Server: Netscape-Enterprise/2.0a Date: Fri, 21 Nov 1997 11:18:43 GMT Accept-ranges: bytes Last-modified: Thu, 20 Nov 1997 20:52:18 GMT Content-length: 5043 Content-type: text/html draft 1.0
Dear Shareholder,

I am particularly pleased to send you this third quarter report. It contains not only Tadiran’s hard earned, record breaking past performance, but also tells of exciting new developments leading to future growth. You will read of recently acquired orders that are propelling us into the fourth quarter with a one billion dollar backlog. And as you peruse the following figures - results that I know will please you as much as they do me - I ask that you also read between the lines. For what is contained in this third quarter report, though not described here, is Tadiran’s indefatigable spirit, the genius of our research and development team, the stamina and persistence of our sales and marketing corps, and the vision and leadership of our executive and management team.

This winning combination has resulted in gross margins of 30.7% and significant profitability by each and every Tadiran segment.
Gross margins of
30.7% and significant
profitability by each and
every Tadiran segment.
Operating income for the quarter increased by 54.3% to $24.0 million as compared to $15.6 million last year. Net income for the quarter increased by 75.1% to $20.2 million, or $1.03 per share, as compared to $11.5 million, or $0.59 per share, for the third quarter of 1996. Sales for the third quarter of 1997 were $278.9 million, an increase of 4.2% as compared to $267.5 million for the same quarter of 1996.

Gross profit for the quarter increased by 23.4% to $85.6 million, (resulting in the gross margin of 30.7%), compared to $69.4 million for the third quarter last year.

As I mentioned, all operating segments were profitable. Most notable was the Communications segment, whose export sales in the third quarter increased significantly contributing to an increase in its sales of 32% and a whopping 129% increase in operating income.

Export sales for the quarter increased by 26.0% to $154.4 million. Commercial export sales increased by 34.7% to $87.4 million, due principally to sales of internally developed commercial telecommunications products.

For the nine months, total export sales increased by 26.8% to $483.5 million. Exports now make up 56.5% of total sales and demonstrates a most desirable shift away from domestic dependency. Commercial export sales increased by 40.4% to $271.8 million, up from $193.6 million in the first nine months of 1996.

These results reflect revenue growth and strong operating income increases in both the Communications and Electronic Systems segments.

The true measure of these achievements are only fully appreciated when seen in light of the substantial decline of approximately 50% in domestic sales to Bezeq. Increased export sales, one of our primary goals, has significantly offset this prior domestic dependence and is leading us to an even stronger, more profitable future with ever expanding international markets.

For example, during this quarter the Communications segment received a number of sizable orders in the area of military communications: a multi-year, $64 million order from the Navy and Marines of two Latin American countries for advanced HF and VHF communications equipment; a similar order, worth $17 million, from Thailand's armed forces; and an order for portable computers from the U.S. Marines which could reach $52 million in the coming years.

After the end of this quarter, we announced a joint venture with American entrepreneurs to develop a system for physically locating a cellular phone user who dials the emergency service number (911). This new product is being developed in response to new U.S. federal regulations requiring all mobile phone operators to provide such a service by the year 2001.

And this week we finalized a contract for Command and Control Systems with the Swiss Army Artillery Division worth $119 million.

These new and exhilarating orders point the way to Tadiran’s future and are milestones along our path to success. This path leads to expanded export markets eager to receive our cutting-edge technology - technology so advanced that it not only meets current need, but predicts and stimulates future demand. Tadiran’s R&D component is creating product which our marketing and sales team carries to the international market place with enthusiasm, confidence and pride. Our feet are now well planted on the road to ever greater success and we thank you, dear shareholder, for joining us on this most profitable journey.

Sincerely,

Israel Zamir
President and Chief Executive Officer
HOLON, ISRAEL, November 20, 1997