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 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 August 9, 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 June 30, 2005.
Attached hereto as Exhibit 3 and incorporated herein by reference is
the Registrant's consolidated audited financial statements for the quarter ended
June 30, 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: August 9, 2005
EXHIBIT INDEX
-------------
Exhibit No. Description
----------- -----------
1. Press release dated August 9, 2005.
2. Management report.
3. Financial statements
EXHIBIT 1
---------
EXHIBIT 1
ELBIT SYSTEMS REPORTS SECOND QUARTER 2005 RESULTS
Revenues Increased by 5.2% to $243.8 Million
Backlog of Orders Reached a New Record of $ 2.4 Billion
Excluding One-Time In Process R&D Write-Off Related to Tadiran Share Purchase,
Net Profit and EPS Reached $14.4 Million and $0.35, Respectively
Haifa, Israel, August 9, 2005 - Elbit Systems Ltd. (the "Company") (NASDAQ:
ESLT), the international defense company, today reported its consolidated
results for the second quarter ended June 30, 2005.
The Company's backlog of orders as of June 30, 2005 reached $2,401 million, an
11.5% increase as compared with $2,154 million at the end of 2004. Approximately
65% of the backlog relates to orders outside of Israel. Approximately 60% of the
Company's backlog as of June 30, 2005 is scheduled to be performed over the next
two quarters of 2005 and during 2006.
Consolidated revenues for the second quarter of 2005 increased by 5.2% to $243.8
million from $231.6 million in the second quarter of 2004.
Gross profit for the second quarter of 2005 was $66.1 million (27.1% of
revenues), as compared with gross profit of $59.9 million (25.9% of revenues) in
the second quarter of 2004.
Reported consolidated net income for the second quarter of 2005 was $10.9
million (4.5% of revenues), as compared with $13.3 million (5.7% of revenues) in
the second quarter of 2004. Reported diluted earnings per share for the second
quarter of 2005 were $0.26, as compared with $0.33 for the second quarter of
2004.
Excluding the one time in-process R&D write-off related to the Tadiran
Communications Ltd. ("Tadiran") share purchase, the Company's net income for the
second quarter of 2005 was $14.4 million (or 5.9% of revenues) and the diluted
EPS was $0.35.
As previously reported, the Company's financial results for the second quarter
of 2005 were affected by its acquisition of Tadiran shares from Koor Industries
Ltd. ("Koor"). As a result of the completion of the first stage of the agreement
to acquire Koor's holdings in Tadiran, and the adoption of the required
accounting standards, the Company recorded a $5.6 million expense in
the second quarter of 2005, which was partially offset by its share in Tadiran's
net profit for the second quarter of 2005, resulting in a $3.2 million net
expense for the quarter. All the effects of the Tadiran transaction are recorded
as part of the Company's earnings from affiliated companies on its income
statement
During the first six months of 2005 the Company produced an operating cash flow
of $85.8 million.
The President and CEO of Elbit Systems, Joseph Ackerman, commented: "The second
quarter results indicate the continued growth of our revenues, profits and
backlog of orders. Our strategic growth plan continues on course as we progress
with the Elisra and Tadiran acquisitions, and we believe that both acquisitions,
involving leading companies in their respective fields, will enable all of us to
be even more competitive in the international defense markets. In the meantime
we continue to carry out our higher than usual investments in R&D with the
expectation that our efforts will contribute to our future growth. We are also
very pleased with the recent Watchkeeper contract signed by Thales, in which
Elbit will play a significant role, and expect that it will solidify our
position in the growing global UAV market, enhancing our presence in major
defense programs."
The Board of Directors declared a dividend of $0.13 per share for the second
quarter of 2005. The dividend's record date is September 6, 2005, and the
dividend will be paid on September 19, 2005, net of taxes and levies, at the
rate of 22.1%.
Conference Call
The Company will be hosting a webcast and conference call today, August 9th at
9:30 am 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 0600
INTERNATIONAL Dial-in Number: +972 3 918 0600
At: 09:30am Eastern Standard Time, 6:30am Pacific Standard Time, 2:30pm UK Time
or 4:30pm 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:
1-888-269-0005 (US) or +972-3-925-5945 (international and Israel)
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
and 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)
ELBIT SYSTEMS LTD.
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousand of US Dollars)
June 30 December 31
2005 2004
--------- ---------
Unaudited (*) (**)
Assets
Current Assets:
Cash and short term deposits 55,051 34,847
Trade receivable and others 243,654 *267,903
Inventories, net of advances 296,603 249,041
--------- ---------
Total current assets 595,308 551,791
Affiliated companies & other investments 129,142 *59,618
Long-term receivables & others 82,836 85,100
Fixed assets, net 252,990 244,288
Other assets, net 94,017 95,987
--------- ---------
1,154,293 1,036,784
========= =========
Liabilities and Shareholder's Equity
Current liabilities 434,010 378,450
Long-term liabilities 269,243 221,810
Minority Interest 4,067 4,340
Shareholder's equity 446,973 *432,184
--------- ---------
1,154,293 1,036,784
========= =========
* Restated due to the Tadiran share purchase transaction
** Derived from the Company's 2004 audited financial statements
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 30 December 31
2005 **2004 2005 **2004 2004
------- ------- ------- ------- -------
Unaudited Unaudited (*) (***)
Revenues 474,470 445,317 243,782 231,645 939,925
Cost of revenues 346,821 328,839 177,695 171,759 689,626
------- ------- ------- ------- -------
Gross Profit 127,649 116,478 66,087 59,886 250,299
Research and development, net 32,961 27,027 17,795 13,733 66,846
Marketing and selling 34,386 35,160 17,740 18,662 69,912
General and administrative 25,424 22,731 12,932 11,169 47,832
------- ------- ------- ------- -------
Total operating expenses 92,771 84,918 48,467 43,564 184,590
------- ------- ------- ------- -------
Operating income 34,878 31,560 17,620 16,322 65,709
Financial expenses, net (3,197) (1,301) (1,466) (822) (5,852)
Other income, net (185) (84) (75) (299) 770
------- ------- ------- ------- -------
Income before income taxes 31,496 30,175 16,079 15,201 60,627
Taxes on income 8,043 7,779 4,056 3,704 15,219
------- ------- ------- ------- -------
23,453 22,396 12,023 11,497 45,408
Company's share of partnerships and
affiliated companies income, net (127) 2,970 (1,168) 1,612 *6,645
Minority rights 273 188 54 193 (180)
------- ------- ------- ------- -------
Net income 23,599 25,554 10,909 13,302 *51,873
Earnings per share
Basic net earnings per share $ 0.58 $ 0.64 $ 0.27 $ 0.33 *$1.30
======= ======= ======= ======= =======
Diluted net earnings per share $ 0.57 $ 0.63 $ 0.26 $ 0.33 *$1.26
======= ======= ======= ======= =======
* Restated due to the Tadiran share purchase transaction
** Restated due to the adoption of SFAS 123
*** Derived from the Company's 2004 audited financial statements
EXHIBIT 2
---------
Elbit Systems Ltd.
------------------
Management's Report
-------------------
For The Three and Six-Month Period Ended June 30, 2005
------------------------------------------------------
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, 2005, 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, 2004, 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 and its subsidiaries (the "Group") operate in the area of
upgrading existing airborne, ground and naval defense platforms and are
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 Group 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 ("C(4)ISR")
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 Group provides a wide range of logistic support services, including
operation of pilot training services for the Israeli Air Force on a
private financing initiative basis. Several of the Group's companies
also provide advanced engineering and manufacturing services to various
customers, utilizing their significant manufacturing capabilities. The
Group often cooperates with industries in Israel and in various other
countries.
The Group 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 Group provides customers with cost-effective
solutions, and its customers are able to improve their technological
and operational capabilities within limited defense budgets.
1
The Group 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.
Financial Highlights
--------------------
The Company's revenues increased by 5.2% and reached $243.8 million in
the second quarter of 2005, as compared to $231.6 million in the second
quarter of 2004.
Net earnings in the second quarter of 2005 were $10.9 million and the
diluted earnings per share were $0.26, as compared to $13.3 million and
$0.33 in the second quarter of 2004. Excluding the In Process Research
and Development ("IPR&D") write-off of approximately $3.5 million
related to the acquisition of Tadiran Communications Ltd.'s shares, net
earning in the quarter ended June 30, 2005 were $ 14.4 million, and the
diluted EPS was $0.35.
The Company's backlog as of June 30, 2005 reached $2.4 billion, as
compared to $2.15 billion as of December 31, 2004.
The Company's cash flow generated from operations in the six-month
period ended June 30, 2005 was $85.8 million, as compared to $55.4
million in the six-month period ended June 30, 2004.
The Board of Directors declared a dividend of $0.13 per share for the
second quarter.
B. Recent Events
-------------
On August 4, 2005, the UK Ministry of Defence (MoD) and Thales UK
signed a contract worth (pound)700 million for the Development,
Manufacture and Initial Support phases of the WATCHKEEPER programme.
Elbit Systems and Thales UK are establishing a Joint Venture aimed at
executing a significant part of the WATCHKEEPER programme and
addressing the rapidly growing UAV market worldwide.
The Elbit Systems Group expects to receive a significant part of the
contract, valued at around (pound)300 million, the majority to be
executed by the Leicester-based Joint Venture. The Joint Venture's
contract is expected to be signed this year.
WATCHKEEPER will provide the UK armed forces with an essential
Intelligence, Surveillance, Target Acquisition and Reconnaissance
(ISTAR) capability based on the Hermes 450 UAV system and will be a key
component of the UK's Network Enabled Capability (NEC). This programme
will deliver equipment, training and facilities, with the capability
coming into service from 2010.
C. Backlog of Orders
-----------------
The Company's backlog of orders as of June 30, 2005 reached $2,401
million, of which 65% was for orders outside Israel. The Company's
backlog as of December 31, 2004 was $2,154 million, of which 66% was
for orders outside Israel.
2
Approximately 60% of the Company's backlog as of June 30, 2005 is
scheduled to be performed in the following two quarters of 2005 and
during 2006. The majority of the 40% of the Company's backlog balance
is scheduled to be performed in 2007 and 2008.
D. 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.
E. 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 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
three quarters of 2004 were restated for purposes of comparison, as
follows:
Q1/04 Q2/04 1-6/04
Net income as previously reported in 2004 ----- ----- ------
Restated net income (according to SFAS No. 123) $ 12,727 $ 11,311 $ 24,038
======== ======== ========
Diluted net earnings per share as reported in 2004 $ 12,252 $ 13,302 $ 25,554
======== ======== ========
Restated diluted net earnings per share (according to SFAS No. 123) $ 0.31 $ 0.28 $ 0.59
======== ======== ========
$ 0.30 $ 0.33 $ 0.63
======== ======== ========
F. Tadiran Communications Ltd. Share Purchase Effect
-------------------------------------------------
On April 18, 2005, the Company completed the first stage of the
transaction to purchase shares of Tadiran Communications Ltd.
("Tadiran") 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. In addition to the shares previously purchased by Elbit
Systems in the stock market, it now holds approximately 21% of
Tadirans' shares. The Company purchased Tadiran shares from Koor in
consideration for approximately $62.5 million. As a result of the
Company obtaining shareholder rights to exercise significant influence
over Tadiran, as defined in the applicable accounting standards, the
Company's investment in Tadiran, which had been previously accounted
for as "available-for-sale securities", were accounted for,
retroactively, under the equity method of accounting ("step-by-step
acquisition"). Implementing the step-by-step acquisition method
resulted in a restatement of the Company's prior financial results for
the last quarter of 2004 and the first quarter of 2005, in which the
Company's investment in Tadiran was accounted for as available-for-sale
securities.
Accordingly, the Company's net income for the fourth quarter of 2004
and the first quarter of 2005 were reduced by approximately $1.1
million and $0.5 million, respectively. As a result, the Company's net
income was restated as $13 million for the fourth quarter of 2004 and
$12.6 million for the first quarter of 2005, rather than the reported
net income of $14.1 million and $13.1 million, respectively.
3
The excess of the amount paid for the Tadiran shares acquired until the
end of the second quarter of 2005 over their book value is
approximately $62 million. Based on a purchase price allocation
analysis ("PPA") performed by independent advisors, this excess was
attributed as follows:
$M Expected useful lives
-- ---------------------
In Process R&D ("IPR&D") 5.0 immediate write-off
Inventory 1.5 Up to a quarter
Other tangible assets net of liabilities 0.5 5 years
Brand name 4.0 15 years
Customer base and backlog 20.0 2-10 years
Technology 12.0 10 years
Goodwill 19.0 Indefinite - subject to annual impairment test
-----
62.0
=====
The effect of the above transaction on the Company's results for the
last quarter of 2004 and for the first and the second quarters of 2005,
which were reflected as part of the Company's equity in net earnings of
affiliated companies, was as follows:
Q4/04 Q1/05 Q2/05 Total
----- ----- ----- -----
IPR&D write-off (1.0) (0.5) (3.5) (5.0)
Inventory (0.2) (0.2) (1.1) (1.5)
amortization
Other tangible and intangible assets amortization (0.2) (0.4) (1.0) (1.6)
--------- ------------ ----------- -----------
(1.4) (1.1) (5.6) (8.1)
Company's portion in Tadiran's profit
(according to US GAAP) 0.3 0.6 2.4 3.3
--------- ------------ ----------- -----------
Net effect (1.1) (0.5) (3.2) (4.8)
========= ============ =========== ===========
Further effects on the Company's financial results are expected to
occur in the event of the consummation of the additional purchases of
Tadiran shares from Koor in accordance with the amendments to the
agreements with Koor, announced on July 6, 2005, as well as the
purchase of Koor's shares in Elisra Electronic Systems Ltd. ("Elisra")
(see section G below), subject to receipt of the required approvals.
The effect on the Company's financial results of future purchases of
shares of Tadiran as well as the anticipated purchase of shares in
Elisra will be reported following completion of the respective
purchases.
G. Acquisition of Elisra Shares and Amendment to the Tadiran Acquisition
---------------------------------------------------------------------
On July 6, 2005, the Company reported that it signed an agreement with
Koor to acquire all of Koor's 70% holdings in Elisra, in consideration
of $70 million in cash. In addition, the parties agreed on additional
conditional consideration as a result of future insurance proceeds
relating to the fire at Elisra's plant in 2001. Moreover, Koor received
the right to purchase from Elisra, at an agreed upon price, Dekolink
Wireless Ltd., a start-up company engaged in the cellular networks
area, that is wholly-owned by Elisra. The acquisition agreement
relating to Elisra is subject to the receipt of the approval of Elbit
Systems' shareholders as well as governmental authorities, including
the Israel Antitrust Authority.
4
Concurrently with the signing of the agreement to acquire Koor's
holdings in Elisra, Elbit Systems and Koor agreed to amend their
agreements regarding the purchase of Koor's holdings of Tadiran.
Pursuant to the amendment, Elbit Systems will accelerate the
acquisition from Koor of approximately 5% of Tadiran's shares, out of a
total of 18.2% of Tadiran's shares that Elbit Systems agreed to acquire
as part of the second stage of the agreement entered into between Elbit
Systems and Koor on December 27, 2004. Upon completion of this step,
Elbit Systems and Koor will have equal representation on Tadiran's
board of directors. Joseph Ackerman, Elbit Systems President, will be
appointed as Chairman of Tadiran's Board for a 24-month period and the
provisions of the shareholders agreement relating to joint control in
Tadiran will enter into effect.
The price to be paid by Elbit Systems for the Tadiran shares will be
the price agreed to in the original agreement with Koor.
The agreement for the acquisition of Koor's holdings in Elisra and the
amendments regarding the acquisition of Koor's shares in Tadiran, were
signed following receipt of approval of Elbit Systems' Audit Committee
and Board of Directors that obtained a fairness opinion from an
independent appraiser regarding the consideration to be paid for the
Elisra shares.
The purchase of the approximately 5% of Tadiran's shares by Elbit
Systems will take place following approval of Elbit Systems'
shareholders at a general shareholders meeting of the Elisra
transaction and the amendments to Tadiran transaction agreements. Upon
completion of that stage, Elbit Systems will hold a total of
approximately 26% of Tadiran's shares, including approximately 7% that
were purchased on the stock market.
Upon completion of the Elisra transaction, Elbit Systems will complete
the purchase of Koor's remaining shares in Tadiran - approximately 13%
- reaching a total of approximately 39% of Tadiran's shares based on
Elbit Systems' current shareholdings.
5
H. 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, 2005 and June 30, 2004. The results of the three and six
months of 2004 and of the first quarter of 2005 reflect restatements,
regarding the Tadiran's share acquisition and the stock-based
compensation (see above).
For the six months ended For the three months ended
June 30 June 30
---------------------------------------------- -------------------------------------------
2005 2004 2005 2004
------------------- ------------------- ------------------- -------------------
$ % $ % $ % $ %
- - - - - - - -
(In thousands of U.S. dollars except per share data)
Total revenues 474,470 100.0 445,317 100.0 243,782 100.0 231,645 100.0
Cost of revenues 346,821 73.1 328,839 73.8 177,695 72.9 171,759 74.1
------- ---- ------- ---- ------- ---- ------- ----
Gross profit 127,649 26.9 116,478 26.2 66,087 27.1 59,886 25.9
------- ---- ------- ---- ------- ---- ------- ----
Research and development
(R&D) expenses 42,053 8.9 32,697 7.3 22,153 9.1 16,236 7.0
Less - participation (9,092) (1.9) (5,670) (1.3) (4,358) (1.8) (2,503) (1.1)
------- ---- ------- ---- ------- ---- ------- ----
R&D expenses, net 32,961 7.0 27,027 6.1 17,795 7.3 13,733 5.9
Marketing and selling expenses 34,386 7.2 35,160 7.9 17,740 7.3 18,662 8.1
General and administrative expenses 25,424 5.4 22,731 5.1 12,932 5.3 11,169 4.8
------- ---- ------- ---- ------- ---- ------- ----
92,771 19.6 84,918 19.1 48,467 19.9 43,564 18.8
------- ---- ------- ---- ------- ---- ------- ----
Operating income 34,878 7.3 31,560 7.1 17,620 7.2 16,322 7.0
Finance expenses, net (3,197) (0.7) (1,301) (0.3) (1,466) (0.6) (822) (0.4)
Other expenses, net (185) -- (84) -- (75) (299) (0.1)
------- ---- ------- ---- ------- ---- ------- ----
Income before taxes on income 31,496 6.6 30,175 6.8 16,079 6.6 15,201 6.6
Taxes on income 8,043 1.7 7,779 1.8 4,056 1.7 3,704 1.6
------- ---- ------- ---- ------- ---- ------- ----
23,453 4.9 22,396 5.0 12,023 4.9 11,497 5.0
Minority interest in losses (gains)
of subsidiaries 273 0.1 188 -- 54 -- 193 0.1
Equity in net earnings of affiliated
companies and partnership (127) -- 2,970 0.7 (1,168) (0.4) 1,612 0.7
------- ---- ------- ---- ------- ---- ------- ----
Net earnings 23,599 5.0 25,554 5.7 10,909 4.5 13.302 5.7
======= ==== ======= ==== ======= ==== ======= ====
Diluted earnings per share 0.57 0.63 0.26 0.33
======= ======= ======= =======
6
Revenues
--------
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 mainly as a result of the temporary reduction in the
land systems area of operations, while revenues in all other
geographical regions increased.
Three Months Ended on June 30, 2005, Compared to Three Months Ended on
June 30, 2004
-----------------------------------------------------------------------
The consolidated revenues increased by 5.2% from $231.6 million in the
second quarter of 2004 to $243.8 million in the second quarter of 2005.
The following table sets forth the Company's revenue distribution by
areas of operation:
Three-Month Period ended
----------------------------------------------
June 30, 2005 June 30, 2004
-------------------- -------------------
$ millions % $ millions %
Airborne systems 93.4 38.3 94.4 40.7
Land systems 33.2 13.6 48.7 21.0
C(4)ISR systems 44.1 18.1 27.8 12.0
Electro-optics 56.3 23.1 44.6 19.3
Other (mainly non-defense engineering and
production services) 16.8 6.9 16.1 7.0
----- ----- ----- -----
Total 243.8 100.0 231.6 100.0
===== ===== ===== =====
The following table sets forth the Company's distribution of revenues
by geographic regions:
Three-Month Period ended
----------------------------------------------
June 30, 2005 June 30, 2004
-------------------- -------------------
$ millions % $ millions %
Israel 77.9 31.9 56.6 24.4
United States 87.9 36.1 87.3 37.7
Europe 18.4 7.5 33.6 14.5
Other countries 59.6 24.5 54.1 23.4
----- ----- ----- -----
Total 243.8 100.0 231.6 100.0
===== ===== ===== =====
Six Months Ended on June 30, 2005, Compared to Six Months Ended on June
30, 2004
-----------------------------------------------------------------------
The Company's consolidated revenues increased by 6.6%, from $445.3
million in the first six months of 2004 to $474.5 million in the first
six months of 2005.
7
The following table sets forth the Company's revenue distribution by
areas of operation:
Six-Month Period ended
----------------------------------------------
June 30, 2005 June 30, 2004
-------------------- -------------------
$ millions % $ millions %
Airborne systems 194.4 41.0 178.7 40.1
Land systems 59.2 12.5 100.5 22.6
C(4)ISR systems 88.1 18.5 57.3 12.9
Electro-optics 99.5 21.0 85.0 19.1
Other (mainly non-defense engineering and
production services) 33.3 7.0 23.8 5.3
----- ----- ----- -----
Total 474.5 100.0 445.3 100.0
===== ===== ===== =====
The following table sets forth the Company's distribution of revenues
by geographic regions:
Six-Month Period ended
----------------------------------------------
June 30, 2005 June 30, 2004
-------------------- -------------------
$ millions % $ millions %
Israel 145.1 30.6 110.5 24.8
United States 177.5 37.4 166.7 37.4
Europe 34.5 7.3 65.7 14.8
Other countries 117.4 24.7 102.4 23.0
----- ---- ----- ----
Total 474.5 100.0 445.3 100.0
===== ===== ===== =====
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.
Three Months Ended on June 30, 2005, Compared to Three Months Ended on
June 30, 2004
-----------------------------------------------------------------------
The Company's gross profit in the quarter ended June 30, 2005 was $66.1
million as compared to $59.9 million in the quarter ended June 30,
2004. The gross profit margin in the second quarter of 2005 was 27.1%
as compared to 25.9% 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, which included in the second
quarter of 2005 certain programs with a relatively higher gross profit.
Six Months Ended on June 30, 2005, Compared to Six Months Ended on June
30, 2004
-----------------------------------------------------------------------
The Company's gross profit in the six months ended June 30, 2005 was
$127.6 million as compared to $116.5 million in the six months ended
June 30, 2004. The gross profit margin in the six months ended June 30,
2005 was 26.9% as compared to 26.2% 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.
8
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 strategy 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.
Further to the trend that began in the fourth quarter of 2004, the
Company increased its R&D efforts, mainly in the areas of Airborne,
Land and Electro-Optics Systems, for the development of advanced
technologies and products to meet expected market requirements.
Three Months Ended on June 30, 2005, Compared to Three Months Ended on
June 30, 2004
-----------------------------------------------------------------------
Gross R&D expenses in the quarter ended June 30, 2005 totaled $22.2
million (9.1% of revenues), as compared to $16.2 million (7.0% of
revenues) in the quarter ended June 30, 2004.
Net R&D expenses (after deduction of third party participation,
including the IMOD and the OCS) in the quarter ended June 30, 2005
totaled $17.8 million (7.3% of revenues), as compared to $13.7 million
(5.9% of revenues) in the quarter ended June 30, 2004.
Six Months Ended on June 30, 2005, Compared to Six Months Ended on June
30, 2004
-----------------------------------------------------------------------
Gross R&D expenses in the six months ended June 30, 2005 totaled $42.1
million (8.9% of revenues), as compared to $32.7 million (7.3% of
revenues) in the six months ended June 30, 2004.
Net R&D expenses (after deduction of third party participation,
including the IMOD and the OCS) in the six months period ended June 30,
2005 totaled $33.0 million (6.9% of revenues), as compared to $27.0
million (6.1% of revenues) in the six months period ended June 30,
2004.
Marketing and Selling Expenses
------------------------------
The Company maintains its activities in developing new markets and
pursues various business opportunities according to the Company's plan.
Three Months Ended on June 30, 2005, Compared to Three Months Ended on
June 30, 2004
-----------------------------------------------------------------------
Marketing and selling expenses in the quarter ended June 30, 2005 were
$17.7 million (7.3% of revenues), as compared to $18.7 million (8.1% of
revenues) in the quarter ended June 30, 2004.
Six Months Ended on June 30, 2005, Compared to Six Months Ended on June
30, 2004
-----------------------------------------------------------------------
Marketing and selling expenses in the six months ended June 30, 2005
were $34.4 million (7.2% of revenues), as compared to $35.2 million
(7.9% of revenues) in the six months ended June 30, 2004.
9
General and Administrative ("G&A") Expenses
-------------------------------------------
Three Months Ended on June 30, 2005, Compared to Three Months Ended on
June 30, 2004
-----------------------------------------------------------------------
G&A expenses were $12.9 million (5.3% of revenues) in the quarter ended
June 30, 2005, as compared to $11.2 million (4.8% of revenues) in the
quarter ended June 30, 2004.
Six Months Ended on June 30, 2005, Compared to Six Months Ended on June
30, 2004
-----------------------------------------------------------------------
G&A expenses were $25.4 million (5.4% of revenues) in the six months
ended June 30, 2005, as compared to $22.7 million (5.1% of revenues) in
the six months ended June 30, 2004.
Finance Expense (Net)
---------------------
The increase in the net finance expense resulted mainly from a higher
level of long-term loans, currency exchange rate differences and an
increase in market interest rates.
Three Months Ended on June 30, 2005, Compared to Three Months Ended on
June 30, 2004
-----------------------------------------------------------------------
Net finance expense in the quarter ended June 30, 2005 was $1.5
million, as compared to $0.8 million of finance expense in the quarter
ended June 30, 2004.
Six Months Ended on June 30, 2005, Compared to Six Months Ended on June
30, 2004
-----------------------------------------------------------------------
Net finance expense in the six months ended June 30, 2005 was $3.2
million, as compared to $1.3 million of finance expense in the six
months ended June 30, 2004.
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 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.
On July 25, 2005, the Knesset (Israeli Parliament) passed the Law for
the Amendment of the Income Tax Ordinance (No. 147), 2005, which
prescribes, among other provisions, a gradual decrease in the corporate
tax rate in Israel to the following tax rates: in 2006 - 31%, in 2007 -
29%, in 2008 - 27%, in 2009 - 26% and in 2010 and thereafter - 25%.
According to US GAAP accounting rules, the effect of the amendment will
be included in the third quarter of 2005. The Company estimates that
the amendment is not expected to have a material effect on the
Company's financial position and results of operations in 2005.
Three Months Ended on June 30, 2005, Compared to Three Months Ended on
June 30, 2004
-----------------------------------------------------------------------
Provision for taxes in the quarter ended June 30, 2005 was $4.1 million
(effective tax rate of 25.2%), as compared to a provision for taxes of
$3.7 million (effective tax rate of 24.4%) in the quarter ended June
30, 2004.
10
Six Months Ended on June 30, 2005, Compared to Six Months Ended on June
30, 2004
-----------------------------------------------------------------------
Provision for taxes in the six months ended June 30, 2005 was $8.0
million (effective tax rate of 25.5%), as compared to a provision for
taxes of $7.8 million (effective tax rate of 25.8%) in the six months
ended June 30, 2004.
Company's Share in Earnings of Affiliated Entities
--------------------------------------------------
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. This includes the Company's share in the earnings of Tadiran,
and reflects the impact of the corresponding purchase price allocation
adjustments described above.
Three Months Ended on June 30, 2005, Compared to Three Months Ended on
June 30, 2004
-----------------------------------------------------------------------
In the second quarter of 2005 the Company had net expense of $1.2
million from its share in earnings of affiliated companies and
partnership, as compared to net income of $1.6 million in the second
quarter of 2004.
Six Months Ended on June 30, 2005, Compared to Six Months Ended on June
30, 2004
-----------------------------------------------------------------------
In the six months ended June 30, 2005 the Company had net expense of
$0.1 million from its share in earnings of affiliated companies and
partnership, as compared to net income of $3.0 million in the six
months ended June 30, 2004.
Net Earnings and Earnings Per Share ("EPS")
-------------------------------------------
Three Months Ended on June 30, 2005, Compared to Three Months Ended on
June 30, 2004
-----------------------------------------------------------------------
Net earnings in the quarter ended June 30, 2005 were $10.9 million
(4.5% of revenues), as compared to reported net earnings of $13.3
million (5.7% of revenues) in the quarter ended June 30, 2004. Diluted
EPS in the quarter ended June 30, 2005 was $0.26, as compared to $0.33
in the quarter ended June 30, 2004.
Excluding the IPR&D write-off related to Tadiran, which amounted to
approximately $3.5 million, net earnings in the quarter ended June 30,
2005 were $14.4 million (5.9% of revenues), and the diluted EPS was
$0.35.
The number of shares used for computation of diluted EPS in the quarter
ended June 30, 2005 was 41,617 thousand shares, as compared to 40,892
thousand shares in the quarter ended June 30, 2004.
Six Months Ended on June 30, 2005, Compared to Six Months Ended on June
30, 2004
-----------------------------------------------------------------------
Net earnings in the six months ended June 30, 2005 were $23.6 million
(5.0% of revenues), as compared to net earnings of $25.6 million (5.7%
of revenues) in the six months ended June 30, 2004. Diluted EPS in the
six months ended June 30, 2005 was $0.57, as compared to $0.63 per
share in the six months ended June 30, 2004.
11
Excluding the IPR&D write-off related to Tadiran, which amounted to
approximately $4.0 million, net earnings in the six months ended June
30, 2005 were $27.6 million (5.8% of revenues), and the diluted EPS was
$0.66.
The number of shares used for computation of diluted EPS in the six
months ended June 30, 2005 was 41,617 thousand shares, as compared to
40,805 thousand shares in the six months ended June 30, 2004.
I. Liquidity and Capital Resources
-------------------------------
The Company's net cash flow generated from operating activities in the
six months ended June 30, 2005 was $85.8 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 six months ended
June 30, 2005 was $101.1 million, which was used mainly for acquisition
of Tadiran's shares and for procurement of various assets and
equipment.
Net cash flow from financing activities in the six months ended June
30, 2005 was $35.0 million, which was mainly from receipt of long-term
loans.
On June 30, 2005, the Company had total borrowings in the amount of
$140.2 million, including $128.7 million in long-term loans, and $440.9
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, 2005, the Company had a cash balance
amounting to $53.9 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 June 30, 2005, the Company and its subsidiaries are in
full compliance with all such covenants.
As of June 30, 2005, the Company had working capital of $161 million
and its current ratio was 1.37. The Company's ratio of equity to total
assets was 38.7%.
J. 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 June 30, 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. 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.
12
The Company's functional currency is the U.S. dollar. On June 30, 2005,
the Company had exposure due to liabilities denominated in NIS of $62.8
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
June 30, 2005 by forward contracts and options. On June 30, 2005, the
Company had forward contracts for the sale and purchase of such foreign
currencies totaling $32.2 million ($19.2 million in Euro, $5.9 million
in GBP and $7.1 million in other currencies). The results of financial
derivative activities in this quarter were not material.
K. Resignation of a Director
-------------------------
On August 2, 2005, the Company reported that Mr. Aharon Beth-Halachmi
submitted his resignation from the Company's Board of Directors
effective as of July 31, 2005. The resignation was submitted in
connection with the Company's compliance with Sarbanes-Oxley Act and
Nasdaq Listing Requirements relating to independence criteria for
boards of directors. Mr. Beth-Halachmi will serve as a special advisor
to the Chairman of the Company's Board of Directors.
L. Dividends
---------
The Board of Directors declared on August 8, 2005 dividend of $0.13 per
share.
* * * * *
13
EXHIBIT 3
---------
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
AS OF JUNE 30, 2005
-------------------
(Unaudited)
(In thousands of U.S. dollars)
C O N T E N T S
P a g e
-------
CONDENSED INTERIM 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 - 16
# # # # # #
1
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. dollars (in thousands)
June 30, December 31,
2005 2004
----------- ------------
(Unaudited) (**)
CURRENT ASSETS:
Cash and cash equivalents $ 53,855 $ 34,109
Short-term bank deposits 1,196 738
Trade receivables, (net of allowance for doubtful
accounts in the amount of $2,890 and $3,064 as of June 30,
2005 and December 31, 2004, respectively) 189,599 214,816
Other receivables and prepaid expenses 54,055 *53,087
Inventories, net of advances 296,603 249,041
---------- ----------
Total current assets 595,308 551,791
---------- ----------
INVESTMENTS AND LONG-TERM RECEIVABLES:
Investments in affiliated companies and a partnership 117,397 *47,873
Investments in other companies 11,745 11,745
Long-term bank deposits and trade receivables 1,595 2,102
Severance pay fund 81,241 82,998
---------- ----------
211,978 144,718
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, NET 252,990 244,288
---------- ----------
INTANGIBLE ASSETS:
Goodwill 33,716 33,706
Other intangible assets, net 60,301 62,281
---------- ----------
94,017 95,987
---------- ----------
$1,154,293 $1,036,784
========== ==========
* Restated (See Note 1B)
** Derived from the Company's 2004 audited financial statements
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, except share and per share data)
June 30, December 31,
2005 2004
----------- ------------
(Unaudited) (**)
----------- ------------
CURRENT LIABILITIES:
Short-term bank credit and loans $ 8,581 $ 8,592
Current maturities of long-term loans 2,914 1,656
Trade payables 111,006 118,391
Other payables and accrued expenses 159,261 169,702
Customers advances and amounts in excess of
costs incurred on contracts in progress 152,248 80,109
----------- ------------
Total current liabilities 434,010 378,450
----------- ------------
LONG-TERM LIABILITIES:
Long-term loans 128,681 86,234
Advances from customers 19,099 10,320
Deferred income taxes 24,082 24,516
Accrued termination liability 97,381 100,740
----------- ------------
269,243 221,810
----------- ------------
MINORITY INTERESTS 4,067 4,340
----------- ------------
SHAREHOLDERS' EQUITY:
Share capital
Ordinary shares of New Israeli Shekels (NIS)
1 par value; Authorized 80,000,000 shares
as of June 30, 2005 and December 31, 2004;
Issued - 41,154,632 and 40,969,947 shares as
of June 30, 2005 and December 31, 2004
respectively; Outstanding -- 40,745,711
and 40,561,026 shares as of June 30, 2005 and
December 31, 2004, respectively 11,590 11,548
Additional paid-in capital 276,461 274,432
Accumulated other comprehensive loss (5,064) *(4,742)
Retained earnings 168,307 *155,267
Treasury shares - 408,921 shares as of June 30,
2005 and December 31, 2004 (4,321) (4,321)
----------- ------------
446,973 *432,184
----------- ------------
$ 1,154,293 $ 1,036,784
=========== ============
* Restated (See Note 1B)
** Derived from the Company's 2004 audited financial statements
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)
Six months ended Three months ended Year ended
June 30, June 30, December 31,
------------------------------ ------------------------------- ---------------
2005 **2004 2005 **2004 2004
------------------------------ ------------------------------- ---------------
(Unaudited) (Unaudited) (***)
----------- ----------- -----
Revenues $ 474,470 $ 445,317 $ 243,782 $ 231,645 $ 939,925
Cost of revenues 346,821 328,839 177,695 171,759 689,626
--------- --------- --------- --------- -------
Gross profit 127,649 116,478 66,087 59,886 250,299
--------- --------- --------- --------- -------
Research and development costs, net 32,961 27,027 17,795 13,733 66,846
Marketing and selling expenses 34,386 35,160 17,740 18,662 69,912
General and administrative expenses 25,424 22,731 12,932 11,169 47,832
--------- --------- --------- --------- -------
92,771 84,918 48,467 43,564 184,590
--------- --------- --------- --------- -------
Operating income 34,878 31,560 17,620 16,322 65,709
Financial expenses, net (3,197) (1,301) (1,466) (822) (5,852)
Other income (expenses), net (185) (84) (75) (299) 770
--------- --------- --------- --------- -------
Income before taxes on income 31,496 30,175 16,079 15,201 60,627
Taxes on income 8,043 7,779 4,056 3,704 15,219
--------- --------- --------- --------- -------
23,453 22,396 12,023 11,497 45,408
Equity in net earnings of affiliated
companies and partnership (127) 2,970 (1,168) 1,612 *6,645
Minority interests in losses (earnings)
of subsidiaries 273 188 54 193 (180)
--------- --------- --------- --------- -------
Net income $ 23,599 $ 25,554 $ 10,909 $ 13,302 *$51,873
========= ========= ========= ========= =======
Earnings per share
Basic net earnings per share $ 0.58 $ 0.64 $ 0.27 $ 0.33 *$1.30
========= ========= ========= ========= =======
Diluted net earnings per share $ 0.57 $ 0.63 $ 0.26 $ 0.33 * $ 1.26
========= ========= ========= ========= =======
Number of shares used in computation of
basic net earnings per share 40,675 39,704 40,705 39,828 39,952
========= ========= ========= ========= =======
Number of shares used in computation of
Diluted net earnings per share 41,617 40,805 41,617 40,892 41,041
========= ========= ========= ========= =======
* Restated (See Notes 1B)
** Restated (See Note 3)
*** Derived from the Company's 2004 audited financial statements
The accompanying notes are an integral part of the
consolidated financial statements.
-4-
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------------
U.S. dollars (in thousands, except share data)
Accumulated
Number of Additional other
outstanding Share paid-in comprehensive
shares capital capital income (loss)
------------ ---------- ------------- -----------------
Balance as of January 1, 2004 39,337,204 $ 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) (152)
Tax benefit in respect of options exercised -- -- 1,179 --
Stock based compensation -- -- 3,387 --
Dividends paid -- -- -- --
Other comprehensive income (loss):
Unrealized gains on derivative
instruments -- -- -- (299)
Foreign currency translation differences -- -- -- 450
Minimum pension liability -- -- -- (901)
Net income -- -- -- --
------------ -------- --------- --------
Total comprehensive income
Balance as of December 31, 2004 40,561,026 $ 11,548 $ 274,432 $ (4,742)
Exercise of options 184,685 42 1,545 --
Tax benefit in respect of options exercised -- -- 484 --
Dividends paid -- -- -- --
Other comprehensive income (loss):
Unrealized gains on derivative
instruments -- -- -- 293
Foreign currency translation differences -- -- -- (615)
Net income -- -- -- --
------------ -------- --------- --------
Total comprehensive income
Balance as of June 30, 2005 (Unaudited) 40,745,711 $ 11,590 $ 276,461 $ (5,064)
=========== ========= ========== ========
Total Total
Retained Treasury shareholders' comprehensive
earnings shares equity income (loss)
------------ ------------ --------------- ---------------
Balance as of January 1, 2004 $ 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
Tax benefit in respect of options exercised -- -- 1,179
Stock based compensation -- -- 3,387
Dividends paid (86,692) -- (86,692)
Other comprehensive income (loss):
Unrealized gains on derivative
instruments -- -- (299) $ (299)
Foreign currency translation differences -- -- 450 450
Minimum pension liability -- -- (901) (901)
Net income 51,873 -- 51,873 51,873
------------ -------- --------- --------
Total comprehensive income 51,123
========
Balance as of December 31, 2004 $ 155,267 $ (4,321) $ 432,184
Exercise of options -- -- 1,587
Tax benefit in respect of options exercised -- -- 484
Dividends paid (10,559) -- (10,559)
Other comprehensive income (loss):
Unrealized gains on derivative
instruments -- -- 293 $ 293
Foreign currency translation differences -- -- (615) (615)
Net income 23,599 -- 23,599 23,599
------------ -------- --------- --------
Total comprehensive income $ 23,277
========
Balance as of June 30, 2005 (Unaudited) $ 168,307 $ (4,321) $ 446,973
=========== ========= ==========
The accompanying notes are an integral part of the
consolidated financial statements.
-5-
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------------
U.S. dollars (in thousands, except share data)
Accumulated
Number of Additional other
outstanding Share paid-in comprehensive
shares capital capital income (loss)
------------ ------------- ------------- ----------------
Balance as of January 1, 2004 39,337,204 $ 11,273 $ 259,033 $ (3,992)
----------- -------- --------- --------
Exercise of options 591,247 132 5,584 --
Tax benefit in respect of options exercised -- -- 691 --
Stock based compensation -- -- 1,845 --
Dividends paid -- -- -- --
Other 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) 39,928,451 $ 11,405 $ 267,153 $ (3,584)
=========== ======== ========= ========
Balance as of April 1, 2005
(Unaudited) 40,682,842 $ 11,576 $ 275,766 $ (4,705)
Exercise of options 62,869 14 498 --
Tax benefit in respect of options
exercised -- -- 197 --
Dividends paid -- -- -- --
Other comprehensive income (loss):
Unrealized gains on derivative
instruments 81
Foreign currency translation differences (440)
Net income -- -- -- --
----------- -------- --------- --------
Total comprehensive income
Balance as of June 30, 2005
(Unaudited) 40,745,711 $ 11,590 $ 276,461 $ (5,064)
=========== ======== ========= ========
Total Total
Retained Treasury shareholders' comprehensive
earnings shares equity income (loss)
------------ ------------ --------------- -----------------
Balance as of January 1, 2004 $ 190,086 $ (4,321) $ 452,079
Exercise of options -- -- 5,716
Tax benefit in respect of options exercised -- -- 691
Stock based compensation -- -- 1,845
Dividends paid (8,696) -- (8,696)
Other comprehensive income (loss):
Unrealized gains on derivative instruments -- -- 428 $ 428
Foreign currency translation differences -- -- (20) (20)
Net income 25,554 -- 25,554 25,554
----------- -------- --------- --------
Total comprehensive income $ 24,448
========
Balance as of June 30, 2004
(Unaudited) $ 206,944 $ (4,321) $ 477,597
=========== ======== =========
Balance as of April 1, 2005
(Unaudited) $ 162,661 $ (4,321) $ 440,977
Exercise of options -- -- 512
Tax benefit in respect of options
exercised -- -- 197
Dividends paid (5,263) -- (5,263)
Other comprehensive income (loss):
Unrealized gains on derivative
instruments 81 $ 81
Foreign currency translation differences (440) (440)
Net income 10,909 -- 10,909 10,909
----------- -------- --------- --------
Total comprehensive income $ 10,550
========
Balance as of June 30, 2005
(Unaudited) $ 168,307 $ (4,321) $ 446,973
=========== ======== =========
The accompanying notes are an integral part of the
consolidated financial statements.
-6-
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------------
U.S. dollars (in thousands, except share data)
Accumulated
Number of Additional other
outstanding Share paid-in comprehensive
shares capital capital income (loss)
------------ ------------- ------------- ----------------
Balance as of April 1, 2004
(Unaudited) 39,718,313 $ 11,358 $ 263,919 $ (3,942)
Exercise of options 210,138 47 2,032 --
Tax benefit in respect of options exercised -- -- 280 --
Amortization of deferred stock -- -- --
compensation 922
Dividend paid -- -- -- --
Other comprehensive income (loss):
Unrealized gains on derivative 522
instruments
Foreign currency translation differences -- -- -- (164)
Net income -- -- -- --
----------- -------- --------- ---------
Total comprehensive income
Balance as of June 30, 2004
(Unaudited) 39,928,451 $ 11,405 $ 267,153 $ (3,584)
=========== ======== ========= =========
Total Total
Retained Treasury shareholders' comprehensive
earnings shares equity income (loss)
------------ ------------ --------------- -----------------
Balance as of April 1, 2004
(Unaudited) $ 198,010 $ (4,321) $ 465,025
Exercise of options -- -- 2,079
Tax benefit in respect of options exercised -- -- 280
Amortization of deferred stock -- --
compensation 922
Dividend paid (4,369) -- (4,369)
Other comprehensive income (loss):
Unrealized gains on derivative -- -- 522 $ 522
instruments
Foreign currency translation differences -- -- (164) (164)
Net income 13,302 -- 13,302 13,302
----------- -------- --------- ---------
Total comprehensive income $ 13,660
=========
Balance as of June 30, 2004
(Unaudited) $ 206,944 $ (4,321) $ 477,597
=========== ======== =========
The accompanying notes are an integral part of the
consolidated financial statements.
-7-
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------------------------------------------
U.S. dollars (in thousands)
Six months ended Year ended
June 30, December 31,
--------------------------- ---------------
2005 2004 2004
------------- ------------- ---------------
(Unaudited) (***)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 23,599 $ 25,554 **$ 51,873
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 24,102 20,304 42,261
Stock based compensation - 1,845 3,387
Deferred income taxes (1,804) 1,653 153
Accrued severance pay, net (1,725) (833) (2,304)
Loss (gain) on sale of property and equipment (304) 16 143
Tax benefit in respect of options exercised 484 691 1,179
Minority interests in earnings (losses) of subsidiaries (273) (187) 180
Equity in net losses (earnings) of affiliated companies and
partnership, 4,265 681 **1,505
net of dividend received (*)
Changes in operating assets and liabilities:
Decrease (increase) in short and long-term receivables and
prepaid expenses 25,732 24,603 (16,871)
Decrease (increase) in inventories (63,529) (5,062) 2,932
Increase (decrease) in trade payables, other payables and
accrued (21,262) (5,216) 20,522
expenses
Increase (decrease) in advances received from customers 96,507 (7,308) (18,535)
Settlement of royalties with the Office of the Chief Scientist - (1,247) (3,714)
Other adjustments 45 (91) (1,228)
------------- ------------- ---------------
Net cash provided by operating activities 85,837 55,403 81,483
------------- ------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (30,017) (26,262) (53,008)
Acquisition of subsidiaries and businesses (Schedule A) (318) - (2,315)
Investments in affiliated companies and subsidiaries (74,782) (250) (18,391)
Proceeds from sale of property, plant and equipment 1,001 1,351 2,560
Proceeds from sale of investment 3,100 - -
Investment in long-term bank deposits (551) (167) (1,203)
Proceeds from sale of long-term bank deposits 945 317 1,507
Short-term bank deposits, net (458) 125 (48)
------------- ------------- ---------------
Net cash used in investing activities (101,080) (24,886) (70,898)
------------- ------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of options 1,587 5,716 11,260
Repayment of long-term bank loans (51,652) (12,222) (35,826)
Receipt of long-term bank loans 95,500 - 58,410
Dividends paid (10,559) (8,696) (86,692)
Change in short-term bank credit and loans, net 113 (1,135) 216
------------- ------------- ---------------
Net cash provided by (used in) financing activities 34,989 (16,337) (52,632)
------------- ------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 19,746 14,180 (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 $ 53,855 $ 90,336 $ 34,109
============= ============= ===============
(*) Dividend received $ 4,138 $ 3,651 $ 8,150
============= ============= ===============
(**) Restated (See Notes 1B and 3)
(***) Derived from the Company's 2004 audited financial statements
The accompanying notes are an integral part of the
consolidated financial statements.
-8-
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------------------------------------------
U.S. dollars (in thousands)
Six months ended Year ended
June 30, December 31,
------------------------- ---------------
2005 2004 2004
------------ ------------ ---------------
(Unaudited) (*)
SUPPLEMENTARY CASH FLOWS
ACTIVITIES:
Cash paid during the period for:
Income taxes $ 13,233 $ 6,614 $ 13,305
============ ============ ===============
Interest $ 3,193 $ 844 $ 3,122
============ ============ ===============
SCHEDULE A:
Subsidiaries and businesses acquired
Estimated net fair value of assets acquired and liabilities assumed at the
date of acquisition:
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)
============ ============ ===============
* Derived from the Company's 2004 audited financial statements
-9-
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
--------------------------------------------------------------------------------
U. S. dollars (In thousands)
Note 1 - GENERAL
A. The accompanying unaudited interim consolidated financial
statements have been prepared in a condensed format as of
June 30, 2005, and for the three and six 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 7 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, included in the Form 20-F for the
year ended 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 period presentation.
Comparative data in the condensed interim financial
statements for the three and six months ended June 30, 2004,
for the year ended December 31, 2004 and for the three
months ended March 31, 2005 have been restated (see Notes 1B
and 3).
Operating results for the three and six months ended June
30, 2005, are not necessarily indicative of the results that
may be expected for the year ending December 31, 2005.
B. 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 approximately a 32%
interest in Tadiran Communications, at a price of $37 per
share. This purchase was to be made concurrently with 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 was to have been made in
two stages, subject to the terms agreed upon between the
parties.
On April 18, 2005, the Company completed the first stage of
the transaction to purchase shares of Tadiran Communications
from Koor. The first stage of the transaction was completed
after all the precedent conditions were met 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 outstanding shares of Tadiran in consideration for $62.5
million. In addition to the shares previously purchased by
Elbit Systems in the stock market, it now holds
approximately 21% of Tadirans' shares. The total
consideration paid by the Company for the purchase of
Tadiran shares from Koor and in the stock market amounted to
approximately $90 million.
-10-
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
--------------------------------------------------------------------------------
U. S. dollars (In thousands, except per share data)
Note 1 - GENERAL (CONT.)
The excess of the amount paid for the Tadiran shares
acquired until the end of the second quarter of 2005 over
their book value is approximately $62 million. Based on a
purchase price allocation analysis ("PPA") performed by
independent advisors, this excess was attributed as follows:
$M Expected useful lives
-- ---------------------
In Process R&D ("IPR&D") 5.0 immediate write-off
Inventory 1.5 Up to a quarter
Other tangible assets and liabilities 0.5 5 years
Brand 4.0 15 years
name
Customer base and backlog 20.0 2-12 years
Technology 12.0 10 years
Goodwill 19.0 Indefinite - subject to annual impairment test
--------
62.0
========
As a result of the acquisition in the second quarter of
2005, the Company is able to execise significant influence
in Tadiran. In accordance with APB 18, "The Equity Method of
Accounting for Investments in Common Stock", the Company's
interest in Tadiran, which was previously accounted for as
available-for-sale securities, is accounted retroactively
under the equity method of accounting ("step-by-step
acquisition"). Implementing the step-by-step acquisition
method resulted in a restatement of the Company's financial
statements for all prior periods, in which the Company's
investment in Tadiran Communications was accounted for as
available-for-sale securities.
The following are the effects of the restatement:
(1) Consolidated balance sheet
December 31, 2004
-------------------------------------------
As Effect by As
reported restatement restated
-------- ----------- --------
Other receivables and prepaid expenses $ 52,335 $ 752 $53,087
Investment in affiliated companies and partnership 33,124 14,748 47,873
Available for sale securities 18,017 (18,017) -
Accumulated other comprehensive loss (3,346) (1,396) (4,742)
Retained earnings 156,387 (1,120) 155,267
Total shareholders' 434,700 (2,516) 432,184
equity
(2) Consolidated statement of income
Year ended December 31, 2004
-------------------------------------------
As Effect by As
reported restatement Restated
-------- ----------- --------
Equity in net earnings of affiliated companies
and partnership $ 7,765 $ (1,120) $ 6,645
Net income 52,993 (1,120) 51,873
Basic net earnings per share 1.33 (0.03) 1.30
Diluted net earnings per share 1.29 (0.03) 1.26
-11-
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
--------------------------------------------------------------------------------
U. S. dollars (In thousands)
Note 1 - GENERAL (CONT.)
C. On July 6, 2005, the Company reported that it signed an
agreement with Koor to acquire all of Koor's 70% holdings in
Elisra Electronic Systems Ltd. ("Elisra"), in consideration
for $70 million to be paid in the form of cash. The parties
also agreed on an additional contingent consideration as a
result of future insurance proceeds relating to the fire at
Elisra's plant in 2001. As part of the transaction, Koor may
purchase Dekolink Wireless Ltd. from Elisra at an agreed
upon price. Dekolink Wireless Ltd. is a start-up company
engaged in the cellular networks area that is wholly-owned
by Elisra. The acquisition agreement relating to Elisra is
subject to receipt of the Company's shareholders approval as
well as approvals from governmental authorities, including
the Israel Antitrust Authority.
Concurrently with signing the agreement to acquire Koor's
holdings in Elisra, the Company and Koor agreed to amend
their agreements regarding the Company's purchase of Tadiran
shares held by Koor. Pursuant to the amendment, the Company
will accelerate the acquisition from Koor of approximately
5% of Tadiran's outstanding shares, out of a total of 18.2%
of Tadiran outstanding shares that the Company agreed to
acquire as part of the second stage of the aforementioned
agreement. Upon completion of the acquisition of the 5%
interest in Tadiran, the Company and Koor will have equal
representation on Tadiran's board of directors, Joseph
Ackerman, Elbit Systems President, will be appointed as
Chairman of Tadiran's Board of Directors and the provisions
of the shareholders' agreement relating to joint control in
Tadiran will enter into effect.
The price to be paid by the Company for the Tadiran shares
will be the price agreed upon in the original agreement with
Koor signed on December 27, 2004.
The agreement for acquiring Koor's holdings in Elisra and
the amendments regarding the acquisition of Koor's shares in
Tadiran, were signed following the approval of the
transactions by the Company's Audit Committee and Board of
Directors, who obtained a fairness opinion from an
independent appraiser regarding the consideration to be paid
for the Elisra shares.
The purchase of the approximately 5% interest in Tadiran by
Elbit Systems will take place following the approval of the
Company's shareholders for the acquisition of Elisra and the
amendments to the Tadiran acquisition agreements. Following
the acquisition of the 5% interest in Tadiran, the Company
will hold a total of approximately 26% of Tadiran's shares,
including approximately 7% that were purchased on the stock
market. Upon completion of the Elisra transaction, the
Company will complete the purchase of Koor's remaining
shares in Tadiran - approximately 13% - reaching a total of
approximately a 39% interest in Tadiran based on the
Company's current shareholdings.
-12-
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
--------------------------------------------------------------------------------
U. S. dollars (In thousands)
Note 1 - GENERAL (CONT.)
D. 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 aircrafts.
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.
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.
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. The restatement reflects the
change in stock-based compensation expense calculated under the
intrinsic value based method as compared to the expense calculated
under the fair value based method.
-13-
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
--------------------------------------------------------------------------------
U. S. dollars (In thousands, except per share data)
Note 3 - STOCK-BASED COMPENSATION (CONT.)
The following is the effect of the restatement of stock-based
compensation expense on the financial statements for the three and
six months ended June 30, 2004:
Three months ended June 30, 2004
-------------------------------------------
As Effect by As
-- --------- --
reported restatement restated
-------- ----------- --------
Gross profit $ 58,518 $ 1,368 $ 59,886
Operating income 13,835 2,487 16,322
Net income 11,312 1,990 13,302
Basic net earnings per share 0.28 0.05 0.33
Diluted net earnings per share 0.28 0.05 0.33
Six months ended June 30, 2004
-------------------------------------------
As Effect by As
-- --------- --
reported restatement restated
-------- ----------- --------
Gross profit $ 115,438 $ 1,040 $116,478
Operating income 29,669 1,891 31,560
Net income 24,039 1,515 25,554
Basic net earnings per share 0.61 0.03 0.64
Diluted net earnings per share 0.59 0.04 0.63
Note 4 - INVENTORIES, NET OF ADVANCES
June 30, December 31,
2005 2004
----------------------------------
(Unaudited) (*)
----------------------------------
Cost of long-term contracts in progress $ 309,308 $ 254,009
Raw materials 78,426 71,813
Advances to suppliers and subcontractors 27,549 21,164
--------- ---------
415,283 346,986
Less - Cost incurred on contracts in progress
deducted from customer advances 34,512 14,533
--------- ---------
380,771 332,453
Less - Advances received from customers 77,104 75,776
Provision for losses 7,064 7,636
--------- ---------
$ 296,603 $ 249,041
========= =========
* Derived from the Company's 2004 audited financial statements
-14-
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
--------------------------------------------------------------------------------
U. S. dollars (In thousands)
Note 5 - RECENTLY ISSUED ACCOUNTING STANDARDS
A. 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 flows.
B. In May 2005, the FASB issued Statement of Financial
Accounting Standard No. 154 ("FAS 154"), "Accounting Changes
and Error Corrections" - a replacement of APB No. 20,
Accounting Changes" and FAS No. 3, "Reporting Accounting
Changes in Interim Financial Statements". FAS 154 provides
guidance on the accounting for and reporting of accounting
changes and error corrections. APB Opinion 20 previously
required that most voluntary changes in accounting principle
be recognized by including in net income of the period of
the change the cumulative effect of changing to the new
accounting principle. FAS 154 requires retrospective
application to prior periods' financial statements of a
voluntary change in accounting principle unless it is
impracticable to do so. FAS 154 is effective for accounting
changes and corrections of errors made in fiscal years
beginning after December 15, 2005. The Company estimates
that the adoption of FAS 154 will not have a significant
impact on its results of operations, financial condition and
cash flows.
C. FASB Statements No. 123 (revised 2004), "Share-based
Payment" (FASB 123(R)) (See Note 2AA(3)) to the Company's
annual financial statements for 2004, was to have been
effective as of the beginning of the first interim or annual
reporting period that commences after June 15, 2005 (July 1,
2005 for the Company); however, on April 14, 2005, the
United States Securities and Exchange Commission ("SEC")
delayed effectiveness of FAS 123(R) for companies with
fiscal years ending December 31 (such as the Company) to
January 1, 2006.
Note 6 - TAXES ON INCOME
On July 25, 2005, the Knesset (Israeli Parliament) approved the
Law for the Amendment of the Income Tax Ordinance (No. 147), 2005,
which prescribes, among other provisions, a gradual decrease in
the corporate tax rate in Israel to the following tax rates: in
2006 - 31%, in 2007 - 29%, in 2008 - 27%, in 2009 - 26% and in
2010 and thereafter - 25%. The Company estimates that the change
in tax rate is not expected to have a material effect on the
Company's financial position and results of operations in 2005.
-15-
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
--------------------------------------------------------------------------------
U. S. dollars (In thousands)
Note 7 - 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
Three months ended Year ended
June 30, December 31,
------------------------------------------------
2005 2004 2004
-------------- ---------------------------------
(Unaudited) (*)
Net income as reported according to
U.S. GAAP $ 23,599 $ 25,554 $ 51,873
Adjustments to Israeli GAAP (3,004) (1,907) 662
-------- -------- --------
Net income according to Israeli GAAP $ 20,595 $ 23,647 $ 52,535
======== ======== ========
B. Effect on shareholders' equity
As per
As reported Adjustments Israeli GAAP
----------- ----------- ------------
As of June 30, 2005 (Unaudited)
Shareholders' equity $ 446,973 $ (17,143) $ 429,830
========= ========= =========
As of December 31, 2004 (*)
Shareholders' equity $ 432,184 $ (12,004) $ 420,180
========= ========= =========
* Derived from the Company's 2004 audited financial statements
# # # # # #
-16-