COMPANY UPDATE | COMMENT

165.00 150.00 135.00 120.00 105.00 2008 2009 2010 A M J J A S O N D J F M A M J J A S O N D J F M A M J J A 66.00 60.00 54.00

125 WEEKS Rel. S&P 500

04APR08 - 16AUG10 HI-17JUL09 170.97 LO/HI DIFF 77.91% CLOSE 121.55

AUGUST 17, 2010

Elbit Systems Ltd. (NASDAQ: ESLT; TASE: ESLT)

Weak Operating Performance Yet Backlog Uptick Paves 2H10 Growth
Outperform Average Risk
Price: 52.79 43.3 1.39 23.2 12% 46% Shares O/S (MM): Dividend: Float (MM): Debt to Cap: Institutional Ownership: Price Target: Implied All-In Return: Market Cap (MM): Yield: Avg. Daily Volume (MM): 75.00 45% 2,286 2.6% 0.02

LO-18APR08 96.10 HI-28AUG09 70.69 LO/HI DIFF 98.57%

CLOSE
48.00 42.00 36.00 200 100

52.79

LO-05DEC08 35.60

PEAK VOL. VOLUME

322.5 47.7

RBC Capital Markets Corp. Daniel Meron (Analyst) (212) 428-6259; daniel.meron@rbccm.com
FY Dec EPS (Op) - FD Prev. P/E Revenue (MM) Prev. EPS (Op) - FD 2008 2009 2010 Prev. Revenue (MM) 2008 2009 2010 Prev. 2010E 2011E 4.98 5.58 5.10 5.66 16.2x 10.6x 10.6x 9.5x 2,638.3 2,832.4 2,681.6 2,903.7 2,830.5 3,029.6 Q1 0.70A 1.02A 1.15A Q2 0.73A 1.39A 1.04A Q3 0.83A 1.35A 1.20E 1.29E 671.2A 732.5A 678.4E 729.3E Q4 1.00A 1.24A 1.60E 1.62E 697.9A 714.7A 781.7E 816.5E 2008A 3.26 2009A 5.00

Maintain Outperform on Good Risk / Reward Potential

We braced for lackluster numbers per preview yet were disappointed by weaker than expected revenue. EPS came inline on non-operating items. The bright spot was the second consecutive growth in backlog which may flow through numbers in coming quarters. Despite weak 2Q10 performance, management expects better 2H10 execution with 2010 to be essentially flat. While we expect strong ramp in the back-half, this is off lower than expected 1H10 and we are conservatively cutting our numbers. ESLT may remain rangebound until performance improves, yet in our view undemanding valuation already reflects slower near-term pacing, offering long-term oriented investors good risk/reward balance; Shares trade at 9x FTM vs. 12x afforded to the defense industry and 15x to peers with similar growth profile. We maintain Outperform on solid positioning and good long-term growth potential on favorable product and regional exposure. Potential catalysts include resumed growth, major project wins and accretive M&A.

616.1A 656.9A 618.2A

653.2A 728.3A 603.3A 666.5E

EPS (Op): Proforma Numbers, net of various one timers (such as Mediguide divestment in 4Q08).

Weak operating performance

Elbit delivered 2Q10 revenue of $603m, well below our and street estimate of ~$667m. 2Q10 revenue was down 17% Y/Y, which management attributed to lower C4ISR sales in Europe and Israel. OpEx rose 3% Q/Q yet this was offset by other income, which resulted in flat operating income sequentially. Still, EPS of $1.04 came inline thanks to non operating items, including lower tax rate and higher equity from affiliated companies. The company declared a dividend of $0.36 per share, or 35% payout. Elbit generated $38m in operating cash flow, down from $64m in 1Q10 on higher working capital and lower cash earnings.

All values in USD unless otherwise noted.

Backlog growth paves way for better 2H10

The main bright point in the quarter was another rise in backlog by 2% Q/Q to $5.36B, which bested our $5.30B forecast; this marks the second consecutive rise following 4% gain in 1Q10. Management expects the backlog growth to drive better 2H10 performance and 2010 to be broadly flattish. We project strong sequential revenue gains in 3Q10 to $678m and $1.20 EPS and another rise in 4Q10. We now model -5% Y/Y revenue decline in 2010 to $2.68B and flat EPS at $4.98. We expect 8% rise in 2011 to $2.93B and 12% EPS rise to $5.58.

Priced as of prior trading day's market close, EST (unless otherwise noted). For Required Conflicts Disclosures, see Page 8.

August 17, 2010

Elbit Systems Ltd.

Details
2Q10 Under the hood Though we were bracing for lackluster numbers and lowered projections on our preview we were disappointed by weaker than expected top line of $603m, well below our and street estimate of ~$667m. EPS of $1.04 came inline on non-operating items. 2Q10 revenue were down 2% sequentially and 17% Y/Y. Despite the lower revenue, gross margin improved by 50 bps Q/Q and 130 bps to 30.4%, mainly on improved mix on annual comparison. OpEx rose 3% Q/Q yet this was offset by other income, which resulted in flat operating income sequentially; however, proforma operating margin was disappointing at 7.3%. The inline GAAP EPS was also aided by lower tax rate and higher equity from affiliated companies. Elbits board declared a dividend of $0.36 per share for 2Q10. Record date is August 31st 2010 and pay date is September 13th 2010. Elbit generated $38m in operating cash flow, down from $64m in 1Q10 on higher working capital and lower cash earnings. DSO rose to 83 days from 73 in 1Q10 while inventory turns slid to 3.0x from 3.3x respectively. Operating cash flow was $102m in 1H10, up from $98m in 1H09. The net debt position at the end of 2Q10 was $(-66m) or $(-1.5) per share.
2Q10A Jun Revenue Q/Q Y/Y Cost of Revenue % of rev. Gross Profit Gross Margin Research and Development Sales & Marketing General & Administrative Other Income Operating Expense % of rev. Q/Q Operating Income Operating Margin Q/Q Net Income Net Margin Q/Q Fully Diluted EPS Q/Q
Source: RBC Capital Markets, Company reports.

2Q10E RBC 666,500 8% -8% 469,200 70.4% 197,300 29.6% 56,000 58,000 28,300 142,300 21.4% 5% 55,000 8.3% 12% 45,200 6.8% -9% $ 1.04 -9% $

2Q10E Street 667,500 8% -8% 468,785 70.2% 198,715 29.8%

1Q10A Mar 618,201 -14% -6% 433,656 70.1% 184,545 29.9% 52,665 54,595 28,085 135,345 21.9% -12%

2Q09A Jun 728,289 11% 12% 516,420 70.9% 211,869 29.1% 53,008 67,549 29,398 149,955 20.6% 14% 61,914 8.5% -19% 59,720 8.2% 38% $ 1.39 37%

603,277 -2% -17% 419,716 69.6% 183,561 30.4% 56,846 50,336 32,056 -4,756 134,482 22.3% -1% 49,079 8.1% 0% 44,779 7.4% -10% $ 1.04 -10%

54,200 8.1% 10% 45,550 6.8% -9% 1.05 -9% $

49,200 8.0% -16% 49,782 8.1% -7% 1.15 -7%

August 17, 2010

Optics grow alone

Elbit Systems Ltd.

Electro Optics (14% of 2Q10 mix) was the only segment to display sequential increase. In commentary management attributed revenue decline to the 33% annual drop in C4ISR (33% of mix). Airborne Systems (29% of revenues) was basically flat from 1Q at $178m while Land Systems (19 of 2Q10 mix) lost 9% Q/Q and other products dropped slightly to $33.8m.
2Q09A Jun Segment Analysis Airborne Systems % Mix Q/Q C4ISR % Mix Q/Q Land Systems % Mix Q/Q Electro-Optics % Mix Q/Q Other % Mix Q/Q
Source: Company reports.

3Q09A Sep 166,700 22.8% -4% 289,600 39.5% -3% 132,200 18.0% 19% 117,500 16.0% 9% 26,500 3.6% -27%

4Q09A Dec 203,700 28.5% 22% 239,000 33.4% -17% 135,600 19.0% 3% 98,300 13.8% -16% 38,100 5.3% 44%

FY09A

1Q10A Mar

2Q10A Jun 178,300 29.6% -1% 200,800 33.3% -3% 103,900 17.2% -9% 86,500 14.3% 6% 33,800 5.6% -5%

173,300 23.8% 0% 300,100 41.2% 31% 110,700 15.2% -22% 107,800 14.8% 30% 36,400 5.0% 23%

716,500 25.3% 13% 1,058,600 37.4% 25% 520,397 18.4% -26% 406,400 14.3% 21% 130,600 4.6% 5%

179,800 29.1% -12% 206,500 33.4% -14% 114,700 18.6% -15% 81,700 13.2% -17% 35,500 5.7% -7%

US and ROW offset Europe and Israel

Regionally, US was up 14% Q/Q to 36% of 2Q10 revenue and while Europe (26% mix) declined 25% sequentially and sales in Israel (22% mix) were also down 7%. Looking forward company indicated they dont expect substantial changes in Israel while noting that Europes climb to 25%-26% of revenues is not the norm and they expect a more sustainable level of approximately 20% of total revenues. ROW revenues grow slightly and are expected to grow further in the future as evident in deal announcements such as $300m Australian deal last quarter and $130m Latin America deal announced in June. World defense budgets draw a similar picture to companys future opportunities, management noted the US defense budget is expected to grow approximately 5% in Elbit related segments while European budgets are expected to remain flat and management expect related ROW budgets to continue to grow. Management notes that defense electronics shows stronger promise then regular defense budgets.

August 17, 2010

2Q09A Jun Geo Breakdown United States % mix Q/Q | Y/Y Europe % mix Q/Q Israel % mix Q/Q | Y/Y Rest of the World % mix Q/Q | Y/Y Total Revenue
Source: Company reports.

Elbit Systems Ltd.

3Q09A Sep 209,700 28.6% 15% 201,200 27.5% 7% 167,500 23% -5% 154,100 21.0% -15% 732,500 4Q09A Dec 210,300 29.4% 0% 177,400 25.7% -12% 159,000 24% -5% 168,000 25.0% 9% 714,700 813,700 28.7% -10% 728,100 25.7% 12% 626,900 22% 32% 663,800 23.4% 10% 2,832,500 FY09A 1Q10A Mar 187,700 30.4% -11% 156,200 24.8% -12% 142,800 22% -10% 131,500 23.5% -22% 618,200 2Q10A Jun 214,100 35.5% 14% 117,600 25.7% -25% 133,500 22% -7% 138,100 23.4% 5% 603,300

182,800 25.1% -13% 187,200 25.7% 15% 176,200 24% 42% 182,100 25.0% 14% 728,300

Adjusting estimates down The main bright point in June-Quarter report was another rise in backlog by 2% Q/Q to $5.36B, which bested our $5.30B forecast; this marks the second consecutive rise following 4% gain in 1Q10 after fairly flattish 2009 numbers. In our view, the backlog upside is a wash with the 2Q10 miss. Management expects the backlog growth to drive better 2H10 performance and 2010 to be broadly flattish year-on-year. While we were disappointed with 1H10 performance, we believe that the consecutive backlog growth may drive better execution in coming quarters and expect 2Q10 to mark the bottom. We're adjusting our estimates to account for the weaker than expected 2Q10, slight backlog rise and what we believe is shaping up as a more backend loaded year. For 3Q10 we now expect revenues of $678m, up 12% Q/Q, below our prior $729m. We basically maintain our gross margin estimates at 30% and slightly raise our OpEx figures as we expect growth in expenses off recent acquisitions. We now model 3Q10 operating margin of 8.9%, lower then our prior 9.4% and project $1.20 EPS, 9c below our previous $1.29. As revenue conversion improves we expect another rise in 4Q10 revenues to $781m and an improved operating margin of 10.4% to lead to EPS of $1.60. For FY10 we now model -5% Y/Y top-line decline to $2.68B, below our previous $2.83B / 0%. We expect gradual operating margin expansion as revenue volumes pick up and now model FY10 operating margin of 8.9%. Our FY10 EPS estimate is now $4.98, down from our prior $5.10. We expect 8% Y/Y top-line growth in FY11, yet off a slightly lower base we now model FY11 at $2.90B, below our previous $3.03B. We now model 9.8% operating margins (was 10.1%) and slightly lower our EPS figure to $5.58. You win some, you lose some During the quarter Elbit announced the following deals, we note the quarters low flow of deals follows 1Q10s extensive announcements accumulating to approximately $660m. Elbit announced it won a $130m contract with an undisclosed Latin American country to supply their army with C4ISR as well as electronic warfare over the next 3 years. In May Elbit announced a joint project with Ness Technologies called NessBit worth $12.5m to each company in which they will supply information management systems to the Israeli Air Force. However, it seems Elbit may have gotten the short end of the stick in couple of other projects: The Australian military purchased UAVs from Textron in a deal estimated at $175m, where Elbit was said to be a contender. In addition, Boeing was awarded a UAV contract with the US army worth approximately $48m. At the same time we await possible major deals such as the expected fall resolution regarding the US Navy Unmanned Vehicle contract which Elbit and General Dynamics bid jointly. 4

August 17, 2010

Elbit Systems Ltd.

Positive takeaways from demos Elbit held a 3 day demo for the media, analysts and its employees three weeks ago in late July. We came away highly impressed with the companys advanced systems and innovation across multiple arenas. Management highlighted its focus on intelligence, night-vision, electronic warfare, UAVs and cheap/secure training abilities. Our discussion at the event echoed management commentary on long term trends, as stated most recently at our tech conference June 10. We believe Elbit is well positioned in the $150B defense electronics market and sees plenty of growth opportunities ahead; indeed, the Defense Electronics budget segments within the US budget is expected to grow 6-9% Y/Y and wed expects mid-high single digit growth in defense electronics spending in coming years. Elbit sees strong demand and money going into improving fire control systems for increased accuracy and contained strikes. Contrary to the past several years, budgets are returning to land operation systems and soldier platforms at the expense of navy and air-force/space budgets. In the future, the company sees large potential in robotic and unmanned systems which are the market's fastest growing opportunity. Elbit believes the successful adoption of UAVs will be replicated in land and naval systems as governments try to mitigate risk to human soldiers. Consequentially, armies are looking to reduce risk by adopting Platform Defense Systems like electro-optic and electro-magnetic missile jamming systems. C4ISR and 24/7 operations (night vision) remain major growth areas where Elbit has solid offering. Armies are also looking to trim expensive training costs (for example for combat flight fighters) and demand for Training & Simulation solutions remains high. Elbit catches headlines As competition tightens between Israeli defense companies, mainly Elbit and IAI, Israeli press note the MoD are considering to divide the market and decide which company can operate in each area. Naturally both parties oppose this move and this may be tough to get approval and enforce it. On a separate note, according to Israeli press Elbit had joined a new cooperation with German company Grob to develop training aircrafts; cooperation seems to be at early stages and announcements didnt indicate any deals on the table. Elsewhere, throughout the quarter Israeli political issues floated time and again, especially highlighting the business relationship with Turkey. As previously noted we consider the affect to minimal as history shows us correlation between the two is low, further so we believe Turkeys contribution to the revenue mix is low single digit. Taking a swing at M&A In late June Israeli Financial paper Globes stated Elbit may exercise its option to acquire remaining 81% of small defense holding company Mikal Group. The acquisition may be priced at $100-150m, after Elbit already converted $18m loan to 19% holding in June 2009 and a call option to buy the remaining piece through 2011, leaving the company ample time to review. Founded in 1993, Mikal has controlling interest in Soltam (artillery), ITL (Electro-Optics) and Symar (armored vehicle upgrades). The electro-optics and platform upgrade operations fit well into Elbit's current businesses while the artillery systems may become more attractive following increasing mix of electronics in the platforms to ~ 50%, whereas the hardware costs have declined and we may see ongoing upgrades of these systems in coming years. During the quarter Elbit also took a swing at Mikals sub-party ITL. Elbits attempt to purchase 14.4% of ITL fell through as public didnt take, this after Elbit improved its offer on July 29th to NIS 12m (~$3.1m) indicating the company was worth NIS 82m ($22m). The day before Elbits original offer, which valued ITL at NIS 73m, market granted NIS 63m. And the day before the improved NIS 82m offer stocks indicated a value of NIS 78m. While we consider the purchase of ITL to be a positive move we believe it will have a very minor affect on the company one way or the other. The potential acquisition of Mikal likely holds neutral near term impact on Elbit as the option is widely known to investors, given the due disclosures in filings / management commentary. With solid balance sheet and break-even cash position, the company can easily finance suitable deals, after raising NIS 1.1B (~$290m) bond offering on Tel Aviv Stock Exchange.

August 17, 2010

Elbit Systems Ltd.

Valuation
We believe ESLT fits long-term-oriented investors and we'd be buyers on any pullback; with potential lumpiness inherent in the business, we'd focus on the underlying trends. ESLT also provides a "candy" in the form of a FY10E ~2% dividend yield. Shares trade at 9x FTM vs. 12x afforded to the defense industry and 15x to peers with similar growth profile We are maintaining our price target of $75, or 13x FY11E EPS. Our target multiple is a slight discount to similar peers based on slower near-term growth and a tad ahead of the industry-wide multiple based on higher than average growth potential. Our target is also backed by DCF, incorporating 1.5% terminal growth rate and 9.3% WACC. We maintain our Outperform rating on solid positioning and good long-term growth potential on favorable product and regional exposure. Undemanding valuation already reflects slower near-term pacing, offering long-term investors good risk/reward balance, in our view.

Price Target Impediment

We assign Elbit Systems an Average Risk qualifier given its exposure to growing homeland security segments, solid backlog, diversified operations and highly seasoned management team. Key risks to our investment thesis and price target include:
Structural and Market Risks

Exposure to government defense budgets which may be impacted by rising deficits. Exports are subject to Israeli regulations and overall business may be impacted by geopolitical shifts in key markets like Israel, US and elsewhere. Potential project termination for government, either for default or convenience.
Operational and Execution Risks

Potentially lumpy revenue streams and margins. Most contracts are fixed price and require careful planning to sustain margins. M&A and integration risks as well as necessity for government approval of M&A. Participation in risk-sharing projects. Possible labor disputes as 20% of employees, mostly in Israel, are organized under collective bargaining agreements.

Other Related Risks

Balance sheet: ARS write-offs, pension liabilities and deficit. Exposure to exchange rate fluctuations and need for proper hedging. Competition from larger peers and defense contractors, changes in technology and demand.

Company Description
Elbit Systems is an international defense electronics company engaged in a wide range of defense-related programs throughout the world. The Company, which includes Elbit Systems and its subsidiaries, operates in the areas of aerospace, land and naval systems, command, control, communications, computers, intelligence surveillance and reconnaissance ("C4ISR"), unmanned air vehicle (UAV) systems, advanced electro-optics, electro-optic space systems, Electronic Warfare (EW) suites, airborne warning systems, ELINT systems, data links and military communications systems and radios. The Company also focuses on the upgrading of existing military platforms and developing new technologies for defense, homeland security and commercial aviation applications.

August 17, 2010

Elbit Systems Ltd. (ESLT)
Income Statement
($ millions except per share, FY Dec)
Daniel Meron, +1-212-428 6259 / +972-3-684-9300,

Elbit Systems Ltd.

daniel.meron@rbccm.com FY08A 1Q09A Mar 656,932 -6% 7% 448,664 68.3% 2Q09A Jun 728,289 11% 12% 516,420 70.9% 3Q09A Sep 732,520 1% 9% 515,219 70.3% 4Q09A Dec 714,696 -2% 2% 502,652 70.3% FY09A 2,832,437 7% 1,982,955 70.0% 1Q10A Mar 618,201 -14% -6% 433,656 70.1% 2Q10A Jun 603,277 -2% -17% 419,716 69.6% 3Q10E Sep 678,400 12% -7% 474,900 70.0% 4Q10E Dec 781,700 15% 9% 551,100 70.5% FY10E 2,681,578 -5% 1,879,372 70.1% FY011E 2,903,700 8% 2,026,800 69.8%

Revenue Q/Q Y/Y Cost of Revenue % of rev. Restructuring Expenses Gross Profit * Gross Margin Research and Development, net % of rev. Sales & Marketing % of rev. General & Administrative % of rev. Other Income Operating Expense * % of rev. Q/Q | Y/Y Operating Income * Operating Margin Q/Q Y/Y Interest expense, Net % of Pretax Income Other Income, Net Pretax income Income taxes % of pretax Equity in net earnings of affiliated companies and partnership Net income attributable to non-controlling interests Net Income * Net Margin Q/Q Y/Y Fully Diluted EPS Q/Q Y/Y Wtd. Avg. Diluted Shares Out.
Source: RBC Capital Markets, Company reports.

2,638,271 33% 1,870,830 70.9% $ 767,441 29.1% 184,984 7.0% 198,274 7.5% 134,182 5.1% 517,440 19.6% 32% 250,001 9.5% 85% -36,815 -12% 92,294 305,480 54,367 17.8% 251,113
14,435 -62,372

208,268 31.7% 45,880 7.0% 56,916 8.7% 28,888 4.4%

211,869 29.1% 53,008 7.3% 67,549 9.3% 29,398 4.0%

217,301 29.7% 56,022 7.6% 67,096 9.2% 28,519 3.9%

212,044 29.7% 61,842 8.7% 59,402 8.3% 32,506 4.5%

$ 849,482 30.0% 216,752 7.7% 250,963 8.9% 119,311 4.2%

184,545 29.9% 52,665 8.5% 54,595 8.8% 28,085 4.5%

183,561 30.4% 56,846 9.4% 50,336 8.3% 32,056 5.3% -4,756

203,500 30.0% 57,000 8.4% 55,600 8.2% 30,500 4.5%

230,600 29.5% 58,600 7.5% 59,400 7.6% 31,300 4.0%

802,206 29.9% 225,111 8.4% 219,931 8.2% 121,941 4.5%

876,900 30.2% 236,100 8.1% 231,300 8.0% 125,300 4.3%

131,684 51.3% -6% 76,584 11.7% 21% 58% -19,039 -33% -95 57,450 12,212 21.3% 45,238
4,776 -6,760

149,955 20.6% 14% 61,914 8.5% -19% 3% 11,437 16% -551 72,800 14,036 19.3% 58,764
3,417 -2,461

151,637 20.7% 1% 65,664 9.0% 6% -16% -564 -1% -222 64,878 11,448 17.6% 53,430
6,202 -1,377

153,750 21.5% 1% 58,294 8.2% -11% -8% -7,420 -14% 1,326 52,200 413 0.8% 51,787
4,897 -2,968

587,026 20.7% 13% 262,456 9.3% 5% -15,586 -6% 458 247,328 38,109 15.4% 209,219
19,292 -13,566

135,345 21.9% -12% 49,200 8.0% -16% -36% -3,135 -5% 12,981 59,046 10,327 17.5% 48,719
3,912 -2,849

134,482 22.3% -1% 49,079 8.1% 0% -21% -1,002 -2% 108 48,185 6,489 13.5% 41,696
5,389 -2,306

143,100 21.1% 6% 60,400 8.9% 23% -8% -2,300 -4% 58,100 9,300 16.0% 48,800
4,500 -1,600

149,300 19.1% 4% 81,300 10.4% 35% 39% -2,300 -3% 79,000 12,600 16.0% 66,400
5,000 -2,100

562,227 21.0% -4% 239,979 8.9% -9% -8,737 -4% 244,331 38,716 15.8% 205,615
18,801 -8,855

592,700 20.4% 5% 284,200 9.8% 18% -8,700 -3% 275,500 46,800 17.0% 228,700
19,600 -5,500

139,276 5.3% 34% $ 3.26 33% 42,758 $

43,254 6.6% 2% 43% 1.02 $ 2% 45% 42,534

59,720 8.2% 38% 92% 1.39 $ 37% 91% 42,924

58,255 8.0% -2% 64% 1.35 $ -3% 62% 43,233

53,716 7.5% -8% 27% 1.24 $ -8% 24% 43,253

214,945 7.6% 54% 5.00 54% 42,986 $

49,782 8.1% -7% 15% 1.15 $ -7% 13% 43,286

44,779 7.4% -10% -25% 1.04 $ -10% -26% 43,234

51,700 7.6% 15% -11% 1.20 $ 16% -11% 43,200

69,300 8.9% 34% 29% 1.60 $ 34% 29% 43,300

215,561 8.0% 0% 4.98 0% 43,255 $

242,800 8.4% 13% 5.58 12% 43,500

Proforma Numbers, net of various one timers (such as Mediguide divestment in 4Q08)

August 17, 2010

Elbit Systems Ltd.

Required Disclosures Conflicts Disclosures

The analyst(s) responsible for preparing this research report received compensation that is based upon various factors, including total revenues of the member companies of RBC Capital Markets and its affiliates, a portion of which are or have been generated by investment banking activities of the member companies of RBC Capital Markets and its affiliates. The author is employed by RBC Capital Markets Corp., a securities broker-dealer with principal offices located in New York, USA.

Explanation of RBC Capital Markets Equity Rating System

An analyst's 'sector' is the universe of companies for which the analyst provides research coverage. Accordingly, the rating assigned to a particular stock represents solely the analyst's view of how that stock will perform over the next 12 months relative to the analyst's sector average. Ratings Top Pick (TP): Represents best in Outperform category; analyst's best ideas; expected to significantly outperform the sector over 12 months; provides best risk-reward ratio; approximately 10% of analyst's recommendations. Outperform (O): Expected to materially outperform sector average over 12 months. Sector Perform (SP): Returns expected to be in line with sector average over 12 months. Underperform (U): Returns expected to be materially below sector average over 12 months. Risk Qualifiers (any of the following criteria may be present): Average Risk (Avg): Volatility and risk expected to be comparable to sector; average revenue and earnings predictability; no significant cash flow/financing concerns over coming 12-24 months; fairly liquid. Above Average Risk (AA): Volatility and risk expected to be above sector; below average revenue and earnings predictability; may not be suitable for a significant class of individual equity investors; may have negative cash flow; low market cap or float. Speculative (Spec): Risk consistent with venture capital; low public float; potential balance sheet concerns; risk of being delisted.

Distribution of Ratings
For the purpose of ratings distributions, regulatory rules require member firms to assign ratings to one of three rating categories - Buy, Hold/Neutral, or Sell - regardless of a firm's own rating categories. Although RBC Capital Markets' ratings of Top Pick/Outperform, Sector Perform and Underperform most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the same because our ratings are determined on a relative basis (as described above).

Distribution of Ratings RBC Capital Markets, Equity Research Investment Banking Serv./Past 12 Mos. Rating BUY[TP/O] HOLD[SP] SELL[U] Count 624 581 59 Percent 49.40 46.00 4.70 Count 187 119 10 Percent 29.97 20.48 16.95

August 17, 2010

Elbit Systems Ltd.

Rating and Price Target History for: Elbit Systems Ltd. as of 08-16-2010 (in USD)
09/08/09 I:OP:85 03/04/10 OP:80 08/16/10 OP:75

75

60

45

30

Q2

Q3 2008

Q1

Q2

Q3 2009

Q1

Q2

Q3 2010

Q1

Q2

15 Q3

Legend: TP: Top Pick; O: Outperform; SP: Sector Perform; U: Underperform; I: Initiation of Research Coverage; D: Discontinuation of Research Coverage; NR: Not Rated; NA: Not Available; RL: Recommended List - RL: On: Refers to date a security was placed on a recommended list, while RL Off: Refers to date a security was removed from a recommended list. Created by BlueMatrix

References to a Recommended List in the recommendation history chart may include one or more recommended lists or model portfolios maintained by a business unit of the Wealth Management Division of RBC Capital Markets Corporation. These Recommended Lists include the Prime Opportunity List (RL 3), a former list called the Private Client Prime Portfolio (RL 4), the Prime Income List (RL 6), the Guided Portfolio: Large Cap (RL 7), and the Guided Portfolio: Dividend Growth (RL 8). The abbreviation 'RL On' means the date a security was placed on a Recommended List. The abbreviation 'RL Off' means the date a security was removed from a Recommended List.

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RBC Capital Markets Policy for Managing Conflicts of Interest in Relation to Investment Research is available from us on request. To access our current policy, clients should refer to https://www.rbccm.com/global/file-414164.pdf or send a request to RBC CM Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7. We reserve the right to amend or supplement this policy at any time.

Dissemination of Research and Short-Term Trading Calls

RBC Capital Markets endeavors to make all reasonable efforts to provide research simultaneously to all eligible clients, having regard to local time zones in overseas jurisdictions. RBC Capital Markets' equity research is posted to our proprietary websites to ensure eligible clients receive coverage initiations and changes in ratings, targets and opinions in a timely manner. Additional distribution may be done by the sales personnel via email, fax or regular mail. Clients may also receive our research via third-party vendors. Please contact your investment advisor or institutional salesperson for more information regarding RBC Capital Markets' research. RBC Capital Markets also provides eligible clients with access to SPARC on the Firm's proprietary INSIGHT website. SPARC contains market color and commentary, and may also contain Short-Term Trade Ideas regarding the publicly-traded common equity of subject companies on which the Firm currently provides equity research coverage. SPARC may be accessed via the following hyperlink: https://www.rbcinsight.com. A Short-Term Trade Idea reflects the research analyst's directional view regarding the price of the subject company's publicly-traded common equity in the coming days or weeks, based on market and trading events. A Short-Term Trade Idea may differ from the price targets and recommendations in our published research reports reflecting the research analyst's views of the longer-term (one year) prospects of the subject company, as a result of the differing time horizons, methodologies and/or other factors. Thus, it is possible that a subject company's common equity that is considered a long-term 'sector perform' or even an 'underperform' might be a short-term buying opportunity as a result of temporary selling pressure in the market; conversely, a subject company's common equity rated a long-term 'outperform' could be considered susceptible to a short-term downward price correction. Short-Term Trade Ideas are not ratings, nor are they part of any ratings system, and the Firm generally does not intend, nor undertakes any obligation, to maintain or update Short-Term Trade Ideas. Securities and Short-Term Trade Ideas discussed in SPARC may not be suitable for all investors and have not been tailored to individual investor circumstances and objectives, and investors should make their own independent decisions regarding any securities or strategies discussed herein.

Analyst Certification
All of the views expressed in this report accurately reflect the personal views of the responsible analyst(s) about any and all of the subject securities or issuers. No part of the compensation of the responsible analyst(s) named herein is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the responsible analyst(s) in this report. 9

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Elbit Systems Ltd.

Disclaimer
RBC Capital Markets is the business name used by certain subsidiaries of Royal Bank of Canada, including RBC Dominion Securities Inc., RBC Capital Markets Corporation, Royal Bank of Canada Europe Limited and Royal Bank of Canada - Sydney Branch. The information contained in this report has been compiled by RBC Capital Markets from sources believed to be reliable, but no representation or warranty, express or implied, is made by Royal Bank of Canada, RBC Capital Markets, its affiliates or any other person as to its accuracy, completeness or correctness. All opinions and estimates contained in this report constitute RBC Capital Markets' judgement as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Nothing in this report constitutes legal, accounting or tax advice or individually tailored investment advice. This material is prepared for general circulation to clients and has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The investments or services contained in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about the suitability of such investments or services. This report is not an offer to sell or a solicitation of an offer to buy any securities. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. RBC Capital Markets research analyst compensation is based in part on the overall profitability of RBC Capital Markets, which includes profits attributable to investment banking revenues. Every province in Canada, state in the U.S., and most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as the process for doing so. As a result, the securities discussed in this report may not be eligible for sale in some jurisdictions. This report is not, and under no circumstances should be construed as, a solicitation to act as securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. To the full extent permitted by law neither RBC Capital Markets nor any of its affiliates, nor any other person, accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. No matter contained in this document may be reproduced or copied by any means without the prior consent of RBC Capital Markets. Additional information is available on request. To U.S. Residents: This publication has been approved by RBC Capital Markets Corporation (member FINRA, NYSE), which is a U.S. registered broker-dealer and which accepts responsibility for this report and its dissemination in the United States. Any U.S. recipient of this report that is not a registered broker-dealer or a bank acting in a broker or dealer capacity and that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this report, should contact and place orders with RBC Capital Markets Corporation. To Canadian Residents: This publication has been approved by RBC Dominion Securities Inc.(member IIROC). Any Canadian recipient of this report that is not a Designated Institution in Ontario, an Accredited Investor in British Columbia or Alberta or a Sophisticated Purchaser in Quebec (or similar permitted purchaser in any other province) and that wishes further information regarding, or to effect any transaction in, any of the securities discussed in this report should contact and place orders with RBC Dominion Securities Inc., which, without in any way limiting the foregoing, accepts responsibility for this report and its dissemination in Canada. To U.K. Residents: This publication has been approved by Royal Bank of Canada Europe Limited ('RBCEL') which is authorized and regulated by Financial ServicesAuthority ('FSA'), in connection with its distribution in the United Kingdom. This material is not for general distribution in the United Kingdom to retail clients, as defined under the rules of the FSA. However, targeted distribution may be made to selected retail clients of RBC and its affiliates. RBCEL accepts responsibility for this report and its dissemination in the United Kingdom. To Persons Receiving This Advice in Australia: This material has been distributed in Australia by Royal Bank of Canada - Sydney Branch (ABN 86 076 940 880, AFSL No. 246521). This material has been prepared for general circulation and does not take into account the objectives, financial situation or needs of any recipient. Accordingly, any recipient should, before acting on this material, consider the appropriateness of this material having regard to their objectives, financial situation and needs. If this material relates to the acquisition or possible acquisition of a particular financial product, a recipient in Australia should obtain any relevant disclosure document prepared in respect of that product and consider that document before making any decision about whether to acquire the product. To Hong Kong Residents: This publication is distributed in Hong Kong by RBC Investment Services (Asia) Limited and RBC Investment Management (Asia) Limited, licensed corporations under the Securities and Futures Ordinance or, by Royal Bank of Canada, Hong Kong Branch, a registered institution under the Securities and Futures Ordinance. This material has been prepared for general circulation and does not take into account the objectives, financial situation, or needs of any recipient. Hong Kong persons wishing to obtain further information on any of the securities mentioned in this publication should contact RBC Investment Services (Asia) Limited, RBC Investment Management (Asia) Limited or Royal Bank of Canada, Hong Kong Branch at 17/Floor, Cheung Kong Center, 2 Queen's Road Central, Hong Kong (telephone number is 2848-1388). To Singapore Residents: This publication is distributed in Singapore by RBC (Singapore Branch) and RBC (Asia) Limited, registered entities granted offshore bank status by the Monetary Authority of Singapore. This material has been prepared for general circulation and does not take into account the objectives, financial situation, or needs of any recipient. You are advised to seek independent advice from a financial adviser before purchasing any product. If you do not obtain independent advice, you should consider whether the product is suitable for you. Past performance is not indicative of future performance. . Registered trademark of Royal Bank of Canada. RBC Capital Markets is a trademark of Royal Bank of Canada. Used under license. Copyright RBC Capital Markets Corporation 2010 - Member SIPC Copyright RBC Dominion Securities Inc. 2010 - Member CIPF Copyright Royal Bank of Canada Europe Limited 2010 Copyright Royal Bank of Canada 2010 All rights reserved

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