AD Connections_August 2015.pdf

7/25/2019 AD Connections_August 2015.pdf

1/17

August 2015

A&D Connections

For internal EY use only

A&D sector key themes

Industry tends

Thought Leadership: A&Dindustry rreports by EYs

competitorsAnalysis of M&A trends

Service line articles


2/17

2A&D Connections - For internal EY use only

Contents

A&D sector key themes................................................................................................................. 3

Industry buzz.................................................................................................................................. 6

Thought leadership: A&D industry reports by EYs competitors............................................ 10

Analysis of M&A trends................................................................................................................ 11

Service line articles ...................................................................................................................... 15


3/17


A&D sector key themes

This section covers the top themes discussed in the 2Q15 earnings releases of seven of the largestUS-based aerospace and defense companies Boeing, General Dynamics, Honeywell, LockheedMartin, Northrop Grumman, Raytheon and United Technologies.

New products and programs, improving cash flows, commercial and military market demand,international business, and share repurchases and dividends were the key discussion themes forA&D executives. Other focus areas included M&As and other strategic alliances, governmentdefense spending and macroeconomic conditions, exchange rate, production ramp up andpensions. Raytheon discussed most of the top-ranked themes in great detail. In addition to the topthemes mentioned below, companies also discussed about restructuring, competition, research anddevelopment, and cost control measures.

Summary matrix for the top themes in 2Q15

BoeingGeneralDynamics

HoneywellLockheedMartin

NorthropGrumman

RaytheonUnitedTechnologies

New products and programs

Improving cash flows

Commercial and militarymarket demand

International business

Share repurchases and

dividendsM&As and other strategicalliances

Government defense spendingand macroeconomic conditions

Pensions

Exchange rate

Production ramp up

High priority themes

Moderate priority themes

Low priority themes

Themes not discussed


4/17


Description of top themes discussed by A&D executives

Rank Theme Description

1 New products andprograms:

companies are focusing onnext generation programssuch as missile systems andbombers

Raytheon completed the first test flight of its nextgeneration SM3 IIA missile defense system which isexpected to enter production by 2020.

Boeing, Northrop Grumman and Lockheed martinare competing for winning the US Air Forces nextgeneration long-range strike bomber programcontract.

Honeywell has entered into an agreement tosupply next generation cockpit technologies toDassaults Falcon 5X fighter.

2 Improving cash flows:

enable companies to makestrategic investments

Cash flows remained strong for Boeing, Honeywell,Lockheed Martin, Northrop Grumman andRaytheon.

General Dynamics cash flow was down quarter-on-quarter due to cash deployment activities whileUnited Technologies cash flow declined due thesettlement of a German tax issue.

3 Commercial and militarymarket demand:

orders picking up driven byincreased demand

Growth in air traffic and airlines profitability aredriving demand for commercial aircraft and partswhile international customers are driving demandfor defense products.

Boeing won over US$50 billion orders andcommitments in the Paris Airshow held in June2015 while Raytheon expects its overall 2015booking to reach about US$25 billion.

4 International business:

Middle East and Asia Pacificremain attractive for A&Dplayers

International customers represented 33% of

Boeing Defense, Space and Securitys revenue and39% of its order backlog in 2Q15.

For Raytheon, international business represented44% of its total backlog in 2Q15, compared to 38%in 2Q14.

5 Share repurchases anddividends:

passing on value of strongcash flows to shareholders

The seven companies under consideration paidtotal dividends of US$2.7 billion in 2Q15 comparedto US$2.4 billion in 2Q14.

They also repurchased US$5.9 billion of sharesduring the quarter compared to US$4.5 billion in

2Q14.

6 M&As and other strategicalliances:

to grow in new markets andsegments

Lockheed Martin announced acquisition of Sikorskyfrom United Technologies helicopter business forabout US$9 billion.

Raytheon completed the formation of a JV withWebsense Inc to provide cybersecurity solutions toits customers.


5/17


7 Government defensespending andmacroeconomic conditions:

companies hopeful about abudget increase in FY16

The Congress has been supportive of thePresidents FY16 budgetproposal of moderateincrease in defense spending. However thespending constraints imposed by the BudgetControl Act remain a challenge.

The economic recovery in the US, coupled with apossible increase in defense budget will open upopportunities for A&D companies to grow theirdefense and well as civil business in the country.

8 Pensions:

FAS/CAS adjustmentscontribute to companysmargins

United Technologies faced some headwinds fromhigher pension expenses in the quarter whileGeneral Dynamics expects most of its pensionfunding to occur in the third quarter.

9 Exchange rate:

international revenuedevaluates as US dollars

strengthens

The US dollar appreciated around 24% against Euroand 6% against Great Britain Pound, duringJanuary 2014 to June 2015.

US companies with foreign contracts are reducing

their exchange rate exposure by pegging theircontracts to the US dollar.

10 Production ramp up:

due to surge in orders drivenby increasing demand

Boeing is ramping up production of its 787 serieswide body aircraft while Lockheed Martin isramping up its F-35 program. Northrop Grummanis ramping up its LRS, F-35 and E-2D programs.

Airbus and Boeing will collectively produce about1,900 units in 2018, up from just over 1,400 thisyear and more than double the number of aircraftdelivered in 2008.

Note: The ranking of the themes was decided based on the number of companies discussing the themes. Thethemes that were discussed in greater detail were tagged as high priority themes. For the themes discussed bysame number of companies, the ones with higher priority were ranked higher. The scope of this ranking waslimited to examining transcripts and presentations that were part of 2Q15 earnings conference calls.


6/17


Industry buzz

The US military preparedness

Army electronic warfarecapabilities hit by spendingcuts

The US Army is struggling to fund the increasingly crucial

capabilities in the fields of electronic warfare.

Though it has over 32,000 short-range defensive jammers,offensive electronic jammers will not be available until 2023because of a lack of funds.

House Appropriationscommittee approves$579B defense spendingplan

The House Appropriations Committee approved US$579billion defense spending plan, circumventing thesequestration budget caps.

The budget will fund a boost in the US air reconnaissance. Italso allocated US$88 billion to the US war account and fullyfunded weapon programs.

US Export-Import (Ex-Im) bank reauthorization issue and its consequences

Senate votes forreauthorization of Ex-Im,awaits approval of theHouse

The US Senate voted for an amendment to reauthorize theUS Ex-Im bank. The amendment was added to considerationof the multi-year Highway Trust Fund reauthorization bill.

However, the amendment is yet to be taken up by the Houseas the Senate could not complete its version of the multi-year Highway bill. Therefore, the Ex-Im amendment will haveto wait until late October to be considered by the House.

Boeing, GE to shift workoverseas because of Ex-Im

shutdown

GE is taking steps to shift US$10 billion worth USmanufacturing work overseas after the Government'sdecision to shut down the US Ex-Im Bank at least untilSeptember 2015. In a similar move, Boeing is considering tomove key pieces of its operations to other countries thatcould offer export credits.

The Ex-Im bank has been unable to consider new financingrequests since Congress allowed the bank's charter to expireon June 30.

In case the bank is not reauthorized, many US exporters maystruggle to compete in the global marketplace and mighteventually lead to cut down of jobs in the US.


7/17


Military developments in foreign countries

China is preparing to keepthe US out of the Pacific

China is increasingly countering the US military capabilitiesand acquiring technologies to restrain the US military'sactivities in the western Pacific.

As per the Pentagon, the country is acquiring capabilities to

control space-based communications and sensing andcapabilities to attack the US with cyber weapons.

The Pentagon also anticipates possibilities that China couldsell its technologies to other nations, thus creating achallenge for the US to maintain a technological edge.

Nations race for hypersonicweapon development

China, Russia and India are competing with the US todevelop the world's first hypersonic weapon capable toclosing in its target at a speed of 7,500 miles per hour.

If successful, it will be a game-changing technology that canpotentially disrupt warfare.

The country coming up with the first hypersonic weapon will

have a huge strategic advantage over its rivals in militarypreparedness.

The UK reviews securitystrategy in response toRussian threat

In reaction to the recent increase in aggressive actions byRussia, the UK is refreshing its national risk assessment,which influences the country's national security strategy.

It is the first time since 2010 that the UK has reviewed itsnational security strategy, known formally as the StrategicDefence and Security Review.

Despite sanctions, Russia'sdefense sector is booming

Despite the pressure of Western sanctions, the sharpdevaluation of the Russian ruble, and high inflation in thecountry, Russian defense firms reported surging revenues in

2014.

The surge in revenues was driven by increasing exports andthe high level of defense procurement by the RussianGovernment.

Russian firms exported a record US$13.2 billion worth ofmilitary hardware abroad in 2014 while the Governmentsmilitary procurement hit a new high, with about 2 trillionrubles (US$33.2 billion).

Iran signs nuclear deal withworld powers

Iran reached a nuclear deal with six major world powers, theUS, the US, France, Germany, Russia, and China to curb itsnuclear program in return for relief from economic sanctionsimposed on the country. The deal is still subject to approval

from the US Congress.

However, Iran will be allowed to carry out R&D activities innuclear power for exclusively peaceful purposes while it willbe prohibited from stockpiling large amounts of enricheduranium.


8/17


Japan cautiouslyapproaches arms exportpolicies

Japan has allowed its defense firms to bid on an Australiansubmarine contract, after the Japanese Prime MinisterShinzo Abe lifted the prohibition on military exports lastyear.

The lifting of the ban was part of loosening of restrictions onJapans military power that were put in place after its defeatin World War II.

To facilitate military exports, the country is offering financialaids such as credit guarantees to buyers of Japaneseweapons.

Major updates from US based defense contractors

Lockheed Martin acquiresSikorsky and considersspinning off IT andTechnical Servicesbusinesses

Lockheed Martin entered a definitive agreement to acquireSikorsky, a market leader in military and commercialhelicopters, for US$9 billion.

The acquisition will help the company to expand its corebusiness into helicopter production, which is a growing area.The acquisition is subject to securing regulatory approvals,and is expected to close by end of 2015 or early 2016.

The company is also considering to spin off its IT andTechnical Services businesses division to streamline itsservices. Lockheed Martin executives plan to review theInformation Systems & Global Solutions and Missiles and FireControl business segments and consider a spinoff or a sale.

GE Aviation wins overUS$19 billion orders andcommitments in ParisAirshow

Aircraft engines market leader, GE Aviation and its JVs wonorders and commitments worth over US$19 billion in theParis Airshow held in June 2015.

The order wins include major orders from emerging marketsin the Middle East and Asia, including countries such as

Qatar, China and Myanmar. GE Aviations backlog stood at about US$140 billion just

before the Airshow, a record high for the company. The neworder wins in the Paris Airshow further enhanced thecompanys backlog, giving it a competitive advantageoverits peers, Pratt & Whitney and Rolls Royce.

Boeing wins US$50.2billion of business at ParisAirshow

Boeing won orders and commitments for 331 aircraft worthUS$50.2 billion at the Paris Airshow, compared to itsEurope-based competitor Airbus's 421 aircraft tally worthUS$57 billion.

Of the total win, 145 aircraft worth $18.6 billion were firmorders, with the balance being commitments for alreadyexisting orders.
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9/17


Defense revenues down fortop defense contractors

Lagging defense spending and the large-scale reduction ofthe US troops presence in the Middle East led to decrease inrevenues of defense contractors.

Lockheed Martin, the worlds top defense contractor,reported 2014 defense revenues of US$40.1 billion (total

revenue of US$45.6 billion, including non-defensebusinesses), a US$0.4 billion decrease from the previousyear.

Of the top ten defense firms, only United Technologiesreported improvements in defense revenues with US$13.0billion revenue in 2014, a 9.5% over the previous year.

However, despite the years-long downturn, the defensefirms adapted themselves to the new spending landscapeand took opportunistic business decisions to pursuit M&Asand implement measures to improve operating efficiency.

Sources:

1. Ex-Im Bank round-up. And the next step,Aerospace Industries Association, 29 July 2015, via AIADaily News

2. GE may ship $10 billion in work overseas as U.S. trade bank languishes, Reuters, 30 July 2015, viaAIA Daily News

3. Pentagon officials cite challenges in maintaining technological edge, Military Times, 28 July 2015,via AIA Daily News

4.

"Hypersonic weapons race gathers speed", National Defense Magazine, 28 July 2015, via AIA DailyNews

5. "UK Shifting Strategy After Russian Invasions", Breaking Defense, 28 July 2015, via AIA Daily News6. "Defense installation utilities at risk of cyber attack", Military Times, 25 July 2015, via AIA Daily News7. Russia's defense sector is booming, Defense News, 27 July, via AIA Daily News.8. "Army electronic warfare capabilities are badly delayed amid spending cuts", Breaking Defense, 21

July 2015, via AIA Daily News

9.

Iran and major powers reach nuclear deal, CNBC website, www.cnbc.com/2015/07/14/iran-and-major-powers-reach-nuclear-deal-report.html, accessed 7 July 2015;

10. House Panel sends DoD spending bill to floor", Defense News, 2 June 2015, via AIA Daily News11. GE and its joint ventures receive more than $19 B in orders/commitments at 2015 Paris Air Show,

Dow Jones Institutional News, 18 June 2015, via Factiva.12. Boeing wins $50.2 bln of business at Paris Airshow, Reuters, 18 June 2015, via Factiva.13. Japan cautiously approaches arms export policies, National Defense Magazine, 2 June 2015, via

AIA Daily News.14. "Top 100: Defense Revenues Down, but Industry Prevailing", Defense News, 27 July 2015, via Early

Bird Brief.15. "Lockheed bids $9B for Sikorsky; May spin Off IT, Tech Services", Breaking Defense website,

breakingdefense.com/2015/07/lockheed-bids-9b-for-sikorsky-may-spin-off-it-tech-services/,accessed 25 August 2015.
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10/17


Thought leadership: A&D industry reports by EYs competitors

The table lists thought leadership reports on the A&D industry. These reports were published byEYs competitors during 2Q15. They cover a variety of themes such as industry outlook, regulatorycompliance, training, emerging markets, M&A and business strategy:

Theme Publishingfirm

Month ofpublication

Title of the report Region infocus

Industryoutlook

KPMG June 2015 Global aerospace and defense outlook Global

StrategyKPMG April 2015

Profitable growth: Aerospace anddefense

Americas

M&A

PwC May 2015 Mission control Global

Other though leadership reports

The Aerospace Industries Association (AIA) and Computer Sciences Corporation (CSC)jointly published a survey report titled 2015 A&D Market Survey covering theperspectives of A&D leaders on some of the trends in the industry such as pricing pressuresand government regulations, growing demand for product innovation and modernization,cybersecurity threats and costs rise, and skills shortage. Pleaseclick hereto read the fullreport.
http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/kpmg-global-aerospace-defense-outlook/Documents/kpmgs-global-aerospace-and-defense-outlook-2015.pdfhttp://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/kpmg-global-aerospace-defense-outlook/Documents/kpmgs-global-aerospace-and-defense-outlook-2015.pdfhttp://www.kpmg.com/Ca/en/IssuesAndInsights/ArticlesPublications/Documents/9264-Profitable-Growth-Aerospace-Defense-2015.pdfhttp://www.kpmg.com/Ca/en/IssuesAndInsights/ArticlesPublications/Documents/9264-Profitable-Growth-Aerospace-Defense-2015.pdfhttp://www.kpmg.com/Ca/en/IssuesAndInsights/ArticlesPublications/Documents/9264-Profitable-Growth-Aerospace-Defense-2015.pdfhttp://www.pwc.com/us/en/industrial-products/publications/mission-control.jhtmlhttp://www.pwc.com/us/en/industrial-products/publications/mission-control.jhtmlhttp://assets1.csc.com/aerospace_defense/downloads/2015_A_D_Survey_Report_CSC_and_AIA.pdfhttp://assets1.csc.com/aerospace_defense/downloads/2015_A_D_Survey_Report_CSC_and_AIA.pdfhttp://assets1.csc.com/aerospace_defense/downloads/2015_A_D_Survey_Report_CSC_and_AIA.pdfhttp://assets1.csc.com/aerospace_defense/downloads/2015_A_D_Survey_Report_CSC_and_AIA.pdfhttp://www.pwc.com/us/en/industrial-products/publications/mission-control.jhtmlhttp://www.kpmg.com/Ca/en/IssuesAndInsights/ArticlesPublications/Documents/9264-Profitable-Growth-Aerospace-Defense-2015.pdfhttp://www.kpmg.com/Ca/en/IssuesAndInsights/ArticlesPublications/Documents/9264-Profitable-Growth-Aerospace-Defense-2015.pdfhttp://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/kpmg-global-aerospace-defense-outlook/Documents/kpmgs-global-aerospace-and-defense-outlook-2015.pdf


11/17


Analysis of M&A trends

A&D highlights 20151

Deal value

YTD 2015 deal value is US$52.9 billion, 43% higher than the combined yearly total ofUS$37.1 billion for the years 2012-2014.

The US$31.6 billion acquisition of Precision Cast parts by Berkshire Hathaway in 3Q15 is

now the largest mega deal since the United Technology/ Goodrich transaction in 3Q11 at

US$16.2 billion.

The second largest transaction announced in 3Q15 was the US$9 billion acquisition of

United TechnologiesSikorsky Aircraft unit by Lockheed Martin.

*Updated to 10 August 2015

1

Source: Thomson One- (01 January 2011- 30 April 2015)

31

12 10

16

53

244 243 221 261

160

$-

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

0

50

100

150

200

250

300

2011 2012 2013 2014 YTD 2015

A&D Value (US$b) A&D deals

A&D deals yearly view (2011-YTD2015*)

5.62.4

19.8

3.0 1.3 1.8 1.8

6.6

0.93.5 2.8 2.6 3.3

9.4

0.8 2.36.8

3.4

42.7

83

44

47

70

55

68

50

70

67

5155

4852

75

6470

6067

33

0

10

20

30

40

50

60

70

80

90

0

5

10

15

20

25

30

35

40

45

#

ofDeals

DealvalueUS($b)

A&D Value (US$b) A&D deals

A&D deals quarterly view (1Q11-3Q15*)


12/17


Top countries- The US top target and acquirer country 2015

Top three acquirer countries by totaldeal value

US (US$50 billion), UK (US$1.6 billion), and China (US$1.1billion)

Top three acquirer countries bynumber of deals

US (74), UK (16), and China (15)

Top three target countries by totaldeal value

US (US$48.9 billion), China (US$1.1 billion), and Germany(US$800 million)

Top three target countries by numberof deals

US (67), UK (18), and China (13)

Top acquirors in 2015 TransDigm Group acquired three companies in the US, two in Germany and one in Norway

Buyer Buyer CountryNumber of

dealsDeal valueUS$ million

TransDigm Group Inc US 6 1,621

Raytheon Co US 2 1,900

GKN PLC UK 2 783

Precision Castparts Corp US 2 560

Meggitt PLC UK 2 244Rockwell Collins Inc US 2 64

Jiangsu Tongda Power Tech Co China 2 19

Parrot SA France 2 8

Air Industries Group Inc US 2 6

AVIC Intl Hldg Corp China 2 4

HEICO Corp US 2 NA

Novaria Group Inc US 2 NA

Teledyne Technologies Inc US 2 NA

Warburg Pincus LLC US 2 NA

Delta Drone SA France 2 NA

KB-1 Russian Fed 2 NA

Kontsern Kalashnikov Russia 2 NA

KTRV Russia 2 NA

Owen MacFarlane UK 2 NA

EQT Partners BV Sweden 2 NA


13/17


Top Buyers 2015, by deal value

Buyer Buyer CountryDeal valueUS$ million

Number of deals

Berkshire Hathaway Inc US 31,595 1

Lockheed Martin Corp US 9,000 1

Harris Corp US 4,561 1

Raytheon Co US 1,900 2

TransDigm Group Inc US 1,621 6

Top 3 target EY sub-sectors by number of deals

Aerospace manufacturing (87), Defense contract manufacturing (11) and Communication

equipment (7)

Top 5 deals 2015 by deal value *

Dateannounced

Deal valueUS$billion

Buyer Target Target-country

Comment

10 Aug 15 31.6 BerkshireHathaway

PrecisionCastparts

US Ive admired P.C.C.soperation for a long time. Forgood reasons, it is thesupplier of choice for theworlds aerospace industry,one of the largest sources ofAmerican exports- WarrenBuffett

20 Jul 15 9.0 LockheedMartin

UnitedTechnologies-Sikorsky

US Sikorsky is a natural fit forLockheed Martin, and itcomplements our broadportfolio of world-classaerospace and defenseproducts and technologies.-Marillyn A. Hewson,Chairmanand CEO, Lockheed Martin

06 Feb 15 4.6 HarrisCorp

Exelis Inc. US Harris agreed to acquireExelis, a manufacturer ofcommand, control,intelligence, surveillance,

and reconnaissance relatedproducts.20 Apr 15 1.9 Raytheon

CorpVista EquityPartners LLC-Websense Inc.

US Raytheon and Vista EquityPartners will form a JVcombining Websense withRaytheon Cyber Products. Itwill leverage Raytheon'sdefense-grade cyber securitysolutions, and Websense'smarket position in cybersecurity. Raytheon will own80.3% of the JV andWebsense will own19.7%.


14/17


18 Mar 15 0.9 XinjiangMachResearchInst Co

Shifang MingriYuhang Ind Co

China Shifang is a manufacturerand wholesaler of aircraftand electronic parts.

For additional details on global A&D transactions, please refer to the following file (based onThomsonOne data):

Copy of Global AD_transactions _ (11 F

Additional material

Aviation, Aerospace & Airports M&A Quarterly Q1 2015 (09 June 2015)produced by

mergermarket and ICF International.

Q1 2015 highlights:

Aircraft finance: deals continue between leasing companies,

Airlines: aviation in-flight technology remains active

Aerospace metals continue to be acquisition targets.

To access the complete report,click here
http://mergermarketgroup.com/wp-content/uploads/2015/06/ICF-Newsletter_Q1-2015_Final2.pdfhttp://mergermarketgroup.com/wp-content/uploads/2015/06/ICF-Newsletter_Q1-2015_Final2.pdfhttp://mergermarketgroup.com/wp-content/uploads/2015/06/ICF-Newsletter_Q1-2015_Final2.pdfhttp://mergermarketgroup.com/wp-content/uploads/2015/06/ICF-Newsletter_Q1-2015_Final2.pdf


15/17


Service line articles

Tax update

The OECD Base Erosion and Profit Shifting (BEPS) project has significant implications for all

multinational companies (MNCs). In particular, Action 13-Transfer Pricing Documentation andCountry by Country (CbC) Reporting relates to increased transparency with respect to the global

activities of MNCs. The CbC reporting template covers key economic and tax data for an MNCs

activities in every country in which it does business. The intent is to provide a view of the MNCs

entire global footprint to tax authorities in all countries where an MNC operates. Implementation of

the CbC reporting template will begin with the 2016 reporting year.

Data to be provided in the CbC reporting template includes headcount, revenues (split between

related and unrelated party revenues), earnings before tax, stated capital and accumulated

earnings, tangible assets (excluding cash and cash equivalents), cash tax paid and current tax

charge. MNCs will also be required to detail all entities, stating places of residence and main

business activities. Some of this information may be easily obtained from consolidation workingpapers or other existing data sources; some will be more difficult to gather systematically. It is

therefore important to consider now what information will need to be gathered, the form in which it

will need to be reported and the ease of access to the data from the companys reporting systems

in order to develop an efficient and sustainable reporting process.

We expect tax authorities will use the C by C information to conduct assessments based on key

comparative ratios, such as effective tax rate, profit margins and income generated per employee.

We are working with clients now on such C by C issues as evaluating potential information sources;

addressing entity classification questions that will impact how group companies are shown on the

template; and using the data to create comparative ratios to see how a companys profile may look

to tax authorities. Evaluating what the CbC reporting template would look like in advance of therequirement to provide it to tax authorities allows companies the opportunity to prepare

explanations or remedies as appropriate to prevent surprises and reduce queries (and associated

management time) and, ultimately, controversy and the potential for double taxation.

This reporting is a concern for many of our government contracting clients. Their argument is that

it is not in the interest of national security or for the well-being of contactors operating in foreign

jurisdictions to report any of the requested information to foreign countries or in an open

environment. Several contractors have expressed intentions to contact the Department of Defense

and other government agencies on this issue.

Please contactMaison Miscavage,Nate Lavelle,orDerrick Waglerfor additional information.
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


16/17


Government Contract Services (GCS) newsletter

Recent Raytheon cases establish precedence regarding CAS and Allowability issues

The Armed Services Board of Contract Appeals (ASBCA) recently issued two far-reaching decisions

related to Cost Accounting Standards (CAS) and unallowable costs. Both decisions involved

Raytheon and its ongoing disputes with the Government related to questioned costs and allegations

of CAS noncompliance. The decision relating to CAS, involves the calculation of cost impacts for

voluntary changes to contractor cost accounting practices while the decision related to unallowable

costs addresses the applicability of penalties.

Please refer to the attached document to read in further details.

GCS - ADContribution August

Other CAS news

On July 2, 2015, the FAR council issued aFinal Rulerevising the threshold for certified cost or

pricing data per the Truth in Negotiations Act (TINA) and the CAS applicability. The Final Rule

raises the TINA and CAS applicability threshold from $700,000 to $750,000. The effective date

for the new threshold is October 1, 2015.

For questions related to these topics or other Government Contract accounting, compliance andpricing matters, contactBob Malyska,Sajeev MalaveetilorRobin Schulze
http://www.gpo.gov/fdsys/pkg/FR-2015-07-02/pdf/2015-16206.pdfhttp://www.gpo.gov/fdsys/pkg/FR-2015-07-02/pdf/2015-16206.pdfhttp://www.gpo.gov/fdsys/pkg/FR-2015-07-02/pdf/2015-16206.pdfmailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]://www.gpo.gov/fdsys/pkg/FR-2015-07-02/pdf/2015-16206.pdf


17/17


Key contacts

Name Role Contact number

George Quinn Americas Assurance Leader, A&D +1 703 747 1290

Bill Colbert Americas Advisory Leader, A&D +1 703 747 0778

Nate Lavelle Americas Tax Leader, A&D +1 703 747 0714

Paul Feeko Americas Transactions Leader, A&D +1 703 747 1274

Bob Malyska Government Contract Services Leader +1 214 969 8628

JP Klaffky Americas Sector Resident, A&D +1 703 747 0688

Sandipan Maiti EY Knowledge A&D analyst +91 124 619 2750

If you have any questions or suggestions about this newsletter, please contactGeorge Quinn at +1 703 747 1290, EY/Comm 8947846; or JP Klaffky at +1 703 747 0688.

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