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 May 2005
-----------------------
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 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
Attached hereto as Exhibit 1 and incorporated herein by reference is
the Registrant's press release dated May 17, 2005.
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 March 31, 2005.
Attached hereto as Exhibit 3 and incorporated herein by reference is
the Registrant's consolidated audited financial statements for the quarter ended
March 31, 2005.
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: May __, 2005
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
----------- -----------
1. Press release dated May 17, 2005.
2. Management report.
3. Financial statements
EXHIBIT 1
ELBIT SYSTEMS REPORTS FIRST QUARTER 2005 RESULTS
REVENUES INCREASED BY 8% TO $230.7 MILLION
BACKLOG OF ORDERS REACHED A NEW RECORD OF $ 2.37 BILLION
DILUTED EPS WAS $0.32 COMPARED TO $0.30 FOR THE CORRESPONDING QUARTER LAST YEAR
HAIFA, ISRAEL, MAY 17, 2005 - ELBIT SYSTEMS LTD. (THE "COMPANY") (NASDAQ: ESLT),
the international defense company, today reported its consolidated results for
the first quarter ended March 31, 2005.
THE COMPANY'S BACKLOG OF ORDERS AS OF MARCH 31, 2005 reached $2,373 million, as
compared with $2,154 million at the end of 2004. 65% of the backlog relates to
orders outside of Israel. Approximately 63% of the Company's backlog as of March
31, 2005 is scheduled to be performed over the next three quarters of 2005 and
during 2006.
CONSOLIDATED REVENUES FOR THE FIRST QUARTER OF 2005 increased by 8.0% to $230.7
million from $213.7 million in the corresponding quarter in 2004.
CONSOLIDATED NET INCOME FOR THE FIRST QUARTER OF 2005 was $13.1 million (5.7% of
revenues), as compared with $12.3 million (5.7% of revenues) in the same period
in 2004. Diluted earnings per share for the first quarter of 2005 were $0.32, as
compared with $0.30 for the first quarter of 2004.
GROSS PROFIT FOR THE FIRST QUARTER OF 2005 was $61.6 million (26.7% of
revenues), as compared with gross profit of $56.6 million (26.5% of revenues) in
the first quarter of 2004.
During the first quarter of 2005 the Company produced operating cash flow of
$49.6 million.
During the fourth quarter of 2004, the Company adopted the fair value
recognition provision of SFAS No. 123, effective as of January 1, 2004, using
the Black-Scholes-Merton formula to estimate the fair value of stock options
granted to employees. Accordingly, compensation cost is recorded over the
vesting period on a straight-line basis. Following the adoption of SFAS 123, the
financial results are no longer materially affected by the impact of changes in
the Company's share price on employee stock-based
compensation. Therefore, in accordance with SFAS 123, the Company's 2004
financial comparative results have been adjusted retroactively to reflect the
adoption of the fair value recognition provision effective as of January 1,
2004.
The President and CEO of Elbit Systems, Joseph Ackerman, commented: "We are
pleased to report our first results for 2005, which continue the long
established positive path we have followed of increased revenues and profits
year after year. We continue to concentrate on the long-term development of the
Company, and during the quarter we completed the first stage of the transaction
to acquire equity in Tadiran Communications. We also completed the acquisition
of the now privatized IMI aviation business and won several important contracts.
Our backlog reached another new record level, and the new business received,
combined with our continued investment in research and development, will ensure
the continued future success of Elbit Systems."
THE BOARD OF DIRECTORS DECLARED A DIVIDEND OF $0.13 PER SHARE FOR THE FIRST
QUARTER OF 2005. THE DIVIDEND'S RECORD DATE IS JUNE 7TH, 2005, AND THE DIVIDEND
WILL BE PAID ON JUNE 20, 2005, NET OF TAXES AND LEVIES, AT THE RATE OF 20.58%.
Conference Call
The Company will be hosting a webcast and conference call today, Tuesday, May
17th at 10.00am EST. On the call, management will review and discuss the
results, and will be available to answer investor questions.
To participate, please access Elbit Systems' investor relations web-site at
http://www.elbitsystems.com. An online replay will be available from 2 hours
after the call end, and will be available for 30 days.
Alternatively, please call one of the teleconferencing numbers that follow.
Please begin placing your calls at least 5 minutes before the conference call
commences. If you are unable to connect using one of the toll-free numbers,
please try the international dial-in number.
US Dial-in Numbers: 1 866 860 9642
UK Dial-in Number: 0 800 917 5108
ISRAEL Dial-in Number: 03 918 0610
INTERNATIONAL Dial-in Number: +972 3 918 0610
At: 10:00am Eastern Standard Time, 7:00am Pacific Standard Time, 3:00pm UK Time
or 5:00pm Israel Time.
In addition, a replay of the call will be available by telephone starting two
hours after the call ends until Thursday, May 19, 10:00 am EST. To access the
replay please dial: 1-877-332-1104 (US) or +972-3-925-5945 (international and
Israel)
-2-
ABOUT ELBIT SYSTEMS LTD.
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, ground and naval systems, command, control, communications,
computers, intelligence, surveillance and reconnaissance (C4ISR) and advanced
electro-optic technologies. The Company focuses on the upgrading of existing
military platforms and developing new technologies for defense applications. For
further information, please visit the Company web site at www.elbitsystems.com
COMPANY CONTACT: IR CONTACT:
Ilan Pacholder Ehud Helft / Kenny Green
V.P. Finance & Capital Markets
Corporate Secretary
Elbit Systems Ltd GK International
Tel: +972-4 831-6632 Tel: 1-866-704-6710
Fax: +972-4 831-6659 Fax: + 972-3-607- 4711
E-mail: pacholder@elbit.co.il E-mail: Kenny@gk-biz.com
--------------------- ----------------
E-mail: Ehud@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.
(FINANCIAL TABLES TO FOLLOW)
-3-
ELBIT SYSTEMS LTD.
CONSOLIDATED BALANCE SHEETS
(In thousand of US Dollars)
March 31 December 31
2005 2004
--------- ---------
Unaudited Audited
ASSETS
Current Assets:
Cash and short term deposits 50,872 34,847
Trade receivable and others 261,826 267,151
Inventories, net of advances 267,781 249,041
--------- ---------
Total current assets 580,479 551,039
Affiliated Companies & other Investments 70,241 62,886
Long-term receivables & others 85,508 85,100
Fixed Assets, net 249,902 244,288
Other assets, net 95,749 95,987
--------- ---------
1,081,879 1,039,300
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities 395,717 378,450
Long-term liabilities 238,522 221,810
Minority Interest 4,121 4,340
Shareholder's equity 443,519 434,700
--------- ---------
1,081,879 1,039,300
========= =========
-4-
ELBIT SYSTEMS LTD.
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(In thousand of US Dollars, except for per share amounts)
Three Months Ended Year Ended
March 31 December 31
---------------------- -------
2005 2004 2004
------- ------- -------
Unaudited Audited
Revenues 230,688 213,672 939,925
Cost of revenues 169,126 157,080 689,626
------- ------- -------
Gross Profit 61,562 56,592 250,299
Research and development, net 15,166 13,294 66,846
Marketing and selling 16,646 16,498 69,912
General and administrative 12,772 11,562 47,832
------- ------- -------
Total operating expenses 44,584 41,354 184,590
------- ------- -------
Operating income 16,978 15,238 65,709
Financial expenses, net (1,732) (479) (5,852)
Other income, net 169 215 770
------- ------- -------
Income before income taxes 15,415 14,974 60,627
Provisions for income taxes 3,987 4,075 15,219
------- ------- -------
11,428 10,899 45,408
Company's share of partnerships and affiliated
Companies income, net 1,493 1,358 7,765
Minority rights 220 (5) (180)
------- ------- -------
Net income 13,141 12,252 52,993
======= ======= =======
Earnings per share
Basic net earnings per share 0.32 0.31 1.33
======= ======= =======
Diluted net earnings per share 0.32 0.30 1.29
======= ======= =======
-5-
EXHIBIT 2
ELBIT SYSTEMS LTD.
MANAGEMENT'S REPORT
FOR THE QUARTER ENDED MARCH 31, 2005
THIS REPORT SHOULD BE READ TOGETHER WITH THE UNAUDITED FINANCIAL
STATEMENTS FOR THE QUARTER ENDED MARCH 31, 2005 OF ELBIT SYSTEMS LTD.
("ELBIT SYSTEMS" OR THE "COMPANY"), THE COMPANY'S AUDITED CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES FOR THE YEAR ENDED DECEMBER 31,
2004, THE COMPANY'S MANAGEMENT REPORT FOR THE YEAR ENDED DECEMBER 31,
2004 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 SEC FILINGS.
A. EXECUTIVE OVERVIEW
BUSINESS DESCRIPTION
Elbit Systems and its subsidiaries (the "Group") operates in the area
of upgrading existing airborne, ground and naval defense platforms and
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 provides support services for such platforms,
systems and products.
The Company is engaged in leading projects in Israel and worldwide, in
areas such as air, ground 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 and products, systems for Homeland Defense products,
surveillance products and systems and electric drive systems.
The Company provides a wide range of logistic support services,
including operation of pilot training services for the Israeli Air
Force on a private financing
-6-
initiative 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.
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. In addition, its competitive
position sometimes is affected by specific requirements in particular
markets.
ACQUISITION OF TADIRAN COMMUNICATION LTD. SHARES
On April 18, 2005, the Company completed the first stage of the
transaction to purchase shares of Tadiran Communications Ltd. ("Tadiran
Communications") from Koor Industries Ltd. ("Koor"). The first stage of
the transaction was completed after all the conditions precedent and
all the required approvals for this stage were obtained.
According to the transaction agreements, Elbit Systems purchased from
Koor, in this stage, approximately 13.7% of the share equity of Tadiran
Communications. In addition to the shares previously purchased by Elbit
Systems in the stock market, it currently holds approximately 20% of
Tadiran Communications' shares. Concurrently therwith, Koor purchased
approximately 5.3% of Elbit Systems' share equity from the Federmann
Group. The parties also agreed on April 18, 2005 to extend the
completion of the second stage of the transaction by up to four months
under certain circumstances.
Upon completion of the first stage of the transaction, three members of
Tadiran Communications' board of directors were appointed: Joseph
Ackerman, Elbit Systems' President, and two of Elbit Systems' Vice
Presidents, Joseph Gaspar, Chief Financial Officer, and Jacob Gadot, VP
for M&A. Also, Jonathan Kolber, the CEO of Koor, was appointed as a
member of Elbit Systems' board of directors.
Elbit Systems purchased Tadiran Communications shares from Koor in
consideration for approximately $62.5 million. Koor purchased from the
Federmann Group Elbit Systems' shares in consideration for
approximately $53.2 million.
Accordingly, the Company will account for its investment in Tadiran
Communications under the equity method of accounting. In accordance
with APB 18, "The Equity Method of Accounting for Investments in Common
Stock", the Company's interest in Tadiran Communications, which has
been accounted for as available for sale securities, should be
-7-
accounted for retroactively under the equity method of accounting
("step-by-step acquisition") in the second quarter of 2005, the period
in which the Company first obtained the ability to have significant
influence over Tadiran Communications. Implementing the step-by-step
acquisition method will result in a restatement of the Company's
financial statements for all periods ending prior to April 18, 2005, in
which the Company's investment in Tadiran Communications was accounted
for as available for sale securities. The Company is currently
evaluating the impact of the aforementioned restatement.
FINANCIAL HIGHLIGHTS
The Company's revenues increased by 8.0% and reached $230.7 million in
the first quarter of 2005, as compared to $213.7 million in the first
quarter of 2004.
Net earnings in the first quarter of 2005 were $13.1 million and the
diluted earnings per share were $0.32, as compared to $12.3 million and
$0.30 in the first quarter of 2004.
The Company's backlog increased by 10.2% and reached $2.37 billion as
of March 31, 2005, as compared to $2.15 billion as of December 31,
2004. The Company's cash flows generated from operations in the quarter
ended March 31, 2005 was $49.5 million, as compared to $25.3 million in
the quarter ended March 31, 2004.
The Board of Directors declared a dividend of $0.13 per share for the
first quarter of 2005.
B. BACKLOG OF ORDERS
The Company's backlog of orders as of March 31, 2005 reached $2,373
million, of which 65% were for orders outside of Israel. The Company's
backlog as of December 31, 2004 was $2,154 million, of which 66% were
for orders outside of Israel.
Approximately 63% of the Company's backlog as of March 31, 2005 is
scheduled to be performed in the following three quarters of 2005 and
during 2006. The majority of the 37% balance is scheduled to be
performed in 2007 and 2008.
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, 2004. See also the Company's management report for the
year ended December 31, 2004.
D. STOCK-BASED COMPENSATION
Effective January 1, 2004, the Company adopted the fair value
recognition provision of SFAS No. 123. Following the adoption of SFAS
No. 123, the financial results are no
-8-
longer materially affected by the impact of changes in the Company's
share price on employee stock-based compensation.
As a result of the adoption of SFAS No. 123 from January 1, 2004, the
statement of income and diluted net earnings per share of the first
quarter of 2004 were restated for purposes of comparison, as follows:
Net income as previously reported in the first quarter of 2004 $ 12,727
============
Restated net income (according to SFAS No. 123) $ 12,252
============
Diluted net earnings per share as reported in the first quarter of 2004 $ 0.31
============
Restated diluted net earnings per share (according to SFAS No. 123) $ 0.30
============
E. ACQUISITIONS DURING 2005
On March 27, 2005, the Company's wholly-owned Israeli subsidiary
Cyclone Aviation Products Ltd. ("Cyclone") completed the acquisition of
the assets of the Aircraft Systems Division (the "Aircraft Division")
located in Tirat Hacarmel, Israel, of Israel Military Industries Ltd.
("IMI") in consideration of approximately $7 million, a portion of
which is in cash and the balance through assumption of obligations of
the Aircraft Division. The transaction was made possible following the
signature of an agreement among the Israel Treasury Ministry,
representatives of the employees, IMI and Cyclone, relating to the
severance conditions of the Aircraft Division's employees. The Aircraft
Division manufactures weapon payloads and external fuel tanks for
fighter aircraft.
The excess of the purchase price over the fair value of net tangible
assets acquired in the amount of approximately $1.5 million was
allocated to customer contracts to be amortized over an estimated
period of four years. The financial results of the Aircraft Division
are included in the consolidated financial statements from date of
acquisition.
-9-
F. SUMMARY OF FINANCIAL RESULTS
The following table sets forth the consolidated statements of
operations of the Company and its subsidiaries for the three-month
periods ended March 31, 2005 and March 31, 2004.
For the three months ended
--------------------------------------------
March 31
--------------------------------------------
2005 2004 (*)
-------------------- --------------------
$ % $ %
------- ----- ------- -----
(In thousands of U.S. dollars, except per share data)
Total revenues 230,688 100.0 213,672 100.0
Cost of revenues 169,126 73.3 157,080 73.5
------- ----- ------- -----
Gross profit 61,562 26.7 56,592 26.5
------- ----- ------- -----
Research and Development (R&D) expenses 19,900 8.6 16,461 7.7
Less - participation (4,734) (2.0) (3,167) (1.5)
------- ----- ------- -----
R&D expenses, net 15,166 6.6 13,294 6.2
Marketing and selling expenses 16,646 7.2 16,498 7.7
General and administrative expenses 12,772 5.5 11,562 5.4
------- ----- ------- -----
44,584 19.3 41,354 19.4
------- ----- ------- -----
Operating income 16,978 7.4 15,238 7.1
Finance expenses, net (1,732) (0.8) (479) (0.2)
Other expenses, net 169 0.1 215 0.1
------- ----- ------- -----
Income before taxes on income 15,415 6.7 14,974 7.0
Taxes on income 3,987 1.7 4,075 1.9
------- ----- ------- -----
11,428 5.0 10,899 5.1
Minority interest in losses (gains) of subsidiaries 220 0.1 (5) 0.0
Equity in net earnings of affiliated companies and
partnership 1,493 0.6 1,358 0.6
------- ----- ------- -----
Net earnings 13,141 5.7 12,252 5.7
======== ====== ======= ======
Diluted earnings per share 0.32 0.30
======== =======
* Restated - See section D
-10-
FIRST QUARTER OF 2005 COMPARED WITH THE FIRST QUARTER OF 2004
REVENUES
The Company's consolidated revenues increased by 8.0%, from $213.7
million in the first quarter of 2004 to $230.7 million in the first
quarter of 2005.
The following table sets forth the Company's revenue distribution by
areas of operation:
Three-Month Period ended
-------------------------------------------
March 31, 2005 March 31, 2004
----------------- ----------------
$ millions % $ millions %
Airborne systems 101.0 43.8 84.3 39.5
Land systems 26.0 11.2 51.8 24.2
C4ISR systems 44.0 19.1 29.5 13.8
Electro-optics 43.2 18.7 40.4 18.9
Other (mainly non-defense engineering and
production services) 16.5 7.2 7.7 3.6
----- ----- ----- -----
Total 230.7 100.0 213.7 100.0
===== ===== ===== =====
The changes in revenues distribution by areas of operation, other than
ordinary quarterly fluctuations, were in the area of land systems
sales, which decreased mainly as a result of delay in the receipt of
certain orders for new projects, which were received but for which
revenues were not yet recognized, while the revenues in all other areas
of operation increased.
The following table sets forth the Company's distribution of revenues
by geographical regions:
Three-Month Period ended
-------------------------------------------
March 31, 2005 March 31, 2004
----------------- ----------------
$ millions % $ millions %
Israel 67.2 29.1 53.9 25.2
United States 89.5 38.8 79.5 37.2
Europe 16.2 7.0 32.1 15.0
Other countries 57.8 25.1 48.2 22.6
---- ---- ---- ----
Total 230.7 100.0 213.7 100.0
===== ===== ===== =====
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 changes in revenues by geographic distribution, other than standard
quarterly fluctuations, were in the revenues from customers in Europe,
which decreased from $32.1 million to $16.2 million, due mainly as a
result of completion of certain programs and the temporary reduction in
the land systems area of operations for European countries, while
revenues in all other geographical regions increased.
-11-
GROSS PROFIT
Gross profit in the quarter ended March 31, 2005 was $61.6 million, as
compared to $56.6 million in the quarter ended March 31, 2004. The
gross profit margin in the first quarter of 2005 was 26.7%, as compared
to 26.5% in the first quarter of 2004.
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 is coordinated with, and partially funded by, third
parties, including the Israeli Ministry of Defense ("IMOD"), the Office
of the Chief Scientist ("OCS") and bi-national and European Development
funds. These programs were mainly in the areas of advanced airborne
systems, cutting edge electro-optics technology and products for
surveillance, aerial reconnaissance, lasers, space based sensors and
homeland security technologies and products. The Company experienced
increased IMOD and OCS participation in these programs.
Gross R&D expenses in the quarter ended March 31, 2005 totaled $19.9
million (8.6% of revenues), as compared to $16.5 million (7.7% of
revenues) in the quarter ended March 31, 2004.
The increase in R&D expenses resulted mainly from new projects
initiated in the last quarter of 2004, which involved a high level of
R&D activities and a high level of third party participations.
Net R&D expenses (after reduction of third party participation) in the
quarter ended March 31, 2005 totaled $15.2 million (6.6% of revenues),
as compared to $13.3 million (6.2% of revenues) in the quarter ended
March 31, 2004.
MARKETING AND SELLING EXPENSES
The Company maintains its activities in developing new markets and
pursues at any given time various business opportunities according to
the Company's plan.
Marketing and selling expenses in the quarter ended March 31, 2005 were
$16.6 million (7.2% of revenues), as compared to $16.5 million (7.7% of
revenues) in the quarter ended March 31, 2004.
GENERAL AND ADMINISTRATIVE ("G&A") EXPENSES
G&A expenses were $12.8 million (5.5% of revenues) in the quarter ended
March 31, 2005, as compared to $11.6 million (5.4% of revenues) in the
quarter ended March 31, 2004.
-12-
FINANCE EXPENSE (NET)
Net finance expense in the quarter ended March 31, 2005 was $1.7
million, as compared to $0.5 million in the quarter ended March 31,
2004.
The increase in the net finance expense resulted mainly from currency
exchange rate differences, a higher level of long-term loans and an
increase in interest rates.
TAXES ON INCOME
Provision for taxes in the quarter ended March 31, 2005 was $4.0
million (effective tax rate of 25.9%), as compared to a provision for
taxes of $4.1 million (effective tax rate of 27.2%) in the quarter
ended March 31, 2004. Following a government decision that was approved
in 2004, the income tax rate in Israel was decreased from 35% in 2004
to 34% in 2005.
The Company's tax rate represents a weighted average of the tax rates
to which the various companies in the Group are subject. The change in
the effective tax rate is 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 and the recent decrease in the
tax rate in Israel.
COMPANY'S SHARE IN EARNINGS OF AFFILIATED ENTITIES
In the first quarter of 2005 the Company had net income of $1.5 million
from its share in earnings of affiliated companies and partnerships, as
compared to $1.4 million in the first quarter of 2004.
The companies and partnerships, in which the Company holds 50% or less
in shares or voting rights and are therefore not consolidated in its
financial statements, operate in complementary areas to the Company's
core business activities, including electro-optics and airborne
systems.
NET EARNINGS AND EARNINGS PER SHARE ("EPS")
Net earnings in the quarter ended March 31, 2005 were $13.1 million
(5.7% of revenues), as compared to net earnings of $12.3 million (5.7%
of revenues) in the quarter ended March 31, 2004. Diluted EPS in the
quarter ended March 31, 2005 was $0.32, as compared to $0.30 in the
quarter ended March 31, 2004.
The number of shares used for computation of diluted EPS in the quarter
ended March 31, 2005 was 41,617 thousand shares, as compared to 40,718
thousand shares in the quarter ended March 31, 2004.
-13-
G. LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash flow generated from operating activities in the
quarter ended March 31, 2005 was $49.6 million, resulting mainly from
net income and advances received from customers. The cash inflows were
partially offset, mainly by an increase in inventories and by payments
of trade payables.
Net cash flow used for investment activities in the quarter ended March
31, 2005 was $21.7 million, which was used mainly for procurement of
various assets and equipment and acquisition of Tadiran's shares.
Net cash flow used for financing activities in the quarter ended March
31, 2005 was $12.4 million, which was used mainly for repayment of
long-term loans.
On March 31, 2005, the Company had total borrowings in the amount of
$83.0 million, including $73.6 million in long-term loans, and $395
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 March 31, 2005, the Company had a cash balance
amounting to $49.6 million.
The Company and some of its subsidiaries operate with loan and credit
agreements that contain certain covenants. Such covenants include
requirements for shareholders' equity, current ratio, operating profit
margin, tangible net worth, EBITDA, interest coverage ratio and total
leverage. As of March 31, 2005, the Company and its subsidiaries are in
full compliance with all such covenants.
As of March 31, 2005, the Company had working capital of $184.8 million
and its current ratio was 1.47. The Company's ratio of equity to total
assets was 41%.
H. 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 related to NIS, based on market conditions.
On March 31, 2005, 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, except for the Tadiran
Communications shares acquired as mentioned above. The Company's
deposits and loans are based on variable interest rates, and their
value as of March 31, 2005 was therefore not exposed to
-14-
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 the liabilities and the return on the
assets that are based on variable rates.
The Company's functional currency is the U.S. dollar. On March 31,
2005, 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 and 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.
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
March 31, 2005 by forward contracts and options. On March 31, 2005, the
Company had forward contracts for the sale and purchase of such foreign
currencies totaling $30.6 million ($18 million in Euro, $5.4 million in
GBP and $7.2 million in other currencies). The results of financial
derivative activities in this quarter were not material.
On March 31, 2005, the Company had options for hedging future cash flow
denominated in GBP in the amount of $151 million. The fair market value
of the options as of March 31, 2005 was not material.
I. APPOINTMENT OF NEW DIRECTORS
On May 16, 2005, the Company's Board of Directors appointed Moshe Arad
as a director. This is in addition to the appointment of Jonathan
Kolber as a director on April 18, 2005.
J. DIVIDENDS
The Board of Directors declared on May 16, 2005 a dividend of $0.13 per
share.
* * * * *
-15-
EXHIBIT 3
---------------------------------------
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
---------------------------------------
CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
AS OF MARCH 31, 2005
(Unaudited)
(In thousands of U.S. dollars)
---------------------------------------
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
---------------------------------------
C O N T E N T S
---------------
P A G E
-------
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets 2 - 3
Consolidated Statements of Income 4
Consolidated Statements of Changes in Shareholder's Equity 5-6
Consolidated Statements of Cash Flows 7-8
Notes to the Consolidated Financial Statements 9-13
# # # # # #
-1-
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U. S. dollars (In thousands)
MARCH 31, DECEMBER 31,
2005 2004
---------- ----------
(UNAUDITED) (AUDITED)
CURRENT ASSETS:
Cash and cash equivalents $ 49,609 $ 34,109
Short-term bank deposits 1,263 738
Trade receivables, (net of allowance for doubtful
accounts in the amount of $2,994 and $3,064 as of March 31,
2005 and December 31, 2004, respectively) 207,982 214,816
Other receivables and prepaid expenses 53,844 52,335
Inventories, net of advances 267,781 249,041
---------- ----------
Total current assets 580,479 551,039
---------- ----------
INVESTMENTS AND LONG-TERM RECEIVABLES:
Investments in affiliated companies and a partnership 31,778 33,124
Available for sale securities 26,718 18,017
Investments in other companies 11,745 11,745
Long-term bank deposits and trade receivables 2,193 2,102
Severance pay fund 83,315 82,998
---------- ----------
155,749 147,986
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, NET 249,902 244,288
---------- ----------
INTANGIBLE ASSETS:
Goodwill 33,716 33,706
Other intangible assets, net 62,033 62,281
---------- ----------
95,749 95,987
---------- ----------
$1,081,879 $1,039,300
========== ==========
The accompanying notes are an integral part of the consolidated
financial statements
-2-
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U. S. dollars (In thousands)
MARCH 31, DECEMBER 31,
2005 2004
----------- -----------
(UNAUDITED) (AUDITED)
----------- -----------
CURRENT LIABILITIES:
Short-term bank credit and loans $ 7,721 $ 8,592
Current maturities of long-term loans 1,694 1,656
Dividend payable 5,296 -
Trade payables 100,106 118,391
Other payables and accrued expenses 168,356 169,702
Customers advances and amounts in excess of
costs incurred on contracts in progress 112,544 80,109
----------- -----------
Total current liabilities 395,717 378,450
----------- -----------
LONG-TERM LIABILITIES:
Long-term loans 73,628 86,234
Advances from customers 41,122 10,320
Deferred income taxes 24,706 24,516
Accrued termination liability 99,066 100,740
----------- -----------
238,522 221,810
----------- -----------
MINORITY INTERESTS 4,121 4,340
----------- -----------
SHAREHOLDERS' EQUITY:
Share capital
Ordinary shares of New Israeli Shekels (NIS) 1 par value;
Authorized-80,000,000 shares as of March 31, 2005 and December 31, 2004;
Issued-41,091,763 and 40,969,947 shares as of March 31, 2005 and
December 31, 2004 respectively;
Outstanding - 40,682,942 and 40,561,126 shares as of March 31, 2005 and
December 31, 2004, respectively 11,576 11,548
Additional paid-in capital 275,766 274,432
Accumulated other comprehensive loss (3,734) (3,346)
Retained earnings 164,232 156,387
Treasury shares - 408,821 shares as of March 31, 2005 and
December 31, 2004 (4,321) (4,321)
----------- -----------
443,519 434,700
----------- -----------
$ 1,081,879 $ 1,039,300
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements
-3-
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------------------------------------------
U. S. dollars (In thousands, except share and per share data)
THREE MONTHS ENDED
MARCH 31, YEAR ENDED
----------------------- DECEMBER 31,
2005 2004 (*) 2004
--------- --------- ---------
(UNAUDITED) (AUDITED)
----------------------- ---------
Revenues $ 230,688 $ 213,672 $ 939,925
Cost of revenues 169,126 157,080 689,626
--------- --------- ---------
Gross profit 61,562 56,592 250,299
--------- --------- ---------
Research and development costs, net 15,166 13,294 66,846
Marketing and selling expenses 16,646 16,498 69,912
General and administrative expenses 12,772 11,562 47,832
--------- --------- ---------
44,584 41,354 184,590
--------- --------- ---------
Operating income 16,978 15,238 65,709
Financial expenses, net (1,732) (479) (5,852)
Other income, net 169 215 770
--------- --------- ---------
Income before taxes on income 15,415 14,974 60,627
Taxes on income 3,987 4,075 15,219
--------- --------- ---------
11,428 10,899 45,408
Equity in net earnings of affiliated companies and
partnership 1,493 1,358 7,765
Minority interests in losses (earnings) of
subsidiaries 220 (5) (180)
--------- --------- ---------
Net income $ 13,141 $ 12,252 $ 52,993
========= ========= =========
Earnings per share
Basic net earnings per share $ 0.32 $ 0.31 $ 1.33
========= ========= =========
Diluted net earnings per share $ 0.32 $ 0.30 $ 1.29
========= ========= =========
Number of shares used in computation of basic net
earnings per share 40,645 39,579 39,952
========= ========= =========
Number of shares used in computation of diluted net
earnings per share 41,617 40,718 41,041
========= ========= =========
* Restated see Note 3
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
-------------------------------------------------------------------------------
U. S. dollars (In thousands, except share and per share data)
ACCUMULATED
NUMBER OF ADDITIONAL OTHER
OUTSTANDING SHARE PAID-IN COMPREHENSIVE
SHARES CAPITAL CAPITAL LOSS
------------ ------------- ------------- ----------------
BALANCE AS OF JANUARY 1, 2004
(AUDITED) 39,337,304 $ 11,273 $ 259,033 $ (3,992)
Exercise of options 1,223,822 275 10,985 -
Cumulative effect of first time adoption
of the fair value based method for stock
based compensation expenses (152)
Tax benefit in respect of options exercised - - 1,179 -
Amortization of stock based
compensation - - 3,387 -
Dividends paid - - - -
Comprehensive income (loss):
Unrealized gains on derivative
instruments - - - (299)
Foreign currency translation differences - - - 450
Unrealized gains on available for sale
securities, net 1,396
Minimum pension liability - - - (901)
Net income - - - -
------------ ------------- ------------- ----------------
Total comprehensive income
BALANCE AS OF DECEMBER 31, 2004
(AUDITED) 40,561,126 $ 11,548 $ 274,432 $ (3,346)
Exercise of options 121,816 28 1,047 -
Tax benefit in respect of options exercised - - 287 -
Dividends paid - - - -
Comprehensive income (loss):
Unrealized gains on derivative
instruments - - - 212
Unrealized losses on available for sale
securities, net (425)
Foreign currency translation differences - - - (175)
Net income - - - -
------------ ------------- ------------- ----------------
Total comprehensive income
BALANCE AS OF MARCH 31, 2005
(UNAUDITED) 40,682,942 $ 11,576 $ 275,766 $ (3,734)
============ ============= ============= ================
TOTAL TOTAL OTHER
RETAINED TREASURY SHAREHOLDERS' COMPREHENSIVE
EARNINGS SHARES EQUITY INCOME
------------ ------------ --------------- -----------------
BALANCE AS OF JANUARY 1, 2004
(AUDITED) $ 190,086 $ (4,321) $ 452,079
Exercise of options - - 11,260
Cumulative effect of first time adoption
of the fair value based method for stock
based compensation expenses (152)
Tax benefit in respect of options exercised - - 1,179
Amortization of stock based
compensation - - 3,387
Dividends paid (86,692) - (86,692)
Comprehensive income (loss):
Unrealized gains on derivative
instruments - - (299) $ (299)
Foreign currency translation differences - - 450 450
Unrealized gains on available for sale
securities, net 1,396 1,396
Minimum pension liability - - (901) (901)
Net income 52,993 - 52,993 52,993
------------ ------------ --------------- -----------------
Total comprehensive income $ 53,639
=================
BALANCE AS OF DECEMBER 31, 2004
(AUDITED) $ 156,387 $ (4,321) $ 434,700
Exercise of options - - 1,075
Tax benefit in respect of options exercised - - 287
Dividends paid (5,296) - (5,296)
Comprehensive income (loss):
Unrealized gains on derivative
instruments - - 212 212
Unrealized losses on available for sale
securities, net (425) (425)
Foreign currency translation differences - - (175) (175)
Net income 13,141 - 13,141 13,141
------------ ------------ --------------- -----------------
Total comprehensive income $12,753
=================
BALANCE AS OF MARCH 31, 2005
(UNAUDITED) $ 164,232 $ (4,321) $ 443,519
============ ============ ===============
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 (CONT.)
-------------------------------------------------------------------------------
U. S. dollars (In thousands, except share and per share data)
ACCUMULATED
NUMBER OF ADDITIONAL OTHER
OUTSTANDING SHARE PAID-IN COMPREHENSIVE
SHARES CAPITAL CAPITAL INCOME (LOSS)
------------ ------------- ------------- ----------------
BALANCE AS OF JANUARY 1, 2004
(AUDITED) 39,337,304 $ 11,273 $ 259,033 $ (3,992)
Exercise of options 381,109 85 3,552 -
Cumulative effect of first time
adoption of the fair value based
method for stock based compensation (152)
expenses
Tax benefit in respect of options
exercised - - 411 -
Stock-based compensation - - 923 -
Dividends paid - - - -
Unrealized gains on derivative
instruments (94)
Foreign currency translation differences 144
Net income - - - -
------------ ------------- ------------- ----------------
Total comprehensive income
BALANCE AS OF MARCH 31, 2004
(UNAUDITED) (*) 39,718,413 $ 11,358 $ 263,767 $ (3,942)
============ ============= ============= ================
TOTAL TOTAL OTHER
RETAINED TREASURY SHAREHOLDERS' COMPREHENSIVE
EARNINGS SHARES EQUITY INCOME
------------ ------------ --------------- -----------------
BALANCE AS OF JANUARY 1, 2004
(AUDITED) $ 190,086 $ (4,321) $ 452,079
Exercise of options - - 3,637
Cumulative effect of first time
adoption of the fair value based
method for stock based compensation (152)
expenses
Tax benefit in respect of options
exercised - - 411
Stock-based compensation - - 923
Dividends paid (4,327) - (4,327)
Unrealized gains on derivative
instruments (94) (94)
Foreign currency translation differences 144 144
Net income 12,252 - 12,252 $ 12,252
------------ ------------ --------------- -----------------
Total comprehensive income $ 12,302
=================
BALANCE AS OF MARCH 31, 2004
(UNAUDITED) (*) $ 198,011 $ (4,321) $ 464,873
============ ============ ===============
* Restated see Note 3
The accompanying notes are an integral part of the consolidated
financial statements.
-6-
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------
U. S. dollars (In thousands)
THREE MONTHS ENDED
MARCH 31, YEAR ENDED
---------------------- DECEMBER 31,
2005 2004 (**) 2004
-------- -------- --------
(UNAUDITED) (AUDITED)
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 13,141 $ 12,252 $ 52,993
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 10,794 10,401 42,261
Amortization of deferred stock compensation - 923 3,387
Deferred income taxes (527) 723 153
Accrued severance pay, net (2,114) (1,463) (2,304)
Loss (gain) on sale of property and equipment (250) 5 143
Tax benefit in respect of options exercised 287 411 1,179
Minority interests in earnings (losses) of subsidiaries (220) 5 180
Equity in net losses (earnings) of affiliated companies and
partnership, net of dividend received (*) (493) 963 385
Changes in operating assets and liabilities:
Decrease (increase) in short and long-term receivables and prepaid 5,978 28,302 (16,871)
expenses
Increase in inventories (28,778) (6,953) 2,932
Increase (decrease) in trade payable, other payables and accrued
expenses (21,197) (15,657) 20,522
Increase (decrease) in advances received from customers 72,897 (4,404) (18,535)
Settlement of royalties with the Office of the Chief Scientist - - (3,714)
Other adjustments 45 (213) (1,228)
-------- -------- --------
Net cash provided by operating activities 49,563 25,295 81,483
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (15,235) (10,893) (53,008)
Acquisition of subsidiaries and businesses (Schedule A) (318) - (2,315)
Investments in affiliated companies and subsidiaries (352) (200) (2,522)
Proceeds from sale of property, plant and equipment 829 504 2,560
Proceeds from sale of investment 3,100 - -
Investment in long-term bank deposits (359) (157) (1,203)
Proceeds from sale of long-term bank deposits 535 317 1,507
Short-term bank deposits, net (525) 90 (48)
Investment in available for sale securities (9,329) - (15,869)
-------- -------- --------
Net cash used in investing activities (21,654) (10,339) (70,898)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of options 1,075 3,637 11,260
Repayment of long-term bank loans (12,613) (3,033) (35,826)
Receipt of long-term bank loans - - 58,410
Dividends paid - - (86,692)
Change in short-term bank credit and loans, net (871) (1,463) 216
-------- -------- --------
Net cash used in financing activities (12,409) (859) (52,632)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 15,500 14,097 (42,047)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE
PERIOD 34,109 76,156 76,156
-------- -------- --------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 49,609 $ 90,253 $ 34,109
======== ======== ========
$ 1,000 $ 2,321 $ 8,105
======== ======== ========
* Dividend received
** Restated see Note 3
The accompanying notes are an integral part of the consolidated
financial statements.
-7-
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
--------------------------------------------------------------------------------
U. S. dollars (In thousands)
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
-------- -------- --------
2005 2004 2004
-------- -------- --------
(UNAUDITED) (AUDITED)
-------- -------- --------
SUPPLEMENTARY CASH FLOWS ACTIVITIES:
Cash paid during the period for:
Income taxes $ 4,818 $ 3,216 $ 13,305
======== ======== ========
Interest $ 1,695 $ 756 $ 3,122
======== ======== ========
SCHEDULE A:
Subsidiaries and businesses acquired
Estimated net fair value of assets acquired and liabilities
at the date of acquisition assumed:
Working capital, net (excluding cash and cash
equivalents) $ (3,281) - $ (707)
Property, plant and equipment - - (10)
Goodwill, customer contracts and other intangible assets (1,514) - (1,598)
Long-term liabilities - mainly advances from customers 4,477 - -
-------- -------- --------
$ (318) - $ (2,315)
======== ======== ========
-8-
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
--------------------------------------------------------------------------------
U. S. dollars (In thousands)
NOTE 1 - GENERAL
A. The accompanying financial statements have been prepared in a
condensed format as of March 31, 2005, and for the 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 6
for the reconciliation from U.S. GAAP to accounting principles
generally accepted in Israel (Israeli GAAP).
These statements should be read in conjunction with the
Company's annual financial statements and accompanying notes
as of December 31, 2004.
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. Reclassifications have been made to comparative data
in the balance sheet as of December 31, 2004 in order to
conform to the current year's presentation.
Comparative data in the condensed interim financial statements
for the three months ended March 31, 2004 have been restated
(see Note 3).
Operating results for the three months ended March 31, 2005,
are not necessarily indicative of the results that may be
expected for the year ending December 31, 2005.
B. In March 2005, the Company, through its wholly-owned
subsidiary Cyclone Aviation Products Ltd. ("Cyclone"),
acquired from Israel Military Industries Ltd. ("IMI") the
assets and customer contracts related to the Aircraft Systems
Division of IMI ("the Aircraft Division") in consideration for
approximately $7 million, to be paid in cash (approximately $1
million out of which $318 was paid through balance sheet date)
and assumed liabilities of approximately $6 million. The
excess of the purchase price over the fair value of net
tangible assets acquired in the amount of approximately $1,500
was allocated to customers' contracts to be amortized over an
estimated period of four years.
The Aircraft Division manufactures weapon payloads and
external fuel tanks for fighter aircraft.
The financial results of the business acquired are included in
the Company's consolidated financial statements from the date
of acquisition.
Pro forma information in accordance with SFAS No. 141 has not
been provided, since the revenues and net income of the
Aircraft Division are not material in relation to the total
consolidated revenues and net income of the Company.
-9-
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
--------------------------------------------------------------------------------
U. S. dollars (In thousands)
NOTE 1 - GENERAL (CONT.)
C. As described in Note 1(G) to the Company's 2004 annual
financial statements, on December 27, 2004, the Company
reached an agreement with Koor Industries Ltd. ("Koor") to
purchase all of Koor's holdings in Tadiran Communications Ltd.
("Tadiran Communications"), which represents an approximately
32% interest in Tadiran Communications at a price of $37 per
share. This purchase is being made in parallel to Koor's
purchase of approximately 9.8% of the Company's shares from
Federmann Enterprises Ltd ("Federmann"). Tadiran
Communications is an Israeli company, whose shares are traded
on the Tel Aviv Stock Exchange.
The purchase of the interest in Tadiran Communications is
being made in two stages, subject to the terms agreed upon
between the parties, as described in the aforementioned note
to the Company's 2004 annual financial statements.
On February 28, 2005, the Company's shareholders' in a general
meeting approved the agreements with Koor relating to the
Company's purchase of Koor's shares in Tadiran Communications.
As of March 31, 2005, the Company held shares representing
approximately 6% in Tadiran Communications. The shares are
recorded as available for sale securities.
On April 18, 2005, the Company completed the first stage of
the transaction and purchased approximately 13.7% of the
outstanding shares of Tadiran Communications, subsequent to
meeting all the required conditions and obtaining the required
approvals in consideration for $62.5 million. In parallel,
Koor purchased from Federmann shares of the Company,
representing approximately 5.3% of the Company's outstanding
shares, in consideration for approximately $53.2 million.
Following the completion of the first stage, the Company holds
approximately 20% of Tadiran Communications' shares and as a
result has the ability to exercise significant influence over
the financial and operating policies of Tadiran
Communications.
Accordingly, the Company will account for its investment in
Tadiran Communications under the equity method of accounting.
In accordance with APB 18, "The Equity Method of Accounting
for Investments in Common Stock", the Company's interest in
Tadiran Communications, which has been accounted for as
available for sale securities, should be accounted for
retroactively under the equity method of accounting
("step-by-step acquisition") in the second quarter of 2005,
the period in which the Company first obtained the ability to
have significant influence over Tadiran Communications.
Implementing the step-by-step acquisition method will result
in a restatement of the Company's financial statements for all
periods ending prior to April 18, 2005, in which the Company's
investment in Tadiran Communications was accounted for as
available for sale securities. The Company is currently
evaluating the impact of the aforementioned restatement.
-10-
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
--------------------------------------------------------------------------------
U. S. dollars (In thousands)
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.
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 - STOCK-BASED COMPENSATION
As mentioned in Note 2X to the Company's annual financial
statements, effective January 1, 2004, the Company adopted the
fair value recognition provisions of SFAS 123. Under the
modified prospective method of adoption selected by the
Company under the provisions of SFAS No. 148, the fair value
recognition provisions are applied from January 1, 2004 to all
employee awards granted, modified, or settled subsequent to
January 1, 2004, and to previously granted awards that were
not fully vested on the date of adoption. The aforementioned
decision to adopt the fair value recognition provisions of
SFAS 123 took place in December 2004. Since the recognition
provisions of SFAS 123 must be applied as of the beginning of
the Company's fiscal year, SFAS 123 fair value recognition
provisions were adopted effective January 1, 2004 and the
results of the first three quarters of 2004 were restated
accordingly, in order to reflect the change in stock-based
compensation expense from the expense calculated under the
intrinsic value based method to the expense calculated under
the fair value based method.
The following is the effect of the restatement of stock-based
compensation expense on the financial statements for the three
months ended March 31, 2004:
Net income as previously reported in the first quarter of 2004 $ 12,727
=============
Restated net income (according to SFAS No. 123) $ 12,252
=============
Diluted net earnings per share as reported in the first quarter of 2004 $ 0.31
=============
Restated diluted net earnings per share (according to SFAS No. 123) $ 0.30
=============
-11-
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
--------------------------------------------------------------------------------
U. S. dollars (In thousands)
NOTE 4 - INVENTORIES, NET OF ADVANCES
MARCH 31, DECEMBER 31,
2005 2004
-------- --------
(UNAUDITED) (AUDITED)
-------- --------
Cost of long-term contracts in progress $285,959 $254,009
Raw materials 75,611 71,813
Advances to suppliers and subcontractors 21,147 21,164
-------- --------
382,717 346,986
Less - Cost incurred on contracts in progress
deducted from customer advances 31,506 14,533
-------- --------
351,211 332,453
Less -Advances received from customers 74,181 75,776
Provision for losses 9,249 7,636
-------- --------
$267,781 $249,041
======== ========
NOTE 5 - RECENTLY ISSUED ACCOUNTING STANDARDS
In March 2005, the SEC released SEC Staff Accounting Bulletin
No. 107, "Share-Based Payment" ("SAB 107"). SAB 107 provides
the SEC staff's position regarding the application of
Statement 123R, and contains interpretive guidance related to
the interaction between Statement 123R and certain SEC rules
and regulations and also provides the SEC staff's views
regarding the valuation of share-based payment arrangements
for public companies. SAB 107 highlights the importance of
disclosures made related to the accounting for share-based
payment transactions. The Company is currently reviewing the
effect of SAB 107; however, it does not believe that SAB 107
will have a material impact on its financial position, results
of operations or cash flow.
-12-
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
--------------------------------------------------------------------------------
U. S. dollars (In thousands)
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 2004
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.
A. Effect on net income and earnings per share
THREE MONTHS ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
-------- -------- --------
2005 2004 2004
-------- -------- --------
(UNAUDITED) (AUDITED)
-------- -------- --------
Net income as reported according to
according to U.S. GAAP $ 13,141 $ 12,252 $ 52,993
Adjustments to Israeli GAAP (1,522) (1,944) (458)
-------- -------- --------
Net income according to Israeli GAAP 11,619 $ 10,308 $ 52,535
======== ======== ========
B. Effect on shareholders' equity
AS PER
AS REPORTED ADJUSTMENTS ISRAELI GAAP
-------- -------- --------
AS OF MARCH 31, 2005 (UNAUDITED)
Shareholders' equity $443,519 $(17,207) $426,312
======== ======== ========
AS OF DECEMBER 31, 2004 (AUDITED)
Shareholders' equity $434,700 $(13,124) $421,576
======== ======== ========
# # # # # #
-13-