SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the Month of May 2004
-----------------------
ELBIT SYSTEMS LTD.
(Translation of Registrant's Name into English)
Advanced Technology Center, P.O.B. 539, Haifa 31053, Israel
(Address of Principal Corporate Offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F:
|X| Form 20-F |_| Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): |_|
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a
Form 6-K if submitted solely to provide an attached annual report to security
holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): |_|
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a
Form 6-K submitted to furnish a report or other document that the registrant
foreign private issuer must furnish and make public under the laws of the
jurisdiction in which the registrant is incorporated, domiciled or legally
organized (the registrant's "home country"), or under the rules of the home
country exchange on which the registrant's securities are traded, as long as the
report or other document is not a press release, is not required to be and has
not been distributed to the registrant's security holders, and, if discussing a
material event, has already been the subject of a Form 6-K submission or other
Commission filing on EDGAR.
Indicate by check mark whether the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:
|_| Yes |X| No
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82-______________
Attached hereto as Exhibit 1 and incorporated herein by reference is the
Registrant's press release, dated May 11, 2004.
Attached hereto as Exhibit 2 and incorporated herein by reference is the
Registrant's Management Report with respect to the results of operations of the
Registrant for the quarter ended March 31, 2004.
Attached hereto as Exhibit 3 and incorporated herein by reference is the
Registrant's condensed interim consolidated financial statements as of March 31,
2004.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ELBIT SYSTEMS LTD.
(Registrant)
By:
--------------------------------------
Name: Ilan Pacholder
Title: Corporate Secretary
Dated: May 11, 2004
EXHIBIT INDEX
Exhibit No. Description
1. Press Release, dated May 11, 2004.
2. Registrant's Management Report for the quarter ended
March 31, 2004.
3. Registrant's condensed interim consolidated financial statements
as of March 31, 2004.
Exhibit 1
[LOGO OF ELBIT SYSTEMS LTD.]
Earnings Release
ELBIT SYSTEMS REPORTS FIRST QUARTER 2004 RESULTS
Backlog of Orders $1,821 million
Revenues increase 5.7%
Earnings per Share $0.31
Haifa, Israel, May 11, 2004 - Elbit Systems Ltd. (the "Company") (NASDAQ: ESLT),
the international defense company, today reported its consolidated results for
the first quarter ended March 31, 2004.
Consolidated revenues for the first quarter of 2004 increased 5.7% to $213.7
million from $202.2 million in the corresponding quarter in 2003.
Consolidated net income for the first quarter of 2004 was $12.7 million (6.0% of
revenues) as compared with $12.3 million (6.1% of revenues) in the same period
in 2003. Diluted earnings per share for the first quarter of 2004 were $0.31,
same as that for the first quarter of 2003.
Gross profit for the first quarter of 2004 was $56.9 million (26.6% of
revenues), as compared with gross profit of $56.9 million (28.1% of revenues) in
the first quarter of 2003.
Backlog of orders as of March 31, 2004 reached $1,821 million, as compared with
$1,752 million at the end of 2003. 64% of the backlog relates to orders outside
of Israel. Approximately 73% of the Company's backlog as of March 31, 2004, is
scheduled to be performed in the next three quarters of 2004 and during 2005.
The President and CEO of Elbit Systems, Joseph Ackerman, commented: "We are
pleased to report our first quarter 2004 results, in which we achieved increased
revenues and cash flow, improved our gross profit margin and reached a record
backlog of orders. We are benefiting from the successful implementation of R&D
programs and from marketing successes that are expected to bring follow-on
orders in coming years. These results evidence our commitment to the continued
improvement of our profitability while continuing our R&D activities and
developing our business in the various markets and wide range of technologies in
which we operate".
The Board of Directors declared a dividend of $0.11 per share for the first
quarter of 2004. The dividend will be paid on June 21, 2004, net of taxes and
levies, at the rate of 19%. The record date of the dividend is June 8, 2004.
The Company will host a conference call on at 10:30am EST on Tuesday, May 11. On
the call, Mr. Joseph Ackerman, President and CEO and Mr. Ilan Pacholder, Vice
President Finance, will review and discuss the first quarter 2004 results and
will be available to answer questions.
To participate, please call one of the following teleconferencing numbers.
Please begin placing your calls 5 minutes before the conference call commences.
If you are unable to connect using the toll-free numbers, please try the
international dial-in number.
US Dial-in Numbers: 1-866 500 4953 or 1866 276 1004
UK Dial-in Number: 0 800 917 4256
ISRAEL Dial-in Number: 03 925 5910
INTERNATIONAL Dial-in Number: +972 3 925 5910
This call will be broadcasted live on Elbit Systems' web-site at
http://www.elbitsystems.com. An online replay will be available for 30 days.
In addition, a replay of the call will be available by telephone starting two
hours after the call ends until Thursday, May 13, 10:30 am EST. To access the
replay please dial: 1-866-276-1002 (US), 972-3-925-5948 (Israel) and
0-800-169-8104 (UK).
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 (C4I ISR) 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, V.P. Finance Ehud Helft / Kenny Green
Elbit Systems Ltd Gelbart Kahana
Tel: +972-4 831-6632 Tel: 1-866-704-6710
Fax: +972-4 831-6659 Fax: + 972 - 3 - 607 - 4711
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)
March 31 December 31
2004 2003
--------- ---------
Unaudited Audited
Assets
Current Assets:
Cash and short term deposits 90,853 76,846
Trade receivable and others 222,704 251,644
Inventories, net of advances 247,584 249,225
--------- ---------
Total current assets 561,141 577,715
Affiliated Companies & other Investments 38,238 38,223
Long-term receivables & others 76,105 78,565
Fixed Assets, net 231,026 229,221
Other assets, net 98,190 100,012
--------- ---------
1,004,700 1,023,736
========= =========
Liabilities and Shareholder's Equity
Current liabilities 358,766 378,731
Long-term liabilities 176,864 188,811
Minority Interest 4,165 4,115
Shareholder's equity 464,905 452,079
--------- ---------
1,004,700 1,023,736
========= =========
ELBIT SYSTEMS LTD.
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(In thousand of US Dollars, except for per share amounts)
Three Months Ended Year Ended
March 31 December 31
2004 2003 2003
------- ------- -------
Unaudited Audited
Revenues 213,672 202,190 897,980
Cost of revenues 156,752 145,291 673,561
------- ------- -------
Gross Profit 56,920 56,899 224,419
Research and development, net 13,264 14,852 54,919
Marketing and selling 16,409 16,153 69,943
General and administrative 11,413 10,984 46,077
------- ------- -------
Total operating expenses 41,086 41,989 170,939
------- ------- -------
Operating income 15,834 14,910 53,480
Financial expenses, net (480) (1,276) (4,870)
Other income, net 215 109 903
------- ------- -------
Income before income taxes 15,569 13,743 49,513
Provisions for income taxes 4,195 3,646 11,334
------- ------- -------
11,374 10,097 38,179
Company's share of partnerships and affiliated
Companies income, net 1,358 1,901 7,209
Minority rights (5) 257 557
------- ------- -------
Net income 12,727 12,255 45,945
======= ======= =======
Earnings per share
Basic net earnings per share 0.32 0.32 1.18
======= ======= =======
Diluted net earnings per share 0.31 0.31 1.14
======= ======= =======
Exhibit 2
Elbit Systems Ltd.
Management's Report
For The Quarter Ended March 31, 2004
This report should be read together with the Company's unaudited financial
statements for the quarter ended March 31, 2004, the Company's audited
consolidated financial statements and related notes for the year ended
December 31, 2003, the Company's management report for the year ended
December 31, 2003 and the Company's Form 20-F for the year ended December
31, 2002, 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 operates in the area of upgrading existing airborne, ground
and naval defense platforms and is engaged in projects involving the
design, development, manufacture and integration of advanced integrated
defense systems, electronic systems, electro-optic systems and products and
software intensive programs and products for the defense and homeland
security sectors. In addition, the Company provides support services for
such platforms, systems and products.
The Company is engaged in leading projects in Israel and worldwide, in
areas such as air, ground and naval Command, Control, Communication,
Computers, Intelligence, Surveillance and Reconnaissance ("C4ISR") systems,
digital maps, night vision systems, pilot helmet mounted systems, display
and data processing systems, unmanned air vehicles ("UAVs"), computerized
simulators, communication systems, thermal imaging products, laser
products, optical systems for space applications, airborne reconnaissance
systems, optic communication systems and products, systems for Homeland
Defense products, surveillance products and systems and electric drive
systems.
The Company provides a wide range of logistic support services, including
operation of pilot training services for the Israeli Air Force on a private
financing initiative ("PFI") basis. Several of the Group's companies also
provide advanced engineering and manufacturing services to various
customers, utilizing their significant manufacturing capabilities. The
Company often cooperates with industries in Israel and in various other
countries.
The Company tailors and adapts its technologies, integration skills, market
knowledge and battle-proven systems to each customer's individual
requirements in both existing and new platforms. By upgrading existing
platforms with advanced electronic and electro-optic technologies, the
Company provides customers with cost-effective solutions, and its customers
are able to improve their technological and operational capabilities within
limited defense budgets.
1
The Company operates in a competitive environment for most of its projects,
systems and products. Competition is based on product and program
performance, price, reputation, reliability, maintenance costs and
responsiveness to customer requirements. This includes the ability to
respond to rapid changes in technology. In addition, its competitive
position sometimes is affected by specific requirements in particular
markets.
Financial Highlights
The Company's revenues increased by 5.7% and reached $213.7 million in the
first quarter of 2004, as compared to $202.2 million in the first quarter
of 2003. The main increase in revenues was in the armored vehicles systems
area.
Net earnings in the first quarter of 2004 were $12.7 million and the
diluted earnings per share were $0.31, as compared to $12.3 million and
$0.31 in the first quarter of 2003.
The Company's backlog as of March 31, 2004 reached $1.82 billion, and the
Company's cash flow generated from operations in the first quarter of 2004
was $25.3 million.
B. Backlog of Orders
The Company's backlog of orders as of March 31, 2004 reached $1,821
million, of which 64% were for orders outside Israel. The Company's backlog
as of December 31, 2003 was $1,752 million, of which 63% were for orders
outside Israel.
Approximately 74% of the Company's backlog as of March 31, 2004 is
scheduled to be performed in the following three quarters of 2004 and
during 2005. The majority of the 26% balance is scheduled to be performed
in 2006 and 2007.
C. Critical Accounting Policies and Estimates
The Company's significant accounting policies are described in Note 2 to
the audited consolidated financial statements for the year ended December
31, 2003 and in Note 2 to the un-audited consolidated financial statements
for the quarter ended March 31, 2004. See also the Company's management
report for the year ended December 31, 2003.
D. Sarbanes-Oxley Act
According to Section 404 of the U.S. Sarbanes-Oxley Act of 2002, the
Company is required to include in its annual report for 2005 an assessment,
as of the end of the fiscal year, of the effectiveness of its internal
controls and procedures for financial reporting.
During 2003 and the first quarter of 2004, the Company took steps to assure
compliance of its documentation and controls over financial reporting with
the guidelines stipulated in the Sarbanes-Oxley Act. The Company plans to
continue with these steps during the remainder of 2004 and 2005.
2
E. New Accounting Standards
The significant accounting policies in the preparation of these statements
are identical to those applied in preparation of the latest annual
financial statements except as follows:
In January 2003, the FASB issued Financial Accounting Standard Board (FASB)
issued Interpretation No. 46, Consolidation of Variable Interest Entities,
an interpretation of ARB No. 51 ("FIN 46"). In December 2003, the FASB
modified FIN 46 to make certain technical corrections and address certain
implementation issues that arose. FIN 46 provides a new framework for
identifying Variable Interest Entities ("VIEs") and determining when a
company should include the assets, liabilities, non-controlling interests
and results of activities of a VIE in the activities of the company's
financial statements. The provisions of FIN 46 were adopted as of March 31,
2004. The adoption of FIN 46 did not have significant effect on the
Company's financial statements.
F. Employee Stock Option Plan
The change in the Company's share price affected the Company's financial
results due to the impact of the employee stock option plan adopted in
2000. The plan was comprised of options for 5 million shares, divided into
options to purchase up to 2.5 million shares and an additional 2.5 million
"phantom" options. The phantom options grant the option holders a number of
shares corresponding to the benefit component of the options exercised, as
calculated on the exercise date, in consideration for their par value only,
and are considered as a variable option plan. The actual number of options
granted as of March 31, 2004 was approximately 4.6 million.
Under U.S. GAAP, the total compensation is computed periodically according
to the change in the share price and amortized as compensation expense, or
income, based on the vesting period of the options. The amount of the
expense related to the stock option compensation in the first quarter of
2004 was not material.
3
G. Summary of Financial Results
The following table sets forth the consolidated statements of operations of
the Company and its subsidiaries for the three-month periods ended March
31, 2004 and March 31, 2003.
For the three months ended
March 31
--------------------------------------------
2004 2003
-------------------- --------------------
$ % $ %
------- ----- ------- -----
(In thousands of U.S. dollars, except per share data)
Total revenues 213,672 100.0 202,190 100.0
Cost of revenues 156,752 73.4 145,291 71.9
------- ----- ------- -----
Gross profit 56,920 26.6 56,899 28.1
------- ----- ------- -----
Research and Development (R&D) expenses 16,431 7.7 15,724 7.8
Less - participation (3,167) (1.5) (872) (0.4)
------- ----- ------- -----
R&D expenses, net 13,264 6.2 14,852 7.3
Marketing and selling expenses 16,409 7.7 16,153 8.0
General and administrative expenses 11,413 5.3 10,984 5.4
------- ----- ------- -----
41,086 19.2 41,989 20.7
------- ----- ------- -----
Operating income 15,834 7.4 14,910 7.4
Finance expenses, net (480) (0.2) (1,276) (0.6)
Other expenses, net 215 0.1 109 0.1
------- ----- ------- -----
Income before taxes on income 15,569 7.3 13,743 6.9
Taxes on income 4,195 2.0 3,646 1.8
------- ----- ------- -----
11,374 5.3 10,097 5.1
Minority interest in gains (losses) of subsidiaries (5) 0.0 257 0.1
Equity in net earnings of affiliated companies and
partnership
1,358 0.7 1,901 0.9
------- ----- ------- -----
Net earnings 12,727 6.0 12,255 6.1
======= ===== ======= =====
Diluted earnings per share 0.31 0.31
======= =======
4
First Quarter of 2004 Compared with the First Quarter of 2003
Revenues
The Company's consolidated revenues increased by 5.7%, from $202.2 million
in the first quarter of 2003 to $213.7 million in the first quarter of
2004.
The following table sets forth the Company's revenue distribution by areas
of operation:
Three-Month Period ended
--------------------------------
March 31, 2004 March 31, 2003
-------------- --------------
$ millions % $ millions %
Airborne systems 88.6 41.4 98.9 48.9
Armored vehicle systems 54.6 25.6 32.3 16.0
C4I systems 29.5 13.8 32.0 15.8
Electro-optics 30.7 14.4 27.2 13.5
Other (mainly non-defense engineering and
production services) 10.3 4.8 11.8 5.8
----- ----- ----- -----
Total 213.7 100.0 202.2 100.0
===== ===== ===== =====
The decrease in the airborne systems sales was mainly as a result of
completion of certain upgrade programs, while new programs are expected to
generate revenues in the future.
The increase in the armored vehicle systems revenues of approximately 69%
was mainly due to revenues from fire control systems sold for new armored
vehicle projects in various countries.
The following table sets forth the Company's distribution of revenues by
geographical regions:
Three-Month Period ended
--------------------------------
March 31, 2004 March 31, 2003
-------------- --------------
$ millions % $ millions %
Israel 53.9 25.2 50.4 24.9
United States 79.5 37.2 77.1 38.1
Europe 32.1 15.0 21.4 10.6
Other countries 48.2 22.6 53.3 26.4
----- ----- ----- -----
Total 213.7 100.0 202.2 100.0
===== ===== ===== =====
The Company's sales are primarily to governmental entities and prime
contractors under government defense programs. Accordingly, the level of
the Company's revenues is subject to governmental budgetary constraints.
The recent economic situation in Israel has created some uncertainty with
respect to the Israeli Government's general and defense budgets.
Revenues in Europe increased by 50%, from $21.4 million to $32.1 million.
The increase was partly due to consolidating sales of a subsidiary in
Europe ("OIP") that was acquired during the second half of 2003 and from
other new projects sold to European customers.
5
Gross Profit
Gross profit in the quarter ended March 31, 2004 was $56.9 million, similar
to the quarter ended March 31, 2003. The gross profit margin in the first
quarter of 2004 was 26.6%, as compared to 28.1% in the first quarter of
2003 and to 25% in the year 2003.
The Company believes that its average annual gross profit margin for 2004
will not be materially different from its annual gross profit margin in
2003, with possible quarterly variations.
Research and Development ("R&D")
The Company continually invests in R&D in order to maintain and further
advance its technologies, in accordance with a long-term plan, based on its
estimate of future market needs.
The Company's R&D activities in the reported period were in accordance with
its plans. Some of these activities are coordinated with, and partially
funded by, third parties, including the Israeli Ministry of Defense
("IMOD") and the Office of the Chief Scientist ("OCS"). These programs were
mainly in the areas of advanced airborne systems, cutting edge
electro-optics technology and products for surveillance, aerial
reconnaissance, lasers and space based sensors. The Company experienced
increased IMOD and OCS participation in these programs.
Gross R&D expenses in the quarter ended March 31, 2004 totaled $16.4
million (7.7% of revenues), as compared to $15.7 million (7.8% of revenues)
in the quarter ended March 31, 2003.
Net R&D expenses (after deduction of third party participation, including
the IMOD and the OCS) in the quarter ended March 31, 2004 totaled $13.3
million (6.2% of revenues), as compared to $14.9 million (7.3% of revenues)
in the quarter ended March 31, 2003.
Marketing and Selling Expenses
The Company maintains its activities in developing new markets and pursues
at any given time various business opportunities according to the Company's
plan.
Marketing and selling expenses in the quarter ended March 31, 2004 were
$16.4 million (7.7% of revenues), as compared to $16.2 million (8.0% of
revenues) in the quarter ended March 31, 2003.
General and Administrative ("G&A") Expenses
G&A expenses were $11.4 million (5.3% of revenues) in the quarter ended
March 31, 2004, as compared to $11.0 million (5.4% of revenues) in the
quarter ended March 31, 2003.
The small increase in the G&A expenses was mainly as a result of including
the expenses of companies (OIP and AD&D), that were acquired during the
second half of 2003.
6
Finance Expense (Net)
Net finance expense in the quarter ended March 31, 2004 was $0.5 million,
as compared to $1.3 million in the quarter ended March 31, 2003.
The decrease in the net finance expense resulted mainly from a lower level
of short and long-term loans in the first quarter of 2004 as compared to
the first quarter of 2003.
Taxes on Income
Provision for taxes in the quarter ended March 31, 2004 was $4.2 million
(effective tax rate of 26.9%), as compared to a provision for taxes of $3.6
million (effective tax rate of 26.5%) in the quarter ended March 31, 2003.
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.
Company's Share in Earnings of Affiliated Companies and Partnerships
In the first quarter of 2004 the Company had net income of $1.4 million
from its share in earnings of affiliated companies and partnerships, as
compared to $1.9 million in the first quarter of 2003. These companies, 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 related to the Company's core business areas, including
electro-optics and airborne systems.
The Company's share in Earnings of Affiliated Companies and Partnerships in
the first quarter of 2004 includes expenses related to commercial airborne
wide band communication activities in a newly incorporated affiliate
company ("Starling").
The Company believes that its affiliates will continue to contribute
significantly to the Company's earnings.
Net Earnings and Earnings Per Share ("EPS")
Reported net earnings in the quarter ended March 31, 2004 were $12.7
million (6.0% of revenues), as compared to reported net earnings of $12.3
million (6.1% of revenues) in the quarter ended March 31, 2003. Diluted EPS
in the quarters ended March 31, 2004 and 2003 were $0.31.
The number of shares used for computation of diluted EPS in the quarter
ended March 31, 2004 was 40,718 thousand shares, as compared to 39,793
thousand shares in the quarter ended March 31, 2003. The increase in the
number of shares was mainly due to exercise of options during 2003 and the
first quarter of 2004.
7
H. Liquidity and Capital Resources
The Company's cash flows are affected 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
quarter ended March 31, 2004 were $25.3 million, resulting mainly from net
income for the period and collection of accounts receivable. The cash
inflows were partially offset, mainly by payments of trade payables.
Net cash flows used for investment activities in the quarter ended March
31, 2004 were $10.3 million, which were used mainly for procurement of
property, plant and equipment. The investments were made primarily in
equipment for the Group's various manufacturing plants and in a building
being constructed at Elbit Systems' facility in Haifa, Israel. The building
is planned to house employees currently located in various leased locations
in the industrial park in Haifa, and the Company plans to complete its
population during 2004.
Net cash flows used for financing activities in the quarter ended March 31,
2004 were $0.9 million, reflecting $3.6 million in proceeds from the
exercise of options and repayment of short and long-term borrowings.
On March 31, 2004, the Company had total borrowings in the amount of $66.1
million, including $59.1 million in long-term loans, and $417 million in
guarantees issued on its behalf by banks, mainly in respect of advance
payment and performance guarantees provided in the regular course of
business. On March 31, 2004, the Company had a cash balance amounting to
$90.3 million.
As of March 31, 2004, the Company had working capital of $202.4 million and
its current ratio was 1.56. The Company's ratio of equity to total assets
was 46.3%.
I. 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.
8
On March 31, 2004, the Company's liquid assets were comprised of bank
deposits, and it had no investments in liquid equity securities that were
subject to market fluctuations. The Company's deposits and loans are based
on variable interest rates, and their value as of March 31, 2004 was
therefore not exposed to changes in interest rates. Should interest rates
either increase or decrease, such change may affect the Company's results
of operations due to changes in the cost of the liabilities and the return
on the assets that are based on variable rates.
The Company's functional currency is the U.S. dollar. On March 31, 2004,
the Company had exposure due to liabilities denominated in NIS of $64
million in excess of its NIS denominated assets. These liabilities
represent mostly wages, trade payables and the debt to the OCS resulting
from the OCS agreement entered into in 2002. (See Note 16 to the audited
consolidated financial statements for the year ended December 31, 2003).
The amount of the Company's exposure to the changes in the NIS-U.S. dollar
exchange rate varies from time to time. On March 31, 2004, the Company had
options covering future cash flows in the amount of $84 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 March
31, 2004 by forward contracts. On March 31, 2004, the Company had contracts
for the sale and purchase of such foreign currencies totaling $21.9
million. The results of financial derivative activities in this quarter
were not material.
J. Dividends
The Board of Directors declared on May 10, 2004 a dividend of $0.11 per
share.
* * *
9
Exhibit 3
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ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
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CONDENSED INTERIM CONSOLIDATED
FINANCIAL STATEMENTS
AS OF MARCH 31, 2004
(Unaudited)
(In thousands of U.S. dollars)
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ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
--------------------------------------------------------------------------------
C O N T E N T S
P a g e
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CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets 2 - 3
Consolidated Statements of Income 4
Consolidated Statements of Changes in Shareholder's Equity 5-6
Consolidated Statements of Cash Flows 7-8
Notes to the Consolidated Financial Statements 9-12
# # # # # #
1
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
In thousands of U.S. dollars, except per share data
March 31, December 31,
2004 2003
---------- ----------
(Unaudited) (Audited)
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents $ 90,253 $ 76,156
Short-term bank deposits 600 690
Trade receivables, net 175,148 203,281
Other receivables and prepaid expenses 47,556 48,363
Inventories, net of advances 247,584 249,225
---------- ----------
Total current assets 561,141 577,715
---------- ----------
INVESTMENTS AND LONG-TERM RECEIVABLES:
Investments in affiliated companies and partnership 26,493 26,478
Investments in other companies 11,745 11,745
Long-term bank deposits and loan 1,913 2,347
Severance pay fund 74,192 76,218
---------- ----------
114,343 116,788
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, NET 231,026 229,221
---------- ----------
OTHER ASSETS, NET:
Goodwill 32,576 32,576
Know-how and other intangible assets, net 65,614 67,436
---------- ----------
98,190 100,012
---------- ----------
$1,004,700 $1,023,736
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements
2
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
In thousands of U.S. dollars, except share and per share data
March 31, December 31,
2004 2003
----------- -----------
(Unaudited) (Audited)
----------- -----------
CURRENT LIABILITIES:
Short-term bank credit and loans $ 7,046 $ 8,509
Current maturities of long-term loans 6,464 6,532
Dividend payable 4,327 -
Trade payables 90,606 106,252
Other payables and accrued expenses 158,492 157,820
Customers advances and amounts in excess of
costs incurred on contracts in progress 91,831 99,618
----------- -----------
Total current liabilities 358,766 378,731
----------- -----------
LONG-TERM LIABILITIES:
Long-term loans 59,077 62,324
Advances from customers 2,381 7,592
Deferred income taxes 24,916 24,916
Accrued severance pay 90,490 93,979
----------- -----------
176,864 188,811
----------- -----------
MINORITY INTERESTS 4,165 4,115
----------- -----------
SHAREHOLDERS' EQUITY
Share capital
Ordinary shares of New Israeli Shekels (NIS)1 par value;
Authorized - 80,000,000 shares as of March 31, 2004 and
December 31, 2003;
Issued - 40,127,238 and 39,746,125 shares as of March 31, 2004 and
December 31, 2003, respectively;
Outstanding - 39,718,413 and 39,337,304
shares as of March 31, 2004 and December 31, 2003, respectively 11,358 11,273
Additional paid-in capital 263,324 259,033
Accumulated other comprehensive loss (3,942) (3,992)
Retained earnings 198,486 190,086
Treasury shares - 408,821 shares as of March 31, 2004 and
December 31, 2003 (4,321) (4,321)
----------- -----------
464,905 452,079
----------- -----------
$ 1,004,700 $ 1,023,736
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements
3
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
--------------------------------------------------------------------------------
In thousands of U.S. dollars, except per share data
Three months ended Year ended
March 31, December 31,
---------------------- ---------
2004 2003 2003
--------- --------- ---------
(Unaudited) (Audited)
--------- --------- ---------
Revenues $ 213,672 $ 202,190 $ 897,980
Cost of revenues 156,752 145,291 673,561
--------- --------- ---------
Gross profit 56,920 56,899 224,419
--------- --------- ---------
Research and development costs, net 13,264 14,852 54,919
Marketing and selling expenses 16,409 16,153 69,943
General and administrative expenses 11,413 10,984 46,077
--------- --------- ---------
41,086 41,989 170,939
--------- --------- ---------
Operating income 15,834 14,910 53,480
Financial expenses, net (480) (1,276) (4,870)
Other income, net 215 109 903
--------- --------- ---------
Income before taxes on income 15,569 13,743 49,513
Taxes on income 4,195 3,646 11,334
--------- --------- ---------
11,374 10,097 38,179
Equity in net earnings of affiliated
companies and partnership 1,358 1,901 7,209
Minority interest in losses (earnings) of subsidiaries (5) 257 557
--------- --------- ---------
Net income $ 12,727 $ 12,255 $ 45,945
========= ========= =========
Earnings per share
Basic net earnings per share $ 0.32 $ 0.32 $ 1.18
========= ========= =========
Diluted net earnings per share $ 0.31 $ 0.31 $ 1.14
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements
4
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
In thousands of U.S. dollars, except per share data
Accumulated
Number of Additional other
outstanding Share paid-in comprehensive Retained
shares capital capital loss earnings
----------- ----------- ----------- ----------- -----------
Balance as of January 1, 2003
(Audited) 38,803,507 $ 11,154 $ 248,387 $ (2,882) $ 159,023
Exercise of options 533,797 119 5,147 - -
Tax benefit in respect of options
exercised - - 758 - -
Amortization of stock based
compensation - - 4,741 - -
Dividends paid - - - - (14,882)
Comprehensive income (loss):
Unrealized gains on derivative
instruments - - - (578) -
Foreign currency translation differences - - - 340 -
Minimum pension liability - - - (872) -
Net income - - - - 45,945
----------- ----------- ----------- ----------- -----------
Balance as of December 31, 2003
(Audited) 39,337,304 $ 11,273 $ 259,033 $ (3,992) $ 190,086
Exercise of options 381,109 85 3,552 - -
Tax benefit in respect of options
exercised - - 411 - -
Amortization of stock compensation - 328 - - -
Dividends paid - - - - (4,327)
Comprehensive income (loss):
Unrealized gains on derivative
instruments - - - (94) -
Foreign currency translation differences - - - 144 -
Net income - - - - 12,727
----------- ----------- ----------- ----------- -----------
Total comprehensive income $ 12,777
Balance as of March 31, 2004
(Unaudited) 39,718,413 $ 11,358 $ 263,324 $ (3,942) $ 198,486
=========== =========== =========== =========== ===========
Total Total other
Treasury shareholders' comprehensive
shares equity income
----------- ----------- -----------
Balance as of January 1, 2003
(Audited) $ (4,321) $ 411,361
Exercise of options - 5,266
Tax benefit in respect of options
exercised - 758
Amortization of stock based
compensation - 4,741
Dividends paid - (14,882)
Comprehensive income (loss):
Unrealized gains on derivative
instruments - (578) $ (578)
Foreign currency translation differences - 340 340
Minimum pension liability - (872) (872)
Net income - 45,945 45,945
----------- ----------- -----------
Total comprehensive income $ 44,835
===========
Balance as of December 31, 2003
(Audited) $ (4,321) $ 452,079
Exercise of options - 3,637
Tax benefit in respect of options
exercised - 411
Amortization of stock compensation 328
Dividends paid - (4,327)
Comprehensive income (loss):
Unrealized gains on derivative
instruments - (94) (94)
Foreign currency translation differences - 144 144
Net income - 12,727 12,727
----------- ----------- -----------
Total comprehensive income 12,777
===========
Balance as of March 31, 2004
(Unaudited) $ (4,321) $ 464,905
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements
5
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (CONT.)
-------------------------------------------------------------------------------
In thousands of U.S. dollars, except per share data
Accumulated
Number of Additional other
outstanding Share paid-in comprehensive Retained
shares capital capital loss earnings
------------- ------------ ------------ ---------------- ------------
Balance as of January 1, 2003
(Audited) 38,803,507 $ 11,154 $ 248,387 $ (2,882) $ 159,023
Exercise of options 39,755 8 420 - -
Tax benefit in respect of options
exercised - - 52 - -
Amortization of stock compensation - - 1,391 - -
Dividends paid - - - - (3,492)
Net income - - - - 12,255
------------- ------------ ------------ ---------------- ------------
Total comprehensive income
Balance as of March 31, 2003
(Unaudited) 38,843,262 $ 11,162 $ 250,250 $ (2,882) $ 167,786
============= ============ ============ ================ ============
Total Total other
Treasury shareholders' comprehensive
shares equity income
------------- -------------- ----------------
Balance as of January 1, 2003
(Audited) $ (4,321) $ 411,361
Exercise of options - 428
Tax benefit in respect of options
exercised - 52
Amortization of stock compensation - 1,391
Dividends paid - (3,492)
Net income - 12,255 $ 12,255
------------- -------------- ----------------
Total comprehensive income $ 12,255
================
Balance as of March 31, 2003
(Unaudited) $ (4,321) $ 421,995
============= ==============
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, except per share data
Three months ended
March 31, Year ended
---------------------- December 31,
2004 2003 2003
------- ------- -------
(Unaudited) (Audited)
---------------------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 12,727 $ 12,255 $ 45,945
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 10,401 9,601 37,890
Amortization of deferred stock compensation 328 1,391 4,741
Deferred income taxes 843 (637) 35
Accrued severance pay, net (1,463) 507 (1,240)
Gain (loss) on sale of property and equipment 5 128 (915)
Tax benefit in respect of options exercised 411 52 758
Minority interests in earnings (losses) of subsidiaries 5 (257) (557)
Equity in net losses (earnings) of affiliated companies and
partnership, net of dividend received (*) 963 (1,901) (4,995)
Changes in operating assets and liabilities:
Decrease in short and long-term receivables and prepaid expenses 28,302 23,904 45,297
Increase in inventories (6,953) (19,505) (38,651)
Increase (decrease) in trade payable, other payables and accrued
expenses (15,657) 5,879 32,147
Decrease in advances received from customers (4,404) (9,002) (27,855)
Settlement of royalties with the Office of the Chief Scientist - 337 (1,581)
Other adjustments (213) (25) 337
------- ------- -------
Net cash provided by operating activities 25,295 22,727 91,356
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (10,893) (14,594) (61,287)
Acquisition of activity (Schedule A) - - (2,458)
Investments in affiliated companies and subsidiaries (200) - (1,049)
Proceeds from sale of property, plant and equipment 504 706 5,815
Repayment (grant) of short-term loan - (250) 2,400
Investment in long-term bank deposits (157) (820) (1,750)
Proceeds from sale of long-term deposits 317 826 3,568
Short-term bank deposits, net 90 250 960
------- ------- -------
Net cash used in investing activities (10,339) (13,882) (53,801)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of options 3,637 428 5,266
Repayment of long-term bank loans (3,033) (5,315) (27,066)
Proceeds from long-term bank loans - - 10,000
Dividends paid - - (14,882)
Change in short-term bank credit and loans, net (1,463) (10,001) (10,997)
------- ------- -------
Net cash used in financing activities (859) (14,888) (37,679)
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 14,097 (6,043) (124)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE
PERIOD 76,156 76,280 76,280
------- ------- -------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 90,253 $ 70,237 $ 76,156
======= ======= =======
(*) Dividend received $ 2,321 - $ 2,214
======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
7
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
In thousands of U.S. dollars, except per share data
Three months ended Year ended
March 31, December 31,
-------------------- -------
2004 2003 2003
------- ------- -------
(Unaudited) (Audited)
-------------------- -------
SUPPLEMENTARY CASH FLOWS ACTIVITIES:
Cash paid during the year for:
Income taxes $ 3,216 $ 4,631 $14,666
======= ======= =======
Interest
$ 756 $ 872 $ 4,034
======= ======= =======
SCHEDULE A:
Subsidiaries and businesses acquired
Estimated net fair value of assets acquired and liabilities assumed
At the date of acquisition was as follows:
Working capital deficiency (excluding cash and cash
equivalents) $ 657
Property, plant and equipment (249)
Goodwill, know-how and other intangible assets (1,334)
Deferred income taxes (1,765)
Long-term liabilities 198
Minority interest 35
-------
$(2,458)
=======
8
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
-------------------------------------------------------------------------------
In thousands of U.S. dollars, except per share data
-------------------------------------------------------------------------------
Note 1 - GENERAL
The accompanying financial statements have been prepared in a
condensed format as of March 31, 2004, and for the three months
then ended in accordance with generally accepted accounting
principles in the United States )U.S. GAAP( relating to the
preparation of financial statements for interim periods.
Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles in the United
States but which are not required for interim reporting purposes,
have been condensed or omitted. See Note 5 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, 2003.
The interim financial statements reflect all adjustments, which
are, in the opinion of management, necessary for a fair
presentation. All such adjustments were of a normal recurring
nature. Reclassifications have been made to comparative data in
the balance sheet as of December 31, 2003 in order to conform
with the current year's presentation.
Operating results for the three months ended March 31, 2004, are
not necessarily indicative of the results that may be expected
for the year ending December 31, 2004.
Note 2 - SIGNIFICANT ACCOUNTING POLICIES
A. The significant accounting policies followed in the
preparation of these statements are identical to those
applied in preparation of the latest annual financial
statements except as follows:
In January 2003, the Financial Accounting Standards Board
(FASB) issued Interpretation 46, Consolidation of Variable
Interest Entities, an interpretation of ARB No. 51 (FIN 46).
In December 2003, the FASB modified FIN 46 to make certain
technical corrections and address certain implementation
issues that had arisen. FIN 46 provides a new framework for
identifying variable interest entities (VIEs) and
determining when a company should include the assets,
liabilities, non-controlling interests and results of a VIE
in activities of its consolidated financial statements.
In general, a VIE is a corporation, partnership,
limited-liability corporation, trust, or any other legal
structure used to conduct activities or hold assets that
either (1) has an insufficient amount of equity to carry out
its principal activities without additional subordinated
financial support, (2) has a group of equity owners that are
unable to make significant decisions about its activities,
or (3) has a group of equity owners that do not have the
obligation to absorb losses or the right to receive returns
generated by its operations.
9
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
--------------------------------------------------------------------------------
In thousands of U.S. dollars, except share and per share data
Note 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
FIN 46 requires a VIE to be consolidated if a party with an
ownership, contractual or other financial interest in the
VIE (a variable interest holder) is obligated to absorb a
majority of the risk of loss from the VIE's activities, is
entitled to receive a majority of the VIE's residual returns
(if no party absorbs a majority of the VIE's losses), or
both. A variable interest holder that consolidates the VIE
is called the primary beneficiary. Upon consolidation, the
primary beneficiary generally must initially record all of
the VIE's assets, liabilities and non-controlling interest
at fair value and subsequently account for the VIE as if it
were consolidated based on majority voting interest. FIN 46
also requires disclosures about VIE's that the variable
interest holder is not required to consolidated but in which
it has a significant variable interest.
FIN 46 was effective immediately for VIEs created after
January 31, 2003. The provisions of FIN 46, as revised, were
adopted as of March 31, 2004 for the Company's interests in
all VIEs. The adoption of FIN 46 did not have significant
effect on the Company's financial statements.
B. The accompanying financial statements have been prepared in
U.S. dollars since the functional currency of the primary
economic environment in which the operations of the Group
(which includes Elbit Systems Ltd. and its subsidiaries) are
conducted is the U.S. dollar.
Note 3 - INVENTORIES, NET OF ADVANCES
March 31, December 31,
2004 2003
-------- --------
(Unaudited) (Audited)
-------- --------
Cost of long-term contracts in progress $263,131 $253,663
Raw materials 75,499 78,504
Advances to suppliers and subcontractors 18,489 20,137
-------- --------
357,119 352,304
Less - Cost incurred on contracts in progress
deducted from customer advances 27,941 14,581
-------- --------
329,178 337,723
Less -Advances received from customers 72,716 77,482
Provision for losses 8,878 11,016
-------- --------
$247,584 $249,255
======== ========
10
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
--------------------------------------------------------------------------------
In thousands of U.S. dollars, except per share data
Note 4 - STOCK-BASED COMPENSATION
Pro forma information under SFAS 123 Accounting for Stock Based
Compensation is as follows:
Three months ended Year ended
March 31, December 31,
------------------------ ----------
2004 2003 2003
-------- ---------- ----------
(Unaudited) (Audited)
------------------------ ----------
Net income as reported $ 12,727 $ 12,255 $ 45,945
Add - Stock based compensation expense
net of related tax effects as
reported (intrinsic method) 262 1,022 3,793
Deduct - Stock based compensation expense under
fair value based method of SFAS 123
net of related tax effects (739) (679) (2,956)
-------- ---------- ----------
Pro forma net income $ 12,250 $ 12,598 $ 46,782
======== ========== ==========
Net earnings per share:
Basic net earnings per share as reported $ 0.32 $ 0.32 $ 1.18
======== ========== ==========
Diluted net earnings per share as reported $ 0.31 $ 0.31 $ 1.14
======== ========== ==========
Pro forma basic net earnings per share $ 0.31 $ 0.32 $ 1.20
======== ========== ==========
Pro forma diluted net earnings per share $ 0.30 $ 0.32 $ 1.16
======== ========== ==========
11
ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
--------------------------------------------------------------------------------
In thousands of U.S. dollars, except per share data
Note 5 - RECONCILIATION TO ISRAELI GAAP
As described in Note 1, the Company prepares its financial statements
in accordance with U.S. GAAP. See Note 26 to the 2003 annual financial
statements for a description of the differences between U.S. GAAP and
Israeli GAAP in respect to the Company. The effects of the differences
between U.S. GAAP and Israeli GAAP on the Company's financial
statements are detailed below.
1. Effect on net income and earnings per share
Three months ended
March 31, Year ended
----------------------- December 31,
2004 2003 2003
-------- -------- --------
(Unaudited) (Audited)
-------- -------- --------
A) Net income as reported according to
according to U.S. GAAP
U.S. GAAP $ 12,727 $ 12,255 $ 45,945
-------- -------- --------
Adjustments to Israeli GAAP (1,944) (756) 595
-------- --------
Net income according to Israeli GAAP $ 10,783 $ 11,499 $ 46,540
======== ======== ========
2. Effect on shareholders' equity
As per
As reported Adjustments Israeli GAAP
-------- -------- --------
As of March 31, 2004 (Unaudited)
Shareholders' equity $464,905 $(12,714) $452,191
======== ======== ========
As of December 31, 2003 (Audited)
Shareholders' equity $452,079 $(10,367) $441,712
======== ======== ========
# # # # # #
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