Incredimail 2011 Annual Report Download - page 43

Taxes on Income.
Income tax in 2010 was $3.2 million, with an effective tax rate of 28%, compared to $3.5 million, with an effective tax rate of 31% in 2009.
This rate reflects our decision to institute a dividend distribution policy, distributing at least 50% of net income as a dividend, in 2009 and 2010. We distributed
dividends of $8.5 million in each of the years, 2009 and 2010. As a result of our policy to distribute dividends, we are not able to take full advantage of the tax reduced
tax rates afforded to Approved and Beneficiary Enterprises. As we announced in November 2010, we have changed our dividend distribution policy and do not intend
to distribute dividends from earnings in 2011 or beyond. As a result, and assuming a similar tax environment in 2011, we expect to have a substantially lower effective
tax rate in 2011.
Net Income.
The Net Income in 2010 was $8.4 million, compared to $8.0 million, in 2009. As described above, this was a result of our increase in revenues
being offset by a higher level of expenditure.
B. LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2011, working capital was $0.0 million, consisting of approximately $21.0 current assets and $21.0 current liabilities.. As of December
31, 2010, we had working capital of $28.1 million and our primary source of liquidity was $31 million in cash and cash equivalents and marketable securities, partially
offset by accrued and othe short-
term liabilities of $6.2 million. The decrease in working capital, cash, cash equivalents and marketable securities, as well as the
increase in other short term liabilities and expenses, was entirely due to the acquisition of Smilebox Inc. in the second half of 2011. Under the terms of the acquisition
agreement, the Company paid approximately $25 million, substantially in cash at closing and additional payments of up to $15 million are payable if certain
milestones and performance based conditions are met, payable in two installments on the seven and fourteen months anniversary from closing. The first installment, in
the amount of approximately $7 million, is expected to be paid on the seven months anniversary of closing.
The decrease in cash and cash equivalents by $19.8 million was due to cash paid upon closing the acquisition, partially offset by cash generated from our
ongoing activities in 2011.
As of December 31, 2011, we had a credit facility comprised of $12 million provided by Bank Leumi Le-
Israel and $8 million provided by First International
Bank of Israel. The repayment of the debt under this credit facility is structured over three to five years respectively, and we have an option for early repayment. We
have not utilized this credit facility as of yet.
We believe that our cash balances and cash generated from operations will be more than sufficient to meet our anticipated cash requirements for operations, at
least for the next 12 months.
Net Cash Provided By Operating Activities
. Net cash provided by operating activities was $10.7 million, $9.8 million and $7.0 million for 2009, 2010 and
2011, respectively. The decrease in cash provided by operating activities in 2011 was primarily a result of the $2.7 million decrease in net income as the changes in the
adjustment of revenues to cash revenues and expenses to cash expenses offsetting each other.
Net Cash Provided By (Used In) Investing Activities
. Net cash provided by (used in) investing activities was $13.5 million, ($10.2) million and ($8) million
in 2009, 2010 and 2011, respectively. While in 2009 and 2010, the net cash provided by or used in investment activities was a result of selling or investing in
marketable securities, in 2011 the cash used in investing activities was primarily a result of investing $21.7 million in cash for the acquisition of Smilebox, partially
offset by the $14.8 million in proceeds from the net sale of marketable securities. In addition, in 2011 the Company invested in equipment and capitalized content and
software costs $1.1 million.
Net Cash Used In Financing Activities.
Net cash used in financing activities was $7.6 million, $7.9 million and $3.9 million in 2009, 2010 and 2011,
respectively. In all these years the cash was used primarily for the payment of dividends to shareholders, a policy that has been discontinued.
C. RESEARCH, DEVELOPMENT, PATENTS AND LICENSES, ETC.
Our research and development activities are conducted internally by our Chief Technology Officer and a 69 person research and development staff.
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