from the October 2006 issue

IAI publishes financials

Israel Aircraft Industries Ltd. (IAI) published its financial report for the first time in its history. The publication is part of the company's preparations for a bond offering of $100-250 million scheduled for early 2007. IAI intends to use proceeds from the issue to make acquisitions and finance the early retirement of employees. IAI posted $1.3 billion in sales in the first half of 2006, 18% more than in the first half of 2005. Second quarter sales totaled $713 million, 31% more than for the corresponding quarter of last year. Military sales, mostly to the domestic and Asian markets, accounted for 64% of total sales, after 15.8% growth compared with the corresponding period of last year. Civilian sales, mostly in the US market, accounted for 36% of total sales.

IAI's revenue growth in the first half was reflected in its gross and operating profits. The company posted a gross profit margin of 13.4% of sales in the first half, compared with 12% in the first half of last year. Its operating profit was $58 million, 107% more than in the corresponding period of last year, and its operating profit margin rose to 4.4% from 2.5%.

Despite the improvement, the company's profit margins were significantly lower than the industry norm. For example, Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT) posted gross profit margins double those of IAI's and, at 6-7% its operating profit margins were also significantly higher than IAI's.

IAI posted a net profit of $48 million in the first half, after allocated $26 million for early retirement for 150 employees, compared with $25 million in the corresponding period of last year. On the other hand, IAI made a financing profit of $16 million in the first half, mostly from financing profit from the company's cash and from $5.7 million in securities.

One of the more significant figures in a financial report of a company like IAI is the orders backlog. IAI had an orders backlog of $7 billion at the end of June, up from $6.2 billion at the end of 2005.

Reprinted from the Israel High-Tech & Investment Report October 2006

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