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 August 2004
-----------------------
ELBIT SYSTEMS LTD.
(Translation of Registrant's Name into English)
Advanced Technology Center, P.O.B. 539, Haifa 31053, Israel
(Address of Principal Corporate Offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F:
|X| Form 20-F |_| 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): |_|
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a
Form 6-K if submitted solely to provide an attached annual report to security
holders.
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): |_|
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a
Form 6-K submitted to furnish a report or other document that the registrant
foreign private issuer must furnish and make public under the laws of the
jurisdiction in which the registrant is incorporated, domiciled or legally
organized (the registrant's "home country"), or under the rules of the home
country exchange on which the registrant's securities are traded, as long as the
report or other document is not a press release, is not required to be and has
not been distributed to the registrant's security holders, and, if discussing a
material event, has already been the subject of a Form 6-K submission or other
Commission filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:
|_| Yes |X| No
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b):
82-______________
Attached hereto as Exhibit 1 and incorporated herein by reference is
the Registrant's press release, dated August 9, 2004.
Attached hereto as Exhibit 2 and incorporated herein by reference is
the Registrant's Management Report with respect to the results of operations of
the Registrant for the quarter ended June 30, 2004.
Attached hereto as Exhibit 3 and incorporated herein by reference is
the Registrant's condensed interim consolidated financial statements as of June
30, 2004.
SIGNATURE
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.
ELBIT SYSTEMS LTD.
(Registrant)
By: /s/ Ilan Pacholder
--------------------------------------
Name: Ilan Pacholder
Title: Corporate Secretary
Dated: August 10, 2004
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
1. Press Release, dated August 9, 2004.
2. Registrant's Management Report for the quarter ended June 30,
2004.
3. Registrant's condensed interim consolidated financial
statements as of June 30, 2004.
Exhibit 1
[LOGO OF ELBIT SYSTEMS LTD.]
Earnings Release
ELBIT SYSTEMS REPORTS SECOND QUARTER 2004 RESULTS
Revenues Increase To $231.6 million from $218.8 million in Second Quarter Last
Year
Net Profit Increases To $11.3 million from $9.2 million in Second Quarter Last
Year
Backlog of Orders Reaches a Record $1.9 billion
Extraordinary Dividend of $1.80 Per Share
Haifa, Israel, August 9, 2004 - Elbit Systems Ltd. (the "Company") (NASDAQ:
ESLT), the international defense company, today reported its consolidated
results for the quarter ended June 30, 2004.
Consolidated revenues for the second quarter of 2004 increased 5.9% to $231.6
million from $218.8 million in the corresponding quarter in 2003.
Consolidated revenues for the six month period ended June 30, 2004 increased
5.8% to $445.3 million from $420.9 million in the same period in 2003.
Consolidated net income for the second quarter of 2004 was $11.3 million (4.9%
of revenues) as compared with $9.2 million (4.2% of revenues) in the same period
in 2003. Diluted earnings per share ("EPS") for the second quarter of 2004 was
$0.28 as compared with $0.23 for the second quarter of 2003.
The Company's financial results were affected by the increase in the Company's
share price during the reported periods, due to non-cash expenses related to the
employees "phantom" option plan.
Excluding the phantom option plan non-cash expenses, net income in the second
quarter of 2004 was $14.0 million (6.1% of revenues), and the diluted EPS was
$0.34, as compared to net income of $13.3 million (6.1% of revenues) and diluted
EPS of $0.33 in the second quarter of 2003.
Consolidated net income for the first six months of 2004 was $24.0 million (5.4%
of revenues), compared with $21.5 million (5.1% of revenues) for the same period
in 2003.
Diluted EPS for the six months ended June 30, 2004 was $0.59 compared with $0.54
for the corresponding period in 2003.
1
Excluding the phantom option plan non-cash expenses in 2004, net income for the
six months ended June 30, 2004 was $27.0 million (6.1% of revenues), and diluted
EPS was $0.66. For the six-month period ended June 30, 2003, net income was
$26.6 million (6.3% of revenues) and diluted EPS was $0.66.
Gross profit for the second quarter of 2004 was $58.5 million (25.3% of
revenues), as compared with gross profit of $57.2 million (26.2% of revenues) in
the second quarter of 2003.
Excluding non-cash expenses related to the Company's phantom option plan, gross
profit in the quarter ended June 30, 2004 was $60.4 million, or 26.1% of
revenues, as compared with $60.0 million, or 27.6% of revenues in the quarter
ended June 30, 2003.
Gross profit for the first six months of 2004 was $115.4 million (25.9% of
revenues) as compared with $114.1 million (27.1% of revenues) in the same period
of 2003.
Excluding non-cash expenses related to the Company's phantom option plan, gross
profit for the six months ended June 30, 2003 was $117.5 million, or 26.4% of
revenues, as compared with $117.7 million, or 28.0% of revenues in the six-month
period ended June 30, 2003.
Backlog of orders as of June 30, 2004 reached $1,906 million, as compared with
$1,752 million at the end of 2003. 68% of the backlog relates to orders outside
of Israel. Approximately 63% of the Company's backlog as of June 30, 2004, is
scheduled to be performed over the next two quarters of 2004 and during the year
2005.
The President and CEO of Elbit Systems, Joseph Ackerman, commented: "The second
quarter results reflect the continuation of improvement in our net profit that
we saw in the first quarter, and a continued growth in revenues and backlog of
orders. These results are evidence of the success of the strategy that we have
taken, focusing on the development of our technological growth engines and on
cooperation with other leading companies worldwide. We see the fruits of the
significant investments made by the Company in these areas and anticipate this
trend to continue".
The Board of Directors declared an extraordinary dividend of $1.80 per share.
The record date of the dividend is September 7, 2004. The dividend will be paid
on September 20, 2004, net of taxes and levies, at the rate of approximately
22%.
2
Conference Call
Elbit Systems will host a conference call today, Monday, August 9, 2004 at 10:30
AM ET. To take part in the conference call, please dial 1-866-860-9642 (U.S.),
0800-917-5108 (U.K.) or +972-3-918-0610 (International and Israel) a few minutes
before 10:30 AM ET. For your convenience, an instant replay will be available
starting at 12:30 PM ET the same day until Wednesday, August 11, 2004 at 12:30
PM ET. The replay telephone number is 1-866-276-1485 (U.S.), 0800 169 8104
(U.K.) or +972-3-925-5948 (International and Israel).
This call will also be broadcasted live on: www.elbitsystems.com. and an online
replay will be available for 30 days.
About Elbit Systems
Elbit Systems Ltd. is an international defense electronics company engaged in a
wide range of defense-related programs throughout the world, in the areas of
aerospace, land and naval systems, command, control, communications, computers,
intelligence, surveillance and reconnaissance ("C4ISR"), advanced electro-optic
and space technologies. The Company focuses on the upgrading of existing
military platforms and developing new technologies for defense and homeland
security applications.
For more about Elbit Systems, please visit our website at www.elbitsystems.com
Contacts
Company contact IR Contacts
Ilan Pacholder, Corporate Secretary and Ehud Helft/Kenny Green
VP Finance & Capital Markets
Elbit Systems Ltd Gelbart Kahana
Tel: 972-4 831- 6632 Tel: 1-866-704-6710
Fax: 972-4 831- 6659 Fax: 972-3-607-4711
pacholder@elbit.co.il ehud@gk-biz.com
kenny@gk-biz.com
STATEMENTS IN THIS PRESS RELEASE WHICH ARE NOT HISTORICAL DATA ARE
FORWARD-LOOKING STATEMENTS WHICH INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES
OR OTHER FACTORS NOT UNDER THE COMPANY'S CONTROL, WHICH MAY CAUSE ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT
FROM THE RESULTS, PERFORMANCE OR OTHER EXPECTATIONS IMPLIED BY THESE
FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DETAILED IN THE COMPANY'S PERIODIC FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION.
3
ELBIT SYSTEMS LTD.
CONSOLIDATED BALANCE SHEETS
(In thousand of US Dollars)
June 30 December 31
2004 2003
--------- ---------
Unaudited Audited
Assets
Current Assets:
Cash and short term deposits 90,901 76,846
Trade receivable and others 227,079 251,644
Inventories, net of advances 241,868 249,225
--------- ---------
Total current assets 559,848 577,715
Affiliated Companies & other Investments 39,379 38,223
Long-term receivables & others 78,987 78,565
Fixed Assets, net 237,204 229,221
Other assets, net 96,620 100,012
--------- ---------
1,012,038 1,023,736
========= =========
Liabilities and Shareholder's Equity
Current liabilities 358,671 378,731
Long-term liabilities 171,419 188,811
Minority Interest 3,972 4,115
Shareholder's equity 477,976 452,079
--------- ---------
1,012,038 1,023,736
========= =========
4
ELBIT SYSTEMS LTD.
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(In thousand of US Dollars, except for per share amounts)
Six Months Ended Three Months Ended Year Ended
June 30 June December 31
--------------------- --------------------- --------
2004 2003 2004 2003 2003
-------- -------- -------- -------- --------
Unaudited Unaudited Audited
Revenues 445,317 420,948 231,645 218,758 897,980
Cost of revenues 329,879 306,804 173,127 161,405 673,561
-------- -------- -------- -------- --------
Gross Profit 115,438 114,144 58,518 57,353 224,419
Research and development, net 27,121 28,448 13,857 13,586 54,919
Marketing and selling 35,444 35,123 19,035 19,095 69,943
General and administrative 23,204 22,889 11,791 11,938 46,077
-------- -------- -------- -------- --------
Total operating expenses 85,769 86,500 44,683 44,619 170,939
-------- -------- -------- -------- --------
Operating income 29,669 27,644 13,835 12,734 53,480
Financial expenses, net (1,301) (3,306) (822) (2,030) (4,870)
Other income, net (84) 91 (299) (18) 903
-------- -------- -------- -------- --------
Income before income taxes 28,284 24,429 12,714 10,686 49,513
Taxes on income 7,401 6,602 3,207 2,956 11,334
-------- -------- -------- -------- --------
20,883 17,827 9,507 7,730 38,179
Company's share of partnerships and
affiliated Companies income, net 2,969 2,949 1,612 1,048 7,209
Minority rights 187 690 193 433 557
-------- -------- -------- -------- --------
Net income 24,039 21,466 11,312 9,211 45,945
======== ======== ======== ======== ========
Earnings per share
Basic net earnings per share $ 0.61 $ 0.55 $ 0.28 $ 0.24 $ 1.18
======== ======== ======== ======== ========
Diluted net earnings per share $ 0.59 $ 0.54 $ 0.28 $ 0.23 $ 1.14
======== ======== ======== ======== ========
5
Exhibit 2
Elbit Systems Ltd.
Management's Report
For The Three and Six-Month Period Ended June 30, 2004
This report should be read together with the unaudited financial
statements of Elbit Systems Ltd. ("Elbit Systems" or the "Company") and
together with its subsidiaries (the "Group") for the quarter ended June
30, 2004, the Company's audited consolidated financial statements and
related notes for the year ended December 31, 2003, the Company's
management report for the year ended December 31, 2003 and the
Company's Form 20-F for the year ended December 31, 2003, filed by the
Company with the U.S. Securities and Exchange Commission and with the
Israeli Securities Authority.
Forward looking statements with respect to the Company's business,
financial condition and results of operations in this document are
subject to risks and uncertainties that could cause actual results to
differ materially from those contemplated in such forward looking
statements, including, but not limited to, product demand, pricing,
market acceptance, changing economic conditions, risks in product and
technology development, the effect of the Company's accounting policies
as well as certain other risk factors which are detailed from time to
time in the Company's filings with the U.S. Securities and Exchange
Commission.
A. Executive Overview
Business Description
Elbit Systems is engaged in projects involving the design, development,
manufacture and integration of advanced integrated defense systems,
electronic systems, electro-optic systems and products and software
intensive programs and products for the defense and homeland security
sectors. In addition, the Company operates in the area of upgrading
existing airborne, land and naval defense platforms and provides
support services for such platforms, systems and products.
The Company is involved in leading projects in Israel and worldwide, in
areas such as air, land and naval Command, Control, Communication,
Computers, Intelligence, Surveillance and Reconnaissance ("C4ISR")
systems, digital maps, night vision systems, pilot helmet mounted
systems, display and data processing systems, unmanned air vehicles
("UAVs"), computerized simulators, communication systems, thermal
imaging products, laser products, optical systems for space
applications, airborne reconnaissance systems, optic communication
systems, surveillance products and systems, electric drive systems and
products, and systems for Homeland Defense.
The Company provides a wide range of logistic support services,
including operation of pilot training services and aircraft maintenance
services for the Israeli Air Force on a private financing initiative
("PFI") basis. Several of the Group's companies also provide advanced
engineering and manufacturing services to various customers, utilizing
their significant manufacturing capabilities. The Company often
cooperates with industries in Israel and in various other countries.
The Company tailors and adapts its technologies, integration skills,
market knowledge and battle-proven systems to each customer's
individual requirements in both existing and new platforms. By
upgrading existing platforms with advanced electronic and electro-optic
technologies, the Company provides customers with cost-effective
solutions, and its customers are able to improve their technological
and operational capabilities within limited defense budgets.
1
The Company operates in a competitive environment for most of its
projects, systems and products. Competition is based on product and
program performance, price, reputation, reliability, maintenance costs
and responsiveness to customer requirements. This includes the ability
to respond to rapid changes in technology.
Recent Events
o On July 1, 2004, Itzhak Dvir was appointed as Chief Operating
Officer (COO) of the Group.
o On July 20, 2004, the U.K. Ministry of Defence announced the
selection of Thales U.K. as preferred bidder for the next
phase of the acquisition cycle of the Watchkeeper program.
Elbit Systems is a significant part of the Thales U.K. team
for the program. Watchkeeper will provide the U.K. armed
forces with an essential Intelligence, Surveillance, Target
Acquisition and reconnaissance compatibility based on a
tactical unmanned air vehicle (UAV) system and will be a key
component of the U.K.'s drive for Network Enabled Capability.
The Thales/Elbit System Joint Venture will play a significant
part as the provider of core UAV subsystems to the U.K.'s
Watchkeeper Prime Contract Management Organization of Thales
U.K. In the event that contract negotiations for the
Watchkeeper program are concluded and a contract is awarded to
Thales, the contract to be awarded to the Thales/Elbit Systems
Joint Venture is anticipated to be in an amount material to
Elbit Systems.
o On July 28, 2004, Elron Electronic Industries Ltd. completed
the sale of all of its holdings in the Company, constituting
approximately 19.6% of the Company's outstanding share
capital, to Federmann Enterprises Ltd., in consideration for
approximately $197 million. The transaction was consummated
following the exercise by Federmann Enterprises Ltd. of its
right of first refusal that was trigged by the agreement
signed on July 8, 2004 between Elron Electronic Industries
Ltd. and Tadiran Communications Ltd. As a result of the sale,
the Federmann Enterprises Ltd. and certain of its affiliates
are the beneficial owner of approximately 49.8% of the
Company's outstanding shares.
o On July 28, 2004, Mr. Doron Birger and Mr. Avi Fisher
submitted their resignations, and on August 8, 2004, Mr. Ami
Erel submitted his resignation, from the Company's Board of
Directors, following the completion of the sale of Elron
Electronic Industries Ltd.'s holdings in the Company to
Federmann Enterprises Ltd.
o On August 8, 2004, the Board of Directors approved the
appointment of Mr. Yigal Ne'eman as a member of the Board of
Directors.
Financial Highlights
The Company's revenues increased by 5.9% and reached $231.6 million in
the second quarter of 2004, as compared to $218.8 million in the second
quarter of 2003. The main increase in revenues was in the land vehicles
systems area.
Net earnings in the second quarter of 2004 were $11.3 million and the
diluted earnings per share were $0.28, as compared to $9.2 million and
$0.23 in the second quarter of 2003. Excluding the phantom option plan
non-cash expenses, net earning in the quarter ended June 30, 2004 were
$ 14 million, and the EPS was $0.34, as compared to $13.3 million and $
0.33 in the second quarter of 2003.
2
The Company's backlog as of June 30, 2004 reached $1.9 billion, as
compared to $1.75 billion as of December 31, 2003.
The Company's cash flow generated from operations in the six months
period ended June 30, 2004 was $54.7 million, as compared to $11.2
million in the six months period ended June 30, 2003.
The Board of Directors declared an extraordinary dividend of $1.80 per
share.
B. Backlog of Orders
The Company's backlog of orders as of June 30, 2004 reached $1,906
million, of which 68% were for orders outside Israel. The Company's
backlog as of December 31, 2003 was $1,752 million, of which 63% were
for orders outside Israel.
Approximately 63% of the Company's backlog as of June 30, 2004 is
scheduled to be performed in the following two quarters of 2004 and
during 2005. The majority of the 37% balance is scheduled to be
performed in 2006 and 2007.
C. Critical Accounting Policies and Estimates
The Company's significant accounting policies are described in Note 2
to the audited consolidated financial statements for the year ended
December 31, 2003 and in Note 2 to the un-audited consolidated
financial statements for the quarter ended June 30, 2004. See also the
Company's management report for the year ended December 31, 2003.
D. Sarbanes-Oxley Act
According to Section 404 of the U.S. Sarbanes-Oxley Act of 2002, the
Company is required to include in its annual report for 2005 an
assessment, as of the end of the fiscal year, of the effectiveness of
its internal controls over financial reporting.
During 2003 and the first two quarters of 2004, the Company took steps
to assure compliance of its documentation and internal controls over
financial reporting with the guidelines stipulated in the
Sarbanes-Oxley Act. The Company plans to continue with these steps
during the remainder of 2004 and 2005.
E. New Accounting Standards
The significant accounting policies in the preparation of these
statements are identical to those applied in preparation of the latest
annual financial statements except as follows:
In January 2003, the FASB issued Financial Accounting Standard Board
(FASB) Interpretation No. 46, Consolidation of Variable Interest
Entities, an interpretation of ARB No. 51 ("FIN 46"). In December 2003,
the FASB modified FIN 46 to make certain technical corrections and
address certain implementation issues that arose. FIN 46 provides a new
framework for identifying Variable Interest Entities ("VIEs") and
determining when a company should include the assets, liabilities,
non-controlling interests and results of activities of a VIE in the
activities of the company's financial
3
statements. The provisions of FIN 46 were adopted as of March 31, 2004.
The adoption of FIN 46 did not have a significant effect on the
Company's financial statements.
F. Employee Stock Option Plan
The change in the Company's share price affected the Company's
financial results due to the impact of the employee stock option plan
adopted in 2000. The plan was comprised of options for 5 million
shares, divided into options to purchase up to 2.5 million shares and
an additional 2.5 million "phantom" options. The phantom options grant
the option holders a number of shares corresponding to the benefit
component of the options exercised, as calculated on the exercise date,
in consideration for their par value only, and are considered as a
variable option plan. The actual number of options granted as of June
30, 2004 was approximately 4.8 million.
Under U.S. GAAP, the total compensation is computed periodically
according to the change in the share price and amortized as
compensation expense, or income, based on the vesting period of the
options. The amount of the net expense related to the "phantom" stock
option compensation in the first two quarters of 2004 was approximately
$3.0 million.
4
I. Summary of Financial Results
The following table sets forth the reported consolidated statements of
operations of the Company for the three and six-month periods ended
June 30, 2004 and June 30, 2003.
For the six months ended For the three months ended
------------------------------------------- -----------------------------------------
June 30 June 30
------------------------------------------- -----------------------------------------
2004 2003 2004 2003
------------------- ------------------- ------------------- ----------------
$ % $ % $ % $ %
------ ----- ------ ----- ------ ----- ----- -----
(In thousands of U.S. dollars except per share data)
Total revenues 445,317 100.0 420,948 100.0 231,645 100.0 218,758 100.0
Cost of revenues 329,879 74.1 306,804 72.9 173,127 74.7 161,513 73.8
------- ----- ------- ----- ------- ----- ------- -----
Gross profit 115,438 25.9 114,144 27.1 58,518 25.3 57,245 26.2
------- ----- ------- ----- ------- ----- ------- -----
Research and development
expenses, net 27,121 6.1 28,488 6.8 13,857 6.0 13,636 6.2
Marketing and selling expenses 35,444 8.0 35,123 8.3 19,035 8.2 18,970 8.7
General and administrative expenses 23,204 5.2 22,889 5.4 11,791 5.1 11,905 5.5
------- ----- ------- ----- ------- ----- ------- -----
85,769 19.3 86,500 20.5 44,683 19.3 44,511 20.4
------- ----- ------- ----- ------- ----- ------- -----
Operating income 29,669 6.7 27,644 6.6 13,835 6.0 12,734 5.8
Finance expenses, net (1,301) (0.3) (3,306) (0.8) (822) (0.4) (2,030) (0.9)
Other income (expenses), net (84) - 91 - (299) (0.1) (18) -
------- ----- ------- ----- ------- ----- ------- -----
Income before income taxes 28,284 6.4 24,429 5.8 12,714 5.5 10,686 4.9
Taxes on income 7,401 1.7 6,602 1.6 3,207 1.4 2,956 1.4
------- ----- ------- ----- ------- ----- ------- -----
20,883 4.7 17,827 4.2 9,507 4.1 7,730 3.5
Minority interest in losses
of subsidiaries 187 - 690 0.2 193 0.1 433 0.2
Equity in net earnings of affiliated
companies and partnership 2,969 0.7 2,949 0.7 1,612 0.7 1,048 0.5
------- ----- ------- ----- ------- ----- ------- -----
Net earnings 24,039 5.4 21,466 5.1 11,312 4.9 9,211 4.2
======= ===== ======= ===== ======= ===== ======= =====
Diluted net earnings per share 0.59 0.54 0.28 0.23
======= ======= ======= =======
5
Non -US GAAP Disclosure
The following table sets forth the Company's results of operations
excluding the effect of the Company's phantom stock option plan
("phantom plan") in 2004 and 2003:
For the six months For the three months
ended June 30 ended June 30
------------------ ------------------ --------------------- ---------------------
2004 2003 2004 2003
------------------ ------------------ --------------------- ---------------------
$ % $ % $ % $ %
------- ---- ------- ---- ------ ---- ------ ----
(In thousands of U.S. dollars except per share data)
Gross profit as reported 115,438 25.9 114,144 27.1 58,518 25.3 57,245 26.3
Non-cash expense related to phantom plan 2,056 0.5 3,520 0.9 1,876 0.8 2,767 1.3
------- ---- ------- ---- ------ ---- ------ ----
Gross profit excluding phantom plan effect
in 2004 and 2003 117,494 26.4 117,664 28.0 60,394 26.1 60,012 27.6
======= ==== ======= ==== ====== ==== ====== ====
Operating profit as reported 29,669 6.7 27,644 6.6 13,835 6.0 12,734 5.8
Non-cash expense related to phantom plan 3,739 0.8 6,421 1.5 3,411 1.5 5,030 2.3
------- ---- ------- ---- ------ ---- ------ ----
Operating profit excluding phantom plan 33,408 7.5 34,065 8.1 17,246 7.4 17,764 8.1
======= ==== ======= ==== ====== ==== ====== ====
Net earnings as reported 24,039 5.4 21,466 5.1 11,312 4.9 9,211 4.2
Non-cash expense related to phantom plan 2,991 0.7 5,137 1.2 2,729 1.2 4,115 1.9
------- ---- ------- ---- ------ ---- ------ ----
Net earnings excluding phantom plan effect 27,030 6.1 26,603 6.3 14,041 6.1 13,326 6.1
======= ==== ======= ==== ====== ==== ====== ====
Diluted net earnings per share as
Reported 0.59 0.54 0.28 0.23
Diluted net earnings per share excluding
phantom plan effect 0.66 0.66 0.34 0.33
======= ======= ====== ======
6
Revenues
Six Months Ended on June 30, 2004, Compared to Six Months Ended on June
30, 2003
The Company's consolidated revenues increased by 5.8%, from $420.9
million in the first six months of 2003 to $445.3 million in the first
six months of 2004.
The following table sets forth the Company's revenue distribution by
areas of operation:
Six-Month Period ended
--------------------------------
June 30, 2004 June 30, 2003
-------------- --------------
$ millions % $ millions %
Airborne systems 187.3 42.1 201.2 47.8
Land vehicle systems 107.7 24.2 75.8 18.0
C4I systems 57.3 12.9 64.6 15.3
Electro-optics 69.2 15.5 54.7 13.0
Other (mainly non-defense
engineering and
production services) 23.8 5.3 24.6 5.9
----- ----- ----- -----
Total 445.3 100.0 420.9 100.0
===== ===== ===== =====
The decrease in the airborne systems sales was mainly a result of
completion of certain upgrade programs, while new programs are expected
to generate revenues in the future.
The increase in the land vehicle systems revenues of approximately 42%
was mainly due to revenues from fire control systems sold for new land
vehicle projects in various countries.
The following table sets forth the Company's distribution of revenues
by geographic regions:
Six-Month Period ended
--------------------------------
June 30, 2004 June 30, 2003
-------------- --------------
$ millions % $ millions %
Israel 110.5 24.8 111.9 26.6
United States 166.7 37.4 159.6 37.9
Europe 65.7 14.8 49.0 11.6
Other countries 102.4 23.0 100.4 23.9
----- ----- ----- -----
Total 445.3 100.0 420.9 100.0
===== ===== ===== =====
Revenues from sales to Europe increased by 34.1%, from $49.0 million to
$65.7 million. The increase was mainly from other new projects sold to
European customers and due to consolidating sales of a subsidiary in
Europe ("OIP") that was acquired during the second half of 2003.
Three Months Ended on June 30, 2004, Compared to Three Months Ended on
June 30, 2003
The consolidated revenues increased by 5.9% from $218.8 million in the
second quarter of 2003 to $231.6 million in the second quarter of 2004.
7
The following table sets forth the Company's revenue distribution by
areas of operation:
Three-Month Period ended
--------------------------------
June 30, 2004 June 30, 2003
-------------- --------------
$ millions % $ millions %
Airborne systems 98.7 42.6 102.3 46.8
Land vehicle systems 50.5 21.8 43.5 19.9
C4I systems 27.8 12.0 32.6 14.9
Electro-optics 38.5 16.6 27.5 12.5
Other (mainly non-defense
engineering and
production services) 16.1 7.0 12.9 5.9
----- ----- ----- -----
Total 231.6 100.0 218.8 100.0
===== ===== ===== =====
The following table sets forth the Company's distribution of revenues
by geographic regions:
Three-Month Period ended
--------------------------------
June 30, 2004 June 30, 2003
-------------- --------------
$ millions % $ millions %
Israel 56.6 24.4 61.5 28.1
United States 87.3 37.7 82.5 37.7
Europe 33.7 14.5 27.6 12.6
Other countries 54.1 23.4 47.2 21.6
----- ----- ----- -----
Total 231.6 100.0 218.8 100.0
===== ===== ===== =====
The Company's sales are primarily to governmental entities and prime
contractors under government defense programs. Accordingly, the level
of the Company's revenues is subject to governmental budgetary
constraints. The recent economic situation in Israel has created some
uncertainty with respect to the Israeli Government's general and
defense budgets.
Gross Profit
The Company's gross profit represents the aggregate results of the
Company's activities and projects, and is based on the mix of programs
in which the Company is engaged during the reported period.
Six Months Ended on June 30, 2004, Compared to Six Months Ended on June
30, 2003
Reported gross profit in the six months ended June 30, 2004 was $115.4
million as compared to $114.1 million in the six months ended June 30,
2003. The reported gross profit margin in the six months ended June 30,
2004 was 25.9% as compared to 27.1% in the corresponding period of the
previous year. The difference in the gross profit was the result of the
mix of programs generating revenues in the applicable periods.
The Company's cost of goods sold in the six months ended June 30, 2004
included $2.1 million in non-cash expenses resulting from its phantom
option plan, as compared $3.5 million in the six months ended June 30,
2003. Excluding non-cash expenses related to the Company's phantom
option, gross profit in the six months ended June 30, 2004 was $117.5
million, or 26.4% of revenues, as compared to $117.7 million, or 28.0%
of revenues in the six months ended June 30, 2003.
8
Three Months Ended on June 30, 2004, Compared to Three Months Ended on
June 30, 2003
Reported gross profit in the quarter ended June 30, 2004 was $58.5
million as compared to $57.2 million in the quarter ended June 30,
2003. The reported gross profit margin in the second quarter of 2004
was 25.3% as compared to 26.2% in the same period last year. The
difference in the gross profit was as a result of the mix of programs
generating revenues in the applicable periods.
The Company's cost of goods sold in the second quarter of 2004 included
$1.9 million in non-cash expenses resulting from its phantom option
plan, as compared to $2.8 million in the second quarter of 2003.
Excluding non-cash expenses related to the Company's phantom option
compensation costs, gross profit in the quarter ended June 30, 2004 was
$60.4 million, or 26.1% of revenues, as compared to $60.0 million, or
27.6% in the quarter ended June 30, 2003.
Research and Development ("R&D")
The Company continually invests in R&D in order to maintain and further
advance its technologies, in accordance with a long-term plan, based on
its estimate of future market needs.
The Company's R&D activities in the reported period were in accordance
with its plans. Some of these activities are coordinated with, and
partially funded by, third parties, including the Israeli Ministry of
Defense ("IMOD") and the Office of the Chief Scientist ("OCS"). These
programs were mainly in the areas of advanced airborne systems, cutting
edge electro-optics technology and products for surveillance, aerial
reconnaissance, lasers and space based sensors.
Six Months Ended on June 30, 2004, Compared to Six Months Ended on June
30, 2003
Gross R&D expenses in the six months ended June 30, 2004 totaled $32.8
million (7.4% of revenues), as compared to $30.9 million (7.3% of
revenues) in the six months ended June 30, 2003.
Net R&D expenses (after deduction of third party participation,
including the IMOD and the OCS) in the six months period ended June 30,
2004 totaled $27.1 million (6.1% of revenues), as compared to $28.5
million (6.8% of revenues) in the six months period ended June 30,
2003.
Three Months Ended on June 30, 2004, Compared to Three Months Ended on
June 30, 2003
Gross R&D expenses in the quarter ended June 30, 2004 totaled $16.3
million (7.1% of revenues), as compared to $15.2 million (6.9% of
revenues) in the quarter ended June 30, 2003.
Net R&D expenses (after deduction of third party participation,
including the IMOD and the OCS) in the quarter ended June 30, 2004
totaled $13.8 million (6.0% of revenues), as compared to $13.6 million
(6.2% of revenues) in the quarter ended June 30, 2003.
Marketing and Selling Expenses
The Company maintains its activities in developing new markets and
pursues various business opportunities according to the Company's plan.
9
Six Months Ended on June 30, 2004, Compared to Six Months Ended on June
30, 2003
Marketing and selling expenses in the six months ended June 30, 2004
were $35.4 million (8.0% of revenues), as compared to $35.1 million
(8.3% of revenues) in the six months ended June 30, 2003.
Three Months Ended on June 30, 2004, Compared to Three Months Ended on
June 30, 2003
Marketing and selling expenses in the quarter ended June 30, 2004 were
$19.0 million (8.2% of revenues), as compared to $19.0 million (8.7% of
revenues) in the quarter ended June 30, 2003.
General and Administrative ("G&A") Expenses
Six Months Ended on June 30, 2004, Compared to Six Months Ended on June
30, 2003
G&A expenses were $23.2 million (5.2% of revenues) in the six months
ended June 30, 2004, as compared to $22.9 million (5.4% of revenues) in
the six months ended June 30, 2003.
Excluding the phantom option plan non-cash expenses, G&A expenses in
the six months ended June 30, 2004 were $22.3 million (5.0% of
revenues), as compared to $22.3 million (5.1% of revenues) in the six
months ended June 30, 2003.
Three Months Ended on June 30, 2004, Compared to Three Months Ended on
June 30, 2003
G&A expenses were $11.8 million (5.5% of revenues) in the quarter ended
June 30, 2004, as compared to $11.9 million (5.5% of revenues) in the
quarter ended June 30, 2003.
Excluding the phantom option plan non-cash expenses, G&A expenses in
the quarter ended June 30, 2004 were $10.9 million (4.7% of revenues),
as compared to $10.6 million (4.9% of revenues) in the quarter ended
June 30, 2003.
Operating Profit
Six Months Ended on June 30, 2004, Compared to Six Months Ended on June
30, 2003
As a result of all of the above, reported operating income in the six
months ended June 30, 2004 was $29.7 million (6.7% of revenues), as
compared to $27.6 million (6.6% of revenues) in the six months ended
June 30, 2003.
For the six months ended June 30, 2004, the Company's operating profit
included $3.7 million in non-cash expenses associated with the
Company's phantom option plan, as compared to $6.4 million in the six
months ended June 30, 2003.
Excluding phantom share compensation costs, operating income totaled
$33.4 million (7.5% of revenues) in the six months ended June 30, 2004,
as compared to $34.1 million (8.1% of revenues) in the six months ended
June 30, 2003.
10
Three Months Ended on June 30, 2004, Compared to Three Months Ended on
June 30, 2003
As a result of all of the above, reported operating income in the
quarter ended June 30, 2004 was $13.8 million (6.0% of revenues), as
compared to $12.7 million (5.8% of revenues) in the quarter ended June
30, 2003.
During the second quarter of 2004, the Company's operating profit
included $3.4 million in non-cash expenses associated with the
Company's phantom option plan, as compared $5.0 million in the second
quarter of 2003.
Excluding phantom share compensation costs, operating income totaled
$17.2 million (7.4% of revenues) in the quarter ended June 30, 2004, as
compared to $17.7 million (8.1% of revenues) in the quarter ended June
30, 2003.
Finance Expense (Net)
Six Months Ended on June 30, 2004, Compared to Six Months Ended on June
30, 2003
Net finance expense in the six months ended June 30, 2004 was $1.3
million, as compared to $3.3 million of finance expense in the six
months ended June 30, 2003.
Three Months Ended on June 30, 2004, Compared to Three Months Ended on
June 30, 2003
Net finance expense in the quarter ended June 30, 2004 was $0.8
million, as compared to $2.0 million of finance expense in the quarter
ended June 30, 2003.
The decrease in the net finance expense resulted mainly from a lower
level of short and long-term loans in the second quarter of 2004 as
compared to the second quarter of 2003.
Taxes on Income
The Company's tax rate represents a weighted average of the tax rates
to which the various companies in the Group are subject. The changes in
the effective tax rate are attributable mainly to the mix of the tax
rates in the various tax jurisdictions in which the Group's companies
generating the taxable income operate.
Six Months Ended on June 30, 2004, Compared to Six Months Ended on June
30, 2003
Provision for taxes in the six months ended June 30, 2004 was $7.4
million (effective tax rate of 26.2%), as compared to a provision for
taxes of $6.6 million (effective tax rate of 27.0%) in the six months
ended June 30, 2003.
Three Months Ended on June 30, 2004, Compared to Three Months Ended on
June 30, 2003
Provision for taxes in the quarter ended June 30, 2004 was $3.2 million
(effective tax rate of 25.2%), as compared to a provision for taxes of
$3.0 million (effective tax rate of 27.7%) in the quarter ended June
30, 2003.
11
Company's Share in Earnings of Affiliated Companies and Partnership
The companies, in which the Company holds 50% or less in shares or
voting rights and are therefore not consolidated in its financial
statements, operate mainly in complementary areas related to the
Company's core business areas, including electro-optics and airborne
systems.
The Company believes that its affiliates will continue to contribute
significantly to the Company's earnings.
Six Months Ended on June 30, 2004, Compared to Six Months Ended on June
30, 2003
In the six months ended June 30, 2004 the Company had net income of
$3.0 million from its share in earnings of affiliated companies and
partnership, as compared to $2.9 million in the six months ended June
30, 2003.
Three Months Ended on June 30, 2004, Compared to Three Months Ended on
June 30, 2003
In the second quarter of 2004 the Company had net income of $1.6
million from its share in earnings of affiliated companies and
partnership, as compared to $1.0 million in the second quarter of 2003.
Net Earnings and Earnings Per Share ("EPS")
Six Months Ended on June 30, 2004, Compared to Six Months Ended on June
30, 2003
Reported net earnings in the six months ended June 30, 2004 were $24.0
million (5.4% of revenues), as compared to reported net earnings of
$21.5 million (5.1% of revenues) in the six months ended June 30, 2003.
Diluted EPS in the six months ended June 30, 2004 was $0.59, as
compared to $0.54 per share in the six months ended June 30, 2003.
Excluding the phantom option plan non-cash expenses, net earnings in
the six months ended June 30, 2004 were $27.0 million (6.1% of
revenues), and the EPS was $0.66, as compared to $26.6 million (6.3% of
revenues) and an EPS of $0.66 in the six months ended June 30, 2003.
The number of shares used for computation of diluted EPS in the six
months ended June 30, 2004 was 40,805 thousand shares, as compared to
40,095 thousand shares in the six months ended June 30, 2003. The
increase in the number of shares used for computation of diluted EPS
was due mainly to the change in the average share price during the six
months ended June 30, 2004 which, due to the impact of the Company's
stock option plan, affects the number of shares calculated on a diluted
basis, and due to exercise of options by employees during the period.
Three Months Ended on June 30, 2004, Compared to Three Months Ended on
June 30, 2003
Reported net earnings in the quarter ended June 30, 2004 were $11.3
million (4.9% of revenues), as compared to reported net earnings of
$9.2 million (4.2% of revenues) in the quarter ended June 30, 2003.
Diluted EPS in the quarter ended June 30, 2004 was $0.28, as compared
to $0.23 in the quarter ended June 30, 2003.
Excluding the phantom option plan non-cash expenses, net earnings in
the quarter ended June 30, 2004 were $14.0 million (6.1% of revenues),
and the EPS was $0.34, as compared to $13.3 million (6.1% of revenues)
and an EPS of $0.66 in the quarter ended June 30, 2003.
12
The number of shares used for computation of diluted EPS in the quarter
ended June 30, 2004 was 40,892 thousand shares, as compared to 40,396
thousand shares in the quarter ended June 30, 2003. The increase in the
number of shares used for computation of diluted EPS was due mainly to
the change in the average share price during the second quarter of 2004
which, due to the impact of the Company's stock option plan, affects
the number of shares calculated on a diluted basis, and due to exercise
of options by employees during the period.
J. Liquidity and Capital Resources
The Company's cash flows are effected by the cumulative cash flows of
its various projects in the reported periods. Project cash flows are
affected by the timing of the receipt of advances and the collection of
accounts receivable from customers, which relate to specific events
during the project, while expenses are on-going. As a result, the
Company's cash flows may vary from one period to another.
The Company's policy is to invest its cash surplus primarily in
interest bearing deposits in accordance with its projected needs.
The resources available to the Company include mainly profits,
collection of accounts receivable, advances from customers, as well as
Government of Israel grants and participation and bank financing in
Israel and elsewhere based on its capital, assets and activities. In
addition, the Company has the ability to raise funds through the
offering of shares and debentures to the public from time to time.
The Company's net cash flows generated from operating activities in the
six-month period ended June 30, 2004 were $54.7 million, resulting
mainly from net income for the period and collection of accounts
receivable.
Net cash flows used for investment activities in the quarter ended June
30, 2004 were $24.2 million, which were used mainly for procurement of
property, plans and equipment. The investments were made primarily in
equipment for the Group's various manufacturing plants and in a
building constructed at Elbit Systems' facility in Haifa, Israel. The
building is planned to house employees currently located in various
leased locations in the industrial park in Haifa, and the Company plans
to complete its population during the third quarter of 2004.
Net cash flows used for financing activities in the six-month period
ended June 30, 2004 were $16.3 million, reflecting $5.7 million in
proceeds from the exercise of options and repayment of short and
long-term borrowings.
On June 30, 2004, the Company had total borrowings in the amount of
$62.7 million, including $48.7 million in long-term loans, and $433
million in guarantees issued on its behalf by banks, mainly in respect
of advance payment and performance guarantees provided in the regular
course of business. On June 30, 2004, the Company had a cash balance
amounting to $90.3 million.
As of June 30, 2004, the Company had working capital of $201.2 million
and its current ratio was 1.56. The Company's ratio of equity to total
assets was 47%.
13
K. Derivatives and Hedges
Market risks relating to the Company's operations result primarily from
changes in interest rates and exchange rates. The Company typically
uses financial instruments to limit its exposure to those changes. The
Company also typically enters into forward contracts in connection with
transactions that are denominated in currencies other than U.S. dollars
and New Israeli Shekels ("NIS"). The Company may enter from time to
time into forward contracts and other hedging instruments related to
NIS, based on market conditions.
On June 30, 2004, the Company's liquid assets were comprised of bank
deposits, and it had no investments in liquid equity securities that
were subject to market fluctuations. The Company's deposits and loans
are based on variable interest rates, and their value as of June 30,
2004 was therefore not exposed to changes in interest rates. Should
interest rates either increase or decrease, such change may affect the
Company's results of operations due to changes in the cost of its
liabilities and the return on its assets that are based on variable
rates.
The Company's functional currency is the U.S. dollar. On June 30, 2004,
the Company had exposure due to liabilities denominated in NIS of $63
million in excess of its NIS denominated assets. These liabilities
represent mostly wages, trade payables. The amount of the Company's
exposure to the changes in the NIS-U.S. dollar exchange rate varies
from time to time. On June 30, 2004, the Company had options for
hedging future cash flows in the amount of $57 million. The fair market
value of the options as of June 30, 2004 amounted to $0.49 million.
Most of the Company's assets and liabilities which are denominated in
currencies other than the NIS and the U.S. dollar were covered as of
June 30, 2004 by forward contracts. On June 30, 2004, the Company had
contracts for the sale and purchase of such foreign currencies totaling
$28.6 million. The results of financial derivative activities in this
quarter were not material.
L. Dividends
The Board of Directors declared on August 8, 2004 an extraordinary
dividend of $1.80 per share.
* * *
14
Exhibit 3
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
AS OF JUNE 30, 2004
(Unaudited)
(In thousands of U.S. dollars)
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
AS OF JUNE 30, 2004
(Unaudited)
(In thousands of U.S. dollars)
C O N T E N T S
Page
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets 2 - 3
Consolidated Statements of Income 4
Consolidated Statements of Changes in Shareholders' Equity 5 -7
Consolidated Statements of Cash Flows 8 - 9
Notes to the Consolidated Financial Statements 10 - 13
# # # # # #
1
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
(In thousands of U.S. dollars, except per share data)
June 30, December 31,
2004 2003
(Unaudited) (Audited)
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $ 90,336 $ 76,156
Short-term bank deposits 565 690
Trade receivables, net 180,330 203,281
Other receivables and prepaid expenses 46,749 48,363
Inventories, net of advances 241,868 249,225
---------- ----------
Total current assets 559,848 577,715
---------- ----------
INVESTMENTS AND LONG-TERM RECEIVABLES
Investments in affiliated companies and partnership 27,634 26,478
Investments in other companies 11,745 11,745
Long-term bank deposits and loan 1,984 2,347
Severance pay fund 77,003 76,218
---------- ----------
118,366 116,788
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, NET 237,204 229,221
---------- ----------
INTANGIBLE ASSETS, NET
Goodwill 32,576 32,576
Other intangible assets, net 64,044 67,436
---------- ----------
96,620 100,012
---------- ----------
$1,012,038 $1,023,736
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
2
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
(In thousands of U.S. dollars except share and per share data)
June 30, December 31,
2004 2003
(Unaudited) (Audited)
----------- -----------
CURRENT LIABILITIES
Short-term bank credit and loans $ 7,374 $ 8,509
Current maturities of long-term loans 6,585 6,532
Trade payables 100,495 106,252
Other payables and accrued expenses 159,496 157,820
Customers advances and amounts in excess of costs incurred on contracts
in progress 84,721 99,618
----------- -----------
Total current liabilities 358,671 378,731
----------- -----------
LONG-TERM LIABILITIES
Long-term loans 48,711 62,324
Advances from customers 2,762 7,592
Deferred income taxes 26,015 24,916
Accrued severance pay 93,931 93,979
----------- -----------
171,419 188,811
----------- -----------
MINORITY INTERESTS 3,972 4,115
----------- -----------
SHAREHOLDERS' EQUITY
Share capital
Ordinary shares of New Israeli Shekels (NIS) 1 par value; Authorized -
80,000,000 shares as of June 30, 2004 and
December 31, 2003;
Issued - 40,337,372 and 39,746,125 shares as of June 30, 2004 and December
31, 2003, respectively;
Outstanding - 39,928,551 and 39,337,304 shares as of
June 30, 2004 and December 31, 2003, respectively 11,405 11,273
Additional paid-in capital 269,047 259,033
Accumulated other comprehensive loss (3,584) (3,992)
Retained earnings 205,429 190,086
Treasury shares - 408,821 shares as of June 30, 2004 and
December 31, 2003 (4,321) (4,321)
----------- -----------
477,976 452,079
----------- -----------
$ 1,012,038 $ 1,023,736
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
3
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------------------------------------------
(In thousands of U.S. dollars, except per share data)
Six months ended Three months ended Year ended
June 30, June 30, December 31,
----------------------- ----------------------- ---------
2004 2003 2004 2003 2003
--------- --------- --------- --------- ---------
(Unaudited) (Unaudited) (Audited)
----------------------- ----------------------- ---------
Revenues $ 445,317 $ 420,948 $ 231,645 $ 218,758 $ 897,980
Cost of revenues 329,879 306,804 173,127 161,513 673,561
--------- --------- --------- --------- ---------
Gross profit 115,438 114,144 58,518 57,245 224,419
--------- --------- --------- --------- ---------
Research and development costs, net 27,121 28,488 13,857 13,636 54,919
Marketing and selling expenses 35,444 35,123 19,035 18,970 69,943
General and administrative expenses 23,204 22,889 11,791 11,905 46,077
--------- --------- --------- --------- ---------
85,769 86,500 44,683 44,511 170,939
--------- --------- --------- --------- ---------
Operating income 29,669 27,644 13,835 12,734 53,480
Financial expenses, net 1,301 3,306 822 2,030 4,870
Other income (expenses), net (84) 91 (299) (18) 903
--------- --------- --------- --------- ---------
Income before taxes on income 28,284 24,429 12,714 10,686 49,513
Taxes on income 7,401 6,602 3,207 2,956 11,334
--------- --------- --------- --------- ---------
20,883 17,827 9,507 7,730 38,179
Equity in net earnings of affiliated companies
and partnership 2,969 2,949 1,612 1,048 7,209
Minority interests in losses of subsidiaries 187 690 193 433 557
--------- --------- --------- --------- ---------
Net income $ 24,039 $ 21,466 $ 11,312 $ 9,211 $ 45,945
========= ========= ========= ========= =========
Earnings per share
Basic net earnings per share $ 0.61 $ 0.55 $ 0.28 $ 0.24 $ 1.18
========= ========= ========= ========= =========
Diluted net earnings per share $ 0.59 $ 0.54 $ 0.28 $ 0.23 $ 1.14
========= ========= ========= ========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
4
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------------
(In thousands of U.S. dollars, except per share data)
Accumulated
Number of Additional other
outstanding Share paid-in comprehensive
shares capital capital loss
-------------- ------------- -------------- ----------------- --
Balance as of January 1, 2003
(Audited) 38,803,507 $ 11,154 $ 248,387 $(2,882)
Exercise of options 533,797 119 5,147 -
Tax benefit in respect of options exercised - - 758 -
Amortization of stock based compensation - - 4,741 -
Dividends paid - - - -
Comprehensive income (loss):
Unrealized losses on derivative instruments - - - (578)
Foreign currency translation differences - - - 340
Minimum pension liability - - - (872)
Net income - - - -
-------------- ------------- -------------- ----------------- --
Total comprehensive income
Balance as of December 31, 2003
(Audited) 39,337,304 $11,273 $259,033 $(3,992)
Exercise of options 591,247 132 5,584 -
Tax benefit in respect of options exercised - - 691 -
Amortization of stock based compensation - - 3,739 -
Dividends paid - - - -
Comprehensive income (loss):
Unrealized gains on derivative instruments - - - 428
Foreign currency translation differences - - - (20)
Net income
-------------- ------------- -------------- ----------------- --
Total comprehensive income
Balance as of June 30, 2004
(Unaudited) 39,928,551 $ 11,405 $ 269,047 $ (3,584)
============== ============= ============== ================= ==
Total Total other
Retained Treasury shareholders' comprehensive
earnings shares equity income
-------------- -------------- --------------- -----------------
Balance as of January 1, 2003
(Audited) $159,023 $ (4,321) $411,361
Exercise of options - - 5,266
Tax benefit in respect of options exercised - - 758
Amortization of stock based compensation - - 4,741
Dividends paid (14,882) - (14,882)
Comprehensive income (loss):
Unrealized losses on derivative instruments - - (578) $(578)
Foreign currency translation differences - - 340 340
Minimum pension liability - - (872) (872)
Net income 45,945 - 45,945 45,945
-------------- -------------- --------------- -----------------
Total comprehensive income $44,835
=================
Balance as of December 31, 2003
(Audited) $190,086 $(4,321) $452,079
Exercise of options - - 5,716
Tax benefit in respect of options exercised - - 691
Amortization of stock based compensation - - 3,739
Dividends paid (8,696) - (8,696)
Comprehensive income (loss):
Unrealized gains on derivative instruments - - 428 $ 428
Foreign currency translation differences - - (20) (20)
Net income 24,039 - 24,039 24,039
-------------- -------------- --------------- -----------------
Total comprehensive income $24,447
=================
Balance as of June 30, 2004
(Unaudited) $ 205,429 $ (4,321) $ 477,976
============== ============== ===============
The accompanying notes are an integral part of the
consolidated financial statements.
5
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------------
(In thousands of U.S. dollars, except per share data)
Accumulated
Number of Additional other
outstanding Share paid-in comprehensive
shares capital capital loss
-------------- ------------- -------------- -----------------
Balance as of January 1, 2003
(Audited) 38,803,507 $11,154 $248,387 $(2,882)
Exercise of options 348,641 77 3,338 -
Tax benefit in respect of options exercised - 434 -
Amortization of deferred stock compensation - 6,421 -
Dividend paid - - -
Comprehensive income (loss):
Unrealized gains on derivative instruments - - - 2,144
Net income - - - -
-------------- ------------- -------------- -----------------
Total comprehensive income
Balance as of June 30, 2003
(Unaudited) 39,152,148 $11,231 $258,580 $(738)
============== ============= ============== =================
Balance as of April 1, 2004
(Unaudited) 39,718,413 $11,358 $263,324 $(3,942)
Exercise of options 210,138 47 2,032 -
Tax benefit in respect of options exercised - - 280 -
Amortization of deferred stock compensation - - 3,411 -
Dividend paid - - - -
Comprehensive income (loss):
Unrealized gains on derivative instruments 522
Foreign currency translation differences - - - (164)
Net income
-------------- ------------- -------------- -----------------
Total comprehensive income
Balance as of June 30, 2004
(Unaudited) 39,928,551 $11,405 $ 269,047 $ (3,584)
============== ============= ============== =================
Total Total other
Retained Treasury shareholders' comprehensive
earnings shares equity income
------------- -------------- ---------------- -----------------
Balance as of January 1, 2003
(Audited) $159,023 $(4,321) $411,361 -
Exercise of options - - 3,415 -
Tax benefit in respect of options exercised - - 434 -
Amortization of deferred stock compensation - - 6,421 -
Dividend paid (7,051) - (7,051) -
Comprehensive income (loss):
Unrealized gains on derivative instruments - - 2,144 $2,144
Net income 21,466 - 21,466 21,466
------------- -------------- ---------------- -----------------
Total comprehensive income $23,610
=================
Balance as of June 30, 2003
(Unaudited) $173,438 $(4,321) $438,190
============= ============== ================
Balance as of April 1, 2004
(Unaudited) $198,486 $(4,321) $464,905
Exercise of options - - 2,079
Tax benefit in respect of options exercised - - 280
Amortization of deferred stock compensation - - 3,411
Dividend paid (4,369) - (4,369)
Comprehensive income (loss):
Unrealized gains on derivative instruments - - 522 $ 522
Foreign currency translation differences - - (164) (164)
Net income 11,312 - 11,312 11,312
------------- -------------- ---------------- -----------------
Total comprehensive income $ 11,670
=================
Balance as of June 30, 2004
(Unaudited) $ 205,429 $ (4,321) $ 477,976
============= ============== ================
The accompanying notes are an integral part of the
consolidated financial statements.
6
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
-------------------------------------------------------------------------------
(In thousands of U.S. dollars, except per share data)
Accumulated
Number of Additional other
outstanding Share paid-in comprehensive
shares capital capital loss
-------------- ------------- --------------- -----------------
Balance as of April 1, 2003
(Unaudited) 38,843,262 $ 11,162 $ 250,250 $(2,882)
Exercise of options 308,886 69 2,918
Tax benefit in respect of options exercised - - 382 -
Amortization of deferred stock compensation - - 5,030 -
Dividend paid - - - -
Comprehensive income (loss):
Unrealized gains on derivative instruments - - - 2,144
Net income - - - -
-------------- ------------- --------------- -----------------
Total comprehensive income
Balance as of June 30, 2003
(Unaudited) 39,152,148 $11,231 $ 258,580 $ (738)
============== ============= =============== =================
Total Total other
Retained Treasury shareholders' comprehensive
earnings shares equity income
------------ -------------- ---------------- -----------------
Balance as of April 1, 2003
(Unaudited) $ 167,786 $ (4,321) $ 421,995
Exercise of options 2,987 -
Tax benefit in respect of options exercised - - 382 -
Amortization of deferred stock compensation - - 5,030 -
Dividend paid (3,559) - (3,559) -
Comprehensive income (loss):
Unrealized gains on derivative instruments - - 2,144 $ 2,144
Net income 9,211 - 9,211 9,211
------------ -------------- ---------------- -----------------
Total comprehensive income $ 11,355
=================
Balance as of June 30, 2003
(Unaudited) $ 173,438 $ (4,321) $ 438,190
============ ============== ================
The accompanying notes are an integral part of the
consolidated financial statements.
7
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------
(In thousands of U.S. dollars)
Six months ended Year ended
June 30, December 31,
--------------------- --------
2004 2003 2003
-------- -------- --------
(Unaudited) (Audited)
--------------------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 24,039 $ 21,466 $ 45,945
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 20,304 18,452 37,890
Amortization of deferred stock compensation 3,739 6,421 4,741
Deferred income taxes, net 1,274 (1,536) 35
Accrued severance pay, net (833) 703 (1,240)
Gain (loss) on sale of property, plant and equipment 16 141 (915)
Tax benefit in respect of options exercised 691 434 758
Minority interests in earnings (losses) of subsidiaries (187) (690) (557)
Equity in net losses (earnings) of affiliated companies and
partnership, net of dividend received (*) 681 (2,789) (4,995)
Changes in operating assets and liabilities:
Decrease in short and long-term receivables and prepaid expenses 23,889 12,589 45,297
Increase in inventories (5,062) (41,998) (38,651)
Increase (decrease) in trade payable, other payables and
accrued expenses (5,216) 47,075 32,147
Decrease in advances received from customers (7,308) (49,288) (27,855)
Settlement of royalties with the Office of the Chief Scientist (1,247) (204) (1,581)
Other adjustments (91) 417 337
-------- -------- --------
Net cash provided by operating activities 54,689 11,193 91,356
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (26,262) (29,147) (61,287)
Acquisition of activity (Schedule A) - (1,052) (2,458)
Investments in affiliated companies and subsidiaries (250) - (1,049)
Proceeds from sale of property, plant and equipment 1,351 2,112 5,815
Repayment (grant) of short-term loan 714 2,050 2,400
Investment in long-term bank deposits (167) (794) (1,750)
Proceeds from sale of long-term deposits 317 1,413 3,568
Short-term bank deposits, net 125 255 960
-------- -------- --------
Net cash used in investing activities (24,172) (25,163) (53,801)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of options 5,716 3,415 5,266
Repayment of long-term credit for purchase of a building - - -
Repayment of long-term bank loans (12,222) (7,278) (27,066)
Proceeds from long-term bank loans - - 10,000
Dividends paid (8,696) (7,051) (14,882)
Change in short-term bank credit and loans, net (1,135) (4,396) (10,997)
-------- -------- --------
Net cash used in financing activities (16,337) (15,310) (37,679)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 14,180 (29,280) (124)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE
PERIOD 76,156 76,280 76,280
-------- -------- --------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 90,336 $ 47,000 $ 76,156
======== ======== ========
(*) Dividend received $ 3,650 $ - $ 2,214
======== ======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
8
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------
(In thousands of U.S. dollars)
Six months ended Year ended
June 30, December 31,
--------------------- --------
2004 2003 2003
-------- -------- --------
(Unaudited) (Audited)
--------------------- --------
SUPPLEMENTARY CASH FLOWS
ACTIVITIES:
Cash paid during the period for:
Income taxes $ 6,614 $ 8,167 $ 14,666
======== ======== ========
Interest $ 844 $ 1,214 $ 4,034
======== ======== ========
SCHEDULE A:
Subsidiaries and businesses acquired
Estimated net fair value of assets
acquired and liabilities assumed at the
date of acquisition was as follows:
Working capital deficiency (except cash and cash
equivalents) - $ 816 $ 657
Property, plant and equipment - (168) (249)
Goodwill, know-how and other intangible assets - - (1,334)
Deferred income taxes - (1,700) (1,765)
Long-term liabilities - - 198
Minority interest - - 35
-------- -------- --------
$ - $ (1,052) $ (2,458)
======== ======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
9
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
-------------------------------------------------------------------------------
(In thousands of U.S. dollars)
Note 1 - GENERAL
The accompanying financial statements have been prepared in a
condensed format as of June 30, 2004, and for the six months and
three months then ended in accordance with generally accepted
accounting principles in the United States )U.S. GAAP( relating to
the preparation of financial statements for interim periods.
Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles in the United States but
which are not required for interim reporting purposes, have been
condensed or omitted. See Note 5 for the reconciliation from U.S.
GAAP to accounting principles generally accepted in Israel
(Israeli GAAP).
These financial statements should be read in conjunction with the
Company's annual financial statements and accompanying notes as of
December 31, 2003.
The interim financial statements reflect all adjustments, which
are, in the opinion of management, necessary for a fair
presentation. All such adjustments were of a normal recurring
nature.
Operating results for the six months ended June 30, 2004, are not
necessarily indicative of the results that may be expected for the
year ending December 31, 2004.
Note 2 - SIGNIFICANT ACCOUNTING POLICIES
A. The significant accounting policies followed in the
preparation of these statements are identical to those
applied in preparation of the latest annual financial
statements except as follows:
In January 2003, the Financial Accounting Standards Board
(FASB) issued Interpretation 46, Consolidation of Variable
Interest Entities, an interpretation of ARB No. 51 (FIN
46). In December 2003, the FASB modified FIN 46 to make
certain technical corrections and address certain
implementation issues that had arisen. FIN 46 provides a
new framework for identifying variable interest entities
(VIEs) and determining when a company should include the
assets, liabilities, non-controlling interests and results
of a VIE in its consolidated financial statements.
In general, a VIE is a corporation, partnership, limited
liability corporation, trust or any other legal structure
used to conduct activities or hold assets that either (1)
has an insufficient amount of equity to carry out its
principal activities without additional subordinated
financial support, (2) has a group of equity owners that
are unable to make significant decisions about its
activities or (3) has a group of equity owners that do not
have the obligation to absorb losses or the right to
receive returns generated by its operations.
10
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
-------------------------------------------------------------------------------
(In thousands of U.S. dollars, except share and per share data)
Note 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
FIN 46 requires a VIE to be consolidated if a party with an
ownership, contractual or other financial interest in the
VIE (a variable interest holder) is obligated to absorb a
majority of the risk of loss from the VIE's activities, is
entitled to receive a majority of the VIE's residual
returns (if no party absorbs a majority of the VIE's
losses), or both. A variable interest holder that
consolidates the VIE is called the primary beneficiary.
Upon consolidation, the primary beneficiary generally must
initially record all of the VIE's assets, liabilities and
non-controlling interest at fair value and subsequently
account for the VIE as if it were consolidated based on
majority voting interest. FIN 46 also requires disclosures
about VIEs that the variable interest holder is not
required to consolidate but in which it has a significant
variable interest.
FIN 46 was effective immediately for VIEs created after
January 31, 2003. The provisions of FIN 46, as revised,
were adopted as of June 30, 2004 for the Company's
interests in all VIEs. The adoption of FIN 46 did not have
a significant effect on the Company's financial statements.
B. The accompanying financial statements have been prepared in
U.S. dollars since the functional currency of the primary
economic environment in which the operations of the Group
(which includes Elbit Systems Ltd. and its subsidiaries)
are conducted is the U.S. dollar.
Note 3 - INVENTORIES, NET OF ADVANCES
June 30, December 31,
2004 2003
-------- --------
(Unaudited) (Audited)
-------- --------
Cost of long-term contracts in progress $255,606 $253,663
Raw materials 76,295 78,504
Advances to suppliers and subcontractors 20,573 20,137
-------- --------
352,474 352,304
Less - Cost incurred on contracts in progress
deducted from customer advances 15,135 14,581
-------- --------
337,339 337,723
Less -Advances received from customers 89,347 77,482
Provision for losses 6,124 11,016
-------- --------
$241,868 $249,225
======== ========
11
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
-------------------------------------------------------------------------------
(In thousands of U.S. dollars, except per share data)
Note 4 - STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board
Opinion No. 25. ("APB 25") "Accounting for Stock Issued to
Employees" and the FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" in accounting
for its employee stock option plans. According to APB 25,
compensation expense is measured under the intrinsic value method,
whereby compensation expense is equal to the excess, if any, of
the quoted market price of the stock at the grant date of the
award or other measurement date over the exercise price.
The Company adopted the disclosure provisions of Financial
Accounting Standards Board Statement No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure" ("SFAS No.
148"), which amended certain provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") to provide alternative methods of
transition for an entity that voluntarily changes to the fair
value based method of accounting for stock-based employee
compensation, effective as of the beginning of the fiscal year.
The Company continues to apply the provisions of APB No. 25, in
accounting for stock-based compensation.
Pro forma information regarding the Company's net income and net
earnings per share is required by SFAS No. 123 and has been
determined as if the Company had accounted for its employee stock
options under the fair value method prescribed by SFAS No. 123.
If compensation cost had been determined under the alternative
fair value accounting method provided under SFAS No. 123, the
Company's stock-based employee compensation cost, net income and
basic and diluted net earnings per share would have changed to the
following pro forma amounts:
Six months ended Three months ended Year ended
June 30, June 30, December 31,
------------------------- ------------------------- ----------
2004 2003 2004 2003 2003
---------- ---------- ---------- ---------- ----------
(Unaudited) (Unaudited) (Audited)
Net income as reported $ 24,039 $ 21,466 $ 11,312 $ 9,211 $ 45,945
Add - Stock based compensation expense
net of related tax effects as
reported (intrinsic method) 2,991 5,137 2,729 4,115 3,793
Deduct - Stock based compensation expense
under fair value based method of SFAS 123
net of related tax effects (1,478) (1,478) (739) (799) (2,956)
Pro forma net income $ 25,552 $ 25,125 $ 13,302 $ 12,527 $ 46,782
---------- ---------- ---------- ---------- ----------
Net earnings per share:
Basic net earnings per share as reported $ 0.61 $ 0.55 $ 0.28 $ 0.24 $ 1.18
Diluted net earnings per share as reported $ 0.59 $ 0.54 $ 0.28 $ 0.23 $ 1.14
Pro forma basic net earnings per share $ 0.64 $ 0.65 $ 0.33 $ 0.32 $ 1.20
Pro forma diluted net earnings per share $ 0.63 $ 0.63 $ 0.33 $ 0.31 $ 1.16
12
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
-------------------------------------------------------------------------------
(In thousands of U.S. dollars, except per share data)
Note 5 - On June 29, 2004, the Israeli Parliament approved the Amendment
to the Income Tax Ordinance (No. 140 and Temporary Provision)
(the "Amendment") which reduces the corporate tax rate from 36%
to 35% in 2004 and to a rate of 30% in 2007 progressively. The
Amendment was signed and published in July 2004 and is therefore
considered enacted in July 2004. Accordingly, the Company will
record the effect of the change in the tax rate in the third
quarter of 2004. The adoption of the Amendment will not have a
significant effect on the Company's financial statements.
Note 6 - RECONCILIATION TO ISRAELI GAAP
As described in Note 1, the Company prepares its financial
statements in accordance with U.S. GAAP. See Note 26 to the 2003
annual financial statements for a description of the differences
between U.S. GAAP and Israeli GAAP in respect to the Company. The
effects of the differences between U.S. GAAP and Israeli GAAP on
the Company's financial statements are detailed below.
1. Effect on net income and earnings per share
Six months ended Year ended
June 30, December 31,
-------------------------- --------------
2004 2003 2003
-------------------------- --------------
(Unaudited) (Audited)
Net income as reported according to U.S. GAAP $ 24,039 $ 21,466 $ 45,945
Adjustments to Israeli GAAP $ (1,907) 3,595 595
-------------------------- --------------
Net income according to Israeli GAAP $ 22,132 $ 25,061 $ 46,540
========================== ==============
2. Effect on shareholders' equity
As per
As reported Adjustments Israeli GAAP
--------------- ---------------- -----------------
As of June 30, 2004 (Unaudited)
Shareholders' equity $ 477,976 $ (12,957) $ 465,019
=============== ================ =================
As of December 31, 2003 (Audited)
Shareholders' equity $ 452,079 $ (10,367) $ 441,712
=============== ================ =================
13