Attached files
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| 8-K - FORM 8-K - L3 TECHNOLOGIES, INC. | c23580e8vk.htm |
Exhibit 99
| News |
Contact:
|
L-3 Communications Holdings, Inc. Corporate Communications 212-697-1111 |
For Immediate Release |
L-3 Announces Third Quarter 2011 Results
| • | Diluted earnings per share increased 8% to $2.24 |
| • | Net sales decreased by 1% to $3.8 billion |
| • | Net cash from operating activities of $465 million |
| • | Funded orders increased 27% to $4.5 billion; funded backlog of $11.5 billion |
| • | Updated financial guidance for 2011 |
NEW YORK, October 27, 2011 — L-3 Communications Holdings, Inc. (NYSE: LLL) today reported an
8% increase in diluted earnings per share (diluted EPS) to $2.24 for the quarter ended September
30, 2011 (2011 third quarter) compared with $2.07 for the quarter ended September 24, 2010 (2010
third quarter). Net sales of $3.8 billion decreased by approximately 1% compared to the 2010 third
quarter.
“Overall, we had a solid third quarter, underscored by strong orders, cash flow and EPS. Sales
performance reflected our areas of competitive strength as well as a challenging defense budget
environment. C3ISR sales grew by 13%, and sales were also strong in intelligence and
cyber support within Government Services and contractor logistics support within AM&M due to recent
competitive wins. Also, volume increased for EO/IR and commercial shipbuilding products within
Electronic Systems. At the same time, certain businesses within AM&M, Government Services and
Electronic Systems continue to experience budgetary headwinds. We ended the quarter with funded
backlog of $11.5 billion,” said Michael T. Strianese, chairman, president and chief executive
officer. “Looking forward, our focus will be on strengthening the company by continuing our
outstanding program performance, providing affordable solutions that address customer imperatives
and deploying our capital and free cash flow in a balanced and disciplined manner to enhance
shareholder value.”
Key wins during the quarter included contracts to provide contractor logistics support (CLS) for
U.S. Navy and Army training aircraft, ProVision® ATD personnel screening systems to the
U.S. Transportation Security Administration (TSA), next-generation data link communication systems
to the U.S. Air Force, AVDS-1790 Series Air Cooled V-12 Turbocharged Diesel Engines and spare parts
to the Israeli Ministry of Defense and support to the U.S. Army Reserve Officers Training Corps
(ROTC). L-3 was also awarded a contract to develop a new 5x5-inch color Active Matrix Liquid
Crystal Display for the U.S. Army’s AH-64D Apache Helicopter.
Mr. Strianese continued, “Our strategy of balanced free cash flow deployment enabled us to
repurchase $371 million of our common stock and pay dividends of $46 million during the quarter.
Year-to-date we have returned $943 million of cash to our shareholders, including $800 million in stock
repurchases.”
| L-3 Announces Results for the 2011 Third Quarter | Page 2 |
Consolidated Results
| Third Quarter Ended | Year-to-Date Ended | |||||||||||||||||||||||
| Sept. 30, | Sept. 24, | Increase/ | Sept. 30, | Sept. 24, | Increase/ | |||||||||||||||||||
| ($ in millions, except per share data) | 2011 | 2010 | (decrease) | 2011 | 2010 | (decrease) | ||||||||||||||||||
Net sales |
$ | 3,787 | $ | 3,835 | (1 | )% | $ | 11,154 | $ | 11,425 | (2 | )% | ||||||||||||
Operating income |
$ | 406 | $ | 437 | (7 | )% | $ | 1,200 | $ | 1,289 | (7 | )% | ||||||||||||
Operating margin |
10.7 | % | 11.4 | % | (70 | ) bpts | 10.8 | % | 11.3 | % | (50 | ) bpts | ||||||||||||
Net interest expense and other income |
$ | 54 | $ | 66 | (18 | )% | $ | 184 | $ | 203 | (9 | )% | ||||||||||||
Effective income tax rate |
32.4 | % | 35.0 | % | (260 | ) bpts | 32.0 | % | 36.1 | % | (410 | ) bpts | ||||||||||||
Net income attributable to L-3 |
$ | 235 | $ | 238 | (1 | )% | $ | 682 | $ | 687 | (1 | )% | ||||||||||||
Diluted earnings per share |
$ | 2.24 | $ | 2.07 | 8 | % | $ | 6.34 | $ | 5.89 | 8 | % | ||||||||||||
Third Quarter Results of Operations: For the 2011 third quarter, consolidated net sales of
$3.8 billion decreased by $48 million, or 1%, as compared to the 2010 third quarter. Sales growth
from the Command, Control, Communications, Intelligence, Surveillance and Reconnaissance
(C3ISR) and Electronic Systems segments was offset by lower sales from the Government
Services and Aircraft Modernization and Maintenance (AM&M) segments. Acquired
businesses(1), which are all included in the Electronics Systems segment, added $33
million to net sales in the 2011 third quarter.
Operating income for the 2011 third quarter decreased by $31 million, or 7%, compared to the 2010
third quarter. Operating income as a percentage of sales (operating margin) decreased by 70 basis
points to 10.7% for the 2011 third quarter compared to 11.4% for the 2010 third quarter. Lower
operating margins in the Government Services and Electronic Systems segments were partially offset
by higher operating margins for the C3ISR and AM&M segments. See segment results below
for additional discussion of sales and operating margin.
Net interest expense and other income decreased by $12 million for the 2011 third quarter compared
to the same period last year. The decrease was due primarily to lower amortization of bond
discounts and lower interest expense as a result of recent debt refinancings. The 2010 third
quarter included a $5 million ($3 million after income taxes, or $0.03 per diluted share) debt
retirement charge.
The effective tax rate for the 2011 third quarter decreased by 260 basis points compared to the
same period last year. This decrease was primarily due to a larger portion of earnings in foreign
jurisdictions with lower tax rates compared to the 2010 third quarter and the reenactment of the
U.S. Federal research and experimentation tax credit.
Net income attributable to L-3 in the 2011 third quarter decreased by $3 million, or 1%, compared
to the 2010 third quarter, and diluted EPS increased 8% to $2.24 from $2.07. Diluted weighted
average common shares outstanding for the 2011 third quarter compared to the 2010 third quarter
declined by 9% due to repurchases of L-3 common stock.
Year-to-Date Results of Operations: For the year-to-date period ended September 30, 2011 (2011
year-to-date period), consolidated net sales of $11.2 billion decreased by $271 million, or 2%, as
compared to the year-to-date period ended September 24, 2010 (2010 year-to-date period). Lower
sales from the AM&M, Government Services and Electronic Systems segments were partially offset by
sales growth from the C3ISR segment. Additional days in the 2011 year-to-date period as
compared to the 2010 year-to-date period favorably impacted sales by $83 million, primarily for the
Government Services and AM&M segments. Acquired businesses, which are all included in the
Electronics Systems segment, contributed $147 million to net sales in the 2011 year-to-date period.
Operating income for the 2011 year-to-date period decreased by $89 million, or 7%, compared to the
2010 year-to-date period. Operating margin decreased by 50 basis points to 10.8% for the 2011
year-to-date period compared to 11.3% for the 2010 year-to-date period. Lower operating margins in
the C3ISR, Government
Services and Electronic Systems segments were partially offset by higher operating margins for
the AM&M segment. See segment results below for additional discussion of sales and
operating margin.
| (1) | Net sales from acquired businesses are comprised of (i) net sales from business and product line acquisitions that are included in L-3’s actual results for less than 12 months, less (ii) net sales from business and product line divestitures that are included in L-3’s actual results for the 12 months prior to the divestitures. |
| L-3 Announces Results for the 2011 Third Quarter | Page 3 |
Net interest expense and other income decreased by $19 million for the 2011 year-to-date period
compared to the same period last year. The decrease was primarily due to lower amortization of bond
discounts and lower interest expense as a result of recent debt refinancings, and both the 2011 and 2010
year-to-date periods each included an $18 million debt retirement charge.
The effective tax rate for the 2011 year-to-date period decreased by 410 basis points compared to
the same period last year. This decrease was primarily due to: (1) $12 million, or $0.11 per
diluted share, for the reversal of previously accrued amounts primarily related to the 2006 and
2007 U.S. Federal income tax returns, (2) a larger portion of earnings in foreign jurisdictions
with lower tax rates compared to the 2010 year-to-date period, (3) the reenactment of the U.S.
Federal research and experimentation tax credit, and (4) a 2010 year-to-date period tax provision
of $5 million, or $0.04 per diluted share, related to the unfavorable tax treatment of the U.S.
Federal Patient Protection and Affordable Care Act that did not recur.
Net income attributable to L-3 in the 2011 year-to-date period decreased by 1% compared to the 2010
year-to-date period, and diluted EPS increased 8% to $6.34 from $5.89. Diluted weighted average
common shares outstanding for the 2011 year-to-date period compared to the 2010 year-to-date period
declined by 8% due to repurchases of L-3 common stock.
Orders: Funded orders for the 2011 third quarter increased to $4.5 billion compared to $3.5
billion for the 2010 third quarter. Funded backlog was $11.5 billion at September 30, 2011,
compared to $11.1 billion at December 31, 2010.
Cash flow: Net cash from operating activities for the 2011 year-to-date period was unchanged at
$984 million compared to the 2010 year-to-date period. Capital expenditures, net of dispositions of
property, plant and equipment, were $124 million for the 2011 year-to-date period, compared to $91
million for the 2010 year-to-date period.
Cash returned to shareholders: The table below summarizes the cash returned to shareholders during
the 2011 year-to-date period compared to the 2010 year-to-date period.
| Year-to-Date Ended | ||||||||
| Sept. 30, | Sept. 24, | |||||||
| ($ in millions) | 2011 | 2010 | ||||||
Net cash from operating activities |
$ | 984 | $ | 984 | ||||
Less: Capital expenditures, net of dispositions |
124 | 91 | ||||||
Free cash flow(1) |
$ | 860 | $ | 893 | ||||
Dividends paid |
$ | 143 | $ | 139 | ||||
Common stock repurchases |
800 | 469 | ||||||
Cash returned to shareholders |
$ | 943 | $ | 608 | ||||
Percent of free cash flow returned to shareholders |
110 | % | 68 | % | ||||
| (1) | Free cash flow is defined as net cash from operating activities less net capital expenditures (capital expenditures less cash proceeds from dispositions of property, plant and equipment). Free cash flow represents cash generated after paying for interest on borrowings, income taxes, pension benefit contributions, capital expenditures and changes in working capital, but before repaying principal amount of outstanding debt, paying cash dividends on common stock, repurchasing shares of our common stock, investing cash to acquire businesses, and making other strategic investments. Thus, a key assumption underlying free cash flow is that the company will be able to refinance its existing debt. Because of this assumption, free cash flow is not a measure that should be relied upon to represent the residual cash flow available for discretionary expenditures. |
| L-3 Announces Results for the 2011 Third Quarter | Page 4 |
Reportable Segment Results
C3ISR
| Third Quarter Ended | Year-to-Date Ended | |||||||||||||||||||||||
| Sept. 30, | Sept. 24, | Sept. 30, | Sept. 24, | Increase/ | ||||||||||||||||||||
| ($ in millions) | 2011 | 2010 | Increase | 2011 | 2010 | (decrease) | ||||||||||||||||||
Net sales |
$ | 892.2 | $ | 790.6 | 13 | % | $ | 2,522.2 | $ | 2,356.2 | 7 | % | ||||||||||||
Operating income |
$ | 103.5 | $ | 84.4 | 23 | % | $ | 288.5 | $ | 289.4 | — | % | ||||||||||||
Operating margin |
11.6 | % | 10.7 | % | 90 | bpts | 11.4 | % | 12.3 | % | (90 | ) bpts | ||||||||||||
Third Quarter: C3ISR net sales for the 2011 third quarter increased by $102
million, or 13%, compared to the 2010 third quarter primarily due to increased volume and new
business for networked communication systems for manned and unmanned platforms, airborne ISR
logistics support and fleet management services to the U.S. Department of Defense (DoD), and
international airborne ISR platforms.
C3ISR operating income for the 2011 third quarter increased by $19 million, or 23%,
compared to the 2010 third quarter. Operating margin increased by 90 basis points. Improved
efficiencies for airborne ISR logistics support and fleet management services and higher sales
volume increased operating margin by 130 basis points. These increases were partially offset by
unfavorable contract performance on a networked communications contract for the U.S. Navy, which
reduced operating margin by 40 basis points.
Year-to-Date: C3ISR net sales for the 2011 year-to-date period increased by $166
million, or 7%, compared to the 2010 year-to-date period primarily due to increased volume and new
business for networked communication systems for manned and unmanned platforms, airborne ISR
logistics support and fleet management services to the DoD, and international airborne ISR
platforms. These increases were partially offset primarily by lower sales for airborne ISR
platforms to the DoD and force protection products to foreign ministries of defense.
C3ISR operating income for the 2011 year-to-date period decreased by $1 million compared
to the 2010 year-to-date period. Operating margin decreased by 90 basis points due to lower margin
sales mix, unfavorable contract performance on a networked communications contract for the U.S.
Navy and a $6 million loss on a contract termination recorded in the 2011 year-to-date period.
Government Services
| Third Quarter Ended | Year-to-Date Ended | |||||||||||||||||||||||
| Sept. 30, | Sept. 24, | Sept. 30, | Sept. 24, | |||||||||||||||||||||
| ($ in millions) | 2011 | 2010 | Decrease | 2011 | 2010 | Decrease | ||||||||||||||||||
Net sales |
$ | 904.1 | $ | 994.3 | (9 | )% | $ | 2,789.2 | $ | 2,902.0 | (4 | )% | ||||||||||||
Operating income |
$ | 74.3 | $ | 92.5 | (20 | )% | $ | 215.7 | $ | 249.2 | (13 | )% | ||||||||||||
Operating margin |
8.2 | % | 9.3 | % | (110 | ) bpts | 7.7 | % | 8.6 | % | (90 | ) bpts | ||||||||||||
Third Quarter: Government Services net sales for the 2011 third quarter decreased by $90
million, or 9%, compared to the 2010 third quarter. The decrease in sales was due to: (1) $40
million related to the loss of an Afghanistan Ministry of Defense (MoD) support contract and a
Federal Aviation Administration Information Technology (IT) support services contract, (2) $37
million in lower linguist services and training and logistics support services for the U.S. Army as
the drawdown of U.S. military forces from Iraq continues, (3) $15 million in reduced pass-through
subcontractor sales related to systems and software engineering services (SSES), (4) $11 million
for completed contracts primarily the SBInet program for the U.S. Department of Homeland Security,
and (5) $11 million for IT support services for the U.S. Special Operations Command due to fewer
task orders received because of more competitors on the current contract. These decreases were
partially offset by $24 million in higher sales due to increased demand for intelligence and
information technology support services for U.S. Government agencies.
Government Services operating income for the 2011 third quarter decreased by $18 million, or 20%,
compared to the 2010 third quarter. Operating margin decreased by 110 basis points. Lower contract
profit rates on select new business and re-competitions of existing business due to competitive
price pressures and higher business development costs for the cyber security business decreased
operating margin by 120 basis points. Transaction costs of $4 million for the Engility spin-off
reduced operating margin by 40 basis points. These decreases were partially offset by the timing of
semi-annual award fees awarded by the customer in the 2011 third quarter for select intelligence
and information technology support services contracts, which increased operating margin by 50 basis
points.
| L-3 Announces Results for the 2011 Third Quarter | Page 5 |
Year-to-Date: Government Services net sales for the 2011 year-to-date period decreased by $113
million, or 4%, compared to the 2010 year-to-date period. Additional days in the 2011 year-to-date
period as compared to the 2010 year-to-date period increased sales by approximately $60 million.
Excluding the impact of the additional days, sales decreased by approximately $173 million, or 6%,
due to trends similar to the 2011 third quarter. Specifically, SSES subcontractor pass-through
volume declined $68 million and sales were lower by $78 million due to the loss of the Afghanistan
MoD support contract.
Government Services operating income for the 2011 year-to-date period decreased by $33 million, or
13%, compared to the 2010 year-to-date period. Operating margin decreased by 90 basis points due to
reasons similar to the 2011 third quarter.
AM&M
| Third Quarter Ended | Year-to-Date Ended | |||||||||||||||||||||||
| Sept. 30, | Sept. 24, | Increase/ | Sept. 30, | Sept. 24, | Increase/ | |||||||||||||||||||
| ($ in millions) | 2011 | 2010 | (decrease) | 2011 | 2010 | (decrease) | ||||||||||||||||||
Net sales |
$ | 622.7 | $ | 707.4 | (12 | )% | $ | 1,825.4 | $ | 2,119.7 | (14 | )% | ||||||||||||
Operating income |
$ | 61.5 | $ | 54.3 | 13 | % | $ | 183.5 | $ | 171.7 | 7 | % | ||||||||||||
Operating margin |
9.9 | % | 7.7 | % | 220 | bpts | 10.1 | % | 8.1 | % | 200 | bpts | ||||||||||||
Third Quarter: AM&M net sales for the 2011 third quarter decreased by $85 million, or 12%,
compared to the 2010 third quarter. The decrease was primarily due to: (1) $106 million from the
Special Operations Forces Support Activity (SOFSA) contract loss in June 2010, and (2) $25 million
due to lower Joint Cargo Aircraft (JCA) volume. These decreases were partially offset by increased
CLS services primarily for U.S. Army C-12 aircraft, a new contract which was competitively won in
November 2010.
AM&M operating income for the 2011 third quarter increased by $7 million, or 13%, compared to the
2010 third quarter. Operating margin increased by 220 basis points. The increase in operating
margin was due to: (1) 120 basis points because of the sales decline on the lower margin SOFSA
contract, (2) 100 basis points as a result of improved contract performance, primarily for rotary
wing cabin assemblies and special mission aircraft modernizations, and (3) 40 basis points from
lower costs for CLS services. These margin increases were partially offset by 40 basis points
primarily due to higher costs related to JCA.
Year-to-Date: AM&M net sales for the 2011 year-to-date period decreased by $294 million, or 14%,
compared to the 2010 year-to-date period. Additional days in the 2011 year-to-date period as
compared to the 2010 year-to-date period increased sales by $23 million. Excluding the impact of
the additional days, sales decreased by $317 million, or 15%. The decrease was primarily the result
of $304 million from the SOFSA contract loss and $58 million from lower JCA volume, partially
offset by increased CLS services for C-12 aircraft.
AM&M operating income for the 2011 year-to-date period increased by $12 million, or 7%, compared to
the 2010 year-to-date period. Operating margin increased by 200 basis points, of which 150 basis
points was primarily due to reasons similar to the 2011 third quarter and 50 basis points due to a
2011 first quarter favorable price adjustment of $10 million for an international aircraft
modernization contract.
Electronic Systems
| Third Quarter Ended | Year-to-Date Ended | |||||||||||||||||||||||
| Sept. 30, | Sept. 24, | Increase/ | Sept. 30, | Sept. 24, | ||||||||||||||||||||
| ($ in millions) | 2011 | 2010 | (decrease) | 2011 | 2010 | Decrease | ||||||||||||||||||
Net sales |
$ | 1,368.5 | $ | 1,343.3 | 2 | % | $ | 4,017.3 | $ | 4,047.5 | (1 | )% | ||||||||||||
Operating income |
$ | 166.9 | $ | 206.2 | (19 | )% | $ | 512.4 | $ | 578.6 | (11 | )% | ||||||||||||
Operating margin |
12.2 | % | 15.4 | % | (320 | ) bpts | 12.8 | % | 14.3 | % | (150 | ) bpts | ||||||||||||
Third Quarter: Electronic Systems net sales for the 2011 third quarter increased by $25
million, or 2%, compared to the 2010 third quarter. Sales from acquired businesses added $33
million to net sales. Volume increases on existing contracts primarily for Electro-Optic/Infrared
(EO/IR) products to the U.S. Army and new business for commercial shipbuilding products increased
sales by $48 million. These increases were partially offset by lower sales primarily for: (1)
warrior systems due to lower shipments of night vision products, (2) simulation & training devices
due primarily to declining production volumes on the F-22, Aviation Combined Arms Tactical Trainer
(AVCATT) and F-18 programs, and (3) combat propulsion
systems due primarily to lower volume for Bradley Fighting Vehicle transmissions, M-1 Abrams tank
engines and spare parts.
| L-3 Announces Results for the 2011 Third Quarter | Page 6 |
Electronic Systems operating income for the 2011 third quarter decreased by $39 million, or 19%,
compared to the 2010 third quarter. Operating margin declined by 320 basis points due to: (1)
unfavorable contract performance and lower sales primarily for warrior systems, simulation &
training and combat propulsion systems, which together reduced operating margin by 250 basis
points, (2) a favorable contract modification of $5 million for precision engagement in 2010 that
did not recur, which reduced operating margin by 50 basis points, and (3) lower manufacturing
yields for power devices for satellite communication systems, which reduced operating margin by 20
basis points.
Year-to-Date: Electronic Systems net sales for the 2011 year-to-date period decreased by $30
million, or 1%, compared to the 2010 year-to-date period, reflecting lower sales volume for: (1)
warrior systems, (2) microwave products due to reduced deliveries of mobile satellite
communications systems and related power devices and amplifiers, and lower volume related to the
Prophet program, (3) simulation & training devices due to declining production volumes on the F-22,
AVCATT and F-18 programs and the delay of a foreign maritime simulation contract, and (4) combat
propulsion systems due primarily to reduced DoD funding for Bradley Fighting Vehicles. These
decreases were partially offset primarily by sales from acquired businesses of $147 million, and
volume increases primarily for EO/IR.
Electronic Systems operating income for the 2011 year-to-date period decreased by $66 million, or
11%, compared to the 2010 year-to-date period. Operating margin decreased by 150 basis points, of
which 190 basis points was primarily due to reasons similar to the 2011 third quarter.
Additionally, the decrease in operating margin was partially offset by 40 basis points due
primarily to increased EO/IR sales volume.
| L-3 Announces Results for the 2011 Third Quarter | Page 7 |
Financial Guidance
Based on information known as of today, the company has updated its consolidated and segment
financial guidance for the year ending December 31, 2011, as presented in the tables below. All
financial guidance amounts are estimates subject to change in the future, including as a result of
matters discussed under the “Forward-Looking Statements” cautionary language beginning on page 8,
and the company undertakes no duty to update its guidance.
Consolidated 2011 Financial Guidance
($ in billions, except per share data)
($ in billions, except per share data)
| Prior | ||||||
| Current | (July 28, 2011) | |||||
Net sales |
$15.3 to $15.4 | $15.5 to $15.6 | ||||
Operating margin |
10.7% | 10.7% | ||||
Effective tax rate |
32.5% | 33.2% | ||||
Diluted EPS |
$8.70 to $8.80 | $8.65 to $8.75 | ||||
Net cash from operating activities |
$1.49 | $1.51 | ||||
Less: Capital expenditures, net
of dispositions of property,
plant and equipment |
0.20 | 0.22 | ||||
Free cash flow |
$1.29 | $1.29 | ||||
Segment 2011 Financial Guidance
($ in billions)
($ in billions)
| Prior | ||||
| Current | (July 28, 2011) | |||
Net Sales: |
||||
C3ISR |
$3.6 to $3.7 | $3.6 to $3.7 | ||
Government Services |
$3.6 to $3.7 | $3.6 to $3.7 | ||
AM&M |
$2.4 to $2.5 | $2.4 to $2.5 | ||
Electronic Systems |
$5.6 to $5.7 | $5.7 to $5.8 | ||
Operating Margins: |
||||
C3ISR |
11.2% to 11.4% | 11.0% to 11.2% | ||
Government Services |
7.7% to 7.9% | 7.8% to 8.0% | ||
AM&M |
9.0% to 9.2% | 9.0% to 9.2% | ||
Electronic Systems |
12.8% to 13.0% | 12.8% to 13.0% |
The revision of the company’s 2011 financial guidance compared to the previous guidance
provided on July
28, 2011, is primarily due to the items listed below.
| • | Reduced sales and operating income because of less than expected funding for: (1) the JCA contract in the AM&M segment and (2) select contracts in C3ISR and Electronic Systems segments; |
| • | Transaction costs totaling approximately $8 million related to the spin-off of the Engility business (previously announced on July 28, 2011), reported in the Government Services segment; |
| • | A reduction in the estimated effective tax rate; and |
| • | Fewer diluted shares outstanding, primarily due to an additional $100 million of share repurchases, resulting in total expected share repurchases of $900 million, and the timing of those repurchases. |
Additional financial information regarding the 2011 third quarter results and the 2011 updated
financial guidance is available on the company’s website at
www.L-3com.com.
| L-3 Announces Results for the 2011 Third Quarter | Page 8 |
Conference Call
In conjunction with this release, L-3 will host a conference call today, Thursday, October 27, 2011
at 11:00 a.m. EDT that will be simultaneously broadcast over the Internet. Michael T. Strianese,
chairman, president and chief executive officer, and Ralph G. D’Ambrosio, senior vice president and
chief financial officer, will host the call.
11:00 a.m. EDT
10:00 a.m. CDT
9:00 a.m. MDT
8:00 a.m. PDT
10:00 a.m. CDT
9:00 a.m. MDT
8:00 a.m. PDT
Listeners may access the conference call live over the Internet at the company’s website at:
http://www.L-3com.com
Please allow fifteen minutes prior to the call to visit our website to download and install any
necessary audio software. The archived version of the call may be accessed at our website or by
dialing 888-286-8010 (passcode: 73739224), beginning approximately two hours after the call ends
and will be available until the company’s next quarterly earnings release.
Headquartered in New York City, L-3 employs approximately 61,000 people worldwide and is a
prime contractor in C3ISR (Command, Control, Communications, Intelligence,
Surveillance and Reconnaissance) systems, aircraft modernization and maintenance, and
government services. L-3 is also a leading provider of a broad range of electronic systems
used on military and commercial platforms. The company reported 2010 sales of $15.7 billion.
To learn
more about L-3, please visit the company’s website at www.L-3com.com. L-3 uses its
website as a channel of distribution of material company information. Financial and other
material information regarding L-3 is routinely posted on the company’s website and is readily
accessible.
Forward-Looking Statements
Certain of the matters discussed in this release, including information regarding the company’s
2011 financial outlook that are predictive in nature, that depend upon or refer to events or
conditions or that include words such as “expects,”
“anticipates,” “intends,” “plans,”
“believes,” “estimates,” and similar expressions constitute forward-looking statements.
Although we believe that these statements are based upon reasonable assumptions, including
projections of total sales growth, sales growth from business acquisitions, organic sales growth,
consolidated operating margins, total segment operating margins, interest expense, earnings, cash
flow, research and development costs, working capital, capital expenditures and other projections,
they are subject to several risks and uncertainties, and therefore, we can give no assurance that
these statements will be achieved. Such statements will also be influenced by factors which
include, among other things: timing and completion of the planned spin-off of a new, independent,
publicly traded government services company, our dependence on the defense industry and the
business risks peculiar to that industry, including changing priorities or reductions in the U.S.
Government defense budget; backlog processing and program slips resulting from delayed funding of
the Department of Defense (DoD) budget; our reliance on contracts with a limited number of agencies
of, or contractors to, the U.S. Government and the possibility of termination of government
contracts by unilateral government action or for failure to perform; the extensive legal and
regulatory requirements surrounding our contracts with the U.S. or foreign governments and the
results of any investigation of our contracts undertaken by the U.S. or foreign governments; our
ability to retain our existing business and related contracts (revenue arrangements); our ability
to successfully compete for and win new business and related contracts (revenue arrangements) and
to win re-competitions of our existing contracts; our ability to identify and acquire additional
businesses in the future with terms that are attractive to L-3 and to integrate acquired business
operations; the impact of any strategic initiatives undertaken by us, including but not limited to
the potential spin-off of a portion of our Government Services segment, and our ability to achieve
anticipated benefits; our ability to maintain and improve our consolidated operating margin and
total segment operating margin in future periods; our ability to obtain future government contracts
(revenue arrangements) on a timely basis; the availability of government funding or cost-cutting
initiatives and changes in customer requirements for our products and services; our significant
amount of debt and the restrictions contained in our debt agreements; our ability to continue to
retain and
| L-3 Announces Results for the 2011 Third Quarter | Page 9 |
train our existing employees and to recruit and hire new qualified and skilled employees as well as
our ability to retain and hire employees with U.S. Government security clearances; actual future
interest rates, volatility and other assumptions used in the determination of pension benefits and
equity based compensation, as well as the market performance of benefit plan assets; our collective
bargaining agreements, our ability to successfully negotiate contracts with labor unions and our
ability to favorably resolve labor disputes should they arise; the business, economic and political
conditions in the markets in which we operate, including those for the commercial aviation,
shipbuilding and communications markets; global economic uncertainty; the DoD’s contractor support
services in-sourcing and efficiency initiatives; events beyond our control such as acts of
terrorism; our ability to perform contracts (revenue arrangements) on schedule; our international
operations; our extensive use of fixed-price type contracts as compared to cost-plus type and
time-and-material type contracts; the rapid change of technology and high level of competition in
the defense industry and the commercial industries in which our businesses participate; our
introduction of new products into commercial markets or our investments in civil and commercial
products or companies; the outcome of litigation matters, including in connection with jury trials;
results of audits by U.S. Government agencies; results of on-going governmental investigations,
including potential suspensions or debarments; the impact on our business of improper conduct by
our employees, agents or business partners; anticipated cost savings from business acquisitions not
fully realized or realized within the expected time frame; the outcome of matters relating to the
Foreign Corrupt Practices Act (FCPA) and similar non-U.S. regulations; ultimate resolution of
contingent matters, claims and investigations relating to acquired businesses, and the impact on
the final purchase price allocations; competitive pressure among companies in our industry; and the
fair values of our assets, which can be impaired or reduced by other factors, some of which are
discussed above.
For a discussion of other risks and uncertainties that could impair our results of operations or
financial condition, see “Part I — Item 1A —
Risk Factors” and Note 19 to our audited
consolidated financial statements, included in our Annual Report on Form 10-K for the year ended
December 31, 2010, as well as any material updates to these factors in our future filings.
Our forward-looking statements are not guarantees of future performance and the actual results or
developments may differ materially from the expectations expressed in the forward-looking
statements. As for the forward-looking statements that relate to future financial results and
other projections, actual results will be different due to the inherent uncertainties of estimates,
forecasts and projections and may be better or worse than projected and such differences could be
material. Given these uncertainties, you should not place any reliance on these forward-looking
statements. These forward-looking statements also represent our estimates and assumptions only as
of the date that they were made. We expressly disclaim a duty to provide updates to these
forward-looking statements, and the estimates and assumptions associated with them, after the date
of this release to reflect events or changes in circumstances or changes in expectations or the
occurrence of anticipated events.
# # #
— Financial Tables Follow —
Table A
L-3 COMMUNICATIONS HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
| Third Quarter Ended(a) | Year-to-Date Ended | |||||||||||||||
| Sept. 30, | Sept. 24, | Sept. 30, | Sept. 24, | |||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
Net sales |
$ | 3,787 | $ | 3,835 | $ | 11,154 | $ | 11,425 | ||||||||
Cost of sales |
3,381 | 3,398 | 9,954 | 10,136 | ||||||||||||
Operating income |
406 | 437 | 1,200 | 1,289 | ||||||||||||
Interest and other income, net |
3 | 3 | 10 | 15 | ||||||||||||
Interest expense |
57 | 64 | 176 | 200 | ||||||||||||
Debt retirement charge |
— | 5 | 18 | 18 | ||||||||||||
Income before income taxes |
352 | 371 | 1,016 | 1,086 | ||||||||||||
Provision for income taxes |
114 | 130 | 325 | 392 | ||||||||||||
Net income |
$ | 238 | $ | 241 | $ | 691 | $ | 694 | ||||||||
Less: Net income attributable to noncontrolling interests |
3 | 3 | 9 | 7 | ||||||||||||
Net income attributable to L-3 |
$ | 235 | $ | 238 | $ | 682 | $ | 687 | ||||||||
Less: Net income allocable to participating securities |
— | 1 | 2 | 4 | ||||||||||||
Net income allocable to L-3 Holdings’ common shareholders |
$ | 235 | $ | 237 | $ | 680 | $ | 683 | ||||||||
Earnings per share allocable to L-3 Holdings’ common
shareholders: |
||||||||||||||||
Basic |
$ | 2.27 | $ | 2.08 | $ | 6.42 | $ | 5.93 | ||||||||
Diluted |
$ | 2.24 | $ | 2.07 | $ | 6.34 | $ | 5.89 | ||||||||
L-3 Holdings’ weighted average common shares outstanding: |
||||||||||||||||
Basic |
103.5 | 114.0 | 106.0 | 115.1 | ||||||||||||
Diluted |
104.8 | 114.7 | 107.2 | 116.0 | ||||||||||||
| (a) | It is the company’s established practice to close its books for the quarters ending March, June and September
on the Friday nearest to the end of the calendar quarter. The interim financial statements and tables of financial information
included herein have been prepared and are labeled based on that convention. The company closes its annual books on December 31
regardless of what day it falls on. |
Table B
L-3 COMMUNICATIONS HOLDINGS, INC.
UNAUDITED SELECT FINANCIAL DATA
(in millions)
UNAUDITED SELECT FINANCIAL DATA
(in millions)
| Third Quarter Ended | Year-to-Date Ended | |||||||||||||||
| Sept. 30, | Sept. 24, | Sept. 30, | Sept. 24, | |||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
Segment
Operating Data |
||||||||||||||||
Net Sales: |
||||||||||||||||
C3ISR |
$ | 892.2 | $ | 790.6 | $ | 2,522.2 | $ | 2,356.2 | ||||||||
Government Services |
904.1 | 994.3 | 2,789.2 | 2,902.0 | ||||||||||||
AM&M |
622.7 | 707.4 | 1,825.4 | 2,119.7 | ||||||||||||
Electronic Systems |
1,368.5 | 1,343.3 | 4,017.3 | 4,047.5 | ||||||||||||
Total |
$ | 3,787.5 | $ | 3,835.6 | $ | 11,154.1 | $ | 11,425.4 | ||||||||
Operating income: |
||||||||||||||||
C3ISR |
$ | 103.5 | $ | 84.4 | $ | 288.5 | $ | 289.4 | ||||||||
Government Services |
74.3 | 92.5 | 215.7 | 249.2 | ||||||||||||
AM&M |
61.5 | 54.3 | 183.5 | 171.7 | ||||||||||||
Electronic Systems |
166.9 | 206.2 | 512.4 | 578.6 | ||||||||||||
Total |
$ | 406.2 | $ | 437.4 | $ | 1,200.1 | $ | 1,288.9 | ||||||||
Operating margin: |
||||||||||||||||
C3ISR |
11.6 | % | 10.7 | % | 11.4 | % | 12.3 | % | ||||||||
Government Services |
8.2 | % | 9.3 | % | 7.7 | % | 8.6 | % | ||||||||
AM&M |
9.9 | % | 7.7 | % | 10.1 | % | 8.1 | % | ||||||||
Electronic Systems |
12.2 | % | 15.4 | % | 12.8 | % | 14.3 | % | ||||||||
Total |
10.7 | % | 11.4 | % | 10.8 | % | 11.3 | % | ||||||||
Depreciation and amortization: |
||||||||||||||||
C3ISR |
$ | 11.7 | $ | 11.6 | $ | 34.6 | $ | 32.4 | ||||||||
Government Services |
7.8 | 9.0 | 24.9 | 27.1 | ||||||||||||
AM&M |
4.4 | 5.3 | 13.4 | 14.5 | ||||||||||||
Electronic Systems |
34.5 | 36.3 | 108.2 | 96.1 | ||||||||||||
Total |
$ | 58.4 | $ | 62.2 | $ | 181.1 | $ | 170.1 | ||||||||
Funded
order data: |
||||||||||||||||
C3ISR |
$ | 1,042 | $ | 786 | $ | 2,799 | $ | 2,361 | ||||||||
Government Services |
1,142 | 997 | 2,799 | 2,935 | ||||||||||||
AM&M |
527 | 491 | 1,796 | 2,079 | ||||||||||||
Electronic Systems |
1,758 | 1,242 | 4,201 | 3,850 | ||||||||||||
Total |
$ | 4,469 | $ | 3,516 | $ | 11,595 | $ | 11,225 | ||||||||
| Sept. 30, | December 31, | |||||||
| 2011 | 2010 | |||||||
Period
end data: |
||||||||
Funded backlog |
$ | 11,539 | $ | 11,091 | ||||
Table C
L-3 COMMUNICATIONS HOLDINGS, INC.
UNAUDITED PRELIMINARY CONDENSED CONSOLIDATED
BALANCE SHEETS
(in millions)
UNAUDITED PRELIMINARY CONDENSED CONSOLIDATED
BALANCE SHEETS
(in millions)
| Sept. 30, | Dec. 31, | |||||||
| 2011 | 2010 | |||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ | 538 | $ | 607 | ||||
Billed receivables, net |
1,188 | 1,299 | ||||||
Contracts in process |
2,783 | 2,548 | ||||||
Inventories |
352 | 303 | ||||||
Deferred income taxes |
116 | 114 | ||||||
Other current assets |
168 | 207 | ||||||
Total current assets |
5,145 | 5,078 | ||||||
Property, plant and equipment, net |
917 | 923 | ||||||
Goodwill |
8,735 | 8,730 | ||||||
Identifiable intangible assets |
428 | 470 | ||||||
Deferred debt issue costs |
34 | 39 | ||||||
Other assets |
194 | 211 | ||||||
Total assets |
$ | 15,453 | $ | 15,451 | ||||
LIABILITIES AND EQUITY |
||||||||
Current portion of long-term debt |
$ | — | $ | 11 | ||||
Accounts payable, trade |
515 | 463 | ||||||
Accrued employment costs |
698 | 672 | ||||||
Accrued expenses |
577 | 569 | ||||||
Advance payments and billings in excess of costs incurred |
539 | 580 | ||||||
Income taxes |
22 | 49 | ||||||
Other current liabilities |
389 | 389 | ||||||
Total current liabilities |
2,740 | 2,733 | ||||||
Pension and postretirement benefits |
870 | 943 | ||||||
Deferred income taxes |
418 | 308 | ||||||
Other liabilities |
512 | 486 | ||||||
Long-term debt |
4,126 | 4,126 | ||||||
Total liabilities |
8,666 | 8,596 | ||||||
Shareholders’ equity |
6,696 | 6,764 | ||||||
Noncontrolling interests |
91 | 91 | ||||||
Total equity |
6,787 | 6,855 | ||||||
Total liabilities and equity |
$ | 15,453 | $ | 15,451 | ||||
Table D
L-3 COMMUNICATIONS HOLDINGS, INC.
UNAUDITED PRELIMINARY CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in millions)
UNAUDITED PRELIMINARY CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in millions)
| Year-to-Date Ended | ||||||||
| Sept. 30, | Sept. 24, | |||||||
| 2011 | 2010 | |||||||
Operating
activities |
||||||||
Net income |
$ | 691 | $ | 694 | ||||
Depreciation of property, plant and equipment |
129 | 119 | ||||||
Amortization of intangibles and other assets |
52 | 51 | ||||||
Deferred income tax provision |
85 | 47 | ||||||
Stock-based employee compensation expense |
51 | 62 | ||||||
Contributions to employee savings plans in L-3 Holdings’ common stock |
108 | 110 | ||||||
Amortization of pension and postretirement benefit plans net loss and prior service cost |
36 | 31 | ||||||
Amortization of bond discounts (included in interest expense) |
3 | 18 | ||||||
Amortization of deferred debt issue costs (included in interest expense) |
7 | 9 | ||||||
Other non-cash items |
6 | (1 | ) | |||||
Changes in operating assets and liabilities, excluding acquired and divested amounts: |
||||||||
Billed receivables |
111 | (91 | ) | |||||
Contracts in process |
(231 | ) | (163 | ) | ||||
Inventories |
(46 | ) | (19 | ) | ||||
Accounts payable, trade |
44 | 12 | ||||||
Accrued employment costs |
15 | 43 | ||||||
Accrued expenses |
8 | 12 | ||||||
Advance payments and billings in excess of costs incurred |
(49 | ) | 14 | |||||
Income taxes |
50 | 94 | ||||||
Excess income tax benefits related to share-based payment arrangements |
(2 | ) | (6 | ) | ||||
Other current liabilities |
(2 | ) | (8 | ) | ||||
Pension and postretirement benefits |
(74 | ) | (34 | ) | ||||
All other operating activities |
(8 | ) | (10 | ) | ||||
Net cash from operating activities |
984 | 984 | ||||||
Investing
activities |
||||||||
Business acquisitions, net of cash acquired |
(15 | ) | (710 | ) | ||||
Capital expenditures |
(129 | ) | (98 | ) | ||||
Dispositions of property, plant and equipment |
5 | 7 | ||||||
Investments in equity investees |
— | (20 | ) | |||||
Other investing activities |
2 | 2 | ||||||
Net cash used in investing activities |
(137 | ) | (819 | ) | ||||
Financing
activities |
||||||||
Proceeds from sale of senior notes |
646 | 797 | ||||||
Redemption of senior subordinated notes |
(650 | ) | (800 | ) | ||||
Redemption of CODES |
(11 | ) | — | |||||
Borrowings under revolving credit facility |
625 | 13 | ||||||
Repayment of borrowings under revolving credit facility |
(625 | ) | (13 | ) | ||||
Common stock repurchased |
(800 | ) | (469 | ) | ||||
Dividends paid on L-3 Holdings’ common stock |
(143 | ) | (139 | ) | ||||
Proceeds from exercises of stock options |
21 | 56 | ||||||
Proceeds from employee stock purchase plan |
34 | 48 | ||||||
Debt issue costs |
(7 | ) | (7 | ) | ||||
Excess income tax benefits related to share-based payment arrangements |
2 | 6 | ||||||
Other financing activities |
(8 | ) | (14 | ) | ||||
Net cash used in financing activities |
(916 | ) | (522 | ) | ||||
Effect of foreign currency exchange rate changes on cash and cash equivalents |
— | (9 | ) | |||||
Net decrease in cash and cash equivalents |
(69 | ) | (366 | ) | ||||
Cash and cash equivalents, beginning of the period |
607 | 1,016 | ||||||
Cash and cash equivalents, end of the period |
$ | 538 | $ | 650 | ||||