3A. [Reserved]
3B. Capitalization and Indebtedness
Information not required in annual report on Form 20-F.
3C. Reasons for the Offer and Use of Proceeds
Information not required in annual report on Form 20-F.
Risk Factors
We attempt to identify, manage and mitigate risks to our business. However, some of these risks are not within our control, and risks and uncertainty cannot be fully eliminated or predicted. Prior to investing in our ordinary shares, you should carefully consider the following risk factors as well as other information contained in this annual report. The risk factors presented below may not necessarily be in order of importance or probability of occurrence.
Risks Related to Our Operations
A cyber or security attack or other similar incident resulting in a breach, disruption or failure in our or our supply chain's digital environment, or of our products, could adversely affect us. Our operations depend heavily on the continued and secure functioning of our varied digital environment software and hardware that stores, processes and transmits data within the Company and from and to us and our business partners. This digital environment is subject to breach, damage, destruction, disruption, malfunction or failure from, among other things, cyber-attacks and other unauthorized intrusions, power losses, telecommunications failures, acts of war or terror, earthquakes, fires and other natural disasters.
We are continuously subjected to attempted cyber-attacks, ranging from standard phishing mails to sophisticated campaigns, such as spear phishing targeting specific Company management. While we have experienced an increase in the number of such threats and attempted cyber-attacks in recent years, which may be related to the geopolitical environment, none of these acts was believed to have had a material effect on the Company. Where required, relevant authorities were notified in accordance with the law and the relevant procedures the Company and its subsidiaries (as applicable) have in place. Our computer and communications systems, databases and users face ongoing threats of malicious software (malware), social engineering, distributed denial of service (DDoS), malicious code, zero-day vulnerabilities and other security threats and system disruptions carried out by a variety of threat actors.
In particular, we have been and may continue to be targeted by nation states and experienced and skilled computer programmers and hackers, including those sponsored by or acting for foreign governments or terrorist organizations and in some cases, using artificial intelligence (AI), including generative AI and agentic AI to facilitate their attacks. Such programmers and hackers attempt to penetrate or circumvent our cyber security defenses, obtain data and damage or disrupt our digital environment in order to, among other things, misappropriate or compromise our IP or other proprietary or protected information or that of our employees, customers and other business partners, prevent us from being able to use such information in our operations or demand that we pay ransom. Our suppliers are also sometimes subject to cyber-attacks, which have increased in recent years and pose a risk to those of our systems and operations that depend on such suppliers. For example, in September 2025 one of our suppliers experienced a cybersecurity incident that resulted in the disclosure of certain unclassified material related to a Company project. Elbit Systems' network was not breached, an investigation was conducted and we believe this incident did not have a material impact on the Company. In some cases, cyber-attacks on our suppliers have led us to delay or halt activities with them until they have implemented appropriate remedial steps mandated by us to further strengthen their cyber security defenses.
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A cybersecurity breach could also contaminate the source code implemented in our products delivered to our customers. Governmental and other end users and customers increasingly require us and our supply chain to meet specific computer system cyber protection and information assurance requirements and standards as a pre-condition to receive customer program-related information and enter into business contracts. In particular, the National Institute of Standards and Technology Special Publication 800-171 or the U.S. Department of War (DoW)’s (formerly referred to as the U.S. Department of Defense) cybersecurity requirements, including the Cyber Security Material Model Certificate (CMMC), require us to receive specific third-party cybersecurity certifications to be eligible for certain DoW contract awards. CMMC introduces, as a mandatory, enforceable element of DoW contracts, assessment and compliance requirements for contracts according to the CMMC level specified in each DoW solicitation and contract. To the extent we, or our subcontractors or other third parties on whom we rely, are unable to achieve certification in advance of contract awards that specify the requirement, we may be unable to bid on contract awards or follow-on awards for existing work with the DoW, which could have a material adverse effect on our business, results of operations, and financial condition. We devote significant and, in recent years, increasing resources to configure, operate, maintain, monitor, upgrade and improve the security of our systems and databases, handle cyber-incidents and 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, due to the complex and evolving nature of the cyber security risk landscape, we and some of our suppliers have in the past and may in the future face system failures, data breaches, loss of IP and interruptions in our operations, or fail to meet customer requirements, which could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow. For information about our cybersecurity risk management, strategy and governance, see Item 16K. Cybersecurity.
We may experience production and other delays, discontinuation of supply or liability due to supply chain disruptions and failures of our suppliers to comply with our requirements or with applicable laws. 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 (sometimes due to limitations we impose on ourselves or that are imposed by the Israeli government, the U.S. government or others with respect to purchases from certain sources). Limited supply sources or discontinuation of supply sometimes result in added costs and manufacturing delays. In addition, in some cases components of our products become obsolete and we are required to obtain or design alternative parts, resulting in additional costs and delays. Moreover, a failure of our suppliers and subcontractors to meet their design, delivery schedule, information assurance, regulatory compliance or other obligations, sometimes results in a failure to execute our plans or meet our commitments towards our customers, and in some cases we are unable to obtain full or partial recovery from our subcontractors for the losses or liabilities that result.
Similar outcomes sometimes result from disruptions in transportation and shipping of supplies, including those caused by worldwide geopolitical conditions, such as the ongoing conflict between Russia and Ukraine and related sanctions, the “Swords of Iron” war and increased tensions in the Middle East and the imposition of, and changes in, tariffs, trade restrictions and other protectionist or retaliatory measures between the United States, China and other countries. These conflicts have resulted in increased demand for and worldwide shortages in some of the materials and components we use (including, for example, in electronic components and raw materials required to produce explosives) and supply chain disruption due in part to limitations on export to Israel as well as more limited transportation by air and sea to the region (exacerbated by attacks by the Houthi movement in Yemen on shipping in the Red Sea). Such restrictions have caused a material increase in recent years in the Company's costs of procurement and shipping, leading in some cases to delays and limitations in our production and development. With respect to certain materials, our dependency on single sources of supply has increased. We are working to mitigate these risks, including by increasing our inventories, however we cannot eliminate all potential impacts to our business and such risks may increase in the future. These disruptions could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
We could be adversely affected if we are unable to recruit and retain key employees and corresponding knowledge. Success in executing our contracts and our future growth depends on key management, engineering, scientific and technological personnel and on our continuing ability to attract and retain sufficient and highly qualified personnel. Moreover, we rely on personnel with specialized training and high‑level security clearances, which are time‑consuming to obtain. In the past, we have witnessed high competition for the services of such personnel and an increase in the costs required for the recruitment and retention of qualified personnel, particularly in certain engineering areas. Competition for our personnel may also increase as other companies establish or expand operations in the same geographic areas or labor markets in which we operate. Since October 7, 2023, our need for employees, particularly in the fields of production and development in Israel, has increased in light of the higher demand for our products both in Israel and around the world and the call up of some of our employees to military reserve duty. We face risks related to our business operations, research and development, and losing knowledge and expertise through the loss of employees, including key employees. At our subsidiaries outside of Israel, employee loss may be related in part to increased pressure on such employees due to geopolitical considerations. Moreover, our competitors may hire, and gain access to the expertise of, our former employees. The loss of key employees and the failure to attract sufficient and highly qualified personnel, and any resulting failure to maintain and continue to operate and execute our projects and develop knowledge relevant to technological innovation, could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
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We face operation and execution risks. In recent years, the Company has experienced a considerable increase in demand for its products resulting in strong order growth. This growth may continue if Israeli and global demand for the Company's products and solutions is sustained. To address this strong demand, Elbit Systems is investing additional resources in its manufacturing facilities, recruiting additional employees and making additional adjustments such as updating working procedures and processes and information technology systems. The Company has also increased the number of its subsidiaries around the world and is in the process of establishing additional manufacturing facilities in several locations. If the Company fails to successfully plan for and manage its growing operations and efficiently expand its facilities around the world, for example by insufficient levels of work force, materials or components, failure to build the required facilities, infrastructure or systems and failure to adapt its work processes, it may not be able to fulfill its existing contracts on schedule, enter into new contracts or achieve the desired return on investment. Our ability to execute our projects is also affected by other factors such as supply chain, export approvals, transportation and others set forth elsewhere in these risk factors. Any of these factors could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
We 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 or we may fail to accurately estimate the commercial and technical value of the acquired assets;
•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 unforeseen risks, price adjustments or write-downs;
•we may not integrate newly-acquired businesses and operations in an efficient and cost-effective manner;
•relocation, combination or upgrade of facilities of acquired businesses may be more costly or time consuming than planned;
•we may fail to achieve strategic objectives, synergies, cost savings, financial and other benefits expected from acquisitions;
•the technologies acquired may not prove to be leading technologies in our markets, may be less mature or less relevant than anticipated, may not have adequate IP rights protection or may infringe proprietary rights of others;
•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 IP, tax or regulatory compliance issues, such as anti-corruption and environmental compliance, that may result in us incurring successor liability;
•we may fail in identifying or transferring some of the assets that are required for the operation of the acquired businesses;
•the attention of senior management may be diverted from our existing operations, or we may spend significant financial and management resources on potential acquisitions that do not materialize;
•we may be exposed to potential shareholder claims or conflicts if we acquire an interest in a publicly traded company or become a shareholder with partial holdings in a private company;
•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 (which have become more stringent in recent years), which could adversely impact the acquisition's value; and
•we may lose expertise and knowledge if key employees are not retained for a sufficient period of time.
We cannot ensure that these risks or other unforeseen factors will not offset the intended benefits of the acquisitions we make, and such risks could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
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Our operations may be negatively impacted by international health pandemics. Public health crises or contagious disease outbreaks, as well as potential government responses such as quarantines, lockdowns, limitations on holding large-scale events and travel restrictions, could create business disruptions for us and our customers, supply chain and other business partners, potentially resulting in cessation, reduction or delay of business and an increase in our costs, and may also impact government priorities and budgets and the demand for our products. These could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
We may be affected by failures of our prime contractors. We often act as a subcontractor, and a failure of a prime contractor to meet its obligations may affect our ability to receive payments under our subcontract.
Malfunctions in, undetected problems with our products or in our manufacturing processes, or misuse of our products could impair our financial results and give rise to potential product liability, breach of contract or other claims. We offer a wide portfolio of products and solutions, which is routinely being updated and adjusted. From time to time, we encounter unintentional defects or malfunctions in our products and solutions, or deficiencies in the manufacturing processes thereof. In addition, we often rely on subcontractors to design and manufacture some of the components that are embedded in our systems. In the event of defects in the design, production or testing of our or our subcontractors’ products and systems, including our products and solutions sold for safety purposes in the homeland security and commercial aviation areas, or if the cyber protection measures included in our products and solutions do not operate as intended, we could face substantial repair, replacement, or service costs, delays, potential liability and damage to our reputation. Similar issues could arise if we fail to timely implement and maintain adequate manufacturing processes and safeguards or if a defective part or deficient solution affects our development, production and operation infrastructures. 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 IP rights. Our efforts to implement appropriate design, manufacturing and testing processes for our products or systems may not be sufficient to prevent such occurrences. We could also be subject to claims if our products are intentionally or unintentionally misused. We may not be able to obtain product liability or other insurance to fully cover such risks in a cost-effective manner, which could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
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 could increase, for example, as a result of future acquisitions. 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 labor disputes, slowdowns, strikes and other measures, which could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow. For further information, see Item 6. Directors, Senior Management and Employees – Employees – Collective Bargaining Agreements.
Our business could be adversely affected by climate change, Environmental, Social and Governance (ESG) regulatory requirements and market responses thereto. Global climate change could increase the risks of natural disasters and hazards, such as earthquakes, flooding, fires, rising temperatures and sea levels. The impacts of such events could affect our operations and facilities, as well as those of our suppliers and customers, and increase the costs of our operations. Current or future insurance arrangements may not provide protection for costs that may arise from such events, particularly if such events are catastrophic in nature. Climate change could also require us to adapt our products to withstand extreme weather conditions or reduce the environmental footprint of our activities. In addition, the expansion of global ESG regulations in recent years has led to new policy requirements by various authorities around the world, including with respect to greenhouse gas emissions. New and evolving laws and regulations, such as the European Commission's Corporate Sustainability Reporting Directive (CSRD) and other climate-related regulations, mandate, and could mandate in the future, different or more restrictive environmental standards and disclosure obligations than those that were previously in effect, and could require us to change our methods of operation and make additional capital investments, or could result in legal and regulatory proceedings against us. We regularly evaluate the impact of this changing area of law on our Company and its operations. See also “Risks Related to Legal and Regulatory Requirements – Our operations may expose us to liabilities under various environmental protection, health and safety laws and regulations” below. Climate change, as well as ESG in general, are also a focus of investors, advisory service providers, financial institutions, some of our business partners and other market participants, and such groups and constituents regularly evaluate our ESG practices and disclosures before making business decisions. The effects and costs of climate change, or any failure to meet related regulatory requirements and evolving stakeholder expectations regarding ESG, could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
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Risks Related to Our Markets and Industry
Our future success in a competitive industry depends on our ability to develop new offerings and technologies quickly at cost-effective prices. The markets we serve are highly competitive and 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 lifespan 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 our competitors. 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. Accordingly, our future success will require that we:
•identify emerging technological trends;
•identify additional uses for our existing technology to address customer requirements;
•develop, upgrade 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;
•maintain a global presence, working through subsidiaries around the world; and
•structure our business efficiently through joint ventures, teaming agreements and other forms of alliance.
We need to continually invest significant human capital and financial resources to pursue these goals, and there can be no assurance that adequate resources will continue to be available to us or be prioritized 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, including disruptive technologies and technologies originating from civilian applications, or changes in industry standards and regulations or customer requirements, could render our offerings obsolete or unmarketable.
We are facing increased competition from startups and non-traditional defense contractors, including companies active in the deep-tech and more specifically, the defense-tech field, which is usually characterized by rapid innovation in areas such as AI, autonomous systems, software only products and the introduction of quantum computing. Such companies often have access to substantial resources from venture capital, private equity and other non-defense investment sources, operate under less stringent legal requirements compared to traditional defense companies and are sometimes favored by procurement policy. These factors may provide such companies with a competitive edge in terms of agility and innovation and may allow them to develop disruptive technologies at a faster pace and offer products at lower prices, with the potential to reshape the traditional defense market. Following recent global conflicts, funds have become increasingly available to these companies, which are expanding and capturing a larger market share on account of the traditional defense sector. If such expansion continues, we might be forced to reduce prices and may lose market share as well as research and development participation from our customers.
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 sometimes lack sufficient demand or experience technological problems or production delays. Our customers frequently require demonstrations of working prototypes prior to awarding contracts for new programs or require short delivery schedules which sometimes require us to purchase long-lead items or materials and commence work in advance, without any certainty of receiving the contract award. Moreover, due to the design complexity of our products, or for other reasons we sometimes experience delays in developing and introducing new products. Such delays have in the past and may in the future result in increased development efforts and costs, divert human and financial resources from other projects or increase the risk that our competitors will 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 effect on our business, reputation, financial condition, results of operations and cash flow.
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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 DoW and other military or governmental authorities of various countries, pursuant to contracts awarded to us under defense and homeland security-related programs. Israel is also a recipient of significant U.S. security assistance under the Foreign Military Financing (FMF) program, pursuant to a 10-year (2019-2028) MOU with the U.S. The funding of government programs could be reduced, delayed or eliminated due to numerous factors, including geopolitical events and macro-economic conditions, as well as U.S. government shutdowns, as recently occurred, changes in policies or priorities of specific governments or security pacts among several governments. As a result, our current orders from governmental customers may be subject to modifications and terminations, and our future orders may be reduced, due to factors over which we have little or no control. In addition, if the U.S. security assistance to Israel is reduced or discontinued, we may receive fewer U.S. funded orders and FMF funds. In some cases, such developments, as well as other changes relating to specific markets or customers, could lead to our exit from certain business operations, which could also result in asset impairment. Following the outbreak of the war in October 2023, we have in some cases experienced a reluctance from certain countries to purchase from Israeli companies, while in other cases we have experienced an increase in demand for our products. A reduction or elimination of government spending under current contracts with us, changes in future government spending priorities and funding and a discontinuation of certain of our business operations could cause a material adverse effect on our business, reputation, financial condition, results of operations and cash flow. Additionally, pursuant to a January 7, 2026 U.S. Executive Order, the U.S. Secretary of War could seek to limit our ability to pay cash dividends or make share repurchases if the Secretary of War determines that we have underperformed or lacked sufficient prioritization of, investment in or production speed in carrying out or performing under our U.S. government contracts.
We face 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 and profitability. 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 a potential deterioration in geopolitical or trade relations between countries, international trade sanctions, and imposition of or increases in tariffs and other trade barriers and restrictions. Imposition of or increases in import restrictions or tariffs by any government could lead to retaliatory actions by other countries, which could have broad effects in many industries and economies internationally (see also “Financial-Related Risks – Tariffs and trade tensions could have an adverse effect on economic conditions and financial markets” below). Broad-based international trade conflicts, as well as conflicts involving the State of Israel, such as the “Swords of Iron” war and related geopolitical responses, have had and may continue to have negative consequences on the demand for our products and services outside Israel as well as on exports from other countries to Israel, including by our suppliers (see “Risks Related to Our Israeli Operations and Environment – Conditions in Israel and the Middle East may affect our operations” below). Such conflicts could also make it more difficult for us to meet industrial participation requirements. Some of our global subsidiaries and their employees and business partners are also subject from time to time to protests, vandalism and other forms of disruption and attack that are aimed against Israel, Elbit Systems and/or Israeli defense contractors in general, and which sometimes create risks to our people, disrupt our operations and increase our costs. These efforts, which include organized boycotts and divestment efforts aimed at withdrawing investments, terminating various of our engagements and closing regional facilities, could continue or increase in the future. 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 among countries and the increasing instances of terrorism and armed conflicts worldwide, some of which may be affected by Israel's overall political situation (see “Risks Related to Our Israeli Operations and Environment” below). Trade restrictions applied by the Israeli government on certain countries sometimes limit our sales to other governments that themselves do not impose restrictions. In addition, a variety of entity-specific sanctions by the Israeli government, the EU, the U.S. government or other governments or international organizations that apply with respect to our counterparties to certain contracts, may make it difficult or impossible to complete agreements with such counterparties or other related contracts. A continuation or escalation of the conflict between Russia and Ukraine could continue to affect Eastern Europe and other regions and increase the volatility of global economic conditions. We are unable to predict the full impact of either the conflict between Russia and Ukraine or conflicts in the Middle East on the economy generally or on our business and operations. Any of the foregoing risks could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
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We face increasing requirements for industrial participation and localization by many of our customers. In recent years, there has been a growing trend in numerous countries to encourage work with local industries, including through various incentives, budgetary allocations and tightening regulatory requirements, which sometimes causes operational difficulties and delays. Examples include mandating a preference for purchasing from domestic suppliers and requirements for local development, manufacture or cooperation with local entities, including regarding transfer of technologies and production lines. For example, in 2025 the European Union (EU) adopted the Security Act for Europe (SAFE), establishing a Euro 150 billion loan framework for EU member states to invest specifically in European defense companies. Adhering to localization requirements often involves complex operational issues and investments in facilities and subsidiaries in the local country. In addition, a number of our international programs require us to meet “Industrial Participation” or offset obligations, which have increased in recent years and involve additional costs. See Item 5. Operating and Financial Review and Prospects – Off-Balance Sheet Transactions. If we fail to successfully collaborate with our business partners to meet requirements for local development, manufacture or cooperation with local entities, it could have an adverse effect on our growth. If we fail to meet our Industrial Participation or offset obligations, we could be subject to contractual penalties or termination or inclusion on “black lists”, making it difficult or impossible to do business in such countries in the future. These consequences could, in turn, have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
We are subject to risks associated with artificial intelligence (AI) technologies. When referring to AI, we generally mean a machine-based system with various levels of autonomy that can, for a given set of human-defined objectives, make predictions, recommendations or decisions influencing real or virtual environments, and use machine and human-based inputs to perceive real and virtual environments; abstract such perceptions into models through analysis in an automated manner; and use model inference to formulate options for information or action. We incorporate AI capabilities and generative AI capabilities, some of which we develop internally and some of which we obtain or license from third parties, into some of our products and solutions and in some of our development processes and business operations, and we expect to do so more in the future. Generative AI capabilities generally refers to our use of machine learning, deep learning, or other AI techniques to generate new outputs based on patterns and structures learned from training data, such as advanced data retrieval, code generation, natural language, images, videos, or recommendations. Such capabilities include, among others, large language models and vision language models, which are incorporated into certain of our internal enterprise processes, for example in the areas of supply chain management, engineering workflows, inventory oversight and project execution, and into certain of our products and solutions, for example in the areas of border protection, autonomous solutions, C4I systems, network centric information and operational systems and intelligence gathering systems. The rapid pace and complexity of generative AI development may require the investment of significant resources for us to remain competitive, and such investments may not produce successful outcomes or the returns that we expect. In addition, our competitors may incorporate generative AI into their development tools or products more quickly or more successfully than us, which could impair our ability to compete effectively (see also “Our future success in a competitive industry depends on our ability to develop new offerings and technologies quickly at cost-effective prices” above). It is possible that generative AI will become a disruptive technology, causing a radical change in our industry. If we are unable to timely adapt to such change, we may fall behind our competitors. Generative AI is a rapidly developing technology, with a developing legal framework. Current and future AI-related regulations may impose certain obligations on us, and the costs of monitoring and responding to such regulations, as well as the consequences of non-compliance, could have an adverse effect on our operations or financial condition. Furthermore, our use of AI may expose us to additional liability, litigation, as well as increased cybersecurity risks, risks related to IP ownership, IP infringement, disclosure of personal identifiable information, loss of confidential information (see also “Risks Related to Legal and Regulatory Requirements – Our business depends on proprietary technology that may be infringed or disclosed; our products may infringe third party rights” below), faulty manufacturing, misuse of AI, limited explainability and traceability of AI, as well as other technological, operational, reputational, and regulatory risks that are hard to predict, particularly if the AI we adopt, or data it is based on, produces errors or AI bias, generates inaccurate, incomplete or misleading outputs, contains open source copyrighted material, infringes upon existing technology or otherwise does not function as intended. All of these risks could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
We are likely to compete with certain potential customers. The defense industry is dominated by a relatively small number of large prime contractors that have, in recent years, aggressively pursued vertical integration by acquiring or developing in-house capabilities that compete with our offerings in certain areas. This trend creates a ‘co-opetition’ dynamic where we must seek subcontracts in some cases from the same entities with whom we compete for larger programs. Decisions by these prime contractors to ‘insource’ requirements rather than utilize our specialized solutions or our failure to maintain good business relations with them, or further horizontal consolidation among them, could significantly reduce our addressable market and harm our financial results.
Our contracts may be terminated by our customers. Our contracts with customers may be terminated, amended or delayed by our customers for various reasons, including for their convenience. Such terminations, amendments or delays, which are experienced by the Company from time to time, may be due to factors over which we have little or no control (see also “Our revenues depend on a continued level of government business” above). In some cases, termination eliminates our right to payment under the contract and could also cause additional expenses, which could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
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Part of our revenues are derived from competitively awarded contracts. Part of our revenues are derived from contracts awarded through competitive bidding processes, primarily with governmental customers. These processes are complex, costly and time consuming, and we may not be successful in winning new contracts or renewals on favorable terms, or at all. Competitive procurements sometimes require us to submit technical and pricing proposals before the completion of product design, requiring assumptions regarding performance, cost, schedule and supply chain availability that may later prove inaccurate. If our estimates are incorrect, our margins may be reduced and we may incur losses. In addition, use of tenders, as well as indefinite delivery, indefinite-quantity and other multi-award contracts, may intensify competition, increase pricing pressure and require repeated competition for task or delivery orders. Moreover, even when we possess the necessary qualifications for a specific new contract, we may not secure the business due to the government’s approach of promoting a broad and varied group of contractors. We may also face bid protests from unsuccessful bidders, leading to added costs and possible contract changes and delays. If we are unable to consistently win competitively awarded contracts or replace expiring contracts, this could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
Financial-Related Risks
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), the Euro and Great Britain Pounds (GBP), and we incur a substantial amount of our expenses (primarily human resources, operational and supply chain expenses) in currencies other than the U.S. dollar, mainly NIS. Accordingly, in case of an appreciation of the NIS compared to the U.S. dollar, a significant portion of our costs will likely increase, as has previously happened. During 2025, the NIS appreciated by 12.5% compared to the U.S. dollar, leading to an increase in the portion of our labor‑related and operating expenses denominated in U.S. dollars. We also face the risk of reduced revenues in case of a depreciation of the Euro compared to the U.S. dollar, if we are awarded Euro denominated contracts based on price proposals that were provided when the Euro value was higher compared to the U.S. dollar. To the extent we derive our revenues or incur our expenses in currencies other than the U.S. dollar, we are subject to exchange rate fluctuations between the U.S. dollar and such other currencies. For example, we are sometimes negatively affected by exchange rate changes during the period from the date we submit a price proposal until the date 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 are not able to adequately and cost-effectively hedge against all exchange rate fluctuations. See Item 11. Quantitative and Qualitative Disclosures About Market Risk – Exchange Rate Risk Management. In addition, our international operations expose us to the risks of price controls, restrictions on the conversion or repatriation of currencies, or even devaluations or hyperinflation in 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, reputation, financial condition, results of operations and cash flow. See below “Risks Related to Our Israeli Operations and Environment – We may be affected by changes in Israel’s economy” and Item 5. Operating and Financial Review and Prospects – Impact of Inflation and Exchange Rates.
We may be adversely affected by increased levels of inflation and interest rates. Disruptions and volatility in the global economy and financial markets in recent years have put upward pressure on prices, causing widespread inflation particularly from 2021 to mid-2023. In response to the rising inflation, central banks in the markets in which we operate, including the Bank of Israel and the United States Federal Reserve, raised interest rates and tightened their monetary policies. Despite moderated inflationary pressures during 2024, which remained relatively stable in 2025, the level of inflation remains elevated compared to historical levels. As a result, the Company's employee wages and certain consumer price index (CPI) linked expenses, including the Company's borrowing costs, as well as costs of supplies, significantly increased over the past few years. The moderation of inflation may not continue in the future and interest rates could increase further, causing the Company considerable additional costs, as described above. High interest rates could also cause a significant additional increase in our borrowing costs on existing debt subject to variable interest rates and on new debt that we may issue, while also affecting the fair value of our investments and further exposing us to currency exchange risks. See also “We face currency exchange risks” above and “We face risks relating to financing for our operations and issuing guarantees” below. A global environment of high levels of inflation and interest rates and concurrent increased costs may also continue to impact our customers’ purchasing power, budgets, priorities and our industry overall. Interest rate increases or other government actions taken to reduce inflation could also slow business and government borrowing and spending, thereby placing economic markets at risk of recession, which could also affect the performance of our business partners under our joint projects. All of these risks could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
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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 fixed-price contracts for which changes in estimated gross profit/loss are recorded on a “cumulative catch-up basis”. See Item 5. Operating and Financial Review and Prospects – General – Critical Accounting Policies and Estimates – Revenue Recognition and Item 18. Financial Statements – Note 2S. The costs which typically fluctuate under our fixed-price contracts relate to internal design and engineering efforts, system or product certification processes and purchase of materials and components. In some cases we underestimate the costs to be incurred in a fixed-price contract, and experience a loss on the contract. Losses due to increased or unexpected costs in fixed-price contracts could have a material adverse effect on our business, reputation, financial condition, results of operations 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 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 typically is not guaranteed. In some cases, the anticipated contract is not awarded to us or sales do not occur at the level anticipated, and as a result, we are not able to recover our non-recurring or pre-contract costs. Such pre-contract costs could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
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 sometimes experience fluctuations in year-to-year and quarter-to-quarter financial results, which may be significant. 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. This method relies on judgments and estimates that are complex and subject to a number of variables (such as the complexity of the required work, length of performance, labor productivity, availability of materials, execution by our suppliers and payments by our customers). See Item 5. Operating and Financial Review and Prospects – General – Critical Accounting Policies and Estimates – Revenue Recognition and Item 18. Financial Statements – Note 2S. As a result, our financial results for prior periods may not provide a reliable indicator of our future results. In addition, because of the significance of management’s judgments and estimation processes mentioned above, it is likely that materially different amounts could be recorded if we used different assumptions or if the underlying circumstances were to change. Changes in underlying assumptions, circumstances or estimates may adversely affect our future results of operations and financial condition.
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 due to the size or long-term nature of the contracts. In addition, from time to time, for reasons beyond our control (including economic conditions, exchange rate fluctuations or customer needs), projects are delayed, scaled back, stopped or cancelled, or customers delay making payments, which in some cases adversely affect the revenue, profit and cash flow that we ultimately receive from contracts reflected in our backlog.
We have risks related to our debt obligations. In connection with our bank credits and loans, our notes listed on the Tel-Aviv Stock Exchange and the commercial paper we issued in Israel, we are subject to certain restrictions and/or are obligated to meet certain covenants, including with respect to total equity, equity ratio, operating income, current ratio (the ratio of current assets to current liabilities) and total assets. These restrictions and covenants affect, and may limit or eliminate, our ability to adequately plan for or react to market conditions, meet capital needs or otherwise carry out our activities or business plans. Our ability to comply with the terms of our financing arrangements can be affected by events beyond our control, including prevailing economic, financial market and industry conditions, and there can be no assurance that we will be able to comply with such arrangements. These terms could limit our ability to take advantage of financing, mergers and acquisitions or other opportunities. A breach of any restrictive covenants in our financing agreements, as well as our failure to repay our debts or maintain our rating (including for reasons beyond our control), could result in an event of default under those agreements, which could in turn lead to acceleration of the debts, cross-defaults and other penalties. For additional information on our debt see Item 5. Operating and Financial Review and Prospects – General – Long-Term Arrangements and Commitments – Bank and Notes Covenants; Financial Resources; Israeli Series B, C and D Notes and Israeli Commercial Paper.
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We have risks related to the inherent limitations of internal control systems. We are subject to a range of requirements relating to internal control over financial reporting. Despite our internal control measures, we may still be subject to financial reporting errors or even fraud, which we may not detect. 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 such reasonable resource constraints. Implementation of changes or updates to our control systems, including addition of specific new requirements and deepening the capabilities and outputs of our fully operational enterprise resource planning (ERP) system at additional sites worldwide, sometimes encounter unexpected difficulties and delays. 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 overriding such 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 Item 15. Controls and Procedures. Failure to maintain effective internal controls, and any investigations or sanctions by regulatory authorities that result from such failure, could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
We face risks relating to financing for our operations and issuing guarantees. From time to time, some of our major projects require us to arrange or provide guarantees in connection with a customer’s financing of a specific project. These include commitments by us as well as guarantees provided by financial institutions or insurance companies relating to payments received from customers. In addition, many of our projects require us to issue advance, performance and/or product guarantees which may be drawn down by our customers. Customers typically have the right to draw down against advance payment guarantees in the event of a default claim under the applicable contract. In addition, some customers require that contract payment 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, and from time to time our customers encounter impaired ability to continue to comply with extended payment terms. Moreover, our balance sheet could reflect increased leverage if we were required to provide significant financing for our programs. See Item 4. Information on the Company – Financing Terms.
In some of our projects, we are exposed to the credit risks of our customers and delays in customer payments, which may adversely affect the collection of our accounts receivable, thereby reducing our cash flow and potentially requiring us to obtain alternative funding at additional cost (see Item 4. Information on the Company – Financing Terms and Item 18. Financial Statements ‒ Note 3). We sometimes seek to protect all or part of such financial exposure by various means such as insurance or factoring (the sale of accounts receivable to third parties); however, such measures may not always be available in a cost-effective manner, may not fully cover our risks and may not be maintained through the entire program term. In addition, we sometimes assist our customers with obtaining financing from third parties. We normally receive insurance for such financing, but when insurance does not cover our full exposure, a customer's failure to pay us may result in a write-off and additional costs to the Company. During and following periods of inflation, such as since 2021, we enter into loan commitments with higher interest rates than comparable loan commitments in the past (see above – “We may be adversely affected by increased levels of inflation and interest rates”). Our borrowings under variable interest rate instruments expose us to interest rate risk. As interest rates increase, our debt service obligations on our variable rate indebtedness will increase even if the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. Difficulties in obtaining financing at attractive rates could impact our ability to adequately meet our business needs or execute our growth strategy. Any of the foregoing risks could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
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 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, including any related tax interest or penalties, which could significantly affect our income tax expense for the period in which the assessments take place. In addition, our tax returns are periodically audited or subject to review by tax authorities in the various jurisdictions in which we operate around the world. Moreover, the Organization for Economic Cooperation and Development (OECD) sponsors the base erosion and profit shifting (BEPS) project, which encourages the adoption of certain policies to combat tax avoidance by multinational enterprises. Increases in our effective tax rates from the above factors could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
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Changes to tax laws or classifications in any of the jurisdictions in which we operate could materially affect us and our shareholders. Tax laws, including tax rates, in the jurisdictions in which we operate are often unsettled and may be subject to significant changes. For example, the U.S. tax reform enacted in 2025 (informally titled the One Big Beautiful Bill Act) introduced a number of significant changes to the U.S. federal income tax rules. The OECD’s BEPS project has resulted in wide-ranging and continuous changes in the principles of international taxation and the tax laws in individual countries, including the Global Minimum Tax rules (GLOBE) introduced in 2021 (referred to as “Pillar 2”). Pillar 2 rules contemplate changes to numerous international tax principles and national tax incentives and enforce other arrangements such as a minimum effective tax liability of 15%, under certain conditions. Governments have been translating the Pillar 2 rules into specific national tax laws, as previously done with respect to BEPS, and Pillar 2 is effective as of financial year 2024 in certain countries. Israel has enacted a local minimum tax for multinational enterprise groups, and certain of the required measures, effective for tax years beginning on or after January 1, 2026, and is considering additional legislation to align its tax regime with evolving international minimum tax standards; however, not all such measures have been adopted, and future legislative developments, if any, remain uncertain. These changes, when adopted by individual countries, could adversely affect our financial position, including our provision for income taxes. At this stage we are analyzing the potential impact of the new rules on our financial results.
In February 2022, the Council of the EU updated its grey list, which includes countries that do not yet comply with all international tax standards but have committed to implementing reforms, to add Israel and nine other countries. In February 2024, the grey list was updated and Israel was removed therefrom, and was stated to be cooperating with the EU and having no pending commitments. In order to be considered cooperative for tax purposes, jurisdictions are required to meet certain criteria, including: tax transparency, fair taxation and anti-BEPS measures. European entities engaging with countries listed on the grey or black lists may be subject to certain restrictions. Changes in tax laws, policies, treaties or regulations, and their interpretation or enforcement, are unpredictable. Any of these occurrences could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
In addition, changes to tax laws, their interpretation or our classification under them can result in adverse consequences to our shareholders. For example, in case Elbit Systems is treated as a Passive Foreign Investment Company (a PFIC), during any taxable year during which a U.S. Shareholder (as defined in Item 10. Additional Information – Taxation – United States Federal Income Tax Considerations) holds our ordinary shares, certain adverse U.S. federal income tax consequences and additional reporting requirements could apply to that U.S. Shareholder. Based on our audited financial statements and relevant market and shareholder data, we do not believe we were treated as a PFIC with respect to our 2025 or 2024 taxable year and do not expect to be a PFIC for our current taxable year or in the reasonably foreseeable future. However, whether we are a PFIC is a factual determination that must be made at the close of each year and is based on factors that may be outside of our control, including, among other things, the valuation of our ordinary shares and assets, which will likely change from time to time. See Item 10. Additional Information – Taxation – United States Federal Income Tax Considerations.
Tariffs and trade tensions could have an adverse effect on economic conditions and financial markets. The U.S. government has announced a number of tariff-related policies that have resulted in increased tariffs and potentially will result additional tariffs on products imported into the United States. There is no certainty regarding if and how long the existing increased tariffs will remain in place or whether additional tariffs will be imposed and, if so, how long such tariffs will remain in place. These actions have resulted, and may result, in fluctuations in financial markets, including with respect to interest rates, and retaliatory tariffs or trade actions by other countries. If geopolitical tensions or uncertainty continue, they could result in a reduction of trade volume, investment and technological exchange and other economic activities among major international economies, which in turn could lead to a recession and further changes in interest rates. The application of increased tariffs or continuing uncertainty also may result in a material increase to our costs of operation or otherwise limit our commercial opportunities. Any of these events could adversely affect our business, results of operations and financial condition.
Funding obligations to our pension plans could reduce our liquidity. Funding obligations for certain of our pension plans are impacted by the performance of the financial markets and interest rates. When interest rates are low, or if the financial markets do not provide expected returns, we are 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 2R and 17.
Our business involves risks that may not be adequately covered by insurance. Our business involves the development and production of products and systems for customers around the world. These products and systems can involve new technologies that are not yet fully tested. Failure of some of our products could result in loss of life or other substantial damages. In addition, in some cases our insurance policies contain exclusions from coverage such as war and terror, natural catastrophes and cybersecurity incidents. We may not be able to obtain product liability or other insurance to fully cover our risks in a cost-effective manner, and 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 business, reputation, financial condition, results of operations and cash flow. In addition, conditions in the global insurance market or in a specific sector or geography may make it more costly to obtain adequate insurance coverage.
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Risks Related to Legal and Regulatory Requirements
We are subject to government procurement and anti-bribery and 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 Item 4. Information on the Company – Governmental Regulation. Our supply chain is also required to comply with many of these regulations. We engage in certain markets considered to have high bribery and corruption risks. In addition, certain non-governmental entities with which we do business adopt their own anti-bribery and corruption rules and guidelines that may be applicable to us in connection with our engagements with them. In July 2025, the NATO Support and Procurement Agency (“NSPA”), NATO's centralized procurement agency, rather than any individual NATO member state, notified the Company and two of its subsidiaries that they were subject to an internal investigation and in the absence of a waiver, were temporarily suspended from participating in new tenders. NSPA has not informed the Company of the factual circumstances or specific events that are the subject of the investigation and has since extended the temporary suspension until March 2026, while NSPA's internal investigation remains ongoing. The Company did not identify any irregularities or non-compliance in connection with any project involving NSPA. The Company's tender activity and business engagements with NSPA is very limited.
Failure to remain up to date with applicable regulatory changes around the world or to fully comply with these rules and regulations (as well as applicable sanction and export controls requirements, such as those relating to Russia or China), whether directly or indirectly, could result in the modification, termination or reduction of the value of our contracts, additional costs, the assessment of penalties and fines against us, our suspension or debarment from government contracting or subcontracting for a period of time or criminal sanctions or other adverse actions against us or our office holders, employees, supply chain or customers. Non-compliance with the rules and guidelines adopted by commercial entities in this area could adversely affect our business relationships, including disqualification from supplier lists and imposition of other limitations on future transactions. In addition, our employees may be subject to corruption attempts by third parties, in order to obtain business with the Company or receive other benefits. Any of the aforementioned risks, were they to materialize, could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
We depend on governmental security clearance and governmental approvals for international sales, procurement and acquisitions. Many of our contracts with governmental customers require us to maintain security clearances and employ staff with specific qualifications, experience, and clearance levels. If we or our employees fail to obtain or maintain the necessary clearances, we may be unable to secure new contracts, and current customers could end their contracts or choose not to renew them. Additionally, our international sales, as well as our ability to attract and retain highly skilled personnel and access or procure technology, software and hardware, depend largely on export authorizations and other approvals from the governments of Israel, the U.S. and other countries, the receipt, maintenance and renewal of which may be delayed or disrupted by government actions or inaction, including regulatory or policy changes or U.S. government shutdowns. Our suppliers are also subject to applicable authorizations and approvals. See Item 4. Information on the Company – Governmental Regulation. From time to time, we are unable to obtain such approvals and approvals granted to us may expire or be revoked or new approval requirements may be implemented by governmental authorities. Since the outbreak of the “Swords of Iron” war, we have experienced increased delays and stringency in the provision of approvals by certain foreign governments to export certain materials and components to Israel, which in some cases has led to delays in receiving these items, causing supply chain disruptions. In addition, in some cases there are inadvertent failures to comply with existing governmental approvals. If we, our customers or our suppliers fail to obtain or comply with governmental approvals, or if certain approvals previously obtained are revoked or expire and are not renewed for any reason, including due to changes in political conditions, increasing stringency of international export control requirements to Israel or to countries we operate in (such as the controls on the export of U.S. developed computer chips that power AI technologies), or imposition of sanctions, our ability to sell our products and services to overseas customers and our ability to obtain, develop or manufacture goods and services essential to our business could be interrupted, resulting in a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
In addition, in the context of mergers and acquisitions, most countries require government approval for acquisitions of domestic defense and homeland security-related businesses, which may be denied, or subject to unfavorable conditions or to conditions that could prevent us from certain business opportunities or increase our ongoing expenses. Such regulations are stringent in a number of countries, including the U.S. We also may 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.
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Our operations may expose us to liabilities under various environmental protection, health and safety laws and regulations. Our operations are subject to environmental protection, health and safety requirements, some of which are also applicable to our suppliers. Changes in laws and regulations around the world may limit or otherwise affect the use of our products or impact our manufacturing processes and necessitate that we dedicate additional resources to comply with environmental protection, health, safety or other requirements. These include, among other things, regulations regarding the storage and handling of hazardous materials, including munitions, used in our operations, as well as standards related to greenhouse gas emissions. See Item 4 – Information on the Company – Governmental Regulation – Environmental, Health and Safety Regulations and “Risks Related to Our Operations – Our business could be adversely affected by climate change, Environmental, Social and Governance (ESG) regulatory requirements and market responses thereto” above.
Some of our operations involve inherent risks of physical injury, such as manufacturing and testing of our systems and platforms, as well as handling of hazardous materials, including munitions and explosives. Despite implementing safety measures, we sometimes experience accidents, resulting in physical injuries and damage to equipment, facilities and the environment. In order to meet increased demand for our products by Israel and by governments around the world since the beginning of the “Swords of Iron” war, we have enhanced the production rate at some of our facilities, including by adding additional shifts. Increased volume of operation enhances the risk that accidents will occur. We are also sometimes subject to certain procedures and orders under environmental, health and safety laws and regulations which require us, or we otherwise choose, to implement remediation measures to comply with such requirements. Furthermore, some of our business licenses and permits are for fixed periods and must be renewed from time to time. Renewal of such licenses and permits is not certain and is sometimes made contingent on additional conditions that impose additional costs on us. In case of violation or liability under environmental, health and safety laws and regulations applicable to us, including with respect to any contamination or our storage, manufacture, testing or handling of munitions and explosives, as a result of our inability to obtain licenses or permits, or due to 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. These factors could cause disruptions in our operations and have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
Our business depends on proprietary technology that may be infringed or disclosed; our products may infringe third party rights. 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 IP, some of which is not formally protected. Our formally protected IP includes patents, trade secrets, copyrights and trademarks. We also utilize non-disclosure agreements, confidentiality provisions in sales, procurement, employment and other agreements and technical measures to establish and protect proprietary rights in our products. We sometimes use open source software in the development of our systems and products and expect to continue to do so. Our ability to successfully protect our IP may be limited because:
•IP laws in certain jurisdictions may be relatively ineffective;
•detecting infringements and enforcing proprietary rights may be difficult due to unavailability of details of competitors' technology and may divert management’s attention and company resources;
•contractual measures such as non-disclosure agreements and confidentiality provisions may afford only limited protection;
•our employees may input our confidential information, including material non-public information, trade secrets or personal identifiable information, into AI applications, resulting in such information becoming accessible by third parties, including our competitors, or in a loss of trade secret status of such information;
•our ownership rights over inventions or works of authorship developed using AI technology may be limited, for example if those are based or rely on, or contain, materials that were used in the training of such AI technologies which are subject to third-party IP or given the position of courts and IP offices in the U.S. and in some other jurisdictions that require sufficient human involvement in such developments;
•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 IP rights; and
•IP not formally protected may be misappropriated or leaked to our competitors.
Certain open source licenses may impose conditions that could require us to disclose source code, to license software under specific terms, to distribute software at no cost, or otherwise limit our ability to commercialize our products. In addition, software developed using AI tools may be subject to similar open source requirements if such tools are trained on open source data sets. We may also face claims alleging improper use of, or non‑compliance with, open source licenses, and open source software may contain undetected defects, vulnerabilities or malware.
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Under our development contracts with the IMOD, the U.S. government and certain other foreign governments, such governments usually retain specific rights to IP resulting from our performance under these contracts, which generally include the rights to disclose the information to third parties, including other defense contractors that may be our competitors (See also Item 4. Information on the Company – Intellectual Property – Governmental Customers’ Rights in Data). In addition, sometimes third parties register patents in technologies relevant to our business areas and 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 against such claims, we may be prevented from using or selling certain products of ours, be liable for damages and required to make adjustments to our software, technology or products, or to obtain licenses, which may not be available on reasonable terms, any of which may have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
We are subject to laws and contractual obligations regarding data protection. Certain information we receive and maintain regarding our employees and third parties is subject to various laws regarding privacy and data protection. Many of these laws are rapidly evolving and increasingly rigorous (See below – Item 4. Information on the Company – Governmental Regulation – Cybersecurity and Data Privacy Regulations). In addition, we are frequently subject to contractual obligations requiring us to protect the 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, and any inadvertent disclosure of such data, including through our use of AI, could subject us to enforcement actions and other litigation by customers and governmental authorities, fines, damages and negative publicity, or may give rise to specific obligations, including required notices, consents and opt-outs, under various data privacy, protection and cybersecurity laws and regulations in a number of jurisdictions. See our description of a September 2025 cybersecurity incident under “Risks Related to Our Operations – A cyber or security attack or other similar incident resulting in a breach, disruption or failure in our or our supply chain's digital environment, or of our products, could adversely affect us” above. These could, in turn, have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow. See also “Risks Related to Our Markets and Industry – We are subject to risks associated with artificial intelligence (AI) technologies” above.
Other Risks Related to Our Ordinary Shares
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 or other major events 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 but are not limited to 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, homeland security and commercial aviation industries; (iv) general market, economic (including changes in Israel's credit rating) or health (including pandemics) conditions unrelated to our performance; (v) the legislative or regulatory environment; (vi) government defense spending or appropriations; (vii) military or defense activities and conflicts locally and worldwide; (viii) the level of national or international hostilities; and (ix) the general geopolitical environment (including the perceived value of investing in an Israeli defense company). A significant increase in our share price can also increase our payment obligations under our stock price-linked employee compensation plans.
We have a major shareholder with significant influence over certain matters requiring shareholder approval. As of March 5, 2026, Federmann Enterprises Ltd. (FEL) directly and indirectly owns approximately 41.5% of our ordinary shares. Therefore, subject to special majority requirements for certain shareholder approvals under the Israeli Companies Law - 1999, as amended (the Companies Law) and our articles of association, FEL may have significant influence over the outcome of matters requiring shareholder approval, including the election of directors. Michael Federmann, who serves as a member of our board of directors, is (through entities under his control) the controlling shareholder of 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 our ordinary shares owned by FEL. See Item 6. Directors, Senior Management and Employees – Board Practices – Appointment of Directors; External Directors and Independent Directors – External Directors, Item 7. Major Shareholders and Related Party Transactions – Major Shareholders, Item 10. Additional Information – Approval of Certain Transactions and the Description of Securities filed as Exhibit 2.1 to this annual report (the Description of Securities), under Provisions Relating to Major Shareholders.
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Risks Related to Our Israeli Operations and Environment
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 some of its Arab neighbors. Although the Abraham Accords have enhanced Israel's relations with certain countries in the Middle East, an ongoing state of hostility, varying in degree and intensity, remains between Israel and several of the other countries in the region, which has caused and may continue to cause security and economic challenges for Israel, and for Israeli businesses and employees. Regime and significant political changes in the Middle East as seen in the ongoing conflict in Syria and the prolonged political and economic crises in Lebanon could also have an effect on such state of hostility. Political, economic and military conditions in Israel and the Middle East, as well as resulting decisions and actions of international judicial bodies, could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
On October 7, 2023, Hamas terrorists infiltrated Israel's southern border from the Gaza Strip and conducted a series of brutal attacks on civilian and military targets. Hamas and soon thereafter Hezbollah, operating from Lebanon, launched extensive rocket attacks on the Israeli population and industrial centers, including areas in which some of the Company's facilities and employees were located. Following the October 7 attacks, the State of Israel declared a state of war, which was initially named “Swords of Iron”, commencing a military campaign in Gaza and, at a later stage, in Lebanon. Israel was also subject to missile and drone attacks by Iran and other terrorist organizations on different fronts, including the Houthi movement in Yemen and rebel militia groups in Syria. These attacks prompted military responses by Israel. In addition, the Houthi movement launched attacks on shipping in the Red Sea, resulting in widespread rerouting of cargo ships and some shipping companies ceasing shipments to Israel. On June 13, 2025, the conflict between Israel and Iran escalated into high intensity mutual attacks that lasted until a ceasefire was declared nearly two weeks later. Ceasefires with Lebanon and Hamas were reached in November 2024 and January 2025, respectively, and a subsequent ceasefire with Hamas was agreed to in October 2025. On February 28, 2026, Israel and the U.S. launched a joint attack on Iran named “Operation Roaring Lion” by Israel and “Operation Epic Fury” by the U.S., targeting key Iranian officials and targets. Iran launched attacks against Israel and at U.S. military bases across the region, including strikes in Bahrain, Qatar, Saudi Arabia, Kuwait and Jordan. On March 2, 2026 Hezbollah launched an attack on Israel. Future developments with respect to these and other hostilities in the Middle East are difficult to predict at this time. See Item 4. Information on the Company – Conditions in Israel – Impact of recent conflicts in the Middle East on the Company.
The recent conflicts in the Middle East have resulted in significant economic, military and social consequences to Israel. Any major hostilities involving Israel, regional political instability or the interruption or curtailment of trade between Israel and its trading partners could materially and adversely affect our business, financial condition and results of operations. While Elbit Systems has experienced a continued material increase in orders from the IMOD since October 7, 2023, at the same time these conflicts have caused supply chain and operational constraints, including amongst others, due to the temporary evacuation of employees working at facilities subject to missile attack, relocation on a temporary basis of certain production lines in evacuated areas to alternative facilities, significant employee call up for reserve duty (also see below – “Many of our employees and some of our officers are obligated to perform military reserve duty in Israel”), increase in transportation costs and delays related to the Houthi movement attacks on shipping in the Red Sea, material and component shortages (see also above – “We may experience production and other delays, discontinuation of supply or liability due to supply chain disruptions and failures of our suppliers to comply with our requirements or with applicable laws”), limitations imposed by some countries on exports to and imports from Israel and attacks on some of our global facilities by anti-Israel organizations (also see above – “We face risks in our international operations”).
If the ceasefire currently in effect with Hamas cannot be sustained or the conflict with Iran and Hezbollah is prolonged or escalates further, for example by expanding to additional fronts, or if new conflicts arise, the negative effects on our business may increase, including without limitation an adverse effect on our ability to meet our obligations to our customers, renewed dislocation of our employees and production lines and physical damage to our facilities. The full extent of the effects of ongoing or new conflicts on the Company's performance will depend on future developments that are difficult to predict at this time, and the risks related to the conflicts could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow. See also Item 4. Information on the Company – Conditions in Israel – Impact of recent conflicts in the Middle East on the Company.
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Many of our employees and some of our officers are obligated to perform military reserve duty in Israel. Generally, Israeli citizens and permanent residents are obligated to perform ongoing military reserve duty up to a specified age. Reserve soldiers may also be called to active military duty at any time under emergency circumstances, for extended periods. During the “Swords of Iron” war, a considerable number of our employees were called for reserves duty. As of December 31,
2025, approximately 6% of our work force in Israel had been called up, and as of March 5, 2026, the percentage was increased to approximately 8%, following the launch of “Operation Roaring Lion”. The percentage could fluctuate depending on future developments. In accordance with current Israeli law, employees on reserve duty continue to be fully paid by the Company, while the National Insurance Institute refunds the Company for their salaries, up to a certain statutory ceiling (which is sometimes lower than the salaries we pay to such employees) and, in some cases, partially indemnifies the Company for additional employment costs. As a result, the Company has incurred, and will likely continue to incur, costs in respect of its employees who are called to reserve duty for which it is not fully indemnified by the government. For further details see below Item 4. Information on the Company – Conditions in Israel – National Insurance Institute. Although the Company recruits additional employees when needed to limit the effect of reserve call-ups on its business operations, the absence of our employees, as well as those employees of certain of our suppliers, for extended periods has in the past and may in the future cause delays in our programs and operations. Such delays, if prolonged, as well as the direct costs incurred by the Company as a result of such call-ups, could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
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, other firms doing business with Israel and Israeli-owned companies operating in other countries. These actions have increased since October 7, 2023. In addition, certain foreign government defense export policies have become more stringent towards Israel during this time, making it more difficult for us in some cases to obtain the export authorizations necessary for our activities. See above “Risks Related to Our Markets and Industry”. In some cases Israeli firms such as the Company are prevented from participating in international trade shows. Restrictive laws, policies or practices directed towards Israel or Israeli businesses or a decision to reduce trade with Israeli businesses could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
Reduction in Israeli government spending or changes in priorities for defense products may adversely affect our earnings. While Elbit Systems has experienced a material increase in orders from the IMOD since the start of the “Swords of Iron” war, the Israeli government may reduce its expenditures for defense items or change its defense or other 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 “Risks Related to Our Markets and Industry”. Any of the foregoing circumstances could have a material adverse effect on our business, reputation, financial condition, results of operation and cash flow.
We may be adversely affected as a result of extended periods without a stable Israeli government and delays in adopting a defense budget. Israel has experienced a period of significant political instability in recent years, characterized by five general elections held between 2019 and 2022. This has led to frequent changes in the composition of the government and delays in adopting budgets. Delays in adopting budgets have continued in the following years. Periods without an approved budget have negatively impacted the ability of the IMOD to adopt a new budget, enter into new programs (and specifically multi-year programs) and make timely payments to its suppliers. Should such extended periods of instability or delays in adopting budgets reoccur, it could negatively affect our operations in Israel and have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
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We may be affected by changes in Israel’s economy. From time to time Israel’s economy may experience inflation or deflation, the effect of fluctuations in world commodity prices, the impact of military conflicts, civil and political unrest, budgetary constraints and other macro-economic changes. It is widely believed that the “Swords of Iron” war and related conflicts have had and may continue to have adverse effects on the Israeli economy. For example, in October 2024, S&P Global downgraded Israel's long-term credit rating from A+ to A with a negative outlook, reflecting heightened security risk (in November 2025 S&P Global upgraded this rating to A with a stable outlook, reflecting lower-immediate security risk). Reductions by international rating agencies such as S&P Global, Moody's and Fitch Ratings could disrupt the business environment and make investors hesitant to invest or transact business in Israel, as well as make it more difficult and expensive for us to raise capital and negatively influence the market price of our ordinary shares. See above “Other Risks Related to Our Ordinary Shares”. Israel's economy may also be affected by developments in fiscal policies of other international economies, such as those in the U.S. and Europe. For these and other reasons, in the past the government of Israel has intervened in the economy, for example by employing various fiscal and monetary policies and import duties, imposing foreign currency restrictions and controls of wages, prices and foreign currency exchange rates and adopting 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 and other areas. In the beginning of 2023, the Israeli government began a process to implement significant changes in the Israeli judicial system. Various financial, legal and commercial organizations and entities claimed that such changes would weaken the Israeli judicial system and, as a result, could negatively impact Israel’s economic and financial conditions. At this stage we cannot assess the likelihood that these or other significant changes will be proposed in the future, the likelihood of their adoption or any potential impact on the Israeli economy or our business. Changes in the Israeli economy, as well as various policies implemented by the Israeli government, could make it more difficult for us to operate our business and could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
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 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 Israeli government 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 may delay, prevent or impact acquisition of our controlling interest and apply additional restrictions. The Israeli Defense Entities Law (Protection of Defense Interests), 5766 – 2006 (the Israeli Defense Entities Law) requires Israeli government approval of an acquisition of “means of control” in Israeli “defense entities” so designated pursuant to this law, including with respect to Elbit Systems and companies we currently own or may seek to acquire in the future, in the event that relevant orders making such designation are issued by the Israeli government. Such a designation may also contain additional conditions relating to the purchase or transfer of “means of control”. As of the date of this annual report, such designation orders have not been issued in relation to Elbit Systems. However, in 2021 the IMOD initiated a process under which it intends for the Israeli government to designate Elbit Systems and most of our Israeli subsidiaries as “defense entities”. Since the process was initiated, discussions have taken place between Elbit Systems and the IMOD about the terms and conditions of the orders. Additional discussions took place in 2025 and 2026. Our understanding is that the discussions have reached final stages, and we were informed that the IMOD is about to initiate the formal process for approvals required under the Israeli Defense Entities Law. The Company is not in a position to evaluate if or when such orders will be approved by the relevant government authorities and ministers (including the signatures of ministers) and become effective.
Our designation as a “defense entity” would likely limit the ability of a potential purchaser to acquire a significant interest in our shares without the approval of the Israeli government. Orders relating to “defense entities”, including the orders that are expected to be issued with respect to the Company, would likely also, among other matters: (1) impose restrictions on the ability of Israeli or non-Israeli resident citizens to hold means of control or be permitted to “substantially influence” such entities; (2) require that senior officers have appropriate Israeli security clearances; (3) require that the entity’s headquarters be in Israel; (4) require the approval of the IMOD to enter into certain joint ventures and mergers or to transfer certain technology or means of manufacturing; and (5) require such entities to maintain essential production lines and development capacities in Israel. See also Item 4. Information on the Company – Governmental Regulation – Regulation of Israeli Defense Entities.
In addition, under the Equipment Registration and Recruitment Law for the Israel Defense Forces, 5747 –1987, certain orders may be issued by authorized government officials, under specific conditions, among others, to seize certain equipment of private companies or to prevent its movement outside of Israel, for use by the Israel Defense Forces (IDF). Furthermore, the 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. The provisions of each of these laws and related government designations could delay, prevent or impede an acquisition of a significant portion of our shares, as well as other business transactions and operational activities, even if they are considered beneficial by the Company or by our shareholders, which could have a material adverse effect on our business, reputation, financial condition, results of operations and cash flow.
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We may rely on certain Israel “home country” corporate governance practices which may not afford shareholders 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 has followed, home country corporate governance practices instead of certain practices otherwise required under the Listing Rules of the Nasdaq Stock Market LLC (Nasdaq Listing Rules) for domestic U.S. issuers. As described in Item 16G. Corporate Governance, we have previously informed Nasdaq that we elected to follow certain procedures permitted under the Companies Law instead of the Nasdaq Listing Rules, which require a listed company to obtain shareholder approval for the establishment or material amendment of an equity-based compensation plan. Under this “home country practice” exception provided in the Nasdaq Listing 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 U.S. public companies listed on Nasdaq, may afford less protection than is afforded to investors under the Nasdaq Listing Rules applicable to domestic U.S. issuers. See Item 16G. Corporate Governance.
Being a foreign private issuer exempts us from certain SEC requirements. As a foreign private issuer within the meaning of rules promulgated under 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 significant shareholders to disclose stock ownership and trading activities and imposing liability on directors, officers and significant shareholders for profits realized from “short-swing” trading transactions. Because of the foregoing, our shareholders may receive less information about our Company and may be afforded less protection under U.S. federal securities laws than shareholders of a domestic U.S. company. Furthermore, on June 4, 2025, the SEC published a Concept Release highlighting potential amendments to the foreign private issuer definition, such as updating eligibility requirements or adding trading volume and listing criteria. If we lose our status as a foreign private issuer due to new requirements adopted by the SEC or because we no longer meet the current definition, we would be required to file periodic reports and registration statements on more detailed U.S. domestic forms, comply with SEC requirements and Nasdaq corporate governance rules from which we are currently exempt and incur significant additional legal, accounting and administrative expenses.
Rights and responsibilities of shareholders are governed by Israeli law, which differs in some material respects from the rights and responsibilities of shareholders of U.S. corporations. Since we are incorporated under Israeli law, the rights and responsibilities of our shareholders are governed by our Articles of Association and Israeli law. As a result, these rights and responsibilities differ in some respects from those of shareholders in U.S. corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in exercising its rights and performing its obligations towards the company and other shareholders and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of shareholders on certain matters that require shareholder approval. A shareholder also has a general duty not to discriminate against other shareholders. In addition, a controlling shareholder or a shareholder who knows that it possesses the power to determine the outcome of a shareholders’ vote or to appoint or prevent the appointment of an office holder in the company, or has another power with respect to the company, has a duty of fairness towards the company. These provisions may be interpreted to impose additional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.
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 external auditors are not residents of the U.S., and a substantial portion of our assets and the assets of these persons are located outside the U.S. Therefore, it may be difficult for an investor, or any other person or entity, to enforce in an Israeli court a U.S. court judgment against us, our executive officers, directors or external auditors 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 U.S. 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 Item 4. Information on the Company – Conditions in Israel – Enforcement of Judgments.
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