UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
under the Securities Exchange Act of 1934
For the Month of March 2007
_________________
Commission File Number:
000-28998
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:
 |
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 |
|
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 March 14, 2007.
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
year ended December 31, 2006.
Attached
hereto as Exhibit 3 and incorporated herein by reference is the Registrant’s
consolidated audited financial statements for the year ended December 31, 2006.
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/ Yaniv Baram
Name: Yaniv Baram
Title: Corporate Secretary
|
Dated: March 21, 2007
EXHIBIT INDEX
| Exhibit No. |
Description |
| |
|
| 1. |
Press Release dated March 14, 2007. |
| |
|
| 2. |
Management's Report. |
| |
|
| 3. |
Financial Statements. |
Exhibit 1
Earnings Release
ELBIT SYSTEMS REPORTS
FOURTH QUARTER
AND FULL YEAR RESULTS FOR
2006
• Record Revenues, Net
Profit, Backlog and Operating Cash Flow
• 2006
revenues increased by 42% to $1.52 billion with year end backlog at a record $3.79 billion
• 2006 net
profit more than doubled to $72.2 million and EPS increased to $1.72 with operating cash
flow of $201 million
Haifa, Israel, March 14, 2007
– Elbit Systems Ltd. (the “Company”) (NASDAQ: ESLT, TASE: ESLT), the
international defense electronics company, today reported its consolidated results for the
fourth quarter and year-ended December 31, 2006.
The Company’s backlog of
orders as of December 31, 2006 reached $3.79 billion, an increase of 13.1% as
compared to $3.35 billion at the end of 2005. 68% of the backlog relates to orders outside
of Israel. Approximately 70% of the Company’s backlog as of December 31, 2006 is
scheduled to be performed during 2007 and 2008.
Consolidated revenues for the year
ended December 31, 2006 increased by 42.4% to $1,523 million, as compared to $1,070
million in 2005.
Consolidated revenues for the
fourth quarter of 2006 increased by 45.3% to $467.4 million, as compared to $321.8
million in the corresponding quarter of 2005.
Consolidated net earnings for the
year ended December 31, 2006 increased by 122% to $72.2 million, as compared to $32.5
million in 2005. Diluted earnings per share (“EPS”) in 2006 were $1.72, as
compared to $0.78 in 2005.
Consolidated net earnings for the
fourth quarter of 2006 were $24.0 million, as compared to a net loss of $5.7 million
in the same period of 2005. Diluted EPS for the fourth quarter of 2006 was $0.57, as
compared to $(0.14) for the fourth quarter of 2005.
Gross profit for the year ended
December 31, 2006 was $373.5 million, as compared to gross profit of $279.8 million in
2005, and the gross profit margin in 2006 was 24.5%, as compared to 26.1% in 2005.
The Company’s annual gross
profit margin was negatively affected by approximately 2 percentage points due to the
results of the Company’s 70%-owned subsidiary Elisra Electronic Systems Ltd.
(“Elisra”).
Gross profit for the fourth
quarter of 2006 was $100.2 million, as compared to gross profit of $78.4 million in
the fourth quarter of 2005, and the gross profit margin in the fourth quarter of 2006 was
21.4%, as compared to 24.4% in the fourth quarter of 2005. The Company’s fourth
quarter 2006 gross profit margin was negatively affected by approximately 3.8 percentage
points due to Elisra’s results.
It should be noted that in 2005 the
Company’s full year and fourth quarter gross profit and net profit were affected by
one-time IPR&D and other one-time expenses and write-offs related to the purchases of
shares in Elisra and in Tadiran Communications Ltd.
Operating cash flow produced
by the Company in 2006 was $201 million, as compared to $187.6 in 2005.
The President and CEO of Elbit
Systems, Joseph Ackerman, commented: “I am pleased to report another year of record
financial results for Elbit Systems, continuing our revenue and profitability growth
trend. We have also begun to see the results of our long-term development strategy that
enabled us to pass $1.5 billion in revenues for the first time and to deliver another year
of record net profit and cash flow. Our results were achieved despite the negative impact
from Elisra’s financial performance, and we intend to continue the Elisra turn-around
in 2007, making it a contributor to our financial results, while maintaining our growth
and profitability patterns”.
Mr. Ackerman added: “We see the results
of our continued investments in R&D and in
developing leading edge technologies. These technologies and our proven track
record enabled us to win prestigious and important contracts and to further
enhance our network of customers and business partners. I believe that the
results of all these efforts will be reflected in our performance in 2007 and
beyond as we continue the execution of our growth strategy both organically and
through selective acquisitions”.
The Board of Directors has declared a
dividend of 0.16 per share for the fourth quarter of 2006. The dividend will be paid on
April 16, 2007, net of taxes and levies, at the rate of 18.15%. The record date of the
dividend is April 1, 2007.
Conference Call
The Company will be hosting a
conference call on Wednesday, March 14, at 9.00am EDT.
To participate, please call one of
the following teleconferencing numbers. Please begin placing your calls at least 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: 1 888 407 2553
UK Dial-in Number: 0 800 917 5108
ISRAEL Dial-in Number: 03 918 0610
INTERNATIONAL Dial-in Number: +972 3 918 0610
at:
9:00 am Eastern Time
6:00 am Pacific Time
3:00 pm Greenwich Mean Time
3:00 pm 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 end of the call, investors will be able to dial a replay number to listen to the call.
The dial-in number is either: 1 888 254 7270 (US) 0 800 917 4256 (UK) or +972 3 925 5942
(Israel and International).
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. The Elbit Systems Group, which includes the company and its
subsidiaries, operates in the areas of aerospace, land and naval systems, command,
control, communications, computers, intelligence, surveillance and reconnaissance
(“C4ISR”), advanced electro-optic and space technologies, EW suites, airborne
warning systems, ELINT systems, data links and military communications systems and
equipment. The Group also focuses on the upgrading of existing military platforms and
developing new technologies for defense and homeland security applications.
|
|
| Contacts: |
|
Company Contact: |
IR Contact: |
Joseph Gaspar, Corporate VP & CFO |
Ehud Helft / Kenny Green |
| Dalia Rosen, Director of Corporate Communications |
|
| Elbit Systems Ltd |
G.K. Investor Relations |
| Tel: +972-4-8316663 |
Tel: 1-866-704-6710 |
| Fax: +972-4-8316944 |
Fax: + 972 - 3 - 607 - 4711 |
| E-mail: gspr@elbit.co.il |
E-mail: info@gkir.com |
| daliarosen@elbit.co.il |
|
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)
| |
December 31
2006
| |
December 31
2005
| |
| |
Audited | |
Audited | |
| Assets |
|
|
Current Assets: |
|
|
|
|
|
| Cash and short term deposits | |
85,400 |
|
94,629 |
|
| Trade receivable and others | |
471,194 |
|
416,067 |
|
| Inventories, net of advances | |
371,962 |
|
328,428 |
|
|
| |
| |
| Total current assets | |
928,556 |
|
839,124 |
|
| | |
|
|
|
|
| Affiliated Companies & other Investments | |
235,723 |
|
201,339 |
|
| Long-term receivables & others | |
182,180 |
|
159,505 |
|
| Fixed Assets, net | |
294,628 |
|
284,997 |
|
| Other assets, net | |
128,995 |
|
137,172 |
|
|
| |
| |
| | |
1,770,082 |
|
1,622,137 |
|
|
| |
| |
Liabilities and Shareholder's Equity | |
|
|
|
|
Current liabilities | |
810,591 |
|
612,168 |
|
| Long-term liabilities | |
458,742 |
|
546,285 |
|
| Minority Interest | |
6,871 |
|
12,907 |
|
| Shareholder's equity | |
493,878 |
|
450,777 |
|
|
| |
| |
| | |
1,770,082 |
|
1,622,137 |
|
|
| |
| |
ELBIT SYSTEMS LTD.
CONSOLIDATED STATEMENTS OF INCOME
(In thousand of US Dollars, except for per share amounts)
| |
For the Year Ended
December 31 | |
Three Months Ended
December 31 | |
| |
2006
| |
2005
| |
2006
| |
2005
| |
| |
Audited | |
Unaudited | |
Revenues |
|
|
| 1,523,243 |
|
| 1,069,876 |
|
| 467,388 |
|
| 321,760 |
|
| Cost of revenues | | |
| 1,149,768 |
|
| 786,616 |
|
| 367,163 |
|
| 239,826 |
|
| Restructuring expenses | | |
| - |
|
| 3,488 |
|
| - |
|
| 3,488 |
|
|
| |
| |
| |
| |
| Gross Profit | | |
| 373,475 |
|
| 279,772 |
|
| 100,225 |
|
| 78,446 |
|
| | |
|
|
|
|
| Research and development, net | | |
| 92,232 |
|
| 71,903 |
|
| 27,869 |
|
| 18,460 |
|
| Marketing and selling | | |
| 111,880 |
|
| 78,648 |
|
| 30,853 |
|
| 23,953 |
|
| General and administrative | | |
| 77,505 |
|
| 54,417 |
|
| 20,051 |
|
| 16,155 |
|
| IPR&D write-off | | |
| - |
|
| 7,490 |
|
| - |
|
| 7,490 |
|
|
| |
| |
| |
| |
| Total operating expenses | | |
| 281,617 |
|
| 212,458 |
|
| 78,773 |
|
| 66,058 |
|
|
| |
| |
| |
| |
| Operating income | | |
| 91,858 |
|
| 67,314 |
|
| 21,452 |
|
| 12,388 |
|
| | |
|
|
|
|
| Financial expenses, net | | |
| (21,456 |
) |
| (11,472 |
) |
| (6,093 |
) |
| (5,199 |
) |
| Other income (expenses), net | | |
| 1,814 |
|
| (5,326 |
) |
| 1,423 |
|
| (5,134 |
) |
|
| |
| |
| |
| |
| Income before income taxes | | |
| 72,216 |
|
| 50,516 |
|
| 16,782 |
|
| 2,055 |
|
| Provisions for income taxes | | |
| 20,694 |
|
| 16,335 |
|
| 4,049 |
|
| 4,046 |
|
|
| |
| |
| |
| |
| | | |
| 51,522 |
|
| 34,181 |
|
| 12,733 |
|
| (1,991 |
) |
| Equity in net earnings (losses) of affiliated companies | | |
| and partnership * | | |
| 14,743 |
|
| (1,636 |
) |
| 6,554 |
|
| (2,974 |
) |
| Minority rights | | |
| 5,977 |
|
| (58 |
) |
| 4,673 |
|
| (710 |
) |
|
| |
| |
| |
| |
| Net income | | |
| 72,242 |
|
| 32,487 |
|
| 23,960 |
|
| (5,675 |
) |
|
| |
| |
| |
| |
| Earnings per share | | |
| Basic net earnings per share | | |
| 1.75 |
|
| 0.80 |
|
| 0.57 |
|
| (0.14 |
) |
|
| |
| |
| |
| |
| Diluted net earnings per share | | |
| 1.72 |
|
| 0.78 |
|
| 0.57 |
|
| (0.14 |
) |
|
| |
| |
| |
| |
* Includes IPR&D write-off of
$8,500 and $2,200 in 2005 and 2006, respectively
Exhibit 2
Elbit Systems Ltd.
Management’s
Report
For the Year Ended
December 31, 2006
| |
This
report should be read together with the audited consolidated financial statements and
related notes of Elbit Systems Ltd. (“Elbit Systems” and together with its
subsidiaries, the “Company” or the “Group”) for the year ended
December 31, 2006 and the Company’s Form 20-F for the year ended December 31,
2005, filed by the Company with the U.S. Securities and Exchange Commission
(“SEC”) and with the Israeli Securities Authority. |
| |
Forward
looking statements with respect to the Company’s business, financial condition and
results of operations in this document are subject to risks and uncertainties that
could cause actual results to differ materially from those contemplated in such
forward looking statements, including, but not limited to, product demand,
pricing, market acceptance, changing economic conditions, risks in product and
technology development, the effect of the Company’s accounting policies as
well as certain other risk factors which are detailed from time to time in the
Company’s SEC filings. |
| |
The
Group operates in the areas of aerospace, land and naval systems, command, control,
communications, computers, intelligence, surveillance and reconnaissance
(“C(4)ISR”), advanced electro-optic and space technologies, EW
suites, airborne warning systems, ELINT systems, data links and military communications
systems and equipment. The Group also focuses on the upgrading of existing military
platforms and developing new technologies for defense and homeland security applications. |
| |
The
Group provides support services for the platforms it upgrades as well as the systems and
products it supplies. In addition, the Group provides a wide range of logistic support
services. Several of the Group’s companies also provide advanced engineering and
manufacturing services to various customers, utilizing their significant manufacturing
capabilities. The Group often cooperates with industries in Israel and in various other
countries. |
| |
The
Group tailors and adapts its technologies, integration skills, market knowledge and
battle-proven systems to each customer’s individual requirements in both existing and
new platforms. By upgrading existing platforms with advanced electronic and electro-optic
technologies, the Group provides customers with cost-effective solutions, and its
customers are able to improve their technological and operational capabilities within
limited defense budgets. |
| |
The
Group operates in a competitive environment for most of its projects, systems and
products. Competition is based on product and program performance, price, reputation,
reliability, maintenance costs and responsiveness to customer requirements. This includes
the ability to respond to rapid changes in technology. In addition, its competitive
position sometimes is affected by specific requirements in particular markets. |
| |
The
Company’s revenues increased by 42% and reached $1,523 million in 2006, as compared
to $1,070 million in 2005. |
| |
Net
earnings in 2006 were $72.2 million and the diluted earnings per share were $1.72, as
compared to $32.5 million and $0.78, respectively in 2005. |
| |
The
Company’s backlog as of December 31, 2006 reached $3.79 billion, as compared to $3.35
billion as of December 31, 2005, an increase of 13.1%. |
| |
The
Company’s cash flow generated from operations in the year ended December 31, 2006 was
$201 million, as compared to $187.6 million in the year ended December 31, 2005. |
| |
The
Board of Directors declared a dividend of $0.16 per share for the last quarter of 2006,
resulting in a cumulative dividend for 2006 of $ 0.61 per share. |
| |
Trends
in the defense electronics and homeland security markets in which the Company operates
have been impacted by the nature of recent conflicts and terrorism activities throughout
the world. Lessons learned in Operation Iraqi Freedom, Afghanistan and various terrorist
actions worldwide have increased the focus of defense forces on low intensity conflicts
and homeland security. |
| |
In
the defense electronics market, there is an increasing demand for products and systems in
the areas of C(4)ISR. Accordingly, while the Company continues to perform
platform upgrades, more emphasis is being placed on C(4)ISR, including
information systems, intelligence gathering, situational awareness, precision guidance,
all weather and day/night operations, border and perimeter security, UAV’s, space and
satellite based defense capabilities and homeland security systems. |
| |
The
Company believes that its core technologies and abilities will enable it to take advantage
of many of these emerging trends, as well as to continue to participate in the
“Current Force” legacy operations of its customers. |
| |
In
recent years consolidations in the defense industry have affected competition. This has
decreased the number but increased the relative size and resources of the Company’s
competitors. The Company adapts to evolving market conditions by adjusting its business
strategy to changing defense market conditions. It also anticipates continued competition
in defense markets due to declining defense budgets in some countries. |
| |
The
Company believes in its ability to compete on the basis of its systems development and
technological expertise, combat-proven performance and policy of offering customers
overall solutions to technological, operational and financial needs and in the same time
enhancing the industrial capabilities at these countries. |
2
| |
The
Company’s backlog of orders as of December 31, 2006 reached $3,786 million, of which
68% were for orders outside Israel. The Company’s backlog as of December 31, 2005 was
$3,347 million, of which 72% were for orders outside Israel. |
| |
Approximately
70% of the Company’s backlog as of December 31, 2006 is scheduled to be performed
during 2007 and 2008. The majority of the 30% balance is scheduled to be performed in 2009
and 2010. |
| D. |
|
Operating
Subsidiaries and Affiliated Entities |
| |
• |
|
Elbit
Systems Electro-Optics Industries Elop Ltd. (“Elop”) — a wholly-owned
subsidiary based in Israel, is engaged in the area of advanced electro-optical products
and systems for military and civilian use. Elop’s business areas include thermal
imaging products, lasers, IMINT solutions, head-up displays, integrated sights for ground
forces, space and airborne reconnaissance systems and electro-optical homeland security
and defense security systems. |
| |
• |
|
Elbit
Systems of America, LLC (“ESA”) – is the headquarters for the U.S.
operations of the Group and includes the following subsidiaries: |
| |
|
• |
|
EFW
Inc. (“EFW”), a wholly-owned subsidiary based in Fort Worth, Texas, provides
combat-proven design, development, production and life-cycle support of mission critical
systems for U.S. and allied military tactical platforms. |
| |
|
• |
|
Kollsman,
Inc. (“Kollsman”), a wholly-owned subsidiary located in Merrimack, New
Hampshire, is a supplier of avionic equipment, electro-optic systems and subsystems,
vision based solutions and surveillance systems to the commercial aviation, defense and
homeland security markets. |
| |
|
• |
|
International
Enterprises, Inc. (“IEI”),a wholly-owned subsidiary based in Talladega,
Alabama, provides depot level repair, manufacturing and logistics support for military
electronic systems and components. |
| |
|
• |
|
Vision
Systems International LLC (“VSI”), a 50% joint venture with Rockwell Collins,
located in San Jose, California, is a supplier of helmet mounted cueing systems for
fixed-wing, tactical fighter aircraft. |
| |
• |
|
Cyclone
Aviation Products Ltd. (“Cyclone”) – a wholly-owned subsidiary based in
Israel, is engaged in the production of structural components and parts for leading
aerospace companies. Cyclone also performs maintenance, repair and customized upgrading
of light airplanes and helicopters. |
| |
• |
|
Silver
Arrow LP – a wholly-owned limited partnership based in Israel, is engaged in UAV
systems development, production and support and produces a full range of UAV systems for
tactical use. |
| |
• |
|
Ortek
Ltd. (“Ortek”) – a wholly-owned subsidiary based in Israel, is engaged in
the development and production of optical security systems and products and performs a
range of projects for homeland security and defense applications. |
| |
• |
|
European
subsidiary – a wholly-owned subsidiary based in Belgium, is involved mainly in
development, manufacturing and support of electro-optical products for defense and space
markets. |
3
| |
• |
|
Elisra
– in which Elbit Systems owns a 70% interest, is comprised of Elisra Electronic
Systems Ltd. (“Elisra”), a privately held Israeli company, and Elisra’s
two wholly-owned Israeli subsidiaries – Tadiran Electronic Systems Ltd. and Tadiran
Spectralink Ltd. Elisra specializes in the design, manufacture, integration and support
of advanced defense solutions and its main business areas include EW suites, airborne
warning systems, ELINT systems, artillery C4I systems and data links for UAVs and guided
munitions. |
| |
• |
|
Kinetics
Ltd. (“Kinetics”) – a 51%-owned subsidiary based in Israel, is involved
mainly in the development and production of systems and components for combat vehicles. |
| |
• |
|
Semi-Conductor
Devices (“SCD”) – an Israeli affiliated partnership held in equal part by
each of the Company and Rafael Armaments Development Authority Ltd. (“Rafael”),
is engaged in the development and production of infrared detectors and laser diodes. |
| |
• |
|
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 subsidiary of
Rafael, is engaged mainly in the area of thermal imaging systems for commercial
applications. |
| |
• |
|
Tadiran
Communications Ltd. (“Tadiran”) – a publicly-traded Israeli company in
which Elbit Systems holds an approximately 43% interest, is engaged in the worldwide
market for military communications systems and equipment and is also active in the
civilian communications market. |
| |
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 technologies
spin-off companies whose activities are usually based on technologies that were developed
by the Group. The spin-off companies are involved primarily in the areas of medical
equipment 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. |
| |
• |
|
On
November 16, 2006, the Company reported that EFW, an Elbit Systems of America company,
has been chosen to supply the Helmet Display and Tracking System (HDTS) for the US Army’s
new Armed Reconnaissance Helicopter designed and manufactured by Bell Helicopter. The
HDTS will be based on EFW’s ANVIS/HUD (Aviator’s Night Vision Imaging System /
Head Up Display) with a Tracking System for pilot targeting, cueing and crew
coordination. The program has potential value of $51 million through 2012. |
| |
• |
|
On
January 8, 2007, the Company reported that it has signed a contract to supply unmanned
turrets and electro-optic systems for the Belgian Infantry Vehicle Program. The contract,
valued at approximately $58 million, is pursuant to a co-operation between the Company
and the Swiss company Mowag of the General Dynamics European Land Combat Systems Group. |
4
| |
• |
|
On
January 30, 2007, the Company announced that it received notice on January 29, 2007 from
the Bulgarian Ministry of Defense of the termination of the in the amount of €57
million for the modernization of Mi-24 and Mi-17 helicopters for the Bulgarian Air Force.
The Company had previously announced the award of this contract on December 4, 2005. In
the cancellation notice the Bulgarian MOD requested a return of a portion of the amounts
paid to date to the Company under the contract. On March 5, 2007, the Company announced,
that further to its January 30, 2007 announcement, it reached an agreement with the
Bulgarian Government regarding the cancellation of the contract for the modernization of
Bulgarian Air Force Mi-24 and Mi-17 helicopters. The agreement recognizes that the
cancellation of the contract is by mutual consent and is not a result of breach of
obligations by either party. Under the agreement the Company will return to the Bulgarian
Ministry of Defense part of the advance payments received. The Company will also deliver
the Ministry of Defense equipment and items already produced in the performance of the
program in consideration of the balance of the payments to be retained by Elbit Systems.
The Company believes that this matter will not have a material adverse affect on its
results of operations. |
| |
• |
|
On
February 20, 2007, the Company was awarded a contract to establish a training center for
“Tzofit” (King Air B200 Beechcraft) for the Israeli Air Force (“IAF”).
The Company will serve as the project’s prime contractor, while Arkia and the
Canadian Mechtronix will serve as sub-contractors. The training center will operate
through a PFI (Private Financing Initiative) program, with the Company providing the IAF
a turn-key solution including the establishment of the training center, its operation and
the supply of simulators, training services and maintenance for a 10-year period. The
Israeli Ministry of Defense will purchase flight training hours for the IAF from the
Company. Potential revenues from the project are expected to exceed $15 million. The
training center will be established on a civilian property outside military bases.
Furthermore, for the first time in Israel, it will be possible to open such a training
center for civilian pilots, providing them training in accordance with international
aviation requirements while using local flight simulators and facilities. |
| |
• |
|
On
February 26, 2007, the Company announced that its U.S. subsidiary, Kollsman, an ESA
company, received two follow-on orders from the U.S. Marine Corps for its
high-performance Laser Target Designator (LTD) systems that have proven successful in
field test evaluations. The additional orders, under an indefinite delivery/indefinite
quantity (“IDIQ”) contract, consisting of approximately $16.9 million and $34
million respectively, represent an increase over the initial order of July 2006. Part of
the work will be performed by Elop. |
| F. |
|
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, 2006. |
| |
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 United States (“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. |
5
| |
We
believe our most critical accounting policies relate to: |
| |
• |
|
Business
Combinations and Purchase Price Allocation. |
| |
• |
|
Impairment
of Goodwill and Other Long-Lived Assets. |
| |
• |
|
Other-Than-Temporary
Decline in Value of Investments in Investee Companies. |
| |
• |
|
Useful
Life of Long-Lived Assets. |
| |
The
Company generates revenues, mainly from long-term contracts involving the design,
development, manufacture and integration of defense systems and products and providing
support and services for such systems and products. |
| |
Revenues
from long-term contracts are recognized based on Statement of Position 81-1
“Accounting for Performance of Construction-Type and Certain Production-Type
Contracts” (“SOP 81-1”) according to which revenues are recognized on the
percentage-of-completion basis. |
| |
Sales
under long-term fixed-price contracts which provide for a substantial level of development
efforts in relation to total contract efforts are recorded using the cost-to-cost method
of accounting as the basis to measure progress toward completing the contract and
recognizing revenues. According to this method, sales and profits are recorded based on
the ratio of costs incurred to estimated total costs at completion. In certain
circumstances, when measuring progress toward completion, the Company considers other
factors, such as achievement of performance milestones. |
| |
Sales
and anticipated profit under long-term fixed-price production type contracts are recorded
on a percentage-of-completion basis, using the units-of-delivery as the basis to measure
progress toward completing the contract and recognizing revenues. In certain
circumstances, which involve long-term fixed-price production type contracts for
non-homogenous or small quantity of units, revenue is recognized based on the achievement
of performance milestones, which provide a more reliable, and objective, measure to the
extent of progress toward completion. |
| |
Sales
and anticipated profit under long-term fixed-price contracts that involve both development
and production are recorded using the cost-to-cost method and units-of-delivery method as
applicable to the phase of the contract, as the basis to measure progress toward
completion. In addition, when measuring progress toward completion under the development
portion of the contract, the Company considers other factors, such as achievement of
performance milestones. |
| |
The
percentage-of-completion method of accounting requires management to estimate the cost and
gross profit margin for each individual contract. Estimated gross profit or loss from
long-term contracts may change due to changes in estimates resulting from differences
between actual performance and original estimated forecasts. Such changes in estimated
gross profit are recorded in results of operations when they are reasonably determinable
by management, on a cumulative catch-up basis. Anticipated losses on contracts are charged
to earnings when determined to be probable. |
| |
Sales
under cost-reimbursement-type contracts are recorded as costs are incurred. Applicable
estimated profits are included in earnings in the proportion that incurred costs bear to
total estimated costs. |
6
| |
Amounts
representing contract change orders, claims or other items are included in sales only when
they can be reliably estimated and realization is probable. Penalties and awards
applicable to performance on contracts are considered in estimating sales and profit rates
and are recorded when there is sufficient information to assess anticipated contract
performance. |
| |
The
Group believes that the use of the percentage-of-completion method is appropriate as the
Group has the ability to make reasonably dependable estimates of the extent of progress
towards completion, contract revenues and contract costs. In addition, contracts executed
include provisions that clearly specify the enforceable rights regarding services to be
provided and received by the parties to the contracts, the consideration to be exchanged
and the manner and terms of settlement. In all cases the Group expects to perform its
contractual obligations and its customers are expected to satisfy their obligations under
the contract. |
| |
In
cases where the contract involves the delivery of products and performance of services,
the Group follows the guidelines specified in EITF 00-21, “Revenue Arrangements with
Multiple Deliverables” in order to allocate the contract fees between the products
accounted for under SOP 81-1 and the services. |
| |
In
certain circumstances, sales under short-term fixed-price production type contracts are
accounted for in accordance with SAB No. 104, “Revenue Recognition in Financial
Statements” (“SAB 104”), and recognized when the following criteria are
met: persuasive evidence of an arrangement exists, delivery has occurred, the
seller’s price to the buyer is fixed or determinable, no further obligation exists
and collectability is reasonably assured. |
| |
Management
reviews periodically the estimates of progress towards completion and project costs. These
estimates are determined based on engineering estimates and past experience, by personnel
having the appropriate authority and expertise to make reasonable estimates of the related
costs. Such engineering estimates are reviewed periodically for each specific contract by
professional personnel from various disciplines within the organization. These estimates
take into consideration the probability of achievement of certain milestones, as well as
other factors that might impact the contract’s completion. |
| |
A
number of internal and external factors affect the Group’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
testing requirement changes. If any of the above factors were to change, or if different
assumptions were used in estimating progress cost and measuring progress towards
completion, it is likely that materially different amounts would be reported in the
Company’s consolidated financial statements. |
| |
(2) |
|
Business
Combinations and Purchase Price Allocation |
| |
Business
combinations are accounted for using the purchase method of accounting, under which the
total purchase price is allocated to proportional interest in the acquired company’s
assets and liabilities based on their estimated fair values, and the remainder, if any, is
attributed to goodwill. |
| |
The
aggregate purchase price of any investment accounted for under either the consolidation or
the equity method of accounting is being allocated to identifiable net assets, intangible
assets other than goodwill, in-process research and development (IPR&D) activities,
and to goodwill. The amount allocated to IPR&D is being charged immediately to the
Group’s results of operations in accordance with FASB Interpretation No. 4,
“Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the
Purchase Method” (FIN 4). The amounts allocated to finite-lived intangible assets
other than goodwill are amortized on a straight-line basis over their weighted average
expected useful life. |
7
| |
Estimating
the fair value of certain assets acquired and liabilities assumed is judgmental in nature
and often involves the use of significant estimates and assumptions, mainly with respect
to intangible assets. While there are a number of different methods for estimating the
value of intangibles acquired, the primary method used is the discounted cash flow
approach. Some of the more significant estimates and assumptions inherent in the
discounted cash flow approach include projected future cash flows, including their timing,
a discount rate reflecting the risk inherent in the future cash flows and a terminal
growth rate. Another area which requires judgment which can impact the Group’s
results of operations is estimating the expected useful lives of the intangible assets. |
| |
To
the extent intangible assets are ascribed with longer useful lives, there may be less
amortization expenses recorded in any given period. As the Group companies operate in
industries which are extremely competitive, the value of the intangible assets, including
goodwill and their respective useful lives, are exposed to future adverse changes which
can result in a charge to the Group’s results of operations. |
| |
(3) |
|
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. According to SFAS 142, an impairment loss will be
recognized when the carrying value of the goodwill is not recoverable and exceeds its fair
value. The Company conducts a goodwill impairment review at least annually and on an
interim basis whenever events or changes in circumstances indicate that the carrying value
may not be recoverable. Factors considered important which could trigger an impairment
review include significant underperformance relative to historical or expected future
operating results and significant negative industry or economic trends. The Company tests
for impairment at a level referred to as a reporting unit. Determining fair value of a
reporting unit involves the use of significant estimates and assumptions. These estimates
and assumptions could have an impact on whether or not an impairment charge is recognized.
To determine fair value, the Company may use a number of valuation methods. |
| |
The
methods commonly used to value a closely held company are the Income, Market and Cost
approaches. The Company’s reported units fair market value was estimated using two
valuation methodologies: the Income Approach and the Market Approach. As mentioned above,
these approaches use estimates and assumptions including projected future cash flows,
discount rate and terminal growth rate. Using different assumptions could result in
different results. |
| |
As
of December 31, 2006, the Company’s goodwill amounted to $58.4 million. The Company
tested its goodwill as of December 31, 2006 and concluded that no impairment loss has been
identified. |
| |
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 whenever events or circumstances indicate that carrying amount of an asset
may not be recoverable. The recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the future undiscounted cash flows
expected to be generated by the asset. If an asset is considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying amount of the
asset exceeds its fair value. In the evaluation of fair value, the Company uses
significant estimates and assumptions such as projected future cash flows which are
subject to high degree of judgment. If the carrying value of the intangible asset exceeds
its fair value, an impairment loss is recognized in an amount equal to that excess. In the
valuation of fair value the Company uses judgment as to which is the most appropriate
method to use for measuring fair value and as to what assumptions to use in implementing
the methodology chosen. As the Group operates in industries which are extremely
competitive, changes in the assumptions and estimates may affect the carrying value of the
intangible assets, and could result in an additional impairment charge to the Company
results of operations. As of December 31, 2006, the Company’s long-lived assets
amounted to $364.7 million, including $70.6 million in intangible assets, and the Company
concluded that there were no indicators for impairment. |
8
| |
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. See also “Other Finance Expenses (Net)” below. |
| |
(4) |
|
Other-Than-Temporary
Decline in Value of Investments in Investee Companies |
| |
At
the end of each reported period the Company evaluates whether an other-than-temporary
decline in the value of an investment in investee companies has been sustained. This
evaluation is judgmental in nature. If it has been determined that an investment has
sustained an other-than-temporary decline in its fair value relative to its carrying
value, the investment is written down to its fair value by a charge to the Company’s
results of operations. |
| |
An
evaluation of fair value is dependent upon specific facts and circumstances. Factors that
are considered in this determination include financial information (including, among
others, budgets, business plans and financial statements) and independent appraisals, if
available. Factors indicative of an other-than-temporary decline include recurring
operating losses, credit defaults, specific conditions affecting the investment, such as
in the industry or in a geographic area, and subsequent rounds of financing at an amount
below the cost basis of the investment. This list is not all inclusive, and the Company
weighs all quantitative and qualitative factors in determining if an other-than-temporary
decline in value of an investment has occurred. As the Group operates in industries which
are extremely competitive, it is possible that estimates could change in the near term,
and there can be no assurance that an additional write-down or write-off of the carrying
value will not be required in the future. |
| |
(5) |
|
Useful
Life of Long-Lived Assets |
| |
Intangible
assets and property, plant and equipment are amortized over their estimated useful lives.
Determining the useful life of such assets involves the use of estimates and judgments. In
determining the useful life the Company takes into account various factors such as the
expected use of the assets, effects of obsolescence, competition, demand, changes in
business, acquisitions and other economic factors. If the Company’s estimates changes
and the useful lives of such assets increase or decrease, it will affect the Company’
results of operations. |
| |
According
to Section 404 of the U.S. Sarbanes-Oxley Act of 2002, the Company is required to include
in its annual report for the fiscal year ending December 31, 2006 an assessment, as of the
end of the fiscal year, of the effectiveness of its internal controls over financial
reporting. |
| |
During
2006, the Company took steps to assure compliance of its documentation and internal
controls over financial reporting with the guidelines stipulated in the Sarbanes-Oxley
Act. The Company has completed the required activities for the 2006 year end financial
statements. |
9
| H. |
|
New
Accounting Standards |
| |
The
significant accounting policies applied in the preparation of these statements are
identical to those applied in preparation of the latest annual financial statements except
as indicated below: |
| |
• |
|
In
July 2006, the FASB issued FASB Interpretation No. 48 “Accounting for Uncertainty in
Income Taxes an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN
48 clarifies the accounting for income taxes by prescribing the minimum recognition
threshold a tax position is required to meet before being recognized in the financial
statements. FIN 48 utilizes a two-step approach for evaluating tax positions. Recognition
(step one) occurs when an enterprise concludes that a tax position, based solely on its
technical merits, is more-likely-than-not to be sustained upon examination. Measurement
(step two) is only addressed if step one has been satisfied. Under step two, the tax
benefit is measured as the largest amount of benefit, determined on a cumulative
probability basis that is more-likely-than-not to be realized upon ultimate settlement. |
| |
FIN
48 applies to all tax positions related to income taxes, including tax positions
considered to be “routine” as well as those with a high degree of uncertainty. |
| |
FIN
48 has expanded disclosure requirements, which include a tabular roll forward of the
beginning and ending aggregate unrecognized tax benefits as well as specific detail
related to tax uncertainties for which it is reasonably possible the amount of
unrecognized tax benefit will significantly increase or decrease within twelve months.
These disclosures are required at each annual reporting period and if a significant change
occurs in an interim period. |
| |
FIN
48 is effective for fiscal years beginning after December 15, 2006. The cumulative effect
of applying FIN 48 will be reported as an adjustment to the opening balance of retained
earnings. The Company is currently evaluating the effect of the adoption of FIN 48 on its
financial statements. |
| |
• |
|
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”).
This Statement provides a single definition of fair value, a framework for measuring fair
value, and expanded disclosures concerning fair value. Previously, different definitions
of fair value were contained in various accounting pronouncements creating
inconsistencies in measurement and disclosures. SFAS No. 157 applies under those
previously issued pronouncements that prescribe fair value as the relevant measure of
value, except SFAS No. 123(R) and related interpretations. The Statement does not apply
to accounting standards that require or permit measurement similar to fair value but are
not intended to represent fair value. This pronouncement is effective for fiscal years
beginning after November 15, 2007. The Company is currently evaluating the impact of
adopting SFAS 157. |
10
| |
• |
|
In
September 2006, the FASB issued FASB Statement No. 158, Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements
No 87, 88, 106, and 132(R) (“SFAS 158”). Statement 158 requires plan sponsors
of defined benefit pension and other postretirement benefit plans (collectively, “postretirement
benefit plans”) to recognize the funded status of their postretirement benefit plans
in the statement of financial position, measure the fair value of plan assets and benefit
obligations as of the date of the fiscal year-end statement of financial position, and
provide additional disclosures. Effective December 31, 2006, the Company adopted the
recognition and disclosure provisions of Statement 158. The effect of adopting Statement
158 on the Company’s financial condition at December 31, 2006 has been included in
the accompanying consolidated financial statements. |
| |
See
the Company’s financial reports Note 15 for further discussion of the effect of
adopting Statement 158 on the Company’s consolidated financial statements. |
| |
• |
|
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities” (“SFAS 159”). This Statement provides companies
with an option to report selected financial assets and liabilities at fair value.
Generally accepted accounting principles have required different measurement attributes
for different assets and liabilities that can create artificial volatility in earnings.
The Statement’s objective is to reduce both complexity in accounting for financial
instruments and the volatility in earnings caused by measuring related assets and
liabilities differently. This Statement is effective as of the beginning of an entity’s
first fiscal year beginning after November 15, 2007. The Company is currently evaluating
the impact of adopting SFAS 159. |
| I. |
|
Off
Balance Sheet and Other Long-Term Arrangements and Commitments |
| |
• |
|
The
Company and certain Israeli subsidiaries partially finance their research and development
expenditures under programs sponsored by the Government of Israel Chief Scientist Office (“OCS”)
for the support of research and development activities conducted in Israel. At the time
the participations were received, successful development of the related projects was not
assured. |
| |
In
exchange for participation in the programs by the OCS, the Company and the subsidiaries
agreed to pay 2% — 5% of total sales of products developed within the framework of
these programs. The obligation to pay these royalties is contingent on actual sales of the
products. |
| |
The
Company and some of its subsidiaries may also be obligated to pay certain amounts to the
Israeli Ministry of Defense (“IMOD”) and others on certain sales including sales
resulting from the development of some of the technologies developed with their
participation. |
| |
• |
|
In
connection with long-term projects in certain countries, the Company and certain
subsidiaries undertook to use their respective best efforts to make or facilitate
purchases or investments in those countries at specified percentages (typically up to
100%) of the amount of the specific contract. The companies’ obligation to make or
facilitate third parties making such investments and purchases is subject to commercial
conditions in the local market, typically without a specific financial penalty. The
maximum aggregate undertaking as of December 31, 2006 amounted to $1,078 million to be
performed over a period of up to 10 years. In the opinion of the Company’s
management, the actual amount of the investments and purchases is anticipated to be less
than that mentioned above, since certain investments and purchases can result in reducing
the overall undertaking on more than a one-to-one basis. |
| |
• |
|
The
future minimum lease commitments of the Group under various non-cancelable operating
lease agreements in respect of premises, motor vehicles and office equipment are as of
December 31, 2006 as follows: $14 million for 2007, $12 million for 2008, $9.5 million
for 2009 and $28 million for 2010 and thereafter. |
11
| |
• |
|
In
connection with bank credits and loans, including performance guarantees issued by banks
and bank guarantees in order to secure certain advances from customers, the Company and
certain subsidiaries are obligated to meet certain financial covenants. Such covenants
include requirements for shareholders’ equity, current ratio, operating profit
margin, tangible net worth, EBITDA, interest coverage ratio and total leverage. As of
December 31, 2006, the Company and its subsidiaries, except Elisra, were in compliance
with all covenants. |
| |
As
at December 31, 2006, Elisra did not comply with its financial covenants. As a result, the
banks requested to register a general floating lien on the assets of Elisra. In February
2007, Elisra’s Board of Directors approved the banks’ request. |
| |
• |
|
As
of December 31, 2006, guarantees in the amount of approximately $766 million were issued
by banks on behalf of Group companies in order to secure certain advances from customers
and performance bonds. |
| |
• |
|
As
of December 31, 2006 and 2005, the Group had purchase commitments that amounted to
approximately $681 and $661 million, respectively. These purchase orders and subcontracts
are typically in a standard format proposed by the Group, with the subcontracts and
purchase orders also reflecting provisions from the Group applicable prime contract that
are appropriate to flow down to subcontractors and vendors. The terms typically included
in these purchase orders and subcontracts are consistent with Uniform Commercial Code
provisions in the United States for sales of goods, as well as with specific terms called
for by the Group’s customers in international contracts. These terms include our
right to terminate the purchase order or subcontract in the event of the vendors’ or
subcontractors’ default, as well as the Group’s right to terminate the order or
subcontract for the Group’s convenience (or if the Group’s prime contractor has
so terminated the prime contract). Such purchase orders and subcontracts typically are
not subject to variable price provisions. |
| |
• |
|
As
a result of cancellation of the export authorization in 2006 to a foreign country (“the
Customer”), Elisra and one of its subsidiaries were forced to terminate four
projects. Most of the activity in respect of the projects, the total amount of which was
approximately $40 million, has already been executed and the deliveries have been made to
the Customer. For those projects, Elisra and its subsidiary provided to the Customer
advances and performance guarantees issued by banks and financial institutions in the
total amount to approximately $10 million. Elisra’s and the Company’s
management, based on the opinion of its legal advisors, believes that the financial
impact of the four projects’ termination in excess of the accruals recorded in the
financial statements will not have a material adverse effect on the financial position or
results of operations of the Company. The Customer financed the projects by means of bank
loans. The banks received indemnity letters as security for repayment of the loans. Most
of the indemnity was provided to the banks by International Foreign Trade Risks Insurance
Company (“IFTRIC”) (since renamed “ASHRA”) and the balance was
provided by Elisra and its subsidiary. In addition, Elisra provided indemnity letters to
IFTRIC that can be exercised upon the occurrence of specific unusual events and is
subject to IFTRIC fulfilling its commitments to the banks. In the opinion of Elisra’s
and the Company’s management, no provisions are required in respect of these
indemnity letters. |
| J. |
|
Acquisitions
and Divestitures During 2006 |
| |
• |
|
On
May 31, 2006, the Company’s U.S. subsidiary, Kollsman acquired a 20% interest in
Sandel Avionics, Inc. (“Sandel”) in consideration for $12.5 million
(represented by a $11.5 million cash payment and a $1 million holdback to be paid within
12 months). Sandel, based in Vista, California, produces specialized integrated display
systems and other products for the commercial aviation market. The Company expects that
some of Kollsman’s new products will be integrated with Sandel’s display
electronics for the general aviation market. |
12
| |
Kollsman
has an option to buy the remaining 80% interest in Sandel for a period of 30 months after
the initial investment at the equivalent price per share as the first transaction. During
the option period, Kollsman has the right to representation on the Sandel board of
directors, as well as several specific minority rights. In addition, Kollsman and Sandel
have formed an alliance to cooperate on product development and marketing. |
| |
Based
on a purchase price allocation analysis (“PPA”) performed by an independent
advisor, the excess of the amounts paid for the Sandel shares over their book value was
attributed as follows: |
|
Book value
in Sandel
|
Excess
cost
|
Total
|
|
Expected useful lives
of excess cost
|
|
(In thousands of U.S. dollars) |
|
|
| Working capital |
700 |
- |
700 |
|
- |
| Fixed and others assets |
700 |
- |
700 |
|
- |
| Long-term liabilities |
(2,100) |
- |
(2,100) |
|
- |
| IPR&D |
- |
1,200 |
1,200 |
|
Immediate write-off |
| Technology and customer base |
- |
3,200 |
3,200 |
|
7 years |
| Goodwill |
- |
8,800 |
8,800 |
|
Indefinite - subject to |
| |
|
|
|
|
annual impairment test |
|
|
| |
(700) |
13,200 |
12,500 |
|
|
|
|
| |
• |
|
On
June 5, 2006, the Company acquired approximately 4.3% of Tadiran’s outstanding
shares in consideration for $18.3 million. Following the acquisition, the Company holds
approximately 43% of Tadiran’s shares. |
| |
Based
on a PPA performed by an independent advisor, the excess of the amounts paid for the above
mentioned Tadiran shares acquired over their book value was attributed as follows: |
|
Book value
in Tadiran
|
Excess
cost
|
Total
|
|
Expected useful lives
of excess cost
|
|
(In thousands of U.S. dollars) |
|
|
| Working capital |
2,600 |
- |
2,600 |
|
- |
| Inventory |
1,000 |
300 |
1,300 |
|
Up to a quarter |
| Long-term assets and investments |
1,300 |
100 |
1,400 |
|
5 years |
| Long-term liabilities |
(1,800) |
- |
(1,800) |
|
- |
| Brand name |
400 |
600 |
1,000 |
|
15 years |
| Customer base |
- |
5,300 |
5,300 |
|
2-12 years |
| Technology |
200 |
2,300 |
2,500 |
|
10 years |
| IPR&D |
- |
1,000 |
1,000 |
|
Immediate write-off |
| Goodwill |
2,500 |
2,500 |
5,000 |
|
Indefinite - subject to |
| |
|
|
|
|
annual impairment test |
|
|
| |
6,200 |
12,100 |
18,300 |
|
|
|
|
| |
• |
|
In
December 2006, the Company sold its holdings in Sultam Systems Ltd. (“Sultam”)
in consideration for $5 million, to be paid in 24 monthly installments. An amount of $2.3
million was recorded as long-term receivables. A gain of $1.5 million was recorded as
other income. |
13
| K. |
|
Elisra
Efficiency Plan |
| |
Elisra’s
2006 financial results include a $26 million net loss (see below – “Summary of
Financial Results – Elisra”). In February 2007, Elisra’s Board of
Directors approved the framework of an efficiency plan, including a reduction in the
number of employees, with a potential efficiency plan cost of up to $16 million. The plan
also includes co-location to one operating site as well as other cost cutting measures.
The goal of the plan is to return Elisra to profitability. Elisra’s Board of
Directors determined that execution of the reduction in the number of employees is
subject to preparation of a detailed list of the specific employees, the adequate
availability of financing for the execution of the plan and the expected return on such
expense in the future. As of the approval date of the Company’s consolidated
financial statements, Elisra’s management had not yet completed the above mention
procedures and therefore is unable to estimate the total extent and expected period of
the efficiency plan. |
| L. |
|
2007
Employee Stock Option Plan |
| |
On
January 11, 2007, the Company’s shareholders approved the Company’s 2007 Option
Plan (the “Plan”). The purpose of the Plan is to provide the benefits arising
from ownership of share capital by the Company’s and certain of its subsidiaries’ employees,
who are expected to contribute to the Group’s future growth and success. The Options
were allocated, subject to the required approvals, in two tracks as follows: (i) Regular
Options — up to 1,250,000 options exercisable into 1,250,000 Ordinary Shares of the
Company in consideration for the exercise price, all or any portion of which may be
granted as Incentive Stock Options (“Regular Options”) and (ii) Cashless
Options — up to 1,250,000 options, which entitle the participant to exercise options
for an amount reflecting only the benefit factor (“Cashless Options”). Each of
the participants is granted an equal amount of Regular Options and Cashless Options. The
exercise price for Israeli participants is the average closing price of the Company’s
shares during 30 trading days proceeding the options grant date. The exercise price of
options granted to a non-Israeli participant residing in the United States is the fair
market value of the share on the day the options are granted. |
| |
According
to the Plan, the options granted on a certain date (the “Commencement Date”)
will become vested and exercisable in accordance with the following vesting schedule: |
| |
(1) |
|
Fifty
percent (50%) of the options will be vested and exercisable from the
second anniversary of the Commencement Date; |
| |
(2) |
|
An
additional twenty-five percent (25%) of the options will be vested and
exercisable from the third anniversary of the Commencement Date; and |
| |
(3) |
|
The
remaining twenty-five (25%) of the options will be vested and exercisable
from the fourth anniversary of the Commencement Date. |
| |
The
Company will grant options to Israeli participants in accordance with the provisions of
Section 102 of the Israeli Tax Ordinance related to the Capital Gains Tax Track. |
| |
On
January 11, 2007, the Company granted to its employees 2,354,300 option under the Plan.
The exercise price for Israeli employees was $33.20 and for non-Israeli employees was
$33.10. |
| |
The
compensation cost related to the options granted in January 2007 is estimated at $20
million. That cost is expected to be recognized over a period of four years. |
14
| M. |
|
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 and years ended December 31, 2006 and
December 31, 2005. |
| |
The
financial statements of the Company include consolidation of Elisra’s financial
results, commencing December 1, 2005, therefore Elisra’s results are included in 2006
results and are not included in the 2005 results, prior to the day of the acquisition. |
|
For the year
ended on December 31
|
|
For the three months
ended on December 31
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
$
|
|
%
|
|
$
|
|
%
|
|
$
|
|
%
|
|
$
|
|
%
|
|
|
(In thousands of U.S. dollars except per share data) |
|
|
|
|
| Total revenues |
|
|
| 1,523,243 |
|
| 100.0 |
|
| 1,069,876 |
|
| 100.0 |
|
| 467,388 |
|
| 100.0 |
|
| 321,760 |
|
| 100.0 |
|
| Cost of revenues | | |
| 1,149,768 |
|
| 75.5 |
|
| 786,616 |
|
| 73.5 |
|
| 367,163 |
|
| 78.5 |
|
| 239,826 |
|
| 74.5 |
|
| Restructuring expenses (pre-contract and | | |
| equipment write-off) | | |
| - |
|
| - |
|
| 3,488 |
|
| 0.4 |
|
| - |
|
| - |
|
| 3,488 |
|
| 1.1 |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| Gross profit | | |
| 373,475 |
|
| 24.5 |
|
| 279,772 |
|
| 26.1 |
|
| 100,225 |
|
| 21.5 |
|
| 78,446 |
|
| 24.4 |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| Research and development (R&D) | | |
| expenses | | |
| 115,648 |
|
| 7.6 |
|
| 92,375 |
|
| 8.6 |
|
| 33,283 |
|
| 7.1 |
|
| 25,482 |
|
| 7.9 |
|
| Less - participation | | |
| (23,416 |
) |
| (1.5 |
) |
| (20,472 |
) |
| (1.9 |
) |
| (5,414 |
) |
| (1.2 |
) |
| (7,022 |
) |
| (2.2 |
) |
|
| |
| |
| |
| |
| |
| |
| |
| |
| R&D expenses, net |
| |
| 92,232 |
|
| 6.1 |
|
| 71,903 |
|
| 6.7 |
|
| 27,869 |
|
| 5.9 |
|
| 18,460 |
|
| 5.7 |
|
| Marketing and selling expenses | | |
| 111,880 |
|
| 7.3 |
|
| 78,648 |
|
| 7.4 |
|
| 30,853 |
|
| 6.6 |
|
| 23,953 |
|
| 7.4 |
|
| General and administrative expenses | | |
| 77,505 |
|
| 5.1 |
|
| 54,417 |
|
| 5.1 |
|
| 20,051 |
|
| 4.4 |
|
| 16,155 |
|
| 5.0 |
|
| IPR&D write-off | | |
| - |
|
| - |
|
| 7,490 |
|
| 0.7 |
|
| - |
|
| - |
|
| 7,490 |
|
| 2.3 |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| | | |
| 281,617 |
|
| 18.5 |
|
| 212,458 |
|
| 19.9 |
|
| 78,773 |
|
| 16.9 |
|
| 66,058 |
|
| 20.5 |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| Operating income | | |
| 91,858 |
|
| 6.0 |
|
| 67,314 |
|
| 6.3 |
|
| 21,452 |
|
| 4.5 |
|
| 12,388 |
|
| 3.9 |
|
| Finance expenses, net | | |
| (21,456 |
) |
| (1.4 |
) |
| (11,472 |
) |
| (1.1 |
) |
| (6,093 |
) |
| (1.3 |
) |
| (5,199 |
) |
| (1.6 |
) |
| Other income (expenses), net | | |
| 1,814 |
|
| 0.1 |
|
| (5,326 |
) |
| (0.5 |
) |
| 1,423 |
|
| 0.3 |
|
| (5,134 |
) |
| (1.6 |
) |
|
| |
| |
| |
| |
| |
| |
| |
| |
| Income before taxes on income | | |
| 72,216 |
|
| 4.7 |
|
| 50,516 |
|
| 4.7 |
|
| 16,782 |
|
| 3.5 |
|
| 2,055 |
|
| 0.7 |
|
| Taxes on income | | |
| 20,694 |
|
| 1.3 |
|
| 16,335 |
|
| 1.5 |
|
| 4,049 |
|
| 0.8 |
|
| 4,046 |
|
| 1.2 |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| | | |
| 51,522 |
|
| 3.4 |
|
| 34,181 |
|
| 3.2 |
|
| 12,733 |
|
| 2.7 |
|
| (1,991 |
) |
| (0.6 |
) |
| Minority interest in loses (gains) of | | |
| subsidiaries | | |
| 5,977 |
|
| 0.4 |
|
| (58 |
) |
| (0.0 |
) |
| 4,673 |
|
| 1.0 |
|
| (710 |
) |
| (0.2 |
) |
| Equity in net earnings (losses) of | | |
| affiliated companies and partnership | | |
| 14,743 |
|
| 1.0 |
|
| (1,636 |
) |
| (0.2 |
) |
| 6,553 |
|
| 1.4 |
|
| (2,974 |
) |
| (0.9 |
) |
|
| |
| |
| |
| |
| |
| |
| |
| |
| Net earnings | | |
| 72,242 |
|
| 4.7 |
|
| 32,487 |
|
| 3.0 |
|
| 23,959 |
|
| 5.1 |
|
| (5,675 |
) |
| (1.8 |
) |
|
| |
| |
| |
| |
| |
| |
| |
| |
| Diluted earnings per share |
|
|
|
1.72 |
|
|
|
|
|
0.78 |
|
|
|
|
|
0.57 |
|
|
|
|
|
(0.14) |
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
15
| |
The
results of Elisra were included in the Company’s consolidated financial reports
commencing December 1, 2005. The effect on 2005 results was mainly a $7.5 million
IPR&D write-off. Because of the acquisition date (November 30, 2005), the effects of
Elisra’s results on the Company consolidated results in 2005 were not material. |
| |
Accordingly,
in light of the immaterial effect of Elisra on the Company’s 2005 results, in order
to facilitate comparison of the Company’s 2006 results to those of 2005, the
following information is provided on Elisra’s 2006 results: revenues — $219
million, gross profit — $29 million and net loss – $26 million. The
Company’s net share in the loss (70%) was $18 million. |
| |
The
results of Elisra reflect increased costs in the performance of several programs, mainly
in the fourth quarter of 2006. Elisra’s results reduced the Company’s gross
profit, operational profit and net profit percentages. (See above – “Elisra
Efficiency Plan”). |
| |
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
Company’s consolidated revenues increased by 42.4%, from $1,069.9 million in 2005 to
$1,523.2 million in 2006. |
| |
The
following table sets forth the Company’s revenue distribution by areas of operation: |
|
Year ended
|
|
|
December 31, 2006
|
|
December 31, 2005
|
|
|
$ millions
|
|
%
|
|
$ millions
|
|
%
|
|
| Airborne systems |
|
|
| 547.8 |
|
| 35.9 |
|
| 420.8 |
|
| 39.3 |
|
| Land systems | | |
| 317.7 |
|
| 20.9 |
|
| 117.4 |
|
| 11.0 |
|
| C4ISR systems | | |
| 313.5 |
|
| 20.6 |
|
| 217.3 |
|
| 20.3 |
|
| Electro-optics | | |
| 223.3 |
|
| 14.7 |
|
| 242.3 |
|
| 22.7 |
|
| Other (mainly non-defense engineering and | | |
| production services) | | |
| 120.9 |
|
| 7.9 |
|
| 72.1 |
|
| 6.7 |
|
|
| |
| |
| |
| |
| Total | | |
| 1,523.2 |
|
| 100.0 |
|
| 1,069.9 |
|
| 100.0 |
|
|
| |
| |
| |
| |
| |
The following
table sets forth the Company’s distribution of revenues by geographical regions: |
|
Year ended
|
|
|
December 31, 2006
|
|
December 31, 2005
|
|
|
$ millions
|
|
%
|
|
$ millions
|
|
%
|
|
| Israel |
|
|
| 407.1 |
|
| 26.7 |
|
| 315.4 |
|
| 29.5 |
|
| United States | | |
| 609.5 |
|
| 40.0 |
|
| 397.5 |
|
| 37.2 |
|
| Europe | | |
| 233.7 |
|
| 15.3 |
|
| 104.2 |
|
| 9.7 |
|
| Other countries | | |
| 272.9 |
|
| 18.0 |
|
| 252.8 |
|
| 23.6 |
|
|
| |
| |
| |
| |
| Total | | |
| 1,523.2 |
|
| 100.0 |
|
| 1,069.9 |
|
| 100.0 |
|
|
| |
| |
| |
| |
16
| |
The
changes in revenues by areas of operation, other than the inclusion of Elisra, were in
revenues from customers for land systems, which were increased mainly as a result of sales
related to systems supplied to the U.S. Marine Corps. |
| |
The
changes in revenues by geographic distribution, other than standard quarterly
fluctuations, were in the revenues from customers in Europe and the U.S., which were
increased mainly as a result of the Watchkeeper project in the United Kingdom and systems
to the U.S. Marine Corps. |
| |
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. |
| |
Gross
profit in 2006 was $373.5 million (with a gross profit margin of 24.5%), as compared to
$279.8 million (gross profit margin of 26.1%) in 2005. The decrease in the gross profit
margin was mainly as a result of the lower gross profit margin generated by Elisra. |
| |
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 included programs which are partially funded by third parties,
including the IMOD, the OCS and bi-national and European development funds. The R&D
was performed in all major areas of core technological activities of the Company and
mainly in the areas of advanced airborne systems, C(4)I systems, cutting edge
electro-optics technology and products for surveillance, aerial reconnaissance, lasers and
space based sensors and homeland security technologies and products. |
| |
Gross
R&D expenses in 2006 totaled $115.6 million (7.6% of revenues), as compared with $92.4
million (8.6% of revenues) in 2005. |
| |
Net
R&D expenses (after deduction of third party participation) in 2006 totaled $92.2
million (6.1% of revenues), as compared to $71.9 million (6.7% of revenues) in 2005. |
| |
Marketing
and Selling Expenses |
| |
The
Company maintains its activities in developing new markets and pursues various business
opportunities according to the Company’s plans. |
| |
Marketing
and selling expenses in 2006 were $111.9 million (7.3% of revenues), as compared to $78.6
million (7.4% of revenues) in 2005. |
| |
General
and Administrative (“G&A”) Expenses |
| |
G&A
expenses in 2006 were $77.5 million (5.1% of revenues), as compared to $54.4 million (5.1%
of revenues) in 2005. |
| |
The
increase in G&A expenses in 2006 compared to 2005 was related to the cost of various
exploratory merger and acquisition, legal, audit and control activities, including
expenses related to compliance with the Sarbanes-Oxley Act. |
17
| |
Net
financing expenses in 2006 were $21.5 million, as compared to $11.5 million in 2005. |
| |
The
increase in the net financing expenses resulted mainly from a higher level of long-term
loans during the first half of 2006. |
| |
Other
Income (Expenses) (Net) |
| |
Other
income in 2006 was a $1.8 million gain, which was mainly as a result of the capital gain
related to the selling of Sultam shares, as compared to a $5.3 million loss in 2005, which
included a write-off of $5.4 million related to the Company’s investment in
Image–Sat International B.V. |
| |
The
Company’s tax rate represents a weighted average of the tax rates to which the
various companies in the Group are subject. |
| |
Provision
for taxes in 2006 was $20.7 million (tax rate of 28.7%), as compared to a provision for
taxes of $16.3 million (tax rate of 32.3%) in 2005. 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 Entities |
| |
In
2006, the Company had income of $14.7 million from its share in earnings of affiliated
entities, as compared to a loss of $1.6 million in 2005. The Company’s share in
earnings of affiliated entities in 2005 included $8.5 million in IPR&D write-offs
related to Tadiran. |
| |
The
companies and partnerships, in which the Company holds 50% or less in shares or voting
rights and are therefore not consolidated in its financial statements, operate in
complementary areas to the Company’s core business activities, including
electro-optics, airborne systems and communications. |
| |
Net
Earnings and Earnings Per Share (“EPS”) |
| |
Net
earnings in 2006 were $72.2 million (4.7% of revenues), as compared to reported net
earnings of $32.5 million (3.0% of revenues) in 2005. Diluted EPS was $1.72 in 2006, as
compared to $0.78 in 2005. |
| |
The
number of shares used for computation of diluted EPS in the year ended December 31, 2006
was 41,880 thousand shares, as compared to 41,623 thousand shares in the year ended
December 31, 2005. |
| |
Net
earnings in 2006 include $2.2 million in IPR&D write-offs related to the acquisitions
of Tadiran’s and Sandel’s shares in the second quarter of 2006. Net earnings in
2005 included a $8.5 million IPR&D write-off related to the acquisition of
Tadiran’s shares in 2005. |
18
| N. |
|
Liquidity
and Capital Resources |
| |
The
Company’s net cash flow generated from operating activities in 2006 was $201 million,
resulting mainly from net income and advances received from customers. The cash inflows
were partially offset, mainly by an increase in inventories. |
| |
Net
cash flow used for investment activities in the year ended December 31, 2006 was $87
million, which was used mainly for acquisition of Tadiran’s and Sandel’s shares
in the second quarter of 2006 and purchase of various assets and equipment. |
| |
Net
cash flow used for financing activities in 2006 was $123.3 million, which was mainly for
repayment of long-term loans. |
| |
On
December 31, 2006, the Company had total borrowings in the amount of $153.3 million,
including $125.3 million in long-term loans and $765.6 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 December 31, 2006, the Company had a cash balance
amounting to $84.6 million. |
| |
As
of December 31, 2006, the Company had working capital of $118 million and its current
ratio was 1.15. The Company’s ratio of equity to total assets was 27.9%. |
| O. |
|
Derivatives
and Hedges |
| |
Market
risks relating to the Company’s operations result primarily from changes in interest
rates and exchange rates. The Company typically uses financial instruments to limit its
exposure to those changes. The Company also typically enters into forward contracts in
connection with transactions that are denominated in currencies other than U.S. dollars
and New Israeli Shekels (“NIS”). The Company may enter from time to time into
forward contracts related to NIS, based on market conditions. |
| |
On
December 31, 2006, the Company’s liquid assets were comprised of bank deposits, and
it had no investments in liquid equity securities that were subject to market
fluctuations, except for its shareholdings in Tadiran. The Company’s deposits and
loans are based on variable interest rates, and their value as of December 31, 2006 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 December 31, 2006, the Company
had exposure due to liabilities denominated in NIS of $88 million in excess of its NIS
denominated assets. These liabilities represent mostly wages and trade payables. The
amount of the Company’s exposure to the changes in the NIS-U.S. dollar exchange rate
varies from time to time. |
| |
Most
of the Company’s assets and liabilities which are denominated in currencies other
than the NIS and the U.S. dollar were covered as of December 31, 2006 by forward contracts
and options. On December 31, 2006, the Company had forward contracts for the sale and
purchase of such foreign currencies totaling $332.2 million ($151.1 million in Euro,
$172.8 million in GBP and $8.3 million in other currencies). The financial derivative
activities in the fourth quarter of 2006 resulted in an unrealized net loss of
approximately $13.4 million, which was recorded as of December 31, 2006 as other
comprehensive loss. On December 31, 2006, the Company had options for hedging future cash
flow denominated in NIS in the amount of $19 million. The fair market value of the options
as of December 31, 2006 was not material. |
| P. |
|
Director
and Corporate Secretary Appointments |
| |
On
March 13, 2007, the Board of Directors appointed David Federmann as a director of the
Company. In addition, on March 13, 2007, the Company appointed Yaniv Baram as Corporate
Secretary, replacing Ilan Pacholder whose intent to resign from the Company was announced
on February 7, 2007. |
| |
The
Board of Directors declared on March 13, 2007 a dividend of $0.16 per share for the last
quarter of 2006. The total dividend declared for 2006 was $0.61 per share. |
_________________
19
Exhibit 3
CONSOLIDATED FINANCIAL
STATEMENTS
as of December 31, 2006
(In U.S. dollars)
CONSOLIDATED FINANCIAL
STATEMENTS
as of December 31, 2006
In U.S. dollars
C O N T E N T S
|
Page
|
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
2 |
| |
| CONSOLIDATED FINANCIAL STATEMENTS: |
| |
| Consolidated Balance Sheets |
3 - 4 |
| |
| Consolidated Statements of Income |
5 |
| |
| Statements of Changes in Shareholders' Equity |
6 - 7 |
| |
| Consolidated Statements of Cash Flows |
8 - 9 |
| |
| Notes to the Consolidated Financial Statements |
10 - 63 |
1
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and
Board of Directors of
Elbit Systems Ltd.
We have audited the accompanying
consolidated balance sheets of Elbit Systems Ltd. (the “Company”) and its
subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of
income, changes in the shareholders’ equity and cash flows for each of the three
years in the period ended December 31, 2006. These consolidated financial statements are
the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did not audit
the financial statements of a majority-owned subsidiary, which statements reflect total
assets constituting 14.78% and 16.3% as of December 31, 2006 and 2005, respectively, and
total revenues constituting 13.47% for the year ended December 31, 2006 of the related
consolidated totals. Those financial statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the amounts
included for this subsidiary, is based solely on the report of the other auditors.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. We were not engaged to
perform an audit of the Company’s internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable basis for
our opinion.
In our opinion, based on our audits
and the report of other auditors, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of the
Company and its subsidiaries as of December 31, 2006 and 2005, and the consolidated
results of their operations and their cash flows for each of the three years in the period
ended December 31, 2006, in conformity with U.S generally accepted accounting principles.
As discussed in Note 2(X) to the
consolidated financial statements, on January 1, 2006, the Company adopted SFAS 123(R),
“Share Based Payment” and as discussed in Note 2(AB) to the consolidated
financial statements, on December 31, 2006, the Company adopted SFAS 158,
“Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans”.
Kost Forer Gabbay
& Kasierer
A member of Ernst &
Young Global
Haifa, Israel
March 13,
2007
2
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
CONSOLIDATED BALANCE SHEETS
|
| U.S. dollars (In thousands) |
|
|
December 31,
|
|
|
Note
|
|
2006
|
|
2005
|
|
| CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents | | |
| | |
$ | 84,564 |
|
$ | 93,887 |
|
| Short-term bank deposits | | |
| | |
| 836 |
|
| 742 |
|
| Available for sale marketable securities | | |
| | |
| 2,106 |
|
| 2,282 |
|
| Trade receivables (net of allowance for doubtful | | |
| accounts in the amount of $3,390 and $3,221 as of December | | |
| 31, 2006 and 2005, respectively) | | |
(3) | | |
| 384,487 |
|
| 346,689 |
|
| Other receivables and prepaid expenses | | |
(4) | | |
| 84,601 |
|
| 67,096 |
|
| Inventories, net of advances | | |
(5) | | |
| 371,962 |
|
| 328,428 |
|
|
|
|
| |
| Total current assets | | |
| | |
| 928,556 |
|
| 839,124 |
|
|
|
|
| |
| LONG-TERM INVESTMENTS AND RECEIVABLES: | | |
| Investments in affiliated companies and a partnership | | |
(6A) | | |
| 232,878 |
|
| 194,994 |
|
| Investments in companies accounted for on a cost basis | | |
(6B) | | |
| 2,845 |
|
| 6,345 |
|
| Compensation receivables in respect of fire damages, net | | |
(7) | | |
| 15,530 |
|
| 15,530 |
|
| Long-term bank deposits and trade receivables | | |
(8) | | |
| 6,030 |
|
| 2,457 |
|
| Severance pay fund | | |
(2P) | | |
| 160,620 |
|
| 141,518 |
|
|
|
|
| |
| | | |
| | |
| 417,903 |
|
| 360,844 |
|
|
|
|
| |
| PROPERTY, PLANT AND EQUIPMENT, NET | | |
(9) |
| |
| 294,628 |
|
| 284,997 |
|
|
|
|
| |
| INTANGIBLE ASSETS: |
|
|
(10) |
|
|
| Goodwill | | |
| | |
| 58,401 |
|
| 58,401 |
|
| Other intangible assets, net | | |
| | |
| 70,594 |
|
| 78,771 |
|
|
|
|
| |
| | | |
| | |
| 128,995 |
|
| 137,172 |
|
|
|
|
| |
| | | |
| | |
$ | 1,770,082 |
|
$ | 1,622,137 |
|
|
|
|
| |
The accompanying notes
are an integral part of the consolidated financial statements
3
ELBIT SYSTEMS LTD. AND
ITS SUBSIDIARIES
|
CONSOLIDATED BALANCE SHEETS
|
| U.S. dollars (In thousands, except share data) |
|
|
December 31,
|
|
|
Note
|
|
2006
|
|
2005
|
|
| CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
| Short-term bank credit and loans | | |
(11) | | |
$ | 17,802 |
|
$ | 30,296 |
|
| Current maturities of long-term loans | | |
(14) | | |
| 10,199 |
|
| 7,355 |
|
| Trade payables | | |
| | |
| 158,361 |
|
| 120,260 |
|
| Other payables and accrued expenses | | |
(12) | | |
| 274,505 |
|
| 216,539 |
|
| Customers advances in excess of | | |
| costs incurred on contracts in progress | | |
(13) | | |
| 349,724 |
|
| 237,718 |
|
|
| |
| |
| Total current liabilities | | |
| | |
| 810,591 |
|
| 612,168 |
|
|
| |
| |
| LONG-TERM LIABILITIES: | | |
| Long-term loans | | |
(14) | | |
| 125,266 |
|
| 224,982 |
|
| Advances from customers | | |
(13) | | |
| 126,769 |
|
| 122,263 |
|
| Deferred income taxes | | |
(16) | | |
| 17,640 |
|
| 25,868 |
|
| Accrued termination liability | | |
(15, 2P) | | |
| 189,067 |
|
| 173,172 |
|
|
| |
| |
| | | |
| | |
| 458,742 |
|
| 546,285 |
|
|
| |
| |
| COMMITMENTS AND CONTINGENT LIABILITIES |
|
|
(17) |
|
|
| |
| |
| |
| MINORITY INTERESTS |
|
|
|
|
|
|
6,871 |
|
|
12,907 |
|
|
| |
| |
| SHAREHOLDERS' EQUITY: |
|
|
(18) |
|
|
| Share capital: | | |
| Ordinary shares of New Israeli Shekels (NIS) 1 par value; | | |
| Authorized - 80,000,000 shares as of | | |
| December 31, 2006 and 2005; | | |
| Issued 42,425,595 and 41,375,545 shares as | | |
| of December 31, 2006 and 2005, respectively; | | |
| Outstanding 42,016,674 and 40,966,624 shares | | |
| as of December 31, 2006 and 2005, respectively | | |
| | |
| 11,876 |
|
| 11,636 |
|
| Additional paid-in capital | | |
| | |
| 289,026 |
|
| 278,679 |
|
| Accumulated other comprehensive loss | | |
| | |
| (16,746 |
) |
| (1,340 |
) |
| Retained earnings | | |
| | |
| 214,043 |
|
| 166,123 |
|
| Treasury shares - 408,921 shares as of | | |
| December 31, 2006 and 2005 | | |
| | |
| (4,321 |
) |
| (4,321 |
) |
|
| |
| |
| | | |
| | |
| 493,878 |
|
| 450,777 |
|
|
| |
| |
| | | |
| | |
$ | 1,770,082 |
|
$ | 1,622,137 |
|
|
| |
| |
The accompanying notes
are an integral part of the consolidated financial statements
4
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF INCOME
|
| U.S. dollars (In thousands, except share and per share data) |
|
|
Year ended December 31,
|
|
|
Note
|
|
2006
|
|
2005
|
|
2004
|
|
| Revenues |
|
|
(19) |
|
|
$ | 1,523,243 |
|
$ | 1,069,876 |
|
$ | 939,925 |
|
| Cost of revenues | | |
| | |
| 1,149,768 |
|
| 786,616 |
|
| 689,626 |
|
| Restructuring expenses (pre-contract costs and equipment | | |
| write-off) | | |
(1G) | | |
| - |
|
| 3,488 |
|
| - |
|
|
| |
| |
| |
| Gross profit | | |
| | |
| 373,475 |
|
| 279,772 |
|
| 250,299 |
|
|
| |
| |
| |
| Research and development expenses, net | | |
(20) | | |
| 92,232 |
|
| 71,903 |
|
| 66,846 |
|
| Marketing and selling expenses | | |
| | |
| 111,880 |
|
| 78,648 |
|
| 69,912 |
|
| General and administrative expenses | | |
| | |
| 77,505 |
|
| 54,417 |
|
| 47,832 |
|
| In process research and development write-off | | |
(1G) | | |
| - |
|
| 7,490 |
|
| - |
|
|
| |
| |
| |
| | | |
| | |
| 281,617 |
|
| 212,458 |
|
| 184,590 |
|
|
| |
| |
| |
| Operating income | | |
| | |
| 91,858 |
|
| 67,314 |
|
| 65,709 |
|
| |
| |
| |
| Financial expenses, net | | |
(21) | | |
| (21,456 |
) |
| (11,472 |
) |
| (5,852 |
) |
| Other income (expenses), net | | |
(6B) | | |
| 1,814 |
|
| (5,326 |
) |
| 770 |
|
|
| |
| |
| |
| Income before taxes on income | | |
| | |
| 72,216 |
|
| 50,516 |
|
| 60,627 |
|
| Taxes on income | | |
(16) | | |
| 20,694 |
|
| 16,335 |
|
| 15,219 |
|
|
| |
| |
| |
| | | |
| | |
| 51,522 |
|
| 34,181 |
|
| 45,408 |
|
| Equity in net earnings (losses) of affiliated companies and | | |
| partnership (*) | | |
(6A) | | |
| 14,743 |
|
| (1,636 |
) |
| 6,645 |
|
| Minority interests in losses (earnings) of subsidiaries | | |
| | |
| 5,977 |
|
| (58 |
) |
| (180 |
) |
|
| |
| |
| |
| Net income | | |
| | |
$ | 72,242 |
|
$ | 32,487 |
|
$ | 51,873 |
|
|
| |
| |
| |
| Earnings per share | | |
| Basic net earnings per share | | |
| | |
$ | 1.75 |
|
$ | 0.80 |
|
$ | 1.30 |
|
|
| |
| |
| |
| Diluted net earnings per share | | |
| | |
$ | 1.72 |
|
$ | 0.78 |
|
$ | 1.26 |
|
|
| |
| |
| |
| Number of shares used in computation of basic net earnings per | | |
| share | | |
| | |
| 41,340 |
|
| 40,750 |
|
| 39,952 |
|
|
| |
| |
| |
| Number of shares used in computation of diluted net earnings | | |
| per share | | |
| | |
| 41,880 |
|
| 41,623 |
|
| 41,041 |
|
|
| |
| |
| |
(*) Includes
in process research and development write-off of $8,500 and $2,200 in 2005 and
2006, respectively.
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
|
| U.S. dollars (In thousands, except share data) |
|
Number of
outstanding
shares
|
|
Share
capital
|
|
Additional
paid-in
capital
|
|
Accumulated
other
comprehensive
loss
|
|
Retained
earnings
|
|
Treasury
shares
|
|
Total
shareholders'
equity
|
|
Total
comprehensive
income
|
|
| Balance as of January 1, 2004 |
|
|
|
39,337,304 |
|
$ |
11,273 |
|
$ |
259,033 |
|
$ |
(3,992 |
) |
$ |
190,086 |
|
$ |
(4,321 |
) |
$ |
452,079 |
|
|
|
|
| Exercise of options | | |
| 1,223,722 |
|
| 275 |
|
| 10,985 |
|
| |
|
| |
|
| |
|
| 11,260 |
|
| Cumulative effect of first time adoption of | | |
| the fair value based method for stock | | |
| based compensation expenses | | |
| - |
|
| - |
|
| (152 |
) |
| - |
|
| - |
|
| - |
|
|
(152 |
) |
|
|
|
| Tax benefit in respect of options exercised | | |
| - |
|
| - |
|
| 1,179 |
|
| - |
|
| - |
|
| - |
|
| 1,179 |
|
| Stock based compensation | | |
| - |
|
| - |
|
| 3,387 |
|
| - |
|
| - |
|
| - |
|
|
3,387 |
|
|
|
|
| Dividends paid | | |
| - |
|
| - |
|
| - |
|
| - |
|
| (86,692 |
) |
| - |
|
| (86,692 |
) |
| Other comprehensive income net of tax: | | |
| Unrealized loss on derivative instruments | | |
| - |
|
| - |
|
| - |
|
| (299 |
) |
| - |
|
| - |
|
| (299 |
) |
$ | (299 |
) |
| Foreign currency translation differences | | |
| - |
|
| - |
|
| - |
|
| 450 |
|
| - |
|
| - |
|
| 450 |
|
| 450 |
|
| Minimum pension liability adjustment | | |
| - |
|
| - |
|
| - |
|
| (901 |
) |
| - |
|
| - |
|
| (901 |
) |
| (901 |
) |
| Net income | | |
| - |
|
| - |
|
| - |
|
| - |
|
| 51,873 |
|
| - |
|
| 51,873 |
|
| 51,873 |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| Total comprehensive income | | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
$ | 51,123 |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| Balance as of December 31, 2004 | | |
| 40,561,026 |
|
$ | 11,548 |
|
$ | 274,432 |
|
$ | (4,742 |
) |
$ | 155,267 |
|
$ | (4,321 |
) |
$ | 432,184 |
|
| |
|
| Exercise of options | | |
| 405,598 |
|
| 88 |
|
| 3,423 |
|
| - |
|
| - |
|
| - |
|
| 3,511 |
|
| |
|
| Tax benefit in respect of options exercised | | |
| - |
|
| - |
|
| 652 |
|
| - |
|
| - |
|
| - |
|
| 652 |
|
| |
|
| Stock based compensation | | |
| - |
|
| - |
|
| 172 |
|
| - |
|
| - |
|
| - |
|
| 172 |
|
| |
|
| Dividends paid | | |
| - |
|
| - |
|
| - |
|
| - |
|
| (21,631 |
) |
| - |
|
| (21,631 |
) |
| |
|
| Other comprehensive income net of tax: | | |
| Unrealized gain on derivative instruments | | |
| - |
|
| - |
|
| - |
|
| 6,412 |
|
| - |
|
| - |
|
| 6,412 |
|
$ | 6,412 |
|
| Foreign currency translation differences | | |
| - |
|
| - |
|
| - |
|
| (924 |
) |
| - |
|
| - |
|
| (924 |
) |
| (924 |
) |
| Minimum pension liability adjustment | | |
| - |
|
| - |
|
| - |
|
| (2,086 |
) |
| - |
|
| - |
|
| (2,086 |
) |
| (2,086 |
) |
| Net income | | |
| - |
|
| - |
|
| - |
|
| - |
|
| 32,487 |
|
| - |
|
| 32,487 |
|
| 32,487 |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| Total comprehensive income | | |
| - |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
$ | 35,889 |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| Balance as of December 31, 2005 | | |
| 40,966,624 |
|
$ | 11,636 |
|
$ | 278,679 |
|
$ | (1,340 |
) |
$ | 166,123 |
|
$ | (4,321 |
) |
$ | 450,777 |
|
|
|
|
|
| |
| |
| |
| |
| |
| |
| |
| |
The accompanying notes are
an integral part of the consolidated financial statements
6
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (CONT.)
|
| U.S. dollars (In thousands, except share data) |
|
Number of
outstanding
shares
|
|
Share
capital
|
|
Additional
paid-in
capital
|
|
Accumulated
other
comprehensive
loss
|
|
Retained
earnings
|
|
Treasury
shares
|
|
Total
shareholders'
equity
|
|
Total
comprehensive
income
|
|
| Balance as of January 1, 2006 |
|
|
| 40,966,624 |
|
$ | 11,636 |
|
$ | 278,679 |
|
$ | (1,340 |
) |
$ | 166,123 |
|
$ | (4,321 |
) |
$ | 450,777 |
|
| |
|
| Exercise of options | | |
| 1,050,050 |
|
| 240 |
|
| 8,008 |
|
| - |
|
| - |
|
| - |
|
| 8,248 |
|
| Tax benefit in respect of options exercised | | |
| - |
|
| - |
|
| 2,144 |
|
| - |
|
| - |
|
| - |
|
|
2,144 |
|
|
|
|
| Stock based compensation | | |
| - |
|
| - |
|
| 195 |
|
| - |
|
| - |
|
| - |
|
| 195 |
|
| Dividends paid | | |
| - |
|
| - |
|
| - |
|
| - |
|
| (24,322 |
) |
| - |
|
|
(24,322 |
) |
|
|
|
| Other comprehensive income, net of tax: | | |
| Unrealized gain (loss) on derivative | | |
| instruments | | |
| - |
|
| - |
|
| - |
|
| (15,642 |
) |
| - |
|
| - |
|
| (15,642 |
) |
$ | (15,642 |
) |
| Foreign currency translation differences | | |
| - |
|
| - |
|
| - |
|
| 2,034 |
|
| - |
|
| - |
|
| 2,034 |
|
| 2,034 |
|
| Increase in additional minimum pension | | |
| liability per FAS 87 | | |
| - |
|
| - |
|
| - |
|
| 2,603 |
|
| - |
|
| - |
|
| 2,603 |
|
| 2,603 |
|
| Adjustment for adoption of FAS 158 for the | | |
| pension plans as of December 31, 2006 | | |
| | | |
| - |
|
| - |
|
| - |
|
| (4,341 |
) |
| - |
|
| - |
|
| (4,341 |
) |
| - |
|
| Adjustment for adoption of FAS 158 for the | | |
| post medical plan as of December 31, 2006 | | |
| | | |
| - |
|
| - |
|
| - |
|
| (252 |
) |
| - |
|
| - |
|
| (252 |
) |
| - |
|
| Unrealized gain on available for sale | | |
| securities | | |
| - |
|
| - |
|
| - |
|
| 192 |
|
| - |
|
| - |
|
| 192 |
|
| 192 |
|
| Net income | | |
| - |
|
| - |
|
| - |
|
| - |
|
| 72,242 |
|
| - |
|
| 72,242 |
|
|
72,242 |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
61,429 |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| Balance as of December 31, 2006 | | |
| 42,016,674 |
|
$ | 11,876 |
|
$ | 289,026 |
|
$ | (16,746 |
) |
$ | 214,043 |
|
$ | (4,321 |
) |
$ | 493,878 |
|
|
|
|
|
| |
| |
| |
| |
| |
| |
| |
| |
Accumulated other
comprehensive loss (net of taxes)
|
December 31,
|
|
|
2006
|
|
2005
|
|
| Accumulated gains (losses) on derivative instruments |
|
|
$ |
(10,107 |
) |
$ |
5,535 |
|
| Accumulated foreign currency translation differences | | |
| 1,900 |
|
| (134 |
) |
| Accumulated unrealized gain on available for sale securities | | |
| 192 |
|
| - |
|
| Unrealized additional minimum pension liability, FAS 87 | | |
| (4,138 |
) |
| (6,741 |
) |
| Adjustment for FAS 158 adoption | | |
| (4,593 |
) |
| - |
|
|
| |
| |
| Accumulated other comprehensive loss | | |
$ | (16,746 |
) |
$ | (1,340 |
) |
|
| |
| |
The accompanying notes
are an integral part of the consolidated financial statements.
7
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| U.S. dollars (In thousands) |
|
Year ended December 31,
|
|
|
2006
|
|
2005
|
|
2004
|
|
| CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
| Net income | | |
$ | 72,242 |
|
$ | 32,487 |
|
$ | 51,873 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | |
| Depreciation and amortization | | |
| 58,500 |
|
| 57,718 |
|
| 42,261 |
|
| Purchased in process R&D | | |
| - |
|
| 7,490 |
|
| - |
|
| Stock based compensation | | |
| 195 |
|
| 172 |
|
| 3,387 |
|
| Deferred income taxes | | |
| (4,659 |
) |
| 6,551 |
|
| 153 |
|
| Accrued severance pay, net | | |
| (5,197 |
) |
| (6,707 |
) |
| (2,304 |
) |
| Loss (gain) on sale of property, plant, equipment and investment | | |
| (2,351 |
) |
| (731 |
) |
| 143 |
|
| Tax benefit in respect of options exercised | | |
| - |
|
| 652 |
|
| 1,179 |
|
| Minority interests in earnings (losses) of subsidiaries | | |
| (5,977 |
) |
| 58 |
|
| 180 |
|
| Equity in net losses (earnings) of affiliated companies and partnership, net of | | |
| dividend received (*) | | |
| (1,696 |
) |
| 13,805 |
|
| 1,505 |
|
| Changes in operating assets and liabilities: | | |
| Increase in short and long-term trade receivables, and prepaid expenses | | |
| (58,793 |
) |
| (43,420 |
) |
| (16,871 |
) |
| Decrease (increase) in inventories, net | | |
| (69,974 |
) |
| (43,679 |
) |
| 2,932 |
|
| Increase (decrease) in trade payables, other payables and accrued expenses | | |
| 75,869 |
|
| (37,859 |
) |
| 20,522 |
|
| Increase (decrease) in advances received from customers | | |
| 142,844 |
|
| 202,450 |
|
| (18,535 |
) |
| Settlement of royalties with the Office of the Chief Scientist | | |
| - |
|
| (1,371 |
) |
| (3,714 |
) |
| Other adjustments | | |
| (35 |
) |
| - |
|
| (1,228 |
) |
|
| |
| |
| |
| Net cash provided by operating activities | | |
| 200,968 |
|
| 187,616 |
|
| 81,483 |
|
|
| |
| |
| |
| CASH FLOWS FROM INVESTING ACTIVITIES | | |
| Purchase of property, plant and equipment | | |
| (64,809 |
) |
| (58,735 |
) |
| (53,008 |
) |
| Acquisition of subsidiaries and businesses (Schedule A) | | |
| - |
|
| (28,331 |
) |
| (2,315 |
) |
| Investments in affiliated companies | | |
| (31,930 |
) |
| (160,861 |
) |
| (18,391 |
) |
| Proceeds from sale of property, plant and equipment | | |
| 5,705 |
|
| 2,712 |
|
| 2,560 |
|
| Proceeds from sale of investment | | |
| 5,000 |
|
| 3,100 |
|
| - |
|
| Investment in long-term bank deposits | | |
| (880 |
) |
| (1,089 |
) |
| (1,203 |
) |
| Proceeds from sale of long-term bank deposits | | |
| 780 |
|
| 1,501 |
|
| 1,507 |
|
| Short-term deposits, net | | |
| (862 |
) |
| (4 |
) |
| (48 |
) |
|
| |
| |
| |
| Net cash used in investing activities | | |
| (86,996 |
) |
| (241,707 |
) |
| (70,898 |
) |
|
| |
| |
| |
| CASH FLOWS FROM FINANCING ACTIVITIES | | |
| Proceeds from exercise of options | | |
| 8,248 |
|
| 3,511 |
|
| 11,260 |
|
| Repayment of long-term bank loans | | |
| (188,723 |
) |
| (85,035 |
) |
| (35,826 |
) |
| Receipt of long-term bank loans | | |
| 85,053 |
|
| 216,500 |
|
| 58,410 |
|
| Dividends paid | | |
| (24,322 |
) |
| (21,631 |
) |
| (86,692 |
) |
| Tax benefit in respect of options exercised | | |
| 2,144 |
|
| - |
|
| - |
|
| Change in short-term bank credit and loans, net | | |
| (5,695 |
) |
| 524 |
|
| 216 |
|
|
| |
| |
| |
| Net cash provided by (used in) financing activities | | |
| (123,295 |
) |
| 113,869 |
|
| (52,632 |
) |
|
| |
| |
| |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | | |
| (9,323 |
) |
| 59,778 |
|
| (42,047 |
) |
| CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR | | |
| 93,887 |
|
| 34,109 |
|
| 76,156 |
|
|
| |
| |
| |
| CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR | | |
$ | 84,564 |
|
$ | 93,887 |
|
$ | 34,109 |
|
|
| |
| |
| |
| (*) Dividend received | | |
$ | 13,047 |
|
$ | 12,169 |
|
$ | 8,150 |
|
|
| |
| |
| |
The accompanying notes
are an integral part of the consolidated financial statements.
8
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
|
| U.S. dollars (In thousands) |
|
Year ended December 31,
|
|
|
2006
|
|
2005
|
|
2004
|
|
| SUPPLEMENTAL CASH FLOW ACTIVITIES: |
|
|
| |
|
| |
|
| |
|
| | | |
| Cash paid during the year for: | | |
| Income taxes | | |
$ | 15,955 |
|
$ | 21,475 |
|
$ | 13,305 |
|
|
| |
| |
| |
| Interest | | |
$ | 14,311 |
|
$ | 13,151 |
|
$ | 3,122 |
|
|
| |
| |
| |
| 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, net (excluding cash and cash equivalents) |
|
|
$ |
- |
|
$ |
39,273 |
|
$ | (707 |
) |
| Property, plant and equipment | | |
| - |
|
| (28,875 |
) |
| (10 |
) |
| Other long term assets | | |
| - |
|
| (74,363 |
) |
| - |
|
| Goodwill and other intangible assets | | |
| - |
|
| (53,291 |
) |
| (1,598 |
) |
| In process R&D | | |
| - |
|
| (7,490 |
) |
| - |
|
| Deferred income taxes | | |
| - |
|
| 5,404 |
|
| - |
|
| Long-term liabilities | | |
| - |
|
| 82,730 |
|
| - |
|
| Minority interest | | |
| - |
|
| 8,281 |
|
| - |
|
|
| |
| |
| |
| |
|
|
$ |
- |
|
$ | (28,331 |
) |
$ | (2,315 |
) |
|
| |
| |
| |
| (*) |
|
In
2004, the assets of Computer Instruments Corporation Inc. (see Note 1(D)). |
| |
In
2005, the assets of IMI (see Note 1(E)) and the shares of Elisra (see Note
1(G)). |
The accompanying notes
are an integral part of the consolidated financial statements.
9
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
|
| U.S. dollars (In thousands) |
| |
A. |
|
Elbit
Systems Ltd. (the “Company”) is an Israeli corporation, 45.4%
owned by the Federmann Group. The Company’s shares are traded on the
Tel Aviv Stock Exchange and on the Nasdaq National Market in the United
States. The Company and its subsidiaries (the “Group”) are
engaged mainly in the field of defense electronics. The Company’s
principal wholly-owned subsidiaries are the Elbit Systems of America (“ESA”)
companies and Elbit Systems Electro-Optics Industries Elop Ltd. (“Elop”).
The Company also owns 70% holdings in Elisra Electronic Systems Ltd.
(“Elisra”), see Note 1(G). |
| |
B. |
|
A
majority of the Group’s revenues are derived from direct or indirect sales
to governments or to governmental agencies. As a result, a substantial portion
of the Group’s sales is subject to the special risks associated with sales
to governments or to governmental agencies. These risks include, among others,
the dependency on the resources allocated by governments to defense programs,
changes in governmental priorities and changes in governmental approvals
regarding export licenses required for the Group products and for its
suppliers. As for major customers, refer to Note 19(C). |
| |
C. |
|
In
July 2003, the Company acquired approximately 54% of the outstanding shares of
Aero Design Development Ltd. (“AD&D”) an Israeli company in
consideration for $1,406 in cash. The acquisition was accounted for by the
purchase method of accounting. |
| |
AD&D
develops, manufactures and builds airborne models and other engineered products. |
| |
The
excess of the purchase price over the fair value of net tangible assets acquired in the
amount of approximately $1,334 was allocated to technology ($1,000) to be amortized by
the straight-line method over a period of ten years and to goodwill ($334). |
| |
The
results of AD&D’s operations have been included in the consolidated financial
statements from the date of acquisition. |
| |
In
July 2005, the Company completed the purchase of the remaining shares of AD&D in
consideration for $1,025 in cash. The excess of the purchase price over the fair value of
net tangible assets acquired in the amount of approximately $1,214 was allocated to
technology ($900) to be amortized by the straight-line method over a period of eight
years and to goodwill ($314). |
| |
Pro
forma information in accordance with SFAS No. 141 has not been provided, since the net
income of AD&D was not material in relation to total consolidated revenues and net
income for the years 2004 and 2005. |
| |
D. |
|
In
August 2004, the Company (through a subsidiary of ESA) acquired a business from
Computer Instruments Corporation Inc. (“CIC”) of Westbury, New York
in consideration for approximately $2,315 in cash. The acquired assets relate
to the design and manufacture of aviation pressure transducers, air data probes
and air data computers. |
10
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands, except per share data) |
| |
The
acquisition was accounted for by the purchase method of accounting. The excess of the
purchase price over the fair market value of the net tangible assets acquired in the
amount of approximately $1,598 was allocated to technology and other intangible assets to
be amortized over a weighted average period of seven years. |
| |
The
results of CIC’s operations have been included in the consolidated financial
statements from the date of acquisition. |
| |
Pro
forma information in accordance with SFAS No. 141 has not been provided, since the
revenues and net income of CIC were not material in relation to total consolidated
revenues and net income for the year 2004. |
| |
E. |
|
In
March 2005, the Company, through its wholly-owned subsidiary Cyclone Aviation
Products Ltd. (“Cyclone”), acquired from Israel Military Industries
Ltd. (“IMI”) the assets and customers’ contracts related to the
Aircraft Systems Division of IMI (“the Aircraft Division”) in
consideration for approximately $7 million, paid in cash (approximately $1
million out of which $718 was paid through balance sheet date) and assumed
liabilities of approximately $6 million. The excess of the purchase price over
the fair value of net tangible assets acquired in the amount of approximately
$1,500 was allocated to customers’ contracts to be amortized over an
estimated period of four years. |
| |
The
Aircraft Division manufactures weapon payloads and external fuel tanks for fighter
aircraft. |
| |
The
financial results of the business acquired are included in the Company’s
consolidated financial statements from the date of acquisition. |
| |
Pro
forma information in accordance with SFAS No. 141 has not been provided, since the
revenues and net income of the Aircraft Division are not material in relation to the
total consolidated revenues and net income for the years 2004 and 2005. |
| |
F. |
|
On
December 27, 2004, the Company reached an agreement with Koor to purchase all
of Koor’s holdings in Tadiran Communications Ltd. (“Tadiran”),
which represented approximately a 32% interest in Tadiran, at a price of $37
per share. This purchase was to be made concurrently with Koor’s purchase
of a portion of the Company’s shares from Federmann Enterprises Ltd. (“Federmann”).
Tadiran is an Israeli company, whose shares are traded on the Tel Aviv Stock
Exchange. The purchase of the interest in Tadiran was made in several stages as
detailed below. |
| |
Tadiran
is a leading company active mainly in the defense communication area. The Company is
active in the C(4)ISR area, and is using integrated communication equipment in its
systems. The Company foresees synergies between its systems operations and Tadiran, by
providing advanced integrated network and communication solutions to its customers.
Consequently, the acquisition of Tadiran resulted in goodwill amounting to $64,200 (see
below). |
11
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands, except per share data) |
| |
During
2004, the Company acquired 4.3% of Tadiran’s outstanding shares on the Tel Aviv
Stock Exchange in consideration for $15,900. |
| |
In
the first and the second quarters of 2005, the Company acquired additional 17% of Tadiran’s
outstanding shares in consideration for $74,100. |
| |
As
a result of the acquisition in the second quarter of 2005, the Company was able to
exercise significant influence on Tadiran. In accordance with APB 18, “The Equity
Method of Accounting for Investments in Common Stock”, the Company’s interest
in Tadiran, which was previously accounted for as available-for-sale securities, was
accounted retroactively under the equity method of accounting (“step-by-step
acquisition”). |
| |
On
August 25, 2005, the Company purchased an additional 5.2% of Tadiran’s outstanding
shares in consideration for $23,000. Following this purchase, the Company held
approximately 26.5% of Tadiran’s shares. |
| |
On
November 30, 2005, the Company completed the purchase of the remaining shares held by
Koor in Tadiran, for approximately $59.3 million in cash. As of December 31, 2005, the
Company held approximately 40% of Tadiran’s shares. |
| |
Based
on a purchase price allocation analysis (“PPA”) performed by an independent
advisor, the investment amount was attributed as follows: |
|
Book value
in Tadiran
|
|
Excess
cost
|
|
Total
|
|
| Working capital |
|
|
$ | 14,500 |
|
$ | 100 |
|
$ | 14,600 |
|
| Inventory | | |
| 7,700 |
|
| 3,100 |
|
| 10,800 |
|
| Long-term assets and investments | | |
| 12,100 |
|
| 300 |
|
| 12,400 |
|
| Long-term liabilities | | |
| (14,000 |
) |
| 400 |
|
| (13,600 |
) |
| Brand name | | |
| 4,300 |
|
| 4,900 |
|
| 9,200 |
|
| Customer base | | |
| - |
|
| 39,400 |
|
| 39,400 |
|
| Technology | | |
| 3,600 |
|
| 21,100 |
|
| 24,700 |
|
| IPR&D | | |
| - |
|
| 9,400 |
|
| 9,400 |
|
| Deferred taxes | | |
| 1,100 |
|
| - |
|
| 1,100 |
|
| Goodwill | | |
| 21,200 |
|
| 43,000 |
|
| 64,200 |
|
|
| |
| |
| |
| | | |
$ | 50,500 |
|
$ | 121,700 |
|
$ | 172,200 |
|
|
| |
| |
| |
12
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| |
The
excess costs over Tadiran’s book value in the quarters of 2005 are detailed below: |
|
Until
June 30,
2005
|
In the
third
quarter
of 2005
|
In the
fourth
quarter
of 2005
|
Total
|
|
Expected useful lives
|
| IPR&D |
$ 5,100 |
$ 1,200 |
$ 3,100 |
$ 9,400 |
|
immediate write-off |
| Inventory |
1,600 |
400 |
1,100 |
3,100 |
|
up to a quarter |
| Other tangible assets and liabilities |
400 |
100 |
300 |
800 |
|
5 years |
| Brand name |
2,500 |
600 |
1,800 |
4,900 |
|
15 years |
| Customer base and backlog |
21,200 |
5,200 |
13,000 |
39,400 |
|
2-12 years |
| Technology |
11,100 |
2,700 |
7,300 |
21,100 |
|
10 years |
| Goodwill |
22,400 |
5,500 |
15,100 |
43,000 |
|
indefinite-subject to |
| |
|
|
|
|
|
annual impairment test |
|
|
|
|
|
| Total excess of consideration |
| over book value |
$64,300 |
$15,700 |
$41,700 |
$121,700 |
|
|
|
|
|
| Percentage of interest acquired in |
| Tadiran |
21.3% |
5.2% |
13.5% |
40% |
|
|
|
|
|
| |
On
June 5, 2006, the Company acquired 4.37% of Tadiran’s outstanding shares in
consideration for approximately $18.3 million. Following the acquisition, the Company
holds approximately 43% of Tadiran’s shares. |
| |
Based
on a PPA performed by an independent advisor, the excess of the amounts paid for the
above mentioned Tadiran shares acquired over their book value was attributed as follows: |
|
Book value
in Tadiran
|
Excess
cost
|
Total
|
|
Expected useful lives
of excess cost
|
| Working capital |
$ 2,600 |
$ - |
$ 2,600 |
|
- |
| Inventory |
1,000 |
300 |
1,300 |
|
Up to a quarter |
| Long-term assets and investments |
1,300 |
100 |
1,400 |
|
5 years |
| Long-term liabilities |
(1,800) |
- |
(1,800) |
|
- |
| Brand name |
400 |
600 |
1,000 |
|
15 years |
| Customer base |
- |
5,300 |
5,300 |
|
2-12 years |
| Technology |
200 |
2,300 |
2,500 |
|
10 years |
| IPR&D |
- |
1,000 |
1,000 |
|
Immediate write-off |
| Goodwill |
2,500 |
2,500 |
5,000 |
|
Indefinite - subject to |
| |
|
|
|
|
annual impairment test |
|
|
|
|
| |
$6,200 |
$12,100 |
$ 18,300 |
|
|
|
|
|
|
13
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| |
G. |
|
On
July 6, 2005, the Company signed an agreement with Koor to acquire all of
Koor’s 70% holdings in Elisra, an Israeli company, in consideration
for $70 million ($68.8 million after certain adjustments) in cash. The
parties also agreed on an additional contingent consideration as a result
of future insurance proceeds relating to the fire at Elisra’s plant
in 2001 (see Note 7). |
| |
The
agreement for acquiring Koor’s holdings in Elisra was signed following the approval
of the transaction by the Company’s Audit Committee and Board of Directors, who
obtained a fairness opinion from an independent appraiser regarding the consideration to
be paid for the Elisra shares and following the Company’s shareholders approval in
August 2005. |
| |
On
November 30, 2005, simultaneously with the acquisition of Koor’s shares in Tadiran,
the Company completed the purchase of all of the shares of Koor in Elisra for
approximately $68.8 million in cash. Following the completion of the transaction, the
Company owns 70% of Elisra. |
| |
The
completion of the purchase of the Elisra shares was made possible following the receipt
of all required approvals, including that of the Israeli Antitrust Authorities. In
accordance with the Israeli antitrust approval, the Company has agreed to fulfill
conditions imposed by the Antitrust Authorities related to the market environment between
the Company and Israel Aircraft Industries Ltd. (“IAI”), which holds the
balance of Elisra’s shares. Should the Antitrust Authorities conclude, during the
course of a five-year period following the acquisition, that the Company has not complied
with such conditions, the Antitrust Authorities may take various measures, including
steps that could result in the cessation of the joint holdings in Elisra by the Company
and IAI. |
| |
Elisra
is the leading airborne electronic warfare company in Israel with advanced technology and
significant market presence. Elisra has significant complementary technologies and
customer installment base to those of the Group in areas including ELINT systems, EW
suites, airborne warning systems and data links. As such, the Company’s management
believes that Elisra’s business is very synergetic with several of the Company’s
areas of operations as the aforementioned technologies and customer installment base will
enable the Group to offer more comprehensive turnkey solutions to its customers and
strengthen its competitive position. Consequently, the acquisition of Elisra resulted in
goodwill amounting to $24,500 (see below). |
| |
Based
on a PPA performed by an independent advisor, the purchase price was attributed to the
fair value of the assets acquired and liabilities assumed as follows: |
14
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
|
Book value
in Elisra
|
Excess cost
|
Total
|
|
Expected useful lives
of excess cost
|
| Current monetary liabilities net |
|
|
|
|
|
| of current monetary assets |
$(11,500) |
$ - |
$(11,500) |
|
- |
| Pre-acquisition contingency |
15,530 |
- |
15,530 |
|
- |
| Other long-term investments |
| and receivables |
59,270 |
- |
59,270 |
|
- |
| Long-term liabilities |
(100,700) |
- |
(100,700) |
|
- |
| Minority interest |
(8,300) |
- |
(8,300) |
|
- |
| IPR&D |
- |
7,500 |
7,500 |
|
Immediate write-off |
| Inventory |
31,200 |
1,200 |
32,400 |
|
Up to 2 quarters |
| Property, plant and equipment |
23,100 |
5,700 |
28,800 |
|
20 years |
| Customers base and backlog |
- |
11,800 |
11,800 |
|
10 years |
| Technology |
- |
9,500 |
9,500 |
|
10 years |
| Goodwill |
- |
24,500 |
24,500 |
|
Indefinite - subject to |
| |
|
|
|
|
annual impairment test |
|
|
|
|
| |
$ 8,600 |
$ 60,200 |
$ 68,800 |
|
|
|
|
|
|
| |
The
pre-acquisition contingency, which amount to $15,530, are related to the compensation
receivables in respect of the fire damage in Elisra (see Note 7 bellow). |
| |
The
results of Elisra’s operations have been included in the consolidated financial
statements from the date of acquisition. |
| |
The
following unaudited proforma data is based on historical financial statements of the
Company and Elisra and is provided for comparative purposes only. The proforma
information does not purport to be indicative of the results that actually would have
occurred had the purchase of the shares been consummated prior to the beginning of the
reported periods. |
| |
The
proforma information reflects the results of the Company’s operations assuming that
Elisra’s results were included in the Company’s consolidated results at the
beginning of each of the reported periods, and under the following assumptions: |
| |
|
(1) |
|
Intangible
assets (customer base, backlog and technology) arising from the acquisition of
Elisra’s shares of approximately $21,300. |
| |
|
(2) |
|
Excess
of cost over equity purchased allocated to real estate assets of approximately
$5,700, is amortized over a period of 20 years. |
15
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands, except per share data) |
| |
|
(3) |
|
The
cost attributed to purchase IPR&D projects, in the amount of approximately
$7,500 has been charged to operations immediately as a non-recurring item and
is not included in the proforma consolidated results. |
| |
|
(4) |
|
Intercompany
balances and transactions, if any, have been eliminated. |
| |
|
(5) |
|
Management
fees which were paid to Elisra’s shareholders and will be paid in the
future to the Company were eliminated in the proforma statements. |
|
For the year ended
December 31,
|
|
|
2005
|
|
2004
|
|
| Revenues |
|
|
$ | 1,264,375 |
|
$ | 1,181,110 |
|
|
| |
| |
| Net income as reported | | |
$ | 32,487 |
|
$ | 51,873 |
|
| Adjustments: | | |
| Elimination of the charge to operations for IPR&D | | |
| 7,490 |
|
| - |
|
| Other adjustments, net | | |
| (21,337 |
) |
| 126 |
|
|
| |
| |
| Net income - proforma (*) | | |
$ | 18,640 |
|
$ | 51,999 |
|
|
| |
| |
| Basic earnings per share - proforma | | |
$ | 0.46 |
|
$ | 1.33 |
|
|
| |
| |
| Diluted earnings per share - proforma | | |
$ | 0.45 |
|
$ | 1.29 |
|
|
| |
| |
| |
|
(*) |
|
The
proforma net income for the year ended December 31, 2005 includes a write-off
of pre contract costs and equipment, net in the amount of $2,616 in the Company
and expenses related to cutback in personnel in the amount of $19,103 in Elisra
(see Note 15). |
| |
Following
the acquisition of Elisra’s shares in the fourth quarter of 2005, the Company
identified and wrote-off duplicated inventories and equipment in the amount of $3,488
which was recorded as restructuring costs in the cost of revenues. |
| |
H. |
|
In
October 2005, the Company invested an amount of $2.5 million in Chip PC Ltd.
(“Chip PC”), an Israeli company, in consideration for a 20%
interest in Chip PC. |
| |
Chip
PC develops and manufactures “Post PC” solutions, focused on enabling
server-based- computing technologies to replace traditional PCs and deploy and control
large numbers of workstations. |
| |
The
excess of the amount paid for the Chip PC shares acquired over their book value is
approximately $2.4 million. Based on a PPA performed by an independent advisor, this
excess was allocated mainly to technology ($1.6 million) to be amortized by a
straight-line method over a period of 5 — 8 years and to goodwill ($1.1 million).
The financial results of the investee acquired are included in the Company’s
consolidated financial statements from the date of acquisition, as equity in net earnings
(losses) of affiliated companies. |
16
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| |
I. |
|
In
October 2005, the Company established a U.K. subsidiary – UAV Tactical
Systems Ltd. (“U-Tacs”), in which the Company holds 51% and the
rest of the shares are held by Thales U.K.. U-Tacs will be the
manufacturing and support center of the Watchkeeper program – an
Unmanned Air Vehicle (UAV) program for the U.K. MOD. U-Tacs will establish
the capabilities to design, manufacture, integrate and fly tacticalUAV
systems, consisting of air vehicles, ground control stations, data links,
payloads and launch and recovery subsystems (see Note 2(AA)). |
| |
J. |
|
On
May 31, 2006, the Company’s U.S. subsidiary Kollsman, Inc. (“Kollsman”)
acquired a 20% interest in Sandel Avionics, Inc. (“Sandel”) in
consideration for $12.5 million (represented by a $11.5 million cash payment
and a $1 million holdback to be paid within 12 months). Sandel, based in Vista,
California, produces specialized integrated display systems and other products
for the commercial aviation market. The Company expects that some of Kollsman’s
new products will be integrated with Sandel’s display electronics for the
general aviation market. Accordingly, the transaction resulted in goodwill, as
described below. |
| |
Kollsman
has an option to buy the remaining 80% interest in Sandel for a period of 30 months after
the initial investment at the equivalent price per share as the first transaction. During
the option period, Kollsman has the right to representation on the Sandel board of
directors, as well as several specific minority rights. In addition, Kollsman and Sandel
have formed an alliance to cooperate on product development and marketing. |
| |
The
Company’s share in the income (loss) of Sandel has been recognized in equity in net
earnings (losses) of affiliated companies from the date of acquisition. |
| |
Based
on a PPA performed by an independent advisor, the investment amount was attributed as
follows: |
|
Book value
in Sandel
|
Excess
cost
|
Total
|
|
Expected useful lives
of excess cost
|
| Working capital |
$ 700 |
$ - |
$ 700 |
|
- |
| Fixed and others assets |
700 |
- |
700 |
|
- |
| Long-term liabilities |
(2,100) |
- |
(2,100) |
|
- |
| IPR&D |
- |
1,200 |
1,200 |
|
Immediate write-off |
| Technology and customer base |
- |
3,200 |
3,200 |
|
7 years |
| Goodwill |
- |
8,800 |
8,800 |
|
Indefinite - subject to |
| |
|
|
|
|
annual impairment test |
|
|
| |
$ (700) |
$ 13,200 |
$ 12,500 |
|
|
|
|
17
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 2- |
|
SIGNIFICANT ACCOUNTING POLICIES |
| |
The
consolidated financial statements have been prepared in accordance with generally
accepted accounting principles in the United States (“U.S. GAAP”). As
applicable to the consolidated financial statements of the Group, such principles are
substantially identical to accounting principles generally accepted in Israel, except as
described in Note 23. |
| |
The
preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the amounts
reported and disclosure of contingent assets and liabilities in the financial statements
and accompanying notes. Actual results could differ from those estimates. |
| |
B. |
|
FINANCIAL
STATEMENTS IN U.S. DOLLARS |
| |
The
Company’s revenues are generated mainly in U.S. dollars. In addition, most of the
Company’s costs are incurred in U.S. dollars. The Company’s management believes
that the U.S. dollar is the primary currency of the economic environment in which the
Company operates. Thus, the functional and reporting currency of the Company is the U.S.
dollar. |
| |
Transactions
and balances originally denominated in U.S. dollars are presented at their original
amounts. Transaction and balances in other currencies have been remeasured into U.S.
dollars in accordance with principles set forth in SFAS No. 52 “Foreign Currency
Translation”. All exchange gains and losses from the remeasurement mentioned above
are reflected in the statement of income in financial income or expenses. |
| |
For
those foreign subsidiaries whose functional currency has been determined to be other than
the U.S. dollar, assets and liabilities are translated at year-end exchange rates and
statement of income items are translated at average exchange rates prevailing during the
year. Resulting translation differences are recorded as a separate component of
accumulated other comprehensive income in shareholders’ equity. |
| |
C. |
|
PRINCIPLES
OF CONSOLIDATION |
| |
The
consolidated financial statements include the accounts of the Company and its wholly and
majority-owned subsidiaries. |
| |
The
consolidated subsidiaries include Elop, ESA, Elisra and other Israeli and non-Israeli
subsidiaries. |
| |
Intercompany
transactions and balances including profit from intercompany sales not yet realized
outside the Group have been eliminated upon consolidation. |
18
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 2- |
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| |
Cash
equivalents, are short-term highly liquid investments that are readily convertible to
cash with maturities of three months or less at the date of acquisition. |
| |
E. |
|
SHORT-TERM
BANK DEPOSITS |
| |
Short-term
bank deposits are deposits with maturities of more than three months but less than one
year. The short–term bank deposits are presented at their cost. |
| |
F. |
|
AVAILABLE
FOR SALE MARKETABLE SECURITIES |
| |
Investments
in marketable securities are classified as available for sale securities according to
Statement of Financial Accounting Standard No. 115 “Accounting for Certain
Investments in Debt and Equity Securities”, (“SFAS No. 115”). Accordingly,
these securities are stated at fair market value, with unrealized gains and losses, net
of taxes, reported in accumulated other comprehensive income, a separate component of
shareholders’ equity. Realized gains and losses on sale of investments and a decline
in value which is considered to be other-than-temporary, are included in the consolidated
statements of income as finance income (loss). |
| |
Inventories
are stated at the lower of cost or net realizable value. Inventory write-offs are
provided for slow-moving items or technological obsolescence for which recoverability is
not probable. |
| |
Cost
is determined as follows: |
| |
|
• |
|
Raw
materials using the average cost method. |
| |
|
• |
|
Costs
incurred on long-term contracts in progress include direct labor, material,
subcontractors, other direct costs and an allocation of overheads, which represent
recoverable costs incurred for production, allocable operating overhead cost and, where
appropriate, research and development costs (refer to Note 2(T)). |
| |
|
• |
|
Labor
overhead is generally included on a basis of hourly rates and is allocated to each
project according to the amount of hours expended. Material overhead is allocated to each
project based on the value of direct material that is charged to the project. |
| |
Advances
from customers are allocated to the applicable contract inventories and are presented as
net amounts. Advances in excess of related inventories are classified as liabilities. |
19
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 2- |
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| |
H. |
|
INVESTMENT
IN AFFILIATED COMPANIES, PARTNERSHIP AND OTHER COMPANIES |
| |
Investments
in non-marketable shares of companies in which the Group holds less than 20% and the
Group does not have the ability to exercise significant influence over operating and
financial policies of the companies are recorded at cost. |
| |
Investments
in companies and partnership over which the Group can exercise significant influence
(generally, entities in which the Group holds between 20% and 50% of voting rights) are
presented using the equity method of accounting. Profits on intercompany sales, not
realized outside the Group, are eliminated. The Group discontinues applying the equity
method when its investment (including advances and loans) is reduced to zero and it has
not guaranteed obligations of the affiliate or otherwise committed to provide further
financial support to the affiliate. |
| |
A
change in the Company’s proportionate share of a subsidiary’s or investee’s
equity, resulting from issuance of common or in substance common shares by the subsidiary
or investee to third parties, is recorded as a gain or loss in the consolidated income
statements. If the realization is not assured, such as when the issuing company is a
development stage company, the gain from issuance is accounted for as an equity
transaction pursuant to SEC Staff Accounting Bulletin 51 “Accounting Sales of Stock
by a Subsidiary”. |
| |
Management
evaluates investments in affiliates and other companies for evidence of other than
temporary declines in value. When relevant factors indicate a decline in value that is
other than temporary, the Company records a provision for the decline in value. A
judgmental aspect of accounting for investments involves determining whether an
other-than-temporary decline in value of the investment has been sustained. Such
evaluation is dependent on the specific facts and circumstances. Accordingly, management
evaluates financial information (e.g. budgets, business plans, financial statements,
etc.) in determining whether an other-than-temporary decline in value exists. Factors
indicative of an other-than-temporary decline include recurring operating losses, credit
defaults and subsequent rounds of financings at an amount below the cost basis of the
investment. This list is not all inclusive and management weighs all quantitative and
qualitative factors in determining if an other-than-temporary decline in value of an
investment has occurred. The results of 2005 include an impairment loss related to the
investment in ISI (see Note 6(B)2)). |
| |
Long-term
trade and other receivables, from extended payment agreements, are recorded at their
estimated present values (determined based on the original market rates of interest). |
| |
J. |
|
LONG-TERM
BANK DEPOSITS |
| |
Long-term
bank deposits are deposits with maturities of more than one year. These deposits are
presented at cost and accumulated interest. |
20
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 2- |
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| |
K. |
|
PROPERTY,
PLANT AND EQUIPMENT |
| |
Property,
plant and equipment are stated at cost, net of accumulated depreciation and investment
grants. For equipment produced for the Group’s own use, cost includes materials,
labor and overhead, but not in excess of the fair value of the equipment. |
| |
Depreciation
is calculated by the straight-line method over the estimated useful life of the assets at
the following annual rates: |
|
%
|
|
| Buildings |
2-6.6 |
|
| Instruments, machinery and equipment |
6-33 |
| Office furniture and other |
6-33 |
| Motor vehicles |
12-33 |
(mainly 15%) |
| |
Land
rights and leasehold improvements – generally over the term of the lease. |
| |
As
a governmental incentive for industrial companies in Israel, the “Investment Center”,
which is a branch of the Israel Ministry of Industry and Trade, permits industrial
companies to submit a request to qualify as an “Approved Enterprise”. An
Approved Enterprise is entitled to certain benefits in respect of capital investments.
The benefits may be in the form of reduced tax rates and of capital grants received as a
percentage of the investments of the Approved Enterprise. The amount of a capital grant
is determined as a percentage of the Approved Enterprise investment in property, plant
and equipment. As a condition to the granting of these benefits, the Approved Enterprise
is obligated to perform the applicable industrial plan as detailed in the request to the
Investment Center (see Note 16(A)(3) and 17(K)). These capital grants are non-royalty
bearing and are not conditioned on the results of operations. As the capital grants are a
direct participation in the cost of the acquisition of property, plant and equipment they
are offset against the cost of property, plant and equipment. |
| |
Intangible
assets are stated at cost net of accumulated amortization. Intangible assets are
amortized over their useful life using the straight-line method. |
| |
N. |
|
IMPAIRMENT
OF LONG-LIVED ASSETS |
| |
The
Group’s long-lived assets and identifiable intangible assets are reviewed for
impairment in accordance with SFAS No. 144 “Accounting for the Impairment or
Disposal of Long-Lived Assets” whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset to the
future undiscounted cash flows expected to be generated by the asset. If an asset is
determined to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the asset exceeds its fair value. |
21
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 2- |
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| |
Goodwill
represents the excess of the cost of acquired businesses over the net fair values of the
assets acquired and liabilities assumed. Under SFAS No. 142, goodwill is no longer
amortized, but is instead tested for impairment at least annually (or more frequently if
impairments indicators arise). |
| |
SFAS
142 prescribes a two phase process for impairment testing of goodwill. The first phase
screens for impairment, while the second phase (if necessary) measures impairment. |
| |
In
the first phase of impairment testing, goodwill attributable to each of the reporting
units is tested for impairment by comparing the fair value of each reporting unit with
its carrying value. If the carrying value of the reporting unit exceeds its fair value,
the second phase is then performed. The second phase of the goodwill impairment test
compares the implied fair value of the reporting unit’s goodwill with the carrying
amount of that goodwill. If the carrying amount of the reporting unit’s goodwill
exceeds the implied fair value of that goodwill, an impairment loss is recognized in an
amount equal to that excess. |
| |
Fair
value of a reporting unit is determined using the discounted future cash flows method.
Significant estimates used in the methodology include estimates of future cash flows,
future short-term and long-term growth rates and weighted average cost of capital for
each of the reporting units. |
| |
For
each of the three years in the perios ended December 31, 2006, no impairment losses have
been identified. |
| |
Under
Israeli law and employment agreements, the Group’s companies in Israel are required
to make severance payments and, in certain situations, pay pensions to terminated
employees. The benefit is calculated based on the employee’s latest salary and the
period of his/her employment. |
| |
The
Group’s companies in Israel record a liability for the amount that would have to be
paid to the employees as severance payment in the event of the companies’ shut down. |
| |
The
companies’ obligation for severance pay and pension is provided by monthly deposits
with insurance companies, pension funds and by an accrual. The value of severance pay
funds is presented in the balance sheet and includes profits accumulated to balance sheet
date. The amounts deposited may be withdrawn only after fulfillment of the obligations
pursuant to Israeli severance pay law or labor agreements. The values of the deposited
funds are based on the cash surrendered value of these funds and include profits. |
| |
Severance
pay expenses for the years ended December 31, 2006, 2005 and 2004 amounted to
approximately $19,161, $17,500 and $15,574, respectively. |
22
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 2- |
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| |
The
Group generates revenues mainly from long-term contracts involving the design,
development, manufacture and integration of defense systems and products and providing.
In addition, to a minor extent, the Company is providing support and services for such
systems and products. |
| |
Revenues
from long-term contracts are recognized based on Statement of Position 81-1 “Accounting
for Performance of Construction-Type and Certain Production-Type Contracts” (“SOP
81-1”) according to which revenues are recognized on the percentage-of-completion
basis. |
| |
Sales
under long-term fixed-price contracts which provide for a substantial level of
development efforts in relation to total contract efforts are recorded using the
cost-to-cost method of accounting as the basis to measure progress toward completing the
contract and recognizing revenues. According to this method, sales and profits are
recorded based on the ratio of costs incurred to estimated total costs at completion. In
certain circumstances, when measuring progress toward completion, the Company considers
other factors, such as achievement of performance milestones. |
| |
Sales
and anticipated profit under long-term fixed-price production type contracts are recorded
on a percentage-of-completion basis, using the units-of-delivery as the basis to measure
progress toward completing the contract and recognizing revenues. In certain
circumstances, which involve long-term fixed-price production type contracts for
non-homogenous or small quantity of units, revenue is recognized based on the achievement
of performance milestones, which provide a more reliable and objective measure to the
extent of progress toward completion. |
| |
Sales
and anticipated profit under long-term fixed-price contracts that involve both
development and production are recorded using the cost-to-cost method and
units-of-delivery method as applicable to the phase of the contract, as the basis to
measure progress toward completion. In addition, when measuring progress toward
completion under the development portion of the contract, the Company considers other
factors, such as achievement of performance milestones. |
| |
The
percentage-of-completion method of accounting requires management to estimate the cost
and gross profit margin for each individual contract. Estimated gross profit or loss from
long-term contracts may change due to changes in estimates resulting from differences
between actual performance and original estimated forecasts. Such changes in estimated
gross profit are recorded in results of operations when they are reasonably determinable
by management, on a cumulative catch-up basis. Anticipated losses on contracts are
charged to earnings when determined to be probable. |
| |
Sales
under cost-reimbursement-type contracts are recorded as costs are incurred. Applicable
estimated profits are included in earnings in the proportion that incurred costs bear to
total estimated costs. |
23
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 2- |
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| |
Q. |
|
REVENUE
RECOGNITION (Cont.) |
| |
Amounts
representing contract change orders, claims or other items are included in sales only
when they can be reliably estimated and realization is probable. Penalties and awards
applicable to performance on contracts are considered in estimating sales and profit
rates and are recorded when there is sufficient information to assess anticipated
contract performance. |
| |
The
Group believes that the use of the percentage-of-completion method is appropriate as the
Group has the ability to make reasonably dependable estimates of the extent of progress
towards completion, contract revenues and contract costs. In addition, contracts executed
include provisions that clearly specify the enforceable rights regarding services to be
provided and received by the parties to the contracts, the consideration to be exchanged
and the manner and terms of settlement. In all cases the Group expects to perform its
contractual obligations, and its customers are expected to satisfy their obligations
under the contract. |
| |
In
cases where the contract involves the delivery of products and performance of services,
the Group follows the guidelines specified in EITF 00-21, “Revenue Arrangements with
Multiple Deliverables” in order to allocate the contract fees between the products
accounted for under SOP 81-1 and the services. |
| |
In
certain circumstances, sales under short-term fixed-price production type contracts are
accounted for in accordance with SAB No. 104, “Revenue Recognition in Financial
Statements” (“SAB 104”), and recognized when the following criteria are
met: persuasive evidence of an arrangement exists, delivery has occurred, the seller’s
price to the buyer is fixed or determinable, no further obligation exists and
collectability is reasonably assured. |
| |
As
for research and development costs accounted for as contract costs refer to Note 2(T). |
| |
Pre-contract
costs are deferred and included in inventory, only when such costs can be directly
associated with a specific anticipated contract and if their recoverability from the
specific contract is probable according to the guidelines of SOP 81-1. |
| |
The
Group estimates the costs that may be incurred under its basic warranty and records a
liability in the amount of such costs at the time revenue is recognized. The specific
terms and conditions of those warranties vary depending upon the product sold and the
country in which the Group does business. Factors that affect the Group’s warranty
liability include the number of delivered products, engineering estimates and anticipated
rates of warranty claims. The Group periodically assesses the adequacy of its recorded
warranty liability and adjusts the amount as necessary. |
24
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 2- |
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| |
Changes
in the Group’s provision for warranty, which is included in the Company’s
balance sheet, during the years, are as follows: |
|
2006
|
|
2005
|
|
| Balance, at January 1 |
|
|
$ | 31,797 |
|
$ | 34,230 |
|
| Warranties issued during the year | | |
| 27,733 |
|
| 19,223 |
|
| Warranties forfeited or exercised during the year | | |
| (15,113 |
) |
| (21,656 |
) |
|
| |
| |
| Balance, at December 31 | | |
$ | 44,417 |
|
$ | 31,797 |
|
|
| |
| |
| |
T. |
|
RESEARCH AND DEVELOPMENT COSTS |
| |
Research
and development costs, net of participations, are charged to operations as incurred.
Group sponsored research and development costs primarily include independent research and
development and bid and proposal efforts. |
| |
Under
certain arrangements in which a customer participates in product development costs, the
Group’s portion of such unreimbursed costs is expensed as incurred.
Customer-sponsored research and development costs incurred pursuant to contracts are
accounted for as part of the contract costs. |
| |
Certain
Group companies in Israel receive grants (mainly royalty-bearing) from the Government of
Israel and from other sources for the purpose of funding approved research and
development projects. These grants are recognized as a deduction from research and
development costs at the time the applicable company is entitled to such grants on the
basis of the research and development costs incurred, since repayment is not probable at
inception. |
| |
The
Group accounts for income taxes in accordance with SFAS No. 109, “Accounting for
Income Taxes”. This Statement prescribes the use of the liability method whereby
deferred tax asset and liability account balances are determined based on differences
between financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences are
expected to reverse. The Group provides a valuation allowance, if necessary, to reduce
deferred tax assets to amounts that are more likely than not to be realized. |
25
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 2- |
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| |
V. |
|
CONCENTRATION
OF CREDIT RISKS |
| |
Financial
instruments that potentially subject the Group to concentrations of credit risk consist
principally of cash and cash equivalents, short and long-term deposits and trade
receivables. |
| |
The
majority of the Group’s cash and cash equivalents and deposits are invested in
dollar instruments with major banks in Israel and in the United States. Management
believes that the financial institutions that hold the Group investments are financially
sound, and accordingly, minimal credit risk exists with respect to these investments. |
| |
The
Group’s trade receivables are derived primarily from sales to large and stable
customers and governments located mainly in Israel, the United States and Europe. The
Group performs ongoing credit evaluations of its customers and to date, has not
experienced any unexpected material losses except for a one-time loss in 2002 of
approximately $4,600 due to the insolvency of one of the Group’s customers. An
allowance for doubtful accounts is determined with respect to those amounts that the
Group has determined to be doubtful of collection. |
| |
W. |
|
DERIVATIVE
FINANCIAL INSTRUMENTS |
| |
Statement
of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments
and Hedging Activities” (“SFAS No. 133”), requires companies to recognize
all derivative instruments as either assets or liabilities in the statement of financial
position at fair value. The accounting for changes in the fair value (i.e. gains or
losses) of a derivative instrument depends on whether it has been designated and
qualifies as part of a hedging relationship and further, on the type of hedging
relationship. For those derivative instruments that are designated and qualify as hedging
instruments, a company must designate the hedging instrument, based upon the exposure
being hedged, as a fair value hedge, cash flow hedge or a hedge of a net investment in a
foreign operation. |
| |
For
derivative instruments that are designated and qualify as a fair value hedge (i.e.,
hedging the exposure to changes in the fair value of an asset or a liability or an
identified portion thereof that is attributable to a particular risk), the effective
portion of the gain and loss on thederivative instrument as well as the offsetting
loss or gain on the hedged item attributable to the hedged risk are recognized in the
same line item associated with the hedged item in current earnings during the period of
the change in fair value. The remaining gain or loss on the derivative instrument in
excess of the cumulative change in the fair value of the asset or liability hedge, if
any, is recognized as financial expense in current earnings during the period of change.
For derivative instruments that are designated and qualify as a cash flow hedge (i.e.
hedging the exposure to variability in expected future cash flows that is attributable to
a particular risk), the effective portion of the gain or loss on the derivative
instrument is reported as a component of other comprehensive income and reclassified into
earnings in the same line item associated with the forecasted transaction in the same
period or periods during which the hedged transaction affects earnings. The remaining
gain or loss on the derivative instrument in excess of the cumulative change in the
present value of future cash flows of the hedged item, if any, is recognized as a
financial expense in current earnings during the period of change. |
26
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 2- |
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| |
W. |
|
DERIVATIVE
FINANCIAL INSTRUMENTS (Cont.) |
| |
For
derivative instruments not designated as hedging instruments, the gain or loss is
recognized as a financial expense in current earnings during the period of change. |
| |
As
part of its hedging strategy, the Group enters into forward exchange contracts in order
to protect the Group from the risk that the eventual dollar cash flows from the sale of
products to international customers will be adversely affected by changes in the exchange
rates. |
| |
As
part of its cash flow hedging strategy the Group enters into forward exchange contracts
to hedge forecasted salary expenses denominated in a currency other than the U.S. dollar. |
| |
As
of December 31, 2006, the Group had forward contracts with a notional amount of
approximately $332,200 to purchase and sell foreign currencies ($151,100 in Euro,
$172,800 in Great Britain Pounds (“GBP”) and $8,300 in other currencies). |
| |
The
fair value of the foreign exchange contracts and the options as of December 31, 2006 is a
liability of approximately $13,400. |
| |
X. |
|
STOCK-BASED
COMPENSATION |
| |
Effective
January 1, 2004, the Company adopted the fair value recognition provisions of SFAS No.
123. Under the modified prospective method of adoption selected by the Company under the
provisions of SFAS No. 148, the recognition provisions are applied to all employee awards
granted, modified or settled after January 1, 2004, and to previously granted awards that
were not fully vested on the date of adoption. Compensation cost is recorded over the
vesting period on a straight-line basis. |
| |
The
cumulative effect on deferred taxes relating to stock based compensation resulting from
the adoption of SFAS No. 123 amounted to a reduction of $152 and was recorded as a
one-time adjustment to additional paid-in capital in 2004. |
| |
Effective
January 1, 2006, the Company adopted the provision of Statement 123(R), using the
modified prospective method. The adoption of Statement 123(R) had an immaterial effect on
the Company’s financial position and results of operations. |
| |
The
fair value of options is estimated using a Black-Scholes option pricing model with the
following weighted average assumptions: |
|
2006
|
2005
|
2004
|
| Divided yield |
- |
2.25% |
2.20% |
| Expected volatility |
- |
25.60% |
26.70% |
| Risk-free interest rate |
- |
4.50% |
4.00% |
| Expected life |
- |
4 years |
4 years |
27
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 2- |
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| |
Y. |
|
FAIR
VALUE OF FINANCIAL INSTRUMENTS |
| |
The
carrying amount reported in the balance sheet for cash and cash equivalents, short-term
bank deposits, trade receivables, short-term bank credit and loans and trade payables
approximate their fair values due to the short-term maturities of such instruments. |
| |
The
carrying amount of the trading securities is recorded according to its fair market value,
as determined by quoted market prices on the stock exchange. |
| |
The
fair value of long-term loans is estimated by discounting the future cash flows using
current interest rates for loans of similar terms and maturities. The carrying amount of
the long-term loans approximates their fair value. |
| |
The
fair value of foreign currency contracts (used for hedging purposes) is estimated by
obtaining current quotes from investment bankers. |
| |
It
was not practicable to estimate the fair value of the Group’s investments in shares
of non-public companies that are accounted for under the cost method because of the lack
of a quoted market price and the inability to obtain valuation of each company without
incurring excessive costs. The carrying amounts of these companies as of December 31,
2005 and 2006 were $6,345 and $2,845, respectively, and represent the original cost of
acquisition. As noted in Note 2H above, management is constantly monitoring such
investments for other-than-temporary decline in value. |
| |
Z. |
|
BASIC
AND DILUTED NET EARNINGS PER SHARE |
| |
Basic
net earnings per share are computed based on the weighted average number of ordinary
shares outstanding during each year. Diluted net earnings per share is computed based on
the weighted average number of ordinary shares outstanding during each year, plus
dilutive potential ordinary shares considered outstanding during the year. Outstanding
stock options are excluded from the calculation of the diluted net earnings per ordinary
share when their effect is anti-dilutive. In all the years presented no stock options
were excluded. |
28
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 2- |
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| |
AA. |
|
VARIABLE
INTEREST ENTITIES |
| |
FASB
Interpretation No. 46, “Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research Bulleting No. 51” (“FIN 46”)
provides a framework for identifying Variable Interest Entities (“VIE’s”)
and determining when a company should include the assets, liabilities, non-controlling
interests and results of activities of a VIE in its consolidated financial statements. |
| |
In
general, a VIE is an entity 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 the entity’s
activities, or (3) has a group of equity owners that do not have the obligation to absorb
the entity’s losses or the right to receive returns generated by its operations. FIN
46 requires the consolidation of a VIE by its primary beneficiary. The primary
beneficiary is the entity that absorbs a majority of the entity’s expected losses,
receives a majority of the entity’s expected residual returns, or both, as a result
of ownership, contractual or other financial interests in the entity. |
| |
U-Tacs
is considered to be a variable interest entity. As the Company is the primary
beneficiary, U-Tacs is consolidated in the Company’s financial statements. |
| |
AB. |
|
IMPACT
OF RECENTLY ISSUED ACCOUNTING STANDARDS |
| |
|
(1) |
|
In
July 2006, the FASB issued FASB Interpretation No. 48 “Accounting for
Uncertainty in Income Taxes an Interpretation of FASB Statement No. 109” (“FIN
48”). FIN 48 clarifies the accounting for income taxes by prescribing the
minimum recognition threshold a tax position is required to meet before being
recognized in the financial statements. FIN 48 utilizes a two-step approach for
evaluating tax positions. Recognition (step one) occurs when an enterprise
concludes that a tax position, based solely on its technical merits, is
more-likely-than-not to be sustained upon examination. Measurement (step two)
is only addressed if step one has been satisfied. Under step two, the tax
benefit is measured as the largest amount of benefit, determined on a
cumulative probability basis that is more-likely-than-not to be realized upon
ultimate settlement. |
| |
FIN
48 applies to all tax positions related to income taxes, including tax positions
considered to be “routine” as well as those with a high degree of uncertainty. |
| |
FIN
48 has expanded disclosure requirements, which include a tabular roll forward of the
beginning and ending aggregate unrecognized tax benefits as well as specific detail
related to tax uncertainties for which it is reasonably possible the amount of
unrecognized tax benefit will significantly increase or decrease within twelve months.
These disclosures are required at each annual reporting period and if a significant
change occurs in an interim period. |
| |
FIN
48 is effective for fiscal years beginning after December 15, 2006. The cumulative effect
of applying FIN 48 will be reported as an adjustment to the opening balance of retained
earnings. The Company is currently evaluating the impact of adopting FIN 48. |
29
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 2- |
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.) |
| |
AB. |
|
IMPACT
OF RECENTLY ISSUED ACCOUNTING STANDARDS (Cont.) |
| |
|
(2) |
|
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
157”). This statement provides a single definition of fair value, a
framework for measuring fair value, and expanded disclosures concerning fair
value. Previously, different definitions of fair value were contained in
various accounting pronouncements creating inconsistencies in measurement and
disclosures. SFAS 157 applies under those previously issued pronouncements that
prescribe fair value as the relevant measure of value, except SFAS 123(R) and
related interpretations. The statement does not apply to accounting standard
that require or permit measurement similar to fair value but are not intended
to represent fair value. This pronouncement is effective for fiscal years
beginning after November 15, 2007. The Company is currently evaluating the
impact of adopting SFAS 157. |
| |
|
(3) |
|
In
September 2006, the FASB issued FASB Statement No. 158, “Employers’ Accounting
for Defined Benefit Pension and Other Postretirement Plans”, an amendment
of FASB Statements No 87, 88, 106, and 132(R) (“SFAS 158”). SFAS 158
requires plan sponsors of defined benefit pension and other postretirement
benefit plans (collectively, “postretirement benefit plans”) to
recognize the funded status of their postretirement benefit plans in the
statement of financial position, measure the fair value of plan assets and
benefit obligations as of the date of the fiscal year-end statement of
financial position, and provide additional disclosures. Effective December 31,
2006, the Company adopted the recognition and disclosure provisions of SFAS
158. The effect of adopting SFAS 158 on the Company’s financial condition
at December 31, 2006 has been included in the accompanying consolidated
financial statements. See Note 15 for further discussion of the effect of
adopting SFAS 158 on the Company’s consolidated financial statements. |
| |
|
(4) |
|
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities”(“SFAS 159”). This
Statement provides companies with an option to report selected financial assets
and liabilities at fair value. Generally accepted accounting principles have
required different measurement attributes for different assets and liabilities
that can create artificial volatility in earnings. The Statement’s
objective is to reduce both complexity in accounting for financial instruments
and the volatility in earnings caused by measuring related assets and
liabilities differently. This Statement is effective as of the beginning of an
entity’s first fiscal year beginning after November 15, 2007. The Company
is currently evaluating the impact of adopting SFAS 159. |
| |
Certain
financial statement data for prior years has been reclassified to conform to current year
financial statement presentation. |
30
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 3- |
|
TRADE RECEIVABLES, NET |
|
December 31,
|
|
|
2006
|
|
2005
|
|
| Open accounts (*) |
|
|
$ |
315,254 |
|
$ |
254,056 |
|
| Unbilled receivables | | |
| 72,623 |
|
| 95,854 |
|
| Less - allowance for doubtful accounts | | |
| (3,390 |
) |
| (3,221 |
) |
|
| |
| |
| | | |
$ | 384,487 |
|
$ | 346,689 |
|
|
| |
| |
| (*) Includes affiliated companies | | |
$ | 9,673 |
|
$ | 6,283 |
|
|
| |
| |
| Note 4- |
|
OTHER
RECEIVABLES AND PREPAID EXPENSES |
|
December 31,
|
|
|
2006
|
|
2005
|
|
| Deferred income taxes |
|
|
$ | 17,737 |
|
$ | 18,708 |
|
| Prepaid expenses | | |
| 31,385 |
|
| 22,065 |
|
| Government institutions | | |
| 21,681 |
|
| 9,451 |
|
| Employees | | |
| 787 |
|
| 1,029 |
|
| Others | | |
| 13,011 |
|
| 15,843 |
|
|
| |
| |
| | | |
$ | 84,601 |
|
$ | 67,096 |
|
|
| |
| |
| Note 5- |
|
INVENTORIES, NET OF CUSTOMER ADVANCES |
|
December 31,
|
|
|
2006
|
|
2005
|
|
| Cost incurred on long-term contracts in progress |
|
|
$ | 373,045 |
|
$ | 314,362 |
|
| Raw materials | | |
| 90,075 |
|
| 81,781 |
|
| Advances to suppliers and subcontractors | | |
| 41,037 |
|
| 40,095 |
|
|
| |
| |
| | | |
| 504,157 |
|
| 436,238 |
|
| Less - | | |
| Cost incurred on contracts in progress deducted | | |
| from customer advances (see Note 13)(*) | | |
| 49,455 |
|
| 16,178 |
|
|
| |
| |
| Advances received from customers (*) | | |
| 77,246 |
|
| 84,083 |
|
| Provision for losses | | |
| 5,494 |
|
| 7,549 |
|
|
| |
| |
| | | |
$ | 371,962 |
|
$ | 328,428 |
|
|
| |
| |
| |
The
Company has transferred legal title of inventories to certain customers as collateral for
advances received. |
| |
(*)
Advances are allocated to
the relevant inventories on a per-project basis. In cases (projects) where the
advances are in excess of the inventories, the net amount is presented as a
liability. In cases where the inventories are in excess of advances received,
the net amount is included in inventories. |
31
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 6- |
|
INVESTMENTS IN AFFILIATED COMPANIES, PARTNERSHIP AND OTHER COMPANIES |
| |
A. |
|
Investments
in companies accounted for under the equity method: |
|
December 31,
|
|
|
2006
|
|
2005
|
|
| Tadiran (1) |
|
|
$ |
176,374 |
|
$ |
156,142 |
|
| SCD (2) | | |
| 30,804 |
|
| 25,059 |
|
| VSI (3) | | |
| 5,398 |
|
| 6,451 |
|
| Sandel (4) | | |
| 11,047 |
|
| - |
|
| Opgal (5) | | |
| 4,705 |
|
| 3,380 |
|
| Chip PC (6) | | |
| 2,189 |
|
| 2,516 |
|
| Others (7) | | |
| 2,361 |
|
| 1,446 |
|
|
| |
| |
| | | |
$ | 232,878 |
|
$ | 194,994 |
|
|
| |
| |
|
|
|
| (1) |
|
Tadiran Communications Ltd. (“Tadiran”) – a publicly-traded
43%-owned investee registered in Israel, is involved in the worldwide market for
military communications systems and equipment and is also active in the civilian
communications market. |
| |
The
summarized financial information regarding Tadiran (see Note 1(F)) is as follows: |
| |
Balance
Sheet Information: |
|
December 31,
|
|
|
2006
|
|
2005
|
|
| Current assets |
|
|
$ | 340,204 |
|
$ | 312,093 |
|
| Non-current assets | | |
| 103,343 |
|
| 104,118 |
|
|
| |
| |
| Total assets | | |
$ | 443,547 |
|
$ | 416,211 |
|
|
| |
| |
| Current liabilities | | |
$ | 238,294 |
|
$ | 243,972 |
|
| Non-current liabilities | | |
| 36,548 |
|
| 43,840 |
|
| Shareholders' equity | | |
| 168,705 |
|
| 128,399 |
|
|
| |
| |
| | | |
$ | 443,547 |
|
$ | 416,211 |
|
|
| |
| |
| |
Income
Statement Information: |
|
Year ended December 31,
|
|
|
2006
|
|
2005
|
|
| Revenues |
|
|
$ | 258,795 |
|
$ | 271,424 |
|
| Gross profit | | |
$ | 105,632 |
|
$ | 120,510 |
|
| Net income | | |
$ | 42,118 |
|
$ | 29,879 |
|
| |
As
of December 31, 2006, the fair market value of Tadiran’s shares held by the Company
was $207,128. |
32
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 6- |
|
INVESTMENTS IN AFFILIATED COMPANIES, PARTNERSHIP AND OTHER COMPANIES (Cont.) |
| |
A. |
|
Investments
in companies accounted for under the equity method (Cont.) |
| |
|
(2) |
|
Semi
Conductor Devices (“SCD”) is an Israeli partnership, held 50% by the
Company and 50% by Rafael Armaments Development Authority Ltd. (“Rafael”).
SCD is engaged in the development and production of various thermal detectors
and laser diodes. SCD is jointly controlled and therefore is not consolidated
in the Company’s financial statements. |
| |
|
(3) |
|
Vision
Systems International LLC (“VSI”) based in San Jose, is a California
limited liability company that is held 50% by ESA and 50% by a subsidiary of
Rockwell Collins Inc. VSI operates in the area of helmet mounted display
systems for fixed wing military and paramilitary aircraft. VSI is jointly
controlled and therefore is not consolidated in the Company’s financial
statements. |
| |
|
(4) |
|
Sandel
Avionics, Inc. (“Sandel”) based in Vista, California, produces
specialized integrated display systems and other products for the commercial
aviation market owned 20% by Kollsman (see Note 1(J)). |
| |
|
(5) |
|
Opgal
Optronics Industries Ltd. (“Opgal”) is an Israeli company owned 50.1%
by the Company and 49.9% by a subsidiary of Rafael. Opgal focuses mainly on
commercial applications of thermal imaging and electro-optic technologies. The
Company jointly controls Opgal with Rafael, and therefore Opgal is not
consolidated in the Company’s financial statements. |
| |
|
(6) |
|
Chip
PC Ltd. is an Israeli company, of which approximately 20% is held by the
Company. Chip PC develops and manufactures “Post PC” solutions,
focused on enabling server-based-computing technologies to replace traditional
PCs and deploy and control large numbers of workstations. |
| |
|
(7) |
|
Mediguide
Inc. (“Mediguide”) and its Israeli subsidiary, Mediguide Ltd., were
established in 2000 as a spin-off from the Company. The share capital of
Mediguide consists of Common shares and Preferred A, B, C and D shares. The
Common shares and the Preferred shares, both have voting rights. The Company
holds all of the Common shares of Mediguide which constitute approximately 55%
(41% on a fully diluted basis) of the voting rights of Mediguide. During 2001
— 2004, Mediguide issued Preferred shares to other investors in
consideration for approximately $34,355. The Preferred shares issued entitle
the other investors to preference rights senior to all other classes of shares
previously issued by Mediguide in a liquidation or a deemed liquidation event.
Therefore, the Company did not record any gain as a result of the above
transaction. In addition, the Preferred shares entitle their holders to certain
participating rights. Accordingly, based on the guidance in EITF 96-16, the
Company does not consolidate Mediguide. The carrying value of the investment in
Mediguide is zero. |
33
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 6- |
|
INVESTMENTS IN AFFILIATED COMPANIES, PARTNERSHIP AND OTHER COMPANIES (Cont.) |
| |
A. |
|
Investments
in companies accounted for under the equity method (Cont.) |
| |
|
(8) |
|
Equity
in net earnings (losses) of affiliated companies is as follows: |
|
December 31,
|
|
|
2006
|
|
2005
|
|
2004
|
|
| Tadiran (*) |
|
|
$ | 3,988 |
|
$ | (11,121 |
) |
$ | (1,120 |
) |
| SCD | | |
| 5,466 |
|
| 5,115 |
|
| 4,563 |
|
| VSI | | |
| 5,354 |
|
| 4,641 |
|
| 3,710 |
|
| Others | | |
| (65 |
) |
| (271 |
) |
| (508 |
) |
|
| |
| |
| |
| | | |
$ | 14,743 |
|
$ | (1,636 |
) |
$ | 6,645 |
|
|
| |
| |
| |
| |
|
|
(*) |
|
The
Company’s share in Tadiran’s 2006 results includes a loss of $2,400
as a result of exercise of options in Tadiran. |
| |
|
(9) |
|
The
summarized aggregate financial information of companies accounted for under the
equity method, excluding Tadiran (see Note 6(A)(1)), is as follows: |
| |
Balance
Sheet Information: |
|
December 31,
|
|
|
2006
|
|
2005
|
|
| Current assets |
|
|
$ | 165,411 |
|
$ | 138,312 |
|
| Non-current assets | | |
| 27,896 |
|
| 19,115 |
|
|
| |
| |
| Total assets | | |
$ | 193,307 |
|
$ | 157,427 |
|
|
| |
| |
| Current liabilities | | |
$ | 85,576 |
|
$ | 59,067 |
|
| Non-current liabilities | | |
| 7,929 |
|
| 13,622 |
|
| Shareholders' equity | | |
| 99,802 |
|
| 84,738 |
|
|
| |
| |
| | | |
$ | 193,307 |
|
$ | 157,427 |
|
|
| |
| |
| |
Income
Statement Information: |
|
Year ended December 31,
|
|
|
2006
|
|
2005
|
|
2004
|
|
| Revenues |
|
|
$ | 298,499 |
|
$ | 266,841 |
|
$ | 213,680 |
|
| Gross profit | | |
$ | 79,309 |
|
$ | 63,938 |
|
$ | 55,285 |
|
| Net income | | |
$ | 18,902 |
|
$ | 13,345 |
|
$ | 15,195 |
|
| |
|
(10) |
|
See
Note 17(F) for guarantees. |
34
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 6- |
|
INVESTMENTS IN AFFILIATED COMPANIES, PARTNERSHIP AND OTHER COMPANIES (Cont.) |
| |
B. |
|
Investments
in companies accounted for on a cost basis |
|
December 31,
|
|
|
2006
|
|
2005
|
|
| Sultam (1) |
|
|
$ | - |
|
$ | 3,500 |
|
| ISI (2) | | |
| 1,830 |
|
| 1,830 |
|
| AAI (3) | | |
| 1,000 |
|
| 1,000 |
|
| Others | | |
| 15 |
|
| 15 |
|
|
| |
| |
| | | |
$ | 2,845 |
|
$ | 6,345 |
|
|
| |
| |
|
|
|
| |
|
(1) |
|
Sultam
Systems Ltd. (“Sultam”), held 10%, is an Israeli company engaged in
the development and manufacturing of military systems in the artillery sector.
In December 2006, the Company sold its holdings in Sultam in consideration for
$5,000, to be paid in 24 monthly installments bearing interest of Libor+1%. An
amount of $2,341 was recorded as other long-term receivables. A gain of $1,500
was recorded as other income. |
| |
|
(2) |
|
ImageSat
International N.V. (“ISI”), held 14% (10% on a fully diluted basis),
is engaged in the operation of satellite photography formations and commercial
delivery of satellite photography for civil purposes. During the fourth quarter
of 2005, the fair value of ISI decreased as a result of a decrease in ISI’s
backlog and estimated future cash flows. Based on a valuation performed by an
independent advisor, the Company wrote-off approximately $5,400 of its
investment in ISI. |
| |
|
(3) |
|
AeroAstro
Inc. (“AAI”), held 8.33% (on a fully diluted basis) is a Delaware
corporation engaged in innovative micro and nanospacecraft applications. AAI
manufactures low-cost satellite systems and components, used in its own
spacecraft and for spacecraft development in and outside the U.S. |
| Note 7- |
|
COMPENSATION RECEIVABLES IN RESPECT OF FIRE DAMAGE, NET |
|
December 31,
|
|
|
2006
|
|
2005
|
|
| Receivables from insurance company (A) |
|
|
$ | 25,884 |
|
$ | 25,884 |
|
| Net of contingent payment to Koor (B) | | |
| 10,354 |
|
| 10,354 |
|
|
| |
| |
| | | |
$ | 15,530 |
|
$ | 15,530 |
|
|
| |
| |
| |
A. |
|
On
March 17, 2001, a fire broke out in the manufacturing plants in two of Elisra’s
subsidiaries (“the companies”). The fire caused damage to equipment,
building, inventory and work in progress. The book value of the equipment,
inventory and costs invested in the work in progress damaged by the fire
together with the costs of repairing the building and other costs, are
estimated at approximately $36 million. Up to December 31, 2005 and 2006,
advances were received from the insurance company in the aggregate amount of
approximately $10 million. |
35
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 7- |
|
COMPENSATION RECEIVABLES IN RESPECT OF FIRE DAMAGE, NET (Cont.) |
| |
The
claim submitted by the companies to the insurance company, and which is based on the
terms of the insurance policy, also includes a demand for consequential damages along
with other damages that the companies believe are covered by the insurance policy.
Therefore, the total amount of the claim is much higher than the book value of the damage
and the cost of repairing the building. |
| |
The
companies are taking legal action in order to receive the insurance claim and they have
submitted a claim to the District Court of Tel-Aviv against the insurance company and its
assessors, in the aggregate amount of $96 million. In light of the duration of the
proceedings, the managements of the companies decided to classify the balance of the
compensation receivable from the insurance company as a long-term receivable. |
| |
In
April 2004, the companies filed a request with the Court, for issuance of a partial
judgment, in the amount of $33 million (in excess of the advances already paid by the
insurance company) based on the admission made by the insurance company and its
representatives of an obligation deriving from the insurance event, while the dispute
remains regarding the amount of the damages. |
| |
In
December 2004, a hearing was held in the Court wherein the force of a judgment was given
to an agreement of the parties pursuant to which a separate bank account was opened, in
which the insurance company deposited $15 million. Every withdrawal from such account
requires approval of the Court until the proceedings on the claim are concluded. In
accordance with the aforesaid agreement, the claim was transferred for mediation. A
number of meetings took place during 2005 and 2006, including a visit of the reinsurance
representatives with the Company, however the mediation did not result in an agreement
between the parties. |
| |
In
light of the failure of the mediation proceeding, on September 19, 2006 the mediator
notified the Court of discontinuance of the proceeding. |
| |
On
September 21, 2006, the Company requested from the Court to renew the legal proceedings
and requested that a ruling be made on the request for a partial ruling that had been
filed on April 21, 2004 as described above. A hearing on the ruling is scheduled for
March 18, 2007. |
| |
In
the opinion of the companies, based on, among other things, the opinion of their legal
advisors regarding this matter, it is difficult to estimate the chances that the
companies will receive the full amount of the claim, even though it is considered to be
well founded. Nonetheless, the managements of the companies estimate, based on the
opinion of their legal advisors that the chances are good of receiving indemnification
from the insurance company, in an amount greater than the balance of the receivable which
they recorded as an asset in the financial statements. |
| |
B. |
|
In
the agreement the Company signed with Koor, for the purchase of Elisra’s
shares, it was agreed that the Company will pay Koor 40% of the
consideration received from the insurance company, up to $30 million and
25%-27.5% of additional consideration received (see Note 1(G)). |
36
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 7- |
|
COMPENSATION RECEIVABLES IN RESPECT OF FIRE DAMAGE, NET (Cont.) |
| |
C. |
|
The
receivables in respect of the fire damages and related payable to Koor
represent pre-acquisition contingencies that were recognized in connection
with the acquisition of Elisra in 2005, and these items are reflected in
the PPA (see Note 1(G)). |
| Note 8- |
|
LONG–TERM BANK DEPOSITS AND TRADE RECEIVABLES |
|
December 31,
|
|
|
2006
|
|
2005
|
|
| Deposits with banks for loans granted to employees (*) |
|
|
$ | 1,287 |
|
$ | 1,200 |
|
| Long-term trade and other receivables (**) | | |
| 4,701 |
|
| 1,219 |
|
| Other deposits with banks | | |
| 42 |
|
| 38 |
|
|
| |
| |
| | | |
$ | 6,030 |
|
$ | 2,457 |
|
|
| |
| |
| |
|
|
(*) |
|
The
deposits are linked to the Israeli CPI, bear annual interest of 4% and are
presented net of current maturities of $429 (2005 — $539). |
| |
|
|
(**) |
|
Other
receivables include receivables in the amount of $2,341 with respect to the
sale of Sultam, to be paid in 24 monthly installments (see Note 6(B)(1)). The
installments bear annual interest rate of Libor +1%. As of December 31, 2006
the rate was 6.3%. |
| Note 9- |
|
PROPERTY, PLANT AND EQUIPMENT, NET |
|
December 31,
|
|
|
2006
|
|
2005
|
|
| Cost (1): |
|
|
| |
|
| |
|
| Land, buildings and leasehold improvements (2) | | |
$ | 185,182 |
|
$ | 177,435 |
|
| Instruments, machinery and equipment (3) | | |
| 356,545 |
|
| 332,956 |
|
| Office furniture and other | | |
| 43,085 |
|
| 38,406 |
|
| Motor vehicles | | |
| 53,954 |
|
| 49,538 |
|
|
| |
| |
| | | |
| 638,766 |
|
| 598,335 |
|
| Accumulated depreciation | | |
| (344,138 |
) |
| (313,338 |
) |
|
| |
| |
| Depreciated cost | | |
$ | 294,628 |
|
$ | 284,997 |
|
|
| |
| |
|
|
|
| |
Depreciation
expenses for the years ended December 31, 2006, 2005 and 2004 amounted to $50,323,
$44,576 and $35,001, respectively. |
| |
(1) |
|
Net
of investment grants received (mainly for instruments, machinery and equipment)
in the amounts of $33,409 and $ 32,879 as of December 31, 2006 and 2005,
respectively. |
| |
(2) |
|
Includes
rights in approximately 9,225 square meters of land in Tirat Hacarmel, Israel.
The land is leased from the Israel Land Administration until the years 2014 to
2024 with a renewal option for additional periods of up to 49 years. The Company’s
rights in the land have not yet been registered in its name. |
37
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 9- |
|
PROPERTY, PLANT AND EQUIPMENT, NET (Cont.) |
| |
Includes
rights in approximately 10,633 square meters of land in Rehovot, Israel. The land is
leased from the Israel Land Administration until the year of 2043 with a renewal option
for additional periods of up to 49 years. The Company’s rights in the land have not
yet been registered in its name. |
| |
Includes
rights in approximately 10,386 square meters of land in Bnei Brak, Israel. The land is
leased from the Israel Land Administration (through the years 2010-2017) with a renewal
option for additional periods of up to 49 years. The Company’s rights in the land
have not yet been registered in its name. |
| |
(3) |
|
Includes
equipment produced by the Group for its own use in the aggregate amount of
$96,131 and $82,518 as of December 31, 2006 and 2005, respectively. |
| |
(4) |
|
As
for pledges of assets – see Note 17(G) and 17(J). |
| Note 10- |
|
INTANGIBLE
ASSETS, NET |
|
Weighted average number
of years of amortization
|
|
December 31,
|
|
|
2006
|
|
2005
|
|
| Original cost: |
|
|
|
|
|
| |
|
| |
|
| Technology (1) |
|
|
|
14 | |
$ | 108,786 |
|
$ | 108,786 |
|
| Trade marks (2) | | |
|
17 | |
| 8,000 |
|
| 8,000 |
|
|
|
| |
| |
| | | |
| | |
| 116,786 |
|
| 116,786 |
|
|
|
| |
| |
| Accumulated amortization: | | |
| Technology | | |
| | |
| 43,592 |
|
| 35,815 |
|
| Trade marks | | |
| | |
| 2,600 |
|
| 2,200 |
|
|
|
| |
| |
| | | |
| | |
| 46,192 |
|
| 38,015 |
|
|
|
| |
| |
| Amortized cost | | |
| | |
$ | 70,594 |
|
$ | 78,771 |
|
|
|
| |
| |
| Goodwill (3) | | |
| | |
$ | 58,401 |
|
$ | 58,401 |
|
|
|
| |
| |
| |
|
(1) |
|
The
technology acquired consists of five major items as follows: |
| |
In
2000, the Company completed a merger with Elop. A portion of the purchase price was
allocated to technology ($45,000), based on an independent appraisal. The technology
acquired in the merger with Elop comprises various technologies relating to: |
| |
|
|
a. |
|
Diode
pumped and other advanced solid-state lasers incorporating add-on eye-safety
options. |
| |
|
|
b. |
|
Detectors
for thermal imaging devices, including 2-D arrays for second and third
generation forward looking infrared sensors. |
| |
|
|
c. |
|
Line
of sight command, control and stabilization systems employing computerized
digital controllers. |
| |
|
|
d. |
|
Sophisticated
image and signal processing, utilizing modern equipment and software. |
38
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 10- |
|
INTANGIBLE
ASSETS, NET (Cont.) |
| |
|
|
e. |
|
High
precision mechanical and optical component design and manufacturing for the
visible, ultraviolet and infrared spectra, including special and exotic
materials, diffractive and planar optics, space borne lightweight optics and
multi-layer coatings. |
| |
|
|
f. |
|
Aviation
instruments such as precision altimeters and air speedometers. |
| |
In
2000, EFW Inc. acquired from Honeywell Inc., Honeywell’s business relating to
head-up displays and tracking systems for pilot helmets. An amount of $9,300 was
allocated to the acquired technology based on its estimated fair value as prepared by the
Company. |
| |
In
2001 and 2002, the Company acquired a Brazilian company which serves as a center for the
production and logistic support of defense electronics programs in Brazil. An amount of
$5,500 was allocated to technology related to the maintenance and support of avionic
equipment. |
| |
In
2002, the Company acquired the business of the Defense Systems Division of Elron Telesoft
in consideration for $5,700. An amount of $5,100 was allocated to the technology related
to the government information technology control systems software developed by Elron
Telesoft. |
| |
In
2005, the Company acquired 70% of Elisra’s shares as detailed in Note 1(G) above, in
consideration for $68,800. An amount of $21,300 was allocated to the technology related
to electronic warfare (EW) systems, command communication (C(2)) systems and
data link products. |
| |
|
(2) |
|
Includes
trade marks acquired in the merger with Elop in 2000. |
| |
|
(3) |
|
Includes
mainly goodwill resulting from the merger with Elop ($18,700) in 2000, goodwill
acquired from Honeywell Inc. ($2,090) in 2000, goodwill resulting from the
acquisition of IEI ($3,300) in 2001 and goodwill resulting from the acquisition
of Elisra ($24,500) in 2005. |
| |
B. |
|
Amortization
expenses amounted to $8,176, $7,742 and $7,260 for the years ended December 31,
2006, 2005 and 2004, respectively. |
| |
C. |
|
The
annual amortization expense relating to intangible assets other than
goodwill existing as of December 31, 2006 is estimated to be as follows: |
|
|
|
|
| 2007 |
|
|
$ |
8,100 |
|
| 2008 | | |
| 7,600 |
|
| 2009 | | |
| 7,100 |
|
| 2010 | | |
| 6,500 |
|
| 2011 | | |
| 6,500 |
|
| Thereafter | | |
| 34,800 |
|
|
| |
| Total | | |
$ | 70,600 |
|
|
| |
39
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 11- |
|
SHORT-TERM
BANK CREDIT AND LOANS |
|
December 31,
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
| Short-term bank loans: |
Interest Rate |
|
|
|
|
|
|
| |
| |
| In U.S. dollars |
|
|
|
4.75-7.86% |
|
|
6-6.2% |
|
$ |
6,660 |
|
$ | 17,491 |
|
|
|
|
| |
| |
| Short-term bank credit: | | |
| In NIS unlinked | | |
|
7.25% |
|
|
5.8% | |
| 2,929 |
|
| 2,828 |
|
| In U.S. dollars | | |
|
6.68-8.25% |
|
|
6-6.4% |
|
|
8,213 |
|
|
9,977 |
|
|
|
|
| |
| |
| | | |
| | |
| | |
|
11,142 |
|
|
12,805 |
|
|
|
|
| |
| |
| | | |
| | |
|
|
|
$ |
17,802 |
|
$ |
30,296 |
|
|
|
|
| |
| |
| Weighted Average Interest Rate |
|
|
|
6.74% |
|
|
5.9% |
|
|
|
|
|
|
|
|
|
|
|
|
| Note 12- |
|
OTHER
PAYABLES AND ACCRUED EXPENSES |
|
December 31,
|
|
|
2006
|
|
2005
|
|
| Payroll and related expenses |
|
|
$ | 78,514 |
|
$ | 65,400 |
|
| Provision for vacation pay | | |
| 39,841 |
|
| 32,879 |
|
| Provision for income taxes, net of advance paid | | |
| 21,096 |
|
| 5,374 |
|
| Value added tax (VAT) payable | | |
| 9,044 |
|
| 2,667 |
|
| Provisions for royalties | | |
| 23,344 |
|
| 22,943 |
|
| Provision for warranty | | |
| 44,417 |
|
| 31,797 |
|
| Deferred income taxes | | |
| - |
|
| 2,140 |
|
| Liability in respect of hedge transactions | | |
| 13,442 |
|
| 1,619 |
|
| Cost provision (*) | | |
| 44,807 |
|
| 51,720 |
|
|
| |
| |
| | | |
$ | 274,505 |
|
$ | 216,539 |
|
|
| |
| |
|
|
|
| |
(*) Cost
provision, primarily includes provisions for estimated future costs in respect
of (1) potential contractual penalties and the probable loss from claims (legal
or unasserted) in the ordinary course of business (e.g. damages caused by the
items sold and claims as to the specific products ordered), (2) unbilled
services of service providers. |
| Note 13- |
|
CUSTOMERS
ADVANCES IN EXCESS OF COSTS INCURRED ON CONTRACTS IN PROGRESS |
|
December 31,
|
|
|
2006
|
|
2005
|
|
| Advances received |
|
|
$ | 603,194 |
|
$ | 460,242 |
|
| Less - | | |
| Advances presented under long-term liabilities | | |
| 126,769 |
|
| 122,263 |
|
| Advances deducted from inventories | | |
| 77,246 |
|
| 84,083 |
|
|
| |
| |
| | | |
| 399,179 |
|
| 253,896 |
|
| Less - | | |
| Costs incurred on contracts in progress (see Note 5) | | |
| 49,455 |
|
| 16,178 |
|
|
| |
| |
| | | |
$ | 349,724 |
|
$ | 237,718 |
|
|
| |
| |
|
|
|
| |
As
for guarantees and liens see Note 17(F). |
40
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
|
|
Interest |
|
Years of |
|
December 31,
|
|
|
Currency
|
|
%
|
|
maturity
|
|
2006
|
|
2005
|
|
| Banks |
|
|
U.S. dollars |
|
|
2.98% - |
|
|
mainly |
|
|
|
|
|
|
|
|
| | |
| | |
Libor + 2.3% | | |
2-3 | | |
$ | 135,355 |
|
$ | 229,370 |
|
| Office of Chief | | |
NIS-linked to | | |
| | |
| | |
| |
|
| Scientist | | |
the Israeli-CPI | | |
3.2 | | |
| | |
| - |
|
| 2,713 |
|
| Other | | |
| | |
| | |
| | |
| 110 |
|
| 254 |
|
| |
| |
| |
| |
| |
| |
| | | |
| | |
| | |
| | |
| 135,465 |
|
| 232,337 |
|
| Less-current maturities | | |
| | |
| | |
| | |
| 10,199 |
|
| 7,355 |
|
|
|
|
|
| |
| |
| | |
| | |
| | |
| | |
$ |
125,266 |
|
$ |
224,982 |
|
|
|
|
|
| |
| |
| |
The
Libor rate as of December 31, 2006 was 5.3%. |
| |
The
maturities of these loans after December 31, 2006 are as follows: |
|
|
|
|
| 2007 - current maturities |
|
|
$ |
10,199 |
|
| 2008 | | |
| 117,454 |
|
| 2009 | | |
| 5,170 |
|
| 2010 | | |
| 175 |
|
| 2011 | | |
| 180 |
|
| 2012 and thereafter | | |
| 2,287 |
|
|
| |
| | | |
$ | 135,465 |
|
|
| |
| |
See
Note 17(G) for covenants. |
| |
In
order to secure liabilities to banks as well as guarantees to customers and performance
guarantees, a subsidiary granted first priority liens and/or floating liens on all of its
property and assets with no limitation as to amount, and specific liens on its short-term
investments (see Note 17(G)). |
| Note 15- |
|
BENEFIT
PLANS AND ACCRUED TERMINATIONAL LIABILITY |
| |
ESA,
the Company’s subsidiary in the U.S., has adopted for its employees in U.S. benefits
plans as follows: |
| |
Defined
Benefit Retirement Plan |
| |
ESA
has three defined benefit pension plans (the “Plans”) which cover the employees
of EFW and Kollsman Monthly benefits are based on years of benefit service and annual
compensation. Annual contributions to the Plans are determined using the unit credit
actuarial cost method and are equal to or exceed the minimum required by law. Pension
fund assets of the Plans are invested primarily in stock, bonds and cash by a financial
institution, as the investment manager of the Plans’ assets. Pension expense is
allocated between cost of sales and general and administrative expenses, depending on the
responsibilities of the employee. |
41
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 15- |
|
BENEFIT
PLANS AND ACCRUED TERMINATIONAL LIABILITY (Cont.) |
| |
The
measurement date for the EFW and Kollsman benefit obligation is December 31, 2006. The
following table sets forth the Plans’ funded status and amounts recognized in the
consolidated financial statements for the years ended December 31, 2006 and 2005: |
|
December 31,
|
|
|
2006
|
|
2005
|
|
| Changes in benefit obligation: |
|
|
| |
|
| |
|
| Benefit obligation at beginning of year | | |
$ | 51,305 |
|
$ | 42,698 |
|
| Service cost, end of year | | |
| 3,869 |
|
| 3,242 |
|
| Interest cost | | |
| 2,981 |
|
| 2,543 |
|
| Amendments | | |
| 73 |
|
| 320 |
|
| Actuarial losses | | |
| (228 |
) |
| 3,517 |
|
| Benefits paid | | |
| (1,221 |
) |
| (1,015 |
) |
|
| |
| |
| Benefit obligation at end of year | | |
$ | 56,779 |
|
$ | 51,305 |
|
|
| |
| |
| Changes in Plan Assets: | | |
| Fair value of Plans assets at beginning of year | | |
| 33,344 |
|
| 25,102 |
|
| Actual return on Plan assets (net of expenses) | | |
| 4,450 |
|
| 1,215 |
|
| Employer contribution | | |
| 6,676 |
|
| 8,042 |
|
| Benefits paid | | |
| (1,348 |
) |
| (1,015 |
) |
|
| |
| |
| Fair value of Plans assets at end of year | | |
$ | 43,122 |
|
$ | 33,344 |
|
|
| |
| |
| Accrued benefit cost, end of year: | | |
| Funded status | | |
| (13,635 |
) |
| (17,962 |
) |
| Unrecognized prior service cost | | |
| 215 |
|
| 156 |
|
| Unrecognized net actuarial loss | | |
| 12,894 |
|
| 15,480 |
|
|
| |
| |
| Accrued benefit cost, end of year | | |
$ | (526 |
) |
$ | (2,326 |
) |
|
| |
| |
| Amount recognized in the statement of financial position: | | |
| Accrued benefit liability | | |
| (13,927 |
) |
| (13,700 |
) |
| Intangible asset | | |
| - |
|
| 157 |
|
| Accumulated other comprehensive income | | |
| 13,401 |
|
| 11,217 |
|
|
| |
| |
| Net amount recognized | | |
$ | (526 |
) |
$ | (2,326 |
) |
|
| |
| |
| Weighted average assumptions: | | |
| Discount rate as of December 31, | | |
|
5.75% |
|
|
5.75% |
|
| Expected long-term rate of return on Plan's assets | | |
|
8.50% |
|
|
8.50% |
|
| Rate of compensation increase | | |
|
3.00% |
|
|
3.00% |
|
|
|
|
|
Year ended December 31,
|
|
|
2006
|
|
2005
|
|
| Components of net periodic pension cost: |
|
|
| |
|
| |
|
| Service cost | | |
$ | 3,869 |
|
$ | 3,242 |
|
| Interest cost | | |
| 2,981 |
|
| 2,543 |
|
| Expected return on Plans assets | | |
| (2,938 |
) |
| (2,133 |
) |
| Amortization of prior service cost | | |
| 14 |
|
| (15 |
) |
| Amortization of transition amount | | |
| - |
|
| 69 |
|
| Recognized net actuarial loss (gain) | | |
| (2,586 |
) |
| 569 |
|
|
| |
| |
| Total net periodic benefit cost | | |
$ | 1,340 |
|
$ | 4,275 |
|
|
| |
| |
42
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 15- |
|
BENEFIT
PLANS AND ACCRUED TERMINATIONAL LIABILITY (Cont.) |
|
Year ended December 31,
|
|
|
2006
|
|
2005
|
|
| Additional information: |
|
|
| |
|
| |
|
| Accumulated benefit obligation | | |
$ | 51,702 |
|
$ | 47,043 |
|
|
| |
| |
| Increase in minimum liability included in other comprehensive income | | |
$ | 8,078 |
|
$ | 3,486 |
|
|
| |
| |
|
|
|
| |
Asset
Allocation by Category |
|
2006
|
2005
|
| Asset Category |
|
|
| Equity Securities |
61.0% |
65.9% |
| Debt Securities |
34.5% |
26.4% |
| Other |
4.5% |
7.7% |
|
|
|
| Total |
100.0% |
100.0% |
| |
The
investment policy of ESA is directed toward a broad range of securities. The diversified
portfolio seeks to maximize investment return while minimizing the risk levels associated
with investing. The investment policy is structured to consider the retirement plan’s
obligations and the expected timing of benefit payments. The target asset allocation for
the Plan years presented is as follows: |
|
2006
|
2005
|
| Asset Category |
|
|
| Equity Securities |
60.0% |
60.0% |
| Debt Securities |
37.0% |
37.0% |
| Other |
3.0% |
3.0% |
|
|
|
| Total |
100.0% |
100.0% |
| |
In
developing the overall expected long-term rate of return on assets assumption, ESA used a
building block approach in which rates of return in excess of inflation were considered
separately for equity securities, debt securities, real estate and all other assets. The
excess returns were weighted by the representative target allocation and added along with
an approximate rate of inflation to develop the overall expected long-term rate of
return. |
| |
It
is the policy of ESA to at least meet the ERISA minimum contribution requirements for a
plan year. The minimum contribution requirements for the 2006 Plan year and the quarterly
contributions requirements for the 2005 Plan year have been satisfied as of December 31,
2006. However, ESA anticipates that it will make an additional discretionary contribution
of approximately $537 during 2007 in order to increase the Plan’s funded current
liability percentage. Benefit payments over the next five years are expected to be $1,532
in 2007; $1,697 in 2008; $1,982 in 2009, $2,281 in 2010 and $2,503 in 2011. |
43
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 15- |
|
BENEFIT
PLANS AND ACCRUED TERMINATIONAL LIABILITY (Cont.) |
| |
ESA
initiated a retiree medical benefit plan at EFW which arose from a side-letter agreement
to the union negotiations in November 2002. In 2006, ESA identified this benefit
obligation and evaluated the impact to the financial statements for prior years. The
accumulated post-retirement benefit obligation (APBO) for prior years is $1,642 for 2002,
$1,589 for 2003 and $1,386 for 2004 through 2006, respectively. The accrued expense for
prior years is $641 for 2004, $906 for 2005 and $1,094 for 2006. |
| |
The
measurement date for ESA benefit obligation is December 31, 2006. The following table
sets forth the Plans’ funded status and amounts recognized in the consolidated
financial statements for the year ended December 31, 2006. |
|
December 31, 2006
|
|
| Change in Benefit Obligation: |
|
|
| |
|
| Benefit obligation at beginning of period | | |
$ | 1,589 |
|
| Service cost, end of period | | |
| 82 |
|
| Interest cost | | |
| 84 |
|
| Actuarial (gain) / loss | | |
| (241 |
) |
| Benefits paid | | |
| (127 |
) |
|
| |
| Benefit obligation at end of period | | |
$ | 1,387 |
|
|
| |
| Change in Plan Assets: | | |
| Fair value of plan assets at beginning of period |
|
|
$ |
- |
|
| Actual return on plan assets (net of expenses) | | |
| Employer contribution | | |
| 127 |
|
| Benefits paid | | |
| (127 |
) |
|
| |
| Fair value of plan assets at end of period |
|
|
$ |
- |
|
|
| |
| Accrued benefit cost, end of period: | | |
| Funded status | | |
$ | (1,387 |
) |
| Unrecognized net actuarial (gain) / loss | | |
| (381 |
) |
| Initial unrecognized transition obligation | | |
| - |
|
| Unrecognized prior service cost | | |
| 673 |
|
|
| |
| Accrued benefit cost, end of period | | |
$ | (1,095 |
) |
|
| |
| Amounts recognized in the statement of financial position: | | |
| Accrued benefit liability | | |
$ | (1,387 |
) |
| Intangible asset | | |
| - |
|
| Accumulated other comprehensive income | | |
| 292 |
|
|
| |
| Net amount recognized | | |
$ | (1,095 |
) |
|
| |
| Current | | |
$ | 273 |
|
| Non Current | | |
$ | 822 |
|
|
| |
44
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 15- |
|
BENEFIT
PLANS AND ACCRUED TERMINATIONAL LIABILITY (Cont.) |
|
December 31, 2006
|
| Components of net periodic pension |
|
|
| |
|
| cost (for period): | | |
| Service cost | | |
$ | 82 |
|
| Interest cost | | |
| 84 |
|
| Expected return on plan assets | | |
| - |
|
| Amortization of transition amount | | |
| - |
|
| Amortization of prior service cost | | |
| 150 |
|
| Recognition of net actuarial (gain) / loss | | |
| - |
|
|
|
| Total net periodic benefit cost | | |
$ | 316 |
|
|
|
| Additional information: | | |
| Accumulated benefit obligation | | |
$ | 1,387 |
|
|
|
| Weighted-average assumptions as of end of period: | | |
| Discount rate | | |
| 5.75 |
% |
| Health care cost trend rate assumed for next year | | |
| 8.00 |
% |
| Ultimate health care cost trend rate | | |
| 5.00 |
% |
| |
Defined
Contribution Plan |
| |
The
401(k) savings plan (401(k) plan) is a defined contribution retirement plan that covers
all eligible employees, as defined in section 401(k) of the U.S. Internal Revenue Code.
Employees may elect to contribute a percentage of their annual gross compensation to the
401(k) plan. ESA may make discretionary matching contributions as determined by ESA.
Total expense under the 401(k) plan amounted to $2,503, $1,984 and $1,744 for the years
ended December 31, 2006, 2005 and 2004, respectively. Expense for the deferred
contribution plan is allocated between cost of sales and general and administrative
expenses depending on the responsibilities of the related employees. |
| |
Non-Qualified
Defined Contribution Plan |
| |
ESA
implemented two new benefit plans for the executives of the organization. The
non-qualified, defined contribution plan is structured under Section 409(A). The plan
provides the employees at vice president level and above the opportunity to defer up to
100% of their salary and bonus or any amount below that to the 409(A) plan. The company
will provide a match of 50 cents on the dollar up to 10% of the employees’ total
salary and incentive based compensation. The contribution can be made into the 401(k),
409(A) or both plans. The intent was to provide comparable defined contribution plan
benefits across the three ESA locations for the senior management. The 409(A) plan funds
are contributed to several life insurance policies. These policies have been designated
for the provision of pension through the 409(A) plan. The total contributions to the plan
were $164 for 2006. |
45
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 15- |
|
BENEFIT
PLANS AND ACCRUED TERMINATIONAL LIABILITY (Cont.) |
| |
The
second plan implemented is a non-qualified, defined benefit plan for the top four
executives of ESA. The plan provides a calculated, guaranteed payment in addition to
their regular pension through the company upon retirement. The plan is funded with
several life insurance policies. They are not segregated into a trust or otherwise
effectively restricted. These policies are corporate owned assets that are subject
to the claims of general creditors and cannot be considered as formal plan assets. The
defined benefit plan put in place meets the ERISA definition of an unfunded deferred
compensation plan maintained for the benefit of a select group of management or highly
compensated employees. The plan assets currently are valued at $434 and the related
liability for the pension payments is $95. As of December 31, 2006, no executives had
vested in the plan. |
| |
Adoption
of Statement 158 |
| |
On
December 31, 2006, the Company adopted the recognition and disclosure provisions of
Statement 158. Statement 158 required the Company to recognize the funded status (i.e.,
the difference between the fair value of plan assets and the projected benefit
obligations) of its pension plan in the December 31, 2006 statement of financial
position, with a corresponding adjustment to accumulated other comprehensive income, net
of tax. The adjustment to accumulated other comprehensive income at adoption represents
the net unrecognized actuarial losses, unrecognized prior service costs, and unrecognized
transition obligation remaining from the initial adoption of Statement 87, all of which
were previously netted against the plan’s funded status in the Company’s
statement of financial position pursuant to the provisions of Statement 87. These amounts
will be subsequently recognized as net periodic pension cost pursuant to the Company’s
historical accounting policy for amortizing such amounts. Further, actuarial gains and
losses that arise in subsequent periods and are not recognized as net periodic pension
cost in the same periods will be recognized as a component of other comprehensive income.
Those amounts will be subsequently recognized as a component of net periodic pension cost
on the same basis as the amounts recognized in accumulated other comprehensive income at
adoption of Statement 158. |
| |
The
incremental effects of adopting the provisions of Statement 158 on the Company’s
statement of financial position at December 31, 2006 are presented in the following
table. The adoption of Statement 158 had no effect on the Company’s consolidated
statement of income for the year ended December 31, 2006, or for any prior period
presented, and it will not effect the Company’s operating results in future periods.
Had the Company not been required to adopt Statement 158 at December 31, 2006, it would
have recognized an additional minimum liability pursuant to the provisions of Statement
87. The effect of recognizing the additional minimum liability is included in table below
in the column labeled “Prior to Application of Statement 158.” |
|
Year ended December 31,
|
|
|
|
Prior to
Adopting
SFAS
158
|
|
Effect of
Adopting
SFAS
158
|
|
As Reported at
December 31,
2006
|
|
| Accrued retirement liability |
|
|
$ | (10,334 |
) |
$ | (5,685 |
) |
$ | (16,019 |
) |
| Deferred income taxes | | |
$ | (5,135 |
) |
$ | 1,092 |
|
$ | (4,043 |
) |
| Accumulative other | | |
| comprehensive income |
|
|
$ |
- |
|
$ | (4,231 |
) |
$ | (4,231 |
) |
46
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 15- |
|
BENEFIT
PLANS AND ACCRUED TERMINATIONAL LIABILITY (Cont.) |
| |
Included
in accumulated other comprehensive income at December 31, 2006 is the following amounts
that have not yet been recognized in net periodic pension cost: unrecognized prior
service costs of $540 ($417 net of tax) and unrecognized actuarial losses $2,056 ($392
net of tax). The transition obligation, prior service cost, and actuarial loss included
in accumulated other comprehensive income and expected to be recognized in net periodic
pension cost during the fiscal year-ended December 31, 2007 is $8 ($8 net of tax), $164
($114 net of tax), and $535 ($374 net of tax), respectively. |
| |
Liability
for Elisra’s Employees |
| |
In
February 2007, Elisra’s Board of Directors approved the framework of a new
efficiency plan, including a reduction in the number of employees with a potential
efficiency plan cost of up to $16,000. Elisra’s Board of Directors determined that
execution of the reduction in the number of employees is subject to preparation of a
detailed list of the specific employees, the adequate availability of financing for the
execution of the plan and the expected return on such expense in the future. |
| |
As
of the approved date of these financial statements, Elisra’s management had not
completed the above mentioned procedures and therefore was unable to estimate the total
extent of the effiency plan and its execution period. |
| |
|
(1) |
|
Measurement
of taxable income under Israel’s Income Tax (Inflationary Adjustments)
Law, 1985: |
| |
Results
for tax purposes for the Company and certain of its Israeli subsidiaries are measured and
reflected in accordance with the change in the Israeli Consumer Price Index (“CPI”).
As explained above in Note 2(B), the consolidated financial statements are presented in
U.S. dollars. The differences between the change in the Israeli CPI and in the NIS/U.S.
dollar exchange rate cause a difference between taxable income and the income before
taxes reflected in the consolidated financial statements. |
| |
In
accordance with paragraph 9(f) of SFAS No. 109, the Company has not provided deferred
income taxes on the above differences resulting from changes in exchange rates and
indexing for tax purposes. |
47
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 16- |
|
TAXES
ON INCOME (Cont.) |
| |
A. |
|
APPLICABLE
TAX LAWS (Cont.) |
| |
|
(2) |
|
Tax
benefits under Israel’s Law for the Encouragement of Industry (Taxes),
1969: |
| |
The
Company and certain subsidiaries in Israel (mainly Elop and Cyclone Aviation Products
Ltd.) are “Industrial Companies”, as defined by the Law for the Encouragement
of Industry (Taxes), 1969, and as such, these companies are entitled to certain tax
benefits, mainly amortization of costs relating to know-how and patents over eight years,
accelerated depreciation and the right to deduct public issuance expenses for tax
purposes. |
| |
|
(3) |
|
Tax
benefits under Israel’s Law for the Encouragement of Capital Investments,
1969: |
| |
Several
expansion programs of the Company and certain of its Israeli subsidiaries (“the
companies”) have been granted “Approved Enterprise” status under Israel’s
Law for the Encouragement of Capital Investments, 1959. For some expansion programs, the
companies have elected the grants track and for others they have elected the alternative
tax benefits track, waiving grants in return for tax exemptions. |
| |
Accordingly,
certain income of the companies, derived from the “Approved Enterprise”expansion
programs is tax exempt for two-years and subject to reduced tax rates of 25% for a
five-year to eight-year period or tax exempt for a ten-year period commencing in the year
in which the companies had taxable income (limited to twelve years from commencement of
production or fourteen years from the date of approval, whichever is earlier). As of
December 31, 2006, the tax benefits for these exiting expansion programs will expire
within the period of 2007 to 2012. |
| |
The
entitlement to the above benefits is subject to the companies fulfilling the conditions
specified in the above referred law, regulations published hereunder and the letters of
approval for the specific investments in “Approved Enterprises”. In the event
of failure to comply with these conditions, the benefits may be canceled and the
companies may be required to refund the amount of the benefits, in whole or in part,
including interest. (For liens – see Note 17(K)). As of December 31, 2006, the
Company’s management believes that the companies are meeting all conditions of the
approvals. |
| |
As
of December 31, 2006, retained earnings included approximately $244,672 in tax-exempt
profits earned by the companies’ “Approved Enterprises”. If the retained
tax-exempt income is distributed, it would be taxed at the corporate tax rate applicable
to such profits as if the Company had not elected the alternative tax benefits track
(currently — 25%), and an income tax liability would be incurred of approximately
$61,168 as of December 31, 2006. |
| |
The
companies’ boards of directors have decided that their policy is not to declare
dividends out of such tax-exempt income. Accordingly, no deferred income taxes have been
provided on income attributable to the companies’ “Approved Enterprises”,
as such retained earnings are essentially permanent in duration. |
48
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 16- |
|
TAXES
ON INCOME (Cont.) |
| |
A. |
|
APPLICABLE
TAX LAWS (Cont.) |
| |
In
Israel, income from sources other than the “Approved Enterprise” during the
benefit period will be subject to tax at the regular corporate tax rate of 31% (see also
Note 16(H)). |
| |
Since
the companies are operating under more than one approval, and since part of their taxable
income is not entitled to tax benefits under the above mentioned law and is taxed at the
regular tax rate of 31%, the effective tax rate is the result of a weighted combination
of the various applicable rates and tax exemptions, and the computation is made for
income derived from each approval on the basis of formulas specified in the law and in
the approvals. |
| |
B. |
|
NON-ISRAELI
SUBSIDIARIES |
| |
Non-Israeli
subsidiaries are taxed based on tax laws in their countries of residence (mainly in the
U.S.). |
| |
C. |
|
INCOME
BEFORE TAXES ON INCOME |
|
Year ended December 31,
|
|
|
2006
|
|
2005
|
|
2004
|
|
| Income before taxes on income: |
|
|
| |
|
| |
|
| |
|
| Domestic | | |
$ | 44,712 |
|
$ | 27,391 |
|
$ | 43,642 |
|
| Foreign | | |
| 27,504 |
|
| 23,125 |
|
| 16,985 |
|
|
| |
| |
| |
| | | |
$ | 72,216 |
|
$ | 50,516 |
|
$ | 60,627 |
|
|
| |
| |
| |
|
Year ended December 31,
|
|
|
2006
|
|
2005
|
|
2004
|
|
| Taxes on income: |
|
|
| |
|
| |
|
| |
|
| Current taxes: | | |
| Domestic | | |
$ | 15,124 |
|
$ | 5,161 |
|
$ | 7,415 |
|
| Foreign | | |
| 8,302 |
|
| 4,506 |
|
| 7,651 |
|
|
| |
| |
| |
| | | |
| 23,426 |
|
| 9,667 |
|
| 15,066 |
|
|
| |
| |
| |
| Taxation previous years: | | |
| Domestic | | |
| 1,928 |
|
| - |
|
| - |
|
|
| |
| |
| |
| Deferred income taxes: | | |
| Domestic | | |
| (3,856 |
) |
| 4,029 |
|
| 709 |
|
| Foreign | | |
| (804 |
) |
| 2,639 |
|
| (556 |
) |
|
| |
| |
| |
| | | |
| (4,660 |
) |
| 6,668 |
|
| 153 |
|
|
| |
| |
| |
| | | |
$ | 20,694 |
|
$ | 16,335 |
|
$ | 15,219 |
|
|
| |
| |
| |
49
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 16- |
|
TAXES
ON INCOME (Cont.) |
| |
Deferred
income taxes reflect the net tax effect of temporary differences between the carrying
amount of assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of net deferred tax assets and
liabilities are as follows: |
|
|
Deferred (1)
Tax asset (liability)
|
|
|
Total
|
|
Current
|
|
Non-current
|
|
| As of December 31, 2006 |
|
|
| |
|
| |
|
| |
|
| Deferred tax assets: | | |
| Reserves and allowances | | |
$ | 19,100 |
|
$ | 17,194 |
|
$ | 1,906 |
|
| Inventory | | |
| 2,301 |
|
| 2,301 |
|
| - |
|
| Other assets | | |
| 6,104 |
|
| 6,104 |
|
| - |
|
| Net operating loss carryforwards | | |
| 18,738 |
|
| 328 |
|
| 18,410 |
|
|
| |
| |
| |
| | | |
| 46,243 |
|
| 25,927 |
|
| 20,316 |
|
| Valuation allowance | | |
| (24,885 |
) |
| (7,736 |
) |
| (17,149 |
) |
|
| |
| |
| |
| Net deferred tax assets | | |
| 21,358 |
|
| 18,191 |
|
| 3,167 |
|
|
| |
| |
| |
| Deferred tax liabilities: | | |
| Intangible assets | | |
| (9,781 |
) |
| - |
|
| (9,781 |
) |
| Property, plant and equipment | | |
| (8,891 |
) |
| - |
|
| (8,891 |
) |
| Reserves and allowances | | |
| (3,252 |
) |
| - |
|
| (3,252 |
) |
| Inventory | | |
| (454 |
) |
| (454 |
) |
| - |
|
|
| |
| |
| |
| | | |
| (22,378 |
) |
| (454 |
) |
| (21,924 |
) |
| Valuation allowance | | |
| 1,117 |
|
| - |
|
| 1,117 |
|
|
| |
| |
| |
| | | |
| (21,261 |
) |
| (454 |
) |
| (20,807 |
) |
|
| |
| |
| |
| Net deferred tax assets (liabilities) | | |
$ | 97 |
|
$ | 17,737 |
|
$ | (17,640 |
) |
|
| |
| |
| |
| As of December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
| Deferred tax assets: | | |
| Reserves and allowances | | |
$ | 20,150 |
|
$ | 15,520 |
|
$ | 4,630 |
|
| Inventory | | |
| 8,059 |
|
| 8,059 |
|
| - |
|
| Intangible assets | | |
| 562 |
|
| 562 |
|
| - |
|
| Net operating loss carryforwards | | |
| 10,233 |
|
| 134 |
|
| 10,099 |
|
|
| |
| |
| |
| | | |
| 39,004 |
|
| 24,275 |
|
| 14,729 |
|
| Valuation allowance | | |
| (18,774 |
) |
| (5,567 |
) |
| (13,207 |
) |
|
| |
| |
| |
| Net deferred tax assets | | |
| 20,230 |
|
| 18,708 |
|
| 1,522 |
|
|
| |
| |
| |
| Deferred tax liabilities: | | |
| Reserves and allowances | | |
| 1,480 |
|
| 3,295 |
|
| (1,815 |
) |
| Inventory | | |
| (5,435 |
) |
| (5,435 |
) |
| - |
|
| Property, plant and equipment | | |
| (14,699 |
) |
| - |
|
| (14,699 |
) |
| Intangible assets | | |
| (11,917 |
) |
| - |
|
| (11,917 |
) |
|
| |
| |
| |
| | | |
| (30,571 |
) |
| (2,140 |
) |
| (28,431 |
) |
| Valuation allowances | | |
| 1,041 |
|
| - |
|
| 1,041 |
|
|
| |
| |
| |
| | | |
| (29,530 |
) |
| (2,140 |
) |
| (27,390 |
) |
|
| |
| |
| |
| Net deferred tax assets (liabilities) | | |
$ | (9,300 |
) |
$ | 16,568 |
|
$ | (25,868 |
) |
|
| |
| |
| |
| |
(1)
The current tax asset is
included in other receivables. Noncurrent tax liability is included as a
long-term liability. |
50
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 16- |
|
TAXES
ON INCOME (Cont.) |
| |
F. |
|
As
of December 31, 2006, The Group’s Israeli subsidiaries have estimated
total available carryforward tax losses of approximately $64,300, and the
Group’s non-Israeli subsidiaries have estimated available carryforward tax
losses of approximately $6,500. These losses of the Israeli subsidiaries can be
offset against future taxable profits for an indefinite period. Deferred tax
assets in respect of the above carryforward losses amount to approximately
$4,800 in respect of which a valuation allowance has been recorded in the
amount of approximately $1,600. |
| |
G. |
|
Reconciliation
of the theoretical tax expense, assuming all income is taxed at the
statutory rate applicable to income of the Group, and the actual tax expense
as reported in the statements of operations, is as follows: |
|
Year ended December 31,
|
|
|
2006
|
|
2005
|
|
2004
|
|
| Income before taxes as reported in the |
|
|
| |
|
| |
|
| |
|
| consolidated statements of income | | |
$ | 72,216 |
|
$ | 50,516 |
|
$ | 60,627 |
|
| Statutory tax rate | | |
| 31 |
% |
| 34 |
% |
| 35 |
% |
|
| |
| |
| |
| Theoretical tax expense | | |
$ | 22,387 |
|
$ | 17,175 |
|
$ | 21,219 |
|
| Tax benefit arising from reduced rate as an | | |
| "Approved Enterprise" and other tax | | |
| benefits | | |
| (17,261 |
) |
| (4,515 |
) |
| (7,196 |
) |
| Tax adjustment in respect of different tax | | |
| rates for foreign subsidiaries | | |
| 1,018 |
|
| 654 |
|
| 496 |
|
| Operating carryforward losses for which valuation | | |
| |
|
| allowance was provided | | |
| 6,542 |
|
| (818 |
) |
| (434 |
) |
| Increase (decrease) in taxes resulting | | |
| from nondeductible expenses | | |
| 1,926 |
|
| 1,309 |
|
| 1,095 |
|
| Difference in basis of measurement for | | |
| financial reporting and tax return purposes | | |
| 4,548 |
|
| 2,547 |
|
| (210 |
) |
| Taxes in respect of prior years | | |
| 1,928 |
|
| - |
|
| - |
|
| Other differences, net | | |
| (394 |
) |
| (17 |
) |
| 249 |
|
|
| |
| |
| |
| Actual tax expenses | | |
$ | 20,694 |
|
$ | 16,335 |
|
$ | 15,219 |
|
|
| |
| |
| |
| Effective tax rate | | |
| 28.7 |
% |
| 32.3 |
% |
| 25.1 |
% |
|
| |
| |
| |
| |
H. |
|
AMENDMENT
TO THE INCOME TAX ORDINANCE |
| |
On
July 25, 2005, the Knesset (Israeli Parliament) approved the Law for the Amendment of the
Income Tax Ordinance (No. 147), 2005, which prescribes, among other provisions, a gradual
decrease in the corporate tax rate in Israel to the following tax rates: in 2004 –35%,
in 2005 – 34%, in 2006 — 31%, in 2007 — 29%, in 2008 — 27%, in 2009
— 26% and in 2010 and thereafter — 25%. The change in the future tax rates did
not have a material effect on the Company’s financial position and results of
operations in 2005. |
| |
I. |
|
Final
tax assessments have been received by the Company up to and including the tax
year ended December 31, 2000 and by certain subsidiaries, between the years
2000-2003 (subsidiaries that were incorporated after 2000 have not received
final assessments). |
51
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 17- |
|
COMMITMENTS
AND CONTINGENT LIABILITIES |
| |
The
Company and certain Israeli subsidiaries partially finance their research and development
expenditures under programs sponsored by the OCS for the support of research and
development activities conducted in Israel. At the time the participations were received,
successful development of the related projects was not assured. |
| |
In
exchange for participation in the programs by the OCS, the Company and the subsidiaries
agreed to pay 2% — 5% of total sales of products developed within the framework of
these programs. The royalties will be paid up to a maximum amount equaling 100% to 150%
of the grants provided by the OCS, linked to the dollar and for grants received after
January 1, 1999, also bearing annual interest at a rate based on LIBOR. The obligation to
pay these royalties is contingent on actual sales of the products, and in the absence of
such sales payment of royalties is not required. |
| |
In
some cases, the Government of Israel’s participation (through the OCS) is subject to
export sales or other conditions. The maximum amount of royalties is increased in the
event of production outside of Israel. |
| |
The
Company and certain of its subsidiaries may also be obligated to pay certain amounts to
the Israeli Ministry of Defense and others on certain sales including sales resulting
from the development of certain technologies. |
| |
Royalties’expenses
amounted to $2,830, $4,849 and $5,423 in 2006, 2005 and 2004, respectively. |
| |
A
subsidiary signed an agreement for receipt of computer services for a period of 10 years
ending 2013, in exchange for an annual payment of $1,000. |
| |
B. |
|
COMMITMENTS
IN RESPECT OF LONG-TERM PROJECTS |
| |
In
connection with long-term projects in certain countries, the Company and certain
subsidiaries undertook to use their respective best efforts to make or facilitate
purchases or investments in those countries at certain percentages of the amount of the
projects. The companies’ obligation to make or facilitate third parties making such
investments and purchases is subject to commercial conditions in the local market,
typically without a specific financial penalty. The maximum aggregate undertaking as of
December 31, 2006 amounted to $1,078,100 to be performed over a period of up to 10 years.
This amount is typically tied to a percentage (up to 100%) of the amount of a specific
contract. |
| |
In
the opinion of the Company’s management, the actual amount of the investments and
purchases is anticipated to be less than that mentioned above, since certain investments
and purchases can result in reducing the overall undertaking on more than a one-to-one
basis. |
52
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 17- |
|
COMMITMENTS
AND CONTINGENT LIABILITIES (Cont.) |
| |
The
Company and its subsidiaries are involved in legal claims arising in the ordinary course
of business, including claims by employees, consultants and others. Company’s
management, based on the opinion of its legal counsel, believes that the financial impact
for the settlement of such claims in excess of the accruals recorded in the financial
statements will not have a material adverse effect on the financial position or results
of operations of the Group. |
| |
For
information on Elisra’s insurance claim for damage, as a result of a fire in 2001,
see Note 7. |
| |
The
future minimum lease commitments of the Group under various non-cancelable operating
lease agreements in respect of premises, motor vehicles and office equipment as of
December 31, 2006 are as follows: |
|
|
| 2007 |
|
|
$ | 14,014 |
|
| 2008 | | |
| 11,828 |
|
| 2009 | | |
| 9,461 |
|
| 2010 | | |
| 9,603 |
|
| 2011 | | |
| 9,472 |
|
| 2012 and thereafter | | |
| 8,986 |
|
|
| |
| | | |
$ | 63,364 |
|
|
| |
| |
Rent
expenses for the years ended December 31, 2006, 2005 and 2004 amounted to $13,786 $ 8,055
and $6,842, respectively. |
| |
Three
founding employees (the “Founders”), who collectively hold approximately 32.3%
of the outstanding shares of Kinetics Ltd. (“Kinetics”), a 51%-owned Israeli
subsidiary, had a put option to jointly sell all of their shares in Kinetics to the
Company. Two private investors holding in the aggregate approximately 16.7% of Kinetics’ outstanding
shares had “tag along” rights in the event the Founders exercise the put
option. |
| |
The
put option was exercisable from January 1, 2005 until December 31, 2005 at a price equal
to the higher of the Founder’s pro-rata share (corresponding to the Founder’s
shareholding percentage) of: |
| |
|
(1) |
|
The
value of Kinetics as of the option exercise date as determined by a third party
appraiser mutually acceptable to the Founders and to the Company. The appraiser
was to value Kinetics as if Kinetics had distributed as dividends net profits
accumulated up to the option exercise date; or |
53
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 17- |
|
COMMITMENTS
AND CONTINGENT LIABILITIES (Cont.) |
| |
|
(2) |
|
$12,077,
reduced by 3% per annum, or pro-rata part thereof, for the period beginning on
July 1, 2003 and ending on the option exercise date. |
| |
According
to SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity”, the put option was recorded at fair value, which was
immaterial as of December 31, 2005. |
| |
The
option expired as of December 31, 2005. |
| |
|
(1) |
|
As
of December 31, 2006, guarantees in the amount of approximately $765,600 were
issued by banks on behalf of Group companies in order to secure certain
advances from customers and performance bonds. |
| |
|
(2) |
|
The
Company has provided, on a proportional basis to its ownership interest,
guarantees for two of its investees in respect of credit lines granted to
them by banks amounting to $16,200 (2005 — $13,300), of which $15,700
(2005 — $12,500) relates to a 50%-owned foreign investee. The
guarantees will exist as long as the credit lines are in effect. The
Company would be liable under the guarantee for any debt for which the
investee would be in default under the terms of the credit line. The fair
value of such guarantees as of December 31, 2006 is not material. |
| |
|
(1) |
|
In
connection with bank credits and loans, including performance guarantees issued
by banks and bank guarantees in order to secure certain advances from
customers, the Company and certain subsidiaries are obligated to meet certain
financial covenants. Such covenants include requirements for shareholders’ equity,
current ratio, operating profit margin, tangible net worth, EBITDA, interest
coverage ratio and total leverage. As of December 31, 2006, the Company and its
subsidiaries, except Elisra, were in full compliance with all covenants. |
| |
|
(2) |
|
Elisra’s
liabilities to banks are secured by negative pledges. Pursuant to the terms of
the negative pledges, Elisra committed to comply with certain financial
covenants (to be measured based on Elisra’s financial statements), which
include, among others, a minimum ratio of shareholders’ equity to total
assets (as defined in the agreement), a minimum current ratio, a minimum amount
of shareholders’ equity and a minimum amount of pre-tax income. In
addition, certain restrictions have been imposed on Elisra regarding the
provision of guarantees to third parties, creating new liens and on selling or
transferring assets in material amounts. |
54
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 17- |
|
COMMITMENTS
AND CONTINGENT LIABILITIES (Cont.) |
| |
|
(3) |
|
During
2004, Elisra received long-term loans. In accordance with the conditions of the
above-mentioned loans, Elisra committed to the providers of the loans to, among
other things, comply with financial covenants as described above, as well as a
debt coverage ratio, as defined in the loan agreement, based on Elisra’s
stand alone financial statements. In addition, certain restrictions were
imposed on Elisra regarding distribution of dividends and other payments to its
shareholders as provided in the agreement. As at December 31, 2006, Elisra did
not comply with the above-mentioned financial covenants. Accordingly, the
loans, in the amount of $6 million, are classified as short-term loans. As a
result, the banks requested to register a general floating lien on the assets
of Elisra. In February 2007, Elisra’s Board of Directors approved the banks’ request. |
| |
H. |
|
CONTINGENT
LIABILITIES AND GUARANTEES |
| |
As
a result of cancellation of the export authorization in 2006 to a foreign country (“the
Customer”), Elisra and one of its subsidiaries were forced to terminate four
projects. Most of the activity in respect of the projects, the total amount of which was
approximately $40 million, has already been executed and the deliveries have been made to
the Customer. For those projects, Elisra and its subsidiary provided to the Customer
advances and performance guarantees issued by banks and financial institutions in the
total amount to approximately $10 million. Elisra’s and the Company’s
management, based on the opinion of legal counsel, believes that termination of the
projects under such circumstances constitutes a termination by mutual agreement due to
force majeure, which provides a mechanism for mutual settlement between the parties. |
| |
Elisra’s
management, based on the opinion of its legal advisors, believes that the financial
impact of the four projects’ termination in excess of the accruals recorded in the
financial statements will not have a material adverse effect on the financial position or
results of operations of the Company. |
| |
The
Customer financed the projects by means of bank loans. The banks received indemnity
letters as security for repayment of the loans. Most of the indemnity was provided to the
banks by the International Foreign Trade Risks Insurance Company (“IFTRIC”)
(since renamed “ASHRA”) and the balance was provided by Elisra and its
subsidiary (as of December 31, 2006, amount to approximately $4 million). In addition,
Elisra provided indemnity letters to IFTRIC that can be exercised upon the occurrence of
specific unusual events and is subject to IFTRIC fulfilling its commitments to the banks.
In the opinion of Elisra’s and the Company’s management, based on legal advice,
the likelihood that the indemnification provided to IFTRIC would be exercised is remote,
and no provisions are required in respect of these indemnity letters. |
55
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 17- |
|
COMMITMENTS
AND CONTINGENT LIABILITIES (Cont.) |
| |
I. |
|
CONTRACTUAL
OBLIGATIONS |
| |
Substantially
all of the purchase commitments relate to obligations under purchase orders and
subcontracts entered into by the Group. These purchase orders and subcontracts are
typically in a standard format proposed by the Group, with the subcontracts and purchase
orders also reflecting provisions from the Group’s applicable prime contract that
are appropriate to flow down to subcontractors and vendors. The terms typically included
in these purchase orders and subcontracts are consistent with Uniform Commercial Code
provisions in the United States for sales of goods, as well as with specific terms called
for by its customers in international contracts. These terms include the Group’s
right to terminate the purchase order or subcontract in the event of the vendor’s or
subcontractor’s default, as well as the Group’s right to terminate the order or
subcontract for the Group’s convenience (or if the Group’s prime contractor has
so terminated the prime contract). Such purchase orders and subcontracts typically are
not subject to variable price provisions. As of December 31, 2006 and 2005, the purchase
commitments were $681,000 and $661,000 respectively. |
| |
J. |
|
In
order to secure bank loans and bank guarantees in the amount of $765,600 as of
December 31, 2006, certain Group companies recorded fixed liens on most of
their machinery and equipment, mortgages on most of their real estate and
floating charges on most of their assets. |
| |
K. |
|
A
lien on the Group’s Approved Enterprises has been registered in favor of
the State of Israel (see Note 16(A)(3) above). |
| Note 18- |
|
SHAREHOLDERS’ EQUITY |
| |
Ordinary
shares confer upon their holders voting rights, the right to receive dividends and the
right to share in equity upon liquidation of the Company. |
| |
B. |
|
2000
EMPLOYEE STOCK OPTION PLAN |
| |
In
2000, the Company adopted an employee stock option plan for employees comprising options
to purchase up to 2,500,000 ordinary shares. The exercise price approximates the market
price of the shares at the grant date. The plan includes an additional 2,500,000 options
to be issued as “phantom” share options that grant the option holders a number
of shares reflecting the benefit component of the options exercised, as calculated at the
exercise date, in consideration for their par value only. Options vest over a period of
one to four years from the date of grant and expire no later than six years from the date
of grant. |
56
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands, except share and per share data) |
| Note 18- |
|
SHAREHOLDERS’ EQUITY (Cont.) |
| |
C. |
|
A
summary of the Company’s share option activity under the plans is as
follows: |
|
2006
|
|
2005
|
|
2004
|
|
|
Number of options
|
|
Weighted
average
exercise
price
|
|
Number of options
|
|
Weighted
average
exercise
price
|
|
Number of options
|
|
Weighted
average
exercise
price
|
|
| Outstanding - |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| beginning of the year | | |
| 1,602,752 |
|
$ | 12.83 |
|
| 2,130,257 |
|
$ | 12.60 |
|
| 3,735,602 |
|
$ | 12.30 |
|
| Granted | | |
| - |
|
| - |
|
| 22,000 |
|
| 19.36 |
|
| 130,500 |
|
| 15.67 |
|
| Exercised | | |
| (1,366,809 |
) |
| 12.40 |
|
| (549,505 |
) |
| 12.38 |
|
| (1,666,774 |
) |
| 12.12 |
|
| Forfeited | | |
| (68,483 |
) |
| 12.55 |
|
| - |
|
| - |
|
| (69,071 |
) |
| 12.10 |
|
|
| |
| |
| |
| |
| |
| |
| Outstanding - end of the year | | |
| 167,460 |
|
$ | 16.45 |
|
| 1,602,752 |
|
$ | 12.83 |
|
| 2,130,257 |
|
$ | 12.60 |
|
|
| |
| |
| |
| |
| |
| |
| Options exercisable at | | |
| the end of the year | | |
| 75,085 |
|
$ | 15.70 |
|
| 1,470,752 |
|
$ | 12.47 |
|
| 1,950,903 |
|
$ | 12.36 |
|
|
| |
| |
| |
| |
| |
| |
| |
During
2006, no options were granted. Aggregate intrinsic value of outstanding options and
exercisable options as of December 31, 2006 amounts to $ 2,646 and $1,245, respectively.
The aggregate intrinsic value represents the total intrinsic value (the difference
between the Company’s closing stock price on the last trading day of the fourth
quarter of fiscal 2006 and the exercise price, multiplied by the number of in-the-money
options) that would have been received by the option holders had all option holders
exercised their options on December 31, 2006. This amount changes based on the fair
market value of the Company’s stock. Total intrinsic value of options exercised for
the year ended December 31, 2006 was $27,178. As of December 31, 2006, there was $322 of
total unrecognized compensation cost related to share-based compensation arrangements
granted under the Company’s stock option plans. That cost is expected to be
recognized over a weighted-average period of 3 years. |
| |
D. |
|
The
options outstanding as of December 31, 2006, have been separated into ranges of
exercise prices, as follows: |
|
Options outstanding
|
Options exercisable
|
Exercise price
|
Number outstanding
as of
December 31, 2006
|
Weighted average
remaining
contractual
life (years)
|
Weighted average
exercise
price
per share
|
Number outstanding
of December 31, 2006
|
Weighted average
exercise
price
per share
|
| $13.25 - $ 19.36 |
167,460 |
3.3 |
$16.45 |
75,085 |
$15.70 |
|
|
|
|
|
|
| |
The
weighted average remaining contractual life (years) of exercisable options as of December
31, 2006 amounts to 3 years. |
57
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands, except share and per share data) |
| Note 18- |
|
SHAREHOLDERS’ EQUITY (Cont.) |
| |
Compensation
expense net amounting to $195, $172 and $3,387 was recognized during the years ended
December 31, 2006, 2005 and 2004, respectively. The expenses in 2004 were recorded based
on SFAS No. 123 and SFAS No. 148 according to the modified prospective method. The
expenses before tax were recorded as follows: |
|
Year ended December 31,
|
|
|
2006
|
|
2005
|
|
2004
|
|
| Cost of revenues |
|
|
$ | 75 |
|
$ | 96 |
|
$ | 1,863 |
|
| R&D and marketing expenses | | |
| - |
|
| 34 |
|
| 677 |
|
| General and administration expenses | | |
| 120 |
|
| 42 |
|
| 847 |
|
|
| |
| |
| |
| | | |
$ | 195 |
|
$ | 172 |
|
$ | 3,387 |
|
|
| |
| |
| |
| |
E. |
|
The
weighted average exercise price and fair value of options granted during the
years ended December 31, 2006, 2005 and 2004 were: |
|
Less than market price
|
|
|
Year ended December 31,
|
|
|
2006(*)
|
|
2005
|
|
2004
|
|
| Weighted average exercise price |
|
|
$ |
- |
|
$ |
19.36 |
|
$ |
15.67 |
|
| Weighted average fair value on | | |
| grant date | | |
$ | - |
|
$ |
6.47 |
|
$ |
6.62 |
|
| |
(*) During
2006, no options were granted. |
| |
F. |
|
2007
STOCK OPTION PLAN |
| |
In
January 2007, the Company’s shareholders approved the Company’s 2007 Option
Plan (the “Plan”). The purpose of the Plan is to provide the benefits arising
from ownership of share capital by the Company’s and certain of its subsidiaries
employees, who are expected to contribute to the Elbit Systems Group’s future growth
and success. The options were allocated, subject to the required approvals, in two tracks
as follows: (i) Regular Options — up to 1,250,000 options exercisable into 1,250,000
shares of the Company in consideration for the Exercise Price, all or any portion of
which may be granted as Incentive Stock Options (“Regular Options”) and (ii)
Cashless Options — up to 1,250,000 options, which entitle the participant to
exercise options for an amount reflecting only the benefit factor (“Cashless Options”).
Each of the participants will be granted an equal amount of Regular Options and Cashless
Options. The exercise price for Israeli participants will be the average closing price of
the Company’s share during 30 trading days proceeding the options grant date. The
exercise price of options granted to a non-Israeli participant residing in the United
States will be the fair market value of the share on the day the options were granted. |
| |
According
to the Plan, the options granted on a certain date (the “Commencement Date”)
will become vested and exercisable in accordance with the following vesting schedule: |
58
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 18- |
|
SHAREHOLDERS’ EQUITY (Cont.) |
| |
F. |
|
2007
STOCK OPTION PLAN (Cont.) |
| |
|
(1) |
|
Fifty
percent (50%) of the options will be vested and exercisable from the second
anniversary of the Commencement Date; |
| |
|
(2) |
|
An
additional twenty-five percent (25%) of the options will be vested and
exercisable from the third anniversary of the Commencement Date; and |
| |
|
(3) |
|
The
remaining twenty-five (25%) of the options will be vested and exercisable from
the fourth anniversary of the Commencement Date. |
| |
The
Company will grant options to Israeli participants in accordance with the provisions of
Section 102 of the Israel Tax Ordinance related to the Capital Gains Tax Track. |
| |
On
January 11, 2007, the Company granted to its employees 2,354,300 options from the Plan.
The exercise price per option for Israeli employees was $33.20 and for non-Israeli
employees was $33.10. |
| |
G. |
|
COMPUTATION
OF BASIC AND DILUTED NET EARNINGS PER SHARE: |
|
Year ended
December 31, 2006
|
|
Year ended
December 31, 2005
|
|
Year ended
December 31, 2004
| |
|
Net income to
shareholders
of Ordinary
shares
|
|
Weighted
averaged
number of
shares (*)
|
|
Per share
amount
|
|
Net income to
shareholders
of Ordinary
shares
|
|
Weighted
averaged
number of
shares (*)
|
|
Per share
amount
|
|
Net income to
shareholders
of Ordinary
shares
|
|
Weighted
averaged
number of
shares (*)
|
|
Per share
amount
|
|
| Basic net |
|
|
$ | 72,242 |
|
| 41,340 |
|
$ | 1.75 |
|
$ | 32,487 |
|
| 40,750 |
|
$ | 0.80 |
|
$ | 51,873 |
|
| 39,952 |
|
$ | 1.30 |
|
| earnings | | |
| Effect of dilutive | | |
| securities: | | |
| Employee stock | | |
| options | | |
| - |
|
| 540 |
|
| - |
|
| - |
|
| 873 |
|
| - |
|
| - |
|
| 1,089 |
|
| - |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
| Diluted net | | |
| earnings | | |
$ | 72,242 |
|
| 41,880 |
|
$ | 1.72 |
|
$ | 32,487 |
|
| 41,623 |
|
$ | 0.78 |
|
$ | 51,873 |
|
| 41,041 |
|
$ | 1.26 |
|
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
|
|
|
|
|
|
|
|
|
|
| |
The
Company’s shares held by the Company and its subsidiaries are presented at cost and
deducted from shareholders’ equity. |
| |
Dividends
declared by the Company are paid subject to statutory limitations. The Company’s
Board of Directors has determined not to declare dividends out of tax exempt earnings. |
59
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 19- |
|
MAJOR
CUSTOMER AND GEOGRAPHIC INFORMATION |
| |
The
Group applies Statement of Financial Accounting Standards No. 131, “Disclosures
about Segments of an Enterprise and Related Information” (“SFAS No. 131”).
The Group operates in one reportable segment (see Note 1 for a brief description of the
Group’s business). |
| |
A. |
|
Revenues
are attributed to geographic areas based on location of the end customers as
follows: |
|
Year ended December 31,
|
|
|
2006
|
|
2005
|
|
2004
|
|
| Europe |
|
|
$ | 233,736 |
|
$ | 104,239 |
|
$ | 124,130 |
|
| U.S. | | |
| 609,492 |
|
| 397,479 |
|
| 348,509 |
|
| Israel | | |
| 407,113 |
|
| 315,376 |
|
| 241,601 |
|
| Others | | |
| 272,902 |
|
| 252,782 |
|
| 225,685 |
|
|
| |
| |
| |
| | | |
$ | 1,523,243 |
|
$ | 1,069,876 |
|
$ | 939,925 |
|
|
| |
| |
| |
| |
B. |
|
Revenues
are generated by the following product lines: |
|
Year ended December 31,
|
|
|
2006
|
|
2005
|
|
2004
|
|
| Airborne systems |
|
|
$ | 547,772 |
|
$ | 420,815 |
|
$ | 367,927 |
|
| Land vehicles systems | | |
| 317,731 |
|
| 117,358 |
|
| 199,224 |
|
| Command, control, communications, | | |
| computers, intelligence, surveillance | | |
| and reconnaissance systems (C(4)ISR) | | |
| 313,493 |
|
| 217,343 |
|
| 108,925 |
|
| Electro-optical systems | | |
| 223,315 |
|
| 242,274 |
|
| 200,322 |
|
| Others | | |
| 120,932 |
|
| 72,086 |
|
| 63,527 |
|
|
| |
| |
| |
| | | |
$ | 1,523,243 |
|
$ | 1,069,876 |
|
$ | 939,925 |
|
|
| |
| |
| |
| |
C. |
|
Revenues
from single customers, which exceed 10% of total revenues in the reported
years: |
|
Year ended December 31,
|
|
|
2006
|
|
2005
|
|
2004
|
|
| Israeli Ministry Of Defense |
|
|
|
24% |
|
|
26% |
|
|
18% |
|
| U.S. Government |
|
|
|
15% |
|
|
10% |
|
|
10% |
|
| |
D. |
|
Long-lived
assets by geographic areas: |
|
Year ended December 31,
|
|
|
2006
|
|
2005
|
|
2004
|
|
| Israel |
|
|
$ | 319,620 |
|
$ | 322,521 |
|
$ | 237,887 |
|
| U.S. | | |
| 86,373 |
|
| 87,998 |
|
| 84,701 |
|
| Others | | |
| 17,630 |
|
| 17,206 |
|
| 17,687 |
|
|
| |
| |
| |
| | | |
$ | 423,623 |
|
$ | 427,725 |
|
$ | 340,275 |
|
|
| |
| |
| |
60
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 20- |
|
RESEARCH
AND DEVELOPMENT EXPENSES, NET |
|
Year ended December 31,
|
|
|
2006
|
|
2005
|
|
2004
|
|
| Total expenses |
|
|
$ | 115,648 |
|
$ | 92,375 |
|
$ | 86,368 |
|
| Less - participations | | |
| (23,416 |
) |
| (20,472 |
) |
| (19,522 |
) |
|
| |
| |
| |
| | |
$ | 92,232 |
|
$ | 71,903 |
|
$ | 66,846 |
|
|
| |
| |
| |
| Note 21- |
|
FINANCIAL
EXPENSES, NET |
|
Year ended December 31,
|
|
|
2006
|
|
2005
|
|
2004
|
|
| Expenses: |
|
|
| |
|
| |
|
| |
|
| On long-term bank debt | | |
$ | (10,975 |
) |
$ | (6,359 |
) |
$ | (1,544 |
) |
| On short-term bank credit and loans | | |
| (4,610 |
) |
| (3,433 |
) |
| (2,309 |
) |
| Others | | |
| (6,708 |
) |
| (5,147 |
) |
| (3,181 |
) |
|
| |
| |
| |
| | |
| (22,293 |
) |
| (14,939 |
) |
| (7,034 |
) |
|
| |
| |
| |
| Income: | | |
| Interest on cash, cash equivalents | | |
| and bank deposits | | |
| 4,634 |
|
| 2,205 |
|
| 628 |
|
| Others | | |
| 951 |
|
| - |
|
| 1,115 |
|
|
| |
| |
| |
| | |
| 5,585 |
|
| 2,205 |
|
| 1,743 |
|
|
| |
| |
| |
| Gain (loss) from exchange rate differences | | |
| (4,748 |
) |
| 1,262 |
|
| (561 |
) |
|
| |
| |
| |
| | |
$ | (21,456 |
) |
$ | (11,472 |
) |
$ | (5,852 |
) |
|
| |
| |
| |
|
|
|
|
| Note 22- |
|
RELATED
PARTIES TRANSACTIONS AND BALANCES |
|
Year ended December 31,
|
|
| Transactions: |
|
|
2006 |
|
2005 |
|
2004 |
|
|
| |
| |
| |
| Income - |
|
|
| |
|
| |
|
| |
|
| Sales to affiliated companies (*) | | |
$ | 71,808 |
|
$ | 63,007 |
|
$ | 56,346 |
|
| Participation in expenses | | |
$ | 3,497 |
|
$ | 3,630 |
|
$ | 2,594 |
|
| | | |
| Cost and expenses - | | |
| Supplies and services from affiliated companies(**) | | |
$ | 17,359 |
|
$ | 19,031 |
|
$ | 16,338 |
|
| Participation in expenses | | |
$ |
- |
|
$ | 91 |
|
$ | 627 |
|
| Financial expenses | | |
$ |
- |
|
|
- |
|
$ |
3 |
|
|
December 31,
|
|
| Balances: |
|
|
2006 |
|
2005 |
|
|
| |
| |
| Trade receivables and other receivables (*) |
|
|
$ | 6,758 |
|
$ | 4,914 |
|
| Trade payables (**) | | |
$ | 1,641 |
|
$ | 2,574 |
|
61
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 22- |
|
RELATED
PARTIES TRANSACTIONS AND BALANCES (Cont.) |
| |
The
purchases from related parties are made at prices and on terms equivalent to those used
in transacting business with unrelated parties under similar conditions. The sales to our
related parties in respect of government defense contracts are made on the basis of costs
incurred. |
| |
(*) |
|
The
significant sales include sales of helmet mounted cueing systems purchased from
the Company by VSI. |
| |
(**) |
|
Includes
electro-optics components and sensors, purchased by the Company from SCD, and
electro-optics products purchased
by the Company from Opgal. |
| Note 23- |
|
RECONCILIATION
TO ISRAELI GAAP |
| |
As
described in Note 2, the Company prepares its financial statements in accordance with
U.S. GAAP. The effects of the differences between U.S. GAAP and generally accepted
accounting principles in Israel (“Israeli GAAP”) on the Company’s
financial statements are detailed below. |
| |
A
building purchased from Elbit Ltd. |
| |
According
to Israeli GAAP, the Company charged to additional paid-in capital reserves the excess of
the amount paid over net book value of a building acquired from Elbit Ltd in 1999.
According to U.S. GAAP, the entire amount paid is considered as the cost of the building
acquired. |
| |
Proportional
consolidation method |
| |
According
to Israeli GAAP, a jointly controlled company should be included according to the
proportional consolidation method. According to U.S. GAAP, the investment in such a
company is recorded according to the equity method. |
| |
Tax
benefit in respect of options exercised |
| |
According
to Israeli GAAP, tax benefits from employee options exercised are recorded as a reduction
of tax expense. According to U.S. GAAP, the difference between the above mentioned tax
benefits and the benefits recorded in respect of compensation expense in the financial
statements are credited to additional paid-in capital. |
| |
Effective
January 1, 2002, the Company adopted SFAS 142, “Goodwill and Other Intangible Assets” according
to which goodwill and intangible assets with indefinite lives are no longer amortized
periodically but are reviewed annually for impairment (or more frequently if impairment
indicators arise). According to Israeli GAAP, all intangibles, including goodwill, should
be amortized. |
62
| ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
|
| U.S. dollars (In thousands) |
| Note 23- |
|
RECONCILIATION
TO ISRAELI GAAP (Cont.) |
| |
Investment
in marketable securities – Tadiran |
| |
Pursuant
to SFAS 115, marketable securities which are available-for-sale are presented on the
basis of their market value, and changes in such value are charged (or credited) to other
comprehensive income. According to Israeli GAAP non-current investments in marketable
securities are presented at cost |
|
Year ended December 31,
|
|
|
2006
|
|
2005
|
|
2004
|
|
| Net income as reported according to |
|
|
| |
|
| |
|
| |
|
| U.S. GAAP | | |
$ | 72,242 |
|
$ | 32,487 |
|
$ | 51,873 |
|
| Adjustments to Israeli GAAP | | |
| 3,999 |
|
| (9,637 |
) |
| (458 |
) |
|
| |
| |
| |
| Net income according to Israeli GAAP | | |
$ | 76,241 |
|
$ | 22,850 |
|
$ | 51,415 |
|
|
| |
| |
| |
|
|
|
|
| |
2. |
|
Effect
on shareholders’ equity |
|
As reported
|
|
Adjustments
|
|
As per Israeli GAAP
|
|
| As of December 31, 2006 |
|
|
| |
|
| |
|
| |
|
| Shareholders' equity | | |
$ | 493,878 |
|
$ | (20,600 |
) |
$ | 473,278 |
|
|
| |
| |
| |
| As of December 31, 2005 | | |
| Shareholders' equity | | |
$ | 450,777 |
|
$ | (19,279 |
) |
$ | 431,498 |
|
|
| |
| |
| |
63