ISRAEL AEROSPACE INDUSTRIES' (IAI) FINANCIAL FIGURES FOR Q3 2012

Israel Aerospace Industries Ltd. (“Company”) Israel’s leading aerospace, defense and civil aviation company, announced today the publication of its consolidated financial statements for Q3, ended September 30, 2012.

Management’s statements:

Yossi Weiss, Company’s CEO: “A decrease in working days resulted in a decline in sales on the one hand and a decrease in administrative and general expenses on the other. The Company is facing some delays in development-rich projects which require the provision of creative solutions at short notice. In turn, these delays caused a decline in the level of sales for Q3. Despite these delays and one-off expenses recorded in the quarter, the Company returned to profitability and is doing everything required to return to growth”.

Dov Baharav, Chairman of the Board: “I am pleased that the Company is again profitable notwithstanding the challenges it is facing. The management, headed by the CEO, is working to maintain and get the Company back onto the track of growth and profitability”.
Results of Q3 2012:

Sales for Q3 2012 reached $ 751 million compared to $ 817 million in Q3 2011. Export sales represent 76% of total sales and reached $ 568 million. Sales to the military sector represent 72% of total sales and reached $ 540 million. The decrease in sales is attributed to a reduction in the scope of activity mainly in the civil aviation sector, in the field of engine maintenance and aircraft conversion as well as to delays in development projects in the military divisions, which resulted in the deferment of recognition of revenue.

Gross profit for Q3 2012 reached $ 112 million (14.9% of sales), compared to $ 149 million (18.2% of sales) for Q3 2011, a reduction of 25%. The decrease in gross profit is attributed to the decline in activities in the field of aircraft conversion and partly to one-off losses in production of assemblies of $ 18 million, and in the field of business jets of $ 13 million.

It should be noted that during Q1, a one-off item of income was recorded of $ 26 million due to compensation received from one of the company’s sub-contractors. In Q3 2011 profit increased due to a reduction in risks in projects that had been completed.

Profit from activities for Q3 2012 reached $ 24 million (3.2% of sales), compared to $ 59 million (7.2% of sales) for Q3 2011.

R&D expenses for Q3 2012 reached $ 29 million (3.9% of sales) compared to $ 35 million for Q3 2011 (4.3% of sales). The decrease is attributed to the small number of working days in the quarter due to holidays and festivals. The decline in the scope of the R&D expenses during the reported quarter is primarily due to the deferment of the R&D expenses to Q4 and accordingly an increase is anticipated in R&D expenses for Q4 2012 compared with previous quarters.

Costs of employees’ early retirement. In Q3 2012, 64 employees went on early retirement at a cost of $ 12 million compared to $ 9 million for Q3 2011. The employees’ early retirement program, which began in 2006 and is being implemented in stages, is part of the Company’s streamlining program.

Net financing income for Q3 2012 reached $ 1 million, compared to $ 45 million net financing expenses for Q3 2011.

Income taxes for Q3 2012 reached $ 12 million, compared to income taxes of $ 11 million for Q3 2011. Income taxes include costs in respect of previous years of $ 8 million.

Net profit Q3 2012 reached $ 14 million, compared to net profit of $ 3 million for Q3 2011.
Backlog of $ 9 billion represents over two and a half years of activity. 86% of the backlog is intended for sale to overseas customers. The backlog consists of a range of products over a wide geographical spread.

Negative Cash flow from current activities reached $ 285 million compared to a negative cash flow from current activities of $ 72 million for Q3 2011. The major cause for the fall in cash flow is increase in work in progress.

Figures for the first nine months in 2012:

Company sales for the first nine months of 2012 reached $ 2.5 billion compared to $ 2.6 billion in the first three quarters of 2011. Export sales represent 78% of total sales and reached $ 1.9 billion. Military market sales represent 74% of total sales and reached $ 1.8 billion.

Gross profit for the first nine months of 2012 reached $ 380 million (15.5% of sales), compared to $ 383 million (14.7% of sales) for Q3 2011. Gross profit for the period is affected by the devaluation of the Shekel, a decline in activities in the field of aircraft conversion and by events, some of which are of a one-off nature, which included, inter alia, a loss of $ 7 million due to the cancellation of an export permit to Turkey by the Ministry of Defense, losses in the civil activities in the Company in the field of production of assemblies in the sum of $ 18 million and in the field of executive aircraft in the sum of $ 13 million. These losses were offset by a one-off item of income in the sum of $ 26 million received from one of the Company’s sub-contractors.

Profit from activities for the first nine months of 2012 reached $ 82 million (3.3% of sales), compared to $ 115 million (4.4% of sales) for Q3 2011. It is to be noted that profit in 2011 included a $ 24 million one-off item of income from the sale of holdings in an associate company.

Research expenses for the first nine months of 2012 reached $ 104 million (4.2% of sales), compared to $ 102 million for Q3 2011 (3.9% of sales), an increase of 2%. The investment in R&D expenses is of the utmost importance for maintaining the Company’s technological edge and for securing its future and development.

Costs of employees’ early retirement for the first nine months of 2012, within the framework of which 182 employees went on early retirement at a cost of $ 34 million compared to $ 39 million for Q3 2011.

Net financing expenses for the first nine months of 2012 reached $ 2 million compared to $ 33 million in Q3 2011.
Net profit for the first nine months of 2012 reached $ 46 million (1.9% of sales), compared to $ 82 million (3.1% of sales) compared to Q3 2011.

Negative Cash flow from current activities for the first nine months of 2012 reached $ 191 million compared to the negative cash flow from current activities of $ 199 million for Q3 2011.