UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Title of each class Trading Symbol(s) Name of each exchange on which registered Ordinary Shares, nominal value 1.0 New Israeli Shekel per shareESLT The NASDAQ Global Select Market (Mark One) FORM 20-F □ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2021 Commissi ...

Elbit Systems™ Investor Conference March 2022 2 2022 © Elbit Systems Proprietary Safe Harbor This presentation, reference to which herein includes information that may be provided by Elbit Systems Ltd. ("Elbit systems", and collectively with any or all of its subsidiaries, the "Company") orally or in writing in connection therewith, is provided for general information only, and should not be relied upon for making any investment decision. By attending or viewing this presentation, each attendee ("Attendee") ...

Elbit Systems Ltd. (NASDAQ:ESLT) Q4 2021 Results Conference Call March 29, 2022 9:00 AM ET Company Participants Rami Myerson - Investor Relations Butzi Machlis - President and Chief Executive Officer Yossi Gaspar - Chief Financial Officer Conference Call Participants Pete Skibitski - Alembic Global Dina Korshunov - Leader Capital Markets Sheila Kahyaoglu - Jefferies Operator Ladies and gentlemen, thank you for standing by. Welcome to Elbit Systems Fourth Quarter 2021 Results Conference Call. [Operator Instr ...

[Executive Summary & Management Commentary](index=1&type=section&id=Executive%20Summary%20%26%20Management%20Commentary) Elbit Systems reported a solid 2021 with significant revenue growth and a record backlog, despite a Q4 GAAP net income decrease due to a one-time tax expense [Key Financial Highlights (Q4 & FY 2021)](index=1&type=section&id=Key%20Financial%20Highlights%20(Q4%20%26%20FY%202021)) Elbit Systems achieved significant revenue growth and a record backlog in 2021, despite a Q4 GAAP net income decrease due to a one-time tax expense Key Financial Highlights | Metric | Q4 2021 | FY 2021 | FY 2020 | | :-------------------------- | :------ | :-------- | :-------- | | Backlog of orders (USD billions) | - | **$13.7** | **$11.0** | | Revenues (USD millions) | **$1,494.3** | **$5,300.0** | **$4,660.0** | | Non-GAAP Net Income (USD millions) | **$94.9** | **$368.0** | - | | GAAP Net Income (USD millions) | **$8.2** | **$274.0** | - | | Non-GAAP Diluted EPS | **$2.14** | **$8.30** | - | | GAAP Diluted EPS | **$0.18** | **$6.20** | - | [Management Commentary](index=1&type=section&id=Management%20Comment) CEO Bezhalel Machlis highlighted 2021 as a solid year, driven by sustained demand and strategic investments in technology and global defense markets, positioning the company for future growth - 2021 was a solid year for Elbit Systems, with sustained demand for products and systems globally[3](index=3&type=chunk) - Revenues increased by **13% year over year** to **$5.3 billion**, and a record backlog of **$13.7 billion** provides good visibility[3](index=3&type=chunk) - Significant investments in technological capabilities and expansion in key global defense markets underpin sustained growth, positioning the company to benefit from the defense sector's growth[4](index=4&type=chunk)[5](index=5&type=chunk) [Fourth Quarter 2021 Financial Results](index=1&type=section&id=Fourth%20quarter%202021%20results) Elbit Systems reported increased Q4 2021 revenues and operating income, but GAAP net income and EPS declined significantly due to a one-time tax expense [Revenues and Gross Profit](index=1&type=section&id=Revenues%20and%20Gross%20Profit%20(Q4%202021)) Q4 2021 revenues increased by 8.5% year-over-year to $1,494.3 million, with GAAP gross profit rising to $374.3 million, though gross margin slightly decreased Revenues and Gross Profit | Metric | Q4 2021 (USD millions) | Q4 2020 (USD millions) | YoY Change | | :---------------- | :--------------------- | :--------------------- | :--------- | | Revenues | **1,494.3** | 1,377.7 | **+8.5%** | | GAAP Gross Profit | **374.3** | 357.8 | **+4.6%** | | GAAP Gross Margin | **25.1%** | 26.0% | **-0.9 pp** | [Operating Expenses](index=2&type=section&id=Operating%20Expenses%20(Q4%202021)) R&D expenses slightly increased in Q4 2021 but decreased as a percentage of revenues, while G&A expenses rose due to the Sparton Corporation consolidation Operating Expenses | Expense Category | Q4 2021 (USD millions) | % of Revenues (Q4 2021) | Q4 2020 (USD millions) | % of Revenues (Q4 2020) | | :----------------------- | :--------------------- | :---------------------- | :--------------------- | :---------------------- | | Research and development, net | **114.0** | **7.6%** | 109.1 | 7.9% | | Marketing and selling, net | **80.8** | **5.4%** | 81.2 | 5.9% | | General and administrative, net | **72.4** | **4.8%** | 62.9 | 4.6% | - Higher general and administrative expenses in Q4 2021 included the expenses of Sparton Corporation, acquired and consolidated commencing the second quarter of 2021[9](index=9&type=chunk) [Operating Income](index=2&type=section&id=Operating%20Income%20(Q4%202021)) GAAP operating income increased to $107.3 million in Q4 2021, though the operating margin slightly declined to 7.2% from 7.6% in Q4 2020 Operating Income | Metric | Q4 2021 (USD millions) | % of Revenues (Q4 2021) | Q4 2020 (USD millions) | % of Revenues (Q4 2020) | | :------------------ | :--------------------- | :---------------------- | :--------------------- | :---------------------- | | GAAP Operating Income | **107.3** | **7.2%** | 104.6 | 7.6% | [Financial and Other Income/Expenses, and Taxes](index=2&type=section&id=Financial%20and%20Other%20Income%2FExpenses%2C%20and%20Taxes%20(Q4%202021)) Financial expenses decreased significantly, other income turned positive, but taxes on income surged to $92.2 million due to an $80.0 million one-time tax expense Financial and Other Income/Expenses, and Taxes | Metric | Q4 2021 (USD millions) | Q4 2020 (USD millions) | | :------------------------ | :--------------------- | :--------------------- | | Financial expenses, net | **19.6** | 32.5 | | Other income (expense), net | **9.7** | (7.3) | | Taxes on income | **92.2** | 1.9 | - Tax expenses in Q4 2021 included a one-time expense of approximately **$80.0 million** related to the amendment of legislation regarding exempt earnings in Israel[12](index=12&type=chunk) [Net Income and Earnings Per Share](index=2&type=section&id=Net%20Income%20and%20Earnings%20Per%20Share%20(Q4%202021)) GAAP net income attributable to shareholders significantly decreased to $8.2 million ($0.18 diluted EPS) in Q4 2021, primarily due to a one-time tax expense Net Income and Earnings Per Share | Metric | Q4 2021 (USD millions) | % of Revenues (Q4 2021) | Q4 2020 (USD millions) | % of Revenues (Q4 2020) | | :------------------------------------------- | :--------------------- | :---------------------- | :--------------------- | :---------------------- | | GAAP Net income attributable to shareholders | **8.2** | **0.5%** | 67.8 | 4.9% | | GAAP Diluted EPS | **0.18** | - | 1.53 | - | - The decrease in GAAP net income in Q4 2021 was mainly a result of the one-time tax expense mentioned in 'Taxes on income'[12](index=12&type=chunk) [Full Year 2021 Financial Results](index=3&type=section&id=Full%20year%202021%20results) Elbit Systems achieved strong full-year 2021 financial results, with significant revenue and operating income growth, despite a substantial one-time tax expense [Revenues and Cost of Revenues](index=3&type=section&id=Revenues%20and%20Cost%20of%20Revenues%20(FY%202021)) Full-year 2021 revenues increased by 13.2% to $5,278.5 million, with cost of revenues as a percentage of revenues decreasing to 74.3% from 75.0% in 2020 Revenues and Cost of Revenues | Metric | FY 2021 (USD millions) | % of Revenues (FY 2021) | FY 2020 (USD millions) | % of Revenues (FY 2020) | YoY Change | | :---------------- | :--------------------- | :---------------------- | :--------------------- | :---------------------- | :--------- | | Revenues | **5,278.5** | - | 4,662.6 | - | **+13.2%** | | Cost of revenues | **3,920.5** | **74.3%** | 3,497.5 | 75.0% | **+12.1%** | - Cost of revenues in 2020 included non-cash expenses of approximately **$60.0 million**, related to impairment of assets and inventory write-offs due to the impact of COVID-19[19](index=19&type=chunk) [Revenue Distribution by Areas of Operation](index=3&type=section&id=Revenue%20Distribution%20by%20Areas%20of%20Operation%20(FY%202021)) Airborne systems and C4ISR systems were the primary revenue contributors in 2021, with growth driven by precision guided munitions sales and the Sparton acquisition Revenue Distribution by Areas of Operation | Area of Operation | FY 2021 (USD millions) | % of Total Revenues | FY 2020 (USD millions) | % of Total Revenues | | :------------------------ | :--------------------- | :------------------ | :--------------------- | :------------------ | | Airborne systems | **2,005.8** | **37.9%** | 1,650.4 | 35.4% | | C4ISR systems | **1,371.5** | **26.0%** | 1,145.7 | 24.6% | | Land systems | **1,254.7** | **23.8%** | 1,258.9 | 27.0% | | Electro-optic systems | **452.9** | **8.6%** | 475.9 | 10.2% | | Other | **193.6** | **3.7%** | 131.7 | 2.8% | - The increase in revenues in Airborne systems was mainly a result of sales of airborne precision guided munitions in Asia-Pacific[17](index=17&type=chunk) - The growth in revenues in the C4ISR systems area was mainly due to Sparton, a U.S. subsidiary acquired and consolidated in the Company's results from the second quarter of 2021[17](index=17&type=chunk) [Revenue Distribution by Geographical Regions](index=3&type=section&id=Revenue%20Distribution%20by%20Geographical%20Regions%20(FY%202021)) North America and Asia-Pacific were the largest geographical revenue contributors, with growth driven by airborne systems, Sparton products, medical instrumentation, and precision guided munitions Revenue Distribution by Geographical Regions | Geographical Region | FY 2021 (USD millions) | % of Total Revenues | FY 2020 (USD millions) | % of Total Revenues | | :------------------ | :--------------------- | :------------------ | :--------------------- | :------------------ | | Israel | **1,094.7** | **20.7%** | 1,106.4 | 23.7% | | North America | **1,608.6** | **30.5%** | 1,500.6 | 32.2% | | Europe | **884.5** | **16.8%** | 819.0 | 17.6% | | Asia-Pacific | **1,443.5** | **27.3%** | 961.8 | 20.6% | | Latin America | **126.7** | **2.4%** | 140.1 | 3.0% | | Other countries | **120.5** | **2.3%** | 134.7 | 2.9% | - The increase in North America was mainly a result of higher sales of airborne systems and Sparton's products, as well as growth in sales of medical instrumentation[18](index=18&type=chunk) - The increase in Asia-Pacific was due to sales of airborne precision guided munitions[18](index=18&type=chunk) [Operating Expenses](index=3&type=section&id=Operating%20Expenses%20(FY%202021)) R&D expenses increased in absolute terms but decreased as a percentage of revenues, while G&A expenses rose primarily due to the Sparton acquisition Operating Expenses | Expense Category | FY 2021 (USD millions) | % of Revenues (FY 2021) | FY 2020 (USD millions) | % of Revenues (FY 2020) | | :----------------------- | :--------------------- | :---------------------- | :--------------------- | :---------------------- | | Research and development, net | **395.1** | **7.5%** | 359.7 | 7.7% | | Marketing and selling, net | **291.8** | **5.5%** | 290.7 | 6.2% | | General and administrative, net | **267.4** | **5.1%** | 223.9 | 4.8% | - The increase in general administrative expenses in 2021 was mainly as a result of general and administrative expenses related to the acquisition and consolidation of Sparton[22](index=22&type=chunk) [Operating Income](index=3&type=section&id=Operating%20Income%20(FY%202021)) GAAP operating income for FY 2021 increased significantly to $418.5 million, with the operating margin improving to 7.9%, despite non-cash expenses in the prior year Operating Income | Metric | FY 2021 (USD millions) | % of Revenues (FY 2021) | FY 2020 (USD millions) | % of Revenues (FY 2020) | | :------------------ | :--------------------- | :---------------------- | :--------------------- | :---------------------- | | GAAP Operating Income | **418.5** | **7.9%** | 325.7 | 7.0% | - GAAP operating income in 2020 included non-cash expenses of approximately **$60 million** related to impairment of assets and inventory write-offs due to the impact of Covid-19[22](index=22&type=chunk) [Financial and Other Income/Expenses, and Taxes](index=4&type=section&id=Financial%20and%20Other%20Income%2FExpenses%2C%20and%20Taxes%20(FY%202021)) Financial expenses decreased significantly, partly due to a gain from fair value changes, while taxes on income substantially increased to $131.4 million, including an $80.0 million one-time expense Financial and Other Income/Expenses, and Taxes | Metric | FY 2021 (USD millions) | FY 2020 (USD millions) | | :-------------------- | :--------------------- | :--------------------- | | Financial expenses, net | **40.4** | 71.3 | | Other income, net | **5.3** | 7.4 | | Taxes on income | **131.4** | 36.4 | | Effective Tax Rate | **34.3%** | 13.9% | - Financial expenses, net in 2021 included a gain from changes in fair value of financial assets of approximately **$18.8 million**[25](index=25&type=chunk) - Taxes on income in 2021 included a one-time expense of approximately **$80.0 million** related to the "release" of Exempt Earnings[27](index=27&type=chunk) [Net Income and Earnings Per Share](index=4&type=section&id=Net%20Income%20and%20Earnings%20Per%20Share%20(FY%202021)) GAAP net income attributable to shareholders increased to $274.4 million ($6.20 diluted EPS) in 2021, despite a significant one-time tax expense Net Income and Earnings Per Share | Metric | FY 2021 (USD millions) | % of Revenues (FY 2021) | FY 2020 (USD millions) | % of Revenues (FY 2020) | | :------------------------------------------- | :--------------------- | :---------------------- | :--------------------- | :---------------------- | | GAAP Net income attributable to shareholders | **274.4** | **5.2%** | 237.7 | 5.1% | | GAAP Diluted EPS | **6.20** | - | 5.38 | - | [Backlog and Cash Flow from Operations](index=4&type=section&id=Backlog%20of%20orders%20and%20Net%20cash%20provided%20by%20operating%20activities%20(FY%202021)) The backlog of orders reached a record $13,661 million, and net cash provided by operating activities increased substantially, driven by customer debt payments and higher advances Backlog and Cash Flow from Operations | Metric | As of Dec 31, 2021 (USD billions) | As of Dec 31, 2020 (USD billions) | YoY Change | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | | Backlog of orders | **13.661** | 11.024 | **+23.9%** | | Net cash provided by operating activities (USD millions) | **416.9** | 278.8 | **+49.5%** | - Approximately **72%** of the current backlog is attributable to orders from outside Israel, and approximately **60%** is scheduled to be performed during 2022 and 2023[29](index=29&type=chunk) - The higher level of operating cash flow in 2021 was mainly a result of payment of outstanding debts by customers, mainly the Israeli Ministry of Defense, as well as higher advances received from customers, mainly in Israel and Europe[29](index=29&type=chunk) [Company Specific Disclosures](index=5&type=section&id=Company%20Specific%20Disclosures) This section details the company's response to the COVID-19 pandemic and the potential impact of share price fluctuations on employee compensation costs [Impact of Covid-19 Pandemic](index=5&type=section&id=Impact%20of%20the%20Covid-19%20Pandemic%20on%20the%20Company) The company effectively managed COVID-19 impacts through safety measures, supply chain security, and cost control, with defense activities largely unaffected and a healthy balance sheet maintained - Implemented cost control measures, maintained business continuity, and secured supply chain amidst global disruptions caused by Covid-19[33](index=33&type=chunk) - Defense activities, which account for most of the business, were not materially impacted by the pandemic during 2020 and 2021[34](index=34&type=chunk) - As of December 31, 2021, Elbit Systems had a healthy balance sheet, adequate levels of cash, and access to credit facilities that provide liquidity[35](index=35&type=chunk) [Potential Impact of Share Price on Employee Compensation](index=5&type=section&id=Potential%20Impact%20of%20Increase%20in%20Company%27s%20Share%20Price%20on%20Employee%20Compensation%20Plan%20Costs) A significant increase in the company's share price could materially impact costs under its stock price-linked employee compensation plans - A significant increase in the Company's share price could have a significant impact on the costs to the Company under its various stock price linked compensation plans for employees[37](index=37&type=chunk) [Non-GAAP Financial Data](index=6&type=section&id=Non-GAAP%20financial%20data) This section explains the definitions and purpose of non-GAAP financial data and provides a reconciliation to GAAP figures for a clearer view of business performance [Non-GAAP Definitions and Purpose](index=6&type=section&id=Non-GAAP%20Definitions%20and%20Purpose) Non-GAAP financial data offers a comprehensive view of business results and trends, aiding investors and management by adjusting for non-recurring or non-cash items - Non-GAAP financial data is presented to provide investors additional information on business performance and facilitate more meaningful comparisons of financial results over time[39](index=39&type=chunk) - 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[39](index=39&type=chunk) - Non-GAAP presentations generally factor out items such as those with a non-recurring impact, various non-cash items, significant exchange rate differences, significant effects of retroactive tax legislation, and other items not considered part of regular ongoing business[40](index=40&type=chunk) [Reconciliation of GAAP to Non-GAAP](index=7&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20(Unaudited)%20Supplemental%20Financial%20Data) A detailed reconciliation table shows adjustments from GAAP to non-GAAP figures for gross profit, operating income, net income, and diluted EPS, including amortization, COVID-19 expenses, and tax effects Reconciliation of GAAP to Non-GAAP | Metric | GAAP (Q4 2021, USD millions) | Adjustments (Q4 2021, USD millions) | Non-GAAP (Q4 2021, USD millions) | | :------------------------------------------- | :--------------------------- | :---------------------------------- | :------------------------------- | | Gross Profit | **$374.3** | Amortization of intangibles: **$6.8** | **$381.1** | | Operating Income | **$107.3** | Amortization of intangibles: **$12.8** | **$120.1** | | Net Income attributable to Elbit Systems' shareholders | **$8.2** | Amortization of intangibles: **$12.8**, Tax effect: **$79.2**, etc. | **$94.9** | | Diluted Net EPS | **$0.18** | Adjustments, net: **$1.96** | **$2.14** | - Key adjustments include amortization of purchased intangible assets, Covid-19 related expenses and write-offs, capital gain, impairment of investments and long-lived assets, revaluation of investment, non-operating foreign exchange losses, and tax effects[44](index=44&type=chunk) [Recent Corporate Events & Dividend](index=8&type=section&id=Recent%20Events%20%26%20Dividend) This section outlines recent significant contract awards, resolutions from the Annual General Meeting, and the latest dividend declaration [Recent Contract Awards and Business Activities](index=8&type=section&id=Recent%20Events) Elbit Systems secured several significant contracts, including a $350 million land systems contract, a $53 million airborne self-protection system contract, and a $130 million artillery munitions production line - Awarded a contract valued at approximately **$350 million** to supply an array of land systems to an international customer, to be fulfilled over three years (December 15, 2021)[46](index=46&type=chunk) - UAE subsidiary, Elbit Systems Emirates Limited, was awarded an approximately **$53 million** contract to supply Direct Infrared Countermeasures and airborne Electronic Warfare Self Protection Systems for the Airbus A330 Multi-Role Tanker Transport aircraft of the UAE Air Force (January 3, 2022)[47](index=47&type=chunk) - Awarded contracts with an aggregate value of approximately **$130 million** to deliver an artillery munitions production line in a country in Asia-Pacific, to be performed over 2.5 years (March 27, 2022)[54](index=54&type=chunk) [Annual General Meeting Resolutions](index=8&type=section&id=Annual%20General%20Meeting%20of%20Shareholders) Shareholders re-elected seven non-External Directors and re-appointed Kost, Forer, Gabbay & Kasierer as the independent auditor for fiscal year 2021 - Shareholders re-elected seven non-"External Directors" to the Board to serve until the close of the next Annual General Meeting of Shareholders[47](index=47&type=chunk) - Shareholders re-appointed Kost, Forer, Gabbay & Kasierer, a member of Ernst & Young Global, as the Company's independent auditor for the fiscal year ending December 31, 2021[47](index=47&type=chunk) [Dividend Declaration](index=9&type=section&id=Dividend) The Board of Directors declared a dividend of $0.50 per share for Q4 2021, payable on April 25, 2022, with a record date of April 11, 2022 - The Board of Directors declared a dividend of **$0.50 per share** for the fourth quarter of 2021[55](index=55&type=chunk) - The dividend's record date is April 11, 2022, and will be paid on April 25, 2022, after deduction of taxes at the source, at the rate of **16.8%**[55](index=55&type=chunk) [Investor Information & Company Profile](index=9&type=section&id=Investor%20Information%20%26%20Company%20Profile) This section provides details on investor communications, annual report filing, an overview of Elbit Systems, contact information, and forward-looking statements [Conference Call and Investor Conference](index=9&type=section&id=Conference%20Call%20and%20Investor%20Conference) Elbit Systems hosted a conference call and an investor conference on March 29, 2022, to discuss results and engage with investors - A conference call was hosted on March 29, 2022, at 9:00 a.m. Eastern Time, for management to review results and answer questions[56](index=56&type=chunk) - An investor conference was held in Israel on March 29, 2022, starting at 10:00 a.m. Israel time, streamed live in Hebrew with simultaneous English translation[59](index=59&type=chunk) [Annual Report Filing](index=9&type=section&id=Annual%20Report) The company's Annual Report on Form 20-F for fiscal year 2021, including financial statements, is scheduled to be filed in April 2022 - The Company's Annual Report on Form 20-F (including its financial statements for the fiscal year ended December 31, 2021) will be filed in April, 2022[60](index=60&type=chunk) [About Elbit Systems](index=9&type=section&id=About%20Elbit%20Systems) Elbit Systems Ltd. is an international high-technology company engaged in defense, homeland security, and commercial programs globally, focusing on aerospace, land, naval, C4ISR, and other advanced systems - Elbit Systems Ltd. is an international high technology company engaged in a wide range of defense, homeland security and commercial programs throughout the world[61](index=61&type=chunk) - The Company operates in areas such as aerospace, land and naval systems, C4ISR, unmanned aircraft systems, advanced electro-optics, EW suites, signal intelligence systems, and munitions[61](index=61&type=chunk) - The Company also focuses on upgrading existing platforms, developing new technologies for defense, homeland security and commercial applications, and providing a range of support services, including training and simulation systems[61](index=61&type=chunk)[63](index=63&type=chunk) [Contact Information](index=10&type=section&id=Company%20Contact) Contact details are provided for key company executives and external investor relations representatives - Contact information is provided for Joseph Gaspar (Executive VP & CFO), Rami Myerson (Director, Investor Relations), David Vaaknin (VP, Head of Corporate Communications), and external IR contact Ehud Helft/Gavriel Frohwein at GK Investor Relations[64](index=64&type=chunk) [Forward-Looking Statements](index=10&type=section&id=Forward%E2%80%91looking%20statements) This release contains forward-looking statements based on management's current expectations, subject to various risks and uncertainties, and the company does not undertake to update them - This press release may contain forward-looking statements based on management's current expectations, estimates, projections and assumptions about future events[64](index=64&type=chunk) - Actual future results, performance and trends may differ materially from these forward-looking statements due to a variety of factors, including scope and length of customer contracts, governmental regulations, changes in budgeting priorities, market conditions, and competitive environment[64](index=64&type=chunk) - The Company does not undertake to update its forward-looking statements[64](index=64&type=chunk) [Consolidated Financial Statements](index=11&type=section&id=FINANCIAL%20TABLES%20TO%20FOLLOW) This section presents the company's consolidated balance sheets, statements of income, statements of cash flow, and detailed revenue distribution for the reported periods [Consolidated Balance Sheets](index=11&type=section&id=ELBIT%20SYSTEMS%20LTD.%20CONSOLIDATED%20BALANCE%20SHEETS) The consolidated balance sheets detail the company's financial position as of December 31, 2021, and 2020, showing an increase in total assets to $9,317.3 million in 2021 Consolidated Balance Sheets | Metric | As of Dec 31, 2021 (USD thousands) | As of Dec 31, 2020 (USD thousands) | | :-------------------- | :--------------------------------- | :--------------------------------- | | Total Assets | **9,317,344** | 8,057,897 | | Total Current Assets | **4,980,004** | 4,272,898 | | Total Liabilities | **6,771,081** | 5,826,530 | | Total Equity | **2,546,263** | 2,231,367 | [Consolidated Statements of Income](index=12&type=section&id=ELBIT%20SYSTEMS%20LTD.%20CONSOLIDATED%20STATEMENTS%20OF%20INCOME) The consolidated statements of income provide a detailed breakdown of revenues, costs, expenses, and net income for the full years and fourth quarters of 2021 and 2020 Consolidated Statements of Income | Metric | FY 2021 (USD thousands) | FY 2020 (USD thousands) | Q4 2021 (USD thousands) | Q4 2020 (USD thousands) | | :------------------------------------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Revenues | **5,278,521** | 4,662,572 | **1,494,273** | 1,377,732 | | Gross profit | **1,358,048** | 1,165,107 | **374,349** | 357,833 | | Operating income | **418,508** | 325,687 | **107,272** | 104,625 | | Net income attributable to Elbit Systems Ltd.'s shareholders | **274,350** | 237,658 | **8,187** | 67,822 | | Diluted net earnings per share | **6.20** | 5.38 | **0.18** | 1.53 | [Consolidated Statements of Cash Flow](index=13&type=section&id=ELBIT%20SYSTEMS%20LTD.%20CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOW) The consolidated statements of cash flow detail cash flows from operating, investing, and financing activities for 2021 and 2020, showing a significant increase in net cash from operating activities in 2021 Consolidated Statements of Cash Flow | Metric | FY 2021 (USD thousands) | FY 2020 (USD thousands) | | :------------------------------------------- | :---------------------- | :---------------------- | | Net cash provided by operating activities | **416,932** | 278,834 | | Net cash used in investing activities | **(587,721)** | (22,867) | | Net cash provided by (used in) financing activities | **150,988** | (198,233) | | Net (decrease) increase in cash and cash equivalents | **(19,801)** | 57,734 | [Consolidated Revenue Distribution](index=14&type=section&id=ELBIT%20SYSTEMS%20LTD.%20DISTRIBUTION%20OF%20REVENUES) Detailed tables present the distribution of consolidated revenues by areas of operation and geographical regions for both full year and fourth quarter periods Consolidated Revenue Distribution | Category | FY 2021 (USD millions) | % of Total | | :------------------------- | :--------------------- | :--------- | | **By Areas of Operation:** | | | | Airborne systems | **2,005.8** | **37.9%** | | C4ISR systems | **1,371.5** | **26.0%** | | Land systems | **1,254.7** | **23.8%** | | **By Geographical Regions:** | | | | North America | **1,608.6** | **30.5%** | | Asia-Pacific | **1,443.5** | **27.3%** | | Israel | **1,094.7** | **20.7%** |

Elbit Systems Ltd. (NASDAQ:ESLT) Q3 2021 Earnings Conference Call November 23, 2021 9:00 AM ET Company Participants Rami Myerson - Investor Relations Butzi Machlis - President and Chief Executive Officer Yossi Gaspar - Chief Financial Officer Conference Call Participants Greg Konrad - Jefferies Pete Skibitski - Alembic Global Ella Fried - Bank Leumi Elad Kraus - Excellence Operator Ladies and gentlemen, thank you for standing by. Welcome to Elbit Systems Third Quarter 2021 Results Conference Call. [Operator ...

Elbit Systems Ltd. (NASDAQ:ESLT) Q2 2021 Earnings Conference Call August 11, 2021 9:00 AM ET Company Participants Rami Myerson - IR Director Butzi Machlis - President and CEO Joseph Gaspar - EVP and CFO Conference Call Participants Greg Konrad - Jefferies Dina Korshunov - Leader Capital Markets Pete Skibitski - Alembic Global Elad Kraus - Excellence Operator Ladies and gentlemen, thank you for standing by. Welcome to Elbit Systems' Second Quarter 2021 Results Conference Call. All participants are at present ...

Financial Data and Key Metrics Changes - First quarter revenues were $1,118 million, reflecting a 4.4% year-over-year increase [6] - Non-GAAP gross margin for the first quarter was 25.6%, down from 27.6% in the same quarter of 2020 [8] - GAAP diluted EPS was $1.64, compared to $1.44 in the previous year [10] - The backlog of orders as of March 31, 2021, was approximately $11.8 billion, an increase of $1 billion year-over-year [10] Business Line Data and Key Metrics Changes - Airborne systems accounted for 30.7% of total annual sales, increasing year-over-year due to precision-guided munition sales [6] - Land system sales remained stable at 27% of total revenues [6] - C4ISR sales increased to 23% of total sales, primarily driven by UAS sales to Asia Pacific [6] - Electro-optics sales declined to 9% of total sales, mainly due to the phasing of Elbit Night Vision programs in the U.S. [6] Market Data and Key Metrics Changes - North America contributed 31% of revenues, while Israel accounted for 25%, Asia Pacific for 21%, and Europe for 17% [7] - Growth in Israel was primarily due to UAS security systems, while Asia Pacific sales increased due to UAS and precision-guided munitions [7] - The decline in North America was attributed to lower commercial aerospace and night vision sales [7] Company Strategy and Development Direction - The company is well-positioned to benefit from increased defense spending globally, particularly in response to elevated geopolitical tensions [11] - Recent contracts include a $1.65 billion contract with the Hellenic Ministry of National Defense for a flight training center [12] - The company completed acquisitions of Sparton Corporation and Rokar, enhancing its maritime capabilities and GPS systems [15] Management's Comments on Operating Environment and Future Outlook - Management noted a gradual recovery from COVID-19, with expectations for improved revenues in the second quarter [5][19] - The company anticipates continued demand for its high-technology solutions, supported by a strong backlog [16] - Management expressed optimism about the potential for synergies between its night vision and thermal imaging businesses [14] Other Important Information - The company declared a dividend of $0.44 per share for the first quarter of 2021 [10] - Cash flow from operating activities showed a $13 million outflow, compared to a $10 million outflow in the same quarter last year [10] Q&A Session Summary Question: What is the outlook for the electro-optics business? - Management acknowledged a temporary delay in development processes but expects revenue recovery in the second quarter [17] Question: Is COVID still impacting deal closures, particularly in India? - Management noted improvements but acknowledged ongoing challenges in certain regions due to COVID [19] Question: What drove the sequential improvement in backlog? - The recent Greek contract will be reflected in the second quarter, indicating that first-quarter growth was organic [20][21] Question: Will gross margins continue to be impacted by the strength of the Shekel? - Management expects gradual improvement in gross margins over the year [22][23] Question: What is the status of the IMI payment? - The last payment is planned for the end of 2022, with potential for an additional small payment based on performance [25][27] Question: What is the recovery outlook for civil aviation? - Recovery is expected to be gradual, returning to 2019 levels by 2024 [28] Question: What is the status of the high-power laser development? - Development is ongoing, with operational deployment expected in a few years, pending budget approvals [32] Question: How is the company managing currency exchange impacts? - The company has measures in place to mitigate currency impacts through indexing in contracts and cost management strategies [35][36]

Financial Data and Key Metrics Changes - Fourth quarter revenue was $1,378 million, an increase of 4.3% year-over-year [8] - Total revenues for 2020 were $4.66 billion, up 3.4% from $4.5 billion in 2019 [8] - Non-GAAP gross margin for Q4 was 26.3%, slightly up from 26.2% in Q4 2019 [12] - GAAP gross margin for Q4 was 26%, compared to 21.5% in Q4 2019 [13] - Non-GAAP operating income for 2020 was $390.1 million, maintaining an 8.4% margin, consistent with the previous year [16] - Operating cash flow for Q4 was $172 million, compared to $87 million in the same quarter last year [23] Business Line Data and Key Metrics Changes - Airborne systems accounted for 35% of total annual sales, increasing year-over-year due to precision munitions and training [8] - Electro-optics represented 10% of total sales, with growth attributed to the acquisition of Elbit Night Vision [9] - Land systems sales made up 27% of total sales, increasing due to revenues from IMI acquired in 2018 [9] - C4ISR sales declined to 25% of total sales, primarily due to lower radio sales to Asia-Pacific [9] Market Data and Key Metrics Changes - North America contributed 32% of revenues, with growth driven by airborne system sales [10] - Israel accounted for 24% of revenues, mainly due to land systems [10] - Asia-Pacific contributed 21% and Europe 18% to total revenues [10] - The order backlog as of December 31, 2020, was approximately $11 billion, indicating a book-to-bill ratio of 1.21 [22] Company Strategy and Development Direction - The company is focused on maintaining technological leadership through R&D investments, which increased to 7.7% of revenues [18] - The integration of IMI is progressing well, with a shift towards international markets for new business [76] - The company aims to capitalize on growing demand in the naval domain and has a strong portfolio for armed vehicles and tanks [41][38] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the backlog growth of over 10%, indicating potential revenue growth in the next 1.5 to 2 years [45][46] - The company does not foresee significant impacts from COVID-19 on business operations, citing a strong global presence [55][58] - Management is optimistic about future contracts in Israel despite current political uncertainties [52][53] Other Important Information - The effective tax rate for 2020 was 13.9%, up from 7.9% in 2019 due to prior year adjustments [20] - The company declared a dividend of $0.44 per share for Q4 2020 [24] - The company is transitioning its autonomous system technology to land and naval domains [36] Q&A Session Summary Question: 2021 growth outlook and backlog conversion - Management noted that the backlog growth of over 10% provides a positive indication for future revenues, but no specific guidance was given [45][46] Question: Strength in airborne systems and growth momentum - Management expressed confidence in military airborne systems growth, while commercial avionics remains a small part of revenues [47][48] Question: Cash flow and receivables outlook - Management emphasized cash flow management as a priority and expects stabilization in payments from the Israeli Ministry of Defense [49] Question: Israeli defense spending trends post-election - Management is confident that the Israeli Ministry of Defense will fulfill its payment obligations and anticipates new contracts [51][53] Question: COVID-19 impact on business operations - Management reported no significant impact from COVID-19, highlighting the strength of their global subsidiaries [55][58] Question: Hermes contract details and cooperation with Korea - Management clarified that the deal with Korea involves cooperation in UAV markets and the Canadian program includes elements of lease and service [59][60] Question: Margin rate expectations for 2021 - Management discussed factors affecting margins, including currency strength and operational improvements, but did not provide specific guidance [62][64]

[General Disclosure Standards](index=5&type=section&id=General%20Disclosure%20Standards) [Cautionary Statement with Respect to Forward-Looking Statements](index=5&type=section&id=Cautionary%20Statement%20with%20Respect%20to%20Forward-Looking%20Statements) Forward-looking statements are subject to various risks, and actual results may differ materially, with no obligation to update unless legally required - Forward-looking statements are subject to risks and uncertainties, and **actual results may differ materially** due to factors such as governmental regulations, budget priorities, market conditions (including Covid-19), product development, foreign currency exchange rates, and acquisition integration challenges[17](index=17&type=chunk)[18](index=18&type=chunk)[20](index=20&type=chunk) - The company explicitly **disclaims any obligation to update or review forward-looking statements**, except as required by applicable law[21](index=21&type=chunk) [Item 1. Identity of Directors, Senior Management and Advisers](index=6&type=section&id=Item%201.%20Identity%20of%20Directors%2C%20Senior%20Management%20and%20Advisers) [Item 2. Offer Statistics and Expected Timetable](index=6&type=section&id=Item%202.%20Offer%20Statistics%20and%20Expected%20Timetable) [Item 3. Key Information](index=7&type=section&id=Item%203.%20Key%20Information) [Risk Factors](index=7&type=section&id=Risk%20Factors) This section details various operational, market, financial, legal, and Israeli-specific risks that could adversely affect the company's business [Risks Related to Our Operations](index=7&type=section&id=Risks%20Related%20to%20Our%20Operations) Operational risks include cyber attacks, pandemic disruptions, acquisition integration challenges, supply chain failures, and difficulties in retaining key employees - Cyber attacks and security incidents pose a significant threat to the company's digital environment, potentially leading to data breaches, intellectual property loss, and operational disruptions[27](index=27&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk) - The COVID-19 pandemic has negatively impacted commercial aviation business and could further affect operations, supply chains, and governmental budgets[30](index=30&type=chunk) - Acquisitions involve risks such as failure to identify material risks during due diligence, negative financial impacts, goodwill impairment, unanticipated costs, integration difficulties, failure to achieve synergies, and potential retention issues for key employees[31](index=31&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk) - Dependence on a limited number of suppliers for critical components and potential liabilities from subcontractor failures could lead to production delays and increased costs[35](index=35&type=chunk) [Risks Related to Our Markets and Industry](index=9&type=section&id=Risks%20Related%20to%20Our%20Markets%20and%20Industry) Market and industry risks stem from intense competition, the need for continuous technological innovation, reliance on government defense spending, and challenges in international operations - Success in a competitive industry requires continuous investment in R&D to develop new technologies and offerings, as failure to do so could result in market share loss and impact contract acquisition[41](index=41&type=chunk)[42](index=42&type=chunk)[44](index=44&type=chunk) - A significant portion of revenues is derived from government agencies, making the company vulnerable to reductions or eliminations in government defense and homeland security spending[45](index=45&type=chunk) - International operations expose the company to risks like trade sanctions, tariffs, political instability, and changes in diplomatic relations, which could significantly reduce revenues[46](index=46&type=chunk) [Financial-Related Risks](index=10&type=section&id=Financial-Related%20Risks) Financial risks include currency exchange rate fluctuations, potential cost overruns in fixed-price contracts, and volatility in revenues and profit margins - The company faces significant currency exchange risks due to revenues and expenses in multiple currencies, which can lead to adverse effects from exchange rate fluctuations[49](index=49&type=chunk) - Most contracts are fixed-price, meaning the company assumes the risk of increased or unexpected costs, which could reduce profits or lead to losses[51](index=51&type=chunk) - Fluctuations in revenues and profit margins can occur due to changes in pricing, sales volume, project mix, and adjustments in estimated project gross profits under percentage-of-completion accounting[53](index=53&type=chunk) - The company is subject to 'buy-back' or 'offset' obligations in international programs, and failure to meet these could result in contractual penalties and impair future business opportunities[58](index=58&type=chunk) [Risks Related to Legal and Regulatory Requirements](index=12&type=section&id=Risks%20Related%20to%20Legal%20and%20Regulatory%20Requirements) Legal and regulatory risks encompass compliance with government procurement and anti-bribery rules, dependence on export approvals, and protection of proprietary technology - Compliance with government contracting, anti-bribery/corruption, and export regulations is critical; non-compliance could lead to contract termination, penalties, or debarment[62](index=62&type=chunk)[63](index=63&type=chunk) - The company's business relies on proprietary technology, and its ability to protect intellectual property may be limited by ineffective IP laws, difficulty in detecting infringements, and the risk of independent development by competitors[66](index=66&type=chunk)[67](index=67&type=chunk) [Other Risks Related to Our Business](index=14&type=section&id=Other%20Risks%20Related%20to%20Our%20Business) Other business risks include inadequate insurance coverage, share price volatility, and the significant influence of a major shareholder - The company's share price may be volatile due to factors beyond its control, including operating results, analyst recommendations, market perceptions, and geopolitical events[72](index=72&type=chunk)[73](index=73&type=chunk) - Federmann Enterprises Ltd. (FEL) owns approximately **44.3% of the company's ordinary shares**, granting it significant influence over certain shareholder-approved matters, such as director elections[74](index=74&type=chunk) [Risks Related to Our Israeli Operations](index=14&type=section&id=Risks%20Related%20to%20Our%20Israeli%20Operations) Risks specific to Israeli operations include the impact of regional political and military conditions, potential limitations on international sales, and changes in government spending or tax benefits - Political, economic, and military conditions in Israel and the Middle East directly affect operations and could have a material adverse effect on the business[75](index=75&type=chunk) - Israeli government approval is required for acquisitions of 'means of control' in Israeli defense companies, which could limit potential purchasers of the company's shares[82](index=82&type=chunk) - As a foreign private issuer, the company is exempt from certain SEC requirements, which may result in shareholders receiving less information and protection compared to a domestic U.S. company[83](index=83&type=chunk) [Item 4. Information on the Company](index=17&type=section&id=Item%204.%20Information%20on%20the%20Company) [Business Overview](index=17&type=section&id=Business%20Overview) Elbit Systems is an international high-technology company primarily engaged in defense and homeland security, offering a broad portfolio of airborne, land, and naval systems, products, and support services - Elbit Systems is an international high-technology company focused on defense and homeland security, providing airborne, land, and naval systems, products, and support services[89](index=89&type=chunk) - Key activities include military aircraft and helicopter systems, commercial aviation systems, unmanned aircraft systems, electro-optic systems, naval systems, land vehicle systems, munitions, C4ISR and cyber systems, and electronic warfare systems[90](index=90&type=chunk) - The market environment shows increasing demand for technological solutions incorporating AI, Big Data, robotics, automation, and information assurance in defense and homeland security, despite the impact of Covid-19 on commercial aviation[92](index=92&type=chunk) [Revenues](index=18&type=section&id=Revenues) The company's consolidated revenues for 2020 reached **$4,663 million**, with airborne systems and land systems being the largest contributors, and North America and Israel as major geographic sources Consolidated Revenues by Major Areas of Operations (2018-2020) | Major Areas of Operations | 2018 (U.S. dollars in millions) | 2019 (U.S. dollars in millions) | 2020 (U.S. dollars in millions) | |:--------------------------|:--------------------------------|:--------------------------------|:--------------------------------| | Airborne systems | $1,470 | $1,617 | $1,650 | | C4ISR systems | $1,130 | $1,162 | $1,146 | | Land systems | $649 | $1,228 | $1,259 | | Electro-optic systems | $334 | $374 | $476 | | Other | $101 | $127 | $132 | | **Total** | **$3,684** | **$4,508** | **$4,663** | Consolidated Revenues by Geographic Region (2018-2020) | Geographic Region | 2018 (%) | 2019 (%) | 2020 (%) | |:------------------|:---------|:---------|:---------| | Israel | 20% | 24% | 24% | | North America | 27% | 28% | 32% | | Europe | 20% | 18% | 17% | | Asia-Pacific | 21% | 23% | 21% | | Latin America | 5% | 4% | 3% | | Others | 7% | 3% | 3% | [Subsidiary Organizational Structure](index=19&type=section&id=Subsidiary%20Organizational%20Structure) The company's major wholly-owned subsidiaries, including Elbit Systems of America, operate across various defense and homeland security activities, with ESA operating under a Special Security Agreement for classified U.S. programs - Elbit Systems of America (ESA) provides products and systems for U.S. military, homeland security, medical instrumentation, and commercial aviation, operating under a Special Security Agreement (SSA) with the DoD to handle classified U.S. government programs[103](index=103&type=chunk)[104](index=104&type=chunk) - Other major Israeli subsidiaries include C4I and Cyber (C4ISR, cyber intelligence), Elisra (EW, SIGINT, C4ISR), Elop (electro-optic systems), and ELS (land-based systems, munitions, vehicle protection)[105](index=105&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk) [Mergers, Acquisitions and Divestitures](index=20&type=section&id=Mergers%2C%20Acquisitions%20and%20Divestitures) Mergers, acquisitions, and joint ventures are a key part of the company's growth strategy, focusing on expanding product offerings, technical capabilities, and customer base, while also divesting non-core businesses - The company's growth strategy includes mergers, acquisitions, and joint ventures to expand product/service offerings, technical capabilities, and customer base, with investments primarily in Israel and North America[109](index=109&type=chunk)[110](index=110&type=chunk) - Divestiture of non-core businesses is also pursued to optimize holdings[111](index=111&type=chunk) [Current Business Operations](index=20&type=section&id=Current%20Business%20Operations) The company's operations are project-oriented and inter-related, involving development, production, service, and support across various defense, homeland security, and commercial applications - Operations are project-oriented, often involving multiple subsidiaries to leverage diverse skills and resources for development, production, service, and support activities[112](index=112&type=chunk)[113](index=113&type=chunk) - Product solutions span military aircraft, commercial aviation, UAS, electro-optics, naval, land vehicle systems, munitions, C4I, cyber, and EW/SIGINT, with services including logistic support and training[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk)[123](index=123&type=chunk)[124](index=124&type=chunk) [Property, Plant and Equipment](index=22&type=section&id=Property%2C%20Plant%20and%20Equipment) The company operates manufacturing and assembly facilities globally, with recent annual net investment in facilities averaging approximately **$135 million** Facilities Owned or Leased by the Company (Square Feet) | Location | Owned (sq ft) | Leased (sq ft) | |:--------------|:--------------|:---------------| | Israel | 2,770,000 | 6,561,000 | | U.S. | 581,000 | 1,145,000 | | Other Countries | 1,093,000 | 591,000 | - Average annual net investment in facilities over the last two years was approximately **$135 million**, and current facilities are deemed adequate for operations[130](index=130&type=chunk) [Governmental Regulation](index=22&type=section&id=Governmental%20Regulation) The company is subject to extensive governmental regulations across its operations, including defense contracting, export controls, foreign investment reviews, and environmental standards - Operations are governed by strict defense and government contract regulations in Israel and the U.S., including cost accounting, cyber protection, and anti-bribery rules, with non-compliance carrying severe penalties[131](index=131&type=chunk)[140](index=140&type=chunk)[142](index=142&type=chunk) - International sales and procurement depend on export license approvals from various governments (Israel, U.S., etc.), which can be denied or revoked due to political conditions or sanctions[132](index=132&type=chunk)[133](index=133&type=chunk) - The Israeli Defense Entities Law may require government approval for acquisitions of 'means of control' in the company and its Israeli subsidiaries, potentially imposing restrictions on foreign ownership[135](index=135&type=chunk)[136](index=136&type=chunk) - The company is subject to environmental, health, and safety laws, as well as civil aviation and FDA regulations for its commercial and medical products[146](index=146&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk) [Buy-Back](index=24&type=section&id=Buy-Back) The company is subject to 'buy-back' or 'offset' obligations in many international defense contracts, requiring it to facilitate economic flow-back or technology transfer to the customer's country - International defense programs often include 'buy-back' or 'offset' provisions, obligating the company to make or facilitate transactions (e.g., procurement, investment, technology transfer) in the customer's country[149](index=149&type=chunk) [Financing Terms](index=25&type=section&id=Financing%20Terms) The company utilizes various financing terms for its contracts, including progress payments, customer advances, milestone payments, and extending credit, while also participating in Private Finance Initiatives - Financing terms include progress payments, customer advances, milestone payments, and extending credit, sometimes requiring guarantees from financial institutions or the company itself[151](index=151&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk) - The company engages in Private Finance Initiatives (PFI) for long-term project financing, which can involve pledging equity, providing guarantees, and increasing financial leverage[154](index=154&type=chunk) [Intellectual Property](index=25&type=section&id=Intellectual%20Property) The company relies on formally and non-formally protected intellectual property, safeguarding it through various measures, while governmental customers often retain rights to technologies developed under contracts - The company protects its proprietary technology through patents, trade secrets, copyrights, trademarks, and non-disclosure agreements[155](index=155&type=chunk) - Governmental customers, particularly the IMOD, typically retain specific rights to technologies and inventions developed under funded contracts, including the right to disclose to third parties and receive royalties on export sales[157](index=157&type=chunk) [Research and Development](index=26&type=section&id=Research%20and%20Development) The company strategically invests in R&D to anticipate customer needs, improve existing systems, and develop new technologies, with over **50%** of its workforce dedicated to technology-related functions - R&D efforts focus on anticipating customer operational needs, reducing time to market, and increasing affordability, with an emphasis on improving existing systems and developing new ones using emerging technologies[159](index=159&type=chunk)[160](index=160&type=chunk) - Over **50% of the total workforce** is engaged in technology-related functions, including research, development, and engineering[160](index=160&type=chunk) R&D Investment (2018-2020) | Category | 2018 (U.S. dollars in millions) | 2019 (U.S. dollars in millions) | 2020 (U.S. dollars in millions) | |:------------------|:--------------------------------|:--------------------------------|:--------------------------------| | Total Investment | $317.7 | $368.7 | $428.2 | | Less Participation | $(30.3) | $(36.9) | $(68.5) | | **Net Investment**| **$287.4** | **$331.8** | **$359.7** | [Manufacturing](index=27&type=section&id=Manufacturing) The company manufactures and assembles systems and products across its global facilities, integrating new manufacturing execution systems, emphasizing environmentally friendly practices, and maintaining continuity during the Covid-19 pandemic - Manufacturing and assembly occur in Israel, the U.S., Europe, Brazil, and Australia, with ongoing integration of new manufacturing execution systems for optimization[165](index=165&type=chunk) - The company conducts environmentally friendly manufacturing activities and maintained continuity during the Covid-19 pandemic through extensive monitoring[166](index=166&type=chunk) - Specialized facilities include a high-technology semiconductor manufacturing facility and U.S. FAA/FDA registered facilities for commercial avionics, aircraft components, and medical equipment[167](index=167&type=chunk)[168](index=168&type=chunk) [Seasonality](index=27&type=section&id=Seasonality) The company's business is not considered materially seasonal, although revenues may sometimes increase towards the end of a fiscal year - No material portion of the company's business is considered seasonal, though revenues may sometimes increase towards the end of a fiscal year[169](index=169&type=chunk) [Supply Chain](index=27&type=section&id=Supply%20Chain) The company manages its supply chain through a hybrid operating model, combining global commodity management with local subsidiary management to leverage economies of scale and reduce risks - A 'hybrid' operating model is used for supply chain activities, combining global commodity management with business line and subsidiary management to optimize efficiency and reduce risks[170](index=170&type=chunk) - The company is generally not dependent on single sources of supply and requires its supply chain to comply with a Supplier Code of Conduct, including standards on human trafficking, counterfeit parts, and conflict minerals[170](index=170&type=chunk) [Customer Satisfaction and Quality Assurance](index=27&type=section&id=Customer%20Satisfaction%20and%20Quality%20Assurance) The company is committed to continuous improvement in processes and quality assurance, from pre-contract to post-acceptance, utilizing project management methods and holding various quality certifications globally - The company emphasizes continuous improvement, defect prevention, and customer satisfaction throughout all operational stages, from development to after-sales support[171](index=171&type=chunk) - Operational sites hold numerous quality certifications, including ISO-9001, AS9100, ISO-14001, ISO-45001, ISO-27001, FAA Part 145, EASA Part 145/21G, and FDA GMP for medical equipment[174](index=174&type=chunk)[175](index=175&type=chunk) [Service and Warranty](index=29&type=section&id=Service%20and%20Warranty) The company provides comprehensive support services, including training, performance-based logistics, and flight school operations, typically offering a one or two-year warranty for its products - The company offers training, equipment, local support, and specialists for product maintenance, along with performance-based logistics and flight school operations[176](index=176&type=chunk) - Standard warranty periods are one to two years, with accruals for warranty obligations based on project-specific experience and engineering estimates[177](index=177&type=chunk) [Marketing and Sales](index=29&type=section&id=Marketing%20and%20Sales) The company actively identifies customer needs globally, marketing its systems as a prime or subcontractor, supported by subsidiaries, joint ventures, and representatives, with strategic cooperation agreements common for joint projects - Marketing and sales involve identifying customer needs, demonstrating prototypes, and selling as a prime or subcontractor to governments and companies worldwide[178](index=178&type=chunk)[179](index=179&type=chunk) - Elbit Systems of America leads U.S. sales and marketing, operating under a Special Security Agreement for classified programs[180](index=180&type=chunk) - Cooperation agreements with defense contractors and platform manufacturers are utilized for joint marketing and project performance globally[181](index=181&type=chunk) [Competition](index=29&type=section&id=Competition) The company operates in a highly competitive environment, competing on product performance, price, reputation, and technological expertise, with industry consolidation increasing the size and resources of competitors - Competition is based on product/program performance, price, reputation, reliability, life cycle costs, and responsiveness to customer requirements[182](index=182&type=chunk) - Industry consolidation has led to fewer but larger and more resource-rich competitors, including major international defense contractors like Boeing, Lockheed Martin, and Raytheon[184](index=184&type=chunk)[185](index=185&type=chunk) - The company competes through its systems development, technological expertise, operationally-proven performance, and ability to offer overall solutions, sometimes engaging in strategic cooperation with competitors[186](index=186&type=chunk) [Major Customers](index=30&type=section&id=Major%20Customers) The Israeli Ministry of Defense (IMOD) and the U.S. government are the company's major customers, each accounting for over **10%** of total revenues in recent years Major Customer Revenue Contribution (2018-2020) | Customer | 2018 (%) | 2019 (%) | 2020 (%) | |:----------------|:---------|:---------|:---------| | IMOD | 13% | 15% | 21% | | U.S. Government | 17% | 18% | 22% | [Environmental, Social and Governance (ESG) Practices](index=30&type=section&id=Environmental%2C%20Social%20and%20Governance%20(ESG)%20Practices) The company prioritizes ESG practices, including EHS compliance, strong corporate governance, ethics, anti-corruption, fair labor, human rights, supply chain compliance, and community engagement, overseen by the board - The company emphasizes ESG practices, including EHS, corporate governance, ethics, anti-corruption, fair labor, human rights, supply chain compliance, and social responsibility[188](index=188&type=chunk) - EHS compliance includes ISO-14001 and ISO-45001 standards, with measures to reduce consumption and incorporate environmental protection in manufacturing[189](index=189&type=chunk) - A strong ethics compliance program, including a Code of Business Conduct and Ethics and anti-bribery/corruption policies, is in place, with zero tolerance for corruption[190](index=190&type=chunk) - Fair labor practices, human rights, non-discriminatory hiring, gender diversity, and supply chain compliance (including avoiding human trafficking and conflict minerals) are key aspects of the ESG policy[192](index=192&type=chunk)[193](index=193&type=chunk) [Conditions in Israel](index=31&type=section&id=Conditions%20in%20Israel) The company's Israeli operations are influenced by trade agreements, government funding for R&D, and Israeli labor laws, with enforcement of foreign judgments subject to specific legal conditions - The company benefits from Israeli government programs like the Israel Innovation Authority and Investment Center, which provide funding and tax benefits for R&D and industrial investments, subject to specific conditions and royalty payments on future sales[196](index=196&type=chunk) - Israeli employees are subject to Israeli labor laws and collective bargaining agreements, which cover aspects like work hours, wages, insurance, and severance pay[197](index=197&type=chunk)[199](index=199&type=chunk)[200](index=200&type=chunk) - Enforcement of non-Israeli judgments in Israel is possible under specific conditions, including due process, non-conflict with Israeli law/public policy, and finality of judgment[201](index=201&type=chunk) [Item 4A. Unresolved Staff Comments](index=32&type=section&id=Item%204A.%20Unresolved%20Staff%20Comments) [Item 5. Operating and Financial Review and Prospects](index=33&type=section&id=Item%205.%20Operating%20and%20Financial%20Review%20and%20Prospects) [General](index=33&type=section&id=General) This section outlines critical accounting policies, long-term commitments, acquisitions, backlog, and industry trends, providing context for the company's financial performance [Critical Accounting Policies and Estimates](index=33&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The company's financial reporting relies on critical accounting policies and estimates, particularly for revenue recognition, business combinations, impairment testing, income taxes, and post-employment benefits, all involving significant management judgment - Revenue from most long-term fixed-price contracts is recognized over time using an input method (cost-to-cost measure of progress), requiring significant judgment in estimating total contract revenues and costs[207](index=207&type=chunk)[213](index=213&type=chunk)[214](index=214&type=chunk)[823](index=823&type=chunk) - Business combinations involve allocating purchase price to acquired assets and liabilities at fair value, requiring significant estimates for intangible assets and goodwill, which are subject to impairment testing[217](index=217&type=chunk)[218](index=218&type=chunk)[222](index=222&type=chunk) - The company records income taxes using the asset and liability approach, establishing reserves for uncertain tax positions and making judgments on entitlement to tax benefits[229](index=229&type=chunk)[230](index=230&type=chunk)[231](index=231&type=chunk) - Post-employment benefit plans (defined contribution and defined benefit) require actuarial valuations based on key assumptions like discount rates, expected return on assets, and mortality rates, which impact benefit obligations and costs[233](index=233&type=chunk)[234](index=234&type=chunk)[236](index=236&type=chunk) [Long-Term Arrangements and Commitments](index=37&type=section&id=Long-Term%20Arrangements%20and%20Commitments) The company has various long-term financial commitments, including royalty-bearing government funding for R&D, significant lease obligations, bank covenants, and substantial guarantees for customer advances and performance bonds - R&D expenditures are partially financed by the Israel Innovation Authority, requiring royalty payments on future sales of developed products[239](index=239&type=chunk) Future Minimum Lease Commitments (as of Dec 31, 2020) | Year | Amount (U.S. dollars in millions) | |:-----------------|:----------------------------------| | 2021 | $78.3 | | 2022 | $67.0 | | 2023 | $55.4 | | 2024 | $42.2 | | 2025 | $40.3 | | 2026 and thereafter | $291.9 | | **Total** | **$575.1** | - The company is obligated to meet financial covenants for bank credits and loans, including requirements for shareholders' equity, current ratio, and operating profit margin, which were met as of December 31, 2020 and 2019[241](index=241&type=chunk) Guarantees Issued by Financial Institutions | Year | Amount (U.S. dollars in millions) | |:-----|:----------------------------------| | 2020 | $2,471 | | 2019 | $1,983 | Purchase Commitments | Year | Amount (U.S. dollars in millions) | |:-----|:----------------------------------| | 2020 | $2,626 | | 2019 | $2,248 | [Backlog of Orders](index=38&type=section&id=Backlog%20of%20Orders) The company's backlog of firm customer commitments was **$11,024 million** as of December 31, 2020, with **65%** for orders outside Israel and a majority scheduled for performance in 2021-2022 Backlog of Orders (as of Dec 31) | Year | Amount (U.S. dollars in millions) | % for orders outside Israel | |:-----|:----------------------------------|:----------------------------| | 2020 | $11,024 | 65% | | 2019 | $10,029 | 61% | - Approximately **61% of the 2020 backlog** is scheduled for performance in 2021 and 2022, with the remaining **35%** in 2023 and 2024[248](index=248&type=chunk) [Trends](index=38&type=section&id=Trends) Key industry trends include increased focus on low-intensity conflicts, homeland security, and cyber warfare, driving demand for advanced technological solutions, despite a slowdown in commercial aviation due to Covid-19 - Defense and homeland security trends show increasing demand for technological solutions incorporating artificial intelligence, Big Data analytics, automation, robotics, and information assurance[249](index=249&type=chunk) - The COVID-19 pandemic caused a slowdown in commercial aviation markets, leading to approximately **$60 million** in non-cash expenses in Q3 2020 related to impairment and inventory write-offs[249](index=249&type=chunk) - Industry consolidation has increased the size and resources of competitors, and there's a growing trend for defense customers to require local work through buy-back/offset arrangements[250](index=250&type=chunk) [Summary of Operating Results](index=39&type=section&id=Summary%20of%20Operating%20Results) This section provides a detailed comparison of the company's operating results for 2020 vs. 2019 and 2019 vs. 2018, covering revenues, costs, profits, and net income Consolidated Statements of Income Summary (2018-2020) | Metric | 2020 ($ thousands) | 2019 ($ thousands) | 2018 ($ thousands) | |:------------------------------------------------------|:-------------------|:-------------------|:-------------------| | Revenues | 4,662,572 | 4,508,400 | 3,683,684 | | Cost of revenues | 3,497,465 | 3,371,933 | 2,707,505 | | Gross profit | 1,165,107 | 1,136,467 | 976,179 | | R&D expenses, net | 359,745 | 331,757 | 287,352 | | Marketing and selling expenses | 290,703 | 301,400 | 281,014 | | General and administrative expenses | 223,935 | 214,749 | 160,348 | | Other operating income, net | (34,963) | (33,049) | (45,367) | | Operating income | 325,687 | 321,610 | 292,832 | | Financial expenses, net | (71,270) | (69,072) | (44,061) | | Other expenses, net | 7,408 | (6,243) | (11,449) | | Income before taxes on income | 261,825 | 246,295 | 237,322 | | Taxes on income | (36,443) | (19,414) | (26,445) | | Equity in net earnings of affiliated companies | 12,604 | 1,774 | (2,222) | | Net income attributable to the Company's shareholders | 237,658 | 227,857 | 206,738 | | Diluted net earnings per share | $5.38 | $5.20 | $4.83 | [2020 Compared to 2019](index=40&type=section&id=2020%20Compared%20to%202019) In 2020, revenues increased to **$4,662.6 million**, driven by growth in airborne systems and electro-optics, with net income attributable to shareholders growing to **$237.7 million** Revenue Distribution by Areas of Operation (2019 vs. 2020) | Area of Operation | 2020 ($ millions) | 2020 (%) | 2019 ($ millions) | 2019 (%) | |:------------------|:------------------|:---------|:------------------|:---------| | Airborne systems | 1,650.4 | 35.4 | 1,617.2 | 35.9 | | C4ISR systems | 1,145.7 | 24.6 | 1,161.5 | 25.8 | | Land systems | 1,258.9 | 27.0 | 1,228.3 | 27.2 | | Electro-optic systems | 475.9 | 10.2 | 374.4 | 8.3 | | Other | 131.7 | 2.8 | 127.0 | 2.8 | | **Total** | **4,662.6** | **100.0**| **4,508.4** | **100.0**| Revenue Distribution by Geographical Regions (2019 vs. 2020) | Geographic Region | 2020 ($ millions) | 2020 (%) | 2019 ($ millions) | 2019 (%) | |:------------------|:------------------|:---------|:------------------|:---------| | Israel | 1,106.3 | 23.7 | 1,064.8 | 23.7 | | North America | 1,500.6 | 32.2 | 1,260.5 | 28.0 | | Europe | 819.0 | 17.6 | 853.7 | 18.9 | | Asia-Pacific | 961.8 | 20.6 | 1,029.6 | 22.8 | | Latin America | 140.1 | 3.0 | 158.1 | 3.5 | | Other | 134.8 | 2.9 | 141.7 | 3.1 | | **Total** | **4,662.6** | **100.0**| **4,508.4** | **100.0**| - Gross profit margin slightly decreased from **25.2% in 2019 to 25.0% in 2020**, with cost of revenues in 2020 including approximately **$60 million** in non-cash expenses for asset impairment and inventory write-offs due to COVID-19's impact on commercial aviation[264](index=264&type=chunk)[266](index=266&type=chunk) - Net R&D expenses increased from **$331.8 million (7.4% of revenues) in 2019 to $359.7 million (7.7% of revenues) in 2020**[268](index=268&type=chunk) - Net income attributable to shareholders increased to **$237.7 million in 2020 from $227.9 million in 2019**, with diluted EPS rising from **$5.20 to $5.38**[281](index=281&type=chunk) [2019 Compared to 2018](index=44&type=section&id=2019%20Compared%20to%202018) In 2019, consolidated revenues significantly increased to **$4,508.4 million** from **$3,683.7 million** in 2018, primarily due to acquisitions and increased sales in airborne and land systems Revenue Distribution by Areas of Operation (2018 vs. 2019) | Area of Operation | 2019 ($ millions) | 2019 (%) | 2018 ($ millions) | 2018 (%) | |:------------------|:------------------|:---------|:------------------|:---------| | Airborne systems | 1,617.2 | 35.9 | 1,470.1 | 39.9 | | C4ISR systems | 1,161.5 | 25.8 | 1,130.1 | 30.7 | | Land systems | 1,228.3 | 27.2 | 649.1 | 17.6 | | Electro-optic systems | 374.4 | 8.3 | 333.9 | 9.1 | | Other | 127.0 | 2.8 | 100.5 | 2.7 | | **Total** | **4,508.4** | **100.0**| **3,683.7** | **100.0**| Revenue Distribution by Geographical Regions (2018 vs. 2019) | Geographic Region | 2019 ($ millions) | 2019 (%) | 2018 ($ millions) | 2018 (%) | |:------------------|:------------------|:---------|:------------------|:---------| | Israel | 1,064.8 | 23.6 | 740.2 | 20.1 | | North America | 1,260.5 | 28.0 | 979.2 | 26.6 | | Europe | 853.7 | 18.9 | 737.1 | 20.0 | | Asia-Pacific | 1,029.6 | 22.8 | 791.8 | 21.5 | | Latin America | 158.1 | 3.5 | 192.4 | 5.2 | | Other | 141.8 | 3.2 | 243.0 | 6.6 | | **Total** | **4,508.5** | **100.0**| **3,683.7** | **100.0**| - Gross profit margin declined from **26.5% in 2018 to 25.2% in 2019**, attributed to a less favorable sales mix and lower gross profit from the IMI acquisition[291](index=291&type=chunk) - Net R&D expenses increased from **$287.4 million (7.8% of revenues) in 2018 to $331.8 million (7.4% of revenues) in 2019**[292](index=292&type=chunk) - Net income attributable to shareholders increased to **$227.9 million in 2019 from $206.7 million in 2018**, with diluted EPS rising from **$4.83 to $5.20**[304](index=304&type=chunk) [Cash Flow](index=47&type=section&id=Cash%20Flow) The company's cash flow is influenced by project-specific timing of payments and expenses, with net cash from operating activities at **$279 million** in 2020 and **$(53) million** used in 2019 - Operating cash flow is affected by the timing of customer advances and accounts receivable collection versus project payments, leading to period-to-period variations[306](index=306&type=chunk) - In 2020, net cash provided by operating activities was approximately **$279 million**, primarily from increased customer advances, offset by increases in trade receivables and inventories[308](index=308&type=chunk) - In 2019, net cash used for operating activities was approximately **$53 million**, mainly due to increases in trade receivables and inventories, and a decrease in customer advances[311](index=311&type=chunk) - Net cash used in investing activities was **$23 million in 2020** and **$107 million in 2019**, primarily for property, plant, and equipment purchases and acquisitions[309](index=309&type=chunk)[313](index=313&type=chunk) - Net cash used in financing activities was **$198 million in 2020** (repayment of loans and dividends) and provided **$173 million in 2019** (new loans and share issuance)[310](index=310&type=chunk)[314](index=314&type=chunk) [Financial Resources](index=48&type=section&id=Financial%20Resources) The company's financial resources include profits, receivables, customer advances, government grants, and access to bank credit lines, maintaining compliance with financial covenants - Financial resources include profits, accounts receivable, customer advances, government funding, and access to bank credit lines and capital markets[315](index=315&type=chunk)[317](index=317&type=chunk) - The company met all financial covenants as of December 31, 2020 and 2019[316](index=316&type=chunk) Key Financial Resources (as of Dec 31, 2020) | Metric | Amount (U.S. dollars in millions) | |:------------------------|:----------------------------------| | Total borrowings | $740 | | Guarantees issued | $2,471 | | Cash balance | $279 | | Working capital | $651 | | Current ratio | 1.18 | [Pensions and Other Post-Retirement Benefits](index=48&type=section&id=Pensions%20and%20Other%20Post-Retirement%20Benefits) The company accounts for pensions and other post-employment benefits based on ASC 715, involving judgments about uncertain events and actuarial assumptions, with employee benefit liabilities at **$914 million** as of December 31, 2020 - Accounting for pensions and post-retirement benefits involves significant judgment on actuarial assumptions (e.g., retirement dates, salary levels, mortality rates, discount rates, return on assets)[321](index=321&type=chunk) Employee Benefit Liabilities (as of Dec 31, 2020) | Metric | Amount (U.S. dollars in millions) | |:---------------------------|:----------------------------------| | Employee benefit liabilities | $914 | | Severance funds | $294 | [Material Commitments for Capital Expenditures](index=49&type=section&id=Material%20Commitments%20for%20Capital%20Expenditures) Anticipated capital expenditures for 2020 and the subsequent fiscal year are higher than in 2019, mainly due to increased spending on buildings and ERP enhancements, which the company plans to fund from cash operations - Anticipated capital expenditures for 2020 and the subsequent fiscal year are higher than in 2019, driven by investments in buildings, ERP system enhancements, and other expenses[323](index=323&type=chunk) - These capital expenditures are planned to be paid using cash generated from operations[323](index=323&type=chunk) [Impact of Inflation and Exchange Rates](index=49&type=section&id=Impact%20of%20Inflation%20and%20Exchange%20Rates) The company's functional currency is the U.S. dollar, but it faces market risks from changes in interest rates and exchange rates, particularly the NIS/U.S. dollar rate, using derivative instruments to hedge these fluctuations - The U.S. dollar is the functional currency, but operations are exposed to market risks from interest rate and exchange rate changes, particularly the NIS/U.S. dollar rate[324](index=324&type=chunk)[329](index=329&type=chunk) - Derivative instruments (e.g., forward contracts) are used to limit exposure to exchange rate fluctuations, especially for NIS-denominated payroll expenses and long-term contracts, not for trading purposes[325](index=325&type=chunk)[326](index=326&type=chunk)[329](index=329&type=chunk)[334](index=334&type=chunk) - Inflation in Israel not offset by NIS devaluation against the U.S. dollar can negatively impact profitability of contracts paid in U.S. dollars or other foreign currencies but with NIS expenses[331](index=331&type=chunk) NIS/U.S. Dollar Exchange Rate and Inflation (2018-2020) | Year | Inflation Rate (%) | NIS vs. U.S. Dollar Change (%) | |:-----|:-------------------|:-------------------------------| | 2018 | +0.8% | -8.1% (depreciated) | | 2019 | +0.6% | +7.8% (strengthened) | | 2020 | -0.7% | +7.0% (strengthened) | Outstanding Foreign Exchange Forward Contracts (as of Dec 31, 2020) | Currency | Notional Amount (U.S. dollars in millions) | |:---------|:-------------------------------------------| | Euro | $500 | | GBP | $114 | | Other | $248 | | **Total**| **$863** | [Off-Balance Sheet Transactions](index=51&type=section&id=Off-Balance%20Sheet%20Transactions) The company has significant off-balance sheet 'buy-back' or 'offset' obligations totaling approximately **$1.68 billion** as of December 31, 2020, extending through 2028, with potential penalties for non-fulfillment - The company has outstanding 'buy-back' or 'offset' obligations totaling approximately **$1.68 billion** as of December 31, 2020, extending through 2028[344](index=344&type=chunk) - These commitments, common in the defense industry, involve placing direct work, vendor orders, technology transfer, investments, or other assistance in the customer's country[339](index=339&type=chunk)[340](index=340&type=chunk) - Failure to meet buy-back obligations can result in contractual penalties, drawing upon guarantees, and reduced chances for future business[342](index=342&type=chunk) [Non-GAAP Financial Data](index=52&type=section&id=Non-GAAP%20Financial%20Data) The company presents non-GAAP financial data to provide additional insights into business performance and facilitate comparisons, excluding non-recurring items, non-cash items, and significant exchange rate differences - Non-GAAP financial data is presented to offer additional information on business performance and trends, facilitating more meaningful comparisons over time[345](index=345&type=chunk) - Adjustments typically exclude non-recurring impacts, various non-cash items (e.g., amortization of intangibles, significant exchange rate differences), and items not considered part of regular ongoing business[346](index=346&type=chunk) Reconciliation of GAAP to Non-GAAP Financial Data (2018-2020) | Metric | 2020 (U.S. dollars in millions) | 2019 (U.S. dollars in millions) | 2018 (U.S. dollars in millions) | |:------------------------------------------------------|:--------------------------------|:--------------------------------|:--------------------------------| | GAAP gross profit | 1,165.1 | 1,136.5 | 976.2 | | Non-GAAP gross profit | 1,247.2 | 1,213.5 | 1,061.9 | | GAAP operating income | 325.7 | 321.6 | 292.8 | | Non-GAAP operating income | 390.1 | 379.7 | 340.7 | | GAAP net income attributable to Elbit Systems' shareholders | 237.7 | 227.9 | 206.7 | | Non-GAAP net income attributable to Elbit Systems' shareholders | 318.5 | 297.8 | 267.5 | | GAAP diluted net EPS | 5.38 | 5.20 | 4.83 | | Non-GAAP diluted net EPS | 7.20 | 6.79 | 6.25 | [Item 6. Directors, Senior Management and Employees](index=54&type=section&id=Item%206.%20Directors%2C%20Senior%20Management%20and%20Employees) [Directors and Executive Officers](index=54&type=section&id=Directors%20and%20Executive%20Officers) This section lists the Board of Directors and Executive Officers as of March 15, 2021, highlighting key roles, qualifications, and affiliations - Michael Federmann serves as Chair of the Board since 2000 and also as Chair and CEO of Federmann Enterprises Ltd. (FEL), which owns approximately **44.3% of the company's shares**[353](index=353&type=chunk) - Noaz Bar Nir and Bilha (Billy) Shapira serve as External Directors, with Mr. Bar Nir also chairing the Audit and Financial Statements Review Committee and possessing accounting and financial expertise[354](index=354&type=chunk)[356](index=356&type=chunk)[363](index=363&type=chunk) - Bezhalel Machlis has served as the company's President and CEO since 2013, having held various management positions in the company since 1991[366](index=366&type=chunk) - The executive officer team includes key roles such as Chief Legal Officer, Chief Compliance Officer, Chief Financial Officer, Executive Vice Presidents for Marketing, Business Development, Human Resources, Operations, Mergers and Acquisitions, and General Managers for various systems divisions[367](index=367&type=chunk)[369](index=369&type=chunk)[370](index=370&type=chunk)[371](index=371&type=chunk)[372](index=372&type=chunk)[373](index=373&type=chunk)[374](index=374&type=chunk)[375](index=375&type=chunk)[377](index=377&type=chunk)[378](index=378&type=chunk)[379](index=379&type=chunk)[380](index=380&type=chunk)[381](index=381&type=chunk)[382](index=382&type=chunk) [Compensation of Directors and Executive Officers](index=60&type=section&id=Compensation%20of%20Directors%20and%20Executive%20Officers) The company's compensation policy for Office Holders is governed by Israeli Companies Law, requiring periodic review and shareholder approval, with compensation including salaries, bonuses, and equity-based awards - The compensation policy for Office Holders (directors and executive officers) is subject to the Israeli Companies Law, requiring review by the compensation committee and board, and re-approval by shareholders every three years[384](index=384&type=chunk)[386](index=386&type=chunk) Aggregate Compensation Costs for Directors and Executive Officers (2020) | Group | Salaries, Fees and Commissions ($ thousands) | Bonuses ($ thousands) | Pension, and Similar Retirement Benefits ($ thousands) | |:----------------------|:---------------------------------------------|:----------------------|:-------------------------------------------------------| | All directors (11 persons) | $575 | — | — | | All executive officers (15 persons) | $10,089 | $1,290 | — | - The 2012 Phantom Bonus Retention Plan provides cash payments linked to stock price performance, with **no compensation costs recorded in 2020** for executive officers[395](index=395&type=chunk)[400](index=400&type=chunk) - The 2018 Equity Incentive Plan grants options to executive officers, with compensation costs of approximately **$4.1 million recorded in both 2019 and 2020**[401](index=401&type=chunk) - The five most highly compensated Office Holders in 2020 included the President and CEO, General Manager Land, Chief Financial Officer, former General Manager ISTAR, and General Manager Aerospace, with their compensation comprising salary, bonus, and stock option costs[410](index=410&type=chunk)[412](index=412&type=chunk)[413](index=413&type=chunk) [Board Practices](index=64&type=section&id=Board%20Practices) The company's board practices are governed by Israeli Companies Law and Nasdaq rules, requiring a majority of independent directors and specific compositions for committees, detailing director appointments and committee functions - Directors (excluding External Directors) are elected annually by shareholders, with the Board authorized to appoint new directors for vacancies[415](index=415&type=chunk) - The Board includes a minimum of two directors with 'financial and accounting expertise' and complies with Nasdaq rules requiring a majority of independent directors and independent committees[416](index=416&type=chunk)[421](index=421&type=chunk) - External Directors, required by Israeli law, serve three-year terms and must meet strict independence criteria, with at least one having financial/accounting expertise or professional competence[422](index=422&type=chunk)[427](index=427&type=chunk)[429](index=429&type=chunk)[434](index=434&type=chunk) - The Audit and Financial Statements Review Committee, Compensation Committee, and Corporate Governance and Nominating Committee are composed exclusively of independent directors, fulfilling both Israeli and Nasdaq requirements[437](index=437&type=chunk)[445](index=445&type=chunk)[451](index=451&type=chunk) [Employees](index=72&type=section&id=Employees) As of 2020, the company had **16,676 employees** globally, with **2,703** in the U.S., and a significant portion of Israeli and U.S. employees covered by collective bargaining agreements Total Employees (2018-2020) | Year | Total Employees | U.S. Employees | |:-----|:----------------|:---------------| | 2020 | 16,676 | 2,703 | | 2019 | 16,575 | 2,580 | | 2018 | 16,149 | 2,001 | - Approximately **5,290 employees in Israel and 500 in U.S. operations** are covered by collective bargaining agreements, with terms extending through various periods up to July 2024[456](index=456&type=chunk) [Share Ownership](index=73&type=section&id=Share%20Ownership) As of March 15, 2021, Federmann Enterprises Ltd. (FEL) controlled approximately **44.3%** of the company's outstanding ordinary shares, with no individual director or executive officer beneficially owning **1%** or more, excluding Michael Federmann's indirect control - Federmann Enterprises Ltd. (FEL) controls approximately **44.3% of the company's outstanding ordinary shares** as of March 15, 2021, with Michael Federmann being the controlling shareholder of FEL[471](index=471&type=chunk) - No individual director or executive officer beneficially owned **1% or more** of outstanding ordinary shares, excluding the FEL position[457](index=457&type=chunk) - The 2018 Equity Incentive Plan for Executive Officers had **905,000 options outstanding** as of December 31, 2020, with a weighted average exercise price of **$128.45**[1080](index=1080&type=chunk) [Item 7. Major Shareholders and Related Party Transactions](index=74&type=section&id=Item%207.%20Major%20Shareholders%20and%20Related%20Party%20Transactions) [Major Shareholders](index=74&type=section&id=Major%20Shareholders) As of March 15, 2021, Federmann Enterprises Ltd. (FEL) was the major shareholder, controlling approximately **44.3%** of the company's ordinary shares, with no other individual director or executive officer holding **1%** or more Beneficial Ownership of Ordinary Shares (as of March 15, 2021) | Name of Beneficial Owner | Amount Owned | Percent of Ordinary Shares | |:-------------------------------------------------------|:-------------|:---------------------------| | Federmann Enterprises Ltd. | 19,580,342 | 44.3% | | All executive officers and directors as a group (24 persons) | 31,367 | 0.07% | - Michael Federmann, through entities he controls, is the controlling shareholder of FEL, which holds approximately **44.3% of the company's outstanding shares**[471](index=471&type=chunk) - Approximately **11% of outstanding ordinary shares** were held in the United States by about 132 shareholders of record[475](index=475&type=chunk) [Related Party Transactions](index=76&type=section&id=Related%20Party%20Transactions) The company engages in routine transactions with related parties, including FEL-affiliated companies, for goods and services, which are not considered material or unusual and are approved in accordance with the Companies Law - The company conducts transactions with related parties, including FEL-affiliated companies, for goods and services (e.g., materials, hotel, catering)[480](index=480&type=chunk) - These related party transactions are not considered material or unusual and are approved according to the Companies Law[480](index=480&type=chunk) [Item 8. Financial Information](index=76&type=section&id=Item%208.%20Financial%20Information) [Export Sales](index=76&type=section&id=Export%20Sales) International sales constitute a significant portion of the company's total revenues, amounting to approximately **$3.56 billion** in 2020, representing **76%** of total sales - International sales (outside Israel) were approximately **$3.56 billion in 2020**, accounting for about **76% of total sales**[483](index=483&type=chunk) [Legal Proceedings](index=76&type=section&id=Legal%20Proceedings) The company is involved in various legal claims in the ordinary course of business, but management believes any financial impact beyond current accruals will not be materially adverse - The company is involved in legal claims in the ordinary course of business, but management believes the financial impact will not be materially adverse beyond existing accruals[484](index=484&type=chunk)[1062](index=1062&type=chunk) [Dividend Distributions](index=77&type=section&id=Dividend%20Distributions) The company does not have an established dividend policy but has consistently paid a quarterly dividend, with the Board approving payments from surplus earnings subject to legal limitations - The company does not have an established dividend policy but has consistently paid a quarterly dividend[486](index=486&type=chunk) - The Board may approve dividends from surplus earnings, subject to legal limitations and a policy not to declare dividends from tax-exempt income[486](index=486&type=chunk)[1097](index=1097&type=chunk) Aggregate Quarterly Dividend Payments (2018-2020) | Year | Dividend per share | |:-----|:-------------------| | 2018 | $1.76 | | 2019 | $1.76 | | 2020 | $1.67 | [Item 9. The Offer and Listing](index=77&type=section&id=Item%209.%20The%20Offer%20and%20Listing) [Share Listings and Trading Prices](index=77&type=section&id=Share%20Listings%20and%20Trading%20Prices) The company's ordinary shares are listed and traded on both the Nasdaq Global Select Market and the Tel-Aviv Stock Exchange (TASE) under the symbol "ESLT" - Ordinary shares are listed on the Nasdaq Global Select Market and the Tel-Aviv Stock Exchange (TASE) under the symbol "ESLT"[488](index=488&type=chunk) [Item 10. Additional Information](index=77&type=section&id=Item%2010.%20Additional%20Information) [General Provisions of Israeli Law and Related Provisions of Articles of Association](index=77&type=section&id=General%20Provisions%20of%20Israeli%20Law%20and%20Related%20Provisions%20of%20Articles%20of%20Association) This section outlines the company's adherence to Israeli Companies Law and its Restated Articles of Association, covering registration, purpose, director procedures, and fiduciary duties of Office Holders - The company is registered with the Israeli Companies Registrar (registration number 52-004302-7) and operates under the Israeli Companies Law and its Restated Articles of Association[489](index=489&type=chunk)[490](index=490&type=chunk) - An 'Office Holder' includes directors, general managers, and other senior managers, who owe fiduciary duties of care and loyalty to the company[495](index=495&type=chunk)[496](index=496&type=chunk) - Directors affiliated with major shareholders (like FEL) are excluded from decisions involving transactions between the company and those affiliates, requiring special authorization under the Companies Law[497](index=497&type=chunk) [Approval of Certain Transactions](index=78&type=section&id=Approval%20of%20Certain%20Transactions) The Israeli Companies Law mandates specific approval procedures for certain transactions, especially those involving related parties, Office Holders, or controlling shareholders, often requiring multiple committee and shareholder approvals - The Companies Law requires specific approval procedures for transactions with related parties, including Office Holders and controlling shareholders, often involving the audit committee, compensation committee, board, and shareholders[500](index=500&type=chunk)[501](index=501&type=chunk) - An 'Extraordinary Transaction' is defined as one outside the ordinary course of business, not on market terms, or likely to have a material impact on the company's financials[504](index=504&type=chunk) - Employment terms for Office Holders, especially the CEO, directors, or controlling shareholders, require approval from both the compensation committee and the board, and often shareholder approval by a 'Special Uninterested Majority'[510](index=510&type=chunk) [Exemption, Insurance and Indemnification of Directors and Officers](index=81&type=section&id=Exemption%2C%20Insurance%20and%20Indemnification%20of%20Directors%20and%20Officers) The company's Articles of Association permit the exemption, insurance, and indemnification of directors and officers for liabilities arising from their roles, including D&O liability insurance with a **$100 million** limit - The company's Articles of Association permit exemption, insurance, and indemnification of directors and officers for liabilities related to their duties, in accordance with Israeli Companies Law and Securities Law[524](index=524&type=chunk)[525](index=525&type=chunk)[526](index=526&type=chunk) - D&O liability insurance is in place, with a limit of **$100 million** and an annual premium of approximately **$2.1 million** as of March 15, 2021[537](index=537&type=chunk) - Indemnification letters have been approved for Board members and other Office Holders, with those for controlling shareholders requiring re-approval every three years[532](index=532&type=chunk)[533](index=533&type=chunk) [Rights, Preferences and Restrictions of Shares](index=85&type=section&id=Rights%2C%20Preferences%20and%20Restrictions%20of%20Shares) Elbit Systems has one type of share: ordinary shares, with a nominal value of NIS 1 each, with **44,200,164** shares issued and outstanding as of March 15, 2021, conferring voting and dividend rights - The company has **44,200,164 ordinary shares** issued and outstanding as of March 15, 2021, each with a nominal value of NIS 1, conferring voting and dividend rights[539](index=539&type=chunk) [Taxation](index=85&type=section&id=Taxation) This section details the tax laws applicable to the company in Israel and the U.S., including corporate tax rates, benefits under the Investment Law, the 'Innovation Box Regime' for IP-based income, and capital gains and dividend taxation - Israeli corporate tax rate is generally **23%** since January 1, 2018[550](index=550&type=chunk) - The company and its Israeli subsidiaries qualify for tax benefits under the Investment Law (e.g., 'Approved Enterprise' status with reduced rates and exemptions), offering reduced tax rates (e.g., **6% or 12%** for IP-based income) and exemptions[551](index=551&type=chunk)[553](index=553&type=chunk)[554](index=554&type=chunk)[1004](index=1004&type=chunk)[1012](index=1012&type=chunk)[1013](index=1013&type=chunk) - Tax-exempt income from 'Approved Enterprises' is subject to tax upon dividend distribution or liquidation, but the company's policy is not to declare dividends from such income[1001](index=1001&type=chunk)[1002](index=1002&type=chunk) - U.S. tax reform (2017 Tax Act) reduced the U.S. corporate income tax rate from **35% to 21%** effective January 1, 2018, impacting the company's U.S. subsidiaries[1020](index=1020&type=chunk) - Capital gains on shares traded on TASE and Nasdaq are generally exempt from Israeli capital gains tax for non-Israeli residents, subject to certain conditions and tax treaty provisions[557](index=557&type=chunk)[562](index=562&type=chunk) - Dividends paid to non-residents of Israel are subject to withholding tax (e.g., **25% or 30%**, or reduced rates like **15% or 20%** for 'Preferred Income' and **4%** for 'Special Preferred Technological Enterprise')[559](index=559&type=chunk)[560](index=560&type=chunk)[561](index=561&type=chunk) [United States Federal Income Tax Considerations](index=88&type=sec

Financial Data and Key Metrics Changes - The third quarter 2020 revenues were $1,134 million, with a non-GAAP gross margin of 26.7%, up from 26.3% in the same quarter last year [13][16] - GAAP gross margin was 20.9%, down from 26% in the third quarter of last year due to non-cash expenses related to inventory write-offs and asset impairment [16] - Non-GAAP operating income was $93 million, or 8.2% of revenues, compared to $81 million, or 7.3% of revenues in the third quarter of last year [17] - GAAP operating income was $24 million, down from $102 million in the same quarter last year [18] - Non-GAAP diluted EPS was $1.64 compared to $1.33 in the third quarter last year, while GAAP EPS was $0.38 versus $1.63 last year [21] Business Line Data and Key Metrics Changes - Land system sales accounted for 29% of total sales and increased year-over-year, mainly due to precision guided munitions sales to North America and Asia Pacific [13] - Electro-optics accounted for 10% of total sales and increased year-over-year, primarily due to the acquisition of Elbit Night Vision [14] - C4ISR, which accounted for 25% of sales, declined year-over-year due to lower radio sales to Latin America [14] Market Data and Key Metrics Changes - North America was the largest geographic area, accounting for 13% of total revenues, followed by Israel at 25%, Asia Pacific at 22%, Europe at 19%, and Latin America at 2% [15] - Growth in Israel was driven by tank fire control systems, while the decline in Latin America was attributed to lower C4ISR sales [15] Company Strategy and Development Direction - The company plans to reorganize some business activities to leverage synergies across manned and unmanned military aircraft and integrate electro-optical systems with electronic warfare and signal intelligence businesses [28] - The company expects defense budgets to grow due to geopolitical tensions and countries' needs to stimulate growth and support domestic employment [25][26] - The company is focused on integrating artificial intelligence and data analysis into command and control solutions, which is expected to be a significant growth driver [36] Management's Comments on Operating Environment and Future Outlook - Management noted that there has been no change in demand for products and services from customers globally, and the backlog growth indicates sustained demand [24] - The company has not seen indications of defense budget cuts in most countries, and geopolitical tensions are expected to continue driving defense budget growth [25] - Management expressed optimism about the potential synergies from the acquisition of Elbit Night Vision and the integration of various business units [31] Other Important Information - The order backlog as of September 30, 2020, was $10.9 billion, more than $1 billion higher than the backlog at the end of the third quarter of 2019 [11][22] - Operating cash flow for the quarter was negative $62 million, reflecting working capital outflow due to the timing of invoicing and collections [23] Q&A Session Summary Question: Can you discuss free cash flow and working capital balance? - Management indicated challenges with the Ministry of Defense in Israel regarding budget discussions, which delayed payments [43][44] Question: What are the organic growth trends, particularly in land systems? - Management noted improvements in land systems due to integration with IMI and increased sales to the Ministry of Defense [48] Question: Can you provide details on commercial aerospace exposure? - Management stated that non-defense business is less than 10%, with commercial aviation being a small part, and expects recovery in traffic levels by 2023-2024 [53][54] Question: What is the primary driver of the reorganization? - The reorganization aims to generate synergies and enhance revenue, aligning business development activities [58] Question: What is the financial potential of partnerships with BAE? - Management highlighted a joint proposal for a tender to replace the Bradley fleet in the U.S. market, indicating significant potential [65]