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Revenues increased by 11.5% to $728.3 million in the second quarter of 2009, as compared to $653.2 million in the second quarter of 2008. This increase was primarily due to an increase in revenues from C4ISR systems as a result of increased sales of communication equipment and unmanned air vehicle systems mainly in Israel, and was partly offset by a reduction in land systems related equipment sales, mainly in the U.S.

Gross profit increased by 7.2% to $211.9 million (29.1% of revenues) in the second quarter of 2009, as compared with gross profit of $197.7 million (30.3% of revenues) in the second quarter of 2008. The lower gross profit percentage primarily resulted from a significant reduction in revenues from short turn-around orders, mainly in the U.S. during the second quarter of 2009 as compared to the second quarter of 2008. Short turn-around orders generally have contributed to improvement in overall gross margins.

Net research and development ("R&D") expenses were $53.0 million (7.3% of revenues) in the second quarter of 2009, as compared to $38.1 million (5.8% of revenues) in the second quarter of 2008. The higher level of R&D expenses in the current quarter reflects increased spending on R&D projects to maintain and further advance the Company's technologies, in accordance with its long-term plans.

Marketing and selling expenses were $67.5 million (9.3% of revenues) in the second quarter of 2009, as compared to $55.2 million (8.4% of revenues) in the second quarter of 2008. The increase in marketing and selling expenses was due to increased marketing activities in pursuit of business opportunities in the U.S. and other international markets.

General and administrative ("G&A") expenses were $29.4 million (4.0% of revenues) in the second quarter of 2009, as compared to $44.4 million (6.8% of revenues) in the second quarter of 2008. The decrease in G&A expense reflects the Company's continued focus on efficiency and cost reduction efforts. Also, the second quarter 2008 expenses included expenses related to a legal settlement of a subsidiary in the U.S.

Net financial income was $11.4 million in the second quarter of 2009, as compared to net financial expenses of $12.4 million in the second quarter of 2008. The net financial income was mainly due to the Company's hedging activity, which reduced the Company's exposure to changes in the value of U.S. Dollar versus the Israeli Shekel. While the weakening of the U.S. Dollar against the Israeli Shekel negatively impacted the Company's gross and operating income, it increased the value of the Company's currency hedge derivatives in Israeli Shekels.

Taxes on income were $14.0 million (effective tax rate of 19.3%) in the second quarter of 2009, as compared to taxes on income of $3.8 million (effective tax rate of 7.9%) in the second quarter of 2008. The change in the effective tax rate was attributable mainly to the mix of the tax rates in the various jurisdictions in which the Company's entities generate taxable income.

Net income attributable to non-controlling interests was $2.5 million in the second quarter of 2009, as compared to $16.2 million in the second quarter of 2008. The decrease in net income attributable to non-controlling interests was mainly a result of the Company's purchase during the second quarter of 2009 of the remaining 49% of Kinetics shares not then owned by the Company.

Net income attributable to the Company's ordinary shareholders increased by 91.7% to $59.7 million (8.2% of revenues) for the second quarter of 2009, as compared with $31.2 million (4.8% of revenues) in the second quarter of 2008.

It should also be noted that according to SFAS No. 160, which is applicable to the Company's results starting from the beginning of 2009, consolidated net income attributable to the Company's ordinary shareholders is calculated after eliminating net income or loss attributable to non-controlling interests.

Diluted net earnings per share attributable to the Company's ordinary shareholders were $1.39 for the second quarter of 2009, as compared with $0.73 for the second quarter of 2008, an increase of 90.4%.

The Company's backlog of orders totaled $5,096 million as of June 30, 2009, as compared with $5,030 million as of December 31, 2008. Approximately 66% of the current backlog is due to orders from outside Israel. Approximately 69% of the current backlog is scheduled to be performed during the second half of 2009 and 2010.

Operating cash flow was $93.6 million in the first half of 2009, as compared to $129.8 million in the first half of 2008. The decrease in the operating cash flow was mainly a result of a reduction in the overall amount of advances received from customers.

Recent Events:

The following events occurred subsequent to the announcement of the financial results for the quarter ended March 31, 2009. Each event is described in greater detail in the separate announcements made for each such event.

On June 1, 2009, together with Alliant Techsystems (ATK), the Company successfully conducted flight tests of the Guided Advanced Tactical Rocket (GATR) from a helicopter using a "lock-on before launch" method to engage an off-boresight target. ATK and Elbit Systems validated flight worthiness, safe separation launch and autonomous laser designated guided flight through a series of tests.

On June 15, 2009, together with Sikorsky Aircraft Corp., the Company successfully completed the test phase for the Armed Black Hawk helicopter. The demonstrator configuration includes the Company's cockpit displays, a Mission Management system with Digital Map, Forward-Looking Infrared (FLIR) equipment and ANVIS/HUD(R) helmet systems.

On June 15, 2009, the Company invested $18 million in Mikal Ltd. in the form of a loan, which following receipt of applicable government approvals will be converted into shares of Mikal's capital stock representing approximately 19% of Mikal's shares, and the Company will have an option to purchase all of the remaining shares of Mikal from its shareholders at a valuation to be determined by an independent appraisal. The Mikal group is engaged in the fields of artillery, armored fighting vehicles and optronics.

On June 16, 2009, Vision Systems International, LLC (VSI), the Company's joint venture with Rockwell Collins, received several new contracts worth more than $54.1 million from Lockheed Martin Corporation, for the delivery of 52 F-35 Helmet Mounted Displays and 30 additional aircraft systems. VSI also received initial funding for the Pilot Fit Facility Standup at Eglin Air Force Base for the F- 35 Helmet Mounted Display System program.

On June 25, 2009, the Israeli Ministry of Transportation awarded the Company a $76 million contract for C-MUSIC, a commercial multi- spectral infrared countermeasure system. C-MUSIC is a direct infra- red countermeasure technology for military and commercial aircraft and helicopters that disrupts missiles fired at aircraft and causes them to veer off course.

On July 7, 2009, the Company was awarded a contract by the Israeli Ministry of Defense for the operation and maintenance of the Israeli Air Force's new trainer, the Beechcraft T-6 "Effroni".

On July 15, 2009, the Company was awarded a $55 million contract from the Israeli Ministry of Defense for the establishment of a mission training center for the Israeli Air Force's F-16 pilots. The center will be operated through a Private Financing Initiative concept and will include a development phase as well as instruction and maintenance services over a 15-year period.

On July 20, 2009, the Company signed a contract to purchase all of BVR Systems (1998) Ltd.'s assets for $34 million, which may be subject to adjustment depending on the outcome of various conditions in the coming months. The closing of the transaction is subject to the fulfillment of certain conditions including receipt of all approvals required by law.