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Elbit Systems Q4 non-GAAP gross profit amounted to $306.7 million

Staff Writer |
Elbit Systems reported its consolidated results for the fourth quarter and full year ended December 31, 2018.

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Revenues in the fourth quarter of 2018 were $1,077.8 million, as compared to $1,009.6 million in the fourth quarter of 2017.

Non-GAAP gross profit amounted to $306.7 million (28.5% of revenues) in the fourth quarter of 2018, as compared to $293.8 million (29.1% of revenues) in the fourth quarter of 2017.

GAAP gross profit in the fourth quarter of 2018 was $234.9 million (21.8% of revenues), as compared to $288.6 million (28.6% of revenues) in the fourth quarter of 2017.

The gross profit in the fourth quarter of 2018 reflects expenses of $66.6 million related to the IMI acquisition.

Research and development expenses, net were $73.0 million (6.8% of revenues) in the fourth quarter of 2018, as compared to $72.5 million (7.2% of revenues) in the fourth quarter of 2017.

Marketing and selling expenses, net were $73.5 million (6.8% of revenues) in the fourth quarter of 2018, as compared to $81.2 million (8.0% of revenues) in the fourth quarter of 2017.

General and administrative expenses, net were $49.8 million (4.6% of revenues) in the fourth quarter of 2018, as compared to $26.2 million (2.6% of revenues) in the fourth quarter of 2017.

The lower level of general and administrative expenses in the fourth quarter of 2017 resulted mainly from revaluation of liabilities related to assets and activities acquired in prior years.

Non-GAAP operating income was $112.5 million (10.4% of revenues) in the fourth quarter of 2018, as compared to $115.6 million (11.5% of revenues) in the fourth quarter of 2017.

GAAP operating income in the fourth quarter of 2018 was $38.6 million (3.6% of revenues), as compared to $108.7 million (10.8% of revenues) in the fourth quarter of 2017.

GAAP operating income in the fourth quarter of 2018 was reduced by $66.6 million in expenses related to the acquisition of IMI.

Financial expenses, net were $14.9 million in the fourth quarter of 2018, as compared to $9.7 million in the fourth quarter of 2017.

The increase in financial expenses in the fourth quarter of 2018 was mainly a result of higher debt and interest rates.

Other expenses net were $6.4 million in the fourth quarter of 2018, as compared to $5.1 million in the fourth quarter of 2017.

Other expenses includes mainly non-service cost components of pension plans that were reclassified from operating income in accordance with ASU 2017-07, "Compensation - Retirement benefits" that was adopted on January 1, 2018, retrospectively.

Taxes on income were $3.9 million (effective tax rate of 22.5%) in the fourth quarter of 2018, as compared to $25.4 million (effective tax rate of 27.1%) in the fourth quarter of 2017.

Taxes in the fourth quarter of 2017 included a $10.9 million adjustment to deferred tax assets as a result of the tax reform in the U.S.

Equity in net earnings (losses) of affiliated companies and partnerships was a net loss $11.4 million in the fourth quarter of 2018, as compared to net earnings of $1.4 million in the fourth quarter of 2017.

The loss in the fourth quarter of 2018 was mainly a result of a fair value re-evaluation of holdings in an affiliated company.

Net income attributable to non-controlling interests was $0.9 million in the fourth quarter of 2018, as compared to $0.5 million in the fourth quarter of 2017.

Non-GAAP net income attributable to the Company's shareholders in the fourth quarter of 2018 was $81.8 million (7.6% of revenues), as compared to $86.1 million (8.5% of revenues) in the fourth quarter of 2017.

GAAP net income attributable to the Company's shareholders in the fourth quarter of 2018 was $1.1 million (0.1% of revenues), as compared to $69.4 million (6.9% of revenues) in the fourth quarter of 2017.

The net income in the fourth quarter of 2018 reflects expenses (net of taxes) of $64.8 million related to the IMI acquisition.

Non GAAP diluted net earnings per share attributable to the Company's shareholders were $1.91 for the fourth quarter of 2018, as compared to $2.01 for the fourth quarter of 2017.

GAAP diluted earnings per share attributable to the Company's shareholders in the fourth quarter of 2018 were $0.03, as compared to $1.62 in the fourth quarter of 2017.

GAAP diluted earnings per share in the fourth quarter of 2018 were reduced by $1.52 as a result of the net expenses related to the IMI acquisition.

Full year 2018 results:

Revenues for the year ended December 31, 2018 were $3,683.7 million, as compared to $3,377.8 million in the year ended December 31, 2017.

For distribution of revenues by areas of operation and by geographic regions see the tables on page 16.

The leading contributors to our revenues were the airborne systems and C4ISR systems areas of operation.

The increase in revenues in the airborne systems area of operation was primarily due to increased sales of commercial avionics equipment in the U.S.

of a new subsidiary that was acquired in the second quarter of 2018.

Revenues from land systems increased primarily due to an increase in sales of land electronic warfare systems and armored vehicle systems in Europe and the revenues of IMI that was acquired in November 2018.

On a geographic basis, the increase in North America was mainly a result of higher sales of airborne systems and revenues of a new U.S.

subsidiary acquired in April 2018 in the area of commercial avionics.

The increase in Asia-Pacific was mainly a result of higher sales of tank fire control systems and UAS.

The increase in the "Other" geographical region was mainly due to an increase in sales of UAS, artillery and command and control systems.

Cost of revenues for the year ended December 31, 2018 was $2,707.5 million (73.5% of revenues), as compared to $2,374.8 million (70.3% of revenues) in the year ended December 31, 2017.

Cost of revenues in 2018 included $66.6 million in expenses related to the acquisition of IMI.

Non-GAAP gross profit for the year ended December 31, 2018 was $1,061.9 million (28.8% of revenues), as compared to $1,025.3 million (30.4% of revenues) in the year ended December 31, 2017.

GAAP gross profit in 2018 was $976.2 million (26.5% of revenues), as compared to $1,003.1 million (29.7% of revenues) in 2017.

The gross profit in 2018 reflects expenses of $66.6 million related to the IMI acquisition.

Research and development expenses, net for the year ended December 31, 2018 were $287.4 million (7.8% of revenues), as compared to $265.1 million (7.8% of revenues) in the year ended December 31, 2017.

Marketing and selling expenses, net for the year ended December 31, 2018 were $281.0 million (7.6% of revenues), as compared to $280.2 million (8.3% of revenues) in the year ended December 31, 2017.

General and administrative expenses, net for the year ended December 31, 2018 were $160.3 million (4.4% of revenues), as compared to $133.3 million (3.9% of revenues) in the year ended December 31, 2017.

The lower level of general and administrative expenses in 2017 was mainly a result of revaluation of liabilities related to assets and activities acquired in prior years.

Other operating income, net for the year ended December 31, 2018 amounted to $45.4 million.

This was the result of net gains related to deconsolidation of two of our Israeli subsidiaries in the commercial cyber and medical instrumentation areas, due to third party investments.

Non-GAAP operating income for the year ended December 31, 2018 was $340.7 million (9.2% of revenues), as compared to $353.0 million (10.5% of revenues) in the year ended December 31, 2017.

GAAP operating income in 2018 was $292.8 million (7.9% of revenues), as compared to $324.4 million (9.6% of revenues) in 2017.

GAAP operating income in 2018 was reduced by expenses of $66.6 million related to the acquisition of IMI.

Financial expenses, net for the year ended December 31, 2018 were $44.1 million, as compared to $34.5 million in the year ended December 31, 2017.

The increase in financial expenses in 2018 was mainly a result of higher debt and higher interest rates.

Other expenses, net were $11.5 million in 2018 as compared to $5.1 million in 2017.

Other expenses in 2018 included write-off impairment of $7.8 million in investments in two affiliated Israeli companies.

Other expenses also included expenses of $3.8 million in 2018 as compared to $5.1 million in 2017, related to non-service cost components of pension plans that were reclassified from operating income, according to ASU 2017-07, "Compensation - Retirement benefits" that was adopted on January 1, 2018, retrospectively.

Taxes on income for the year ended December 31, 2018 were $26.4 million (effective tax rate of 11.1%), as compared to $55.6 million (effective tax rate of 19.5%) in the year ended December 31, 2017.

The effective tax rate was affected by the mix of the tax rates in the various jurisdictions in which the Company's entities generate taxable income and other income that is not part of the taxable income mainly related to non-cash elements such as impairment of assets.

Taxes on income in 2017 included a $10.9 million adjustment to deferred tax assets as a result of the tax reform in the U.S.

Equity in net earnings (losses) of affiliated companies and partnerships for the year ended December 31, 2018 was a loss of $2.2 million (0.1% of revenues), as compared to earnings of $11.4 million (0.3% of revenues) in the year ended December 31, 2017.

The loss in 2018 was mainly a result of a $9.7 million re-evaluation of the fair value of an investment in an affiliated company.

Net income attributable to non-controlling interests for the year ended December 31, 2018 was $1.9 million, as compared to $1.5 million in the year ended December 31, 2017.


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