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 2003
-----------------------
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 Management Report for the three and six-month period ended June
30, 2003.
Attached hereto as Exhibit 2 and incorporated herein by reference are
the Registrant's Condensed Interim Financial Statements as of June 30, 2003.
Attached hereto as Exhibit 3 and incorporated herein by reference is
the Registrant's press release dated August 12, 2003.
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 12, 2003.
-2-
EXHIBIT INDEX
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EXHIBIT NO. DESCRIPTION
----------- -----------
1. Management report.
2. Financial statements.
3. Press release.
-3-
EXHIBIT 1
---------
MANAGEMENT'S REPORT
-------------------
FOR THE THREE AND SIX-MONTH PERIOD ENDED JUNE 30, 2003
------------------------------------------------------
THIS REPORT SHOULD BE READ TOGETHER WITH THE COMPANY'S UNAUDITED
FINANCIAL STATEMENTS FOR THE QUARTER ENDED JUNE 30, 2003 AND THE COMPANY'S FORM
20-F FOR THE YEAR ENDED DECEMBER 31, 2002, FILED BY THE COMPANY WITH THE U.S.
SECURITIES AND EXCHANGE COMMISSION AND WITH THE ISRAELI SECURITIES AUTHORITY.
A. THE COMPANY'S BUSINESS OVERVIEW
-------------------------------
Elbit Systems Ltd. ("Elbit Systems") and its subsidiary companies
(together the "Company" or 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, integration and
marketing 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, security systems and 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 initiative ("PFI") basis. Several of the Group's companies
also provide advanced engineering and manufacturing services to various
customers, utilizing their significant manufacturing capabilities. The Company
often cooperates with industries in Israel and in various other countries.
B. BACKLOG OF ORDERS
-----------------
The Company's backlog of orders as of June 30, 2003 reached $1,695
million, of which 61.0% were for orders outside Israel. The Company's backlog as
of December 31, 2002 was $1,689 million, out of which 62% were for orders
outside Israel.
Approximately 71.0% of the Company's backlog as of June 30, 2003 is
scheduled to be performed in the following two quarters of 2003 and during 2004.
The majority of the 29.1% balance is scheduled to be performed in 2005 and 2006.
The relatively small increase in the Company's backlog was caused
primarily by a slowdown in orders received from the Israeli Ministry of Defense
("IMOD") due to the delay in placing new orders in view of the IMOD's prolonged
budget approval process.
C. MAJOR SUBSIDIARIES AND AFFILIATED COMPANIES
-------------------------------------------
o Elop Electro-Optics Industries Ltd. ("El-Op") - a wholly owned
subsidiary registered in Israel, is engaged in the field of advanced
electro-optical products for defense, homeland security and civil applications.
El-Op's main areas of activity include development and production of thermal
imaging products, laser products, optical systems for space applications,
airborne reconnaissance systems, optical communications systems, fire control
systems for combat vehicles, homeland security products and other systems for
defense applications.
o EFW Inc. ("EFW") - a wholly owned subsidiary registered in the United
States, serves as the base for the Group's activities in the United States,
mainly in the area of development, production and maintenance of advanced
defense products and systems.
o Vision Systems International LLC ("VSI") - an affiliated company in
the United States, owned 50% each by EFW and Rockwell Collins Inc., is engaged
in the area of helmet mounted systems primarily for fighter aircraft.
o Cyclone Aviation Products Ltd. ("Cyclone") - a wholly owned
subsidiary registered in Israel, provides logistic support and maintenance
services for aircraft and helicopters and manufactures structure components and
sub-assemblies for aircraft.
o Silver Arrow LP - a wholly owned limited partnership registered in
Israel, is engaged in the business of UAV systems and products.
o Ortek Ltd. ("Ortek") - a wholly owned subsidiary registered in
Israel, is engaged mainly in the area of security products and systems and night
vision equipment.
o Kinetics Ltd. ("Kinetics") - a 51% owned subsidiary registered in
Israel, is involved mainly in the development and production of systems and
components for combat vehicles.
o Semi-Conductor Devices ("SCD") - an Israeli affiliated partnership,
owned 50% each by the Company and Rafael Armaments Development Authority Ltd.
("Rafael"), is engaged in the development and production of infrared detectors
and laser diodes.
o Opgal Optronic Industries Ltd. ("Opgal") - an Israeli affiliated
company, owned 50.1% by the Company and 49.9% by Galram Technologies Ltd., a
wholly owned
-2-
subsidiary of Rafael, is engaged mainly in the area of thermal imaging systems
for commercial applications.
o The Company has holdings, directly and indirectly, in several
relatively small companies in various countries. These companies are engaged
mainly in the manufacturing, marketing and servicing of defense avionics and
electronics as well as defense related software.
The Company also has holdings, directly and indirectly, in several non-
defense technology spin-off companies whose activities are based on technologies
that were developed by the Company. The spin-off companies are involved
primarily in the areas of medical equipment, optical communications and space
satellites.
The Company evaluates investments in affiliates, partnerships and other
companies, and when relevant factors indicate other than temporary decline in
the fair value of the investments below their carrying value, the Company
adjusts the investment to the estimated fair value. The value of these companies
is subject to ongoing changes resulting from their business conditions.
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,
2002.
The Company's results of operations and financial condition are based
on the preparation of consolidated financial statements in conformity with
generally accepted accounting principles in the U.S. ("U.S. GAAP"). The
preparation of the consolidated financial statements requires management to
select accounting policies for critical accounting areas as well as estimates
and assumptions that affect the amounts reported in the consolidated financial
statements. Significant changes in assumptions and/or conditions and changes in
critical accounting policies could materially impact the Company's operating
results and financial condition.
In the Company's opinion, its most critical accounting policy relates
to revenue recognition based on SOP 81-1 "Accounting for Performance of
Construction Type and Certain Production Type Contracts", which is relevant to
most of its revenues.
Under SOP 81-1, the Company has adopted the "percentage of completion"
accounting method. Under this method, the Company recognizes revenues and
profits on long-term fixed price contracts generally based on the ratio of costs
incurred to estimates of costs to be incurred for the total contract. Under this
approach, the Company compares estimated costs to complete an entire contract to
total revenues for the term of the contract in order to arrive at an estimated
gross margin percentage for each contract. The updated estimated gross margin
percentage is applied, and the current period gross profit is the difference
between the cumulative earned gross profit and gross profit reported for prior
periods.
-3-
Management reviews these estimates periodically and the effect of any
change in the estimated gross margin percentage for a contract is reflected in
cost of sales in the period in which the change becomes known. If increases in
projected costs to complete are sufficient to create a loss contract, the entire
estimated loss is charged to cost of sales in the period the loss first becomes
known.
A number of internal and external factors affect the Company's cost
estimates, including labor rates, estimated future material prices, revised
estimates of uncompleted work, efficiency variances, linkage to indices and
exchange rates, customer specifications and requirements and testing requirement
changes. If any of the above factors were to change, or if different assumptions
were used in the application of this and other accounting policies, it is likely
that materially different amounts would be reported in the Company's
consolidated financial statements.
E. IMPAIRMENT OF GOODWILL AND OTHER LONG-LIVED ASSETS
--------------------------------------------------
Consistent with Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets," goodwill is not amortized, and
is tested at least annually for impairment. As of June 30, 2003, the Company's
goodwill and assembled work force amounted to $32.2 million.
Consistent with SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," the Company evaluates long-lived assets for
impairment and assesses their recoverability based upon anticipated future cash
flows. As of June 30, 2003, the Company's long-lived assets amounted to $285.6
million, including $70.2 million in intangible assets, and the Company concluded
that no assessment of impairment loss was necessary.
Should future impairment tests made by the Company determine that
impairment has occurred in the value of the Company's goodwill or long-lived
assets, such impairment may have a material effect on the financial results of
the Company in the period in which the impairment is determined.
F. SPECIAL EVENTS THAT AFFECTED THE BUSINESS RESULTS
-------------------------------------------------
The increase in the Company's share price affected the Company's
financial results in the first half of 2003 due to the employee stock option
plan for key employees adopted in October 2000. The program was comprised of
options for 5 million shares, divided into options to purchase up to 2.5 million
shares and additional 2.5 million "phantom" options. The phantom options grant
the option holders a number of shares corresponding to the benefit component of
the options exercised, as calculated on the exercise date, in consideration for
their par value only, and are defined as a variable option plan. The actual
number of options granted as of June 30, 2003 was approximately 4.5 million.
-4-
The Company's share price increased during the first six months of 2003
by $3.46 (or 21.6%). The increase in the share price during the second quarter
of 2003 was $2.86 (or 17.2%) above the share price at the end of the first
quarter. Under U.S. GAAP, the increase in the share price is recorded
periodically as compensation expense based on the vesting period of the options.
The expense, which is a non-cash expense, was allocated mainly to the Company's
cost of goods sold and general and administrative expenses, with smaller amounts
allocated to R&D and sales and marketing expenses .
The effect of the increase of the share price on the Company's results
of operation (net of taxes) in the first six months of 2003 was $5.1 million, of
which $4.1 million was recorded in the second quarter of 2003. Future changes in
the Company's share price will continue to effect the share price linked
compensation costs.
G. ACQUISITION
-----------
On June 30, 2003 the Company acquired, through El-Op, all of the
outstanding ordinary shares of Optronics Instruments & Products N.V. (O.I.P)
from Delft Instruments N.V., in consideration for Euro 1.6 million ($1.8
million) in cash. The amount paid is equal to the estimated fair value of the
net assets acquired. The acquisition has been accounted under the purchase
method of accounting. The assets and liabilities of OIP are included in the
Company's balance sheet as of June 30, 2003.
O.I.P is based in Belgium and develops, manufactures and supports
electro-optical products, mainly for the defense and space markets. It employs
approximately 50 employees, and has established long-term relationships with
customers in Belgium, other European countries and international customers.
The acquisition of O.I.P. is expected to provide the Company with
enhanced access and support to its customers in Europe and to strengthen its
presence in this important market.
H. ELECTION OF NEW DIRECTORS
-------------------------
On August 6, 2003, the election of two new directors was approved at
the annual meeting of the Company's shareholders.
Mr. Avi Fischer was elected as a director to replace Mr. Lenny
Recanati, who resigned from the Board of Directors in May 2003, and Mr. Yaacov
Lifshitz was elected to serve as an External Director, replacing Mr. Yoel
Feldschuh who resigned from the Board of Directors in May 2003.
The Company and its Board of Directors express their appreciation to
Messrs. Recanati and Feldschuh for their contribution to the Company during
their service on the Board of Directors.
-5-
I. SUMMARY OF FINANCIAL RESULTS
----------------------------
The following table sets forth the reported consolidated statements of
operations of the Company for the three and six-month periods ended June 30,
2003 and June 30, 2002.
For the six months ended For the three months ended
June 30 June 30
------------------------------------------- -----------------------------------------
2003 2002 2003 2002
----------------- ---------------- ----------------- -----------------
$ % $ % $ % $ %
------- ----- ------- ----- ------- ----- ------- -----
(In thousands of U.S. dollars except per share data)
Total revenues 420,948 100.0 378,988 100.0 218,758 100.0 193,202 100.0
Cost of revenues 306,804 72.9 283,478 74.8 161,405 73.8 149,945 77.6
------- ----- ------- ----- ------- ----- ------- -----
Gross profit 114,144 27.1 95,510 25.2 57,353 26.2 43,257 22.4
------- ----- ------- ----- ------- ----- ------- -----
Research and development expenses, net 28,488 6.8 24,925 6.6 13,586 6.2 12,293 6.4
Marketing and selling expenses 35,123 8.3 29,943 7.9 19,095 8.7 15,255 7.9
General and administrative expenses 22,889 5.4 19,981 5.3 11,938 5.5 10,265 5.3
------- ----- ------- ----- ------- ----- ------- -----
86,500 20.5 74,849 19.7 44,619 20.4 37,813 19.6
------- ----- ------- ----- ------- ----- ------- -----
Operating income 27,644 6.6 20,661 5.5 12,734 5.8 5,444 2.8
Finance expenses, net (3,306) (0.8) (95) (0.1) (2,030) (0.9) (103) (0.1)
Other income (expenses), net 91 - (409) (0.1) (18) - (263) (0.1)
------- ----- ------- ----- ------- ----- ------- -----
Income before income taxes 24,429 5.8 20,157 5.3 10,686 4.9 5,078 2.6
Taxes on income 6,602 1.6 5,245 1.4 2,956 1.4 1,331 0.7
------- ----- ------- ----- ------- ----- ------- -----
17,827 4.2 14,912 3.9 7,730 3.5 3,747 1.9
Minority interest in losses (gains) of
subsidiaries 690 0.2 130 - 433 0.2 (418) (0.2)
Equity in net earnings of affiliated
companies and partnership 2,949 0.7 1,440 0.4 1,048 0.5 1,443 0.7
------- ----- ------- ----- ------- ----- ------- -----
Net earnings 21,466 5.1 16,482 4.3 9,211 4.2 4,772 2.5
======= ===== ======= ===== ======= ===== ======= =====
Diluted earnings per share 0.54 0.41 0.23 0.12
======= ======= ======= =======
NON-US GAAP DISCLOSURE
----------------------
The following table sets forth the Company's results of operations
excluding the effect of the Company's phantom stock option plan ("phantom plan")
in 2003 and 2002, and of the non-recurring charge related to the agreement
reached by El-Op with the Office of the Israeli Chief Scientist ("OCS") in the
second quarter of 2002:
-6-
For the six months For the three months
ended June 30 ended June 30
-------------------------------------- ------------------------------------
2003 2002 2003 2002
----------------- --------------- ---------------- ----------------
$ % $ % $ % $ %
------- ---- ------ ---- ------ --- ------ ----
(In thousands of U.S. dollars except per share data)
GROSS PROFIT AS REPORTED 114,144 27.1 95,510 25.2 57,353 26.2 43,257 22.4
Non-recurring charge due to OCS agreement - - 9,801 2.6 - - 9,801 5.1
Non-cash expense (income) related to phantom plan 3,520 0.9 (337) (0.1) 3,020 1.4 (172) (0.1)
------- ---- ------ ---- ------ ---- ------ ----
Gross profit excluding phantom plan effect in
2003 and 2002, and non-recurring OCS charge in 2002 117,664 28.0 104,974 27.7 60,373 27.6 52,886 27.4
======= ==== ======= ==== ====== ==== ====== ====
OPERATING PROFIT AS REPORTED 27,644 6.6 20,661 5.5 12,734 5.8 5,444 2.8
Non-recurring charge due to OCS agreement - - 9,801 2.6 - - 9,801 5.1
Non-cash expense (income) related to phantom plan 6,421 1.5 (613) (0.1) 5,030 2.3 (314) (0.1)
------- ---- ------ ---- ------ ---- ------ ----
Operating profit excluding phantom plan effect in
2003 and 2002, and non-recurring OCS charge in 2002 34,065 8.1 29,849 7.9 17,764 8.1 14,931 7.8
======= ==== ====== === ====== ==== ====== ===
NET EARNINGS AS REPORTED 21,466 5.1 16,482 4.3 9,211 4.2 4,772 2.4
Non-recurring charge due to OCS agreement - - 7,840 2.1 - - 7,840 4.1
Non-cash expense (income) related to phantom plan 5,137 1.2 (478) (0.1) 4,115 1.9 (257) (0.1)
------- ---- ------ ---- ------ ---- ------ ----
Net earnings excluding phantom plan effect in
2003 and 2002, and non-recurring OCS charge in 2002 26,603 6.3 23,844 6.3 13,326 6.1 12,355 6.4
======= ==== ====== ==== ====== ==== ====== ====
EARNINGS PER SHARE AS REPORTED 0.54 0.41 0.23 0.12
Diluted earnings per share excluding phantom plan
effect in 2003 and 2002, and non-recurring OCS charge
in 2002 0.66 0.60 0.33 0.31
==== ==== ==== ====
REVENUES
--------
SIX MONTHS ENDED ON JUNE 30, 2003, COMPARED TO SIX MONTHS ENDED ON JUNE
-----------------------------------------------------------------------
30, 2002
--------
The Company's consolidated revenues increased by 11.1%, from $379.0
million in the first six months of 2002 to $420.9 million in the first six
months of 2003.
-7-
The following table sets forth the Company's revenue distribution by
areas of operation:
Six-Month Period ended
----------------------
June 30, 2003 June 30, 2002
----------------------- -----------------
$ millions % $ millions %
Airborne systems 201.2 47.8 169.9 44.8
Combat vehicle systems 75.8 18.0 70.1 18.5
C4I systems 64.6 15.3 56.0 14.8
Electro-optics 54.7 13.0 64.2 16.9
Other (mainly non-defense engineering and
production services) 24.6 5.9 18.8 5.0
----- ----- ----- -----
Total 420.9 100.0 379.0 100.0
===== ===== ===== =====
The following table sets forth the Company's distribution of revenues
by geographical regions:
Six-Month Period ended
----------------------
June 30, 2003 June 30, 2002
----------------------- -----------------
$ millions % $ millions %
Israel 111.9 26.6 96.9 25.5
United States 159.6 37.9 127.2 33.6
Europe 49.0 11.6 64.8 17.1
Other countries 100.4 23.9 90.1 23.8
----- ---- ---- ----
Total 420.9 100.0 379.0 100.0
===== ===== ===== =====
THREE MONTHS ENDED ON JUNE 30, 2003, COMPARED TO THREE MONTHS ENDED ON
----------------------------------------------------------------------
JUNE 30, 2002
-------------
The consolidated revenues increased by 13.2% from $193.2 million in the
second quarter of 2002 to $218.8 million in the second quarter of 2003.
The following table sets forth the Company's revenue distribution by
areas of operation:
Three-Month Period ended
------------------------
June 30, 2003 June 30, 2002
----------------------- -----------------
$ millions % $ millions %
Airborne systems 102.3 46.8 77.6 40.2
Combat vehicle systems 43.5 19.9 42.9 22.2
C4I systems 32.6 14.9 27.4 14.2
Electro-optics 27.5 12.5 35.0 18.1
Other (mainly non-defense engineering and
production services) 12.9 5.9 10.3 5.3
----- ----- ----- -----
Total 218.8 100.0 193.2 100.0
===== ===== ===== =====
The following table sets forth the Company's distribution of revenues
by geographical regions:
Three-Month Period ended
------------------------------------------------
June 30, 2003 June 30, 2002
----------------------- --------------------
$ millions % $ millions %
Israel 61.5 28.1 47.5 25.0
United States 82.5 37.7 77.9 40.0
Europe 27.6 12.6 24.2 13.0
Other countries 47.2 21.6 43.6 22.0
----- ----- ----- -----
Total 218.8 100.0 193.2 100.0
===== ===== ===== =====
The Company's sales are made primarily to governmental entities and
prime contractors under government defense programs. Accordingly, the level of
the Company's revenues is subject to governmental budgetary constraints. The
recent economic situation in Israel has created some uncertainty with respect to
the Israeli Government's general and defense budgets.
-8-
GROSS PROFIT
------------
The Company's gross profit represents the aggregate results of the
Company's activities and projects, and is based on the mix of programs in which
the Company is engaged during the reported period.
SIX MONTHS ENDED ON JUNE 30, 2003, COMPARED TO SIX MONTHS ENDED ON JUNE
-----------------------------------------------------------------------
30, 2002
--------
Reported gross profit in the six months ended June 30, 2003 was $114.1
million as compared to $95.5 million in the six months ended June 30, 2002. The
reported gross profit margin in the six months ended June 30, 2003 was 27.1% as
compared to 25.2% in the corresponding period of the previous year.
The Company's cost of goods sold in the six months ended June 30, 2003
included $3.5 million in non-cash expenses resulting from its phantom option
plan, as compared to an immaterial amount in the six months ended June 30, 2002.
Excluding non-cash expenses related to the Company's phantom option, gross
profit in the six months ended June 30, 2003 was $117.7 million, or 28.0% of
revenues.
Excluding the non-recurring charge under the OCS agreement and the
phantom option plan effect, gross profit in the six-month period ended June 30,
2002 was $105.0 million, or 27.7% of revenues.
THREE MONTHS ENDED ON JUNE 30, 2003, COMPARED TO THREE MONTHS ENDED ON
----------------------------------------------------------------------
JUNE 30, 2002
-------------
Reported gross profit in the quarter ended June 30, 2003 was $57.4
million as compared to $43.3 million in the quarter ended June 30, 2002. The
reported gross profit margin in the second quarter of 2003 was 26.2% as compared
to 22.4% in the same period last year.
The Company's cost of goods sold in the second quarter of 2003 included
$3.0 million in non-cash expenses resulting from its phantom option plan, as
compared to an immaterial amount in the second quarter of 2002.
Excluding non-cash expenses related to the Company's phantom option
compensation costs, gross profit in the quarter ended June 30, 2003 was $60.4
million, or 27.6% of revenues.
Excluding the non-recurring charge under the OCS agreement and the
phantom option plan effect, gross profit in the quarter ended June 30, 2002 was
$52.9 million, or 27.4% of revenues.
-9-
RESEARCH AND DEVELOPMENT ("R&D")
--------------------------------
The Company continually invests in R&D in order to maintain and further
advance its technologies, in accordance with a long-term plan, based on its
estimate of future market needs.
The Company's R&D activities in the reported period were in accordance
with its plans.
SIX MONTHS ENDED ON JUNE 30, 2003, COMPARED TO SIX MONTHS ENDED ON JUNE
-----------------------------------------------------------------------
30, 2002
--------
Gross R&D expenses in the six months ended June 30, 2003 totaled $30.4
million (7.2% of revenues), as compared to $26.8 million (7.1% of revenues) in
the six months ended June 30, 2002.
Net R&D expenses (after deduction of the OCS participation) in the six
months ended June 30, 2003 totaled $28.5 million (6.8% of revenues), as compared
to $24.9 million (6.6% of revenues) in the six months ended June 30, 2002.
THREE MONTHS ENDED ON JUNE 30, 2003, COMPARED TO THREE MONTHS ENDED ON
----------------------------------------------------------------------
JUNE 30, 2002
-------------
Gross R&D expenses in the quarter ended June 30, 2003 totaled $14.7
million (6.7% of revenues), as compared to $12.9 million (6.7% of revenues) in
the quarter ended June 30, 2002.
Net R&D expenses (after deduction of the OCS participation) in the
quarter ended June 30, 2003 totaled $13.6 million (6.2% of revenues), as
compared to $12.3 million (6.4% of revenues) in the quarter ended June 30, 2002.
R&D expenses in the quarter ended June 30, 2003 included an immaterial
amount of non-cash expenses related to the Company's phantom option plan.
MARKETING AND SELLING EXPENSES
------------------------------
The Company invests significantly in developing new markets and pursues
at any given time various business opportunities. The continued investment in
developing new business opportunities, as well as the increased level of
revenues and the increased length of time required for marketing efforts until
orders are received, generated a higher level of sales and marketing expenses in
the three and six-month periods ended June 30, 2003, as compared to the
corresponding periods in 2002.
-10-
SIX MONTHS ENDED ON JUNE 30, 2003, COMPARED TO SIX MONTHS ENDED ON JUNE
-----------------------------------------------------------------------
30, 2002
--------
Marketing and selling expenses in the six months ended June 30, 2003
were $35.1 million (8.3% of revenues), as compared to $29.9 million (7.9% of
revenues) in the six months ended June 30, 2002.
Excluding the phantom option plan non-cash expenses in 2003, marketing
and selling expenses in the six months ended June 30, 2003 were $34.1 million
(8.1% of revenues).
THREE MONTHS ENDED ON JUNE 30, 2003, COMPARED TO THREE MONTHS ENDED ON
----------------------------------------------------------------------
JUNE 30, 2002
-------------
Marketing and selling expenses in the quarter ended June 30, 2003 were
$19.1 million (8.7% of revenues), as compared to $15.3 million (7.9% of
revenues) in the quarter ended June 30, 2002.
Excluding the phantom option plan non-cash expenses in 2003, marketing
and selling expenses in the quarter ended June 30, 2003 were $18.1 million (8.3%
of revenues).
GENERAL AND ADMINISTRATIVE ("G&A") EXPENSES
-------------------------------------------
SIX MONTHS ENDED ON JUNE 30, 2003, COMPARED TO SIX MONTHS ENDED ON JUNE
-----------------------------------------------------------------------
30, 2002
--------
G&A expenses were $22.9 million (5.4% of revenues) in the six months
ended June 30, 2003, as compared to $20.0 million (5.3% of revenues) in the six
months ended June 30, 2002.
Excluding the phantom option plan non-cash expenses in 2003, G&A
expenses in the six months ended June 30, 2003 were $21.3 million (5.1% of
revenues).
THREE MONTHS ENDED ON JUNE 30, 2003, COMPARED TO THREE MONTHS ENDED ON
----------------------------------------------------------------------
JUNE 30, 2002
-------------
G&A expenses were $11.9 million (5.5% of revenues) in the quarter ended
June 30, 2003, as compared to $10.3 million (5.3 % of revenues) in the quarter
ended June 30, 2002.
Excluding the phantom option plan non-cash expenses in 2003, G&A
expenses in the quarter ended June 30, 2003 were $11.2 million (5.1% of
revenues).
-11-
OPERATING PROFIT
----------------
The majority of the Company's operating expenses are related to the
Company's investment in the development of future technologies and products, and
in generating new business. These expenses are included in the Company's R&D and
marketing and sales expenses, which together accounted for 73.5% and 73.3% of
the operating expenses during the six and three-month periods ended June 30,
2003, respectively.
SIX MONTHS ENDED ON JUNE 30, 2003, COMPARED TO SIX MONTHS ENDED ON JUNE
-----------------------------------------------------------------------
30, 2002
--------
As a result of all of the above, reported operating income in the six
months ended June 30, 2003 was $27.6 million (6.6% of revenues), as compared to
$20.7 million (5.5% of revenues) in the six months ended June 30, 2002.
For the six months ended June 30, 2003, the Company's operating profit
included $6.4 million in non-cash expenses associated with the Company's phantom
option plan, as compared to an immaterial amount in the six months ended June
30, 2002.
Excluding phantom share compensation costs, operating income totaled
$34.1 million (8.1% of revenues) in the six months ended June 30, 2003.
Excluding the non-recurring charge under the OCS agreement and the
phantom option plan effect, operating profit in the six-month period ended June
30, 2002 was $29.8 million, or 7.9% of revenues.
THREE MONTHS ENDED ON JUNE 30, 2003, COMPARED TO THREE MONTHS ENDED ON
----------------------------------------------------------------------
JUNE 30, 2002
-------------
As a result of all of the above, reported operating income in the
quarter ended June 30, 2003 was $12.7 million (5.8% of revenues), as compared to
$5.4 million (2.8% of revenues) in the quarter ended June 30, 2002.
During the second quarter of 2003, the Company's operating profit
included $5.0 million in non-cash expenses associated with the Company's phantom
option plan, as compared to an immaterial amount in the second quarter of 2002.
Excluding phantom share compensation costs in 2003, operating income
totaled $17.8 million (8.1% of revenues) in the second quarter ended June 30,
2003.
Excluding the non-recurring charge under the OCS agreement and the
phantom option plan effect, operating profit in the quarter ended June 30, 2002
was $14.9 million, or 7.8% of revenues.
-12-
FINANCE EXPENSE (NET)
---------------------
SIX MONTHS ENDED ON JUNE 30, 2003, COMPARED TO SIX MONTHS ENDED ON JUNE
-----------------------------------------------------------------------
30, 2002
--------
Net finance expense in the six months ended June 30, 2003 was $3.3
million, as compared to $0.1 million of finance expense in the six months ended
June 30, 2002.
THREE MONTHS ENDED ON JUNE 30, 2003, COMPARED TO THREE MONTHS ENDED ON
----------------------------------------------------------------------
JUNE 30, 2002
-------------
Net finance expense in the quarter ended June 30, 2003 was $2.0
million, as compared to $0.1 million of finance expense in the quarter ended
June 30, 2002.
The increase in the net finance expense during the three and six-month
periods ended June 30, 2003 as compared to the respective periods in 2002
resulted mainly from a lower level of finance income generated, and from the
effect of the devaluation of the US dollar against the New Israeli Shekel
("NIS") on NIS denominated loans, which occurred mainly in the second quarter of
2003.
TAXES ON INCOME
---------------
The Company's tax rate represents a weighted average of the tax rates
to which the various companies in the Group are subject. The changes in the
effective tax rate are attributable mainly to the mix of the tax rates in the
various tax jurisdictions in which the Group's companies generating the taxable
income operate.
SIX MONTHS ENDED ON JUNE 30, 2003, COMPARED TO SIX MONTHS ENDED ON JUNE
-----------------------------------------------------------------------
30, 2002
--------
Provision for taxes in the six months ended June 30, 2003 was $6.6
million (effective tax rate of 27.0%), as compared to a provision for taxes of
$5.2 million (effective tax rate of 26.0%) in the six months ended June 30,
2002.
THREE MONTHS ENDED ON JUNE 30, 2003, COMPARED TO THREE MONTHS ENDED ON
----------------------------------------------------------------------
JUNE 30, 2002
-------------
Provision for taxes in the quarter ended June 30, 2003 was $3.0 million
(effective tax rate of 27.7 %), as compared to a provision for taxes of $1.3
million (effective tax rate of 26.2%) in the quarter ended June 30, 2002.
Excluding the effect of the non-cash expenses related to the phantom
stock options plan, tax rates for the six and three-month periods ended June 30,
2003 were 25.2% and 24.5% respectively. The difference in the tax rates is due
to the different tax treatment of the non-cash expense in the various tax
jurisdictions in which the Company operates.
-13-
COMPANY'S SHARE IN EARNINGS OF AFFILIATED COMPANIES AND PARTNERSHIP
-------------------------------------------------------------------
SIX MONTHS ENDED ON JUNE 30, 2003, COMPARED TO SIX MONTHS ENDED ON JUNE
-----------------------------------------------------------------------
30, 2002
--------
In the six months ended June 30, 2003 the Company had net income of
$2.9 million from its share in earnings of affiliated companies and partnership,
as compared to $1.4 million in the six months ended June 30, 2002.
THREE MONTHS ENDED ON JUNE 30, 2003, COMPARED TO THREE MONTHS ENDED ON
----------------------------------------------------------------------
JUNE 30, 2002
-------------
In the second quarter of 2003 the Company had net income of $1.0
million from its share in earnings of affiliated companies and partnership, as
compared to $1.4 million in the second quarter of 2002.
The affiliated companies and partnership in which the Company holds
50% or less in shares or voting rights and are therefore not consolidated in its
financial statements operate in the Company's core business areas, including
electro-optics and airborne systems.
NET EARNINGS AND EARNINGS PER SHARE ("EPS")
-------------------------------------------
SIX MONTHS ENDED ON JUNE 30, 2003, COMPARED TO SIX MONTHS ENDED ON JUNE
-----------------------------------------------------------------------
30, 2002
--------
Reported net earnings in the six months ended June 30, 2003 were $21.5
million (5.1% of revenues), as compared to reported net earnings of $16.5
million (4.3% of revenues) in the six months ended June 30, 2002. Diluted EPS in
the six months ended June 30, 2003 was $0.54, as compared to $0.41 per share in
the six months ended June 30, 2002.
Excluding the phantom option plan non-cash expenses in 2003, net
earnings in the six months ended June 30, 2003 were $26.6 million (6.3% of
revenues), and the EPS was $0.66.
Excluding the non-recurring charge under the OCS agreement and the
phantom option plan effect, net earnings in the six-month period ended
June 30, 2002 was $23.8 million or 6.3% of revenues, and the EPS was $0.60.
The number of shares used for computation of diluted EPS in the
six months ended June 30, 2003 was 40,095 thousand shares, as compared to 39,960
thousand shares in the six months ended June 30, 2002. The increase in the
number of shares used for computation of diluted EPS was due mainly to the
change in the average share price during the six months ended June 30, 2003
which, due to the impact of the Company's
-14-
stock option plan, affects the number of shares calculated on a diluted basis,
and due to exercise of options by employees during the period.
THREE MONTHS ENDED ON JUNE 30, 2003, COMPARED TO THREE MONTHS ENDED ON
----------------------------------------------------------------------
JUNE 30, 2002
-------------
Reported net earnings in the quarter ended June 30, 2003 was $9.2
million (4.2% of revenues), as compared to reported net earnings of $4.8 million
(2.5% of revenues) in the quarter ended June 30, 2002. Diluted EPS in the
quarter ended June 30, 2003 was $0.23, as compared to $0.12 in the quarter ended
June 30, 2002.
Excluding the phantom option plan non-cash expenses in 2003, net
earnings in the quarter ended June 30, 2003 were $13.3 million (6.1% of
revenues), and the EPS was $0.33.
Excluding the non-recurring charge under the OCS agreement and the
phantom option plan effect, net earnings in the quarter ended June 30, 2002 was
$12.4 million (or 6.4% of revenues), and the EPS was $0.31.
The number of shares used for computation of diluted EPS in the quarter
ended June 30, 2003 was 40,396 thousand shares, as compared to 39,791 thousand
shares in the quarter ended June 30, 2002. The increase in the number of shares
used for computation of diluted EPS was due mainly to the change in the average
share price during the second quarter of 2003 which, due to the impact of the
Company's stock option plan, affects the number of shares calculated on a
diluted basis, and due to exercise of options by employees during the period.
J. LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's cash flows are effected by the cumulative cash flows of
its various projects in the reported periods. Project cash flows are affected by
the timing of the receipt of advances and the collection of accounts receivable
from customers, which relate to specific events during the project, while
expenses are on-going. As a result, the Company's cash flows may vary from one
period to another.
The Company's policy is to invest its cash surplus primarily in
interest bearing deposits in accordance with its projected needs.
The resources available to the Company include mainly profits,
collection of accounts receivable, advances from customers, as well as
Government of Israel grants and participation and bank financing in Israel and
elsewhere based on its capital, assets and activities. In addition, the Company
has the ability to raise funds through the offering of shares and debentures to
the public from time to time.
The Company's net cash flows generated from operating activities in the
six-month period ended June 30, 2003 were $11.2 million.
-15-
Net cash flows used for investment activities in the six months period
ended June 30, 2003 were $25.2 million, which were used mainly for procurement
of property, plant and equipment. The investments were primarily in equipment
for the Group's various manufacturing plants and in buildings being constructed
at Elbit Systems' facility in Haifa, Israel and El-Op's site in Rehovot, Israel.
The acquisition of OIP is included in the cash flow used in the reported period.
Net cash flows used for financing activities in the six-month period
ended June 30, 2003 were $15.3 million. The cash flows were used mainly for
reduction of borrowings, which were partially offset by
proceeds from share options exercised.
On June 30, 2003, the Company had total borrowings in the amount of
$94.9 million, including $21.8 million in short-term loans, and $392 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, 2003, the Company had a cash balance amounting to $47.0 million.
As of June 30, 2003, the Company had working capital of $195.6 million,
and its current ratio was 1.49. The Company's ratio of equity to total assets
was 45.7%.
K. DERIVATIVES AND HEDGES
----------------------
Market risks relating to the Company's operations result primarily from
changes in interest rates and exchange rates, and the Company may use financial
instruments to limit exposure. The Company typically enters into forward
contracts in connection with transactions that are denominated in currencies
other than US dollars and NIS. The Company may enter from time to time into
forward contracts related to NIS.
On June 30, 2003, the Company's liquid assets were comprised of bank
deposits, and it had no investments in liquid equity securities that were
subject to market fluctuations. The Company's deposits and loans are based on
variable interest rates, and their value as of June 30, 2003 was therefore not
exposed to changes in interest rates. Should interest rates either increase or
decrease, such change may affect the Company's results of operations due to
changes in the cost of its liabilities and the return on its assets that are
based on variable rates.
The Company's functional currency is the U.S. dollar. On June 30, 2003,
the Company had exposure due to liabilities denominated in NIS of $43.4 million
in excess of its NIS denominated assets. These liabilities represent mostly
wages, trade payables and loans. The amount of the Company's exposure to the
changes in the NIS/US$ exchange rate may vary from time to time. In order to
hedge against certain expected NIS payments, the Company entered into forward
contracts designated as hedging. As of June
-16-
30, 2003, the results of the then existing derivatives are being deferred
until payments are realized, which is expected to occur during 2003. On June 30,
2003, the Company had forward contracts covering NIS exposure in the amount of
$29.0 million.
Most of the Company's assets and liabilities which are denominated in
currencies other than the NIS and the U.S. dollar were covered as of June 30,
2003 by forward contracts. On June 30, 2003, the Company had contracts for the
sale and purchase of such foreign currencies totaling $17.9 million.
L. DIVIDENDS
---------
The Board of Directors declared on August 11, 2003 a dividend of $0.10
per share.
* * *
--------------------------------------------------------------------------------
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.
EXHIBIT 2
---------
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
AS OF JUNE 30, 2003
-------------------
(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
-------
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Balance Sheets 2 - 3
Consolidated Statements of Operations 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 - 12
# # # # # #
ELBIT SYSTEMS LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars)
JUNE 30, DECEMBER 31,
2003 2002
-------------- ------------
(UNAUDITED) (AUDITED)
CURRENT ASSETS
Cash and cash equivalents $47,000 $76,280
Short-term bank deposits 2,260 1,650
Trade receivables, net of allowance for doubtful
accounts of $3,703 and $3,411 as of June 30, 2003
and December 31, 2002, respectively. 235,503 227,724
Other receivables and prepaid expenses 42,316 34,376
Inventories, net of advances 268,447 220,399
-------------- ------------
Total current assets 595,526 560,429
-------------- ------------
INVESTMENTS AND LONG-TERM RECEIVABLES
Investments in affiliated companies and partnership 23,756 21,947
Investments in other companies 10,742 11,104
Long-term receivables 308 20,859
Long-term bank deposits and loan 2,220 3,686
Severance pay fund 7,732 6,641
-------------- ------------
44,758 64,237
-------------- ------------
PROPERTY, PLANT AND EQUIPMENT, NET 215,360 202,961
-------------- ------------
OTHER ASSETS, NET
Goodwill and assembled work-force, net 32,204 32,162
Know-how and other intangible assets, net 70,213 73,607
-------------- ------------
102,417 105,769
-------------- ------------
$958,061 $933,396
============== ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
- 2 -
ELBIT SYSTEMS LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars except share data)
JUNE 30, DECEMBER 31,
2003 2002
------------- ------------
(UNAUDITED) (AUDITED)
CURRENT LIABILITIES
Short-term bank credit and loans $21,779 $30,915
Trade payables 123,448 82,521
Other payables and accrued expenses 154,683 140,981
Customer advances and amounts in excess of
costs incurred 99,253 108,418
------------- ------------
Total current liabilities 399,163 362,835
------------- ------------
LONG-TERM LIABILITIES
Long-term loans 73,079 73,173
Advances from customers 2,399 40,411
Deferred income taxes 14,923 16,413
Accrued severance pay 26,280 24,486
------------- ------------
116,681 154,483
------------- ------------
MINORITY INTEREST 4,027 4,717
------------- ------------
SHAREHOLDERS' EQUITY
Share capital
Ordinary shares of NIS1 par value; Authorized - 80,000,000 shares; Issued-
39,560,969 shares and 39,212,328 shares as of June 30, 2003 and December
31, 2002, respectively; Outstanding- 39,152,148 shares and 38,803,507
shares as of June 30, 2003 and December 31,
2002, respectively 11,231 11,154
Accumulated other comprehensive loss (738) (2,882)
Additional paid-in capital 258,580 248,387
Retained earnings 173,438 159,023
Treasury stock- 408,821 shares (4,321) (4,321)
------------- ------------
438,190 411,361
------------- ------------
$958,061 $933,396
============= ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
- 3 -
ELBIT SYSTEMS LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars, except per share data)
SIX MONTHS ENDED THREE MONTHS ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31,
2003 2002 2003 2002 2002
---------- ----------- ----------- ----------- ------------
(UNAUDITED) (UNAUDITED) (AUDITED)
--------------------------- --------------------------- ------------
Revenues $420,948 $378,988 $218,758 $193,202 $827,456
Cost of revenues (306,804) (273,677) (161,405) (140,144) (595,512)
Chief Scientist ("OCS") - (9,801) - (9,801) (9,801)
---------- ----------- ----------- ----------- -----------
Gross profit 114,144 95,510 57,353 43,257 222,143
---------- ----------- ----------- ----------- -----------
Research and development costs, net 28,488 24,925 13,586 12,293 57,010
Marketing and selling expenses 35,123 29,943 19,095 15,255 65,691
General and administrative expenses 22,889 19,981 11,938 10,265 41,651
---------- ----------- ----------- ----------- -----------
86,500 74,849 44,619 37,813 164,352
---------- ----------- ----------- ----------- -----------
Operating income 27,644 20,661 12,734 5,444 57,791
Financial expenses, net (3,306) (95) (2,030) (103) (3,035)
Other income (expenses), net 91 (409) (18) (263) (462)
---------- ----------- ----------- ----------- -----------
Income before taxes on income 24,429 20,157 10,686 5,078 54,294
Taxes on income 6,602 5,245 2,956 1,331 9,348
---------- ----------- ----------- ----------- -----------
17,827 14,912 7,730 3,747 44,946
Equity in net earnings of affiliated companies
and partnership 2,949 1,440 1,048 1,443 675
Minority interest 690 130 433 (418) (508)
---------- ----------- ----------- ----------- -----------
Net income $21,466 $16,482 $9,211 $4,772 $45,113
========== =========== =========== =========== ===========
Earnings per share
Basic earnings per share $0.55 $0.43 $0.24 $0.12 $1.17
========== =========== =========== =========== ===========
Weighted average number of shares used in
computation (in thousands) 38,906 38,431 38,990 38,461 38,489
========== =========== =========== =========== ===========
Diluted earnings per share $0.54 $0.41 $0.23 $0.12 $1.13
========== =========== =========== =========== ===========
Weighted average number of shares
used in computation (in thousands) 40,095 39,960 40,396 39,791 39,863
========== =========== =========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
- 4 -
ELBIT SYSTEMS LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHARHOLDER'S EQUITY
(In thousands of U.S. dollars)
ACCUMULATED
ADDITIONAL OTHER
NUMBER OF SHARE PAID-IN COMPREHENSIVE RETAINED
SHARES CAPITAL CAPITAL LOSS EARNINGS
---------- ---------- ----------- -------------- ----------
UNAUDITED
BALANCE AS OF JANUARY 1, 2003 38,803,507 $11,154 $248,387 $(2,882) $159,023
Exercise of options 348,641 77 3,338 - -
Tax benefit in respect of options exercised - - 434 - -
Amortization of deferred stock compensation - - 6,421 - -
Dividend paid - - - - (7,051)
Net income - - - - 21,466
Unrealized gains on derivative instruments - - - 2,144 -
---------- ---------- ----------- -------------- ----------
BALANCE AS OF JUNE 30, 2003 39,152,148 $11,231 $258,580 $(738) $173,438
========== ========== =========== ============== ==========
BALANCE AS OF JANUARY 1, 2002 38,739,093 $11,054 $244,625 - $126,627
Exercise of options 166,089 36 1,554 - -
Tax benefit in respect of options exercised - - 336 - -
Amortization of deferred stock compensation - - (613) - -
Dividend paid - - - - (6,169)
Net income - - - - 16,482
---------- ---------- ----------- -------------- ----------
BALANCE AS OF JUNE 30, 2002 38,905,182 $11,090 $245,902 - $136,940
========== ========== =========== ============== ==========
TOTAL
TREASURY COMPREHENSIVE
STOCK TOTAL INCOME
----------- ---------- -------------
UNAUDITED
BALANCE AS OF JANUARY 1, 2003 $(4,321) $411,361
Exercise of options - 3,415
Tax benefit in respect of options exercised - 434
Amortization of deferred stock compensation - 6,421
Dividend paid - (7,051)
Net income - 21,466 $21,466
Unrealized gains on derivative instruments - 2,144 2,144
----------- ---------- -------------
BALANCE AS OF JUNE 30, 2003 $(4,321) $438,190 $23,610
=========== ========== =============
BALANCE AS OF JANUARY 1, 2002 $(4,321) $377,985
Exercise of options - 1,590
Tax benefit in respect of options exercised - 336
Amortization of deferred stock compensation - (613)
Dividend paid - (6,169)
Net income - 16,482 $16,482
----------- ---------- -------------
BALANCE AS OF JUNE 30, 2002 $(4,321) $389,611 $16,482
=========== ========== =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
- 5 -
ELBIT SYSTEMS LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHARHOLDER'S EQUITY
(In thousands of U.S. dollars)
ACCUMULATED
ADDITIONAL OTHER
NUMBER OF SHARE PAID-IN COMPREHENSIVE RETAINED
SHARES CAPITAL CAPITAL LOSS EARNINGS
-------------- ----------- ------------- -------------- -----------
UNAUDITED
BALANCE AS OF APRIL 1, 2003 38,843,262 $11,162 $250,250 $(2,882) $167,786
Exercise of options 308,886 69 2,918 - -
Tax benefit in respect of options exercised - - 382 - -
Amortization of deferred stock compensation - - 5,030 - -
Dividend paid - - - - (3,559)
Net income - - - - 9,211
Unrealized gains on derivative instruments - - - 2,144 -
-------------- ----------- ------------- -------------- -----------
BALANCE AS OF JUNE 30, 2003 39,152,148 $11,231 $258,580 $(738) $173,438
============== =========== ============= ============== ===========
BALANCE AS OF APRIL 1, 2002 38,853,750 $11,079 $245,695 - $135,271
Exercise of options 51,432 11 455 - -
Tax benefit in respect of options exercised - - 66 - -
Amortization of deferred stock compensation - - (314) - -
Dividend paid - - - - (3,103)
Net income - - - - 4,772
-------------- ----------- ------------- -------------- -----------
BALANCE AS OF JUNE 30, 2002 38,905,182 $11,090 $245,902 - $136,940
============== =========== ============= ============== ===========
AUDITED
BALANCE AS OF JANUARY 1, 2002 38,330,272 $11,054 $244,625 - $126,627
Exercise of options 473,235 100 4,040 - -
Tax benefit in respect of options exercised - - 648 - -
Amortization of deferred stock compensation - - (926) - -
Dividend paid - - - - (12,717)
Net income - - - - 45,113
Minimum pension liability - - - (2,882) -
-------------- ----------- ------------- -------------- -----------
BALANCE AS OF DECEMBER 31, 2002 38,803,507 $11,154 $248,387 $(2,882) $159,023
============== =========== ============= ============== ===========
TOTAL
TREASURY COMPREHENSIVE
STOCK TOTAL INCOME
------------- ------------ --------------
UNAUDITED
BALANCE AS OF APRIL 1, 2003 $(4,321) $421,995
Exercise of options - 2,987
Tax benefit in respect of options exercised - 382
Amortization of deferred stock compensation - 5,030
Dividend paid - (3,559)
Net income - 9,211 $9,211
Unrealized gains on derivative instruments - 2,144 2,144
------------- ------------ --------------
BALANCE AS OF JUNE 30, 2003 $(4,321) $438,190 $11,355
============= ============ ===============
BALANCE AS OF APRIL 1, 2002 $(4,321) $387,724
Exercise of options - 466
Tax benefit in respect of options exercised - 66
Amortization of deferred stock compensation - (314)
Dividend paid - (3,103)
Net income - 4,772 $4,772
------------- ------------ --------------
BALANCE AS OF JUNE 30, 2002 $(4,321) $389,611 $4,772
============= ============ ===============
AUDITED
BALANCE AS OF JANUARY 1, 2002 $(4,321) $377,985
Exercise of options - 4,140
Tax benefit in respect of options exercised - 648
Amortization of deferred stock compensation - (926)
Dividend paid - (12,717)
Net income - 45,113 $45,113
Minimum pension liability - (2,882) (2,882)
------------- ------------ --------------
BALANCE AS OF DECEMBER 31, 2002 $(4,321) $411,361 $42,231
============= ============ ===============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
- 6 -
ELBIT SYSTEMS LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
SIX MONTHS ENDED
JUNE 30, YEAR ENDED
----------------------- DECEMBER 31,
2003 2002 2002
(UNAUDITED) (AUDITED)
----------------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $21,466 $16,482 $45,113
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 18,452 15,683 32,937
Amortization of deferred stock compensation 6,421 (613) (926)
Deferred income taxes (1,536) 830 (5,620)
Severance pay fund (1,091) 770 (113)
Accrued severance pay 1,794 1,039 6,373
Loss on disposal of property plant and equipment 141 700 743
Tax benefit in respect of options exercised 434 336 648
Other adjustments 417 7 683
Minority interests (690) (130) 508
Equity in net earnings of affiliated companies and partnership, net of
dividend received (2,789) (1,440) (675)
Changes in operating assets and liabilities:
Decrease in trade and other receivables and prepaid expenses 12,589 24,846 58,554
Increase in inventories (41,998) (46,139) (55,106)
Increase (decrease) in trade and other payables and accrued expenses 47,075 (13,840) (19,321)
Increase (decrease) in advances received from customers (49,288) 41,985 42,999
Liabilities to Chief Scientist (204) 9,933 9,197
---------- ---------- ---------
Net cash provided by operating activities 11,193 50,449 115,994
---------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment and other assets (29,147) (18,343) (46,003)
Investment grants received for property, plant and equipment - - 119
Acquisition of business or subsidiary (Schedule A) (1,052) (5,280) (5,280)
Investments in affiliated companies and subsidiaries - (1,756) (1,681)
Proceeds from sale of property, plant and equipment and investments 2,112 740 956
Long-term loan granted - - (714)
Long-term loan repaid 2,400 - -
Short-term loan repaid (granted) (350) - 1,371
Long-term bank deposits made (794) (488) (1,228)
Long-term bank deposits redeemed 1,413 1,040 1,689
Short-term bank deposits, net 255 (114) (204)
---------- ---------- ---------
Net cash used in investing activities (25,163) (24,201) (50,975)
---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of options 3,415 1,590 4,140
Repayment of long-term bank loans (7,278) (865) (3,249)
Proceeds from long-term bank loans - 2,116 2,233
Dividends paid (7,051) (6,169) (12,717)
Change in short-term bank credit and loans, net (4,396) (7,411) (19,729)
---------- ---------- ---------
Net cash used in financing activities (15,310) (10,739) (29,322)
---------- ---------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (29,280) 15,509 35,697
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 76,280 40,583 40,583
---------- ---------- ---------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $47,000 $56,092 $76,280
========== ========== =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
- 7 -
ELBIT SYSTEMS LTD.
AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
(In thousands of U.S. dollars)
SIX MONTHS ENDED
JUNE 30, YEAR ENDED
------------------------ DECEMBER 31,
2003 2002 2002
--------- -------- -------------
(UNAUDITED) (AUDITED)
SUPPLEMENTARY CASH FLOWS ACTIVITIES:
Cash paid during the period for:
Income taxes $8,167 $7,358 $21,730
========= ========= =============
Interest $1,214 $1,907 $2,947
========= ========= =============
SCHEDULE A:
Company or business acquired
Estimated net fair value of assets acquired and
liabilities assumed at the date of acquisition:
Working capital deficiency (except cash and cash equivalents) $ 816 $ - $ -
Property, plant and equipment (168) (275) (275)
Know-how and other intangible assets - (5,125) (5,078)
Deferred income taxes (1,700) - -
--------- --------- -------------
(1,052) (5,400) (5,353)
Less - short-term debt incurred on acquisition - 120 73
--------- --------- -------------
$(1,052) $(5,280) $(5,280)
========= ========= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
- 8 -
ELBIT SYSTEMS LTD.
AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(In thousands of U.S. dollars)
NOTE 1 - GENERAL
The accompanying financial statements have been prepared in a
condensed format as of June 30, 2003, and for the six months and
three months then ended in accordance with generally accepted
accounting principles in the United States (U.S. GAAP) relating to
the preparation of financial statements for interim periods. See
Note 6 for the reconciliation from US 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, 2002.
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, 2002, in order to conform with the current
year's presentation.
Operating results for the six months ended June 30, 2003, are not
necessarily indicative of the results that may be expected for the
year ending December 31, 2003.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed in the preparation of
these statements are identical to those applied in preparation of
the latest annual financial statements.
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.
- 9 -
ELBIT SYSTEMS LTD.
AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
(In thousands of U.S. dollars)
NOTE 3 - INVENTORIES, NET OF ADVANCES
JUNE 30 DECEMBER 31,
2003 2002
----------- ------------
(UNAUDITED) (AUDITED)
Cost of long-term contracts in progress $251,430 $210,418
Raw materials 84,795 75,579
Advances to suppliers and subcontractors 23,062 25,047
----------- ------------
359,287 311,044
Less-
Cost of contracts in progress deducted
from customer advances 15,534 10,658
----------- ------------
343,753 300,386
Less -
Advances received from customers 60,654 67,624
Provision for losses 14,652 12,363
----------- ------------
$268,447 $220,399
=========== ============
NOTE 4 - COMPANY ACQUIRED
On June 30, 2003, the Company (through El-Op) acquired all of the
outstanding ordinary shares of Optronics Instruments & Products N.V.
(O.I.P.), a company registered in Belgium, in consideration for Euro
1.6 million in cash ($1,846). The acquisition was accounted for by
the purchase method of accounting.
O.I.P. develops, manufactures and supports electro-optical products,
mainly for the defense and space markets.
The following table summarizes the estimated fair values of the
assets acquired and liabilities assumed at the date of acquisition.
Current assets $6,896
Property and equipment 168
Deferred tax assets 1,700
-------
TOTAL ASSETS ACQUIRED 8,764
Current liabilities (6,918)
-------
Net assets acquired $1,846
=======
- 10 -
NOTE 5 - STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board
Opinion No. 25, ("APB 25") "Accounting for Stock Issued to
Employees" and the FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" in accounting for
its employee stock option plans. According to APB 25, compensation
expense is measured under the intrinsic value method, whereby
compensation expense is equal to the excess, if any, of the quoted
market price of the stock at the grant date of the award or other
measurement date over the exercise price.
The following pro forma information presents the effect on the
Company's consolidated stock-based employee compensation expense,
net income and earnings per share as if the fair value based method
provided under FASB statement No. 123 had been applied to all
outstanding awards in each period.
Under SFAS 123, the fair value of each option grant was estimated on
the date of grant using the Black-Scholes option-pricing model.
SIX MONTHS ENDED THREE MONTHS ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31,
2003 2002 2003 2002 2002
----------------------- ------------------------- ------------
(UNAUDITED) (UNAUDITED) (AUDITED)
----------------------- ------------------------- ------------
Net income as reported $21,466 $16,482 $9,211 $4,772 $45,113
Stock-based compensation expense (income), net of
related tax effects as reported 5,137 (478) 4,115 (257) (767)
Stock-based compensation expense under fair value
based method of SFAS 123, net of related tax effects (1,478) (1,441) (799) (760) (3,059)
-------- --------- -------- -------- ----------
Pro forma net income $25,125 $14,563 $12,527 $3,755 $41,287
======== ========= ======== ======== =========
Basic earnings per share as reported $0.55 $0.43 $0.24 $0.12 $1.17
======== ========= ======== ======== =========
Pro forma basic earnings per share $0.65 $0.38 $0.32 $0.10 $1.07
======== ========= ======== ======== =========
Diluted earnings per share as reported $0.54 $0.41 $0.23 $0.12 $1.13
======== ========= ======== ======== =========
Pro forma diluted earnings per share $0.63 $0.36 $0.31 $0.09 $1.04
======== ========= ======== ======== =========
- 11 -
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 2002 annual
financial statements for a description of the differences between US
GAAP and Israeli GAAP in respect of the Company. The effects of the
differences between US GAAP and Israeli GAAP on the Company's
financial statements are detailed below.
1. EFFECT ON NET INCOME AND EARNINGS PER SHARE
SIX YEAR
MONTHS ENDED ENDED
JUNE 30, DECEMBER 31,
2003 2002 2002
-------- --------- -------------
(UNAUDITED) (AUDITED)
Net income as reported
according to U.S. GAAP $21,466 $16,482 $45,113
Adjustments to Israeli GAAP 3,595 (2,532) (4,227)
-------- --------- -------------
Net income according to Israeli GAAP $25,061 $13,950 $40,886
======== ========= =============
2. EFFECT ON SHAREHOLDERS' EQUITY
AS PER
AS ISRAELI
REPORTED ADJUSTMENTS GAAP
-------- ----------- -------------
AS OF JUNE 30, 2003 (UNAUDITED)
Shareholders' equity $438,190 $(7,915) $(430,275)
========= ========= ==========
AS OF DECEMBER 31, 2002 (AUDITED)
Shareholders' equity $411,361 $(11,076) $400,285
========= ========= ==========
# # # # # # #
- 12 -
EXHIBIT 3
---------
[LOGO OF ELBIT SYSTEMS]
EARNINGS RELEASE
----------------
ELBIT SYSTEMS REPORTS SECOND QUARTER 2003 RESULTS
-------------------------------------------------
Revenues Increase 13.2%; Backlog of Orders Reaches $1,695 million;
Haifa, Israel, August 12, 2003 - Elbit Systems Ltd. (the "Company") (NASDAQ:
ESLT), the international defense company, today reported its consolidated
results for the quarter ended June 30, 2003.
Consolidated revenues for the second quarter of 2003 increased 13.2% to $218.8
million from $193.2 million in the corresponding quarter in 2002.
Consolidated revenues for the six months ended June 30, 2003 increased 11.1% to
$420.9 million from $379.0 million in the same period in 2002.
Consolidated net income for the second quarter of 2003 was $9.2 million (4.2% of
revenues) as compared with $4.8 million (2.5% of revenues) in the same period in
2002. Diluted earnings per share for the second quarter of 2003 was $0.23 as
compared with $0.12 for the second quarter of 2002.
The Company's financial results were affected by the increase in the Company's
share price during the first six months of 2003, due to a non-cash expense
related to the employees "phantom" option plan.
Excluding the phantom option plan non-cash expenses, net income in the second
quarter of 2003 was $13.3 million (6.1% of revenues), and the diluted EPS was
$0.33.
Net income for the second quarter of 2002, excluding the non-recurring charge
under the agreement with the Office of the Israeli Chief Scientist (OCS), as
previously reported and the phantom option plan effect, was $12.4 million (6.4%
of revenues), or $0.31 per share.
Consolidated net income for the first six months of 2003 was $21.5 million (5.1%
of revenues), compared with $16.5 million (4.3% of revenues) for the same period
in 2002.
Diluted EPS for the six months ended June 30, 2003 was $0.54 compared with $0.41
for the corresponding period of 2002.
Excluding the phantom option plan non-cash expenses in 2003, net income for the
six months ended June 30, 2003 was $26.6 million (6.3% of revenues), and the EPS
was $0.66. Excluding the non-recurring charge under the OCS agreement and the
phantom option plan effect, net income for the six-month period ended June 30,
2002 was $23.8 million (6.3% of revenues), and the EPS was $0.60.
Gross profit for the second quarter of 2003 was $57.4 million (26.2% of
revenues), as compared with gross profit of $43.3 million (22.4% of revenues) in
the second quarter of 2002.
Excluding non-cash expense related to the Company's phantom option compensation
costs, gross profit in the quarter ended June 30, 2003, was $60.4 million, or
27.6% of revenues.
Excluding the non-recurring charge under the OCS agreement and the phantom
option plan effect, gross profit in the quarter ended June 30, 2002 was $52.9
million, or 27.4% of revenues.
Gross profit for the first six months of 2003 was $114.1 million (27.1% of
revenues) as compared with $95.5 million (25.2% of revenues) in the same period
of 2002.
Excluding non-cash expenses related to the Company's phantom option plan, gross
profit for the six months ended June 30, 2003 was $117.7 million, or 28.0% of
revenues.
Excluding the non-recurring charge under the OCS agreement and the phantom
option plan effect, gross profit for the six-month period ended June 30, 2002
was $105.0 million, or 27.7% of revenues.
Backlog of orders as of June 30, 2003 reached $1,695 million, as compared with
$1,689 million at the end of 2002. 61% of the backlog relates to orders outside
of Israel. Approximately 71% of the Company's backlog as of June 30, 2003, is
scheduled to be performed in the next two quarters of 2003 and during 2004. The
relatively small increase in the Company's backlog was caused primarily by a
slowdown in orders received from the Israeli Ministry of Defense.
The President and CEO of Elbit Systems, Joseph Ackerman, commented: "Our results
for the second quarter of 2003 reflect the continued growth of the Company.
However, during the quarter we have witnessed a slowdown in orders received from
the Israeli Ministry of Defense."
The Board of Directors declared a dividend of $0.10 per share for the second
quarter of 2003. The dividend will be paid on September 8, 2003, net of taxes
and levies, at the rate of 19%. The record date of the dividend is August 26,
2003.
Conference Call
Elbit Systems will host a conference call today, Tuesday, August 12, 2003 at
10:30 AM ET. To take part in the conference call, please dial 1-866-500-4965
(U.S. and Canada) or 1-877-332-1104 (U.S.) or +972-3-925-5910 (International) a
few minutes before the 10:30 AM ET start time. For your convenience, an instant
replay will be available starting at 12:30 PM ET the same day until Thursday,
August 14, 2003 at 5:00 PM ET. The replay telephone number is 1-866-500-4965
(U.S. and Canada) or +972-3-925-5945 (International).
This call will also be broadcasted live on: www.elbit.co.il and an online replay
will be available for 30 days.
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
and intelligence (C4I) 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.elbit.co.il.
Contact
Ilan Pacholder, VP Finance Marilena LaRosa
Elbit Systems Ltd Investor Relations
Tel: 972-4 831-6632 The Anne McBride Company
Fax: 972-4 831-6659 1212-983-1702 ext. 208
pacholder@elbit.co.il mlarosa@annemcbride.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 FOLLOW)
ELBIT SYSTEMS LTD.
CONSOLIDATED BALANCE SHEETS
(In thousand of US Dollars)
June 30 December 31
2003 2002
------- -------
Unaudited Audited
Assets
------
Current Assets:
Cash and short term deposits 49,260 77,930
Trade receivable and others 277,819 262,100
Inventories, net of advances 268,447 220,399
------- -------
Total current assets 595,526 560,429
Affiliated Companies & other Investments 34,498 33,051
Long-term receivables & others 10,260 31,186
Fixed Assets, net 215,360 202,961
Other Assets, net 102,417 105,769
------- -------
958,061 933,396
======= =======
Liabilities and Shareholder's Equity
------------------------------------
Current liabilities 399,163 362,835
Long-term liabilities 116,681 154,483
Minority Interest 4,027 4,717
Shareholder's equity 438,190 411,361
------- -------
958,061 933,396
======= =======
ELBIT SYSTEMS LTD.
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(In thousand of US Dollars, except for per share amounts)
For the Year
Six Months Ended Three Months Ended Ended
June 30 June 30 December 31
--------------------- -------------------- ------------
2003 2002 2003 2002 2002
Unaudited Unaudited Audited
Revenues 420,948 378,988 218,758 193,202 827,456
Cost of revenues 306,804 273,677 161,405 140,144 595,512
Non-recurring OCS charge - 9,801 - 9,801 9,801
------- ------- ------- ------- -------
Gross Profit 114,144 95,510 57,353 43,257 222,143
Research and development, net 28,488 24,925 13,586 12,293 57,010
Marketing and selling 35,123 29,943 19,095 15,255 65,691
General and administrative 22,889 19,981 11,938 10,265 41,651
------- ------- ------- ------- -------
Total operating expenses 86,500 74,849 44,619 37,813 164,352
------- ------- ------- ------- -------
Operating income 27,644 20,661 12,734 5,444 57,791
Financial expenses, net (3,306) (95) (2,030) (103) (3,035)
Other income (expenses), net 91 (409) (18) (263) (462)
------- ------- ------- ------- -------
Income before income taxes 24,429 20,157 10,686 5,078 54,294
Provisions for income taxes 6,602 5,245 2,956 1,331 9,348
------- ------- ------- ------- -------
17,827 14,912 7,730 3,747 44,946
Company's share of partnerships and
affiliated Companies income (loss), net 2,949 1,440 1,048 1,443 675
Minority rights 690 130 433 (418) (508)
------- ------- ------- ------- -------
Net income 21,466 16,482 9,211 4,772 45,113
======= ======= ======= ======= =======
Basic Earnings per share 0.55 0.43 0.24 0.12 1.17
======= ======= ======= ======= =======
Diluted net earnings per share 0.54 0.41 0.23 0.12 1.13
======= ======= ======= ======= =======
======================================================================================================================
Net earnings excluding phantom plan effect
in 2003 and 2002, and non-recurring OCS
charge and tax adjustment in 2002 26,603 23,844 13,326 12,355 50,153
======= ======= ======= ======= =======
Diluted earnings per share excluding phantom
plan effect in 2003 and 2002, and
non-recurring OCS charge and tax adjustment
in 2002 0.66 0.60 0.33 0.31 1.26
======= ======= ======= ======= =======