Elbit : Immediate Report

ELBIT SYSTEMS REPORTS

FOURTH QUARTER AND FULL YEAR 2021 RESULTS

Backlog of orders at $13.7 billion; Revenues of $5.3 billion; Non-GAAP net income of $368 million; GAAP net income of $274 million;

Non-GAAP net EPS of $8.30; GAAP net EPS of $6.20

Haifa, Israel, March 29, 2022 - Elbit Systems Ltd. ("Elbit Systems" or the "Company") (NASDAQ and TASE: ESLT), the international high technology company, reported today its consolidated results for the fourth quarter and full year ended December 31, 2021.

In this release, the Company is providing US-GAAP results as well as additional non-GAAP financial data, which are intended to provide investors a more comprehensive view of the Company's business results and trends. For a description of the Company's non-GAAP definitions see page 6 below, "Non-GAAP financial data". Unless otherwise stated, all financial data presented is US-GAAP financial data.

Management Comment:

Bezhalel (Butzi) Machlis, President and CEO of Elbit Systems, commented:

"2021 was a solid year for Elbit Systems, and the financial results indicate the sustained demand for our products and systems from customers around the world. Revenues increased by 13% year over year to $5.3 billion, and a record backlog of $13.7 billion provides us with good visibility.

Elbit Systems' 2021 results are an outcome of the significant investments we have made in recent years to develop leading technological capabilities and expand our positions in key global defense markets to sustain through cycle growth.

I believe that Elbit Systems is well positioned to benefit from the growth in the defense sector around the world."

Fourth quarter 2021 results:

Revenues in the fourth quarter of 2021 were $1,494.3 million, as compared to $1,377.7 million in the fourth quarter of 2020.

Non-GAAP(*) gross profit amounted to $381.1 million (25.5% of revenues) in the fourth quarter of 2021, as compared to $363.0 million (26.3% of revenues) in the fourth quarter of 2020. GAAP gross profit in the fourth quarter of 2021 was $374.3 million (25.1% of revenues), as compared to $357.8 million (26.0% of revenues) in the fourth quarter of 2020.

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Research and development expenses, net were $114.0 million (7.6% of revenues) in the fourth quarter of 2021, as compared to $109.1 million (7.9% of revenues) in the fourth quarter of 2020.

Marketing and selling expenses, net were $80.8 million (5.4% of revenues) in the fourth quarter of 2021, as compared to $81.2 million (5.9% of revenues) in the fourth quarter of 2020.

General and administrative expenses, net were $72.4 million (4.8% of revenues) in the fourth quarter of 2021, as compared to $62.9 million (4.6% of revenues) in the fourth quarter of 2020. The higher level of general and administrative expenses in the fourth quarter of 2021 included the expenses of Sparton Corporation ("Sparton") which was acquired and consolidated commencing the second quarter of 2021.

Non-GAAP(*) operating income was $120.1 million (8.0% of revenues) in the fourth quarter of 2021, as compared to $113.8 million (8.3% of revenues) in the fourth quarter of 2020. GAAP operating income in the fourth quarter of 2021 was $107.3 million (7.2% of revenues), as compared to $104.6 million (7.6% of revenues) in the fourth quarter of 2020.

Financial expenses, net were $19.6 million in the fourth quarter of 2021, as compared to $32.5 million in the fourth quarter of 2020. The lower level of financial expenses in the fourth quarter of 2021 was mainly a result of exchange rate differences related to the revaluation of lease liabilities.

Other income, net was $9.7 million in the fourth quarter of 2021, as compared to other expenses, net of $7.3 million in the fourth quarter of 2020.

Taxes on income were $92.2 million in the fourth quarter of 2021, as compared to $1.9 million in the fourth quarter of 2020. Tax expenses in the fourth quarter of 2021 included a one-time expense of approximately $80.0 million related to the amendment of legislation regarding exempt earnings from "Approved Enterprises" and "Privileged Enterprises" in Israel ("Exempt Earnings").

Equity in net earnings of affiliated companies and partnerships was $3.1 million in the fourth quarter of 2021, as compared to $5.0 million the fourth quarter of 2020.

Non-GAAP(*) net income attributable to the Company's shareholders in the fourth quarter of 2021 was $94.9 million (6.4% of revenues), as compared to $105.0 million (7.6% of revenues) in the fourth quarter of 2020. GAAP net income attributable to the Company's shareholders in the fourth quarter of 2021 was $8.2 million (0.5% of revenues), as compared to $67.8 million (4.9% of revenues) in the fourth quarter of 2020. The decrease in the fourth quarter of 2021 mainly was a result of the tax expense mentioned in "Taxes on income" above.

Non GAAP(*) diluted net earnings per share attributable to the Company's shareholders were $2.14 for the fourth quarter of 2021, as compared to $2.38 for the fourth quarter of 2020. GAAP diluted earnings per share attributable to the Company's shareholders in the fourth quarter of 2021 were $0.18, as compared to $1.53 in the fourth quarter of 2020.

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Full year 2021 results:

Revenues for the year ended December 31, 2021 were $5,278.5 million, as compared to $4,662.6 million in the year ended December 31, 2020.

For distribution of revenues by areas of operation and by geographic regions see the tables on page 14.

The majority of the revenues in 2021 were in the Airborne systems and C4ISR systems areas of operation. The increase in revenues in the area of Airborne systems was mainly a result of sales of airborne precision guided munitions in Asia-Pacific. The growth in revenues in the C4ISR systems area was mainly due to Sparton, a U.S. subsidiary acquired and consolidated in the Company's results from the second quarter of 2021.

On a geographic basis, the increase in North America was mainly a result of higher sales of airborne systems and Sparton's products, as well as growth in sales of medical instrumentation. The increase in Asia-Pacific was due to sales of airborne precision guided munitions.

Cost of revenues for the year ended December 31, 2021 was $3,920.5 million (74.3% of revenues), as compared to $3,497.5 million (75.0% of revenues) in the year ended December 31, 2020. Cost of revenues in 2020 included non-cash expenses of approximately $60.0 million, related to impairment of assets and inventory write-offs due to the impact of COVID-19.

Non-GAAP(*) gross profit for the year ended December 31, 2021 was $1,384.7 million (26.2% of revenues), as compared to $1,247.2 million (26.7% of revenues) in the year ended December 31, 2020. GAAP gross profit in 2021 was $1,358.0 million (25.7% of revenues), as compared to $1,165.1 million (25.0% of revenues) in 2020.

Research and development expenses, net for the year ended December 31, 2021 were $395.1 million (7.5% of revenues), as compared to $359.7 million (7.7% of revenues) in the year ended December 31, 2020.

Marketing and selling expenses, net for the year ended December 31, 2021 were $291.8 million (5.5% of revenues), as compared to $290.7 million (6.2% of revenues) in the year ended December 31, 2020.

General and administrative expenses, net for the year ended December 31, 2021 were $267.4 million (5.1% of revenues), as compared to $223.9 million (4.8% of revenues) in the year ended December 31, 2020. The increase in general administrative expenses in 2021 was mainly as a result of general and administrative expenses related to the acquisition and consolidation of Sparton in the Company's results as of the second quarter of 2021.

Other operating income, net for the year ended December 31, 2021 amounted to $14.7 million, as compared to $35.0 million for the year ended December 31, 2020. Other operating income in 2021 resulted mainly from capital gain related to the sale of a building by a subsidiary in Israel. Other operating income in 2020 was mainly a result of capital gain related to the sale and lease back of buildings by a subsidiary in the U.S.

Non-GAAP(*) operating income for the year ended December 31, 2021 was $450.8 million (8.5% of revenues), as compared to $390.1 million (8.4% of revenues) in the year ended December 31, 2020. GAAP operating income in 2021 was $418.5 million (7.9% of revenues), as compared to $325.7 million (7.0% of revenues) in 2020, which included non-cash expenses of approximately $60 million related to impairment of assets and inventory write-offs due to the impact of Covid-19.

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Financial expenses, net for the year ended December 31, 2021 were $40.4 million, as compared to $71.3 million in the year ended December 31, 2020. Financial expenses, net in 2021 included a gain from changes in fair value of financial assets of approximately $18.8 million. Financial expenses, net in 2021 and 2020 included expenses of approximately $10.2 and $33.4 million, respectively, related to revaluation of lease liabilities and exchange rate differences.

Other income, net was $5.3 million in 2021, as compared to other income, net of $7.4 million in 2020. Other income, net in 2021 and 2020, resulted mainly from revaluation of holdings in affiliated companies, net of expenses related to non-service costs of pension plans.

Taxes on income for the year ended December 31, 2021 were $131.4 million (effective tax rate of 34.3%), as compared to $36.4 million (effective tax rate of 13.9%) in the year ended December 31, 2020. Taxes on income in 2021 included a one-time expense of approximately $80.0 million related to the "release" of Exempt Earnings. Taxes on income in 2020 were reduced by a tax benefit related to adjustments for prior years following a tax settlements of the Company and some of its subsidiaries in Israel with the Israeli tax authorities.

Equity in net earnings of affiliated companies and partnerships for the year ended December 31, 2021 was $22.6 million, which included a gain of approximately $10.9 million related to the sale of affiliated company, as compared to $12.6 million in the year ended December 31, 2020.

Non-GAAP(*) net income attributable to the Company's shareholders for the year ended December 31, 2021 was $367.6 million (7.0% of revenues), as compared to $318.5 million (6.8% of revenues) in the year ended December 31, 2020. GAAP net income attributable to the Company's shareholders in the year ended December 31, 2021 was $274.4 million (5.2% of revenues), as compared to $237.7 million (5.1% of revenues) in the year ended December 31, 2020.

Non-GAAP(*) diluted net earnings per share attributable to the Company's shareholders for the year ended December 31, 2021 were $8.30, as compared to $7.20 for the year ended December 31, 2020. GAAP diluted net earnings per share attributable to the Company's shareholders in the year ended December 31, 2021 were $6.20, as compared to $5.38 in the year ended December 31, 2020.

Backlog of orders for the year ended December 31, 2021 totaled $13,661 million, as compared to $11,024 million as of December 31, 2020. Approximately 72% of the current backlog is attributable to orders from outside Israel. Approximately 60% of the current backlog is scheduled to be performed during 2022 and 2023.

Net cash provided by operating activities in the year ended December 31, 2021 was $416.9 million, as compared to $278.8 million in the year ended December 31, 2020. The higher level of operating cash flow in 2021 was mainly a result of payment of outstanding debts by customers, mainly the Israeli Ministry of Defense, as well as higher advances received from customers, mainly in Israel and Europe.

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Impact of the Covid-19 Pandemic on the Company:

The Coronavirus disease 2019 (Covid-19) was declared a pandemic by the World Health Organization in March 2020. Covid-19 has had significant negative impacts on the worldwide economy, resulting in disruptions to supply chains and financial markets, significant travel restrictions, facility closures and shelter-in place orders in various locations. Such disruptions also led to global shortages of electronics and other components, increased costs and extended lead times. Elbit Systems is closely monitoring the evolution of the Covid-19 pandemic and its impacts on the Company's employees, customers and suppliers, as well as on the global economy.

As we last reported on November 23, 2021, we have been taking a number of actions to protect the safety of our employees as well as maintain business continuity and secure our supply chain. We also reported on a number of activities where we are leveraging our technological capabilities to assist hospital staffs and other first responders protecting our communities from the impact of the pandemic. All of these actions remain ongoing.

We have implemented a series of cost control measures to help limit the financial impact of the pandemic on the Company, in parallel to the measures we are taking to maintain business continuity and deliveries to our customers. We also are working on efficiency initiatives with a number of our suppliers. We continue to evaluate our operations on an ongoing basis in order to adapt to the evolving business environment.

During 2020 and 2021 our defense activities, which account for most of our business, were not materially impacted by the pandemic, although some of our businesses experienced certain disruptions due to government directed safety measures, travel restrictions and supply chain delays.

We believe that as of December 31, 2021, Elbit Systems had a healthy balance sheet, adequate levels of cash and access to credit facilities that provide liquidity when necessary. We have given high priority to cash management and adequate cash reserves to run the business.

The extent of the impact of Covid-19 on the Company's performance depends on future developments including the duration and spread of the pandemic, the measures adopted by governments to limit the spread of the pandemic, including implementation of vaccinations, and resulting actions that may be taken by our customers and our suppliers, all of which contain uncertainties. As will be noted in our annual report on Form 20-F for 2021 that will be filed in April 2022, the preparation of financial reports requires us to make judgments, assumptions and estimates that affect the amounts reported. For our financial results for the quarter and the year ended December 31, 2021, we considered the economic impact of the Covid-19 pandemic on our critical and significant accounting estimates. The expected impact of the Covid-19 pandemic did not have a material effect on our judgments, assumptions and estimates reflected in the results. However, our future results may differ materially from our estimates. As events continue to evolve in connection with the Covid-19 pandemic, the estimates we use in future periods may change materially.

Potential Impact of Increase in Company's Share Price on Employee Compensation Plan Costs:

Over the last several weeks, there has been a significant increase in the price of the Company's shares. Should such share price levels continue, or further increase, there would be a significant impact on the costs to the Company under its various stock price linked compensation plans for employees.