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Elbit Systems Reports Third Quarter 2019 Results

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HAIFA, Israel, Nov. 26, 2019 /PRNewswire/ --  Elbit Systems Ltd. (NASDAQ:ESLT) (TASE: ESLT) (the "Company"), the international high technology company, reported today its consolidated results for the quarter ended September 30, 2019.

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

Management Comment:

Bezhalel (Butzi) Machlis, President and CEO of Elbit Systems, commented:

"We are pleased with the strong growth in our revenues, especially in North America, a strategic region for us, where sales in the quarter increased to 30% of our total revenue.

Over the past year we completed a number of important acquisitions that broadened our product portfolio and increased our penetration into strategic markets. The integration of recent acquisitions is progressing as expected, and we continue to explore additional opportunities to extract revenue and cost synergies.

Elbit Systems has a successful track record of value creation through both organic and acquisitive growth, and we intend to continue pursuing this strategy for the foreseeable future."

Third quarter 2019 results:

Revenues in the third quarter of 2019 were $1,101.2 million, as compared to $895.2 million in the third quarter of 2018. The strong growth was driven mainly by the consolidation of IMI.

Non-GAAP (*) gross profit amounted to $290.0 million (26.3% of revenues) in the third quarter of 2019, as compared to $260.7 million (29.1% of revenues) in the third quarter of 2018. GAAP gross profit in the third quarter of 2019 was $286.2 million (26.0% of revenues), as compared to $255.9 million (28.6% of revenues) in the third quarter of 2018.

Research and development expenses, net were $79.5 million (7.2% of revenues) in the third quarter of 2019, as compared to $69.6 million (7.8% of revenues) in the third quarter of 2018.

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* see page 4

Marketing and selling expenses, net were $75.5 million (6.9% of revenues) in the third quarter of 2019, as compared to $69.4 million (7.8% of revenues) in the third quarter of 2018.

General and administrative expenses, net were $57.5 million (5.2% of revenues) in the third quarter of 2019, as compared to $37.8 million (4.2% of revenues) in the third quarter of 2018.

Other operating income, net  in the third quarter of 2019 was 28.0 million. This was the result of a capital gain related to a sale and lease back of buildings by a subsidiary in Israel.

Non-GAAP(*) operating income was $80.7 million (7.3% of revenues) in the third quarter of  2019, as compared to $85.7 million (9.6% of revenues) in the third quarter of  2018.  GAAP operating income in the third quarter of  2019 was $101.7 million (9.2% of revenues), as compared to $79.1 million (8.8% of revenues) in the third quarter of 2018.

Financial expenses, net were $18.5 million in the third quarter of 2019, as compared to $8.1 million in the third quarter of 2018. Financial expenses, net in the third quarter of 2019 include exchange rate differences of approximately $6.6 million related to the recognition of lease liabilities denominated in foreign currencies (mainly in New Israeli Shekels) as a result of the adoption of ASC 842, Leases, effective January 1, 2019.

Other expenses, net were $2.8 million in the third quarter of 2019, mainly due to the non-service cost components of pension plans, in accordance with ASU 2017-07.

Taxes on income were $7.6 million (effective tax rate of 9.5%) in the third quarter of 2019, as compared to $8.9 million (effective tax rate of 12.6%) in the third quarter of 2018. The effective tax rate is affected by the mix of the tax rates in the various jurisdictions in which the Company's entities generate taxable income and other income and expenses that  are not a part of the taxable income.

Equity in net losses of affiliated companies and partnerships was $0.5 million in the third quarter of 2019, as compared to equity in net earnings of $2.7 million in the third quarter of 2018.

Net income attributable to non-controlling interests was $0.3 million in the third quarter of  2019, as compared to $0.7 million in the third quarter of 2018.

Non-GAAP(*) net income attributable to the Company's shareholders in the third quarter of  2019 was $58.7 million (5.3% of revenues), as compared to $67.3 million (7.5% of revenues) in the third quarter of  2018. GAAP net income attributable to the Company's shareholders in the third quarter of 2019 was $72.1 million (6.5% of revenues), as compared to $64.1 million (7.2% of revenues) in the third quarter of 2018.

Non-GAAP(*) diluted net earnings per share attributable to the Company's shareholders were $1.33 for the third quarter of 2019, as compared to $1.57 for the third quarter of 2018. GAAP diluted earnings per share in the third quarter of 2019 were $1.63, as compared to $1.50 for the third quarter of 2018.

The Company's backlog of orders as of September 30, 2019 totaled  $9,796 million, as compared to $8,108 million as of September 30, 2018. Approximately 62% of the current backlog is attributable to orders from outside Israel. Approximately 46% of the current backlog is scheduled to be performed during the fourth quarter of 2019 and during 2020.

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* see page 4

Operating cash flows used in the nine months ended September 30, 2019 were $140.3 million, as compared to $20.3 million used in the nine months ended September 30, 2018.

Investing cash flows in the nine months ended September 30, 2019 included approximately $345 million in proceeds from factoring of the premises evacuation asset related to the IMI acquisition, and approximately $350 million in subsidiaries and business operations as a result of the acquisition of the Night Vision business of  L3Harris Technologies in the third quarter of 2019.

Financing cash flows in the nine months ended September 30, 2019 included approximately $184.8 million in proceeds resulting from the issuance of shares to institutional investors.

Adoption of New Accounting Standard:

The Company adopted Accounting Standards Update (ASU) 2016-02, Leases (ASC 842), effective January 1, 2019, using a modified retrospective transition method. Consequently, periods prior to January 1, 2019 are not restated for the adoption of ASC 842.

ASC 842, as amended,  requires lessees to recognize a Right of Use (ROU) asset and lease liability on the balance sheet for most lease arrangements and expands disclosures about leasing arrangements for both lessees and lessors, among other items. We adopted ASC 842 using the optional transition method whereby we applied the new lease requirements under ASC 842 through a cumulative-effect adjustment.

On January 1, 2019, we recognized approximately $377 million of  ROU operating lease assets and lease liabilities as a result of adopting this standard. As part of our adoption, we elected all of the available practical expedients with the exception of the practical expedient permitting the use of hindsight when determining the lease term and assessing impairment of ROU assets. The adoption of the standard increased our financial expenses in the  nine months ended September 30, 2019, in the amount of $21.1 million as a result of exchange rate differences on lease liabilities denominated in foreign currencies (mainly NIS). The comparative periods have not been restated for the adoption of ASU 2016-02.

* Non-GAAP financial data:

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

The non-GAAP financial data includes reconciliation adjustments regarding non-GAAP gross profit, operating income, net income and diluted EPS. In arriving at non-GAAP presentations, the Company factors out items such as those that have a non-recurring impact on the income statements, various non-cash items, including significant exchange rate differences, significant effects of retroactive tax legislation and changes in accounting guidance and other items, financial transactions which the Company considers not to be part of its regular ongoing business, which in management's judgment, are items that are considered to be outside of the review of core operating results.

In the Company's non-GAAP presentation, the Company made certain adjustments, as indicated in the table below.

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

 

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

(US Dollars in millions, except per share amount)










Nine Months Ended
September 30,


Three Months Ended
 September 30,


Year Ended
December 31,


2019


2018


2019


2018


2018











GAAP gross profit

$

852.2



$

741.3



$

286.2



$

255.9



$

976.2


Adjustments:










Amortization of purchased intangible assets

15.4



14.0



3.8



4.8



19.1


Expenses related to IMI acquisition






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