Company Name: Elbit Systems Ltd Company Ticker: ESLT IT Date: 2011-05-16 Event Description: Q1 2011 Earnings Call

Market Cap: 7,665.47 Current PX: 17920 YTD Change($): -1010 YTD Change(%): -5.335

Bloomberg Estimates - EPS Current Quarter: 1.145 Current Year: 4.909 Bloomberg Estimates - Sales Current Quarter: 681.000 Current Year: 2903.167

Q1 2011 Earnings Call Company Participants

Kenny Green Joseph Gaspar Joseph Ackerman

Other Participants
Gilad Ben Ari

MANAGEMENT DISCUSSION SECTION

Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Elbit Systems Ltd. First Quarter 2011 Results Conference Call. All participants are at present in a listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, May 16, 2011. If you have not yet received the copy of today's release and would like to do so, please call CCG Investor Relations at 1-646-201-9246 or 972-3-607-4717. I would now like to turn the call over to Mr. Kenny Green of CCG Investor Relations. Mr. Green, please go ahead.

Kenny Green
Thank you and good day to everybody. On behalf of all the investors I would like to thank Elbit Systems' management for hosting this call. Joining us on the call today are Mr. Joseph Ackerman, Elbit Systems' President and CEO and Mr. Yossi Gaspar, Elbit Systems' Chief Financial Officer. Yossi will begin by providing a discussion of the financial results of the quarter followed by Joseph, who will talk about some of the significant events during the quarter and beyond. We will then turn over the call to the question-and-answer session. Before we begin, I would like to point out that the Safe Harbor statements in the company's press release issued earlier today also refers to the contents of this conference call. With that, I would like to hand the call over to Yossi. Yossi, go ahead, please.

Joseph Gaspar
Thank you, Kenny. Hello, everyone, and thank you for joining us today. Like the last quarter, we will provide you with both our regular GAAP financial data as well as certain supplemental non-GAAP information. In light of our increased acquisition activities during 2010 and continuing in the first quarter of 2011, we believe that the presentation of non-GAAP financial measures is beneficial to investors' understanding and assessment of the company's ongoing core operations and prospects for the future. You can find all the detailed GAAP financial data as well as the non-GAAP information in today's press release.

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Company Name: Elbit Systems Ltd Company Ticker: ESLT IT Date: 2011-05-16 Event Description: Q1 2011 Earnings Call

Market Cap: 7,665.47 Current PX: 17920 YTD Change($): -1010 YTD Change(%): -5.335

Bloomberg Estimates - EPS Current Quarter: 1.145 Current Year: 4.909 Bloomberg Estimates - Sales Current Quarter: 681.000 Current Year: 2903.167

Our results of the first quarter marked a positive start to 2011 with backlog growing nicely to $5.6 billion, the fourth consecutive quarter of backlog growth. I will now highlight and discuss some of the key figures and trends. Our first quarter 2011 revenues were $620 million, marginally higher than the $618 million, which we reported in the first quarter of last year. In terms of revenue breakdown across areas of operation in the quarter, airborne systems was 41%, land systems 13%, C4ISR 31%, electro-optics 11%, and the rest was 4%. On a geographic basis, the United States remained our largest region at 34% of revenue, Israel was 27%, Europe was 18% and the rest of the world was 21% of revenues. We do not see the quarterly fluctuations in our revenue breakdown as indicative of any long-term trends. However, on a year-over-year basis, there has been a trend of increasing sales in the airborne area of operations as well as growing sales to the United States and Israel market and the decrease to Europe primarily to the delay in the Watchkeeper project, which we expect will pick up speed in the second half of this year. For the first quarter, our gross margin was 29.9% at the same level as we reported in the first quarter of last year. Operating income in the first quarter was $40.9 million, representing a 6.6% margin. This is compared to $49.2 million, or an 8% margin in the first quarter of last year. The non-GAAP operating income was $54.9 million, or an 8.9% margin compared to $59.7 million, or 9.7% in the first quarter of 2010. In terms of operating expense breakdown during the first quarter, our net R&D expenses for the quarter were 8.7% of revenues compared to 8.5% last year. Marketing and selling expenses were 8.9% of revenues in the quarter compared with 8.8% in the first quarter of last year. Our G&A expenses in the first quarter were 5.7% of revenues compared with 4.5% of revenues in the first quarter of last year. Our G&A was higher primarily due to added G&A expenses from our recent acquisitions. Financial expenses for the first quarter of 2011 were $10.7 million compared with $3.1 million in the first quarter of last year. The higher level of financial expense in the quarter was mainly due to higher currency hedging related costs and this also includes additional interest payments following the bond issue we executed in Israel in the second quarter of 2010. The affiliates, which we do not consolidate, contributed $3.8 million to the net income in the quarter. This is compared to $3.9 million in the first quarter of last year. Consolidated net income attributable to Elbit Systems' shareholders for the first quarter was $27.9 million or a net margin of 4.5%. This is compared with a net income of $49.8 million and net margin of 8.1% in the first quarter of 2010 in which we had an extraordinary net income of $9.6 million due to the sale of MediGuide. Diluted earnings per share for the first quarter were $0.65 compared to $1.15 for the first quarter of 2010. With respect to certain to certain non-GAAP information, our non-GAAP net income, which includes mainly amortization of intangible assets and gain from changes in holdings, were $38.6 million compared to $48.1 million in the first quarter of 2010. The non-GAAP EPS for the quarter was $0.90 compared with $1.1 for the first quarter of last year. Operating cash flow for the quarter was $40.1 million compared to $64 million in the first quarter of 2010. The reduction in the cash flow was mainly a result of lower net profit and increase in inventories. Our backlog of orders at year-end was over $5.6 billion, a solid increase over the backlog of the end of the prior quarter, which stood at $5.45 billion. Approximately 68% of the backlog is scheduled to be performed during the rest of 2011 and 2012. The majority of the balance is scheduled to be performed in 2013 and '14. Finally, the Board of Directors declared a dividend of $0.36 per share for the first quarter of 2011. That ends my summary and I shall now turn the call over to Mr. Ackerman.

Joseph Ackerman

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Company Name: Elbit Systems Ltd Company Ticker: ESLT IT Date: 2011-05-16 Event Description: Q1 2011 Earnings Call

Market Cap: 7,665.47 Current PX: 17920 YTD Change($): -1010 YTD Change(%): -5.335

Bloomberg Estimates - EPS Current Quarter: 1.145 Current Year: 4.909 Bloomberg Estimates - Sales Current Quarter: 681.000 Current Year: 2903.167

Thank you, Yossi. As Yossi previously mentioned, we are pleased with the trend of growth indicated in our results. We achieved a stable level of revenues while still growing our backlog due to an increased level of new orders coming in. The improvement is a positive development as we increasingly convert this level of backlog to revenue over the coming quarters. At the same time, the past few months have been important for us with a number of acquisitions that we believe will provide significant long-term upside. We have made all of that follows over the past three quarters. Back in mid-2010, we bought 100% in Soltam, Saymar and 87% interest in ITL. Each Israeli company is operated in areas that are synergistic to us. Towards the end of the year, we bought M7 in United States and Ares in Brazil. In February and March of this year, we bought the remainder of ITL held by the public as well as the part of Elisra held by Elta fully consolidating both companies into the Elbit's family. These acquisitions are beginning to bear fruits and in only a short period our subsidiaries are already making progress and winning important new orders. Our presence in the Brazilian market has resulted in strong interest from customers and local industry. In April, AEL our subsidiary signed a strategic agreement with Embraer to establish a jointly owned Brazilian company to engage in unmanned vehicle and other areas. In addition, AEL won an $85 million contract from Embraer to upgrade the Brazilian Air Force F-5 plane. Our new U.S. subsidiary, M7 Aerospace, won a $15.6 million contract with the U.S. Navy for logistics support and maintenance of C-26 and C-35 utility aircraft. And Soltam, our recently acquired subsidiary in Israel, which focuses on artillery system, won a $24 million contract to supply self-propelled artillery systems. While these artilleries are performing well, it is important to note that these acquisitions have increased our operating cost in the short term both due to their operating cost structure as well as some of the cost involved in the acquisition process. However, as we work to absorb these companies into Elbit, we see many opportunities to rationalize and share costs as well as enhance information and research across the regions. While these take time, we believe that we will successfully absorb these companies unleashing synergy as we have done numerous times in the past. And now I would like to stress that I believe that in 2011, we will continue to see the fruits of our efforts from last year and I expect we will resume our growth. And with that, I would like now to open the call for questions-and-answers. Operator?

Q&A
Operator
Thank you, sir. Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] The first question is from Gilad Ben Ari of Union Bank. Please go ahead, sir. <Q - Gilad Ben Ari>: Hi. I want to ask about the -- if you have a guidance of your revenues for this year, do you expect some growth in the revenues even isnorganic growth because of the acquisitions that you did through 2010 and '11? <A - Joseph Ackerman>: You know that usually, we don't give guidance, but what I can say that we expect 2011 sales to be higher than 2010. <Q - Gilad Ben Ari>: Okay, thank you. I have another question with the OpEx, operating expenses. The G&A expenses are supposed to be in the same level of this quarter in the next few quarters because of the acquisitions? <A - Joseph Gaspar>: As Mr. Ackerman mentioned it earlier, we are in the process of absorbing the newly required companies and that process is composed of building synergies in growing the top line, on one hand. On the other hand is reducing cost elements in the various expense levels, including the G&A. So we expect this to do better in the future as we have shown in the past when we have assimilated actually various other acquisitions.

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Company Name: Elbit Systems Ltd Company Ticker: ESLT IT Date: 2011-05-16 Event Description: Q1 2011 Earnings Call

Market Cap: 7,665.47 Current PX: 17920 YTD Change($): -1010 YTD Change(%): -5.335

Bloomberg Estimates - EPS Current Quarter: 1.145 Current Year: 4.909 Bloomberg Estimates - Sales Current Quarter: 681.000 Current Year: 2903.167

<Q - Gilad Ben Ari>: Okay. Last question with the backlog issue. The growth of the backlog is mainly in the segment of aerial segment, mainly or it's in -- across other sectors of the company? <A - Joseph Ackerman>: It's across all over the sectors of the company. <Q - Gilad Ben Ari>: Okay, thank you very much. Bye.

Operator
[Operator Instructions] There are no further questions at this time. Before I ask Mr. Ackerman to go ahead with his closing statement, I would like to remind participants that a replay of this call will be available two hours after the conference ends. In the U.S., please call 1-888-326-9310. In Israel, please call 03-925-5901 and internationally please call 972-3-925-5901. A replay of this call will also be available on the company's website at www.elbitsystems.com. Mr. Ackerman, would you like to make a concluding statement?

Joseph Ackerman
Yes, thank you. I would like to thank all of our employees for their hard work throughout the quarter and to everyone on this call. Thank you for joining us today, and for your continuous support and interest in our company. Have a good day, and good bye. This transcript may not be 100 percent accurate and may contain misspellings and other inaccuracies. This transcript is provided "as is", without express or implied warranties of any kind. Bloomberg retains all rights to this transcript and provides it solely for your personal, non-commercial use. Bloomberg, its suppliers and third-party agents shall have no liability for errors in this transcript or for lost profits, losses, or direct, indirect, incidental, consequential, special or punitive damages in connection with the furnishing, performance or use of such transcript. Neither the information nor any opinion expressed in this transcript constitutes a solicitation of the purchase or sale of securities or commodities. Any opinion expressed in the transcript does not necessarily reflect the views of Bloomberg LP. COPYRIGHT 2011, BLOOMBERG LP. All rights reserved. Any reproduction, redistribution or retransmission is expressly prohibited.

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