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| Large accelerated filer   x | Accelerated filer   o | Non-accelerated filer   o |
|--------------------------------------------|--------------------------------------|------------------------------------------|

| U.S. GAAP  x |   | International Financial Reporting  oStandards as issued by the InternationalAccounting Standards Board | Other  o |
|------------------------|--------|------------------------------------------------------------------------------------------------------------------|--------------------|

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|                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | Page   |
|-----------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |
| General Disclosure Standards                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 2      |
|                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |
| Cautionary Statement with Respect to Forward-Looking Statements |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 2      |
|                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   |
| Item 1.                                                         | Identity of Directors, Senior Management and Advisers                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | 3      |
| Item 2.                                                         | Offer Statistics and Expected Timetable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | 3      |
| Item 3.                                                         | Key Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | 3      |
| Item 4.                                                         | Information on the Company                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | 12     |
| Item 4A.                                                        | Unresolved Staff Comments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | 39     |
| Item 5.                                                         | Operating and Financial Review and Prospects                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | 40     |
| Item 6.                                                         | Directors, Senior Management and Employees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | 60     |
| Item 7.                                                         | Major Shareholders and Related Party Transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   | 72     |
| Item 8.                                                         | Financial Information.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | 74     |
| Item 9.                                                         | The Offer and Listing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | 76     |
| Item 10.                                                        | Additional Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | 77     |
| Item 11.                                                        | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | 92     |
| Item 12.                                                        | Description of Securities Other than Equity Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | 94     |
| Item 13.                                                        | Defaults, Dividend Arrearages and Delinquencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | 94     |
| Item 14.                                                        | Material Modifications to the Rights of Security Holders and Use of Proceeds.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | 94     |
| Item 15.                                                        | Controls and Procedures                                                                                                                                                           |   | 95     |
| Item 16A.                                                       | Audit Committee Financial Expert                                                                                                                                                       |   | 95     |
| Item 16B.                                                       | Code of Ethics                                                                                                                                                                                                                 |   | 95     |
| Item 16C.                                                       | Principal Accountant Fees and Services                                                                                                                                                                                                                                      |   | 96     |
| Item 16D.                                                       | Exemptions from the Listing Standards for Audit Committees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | 96     |
| Item 16E.                                                       | Purchases of Equity Securities by the Issuer and Affiliated Purchasers                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | 96     |
| Item 16F.                                                       | Changes in Registrant’s Certifying Accountant                                                                                                      |   | 96     |
| Item 16G.                                                       | Corporate Governance                                                                                                                                     |   | 96     |
| Item 17.                                                        | Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | 96     |
| Item 18.                                                        | Financial Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | 96     |
| Item 19.                                                        | Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | 97     |

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ndar

|   | • | the scope and length of customer contracts; |
|--------|---------|---------------------------------------------|

|   | • | governmental regulations and approvals; |
|--------|---------|-----------------------------------------|

|   | • | changes in governmental budgeting priorities; |
|--------|---------|-----------------------------------------------|

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

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

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

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

|   | • | the outcome of legal and/or regulatory proceedings. |
|--------|---------|-----------------------------------------------------|

----

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

| Item 2. | Offer Statistics and Expected Timetable. |
|---------|------------------------------------------|

| Item 3. | Key Information. |
|---------|------------------|

|                                                                                 | Years Ended December 31,                                          |    |
|--------------------------------------------------------------------------------------|-------------------------------------------------------------------|---------|
|                                                                                 | 2007                                                              |    |   | 2008 |   |   | 2009 |   |   | 2010 |   |   |   | 2011 |   |
|                                                                                 | (U.S. dollars in millions except for share and per share amounts) |    |
|                                                                                 |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income Statement Data:                                                               |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues                                                                             | $                                                                 | 1,981.8 |   |   | $ | 2,638.3 |   |   | $ | 2,832.4 |   |   | $ | 2,670.1 |   |   | $ |   2,817.5 |   |
| Cost of revenues                                                                     |                                                              | 1,454.9 |   |   |   | 1,870.9 |   |   |   | 1,982.9 |   |   |   | 1,872.2 |   |   |   | 2,085.5 |   |
| Restructuring expenses                                                               |                                                              | 10.5    |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Gross profit                                                                         |                                                              | 516.4   |   |   |   | 767.4 |   |   |   | 849.5 |   |   |   | 797.9 |   |   |   | 732.0 |   |
| Research and development expenses, net                                               |                                                              | 127.0   |   |   |   | 185.0 |   |   |   | 216.8 |   |   |   | 234.1 |   |   |   | 241.1 |   |
| Marketing and selling expenses                                                       |                                                              | 157.4   |   |   |   | 198.2 |   |   |   | 250.9 |   |   |   | 230.0 |   |   |   | 235.9 |   |
| General and administrative expenses                                                  |                                                              | 107.4   |   |   |   | 134.2 |   |   |   | 119.3 |   |   |   | 131.2 |   |   |   | 139.3 |   |
| Acquired in-process research and development (IPR&D) and other expenses (income) |                                                              | 16.6    |   |   |   | 1.0 |   |   |   | – |   |   |   | (4.7 | ) |   |   | – |   |
| Total operating expenses                                                             |                                                              | 408.4   |   |   |   | 518.4 |   |   |   | 587.0 |   |   |   | 590.6 |   |   |   | 616.3 |   |
| Operating income                                                                     |                                                              | 108.0   |   |   |   | 249.0 |   |   |   | 262.5 |   |   |   | 207.3 |   |   |   | 115.7 |   |
| Finance expense, net                                                                 |                                                              | 19.4    |   |   |   | 36.8 |   |   |   | 15.6 |   |   |   | 21.3 |   |   |   | 13.6 |   |
| Other income/(expense), net                                                          |                                                              | 0.4     |   |   |   | 94.3 |   |   |   | 0.4 |   |   |   | 13.3 |   |   |   | 1.9 |   |
| Income before taxes on income                                                        |                                                              | 89.0    |   |   |   | 306.5 |   |   |   | 247.3 |   |   |   | 199.3 |   |   |   | 104.0 |   |
| Taxes on income                                                                      |                                                              | 13.8    |   |   |   | 54.3 |   |   |   | 38.1 |   |   |   | 24.0 |   |   |   | 13.6 |   |
| Equity in net losses/earnings of affiliated companies                                |                                                              | 14.5    |   |   |   | 14.4 |   |   |   | 19.3 |   |   |   | 18.8 |   |   |   | 15.4 |   |
| Net income from continuing operations, net                                           |                                                              | 89.7    |   |   |   | 266.6 |   |   |   | 228.5 |   |   |   | 194.1 |   |   |   | 105.8 |   |
| Income (loss) from discontinued operations, net                                 |                                                              | – |   |   |   | – |   |   |   | – |   |   |   | 0.9 |   |   |   | (16.0) |   |
| Net income                                                                           |                                                              | 89.7    |   |   |   | 266.6 |   |   |   | 228.5 |   |   |   | 195.0 |   |   |   | 89.8 |   |
| Less: net income (loss) attributed to non-controlling interests                      |                                                              | 13.0    |   |   |   | 62.4 |   |   |   | 13.6 |   |   |   | 11.1 |   |   |   | (0.5) |   |
| Income attributed to Elbit Systems’ shareholders                               |                                                              | 76.7    |   |   |   | 204.2 | * |   |   | 214.9 |   |   |   | 183.5 |   |   |   | 90.3 |   |
| Earnings per share:                                                                  |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic net earnings (loss) per share                                                  |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Continuing operations                                              | $                                                                 | 1.82    |   |   |   | 4.85 | * |   |   | 5.08 |   |   |   | 4.29 |   |   |   | 2.33 |   |
|    Discontinued operations                                            |                                                              | --      |   |   |   | -- |   |   |   | -- |   |   |   | 0.01 |   |   |   | (0.22) |   |
| Total                                                                                | $                                                                 | 1.82    |   |   |   | 4.85 | * |   |   | 5.08 |   |   |   | 4.30 |   |   |   | 2.11 |   |
| Diluted net earnings (loss) per share                                                |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Continuing operations                                              |                                                              | 1.81    |   |   |   | 4.78 | * |   |   | 5.00 |   |   |   | 4.24 |   |   |   | 2.31 |   |
|    Discontinued operations                                            |                                                              | --      |   |   |   | -- |   |   |   | -- |   |   |   | 0.01 |   |   |   | (0.22) |   |
| Total                                                                                | $                                                                 | 1.81    |   |   |   | 4.78 | * |   |   | 5.00 |   |   |   | 4.25 |   |   |   | 2.09 |   |

----

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|                                                                    |   | December 31,                                                      |    |
|-------------------------------------------------------------------------|--------|-------------------------------------------------------------------|---------|
|                                                                    |   | 2007                                                              |    |   | 2008 |   |   | 2009 |   |   | 2010 |   |   | 2011 |   |
|                                                                    |   | (U.S. dollars in millions except for share and per share amounts) |    |
|                                                                    |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance Sheet Data:                                                     |   |                                                              |    |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash, cash equivalents and short-term investments                       |   | $                                                                 | 376     |   |   | $ | 278 |   |   | $ | 280 |   |   | $ | 215 |   |   | $ | 224 |   |
| Working capital                                                         |   |                                                              | 177     |   |   |   | 290 |   |   |   | 392 |   |   |   | 382 |   |   |   | 236 |   |
| Long-term deposits and marketable securities                            |   |                                                              | 42      |   |   |   | 41 |   |   |   | 44 |   |   |   | 52 |   |   |   | 12 |   |
| Long-term trade receivables                                             |   |                                                              | – |   |   |   | – |   |   |   | 17 |   |   |   | 90 |   |   |   | 163 |   |
| Property, plant and equipment, net                                      |   |                                                              | 353     |   |   |   | 384 |   |   |   | 405 |   |   |   | 504 |   |   |   | 518 |   |
| Total assets                                                            |   |                                                              | 2,789   |   |   |   | 2,940 |   |   |   | 3,054 |   |   |   | 3,616 |   |   |   | 3,721 |   |
| Long-term debt                                                          |   |                                                              | 431     |   |   |   | 270 |   |   |   | 389 |   |   |   | 292 |   |   |   | 302 |   |
| Series A Notes, net of current maturities                               |   |                                                              | – |   |   |   | – |   |   |   | – |   |   |   | 273 |   |   |   | 235 |   |
| Capital stock                                                           |   |                                                              | 307     |   |   |   | 300 |   |   |   | 284 |   |   |   | 294 |   |   |   | 245 |   |
| Elbit Systems shareholders’ equity                                |   |                                                              | 536     |   |   |   | 724 |   |   |   | 833 |   |   |   | 967 |   |   |   | 898 |   |
| Non-controlling interests                                               |   |                                                              | 20      |   |   |   | 76 |   |   |   | 24 |   |   |   | 39 |   |   |   | 29 |   |
| Total equity                                                            |   |                                                              | 556     |   |   |   | 800 |   |   |   | 857 |   |   |   | 1,005 |   |   |   | 928 |   |
| Number of outstanding ordinary shares of NIS 1 par value (in thousands) |   |                                                              | 42,060  |   |   |   | 42,079 |   |   |   | 42,531 |   |   |   | 42,693 |   |   |   | 42,608 |   |
| Dividends paid per ordinary share with respect to the applicable year   |   | $                                                                 | 0.67    |   |   | $ | 1.42 |   |   | $ | 1.82 |   |   | $ | 1.44 |   |   | $ | 1.44 |   |

----

|   | • | unexpected changes in regulatory requirements; |
|--------|---------|------------------------------------------------|

|   | • | termination or non-renewal of export licenses; |
|--------|---------|------------------------------------------------|

|   | • | changes in governmental defense budgets and national priorities; |
|--------|---------|------------------------------------------------------------------|

|   | • | imposition of tariffs and other barriers and restrictions; |
|--------|---------|------------------------------------------------------------|

|   | • | burdens of complying with a variety of foreign laws; |
|--------|---------|------------------------------------------------------|

|   |  • | political and economic instability; and |
|--------|---------------|-----------------------------------------|

|   | • | changes in diplomatic and trade relationships. |
|--------|---------|------------------------------------------------|

----

----

|   | • | identify emerging technological trends in our current and future markets; |
|--------|---------|---------------------------------------------------------------------------|

|   | • | identify additional uses for our existing technology to address customer needs in our current or future markets; |
|--------|---------|------------------------------------------------------------------------------------------------------------------|

|   | • | develop and maintain competitive products and services for our current and future markets; |
|--------|---------|--------------------------------------------------------------------------------------------|

|   | • | enhance our offerings by adding innovative features that differentiate our offerings from those of our competitors; |
|--------|---------|---------------------------------------------------------------------------------------------------------------------|

|   | • | develop, manufacture and bring solutions to the market quickly at cost-effective prices; |
|--------|---------|------------------------------------------------------------------------------------------|

|   | • | develop working prototypes as a condition to receiving contract awards; or |
|--------|---------|----------------------------------------------------------------------------|

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

----

|   | • | some foreign countries may not protect proprietary rights as comprehensively as the laws of the United States and Israel; |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------|

|   | • | detecting infringements and enforcing proprietary rights may be time consuming and costly, diverting management’s attention and company resources; |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | measures such as non-disclosure agreements afford only limited protection; |
|--------|---------|----------------------------------------------------------------------------|

|   | • | unauthorized parties may copy aspects of our products or technologies to develop similar products or technologies or obtain and use information that we regard as proprietary; |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

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

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

----

|   | • | the difficulty in integrating newly-acquired businesses and operations in an efficient and cost-effective manner and the risk that we encounter significant unanticipated costs or other problems associated with integration; |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | failure to meet the challenges of achieving strategic objectives, cost savings and other benefits expected from acquisitions could lead to impairment of intangible assets related to the acquired companies; |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | the risk that our markets do not evolve as anticipated and that the technologies acquired do not prove to be those needed to be successful in those markets; |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | the risk that we assume significant liabilities that exceed the enforceability or other limitations of applicable indemnification provisions, if any, or the financial resources of any indemnifying parties, including indemnity for regulatory compliance issues that may result in our incurring successor liability; |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | the potential loss of key employees of the acquired businesses; |
|--------|---------|-----------------------------------------------------------------|

|   | • | the risk of diverting the attention of senior management from our existing operations; and |
|--------|---------|--------------------------------------------------------------------------------------------|

|   | • | the risk that certain of our newly acquired operating subsidiaries in various countries could be subject to more restrictive regulations by the local authorities after our acquisition. |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

| Item 4. | Information on the Company. |
|---------|-----------------------------|

----

|   | • | military aircraft and helicopter systems; |
|--------|---------|-------------------------------------------|

|   | • | helmet mounted systems; |
|--------|---------|-------------------------|

|   | • | commercial aviation systems and aerostructures; |
|--------|---------|-------------------------------------------------|

|   | • | unmanned aircraft systems; |
|--------|---------|----------------------------|

|   | • | land vehicle systems; |
|--------|---------|-----------------------|

|   | • | command, control, communications, computer and intelligence (C4I) systems; |
|--------|---------|----------------------------------------------------------------------------|

|   | • | electro-optic and countermeasures systems; |
|--------|---------|--------------------------------------------|

|   | • | homeland security systems; |
|--------|---------|----------------------------|

|   | • | EW and signal intelligence systems; and |
|--------|---------|-----------------------------------------|

|   | • | various commercial activities. |
|--------|---------|--------------------------------|

----

|                                                            |   | 2009                       |                    |   | 2010   |   |                    | 2011   |   |
|-----------------------------------------------------------------|--------|----------------------------|-------------------------|--------|--------|--------|-------------------------|--------|--------|
|                                                            |   | (U.S. dollars in millions) |                    |
|                                                            |   |                       |                    |   |   |   |                    |   |   |
| Airborne systems:                                               |   | $                          | 693      |   |   | $      | 791      |   |   | $ | 970    |   |
| Land systems:                                                   |   |                       | 450      |   |   |   | 363      |   |   |   | 405    |   |
| C4ISR systems:                                                  |   |                       | 1,169    |   |   |   | 1,019    |   |   |   | 996    |   |
| Electro-optic systems:                                          |   |                       | 406      |   |   |   | 369      |   |   |   | 300    |   |
| Other (mainly non-defense engineering and production services): |   |                       | 114      |   |   |   | 128      |   |   |   | 146    |   |
| Total:                                                          |   | $                          | 2,832    |   |   | $      | 2,670    |   |   | $ | 2,817    |   |

|                                                                                                                                                                                                                                                                                                                                              |   | 2009   |   |   | 2010   |   |   | 2011   |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Israel                                                              |   |   | 22%    |   |   |   | 24%    |   |   |   | 25% |   |
| United States                                                       |   |   | 29%    |   |   |   | 32%    |   |   |   | 32% |   |
| Europe                                                              |   |   | 26%    |   |   |   | 20%    |   |   |   | 19% |   |
| Others                                                              |   |   | 23%    |   |   |   | 24%    |   |   |   | 24% |   |

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|                                                                                                                                                                                 |   | Israel (1)            |   | U.S. (2)            |   | Other Countries (3)   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|--------|---------------------|--------|-----------------------|
|                                                                                                                                                                                 |   |                  |   |                |   |                  |
| Owned                               |   | 2,193,000 square feet |   | 713,000 square feet |   | 1,063,000 square feet |
| Leased                              |   | 2,024,000 square feet |   | 618,000 square feet |   | 300,000 square feet   |

| (1) | Includes offices, development and engineering facilities, manufacturing facilities, maintenance facilities, hangar facilities and a landing strip in various locations in Israel used by Elbit Systems and our various majority-owned Israeli subsidiaries. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Includes offices, development and engineering facilities, manufacturing facilities and maintenance facilities of Elbit Systems of America primarily in Texas, New Hampshire, Florida, Alabama and Virginia. Elbit Systems of America’s facilities in Texas, New Hampshire and Alabama are located on a total of approximately153 acres of land owned by Elbit Systems of America. This does not include properties not held by Elbit Systems of America, including approximately 6,000 square feet leased by our wholly-owned subsidiary Elmec Inc. in Massachusetts. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Includes offices, design and engineering facilities and manufacturing facilities  in Europe, Brazil, Australia and Asia. |
|-----|------------------------------------------------------------------------------------------------------------------------------------|

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|                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | 2009                       |                    |   | 2010   |   |                    | 2011   |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|-------------------------|--------|--------|--------|-------------------------|--------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | (U.S. dollars in millions) |                    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                       |                    |   |   |   |                    |   |   |
| Total Investment                                                                       |   | $                          | 245.8    |   |   | $      | 268.6    |   |   | $ | 288.7    |   |
| Less Participation*                                                                    |   |                       | 29.0     |   |   |   | 34.5     |   |   |   | 47.6    |   |
| Net Investment                                                                         |   | $                          | 216.8    |   |   | $      | 234.1    |   |   | $ | 241.1    |   |

----

| * | See above – “Government Rights in Data” and see below – “Conditions in Israel – Chief Scientist (OCS) and Investment Center Funding.” |
|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

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

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

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

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

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

| Item 4A. | Unresolved Staff Comments. |
|----------|----------------------------|

----

| Item 5. | Operating and Financial Review and Prospects. |
|---------|-----------------------------------------------|

|   | • | Revenue Recognition. |
|--------|---------|----------------------|

|   | • | Business Combinations and Purchase Price Allocation. |
|--------|---------|------------------------------------------------------|

|   | • | Impairment of Long-Lived Assets and Goodwill. |
|--------|---------|-----------------------------------------------|

|   | • | Other-Than-Temporary Decline in Value of Investments in Investee. |
|--------|---------|-------------------------------------------------------------------|

|   | • | Useful Lives of Long-Lived Assets. |
|--------|---------|------------------------------------|

|   | • | Taxes on Income. |
|--------|---------|------------------|

|   | • | Stock-Based Compensation Expense. |
|--------|---------|-----------------------------------|

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|                                                                     |   | Year ended December 31,                              |      |
|--------------------------------------------------------------------------|--------|------------------------------------------------------|-----------|
|                                                                     |   | 2011                                                 |      |   | 2010 |   |   | 2009 |   |
|                                                                     |   | $                                                    |      |   | % |   |   | $ |   |   | % |   |   | $ |   |   | % |   |
|                                                                     |   | (in thousands of U.S. dollars except per share data) |      |
| Total revenues                                                           |   | $                                                    | 2,817,465 |   |   |   | 100.0 |   |   | $ | 2,670,133 |   |   |   | 100.0 |   |   | $ | 2,832,437 |   |   |   | 100.0 |   |
| Cost of revenues                                                         |   |                                                 | 2,085,451 |   |   |   | 74.0 |   |   |   | 1,872,263 |   |   |   | 70.1 |   |   |   | 1,982,954 |   |   |   | 70.0 |   |
| Gross profit                                                             |   |                                                 | 732,014   |   |   |   | 26.0 |   |   |   | 797,870 |   |   |   | 29.9 |   |   |   | 849,483 |   |   |   | 30.0 |   |
| Research and development (R&D) expenses                              |   |                                                 | 288,668   |   |   |   | 10.2 |   |   |   | 268,578 |   |   |   | 10.0 |   |   |   | 245,812 |   |   |   | 8.7 |   |
| Less – participation                                               |   |                                                 | (47,576   | ) |   |   | (1.6 | ) |   |   | (34,447 | ) |   |   | (1.29 | ) |   |   | (29,060 | ) |   |   | (1.0 | ) |
| R&D expenses, net                                                    |   |                                                 | 241,092   |   |   |   | 8.6 |   |   |   | 234,131 |   |   |   | 8.8 |   |   |   | 216,752 |   |   |   | 7.7 |   |
| Marketing and selling expenses                                           |   |                                                 | 235,909   |   |   |   | 8.4 |   |   |   | 229,942 |   |   |   | 8.6 |   |   |   | 250,963 |   |   |   | 8.9 |   |
| General and administrative expenses                                      |   |                                                 | 139,349   |   |   |   | 4.9 |   |   |   | 131,200 |   |   |   | 4.9 |   |   |   | 119,311 |   |   |   | 4.2 |   |
| Acquired IPR&D and other expenses                                    |   |                                                 | –   |   |   |   | – |   |   |   | (4,756 | ) |   |   | (0.2 | ) |   |   | – |   |   |   | – |   |
|                                                                     |   |                                                 | 616,350   |   |   |   | 21.9 |   |   |   | 590,517 |   |   |   | 22.1 |   |   |   | 587,026 |   |   |   | 20.7 |   |
| Operating income                                                         |   |                                                 | 115,664   |   |   |   | 4.1 |   |   |   | 207,353 |   |   |   | 7.8 |   |   |   | 262,457 |   |   |   | 9.3 |   |
| Financial expenses, net                                                  |   |                                                 | (13,569   | ) |   |   | (0.5 | ) |   |   | (21,251 | ) |   |   | (0.8 | ) |   |   | (15,585 | ) |   |   | (0.6 | ) |
| Other income, net                                                        |   |                                                 | 1,909     |   |   |   | 0.1 |   |   |   | 13,259 |   |   |   | 0.5 |   |   |   | 458 |   |   |   | – |   |
| Income before taxes on income                                            |   |                                                 | 104,004   |   |   |   | 3.7 |   |   |   | 199,361 |   |   |   | 7.5 |   |   |   | 247,330 |   |   |   | 8.7 |   |
| Taxes on income                                                          |   |                                                 | 13,624    |   |   |   | 0.5 |   |   |   | 24,037 |   |   |   | 0.9 |   |   |   | 38,109 |   |   |   | 1.3 |   |
|                                                                     |   |                                                 | 90,380    |   |   |   | 3.2 |   |   |   | 175,324 |   |   |   | 6.6 |   |   |   | 209,221 |   |   |   | 7.4 |   |
| Equity in net earnings of affiliated companies and partnership           |   |                                                 | 15,377    |   |   |   | 0.6 |   |   |   | 18,796 |   |   |   | 0.7 |   |   |   | 19,292 |   |   |   | 0.7 |   |
| Income from continuing operations                                        |   | $                                                    | 105,757   |   |   |   | 3.8 |   |   | $ | 194,120 |   |   |   | 7.3 |   |   | $ | 228,513 |   |   |   | 8.1 |   |
| Income (loss) from discontinued operations, net                          |   |                                                 | (15,977   | ) |   |   | (0.6 | ) |   |   | 921 |   |   |   | – |   |   |   | – |   |   |   |   |   |
| Net income                                                               |   |                                                 | 89,780    |   |   |   | 3.2 |   |   |   | 195,041 |   |   |   | 7.3 |   |   |   | 228,513 |   |   |   | 8.1 |   |
| Less – net loss (income) attributable to non-controlling interests |   | $                                                    | 508       |   |   |   |   |   |   | $ | (11,543 | ) |   |   | (0.4 | ) |   | $ | (13,566 | ) |   |   | (0.5 | ) |
| Net income attributable to the Company’s shareholders              |   | $                                                    | 90,288    |   |   |   | 3.2 |   |   | $ | 183,498 |   |   |   | 6.9 |   |   | $ | 214,947 |   |   |   | 7.6 |   |
| Diluted net earnings (loss) per share:Continuing operations              |   | $                                                    | 2.48      |   |   |   |   |   |   | $ | 4.24 |   |   |   |   |   |   | $ | 5.00 |   |   |   |   |   |
| Discontinued operations                                                  |   |                                                 | (0.37     | ) |   |   |   |   |   |   | 0.01 |   |   |   |   |   |   |   | – |   |   |   |   |   |
| Total                                                                    |   | $                                                    | 2.11      |   |   |   |   |   |   | $ | 4.25 |   |   |   |   |   |   | $ | 5.00 |   |   |   |   |   |

----

|                                                           |   | Year ended        |    |
|----------------------------------------------------------------|--------|-------------------|---------|
|                                                           |   | December 31, 2011 |    |   | December 31, 2010 |   |
|                                                           |   | $ millions        |    |   | % |   |   | $ millions |   |   | % |   |
|                                                           |   |              |    |   |   |   |   |   |   |   |   |   |
| Airborne systems                                               |   |              | 969.4   |   |   |   | 34.4 |   |   |   | 791.1 |   |   |   | 29.6 |   |
| Land systems                                                   |   |              | 405.3   |   |   |   | 14.4 |   |   |   | 363.2 |   |   |   | 13.6 |   |
| C4ISR systems                                                  |   |              | 996.4   |   |   |   | 35.4 |   |   |   | 1,019.1 |   |   |   | 38.2 |   |
| Electro-optic systems                                          |   |              | 300.2   |   |   |   | 10.6 |   |   |   | 368.8 |   |   |   | 13.8 |   |
| Other (mainly non-defense engineering and production services) |   |              | 146.2   |   |   |   | 5.2 |   |   |   | 127.9 |   |   |   | 4.8 |   |
| Total                                                          |   |              | 2,817.5 |   |   |   | 100.0 |   |   |   | 2,670.1 |   |   |   | 100.0 |   |

|                                                                                                                                                                                                                                                                                          |   | Year ended        |    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|
|                                                                                                                                                                                                                                                                                          |   | December 31, 2011 |    |   | December 31, 2010 |   |
|                                                                                                                                                                                                                                                                                          |   | $ millions        |    |   | % |   |   | $ millions |   |   | % |   |
|                                                                                                                                                                                                                                                                                          |   |              |    |   |   |   |   |   |   |   |   |   |
| Israel                                                       |   |              | 697.8   |   |   |   | 24.8 |   |   |   | 651.0 |   |   |   | 24.4 |   |
| United States                                                |   |              | 890.4   |   |   |   | 31.6 |   |   |   | 844.0 |   |   |   | 31.6 |   |
| Europe                                                       |   |              | 545.5   |   |   |   | 19.4 |   |   |   | 541.7 |   |   |   | 20.3 |   |
| Other countries                                              |   |              | 683.8   |   |   |   | 24.2 |   |   |   | 633.4 |   |   |   | 23.7 |   |
| Total                                                        |   |              | 2,817.5 |   |   |   | 100.0 |   |   |   | 2,670.1 |   |   |   | 100.0 |   |

----

----

|                                                           |   | Year ended        |    |
|----------------------------------------------------------------|--------|-------------------|---------|
|                                                           |   | December 31, 2010 |    |   | December 31, 2009 |   |
|                                                           |   | $ millions        |    |   | % |   |   | $ millions |   |   | % |   |
|                                                           |   |              |    |   |   |   |   |   |   |   |   |   |
| Airborne systems                                               |   |              | 791.1   |   |   |   | 29.6 |   |   |   | 693.2 |   |   |   | 24.5 |   |
| Land systems                                                   |   |              | 363.2   |   |   |   | 13.6 |   |   |   | 449.7 |   |   |   | 15.9 |   |
| C4ISR systems                                                  |   |              | 1,019.1 |   |   |   | 38.2 |   |   |   | 1,168.8 |   |   |   | 41.3 |   |
| Electro-optic systems                                          |   |              | 368.8   |   |   |   | 13.8 |   |   |   | 406.4 |   |   |   | 14.3 |   |
| Other (mainly non-defense engineering and production services) |   |              | 127.9   |   |   |   | 4.8 |   |   |   | 114.3 |   |   |   | 4.0 |   |
| Total                                                          |   |              | 2,670.1 |   |   |   | 100.0 |   |   |   | 2,832.4 |   |   |   | 100.0 |   |

----

|                                                                                                                                                                                                                                                                                          |   | Year ended        |    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|
|                                                                                                                                                                                                                                                                                          |   | December 31, 2010 |    |   | December 31, 2009 |   |
|                                                                                                                                                                                                                                                                                          |   | $ millions        |    |   | % |   |   | $ millions |   |   | % |   |
|                                                                                                                                                                                                                                                                                          |   |              |    |   |   |   |   |   |   |   |   |   |
| Israel                                                       |   |              | 651.0   |   |   |   | 24.4 |   |   |   | 627.3 |   |   |   | 22.1 |   |
| United States                                                |   |              | 844.0   |   |   |   | 31.6 |   |   |   | 813.4 |   |   |   | 28.7 |   |
| Europe                                                       |   |              | 541.7   |   |   |   | 20.3 |   |   |   | 728.2 |   |   |   | 25.7 |   |
| Other countries                                              |   |              | 633.4   |   |   |   | 23.7 |   |   |   | 663.5 |   |   |   | 23.5 |   |
| Total                                                        |   |              | 2,670.1 |   |   |   | 100.0 |   |   |   | 2,832.4 |   |   |   | 100.0 |   |

----

----

----

----

----

----

|  Forward                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | NotionalAmount* |    |   | UnrealizedGain (Loss) |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------|---------|--------|-----------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |            |    |   |                  |   |
| Buy US$ and Sell:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |            |    |   |                  |   |
| Euro                                                                                                     |   |            | 154,251 |   |                  |   | 7.8 |   |
| GBP                                                                                                      |   |            | 45,095  |   |                  |   | 2.4 |   |
| NIS                                                                                                      |   |            | -       |   |                  |   | - |   |
| Other various currencies                                                                                 |   |            | 34,122  |   |                  |   | 0.2 |   |

| Forward                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | NotionalAmount* |    |   | UnrealizedGain (Loss) |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------|---------|--------|-----------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |            |    |   |                  |   |
| Sell US$ and Buy:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |            |    |   |                  |   |
| Euro                                                                                                     |   |            | 57,022  |   |                  |   | (2.7 | )  |
| GBP                                                                                                      |   |            | 30,868  |   |                  |   | (0.7 | )  |
| NIS                                                                                                      |   |            | 654,106 |   |                  |   | (19.2 | )  |
| Other various currencies                                                                                 |   |            | 14,073  |   |                  |   | (1.6 | )  |

| Options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   | NotionalAmount* |   |   | UnrealizedGain (Loss) |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------|--------|--------|-----------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |            |   |   |                  |   |
| Buy US$ and Sell:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |            |   |   |                  |   |
| NIS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |            | 12,000 |   |                  |   | (0.7 | )  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |            |   |   |                  |   |   |   |
| Sell US$ and Buy:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |            |   |   |                  |   |   |   |
| NIS                                                                                 |   |            | 12,000 |   |                  |   | 0 |   |

----

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

----

|                                                                                            |   | Less than1 year            |   |   | 2-3 years |   |   | 4-5 years |   |   | More than5 years |   |
|-------------------------------------------------------------------------------------------------|--------|----------------------------|--------|--------|-----------|--------|--------|-----------|--------|--------|------------------|--------|
|                                                                                            |   | (U.S. dollars in millions) |   |
|                                                                                            |   |                       |   |   |      |   |   |      |   |   |             |   |
| 1. Long-Term Debt Obligations                                                                   |   |                       | 98     |   |      |   | 292    |      |   |   | 10               |   |   |   | – |   |
| 2. Series A Notes                                                                               |   |                       | 30     |   |      |   | 60     |      |   |   | 60               |   |   |   | 110 |   |
| 3. Operating Lease Obligations*                                                                 |   |                       | 37     |   |      |   | 45     |      |   |   | 20               |   |   |   | 15 |   |
| 4. Purchase Obligations*                                                                        |   |                       | 810    |   |      |   | 173    |      |   |   | 38               |   |   |   | 5 |   |
| 5. Other Long-Term Liabilities Reflected on the Company’s Balance Sheet under U.S. GAAP** |   |                       | -      |   |      |   | -      |      |   |   | -                |   |   |   | - |   |
| 6. Other Long-Term Liabilities***                                                               |   |                       | -      |   |      |   | -      |      |   |   | -                |   |   |   | - |   |
|     Total                                                                   |   |                       | 975    |   |      |   | 570    |      |   |   | 128              |   |   |   | 130 |   |

----

| * | For further description of the Purchase Obligations see above “Long-Term Arrangements and Commitments – Purchase Commitments” and See Item 18. Financial Statements – Note 20(H). |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ** | The obligation amount does not include an amount of $394 million of pension and employee termination liabilities. See Item 18. Financial Statements – Notes 2(R) and 17. The obligation amount also does not include an amount of $51 million of tax reserve related to uncertain tax positions. See Item 18. Financial Statements – Note 18. |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *** | See below “Off-Balance Sheet Transactions.” |
|-----|---------------------------------------------------------|

----

----

|                                                                  |   | 2011   |    |   | 2010   |   |    | 2009   |   |
|-----------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|---------|--------|--------|
|                                                                  |   |   |    |   |   |   |    |   |   |
| GAAP gross profit                                                     |   |   | 732.0   |   |   |   | 797.9   |   |   |   | 849.5 |   |
| Adjustments:                                                          |   |   |    |   |   |   |    |   |   |   |   |   |
| Amortization of intangible assets                                     |   |   | 30.9    |   |   |   | 25.0    |   |   |   | 22.2 |   |
| Cessation of program(1)                                               |   |   | 72.8    |   |   |   | – |   |   |   | – |   |
| Reorganization, restructuring and other related expenses(2)           |   |   | – |   |   |   | 12.8    |   |   |   | – |   |
| Non-GAAP gross profit                                                 |   |   | 835.7   |   |   |   | 835.7   |   |   |   | 871.7 |   |
| Percent of revenues                                                   |   |   | 29.7    |   |   |   | 31.3    | %      |   |   | 30.8 | % |
|                                                                  |   |   |    |   |   |   |    |   |   |   |   |   |
| GAAP operating income                                                 |   |   | 115.7   |   |   |   | 207.4   |   |   |   | 262.5 |   |
| Adjustments:                                                          |   |   |    |   |   |   |    |   |   |   |   |   |
| Amortization of intangible assets                                     |   |   | 57.3    |   |   |   | 47.7    |   |   |   | 44.0 |   |
| Cessation of program(1)                                               |   |   | 72.8    |   |   |   | – |   |   |   | – |   |
| Reorganization, restructuring and other related expenses(2)           |   |   | – |   |   |   | 16.4    |   |   |   | – |   |
| Impairment of investments(3)                                          |   |   | – |   |   |   | 1.3     |   |   |   | 1.4 |   |
| Gain from changes in holdings(4)                                      |   |   | – |   |   |   | (4.8    | )      |   |   | – |   |
| Non-GAAP operating income                                             |   |   | 245.8   |   |   |   | 268.0   |   |   |   | 307.9 |   |
| Percent of revenues                                                   |   |   | 8.7     | %      |   |   | 10.0    | %      |   |   | 10.9 | % |
|                                                                  |   |   |    |   |   |   |    |   |   |   |   |   |
| GAAP net income attributable to Elbit Systems’ shareholders     |   |   | 90.3    |   |   |   | 183.5   |   |   |   | 214.9 |   |
| Adjustments:                                                          |   |   |    |   |   |   |    |   |   |   |   |   |
| Amortization of intangible assets                                     |   |   | 57.3    |   |   |   | 47.7    |   |   |   | 44.0 |   |
| Cessation of program(1)                                               |   |   | 72.8    |   |   |   | – |   |   |   | – |   |
| Reorganization, restructuring and other related expenses(2)           |   |   | – |   |   |   | 16.4    |   |   |   | – |   |
| Impairment of investments(3)                                          |   |   | 0.5     |   |   |   | 1.3     |   |   |   | 1.4 |   |
| Gain from changes in holdings(4)                                      |   |   | – | )      |   |   | (17.6   | )      |   |   | (1.0 | ) |
| Adjustment of loss (gain) from discontinued operations, net(5)        |   |   | 9.4     |   |   |   | (0.5    | )      |   |   | – |   |
| Related tax benefits                                                  |   |   | (23.7   | )      |   |   | (8.9    | )      |   |   | (9.0 | ) |
| Non-GAAP net income attributable to Elbit Systems’ shareholders |   |   | 206.6   |   |   |   | 221.9   |   |   |   | 250.3 |   |
| Percent of revenues                                                   |   |   | 7.3     | %      |   |   | 8.3     | %      |   |   | 8.8 | % |
|                                                                  |   |   |    |   |   |   |    |   |   |   |   |   |
| Non-GAAP diluted net EPS                                              |   |   | 4.8     |   |   |   | 5.1     |   |   |   | 5.8 |   |

----

|   | (1) | Adjustment of expenses related to cessation of program, which resulted in write-off of inventories and other related costs. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Adjustment of reorganization, restructuring and other related expenses in 2010 were mainly due to write-off of inventories in the amount of approximately $13 million related to the acquisitions of Soltam and ITL. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Impairment of investments in 2011 was due to adjustment of impairment in available-for-sale marketable securities, and in 2010 and 2009 were due to the impairment of intangible assets. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | Adjustment of gain from changes in holdings includes the income from the sale of Mediguide shares ($1 million in 2009 and $12.6 million in 2010) and a gain of $4.8 million from a revaluation of a previously held investment due to accounting treatment as a business combination achieved in stages in 2010. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | Adjustment of loss from discontinued operations, net of tax and minority interest, related to impairment of held-for-sale investment acquired during 2010, as part of the acquisition of the Mikal group of companies. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Item 6. | Directors, Senior Management and Employees. |
|---------|---------------------------------------------|

| Name                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   | Age    |   |   | DirectorSince |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|---------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   |   |   |   |          |   |
| Michael Federmann (Chairman)                                                                                                    |   |   | 68     |   |   | 2000          |   |
| Moshe Arad                                                                                                                      |   |   | 77     |   |   | 2005          |   |
| Avraham Asheri                                                                                                                  |   |   | 74     |   |   | 2000          |   |
| Rina Baum                                                                                                                       |   |   | 66     |   |   | 2001          |   |
| David Federmann                                                                                                                 |   |   | 37     |   |   | 2007          |   |
| Yigal Ne’eman                                                                                                             |   |   | 70     |   |   | 2004          |   |
| Yehoshua Gleitman (External Director)                                                                                           |   |   | 62     |   |   | 2010          |   |
| Dov Ninveh                                                                                                                      |   |   | 64     |   |   | 2000          |   |
| Dalia Rabin (External Director)                                                                                                 |   |   | 61     |   |   | 2010          |   |

----

----

----

| Name              |   | Age    |   | Position                                                                                          |
|-------------------|--------|--------|--------|---------------------------------------------------------------------------------------------------|
|              |   |   |   |                                                                                              |
| Joseph Ackerman   |   | 62     |   | President and Chief Executive Officer                                                             |
|              |   |   |   |                                                                                              |
| Elad Aharonson    |   | 38     |   | Executive Vice President and General Manager – UAS Division                                 |
|              |   |   |   |                                                                                              |
| Jonathan Ariel    |   | 55     |   | Executive Vice President and Chief Legal Officer                                                  |
|              |   |   |   |                                                                                              |
| David Block Temin |   | 56     |   | Executive Vice President, Chief Compliance Officer and Senior Counsel                             |
|              |   |   |   |                                                                                              |
| Adi Dar           |   | 40     |   | Executive Vice President and General Manager – Electro-Optics Elop Division                 |
|              |   |   |   |                                                                                              |
| Itzhak Dvir       |   | 64     |   | Executive Vice President and Chief Operating Officer                                              |
|              |   |   |   |                                                                                              |
| Jacob Gadot       |   | 64     |   | Executive Vice President – International Marketing and Business Development                 |
|              |   |   |   |                                                                                              |
| Joseph Gaspar     |   | 63     |   | Executive Vice President and Chief Financial Officer                                              |
|              |   |   |   |                                                                                              |
| Itzhak Gat        |   | 64     |   | Executive Vice President and General Manager – Elisra Division                              |
|              |   |   |   |                                                                                              |
| Zeev Gofer        |   | 59     |   | Executive Vice President – Strategic and Business Development - North America               |
|              |   |   |   |                                                                                              |
| Dalia Gonen       |   | 60     |   | Executive Vice President – Human Resources                                                  |
|              |   |   |   |                                                                                              |
| Ran Hellerstein   |   | 61     |   | Executive Vice President and Co-General Manager – Aerospace Division                        |
|              |   |   |   |                                                                                              |
| Raanan Horowitz   |   | 51     |   | President and Chief Executive Officer – Elbit Systems of America                            |
|              |   |   |   |                                                                                              |
| Bezhalel Machlis  |   | 48     |   | Executive Vice President and General Manager – Land and C4I Division                        |
|              |   |   |   |                                                                                              |
| Ilan Pacholder    |   | 57     |   | Executive Vice President – Mergers and Acquisitions, Offset and Financing                   |
|              |   |   |   |                                                                                              |
| Marco Rosenthal   |   | 64     |   | Executive Vice President - Corporate Shared Services – Technologies and Operations Division |
|              |   |   |   |                                                                                              |
| Haim Rousso       |   | 65     |   | Executive Vice President – Engineering and Technology Excellence                            |
|              |   |   |   |                                                                                              |
| Gideon Sheffer    |   | 63     |   | Executive Vice President – Strategic Planning and Business Development – Israel       |
|              |   |   |   |                                                                                              |
| Yoram Shmuely     |   | 51     |   | Executive Vice President and Co-General Manager – Aerospace Division                        |
|              |   |   |   |                                                                                              |
| Udi Vered         |   | 53     |   | Executive Vice President – Service Solutions                                                |

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----

----

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|                                    |   | Salaries, Directors’ FeesCommissions and Bonuses |                                                                                                                                                                   |   | Pension, Retirementand Similar Benefits |   |
|-----------------------------------------|--------|--------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|
|                                    |   | (U.S. dollars in thousands)                            |                                                                                                                                                                   |
|                                    |   |                                                   |                                                                                                                                                                   |   |                                    |   |   |   |
| All directors (consisting of 9 persons) |   | $                                                      |                     349*        | *      |                                    | $      | –    |   |
| All officers (consisting of 21 persons) |   | $                                                      | 10,799**                                                                                                                                      | **     |                                    | $      | 1,323    |   |

----

| * | Elbit Systems’ shareholders at the annual general shareholders meeting held in 2004 approved payment to directors thereafter in accordance with maximum regulatory rates payable to External Directors under Israeli law for companies similarly classified based on their shareholding equity. These rates were linked to the Israeli consumer price index and were so updated and paid by Elbit Systems through March 2008. At an extraordinary general shareholders meeting held in March 2008, our shareholders approved increasing compensation, effective April 1, 2008 (and thereafter so long as such approval has not been replaced or revoked by the shareholders) to our External Directors and to other directors meeting the director independence criteria of Nasdaq, each of whom has additional duties under applicable non-Israeli law. The increased compensation was consistent with amendments to Israeli law regarding compensation to External Directors who serve on the boards of “dual listed” companies, such as Elbit Systems, and are subject to corresponding additional duties. As a result, External Directors and other such “independent” directors are and will be entitled, so long as the above-mentioned resolution adopted in March 2008 is in effect, to an annual fee of NIS 113,143 (equal to approximately $31,587) and a per meeting fee of 2,489 NIS (equal to approximately $695), which reflect the fees levels previously approved at the 2008 Shareholders’ Extraordinary General Meeting and linked to the Israeli consumer price index. The other directors are paid the following compensation: an annual fee of NIS 56,386 (equal to approximately $15,741) and a per meeting fee of NIS 2,127 (equal to approximately $594), which reflect the fees levels previously approved at the 2004 annual general shareholders meeting and linked to the Israeli consumer price index. In compliance with recent amendments to the Companies Law, our Audit Committee and the Board approved, in meetings held on October 23, 2011 and October 24, 2011, respectively, in accordance with the Israeli Companies Regulations (Relief from Related Parties’ Transactions), 5760-2000 (the “Regulations”), payment of director’s compensation to Michael Federmann and to David Federmann in amounts equal to the compensation paid by the Company to other directors of the Company who are not “independent” directors, as specified above. We currently intend to maintain such compensation rates to such directors. Compensation payments to directors are made either directly to the director or to his or her employing company. |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ** | We recorded an amount of approximately $2 million in 2011 as compensation costs related to stock options granted to our Executive Officers under our 2007 Employee Stock Option Plan. (See below “Share Ownership – Elbit Systems’ Stock Option Plans.”) |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | (A) | if that person is not a relative of the controlling shareholder of that company, or if that person (and each of that person’s relatives, partners and employers, or any person to whom he or she directly or indirectly reports), or any entity controlled by that person, did not have, at any time during the two years preceding that person’s appointment as an External Director, any affiliation with any of: (1) the applicable company, (2) the controlling shareholder of the applicable company or any of his or her relatives, (3) the entities controlling the company, (4) the entities controlled by the company or (5) the entities controlled by the company’s controlling shareholders; |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (B) | if and so long as: (1) no conflict of interest exists or may exist between his or her responsibilities as a member of the board of directors of the respective company and his or her other positions or business activities or (2) such position or business activities would not impair his or her ability to serve as a director; and |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (C) | if and so long as: (1) that person (and each of that person’s relatives, partners and employers, or any person to whom he or she directly or indirectly reports or any entity controlled by that person) has no business or professional relationships with any of the persons or entities mentioned in (A) above and (2) no other consideration except as permitted under the Companies Law is paid to that person in connection with that person's position as a director in the relevant company. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| Audit Committee:          |   | Financial StatementsReview Committee: |   | Corporate Governance andNominating Committee: |   | CompensationCommittee: |
|---------------------------|--------|---------------------------------------|--------|-----------------------------------------------|--------|------------------------|
|                      |   |                                  |   |                                          |   |                   |
| Yehoshua Gleitman (Chair) |   | Yehoshua Gleitman (Chair)             |   | Avraham Asheri(Chair)                         |   | Dalia Rabin(Chair)     |
| Moshe Arad                |   | Moshe Arad                            |   | Yehoshua Gleitman                             |   | Moshe Arad             |
| Avraham Asheri            |   | Avraham Asheri                        |   | Yigal Ne’eman                           |   | Avraham Asheri         |
| Yigal Ne’eman       |   | Yigal Ne’eman                   |   | Dalia Rabin                                   |   |                   |
| Dalia Rabin               |   | Dalia Rabin                           |   |                                          |   |                   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | TotalEmployees |   | U.S.Employees |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|--------|---------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |           |   |          |
| 2011                                                                            |   | 12,545         |   | 1,980         |
| 2010                                                                            |   | 12,317         |   | 1,963         |
| 2009                                                                            |   | 11,238         |   | 1,806         |

|   | (1) | 50% of the options will be vested and exercisable from the second anniversary of the Commencement Date; |
|--------|-----|---------------------------------------------------------------------------------------------------------|

|   | (2) | An additional 25% of the options will be vested and exercisable from the third anniversary of the Commencement Date; and |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------|

|   | (3) | The remaining 25% of the options will be vested and exercisable from the fourth anniversary of the Commencement Date. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------|

----

----

| Item 7. | Major Shareholders and Related Party Transactions. |
|---------|----------------------------------------------------|

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

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

| Name of Beneficial Owner                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |         | Amount Owned |   | Percent of Ordinary Shares |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|--------------|--------|----------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |         |         |   |                       |
| Federmann Enterprises Ltd.99 Hayarkon StreetTel-Aviv, Israel (2)                                                                                                 |         |         |   |                       |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |         |         |   |                       |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 19,503,380   |         | 45.97% |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |         |         |   |                       |   |   |
| Heris Aktiengesellschaftc/o 99 Hayarkon StreetTel-Aviv, Israel                                                                                                   |         |         |   |                       |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |         |         |   |                       |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 3,836,458(3) |         | 9.04%  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |         |         |   |                       |   |   |
| Migdal Insurance & FinancialHoldings Ltd.4 Efal StreetPetach Tikva, Israel                                                                                   |         |         |   |                       |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |         |         |   |                       |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |         |         |   |                       |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 2,450,272    |         | 5.77%  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |         |         |   |                       |   |   |
| All officers and directors asa group (29 persons)                                                                                                                |         |         |   |                       |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 187,911(4)   |         | 0.44%  |

----

|   | (1) | The total number of ordinary shares excludes 23,021 ordinary shares held by one of our subsidiaries and 822,800 ordinary shares held by us as treasury shares. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Federmann Enterprises Ltd. (FEL) owns our ordinary shares directly and indirectly through Heris Aktiengesellschaft (Heris) which is controlled by FEL. FEL is controlled by Beit Federmann Ltd. (BFL). BFL is controlled by Beit Bella Ltd. (BBL) and Beit Yekutiel Ltd. (BYL). Michael Federmann is the controlling shareholder of BBL and BYL. He is also the chairman of Elbit Systems’ Board and the chairman of the Board and the chief executive officer of FEL. Therefore, Mr. Federmann controls, directly and indirectly, the vote of ordinary shares owned by Heris and FEL. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | The amount of ordinary shares owned by Heris is included in the amount of shares held by FEL as set forth in footnote (2) above. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | This amount does not include (i) any ordinary shares that may be deemed to be beneficially owned by Michael Federmann as described in footnote (2) above and (ii) 28.800 ordinary shares underlying options that are currently exercisable or that will become exercisable within 60 days of February 29, 2012. A portion of the underlying options are “phantom options” or “cashless” options that have been calculated based on our February 29, 2012 closing share price on the TASE of $36.82. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                      |   | February 29, 2012 |       | February 28, 2011 |         |         | May 31, 2010 |       |              | May 31, 2009 |   |
|-----------------------------------------------------------|--------|-------------------|------------|-------------------|--------------|--------------|--------------|------------|-------------------|--------------|--------|
|                                                      |   | Shares Owned      |       | % of Shares Owned |         | Shares Owned |         |       | % of Shares Owned |         |   | Shares Owned |   |   | % of Shares Owned |   |   | Shares Owned |   |   | % of Shares Owned |   |
|                                                      |   |              |       |              |         |         |         |       |              |         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| FEL          |   |              | 19,503,380 | (1)               |   45.97 | %            |         | 19,457,566 | (2)               |         |   | 45.50 | % |   |   | 19,342,625 |   |   |   | 45.49 | % |   |   | 19,342,625 | (3) |   |   | 45.91 | % |

----

| (1) | Reflects incidental purchases by FEL of shares in open market transactions during May 2011 – February 2012. |
|-----|-------------------------------------------------------------------------------------------------------------------|

| (2) | Reflects incidental purchases by FEL of shares in open market transactions during May 2010 – February 2011. |
|-----|-------------------------------------------------------------------------------------------------------------------|

| (3) | Reflects incidental purchases by FEL of shares in open market transactions during May 2008 – February 2009. |
|-----|-------------------------------------------------------------------------------------------------------------------|

----

| Item 8. | Financial Information. |
|---------|------------------------|

----

----

| 2009                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | $ | 1.82 per share |           |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---|----------------|----------------|
| 2010                                                                                    | $ |           | 1.44 per share |   |
| 2011                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | $ |           | 1.44 per share |   |

| Item 9. | The Offer and Listing. |
|---------|------------------------|

|                                                                                                                                                                                                                                                                               |   | Nasdaq |   |   | TASE (1) |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|----------|--------|
|                                                                                                                                                                                                                                                                               |   | High   |   |   | Low      |   |   | High |   |   | Low |   |
|                                                                                                                                                                                                                                                                               |   |   |   |   |     |   |   |   |   |   |   |   |
| 2007                                              |   | $      | 59.56  |   |     | $      | 32.32 |   |   | $ | 59.93 |   |   | $ | 32.47 |   |
| 2008                                              |   | $      | 63.40  |   |     | $      | 36.25 |   |   | $ | 62.64 |   |   | $ | 36.06 |   |
| 2009                                              |   | $      | 70.50  |   |     | $      | 40.50 |   |   | $ | 69.78 |   |   | $ | 40.27 |   |
| 2010                                              |   | $      | 66.65  |   |     | $      | 46.80 |   |   | $ | 65.69 |   |   | $ | 46.70 |   |
| 2011                                              |   | $      | 56.75  |   |     | $      | 35.35 |   |   | $ | 55.36 |   |   | $ | 34.29 |   |

|                                      |   | Nasdaq |   |   | TASE (1) |   |
|-------------------------------------------|--------|--------|--------|--------|----------|--------|
|                                      |   | High   |   |   | Low      |   |   | High |   |   | Low |   |
| 2010                                      |   |   |   |   |     |   |   |   |   |   |   |   |
| First Quarter                             |   | $      | 66.65  |   |     | $      | 59.27 |   |   | $ | 65.69 |   |   | $ | 58.67 |   |
| Second Quarter                            |   | $      | 65.35  |   |     | $      | 48.50 |   |   | $ | 64.97 |   |   | $ | 48.77 |   |
| Third Quarter                             |   | $      | 55.31  |   |     | $      | 49.35 |   |   | $ | 54.83 |   |   | $ | 48.33 |   |
| Fourth Quarter                            |   | $      | 55.71  |   |     | $      | 46.80 |   |   | $ | 55.13 |   |   | $ | 46.70 |   |
|                                      |   |   |   |   |     |   |   |   |   |   |   |   |   |   |   |   |
| 2011                                      |   |   |   |   |     |   |   |   |   |   |   |   |   |   |   |   |
| First Quarter                             |   | $      | 55.95  |   |     | $      | 48.78 |   |   | $ | 52.58 |   |   | $ | 47.95 |   |
| Second Quarter                            |   | $      | 56.75  |   |     | $      | 46.62 |   |   | $ | 55.36 |   |   | $ | 44.11 |   |
| Third Quarter                             |   | $      | 49.94  |   |     | $      | 35.35 |   |   | $ | 49.20 |   |   | $ | 34.29 |   |
| Fourth Quarter                            |   | $      | 45.63  |   |     | $      | 39.50 |   |   | $ | 44.00 |   |   | $ | 40.74 |   |
|                                      |   |   |   |   |     |   |   |   |   |   |   |   |   |   |   |   |
| 2012                                      |   |   |   |   |     |   |   |   |   |   |   |   |   |   |   |   |
| First Quarter (through February 29, 2012) |   | $      | 42.09  |   |     | $      | 35.30 |   |   | $ | 41.65 |   |   | $ | 35.37 |   |

|                                                                                                                                                                                                                                                                                         |   | Nasdaq |   |   | TASE (1) |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|----------|--------|
|                                                                                                                                                                                                                                                                                         |   | High   |   |   | Low      |   |   | High |   |   | Low |   |
|                                                                                                                                                                                                                                                                                         |   |   |   |   |     |   |   |   |   |   |   |   |
| September 2011                                              |   | $      | 40.68  |   |     | $      | 35.35 |   |   | $ | 39.89 |   |   | $ | 34.29 |   |
| October 2011                                                |   | $      | 45.63  |   |     | $      | 39.23 |   |   | $ | 44.25 |   |   | $ | 39.96 |   |
| November 2011                                               |   | $      | 43.98  |   |     | $      | 39.50 |   |   | $ | 43.79 |   |   | $ | 39.32 |   |
| December 2011                                               |   | $      | 43.65  |   |     | $      | 40.30 |   |   | $ | 44.00 |   |   | $ | 41.70 |   |
| January 2012                                                |   | $      | 42.02  |   |     | $      | 40.30 |   |   | $ | 41.65 |   |   | $ | 40.05 |   |
| February 2012                                               |   | $      | 42.09  |   |     | $      | 35.30 |   |   | $ | 41.15 |   |   | $ | 35.37 |   |

----

| (1) | The closing prices of our ordinary shares on the TASE have been translated into U.S. dollars using the daily representative rate of exchange of the NIS to the U.S. dollar as published by the Bank of Israel for the applicable day of the high/low amount in the specified period. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Item 10. | Additional Information. |
|----------|-------------------------|

----

|   | (1) | extraordinary transactions with an Office Holder or in which an Office Holder has a Personal Interest; |
|--------|-----|--------------------------------------------------------------------------------------------------------|

|   | (2) | all arrangements regarding terms of service including relevant compensation, between a company and an Office Holder including the grant of an exemption, insurance, undertaking to indemnify or indemnification under a permit to indemnify; |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | material actions or arrangements that may otherwise be considered a breach of fiduciary duty of an Office Holder; or |
|--------|-----|----------------------------------------------------------------------------------------------------------------------|

|   | (4) | except for certain specific exemptions under the Companies Law, extraordinary transactions of a public company with its controlling shareholder or  with another person in which the controlling shareholder has a Personal Interest, including a private offering in which the controlling shareholder has a Personal Interest, as well as an agreement of a public company with its controlling shareholder or his or her relatives, directly or indirectly, including through a company controlled by him or her, regarding the grant of services to the applicable company or regarding the terms of service and/or employment of the controlling shareholder or his or her relatives, as the case may be. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

----

|   | (2) | a willful breach of the duty of care or reckless disregard for the circumstances or to the consequences of a breach of the duty of care other than mere negligence; |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | (4) | a fine or monetary penalty imposed upon such Office Holder; or |
|--------|-----|----------------------------------------------------------------|

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

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

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

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

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

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

|   | (5) | expenses incurred by him or her in connection with certain administrative proceedings specified in the Securities Law, including reasonable litigation expenses (including also lawyers' fees); or |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | (1) | a monetary liability imposed on the director or officer or paid by him or her in favor of a third party under a judgment, including a judgment by way of compromise or a judgment of an arbitrator approved by a court; provided however, that in case such undertaking is granted in advance it will be limited to events which, in the Board’s opinion, are foreseeable in light of the Elbit Systems’ actual activities at the time of granting the obligation to indemnify, and to a sum or criteria as the Board deems reasonable under the circumstances, and the undertaking to indemnify will specify the aforementioned events and sum or criteria; |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|   | (3) | reasonable litigation expenses (including lawyer’s fees), incurred by a director or officer as a result of  an investigation or proceeding conducted against him by an authority authorized to conduct such investigation or procedure, conducted against him or her by an authority authorized to conduct such investigation or procedure, provided that such investigation or procedure, (i) concludes without the filing of an indictment against the director or officer and without imposition of monetary payment in lieu of criminal proceedings, or (ii) concludes with imposing on the director or officer monetary payment in lieu of criminal proceedings, provided that the alleged criminal offense in question does not require proof of criminal intent or was incurred by the director or officer in connection with a monetary sanction imposed by the Companies Law or the Securities Law; |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | expenses incurred by a director or a officer in connection with certain administrative proceedings set forth in the Securities Law, including reasonable litigation expenses (including lawyers' fees); |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

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

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

|   | (b) | criminal proceedings from which the director or officer was acquitted; or |
|--------|-----|---------------------------------------------------------------------------|

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

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

----

----

|   | • | such majority includes a majority of the total votes of shareholders who have no Personal Interest in the approval of the transaction and who participate in the voting, in person, by proxy or by written ballot, at the meeting (abstentions not taken into account); or |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | the total number of votes of shareholders mentioned above that are voted against the transaction do not represent more than 1% of the total voting rights in the company. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | (1) | Exemption from corporate tax for periods ranging between two – ten years depending on specific conditions; and |
|--------|-----|----------------------------------------------------------------------------------------------------------------------|

|   | (2) | Reduced corporate tax rates for several years thereafter depending on certain conditions. |
|--------|-----|-------------------------------------------------------------------------------------------|

----

----

----

----

|   | • | a citizen or individual resident of the United States for U.S. federal income tax purposes; |
|--------|---------|---------------------------------------------------------------------------------------------|

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

|   | • | an estate whose income is subject to U.S. federal income taxation regardless of its source; or |
|--------|---------|------------------------------------------------------------------------------------------------|

|   | • | a trust if (A) a U.S. court is able to exercise primary supervision over the trust’s administration and (B) one or more U.S. persons have the authority to control all of the trust’s substantial decisions. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

| Item 11. | Quantitative and Qualitative Disclosures About Market Risk. |
|----------|-------------------------------------------------------------|

----

|                    |   | Maturity Date - Notional Amount |   |   |   |   |
|-------------------------|--------|---------------------------------|--------|--------|--------|--------|
|                    |   | 2012                            |   |   | 2013   |   |   | 2014 |   |   | 2015 |   |   | 2016 onwards |   |   | Total |   |   | Fair Value at 31.12.11 |   |
|                    |   | ( US dollars in millions)       |   |
|  Sell US$ and buy: |   |                            |   |
|  EUR               |   |                            | 27.3   |   |   |   | 16.7 |   |   |   | 10.2 |   |   |   | 2.5 |   |   |   | 0.3 |   |   |   | 57.0 |   |   |   | (2.7 | ) |
|  GBP               |   |                            | 9.6    |   |   |   | 21.2 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 30.9 |   |   |   | (0.7 | ) |
|  NIS               |   |                            | 654.1  |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 654.1 |   |   |   | (19.9 | ) |
|  Other currencies  |   |                            | 9.6    |   |   |   | 3.6 |   |   |   | 0.4 |   |   |   | 0.3 |   |   |   | 0.2 |   |   |   | 14.1 |   |   |   | 1.6 |   |
|  Total             |   |                            | 700.6  |   |   |   | 41.5 |   |   |   | 10.6 |   |   |   | 2.8 |   |   |   | 0.5 |   |   |   | 756.0 |   |   |   | (21.7 | ) |

|                    |   | Maturity Date - Notional Amount |   |   |   |   |
|-------------------------|--------|---------------------------------|--------|--------|--------|--------|
|                    |   | 2012                            |   |   | 2013   |   |   | 2014 |   |   | 2015 |   |   | 2016 onwards |   |   | Total |   |   | Fair Value at 31.12.11 |   |
|                    |   | ( US dollars in millions)       |   |
|  Buy US$ and sell: |   |                            |   |
|  EUR               |   |                            | 92.6   |   |   |   | 23.8 |   |   |   | 28.8 |   |   |   | 7.0 |   |   |   | 2.1 |   |   |   | 154.3 |   |   |   | 7.8 |   |
|  GBP               |   |                            | 44.6   |   |   |   | 0.5 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 45.1 |   |   |   | 2.4 |   |
|  Other currencies  |   |                            | 19.7   |   |   |   | 9.9 |   |   |   | 3.2 |   |   |   | 0.4 |   |   |   | 0.9 |   |   |   | 34.1 |   |   |   | 0.2 |   |
|  Total             |   |                            | 156.9  |   |   |   | 34.2 |   |   |   | 32.0 |   |   |   |  7.4 |   |   |   | 3.0 |   |   |   | 233.5 |   |   |   | 10.4 |   |

----

| Item 12. | Description of Securities Other than Equity Securities. |
|----------|---------------------------------------------------------|

| Item 13. | Defaults, Dividend Arrearages and Delinquencies. |
|----------|--------------------------------------------------|

| Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds. |
|----------|-------------------------------------------------------------------------------|

|   |   |
|--------|--------|

| Item 15. | Controls and Procedures. |
|----------|--------------------------|

----

| Item 16A. | Audit Committee Financial Expert. |
|-----------|-----------------------------------|

| Item 16B. | Code of Ethics. |
|-----------|-----------------|

| Item 16C. | Principal Accountant Fees and Services. |
|-----------|-----------------------------------------|

|                                                                                                                                                                                                                                                                                                                                                       | Year Ended December 31      |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                       | 2011                        |   | 2010 |   |
|                                                                                                                                                                                                                                                                                                                                                       | (U.S. dollars in thousands) |   |
|                                                                                                                                                                                                                                                                                                                                                       |                        |   |   |   |   |   |
| Audit Fees                                                         |                        | $      | 2,961 |   |   | $ | 3,072 |   |
| Tax Fees                                                           |                        | $      | 444 |   |   | $ | 424 |   |
| Other Fees                                                                                                                                                                                                                                                                                                                                                 |                        | $      | 413 |   |   |   | 80 |   |
| Total                                                              |                        | $      | 3,818 |   |   | $ | 3,576 |   |

----

| Item 16D. | Exemptions from the Listing Standards for Audit Committees. |
|-----------|-------------------------------------------------------------|

| Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers. |
|-----------|-------------------------------------------------------------------------|

|   Period                   |   | Total Number of Shares Purchased by the Company |    |   | Average Price Paid per Share |   |   | Total Number of Shares Purchased as Part of the Plan |   |   | Maximum Number of Shares that May Yet Be Purchased Under the Plan |   |
|--------------------------------------|--------|-------------------------------------------------|---------|--------|------------------------------|--------|--------|------------------------------------------------------|--------|--------|-------------------------------------------------------------------|--------|
| October 1 – October 31, 2011   |   |                                            | 36,234  |   |                         | $      | 42.96  |                                                 |   |   | 36,234                                                            |   |   |   | 963,766 |   |
| November 1 – November 30, 2011 |   |                                            | 86,142  |   |                         | $      | 41.90  |                                                 |   |   | 86,142                                                            |   |   |   | 877,624 |   |
| December 1 – December 31, 2011 |   |                                            | 117,992 |   |                         | $      | 41.98  |                                                 |   |   | 117,992                                                           |   |   |   | 759,632 |   |

| Item 16F.   | Changes in Registrant’s Certifying Accountant. |
|-----------------------|------------------------------------------------------|

| Item 16G.   | Corporate Governance. |
|-----------------------|-----------------------|

| Item 17. | Financial Statements. |
|----------|-----------------------|

| Item 18. | Financial Statements. |
|----------|-----------------------|

----

| Item 19. | Exhibits. |
|----------|-----------|

|   | (a) | Index to Financial Statements |
|--------|-----|-------------------------------|

|                                                                                                 |   | Page   |
|------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                 |   |   |
| Report of Independent Registered Public Accounting Firm                                              |   | F-2    |
| Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting |   | F-3    |
| Consolidated Balance Sheets at December 31, 2011 and 2010                                            |   | F-4    |
| Consolidated Statements of Income                                                                    |   | F-6    |
| Consolidated Statements of Changes in Shareholders’ Equity                                     |   | F-7    |
| Consolidated Statements of Cash Flows                                                                |   | F-9    |
| Notes to Consolidated Financial Statements                                                           |   | F-11   |
| Schedule II – Valuation and Qualifying Accounts                                                |   | S-1    |

|   | (b) | Exhibits |
|--------|-----|----------|

| 1.1    | Elbit Systems’ Memorandum of Association(1)                                                                    |
|--------|----------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                 |
| 1.2    | Elbit Systems’ Restated Articles of Association(2)                                                             |
|   |                                                                                                                 |
| 4.1    | Elbit Systems 2007 Stock Option Plan, as amended(3)                                                                  |
|   |                                                                                                                 |
| 4.2    | Elbit Systems’ Post Merger Stock Option Plan (Summary in English)(1)                                           |
|   |                                                                                                                 |
| 8      | Primary Operating Subsidiaries of Elbit Systems                                                                      |
|   |                                                                                                                 |
| 12.1   | Certification of Chief Executive Officer of the Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|   |                                                                                                                 |
| 12.2   | Certification of Chief Financial Officer of the Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|   |                                                                                                                 |
| 13.1   | Certification of Chief Executive Officer of the Registrant pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|   |                                                                                                                 |
| 13.2   | Certification of Chief Financial Officer of the Registrant pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|   |                                                                                                                 |
| 15.1   | Consent of Kost Forer Gabbay & Kasierer                                                                          |

----

| (1) | Filed as an exhibit to Elbit Systems’ Annual Report on Form 20-F (File No. 0-28998) for the year ended December 31, 2000, which was filed with the Securities and Exchange Commission on April 5, 2001, and incorporated herein by reference. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Filed as an exhibit to Elbit Systems’ Report on Form 6-K for March 2008, which was filed by Elbit Systems with the Securities and Exchange Commission on March 26, 2008, and incorporated herein by reference. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Filed as exhibit 4.3 to Elbit Systems’ post-effective amendment No. 1 to registration statement on Form S-8 (File No. 333-139512), which was filed by Elbit Systems with the Securities and Exchange Commission on December 1, 2011, and incorporated herein by reference. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | ELBIT SYSTEMS LTD. |                                  |
|--------|--------------------|---------------------------------------|
|   |               |                                  |   |
|   | By:                | /s/ JOSEPH ACKERMAN                   |   |
|   | Name:              | Joseph Ackerman                       |   |
|   | Title:             | President and Chief Executive Officer |   |
|   |               | (Principal Executive Officer)         |   |

----

| ELBIT SYSTEMS LTD. AND SUBSIDIARIES |
|-------------------------------------|

----

| ELBIT SYSTEMS LTD. AND SUBSIDIARIES |
|-------------------------------------|

|                                                     | Page            |
|----------------------------------------------------------|-----------------|
|                                                     |            |
| REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | F - 2 - F - 3   |
|                                                     |            |
| CONSOLIDATED FINANCIAL STATEMENTS:                       |            |
|                                                     |            |
| Consolidated Balance Sheets                              | F - 4 - F - 5   |
|                                                     |            |
| Consolidated Statements of Income                        | F - 6           |
|                                                     |            |
| Statements of Changes in Equity                          | F - 7 - F - 8   |
|                                                     |            |
| Consolidated Statements of Cash Flows                    | F - 9 - F - 10  |
|                                                     |            |
| Notes to the Consolidated Financial Statements           | F - 11 - F - 62 |

----

|   |   Kost Forer Gabbay & Kasierer3 Aminadav St.Tel-Aviv 67067, IsraelTel:  972 (3)6232525Fax: 972 (3)5622555www.ey.com |
|--------|----------------------------------------------------------------------------------------------------------------------------------------|

REPOR

| Tel Aviv, Israel |
|------------------|

| March 13, 2012 |
|----------------|

----

|   |   Kost Forer Gabbay & Kasierer3 Aminadav St.Tel-Aviv 67067, IsraelTel:  972 (3)6232525Fax: 972 (3)5622555www.ey.com |
|--------|----------------------------------------------------------------------------------------------------------------------------------------|

| Tel Aviv, Israel |
|------------------|

| March 13, 2012 |
|----------------|

----

| CONSOLIDATED BALANCE SHEETS |
|-----------------------------|
| U.S. dollars (In thousands) |

|                                                                 |   |        |   |   | December 31, |    |
|----------------------------------------------------------------------|--------|-------------|--------|--------|--------------|---------|
|                                                                 |   |   Note |   |   | 2011         |    |   | 2010 |   |
|                                                                 |   |        |   |   |         |    |   |   |   |
| CURRENT ASSETS:                                                      |   |        |   |   |         |    |   |   |   |
| Cash and cash equivalents                                            |   |        |   |   | $            | 202,577 |   |   | $ | 151,059 |   |
| Short-term bank deposits and marketable securities                   |   |        |   |   |         | 21,693  |   |   |   | 63,486 |   |
| Trade and unbilled receivables, net                                  |   |        | (3)    |   |         |    | 669,524 |   |   |   | 702,364 |   |
| Other receivables and prepaid expenses                               |   |        | (4)    |   |         |    | 180,024 |   |   |   | 166,124 |   |
| Inventories, net of customer advances                                |   |        | (5)    |   |         |    | 761,269 |   |   |   | 665,270 |   |
| Total current assets                                                 |   |        |   |   |         |    | 1,835,087 |   |   |   | 1,748,303 |   |
|                                                                 |   |        |   |   |         |    |   |   |   |   |   |   |
| LONG-TERM INVESTMENTS AND RECEIVABLES:                               |   |        |   |   |         |    |   |   |   |   |   |   |
| Investments in affiliated companies, partnership and other companies |   |        | (6)    |   |         |    | 110,159 |   |   |   | 89,814 |   |
| Available-for-sale marketable securities                             |   |        | (9)    |   |         |    | - |   |   |   | 7,179 |   |
| Long-term trade and unbilled receivables                             |   |        | (7)    |   |         |    | 162,762 |   |   |   | 90,343 |   |
| Long-term bank deposits and other receivables                        |   |        | (8)    |   |         |    | 12,215 |   |   |   | 44,401 |   |
| Deferred income taxes, net                                           |   |        | (18F)  |   |         |    | 36,130 |   |   |   | 29,892 |   |
| Severance pay fund                                                   |   |        | (2R)   |   |         |    | 283,477 |   |   |   | 302,351 |   |
|                                                                 |   |        |   |   |         |    | 604,743 |   |   |   | 563,980 |   |
|                                                                 |   |        |   |   |         |    |   |   |   |   |   |   |
| PROPERTY, PLANT AND EQUIPMENT,  NET                        |   |        | (10)   |   |         |    | 517,608 |   |   |   | 503,851 |   |
|                                                                 |   |        |   |   |         |    |   |   |   |   |   |   |
| GOODWILL                                                             |   |        | (11)   |   |         |    | 499,326 |   |   |   | 486,046 |   |
|                                                                 |   |        |   |   |         |    |   |   |   |   |   |   |
| OTHER INTANGIBLE ASSETS, NET                                         |   |        | (11)   |   |         |    | 263,746 |   |   |   | 313,593 |   |
|                                                                 |   |        |   |   |         |    |   |   |   |   |   |   |
|                                                                 |   |        |   |   |         | $       | 3,720,510 |   |   | $ | 3,615,773 |   |

----

| CONSOLIDATED BALANCE SHEETS                    |
|------------------------------------------------|
| U.S. dollars (In thousands, except share data) |

|                                                                                                                                                                                                                                                                                                                                                                                                                     |   |        |   |   | December 31, |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------|--------|--------|--------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   Note |   |   | 2011         |   |   | 2010 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                     |   |        |   |   |         |   |   |   |   |
| CURRENT LIABILITIES:                                                                                                                                                                                                                                                                                                                                                                                                     |   |        |   |   |         |   |   |   |   |
| Short-term bank credit and loans                                                                                                                                                                                                                                                                                                                                                                                         |   |        | (12)   |   |         | $      | 2,998 |   |   | $ | 15,115 |   |
| Current maturities of long-term loans and Series A Notes                                                                                                                                                                                                                                                                                                                                                                 |   |        | (15)   |   |         |   | 127,627 |   |   |   | 43,093 |   |
| Trade payables                                                                                                                                                                                                                                                                                                                                                                                                           |   |        |   |   |         |   | 316,264 |   |   |   | 360,736 |   |
| Other payables and accrued expenses                                                                                                                                                                                                                                                                                                                                                                                      |   |        | (13)   |   |         |   | 743,866 |   |   |   | 648,121 |   |
| Customer advances in excess of costs incurred on contracts in progress                                                                                                                                                                                                                                                                                                                                                   |   |        | (14)   |   |         |   | 407,222 |   |   |   | 302,691 |   |
| Total current liabilities                                                                                                                                                                                                                                                                                                                                                                                                |   |        |   |   |         |   | 1,597,977 |   |   |   | 1,369,756 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                     |   |        |   |   |         |   |   |   |   |   |   |   |
| LONG-TERM LIABILITIES:                                                                                                                                                                                                                                                                                                                                                                                                   |   |        |   |   |         |   |   |   |   |   |   |   |
| Long-term loans, net of current maturities                                                                                                                                                                                                                                                                                                                                                                               |   |        | (15)   |   |         |   | 302,255 |   |   |   | 292,039 |   |
| Series A Notes, net of current maturities                                                                                                                                                                                                                                                                                                                                                                                |   |        | (16)   |   |         |   | 235,319 |   |   |   | 273,357 |   |
| Employee benefit liabilities                                                                                                                                                                                                                                                                                                                                                                                             |   |        |   |   |         |   | 394,115 |   |   |   | 395,303 |   |
| Deferred income taxes and tax liabilities, net                                                                                                                                                                                                                                                                                                                                                                           |   |        | (18F)  |   |         |   | 48,467 |   |   |   | 55,936 |   |
| Customer advances in excess of costs incurred on contracts in progress                                                                                                                                                                                                                                                                                                                                                   |   |        | (14)   |   |         |   | 154,696 |   |   |   | 177,191 |   |
| Other long-term liabilities                                                                                                                                                                                                                                                                                                                                                                                              |   |        |   |   |         |   | 59,961 |   |   |   | 46,740 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                     |   |        |   |   |         |   | 1,194,813 |   |   |   | 1,240,566 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                     |   |        |   |   |         |   |   |   |   |   |   |   |
| COMMITMENTS  AND CONTINGENT  LIABILITIES                                                                                                                                                                                                                                                                                                                                                             |   |        | (20)   |   |         |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                     |   |        |   |   |         |   |   |   |   |   |   |   |
| EQUITY:                                                                                                                                                                                                                                                                                                                                                                                                                  |   |        | (21)   |   |         |   |   |   |   |   |   |   |
| Elbit Systems Ltd. equity:                                                                                                                                                                                                                                                                                                                                                                                          |   |        |   |   |         |   |   |   |   |   |   |   |
| Share capital:                                                                                                                                                                                                                                                                                                                                                                                                           |   |        |   |   |         |   |   |   |   |   |   |   |
| Ordinary shares of New Israeli Shekels ("NIS") 1 par value each;   Authorized –  80,000,000 shares as of   December 31, 2011 and 2010;   Issued 43,257,077 and 43,102,261shares as   of December 31, 2011 and 2010, respectively;   Outstanding 42,607,788 and 42,693,340 shares   as of December 31, 2011 and 2010,  respectively |   |        |   |   |         |   |           12,093 |   |   |   |           12,050 |   |
| Additional paid-in capital                                                                                                                                                                                                                                                                                                                                                                                               |   |        |   |   |         |   | 232,407 |   |   |   | 281,594 |   |
| Treasury shares – 649,289 and 408,921 shares as of December 31, 2011 and 2010, respectively                                                                                                                                                                                                                                                                                                                        |   |        |   |   |         |   | (14,422 | ) |   |   | (4,321 | ) |
| Accumulated other comprehensive loss                                                                                                                                                                                                                                                                                                                                                                                     |   |        |   |   |         |   | (56,226 | ) |   |   | (18,460 | ) |
| Retained earnings                                                                                                                                                                                                                                                                                                                                                                                                        |   |        |   |   |         |   | 724,485 |   |   |   | 695,830 |   |
| Total Elbit Systems Ltd. equity                                                                                                                                                                                                                                                                                                                                                                                          |   |        |   |   |         |   | 898,337 |   |   |   | 966,693 |   |
| Non-controlling interests                                                                                                                                                                                                                                                                                                                                                                                                |   |        |   |   |         |   | 29,383 |   |   |   | 38,758 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                     |   |        |   |   |         |   | 927,720 |   |   |   | 1,005,451 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                     |   |        |   |   |         |   |   |   |   |   |   |   |
| Total liabilities and equity                                                                                                                                                                                                                                                                                                                                                                                             |   |        |   |   |         | $      | 3,720,510 |   |   | $ | 3,615,773 |   |

----

| CONSOLIDATED STATEMENTS OF INCOME              |
|------------------------------------------------|
| U.S. dollars (In thousands, except share data) |

|                                                                                           |   |        |    |   | Year ended December 31, |   |
|------------------------------------------------------------------------------------------------|--------|-------------|---------|--------|-------------------------|--------|
|                                                                                           |   |   Note |    |   | 2011                    |   |   | 2010 |   |   | 2009 |   |
| Revenues                                                                                       |   |        | (22)    |   |                    | $      | 2,817,465 |   |   | $ | 2,670,133 |   |   | $ | 2,832,437 |   |
| Cost of revenues                                                                               |   |        |    |   |                    |   | 2,085,451 |   |   |   | 1,872,263 |   |   |   | 1,982,954 |   |
|      Gross profit                                                     |   |        |    |   |                    |   | 732,014 |   |   |   | 797,870 |   |   |   | 849,483 |   |
|                                                                                           |   |        |    |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Operating expenses:                                                                            |   |        |    |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Research and development, net                                                                  |   |        | (23)    |   |                    |   | 241,092 |   |   |   | 234,131 |   |   |   | 216,752 |   |
| Marketing and selling                                                                          |   |        |    |   |                    |   | 235,909 |   |   |   | 229,942 |   |   |   | 250,963 |   |
| General and administrative                                                                     |   |        |    |   |                    |   | 139,349 |   |   |   | 131,200 |   |   |   | 119,311 |   |
| Other operating income, net                                                                    |   |        | (1E(1)) |   |                    |   | - |   |   |   | (4,756 | ) |   |   | - |   |
| Total operating expenses                                                                       |   |        |    |   |                    |   | 616,350 |   |   |   | 590,517 |   |   |   | 587,026 |   |
|                                                                                           |   |        |    |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Operating income                                                                               |   |        |    |   |                    |   | 115,664 |   |   |   | 207,353 |   |   |   | 262,457 |   |
|                                                                                           |   |        |    |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Financial expenses, net                                                                        |   |        | (24)    |   |                    |   | (13,569 | ) |   |   | (21,251 | ) |   |   | (15,585 | ) |
| Other income, net                                                                              |   |        | (25)    |   |                    |   | 1,909 |   |   |   | 13,259 |   |   |   | 458 |   |
| Income before income taxes                                                                |   |        |    |   |                    |   | 104,004 |   |   |   | 199,361 |   |   |   | 247,330 |   |
| Income taxes                                                                                   |   |        | (18D)   |   |                    |   | 13,624 |   |   |   | 24,037 |   |   |   | 38,109 |   |
|                                                                                           |   |        |    |   |                    |   | 90,380 |   |   |   | 175,324 |   |   |   | 209,221 |   |
|                                                                                           |   |        |    |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Equity in net earnings of affiliated companies and partnership                                 |   |        | (6B)    |   |                    |   | 15,377 |   |   |   | 18,796 |   |   |   | 19,292 |   |
| Income from continuing operations                                                              |   |        |    |   |                    |   | 105,757 |   |   |   | 194,120 |   |   |   | 228,513 |   |
| Income (loss) from discontinued operations and impairment, net                                 |   |        | (1G)    |   |                    |   | (15,977 | ) |   |   | 921 |   |   |   | - |   |
| Net income                                                                                     |   |        |    |   |                    | $      | 89,780 |   |   | $ | 195,041 |   |   | $ | 228,513 |   |
|                                                                                           |   |        |    |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Less: net loss (income) attributable to non-controlling interests                              |   |        |    |   |                    |   | 508 |   |   |   | (11,543 | ) |   |   | (13,566 | ) |
| Net income attributable to Elbit Systems Ltd.'s shareholders                                   |   |        |    |   |                    | $      | 90,288 |   |   | $ | 183,498 |   |   | $ | 214,947 |   |
|                                                                                           |   |        |    |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Earnings per share attributable to Elbit Systems Ltd.'s ordinary shareholders:                 |   |        | (21)    |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Basic net earnings (losses) per share:                                                         |   |        |    |   |                    |   |   |   |   |   |   |   |   |   |   |   |
|       Continuing operations                                      |   |        |    |   |                    |   | 2.33 |   |   |   | 4.29 |   |   |   | 5.08 |   |
|       Discontinued operations                                    |   |        |    |   |                    |   | (0.22 | ) |   |   | 0.01 |   |   |   | - |   |
| Total                                                                                          |   |        |    |   |                    | $      | 2.11 |   |   | $ | 4.30 |   |   | $ | 5.08 |   |
| Diluted net earnings (losses) per share:                                                       |   |        |    |   |                    |   |   |   |   |   |   |   |   |   |   |   |
|       Continuing operations                                      |   |        |    |   |                    |   | 2.31 |   |   |   | 4.24 |   |   |   | 5.00 |   |
|       Discontinued operations                                    |   |        |    |   |                    |   | (0.22 | ) |   |   | 0.01 |   |   |   | - |   |
| Total                                                                                          |   |        |    |   |                    | $      | 2.09 |   |   | $ | 4.25 |   |   | $ | 5.00 |   |
| Weighted average number of shares used in computation of basic earnings per share              |   |        |    |   |                    |   | 42,764 |   |   |   | 42,645 |   |   |   | 42,305 |   |
| Weighted average number of shares used in  computation of diluted earnings per share |   |        |    |   |                    |   | 43,131 |   |   |   | 43,217 |   |   |   | 42,983 |   |
|                                                                                           |   |        |    |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Amounts attributable to Elbit Systems Ltd.'s common shareholders                               |   |        |    |   |                    |   |   |   |   |   |   |   |   |   |   |   |
| Income from continuing operations, net of  income taxes                              |   |        |    |   |                    | $      | 99,778 |   |   | $ | 182,951 |   |   | $ | 214,947 |   |
| Discontinued operations, net of income taxes                                                   |   |        |    |   |                    |   | (9,490 | ) |   |   | 547 |   |   |   | - |   |
| Net income attributable to Elbit Systems Ltd.'s shareholders                                   |   |        |    |   |                    | $      | 90,288 |   |   | $ | 183,498 |   |   | $ | 214,947 |   |

----

| STATEMENTS OF CHANGES IN EQUITY                |
|------------------------------------------------|
| U.S. dollars (In thousands, except share data) |

|                                                                                                                                            |   | Number ofoutstandingshares |            |   |  Sharecapital |   |            | Additionalpaid-incapital |   |   | Accumulatedothercomprehensiveincome (loss) |   |   |  Retainedearnings |    |   |  Treasuryshares |   |                | Non-controllinginterest |   |   |  Totalequity |   |   | Totalcomprehensiveincome |            |
|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|-----------------|--------|--------------------|--------|-----------------|--------------------------|--------|--------|--------------------------------------------|--------|--------|------------------------|---------|--------|----------------------|--------|---------------------|-------------------------|--------|--------|-------------------|--------|--------|--------------------------|-----------------|
| Balance as of January 1, 2009                                                                                                                   |   |                       | 42,079,452      |   |               | $      | 11,892          |                     |   | $      | 300,227                                    |   |   | $                      | (13,573 | )      |                 | $      | 429,608             |                    |   | $      | (4,321            | )      |   | $                        | 76,475          |   |   | $ | 800,308 |   |   |   |   |
| Exercise of options                                                                                                                             |   |                       | 451,443         |   |               |   | 114             |                     |   |   | 9,757                                      |   |   |                   | -       |   |                 |   | -                   |                    |   |   | -                 |   |   |                     | -               |   |   |   | 9,871 |   |   |   |   |
| Stock-based compensation                                                                                                                        |   |                       | -               |   |               |   | -               |                     |   |   | 5,134                                      |   |   |                   | -       |   |                 |   | -                   |                    |   |   | -                 |   |   |                     | -               |   |   |   | 5,134 |   |   |   |   |
| Dividends paid                                                                                                                                  |   |                       | -               |   |               |   | -               |                     |   |   | -                                          |   |   |                   | -       |   |                 |   | (76,172             | )                       |   |   | -                 |   |   |                     | -               |   |   |   | (76,172 | ) |   |   |   |
| Purchase of subsidiary shares from non- controlling interest                                                                                    |   |                       | -               |   |               |   | -               |                     |   |   | (42,991                                    | )      |   |                   | -       |   |                 |   | -                   |                    |   |   | -                 |   |   |                     | (67,259         | ) |   |   | (110,250 | ) |   |   |   |
| Other comprehensive income,  net of tax:                                                                                              |   |                       |            |   |               |   |            |                     |   |   |                                       |   |   |                   |    |   |                 |   |                |                    |   |   |              |   |   |                     |            |   |   |   |   |   |   |   |   |
| Unrealized loss on derivative instruments, net of $749 tax income                                                                               |   |                       | -               |   |               |   | -               |                     |   |   | -                                          |   |   |                   | (11,381 | )      |                 |   | -                   |                    |   |   | -                 |   |   |                     | (97             | ) |   |   | (11,478 | ) |   | $ | (11,478 | ) |
| Foreign currency translation differences                                                                                                        |   |                       | -               |   |               |   | -               |                     |   |   | -                                          |   |   |                   | 1,367   |   |                 |   | -                   |                    |   |   | -                 |   |   |                     | 1,517           |   |   |   | 2,884 |   |   |   | 2,884 |   |
| Unrealized pension income, net of $1,473 tax expense                                                                                            |   |                       | -               |   |               |   | -               |                     |   |   | -                                          |   |   |                   | 1,910   |   |                 |   | -                   |                    |   |   | -                 |   |   |                     | -               |   |   |   | 1,910 |   |   |   | 1,910 |   |
| Unrealized income on available for sale securities, net of $1,103 tax expense                                                                   |   |                       | -               |   |               |   | -               |                     |   |   | -                                          |   |   |                   | 6,350   |   |                 |   | -                   |                    |   |   | -                 |   |   |                     | 124             |   |   |   | 6,474 |   |   |   | 6,474 |   |
| Cumulative effect from adoption of FSP 115-2 (codified in ASC 320-10, Investments –Debt and Equity Securities), net of $1,772 tax expense |   |                       |     - |   |               |   |     - |                     |   |   |     -                            |   |   |                   | (7,086  | )      |                 |   |     7,086 |                    |   |   |     -   |   |   |                     |     - |   |   |   |     - |   |   |   |     - |   |
| Net income attributable to non- controlling interests                                                                                           |   |                       | -               |   |               |   | -               |                     |   |   | -                                          |   |   |                   | -       |   |                 |   | -                   |                    |   |   | -                 |   |   |                     | 13,566          |   |   |   | 13,566 |   |   |   | 13,566 |   |
| Net income attributable to Elbit Systems Ltd. shareholders                                                                                      |   |                       | -               |   |               |   | -               |                     |   |   | -                                          |   |   |                   | -       |   |                 |   | 214,947             |                    |   |   | -                 |   |   |                     | -               |   |   |   | 214,947 |   |   |   | 214,947 |   |
| Total comprehensive income                                                                                                                      |   |                       |            |   |               |   |            |                     |   |   |                                       |   |   |                   |    |   |                 |   |                |                    |   |   |              |   |   |                     |            |   |   |   |   |   |   | $ | 228,303 |   |
| Balance as of December 31, 2009                                                                                                                 |   |                       | 42,530,895      |   |               | $      | 12,006          |                     |   | $      | 272,127                                    |   |   | $                      | (22,413 | )      |                 | $      | 575,469             |                    |   | $      | (4,321            | )      |   | $                        | 24,326          |   |   | $ | 857,194 |   |   |   |   |   |
| Exercise of options                                                                                                                             |   |                       | 162,445         |   |               |   | 44              |                     |   |   | 3,546                                      |   |   |                   | -       |   |                 |   | -                   |                    |   |   | -                 |   |   |                     | -               |   |   |   | 3,590 |   |   |   |   |   |
| Stock-based compensation                                                                                                                        |   |                       | -               |   |               |   | -               |                     |   |   | 5,211                                      |   |   |                   | -       |   |                 |   | -                   |                    |   |   | -                 |   |   |                     | -               |   |   |   | 5,211 |   |   |   |   |   |
| Tax benefit in respect of options exercised                                                                                                     |   |                       | -               |   |               |   | -               |                     |   |   | 710                                        |   |   |                   | -       |   |                 |   | -                   |                    |   |   | -                 |   |   |                     | -               |   |   |   | 710 |   |   |   |   |   |
| Dividends paid                                                                                                                                  |   |                       | -               |   |               |   | -               |                     |   |   | -                                          |   |   |                   | -       |   |                 |   | (63,137             | )                       |   |   | -                 |   |   |                     | -               |   |   |   | (63,137 | ) |   |   |   |   |
| Fair value of non-controlling interests related to the acquisition of ITL                                                                       |   |                       | -               |   |               |   | -               |                     |   |   | -                                          |   |   |                   | -       |   |                 |   | -                   |                    |   |   | -                 |   |   |                     | 4,298           |   |   |   | 4,298 |   |   |   |   |   |
| Other comprehensive income,  net of tax:                                                                                              |   |                       |            |   |               |   |            |                     |   |   |                                       |   |   |                   |    |   |                 |   |                |                    |   |   |              |   |   |                     |            |   |   |   |   |   |   |   |   |   |
| Unrealized gain on derivative instruments, net of $308 tax expense                                                                              |   |                       | -               |   |               |   | -               |                     |   |   | -                                          |   |   |                   | 6,668   |   |                 |   | -                   |                    |   |   | -                 |   |   |                     | 119             |   |   |   | 6,787 |   |   | $ | 6,787 |   |
| Foreign currency translation differences                                                                                                        |   |                       | -               |   |               |   | -               |                     |   |   | -                                          |   |   |                   | 2,991   |   |                 |   | -                   |                    |   |   | -                 |   |   |                     | (1,154          | ) |   |   | 1,837 |   |   |   | 1,837 |   |
| Unrealized pension loss, net of $1,119 tax income                                                                                               |   |                       | -               |   |               |   | -               |                     |   |   | -                                          |   |   |                   | (2,781  | )      |                 |   | -                   |                    |   |   | -                 |   |   |                     | -               |   |   |   | (2,781 | ) |   |   | (2,781 | ) |
| Unrealized loss on available for sale securities, net of $990 tax income                                                                        |   |                       | -               |   |               |   | -               |                     |   |   | -                                          |   |   |                   | (2,925  | )      |                 |   | -                   |                    |   |   | -                 |   |   |                     | -               |   |   |   | (2,925 | ) |   |   | (2,925 | ) |
| Net income attributable to non- controlling interests                                                                                           |   |                       | -               |   |               |   | -               |                     |   |   | -                                          |   |   |                   | -       |   |                 |   | -                   |                    |   |   | -                 |   |   |                     | 11,543          |   |   |   | 11,543 |   |   |   | 11,543 |   |
| Net income attributable to non-controlling interest  from discontinued operation                                                           |   |                       | -               |   |               |   | -               |                     |   |   | -                                          |   |   |                   | -       |   |                 |   | -                   |                    |   |   | -                 |   |   |                     | (374            | ) |   |   | (374 | ) |   |   | (374 | ) |
| Net income attributable to Elbit Systems Ltd. shareholders                                                                                      |   |                       | -               |   |               |   | -               |                     |   |   | -                                          |   |   |                   | -       |   |                 |   | 183,498             |                    |   |   | -                 |   |   |                     | -               |   |   |   | 183,498 |   |   |   | 183,498 |   |
| Total comprehensive income                                                                                                                      |   |                       |            |   |               |   |            |                     |   |   |                                       |   |   |                   |    |   |                 |   |                |                    |   |   |              |   |   |                     |            |   |   |   |   |   |   | $ | 197,585 |   |
| Balance as of December 31, 2010                                                                                                                 |   |                       | 42,693,340      |   |               | $      | 12,050          |                     |   | $      | 281,594                                    |   |   | $                      | (18,460 | )      |                 | $      | 695,830             |                    |   | $      | (4,321            | )      |   | $                        | 38,758          |   |   | $ | 1,005,451 |   |   |   |   |   |

----

| STATEMENTS OF CHANGES IN EQUITY (CONT.)        |
|------------------------------------------------|
| U.S. dollars (In thousands, except share data) |

|                                                                          |   | Number ofoutstandingshares |       |   |  Sharecapital |   |   | Additionalpaid-incapital |   |   | Accumulatedothercomprehensiveincome (loss) |   |   |  Retainedearnings |    |   |  Treasuryshares |   |    | Non-controllinginterest |   |   |  Totalequity |   |   | Totalcomprehensiveincome |    |
|-------------------------------------------------------------------------------|--------|----------------------------|------------|--------|--------------------|--------|--------|--------------------------|--------|--------|--------------------------------------------|--------|--------|------------------------|---------|--------|----------------------|--------|---------|-------------------------|--------|--------|-------------------|--------|--------|--------------------------|---------|
| Balance as of January 1, 2011                                                 |   |                       | 42,693,340 |   |               | $      | 12,050 |                     |   | $      | 281,594                                    |   |   | $                      | (18,460 | )      |                 | $      | 695,830 |                    |   | $      | (4,321            | )      |   | $                        | 38,758  |   |   | $ | 1,005,451 |   |   |   |   |
| Exercise of options                                                           |   |                       | 154,816    |   |               |   | 43     |                     |   |   | 3,790                                      |   |   |                   | -       |   |                 |   | -       |                    |   |   | -                 |   |   |                     | -       |   |   |   | 3,833 |   |   |   |   |
| Stock-based compensation                                                      |   |                       | -          |   |               |   | -      |                     |   |   | 1,996                                      |   |   |                   | -       |   |                 |   | -       |                    |   |   | -                 |   |   |                     | -       |   |   |   | 1,996 |   |   |   |   |
| Tax benefit in respect of options exercised                                   |   |                       | -          |   |               |   | -      |                     |   |   | 169                                        |   |   |                   | -       |   |                 |   | -       |                    |   |   | -                 |   |   |                     | -       |   |   |   | 169 |   |   |   |   |
| Dividends paid                                                                |   |                       | -          |   |               |   | -      |                     |   |   | -                                          |   |   |                   | -       |   |                 |   | (61,633 | )                       |   |   | -                 |   |   |                     | -       |   |   |   | (61,633 | ) |   |   |   |
| Purchase of treasury shares                                                   |   |                       | (240,368   | )      |               |   | -      |                     |   |   | -                                          |   |   |                   | -       |   |                 |   |    |                    |   |   | (10,101           | )      |   |                     | -       |   |   |   | (10,101 | ) |   |   |   |
| Purchase of subsidiaries shares from non-controlling interest, net            |   |                       | -          |   |               |   | -      |                     |   |   | (55,142                                    | )      |   |                   | -       |   |                 |   | -       |                    |   |   | -                 |   |   |                     | (15,858 | ) |   |   | (71,000 | ) |   |   |   |
| Other comprehensive income,  net of tax:                            |   |                       |       |   |               |   |   |                     |   |   |                                       |   |   |                   |    |   |                 |   |    |                    |   |   |              |   |   |                     |    |   |   |   |   |   |   |   |   |
| Unrealized loss on derivative instruments, net of $740 tax income             |   |                       | -          |   |               |   | -      |                     |   |   | -                                          |   |   |                   | (20,025 | )      |                 |   | -       |                    |   |   | -                 |   |   |                     | -       |   |   |   | (20,025 | ) |   |   | (20,025 | ) |
| Foreign currency translation differences                                      |   |                       | -          |   |               |   | -      |                     |   |   | -                                          |   |   |                   | (5,597  | )      |                 |   | -       |                    |   |   | -                 |   |   |                     | 504     |   |   |   | (5,093 | ) |   |   | (5,093 | ) |
| Unrealized pension loss, net of $9,910 tax income                             |   |                       | -          |   |               |   | -      |                     |   |   | -                                          |   |   |                   | (15,807 | )      |                 |   | -       |                    |   |   | -                 |   |   |                     | -       |   |   |   | (15,807 | ) |   |   | (15,807 | ) |
| Realized loss on available for sale securities, net of $250 tax expanse       |   |                       | -          |   |               |   | -      |                     |   |   | -                                          |   |   |                   | 3,663   |   |                 |   | -       |                    |   |   | -                 |   |   |                     | -       |   |   |   | 3,663 |   |   |   | 3,663 |   |
| Net income attributable to non- controlling interests                         |   |                       | -          |   |               |   | -      |                     |   |   | -                                          |   |   |                   | -       |   |                 |   | -       |                    |   |   | -                 |   |   |                     | (508    | ) |   |   | (508 | ) |   |   | (508 | ) |
| Net loss attributable to non-controlling interest from discontinued operation |   |                       | -          |   |               |   | -      |                     |   |   | -                                          |   |   |                   | -       |   |                 |   | -       |                    |   |   | -                 |   |   |                     | 6,487   |   |   |   | 6,487 |   |   |   | 6,487 |   |
| Net income attributable to Elbit Systems Ltd. shareholders                    |   |                       | -          |   |               |   | -      |                     |   |   | -                                          |   |   |                   | -       |   |                 |   | 90,288  |                    |   |   | -                 |   |   |                     | -       |   |   |   | 90,288 |   |   |   | 90,288 |   |
| Total comprehensive income                                                    |   |                       |       |   |               |   |   |                     |   |   |                                       |   |   |                   |    |   |                 |   |    |                    |   |   |              |   |   |                     |    |   |   |   |   |   |   | $ | 59,005 |   |
| Balance as of December 31, 2011                                               |   |                       | 42,607,788 |   |               | $      | 12,093 |                     |   | $      | 232,407                                    |   |   | $                      | (56,226 | )      |                 | $      | 724,485 |                    |   | $      | (14,422           | )      |   | $                        | 29,383  |   |   | $ | 927,720 |   |   |   |   |   |

| Accumulated other comprehensive loss, net of taxes |
|----------------------------------------------------|

|                                                           |   | Year ended December 31, |    |
|----------------------------------------------------------------|--------|-------------------------|---------|
|                                                           |   | 2011                    |    |   | 2010 |   |   | 2009 |   |
| Accumulated gains (losses) on derivative instruments           |   | $                       | (10,114 | ) |   | $ | 9,911 |   |   | $ | 3,243 |   |
| Accumulated foreign currency translation differences           |   |                    | (7,161  | ) |   |   | (1,564 | ) |   |   | (4,555 | ) |
| Accumulated unrealized losses on available for sale securities |   |                    | (1,553  | ) |   |   | (5,216 | ) |   |   | (2,291 | ) |
| Unrealized pension losses                                      |   |                    | (37,398 | ) |   |   | (21,591 | ) |   |   | (18,810 | ) |
| Accumulated other comprehensive loss                           |   | $                       | (56,226 | ) |   | $ | (18,460 | ) |   | $ | (22,413 | ) |

----

| CONSOLIDATED STATEMENTS OF CASH FLOWS |
|---------------------------------------|
| U.S. dollars (In thousands)           |
|                                  |

|                                                                                        |   | Year ended December 31, |    |
|---------------------------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                                        |   | 2011                    |    |   | 2010 |   |   | 2009 |   |
| CASH FLOWS FROM OPERATING ACTIVITIES                                                        |   |                    |    |   |   |   |   |   |   |
| Net income                                                                                  |   | $                       | 89,780  |   |   | $ | 195,041 |   |   | $ | 228,513 |   |
| Adjustments to reconcile net income to net cash provided by operating activities:           |   |                    |    |   |   |   |   |   |   |   |   |   |
| Depreciation and amortization                                                               |   |                    | 150,618 |   |   |   | 132,141 |   |   |   | 123,473 |   |
| Write-off impairment and discontinued operations, net                                       |   |                    | 15,977  |   |   |   | 1,284 |   |   |   | 3,017 |   |
| Stock-based compensation                                                                    |   |                    | 1,996   |   |   |   | 5,211 |   |   |   | 5,134 |   |
| Amortization of Series A Notes discount and related issuance costs                          |   |                    | 422     |   |   |   | (258 | ) |   |   | - |   |
| Deferred income taxes and reserve, net                                                      |   |                    | (8,777  | ) |   |   | (28,162 | ) |   |   | 7,606 |   |
| Gain on sale of property, plant and equipment                                               |   |                    | (1,645  | ) |   |   | (1,426 | ) |   |   | (723 | ) |
| Loss (gain) on sale of investment                                                           |   |                    | 2,189   |   |   |   | (19,151 | ) |   |   | (2,734 | ) |
| Equity in net earnings of affiliated companies and partnership, net of dividend received(*) |   |                    | (270    | ) |   |   | (8,791 | ) |   |   | (1,824 | ) |
| Changes in operating assets and liabilities, net of amounts acquired:                       |   |                    |    |   |   |   |   |   |   |   |   |   |
| Increase in short and long-term trade receivables, and prepaid expenses                     |   |                    | (65,062 | ) |   |   | (84,708 | ) |   |   | (136,224 | ) |
| Decrease (increase) in inventories, net                                                     |   |                    | (95,363 | ) |   |   | (49,724 | ) |   |   | 75,431 |   |
| Increase in trade payables, other payables and accrued expenses                             |   |                    | 17,225  |   |   |   | 76,807 |   |   |   | 20,223 |   |
| Severance, pension and termination indemnities, net                                         |   |                    | 1,879   |   |   |   | 4,160 |   |   |   | (16,773 | ) |
| Increase (decrease) in advances received from customers                                     |   |                    | 81,946  |   |   |   | (36,396 | ) |   |   | (95,397 | ) |
| Net cash provided by operating activities                                                   |   |                    | 190,915 |   |   |   | 186,028 |   |   |   | 209,722 |   |

|                                                                        |   |   |     |   |   |   |     |   |   |
|-----------------------------------------------------------------------------|--------|--------|----------|--------|--------|--------|----------|--------|--------|
| CASH FLOWS FROM INVESTING ACTIVITIES                                        |   |   |     |   |   |   |     |   |   |
| Purchase of property, plant and equipment                                   |   |   | (121,977 | )      |   |   | (138,644 | )      |   |   | (107,893 | ) |
| Acquisitions of subsidiaries and business operations (Schedule A)           |   |   | (12,173  | )      |   |   | (229,556 | )      |   |   | (48,234 | ) |
| Investments in affiliated companies and other companies                     |   |   | (13,555  | )      |   |   | (4,956   | )      |   |   | (19,415 | ) |
| Proceeds from sale of property, plant and equipment                         |   |   | 15,059   |   |   |   | 10,667   |   |   |   | 9,055 |   |
| Proceeds from sale of investments                                           |   |   | 329      |   |   |   | 27,941   |   |   |   | 33,026 |   |
| Investment in long-term deposits                                            |   |   | (609     | )      |   |   | (14,484  | )      |   |   | (24,004 | ) |
| Proceeds from sale of long-term deposits                                    |   |   | 40,396   |   |   |   | 30,240   |   |   |   | 12,994 |   |
| Investment in short-term deposits and available for sale securities         |   |   | (88,842  | )      |   |   | (189,345 | )      |   |   | (152,457 | ) |
| Proceeds from sale of short-term deposits and available for sale securities |   |   | 126,306  |   |   |   | 252,550  |   |   |   | 99,625 |   |
| Net cash used in investing activities                                       |   |   | (55,066  | )      |   |   | (255,587 | )      |   |   | (197,303 | ) |
|                                                                        |   |   |     |   |   |   |     |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                        |   |   |     |   |   |   |     |   |   |   |   |   |
| Proceeds from exercise of options                                           |   |   | 3,833    |   |   |   | 3,590    |   |   |   | 9,871 |   |
| Purchase of non-controlling interests                                       |   |   | (71,000  | )      |   |   | -        |   |   |   | (110,250 | ) |
| Repayment of long-term bank loans                                           |   |   | (73,666  | )      |   |   | (488,657 | )      |   |   | (148,652 | ) |
| Proceeds from long-term bank loans                                          |   |   | 172,303  |   |   |   | 387,692  |   |   |   | 256,354 |   |
| Proceeds from issuance of Series A Notes                                    |   |   | -        |   |   |   | 283,213  |   |   |   | - |   |
| Series A Notes issuance costs                                               |   |   | -        |   |   |   | (2,530   | )      |   |   | - |   |
| Purchase of treasury shares                                                 |   |   | (10,101  | )      |   |   | -        |   |   |   | - |   |
| Repayment of Series A Notes and convertible debentures                      |   |   | (29,998  | )      |   |   | -        |   |   |   | - |   |
| Purchase of convertible debentures of a subsidiary                          |   |   | (2,121   | )      |   |   | -        |   |   |   | - |   |
| Dividends paid                                                              |   |   | (61,633  | )      |   |   | (63,137  | )      |   |   | (76,172 | ) |
| Tax benefit in respect of options exercised                                 |   |   | 169      |   |   |   | 710      |   |   |   | - |   |
| Change in short-term bank credit and  loans, net                  |   |   | (12,117  | )      |   |   | (40,972  | )      |   |   | (7,531 | ) |
| Net cash provided by (used in) financing activities                         |   |   | (84,331  | )      |   |   | 79,909   |   |   |   | (76,380 | ) |
|                                                                        |   |   |     |   |   |   |     |   |   |   |   |   |
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                        |   |   | 51,518   |   |   |   | 10,350   |   |   |   | (63,961 | ) |
| CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR                      |   |   | 151,059  |   |   |   | 140,709  |   |   |   | 204,670 |   |
| CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR                            |   | $      | 202,577  |   |   | $      | 151,059  |   |   | $ | 140,709 |   |
|                                                                        |   |   |     |   |   |   |     |   |   |   |   |   |
| (*) Dividend received from affiliated companies and partnerships            |   | $      | 15,107   |   |   | $      | 10,925   |   |   | $ | 17,468 |   |

----

| CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.) |
|-----------------------------------------------|
| U.S. dollars (In thousands)                   |

|                                                                                                           |   | Year ended December 31, |   |
|----------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|
|                                                                                                           |   | 2011                    |   |   | 2010 |   |   | 2009 |   |
| SUPPLEMENTAL CASH FLOW ACTIVITIES:                                                                             |   |                    |   |   |   |   |   |   |   |
| Cash paid during the year for:                                                                                 |   |                    |   |   |   |   |   |   |   |
| Income taxes                                                                                                   |   | $                       | 18,955 |   |   | $ | 60,759 |   |   | $ | 47,946 |   |
| Interest                                                                                                       |   | $                       | 10,258 |   |   | $ | 13,524 |   |   | $ | 11,665 |   |
|                                                                                                           |   |                    |   |   |   |   |   |   |   |   |   |   |
| SCHEDULE A:                                                                                                    |   |                    |   |   |   |   |   |   |   |   |   |   |
| Acquisitions of subsidiaries and business operations (*)                                                       |   |                    |   |   |   |   |   |   |   |   |   |   |
| Estimated net fair value of assets acquired and liabilities assumed at the date of acquisition was as follows: |   |                    |   |   |   |   |   |   |   |   |   |   |
| Working capital (deficit), net (excluding cash and cash equivalents)                                           |   | $                       | 306    |   |   | $ | (57,937 | ) |   | $ | (3,979 | ) |
| Property, plant and equipment                                                                                  |   |                    | 1,938  |   |   |   | 56,233 |   |   |   | 1,303 |   |
| Other long-term assets                                                                                         |   |                    | -      |   |   |   | 16,008 |   |   |   | 855 |   |
| Goodwill and other intangible assets                                                                           |   |                    | 17,993 |   |   |   | 261,910 |   |   |   | 51,427 |   |
| Deferred income taxes                                                                                          |   |                    | (1,171 | ) |   |   | (15,515 | ) |   |   | - |   |
| Long-term liabilities                                                                                          |   |                    | (6,893 | ) |   |   | (26,845 | ) |   |   | (1,372 | ) |
| Non-controlling interest                                                                                       |   |                    | -      |   |   |   | (4,298 | ) |   |   | - |   |
|                                                                                                           |   | $                       | 12,173 |   |   | $ | 229,556 |   |   | $ | 48,234 |   |

| (*) | See Notes 1(D), 1(E) and 1(F) |
|-----|-------------------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS |
|------------------------------------------------|
| U.S. dollars (In thousands)                    |

| Note 1 - | GENERAL |
|----------|---------|

|   | A. | Elbit Systems Ltd. (“Elbit Systems”) is an Israeli corporation, 45.75% owned by the Federmann Group. Elbit Systems’ shares are traded on the Nasdaq National Market in the United States (“Nasdaq”) and on the Tel Aviv Stock Exchange (“TASE”). Elbit Systems and its subsidiaries (collectively the “Company”) are engaged mainly in the field of defense electronics, homeland security and commercial aviation. Elbit Systems’ principal wholly-owned subsidiaries are the Elbit Systems of America, LLC (“ESA”) companies, Elbit Systems Electro-Optics Industries Elop Ltd. (“Elop”), Elbit Systems Land and C4I Ltd. (“ESLC”) and Elbit Systems EW and SIGINT – Elisra Ltd. (“Elisra”) (formerly known as Elisra Electronic Systems Ltd.). |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | A majority of the Company’s revenues are derived from direct or indirect sales to governments or to governmental agencies. As a result, a substantial portion of the Company’s sales is subject to the special risks associated with sales to governments or to governmental agencies. These risks include, among others, the dependency on the resources allocated by governments to defense programs, changes in governmental priorities, changes in governmental registration, changes in governmental regulations and changes in governmental approvals regarding export licenses required for the Company’s products and for its suppliers. As for major customers, refer to Note 22(C). |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | In December 2011, the Israeli Government, due to political considerations, did not renew the Company's export authorization to complete performance under an approximately $90,000 contract to supply systems to a foreign customer. As a result of the cessation of the program, and in accordance with our legal advisors opinion, the Company recorded in its results of operations an expense of approximately $72,800 ($62,000 net of taxes), which was included in cost of goods sold. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | D. | During 2011, the Company completed the following acquisitions and investments: |
|--------|----|--------------------------------------------------------------------------------|

|   | (1) | On February 9, 2011, the Company completed its cash tender offer (the "Tender Offer") to purchase all of the ordinary shares of ITL Optronics Ltd. ("ITL"), which prior to the completion of the offer was a publicly traded company in Israel, held 87.85% by the Company. As a result, ITL became a private wholly-owned subsidiary. The total amount paid for the ITL shares, related to the offer, was approximately $5,900 (approximately $3.4 per share). As this was an equity transaction between the Company and ITL's non-controlling shareholders, the Company reduced its shareholders' equity for the excess cost over book value related to the minority interest in ITL. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | On March 30, 2011, the Company acquired the remaining 30% of the shares of Elisra Electronic Systems Ltd. ("Elisra") held by Elta Systems Ltd. (“Elta”) for $67,500. Following the acquisition, Elisra became a wholly-owned subsidiary of the Company. As this was an equity transaction between the Company and Elisra's non-controlling shareholders, the Company reduced its shareholders' equity for the excess cost over book value related to the minority interest in Elisra. Subsequently, Elisra changed its name to Elbit Systems EW and SIGINT - Elisra Ltd. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | On April 1, 2011, the Company acquired all of the shares of Elite Automotive Systems Ltd. ("Elite") for a purchase price of approximately $8,200. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | On June 30, 2011, the Company completed the acquisition of C4 Security Ltd. ("C4") for a purchase price of approximately $10,900, of which approximately $6,900 is contingent consideration related to the occurrence of future events. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ELBIT SYSTEMS LTD. AND SUBSIDIARIES |
|-------------------------------------|

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands, except per share data)     |

| Note 1 -   GENERAL (Cont.) |
|-------------------------------------------|

|   | (5) | During 2011, the Company invested approximately $8,100 in Netcity Telecom S.A. ("Netcity"), in addition to an investment of $2,700 in 2010. Following this investment, the Company holds 40% of Netcity's shares (See Note 6(B)(4)). |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (6) | During September 2011, the Company established a joint company, Harpia Sistemas S.A. ("Harpia"), in which Embraer Defesa Seguranca S.A. Partficipacoes ("Embraer") owns 51% and the Company's Brazilian subsidiary AEL Sistemas S.A. ("AEL") owns the remaining 49%. Harpia will be engaged in the areas of unmanned aircraft systems, avionics systems and simulations systems. In addition, in September 2011, Embraer acquired a 25% interest in AEL for consideration of approximately $3,400. The Company has a call option and Embraer has a put option with respect to Embraer's shares in AEL at the purchase price that could be exercised starting five years after Embraer's investment in AEL. As a result, Embraer's investment is included in other long-term liabilities. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (7) | In November 2011, the Company's U.S. subsidiary, ESA, acquired the 50% ownership interest of UAS Dynamics LLC. ("UAS Dynamics"), held by General Dynamics Armament and Tactical Products. Following the acquisition, UAS Dynamics became a wholly-owned subsidiary of ESA. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | E. | During 2010, the Company completed the following acquisitions and investments: |
|--------|----|--------------------------------------------------------------------------------|

|   | (1) | On May 11, 2010, the Company's subsidiary, Elbit Security Systems Ltd. ("Elsec"), completed the acquisition of the balance of shares (81%) in Azimuth Technologies Ltd. ("Azimuth"), an Israeli based company, pursuant to the merger agreement signed by Azimuth and Elsec in January 2010. In November 2008, the Company purchased 19% of Azimuth shares. The aggregate purchase price for the 81% balance of Azimuth's shares was approximately $50,000, comprised of $41,500 in cash, and the remeasurement of its previously held 19% equity interest in Azimuth at its acquisition date fair value, using the quoted share price of Azimuth on Tel-Aviv Stock Exchange, to $8,500, and recognized gain of approximately $4,756 net of acquisition related expenses in the amount of approximately $1,600, included in "Other income, net" as part of operating results. The acquisition was accounted for using the purchase method as a business combination achieved in stages. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | On October 14, 2010, the Company's subsidiaries Kinetics Ltd. ("Kinetics") and Elsec completed the acquisition of all the shares of Soltam Systems Ltd. ("Soltam"), Saymar Ltd. ("Saymar") and ITL Optronics Ltd. ("ITL"), that were held by Mikal Ltd. ("Mikal") and its subsidiaries. In these transactions, Kinetics and Elsec acquired a 100% interest in Soltam and Saymar, and an 87.85% interest in ITL for a total consideration of approximately $80,500, of which $10,200 is contingent consideration on the occurrence of future events. Simultaneously, with the completion of the acquisition, Kinetics sold its holding in Mikal (approximately 19%). |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ELBIT SYSTEMS LTD. AND SUBSIDIARIES |
|-------------------------------------|

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands, except per share data)     |

| Note 1 -   GENERAL (Cont.) |
|-------------------------------------------|

|                               |   | Fair value |    | Expected useful lives |
|------------------------------------|--------|------------|---------|-----------------------|
| Working capital, net               |   | $          | (59,650 | )                     |   |
| Long-term assets and investments   |   |       | 8,166   |                  |   |
| Property, plant and equipment      |   |       | 50,750  |                  |   |
| Long-term liabilities              |   |       | (44,948 | )                     |   |
| Technology                         |   |       | 17,300  |                  | 10 years |
| IPR&D                          |   |       | 8,900   |                  | 10 years |
| Customer relationships and backlog |   |       | 11,400  |                  | 5-10 years |
| Trade name                         |   |       | 3,100   |                  | 8 years |
| Licenses                           |   |       | 1,020   |                  | 7 years |
| Non-competition                    |   |       | 700     |                  | 4 years |
| Non-controlling interest           |   |       | (4,592  | )                     |   |
| Deferred taxes                     |   |       | (5,866  | )                     |   |
| Goodwill                           |   |       | 94,292  |                  |   |
|                               |   | $          | 80,572  |                  |   |

|   | (3) | On December 1, 2010, the Company completed the acquisition of Ares Aerospacial e Defesa S.A ("Ares") and Periscopio Equipamentos Optronicos S.A ("Periscopio") for a purchase price of approximately $38,000. Revenues and earnings from the acquisition date through December 31, 2010, were immaterial to the consolidated results of the Company. The Company allocated the acquired assets and liabilities assumed based on a PPA performed by an independent advisor. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | On December 15, 2010, the Company's U.S. subsidiary ESA acquired all the shares of M7 Aerospace LP ("M7 Aerospace") for a purchase price of approximately $85,000. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                               |   | Fair Value |   | Expected useful lives |
|------------------------------------|--------|------------|--------|-----------------------|
| Working capital                    |   | $          | 30,959 |                  |   |
| Long-term assets and investments   |   |       | 17     |                  |   |
| Property, plant and equipment      |   |       | 2,654  |                  |   |
| Long-term liabilities              |   |       | (1,925 | )                     |   |
| Technology                         |   |       | 13,800 |                  | 15 years |
| Customer relationships and backlog |   |       | 7,100  |                  | 5 years |
| Brand name                         |   |       | 1,900  |                  | 2 years |
| Goodwill                           |   |       | 29,911 |                  |   |
|                               |   | $          | 84,416 |                  |   |

----

| ELBIT SYSTEMS LTD. AND SUBSIDIARIES |
|-------------------------------------|

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands, except per share data)     |

| Note 1 -   GENERAL (Cont.) |
|-------------------------------------------|

|   | F. | During 2009, the Company completed the following acquisitions and investments: |
|--------|----|--------------------------------------------------------------------------------|

|   | (1) | On February 24, 2009, the Company's subsidiary ESLC acquired all of the shares of Shiron Satellite Communications (1996) Ltd. ("Shiron"), for a purchase price of approximately $16,000. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | On April 7, 2009, the Company completed the purchase of the additional shares of its previously 51%-owned subsidiary Kinetics Ltd. ("Kinetics"). Elbit Systems purchased the remaining 49% of the shares from Kinetics' non-controlling shareholders for a purchase price of $110,250. As this was an equity transaction between the parent and Kinetics' non-controlling shareholders, the Company reduced its shareholders' equity for the excess costs over book value related to minority interest in Kinetics (which amounted to approximately $43,000), as required in accordance with ASC 810, "Consolidation". |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | On June 15, 2009, the Company signed an agreement with Mikal Ltd. ("Mikal") and its shareholders. The transaction provided for two stages. In the initial stage, the Company loaned to Mikal $18,000. On September 14, 2009, after receiving authorization from the Israeli Antitrust Authority, the loan was converted to ordinary shares. See Note 1(E)(2). |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | On November 19, 2009, the Company completed the acquisition of the assets and business of BVR Systems (1998) Ltd. ("BVR") for a purchase price of approximately $35,000. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | G. | DISCONTINUED OPERATIONS |
|--------|----|-------------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

| Note 2 - | SIGNIFICANT ACCOUNTING POLICIES |
|----------|---------------------------------|

|   | A. | USE OF ESTIMATES |
|--------|----|------------------|

|   | B. | ADOPTION OF NEW ACCOUNTING POLICIES |
|--------|----|-------------------------------------|

|   | C. | FUNCTIONAL CURRENCY |
|--------|----|---------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | D. | PRINCIPLES OF CONSOLIDATION |
|--------|----|-----------------------------|

|   | E. | BUSINESS COMBINATIONS |
|--------|----|-----------------------|

|   | F. | CASH AND CASH EQUIVALENTS |
|--------|----|---------------------------|

|   | G. | SHORT-TERM BANK DEPOSITS |
|--------|----|--------------------------|

|   | H. | AVAILABLE-FOR-SALE MARKETABLE SECURITIES |
|--------|----|------------------------------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | H. | AVAILABLE-FOR-SALE MARKETABLE SECURITIES (Cont.) |
|--------|----|--------------------------------------------------|

|   | I. | INVENTORIES |
|--------|----|-------------|

|   | · | Raw materials using the average or FIFO cost method. |
|--------|--------|------------------------------------------------------|

|   | · | Work in progress: |
|--------|--------|-------------------|

|   |   · | Costs incurred on long-term contracts in progress include direct labor, material, subcontractors, other direct costs and an allocation of overheads, which represent recoverable costs incurred for production, allocable operating overhead cost and, where appropriate, research and development costs (See Note 2(V)). |
|--------|---------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   · | Labor overhead is generally included on a basis of updated hourly rates and is allocated to each project according to the amount of hours expended. Material overhead is generally allocated to each project based on the value of direct material that is charged to the project. |
|--------|---------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | J. | INVESTMENT IN AFFILIATED COMPANIES, A PARTNERSHIP AND OTHER COMPANIES |
|--------|----|-----------------------------------------------------------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | J. | INVESTMENT IN AFFILIATED COMPANIES, A PARTNERSHIP AND OTHER COMPANIES (Cont.) |
|--------|----|-------------------------------------------------------------------------------|

|   | K. | VARIABLE INTEREST ENTITIES |
|--------|----|----------------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | L. | LONG-TERM RECEIVABLES |
|--------|----|-----------------------|

|   | M. | LONG-TERM BANK DEPOSITS |
|--------|----|-------------------------|

|   | N. | PROPERTY, PLANT AND EQUIPMENT |
|--------|----|-------------------------------|

|                                     | %     |         |
|------------------------------------------|-------|--------------|
| Buildings and leasehold improvements (*) | 2-20  |         |
| Instruments, machinery and equipment     | 3-33  |         |
| Office furniture and other               | 4-33  |         |
| Motor vehicles                           | 12-33 | (Mainly 15%) |

|   (*)   | Prepayments for operating lease and leasehold improvements are amortized generally over the term of the lease or the useful life of the assets, whichever is shorter. |
|------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | O. | OTHER INTANGIBLE ASSETS |
|--------|----|-------------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | P. | IMPAIRMENT OF LONG-LIVED ASSETS |
|--------|----|---------------------------------|

|   | Q. | GOODWILL IMPAIRMENT |
|--------|----|---------------------|

|   | R. | SEVERANCE PAY |
|--------|----|---------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | R. | SEVERANCE PAY (Cont.) |
|--------|----|-----------------------|

|   | S. | PENSION AND OTHER POSTRETIREMENT BENEFITS |
|--------|----|-------------------------------------------|

|   | T. | REVENUE RECOGNITION |
|--------|----|---------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | T. | REVENUE RECOGNITION (Cont.) |
|--------|----|-----------------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | T. | REVENUE RECOGNITION (Cont.) |
|--------|----|-----------------------------|

|   | U. | WARRANTY |
|--------|----|----------|

|                                                          |   | 2011   |    |   | 2010   |   |
|---------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Balance, at January 1                                         |   | $      | 164,778 |   |   | $      | 126,783 |   |
| Warranties issued during the year                             |   |   | 62,771  |   |   |   | 69,213 |   |
| Warranties related to acquisitions                            |   |   | -       |   |   |   | 19,015 |   |
| Reduction due to warranties forfeited or paid during the year |   |   | (63,381 | )      |   |   | (50,233 | ) |
| Balance, at December 31                                       |   | $      | 164,168 |   |   | $      | 164,778 |   |

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | V. | RESEARCH AND DEVELOPMENT COSTS |
|--------|----|--------------------------------|

|   | W. | INCOME TAXES |
|--------|----|--------------|

|   | X. | CONCENTRATION OF CREDIT RISKS |
|--------|----|-------------------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | X. | CONCENTRATION OF CREDIT RISKS (Cont.) |
|--------|----|---------------------------------------|

|   | Y. | DERIVATIVE FINANCIAL INSTRUMENTS |
|--------|----|----------------------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | Z. | STOCK-BASED COMPENSATION |
|--------|----|--------------------------|

|                    |   | 2011    |   |   | 2010    |   |   | 2009    |   |
|-------------------------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
| Divided yield           |   |    | 2.23   | %      |    |   | 2.20   | %       |   |   | 2.31 | % |
| Expected volatility     |   |    | 31.59  | %      |    |   | 31.92  | %       |   |   | 39.37 | % |
| Risk-free interest rate |   |    | 2.01   | %      |    |   | 1.56   | %       |   |   | 2.43 | % |
| Expected life           |   | 4 years |   |   | 4 years |   |   | 4 years |   |
| Forfeiture rate         |   |    | 0.56   | %      |    |   | 0.56   | %       |   |   | 0.56 | % |
| Suboptimal factor       |   |    | 1.75   |   |    |   | 1.75   |    |   |   | 1.75 |   |

|   | AA. | FAIR VALUE OF FINANCIAL INSTRUMENTS |
|--------|-----|-------------------------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | AA. | FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont.) |
|--------|-----|---------------------------------------------|

|                                              |   | Fair value measurement at December 31, 2010 using                       |   |
|---------------------------------------------------|--------|--------------------------------------------------------------------------------------------------|--------|
|                                              |   | Quoted Prices in ActiveMarkets for Identical Assets (Level 1) |   |   | SignificantOtherObservableInputs(Level 2) |   |   | SignificantUnobservable Inputs(Level 3) |   |
| Description of Assets                             |   |                                                                                             |   |   |   |   |   |   |   |
| Debt securities:                                  |   |                                                                                             |   |   |   |   |   |   |   |
|     Government bonds          |   | $                                                                                                | 824    |   |   | $ | - |   |   | $ | - |   |
|     ARS and CDOs              |   |                                                                                             | -      |   |   |   | - |   |   |   | 7,179 |   |
| Foreign currency derivatives and option contracts |   |                                                                                             | -      |   |   |   | 19,100 |   |   |   | - |   |
| Cross currency interest rate swap                 |   |                                                                                             | -      |   |   |   | 20,377 |   |   |   | - |   |
| Liabilities                                       |   |                                                                                             |   |   |   |   |   |   |   |   |   |   |
| Foreign currency derivative and option contracts  |   |                                                                                             | -      |   |   |   | (8,219 | ) |   |   | (51 | ) |
| Total                                             |   | $                                                                                                | 824    |   |   | $ | 31,258 |   |   | $ | 7,128 |   |

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands, except share data)         |

|   | AA. | FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont.) |
|--------|-----|---------------------------------------------|

|                                             |   | Fair value measurement at December 31, 2011 using                       |   |
|--------------------------------------------------|--------|--------------------------------------------------------------------------------------------------|--------|
|                                             |   | Quoted Prices in ActiveMarkets for Identical Assets (Level 1) |   |   | SignificantOtherObservableInputs(Level 2) |   |   | SignificantUnobservable Inputs(Level 3) |   |
| Description of Assets                            |   |                                                                                             |   |   |   |   |   |   |   |
| Debt securities:                                 |   |                                                                                             |   |   |   |   |   |   |   |
|     Government bonds         |   | $                                                                                                | 2,271  |   |   | $ | - |   |   | $ | - |   |
| Foreign currency derivative and option contracts |   |                                                                                             | -      |   |   |   | 14,755 |   |   |   | - |   |
| Cross currency interest rate swap                |   |                                                                                             | -      |   |   |   | 8,877 |   |   |   | - |   |
| Liabilities                                      |   |                                                                                             |   |   |   |   |   |   |   |   |   |   |
| Foreign currency derivative and option contracts |   |                                                                                             | -      |   |   |   | (25,954 | ) |   |   | - |   |
| Total                                            |   | $                                                                                                | 2,271  |   |   | $ | (2,322 | ) |   | $ | - |   |

|                                                            |   | (Level 3) |   |
|-----------------------------------------------------------------|--------|-----------|--------|
| Balance at December 31, 2010                                    |   | $         | 7,128  |   |
| Net change in fair value included in other comprehensive income |   |      | (3,663 | ) |
| Other-then-temporary impairment recognized in earnings          |   |      | (3,465 | ) |
| Balance at December 31, 2011                                    |   | $         | -      |   |

|   | AB. | BASIC AND DILUTED NET EARNINGS PER SHARE |
|--------|-----|------------------------------------------|

|   | AC. | TREASURY SHARES |
|--------|-----|-----------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | AD. | IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS |
|--------|-----|------------------------------------------------|

|   | (1) | In May 2011, the Financial Accounting Standards Board (FASB) issued ASU 2011-04, "Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS", which is effective for annual reporting periods beginning after December 15, 2011. This guidance amends certain accounting and disclosure requirements related to fair value measurements. Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity’s use of a non-financial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. The Company adopted ASU 2011-04 on January 1, 2012. The Company is currently evaluating ASU 2011-04 and has not yet determined the impact that adoption will have on its 2012 consolidated financial statements. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | In June 2011, the FASB issued ASU 2011-05, "Comprehensive Income (Topic 220): Presentation of Comprehensive Income", which is effective for annual reporting periods beginning after December 15, 2011. Accordingly, the Company adopted ASU 2011-05 on January 1, 2012. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity. The adoption of ASU 2011-05 is not expected to have a material impact on the Company's financial position or results of operations. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | In December 2010, the FASB issued ASU 2011-08, "Testing Goodwill for Impairment". ASU 2011-08 gives companies the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If a company concludes that this is the case, it must perform the two-step test. Otherwise, a company may skip the two-step test. ASU 2011-08 is effective for fiscal years beginning after December 15, 2011. The adoption of ASU 2011-08 is not expected to have a material impact on the Company's financial position or results of operations. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | AE. | RECLASSIFICATIONS |
|--------|-----|-------------------|

----

|   | ELBIT SYSTEMS LTD. AND SUBSIDIARIES |
|--------|-------------------------------------|

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|                                         |   | December 31, |    |
|----------------------------------------------|--------|--------------|---------|
|                                         |   | 2011         |    |   | 2010 |   |
| Receivables (1)                              |   | $            | 456,479 |   |   | $ | 505,441 |   |
| Unbilled receivables                         |   |         | 219,906 |   |   |   | 208,138 |   |
| Less – allowance for doubtful accounts |   |         | (6,861  | ) |   |   | (11,215 | ) |
|                                         |   | $            | 669,524 |   |   | $ | 702,364 |   |
|                                         |   |         |    |   |   |   |   |   |
| (1)Includes affiliated companies             |   | $            | 20,030  |   |   | $ | 19,308 |   |

|                         |   | December 31, |    |
|------------------------------|--------|--------------|---------|
|                         |   | 2011         |    |   | 2010 |   |
| Deferred income taxes, net   |   | $            | 35,263  |   |   | $ | 29,263 |   |
| Prepaid expenses             |   |         | 37,504  |   |   |   | 36,564 |   |
| Government institutions      |   |         | 72,266  |   |   |   | 40,154 |   |
| Derivative instruments       |   |         | 20,520  |   |   |   | 28,571 |   |
| Held for sale investment (*) |   |         | 1,748   |   |   |   | 14,727 |   |
| Other                        |   |         | 12,723  |   |   |   | 16,845 |   |
|                         |   | $            | 180,024 |   |   | $ | 166,124 |   |

|   (*)   | See Note 1(G). |
|------------------------|----------------|

|                                                                        |   | December 31, |      |
|-----------------------------------------------------------------------------|--------|--------------|-----------|
|                                                                        |   | 2011         |      |   | 2010 |   |
| Cost incurred on long-term contracts in progress                            |   | $            | 866,325   |   |   | $ | 763,791 |   |
| Raw materials                                                               |   |         | 110,528   |   |   |   | 82,236 |   |
| Advances to suppliers and subcontractors                                    |   |         | 47,168    |   |   |   | 50,839 |   |
|                                                                        |   |         | 1,024,021 |   |   |   | 896,866 |   |
| Less -                                                                      |   |         |      |   |   |   |   |   |
| Cost incurred on contracts in progress deducted from customer advances |   |         | 38,048    |   |   |   | 55,957 |   |
| Advances received from customers (*)                                        |   |         | 150,195   |   |   |   | 101,231 |   |
| Provision for losses on long-term contracts                                 |   |         | 74,509    |   |   |   | 74,408 |   |
|                                                                        |   | $            | 761,269   |   |   | $ | 665,270 |   |

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

| Note 6 - | INVESTMENTS IN AFFILIATED COMPANIES, PARTNERSHIP AND OTHER COMPANIES |
|----------|----------------------------------------------------------------------|

|   | A. | Investments in affiliated companies: |
|--------|----|--------------------------------------|

|                                            |   | December 31, |    |
|-------------------------------------------------|--------|--------------|---------|
|                                            |   | 2011         |    |   | 2010 |   |
| Companies accounted for under the equity method |   | $            | 105,914 |   |   | $ | 86,069 |   |
| Companies accounted for on a cost basis         |   |         | 4,245   |   |   |   | 3,745 |   |
|                                            |   | $            | 110,159 |   |   | $ | 89,814 |   |

|   | B. | Investments in companies accounted for under the equity method: |
|--------|----|-----------------------------------------------------------------|

|        |   | December 31, |    |
|-------------|--------|--------------|---------|
|        |   | 2011         |    |   | 2010 |   |
| SCD (1)     |   | $            | 63,854  |   |   | $ | 58,815 |   |
| VSI (2)     |   |         | 8,154   |   |   |   | 4,181 |   |
| Opgal (3)   |   |         | 14,626  |   |   |   | 13,000 |   |
| Netcity (4) |   |         | 10,418  |   |   |   | 2,697 |   |
| Other       |   |         | 8,862   |   |   |   | 7,376 |   |
|        |   | $            | 105,914 |   |   | $ | 86,069 |   |

|   | (1) | Semi Conductor Devices (“SCD”) is an Israeli partnership, held 50% by the Company and 50% by Rafael Advanced Defense Systems Ltd. (“Rafael”). SCD is engaged in the development and production of various thermal detectors and laser diodes. SCD is jointly controlled and therefore is not consolidated in the Company’s financial statements. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Vision Systems International LLC (“VSI”) based in San Jose, is a California limited liability company that is held 50% by ESA and 50% by a subsidiary of Rockwell Collins Inc. VSI operates in the area of helmet mounted display systems for fixed-wing military aircraft. VSI is jointly controlled and therefore is not consolidated in the Company’s financial statements. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Opgal Optronics Industries Ltd. (“Opgal”) is an Israeli company owned 50.1% by the Company and 49.9% by a subsidiary of Rafael. Opgal focuses mainly on commercial applications of thermal imaging and electro-optic technologies. The Company jointly controls Opgal with Rafael, and therefore Opgal is not consolidated in the Company’s financial statements. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | Netcity is a Romanian company held 40% by the Company. During 2011, the Company invested in Netcity approximately $8,100, in addition to $2,700 that were invested in 2010. Netcity is a constructor of fiber-telecommunication networks in Romania. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | Equity in net earnings of affiliated companies is as follows: |
|--------|-----|---------------------------------------------------------------|

|   |   | Year ended December 31, |   |
|--------|--------|-------------------------|--------|
|   |   | 2011                    |   |   | 2010 |   |   | 2009 |   |
| SCD    |   | $                       | 5,807  |   |   | $ | 11,470 |   |   | $ | 12,603 |   |
| VSI    |   |                    | 8,454  |   |   |   | 6,265 |   |   |   | 4,942 |   |
| Other  |   |                    | 1,116  |   |   |   | 1,061 |   |   |   | 1,747 |   |
|   |   | $                       | 15,377 |   |   | $ | 18,796 |   |   | $ | 19,292 |   |

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

| Note 6 - | INVESTMENTS IN AFFILIATED COMPANIES, PARTNERSHIP AND OTHER COMPANIES (Cont.) |
|----------|------------------------------------------------------------------------------|

|   | B. | Investments in companies accounted for under the equity method (Cont.) |
|--------|----|------------------------------------------------------------------------|

|   | (6) | The summarized aggregate financial information of companies accounted for under the equity method is as follows: |
|--------|-----|------------------------------------------------------------------------------------------------------------------|

|                       |   | December 31, |    |
|----------------------------|--------|--------------|---------|
|                       |   | 2011         |    |   | 2010 |   |
| Current assets             |   | $            | 272,274 |   |   | $ | 278,141 |   |
| Non-current assets         |   |         | 67,151  |   |   |   | 69,507 |   |
| Total assets               |   | $            | 339,425 |   |   | $ | 347,648 |   |
|                       |   |         |    |   |   |   |   |   |
| Current liabilities        |   | $            | 158,548 |   |   | $ | 186,555 |   |
| Non-current liabilities    |   |         | 24,809  |   |   |   | 34,688 |   |
| Shareholders’ equity |   |         | 156,068 |   |   |   | 126,405 |   |
|                       |   | $            | 339,425 |   |   | $ | 347,648 |   |

|         |   | Year ended December 31, |    |
|--------------|--------|-------------------------|---------|
|         |   | 2011                    |    |   | 2010 |   |   | 2009 |   |
| Revenues     |   | $                       | 402,438 |   |   | $ | 476,286 |   |   | $ | 361,283 |   |
| Gross profit |   | $                       | 117,222 |   |   | $ | 137,228 |   |   | $ | 110,699 |   |
| Net income   |   | $                       | 38,131  |   |   | $ | 36,728 |   |   | $ | 31,489 |   |

|   | (7) | See Note 20(E) for guarantees. |
|--------|-----|--------------------------------|

|                 |   | December 31, |    |
|----------------------|--------|--------------|---------|
|                 |   | 2011         |    |   | 2010 |   |
| Receivables          |   | $            | 5,303   |   |   | $ | 16,211 |   |
| Unbilled receivables |   |         | 157,459 |   |   |   | 74,132 |   |
|                 |   | $            | 162,762 |   |   | $ | 90,343 |   |

|                                                        |   | December 31, |   |
|-------------------------------------------------------------|--------|--------------|--------|
|                                                        |   | 2011         |   |   | 2010 |   |
| Restricted deposits with banks (1)                          |   | $            | 2,271  |   |   | $ | 25,032 |   |
| Hedging receivables related to Series A Notes (See Note 16) |   |         | 3,112  |   |   |   | 10,907 |   |
| Deposit with banks and other long-term receivables (2)      |   |         | 6,832  |   |   |   | 8,462 |   |
|                                                        |   | $            | 12,215 |   |   | $ | 44,401 |   |

|   | (1) | Restricted deposits in respect of an issued bank guarantee. |
|--------|-----|-------------------------------------------------------------|

|   | (2) | Includes long-term balances of non-qualified deferred compensation plan structured under Section 409A in the amount of $5,427 and $5,604  as of December 31, 2011 and 2010, respectively (See Note 17). |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|                                           |   | December 31, |      |
|------------------------------------------------|--------|--------------|-----------|
|                                           |   | 2011         |      |   | 2010 |   |
| Cost (1):                                      |   |         |      |   |   |   |
| Land, buildings and leasehold improvements (2) |   | $            | 361,246   |   |   | $ | 351,748 |   |
| Instruments, machinery and equipment (3)       |   |         | 629,290   |   |   |   | 583,535 |   |
| Office furniture and other                     |   |         | 76,939    |   |   |   | 72,995 |   |
| Motor vehicles and airplanes                   |   |         | 131,106   |   |   |   | 104,551 |   |
|                                           |   |         | 1,198,581 |   |   |   | 1,112,829 |   |
| Accumulated depreciation                       |   |         | (680,973  | ) |   |   | (608,978 | ) |
| Depreciated cost                               |   | $            | 517,608   |   |   | $ | 503,851 |   |

|   | (1) | Net of investment grants received (mainly for instruments, machinery and equipment) in the amounts of $29,367 and $29,084 as of December 31, 2011 and 2010, respectively. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Set forth below is additional information regarding the real estate owned or leased by the Company (in square feet): |
|--------|-----|----------------------------------------------------------------------------------------------------------------------|

|   |   | Israel (a) |      |   | U.S. (b) |   |    | Other Countries (c) |   |
|--------|--------|------------|-----------|--------|----------|--------|---------|---------------------|--------|
| Owned  |   |       | 2,193,000 |   |     |   | 713,000 |                |   |   | 1,063,000 |   |
| Leased |   |       | 2,024,000 |   |     |   | 618,000 |                |   |   | 300,000 |   |

|   | (a) | Includes offices, development and engineering facilities, manufacturing facilities, maintenance facilities, hangar facilities and a landing strip in various locations in Israel used by Elbit Systems' Israeli subsidiaries. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | Includes offices, development and engineering facilities, manufacturing facilities and maintenance facilities of Elbit Systems of America primarily in Texas, New Hampshire, Florida, Alabama and Virginia. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | Includes offices, design and engineering facilities and manufacturing facilities, mainly in Europe, Brazil, Australia and Asia. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Includes equipment produced by the Company for its own use in the aggregate amount of $173,649 and $167,248 as of December 31, 2011 and 2010, respectively. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | A. | Composition: |
|--------|----|--------------|

|                                     |   | Weighted average |   |   |         |   |    |   |   |
|------------------------------------------|--------|------------------|--------|--------|--------------|--------|---------|--------|--------|
|                                     |   | useful lives     |   |   | December 31, |   |
| Identifiable intangible assets           |   |             |   |   | 2011         |   |    | 2010   |   |
| Original cost:                           |   |             |   |   |         |   |    |   |   |
| Technology (1)                           |   |             | 12     |   |         | $      | 254,668 |   |   | $ | 248,868 |   |
|    Customer relations (2) |   |             | 6      |   |         |   | 201,346 |   |   |   | 200,336 |   |
| Trade marks and other (3)                |   |             | 14     |   |         |   | 64,872  |   |   |   | 64,442 |   |
|                                     |   |             |   |   |         |   | 520,886 |   |   |   | 513,646 |   |
| Accumulated amortization:                |   |             |   |   |         |   |    |   |   |   |   |   |
| Technology                               |   |             |   |   |         |   | 120,988 |   |   |   | 98,814 |   |
|    Customer relations     |   |             |   |   |         |   | 115,284 |   |   |   | 86,166 |   |
| Trademarks and other                     |   |             |   |   |         |   | 20,868  |   |   |   | 15,073 |   |
|                                     |   |             |   |   |         |   | 257,140 |   |   |   | 200,053 |   |
| Amortized cost                           |   |             |   |   |         | $      | 263,746 |   |   | $ | 313,593 |   |

|   | (1) | The technology acquired consists of the following major items: |
|--------|-----|----------------------------------------------------------------|

|   | (2) | Includes mainly customer relations resulting from the acquisition of Tadiran ($137,300) and FTL ($9,000) in 2007. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------|

|   | (3) | Includes trademarks in the amount of $8,000 acquired in the merger with Elop in 2000, and an amount of $33,200 that was allocated to trademarks resulting mainly from the acquisition of Tadiran in 2005 – 2007. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | Amortization expenses amounted to $56,952, $47,729 and $42,601 for the years ended December 31, 2011, 2010 and 2009, respectively. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------|

|   | C. | The estimated aggregate amortization expense for each of the five succeeding fiscal years: |
|--------|----|--------------------------------------------------------------------------------------------|

| 2012           |   | $      | 49,620 |   |
|----------------|--------|--------|--------|--------|
| 2013           |   |   | 46,117 |   |
| 2014           |   |   | 43,688 |   |
| 2015           |   |   | 37,099 |   |
| 2016           |   |   | 28,043 |   |
| 2017 and after |   |   | 59,181 |   |

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | D. | Changes in goodwill, during 2011 are as follows: |
|--------|----|--------------------------------------------------|

|                                               |   | 2011   |    |
|----------------------------------------------------|--------|--------|---------|
| Balance, at January 1, (1)                         |   | $      | 486,046 |   |
| Adjustment in respect of previous acquisitions (2) |   |   | 994     |   |
| Net translation differences (3)                    |   |   | (725    | ) |
|                                               |   |   |    |   |
| Goodwill acquired during the year:                 |   |   |    |   |
| Elite                                              |   |   | 5,384   |   |
| C4 Security                                        |   |   | 7,627   |   |
| Balance, at December 31,                           |   | $      | 499,326 |   |

|   | (1) | Including an adjustment of approximately $3000 related to a 2010 acquisition. |
|--------|-----|------------------------------------------------------------------------------------|

|   | (2) | In 2011, the Company adjusted provisions related to an acquisition made during 2010. |
|--------|-----|--------------------------------------------------------------------------------------|

|   | (3) | Foreign currency translation differences resulting from goodwill allocated to reporting units, whose functional currency has been determined to be other than the U.S. dollar. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                           |   |       |       |   | December 31, |   |
|--------------------------------|--------|------------|------------|--------|--------------|--------|
|                           |   | Interest % |       |   | 2011         |   |   | 2010 |   |
| Short-term loans               |   |       | 2.5-7.45 % |   |         | $      | 158 |   |   | $ | 10,537 |   |
| Short-term bank credit         |   |       | 0-6.23 %   |   |         |   | 2,840 |   |   |   | 4,578 |   |
|                           |   |       |       |   |         | $      | 2,998 |   |   | $ | 15,115 |   |
| Weighted average interest rate |   |       | 2.40 %     |   |         |   |   |   |   |   |   |   |

|                                           |   | December 31, |    |
|------------------------------------------------|--------|--------------|---------|
|                                           |   | 2011         |    |   | 2010 |   |
| Payroll and related expenses                   |   | $            | 143,805 |   |   | $ | 141,965 |   |
| Provision for vacation pay                     |   |         | 43,401  |   |   |   | 44,876 |   |
| Provision for income tax, net of advances      |   |         | 26,858  |   |   |   | 12,292 |   |
| Other income tax liabilities                   |   |         | 36,707  |   |   |   | 28,095 |   |
| Value added tax (“VAT”) payable    |   |         | 15,202  |   |   |   | 7,295 |   |
| Provisions for royalties                       |   |         | 31,549  |   |   |   | 32,217 |   |
| Provision for warranty                         |   |         | 164,168 |   |   |   | 164,778 |   |
| Derivative instruments                         |   |         | 25,954  |   |   |   | 8,366 |   |
| Provision for losses on long-term contracts(1) |   |         | 109,171 |   |   |   | 61,663 |   |
| Other (2)                                      |   |         | 147,051 |   |   |   | 146,574 |   |
|                                           |   | $            | 743,866 |   |   | $ | 648,121 |   |

|   | (1) | Includes a provision of $43,900 related to the cessation of a program with a foreign customer (See Note 1(C)). |
|--------|-----|----------------------------------------------------------------------------------------------------------------|

|   | (2) | Other, primarily includes provisions for estimated future costs in respect of (1) penalties and the probable loss from claims (legal or unasserted) in the ordinary course of business (e.g., damages caused by the items sold and claims as to the specific products ordered), and (2) unbilled services of service providers. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

| Note 14 - | CUSTOMER ADVANCES IN EXCESS OF COSTS INCURRED ON CONTRACTS IN PROGRESS |
|-----------|------------------------------------------------------------------------|

|                                                             |   | December 31, |    |
|------------------------------------------------------------------|--------|--------------|---------|
|                                                             |   | 2011         |    |   | 2010 |   |
| Advances received                                                |   | $            | 750,161 |   |   | $ | 637,070 |   |
| Less -                                                           |   |         |    |   |   |   |   |   |
|   Advances presented under long-term liabilities       |   |         | 154,696 |   |   |   | 177,191 |   |
|   Advances deducted from inventories                   |   |         | 150,195 |   |   |   | 101,231 |   |
|                                                             |   |         | 445,270 |   |   |   | 358,648 |   |
| Less -                                                           |   |         |    |   |   |   |   |   |
|   Costs incurred on contracts in progress (See Note 5) |   |         | 38,048  |   |   |   | 55,957 |   |
|                                                             |   | $            | 407,222 |   |   | $ | 302,691 |   |

|                     |         |   |              |   | Years of   |   |   | December 31, |    |
|--------------------------|--------------|--------|-------------------|--------|------------|--------|--------|--------------|---------|
|                     | Currency     |   | Interest %        |   | maturity   |   |   | 2011         |    |   | 2010 |   |
| Long-term bank loans(*)  | U.S. dollars |   | Libor +1.25-3.20% |   | mainly 2-3 |   |   | $            | 369,564 |   |   | $ | 276,702 |   |
|                     | Other        |   | Libor + 1.65-4%   |   | mainly 1-3 |   |   |         | 30,144  |   |   |   | 20,694 |   |
| Other long-term loans    | NIS          |   | Prime + 1.5%      |   |  3    |   |   |         | -       |   |   |   | 2,873 |   |
|                     | Other        |   | Libor + 1.7-4%    |   | mainly 1-3 |   |   |         | 562     |   |   |   | 1,289 |   |
|                     |         |   |              |   |       |   |   |         |    | 400,270 |   |   |   | 301,558 |   |
| Less: current maturities |         |   |              |   |       |   |   |         | 98,015  |   |   |   | 9,519 |   |
|                     |         |   |              |   |       |   |   |         | $       | 302,255 |   |   | $ | 292,039 |   |

| 2012 – current maturities |   | $      | 98,015  |   |
|---------------------------------|--------|--------|---------|--------|
| 2013                            |   |   | 199,561 |   |
| 2014                            |   |   | 92,871  |   |
| 2015                            |   |   | 9,481   |   |
| 2016                            |   |   | 229     |   |
| 2017 and after                  |   |   | 113     |   |
|                            |   | $      | 400,270 |   |

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|                                             |   | December 31, 2011 |    |
|--------------------------------------------------|--------|-------------------|---------|
| Series A Notes                                   |   | $                 | 259,094 |   |
| Less – Current maturities                  |   |              | (29,612 | ) |
| Carrying amount adjustments on Series A Notes(*) |   |              | 7,412   |   |
| Discount on Series A Notes                       |   |              | (1,575  | ) |
|                                             |   | $                 | 235,319 |   |

|   | (*) As a result of fair value hedge accounting, described below, and in Notes 2(Y) and 2(AA). The carrying value of the Series A Notes is adjusted for changes in the interest rates. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                      |   | December 31, 2011 |    |
|---------------------------|--------|------------------------|---------|
| 2012 (current maturities) |   | $                      | 29,612  |   |
| 2013                      |   |                   | 29,612  |   |
| 2014                      |   |                   | 29,612  |   |
| 2015                      |   |                   | 29,612  |   |
| 2016                      |   |                   | 29,612  |   |
| 2017 and after            |   |                   | 111,034 |   |

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

| Note 17 - | BENEFIT PLANS AND OBLIGATIONS FOR TERMINATION INDEMNITY |
|-----------|---------------------------------------------------------|

|   | a) | ESA has three defined benefit pension plans (the “Plans”) which cover the employees of ESA's subsidiaries EFW and Kollsman. Monthly benefits are based on years of benefit service and annual compensation. Annual contributions to the Plans are determined using the unit credit actuarial cost method and are equal to or exceed the minimum required by law.  Pension fund assets of the Plans are invested primarily in stock, bonds and cash through a financial institution, as the investment manager of the Plans’ assets. Pension expense is allocated between cost of sales and general and administrative expenses, depending on the responsibilities of the employee. The measurement date for the EFW and Kollsman benefit obligation is December 31. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b) | Telefunken Radio Communication Systems GmbH & Co. (“Telefunken”), a wholly-owned German subsidiary, has mainly one defined benefit pension plan (the “P3-plan”) which covers all employees. The P3-plan provides for yearly cash balance credits equal to a percentage of a participant’s compensation, which accumulate together with the respective interest credits on the employee’s cash balance accounts. In case of an insured event (retirement, death or disability) the benefits can be paid as a lump sum, in installments or as a life-long annuity. The P3-plan is an unfunded plan. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c) | A wholly-owned European subsidiary in Belgium has a defined benefit pension plan, which is divided into two categories:  |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------|

|   | 1) | Normal retirement benefit plan, with eligibility at age 65. The lump sum is based on employee contributions of 2% of the final pensionable salary up to a certain breakpoint, plus 6% exceeding the breakpoint at a maximum of 5% of pensionable salary, and the employer contributions, with a maximum of 40 years. The vested benefit is equal to the retirement benefit calculated with the pensionable salary and pensionable service observed at the date of leaving service.  |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2) | Pre-retirement death benefit to employees. |
|--------|----|--------------------------------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|                                                      |   | December 31, |    |
|-----------------------------------------------------------|--------|--------------|---------|
| Changes in benefit obligation:                            |   | 2011         |    |   | 2010 |   |
| Benefit obligation at beginning of year                   |   | $            | 119,983 |   |   | $ | 103,134 |   |
| Service cost                                              |   |         | 8,058   |   |   |   | 7,031 |   |
| Interest cost                                             |   |         | 6,362   |   |   |   | 5,858 |   |
| Exchange rate differences                                 |   |         | (508    | ) |   |   | (1,023 | ) |
| Actuarial losses                                          |   |         | 21,459  |   |   |   | 7,374 |   |
| Benefits paid                                             |   |         | (2,257  | ) |   |   | (2,391 | ) |
| Benefit obligation at end of year                         |   | $            | 153,097 |   |   | $ | 119,983 |   |
| Changes in the Plans 'Assets:                        |   |         |    |   |   |   |   |   |
| Fair value of Plans' assets at beginning of year          |   |         | 69,493  |   |   |   | 62,790 |   |
| Actual return on Plans' assets (net of expenses)          |   |         | (785    | ) |   |   | 6,326 |   |
| Employer contribution                                     |   |         | 15,266  |   |   |   | 2,679 |   |
| Benefits paid                                             |   |         | (2,194  | ) |   |   | (2,302 | ) |
| Fair value of Plans' assets at end of year                |   | $            | 81,780  |   |   | $ | 69,493 |   |
| Accrued benefit cost, end of year:                        |   |         |    |   |   |   |   |   |
| Funded status                                             |   |         | (71,317 | ) |   |   | (50,490 | ) |
| Unrecognized net actuarial loss                           |   |         | 60,650  |   |   |   | 34,972 |   |
| Unrecognized prior service cost                           |   |         | 584     |   |   |   | 680 |   |
|                                                      |   | $            | (10,083 | ) |   | $ | (14,838 | ) |
| Amount recognized in the statement of financial position: |   |         |    |   |   |   |   |   |
| Accrued benefit liability, current                        |   |         | (85     | ) |   |   | (39 | ) |
| Accrued benefit liability, non-current                    |   |         | (71,232 | ) |   |   | (50,451 | ) |
| Accumulated other comprehensive income, pre-tax           |   |         | 61,234  |   |   |   | 35,652 |   |
| Net amount recognized                                     |   | $            | (10,083 | ) |   | $ | (14,838 | ) |

|                                                     |   | Year endedDecember 31, |    |
|----------------------------------------------------------|--------|------------------------|---------|
|                                                     |   | 2011                   |    |   | 2010 |   |   | 2009 |   |
| Components of the Plans' net periodic pension cost:      |   |                   |    |   |   |   |   |   |   |
|    Service cost                                |   | $                      | 8,205   |   |   | $ | 7,031 |   |   | $ | 6,694 |   |
|    Interest cost                               |   |                   | 6,361   |   |   |   | 5,858 |   |   |   | 5,427 |   |
|    Expected return on  Plans' assets |   |                   | (5,512  | ) |   |   | (4,914 | ) |   |   | (3,915 | ) |
|    Amortization of prior service cost          |   |                   | 104     |   |   |   | 95 |   |   |   | 97 |   |
|    Amortization of transition amount           |   |                   | (147    | ) |   |   | (130 | ) |   |   | (120 | ) |
|    Amortization of net actuarial loss          |   |                   | 1,988   |   |   |   | 1,769 |   |   |   | 2,282 |   |
| Total net periodic benefit cost                          |   | $                      | 10,999  |   |   | $ | 9,709 |   |   | $ | 10,465 |   |
| Additional information                                   |   |                   |    |   |   |   |   |   |   |   |   |   |
| Accumulated benefit obligation                           |   | $                      | 144,682 |   |   | $ | 112,643 |   |   | $ | 95,877 |   |

|                                               |   | December 31, |   |
|----------------------------------------------------|--------|--------------|--------|
| Weighted average assumptions:                      |   | 2011         |   |   | 2010 |   |
| Discount rate as of December 31                    |   |         | 4.4    | % |   |   | 5.4 | % |
| Expected long-term rate of return on Plans' assets |   |         | 7.3    | % |   |   | 7.3 | % |
| Rate of compensation increase                      |   |         | 2.4    | % |   |   | 2.7 | % |

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|                                            |   | 2011   |   |   | 2010   |   |
|-------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Asset Category                                  |   |   |   |   |   |   |
|      Equity Securities |   |   | 56.8   | %      |   |   | 58.1 | % |
|      Debt Securities   |   |   | 36.1   | %      |   |   | 33.6 | % |
|      Other             |   |   | 7.1    | %      |   |   | 8.3 | % |
| Total                                           |   |   | 100.0  | %      |   |   | 100.0 | % |

|                                            |   | 2011   |   |   | 2010   |   |
|-------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Asset Category                                  |   |   |   |   |   |   |
|      Equity Securities |   |   | 56.0   | %      |   |   | 60.0 | % |
|      Debt Securities   |   |   | 41.2   | %      |   |   | 37.0 | % |
|      Other             |   |   | 2.8    | %      |   |   | 3.0 | % |
| Total                                           |   |   | 100.0  | %      |   |   | 100.0 | % |

|                                          |   |   |   |   | Quoted Prices in Active Markets for Identical Assets |   |   | Significant Observable Inputs |   |   | Significant Unobservable Inputs |   |
|-----------------------------------------------|--------|--------|--------|--------|------------------------------------------------------|--------|--------|-------------------------------|--------|--------|---------------------------------|--------|
| Asset Category                                |   | Total  |   |   | (Level 1)                                            |   |   | (Level 2)                     |   |   | (Level 3)                       |   |
| Cash                                          |   | $      | 126    |   |                                                 | $      | 126    |                          |   | $      | -                               |   |   | $ | - |   |
| Cash Equivalents:                             |   |   |   |   |                                                 |   |   |                          |   |   |                            |   |   |   |   |   |
|    Money Market Funds (a)      |   |   | 5,660  |   |                                                 |   | -      |                          |   |   | 5,660                           |   |   |   | - |   |
| Fixed Income Securities:                      |   |   |   |   |                                                 |   |   |                          |   |   |                            |   |   |   |   |   |
|    U.S. Treasuries             |   |   | 9,075  |   |                                                 |   | 3,841  |                          |   |   | 5,234                           |   |   |   | - |   |
|    Corporate Bonds                  |   |   | 1,160  |   |                                                 |   | 1,160  |                          |   |   | -                               |   |   |   | - |   |
|    Mutual Funds (b)            |   |   | 19,299 |   |                                                 |   | 19,299 |                          |   |   | -                               |   |   |   | - |   |
| Equity Securities:                            |   |   |   |   |                                                 |   |   |                          |   |   |                            |   |   |   |   |   |
|    U.S. Companies (c)          |   |   | 14,363 |   |                                                 |   | 14,363 |                          |   |   | -                               |   |   |   | - |   |
|    International Companies (d) |   |   | 2,916  |   |                                                 |   | 2,916  |                          |   |   | -                               |   |   |   | - |   |
|    Mutual Funds (e)            |   |   | 27,015 |   |                                                 |   | 27,015 |                          |   |   | -                               |   |   |   | - |   |
| Real Estate                                   |   |   | 2,166  |   |                                                 |   | 1,572  |                          |   |   | 594                             |   |   |   | - |   |
| Total                                         |   | $      | 81,780 |   |                                                 | $      | 70,292 |                          |   | $      | 11,488                          |   |   | $ | - |   |

|   | (a) This category includes highly liquid daily traded cash-like vehicles. |
|--------|--------------------------------------------------------------------------------|

|   | (b) This category invests in highly liquid diverse mutual funds representing a diverse offering of debt issuance. |
|--------|------------------------------------------------------------------------------------------------------------------------|

|   | (c) This category represents common stocks that are traded on major exchanges. |
|--------|--------------------------------------------------------------------------------|

|   | (d) This change represents common stocks of companies domiciled outside of the U.S.; they can be represented by ordinary shares or ADRs. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------|

|   | (e) This category represents highly liquid diverse equity mutual funds of varying asset classes and styles. |
|--------|-------------------------------------------------------------------------------------------------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|                                             |   | December 31 |   |   | December 31 |   |
|--------------------------------------------------|--------|-------------|--------|--------|-------------|--------|
|                                             |   | 2011        |   |   | 2010        |   |
| Change in Benefit Obligation:                    |   |        |   |   |        |   |
| Benefit obligation at beginning of period        |   | $           | 2,914  |   |        | $      | 2,419 |   |
| Service cost                                     |   |        | 252    |   |        |   | 208 |   |
| Interest cost                                    |   |        | 152    |   |        |   | 138 |   |
| Actuarial (gain) loss                            |   |        | (63    | )      |        |   | 216 |   |
| Employee contribution                            |   |        | 19     |   |        |   | 21 |   |
| Benefits paid                                    |   |        | (129   | )      |        |   | (88 | ) |
| Benefit obligation at end of period              |   | $           | 3,145  |   |        | $      | 2,914 |   |
|                                             |   |        |   |   |        |   |   |   |
| Change in Plan Assets:                           |   |        |   |   |        |   |   |   |
| Fair value of plan assets at beginning of period |   | $           | -      |   |        | $      | - |   |
| Employer contribution                            |   |        | 110    |   |        |   | 67 |   |
| Employee contribution                            |   |        | 19     |   |        |   | 21 |   |
| Benefits paid                                    |   |        | (129   | )      |        |   | (88 | ) |
| Fair value of plan assets at end of period       |   | $           | -      |   |        | $      | - |   |

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|                                                       |   | Year ended December 31, |   |
|------------------------------------------------------------|--------|-------------------------|--------|
|                                                       |   | 2011                    |   |   | 2010 |   |
| Accrued benefit cost, end of period:                       |   |                    |   |   |   |   |
| Funded status                                              |   | $                       | (3,145 | ) |   | $ | (2,914 | ) |
| Unrecognized net actuarial loss                            |   |                    | 455    |   |   |   | 540 |   |
| Unrecognized prior service cost                            |   |                    | -      |   |   |   | 74 |   |
| Accrued benefit cost, end of period                        |   | $                       | (2,690 | ) |   | $ | (2,300 | ) |
| Amounts recognized in the statement of financial position: |   |                    |   |   |   |   |   |   |
| Accrued benefit liability, current                         |   | $                       | (111   | ) |   | $ | (122 | ) |
| Accrued benefit liability, non-current                     |   |                    | (3,034 | ) |   |   | (2,792 | ) |
| Accumulated other comprehensive loss, pretax               |   |                    | 455    |   |   |   | 614 |   |
| Net amount recognized                                      |   | $                       | (2,690 | ) |   | $ | (2,300 | ) |
|                                                       |   |                    |   |   |   |   |   |   |

| Components of net periodic pension cost (for period): |   |   |   |   |   |   |
|-------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Service cost                                          |   | $      | 253    |   |   | $      | 208 |   |
| Interest cost                                         |   |   | 152    |   |   |   | 138 |   |
| Amortization of prior service cost                    |   |   | 74     |   |   |   | 150 |   |
| Amortization of net actuarial loss                    |   |   | 21     |   |   |   | 7 |   |
| Total net periodic benefit cost                       |   | $      | 500    |   |   | $      | 503 |   |
| Assumptions as of end of period:                      |   |   |   |   |   |
| Discount rate                                         |   |   | 3.78   | %      |   |   | 5.32 | % |
| Health care cost trend rate assumed for next year     |   |   | 8.50   | %      |   |   | 8.00 | % |
| Ultimate health care cost trend rate                  |   |   | 5.00   | %      |   |   | 5.00 | % |

|                      |   | 1% increase |   |   | 1% decrease |   |
|---------------------------|--------|-------------|--------|--------|-------------|--------|
| Net periodic benefit cost |   | $           | 48     |   |        | $      | (42 | ) |
| Benefit obligation        |   | $           | 281    |   |        | $      | (250 | ) |

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | A. | APPLICABLE TAX LAWS |
|--------|----|---------------------|

|   | (1) | Israeli Corporate Income Tax Rates |
|--------|-----|------------------------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | A. | APPLICABLE TAX LAWS (Cont.) |
|--------|----|-----------------------------|

|   | (2) | Measurement of taxable income under Israel’s Income Tax (Inflationary Adjustments) Law, 1985: |
|--------|-----|-----------------------------------------------------------------------------------------------------|

|   | (3) | Tax benefits under Israel’s Law for the Encouragement of Industry (Taxes), 1969: |
|--------|-----|----------------------------------------------------------------------------------------|

|   | (4) | Tax benefits under Israel’s Law for the Encouragement of Capital Investments, 1959: |
|--------|-----|-------------------------------------------------------------------------------------------|

----

|   | ELBIT SYSTEMS LTD. AND SUBSIDIARIES |
|--------|-------------------------------------|

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | A. | APPLICABLE TAX LAWS (Cont.) |
|--------|----|-----------------------------|

----

|   | ELBIT SYSTEMS LTD. AND SUBSIDIARIES |
|--------|-------------------------------------|

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | A. | APPLICABLE TAX LAWS (Cont.) |
|--------|----|-----------------------------|

|   | B. | NON – ISRAELI SUBSIDIARIES |
|--------|----|----------------------------------|

|   | C. | INCOME FROM CONTINUING OPERATIONS BEFORE TAXES ON INCOME |
|--------|----|----------------------------------------------------------|

|                                      |   | Year endedDecember 31, |    |
|-------------------------------------------|--------|------------------------|---------|
|                                      |   | 2011                   |    |   | 2010 |   |   | 2009 |   |
| Income  before taxes on income: |   |                   |    |   |   |   |   |   |   |
| Domestic                                  |   | $                      | 95,226  |   |   | $ | 160,749 |   |   | $ | 186,444 |   |
|     Foreign                |   |                   | 8,778   |   |   |   | 38,612 |   |   |   | 60,886 |   |
|                                      |   | $                      | 104,004 |   |   | $ | 199,361 |   |   | $ | 247,330 |   |

|   | D. | TAXES ON INCOME FROM CONTINUING OPERATIONS |
|--------|----|--------------------------------------------|

|                           |   | Year endedDecember 31, |   |
|--------------------------------|--------|------------------------|--------|
|                           |   | 2011                   |   |   | 2010 |   |   | 2009 |   |
| Taxes on income:               |   |                   |   |   |   |   |   |   |   |
| Current taxes:                 |   |                   |   |   |   |   |   |   |   |
| Domestic                       |   | $                      | 13,896 |   |   | $ | 26,842 |   |   | $ | 30,006 |   |
|     Foreign     |   |                   | 1,328  |   |   |   | 16,616 |   |   |   | 15,350 |   |
|                           |   |                   | 15,224 |   |   |   | 43,458 |   |   |   | 45,356 |   |
| Adjustment for previous years: |   |                   |   |   |   |   |   |   |   |   |   |   |
| Domestic                       |   |                   | 2,009  |   |   |   | (3,889 | ) |   |   | (6,491 | ) |
|     Foreign     |   |                   | (2,308 | ) |   |   | 1,885 |   |   |   | 91 |   |
|                           |   |                   | (299   | ) |   |   | (2,004 | ) |   |   | (6,400 | ) |
| Deferred income taxes:         |   |                   |   |   |   |   |   |   |   |   |   |   |
| Domestic                       |   |                   | (2,861 | ) |   |   | (10,303 | ) |   |   | (3,763 | ) |
|     Foreign     |   |                   | 1,560  |   |   |   | (7,114 | ) |   |   | 2,916 |   |
|                           |   |                   | (1,301 | ) |   |   | (17,417 | ) |   |   | (847 | ) |
|                           |   | $                      | 13,624 |   |   | $ | 24,037 |   |   | $ | 38,109 |   |

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | E. | UNCERTAIN TAX POSITIONS |
|--------|----|-------------------------|

|                                                             |   | 2011   |   |   | 2010   |   |
|------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Balance at the beginning of the year                             |   | $      | 48,791 |   |   | $      | 33,348 |   |
| Additions related to interest                                    |   |   | 405    |   |   |   | 1,801 |   |
| Additions based on tax positions taken during a prior period     |   |   | 5,336  |   |   |   | 6,022 |   |
| Reduction related to tax positions taken during a prior period   |   |   | (3,746 | )      |   |   | (4,252 | ) |
| Reductions related to settlement of tax matters                  |   |   | (4,684 | )      |   |   | (1,508 | ) |
| Additions based on tax positions taken during the current period |   |   | 8,305  |   |   |   | 6,862 |   |
| Reduction related to a lapse of applicable statute of limitation |   |   | (1,224 | )      |   |   | - |   |
| Additions related to acquisitions                                |   |   | -      |   |   |   | 6,518 |   |
| Balance at the end of the year                                   |   | $      | 53,183 |   |   | $      | 48,791 |   |

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | F. | DEFERRED INCOME TAXES |
|--------|----|-----------------------|

|                                  |   |   |    |   | Deferred (1) Tax Asset (Liability) |   |
|---------------------------------------|--------|--------|---------|--------|----------------------------------------------|--------|
|                                  |   | Total  |    |   | Current                                      |   |   | Non-current |   |
| As of December 31, 2011               |   |   |    |   |                                         |   |   |   |   |
| Deferred tax assets:                  |   |   |    |   |                                         |   |   |   |   |
| Reserves and allowances               |   | $      | 20,650  |   |                                         | $      | 15,939 |   |   | $ | 4,711 |   |
| Inventory allowances                  |   |   | 6,328   |   |                                         |   | 6,328 |   |   |   | - |   |
| Property, plant and equipment         |   |   | 2,421   |   |                                         |   | 1,087 |   |   |   | 1,334 |   |
| Other assets                          |   |   | 22,415  |   |                                         |   | 10,242 |   |   |   | 12,173 |   |
| Net operating loss carry forwards     |   |   | 20,881  |   |                                         |   | 1,667 |   |   |   | 19,214 |   |
|                                  |   |   | 72,695  |   |                                         |   | 35,263 |   |   |   | 37,432 |   |
| Valuation allowance                   |   |   | (1,302  | )      |                                         |   | - |   |   |   | (1,302 | ) |
| Net deferred tax assets               |   |   | 71,393  |   |                                         |   | 35,263 |   |   |   | 36,130 |   |
|                                  |   |   |    |   |                                         |   |   |   |   |   |   |   |
| Deferred tax liabilities:             |   |   |    |   |                                         |   |   |   |   |   |   |   |
| Intangible assets                     |   |   | (40,386 | )      |                                         |   | - |   |   |   | (40,386 | ) |
| Property, plant and equipment         |   |   | (16,024 | )      |                                         |   | - |   |   |   | (16,024 | ) |
| Reserves and allowances               |   |   | 24,419  |   |                                         |   | - |   |   |   | 24,419 |   |
|                                  |   |   | (31,991 | )      |                                         |   | - |   |   |   | (31,991 | ) |
| Net deferred tax assets               |   | $      | 39,402  |   |                                         | $      | 35,263 |   |   | $ | 4,139 |   |
|                                  |   |   |    |   |                                         |   |   |   |   |   |   |   |
| As of December 31, 2010               |   |   |    |   |                                         |   |   |   |   |   |   |   |
| Deferred tax assets:                  |   |   |    |   |                                         |   |   |   |   |   |   |   |
| Reserves and allowances               |   | $      | 26,992  |   |                                         | $      | 19,776 |   |   | $ | 7,216 |   |
| Inventory allowances                  |   |   | 4,251   |   |                                         |   | 4,251 |   |   |   | - |   |
| Property, plant and equipment         |   |   | 4,858   |   |                                         |   | 1,187 |   |   |   | 3,671 |   |
| Other                                 |   |   | 4,530   |   |                                         |   | 2,116 |   |   |   | 2,414 |   |
| Net operating loss carry forwards     |   |   | 18,684  |   |                                         |   | 2,093 |   |   |   | 16,591 |   |
|                                  |   |   | 59,315  |   |                                         |   | 29,423 |   |   |   | 29,892 |   |
| Valuation allowance                   |   |   | (160    | )      |                                         |   | (160 | ) |   |   | - |   |
| Net deferred tax assets               |   |   | 59,155  |   |                                         |   | 29,263 |   |   |   | 29,892 |   |
|                                  |   |   |    |   |                                         |   |   |   |   |   |   |   |
| Deferred tax liabilities:             |   |   |    |   |                                         |   |   |   |   |   |   |   |
| Intangible assets                     |   |   | (48,610 | )      |                                         |   | - |   |   |   | (48,610 | ) |
| Property, plant and equipment         |   |   | (12,463 | )      |                                         |   | - |   |   |   | (12,463 | ) |
| Reserves and allowances               |   |   | 25,833  |   |                                         |   | - |   |   |   | 25,833 |   |
|                                  |   |   | (35,240 | )      |                                         |   | - |   |   |   | (35,240 | ) |
| Net deferred tax assets (liabilities) |   | $      | 23,915  |   |                                         | $      | 29,263 |   |   | $ | (5,348 | ) |

|   | (1) The current deferred tax asset is included in other receivables and prepaid expenses. |
|--------|------------------------------------------------------------------------------------------------|

|   | (2) The non-current deferred tax asset is included in deferred income taxes, net. |
|--------|-----------------------------------------------------------------------------------|

|   | (3) The non-current deferred tax liability is included in deferred income and tax liabilities, net. |
|--------|-----------------------------------------------------------------------------------------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands, except share data)         |

|   | G. | As of December 31, 2011, Elbit Systems’ Israeli subsidiaries had estimated total available carry forward tax losses of approximately $89,323, and its non-Israeli subsidiaries had estimated available carry forward tax losses of approximately $26,066. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | H. | Reconciliation of the actual tax expense as reported in the statements of operations to the amount computed by applying the Israeli statutory tax rate, is as follows: |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                                                                 |   | Year ended December 31, |    |
|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|---------|
|                                                                                                                                                 |   | 2011                    |    |   | 2010 |   |   | 2009 |   |
| Income  before taxes as reported in the consolidated statements of income                                                                  |   | $                       | 104,004 |   |   | $ | 199,361 |   |   | $ | 247,330 |   |
| Statutory tax rate                                                                                                                                   |   |                    | 24      | % |   |   | 25 | % |   |   | 26 | % |
| Theoretical tax expense                                                                                                                              |   | $                       | 24,961  |   |   | $ | 49,840 |   |   | $ | 64,306 |   |
| Tax benefit arising from reduced rate as an “Approved and Privileged Enterprise” and other tax benefits (*)                              |   |                    | (11,451 | ) |   |   | (20,528 | ) |   |   | (31,712 | ) |
| Tax adjustment in respect of different tax rates for foreign subsidiaries                                                                       |   |                    | 2,721   |   |   |   | 5,382 |   |   |   | 5,663 |   |
| Changes in carry-forward losses and valuation allowance                                                                                              |   |                    | (125    | ) |   |   | (8,066 | ) |   |   | (1,506 | ) |
| Increase in taxes resulting from non-deductible expenses                                                                                             |   |                    | 1,105   |   |   |   | 3,020 |   |   |   | 3,133 |   |
| Difference in basis of measurement for financial reporting and tax return purposes                                                              |   |                    | (2,375  | ) |   |   | (3,370 | ) |   |   | 4,124 |   |
| Taxes in respect of prior years (**)                                                                                                                 |   |                    | (274    | ) |   |   | (2,003 | ) |   |   | (6,400 | ) |
| Other differences, net                                                                                                                               |   |                    | (938    | ) |   |   | (238 | ) |   |   | 501 |   |
| Actual tax expenses                                                                                                                                  |   | $                       | 13,624  |   |   | $ | 24,037 |   |   | $ | 38,109 |   |
| Effective tax rate                                                                                                                                   |   |                    | 13.10   | % |   |   | 12.06 | % |   |   | 15.4 | % |
| (*)       Net earnings per share – amounts of the benefit resulting from the Approved and Privileged Enterprises |   |
|             Basic                                                                                  |   | $                       | 0.27    |   |   | $ | 0.48 |   |   | $ | 0.75 |   |
|             Diluted                                                                                |   | $                       | 0.27    |   |   | $ | 0.47 |   |   | $ | 0.74 |   |
|                                                                                                                                                 |   |                    |    |   |   |   |   |   |   |   |   |   |
|  (**)   Taxes in respect of prior years:                                                                                         |   |                    |    |   |   |   |   |   |   |   |   |   |

|   | I. | Final tax assessments have been received by the Company up to and including the tax year ended December 31, 2005 and by certain subsidiaries, for the years 2002 - 2007. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | A. | Derivative financial instruments are presented as other assets or other payables. For asset derivatives and liability derivatives, respectively, the fair value of the Company's outstanding derivative instruments as of December 31, 2011 and December 31, 2010 is summarized below: |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                       |   | Asset Derivatives (*) |   |   | Liability Derivatives (**) |   |
|------------------------------------------------------------|--------|-----------------------|--------|--------|----------------------------|--------|
|                                                       |   | December 31,2011      |   |   | December 31, 2010          |   |   | December 31,2011 |   |   | December 31,2010 |   |
| Derivatives designated as hedging instruments              |   |                  |   |   |                       |   |   |   |   |   |   |   |
|     Foreign exchange contracts         |   | $                     | 9,908  |   |                       | $      | 16,897 |   |   | $ | 23,914 |   |   | $ | 5,509 |   |
|     Cross-currency interest rate swaps |   |                  | 8,877  |   |                       |   | 20,377 |   |   |   | - |   |   |   | - |   |
|                                                       |   |                  | 18,785 |   |                       |   | 37,274 |   |   |   | 23,914 |   |   |   | 5,509 |   |
| Derivatives not designated as hedging instruments          |   |                  |   |   |                       |   |   |   |   |   |   |   |   |   |   |   |
|     Foreign exchange contracts         |   |                  | 4,847  |   |                       |   | 2,044 |   |   |   | 1,363 |   |   |   | 2,710 |   |
|     Options exchange contracts         |   |                  | -      |   |                       |   | 159 |   |   |   | 677 |   |   |   | 51 |   |
|                                                       |   | $                     | 4,847  |   |                       | $      | 2,203 |   |   | $ | 2,040 |   |   | $ | 2,761 |   |

|   | (*) | Presented as part of other assets. |
|--------|-----|------------------------------------|

|   | (**) | Presented as part of other payables. |
|--------|------|--------------------------------------|

|   | B. | The effect of derivative instruments on cash flow hedging and the relationship between income and other comprehensive income for the years ended December 31, 2011 and December 31, 2010 is summarized below: |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                          |   | Gain (Loss) Recognizedin Other ComprehensiveIncome on Effective-Portion of Derivative, net |    |   | Gain on Effective Portionof Derivative Reclassifiedfrom Accumulated Other Comprehensive Income (*) |   |   | Ineffective Portion of Gain of Derivative and Amount Excluded from Effectiveness Testing Recognized in Income (**) |   |
|---------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------|---------|--------|----------------------------------------------------------------------------------------------------|--------|--------|--------------------------------------------------------------------------------------------------------------------|--------|
|                                                          |   | December 31,2011                                                                           |    |   | December 31,2010                                                                                   |   |   | December 31,2011                                                                                                   |   |   | December 31,2010 |   |   | December 31,2011 |   |   | December 31,2010 |   |
| Derivatives designated as  hedging instruments |   |                                                                                       |    |   |                                                                                               |   |   |                                                                                                               |   |   |   |   |   |   |   |   |   |   |
| Foreign exchange contracts                                    |   | $                                                                                          | (13,914 | )      |                                                                                               | $      | 20,002 |                                                                                                               |   | $ | 7,438 |   |   | $ | - |   |   | $ | 585 |   |   | $ | - |   |
| Other                                                         |   |                                                                                       | -       |   |                                                                                               |   | -      |                                                                                                               |   |   | - |   |   |   | 10,115 |   |   |   | - |   |   |   | 2,034 |   |
|                                                          |   | $                                                                                          | (13,914 | )      |                                                                                               | $      | 20,002 |                                                                                                               |   | $ | 7,438 |   |   | $ | 10,115 |   |   | $ | 585 |   |   | $ | 2,034 |   |
| Derivatives not designated as hedging instruments             |   |                                                                                       |    |   |                                                                                               |   |   |                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign exchange Contracts                                    |   | $                                                                                          | -       |   |                                                                                               | $      | -      |                                                                                                               |   | $ | - |   |   | $ | - |   |   | $ | 461 |   |   | $ | 751 |   |

|   | (*)  | Presented as part of revenues/cost of sales |
|--------|-----------|---------------------------------------------|

|   | (**) | Presented as part of financial expenses |
|--------|------|-----------------------------------------|

|   | C. | The net effect of the cross-currency swaps was approximately $11,000 of losses, of which approximately $19,500 was offset against exchange rate difference, related to Series A Notes and approximately $8,500 was offset against interest expenses. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | D. | The notional amounts of outstanding foreign exchange forward contracts at December 31, 2011 and December 31, 2010, is summarized below: |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------|

|   |   | Forward contracts |    |
|--------|--------|-------------------|---------|
|   |   | Buy               |    |   | Sell |   |
|   |   | December 31,      |    |   | December 31, |   |
|   |   | 2011              |    |   | 2010 |   |   | 2011 |   |   | 2010 |   |
| Euro   |   | $                 | 57,022  |   |   | $ | 16,076 |   |   | $ | 154,251 |   |   | $ | 240,830 |   |
| GBP    |   |              | 30,868  |   |   |   | 20,475 |   |   |   | 45,095 |   |   |   | 85,980 |   |
| NIS    |   |              | 654,105 |   |   |   | 114,284 |   |   |   | - |   |   |   | - |   |
| Other  |   |              | 14,073  |   |   |   | 30,412 |   |   |   | 34,120 |   |   |   | 54,572 |   |
|   |   | $                 | 756,068 |   |   | $ | 181,247 |   |   | $ | 233,466 |   |   | $ | 381,382 |   |

| Note 20 - | COMMITMENTS AND CONTINGENT LIABILITIES |
|-----------|----------------------------------------|

|   | A. | ROYALTY COMMITMENTS |
|--------|----|---------------------|

|   | B. | COMMITMENTS IN RESPECT OF LONG-TERM PROJECTS |
|--------|----|----------------------------------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

| Note 20 - | COMMITMENTS AND CONTINGENT LIABILITIES (Cont.) |
|-----------|------------------------------------------------|

|   | B. | COMMITMENTS IN RESPECT OF LONG-TERM PROJECTS (Cont.) |
|--------|----|------------------------------------------------------|

|   | C. | LEGAL CLAIMS |
|--------|----|--------------|

|   | (1) | Elbit Systems and its subsidiaries are involved in legal claims arising in the ordinary course of business, including claims by employees, consultants and others. The Company’s management, based on the opinion of its legal counsel, believes that the financial impact for the settlement of such claims in excess of the accruals recorded in the financial statements will not have a material adverse effect on the financial position or results of operations of the Company. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | In April 2011, the Company filed a lawsuit in the High Court of Justice of the United Kingdom against the Government of Georgia (the “Georgian Government”) in an amount of approximately $100,000 as a result of the Georgian Government’s failure to pay amounts due to the Company in connection with deliverable items under several contracts signed in 2007. In December 2011, the Company and the Georgian Government signed a settlement agreement.  Under the settlement agreement the Company agreed to a full release of these claims in consideration for payment of approximately $35,000 by the Georgian Government as well as the return to the Company of certain equipment and sub-systems that were supplied in the past by the Company. During December 2011, the Company received $32,000 of the settlement amount and the balance is expected to be received during 2012. Subject to fulfillment of the settlement agreement, this matter will be brought to a close without having a material effect on the Company's financial results. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | C. | LEGAL CLAIMS (Cont.) |
|--------|----|----------------------|

|   | (3) | In December 2009, a claim in the amount of approximately $10,000 was filed in the District Court – Central District of Israel by Pinpoint Advance Corporation (“Pinpoint”) and four of its founders against two of the Company’s Israeli subsidiaries, Elbit Systems Holdings (1997) Ltd. and Kinetics, as well as against one of its officers, Jacob Gadot. Pinpoint is a special purpose acquisition company that was in negotiations with the Company and other Kinetics’ shareholders regarding the sale of shares in Kinetics during 2008. The transaction was not completed and negotiations were terminated. Pinpoint claims that the agreement was completed and thus entered into effect. Alternatively, Pinpoint claims that the Company’s decision not to complete the agreement was made in bad faith, and that under the circumstances Pinpoint and its founders are entitled to pecuniary compensation equal to their rights and entitlements under the alleged breached contract. The Company believes there is no merit to the allegations made in the claim and have responded accordingly to the Court. In March 2010, the Court requested the parties to attempt mediation, which was unsuccessful. The claim is in the preliminary proceedings stage. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | In May 2009, Elbit Systems filed a claim in the U.S. District Court for the Southern District of Illinois against Credit Suisse Group (“CSG”). The complaint seeks to recover approximately $16,000 that Elbit Systems believes was fraudulently obtained by CSG and by its subsidiary Credit Suisse Securities (USA) from Tadiran Communications Ltd. (“Tadiran Communications”) in 2007 in connection with auction rate securities purchased by Tadiran Communications through CSG. In 2008, Tadiran Communication was merged into Elbit Systems, and Tadiran Communications’ activities are currently performed as part of Elbit Systems’ wholly-owned Israeli subsidiary ELSC. CSG filed a motion to dismiss the claim based on a release signed by Tadiran Communications in 2007. In December 2009, the case was moved to U.S. District Court for the Southern District of New York (the “Federal NY Court”). In July 2010, the Federal NY Court ordered the parties to continue discovery regarding the release and ruled that the meaning and scope of the release would be decided in a hearing on summary judgment rather than on a motion to dismiss. In February 2012, the Federal NY Court ruled in Elbit Systems’ favor on the summary judgment, and the case is proceeding to the discovery stage. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | Between 2007 and January 2010, various claims were filed in the Federal NY Court and the Supreme Court of the State of New York, County of New York (“New York State Court”) by certain minority security holders of ImageSat International N.V. (“ImageSat”) against ImageSat, Israel Aerospace Industries Ltd. (“IAI”), Elbit Systems, Elbit Systems Electro-Optics Elop Ltd. (“Elop”) and certain current and former officers and directors of ImageSat. The former directors include, among others, Michael Federmann, Joseph Ackerman and Joseph Gaspar (currently Elbit Systems’ Board Chairman, Chief Executive Officer and Chief Financial Officer, respectively), who at various times in the past served as Elop’s nominee to ImageSat’s board of directors. ImageSat’s largest shareholder is IAI, holding approximately 46% of ImageSat’s issued share capital. Elop holds approximately 14% (7% on a fully diluted basis) of ImageSat’s issued share capital and is entitled to nominate one director to ImageSat’s board. The claims contained various allegations that the defendants breached their fiduciary and/or contractual obligations to the detriment of the plaintiffs. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | C. | LEGAL CLAIMS (Cont.) |
|--------|----|----------------------|

| (6)        | The Company is involved in other legal proceedings from time to time. Based on the advice of legal counsel, management believes such current proceedings will not have a material adverse effect on the Company’s financial position or results of operations. |
|------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | D. | LEASE COMMITMENTS |
|--------|----|-------------------|

| 2012                |   | $      | 36,521  |   |
|---------------------|--------|--------|---------|--------|
| 2013                |   |   | 25,310  |   |
| 2014                |   |   | 19,496  |   |
| 2015                |   |   | 12,564  |   |
| 2016                |   |   | 7,480   |   |
| 2017 and thereafter |   |   | 14,913  |   |
|                |   | $      | 116,284 |   |

|   | E. | GUARANTEES |
|--------|----|------------|

|   | (1) | As of December 31, 2011, guarantees in the amount of approximately $1,039,500 were issued by banks on behalf of Company’s entities mainly in order to secure certain advances from customers and performance bonds. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Elbit Systems has provided, on a proportional basis to its ownership interest, guarantees for three of its investees in respect of credit lines granted to them by banks amounting to $5,700 as of December 31, 2011 (2010 - $7,000). The guarantees will exist as long as the credit lines are in effect. Elbit Systems would be liable under the guarantee for any debt for which the investees would be in default under the terms of the credit line. The fair value of such guarantees, as of December 31, 2011, was not material. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | F. | COVENANTS |
|--------|----|-----------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | G. | CONTINGENT LIABILITIES AND GUARANTEES |
|--------|----|---------------------------------------|

|   | H. | CONTRACTUAL OBLIGATIONS |
|--------|----|-------------------------|

|   |  I. | In order to secure bank loans and bank guarantees in the amount of $1,039,500 as of December 31, 2011, certain Company entities recorded fixed liens on most of their machinery and equipment, mortgages on most of their real estate and floating charges on most of their assets. |
|--------|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |  J. | A lien on the Company’s Approved Enterprises has been registered in favor of the State of Israel (see Note 18(A)(4) above). |
|--------|----------|-----------------------------------------------------------------------------------------------------------------------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)   |
|----------------------------------------------------------|
| U.S. dollars (In thousands, except share and share data) |

|   | A. | SHARE CAPITAL Ordinary shares confer upon their holders voting rights and the right to receive dividends. |
|--------|----|----------------------------------------------------------------------------------------------------------------|

|   | B. | 2007 STOCK OPTION PLAN |
|--------|----|------------------------|

|   (1)   | Fifty percent (50%) of the options will be vested and exercisable from the second anniversary of the Commencement Date;  |
|------------------------|-------------------------------------------------------------------------------------------------------------------------------|

|   (2)   | An additional twenty-five percent (25%) of the options will be vested and exercisable from the third anniversary of the Commencement Date; and  |
|------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------|

|   (3)   | The remaining twenty-five (25%) of the options will be vested and exercisable from the fourth anniversary of the Commencement Date. |
|------------------------|-------------------------------------------------------------------------------------------------------------------------------------|

----

| ELBIT SYSTEMS LTD. AND SUBSIDIARIES |
|-------------------------------------|

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)       |
|--------------------------------------------------------------|
| U.S. dollars (In thousands, except share and per share data) |

|   | C. | A summary of Elbit Systems’ share option activity under the stock option plan is as follows: |
|--------|----|----------------------------------------------------------------------------------------------------|

|                                                 |   | 2011            |      |   | 2010                         |   |   | 2009            |   |
|------------------------------------------------------|--------|-----------------|-----------|--------|------------------------------|--------|--------|-----------------|--------|
|                                                 |   | Numberofoptions |      |   | Weightedaverageexerciseprice |   |   | Numberofoptions |   |   | Weightedaverageexerciseprice |   |   | Numberofoptions |   |   | Weightedaverageexerciseprice |   |
| Outstanding – beginning of  the year |   |            | 1,635,305 |   |                         | $      | 35.96  |            |   |   | 1,858,250 |   |   | $ | 35.24 |   |   |   | 2,454,851 |   |   | $ | 33.96 |   |
|   Granted                                  |   |            | 63,300    |   |                         |   | 50.74  |            |   |   | 28,000 |   |   |   | 52.23 |   |   |   | 58,500 |   |   |   | 50.33 |   |
|   Exercised                                |   |            | (226,965  | )      |                         |   | 32.41  |            |   |   | (223,020 | ) |   |   | 32.53 |   |   |   | (619,451 | ) |   |   | 31.62 |   |
|   Forfeited                                |   |            | (20,750   | )      |                         |   | 42.33  |            |   |   | (27,925 | ) |   |   | 31.91 |   |   |   | (35,650 | ) |   |   | 34.53 |   |
| Outstanding – end of the year                  |   |            | 1,450,890 |   |                         | $      | 37.07  |            |   |   | 1,635,305 |   |   | $ | 35.96 |   |   |   | 1,858,250 |   |   | $ | 35.24 |   |
| Options exercisable at the end of the year           |   |            | 1,292,806 |   |                         | $      | 35.17  |            |   |   | 963,289 |   |   | $ | 34.70 |   |   |   | 586,626 |   |   | $ | 32.55 |   |

|   | D. | The options outstanding as of December 31, 2011, have been separated into ranges of exercise prices, as follows: |
|--------|----|------------------------------------------------------------------------------------------------------------------|

|                             |             |   | Options outstanding   |   |      | Options exercisable                             |   |
|----------------------------------|------------------|--------|-----------------------|--------|-----------|-------------------------------------------------|--------|
|    Exercise price |             |   |  Numberofoptions |   |      | Weightedaverageremainingcontractuallife (years) |   |   | Weightedaverageexercisepriceper share |   |   |  Numberofoptions |   |   | Weightedaverageexercisepriceper share |   |
|                             | $ 33.10 - $63.85 |   |                  |   | 1,450,890 |                                            |   | $ | 1.27 |   |   | $ | 37.07 |   |   |   | 1,292,806 |   |   | $ | 35.17 |   |

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.)       |
|--------------------------------------------------------------|
| U.S. dollars (In thousands, except share and per share data) |

|                                |   | Year ended December 31, |   |
|-------------------------------------|--------|-------------------------|--------|
|                                |   | 2011                    |   |   | 2010 |   |   | 2009 |   |
| Cost of revenues                    |   | $                       | 924    |   |   | $ | 2,353 |   |   | $ | 2,397 |   |
| R&D and marketing expenses      |   |                    | 458    |   |   |   | 954 |   |   |   | 1,048 |   |
| General and administration expenses |   |                    | 614    |   |   |   | 1,904 |   |   |   | 1,689 |   |
|                                |   | $                       | 1,996  |   |   | $ | 5,211 |   |   | $ | 5,134 |   |

|   | E. | The weighted average exercise price and fair value of options granted during the years ended December 31, 2011, 2010 and 2009 were: |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------|

|                                                     |   | Less than market price  |   |
|----------------------------------------------------------|--------|-------------------------|--------|
|                                                     |   | Year ended December 31, |   |
|                                                     |   | 2011                    |   |   | 2010 |   |   | 2009 |   |
| Weighted average  exercise price per share     |   | $                       | 50.74  |   |   | $ | 52.23 |   |   | $ | 50.33 |   |
| Weighted average fair value per share on grant date |   | $                       | 12.12  |   |   | $ | 11.99 |   |   | $ | 16.61 |   |

|   | F. | Computation of basic and diluted net earnings per share: |
|--------|----|----------------------------------------------------------|

|                           |   |   | Year endedDecember 31, 2011                |   |   |   | Year endedDecember 31, 2010       |   |   |   | Year endedDecember 31, 2009 |   |
|--------------------------------|--------|--------|--------------------------------------------|--------|--------|--------|-----------------------------------|--------|--------|--------|-----------------------------|--------|
|                           |   |   | Net incometo shareholdersof ordinaryshares |   |   |   | Weightedaveragenumberofshares (*) |   |   |   | PerShareamount              |   |   |   | Net incometo shareholdersof ordinaryshares |   |   |   | Weightedaveragenumber ofshares (*) |   |   |   | PerShareamount |   |   |   | Net incometo shareholdersof ordinaryshares |   |   |   | Weightedaveragenumberofshares (*) |   |   |   | PerShareamount |   |
| Basic net earnings             |   | $      | 90,288                                     |   |   |   | 42,764                            |   |   | $      | 2.11                        |   |   | $ | 183,498 |   |   |   | 42,645 |   |   | $ | 4.30 |   |   | $ | 214,947 |   |   |   | 42,305 |   |   | $ | 5.08 |   |
|                           |   |   |                                       |   |   |   |                              |   |   |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Effect of dilutive securities: |   |   |                                       |   |   |   |                              |   |   |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Employee stock options         |   |   | -                                          |   |   |   | 367                               |   |   |   |                        |   |   |   | - |   |   |   | 572 |   |   |   |   |   |   |   | - |   |   |   | 678 |   |   |   |   |   |
| Diluted net earnings           |   | $      | 90,288                                     |   |   |   | 43,131                            |   |   | $      | 2.09                        |   |   | $ | 183,498 |   |   |   | 43,217 |   |   | $ | 4.25 |   |   | $ | 214,947 |   |   |   | 42,983 |   |   | $ | 5.00 |   |

|   | G. | SHARE REPURCHASE PROGRAM |
|--------|----|--------------------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | H. | In December 2007, Elbit Systems U.S. Corp ("ESC"), a wholly-owned U.S. subsidiary of Elbit Systems, adopted a Stock Appreciation Rights Plan for Non-Employee Directors of ESA (the "SAR Plan"). ESC is the major shareholder of ESA. The purpose of the SAR Plan is to facilitate the retention of qualified and experienced persons to serve as "Non-Employee Directors" of ESA by providing them additional financial incentives.  A "Non-Employee Director" is a director of ESA who is not an officer or employee of ESA, or any of its affiliated companies. Under the Plan, the Board of ESC may grant Stock Appreciation Rights ("SARs") from time to time to Non-Employee Directors of ESA.  A SAR is a right that, in accordance with the terms of the SAR Plan, entitles the holder to receive, on the exercise date of the SAR, cash in an amount equal to the excess of the "Fair Market Value" of the "Stock" corresponding to the SAR at the time of exercise of the SAR over the "Initial Value of the Stock".  "Stock" means Elbit Systems ordinary shares.  Each SAR corresponds to a share of Stock.  "Fair Market Value" with respect to the Stock means the closing price of the Stock on the Nasdaq on the applicable date.  "Initial Value" of a SAR means the Fair Market Value of one share of Stock on the grant date of the SAR. A SAR may only be exercised after it becomes vested. 25% of any SAR's granted are exercisable on the first anniversary from the grant date and an additional 25% on each of the three subsequent anniversaries. The maximum term of a SAR is five years from the grant date.SAR's do not provide any rights as a shareholder in the Stock. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | A summary of Elbit Systems' SAR activity under the plan is as follows: |
|--------|------------------------------------------------------------------------|

|                                                            |   | Year ended December 31, 2011 |   |
|-----------------------------------------------------------------|--------|------------------------------|--------|
|                                                            |   | Number of options            |   |   | Weighted averageExercise price per share |   |
| Outstanding –  beginning of  the year |   |                         | 30,000 |   |   | $ | 58.64 |   |
|   Granted                                             |   |                         | -      |   |   |   | - |   |
| Outstanding –  end of the year                  |   |                         | 30,000 |   |   | $ | 58.64 |   |
| Rights vested at the end of the year                            |   |                         | 20,250 |   |   | $ | 59.36 |   |

|   | I. | DIVIDEND POLICY |
|--------|----|-----------------|

----

| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|   | A. | Revenues are attributed to geographic areas based on location of the end customers as follows: |
|--------|----|------------------------------------------------------------------------------------------------|

|      |   | Year ended December 31, |      |
|-----------|--------|-------------------------|-----------|
|      |   | 2011                    |      |   | 2010 |   |   | 2009 |   |
| Europe    |   | $                       | 545,509   |   |   | $ | 541,749 |   |   | $ | 728,232 |   |
| U.S.      |   |                    | 890,352   |   |   |   | 843,985 |   |   |   | 813,460 |   |
| Israel    |   |                    | 697,771   |   |   |   | 650,956 |   |   |   | 627,251 |   |
| Other (*) |   |                    | 683,833   |   |   |   | 633,443 |   |   |   | 663,494 |   |
|      |   | $                       | 2,817,465 |   |   | $ | 2,670,133 |   |   | $ | 2,832,437 |   |

|   | B. | Revenues are generated by the following areas of operations: |
|--------|----|--------------------------------------------------------------|

|                  |   | Year ended December 31, |      |
|-----------------------|--------|-------------------------|-----------|
|                  |   | 2011                    |      |   | 2010 |   |   | 2009 |   |
| Airborne systems      |   | $                       | 969,446   |   |   | $ | 791,111 |   |   | $ | 693,229 |   |
| Land vehicles systems |   |                    | 405,294   |   |   |   | 363,245 |   |   |   | 449,712 |   |
| C4ISR systems         |   |                    | 996,382   |   |   |   | 1,019,068 |   |   |   | 1,168,848 |   |
| Electro-optic systems |   |                    | 300,158   |   |   |   | 368,808 |   |   |   | 406,396 |   |
| Other (*)             |   |                    | 146,185   |   |   |   | 127,901 |   |   |   | 114,252 |   |
|                  |   | $                       | 2,817,465 |   |   | $ | 2,670,133 |   |   | $ | 2,832,437 |   |

|   | C. | Major customer data as a percentage of total revenues: |
|--------|----|--------------------------------------------------------|

|                        |   | Year ended December 31, |   |
|-----------------------------|--------|-------------------------|--------|
|                        |   | 2011                    |   |   | 2010 |   |   | 2009 |   |
| Israeli Ministry Of Defense |   |                    | 23     | % |   |   | 23 | % |   |   | 21 | % |
| U.S. Government             |   |                    | 8      | % |   |   | 7 | % |   |   | 6 | % |

|   | D. | Long-lived assets by geographic areas: |
|--------|----|----------------------------------------|

|   |   | Year ended December 31, |      |
|--------|--------|-------------------------|-----------|
|   |   | 2011                    |      |   | 2010 |   |   | 2009 |   |
| Israel |   | $                       | 875,935   |   |   | $ | 985,953 |   |   | $ | 753,477 |   |
| U.S.   |   |                    | 208,640   |   |   |   | 225,217 |   |   |   | 185,134 |   |
| Other  |   |                    | 196,105   |   |   |   | 89,345 |   |   |   | 69,400 |   |
|   |   | $                       | 1,280,680 |   |   | $ | 1,300,515 |   |   | $ | 1,008,011 |   |

|                                   |   | Year ended December 31, |    |
|----------------------------------------|--------|-------------------------|---------|
|                                   |   | 2011                    |    |   | 2010 |   |   | 2009 |   |
| Total expenses                         |   | $                       | 288,668 |   |   | $ | 268,578 |   |   | $ | 245,812 |   |
| Less – grants and participations |   |                    | (47,576 | ) |   |   | (34,447 | ) |   |   | (29,060 | ) |
|                                   |   | $                       | 241,092 |   |   | $ | 234,131 |   |   | $ | 216,752 |   |

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| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONT.) |
|--------------------------------------------------------|
| U.S. dollars (In thousands)                            |

|                                                               |   | Year ended December 31, |    |
|--------------------------------------------------------------------|--------|-------------------------|---------|
|                                                               |   | 2011                    |    |   | 2010 |   |   | 2009 |   |
| Expenses:                                                          |   |                    |    |   |   |   |   |   |   |
| Interest on long-term bank debt                                    |   | $                       | (7,214  | ) |   | $ | (6,968 | ) |   | $ | (8,723 | ) |
| Interest on Series A Notes                                         |   |                    | (5,753  | ) |   |   | (4,395 | ) |   |   | - |   |
| Interest on short-term bank credit and loans                       |   |                    | (3,802  | ) |   |   | (1,699 | ) |   |   | (1,445 | ) |
| Gain (loss) on marketable securities                               |   |                    | (2,464  | ) |   |   | - |   |   |   | 1,292 |   |
| Gain (loss) from exchange rate differences and capitalization |   |                    | 7,565   |   |   |   | (9,094 | ) |   |   | (699 | ) |
| Other                                                              |   |                    | (10,839 | ) |   |   | (4,330 | ) |   |   | (12,260 | ) |
|                                                               |   |                    | (22,507 | ) |   |   | (26,486 | ) |   |   | (21,835 | ) |
| Income:                                                            |   |                    |    |   |   |   |   |   |   |   |   |   |
| Interest on cash, cash equivalents and bank deposits               |   |                    | 2,579   |   |   |   | 3,224 |   |   |   | 3,020 |   |
| Other                                                              |   |                    | 6,359   |   |   |   | 2,011 |   |   |   | 3,230 |   |
|                                                               |   |                    | 8,938   |   |   |   | 5,235 |   |   |   | 6,250 |   |
|                                                               |   | $                       | (13,569 | ) |   | $ | (21,251 | ) |   | $ | (15,585 | ) |

|                                   |   | Year ended December 31, |   |
|----------------------------------------|--------|-------------------------|--------|
|                                   |   | 2011                    |   |   | 2010 |   |   | 2009 |   |
| Gain from sale of Mediguide shares (*) |   | $                       | -      |   |   | $ | 12,809 |   |   | $ | 1,105 |   |
| Other                                  |   |                    | 1,909  |   |   |   | 450 |   |   |   | (647 | ) |
|                                   |   | $                       | 1,909  |   |   | $ | 13,259 |   |   | $ | 458 |   |

|   (*)    | Gain from the sale of Mediguide Inc. shares to St. Jude Medical in 2008, recognized during 2008, 2009 and 2010. |
|------------------------------|-----------------------------------------------------------------------------------------------------------------|

| Transactions:                           |   | Year ended December 31, |   |
|-----------------------------------------|--------|-------------------------|--------|
|                                    |   | 2011                    |   |   | 2010 |   |   | 2009 |   |
| Income -                                |   |                    |   |   |   |   |   |   |   |
| Sales to affiliated companies (*)       |   | $                       | 20,256 |   |   | $ | 33,124 |   |   | $ | 39,929 |   |
| Participation in expenses               |   | $                       | 3,923  |   |   | $ | 3,955 |   |   | $ | 4,217 |   |
|                                    |   |                    |   |   |   |   |   |   |   |   |   |   |
| Cost and expenses -                     |   |                    |   |   |   |   |   |   |   |   |   |   |
| Supplies from affiliated companies (**) |   | $                       | 44,840 |   |   | $ | 57,339 |   |   | $ | 64,058 |   |

| Balances:                                   |   | December 31, |   |
|---------------------------------------------|--------|--------------|--------|
|                                        |   | 2011         |   |   | 2010 |   |
| Trade receivables and other receivables (*) |   | $            | 21,696 |   |   | $ | 20,970 |   |
| Trade payables (**)                         |   | $            | 17,767 |   |   | $ | 30,955 |   |

|   | (*)  | The significant sales and balances include sales of helmet mounted cueing systems purchased from the Company by VSI. |
|--------|-----------|----------------------------------------------------------------------------------------------------------------------|

|   | (**)  | Includes electro-optics components and sensors, purchased by the Company from SCD, and electro-optics products, purchased by the Company, from Opgal. |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                                                 |   | Column A                     |    | Column B                                  |    | Column C                                           |   | Column D                           |   | Column E                |   |
|----------------------------------------------------------------------|--------|------------------------------|---------|-------------------------------------------|---------|----------------------------------------------------|--------|------------------------------------|--------|-------------------------|--------|
| Description                                                          |   | Balance atBeginningof Period |    | Additions (Charged to Costs and Expenses) |    | Deductions (Write-Offs and Actual Losses Incurred) |   | AdditionsResultingfromAcquisitions |   | Balance atEnd of Period |   |
| Year Ended December 31, 2011:                                        |   |                         |    |                                      |    |                                               |   |                               |   |                    |   |   |   |   |
| Provisions for Losses on Long-Term Contracts (*)                     |   |                         | 136,070 |                                      | 104,560 |                                               |   | 43,650                             |   | –                 |   |   | 196,980 |   |
| Provisions for Claims and Potential Contractual Penalties and Others |   |                         | 6,618   |                                      | 2,160   |                                               |   | 542                                |   | –                 |   |   | 8,236 |   |
| Allowance for Doubtful Accounts                                      |   |                         | 11,215  |                                      | 56      |                                               |   | 4,410                              |   | –                 |   |   | 6,861 |   |
| Valuation Allowance on Deferred Taxes                                |   |                         | 160     |                                      | 1,302   |                                               |   | 160                                |   | –                 |   |   | 1,302 |   |
|                                                                 |   |                         |    |                                      |    |                                               |   |                               |   |                    |   |   |   |   |
| Year Ended December 31, 2010:                                        |   |                         |    |                                      |    |                                               |   |                               |   |                    |   |   |   |   |
| Provisions for Losses on Long-Term Contracts (*)                     |   |                         | 136,341 |                                      | 35,443  |                                               |   | 36,360                             |   | 646                     |   |   | 136,070 |   |
| Provisions for Claims and Potential Contractual Penalties and Others |   |                         | 5,864   |                                      | 1,262   |                                               |   | 1,103                              |   | 595                     |   |   | 6,618 |   |
| Allowance for Doubtful Accounts                                      |   |                         | 7,885   |                                      | 904     |                                               |   | 349                                |   | 2,775                   |   |   | 11,215 |   |
| Valuation Allowance on Deferred Taxes (**)                           |   |                         | 34,776  |                                      | – |                                               |   | 34,616                             |   | –                 |   |   | 160 |   |
|                                                                 |   |                         |    |                                      |    |                                               |   |                               |   |                    |   |   |   |   |
| Year Ended December 31, 2009:                                        |   |                         |    |                                      |    |                                               |   |                               |   |                    |   |   |   |   |
| Provisions for Losses on Long-Term Contracts (*)                     |   |                         | 99,323  |                                      | 67,725  |                                               |   | 30,707                             |   | –                 |   |   | 136,341 |   |
| Provisions for Claims and Potential Contractual Penalties and Others |   |                         | 3,025   |                                      | 4,928   |                                               |   | 2,109                              |   | –                 |   |   | 5,864 |   |
| Allowance for Doubtful Accounts                                      |   |                         | 5,471   |                                      | 2,726   |                                               |   | 312                                |   | –                 |   |   | 7,885 |   |
| Valuation Allowance on Deferred Taxes                                |   |                         | 36,282  |                                      | – |                                               |   | 1,506                              |   | –                 |   |   | 34,776 |   |

| * | An amount of $60,848, $74,407 and $74,509 as of December 31, 2009, 2010 and 2011, respectively, is presented as a deduction from inventories, and an amount of $75,493, $61,663 and $122,471 as of December 31, 2009, 2010 and 2011, respectively, is presented as part of other accrued expenses in the category of “Cost Provisions and Other.” The 2011 amount of other accrued expenses includes $57,189 related to the cessation of  a program with a foreign customer, of which $13,300 was included in long-term liabilities. |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **  | An amount of $21,500 was deducted as a result of a prior year adjustment. |
|----------|---------------------------------------------------------------------------|

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