UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

for the fiscal year ended December 31, ~~2017~~2019

Commission File No. 0-28998

ELBIT SYSTEMS LTD.

(Exact name of registrant as specified in its charter and translation of registrant’s name into English)

Israel

(Jurisdiction of incorporation or organization)

Advanced Technology Center, Haifa3100401, Israel

(Address of principal executive offices)

Joseph Gaspar

c/o Elbit Systems Ltd.

P.O. Box 539

Advanced Technology Center

Haifa 3100401

Israel

Tel: ~~972-4-831-6404~~972-77-294-6404

Fax: ~~972-4-831-6944~~972-77-294-6944

E-mail: j.gaspar@elbitsystems.com

(Name, telephone, e-mail and/or facsimile number and address of Company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

~~Ordinary Shares, nominal value 1.0 New Israeli Shekels~~



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Ordinary Shares, nominal value 1.0 New Israeli Shekel per share	ESLT	The NASDAQ Global Select Market

~~(Title of Class)~~

~~The NASDAQ Global Select Market~~

~~(Name of each Exchange on which registered)~~

Securities registered or to be registered pursuant to Section 12(g) of the Act:

Not Applicable

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

Not Applicable

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: ~~42,751,030~~44,198,330 Ordinary Shares.

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yesý☒ No o☐

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes o ☐No ýNo☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesý☒ No o☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yesý☒ No o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “large accelerated filer,” “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check One).



Large accelerated filerý	☒	Accelerated filero	☐
Non-accelerated filero	☐	Emerging growth companyo	☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.



U.S. GAAPý	☒	International Financial Reporting o☐ Standards as issued by the International Accounting Standards Board	Other o☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 o☐ Item 18 No o☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o☐ No ý☒

Table of Contents



		Page

General Disclosure Standards		1

Cautionary Statement with Respect to Forward-Looking Statements		1

Item 1.	Identity of Directors, Senior Management and Advisers	2
Item 2.	Offer Statistics and Expected Timetable	2
Item 3.	Key Information	3
Item 4.	Information on the Company	1314
Item 4A.	Unresolved Staff Comments	2830
Item 5.	Operating and Financial Review and Prospects	2931
Item 6.	Directors, Senior Management and ~~Employees.~~Employees	4950
Item 7.	Major Shareholders and Related Party Transactions	66
Item 8.	Financial Information.	67
Item 9.	The Offer and Listing	68
Item 10.	Additional Information	69
Item 11.	Quantitative and Qualitative Disclosures About Market Risk	8683
Item 12.	Description of Securities Other than Equity Securities	8885
Item 13.	Defaults, Dividend Arrearages and Delinquencies	8885
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds.	8885
Item 15.	Controls and Procedures	8885
Item 16A.	Audit Committee Financial Expert	8986
Item 16B.	Code of Ethics	8987
Item 16C.	Principal Accountant Fees and Services	8987
Item 16D.	Exemptions from the Listing Standards for Audit Committees	9087
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	9088
Item 16F.	Change in Registrant’s Certifying Accountant	9088
Item 16G.	Corporate Governance	9088
Item 16H.	Mine Safety Disclosure	9088
Item 17.	Financial Statements	9088
Item 18.	Financial Statements	9088
Item 19.	Exhibits	9189

PART I

General Disclosure Standards

The consolidated financial statements of Elbit Systems Ltd. (Elbit Systems) included in this annual report on Form 20-F are prepared in accordance with United States generally accepted accounting principles (U.S. GAAP). Unless otherwise indicated, all financial information contained in this annual report is presented in U.S. dollars. References in this annual report to the “Company”, “we”, “our”, “us” and terms of similar meaning refer to Elbit Systems and our subsidiaries unless the context requires otherwise.

The name “ELBIT SYSTEMS”, and our logo, brand, product, service and process names appearing in this document, are the trademarks of the Company or our affiliated companies. All other brand, product, service and process names appearing in this document are the trademarks of their respective holders and appear for informational purposes only. Reference to or use of any third party mark, product, service or process name herein does not imply any recommendation, approval, affiliation or sponsorship of that or any other mark, product, service or process name. Nothing contained herein shall be construed as conferring by implication, estoppel or otherwise any license or right under any patent, copyright, trademark or other intellectual property right of the Company or any of our affiliated companies.

Cautionary Statement with Respect to Forward-Looking Statements

This annual report on Form 20-F contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, ~~and~~ Section 21E of the Securities Exchange Act of 1934, as ~~amended.~~amended and the Israeli Securities Law, 1968. These statements relate to our current plans, estimates, strategies, goals, beliefs, intents, expectations, assumptions, and ~~beliefs~~projections about future events and as such do not relate to historical or current fact. Forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended.

Forward-looking statements contained herein generally are identified by the words “anticipate”, “intend”, “believe”, "estimate," “project”, “expect”, “will likely result”, “strategy”, “plan”, “may”, “should”, “will”, “would”, “will be”, “will continue”, “will likely result” and similar expressions, and the negatives thereof. Forward-looking statements ~~are based on management’s current expectations, estimates, projections and assumptions,~~ are not guarantees of future performance and involve certain risks and uncertainties, the outcomes of which cannot be predicted. Therefore, actual future results, performance and trends may differ materially from these forward-looking statements due to a variety of factors, including, without limitation:

the scope and length of customer contracts;

governmental regulations and approvals;

changes in governmental budgeting priorities;

general market, political, health and economic conditions in the countries in which we operate or sell, including Israel and the United States among others;

the development and launch of our products, or their market acceptance;

our projected expenses and capital expenditures;

differences in anticipated and actual program performance, including the ability to perform under long-term fixed-price contracts;

the impact on our backlog from export restrictions by the Government of Israel;

our ability to achieve strategic goals from acquisitions of businesses and the risks associated with the integration of such businesses;

our ability to protect our proprietary information and avoid, withstand and/or recover from cyber attacks on our systems;

the effect of competitive products, technology and pricing;

our ability to attract, incentivize and retain key employees;

changes in applicable tax rates;

fluctuations in foreign currency exchange rates;

inventory write-downs and possible liabilities to customers from program cancellations due to political relations between Israel and countries where our customers may be located; and

the outcome of legal and/or regulatory proceedings.

The factors listed above are not all-inclusive, and further information about risks and other factors that may affect our future performance is contained in this annual report on Form 20-F. All forward-looking statements speak only as of the date of this annual report. Although we believe the expectations reflected in the forward-looking statements contained in this annual report are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements.

We expressly disclaim any obligation to update or review any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable law.

Item 1. Identity of Directors, Senior Management and Advisers.

Information not required in annual report on Form 20-F.

Item 2. Offer Statistics and Expected Timetable.

Information not required in annual report on Form 20-F.

Item 3. Key Information.

Selected Financial Data

The following selected consolidated financial data of the Company as of and for the years ended December 31, ~~2013, 2014,~~ 2015, 2016, 2017, 2018 and ~~2017~~2019 are derived from our audited consolidated financial statements, including our audited consolidated financial statements as of December 31, ~~2016~~2018 and ~~2017,~~2019, and for each of the years ended December 31, ~~2015, 2016~~2017, 2018 and ~~2017,~~2019, which appear in Item 18 in this annual report on Form 20-F. You should read the audited consolidated financial statements appearing in Item 18 together with the selected financial data set forth below. (For more information regarding GAAP and non-GAAP financial data see Item 5. Operating and Financial Review and ~~Prospects – Non-GAAP Financial Data.~~Prospects.)


	Years Ended December 31,															Years Ended December 31,
	(U.S. dollars in millions, except for per share amounts)															(U.S. dollars in millions, except for per share amounts)
	2013			2014			2015			2016			2017			2015			2016			2017			2018			2019
Income Statement Data:
Revenues	$	2,925.2		$	2,958.2		$	3,107.6		$	3,260.2		$	3,377.8		3,107.6			3,260.2			3,377.8			3,683.7			4,508.4
Cost of revenues	2,100.3			2,133.2			2,210.5			2,300.6			2,379.9			2,210.5			2,294.9			2,374.8			2,707.5			3,371.9
Gross profit	824.9			825.0			897.1			959.6			997.9			897.1			965.3			1,003.0			976.2			1,136.5
Research and development expenses, net	220.5			228.0			243.4			255.8			265.1			243.4			255.8			265.1			287.4			331.8
Marketing and selling expenses	235.5			216.5			239.4			271.0			280.2			239.4			271.0			280.2			281.0			301.4
General and administrative expenses	129.5			139.6			145.7			151.4			133.3			145.7			151.4			133.3			160.3			214.7
Gain from changes in holdings	—			(6.0		)	—			(17.6		)	—
Other operating income, net																—			(17.6		)	—			(45.4		)	(33.0		)
Total operating expenses	585.5			578.1			628.5			660.6			678.6			628.5			660.6			678.6			683.3			814.9
Operating income	239.4			246.9			268.6			299.0			319.3			268.6			304.7			324.4			292.9			321.6
Financial expenses, net	(37.3		)	(47.5		)	(20.2		)	(23.7		)	(34.5		)	(20.2		)	(23.7		)	(34.5		)	(44.1		)	(69.1		)
Other income, net	0.9			0.1			0.2			4.0			—
Other income (expenses), net																0.2			(1.7		)	(5.1		)	(11.4		)	(6.2		)
Income before taxes on income	203.0			199.5			248.6			279.3			284.8			248.6			279.3			284.8			237.4			246.3
Taxes on income	25.3			25.6			46.2			45.6			55.6			(46.2		)	(45.6		)	(55.6		)	(26.4		)	(19.4		)
Equity in net earnings of affiliated companies and partnerships	13.0			5.5			4.5			5.2			11.4
Net income from continuing operations, net	190.7			179.4			206.9			238.8			240.6
Income (loss) from discontinued operations, net	0.7			—			—			—			—
Equity in net earnings (losses) of affiliated companies and partnerships																4.5			5.2			11.4			(2.2		)	1.8
Net income	191.4			179.4			206.9			238.8			240.6			206.9			238.9			240.6			208.8			228.7
Less: net income (loss) attributable to non-controlling interests	(8.0		)	(8.4		)	(4.4		)	(1.9		)	(1.5		)
Less: net income attributable to non-controlling interests																(4.4		)	(1.9		)	(1.5		)	(1.9		)	(0.8		)
Income attributable to Elbit Systems’ shareholders	$	183.4		$	171.0		$	202.5		$	236.9		$	239.1		202.5			237.0			239.1			206.9			227.9



Earnings per share:
Basic net earnings per share																$	4.74		$	5.54		$	5.59		$	4.83		$	5.20
Continuing operations	$	4.34		$	4.01		$	4.74		$	5.54		$	5.59
Discontinued operations	0.01			—			—			—			—
Total	$	4.35		$	4.01		$	4.74		$	5.54		$	5.59

Diluted net earnings per share																$	4.74		$	5.54		$	5.59		$	4.83		$	5.20
Continuing operations	$	4.33		$	4.01		$	4.74		$	5.54		$	5.59
Discontinued operations	0.01			—			—			—			—
Total	$	4.34		$	4.01		$	4.74		$	5.54		$	5.59


	As of December 31,											As of December 31,
		(U.S. dollars in millions, except for per share amounts)											(U.S. dollars in millions, except for per share amounts)
		2013		2014		2015		2016		2017			2015		2016		2017		2018		2019
Balance Sheet Data:
Cash, cash equivalents, short-term bank deposits and marketable securities		265		306		332		245		173			332		245		173		225		223
Working capital		561		626		645		527		522			645		527		522		369		499
Long-term deposits, marketable securities and other receivables		53		18		16		16		38			16		16		38		43		58
Long-term trade and unbilled receivables		243		213		152		190		295			152		190		295		297		259
Property, plant and equipment, net		481		442		450		474		496			450		474		496		687		767
Total assets		3,933		4,021		4,124		4,352		4,715			4,124		4,352		4,715		6,451		7,335
Long-term debt		224		221		166		—		120			166		—		120		468		440
Series A Notes, net of current maturities		378		294		227		171		125			227		171		125		56		—
Capital stock		268		272		274		274		274			274		274		274		276		424
Elbit Systems shareholders’ equity		1,177		1,227		1,391		1,560		1,708			1,391		1,560		1,708		1,832		2,141
Non-controlling interests		17		12		8		7		10			8		7		10		22		18
Total equity		1,194		1,239		1,399		1,567		1,718			1,399		1,567		1,718		1,854		2,160
Number of outstanding ordinary shares of NIS 1 par value (in thousands)		42,587		42,685		42,730		42,746		42,751			42,766		42,782		42,787		42,789		44,198
Dividends paid per ordinary share with respect to the applicable year		$	1.20	$	1.28	$	1.44	$	1.60	$	1.76		$	1.44	$	1.60	$	1.76	$	1.76	$	1.76

Risk Factors

General Risks Related to Our Business and Market

Our revenues depend on a continued level of government business. We derive most of our revenues directly or indirectly from government agencies, mainly the Israeli Ministry of Defense (IMOD), the U.S. Department of Defense (DoD) and other military or governmental authorities of various countries, pursuant to contracts awarded to us under defense and homeland security-related programs. The funding of these programs could be reduced or eliminated due to numerous factors, including geo-political events and macro-economic conditions that are beyond our control. Reduction or elimination of government spending under our contracts ~~would~~could cause a negative effect on our revenues, results of operations, cash flow and financial condition.

~~Certain of our contracts may be terminated for convenience of the customer.~~ Our contracts with governments often contain provisions permitting termination for convenience of the customer. Our subcontracts with non-governmental prime contractors sometimes contain similar provisions permitting termination for the convenience of the prime contractors. In a minority of contracts with such customers, an early termination for convenience would not entitle us to reimbursement for a proportionate share of our fee or profit for work still in progress.

We depend on governmental approval of ~~our~~ exports. Our international sales, as well as our international procurement of skilled human resources, technology and components, depend largely on export license approvals from the governments of Israel, the U.S. and other countries. If we, our customers or our suppliers fail to obtain material approvals in the future, or if material approvals previously obtained are revoked or expire and are not renewed due to factors such as changes in political conditions or imposition of sanctions, our ability to sell our products and services to overseas customers and our ability to obtain goods and services essential to our business could be interrupted, resulting in a material adverse effect on our business, revenues, assets, liabilities and results of operations. ~~(See~~See Item 4. Information on the Company – Governmental Regulation.)

We are subject to government procurement and ~~anti-bribery~~anti-bribery/corruption rules and regulations. We are required to comply with government contracting rules and regulations relating to, among other things, cost accounting, sales of various types of munitions, anti-bribery and procurement integrity, which increase our performance and compliance costs. ~~(See~~See Item 4. Information on the Company – Governmental Regulation.) Failure to comply with these rules and regulations, whether directly or indirectly, could result in the modification, termination or reduction of the value of our contracts, the assessment of penalties and fines against us, or our suspension or debarment from government contracting or subcontracting for a period of time or criminal sanctions against us or our employees, all of which could negatively impact our results of operations and financial condition. We ~~are engaged in activities~~engage in certain markets considered to behave high ~~risk from an anti-bribery compliance perspective,~~bribery and ~~investigations~~corruption risks. Investigations by government agencies have become more frequent in a number of countries, including Israel inand the ~~anti-bribery area are increasingly prevalent.~~U.S.

We face ~~other~~ risks in our international operations. We derive a significant portion of our revenues from international sales. Entry into new markets as well as changes in international, political, economic or geographic conditions could cause significant reductions in our revenues, which could harm our business, financial condition and results of operations. In addition to the other risks from international operations set forth elsewhere in these Risk Factors, some of the risks of doing business internationally include international trade sanctions, imposition of tariffs and other trade barriers and restrictions. Imposition of import restrictions or tariffs by any government could lead to retaliatory actions by other countries with broad effects in many industries and economies internationally. Broad-based international trade conflicts could have negative consequences on the demand for our products and services outside Israel. Other risks of doing business internationally include political and economic instability in the countries of our customers and suppliers, changes in diplomatic and trade relationships and increasing instances of terrorism worldwide. Some of these risks may be affected by Israel’s overall political situation. ~~(See~~See “Risks Related to Our Israeli Operations” below.)

~~Funding obligations to our pension plans could reduce our liquidity.~~ ~~Funding obligations for certain of our pension plans are~~Our operations may be negatively impacted by the ~~performance~~Coronavirus pandemic. International health epidemics from communicable diseases, such as the recent outbreak of the ~~financial markets~~novel Coronavirus disease in 2019 (Covid-19), may impair our operations. We are actively assessing the potential impact of the Covid-19 pandemic on our operations, including on our employees, customers, suppliers and interest rates. When interest rates are low, or if the financial markets do not provide expected returns, we may be required to make additional contributions to these pension plans. Volatility in the equity markets or actuarial changes in mortality tables can change our estimate of future pension plan contribution requirements. (See Item 18. Financial Statements – Notes 2(S) and 17.)

~~We face currency exchange risks.~~ We generate a substantial amount of our revenues in currencies other than the U.S. dollar (our financial reporting currency), mainly New Israeli Shekels (NIS), Great Britain Pounds (GBP), Euros, Brazilian reals, Australian dollars and Indian rupees, and we incur a substantial amount of our expenses in currencies other than the U.S. dollar, mainly NIS. To the extent we derive our revenues or incur our expenses in currencies other than the U.S. dollar,logistics/transport providers. In addition, we are ~~subject~~evaluating the possible impact of governmental actions being taken to ~~exchange rate fluctuations between~~curtail the ~~U.S. dollar and~~spread of the virus, such ~~other currencies. For example, we could be negatively affected by exchange rate changes during the period from the date we submit a price proposal until the date~~as instructions regarding quarantine of contract award or until the date(s) of payment. Certain currency derivatives we use to hedge against exchange rate fluctuations may not fully protect against sharp exchange rate fluctuations, and in some cases we may not be able to adequately hedge against all exchange rate fluctuations. In addition, our international operations expose us to the risks of price controls,individuals, restrictions on holding of large scale events, workplace restrictions and international travel. We also are monitoring the ~~conversion~~impact of the pandemic on our industry and on governmental priorities, both in Israel and worldwide, as well as its macro-economic implications. We cannot presently estimate the impact of Covid-19, but the continued spread of that disease could prevent our employees, customers, suppliers and other business partners from conducting normal activities, potentially resulting in cessation, reduction or ~~repatriation~~delay of ~~currencies,~~business either voluntarily or ~~even devaluations or hyperinflation in the case of currencies issued~~ by ~~countries with unstable economies. All of these currency-related risks~~governmental mandate and could have a material adverse effect on our business, financial condition, results of operations and cash flow.

A cyber or security breach or disruption or failure in a computer system could adversely affect us.Our operations depend on the continued and secure functioning of our computer and communications systems and the protection of information stored in computer databases maintained by us and, in certain circumstances, by third parties. Such systems and databases are subject to breach, damage, disruption or failure from, among other things, cyber attacks and other unauthorized intrusions, power losses, telecommunications failures, earthquakes, fires and other natural disasters.

We have been subject to attempted cyber attacks, and our computer and communications systems and databases face ongoing threats of unauthorized access, computer hackers, computer viruses, malicious code, cyber crime, organized cyber attacks and other security problems and system disruptions. In particular, we may be targeted by experienced computer programmers and hackers (including those sponsored by foreign governments or terrorist organizations) who may attempt to penetrate our cyber security defenses and damage or disrupt our computer and communications systems and misappropriate or compromise our intellectual property or other confidential information or that of our customers.

Governmental and other end users and customers are increasingly requiring us or our subcontractors to meet specific computer system cyber protection and information assurance requirements and standards as a condition for us to receive customer program-related information. We devote significant resources to maintain and upgrade the security of our systems and databases and to meet applicable customer requirements regarding their protection. However, despite our efforts to secure our systems and databases and meet cyber protection and information assurance requirements, we may still face system failures, data breaches, loss of intellectual property and interruptions in our operations, which could have a material adverse effect on our business, financial condition and ~~financial results. (See below “Risks Related~~results of operations.

We are subject to ~~Our Israeli Operations – Changes in~~laws and contractual obligations regarding data privacy. Certain information we receive and maintain regarding our employees and third parties is subject to various local and national laws regarding privacy and data protection. Many of these laws are rapidly evolving and increasingly rigorous. In addition, we are frequently subject to contractual obligations requiring us to protect the ~~U.S. Dollar – NIS Exchange Rate”~~confidential information of customers. A failure or perceived failure by us to comply with laws, industry standards or contractual obligations regarding the protection of data could subject us to enforcement actions and ~~Item 5. Operating~~other litigation by customers and ~~Financial Review~~governmental authorities, fines, damages and ~~Prospects – Impact of Inflation and Exchange Rates.)~~negative publicity.

We operate in a competitive industry. The markets in which we participate are highly competitive and characterized by technological change. If we are unable to improve existing systems and products and develop new systems and technologies in order to meet evolving customer demands, our business could be adversely affected. In addition, our competitors could introduce new products with innovative capabilities, which could adversely affect our business. We compete with many large and mid-tier defense, homeland security and commercial aviation contractors on the basis of system performance, cost, overall value, delivery and reputation. Many of these competitors are larger and have greater resources than us, and therefore may be better positioned to take advantage of economies of scale and develop new technologies. Some of these competitors are also our suppliers in some programs.

Due to consolidation in our industry, we are more likely to compete with certain potential customers. As the number of companies in the defense industry has decreased in recent years, the market share of some prime contractors has increased. Some of these companies are vertically integrated with in-house capabilities similar to ours in certain areas. Thus, at times we could be seeking business from certain of these prime contractors, while at other times we could be in competition with some of them. Failure to maintain good business relations with these major contractors could negatively impact our business.

5We face acquisition and integration risks
.

From time to time we make equity or asset acquisitions and investments in companies and technology ventures . Such acquisitions generally are intended to achieve various strategic initiatives including the expansion of our product or service offerings, technical capabilities or customer base. See Item 4. Information on the Company – Mergers, Acquisitions and Divestitures. These acquisitions involve risks and uncertainties such as:

our pre-acquisition due diligence may fail to identify material risks;

significant acquisitions may negatively impact our financial results, including cash flow and financial liquidity;

significant goodwill assets recorded on our consolidated balance sheet from prior acquisitions are subject to impairment testing, and unfavorable changes in circumstances could result in impairment to those assets;

acquisitions may result in significant additional unanticipated costs associated with price adjustments or write-downs;

we may not integrate newly-acquired businesses and operations in an efficient and cost-effective manner;

relocation or combination of facilities of acquired businesses may be more costly or time consuming than planned;

we may fail to achieve the strategic objectives, synergies, cost savings and other benefits expected from acquisitions;

the technologies acquired may not prove to be those needed to be successful in our markets or may not have adequate intellectual property rights protection;

we may assume significant liabilities and exposures that exceed the enforceability or other limitations of applicable indemnification provisions, if any, or the financial resources of any indemnifying parties, including indemnity for tax or regulatory compliance issues, such as anti-corruption and environmental compliance, that may result in our incurring successor liability;

we may fail to retain key employees of the acquired businesses;

the attention of senior management may be diverted from our existing operations;

we may be exposed to potential shareholder claims if we acquire a significant interest in a publicly traded company; and

certain of our newly acquired operating subsidiaries in various countries could be subject to more restrictive regulations by the local authorities after our acquisition, including regulations relating to foreign ownership of, and export authorizations for, local companies.

We cannot assure that these risks or other unforeseen factors will not offset the intended benefits of the acquisitions, and such risks could have a material adverse effect on our financial condition and results of operation.

Our acquisitions are subject to governmental approvals. Most countries require local governmental approval of acquisitions of domestic defense and homeland security-related businesses, which approval may be denied, or subject to unfavorable conditions, if the local government determines the acquisition is not in its national interest. We may also be unable to obtain antitrust approvals for certain acquisitions as our operations expand. Failure to obtain such governmental approvals could negatively impact our future business and prospects.

We face risks of cost overruns in fixed-price contracts. Most of our contracts are fixed-price contracts, under which we generally assume the risk that increased or unexpected costs may reduce profits or generate a loss. The risk of adverse effects on our financial performance from such increased or unexpected costs can be particularly significant under a fixed-price contracts ~~for which we recognize profit or loss on a “percentage-of-completion” basis, and~~ for which changes in estimated gross profit/loss are recorded on a “cumulative catch-up basis”. ~~(See~~See Item 5. Operating and Financial Review and Prospects – General – Critical Accounting Policies and Estimates – Revenue Recognition and Item 18. Financial Statements - Note ~~2(T) (Significant Accounting Polities - Revenue Recognition).)~~2T. The costs most likely to fluctuate under our fixed price contracts relate to internal design and engineering efforts. However, we do not believe that changes in the market costs of particular commodities ~~that may be~~ used in the production of our products are likely to present a material risk to our costs. To the extent we underestimate the costs to be incurred in any fixed-price contract, we could experience a loss on the contract, which ~~would~~could have a negative effect on our results of operations, financial position and cash flow.

We have risks relating to pre-contract costs. We sometimes participate in “risk-sharing” contracts, or incur pre-contract costs relating to specific anticipated contracts or delivery orders, in which our non-recurring costs or other costs that are pre-contract costs are only recoverable if the contract or order is actually awarded or if there is a sufficient level of sales for the applicable product, which level of sales typically is not guaranteed. If the anticipated contract is not awarded or if sales do not occur at the level anticipated, we may not be able to recover our non-recurring or pre-contract costs.

Certain of our contracts may be terminated for convenience of the customer. Our contracts with governments often contain provisions permitting termination for convenience of the customer. Our subcontracts with non-governmental prime contractors sometimes contain similar provisions permitting termination for the convenience of the prime contractors. In a minority of such contractual arrangements, an early termination for convenience would not entitle us to reimbursement for a proportionate share of our fee or profit for work still in progress.

We face fluctuations in revenues and profit margins. Our revenues may fluctuate between periods due to changes in pricing, sales volume or project mix. Moreover, because certain of our project revenues are recognized upon achievement of performance milestones, such as units-of-delivery / point-in-time revenue recognition, we may experience significant fluctuations in year-to-year and quarter-to-quarter financial results. Similarly, our profit margin may vary significantly during the course of a project as a result of changes in estimated project gross profits that are recorded in results of operations on a cumulative catch-up basis pursuant to the percentage-of-completion accounting method due to judgment and estimates that are complex and are subject to a number of variables. ~~(See~~See Item 5. Operating and Financial Review and Prospects – General – Critical Accounting Policies and Estimates – Revenue Recognition and Item 18. Financial Statements - Note ~~2(T) (Significant Accounting Polities - Revenue Recognition).)~~2T. As a result, our financial results for prior periods may not provide a reliable indicator of our future results.

Our backlog of projects under contract is subject to unexpected adjustments, delays in payments and cancellations. Our backlog includes revenue we expect to record in the future from signed contracts and certain other commitments. Many projects may remain in our backlog for an extended period of time because of the size or long-term nature of the contract. In addition, from time to time, for reasons beyond our control (including economic conditions or customer needs), projects are delayed, scaled back, stopped or cancelled, or the customer delays making payments, which may adversely affect the revenue, profit and cash flow that we ultimately receive from contracts reflected in our backlog.

We may experience production delays, discontinuation of supply or liability if suppliers fail to make compliant or timely deliveries. The manufacturing process for some of our products largely consists of the assembly, integration and testing of purchased components. Some components are available from a small number of suppliers, and in a few cases a single source. If a supplier stops delivery of such components, finding another source could result in added cost and manufacturing delays. Moreover, if our subcontractors fail to meet their design, delivery schedule, information assurance or other obligations we could be held liable by our customers, and we may be unable to obtain full or partial recovery from our subcontractors for those liabilities. The foregoing ~~risks~~disruptions could have a material adverse effect on our operating results.

We may be affected by failures of our prime contractors. We often act as a subcontractor, and a failure of ~~our~~a prime contractor to meet its obligations may affect our ability to receive payments under our subcontract.

Undetected problems in our products could impair our financial results and give rise to potential product liability claims. If there are defects in the design, production or testing of our or our subcontractors’ products and systems, including our products sold for public safety purposes in the homeland security area, we could face substantial repair, replacement or service costs, potential liability and damage to our reputation. In addition, we must comply with regulations and practices to prevent the use of parts and components that are considered as counterfeit or that violate third party intellectual property rights. We may not be able to obtain product liability or other insurance to fully cover such risks, and our efforts to implement appropriate design, testing and manufacturing processes for our products or systems may not be sufficient to prevent such occurrences, which could have a material adverse effect on our business, results of operations and financial condition.

Our business involves risks that may not be adequately covered by insurance. Our business involves the development and production of products and systems for government agencies and other customers around the world. These products and systems can involve new technologies that are not fully tested. The monetary amount of our insurance coverage may not fully cover the liabilities we may incur from our activities, which could be substantial and could harm our financial condition, results of operations and cash flows. In addition, conditions in the global insurance market may make it more costly to obtain adequate insurance coverage in areas such as directors and officers liability insurance.

Our operations may expose us to liabilities under various environmental protection, health and safety laws and regulations. Our operations are affected by environmental protection, health and safety requirements. Recent years have been characterized by a substantial increase in the stringency and enforcement of legal provisions and regulatory requirements in these areas and the cost of compliance with such regulatory changes. Changes in laws and regulations around the world may impact use of our products or our manufacturing processes, due to environmental protection, health or safety considerations. These changes include regulations regarding the storage and handling of hazardous materials used in our operations. See Item 4 - Information on the Company - Governmental Regulation - Environmental, Health and Safety Regulations. Standards adopted in the future may affect us and change our methods of operation. Furthermore, some of our business licenses are for fixed periods and must be renewed from time to time. Renewal of such permits is not certain and may be made contingent on additional environmental, health and safety conditions and costs. If we were to violate or become liable under environmental, health and safety laws and regulations, including with respect to our manufacture, testing or handling of munitions and explosives, as a result of our inability to obtain permits, human error, accident, equipment failure or other causes, we could be subject to fines, costs, civil or criminal sanctions, face property damage or personal injury claims or be required to incur substantial investigation or remediation costs, which could cause disruptions in our operations and have a material adverse effect on our business.

Our future success depends on our ability to develop new offerings and technologies. The markets we serve are characterized by rapid changes in technologies and evolving industry standards. In addition, some of our systems and products are installed on platforms that may have a limited life or become obsolete. Unless we develop new offerings or enhance our existing offerings we may be susceptible to loss of market share resulting from the introduction of new or enhanced offerings by competitors. Accordingly, our future success will require that we:

•identify emerging technological trends;

•identify additional uses for our existing technology to address customer needs;

•develop and maintain competitive products and services;

•add innovative solutions that differentiate our offerings from those of our competitors;

•bring solutions to the market quickly at cost-effective prices;

•develop working prototypes as a condition to receiving contract awards; and

structure our business, through joint ventures, teaming agreements and other forms of alliances, to reflect the competitive environment.

We will need to invest significant financial resources to pursue these goals, and there can be no assurance that adequate financial resources will continue to be available to us for these purposes. We may experience difficulties that delay or prevent our development, introduction and marketing of new or enhanced offerings, and such new or enhanced offerings may not achieve adequate market acceptance. Moreover, new technologies or changes in industry standards or customer requirements could render our offerings obsolete or unmarketable. Any new offerings and technologies are likely to involve costs and risks relating to design changes, the need for additional capital and new production tools, satisfaction of customer specifications, adherence to delivery schedules, specific contract requirements, supplier performance, customer performance and our ability to predict program costs. New products may lack sufficient demand or experience technological problems or production delays. Our customers frequently require demonstration of working prototypes prior to awarding contracts for new programs or require short delivery schedules which may cause us to purchase long-lead items or material in advance of receiving the contract award. Moreover, due to the design complexity of our products, we may experience delays in developing and introducing new products. Such delays could result in increased costs and development efforts, deflect resources from other projects or increase the risk that our competitors may develop competing technologies that gain market acceptance in advance of our products. If we fail in our new product development efforts, or our products or services fail to achieve market acceptance more rapidly than the products or services of our competitors, our ability to obtain new contracts could be negatively impacted. Any of the foregoing costs and risks could have a material adverse impact on our business, results of operations, financial condition and cash ~~flows.~~flow.

Our business depends on proprietary technology that may be infringed. Many of our systems and products depend on our proprietary technology for their success. Like other technology-oriented companies, we rely on a combination of patents, trade secrets, copyrights and trademarks, together with non-disclosure agreements, confidentiality provisions in sales, procurement, employment and other agreements and technical measures to establish and protect proprietary rights in our products. Our ability to successfully protect our technology may be limited because:

intellectual property laws in certain jurisdictions may be relatively ineffective;

detecting infringements and enforcing proprietary rights may divert management’s attention and company resources;

contractual measures such as non-disclosure agreements and confidentiality provisions may afford only limited protection;

our patents may expire, thus providing competitors access to the applicable technology;

competitors may independently develop products that are substantially equivalent or superior to our products or circumvent our intellectual property rights; and

competitors may register patents in technologies relevant to our business areas.

In addition, various parties may assert infringement claims against us. The cost of defending against infringement claims could be significant, regardless of whether the claims are valid. If we are not successful in defending such claims, we may be prevented from the use or sale of certain of our products, liable for damages and required to obtain licenses, which may not be available on reasonable terms, any of which may have a material adverse impact on our business, results of operation or financial condition.

~~A cyber or security breach or disruption or failure in a computer system~~Funding obligations to our pension plans could ~~adversely affect us.~~reduce our liquidity. ~~Our operations depend on the continued and secure functioning~~Funding obligations for certain of our ~~computer~~pension plans are impacted by the performance of the financial markets and ~~communications systems~~interest rates. When interest rates are low, or if the financial markets do not provide expected returns, we may be required to make additional contributions to these pension plans. Volatility in the equity markets or actuarial changes in mortality tables can change our estimate of future pension plan contribution requirements. See Item 18. Financial Statements – Notes 2S and 17.

We face currency exchange risks. We generate a substantial amount of our revenues in currencies other than the ~~protection~~U.S. dollar (our financial reporting currency), mainly New Israeli Shekels (NIS), Great Britain Pounds (GBP), Euros, Brazilian reals, Australian dollars and Indian rupees, and we incur a substantial amount of ~~information stored~~our expenses in ~~computer databases maintained by us and,~~currencies other than the U.S. dollar, mainly NIS. To the extent we derive our revenues or incur our expenses in ~~certain circumstance, by third parties. Such systems and databases~~currencies other than the U.S. dollar, we are subject to ~~breach, damage, disruption~~exchange rate fluctuations between the U.S. dollar and such other currencies. For example, we could be negatively affected by exchange rate changes during the period from the date we submit a price proposal until the date of contract award or ~~failure from, among other things, cyber attacks~~until the date(s) of payment. Certain currency derivatives we use to hedge against exchange rate fluctuations may not fully protect against sharp exchange rate fluctuations, and ~~other unauthorized intrusions, power losses, telecommunications failures, earthquakes, fires and other natural disasters.~~

We have been subject to attempted cyber attacks and face ongoing threats to our computer and communications systems and databases of unauthorized access, computer hackers, computer viruses, malicious code, cyber crime, organized cyber attacks and other security problems and system disruptions. In particular,in some cases we may not be ~~targeted by experienced computer programmers and hackers (including those sponsored by foreign governments) who may attempt~~able to ~~penetrate~~adequately hedge against all exchange rate fluctuations. In addition, our cyber security defenses and damage or disrupt our computer and communications systems and misappropriate or compromise our intellectual property or other confidential information or that of our customers.

~~Governmental and other end users and customers are increasingly requiring~~international operations expose us to meet specific computer system cyber protection and information assurance requirements as a condition for us to receive customer program-related information. We devote significant resources to maintain and upgrade the ~~security~~risks of our systems and databases and to meet applicable customer requirements regarding their protection. However, despite our efforts to secure our systems and databases and meet cyber protection and information assurance requirements, we may still face system failures, data breaches, lossprice controls, restrictions on the conversion or repatriation of ~~intellectual property and interruptions~~currencies, or even devaluations or hyperinflation in ~~our operations, which~~the case of currencies issued by countries with unstable economies. All of these currency-related risks could have a material adverse effect on our ~~business,~~ financial condition and ~~results~~financial results. See below “Risks Related to Our Israeli Operations – Changes in the U.S. Dollar – NIS Exchange Rate” and Item 5. Operating and Financial Review and Prospects – Impact of ~~operations.~~Inflation and Exchange Rates.

We sometimes have risks relating to financing for our programs. A number of our major projects require us to arrange, or to provide, guarantees in connection with the customer’s financing of the project. These include commitments by us as well as guarantees provided by financial institutions relating to advance payments received from customers. Customers typically have the right to ~~drawdown~~draw down against advance payment guarantees ifin the event we ~~were to~~ default under the applicable contract. In addition, some customers require that ~~the~~contract payment ~~period under the contract~~periods be extended for a number of years, sometimes beyond the period of contract performance. We may face difficulties in issuing guarantees or providing financing for our programs, including in cases where a customer encounters impaired ability to continue to comply with extended payment terms. Moreover, our balance sheet could reflect increased leverage if we ~~are~~were required to provide significant financing for our ~~programs, this could result in increased leverage on our balance sheet. (See~~programs. See Item 4. Information on the Company – Financing Terms.)

We are subject to buy-back obligations. A number of our international programs require us to meet “buy-back” obligations. ~~(See~~See Item 5. Operating and Financial Review and Prospects – Off Balance Sheet Transactions.~~) Should~~ If we, or the local companies we contract with, bebecome unable to meet such obligations, we may be subject to contractual penalties, and our chances of receiving further business from the applicable customers could be ~~reduced or, in certain cases, eliminated.~~impaired.

We ~~sometimes participate in risk-sharing contracts.~~ We sometimes participate in “risk-sharing” type contracts, in which our non-recurring costs, and in some cases costs that are capitalized as pre-contract costs, are only recoverable if there is a sufficient level of sales for the applicable product, which level of sales typically is not guaranteed. If sales do not occur at the level anticipated, we may not be able to recover our non-recurring costs under the contract.

~~We would~~could be adversely affected if we are unable to retain key employees. Our success depends in part on key management, scientific and technical personnel and our continuing ability to attract and retain highly qualified personnel. There is competition for the services of such personnel. The loss of the services of key personnel, and the failure to attract highly qualified personnel in the future, may have a negative impact on our business. Moreover, our competitors may hire and gain access to the expertise of our former employees.

We may face labor relations disputes or not be able to amend collective bargaining agreements in a timely manner. We are party to collective bargaining agreements that cover a substantial number of our employees, which number could increase, for example, as a result of future acquisitions of companies. We have faced and may in the future face attempts to unionize additional parts of our organization. Disputes with trade unions or other labor relations difficulties, as well as failure to timely amend or extend collective bargaining agreements, could lead to worker disputes, slow-downs, strikes and other measures, which could negatively impact our results of operations.

Our effective tax rate may be subject to fluctuations. Our worldwide effective tax rate could fluctuate as a result of several factors, many of which are outside of our control, including: (i) changes in the mix of revenues and income we derive from the jurisdictions where we operate ~~which~~that have different statutory tax rates; (ii) amendments to tax laws and regulations and changes in interpretations in the jurisdictions where we operate; and (iii) tax assessments, orincluding any related tax interest or penalties, ~~that~~which could significantly affect our income tax expense for the period in which the ~~settlements~~assessments take place. In addition, ~~as we operate in multiple jurisdictions throughout the world,~~ our tax returns are periodically audited or subject to review by ~~both domestic and foreign authorities.~~tax authorities in the various jurisdictions in which we operate around the world. Increases in our effective tax rates from the above factors could have a material adverse effect on our financial results and cash ~~flows.~~flow.

The Organization for Economic Cooperation and Development has introduced the base erosion and profit shifting (BEPS) project. The BEPS project contemplates changes to numerous international tax principles, as well as national tax incentives, and these changes, if adopted by individual countries, could adversely affect our provision for income taxes.

Recently enacted tax legislation in the United States may impact our business. On December 22, 2017, the U.S. President signed ~~into law federal tax legislation commonly referred to as~~Public Law No. 115-97, informally titled the Tax Cuts and Jobs ~~Act.~~Act (the Tax Act). The Tax ~~Cuts and Jobs~~ Act provides for significant and wide-ranging changes to the U.S. Internal Revenue Code. Among a number of significant changes to the current U.S. federal income tax rules, the Tax Act reduced the marginal U.S. corporate income tax rate from 35% to 21%, limited the deduction for net interest expense, shifted the United States toward a more territorial tax system and imposed new taxes to combat erosion of the U.S. federal income tax base. Our financial statements since the enactment of the Tax Act reflect the effects of the Tax Act based on current guidance. However, there are uncertainties and ambiguities in the application and interpretation of certain provisions of the Tax Act, and as a result we made certain judgments and assumptions in the interpretation thereof. The ~~reforms are complex,~~U.S. Treasury Department and itthe U.S. Internal Revenue Service may issue further guidance on how the provisions of the Tax Act will ~~take some time to assess~~be applied or otherwise administered that differs from our current interpretation. In addition, the ~~implications thoroughly. There can be no assurance that these tax reforms will not give rise to significant consequences, both immediately and going forward in terms of our taxation expense. The~~ Tax ~~Cuts and Jobs~~ Act could be subject to potential amendments and technical corrections, any of which could materially lessen or increase certain adverse impacts of the ~~law.~~

~~We may face labor relations disputes or not be able to amend collective bargaining agreements in a timely manner~~. ~~We are party to collective bargaining agreements that cover a substantial number~~legislation on us. As we further analyze the impact of ~~our employees, which number could increase as a result of future acquisitions of companies. We have faced~~the Tax Act and may face future attempts to unionize additional parts of our organization. Disputes with trade unions or other labor relations difficulties, as well as failure to timely amend or extend collective bargaining agreements, could lead to worker disputes, slow-downs, strikes and other measures, which could negatively impact our results of operations.

~~We face acquisition and integration risks~~. From time to time we make equity or asset acquisitions and investments in companies and technology ventures. (See Item 4. Information on the Company – Mergers, Acquisitions and Divestitures.) Such acquisitions involve risks and uncertainties such as:

~~our pre-acquisition due diligence may fail to identify material risks;~~

~~significant acquisitions may negatively impact our cash flow;~~

~~acquisitions may result in significant additional unanticipated costs associated with price adjustments or write-downs;~~

collect relevant information, we may ~~not integrate newly-acquired businesses and operations in an efficient and cost-effective manner;~~

~~we may fail~~make adjustments to ~~achieve~~ the ~~strategic objectives, cost savings and other benefits expected from acquisitions, which could negatively impact our financial ratios and covenants;~~

~~the technologies acquired may not prove to be those needed to be successful in our markets or may not have adequate intellectual property rights protection;~~

we may assume significant liabilities that exceed the enforceability or other limitations of applicable indemnification provisions, if any, or the financial resources of any indemnifying parties, including indemnity for tax or regulatory compliance issues, such as anti-corruption and environmental compliance, that may result in our incurring successor liability;

~~we may fail to retain key employees of the acquired businesses;~~

~~the attention of senior management may be diverted from our existing operations; and~~

~~Our acquisitions are subject to governmental approvals.~~ Most countries require local governmental approval of acquisitions of domestic defense and homeland security-related businesses, which approval may be denied, or subject to unfavorable conditions, if the local government determines the acquisition is not in its national interest. We may also be unable to obtain antitrust approvals for certain acquisitions as our operations expand. Failure to obtain such governmental approvals could negatively impact our future business and prospects.provisional amounts.

Our share price may be volatile and may decline. Numerous factors, some of which are beyond our control and unrelated to our operating performance or prospects, may cause the market price of our ordinary shares to fluctuate significantly. Factors affecting market price include, but are not limited to: (i) variations in our operating results and ability to achieve our key business targets; (ii) sales or purchases of large blocks of stock; (iii) changes in securities analysts’ earnings estimates or recommendations; (iv) differences between reported results and those expected by investors and securities analysts; and (v) changes in our business including announcements of new contracts by us or by our competitors. In addition, we could be subject to securities class action litigation following periods of volatility in the market price of our ordinary shares.

Other general factors and market conditions that could affect our stock price include changes in: (i) the market’s perception of our business; (ii) the businesses, earnings estimates or market perceptions of our competitors or customers; (iii) the outlook for the defense and homeland security industries; (iv) general market, economic or ~~economic~~health conditions unrelated to our performance; (v) the legislative or regulatory environment; (vi) government defense spending or appropriations; (vii) military or defense activities worldwide; (viii) the level of national or international hostilities; and (ix) the general geo-political environment.

~~Being a foreign private issuer exempts us from certain SEC requirements.~~As a foreign private issuer within the meaning of rules promulgated under the U.S. Securities and Exchange Act of 1934 (the Exchange Act), we are exempt from certain Exchange Act rules and requirements that apply to U.S. public companies, including: (i) the requirement to file with the SEC quarterly reports on Form 10-Q and current reports on Form 8-K; (ii) rules regulating the solicitation of proxies in connection with shareholder meetings; (iii) Regulation FD prohibiting selective disclosures of material information; and (iv) rules requiring insiders to disclose stock ownership and trading activities and establishing liability for profits realized from “short-swing” trading transactions (i.e., a purchase and sale, or sale and purchase, of the issuer’s equity securities within less than six months). Because of the foregoing, our shareholders will receive less information about our company and trading in our shares by our affiliates than would be provided to shareholders of a domestic U.S. company, and our shareholders will be afforded less protection under the U.S. federal securities laws than would be afforded to shareholders of a domestic U.S. company.

We have a major shareholder with significant influence over certain matters requiring shareholder approval. Federmann Enterprises Ltd. (FEL) owns approximately ~~46%~~44.3% of our ordinary shares, directly and indirectly. Therefore, subject to shareholder approval special majority requirements under the Companies Law and our Articles of Association, FEL may have significant influence over the outcome of certain matters requiring shareholder approval, including the election of directors who are not External Directors. Michael Federmann, who serves as the chair of our board of directors, is (through entities in his control) the controlling shareholder of ~~the entities that own~~ FEL, and he is also the chair of the board and the chief executive officer of FEL. Therefore, Mr. Federmann controls, directly and indirectly, the vote of ordinary shares owned by FEL. ~~(See~~See below - Item 6. Directors, Senior Management and Employees - Board Practices - Appointment of Directors and - External Directors and Item 10. Additional Information - Approval of Certain Transactions and - Provisions Relating to Major ~~Shareholders).~~Shareholders.

We have risks related to our issuance of Series A Notes under an Israeli debt offering. We face various risks relating to our issuance of Series A Notes (the Notes). ~~(See~~See Items 5. Operating and Financial Review and Prospects - Liquidity and Capital Resources - Israeli Debt Offering.) This includes the risk that we may not be able to maintain in the future the rating level assigned to the Notes.

We have risks related to the inherent limitations of internal control systems. We are subject to a range of requirements relating to internal controls over financial reporting, including those of the U.S. Sarbanes-Oxley Act of 2002. Despite our internal control measures, we may still be subject to financial reporting errors or even fraud, which may not be detected. A control system, which is increasingly based on computerized processes, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that its objectives are met. In addition, the benefit of each control must be considered relative to its cost, and the design of a control system must reflect ~~the fact that there are~~such reasonable resource ~~constraints, and the benefit of controls must be relative to their costs.~~constraints. Implementation of changes or updates to our control systems may encounter unexpected difficulties. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Further, controls can be circumvented by individual acts, by collusion of two or more persons or by management override of the controls. Over time, a control may be inadequate because of changes in conditions or the degree of compliance with applicable policies or procedures may deteriorate. ~~(See~~See Item 15. Controls and Procedures.) Failure to maintain effective internal controls could adversely affect our financial results as well as lead to investigations or sanctions by regulatory authorities.

Risks Related to Our Israeli Operations

Conditions in Israel and the Middle East may affect our operations. Political, economic and military conditions in Israel and the Middle East directly affect our operations. Since the establishment of the State of Israel, a number of armed conflicts have taken place between Israel and its Arab neighbors. An ongoing state of hostility, varying in degree and intensity, has caused security and economic problems for Israel. We cannot predict whether or when such armed conflicts or other hostilities may occur or the extent to which such events may impact us. For a number of years there have been continuing hostilities between Israel and the Palestinians. This includes hostilities with the Islamic movement Hamas in the Gaza Strip, which have adversely affected the peace process and at times resulted in armed conflicts. Such hostilities have negatively influenced Israel’s economy as well as impaired Israel’s relationships with several other countries. Israel also faces threats from Hezbollah militants in Lebanon, from ISIS, as well as Iranian and rebel forces in Syria and from ISIS-affiliated groups in the Sinai Peninsula. The government of Iran, which is believed to be developing nuclear weapons, is extremely hostile to Israel and influences extremists groups such as Hamas and Hezbollah. Moreover, some of Israel’s neighboring countries have recently undergone or are undergoing significant political changes. These political,Political, economic and military conditions in Israel and the Middle East could have a material adverse effect on our business, financial condition, results of operations and future growth.

Political relations could limit our ability to sell or buy internationally. We could be adversely affected by the interruption or reduction of trade between Israel and its trading partners. Some countries, companies and organizations continue to participate in a boycott of Israeli firms, ~~and others~~other firms doing business with Israel as well as ~~with Israeli companies or with~~ Israeli-owned companies operating in other countries. Also, over the past several years there have been calls in various countries and international organizations to reduce trade with Israel. Foreign government defense export policies towards Israel could also make it more difficult for us to obtain the export authorizations necessary for our activities. See above “General Risks Related to Our Business and Market.” There can be no assurance that restrictive laws, policies or practices directed towards Israel or Israeli businesses will not have an adverse impact on our business.

Reduction in Israeli government spending or changes in priorities for defense products may adversely affect our earnings. The Israeli government may reduce its expenditures for defense items or change its defense priorities in the coming years. In addition, the Israeli defense budget may be adversely affected if there is a reduction in U.S. foreign military assistance. See above “General Risks Related to Our Business and Market.” Any of the foregoing circumstances could have an adverse effect on our operations.

Extended periods without a coalition government could adversely affect the Israeli defense budget. Over the last year Israel has undergone three elections and has been without a coalition government. This has negatively impacted the ability of the IMOD to adopt a new budget, enter into new programs and make timely payments to its suppliers, which in turn could adversely affect our operations in Israel and our financial results.

Israel’s economy may become unstable. From time to time Israel’s economy may experience inflation or deflation, low foreign exchange reserves, fluctuations in world commodity prices, military conflicts and civil unrest. For these and other reasons, in the past the government of Israel has intervened in the economy employing fiscal and monetary policies, import duties, foreign currency restrictions, controls of wages, prices and foreign currency exchange rates and regulations regarding the lending limits of Israeli banks to companies considered to be in an affiliated group. The Israeli government has periodically changed its policies in these areas. Reoccurrence of previous destabilizing factors could make it more difficult for us to operate our business as we have in the past and could adversely affect our business.

Israeli government programs and tax benefits may be terminated or reduced in the future. We participate in programs of the Israel Innovation Authority and the Israel Investment Center, for which we receive tax and other benefits as well as funding for the development of technologies and products. ~~(See~~See Item 4. Information on the Company – Conditions in Israel – Israel Innovation Authority and Investment Center Funding.) If we fail to comply with the conditions applicable to these programs, we may be required to pay additional taxes and penalties or make refunds and may be denied future benefits. From time to time, the government of Israel has discussed reducing or eliminating the benefits available under these programs, and therefore these benefits may not be available in the future at their current levels or at all.

Israeli law ~~regulates~~may delay, prevent or impact acquisition of aour controlling ~~interest in Israeli defense industries.~~interest. Israeli legislation regarding the domestic defense industry requires Israeli government approval of an acquisition of a 25% or more equity interest (or a smaller percentage that constitutes a “controlling interest”) in companies such as Elbit Systems. Such approval may be subject to additional conditions relating to transfers of ownership. This could limit the ability of a potential purchaser to acquire a significant interest in our ~~shares. (See~~shares Such restrictive conditions can also apply to Israeli defense companies we acquire, such as IMI. See Item 4. Information on the Company – Governmental Regulation – Approval of Israeli Defense Acquisitions.) In addition, the Israel Companies Law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. These provisions could delay, prevent or impede an acquisition of us, even if such an acquisition would be considered beneficial by some of our shareholders.

Israel has stringent export control regulations. Israeli law regulates the export of defense products and systems and “dual use” items (items that are typically sold in the commercial market but that may also be used in the defense market). If government approvals required under these laws and regulations are not obtained, or if authorizations previously granted are not renewed or canceled, our ability to export our products from Israel could be negatively impacted, thus causing a reduction in our revenues and a potential material negative impact on our financial results. ~~(See~~See Item 4. Information on the Company – Governmental Regulation – Israeli Export Regulations.)

Being a foreign private issuer exempts us from certain SEC requirements.As a foreign private issuer within the meaning of rules promulgated under the U.S. Securities and Exchange Act of 1934 (the Exchange Act), we are exempt from certain Exchange Act rules and requirements that apply to U.S. public companies, including: (i) the requirement to file with the SEC quarterly reports on Form 10-Q and current reports on Form 8-K; (ii) rules regulating the solicitation of proxies in connection with shareholder meetings; (iii) Regulation FD prohibiting selective disclosures of material information; and (iv) rules requiring insiders to disclose stock ownership and trading activities and establishing liability for profits realized from “short-swing” trading transactions (i.e., a purchase and sale, or sale and purchase, of the issuer’s equity securities within less than six months). Because of the foregoing, our shareholders may receive less information about our company and trading in our shares by our affiliates than would be provided to shareholders of a domestic U.S. company, and our shareholders may be afforded less protection under the U.S. federal securities laws than would be afforded to shareholders of a domestic U.S. company.

We may rely on certain Israel “home country” corporate governance practices which may not afford stockholders the same protection afforded to shareholders of U.S. companies. As a foreign private issuer Elbit Systems is permitted to follow, and in certain instances (as described below) has followed, home country corporate governance practices instead of certain practices otherwise required under the Listing Rules of the NASDAQ Stock Market for domestic U.S. issuers. As described in Item 16G. Corporate Governance, in ~~March~~ 2018 we informed NASDAQ that we have elected to follow certain procedures permitted under the Israeli Companies Law instead of the Nasdaq Listing Rules, which require a listed company to obtain shareholder approval for the establishment of an equity-based compensation plan. Under this “home country practice” exception provided in Nasdaq rules for foreign private issuers, we could in the future elect to follow home country practices in Israel with regard to a broad range of other corporate governance matters. Following our home country governance practices, as opposed to the requirements that would otherwise apply to a United States company listed on Nasdaq, may provide less protection than is accorded to investors under the Listing Rules of the Nasdaq Stock Market applicable to domestic U.S. issuers. See Item 16G - Corporate Governance.

Many of our employees and some of our officers are obligated to perform military reserve duty in Israel. Generally, Israeli adult male and certain female citizens and permanent residents are obligated to perform annual military reserve duty up to a specified age. They also may be called to active military duty at any time under emergency ~~circumstances, which~~circumstances. These military service obligations could have a disruptive impact on our workforce.

It may be difficult to enforce a non-Israeli judgment against us, our officers and directors. We are incorporated in Israel. Our executive officers and directors and our outside auditors are not residents of the United States, and a substantial portion of our assets and the assets of these persons are located outside the United States. Therefore, it may be difficult for an investor, or any other person or entity, to enforce against us or any of those persons in an Israeli court a U.S. court judgment based on the civil liability provisions of the U.S. federal securities laws. It may also be difficult to effect service of process on these persons in the United States. ~~Additionally,~~Also, it may be difficult for an investor, or any other person or entity, to enforce civil liabilities under U.S. federal securities laws in original actions filed in Israel. ~~(See~~See below – Item 4. Information on the Company – Conditions in Israel – Enforcement of Judgments.)

Item 4. Information on the Company.

Business Overview

Major Activities

We are an international high technology company engaged in a wide range of programs throughout the ~~world.~~world, primarily in the defense and homeland security arenas. We develop and supply a broad portfolio of airborne, land and naval systems and products for defense, homeland security and commercial applications. Our systems and products are installed on new platforms, and we also perform comprehensive platform modernization programs. In addition, we provide a range of support services.

Our major activities include:

•military aircraft and helicopter systems;

•commercial aviation systems and aerostructures;

•unmanned aircraft systems and unmanned surface vessels;

•electro-optic, night vision and and countermeasures systems;

•land vehicle systems;

•munitions;

command, control, communications, computer,intelligence, surveillance and ~~intelligence (C4I)~~reconnaissance (C4ISR) and cyber systems;

•electronic warfare and signal intelligence systems; and

•~~commercial cyber security products and~~ other commercial activities.

Many of these major activities have a number of common and related elements. Therefore, certain of our subsidiaries, divisions or other operating units often jointly conduct marketing, research and development, manufacturing, performance of programs, sales and after sales support among these major activities.

Principal Market Environment

~~We operate primarily in the defense and homeland security arenas.~~ There have been recent increased budgetary allocations in ~~these~~the defense and homeland security areas in the U.S. and certain European and Asia-Pacific countries, ~~as well as~~but reduced budgetary allocations in certain Latin American and other countries. The nature of military and homeland security actions in recent years, including low intensity conflicts and ongoing terrorist activities, tensions with countries such as Iran and North Korea, as well as budgetary pressures to focus on leaner but more technically advanced forces, ~~have caused a shift in the~~has shifted defense and homeland security priorities for many of our major customers. As a result we believe there is an increasing demand for technological solutions that incorporate artificial intelligence, Big Data analytics and information assurance, as well as a continued demand in the areas of ~~C4I~~C4ISR systems, ~~intelligence, surveillance and reconnaissance (ISR)~~cyber-defense systems, network centric information systems, intelligence gathering systems, border and perimeter security systems, unmanned aircraft systems (UAS), unmanned surface vessels (USVs), remote controlled systems, ~~cyber-defense~~precision munitions, vehicle survivability and protection systems, space and satellite based defense capabilities and homeland security solutions. ~~There~~Moreover, there is ~~also~~ a continuing demand for cost effective logistic support and training and simulation services. We believe our synergistic approach of finding solutions that combine elements of our various activities positions us to meet evolving customer requirements in many of these areas.

We tailor and adapt our technologies, integration skills, market knowledge and operationally-proven systems to each customer’s ~~individual~~ requirements in both existing and new platforms. By upgrading existing platforms with advanced technologies, we provide customers with cost-effective solutions, and our customers are able to improve their technological and operational capabilities within limited budgets. ~~We are experienced~~Our experience in providing “systems of systems”~~, which~~ enables us to provide overall solutions in a range of areas to meet our customers’ comprehensive defense, homeland security and safety needs.

Company History

Our predecessor Elbit Ltd. was incorporated in Israel in 1966 as Elbit Computers Ltd. Elbit Systems was formed in 1996, as part of the Elbit Ltd. corporate demerger, under which Elbit Ltd.’s defense related assets and business were spun-off to us.

Elbit Systems Ltd. is a corporation domiciled and incorporated in Israel where we operate in accordance with the provisions of the Israeli Companies Law – 1999 (the Companies Law).

Trading Symbols, Address and ~~Address~~Website

Our shares are traded on the Nasdaq Global Select Market (Nasdaq), under the symbol “ESLT”, and on the Tel-Aviv Stock Exchange (TASE).

Our main offices are in the Advanced Technology Center, Haifa 3100401, Israel, and our main telephone number at that address is ~~(972-77-2945315) .~~ 972-77-2945315. Our principal offices in the United States are the headquarters of Elbit Systems of America, LLC at 4700 Marine Creek Parkway, Fort Worth, Texas 76179-6969, and the main telephone number at that address is 817-234-6799.

Our website home page is www.elbitsystems.com. We make our website content available for informational purposes only. It should not be relied upon for investment purposes, nor is it incorporated by reference in this annual report on Form 20-F.

Our principal offices in the United States are the headquarters of Elbit Systems of America, LLC at 4700 Marine Creek Parkway, Fort Worth, Texas 76179-6969, and the main telephone number at that address is 817-234-6799.

Revenues

~~In recent years we have achieved the highest level of defense-related revenues of any Israeli-based company.~~ The table below shows our consolidated revenues by major areas of operations for the years ended December 31, ~~2015, 2016~~2017, 2018 and ~~2017:~~

2019:


	2015		2016		2017		2017		2018		2019
	(U.S. dollars in millions)						(U.S. dollars in millions)
Airborne systems	$	1,226	$	1,242	$	1,272	$	1,272	$	1,470	$	1,617
C4ISR systems	995		1,221		1,145		1,145		1,130		1,162
Land systems	559		408		504		504		649		1,228
Electro-optic systems	232		276		341		341		334		374
Other (mainly non-defense engineering and production services)	96		113		116		116		101		127
Total	$	3,108	$	3,260	$	3,378	$	3,378	$	3,684	$	4,508

The following table provides our consolidated revenues by geographic region, expressed as a percentage of total revenues for the years ended December 31, ~~2015, 2016~~2017, 2018 and ~~2017:~~2019:


	2015	2016	2017	2017	2018	2019
	(U.S. dollars in millions)			(U.S. dollars in millions)
Israel	20%	22%	22%	22%	20%	24%
North America	27%	25%	24%	25%	27%	28%
Europe	16%	20%	23%	23%	20%	18%
Asia-Pacific	26%	25%	20%	20%	21%	23%
Latin America	10%	6%	6%	6%	5%	4%
Others	1%	2%	5%	5%	7%	3%

Subsidiary Organizational Structure

Our beneficial ownership interest in our major subsidiaries ~~and investees~~ is set forth in Exhibit 8 to this annual report. Our equity and voting interests in these entities are the same as our beneficial ownership interests.

Below is a general description of our major subsidiaries, each of which is wholly-owned. We also have other smaller subsidiaries and investee companies in Israel, Europe, North America, South America and Asia-Pacific that conduct marketing, engineering, manufacturing, logistic support and other activities, principally in the subsidiary’s local market. Our subsidiaries generally operate across our major areas of activities often in collaboration with other subsidiaries.

Elbit Systems of America

Elbit Systems of America, LLC (Elbit Systems of America), a Delaware limited liability company, and its subsidiaries provide products and systems solutions focusing on U.S. military, homeland security, medical instrumentation and commercial aviation customers. Elbit Systems of America and its subsidiaries have operational facilities in Fort Worth, Texas, San Antonio, Texas, Merrimack, New Hampshire, Talladega, Alabama, Roanoke, Virginia and Boca Raton, Florida. The Roanoke, Virginia facility includes the activities of Elbit Systems of America - Night Vision, which was acquired by Elbit Systems of America in September 2019. See below "Mergers, Acquisitions and Divestitures". Elbit Systems of America also has a 50% interest in a joint venture with ~~Rockwell~~ Collins ~~Inc.~~Aerospace, a unit of United Technologies Corp., which is engaged in the area of helmet mounted display systems for fixed-wing military and para-military aircraft.

Elbit Systems of America acts as a contractor for U.S. Foreign Military Financing (FMF) and Foreign Military Sales (FMS) programs. ~~(See~~See below “Governmental Regulations – Foreign Military ~~Financing.”)~~Financing”. Each of Elbit Systems of America’s ~~major~~ operational facilities has engineering and manufacturing capabilities. Elbit Systems of America’s manufacturing facilities in Alabama, Texas, New Hampshire and ~~Texas~~Virginia also have significant maintenance and repair capabilities. ~~(See~~See below “Manufacturing” and “Customer Satisfaction and Quality ~~Assurance.”)~~Assurance”.

Elbit Systems of America, Elbit Systems and intermediate Delaware holding company subsidiaries are parties to a Special Security Agreement (SSA) with the DoD. The SSA provides the framework for controls and procedures to protect classified information, controlled unclassified information and export controlled data. The SSA allows the Elbit Systems of America companies to participate in classified U.S. government programs even though, due to their ownership by Elbit Systems, the Elbit Systems of America companies are considered to be under the control of a non-U.S. interest. Under the SSA, a Government Security Committee of Elbit Systems of America’s board of directors was permanently established to supervise and monitor compliance with Elbit Systems of America’s export control and national security requirements. The SSA also requires Elbit Systems of America’s board of directors to include outside directors who have no other affiliation with the Company. Elbit Systems of America’s board of directors also includes an officer of Elbit Systems of America and up to two inside directors, who have other affiliations with the Company. The SSA requires outside directors and officers of the Elbit Systems of America companies who are directors, and certain other senior officers, to be U.S. resident citizens and eligible for DoD ~~personal~~personnel security clearances.

C4I and Cyber. Headquartered in Netanya, Israel, Elbit Systems C4I and Cyber Ltd. (C4I and Cyber) is engaged in the worldwide market for C4ISR systems, cyber intelligence solutions, homeland security solutions, data links and radio communication systems and equipment.

Elisra.Based in Holon, Israel,Elbit Systems EW and SIGINT –Elisra Ltd. (Elisra) provides a wide range of electronic warfare (EW) systems, signal intelligence (SIGINT) systems and C4ISR technological solutions for the worldwide market.

Elop. Based in Rehovot, Israel, Elbit Systems Electro-Optics Elop Ltd. (Elop) designs, engineers, manufactures and supports a wide range of electro-optic systems and products mainly for defense, space and homeland security applications for customers worldwide.

~~ESLC.~~ELS. Headquartered in ~~Netanya,~~Ramat HaSharon, Israel, Elbit Systems Land ~~and C4I~~ Ltd. ~~(ESLC)~~(ELS) is engaged in the ~~worldwide market for~~design and manufacture of land-based systems and products for armored and other military vehicles, artillery and mortar ~~systems, C4I systems, cyber intelligence solutions, data links, radios~~systems. Following the acquisition of IMI Systems Ltd. (IMI) in November 2018, ELS also is engaged in the design and ~~communications systems and equipment.~~

~~Elisra~~.~~Based in Holon, Israel,~~ ~~Elbit Systems EW and SIGINT –Elisra Ltd. (Elisra) provides~~manufacture of a wide range of ~~electronic warfare (EW)~~precision munitions for land, air and sea applications as well as armored vehicle survivability and protection systems ~~signal intelligence (SIGINT) systems~~for defense and ~~C4ISR technological solutions for the worldwide market.~~homeland security applications.

Merger, Acquisitions and Divestitures

Part of our growth strategy includes our continued activity in mergers and acquisitions and joint ventures with respect to businesses, assets and complementary technologies both in Israel and internationally. The Company’s structure often enables us to benefit from the synergy of our overall capabilities while at the same time focus on local requirements.

During ~~2017 and the beginning of 2018,~~2019, we continued to invest resources in these activities including investing in, and the acquisition of, companies and businesses in Israel and North ~~America, South America and Europe.~~America. See Item 18. Financial Statements - Notes ~~1(C)~~1C and ~~6(B).~~6. We continue to actively pursue acquisition and investment opportunities that meet our strategic goals and acquisition criteria in key markets.

~~During 2017 and~~In September 2019, Elbit Systems of America completed the ~~beginning~~acquisition of ~~2018, we participated as~~the night vision business of L3Harris Technologies (the Night Vision Business) for a ~~potential purchaser~~purchase price of approximately $351.5 million. Located in Roanoke, Virginia, the Night Vision Business is engaged in the ~~tender process administered by the Israeli government~~development, production and supply of night vision technology for the ~~sale of of IMI Systems (formerly Israel Military Industries Ltd.) On March 11, 2018, the Israel Treasury Ministry announced the approval of its Committee~~U.S. and allied military and security forces and for the ~~Sale~~U.S. federal homeland security market. Following the acquisition, the Night Vision Business operates as Elbit Night Vision. The acquisition of ~~State Shares~~the Night Vision Business was pursuant to ~~sell IMI~~an asset purchase agreement containing customary provisions, including representations, warranties and indemnities, dated as of April 4, 2019, between L3Harris Technologies (as successor to Harris Corporation), Eagle Technology, LLC (a subsidiary of L3Harris), Elbit Systems of America and Elbit Systems Ltd.

We continue to ~~the Company. Further~~evaluate our holdings and from time to ~~the Company’s response~~time pursue divestiture of businesses that are not considered to ~~press reports on February 14, 2018, we are continuing the discussions with the Israeli Government regarding the conditions~~be core to ~~complete the transaction.~~our strategy.

Current Business Operations

We generally operate and manage the major activities described below in an interrelated manner and on a project-oriented basis. This means that contracts are frequently performed by more than one operating subsidiary or division within the Company, on the basis of the multiple skills, technologies and available resources that may be needed or appropriate for the contract. Thus, the involvement of a particular operating subsidiary or division in the performance of a contract is not a function of management’s review of such subsidiary’s or division’s operating results for purposes of allocation of resources within the Company.

Military Aircraft and Helicopter Systems

We supply advanced airborne systems and products to leading military aircraft manufacturers and end users designed to enhance operational capabilities and extend aircraft life cycles. Our airborne systems provide a range of solutions from a single sensor to an entire cockpit avionics suite. We integrate our systems on fixed and rotary-wing, eastern and western, new and mature aircraft. Under our aircraft and helicopter upgrade programs, we integrate advanced electronic, communication, navigation, electro-optic and EW systems. We support life cycle extension of our customers’ fleets and supply logistic support services for airborne platforms, including repair and maintenance centers, spare parts, training and operation of flight schools.

Our military fixed-wing aircraft and helicopter systems and products include a broad range of avionic systems, such as integrated flight deck systems, mission management computers, displays, digital maps and digital recorders. Our portfolio also includes airborne electro-optic systems such as head-up displays, airborne intelligence gathering systems, precision guidance systems, aircraft structural components, nano-satellites and a range of aircraft tactical, virtual, appended and embedded trainers and simulators.

We design and supply advanced helmet mounted systems (HMS), including helmet mounted displays for fixed-wing aircraft and rotary aircraft pilots. These systems and displays include tracking and display systems for day and night flying. Our systems measure the pilot’s line-of-sight, slave applicable systems to the target, identify target location and bring displays to the pilot’s eye level. We supply our HMS as part of our upgrade programs and on a stand-alone basis. Through our 50% joint venture with ~~Rockwell~~ Collins Aerospace (see above “Subsidiary Organizational Structure – Elbit Systems of America”), we are a leader in HMS for fighter aircraft.

The customers and end users for our military fixed-wing aircraft and helicopter programs include a wide range of air forces and other governmental defense and homeland security forces worldwide, as well as major fixed-wing aircraft and helicopter manufacturers.

Commercial Aviation Systems and Aerostructures

We provide a range of systems and products for the commercial and business aviation ~~market. These systems and products include vision-based cockpit systems, other avionics systems, electrical systems and aerostructure products. Our commercial avionics systems~~market that are employed on fixed-wing aircraft and commercial helicopters. ~~Our~~We also produce aerostructure products that are installed on commercial aircraft.

Our portfolio of systems in the business aviation, commercial ~~aviation area~~helicopter and air transport areas includes ~~vision-based cockpit systems,~~ full avionic suites, ~~for commercial helicopters, air data test equipment~~enhanced flight vision products and ~~air data processor/sensor systems~~various other avionics products such as display, communication and flight ~~instrumentation for the general avionics market, and~~management systems. In addition we provide aerostructure products such as pressurized and non-pressurized doors, composite beans and winglets. Customers for our ~~commercial and~~ business aviation, air transport and commercial helicopters systems and products ~~and aerostructures products~~ include major fixed-wing aircraft and helicopter manufacturers and ~~aircraft~~ operators around the world.

UAS (Unmanned Aircraft Systems) and USVs (Unmanned Surface Vessels)

We design and supply integrated UAS (sometimes referred to as remote piloted vehicles or RPVs) for a range of applications and UAS training systems with capabilities to simulate payload performance, malfunctions and ground control station operation. We design and supply command and control ground station elements, engines, data links, stabilized electro-optic payloads and electronic intelligence (ELINT) and communications intelligence (COMINT) payloads that can be adapted for various types of UAS. Our UAS technology has also been applied to our USV activities, where we are developing USVs for a range of naval applications. We perform development, supply, lease and support services and training activities relating to UAS and USVs. Customers for our UAS and USVs include armed forces and other governmental and non-governmental organizations around the world.

Electro-Optic and Countermeasures Systems

We design and manufacture electro-optic-based solutions for space, air, land and sea applications. Our electro-optic products include laser and thermal imaging systems, head-up displays, countermeasure systems and ISR systems, including payloads for space, airborne, naval and land-based missions. Our products in this area also include ground integrated sights and homeland security solutions. We are one of the few companies in the world that has engineering capability and facilities in-house in all major areas of electro-optics. Also, in the space area, we maintain in-house Israel’s national space electro-optics infrastructure.

Our portfolio of electro-optic systems and products includes forward looking infrared (FLIR) systems for night observation, laser range-finders and laser radars, stabilized payloads, electro-optic-based ISR systems, ~~and~~ directional IR countermeasure (DIRCM) systems as well as multiple vision-enhancing solutions for military forces using image intensifier tubes and systems. We also supply panchromatic and multi-spectral cameras and telescopes for space applications. In the homeland security area our electro-optic products and systems include surveillance systems, ~~“safe city”~~safe city projects, facility perimeter security products, electronic fences, fiber optic intrusion detection systems and transportation protection systems. Our customers include armed forces of numerous governments, major defense contractors, homeland security agencies, critical infrastructure authorities and owners of VIP aircraft.

Land Vehicle Systems

We upgrade and modernize tanks, other combat vehicles and artillery platforms, both as a prime contractor and as a systems supplier to leading platform manufacturers. Our land vehicle and platform solutions cover the entire combat vehicle spectrum, from complete modernization, to system supply to maintenance depots and life cycle support services. Our systems are operational on a full range of tracked and wheeled combat vehicles including main battle tanks, medium and light tanks, light armored vehicles, armored personnel carriers, wheeled vehicles and artillery platforms. We develop and supply cutting edge armored vehicle survivability and protection systems. We offer a range of artillery and mortar solutions. We also develop and supply unmanned ground vehicles and robotic devices for a variety of land based missions. In addition, we supply training systems for tanks and fighting vehicles.

Our portfolio of systems and products for land vehicles includes fire control systems, electric gun and turret drive systems, laser warning and threat detection systems, survivability and protection systems, manned and unmanned turrets, remote controlled weapon stations (for land and naval platforms), unmanned ground vehicles, combat vehicle C4I systems, targeting systems, artillery gun and mortar systems, ~~mortar ammunition,~~ driver thermal vision systems, life support systems, auxiliary power units and hydraulic systems. We are engaged in land vehicle systems programs, from comprehensive vehicle modernization programs, to ~~stand-alone~~standalone system supply to vehicle manufacturers to life cycle support programs. Customers for our land vehicle systems include armed forces and homeland security agencies, as well as major military vehicle manufacturers around the world.

Munitions

Principally through IMI, we develop and manufacture a diverse range of advanced munitions for land, air and sea applications for defense and homeland security forces. Our munitions portfolio includes precision guided rockets, long-range precise air-to-ground missiles, high penetration bombs and an array of high performance ammunition solutions for artillery, tanks and mortars. We also manufacture a full range of small caliber ammunition for the defense, homeland security and law enforcement markets. In addition, we produce chaff and flame products to protect aircraft against the threat of air-to-air and anti-aircraft heat-seeking missiles. Customers for our munitions products include armed forces and homeland security agencies around the world.

C4I and Cyber Systems

We ~~provide network-centric compatible~~produce land, airborne and naval C4I and cyber intelligence systems providing networked combat solutions ~~for land-based C4I systems~~ ranging from ~~target acquisition,~~the lower combat echelons up to ~~battle management to communication systems.~~the highest command levels. We supply our ~~advanced land-based C4I~~ systems as part of turn-key solutions as well as on a ~~stand-alone~~standalone basis. Our solutions cater to all types of ~~land combatant and~~military combatants as well as to homeland security forces and first responders, and can be integrated into military and other types of ~~vehicles. Providing~~land, air and sea platforms, providing comprehensive net-centric solutions for low intensity conflicts, ~~and~~ counter-terror activities ~~our systems connect intelligence data to combat~~ and ~~homeland security forces via C4I networks~~other types of military challenges. We provide a wide range of advance communications and ~~mobile command~~network solutions for land, navy and control posts and support “terrain dominance”. Our integrated infantry systems provide infantry units with C4ISR, field intelligence, urban warfare and peacekeeping capabilities. We also have access toair force applications, supporting a full range of ~~radio~~military video, data and ~~military communications solutions.~~voice network needs. Our systems provide cyber intelligence solutions to diverse law enforcement agencies and intelligence organizations as well as cyber solutions to the defense and homeland security domains.

Our portfolio of systems and products in the ~~land C4I~~C4ISR area includes Digital Army “system of systems” for net-centric ~~operational effectiveness and~~ connectivity throughout a multi-domain battlefield and which support joint operations for all ~~land forces~~force echelons. Our portfolio also includes battle management systems, ~~artillery and mortar C4I systems,~~ observation and ground reconnaissance systems, ~~enhanced tactical computers~~ruggedized computing for platforms and ~~ruggedized personal data assistants,~~soldiers, software design kits for mapping capabilities, ground smart display units, military IT systems and tactical battle company training systems. In the cyber intelligence area we supply a comprehensive suite of solutions providing intelligence and law enforcement agencies with real-time and actionable intelligence to the operational field. Our ~~ground~~ communications portfolio includes secured HF, VHF and UHF radio and communication systems and products, software defined radios, integrated radio communication systems, satellite-on-the-move solutions and data link ~~solutions and tactical radio power amplifiers.~~solutions. Our radio and communications portfolio enables deployment of a full military network for the complete range of scenarios and terrain. In the homeland security area, we supply integrated land and coastal border C4I surveillance systems, broadband communication systems, cyber intelligence solutions, border control systems, ~~“safe city” systems,~~safe and smart city solutions, emergency and first ~~responder~~responders communications systems and homeland security and emergency response training and simulation systems.

We perform programs under which we provide a range of C4I battle management systems, soldier mounted systems and radio and communications systems utilizing our cloud-based open architecture platform, interoperable with ~~land-based applications.~~a variety of applications and connecting all elements on the network. Our customers include ~~ground~~cross-domain forces and a wide range of governmental agencies worldwide.

EW and SIGINT Systems

We supply multi-spectral EW self-protection suites and systems for airborne, ground and naval platforms, including advanced electronic countermeasure (ECM) systems for radar, missiles and communication and electronic support measure (ESM) solutions, including missile warning systems, laser warning systems and radar warning receivers. We also furnish SIGINT systems, including ELINT, COMINT and direction finding systems, designed for air, ground and naval platforms and applications.

Our portfolio in the EW and SIGINT areas includes protection, intelligence and communications solutions for air, ground and naval applications. We offer EW self-protection suites, including radio frequency, radar warning receivers and laser warning systems, for all airborne platform types. We also offer IR-based missile warning systems for advanced combat aircraft as well as for other fixed-wing and rotor platforms. In addition, we provide ~~ESM~~electronic support measures (ESM) solutions for threat identification. We also provide SIGINT systems for tactical and strategic intelligence gathering including ELINT and ECM for naval, ground and airborne applications, COMINT and communication jamming systems, counter improvised explosive devices jamming systems for ground forces and cyber protection capabilities. We also supply radar solutions. In addition, we produce counter-drone systems, and we develop command and control systems and simulators for anti-ballistic missiles. Customers for our EW, SIGINT and COMINT systems include governmental armed forces and homeland security agencies as well as major defense contractors.

~~Commercial Cyber Protection Products and other~~Other Commercial Activities

We provide commercial cyber protection products and trainings to enable commercial enterprises to rapidly detect advanced cyber threats, protect critical infrastructures, automate security operations center workflows and train cyber security staff. Our solutions utilize machine learning, Big Data and continuous technology advancements. Customers include a range of commercial, financial and industrial enterprises.

We also engage in ~~an increasing~~a range of technologies for commercial applications and activities. Our current commercial activities, in addition to the activities described under “Commercial Aviation Systems and Aerostructures” ~~and elsewhere~~ above, include, among others, commercial cyber protection products, medical diagnostic equipment, automotive night vision enhancement equipment, smart glasses for sports applications and super capacitor energy sources and fuel cells for transportation applications.

Property, Plant and Equipment

Facilities Owned or Leased by the Company



	Israel⁽¹⁾	U.S.⁽²⁾	Other Countries⁽³⁾
Owned	~~2,175,000~~2,771,000 square feet	~~634,000~~1,050,000 square feet	~~891,000~~1,078,000 square feet
Leased	~~2,206,000~~6,559,000 square feet	~~661,000~~784,000 square feet	~~472,000~~568,000 square feet


(1)	Includes offices, development and engineering facilities, manufacturing facilities, maintenance facilities, hangar facilities and landing strips in various locations in Israel. IMI's facilities are located in several facilities throughout Israel, of which 568,289 square feet are owned and 4,245,961 square feet are leased.

(2)

Includes mainly offices, development and engineering facilities, manufacturing facilities and maintenance facilities of Elbit Systems of America, primarily in Texas, New Hampshire, Florida, Alabama and Virginia. The facilities in Texas, New Hampshire, Alabama and ~~Alabama~~Virginia are located on owned land totaling approximately ~~129~~154 acres. 318,570 square feet of the leased facilities are sublet to a third party. In addition, there is a 942,344 square ~~foot~~feet ground lease, of which 629,910 square feet are sublet to a third party. Universal Avionics Systems Corporation's (UASC) facilities are located in Arizona, Washington, Georgia and Kansas, of which 175,000 square feet are owned and 125,000 are leased.


(3)	Includes offices, design and engineering facilities and manufacturing facilities in Europe, Latin America and Asia-Pacific.

Recent Investment in Facilities. Over the last two years the average annual net investment in our facilities, including land and buildings, equipment, machinery and vehicles, amounted to approximately ~~$116~~$120 million. We believe that our current facilities are adequate for our operations as now conducted.

Governmental Regulation

Government Contracting Regulations. We operate under laws, regulations, administrative rules and other legal requirements governing defense and other government contracts, mainly in Israel and the United States. Some of these legal requirements carry major penalty provisions for non-compliance, including disqualification from participating in future contracts. In addition, our participation in governmental procurement processes in Israel, the United States and other countries is subject to specific regulations governing the conduct of the process of procuring defense and homeland security ~~contracts.~~contracts, including increasing requirements in the area of cyber production, information assurance and supply chain assurance.

Israeli Export Regulations. Israel’s defense export policy regulates the sale of a number of our systems and products. Current Israeli policy encourages exports to approved customers of defense systems and products such as ours, as long as the export is consistent with Israeli government policy. Subject to certain exemptions, a license is required to initiate marketing activities. We also must receive a specific export license for defense related hardware, software and technology exported from Israel. Israeli law also regulates export of “dual use” items (items that are typically sold in the commercial market but that also may be used in the defense market). In ~~2017~~2019, more than 50% of our revenue was derived from exports subject to Israeli export regulations.

U.S. and Other Export Regulations. Elbit Systems of America’s export of defense and dual use products, as well as military technical data and technical services to Israel and other countries is subject to applicable approvals of the U.S. government under the U.S. International Traffic in Arms Regulations (ITAR) and the U.S. Export Administration Regulations (EAR). Such approvals are typically in the form of an export license, and for defense technology or services in the form of a technical assistance agreement (TAA). Other U.S. companies wishing to export defense products or military related services and technology to our Israeli and other non-U.S. entities are also required to obtain such export licenses and TAAs. Such approvals apply to U.S. origin data required by our non-U.S. entities to perform work for U.S. ~~programs.~~programs or to work with U.S. contractors in third countries. Licenses are also required for Israeli nationals assigned to work in defense-related technical areas at our U.S. affiliated companies. An application for an export license or a TAA requires disclosure of the intended sales of the product and the use of the technology. Pursuant to export control reform initiatives in the U.S., a greater part of Elbit Systems of America’s and our U.S. suppliers’ activities are becoming subject to control under the EAR, and some of UASC products are subject to export control under the EAR. The U.S. government may deny an export authorization if it determines that a transaction is counter to U.S. policy or national security. Other governments’ export regulations also affect our business from time to time, particularly with respect to end user restrictions of our suppliers’ governments.

Approval of Israeli Defense Acquisitions

The Israeli Defense Entities Law (Protection of Defense Interests), 5766 - 2006 (the Israeli Defense Entities Law) establishes conditions for the approval of an acquisition or transfer of control of an entity that is determined to be an Israeli “defense entity” under the terms of the law. Designation as a “defense entity” is to occur through an order to be issued jointly by the Israeli Prime Minister, Defense Minister and Economy Minister. Although no such ~~orders have~~order for Elbit Systems has been issued ~~as of the~~to date, ~~of this annual report on Form 20-F, it is assumed~~we believe that Elbit Systems and most of our Israeli subsidiaries will be designated as “defense entities” under ~~the~~such law and that the Israeli Government will issue such an order regarding our applicable Israeli companies. As a condition to our acquisition of IMI in November 2018, the Israel Government issued an order that requires Israeli Government approval in the event of a sale of a controlling interest in IMI. Under separate regulations, Elbit Systems and our major Israeli subsidiaries have been designated as “defense entities” by the Defense Minister with respect to Israeli law governing various other aspects of defense security arrangements.

Orders to be issued under the Israeli Defense Entities Law will also establish other conditions and restrictions. It is anticipated that in the case of a publicly traded company such as Elbit Systems, Israeli government approval will be required for acquisition of 25% or more of the voting securities or a smaller percentage of shares that grant “means of control.” Means of control for purposes of the law include the right to control the vote at a shareholders’ meeting or to appoint a director. Orders relating to defense entities are also anticipated to, among other matters: (1) impose restrictions on the ability of non-Israeli resident citizens to hold “means of control” or to be able to “substantially influence” defense entities; (2) require that senior officers of defense entities have appropriate Israeli security clearances; (3) require that a defense entity’s headquarters be in Israel; and (4) subject a defense entity’s entering into international joint ventures and transferring certain technology to the approval of the IMOD.

Approval of U.S. and Other Defense Acquisitions. Many countries in addition to Israel also require governmental approval of acquisitions of local defense companies or assets by foreign entities. Mergers and acquisitions of defense related and other potentially sensitive businesses in the U.S. are subject to the Foreign Investment ~~and National Security~~Risk Review Modernization Act ~~(FINSA)~~of 2018 (FIRRMA). Under ~~FINSA,~~FIRRMA, our acquisitions of defense related and other potentially sensitive businesses in the U.S. require review, and in some cases approval, by the Committee on Foreign Investment in the United ~~States.~~States (CFIUS). In February 2020. new implementing regulations for FIRRMA became effective.

“Buy American” Laws. The U.S. “Buy American” laws impose price differentials or prohibitions on procurement of products purchased under U.S. government programs. The price differentials or prohibitions apply to products that are not made in the United States or that do not contain U.S. components making up at least 50% of the total cost of all components in the product. However, a Memorandum of Agreement between the United States and Israeli governments waives the Buy American laws for specified products, including most of the products currently sold in the United States by Elbit Systems and our Israeli subsidiaries.

Foreign Military Financing (FMF). Elbit Systems of America participates in United States FMF programs. These programs require countries, including Israel, receiving military aid from the United States to use the funds to purchase products containing mainly U.S. origin components. In most cases, subcontracting under FMF contracts to non-U.S. entities is not permitted. As a consequence, Elbit Systems of America generally either performs FMF contracts itself or subcontracts with U.S. suppliers. The U.S. government may authorize the IMOD to utilize a portion of the FMF budget under the United States Subcontracting Procurement (USSP) channel. In

such cases, companies such as Elbit Systems or our Israeli subsidiaries, who are acting as the Israeli prime contractor to the IMOD under the NIS funded portion of an IMOD program, are authorized to negotiate and enter into a subcontract directly with a U.S. supplier. However, payment of the funds under a USSP channel subcontract is administered by the IMOD Purchasing Mission to the U.S. Elbit Systems of America also participates in U.S. Foreign Military Sales (FMS) programs.

Procurement Regulations. Solicitations for procurements by governmental purchasing agencies in Israel, the United States and other countries are governed by laws, regulations and procedures such as those relating to procurement integrity, including avoiding conflicts of interest and corruption, and meeting information assurance and cyber-security requirements. . Such regulations also include provisions relating to the avoidance of human trafficking and counterfeit parts in the supply chain.

~~Anti-Bribery~~Anti-Bribery/Corruption Regulations. We conduct operations in a number of markets that are considered high risk from an anti-bribery/anti-corruption compliance perspective. Laws and regulations such as the Israel Penal Code, the Organization for Economic Cooperation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and corresponding legislation in other countries, prohibit providing personal benefits or bribes to government officials in connection with the governmental procurement process. Israeli defense exporters, such as Elbit Systems, are required to maintain an ~~anti-bribery~~anti-bribery/corruption compliance ~~program,~~program.

Munitions Regulations. Sales of certain types of munitions produced by IMI are subject to various domestic laws and international conventions.

Data Privacy Regulations. Certain data relating to our employees, customers and supply chain that we receive and maintain is subject to data privacy regulations, including ~~specific procedures, record keeping and training.~~those of the European General Data Privacy Regulation.

Audit Regulations. The IMOD audits our books and records relating to its contracts with us. Our books and records and other aspects of projects related to U.S. defense contracts are subject to audit by U.S. government audit agencies. Such audits review compliance with government contracting cost accounting and other applicable standards. If discrepancies are found this could result in a downward adjustment of the applicable contract’s price. Some other customers have similar rights under specific regulations or contract provisions.

Antitrust Laws. Antitrust laws and regulations in Israel, the United States and other countries often require governmental approvals for transactions that are considered to limit competition. Such transactions may include the formation of joint venture entities, cooperative agreements for specific programs or areas, as well as mergers and acquisitions.

Civil Aviation Regulations. Several of the products sold by Company entities for commercial aviation applications are subject to flight safety and airworthiness standards of the U.S. Federal Aviation Administration (FAA) and similar civil aviation authorities in Israel, Europe and other countries.

Food and Drug Administration Regulations. Medical products designed and manufactured by Elbit Systems of America’s Medical Instruments – KMC Systems business unit are subject to U.S. Food and Drug Administration (FDA) regulations.

Environmental, Health and Safety Regulations. We are subject to a variety of environmental, health and safety laws and regulations in the jurisdictions in which we have operations. This includes regulations relating to air, water and ground contamination, hazardous waste disposal and other areas with a potential environmental, health or safety impact.

Buy-Back

As part of their standard contractual requirements for defense programs, several of our customers include “buy-back” or “offset” provisions. These provisions are typically obligations to make, or to facilitate third parties to make, various specified transactions in the customer’s country, such as procurement of defense and commercial products, investment in the local economy and transfer of know-how. ~~(For~~For further information about buy-back obligations, see Item 5. Operating and Financial Review and Prospects – Off-Balance Sheet Transactions.)

Financing Terms

Types of Financing. There are several types of financing terms applicable to our defense contracts. In some cases, we receive progress payments related to our progress in performing the contract. Sometimes we receive advances from the customer at the beginning, or during the course, of the project, and sometimes we also receive milestone payments for achievement of specific milestones. In some programs we extend credit to the customer, sometimes based on receipt of guarantees or other security. In other situations work is performed before receipt of the payment, which means that we finance all or part of the project’s costs for various periods of time. Financing arrangements may extend beyond the term of the contract’s performance. In some cases, third parties, such as banks, have recourse to us in the event of a default in payment by our customers. When we believe it is necessary, we seek to protect all or part of our financial exposure by letters of credit, insurance or other measures, although in some cases such measures may not be available.

Advance Payment Guarantees. In some cases where we receive advances prior to incurring contract costs or making deliveries, the customer may require guarantees against advances paid. These guarantees are issued either by financial institutions or by us. We have received substantial advances from customers under some of our contracts. In certain circumstances, such as if a contract is canceled for default and there has been an advance or progress payment, we may be required to return payments to the customer as provided in the specific guarantee. As part of the guarantees we provide to receive progress payments or advance payments, some of our customers require us to transfer to them title in inventory acquired with such payments. ~~(See~~See Item 5. Operating and Financial Review and Prospects – General – Long-Term Arrangements and Commitments – Bank and Other Financial Institution Guarantees.)

Performance Guarantees. A number of projects require us to provide performance guarantees in an amount equal to a percentage of the contract price. In certain cases we also provide guarantees related to the performance of buy-back obligations. Some of our contracts contain clauses that impose penalties or reduce the amount payable to us if there is a delay or failure in performing in accordance with the contract or the completion of a phase of work, including in some cases during the warranty period. These types of guarantees may remain in effect for a period of time after completion of deliveries under the contract. Such guarantees are customary in defense transactions, and we provide them in the normal course of our business. ~~(See~~See Item 5. Operating and Financial Review and Prospects – General – Long-Term Arrangements and Commitments – Bank and Other Financial Institution Guarantees.)

Private Finance Initiatives (PFI). Some of our projects operate under PFI financing arrangements where we provide long-term financing arrangements or facilities, with the repayment generally made based on the project’s cash flow. PFI projects can be structured in several ways. PFI projects may require us to pledge project-related equity and enter into relatively complex financial and other agreements. Such financing is usually medium or long-term and may be raised either through banks or institutional lenders and carries various financial risks, covenants and exposures. In addition, PFI projects may require us to draw upon our equity base and borrowing capacities and may significantly affect our liquidity and increase our financial leverage. In recent years we have been involved in several PFI-type projects in Israel and Europe, as well as private-public-partnership financing projects, and we expect to continue to participate in such projects.

Intellectual Property

Patents, Trademarks and Trade Secrets. We own hundreds of living patent families including patents and applications registered or filed in Israel, the United States, the European Patent Office and other countries. We also hold dozens of living trademark families relating to specific products. A significant part of our intellectual property assets relates to unique applications of advanced software-based ~~technologies, development processes and production~~ technologies. Some of these applications are protected by patents and others are considered as our trade secrets and proprietary information. We take a number of measures to safeguard our intellectual property against infringement as well as to avoid infringement of other parties’ intellectual property. ~~(For~~For risks related to our intellectual property see Item 3. Key Information – Risk Factors – General Risks Related to Our Business and Market.)

Governmental Customers’ Rights in Data. The IMOD usually retains specific rights to technologies and inventions resulting from our performance under contracts for end use by the IMOD or the ~~IDF.~~Israel Defense Forces. This generally includes the right to disclose the information to third parties, including other defense contractors that may be our competitors. When the IMOD funds research and development, it usually acquires rights in the data developed under such funding. We often may retain a non-exclusive license for such inventions. The Israeli

government usually is entitled to receive royalties on export sales in relation to sales resulting from government financed development. However, if only the product is purchased without development effort, we normally retain the principal rights to the technology. Sales of our products to the U.S. government and some other customers are subject to similar conditions. Subject to applicable law, regulations and contract requirements, we attempt to maintain our intellectual property rights and provide customers with the right to use the technology only for the specific project under contract.

Licensing. There are relatively few cases where we manufacture under license. Such licenses typically apply to the use of technologies that are the result of collaboration with academic institutions or where we are manufacturing another company’s product in accordance with that company’s specifications. In such cases, the licensor typically is entitled to royalties or other types of compensation. In some cases where we have acquired business lines we obtain a royalty free license to use the applicable technology for specified applications. We also obtain licenses to use software tools in our engineering and development activities and utilize open source software licenses in projects where such use is appropriate. Occasionally, we license parts of our intellectual property to customers as part of the requirements of a particular contract. We also sometimes license technology to other companies for specific purposes or markets, such as the right to use certain of our intellectual property relating to our training and simulation systems.

Research and Development

We invest in research and development (R&D) according to a long-term plan based on estimated market needs. Our R&D efforts focus on anticipating operational needs of our customers, achieving reduced time to market and increasing affordability. We emphasize improving existing systems and products and developing new ones using emerging or existing technologies.

Our R&D projects relate to defense, homeland security and commercial applications. We perform R&D projects to produce new systems for the IMOD and other customers. These projects give us the opportunity to develop and test emerging technologies. We develop tools for fast prototyping for both the design and development process. Fast prototyping permits the operational team members to effectively specify requirements and to automatically transfer them into software code. We also are engaged in long-term investments in science and technology infrastructure and building blocks, often in collaboration with academic bodies. We employ thousands of software, hardware and systems engineers. In addition, most of our program and business line managers have engineering backgrounds. More than 50% of our total workforce is engaged in research, development and engineering.

Our companies in Israel have collectively been awarded the Israel Defense Prize ~~eleven~~26 times, recognizing extraordinary contributions to defense technological innovations.

Our customers, the Israel Innovation Authority in the Ministry of Economy and Industry (formerly Office of Chief Scientist) and other R&D granting authorities sometimes participate in our R&D ~~funding.~~funding for our Israeli-based companies. Some of our subsidiaries outside of Israel receive funding of certain of their R&D activities from their respective governments. We also invest our own funds in ~~our~~ research and development activities. This investment is in accordance with our strategy and plan of operations. The table below shows amounts we invested in R&D activities for the years ended December 31, ~~2015, 2016~~2017, 2018 and ~~2017.~~2019.


	2015			2016			2017			2017			2018			2019
	(U.S. dollars in millions)									(U.S. dollars in millions)
Total Investment	$	277.8		$	291.8		$	301.4		$	301.4		$	317.7		$	368.7
Less Participation*	(34.4		)	(36.0		)	(36.3		)	(36.3		)	(30.3		)	(36.9		)
Net Investment	$	243.4		$	255.8		$	265.1		$	265.1		$	287.4		$	331.8


*	See above – “Government Rights in Data” and see below – “Conditions in Israel – Israel Innovation Authority and Investment Center Funding.”

Manufacturing

We manufacture and assemble our systems and products at our operational facilities in Israel, the U.S., Europe, Brazil and Australia and at the facilities of certain of our subsidiaries in other countries. These facilities contain warehouses, electronic manufacturing areas, mechanical workshops, final assembly and test stations with test equipment. We also have supporting infrastructure including fully automated surface mount technology lines and clean rooms for electro-optic components, solid state components integration, environmental

testing and final testing, including space simulation and thermal chambers. We also have computerized logistics systems for managing manufacturing and material supply. A number of our manufacturing activities are provided on a shared services basis by several of our in-house centers of excellence.

We also manufacture and assemble composite materials, metal parts and machinery. One of our Israeli subsidiaries has a high technology semiconductor manufacturing facility where it performs electronic integration and assembly of thermal imaging detectors and laser diodes. We also manufacture and repair test equipment.

We manufacture commercial avionics and aircraft components, as well as perform maintenance, repair and overhaul at our U.S. FAA registered facilities in the U.S., Europe and Israel. We also manufacture medical equipment at U.S. FDA registered facilities in the U.S.

Environmental Compliance

As part of overall Company policy, we are committed to environmental, health and safety standards in all aspects of our operations. This includes all regulatory requirements as well as compliance with ISO-14001 and ~~OSHAS-1800~~ISO-45001 standards. We also conduct a number of measures on an ongoing basis to promote environmentally friendly operational practices, including measures to reduce electrical, fuel and water consumption and to increase recycling. There are no material environmental issues that affect the Company’s use of our facilities. See also “Social Sustainability” below.

Seasonality

Although revenues may sometimes increase towards the end of a fiscal year, no material portion of the Company’s business is considered to be seasonal. The timing of revenue recognition is based on several factors. ~~(See~~See Item 5. Operating and Financial Review and Prospects – General – Critical Accounting Policies and Estimates – Revenue Recognition.)

~~Purchasing and Raw Materials~~Supply Chain

We conduct ~~purchasing~~supply chain activities that consist of procurement, logistics and planning at most of our operational facilities. We use a “hybrid” ~~procurement~~ operating model that combines global commodities categories management with divisional ~~procurement~~supply chain management. This model facilitates levering ~~economy~~economies of scale, develops ~~procurement~~ centers of excellence and reduces supply chain risks. We generally are not dependent on single sources of supply. We manage our inventory according to project requirements. In some projects, specific ~~major~~ subcontractors are designated by the customer. Raw materials used by us are generally available from a range of suppliers internationally, and the prices of such materials are generally not subject to significant volatility. We monitor the on-time delivery and the quality of our contractors and encourage them to continuously improve their performance. We also require our suppliers to adhere to our Supplier Code of Conduct and to comply with a range of procurement compliance standards, including those relating to the avoidance of human trafficking, counterfeit parts and conflict minerals.

Customer Satisfaction and Quality Assurance

We invest in continuous improvement of processes, with emphasis on prevention of deficiencies, to achieve customer satisfaction throughout all stages of our operations. This includes development, design, integration, manufacturing and services for software and hardware, for the range of our systems and products. Our quality teams are involved in assuring compliance with processes and administrating quality plans. These activities begin at the pre-contract stage and continue through the customer’s acceptance of the product or services.

We also use project management methods such as Kaizen and Lean and are enhancing and expanding such processes on an ongoing basis. Our processes are based on a cutting edge tool case and CAD-CAM tools. This infrastructure, together with well defined development methodology and management tools, assists us in providing high quality and on-time implementation of projects. We are in the process of implementing a “One-ERP” (enterprise resource planning) system, with a goal of consolidating uniform best practices for quality and operations across the organization.

We also maintain applicable certifications for our information technology systems.

All Israeli operational sites are certified for one or more of the following: ISO-9001, ISO-90003 for software, AS9100 (certified for revision D)D and compliant to AQAP requirements), AS9115 for software, ISO-14001, OHSAS 18001, FAA Part 145 and European Aviation Safety Agency (EASA) Part 145 for maintaining civil products and Part 21 G for production of civil products. Most of our operational sites in Israel are also certified for ISO-27001 (Information Security Management System). and for ISO-27032 and ISO-27035 for cyber security. Representatives of our customers generally test our products before acceptance. A number of our customers have authorized us to conduct acceptance testing of our products on their behalf.

Quality certifications applicable to defense products of Elbit Systems of America’s operating units include certifications for CMMI Level 3 of the SEI, ISO-9001, AS9100 (certified for revision C)D) and compliance with NATO AQAP requirements. In the area of commercial aviation Elbit Systems of America’s operating units hold EASA certification as well as a variety of FAA certifications including FAA Part 21 approval and FAA Part 145 approved repair stations. In the medical equipment area, Elbit Systems of America is certified for ~~ISO 13485:2003,~~ISO-13485:2016, is registered with the FDA as a GMP manufacturer and is FDA compliant with Quality Systems Regulations 21 CFR Parts 820, 803 and 806.

Service and Warranty

We instruct our customers on the proper maintenance of our systems and products. In addition, we often offer training and provide equipment to assist our customers in performing their own maintenance. When required, support may be provided by a local support team or by specialists sent from our facilities. We also provide performance based logistics services.

We generally offer a one or two-year warranty for our systems and products following delivery to, or installation by, the customer. In some cases we offer longer warranty periods. We accrue for warranty obligations specifically determined for each project based on our experience and engineering estimates. These accruals are intended to cover post-delivery functionality and operating issues for which we are responsible under the applicable contract.

Marketing and Sales

We actively take the initiative in identifying the individual needs of our customers throughout the world. We then focus our research and development activities on systems designed to provide tailored solutions to those needs. We often provide demonstrations of prototypes and existing systems to potential customers.

We market our systems and products either as a prime contractor or as a subcontractor to various governments and companies worldwide. In Israel, we sell our military systems and products mainly to the ~~IMOD, which procures all equipment for the IDF.~~IMOD. A number of marketing related support services are provided on a central shared services basis to various units in the Company. Marketing our systems, products and services in other parts of the world is supported by subsidiaries, joint ventures and representatives.

In the U.S., generally Elbit Systems of America leads our sales and marketing activities from its facilities throughout the U.S. Elbit Systems of America operates under a Special Security Agreement that allows it and its subsidiaries to work on certain classified U.S. government programs. See above “Subsidiary Organizational Structure – Elbit Systems of America.” Our subsidiaries in other countries typically lead the marketing activities in their home countries, often assisted by marketing and business development personnel based in Israel.

Over the past several years, we have entered into cooperation agreements with defense contractors, platform manufacturers and other companies in Israel, the United States, Europe, Latin America, Asia-Pacific and certain other markets. These agreements provide for joint participation in marketing and performance of a range of projects around the world. In other situations, we actively pursue business opportunities as either a prime contractor or a subcontractor, usually together with local companies. Often we enter into cooperation agreements with other companies for such opportunities.

Competition

We operate in a competitive environment for most of our projects, systems and products. Competition is based on product and program performance, price, reputation, reliability, life cycle costs, overall value to the customer, responsiveness to customer requirements and the ability to respond to rapid changes in technology. In addition, our competitive position sometimes is affected by specific requirements in particular markets.

Continuing consolidation in the defense industry has affected competition. In addition, many major prime contractors are increasing their in-house capabilities. These factors have decreased the number but increased the relative size and resources of our competitors. We adapt to market conditions by adjusting our business strategy to changing market conditions.

Competitors in the sale of some of our products to the government of Israel include Israel Aerospace Industries and Rafael Advanced Defense Systems among others. From time to time we also cooperate with some of our competitors on specific projects. Outside of Israel, we compete in a number of areas with major international defense and homeland security contractors principally from the United States, Europe and Israel. Our main competitors include divisions and subsidiaries of Boeing, Lockheed Martin, Northrop Grumman, Raytheon, General Dynamics, BAE Systems, ~~Rockwell~~ Collins Aerospace, L-3 Communications, Thales, Airbus, Leonardo, Saab, Harris, Textron, FLIR Systems, Orbital ATK, AeroVironment, ~~Rhode and Schwartz,~~Rohde & Schwarz, Rheinmetall, Kongsberg, Safran, Hensoldt, CMC, CAE, Aselsan, Bharat Electronics, Cubic and Verint. Many of these competitors have greater financial, marketing and other resources than ours. We also compete in the worldwide defense and homeland security markets with numerous smaller companies. In addition, we compete with a range of companies in the commercial avionics and commercial cyber protection markets. In certain cases we also engage in strategic cooperative activities with some of our competitors.

Overall, we believe we are able to compete on the basis of our systems development and technological expertise, our systems’ operationally-proven performance and our policy of offering customers overall solutions to technological, operational and financial needs.

Major Customers

Sometimes, our revenues from an individual customer account for more than 10% of our revenues in a specific year. Our only such customer during the last three years was the IMOD, which accounted for ~~17% in 2015, 18% in 2016 and~~ 19% in ~~2017.~~2017, 13% in 2018 and 15% in 2019.

Ethics

We conduct our business activities and develop Company policies based on a firm commitment to ethical practices. In addition to our Code of Business Conduct and Ethics (Ethics Code) (see Item 16.B) and compliance with applicable laws and regulations, we have an active Company-wide ethics compliance program, incorporating a range of policies and procedures. This includes the ~~anti-bribery~~anti-bribery/corruption area where we have a policy of zero tolerance for corruption. Our anti-bribery/corruption compliance program also includes a number of elements such as whistleblower and investigation processes, contractual requirements, due diligence, ongoing training, record keeping and enforcement. We also expect our supply chain to follow ethical practices. Our Ethics Code, ~~of Conduct,~~Whistleblower and Investigations Procedure, Anti-Bribery and Corruption Compliance Policy, Procedure on Anti-Bribery and Corruption Due Diligence, Business Entertainment and Gifts Policy and Supplier Code of Conduct are published on our website www.elbitsystems.com. We are active in a number of international organizations relating to ethics and compliance.

Social Sustainability and Environmental, Social and Governance (ESG) Practices

We place importance on ESG practices, including sustainability and social responsibility to the communities in which we live and work. This is consistent with our policy of emphasizing responsible and ethical business practices. Our policy encourages the voluntary efforts of our Company entities and employees who donate their time and efforts in the support of members of our communities who are in need. In this regard, we ~~place~~give priority onto initiatives tothat promote educational advancement in less developed communities, particularly in the technology sectors. We also promote numerous other community support activities, including involvement on a national level in major charitable organizations in Israel and the U.S. We place emphasis on best practices in corporate governance, ethical conduct (including anti-bribery/corruption compliance) and fair employment practices. We also pursue continuous improvement of our operations from an environmental, health and safety perspective and have a policy of combating human trafficking and avoiding the use of “conflict minerals” in our supply chain. These activities support our involvement as active members in leading sustainability and ethics organizations. We periodically publish a Sustainability Report, available on our website, detailing our activities in the areas of corporate responsibility, ethics, environmental, health and safety initiatives and community-related activities.

Conditions in Israel

~~Political, Military and Economic Risks.~~ ~~Our operations in Israel are subject to several potential political, military and economic risks. (See Item 3. Key Information – Risk Factors – Risks Related to Our Israeli Operations.)~~

Trade Agreements. Israel is a member of the United Nations, the International Monetary Fund, the International Bank for Reconstruction and Development and the International Finance Corporation. Israel also is a party to the General Agreement on Tariffs and Trade, which provides for reciprocal lowering of trade barriers among its members. In addition, Israel has been granted preferences under the Generalized System of Preferences from several countries. These preferences allow Israel to export products covered by such programs either duty-free or at reduced tariffs.

Israel Innovation Authority and Investment Center Funding. The government of Israel, through the Israel Innovation Authority (IIA) in the Ministry of Economy ~~and Industry~~ (formerly the Office of the Chief Scientist) and the Israel Investment Center (the Investment Center), encourages research and development projects oriented towards export products and participates in the funding of such projects as well as company investments in manufacturing infrastructures. Our Israeli companies receive IIA funding through various channels such as transfer of knowledge from an academic institution for a product, bi-lateral product development and innovative product development. Our companies participating in such development of products usually pay the Israeli government a royalty at various rates and such funding is typically subject to a number of conditions. ~~(See~~See Item 5. Operating and Financial Review and Prospects – Long-Term Arrangements and Commitments – Government Funding of Development.) Separate Israeli government consent is required to transfer to third parties technologies developed through projects in which the government participates in the funding of the development effort. The Investment Center promotes Israeli export products and increased industrialization of peripheral areas through investment in industrial infrastructure. The Investment Center either provides grants for qualified projects or provides tax benefits for qualified industrial investments by Israeli companies.

Israeli Labor Laws. Our employees in Israel are subject to Israeli labor laws. Some employees are also affected by some provisions of collective bargaining agreements between the Histadrut – General Federation of Labor in Israel and the Coordination Bureau of Economic Organizations, which includes the Industrialists’ Association. These labor laws and collective bargaining provisions mainly concern the length of the work day, minimum daily wages for professional workers, insurance for work-related accidents, procedures for dismissing certain employees, determination of severance pay, employment of “manpower” employees and other conditions of employment.

Severance Pay. Under Israeli law, our Israeli companies are required to make severance payments to terminated Israeli employees, other than in some cases of termination for cause. The severance reserve is calculated based on the employee’s last salary and period of employment. A portion of the severance pay and pension obligation is covered by payment of premiums to insurance companies under approved plans and to pension funds. The deposits presented in the balance sheet include profits accumulated to the balance sheet date. The amounts deposited may be withdrawn only after fulfillment of the obligations under the Israeli laws relating to severance pay. However, Elbit Systems and our Israeli subsidiaries have entered into agreements with some of our employees implementing Section 14 of the Severance Payment Law, which agreements relate to the treatment of severance pay. ~~(See~~See Item 18. Financial Statements – Note ~~2(R).)~~2R.

National Insurance Institute. Israeli employees and employers are required to pay predetermined sums to the National Insurance Institute, which is similar to the U.S. Social Security Administration. These amounts also include payments for national health insurance. As of December 31, ~~2017,~~2019, the payments to the National Insurance Institute were equal to approximately ~~19.5%~~19.6% of wages, subject to a cap if an employee’s monthly wages exceed a specified amount. The employee contributes approximately ~~61.5%~~61.2%, and the employer contributes approximately ~~38.5%~~38.8%.

Enforcement of Judgments

Israeli courts may enforce U.S. and other foreign jurisdiction final executory judgments for liquidated amounts in civil matters, obtained after due process before a court of competent jurisdiction. This enforcement is made according to the private international law rules currently applicable in Israel, which recognize and enforce similar Israeli judgments, provided that:

adequate service of process has been made and the defendant has had a reasonable opportunity to be heard;

the judgment and its enforcement are not contrary to the law, public policy, security or sovereignty of the State of Israel;

the judgment was not obtained by fraud and does not conflict with any other valid judgment in the same matter between the same parties;

an action between the same parties in the same matter is not pending in any Israeli court at the time the lawsuit is instituted in the foreign court; and

the judgment is no longer subject to a right of appeal.

Foreign judgments enforced by Israeli courts generally will be payable in Israeli currency. The usual practice in Israel in an action to recover an amount in a non-Israeli currency is for the Israeli court to provide for payment of the equivalent amount in Israeli currency at the exchange rate in effect on the judgment date. Under existing Israeli law, a foreign judgment payable in foreign currency may be paid in Israeli currency at the foreign currency’s exchange rate on the payment date or in foreign currency. Until collection, an Israeli court judgment stated in Israeli currency will ordinarily be linked to the Israeli Consumer Price Index (CPI) plus interest at the annual rate (set by Israeli regulations) in effect at that time. Judgment creditors must bear the risk of unfavorable exchange rates.

Item 4A. Unresolved Staff Comments.

None.

Item 5. Operating and Financial Review and Prospects.

The following discussion and analysis should be read together with our audited consolidated financial statements and notes appearing in Item 18 below.

General

Critical Accounting Policies and Estimates

Our significant accounting policies are described in Item 18. Financial Statements – Note 2.

Our results of operations and financial condition are based on our consolidated financial statements, which are presented in conformity with United States generally accepted accounting principles (U.S. GAAP). The preparation of the consolidated financial statements requires management to select accounting policies, and to make estimates. assumptions and judgments that involve the accounting policies described below that affect the amounts reported in the consolidated financial statements. Significant changes in assumptions and/or conditions and changes in our critical accounting policies could materially impact our operating results and financial condition.

We believe our most critical accounting policies relate to:

•Revenue ~~Recognition.~~Recognition,

•Business ~~Combinations.~~Combinations,

•Impairment of Long-Lived Assets and ~~Goodwill.~~Goodwill,

•Useful Lives of Long-Lived ~~Assets.~~Assets,

•Income ~~Taxes.~~Taxes,

•Stock-Based Compensation ~~Expense.~~Expense and

•Post-employment Benefits Liabilities.

Revenue Recognition

We generate revenues ~~principally~~primarily from fixed-price long-term contracts involving the design, development, manufacture and integration of defense ~~electronic~~ systems and products. In addition, to a lesser extent, we provide non-defense systems and products as well as support and services for our systems and products.

Revenues from ~~long-term~~our contracts are principally recognized ~~primarily~~ using the Financial Accounting Standards Board (FASB), Accounting Standards Codification (ASC) ~~ASC 605-35. “Construction-Type and Production-Type Contracts” (ASC 605-35)~~606. We assess contractual arrangements at inception according to ~~which we~~the five-step model of ASC 606.

We recognize revenues for each of the identified performance obligations when our customer obtains control of the products or services. The assessment of when the customer obtains control involves significant judgments, including, inter-alia, whether there is an alternative use for a product, the contract terms, assessment of the enforceable rights for payments, and technical or contractual constraints. As a practical expedient we may occasionally account for group of performance obligations or contracts collectively, as opposed to individually by using the ~~percentage-of-completion method~~"portfolio approach" or the "series of ~~accounting.~~distinct goods and services" method. Under the "portfolio approach" practical expedient, the Company may combine individual performance obligations, if the goods or services of the individual performance obligations have similar characteristics and the Company reasonably expects that the effect on the financial statements of applying this guidance would not defer materially from applying the guidance to the individual contracts or performance obligations within that portfolio. In addition, as a practical expedient, the Company does not assess the existence of a significant financing component when the difference between payment and transfer of control is less than one year.

The percentage-of-completion method of accounting requires management to estimate the cost and gross profit margin for each individual contract. Estimated gross profit or loss from long-term contracts may change due to changes in estimates resulting from differences between actual performance and original estimated forecasts. Such changes in estimated gross profit are recorded in results of operations when they are reasonably determinable by management, on a cumulative catch-up basis. Anticipated losses on contracts are charged to earnings when determined to be probable.

In certain circumstances, sales under short-term fixed-price production type contracts or sales of products are accounted for in accordance with the SEC’s Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition in Financial Statements” (SAB 104), and recognized when all the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the seller’s price to the buyer is fixed or determinable, no further seller performance obligation exists and collectibility is reasonably assured.

In cases where the contract involves the delivery of products and performance of services, or other obligations, we follow the guidelines specified in ASC 605-25, “Multiple-Element Arrangements”, in order to allocate the contract consideration between the identified different elements using the relative selling price method to allocate the entire arrangement consideration. The selling price of each element would be allocated by using a hierarchy of: (i) Vendor Specific Objective Evidence (VSOE); (ii) third-party evidence of the selling price for that element; or (iii) estimated selling price for individual elements of an arrangement when VSOE or third-party evidence of the selling price is unavailable.

For most of our long-term contracts, where our performance does not create an asset with an alternative use, we recognize revenue over time as we perform because of continuous transfer of control to the customer. This continuous transferof control to the customer is supported by clauses in the contract that typically allow the customer control in the work-in-process as evidenced either by contractual termination clauses or by our rights to payment for work performed to date plus a reasonable profit for products or services that do not have an alternative use to the Company.

For these performance obligations that are satisfied over time, we generally recognize revenue using an input method with revenue amounts being recognized proportionately as costs are incurred relative to the total expected costs to satisfy the performance obligation.

Revenue for performance obligations that are not recognized over time are recognized at the point in time when control transfers to the customer (which is generally when the customer can direct the use of and obtain substantially all of the remaining benefits from the products, generally when the customer obtains control after delivery).

Service revenues include contracts primarily for the provision of supplies orand services other than those associated with activities related to the design, development or manufacturing ~~and production activities.~~or delivery of products. It may be a ~~stand-alone~~standalone service ~~contract~~contracts or a service ~~element,~~performance obligation, which ~~was separated~~is distinct from the design, development or ~~production~~products delivery contract. Our service contracts include contracts in which the customer simultaneously receives and consumes the benefits provided as the contract ~~according to the criteria established in ASC 605-25.~~is performed. Our service contracts primarily include ~~operation~~operation-type contracts, outsourcing-type arrangements, “stand ready” type maintenance contracts, ~~and~~ training and ~~installation service contracts.~~similar activities. Revenue from ~~services~~service contracts or performance obligations were less than 10% of ~~consolidated~~total revenues in each of the fiscal years ~~2015.2016~~2019, 2018 and 2017. ~~(For~~For additional information see Item 18. Financial Statements - Note ~~2(T)). During 2017,~~2T.

In 2018, we ~~reviewed implementation of a new standard of revenue recognition under FASB Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers”, which became~~adopted ASC 606 using the modified retrospective method effective ~~for us~~ as of January 1, 2018. Accordingly, for comparative periods prior to 2018, ~~(See~~a majority of the Company's revenues was recognized under the contract method of accounting, and sales and profits were recorded on each contract using the percentage-of-completion method of accounting, primarily using units-of-delivery. Under the units-of-delivery method, revenue is recognized based upon the number of units delivered during a period, and the contract price and expenditures are recognized as cost allocable to the delivered units. For further description of our revenue recognition policy and its implications on the financial statements for the period ended December 31, 2019, see Item 18. Financial Statements - Note ~~2(AE)(3)).~~2T.

Business Combinations

In accordance with ASC 805, “Business Combinations”, we allocate the purchase price (including estimated fair value of contingent consideration at the date of acquisition) of acquired businesses and companies to the tangible and intangible assets acquired and liabilities assumed, as well as to ~~IPR&D and contingent consideration,~~in-process research & development (IPR&D) and non-controlling interest, based on their estimated fair values. Determining such values requires management to make significant estimates and assumptions, especially with respect to intangible assets. ~~(See~~See Item 18. Financial Statements - Note ~~2(E)~~2E for additional information.)

We usually engage third-party appraisal firms to assist management in determining the fair values of certain assets acquired and liabilities assumed. Determining the fair values of certain assets acquired and liabilities assumed requires judgment and often involves the use of significant estimates and assumptions, mainly with respect to intangible assets. Management makes estimates of fair value based upon market participants’ assumptions believed to be reasonable. These estimates are based on historical experience and information obtained from the management of the acquired companies, and although such estimates are deemed to be consistent with market participants’ highest and best use of the assets in the principal or most advantageous market, they are inherently uncertain. While there are a number of different methods for estimating the value of intangible assets acquired, the primary method used is the discounted cash flow approach. Some of the more significant estimates and assumptions inherent in the discounted cash flow approach include projected future cash flows, including their timing, a discount rate reflecting the risk inherent in the future cash flows and a terminal growth rate. We also estimate the expected useful lives of the intangible assets, which requires judgment and can impact our results of operations. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.

To the extent intangible assets are assigned longer useful lives, there may be less amortization expense recorded in a given period. Because we operate in industries which are extremely competitive, the value of our intangible assets and their respective useful lives are exposed to future adverse changes, which can result in an impairment charge to our results of operations.

Impairment of Long-Lived Assets and Goodwill

Our long-lived assets, including identifiable property, plant and equipment and intangible assets, are reviewed for impairment in accordance with ASC 360-10-35, “Property, Plant and Equipment Subsequent Measurement”, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If an asset is determined to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Fair value of non-financial assets is determined based on market participant assumptions. For ~~each of~~ the ~~years~~year ended December 31, ~~2015, 2016 and~~ 2017 no material impairment of long-lived assets was identified. ~~(See~~During the year ended December 31, 2018, we recognized an impairment of approximately $5.5 million, and during the year ended December 31, 2019, no material impairment of long-lived assets was identified. See Item 18. Financial Statements - ~~Note 2(P)~~Notes IC(5) and 2P for additional information.)

Goodwill represents the excess of the cost of acquired businesses over the fair values of the assets acquired net of liabilities assumed. Goodwill is not amortized, but is instead tested for impairment at least annually (or more frequently if impairment indicators arise).

We review goodwill for impairment on an annual basis and whenever events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. Such events or circumstances could include significant changes in the business climate of our industry, operating performance indicators, competition or sale or disposal of a portion of a reporting unit. The assessment is performed at the reporting unit level. Our annual testing date for all reporting units is December 31.

Performing the goodwill impairment test requires judgment, including how we define reporting units and determine their fair value. We consider a component of our business to be a reporting unit if it constitutes a business for which discrete financial information is available and management regularly reviews the operating results of that component. We estimate the fair value of each reporting unit using a discounted cash flow methodology that requires significant judgment. Forecasts of future cash flows are based on our best estimate of future sales and operating costs, based primarily on existing backlog, expected future contracts, contracts with suppliers, labor agreements and general market conditions. We prepare cash flow projections for each reporting unit using a five-year forecast of cash flows and a terminal value based on the Perpetuity Growth Model. The five-year forecast and related assumptions are derived from the most recent annual financial forecast for which the planning process commenced in our fourth quarter. The discount rate applied to our forecasts of future cash flows is based on our estimated weighted average cost of capital and includes factors such as the risk-free rate of return and the return an outside investor would expect to earn based on the overall level of inherent risk. The determination of expected returns includes consideration of the beta (a measure of risk) of traded securities of comparable companies. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit.

We evaluate goodwill for impairment by comparing the estimated fair value of a reporting unit to its carrying value, including goodwill. If the carrying value exceeds the estimated fair value, we measure impairment by comparing the derived fair value of goodwill to its carrying value, and any impairment determined is recorded in the current period. For each of the three years ended December 31, ~~2017,~~2019, no material impairment of goodwill was identified. ~~(See~~See Item 18. Financial Statements - Note ~~2(Q)~~2Q for additional information.)

In 2019 and 2018, we wrote off impairment of approximately $3.7 million and $17.5 million, respectively, as a result of revaluation of investments in affiliated companies. For the year ended December 31, 2017, no material impairment of other long-lived assets was identified. See Item 18. Financial Statements - Notes 2J and 6 for additional information.

Useful Lives of Long-Lived Assets

Identifiable intangible assets and property, plant and equipment are amortized over their estimated useful lives. Determining the useful lives of such assets involves the use of estimates and judgments. In determining the useful lives we take into account various factors such as the expected use of the assets, effects of obsolescence, including technological developments, competition, demand and changes in business, acquisitions and other economic factors. If we experience changes and the useful lives of such assets increase or decrease, it will affect our results of operations. ~~(See~~See above “Impairment of Long-Lived Assets and Goodwill” for further discussion of the effects of changes in useful lives.)

Income Taxes

We record income taxes using the asset and liability approach, whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and of operating losses and credit carry-forwards, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We record a valuation allowance, if necessary, to reduce deferred tax assets to amounts that are more likely than not to be realized. We have considered future taxable income on a jurisdiction by jurisdiction basis and used prudent and feasible tax planning strategies and other available evidence in determining the need for a valuation allowance. In the event we were to determine that we would be able to realize these deferred income tax assets in the future, we would adjust the valuation allowance, which would reduce the provision for income taxes.

We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are in accordance with applicable tax laws. As part of the determination of our tax liability, management exercises considerable judgment in evaluating tax positions taken by us in determining the income tax provision and establishes reserves for tax contingencies in accordance with ASC 740 “Income Taxes” guidelines. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit, new tax legislation or the change of an estimate based on new information. To the extent that the final tax outcome of these matters is different from the amounts recorded, such differences will affect the provision for income taxes in the period in which such determination is made. During ~~2015, 2016~~2017, 2018 and ~~2017,~~2019, certain of our subsidiaries settled certain income tax matters pertaining to multiple years in Israel and Europe. Elbit Systems and certain of our Israeli subsidiaries are currently undergoing tax audits by the Israeli Tax Authority. The provision for income taxes includes the effect of reserve provisions and changes to reserves that are considered appropriate, as well as the related interest and penalties.

Management’s judgment is required in determining our provision for income taxes in each of the jurisdictions in which we operate. The provision for income tax is calculated based on our assumptions as to our entitlement to various benefits under the applicable tax laws in the jurisdictions in which we operate. The entitlement to such benefits depends upon our compliance with the terms and conditions set out in these laws. Although we believe that our estimates are reasonable and that we have considered future taxable income and ongoing prudent and feasible tax strategies in estimating our tax outcome, there is no assurance that the final tax outcomes will not be different than those which are reflected in our historical income tax provisions and accruals. Such differences could have a material effect on our income tax provision, net income and cash balances in the period in which such determination is made. ~~(See~~See Item 18. Financial Statements - Notes ~~2(W)~~2W and 18.)

Stock-Based Compensation Expense

We account for ~~equity based~~equity-based compensation in accordance with ASC 718 “Compensation - Stock ~~Based~~ Compensation” (ASC 718), which requires the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors, including employee stock options, cash-based awards linked to the share price and our Phantom Bonus Retention Plan, based on estimated fair values. ~~(See~~See Item 18. Financial Statements - Notes ~~2(Z)~~2Z and ~~21.)~~22.

Post-employment Benefits Liabilities

We have several post-employment benefit plans. The plans are funded partly by deposits with insurance companies, financial institutions or funds managed by a trustee. The plans are classified as defined contribution plans and as defined benefit plans.

Some of the Company's subsidiaries' employees, mainly in Israel and in the U.S. (some of whom have already left the Company), have defined benefit pension plans for their retirement, which are controlled by the Company. Generally, according to the terms of the plans, as stated, the employees are entitled to receive pension payments based on, among other things, their number of years of service (in certain cases up to 70% of their last base salary) or computed, in certain cases, based on a fixed salary. Some employees of a subsidiary in Israel are entitled to early retirement if they meet certain conditions, including age and seniority at the time of retirement.

We recognize on a plan-by-plan basis the net funded status of our post retirement benefit plans under U.S. GAAP as either an asset or a liability on our consolidated balance sheets. The funded status represents the difference between the fair value of each plan’s assets and the benefit obligation of the plan. The benefit obligation represents the present value of the estimated future benefits we currently expect to pay to plan participants based on past service.

The plan assets and benefit obligations are measured at the end of each year or more frequently, upon the occurrence of certain events such as a significant plan amendment, settlement or curtailment. The amounts we record are measured using actuarial valuations (based on independent actuarial advice) which are dependent upon key assumptions such as: discount rates, the expected long-term rate of return on plan assets (determined by considering the expected return available on assets underlying the current investment policy), participant longevity, employee turnover, inflation rates, future payroll increases and the health care cost trend rates for our retiree medical plans. The assumptions we make affect both the calculation of the benefit obligations as of the measurement date and the calculation of net periodic benefit cost in subsequent periods. When reassessing these assumptions, we consider past and current market conditions and make judgments about future market trends. We also consider factors such as the timing and amounts of expected contributions to the plans and benefit payments to plan participants. Any changes in these assumptions will impact (either increases or decreases) the carrying amount of our post-employment benefit obligations and plan assets. See Item 18. Financial Statements - Notes 2S and 17.

Governmental Policies

Governmental policies and regulations applicable to defense contractors, such as cost accounting and audit, export control, procurement solicitation and anti-bribery rules and regulations, could have a material impact on our operations. ~~(See~~See Item 3. Risk Factors – General Risks Related to Our Business and Market and Item 4. Information on the Company – Governmental Regulation.) According to Section 404 of the U.S. Sarbanes-Oxley Act of 2002, we are required to include in our annual report on Form 20-F an assessment, as of the end of the fiscal year, of the effectiveness of our internal controls over financial reporting. ~~(See~~See Item 15. Controls and Procedures – Management’s Annual Report on Internal Control Over Financial Reporting.)

Recent Accounting Pronouncements

See Item 18. Financial Statements – Note ~~2(AE).~~2AF.

Long-Term Arrangements and Commitments

Government Funding of Development. Elbit Systems and certain Israeli subsidiaries partially finance our research and development expenditures under programs sponsored by the Israel Innovation Authority (IIA) in the Ministry of Economy ~~and Industry~~ (formerly the Office of the Chief Scientist) for the support of research and development activities conducted in Israel. At the time the funds are received, successful development of the funded projects is not assured. In exchange for the funds, Elbit Systems and the subsidiaries pay 2% – 5% of total sales of the products developed under these programs. The obligation to pay these royalties is contingent on actual future sales of the products. Elbit Systems and some of our subsidiaries may also be obligated to pay certain amounts to the IMOD and others on certain sales including sales resulting from the development of some of the technologies developed with such respective entity’s funds. ~~(See~~See Item 4. Information on the Company – Conditions in Israel – Israel Innovation Authority and Investment Center ~~Funding.)~~Funding and Item 18. Financial Statements - Note 2V.

Lease Commitments. The future minimum lease commitments of the Company under various non-cancelable operating lease agreements for property, motor vehicles and office equipment, excluding imputed interest, as of December 31, ~~2017~~2019 were as follows: ~~$60.4 million for 2017, $53.8 million for 2018, $38.4 million for 2019, $24.3~~$71.8 million for 2020, ~~and $118.1~~$51.6 million for 2021, $40.8 million for 2022, $36.2 million for 2023, $33.8 million for 2024 and $260.9 million for 2025 and thereafter. ~~(See below “Contractual Obligations”.)~~See Item 18. Financial Statements – Note 9.

Bank Covenants. In connection with bank credits and loans, including performance guarantees issued by banks and bank guarantees in order to secure certain advances from customers, Elbit Systems and certain subsidiaries are obligated to meet certain financial covenants. ~~(See~~See below – “Liquidity and Capital Resources – Financial Resources”.) Such covenants include requirements for shareholders’ equity, current ratio, operating profit margin, tangible net worth, EBITDA, interest coverage ratio and total leverage. ~~(See~~See Item 18. Financial Statements – Note ~~20(F).)~~21E. As of December 31, ~~2016~~2018 and ~~2017,~~2019, the Company met all financial covenants.

Bank and Other Financial Institution Guarantees. As of December 31, ~~2017~~2019 and ~~2016,~~2018, guarantees in the aggregate amount of approximately ~~$1,399~~$1,983 million and ~~$1,219~~$1,895 million, respectively, were issued by banks and other financial institutions on behalf of several Company entities primarily in order to secure certain advances from customers and performance bonds.

Purchase Commitments. As of December 31, ~~2017~~2019 and ~~2016,~~2018, we had purchase commitments of approximately ~~$1,592~~$2,248 million and ~~$1,313~~$1,775 million, respectively. These purchase orders and subcontracts are typically in standard formats proposed by us. These subcontracts and purchase orders also reflect provisions from the applicable prime contract that apply to subcontractors and vendors. The terms typically included in these purchase orders and subcontracts are consistent with Uniform Commercial Code provisions in the United States for sales of goods, as well as with specific terms requested by our customers in international contracts. These terms include our right to terminate the purchase order or subcontract in the event of the vendor’s or subcontractor’s default, as well as our right to terminate the order or subcontract for our convenience (or if our prime contractor has so terminated the prime contract). Such purchase orders and subcontracts typically are not subject to variable price provisions.

Acquisitions During ~~2017~~2019

See Item 4. Information on the Company – Mergers, Acquisitions and ~~Divestitures.~~Divestitures and see below "Acquisition of Night Vision Business".

Backlog of Orders

Our backlog includes firm commitments received from customers for systems, products, services and projects that have yet to be delivered or completed, as applicable. Our policy is to include orders in our backlog only when specific conditions are met. Examples of these conditions may include, among others, receipt of a binding letter of commitment or contract, program funding, advances, letters of credit, guarantees and/or other commitments from customers. As a result, from time to time we could have unrecorded orders not included in our reported backlog.

We reduce backlog when revenues for a specific contract are recognized, such as when delivery or acceptance occurs or when contract milestones or engineering progress under long-term contracts are recognized as achieved, or when revenues are recognized based on costs incurred. In the unusual event of a contract cancellation, we reduce our backlog accordingly. The method of backlog recognition used may differ depending on the particular contract. Orders in currencies other than U.S. dollars are translated periodically into U.S. dollars and recorded accordingly.

Our backlog of orders as of December 31, ~~2017~~2019 was ~~$7,647~~$10,029 million, of which ~~73%~~61% was for orders outside Israel. Our backlog of orders as of December 31, ~~2016~~2018 was ~~$6,909~~$9,399 million, of which ~~68%~~61% was for orders outside Israel. Approximately 65% of our backlog as of December 31, ~~2017~~2019 is scheduled to be performed during ~~2018~~2020 and ~~2019.~~2021. The majority of the 35% balance is scheduled to be performed in ~~2020~~2022 and ~~2021.~~2023. Backlog information and any comparison of backlog as of different dates may not necessarily represent an indication of future sales.

Trends

Trends in the defense and homeland security areas in which we operate have been impacted by the nature of recent conflicts and terrorism activities throughout the world, increasing the focus of defense forces on low intensity conflicts, homeland security and cyber warfare. ~~The defense market has also been impacted by the withdrawal of most of the allied forces from Iraq and a reduction of allied forces in Afghanistan.~~ Such trends have ~~also~~ been impacted by the conflicts in ~~Crimea and~~ Syria, ~~and with ISIS and other~~by terrorist organizations as well as by tensions with North Korea and Iran. There has also been a trend of many armed forces to focus more on airborne, naval and intelligence forces and less on traditional ground forces activities.

In the defense and homeland security markets, there is an increasing demand for products and systems that incorporate artificial intelligence, Big Data analytics and information assurance. There also is a continuing demand in the areas of airborne systems, C4ISR and unmanned vehicles. Accordingly, in recent years we have been placing more emphasis on airborne systems, C4ISR, information systems, intelligence gathering, situational awareness, precision guidance and munitions, all weather and day/night operations, border and perimeter security, UAS, other unmanned vehicles, cyber-defense, training and simulation, space and satellite-based defense capabilities and homeland security systems. Many governments are increasing their budgets in homeland security, including an increasing focus on protection of territorial waters and in the area of cyber-defense. Our customers are also increasing requirements to their supply chains in the area of cyber protection and information assurance. We believe that our core technologies and abilities will enable us to take advantage of many of these emerging trends.

The continuing trend of consolidation in the defense and homeland security industries has affected competition. This consolidation has decreased the number but increased the relative size and resources of our competitors. There is also an increasing trend of many of our defense customers to require that part of the work be done by local companies in the customer's country. We adapt to evolving market conditions by adjusting our business strategy. Our business strategy also anticipates increased competition in the defense and homeland security markets due to declining budgets in certain countries such as a number of countries in Latin America. However, we believe there have been recent indications of enhanced defense and homeland security budgets in the U.S. and in certain European and Asia-Pacific countries. We believe in our ability to compete on the basis of

our systems development, technological expertise, operationally-proven performance and policy of offering customers overall solutions to technological, operational and financial needs and at the same time enhancing the industrial capabilities in certain of our customers’ countries.

Our future success is dependent on our ability to meet our customers’ expectations and anticipate emerging customer needs. We must continue to successfully perform on existing programs, as past performance is an important selection criterion for new competitive awards. We also must anticipate customer needs so as to be able to develop working prototypes in advance of program ~~solicitations.~~solicitations and to meet customer's cyber protection requirements. This requires us to anticipate future technological and operational trends in our marketplace and efficiently engage in relevant research and development efforts.

Acquisition of Night Vision Business

On September 15, 2019, we completed the acquisition of the night vision business of L3Harris Technologies (the NIght Vision Business). The financial results of the Night Vision Business were included in our consolidated reports commencing the date of the acquisition. Following the completion of the acquisition we recorded in the fourth quarter of 2019 expenses of $55 million. The expenses were recorded in Cost of Revenues and included mainly inventory write-offs. Those expenses were eliminated in the non-GAAP results due to their non-recurring nature. See Item 4. Information on the Company - Mergers, Acquisitions and Divestitures and Item 18. Financial Statements - Note 1C(1).

Summary of Operating Results

The following table sets forth our consolidated statements of operations for each of the three years ended December 31, ~~2017.~~2019 (*).


	Year ended December 31,															Year ended December 31,
	(in thousands of U.S. dollars except per share data)															(in thousands of U.S. dollars except per share data)
	2017					2016					2015					2019					2018					2017
	$			%		$			%		$			%		$			%		$			%		$			%
Total revenues	$	3,377,825		100.0		$	3,260,219		100.0		$	3,107,581		100.0		$	4,508,400		100.0		$	3,683,684		100.0		$	3,377,825		100.0
Cost of revenues	2,379,905			70.5		2,300,636			70.6		2,210,528			71.1		3,371,933			74.8		2,707,505			73.5		2,374,775			70.3
Gross profit	997,920			29.5		959,583			29.4		897,053			28.9		1,136,467			25.2		976,179			26.5		1,003,050			29.7
Research and development (R&D) expenses	301,382			8.9		291,749			8.9		277,837			8.9		368,652			8.2		317,690			8.6		301,382			8.9
Less – participation	(36,322		)	(1.1	)	(35,957		)	(1.1	)	(34,421		)	(1.1	)	(36,895		)	(0.8	)	(30,338		)	(0.8	)	(36,322		)	(1.1	)
R&D expenses, net	265,060			7.8		255,792			7.8		243,416			7.8		331,757			7.4		287,352			7.8		265,060			7.8
Marketing and selling expenses	280,246			8.3		271,037			8.3		239,366			7.7		301,400			6.7		281,014			7.6		280,246			8.3
General and administrative expenses	133,314			3.9		151,353			4.6		145,693			4.7		214,749			4.8		160,348			4.4		133,314			3.9
Other operating income, net	—			—		(17,575		)	(0.5	)	—			—		(33,049		)	(0.7	)	(45,367		)	(1.2	)	—			—
	678,620			20.1		660,607			20.3		628,475			20.2		814,857			18.1		683,347			18.6		678,620			20.1
Operating income	319,300			9.5		298,976			9.2		268,578			8.6		321,610			7.1		292,832			7.9		324,430			9.6
Financial expenses, net	(34,502		)	(1.0	)	(23,742		)	(0.7	)	(20,240		)	(0.7	)	(69,072		)	(1.5	)	(44,061		)	(1.2	)	(34,502		)	(1.0	)
Other income, net	48			—		3,967			0.1		216			—
Other expenses, net																(6,243		)	(0.1	)	(11,449		)	(0.3	)	(5,082		)	(0.2	)
Income before taxes on income	284,846			8.4		279,201			8.6		248,554			8.0		246,295			5.5		237,322			6.4		284,846			8.4
Taxes on income	(55,585		)	(1.6	)	45,617			1.4		46,235			1.5		(19,414		)	(0.4	)	(26,445		)	(0.7	)	(55,585		)	(1.6	)
	229,261			6.8		233,584			7.2		202,319			6.5		226,881			5.0		210,877			5.7		229,261			6.8
Equity in net earnings of affiliated companies and partnerships	11,361			0.3		5,224			0.2		4,542			0.1		1,774			—		(2,222		)	(0.1	)	11,361			0.3
Net income	$	240,622		7.4		$	238,808		6.6		$	206,861		6.7		$	228,655		7.4		$	208,655		6.6		$	240,622		7.1
Less – net income attributable to non-controlling interests	(1,513		)	—		(1,899		)	(0.1	)	(4,352		)	(0.1	)	(798		)	—		(1,917		)	(0.1	)	(1,513		)	—
Net income attributable to the Company’s shareholders	$	239,109		7.1		$	236,909		7.3		$	202,509		6.5		$	227,857		5.1		$	206,738		5.6		$	239,109		7.1


Diluted net earnings per share:	$	5.59				$	5.54				$	4.74				$	5.20				$	4.83				$	5.59

(*)

In 2018 we adopted the new revenue recognition accounting standard ASC 606, using the modified retrospective approach. The financial results of 2018 and 2019 are in compliance with ASC 606. Financial results for the year 2017 is presented in conformity with amounts previously disclosed under the prior revenue recognition standard, ASC 605. See above "Revenue Recognition" and Item 18. Financial Statements - Note 2T.

~~2017~~2019 Compared to ~~2016~~2018

Revenues

Our sales are primarily to governmental entities and prime contractors under government defense and homeland security programs. Accordingly, the level of our revenues is subject to governmental budgetary constraints.

The following table sets forth our revenue distribution by areas of operation:


	Year ended December 31,				Year ended December 31,
	2017		2016		2019		2018
	$ millions	%	$ millions	%	$ millions	%	$ millions	%
Airborne systems	1,272.1	37.7	1,242.3	38.1	1,617.2	35.9	1,470.1	39.9
C4ISR systems	1,144.8	33.9	1,220.9	37.4	1,161.5	25.8	1,130.1	30.7
Land systems	503.9	14.9	408.0	12.5	1,228.3	27.2	649.1	17.6
Electro-optic systems	341.2	10.1	276.0	8.5	374.4	8.3	333.9	9.1
Other (mainly non-defense engineering and production services)	115.8	3.4	113.0	3.5	127.0	2.8	100.5	2.7
Total	3,377.8	100.0	3,260.2	100.0	4,508.4	100.0	3,683.7	100.0

Our consolidated revenues in ~~2017~~2019 were ~~$3,377.8~~$4,508.4 million, as compared to ~~$3,260.2~~$3,683.7 million in ~~2016.~~2018.

The leading contributors to our revenues were the airborne systems and ~~C4ISR~~land systems areas of operation. The ~~decrease~~increase in revenues in the ~~C4ISR~~airborne systems area of operation was primarily due to ~~a decline in~~increased sales of ~~command and control systems and unmanned aircraft systems (UAS)~~commercial avionics equipment in ~~Latin America.~~the U.S. of a subsidiary that was acquired in the second quarter of 2018. Additionally, there was an increase of sales in the U.S. of military avionic equipment for airborne platforms. Revenues from land systems increased primarily due ~~primarily~~ to an increase in sales of land electronic warfare systems and armored vehicle systems in ~~Europe. Revenues~~Europe and the revenues of IMI, which was acquired in electro-optic systems increased mainly due to an increase in sales of reconnaissance systems and night vision systems in Asia-Pacific and directional infra-red countermeasure (DIRCM) systems in other geographic regions.November 2018.

The following table sets forth our distribution of revenues by geographical regions:


	Year ended December 31,				Year ended December 31,
	2017		2016		2019		2018
	$ millions	%	$ millions	%	$ millions	%	$ millions	%
Israel	741.9	22.0	709.5	21.8	1,064.8	23.6	740.2	20.1
North America	827.6	24.5	825.7	25.3	1,260.5	28.0	979.2	26.6
Europe	764.0	22.6	640.8	19.7	853.7	18.9	737.1	20.0
Asia-Pacific	670.5	19.8	801.6	24.6	1,029.6	22.8	791.8	21.5
Latin America	193.4	5.7	212.8	6.5	158.1	3.5	192.4	5.2
Other	180.4	5.4	69.8	2.1	141.8	3.2	243.0	6.6
Total	3,377.8	100.0	3,260.2	100.0	4,508.5	100.0	3,683.7	100.0

The increase in ~~Europe~~North America was mainly a result of higher sales of ~~armored vehicle~~airborne systems and ~~radio systems.~~revenues of commercial avionics and programs for military airborne platforms. The ~~decrease~~increase in Israel was mainly a result of revenues of IMI. The increase in Asia-Pacific was mainly a result of ~~lower~~higher sales of ~~tank fire control~~remote weapon systems, radios and ~~UAS. The decrease in Latin America was mainly a result of decreased sales of command and control~~artillery systems. ~~The increase in the “Other” geographical region was mainly due to an increase in sales of UAS and DIRCM systems.~~

Cost of Revenues and Gross Profit

Cost of revenues in ~~2017~~2019 was ~~$2,379.9~~$3,371.9 million ~~(70.5%~~(74.8% of revenues), as compared to ~~$2,300.6~~$2,707.5 million ~~(70.6%~~(73.5% of revenues) in ~~2016.~~

2018.

Our major components of cost of revenues are (i) wages and related benefits costs, (ii) subcontractors and material consumed and (iii) manufacturing and other ~~expenses (including depreciation and amortization).~~expenses. The amounts and percentage of those components in ~~2017~~2019 and ~~2016~~2018 were as follows:

Wages and related benefits costs in ~~2017~~2019 constituted ~~42%~~38% of cost of revenues, as compared to ~~38%~~40% of cost of revenues in ~~2016.~~2018. The total cost of wages and related benefits in ~~2017~~2019 was approximately ~~$983~~$1,302 million, as compared to ~~$874~~$1,110 million in ~~2016.~~2018. The increase in wages and related benefit costs was mainly a result of ~~the 9.8% appreciation~~exchange rate changes during ~~2017~~2019 in the value of the NIS relative to the U.S. dollar ~~(since the NIS payments~~as a result of hedging transactions that we had in 2018 with respect to ~~our Israeli work force are translated into U.S. dollars for financial reporting purposes)~~lower exchange rates, as well as the increased ~~workforce.~~workforce as a result of the addition of employees in subsidiaries acquired in 2018 and 2019.

Subcontractors and material consumed costs in ~~2017~~2019 constituted ~~47%~~50% of cost of revenues, ~~similar~~as compared to ~~that~~47% in ~~2016.~~2018. The total amount of subcontractors and material consumed costs in ~~2017~~2019 was approximately ~~$1.1 billion, similar~~$1,711.3 million, as compared to ~~that~~approximately $1,299.3 million in ~~2016.~~2018. The increase in subcontractors and material consumed was mainly a result of the increase in revenues, as well as the cost of subcontractors and materials in subsidiaries acquired in 2018 and 2019.

Manufacturing and other expenses in ~~2017~~2019 constituted ~~15%~~8% of cost of revenues, as compared to ~~14%~~10% in ~~2016.~~2018. The total cost of manufacturing and other expenses in ~~2017~~2019 was approximately ~~$345~~$267 million, as compared to approximately ~~$319~~$263 million in ~~2016.~~2018.

In ~~2017,~~2019, our cost of revenues included a decrease in inventories of approximately ~~$38~~$2 million in work-in-progress and finished goods inventories, as compared to ~~a decrease~~an increase of approximately ~~$62~~$30 million in work-in-progress and finished goods inventories in ~~2016.~~2018.

Changes from ~~2016~~2018 to ~~2017~~2019 in our cost of revenues and cost of revenues components (except the expenses related to the acquisitions in the amount of $55.0 million and $66.6 million in 2019 and 2018, respectively), were not material. We did not identify any developing trends in cost of revenues that we believe are likely to have a material impact on our future operations other than the continued changes in the NIS against the U.S. dollar, which could have an impact mainly on our labor costs.

Gross profit for the year ended December 31, ~~2017~~2019 was ~~$997.9~~$1,136.5 million ~~(29.5%~~(25.2% of revenues), as compared to ~~$959.6~~$976.2 million ~~(29.4%~~(26.5% of revenues) in the year ended December 31, ~~2016.~~2018. The decline in 2019 gross profit relating to 2018 was due to a less favorable sales mix and a lower gross profit in IMI.

Research and Development (R&D) Expenses

We continually invest in R&D in order to maintain and further advance our technologies, in accordance with our long-term plans, based on our estimate of future market needs. Our R&D costs, net of participation grants, include costs incurred for independent research and development and bid and proposal efforts and are expensed as incurred.

Gross R&D expenses in ~~2017~~2019 totaled ~~$301.4~~$368.7 million ~~(8.9%~~(8.2% of revenues), as compared to ~~$291.7~~$317.7 million ~~(8.9%~~(8.6% of revenues), in ~~2016.~~2018.

Net R&D expenses (after deduction of third party participation) in ~~2017~~2019 totaled ~~$265.1~~$331.8 million ~~(7.8%~~(7.4% of revenues), as compared to ~~$255.8~~$287.4 million (7.8% of revenues) in ~~2016.~~2018.

Marketing and Selling Expenses

We are active in developing new markets and pursue at any given time various business opportunities according to our plans.

Marketing and selling expenses in ~~2017~~2019 were ~~$280.2~~$301.4 million ~~(8.3%~~(6.7% of revenues), as compared to ~~$271.0~~$281.0 million ~~(8.3%~~(7.6% of revenues) in ~~2016.~~2018.

General and Administration (G&A) Expenses

G&A expenses in ~~2017~~2019 were ~~$133.3~~$214.7 million ~~(3.9%~~(4.8% of revenues), as compared to ~~$151.4~~$160.3 million ~~(4.6%~~(4.4% of revenues) in ~~2016.~~2018. The ~~significant decrease in~~higher level of general and administration expenses in ~~2017~~2019 was mainly a result of ~~revaluation~~consolidation of ~~liabilities~~expenses in subsidiaries that were acquired in 2018 and 2019, which was partly offset by income related to ~~assets and activities acquired in prior years, net~~settlement of ~~an increase in wages and benefits as a result of the changes~~litigation in the ~~NIS -~~ U.S. ~~dollar exchange rate.~~

Other Operating Income (Net)

Other operating income, net for the year ended December 31, ~~2016~~2019 amounted to ~~$17.6 million.~~$33.0 million, as compared to $45.4 million in 2018. The amount in 2018 reflects net gains related to the valuation of shares in two of our Israeli subsidiaries in the ~~energy~~commercial cyber and ~~automotive~~medical instrumentation areas due to third party investments. The amount in 2019 reflects mainly a capital gain related to sale and lease back of buildings by a subsidiary in Israel.

Operating Income

Our operating income in ~~2017~~2019 was ~~$319.3~~$321.6 million ~~(9.5%~~(7.1% of revenues), as compared to ~~$299.0~~$292.8 million ~~(9.2%~~(7.9% of revenues) in ~~2016.~~2018. The ~~improvement in the~~lower level of operating income in ~~2017~~2019 was mainly due to the ~~increase~~decrease in the gross profit as well as the ~~decrease~~increase in G&A expenses related to subsidiaries acquired during ~~2017.~~2018 and 2019.

Financial Expense (Net)

Net financing expenses in ~~2017~~2019 were ~~$34.5~~$69.1 million, as compared to ~~$23.7~~$44.1 million in ~~2016.~~2018. Financial expenses, net in ~~2016 were relatively low mainly due to gains from~~2019 included exchange rate ~~differences.~~differences of approximately $23.1 million related to the recognition of lease liabilities denominated in foreign currencies (mainly in New Israeli Shekels) as a result of the adoption of ASC 842, Leases, effective January 1, 2019.

Other ~~Income~~Expenses (Net)

Other ~~Income,~~Expenses, net were $6.2 million in ~~2016 amounted~~2019 , as compared to ~~$4 million. This was~~$11.4 million in 2018. Other expenses in 2018 included impairment of investments in two of our affiliated Israeli companies. Other expenses in 2019 were mainly due to ~~a capital gain related to~~ the ~~sale~~non-service cost components of ~~real estate acquired~~pension plans, in ~~prior years.~~accordance with ASU 2017-07.

Taxes on Income

Our effective tax rate represents a weighted average of the tax rates to which our various entities are subject.

Taxes on income in ~~2017~~2019 were ~~$55.6~~$19.4 million (effective tax rate of ~~19.5%~~7.9%), as compared to ~~$45.6~~$26.4 million (effective tax rate of ~~16.3%~~11.1%) in ~~2016. Taxes on income in 2017 included an amount of $10.9 million related to deferred tax asset adjustments resulting from the tax reform in the U.S.~~2018. The effective tax rates in ~~2017~~2019 and ~~2016~~2018 were also affected by prior years adjustments of ~~$4.3~~$20.7 million and ~~$18.6~~$2.6 million,, respectively. The adjustments were mainly related to tax settlements. The change in the effective tax rate was also affected by the mix of the tax rates in the various jurisdictions in which the Company’s entities generate taxable ~~income.~~income and other income that is not part of taxable income mainly related to non-cash items such as impairment of assets. We continued to enjoy a lower effective Israeli tax rate, the benefits of an “Approved and Privileged Enterprise” and other tax benefits, which resulted in savings of ~~$15.8~~$22.1 million and ~~$16.1~~$17.1 million, respectively, in ~~2017~~2019 and ~~2016,~~2018, significantly influencing our effective tax rates.

Company’s Share in Earnings (Losses) of Affiliated Entities

The entities, in which we hold 50% or less in shares or voting rights (affiliates) and are therefore not consolidated in our financial statements, operate in complementary areas to our core business activities, including electro-optics and airborne systems.

In ~~2017,~~2019, we had income of ~~$11.4~~$1.8 million (0.1% of revenues) from our share in earnings of affiliates, as compared to ~~income~~loss of ~~$5.2~~$2.2 million (0.1% of revenues) in ~~2016.~~2018. The ~~increase~~loss in ~~2017~~2018 was mainly a result of ~~higher revenues and better profitability~~a $9.7 million re-valuation of the fair value of an investment in ~~some of our~~an affiliated ~~companies.~~company.

Net Income Attributable to Non-Controlling Interests

Net income attributable to non-controlling interests in 2019 was $0.8 million, as compared to $1.9 million in 2018.

Net Income and Earning Per Share (EPS)

As a result of the above, net income in ~~2017~~2019 was ~~$239.1~~$227.9 million ~~(7.1%~~(5.1% of revenues), as compared to net income of ~~$236.9~~$206.7 million ~~(7.3%~~(5.6% of revenues) in ~~2016.~~2018. The diluted EPS was ~~$5.59~~$5.20 in ~~2017,~~2019, as compared to ~~$5.54~~$4.83 in ~~2016.~~2018.

The ~~number~~numbers of shares used for computation of diluted EPS in the ~~year~~years ended December 31, ~~2017 was 42,753,000~~2019 and 2018 were 43,848,000 and 42,789,000 shares, asrespectively.

2018 Compared to 2017

A discussion of our results of operations for 2018 compared to ~~42,752,000 shares in~~2017 may be found on pages 38 - 41 of our annual report on Form 20-F filed March 19, 2019 on the ~~year ended December 31, 2016.~~

~~2016 Compared to 2015~~

~~Revenues~~

~~The following table sets forth our revenue distribution by areas~~EDGAR database of ~~operation:~~

Year ended December 31,
2016 2015
$ millions % $ millions %
Airborne systems 1,242.3
38.1 1,225.7
39.4
C4ISR systems 1,220.9
37.4 995.2
32.0
Land systems 408.0
12.5 558.7
18.0
Electro-optic systems 276.0
8.5 231.9
7.5
Other (mainly non-defense engineering and production services) 113.0
3.5 96.1
3.1
Total 3,260.2
100.0 3,107.6
100.0

~~Our consolidated revenues in 2016 were the $3,260.2 million, as compared to $3,107.6 million in 2015.~~

The leading contributors to our revenues were the airborne systems and C4ISR systems areas of operation. The increase in the C4ISR area of operation was primarily due to an increase in sales of command and control systems and radio systems in Europe, Asia-Pacific and Israel. Revenues from land systems decreased due primarily to a decline in sales of tank fire control systems to Asia-Pacific.

~~The following table sets forth our distribution of revenues by geographical regions:~~

Year ended December 31,
2016 2015
$ millions % $ millions %
Israel 709.5
21.8 616.6 19.8
North America 825.7
25.3 838.9 27.0
Europe 640.8
19.7 497.6 16.0
Asia-Pacific 801.6
24.6 800.3 25.8
Latin America 212.8
6.5 325.4 10.5
Other 69.8
2.1 28.8 0.9
Total 3,260.2
100.0 3,107.6 100.0

~~The decrease in Latin America was mainly a result of lower sales of command and control systems for homeland security applications.~~

~~Cost of Revenues and Gross Profit~~

~~Cost of revenues in 2016 was $2,300.6 million (70.6% of revenues), as compared to $2,210.5 million (71.1% of revenues) in 2015.~~

Our major components of cost of revenues are (i) wages and related benefits costs, (ii) subcontractors and material consumed and (iii) manufacturing and other expenses (including depreciation and amortization). The amounts and percentage of those components in 2016 and 2015 were as follows:

Wages and related benefits costs in 2016 constituted 38% of cost of revenues, as compared to 39% of cost of revenues in 2015. The total cost of wages and related benefits in 2016 was approximately $874 million, as compared to $852 million in 2015.

Subcontractors and material consumed costs in 2016 constituted 47% of cost of revenues, as compared to 48% in 2015. The total amount of subcontractors and material consumed costs in 2016 was approximately $1.1 billion, similar to that in 2015.

Manufacturing and other expenses in 2016 constituted 14% of cost of revenues, as compared to 13% in 2015. The total cost of manufacturing and other expenses in 2016 was approximately $320 million, as compared to approximately $300 million in 2015.

In 2016, our cost of revenues included a decrease in inventories of approximately $60 million in work-in-progress and finished goods inventories, as compared to a decrease of approximately $30 million in work-in-progress and finished goods inventories in 2015.

Changes from 2015 to 2016 in our cost of revenues and cost of revenues components were not material. We did not identify any developing trends in cost of revenues that we believe would have a material impact on our future operations other than the continued changes in the NIS against the U.S. ~~dollar, which could have an impact mainly on our labor costs.~~

~~Gross profitfor the year ended December 31, 2016~~was $959.6 million (29.4% of revenues), as compared to $897.1 million (28.9% of revenues) in the year ended December 31, 2015. The increase in the gross profit rate in 2016 was mainly due to the mix of programs sold.

~~Research~~Securities and ~~Development (R&D) Expenses~~

~~Gross R&D expenses in 2016 totaled $291.7 million (8.9% of revenues), as compared to $277.8 million (8.9% of revenues), in 2015.~~

~~Net R&D expenses (after deduction of third party participation) in 2016 totaled $255.8 million (7.8% of revenues), as compared to $243.4 million (7.8% of revenues) in 2015.~~

~~Marketing and Selling Expenses~~

Marketing and selling expenses in 2016 were $271.0 million (8.3% of revenues), as compared to $239.4 million 7.7% of revenues) in 2015. The increase in marketing and selling expenses in 2016 was mainly related to the mix of countries and types of marketing activities for projects in which we invested our marketing efforts.

~~General and Administration (G&A) Expenses~~

~~G&A expenses in 2016 were $151.4 million (4.6% of revenues), as compared to $145.7 million (4.7% of revenues) in 2015.~~

~~Other Operating Income (Net)~~

Other operating income, net for the year ended December 31, 2016 amounted to $17.6 million. The amount reflects net gains related to the valuation of shares in two of our Israeli subsidiaries in the energy and automotive areas due to third party investments.

~~Operating Income~~

Our operating income in 2016 was $299.0 million (9.2% of revenues), as compared to $268.6 million (8.6% of revenues) in 2015. The main reason for the improvement in the operating income was the increase in the gross profit in 2016 as compared to 2015.

~~Financial Expense (Net)~~

~~Net financing expenses in 2016 were $23.7 million, as compared to $20.2 million in 2015. Financial expenses in 2015 were relatively low mainly due to gains from exchange rate differences.~~

~~Other Income (Net)~~

~~Other Income, net in 2016 amounted to $4 million. This was due to a capital gain related to the sale of real estate acquired in prior years.~~

~~Taxes on Income~~

Taxes on income in 2016 were $45.6 million (effective tax rate of 16.3%), as compared to $46.2 million (effective tax rate of 18.6%) in 2015. The effective tax rates in 2016 and 2015 were affected by prior years adjustments of $18.6 million and $1.4 million, respectively. The adjustments in 2016 were mainly related to tax settlements. The change in the effective tax rate was also affected by the mix of the tax rates in the various jurisdictions in which the Company’s entities generate taxable income. We continued to enjoy a lower effective Israeli tax rate and the benefits of an “Approved and Privileged Enterprise”, which resulted in savings of $16.1 million and $20.8 million, respectively, in 2016 and 2015, significantly influencing our effective tax rates.

~~Company’s Share in Earnings of Affiliated Entities~~

~~In 2016, we had income of $5.2 million from our share in earnings of affiliates, as compared to income of $4.5 million in 2015.~~

~~Net Income and Earning Per Share (EPS)~~

As a result of the above, net income in 2016 was $236.9 million (7.3% of revenues), as compared to net income of $202.5 million (6.5% of revenues) in 2015. The diluted EPS was $5.54 in 2016, as compared to $4.74 in 2015.

~~The number of shares used for computation of diluted EPS in the year ended December 31, 2016 was 42,752,000 shares, as compared to 42,733,000 shares in the year ended December 31, 2015.~~Exchange Commission.

Israeli Debt Offering

In June 2010, Elbit Systems completed a public offering in Israel on the TASE of NIS 1.1 billion (approximately $283 million) Series A Notes (the Series A Notes). The Series A Notes were offered and sold pursuant to a shelf prospectus filed in May 2010 with the Israeli Securities Authority and the TASE. The shelf prospectus expired in 2012. In 2012, under the framework of the shelf prospectus, Elbit Systems completed both an additional public offering on the TASE and a private placement in Israel to Israeli institutional investors, of new Series A Notes, for an aggregate consideration of approximately NIS 926 million (approximately $249 million). All Series A Notes formed a single series.

We account for the outstanding principal amount of our Series A Notes as long-term liability, in accordance with ASC 470, “Debt”, with current maturities classified as short-term liabilities. Debt issuance costs are capitalized and reported as deferred financing costs, which are amortized over the life of the Series A Notes using the effective interest rate method. As of December 31, ~~2017,~~2019, the value of the Series A Notes was ~~$181.9~~$60.8 million, ~~less $67.5 million~~and all of it was included in current ~~maturities and a fair value adjustment of $10.4 million from cross-currency interest rate swaps.~~maturities.

The Series A Notes are payable in ten equal annual installments on June 30 of each of the years 2011 through 2020. The Series A Notes bear a fixed interest rate of 4.84% per annum, payable on June 30 and December 30 of each of the years through 2020 (the first interest payment was made on December 30, 2010, and the last interest payment will be made on June 30, 2020). ~~(See~~See Item 8.18. Financial Statements – Note 16.)

The Series A Notes (principal and interest) are in NIS and are not linked to any currency or index. The Series A Notes are unsecured, non-convertible and do not restrict our ability to issue additional notes of any class or distribute dividends in the future. There are no covenants on the Series A Notes.

The Series A Notes are listed for trading on the TASE. However, the Series A Notes are not registered under the U.S. Securities Act of 1933, as amended (the Securities Act), and may not be offered or sold in the United States or to U.S. Persons (as defined in Regulation “S” promulgated under the Securities Act) without registration under the Securities Act or an exemption from the registration requirements of the Securities Act.

We also entered into ten-year cross currency interest rate swap transactions in order to effectively hedge the effect of interest and exchange rate differences resulting from the NIS Series A Notes that were issued in 2010 and the additional Series A Notes that were issued in 2012. Under the cross currency interest rate swaps, we receive fixed NIS at a rate of 4.84% on NIS 2 billion and pay floating six-month USD LIBOR plus an average spread of 1.84% on ~~$450~~$524 million, which reflects the U.S. dollar value of the Series A Notes on the specific dates the transactions were consummated. Both the debt and the swap instruments pay semi-annual interest on June 30 and December 31. The purpose of these swap transactions was to convert the NIS fixed rate Series A Notes into USD LIBOR (6 months) floating rate obligations. As a result of these agreements, we are currently paying an effective interest rate of six-month LIBOR ~~(1.84%~~(1.92% at December 31, ~~2017)~~2019) plus an average of ~~1.84%~~1.65% on the principal amount, as compared to the original 4.84% fixed rate. The above transactions qualify for fair value hedge accounting. ~~(See~~See also Item 11. Quantitative and Qualitative Disclosures about Market Risk.)

Cash ~~Flows~~Flow

Our operating cash flow is affected by the cumulative cash flow generated from our various projects in the reported periods. Project cash flows are affected by the timing of the receipt of advances and the collection of accounts receivable from customers, as well as the timing of payments made by us in connection with the performance of the project. The receipt of payments usually relates to specific events during the project, while expenses are ongoing. As a result, our cash flow may vary from one period to another. Our policy is to invest our cash surplus mainly in interest bearing deposits, in accordance with our projected needs.

In general, subsidiaries are able to transfer cash dividends, loans or advances to Elbit Systems and among themselves, subject to corporate policy and tax considerations in their applicable jurisdiction and subject to management commitment not to distribute tax exempt earnings. Such tax considerations have not had in the past, and are not anticipated to have, a material impact on our ability to meet our obligations.

~~2017~~2019

Our net cash flow used for operating activities in 2019 was approximately $53 million, resulting mainly from an increase in short and long-term trade receivables of approximately $268 million, an increase in inventories of approximately $56 million and a decrease of approximately $175 million in advances received from customers, offset by an increase in non-cash operating items of $101 million and an increase in trade and other payables of approximately $116 million.

Net cash flow used in investing activities in 2019 was approximately $107 million, which was used mainly for the purchase of property, plant and equipment in the amount of $138 million, acquisition of subsidiaries and business operations in the amount of $357 million and investments in affiliated companies in the amount of $9 million, offset by proceeds from premises evacuation grants of $345 million, proceeds from the sale of fixed assets of $37 million and proceeds from the net sale of short-term deposits in the amount of $15 million.

Net cash flow provided by financing activities in 2019 was approximately $173 million, which was provided mainly by proceeds from new long-term loans of approximately $350 million and issuance of shares in the amount of $185 million, offset by repayment of Series A Notes in the amount of $56 million, repayment of long-term loans in the amount of $243 million and payment of dividends in the amount of $63 million.

2018

Our net cash flow generated from operating activities in ~~2017~~2018 was approximately ~~$101~~$192 million, resulting mainly from our net income and an increase in non-cash operating items of ~~$140~~$126 million, an increase in trade and other payables of approximately ~~$63~~$90 million and an increase of approximately ~~$30~~$153 million in advances received from customers, offset by an increase in short and long-term trade receivables of approximately ~~$315~~$89 million and an increase in inventories of approximately ~~$60~~$117 million.

Net cash flow used in ~~investment~~investing activities in ~~2017~~2018 was approximately ~~$116~~$593 million, which was used mainly for the purchase of property, plant and equipment in the amount of ~~$108~~$102 million, acquisition of subsidiaries in the amount of ~~$25~~$504 million and investments in affiliated companies in the amount of $5$8 million, offset by proceeds from the sale of fixed assets of $6$4 million and proceeds from the net sale of short-term deposits and marketable securities in the amount of ~~$6 million and the sale of an investment in the amount of $12~~$20 million.

Net cash flow used for financing activities in ~~2017~~2018 was approximately ~~$52~~$454 million, which was used mainly for repayment of Series A Notes in the amount of $56 million and payment of dividends in the amount of $75 ~~million and repayment of long-term loans in the amount of $167~~ million. Proceeds from new short and long-term loans were approximately ~~$246~~$585 million.

~~2016~~

Our net cash flow generated from operating activities in 2016 was approximately $208 million, resulting mainly from our net income and an increase in non-cash operating items of $104 million and an increase in trade and other payables of approximately $253 million, offset by an increase in short and long-term trade receivables of approximately $297 million and a decrease in advances received from customers of approximately $83 million.

Net cash flow used in investment activities in 2016 was approximately $116 million, which was used mainly for the purchase of property, plant and equipment in the amount of $124 million and investments in affiliated companies in the amount of $19 million, offset by proceeds from the net sale of short-term deposits and marketable securities in the amount of $12 million and the sale of real estate in the amount of $16 million.

Net cash flow used for financing activities in 2016 was approximately $167 million, which was used mainly for repayment of Series A Notes in the amount of $56 million, payments of dividends in the amount of $68 million and repayment of long-term loans in the amount of $48 million.

~~2015~~

Our net cash flow generated from operating activities in 2015 was approximately $435 million, resulting mainly from our net income and an increase in non-cash operating items of $159 million, an increase in advances received from customers of approximately $71 million, a decrease in trade receivables of approximately $32 million and a decrease in inventories of approximately $40 million, offset partly by a decrease in trade payables in the amount of $74 million.

Net cash flow used in investment activities in 2015 was approximately $182 million, which was used mainly to acquire subsidiaries and business operations in the amount of approximately $165 million and to purchase property, plant and equipment in the amount of approximately $99 million, offset by net proceeds from the sale of marketable securities of $71 million.

Net cash flow used for financing activities in 2015 was approximately $154 million, which was used mainly for repayment of Series A Notes in the amount of approximately $56 million, payment of dividends to shareholders in the amount of approximately $70 million (of which $8 million was paid by a subsidiary to non-controlling interests) and net repayment of long-term loans of $2.3 million.

Financial Resources

The financial resources available to us include profits, collection of accounts receivable, advances from customers and the government of Israel and other third parties’ programs such as the Israel Innovation Authority and development grants. In addition, we have access to bank credit lines and financing in Israel and abroad based on our capital, assets and activities.

Elbit Systems and some subsidiaries are obligated to meet various financial covenants set forth in our respective loan and credit agreements. Such covenants include requirements for shareholders’ equity, current ratio, operating profit margin, tangible net worth, EBITDA, interest coverage ratio and total leverage. As of December 31, ~~2016~~2019 and ~~2017,~~2018, the Company met all financial covenants.

On December 31, ~~2017,~~2019, we had total borrowings from banks and public institutions in the amount of ~~$253~~$786.4 million in short and long-term ~~loans, of which most of the $120 million in long-term loans mature in 2019.~~loans. On December 31, ~~2017,~~2019, we also had ~~$1,399~~$1,983 million in guarantees issued on our behalf by banks and other financial institutions, mainly in respect of advance payment and performance guarantees provided in the regular course of business. In addition, at December 31, ~~2017,~~2019, we had ~~$182~~$61 million in outstanding debt under our Series A Notes, ~~including $56 million maturing~~all of which will mature in ~~2018.~~2020. On December 31, ~~2017,~~2019, we had a cash balance amounting to ~~$156~~$221 million. We believe that we also have the ability to raise funds on the capital market and through expansion of our credit lines. ~~(See~~See above “Israeli Debt Offering”.)

As of December 31, ~~2017,~~2019, we had working capital of ~~$522~~$499 million and a current ratio of ~~1.25.~~1.16. We believe that our working capital and cash flow from operations are sufficient to support our current requirements and financial covenants.

We believe that our current cash balances, cash generated from operations, lines of credit and financing arrangements will provide sufficient resources to meet our operational needs for at least the next fiscal year. However, our ability to borrow funds from the banking system may be impacted by the global financial and liquidity situation. See Item 3. Risk Factors – General Risk Related to Our Business and Market.

For further information on the level, maturity and terms of our borrowings, see Item 18. Financial Statements – Notes 12, 15 and 16.

We believe our cash balance, amounts available under lines of credits, cash flows from operating activities and our ability to access external capital resources should be sufficient to satisfy existing short-term and long-term commitments and plans as well as provide adequate financial flexibility to take advantage of potential strategic business opportunities should they arise within the next year.

Pensions and Other Post-Retirement Benefits. We account for pensions and other post-employment arrangements in accordance with ASC 715 “Compensation – Retirement Benefits”. Accounting for pensions and other post-retirement benefits involves judgment about uncertain events, including estimated retirement dates, salary levels at retirement, mortality rates, rates of return on plan assets, determination of discount rates for measuring plan obligations, healthcare cost trend rates and rates of utilization of healthcare services by retirees. These assumptions are based on the environment in each country. ~~(For~~For our pension and other post-retirement benefit assumptions at December 31, ~~2017~~2019 and ~~2016,~~2018, see Item 18. Financial Statements – Note 17.) At December 31, ~~2017,~~2019, our employee benefit liabilities were ~~$413~~$837 million, of which we had severance funds of ~~$299~~$287 million set aside to satisfy potential obligations.

Material Commitments for Capital Expenditures.We believe that we have adequate sources of funds to meet our material commitments for capital expenditures for the fiscal year ending December 31, ~~2017~~2019 and the subsequent fiscal year (see above “Financial Resources”). Our anticipated capital expenditures (which include mainly the purchase of equipment, buildings and an enhancement to our Enterprise Resource Planning (ERP) system) as of December 31, ~~2017~~2019 are somewhat higher than those as of December 31, ~~2016,~~2018, due to an anticipated increase in expenditures for buildings, ERP enhancements and certain other expenses. We plan to pay for such anticipated capital expenditures using cash from operations. ~~(See~~See also Item 18. Financial Statements – Consolidated Statements of Cash Flows and Note 10.)

Impact of Inflation and Exchange Rates

Functional Currency. Our reporting currency is the U.S. dollar, which is also the functional currency for most of our consolidated operations. A majority of our sales are made outside of Israel in non-Israeli currency, mainly U.S. dollars, as well as a majority of our purchases of materials and components. A significant portion of our expenses, mainly labor costs, are in NIS. Some of our subsidiaries have functional currencies in Euro, GBP, Brazilian reals, Australian dollars and other currencies. Transactions and balances originally denominated in U.S. dollars are presented in their original amounts. Transactions and balances in currencies other than the U.S. dollar are remeasured in U.S. dollars according to the principles set forth in ASC 830 “Foreign Currency Matters”. Exchange gains and losses arising from remeasurement are reflected in financial expenses, net, in the consolidated statements of income.

Market Risks and Variable Interest Rates

Market risks relating to our operations result mainly from changes in interest rates and exchange rates. We use derivative instruments to limit exposure to changes in exchange rates in certain cases. We also typically enter into forward contracts in connection with transactions where long-term contracts have been signed and that are denominated in currencies other than U.S. dollars or NIS. We also enter from time to time into forward contracts and other hedging instruments related to NIS based on market conditions.

We use financial instruments and derivatives in order to limit our exposure to risks arising from changes in exchange rates and to mitigate our exposure to effects of changes in foreign currency rates and interest rates. The use of such instruments does not expose us to additional exchange rate risks since the derivatives are held against an asset (for example, excess assets in Euros). Our policy in utilizing these financial instruments is to protect the dollar value of our cash and cash equivalent assets rather than to serve as a source of income.

In the context of our overall treasury policy specific objectives apply to the management of financial risks. These objectives are disclosed under the headings below “NIS/U.S. Dollar Exchange Rates”, “Inflation and Currency Exchange Rates” and “Foreign Currency Derivatives and Hedging”.

On December 31, ~~2017,~~2019, our liquid assets were comprised of bank deposits and short and long-term investments. Our deposits and investments earn interest based on variable interest rates, and their value as of December 31, ~~2017~~2019 was therefore exposed to changes in interest rates. Should interest rates either increase or decrease, such change may affect our results of operations due to changes in the cost of the liabilities and the return on the assets that are based on variable rates.

NIS/U.S. Dollar Exchange Rates. We attempt to manage our financial activities in order to reduce material financial losses in U.S. dollars resulting from the impact of inflation and exchange rate fluctuations on our non-U.S. dollar assets and liabilities. Our income and expenses in Israeli currency are translated into U.S. dollars at the prevailing exchange rates as of the date of the transaction. Consequently, we are affected by changes in the NIS/U.S. dollar exchange rates. We entered into other derivative instruments to limit our exposure to exchange rate fluctuations, related mainly to payroll expenses incurred in NIS. ~~(See~~See Item 11. Quantitative and Qualitative Disclosure of Market Risks.) The amount of our exposure to the changes in the NIS/U.S. dollar exchange rate may vary from time to time. ~~(See~~See Item 3. Key Information – Risk Factors – Risks Relating to Our Israeli Operations.)

Inflation and Currency Exchange Rates

The U.S. dollar cost of our operations in Israel is influenced by any increase in the rate of inflation in Israel that is not fully offset by the devaluation of the NIS in relation to the U.S. dollar. Unless inflation in Israel is offset by a devaluation of the NIS, such inflation may have a negative effect on the profitability of contracts where Elbit Systems or any of our Israeli subsidiaries receives payment in U.S. dollars, NIS linked to U.S. dollars or other foreign currencies, but incurs expenses in NIS linked to the CPI. Inflation in Israel and currency fluctuations may also have a negative effect on the profitability of fixed-price contracts where we receive payments in NIS.

In the past, our profitability was negatively affected when inflation in Israel (measured by the change in the CPI from the beginning to the end of the calendar year) exceeded the devaluation of the NIS against the U.S. dollar and at the same time we experienced corresponding increases in the U.S. dollar cost of our operations in Israel. For example, in 2015, the inflation rate was approximately a negative 0.2%, and the NIS depreciated against the U.S. dollar by approximately 0.3%. In 2016, the inflation rate was approximately a negative 0.2%, and the NIS strengthened against the U.S. dollar by approximately 1.5%. In 2017, the inflation rate was approximately a positive 0.4%, and the NIS strengthened against the U.S. dollar by approximately 9.8%. In 2018, the inflation rate was approximately a positive 0.8% and the NIS depreciated against the U.S. dollar by approximately 8.1%. In 2019, the inflation rate was approximately a positive 0.6%, and the NIS strengthened against the U.S. dollar by approximately 7.8%. There can be no assurance that we will not be materially adversely affected in the future if inflation in Israel exceeds the devaluation of the NIS against the U.S. dollar or if the timing of such devaluation lags behind increases in inflation in Israel.

A devaluation of the NIS in relation to the U.S. dollar also has the effect of decreasing the dollar value of any of our assets that consist of NIS or accounts receivable denominated in NIS, unless such assets or accounts receivable are linked to the U.S. dollar. Such a devaluation also has the effect of reducing the U.S. dollar amount of any of our liabilities that are payable in NIS, unless such payables are linked to the U.S. dollar. On the other hand, any increase in the value of the NIS in relation to the U.S. dollar will have the effect of increasing the U.S. dollar value of any unlinked NIS assets as well as the U.S. dollar amount of any unlinked NIS liabilities and expenses.

Foreign Currency, Derivatives and Hedging

While our functional currency is the U.S. dollar, we also have some non-U.S. dollar or non-U.S. dollar linked exposure to currencies other than NIS. These are mainly non-U.S. dollar customer debts, payments to suppliers and subcontractors as well as obligations in other currencies, assets or undertakings. Some subcontractors are paid in local currency under prime contracts where we are paid in U.S. dollars. The exposure on these transactions has not been in amounts that are material to us. However, when we view it economically advantageous, due to anticipated uncertainty in the applicable foreign exchange rates, we seek to minimize our foreign currency exposure by entering into hedging arrangements, obtaining periodic payments upon the completion of milestones, obtaining guarantees and security from customers and sharing currency risks with subcontractors.

A significant part of our future cash flows that will be denominated in currencies other than the NIS and the U.S. dollar were covered as of December 31, ~~2017~~2019 by forward contracts. On December 31, ~~2017,~~2019, we had forward contracts for the sale and purchase of Euro, GBP and various other currencies totaling approximately ~~$504~~$558 million ($~~364~~412 million in Euros, ~~$43~~$48 million in GBP and the balance of ~~$98~~$99 million in other currencies).

We also use forward exchange hedging contracts and options strategies in order to limit our exposure to exchange rate fluctuation associated with payroll expenses, mainly incurred in NIS. These include forward contracts with notional amount of approximately $71 million to purchase NIS maturing in 2018. (See also Item 11. Quantitative and Qualitative Disclosure of Market Risks.) As of December 31, ~~2017,~~2019, an unrealized net loss of approximately ~~$25~~$7 million was included in accumulated other comprehensive income. As of December 31, ~~2017,~~2019, all of the forward contracts are expected to mature during the years ~~2018~~2020 – ~~2022.~~2024.

Regarding the measures taken to reduce the foreign currency exchange rate impact on our Series A Notes see above “Liquidity and Capital Resources – Israeli Debt Offering.”

The table below presents the balance of the derivative instruments held in order to limit the exposure to exchange rate fluctuations as of December 31, ~~2017~~2019 and is presented in millions of U.S. dollar equivalent terms:


	Notional	Unrealized		Notional	Unrealized
Forward	Amount*	Gain (Loss)		Amount*	Gain (Loss)

Buy US$ and Sell:
Euro	282.8	(8.1	)	330.4	18.9
GBP	39.2	(0.8	)	38.7	(1.0	)
NIS	—	—
Other various currencies	61.2	(1.2	)	63.0	1.9


	Notional	Unrealized		Notional	Unrealized
Forward	Amount*	Gain (Loss)		Amount*	Gain (Loss)

Sell US$ and Buy:
Euro	81.0	2.3		81.2	(3.7	)
GBP	3.7	0.1		9.3	0.2
NIS	71.2	2.5
Other various currencies	36.6	(1.0	)	35.7	(0.7	)


*	Notional amount information is based on the foreign exchange rate at year end.

Contractual Obligations


	Up to 1 year	2-3 years	4-5 years	More than 5 years	Up to 1 year	2-3 years	4-5 years	More than 5 years
	(U.S. dollars in millions)				(U.S. dollars in millions)
1. Long-Term Debt Obligations⁽¹⁾	—	119	1	—	138	203	237	—
2. Series A Notes⁽¹⁾	56	112	—	—	56	—	—	—
3. Interest payment⁽²⁾	12	4	1	—	19	23	15	—
4. Operating Lease Obligations⁽³⁾	60	92	45	98	72	93	36	295
5. Purchase Obligations⁽³⁾	1,173	269	58	92	1,700	389	63	95
6. Other Long-Term Liabilities Reflected on the Company’s Balance Sheet under U.S. GAAP⁽⁴⁾	—	—	—	—	—	—	—	—
7. Other Long-Term Liabilities⁽⁵⁾	—	—	—	—	—	—	—	—
Total	1,301	596	105	190	1,985	708	351	390


(1)	The above includes derivative instruments defined as hedge accounting - see Item 18. Financial Statements - Note ~~2(Y).~~2Y.

(2)

All our long-term debt borrowings and Series A Notes bear interest at variable rates, which are indexed to LIBOR (plus a fixed spread). For long-term fixed rate borrowings (mainly Series A Notes) we use variable interest rate swaps, effectively converting our long-term fixed rate borrowings to long-term variable rate borrowings indexed to LIBOR. ~~(See~~See also Item 18. Financial Statements - Notes 15 and 16.) To estimate the scheduled interest payments related to Series A Notes, we applied the future expected interest rates that were used for calculating the fair value of our interest rate swap at the balance sheet date. To estimate the scheduled interest payments related to our other long-term debt obligations we used the LIBOR (plus a fixed spread) interest rates that were effective at the balance sheet date. The majority of our long-term debt obligations are scheduled to be repaid within a period of two - three years.


(3)	For further description of the Operating Lease Obligations see Item 18. Financial Statements – Note 9. For further description of the Purchase Obligations see above “Long-Term Arrangements and Commitments – Purchase Commitments” and see Item 18. Financial Statements – ~~Notes 20(D) and 20(G).~~Note 21F.


(4)	The obligation amount does not include an amount of ~~$413~~$846 million of pension and employee termination liabilities. See Item 18. Financial Statements – Notes ~~2(R)~~2R and 17. The obligation amount also does not include an amount of ~~$55~~$53 million of tax reserve related to uncertain tax positions. See Item 18. Financial Statements – Note 18.


(5)	See below “Off-Balance Sheet ~~Transactions.”~~Transactions”.

Off-Balance Sheet Transactions

Buy-Back

In connection with projects in certain countries, Elbit Systems and some of our subsidiaries have entered and may enter in the future into “buy-back” or “offset” or industrial participation agreements, required by a number of our customers as a condition to our obtaining orders for our products and services. These agreements are customary in our industry and are designed to facilitate economic flow back (buy-back) and/or technology transfer to businesses or government agencies in the applicable country.

These commitments may be satisfied by our placement of direct work or vendor orders for supplies and/or services, transfer of technology, investments or other forms of assistance in the applicable country. We attempt to leverage ~~economics~~economies of scale by managing our buy-back activities from an overall corporate perspective. The buy-back rules and regulations, as well as the underlying contracts, may differ from one country to another. The ability to fulfill the buy-back obligations may depend, among other things, on the availability of local suppliers with sufficient capability to meet our requirements and which are competitive in cost, quality and schedule. In certain cases, our commitments may also be satisfied through transactions conducted by other parties, including but not limited to our suppliers, or through “swap” transaction among various countries’ buy-back authorities.

We do not commit to buy-back agreements until orders for our products or services are definitive, but in some cases the orders for our products or services may become effective only after our corresponding buy-back commitments become effective. Buy-back programs generally extend at least over the relevant commercial contract period and may provide for penalties in the event we fail to perform in accordance with buy-back requirements. In some cases we provide guarantees in connection with the performance of our buy-back obligations.

Should we be unable to meet such obligations we may be subject to contractual penalties, our guarantees may be drawn upon and our chances of receiving additional business from the applicable customers could be reduced or, in certain cases, eliminated. ~~(See~~See Item 3. Risk Factors – General Risks Related to Our Business and Market.)

At December 31, ~~2017,~~2019, we had outstanding buy-back obligations totaling approximately ~~$1.3~~$1.35 billion that extend through 2028.

Non-GAAP Financial Data

The following non-GAAP financial data is presented to enable investors to have additional information on our business performance as well as a further basis for periodical comparisons and trends relating to our financial results. We believe such data provides useful information to investors by facilitating more meaningful comparisons of our financial results over time. Such non-GAAP information is used by our management to make strategic decisions, forecast future results and evaluate our current performance. However, investors are cautioned that, unlike financial measures prepared in accordance with GAAP, non-GAAP measures may not be comparable with the calculation of similar measures for other companies.

The non-GAAP financial data below includes reconciliation adjustments regarding non-GAAP gross profit, operating income, net income and diluted EPS. In arriving at non-GAAP presentations, companies generally factor out items such as those that have a non-recurring impact on the income statements, various non-cash items, including significant exchange rate differences, significant effects of retroactive tax legislation, ~~and~~ changes in accounting guidance and other items and financial transactions not considered to be part of regular ongoing business, which, in management’s judgment, are items that are considered to be outside the review of core operating results. In our non-GAAP presentation, we made certain adjustments as indicated in the table below.

These non-GAAP measures are not based on any comprehensive set of accounting rules or principles. We believe that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations, as determined in accordance with GAAP, and that these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. Investors should consider non-GAAP financial measures in addition to, and not as replacements for or superior to, measures of financial performance prepared in accordance with GAAP.

Reconciliation of GAAP (Audited) to

Non-GAAP (Unaudited) Supplemental Financial Data

(U.S. dollars in millions, except for per share amounts)


	Years Ended December 31,						Years Ended December 31,
	2017		2016		2015		2019		2018		2017

GAAP gross profit	997.9		959.6		897.1		1,136.5		976.2		1003.1
Adjustments:
Amortization of purchased intangible assets	22.2		31.2		29.9		22.0		19.1		22.2
Expenses related to acquisitions							55.0		66.6		—
Non-GAAP gross profit	1,020.1		990.8		927.0		1,213.5		1,061.9		1,025.3
Percent of revenues	30.2	%	30.4	%	29.8	%	26.9	%	28.8	%	30.4	%

GAAP operating income	319.3		299.0		268.6		321.6		292.8		324.4
Adjustments:
Amortization of purchased intangible assets	28.6		41.2		48.1		36.1		26.5		28.6
Expenses related to acquisitions							55.0		66.8		—
Gain from change in holdings	—		(17.6	)	—		(1.2	)	(45.4	)	—
Capital gain							(31.8	)	—		—
Non-GAAP operating income	347.9		322.6		316.7		379.7		340.7		353.0
Percent of revenues	10.3	%	9.9	%	10.2	%	8.4	%	9.2	%	10.5	%

GAAP net income attributable to Elbit Systems’ shareholders	239.1		236.9		202.5		227.9		206.7		239.1
Adjustments:
Amortization of purchased intangible assets	28.6		41.2		48.1		36.1		26.5		28.6
Impairment of investment	—		2.5		—
Expenses related to acquisitions							55.0		66.8		—
Gain from changes in holdings							(1.2	)	(45.4	)
Capital gain	—		(3.9	)	—		(31.8	)	—		—
Gain from changes in holdings	—		(16.4	)	—
Revaluation of investment measured under fair value option							(8.3	)	—		—
Impairment of investments							3.7		17.6		—
Non-operating foreign exchange loss							24.6		3.4		—
Tax effect and other tax items*	6.2		(6.1	)	(8.2	)	(8.2	)	(8.1	)	6.2
Non-GAAP net income attributable to Elbit Systems’ shareholders	273.9		254.2		242.4		297.8		267.5		273.9
Percent of revenues	8.1	%	7.8	%	7.8	%	6.6	%	7.3	%	8.1	%

GAAP diluted net EPS	5.59		5.54		4.74		5.20		4.83		5.54
Adjustments, net	0.82		0.41		0.93		1.59		1.42		0.87
Non-GAAP diluted net EPS	6.41		5.95		5.67		6.79		6.25		6.41


*	Tax effect in 2017 ~~includes~~included $10.9 million related to the tax reform in the U.S.

Item 6. Directors, Senior Management and Employees.

Directors and Executive Officers

Board of Directors (Board)

Our directors as of March ~~15, 2018~~18, 2020 are as follows:


Name	Age	Director Since	Age	Director Since
Michael Federmann (Chair)	74	2000	76	2000
Rina Baum	72	2001	74	2001
Yoram Ben-Zeev	73	2014	75	2014
David Federmann (Vice Chair)	43	2007	45	2007
Dr. Yehoshua Gleitman (External Director)	68	2010	70	2010
Moshe Kaplinsky (External Director)			63	2020
Dov Ninveh	70	2000*	72	2000*
Professor Ehood (Udi) Nisan	50	2016	52	2016
Dalia Rabin (External Director)	67	2010
Bilha (Billy) Shapira (External Director)			67	2019
Professor Yuli Tamir	64	2015	66	2015

__________________

* was not a member of the Board from April -to October 2013

The term of office of each director, other than the External Directors, expires at the conclusion of the annual general shareholders meeting to be held during ~~2018.~~2020. The term of office for Yehoshua Gleitman as an External Director expires inon March ~~2019, and~~31, 2020, the first three-year term of office for ~~Dalia Rabin~~Bilha (Billy) Shapira as an External Director expires in November ~~2019.~~2022 and the first three-year term of office for Moshe Kaplinsky as an External Director expires in March 2023.

Michael Federmann. Michael Federmann has served as chair of the Board since 2000. Since 2002 he has served as chair and CEO of Federmann Enterprises Ltd. (FEL), a privately-owned Israeli company in which Mr. Federmann has held managerial positions since 1969. FEL, directly and through subsidiaries, holds a diversified portfolio of investments, including ownership of approximately ~~46%~~44.3% of the Company’s outstanding ~~ordinary~~ shares. FEL also has ownership interests in Dan Hotels Ltd. (Dan Hotels), an Israeli hotel chain, in Freiberger Compound Materials GmbH (Freiberger), a German company engaged in the supply of materials for the semi-conductor industry, as well as in several financial, real estate and venture capital investments. Mr. Federmann also serves as chair of the board of directors of Dan ~~Hotels and is chair of the board of governors of the Hebrew University of Jerusalem (the Hebrew University).~~Hotels. He serves as the president of the ~~Israel~~Germany - ~~Germany~~Israel Chamber of Industry and Commerce, was awarded the Order of Merit of the Federal Republic of Germany and is an Honorary Commander of the Order of the British Empire (CBE). Mr. Federmann holds a bachelor’s degree in economics and political science from the Hebrew University of Jerusalem (the Hebrew University), which has also awarded him an honorary doctorate in philosophy.

Rina Baum. Rina Baum is vice president for investments of FEL and since 1986 has served as a director and as general manager of Unico Investment Company Ltd. She serves as a director of Dan Hotels and Etanit Building Products Ltd. (Etanit), and holds other managerial positions with investee companies of FEL. Mrs. Baum holds ~~an L.L.B.~~a law degree ~~in law~~(LL.B) from the Hebrew University.

Yoram Ben-Zeev. Yoram Ben-Zeev serves as an External Director of Kardan Real Estate Ltd., as well as on the ~~board~~boards of several non-profit organizations in Israel. He served as Israel’s ambassador to the Federal Republic of Germany from 2007 until 2012. Prior to that, he served for 26 years in various senior positions in the ~~MFA,~~Israel Ministry of Foreign Affairs (MFA), including as deputy general director, head of the North America Division and senior member of the directorate. Among other positions held during his service in the MFA, Mr. Ben-Zeev served as Israel’s ~~consul general~~Consul General to the West Coast in the United States, political advisor to the president of the State of Israel, special coordinator to the Middle East peace process, advisor to prime minister Ehud Barak for the Camp David Peace Conference, ~~and~~ chair of the MFA’s Steering Committee - Foreign Service Strategic and Functional Planning and of the Israel-Canada Annual Strategic ~~Forum.~~Forum and member of the MFA’s Nomination Committee. Mr. Ben-Zeev has been the recipient of special awards for his diplomatic service from both the U.S. House of Representatives and the president of the Federal Republic of Germany. Mr. Ben-Zeev holds a bachelor’s degree in ~~Middle Eastern~~middle eastern studies, political science and international relations from the Hebrew University and a master’s degree in ~~Middle Eastern~~middle eastern studies from ~~the~~ Tel-Aviv University. Mr. Ben Zeev serves as the chair of the Corporate Governance and Nominating Committee of the Board and as a member of the Audit Committee, the Financial Statements Review Committee and the Compensation Committee of the Board.

David Federmann. David Federmann has served as vice chair of the Board since 2015. He has served in various management capacities in FEL since 2000. He currently serves as chair of the board of Freiberger and as a member of the boards of directors of Dan Hotels, ~~and~~ BGN Technologies Ltd. (the technology transfer company of Ben-Gurion University)., and several other private companies. David Federmann is the son of Michael Federmann, chair of the Board. Mr. Federmann holds a bachelor’s degree in mathematics and philosophy from New York University.

Dr. Yehoshua Gleitman (External Director). Dr. Yehoshua (Shuki) Gleitman has served since 2001 as the managing partner of Platinum VC, a venture capital firm. He currently serves as ~~the~~ chair of the board of directors of Capital Point Ltd., of GLK Investment and Management Company Ltd., and of GIBF - Guangzhou Israel Bio Tech Fund and ~~is a director~~ of Teuza - A Fairchild Technology Venture ~~Ltd~~Ltd., and is a member of the board of G Medical Innovations Holdings Ltd., a company incorporated in the Cayman Islands. In 2019, Dr. Gleitman became a member of the board of trustees of the Hebrew University. From 2000 until 2005, he was the chief executive officer and a director of SFKT Ltd. From 1997 until 1999, Dr. Gleitman was the chief executive officer of Ampal-American Israel Corporation. Prior to that he served in various senior management positions in the Israeli government and in Israeli industry, including as director general and chief scientist of the Israel Ministry of Industry and Trade, chair of the U.S.-Israel Industrial R&D Foundation, joint chair of the U.S.-Israel Science and Technology Commission, managing director of AIMS Ltd., vice president and general manager of Elop Electro-Optic Industries Ltd.’s (Elop) marine and aerial operations and head of the Laser Branch of the Israel Ministry of Defense. Dr. Gleitman serves as the honorary consul general of Singapore to Israel. Dr. Gleitman holds bachelor of science, master of science and PhD degrees in physical chemistry from the Hebrew University. Dr. Gleitman serves as the chair of the Audit Committee and the Financial Statements Review Committee of the Board and as a member of the Compensation Committee and the Corporate Governance and Nominating Committee of the Board. He is considered by the Board to have accounting and financial expertise under the Companies Law.

Moshe Kaplinsky (External Director). Moshe Kaplinsky served as the CEO of Nesher Israel Cement Enterprises Ltd. (Nesher), Israel's leading cement producer, and of Mashav Initiating and Development Ltd. (Mashav), a company operating in the areas of infrastructure, imports and energy, from 2013 to January 2020. During such time, Mr. Kaplinski served as a director in various companies related to Nesher and Mashav. From 2007 to 2012, Mr. Kaplinsky served as CEO of Better Place Israel, a venture-backed company that aimed to reduce global dependency on oil through the creation of a market-based transportation infrastructure supporting electric vehicles. In 2007, he completed 31 years of service in the Israel Defense Forces (IDF), retiring with the rank of major general. From 2005 to 2007, he served as Deputy Chief of the General Staff of the IDF. Before that, he served in a number of command positions including as military secretary to the Prime Minister and as commander of the IDF’s Central Command. Mr. Kaplinsky holds a bachelor’s degree in economics and business administration from Bar Ilan University and a master’s degree in executive business administration from Tel Aviv University. Mr. Kaplinsky serves as a member of the Audit Committee, the Financial Statements Review Committee, the Compensation Committee and the Corporate Governance and Nominating Committee of the Board. He is considered by the Board to have accounting and financial expertise under the Companies Law.

Dov Ninveh. Dov Ninveh has served as chief financial officer and a manager in FEL since 1994 and as the general manager of Heris Aktiengesellschaft since 2012. He serves as a ~~director of Dan Hotels and Etanit, and as a~~ member of the board of directors of Dan Hotels, Etanit and Freiberger. Mr. Ninveh served as a director of Elop from 1996 until 2000. From 1989 to 1994, he served as deputy general manager of Etanit. Mr. Ninveh holds a bachelor of science degree in economics and management from the Israel Institute of Technology (the Technion).

Professor Ehood (Udi) Nisan. Prof. Ehood (Udi) Nisan is a professor in the School of Public Policy and Government of the Hebrew University. He is an External Director of Harel Insurance Finance Services Ltd. and Rekah Pharmaceutical Industry Ltd., and a member of the board of Bezalel Academy of Art and chair of its finance ~~committee, and an External Director of Harel Insurance Finance Services Ltd., Solgreen (Israel) Ltd. and Rekah Pharmaceutical Industry Ltd.~~committee. From 2013 to 2016, he was the chair of the board of directors of Delek, The Israel Fuel Corporation Ltd. From 2009 to 2011, Prof. Nisan was the director of the budgets department of the Israeli Ministry of Finance, and from 2007 to 2009, he served as the director of the Government Companies Authority. Prior to that he served in various executive positions in the Israeli Ministry of Finance and served as a member and chair of several government and public committees, including from 1999 until 2002 as the CEO of the Jerusalem Development Authority. Prof. Nisan holds bachelor’s and master’s degrees in economics and business administration, and a PhD in public economics and ~~public~~ policy from the Hebrew University. During 2006 - 2007, Prof. Nisan completed his post-doctoral studies at Harvard University's Kennedy School, where he was also a Senior Fellow in 2011 - 2012. Prof. Nisan serves as a member of the Audit Committee and the Financial Statements Review Committee of the Board. He is considered by the Board to have accounting and financial expertise under the Companies Law.

~~Dalia Rabin~~Bilha (Billy) Shapira (External Director).Dalia Rabin is the chair of the Yitzhak Rabin Center, a national institute dedicated to ensuring that the legacy of former Prime Minister and Minister of Defense Yitzhak Rabin continues to impact Israeli society through experiential educational programming, a national archive and a museum. Before that,. Mrs. ~~Rabin was a member of the Israeli Government from 1999 until 2002. She is the president of the Center for Arbitration and Dispute Resolution and~~Bilha (Billy) Shapira serves as a member of the board of ~~directors of Peilim Investment Portfolio Management Company Ltd. Mrs. Rabin was elected to~~governors and the ~~Knesset on the Center Party Ticket in 1999 and acted as chair~~audit committee of the ~~Ethics Committee. She also served on the Constitution, Law and Justice Committee; the Committee for the Advancement~~Azrieli College of Engineering, as a member of the ~~Status of Women; the State Control Committee;~~Jerusalem Transportation Master Plan Team and ~~the Committee for the Advancement~~as a member of the ~~Status~~boards of several non-profit organizations in Israel. From 2018 until March 2020, she was the head of the ~~Child. In 2001,~~Israeli branch of Helmholtz Association of German Research Centers, a German association with centers worldwide that promotes research collaboration between German institutions and industries and foreign academic institutions, industrial entities and governmental research bodies. From 2009 until 2017, Mrs. ~~Rabin was appointed Deputy Minister~~Shapira served as vice president and CEO of ~~Defense. She resigned~~the Hebrew University and as the CEO of VERA - the Association of Heads of Universities in ~~2002 to head the Rabin Center.~~Israel. Prior to ~~her election to the Knesset, Mrs. Rabin served as the legal advisor of the professional associations of the General Federation of Labor (the Histadrut). She also~~that, she served for ~~fourteen~~36 years in ~~the Tel-Aviv District Attorney’s Office~~various management capacities in the ~~Civil Division, specializing in labor law. Mrs. Dalia Rabin holds an L.L.B degree from Tel-Aviv~~Hebrew University. Mrs. ~~Rabin~~Shapira holds a bachelor’s degree in Russian studies and international relations and a master’s degree in administration and public policy from the Hebrew University. Mrs. Shapira serves as ~~the~~ chair of the Compensation Committee ~~of the Board~~ and asis a member of the Audit Committee, the Financial Statements Review Committee and the Corporate Governance and Nominating ~~Committee.~~Committee of the Board.

Professor Yuli Tamir. Prof. Yuli Tamir has served since 2010 as the President of Shenkar College, a public college in Ramat-Gan, Israel. Before that, from 2006 until 2009, she served as Israel’s Minister of Education. Prof. Tamir also served as the Minister of Immigration from 1999 until 2001. She was a deputy speaker of the Knesset and a member of the Finance Committee, the Education Committee and the Security and Foreign Affairs Committee. Prof. Tamir is a founding member of the Israeli peace movement “Peace Now”. She served as the chair of the Association of Civil Rights in Israel and was a member of the political committee of the Women’s Lobby. She was a professor at Tel-Aviv University and a scholar-in-residence at Princeton University, Harvard University, the University of Pennsylvania, the European University in Florence, the Central European University in Budapest and the Blavatnik School of Government in Oxford. Prof. Tamir is the recipient of numerous academic awards. Prof. Tamir holds a ~~bachelor~~bachelors of science degree in biology, ~~and~~ a master’s degree in political science from the Hebrew University and a PhD in political philosophy from Oxford University. Prof. Tamir serves as a member of the Audit Committee and the Financial Statements Review Committee of the Board.

Executive Officers

Our executive officers, the President and CEO and the Executive Vice Presidents who report to the President and CEO) as of March 15, ~~2018~~2020 are as follows:



Name	Age	Position
Bezhalel Machlis	5657	President and Chief Executive Officer
Elad Aharonson	4446	Executive Vice President and General Manager – ISTAR Division
Jonathan Ariel	6163	Executive Vice President and Chief Legal Officer
David Block Temin	6264	Executive Vice President, Chief Compliance Officer and Senior Counsel
Haim Delmar	50	Executive Vice President and General Manager - C4I and Cyber Division
Joseph Gaspar	6971	Executive Vice President and Chief Financial Officer
Zeev Gofer	6567	Executive Vice President – Strategic and Business Development - North America
Dr. Shelly Gordon	5759	Executive Vice President – Human Resources
Ran Kril	4749	Executive Vice President - International Marketing and Business Development
Edgar Maimon	6365	Executive Vice President and General Manager – EW and SIGINT Elisra Division
~~Avi Mizrachi~~	60	~~Executive Vice President - Business Development - Israel and Southeast Asia~~
Ilan Pacholder	6365	Executive Vice President – Mergers and Acquisitions and Financing
Yuval Ramon	5254	Executive Vice President and Chief Operating Officer
~~Gideon Sheffer~~	69	~~Executive Vice President – Strategic Planning~~
Yoram Shmuely	5759	Executive Vice President and General Manager – Aerospace Division
Yehuda Vered	6062	Executive Vice President and General Manager – Land ~~and C4I~~ Division
Yehoshua Yehuda	5153	Executive Vice President - Strategy and Chief Technology Officer

Bezhalel Machlis. Bezhalel Machlis has served as the Company’s President and CEO since 2013. From 2008 until 2012, he served as executive vice president and general manager – land and C4I division, after serving as corporate vice president and general manager – land systems and C4I since 2004. In 2003, he served as corporate vice president and general manager – ground, C4I and battlefield systems. From 2000 until 2002, he served as vice president – battlefield and information systems. Mr. Machlis joined Elbit Ltd. in 1991 and held various management positions in the battlefield and information systems area. Prior to that, he served as an artillery officer in the IDF, where he holds the rank of colonel (reserves). Mr. Machlis holds a bachelor of science degree in mechanical engineering, ~~and~~ a bachelor of arts degree in computer science from the Technion and an MBA from Tel-Aviv University. He is a graduate of Harvard University Business School’s Advanced Management Program.

Elad Aharonson. Elad Aharonson has served as Executive Vice President and General Manager - ISTAR Division since 2015. From 2011 until his current appointment, he served as executive vice president and general manager - UAS Division, after serving as vice president - UAV systems since 2009. He joined Elbit Systems in 2004 and held various senior program management positions relating to UAS. Prior to that, Mr. Aharonson served as an officer in the IDF holding command positions in the Artillery Branch and in the Ground Forces’ UAV unit. Mr. Aharonson holds ~~an L.L.B.~~a law degree ~~in law~~(LL.B.) and a bachelor’s degree in business administration from the Hebrew University.

Jonathan Ariel. Jonathan Ariel has served as Executive Vice President and Chief Legal Officer since 2012, after serving as senior vice president and general counsel since 2008. He joined Elbit Systems in 1996 and has held several positions within the legal department, including vice president and general counsel of Elop. Prior to joining Elbit Systems, Mr. Ariel served as a legal advisor both in-house and in private law firms in Israel and the U.S. Mr. Ariel holds ~~an L.L.B~~a law degree ~~in law~~(LL.B.) from Tel-Aviv University and is admitted to the Israeli Bar.

David Block Temin. David Block Temin has served as Executive Vice President, Chief Compliance Officer and Senior Counsel since 2012, after serving as executive vice president, chief legal officer and chief compliance officer since 2008. Prior to that he served as corporate vice president and general counsel since 2000 and as general counsel since 1996. From 1987 to 1996, he was a legal advisor to Elbit Ltd. Prior to that, Mr. Block Temin was an attorney with law firms in New York City. Mr. Block Temin received a juris doctor degree as well as a master of arts degree in international relations from Stanford University and holds a bachelor of arts degree in political science from the University of Maryland. He is admitted to the Israeli ~~bar.~~Bar.

Haim Delmar. Haim Delmar was appointed Executive Vice President and General Manager – C4I and Cyber Division in 2018, after serving as senior vice president for C4ISR & HLS in the land & C4I division since 2009. Mr. Delmar joined Elbit Systems in 1993 and held various engineering and management positions in the battlefield and information systems area. From 2000 until 2004, he served in executive positions at Utopy Inc. and Mobilitec Inc. in the telecommunication and data mining fields, returning to Elbit Systems in 2004. Mr. Delmar holds a bachelor of science degree in computer engineering from the Technion and is a graduate of the Harvard University Business School’s Advanced Management Program.

Joseph Gaspar. Joseph Gaspar was appointed as an Executive Vice President in 2008 and has served as Chief Financial Officer since 2001. He was appointed as a corporate vice president in 2000 and served as corporate vice president – strategy, technology and subsidiaries from 2000 until 2001. From 1996 until 2000, he held the position of corporate vice president, marketing and business development of Elop. Mr. Gaspar joined Elop in 1975 and held several management positions, including vice president and general manager of Elop’s optronics product division and co-manager of an Elop subsidiary in the United States. Mr. Gaspar holds a bachelor of science degree from the Technion in electronic engineering with advanced studies in digital signal processing and communication.

Zeev Gofer. Zeev Gofer has served as Executive Vice President – Strategic and Business Development – North America since 2009. From 2008 until his current appointment he was executive vice president – business development and marketing, after serving as corporate vice president – business development and marketing since 2003. He previously served as corporate vice president and as co-general manager – aircraft and helicopter upgrades and systems from 2000 until 2003. From 1999 until 2000, he was vice president – aircraft upgrades and airborne systems division, having served as division manager since 1996. He joined Elbit Ltd. in 1982 and held various management positions, including director of the aircraft upgrade division, director of a major aircraft upgrade program, director of avionics system engineering and technical manager of the Lavi aircraft avionics program. Mr. Gofer holds bachelor’s and master of science degrees in electronic engineering from the Technion and a master of science of management degree from the Polytechnic University of New York.

Dr. Shelly Gordon. Dr. Shelly Gordon was appointed as Executive Vice President - Human Resources shortly after joining Elbit Systems in 2015. From 2012 until joining Elbit Systems, she headed executive education at the Interdisciplinary Center Herzilya. From 2005 until 2012, Dr. Gordon served as vice president - organizational development and talent management at Amdocs Limited and served as vice president - human resources at Elite Confectionary Ltd. from 2000 until 2005. Prior to that, she worked as an independent consultant with management teams and senior managers, leading major transformations in varied organizations and industries. Dr. Gordon received a bachelor’s degree in education and art from the Hebrew University, a bachelor’s degree in psychology from Tel-Aviv University and a doctorate in management studies from the University of Hertfordshire in the U.K.

Ran Kril. Ran Kril was appointed as Executive Vice President - International Marketing and Business Development in 2015. From 2013 until his current appointment, he served as vice president for marketing and sales in the aerospace division, after serving as the aerospace division’s vice president for sales and contracts since 2007. He joined Elbit Systems in 1997 and held various senior positions in the marketing, sales and finance departments of the aerospace division. Mr. Kril holds a bachelor of science degree in economics and management from the Technion and a master of science of management degree from the Polytechnic University of New York.

Edgar Maimon. Edgar Maimon has served as Executive Vice President and General Manager – EW and SIGINT Elisra Division since 2013. From 2005 until his current appointment Mr. Maimon served as vice president of marketing and business development at Elbit Systems EW and SIGINT – Elisra Ltd. (Elisra). He joined Elisra in 2004. Prior to that Mr. Maimon served for 26 years in the IAF, where he retired with the rank of colonel. He served as the head of the IAF’s C4I systems engineering department and held several additional senior positions in the IAF. Mr. Maimon holds a bachelor of science degree in electronic engineering from Ben Gurion University.

~~Avi Mizrachi.~~ Avi Mizrachi was appointed Executive Vice President - Business Development - Israel and Southeast Asia in January 2017, after serving as executive vice president - business development - Southeast Asia since 2014. He joined Elbit Systems in 2013 as a senior vice president in the corporate marketing department. Prior to that, Mr. Mizrachi completed 33 years of service in the IDF, retiring with the rank of major general. From 2009 to 2012, he served as the commander of the IDF’s Central Command. Prior to that he held a number of senior command positions including head of the Technology and Logistics Branch and commander of the IDF’s Ground Forces. Mr. Mizrachi holds a bachelor of arts degree in computer science and business administration from Pace University in New York and is a graduate of the Harvard University Business School’s Advanced Management Program.

Ilan Pacholder. Ilan Pacholder has served as Executive Vice President – Mergers and Acquisitions since 2009, in addition to his position as Executive Vice President – Financing to which he was appointed in 2008. From 2008 until 2015, he also served as executive vice president - offset. During 2007, he served as vice president and chief financial officer of Tadiran Communications Ltd. Mr. Pacholder served as corporate secretary and vice president – finance and capital markets of Elbit Systems from 2003 until 2006. From 2001 until 2003, he served as vice president – finance. Mr. Pacholder joined Elbit Ltd. in 1994 and held various senior positions in the finance department. Prior to joining Elbit Ltd. he served as the chief financial officer for Sanyo Industries in New York. Before that Mr. Pacholder worked for Bank Leumi in New York and held the position of vice president in the international and domestic lending departments. Mr. Pacholder holds a bachelor of arts degree in accounting and economics from Queens College in New York and an MBA in finance and investments from Adelphi University.

Yuval Ramon. Yuval Ramon was appointed Executive Vice President and Chief Operating Officer in 2015. From 2014 until his current appointment, he served as vice president - corporate operations. Prior to that, from 1998 - 2013, he served in a number of management positions in Elbit Systems of America, including as senior vice president of operations, site lead at the Merrimack operations and director of sales and contracts for the Fort Worth operations. He joined Elbit Systems in 1994 as a sales and contract manager. Mr. Ramon holds a bachelor of science degree in industrial engineering and economics from the Technion.

~~Gideon Sheffer~~. Gideon Sheffer has served as Executive Vice President – Strategic Planning since January 2017, after serving as executive vice president - strategic planning and business development – Israel since 2009. From 2008 until 2009 he served as executive vice president – strategic planning, after serving as corporate vice president – strategic planning since 2001. Prior to that he served as acting head of Israel’s National Security Council and as national security advisor to former prime minister Ehud Barak. In 1998, he completed 32 years of service in the IDF, retiring with the rank of major general. From 1995 to 1998, he served on the general staff as head of the IDF’s human resources branch. Before that, he served as deputy commander of the IAF. Mr. Sheffer held a number of command positions in the IAF after serving as a fighter aircraft and helicopter pilot. Mr. Sheffer holds a bachelor’s degree in Israel studies from Bar Ilan University and is a graduate of the Harvard University Business School’s Advanced Management Program.

Yoram Shmuely. Yoram Shmuely has served as Executive Vice President and General Manager – Aerospace Division since 2013, after serving as executive vice president and co-general manager of the aerospace division since 2008. Mr. Shmuely served as corporate vice president and co-general manager – airborne and helmet systems since 2003. He served as corporate vice president and general manager – helmet mounted systems from 2000 until 2003. From 1998 until 2000, he was vice president – helmet mounted systems division. From 1996 until 1998, he served as president of a U.S. subsidiary of Elbit Systems. Mr. Shmuely joined Elbit Ltd. in 1990 and served as director of Elbit Ltd.’s helmet mounted display business. He served as a fighter aircraft pilot in the IAF. Mr. Shmuely holds a bachelor of science degree in electronic engineering from the Technion.

Yehuda Vered. Yehuda (Udi) Vered has served as Executive Vice President and General Manager – Land Division since 2018, after serving as executive vice president and general manager of the land and C4I ~~Division~~division since 2013. From 2009 until ~~his current appointment~~2013, Mr. Vered served as executive vice president – service solutions as well as vice president – marketing for the land and C4I division. Prior to that, since 2004 he served as chief financial officer and vice president for contracts and sales of the land and C4I division. Mr. Vered joined Elbit Systems in 2003 as vice president for contracts and sales and chief financial officer – ground, C4I and battlefield systems. Before that, he served as an aircrew officer in the IAF, where he holds the rank of colonel (reserves). Mr. Vered holds a bachelor of arts degree in management and economics from Tel-Aviv University, an MBA from Ben Gurion University and is a graduate of the Harvard University Business School’s Advanced Management Program.

Yehoshua Yehuda. Yehoshua (Shuki) Yehuda was appointed as Executive Vice President and Strategy and Chief Technology Officer in ~~2016.~~January 2020. From 2016 until his current appointment, he served as executive vice president and chief technology officer. From 2008 until his current appointment, he served as Elisra’s vice president and chief technology officer as well as general manager - radar solutions business unit. Prior to that he served in a number of management positions in Elisra, which he joined in 2000. Prior to joining Elisra, Mr. Yehuda served as an officer in the IDF, holding command positions in the Intelligence Corps. Mr. Yehuda holds a bachelor of science degree in electrical engineering from Tel-Aviv University and a master of science degree in neural computation from the Hebrew University. He is a graduate of Harvard University Business School’s Advanced Management Program.

President and CEO of Elbit Systems of America

Elbit Systems of America’s President and CEO reports to the board of directors of Elbit Systems of America in accordance with the provisions of the Special Security Agreement with the U.S. Department of Defense. ~~(See~~See Item 4. Information on the Company – U.S. Subsidiaries.) Raanan Horowitz has served as President and CEO of Elbit Systems of America since 2007. He served as executive vice president and general manager of EFW from 2001 until his current appointment. From 1991 until 2001, Mr. Horowitz held various management positions with EFW and other U.S. subsidiaries of the Company. From 1989 to 1991, he served as a senior program manager for Elbit Ltd. Mr. Horowitz ~~serves~~previously served on the executive committee of the board of governors of the Aerospace Industries Association and iswas previously a member ~~of the executive committee~~ of the national board of directors of the Leukemia and Lymphoma Society. Mr. Horowitz holds an MBA from the Seidman School of Business of Grand Valley State University in Allendale, Michigan. He also holds a master of science degree in electrical engineering and a bachelor of science degree in mechanical engineering from Tel-Aviv University.

Compensation of Directors and Executive Officers

Compensation Policy

Pursuant to the Companies Law, a public company such as Elbit Systems is required to adopt a compensation policy regarding the terms of office and employment of its Office Holders (as defined in the Companies Law) (generally Elbit Systems’ directors and executive officers), including compensation, equity-based awards, ~~releases~~exemption from liability, indemnification and insurance, severance and all other ~~employment~~ benefits (Employment Terms).

The Companies Law also requires that an adopted compensation policy be reviewed from time to time by the compensation committee and the board of directors of the company, to ensure its alignment with the company’s goals, work plan and other policies from a long-term perspective, as well as the compensation policy’s appropriateness to the company considering, among other factors, the company’s risk management policy and the company’s size and nature of operations.

In addition, pursuant to the Companies Law, every three years a compensation policy needs to be re-approved ~~every three years~~ by the board of directors, following the recommendation of the compensation committee, and re-approved by the company’s shareholders, by a Special Uninterested Majority (as defined below). In the event that the compensation policy is not approved by the shareholders by a Special Uninterested Majority, the board of directors may nonetheless approve it, provided that the compensation committee and the board of directors, following further discussion of the matter and for specified reasons, determine that the approval of the compensation policy is, notwithstanding the shareholders disapproval, in the best interests of the company.

Special Uninterested Majority ~~means:~~means the affirmative vote of a majority of the voting power in the company present at the respective meeting either in person, by proxy or by a voting instrument, and voting on the respective resolution, provided that, either : (a) such majority includes a majority of the shareholders who are not controlling shareholders of the company and do not have a ~~"Personal Interest"~~“Personal Interest” in the approval of the respective resolution ~~who participate in the vote, in person, by proxy or by a voting instrument vote to approve it (abstentions will not be taken into account)~~(disregarding abstentions ) or (b) the total number of ~~votes~~shares of the shareholders referred to in (a) above that are voted against the approval of the proposed resolution does not exceed two percent (2%) of the ~~company’s~~ total voting ~~rights. (For~~rights in the company. For the definition of Personal Interest see Item ~~10 -~~10. Additional Information - Approval of Certain Transactions - Personal Interest and Extraordinary Transactions.)

~~In 2014~~At the Shareholders’ Extraordinary General Meeting held on April 11, 2018, our shareholders, following a favorable recommendation of the Compensation Committee of the Board (the Compensation Committee) and the approval of the Board, ~~as a whole,~~ approved a compensation policy (the ~~Former~~ Compensation Policy) applicable to Employment Terms and arrangements with our Office Holders. ~~In accordance with~~At the ~~Companies Law, in a proxy statement issued by the Company on October 19, 2016 in connection with the Company’s Annual~~Shareholders' Extraordinary General Meeting ~~that was~~ held on ~~November 23, 2016, the Company proposed the approval~~February 26, 2020, following a favorable recommendation of ~~an amended compensation policy. This proposal was eventually withdrawn from the agenda of the above-mentioned meeting, in order to allow~~ the Compensation Committee and the Board to further review and discuss the various matters to be included in our compensation policy and to consider certain comments received from shareholders or on their behalf with respect to the proposed amended compensation policy.

Following such further review and discussions, and following recommendation of our Compensation Committee and the approval of our Board, on March 1, 2018 we issued a proxy statement (the March Proxy Statement) convening an Extraordinary General Meeting of our shareholders to be held on April 11, 2018 (the Scheduled April Meeting), at which Scheduled April Meeting we will propose, among other matters, that our shareholders approve a new compensation policy (the New Compensation Policy), as set forth in the March Proxy Statement filed by us on Form 6-K with the Israeli Securities Authority and the SEC on March 1, 2018.

~~Upon~~ approval of the ~~New~~Board, our shareholders approved an amendment to the Compensation Policy inincreasing the authorized coverage limit and maximum annual premium for directors and officers liability insurance policies. For further information see below Item 10, Additional Information - Exemption, Insurance and Indemnification of Directors and Officers.

In accordance with the provisions of the Companies Law as set forth above, the ~~New~~ Compensation Policy will be in effect for a three-year period orending in 2021or as otherwise may be mandated from time to time by the Companies Law.

~~The Companies Law requires that we obtain~~For further information about the approval of ~~the Compensation Committee and the Board as a whole for each~~ Employment Terms ~~arrangement with an Office Holder. In addition, the Companies Law requires that we also obtain the approval~~ of our ~~shareholders for any Employment Terms arrangement with our CEO, a director, any other~~ Office Holder where the Employment Terms are not consistent with an approved compensation policy or any Office Holder that is considered a controlling shareholder or such Office Holder’s “Relative”. (For the definition of RelativeHolders, see Item ~~10 -~~10. Additional Information - Approval of Certain ~~Transaction~~Transactions - Approval of Employment Terms of Office Holders.). Except with respect to Employment Terms of a director, such shareholder approval requires a Special Uninterested Majority. Under certain circumstances described in the Companies Law, if the Employment Terms of an Office Holder who is not a director or a controlling shareholder, that requires shareholder approval as described above, are not approved by the shareholders by the required Special Uninterested Majority, and provided that the company is not a “Public Pyramid Held Company” as defined in the Companies Law, the compensation committee and the board of directors may nonetheless approve such Employment Terms provided that the compensation committee and the board of directors, following further discussion of the matter and for specified reasons, determine that the approval of such Employment Terms is in the best interests of the company. (For further information see Item 10 - Additional Information - Approval of Certain Transaction - Approval of Employment Terms of Office Holders).

In addition, pursuant to the Companies Law, changes determined by the compensation committee not to be material to the existing Employment Terms of an Office Holder who is not a director or a controlling shareholder, require only the approval of the compensation committee.

In accordance with the requirements of the Companies Law, at the Shareholders’ Extraordinary General Meeting held on March 8, 2016, the Company’s shareholders, following the recommendations of the Compensation Committee and the Board, approved, by the Special Uninterested Majority, the Employment Terms of our CEO, Mr. Bezhalel Machlis, with effect as of April 1, 2016. At the Scheduled April Meeting, following the recommendation of our Compensation Committee and the Board, our shareholders will also be requested to approve the grant to our CEO of options under our new 2018 - Equity Incentive Plan for Executive Officers (see below “Share Ownership - Elbit Systems Stock Option Plans”) as well as the grant of options to our CEO by PO Cell Tech Ltd., a privately-held Israeli commercial company in which we hold a majority interest.

For further information regarding the Scheduled April Meeting - see the March Proxy Statement. In addition see below “Board Practices - Compensation Committee”, “Share Ownership - Elbit Systems’ Stock Option Plan”, Item 10 - Additional Information - General Provisions of Israeli Law and Related Provisions of Articles of Association - Office Holders and Approval of Employment Terms of Office Holders and Item 16G. - Corporate Governance.

Compensation of Directors and Executive Officers

Aggregate Compensation to Directors and Executive Officers

The following table sets forth the aggregate compensation costs for all of our directors and executive officers as a group for the fiscal year ended December 31, ~~2017:~~2019:

Salaries, Directors’ Fees Commissions and Bonuses Pension, Retirement and Similar Benefits

(U.S. dollars in thousands)
All directors (consisting of 9 persons) $ 430
⁽¹⁾
$ —
All executive officers (consisting of 18 persons) $ 18,765
⁽²⁾⁽³⁾
$ 1,535



	Salaries, Directors’ Fees Commissions and Bonuses			Pension, Retirement and Similar Benefits
	(U.S. dollars in thousands)
All directors (consisting of 10 persons)	$	535,000	⁽¹⁾	$	—
All executive officers (consisting of 16 persons)	$	10,161	^(2)(3)(4)	$	1,416


(1)	Directors Fees

In accordance with the Compensation Policy and with the Israeli Companies ~~Law,~~Regulations (Relief from Related Parties' Transactions), 5760-2000, in ~~our Shareholders Annual General Meeting~~meetings held on ~~November 30, 2017, our shareholders~~October 6, 2019, the Compensation Committee and the Board approved payment to the ~~Company’s~~Company's directors, including to Michael Federmann and David Federmann (who each may be considered a direct or indirect controlling shareholder of the Company), in accordance with maximum regulatory rates payable to External Directors under Israeli law for companies similarly classified based on their shareholding equity, which rates are also paid to the Company's External Directors, as well as reimbursement of expenses in accordance with Israeli law and the Company’s procedures, which are also paid to the Company’s External Directors. As a result, each of the Company’s directors is and will be entitled to an annual fee of NIS ~~111,345~~111,115 (equal to approximately ~~$31,137)~~$31,173) and a per meeting fee of NIS ~~4,285~~4,275 (equal to approximately ~~$1,198)~~$1,199), which reflect the above mentioned fee levels, linked to the Israeli consumer price index.


(2)	2012 Phantom Bonus Retention Plan

(i)

In 2012, our Board approved a “Phantom” Bonus Retention Plan for Senior Officers (the 2012 Phantom Plan). The purpose of the 2012 Phantom Plan is to provide an incentive to retain applicable senior officers of Elbit Systems and certain of our subsidiaries by strengthening the alignment of the 2012 Phantom Plan recipients’ financial interests with those of the Company and our shareholders. Under the 2012 Phantom Plan, phantom bonus units were granted to executive officers within the framework of three consecutive yearly tranches, each such tranche comprised of an equal number of units which entitle the recipient the right to receive the financial benefit (Unit Benefits) deriving from increases in the value of the Company’s shares during the applicable periods, subject to certain restrictions. Unit Benefits are calculated separately for each tranche. The Unit Benefits accrual period for each tranche is three years from the respective grant date of the applicable bonus units.

(ii) At the end of each year during the Unit Benefits accrual period for each tranche, the Company calculates the value of each Unit Benefit for such year (the Unit Benefits Value). The Unit Benefits Value is the difference between: (i) the basic value for that year - i.e. the average closing price on the TASE of the Company’s shares for the thirty (30) trading days preceding the beginning of the respective year, and (ii) the year-end value for said year - i.e. the average closing price on the TASE of the Company’s shares for the thirty (30) trading days preceding the end of the relevant year.

(iii) The accrued Unit Benefits Value for each yearly tranche is the sum of the first year Unit Benefits Value, the second year Unit Benefits Value and the third year Unit Benefits value for that tranche. Because of certain conditions in the 2012 Phantom Plan, the Unit Benefits Value for a particular year of a tranche may be zero or only part of the calculated Unit Benefits Value for that year. The aggregate maximum Unit Benefits Value of a unit granted for the full three years of a tranche may not exceed 100% of the basic value determined for that tranche for its first year. Except in certain circumstances described in the 2012 Phantom Plan, the accrued Unit Benefits Value of a tranche is paid to the recipient at the end of the third year of the respective tranche.


(iv)	Except as otherwise provided in the 2012 Phantom Plan, entitlement to receipt of benefits is conditioned on the recipient remaining an employee of the Company. The benefits received under the 2012 Phantom Plan are subject to tax at the regular personal income tax rates.


(v)	We recorded amounts of approximately ~~$14.7~~$0.4 million and ~~$8.9~~$0.9 million in ~~2016~~2018 and ~~2017,~~2019, respectively, as compensation costs related to grants to our executive officers under the 2012 Phantom Plan. See Item 18. Financial Statements – Note ~~21(D).~~22G.


(3)	2018 - Equity Incentive Plan for Executive Officers and Equity Plans in Other Entities Established by the Company

(i) We recorded an amount of approximately $1.4 million and $4.1 million in 2018 and 2019, respectively, as compensation costs related to options granted to our Executive Officers under our 2018 Equity Incentive Plan for Executive Officers. See below "Share Ownership - Elbit Systems’ Stock Option Plans - 2018 - Equity Incentive Plan for Executive Officers" and Item 18. Financial Statements Notes 22C and 22D.

(ii) In addition, we recorded in 2019, an amount of approximately $0.2 million as compensation costs related to options granted to our Executive Officers in start-up entities or similar ventures established by the Company (whether by allocation of options by the start-up entities themselves or by allocation of shares or options to purchase shares of such start-up entities which are held by the Company) (Options in Other Entities).

~~(3)~~(4) Other Compensation

In addition to payment of monthly salary and annual bonus, our executive officers are entitled to reimbursement of travel and certain other expenses in a manner similar to other employees.

Office Holders of the Company, including our directors and executive officers, are covered by our D&O liability insurance policy and are entitled to indemnification and exemption in accordance with our Articles of Association and pursuant to an indemnification letter as approved by our shareholders. ~~(See~~See Item 10. ~~“Additional~~Additional Information - Exemption, Insurance and Indemnification of Directors and Officers - Exemption, Insurance and Indemnification ~~Under~~under the Companies ~~Law”.)~~

Law.

Compensation of Five Most Highly Compensated Office Holders

The following describes the compensation of our five most highly compensated Office Holders with respect to the year ended December 31, ~~2017.~~2019. All amounts specified are in terms of cost to the Company as recorded in our financial statements.

Compensation for each of the specified ~~executive officers~~Office Holders is indicated in terms of the following types of compensation costs:

(1) Salary Costs. Salary Costs include gross salary and, if and to the extent applicable to a respective Office ~~Holders,~~Holder, social and other benefits such as vacation days, sick days, convalescence pay, monthly remuneration for a study fund, contributions made by the Company on behalf of the Office Holders to an insurance policy or a pension fund, contributions by the Company on behalf of the Office Holders towards work disability insurance and other benefits such as company car and communication costs. U.S. dollar amounts indicated for Salary Costs are based on the exchange rate of ~~3.576,~~3.555 which represents the average weighted U.S. dollar - NIS exchange rate for the date of payments for each of the months during ~~2017~~2019 (Average Exchange Rate).

(2) Bonus Costs. Bonus Costs represent bonuses (annual, managerial evaluation and/or special, as the case may be) recorded in connection with the Office Holders with respect to the year ended December 31, ~~2017.~~2019. U.S. dollar amounts indicated for Bonus Costs are based on the Average Exchange Rate .

(3) Phantom Bonus Costs. Phantom Bonus Costs are costs recorded with respect to the year ended December 31, ~~2017~~2019 related to the value of benefits under tranches of phantom bonus units granted to the Office Holders under our 2012 Phantom Bonus Retention ~~Plan (see~~Plan. See above “Aggregate Compensation to Directors and Officers - Table - Note (2)” and Item 18. Financial Statements - Note ~~21(D).)~~22G. Benefits under the 2012 Phantom Plan cover tranches payable over three years.

(4) Stock Option Costs. Stock Option Costs are costs recorded with respect to the year ended December 31, ~~2017~~2019 related to ~~stock options~~the 2018 Equity Incentive Plan for Executive Officers. See above “Aggregate Compensation to Directors and Officers - Table - Note (3)", below "Share Ownership - Elbit Systems’ Stock Option Plans - 2018 - Equity Incentive Plan for Executive Officers" and Item 18. Financial Statements - Notes 22C and 22D. Such Stock Option Costs also relate to Options in ~~start-up entities or similar ventures established by the Company (whether by allocation of options by the start-up entities themselves or by allocation of shares or options~~Other Entities. See above “Aggregate Compensation to ~~purchase shares of such start-up entities which are held by the Company).~~

~~(5)~~ ~~Other Costs.~~ Other Costs are one-time contributions made by the Company on behalf of the Office Holder to an insurance policy or a pension fund and/or towards employee disability insurance, as well as accrued vacation benefits, which contributions are required under Israeli lawDirectors and agreed employment terms in the event the monthly salary is increased. These contributions take into account, among other factors, retroactive contributions on the basis of the actual years of employment with the Company.Officers - Table - Note (3)".

The five most highly compensated Office Holders in ~~2017~~2019 were as follows (U.S. dollar amounts in thousands):

(1)

Bezhalel Machlis - President and CEO. Compensation costs recorded for Mr. Machlis in ~~2017~~2019 included: ~~$880~~$1,043 in Salary Costs, ~~$1,020~~$1,115 in Bonus Costs ~~$1,474~~and $763 in ~~Phantom~~Stock Options Costs. In March 2019, the Company’s shareholders approved the grant to Mr. Machlis of options to purchase 121,298 ordinary shares par value NIS 0.01 of Cyberbit Ltd., a privately held Israeli company in which we hold an interest (Cyberbit), at an exercise price of $7.62 per share. Mr. Machlis is also chair of Cyberbit's board. The grant is in accordance with the Cyberbit employee stock option plan for Cyberbit’s employees and “office holders” (Cyberbit ESOP). Subject to the terms of the Cyberbit ESOP, such options will expire within seven years from the grant date.


(2)	Yehuda Vered - Executive Vice President and General Manager - Land Division. Compensation costs recorded for Mr. Vered in 2019 included: $735 in Salary Costs, $331 in Bonus Costs and ~~$27~~$452 in ~~Other~~Stock Option Costs.


~~(2)~~(3)	Joseph Gaspar - Executive Vice President and Chief Financial Officer. Compensation costs recorded for Mr. Gaspar in ~~2017~~2019 included: ~~$634~~$710 in Salary Costs, ~~$158~~$276 in Bonus Costs ~~$617~~and $496 in ~~Phantom Bonus Costs and $51 in Other~~Stock Options Costs.


~~(3)~~(4)	Yoram Shmuely - Executive Vice President and General Manager - Aerospace Division. Compensation costs recorded for Mr. Shmuely in ~~2017~~2019 included: ~~$642~~$702 in Salary Costs, ~~$135 in Bonus Costs, $617 in Phantom Bonus Costs, $3 in Stock Option Costs and $23 in Other Costs.~~


~~(4)~~	~~Gideon Sheffer - Executive Vice President - Strategic Planning.~~ ~~Compensation costs recorded for Mr. Sheffer in 2017 included: $396 in Salary Costs, $121~~$155 in Bonus Costs and ~~$617~~$411 in ~~Phantom Bonus~~Stock Option Costs.


(5)	~~Yehuda Vered~~Elad Aharonson - Executive Vice President and General Manager - ~~Land and C4I~~ISTAR Division. Compensation costs recorded for Mr. ~~Vered~~Aharonson in ~~2017~~2019 included: ~~$523~~$634 in Salary Costs, ~~$119~~$116 in Bonus Costs ~~$440 in Phantom Bonus Costs, $25~~and $411 in Stock Option ~~Costs and $10 in Other~~ Costs.

Board Practices

Appointment of Directors

Our directors, ~~who are not~~other than our External Directors, are elected by the shareholders at the annual general shareholders meeting. ~~They hold~~Their term of office is until the conclusion of the next annual general shareholders meeting, which is held at least once every calendar year but not more than 15 months after the previous annual general shareholders meeting. According to our Articles of Association, the approval of our shareholders at a general meeting is generally required to remove any of our directors from office. Between annual general shareholders meetings our Board may appoint new directors to fill vacancies. The External Directors are elected at a general shareholders meeting as described under “External Directors” below. Our Articles of Association authorize a maximum of 17 directors, a minimum of five directors and, unless otherwise determined by our Board or approved by our shareholders, the number of directors will be nine. On February 5, 2020, our Board approved an increase of the number of directors to ten for a limited period, commencing on the appointment of Mr. Kaplinsky as an External Director on March 17, 2020, until the expiration of the term of office of Dr. Gleitman on March 31, 2020.

The Companies Law requires the board of directors of a public company, after considering the company’s type and size and the scope and complexity of its activities, to determine the minimum number of directors on the board having “financial and accounting expertise” as defined in the Companies Law. Our Board has adopted a policy pursuant to which it will include a minimum of two directors having financial and accounting expertise as defined under the Companies Law. Currently our Board has ~~two~~three directors who are considered by the Board to have financial and accounting expertise: Dr. Gleitman, Prof. Nisan and ~~Prof. Nisan.~~Mr. Kaplinsky. In addition, the Companies Law provides that a person will not be elected and will not serve as a director in a public company if he or she does not have the required qualifications and the ability to dedicate an appropriate amount of time for the performance of his or her director position in the company, taking into consideration, among other factors, the special needs and size of the company. A general shareholders meeting of a company whose shares are publicly traded, at which the election of a director is to be considered, will not be held, and a director will not be elected, unless (i) the nominee has declared to the company that he or she complies with the above-mentioned requirements, ~~and~~(ii) the details of his or her applicable qualifications are provided, ~~and~~(iii) in case such nominee is an “Independent Director” as defined in the Companies Law (see below), ~~that such~~ the

nominee has also declared that he or she complies with the independence criteria under the Companies Law, and (iv) in case such nominee is an “External Director”, the nominee has declared that he or she complies with the requirements for External Directors provided under the Companies Law. Each of our elected directors has declared to our Board that he or she complies with the required qualifications under the Companies Law for appointment as a member of our Board, detailing his or her applicable qualifications, and that he or she is capable of dedicating the appropriate amount of time for the performance of his or her role as a member of our Board. In addition, Mr. Ben-Zeev, Prof. Nisan and Prof. Tamir also each ~~have~~has declared that he or she complies with the criteria of an Independent Director under the Companies Law, and each of Dr. Gleitman, Mrs. Shapira and Mr. Kaplinsky has declared that he or she complies with the External Director requirements under the Companies Law.

In addition to the External Directors, under the Companies Law and regulations thereunder, a director in a company such as Elbit Systems, who qualifies as an independent director under the relevant non-Israeli rules relating to independence standards, such as the Nasdaq director independence criteria, may be considered an Independent Director pursuant to the Companies Law if such director meets certain conditions listed ~~therein,~~in the regulations, and provided such director has been designated as such by the audit committee. The Audit Committee has designated Mr. Ben-Zeev, Prof. Nisan and Prof. Tamir as Independent Directors under the Companies Law.

The terms of office of Dr. Gleitman, Mrs. Shapira and Mr. Kaplinsky, the current External Directors on our Board ~~were each appointed at a general meeting of shareholders, for a three-year term, with their terms expiring~~expire as described under “External Directors” below. The other seven current directors were appointed at the annual general meeting of shareholders held in November ~~2017.~~2019. There are no service contracts or similar arrangements with any director that provide for benefits upon termination of directorship.

~~Nasdaq’s director independence~~We are subject to Nasdaq rules relating to the composition and ~~related rules applicable to boards~~practices of ~~directors apply to Elbit Systems. Under~~our Board. Among other things, these rules require that a majority of our ~~Board is required to meet the Nasdaq director independence criteria. Also applicable are certain other rules regarding~~directors be independent ~~directors serving on a director nomination committee~~under Nasdaq’s criteria and ~~the manner for approving the compensation to Elbit Systems’ CEO. Directors on~~that our ~~Board are recommended~~Audit Committee, our Compensation Committee and our Corporate Governance and Nominating Committee each be composed exclusively of independent directors. Nominees for appointment or election as a director are recommended by the Board’s Corporate Governance and Nominating Committee. ~~(See~~See below “Corporate Governance and Nominating Committee.”)

Substitute Directors. The Articles of Association provide that any director may appoint another person to serve as a substitute director. A substitute director must be qualified under the Companies Law to serve as a substitute of the relevant director, and, under the Companies Law, in case the substituted director is an Independent Director as defined in the Companies Law, the substitute director must also comply with the requirements of the Companies Law for Independent ~~Directors.~~Directors, and a substitute for an External Director must also have the same type of “financial and accounting expertise” or “professional competence” as the director he or she replaces. If his or her appointment is for more than one meeting it will be subject to the approval of the Board. Such person may not act as a substitute director for more than one director at the same time. In addition, a Board committee member may not substitute for another Board committee member in meetings of the applicable committee. The same rules, including compensation, will apply to a substitute director as to the director who appointed him or her, and the substitute director may participate in Board and Board committee meetings in the same manner as the appointing director

~~(subject~~ (subject to any applicable independence criteria). Subject to the Companies Law, a director who has appointed a substitute director may revoke the appointment at any time. In addition, the office of a substitute director will be vacated at any time that the office of the director who appointed the substitute is vacated for any reason. Any appointment or revocation of the appointment of a substitute director will be made by notice in writing to the substitute director and Elbit Systems. The appointment or revocation, as the case may be, will become effective on the later of the date of receipt of the above notice or the date fixed in the notice. Appointing a substitute director will not release the appointing director from his/her liabilities, taking into account the applicable circumstances.

External Directors

Under the Companies Law publicly held Israeli companies are required to appoint at least two “External Directors.” Among other requirements, for each publicly held company such as Elbit Systems that is considered to have a controlling shareholder, a person may serve as an External Director if he or she meets the following requirements (the Affiliation Requirements):

(A)

if that person is not a Relative of the controlling shareholder of that company and if that person (and each of that person’s Relatives, partners and employers), or any person to whom he or she is subordinated (directly or indirectly), or any entity controlled by that person, did not have, on the date of the person's appointment or at any time during the two years preceding that person’s appointment as an External Director, any ~~affiliation~~"Affiliation" (as defined in the Companies Law) with any of:

(1) the applicable company;

(2) the controlling shareholder of the applicable company or any of his or her ~~relatives~~Relatives on the date of appointment; or

(3) any entity controlled, on the date of such appointment or at any time within the preceding two years, by the applicable company or by the controlling shareholder of the applicable company; and

(“Affiliation” means (subject to certain exceptions provided in regulations promulgated under the Companies Law): (i) an employment relationship, (ii) a business or professional relationship maintained on a regular basis (excluding insignificant relationships), (iii) control and (iv) service as an office holder, excluding a director appointed in order to serve as an External Director of a company that is about to offer its shares in an Initial Public Offering.)


(B)	if and so long as:

(1) no conflict of interest exists or may exist between that person’s role as a member of the board of directors of the respective company and that person’s other positions or business activities; and

(2) such position or business activities does not impair that person’s ability to serve as a director; and


(C)	if and so long as:

(1) that person and each of that person’s Relatives, partners and employers, or any person to whom he or she is subordinated directly or indirectly or any entity controlled by that person has no business or professional relationships with any of the persons or entities mentioned in (A) above, even if such relationship is not on a regular basis ~~other~~(other than a negligible ~~relationship;~~relationship); and

(2) no other consideration except as permitted under the Companies Law is paid to that person in connection with that person’s position as a director in the relevant company; and


(D)	if that person serves also as a member of the board of directors of another company, none of the external directors of that other company serves at the same time as a member of the board of directors of the respective company; and


(E)	if that person is not an employee of a securities authority or a stock exchange in Israel.

In general, at least one External Director must have “financial and accounting expertise”, and the other External Director(s) must have “professional competence” as described below. However, in companies such as Elbit Systems that are “dual listed” (for example traded on a stock exchange in both Israel and the U.S.), if one or more other directors who meet the independence criteria applicable to members of the audit committee under the foreign applicable law (including stock exchange rules) have been determined by the board of directors to have “financial and accounting expertise” then it is permissible for any or all of the External Directors to have only “professional competence” as described below.

Under the relevant regulations of the Companies Law, a director has “financial and accounting expertise” if he or she, based on his or her education, experience and qualifications, is highly skilled in respect of, and understands, business ~~and~~ accounting matters and financial statements, in a manner that enables him or her to have an in-depth understanding of the company’s financial statements and to stimulate discussion with respect to the manner in which the financial data is presented. The evaluation of the “financial and accounting expertise” of a director is to be made by the board of directors taking into account, inter alia, the parameters specified in the relevant regulations of the Companies Law.

A director has “professional competence” if he or she (1) has an academic degree in either economics, business administration, accounting, law or public administration or an academic degree or other advanced degree in the company’s main area of business or in a field relevant to such position, or (2) has at least five years experience in any of the following positions or five years accumulated experience in two or more of them:


(i)	a senior position in the business management of any corporate entity with a substantial scope of business;


(ii)	a senior public office or a senior position in the public service sector; or

(iii) a senior position in the field of activity of the company.

The evaluation of the professional competence of a director is to be made by the board of directors.

According to the Companies Law and our Articles of Association, our External Directors serve for a three-year term following which they may stand for up to two additional terms of three years each. Re-election of an External Director for each additional period, beyond the first period, requires that he or she meets the Affiliation Requirements and that he or she:


(i)	is recommended for re-election by one or more shareholders holding at least 1% of all voting rights of the relevant ~~company;~~company, and has no affiliations as listed in Section 245(a1)(1)(c) of the Companies Law;


(ii)	is recommended for re-election by the board of directors of the relevant company; or


(iii)	proposes his or her ~~nomination,~~nomination; and ~~in each case the nomination is approved by the general meeting of shareholders of the relevant company with the applicable majority requirements as provided by the Companies Law.~~

in each case, the nomination is approved by the general meeting of shareholders of the relevant company with the applicable majority requirements as provided by the Companies Law.

In addition, External Directors in companies such as Elbit Systems that are “dual listed” may stand for re-election for additional terms of up to three years each beyond the first three terms, ~~subject~~provided that (i) the audit committee and the board a have each determined that in light of such External Director’s expertise and unique contribution to ~~meeting certain conditions specified~~the work of the board and its committees, his or her nomination for an additional term of office is in the best interest of the company, (ii) his or her election was approved by the company's shareholders’ by a Special Uninterested Majority (except that, in this regard, (a) a Personal Interest does not include a Personal Interest that results from such shareholder’s relations with the controlling shareholder and (b) the External Director has no affiliations as listed in Section 245(a1)(1)(c) of the Companies ~~Law.~~Law) and (iii) the term of office of the respective External Director and the reasons of the audit committee and the board for the extension of the term were presented to the company's shareholders prior to their approval.

Our Articles of Association allow the External Directors of the Company to be elected to more than three terms of service. According to the Companies Law, any committee of the Board must include at least one External Director, and all External Directors must be members of the Audit Committee and the Compensation Committee.

Dr. Gleitman, Mrs. Shapira and ~~Mrs. Rabin~~Mr. Kaplinsky currently serve as our Board’s External Directors. At the Shareholders' Extraordinary General Meeting held on March 6, 2019, our shareholders approved, by the required disinterested majority, the appointment of Dr. ~~Gleitman’s~~Gleitman as an External Director for an additional term of office beyond the first three terms, which additional term ends inon March ~~2019, and the~~31, 2020. The first three-year term of office of Mrs. ~~Rabin~~Shapira ends in November ~~2019.~~2022. The first three-year term of office of Mr. Kaplinsky ends in March 2023. Dr. Gleitman ~~was~~and Mr. Kaplinsky were each determined by the Board to have “financial and accounting expertise” under Israeli law, and Mrs. ~~Rabin~~Shapira was determined by the Board to have the applicable “professional competence” to serve as an External Director.

Audit Committee. Dr. Gleitman (chair), Mr. Ben-Zeev, Prof. Nisan, Mrs. ~~Rabin~~Shapira, Prof. Tamir and ~~Prof. Tamir~~Mr. Kaplinsky are members of the Audit Committee. In accordance with the Companies Law, an audit committee must consist of at least three directors qualified to serve as members of an audit committee under the Companies Law, including all External Directors, and must be comprised of a majority of directors meeting certain independence criteria of the Companies Law. The chair of the audit committee must be an External Director. In accordance with the applicable Nasdaq rules and those of the SEC, Elbit Systems Audit Committee must be comprised solely of independent directors, as defined by said rules. The Audit Committee operates in accordance with an ~~Audit Committee Charter~~audit committee charter that provides the framework for its oversight functions consistent with Israeli and U.S. legal and regulatory requirements. All of the members of the Audit Committee meet the ~~independent~~independence criteria of the Companies Law and have been determined to be independent as defined by the applicable Nasdaq rules and those of the SEC. The Audit Committee meets from time to time in executive sessions and

also conducts annual assessments of the sufficiency of its ~~Charter~~charter and of the Committee’s compliance with its

obligations. ~~(See~~See Item 16A. Audit Committee – Financial Expert and Item 16D. Exemptions from the Listing Standards for Audit Committees.)

Financial Statements Review Committee

Dr. Gleitman (chair), Mr. Ben-Zeev, Prof. Nisan, Mrs. ~~Rabin~~Shapira, Prof. Tamir and ~~Prof. Tamir~~Mr. Kaplinsky are members of the Board’s Financial Statements Review Committee. Pursuant to the Israeli Companies Regulations (Financial Statements Approval Procedure), 5770-2010, the financial reports of a public company such as Elbit Systems may be brought for discussion and approval of the board only after such committee has discussed and formulated recommendations to the board in connection with:


(1)	the valuations and estimates used in connection with the financial statements;


(2)	the internal controls related to financial reporting;


(3)	the completeness and appropriateness of disclosure in the financial statements;


(4)	the accounting policy adopted and accounting treatment applied in the material matters of the company; and


(5)	valuations, including the assumptions and estimates underlying them, on which data in the financial statements is provided.

The Financial Statements Review Committee must consist of at least three members, the chair of the committee must be an External Director, and the majority of its members must be directors who meet certain independence requirements of the Companies Law, and, among other criteria, all of its members must be able to read and understand financial statements, with at least one of the independent members having “financial and accounting expertise” (as defined above). Dr. Gleitman, ~~and~~ Prof. Nisan and Mr. Kaplinsky have been determined by the Board to have “financial and accounting expertise”.

Compensation Committee

Mrs. ~~Rabin~~Shapira (chair), Mr. Ben Zeev, ~~and~~ Dr. Gleitman and Mr. Kaplinsky are members of the Board’s Compensation Committee. Pursuant to the Companies Law (see above “Compensation to Directors and Executive Officers - Compensation Policy”), the compensation committee of a public company, such as Elbit Systems, is required to consist of at least three members, and all of the ~~external directors~~External Directors must be members of the committee (one of which to be appointed as the ~~chairperson)~~chair) and constitute the majority thereof. The remaining members must be directors who qualify to serve as members of the audit committee as defined in the Companies Law and whose compensation is in accordance with the compensation requirements applicable to the External Directors. All of our Compensation Committee members have been determined to be eligible to be members of a compensation committee in accordance with the Companies Law and also have been determined to be independent as defined by the applicable Nasdaq rules and those of the SEC.

In addition to its other roles, under the Companies Law the compensation committee of a public company such as Elbit Systems is required:


(1)	to recommend to the board of directors the compensation policy for the company’s Office Holders to be adopted by the company, and thereafter to recommend to the board of directors, once every three years, regarding any extension or modifications of ~~the current~~such compensation policy that had been approved for a period of more than three years;


(2)	from time to time to recommend to the board of directors any updates required to the compensation policy and examine the implementation thereof;


(3)	to determine, with respect to the company’s Office Holders, whether to approve their Employment Terms; and


(4)	in certain situations described in the Companies Law, to determine whether to exempt ~~the approval of~~ Employment Terms of a candidate for the position of CEO of the company from the requirement to obtain shareholder approval.

According to the Companies Law, Employment Terms of a public company’s Office Holders must be approved by the compensation committee and the ~~board as a whol.~~board. In addition, with respect to Employment Terms of the CEO, a director or any Office Holder where the Employment Terms are not consistent with an approved compensation policy or for an Office Holder that is also considered a controlling shareholder (or such controlling shareholder’s Relative), approval by the company’s shareholders is also required in accordance with the applicable majority requirements of the Companies Law. ~~(For~~For definition of the term ~~Relative~~"Relative" see Item ~~10 -~~10. Additional Information - Approval of Certain ~~Transaction~~Transactions - Personal Interest and Extraordinary ~~Transactions).~~Transactions. For further information see above “Compensation of Directors and Executive and Executive Officers - Compensation Policy”; Item 10. Additional Information – General Provisions of Israeli Law and Related Provisions of Articles of Association – Office Holders; and Item ~~10 -~~10. Additional Information - Approval of Certain Transactions - Approval of Employment Terms of Office ~~Holders).~~Holders.

Our Compensation Committee operates in accordance with a ~~Compensation Committee Charter~~compensation committee charter that provides the framework for its oversight functions consistent with Israeli and U.S. legal and regulatory requirements, including with the amended compensation committee listing rules of the Nasdaq.

Corporate Governance and Nominating Committee. Mr. Ben Zeev (chair), Dr. Gleitman, Mrs. Shapira and ~~Mrs. Rabin~~Mr. Kaplinsky are members of the Board’s Corporate Governance and Nominating Committee. This Committee operates in accordance with a ~~Corporate Governance~~corporate governance and ~~Nominating Committee Charter~~nominating committee charter that specifies its oversight functions consistent with Israeli and U.S. legal and regulatory requirements. The role of the Corporate Governance and Nominating Committee is to assist the Board in fulfilling its responsibilities with respect to the qualification of candidates to become Board members and to monitor compliance with corporate governance requirements applicable to Board members. All of the members of the Corporate Governance and Nominating Committee have been determined to be independent as defined by the applicable Nasdaq rules and those of the SEC. A nominee to our Board must have such experience in business or financial matters as would make such nominee an asset to the Board. In recommending director candidates, our Corporate Governance and Nominating Committee takes into consideration such factors as it deems appropriate based on our current needs. These factors may include: professional and personal ethics and integrity; business, professional and industry knowledge, sophistication and contacts; the ability to make informed and independent judgments on a wide range of issues; relevant skills and experience demonstrated through business, professional, charitable or civic affairs; and the candidate’s ability to devote the required time and effort to serve on our Board. ~~(See~~See Item 16.G. Corporate Governance.)

Board Committee Membership



Audit Committee:	Financial Statements Review Committee:	Corporate Governance and Nominating Committee:	Compensation Committee:

Yehoshua Gleitman	Yehoshua Gleitman	Yoram Ben Zeev	~~Dalia Rabin~~Bilha (Billy) Shapira
(chair)	(chair)	(chair)	(chair)
Yoram Ben-Zeev	Yoram Ben-Zeev	Yehoshua Gleitman	Yoram Ben Zeev
~~Ehood Nisan~~Moshe Kaplinsky	~~Ehood Nisan~~Moshe Kaplinsky	~~Dalia Rabin~~Moshe Kaplinsky	Yehoshua Gleitman
~~Dalia Rabin~~Ehood (Udi) Nisan	~~Dalia Rabin~~Ehood (Udi) Nisan	Bilha (Billy) Shapira	Moshe Kaplinsky
Bilha (Billy) Shapira	Bilha (Billy) Shapira
Yuli Tamir	Yuli Tamir

Board and Committee Meetings

The Board meets quarterly and at other times during the year as necessary to conduct its activities. The Audit Committee and Financial Statement Review Committee each meet at least quarterly, and the Compensation Committee and Corporate Government and Nominating Committee each meet at least annually. Each of the committees also meets at additional times during the year as may be necessary to carry out its functions. The Financial Statement Review Committee meets at least quarterly in executive sessions, and the Board and the other committees meet in executive sessions periodically. During ~~2017,~~2019, the average attendance for Board members at Board and committee meetings was approximately ~~96%~~98%.

Employees

Number of Employees. Most of our employees are based in Israel, and we have a significant number of employees in the United States. The total number of employees worldwide and the number of employees in the U.S. at the end of ~~2015, 2016~~2017, 2018 and ~~2017~~2019 were as follows:

Total
Employees

U.S.
Employees
2017 12,781
1,450
2016 12,470
1,425
2015 12,134
1,426



	Total Employees	U.S. Employees
2019	16,575	2,580
2018	16,149	2,001
2017	12,781	1,450

Employment Contracts. The majority of our Israeli employees have individual employment contracts. However, by law some employees receive rights under a number of general collective bargaining agreements and under Israeli employment laws. See Item 4. Information on the Company – Conditions in Israel – Israeli Labor Laws. We believe our overall relationship with our employees is satisfactory.

Collective Bargaining Agreements. In Israel, several of our wholly-owned subsidiaries are each parties to collective bargaining agreements covering a portion of their employees. A total of approximately ~~2,440~~5,165 employees in Israel are covered by such agreements that extend for various periods ranging from ~~2019~~2020 - ~~2027.~~2030. Approximately ~~180~~500 of the employees at Elbit Systems of America’s operations are covered by collective bargaining agreements in effect through various periods through ~~May 2020.~~April 2021.

Share Ownership

Elbit Systems’ Stock Option Plans

2018 - Equity Incentive Plan for Executive Officers

On February 27, 2018, our Board approved the 2018 Equity Incentive Plan for Executive Officers (the Plan). The purpose of the Plan is to link the compensation and benefits of our Executive Officers with the future growth and success of the Company and its affiliates and with long-term shareholder value. Our Board has also approved the appointment of our Compensation Committee as the administrator of the Plan.

Under the Plan, the Company may allocate to its Israeli resident Executive Officers, subject to receipt of approvals as required under Israeli Law, up to 1,000,000 options (the Options) to be exercised using a “Net-Exercise Mechanism”, which entitles the recipients to exercise the Options for an amount of shares reflecting only the benefit factor.

The Options ~~will be~~are granted under the provisions of Section 102 of the Israeli Income Tax Ordinance [New Version] of 1961 as may from time to time be amended, with respect to the “capital gain tax route”, as well as in compliance with the Israeli Income Tax Rules (Tax Relief in Issuance of Shares to Employees) 2003, as amended from time to time,

The exercise price of an Option ~~will be~~is denominated in U.S. dollars and beis the higher of:


(a)	the average of the closing share price of Elbit Systems ordinary shares on the TASE, during the period of thirty (30) trading days preceding the date on which our Board approves the granting of the respective Options (Date of the Board Resolution) converted into the U.S. Dollars by applying the average representative U.S. dollar - NIS exchange rate during such thirty (30) trading days period; or


(b)	the closing share price of our ordinary shares on the TASE on the last trading date preceding the Date of the Board Resolution, converted into the U.S. Dollars by applying the representative U.S. dollar - NIS exchange rate.

The grant date of Options to a recipient ~~will be~~is determined to be the later of (the Grant Date):


(i)	the Date of the Board Resolution;


(ii)	the first trading day after a period of thirty (30) days has elapsed from the date the Plan is filed with the Israeli Tax Authorities; or


(iii)	where applicable, the date on which any additional corporate approvals required by Israeli law in connection with the Plan have been obtained.

Granted Options ~~will~~ vest as follows: forty percent (40%) on the second anniversary of the Grant Date, with the remaining sixty percent (60%) of the Options vesting twenty percent (20%) each on the third, fourth and fifth anniversary of the Grant ~~Date.~~Date, respectively.

The Plan includes customary terms such as adjustments for capital modifications (reverse stock split, stock split, etc.), rights offering restructuring (split, merger, etc.), and the like. Under the Plan, the vesting of granted Options may be accelerated by the recipient in case his or her employment is terminated by the Company without cause within a period of twelve (12) months following any change of control over the Company. The Plan also allows, subject to approvals of the Compensation Committee and the Board, acceleration, continued vesting and exercisability of the Options, as well as post-termination exercise periods, in case of termination of employment without cause, or as a result of death or disability.

Israeli law does not require approval by our Company’s shareholders for an equity incentive plan such as the Plan. In compliance with Nasdaq Rule 5615(a)(3) allowing a foreign private issuer to follow its home country practice in lieu of certain requirements of Nasdaq’s 5600 series of corporate governance rules, we provided the Nasdaq with a legal opinion of an independent Israeli law firm confirming the above (See Item 16.G - Corporate Governance). ~~The~~On March 20, 2018, the Company ~~also intends to file~~filed with the SEC a ~~form~~Registration Statement on Form S-8 (No. 333-223785) for the registration under the U.S Securities Law of the underlying shares that may be issued upon exercise of Options under the Plan.

Item 7. Major Shareholders and Related Party Transactions.

Major Shareholders

Percentages

As of March 15, ~~2018,~~2020, we had ~~42,753,182~~44,198,330 ordinary shares outstanding. The following table sets forth specific information as of March 15, ~~2018,~~2020, to the best of our knowledge, concerning:

beneficial ownership of more than 5% of our outstanding ordinary shares; and

the number of ordinary shares beneficially owned by all of our executive officers and directors as a group.


Name of Beneficial Owner	Amount Owned		Percent of Ordinary Shares⁽¹⁾		Amount Owned		Percent of Ordinary Shares⁽¹⁾
Federmann Enterprises Ltd. 99 Hayarkon Street Tel-Aviv, Israel⁽²⁾	19,580,342	⁽³⁾	45.8	%	19,580,342	⁽²⁾	44.3	%
Heris Aktiengesellschaft c/o 99 Hayarkon Street Tel-Aviv, Israel	3,836,458	⁽³⁾	8.97	%
All executive officers and directors as a group (26 persons)	4,607	⁽⁴⁾	0.01	%
All executive officers and directors as a group (24 persons)					3,923	⁽³⁾	0.01	%


(1)	Based on ~~42,753,182~~44,198,330 ordinary shares outstanding as of March 15, ~~2018, which excludes 1,408,921 ordinary shares held by us as treasury shares.~~2020.

(2)

Includes 3,836,458 ordinary shares held by Heris Aktiengesellschaft (Heris). Heris is owned, directly and indirectly, by Federmann Enterprises Ltd. (FEL) ~~owns our ordinary shares directly and indirectly through Heris Aktiengesellschaft (Heris), which is controlled by FEL.~~. FEL is controlled by Beit Federmann Ltd. (BFL). BFL is controlled by Beit Bella Ltd. (BBL) and Beit Yekutiel Ltd. (BYL). Michael Federmann is the controlling shareholder of BBL and BYL. He is also the chair of Elbit Systems’ Board and the chair of the board and the chief executive officer of FEL. Therefore, Mr. Federmann controls, directly and indirectly, the vote of ordinary shares owned by Heris and FEL.

controlling shareholder of BBL and BYL. He is also the chair of Elbit Systems’ Board and the chair of the board and the chief executive officer of FEL. Therefore, Mr. Federmann controls, directly and indirectly, the vote of ordinary shares owned by Heris and FEL.

In connection with FEL’s purchase of our ordinary shares in 2004 and 2006, FEL obtained loans from two Israeli banks. As security for the loans, ~~FEL pledged~~ an aggregate of ~~4,300,000~~3,000,000 of our ordinary shares are pledged by FEL to the banks.


~~(3)~~	~~The 19,580,342 shares held by FEL includes the 3,836,458 shares held by Heris.~~


~~(4)~~	~~This amount does not include any ordinary shares that may be deemed to be beneficially owned by Michael Federmann as described in footnote (2) above.~~

(3) This amount does not include any ordinary shares that may be deemed to be beneficially owned by Michael Federmann as described in footnote (2) above.

Rights in Shares, Significant Changes in Shareholders and Controlling Shareholders

Our controlling ~~shareholders have~~shareholder generally has the same voting rights as other holders of our ordinary ~~shares.~~shares (See also Item 10. Additional Information – Provisions Relating to Major Shareholders. ~~With respect to the Company’s repurchase of our ordinary shares see Item 16.E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.~~)

~~The only~~We are not aware of any changes in ~~shareholdings~~the number of shares held by our ~~controlling~~major shareholders induring the last three ~~years were those relating to FEL as follows:~~

March 15, 2018 March 15, 2017 March 15, 2016
Shares Owned % of Shares Owned Shares Owned % of Shares Owned Shares Owned % of Shares Owned
FEL 19,580,342 45.80% 19,580,342 45.80% 19,580,342 45.82%
years.

As of March 15, ~~2018,~~2020, approximately ~~11.36%~~11% of our outstanding ordinary shares were held in the United States by approximately ~~171~~144 shareholders of record registered on the books of our transfer agent.

We are not aware of any arrangement which may result in a change in control of the Company.

In April 2019, we sold in a private placement to institutional investors in Israel 1,408,921 of our ordinary shares, at a price per share equal to $131.81. These shares were previously held by us as treasury shares. As part of the private placement the shares were registered with the SEC on Form F-3 that was filed on April 8, 2019.

Related Party Transactions

Transactions with Affiliated Companies. ~~In the ordinary course~~For a description of ~~business, some of our subsidiaries and affiliates engage in business activities~~major transactions with each other. The purchases among our related parties are made at prices and on terms equivalent to those used in transacting business with unrelated parties under similar conditions. The sales among our related parties in respect to government defense contracts are made on the basis of costs incurred. (Seeaffiliated companies see Item ~~10. Additional Information – General Provisions of Israeli Law and Related Provisions of Articles of Association – Approval of Certain Transactions.)~~18. Financial Statements - Note 27.

Transactions with Office Holders. See ~~below –~~ Item 10. Additional Information – General Provisions of Israeli Law and Related Provisions of Articles of Association - Office Holders; ~~Item 10. Additional Information – General Provisions of Israeli Law and Related Provisions of Articles of Association~~ - Approval of Certain Transactions - Approval of Transactions; and ~~Item 10. Additional Information – General Provisions of Israeli Law and Related Provisions of Articles of Association~~ - Approval of Certain Transactions - Approval of Employment Terms of Office Holders. ~~See also Item 18. Financial Statements - Note 26.~~

Item 8. Financial Information.

Consolidated Statements and Other Financial Information

See Item 18. Financial Statements.

Export Sales

~~Export~~Our international sales (outside Israel) constitute a significant portion of our sales. In ~~2017, export~~2019, these sales were approximately ~~$2.64~~$3.44 billion, constituting approximately ~~78%~~76% of our total sales. ~~(For~~For further information regarding the allocation of our revenues by geographic region see Item 5. Operating and Financial Review and Prospects – ~~2017~~2019 Compared to ~~2016~~2018 – Revenues.)

Legal Proceedings

The Company is involved in various legal proceedings from time to time. For a discussion of our significant legal proceedings see Item 18. Financial Statements - Note ~~20(C).~~21C.

Dividend Distributions

We do not have an established dividend policy. ~~(Regarding~~Regarding declarations of dividends out of certain tax-exempt income see below Item 10. Additional Information – Taxation – Investment Law.) Our Articles of Association provide that the Board may approve dividend payments to shareholders out of surplus earnings as permitted by applicable law. We have consistently paid a quarterly dividend to our shareholders.

Our aggregate quarterly dividend payments for the last three full fiscal years were as follows:



~~2015~~2017	$	~~1.44~~1.76 per share
~~2016~~2018	$	~~1.60~~1.76 per share
~~2017~~2019	$	1.76 per share

Other than any significant event that may be described in this annual report, there have not been any significant changes since December 31, ~~2017.~~2019.

Item 9. The Offer and Listing.

Share Listings and Trading Prices

Our ordinary shares are listed on the TASE and are quoted on Nasdaq under the symbol “ESLT”.

The high and low sale prices for our ordinary shares for the five most recent fiscal years are:


	Nasdaq				TASE^(*⁾				Nasdaq				TASE^(*⁾
	High		Low		High		Low		High		Low		High		Low
2013	$	61.08	$	37.08	$	61.20	$	37.06
2014	$	64.66	$	54.36	$	64.26	$	53.19
2015	$	89.87	$	58.63	$	90.22	$	59.04	$	89.87	$	58.63	$	90.22	$	59.04
2016	$	104.70	$	80.24	$	104.53	$	80.25	$	104.70	$	80.24	$	104.53	$	80.25
2017	$	152.65	$	99.96	$	152.67	$	99.61	$	152.65	$	99.96	$	152.67	$	99.61
2018									$	149.73	$	109.81	$	147.89	$	110.34
2019									$	167.75	$	112.16	$	167.51	$	111.69

The high and low quarterly sale prices for our ordinary shares for the two most recent full financial years and the next subsequent quarter are:


	Nasdaq				TASE^(*⁾				Nasdaq				TASE^(*⁾
	High		Low		High		Low		High		Low		High		Low
2016
First Quarter	$	99.50	$	80.24	$	96.43	$	80.25
Second Quarter	$	101.85	$	88.78	$	102.60	$	87.98
Third Quarter	$	103.11	$	90.58	$	102.97	$	89.96
Fourth Quarter	$	104.70	$	94.71	$	104.53	$	94.91

2017
First Quarter	$	119.55	$	99.96	$	118.66	$	99.61	$	119.55	$	99.96	$	118.66	$	99.61
Second Quarter	$	127.16	$	113.14	$	126.07	$	110.83	$	127.16	$	113.14	$	126.07	$	110.83
Third Quarter	$	146.62	$	122.22	$	147.28	$	122.90	$	146.62	$	122.22	$	147.28	$	122.90
Fourth Quarter	$	152.65	$	131.35	$	152.67	$	130.98	$	152.65	$	131.35	$	152.67	$	130.98

2018
First Quarter (through March 15, 2018)	$	151.91	$	131.11	$	150.04	$	130.78
First Quarter									149.89		116.90		147.89		116.68
Second Quarter									$	124.10	$	109.83	$	126.21	$	110.34
Third Quarter									135.49		112.72		135.49		113.49
Fourth Quarter									$	126.19	$	109.81	$	126.80	$	107.57

2019
First Quarter									$	132.17	$	112.16	$	133.25	$	111.69
Second Quarter									$	159.12	$	133.28	$	159.80	$	128.39
Third Quarter									$	166.52	$	146.33	$	145.38	$	151.66
Fourth Quarter									$	167.75	$	154.77	$	167.51	$	154.69

2020
First Quarter (through March 15, 2020)									$	164.02	$	116.84	$	163.11	$	115.14

The monthly high and low sale prices of our ordinary shares for the most recent six months are:

Nasdaq
TASE^(*⁾
High Low High Low
September 2017 $ 146.86
$ 135.91
$ 147.28
$ 135.67
October 2017 $ 152.65
$ 145.05
$ 152.67
$ 144.96
November 2017 $ 150.03
$ 135.02
$ 149.28
$ 135.62
December 2018 $ 141.05
$ 131.35
$ 141.06
$ 130.99
January 2018 $ 151.91
$ 131.11
$ 152.80
$ 130.78
February 2018 $ 149.95
$ 138.16
$ 150.04
$ 136.01



	Nasdaq				TASE^(*⁾
	High		Low		High		Low
September 2019	$	166.52	$	154.33	$	165.73	$	152.40
October 219	$	166.14	$	160.15	$	165.39	$	159.06
November 2019	$	166.77	$	158.65	$	166.40	$	157.48
December 2019	$	167.75	$	154.77	$	167.51	$	154.69
January 2020	$	158.32	$	149.06	$	163.11	$	150.98
February 2020	$	164.02	$	144.09	$	163.93	$	145.13

(*) The closing prices of our ordinary shares on the TASE have been translated into U.S. dollars using the daily representative rate of exchange of the NIS to the U.S. dollar as published by the Bank of Israel for the applicable day of the high/low amount in the specified period.

Item 10. Additional Information.

General Provisions of Israeli Law and Related Provisions of Articles of Association

Israeli Companies Registrar. We are registered with the Israeli Companies Registrar. The registration number issued to us by the Companies Registrar is 52-004302-7.

The Companies Law and Restated Articles of Association. The Companies Law is the basic corporation law governing Israeli publicly and privately held companies. The Companies Law mandates that specific provisions be included in an Israeli company’s articles of association, which are included in Elbit Systems’ Restated Articles of Association (the Articles of Association).

Purpose. ~~Elbit Systems’~~Our purpose, as ~~described~~stated in Article 3 of the Articles of Association, includes any ~~objectives permitted by law.~~lawful purpose.

Appointment and Removal of ~~Directors.~~Directors. ~~See~~Under our Articles of Association our directors (except for External Directors - see Item 6. Directors, Senior Management and Employees - Board Practices - External Directors above) are elected by the shareholders at the annual meeting by a simple majority of our ordinary shares. Directors generally hold office until the next annual general meeting. Under certain circumstances, our Board may appoint new directors to fill vacancies. For further information see Item 6. Directors, Senior Management and Employees – Directors and Executive Officers – Board of Directors.

Internal Auditor. ~~Publicly held~~ Israeli public companies are required to appoint an internal ~~auditor.~~auditor who was initially recommended by the audit committee. The main role of the internal auditor is to examine whether the company’s activities are conducted in accordance with the law, with integrity and pursuant to orderly business procedures. ~~The~~Our internal auditor operates in accordance with ~~the internal audit provisions of a written~~our audit committee charter that provides the framework for the committee’s oversight of the internal auditor’s functions, consistent with applicable Israeli and U.S. laws and regulations. Under the Companies Law, the internal auditor may not be an "office holder" (see below "Office Holder"), an “interested party” (as defined below) or a "relative" (see below "Approval of Certain Transactions - Personal Interest and Extraordinary Transactions") of any of the foregoing, nor may the internal auditor be the company’s independent auditor or its representative. An “interested party” is generally defined in the Companies Law as any person who (a) serves as a director or the chief executive officer of the company, (b) has the right to appoint a director or chief executive officer or (c) owns 5% or more of the issued share capital or the voting rights.

Office Holders

An ~~Office Holder~~"Office Holder" is defined under the Companies Law as a director, general manager, chief business manager, deputy general manager, vice general manager, any other person who fulfills these functions without regard to that person’s title and any other manager directly subordinate to the general manager. Under the Companies Law, the general manager of a corporation has authority equivalent to that of a president or chief executive officer of a U.S. corporation. For such purposes, our general manager is Bezhalel Machlis, our President and Chief Executive Officer. Each person listed as a director or executive officer in Item 6. Directors - Senior Management and Employees - Directors and Executive Officers, is an Office Holder of Elbit Systems.

The Companies Law specifies the fiduciary duties that an Office Holder owes to a company, which consist of a duty of care and a duty of loyalty. Under the Companies Law, an Office Holder’s loyalty duty includes the general duty to act in good faith and for the benefit of the company, avoiding any conflict of interest between the Officer Holder’s position in the company and his or her other positions or personal affairs. The loyalty duty also includes avoiding any competition with the company and any exploitation of a business opportunity of the company in order to receive personal advantage for the Office Holder or others. Also, the Office Holder is required to disclose to the company any information or documents relating to the company’s affairs that the Office Holder has received due to his or her position as an Office Holder. Under the Companies Law, voting agreements among directors or a director’s failure to exercise independent judgment while voting are considered breaches of loyalty duty. The duty of care requires, among ~~others,~~other obligations, that an Office Holder acts in a way that a reasonable Office Holder would act in the same position and under similar circumstances. This includes the duty to utilize reasonable means to obtain information regarding the advisability of a given action submitted for his or her approval or performed by virtue of his or her position and all other relevant ~~information.~~information pertaining to such actions.

Some members of our Board are also directors of FEL or companies controlled by FEL. Therefore, in the event of an issue or transaction between Elbit Systems and any of those companies, those individuals who are affiliated with both of the applicable companies will be excluded from any decisions concerning such issue or transaction. In addition, an issue or transaction with any of such companies also requires authorization in accordance with the requirements of the Companies ~~Law. (See~~Law See below “Approval of Certain Transactions” and “Provisions Relating to Major Shareholders”.)

Arrangements in connection with the Employment Terms (see Item ~~6 -~~6. Directors, Senior Management and Employees - Compensation of Executive Officers and Directors - Compensation Policy) of Elbit Systems’ Office Holders require special authorizations. ~~(See~~See below “Approval of Certain Transactions - Approval of Employment Terms of Office Holders”.)

Other transactions with Office Holders and affiliates may also require authorization in accordance with the requirements of the Companies Law. ~~(See~~See below “Approval of Certain Transactions”.)

Approval of Certain Transactions

Approval Procedures. The Companies Law requires that certain transactions, actions and arrangements, mainly with related parties including Office Holders, be approved as provided for in the Companies Law and in a company’s articles of association and in many cases by the audit committee or the compensation committee and by the board of directors. In some cases shareholder approval is also required.

Personal Interest and Extraordinary Transactions. The Companies Law requires that an Office Holder or a controlling shareholder ~~(see “Provisions Relating to Major Shareholders” below)~~ of a publicly traded company immediately disclose, ~~(and~~and no later than the first board meeting at which the transaction is ~~discussed)~~discussed, any Personal Interest, ~~(as~~as defined ~~below)~~below, that he or she may have, and all related material information known to him or her, in connection with any existing or proposed transaction of the company. A person with a Personal Interest in any such transaction that is brought for approval of the audit committee or board of directors may not be present at the meeting where the transaction is being deliberated or approved (unless the chair of the audit committee or the board, as the case may be, determines that such person’s presence at the meeting is required for presentation of the relevant transaction) and, in case such person is a director, he or she may not vote on the matter, unless a majority of the members of the audit committee or of the board of directors (as the case may be) have a Personal Interest in the approval of the relevant transaction, in which case the directors having such Personal Interest may be

present and may participate in the vote. ~~In the event that the relevant transaction is an "Extraordinary Transaction" (as defined below) and~~If, however, the majority of the members of the board of directors have a "Personal Interest" in such transaction, the approval of the shareholders is also required.

In accordance with the Companies Law:

“Personal Interest” means a personal benefit, gain or other interest derived by ~~the shareholder (or~~ a ~~Relative or related entity, as described below)~~person from approving the respective act or transaction. Any benefit or interest arising solely from holding a company’s shares is not considered such a personal benefit or other interest under the Companies Law. Such personal benefit and other interest includes any personal benefit or other interest of:

(i) a ~~shareholder’s~~person’s Relative (as defined below);

(ii) any entity in which a ~~shareholder~~person or any of his or her Relatives either:

(a) holds 5% or more of such entity’s issued share capital or voting rights;

(b) has the right to appoint a director to such entity’s board of directors or the chief executive officer thereof; or

(iii) anyone voting by proxy or granting a proxy on behalf of such ~~a shareholder~~person with respect to the applicable transaction, whether the proxy holder has discretion to vote or not.

An "Extraordinary Transaction" is a transaction:

(i) other than in the ordinary course of business;

(ii) other than on market terms; or

(iii) likely to have a material impact on the company’s profitability, assets or liabilities.

“Relative” means any of the following:

(i) a spouse, brother, sister, parent, grandparent or ~~child;~~descendant;

(ii) the ~~child,~~descendant, brother, sister or parent of a spouse of a person mentioned in (i); or

(iii) the spouse of any of the persons mentioned in (i) or (ii).

Approval of Transactions

In accordance with the Companies Law the transactions specified below require the following approvals, provided always that such transaction is for the benefit of the company:


(1)	approval of the board of directors - a transaction with an Office Holder, other than arrangements in connection with Employment Terms, or a transaction in which an Office Holder has a Personal Interest, where the audit committee has determined that such transaction is not an Extraordinary Transaction, unless the company’s articles of association provide otherwise;


(2)	approval of both the audit committee and the board of directors:


(i)	a transaction with an Office Holder, other than arrangements in connection with Employment Terms, or a transaction in which an Office Holder has a Personal Interest, where the audit committee has determined such transaction to be an Extraordinary Transaction;


(ii)	a material action or arrangement (unrelated to employment terms) that may otherwise be considered a breach of fiduciary duty by an Office Holder; or

(iii)

an Extraordinary Transaction of a public company with its controlling shareholder or with another person in which the controlling shareholder has a Personal Interest, including a private offering in which the controlling shareholder has a Personal Interest, as well as an agreement of a public company with its controlling shareholder or his or her Relatives, directly or indirectly, including through a company controlled by him or her, regarding the grant of services to the applicable company, ~~or regarding the terms of service and/or employment of the controlling shareholder or his or her Relatives,~~ as the case may be;


(3)	approval of both the compensation committee and the board of directors - an arrangement regarding Employment Terms of an Office Holder or of a controlling shareholder or his or her Relatives as Office Holders or employees of the company.

Except for certain exemptions specified under the Companies Law, the transactions and arrangements described above may also require shareholder approval, including, where applicable, by a Special Uninterested Majority. In addition, the Companies Law requires re-approval every three years with respect to some of the matters referred to above. Re-approval when applicable is required by the audit committee or the compensation committee, as the case may be, the board of directors and, except for certain specific exemptions, by the shareholders. ~~(See also Item 10 - Exemption,~~See below "Exemption, Insurance and Indemnification of Directors and Officers - Insurance and Indemnification of Directors and Officers under the Articles of ~~Association~~Association" and also ~~- Provisions~~"Provisions Relating to Major ~~Shareholders.)~~Shareholders".

Under the Companies Law, the audit committee of a publicly held company such as Elbit Systems is also required to determine whether to carry out competitive procedures or other procedures before any engagement in a transaction with a controlling shareholder or in which a controlling shareholder has a Personal Interest.

Approval of Employment Terms of Office Holders

In accordance with the Companies Law ~~(see Item 6. Directors, Senior Managers and Employees - Compensation of Directors and Executive Officers - Compensation Policy)~~, approval by both the compensation committee and the board of directors is required for all arrangements regarding Employment Terms of an Office Holder. In addition, the Companies Law requires that we also obtain the approval of our shareholders for any Employment Terms arrangement with (i) our CEO; (ii) a director; (iii) any other Office Holder where the Employment Terms are not consistent with an approved compensation policy or (iv) an Office Holder that is also considered a controlling shareholder (or his or her Relative). Except with respect to Employment Terms of a director that are consistent with the company's compensation policy, such shareholder approval requires a Special Uninterested Majority. ~~(See~~See Item 66. Directors, Senior Managers and Employees - Compensation of Directors and Executive Officers - Compensation ~~Policy).~~Policy.

In accordance with the Companies Law, the compensation committee may determine that an arrangement in connection with Employment Terms of a candidate for the position of the CEO of a public company is exempt from the approval by the shareholders of the company, provided that: (i) the CEO candidate is “independent” based on criteria set forth in the Companies Law; (ii) the compensation committee determines, based on detailed reasons, that bringing the arrangement to the approval of the shareholders may compromise completing the arrangement; and (iii) the Employment Terms are consistent with the company’s approved compensation policy.

In addition, pursuant to the Companies Law, in special cases the compensation committee and the board of directors may approve Employment Terms of an Office Holder (other than a director or a controlling shareholder, but including the CEO) that requires the approval of the shareholders as specified above, even if the shareholders do not approve such Employment Terms, provided that:


(1)	both the compensation committee and the board of directors re-discussed the relevant Employment Terms and decided to approve them despite the shareholders’ objection, based on detailed reasons; and


(2)	the company is not a “Public Pyramid Held Company”. A “Public Pyramid Held Company” is a public company that is controlled by another public company (including by a company that only issued debentures to the public), which is also controlled by another public company (including a company that only issued debentures to the public) that has a controlling shareholder.

Changes of the terms of a current arrangement regarding Employment Terms of an Office Holder (other than a director or a controlling shareholder) require only the approval of the compensation committee, if the compensation committee has determined that such changes are not material.

For further information see above “General Provisions of Israeli Law and Related Provisions of Articles of Association - Office Holders” and Item 6. Directors, Senior Management and Employees - Compensation of Executive Officers and Directors - Compensation Policy.

Exemption, Insurance and Indemnification of Directors and Officers

Exemption, Insurance and Indemnification under the Companies Law

Under the Companies Law, an Israeli company may not exempt an Office Holder from liability with respect to a breach of his or her duty of loyalty, but may exempt in advance an Office Holder from his or her liability to the company, in whole or in part, with respect to a breach of his or her duty of care, provided that a relevant provision is included in the company’s articles of association. However, a company may not exempt in advance a director from his or her liability to the company with respect to a breach of duty of care in connection with a distribution made by the company.

To the extent specifically allowed by the company’s articles of association, the Companies Law permits a company to obtain an insurance policy covering liabilities of Office Holders resulting from their actions in fulfilling their roles as Office Holders, in any of the following instances:


(i)	breach of the Office Holder’s duty of care to the company or to another person;


(ii)	breach of the Office Holder’s duty of loyalty to the company, to the extent that the Office Holder acted in good faith and had reasonable basis to believe that the act would not prejudice the interests of the company; or


(iii)	monetary liabilities imposed on the Office Holder for the benefit of another person.

The Israeli Securities Law – 1968 (Securities Law) also permits such an insurance policy to cover a payment which an Office Holder is obligated to make to an injured party as set forth in the relevant sections of the Securities Law as well as expenses incurred by an Office Holder in connection with certain proceedings that are specified in the Securities Law, including reasonable litigation expenses (including attorneys’ fees), provided that a relevant provision is included in the company’s articles of association.

Under the Companies Law, a company may indemnify an Office Holder against monetary liabilities and expenses imposed on or incurred by the Office Holder as a result of an act done by virtue of his or her role as an Office Holder for the following matters:


(i)	financial liability imposed on the Office Holder in favor of another person pursuant to a judgment, including a judgment in the course of settlement arrangements or an arbitrator’s award approved by a court;

(ii)

reasonable litigation expenses, including attorneys’ fees, incurred by the Office Holder in an investigation or proceeding that has concluded without an indictment being filed and without any monetary liabilities being imposed on the Office Holder in lieu of criminal proceedings or has concluded without the filing of any indictment but with the imposition of monetary liability in lieu of criminal proceedings in an offence that does not require proof of criminal intent or in connection with a monetary sanction; and


(iii)	reasonable litigation expenses, including attorneys’ fees, incurred by the Office Holder or imposed by a court in a proceeding instituted against the Office Holder by the company, on its behalf or by any other person, or in connection with criminal proceedings in which the Office Holder was acquitted, or as a result of a conviction for an offense that does not require proof of criminal intent.

Under the Companies Law, a company may indemnify an Office Holder in respect of certain liabilities, either in advance of an event or following an event. If a company undertakes to indemnify an Office Holder in advance of an event, the indemnification, pursuant to (i) above, must be limited to foreseeable events in light of the company’s actual activities at the time the company undertook such indemnification and also limited to amounts or criteria determined by the board of directors as reasonable under the circumstances, and the undertaking to indemnify will specify any such events, amounts or criteria.

In addition, a company may indemnify an Office Holder in respect of payments that the Office Holder is obligated to make to an injured party as set forth in the relevant sections of the Securities Law, including reasonable litigation expenses

~~(including~~ (including attorneys’ fees). These indemnifications are subject to the inclusion of relevant provisions in the company’s articles of association.

A company may not indemnify an Office Holder or enter into an insurance contract that would provide coverage for, or exempt an Office Holder from, liability to the company with respect to any of the following:


(1)	a breach of duty of loyalty, except indemnification or insurance that provides coverage for a breach of a duty of loyalty to the company while acting in good faith and having reasonable basis to believe that such act would not prejudice the interests of the company;


(2)	a willful or reckless breach of duty of care, other than mere negligence;


(3)	an act done with the intent to unlawfully realize a personal gain;


(4)	a fine, monetary penalty or forfeiture imposed upon such Office Holder; or


(5)	certain monetary liabilities that are set forth in the Securities Law.

Insurance and Indemnification of Directors and Officers under the Articles of Association

In accordance with and subject to the provisions of the Companies Law and the Securities Law, Elbit Systems’ Articles of Association allow for directors and officers liability insurance, in respect of a liability or payment imposed on a director or officer as a result of an act carried out by such person in his or her capacity as a director or officer. This insurance may cover:


(1)	a breach of his or her duty of care to Elbit Systems or to another person;


(2)	a breach of his or her duty of loyalty to Elbit Systems, provided that the director or officer acted in good faith and had reasonable basis to assume that his or her act would not harm the interests of Elbit Systems;


(3)	a financial obligation imposed on him or her in favor of another person;


(4)	a payment that he or she is obligated to pay to an injured party as set forth in the relevant sections of the Securities Law;


(5)	expenses incurred by him or her in connection with certain administrative proceedings specified in the Securities Law, including reasonable litigation expenses (including attorneys’ fees); or


(6)	any other event for which insurance of a director or officer is or may be permitted.

In addition, in accordance with and subject to the Companies Law and the Securities Law, Elbit Systems’ Articles of Association permit indemnification, retroactively or in advance, of a director or officer against liability, payment or expense imposed on or incurred by him or her as a result of an act carried out in his or her capacity as a director or officer, that may include:

(1)

a monetary liability imposed on the director or officer or paid by him or her in favor of a third party under a judgment, including a judgment by way of compromise or a judgment of an arbitrator approved by a court; provided however, that in case such undertaking is granted in advance it will be limited to events which, in the Board’s opinion, are foreseeable in light of the Elbit Systems’ actual activities at the time of granting the obligation to indemnify, and to a sum or under criteria as the Board deems reasonable under the circumstances, and the undertaking to indemnify will specify the aforementioned events and sum or criteria;


(2)	a payment imposed on him or her in favor of an injured party in the circumstances specified in the Securities Law;

(3)

reasonable litigation expenses (including attorneys’ fees), incurred by a director or officer as a result of an investigation or proceeding conducted against him or her by an authority authorized to conduct such investigation or procedure, provided that such investigation or procedure: (i) concludes without the filing of an indictment against the director or officer and without imposition of monetary payment in lieu of criminal proceedings; or (ii) concludes with imposing on the director or officer a monetary payment in lieu of criminal proceedings, provided that the alleged criminal offense in question does not require proof of criminal intent or was incurred by the director or officer in connection with a monetary sanction imposed by the Companies Law or the Securities Law;


(4)	expenses incurred by a director or aan officer in connection with certain administrative proceedings set forth in the Securities Law, including reasonable litigation expenses (including attorneys’ fees);


(5)	reasonable litigation expenses (including attorneys’ fees), expended by the director or officer or imposed on him or her by the court for:


(i)	proceedings issued against him or her by or on Elbit Systems’ behalf or by a third party;


(ii)	criminal proceedings from which the director or officer was acquitted; or


(iii)	criminal proceedings in which he or she was convicted of an offense that does not require proof of criminal intent; or


(6)	any other liability or expense for which it is or may be permissible to indemnify a director or an officer.

The Articles of Association permit the grant of similar indemnification to any person acting on behalf or at the request of Elbit Systems as a director or officer of another company in which Elbit Systems is directly or indirectly a shareholder or has any other interest. However, any indemnification so granted by Elbit Systems may not exceed 25% of Elbit Systems’ consolidated shareholders equity as reflected in our most recent consolidated financial statements published prior to the date of the indemnification payment.

In ~~November~~ 2011, Elbit Systems’ Audit Committee, Board and shareholders approved the grant to members of our Board, including to ~~Messrs.~~ Michael Federmann and David Federmann (who may each be considered a direct or indirect controlling shareholder of the Company), of indemnification letters reflecting the above conditions and limitations. Similar letters were also approved by the Audit Committee and the Board for indemnification of Office Holders of Elbit Systems who are not directors.

According to the Companies Law, the granting by a public company, such as Elbit Systems, of an indemnification letter to an Office Holder who may be considered as a direct or indirect controlling shareholder of that company, requires re-approval every three years by the company’s compensation committee, the board of directors and the company’s shareholders.

~~On November 30, 2017,~~The indemnification letters originally granted to Michael Federmann and David Federmann in 2011 were last re-approved, following the approval of our Compensation Committee and Board, by our shareholders at the Annual General Meeting of Shareholders ~~(the~~in 2017, Annual Meeting), our shareholders re-approved the granting by the Company to Messrs. Michael Federmann and David Federmann (who may each be considered a direct or indirect controlling shareholder of the Company) of the indemnification letters originally granted to them in November 2011 and re-approved in January 2014, for an additional period of three years commencing on December 1, 2017.

~~At the 2017 Annual Meeting, our shareholders also approved a framework resolution (the Framework Resolution) allowing us~~Elbit Systems' Compensation Policy allows Elbit Systems to purchase, from time to time during ~~a three-year period, or until~~ the ~~close~~term of ~~our annual general meeting of shareholders in 2020, whichever occurs later, a~~the Compensation Policy, directors and officers (D&O) liability insurance. Theinsurance policy ~~covering liabilities~~terms, as well as the premium paid, will reflect current market conditions with respect to the Company and the nature of its operations. Pursuant to an amendment to the Compensation Policy approved by our ~~directors~~shareholders at the Shareholders' Extraordinary General Meeting held on February 26, 2020, the coverage limit under each insurance policy will not exceed $200 million and ~~officers, including Messrs. Michael Federmann and David Federmann (who may each be considered a direct or indirect controlling shareholder of~~ the ~~Company), and our CEO, provided that:~~


~~(1)~~	~~the maximum aggregate coverage under such policy will not exceed $150 million for any year covered by such policy;~~


~~(2)~~	~~the terms of any such policy and the annual premium to be paid by the Company reflect the then current market conditions with respect to the Company and the nature of its operations;~~


~~(3)~~	~~prior to the purchase of any such policy, the Compensation Committee determines that the policy complies with the terms of the Framework Resolution; and~~


~~(4)~~	in connection with the inclusion in any such policy of Messrs. Michael Federmann and David Federmann (who may each be considered a direct or indirect controlling shareholder of the Company), and our CEO, the Compensation Committee and the Board determine that:


~~(i)~~	~~the terms and insurance coverage for Messrs. Michael Federmann, David Federmann and the CEO are the same as the terms and insurance coverage of all other Directors and officers of the Company;~~


~~(ii)~~	~~the policy that will include Messrs. Michael Federmann and David Federmann and the CEO is purchased on market terms; and~~


~~(iii)~~	~~the purchase of the policy that includes Messrs. Michael Federmann and David Federmann and the CEO will not have a material effect on the Company’s profitability, assets or obligations.~~

maximum annual premium will not exceed $3 million. In accordance with the ~~Framework Resolution,~~Israeli Companies Regulations (Relief from Related Parties’ Transactions), 5760-2000, the inclusion of our Office Holders in any D&O liability insurance policy that is consistent with our Compensation Policy will require only the approval of our Compensation Committee if the D&O liability insurance policy applicable to each of them (i) is purchased on market terms and (ii) the purchase thereof will not have a material effect on the Company’s profitability, assets or obligations.

In respective meetings held on February 5, 2020, our Compensation Committee and ~~the~~our Board ~~each~~ approved ~~in meetings held in March 2018,~~ the purchase of a D&O liability insurance policy which complies with the ~~requirements~~provisions of ~~the Framework Resolution~~our Compensation Policy and ~~also~~further approved the inclusion therein, in addition to all other Office Holders, of ~~Messrs.~~ Michael Federmann and David Federmann (who may ~~each~~ be considered a direct or indirect controlling ~~shareholder~~shareholders of the Company), and of Bezhalel Machlis, our President and CEO, in accordance with the ~~coverage~~requirements of ~~such policy.~~the Israeli Companies Regulations (Relief from Related Parties’ Transactions), 5760-2000. As of March 15, ~~2018,~~2020, the D&O policy’s limit of liability was $100 million, and the annual premium was ~~$400,000.~~$1.6 million.

Rights, Preferences and Restrictions of Shares

Elbit Systems currently has one type of share, this being ordinary shares. The share capital of Elbit Systems is NIS 80,000,000 divided into 80,000,000 ordinary shares of NIS 1 nominal (par) value each, of which ~~42,753,182~~ 44,198,330

ordinary shares were issued and outstanding as of March 15, ~~2018.~~2020. All issued and outstanding ordinary shares are fully paid and non-assessable.

~~Each ordinary share entitles its owner to receive notices of, to attend~~ For information regarding voting rights, dividend rights and ~~to cast one vote at, a general meeting of shareholders.~~

~~Our Articles of Association do not grant shareholders any~~other rights to share in our profits other than through dividends. Subject to Israeli law, dividends may be declared by our Board and paid to the shareholders according to their respective rights. In the event that we were to go into liquidation, any surplus remaining after the payment of liabilities would be distributed to the shareholders in proportion to the amount paid by each on account of the nominal value of the shares paid. No account is taken of any premiums paid in excess of the nominal value.

Our Board may make calls upon shareholders in respect of sums unpaid on their shares. Our Articles of Association contain no provisions which discriminate against any existing or future shareholder as a result of the number of shares such shareholder holds.

A change of Elbit Systems’ share capital, by way of increasing the share capital, creation of new shares or cancellation of unissued registered shares (if there is no undertaking to allot such shares), requires a changegenerally applicable to our ~~Articles of Association and as such requires the vote of a special majority of the shareholders participating in a general meeting of shareholders (see “General Meetings of Shareholders” below.)~~

If at any time our share capital is divided into different classes of shares, we may change the rights of shareholders by way of a resolution at a general meeting of shareholders, subject to the consent of the shareholders of the class whose rights are being impaired by the proposed change or subject to the adoption of a resolution by a special majority of the general meeting of the shareholders of such class, all of which would be subject to other terms if and as provided by the terms of issuance of a particular class of shares.

~~Our~~ ordinary shares ~~do not have pre-emptive rights.~~see the Description of Securities filed as Exhibit 2.1 to this annual report of Form 20-F (the Description of Securities) under "Rights Generally Applicable to Ordinary Shares".

General Meetings of Shareholders

~~An annual general meeting~~See the Description of ~~our shareholders must be held once in each year and not later than 15 months after the preceding annual general meeting.~~

Any general meeting that is not an annual general meeting is defined as an extraordinary general meeting. All shareholders are entitled to attend any annual or extraordinary general meeting and vote at general meetings in person, by proxy or through the Israeli Securities ~~Authority’s electronic voting system. Notice~~under "General Meetings of an annual or extraordinary general meeting may be sent by us by personal delivery or by sending it by prepaid registered mail. Such notice may be sent by cablegram, telex, facsimile or other electronic means provided confirmation is made by registered mail as stated above and should be sent to shareholders at the address in our records.

Our Board may convene an extraordinary general meeting when and as it sees fit. In addition the Board must, according to statute, convene an extraordinary general meeting if it receives a demand to do so from either: (i) at least two directors; (ii) at least one quarter of the members of the Board; or (iii) one or more shareholders who hold: (A) an aggregate of at least 5% of our issued share capital and at least 1% of all voting rights; or (B) at least 5% of the Company’s issued voting shares, and in such case the extraordinary meeting must be held not more than 56 days from the submission date of such request to the Board and not later than 35 days from the applicable notice to shareholders described below. Any demand by a person or persons, as described in (i), (ii) and/or (iii) of this paragraph, who demands that an extraordinary general meeting be convened, must be made in writing and sent to our registered office.

Subject to the provisions of our Articles of Association, as well as applicable law and regulations, including applicable laws and regulations of any stock market on which our shares are listed, notice of an annual general meeting and of an extraordinary general meeting must be sent at least 21 days (and in some cases at least 35 days) in advance to all shareholders recorded in our shareholders registry. Such notice must include the place, date and hour of the meeting, the agenda for the meeting, the proposed resolutions and instructions for proxy voting.

The quorum required for a meeting of shareholders, except in the case of certain extraordinary meetings convened in special circumstances, consists of at least two shareholders present in person or by proxy or other voting instrument and holding or representing between them at least one-third of the voting power. The chair of our Board generally presides at our shareholders’ meetings. A meeting adjourned for lack of a quorum will be adjourned to the same day in the following week, at the same time and place, or to the day, time and place that the Board determines, with notice to the shareholders. At the reconvened meeting, if a quorum is not present within one-half hour from the time appointed for holding the adjourned meeting, the required quorum then is two shareholders, present in person or by proxy or other voting instrument, representing at least 10% of the voting power. Nasdaq Listing Rule 5620(c) provides that a company listed on the Nasdaq Global Select Market should have a quorum requirement for shareholder meetings of at least one-third of the company’s outstanding common voting stock. As described above, our general quorum requirement is consistent with the Nasdaq Listing Rule. However, in the case of an adjourned meeting, our Articles of Association, consistent with what is permissible under the Companies Law, provide for a 10% quorum requirement.

In general, subject to the Companies Law, ordinary resolutions in a general meeting require approval of a majority of the votes cast at the general meeting, whether in person or by proxy. (For information as to the required majority for the approval of related party transactions, see “Provisions Relating to Major Shareholders” below. For information as to the required majority for the approval of certain transactions with Office Holders of a public company, see “Approval of Certain Transactions - Approval of Transactions” and “Approval of Employment Terms” above)Shareholders". ~~However, under our Articles of Association, certain resolutions require a special majority of at least 67% of all votes properly cast at a general meeting, without taking into account abstentions.~~

~~Limitations on Non-Israeli Shareholders~~

No limitations exist or are imposed by Israeli law or our constituent documents with regard to the rights of non-Israeli shareholders or shareholders not resident in Israel to hold or exercise voting rights except for shareholders who are subjects of countries that are enemies of the State of Israel. (For a description of Israeli regulations relating to acquisitions of a controlling interest in Israeli “defense entities” see Item 4. Information on the Company – Governmental Regulation – Approval of Israeli Defense Acquisitions.)

Change of Control

~~Subject to certain exceptions,~~See the ~~Companies Law provides that a merger requires approval both by the board~~Description of ~~directors and by the shareholders~~Securities under "Change of each of the merging companies. In approving a merger, the board of directors must determine that there is no reasonable expectation that, as a result of the merger, the merged company will not be able to meet its obligations to its creditors. Creditors may seek a court order to enjoin or delay the merger if there is an expectation that the merged company will not be able to meet its obligations to its creditors. A court may also issue other instructions for the protection of the creditors’ rights in connection with a merger.

Under the Companies Law, an acquisition of shares in a public company must be made by means of a tender offer to all shareholders if, as a result of the acquisition, the purchaser would hold 25% or more of the company’s voting rights (where no other shareholder holds 25% or more) or 45% or more of the company’s voting rights (where no other shareholder holds 45% or more)Control". This rule does not apply to a purchase of shares by way of a “private offering” in certain circumstances provided under the Companies Law. (For information regarding Israeli law applicable to acquisition of Israeli “defense entities” see Item 4. Information on the Company – Governmental Regulations – Approval of Israeli Defense Acquisitions.)

Provisions Relating to Major Shareholders

~~We are required by law~~See the Description of Securities under "Provisions Relating to ~~maintain a separate registry of shareholders that hold 5% or more of either our issued shares or voting rights.~~

Under the Companies Law, the disclosure requirements with respect to the disclosure of a Personal Interest that apply to an Office Holder also apply to a controlling shareholder of a public company. A controlling shareholder is a shareholder who has the ability to direct the activities of a company, including a shareholder that holds 25% or more of the voting rights if no other shareholder owns more than 50% of the voting rights in the company, but excluding a shareholder whose power derives solely from his or her position as a director of the company or any other position with the company.

Except for certain specified exemptions under the Companies Law, audit committee approval is required for extraordinary transactions, as defined by criteria established by the audit committee, with a controlling shareholder or in which a controlling shareholder has a Personal Interest, including a private offering in which the controlling shareholder has a Personal Interest, and an engagement of a public company with a controlling shareholder or his or her Relative, directly or indirectly, including through a company controlled by such person, regarding the grant of services to the applicable company (and regarding his or her Employment Terms if the controlling shareholder is an employee of the company but he or she is not an Office Holder)Major Shareholders". If the controlling shareholder is an Office Holder, his or her Employment Terms must be approved by the compensation committee, the board of directors and the shareholders of the company, in that order. Such shareholder approval requires a Special Uninterested Majority. (For further information see above - Approval of Certain Transactions.)

In addition, the Companies Law requires that, except for certain exemptions, transactions with a controlling shareholder whose terms are for a period of more than three years must be re-approved in same manner for every three-year period.

Also, under the Companies Law, each shareholder has a duty to act in good faith in exercising his or her rights and fulfilling his or her obligations toward the company and other shareholders and to refrain from abusing his or her power in the company, such as in certain shareholder votes. In addition, specified shareholders have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows that it possesses the power to determine the outcome of a shareholder vote and any shareholder who, pursuant to the provisions of the articles of association, has the power to appoint or to prevent the appointment of an Office Holder or has any other power, beyond that of other shareholders, with respect to the company.

Borrowing Power

~~Our Articles~~See the Description of ~~Association grant broad powers to the Board to have us borrow, repay borrowings, make guarantees and grant security interests in borrowings.~~Securities under "Borrowing Power".

Exchange Controls and Other Limitations Affecting Security Holders

~~Non-residents~~See the Description of ~~Israel may freely hold~~Securities under "Exchange Controls and ~~trade our ordinary shares under general and specific permits issued under the Israeli Currency Control Law, 1978 (the Currency Control Law)~~Other Limitations Affecting Security Holders". Our Memorandum of Association and Articles of Association do not restrict the ownership of ordinary shares by non-residents of Israel. Neither the Memorandum of Association and Articles of Association nor Israeli law restrict the voting rights of non-residents.

Under the general permit given pursuant to the Currency Control Law, non-residents of Israel who buy our ordinary shares inside or outside of Israel with any foreign currency are able to receive a number of types of distributions in freely repatriable U.S. dollars or specified other currencies. These distributions include dividends, proceeds from the sale of shares and any amounts payable in the event of the dissolution, liquidation or winding-up of Elbit Systems.

Taxation

General

The following is a summary of some aspects of the current tax law applicable to companies in Israel, with special reference to its effect on Elbit Systems and our Israeli subsidiaries, and government programs from which Elbit Systems and some of our Israeli subsidiaries benefit.

The following also contains a discussion of specified Israeli and U.S. tax consequences to our shareholders. It also contains a discussion of the Israeli tax consequences to holders of our Series A Notes. See Item 5. Operating and Financial Review and Prospects – Liquidity and Capital Resources – Israeli Debt Offering. The Series A Notes are not registered for trading in the U.S. and may not be sold in the U.S. without registration or compliance with Regulation “S” under the Securities Act. Therefore, we have not included a discussion of U.S. tax consequences to holders of the Series A Notes. To the extent that the discussion is based on tax legislation that has not been subject to judicial or administrative interpretation, there can be no assurance that the views expressed in the discussion will be accepted by the tax authorities in question. The discussion is not intended, and should not be construed, as legal or professional tax advice and is not exhaustive of all possible tax considerations.

Elbit Systems’ income tax liability in Israel is based on our unconsolidated earnings and such earnings of our Israeli-based subsidiaries. It is determined in NIS and not in U.S. dollars. Tax liability of non-Israeli subsidiaries is determined according to the laws of their respective countries of residence. As a result, the tax provision in Elbit Systems’ consolidated financial statements does not directly relate to income reported on these statements.

General Corporate Tax in Israel

Generally, Israeli companies were subject to corporate tax on taxable income and capital gains at the rate of 24%~~, 25% and 26.5%~~ for the tax ~~years 2017, 2016 and 2015, respectively.~~year 2017. The corporate tax rate effective as of January 1, 2018 is 23%.

Under the Israeli Tax Ordinance, 1961 (the Ordinance) transfer pricing rules require that cross-border transactions between related parties be carried out implementing an arm’s-length principle and reported and taxed accordingly.

A portion of our Israeli operations have been granted “Approved Enterprise”, “Privileged Enterprise” and “Preferred Enterprise” status, as described under “Investment Law” below. These operations are subject to taxation at reduced rates applicable to those types of enterprises. We cannot assure that Elbit Systems or our Israeli subsidiaries will continue to qualify for such benefits, or benefits under the Law for Encouragement of Industry, in the future. We also cannot assure that we will continue to qualify as an Approved Enterprise, Privileged Enterprise or Preferred Enterprise, or that the benefits described above will be available in the future. See further Item 18. Financial Statements - Note ~~18(A)(5)~~18A(3).

Industry Encouragement. Under the Law for the Encouragement of Industry (Taxes), 1969, a company qualifies as an “Industrial Company” if it is resident in Israel and at least 90% of its income (determined in Israeli currency) in a given tax year, with some exceptions, comes from “Industrial Enterprises” owned by that company. An Industrial Enterprise is defined as an enterprise whose primary activity in a particular tax year is industrial manufacturing activity. We believe Elbit Systems qualifies as an Industrial Company. See further Item 18. Financial Statements - Note ~~18(A)(2)~~18A(2).

Investment Law. The Israeli Law for the Encouragement of Capital Investments, 1959 (the Investment Law) provides tax benefits to companies that make capital investments in eligible fixed assets. Under the Investment Law, subject to applicable conditions, companies could apply to receive “Approved Enterprise”, “Privileged Enterprise” or "Preferred Enterprise” status, each of which provides various tax benefits. See Item 18. Financial Statements - Note ~~18(A).~~18A.

Tax on IP-based Income. On December 29, 2016, Israel enacted a tax law amendment introducing a new tax regime for intellectual property (IP)-based companies. The regime is tailored to a post-BEPS (base erosion profit shifting) world, encouraging multinationals to consolidate IP ownership and profits in Israel along with existing Israeli R&D functions. Tax benefits created to achieve this goal include a reduced corporate income tax rate of 6% on IP-based income and on capital gains from the future sale of IP. The 6% rate would apply to qualifying Israeli companies that are part of a group with global consolidated revenue of over NIS 10 billion (approximately ~~$2.9~~$2.7 billion). Other qualifying companies with global consolidated revenue below NIS 10 billion would be subject to a 12% tax rate. However, if the Israeli company is located in Jerusalem or in certain northern or southern parts of Israel, the tax rate is further reduced to 7.5%. Additionally, withholding tax on dividends would be subject to a reduced rate of 4% for all qualifying companies (unless further reduced by a treaty). See Item 18. Financial Statements - Note ~~18(A)(4)~~18A(3).

Capital Gains to a Shareholder

Capital gains to Israeli residents. Starting in , 2012, the tax rate on capital gains to a “non-principal” individual shareholder (those persons holding less than 10% of our ordinary shares) has been 25%, and 30% to an individual “principal” shareholder. In 2013, the capital gains tax rate increased by 2% in the event the individual’s taxable income in any tax year exceeds NIS 810,720 (approximately ~~$210,000)~~$215,000) - linked to the CPI each year - including capital gains from marketable securities, dividends and interest income. As of January 1, 2017, the capital gain tax rate was increased by 3% (rather than the previous 2% increase) in the event the individual’s taxable income in 2017 and thereafter exceeds ~~ILS~~NIS 640,000 (approximately ~~$180,000)~~$170,000) - linked to the CPI each ~~year).~~year. Dealers in securities in Israel are taxed at regular tax rates applicable to business income. Companies resident in Israel are taxed on capital gains at ~~rates~~the applicable ~~to capital gains.~~corporate tax rate.

Capital gains to non-residents of Israel. Gains on the sale of ordinary shares traded on the TASE and on Nasdaq held by non-Israeli resident investors for tax purposes will generally be exempt from Israeli capital gains tax, subject to the provisions of the Israeli tax legislation. However, non-Israeli corporations will not be entitled to such exemption if an Israeli resident (i) has a controlling interest of 25% or more in such non-Israeli corporation, or (ii) is the beneficiary or is entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly. In addition, the United States - Israel tax treaty exempts United States residents who hold less than 10% of our voting rights, and who held less than 10% of our voting rights during the twelve months prior to a sale of their shares, from Israeli capital gains tax in connection with such sales under certain circumstances.

Capital Gains to a Holder of Series A Notes

Capital gains to Israeli residents. A capital gain for an individual derived from the sale of a debenture that is not linked to an index, such as our Series A Notes, will be taxable at a rate not to exceed 15% in case of a “non-principal” individual note holder, or 20% in the case of a “principal” individual note holder. Tax payers claiming a deduction of real interest expenses and linkage differences on debentures such as the Series A Notes will be taxed at a rate of 30% on their real capital gains. Dealers in securities in Israel are taxed at regular tax rates applicable to business income. Companies resident in Israel are taxed at rates applicable to capital gains.

Capital gains to non-residents of Israel. Gains on the sale of securities traded on the TASE, such as our Series A Notes, held by non-Israeli resident investors for tax purposes will generally be exempt from Israeli capital gains tax, subject to the provisions of the Israeli tax legislation. However, non-Israeli corporations will not be entitled to such exemption if an Israeli resident: (i) has a controlling interest of 25% or more in such non-Israeli corporation; or (ii) is the beneficiary or is entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.

Taxation on Dividends Paid to a Shareholder

Income tax for individual Israeli residents. Residents of Israel are subject to income tax on distributions of dividends other than bonus shares (stock dividends). The tax rate on dividend income to a “non-principal” individual shareholder is 25% and 30% to an individual “principal” shareholder. The paying company withholds at source income tax at the rate of 25% or 30% in the case of a “principal shareholder”. A company whose stock is traded on a stock exchange withholds tax at the rate of 25% from dividends paid to a “principal” shareholder for shares registered and held by a registration company. Dividends distributed from “Preferred Income” under Preferred Enterprise status (see above “Investment Law”) are subject to a withholding tax rate of 20%. These rates are the final tax on dividends.

Income tax for non-residents of Israel. Non-residents of Israel are subject to income tax on distributions of dividends other than bonus shares (stock dividends). The tax rate on dividend income to a “non-principal” non-resident of Israel shareholder is 25% and 30% to a “principal” shareholder (including a foreign company as opposed to an Israeli company). The paying company withholds at source income tax at the rate of 25% for a “non-principal” shareholder, or 30% for a “principal” shareholder. A company whose stock is traded on a stock exchange will withhold tax at the rate of 25% from dividends paid to a “principal” shareholder for shares registered and held by a registration company, unless a lower rate is applicable under a double taxation treaty. Accordingly, Elbit Systems withholds income tax at the source. Generally, dividends distributed from taxable income accrued during the period of benefit of an Approved Enterprise, Privileged Enterprise or Preferred Enterprise are taxable at the rate of 15% if the dividend is distributed during the tax benefit period under the Investment Law or within 12 years after the period (this limitation does not apply if the company qualifies as a foreign investors’ company according to the Investment Law). ~~Following the enactment of the National Priorities Law, effective January 1, 2014, dividends~~Dividends distributed from “Preferred Income” under a Preferred Enterprise status are subject to a withholding tax rate of 20% (unless a lower treaty rate applies). These rates are the final taxes in Israel on dividends for individual and corporate non-residents of Israel. Foreign residents who have Israeli derived income for which tax was withheld at the source are generally exempt from the duty to file tax returns in Israel for such income. This includes income from Israeli derived interest, dividends and royalties.

Taxation of Interest Income of Holders of Series A Notes

Income tax for Israeli residents. Israeli resident individuals are tax exempt on the linkage differences derived from the debenture principal, under certain conditions. An individual is taxable at a rate of 15% on interest or discount fees originating from debentures which are not linked to the index, whether in whole or in part, such as the Series A Notes. The tax rate on interest income or discount fees originating from fully index-linked debentures, including debentures linked to a foreign currency, is 25% in case of a “non-principal” note holder. These tax rates will not apply if any of the following conditions are met: (1) the interest represents income from a “business” or is recorded in the individual’s books of account or is required to be so recorded; (2) the individual has claimed deduction of linkage differences and interest expenses on the debentures; (3) the individual is a “principal” individual note holder; or (4) the individual is employed by a corporation that paid the interest, is a supplier of goods or services to the corporation or has other special relations with the corporation, unless the tax assessing officer is satisfied that the interest rate has been established in good faith and regardless of the existence of any such relations between the individual and the corporation. In these cases, the individual will be taxed at the marginal tax rate. The paying company will deduct tax at a rate of 15% on interest in respect of unlinked debentures, such as the Series A Notes, and at a rate of 25% in the case of linked debentures. The maximum tax rate will apply in the case of an individual who is a “principal” individual note holder, an individual employed by the interest-paying-corporation or a supplier of goods or services to the corporation. The tax rate applicable to interest income (including linkage differences) or discount fees of an Israeli resident corporation is the corporate tax rate. The paying company will deduct tax at the corporate tax rate.

Income tax for foreign residents. Interest, discount fees or linkage differences paid to a foreign resident on debentures listed on the TASE and issued by an Israeli resident corporation, such as our Series A Notes, are typically exempt from Israeli tax, provided that the income is not produced by the foreign resident’s permanent establishment in Israel. The tax exemption will not apply in the following circumstances: (1) the foreign resident is a “principal” shareholder or note holder of the issuing company; (2) the foreign resident is a relative, as defined in the Ordinance, of the issuing company; (3) the foreign resident is an employee, a supplier of goods or services or has special relations with respect to the issuing company (unless it is demonstrated that the interest rate or discount fees have been determined in good faith and regardless of the existence of any special relations); or (4) the foreign resident company is held by Israeli residents. If the tax exemption does not apply as above, the tax rate applicable to interest income received by foreign residents (individuals and corporations) originating from securities will be established in accordance with the provisions of the Ordinance, or in accordance with the provisions of the relevant treaty for the avoidance of double taxation signed between the State of Israel and the foreign resident’s country of residence. In such case, the paying company will withhold tax according to the rates prescribed in the Ordinance as above, and this rate may be reduced subject to the relevant treaty for the avoidance of double taxation. As indicated above, the Series A Notes are not

registered under the Securities Act and may not be offered or sold in the United States or to U.S. Persons (as defined in Regulation “S” under the Securities Act) without registration under the Securities Act or an exception from the registration requirements of the Securities Act.

Israeli Tax on United States Shareholders

Dividends paid by Elbit Systems to an individual shareholder resident in the United States are generally subject to withholding tax deducted at source in Israel. Israel and the United States are parties to a tax treaty. Under the treaty, the withholding tax rate on a dividend is normally 25%, or 15% in connection with an Approved Enterprise, Privileged Enterprise or Preferred Enterprise. ~~(See~~See above “Investment ~~Law.”)~~

Law”.

A U.S. corporation would have a reduced withholding tax rate of 15% on dividends if it were to own 10% or more of Elbit Systems’ voting shares under specified conditions. The reduced withholding tax rate on the dividend would be 12.5%. The U.S. corporation must own at least 10% of the voting shares during a portion of Elbit Systems’ tax year in which the payment of the dividend occurs but prior to the payment date and during the entire prior tax year. The reduced rate is also subject to two other conditions. First, not more than 25% of Elbit Systems’ gross income for the prior tax year may consist of interest, other than interest received from banking, financing or similar businesses or from certain subsidiaries. Second, the dividend may not be derived from income during any period for which Elbit Systems is entitled to the reduced tax rate applicable to an Approved Enterprise / Privileged Enterprise.

Under the terms of the tax treaty, Israel may tax capital gains realized by shareholders resident in the United States on a sale of ordinary shares of Elbit Systems if certain conditions exist, however, such right is subject to the following exemption. Since Elbit Systems’ ordinary shares are traded on the TASE and on Nasdaq, gains on the sale of ordinary shares held by non-Israeli resident investors for tax purposes generally will be exempt from Israeli capital gains tax, subject to the provisions of the Israeli tax legislation.

Subject to certain conditions and limitations, any Israeli tax withheld or paid with respect to dividends on ordinary shares generally will be eligible for credit against a U.S. shareholder’s U.S. federal income tax liability at such U.S. shareholder’s election. The U.S. Internal Revenue Code of 1986, as amended, (the Code) provides limitations on the amount of foreign tax credits that a U.S. shareholder may claim, including extensive separate computation rules under which foreign tax credits allowable with respect to specific categories of income cannot exceed the U.S. federal income taxes otherwise payable with respect to each such category of income. U.S. shareholders that do not elect to claim a foreign tax credit may instead claim a deduction for Israeli income tax withheld or paid, but only for a year in which these U.S. shareholders elect to do so for all foreign income taxes. Dividends with respect to the ordinary shares will generally be classified as foreign source “passive income” for the purpose of computing a U.S. shareholder’s foreign tax credit limitations for U.S. foreign tax credit purposes. The rules relating to foreign tax credits are complex, and each U.S. holder of our ordinary shares should consult his or her tax advisor to determine whether and if he or she would be entitled to this credit.

This summary of Israeli taxation is based on existing treaties, laws, regulations and judicial and administrative interpretations thereof. There can be no assurance that any of these may not be amended or repealed, possibly with retroactive effect, or that a tax authority may take a contrary position. Also, this summary does not address the tax consequences that may be applicable to specific persons based on their individual circumstances. It also does not address any local or other foreign tax consequences. A shareholder or holder of Series A Notes should consult his or her own tax advisor as to the specific tax consequences of purchasing, holding or transferring shares or Series A Notes of Elbit Systems.

United States Federal Income Tax Considerations

General

The following is a summary of material U.S. federal income tax considerations regarding the acquisition, ownership and disposition of Elbit Systems’ ordinary shares by a “U.S. Shareholder”, which, for these purposes, means a beneficial owner of an ordinary share who is, for U.S. federal income tax purposes:


(1)	a citizen or individual resident of the United States;


(2)	a corporation (or an entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any political subdivision thereof (including the District of Columbia);


(3)	an estate whose income is subject to U.S. federal income taxation regardless of its source; or


(4)	a trust if: (A) a U.S. court is able to exercise primary supervision over the trust’s administration and (B) one or more U.S. persons have the authority to control all of the trust’s substantial decisions or (C) if it has a valid election in place to be treated as a U.S. person.

This summary is based on provisions of the Code, existing and proposed U.S. Treasury regulations, administrative pronouncements, rulings and judicial decisions in effect as of the date of this annual report. These authorities and their interpretation are subject to change, possibly with retroactive effect. Notably, in December 2017, the U.S. President signed into law Public Law no. 115-97, informally titled the ~~“Tax~~Tax Cuts and Jobs ~~Act”~~Act (the ~~“Tax Act”)~~Tax Act), which alters significantly the U.S. federal income tax system. For risks relating to the Tax Act, see Item 3. Risk Factors - General Risks Related to Our Business and Market - Tax legislation in the United States may impact our business. Although this discussion takes into account provisions enacted under the Tax Act, given the complexity of this new law, investors should consult their own tax advisors regarding its potential impact on the U.S. Federal income tax consequences to them in light of their particular circumstances.

This summary applies to U.S. shareholders only if they hold ordinary shares as capital assets for tax purposes.

In addition, this summary does not discuss all aspects of U.S. federal income taxation that may be applicable to investors in light of their particular circumstances or to investors who are subject to special treatment under U.S. federal income tax law, including, but not limited to, U.S. expatriates, insurance companies, banks, regulated investment companies and real estate investment trusts, securities broker-dealers, financial institutions, tax-exempt organizations, persons holding ordinary shares as part of a straddle, hedging or conversion transaction, traders in securities that elect to apply a mark‑to‑market method of accounting, persons subject to the alternative minimum tax, persons who acquired their Elbit Systems’ ordinary shares pursuant to the exercise of employee stock options or otherwise as compensation, persons subject to special tax accounting rules as a result of any item of gross income with respect to our ordinary shares being taken into account in an applicable financial statement, persons whose functional currency is not the U.S. dollar, and persons owning (directly, indirectly or by attribution) 10% or more of our outstanding voting shares. If a partnership or other entity treated as a partnership for U.S. federal income tax purposes holds ordinary shares of Elbit Systems, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. A partner in a partnership that holds our ordinary shares is urged to consult its own tax advisor regarding the specific tax consequences of owning and disposing of our ordinary shares.

~~This summary does not address the~~THE SUMMARY OF U.S. ~~federal estate or gift tax consequences, or any state, local or foreign tax consequences, of the acquisition, ownership and disposition of ordinary shares.~~FEDERAL INCOME TAX CONSEQUENCES SET OUT BELOW IS FOR GENERAL INFORMATION ONLY. ALL SHAREHOLDERS AND PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX ADVISERS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF OWNING OUR ORDINARY SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND NON-U.S. TAX LAWS AND POSSIBLE CHANGES IN TAX LAW.

Dividends

ASubject to the discussion below under “Passive Foreign Investment Company Rules”, a U.S. Shareholder generally will be required to include in gross income, as ordinary income, the amount of any distributions paid on ordinary shares of Elbit Systems to the extent of Elbit Systems’ current or accumulated earnings and profits (calculated before the reduction of any corresponding Israeli withholding taxes). If a U.S. Shareholder is an individual, trust or estate, dividends received from Elbit Systems generally will be treated as “qualified dividend income”, which is taxable to such U.S. Shareholder at preferential tax rates, provided the U.S. Shareholder has held the stock for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and certain other conditions are satisfied. There is no assurance that dividends received by U.S. Shareholders from Elbit Systems will be eligible for such preferential tax rates. Each individual U.S. Shareholder of ordinary shares is urged to consult his or her own tax advisor regarding the availability to him of the reduced dividend tax rate in light of his or her own particular situation and regarding the computations of his or her foreign tax credit limitation with respect to any qualified dividend income paid by us, as applicable. Dividends paid by Elbit Systems do not qualify for the dividends-received deduction applicable in certain cases to U.S. corporations. Elbit Systems does not intend to compute earnings and profits under U.S. tax principles; therefore, it is likely that all distributions will be treated as paid out of Elbit Systems’ current and accumulated earnings and profits.

The amount of any distribution paid in NIS, including the amount of any Israeli withholding tax thereon, will be included in the gross income of a U.S. Shareholder in an amount equal to the U.S. dollar value of the NIS calculated by reference to the spot rate of exchange in effect on the date the distribution is received by the U.S. Shareholder. If a U.S. Shareholder converts dividends paid in NIS into U.S. dollars on the day Elbit Systems distributes the dividends, the U.S. Shareholder generally should not be required to recognize foreign currency gain or loss with respect to such conversion. If the NIS received in the distribution are not converted into U.S. dollars on the date of receipt, any foreign currency gain or loss recognized upon a subsequent conversion or other disposition of the NIS will be treated as U.S. source ordinary income or loss. Special rules govern and special elections are available to accrual method taxpayers to determine the U.S. dollar amount that should be included in income in the case of taxes withheld in a foreign currency. Accrual basis taxpayers are urged to consult their own tax advisors regarding the requirements and the elections applicable in this regard.

Dividends paid by us to a U.S. Shareholder on our ordinary shares will be treated as foreign source income and will generally be categorized as “passive category income” for U.S. foreign tax credit purposes. Subject to the limitations in the Code, as modified by the applicable tax treaty, a U.S. Shareholder may elect to claim a foreign tax credit against its U.S. federal income tax liability for Israeli income tax withheld from dividends received in respect of ordinary shares. Dividends paid with respect to ordinary shares may be subject to special rules if a U.S. Shareholder owns more than 50 percent (by vote or value) of Elbit Systems, which could adversely affect a U.S. Shareholder’s ability to use U.S. foreign tax credits. U.S. Shareholders who do not elect to claim the foreign tax credit may instead claim a deduction for Israeli income tax withheld, but only for a year in which the U.S. Shareholder elects to do so with respect to all foreign income taxes. A deduction does not reduce U.S. tax on a dollar-for-dollar basis as it does for a tax credit. The deduction, however, is not subject to the limitations applicable to foreign tax credits. The rules relating to the determination of the foreign tax credit are complex. Accordingly, a U.S. Shareholder should consult its own tax advisor to determine whether and to what extent it would be entitled to the credit.

Sale, exchange or other disposition

~~Upon~~Subject to the discussion below under “Passive Foreign Investment Company Rules”, upon the sale, exchange or other disposition of ordinary shares, a U.S. Shareholder generally will recognize capital gain or loss equal to the difference between the U.S. dollar value of the amount realized on the sale, exchange or other disposition and the U.S. Shareholder’s adjusted tax basis, determined in U.S. dollars, of the ordinary shares. Any gain or loss recognized upon the sale, exchange or other disposition of the ordinary shares will be treated as long-term capital gain or loss if, at the time of the sale, exchange or other disposition, the holding period of the ordinary shares exceeds one year. In the case of individual U.S. Shareholders, long-term capital gains generally are subject to U.S. federal income tax at preferential rates. The deductibility of capital losses by a U.S. Shareholder is subject to significant limitations. U.S. Shareholders should consult their own tax advisors in this regard.

In general, gain or loss recognized by a U.S. Shareholder on the sale, exchange or other disposition of ordinary shares will be U.S. source income or loss for U.S. foreign tax credit purposes. U.S. Shareholders who hold ordinary shares through an Israeli stockbroker or other Israeli intermediary may be subject to Israeli withholding tax on any capital gains recognized if the U.S. Shareholder does not obtain approval of an exemption from the Israeli Tax Authorities. Israeli taxes paid under circumstances in which an exemption from such tax was available generally will not give rise to a deduction or credit for foreign taxes paid for U.S. federal income tax purposes. U.S. Shareholders should consult their Israeli stockbroker or other intermediary regarding the procedures for obtaining an exemption.

If a U.S. Shareholder receives NIS upon the sale of ordinary shares, that U.S. Shareholder may recognize ordinary income or loss as a result of currency fluctuations between the date of the sale of the ordinary shares and the date the sales proceeds are converted into U.S. dollars.

Medicare Tax

Non-corporate U.S. Shareholders may be subject to an additional 3.8% Medicare tax on all or a portion of “net investment income”, which generally may include dividends on, or capital gains recognized from the disposition of, our ordinary shares. U.S. Shareholders should consult their own tax advisors regarding the applicability of the Medicare tax to their investment in our shares.

Passive Foreign Investment Company rules

A non-U.S. corporation will be classified as a Passive Foreign Investment Company (a PFIC) for any taxable year if at least 75% of its gross income consists of passive income (which is generally subject to certain exceptions for active businesses, dividends, interest, rents and royalties and gains from the sales of property generating such income), or at least 50% of the average value of its assets consists of assets that produce, or are held for the production of, passive income. We currently believe that we were not a PFIC for the year ended December 31, ~~2017.~~2019. However, this conclusion is a factual determination that must be made at the close of each year and is based on, among other things, a valuation of our ordinary shares and assets, which will likely change from time to time. If we were characterized as a PFIC for any taxable year, a U.S. Shareholder could suffer adverse tax consequences under certain circumstances. These consequences may include having gains realized on the disposition of ordinary shares treated as ordinary income rather than capital gains and being subject to punitive interest charges on certain dividends and on the proceeds of the sale or other disposition of the ordinary shares. Furthermore, dividends paid by a PFIC are not eligible to be treated as “qualified dividend income” (as discussed above).

The PFIC rules are complex. U.S. Shareholders should consult their own tax advisors regarding the potential application of the PFIC rules to the ownership of our ordinary shares.

Informational reporting and backup withholding

Dividend payments with respect to ordinary shares and proceeds from the sale, exchange or other disposition of ordinary shares may be subject to informational reporting to the Internal Revenue Service (the IRS) and possible U.S. backup withholding at a current rate of 24%. Backup withholding will not apply, however, to a holder who timely furnishes a correct taxpayer identification number or certificate of foreign status and makes any other required certification or who is otherwise exempt from backup withholding. U.S. persons who are required to establish their exempt status generally must provide IRS Form W-9 (Request for Taxpayer Identification Number and Certification). Non-U.S. Shareholders generally will not be subject to U.S. informational reporting or backup withholding. However, such holders may be required to provide certification of non-U.S. status (generally on IRS Form ~~W-8BEN)~~W-8BEN or W-BEN-E) in connection with payments received in the United States or through certain U.S.-related financial intermediaries.

Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a holder’s U.S. federal income tax liability, and a holder may obtain a refund of any excess amounts withheld by timely filing the appropriate claim for refund with the IRS and furnishing any required information.

Holders of our ordinary shares should consult their own tax advisors concerning the specific U.S. federal, state and local tax consequences of the ownership and disposition of the ordinary shares in light of their particular situations as well as any consequences arising under the laws of any other taxing jurisdiction. In particular, U.S. Shareholders are urged to consult their own tax advisors concerning whether they will be eligible for benefits under the Unites States-Israel tax treaty.

Documents on Display

We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended. In accordance with these requirements, we file reports and other information with the SEC. ~~These materials, including this annual report~~The SEC maintains an internet website at http://www.sec.gov that contains reports, proxy statements, information statements and ~~its exhibits, may be inspected and copied at~~other material that are filed through the SEC’s ~~Public Reference Room (the Public Reference Room)~~Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. We also file periodic and immediate reports and other information with the Israeli Securities Authority through its electronic filing system at ~~100 F Street, N.E., Washington, D.C. 20549, and copies of the materials may be obtained from the Public Reference Room at prescribed rates. The public may obtain information~~www.magna.isa.gov.il or on the ~~operation of the Public Reference Room by calling the SEC in the United States~~Tel Aviv Stock Exchange website at ~~1-800-SEC-0330.~~www.tase.co.il.

Item 11. Quantitative and Qualitative Disclosures About Market Risk.

General

Market risks relating to our operations result primarily from changes in exchange rates and interest rates. We take various measures to compensate for the effects and fluctuation in both exchange rates and interest rates. We use financial instruments and derivatives in order to limit the exposure to risks deriving from changes in exchange rates and interest rates. No derivatives instruments are entered into for trading purposes.

Exchange Rate Risk Management

General

While our functional currency is the U.S. dollar, we also have some non-U.S. dollar or non-U.S. dollar linked currency exposures. These exposures are mainly derived from our revenues and expenses denominated in foreign currencies and non-U.S. dollar accounts receivable, payments to suppliers and subcontractors, obligations in other currencies and payroll related expenses incurred, mainly in NIS. Some subcontractors are paid in local currency under prime contracts where we are paid in U.S. dollars.

We take various measures to compensate for the effects of fluctuations in exchange rates. These measures include currency hedging transactions in which we purchase foreign exchange contracts to reduce the volatility of cash flows associated with project related revenues and expenses denominated in certain foreign currencies (mainly Euro and GBP) and attempts to maintain a balance between monetary assets and liabilities in our functional currencies. We also attempt to share currency risks with subcontractors on a “back-to-back” basis, by having the subcontractor assume a proportional amount of the exchange risk.

We use currency hedging contracts and other derivatives instruments to limit our exposure to exchange rate fluctuations related to payroll expenses incurred in NIS. The objective of the foreign exchange contracts is to better ensure that the U.S. dollar-equivalent cash flows are not adversely affected by changes in U.S. dollar/foreign currency exchange rates. In accordance with ASC 815, “Derivatives and Hedging”, these contracts are designated as cash flow hedges. The gain on the effective portion of a cash flow hedge is initially reported as a component of accumulated other comprehensive income and subsequently reclassified into revenues and to contract expenses when the hedged exposure affects revenues or contract expenses, or as financial expenses, if the hedged transaction becomes probable of not occurring. Any gain or loss after a hedge is de-designated, because the hedged transaction is no longer probable of occurring or related to an ineffective portion of a hedge, is recognized in “financial expenses, net” in our consolidated statements of income.

As of December 31, ~~2016~~2018 and December 31, ~~2017,~~2019, the notional amount of our outstanding forward contracts was ~~$853.9~~$1243.9 million and ~~$575.7~~$558.3 million, respectively. Most of these contracts met the requirements of hedge accounting.

The table below provides information regarding our derivatives instruments held in order to limit the exposure to exchange rate fluctuation as of December 31, ~~2017.~~2019. The table does not include information regarding the cross currency interest rate swap transactions in order to effectively hedge the effect of interest and exchange rate differences resulting from the NIS Series A Notes.

Maturity Date - Notional Amount
( US dollars in millions)
2018 2019 2020 2021 2022 onwards Total Fair Value at December 31, 2017
Buy US$ and sell:
EUR 133.9
94.5
25.0
16.2
13.2
282.8
(8.1 )
GBP 23.6
3.4
3.1
2.4
6.7
39.2
(0.8 )
Other currencies 23.7
12.4
19.6
5.5
—
61.2
(1.2 )
Total 181.2
110.3
47.7
24.1
19.9
383.2
(10.1 )



	Maturity Date - Notional Amount
	( US dollars in millions)
	2019	2020	2021	2022	2023 onwards	Total	Fair Value at December 31, 2018
Buy US$ and sell:
EUR	192.0	70.6	36.0	19.4	12.4	330.4	18.9
GBP	20.1	10.5	4.8	3.2	0.1	38.7	(1.0	)
Other currencies	52.8	10.2	—	—	—	63.0	1.9
Total	264.9	91.3	40.8	22.6	12.5	432.1	19.8


	Maturity Date - Notional Amount								Maturity Date - Notional Amount
	( US dollars in millions)								( US dollars in millions)
	2018	2019	2020	2021	2022 onwards	Total	Fair Value at December 31, 2017		2019	2020	2021	2022	2023 onwards	Total	Fair Value at December 31, 2018
Sell US$ and buy:
EUR	35.2	26.3	10.5	2.2	6.8	81.0	2.3		63.6	4.7	12.9	—	—	81.2	(3.7	)
GBP	3.7	—	—	—	—	3.7	0.1		9.2	0.1	—	—	—	9.3	0.2
NIS	71.2	—	—	—	—	71.2	2.5
Other currencies	23.3	10.5	2.2	0.6	—	36.6	(1.0	)	31.6	4.1	—	—	—	35.7	(0.7	)
Total	133.4	36.8	12.7	2.8	6.8	192.5	3.9		104.4	8.9	12.9	—	—	126.2	(4.2	)

At December 31, ~~2017,~~2019, a 5% and 10% strengthening of the U.S. dollar relative to the currencies in which our derivative instruments were denominated would have resulted in unrealized losses of ~~$10.2~~$14.2 and ~~$20.2~~$28.6 million, respectively, and a 5% and 10% weakening in the value of the U.S. dollar relative to the currencies in which our derivative instruments were denominated would have resulted in unrealized gains of ~~$10.5~~$14.1 and ~~$21.3~~$28.2 million, respectively. This calculation assumes that each exchange rate would have changed in the same direction relative to the U.S. dollar. Consistent with the use of these contracts to neutralize the effect of exchange rate fluctuations, most of such unrealized losses or gains would be offset by corresponding gains or losses, respectively, in the remeasurement of the underlying transactions being hedged. When taken together, these forward currency contracts and the offsetting underlying commitments did not create material market risk.

Interest Rate Risk Management

On December 31, ~~2017,~~2019, our liquid assets and obligations were comprised of cash and cash equivalents, bank deposits, short and long-term loans and Series A Notes. Our deposits are mainly in U.S. dollars.

In 2010, we issued NIS 1.1 billion (approximately $283 million) of Senior A Notes in a public offering on the TASE. These Senior A Notes are payable in ten equal annual installments on June 30 of each of the years 2011 through 2020 and bear a fixed interest rate of 4.84% per annum, payable semi-annually on June 30 and December 30 of each of the years 2010 through 2020. In 2012, we issued through a public offering on the TASE additional Series A Notes in the aggregate principal amount of NIS 807 million (approximately $217 million), and we issued additional Series A Notes in an aggregate principal amount of NIS 92 million (approximately $24 million) through a private placement to Israeli institutional investors. As of December 31, ~~2016~~2018 and December 31, ~~2017,~~2019, the total principal amount of the Series A Notes was ~~$218.5~~$60.8 million and ~~$181.7 million,~~$112.1, respectively.

The remaining debt is mainly in short and long-term loans in U.S. dollars at floating interest rates. The majority of our borrowings (net of the effect of the cross currency interest rate swap transaction) are usually linked to the relevant LIBOR plus a spread of ~~0.9%~~0.75% - ~~1.95%~~1.75%, and therefore are exposed to changes in interest rates. Most of our loans will mature within ~~2018~~2020 and ~~2019.~~2021.

Should interest rates either increase or decrease, such change may affect our results of operations due to changes in the cost of the liabilities and the return on the assets that are based on variable rates. At December 31, ~~2017,~~2019, a hypothetical 1% (100 basis points) increase in the current interest rates would result in an additional expense of ~~$4 millions.~~$8 million.

Item 12. Description of Securities Other than Equity Securities.

Not applicable.

Item 13. Defaults, Dividend Arrearages and Delinquencies.

Not applicable.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.

Not applicable.

Item 15. Controls and Procedures.

Disclosure Controls and Procedures. We maintain disclosure controls and procedures designed to cause that information required to be disclosed in our periodic filings with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These controls and procedures also provide that such information is accumulated and communicated to our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed

and operated, can provide only reasonable assurance of achieving the desired control objectives. Also, management necessarily was required to use its judgment in evaluating the cost to benefit relationship of possible disclosure controls and procedures. As of December 31, ~~2017,~~2019, we performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. The evaluation was performed with the participation of senior management of major business areas and key corporate functions, and under the supervision of the CEO and CFO. Based on the evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective. There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls after the date we completed the evaluation.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) under the Securities Exchange Act of 1934, as amended, as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:


(1)	pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of assets;


(2)	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made in accordance with authorizations of our management and directors; and


(3)	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements including the possibility of human error and the circumvention or overriding of sound control procedures. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management, including our CEO and CFO, assessed the effectiveness of our internal control over financial reporting as of December 31, ~~2017.~~2019. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control – Integrated Framework (2013 ~~Framework)~~Framework").” Based on this assessment, management believes that, as of December 31, ~~2017,~~2019, our internal control over financial reporting is effective.

Our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2019 did not include an assessment of a subsidiary established as a result of the acquisition of the Night Vision Business in September 2019.

The effectiveness of our internal control over financial reporting as of December 31, ~~2017~~2019 has been audited by Kost Forer Gabbay & Kasierer (Kost), an independent registered public accounting firm in Israel and a member of Ernst & Young Global (EY), as stated in their report included in Item 18. Financial Statements. The audit of internal control over financial reporting of the Company did not include an evaluation of the internal control over financial reporting of the subsidiary established as a result of the acquisition of the Night Vision Business in September 2019, , which is included in the 2019 consolidated financial statements of the Company and constituted 6% and 1% of total and net assets, respectively, as of December 31, 2019, and 1% of revenues and net income, for the year then ended.

Changes in Internal Control over Financial Reporting. During the period covered by this annual report, there have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 16A. Audit Committee Financial Expert.

Dr. Gleitman, ~~and~~ Prof. Nisan and Mr. Kaplinsky, members of our Audit Committee, each meets the criteria of an “Audit Committee Financial Expert” under the applicable rules and regulations of the SEC, and each of their designations as an Audit Committee Financial Expert has been ~~ratified~~determined by the Board. They are each “independent”, as that term is defined in the Nasdaq listing standards.

Item 16B. Code of Ethics.

We have adopted a code of business conduct and ethics that is applicable to all our directors, officers and employees including our principal executive, financial and accounting officers and persons performing similar functions. The code of ethics was approved by our Board and covers areas of professional and business conduct. It is intended to promote honest and ethical behavior, including fair dealing and the ethical handling of conflicts of interest. The code of ethics ~~includes a “whistleblower” process to encourage reports of violations. The code of ethics~~ is supplemented by our anti-bribery and corruption compliance policy and weother related policies and procedures, including those relating to our whistleblower and investigations process, due diligence and business gifts and entertainment. We also have a supplier code of conduct that is applicable to ethics and compliance requirements for our supply chain. We provide training on our code of ethics to all of our employees. Our code of ethics, anti-bribery and corruption compliance policy and supplier code of conduct, as well as certain other compliance related policies, are each posted on our website: www.elbitsystems.com.

Item 16C. Principal Accountant Fees and Services.

At the annual general shareholders meeting held in November ~~2017,~~2019, our shareholders reappointed Kost to serve as our independent auditors. Kost and other EY affiliates billed the Company the following fees for professional services in each of the last two fiscal years:


	Year Ended December 31				Year Ended December 31
	2017		2016		2019		2018
	(U.S. dollars in thousands)				(U.S. dollars in thousands)
Audit Fees	$	3,064	$	2,839	$	3,575	$	3,217
Tax Fees	307		318		252		304
Other Fees	319		137		112		221
Total	$	3,690	$	3,294	$	3,939	$	3,742

“Audit Fees” are the aggregate fees for the audit of our consolidated annual financial statements. This category also includes services generally provided by the independent auditor, such as consents and assistance with and review of documents filed with the ~~SEC..~~SEC. It also includes fees billed for accounting consultations regarding the accounting treatment of matters that occur in the regular course of business, implications of new accounting pronouncements and implementation of ~~Topic~~ASC 606, ASC 842 and other accounting issues that occur from time to time.

“Tax Fees” are the aggregate fees billed for professional services rendered for tax compliance and tax advice, other than in connection with the audit. Tax compliance involves preparation of original and amended tax returns, tax planning and tax advice.

“Other Fees” are fees billed for services related to assessment of finance software.

Kost and other EY affiliates did not bill the Company for services other than the Audit Fees, Tax Fees and Other Fees described above for fiscal year ~~2017~~2019 or fiscal year ~~2016.~~

2018.

Our Audit Committee has adopted a pre-approval policy for the engagement of our independent accountant to perform permitted audit and non-audit services. Under this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the Audit Committee pre-approves annually a range of specific audit and non-audit services in the categories of Audit Services, Audit-Related Services, Tax Services and other services that may be performed by our independent accountants, and the maximum pre-approved fees that may be paid as compensation for each pre-approved service in those categories. The Audit Committee is notified periodically and before commencement of any work in these categories. Any proposed services exceeding the pre-approved fees or which includes other scope of work requires specific pre-approval by the Audit Committee. Accordingly, all of the above-mentioned independent auditor fees were pre-approved by our Audit Committee.

Item 16D. Exemptions from the Listing Standards for Audit Committees.

Not applicable.

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

Reference is made to the disclosure relating to changes in shareholdings of major shareholders in Item 7 of this annual report on Form 20-F.

No shares were repurchased by Elbit Systems during ~~2017.~~2019.

Item 16F. Changes in Registrant’s Certifying Accountant.

Not Applicable.

Item 16G. Corporate Governance.

Generally, we follow corporate governance standards applicable to us under Israeli and U.S. laws and regulations and Nasdaq listing standards.

As a foreign private issuer, Nasdaq Marketplace Rule 5615(a)(3) allows us to follow Israeli corporate governance practices instead of certain Nasdaq Stock Market requirements. That rule requires that we provide Nasdaq with a letter from outside Israeli counsel stating that our corporate governance practices are not prohibited by Israeli law and disclose in our annual reports the Nasdaq requirements we do not follow and the equivalent Israeli requirement.

OnIn March 6, 2018, we notified Nasdaq of our intent to follow Israeli home country practice in connection with our 2018 Equity Incentive Plan for Executive Officers, which was approved by our Board as permitted by Israeli law without approval by our shareholders. See also Item 66. Directors, Senior Management and Employees - Share Ownership - Elbit Systems’ Stock Option Plans - 2018 - Equity Incentive Plan for Executive Officers.

Item 16H. Mine Safety Disclosure.

Not applicable.

Item 17. Financial Statements.

Not applicable.

Item 18. Financial Statements.

See Consolidated Financial Statements attached to this annual report on Form 20-F.

Item 19. Exhibits.

(a) Index to Financial Statements



	Page
~~Report~~Reports of Independent Registered Public Accounting Firm	F-2
~~Report of Independent Registered Public Accounting Firm~~	~~F-3~~
Consolidated Balance Sheets	~~F-4~~F-7
Consolidated Statements of Income	~~F-6~~F-9
Consolidated Statements of Comprehensive Income	~~F-7~~F-10
Consolidated Statements of Changes in Equity	~~F-8~~F-11
Consolidated Statements of Cash Flows	~~F-11~~F-14
Notes to Consolidated Financial Statements	~~F-13~~F-16
Schedule II – Valuation and Qualifying Accounts	S-1

(b) Exhibits



1.1	Elbit Systems’ Memorandum of Association⁽¹⁾
1.2	Elbit Systems’ Restated Articles of Association
2.1	⁽²⁾Description of Securities
4.1	Description of the Terms of Office and Employment of the Company’s President and Chief Executive Officer⁽³⁾⁽¹⁾
4.2	Elbit Systems Ltd. 2018 Equity Incentive Plan for Executive Officers⁽²⁾
4.3	~~Elbit Systems Ltd. 2014 Compensation Policy for Executive Officers and Directors~~⁽⁴⁾
~~4.4~~	~~(Proposed)~~ Elbit Systems Ltd. 2018 Compensation Policy for Executive Officers and Directors⁽⁵⁾⁽³⁾
4.4	Summary of IMI Acquisition Agreements⁽⁴⁾
8	Major Operating Subsidiaries of Elbit Systems
12.1	Certification of Chief Executive Officer of the Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2	Certification of Chief Financial Officer of the Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1	Certification of Chief Executive Officer of the Registrant pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2	Certification of Chief Financial Officer of the Registrant pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1	Consent of Kost Forer Gabbay & Kasierer
15.2	Consent of Kesselman & Kesselman
15.3	Consent of Somekh Chaikin


(1)	Filed as ~~an exhibit~~Exhibit 4.2 to Elbit Systems’ ~~Annual Report~~annual report on Form 20-F, ~~(File No. 0-28998) for the year ended December 31, 2000, which was~~ filed with the SEC on ~~April 5, 2001,~~March 22, 2016, and incorporated herein by reference.

(2)

Filed as Exhibit 299.1 to Elbit Systems’ ~~Report of Foreign Private Issuer~~Registration Statement on Form ~~6-K~~S-8 (No. 333-223785), for the registration of the underlying shares that may be issued upon exercise of options thereunder, filed ~~by Elbit Systems~~ with the SEC on March 26, 2008, and incorporated herein by reference; as amended by that certain amendment filed as Annex A to Exhibit 1 to Elbit Systems’ Report of Foreign Private Issuer on Form 6-K filed by Elbit Systems with the SEC on October 25, 2011,20, 2018, and incorporated herein by reference.


(3)	Filed as Exhibit ~~4.2 to Elbit Systems’ Annual Report on Form 20-F filed by Elbit Systems with the SEC on March 22, 2016 and incorporated herein by reference.~~


~~(4)~~	~~Filed as Attachment~~ “A” to Elbit Systems’ proxy statement dated ~~November 27, 2013, which was~~March 1, 2018, filed as Exhibit 1 to Elbit Systems’ Report of Foreign Private Issuer on Form 6-K, filed ~~by Elbit Systems~~ with the SEC on ~~November 27, 2013,~~March 1, 2018, and incorporated herein by reference.


~~(5)~~(4)	Filed as Exhibit ~~“A”~~4.4 to Elbit ~~Systems’ proxy statement dated March 1, 2018, which was filed as Exhibit 1 to Elbit Systems’ Report of Foreign Private Issuer~~Systems' annual report on Form ~~6-K~~20-F, filed ~~by Elbit Systems~~with the SEC on March ~~1, 2018, and incorporated herein by reference.~~19, 2019.

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: March ~~20, 2018~~25, 2020



	ELBIT SYSTEMS LTD.

	By:	/s/ BEZHALEL MACHLIS
	Name:	Bezhalel Machlis
	Title:	President and Chief Executive Officer
		(Principal Executive Officer)

ELBIT SYSTEMS LTD. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

asAs of ~~and for the year ended~~ December 31, ~~2017~~2019

ELBIT SYSTEMS LTD. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

asAs of ~~and for the year ended~~ December 31, ~~2017~~2019

in thousands of U.S. dollars

C O N T E N T S



	Page

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS	F - 2 - F - 36

CONSOLIDATED FINANCIAL STATEMENTS:

Consolidated Balance Sheets	F - 47 - F - 58

Consolidated Statements of Income	F - 6 9

Consolidated Statements of Comprehensive Income	F - 710

Statements of Changes in Equity	F - 8 -11- F - 10 13

Consolidated Statements of Cash Flows	F - 1114 - F - 1215

Notes to the Consolidated Financial Statements	F - 1316 - F - 6678



	Kost Forer Gabbay & Kasierer 144 Menachem begin St. Tel-Aviv 6492102, Israel		Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of Elbit Systems Ltd.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Elbit Systems Ltd. ("Elbit Systems") and subsidiaries as of December 31, ~~2017~~2019 and ~~2016, and~~2018, the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, ~~2017,~~2019, and the related notes (collectively referred to as the "consolidated financial statements") and the financial ~~statement~~statements schedule listed in the index at Item 19. In our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Elbit Systems and subsidiaries as of December 31, ~~2017~~2019 and ~~2016,~~2018, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, ~~2017,~~2019, in conformity with U.S. generally accepted accounting principles.

We did not audit the financial statements of two Israeli subsidiaries, which reflect total assets constituting 22% as of December 31, 2018, and total revenues constituting 1% for the period from November 25, 2018, through December 31, 2018 of the related consolidated totals. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for the two Israeli subsidiaries, is based solely on the reports of the other auditors.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board ~~("United States")~~(United States) ("PCAOB"), Elbit Systems and subsidiaries’ internal control over financial reporting as of December 31, ~~2017,~~2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March ~~20, 2018,~~25, 2020, expressed an unqualified opinion thereon.

Adoption of Accounting Standards Update (ASU) No. 2014-09

As discussed in Note 2 to the consolidated financial statements, the Company changed its method for recognizing revenue from contracts with customers in the consolidated financial statements for the year ended December 31, 2018, due to the adoption of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), as amended, using the modified retrospective adoption method.

Basis for Opinion

These consolidated financial statements are the responsibility of Elbit Systems’ management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to Elbit Systems in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.



	Kost Forer Gabbay & Kasierer 144 Menachem begin St. Tel-Aviv 6492102, Israel	Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com



Title	Revenue Recognition
Description of the Matter	As described in note 2 to the consolidated financial statements, the Company generated the majority of its revenues from long-term contracts with its customers for which the related performance obligations are primarily satisfied over time. The Company recognizes revenues on such contracts using the percentage-of-completion cost-to-cost measure of progress ("input method"). Under this method, the Company measures progress towards completion based on the ratio of costs incurred to date to the estimated total costs to complete the performance obligation(s) (referred to as the estimate-at-completion, or “EAC”). The determination of contract EACs requires management to make significant estimates and assumptions to estimate contract revenues, costs and profit associated with its contracts with customers. At the outset of a long-term contract, the Company identifies risks to the achievement of the technical, schedule and cost aspects of the contract, estimates the consideration to be received, and monitors and assesses the effects of those risks on its estimates throughout the contract's life cycle. Significant changes in EAC estimates could have a material effect on the Company’s estimated revenue and gross profit recorded during the period under audit. Auditing revenue recognition based on the percentage-of-completion cost-to-cost measure of progress method was complex due to the judgment involved in evaluating management's significant estimates and assumptions about project economics, schedule and technical feasibility, both at contract inception and throughout the contract's life cycle.
How We Addressed the Matter in Our Audit	We obtained an understanding, evaluated the design and tested the operating effectiveness of relevant internal controls over the Company’s revenue recognition process. For example, we tested internal controls over management's preparation and periodic reviews of the EAC analyses and the significant assumptions underlying a contract's estimated value and estimated total EAC. We also tested internal controls that management executes to validate the accuracy and completeness of the underlying data used in management's EAC analyses. To test the Company's EAC analyses, our audit procedures included, among others, obtaining an understanding of the contract and the contractual terms, evaluating, for a sample of contracts, the Company's historical ability to accurately estimate expected costs by comparing management's estimates of labor hours, subcontractor costs and materials required to complete the contract to actual results. We also verified costs incurred by comparing them to supporting documents and agreed key terms to contract documentation, including estimated contract value. In addition, we verified that the variances in costs incurred from projected costs are properly reflected in the EAC analyses.
Title	Valuation of assets acquired and liabilities assumed in the acquisition of Harris Night Vision Business
Description of the Matter	As described in note 1 to the consolidated financial statements, during the year ended December 31, 2019, the Company completed the acquisitions of the Night Vision business of L3Harris Technologies, for net consideration of $351.5 million. The transaction was accounted for as a business combination. The Company's accounting for the acquisition included determining the fair values of the identifiable assets acquired and liabilities assumed, which included a customer-relationship intangible asset. Auditing the Company's determination of the customer-relationship intangible asset was complex due to the significant estimation required by management. The estimated fair value of the customer-relationship intangible asset at the acquisition date was $67 million. The complexity was primarily due to the sensitivity of the fair value to certain of the significant underlying assumptions. The Company primarily used a discounted cash flow model to measure the customer-relationship intangible asset. The significant assumptions used to estimate the value of the customer-relationship intangible asset included the discount rates and certain assumptions that form the basis of the projected financial information (e.g., revenue growth rates and operating profit margin). These significant assumptions are forward looking and could be affected by future economic and market conditions.



	Kost Forer Gabbay & Kasierer 144 Menachem begin St. Tel-Aviv 6492102, Israel	Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com



How We Addressed the Matter in Our Audit	We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process for determining the fair value of the customer-relationship intangible asset. For example, we tested controls over management’s estimation process supporting the recognition and measurement of the intangible asset, including the review of the valuation model and significant assumptions used in the valuation model. To test the estimated fair value of the customer-relationship intangible asset, we performed audit procedures that included, among others, evaluating the Company's selection of the appropriate valuation methodology, evaluating the significant assumptions used by management and testing the completeness and accuracy of the underlying data. We involved our valuation specialists to assist with our evaluation of the methodology used by the Company and significant assumptions included in the fair value estimates. For example, we compared the significant assumptions to current industry, market and economic trends, historical results of the acquired business and to other relevant third-party industry outlooks. We also performed sensitivity analyses of the significant assumptions to evaluate the effects on the estimated fair value.
Title	Defined Benefit Pension Plan Obligations
Description of the Matter	As described in Note 17, as of December 31, 2019, the Company’s aggregate defined benefit pension obligation was $843.3 million and exceeded the fair value of pension plan assets of $289.5 million, resulting in an unfunded defined benefit pension obligation of $553.8 million. The Company updates the estimates used to measure the defined benefit pension obligation and plan assets at year-end or upon a remeasurement event to reflect updated participant data, actuarial assumptions and actual return on plan assets, among others. Auditing the defined benefit pension obligation was complex and required the involvement of specialists as a result of the judgmental nature of the significant actuarial assumptions such as discount rates, expected long-term rate of return on plan assets, future salaries increase and assumed mortality rates, used in the measurement process. These assumptions have a significant effect on the projected benefit obligation, with the discount rate being the most sensitive of those assumptions.
How We Addressed the Matter in Our Audit	We obtained an understanding, evaluated the design and tested the operating effectiveness of relevant internal controls over management's measurement and valuation of the defined benefit pension obligation. For example, we tested the internal controls over management’s review of the defined benefit pension obligation calculations, the significant actuarial assumptions and the data inputs provided to the actuaries. To test the defined benefit pension obligation, our audit procedures included, among others, evaluating the methodology used, the significant actuarial assumptions described above and the underlying data used by the Company. For example, we confirmed the consistency of the actuarial assumptions used by management and evaluated that the change in the defined benefit pension obligation from the prior year was due to the effects of service cost, interest cost, actuarial gains and losses, benefit payments, contributions and new mortality assumptions. In addition, we involved our actuarial specialists to assist in evaluating management’s methodology for determining the discount rates and that the discount rates reflect the duration of the related benefit payments. To evaluate the reasonableness of future salary increases and the mortality assumptions, we assessed whether the information is consistent with publicly available information. We also tested the completeness and accuracy of the underlying data, including the participant data used in the actuarial calculations. To evaluate the expected return on plan assets, we assessed whether management’s assumption was consistent with a range of returns for a portfolio of comparative investments.

/s/ Kost Forer Gabbay & Kasierer

A member of Ernst & Young Global

We have served as Elbit Systems' auditor since 2003.

Tel Aviv, Israel

March ~~20, 2018~~25, 2020



	Kost Forer Gabbay & Kasierer 144 Menachem begin St. Tel-Aviv 6492102, Israel		Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of Elbit Systems Ltd.

Opinion on Internal Control over Financial Reporting

We have audited Elbit Systems Ltd. ("Elbit Systems") and subsidiaries’ internal control over financial reporting as of December 31, ~~2017,~~2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Elbit Systems and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2017,~~2019, based on the COSO criteria.

As indicated in the accompanying Management’s Annual Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of a U.S. subsidiary acquired during 2019, which are included in the 2019 consolidated financial statements of the Company and constituted 6% and 1% of total and net assets, as of December 31, 2019 and 1% of revenues, for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of the subsidiary acquired during 2019.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Elbit Systems and subsidiaries as of December 31, ~~2017~~2019 and ~~2016, and~~2018, the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, ~~2017,~~2019, and the related notes and financial statement schedule and our report dated March ~~20, 2018~~25, 2020 expressed an unqualified opinion ~~thereon.~~thereon, based on our audit and the reports of the other auditors.

Basis for Opinion

Elbit Systems’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on Elbit Systems and subsidiaries’ internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.



	Kost Forer Gabbay & Kasierer 144 Menachem begin St. Tel-Aviv 6492102, Israel	Tel: +972-3-6232525 Fax: +972-3-5622555 ey.com

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Kost Forer Gabbay & Kasierer

A member of Ernst & Young Global

Tel Aviv, Israel

March ~~20, 2018~~25, 2020

~~F - 3~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
U.S. dollars (In thousands, except share data)


		December 31,					December 31,
	Note	2017		2016		Note	2019		2018

CURRENT ASSETS:
Cash and cash equivalents		$	156,074	$	222,810		$	221,060	$	208,479
Short-term bank deposits		3,126		8,882
Available-for-sale marketable securities	(9)	13,371		13,370
Trade and unbilled receivables, net	(3)	1,406,563		1,232,591
Short-term bank deposits and restricted deposits							2,213		16,447
Trade and unbilled receivables and contract assets, net						3	2,067,846		1,712,915
Other receivables and prepaid expenses	(4)	128,946		102,979		4	160,728		199,148
Inventories, net of customer advances	(5)	902,954		840,266
Inventories, net						5	1,219,920		1,141,996
Total current assets		2,611,034		2,420,898			3,671,767		3,278,985

LONG-TERM INVESTMENTS AND RECEIVABLES:
Investments in affiliated companies, partnerships and other companies	(6)	172,338		180,962		6	201,574		196,180
Long-term trade and unbilled receivables	(7)	295,396		189,688
Long-term trade and unbilled receivables and contract assets						7	259,150		297,145
Premises evacuation receivable						1C(5)	—		365,436
Long-term bank deposits and other receivables	(8)	38,082		15,917		8	58,076		42,962
Deferred income taxes, net	(18F)	51,358		79,639		18F	89,452		42,804
Severance pay fund	(2R)	298,590		264,253		2R	287,104		278,732
		855,764		730,459			895,356		1,223,259

OPERATING LEASE RIGHT OF USE ASSETS						9	365,763		—

PROPERTY, PLANT AND EQUIPMENT, NET	(10)	495,716		474,109		10	766,532		686,620

GOODWILL	(11)	646,715		616,997		11	1,340,617		1,022,624

OTHER INTANGIBLE ASSETS, NET	(11)	105,688		109,401		11	295,323		239,297

Total assets		$	4,714,917	$	4,351,864
TOTAL ASSETS							$	7,335,358	$	6,450,785

The accompanying notes are an integral part of the consolidated financial statements.

~~F - 4~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
U.S. dollars (In thousands, except share data)


		December 31,							December 31,
	Note	2017			2016			Note	2019			2018

CURRENT LIABILITIES:
Short-term bank credit and loans	(12)	$	133,750		$	5,027		12	$	208,399		$	208,821
Current maturities of long-term loans and Series A Notes	(15,16)	67,556			228,956			15,16	199,882			62,546
Operating lease liabilities								9	62,565			—
Trade payables		633,689			514,106				926,338			776,100
Other payables and accrued expenses	(13)	835,394			828,716			13	1,052,080			1,081,992
Customer advances in excess of costs incurred on contracts in progress	(14)	418,560			347,393
Contract liabilities (customer advances)								14	723,581			780,994
Total current liabilities		2,088,949			1,924,198				3,172,845			2,910,453

LONG-TERM LIABILITIES:
Long-term loans, net of current maturities	(15)	119,514			475			15	440,124			467,649
Series A Notes, net of current maturities	(16)	124,865			171,066			16	—			56,303
Employee benefit liabilities	(2R)	413,117			376,115			2R	836,535			736,798
Deferred income taxes and tax liabilities, net	(18F)	68,159			60,098			18F	114,419			78,677
Customer advances in excess of costs incurred on contracts in progress	(14)	133,649			174,529
Contract liabilities (customer advances)								14	62,830			175,890
Operating lease liabilities								9	323,287			—
Other long-term liabilities		48,692			78,142			20	225,478			170,607
Total long-term liabilities		907,996			860,425				2,002,673			1,685,924

COMMITMENTS AND CONTINGENT LIABILITIES	(20)							21

EQUITY:	(21)							22
Elbit Systems Ltd. equity:
Share capital:
Ordinary shares of 1 New Israeli Shekels (“NIS”) par value each; Authorized – 80,000,000 shares as of December 31, 2017 and 2016; Issued 44,159,951 and 44,154,737 shares as of December 31, 2017 and 2016, respectively; Outstanding 42,751,030 and 42,745,816 shares as of December 31, 2017 and 2016, respectively		12,347			12,345
Ordinary shares of 1 New Israeli Shekels (“NIS”) par value each; Authorized – 80,000,000 shares as of December 31, 2019 and 2018; Issued 44,198,330 shares as of December 31, 2019 and 2018, respectively; Outstanding 44,198,330 and 42,789,409 shares as of December 31, 2019 and 2018, respectively									12,742			12,348
Additional paid-in capital		262,122			261,992				411,568			263,556
Treasury shares – 1,408,921 as of December 31, 2017 and 2016		(40,428		)	(40,428		)
Treasury shares – 1,408,921 as of December 31, 2018									—			(40,428		)
Accumulated other comprehensive loss		(87,652		)	(72,181		)		(144,963		)	(94,944		)
Retained earnings		1,561,921			1,398,112				1,862,059			1,691,921
Total Elbit Systems Ltd. equity		1,708,310			1,559,840				2,141,406			1,832,453
Non-controlling interests		9,662			7,401				18,434			21,955
Total equity		1,717,972			1,567,241				2,159,840			1,854,408

Total liabilities and equity		$	4,714,917		$	4,351,864
TOTAL LIABILITIES AND EQUITY									$	7,335,358		$	6,450,785

The accompanying notes are an integral part of the consolidated financial statements.

~~F - 5~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
U.S. dollars (In thousands, except per share data)


		Year ended December 31,										Year ended December 31,
	Note	2017			2016			2015			Note	2019			2018			2017
Revenues	(22)	$	3,377,825		$	3,260,219		$	3,107,581		2T, 23	$	4,508,400		$	3,683,684		$	3,377,825
Cost of revenues		2,379,905			2,300,636			2,210,528				3,371,933			2,707,505			2,374,775
Gross profit		997,920			959,583			897,053				1,136,467			976,179			1,003,050
Operating expenses:
Research and development, net	(23)	265,060			255,792			243,416			24	331,757			287,352			265,060
Marketing and selling, net		280,246			271,037			239,366				301,400			281,014			280,246
General and administrative, net	(1C(6))	133,314			151,353			145,693				214,749			160,348			133,314
Other operating income, net	(1C)	—			(17,575		)	—			6C, 9D	(33,049		)	(45,367		)	—
Total operating expenses		678,620			660,607			628,475				814,857			683,347			678,620

Operating income		319,300			298,976			268,578				321,610			292,832			324,430
Financial expenses, net	(24)	(34,502		)	(23,742		)	(20,240		)	25	(69,072		)	(44,061		)	(34,502		)
Other income, net	(25)	48			3,967			216
Other expense, net											26	(6,243		)	(11,449		)	(5,082		)
Income before income taxes		284,846			279,201			248,554				246,295			237,322			284,846
Income taxes	(18D)	(55,585		)	(45,617		)	(46,235		)	18D	(19,414		)	(26,445		)	(55,585		)
		229,261			233,584			202,319				226,881			210,877			229,261
Equity in net earnings of affiliated companies and partnerships	(6B)	11,361			5,224			4,542
Equity in net earnings (losses) of affiliated companies and partnerships											6B	1,774			(2,222		)	11,361
Net income		$	240,622		$	238,808		$	206,861			$	228,655		$	208,655		$	240,622
Less: net income attributable to non-controlling interests		(1,513		)	(1,899		)	(4,352		)		(798		)	(1,917		)	(1,513		)
Net income attributable to Elbit Systems Ltd.’s shareholders		$	239,109		$	236,909		$	202,509			$	227,857		$	206,738		$	239,109

Basic net earnings per share attributable to Elbit Systems Ltd.’s shareholders	(21)	$	5.59		$	5.54		$	4.74		22	$	5.20		$	4.83		$	5.59
Diluted net earnings per share attributable to Elbit Systems Ltd.’s shareholders		$	5.59		$	5.54		$	4.74			$	5.20		$	4.83		$	5.59

Weighted average number of shares used in computation of basic net earnings per share		42,750			42,742			42,711				43,787			42,789			42,786
Weighted average number of shares used in computation of diluted net earnings per share		42,753			42,752			42,733				43,848			42,789			42,789

The accompanying notes are an integral part of the consolidated financial statements.

~~F - 6~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
U.S. dollars (In thousands)


	Year ended December 31,									Year ended December 31,
	2017			2016			2015			2019			2018			2017
Net income	$	240,622		$	238,808		$	206,861		$	228,655		$	208,655		$	240,622

Other comprehensive income (loss),net of tax:^(*)
Other comprehensive income (loss), net of tax:^(*)
Foreign currency translation differences	8,169			(8,471		)	(13,917		)	7,362			(19,705		)	8,169
Unrealized gains (losses) on derivative instruments, net of tax	(22,224		)	6,741			30,632			9,965			3,805			(22,224		)
Pension and other post-retirement benefit plans, net of tax	(662		)	(56		)	7,892			(66,806		)	7,970			(662		)
Unrealized losses on available-for-sale marketable securities, net of tax	(6		)	(11		)	(59		)	—			(11		)	(6		)
	(14,723		)	(1,797		)	24,548			(49,479		)	(7,941		)	(14,723		)
Total comprehensive income	225,899			237,011			231,409			179,176			200,714			225,899
Less: comprehensive income attributable to non-controlling interest	(2,261		)	(673		)	(3,927		)	(1,338		)	(1,268		)	(2,261		)
Comprehensive income attributable to Elbit Systems Ltd.’s shareholders	$	223,638		$	236,338		$	227,482		$	177,838		$	199,446		$	223,638


^(*)	Other comprehensive income (loss), net of tax expenses in the amounts of ~~$5,199, $1,904~~$924, $2,175 and ~~$9,209~~$5,199 for the years ~~2017, 2016~~2019, 2018 and ~~2015,~~2017, respectively.

The accompanying notes are an integral part of the consolidated financial statements.

~~F - 7~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

STATEMENTS OF CHANGES IN EQUITY
U.S. dollars (In thousands, except share data)


	Number of outstanding shares	Share capital		Additional paid–in capital		Accumulated other comprehensive income (loss)			Retained earnings			Treasury shares			Non– controlling interest			Total equity			Number of outstanding shares	Share capital		Additional paid–in capital		Accumulated other comprehensive income (loss)			Retained earnings			Treasury shares			Non– controlling interest		Total equity
Balance as of January 1, 2015	42,685,495	$	12,330	$	259,677	$	(96,583	)	$	1,088,711		$	(40,428	)	$	12,228		$	1,235,935
Balance as of January 1, 2017																					42,782,043	$	12,345	$	261,992	$	(72,181	)	$	1,398,112		$	(40,428	)	$	7,401	$	1,567,241

Exercise of options	44,573	11		1,605		—			—			—			—			1,616			5,214	2		117		—			—			—			—		119

Stock-based compensation	—	—		139		—			—			—			—			139			—	—		13		—			—			—			—		13
																										��
Dividends paid	—	—		—		—			(61,570		)	—			(8,222		)	(69,792		)	—	—		—		—			(75,300		)	—			—		(75,300		)

Purchase of subsidiaries shares, net	—	—		—		—			—			—			120			120

Other comprehensive loss, net of tax expense of $9,209	—	—		—		24,973			—			—			(425		)	24,548
Other comprehensive income, net of tax expense of $5,199																					—	—		—		(15,471		)	—			—			748		(14,723		)

Net income attributable to non-controlling interests	—	—		—		—			—			—			4,352			4,352			—	—		—		—			—			—			1,513		1,513

Net income attributable to Elbit Systems Ltd.'s shareholders	—	—		—		—			202,509			—			—			202,509			—	—		—		—			239,109			—			—		239,109

Balance as of December 31, 2015	42,730,068	$	12,341	$	261,421	$	(71,610	)	$	1,229,650		$	(40,428	)	$	8,053		$	1,399,427
Balance as of December 31, 2017																					42,787,257	$	12,347	$	262,122	$	(87,652	)	$	1,561,921		$	(40,428	)	$	9,662	$	1,717,972

The accompanying notes are an integral part of the consolidated financial statements.

~~F - 8~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

STATEMENTS OF CHANGES IN EQUITY
~~U.S. dollars (In thousands, except share data)~~

Number of
outstanding
shares

Share
capital

Additional
paid–in
capital

Accumulated
other
comprehensive
income (loss)

Retained
earnings

Treasury
shares

Non–
controlling
interest

Total
equity
Balance as of January 1, 2016 42,730,068
$ 12,341
$ 261,421
$ (71,610 ) $ 1,229,650
$ (40,428 ) $ 8,053
$ 1,399,427

Exercise of options 15,748
4
501
—
—
—
—
505

Stock-based compensation —
—
70
—
—
—
—
70

Purchase of minority interest shares, net —
—
—
—
—
—
(1,325 ) (1,325 )

Dividends paid —
—
—
—
(68,447 ) —
—
(68,447 )

Other comprehensive income, net of tax expense of $1,904 —
—
—
(571 ) —
—
(1,226 ) (1,797 )

Net income attributable to non-controlling interests —
—
—
—
—
—
1,899
1,899

Net income attributable to Elbit Systems Ltd.'s shareholders —
—
—
—
236,909
—
—
236,909

Balance as of December 31, 2016 42,745,816
$ 12,345
$ 261,992
$ (72,181 ) $ 1,398,112
$ (40,428 ) $ 7,401
$ 1,567,241

~~The accompanying notes are an integral part of the consolidated financial statements.~~

~~F - 9~~



	~~ELBIT SYSTEMS LTD. AND SUBSIDIARIES~~

~~STATEMENTS OF CHANGES IN EQUITY~~
U.S. dollars (In thousands, except share data)


	Number of outstanding shares	Share capital		Additional paid–in capital		Accumulated other comprehensive income (loss)			Retained earnings			Treasury shares			Non– controlling interest		Total equity			Number of outstanding shares	Share capital		Additional paid–in capital		Accumulated other comprehensive income (loss)			Retained earnings			Treasury shares			Non– controlling interest			Total equity
Balance as of January 1, 2017	42,745,816	$	12,345	$	261,992	$	(72,181	)	$	1,398,112		$	(40,428	)	$	7,401	$	1,567,241
Balance as of January 1, 2018																				42,787,257	$	12,347	$	262,122	$	(87,652	)	$	1,561,921		$	(40,428	)	$	9,662		$	1,717,972

Cumulative effect of adoption of ACS Topic 606																				—	—		—		—			(1,433		)	—			—			(1,433		)

Exercise of options	5,214	2		117		—			—			—			—		119			2,152	1		47		—			—			—			—			48

Stock-based compensation	—	—		13		—			—			—			—		13			—	—		1,387		—			—			—			—			1,387

Dividends paid	—	—		—		—			(75,300		)	—			—		(75,300		)	—	—		—		—			(75,305		)	—			—			(75,305		)

Other comprehensive loss, net of tax expense of $5,199	—	—		—		(15,471		)	—			—			748		(14,723		)
Minority interest related to IMI's acquisition																				—	—		—		—			—			—			11,025			11,025

Other comprehensive loss, net of tax expense of $2,175																				—	—		—		(7,292		)	—			—			(649		)	(7,941		)

Net income attributable to non- controlling interests	—	—		—		—			—			—			1,513		1,513			—	—		—		—			—			—			1,917			1,917

Net income attributable to Elbit Systems Ltd.'s shareholders	—	—		—		—			239,109			—			—		239,109			—	—		—		—			206,738			—			—			206,738

Balance as of December 31, 2017	42,751,030	$	12,347	$	262,122	$	(87,652	)	$	1,561,921		$	(40,428	)	$	9,662	$	1,717,972
Balance as of December 31, 2018																				42,789,409	$	12,348	$	263,556	$	(94,944	)	$	1,691,921		$	(40,428	)	$	21,955		$	1,854,408

The accompanying notes are an integral part of the consolidated financial statements.

~~F - 10~~



			ELBIT SYSTEMS LTD. AND SUBSIDIARIES
~~CONSOLIDATED~~
STATEMENTS OF ~~CASH FLOWS~~			CHANGES IN EQUITY
U.S. dollars (In thousands, )except share data)

Year ended December 31,
2017 2016 2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 240,622
$ 238,808
$ 206,861
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 114,017
122,888
122,354
Write-off impairment on marketable securities —
86
—
Stock-based compensation 13
70
139
Amortization of Series A Notes discount (premium) and related issuance costs, net (92 ) (92 ) (92 )
Deferred income taxes and reserve, net 28,774
2,683
15,928
Loss (gain) on sale of property, plant and equipment (2,440 ) (3,347 ) 1,742
Loss (gain) on sale of investments and deconsolidation of subsidiary 1,358
(16,734 ) 33
Equity in net (earnings) losses of affiliated companies and partnerships, net of dividend received^(*)
(1,987 ) (1,728 ) 19,999
Changes in operating assets and liabilities, net of amounts acquired:

Decrease (increase) in short and long-term trade receivables, and prepaid expenses (315,236 ) (297,439 ) 31,860
Decrease (increase) in inventories, net (59,699 ) (8,040 ) 39,801
Increase (decrease) in trade payables, other payables and accrued expenses 63,273
253,413
(74,280 )
Severance, pension and termination indemnities, net 2,003
315
(799 )
Increase (decrease) in advances received from customers 30,287
(82,881 ) 71,282
Net cash provided by operating activities 100,893
208,002
434,828

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property, plant and equipment and other assets (107,880 ) (124,221 ) (99,175 )
Acquisitions of subsidiaries and business operations (Schedule A) (25,440 ) —
(141,436 )
Investments in affiliated companies and other companies (4,964 ) (19,277 ) (23,852 )
Deconsolidation of subsidiary^(**)
—
(1,538 ) —
Proceeds from sale of property, plant and equipment 6,270
15,745
11,563
Proceeds from sale of investments 12,067
—
—
Investment in long-term deposits (1,396 ) (417 ) (396 )
Proceeds from sale of long-term deposits 176
894
721
Investment in short-term deposits and available-for-sale marketable securities (40,893 ) (25,622 ) (57,175 )
Proceeds from sale of short-term deposits and available-for-sale marketable securities 46,491
36,619
128,187
Net cash used in investing activities (115,569 ) (117,817 ) (181,563 )

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from exercise of options 119
505
1,616
Repayment of long-term loans (167,425 ) (48,250 ) (226,635 )
Proceeds from long-term loans 118,623
—
196,550
Repayment of Series A Notes (55,532 ) (55,532 ) (55,532 )
Dividends paid ^(***)
(75,300 ) (68,447 ) (69,792 )
Change in short-term bank credit and loans, net 127,455
5,027
(557 )
Net cash used in financing activities (52,060 ) (166,697 ) (154,350 )

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (66,736 ) (76,512 ) 98,915
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR $ 222,810
$ 299,322
$ 200,407
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR $ 156,074
$ 222,810
$ 299,322

^(*)Dividends received from affiliated companies and partnerships
$ 9,374
$ 3,496
$ 24,541



	Number of outstanding shares	Share capital		Additional paid–in capital		Accumulated other comprehensive income (loss)			Retained earnings			Treasury shares			Non– controlling interest			Total equity
Balance as of January 1, 2019	42,789,409	$	12,348	$	263,556	$	(94,944	)	$	1,691,921		$	(40,428	)	$	21,955		$	1,854,408

Stock-based compensation	—	—		3,994		—			—			—			—			3,994

Issuance of treasury shares	1,408,921	394		144,018		—			—			40,428			—			184,840

Dividends paid	—	—		—		—			(57,719		)	—			(4,859		)	(62,578		)

Other comprehensive loss, net of tax expense of $924	—	—		—		(50,019		)	—			—			540			(49,479		)

Net income attributable to non- controlling interests	—	—		—		—			—			—			798			798

Net income attributable to Elbit Systems Ltd.'s shareholders	—	—		—		—			227,857			—			—			227,857

Balance as of December 31, 2019	44,198,330	$	12,742	$	411,568	$	(144,963	)	$	1,862,059		$	—		$	18,434		$	2,159,840

^(**)D~~uring 2016, an Israeli subsidiary was deconsolidated. See Note 1(C)(5) and Note 6(B)(7).~~

^(***)~~Dividends paid in 2015 included approximately $8,222 in dividends paid by a subsidiary to non-controlling interests.~~

The accompanying notes are an integral part of the consolidated financial statements.

~~F - 11~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars (In thousands )

SUPPLEMENTAL CASH FLOW ACTIVITIES:
Year ended December 31,
2017 2016 2015
Cash paid during the year for:
Income taxes, net $ 47,707
$ 28,603
$ 37,410

Interest $ 9,379
$ 6,254
$ 3,631

Schedule A: Acquisitions of subsidiaries and business operations Year ended December 31,
2017 2016 2015
Estimated net fair value of assets acquired and liabilities assumed at the date of acquisition was as follows:

Working capital, net (excluding cash and cash equivalents) $ (10,454 ) $ —
$ (7,210 )
Property, plant and equipment 672
—
3,368
Other long-term assets —
—
(250 )
Goodwill and other intangible assets 50,185
—
183,718
Deferred income taxes (3,543 ) —
2,606
Long-term liabilities (11,420 ) —
(40,796 )
$ 25,440
$ —
$ 141,436



	Year ended December 31,
	2019			2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	228,655		$	208,655		$	240,622
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	137,146			118,205			114,017
Write-off impairment	3,692			13,334			—
Stock-based compensation	3,994			1,387			13
Amortization of Series A Notes discount (premium) and related issuance costs, net	(93		)	(92		)	(92		)
Deferred income taxes and reserve, net	(15,059		)	13,724			28,774
Loss (gain) on sale of property, plant and equipment	(34,154		)	2,080			(2,440		)
Loss (gain) on sale of investments, remeasurement of investments held under fair value method and deconsolidation of subsidiary	(7,928		)	(41,822		)	1,358
Equity in net (earnings) losses of affiliated companies and partnerships, net of dividend received^(*)	8,526			17,929			(1,987		)
Changes in operating assets and liabilities, net of amounts acquired:
Increase in short and long-term trade and unbilled receivables and contract assets, net and prepaid expenses	(267,924		)	(89,099		)	(315,236		)
Increase in inventories, net	(55,841		)	(117,221		)	(59,699		)
Increase (decrease) in trade payables, other payables and accrued expenses	115,621			(89,956		)	63,273
Severance, pension and termination indemnities, net	4,629			(31,363		)	2,003
Increase (decrease) in contract liabilities (customer advances)	(174,582		)	185,898			30,287
Net cash provided by operating activities	(53,318		)	191,659			100,893

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment and other assets	(137,604		)	(102,301		)	(107,880		)
Acquisitions of subsidiaries and business operations (Schedule A)	(357,144		)	(504,447		)	(25,440		)
Investments in affiliated companies and other companies	(8,567		)	(7,538		)	(4,964		)
Proceeds from premises evacuation grants receivable	344,913			—			—
Deconsolidation of subsidiary (Schedule B)	—			(2,873		)	—
Proceeds from sale of property, plant and equipment	36,671			4,388			6,270
Proceeds from sale of investments	—			—			12,067
Investment in long-term deposits	(289		)	(183		)	(1,396		)
Proceeds from sale of long-term deposits	251			82			176
Investment in short-term deposits and available-for-sale marketable securities	(2,314		)	(10,361		)	(40,893		)
Proceeds from sale of short-term deposits and available-for-sale marketable securities	17,294			30,363			46,491
Net cash used in investing activities	(106,789		)	(592,870		)	(115,569		)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of options	—			48			119
Issuance of treasury shares, net	184,840			—			—
Repayment of long-term loans	(243,324		)	(775		)	(167,425		)
Proceeds from long-term loans	350,000			342,528			118,623
Repayment of Series A Notes	(55,532		)	(55,532		)	(55,532		)
Dividends paid	(62,578		)	(75,305		)	(75,300		)
Change in short-term bank credit and loans, net	(718		)	242,652			127,455
Net cash used in financing activities	172,688			453,616			(52,060		)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	12,581			52,405			(66,736		)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR	$	208,479		$	156,074		$	222,810
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR	$	221,060		$	208,479		$	156,074

^(*)Dividends received from affiliated companies and partnerships	$	10,300		$	15,707		$	9,374

The accompanying notes are an integral part of the consolidated financial statements.



ELBIT SYSTEMS LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars (In thousands )



SUPPLEMENTAL CASH FLOW ACTIVITIES:
	Year ended December 31,
	2019		2018		2017
Cash paid during the year for:
Income taxes, net	$	12,850	$	26,463	$	47,707

Interest	$	35,301	$	30,304	$	16,139

~~F - 12~~



Schedule A: Acquisitions of subsidiaries and business operations	Year ended December 31,
	2019			2018			2017
Estimated net fair value of assets acquired and liabilities assumed at the date of acquisition was as follows:
Working capital (deficit), net (excluding cash and cash equivalents )	$	15,056		$	(105,392	)	$	(10,454	)
Property, plant and equipment	32,770			200,115			672
Other long-term assets	(2,537		)	386,101			—
Goodwill and other intangible assets	334,126			550,115			50,185
Deferred income taxes	1,204			(5,633		)	(3,543		)
Employee benefit liabilities, net	(19,930		)	(382,871		)	—
Long-term liabilities	(3,545		)	(126,963		)	(11,420		)
Non-controlling interest	—			(11,025		)	—
	$	357,144		$	504,447		$	25,440



Schedule B: Deconsolidation of subsidiary	Year ended December 31,
	2019		2018			2017
Estimated net fair value of assets and liabilities that exited consolidation scope was as follows:
Working capital, net (excluding cash and cash equivalents)	$	—	$	2,514		$	—
Other long term liabilities	—		838			—
Property, plant and equipment	—		(1,938		)	—
Fair value of investment / interest retained	—		43,350			—
Gain from deconsolidation	—		(41,891		)	—
Deconsolidation of subsidiary's cash, net	$	—	$	2,873		$	—

The accompanying notes are an integral part of the consolidated financial statements.



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 1 - GENERAL

~~A. GENERAL DESCRIPTION~~


A.	GENERAL

Elbit Systems Ltd. (“Elbit Systems” or the “Company”) is an Israeli corporation that is ~~45.80%~~44.30% owned by the Federmann Group. Elbit Systems’ shares are traded on the Nasdaq National Market in the United States (“Nasdaq”) and on the Tel-Aviv Stock Exchange (“TASE”). Elbit Systems and its subsidiaries (collectively the “Company”) are engaged mainly in the fields of defense, homeland security and commercial aviation. Elbit ~~Systems’~~Systems' major wholly-owned subsidiaries are the Elbit Systems of America, LLC (“ESA”) companies, Elbit Systems Electro-Optics Elop Ltd. (“Elop”), Elbit Systems ~~Land~~C4I and ~~C4I~~Cyber Ltd. (“~~ESLC”~~C4I and Cyber”) ~~and~~, Elbit Systems EW and SIGINT - Elisra Ltd. (“Elisra”) and Elbit Systems Land Ltd. (“ELS”).

~~B. SALES TO GOVERNMENTAL AGENCIES~~


B.	SALES TO GOVERNMENTAL AGENCIES

The Company derives a majority of its revenues from direct or indirect sales to governments or governmental agencies. As a result, these sales are subject to the special risks associated with sales to governments or governmental agencies. These risks include, among others, dependence on the resources allocated by governments to defense programs, changes in governmental priorities, anti-corruption regulations, changes in governmental regulations, cyber security and information assurance requirements and changes in governmental approvals regarding export licenses required for the Company’s products and for its suppliers. As for major customers, refer to Note ~~22(C).~~23C.


C.	ACQUISITIONS AND INVESTMENTS

~~(1)~~1.

In September 2019, ESA completed the acquisition of the night vision business of L3Harris Technologies (the "Night Vision Business") for a purchase price of approximately $351,500 subject to working capital adjustments. Located in Roanoke, Virginia, the Night Vision Business is engaged in the development, production and supply of night vision technology for the U.S. and allied military and security forces and for the U.S. federal homeland security market. Following the acquisition, the Night Vision Business operates as Elbit Night Vision (“ENV”).

The results of operations of ENV were consolidated in the Company's financial statements commencing on the date of acquisition and were immaterial to the Company's results of operations for the year ended December 31, 2019.

Based on a preliminary Purchase Price Allocation ("PPA") performed by independent adviser, the purchase price was attributed to the fair value of assets acquired and liabilities assumed from the seller as follows:



	Fair value		Expected useful lives
Net tangible assets and liabilities assumed (current and non-current), excluding cash and cash equivalents	$	29,287
Technology	37,000		8 years
Customer relationships	67,000		20 years
Customer backlog	6,500		3 years
Goodwill	211,727
	$	351,514

The Company is in the process of completing the valuation of the net tangible and intangible assets acquired and liabilities assumed, and its estimate of these values was still preliminary on December 31, 2019. Therefore, these provisional amounts are subject to change as the Company completes the valuation throughout the measurement period, which will be completed within 12 months of the acquisition date.

Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired, and is attributable primarily to expected synergies, economies of scale and the assembled workforce of ENV.



ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 1 - GENERAL (Cont.)


C.	ACQUISITIONS AND INVESTMENTS (Cont.)


1.	Expenses related to the Night Vision Business acquisition and other non-recurring expenses:

During the fourth quarter of 2019, following the acquisition of the Night Vision Business, the Company initiated a reorganization plan, which includes charges related to the integration of ENV, primarily associated with write-off of pre-contract costs and impairment of property, plant and equipment. Total expenses related to the the Night Vision Business acquisition and other non-recurring expenses amounted to approximately $55,030, as follows:



Expense type	2019
Inventory write-off	$	54,713
Long-lived assets write-off	317
	$	55,030



Expense category
Cost of revenue	$	55,030

The results of operations of ENV were consolidated from the date of acquisition. Pro forma information has not been provided because the impact of ENV's financial results was not material to the revenue and net income of the Company.

In January 2019, the Company completed the acquisition of a 100% of an Israeli affiliated company, previously held by the Company at 19%, for a purchase price of approximately $11,800, of which approximately $4,050 is contingent consideration, which may become payable on the occurrence of certain future events. Based on a PPA performed by an independent adviser, the purchase price was attributed mainly to goodwill (approximately $9,200) and to other intangible assets (approximately $2,700). The results of operation of the acquired company were consolidated in the Company's financial statements commencing on the date of acquisition. The effects of this acquisition on consolidated revenues and net income were immaterial. Pro-forma information was not provided due to immateriality. As of December 31, 2019, the contingent consideration was $3,545.


3.	In April 2018, the Company completed the acquisition of the assets and operations of the privately-owned U.S. company Universal Avionics Systems Corporation (“Universal”), for a total consideration of approximately $123,581. Universal is a developer and manufacturer of commercial avionics systems for the retrofit and forward-fit market for a wide range of fixed and rotary aircraft types.

Based on a PPA performed by an independent adviser, the purchase price was attributed to the fair value of assets acquired and liabilities assumed as follows:



	Fair value		Expected useful lives
Net tangible assets and liabilities assumed (current and non-current), excluding cash and cash equivalents	$	52,509
Technology	21,128		15 years
Customer relationships	13,924		15 years
Trademark	4,960		20 years
Goodwill	31,060
	$	123,581

The results of operations of Universal were consolidated from the date of acquisition. Pro forma information has not been provided because the impact of Universal's financial results was not material to the revenue and net income of the Company.

Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired.



ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 1 - GENERAL (Cont.)


C.	ACQUISITIONS AND INVESTMENTS (Cont.)

In the second quarter of 2018, an Israeli subsidiary operating in the filed of commercial cybersecurity was deconsolidated following an investment by a third party, which holds certain substantial participation rights, resulting in loss of control over the subsidiary. As a result, the Company recognized in other operating income a net gain related to the revaluation of the shares held by the Company of approximately $42,000 (see Note 6C(1)). In addition, in the second quarter of 2018, a third party invested in a newly established Israeli subsidiary acting in the area of surgeon-centered visualization technologies, resulting in loss of control of the subsidiary because the third party investor holds certain substantial participation rights. As a result, the Company recognized in other operating income a net gain of approximately $3,500 related to revaluation of the shares held by the Company (see Note 6C(2)).

On November 25, 2018, the Company completed the acquisition of 100% of the interests in an Israeli company, IMI Systems Ltd. and its subsidiaries (collectively: "IMI"), for a total nominal consideration of approximately $520,000 (approximately NIS 1,900 million).The consideration is comprised of the following: approximately $380,000 (approximately NIS 1,400 million) paid in cash, approximately $24,000 (approximately NIS 90 million) is contingent consideration recorded at fair value, subject to IMI achieving agreed performance goals, which may become payable on the occurrence of certain future events, and approximately $94,000 (approximately NIS 350 million) at present value are deferred payments to be paid in 2020 and 2022. As of December 31, 2019, the contingent consideration was approximately $26,400.

The results of operations of the acquired company were consolidated in the Company's financial statements commencing on the date of acquisition.

IMI is engaged primarily in the development and manufacture of precision munitions and armored vehicle survivability and protection systems.

The preliminary PPA was based on information available at the time of closing the IMI acquisition. The Company finalized the PPA for IMI as of December 31, 2019. The following table summarizes the preliminary PPA and adjustments since the preliminary PPA was disclosed as of December 31, 2018:



	Preliminary estimated fair value			Adjustments			Fair value^(*)			Average expected useful lives
Net tangible assets and liabilities assumed (current and non-current)	$	39,405		$	(12,846	)	$	26,559
Employees benefit liabilities, net	(386,101		)	(5,143		)	$	(391,244	)
Premises evacuation receivable	370,089			(14,927		)	$	355,162
Backlog	18,600			—			$	18,600		mainly 10
Technology	52,905			(34,114		)	$	18,791		mainly 8
Customer relationships	52,131			—			$	52,131		mainly 10
Goodwill	351,426			67,030			$	418,456
	$	498,455		$	—		$	498,455


^(*)	During 2019, the Company adjusted the PPA as a result of receiving certain information which existed as of the date of acquisition.



ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 1 - GENERAL (Cont.)


C.	ACQUISITIONS AND INVESTMENTS (Cont.)


5.	Goodwill represents the purchase price paid in excess of the fair value of net tangible and intangible assets acquired, and is attributable primarily to expected synergies, economies of scale and the assembled workforce of IMI.

Further to the acquisition agreement, the Company was entitled to premises evacuation compensation in the amount of approximately $365,000 (approximately NIS 1,365 million) , upon the relocation of certain of IMI's facilities. During 2019, the Company sold the premises evacuation receivable for the amount of approximately $345,000 to an Israeli bank and accounted of the transaction as true sale under ASC 860. The Company is still entitled to receive building inputs index adjustmentson the base premises evacuation receivable, which is recorded as a financial asset measured at fair value in the amount of approximately $31,000. (See Note 8).

Following are the supplemental consolidated financial results of the Company on an unaudited pro forma basis, as if the IMI acquisition had been consummated on January 1, 2017 (unaudited):



	December 31,
	2018			2017
Proforma revenue	$	4,028,656		$	3,941,825
Proforma net income (loss)	$	(18,758	)	$	216,109

Proforma earnings (loss) per share:
Basic	$	(0.44	)	$	5.06
Diluted	$	(0.44	)	$	5.05

These proforma results were based on estimates and assumptions, which the Company believes are reasonable. They are not necessarily the results that would have been realized had the Company and IMI been a combined company during the periods presented and are not necessarily indicative of the Company's consolidated results of operations in future periods. The pro forma results include adjustments related to purchase accounting, primarily amortization of intangible assets, depreciation related to the excess of cost over equity attributable to purchased real estate, property, plant and equipment and elimination of inter-company transactions.

Expenses related to the IMI acquisition and other non-recurring expenses:

During the fourth quarter of 2018, following the acquisition of IMI, the Company initiated a reorganization plan, which includes charges related to the integration of IMI, primarily associated with plans to abandon duplicate facilities, manufacturing and supply chain infrastructure, write-off of pre-contract costs and impairment of property, plant and equipment and intangible assets. Total expenses related to the IMI acquisition and other non-recurring expenses amounted to approximately $69,464, as follows:



ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 1 - GENERAL (Cont.)


C.	ACQUISITIONS AND INVESTMENTS (Cont.)



Expense type	2018
Inventory write-off	$	43,487
Employees related costs^(*)	12,709
Long-lived assets write-off	2,700
Intangibles write-off	5,520
Other	5,048
	$	69,464



Expense category	2018
Cost of revenue	$	66,636
Marketing and selling	128
Other income	2,700
	$	69,464


(*)	Employees related costs represent non-recurring expenses related to certain reorganizational activities, primarily related to one-time payments to certain Israeli subsidiaries' employees under collective bargaining agreements. In addition, other income includes impairment charges on one of the Company's affiliates that was assessed to be impaired given the more advanced IMI technology.

In June 2017, the Company completed the acquisition of a 100% interest in a Canadian company for a purchase price of approximately $20,200, of which $10,500 is contingent consideration, which may become payable on the occurrence of certain future events. Based on a ~~purchase price allocation (“PPA”)~~PPA performed by an independent adviser, the purchase price was attributed mainly to goodwill (approximately $9,500) and to other intangible assets (approximately $9,500). The results of operation of the acquired company were consolidated in the Company's financial statements commencing on the date of ~~acquisition.The effect~~acquisition. The effects on consolidated revenues and net income were immaterial. Pro-forma information was not provided due to immateriality. During 2019, the Company reevaluated its contingent consideration and as of December 31, 2019 the contingent consideration was $6,622.

~~(2)~~7.

~~Also, in~~In June 2017, the Company completed the acquisition of a 100% interest in a Brazilian company for a purchase price of approximately $23,000, of which approximately $9,700 is contingent consideration, which may become payable on the occurrence of certain future events. Based on a PPA performed by an independent adviser, the purchase price was attributed mainly to goodwill (approximately $15,600) and to other intangible assets (approximately $12,300). The results of operation of the acquired company were consolidated in the Company's financial statements commencing on the date of ~~acquisition.The effect~~acquisition. The effects on consolidated revenues and net income were immaterial. Pro-forma information was not provided due to immateriality.

~~(3)~~

In As of December 31, 2019, the third quarter of 2016, a third party invested in a newly established Israeli subsidiary acting in the area of energy technology solutions for civilian transportation applications. The third party investor holds certain substantial participation rights. As a result, the Company recognized in other operating income a net gain of approximately $10,500 related to valuation of the shares previously held by the Company.


~~(4)~~	In the second quarter of 2016, the Company invested approximately $13,400 in a U.K. company that is a joint venture held 50% by a wholly-owned U.K. subsidiary of the Company and 50% by Kellogg Brown & Root Limited (“KBR”). The joint venture is engaged in the area of flight training systems.contingent consideration was $7,960.

~~F - 13~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

~~Note 1 - GENERAL (Cont.)~~


C.	~~ACQUISITIONS AND INVESTMENTS (Cont.)~~


~~(5)~~	In the first quarter of 2016, an Israeli subsidiary was deconsolidated following an investment by a third party, which included certain substantial participating rights. As a result, the Company recognized in other operating income a net gain related to the revaluation of the investment of approximately $7,000.


~~(6)~~	In July 2015, the Company acquired a division from an Israeli-based company (the “Seller”), for a total consideration of approximately $154,000, of which approximately $40,000 is contingent consideration, which may become payable on the occurrence of certain future events.

~~Based on a PPA performed by an independent adviser, the purchase price was attributed to the fair value of assets acquired and liabilities assumed from the seller as follows:~~

Fair value Expected useful lives
Net tangible assets and liabilities assumed (current and non-current) $ (10,287 )
Technology 31,997
7.5 years
In-process research and development (“IPR&D”) 714
2.5 years
Customer relationships 9,127
8.5 years
Backlog 11,689
5.5 years
Goodwill 111,142

$ 154,382

The results of operation of the acquired business were consolidated in the Company's financial statements commencing on the date of acquisition. The effects on consolidated revenues and net income were immaterial. Pro-forma information was not provided due to immateriality.

In December 2016, following certain claims and allegations demanding indemnification pursuant to the asset purchase agreement, the Company signed a settlement agreement with the Seller, in which the parties agreed on certain cash payments and a reduction of up to $4,000 from any contingent consideration payment to Seller. During 2017, the Company recognized a reduction of approximately $31,200 in its contingent consideration related to the acquisition of the division from the Seller (the reductions in the contingent consideration offset general and administrative expenses).

~~(7)~~

In April 2015, the Company completed the acquisition of a 100% interest in an Israeli company for a purchase price of approximately $24,000. Based on a PPA performed by an independent adviser, the purchase price was attributed mainly to goodwill (approximately $8,300) and to other intangible assets (approximately $9,300). The results of operation of the acquired company were consolidated in the Company's financial statements commencing on the date of acquisition.The effect on consolidated revenues and net income were immaterial. Pro-forma information was not provided due to immateriality.

~~(8)~~

In 2010, the Company acquired a 49% interest in an Israeli company (the “Israeli Subsidiary”). On March 30, 2014, the Company, through another wholly-owned Israeli subsidiary, increased its holdings in the Israeli Subsidiary to 90% and, as a result, the Company recognized a gain of approximately $6,000, included in “other operating income, net”, based on the re-measurement of the fair-value of its previously held 49% equity interest in the Israeli Subsidiary. The acquisition was accounted for using the purchase method as a business combination achieved in stages. The results of the Israeli Subsidiary were consolidated in the Company's consolidated financial statements commencing on the date of acquisition. Revenues and earnings from the acquisition date through December 31, 2014, were immaterial to the consolidated results of the Company. In 2016, the Company acquired the additional 10% non-controlling interest in the Israeli Subsidiary for a consideration of $1,300.

~~F - 14~~



	~~ELBIT SYSTEMS LTD. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~
~~U.S. dollars (In thousands, except per share data)~~

Note 2 - SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).

A. USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The most significant assumptions are employed in estimates used in determining values of intangible assets, warranty and contract loss accruals, legal contingencies, tax assets and tax liabilities, stock-based compensation costs, retirement and post-retirement benefits (including the actuarial assumptions), financial instruments with no observable market quotes, as well as in estimates used in applying the Company's revenue recognition policies. Actual results may differ from estimated results.

B. FUNCTIONAL CURRENCY

The Company’s revenues are generated mainly in U.S. dollars. In addition, most of the Company’s costs are incurred in U.S. dollars. The Company’s management believes that the U.S. dollar is the primary currency of the economic environment in which the Company operates. Thus, the functional and reporting currency of the Company is the U.S. dollar.

Transactions and balances of the Company and certain subsidiaries that are denominated in other currencies have been remeasured into U.S. dollars in accordance with principles set forth in ASC 830, “Foreign Currency Matters”. All exchange gains and losses from the remeasurement mentioned above are reflected in the statement of income as financial expenses or income, as appropriate.

For those ~~foreign~~Israeli and non-Israeli subsidiaries and investees whose functional currency has been determined to be other than the U.S. dollar, assets and liabilities are translated at year-end exchange rates, and statement of income items are translated at average exchange rates prevailing during the year. Resulting translation differences are recorded as a separate component of accumulated other comprehensive income (loss) in equity.

C. PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Elbit Systems and its wholly and majority-owned subsidiaries and variable interests entities that are required to be consolidated.

Intercompany transactions and balances, including profit from intercompany sales not yet realized outside the Company, have been eliminated upon consolidation.

~~F - 15~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

D. COMPREHENSIVE INCOME

The Company accounts for comprehensive income in accordance with ASC 220, “Comprehensive Income”. This statement establishes standards for the reporting and display of comprehensive income and its components. Comprehensive income generally represents all changes in shareholders' equity during the period except those resulting from investments by, or distributions to, shareholders. Accordingly, the Company presents a separate statement of consolidated comprehensive income.

The following table displays the changes in accumulated other comprehensive income (loss), net of taxes, in the amount of ~~$15,471~~$50,019 and ~~$571,~~$7,292, for the years ended December 31, ~~2017~~2019 and ~~December 31, 2016,~~2018, respectively, by components:


	Unrealized gains (losses) on derivative instruments			Unrealized gains (losses) on available-for-sale marketable securities			Pension and post-retirement benefit plans			Foreign currency translation differences			Total			Unrealized gains (losses) on derivative instruments			Unrealized gains (losses) on available-for-sale marketable securities		Unrealized gains (losses) with respect to pension and post-retirement benefit plans			Foreign currency translation differences			Total
Balance as of December 31, 2016	$	15,261		$	17		$	(46,807	)	$	(40,652	)	$	(72,181	)
Balance as of January 1, 2019																$	(3,158	)	$	—	$	(39,499	)	$	(52,287	)	$	(94,944	)
Other comprehensive income (loss) before reclassifications	25,306			—			(4,441		)	7,421			28,286			19,838			—		(60,161		)	6,822			(33,501		)
Amount reclassified from accumulated other comprehensive income (loss)	(47,530		)	(6		)	3,779			—			(43,757		)	(9,873		)	—		(6,645		)	—			(16,518		)
Net current-period other comprehensive income (loss)	(22,224		)	(6		)	(662		)	7,421			(15,471		)	9,965			—		(66,806		)	6,822			(50,019		)
Balance as of December 31, 2017	$	(6,963	)	$	11		$	(47,469	)	$	(33,231	)	$	(87,652	)
Balance as of December 31, 2019																$	6,807		$	—	$	(106,305	)	$	(45,465	)	$	(144,963	)


	Unrealized gains (losses) on derivative instruments			Unrealized gains (losses) on available-for-sale marketable securities			Pension and post-retirement benefit plans			Foreign currency translation differences			Total			Unrealized gains (losses) on derivative instruments			Unrealized gains (losses) on available-for-sale marketable securities			Unrealized gains (losses) with respect to pension and post-retirement benefit plans			Foreign currency translation differences			Total
Balance as of December 31, 2015	$	8,520		$	28		$	(46,751	)	$	(33,407	)	$	(71,610	)
Balance as of January 1, 2018																$	(6,963	)	$	11		$	(47,469	)	$	(33,231	)	$	(87,652	)
Other comprehensive income (loss) before reclassifications	18,619			—			(3,642		)	(7,245		)	7,732			(5,357		)	—			3,321			(19,056		)	(21,092		)
Amount reclassified from accumulated other comprehensive income (loss)	(11,878		)	(11		)	3,586			—			(8,303		)	9,162			(11		)	4,649			—			13,800
Net current-period other comprehensive income (loss)	6,741			(11		)	(56		)	(7,245		)	(571		)	3,805			(11		)	7,970			(19,056		)	(7,292		)
Balance as of December 31, 2016	$	15,261		$	17		$	(46,807	)	$	(40,652	)	$	(72,181	)
Balance as of December 31, 2018																$	(3,158	)	$	—		$	(39,499	)	$	(52,287	)	$	(94,944	)

~~F - 16~~



	~~ELBIT SYSTEMS LTD. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~
~~U.S. dollars (In thousands, except per share data)~~

~~Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)~~

E. BUSINESS COMBINATIONS

The Company applies ASC 805, “Business Combinations”. ASC 805 requires recognition of assets acquired, liabilities assumed and non-controlling interest in the acquired entity at the acquisition date, measured at their fair values as of that date. This ASC also requires the fair value of acquired in-process research and development (“IPR&D”) to be recorded as intangibles with indefinite lives, contingent consideration to be recorded on the acquisition date and restructuring and acquisition-related deal costs to be expensed as incurred. Any excess of the fair value of net assets acquired over purchase price and any subsequent changes in estimated contingencies are to be recorded in earnings. In addition, changes in valuation allowance related to acquired deferred tax assets and in acquired income tax position are to be recognized in earnings.



ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

F. CASH AND CASH EQUIVALENTS

Cash equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months or less, when purchased.

G. SHORT-TERM BANK DEPOSITS AND RESTRICTED DEPOSITS

Short-term bank deposits are deposits with original maturities of more than three months but less than one year. The short-term bank deposits are presented at their cost, which approximates fair value. As of December 31, 2018, The Company was required to maintain $15,420 of restricted deposits related to certain collateral requirements for obligations.

H. AVAILABLE-FOR-SALE MARKETABLE SECURITIES

The Company accounts for its investments in debt securities, and marketable equity securities of entities in which it does not have significant influence, in accordance with ASC 320, “Investments - Debt and Equity Securities”. The Company classifies all debt securities and marketable equity securities as “available-for-sale”. All of the Company’s investments in available-for-sale securities are reported at fair value. Unrealized gains and losses are comprised of the difference between fair value and the cost of such securities and are recognized, net of tax, in accumulated other comprehensive income (“OCI”).

The amortized cost of debt securities reflects amortization of premiums and accretion of discounts to maturity. Such amortization and accretion together with interest and dividends on securities are included in “financial expenses, net”.

The Company recognizes an impairment charge when a decline in the fair value of its investments in debt securities below the amortized cost basis of such securities is judged to be other-than-temporary impairment (“OTTI”). Factors considered in making such a determination include the duration and severity of the impairment, the reason for the decline in value, the potential recovery period,if the entity has the intent to sell the debt security or if it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis. However, if an entity does not expect to sell a debt security, it will still need to evaluate expected cash flows to be received and determine if a credit loss exists. In the event of a credit loss, only the amount of impairment associated with the credit loss is recognized in earnings. Amounts relating to factors other than credit losses are recorded in OCI.

~~F - 17~~



	~~ELBIT SYSTEMS LTD. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~
~~U.S. dollars (In thousands, except per share data)~~

~~Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)~~

I. INVENTORIES

Inventories are stated at the lower of cost or ~~market~~net realizable value. Inventory write-offs are provided to cover risks arising from slow-moving items or technological obsolescence for which recoverability is not probable.

Cost is determined as follows:

Raw materials using the average or FIFO cost method.

Work in progress:

Costs incurred on certain long-term contracts in progress, but for which control has not transferred to the customer, include direct labor, material, subcontractors, other direct costs and an allocation of overheads, which represent recoverable costs incurred for production, allocable operating overhead cost and, where appropriate, research and development costs (See Note 2(V)).

Labor overhead is generally included on the basis of updated hourly rates and is allocated to each project according to the amount of hours expended. Material overhead is generally allocated to each project based on the value of direct material that is charged to the project.

~~Advances from customers are allocated to the applicable contract inventories and are deducted from the inventory balance. Advances in excess of related inventories are classified as liabilities.~~

Pre-contract costs are generally expensed, but can be deferred and included in inventory only when such costs can be directly associated with a specific anticipated contract and if their recoverability from the specific anticipated contract is probable according to the guidelines of ASC ~~605-35.~~606.



ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

J. INVESTMENT IN AFFILIATED COMPANIES, PARTNERSHIPS AND OTHER COMPANIES

Investments in affiliated companies and partnerships that are not controlled but over which the Company can exercise significant influence (generally, entities in which the Company holds approximately between 20% to 50% of the voting rights of the investee) are presented using the equity method of accounting. Profits on ~~intercompany~~inter-company sales, not realized outside the Company, are eliminated. The Company discontinues applying the equity method when its investment (including advances and loans) is reduced to zero and the Company has not guaranteed obligations of the affiliate or otherwise committed to provide further financial support to the affiliate.

For certain investments, the Company elected to measure the investments at fair value. Such elections are irrevocable. Under the fair value method, investments are recorded at fair value and any changes in fair value are reported in the consolidated statements of operations. All costs (other then purchase price) directly associated with the acquisition of an investment to be accounted for using the fair value method are expensed as incurred.

Investments in preferred shares, which do not result in significant influence and without readily determinable fair value, are ~~not in substance common stock,~~measured at cost, less impairments, plus or minus observable price changes. Equity investments without readily determinable fair value are recorded on a cost basis according to ASC 323-10-15-13, “Investments - Equity Method and Joint Ventures - In-substance Common Stock” and ASC 323-10-40-1, “Investment - Equity Method and Joint Ventures - Investee Capital Transactions”.assessed for impairment periodically.

A change in the Company’s proportionate share of an investee’s equity, resulting from issuance of common or in-substance common ~~shares~~stock by the investee to third parties, is recorded as a gain or loss in the consolidated income statements in accordance with ASC 323-10-40-1.

~~Investments~~J. INVESTMENT IN AFFILIATED COMPANIES, PARTNERSHIPS AND OTHER COMPANIES (Cont.)

For investments in non-marketable equity securities ~~of entities in which~~without readily determinable fair values where the Company does not have control or the ability to exercise significant influence over ~~their~~the operation and financial policies ~~are recorded~~of the issuer of the securities, the Company has elected to measure these investments at cost ~~(generally when~~minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment in the same issuer. This election is made for each investment separately and is reassessed at each reporting period as to whether the investment continues to qualify for this election. Additionally, at each reporting period, the Company ~~holds less than~~ ~~20%~~ ofmakes a qualitative assessment considering impairment indicators to evaluate whether the ~~voting rights).~~investment is impaired.

Management evaluates investments in affiliated companies, partnerships and other non-marketable equity securities for evidence of other-than-temporary declines in value. Such evaluation is dependent on the specific facts and circumstances. Accordingly, in determining whether other-than-temporary declines exist, management evaluates various indicators for other-than-temporary declines and evaluates financial information ~~(e.g.~~(e.g, budgets, business plans, financial statements, etc.). During ~~2017~~ ~~no material impairment was recognized. During 2016~~2019 the Company recorded an impairment of approximately ~~$2,500~~$3,700 for ~~one~~1 of its affiliated companies, during 2018 the Company recorded impairment of approximately $17,500 for 3 of its affiliated companies and during ~~2015 no~~2017 0 material impairment was recognized.

~~F - 18~~



	~~ELBIT SYSTEMS LTD. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~
~~U.S. dollars (In thousands, except per share data)~~

~~Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)~~

K. VARIABLE INTEREST ENTITIES

ASC 810-10, “Consolidation”, provides a framework for identifying variable interest entities (“VIEs”) and determining when a company should include the assets, liabilities, non-controlling interests and results of activities of a VIE in its consolidated financial statements. According to ASC 810-10, the Company consolidates a VIE when it has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. The determination of whether the Company should consolidate a VIE is evaluated continuously as existing relationships change or future transactions occur.



ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

K. VARIABLE INTEREST ENTITIES (Cont.)

The Company’s assessment of whether an entity is a VIE and the determination of the primary beneficiary is judgmental in nature and involves the use of significant estimates and assumptions. Those include, among others, forecasted cash flows, their respective probabilities and the economic value of certain preference rights. In addition, such assessment also involves estimates of whether an entity can finance its current activities, until it reaches profitability, without additional subordinated financial support.

Also according to ASC 810, a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as a separate component of equity in the consolidated financial statements. As such, changes in the parent’s ownership interest with no change of control are treated as equity transactions, rather than acquisitions achieved in stages or dilution gains or losses. Losses of partially-owned consolidated subsidiaries will continue to be allocated to the non-controlling interests even when the investment in the subsidiary was already reduced to zero.

A 51%-held subsidiary in the U.K. (the “UK Subsidiary”) is considered to be a VIE. As Elbit Systems is the primary beneficiary and has both the power to direct its activities and absorb the majority of its losses or the right to the majority of its earnings based upon holding the 51% economic interest, the UK Subsidiary is consolidated in the Company’s financial statements.

The Company holds 50% of the contractual rights in, and is the primary beneficiary of, an Israeli limited partnership,which is considered to be a VIE and is consolidated in the Company’s financial statements.

L. LONG-TERM RECEIVABLES

Long-term trade, unbilled (contract assets) and other receivables, with payment terms in excess of one year that are considered collectible, are recorded at their estimated present values (determined based on the market interest rates at the date of initial recognition).

M. LONG-TERM BANK DEPOSITS

Long-term bank deposits are deposits with maturities of more than one year. These deposits are presented at cost and earn interest at market rates. Accumulated interest to be received over the next year is recorded as a current asset. The deposits and accumulated interest approximate fair value.

~~F - 19~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

N. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost, net of accumulated depreciation and investment grants. For equipment produced for the Company’s own use, cost includes materials, labor and overhead (including interest costs, when applicable) but not in excess of the fair value of the equipment.

Depreciation is calculated by the straight-line method over the estimated useful life of the assets at the following annual rates:



	%
Buildings and leasehold improvements^(*)	~~2-20~~2-25
Instruments, machinery and equipment	~~3-33~~5-33
Office furniture and other	~~4-33~~7-33
Motor vehicles	~~12-33~~6-20	(Mainly 15%)


^(*)	~~Prepayments for operating leases and leasehold~~Leasehold improvements are amortized generally over the term of the lease or the useful life of the assets, whichever is shorter.

The Company capitalizes direct costs (internal and external) of materials and services used in the development and purchase of internal-use software. Amounts capitalized are amortized on a straight-line basis over a period of ~~three~~3 to ~~twelve~~12 years and are reported as a component of property and equipment.

The Company is in the process of developing and implementing a new Enterprise Resource Planning (“ERP”) system. Certain costs incurred during the application development stage have been capitalized in accordance with authoritative accounting guidance related to accounting for the cost of computer software developed or obtained for internal use. The net book value of capitalized costs for this new ERP system was approximately ~~$20,600~~$47,957 and ~~$100~~$32,453 as of December 31, ~~2017~~2019 and ~~2016,~~2018, respectively. These costs will be amortized over the system's estimated useful life as the ERP system is placed in service.

O. OTHER INTANGIBLE ASSETS

Other identifiable intangible assets mainly consist of purchased technology, customer relations and trademarks. These intangible assets are stated at cost, net of accumulated amortization and impairments, and are amortized over their useful life using the straight-line method or the accelerated method, whichever better reflects the applicable expected utilization pattern.

P. IMPAIRMENT OF LONG-LIVED ASSETS

The Company’s long-lived assets and finite-lived intangible assets are reviewed for impairment in accordance with ASC 360-10-35 “Property, Plant and Equipment – Subsequent Measurement”, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of assets (or assets group) to be held and used is determined by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If the carrying amount is higher, an asset is deemed to be impaired and the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. For ~~each~~the year ended December 31, 2019, 0 impairment was recognized. For the year ended December 31, 2018, the Company recognized an impairment of approximately $5,520 (see Note 1C(4)) and for the ~~three years~~year ended December 31, 2017, ~~2016 and 2015,~~ no0 impairment was identified.

As required by ASC 820, “Fair Value Measurements”, the Company applies assumptions that marketplace participants would consider in determining the fair value of long-lived assets (or asset groups).

~~F - 20~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Q. GOODWILL IMPAIRMENT

Goodwill is subject to an impairment test at the reporting unit level on an annual basis (or more frequently if impairment indicators arise).

The Company identified several reporting units based on the guidance of ASC 350, “Intangibles – Goodwill and Other”.

ASC 350 prescribes a two-phase process for impairment testing of goodwill. The first phase screens for impairment, while the second phase (if necessary) measures impairment.

Goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. In such case, the second phase is then performed, and the Company measures impairment by comparing the carrying amount of the reporting unit’s goodwill to the implied fair value of that goodwill. An impairment loss is recognized in an amount equal to the excess. For each of the three years in the period ended December 31, ~~2017,~~ no2019, 0 impairment ~~losses were~~was identified.

As required by ASC 820, “Fair Value Measurement”, the Company applies assumptions that market place participants would consider in determining the fair value of each reporting unit.

R. SEVERANCE PAY

Elbit Systems’ and its Israeli subsidiaries’ obligations for severance pay are calculated pursuant to Israel’s Severance Pay Law, based on the most recent salary of the employees multiplied by the number of years of employment as of the balance sheet date and are presented on an undiscounted basis (the “Shut Down Method”). Subject to certain conditions, employees are entitled to one month’s salary for each year of employment or a portion thereof. The obligation is funded by monthly deposits through insurance policies and by an accrual. The value of these policies is recorded as an asset on the Company’s balance sheet. The deposited funds may be withdrawn only upon the fulfillment of the obligation, pursuant to the Severance Pay Law or labor agreements. The value of the deposited funds is based on the cash surrender value of these policies and includes profits (or losses) accumulated to the balance sheet date.

Elbit Systems and its Israeli subsidiaries have entered into an agreement with some of its employees implementing Section 14 of the Severance Pay Law and the General Approval of the Labor Minister dated June 30, 1998, issued in accordance with such Section 14. The agreement mandates that upon termination of such employees’ employment, all the amounts accrued in their insurance policies will be released to them. The severance pay liabilities and deposits covered by these plans are not reflected in the balance sheet, as the severance pay risks have been irrevocably transferred to the severance funds.

Severance pay expenses for the years ended December 31, ~~2017, 2016~~2019, 2018 and ~~2015~~2017, amounted to approximately $59,943, $56,515 and $62,777, ~~$55,294 and~~ ~~$47,407~~, respectively.

S. PENSION AND OTHER POSTRETIREMENT BENEFITS

The Company accounts for its obligations for pension and other post-retirement benefits in accordance with ASC 715, “Compensation – Retirement Benefits”. The Company reports the service cost component of net retirement benefit cost separately from the other components of net retirement benefit cost in the Consolidated Statement of Income (see Note 17).

~~F - 21~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

T. REVENUE RECOGNITION

The Company generates revenues ~~principally~~primarily from fixed-price long-term contracts involving the design, development, manufacture and integration of defense systems and products. ~~In addition, to~~To a lesser extent, the Company ~~provides non-defense systems and products as well as~~generates revenues from short-term contracts or support and services ~~for the Company's systems and products.~~which could be either fixed-price or cost-reimbursement contracts.

~~In 2017, revenues~~Revenues from ~~long-term~~our contracts ~~were recognized primarily using ASC 605-35, “Revenue Recognition - Construction-Type and Production-Type Contracts”, according to which revenues~~ are recognized onusing the ~~percentage-of-completion (“POC”) basis.~~

~~Sales under long-term fixed-price contracts, which provide~~five-step model in ASC 606, "Revenue from Contracts with Customers". At first, the Company determines if an agreement with a customer is considered a contract to the extent it has a commercial substance, it is approved in writing by both parties, all rights and obligations including payment terms are identifiable, the agreement between the parties creates enforceable rights and obligations, and collectability in exchange for goods and services that will be transferred to the customer is considered probable. The Company then assesses the transaction price for a ~~substantial level~~contract in order to determine the consideration the Company expects to receive for satisfying the performance obligations called for in the contract. The Company assesses the timing of ~~development efforts~~transfer of goods and services to the customer as compared to the timing of payments, to determine whether a significant financing component exists. As a practical expedient, the Company does not assess the existence of a significant financing component when the difference between payment and transfer of control is less than one year. To the extent the transaction price includes variable consideration (e.g., contract penalties, economic price adjustments, unpriced change orders or like measures), the Company usually estimates the most likely amount that should be included in ~~relation~~the transaction price subject to total contract efforts, are recorded using the cost-to-cost method of accounting as the basis to measure progress toward completing the contract and to recognize revenues using the POC basis. According to this method, sales and profits are recordedconstraints based on the ~~ratio~~specific facts and circumstances.

At the inception of ~~costs incurred to estimated total costs at completion. When measuring progress toward completion,~~a contract, the Company ~~may consider~~also evaluates the products and services promised by it in order to determine if the contract should be separated into more than one performance obligation. The products and services in the Company's contracts are often not distinct from one another due to a customer defined interrelated operational performance requirement, a highly complex interrelated and integrated system or solutions design and significant contract management requirements. To a lesser extent, such performance obligations could be for performance of services, or other ~~factors,~~distinct performance obligations such as ~~contracts'~~indirect buy-back transactions (see Note 21B), which may be distinct and separated into a performance obligation. Following the determination of the performance obligations ~~or the achievement of milestones.~~

Sales and anticipated profit under long-term fixed-price contracts which provide for a substantial level of production effort are recorded on a POC basis, using the units-of-delivery method as the basis to measure progress of the contracts' performance toward completing the contract and recognizing revenues. In certain circumstances, which involve long-term fixed-price production type contracts for non-homogeneous units or small quantities of units, or when the achievement of performance milestones provides a more reliable and objective measure of the extent of progress toward completion, revenue is recognized based on the achievement of performance milestones.

Sales and anticipated profit under long-term fixed-price contracts that involve both development and production efforts are recorded using the cost-to-cost method and units-of-delivery method or the achievement of performance milestones as applicable to each phase of the contract, as the basis to measure progress toward completion. In addition, when measuring progress toward completion under the development portion ofin the contract, the Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation.

Standalone selling price is the price at which the Company would sell a promised good or service separately to a customer. Standalone selling prices for the Company’s products and services are generally not observable, and consequently the Company would use the “Expected Cost plus a Margin” approach to determine a standalone selling price. Expected costs are typically derived from our performance cost forecast information.

The Company recognizes revenues for each of the identified performance obligations when its customer obtains control of the products or services. The assessment of when the customer obtains control involves significant judgments, which consider, among other things, whether there is an alternative use for a product, the contract terms, assessment of the enforceable rights for payments and technical or contractual constraints. As a practical expedient we may ~~consider other factors, such as its progress on certain~~occasionally account for a group of performance obligations or contracts collectively, as opposed to individually by using the ~~achievement~~"portfolio approach". Under the "portfolio approach" practical expedient, the Company may combine individual performance obligations, if the goods or services of ~~milestones.~~the individual performance obligations have similar characteristics and the Company reasonably expects that the effect on the financial statements of applying this practical expedient would not differ materially from applying the expedient to the individual contracts or performance obligations within that portfolio.

~~The POC method~~



ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

T. REVENUE RECOGNITION (Cont.)

For most of ~~accounting requires management to estimate~~ the ~~cost and gross profit margin for each individual contract. Estimated gross profit or loss from~~Company's long-term contracts, ~~may change due~~where the Company's performance does not create an asset with an alternative use, the Company recognizes revenue over time as it performs because of continuous transfer of control to ~~differences between actual performance~~the customer. For Israeli, U.S. and ~~original estimated forecasts.~~some other government contracts, this continuous transfer of control to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay the Company for costs incurred plus a reasonable profit and take control of any work-in-process. Similarly, for other government contracts, the customer typically controls the work-in-process as evidenced either by contractual termination for convenience clauses or by the Company's rights to payment for work performed to date plus a reasonable profit for products or services that do not have an alternative use to the Company.

~~Sales under cost-reimbursement-type contracts~~For these performance obligations that are ~~recorded~~satisfied over time, the Company generally recognizes revenue using an input method with revenue amounts being recognized proportionately as costs are ~~incurred. Applicable~~incurred relative to the total expected costs to satisfy the performance obligation. The Company believes that costs incurred as a portion of total estimated ~~profits~~costs is an appropriate measure of progress towards satisfaction of the performance obligation since this measure reasonably depicts the progress of the work effort. Revenue for performance obligations that are not recognized over time are recognized at the point in time when control transfers to the customer (which is generally upon delivery and acceptance). For performance obligations that are satisfied at a point in time, the Company evaluates the point in time when the customer can direct the use of, and obtain the benefits from, the products and services. Shipping and handling costs are not considered performance obligations and are included in ~~earnings~~cost of sales as incurred.

Service revenues include contracts primarily for the provision of supplies and services other than those associated with design, development or manufacturing or delivery of products. It may be a standalone service contract or a service performance obligation, which is distinct from a contract or performance obligation for the design, development or delivery of products. Our service contracts include contracts in which the customer simultaneously receives and consumes the benefits provided as the performance obligations are satisfied. Our service contracts primarily include operation-type contracts, outsourcing-type arrangements, maintenance contracts, training and similar activities. Revenue from service contracts or performance obligations were less than 10% of total revenues in each of the years ended December 31, 2019, 2018 and 2017.

Accounting for long-term contracts involves the use of various techniques to estimate total contract revenue and performance costs. For long-term contracts, the Company estimates the profit on a contract as the difference between the total estimated transaction price and the total expected performance costs of the contract and recognizes revenue and costs over the life of the contract. Changes to performance cost estimates under a contract may occur in a situation where: (a) identified contract risks cannot be resolved within the cost estimates included in a contract's estimated costs at completion (“EAC”); or (b) new or unforeseen risks or changes in the ~~proportion~~performance cost estimates must be incorporated into the contract's EAC. The nature of the Company's numerous contracts is such that ~~incurred~~refinements of the estimated performance costs ~~bear to total estimated costs.~~

~~Amounts representing~~or revenues for a project may occur for various reasons, including: contract change orders, ~~claims~~option exercise, changes in labor costs, change in subcontractors and other procurement costs, efficiency variances, customer specifications and testing requirement, economic price adjustments, significant technical and development matters encountered during performance and provision for loss. Changes to performance cost or ~~other items are included in sales only when they can be reliably estimated and realization is probable. Penalties and awards applicable to performance~~revenues estimates on contracts are considered in estimating sales and profit margins and are recorded when they are probable and ~~there is sufficient information to assess anticipated contract performance.~~

~~Under the POC method, changes~~reasonably determinable by management. Changes in estimated revenues and/or estimated project costs which are related to an existing performance obligation, and that are not distinct from those goods and services already provided, and therefore form part of single performance obligation, are recorded in the period the change is reasonably determinable, with the full amount of the inception-to-date effect of such changes recorded in such period on a ~~“cumulative catch-up”~~"cumulative catch-up" basis. ~~The cumulative catch-up basis amounts~~For contracts that are deemed to be loss contracts, the Company establishes forward loss reserves for total estimated costs that are in excess of total estimated consideration under a contract in the ~~contract estimated total costs are charged~~period in which they become probable. If any of the above factors were to change, or if different assumptions were used in estimating progress cost ~~of revenues (“COR”)~~ and ~~are reflected~~measuring progress towards completion, it is possible that materially different amounts would be reported in the ~~reported gross profit in the~~Company’s consolidated financial statements. Any changes in performance costs estimates that result in an anticipated loss on contracts are charged to COR when they are probable and reasonably determinable by management. The Company reviews the actual costs and the estimated costs to complete long-term contracts on a quarterly basis. In addition, the Company periodically monitors the impact of changes in estimated contract performance costs that result from cumulative catch-up cost adjustments on COR.

~~F - 22~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

T. REVENUE RECOGNITION (Cont.)

The nature of the Company's numerous contracts is such that refinements of the estimated performance costs or revenues for a project may occur for various reasons, including: change orders, contract price adjustments, significant technical and development matters encountered during performance and provision for loss and contract costs changes that may occur in a situation where: (a) identified contract risks cannot be resolved within the cost estimates included in a contract estimated costs at completion (“EAC”); or (b) new or unforeseen risks or changes in the performance cost estimates must be incorporated into the contract EAC. In addition, anticipated losses on contracts are recognized when determined to be probable.

These adjustments may result from positive program performance, in which case they would be reflected as a decrease in COR during the period. Likewise, these adjustments may result in an increase in COR if the Company determines it will not be successful in mitigating these risks or realizing related opportunities.

The Company believes that the use of the POC method is appropriate as the Company has the ability to make reasonably dependable estimates of the extent of progress towards completion and contract costs. In addition, contracts executed include provisions that clearly specify the enforceable rights regarding services to be provided and received by the parties to the contracts, the consideration to be exchanged and the manner and terms of settlement. In all cases, revenue is recognized when the Company expects to perform its contractual obligations and its customers are expected to satisfy their obligations under the contract.

Management periodically reviews ~~periodically~~ the estimates of progress towards completion and ~~project~~contract costs. These estimates are determined, based on engineering estimates and past experience, by personnel having the appropriate authority and expertise to make reasonable estimates of the related costs. Such engineering estimates are reviewed for each specific contract by professional personnel from various disciplines within the organization. These estimates take into consideration the probability of achievement of certain milestones, as well as other factors that might impact the contract’s completion and projected cost.

~~A number of internal and external factors affect~~The aggregate cumulative catch-up adjustment in EAC estimates on significant contracts had the following favorable/ (unfavorable) impact on the Company's cost estimates, including labor rates, estimated future prices of material, revised estimates of uncompleted work, efficiency variances, linkage to indices and exchange rates, customer specifications and testing requirement changes. If any of the above factors were to change, or if different assumptions were used in estimating progress cost and measuring progress towards completion, it is possible that materially different amounts would be reported in the Company’s consolidated financial statements.operating results:



	Year ended December 31,
	2019			2018			2017
Cost of revenue, net	$	4,600		$	32,200		$	42,700
Percentage of cost of revenue^(*)	0.14		%	1.19		%	1.79		%
Net income	$	4,200		$	28,600		$	34,400
Diluted earning per share	$	0.10		$	0.67		$	0.80


^(*)	Percentage of cost of revenue during 2019 and 2018 is excluding non-recurring acquisition related expenses recorded in cost of revenues. (See Note 1C(1) and 1C(5)).

~~The Company's COR included~~

In addition, the net impacts of these EAC adjustments ~~resulting~~on revenue recognized from ~~changes in~~the Company's' performance ~~cost estimates of~~obligations were approximately ~~$42,700 (1.79% of COR~~$27,040 and ~~4.28% of gross profit), $33,700 (1.47% of COR and 3.52% of gross profit) and $2,600 (0.12% of COR and 0.29% of gross profit)~~$ 47,520 for the years ended December 31, ~~2017, 2016~~2019 and ~~2015, respectively. Accordingly, during the above mentioned periods there were no material net EAC adjustments to COR.~~

These adjustments changed the Company's net income by approximately $34,400 ($0.80 per diluted share), $28,200 ($0.66 per diluted share) and $2,100 ($0.05 per diluted share) for the years ended December 31, 2017, 2016 and 2015,2018, respectively.

~~In certain circumstances, sales under short-term fixed-price production~~Disaggregation of revenue:

Revenue by products and services was as follows:



	Year ended December 31,
	2019		2018
Revenue from sale of products	$	4,146,618	$	3,352,602
Service revenue	361,782		331,082
	$	4,508,400	$	3,683,684

Revenue by transfer type contracts or sales of products are accounted for in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements” (“SAB 104”), and recognized when all the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the seller’s price to the buyer is fixed or determinable, no further obligation exists and collectability is reasonably assured.was as follows:



	Year ended December 31,
	2019		2018
Over time	$	3,432,511	$	3,037,223
Point in time	1,075,889		646,461
	$	4,508,400	$	3,683,684

~~F - 23~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

T. REVENUE RECOGNITION (Cont.)

~~In cases where~~Revenue by customers was as follows:



	Year ended December 31,
	2019		2018
Israel Government Authorities ^(1,2)	$	1,134,703	$	685,680
US Government ⁽²⁾	800,345		635,150
Other Governments	2,121,164		2,004,947
Commercial sales and other	452,188		357,907
	$	4,508,400	$	3,683,684

(1) Including U.S. Foreign Military Financing sales

(2) Including indirect sales

See Note 23 for disaggregation of revenue by areas of operations and geographic areas.

Remaining performance obligations ("Backlog"):

Backlog represents the ~~contract involves the delivery of products and performance of services, or other obligations such as buy-back (see Note 20(B)),~~future revenues expected to be recognized on firm orders received by the Company follows the guidelines specified in ASC 605-25, “Revenue Recognition – Multiple-Element Arrangements” in order to allocate the contract consideration between the identified different elements using the relative selling price method. The selling price for each element would be allocated by using a hierarchy of: (1) Vendor Specific Objective Evidence (“VSOE”); (2) Third-Party Evidence (“TPE”) of the selling price for that element; or (3) Estimated Selling Price (“ESP”) for individual elements of an arrangement when VSOE or TPE of the selling price are unavailable.

The Company determines ESP for the purposes of allocating the consideration to individual elements of an arrangement by considering several external and internal factors including, but not limited to, pricing practices, margin objectives, geographies in which the Company offers products and services and internal costs. The determination of ESP is judgmental and is ~~made through consultation with and approval by management.~~

Service revenues include contracts primarily for rendering of services not associated with design, development, manufacturing or production activities. Such revenues may be derived from a stand-alone service contract or a service element which was separated from the design, development or production contract accordingequivalent to the ~~criteria established~~Company’s remaining performance obligations at the end of each period for a remaining period of more than a year. Unexercised contract options and indefinite delivery indefinite quantity ("IDIQ") contracts are not included in ASC 605-25. Service contracts primarily include operation contracts, outsourcing-type arrangements, maintenance contracts, training, installation services and similar items. Revenues from services were less than 10%backlog until the time an option or specific task order is authorized, exercised or awarded.

Company backlog as of ~~consolidated revenues in each of the years ended~~ December 31, ~~2017, 2016~~2019 was $10,029,300. We expect to recognize approximately 65% as revenue in 2020 and ~~2015.~~

~~Such service revenues are usually~~2021, with the remainder to be recognized in accordance with SAB 104 ratably over the service period and when all other revenue recognition criteria are met. Buy-back obligations are recognized upon fulfillment, generally when the related products have been delivered or services have been rendered. In addition, where applicable, the Company recognizes service revenues upon achievement of related performance milestones.

~~As for research and development costs accounted for as contract costs, refer to Note 2(V).~~

During 2017, the Company reviewed implementation of a new standard of revenue recognition under ASU 2014-09 "Revenues from Contracts with Customers", which ASU became effective for the Company as of January 1, 2018. See Note 2(AE)(3).thereafter.

U. WARRANTY

The Company estimates the costs that may be incurred under its basic warranty. Such costs are estimated as part of the total contract’s cost and are recorded as a liability at the time revenue ~~for delivered products~~ is recognized. The specific terms and conditions of those warranties vary depending upon the product sold and the country in which the Company does business. Factors that affect the Company’s warranty cost include the number of delivered products, engineering estimates and anticipated rates of warranty claims. The Company periodically assesses the adequacy of its recorded warranty cost and adjusts the amount as necessary.

Changes in the Company’s provision for warranty, which is included mainly in other payables and accrued expenses in the balance sheet, are as follows:


	2017			2016			2019			2018
Balance, at January 1	$	245,728		$	191,948		$	219,695		$	198,226
Cumulative effect from adopting ASC 606							—			337
Warranties issued during the year	75,819			111,835			58,298			64,723
Reduction due to warranties expired or claimed during the year	(126,068		)	(58,055		)
Reduction due to expired warranties or claims during the year							(98,224		)	(84,593		)
Deconsolidation of subsidiary							—			(369		)
Additions resulting from acquisitions	2,747			—			1,554			41,371
Balance, at December 31	$	198,226		$	245,728		$	181,323		$	219,695

~~F - 24~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)


V.	RESEARCH AND DEVELOPMENT COSTS

Research and development costs, net of participation grants, include costs incurred for independent research and development and bid and proposal efforts and are expensed as incurred unless the costs are related to certain contractual arrangements, which are recorded as part of cost of revenues over the period that revenue is recognized, consistent with the Company’s revenue recognition accounting policy. The Company does not perform significant stand-aloneresearch and development for others.

The Company has certain research and development contractual arrangements that meet the requirements for best efforts research and development accounting. Accordingly, the amounts funded by the customer are recognized as an offset to its research and development expenses rather than as contract revenues.

Elbit Systems and certain Israeli subsidiaries receive grants (mainly royalty-bearing) from the Israeli Innovation Authority of the Ministry of Economy ~~and Industry~~ (formerly the Office of Chief Scientist's) and from other sources for the purpose of partially funding approved research and development projects. The grants are not to be repaid, but instead Elbit Systems and certain Israeli subsidiaries are required to pay royalties as a percentage of future sales if and when sales from the funded projects are generated. These grants are recognized as a deduction from research and development costs at the time the applicable entity is entitled to such grants on the basis of the research and development costs incurred. Since the payment of royalties is not probable when the grants are received, the Company records a liability in the amount of the estimated royalties for each individual contract, when the related revenues are recognized, as part of COR. For more information regarding such royalty commitments see Note ~~20(A).~~21A. For more information regarding grants and participation received see Note ~~23.~~24.

~~W. INCOME TAXES~~


W.	INCOME TAXES

The Company accounts for income taxes and uncertain tax positions in accordance with ASC 740, “Income Taxes”. This guidance prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to amounts that are more likely than not to be realized.

The Company establishes reserves for uncertain tax positions based on an evaluation of whether the tax position is “more likely than not” to be sustained upon examination. The Company records interest and penalties pertaining to its uncertain tax positions in the financial statements as income tax expense.

X. CONCENTRATION OF CREDIT RISKS

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, short and long-term deposits, marketable securities and trade receivables.

The majority of the Company’s cash and cash equivalents and short and long-term deposits are invested with major banks, mainly in Israel and the United States. Deposits in the U.S. may be in excess of insured limits and are not insured in other jurisdictions. Management believes that the financial institutions that hold the Company’s investments have a high credit rating.

~~F - 25~~



	~~ELBIT SYSTEMS LTD. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~
~~U.S. dollars (In thousands, except per share data)~~

~~Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)~~

~~X. CONCENTRATION OF CREDIT RISKS (Cont.)~~

The Company's marketable securities ~~include~~included investments in corporate debentures and Israeli Treasury Bills. The Company's investment policy limits the amount that the Company may invest in any one type of investment or issuer, thereby reducing credit risk concentrations.



ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

X. CONCENTRATION OF CREDIT RISKS (Cont.)

The Company’s trade receivables are derived primarily from sales to large and stable customers and governments located mainly in Israel, the United States, Europe and Asia-Pacific. The Company performs ongoing credit evaluations of its customers and has not experienced in recent years any unexpected material losses. An allowance for doubtful accounts is recognized with respect to those amounts that the Company has determined to be doubtful of collection.

The Company entered into foreign exchange forward contracts and cross currency interest rate swaps (together “derivative instruments”) intended to protect against the increase in the dollar equivalent value of forecasted non-dollar currency cash flows and interest as applicable. These derivative instruments are designed to effectively hedge the Company’s non-dollar currency and interest rates exposures (see Note ~~2(Y))~~2Y).


Y.	DERIVATIVE FINANCIAL INSTRUMENTS

The Company accounts for derivatives and hedging based on ASC 815, “Derivatives and Hedging”, which requires the Company to recognize all derivatives on the balance sheet at fair value. ~~If a~~For derivative ~~meets the definition of~~instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and ~~is so designated, changes~~reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Changes in the fair ~~value~~values of hedge components excluded from the ~~derivative will be recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion~~assessment of ~~a derivative’s change in fair value is~~effectiveness are recognized immediately in ~~earnings. If a~~net earnings under the mark-to-market approach. The classifications of gains or losses recognized on cash flow hedging instruments and excluded components within the Consolidated Statements of Income are the same as the underlying exposures.

For derivative ~~does~~instruments that do not meet the definition of a hedge, the changes in ~~the~~ fair value are included immediately in earnings in “Financial expenses, net”, in each reporting period (see Note ~~24)~~25).

As part of its hedging strategy, the Company enters into forward exchange contracts in order to protect the Company from the risk that the eventual dollar cash flows from the sale to international customers and purchase of products from international vendors will be adversely affected by changes in exchange rates.

The Company also may enter into forward exchange contracts and options strategies in order to limit the exposure to exchange rate fluctuation associated with payroll expenses mainly incurred in NIS.

In connection with the issuance of Series A Notes in 2010 and in 2012 on the Tel Aviv Stock Exchange (see Note 16), the Company entered into cross-currency interest rate swap transactions with a notional principal of the NIS 1.1 billion and NIS 0.9 billion, respectively, to effectively hedge the effect of interest and exchange rate difference from the NIS Series A Notes. The cross-currency interest rate swap instruments effectively convert the fixed interest rate of the debt to a floating interest rate. The terms of the swap agreements substantially match the terms of the debt. Under the terms of the swap agreements, the Company receives interest payments semi-annually in NIS at an annual rate of 4.84% on the notional principal and pays interest semi-annually in U.S. dollars at an annual weighted rate of six-month LIBOR plus 1.84% on the notional principal.

In addition, in connection with an NIS denominated loan received from a financial institution at a fixed interest rate of 3% in 2013, the Company entered into cross-currency interest rate swap transactions with a notional principal of NIS 440 million to effectively hedge the effect of interest and exchange rate differences from the NIS loan. Under the terms of the cross currency interest rate swap, the Company receives fixed NIS at a rate of 3% and pays interest semi-annually at the rate of USD LIBOR plus 1.35% on the notional principal. As of December 31, 2017, the Company has fully repaid the NIS loan and the swap transaction has fully matured.

The swap agreements are designated as a fair value hedge. The gains and losses related to changes in the fair value of the cross-currency interest rate swap transactions are included in interest expense and substantially offset changes in the fair value of the hedged portion of the underlying hedged Series A Notes.

~~F - 26~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

Z. STOCK-BASED COMPENSATION

The Company accounts for share-based arrangements under ASC 718, “Compensation – Stock Compensation”, which requires all share-based payments, including grants of employee stock options and grants under the Company's Phantom Bonus Retention Plan, to be recognized in the income statement based on their fair values.

The fair value based cost of employee stock options is estimated at the grant date using a lattice-based option valuation model with the following weighted average assumptions:



	2018
Dividend yield	2.2	%
Expected volatility	20.9	%
Risk-free interest rate	2.7	%
Expected life (in years)	5.25
Forfeiture rate	0.6	%
Suboptimal factor	1.75

AA. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash and cash equivalents, short-term bank deposits, trade receivables, short-term bank credit and loans and trade payables approximate their fair values due to the short-term maturities of such instruments.

The fair value of long-term loans is estimated by discounting the future cash flows using current interest rates for loans of similar terms and maturities. The carrying amount of the long-term loans approximates their fair value.

As of December 31, ~~2017~~2019, the fair value of the Series A Notes, based on the quoted market price on the Tel-Aviv Stock Exchange, was approximately ~~$193,561.~~$62,155.

The Company accounts for certain assets and liabilities at fair value under ASC 820, “Fair Value Measurement”. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. The Company categorizes each of its fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety.

The three levels of inputs that may be used to measure fair value are as follows:

Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets;

Level 2 - Includes other inputs that are directly or indirectly observable in the marketplace, other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets with insufficient volume or infrequent transactions or other inputs that are observable (model-derived valuations in which significant inputs are observable), or can be derived principally from or corroborated by observable market data; and



ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

AA. FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont.

Level 3 - Unobservable inputs that are supported by little or no market activity.

The availability of observable inputs can vary from instrument to instrument and is affected by a wide variety of factors, including, for example, the type of instrument, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment and the instruments are categorized as Level 3.

~~F - 27~~



	~~ELBIT SYSTEMS LTD. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~
~~U.S. dollars (In thousands, except per share data)~~

~~Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)~~

~~AA. FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont.)~~

Under FASB ASC 825-10, the Company may elect to report certain other items at fair value on an instrument-by-instrument basis with changes in fair value reported in net income. After the initial adoption, the election is made at the time an eligible financial ~~assetor~~asset or financial liability or firm commitment is acquired or incurred, as applicable, or when certain specified reconsideration events occur. The fair value election, with respect to an item, may not be revoked once an election is made.

The Company has elected to account for certain investments that would otherwise be accounted for under the equity method using the fair value method (see Note 6). For these investments the Company will also measure any guarantee at fair value, with changes in fair value reported through earnings. Such investments are categorized as level 3.

The Company’s cross-currency interest rate swaps are valued under an income approach using industry-standard models that consider various assumptions, including time value, volatility factors, current market and contractual prices for the underlying and counterparty non-performance risk. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instruments, and can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Accordingly, such instruments are categorized as Level 2.

The Company measures its marketable equity securities, debt securities and foreign currency derivative instruments at fair value. Government debt securities are classified as Level 1. The Company's corporate debt marketable securities trade in markets that are not considered to be active, but are valued based on quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency and accordingly are categorized as Level 2.

The Company’s foreign currency derivative instruments are classified as Level 2 because valuation inputs are based on quoted prices and market observable data of similar instruments.

Investments elected to be accounted for using the fair value method classified under Level 3, evaluated by applying relevant methods as the market approach with the use of an option pricing method or the earning approach using discounted future cash flows.

Contingent purchase obligation accounted under Level 3 are accounted for under the discounted cash flows method.

~~F - 28~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

AA. FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont.)

Assets and liabilities measured at fair value on a recurring basis are summarized below:



	Fair value measurement at
	December 31, 2019 using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Description of Assets
Foreign currency derivatives and option contracts	$	—	$	23,886		$	—
Cross-currency interest rate swap	—		6,183			—
Premises evacuation	—		—			30,867
Investments elected to be accounted for using the fair value method	—		—			51,415
Liabilities
Contingent purchase obligation	—		—			(147,086		)
Foreign currency derivative and option contracts	—		(8,326		)	—
Total	$	—	$	21,743		$	(64,804	)

Fair value measurement at
December 31, 2017 using

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Description of Assets
Available-for-sale marketable securities:
Government bonds $ 1,415
$ —
$ —
Corporate bonds —
11,956
—
Foreign currency derivatives and option contracts —
5,953
—
Cross-currency interest rate swap —
24,009
—
Investment elected to be accounted for using the fair value method —
—
5,114
Liabilities

Foreign currency derivative and option contracts —
(12,200 ) —
Total $ 1,415
$ 29,718
$ 5,114


	Fair value measurement at							Fair value measurement at
	December 31, 2016 using							December 31, 2018 using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Description of Assets
Available-for-sale marketable securities:
Government bonds	$	1,051	$	—		$	—
Corporate bonds	—		12,319			—
Foreign currency derivatives and option contracts	—		14,218			—		$	—	$	22,549		$	—
Cross-currency interest rate swap	—		10,339			—		—		4,378			—
Investment elected to be accounted for using the fair value method	—		—			5,107
Investments elected to be accounted for using the fair value method								—		—			46,858
Liabilities
Contingent purchase obligation								—		—			(136,984		)
Foreign currency derivative and option contracts	—		(3,636		)	—		—		(23,936		)	—
Cross-currency interest rate swap	—		(1,798		)	—
Total	$	1,051	$	31,442		$	5,107	$	—	$	2,991		$	(90,126	)

~~F - 29~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

AB. TRANSFERS OF FINANCIAL ASSETS

ASC 860, “Transfers and Servicing”, establishes a standard for determining when a transfer of financial assets should be accounted for as a sale. The Company's arrangements are such that the underlying conditions are met for transfers of financial assets to qualify for accounting as a true sale. Transfers of financial assets typically consist of the factoring of receivables to Israeli and European financial institutions. ~~During 2017, the~~The Company sold rights to receive payments from ~~the Israeli Ministry of Defense (“IMOD”) and a European customer~~customers in a total amount of ~~$79,633.~~$63,259 and $185,727 during the years 2019 and 2018, respectively. Financial expenses related to the sold rights were $2,200 and $3,400 for the years ended December 31, 2019 and 2018, respectively. Also, during 2019, the Company sold the premises evacuation receivable in the amount of $362,381 (see Note 1C(5)). Control and risk of these rights were fully transferred in accordance with ASC 860.

The Company's agreement pursuant to which the Company sells its trade receivables is structured such that the Company (i) transfers the proprietary rights in the receivable from the Company to the financial institution, (ii) legally isolates the receivable from the Company's other assets, and presumptively puts the receivable beyond the lawful reach of the Company and its creditors, even in bankruptcy or other receivership, (iii) confers on the financial institution the right to further pledge or exchange the receivable and (iv) eliminates the Company's effective control over the receivable, in the sense that the Company is not entitled and will not be obligated to repurchase the receivable other than in case of failure by the Company to fulfill its commercial obligation under the contract giving rise to the receivable.

AC. BASIC AND DILUTED NET EARNINGS PER SHARE

Basic earnings per share are computed based on the weighted average number of outstanding ordinary shares during each year. Diluted earnings per share are computed based on the weighted average number of outstanding ordinary shares during each year, plus dilutive potential ordinary shares outstanding during the year. Outstanding stock options are excluded from the calculation of the diluted earnings per share when their effect is anti-dilutive.

The weighted average number of shares related to outstanding anti-dilutive stock options excluded from the calculations of diluted net earnings per share was not material in each of the three years ended December 31, ~~2017.~~2019.

AD. TREASURY SHARES

Elbit Systems’ shares held by the Company are recognized at cost and presented as a reduction of shareholders’ equity.

AE. ~~RECENT~~RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

(1)

In August ~~2014,~~2017, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ASU ~~2014-15, “Presentation of Financial Statements - Going Concern”~~2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”, ~~which requires management~~amending the eligibility criteria for hedged items and transactions to ~~evaluate certain conditions, events and management plans that are known or reasonably knowable and that, when considered in the aggregate, raise substantial doubt about~~expand an ~~entity's~~entity’s ability to ~~continue as~~hedge non-financial and financial risk components. The new guidance eliminates the requirement to separately measure and present hedge ineffectiveness and aligns the presentation of hedge gains and losses with the underlying hedge item. The new guidance also simplifies the hedge documentation and hedge effectiveness assessment requirements. The amended presentation and disclosure requirements must be adopted on a ~~going concern within one year after~~prospective basis, while any amendments to cash flow and net investment hedge relationships that exist on the date ~~that financial statements are issued. This ASU is~~of adoption must be applied on a “modified retrospective” basis, meaning a cumulative effect adjustment to the opening balance of retained earnings as of the beginning of the year of adoption. The new guidance was effective for ~~annual reporting periods ending after December 15, 2016. ASU 2014-15 was adopted by~~ the Company ~~for~~on January 1, 2019, and the ~~annual period ending December 31, 2017 and~~adoption did not have a material impact on the Company’s consolidated financial statements.

~~(2)~~

In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”, which requires that all deferred income tax assets and liabilities be presented as non-current in the Company’s consolidated balance sheet. ASU 2015-17 represents a change in accounting principles and is effective for fiscal years, and the interim periods within those years, beginning after December 15, 2016. ASU 2015-17 was adopted by the Company for the fiscal year ended December 31, 2017, and the ASU was applied retrospectively to all periods presented, resulting in the reclassification of $32,336 of deferred tax assets from current assets to long-term assets and of $1,800 of deferred tax liabilities from current liabilities to long-term liabilities in the Company's consolidated balance sheet at December 31, 2016.

~~F - 30~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

~~Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)~~

~~AE. RECENT ACCOUNTING PRONOUNCEMENTS~~ ~~(Cont.)~~

~~(3)~~

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (Topic 606 or “the New Standard”). The New Standard permits adoption either by using (i) a full retrospective approach for all periods presented in the period of adoption or (ii) a modified retrospective approach with the cumulative effect of initially applying the New Standard recognized at the date of initial application and providing certain additional disclosures. ASU 2014-09, as amended, is effective for annual periods and interim periods beginning on or after December 15, 2017.

Accordingly, the Company adopted the New Standard on January 1, 2018, using the modified retrospective transition method applied to those contracts that were not substantially completed as of that date. Upon adoption, the Company recognized the cumulative effect of adopting this guidance as an adjustment to the opening balance of retained earnings. Prior periods have not been retrospectively adjusted. The Company has completed its evaluation of the potential changes from adopting the New Standard in its financial reporting and disclosures. In addition, the Company has evaluated the impact of the accounting and disclosure changes on its business processes, controls and systems, designed changes to such business processes, controls and systems and implemented the changes during 2017.

The adoption of the New Standard will primarily impact the Company's contracts where revenue was recognized using the percentage-of-completion units-of-delivery method, with the possible resulting impact being revenue that may be recognized over time because control is transferred continuously to the customers over the performance period for contracts recognized over time. The Company will use the cost incurred to date relative to total estimated costs at completion to measure progress toward satisfying the Company's performance obligation, since incurred costs represent work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. This change also impacts the Company's balance sheet presentation with a decrease in inventories, an increase in contract assets (i.e., unbilled receivables) and a net increase in retained earnings.

In addition, the New Standard requires product engineering and development costs under contracts (or anticipated contracts) with customers to be capitalized as contract fulfillment costs, to the extent recoverable from the associated contract (or anticipated contract) margin, and subsequently amortized as the related goods or services are transfered to the customer.

~~The New Standard also requires disclosure of remaining performance obligations, which is in concept similar to the backlog data reported by the Company.~~

The cumulative effect of the transition to the New Standard resulted in an adjustment on January 1, 2018 (effective date of adoption), of a $1,676 increase in retained earnings, a decrease in inventories of $81,864, an increase in contract assets (unbilled receivables) of $80,452 and a net decrease in customer advances and contract liabilities and deferred tax assets in the aggregate amount of $3,088.

~~(4)~~

In January 2016, the FASB issued guidance on Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities, ASU 2016-01 - "Financial Instruments - Overall" (Subtopic 825-10). The ASU revises the classification and measurement of investments in certain equity investments and the presentation of certain fair value changes for certain financial liabilities measured at fair value. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017 and interim periods within those years. The adoption of this ASU will not have a material impact on our consolidated financial statements.

~~F - 31~~



	~~ELBIT SYSTEMS LTD. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~
~~U.S. dollars (In thousands, except per share data)~~

Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

AE. ~~RECENT~~RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS (Cont.)

~~(5)~~(2)

In February 2016, the FASB issued ~~guidance on~~ASU No. 2016-02, "Leases" (Topic 842), which requires lessees to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and ~~disclosure of leases for both parties to~~cash flows arising from a ~~contract (i.e., lessees and lessors), ASU 2016-02 - "Leases" (Topic 842). The ASU requires lessees to apply~~lease by a ~~dual approach, classifying leases~~lessee primarily depends on its classification as ~~either~~a finance or operating lease. However, unlike previous GAAP, which required only capital leases ~~based~~to be recognized on the ~~principle~~balance sheet, the new guidance required both types of ~~whether or not~~leases to be recognized on the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for in a manner similar to the accounting under existing guidance for operating leases.balance sheet. The ASU requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. Topic 842 supersedes the previous leases standard, ASC 840, “Leases”. ASU 2016-02 is effective for ~~the~~ interim and annual periods beginning ~~on or~~ after December 15, 2018, ~~(early~~with early adoption permitted. A modified retrospective transition approach is ~~permitted). The Company is currently evaluating~~required in applying the ~~potential effect~~new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the entity must recast its comparative period financial statements and provide disclosures required by the new standard for the comparative periods.

The Company adopted the new standard on January 1, 2019, using the effective date as its date of initial application. Consequently, financial information will not be updated and disclosures required under the new standard will not be provided for dates and periods before January 1, 2019 (see Note 9).

(3)

In June 2018, the FASB issued ASU No. 2018-07, "Compensation - Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting", to simplify the accounting for non-employee share-based payment transactions by expanding the scope of ASC Topic 718, Compensation - Stock Compensation, to include share-based payment transactions for acquiring goods and services from non-employees. Under the new standard, most of the guidance on ~~its~~stock compensation payments to non-employees would be aligned with the requirements for share-based payments granted to employees. This standard is effective for annual reporting periods beginning after December 15, 2018, including interim reporting periods within those annual reporting periods, with early adoption permitted. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

~~(6)~~(4)

In ~~June 2016,~~February 2018, the FASB issued ASU ~~2016-13, "Financial Instruments~~2018-02, "Income Statement - ~~Credit Losses~~Reporting Comprehensive Income (Topic ~~326)~~220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”, ~~Measurement~~which allows for the elimination of ~~Credit Losses on Financial Instruments". This ASU significantly changes how entities will measure credit losses for most financial assets~~the stranded income tax effects resulting from the enactment of the Tax Cuts and ~~certain~~Jobs Act through a reclassification from accumulated other ~~instruments that are not presented in the balance sheet at fair value.~~comprehensive income to retained earnings. The ASU will replace the current incurred loss approach with an expected loss model for instruments measured at amortized cost. For available-for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount, as they do currently under the other-than-temporary impairment model. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13standard is effective for ~~annual periods~~fiscal years beginning after December 15, ~~2019, and interim periods therein.~~2018. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods therein. The Company is currently evaluating the potential effect of the ASU on its consolidated financial statements.

~~(7)~~

In August 2016, the FASB issued ASU 2016-15 - "Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments", which is intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the Consolidated Statement of Cash Flows by providing guidance on eight specific cash flow issues. ASU 2016-15 is effective retrospectively on January 1, 2018, with early adoption permitted. The adoption of this ~~ASU will~~guidance did not have a ~~material~~significant impact on ~~our consolidated~~the Company’s financial statements.

~~(8)~~

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. The ASU requires that the Consolidated Statement of Cash Flows explain the change in total cash and equivalents and amounts generally described as restricted cash or restricted cash equivalents when reconciling the beginning-of-period and end-of-period total amounts. The ASU also requires a reconciliation between the total of cash and equivalents and restricted cash presented on the Consolidated Statement of Cash Flows and the cash and equivalents balance presented on the Consolidated Balance Sheet. ASU 2016-18 is effective retrospectively on January 1, 2018, with early adoption permitted. The adoption of this ASU will not have a material impact on our consolidated financial statements.

~~F - 32~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)

~~AE.~~AF. RECENT ACCOUNTING PRONOUNCEMENTS ~~(Cont.)~~

~~(9)~~

In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business". The amendments in this ASU clarify the definition of a business, with the objective of adding guidance to assist entities in evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017. The adoption of this ASU will not have a material impact on our consolidated financial statements.

~~(10)~~(1)

In January 2017, the FASB issued ASU 2017-04, ~~Intangibles-Goodwill~~"Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill ~~Impairment.~~Impairment". ASU 2017-04 eliminates step two of the goodwill impairment test and specifies that goodwill impairment should be measured by comparing the fair value of a reporting unit with its carrying amount. Additionally, the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets should be disclosed. ASU 2017-04 is effective for annual or interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019, and early adoption is permitted. The Company does not expect this ASU to have a material effect on its consolidated financial statements.

~~(11)~~(2)

In ~~February 2017,~~June 2016, the FASB issued ASU ~~2017-05, “Other Income~~2016-13, "Financial Instruments-Credit Losses (Topic 326) - ~~Gains and~~Measurement of Credit Losses ~~from the Derecognition of Non-financial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Non-financial Assets”~~on Financial Instruments". This ~~ASU clarifies~~guidance replaces the ~~scope~~current incurred loss impairment methodology. Under the new guidance, on initial recognition and ~~application~~at each reporting period, an entity is required to recognize an allowance that reflects its current estimate of ~~ASC 610-20~~credit losses expected to be incurred over the life of the financial instrument based on ~~the sale or transfer of non-financial assets~~historical experience, current conditions and in substance non-financial assets to non-customers, including partial sales. The amendments in ASU 2017-05 are effective for annual reporting periods beginning after December 15, 2017. The adoption of this ASU will not have a material impact on our consolidated financial statements.

~~(12)~~

reasonable and supportable forecasts. In ~~March 2017,~~November 2018, the FASB issued ASU 2017-07, “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”. ASU 2017-07 was issued to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost within an entity's financial statements. The amendments in ASU 2017-07 are effective for annual reporting periods beginning after December 15, 2017. The adoption of this ASU will not have a material impact on our consolidated financial statements.

~~(13)~~

~~In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging - Targeted~~2018-19, "Codification Improvements to ~~Accounting for Hedging Activities”, which is intended~~Topic 326, Financial Instruments - Credit Losses". The guidance will be effective beginning on January 1, 2020, including interim periods within that year and requires a modified retrospective transition approach through a cumulative-effect adjustment to ~~simplify and amend~~retained earnings as of the ~~application~~beginning of ~~hedge accounting to more clearly portray~~ the ~~economics~~period of an entity’s risk management strategies in its financial statements. The ASU will make more financial and nonfinancial hedging strategies eligible for hedge accounting, reduce complexity in fair value hedgesadoption. Under the modified retrospective method of interest rate risk and ease certain documentation and assessment requirements of hedge effectiveness. It also changes how companies assess effectiveness and amends the presentation and disclosure requirements. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018.adoption, prior year reported results are not restated. The Company ~~is currently evaluating~~has analyzed the impact of ~~adopting~~its financial instruments that are within the ~~ASU~~scope of this guidance, primarily trade and unbilled receivables and contract assets, net and expects that the cumulative adjustment to retained earnings will be immaterial on its consolidated financial statements.

~~AF.~~

AG. RECLASSIFICATIONS

Certain financial statement data for prior years has been reclassified to conform to current year financial statement presentation.

~~F - 33~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 3 - TRADE AND UNBILLED RECEIVABLES AND CONTRACT ASSETS, NET

The following table presents the components of trade receivables and ~~unbilled receivables,~~contract assets, net as of December 31, ~~2017~~2019 and ~~2016.~~2018:

December 31,
2017 2016
Receivables⁽¹⁾
$ 747,327
$ 723,538
Unbilled receivables 668,821
516,469
Less – allowance for doubtful accounts (9,585 ) (7,416 )
$ 1,406,563
$ 1,232,591

(1) Includes receivables from affiliated companies $ 75,340
$ 84,969



	December 31,
	2019			2018
Trade and unbilled receivables⁽¹⁾	$	1,030,372		$	968,064
Contract assets⁽²⁾	1,048,031			756,159
Less – allowance for doubtful accounts	(10,557		)	(11,308		)
	$	2,067,846		$	1,712,915


(1)	Trade and unbilled receivables balances represents amounts for which the Company's right for consideration is unconditional. The balance also includes receivables from affiliated companies in the amounts of $78,115 and $97,588, as of December 31, 2019 and 2018, respectively.

~~Unbilled~~


(2)	Contract assets (unbilled receivables) include unbilled amounts typically resulting from sales under contracts for which over-time method of revenue recognition is utilized, and revenue recognized exceeds the amount billed to the customer. Contract liabilities include advance payments and billings in excess of revenue recognized.

Short and long-term trade receivables ~~on long-term~~and contract assets include amounts related to contracts ~~principally represent sales recorded under~~with the ~~percentage-of-completion method~~Israeli Ministry of ~~accounting, when sales or revenues based on performance attainment, though appropriately recognized, cannot be billed yet under terms~~Defense ("IMOD") in the aggregate amounts of ~~the contract~~$710,708 and $576,756, as of ~~the balance sheet date. Accounts receivable include claims on items that the Company believes are earned.~~ December 31, 2019 and 2018, respectively.

Trade receivables and ~~unbilled receivables, other than those detailed under Note 7,~~contract assets are expected to be billed and collected during ~~2018.~~

Short and long-term receivables and unbilled receivables include amounts related to contracts with the IMOD in the aggregate amounts of $547,970 and $498,964, as of December 31, 2017 and 2016, respectively.

2020. As for long-term trade and unbilled receivables – see Note 7.

There were no significant impairment losses related to our contract assets during the year ended December 31, 2019.

Note 4 - OTHER RECEIVABLES AND PREPAID EXPENSES

The following table presents the components of other receivables and prepaid expenses as of December 31, ~~2017~~2019 and ~~2016.~~2018.


	December 31,				December 31,
	2017		2016		2019		2018
Prepaid expenses	38,420		32,254		$	45,545	$	66,137
Government institutions	66,189		37,937		62,398		80,928
Derivative instruments	5,953		14,218		23,886		22,549
Cross-currency interest rate swap	7,501		2,275		6,183		1,543
Right to use land and buildings					5,602		6,183
Other	10,883		16,295		17,114		21,808
	$	128,946	$	102,979	$	160,728	$	199,148

~~F - 34~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 5 - INVENTORIES ~~NET OF CUSTOMER ADVANCES~~

The following table presents the components of other inventories, net of customer advances as of December 31, ~~2017~~2019 and ~~2016.~~2018.



	December 31,
	2019		2018
Cost incurred on long-term contracts in progress^(*)	$	631,513	$	620,350
Raw materials	516,385		455,517
Advances to suppliers and subcontractors	106,142		87,788
	1,254,040		1,163,655
Less -
Provision for losses on long-term contracts	34,120		21,659
	$	1,219,920	$	1,141,996

December 31,
2017 2016
Cost incurred on long-term contracts in progress $ 612,763
$ 650,721
Raw materials 342,274
310,780
Advances to suppliers and subcontractors 57,726
52,728
1,012,763
1,014,229
Less -

Cost incurred on contracts in progress deducted from customer advances 34,523
65,032
Advances received from customers (*) 52,596
65,418
Provision for losses on long-term contracts 22,690
43,513
$ 902,954
$ 840,266

(*)

~~The~~Costs incurred to fulfill a contract in advance of the contract being awarded are included in inventories as work-in-process if the Company ~~has transferred legal title~~determines that those costs relate directly to a contract or to an anticipated contract that can be specifically identified and contract award is probable, the costs generate or enhance resources that will be used in satisfying performance obligations, and the costs are recoverable (referred to as pre-contract costs). Pre-contract costs that are initially capitalized in inventory are generally recognized as cost of ~~inventories to certain customers as collateral for advances received. Advances are allocated~~revenues consistent with the transfer of control of the products and services to the ~~relevant inventories on a per-project basis. In cases where advances~~customer. All other pre-contract costs, including start-up costs, are expensed as incurred. As of December 31, 2019 and 2018, $221,592 and $108,627 of pre-contract costs were included in ~~excess of the inventories, the net amount is presented in customer advances (see Note 14).~~inventory, respectively.



ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 6 - INVESTMENTS IN AFFILIATED COMPANIES, PARTNERSHIPS AND OTHER COMPANIES

~~A. INVESTMENT IN AFFILIATED COMPANIES:~~


A.	INVESTMENTS IN AFFILIATED COMPANIES:

December 31,
2017 2016
Companies accounted for under the equity method and the fair value method $ 164,761
$ 173,396
Companies accounted for on a cost basis 7,577
7,566
$ 172,338
$ 180,962



	December 31,
	2019		2018
Companies accounted for under the equity method ⁽¹⁾	$	141,594	$	144,435
Companies accounted for under the fair value method ⁽²⁾	51,415		46,858
Companies accounted for at cost ⁽³⁾	8,565		4,887
	$	201,574	$	196,180

(1) See Note 6B.

(2) See Note 6C.

(3) Companies accounted at cost presented less impairments. During 2019, the Company invested $5,000 in a company in Israel.


B.	~~INVESTMENT~~INVESTMENTS IN COMPANIES ACCOUNTED FOR UNDER THE EQUITY ~~METHOD AND THE FAIR VALUE~~ METHOD:


	December 31,				December 31,
	2017		2016		2019		2018
Company A⁽¹⁾	$	65,799	$	65,594	$	77,298	$	73,001
Company B ⁽²⁾	21,708		19,974		19,314		19,631
Company C ⁽³⁾	—		11,881		23,940		25,259
Company D ⁽⁴⁾	15,000		19,120		5,028		8,724
Company E⁽⁵⁾	18,003		18,003		4,800		8,266
Company F ⁽⁶⁾	27,927		25,707
Company G ⁽⁷⁾	5,114		5,107
Other	11,210		8,010		11,214		9,554
	$	164,761	$	173,396	$	141,594	$	144,435

(1)

Company A is an Israeli partnership, held 50% by the Company and 50% by Rafael Advanced Defense Systems Ltd. (“Rafael”). Company A is engaged in the development and production of various thermal detectors and laser diodes. Company A is jointly controlled and therefore is not consolidated in the Company’s financial statements. During ~~2017~~2019 and ~~2016,~~2018, the Company received dividends in the amount of ~~$9,374~~$4,200 and ~~$2,140,~~$4,138, respectively, from Company A.

~~F - 35~~



	~~ELBIT SYSTEMS LTD. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~
~~U.S. dollars (In thousands, except per share data)~~

~~Note 6 - INVESTMENTS IN AFFILIATED COMPANIES, PARTNERSHIPS AND OTHER COMPANIES (Cont.)~~


B.	~~INVESTMENT IN COMPANIES ACCOUNTED FOR UNDER THE EQUITY METHOD AND THE FAIR VALUE METHOD (Cont.):~~


(2)	Company B is an Israeli company owned 50.00001% by the Company and 49.99999% by Rafael. Company B focuses mainly on commercial applications of thermal imaging and electro-optic technologies. The Company jointly controls Company B with Rafael, and therefore Company B is not consolidated in the Company’s financial statements.

(3)

Company C is a ~~Romanian company that was~~U.K. joint venture held ~~40%~~50% by a wholly-owned U.K. subsidiary of the ~~Company.~~Company and 50% by Kellogg Brown & Root Limited. Company C is engaged in the ~~construction~~area of ~~fiber optic-telecommunication networks in Romania.~~flight training systems. During ~~2016,~~2019, the Company ~~wrote off $2,500~~received a dividend in the amount of ~~its investment in~~$6,100 from Company C. ~~During 2017, the Company sold all of its holding in Company C, for a consideration of approximately $12,000.~~


(4)	Company D is a European company held 33% by the Company. ~~During 2015, the Company, through a wholly-owned Israeli subsidiary, invested approximately $20,000 in~~ Company D ~~which~~ is engaged in the area of composite aerostructure parts manufacturing for commercial aircraft.

(5)

Company E is an Israeli company held 77% by the ~~Company. During 2016, the~~ Company, ~~established Company E, based on its in-house developed energy technology for transportation, that~~and is engaged in developing energy solutions for civilian transportation applications. In July 2016, an international strategic investor invested €16,000 (approximately $18,000) in exchange for 20% of Company E's ownership interest (in preferred shares) and was granted rights in several of Company E's energy related technologies. The investor has certain participating rights in the day-to-day operations of Company E. As a result, the Company deconsolidated Company E and reevaluated its remaining holdings, recognizing a gain of approximately $10,500, which was included in “other operating income, net”. During 2017, ~~the~~an investor invested €2,500 (approximately $2,800) in exchange for an additional 3% ownership in Company E.


~~(6)~~	~~Company F is~~ During 2018, due to a ~~U.K. joint venture held 50%~~revaluation prepared by ~~a wholly-owned U.K. subsidiary of~~an independent advisor, the Company ~~and 50% by Kellogg Brown & Root Limited. During 2016, the Company invested in Company F approximately $13,400. Company F is engaged in the area~~recorded an impairment of ~~flight training systems..~~

~~(7)~~

Company G is an Israeli company held 71% by the Company. During 2016, due to an external investment in Company G, in which a third party investor acquired substantial participation rights, Company G ceased to be consolidated in the Company's financial results. The Company has chosen to make a fair value election pursuant to ASC 825, "Financial Instruments", for its investment in Company ~~G. This investment was recorded at fair market value on~~E in the ~~consolidated balance sheets and the periodic change in fair market value is recorded as a component~~amount of ~~other income (expense), net on the consolidated statements of income. For the year ended December 31, 2017, there was no significant change in fair value.~~$9,737.

~~Equity in net earnings (losses) of affiliated companies and partnerships is as follows:~~

Year ended December 31,
2017 2016 2015
Company A $ 9,579
$ 6,157
$ 3,948
Company B 1,734
2,047
2,284
Company F 6,427
4,253
—
Company D (4,129 ) (872 ) —
Other (*) (2,250 ) (6,361 ) (1,690 )
$ 11,361
$ 5,224
$ 4,542

~~(*) Includes write-off impairment in Company C in the amount of approximately $2,500 in 2016.~~

~~F - 36~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 6 - INVESTMENTS IN AFFILIATED COMPANIES, PARTNERSHIPS AND OTHER COMPANIES (Cont.)


B.	~~INVESTMENT~~INVESTMENTS IN COMPANIES ACCOUNTED FOR UNDER THE EQUITY METHOD ~~AND THE FAIR VALUE METHOD~~ (Cont.):

Equity in net earnings (losses) of affiliated companies and partnerships is as follows:



	Year ended December 31,
	2019			2018			2017
Company A	$	8,497		$	11,340		$	9,579
Company B	(317		)	(2,077		)	1,734
Company C	3,840			10,102			6,427
Company D	(3,696		)	(6,275		)	(4,129		)
Company E	(3,466		)	(9,737		)	—
Other	(3,084		)	(5,575		)	(2,250		)
	$	1,774		$	(2,222	)	$	11,361

The summarized aggregate financial information of companies accounted for under the equity method ~~and the fair value method~~ is as follows:

Balance Sheet Information:


	December 31,				December 31,
	2017		2016		2019		2018
Current assets	$	542,600	$	452,343	$	505,502	$	392,144
Non-current assets	117,438		145,346		146,975		131,636
Total assets	$	660,038	$	597,689	$	652,477	$	523,780

Current liabilities	$	161,414	$	168,352	$	151,353	$	139,183
Non-current liabilities	223,253		103,656		259,404		145,501
Shareholders' equity	275,371		325,681		241,720		239,096
Total liabilities and equity	$	660,038	$	597,689	$	652,477	$	523,780

Income Statement Information:

Year ended December 31,
2017 2016 2015
Revenues $ 466,349
$ 424,045
$ 250,499
Gross profit $ 101,242
$ 83,266
$ 67,747
Net income $ 10,338
$ 21,252
$ 13,920

~~See Note 20(E) for guarantees.~~

~~Note 7 - LONG-TERM TRADE AND UNBILLED RECEIVABLES~~

~~The following table presents the components of long-term trade and unbilled receivables as of December 31, 2017 and 2016.~~

December 31,
2017 2016
Receivables $ 63,833
$ —
Unbilled receivables 231,563
189,688
$ 295,396
$ 189,688



	Year ended December 31,
	2019		2018		2017
Revenues	$	366,178	$	362,711	$	466,349
Gross profit	$	158,382	$	94,463	$	101,242
Net income	$	1,890	$	727	$	10,338

The majority of the long-term unbilled receivables are expected to be billed and collected during the years 2019 - 2021. Long-term trade and unbilled receivables are mainly related to contracts with the IMOD.

~~F - 37~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 6 - INVESTMENTS IN AFFILIATED COMPANIES, PARTNERSHIPS AND OTHER COMPANIES (Cont.)


C.	INVESTMENTS ACCOUNTED FOR UNDER THE FAIR VALUE METHOD:

Investments accounted for under the fair value method are evaluated by applying relevant methods as the market approach with the use of an option pricing method or the earning approach using discounted future cash flows, as follows:



	December 31,
	2019		2018
Company F ⁽¹⁾	$	39,658	$	43,350
Company G⁽²⁾	7,162		3,476
Company H ⁽³⁾	4,595		32
	$	51,415	$	46,858

(1)

In May 2018, Company F, the Company's then wholly-owned subsidiary, which is engaged in the field of commercial cybersecurity, issued preferred shares to third party investors in return for an investment of $30,000, which reflected approximately 17% of the total outstanding share capital of the subsidiary. Although the Company holds more than 50% of the subsidiary's shares, it concluded that the rights of the preferred shareholders, as required by the investors, represent substantive participating rights because, in the aggregate, the rights entitle the investors to effectively participate in decisions that occur as part of the subsidiary’s ordinary course of business and are significant factors in directing and carrying out the activities of the business. Based on the above mentioned factors, the Company concluded that it no longer controls the subsidiary as it does not have the unilateral power to make decisions on the subsidiary's day-to-day operations, and therefore deconsolidated the subsidiary.

During 2018, the Company's management determined the equity fair value of the formerly consolidated subsidiary and of its retained non-controlling investment in this subsidiary, by performing an equity fair value analysis, which included various factors and measures including, among others, the assistance of third-party valuation specialists, by applying the market approach with the use of an option-pricing method to evaluate the fair value of the Company retained equity class investment in the formerly consolidated subsidiary, and used this equity fair value analysis as the basis to determine the recognition of gain of approximately $42,000 upon deconsolidation, included in "Other operating income, net".

During 2019, the Company re-evaluated its investment in Company F and decreased its value in the amount of approximately $3,700 (see Note 26).

(2)

During 2018, the Company established Company G, based on its in-house developed visualization technology. This company is engaged in developing surgeon-centered visualization technologies. In June 2018, an international strategic investor invested $11,500 in preferred shares in exchange for 41% of Company G's ownership interest. Although the Company holds more than 50% of the subsidiary's shares, it concluded that the rights of the preferred shareholder, as required by the investor, represent substantive participating rights because, in the aggregate, the rights entitle the investor to effectively participate in decisions that occur as part of the subsidiary’s ordinary course of business and are significant factors in directing and carrying out the activities of the business. Based on the above mentioned factors, the Company concluded that it no longer controls the subsidiary as it does not have the unilateral power to make decisions on the subsidiary's day-to-day operations, and therefore deconsolidated the subsidiary.

The Company's management determined the equity fair value of the formerly consolidated subsidiary and of its retained non-controlling investment in this subsidiary, by performing an equity fair value analysis, which included various factors and measures including, among others, the assistance of third-party valuation specialists, by applying the market approach with the use of an option-pricing method to evaluate the fair value of the Company retained equity class investment in the formerly consolidated subsidiary, and used this equity fair value analysis as the basis to determine the recognition of gain of approximately $3,500 upon deconsolidation, included in "Other operating income, net".

During 2019, the Company re-evaluated its investment in Company G and increased its value in the amount of approximately $ 3,700 ( see Note 26).



ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 6 - INVESTMENTS IN AFFILIATED COMPANIES, PARTNERSHIPS AND OTHER COMPANIES (Cont.)


C.	INVESTMENTS ACCOUNTED FOR UNDER THE FAIR VALUE METHOD (Cont.):


(3)	Company H is an Israeli company held 35% by the Company. During 2019, due to external investment in Company H, the Company recorded a gain of approximately $4,600 in its fair value. During 2018, the Company estimated the fair value of its holdings in Company H and recorded an impairment of approximately $5,100 in its fair value. (see Note 26).

Note 7 - LONG-TERM TRADE AND UNBILLED RECEIVABLES AND CONTRACT ASSETS

The following table presents the components of long-term trade and unbilled receivables and contract assets as of December 31, 2019 and 2018.



	December 31,
	2019		2018
Trade and unbilled receivables	$	136,540	$	112,955
Contract assets^(*)	122,610		184,190
	$	259,150	$	297,145

The majority of the long-term contract assets are expected to be billed and collected during the years 2021 - 2026. Long-term trade receivables and contract assets are mainly related to contracts with the IMOD.

^(*)See Note 3.

Note 8 - LONG-TERM BANK DEPOSITS AND OTHER RECEIVABLES

The following table presents the components of long-term bank deposits and other receivables as of December 31, ~~2017~~2019 and ~~2016.~~2018.

December 31,
2017 2016
Cross-currency interest rate swap 16,508
8,064
Long-term receivables⁽¹⁾
11,300
—
Deposits with banks and other long-term receivables ⁽²⁾
10,274
7,853
$ 38,082
$ 15,917



	December 31,
	2019		2018
Prepaid expenses for land rights	$	15,473	$	19,429
Premises evacuation building input index receivable⁽¹⁾	30,867		—
Cross-currency interest rate swap	—		2,835
Long-term receivables⁽²⁾	1,247		11,696
Deposits with banks and other long-term receivables ⁽³⁾	10,489		9,002
	$	58,076	$	42,962

~~(1) Includes $9,400 related to legal expenses (see Note 20C).~~


(1)	During 2019, the Company sold the premises evacuation receivable to an Israeli bank and is still entitled to receive building inputs index adjustments on the base premises evacuation receivable, which is recorded as a financial asset measured at fair value (see Note 1C(5)).


(2)	As of December 31, 2018, included related legal expenses in the amount of $9,956 received during 2019 (see Note 21C).


(3)	Includes long-term balances of a non-qualified deferred compensation plan structured under Section 409A of the U.S. Internal Revenue Code in the amount of ~~$8,220~~$9,064 and ~~$7,106~~$7,531 as of December 31, ~~2017~~2019 and ~~2016,~~2018, respectively (see Note 17).

~~Note 9 - AVAILABLE-FOR-SALE MARKETABLE SECURITIES~~

~~As of~~ ~~December 31, 2017~~ ~~and 2016, the fair value, amortized cost and gross unrealized holding gains and losses of available-for-sale marketable securities were as follows:~~

December 31, 2017
Amortized cost Gross unrealized gains Gross unrealized losses Fair value
Government debentures - fixed and floating interest rate $ 1,409

6

—

$ 1,415
Corporate debentures - fixed and floating interest rate 11,951

5

—

11,956
$ 13,360

11

—

$ 13,371

December 31, 2016
Amortized cost Gross unrealized gains Gross unrealized losses Fair value
Government debentures - fixed and floating interest rate $ 1,051
—
—
$ 1,051
Corporate debentures - fixed and floating interest rate 12,302
17
—
12,319
$ 13,353
17
—
$ 13,370

~~The contractual maturities of the available-for-sale marketable securities in future years are as follows:~~

December 31,
2017
2018 $ 374
2019 1,568
2020 2,405
2021 2,564
2022 and after 6,218
$ 13,129

~~As of~~ ~~December 31, 2017~~ ~~and 2016, interest receivable included in other receivables amounted to $118 and $147, respectively.~~

~~F - 38~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 9 - LEASES

On January 1, 2019, the Company adopted ASC 842 and elected the available practical expedient to recognize the cumulative effect of initially adopting ASC 842 as an adjustment to the opening balance sheet of the period of adoption (i.e., January 1, 2019). The Company also elected the other available practical expedients, and will not separate lease components from non-lease components, and will not reassess whether contracts are or contain leases, lease classification, or initial direct costs for existing leases as of January 1, 2019. Only the minimum lease payments in accordance with ASC 842 were included in the calculation of the right-of-use ("ROU") and liability for existing leases as of January 1, 2019. The consolidated balance sheets and results from operations for reporting periods beginning after January 1, 2019 are presented under ASC 842, while prior period amounts are not adjusted and continue to be reported in accordance with the historic accounting under ASC 840.

The adoption of this new standard as of January 1, 2019 materially affected the Company's consolidated balance sheets by recognizing new ROU assets and lease liabilities for operating leases in the amount of approximately $385,332.

The Company's leases mainly include buildings for its facilities worldwide and vehicles leases, which are all classified as operating leases. Certain lease agreements include rental payments that are adjusted periodically for the consumer price index ("CPI"). The ROU and lease liability were calculated using the initial CPI and will not be subsequently adjusted. Certain leases include renewal options that are exercisable in the Company's sole discretion. The renewal options were included in the ROU and include renewal options that are under the Company's sole discretion.

A. Supplemental Consolidated Statement of Financial Position information related to leases was as follows:



	December 31,
	2019

Operating lease right of use assets	$	365,763

Current portion of operating lease liabilities	62,565
Non-current portion of operating lease liabilities	323,287
Total operating lease liabilities	$	385,852

Weighted average remaining lease term (years)	5.6
Weighted average discount rate	2.19		%


B.	For the year ended December 31, 2019, cash payments against operating lease liabilities totaled $76,500 and non-cash transactions totaled $92,500 to recognize operating assets and liabilities for new leases.

Maturities of operating lease liabilities for the next five years are as follows:



	December 31,
	2019
2020	$	71,771
2021	51,625
2022	40,830
2023	36,245
2024	33,779
2025 and thereafter	$	260,925
Total	$	495,175
Less - Imputed interest	109,323
Total operating lease liabilities	$	385,852



ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 9 - LEASES (Cont.)


B.	Payments due under operating leases net of sublease amounts and non-cancellable future rentals under ASC 840 as of December 31, 2018, were as follows:



	December 31,
	2018
2019	$	65,540
2020	49,142
2021	28,311
2022	21,001
2023	11,373
2024 and thereafter	87,287
Total lease payments	$	262,654


C.	Expenses for the years ended December 31, 2019, 2018 and 2017 amounted to $77,880, $60,782 and $47,479, respectively.


D.	During 2019, the Company has recognized a net gain of approximately $31,815 related to sale and lease back of buildings by one of the Company Israeli subsidiary. This gain was recorded under "Other operating income, net".



ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 10 - PROPERTY, PLANT AND EQUIPMENT, NET

The following table presents the components of property, plant and equipment, net as of December 31, ~~2017~~2019 and ~~2016.~~2018:


	December 31,						December 31,
	2017			2016			2019			2018
Cost ⁽¹⁾:
Land, buildings and leasehold improvements⁽²⁾	$	473,483		$	450,301		$	796,676		$	756,767
Instruments, machinery and equipment ⁽³⁾	882,858			807,791			1,362,488			1,270,259
Office furniture and other	90,602			83,431			101,612			112,297
Motor vehicles and airplanes	48,281			55,457			51,890			55,947
	1,495,224			1,396,980			2,312,666			2,195,270
Accumulated depreciation	(999,508		)	(922,871		)	(1,546,134		)	(1,508,650		)
Depreciated cost	$	495,716		$	474,109		$	766,532		$	686,620

Depreciation expenses for the years ended December 31, ~~2017~~2019, ~~2016~~2018 and ~~2015~~2017 amounted to ~~$85,449, $81,728~~$101,087, $91,731 and ~~$74,239,~~$85,449, respectively.


(1)	Net of investment grants received (mainly for instruments, machinery and equipment) in the amounts of ~~$15,208~~$12,461 and ~~$15,023~~$15,492 as of December 31, ~~2017~~2019 and ~~2016~~,2018, respectively.


(2)	Set forth below is additional information regarding the real estate owned or leased by the Company:



	Israel^(a)	U.S.^(b)	Other Countries^(c)
Owned	~~2,175,000~~2,771,000 square feet	~~634,000~~1,050,000 square feet	~~891,000~~1,078,000 square feet
Leased	~~2,206,000~~6,559,000 square feet	~~661,000~~784,000 square feet	~~472,000~~568,000 square feet


(a)	Includes offices, development and engineering facilities, manufacturing facilities, maintenance facilities, hangar facilities and landing strips in various locations in Israel.


(b)	Includes offices, development and engineering facilities, manufacturing facilities and maintenance facilities of ESA ~~primarily~~primary in Texas, New Hampshire, Florida, Alabama and Virginia.


(c)	Includes offices, design and engineering facilities and manufacturing facilities, mainly in Europe, Latin America and Asia-Pacific.


(3)	Includes equipment produced by the Company for its own use in the aggregate amount of ~~$121,205~~$118,371 and ~~$114,241~~$120,093 as of December 31, ~~2017~~2019 and ~~2016~~,2018, respectively, and capitalized costs related to the new ERP system (see Note ~~2(N))~~2N).

As for liens on assets – see Notes ~~20(H)~~21G and ~~20(I).~~21H.

~~F - 39~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 11 - GOODWILL AND OTHER INTANGIBLE ASSETS, NET

A.~~COMPOSITION OF IDENTIFIABLE INTANGIBLE ASSETS:~~


A.	COMPOSITION OF IDENTIFIABLE INTANGIBLE ASSETS:


	Weighted average useful lives					Weighted average useful lives	December 31,
	Weighted average useful lives	December 31,				Weighted average useful lives	December 31,
		2017		2016			2019		2018
Original cost :
Original cost:
Technology	11	$	244,352	$	234,081	10	$	323,348	$	314,511
Customer relations	12	114,696		169,695		14	250,145		177,878
Trademarks and other	14	160,917		161,019		14	200,160		188,507
		519,965		564,795			773,653		680,896
Accumulated amortization:
Technology		191,866		172,649			221,855		206,567
Customer relations		89,982		157,179			104,343		93,519
Trademarks and other		132,429		125,566			152,132		141,513
		414,277		455,394			478,330		441,599
Amortized cost		$	105,688	$	109,401		$	295,323	$	239,297


B.	AMORTIZATION EXPENSES

Amortization expenses amounted to ~~$28,568, $41,160~~$36,059, $26,474 and $~~48,115~~28,568 for the years ended December 31, ~~2017~~2019, ~~2016~~2018 and ~~2015~~2017, respectively.

During 2018, the Company wrote-off impairment of $5,520 related to the IMI acquisition. See Note 1C(5).


C.	AMORTIZATION EXPENSES FOR FIVE SUCCEEDING YEARS

The estimated aggregate amortization expenses for each of the five succeeding fiscal years and thereafter are as follows:


2018		$	29,056
2019		27,152
2020		22,317			$	38,693
2021		7,734			35,521
2022	and after	19,429			28,689
2023					25,013
2024					21,724
2025				and thereafter	145,682
		105,688			$	295,323

D.~~CHANGES IN GOODWILL~~


D.	CHANGES IN GOODWILL

Changes in goodwill during ~~2017~~2019 were as follows:


	2017		2019
Balance, at January 1	$	616,997	$	1,022,624
Additions ⁽¹⁾	26,012		288,029
Net translation differences⁽²⁾	3,706		29,964
Balance, at December 31	$	646,715	$	1,340,617


(1)	Additions related mainly to the ENV acquisition. See ~~Note 1(C)~~Notes 1C(1) and 1C(5).


(2)	Foreign currency translation differences resulting from goodwill allocated to reporting units, whose functional currency has been determined to be other than the U.S. dollar.

~~F - 40~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 12 - SHORT-TERM BANK CREDIT AND LOANS


	Interest %	December 31,				Interest %	December 31,
		2017		2016			2019		2018
Short-term loans	Libor+0.9%	$	122,118	$	—	L + 0.75% , P - 0.7%	$	193,744	$	208,606
Short-term bank credit	Mainly Libor+0.9%	11,632		5,027		P + 0.1%	14,655		215
		$	133,750	$	5,027		$	208,399	$	208,821

Note 13 - OTHER PAYABLES AND ACCRUED EXPENSES


	December 31,				December 31,
	2017		2016		2019		2018
Payroll and related expenses	$	190,028	$	187,051	$	239,406	$	250,765
Provision for warranty and cost	203,632		250,212		186,109		228,236
Provision for vendors on accrued expenses	46,773		55,379		76,299		59,064
Provision for vacation pay⁽¹⁾	52,891		46,878		69,811		68,273
Provision for losses on long-term contracts⁽²⁾	24,088		39,835		96,591		97,013
Provision for income tax, net of advances	23,453		33,541		27,498		14,537
Provision for royalties	36,941		34,330		36,296		35,623
Other income tax liabilities	4,954		9,762		1,318		4,149
Value added tax (“VAT”) payable	21,510		6,433		22,910		11,460
Derivative instruments	12,200		5,429		8,326		23,936
Purchase obligation	14,159		—
Purchase obligations					23,984		43,137
Other⁽³⁾⁽²⁾	204,765		159,866		263,532		245,799
	$	835,394	$	828,716	$	1,052,080	$	1,081,992


(1)	Long-term provision for vacation pay ~~as of December 31, 2017 and 2016 was $30,813 and $27,696, respectively, included in other long-term liabilities.~~- see Note 20.


(2)	Includes a provision of $4,586 as of December 31, 2016, related to the cessation of a program with a foreign customer. During 2017, the Company recorded a reversal of reserve which offset COR related to the cessation of the program.


~~(3)~~	Includes provisions for estimated future costs in respect of (1) ~~penalties and the~~unbilled services of certain third parties, (2) probable loss from claims (legal or unasserted) in the ordinary course of business ~~(e.g.~~and (3) damages caused by the items sold and claims as to the specific products ~~ordered), and (2) unbilled services of certain third parties.~~ordered.

~~F - 41~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 14 - ~~CUSTOMER ADVANCES IN EXCESS OF COSTS INCURRED ON CONTRACTS IN PROGRESS~~CONTRACT LIABILITIES (CUSTOMER ADVANCES)

December 31,
2017 2016
Advances received $ 639,328
$ 652,372
Less -
Advances presented under long-term liabilities 133,649
174,529
Advances deducted from inventories 52,596
65,418
453,083
412,425
Less -
Costs incurred on contracts in progress (See Note 5) 34,523
65,032
$ 418,560
$ 347,393



	December 31,
	2019		2018
Contract liabilities	$	786,411	$	956,884
Less -
Contract liabilities presented under long-term liabilities	62,830		175,890
	$	723,581	$	780,994

Contract liabilities decreased by approximately $170,473 compared to the beginning balance as of January 1, 2019.

During the year ended December 31, 2019, the Company recognized approximately $613,557 of its contract liabilities at January 1, 2019 as revenue.

As for guarantees and liens, see Notes ~~20(E), 20(H)~~21D, 21G and ~~20(I).~~21H.

Note 15 - LONG-TERM LOANS, NET OF CURRENT MATURITIES


				December 31,							December 31,
	Currency	Interest %	Years of maturity	2017		2016		Currency	Interest %	Years of maturity	2019		2018
Long-term loans (*)	USD	Libor + 1.45%	1	$	118,550	$	118,550	USD	L + 1.25% - 1.75%	2020-2024	$	568,550	$	458,550
	NIS (**)	2.56% - Libor + 1.35%	mainly 1	—		47,317		NIS (**)	L + 0.8%	2021	8,256		10,636
	Other			1,023		—		Other			1,223		1,272
				119,573		165,867					578,029		470,458
Less: current maturities				59		165,392					137,905		2,809
				$	119,514	$	475				$	440,124	$	467,649

(*) For covenants see Note ~~20(F).~~21E.

(**) Includes derivative instrument defined as hedge accounting. See Note ~~2(Y)~~2Y and Note ~~2(AA).~~2AA.

As of December 31, ~~2017,~~2019, the LIBOR semi-annual rate for long-term loans denominated in U.S. dollars was ~~1.837%~~1.91%.

The maturities of these loans for periods after December 31, ~~2017,~~2019, are as follows:

2018 - current maturities $ 59
2019 118,641
2020 146
2021 and after 727
$ 119,573



2020 - current maturities	$	137,905
2021	164,711
2022	37,905
2023 and after	237,508
	$	578,029

~~F - 42~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 16 - SERIES A NOTES, NET OF CURRENT MATURITIES


	December 31,						December 31,
	2017			2016			2019			2018
Series A Notes	$	181,713		$	218,466		$	60,764		$	112,060
Less – Current maturities	(67,497		)	(63,564		)	(61,977		)	(59,737		)
Carrying amount adjustments on Series A Notes (*)	10,420			15,843			1,167			3,842
Premium on Series A Notes, net	229			321			46			138
	$	124,865		$	171,066		$	—		$	56,303


(*)	As a result of fair value hedge accounting, described below and in Notes ~~2(Y)~~2Y and ~~2(AA),~~2AA, the carrying amount of the Series A Notes is adjusted for changes in the interest rates.

In June 2010, the Company issued Series A Notes in the aggregate principal amount of NIS 1.1 billion (approximately ~~$283,000~~)$283,000), payable in 10 equal annual installments on June 30 of each of the years 2011 through 2020. The Series A Notes bear a fixed interest rate of 4.84% per annum, payable on June 30 and December 30 of each of the years 2010 through 2020 (the first interest payment was made on December 30, 2010, and the last interest payment will be made on June 30, 2020). Debt issuance costs were approximately ~~$2,530~~,$2,530, of which ~~$2,164~~$2,164 were allocated to the Series A Notes discount, and ~~$366~~$366 were allocated to deferred issuance costs and are amortized as financial expenses over the term of the Series A Notes due in 2020.

In March 2012, the Company issued additional Series A Notes in the aggregate principal amount of NIS 807 million (approximately ~~$217,420~~)$217,420). The immediate gross proceeds received by the Company for the issuance of the March 2012 Series A Notes were approximately NIS 831 million (approximately ~~$224,000~~)$224,000). Debt issuance costs were approximately ~~$2,010~~,$2,010, of which ~~$1,795~~$1,795 was allocated to the Series A Notes discount, and ~~$215~~$215 was allocated to deferred issuance costs and are amortized as financial expenses over the term of the Series A Notes due in 2020. The premium was approximately ~~$3,675~~$3,675 and is amortized as financial income over the term of the Series A Notes due in December 2020.

In May 2012, the Company issued additional Series A Notes in an aggregate principal amount of NIS 92 million (approximately ~~$24,407~~)$24,407) through a private placement to Israeli institutional investors. The immediate gross proceeds received by the Company for the issuance of the May 2012 Series A Notes were approximately NIS 95 million (approximately ~~$24,900~~)$24,900). Debt issuance costs were approximately ~~$94~~.$94. These costs were allocated to deferred issuance costs and are amortized as financial expenses over the term of the Series A Notes due in 2020. The premium was approximately ~~$260~~$260 and is amortized as financial income over the term of the Series A Notes due in December 2020.

The 2010 Series A Notes together with the 2012 Series A Notes form one single series with the same terms and conditions.

The Series A Notes (principal and interest) are not linked to any currency or index. The Series A Notes are unsecured, non-convertible and do not restrict the Company’s ability to issue additional notes of any class or distribute dividends in the future. There are no covenants on the Series A Notes. The Series A Notes are listed for trading on the Tel-Aviv Stock Exchange.

During the years ended December 31, ~~2017, 2016~~2019, 2018 and ~~2015,~~2017, the Company recorded ~~$6,112, $6,565~~$3,740, $5,480 and ~~$6,812,~~$6,112, respectively, as interest expenses and $92 as amortization of debt issuance costs and premium, net, in each of the three years ended December 31, ~~2017~~2019 on the Series A Notes.

~~F - 43~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 16 - SERIES A NOTES, NET OF CURRENT MATURITIES (Cont.)

The Company also entered into 10-year cross currency interest rate swap transactions in order to effectively hedge the effect of interest and exchange rate differences resulting from the 2010 NIS Series A Notes. Under the cross currency interest rate swaps, the Company receives fixed NIS at a rate of 4.84% on NIS 1.1 billion and pays floating six-month USD LIBOR + an average spread of 1.65% on $287,000, which reflects the U.S. dollar value of the Series A Notes on the specific dates the transactions were consummated. Both the debt and the swap instruments pay semi-annual interest on June 30 and December 31. The purpose of these transactions was to convert the NIS fixed rate Series A Notes into USD LIBOR (six-month) floating rate obligations. As a result of these agreements, the Company is currently paying an effective interest rate of six-month LIBOR ~~(1.84%~~(1.92% at December 31, ~~2017)~~2019) plus an average of 1.65% on the principal amount, as compared to the original 4.84% fixed rate. The above transactions qualify for fair value hedge accounting.

In April 2012 and May 2012, the Company entered into cross currency interest rate swap transactions in order to effectively hedge the effect of interest and exchange rate differences resulting from the 2012 issuance of Series A Notes. Under these cross currency interest rate swaps, the Company receives fixed NIS at a rate of 4.84% on NIS 807 million and NIS 92 million and pays floating six-month USD LIBOR + an average spread of 2.02% on ~~$217,300~~$217,300 and 2.285% on ~~$24,100~~,$24,100, respectively, which reflects the U.S. dollar value of the 2012 issued Series A Notes on the specific dates the transactions were consummated. Both the debt and the swap instruments pay semi-annual interest on June 30 and December 31. The purpose of these transactions was to convert the NIS fixed rate Series A Notes into USD LIBOR (six-month) floating rate obligations. As a result of these agreements, the Company is currently paying an effective interest rate of six-month LIBOR ~~(1.84%~~(1.92% at December 31, ~~2017)~~2019) plus an average of 2.05% on the 2012 principal amounts, as compared to the original 4.84% fixed rate. The above transactions qualify for fair value hedge accounting.

Future principal payments for the Series A Notes, including the effect of the cross-currency interest rate swap transactions, are as follows:

December 31, 2017
2018 current maturities $ 55,533
2019 55,533
2020 55,533



		December 31, 2019
2020	current maturities	$	55,533

~~F - 44~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 17 - BENEFIT PLANS AND OBLIGATIONS FOR TERMINATION INDEMNITY

The Company’s subsidiaries ESA, IMI and its subsidiaries in Israel, a German subsidiary (the “German Subsidiary”) and a Belgian subsidiary (the “Belgian Subsidiary”) sponsor benefit plans for their employees in the U.S., Israel, Germany and Belgium, respectively, as follows:

~~1. Defined Benefit Retirement Plan based on Employer’s Contributions~~


1.	Defined Benefit Retirement Plan based on Employer’s Contributions

ESA has ~~three~~4 defined benefit pension plans (the “Plans”) which cover the employees of ESA’s ~~two~~3 largest subsidiaries. During September, 2019, following the acquisition of the Night Vision Business, ESA accepted the transfer of sponsorship of the Pension Plan for Employees in the Night Vision Bargaining Unit which covers represented employees of ENV. Monthly benefits are based on years of ~~benefit~~ service and annual compensation. Annual contributions to the Plans are determined using the unit credit actuarial cost method and are equal to or exceed the minimum required by law. Pension fund assets of the Plans are invested primarily in stocks, bonds and cash ~~through~~by a financial institution, as the investment manager of the Plans’ assets. ~~Pension~~The service cost component of net periodic pension and other post-retirement benefit plan expense is recorded in operating profit and is allocated between cost of sales and general and administrative expenses, depending on the responsibilities of the ~~employee.~~employees. The non-service cost components of net periodic pension and other post-retirement benefit plan expense (i.e., interest cost, expected return on plan assets, net actuarial gains or losses, and amortization of prior service cost or credits) are included in the line item Other (income) expense, net in the income statement. The measurement date for ESA subsidiaries' benefit obligation is December 31.

Participation in ESA’s qualified defined benefit plans was frozen as of January 1, 2010, for non-represented employees. ~~Current participants continue to accrue benefits; however no new~~Participation in ESA’s qualified defined benefit plans was frozen as of May 15, 2017 for represented employees. Benefit accruals ceased for non-represented employees ~~were allowed to enter the plan.~~effective December 31, 2018.

IMI and subsidiaries have several post-employment benefit arrangements, which are based on collective agreements concluded with certain groups of employees before the privatization of IMI. According to these agreements, some groups of employees possess special retirement conditions and preferable rights for post-employment benefits that apply to employees who will terminate their employment in the event of relocation of plants as part of the post privatization restructuring of IMI and subsidiaries. The arrangements are determined according to the various existing formats of employment, seniority and other factors. The liabilities recognized in respect of these arrangements are calculated on an actuarial basis.

The German Subsidiary, which is wholly-owned by the Company, has mainly one defined benefit pension plan (the “P3-plan”) which covers all employees. The P3-plan provides for yearly cash balance credits equal to a percentage of a participant’s compensation, which accumulate together with the respective interest credits on the employee’s cash balance accounts. In case of an insured event (retirement, death or disability) the benefits can be paid as a lump sum, in installments or as a life-long annuity. The P3-plan is an unfunded plan.


c)d)	The Belgian Subsidiary, which is wholly-owned by the Company, has a defined benefit pension plan, which is divided into two categories:

Normal retirement benefit plan, with eligibility at age 65. The lump sum is based on employee contributions of 2% of the final pensionable salary up to a certain breakpoint, plus 6% exceeding the breakpoint at a maximum of 5% of pensionable salary, and the employer contributions, with a maximum of 40 years. The vested benefit is equal to the retirement benefit calculated with the pensionable salary and pensionable service observed at the date of leaving service.


2)	Pre-retirement death benefit to employees.

The plan is funded and includes profit sharing.

~~F - 45~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 17 - BENEFIT PLANS AND OBLIGATIONS FOR TERMINATION INDEMNITY (Cont.)

The following table sets forth the Plans’ funded status and amounts recognized in the consolidated financial statements for the years ended December 31, ~~2017~~2019 and ~~2016~~2018:

December 31,
2017 2016
Changes in benefit obligation:
Benefit obligation at beginning of year $ 235,246
$ 219,360
Service cost 7,655
7,768
Interest cost 9,108
8,929
Exchange rate differences 1,551
(669 )
Actuarial losses (gain) 19,794
6,861
Benefits paid (6,213 ) (7,003 )
Benefit obligation at end of year $ 267,141
$ 235,246
Changes in the Plans’ assets:
Fair value of Plans’ assets at beginning of year 140,240
127,455
Actual return on Plans’ assets (net of expenses) 23,343
10,035
Employer contribution 10,591
9,753
Benefits paid (6,213 ) (7,003 )
Fair value of Plans’ assets at end of year $ 167,961
$ 140,240
Accrued benefit cost, end of year:
Funded status (99,180 ) (95,003 )
Unrecognized net actuarial loss 71,385
71,839
Unrecognized prior service cost 141
206
$ (27,654 ) $ (22,958 )
Amount recognized in the statement of financial position:
Accrued benefit liability, current (1,580 ) (1,254 )
Accrued benefit liability, non-current (97,600 ) (93,749 )
Accumulated other comprehensive income, pre-tax 71,526
72,045
Net amount recognized $ (27,654 ) $ (22,958 )

Year ended December 31,
2017 2016 2015
Components of the Plans’ net periodic pension cost:
Service cost $ 7,655
$ 7,768
$ 8,921
Interest cost 9,108
8,929
8,372
Expected return on Plans’ assets (10,203 ) (9,057 ) (8,970 )
Amortization of prior service cost 64
65
(62 )
Amortization of transition amount —
—
46
Amortization of net actuarial loss 6,161
5,765
6,295
Total net periodic benefit cost $ 12,785
$ 13,470
$ 14,602
Additional information

Accumulated benefit obligation $ 259,242
$ 227,799
$ 213,675



	December 31,
	2019			2018
Changes in benefit obligation:
Benefit obligation at beginning of year	$	628,424		$	267,141
Benefit obligation related to acquired companies	111,654			378,055
Service cost	18,305			8,391
Interest cost	19,723			9,631
Exchange rate differences	29,778			43
Amendments	3,689			—
Actuarial loss (gain)	90,847			(20,337		)
Benefits paid	(75,684		)	(7,560		)
Effect of curtailment	—			(6,940		)
Other adjustments	4,375			—
Benefit obligation at end of year	$	831,111		$	628,424
Changes in the Plans’ assets:
Fair value of Plans’ assets at beginning of year	164,282			167,961
Benefit assets related to acquired companies	91,724			—
Actual return on Plans’ assets (net of expenses)	37,901			(11,121		)
Employer contribution	3,716			15,002
Benefits paid	(8,130		)	(7,560		)
Fair value of Plans’ assets at end of year	$	289,493		$	164,282
Accrued benefit cost, end of year:
Funded status	(541,623		)	(464,142		)
Unrecognized net actuarial loss	123,736			60,141
Unrecognized prior service cost	8			24
	$	(417,879	)	$	(403,977	)
Amount recognized in the statement of financial position:
Accrued benefit liability, current	(37,158		)	(6,040		)
Accrued benefit liability, non-current	(504,465		)	(458,102		)
Accumulated other comprehensive income, pre-tax	123,744			60,165
Net amount recognized	$	(417,879	)	$	(403,977	)

~~F - 46~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 17 - BENEFIT PLANS AND OBLIGATIONS FOR TERMINATION INDEMNITY (Cont.)

December 31,
2017 2016
Weighted average assumptions:
Discount rate as of December 31 3.4 % 4.3 %
Expected long-term rate of return on Plans’ assets 7.1 % 7.3 %
Rate of compensation increase 2.4 % 2.4 %



	Year ended December 31,
	2019			2018			2017
Components of the Plans’ net periodic pension cost:
Service cost	$	18,305		$	8,391		$	7,655
Interest cost	19,723			9,631			9,108
Expected return on Plans’ assets	(13,507		)	(12,080		)	(10,203		)
Amortization of prior service cost	16			64			64
Amortization of net actuarial loss	4,809			5,884			6,161
Total net periodic benefit cost	$	29,346		$	11,890		$	12,785
Additional information
Accumulated benefit obligation	$	781,749		$	628,017		$	259,242



	December 31,
	2019		2018
Weighted average assumptions:
Discount rate as of December 31	1.9	%	3.1	%
Expected long-term rate of return on Plans’ assets	7.2	%	7.1	%
Rate of compensation increase	0.6	%	3.0	%

Asset allocation by category as of December 31:


	2017		2016		2019		2018
Asset Category:
Equity Securities	66.8	%	66.3	%	67.2	%	61.3	%
Debt Securities	31.9	%	33.1	%	32.1	%	38.2	%
Other	1.3	%	0.6	%	0.7	%	0.5	%
Total	100.0	%	100.0	%	100.0	%	100.0	%

The investment policy of ESA is directed toward a broad range of securities. The diversified portfolio seeks to maximize investment return while minimizing the risk levels associated with investing. The investment policy is structured to consider the Plans' obligations and the expected timing of benefit payments. The target asset allocation for the Plans' years presented is as follows:


	2017		2016		2019		2018
Asset Category:
Equity Securities	65.0	%	65.0	%	63.0	%	63.0	%
Debt Securities	35.0	%	35.0	%	36.0	%	36.0	%
Other					1.0	%	1.0	%
Total	100.0	%	100.0	%	100.0	%	100.0	%

~~The fair value of the asset values by category at~~ ~~December 31, 2017~~ ~~was as follows:~~

Quoted Prices in Active Markets for Identical Assets Significant Observable Inputs Significant Unobservable Inputs
Total (Level 1) (Level 2) (Level 3)
Asset Category
Cash $ 1,913
$ 1,913
$ —
$ —
Cash Equivalents:

Money Market Funds (a) 383
383
—
—
Fixed Income Securities:
Mutual Funds (b) 53,519
53,519
—
—
Equity Securities:
International Companies (c) 5,172
5,172
—
—
Mutual Funds (d) 106,974
106,974
—
—
Total $ 167,961
$ 167,961
$ —
$ —

~~F - 47~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 17 - BENEFIT PLANS AND OBLIGATIONS FOR TERMINATION INDEMNITY (Cont.)

The fair value of the asset values by category at December 31, 2019, was as follows:



			Quoted Prices in Active Markets for Identical Assets		Significant Observable Inputs		Significant Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Asset Category
Cash	$	18	$	18	$	—	$	—
Cash Equivalents:
Money Market Funds (a)	1,899		1,899		—		—
Fixed Income Securities:
Mutual Funds (b)	93,149		93,149		—		—
Equity Securities:
International Companies (c)	6,016		6,016		—		—
Mutual Funds (d)	188,411		188,411		—		—
Total	$	289,493	$	289,493	$	—	$	—


~~(a)~~a.	This category includes highly liquid daily traded cash-like vehicles.


~~(b)~~b.	This category invests in highly liquid mutual funds representing a diverse offering of debt issuance.


~~(c)~~c.	This category represents common stocks of companies domiciled outside of the U.S.; they can be represented by ordinary shares or ADRs.


~~(d)~~d.	This category represents highly liquid diverse equity mutual funds of varying asset classes and styles.

In developing the overall expected long-term rate of return on assets assumption, ESA used a building block approach in which rates of return in excess of inflation were considered separately for equity securities, debt securities, real estate and all other assets. The excess returns were weighted by the representative target allocation and added along with an approximate rate of inflation to develop the overall expected long-term rate of return. It is the policy of ESA to meet the ERISA minimum contribution requirements for a Plan year. The minimum contribution requirements for the ~~2017~~2019 Plan year have been satisfied as of December 31, ~~2017.~~2019. Benefit payments over the next five years are expected to be ~~$7,070 in 2018, $7,811 in 2019, $8,663~~$13,579 in 2020, ~~$9,576~~$14,628 in 2021, $15,697 in 2022, $16,696 in 2023 and ~~$10,389~~$17,543 in ~~2022.~~2024.

~~2. Retiree Medical Plan~~



ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 17 - BENEFIT PLANS AND OBLIGATIONS FOR TERMINATION INDEMNITY (Cont.)


2.	Retiree Medical Plan

ESA offers retiree medical benefits to a limited number of retirees, The measurement date for ESA's benefit obligation is December 31. The following table sets forth the retiree medical plans’ funded status and amounts recognized in the consolidated financial statements for the years ended December 31, ~~2017~~2019 and ~~2016~~2018:


	December 31,						December 31,
	2017			2016			2019			2018
Change in Benefit Obligation:
Benefit obligation at beginning of period	$	2,053		$	1,791		$	1,359		$	1,641
Service cost	64			71			81			71
Interest cost	67			60			51			50
Actuarial (gain) loss	(439		)	233			(34		)	(353		)
Employee contribution	36			33			17			19
Benefits paid	(140		)	(135		)	(61		)	(69		)
Benefit obligation at end of period	$	1,641		$	2,053		$	1,413		$	1,359
Change in Plan Assets:
Employer contribution	$	104		$	102		$	45		$	50
Employee contribution	36			33			16			19
Benefits paid	(140		)	(135		)	(61		)	(69		)
Fair value of Plan assets at end of period	$	—		$	—		$	—		$	—



	Year ended December 31,
	2019			2018
Accrued benefit cost, end of period:
Funded status	$	(1,412	)	$	(1,359	)
Unrecognized net actuarial (gain) loss	(1,479		)	(1,610		)
Accrued benefit cost, end of period	$	(2,891	)	$	(2,969	)
Amounts recognized in the statement of financial position:
Accrued benefit liability, current	$	(86	)	$	(112	)
Accrued benefit liability, non-current	(1,326		)	(1,247		)
Accumulated other comprehensive gain, pretax	(1,479		)	(1,610		)
Net amount recognized	$	(2,891	)	$	(2,969	)

~~F - 48~~



Components of net periodic pension cost (for period):
Service cost	$	81		$	71
Interest cost	51			50
Amortization of net actuarial gain	(165		)	(164		)
Total net periodic benefit cost	$	(33	)	$	(43	)



Assumptions as of end of period:
Discount rate	2.84	%	3.91	%
Health care cost trend rate assumed for next year	5.50	%	5.40	%
Ultimate health care cost trend rate	3.84	%	3.84	%



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 17 - BENEFIT PLANS AND OBLIGATIONS FOR TERMINATION INDEMNITY (Cont.)

Year ended December 31,
2017 2016
Accrued benefit cost, end of period:
Funded status $ (1,641 ) $ (2,053 )
Unrecognized net actuarial (gain) loss (1,420 ) (1,110 )
Accrued benefit cost, end of period $ (3,061 ) $ (3,163 )
Amounts recognized in the statement of financial position:

Accrued benefit liability, current $ (111 ) $ (180 )
Accrued benefit liability, non-current (1,531 ) (1,873 )
Accumulated other comprehensive gain, pretax (1,419 ) (1,110 )
Net amount recognized $ (3,061 ) $ (3,163 )

Components of net periodic pension cost (for period):
Service cost $ 64
$ 71
Interest cost 67
60
Amortization of net actuarial gain (128 ) (179 )
Total net periodic benefit cost $ 3
$ (48 )

Assumptions as of end of period:
Discount rate 3.17 % 3.50 %
Health care cost trend rate assumed for next year 5.50 % 6.50 %
Ultimate health care cost trend rate 3.84 % 3.80 %


2.	Retiree Medical Plan (Cont.)

The effect of a 1% change in the health care cost trend rate at December 31, ~~2017~~2019 was as follows:


	1% increase		1% decrease			1% increase		1% decrease
Net periodic benefit cost	$	13	$	(12	)	$	17	$	(14	)
Benefit obligation	$	114	$	(103	)	$	111	$	(99	)

~~3. Defined Contribution Plan~~


3.	Defined Contribution Plan

The 401(k) savings plan (“401(k) plan”) is a defined contribution retirement plan that covers all eligible ESA employees, as defined in section 401(k) of the U.S. Internal Revenue Code. Employees may elect to contribute a percentage of their annual gross compensation to the 401(k) plan. ESA may make discretionary matching contributions as determined by ESA. Total expense under the 401(k) plan amounted to ~~$5,646, $5,300~~$11,569, $6,453 and ~~$4,209~~$5,646 for the years ended December 31, ~~2017~~, ~~2016~~2019, 2018 and ~~2015~~,2017, respectively. Expense for the deferred 401(k) plan is allocated between cost of sales and general and administrative expenses depending on the responsibilities of the related employees.

~~F - 49~~



4.	~~ELBIT SYSTEMS LTD. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~
~~U.S. dollars (In thousands, except per share data)~~Non-Qualified Defined Contribution Plan

~~Note 17 - BENEFIT PLANS AND OBLIGATIONS FOR TERMINATION INDEMNITY (Cont.)~~

~~4. Non-Qualified Defined Contribution Plan~~

ESA has two benefit plans for the executives of the organization. The non-qualified, defined contribution plan is structured under Section 409(A). The plan provides the employees at vice president level and above the opportunity to defer up to 100% of their salary to the 409(A) plan. ESA provides a match of 50 cents on the dollar up to 10% of the employees’ total salary and incentive-based compensation. The contribution can be made into the 401(k) plan, the 409(A) plan or both plans. The purpose is to provide comparable defined contribution plan benefits for the senior management across ESA locations. The 409(A) plan funds are contributed to several life insurance policies. Participant contributions to the plan were ~~$1,962, $1,194~~$1,955, $3,238 and ~~$1,221~~$1,962 for the years ended December 31, ~~2017~~, ~~2016~~2019, 2018 and ~~2015~~,2017, respectively, and the total ESA contribution to the plan was ~~$334~~$230 for ~~2017~~.2019. The ~~cash and~~ cash surrender value of these life insurance policies at December 31, ~~2017~~2019 was ~~$5,190.~~$5,646. The total liability related to the 409(A) plan was ~~$8,847~~$13,178 at December 31, ~~2017~~.2019.

The second plan implemented is a non-qualified, defined benefit plan for certain executives of ESA. The plan provides the executives with a calculated, guaranteed payment in addition to their regular pension through the company upon retirement. The plan is funded with several life insurance policies. ~~They~~The policies are not segregated into a trust or otherwise effectively restricted. These policies are corporate owned assets that are subject to the claims of general creditors and cannot be considered as formal plan assets. The defined benefit plan put in place meets the ERISA definition of an unfunded deferred compensation plan maintained for the benefit of a select group of management or highly compensated employees. The plan assets of life insurance policies have a cash surrender of ~~$3,030~~$3,419 at December 31, ~~2017.~~2019. Related liability for the pension payments is ~~$5,155~~$7,118 at December 31, ~~2017.~~2019. As of December 31, ~~2017,~~2019, all executives had partially vested balances in the plan.



ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 18 - TAXES ON INCOME

~~A. APPLICABLE TAX LAWS~~


A.	APPLICABLE TAX LAWS


(1)	Israeli Corporate Income Tax Rates

~~Corporate~~Generally, regular corporate tax rates and real capital ~~gains~~gain tax rates in Israel were 23% for the years 2019 and 2018, and 24% ~~in 2017, 25% in 2016 and 26.5% in 2015.~~for the year 2017.

~~In December 2016, the Israeli Parliament approved a reduction of the corporate tax rate to 24%, effective as of January 1, 2017 and 23% effective as of January 1, 2018.~~


(2)	Tax benefits under Israel’s Law for the Encouragement of Industry (Taxes), 1969:

Elbit Systems and most of its subsidiaries in Israel currently qualify as “Industrial Companies”, as defined by the Law for the Encouragement of Industry (Taxes), 1969, and as such, these companies are entitled to certain tax benefits, mainly amortization of costs relating to know-how and patents over eight years, accelerated depreciation, the right to deduct public issuance expenses for tax purposes and an election under certain conditions to file a consolidated tax return with additional related Israeli Industrial Companies.

In December 2015, Elbit Systems and certain of its Israeli subsidiaries (also industrial companies) submitted an election notice to the Israel Tax Authority to file a consolidated tax return starting from tax year 2015.


(3)	Tax benefits under Israel’s Law for the Encouragement of Capital Investments, ~~1959:~~1959 (Cont.):

The operations of Elbit Systems’ and certain of its Israeli subsidiaries’ (“the ~~companies”~~Companies”) ~~operations~~ have been granted “Approved Enterprise” status under Israel’s Law for the Encouragement of Capital Investments, 1959 (the “Law”). Accordingly, certain income of the ~~companies~~Companies derived from the ~~“Approved Enterprise”~~Approved Enterprise programs is tax exempt for two years and subject to reduced tax rates of 25% for ~~five year~~five-year to ~~eight year~~eight-year periods or tax exempt for a ~~ten year~~ten-year period, commencing in the first year in which the companies had taxable income (limited to twelve years from commencement of production or fourteen years from the date of approval, whichever is earlier).

~~F - 50~~
An Amendment to the Law from 2005 defines the “Privileged Enterprise” status rather than the previous Approved Enterprise status and limits the scope of enterprises which may qualify for Privileged Enterprise status by setting criteria such as that at least 25% of the Privileged Enterprise program’s income be derived from exports. Additionally, the 2005 Amendment enacted major changes in the manner in which tax benefits are awarded under the Law so that companies no longer require an Investment Center approval in order to qualify for tax benefits. Similar criteria have been set for the “Preferred Enterprise” status which was added in an Amendment to the Law in 2011. Companies are not required to receive an Investment Center approval in order to qualify for the tax benefits under the Preferred Enterprise status, however, companies which are under an Approved Enterprise or Privileged Enterprise programs must waive their former benefits in order to elect the Preferred Enterprise regime.



	~~ELBIT SYSTEMS LTD. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~
~~U.S. dollars (In thousands, except per share data)~~

~~Note 18 - TAXES ON INCOME (Cont.)~~

~~A. APPLICABLE TAX LAWS (Cont.)~~

~~(3)~~

An Amendment to the Law from 2005 defines the “Privileged Enterprise” status rather than the previous “Approved Enterprise” status and limits the scope of enterprises which may qualify for “Privileged Enterprise” status by setting criteria such as that at least 25% of the “Privileged Enterprise” program’s income be derived from exports. Additionally, the 2005 Amendment enacted major changes in the manner in which tax benefits are awarded under the Law so that companies no longer require an Investment Center approval in order to qualify for tax benefits. Similar criteria have been set for the “Preferred Enterprise” status which was added in an Amendment to the Law in 2011. Companies are not required to receive an Investment Center approval in order to qualify for the tax benefits under the “Preferred Enterprise”e status, however, companies which are under an “Approved Enterprise” or “Privileged Enterprise” program must waive their former benefits to elect the “Preferred Enterprise” benefits.

Tax-exempt income generated by the Company and certain of its Israeli subsidiaries’ ~~“Approved Enterprise”~~Approved Enterprises and ~~“Privileged Enterprise”~~Privileged Enterprises will be subject to tax upon dividend distribution or complete liquidation. Income generated under a ~~“Preferred Enterprise”~~Preferred Enterprise is not subject to additional taxation to the Company or its Israeli subsidiaries upon distribution or complete liquidation.

The entitlement to the above benefits is subject to the ~~companies’~~Companies’ fulfilling the conditions specified in the Law, and the regulations promulgated thereunder and the letters of approval for the specific investments in ~~“Approved Enterprises”.~~Approved Enterprises. In the event of failure to comply with these conditions, the benefits may be canceled and the companies may be required to refund the amount of the benefits, in whole or in part, including interest.

As of December 31, ~~2017~~,2019, the Company’s management believes that the Company and its Israeli subsidiaries met all conditions of the Law and letters of approval.



ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 18 - TAXES ON INCOME (Cont.)


A.	APPLICABLE TAX LAWS (Cont.)


(3)	Tax benefits under Israel’s Law for the Encouragement of Capital Investments, 1959 (Cont.):

As of December 31, ~~2017,~~2019, retained earnings of the Company included approximately ~~$698,000~~$661,000 in tax-exempt profits earned by the Company’s ~~“Approved Enterprises”.~~Approved Enterprises. If the retained tax-exempt income iswere to be distributed, with respect to the ~~“Approved Enterprises”~~Approved Enterprises it would be taxed at the corporate tax rate applicable to such profits as if the Company had not elected the alternative tax benefits track, and an income tax liability would ~~have been~~be incurred of approximately ~~$174,500~~$165,000 as of December 31, ~~2017.~~2019.

The boards of directors of the Company and its applicable Israeli subsidiaries have decided that their policy is not to declare dividends out of such tax-exempt income. Accordingly, no deferred income taxes have been provided on exempt income attributable to the ~~companies’ “Approved Enterprises”~~Companies’ Approved Enterprises and ~~“Privileged Enterprises”,~~Privileged Enterprises, as such retained earnings are essentially permanent in duration.

In Israel, income from sources other than the ~~“Approved Enterprise”, “Privileged Enterprise”~~Approved Enterprises, Privileged Enterprises and ~~“Preferred Enterprises”~~Preferred Enterprises during the benefit period ~~will be subject~~aresubject to tax at the regular corporate tax rate.

Enhancement of Current Tax Incentives Regime:

Tax incentives in Israel are also available to certain Israeli industrial companies and to R&D centers (operating on a cost plus basis) under two tracks: (i) a Preferred Enterprise and (ii) a Special Preferred Enterprise, aimed at large enterprises that meet certain investment requirements. Accordingly, a Preferred Enterprise is eligible for a reduced corporate income tax rate of 16%. However, if the company is located in Jerusalem or in certain northern or southern parts of Israel, the tax rate was further reduced to 9%. On December 15, 2016, the Finance Committee approved a further 1.5% reduction in the tax rate for such locations, from 9% to 7.5%.

Since the Company and its Israeli subsidiaries are operating under more than one program or incentive segment, and since part of their taxable income is not entitled to tax benefits under the Law and is taxed at the regular tax rates, the effective tax rate is the result of a weighted combination of the various applicable rates and tax exemptions, and the computation is made for income derived from each program on the basis of formulas specified in the Law.

The Israeli Parliament enacted a reform to the Law, effective January 2011. According to the reform, a flat rate tax applies to companies eligible for the Preferred Enterprise status. In order to be eligible for a Preferred Enterprise status, a company must meet minimum requirements to establish that it contributes to the country’s economic growth and is a competitive factor for the Gross Domestic Product (a competitive enterprise).

Israeli companies that currently benefit from an Approved Enterprise or Privileged Enterprise status and meet the criteria for qualification as a Preferred Enterprise can elect to apply the Preferred Enterprise benefits by waiving their benefits under the Approved Enterprise and Privileged Enterprise status. The Company and several of its Israeli subsidiaries have elected the Preferred Enterprise status.

Benefits granted to a Preferred Enterprise include reduced and gradually decreasing tax rates. In peripheral regions (Development Area A) the reduced tax rate was 10% in 2012 and 7% in 2013. In other regions the tax rate was 15% in 2012, and 12.5% in 2013. Following the enactment of the National Priorities Law, effective January 1, 2014, the reduced tax rate is 9% in the Development Area A regions and 16% in other regions. Preferred Enterprises in peripheral regions are eligible for Investment Center grants, as well as the applicable reduced tax rates.



ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 18 - TAXES ON INCOME (Cont.)


A.	APPLICABLE TAX LAWS (Cont.)


(3)	Tax benefits under Israel’s Law for the Encouragement of Capital Investments, 1959 (Cont.):

A distribution from a Preferred Enterprise out of “Preferred Income” through December 31, 2013, was subject to 15% withholding tax for Israeli-resident individuals and non-Israeli residents (subject to applicable treaty rates) and effective January 1, 2014, is subject to 20% withholding tax for Israeli-resident individuals and non-Israeli residents (subject to applicable treaty rates).

In December 2016, the Knesset (Israeli Parliament) approved amendments to the Law that introduce an innovation box regime for intellectual property (IP)-based companies, ~~enhance~~enhanced tax incentives for certain industrial companies and ~~reduce~~reduced the standard corporate tax rate and certain withholding rates starting in 2017.

Innovation Box Regime Special Technological Preferred Enterprise

The ~~new~~ regime was tailored by the Israeli government to a post-base erosion and profit shifting (“BEPS”) world, encouraging multinationals to consolidate IP ownership and profits in Israel along with existing Israeli research and development (“R&D”) functions. Tax benefits created to achieve this goal include a reduced corporate income tax rate of 6% on IP-based income and on capital gains from future sale of IP.

~~F - 51~~



	~~ELBIT SYSTEMS LTD. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~
~~U.S. dollars (In thousands, except per share data)~~

~~Note 18 - TAXES ON INCOME (Cont.)~~

~~A. APPLICABLE TAX LAWS (Cont.)~~

The 6% tax rate ~~would apply~~applies to qualifying Israeli companies that are part of a group with global consolidated revenue of over NIS 10 billion (approximately US ~~$2.9~~$2.8 billion). Other qualifying companies with global consolidated revenue below NIS 10 billion ~~would be~~are subject to a 12% tax rate. However, if the Israeli company is located in Jerusalem or in certain northern or southern parts of Israel, the tax rate is further reduced to 7.5%. Additionally, withholding tax on dividends for foreign investors ~~would be~~is subject to a reduced rate of 4% for all qualifying companies (unless further reduced by a treaty).

Entering into the regime is not conditioned on making additional investments in Israel, and a company could qualify if it invested at least 7% of the last three years’ revenue in R&D (or incurred NIS 75 million in R&D expense per year) and met one of the following three conditions:

~~1. At least 20%~~ ~~of its employees are R&D employees engaged in R&D (or more than 200 R&D employees);~~

~~2. Venture capital investments of NIS 8 million were previously made in the company; or~~

~~3. Average annual growth over three years of 25% in sales or employees.~~


1.	At least 20% of its employees are R&D employees engaged in R&D (or more than 200 R&D employees);


2.	Venture capital investments of NIS 8 million were previously made in the company; or


3.	Average annual growth over three years of 25% in sales or employees.

~~Companies~~A company that does not ~~meeting~~meet the above conditions may still be considered as a qualified company at the discretion of the Israeli Innovation Authority of the Ministry of Economy and Industry (formerly, the ~~“Office~~Office of the Chief ~~Scientist”)~~Scientist). Companies wishing to exit from the regime in the future will not be subject to clawback of tax benefits. The Knesset also approved a stability clause in order to encourage multinationals to invest in Israel. Accordingly, companies will be able to confirm the applicability of tax incentives for a 10-year period under a pre-ruling process. Further, in line with the new Organization for Economic Co-operation and Development (“OECD”) Nexus Approach, the Israeli Finance Minister will promulgate regulations to ensure companies are benefiting from the regime to the extent qualifying R&D expenditures are incurred. The regulations were set to be finalized by March 31, 2017, with new amendments to the Law coming into effect after the regulations have been finalized. Accordingly, the new law was not considered enacted at December 31, 2016.

On May 16, 2017, the Knesset Finance Committee approved the regulations effective as of January 1, 2017.

~~Enhancement of Current Tax Incentives Regime:~~

Tax incentives in Israel are also available to certain Israeli industrial companies and to R&D centers (operating on a cost plus basis) under two tracks: (i) a Preferred Enterprise and (ii) a Special Preferred Enterprise, aimed at large enterprises that meet certain investment requirements. Accordingly, a Preferred Enterprise is eligible for a reduced corporate income tax rate of 16%. However, if the company is located in Jerusalem or in certain northern or southern parts of Israel, the tax rate was further reduced to 9%. On 15 December 2016, the Finance Committee approved a further 1.5% reduction in the tax rate for such locations, from 9% to 7.5%.

Since the Company and its Israeli subsidiaries are operating under more than one program, and since part of their taxable income is not entitled to tax benefits under the Law and is taxed at the regular tax rates, the effective tax rate is the result of a weighted combination of the various applicable rates and tax exemptions, and the computation is made for income derived from each program on the basis of formulas specified in the law.

The Israeli Parlament enacted a reform to the Law, effective January 2011. According to the reform, a flat rate tax applies to companies eligible for the “Preferred Enterprise” status. In order to be eligible for a “Preferred Enterprise” status, a company must meet minimum requirements to establish that it contributes to the country’s economic growth and is a competitive factor for the Gross Domestic Product (a competitive enterprise).

~~F - 52~~



	~~ELBIT SYSTEMS LTD. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~
~~U.S. dollars (In thousands, except per share data)~~

~~Note 18 - TAXES ON INCOME (Cont.)~~

~~A. APPLICABLE TAX LAWS (Cont.)~~

Israeli companies which currently benefit from an “Approved Enterprise” or “Privileged Enterprise” status and meet the criteria for qualification as a “Preferred Enterprise” can elect to apply the “Preferred Enterprise” benefits by waiving their benefits under the Approved and “Privileged Enterprise” status. The Company and several of its Israeli subsidiaries have elected the “Preferred Enterprise” status.

Benefits granted to a “Preferred Enterprise” include reduced and gradually decreasing tax rates. In peripheral regions (Development Area A) the reduced tax rate was 10% in 2012 and 7% in 2013. In other regions the tax rate was 15% in 2012, and 12.5% in 2013. Following the enactment of the National Priorities Law, effective January 1, 2014, the reduced tax rate is 9% in the Development Area A regions and 16% in other regions. “Preferred Enterprises” in peripheral regions are eligible for Investment Center grants, as well as the applicable reduced tax rates.

A distribution from a “Preferred Enterprise” out of the “Preferred Income” through December 31, 2013, was subject to 15% withholding tax for Israeli-resident individuals and non-Israeli residents (subject to applicable treaty rates) and effective January 1, 2014, is subject to 20% withholding tax for Israeli-resident individuals and non-Israeli residents (subject to applicable treaty rates).

As of December 31, ~~2017,~~2019, the Company's management believes that Elbit Systems' and certain of its Israeli subsidiaries' meet the conditions and qualify as a "Special Preferred Technological Enterprise" tax regime. As a result, the primary effect of applying the "Special Preferred Technological Enterprise" tax regime on the Company's deferred tax assets, net, balance as of December 31, 2017, was a reduction in the amount of approximately $9,500.



ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

~~B. NON-ISRAELI SUBSIDIARIES~~

Note 18 - TAXES ON INCOME (Cont.)


B.	NON-ISRAELI SUBSIDIARIES

Non-Israeli subsidiaries are generally taxed based upon tax laws applicable in their countries of residence.

In December 2017, the Tax Cuts and Jobs Act (the "2017 Tax Act") was ~~enacted.~~enacted in the United States. The 2017 Tax Act represents major tax reform legislation that, among other provisions, reduces the U.S. corporate tax rate. The 2017 Tax Act includes a number of changes that impact the Company's U.S. subsidiaries, most notably, a reduction of the U.S. corporate income tax rate from 35% to 21% effective as of January 1, 2018.

The 2017 Tax Act also provides for a one-time transition tax on certain foreign earnings and the acceleration of depreciation for certain assets placed into service after September 27, 2017, as well as prospective changes beginning in 2018, including repeal of the domestic manufacturing deduction, acceleration of tax revenue recognition, capitalization of research and development expenditures, additional limitations on executive compensation and limitations on the deductibility of interest.

The Company recognized the income tax effects of the 2017 Tax Act in its 2017 consolidated financial statements in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of ASC 740, "Income Taxes", in the reporting period in which the 2017 Tax Act was enacted. As a result, the Company's financial results reflect in the income tax effects of the 2017 Tax Act for which the accounting under ASC 740 is complete and provisional amounts for those specific income tax effects of the 2017 Tax Act for which the accounting under ASC 740 is incomplete but a reasonable estimate could be determined.

As of December 31, 2017, the Company have not completed its accounting for the tax effects of enactment of the Act; however, in certain cases, as described below, we have made a reasonable estimate of the effects on our existing deferred tax balances.

~~F - 53~~



	~~ELBIT SYSTEMS LTD. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~
~~U.S. dollars (In thousands, except per share data)~~

~~Note 18 - TAXES ON INCOME (Cont.)~~

~~B. NON-ISRAELI SUBSIDIARIES (Cont.)~~

The changes to existing U.S. tax laws as a result of the 2017 Tax Act, which ~~the Company believe have~~had the most significant impact on the Company's federal income taxes are related to the reduction of the U.S. corporate income tax rate and such effect on deferred tax assets and ~~liabilities, based on provisional amounts: the~~liabilities. The Company remeasured certain deferred tax assets, net, based on the rates at which they are expected to reverse in the future, which is generally 21%. ~~However,~~As a result, the Company is still analyzing certain aspects of the 2017 Tax Act and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the remeasurement of the Company's deferred tax assets, net, balance was $10,950, which is included as an increase in income tax expense and a corresponding reduction in the deferred tax assets, net, as of December 31, 2017.

~~In addition,~~The Company applied the ~~Company's estimates may also be affected as it gain a more thorough understanding~~guidance in Staff Accounting Bulletin 118 when accounting for the enactment-date effect of the Tax Act in 2017, and throughout 2018. At December 31, 2017, the Company substantially completed its provisional analysis of the income tax effects of the Tax Act and recorded a reasonable estimate in 2017 of such effects. During 2018, the Company refined its calculations, evaluated changes in interpretations and assumptions that were made, applied additional guidance issued by the U.S. Government, and evaluated actions and related accounting policy decisions that were made. As of December 31, 2018, the Company completed its accounting for all of the enactment-date income tax effects of the Tax Act and did not identify any material changes to the provisional, for the year ended December 31, 2017, related to the Tax Act.


C.	INCOME FROM CONTINUING OPERATIONS BEFORE TAXES ON INCOME



	Year ended December 31,
	2019		2018		2017
Income before taxes on income:
Domestic	$	174,522	$	195,491	$	245,680
Foreign	71,773		41,831		39,166
	$	246,295	$	237,322	$	284,846



ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 18 - TAXES ON INCOME

Year ended December 31,
2017 2016 2015
Income before taxes on income:
Domestic $ 245,680
$ 234,643
$ 189,228
Foreign 39,166
44,558
59,326
$ 284,846
$ 279,201
$ 248,554

(Cont.)

~~D. TAXES ON INCOME~~


D.	TAXES ON INCOME


	Year ended December 31,									Year ended December 31,
	2017			2016			2015			2019			2018			2017
Current taxes:
Domestic	$	24,070		$	44,095		$	34,693		$	28,613		$	17,805		$	24,070
Foreign	12,070			14,454			10,246			15,990			7,672			12,070
	36,140			58,549			44,939			44,603			25,477			36,140
Adjustment for previous years:
Domestic	(2,481		)	(18,630		)	(903		)
Domestic ^(*)										(20,688		)	(1,287		)	(2,481		)
Foreign	(1,849		)	8			(455		)	26			(1,266		)	(1,849		)
	(4,330		)	(18,622		)	(1,358		)	(20,662		)	(2,553		)	(4,330		)
Deferred income taxes:
Domestic	12,700			4,605			1,842			(391		)	5,387			12,700
Foreign ^(*)	11,075			1,085			812
Foreign ^(**)										(4,136		)	(1,866		)	11,075
	23,775			5,690			2,654			(4,527		)	3,521			23,775
Total taxes on income	$	55,585		$	45,617		$	46,235		$	19,414		$	26,445		$	55,585

Total:
Domestic	$	34,289		$	30,070		$	35,632		$	7,534		$	21,905		$	34,289
Foreign	21,296			15,547			10,603			11,880			4,540			21,296
Total taxes on income	$	55,585		$	45,617		$	46,235		$	19,414		$	26,445		$	55,585

^(*) During 2019, tax benefits mainly related to settlements. See Note 18E

^(**) Includes $10,950 in deferred tax asset adjustments in 2017, related to the tax reform in the U.S.

~~F - 54~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 18 - TAXES ON INCOME (Cont.)

E. UNCERTAIN TAX POSITIONS

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


	2017			2016			2019			2018
Balance at the beginning of the year	$	46,847		$	49,813		$	59,944		$	55,087
Additions related to interest and currency translation	5,455			613			4,582			(1,241		)
Additions based on tax positions taken during a prior period	2,708			14,353
Additions based on tax positions related to prior period							11,543			4,625
Reductions related to tax positions taken during a prior period	(4,278		)	(19,797		)	(152		)	119
Reductions related to settlement of tax matters	(5,589		)	(12,222		)	(40,648		)	(1,294		)
Additions based on tax positions taken during the current period	10,489			14,597			18,272			3,157
Reductions related to a lapse of applicable statute of limitation	(545		)	(510		)	(274		)	(509		)
Balance at the end of the year	$	55,087		$	46,847		$	53,267		$	59,944

At December 31, ~~2017~~2019 and ~~2016~~,2018, the Company had a ~~liability~~provision for unrecognized tax benefits of ~~$55,087~~$53,267 and ~~$46,847~~$59,944, respectively, including an accrual of ~~$2,532~~$1,946 and ~~$1,157~~$4,507 for the payment of related interest and penalties, respectively. The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes.

During ~~2017~~2019 and ~~2016,~~2018 the Company and certain of its subsidiaries settled certain income tax matters pertaining to multiple years in Israel and Europe. As a result of the settlement of the tax matters, the Company recorded tax benefits of approximately ~~$5,500~~$40,648 and ~~$12,200~~$1,294 during the years ~~2017~~2019 and ~~2016~~,2018 respectively, in the statements of income in “taxes on income”. Following the examination by the Israeli Tax Authority, the Company ~~has~~ applied some of the items for which a settlement was reached to subsequent outstanding years.

The Company operates in multiple jurisdictions throughout the world, and its tax returns are periodically audited or subject to review by both domestic and foreign authorities. Certain Israeli subsidiaries of the Company are currently undergoing tax audits by the Israeli Tax Authority.

As a result of ongoing examinations, tax proceedings in certain countries and additions to unrecognized tax benefits for positions taken and interest and penalties, if any, arising in ~~2017~~,2019, it is not possible to estimate the potential net increase or decrease to the Company’s unrecognized tax benefits during the next twelve months.

~~F - 55~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 18 - TAXES ON INCOME (Cont.)

~~F. DEFERRED INCOME TAXES~~


F.	DEFERRED INCOME TAXES

Significant components of net deferred tax assets and liabilities are based on separate tax jurisdictions as follows:


	December 31,						December 31,
	2017			2016			2019			2018
Deferred tax assets:
Reserves and allowances	$	25,127		$	38,441		$	90,430		$	52,691
Inventory allowances	—			3,730
Property, plant and equipment	(2,324		)	(2,621		)	9,500			465
Operating lease right of use assets							32,866			—
Other assets	22,194			32,553			45,323			47,354
Net operating loss carry-forwards	13,687			14,141			65,491			63,945
	58,684			86,244			243,610			164,455

Valuation allowance	(7,326		)	(6,605		)	(154,158		)	(121,651		)
Net deferred tax assets	51,358			79,639			89,452			42,804

Deferred tax liabilities:
Intangible assets	(2,591		)	(6,538		)	(1,121		)	(2,640		)
Property, plant and equipment	(10,661		)	(11,775		)	(9,573		)	(10,132		)
Operating lease liabilities							(32,467		)	—
Reserves and allowances	(4,774		)	(4,700		)	(19,311		)	(10,110		)
	(18,026		)	(23,013		)	(62,472		)	(22,882		)
Net deferred tax assets	$	33,332		$	56,626

Net deferred tax assets^(*)							$	26,980		$	19,922

Deferred tax assets and liabilities are measured based on the enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. ~~As such, during 2017, the Company remeasured its~~

(*) The net deferred tax assets ~~net,~~ as ~~a result~~ of ~~the enactment of the 2017 Tax Act~~December 31, 2018 include deferred tax liability in the ~~U.S.~~amount of $1,400 with respect to investment in subsidiaries at fair value, and ~~applying the provisions of the "Special Preferred Technological Enterprise" tax regime in Israel. The primary effect of the remeasurements was~~ a ~~reduction in~~ deferred tax ~~assets, net,~~asset in the ~~aggregate~~same amount with respect to capital gain losses that can be utilized in case of ~~approximately $20,450.~~realization of this investment.

The net tax effect of applying the provisions of the "Special Preferred Technological Enterprise" tax regime in Israel is immaterial as the decrease in current taxes offset the increase in the deferred tax assets.


G.	CARRY-FORWARD TAX LOSSES

As of December 31, ~~2017, Elbit Systems’~~2019, the Company and its Israeli subsidiaries had estimated total available carry-forward operating tax losses of approximately ~~$132,912,~~$414,576, and its non-Israeli subsidiaries had estimated available carry-forward operating tax losses of approximately ~~$34,074.~~$24,560. The Company had also carry-forward capital losses of approximately ~~$63,824, for~~$58,673, out of which a ~~full~~ valuation allowance was ~~provided.~~provided in the sum of approximately $42,899.

~~F - 56~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 18 - TAXES ON INCOME (Cont.)


H.	RECONCILIATION

Reconciliation of the actual tax expense as reported in the statements of operations to the amount computed by applying the Israeli statutory tax rate is as follows:


	Year ended December 31,									Year ended December 31,
	2017			2016			2015			2019			2018			2017
Income before taxes as reported in the consolidated statements of income	$	284,846		$	279,201		$	248,554		$	246,295		$	237,322		$	284,846
Statutory tax rate	24.0		%	25.0		%	26.5		%	23.0		%	23.0		%	24.0		%
Theoretical tax expense	$	68,363		$	69,800		$	65,867		$	56,648		$	54,584		$	68,363
Tax benefit arising from reduced rate as an “Approved, Privileged and Preferred Enterprise” and other tax benefits (*)	(15,749		)	(16,072		)	(20,818		)	(22,073		)	(17,132		)	(15,749		)
Tax adjustment in respect of different tax rates for foreign subsidiaries	2,946			3,597			2,433			(1,580		)	687			2,946
Changes in carry-forward losses and valuation allowances	4,135			5,290			3,851			22			927			4,135
Taxes resulting from non-deductible expenses	1,634			3,144			776			1,506			2,159			1,634
Difference in basis of measurement for financial reporting and tax return purposes	(3,257		)	135			(849		)	6,609			(13,775		)	(3,257		)
Taxes in respect of prior years (See D above)	(4,330		)	(18,622		)	(1,358		)
Taxes in respect of prior years (see Note 18D above)										(20,662		)	(2,553		)	(4,330		)
Other differences, net	1,843			(1,655		)	(3,667		)	(1,056		)	1,548			1,843
Actual tax expenses	$	55,585		$	45,617		$	46,235		$	19,414		$	26,445		$	55,585
Effective tax rate	19.51		%	16.34		%	18.60		%	7.88		%	11.14		%	19.51		%


(*) Net earnings per share – amounts of the benefit resulting from the Approved, Privileged and Preferred Enterprises:
Basic	$	0.37		$	0.38		$	0.49
Diluted	$	0.37		$	0.38		$	0.49
Basic and diluted										$	0.50		$	0.40		$	0.37

I. REORGANIZATION

On May 16, 2019, a Tax Ruling was received from the Israeli Tax Authority regarding a reorganization in the Company's group according to Section E2 of the Israeli Tax Ordinance. The tax exempt reorganization included several stages, mainly the split of its subsidiary Elbit Systems Land and C4I Ltd., where the teleprocessing, radio and cyber activities would remain in the subsidiary, and the land and armored-vehicles activities would be split into a new company - Elbit Systems Land Ltd. According to the Tax Ruling, the restructuring date is December 31, 2018.


I.J.	FINAL TAX ASSESSMENTS

Final income tax assessments have been received by the Company up to and including the tax year ~~2014~~2017 and by certain subsidiaries up to 2014 and 2015.

~~F - 57~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 19 - DERIVATIVE FINANCIAL INSTRUMENTS

~~A. FAIR VALUE OF DERIVATIVE INSTRUMENTS~~


A.	FAIR VALUE OF DERIVATIVE INSTRUMENTS

Derivative financial instruments are presented as other assets or other payables. For asset derivatives and liability derivatives, the fair ~~value~~values of the Company’s outstanding derivative instruments as of December 31, ~~2017~~2019 and December 31, ~~2016 is~~2018 are summarized below:


									Asset Derivatives^(*)					Liability Derivatives^(**)
	Asset Derivatives (*)				Liability Derivatives (**)				December 31,					December 31,
	December 31, 2017		December 31, 2016		December 31, 2017		December 31, 2016		2019		2018			2019		2018
Derivatives designated as hedging instruments
Foreign exchange contracts	5,235		13,719		11,025		2,926		23,820		22,327			7,489		22,637
Cross-currency interest rate swaps	24,009		10,339		—		1,798		6,183		4,378			—		—
	$	29,244	$	24,058	$	11,025	$	4,724	$	30,003	$	26,705		$	7,489	$	22,637
Derivatives not designated as hedging instruments
Foreign exchange contracts	718		499		1,175		710		66		222			337		1,299
	$	718	$	499	$	1,175	$	710	$	66	$	222	��	$	337	$	1,299

~~(*) Presented as part of other receivables and long-term other receivables.~~

~~(**) Presented as part of other payables and long-term other payables.~~


^(*)	Presented as part of other receivables and long-term other receivables.


^(**)	Presented as part of other payables and long-term other payables.

~~B. EFFECT ON CASH FLOW HEDGING~~


B.	EFFECT ON CASH FLOW HEDGING

The effect of derivative instruments on cash flow hedging and the relationship between income and other comprehensive income for the years ended December 31, ~~2017~~2019 and December 31, ~~2016, is~~2018, are summarized below:



	Gain (Loss) Recognized in Other Comprehensive Income on Effective- Portion of Derivative, net					Gain (Loss) on of Derivative Reclassified from Accumulated Other Comprehensie Income^(),(*)				Amount Excluded from Effectiveness Testing Recognized in Income^(***)
	December 31, 2019		December 31, 2018			December 31, 2019		December 31, 2018		December 31, 2019			December 31, 2018
Derivatives designated as hedging instruments:
Foreign exchange contracts	$	24,328	$	(6,249	)	$	13,057	$	10,180	$	5,447		$	2,726
Derivatives not designated as hedging instruments:
Foreign exchange contracts and other derivatives instruments	$	—	$	—		$	—	$	—	$	(1,876	)	$	1,457

Gain (Loss) Recognized
in Other Comprehensive
Income on Effective-
Portion of Derivative, net

Gain (Loss) on Effective Portion
of Derivative Reclassified
from Accumulated Other
Comprehensive Income (*)
Ineffective Portion of Gain (Loss) of Derivative and Amount Excluded from Effectiveness Testing Recognized in Income (**)
December 31,
2017 December 31,
2016 December 31,
2017 December 31,
2016 December 31,
2017 December 31,
2016
Derivatives designated as hedging instruments:
Foreign exchange contracts $ 27,841
$ 21,891
$ 55,851
$ 13,653
$ (2,419 ) $ —
Derivatives not designated as hedging instruments:

Foreign exchange contracts and other derivatives instruments $ —
$ —
$ —
$ —
$ (1,494 ) $ 1,592


^(*)	Presented as part of revenues/cost of revenue and equity in net earning of affiliated companies and partnerships.


^(***)	~~Presented~~As of December 31, 2019, this amount includes gains of $2,327 reclassified into earnings as a result of the discontinuance of cash flow hedges because it was probable that the original forecast transaction would not occur by the end of the originally specified time frame.


^(***)	As of December 31, 2019, presented as part of revenues. As of December, 2018, presented as part of financial income (expenses), ~~net~~net.

~~F - 58~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 19 - DERIVATIVE FINANCIAL INSTRUMENTS (Cont.)

~~C. NET EFFECT OF CROSS-CURRENCY SWAPS~~


C.	NET EFFECT OF CROSS-CURRENCY SWAPS

The ~~annual~~ net effect on earnings from the cross-currency swaps in 2019 was a gain of approximately ~~$8,500,~~$3,900, of which approximately ~~$4,535~~$3,300 was offset against exchange rate difference related to Series A Notes and approximately ~~$3,964~~$600 was offset against interest expenses.

~~D. FORWARD CONTRACTS~~


D.	FORWARD CONTRACTS

The notional amounts of outstanding foreign exchange forward contracts at December 31, ~~2017 and December 31, 2016,~~2019 is summarized below:


	Forward contracts								Forward contracts
	Buy				Sell				Buy				Sell
	December 31,				December 31,				December 31,				December 31,
	2017		2016		2017		2016		2019		2018		2019		2018
Euro	$	81,037	$	37,054	$	282,760	$	89,764	$	81,258	$	102,485	$	330,433	$	414,211
GBP	3,662		4,777		39,226		31,450		9,380		6,764		38,606		23,559
NIS	71,200		646,500		—		—		—		598,200		—		—
Other	36,555		25,078		61,228		19,260		35,662		41,467		63,093		57,266
	$	192,454	$	713,409	$	383,214	$	140,474	$	126,300	$	748,916	$	432,132	$	495,036

Note 20 - OTHER LONG-TERM LIABILITIES

The following table presents the components of other long-term liabilities as of December 31, 2019 and 2018:



	December 31,
	2019		2018
Purchase obligations	$	132,504	$	128,739
Provision for vacation pay	33,094		31,310
Accrued expenses on evacuation^(*)	41,805		—
Other	18,075		10,558
	$	225,478	$	170,607

^(*)Accrued expenses on evacuation - expenses related to relocation of certain of IMI's facilities (see Note 1C(5)).



ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 2021 - COMMITMENTS AND CONTINGENT LIABILITIES

~~A. ROYALTY COMMITMENTS~~


A.	ROYALTY COMMITMENTS

Elbit Systems and certain Israeli subsidiaries partially finance their research and development expenditures under grant programs sponsored by the Israel Innovation Authority (“IIA”) of the Ministry of Economy and Industry (formerly the ~~"Office~~Office of Chief ~~Scientist")~~Scientist) for the support of research and development activities conducted in Israel. At the time the grants were received from the IIA, successful development of the related projects was not assured.

In exchange for participation in the programs by the IIA, Elbit Systems and the subsidiaries agreed to pay 2% - 5% of total sales of products developed within the framework of these programs. The royalties will be paid up to a maximum amount equaling 100% to 150% of the grants provided by the IIA, linked to the dollar, bearing annual interest at a rate based on LIBOR. The obligation to pay these royalties is contingent on actual sales of the products, and in the absence of such sales payment of royalties is not required.

In some cases, the Government of Israel’s participation (through the IIA) is subject to export sales or other conditions. The maximum amount of royalties is increased in the event of production outside of Israel.

Elbit Systems and certain of its subsidiaries may also be obligated to pay certain amounts to the IMOD and others on certain sales including sales resulting from the development of certain technologies.

Royalties expenses amounted to ~~$10,424~~, ~~$4,460~~$9,878, $7,559 and ~~$7,811~~$10,424 in ~~2017~~, ~~2016~~2019, 2018 and ~~2015~~,2017, respectively.

~~F - 59~~



B.	~~ELBIT SYSTEMS LTD. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~
~~U.S. dollars (In thousands, except per share data)~~COMMITMENTS IN RESPECT OF LONG-TERM PROJECTS

~~Note 20 - COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)~~

~~B. COMMITMENTS IN RESPECT OF LONG-TERM PROJECTS~~

In connection with projects in certain countries, Elbit Systems and some of its subsidiaries have entered and may enter in the future into “buy-back” or “offset” agreements, required by a number of the Company’s customers for these projects as a condition to the Company obtaining orders for its products and services. These agreements are customary in the Company’s industry and are designed to facilitate economic flow back (buy-back) and/or technology transfer to businesses or government agencies in the applicable country.

These commitments may be satisfied by the Company’s placement of direct work or vendor orders for supplies and/or services, transfer of technology, investments or other forms of assistance in the applicable country. The buy-back rules and regulations, as well as the underlying contracts, may differ from one country to another. The ability to fulfill the buy-back obligations may depend, among other things, on the availability of local suppliers with sufficient capability to meet ~~our~~the Company requirements and which are competitive in cost, quality and schedule. In certain cases, the Company’s commitments may also be satisfied through transactions conducted by other parties.

The Company does not commit to buy-back agreements until orders for its products or services are definitive, but in some cases the orders for the Company’s products or services may become effective only after the Company’s corresponding buy-back commitments are in effect.

Buy-back programs generally extend at least over the relevant commercial contract period and may provide for penalties in the event the Company fails to perform in accordance with buy-back requirements. In some cases the Company provides guarantees in connection with the performance of its buy-back obligations.

Should the Company be unable to meet such obligations it may be subject to contractual penalties, the Company's guarantees may be drawn upon, and the Company's chances of receiving additional business from the applicable customers could be reduced or, in certain cases, eliminated.

At December 31, ~~2017,~~2019, the Company had outstanding buy-back obligations totaling approximately ~~$1,309,000~~$1,345,000 that extend through 2028.



ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

~~C. LEGAL CLAIMS~~

Note 21 - COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)


C.	LEGAL CLAIMS

The Company and its subsidiaries are involved in legal claims arising in the ordinary course of business. The Company’s management, based on the opinion of its legal counsel, believes that any financial impact from the settlement of such claims in excess of the accruals recorded in the financial statements will not have a material adverse effect on the financial position or results of operations of the Company. The following is a description of significant legal proceedings.

In 2015, Elbit Systems of America, LLC and Elbit Systems Land & C4I Ltd. (collectively “Elbit”) filed a claim for patent infringement in the U.S. District Court for the Eastern District of Texas (the “Court”) against Hughes Network Systems, LLC (“Hughes”), Black Elk Energy Offshore Operations, LLC (“Black Elk”), Blue Tide Communications, Inc. (“Blue Tide”) and Country Home Investments, Inc. (“Country Home”) (Hughes, Black Elk, Blue Tide and Country Home are referred to collectively as the “defendants”). The claim alleges that the defendants infringed the Company's patents relating to “Reverse Link for a Satellite Communications Network” and “Infrastructure for Telephony Network”. In June 2017, Elbit voluntarily dismissed Blue Tide and Country Home as defendants, and Black Elk was dismissed earlier since it was in bankruptcy. A trial was conducted before a jury from July 31 - August 7, 2017. The jury concluded that Hughes infringed Elbit's patents, rejected Hughes' invalidity arguments and returned a damages verdict in Elbit's favor of ~~$21,075 . Elbit sought additional post~~$21,075. The Court confirmed the jury's verdict ~~damages, interest~~ and ~~certain attorneys' fees and costs in excess~~awarded post-trial royalties of an additional ~~$20,000 beyond~~$4,680, additional pre-trial royalties of approximately $1,000 and interest in an amount to be determined upon final judgment. In addition, the ~~jury verdict.~~Court granted Elbit's request that the case be deemed exceptional and Elbit be entitled to legal fees. Hughes ~~filed motions~~appealed the Court's rulings to the U.S. Court of Appeals for ~~a judgment in its favor as a matter of law and for a new trial. The court is expected to rule~~the Federal Circuit. Briefing on the ~~various motions by~~appeal was completed in November 2018. In December 2019, the ~~middle~~case was settled whereby Hughes paid Elbit $33,000, of ~~2018.~~

~~F - 60~~



	~~ELBIT SYSTEMS LTD. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~
~~U.S. dollars (In thousands, except per share data)~~

~~Note 20 - COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)~~

~~D. LEASE COMMITMENTS~~

~~The future minimum lease commitments~~which a gain of ~~the Company under various non-cancelable operating lease agreements~~approximately $13,600 included in ~~respect of premises, motor vehicles~~general and ~~office equipment as of~~ ~~December 31, 2017, are as follows:~~

2018 $ 60,366
2019 53,806
2020 38,434
2021 24,280
2022 and after 118,142
$ 295,028

~~Lease expenses for the years ended~~ ~~December 31, 2017~~, ~~2016~~ ~~and~~ ~~2015~~ ~~amounted to~~ ~~$47,479, $44,614 and~~ ~~$37,169, respectively.~~

~~E. GUARANTEES~~administrative expenses.


~~(1)~~D.	As of December 31, 2017, guarantees in the amount of approximately $1,398,600 were issued by banks and other financial institutions on behalf of the Company and certain of its subsidiaries mainly in order to secure certain advances from customers and performance bonds.GUARANTEES

As of December 31, 2019, guarantees in the amount of approximately $1,982,558 were issued by banks and other financial institutions on behalf of the Company and certain of its subsidiaries mainly in order to secure certain contract liabilities (advances from customers) and performance obligation and employee benefit plans.


~~(2)~~E.	The Company has provided, on a basis proportional to its ownership interest, guarantees for one of its investees in respect of credit lines granted by banks in the aggregate amount of $4,207 as of December 31, 2016. As of December 31, 2017, the guarantees expired.COVENANTS

~~F. COVENANTS~~

In connection with bank credits and loans, including performance guarantees issued by banks and bank guarantees in order to secure certain advances from customers, the Company and certain subsidiaries are obligated to meet certain financial covenants. Such covenants include requirements for shareholders’ equity, current ratio, operating profit margin, tangible net worth, EBITDA, interest coverage ratio and total leverage.

As of December 31, ~~2017~~,2019, the Company met all financial covenants.

~~F - 61~~



F.	~~ELBIT SYSTEMS LTD. AND SUBSIDIARIES~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~
~~U.S. dollars (In thousands, except per share data)~~CONTRACTUAL OBLIGATIONS

~~Note 20 - COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)~~

~~G. CONTRACTUAL OBLIGATIONS~~

Substantially all of the Company’s purchase commitments relate to obligations under purchase orders and subcontracts entered into by the Company. These purchase orders and subcontracts are typically in standard formats proposed by the Company, with the subcontracts and purchase orders also reflecting provisions from the Company’s applicable prime contract that apply on a flow down basis to subcontractors and vendors. The terms typically included in these purchase orders and subcontracts are consistent with Uniform Commercial Code provisions in the United States for sales of goods, as well as with specific terms called for by its customers in various countries. These terms include the Company’s right to terminate the purchase order or subcontract in the event of the vendor’s or subcontractor’s default, and typically include the Company’s right to terminate the order or subcontract for the Company’s convenience (or if the Company’s prime contractor has so terminated the prime contract). Such purchase orders and subcontracts typically are not subject to variable price provisions. As of December 31, ~~2017~~2019 and ~~2016~~,2018, the purchase commitments were ~~$1,592,000~~$2,248,000 and ~~$1,313,000~~,$1,775,000, respectively.

~~H. FIXED LIENS~~



ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 21 - COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)


G.	FIXED LIENS

In order to secure bank loans and bank and other financial institutions guarantees in the amount of approximately ~~$1,398,600~~$1,982,558 as of December 31, ~~2017,~~2019, certain Company entities recorded fixed liens on most of their machinery and equipment, mortgages on most of their real estate and floating charges on most of their assets.


I.H.	LIEN ON APPROVED ENTERPRISES

A lien on the Company’s Approved Enterprises has been registered in favor of the State of ~~Israel (see~~Israel. See Note ~~18(A)(3)).~~18A.

Note 2122 - SHAREHOLDERS’ EQUITY


A.	SHARE CAPITAL

Ordinary shares confer upon their holders voting rights and the right to receive dividends.


B.	TREASURY SHARES

~~B. 2007 STOCK OPTION PLAN~~

In April 2019, the Company sold in a private placement to institutional investors in Israel 1,408,921 ordinary shares, at a price per share equal to $131.81. As part of the private placement the shares were registered with the SEC.


C.	2018 EQUITY INCENTIVE PLAN

In ~~2007 Elbit Systems' shareholders~~February 2018 the Company's Board of Directors approved ~~an employee Stock Option~~the 2018 Equity Incentive Plan for Executive Officers (the ~~“2007 Stock Option~~“2018 Equity Incentive Plan”). The purpose of this plan was to enable the Company to link the compensation and benefits of its Executive Officers with the future growth and success of the Company and its Affiliates and with long-term shareholder value. The 2018 Equity Incentive Plan consists of 1,000,000 options (the "Options") to be exercised using a “Net-Exercise Mechanism,” which entitles the recipients to exercise the Options for an amount of shares reflecting only the benefit factor. The Options were allocated, subject to the required approvals, to the Company's Israeli Executive Officers.

The exercise price of an option is determined in U.S dollars and is the higher of: (i) the average closing share price of an Elbit Systems ordinary shares on the TASE, during the period of thirty (30) trading days preceding the date on which the Company's Board of Directors approves the granting of the respective options, converted into U.S. Dollars by applying the average representative U.S. dollar - NIS exchange rate during such thirty (30) trading days period; or (ii) the closing share price of our ordinary shares on the TASE on the last trading date preceding the date on which the Company's Board of Directors approves the granting of the respective options, converted into the U.S. Dollars by applying the representative U.S. dollar - NIS exchange rate.

According to the 2018 Equity Incentive Plan, the options become vested and exercisable in accordance with the following vesting schedule:


(1)	Forty percent (40%) of the options are vested and exercisable from the second anniversary of the grant date;


(2)	An additional twenty percent (20%) of the options are vested and exercisable from the third anniversary of the grant date;


(3)	An additional twenty percent (20%) of the options are vested and exercisable from the forth anniversary of the grant date; and


(4)	The remaining twenty (20%) of the options are vested and exercisable from the fifth anniversary of the grant date.

The options expire no later than 63 months from the date of grant.

As of December 31, ~~2017,~~2019, there were ~~2,500~~95,000 options ~~remaining unexercised~~available for future grants under the ~~2007 Stock Option~~2018 Equity Incentive Plan.

~~Compensation expenses related to the 2007 Option Plan amounting to~~ ~~$13~~, ~~$70~~ ~~and~~ ~~$139~~ ~~were recognized during the years ended~~ ~~December 31, 2017~~, ~~2016~~ ~~and~~ ~~2015, respectively.~~

~~F - 62~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 2122 - SHAREHOLDERS’ EQUITY (Cont.)


C.	2018 EQUITY INCENTIVE PLAN (Cont.)

~~C. COMPUTATION OF EARNINGS PER SHARE~~

The following is a summary of Elbit Systems' share option activity under the 2018 Equity Incentive Plan:



	2019			2018
	Number of options		Weighted average exercise price	Number of options	Weighted average exercise price
Outstanding - beginning of the year	965,000		128.48	—	—
Granted	—		—	965,000	128.48
forfeited	(60,000	)	128.91	—	—
Outstanding - end of the year	905,000		128.45	965,000	128.48

The aggregate intrinsic value represents the total intrinsic value (the difference between Elbit Systems’ closing stock price on the last trading day of the fourth quarter of the applicable fiscal year and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2019. This amount changes, based on the market price of the Company’s stock and the average exercise price of in-the-money options. Aggregate intrinsic value of outstanding options as of December 31, 2019, was $23,943.

As of December 31, 2019, there was $15,047 of total unrecognized compensation cost related to share-based compensation arrangements granted under Elbit Systems’ stock option plan. That cost is expected to be recognized over a weighted average period of 4 years.

As of December 31, 2019, 899,932 options were expected to be vested at a weighted average exercise price of $128.45 per share. The weighted average remaining contractual life of exercisable options as of December 31, 2019, is approximately 3.95, and their aggregate intrinsic value is zero.


D.	OUTSTANDING OPTIONS AND COMPENSATION EXPENSES

The options outstanding as of December 31, 2019, have been separated into ranges of exercise prices, as follows:



	Options outstanding
Exercise price	Number of options	Weighted average remaining contractual life (years)	Weighted average exercise price per share
$121.42 - $128.91	905,000	3.95	$	128.45

Compensation expenses related to the 2018 Equity Incentive Plan amounted to $3,994 and $1,387 for the years ended December 31, 2019 and 2018 respectively, which were recognized, as follows:



	Year ended December 31,
	2019		2018
Cost of revenues	$	3,424	$	1,189
General and administration expenses	570		198
	$	3,994	$	1,387



ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 22 - SHAREHOLDERS’ EQUITY (Cont.)


E.	COMPUTATION OF EARNINGS PER SHARE

Computation of basic and diluted net earnings per share:


	Year ended December 31, 2017					Year ended December 31, 2016					Year ended December 31, 2015					Year ended December 31, 2019					Year ended December 31, 2018					Year ended December 31, 2017
	Net income to shareholders of ordinary shares		Weighted average number of shares (*)	Per Share amount		Net income to shareholders of ordinary shares		Weighted average number of shares (*)	Per Share amount		Net income to shareholders of ordinary shares		Weighted average number of shares (*)	Per Share amount		Net income to shareholders of ordinary shares		Weighted average number of shares (*)	Per Share amount		Net income to shareholders of ordinary shares		Weighted average number of shares (*)	Per Share amount		Net income to shareholders of ordinary shares		Weighted average number of shares (*)	Per Share amount
Basic net earnings	$	239,109	42,750	$	5.59	$	236,909	42,742	$	5.54	$	202,509	42,711	$	4.74	$	227,857	43,787	$	5.20	$	206,738	42,789	$	4.83	$	239,109	42,786	$	5.59

Effect of dilutive securities:
Employee stock options	—		3			—		10			—		22			—		61			—		—			—		3
Diluted net earnings	$	239,109	42,753	$	5.59	$	236,909	42,752	$	5.54	$	202,509	42,733	$	4.74	$	227,857	43,848	$	5.20	$	206,738	42,789	$	4.83	$	239,109	42,789	$	5.59

(*) In ~~thousands~~thousands.


D.F.	2018 PHANTOM BONUS RETENTION PLAN

In August 2018, the Company’s Board of Directors approved a “Phantom Bonus Retention Plan” for Senior Officers, who are not Executive Officers (the “2018 Phantom Plan”).

The 2018 Phantom Plan provides for phantom bonus units which entitle the recipients to receive payment in cash of an amount reflecting the “benefit factor”, which is linked to the performance of Elbit Systems’ stock price over the applicable periods (tranches) under the 2018 Phantom Plan. As of December 31, 2019, 1,333,850 phantom bonus units of the Plan were granted with a weighted average basic price per unit, as defined in the Plan, of $141.20.

The benefit earned for each year of a tranche is the difference between the basic price and the closing price of the Company’s share for that year, as defined in the 2018 Phantom Plan, not to exceed an increase of 100% in the Company's share price from the basic price of the first year of a tranche.

The Company recorded an amount of approximately $9,595 and $1,064, during the years ended December 31, 2019 and 2018, respectively, as compensation costs related to the phantom bonus units granted under the 2018 Phantom Plan, as follows:



	Year ended December 31,
	2019		2018
Cost of revenues	$	5,530	$	598
General and administration expenses	2,447		277
Marketing and selling	1,618		187
	$	9,595	$	1,064



ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 22 - SHAREHOLDERS’ EQUITY (Cont.)


G.	2012 PHANTOM BONUS RETENTION PLAN

In August 2012, the Company’s Board of Directors approved a “Phantom Bonus Retention Plan” for Senior Officers (the ~~“Plan”~~“2012 Phantom Bonus Retention Plan”). In August 2013, the 2012 Phantom Bonus Retention Plan was extended to include other officers of the Company.

The 2012 Phantom Bonus Retention Plan provides for phantom bonus units which entitle the recipients to receive payment in cash of an amount reflecting the “benefit factor”, which is linked to the performance of Elbit Systems’ stock price over the applicable periods (tranches) under the Plan. ~~As of December 31, 2017, 2,335,010 phantom bonus units of~~There were no new grants during 2019 and 2018, under the ~~Plan were granted with a weighted average basic price per unit, as defined in the Plan, of $56.87.~~2012 Phantom Bonus Retention Plan.

The benefit earned for each year of a tranche is the difference between the basic price and the closing price of the Company’s share for that year, as defined in the 2012 Phantom Bonus Retention Plan, not to exceed an increase of 100% in the Company's share price from the basic price of the first year of a tranche.

The Company recorded an amount of approximately ~~$28,254, $32,065~~$1,858, $2,628 and ~~$25,893~~$28,254 in the years ended December 31, ~~2017, 2016~~2019, 2018 and ~~2015,~~2017, respectively, as compensation costs related to the phantom bonus units granted under the 2012 Phantom Bonus Retention Plan, as follows:


	Year ended December 31,						Year ended December 31,
	2017		2016		2015		2019		2018		2017
Cost of revenues	$	10,199	$	10,056	$	5,859	$	426	$	985	$	10,199
General and administration expenses	13,948		18,024		17,864		1,160		1,225		13,948
Marketing and selling	4,107		3,985		2,170		272		418		4,107
	$	28,254	$	32,065	$	25,893	$	1,858	$	2,628	$	28,254

~~E. DIVIDEND POLICY~~


H.	DIVIDEND POLICY

Dividends declared by Elbit Systems are paid subject to statutory limitations. Elbit Systems’ Board of Directors has determined not to declare dividends out of tax exempt earnings.

~~F - 63~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 2223 - MAJOR CUSTOMER AND GEOGRAPHIC INFORMATION

The Company operates in ~~one~~1 reportable segment (see Note 1 for a brief description of the Company’s business).


A.	REVENUES ARE ATTRIBUTED TO GEOGRAPHIC AREAS BASED ON LOCATION OF THE END CUSTOMERS AS FOLLOWS:


	Year ended December 31,						Year ended December 31,
	2017		2016		2015		2019		2018		2017
North America	$	827,608	$	825,665	$	838,893	$	1,260,487	$	979,165	$	827,608
Asia-Pacific	670,490		801,639		800,333		1,029,635		791,821		670,490
Israel	741,873		709,562		616,611		1,064,789		740,232		741,873
Europe	763,963		640,763		497,559		853,656		737,051		763,963
Latin America	193,369		212,773		325,371		158,059		192,406		193,369
Other	180,522		69,817		28,814		141,774		243,009		180,522
	$	3,377,825	$	3,260,219	$	3,107,581	$	4,508,400	$	3,683,684	$	3,377,825

~~B. REVENUES ARE GENERATED BY THE FOLLOWING AREAS OF OPERATIONS:~~


B.	REVENUES ARE GENERATED BY THE FOLLOWING AREAS OF OPERATIONS:


	Year ended December 31,						Year ended December 31,
	2017		2016		2015		2019		2018		2017
Airborne systems	$	1,272,075	$	1,242,286	$	1,225,678	$	1,617,243	$	1,470,082	$	1,272,075
C4ISR systems	1,144,789		1,220,917		995,200		1,161,480		1,130,092		1,144,789
Land systems	503,878		408,003		558,658		1,228,348		649,141		503,878
Electro-optic systems	341,215		276,029		231,939		374,359		333,855		341,215
Other (*)	115,868		112,984		96,106		126,970		100,514		115,868
	$	3,377,825	$	3,260,219	$	3,107,581	$	4,508,400	$	3,683,684	$	3,377,825

(*) Mainly non-defense engineering and production services.

~~C. MAJOR CUSTOMER DATA AS A PERCENTAGE OF TOTAL REVENUES:~~


C.	MAJOR CUSTOMER DATA AS A PERCENTAGE OF TOTAL REVENUES:

Year ended December 31,
2017 2016 2015
IMOD 19% 18% 17%



	Year ended December 31,
	2019	2018	2017
IMOD	15%	13%	19%

~~D. LONG-LIVED ASSETS BY GEOGRAPHIC AREAS:~~


D.	LONG-LIVED ASSETS BY GEOGRAPHIC AREAS:


	Year ended December 31,						Year ended December 31,
	2017		2016		2015		2019		2018		2017
Israel	$	922,367	$	943,381	$	946,870	$	1,621,653	$	1,541,195	$	922,367
U.S.	147,255		149,581		157,835		501,985		245,865		147,255
Other	178,497		107,545		115,330		278,834		161,481		178,497
	$	1,248,119	$	1,200,507	$	1,220,035	$	2,402,472	$	1,948,541	$	1,248,119

~~F - 64~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 2324 - RESEARCH AND DEVELOPMENT, NET


	Year ended December 31,									Year ended December 31,
	2017			2016			2015			2019			2018			2017
Total expenses	$	301,382		$	291,749		$	277,837		$	368,652		$	317,690		$	301,382
Less - grants and participations	(36,322		)	(35,957		)	(34,421		)	(36,895		)	(30,338		)	(36,322		)
	$	265,060		$	255,792		$	243,416		$	331,757		$	287,352		$	265,060

Note 2425 - FINANCIAL EXPENSES, NET


	Year ended December 31,									Year ended December 31,
	2017			2016			2015			2019			2018			2017
Expenses:
Interest on long-term bank debt	$	(2,779	)	$	(1,489	)	$	(2,365	)	$	(13,854	)	$	(13,718	)	$	(2,779	)
Interest on Series A Notes, net	(6,112		)	(6,565		)	(6,812		)	(3,757		)	(5,494		)	(6,112		)
Interest on short-term bank credit and loans	(8,432		)	(5,457		)	(2,604		)	(10,576		)	(9,073		)	(8,432		)
Loss from exchange rate differences, net	(4,487		)	(2,224		)	(6,341		)
Guarantees										(10,600		)	(9,027		)	(7,105		)
Loss from revaluation of lease liabilities and exchange rate differences, net										(24,607		)	(3,362		)	(4,487		)
Other	(14,253		)	(9,495		)	(4,144		)	(9,635		)	(5,807		)	(7,148		)
	(36,063		)	(25,230		)	(22,266		)	(73,029		)	(46,481		)	(36,063		)
Income:
Interest on cash, cash equivalents and bank deposits	751			933			850			1,595			1,115			751
Other	810			555			1,176			2,362			1,305			810
	1,561			1,488			2,026			3,957			2,420			1,561
	$	(34,502	)	$	(23,742	)	$	(20,240	)	$	(69,072	)	$	(44,061	)	$	(34,502	)

Note 2526 - OTHER INCOME, NET

Year ended December 31,
2017 2016 2015
Capital gain (*) $ —
$ 3,868
$ 133
Other 48
99
83
$ 48
$ 3,967
$ 216

(*) During 2016, the Company recognized a gain from the sale of land and property.



	Year ended December 31,
	2019			2018			2017
Pension non-service cost⁽¹⁾	$	(10,920	)	$	(3,794	)	$	(5,130	)
Revaluation of investment⁽²⁾	8,281			—			—
Impairment of investment⁽³⁾	(3,692		)	(7,807		)	—
Other	88			152			48
	$	(6,243	)	$	(11,449	)	$	(5,082	)


(1)	Pension non-service cost according to ASU 2017-07. See Note 2S.


(2)	During 2019, the Company recognized gain as a result of revaluation of two of its investments in affiliated companies.

(3)

During 2019, the Company recognized an impairment related to one of its investments (see Note 6C(1)). During 2018 the Company recognized an impairment related to 2 investments, an amount of approximately $5,100 is related to impairment of an investment measured under the fair value option (see Note 6C(3)), and an amount of $2,700 is related to an investment accounted under the cost method (see Note 1C(4)).

~~F - 65~~



	ELBIT SYSTEMS LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars (In thousands, except per share data)

Note 2627 - RELATED PARTIES' TRANSACTIONS AND BALANCES


Transactions:	Year ended December 31,						Year ended December 31,
	2017		2016		2015		2019		2018		2017
Income -
Sales to related-party companies^(*)	$	179,867	$	176,429	$	150,999	$	183,012	$	181,566	$	179,867
Participation in expenses	$	2,625	$	2,502	$	2,257	$	2,576	$	2,580	$	2,625
Cost and expenses -
Supplies from related parties ^(**)	$	16,900	$	20,224	$	14,890	$	13,467	$	8,188	$	16,900


Balances:	December 31,				December 31,
	2017		2016		2019		2018
Trade receivables and other receivables ^(*)	$	77,470	$	88,876	$	73,076	$	103,035
Trade payables and advances ^(**)	$	28,675	$	16,110	$	23,518	$	33,868

The sales to the Company’s related parties in respect of U.S. government defense contracts are made on the basis of cost.


(*)	A significant portion of the sales and balances include sales of helmet mounted cueing systems purchased from the Company by a 50%-owned ~~subsidiaries~~subsidiary of ESA.


(**)	Includes mainly electro-optics components and sensors, purchased by the Company from a 50%-owned Israeli partnership, and electro-optics products purchased by the Company from another 50%-owned Israeli subsidiary.

~~Note 27 - SUBSEQUENT EVENT~~

On February 27, 2018, subsequent to the balance sheet date, the Board of Directors of the Company approved the 2018 Equity Incentive Plan for Executive Officers, to allocate up to 1,000,000 options to be exercised using a Net-Exercise Mechanism, which entitles the recipients to exercise the options for an amount of shares reflecting only the benefit factor.

¬ ¬ ¬

~~F - 66~~

ELBIT SYSTEMS LTD. AND SUBSIDIARIES

Schedule II – Valuation and Qualifying Accounts

(In thousands of U.S. dollars)


	Column A	Column B	Column C	Column D	Column E	Column A	Column B	Column C	Column D	Column E
Description	Balance at Beginning of Period	Additions (Charged to Costs and Expenses)	Deductions (Write-Offs and Actual Losses Incurred)	Additions Resulting from Acquisitions	Balance at End of Period	Balance at Beginning of Period	Additions (Charged to Costs and Expenses)	Deductions (Write-Offs and Actual Losses Incurred)	Additions Resulting from Acquisitions	Balance at End of Period
Year ended December 31, 2019:
Provisions for Losses on Long-Term Contracts ^(*)						118,672	41,359	29,320	—	130,711
Provisions for Claims and Potential Contractual Penalties and Others						8,541	851	4,606	—	4,786
Allowance for Doubtful Accounts						11,308	1,105	1,856	—	10,557
Valuation Allowance on Deferred Taxes						121,651	22	—	32,485	154,158

Year ended December 31, 2018:
Provisions for Losses on Long-Term Contracts ^(*)						46,778	19,842	20,396	72,448	118,672
Provisions for Claims and Potential Contractual Penalties and Others						5,406	801	940	3,274	8,541
Allowance for Doubtful Accounts						9,585	1,548	1,813	1,988	11,308
Valuation Allowance on Deferred Taxes						7,326	1,401	473	113,397	121,651

Year ended December 31, 2017:
Provisions for Losses on Long-Term Contracts ^(*)	83,348	14,149	50,719	—	46,778	83,348	14,149	50,719	—	46,778
Provisions for Claims and Potential Contractual Penalties and Others	4,484	1,186	264	—	5,406	4,484	1,186	264	—	5,406
Allowance for Doubtful Accounts	7,416	2,541	372	—	9,585	7,416	2,541	372	—	9,585
Valuation Allowance on Deferred Taxes	6,605	798	77	—	7,326	6,605	798	77	—	7,326

Year ended December 31, 2016:
Provisions for Losses on Long-Term Contracts ^(*)	130,274	20,775	67,701	—	83,348
Provisions for Claims and Potential Contractual Penalties and Others	7,501	158	3,175	—	4,484
Allowance for Doubtful Accounts	6,738	1,554	876	—	7,416
Valuation Allowance on Deferred Taxes	6,540	2,641	2,576	—	6,605

Year ended December 31, 2015:
Provisions for Losses on Long-Term Contracts ^(*)	135,548	20,588	31,961	6,099	130,274
Provisions for Claims and Potential Contractual Penalties and Others	7,557	1,860	1,916	—	7,501
Allowance for Doubtful Accounts	7,445	1,330	2,037	—	6,738
Valuation Allowance on Deferred Taxes	5,424	3,770	2,654	—	6,540

(*)

An amount of ~~$22,690~~$34,120 and $21,659 and ~~, $43,513 and $80,464~~$22,690 as of December 31, ~~2017, 2016~~2019, 2018 and ~~2015,~~2017, respectively, is presented as a deduction from inventories, and an amount of ~~$24,088~~$96,591 and $97,013 and ~~, $39,835 and $49,810~~$24,088 as of December 31, ~~2017, 2016~~2019, 2018 and ~~2015,~~2017, respectively, is presented as part of other payables and accrued expenses.

S-1



	March 15, 2018		March 15, 2017		March 15, 2016
	Shares Owned	% of Shares Owned	Shares Owned	% of Shares Owned	Shares Owned	% of Shares Owned
FEL	19,580,342	45.80%	19,580,342	45.80%	19,580,342	45.82%



	Fair value measurement at
	December 31, 2017 using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Description of Assets
Available-for-sale marketable securities:
Government bonds	$	1,415	$	—		$	—
Corporate bonds	—		11,956			—
Foreign currency derivatives and option contracts	—		5,953			—
Cross-currency interest rate swap	—		24,009			—
Investment elected to be accounted for using the fair value method	—		—			5,114
Liabilities
Foreign currency derivative and option contracts	—		(12,200		)	—
Total	$	1,415	$	29,718		$	5,114



	December 31, 2017
	Amortized cost		Gross unrealized gains	Gross unrealized losses	Fair value
Government debentures - fixed and floating interest rate	$	1,409	6	—	$	1,415
Corporate debentures - fixed and floating interest rate	11,951		5	—	11,956
	$	13,360	11	—	$	13,371



	December 31, 2016
	Amortized cost		Gross unrealized gains	Gross unrealized losses	Fair value
Government debentures - fixed and floating interest rate	$	1,051	—	—	$	1,051
Corporate debentures - fixed and floating interest rate	12,302		17	—	12,319
	$	13,353	17	—	$	13,370



2018 - current maturities	$	59
2019	118,641
2020	146
2021 and after	727
	$	119,573



Assumptions as of end of period:
Discount rate	3.17	%	3.50	%
Health care cost trend rate assumed for next year	5.50	%	6.50	%
Ultimate health care cost trend rate	3.84	%	3.80	%



	Gain (Loss) Recognized in Other Comprehensive Income on Effective- Portion of Derivative, net				Gain (Loss) on Effective Portion of Derivative Reclassified from Accumulated Other Comprehensive Income (*)				Ineffective Portion of Gain (Loss) of Derivative and Amount Excluded from Effectiveness Testing Recognized in Income (**)
	December 31, 2017		December 31, 2016		December 31, 2017		December 31, 2016		December 31, 2017			December 31, 2016
Derivatives designated as hedging instruments:
Foreign exchange contracts	$	27,841	$	21,891	$	55,851	$	13,653	$	(2,419	)	$	—
Derivatives not designated as hedging instruments:
Foreign exchange contracts and other derivatives instruments	$	—	$	—	$	—	$	—	$	(1,494	)	$	1,592



2018	$	60,366
2019	53,806
2020	38,434
2021	24,280
2022 and after	118,142
	$	295,028