Business Context and Reporting Period
Company: Elbit Systems Ltd.
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2025
Business Overview: Elbit Systems is a global high-technology company specializing in defense, homeland security, and commercial aviation systems. The company operates through five reportable segments: Aerospace, C4I and Cyber, ISTAR and EW, Land, and Elbit Systems of America (ESA). Operations are heavily influenced by government defense budgets and geopolitical conditions, particularly conflicts in the Middle East and Eastern Europe.
Key Financial Metrics (Year Ended Dec 31, 2025)
| Metric | 2025 (USD Millions) | 2024 (USD Millions) | Change |
|---|---|---|---|
| Revenues | $7,938.6 | $6,827.9 | +16.3% |
| Gross Profit | $1,935.3 | $1,641.8 | +17.9% |
| Gross Margin | 24.4% | 24.0% | +40 bps |
| Operating Income | $671.4 | $489.1 | +37.3% |
| Operating Margin | 8.5% | 7.2% | +130 bps |
| Net Income (Attributable to Shareholders) | $534.3 | $321.1 | +66.4% |
| Diluted EPS | $11.39 | $7.18 | +58.6% |
| Operating Cash Flow | $778.4 | $534.6 | +45.6% |
| Backlog (as of Dec 31, 2025) | $28,131 | $22,617 | +24.4% |
| Cash and Cash Equivalents | $635.1 | $265.4 | +139.3% |
| Total Debt (Short & Long Term) | ~$437.0 | ~$874.4 | -50.0% |
Note: Total Debt includes short-term credit/loans ($50.5M), current maturities of long-term loans/notes ($83.5M), long-term loans ($18.0M), and Series B, C, D Notes ($237.6M). Commercial paper outstanding was $48.4M.
Material Changes vs. Prior Period
- Revenue Growth: Driven primarily by the Land segment (+38% revenue, +75% operating income) due to increased munitions sales in Israel and Europe, and the ESA segment (+7% revenue, +119% operating income) driven by night-vision and maritime systems.
- Cost Structure: Cost of revenues increased to 75.6% of revenue (from 76.0%), reflecting higher subcontractor and material costs ($3.4B vs $2.8B) and increased manufacturing expenses due to higher activity levels.
- Segment Performance:
- Land: Operating income surged to $263.7M (11.4% margin) from $150.7M.
- ESA: Operating income more than doubled to $122.8M (7.2% margin) from $56.2M.
- ISTAR and EW: Operating income increased to $129.1M (8.5% margin) from $96.1M.
- C4I and Cyber: Operating income decreased slightly to $55.9M (6.0% margin) from $62.0M due to project mix changes.
- Balance Sheet: Significant reduction in debt levels due to repayments of commercial paper and long-term loans. Cash position strengthened significantly to $635M.
- Equity: Issued 1.57M ordinary shares in May 2025, raising approximately $588M in gross proceeds.
Guidance, Outlook, Risks, and Unusual Items
Outlook and Management Commentary
Management expects continued strong demand driven by global geopolitical tensions, particularly in the Middle East and Europe. The company is investing in capacity expansion (new facilities in Sweden, Germany, and the U.S.) and integrating AI and robotics into manufacturing. Approximately 54% of the $28.1B backlog is scheduled for performance in 2026 and 2027.
Key Risks and Contingencies
- Geopolitical Conflict: Ongoing conflicts in the Middle East (Israel, Iran, Hezbollah) and Russia-Ukraine war create supply chain disruptions, increased transportation costs, and employee reserve duty call-ups (approx. 8% of Israeli workforce as of March 2026). While demand has increased, operational constraints persist.
- Currency Fluctuation: The New Israeli Shekel (NIS) appreciated 12.5% against the USD in 2025, increasing the USD cost of labor and operating expenses. The company uses hedging instruments to mitigate this risk.
- Supply Chain: Shortages of electronic components and raw materials, exacerbated by Red Sea shipping disruptions and export restrictions, continue to pose risks to delivery schedules.
- Regulatory: The company is subject to strict export controls and is currently undergoing an internal investigation by the NATO Support and Procurement Agency (NSPA), resulting in a temporary suspension from new tenders (extended to March 2026). Management states this has limited impact on overall business.
- Fixed-Price Contracts: Risks of cost overruns on fixed-price contracts remain, with cumulative catch-up adjustments reducing net income by approximately $87.5M in 2025.
Unusual Items
- Pension Settlement: Recognized a non-operating settlement benefit of approximately $10.2M upon settling ESA pension liabilities.
- Investment Gains/Losses: Recognized a gain of $11.8M on the sale of investments and a loss of $7.3M on the revaluation of fair value investments.
- Non-Indemnified Costs: Included $9.0M in non-indemnified costs related to special circumstances (reserve duty costs above statutory ceilings) in 2025 results.
Investor Verification Checklist
- Backlog Realization: Verify the convertibility of the $28.1B backlog into revenue, considering potential contract cancellations or delays due to geopolitical shifts.
- Currency Hedging Effectiveness: Assess the adequacy of hedging strategies given the 12.5% NIS appreciation and its impact on future margins.
- NSPA Investigation Status: Monitor the outcome of the NATO Support and Procurement Agency investigation and its potential impact on European defense contracts.
- Supply Chain Resilience: Evaluate the company's ability to mitigate Red Sea shipping disruptions and component shortages without significant cost pass-throughs.
- Reserve Duty Costs: Track the percentage of the workforce on reserve duty and the associated non-indemnified costs as conflicts evolve.
- Debt Covenants: Confirm continued compliance with financial covenants (current ratio, operating profit margin) despite potential future volatility.