Elbit Systems: hedging, localization and the balance sheet after the 2025 equity raise

The main article already argued that the key question at Elbit has shifted from demand depth to conversion quality. This follow-up isolates the layer that explains why the balance sheet did not become light even after the 2025 equity raise. At the end of 2025 Elbit had $816 million of cash and short-term deposits, but against that it also carried a foreign-currency hedge book of more than $5.6 billion, $5.245 billion of guarantees and $4.601 billion of purchase commitments.

This is not cosmetic finance. It is the infrastructure that supports long contracts, customer advances, performance obligations and the move into markets that increasingly want local manufacturing, local partners and offset commitments. The $573 million net raise did strengthen Elbit. But it mainly strengthened the company so it could carry a heavier execution machine, not so it could become a light-capital story.

The hedge book is large because the problem is large

The first point is that Elbit's hedge book is large because the underlying exposure is large. The U.S. dollar is the reporting currency and the functional currency for most of the group, but a significant portion of expenses, especially labor and operating costs, is NIS-denominated. At the same time, a meaningful part of future cash flows is denominated in other currencies. That is why at the end of 2025 the company held forward contracts on euro, GBP and other currencies totaling about $5.629 billion, with maturities stretching through 2034.

What matters most is the mix. About $4.838 billion of that layer sits in euro, about $256 million in GBP and about $536 million in other currencies. In other words, roughly 86% of the non-USD, non-NIS foreign-currency hedge book is euro. That is a sign that Elbit's FX challenge is no longer just shekel costs against dollar revenue. It is also the management of long-duration program cash flows across other geographies.

There is also an important forensic point here. In the currency discussion, the company refers to about $5.629 billion of forwards on foreign currencies other than U.S. dollar and NIS. In the derivative note, total outstanding FX forward contracts rise to about $6.041 billion because that disclosure also includes the NIS layer. The gap is not a mistake. It shows that Elbit's hedging is solving several problems at once rather than one simple mismatch.

This is also where it is easy to over-read the hedge book. Anyone who sees a very large derivatives book and concludes that FX risk is closed is only reading half the picture. The company itself says it cannot always hedge all exchange-rate movements fully and cost-effectively, and in 2025 the shekel appreciated by about 12.5% against the dollar while Israeli inflation was about 2.6%. The hedge program is there to reduce volatility and stabilize contract cash flows, not to erase the fact that a large part of the operating base still sits on shekel costs.

The financing layer itself is engineered with the same logic. Series B notes were originally issued without adjustment to the NIS/U.S. dollar exchange rate, and the company then entered swap transactions that effectively linked them to the dollar at a fixed annual U.S. dollar rate of 1.92%. That is an important signal. Elbit is not only hedging orders. It is also aligning part of its debt structure with its reporting currency and program cash-flow profile.

On the accounting side, the hedges do not eliminate noise either. At year-end 2025 the company carried an unrealized loss of about $239 million in accumulated other comprehensive income, while the derivatives note shows derivative assets of about $90.2 million against derivative liabilities of about $92.8 million. That is the point. The hedge book is meant to smooth the economics of long projects, but it does not guarantee a clean mark-to-market presentation at every reporting date.

The equity raise bought flexibility, not surplus capital

The overly simple 2025 headline is that Elbit raised $588 million gross, or $573 million net after expenses, and therefore ended the year with a relaxed balance sheet. The more accurate reading is that the raise primarily reinforced the company's margin for maneuver. Elbit itself states that 2025 financing cash flow was only about $18 million net out, because the share issuance proceeds were used mainly to repay about $302 million of commercial paper, about $110 million of credit and loans, about $112 million of dividends and about $67 million of Series B, C and D notes.

That is the balance-sheet read in one line. The uses management itself lists roughly absorb the whole net raise. So the equity issuance did not simply sit in cash as surplus waiting for opportunity. It mainly replaced a thinner, shorter funding layer with thicker equity.

On one level, that did improve the picture. At year-end 2025 the company had only about $81 million of bank loans, about $48 million of commercial paper and about $308 million of notes outstanding. Series A commercial paper is a short instrument, 90 days with extension options, and can also be repaid early. The fact that only about $48 million remained at year-end and that this layer was fully repaid in February 2026 means the immediate maturity wall came down meaningfully.

But that still does not make the balance sheet light. At the end of 2025 Elbit had working capital of $1.758 billion and a current ratio of 1.29, and management says cash, credit lines, operating cash flow and capital-markets access are sufficient for the next year. That is a reasonable defensive position. It works only if one remembers that behind the explicit debt sits a much larger operational-support layer.

Localization is why the balance sheet stays heavy

This is the layer that turns the 2025 raise from a one-off financing story into a strategic one. The company explicitly says customers are asking for more industrial participation and localization, sometimes to the point of domestic-supplier preference, local development and manufacturing, local cooperation, and the transfer of technology and production lines. In the same passage it points to SAFE, the European loan framework of EUR 150 billion for investment in European defense companies.

The direction is clear, but so is the cost. Meeting localization requirements often requires investments in facilities and subsidiaries in the target countries. Offset obligations are rising and carry additional cost. And if the company fails to meet them, it can face penalties, contract termination or even blacklisting. In other words, localization expands the addressable market, but it also turns backlog into a much heavier execution business.

That is why financial debt alone is no longer the right metric. At the end of 2025 Elbit had $5.245 billion of issued guarantees, mainly for customer advances and performance obligations, and at the same time $4.601 billion of purchase commitments expected to be realized during 2026-2031. Those layers are not classic financial debt, and they should not be treated as if they were loans. But they do show how much balance-sheet support the company has to stand behind in order to hold together the next stage of growth.

That chart is exactly what the market can miss. It is easy to look at about $437 million of explicit debt against $816 million of liquidity and conclude the issue is solved. It is harder to focus on the fact that the company operates in parallel with guarantees and purchase commitments totaling almost $9.8 billion. Again, they are not the same type of obligation. But they do show that the real question is not only how much debt Elbit carries. It is how much balance sheet the next growth phase demands.

This is also where the euro-heavy hedge book connects back to localization. The filing does not state explicitly that every dollar of the hedge book comes from European localization, so it would be wrong to force a one-to-one claim. But the combination of disclosures still says something clear: localization requirements are tightening, SAFE is directing capital toward European defense companies, and at the same time about 86% of Elbit's non-USD, non-NIS hedge book is euro. That is not conclusive proof of every contract path, but it is a strong indication that the next stage of growth is becoming more European, more local and more balance-sheet-intensive to execute.

What matters from here

The central message of this follow-up is simple: the 2025 raise solved a timing problem, not a weight problem. It reduced immediate financing pressure, shrank the short commercial-paper layer and strengthened the liquidity cushion. But it did not erase the fact that Elbit is entering a phase in which every large contract sits on localization, guarantees, purchase commitments and a long-dated hedge book.

That is why over the next 2-4 quarters the key thing to measure is not debt balance alone, but the movement in the support layers. If new wins in Europe and other markets arrive with preserved margin, without another major increase in capital intensity, and without a renewed expansion of guarantees and commitments, the 2025 raise will look in hindsight like the right fortification. If those layers keep growing faster than liquidity and cash generation, the raise will turn out to have bought time without changing the heavier economics of the next phase.

Bottom line: at Elbit, hedging and equity are not decorations placed on top of backlog. They are part of the mechanism that allows backlog to exist. As long as that mechanism remains controlled, it supports the thesis. If it expands too fast, it becomes the thesis.