Elbit Systems(ESLT)2025-03-20 10:04Currency and Financial Risks - The company faces significant currency exchange risks due to substantial revenues generated in currencies other than the U.S. dollar, primarily New Israeli Shekels (NIS), Great Britain Pounds (GBP), and Euros, which could adversely affect costs and financial performance[57]. - Increased levels of inflation and interest rates have raised borrowing costs and operational expenses, with central banks tightening monetary policies since 2021, impacting the company's financial condition[58]. - Revenue and profit margins may fluctuate significantly due to changes in pricing, sales volume, and project mix, complicating financial forecasting[61]. - The effective tax rate may fluctuate due to changes in revenue mix, tax laws, and audits, potentially affecting income tax expenses[69]. - Changes in tax laws, including the OECD's BEPS project and the U.S. Inflation Reduction Act, could materially affect the company's financial position and tax obligations[70]. Contractual and Operational Risks - The company is exposed to cost overruns in fixed-price contracts, which could lead to reduced profits or losses due to unexpected costs, particularly in design, engineering, and material procurement[59]. - Pre-contract costs incurred for anticipated contracts may not be recoverable if contracts are not awarded, posing a risk to financial performance[60]. - The backlog of projects is subject to unexpected adjustments, delays, and cancellations, which can adversely affect future revenue and cash flow[63]. - The company faces risks related to debt obligations, including compliance with covenants that may limit operational flexibility and financing opportunities[64]. - Internal control systems may have inherent limitations, potentially leading to financial reporting errors or fraud, which could adversely impact the company's reputation and financial condition[65]. Supply Chain and Production Challenges - Supply chain disruptions have occurred due to temporary evacuations of employees, significant call-ups for military reserve duty, and increased transportation costs[92]. - The ongoing conflict has led to delays in receiving materials and components, impacting the company's ability to meet customer obligations[92]. - The company has relocated certain production lines and increased monitoring of global supply chains to address delays and shortages caused by the war[93]. - As of March 6, 2025, most relocated production lines have returned to their original locations, and the percentage of employees called up for reserve duty has decreased but remains above historical levels[93]. Regulatory and Compliance Risks - The company is subject to various legal and regulatory requirements, including compliance with government procurement and anti-bribery regulations, which increase performance and compliance costs[77]. - The company faces risks related to obtaining governmental approvals for international sales and procurement, which have become more stringent since the outbreak of the war[78]. - The company may face increased costs and liabilities due to environmental protection, health, and safety regulations, which have become more stringent[80]. Geopolitical and Economic Factors - The geopolitical environment, including military activities and conflicts, could materially and adversely affect the company's financial condition and results of operations[89]. - The Israeli government may reduce its expenditures for defense items or change its defense priorities, which could adversely affect earnings[97]. - Between 2019 and 2023, Israel underwent five elections, leading to delays in adopting the defense budget, negatively impacting operations[99]. - In October 2024, S&P Global downgraded Israel's long-term credit rating from A+ to A with a negative outlook, reflecting heightened security risk[100]. - Changes in the Israeli economy, including inflation and budgetary constraints, could adversely impact business operations and financial results[100]. Workforce and Employment Issues - The company has incurred costs related to employees on reserve duty that are not fully indemnified by the government, potentially affecting financial condition and cash flow[95]. - As of March 6, 2025, approximately 4% of the workforce in Israel was called for military reserve duty, down from 5% as of December 31, 2024[95]. Strategic and Market Risks - The Israeli Defense Entities Law may impose restrictions on acquisitions of controlling interests in defense companies, affecting potential mergers and acquisitions[102]. - The company may face difficulties in international trade due to political relations and boycotts against Israeli firms, which have increased since the "Swords of Iron" war[96]. - Israeli government programs and tax benefits may be reduced or eliminated in the future, impacting funding for technology and product development[101]. Miscellaneous - The war has resulted in physical damage to facilities and may adversely affect business activities with third parties[94]. - The company is exempt from certain SEC requirements as a foreign private issuer, which may result in less information being available to shareholders[106].