ISRAEL AEROSPACE INDUSTRIES LTD. CONSOLIDATED FINANCIAL STATEMENTS AS of DECEMBER 31, 2019 in U.S. DOLLARS in MILLIONS INDEX Pa

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ISRAEL AEROSPACE INDUSTRIES LTD. CONSOLIDATED FINANCIAL STATEMENTS AS of DECEMBER 31, 2019 in U.S. DOLLARS in MILLIONS INDEX Pa ISRAEL AEROSPACE INDUSTRIES LTD. CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2019 IN U.S. DOLLARS IN MILLIONS INDEX Page Auditors' Report of Internal Control over Financial Reporting 2 – 3 The Board of Directors' and Management's Report of Internal Control over Financial Reporting pursuant to the Government Companies Regulations 4 Auditors' Report 5 Officers' Certification 6 - 8 Consolidated Statements of Financial Position 9 – 10 Consolidated Statements of Profit and Loss 11 Consolidated Statements of Comprehensive Income 12 Consolidated Statements of Changes in Equity 13 Consolidated Statements of Cash Flows 14 - 15 Notes to Consolidated Financial Statements 16 - 135 Separate Financial Information 136 - 155 - - - - - - - - - - - Auditors' Report to the Shareholders of Israel Aerospace Industries Ltd. Regarding the Effectiveness of Internal Control over Financial Reporting Pursuant to Article 3 to the Israeli Government Companies Regulations (Additional Reports regarding the Effectiveness of Internal Control over Financial Reporting), 2007 We have audited the internal control over financial reporting of Israel Aerospace Industries Ltd. ("the Company") as of December 31, 2019, based on criteria established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("the COSO criteria"). The Company's board of directors and management are responsible for maintaining effective internal control over financial reporting, and for their assessment of the effectiveness of internal control over financial reporting, included in accordance with the Israeli Government Companies Regulations (Additional Reports regarding the Effectiveness of Internal Control over Financial Reporting), 2007 in the reports of the board of directors and management regarding the effectiveness of internal control over financial reporting hereby attached. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We did not audit the effectiveness of internal control over financial reporting of ELTA Systems Ltd. and its subsidiaries (a wholly-owned subsidiary of the Company, "the subsidiary") whose assets constitute approximately 26.62% of total consolidated assets as of December 31, 2019 and whose revenues constitute approximately 23.61% of total consolidated revenues for 2019. The internal control over financial reporting of the subsidiary was audited by other auditors, whose findings have been furnished to us, and our opinion, insofar as it relates to the internal control over financial reporting of the subsidiary, is based on the reports of the other auditors. We conducted our audit in accordance with the Standards of the PCAOB in the United States regarding the audit of internal control over financial reporting. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of the internal control based on the assessed risk. We believe that our audit and the reports of the other auditors provide a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards ("IFRS"), the provisions of the Israeli Securities Regulations (Annual Financial Statements), 2010 and the provisions of the Israeli Government Companies Law, 1975. A company's internal control over financial reporting consists of the policies and procedures which (1) address the management of records that accurately, adequately and reasonably reflect the transactions in the Company's assets and their disposal; (2) provide reasonable assurance that transactions are properly recorded in order to allow the preparation of the financial statements in conformity with IFRS, the provisions of the Israeli Securities Regulations (Annual Financial Statements), 2010 and the provisions of the Israeli Government Companies Law, 1975, and that funds are only received and expensed by the Company's authorized personnel and subject to the approvals of State authorities as required by law; and (3) provide reasonable assurance of the timely prevention or disclosure of any unauthorized acquisition, use or disposal of Company assets that is liable to have a material adverse effect on the financial statements. 2 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, based on our audit and the reports of the other auditors, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria. We have also audited, in accordance with generally accepted auditing standards in Israel, including those prescribed by the Auditor's Regulations (Auditor's Mode of Performance), 1973, the consolidated statements of financial position of the Company as of December 31, 2019 and 2018 and the consolidated statements of profit and loss, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2019 and our report dated March 25, 2020 expressed an unqualified opinion thereon, based on our audits and the reports of other auditors. Tel-Aviv, Israel BDO Ziv Haft March 25, 2020 Certified Public Accountants 3 The Board of Directors' and Management's Report Regarding the Effectiveness of Internal Control over Financial Reporting Pursuant to the Israeli Government Companies Regulations (Additional Reports regarding the Effectiveness of Internal Control over Financial Reporting), 2007 Management, with the supervision and approval of the board of directors of Israel Aerospace Industries Ltd. ("the Company"), are responsible for establishing and maintaining adequate internal control over financial reporting in the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards ("IFRS"), the provisions of the Israeli Securities Regulations (Annual Financial Statements), 2010 and the provisions of the Israeli Government Companies Law, 1975. Because of its inherent limitations, internal control over financial reporting is not designed to provide absolute assurance that misstatements in the financial statements will be prevented or detected. The board of directors and management tested and evaluated the internal control over financial reporting in the Company and its effectiveness based on the COSO criteria. Based on this evaluation, the Company's board of directors and management concluded that the internal control over financial reporting in the Company for the period ended December 31, 2019 is effective. Date: March 25, 2020 Harel Locker Chairman of the Board of Directors Date: March 25, 2020 Nimrod Sheffer CEO Date: March 25, 2020 Eran Anchikovsky CFO 4 AUDITORS' REPORT To the Shareholders of ISRAEL AEROSPACE INDUSTRIES LTD. We have audited the accompanying consolidated statements of financial position of Israel Aerospace Industries Ltd. ("the Company") as of December 31, 2019 and 2018, and the related consolidated statements of profit and loss, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2019. These financial statements are the responsibility of the Company's board of directors and management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of certain subsidiaries whose assets constitute approximately 26.86% and approximately 25.75% of total consolidated assets as of December 31, 2019 and 2018, respectively, and whose revenues constitute approximately 23.54%, approximately 21.71% and approximately 22.32% of total consolidated revenues for the years ended December 31, 2019, 2018 and 2017, respectively. The financial statements of those companies were audited by other auditors, whose reports have been furnished to us, and our opinion, insofar as it relates to amounts included for those companies, is based on the reports of the other auditors. Moreover, the data included in the financial statements relating to the carrying amount of the investments and the Company's share of the business results of investees accounted for at equity is based on financial statements some of which have been audited by other auditors. We conducted our audits in accordance with generally accepted auditing standards in Israel, including those prescribed by the Auditors' Regulations (Auditor's Mode of Performance), 1973. Those standards require that we plan and perform the audit to obtain reasonable assurance
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