Elbit Systems Reports Second Quarter 2011 Results

Backlog of Orders Increased to $5.65 Billion; Revenues at $692 Million; Net Income at $38.9 Million; Diluted Net Earnings Per Share at $0.90

Aug 16, 2011, 03:07 ET from Elbit Systems Ltd

HAIFA, Israel, August 16, 2011 /PRNewswire/ --

Elbit Systems Ltd. (the "Company") (NASDAQ and TASE: ESLT), the international defense electronics company, today reported its consolidated financial results for the second quarter ended June 30, 2011.

     (Logo: http://www.newscom.com/cgi-bin/prnh/20080408/300441 )

In this release, the Company is providing its US-GAAP ("GAAP") results as well as additional non-GAAP financial data, which are intended to provide investors a more comprehensive understanding of the Company's business results and trends. Unless otherwise stated, all financial data presented is GAAP financial data.

Management Comment:

Joseph Ackerman, President and CEO of Elbit Systems, commented: "We are encouraged by the continued growth in our backlog over the past five quarters, which is further highlighted by the Company's growth in revenues. The geographical diversity in our revenues attests to the success of our strategy to broaden our geographic diversity and continue to develop target markets, specifically in countries with growing defense budgets in Asian Pacific and Latin America, and that helps to compensate for the decline in other markets around the globe. These factors, in addition to the progress achieved in incorporating recently acquired companies, and the encouraging results of our R&D efforts, provide a solid basis for the continued growth of the Company."

Second quarter 2011 results:

Revenues were $691.6 million in the second quarter of 2011, as compared to $603.3 million in the second quarter of 2010. The leading contributors to the Company's revenues were the C4I systems and Airborne areas of operations.

Gross profit was $200.5 million (29.0% of revenues) in the second quarter of 2011, as compared to $183.6 million (30.4% of revenues)in the second quarter of 2010. The reduced gross profit rate was mainly a result of a mix of programs sold during the second quarter of 2011.

Research and development expenses, net were $55.4 million (8.0% of revenues) in the second quarter of 2011, as compared to 56.8 million (9.4% of revenues) in the second quarter of 2010.

Marketing and selling expenses were $57.4 million (8.3% of revenues) in the second quarter of 2011, as compared to $50.3 million (8.3% of revenues) in the second quarter of 2010.

General and administrative expenses were $35.1 million (5.1% of revenues) in the second quarter of 2011, as compared to $32.1 million (5.3% of revenues) in the second quarter of 2010.

Operating Income was $52.6 million (7.6% of revenues), compared to $49.1 million (8.1% of revenues) in the second quarter of 2010.

Financial expenses, net were $9.4 million in the second quarter of 2011, as compared to $1.0 million in the second quarter of 2010. Financial expenses were comparatively higher in the second quarter of 2011 due to currency hedging related expenses as well as due to higher expenses related to the increased net debt of the Company.

Taxes on income were $5.4 million (effective tax rate of 12.4%) in the second quarter of 2011, as compared to taxes on income of $6.5 million (effective tax rate of 13.5%) in the second quarter of 2010.

Other income, net in the second quarter of 2010 reflected a net gain of $4.8 million related to the revaluation of the previously held Azimuth Technologies Ltd. shares at the acquisition date due to its accounting treatment as a business combination achieved in stages.

Equity in net earnings of affiliated companies and partnerships was $2.4 million (0.3% of revenues) in the second quarter of 2011, as compared to $5.4 million (0.9% of revenues) in the second quarter of 2010.

Net income attributable to non-controlling interests was $1.5 million in the second quarter of 2011, as compared to $2.3 million in the second quarter of 2010.

Net income attributable to the Company's ordinary shareholders in the second quarter of 2011 amounted to $38.9 million (5.6% of revenues), as compared to $44.8 million (7.4% of revenues) forthe second quarter of 2010.

Diluted net earnings per share attributable to the Company's ordinary shareholders were $0.90 for the second quarter of 2011, as compared with $1.04 for thesecond quarter of 2010.  

The Company's backlog of orders increased to $5,649 million as of June 30, 2011, as compared with $5,446 million as of December 31, 2010 and $5,358 million as of June 30, 2010. Approximately 78% of the backlog relates to orders outside of Israel. Approximately 62% of the Company's backlog as of June 30, 2011, is scheduled to be performed during the second half of 2011 and in 2012.

Operating cash flow was $23.3 million during the first half of 2011, as compared to $101.6 million in the first half of 2010. The reduction in operating cash flow was mainly a result of reduced net profit, increased inventories and increased trade receivables.

Non-GAAP financial data:

The following non-GAAP financial data is presented to enable investors to have additional information on the Company's business performance as well as a further basis for periodical comparisons and trends relating to the Company's financial results. The Company believes such data provides useful information to investors by facilitating more meaningful comparisons of the Company's financial results over time. Such non-GAAP information is used by our management to make strategic decisions, forecast future results and evaluate the Company's current performance. However, investors are cautioned that, unlike financial measures prepared in accordance with GAAP, non-GAAP measures may not be comparable with the calculation of similar measures for other companies.  

The non-GAAP financial data below includes reconciliation adjustments regarding non-GAAP gross profit, operating income, net income and diluted EPS. In arriving at non-GAAP presentations, companies generally factor out items such as those that have a non-recurring impact on the income statements, various non-cash items, significant effects of retroactive tax legislation and changes in accounting guidance and other items which, in management's judgment, are items that are considered to be outside of the review of core operating results.  In the Company's non-GAAP presentation below, the Company made the following adjustments: (1) amortization of purchased intangible assets, (2) significant reorganization, restructuring and other related expenses, (3) impairment of investments, including impairment of auction rate securities, (4) gain from changes in holdings, including revaluation of the previously held shares at the acquisition date when a business combination is achieved in stages (step-up) and (5) the income tax effects of the foregoing.

These non-GAAP measures are not based on any comprehensive set of accounting rules or principles. The Company believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company's results of operations, as determined in accordance with GAAP, and that these measures should only be used to evaluate the Company's results of operations in conjunction with the corresponding GAAP measures.  Investors should consider non-GAAP financial measures in addition to, and not as replacements for or superior to, measures of financial performance prepared in accordance with GAAP.

   Reconciliation of GAAP to Non-GAAP (Unaudited) Supplemental Financial Data:

                            (US Dollars in millions)

                                                                       
                                   Six Months        Three Months      Year
                                     Ended              Ended         Ended
                                                                     December
                                    June 30            June 30          31
                                 2011      2010     2011      2010     2010

    GAAP gross profit           386.2     368.1    200.5     183.6    797.9
    Adjustments:
    Amortization of purchased
    intangible assets            15.5       9.0      7.9       4.7     25.0
    Reorganization,
    restructuring and other
    related expenses(1)             -         -        -         -     12.8
    Non-GAAP gross profit       401.7     377.1    208.4     188.3    835.7
    Percent of revenues         30.6%      30.9%    30.1%     31.2%    31.3%

    GAAP operating income        93.6      98.3     52.6      49.1    207.4
    Adjustments:
    Amortization of
    intangible assets            28.4      21.5     14.4      11.0     47.7
    Reorganization,
    restructuring and other
    related expenses(1)             -         -        -         -     16.4
    Impairment of
    investments(2)                  -       0.7        -       0.7      1.3
    Gain from changes in
    holdings(3)                     -      (4.8)       -      (4.8)    (4.8)
    Non-GAAP operating income   121.9     115.7     67.0      56.0    268.0
    Percent of revenues          9.3%       9.5%     9.7%      9.3%    10.0%

    GAAP net income
    attributable to Elbit
    Systems' shareholders        66.8      94.6     38.9      44.8    183.5
    Adjustments:
    Amortization of
    intangible assets            28.4      21.5     14.4      11.0     47.7
    Reorganization,
    restructuring and other
    related expenses(1)             -         -        -         -     16.4
    Impairment of
    investments(2)                0.5       0.7      0.5       0.7      1.3
    Gain from changes in
    holdings(3)                     -     (17.6)       -      (4.8)   (17.6)
    Related tax benefits         (6.7)     (2.4)    (3.4)     (3.0)    (8.9)
    Non-GAAP net income
    attributable to
    Elbit Systems'
    shareholders                 89.0      96.8     50.4      48.7    222.4
    Percent of revenues           6.8%      7.9%     7.3%      8.1%     8.3%

    Non-GAAP diluted net EPS     2.06      2.24     1.16      1.13     5.14


  1. Adjustment of reorganization, restructuring and other related expenses in 2010, were mainly due to write-off of inventories in the amount of approximately $13 million related to the acquisitions of Soltam and ITL.
  2. Adjustment of impairment in 2011 was due to investments in ARS and CDO marketable secutrities and during 2010 due to impairment of ICI intangible assets.
  3. Adjustment of gain from changes in holdings in 2010 included income of $12.8 million before tax from the sale of Mediguide shares and a gain of $4.8 million from a "step-up" in an investment in 2010.

Recent Events:

On May 17, 2011, the Company announced that it was awarded a contract valued at $32.7 million to supply an Asian army with advanced training systems for its armor and infantry forces. The project will be performed over the next three years.

On May 18, 2011, the Company announced that it was awarded a contract to supply an Asian country with dozens of CoMPASS[TM] (Compact Multi Purpose Advanced Stabilized System) payloads for maritime patrol aircraft. The Asian country, which operates one of the largest maritime patrol fleets in the world, has selected the CoMPASS[TM] payload as a solution to protect its coastlines. The contract, valued at approximately $20 million, is scheduled to be completed within two years.

On May 24, 2011, the Company announced that it was awarded a contract valued at approximately $18.6 million to upgrade the Romanian Air Forces' C-130 transport aircraft. According to the agreement, the C-130 aircraft will be installed with various types of advanced electronic systems, including those produced by Elbit Systems' wholly owned subsidiary - Elisra Electronic Systems Ltd. ("Elisra").

On June 19, 2011, the Company announced  that its subsidiary Elisra, was awarded a contract valued at approximately €5 million to supply hundreds of units of its AN/PRC-684 Personal Locator Beacon (formerly SPLB) to the French Ministry of Defense, equipping the French Air Force, Army, Navy and DGA (Direction generale de l'armement). The project will be performed within 24 months.

On June 22, 2011, the Company announced that it was awarded a contract valued in excess of $15 million by Elettronica S.p.A to participate in a program to supply the ELT/572 DIRCM (Directed Infra-Red Countermeasures) system for installation on various platforms of the Italian Air Force, including the C130J, C27J and AW101. The contract will be performed over the next three years.

On July 25, 2011, the Company announced that it was awarded a $40 million order by the Israel Ministry of Defense for the follow-on Digital Army Program (DAP). The total value of this phase of the program is approximately $300 million and the additional orders are due to be received subsequently. The program will be performed over several years.

Dividend:

The Board of Directors declared a dividend of $0.36 per share for the second quarter of 2011. The dividend's record date is August 30, 2011, and the dividend will be paid on September 12, 2011, net of taxes and levies, at the rate of 20%.  

Conference Call:

The Company will also be hosting a conference call later today, August 16, 2011 at 9:00am Eastern Time. On the call, management will review and discuss the results and will be available to answer questions.

To participate, please call one of the teleconferencing numbers that follow. If you are unable to connect using the toll-free numbers, please try the international dial-in number.

US Dial-in Numbers: 1 888 668 9141

UK Dial-in Number: 0 800 917 5108

ISRAEL Dial-in Number: 03 918 0609

INTERNATIONAL Dial-in Number:  +972 3 918 0609

at 9:00am Eastern Time; 6:00am Pacific Time; 2:00pm UK Time; 4:00pm Israel Time

This call will also be broadcast live on Elbit Systems' web-site at http://www.elbitsystems.com. An online replay will be available from 24 hours after the call ends.

Alternatively, for two days following the call, investors will be able to dial a replay number to listen to the call. The dial-in numbers are:

1 888 326 9310 (US) or +972 3 925 5901 (Israel and International).

About Elbit Systems:

Elbit Systems Ltd. is an international defense electronics company engaged in a wide range of programs throughout the world. The Company, which includes Elbit Systems and its subsidiaries, operates in the areas of aerospace, land and naval systems, command, control, communications, computers, intelligence surveillance and reconnaissance ("C4ISR"), unmanned aircraft systems ("UAS"), advanced electro-optics, electro-optic space systems, EW suites, airborne warning systems, ELINT systems, data links and military communications systems and radios. The Company also focuses on the upgrading of existing military platforms, developing new technologies for defense, homeland security and commercial aviation applications and providing a range of support services.

For additional information, visit: http://www.elbitsystems.com.

Attachments:

Consolidated balance sheet

Consolidated statements of income

Condensed consolidated statements of cash flow

Consolidated revenue distribution by areas of operation and by geographical regions

 

This press release contains forward looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended) regarding Elbit Systems Ltd. and/or its subsidiaries (collectively the Company), to the extent such statements do not relate to historical or current fact.  Forward Looking Statements are based on management's expectations, estimates, projections and assumptions.  Forward looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended.  These statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict.  Therefore, actual future results, performance and trends may differ materially from these forward looking statements due to a variety of factors, including, without limitation: scope and length of customer contracts; governmental regulations and approvals; changes in governmental budgeting priorities; general market, political and economic conditions in the countries in which the Company operates or sells, including Israel and the United States among others; differences in anticipated and actual program performance, including the ability to perform under long-term fixed-price contracts; and the outcome of legal and/or regulatory proceedings.  The factors listed above are not all-inclusive, and further information is contained in Elbit Systems Ltd.'s latest annual report on Form 20-F, which is on file with the U.S. Securities and Exchange Commission. All forward looking statements speak only as of the date of this release. The Company does not undertake to update its forward-looking statements.



                         (FINANCIAL TABLES TO FOLLOW)

                              ELBIT SYSTEMS LTD.
                          CONSOLIDATED BALANCE SHEETS
                         (In thousands of US Dollars)

                                                         June 30  December 31
                                                            2011         2010
                                                       Unaudited      Audited
    Assets

    Current assets:
    Cash and cash equivalents                           $ 68,830    $ 151,059
    Short-term bank deposits and trading marketable
    securities                                            32,353       63,486
    Trade and unbilled receivables, net                  743,246      702,364
    Other receivables and prepaid expenses               196,843      166,124
    Inventories, net of customers advances               738,872      665,270
    Total current assets                               1,780,144    1,748,303

    Investment in affiliated companies,
 
    partnership and other companies                       92,586       88,116
    Available for sale marketable securities               6,130        7,179
    Long-term trade and unbilled receivables             108,832       90,343
    Long-term bank deposits and other receivables         45,715       44,401
    Deferred income taxes, net                            28,686       29,892
    Severance pay fund                                   319,355      302,351
                                                         601,304      562,282

    Property, plant and equipment, net                   529,050      503,851
    Goodwill and other intangible assets, net            791,327      796,664
    Total assets                                     $ 3,701,825  $ 3,611,100

    Liabilities and Shareholders' Equity

    Short-term bank credit and loans                    $ 36,223     $ 15,115
    Current maturities of long-term loans and Series A
    Notes                                                 41,098       43,093
    Trade payables                                       322,381      360,736
    Other payables and accrued expenses                  663,609      645,146
    Customer advances in excess of costs incurred on
    contracts in progress                                395,320      302,691
                                                       1,458,631    1,366,781

    Long-term loans, net of current maturities           354,862      292,039
    Series A Notes and convertible debentures, net of
    current maturities                                   247,019      273,357
    Accrued termination liabilities                      418,661      395,303
    Deferred income taxes and tax liabilities, net        52,864       55,936
    Customer advances in excess of costs incurred on
    contracts in progress                                144,266      177,191
    Other long-term liabilities                           55,224       45,042
                                                       1,272,896    1,238,868

    Elbit Systems Ltd.'s shareholders' equity            943,281      966,693
    Non-controlling interests                             27,017       38,758
    Total shareholders' equity                           970,298    1,005,451
    Total liabilities and shareholders' equity       $ 3,701,825  $ 3,611,100




                               ELBIT SYSTEMS LTD.
                       CONSOLIDATED STATEMENTS OF INCOME

      (In thousands of US Dollars, except for share and per share amounts)

                                                                      
                                 Six Months        Three Months       Year
                                   Ended              Ended          Ended
                                                                    December
                                  June 30            June 30           31
                              2011       2010     2011     2010       2010
                                           Unaudited                Audited

    Revenues               1,311,890  1,221,478  691,632  603,277  2,670,133
    Cost of revenues         925,710    853,372  491,097  419,716  1,872,263
    Gross profit             386,180    368,106  200,535  183,561    797,870

    Operating expenses:
    Research and development,
    net                      109,603    109,511   55,389   56,846    234,131
    Marketing and selling    112,428    104,931   57,441   50,336    229,942
    General and
    administrative            70,595     60,141   35,085   32,056    131,200
    Other income, net              -     (4,756)       -   (4,756)    (4,756)
                             292,626    269,827  147,915  134,482    590,517

    Operating income          93,554     98,279   52,620   49,079    207,353

    Financial expenses, net  (20,012)    (4,137)  (9,350)  (1,002)   (21,251)
    Other income, net            374     13,089      180      108     13,259
    Income before taxes on
    income                    73,916    107,231   43,450   48,185    199,361
    Income taxes              10,719     16,816    5,419    6,489     24,037
                              63,197     90,415   38,031   41,696    175,324

    Equity in net earnings of
    affiliated companies
    and partnership            6,151      9,301    2,400    5,389     19,343
    Net income                69,348     99,716   40,431   47,085    194,667

    Less: net income
    attributable to
    non-controlling interests (2,524)    (5,155)  (1,536)  (2,306)   (11,169)
    Net income attributable to
    Elbit Systems Ltd.'s
    shareholders              66,824     94,561   38,895   44,779    183,498

    Earnings per share
    attributable to Elbit
    Systems Ltd.'s ordinary
    shareholders:
    Basic net earnings
    per share                   1.56       2.22     0.91     1.05       4.30
    Diluted net earnings per
    share                       1.55       2.19     0.90     1.04       4.25
    Weighted average number of
    shares used in
    computation of basic
    earnings per share        42,756     42,611   42,780   42,645     42,645
    Weighted average number
    of shares used in
    computation of diluted
    earnings per share        43,232     43,257   43,248   43,234     43,217




                                    ELBIT SYSTEMS LTD.
                         CONSOLIDATED STATEMENTS OF CASH FLOW
                             (In thousands of US Dollars)

                                                                      
                                              Six Months Ended    Year Ended
                                                  June 30,        December 31
                                              2011        2010        2010
                                                 Unaudited          Audited
    CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                               69,348      99,716     194,667
    Adjustments to reconcile net income
    to net cash provided by operating
    activities:
    Depreciation and amortization            74,632      60,988     132,141
    Write-off impairment                        520         717       1,284
    Stock based compensation                    599       2,604       5,211
    Amortization of Series A Notes
    discounts and related issuance costs        247          25         168
    Deferred income taxes and reserve,
    net                                      (7,426)     (9,029)    (28,162)
    Gain on sale of property, plant and
    equipment                                  (690)       (698)     (2,600)
    Gain on sale of investment                    -     (18,713)    (19,151)
    Equity in net earnings of affiliated
    companies and partnership, net of
    dividend received(*)                      7,956        (929)     (8,418)
    Change in operating assets and
    liabilities:
    Increase in short and long-term
    trade receivables, and prepaid
    expenses                                (87,410)     (3,980)    (84,708)
    Increase in inventories, net            (72,966)    (44,993)    (49,724)
    Increase (decrease) in trade
    payables, other payables and accrued
    expenses                                (20,493)      6,163      76,383
    Severance, pension and termination
    indemnities, net                          5,464        (212)      4,160
    Increase (decrease) in advances
    received from customers                  53,533       9,968     (36,396)
    Net cash provided by operating
    activities                               23,314     101,627     184,854

    CASH FLOWS FROM INVESTING ACTIVITIES
    Purchase of property, plant and
    equipment                               (73,444)    (67,484)   (138,644)
    Acquisitions of subsidiaries and
    business operations (Schedule A)        (12,173)    (34,566)   (229,556)
    Investments in affiliated companies
    and other companies                      (6,919)        (59)     (4,956)
    Proceed from sale of property, plant
    and equipment                             4,983       5,139      11,841
    Proceed from sale of investments              -      12,751      27,941
    Investment in long-term deposits           (589)     (8,302)    (14,484)
    Proceeds from sale of long-term
    deposits                                  3,600      15,020      30,240
    Investment in short-term deposits
    and available for sale securities       (85,486)    (48,248)   (189,345)
    Proceeds from sale of short-term
    deposits and available for sale
    securities                              115,706      64,264     252,550
    Net cash used in investing
    activities                              (54,322)    (61,485)   (254,413)

    CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from exercise of options         2,514       2,908       3,590
    Purchase of non-controlling
    interests                               (71,000)          -           -
    Repayment of long-term bank loans       (65,085)   (243,525)   (488,657)
    Proceeds from long-term bank loans      126,410      55,000     387,692
    Proceeds from issuance of Series A
    Notes                                         -     283,213     283,213
    Series A Notes issuance costs                 -      (2,163)     (2,530)
    Dividends paid                          (30,836)    (32,503)    (63,137)
    Tax benefit in respect of options
    exercised                                     -           -         710
    Repayment of Series A Notes             (32,211)          -           -
    Purchase of convertible debentures       (2,121)          -           -
    Change in short-term bank credit and
    loans, net                               21,108           -     (40,972)
    Net cash provided by (used in)
    financing activities                    (51,221)     62,930      79,909

    NET INCREASE (DECREASE) IN CASH AND
    CASH EQUIVALENTS                        (82,229)    103,072      10,350
    CASH AND CASH EQUIVALENTS AT THE
    BEGINNING OF THE PERIOD                 151,059     140,709     140,709
    CASH AND CASH EQUIVALENTS AT THE END
    OF THE PERIOD                            68,830     243,781     151,059

    * Dividend received from affiliated
    companies and partnership                14,107       8,372      10,925





                                  ELBIT SYSTEMS LTD.
                               DISTRIBUTION OF REVENUES

CONSOLIDATED REVENUE BY AREAS OF OPERATION:

                          Six Months Ended             Three Months Ended
                               June 30                       June 30
                         2011           2010           2011           2010
                       $              $              $              $
                   millions   %   millions   %   millions   %   millions   %
    Airborne
    systems          459.6  35.0    358.1  29.3    209.7  30.3    178.3  29.6
    Land systems     183.2  14.0    218.6  17.9     99.8  14.4    103.9  17.2
    C4ISR systems    469.3  35.8    407.3  33.3    275.6  39.8    200.8  33.3
    Electro-optics   137.1  10.5    168.2  13.8     72.3  10.5     86.5  14.3
    Other (mainly
    non-defense
    engineering
    and production
    services)         62.7   4.7     69.3   5.7     34.2   5.0     33.8   5.6
    Total          1,311.9 100.0  1,221.5 100.0    691.6 100.0    603.3 100.0


CONSOLIDATED REVENUES BY GEOGRAPHICAL REGIONS:

                          Six Months Ended             Three Months Ended
                               June 30                       June 30
                         2011           2010           2011           2010
                      $              $              $              $
                   millions   %   millions   %   millions   %   millions   %
    Israel           356.0  27.1    276.3  22.6    185.9  26.9    133.5  22.1
    United States    427.1  32.6    401.8  32.9    218.0  31.5    214.1  35.5
    Europe           241.0  18.4    273.8  22.4    129.8  18.8    117.6  19.5
    Other
    countries        287.8  21.9    269.6  22.1    157.9  22.8    138.1  22.9
    Total          1,311.9 100.0  1,221.5 100.0    691.6 100.0    603.3 100.0



Company Contact:

Joseph Gaspar, Executive VP & CFO
Tel: +972-4-8316663
j.gaspar@elbitsystems.com

Dalia Rosen , VP, Head of Corporate Communications
Tel: +972-4-8316784
dalia.rosen@elbitsystems.com
Elbit Systems Ltd.

IR Contact:

Ehud Helft
Kenny Green

CCG Investor Relations
Tel: +1-646-201-9246
elbitsystems@ccgisrael.com

SOURCE Elbit Systems Ltd