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<SEC-DOCUMENT>0000910680-06-001010.txt : 20070103
<SEC-HEADER>0000910680-06-001010.hdr.sgml : 20070101
<ACCEPTANCE-DATETIME>20061025164351
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0000910680-06-001010
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		2
FILED AS OF DATE:		20061025

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			ELBIT SYSTEMS LTD
		CENTRAL INDEX KEY:			0001027664
		STANDARD INDUSTRIAL CLASSIFICATION:	AIRCRAFT PART & AUXILIARY EQUIPMENT, NEC [3728]
		IRS NUMBER:				000000000
		STATE OF INCORPORATION:			L3
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		CORRESP

	BUSINESS ADDRESS:	
		STREET 1:		ADVANCED TECHNOLOGY CENTER
		STREET 2:		PO BOX 539
		CITY:			HAIFA, ISRAEL
		STATE:			L3
		ZIP:			31053
		BUSINESS PHONE:		01197248316626

	MAIL ADDRESS:	
		STREET 1:		ADVANCED TECHNOLOGY CENTER
		STREET 2:		PO BOX 539
		CITY:			HAIFA, ISRAEL
		STATE:			L3
		ZIP:			31053
</SEC-HEADER>
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.htm
<TEXT>
<HTML>
<HEAD>
<TITLE></TITLE>
</HEAD>
<BODY>

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<P ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>October 25, 2006 </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Linda Cvrkel<BR>
Branch Chief<BR>
Mail Stop 3651<BR>
Securities and Exchange Commission<BR>
450 Fifth Street, N.W.<BR>
Washington, D.C. 20549</FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Re:</FONT></TD>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>Elbit
Systems Ltd. Annual Report on Form 20-F/A for the year ended December 31, 2005 (File No.
000-28998)</U></FONT></TD>
</TR>
</TABLE>
<BR>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Dear Ms. Cvrkel: </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Set forth herein is the response of
Elbit Systems Ltd. (the &#147;Company&#148;) to the comment contained in the comment
letter of the staff of the Securities and Exchange Commission (the &#147;Staff&#148;),
dated September 21, 2006, with respect to the Company&#146;s Form 20-F/A for the fiscal
year ended December 31, 2005 (the &#147;Form 20-F&#148;), filed with the Commission on
July 6, 2006. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>For your convenience, we have
reprinted the Staff&#146;s written comment below prior to the Company&#146;s response. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Courtesy copies of this letter have
been sent to the Staff&#146;s examiners via courier. </FONT></P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>Notes to consolidated financial statements, page 10<BR>
Note 7. Compensation Receivables in Respect of Fire Damage, page 36</U> </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><I>We note your response to our prior
comment 5 and continue to believe that the $25.9 million receivable should not be recorded
on the balance sheet due to the uncertainty of collection related to ongoing litigation
per SOP 96-1, paragraph 140. Furthermore, your response indicates that since Elisra
believed the receivable to be probable of collection, the related loss on the damages
suffered to the equipment in the fire was not recorded. We are not persuaded that it is
probable the $25.9 will be collected simply because &#147;the Elisra Group believes [the
amount] is not in dispute.&#148; Please provide us with further evidence concerning your
position and clearly explain why Elbit and Elisra believe the amount is not in dispute and
will ultimately be collected when it appears this claim has been outstanding for several
years. Include accounting literature in your response that supports your position, as well
as any further legal information regarding the &#147;preliminary evidentiary
findings&#148; and specifically why the $25.9 million is not in dispute. Please note that
we do not believe that simply because the $25.9 million has not yet been contested by the
insurance company that this item is not in dispute. We may have further comment upon
receipt of your response.</I> </FONT></P>

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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-1- </FONT></P>
<DIV STYLE="page-break-after:always"></DIV>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <IMG SRC="ltrhd102506.jpg"></FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>Response</U>: </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>In this response we make reference to
our response letter to the Staff dated September 13, 2006 and the factual background of
the fire insurance claim and the terms defined in that response letter. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We recognize that, in accordance with
SOP 96-1, paragraph 140, due to the uncertainty of collection related to ongoing
litigation there is a rebuttable presumption that contingent proceeds from such litigation
should not be recorded in the balance sheet as receivables. However, both Elbit Systems
and Elisra believe that the specific circumstances of the Elisra Group fire insurance
claim litigation overcome the general presumption and indicate that the amount recorded as
a receivable is probable of recovery, notwithstanding the period of time the matter has
been in litigation. Therefore, we reiterate our position that the $25.9 million was
properly recorded by Elbit Systems as a preacquisition contingency asset as part of the
purchase price allocation of the consideration paid for Elisra, in accordance with SFAS
141 paragraph 40(b). </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>Specific Facts</U>: </FONT></H1>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As indicated in the September 13,
2006 response letter, we believe that actions of the insurance company, together with the
specific evidentiary findings indicated below, support the conclusion that the amount
recorded as a receivable is probable of recovery. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Admission of Insurance
Coverage. </I></B>The insurance company did not contest that the insurance policies
covered the fire at the Subsidiaries&#146; facilities and in fact paid to the Elisra Group
the amount of $10 million as an advance against the final amount of insurance proceeds
due. Therefore, the question under litigation is not whether the Elisra Group is entitled
to insurance compensation but rather the amount of such compensation. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Types of Damages Covered.
</I></B><I></I>The insurance policies by their respective terms covered several types of
damages that were applicable to the Elisra Group fire. These include damage to buildings
and equipment, loss of inventory and work in process (referred to as &#147;MD&#148;) and
various consequential and incidental damages (referred to as &#147;BD&#148;). As is common
practice, shortly after the fire both the insurance company and the Elisra Group sent
appraisers to evaluate the level of damage. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Elisra Group Appraisal.</I></B>  The Elisra
Group appraisal indicated the following damages: </FONT></P>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=70%>
<TR VALIGN=Bottom>
     <TH COLSPAN=2></TH>
     <TH COLSPAN=2></TH>
     <TH COLSPAN=2></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=8% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.</FONT></TD>
     <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=65% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Damage to buildings, equipment and similar costs</FONT></TD>
     <TD WIDTH=4% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=17% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$28.7 million</FONT></TD>
     <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>2.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>Damage to work in progress</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>$23.4 million</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>3.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>Consequential damages</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>$17.6 million</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>4.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>Other damages and future expenses</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>$17.5 million</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2></TD>
     <TD ALIGN=RIGHT><HR COLOR="#000000" SIZE="1" WIDTH="58%" ALIGN="Left"></TD><TD></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>Total</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>$87.2 million</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2></TD>
     <TD ALIGN=LEFT><HR COLOR="#000000" SIZE="3" WIDTH="58%"></TD><TD></TD></TR>
</TABLE>





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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-2- </FONT></P>
<DIV STYLE="page-break-after:always"></DIV>

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<HR SIZE=5 COLOR=GRAY NOSHADE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <IMG SRC="ltrhd102506.jpg"></FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Claim Amount.
</I></B><I></I>The Elisra Group&#146;s claim totaled approximately $96 million, which
represents the damages assessed by the Elisra Group appraisers plus interest of
approximately $19 million through the date of the claim, less the approximately $10
million advance payment. Of this amount, more than $50 million is attributed to damages to
building, equipment and work in progress, which are types of damages to tangible assets
that are readily ascendable. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Receivable Amount.
</I></B><I></I>The approximately $25.9 million recorded as a receivable in Elisra&#146;s
balance sheet was calculated as follows: </FONT></P>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 ALIGN=Center WIDTH=60%>
<TR VALIGN=Bottom>
     <TH COLSPAN=2></TH>
     <TH COLSPAN=2></TH>
     <TH COLSPAN=2></TH>
     <TH COLSPAN=2></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=12% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.</FONT></TD>
     <TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=49% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Damage to buildings</FONT></TD>
     <TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5</FONT></TD>
        <TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH=13% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>million</FONT></TD>
     <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Damage to equipment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.1</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>million</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Damage to work in progress</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2> $&nbsp;&nbsp;&nbsp;&nbsp;18</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.6</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>million</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Other direct damages</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.2</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>million</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=3><HR COLOR="#000000" SIZE="1" WIDTH="75%" ALIGN="center"></TD>
     <TD COLSPAN=2></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;&nbsp;&nbsp;&nbsp;35</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.9</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>million</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Minus advance payment</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;&nbsp;&nbsp;&nbsp;10</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>million</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=3><HR COLOR="#000000" SIZE="1" WIDTH="75%" ALIGN="center"></TD>
     <TD COLSPAN=2></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>$&nbsp;&nbsp;&nbsp;&nbsp;25</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>.9</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>million</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=2></TD>
     <TD COLSPAN=3><HR COLOR="#000000" SIZE="3" WIDTH="75%" ALIGN="center"></TD>
     <TD COLSPAN=2></TD></TR>
</TABLE>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>It is noted that these amounts do not
include certain incidental costs and expenses related to MD type items that were included
in the Elisra Group&#146;s appraisal mentioned above. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Insurance Company Appraiser
Status Report. </I></B><I></I>In December 2001, subsequent to the insurance company&#146;s
payment of the advance payment, the insurance company&#146;s designated appraiser issued a
claim status report in which it was stated: </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
&#147;We
on our part are ready to consider any further details to enable us to establish a Loss
Reserve, however, under the circumstances and according to the information provided to
date our suggested Loss Reserve, after consideration of the available data provided to us
is US$ 20 million (MD + BD combined).&#148; </FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Therefore, the insurance
company&#146;s initial status report indicated a Loss Reserve of $20 million (which was
assessed after payment of the $10 million advance payment and is therefore in addition to
such advance payment). </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Insurance Company Expert&#146;s
Admission. </I></B><I></I>In 2003, the Elisra Group petitioned the court for an attachment
of the insurance company&#146;s assets to secure payment of the claim amount. In its
response to the motion for the attachment, the insurance company included the expert
opinion of Dr. Simcha Sadan (&#147;Sadan&#148;), who was the primary witness appearing for
the insurance company. Dr. Sadan&#146;s report submitted to the court included the
following [translation from the Hebrew original]: </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
&#147;In
addition, as indicated to me by the Phoenix [<I>the insurance company</I>], it has
reserves in the form of financial assets and others with respect to its financial exposure
resulting from this claim. It allocated a loss contingency in 2001 of approximately 15
million dollars (approximately 66 million shekels) under the provisions in its balance
sheet for contingent claims; and this is in addition to the amount already paid by the
insurance company to the claimants during the same year as an advance on account of
insurance </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-3- </FONT></P>
<DIV STYLE="page-break-after:always"></DIV>

<!-- MARKER PAGE="sheet: 3; page: 3" -->
<HR SIZE=5 COLOR=GRAY NOSHADE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <IMG SRC="ltrhd102506.jpg"></FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
proceeds  in the  amount of 10 million  dollars.  In  addition,  the  Phoenix allocates
a global reserve (on top of the direct reserves for claims against it) for insurance
claims relating to fire damage, such as the matter in question. &#133; As of the date of
its latest financial statement (June 30, 2003) the balance of the actuarial
[<I>global</I>] reserve of the Phoenix with respect to the Elisra claim is approximately 8
million dollars (approximately 34.5 million shekels as of that date) and this in within
the framework of the global reserve for fire damage claims as stated above. It should be
noted that approximately 99% of this amount is covered by underwriters of the company
<I>[the Phoenix</I>]. The remaining percent is reserved in its general insurance
reserves.&#148; </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para (List) Flush" FSL="Default" -->
     <P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Dr. Sadan&#146;s report also stated: </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0>
<TR VALIGN=TOP>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp; </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
&#147;In
addition to the Phoenix&#146;s capital assets, which we estimate to be approximately 5
times greater than the amount of the claim, its obligations include a reserve in the
amount of approximately 106 million shekels [<I>approximately $24 million at that
time</I>] with respect to this claim, which constitutes approximately 25% of its total
amount.&#148; <I>[This amount corresponds to the $15 million plus $8 million </I>
<I>reserve amounts described above in Dr. Sadan&#146;s report.]</I> </FONT></TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Moreover, during the court hearing on
the motion for the attachment, in response to cross examination on how much the Phoenix
would pay according to its reserves, Dr. Sadan responded &#147;23 million dollars&#148;. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Motion for Partial Summary
Judgment. </I></B><I></I>In April 2004, the Elisra Group filed a motion for partial
summary judgment in the amount of approximately $32.7 million, which represents the $23
million admitted to be recorded by the insurance company as reserves with respect to the
claim as indicated above, plus approximately $9.7 million accrued interest. Based on the
above mentioned reports and admissions by the insurance company&#146;s appraiser and
expert, the Elisra Group maintains that this amount is not in dispute. Moreover, $23
million plus interest is not significantly different from the $25.9 million recorded by
the Elisra Group as a receivable. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>December 2004 Court Order.
</I></B><I></I>In December 2004, prior to ruling on the Elisra Group&#146;s motion for
partial summary judgment, the court issued an order giving judicial recognition to an
agreement between the parties referring the matter to mediation, which stayed the other
proceedings, including the motion for partial summary judgment. </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Opinion of Elisra&#146;s
Outside Counsel.</I></B><I></I> Elisra&#146;s outside legal counsel representing it in
this claim has provided an opinion to Elisra in connection with Elisra&#146;s 2005
financial statements, indicating that the chances of recovery are &#147;good&#148; with
respect to the damages to buildings, equipment and work in process. Elisra&#146;s outside
legal counsel has confirmed that the term &#147;good&#148; as used in his opinion
corresponds to &#147;probable&#148; or &#147;likely&#148; from an accounting standpoint.
Also, as mentioned above, the amount included in the Elisra Group&#146;s claim with
respect to these types of damages is significantly in excess of the amount recorded as a
receivable. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Minor Center" FSL="Default" -->
<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-4- </FONT></P>

<DIV STYLE="page-break-after:always"></DIV>
<!-- MARKER PAGE="sheet: 4; page: 4" -->
<HR SIZE=5 COLOR=GRAY NOSHADE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2> <IMG SRC="ltrhd102506.jpg"></FONT></P>


<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Current Status.
</I></B><I></I>In September 2006, the claim was referred back to the court after the
mediation process did not reach a resolution. The Elisra Group then resubmitted its motion
for partial summary judgment and believes that nothing arose during the course of the
mediation proceedings which would derogate from its motion. Moreover, the time period of
the litigation proceedings is within common practice for insurance litigation matters of
this nature in Israel. Elbit Systems&#146; legal counsel independently reviewed the basis
for Elisra&#146;s legal position relating to the claim and believes that such position is
well founded. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Major Left Bold" FSL="Default" -->
<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>Conclusion:</U> </FONT></H1>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>On the basis of the specific factual
evidence described above, in particular the insurance company appraiser&#146;s report and
the court admissions by the insurance company&#146;s expert, Elbit Systems and Elisra each
believe that the chances of recovery of at least the amount recorded as a receivable
($25.9 million) are probable. We further believe that the relevant facts indicate a
different situation than the general presumption referred to in SOP 96-1. These facts
include fixed and determinable amounts related to tangible assets that were insured and
covered by the insurance policies as well as the insurance company&#146;s own
appraiser&#146;s and expert&#146;s statements as to the specific loss reserves for this
claim recognized by the insurance company. Therefore, we reiterate our position that the
$25.9 million was properly recorded as a preacquisition contingency asset as part of the
purchase price allocation of the consideration paid for Elisra, in accordance with SFAS
141 paragraph 40(b). </FONT></P>

<!-- MARKER FORMAT-SHEET="Para Flush" FSL="Default" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Please feel free to contact the
undersigned at 011-972-4-8316663 if you have any questions. </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Sincerely, </FONT></P>

<!-- MARKER FORMAT-SHEET="Head Left" FSL="Default" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
/s/ Joseph Gaspar<BR>
<BR>
Joseph Gaspar<BR>
Corporate Vice President and<BR>
Chief Financial Officer </FONT></P>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=70%>
<TR VALIGN=Bottom>
     <TH></TH>
     <TH></TH></TR>
<TR VALIGN=top>
     <TD WIDTH=11% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>cc:</FONT></TD>
     <TD WIDTH=89% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Heather Tress,<BR>U.S. Securities and Exchange Commission</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>Henry I. Rothman, Esq.<BR>Troutman Sanders LLP</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>Ilan Gizbar<BR>Kost Forer Gabbay &amp; Kasierer, a member of Ernst &amp; Young Global</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>&nbsp;</FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2><BR>David Block Temin<BR>Ilan Pacholder<BR>Elbit Systems Ltd</FONT></TD></TR>
</TABLE>



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<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-5- </FONT></P>

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end
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
