIABILITIES:
Liabilities to banks and others financial institutions		108,203		490			108,693		102,845		963			103,808
Other long term liabilities		6,204		(3,932	)		2,272		-		7,811			7,811
Debentures, net of current maturities		-		-			-		58,284		(1,156	)		57,128
Deferred taxes LT		32,605		(10,196	)		22,409		67,010		(44,343	)		22,667
Customer advances		4,838		-			4,838		4,396		-			4,396
Liability in respect of business combinations		825		798			1,623		2,405		1,029			3,434
Liabilities in respect of capital lease		903		-			903		494		-			494
Accrued severance pay, net		77,975		(74,898	)		3,077		67,409		(64,020	)		3,389
Redeemable non-controlling interest		-		6,519			6,519		-		9,513			9,513
Total long-term liabilities		231,553		(81,219	)		150,334		302,843		(90,203	)		212,640

REDEEMABLE NON-CONTROLING INTEREST		10,313		(10,313	)		-		10,029		(10,029	)		-

EQUITY
Total equity attributable to Formula system (1985) shareholders' equity		389,708		(63,184	)		326,524		451,557		(119,819	)		331,738
Non-controlling interests		266,956		103,133			370,089		90,709		287,397			378,106
Total equity		656,664		39,949			696,613		542,266		167,578			709,844

TOTAL LIABILITIES AND EQUITY		1,125,124		(19,229	)		1,105,895		1,066,949		148,443			1,215,392

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	FORMULA SYSTEMS (1985) LTD.

Date: June 22, 2016	By:	/s/ Asaf Berenstin
		Asaf Berenstin
		Chief Financial Officer