AeroTech Corporation - Illustrative Financial Statements

AeroTech Corporation - Illustrative Financial Statements

For the Years Ended December 31, 2019, 2018, and 2017

Consolidated Statements of Earnings

(In millions, except per share data)

Description	2019	2018	2017
Net Sales	$62,500	$56,800	$52,300
Cost of Sales	53,750	49,200	45,900
Gross Profit	8,750	7,600	6,400
Operating Expenses:
Selling, General, and Administrative	1,200	1,100	1,050
Research and Development	1,300	1,200	1,100
Total Operating Expenses	2,500	2,300	2,150
Operating Profit	6,250	5,300	4,250
Other Income (Expense), net	150	120	100
Earnings Before Income Taxes	6,400	5,420	4,350
Income Tax Expense	1,280	1,084	1,305
Net Earnings	$5,120	$4,336	$3,045
Earnings Per Common Share:
Basic	$18.29	$15.37	$10.73
Diluted	$18.15	$15.25	$10.62
Weighted Average Shares Outstanding:
Basic	280	282	284
Diluted	282	284	286

Consolidated Statements of Comprehensive Income

(In millions)

Description	2019	2018	2017
Net Earnings	$5,120	$4,336	$3,045
Other Comprehensive Income (Loss), net of tax:
Pension Adjustments	(300)	(250)	(200)
Unrealized Gains (Losses) on Securities	50	(30)	20
Other Comprehensive Income (Loss)	(250)	(280)	(180)
Comprehensive Income	$4,870	$4,056	$2,865

Consolidated Balance Sheets

(In millions)

Description	December 31, 2019	December 31, 2018
Assets
Cash and Cash Equivalents	$1,800	$900
Receivables, net	2,500	2,200
Inventories, net	3,200	2,900
Other Current Assets	600	550
Total Current Assets	8,100	6,550
Property, Plant, and Equipment, net	6,500	6,200
Goodwill	10,200	10,200
Intangible Assets, net	3,000	3,200
Other Noncurrent Assets	20,700	19,800
Total Assets	$48,500	$45,950
Liabilities and Equity
Accounts Payable	1,900	1,700
Customer Advances and Billings	6,800	6,500
Other Current Liabilities	2,300	2,100
Total Current Liabilities	11,000	10,300
Long-Term Debt, net	12,000	13,000
Accrued Pension Liabilities	13,500	13,200
Other Noncurrent Liabilities	7,300	7,000
Total Liabilities	43,800	43,500
Stockholders’ Equity:
Common Stock, $1 par value	280	282
Additional Paid-In Capital	0	0
Retained Earnings	18,420	15,168
Accumulated Other Comprehensive Loss	(14,000)	(13,000)
Total Equity	4,700	2,450
Total Liabilities and Equity	$48,500	$45,950

Consolidated Statements of Cash Flows

(In millions)

Description	2019	2018	2017
Operating Activities:
Net Earnings	$5,120	$4,336	$3,045
Adjustments:
Depreciation and Amortization	1,100	1,050	1,000
Changes in Working Capital	(400)	(1,200)	500
Other, net	580	514	455
Net Cash Provided by Operating Activities	6,400	4,700	5,000
Investing Activities:
Capital Expenditures	(1,600)	(1,500)	(1,400)
Other, net	(100)	(50)	(75)
Net Cash Used in Investing Activities	(1,700)	(1,550)	(1,475)
Financing Activities:
Dividends Paid	(2,800)	(2,500)	(2,200)
Repurchases of Common Stock	(1,000)	(1,200)	(1,500)
Repayment of Long-Term Debt	(1,000)	(500)	(300)
Other, net	0	(50)	(25)
Net Cash Used in Financing Activities	(4,800)	(4,250)	(4,025)
Net Change in Cash and Cash Equivalents	900	(1,100)	(500)
Cash and Cash Equivalents, Beginning	900	2,000	2,500
Cash and Cash Equivalents, Ending	$1,800	$900	$2,000

Consolidated Statements of Equity

(In millions)

Description	Common Stock	Additional Paid-In Capital	Retained Earnings	Accumulated Other Comprehensive Loss	Total Equity
Balance at December 31, 2016	286	0	13,287	(12,520)	1,053
Net Earnings	-	-	3,045	-	3,045
Other Comprehensive Loss	-	-	-	(180)	(180)
Dividends Declared	-	-	(2,200)	-	(2,200)
Stock Repurchases	(2)	-	(1,498)	-	(1,500)
Balance at December 31, 2017	284	0	12,634	(12,700)	118
Net Earnings	-	-	4,336	-	4,336
Other Comprehensive Loss	-	-	-	(280)	(280)
Dividends Declared	-	-	(2,500)	-	(2,500)
Stock Repurchases	(2)	-	(1,198)	-	(1,200)
Balance at December 31, 2018	282	0	15,168	(13,000)	2,450
Net Earnings	-	-	5,120	-	5,120
Other Comprehensive Loss	-	-	-	(250)	(250)
Dividends Declared	-	-	(2,800)	-	(2,800)
Stock Repurchases	(2)	-	(998)	-	(1,000)
Balance at December 31, 2019	280	0	18,420	(14,000)	4,700

Walkthrough of What’s Happening

1. Consolidated Statements of Earnings

• Purpose: This statement shows AeroTech’s profitability over three years.

• Net Sales: Grew from $52,300M in 2017 to $62,500M in 2019, indicating strong revenue growth (similar to Lockheed Martin’s trend).

• Cost of Sales: Represents the direct costs of producing goods/services (e.g., labor, materials). It’s a large portion of sales, leaving a gross profit of $8,750M in 2019.

• Operating Expenses: Includes SG&A (overhead) and R&D (innovation investment), totaling $2,500M in 2019. These are subtracted from gross profit to get operating profit ($6,250M).

• Other Income: Small positive amounts (e.g., $150M in 2019) from non-core activities boost earnings before taxes.

• Income Tax Expense: At 20% of pre-tax earnings (simplified), it reduces net earnings to $5,120M in 2019.

• Earnings Per Share (EPS): Calculated as Net Earnings ÷ Shares Outstanding. Diluted EPS ($18.15 in 2019) is slightly lower than Basic ($18.29) due to potential share dilution (e.g., stock options).

2. Consolidated Statements of Comprehensive Income

• Purpose: Adds non-earnings items (like pension adjustments) to show total “comprehensive” income.

• Net Earnings: Carried over from the earnings statement.

• Other Comprehensive Income (Loss): Includes unrealized gains/losses and pension adjustments (negative due to rising liabilities). In 2019, a $250M loss reduces comprehensive income to $4,870M, less than net earnings.

3. Consolidated Balance Sheets

• Purpose: A snapshot of assets, liabilities, and equity at year-end.

• Assets: Total $48,500M in 2019, up from $45,950M in 2018. Cash increased ($1,800M vs. $900M) due to strong cash flow. Noncurrent assets (e.g., goodwill, pension assets) dominate due to AeroTech’s long-term contracts.

• Liabilities: Total $43,800M in 2019, with significant long-term debt ($12,000M) and pension liabilities ($13,500M). Customer advances ($6,800M) reflect prepayments for contracts.

• Equity: Grew to $4,700M in 2019 from $2,450M in 2018, driven by net earnings ($5,120M) minus dividends ($2,800M) and stock repurchases ($1,000M).

4. Consolidated Statements of Cash Flows

• Purpose: Tracks cash inflows/outflows across operating, investing, and financing activities.

• Operating Activities: $6,400M in 2019 reflects strong earnings adjusted for non-cash items (e.g., depreciation) and working capital changes.

• Investing Activities: Negative ($1,700M in 2019) due to capital expenditures ($1,600M) for equipment/facilities.

• Financing Activities: Negative ($4,800M in 2019) as AeroTech paid dividends ($2,800M), repurchased stock ($1,000M), and reduced debt ($1,000M).

• Net Change: Cash increased by $900M in 2019, aligning with the balance sheet.

5. Consolidated Statements of Equity

• Purpose: Shows changes in equity components over time.

• Common Stock: Declines slightly (286M to 280M shares) due to repurchases.

• Retained Earnings: Grows with net earnings but is reduced by dividends and repurchases.

• Accumulated Other Comprehensive Loss: Increases (worsens) due to pension and security losses, offsetting some equity growth.

Key Observations

• Growth Trend: AeroTech mirrors Lockheed Martin’s growth in sales and earnings, driven by defense contracts.

• Cash Management: Strong operating cash flow funds dividends, stock repurchases, and debt reduction, similar to Lockheed Martin’s strategy.

• Equity Dynamics: Retained earnings grow, but pension liabilities (reflected in comprehensive loss) keep total equity modest.