Elbit Systems Ltd. (the „Company”) (NASDAQ and TASE: ESLT), the international defense electronics company, reported today its consolidated results for the fourth quarter and full year ended December 31, 2013.
In this release, the Company is providing US-GAAP results as well as additional non-GAAP financial data, which are intended to provide investors a more comprehensive understanding of the Company’s business results and trends. Unless otherwise stated, all financial data presented is GAAP financial data.
Management Comment:
Bezhalel (Butzi) Machlis, President and CEO of Elbit Systems, commented: „I am pleased with our 2013 full year results that show growth in revenues and backlog, as well as a continued trend of controlling operational costs. The record backlog provides us good visibility into 2014 and beyond. Our continued focus on maintaining an efficient operation, while taking advantage of synergies across the various parts of our organization, resulted in solid year over year improvements in our margins.
Recently, we implemented some organizational changes to enhance our market position in the areas of cyber and intelligence systems as well as commercial avionics systems. We consider both of these areas as growth engines for the Company and complementary to our traditional defense-based business lines.
Looking back on last year, I believe Elbit Systems is well positioned financially, with diversification across our range of markets and business lines. We look forward to the opportunities ahead in 2014.”
Machlis added: „I would like to express my gratitude to Elbit Systems’ employees, who have invested great effort in reaching these achievements. They are the key factor to our success.”
Fourth quarter 2013 results:
Revenues in the fourth quarter of 2013 were $811.5 million, as compared to $843.9 million in the fourth quarter of 2012.
Gross profit amounted to $221.5 million (27.3% of revenues) in the fourth quarter of 2013, as compared to $239.0 million (28.3% of revenues) in the fourth quarter of 2012. The non-GAAP gross profit in the fourth quarter of 2013 was $228.1 million (28.1% of revenues), compared to $247.6 million (29.3% of revenues) in the fourth quarter of 2012.
Research and development expenses, net were $63.9 million (7.9% of revenues) in the fourth quarter of 2013, as compared to $68.3 million (8.1% of revenues) in the fourth quarter of 2012.
Marketing and selling expenses were $60.7 million (7.5% of revenues) in the fourth quarter of 2013, as compared to $61.6 million (7.3% of revenues) in the fourth quarter of 2012.
General and administrative expenses were $39.1 million (4.8% of revenues) in the fourth quarter of 2013, as compared to $38.9 million (4.6% of revenues) in the fourth quarter of 2012.
Operating income was $57.9 million (7.1% of revenues) in the fourth quarter of 2013, as compared to operating income of $70.2 million (8.3% of revenues) in the fourth quarter of 2012. The non-GAAP operating income in the fourth quarter of 2013 was 70.5 million (8.7% of revenues), as compared to $83.3 million (9.9% of revenues) in the fourth quarter of 2012.
Financial expenses, net were $10.0 million in the fourth quarter of 2013, as compared to $10.6 million in the fourth quarter of 2012.
Taxes on income were $8.1 million in the fourth quarter of 2013, as compared to $2.9 million in the fourth quarter of 2012. The lower tax rate in the fourth quarter of 2012 was mainly a result of prior years adjustments.
Equity in net earnings of affiliated companies and partnerships was $5.5 million (0.7% of revenues) in the fourth quarter of 2013, as compared to $2.3 million (0.3 % of revenues) in the fourth quarter of 2012.
Net income attributable to non-controlling interests was $2.3 million in the fourth quarter of 2013, as compared to $1.8 million in the fourth quarter of 2012.
Net income attributable to the Company’s shareholders in the fourth quarter of 2013 was $42.9 million (5.3% of revenues), as compared to $57.2 million (6.8% of revenues) in the fourth quarter of 2012. The non-GAAP net income in the fourth quarter of 2013 was $53.5 million (6.6% of revenues), as compared to $67.9 million (8.0% of revenues) in the fourth quarter of 2012.
Diluted net earnings per share attributable to the Company’s shareholders were $1.01 for the fourth quarter of 2013, as compared with diluted net earnings per share of $1.36 for the fourth quarter of 2012. The non-GAAP diluted earnings per share in the fourth quarter of 2013 were $1.26, as compared to $1.62 in the fourth quarter of 2012.
Full year 2013 results:
Revenues for the year ended December 31, 2013 were $2,925.2 million, as compared to $2,888.6 million in the year ended December 31, 2012. The leading contributors to the Company’s revenues in 2013 were the airborne systems and C4ISR systems areas of operations. The increases in the airborne systems and C4ISR systems areas of operation were primarily due to increased revenues in Israel for avionic systems, command and control systems and maintenance services sold to the Israel Ministry of Defense („IMOD”). The decrease in the land systems area of operations was mainly due to a decline in revenues for fire control and life support systems in Israel and North America.
In terms of the geographic breakdown of revenues, the decline in revenues in North America was mainly as a result of reduced revenues relating to the areas of electro-optics and other (mainly non-defense engineering and production services). The decline in revenues in Asia-Pacific was mainly a result of reduced revenues relating to avionics and fire control systems. The increase in revenues in Israel was mainly due to increased sales of command and control systems and electro-optic systems.
Cost of revenues for the year ended December 31, 2013 was $2,100.3 million (71.8% of revenues), as compared to $2,072.7 million (71.8% of revenues) in the year ended December 31, 2012.
Gross profit for the year ended December 31, 2013 was $824.8 million (28.2% of revenues), as compared to gross profit of $815.9 million (28.2% of revenues) in the year ended December 31, 2012. The non-GAAP gross profit in 2013 was $847.9 million (29.0% of revenues), as compared to $840.1 million (29.1% of revenues) in 2012.
Research and development expenses, net for the year ended December 31, 2013 were $220.5 million (7.5% of revenues), as compared to $233.4 million (8.1% of revenues) in the year ended December 31, 2012.
Marketing and selling expenses for the year ended December 31, 2013 were $235.5 million (8.0% of revenues), as compared to $241.9 million (8.4% of revenues) in the year ended December 31, 2012.
General and administrative expenses for the year ended December 31, 2013 were $129.5 million (4.4% of revenues), as compared to $137.5 million (4.8% of revenues) in the year ended December 31, 2012. General and administrative expenses in 2013 benefited from income related to a legal settlement, net of expenses, of $7.6 million.
Operating income for the year ended December 31, 2013 was $239.4 million (8.2% of revenues), as compared to operating income of $203.1 million (7.0% of revenues), in the year ended December 31, 2012. The non-GAAP operating income in 2013 was $278.6 million (9.5% of revenues) compared with $252.3 million (8.7% of revenues) in 2012.
Financial expenses, net for the year ended December 31, 2013 were $37.3 million, as compared to $26.1 million in the year ended December 31, 2012. Financial expenses in 2013 were comparatively high due to fluctuation in foreign currencies, such as the Australian dollar and the Brazilian real, during the year.
Taxes on income for the year ended December 31, 2013 were $25.3 million (effective tax rate of 12.5%), as compared to taxes on income of $17.1 million (effective tax rate of 9.7%) in the year ended December 31, 2012. The effective tax rate is affected by the mix of the tax rates in the various jurisdictions in which the Company’s entities generate taxable income and the settlement of tax audits including adjustments for prior years.
Equity in net earnings of affiliated companies and partnerships for the year ended December 31, 2013 was $13.0 million (0.4% of revenues), as compared to $11.2 million (0.4% of revenues) in the year ended December 31, 2012.
Gain from discontinued operations, net for the year ended December 31, 2013 amounted to $0.7 million, as compared to a loss of $0.6 million in 2012. In the second quarter of 2013 the Company sold its holdings in a held-for-sale entity and recognized a gain of approximately $1.0 million in discontinued operations.
Net income attributable to non-controlling interests for the year ended December 31, 2013 was $8.0 million, as compared to $2.6 million in the year ended December 31, 2012.
Net income attributable to the Company’s shareholders for the year ended December 31, 2013 was $183.4 million (6.3% of revenues), as compared to $167.9 million (5.8% of revenues) in the year ended December 31, 2012. The non-GAAP net income in the year ended December 31, 2013 was $210.8 million (7.2% of revenues), as compared to $206.3 million (7.1% of revenues) in the year ended December 31, 2012.
Diluted net earnings per share attributable to the Company’s shareholders for the year ended December 31, 2013 were $4.34, as compared to $3.97 for the year ended December 31, 2012. The non-GAAP diluted net earnings per share in the year ended December 31, 2013 were $4.99 as compared to $4.88 in the year ended December 31, 2012.
The Company’s backlog of orders for the year ended December 31, 2013 totaled $5,822 million, as compared to $5,683 million as of December 31, 2012. Approximately 69% of the current backlog is attributable to orders from outside Israel. Approximately 69% of the current backlog is scheduled to be performed during 2014 and 2015.
Operating cash flow for the year ended December 31, 2013 was $167.0 million, as compared to $198.4 million in the year ended December 31, 2012.
Non-GAAP financial data:
The following non-GAAP financial data is presented to enable investors to have additional information on the Company’s business performance as well as a further basis for periodical comparisons and trends relating to the Company’s financial results. The Company believes such data provides useful information to investors by facilitating more meaningful comparisons of the Company’s financial results over time. Such non-GAAP information is used by the Company’s management to make strategic decisions, forecast future results and evaluate the Company’s current performance. However, investors are cautioned that, unlike financial measures prepared in accordance with GAAP, non-GAAP measures may not be comparable with the calculation of similar measures for other companies.
The non-GAAP financial data includes reconciliation adjustments regarding non-GAAP gross profit, operating income, net income and diluted EPS. In arriving at non-GAAP presentations, companies generally factor out items such as those that have a non-recurring impact on the income statements, various non-cash items, significant effects of retroactive tax legislation and changes in accounting guidance and other items which, in management’s judgment, are items that are considered to be outside of the review of core operating results.
In the Company’s non-GAAP presentation, the Company made certain adjustments, as indicated in the table below.
These non-GAAP measures are not based on any comprehensive set of accounting rules or principles. The Company believes that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the Company’s results of operations, as determined in accordance with GAAP, and that these measures should only be used to evaluate the Company’s results of operations in conjunction with the corresponding GAAP measures. Investors should consider non-GAAP financial measures in addition to, and not as replacements for or superior to, measures of financial performance prepared in accordance with GAAP.
Reconciliation of GAAP to Non-GAAP (Unaudited) Supplemental Financial Data:
(US Dollars in millions)
Three Months ended
December 31
Year ended
December 31
2013
2012
2013
2012
GAAP gross profit
221.5
239.0
824.8
815.9
Adjustments:
Amortization of purchased intangible assets
5.7
8.6
22.2
24.2
Impairment of long-lived assets
0.9
—
0.9
—
Non-GAAP gross profit
228.1
247.6
847.9
840.1
Percent of revenues
28.1
%
29.3
%
29.0
%
29.1
%
GAAP operating income
57.9
70.2
239.4
203.1
Adjustments:
Amortization of purchased intangible assets
11.7
13.1
45.9
49.2
Impairment of long-lived assets
0.9
—
0.9
—
Legal settlements
—
—
(7.6)
—
Non-GAAP operating income
70.5
83.3
278.6
252.3
Percent of revenues
8.7
%
9.9
%
9.5
%
8.7
%
GAAP net income attributable to Elbit Systems’ shareholders
42.9
57.2
183.4
167.9
Adjustments:
Amortization of purchased intangible assets
11.7
13.1
45.9
49.2
Impairment of long-lived assets
0.9
—
0.9
—
Legal settlements
—
—
(7.6)
—
Gain from changes in holdings
—
—
(0.9)
(2.3)
Adjustment of loss (gain) from discontinued operations, net
—
0.1
(0.8)
0.4
Related tax benefits
(2.0)
(2.5)
(10.1)
(8.9)
Non-GAAP net income attributable to Elbit Systems’ shareholders
53.5
67.9
210.8
206.3
Percent of revenues
6.6
%
8.0
%
7.2
%
7.1
%
Non-GAAP diluted net EPS
1.26
1.62
4.99
4.88
Recent Events:
On December 22, 2013, the Company announced that the Australian Department of Defence exercised options for additional quantities under an extant contract via a contract change, and also engaged Elbit Systems to conduct a Risk Reduction Activity via a survey and quote under the terms of an extant contract. The total value of both activities is approximately $229 million (excluding GST). The contract will be performed over a three-year period.
On January 15, 2014, the Company announced that it was awarded a contract by the IMOD, valued at approximately $15 million, to upgrade the Israeli Air Force’s („IAF”) C-130H (Hercules) transport aircraft. The contract will be performed over a two-year period. Elbit Systems will supply the IAF with additional C-130H capabilities, as a follow-on to a previous IMOD contract signed in 2012. The new capabilities will allow the aircraft to meet the stringent international CNS/ATM (Communications Navigation and Surveillance/Air Traffic Management) standard and operate in commercial airspace.
On February 5, 2014, the Company announced that it was awarded an IMOD contract, in the amount of approximately $23 million, for the operation and maintenance of ground simulators in use by the Israeli Ground Forces. The contract will be performed over a five-year period.
On March 2, 2014, the Company announced, in response to press reports regarding the award to its U.S. subsidiary of a $145 million contract by the United States Department of Homeland Security Customs and Border Protection (CBP) for the Integrated Fixed Tower project, that the contract includes a base period quantity and options that CBP may exercise over a multi-year period. Currently, CBP awarded the base period quantity for a portion of the $145 million contract amount, to be implemented over an approximately 12-month period.
Dividend:
The Board of Directors declared a dividend of $0.30 per share for the fourth quarter of 2013. The dividend’s record date is March 28, 2014, and the dividend will be paid on April 9, 2014, net of taxes and levies, at the rate of 20%.
Conference Call:
The Company will be hosting a conference call today, Wednesday, March 19, 2014 at 9:00 a.m. Eastern Time. On the call, management will review and discuss the results and will be available to answer questions.
To participate, please call one of the teleconferencing numbers that follow. If you are unable to connect using the toll-free numbers, please try the international dial-in number.
US Dial-in Numbers: 1 888 668 9141
UK Dial-in Number: 0 800 917 5108
ISRAEL Dial-in Number: 03 918 0609
INTERNATIONAL Dial-in Number: +972 3 918 0609
at: 9:00 am Eastern Time; 6:00 am Pacific Time; 1:00 pm UK Time; 3:00 pm Israel Time
This call will also be broadcast live on Elbit Systems’ web-site at http://www.elbitsystems.com. An online replay will be available from 24 hours after the call ends.
Alternatively, for two days following the call, investors will be able to dial a replay number to listen to the call. The dial-in numbers are:
1 888 326 9310 (US) or +972 3 925 5901 (Israel and International).
Source / Author: Elbit Systems