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International Defense Spending Buoys US Majors

The major US Defense Companies reported Results broadly in line with expectations this week. With US Budgets coming off the bottom, continuing progress was made in overseas markets where the falling oil price has done little to deter countries increasing their defense spending.

Companies Reporting:

The Boeing Company

Honeywell

L-3

Lockheed Martin

Northrop Grumman

Oshkosh Corporation

Raytheon

Textron

UTC

The Boeing Company

boeing27 Jan 16. Boeing forecasts 2016 earnings below estimates; shares tumble. Boeing Co (BA.N) forecast 2016 core earnings below estimates on Wednesday, and said it expected to deliver fewer commercial planes this year, sending its shares down 6.5 percent. Boeing also reported weaker fourth-quarter profit. The world’s largest jetliner maker expects to deliver 740 to 745 planes in 2016, its centenary year, down from 762 in 2015. The company attributed the decline to a slowdown in the 737 line as Boeing shifts production to a new version of the plane, the 737 MAX, and to a slight reduction in output of 747-8s as it slows production of the jumbo jet late next year in response to weak demand. Boeing forecast 2016 core earnings, excluding some pension and other costs, to be between $8.15 and $8.35 per share less than the average analyst estimate of $9.43, according to Thomson Reuters I/B/E/S. Net income fell to $1.03bn, or $1.51 per share, in the fourth quarter, from $1.47bn, or $2.02 per share, a year earlier. Core earnings declined to $1.60 per share from $2.31, reflecting a charge for slowing production of the 747-8 jumbo jet. Wall Street looked for core earnings of $1.26 per share, according to Thomson Reuters I/B/E/S. Boeing said last week it would cut 747-8 output to six planes a year from 12, starting in September 2016, and take a charge of $569m, or 84 cents a share, in the fourth quarter. Fourth-quarter revenue fell about 4 percent to $23.57 bn. Analysts expected $23.53 bn, according to Thomson Reuters I/B/E/S. (Source: Reuters)

Boeing Reports Fourth-Quarter Results and Provides 2016

Guidance

Fourth-Quarter 2015

  • Core EPS (non-GAAP)* of $1.60 on revenue of $23.6bn; GAAP EPS of $1.51
  • Strong operating cash flow of $3.1bn on solid core operating performance

Full Year 2015

  • Record revenue of $96.1bn on record commercial deliveries
  • Operating cash flow increased to $9.4bn; strong liquidity of $12.1bn in cash and marketable securities
  • Backlog remains strong at $489bn, including $83bn of net orders during the year

Outlook for 2016

  • 2016 Core EPS* guidance of between $8.15 and $8.35; GAAP EPS guidance of between $8.45 and $8.65
  • Revenue guidance of between $93 and $95bn reflects commercial deliveries of between 740 and 745
  • Reaffirming planned production rate increases over the next several years
  • Operating cash flow guidance of approximately $10bn

The Boeing Company [NYSE: BA] reported fourth-quarter revenue of $23.6bn and core earnings per share (Non-GAAP)* of $1.60. Fourth quarter 2015 results reflect the previously announced $569m after-tax charge ($0.84 per share) on the 747 program as a result of a slow recovery in the air cargo market which was partially offset by solid core operating performance across the company. GAAP earnings per share was $1.51.

Revenue rose 6 percent in the full year to a record $96.1bn reflecting record commercial deliveries. Core earnings per share (Non-GAAP) totaled $7.72 for the full year, reflecting the KC-46 Tanker (2Q) and 747 program (4Q) charges ($1.61 per share) partially offset by strong core operating performance across the company. GAAP earnings per share totaled $7.44 for the full year.

Core earnings per share (non-GAAP) guidance for 2016 is set at between $8.15 and $8.35, while GAAP earnings per share is established at between $8.45 and $8.65. Revenue guidance is between $93 and $95bn, including commercial deliveries of between 740 and 745. Operating cash flow is expected to be approximately $10bn.

“Building on our foundation of solid core operating performance and customer focus, Boeing extended its leadership of the aerospace industry in 2015 with record deliveries and revenues in commercial airplanes, and solid sales and healthy margins in our defense and space business. We also generated significant cash flow to fuel investments in innovation and our people, and provide compelling returns to our shareholders,” said Boeing President and Chief Executive Officer Dennis Muilenburg.  “With clear strategies and strong positions in our markets, a large and diverse order backlog worth nearly $500bn, and multiple additional production rate increases planned yet this decade, we are well positioned for profitable growth and higher cash flow as we move into our second century in business.”

“Our priorities for 2016 and beyond are to build on our existing strengths to deliver on current plans and commitments, and to stretch beyond them by accelerating progress on key enterprise growth and productivity initiatives, investing in our team, and creating more value and opportunity for our customers, shareholders and employees,” Muilenburg said.

Operating cash flow in the quarter was $3.1bn, reflecting commercial airplane production rates, solid core operating performance and the timing of receipts and expenditures in the prior period (Table 2). During the quarter, the company repurchased 5 m shares for $0.8bn and paid $0.6bn in dividends. For the full year, the company repurchased 47 m shares for $6.8bn and paid $2.5bn in dividends. Based on strong cash generation and outlook, in December, the board of directors raised the share repurchase authorization to $14bn, replacing the authorization approved in 2014 of which $5.3bn was remaining, and increased the quarterly dividend 20 percent. Share repurchases under the new authorization are expected to be made over the next two to three years.

Cash and investments in marketable securities totaled $12.1bn, up from $9.9bn at the beginning of the quarter, primarily due to the timing of cash flows. Debt was $10.0bn, up from $9.0bn at the beginning of the quarter, primarily due to the issuance of new debt.

Total company backlog at quarter-end was $489bn, up from $485bn at the beginning of the quarter, and included net orders for the quarter of $28bn. Net orders for the full year totaled $83bn.

Segment Results

Commercial Airplanes

Commercial Airplanes fourth-quarter revenue decreased slightly to $16.1bn on lower delivery volume. Fourth-quarter operating margin was 3.5 percent, reflecting the previously announced $885m pre-tax charge on the 747 program and higher R&D partially offset by strong performance on production programs.

During the quarter, Commercial Airplanes won orders for 203 737 MAX airplanes. The 737 program has captured nearly 3,100 orders for the 737 MAX since launch. Also during the quarter, the company completed detailed design for the 787-10 Dreamliner, final systems definition on the 777X, and rolled out the first 737 MAX airplane. Commercial Airplanes booked 321 net orders during the quarter and 768 net orders in 2015. Backlog remains strong with nearly 5,800 airplanes valued at $432bn.

Defense, Space & Security

Defense, Space & Security’s fourth-quarter revenue was $7.8bn with an operating margin of 12.4 percent.

Boeing Military Aircraft (BMA) fourth-quarter revenue increased to $3.2bn and operating margin increased to 13.7 percent, reflecting higher volume and delivery mix. During the quarter, BMA was awarded a contract for 15 EA-18G Growlers and Japan selected the KC-46 tanker to meet their tanker requirement.

Network & Space Systems (N&SS) fourth-quarter revenue was $2.0bn, reflecting lower satellite volume. Operating margin was 8.3 percent, reflecting lower performance on a development program. During the quarter, NASA awarded Boeing its second commercial contract for a human spaceflight mission as part of the existing Commercial Crew contract.

Global Services & Support (GS&S) fourth-quarter revenue increased to $2.6bn, reflecting the timing of Airborne Surveillance, Command and Control deliveries. Operating margin was 13.8 percent reflecting program mix. During the quarter, GS&S delivered the final AEW&C aircraft to Turkey.

Backlog at Defense, Space & Security was $58bn, of which 40 percent represents orders from international customers.

At quarter-end, Boeing Capital’s net portfolio balance was $3.4bn, unchanged from the beginning of the quarter. Unallocated items and eliminations revenue totaled $408m at quarter end, up from $112m in the same period of the prior year, primarily due to the timing of eliminations for intercompany aircraft deliveries. Total pension expense for the fourth quarter was $529m, down from $772m in the same period of the prior year. The company’s income tax expense was $73m in the quarter, compared to $464m in the same period of the prior year.

General Dynamics

gdlogo27 Jan 16. General Dynamics Reports Fourth-Quarter, Full-Year 2015 Results. General Dynamics (NYSE: GD) reported fourth-quarter 2015 earnings from continuing operations of $764m, a 3.7 percent increase over fourth-quarter 2014, on revenue of $7.8 bn. Diluted earnings per share from continuing operations were $2.40 compared to $2.19 in the year-ago quarter, a 9.6 percent increase.

Full-year Results

Full-year earnings from continuing operations rose to $3bn from $2.7bn in 2014, a 10.9 percent increase. Diluted earnings per share from continuing operations were up 16 percent at $9.08 compared to $7.83 in 2014. Revenue for 2015 was up 2 percent, to $31.5bn.

“General Dynamics had another record-setting year of financial performance, with operating earnings, margins, earnings from continuing operations, EPS and return on sales at the highest levels in the company’s history,” said Phebe Novakovic, chairman and chief executive officer.  “We have a healthy and stable backlog with the defense businesses executing on recent program wins, and Aerospace’s backlog is growing year-over-year reflecting strong order activity throughout 2015. Over the past 36 months, this management team has demonstrated the value of focusing on operations, managing the business for cash and earnings, and growing return on invested capital. The company’s accomplishments in 2015 illustrate the strength of our approach and support our commitment to disciplined growth.”

 Revenue

Revenue for the fourth quarter of 2015 was $7.8bn. For the full year of 2015, revenue was $31.5bn, a 2 percent increase compared to 2014. The Aerospace and Marine Systems groups increased revenue in 2015, with Marine Systems growing by more than 9 percent.

Margin

Company-wide operating margin for fourth-quarter and full-year 2015 was 13.3 percent. Margins grew 50 basis points over the fourth quarter of 2014 and 70 basis points for the full year, with expansion in Aerospace, Combat Systems and Information Systems and Technology during the year.

Cash

Net cash provided by operating activities for the full year totaled $2.5bn. Free cash flow from operations, defined as net cash provided by operating activities less capital expenditures, was $1.9bn for the year.

Backlog

General Dynamics’ total backlog at the end of 2015 was $66.1bn. It was another strong quarter for the Aerospace group, with order activity in each of the Gulfstream products and across their global market. The estimated potential contract value, representing management’s estimate of value in unfunded indefinite delivery, indefinite quantity (IDIQ) contracts and unexercised options, was $24.5bn. Total potential contract value, the sum of all backlog components, was $90.6bn at the end of the year.

Honeywell

honeywell29 Jan 16. Honeywell Reports Full-Year 2015 Sales Of $38.6bn; Earnings Up 10% To $6.10. Honeywell (NYSE: HON) announced results for the fourth quarter and full-year of 2015:

“Honeywell delivered a strong fourth quarter, capping off another year of robust margin expansion, earnings growth, and cash flow,” said Honeywell Chairman and CEO Dave Cote.  “We grew earnings 10% in a tough environment, representing our sixth consecutive year of double-digit earnings growth.  Segment margins grew by 220 basis points driven by strong execution across the portfolio and our key process initiatives, including HOS Gold.  Free Cash Flow for the full year increased 11% to $4.4 billion, which exceeded the high-end of our guidance range and included over 125% conversion in the fourth quarter.  We committed to more than $6 billion in acquisitions in 2015 to bolster our Great Positions in Good Industries, reinvested $1.1 billion in our businesses through high-return capital expenditure projects, and returned more than $3.5 billion to our shareowners, including a 15% increase in our dividend.  We also funded more than $160 million in new restructuring projects, including $60 million in the fourth quarter, which will put us in an even stronger position for the future.” 

“We are planning conservatively in 2016 as we are expecting another year of slow global economic growth,” continued Cote.  “But, we remain confident in Honeywell’s ability to outperform.  We will support growth where there are opportunities to drive outperformance, be cautious in our sales planning, plan costs and spending conservatively, and continue to support the seed planting for new products, services, geographies, and process improvements that allow us to perform well now and in the future.  We expect continued margin expansion and earnings outperformance in 2016 and over the long term, supported by our balanced portfolio, HOS Gold breakthrough goals, further penetration of High Growth Regions, and funded restructuring projects.”

The company also reaffirms its full-year 2016 guidance.

Segments

Aerospace

  • Sales for the fourth quarter were up 2% on a core organic basis, and were up 4% reported driven by the $184 million OEM incentives incurred in the fourth quarter of 2014 partially offset by the unfavorable impact of foreign currency.  Commercial OE sales were up 9% on a core organic basis (45% reported) driven by strong Business and General Aviation (BGA) engine shipments and higher shipments to large Air Transport and Regional (ATR) OEMs.  Commercial Aftermarket sales were up 3% on a core organic basis (2% reported) driven by continued growth in repair and overhaul activities.  Defense & Space sales decreased (1%) on a core organic basis (down 3% reported) driven by lower sales to the U.S. government and a difficult prior year comparison in the international business.  Transportation Systems sales were up 1% on a core organic basis driven by new platform launches and higher diesel and gas turbo penetration on passenger vehicles, partially offset by lower commercial vehicle production.  TS sales were down (10%) reported due to the unfavorable impact of foreign currency.
  • Segment profit for the fourth quarter was up 29% and segment margins expanded 420 bps to 21.5%, driven by the fourth quarter 2014 OEM incentives, productivity net of inflation, and commercial excellence, partially offset by the margin impact of higher OE shipments and continued investments for growth.  Excluding the fourth quarter 2014 OEM incentives, segment profit was up 1%, and segment margins expanded 50 basis points.

Automation and Control

  • Sales for the fourth quarter were flat on a core organic basis and down (3%) reported driven by the unfavorable impact of foreign currency.  Energy, Safety & Security (ESS) sales decreased (1%) on a core organic basis (down 3% reported) driven primarily by a difficult prior year comparison in Sensing & Productivity Solutions (S&PS), partially offset by continued growth in Security and Fire (HSF) on a global basis.  Building Solutions & Distribution (BSD) sales increased 3% on a core organic basis (down 3% reported) driven by continued strength in Americas Distribution partially offset by slowing Building Solutions backlog conversion.
  • Segment profit for the fourth quarter was flat and segment margins expanded 70 bps to 16.6% driven by productivity net of inflation, benefits of previously funded restructuring projects, and commercial excellence, partially offset by continued investments for growth.

Performance and Material Technologies

  • Sales for the fourth quarter were down (4%) on a core organic basis and down (12%) reported driven by the unfavorable impact of foreign currency and lower raw materials pass-through pricing in Resins & Chemicals.  The decrease in core organic sales was primarily driven by lower UOP gas processing, equipment and licensing sales, HPS field products weakness, and lower volume in Resins & Chemicals, partially offset by higher UOP catalyst shipments and higher volume in Fluorine Products.
  • Segment profit for the fourth quarter was up 9% and segment margins increased 380 bps to 20.3%, driven by productivity net of inflation, commercial excellence, and the favorable impact of raw materials pass-through pricing in Resins & Chemicals (pricing model protects profit dollars).

L-3

l-3 28 Jan 16. L-3 Announces Fourth Quarter 2015 Results. L-3 Communications Holdings, Inc. (LLL) reported adjusted diluted EPS from continuing operations of $2.16 and diluted loss per share from continuing operations of $0.76 for the quarter ended December 31, 2015 (2015 fourth quarter). Diluted EPS from continuing operations for the quarter ended December 31, 2014 (2014 fourth quarter) was $2.34. Net sales of $2.9bn for the 2015 fourth quarter decreased by 3% compared to the 2014 fourth quarter. Excluding sales from divestitures(2) and acquisitions(2), net sales (organic sales) increased 1%. The prior period results have been adjusted to present the National Security Solutions business as discontinued operations.

“In the fourth quarter, we continued the progress we made on our transformation throughout 2015, highlighted by our announcement of the sale of our National Security Solutions (NSS) business.” said Michael T. Strianese, chairman and chief executive officer. “Our strategic portfolio shaping efforts and solid program execution allowed us to focus on higher returning, higher margin businesses where we have market leading positions, supporting organic growth and increased segment operating margins. While there is still work to do, we are seeing benefits of our refined strategy. Our organic sales growth for the quarter was 1% and we strengthened our offerings in key markets through our ForceX acquisition, which will expand our brand and market share in 2016 and beyond.”

“While we are disappointed in our 2015 book-to-bill ratio, which was impacted by lower than anticipated international awards at Aerospace Systems, our other two segments generated healthy orders from the DoD and other U.S. Government customers. Looking ahead to 2016, we are a leaner, more focused company with robust cash flows operating in what we believe will be a more stable budgetary environment. We are confident that our ongoing efforts will drive additional organic growth in 2016 and enable us to continue returning capital to shareholders.” 

(1) Adjusted diluted earnings per share from continuing operations is a non-GAAP financial measure.

(2) Sales from business divestitures are defined as sales from business divestitures that are included in L-3’s actual results for the 12 months prior to the divestitures. Sales from acquired businesses are defined as sales from business acquisitions that are included in L-3’s actual results for less than 12 months.

Funded orders of $2.6bn for the quarter included the following key wins:

  • a contract to design, manufacture, qualify, test and deliver Integrated Power Node Center/Power Node Control Center (IPNC/PNCC) units to General Dynamics Bath Iron Works,
  • a contract to deliver two night vision product variants, monocular and binocular, to the Saudi Ministry of Defense, Land Forces,
  • a contract to provide immersion fidelity updates on the F/A-18 C/D/E/F and EA-18G Tactical Operational Flight Trainers (TOFT’s) at multiple Air Stations for the Naval Air Warfare Center Training Systems Division,
  • a contract to provide three Full Flight Simulators for an Airbus A320, an Airbus A330 and a Boeing B737 to Turkish Airlines, and
  • a contract to provide an Airbus A320 Full Flight Simulator to Spring Airlines.

 

Adjusted diluted EPS from continuing operations for the 2015 fourth quarter excludes: (1) goodwill impairment charges of $349m ($230m after income taxes), or $2.93 per diluted share, including $338m related to a decline in the estimated fair value of the Logistics Solutions reporting unit and $11 m related to the re-allocation of goodwill to a business unit retained by L-3 in connection with the expected sale of the National Security Solutions business and (2) a pre-tax loss of $2m ($2m after income taxes), or $0.02 per diluted share, related to the divestiture of Klein Associates, Inc., which was completed on December 31, 2015 for a sales price of $10m.

Adjusted diluted EPS from continuing operations for the year ended December 31, 2015 excludes: (1) goodwill impairment charges of $384m ($264 m after income taxes), or $3.22 per diluted share, including $338m related to a decline in the estimated fair value of the Logistics Solutions reporting unit, and $46m related to the re-allocation of goodwill and an impairment charge recorded during the third quarter of 2015 to a business retained by L-3 in connection with the expected sale of the National Security Solutions business and (2) a pre-tax loss of $31m ($20m after income taxes), or $0.25 per diluted share, related to business divestitures, of which $17m relates to the divestiture of Marine Systems International (MSI), completed on May 29, 2015, $8m relates to the Tinsley Product Line divestiture completed on July 27, 2015, $4m relates to the Broadcast Sports, Inc. (BSI) divestiture, completed on April 24, 2015, and $2 m relates to the Klein Associates, Inc. divestiture, completed on December 31, 2015.

The goodwill impairment charges and pre-tax losses related to business divestitures are included in consolidated operating (loss) income. Segment operating income represents earnings from the Company’s business segments before the goodwill impairment charges and pre-tax losses related to business divestitures. Segment operating income is used by management for purposes of evaluating the operating performance of the Company’s business segments.

Fourth Quarter Results of Operations: For the 2015 fourth quarter, consolidated net sales of $2.9bn decreased $90m, or 3%, compared to the 2014 fourth quarter. Organic sales growth for the 2015 fourth quarter was $40m, or 1%. Organic sales growth excludes $167 m of sales declines related to business divestitures and $37m of sales increases from business acquisitions. Sales to the U.S. Government increased 3%, or $66m, to $2,02 m in the 2015 fourth quarter, compared to $1,963m in the 2014 fourth quarter. Sales to international and commercial customers declined 19%, or $156 m, to $842m in the 2015 fourth quarter, compared to $998m in the 2014 fourth quarter. Organic sales to international and commercial customers decreased $22m, or 3%.

Segment operating income for the 2015 fourth quarter decreased $39m, or 13%, compared to the 2014 fourth quarter. Segment operating income as a percentage of sales (segment operating margin) decreased by 100 basis points to 8.9% for the 2015 fourth quarter compared to 9.9% for the 2014 fourth quarter. This decrease was driven by higher pension expense of $14m and unfavorable contract performance adjustments primarily in the Aerospace Systems segment. See the reportable segment results below for additional discussion of sales and operating margin trends.

The effective income tax rate for the 2015 fourth quarter is not meaningful due to the goodwill impairment charges. Excluding the goodwill impairment charges and related income tax benefit, the effective income tax rate for the 2015 fourth quarter would have decreased to 17.4% compared to 19.6% primarily due to an increased benefit from the Federal Research and Experimentation (R&E) Tax Credit, which was permanently reenacted on December 18, 2015.

Net (loss) income from continuing operations attributable to L-3 in the 2015 fourth quarter decreased by $261 m to a loss of $60m, compared to income of $201m in the 2014 fourth quarter. Diluted EPS from continuing operations decreased by $3.10 to a loss of $0.76 from $2.34 in the 2014 fourth quarter. Adjusted diluted EPS from continuing operations decreased 8% to $2.16. Diluted weighted average common shares outstanding for the 2015 fourth quarter declined by 9% compared to the 2014 fourth quarter due to share repurchases.

Full Year Results of Operations: For the year ended December 31, 2015, consolidated net sales of $10.5bn decreased $520m, or 5%, compared to the year ended December 31, 2014. Organic sales for the year ended December 31, 2015 declined $269 m, or 3%. Organic sales exclude $354 m related to business divestitures and $103 m from business acquisitions. Sales to the U.S. Government declined 2%, or $17 m, to $7,291m in the year ended December 31, 2015 compared to $7,464m in the year ended December 31, 2014, driven primarily by U.S. defense budget constraints and reductions from sequestration, and by the U.S. military drawdown in Afghanistan. Sales to international and commercial customers declined 10%, or $347m, to $3,175m in the year ended December 31, 2015, compared to $3,522m in the year ended December 31, 2014. Organic sales to international and commercial customers decreased $92m, or 3%, driven by foreign currency exchange rate changes.

Segment operating income for the year ended December 31, 2015 decreased by $122m, or 12%, compared to the year ended December 31, 2014. Segment operating margin decreased by 70 basis points to 8.5% for the year ended December 31, 2015 compared to 9.2% for the year ended December 31, 2014. This decrease was driven by higher pension expense of $61m and unfavorable contract performance adjustments at the Aerospace Systems segment, partially offset by outside accounting and legal advisory expenses incurred in 2014 for the Internal Review completed in October 2014. See the reportable segment results below for additional discussion of sales and operating margin trends.

The effective income tax rate for the year ended December 31, 2015 is not meaningful due to the goodwill impairment charges. Excluding the goodwill impairment charges and related income tax benefit, the effective income tax rate for 2015 would have decreased to 20.5%. The decrease is primarily due to: (1) $17m of foreign tax benefits related to a legal restructuring of our foreign entities and (2) an increased benefit from the Federal Research and Experimentation Tax Credit.

Net income from continuing operations attributable to L-3 in the year ended December 31, 2015 decreased to $282m, compared to $632m in the year ended December 31, 2014. Diluted EPS from continuing operations decreased 52% to $3.44 from $7.20 in the year ended December 31, 2014. Adjusted net income from continuing operations attributable to L-3 decreased 10% to $566m compared to the year ended December 31, 2014, and adjusted diluted EPS from continuing operations decreased 4% to $6.91. Diluted weighted average common shares outstanding for the year ended December 31, 2015 declined by 7% compared to the year ended December 31, 2014 due to repurchases of L-3 common stock.

Orders: Unfunded orders for the 2015 fourth quarter were $2.6bn, a decrease of 18.7% compared to the 2014 fourth quarter. Funded orders for the year ended December 31, 2015 were $9.9bn, compared to $11.0bn for the year ended December 31, 2014. The book-to-bill ratio was 0.89x for the 2015 fourth quarter and 0.94x for the year ended December 31, 2015. Funded backlog declined 13% to $8.4bn at December 31, 2015, compared to $9.7bn at December 31, 2014, due to the divestiture of MSI and a book-to-bill ratio of less than 1.

Cash flow and cash returned to shareholders: Net cash from operating activities from continuing operations decreased by $49m, or 10%, to $465m for the 2015 fourth quarter, compared to $514m for the 2014 fourth quarter. Net cash from operating activities from continuing operations decreased by $71m, or 7%, to $1,021 m for the year ended December 31, 2015, compared to $1,092m for the year ended December 31, 2014. The decrease in net cash from operating activities in the year ended December 31, 2015 was due to lower net income partially offset by lower working capital requirements in the year ended December 31, 2015, compared to the year ended December 31, 2014.

Electronic Systems

Fourth Quarter: Electronic Systems net sales for the 2015 fourth quarter decreased by $118m, or 9%, compared to the 2014 fourth quarter. Excluding $167m related to the divestitures of MSI, BSI and the Tinsley Product Line and $24m related to the CTC and ForceX acquisitions, organic sales increased by $25m, or 2%. The increase is driven by: (1) $28m for Aviation Products & Security Systems due to increased deliveries of airport and cargo security system products to international customers and cockpit avionics products to commercial and DoD customers, (2) $10m primarily for Precision Engagement and Training due to increased deliveries of simulation devices to the DoD, partially offset by completed contracts for simulation devices to commercial customers and ordnance products to the U.S. military, and (3) $8m for Sensor Systems, primarily due to deliveries of electronic warfare products to the United Kingdom Ministry of Defence and increased volume for photonics masts and surface ship stabilizing products to the U.S. Navy. These increases were partially offset by a reduction of $21m at Warrior Systems related to a holographic weapons sight refund program at the EoTech business further discussed below.

Electronic Systems operating income for the 2015 fourth quarter decreased by $16m, or 10%, compared to the 2014 fourth quarter. Operating margin decreased by 20 basis points to 11.3%. Operating margin decreased by: (1) 70 basis points due to sales mix changes primarily for Aviation Products & Security Systems, Sensor Systems, and Power & Propulsion Systems, (2) 20 basis points due to higher pension expense of $3 m and (3) 20 basis points due to higher severance costs of $2m. These decreases were partially offset by increases of: (1) 40 basis points due to acquisitions and divestitures and (2) 50 basis points for favorable contract performance adjustments primarily for Sensor Systems.

In November 2015, the Company commenced a voluntary refund program and began accepting customer returns for various EoTech holographic weapons sight (HWS) products affected by certain performance issues. The refund program gives eligible owners of the affected HWS products the option to obtain a refund of the purchase price, including shipping costs. The estimated refund program liability of $20m is based on several factors, including the number of HWS units that the Company anticipates purchasers will return for a refund. The refund program is in the early stages of implementation, and the Company will continue to evaluate the amount of the refund liability. This may cause a material adjustment to the liability.

Full Year: Electronic Systems net sales for the year ended December 31, 2015 decreased by $376m, or 8%, compared to the year ended December 31, 2014. Excluding $354 m related to the divestitures of MSI, BSI, and the Tinsley Product Line, and $49m for the CTC and ForceX acquisitions, organic sales declined $71m, or 2%. The decrease was due to: (1) $85m related to foreign currency exchange rate changes and (2) $44 m related to reduced sales at Warrior Systems driven by lower volume for night vision goggles and the holographic weapons sight refund program at EoTech discussed above. These decreases were partially offset by $58m, primarily for Aviation Products & Security Systems, due to deliveries of airport security systems products to international customers and cockpit avionics products to commercial and DoD customers.

Electronic Systems operating income for the year ended December 31, 2015 decreased by $44m, or 8%, compared to the year ended December 31, 2014. Operating margin remained at 11.5% compared to the year ended December 31, 2014. Operating margin increased by: (1) 50 basis points due to acquisitions and divestitures, (2) 40 basis points for favorable contract performance adjustments and (3) 20 basis points due to lower severance expense of $8m. These increases were offset by decreases of: (1) 80 basis points primarily due to lower volume for Sensor Systems and sales mix changes for Aviation Products & Security and (2) 30 basis points due to higher pension expense of $13m.

Aerospace Systems

Fourth Quarter: Aerospace Systems net sales for the 2015 fourth quarter decreased by $83m, or 7%, compared to the 2014 fourth quarter. Sales decreased $60m for Aircraft Systems, $20m for Logistics Solutions and $3 m for ISR Systems. Sales decreased for Aircraft Systems due to lower volume of: (1) $34m for foreign military aircraft modification contracts, including $12m for the Australian C-27J aircraft, (2) $19m for modification contracts primarily for the U.S. Navy maritime patrol aircraft, (3) $14 m primarily due to less modification work on the United States Air Force (USAF) Compass Call aircraft and (4) $12m for aircraft cabin assemblies and subassemblies due to timing of deliveries. These decreases were partially offset by higher volume on international head-of-state aircraft modification contracts of $19m. The decrease in sales for Logistics Solutions was due to lower volume for field maintenance and sustainment services, primarily for U.S. Army and U.S. Navy aircraft due to the completion of contracts and reduced flight hours and lower sell prices resulting from competitive pressures. Sales decreased for ISR Systems due to lower volume of: (1) $33 m for small ISR aircraft fleet management services primarily to the DoD due to the U.S. military drawdown in Afghanistan and (2) $30m primarily for large ISR aircraft systems for foreign military customers as contracts near completion. The decreases were partially offset by higher volume of $48m for large ISR aircraft systems for the U.S. Government and $12m for small ISR aircraft systems to the DoD.

Aerospace Systems operating income for the 2015 fourth quarter decreased by $30 m, or 33%, compared to the 2014 fourth quarter. Operating margin decreased by 220 basis points to 5.7%. Operating margin decreased by: (1) 180 basis points due to lower volume and sales mix changes primarily at Logistics Solutions and Aircraft Systems, (2) 70 basis points due to higher pension expense of $7 m and (3) 60 basis points due to unfavorable contract performance adjustments primarily at Aircraft Systems. These decreases were partially offset by: (1) 70 basis points for improved performance primarily on the Army C-12 contract due to better terms on the new contract which began on August 1, 2015, and $8 m due to a partial recovery of cost overruns recognized in prior periods on the previous contract that ended on July 31, 2015, and (2) 20 basis points due to a termination settlement of $3m for a commercial aerostructures contract.

Full Year: Aerospace Systems net sales for the year ended December 31, 2015 decreased by $165m, or 4%, compared to the year ended December 31, 2014. Sales decreased $159m for Aircraft Systems and $63m for Logistic Solutions. Sales for ISR Systems increased by $57m. Sales decreased for Aircraft Systems due to lower volume of: (1) $74 m primarily on the USAF Compass Call aircraft and the DoD’s retirement of the Joint Cargo Aircraft, (2) $39 m on international head-of-state aircraft modification contracts primarily due to unfavorable contract performance adjustments, (3) $2 m for modification contracts primarily for the U.S. Navy maritime patrol aircraft and (4) $18 m primarily for aircraft cabin assemblies and subassemblies. The decrease in sales for Logistics Solutions was due to lower volume for field maintenance and sustainment services, primarily for U.S. Army and U.S. Navy aircraft due to the completion of contracts and lower demand and lower prices due to competitive pressures. The increase in ISR Systems was due to an increase in sales of $182m primarily for large ISR aircraft systems for U.S. Government customers and small ISR aircraft systems to the DoD and a foreign government, partially offset by $125m of lower sales for small ISR aircraft fleet management services to the DoD due to the U.S. military drawdown in Afghanistan.

Aerospace Systems operating income for the year ended December 31, 2015 decreased by $78m, or 28%, compared to the year ended December 31, 2014. Operating margin decreased by 160 basis points to 4.9%. Operating margin decreased by: (1) 250 basis points due to contract performance adjustments at Aircraft Systems, which includes $101 m of cost growth on international head-of-state aircraft modification contracts, compared to $15m of cost growth on the same contracts in the year ended December 31, 2014, (2) 100 basis points primarily due to reduced flight hours and lower pricing due to competitive pressures on logistics and maintenance contracts, including the U.S. Navy T-45 contract and (3) 70 basis points due to higher pension expense of $28m. These decreases were partially offset by: (1) 110 basis points due to favorable contract performance adjustments at ISR Systems, (2) 70 basis points for improved performance on the Army C-12 contract due to better terms on the new contract and $18m due to a partial recovery of cost overruns recognized in prior periods on the previous contract, (3) 40 basis points due to a $17m increase in reserves for excess and obsolete inventory at Logistics Solutions recorded during the year ended December 31, 2014 and (4) 40 basis points due to $25m of outside accounting and legal advisory expenses incurred for the Internal Review completed in October 2014.

Communication Systems

Fourth Quarter: Communication Systems net sales for the 2015 fourth quarter increased by $111m, or 23%, compared to the 2014 fourth quarter. Excluding $14 m related to the Miteq, Inc. acquisition, organic sales increased $97m, or 20%. The increase was due to: (1) $34 m for Broadband Communication Systems, primarily due to increased volume for development and production of secure networked communication systems for the DoD, (2) $28m for Tactical Satellite Communications products due to higher volume on a satellite communication land terminals contract for the Australian Defence Force (ADF), partially offset by reduced deliveries of mobile and ground-based satellite communication systems for the U.S. military, (3) $22m for Advanced Communications products due to higher volume for secure data recorders and communication systems for the U.S. Air Force, U.S. Navy and a foreign government and (4) $13m for Space & Power Systems due to increased deliveries of power devices for commercial satellites.

Communication Systems operating income for the 2015 fourth quarter increased by $7m, or 14%, compared to the 2014 fourth quarter. Operating margin decreased by 80 basis points to 9.7% driven primarily by higher pension expense of $4m.

Full Year: Communication Systems net sales for the year ended December 31, 2015 increased by $21m, or 1%, compared to the year ended December 31, 2014. Excluding $55 m related to the Miteq, Inc. acquisition, organic sales declined by $34 m, or 2%. The decrease was due to: (1) $37 m for Space & Power Systems, primarily satellite command and control software for U.S. Government agencies and high frequency radios for a foreign government and (2) $20 m for Advanced Communications products, primarily secure data recorders and communications equipment for the U.S. military as contracts near completion. These decreases were offset by $23m for Broadband Communication Systems, primarily due to increased volume for development and production of secure networked communication systems for the U.S. military. For Tactical Satellite Communications products, lower sales of mobile and ground based satellite communication systems for the U.S. military were offset by sales on a new contract for the ADF.

Communication Systems operating income for the year ended December 31, 2015 remained the same at $196m compared to the year ended December 31, 2014. Operating margin decreased by 10 basis points to 9.6%. Operating margin decreased by 100 basis points due to higher pension expense of $20m. Improved contract performance and sales and mix changes, partially offset by lower margins from the Miteq, Inc. business acquisition increased operating margin by 90 basis points.

Financial Guidance

Based on information known as of today, the company has updated its consolidated and segment financial guidance for the year ending December 31, 2016. The 2016 guidance was previously provided on December 8, 2015.

Lockheed Martin

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26 Jan 16. Lockheed Martin Reports Fourth Quarter and Full Year 2015 Results. Oil price drop not hitting Middle East arms orders: Lockheed. Lockheed Martin Corp (LMT.N) is not seeing a big pullback in weapons orders from the Middle East and other regions as a result of lower oil prices, Chief Executive Marillyn Hewson said. Hewson said Lockheed continued to see strong international demand for missile defense equipment, munitions and F-35 fighter jets, and oil-producing countries appeared to be scaling back other purchases rather than cutting weapons orders. (Source: Reuters)

Lockheed Martin (NYSE: LMT) reported fourth quarter 2015 net sales of $12.9bn, compared to $12.5bn in the fourth quarter of 2014. Net earnings in the fourth quarter of 2015 were $933m, or $3.01 per share, compared to $904m, or $2.82 per share, in the fourth quarter of 2014. Cash from operations in the fourth quarter of 2015 was $1.4bn, compared to $(201)m of cash used in operations, after pension contributions of $1.0bn, in the fourth quarter of 2014.

Fourth quarter 2015 net earnings included a special charge for workforce reductions of $67 m, which decreased net earnings $44 m, or $0.14 per share; and non-recoverable transaction costs of $45m associated with the acquisition of Sikorsky Aircraft Corporation (Sikorsky) and the Corporation’s strategic review of its government IT and technical services businesses, which decreased net earnings $28 m, or $0.09 per share.  These costs were offset by the recognition of a full-year U.S. research and development (R&D) tax credit resulting from the enactment of tax legislation in the fourth quarter of 2015, which increased net earnings $71m, or $0.23 per share.  Fourth quarter 2014 net earnings included a special charge for a non-cash goodwill impairment of $119 m, which decreased net earnings $107 m, or $0.33 per share, partially offset by the recognition of a full-year R&D tax credit due to the temporary reinstatement of the R&D tax credit in the fourth quarter of 2014, which increased earnings $45m, or $0.14 per share.

Net sales in 2015 were $46.1bn, compared to $45.6 bn in 2014. Net earnings in 2015 were $3.6bn, or $11.46 per share, compared to $3.6bn, or $11.21 per share, in 2014. Cash from operations in 2015 was $5.1bn, compared to cash from operations in 2014 of $3.9 bn after pension contributions of $2.0bn.

Net earnings in 2015 included special charges for workforce reductions of $102m, which decreased net earnings $66m, or $0.21 per share; and non-recoverable transaction costs of $45m associated with the acquisition of Sikorsky and the Corporation’s strategic review of its government IT and technical services businesses, which decreased net earnings $28 m, or $0.09 per share.  These costs were offset by the recognition of the R&D tax credit, which increased net earnings $71m, or $0.23 per share.  Net earnings in 2014 included a special charge for a non-cash goodwill impairment of $119m, which decreased net earnings $107m, or $0.33 per share, partially offset by the recognition of the R&D tax credit, which increased earnings $45m, or $0.14 per share.

“The corporation completed a year of exceptional operational accomplishments for customers and financial returns to stockholders,” said Lockheed Martin Chairman, President and CEO Marillyn Hewson.  “The successful closure of the Sikorsky acquisition and completion of the strategic review of our IS&GS businesses, coupled with our record backlog, position the corporation for future growth and value creation for our customers and our stockholders.”

Strategic Actions

Acquisition of Sikorsky Aircraft Corporation

On Nov. 6, 2015, the Corporation completed its acquisition of Sikorsky for $9.0bn, net of cash acquired.  Sikorsky, a global company primarily engaged in the design, manufacture and support of military and commercial helicopters, has been aligned under the Corporation’s Mission Systems and Training (MST) business segment.  The Corporation funded the acquisition with new debt issuances, commercial paper and cash on hand.  The Corporation and United Technologies Corporation made a joint election under Section 338(h)(10) of the Internal Revenue Code, which treats the transaction as an asset purchase for tax purposes.  This election generates a cash tax benefit with an estimated net present value of $1.9bn for the Corporation and its stockholders.  The financial results of Sikorsky have been included in the Corporation’s consolidated results of operations from the Nov. 6, 2015 acquisition date through Dec. 31, 2015.

Strategic Review of Government IT and Technical Services Businesses

Information Systems & Global Solutions Divestiture

The Corporation announced today that it has entered into a definitive agreement to separate and combine its Information Systems & Global Solutions (IS&GS) business segment with Leidos Holdings, Inc. (Leidos) in a tax-efficient Reverse Morris Trust transaction anticipated to unlock approximately $5.0bn in estimated enterprise value for the Corporation’s stockholders, including a $1.8bn one-time special cash payment to Lockheed Martin.  Additionally, Lockheed Martin stockholders will receive approximately 50.5 percent of the outstanding equity of Leidos on a fully diluted basis with an estimated value of $3.2bn.  Subsequent to the program realignment described below, the IS&GS business segment represents the government IT and technical services businesses that were under strategic review.  The transaction is expected to close in the third or fourth quarter of 2016.  Until closing, IS&GS will operate as a business segment of the Corporation and financial results for the IS&GS business segment will be reported in continuing operations.  A copy of the news release announcing the transaction is available on the Corporation’s website at www.lockheedmartin.com/investor.

Program Realignment

During the fourth quarter of 2015, the Corporation realigned certain programs among its business segments in connection with the strategic review of its government IT and technical services businesses.  As part of the realignment:

  • mission IT and services programs supporting the Corporation’s platforms were transferred from the IS&GS business segment to the MST business segment;
  • energy solutions programs were transferred from the IS&GS business segment to the Missiles and Fire Control (MFC) business segment;
  • space services programs were transferred from the IS&GS business segment to the Space Systems business segment; and
  • technical services programs were transferred from the MFC business segment to the IS&GS business segment.

The program realignment did not impact the Corporation’s consolidated results of operations.  The amounts, discussion, and presentation of the Corporation’s business segment financial results for all periods included in this news release reflect this realignment.

2016 Financial Outlook

The following table and other sections of this news release contain forward-looking statements, which are based on the Corporation’s current expectations. Actual results may differ materially from those projected. It is the Corporation’s practice not to incorporate adjustments into its financial outlook for proposed acquisitions, divestitures, ventures, changes in law and restructuring activities until such items have been consummated or enacted. For additional factors that may impact the Corporation’s actual results, refer to the “Forward-Looking Statements” section in this news release.

The Corporation’s outlook for 2016 reflects a full year of operations of Sikorsky, which was acquired in the fourth quarter of 2015 (the outlook may change as a result of ongoing purchase accounting analysis which will be completed in 2016); incorporates the R&D tax credit, which was permanently extended through legislation enacted in the fourth quarter of 2015; reflects a full year of operations of the IS&GS business segment as the timing of the closing of the announced transaction is uncertain (the outlook for 2016 will be updated when and if the transaction closes); assumes no contributions to the Corporation’s heritage pension plans, as none are required using current assumptions; and includes the impact of planned contributions to the Sikorsky qualified defined benefit pension plan.

Cash Deployment Activities

The Corporation’s cash deployment activities during the quarter and year ended Dec. 31, 2015 consisted of the following:

  • repurchasing 3.2m shares for $707m and 15.2m shares for $3.1bn during the quarter and year ended Dec. 31, 2015, compared to 1.2 m shares for $224m and 11.5 m shares for $1.9bn during the quarter and year ended Dec. 31, 2014;
  • paying cash dividends of $505 m and $1.9bn during the quarter and year ended Dec. 31, 2015, compared to $474 m and $1.8bn during the quarter and year ended Dec. 31, 2014;
  • making no contributions to the Corporation’s heritage pension trust during the quarter and year ended Dec. 31, 2015, compared to $1.0bn and $2.0bn during the quarter and year ended Dec. 31, 2014;
  • paying $9.0bn for acquisitions of businesses and investments in affiliates, net of cash acquired, during the quarter and year ended Dec. 31, 2015, compared to $276 m and $898 m during the quarter and year ended Dec. 31, 2014; and
  • making capital expenditures of $439 m and $939 m during the quarter and year ended Dec. 31, 2015, compared to $389 m and $845 m during the quarter and year ended Dec. 31, 2014.

In October 2015, the Corporation borrowed $6.0bn under a 364-day revolving credit facility (the 364-day Facility) to partially fund the $9.0bn purchase price of Sikorsky, net of cash acquired. The remainder of the Sikorsky purchase price was funded with cash from operations and approximately $1.0bn in commercial paper borrowings.  In November 2015, the Corporation borrowed $7.0bn of fixed interest rate long-term notes (the November 2015 Notes), the proceeds of which were used to repay the $6.0bn of outstanding borrowings under the 364-day Facility and for general corporate purposes.  The November 2015 Notes have fixed interest rates ranging from 1.85 percent to 4.70 percent and mature between 2018 and 2046. Commercial paper borrowings used to fund the Sikorsky acquisition were repaid in the fourth quarter of 2015.

Segment Results

The Corporation operates in five business segments: Aeronautics, Information Systems and Global Solutions (IS&GS), Missiles and Fire Control (MFC), Mission Systems and Training (MST) and Space Systems. The Corporation organizes its business segments based on the nature of products and services offered.

The amounts, discussion, and presentation of the Corporation’s business segments as set forth in this news release reflect the previously described program realignment and include the results of the acquired Sikorsky business from the Nov. 6, 2015 acquisition date through Dec. 31, 2015.

Operating profit of the business segments includes the Corporation’s share of earnings or losses from equity method investees as the operating activities of the equity method investees are closely aligned with the operations of the Corporation’s business segments. United Launch Alliance (ULA), which is part of the Space Systems business segment, is the Corporation’s primary equity method investee. Operating profit of the Corporation’s business segments excludes the FAS/CAS pension adjustment, which represents the difference between total pension expense recorded in accordance with U.S. generally accepted accounting principles (FAS) and pension costs recoverable on U.S. Government contracts as determined in accordance with U.S. Government Cost Accounting Standards (CAS); expense for stock-based compensation; the effects of items not considered part of management’s evaluation of segment operating performance, such as charges related to significant severance actions and goodwill impairments; gains or losses from divestitures; the effects of certain legal settlements; corporate costs not allocated to the Corporation’s business segments; and other miscellaneous corporate activities.

Changes in net sales and operating profit generally are expressed in terms of volume. Changes in volume refer to increases or decreases in sales or operating profit resulting from varying production activity levels, deliveries or service levels on individual contracts. Volume changes in segment operating profit are typically based on the current profit booking rate for a particular contract.

In addition, comparability of the Corporation’s segment sales, operating profit and operating margins may be impacted favorably or unfavorably by changes in profit booking rates on the Corporation’s contracts accounted for using the percentage-of-completion method of accounting. Increases in the profit booking rates, typically referred to as risk retirements, usually relate to revisions in the estimated total costs that reflect improved conditions on a particular contract. Conversely, conditions on a particular contract may deteriorate, resulting in an increase in the estimated total costs to complete and a reduction in the profit booking rate. Increases or decreases in profit booking rates are recognized in the current period and reflect the inception-to-date effect of such changes. Segment operating profit and margins may also be impacted favorably or unfavorably by other items. Favorable items may include the positive resolution of contractual matters, cost recoveries on restructuring charges, insurance recoveries and gains on sales of assets. Unfavorable items may include the adverse resolution of contractual matters; restructuring charges, except for significant severance actions which are excluded from segment operating results; reserves for disputes; asset impairments; and losses on sales of assets. Segment operating profit and items such as risk retirements, reductions of profit booking rates or other matters are presented net of state income taxes.

The Corporation’s consolidated net adjustments not related to volume, including net profit booking rate adjustments and other matters, represented approximately 28 percent and 34 percent of total business segment operating profit for the quarter and year ended Dec. 31, 2015, compared to approximately 28 percent and 32 percent for the quarter and year ended Dec. 31, 2014.

Aeronautics

Aeronautics’ net sales in the fourth quarter of 2015 increased $249m, or 6 percent, compared to the same period in 2014. The increase was attributable to higher net sales of approximately $475m for F-35 production contracts due to increased volume on aircraft production and sustainment activities; and approximately $55m for the C-5 program due to increased deliveries (two aircraft delivered in the fourth quarter of 2015 compared to one delivered in the same period of 2014), partially offset by lower sustainment activities. The increases were partially offset by lower net sales of approximately $135m for the F-16 program due to fewer deliveries (two aircraft delivered in the fourth quarter of 2015, compared to six delivered in the same period of 2014); approximately $110m for the C-130 program due to fewer aircraft deliveries (seven aircraft delivered in the fourth quarter of 2015, compared to eight delivered in the same period in 2014), lower sustainment activities and aircraft contract mix; and approximately $50m for the F-22 program as a result of decreased sustainment activities.

Aeronautics’ operating profit in the fourth quarter of 2015 was comparable to the same period in 2014. Operating profit increased approximately $100m for F-35 production contracts due to risk retirements and increased volume and sustainment activities. This increase was partially offset by lower operating profit of approximately $40m for the F-22 program as a result of lower risk retirements on sustainment activities; approximately $35m due to decreased volume and lower risk retirements on various programs; and approximately $20m for the C-130 program due to fewer aircraft deliveries, lower sustainment activities and aircraft contract mix.  Adjustments not related to volume, including net profit booking rate adjustments and other matters, were approximately $30m higher in the fourth quarter of 2015 compared to the same period in 2014.

Aeronautics’ net sales in 2015 increased $650m, or 4 percent, compared to 2014. The increase was attributable to higher net sales of approximately $1.4bn for F-35 production contracts due to increased volume on aircraft production and sustainment activities; and approximately $150m for the C-5 program due to increased deliveries (nine aircraft delivered in 2015 compared to seven delivered in 2014).  The increases were partially offset by lower net sales of approximately $350 m for the C-130 program due to fewer aircraft deliveries (21 aircraft delivered in 2015, compared to 24 delivered in 2014), lower sustainment activities and aircraft contract mix; approximately $200m due to decreased volume and lower risk retirements on various programs; approximately $195m for the F-16 program due to fewer deliveries (11 aircraft delivered in 2015, compared to 17 delivered in 2014); and approximately $190m for the F-22 program as a result of decreased sustainment activities.

Aeronautics’ operating profit in 2015 increased $32m, or 2 percent, compared to 2014. Operating profit increased by approximately $240m for F-35 production contracts due to increased volume and risk retirements; and approximately $40m for the C-5 program due to increased risk retirements.  These increases were offset by lower operating profit of approximately $90m for the F-22 program due to lower risk retirements; approximately $70m for the C-130 program as a result of the reasons stated above for lower net sales; and approximately $80m due to decreased volume and risk retirements on various programs.  Adjustments not related to volume, including net profit booking rate adjustments and other matters, were approximately $100m higher in 2015 compared to 2014.

Information Systems & Global Solutions

IS&GS’ net sales decreased $94m, or 6 percent, in the fourth quarter of 2015 and $58m, or 1 percent, in 2015 compared to the same periods in 2014. The decreases were attributable to lower net sales of approximately $135m in the fourth quarter and about $395m in 2015 as a result of key program completions, lower customer funding levels and increased competition, coupled with the fragmentation of existing large contracts into multiple smaller contracts that are awarded primarily on the basis of price when re-competed (including CMS-CITIC).  These decreases were partially offset by higher net sales of approximately $30m in the fourth quarter and $230m in 2015 for businesses acquired in 2014.  Additionally, net sales in 2015 increased approximately $110m due to the start-up of new programs and growth in recently awarded programs.

IS&GS’ operating profit increased $14m, or 12 percent, in the fourth quarter of 2015 and $36m, or 8 percent, in 2015 compared to the same periods in 2014. The increase was attributable to improved program performance and risk retirements, offset by decreased operating profit resulting from the activities mentioned above for net sales.  Adjustments not related to volume, including net profit booking rate adjustments and other matters, were approximately $30m higher in the fourth quarter and about $70m higher in 2015 compared to the same periods in 2014.

Missiles and Fire Control

MFC’s net sales in the fourth quarter of 2015 increased $106m, or 6 percent, compared to the same period in 2014. The increase was attributable to higher net sales of approximately $75m for tactical missile programs due to increased deliveries (primarily Hellfire); and approximately $70m for fire control programs due to increased deliveries (including LANTIRN® and SNIPER®).  These increases were partially offset by decreases in net sales of approximately $65m for air and missile defense programs, primarily Terminal High Altitude Area Defense (THAAD) due to lower volume and Patriot Advanced Capability-3 (PAC-3) due to fewer deliveries.

MFC’s operating profit in the fourth quarter of 2015 increased $58m, or 18 percent, compared to the same period in 2014. The increase was attributable to higher operating profit of approximately $80m for air and missile defense programs (primarily PAC-3 and THAAD) due to increased risk retirements.  This increase was partially offset by lower operating profit of approximately $25m for fire control programs (primarily LANTIRN and SNIPER) due to lower risk retirements.  Adjustments not related to volume, including net profit booking rate adjustments and other matters, were approximately $20 m higher in the fourth quarter of 2015 compared to the same period in 2014.

MFC’s net sales in 2015 decreased $322m, or 5 percent, compared to the same period in 2014. The decrease was attributable to lower net sales of approximately $345m for air and missile defense programs due to fewer deliveries (primarily PAC-3) and lower volume (primarily THAAD); and approximately $85m for tactical missile programs due to fewer deliveries (primarily Guided Multiple Launch Rocket System (GMLRS)) and Joint Air-to-Surface Standoff Missile, partially offset by increased deliveries for Hellfire.  These decreases were partially offset by higher net sales of approximately $55m for energy solutions programs due to increased volume.

MFC’s operating profit in 2015 decreased $62m, or 5 percent, compared to 2014. The decrease was attributable to lower operating profit of approximately $100m for fire control programs due primarily to lower risk retirements (primarily LANTIRN and SNIPER); and approximately $65m for tactical missile programs due to lower risk retirements (primarily Hellfire and GMLRS) and fewer deliveries.  These decreases were partially offset by higher operating profit of approximately $75 m for air and missile defense programs due to increased risk retirements (primarily THAAD).  Adjustments not related to volume, including net profit booking rate adjustments and other matters, were approximately $60m lower in 2015 compared to 2014.

Mission Systems and Training

MST’s net sales in the fourth quarter of 2015 increased $334m, or 14 percent, compared to the same period in 2014. The increase was primarily attributable to net sales of approximately $400m from Sikorsky, net of adjustments required to account for the acquisition of this business in the fourth quarter of 2015.  This increase was partially offset by lower net sales of approximately $70 m for integrated warfare systems and sensors programs due to decreased deliveries and volume (primarily radar surveillance systems), partially offset by the ramp-up of recently awarded programs (primarily Space Fence).

MST’s operating profit in the fourth quarter of 2015 decreased $75m, or 32 percent, compared to the same period in 2014. The decrease was attributable to lower operating profit of approximately $60m for integrated warfare systems and sensors programs due to investments made in connection with a recently awarded next generation radar technology program; and approximately $4m for Sikorsky due primarily to intangible amortization and adjustments required to account for the acquisition of this business in the fourth quarter of 2015.  These decreases were offset by higher operating profit of approximately $30 m due to reserves recorded on certain ship and aviation systems and training and logistics solutions programs in the fourth quarter of 2014 that were not repeated in the fourth quarter of 2015. Adjustments not related to volume, including net profit booking rate adjustments and other matters, were approximately $65m lower in the fourth quarter of 2015 compared to the same period in 2014.

MST’s net sales in 2015 increased $359m, or 4 percent, compared to 2014. The increase was attributable to net sales of approximately $400 m from Sikorsky, net of adjustments required to account for the acquisition of this business in the fourth quarter of 2015; and approximately $220m for integrated warfare systems and sensors programs, primarily due to the ramp-up of recently awarded programs (Space Fence). These increases were partially offset by lower net sales of approximately $150 m for undersea systems programs due to decreased volume as a result of in-theater force reductions (primarily Persistent Threat Detection System); and approximately $105m for ship and aviation systems programs primarily due to decreased volume (Merlin Capability Sustainment Program).

MST’s operating profit in 2015 decreased $92m, or 10 percent, compared to 2014. Operating profit decreased by approximately $75m due to performance matters on an international program (reflected in the IS&GS business segment results in periods prior to program realignment reclassifications made in the fourth quarter of 2015); approximately $45m for Sikorsky due primarily to intangible amortization and adjustments required to account for the acquisition of this business in the fourth quarter of 2015; and approximately $15m for integrated warfare systems and sensors programs, primarily due to investments made in connection with a recently awarded next generation radar technology program, partially offset by higher risk retirements (including Halifax Class Modernization).  These decreases were partially offset by approximately $20m in increased operating profit for training and logistics services programs, primarily due to reserves recorded on certain programs in 2014 that were not repeated in 2015.  Adjustments not related to volume, including net profit booking rate adjustments and other matters, were approximately $100m lower in 2015 compared to 2014.

Space Systems

Space Systems’ net sales in the fourth quarter of 2015 decreased $208m, or 8 percent, compared to the same period in 2014. The decrease was attributable to lower net sales of approximately $200m for the Orion program due to decreased volume (primarily the first unmanned test flight of the Orion multi-purpose crew vehicle in Dec. 2014); and approximately $145m for government satellite programs due to decreased volume (primarily Advanced Extremely High Frequency (AEHF)).  These decreases were partially offset by higher net sales of approximately $150 m for commercial space transportation programs due to increased launch-related activities.

Space Systems’ operating profit in the fourth quarter of 2015 was comparable to the same period in 2014. Operating profit increased approximately $35m for government satellite programs due to increased risk retirements and approximately $20m due to increased equity earnings in joint ventures.  These increases were partially offset by decreased operating profit of approximately $25 m for commercial satellite programs due to performance matters on certain programs and approximately $20 m for the Orion program due to decreased volume.  Adjustments not related to volume, including net profit booking rate adjustments and other matters, were approximately $10m lower in the fourth quarter of 2015 compared to the same period in 2014.

Space Systems’ net sales in 2015 decreased $97m, or 1 percent, compared to 2014. The decrease was attributable to approximately $335m lower net sales for government satellite programs due to decreased volume (primarily AEHF) and the wind-down or completion of mission solutions programs; and approximately $55m for strategic missile and defense systems due to lower volume.  These decreases were partially offset by higher net sales of approximately $235 m for businesses acquired in 2014; and approximately $75m for the Orion program due to increased volume.

Space Systems’ operating profit in 2015 decreased $16 m, or 1 percent, compared to 2014. Operating profit increased approximately $85m for government satellite programs due primarily to increased risk retirements.  This increase was partially offset by lower operating profit of approximately $65m for commercial satellite programs due to performance matters on certain programs; and approximately $35m due to decreased equity earnings in joint ventures.  Adjustments not related to volume, including net profit booking rate adjustments and other matters, were approximately $105m higher in 2015 compared to 2014.

Total equity earnings recognized by Space Systems (primarily ULA) represented approximately $60m, or 21 percent, and approximately $245m, or 21 percent, of this business segment’s operating profit during the quarter and year ended Dec. 31, 2015, compared to approximately $40m, or 14 percent, and approximately $280m, or 24 percent, during the quarter and year ended Dec. 31, 2014.

Income Taxes

The Corporation’s effective income tax rates were 19.8 percent and 28.2 percent for the quarter and year ended Dec. 31, 2015, compared to 28.1 percent and 31.3 percent for the quarter and year ended Dec. 31, 2014. The rates for all periods benefited from tax deductions for U.S. manufacturing activities and for dividends paid to the Corporation’s defined contribution plans with an employee stock ownership plan feature and the retroactive reinstatement of the R&D tax credit.  The 2014 benefits were offset by the unfavorable impact of non-cash goodwill impairment charges.

As a result of legislation enacted in the fourth quarter of 2015, the R&D tax credit was permanently extended and reinstated, retroactive to the beginning of 2015.  Accordingly, the effective income tax rates for both the quarter and year ended Dec. 31, 2015 reflect the credit for all of 2015, which reduced the Corporation’s effective tax rates by 6.1 percentage points for the fourth quarter and 1.4 percentage points for the full year in 2015.  In the fourth quarter of 2014, the R&D tax credit was temporarily reinstated for one year, retroactive to the beginning of 2014.  Accordingly, the effective income tax rates for both the quarter and year ended Dec. 31, 2014 reflect the credit for all of 2014, which reduced the Corporation’s effective tax rates by 3.6 percentage points for the fourth quarter and 0.9 percentage points for the full year in 2014.

As a result of a decision in the fourth quarter of 2015 to divest a non-core asset in 2016, the Corporation recorded an asset impairment charge of approximately $90 m.  This charge was partially offset by a net deferred tax benefit of about $80m. The net impact of the resulting tax benefit reduced the effective income tax rates by 4.4 percentage points for the fourth quarter and 1.0 percentage points for the full year in 2015.

Northrop Grumman

northlog28 Jan 16. Northrop Grumman Corporation (NYSE: NOC) reported fourth quarter 2015 net earnings decreased to $459m, or $2.49 per diluted share, from $506m, or $2.48 per diluted share in the fourth quarter of 2014. Fourth quarter 2015 diluted earnings per share are based on 184.2m weighted average shares outstanding compared with 204.2m shares in the prior year period. The company repurchased 1.6 m shares of its common stock for $283m in the fourth quarter of 2015. As a result of the passage of the Protecting Americans from Tax Hikes Act of 2015, which made permanent research and development tax credits, the company recognized a full year credit of $60m, or $0.33 per diluted share, in the fourth quarter of 2015. For 2015, net earnings totaled $2.0bn, or $10.39 per diluted share, compared to $2.1bn, or $9.75 per diluted share in 2014. Diluted earnings per share for 2015 increased 7 percent and are based on 191.6 m weighted average shares outstanding compared with 212.1 m shares in 2014. During 2015, the company repurchased 19.3m shares of its common stock for $3.2bn. As of Dec. 31, 2015, $4.3bn remained on the company’s share repurchase authorization.

“I want to congratulate our team on another outstanding year of strong performance. We look forward to building on this year’s successes as we continue our focus on performance, portfolio and capital deployment and take on new opportunities in 2016,” said Wes Bush, chairman, chief executive officer and president.

Fourth quarter 2015 segment operating income decreased to $717m, and segment operating margin rate increased 20 basis points to 12.6 percent. Operating income decreased 10 percent and operating margin rate decreased 40 basis points to 12.1 percent. For 2015, segment operating income decreased to $2.9bn, principally due to lower sales and $75m realized in 2014 for settlements of certain legal claims. Operating income for 2015 totaled $3.1bn and operating margin rate was 13.1 percent. Total backlog as of Dec. 31, 2015, was $35.9bn compared with $38.2bn as of Dec. 31, 2014. Fourth quarter 2015 new awards totaled $5.8bn, and new awards for 2015 totaled $21.3bn. On Oct. 27, 2015, the U.S. Air Force announced it was awarding the company a contract for engineering and manufacturing development and early production for the Long Range Strike Bomber (LRS-B). In Nov. 2015, the unsuccessful offeror filed a protest asking the U.S. Government Accountability Office to review the decision to award the company the LRS-B contract, triggering an automatic stay of performance of the contract. As a result, the LRS-B award is not included in 2015 new awards or backlog.

Fourth quarter 2015 cash provided by operating activities totaled $1.6bn and free cash flow totaled $1.5bn. The increases in cash from operations and free cash flow from the prior year period are principally due to lower cash taxes. For 2015, cash provided by operating activities before after-tax discretionary pension contributions totaled $2.5bn compared with $2.6 bn in 2014. Free cash flow before after-tax discretionary pension contributions totaled $2.0bn. After-tax discretionary pension contributions totaled $325m in 2015.

Changes in cash and cash equivalents include the following for cash from operating, investing and financing activities through Dec. 31, 2015: Operating • $2.2bn provided by operations after $500m discretionary pension contribution Investing • $471m used for capital expenditures Financing • $3.2bn used for repurchase of common stock • $600m net proceeds from issuance of long-term debt • $603m used for dividends Northrop Grumman Reports

2016 Guidance The company’s 2016 financial guidance is based on the spending levels provided for in the Bipartisan Budget Act of 2015 and the Consolidated Appropriations Act of 2016. The guidance assumes no disruption or cancellation of any of our significant programs and no disruption or shutdown of government operations. Guidance for 2016 also assumes adequate appropriations and funding for the company’s programs in the first quarter of the U.S. government’s fiscal year 2017.

Estimated capital expenditures in 2016 reflect increased programmatic requirements, including LRS-B, and approximately $300m for the planned purchase of office buildings currently leased by the new Mission Systems sector. These investments support the company’s continued focus on cost reduction, affordability and competitiveness.

Fourth quarter 2015 operating income decreased 10 percent due to lower segment operating income and higher unallocated corporate expense, which more than offset higher net FAS/CAS pension adjustment. Lower segment operating income reflects lower sales, partially offset by improved performance in Information Systems. Unallocated corporate expense increased $48m. As previously announced, in the fourth quarter the Internal Revenue Service accepted the company’s adoption of a tax method change. This and other state tax items increased fourth quarter 2015 unallocated corporate expense by $26m. For 2015, operating income decreased 4 percent due to lower segment operating income, and higher corporate unallocated expenses, which more than offset higher net FAS/CAS pension adjustment. Segment operating income in 2014 benefited from $75m in settlements and a benefit of approximately $45m from lower CAS costs due to passage of the Highway and Transportation Funding Act of 2014. For the fourth quarter of 2015, federal and foreign income tax expense declined to $162 m from $195 m in 2014, and the company’s effective tax rate decreased to 26.1 percent from 27.8 percent in Northrop Grumman Reports Fourth Quarter and 2015 Financial

For 2015, federal and foreign income tax expense declined to $800m from $868m in 2014, and the company’s effective tax rate declined to 28.7 percent from 29.6 percent. The company’s lower effective tax rate for 2015 includes a $76m increase in research credits primarily resulting from additional credits claimed on our prior year tax returns, partially offset by a $51m benefit in 2014 for the partial resolution of the IRS examination of 2007-2009 tax returns.

Segment Results

Aerospace Systems

Aerospace Systems fourth quarter 2015 sales decreased 4 percent due to lower volume for space and restricted programs, partially offset by higher volume for unmanned programs. The decrease in space is primarily due to lower volume for the Advanced EHF program. Sales in 2015 were comparable to 2014 sales. Excluding settlements of $75 million in 2014, sales increased 1 percent due to higher volume across a number of programs. The increase in unmanned sales includes higher volume for Global Hawk and other programs. Military aircraft sales for 2015 include higher volume for the E-2D and F-35 programs, partially offset by lower volume for the F/A-18 as that program ramps down. Space sales for 2015 include higher volume for restricted programs, partially offset by lower volume for the Advanced EHF program. Aerospace Systems fourth quarter 2015 operating income decreased 6 percent and operating margin rate decreased to 11.5 percent, reflecting lower sales and less favorable performance for unmanned programs, partially offset by improved performance for military aircraft programs. For 2015, operating income declined 7 percent and operating margin rate declined to 12.

Electronic Systems

Electronic Systems fourth quarter 2015 sales decreased 7 percent, due to lower volume and deliveries for airborne ISR and targeting, navigation and maritime systems, and space programs, as well as the impact of cost reduction initiatives. Declines in these programs were partially offset by higher volume for land and self-protection systems. For 2015, sales declined 2 percent due to lower volume for airborne ISR and targeting programs and lower volume for land and self-protection programs due to in-theater force reductions. These impacts were partially offset by higher volume for navigation and maritime systems programs. Electronic Systems fourth quarter 2015 operating income declined 11 percent and operating margin rate was 16.4 percent. Lower operating income and margin rate reflect lower volume described above and a business mix that includes lower volume for mature fixed price production programs. For 2015, operating income declined 7 percent and operating margin rate was 15.6 percent. Lower operating income and margin rate are primarily due to lower volume, a change in business mix that includes lower volume for mature fixed price programs, as well as less favorable performance in airborne ISR and targeting and land and self-protection programs.

 

Information Systems

Information Systems fourth quarter 2015 sales decreased 13 percent, due to fewer days in this year’s fourth quarter and lower material sales than in the prior year period. For 2015, sales decreased 5 percent, primarily due to lower volume for command and control and civil programs. Lower sales for command and control programs includes lower volume for CANES, the impact of in-theater force reductions and completion of the Ground Combat Vehicle contract. Lower sales for civil programs is primarily due to the restructuring of the Emergency Communications Transformation Program Stage II contract. Information Systems fourth quarter 2015 operating income increased 5 percent, and operating margin rate increased 200 basis points to 11.3 percent. For 2015, operating income increased 1 percent and operating margin rate increased 70 basis points to 10.5 percent. Higher operating income and margin rates in both periods reflect improved performance, a reduction in lower margin material sales and the impact of cost reduction initiatives, which more than offset lower sales.

Technical Services fourth quarter 2015 sales decreased 4 percent primarily due to lower volume for integrated logistics and modernization programs, including the ICBM program. For 2015, sales increased 1 percent due to higher volume for mission systems and readiness programs, primarily due to higher volume for an international program, partially offset by lower volume for integrated logistics and modernization programs, principally the ICBM program.

Technical Services fourth quarter 2015 operating income decreased $4m and operating margin rate decreased to 8.4 percent. Lower operating income is primarily due to lower volume in the period. For 2015, operating income decreased 3 percent and operating margin rate declined to 8.9 percent. Lower operating income and operating margin rate were due to lower income from an unconsolidated joint venture than in 2014, partially offset by higher sales volume.

Oshkosh Corporation

oshkoshlogo28 Jan 16.  Oshkosh Corporation (OSK)  reported fiscal 2016 first quarter net income of $14.6m, or $0.19 per diluted share, compared to $34.7m, or $0.43 per diluted share, in the first quarter of fiscal 2015. Results for the first quarter of fiscal 2015 included a $2.1m after-tax other postretirement benefit curtailment gain in the defense segment. Excluding this item, fiscal 2015 first quarter adjusted1 net income was $32.6m, or $0.41 per diluted share. Comparisons are to the corresponding period of the prior year, unless otherwise noted.

Consolidated net sales in the first quarter of fiscal 2016 were $1.25bn, a decrease of 7.5 percent compared to the prior year first quarter. Higher sales in the defense and fire & emergency segments were not sufficient to offset a decline in sales in the access equipment segment, and to a lesser extent, the commercial segment. On a constant currency basis, sales decreased 6.4 percent compared to the first quarter of fiscal 2015.

Consolidated operating income in the first quarter of fiscal 2016 was $30.3m, or 2.4 percent of sales, compared to $65.7m, or 4.9 percent of sales, in the prior year first quarter. Excluding the curtailment benefit described above, adjusted1 consolidated operating income in the first quarter of fiscal 2015 was $62.3m, or 4.6 percent of sales. The decline in adjusted operating income was driven by lower access equipment segment sales, offset in part by improved performance in the defense and fire & emergency segments.

“Our first quarter results were largely in line with our expectations,” stated Wilson R. Jones, Oshkosh Corporation president and chief executive officer. “Despite lower earnings in the first quarter compared to the prior year driven by lower access equipment segment results, we made progress on a number of fronts. The fire & emergency segment reported another quarter of improved results compared to the prior year quarter. Additionally, the fire & emergency segment reported another quarter of strong orders. Defense segment results were also up compared to the prior year quarter as this segment rebounds from the trough experienced in fiscal 2015.

“In mid-December, our defense segment was directed to begin work again on the Joint Light Tactical Vehicle (“JLTV”) program,” added Jones. “The JLTV is a next-generation, light vehicle for our nation’s armed forces. We were awarded the JLTV production contract for this program last August, but the award was protested by one of the competitors. Despite the ongoing challenge of our award by the competitor, we are confident that the U.S. Army made the right choice and expect to retain the eight-year JLTV production contract. The timing of the award of an international contract for more than 1,000 M-ATVs that we expect to receive has been slowed. We now assume that we will not receive the contract in time to recognize any sales in fiscal 2016. In addition, we are lowering our access equipment segment outlook for fiscal 2016 to reflect what we believe will be a more cautious approach to capital expenditures by rental companies than previously anticipated and a more competitive market environment, due in part to the continued strong U.S. dollar. As a result of these items, we are reducing our full-year fiscal 2016 earnings per share expectations to a range of $2.20 to $2.60.”

Factors affecting first quarter results for the Company’s business segments included:

Access Equipment – Access equipment segment sales declined 26.1 percent to $529.8m for the first quarter of fiscal 2016. The decline in sales was primarily due to the slowdown in North American replacement demand that began last summer and lower shipments of telehandlers in North America. In the first quarter of fiscal 2015, the access equipment segment experienced a large increase in telehandler sales ahead of price increases related to Tier 4 engine emissions standards changes. A stronger U.S. dollar also negatively impacted access equipment segment sales in the current quarter by $12.6m. On a constant currency basis, access equipment segment sales decreased 24.3 percent.

Access equipment segment operating income decreased 73.5 percent to $20.4m, or 3.9 percent of sales, for the first quarter of fiscal 2016 compared to $77.2m, or 10.8 percent of sales, in the first quarter of fiscal 2015. The decrease in operating income was primarily the result of the lower sales volume and adverse manufacturing absorption as the business significantly reduced production rates compared to the prior year quarter. Access equipment segment first quarter fiscal 2016 results also included $1.2m of restructuring costs related to workforce reductions.

Defense – Defense segment sales for the first quarter of fiscal 2016 increased 18.1 percent to $318.0m. The increase in sales was primarily due to the sale of international M-ATVs along with higher M-ATV reset sales to the U.S. Government, offset in part by lower sales of legacy heavy and medium tactical wheeled vehicles to the U.S. Government. Production of heavy tactical wheeled vehicles continued to ramp back up after the break in production experienced in fiscal 2015.

The defense segment recorded operating income of $23.2m, or 7.3 percent of sales, for the first quarter of fiscal 2016 compared to $9.8m, or 3.6 percent of sales, in the first quarter of fiscal 2015. Defense segment results for the first quarter of fiscal 2015 included a $3.4m other postretirement curtailment benefit. Excluding this item, adjusted1 operating income was $6.4m, or 2.4 percent of sales, in the first quarter of fiscal 2015. The increase in operating income in the current quarter compared to adjusted operating income in the prior year quarter was largely due to favorable product mix and higher sales volume.

Fire & Emergency – Fire & emergency segment sales for the first quarter of fiscal 2016 increased 24.2 percent to $207.5m. Sales in the first quarter of fiscal 2016 benefited from higher domestic fire apparatus deliveries as a result of increased production rates to meet higher demand and the delivery of a multi-unit international order. Improved operational efficiencies have allowed the fire & emergency segment to increase production rates.

Fire & emergency segment operating income increased 556.8 percent to $10m, or 4.9 percent of sales, for the first quarter of fiscal 2016 compared to $1.5 m, or 0.9 percent of sales, in the first quarter of fiscal 2015. Higher sales volume was the largest contributor to the increase in operating income.

Commercial – Commercial segment sales decreased 4.7 percent to $200.3m in the first quarter of fiscal 2016. The decrease in sales was primarily attributable to lower concrete mixer sales, offset in part by higher refuse collection vehicle unit volume.

Commercial segment operating income decreased 28.3 percent to $8.9m, or 4.4 percent of sales, for the first quarter of fiscal 2016 compared to $12.4m, or 5.9 percent of sales, in the first quarter of fiscal 2015. The decrease in operating income was primarily a result of the lower sales volume and unfavorable warranty experience.

Corporate – Corporate operating expenses decreased $3.0m in the first quarter of fiscal 2016 to $32.3m. The decrease in corporate operating expenses in the first quarter of fiscal 2016 was primarily due to lower incentive compensation than in the first quarter of fiscal 2015.

Interest Expense Net of Interest Income – Interest expense net of interest income increased $0.5m to $14.1m in the first quarter of fiscal 2016. The benefit of lower interest rates on the Company’s senior notes refinanced in the second quarter of fiscal 2015 was offset by increased borrowings to support increased working capital.

Provision for Income Taxes – The Company recorded income tax expense of $1.7 m in the first quarter of fiscal 2016, or 10.6 percent of pre-tax income, compared to $16.2m, or 31.9 percent of pre-tax income, in the first quarter of fiscal 2015. The Company recorded $3.7m of discrete tax benefits in the first quarter of fiscal 2016 largely related to the retroactive reinstatement of the research and development tax credit in the United States.

Share Repurchases – Earnings per share in the first quarter of fiscal 2016 improved $0.01 compared to the prior year first quarter as a result of share repurchases completed during the previous twelve months. The Company deployed cash of $100.1m to repurchase 2.5 m shares in the first quarter of fiscal 2016 and $200.4 m to repurchase 4.9m shares during fiscal 2015.

Fiscal 2016 Expectations

As a result of a delay in the timing of receipt of an international contract in the defense segment that the Company expects to receive for more than 1,000 M-ATVs as well as an expected more cautious approach to capital expenditures in 2016 by rental companies and a more competitive market environment in the access equipment segment, the Company reduced its fiscal 2016 earnings per share estimate range from $3.00 to $3.40 to a range of $2.20 to $2.60. Likewise, the Company’s estimate of fiscal 2016 net sales has been reduced from a range of $6.2bn to $6.5bn to a range of $5.7bn to $6.0bn. The Company expects second quarter earnings per share to be meaningfully lower than the comparable prior year quarter as a result of expected lower access equipment segment sales, driven in part by strong telehandler sales in the prior year quarter related to Tier 4 engine emissions standards changes and expected continued lower year-over-year production levels in the access equipment segment.

Dividend Announcement

The Company’s Board of Directors today declared a quarterly cash dividend of $0.19 per share of Common Stock. The dividend will be payable on March 1, 2016, to shareholders of record as of February 16, 2016.

 

Raytheon

RAYTHEON28 Jan 16. Raytheon Reports Solid Fourth Quarter and Full-Year 2015 Results. Raytheon Company (NYSE: RTN) announced net sales for the fourth quarter 2015 of $6.3bn, up 3 percent compared to $6.1bn in the fourth quarter 2014. Fourth quarter 2015 EPS from continuing operations was $1.85 compared to $1.86 in the fourth quarter 2014. Fourth quarter 2015 EPS from continuing operations included, as expected, an $0.08 unfavorable impact associated with acquisition accounting adjustments related to Forcepoint™, formerly known as Raytheon|Websense.

Net sales in 2015 were $23.2bn, up 2 percent compared to $22.8bn in 2014. Full-year 2015 EPS from continuing operations was $6.75 compared to $6.97 for the full-year 2014. Full-year 2015 EPS from continuing operations included, as expected, a $0.25 unfavorable impact associated with Forcepoint acquisition accounting adjustments and acquisition-related costs discussed in further detail below.

“Raytheon delivered solid operating performance and returned to growth in 2015. Strong bookings during the year from our global customers position us well for continued growth in 2016,” said Thomas A. Kennedy, Raytheon Chairman and CEO. “As we look ahead, we remain focused on creating value for our shareholders and customers by delivering strong program execution, while also investing in our future and pursuing a balanced capital deployment strategy.”

The Company generated strong operating cash flow for both the fourth quarter and full-year. Operating cash flow from continuing operations for the fourth quarter 2015 was $813m compared to $829m for the fourth quarter 2014. Fourth quarter 2015 operating cash flow from continuing operations was after a $200m pretax discretionary cash contribution to the Company’s pension plans compared to $600m in the fourth quarter 2014. For the full-year 2015 and 2014, the Company generated $2.3bn and $2.1bn of operating cash flow from continuing operations, respectively.

The Company had bookings of $7.9bn in the fourth quarter 2015, resulting in a book-to-bill ratio of 1.24 in the quarter. Fourth quarter 2014 bookings were $7.1 bn. Full-year 2015 bookings were $25.2bn, resulting in a book-to-bill ratio of 1.09 for the year. Full-year 2014 bookings were $24.1bn.

In the fourth quarter 2015, the Company repurchased 2.0m shares of common stock for $250 m. For the full-year 2015, the Company repurchased 9.0m shares of common stock for $1.0bn.  Also, as previously announced in November 2015, the Company’s Board of Directors authorized the repurchase of up to an additional $2.0bn of the Company’s outstanding common stock.

The Company ended 2015 with $2.1bn of net debt. Net debt is defined as total debt less cash and cash equivalents and short-term investments.

Fourth quarter and full-year 2015 results include items related to the Forcepoint transaction which are excluded from segment operating performance since management does not consider those items in evaluating the segment.

Backlog at the end of 2015 was $34.7bn, an increase of approximately $1.1bn compared to the end of 2014. Funded backlog was $25.1bn, an increase of approximately $2.0bn compared to the end of 2014.

Outlook

The Company has provided its financial outlook for 2016. Charts containing additional information on the Company’s 2016 outlook are available on the Company’s website at www.raytheon.com/ir.

Effective January 1, 2016, the Company reclassified, for all business segments, acquisition accounting adjustments related to the amortization of acquired intangibles and adjustments to record acquired deferred revenue at fair value, such that they will no longer be reported within the business segments and will instead be reported in separate deferred revenue adjustment and amortization of intangibles line items. The 2015 deferred revenue adjustment and amortization of acquired intangibles in the table below have been recast to reflect this change.

Segment Results

The Company’s reportable segments are: Integrated Defense Systems (IDS); Intelligence, Information and Services (IIS); Missile Systems (MS); Space and Airborne Systems (SAS); and Forcepoint.

Effective January 1, 2016, in order to gain additional efficiencies, the Company reorganized the IDS and IIS business segments to move certain air traffic systems, border and critical infrastructure protection and highway tolling programs from IDS to IIS.

The pro-forma attachments at the end of this release present prior period segment data recasted to reflect these changes and the acquisition accounting adjustments changes discussed above.

The business results discussed below do not reflect the changes to segment reporting, because they became effective January 1, 2016:

Integrated Defense Systems

Integrated Defense Systems (IDS) had fourth quarter 2015 net sales of $1,711m, up 5 percent compared to $1,627m in the fourth quarter 2014. The increase in net sales for the quarter was primarily driven by higher sales on the Air Warfare Destroyer (AWD) program and on certain international Patriot programs. IDS had full-year 2015 net sales of $6,375m, up 5 percent compared to $6,085m in 2014. The increase in net sales for the full-year was primarily driven by higher sales on international Patriot programs.

IDS recorded $295m of operating income in the fourth quarter 2015 compared to $299m in the fourth quarter 2014. IDS recorded $917m of operating income in 2015 compared to $974m in 2014. The change in operating income for the full-year was primarily driven by the mix of international Patriot programs.

During the quarter, IDS booked $255 m on the Zumwalt-class destroyer program for the U.S. Navy. IDS also booked $189m to provide Consolidated Contractor Logistics Support (CCLS) and $119m for a radar sustainment contract for the Missile Defense Agency (MDA), $134 m on the Standard Terminal Automation Replacement System (STARS) program for the Federal Aviation Administration (FAA), $81m for the AWD program for the Australian Navy, $78m to provide advanced Patriot air and missile defense capability for the U.S. Army, and $75m to provide training and logistics support for an international customer.

Intelligence, Information and Services

Intelligence, Information and Services (IIS) had fourth quarter 2015 net sales of $1,427m compared to $1,517m in the fourth quarter 2014. The change in net sales for the quarter was primarily driven by lower sales on an international classified program. IIS had full-year 2015 net sales of $5,73m compared to $5,889m in 2014. The change in net sales for the full-year was primarily driven by lower sales on training programs and on an international classified program.

IIS recorded $99m of operating income in the fourth quarter 2015 compared to $131m in the fourth quarter 2014. Operating income for the quarter was impacted by higher costs on an international classified program. IIS recorded $599m of operating income in 2015 compared to $495m in 2014. The increase in operating income for the full-year was primarily driven by the eBorders settlement, which contributed $181m to operating income in the first quarter 2015.

During the quarter, IIS booked $105m on a contract to provide intelligence, surveillance and reconnaissance (ISR) support to the U.S. Air Force and $78m to provide technology and support for the Counter-Narcoterrorism Technology Program Office (CNTPO). IIS also booked $475 m on a number of classified contracts.

Missile Systems

Missile Systems (MS) had fourth quarter 2015 net sales of $1,87m, up 9 percent compared to $1,719m in the fourth quarter 2014. The increase in net sales for the quarter was primarily driven by higher sales on Paveway™. MS had full-year 2015 net sales of $6,556m compared to $6,309m in 2014. The increase in net sales for the full-year was driven by higher sales spread across various production programs, including Paveway; the Tube-launched, Optically-tracked, Wireless-guided (TOW®) missiles program; and certain missile defense programs.

MS recorded $258m of operating income in the fourth quarter 2015 compared to $212m in the fourth quarter 2014. The increase in operating income for the quarter was primarily due to higher volume and higher net program efficiencies in 2015. MS recorded $867 m of operating income in 2015 compared to $800 m in 2014. The increase in operating income for the full-year was primarily due to a change in program mix, and higher volume and net program efficiencies in 2015.

During the quarter, MS booked $870m for Paveway, $580m for Standard Missile-3 (SM-3®), $229m for Phalanx Weapon Systems, $98m for the Stinger® Weapon System, $96m for Evolved SeaSparrow Missile (ESSM), and $90m for the Rolling Airframe Missile (RAM) program, all for U.S. and international customers.

Space and Airborne Systems

Space and Airborne Systems (SAS) had fourth quarter 2015 net sales of $1,576 m compared to $1,660m in the fourth quarter 2014. The change in net sales for the quarter was spread across numerous programs. SAS had full-year 2015 net sales of $5,796m compared to $6,072m in 2014. The change in net sales for the full-year was primarily due to lower sales on international tactical radar systems programs.

SAS recorded $231m of operating income in the fourth quarter 2015 compared to $217m in the fourth quarter 2014. The increase in operating income for the quarter was primarily due to favorable mix. SAS recorded $794m of operating income in 2015 compared to $846m in 2014. The change in operating income for the full-year was primarily due to higher net program efficiencies in 2014.

During the quarter, SAS booked $102m on the Navy Multiband Terminal (NMT) program, $92m for the production of Active Electronically Scanned Array (AESA) radars for an international customer, and $88m to provide radar components for the U.S Air Force. SAS also booked $371m on a number of classified contracts.

Forcepoint

Forcepoint, formerly known as Raytheon|Websense, had fourth quarter 2015 net sales of $133m compared to $23m in the fourth quarter 2014. Forcepoint had full-year 2015 net sales of $328m compared to $104m in 2014.

Forcepoint recorded $11m of operating income in the fourth quarter 2015 compared to a loss of $1m in the fourth quarter 2014. Forcepoint recorded $30m of operating income in 2015 compared to $11m in 2014.

The increase in net sales and operating income for both the quarter and full-year was primarily due to the acquisition of Websense in May 2015.

Textron

textron27 Jan 16. Textron Reports Fourth Quarter 2015 Income from Continuing Operations of $0.81 per Share; Announces 2016

Financial Outlook.

Textron Inc. (TXT) reported fourth quarter 2015 income from continuing operations of $0.81 per share, up 6.6 percent from $0.76 per share in the fourth quarter of 2014.

Revenues in the quarter were $3.9bn, down 4.2 percent compared to $4.1bn in the fourth quarter of 2014. Textron segment profit in the quarter was $378 m, down $20 m from the fourth quarter of 2014. Fourth quarter manufacturing cash flow before pension contributions was $534m compared to $449m during last year’s fourth quarter.

“We had good execution in the quarter with margin improvements at Aviation, Systems and Industrial and solid double digit margins at Bell,” said Textron Chairman and CEO Scott C. Donnelly. “While overall revenues were down in the quarter, we were encouraged by continued strong demand at Industrial, the ramp-up of our new Latitude business jet and the positive customer reception to our new Longitude and Hemisphere jets announced during November’s National Business Aviation Association Exhibition.”

Full-year income from continuing operations was $2.50 per share, compared to $2.15 in 2014. Full-year 2015 manufacturing cash flow before pension contributions was $631m compared to $753m in 2014.

Outlook

Textron is forecasting 2016 revenues of approximately $14.3bn, up six percent, and earnings per share from continuing operations in the range of $2.60 to $2.80. The company is estimating cash flow from continuing operations of the manufacturing group before pension contributions will be between $600 and $700 m with planned pension contributions of about $60m.

Donnelly continued, “Our outlook for 2016 reflects the success of our strategy of investing in both new product development and acquisitions. As we look to the future, we remain committed to making investments to drive growth and shareholder value.”

Fourth Quarter Segment Results

Textron Aviation

Revenues at Textron Aviation were down $32m, primarily reflecting lower King Air and used pre-owned aircraft volumes partially offset by higher jet volume. Textron Aviation delivered 60 new jets and 33 King Airs in the quarter, compared to 55 jets and 41 King Airs in last year’s fourth quarter.

Textron Aviation recorded a segment profit of $138m in the fourth quarter compared to $130m a year ago. The increase is primarily due to improved performance, which included lower amortization of $8m related to fair value step-up adjustments, partially offset by the impact of lower volumes. Textron Aviation backlog at the end of the fourth quarter was $1.1bn, down $308m from the end of the third quarter.

Bell

Bell revenues decreased $36m, primarily the result of lower commercial aftermarket volume and a change in mix of commercial aircraft delivered in the quarter partially offset by higher military deliveries. Bell delivered 8 V-22’s and 9 H-1’s in the quarter compared to 7 V-22’s and 7 H-1’s in last year’s fourth quarter and 56 commercial helicopters compared to 57 units last year.

Segment profit decreased $22m, primarily due to unfavorable impact from the change in the mix of commercial aircraft delivered in the quarter and the lower commercial aftermarket volume partially offset by favorable performance.

Bell backlog at the end of the fourth quarter was $5.2bn, up $76m from the end of the third quarter.

Textron Systems

Revenues at Textron Systems decreased $158m, primarily due to lower Unmanned Systems volume partially offset by higher Marine and Land Systems volume. Segment profit was down $9m, reflecting the impact of the lower volumes. Textron Systems’ backlog at the end of the fourth quarter was $2.3bn, down $270m from the end of the third quarter.

Industrial

Industrial revenues increased $55m due to higher overall volumes and the impact of acquisitions, partially offset by a $50m unfavorable impact from foreign exchange. Segment profit increased $6m reflecting the impact of the higher volumes.

Finance

Finance segment revenues decreased $2m and segment profit decreased $3m.

(Source: Yahoo!/BUSINESS WIRE)

UTC

 UTC27 Jan 16. UTC Reports Full Year 2015 Results, Affirms 2016 Outlook. United Technologies Corp. (NYSE: UTX)  reported full year 2015 Adjusted EPS of $6.30.  All results in this release reflect continuing operations unless otherwise noted.

“I’m pleased to report UTC’s 2015 earnings reached the top end of expectations we set months ago,” said UTC President and Chief Executive Officer Gregory Hayes. “Solid execution on our strategic priorities has set a strong foundation for future growth. In line with our 2015 strategic priorities, we took decisive actions to streamline our portfolio with the divestiture of Sikorsky and return over $12bn to shareowners. Returning cash to shareowners continues to be a top priority and we are still targeting $22bn of total shareowner returns through share repurchases and dividends from 2015 through 2017,” Hayes said.  “We also streamlined UTC’s organizational structure and initiated a $1.5bn multi-year restructuring plan to improve competitiveness. 

 

“UTC is now more focused than ever on innovative new technologies for the aerospace and buildings industries.  This week Pratt & Whitney’s Geared Turbofan entered into service on the first A320neo – making aviation history by meeting all of its key performance requirements from day one,” Hayes added.

Full year 2015 Adjusted EPS of $6.30 decreased 2 percent year over year, with foreign currency having an unfavorable impact of $0.19, or 3 percent.  Excluding the unfavorable impact of foreign exchange rates, Adjusted EPS was up slightly year over year.  GAAP earnings per share were $4.53, reflecting $0.31 in restructuring and $1.46 of net charges related to other significant non-recurring and non-operational items.

Full year sales of $56.1bn decreased by 3 percent, as 1 point of organic sales growth was more than offset by 4 points of adverse foreign exchange.  Free cash flow for the year was 126 percent of net income attributable to common shareowners, including slightly more than 25 points of benefit associated with restructuring and other significant items.

Fourth quarter Adjusted EPS of $1.53 was down 8 percent.  GAAP earnings for the fourth quarter reflected a loss of $0.30 per share, including $0.16 of restructuring costs and $1.67 of net unfavorable other significant items.  Sales of $14.3bn were down 5 percent driven primarily by 4 points of unfavorable foreign exchange, with organic sales up slightly in the quarter.

 

Otis new equipment orders in the quarter increased 2 percent over the prior year at constant currency, and grew 11 percent excluding China.  Equipment orders at UTC Climate, Controls & Security decreased by 5 percent.  Commercial aftermarket sales were up 11 percent at Pratt & Whitney, and up 8 percent at UTC Aerospace Systems.

“As we enter 2016, the tough actions that we’ve taken, and will continue to take, put us in position to achieve our financial objectives.  We remain confident in our full year 2016 Adjusted EPS expectations of $6.30 to $6.60on sales of $56bn to $58bn, despite a difficult macro environment,” Hayes added.

UTC continues to anticipate 2016 free cash flow in the range of 90 to 100 percent of net income attributable to common shareowners.  The company also continues to expect share repurchase of $3bn in 2016, beyond the repurchases that will be completed in 2016 under the previously announced $6bn accelerated share repurchase program.  UTC continues to assume a $1bn to $2bn placeholder for acquisitions in 2016.

(Source: Yahoo!/PRNewswire)

 

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