UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

_________________

FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
under the Securities Exchange Act of 1934
For the Month of August 2006

_________________

Commission File Number: 000-28998

ELBIT SYSTEMS LTD.
(Translation of Registrant’s Name into English)
Advanced Technology Center, P.O.B. 539, Haifa 31053, Israel
(Address of Principal Corporate Offices)

  Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F Form 40-F

  Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

  Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

  Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

  Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

  Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:

Yes No

  If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-______________

        Attached hereto as Exhibit 1 and incorporated herein by reference is the Registrant’s press release dated August 9, 2006.

        Attached hereto as Exhibit 2 and incorporated herein by reference is the Registrant’s Management Report with respect to the results of operations of the Registrant for the quarter ended June 30, 2006.

        Attached hereto as Exhibit 3 and incorporated herein by reference is the Registrant’s consolidated unaudited financial statements for the quarter ended June 30, 2006.

SIGNATURE

        Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  ELBIT SYSTEMS LTD.
(Registrant)


By: /s/ Ilan Pacholder                                   
Name:  Ilan Pacholder
Title:   Corporate Secretary

Dated: August 8, 2006

EXHIBIT INDEX

Exhibit No.

1.

2.

3.
 Description

Press release dated August 8, 2006.

Management report.

Financial statements.

EXHIBIT 1

Earnings Release

ELBIT SYSTEMS REPORTS SECOND QUARTER 2006 RESULTS

Revenues Increased by 41.4% Year over Year to $344.8 Million

Backlog of Orders Reached a New Record of $ 3.6 Billion

Excluding One-Time In Process R&D Write-Offs
Net Profit Increased by 19.4% Year over Year and EPS Reached $0.41

Haifa, Israel, August 8, 2006 – Elbit Systems Ltd. (the “Company”) (NASDAQ GLOBAL MARKET: ESLT), the international defense company, today reported its consolidated results for the second quarter ended June 30, 2006.

The Company’s backlog of orders as of June 30, 2006 reached $3,599 million, a 7.5% increase as compared with $3,347 million at the end of 2005. Approximately 74% of the backlog relates to orders outside of Israel. Approximately 56% of the Company’s backlog as of June 30, 2006 is scheduled to be performed over the next two quarters of 2006 and during 2007.

Consolidated revenues for the second quarter of 2006 increased by 41.4% to $344.8 million from $243.8 million in the second quarter of 2005.

Gross profit for the second quarter of 2006 was $89.6 million (26% of revenues), as compared with gross profit of $66.1 million (27.1% of revenues) in the second quarter of 2005.

Reported consolidated net income for the second quarter of 2006 was $15.1 million (4.4% of revenues), as compared with $10.9 million (4.5% of revenues) in the second quarter of 2005. Reported diluted earnings per share for the second quarter of 2006 were $0.36, as compared with $0.26 for the second quarter of 2005.

The Company had one time in-process R&D write-offs, related to the purchase in the second quarter of an additional 4.3% (approximately) of the outstanding shares of Tadiran Communications Ltd. (“Tadiran”), and the purchase of 20% of Sandel Aviation, Inc. Excluding these in-process R&D write-offs, the Company’s net income for the second quarter of 2006 was $17.2 million (or 5.0% of revenues), and the diluted earnings per share were $0.41, as compared to $14.4 million and $0.35, respectively, in the second quarter of 2005.

During the first six months of 2006 the Company produced an operating cash flow of $104.4 million.

The President and CEO of Elbit Systems, Joseph Ackerman, commented: “Our second quarter results reported today underscore Elbit Systems’ continued growth in  revenues and profit. We maintain our focus on generating new business and bringing newly developed technologies and products to the market. At the same time, we continue to explore new markets as well as to further develop  our market position in existing areas.   We  also are engaged in the ongoing implementation of the synergies in the recent acquisitions of Elisra and Tadiran Communications, including developing new integrated solutions.”

Mr. Ackerman added, “We have operated continuously throughout the recent events which have affected the north of Israel and have maintained our ability to meet our commitments to both our international customers and to the Israeli Ministry of Defense. As a global group Elbit enjoys the support of our international subsidiaries and their employees, and we extend our thanks to our employees for the strength and dedication they have demonstrated during this period. Our plans for 2006 and beyond remain on target”.  

The Board of Directors declared a dividend of $0.15 per share for the second quarter of 2006. The dividend’s record date is August 29, 2006, and the dividend will be paid on September 11, 2006, net of taxes and levies, at the rate of 18.85%.

Conference Call

The Company will also be hosting a conference call on the same day, Tuesday, August 8, at 9.00am EDT. On the call, management will review and discuss the second quarter 2006 results and will be available to answer questions.

To participate, please call one of the following teleconferencing numbers. Please begin placing your calls at least 10 minutes before the conference call commences. If you are unable to connect using the toll-free numbers, please try the international dial-in number.

US Dial-in Numbers: 1 866 229 7198
UK Dial-in Number: 0 800 917 5108
ISRAEL Dial-in Number: 03 918 0610
INTERNATIONAL Dial-in Number: +972 3 918 0610

At:
9:00am Eastern Time
6:00am Pacific Time
2:00pm London Time
4:00pm Israel Time

This call will be broadcast live on Elbit Systems’ web-site at http://www.elbitsystems.com. An online replay will be available from 24 hours after the call ends, and will be available online for 30 days.

Alternatively, for two days following the end of the call, investors will be able to dial a replay number to listen to the call. The dial-in number is either: 1 888 269 0005 (US) 0 800 169 8104 (UK) or +972 3 925 5925 (Israel and International).

About Elbit Systems Ltd.

Elbit Systems Ltd. is an international defense electronics company engaged in a wide range of defense-related programs throughout the world. The Elbit Systems Group, which includes the company and its subsidiaries, operates in the areas of aerospace, land and naval systems, command, control, communications, computers, intelligence, surveillance and reconnaissance (“C4ISR”), advanced electro-optic and space technologies, EW suites, airborne warning systems, ELINT systems, data links and military communications systems and equipment. The Group also focuses on the upgrading of existing military platforms and developing new technologies for defense and homeland security applications.

Company Contact:

Ilan Pacholder
V.P. Finance & Capital Markets
and Corporate Secretary
Elbit Systems Ltd
Tel: +972-4 831-6632
Fax: +972-4 831-6659
E-mail: pacholder@elbit.co.il
 IR Contact:

Ehud Helft / Kenny Green


GK Investor Relations
Tel: 1-866-704-6710
Fax: + 972-3-607- 4711
E-mail: Kenny@gkir.com
E-mail: Ehud@gkir.com

STATEMENTS IN THIS PRESS RELEASE WHICH ARE NOT HISTORICAL DATA ARE FORWARD-LOOKING STATEMENTS WHICH INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES OR OTHER FACTORS NOT UNDER THE COMPANY’S CONTROL, WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM THE RESULTS, PERFORMANCE OR OTHER EXPECTATIONS IMPLIED BY THESE FORWARD-LOOKING STATEMENTS. THESE FACTORS INCLUDE, BUT ARE NOT LIMITED TO, THOSE DETAILED IN THE COMPANY’S PERIODIC FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.

ELBIT SYSTEMS LTD.
CONSOLIDATED BALANCE SHEETS
(In thousand of US Dollars)

  June 30
2006
 December 31
2005
  Unaudited Audited
Assets      

Current Assets:		 
Cash and short term deposits  119,817   94,629  
Trade receivable and others  421,571   416,067  
Inventories, net of advances  369,567   328,428  
Total current assets  910,955   839,124  

Affiliated Companies & other Investments		  231,457   201,339  
Long-term receivables & others  166,429   154,650  
Fixed Assets, net  285,447   284,997  
Other assets, net  133,238   137,364  
   1,727,526   1,617,474  


Liabilities and Shareholder's Equity		 

Current liabilities		  725,618   612,168  
Long-term liabilities  526,150   541,622  
Minority Interest  12,782   12,907  
Shareholder's equity  462,976   450,777  
   1,727,526   1,617,474  

ELBIT SYSTEMS LTD.
CONSOLIDATED STATEMENTS OF INCOME
 (In thousand of US Dollars, except for per share amounts)

  Six Months Ended
June 30		 Three Months Ended
June 30		 Year Ended
December 31
  2006
 2005
 2006
 2005
 2005
  Unaudited Unaudited (Audited)

Revenues		      679,185    474,470    344,815    243,782    1,069,876  
Cost of revenues    502,067    346,821    255,237    177,695    786,616  
Restructurirng expenses    --    --    --    --    3,488  
  Gross Profit    177,118    127,649    89,578    66,087    279,772  
Research and development, net    39,789    32,961    18,351    17,795    71,903  
Marketing and selling    53,630    34,386    27,382    17,740    78,648  
General and administrative    37,727    25,424    18,720    12,652    54,417  
IPR &D write-off    --    --    --    --    7,490  
Total operating expenses    131,146    92,771    64,453    48,187    212,458  
Operating income    45,972    34,878    25,125    17,900    67,314  

Financial expenses, net		    (10,918 )  (3,197 )  (6,677 )  (1,465 )  (11,472 )
Other income, net    160    (185 )  (748 )  (354 )  (5,326 )
  Income before income taxes    35,214    31,496    17,700    16,081    50,516  
Taxes on income    9,366    8,043    4,762    4,056    16,335  
     25,848    23,453    12,938    12,025    34,181  
Equity in net earnings (losses) of affiliated  
companies and partnership *    3,614    (127 )  1,347    (1,169 )  (1,636 )
Minority rights    77    273    786    53    (58 )
  Net income    29,539    23,599    15,071    10,909    32,487  
Earnings per share  
  Basic net earnings per share   $ 0.72   $ 0.58   $ 0.37   $ 0.27   $ 0.80  
  Diluted net earnings per share   $ 0.71   $ 0.57   $ 0.36   $ 0.26   $ 0.78  

* Includes IPR&D write-off of $8,500 in 2005

Exhibit 2

Elbit Systems Ltd.
Management’s Report
For The Three and Six-Month Period Ended June 30, 2006

  This report should be read together with the unaudited financial statements for the quarter ended June 30, 2006 of Elbit Systems Ltd. (“Elbit Systems” or the “Company”), the Company’s audited consolidated financial statements and related notes for the year ended December 31, 2005, the Company’s management report for the year ended December 31, 2005 and the Company’s Form 20-F for the year ended December 31, 2005, filed by the Company with the U.S. Securities and Exchange Commission and with the Israeli Securities Authority.

  Forward looking statements with respect to the Company’s business, financial condition and results of operations in this document are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward looking statements, including, but not limited to, product demand, pricing, market acceptance, changing economic conditions, risks in product and technology development, the effect of the Company’s accounting policies as well as certain other risk factors which are detailed from time to time in the Company’s SEC filings.

A.   Executive Overview

  Business Description

  Elbit Systems and its subsidiaries (the “Group”) operate in the areas of aerospace, land and naval systems, command, control, communications, computers, intelligence, surveillance and reconnaissance (“C4ISR”), advanced electro-optic and space technologies, EW suites, airborne warning systems, ELINT systems, data links and military communications systems and equipment. The Group also focuses on the upgrading of existing military platforms and developing new technologies for defense and homeland security applications.

  The Group provides support services for the platforms it upgrades as well as the systems and products it supplies. In addition, the Group provides a wide range of logistic support services, including operation of pilot training services for the Israeli Air Force on a private financing initiative basis. Several of the Group’s companies also provide advanced engineering and manufacturing services to various customers, utilizing their significant manufacturing capabilities. The Group often cooperates with industries in Israel and in various other countries.

  The Group tailors and adapts its technologies, integration skills, market knowledge and battle-proven systems to each customer’s individual requirements in both existing and new platforms. By upgrading existing platforms with advanced electronic and electro-optic technologies, the Group provides customers with cost-effective solutions, and its customers are able to improve their technological and operational capabilities within limited defense budgets.

  The Group operates in a competitive environment for most of its projects, systems and products. Competition is based on product and program performance, price, reputation, reliability, maintenance costs and responsiveness to customer requirements. This includes the ability to respond to rapid changes in technology. In addition, its competitive position sometimes is affected by specific requirements in particular markets.

1

  Financial Highlights

  The Company’s revenues increased by 41% and reached $344.8 million in the second quarter of 2006, as compared to $243.8 million in the second quarter of 2005.

  Net earnings in the second quarter of 2006 were $15.1 million and the diluted earnings per share were $0.36, as compared to $10.9 million and $0.26 in the second quarter of 2006.

  The Company’s results reflect In-Process Research and Development (“IPR&D”) write-offs of $2.2 million, related to the acquisitions of Tadiran Communications Ltd.‘s (“Tadiran”) and Sandel Avionics, Inc.‘s (“Sandel”) shares in the second quarter of 2006.

  The Company’s backlog increased by 7.5% and reached $3.6 billion as of June 30, 2006, as compared to $3.35 billion as of December 31, 2005.

  The Company’s cash flow generated from operations in the six-month period ended June 30, 2006 was $104.3 million, as compared to $85.8 million in the six-month period ended June 30, 2005.

  The Board of Directors declared a dividend of $0.15 per share for the second quarter.

B.   Recent Events

  •   On May 18, 2006, the Company announced that Vision Systems International LLC, (“VSI”), its joint venture with Rockwell Collins, was awarded several new contracts with a total value of more than $80 million. The Boeing Company awarded VSI a contract for the delivery of more than 400 additional Joint Helmet Mounted Cueing Systems (“JHMCS”). VSI also received direct contracts from the United States Navy and Air Force for spares parts and test equipment in support of the JHMCS program.

  •   On June 28, 2006, the Company reported that EFW Inc., an Elbit Systems of America company, received a contract valued at approximately $50 million from the U.S. Marine Corps Systems Command for the supply of military systems.

  •   Since July 12, 2006, the north of Israel has been effected by the on-going military conflict in the region. The Company has been operating continuously throughout the recent events, and continues to maintain its ability to meet its commitments to its international and Israeli customers. The Company is also supported as may be necessary by its domestic and international subsidiaries. Accordingly, the Company’s plans for 2006 and beyond remain unchanged.

C.   Backlog of Orders

  The Company’s backlog of orders as of June 30, 2006 reached $3,599 million, of which 74% was for orders outside Israel. The Company’s backlog as of December 31, 2005 was $3,347 million, of which 72% was for orders outside Israel.

  Approximately 56% of the Company’s backlog as of June 30, 2006 is scheduled to be performed in the following two quarters of 2006 and during 2007. The majority of the 44% of the Company’s backlog balance is scheduled to be performed in 2008 and 2009.

2

D.   Critical Accounting Policies and Estimates

  The Company’s significant accounting policies are described in Note 2 to the audited consolidated financial statements for the year ended December 31, 2005. See also the Company’s management report for the year ended December 31, 2005.

  In June 2006, the Financial Accounting Standards Board issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also requires de-recognition of income tax assets and liabilities and provides guidance on classification of current and deferred income tax assets and liabilities, interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures. This Interpretation is effective as of January 1, 2007. The Company is currently evaluating the impact of FIN 48 on its financial statements.

E.   Acquisitions during the second quarter of 2006

  •   On May 31, 2006, the Company’s U.S. subsidiary, Kollsman, Inc. (“Kollsman”) acquired a 20% interest in Sandel in consideration for $12.5 million (represented by a $10.5 million cash payment, a $1 million subscription and payment of a bridge loan and a $1 million holdback to be paid within 12 months). Sandel, based in Vista, California, produces specialized integrated display systems and other products for the commercial aviation market.

  Kollsman has an option to buy the remaining 80% interest in Sandel for a period of 30 months after the initial investment. During the option period, Kollsman has the right to representation on the Sandel board of directors, as well as several specific minority rights. In addition, Kollsman and Sandel have formed an alliance to cooperate on product development and marketing.

  Based on a purchase price allocation analysis (“PPA”) performed by an independent advisor, the excess of the amounts paid for the Sandel shares over their book value was attributed as follows:

        $M   Expected useful lives  
   IPR &D  1.2 immediate write-off 
   Technology and customers base  3.2 7 years 
   Deferred taxes  (1.3 ) 7 years 
   Goodwill  10.1 indefinite-subject to annual impairment test 
   Total excess of consideration over book value  13.2   

  •   On June 5, 2006, the Company acquired approximately 4.3% of Tadiran’s outstanding shares in consideration for $18.3 million (of which $13.5 million was paid on the acquisition date and the balance was paid in July 2006). Following the acquisition, the Company holds approximately 43% of Tadiran’s shares.

3

  Based on a PPA performed by an independent advisor, the excess of the amounts paid for the above mentioned Tadiran shares acquired over their book value was attributed as follows:

        $M   Expected useful lives  
   IPR &D  1.0 immediate write-off 
   Inventory  0.3 up to a quarter 
   Other tangible assets and liabilities  0.1 5 years 
   Brand name  0.8 15 years 
   Customer base and backlog  4.0 2-12 years 
   Technology  2.4 10 years 
   Goodwill  3.3 indefinite-subject to annual impairment test 
   Total excess of consideration over book  11.9

4

F.   Summary of Financial Results

  The following table sets forth the reported consolidated statements of operations of the Company for the three and six-month periods ended June 30, 2006 and June 30, 2005.

For the six months ended
June 30		 For the three months ended
June 30
2006 2005 2006 2005
$ % $ % $ % $ %
(In thousands of U.S. dollars except per share data)
Total revenues   679,185   100.0 474,470   100.0 344,815   100.0 243,782   100.0

Cost of revenues		  502,067   73.9 346,821   73.1 255,237   74.0 177,695   72.9
Gross profit  177,118   26.1 127,649   26.9 89,578   26.0 66,087   27.1
Research and development
R&D expenses		  52,747   7.8 42,053   8.9 24,169   7.0 22,153   9.1

Less - participation		  (12,958 ) (1.9 ) (9,092 ) (1.9 ) (5,818 ) (1.7 ) (4,358 ) (1.8 )
R&D expenses, net  39,789   5.9 32,961   7.0 18,351   5.3 17,795   7.3

Marketing and selling expenses		  53,630   7.9 34,386   7.2 27,382   7.9 17,740   7.3

General and administrative expenses		  37,727   5.5 25,424   5.4 18,720   5.5 12,652   5.2
   131,146   19.3 92,771   19.6 64,453   18.7 48,187   19.8
Operating income  45,972   6.8 34,878   7.3 25,125   7.3 17,900   7.3

Finance expenses, net		  (10,918 ) (1.6 ) (3,197 ) (0.7 ) (6,677 ) (1.9 ) (1,465 ) (0.6 )

Other income (expenses), net		  160   --   (185 ) --   (748 ) (0.2 ) (354 ) --  
Income before taxes on income  35,214   5.2 31,496   6.6 17,700   5.2 16,081   6.7

Taxes on income		  9,366   1.4 8,043   1.7 4,762   1.4 4,056   1.7
   25,848   3.8 23,453   4.9 12,938   3.8 12,025   5.0
Minority interest in losses 
of subsidiaries  77   --   273   0.1 786   0.2 53   --  

Equity in net earnings (losses) of		 
affiliated companies and partnership  3,614   0.5 (127 ) --   1,347   0.4 (1,169 ) (0.5 )
   29,539   4.3 23,599   5.0 15,071   4.4 10,909   4.5
Net earnings 
Diluted earnings per share  0.71   0.57     0.36     0.26    

5

  Revenues

  The Company’s sales are primarily to governmental entities and prime contractors under government defense programs. Accordingly, the level of the Company’s revenues is subject to governmental budgetary constraints.

  Three Months Ended June 30, 2006, Compared to Three Months Ended June 30, 2005

  The consolidated revenues increased by 41% from $243.8 million in the second quarter of 2005 to $344.8 million in the second quarter of 2006.

  The following table sets forth the Company's revenue distribution by areas of operation:

Three-Month Period ended
June 30, 2006 June 30, 2005
$ millions % $ millions %
    Airborne systems   140.4 40.7 93.4 38.3
   Land systems  57.0 16.5 33.2 13.6
   C4ISR systems   68.5 19.9 44.1 18.1
   Electro-optics  45.7 13.3 56.3 23.1
   Other (mainly non-defense engineering and 
   production services)  33.2 9.6 16.8 6.9
   Total  344.8 100.0 243.8 100.0

  The changes in revenues distribution by areas of operation, other than ordinary quarterly fluctuations, were in the area of C4ISR systems sales, which increased mainly as a result of the revenues derived from the Watchkeeper project in 2006. The revenues derived from Elisra are included in the Company’s various areas of operation. Elisra’s EW systems revenues are included in the Airborne systems area of operation. Electro-optics revenues decreased mainly as a result of temporary delay in some projects that the Company believes will be sold during 2006.

  The following table sets forth the Company’s distribution of revenues by geographic regions:

Three-Month Period ended
June 30, 2006 June 30, 2005
$ millions % $ millions %
    Israel   119.3 34.6 77.9 31.9
   United States  119.0 34.5 87.9 36.1
   Europe  53.8 15.6 18.4 7.5
   Other countries  52.7 15.3 59.6 24.5
   Total  344.8 100.0 243.8 100.0

  The changes in revenues by geographic distribution, other than standard quarterly fluctuations, were in the revenues from customers in Europe, due mainly as a result of the revenues derived from the Watchkeeper project in 2006.

6

  Six Months Ended June 30, 2006, Compared to Six Months Ended June 30, 2005

  The Company’s consolidated revenues increased by 43%, from $474.5 million in the first six months of 2005 to $679.2 million in the first six months of 2006.

  The following table sets forth the Company’s revenue distribution by areas of operation:

Six-Month Period ended
June 30, 2006 June 30, 2005
$ millions % $ millions %
    Airborne systems   279.1 41.1 194.4 41.0
   Land systems  98.8 14.6 59.2 12.5
   C4ISR systems   151.5 22.3 88.1 18.5
   Electro-optics  89.8 13.2 99.5 21.0
   Other (mainly non-defense engineering and 
   production services)  60.0 8.8 33.3 7.0
   Total  679.2 100.0 474.5 100.0

  The following table sets forth the Company’s distribution of revenues by geographic regions:

Six-Month Period ended
June 30, 2006 June 30, 2005
$ millions % $ millions %
    Israel   213.5 31.4 145.1 30.6
   United States  230.0 33.9 177.5 37.4
   Europe  108.5 16.0 34.5 7.3
   Other countries  127.2 18.7 117.4 24.7
   Total  679.2 100.0 474.5 100.0

  Gross Profit

  The Company’s gross profit represents the aggregate results of the Company’s activities and projects, and is based on the mix of programs in which the Company is engaged during the reported period.

  Three Months Ended June 30, 2006, Compared to Three Months Ended June 30, 2005

  The Company’s gross profit in the quarter ended June 30, 2006 was $89.6 million as compared to $66.1 million in the quarter ended June 30, 2005. The gross profit margin in the second quarter of 2006 was 26% as compared to 27.1% in the same period last year. The difference in the gross profit was as a result of the mix of programs generating revenues in the applicable periods, which included in the second quarter of 2005 certain programs with a relatively higher gross profit.

  Six Months Ended June 30, 2006, Compared to Six Months Ended June 30, 2005

  The Company’s gross profit in the six months ended June 30, 2006 was $177.1 million as compared to $127.6 million in the six months ended June 30, 2005. The gross profit margin in the six months ended June 30, 2006 was 26.1% as compared to 26.9% in the corresponding period of the previous year. The difference in the gross profit was the result of the mix of programs generating revenues in the applicable periods.

7

  Research and Development (“R&D”)

  The Company continually invests in R&D in order to maintain and further advance its technologies, in accordance with a long-term plan, based on its estimate of future market needs.

  The Company’s R&D included programs which are coordinated with, and partially funded by, third parties, including the Israeli Ministry of Defense (“IMOD”), the Office of the Chief Scientist (“OCS”) and bi-national and European Development funds. The R&D was performed in all major areas of core technological activities of the Company and mainly in the areas of advanced airborne systems, cutting edge electro-optics technology and products for surveillance, aerial reconnaissance, lasers, space based sensors and homeland security technologies and products.

  Three Months Ended June 30, 2006, Compared to Three Months Ended June 30, 2005

  Gross R&D expenses in the quarter ended June 30, 2006 totaled $24.2 million (7.0% of revenues), as compared to $22.2 million (9.1% of revenues) in the quarter ended June 30, 2005.

  Net R&D expenses (after deduction of third party participation) in the quarter ended June 30, 2006 totaled $18.4 million (5.3% of revenues), as compared to $17.8 million (7.3% of revenues) in the quarter ended June 30, 2005.

  Six Months Ended June 30, 2006, Compared to Six Months Ended June 30, 2005

  Gross R&D expenses in the six months ended June 30, 2006 totaled $52.7 million (7.8% of revenues), as compared to $42.1 million (8.9% of revenues) in the six months ended June 30, 2005.

  Net R&D expenses (after deduction of third party participation) in the six-month period ended June 30, 2006 totaled $39.8 million (5.9% of revenues), as compared to $33.0 million (7.0% of revenues) in the six-month period ended June 30, 2005.

  Marketing and Selling Expenses

  The Company maintains its activities in developing new markets and pursues at any given time various business opportunities according to the Company’s plan.

  Three Months Ended June 30, 2006, Compared to Three Months Ended June 30, 2005

  Marketing and selling expenses in the quarter ended June 30, 2006 were $27.4 million (7.9% of revenues), as compared to $17.8 million (7.3% of revenues) in the quarter ended June 30, 2005.

  Six Months Ended June 30, 2006, Compared to Six Months Ended June 30, 2005

  Marketing and selling expenses in the six months ended June 30, 2006 were $53.6 million (7.9% of revenues), as compared to $34.4 million (7.2% of revenues) in the six months ended June 30, 2005.

  General and Administrative (“G&A”) Expenses

  Three Months Ended June 30, 2006, Compared to Three Months Ended June 30, 2005

  G&A expenses were $18.7 million (5.5% of revenues) in the quarter ended June 30, 2006, as compared to $12.7 million (5.2% of revenues) in the quarter ended June 30, 2005.

8

  Six Months Ended June 30, 2006, Compared to Six Months Ended June 30, 2005

  G&A expenses were $37.7 million (5.5% of revenues) in the six months ended June 30, 2006, as compared to $25.4 million (5.4% of revenues) in the six months ended June 30, 2005.

  Finance Expense (Net)

  The increase in the net finance expense resulted mainly from a higher level of long-term loans and an increase in market interest rates.

  Three Months Ended June 30, 2006, Compared to Three Months Ended June 30, 2005

  Net finance expense in the quarter ended June 30, 2006 was $6.7 million, as compared to $1.5 million of finance expense in the quarter ended June 30, 2005.

  Six Months Ended June 30, 2006, Compared to Six Months Ended June 30, 2005

  Net finance expense in the six months ended June 30, 2006 was $10.9 million, as compared to $3.2 million of finance expense in the six months ended June 30, 2005.

  Taxes on Income

  The Company’s tax rate represents a weighted average of the tax rates to which the various companies in the Group are subject. The change in the effective tax rate is attributable mainly to the mix of the tax rates in the various tax jurisdictions in which the Group’s companies generating the taxable income operate.

  Three Months Ended June 30, 2006, Compared to Three Months Ended June 30, 2005

  Provision for taxes in the quarter ended June 30, 2006 was $4.8 million (effective tax rate of 26.9%), as compared to a provision for taxes of $4.1 million (effective tax rate of 25.2%) in the quarter ended June 30, 2005.

  Six Months Ended June 30, 2006, Compared to Six Months Ended June 30, 2005

  Provision for taxes in the six months ended June 30, 2006 was $9.4 million (effective tax rate of 26.6%), as compared to a provision for taxes of $8.0 million (effective tax rate of 25.5%) in the six months ended June 30, 2005.

  Company’s Share in Earnings of Affiliated Entities

  The companies and partnerships, in which the Company holds 50% or less in shares or voting rights and are therefore not consolidated in its financial statements, operate in complementary areas to the Company’s core business activities, including electro-optics, airborne systems and communications.

  The Company’s share in earnings of affiliated entities includes IPR&D write-offs of $2.2 million, related to the acquisition of Tadiran’s and Sandel’s shares in the second quarter of 2006. The Company’s share in earnings of affiliated entities in 2005 includes a $3.5 million IPR&D write-off related to the acquisition of Tadiran’s shares in the second quarter of 2005.

9

  Three Months Ended June 30, 2006, Compared to Three Months Ended June 30, 2005

  In the second quarter of 2006 the Company had net income of $1.3 million from its share in earnings of affiliated companies and partnership, as compared to net expense of $1.2 million in the second quarter of 2005.

  Six Months Ended June 30, 2006, Compared to Six Months Ended June 30, 2005

  In the six months ended June 30, 2006 the Company had net income of $3.6 million from its share in earnings of affiliated companies and partnership, as compared to net expense of $0.1 million in the six months ended June 30, 2005.

  Net Earnings and Earnings Per Share (“EPS”)

  Three Months Ended June 30, 2006, Compared to Three Months Ended June 30, 2005

  Net earnings in the quarter ended June 30, 2006 were $15.1 million (4.4% of revenues), as compared to reported net earnings of $10.9 million (4.5% of revenues) in the quarter ended June 30, 2005. Diluted EPS in the quarter ended June 30, 2006 was $0.36, as compared to $0.26 in the quarter ended June 30, 2005.

  The number of shares used for computation of diluted EPS in the quarter ended June 30, 2006 was 41,808 thousand shares, as compared to 41,617 thousand shares in the quarter ended June 30, 2005.

  Six Months Ended June 30, 2006, Compared to Six Months Ended June 30, 2005

  Net earnings in the six months ended June 30, 2006 were $29.5 million (4.3% of revenues), as compared to net earnings of $23.6 million (5.0% of revenues) in the six months ended June 30, 2005. Diluted EPS in the six months ended June 30, 2006 was $0.71, as compared to $0.57 per share in the six months ended June 30, 2005.

  The number of shares used for computation of diluted EPS in the six months ended June 30, 2006 was 41,772 thousand shares, as compared to 41,617 thousand shares in the six months ended June 30, 2005.

  Net earnings in 2006 include $2.2 million in IPR&D write-offs, related to the acquisitions of Tadiran’s and Sandel’s shares in the second quarter of 2006. Net earnings in 2005 include $3.5 million in an IPR&D write-off, related to the acquisition of Tadiran’s shares in the second quarter of 2005.

G.   Liquidity and Capital Resources

  The Company’s net cash flow generated from operating activities in the six months ended June 30, 2006 was $104.4 million, resulting mainly from net income and advances received from customers. The cash inflows were partially offset, mainly by an increase in inventories.

  Net cash flow used for investment activities in the six months ended June 30, 2006 was $55.5 million, which was used mainly for acquisition of Tadiran’s and Sandel’s shares and purchase of various assets and equipment.

10

  Net cash flow used for financing activities in the six months ended June 30, 2006 was $24.8 million, which was mainly for dividends paid and decrease in short-term bank credit and loans.

  On June 30, 2006, the Company had total borrowings in the amount of $247.7 million, including $219.1 million in long-term loans, and $722.8 million in guarantees issued on its behalf by banks, mainly in respect of advance payment and performance guarantees provided in the regular course of business. On June 30, 2006, the Company had a cash balance amounting to $117.9 million.

  As of June 30, 2006, the Company had working capital of $185.3 million, and its current ratio was 1.26.

H.   Derivatives and Hedges

  Market risks relating to the Company’s operations result primarily from changes in interest rates and exchange rates. The Company typically uses financial instruments to limit its exposure to those changes. The Company also typically enters into forward contracts in connection with transactions that are denominated in currencies other than U.S. dollars and New Israeli Shekels (“NIS”). The Company may enter from time to time into forward contracts related to NIS, based on market conditions.

  On June 30, 2006, the Company’s liquid assets were comprised of bank deposits, and it had no investments in liquid equity securities that were subject to market fluctuations, except for its shareholdings in Tadiran. The Company’s deposits and loans are based on variable interest rates, and their value as of June 30, 2006 was therefore not exposed to changes in interest rates. Should interest rates either increase or decrease, such change may affect the Company’s results of operations due to changes in the cost of the liabilities and the return on the assets that are based on variable rates.

  The Company’s functional currency is the U.S. dollar. On June 30, 2006, the Company had exposure due to liabilities denominated in NIS of $83 million in excess of its NIS denominated assets. These liabilities represent mostly wages and trade payables. The amount of the Company’s exposure to the changes in the NIS-U.S. dollar exchange rate varies from time to time.

  Most of the Company’s assets and liabilities which are denominated in currencies other than the NIS and the U.S. dollar were covered as of June 30, 2006 by forward contracts and options. On June 30, 2006, the Company had forward contracts for the sale and purchase of such foreign currencies totaling $344 million ($136 million in Euro, $200 million in GBP and $8 million in other currencies). The financial derivative activities in the second quarter of 2006 resulted in an unrealized net loss of approximately $9.1 million, which was recorded as other comprehensive loss.

  On June 30, 2006, the Company had options for hedging future cash flow denominated in NIS in the amount of $6 million. The fair market value of the options as of June 30, 2006 was not material.

I.   Dividends

  The Board of Directors declared on August 7, 2006 a dividend of $0.15 per share.

# # # # # 


11

Exhibit 3

ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

AS OF JUNE 30, 2006
(Unaudited)
(In thousands of U.S. dollars)

ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

AS OF JUNE 30, 2006
(Unaudited)
(In thousands of U.S. dollars)



C O N T E N T S

P a g e
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS          

   Consolidated Balance Sheets   2 - 3  

   Consolidated Statements of Income   4  

   Consolidated Statements of Changes in Shareholders' Equity   5 -7  

   Consolidated Statements of Cash Flows   8 - 9  

   Notes to the Consolidated Financial Statements   10 - 12  

# # # # # 

1

ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars (in thousands)

June 30, 
2006		 December 31,
2005
(Unaudited) (Audited)
CURRENT ASSETS:      
Cash and cash equivalents  $   117,949   $     93,887  
Short-term bank deposits  1,868   742  
Trading securities  2,314   2,282  
Trade receivables, (net of allowance for doubtful 
    accounts in the amount of $3,591 and $3,221 as of June 30, 
    2006 and December 31, 2005, respectively)  344,963   346,689  
Other receivables and prepaid expenses  74,294   67,096  
Inventories, net of advances  369,567   328,428  
Total current assets  910,955   839,124  
INVESTMENTS AND LONG-TERM RECEIVABLES: 
Investments in affiliated companies and a partnership  225,112   194,994  
Investments in other companies  6,345   6,345  
Compensation receivable in respect of fire damages, net  15,530   15,530  
Long-term bank deposits and trade receivables  5,895   2,457  
Severance pay fund  145,004   136,663  
   397,886   355,989  

 
PROPERTY, PLANT AND EQUIPMENT, NET  285,447   284,997  

 

 
INTANGIBLE ASSETS: 
Goodwill  58,593   58,593  
Other intangible assets, net  74,645   78,771  
   133,238   137,364  
   $1,727,526   $1,617,474  

The accompanying notes are an integral part of the consolidated financial statements.

2

ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars (in thousands, except share and per share data)

June 30,
2006		 December  31,
2005
(Unaudited) (Audited)
CURRENT LIABILITIES:      
Short-term bank credit and loans  $      14,994   $      30,296  
Current maturities of long-term loans  13,609   7,355  
Trade payables  134,947   120,260  
Other payables and accrued expenses  254,181   216,539  
Customers advances and amounts in excess of 
    costs incurred on contracts in progress  307,887   237,718  
Total current liabilities  725,618   612,168  
LONG-TERM LIABILITIES: 
Long-term loans  219,129   224,982  
Advances from customers  109,475   122,263  
Deferred income taxes  24,171   26,060  
Accrued termination liability  173,375   168,317  
   526,150   541,622  
MINORITY INTERESTS  12,782   12,907  
SHAREHOLDERS' EQUITY: 
Share capital 
Ordinary shares of New Israeli Shekels (NIS) 1 par value; 
    Authorized - 80,000,000 shares as of June 30, 2006 
    and December 31, 2005; 
    Issued - 41,625,707 and 41,375,545 shares as of June 30, 2006 and 
       December 31, 2005 respectively; 
    Outstanding - 41,216,786 and 40,966,624 shares as of June 30, 2006 and 
       December 31, 2005, respectively  11,670   11,636  
Additional paid-in capital  280,682   278,679  
Accumulated other comprehensive loss  (8,916 ) (1,340 )
Retained earnings  183,861   166,123  
Treasury shares - 408,921 shares as of June 30, 2006 and 
   December 31, 2005  (4,321 ) (4,321 )
   462,976   450,777  
   $ 1,727,526   $ 1,617,474  

The accompanying notes are an integral part of the consolidated financial statements.

3

ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
U.S. dollars (in thousands, except share and per share data)

Six months ended
June 30,		 Three months ended
June 30,		 Year ended
December 31,
2006 2005 2006 2005 2005
(Unaudited) (Unaudited) (Audited)
Revenues     $ 679,185   $ 474,470   $ 344,815   $ 243,782   $ 1,069,876  
Cost of revenues    502,067    346,821    255,237    177,695    786,616  
Restructuring expenses    -    -    -    -    3,488  
  Gross profit    177,118    127,649    89,578    66,087    279,772  
Research and development costs, net    39,789    32,961    18,351    17,795    71,903  
Marketing and selling expenses    53,630    34,386    27,382    17,740    78,648  
General and administrative expenses    37,727    25,424    18,720    12,652    54,417  
In-process research and development write-off    -    -    -    -    7,490  
     131,146    92,771    64,453    48,187    212,458  
  Operating income    45,972    34,878    25,125    17,900    67,314  

Financial expenses, net		    (10,918 )  (3,197 )  (6,677 )  (1,465 )  (11,472 )
Other income (expenses), net    160    (185 )  (748 )  (354 )  (5,326 )
   Income before taxes on income    35,214    31,496    17,700    16,081    50,516  
Taxes on income    9,366    8,043    4,762    4,056    16,335  
     25,848    23,453    12,938    12,025    34,181  
Equity in net earnings (losses) of affiliated  
   companies and partnership    3,614    (127 )  1,347    (1,169 )  (1,636 )
Minority interests in losses (earnings)  
   of subsidiaries    77    273    786    53    (58 )
   Net income   $ 29,539   $ 23,599   $ 15,071   $ 10,909   $ 32,487  
Earnings per share  
   Basic net earnings per share   $ 0.72   $ 0.58   $ 0.37   $ 0.27   $ 0.80  
   Diluted net earnings per share   $ 0.71   $ 0.57   $ 0.36   $ 0.26   $ 0.78  
Number of shares used in computation of  
   basic net earnings per share    41,067    40,675    41,125    40,705    40,750  
Number of shares used in computation of  
   diluted net earnings per share    41,772    41,617    41,808    41,617    41,623  

The accompanying notes are an integral part of the consolidated financial statements.

4

ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
U.S. dollars (in thousands, except share and share data)

Number of
outstanding
shares		 Share
capital		 Additional
paid-in
capital		 Accumulated
other
comprehensive
loss		 Retained
earnings
Treasury
shares		 Total
shareholders'
equity		 Total
comprehensive
income
 Balance as of January 1, 2005                                    
   (Audited)     40,561,026   $ 11,548   $ 274,432   $ (4,742 ) $ 155,267   $ (4,321 ) $ 432,184  
 Exercise of options    405,598    88    3,423    -    -    -    3,511  
 Tax benefit in respect of options exercised    -    -    652    -    -    -    652  
 Stock based compensation    -    -    172    -    -    -    172  
 Dividends paid    -    -    -    -    (21,631 )  -    (21,631 )
 Other comprehensive income  
   (loss) net of tax:  
 Unrealized gains on derivative instruments    -    -    -    6,412    -    -    6,412   $ 6,412  
 Foreign currency translation differences    -    -    -    (924 )  -    -    (924 )  (924 )
 Minimum pension liability adjustment    -    -    -    (2,086 )  -    -    (2,086 )  (2,086 )
 Net income    -    -    -    -    32,487    -    32,487    32,487  
 Total comprehensive income   $ 35,889  
 Balance as of December 31, 2005   
   (Audited)     40,966,624   $ 11,636   $ 278,679   $ (1,340 ) $ 166,123   $ (4,321 ) $ 450,777  
Exercise of options    250,162    34    1,863    -    -    -    1,897  
Tax benefit in respect of options exercised    -    -    140    -    -    -    140  
Dividends paid    -    -    -    -    (11,801 )  -    (11,801 )
  Other comprehensive income (loss), net of tax:  
Unrealized losses on derivative  
    instruments    -    -    -    (7,628 )  -    -    (7,628 ) $ (7,628 )
Foreign currency translation differences    -    -    -    52    -    -    52    52  
Net income    -    -    -    -    29,539    -    29,539    29,539  
Total comprehensive income   $ 21,963  
  Balance as of June 30, 2006   
   (Unaudited)     41,216,786   $ 11,670   $ 280,682   $ (8,916 ) $ 183,861   $ (4,321 ) $ 462,976  

The accompanying notes are an integral part of the consolidated financial statements.

5

ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
U.S. dollars (in thousands, except share and share data)

Number of
outstanding
shares		 Share
capital		 Additional
paid-in
capital		 Accumulated
other
comprehensive
income (loss)		 Retained
earnings		 Treasury
shares		 Total
shareholders'
equity		 Total
comprehensive
income (loss)
Balance as of January 1, 2005                                    
  (Audited)     40,561,026   $ 11,548   $ 274,432   $ (4,742 ) $ 155,267   $ (4,321 ) $ 432,184  
  Exercise of options    184,685    42    1,545    -    -    -    1,587  
  Tax benefit in respect of options exercised    -    -    484    -    -          484  
 Stock-based compensation    -    -    -    -    -    -    -  
 Dividends paid    -    -    -    -    (10,559 )  -    (10,559 )
Other comprehensive income (loss):  
   Unrealized gains on derivative  
 instruments    -    -    -    293    -    -    293   $ 293  
 Foreign currency translation differences    -    -    -    (615 )  -    -    (615 )  (615 )
 Net income    -    -    -    -    23,599    -    23,599    23,599  
Total comprehensive income   $ 23,277  
 Balance as of June 30, 2005   
  (Unaudited)     40,745,711   $ 11,590   $ 276,461   $ (5,064 ) $ 168,307   $ (4,321 ) $ 446,973  
Balance as of April 1, 2006   
  (Unaudited)     41,042,692   $ 11,653   $ 279,039   $ (3,081 ) $ 174,773   $ (4,321 ) $ 458,063  
  Exercise of options    174,094    17    1,425    -    -    -    1,442  
  Tax benefit in respect of options  
   exercised    -    -    218    -    -    -    218  
 Dividends paid    -    -    -    -    (5,983 )  -    (5,983 )
Other comprehensive income (loss):  
 Unrealized gains on derivative  
    instruments    -    -    -    (5,840 )  -    -    (5,840 ) $ (5,840 )
 Foreign currency translation differences    -    -    -    5    -    -    5    5  
 Net income    -    -    -    -    15,071    -    15,071    15,071  
Total comprehensive income   $ 9,236  
 Balance as of June 30, 2006   
  (Unaudited)     41,216,786   $ 11,670   $ 280,682   $ (8,916 ) $ 183,861   $ (4,321 ) $ 462,976  

The accompanying notes are an integral part of the consolidated financial statements.


6

ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
U.S. dollars (in thousands, except share data)

Number of
outstanding
shares		 Share
capital		 Additional
paid-in
capital		 Accumulated
other
comprehensive
income (loss)		 Retained
earnings		 Treasury
shares		 Total
shareholders'
equity		 Total
comprehensive
income (loss)
Balance as of April 1, 2005                                    
  (Unaudited)     40,682,842   $ 11,576   $ 275,766   $ (4,705 ) $ 162,661   $ (4,321 ) $ 440,977  
  Exercise of options    62,869    14    498    -    -    -    512  
  Tax benefit in respect of options  
   exercised    -    -    197    -    -    -    197  
 Dividends paid    -    -    -    -    (5,263 )  -    (5,263 )
Other comprehensive income (loss):  
 Unrealized gains on derivative  
    instruments    -    -    -    81    -    -    81   $ 81  
 Foreign currency translation differences    -    -    -    (440 )  -    -    (440 )  (440 )
 Net income    -    -    -    -    10,909    -    10,909    10,909  
Total comprehensive income   $ 10,550  
Balance as of June 30, 2005   
  (Unaudited)     40,745,711   $ 11,590   $ 276,461   $ (5,064 ) $ 168,307   $ (4,321 ) $ 446,973  

The accompanying notes are an integral part of the consolidated financial statements.

7

ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars (in thousands)

Six months ended
June 30,		 Year ended
December 31,
2006 2005 2005
(Unaudited)         (Audited)
CASH FLOWS FROM OPERATING ACTIVITIES                
Net income   $ 29,539   $ 23,599   $ 32,487  
Adjustments to reconcile net income to net cash provided by  
    operating activities:  
Depreciation and amortization    28,130    24,102    57,718  
Purchased in process R&D    -    -    7,490  
Stock based compensation    -    -    172  
Deferred income taxes    (3,515 )  (1,804 )  6,551  
Accrued severance pay, net    (3,283 )  (1,725 )  (6,707 )
Gain on sale of property and equipment    (1,160 )  (304 )  (731 )
Tax benefit in respect of options exercised    140    484    652  
Minority interests in earnings (losses) of subsidiaries    (77 )  (273 )  58  
Equity in net losses (earnings) of affiliated companies and  
partnership,    2,533    4,265    13,805  
    net of dividend received (*)  
Changes in operating assets and liabilities:  
 Decrease (increase) in short and long-term receivables and  
    prepaid expenses    (14,819 )  25,732    (43,420 )
 Increase in inventories    (45,706 )  (63,529 )  (43,679 )
Increase (decrease) in trade payables, other payables and accrued expenses    50,647    (21,262 )  (37,859 )
 Increase in advances received from customers    61,948    96,507    202,450  
 Settlement of royalties with the Office of the Chief Scientist    -    -    (1,371 )
 Other adjustments    (16 )  45    -  
 Net cash provided by operating activities    104,361    85,837    187,616  
CASH FLOWS FROM INVESTING ACTIVITIES  
 Purchase of property, plant and equipment    (26,314 )  (30,017 )  (58,735 )
 Acquisition of subsidiaries and businesses (Schedule A)    -    (318 )  (28,331 )
 Investments in affiliated companies    (30,950 )  (74,782 )  (160,861 )
 Proceeds from sale of property, plant and equipment    3,020    1,001    2,712  
 Proceeds from sale of investment    -    3,100    3,100  
 Investment in long-term bank deposits    (261 )  (551 )  (1,089 )
 Proceeds from sale of long-term bank deposits    168    945    1,501  
 Short-term bank deposits, net    (1,158 )  (458 )  (4 )
 Net cash used in investing activities    (55,495 )  (101,080 )  (241,707 )
CASH FLOWS FROM FINANCING ACTIVITIES  
 Proceeds from exercise of options    1,897    1,587    3,511  
 Repayment of long-term bank loans    (101,962 )  (51,652 )  (85,035 )
 Receipt of long-term bank loans    102,853    95,500    216,500  
 Dividends paid    (11,801 )  (10,559 )  (21,631 )
  Change in short-term bank credit and loans, net    (15,791 )  113    524  
 Net cash provided by (used in) financing activities    (24,804 )  34,989    113,869  
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS    24,062    19,746    59,778  
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE  
    PERIOD    93,887    34,109    34,109  
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD   $ 117,949   $ 53,855   $ 93,887  
* Dividend received   $ 6,147   $ 4,138   $ 12,169  
  

The accompanying notes are an integral part of the consolidated financial statements.

8

ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars (in thousands)

Six months ended
June 30,		          Year ended
         December 31,
2006 2005      2005
(Unaudited)       (Audited)
SUPPLEMENTARY CASH FLOWS                
    ACTIVITIES:  
     Cash paid during the period for:  

       Income taxes		   $ 11,523   $ 13,233   $ 21,475  
       Interest   $ 8,694   $ 3,193   $ 13,151  
SCHEDULE A:  
    Subsidiaries and businesses acquired  

  
    Estimated net fair value of assets acquired and liabilities  
      assumed at the date of acquisition:  

  
       Working capital, net (excluding cash and cash equivalents)    -   $ (3,281 ) $ 39,273  
       Property, plant and equipment    -    -    (28,875 )
       Other long-term assets    -    -    (74,363 )
       Goodwill and other intangible assets    -    (1,514 )  (53,291 )
       In-process R&D    -    -    (7,490 )
       Deferred income taxes    -    -    5,404  
       Long-term liabilities - mainly advances from customers    -    4,477    82,730  
       Minority interest    -    -    8,281  
     -   $ (318 ) $ (28,331 )

The accompanying notes are an integral part of the consolidated financial statements.

9

ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
U.S. dollars (in thousands)

Note 1 –   GENERAL

  A.   The accompanying financial statements have been prepared in a condensed format as of June 30, 2006, and for the six and three months then ended, in accordance with generally accepted accounting principles in the United States )U.S. GAAP( relating to the preparation of financial statements for interim periods. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP but which are not required for interim reporting purposes, have been condensed or omitted. See Note 4 for the reconciliation from U.S. GAAP to accounting principles generally accepted in Israel (Israeli GAAP).

  These statements should be read in conjunction with the Company’s annual financial statements and accompanying notes as of December 31, 2005.

  The interim financial statements reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation. All such adjustments were of a normal recurring nature. Reclassifications have been made to comparative data in the balance sheet as of December 31, 2005 in order to conform to the current year’s presentation.

  Operating results for the six and three months ended June 30, 2006, are not necessarily indicative of the results that may be expected for the year ending December 31, 2006.

  B.   On May 31, 2006, the Company’s U.S. subsidiary Kollsman, Inc. (“Kollsman”) acquired a 20% interest in Sandel Avionics, Inc. (“Sandel”) in consideration for $12.5 million (represented by a $10.5 million cash payment, a $1 million subscription and payment of a bridge loan and a $1 million holdback to be paid within 12 months). Sandel, based in Vista, California, produces specialized integrated display systems and other products for the commercial aviation market.

  Kollsman has an option to buy the remaining 80% interest in Sandel for a period of 30 months after the initial investment. During the option period, Kollsman has the right to representation on the Sandel board of directors, as well as several specific minority rights. In addition, Kollsman and Sandel have formed an alliance to cooperate on product development and marketing.

  Based on a purchase price allocation analysis (“PPA”) performed by an independent advisor, the excess of the amounts paid for the Sandel shares over their book value was attributed as follows:

          Expected useful lives  
   In-Process R&D (“IPR& D ”)   $ 1,200 immediate write-off 
   Technology and customers base  3,200 7 years 
   Deferred taxes  (1,300 ) 7 years 
   Goodwill  10,100 indefinite-subject to annual impairment test 
   Total excess of consideration over book value  $13,200   

10

ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
U.S. dollars (in thousands)

Note 1 –   GENERAL (Cont.)

   C.   On June 5, 2006, the Company acquired 4.37% of Tadiran Communication Ltd.‘s (“Tadiran”) outstanding shares in consideration for approximately $18.3 million (of which $13.5 million was paid on the acquisition date and the balance was paid in July 2006). Following the acquisition, the Company holds approximately 43% of Tadiran’s shares.

  Based on a PPA performed by an independent advisor, the excess of the amounts paid for the above mentioned Tadiran shares acquired over their book value was attributed as follows:

                 Expected useful lives    
    IPR&D   $ 1,000   immediate write-off  
    Inventory    300   up to a quarter  
    Other tangible assets and liabilities    100   5 years  
    Brand name    800   15 years  
    Customer base and backlog    4,000   2-12 years  
    Technology    2,400   10 years  
    Goodwill    3,300   indefinite-subject to
annual impairment test		  
    Total excess of consideration over book value   $ 11,900  

Note 2 – SIGNIFICANT ACCOUNTING POLICIES

    A.   The significant accounting policies followed in the preparation of these statements are identical to those applied in preparation of the latest annual financial statements, except for the adoption of FASB Statement No. 123 (revised 2004), “Share-Based Payments” (“Statement 123(R)”) as follows:

  Through December 31, 2005, the Company adopted the fair value based method of recording stock options for all employee stock option grants consistent with SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123”). Effective January 1, 2006, the Company adopted the provisions of Statement 123(R), using the modified prospective method. The adoption of Statement 123(R) did not have a material effect on the Company’s financial position and results of operations.

    B.   On June 2006, the Financial Accounting Standards Board issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also requires de-recognition of income tax assets and liabilities, and provides guidance on classification of current and deferred income tax assets and liabilities, interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures. This Interpretation is effective as of January 1, 2007. The Company is currently evaluating the impact of FIN 48 on its financial statements.

    C.   The accompanying financial statements have been prepared in U.S. dollars since the U.S. dollar is the functional currency of the primary economic environment in which the operations of the Group (which includes Elbit Systems Ltd. and its subsidiaries) are conducted.

11

ELBIT SYSTEMS LTD. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
U.S. dollars (in thousands)

Note 3 –   INVENTORIES, NET OF ADVANCES

June 30,
2006		 December 31,
2005
(Unaudited) (Audited)
      Cost of long-term contracts in progress     $ 353,334   $ 311,800  
    Raw materials    91,338    84,343  
    Advances to suppliers and subcontractors    38,757    40,095  
         483,429    436,238  
    Less - Cost incurred on contracts in progress  
    deducted from customer advances    23,869    16,178  
         459,560    420,060  
    Less -Advances received from customers    80,959    84,083  
    Provision for losses    9,034    7,549  
        $ 369,567   $ 328,428  
  

Note 4 –   RECONCILIATION TO ISRAELI GAAP

  As described in Note 1, the Company prepares its financial statements in accordance with U.S. GAAP. See Note 23 to the 2005 annual financial statements for a description of the differences between U.S. GAAP and Israeli GAAP in respect to the Company. The effects of the differences between U.S. GAAP and Israeli GAAP on the Company’s financial statements are detailed below.

  A.   Effect on net income

Three months ended
June 30		 Year Ended
December 31,
2006 2005 2005
(Unaudited) (Audited)
      Net income as reported according to                
    U.S. GAAP   $ 29,539    23,599 $ 32,487  
    Adjustments to Israeli GAAP   $ 2,027    (3,004 ) $(9,637 )
    Net income according to Israeli GAAP   $ 31,566    20,595 $ 22,850  

  B.   Effect on shareholders' equity

As reported Adjustments As per
Israeli GAAP
      As of June 30, 2006 (Unaudited)                
    Shareholders' equity   $ 462,976    (17,739 ) $ 445,237  
    As of December 31, 2005   
    Shareholders' equity   $ 450,777    (19,279 ) $ 431,498  

12

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