Attached files
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| 8-K - 8-K - L3 TECHNOLOGIES, INC. | lll-033018x8k.htm |
Contact: L3 Technologies, Inc. | ||
Corporate Communications | For Immediate Release | |
212-697-1111 | ||
L3 Announces First Quarter 2018 Results
• | Funded orders increased 10% to $2.6 billion, with a book-to-bill ratio of 1.11x |
• | Sales increased 2% to $2.4 billion |
• | Diluted earnings per share (EPS) from continuing operations increased 21% to $2.34 |
• | Increased 2018 financial guidance |
NEW YORK, May 1, 2018 - L3 Technologies, Inc. (NYSE: LLL) today reported diluted earnings per share (EPS) from continuing operations of $2.34 for the quarter ended March 30, 2018 (2018 first quarter) compared to diluted EPS from continuing operations for the quarter ended March 31, 2017 (2017 first quarter) of $1.93. Net sales of $2,371 million for the 2018 first quarter increased by 2% compared to the 2017 first quarter.
“We had a solid first quarter, highlighted by increases in operating income and margins, organic sales and our book-to-bill ratio. The growing metrics reflect our progress in building a more efficient and integrated L3,” said Christopher E. Kubasik, L3’s Chief Executive Officer and President. “There is a new level of energy and employee engagement across our operations, along with a steadfast commitment to continuous improvement. We are becoming more data-driven and customer-centric every day and are intensely focused on delivering value through affordable innovation for our customers.”
L3 Announces Results for the 2018 First Quarter | Page 2 | ||
L3 Consolidated Results
The table below provides L3’s selected financial data and presents the adoption of Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (commonly known as ASC 606), effective January 1, 2018 using the modified retrospective transition method. In accordance with the modified retrospective transition method, the 2018 first quarter is presented under ASC 606, while the 2017 first quarter is presented under ASC 605, Revenue Recognition, the accounting standard in effect for periods ending prior to January 1, 2018. The cumulative effect of the change in accounting for periods prior to January 1, 2018 was recognized through retained earnings at the date of adoption.
First Quarter Ended | ||||||||
(in millions, except per share data) | March 30, 2018 | March 31, 2017 | Increase/ (decrease) | |||||
Net sales(a) | $2,371 | $2,321 | 2 | % | ||||
Operating income(a) | $251 | $237 | 6 | % | ||||
Operating margin | 10.6% | 10.2% | 40 | bpts | ||||
Interest expense and other | $(35) | $(38) | (8) | % | ||||
Effective income tax rate | 11.1% | 21.1% | nm | |||||
Net income from continuing operations attributable to L3 | $187 | $153 | 22 | % | ||||
Diluted earnings per share from continuing operations | $2.34 | $1.93 | 21 | % | ||||
Diluted weighted average common shares outstanding | 79.9 | 79.3 | 1 | % | ||||
Net cash (used in) provided from operating activities from continuing operations | $(35) | $86 | nm | |||||
Less: Capital expenditures, net of dispositions | (54) | (40) | 35 | % | ||||
Plus: Income tax payments attributable to discontinued operations | 4 | 7 | nm | |||||
Free cash flow(b)(c) | $(85) | $53 | nm | |||||
__________________ (a) The adoption of ASC 606 accelerated sales by approximately $76 million and operating income by approximately $19 million primarily related to contracts previously accounted for under the units-of-delivery method, which are recognized earlier in the performance period as costs are incurred under ASC 606, as opposed to when the units are delivered under ASC 605. Table E quantifies the impact by segment. (b) Free cash flow is defined as net cash from operating activities from continuing operations less net capital expenditures (capital expenditures less cash proceeds from dispositions of property, plant and equipment), plus income tax payments attributable to discontinued operations. The company believes free cash flow is a useful measure for investors because it portrays the company's ability to generate cash from operations for purposes such as repaying debt, returning cash to shareholders and funding acquisitions. The company also uses free cash flow as a performance measure in evaluating management. (c) Excludes free cash flow from discontinued operations. nm = not meaningful | ||||||||
First Quarter Results of Operations: For the 2018 first quarter, consolidated net sales of $2,371 million increased $50 million, or 2%, compared to the 2017 first quarter. Organic sales(1) increased by $39 million, or 2%, to $2,350 million for the 2018 first quarter. Organic sales exclude $21 million of sales increases related to business acquisitions and $10 million of sales declines related to business divestitures. For the 2018 first quarter, organic sales to the U.S. Government increased $18 million, or 1%, to $1,638 million and organic sales to international and commercial customers increased $21 million, or 3%, to $712 million.
Operating income for the 2018 first quarter increased by $14 million compared to the 2017 first quarter. Operating income as a percentage of sales (operating margin) increased by 40 basis points to 10.6% for the 2018 first quarter, compared to 10.2% for the 2017 first quarter. Operating margin increased 90 basis points due to improved contract
__________________________
(1) Organic sales represent net sales excluding the sales impact of acquisitions and divestitures. Sales increases related to acquired businesses are sales from acquisitions that are included in L3’s actual results for less than 12 months. Sales declines related to business divestitures are sales from divestitures that are included in L3’s actual results for the 12 months prior to the divestitures. The company believes organic sales is a useful measure for investors because it provides period-to-period comparisons of the company’s ongoing operational and financial performance.
L3 Announces Results for the 2018 First Quarter | Page 3 | ||
performance primarily for the Electronic Systems and Aerospace Systems segments and 30 basis points due to lower severance and restructuring costs, primarily at Communication Systems. These increases were partially offset by 60 basis points primarily due to higher research and development costs and 20 basis points due to lower margins related to acquisitions primarily for the Sensor Systems segment. See the reportable segment results below for additional discussion of sales and operating margin trends.
The effective tax rate for the 2018 first quarter decreased to 11.1% from 21.1% for the 2017 first quarter. The decrease was primarily driven by an increase in tax benefits from equity compensation and the reduction of the U.S. corporate income tax rate enacted under the U.S. Tax Cuts and Jobs Act.
Orders: Funded orders for the 2018 first quarter increased 10% to $2,636 million compared to $2,389 million for the 2017 first quarter. The book-to-bill ratio was 1.11x for the 2018 first quarter. Funded backlog increased 3% to $8,774 million at March 30, 2018, compared to $8,493 million at December 31, 2017.
Cash Flow: Net cash used in operating activities from continuing operations was $35 million for the 2018 first quarter compared net cash provided from operating activities from continuing operations of $86 million for the 2017 first quarter. The decrease is primarily due to higher working capital requirements, primarily contract assets and milestone payments for aircraft procurements related to U.S. and foreign government contracts. Capital expenditures, net of dispositions, increased by $14 million compared to the 2017 first quarter. The Company paid dividends of $65 million during the 2018 first quarter compared to $61 million during the 2017 first quarter. Repurchases of the Company’s common stock were $119 million during the 2018 first quarter. The Company did not repurchase any of its common stock during the 2017 first quarter.
Divestitures: On May 1, 2018, the company announced that it entered into a definitive agreement to sell its Vertex Aerospace, Crestview Aerospace and TCS businesses. The company expects to complete the transaction in the summer of 2018, subject to customary closing conditions and regulatory approvals and record a gain on the sale of these businesses upon closing.
Reportable Segment Results
The company has four reportable segments. The company evaluates the performance of its segments based on their sales, operating income and operating margin. Corporate expenses are allocated to the company’s operating segments using an allocation methodology prescribed by U.S. Government regulations for government contractors. Accordingly, segment results include all costs and expenses, except for goodwill impairment charges and certain other items that are excluded by management for purposes of evaluating the performance of the company’s business segments.
Electronic Systems
First Quarter Ended | ||||||||||||
($ in millions) | March 30, 2018 | March 31, 2017 | Increase | |||||||||
Net sales | $ | 785 | $ | 738 | 6 | % | ||||||
Operating income | $ | 108 | $ | 90 | 20 | % | ||||||
Operating margin | 13.8 | % | 12.2 | % | 160 | bpts | ||||||
Electronic Systems net sales for the 2018 first quarter increased by $47 million, or 6%, compared to the 2017 first quarter. Organic sales increased by $46 million, or 6%, compared to the 2017 first quarter. Organic sales exclude $11 million of sales increases related to business acquisitions and $10 million of sales declines related to business divestitures. Organic sales increased by: (1) $29 million for Precision Engagement Systems due to increased deliveries and volume on fuzing and ordnance and guidance systems products primarily to the U.S. Army, (2) $12 million for Security & Detection Systems due to increased deliveries for airport screening devices to the U.S.
L3 Announces Results for the 2018 First Quarter | Page 4 | ||
Transportation Security Administration (TSA) and (3) $5 million primarily for Power & Propulsion due to higher volume for U.S. Navy power conversion and distribution systems.
Electronic Systems operating income for the 2018 first quarter increased by $18 million, or 20%, compared to the 2017 first quarter. Operating margin increased by 160 basis points to 13.8% primarily due to improved contract performance across all business areas.
Aerospace Systems
First Quarter Ended | ||||||||||||
($ in millions) | March 30, 2018 | March 31, 2017 | Increase/ (decrease) | |||||||||
Net sales | $ | 686 | $ | 696 | (1 | ) | % | |||||
Operating income | $ | 57 | $ | 56 | 2 | % | ||||||
Operating margin | 8.3 | % | 8.0 | % | 30 | bpts | ||||||
Aerospace Systems net sales for the 2018 first quarter decreased by $10 million, or 1%, compared to the 2017 first quarter. Sales decreased by: (1) $21 million due to lower volume for international aircraft modifications, primarily Australian Defence Force C-27J aircraft, and (2) $6 million due to lower volume on Intelligence, Surveillance and Reconnaissance (ISR) aircraft systems for foreign military customers as contracts near completion. These decreases were partially offset by higher volume primarily on large ISR aircraft systems for the U.S. Department of Defense (DoD).
Aerospace Systems operating income for the 2018 first quarter increased by $1 million, or 2%, compared to the 2017 first quarter. Operating margin increased by 30 basis points to 8.3%. Operating margin increased by 150 basis points primarily due to improved contract performance. This increase was partially offset by lower volume.
Communication Systems
First Quarter Ended | ||||||||||||
($ in millions) | March 30, 2018 | March 31, 2017 | Decrease | |||||||||
Net sales | $ | 493 | $ | 537 | (8 | ) | % | |||||
Operating income | $ | 37 | $ | 42 | (12 | ) | % | |||||
Operating margin | 7.5 | % | 7.8 | % | (30 | ) | bpts | |||||
Communication Systems net sales for the 2018 first quarter decreased by $44 million, or 8%, compared to the 2017 first quarter primarily driven by lower production volume for Unmanned Aerial Vehicle (UAV) communication systems for the DoD.
Communication Systems operating income for the 2018 first quarter decreased by $5 million, or 12%, compared to the 2017 first quarter. Operating margin decreased by 30 basis points to 7.5%. Operating margin decreased by 170 basis points primarily due to lower volume. This decrease was partially offset by: (1) 80 basis points for lower severance and restructuring costs of $4 million to $5 million for the 2018 first quarter, from $9 million for the 2017 first quarter and (2) 60 basis points for lower operating costs of $3 million, primarily at Space & Power Systems.
L3 Announces Results for the 2018 First Quarter | Page 5 | ||
Sensor Systems
First Quarter Ended | ||||||||||||
($ in millions) | March 30, 2018 | March 31, 2017 | Increase/ (decrease) | |||||||||
Net sales | $ | 407 | $ | 350 | 16 | % | ||||||
Operating income | $ | 49 | $ | 49 | — | % | ||||||
Operating margin | 12.0 | % | 14.0 | % | (200 | ) | bpts | |||||
Sensor Systems net sales for the 2018 first quarter increased by $57 million, or 16%, compared to the 2017 first quarter. Organic sales increased by $47 million, or 13%, compared to the 2017 first quarter. Organic sales exclude $10 million of sales increases related to business acquisitions. Organic sales increased by: (1) $17 million for Space & Sensor Systems due to higher volume for space electronics and infrared detection products, (2) $16 million due to increased deliveries of airborne turret systems primarily to foreign militaries and (3) $14 million primarily for Intelligence & Mission Systems due to increased deliveries of electronic warfare countermeasures products primarily to foreign militaries.
Sensor Systems operating income was $49 million for the 2018 and 2017 first quarters. Operating margin decreased by 200 basis points to 12.0%. Operating margin decreased by: (1) 300 basis points due to higher research and development costs related to imaging, space and undersea growth investments and (2) 100 basis points due to lower margins related to acquisitions. These decreases were partially offset by higher volume, which increased operating margin by 200 basis points.
L3 Announces Results for the 2018 First Quarter | Page 6 | ||
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, 2018 that was previously provided on January 25, 2018, as presented in the tables below. All financial guidance amounts are based on results from continuing operations and are estimates subject to change, including as a result of matters discussed under the “Forward-Looking Statements” cautionary language beginning on page 7. The company undertakes no duty to update its guidance.
Consolidated 2018 Financial Guidance | |||||||
(in millions, except per share data) | |||||||
Current Guidance | Prior Guidance (January 25, 2018) | ||||||
Net sales | $9,850 to $10,050 | $9,850 to $10,050 | |||||
Operating income | $1,100 to $1,125 | $1,100 to $1,125 | |||||
Interest expense and other(1) | $141 | $141 | |||||
Effective tax rate | 19.0% | 20.0% | |||||
Minority interest expense(2) | $20 | $17 | |||||
Diluted shares | ~80 | ~80 | |||||
Diluted EPS from continuing operations | $9.40 to $9.60 | $9.30 to $9.50 | |||||
Net cash from operating activities from continuing operations | $1,155 | $1,145 | |||||
Capital expenditures, net of dispositions of property, plant and equipment | (255) | (245) | |||||
Free cash flow | $900 | $900 | |||||
__________________ (1) Interest expense and other is comprised of: (i) interest expense of $170 million and (ii) interest and other income, net, of $29 million (including $9 million of income related to employee benefit plans). (2) Minority interest expense represents net income from continuing operations attributable to noncontrolling interests. | |||||||
Segment 2018 Financial Guidance | |||
($ in millions) | |||
Current Guidance | Prior Guidance (January 25, 2018) | ||
Net Sales: | |||
Electronic Systems | $3,200 to $3,300 | $3,200 to $3,300 | |
Aerospace Systems | $2,625 to $2,725 | $2,625 to $2,725 | |
Communication Systems | $2,225 to $2,325 | $2,225 to $2,325 | |
Sensor Systems | $1,700 to $1,800 | $1,700 to $1,800 | |
Operating Margin: | |||
Electronic Systems | 13.6% to 13.8% | 13.6% to 13.8% | |
Aerospace Systems | 7.8% to 8.0% | 7.8% to 8.0% | |
Communication Systems | 10.9% to 11.1% | 10.9% to 11.1% | |
Sensor Systems | 11.7% to 11.9% | 11.7% to 11.9% | |
The current guidance for 2018 is subject to potential changes to interpretations of U.S. Tax Reform and excludes: (i) any potential goodwill impairment charges for which the information is presently unknown, (ii) potential adverse results related to litigation contingencies and (iii) other items such as gains or losses related to potential business divestitures and the impact of potential acquisitions.
Additional financial information regarding the 2018 first quarter results and the 2018 financial guidance is available on the company’s website at www.L3T.com.
L3 Announces Results for the 2018 First Quarter | Page 7 | ||
Conference Call
In conjunction with this release, L3 will host a conference call today, Tuesday, May 1, 2018, at 11:00 a.m. ET that will be simultaneously broadcast over the Internet. Christopher E. Kubasik, Chief Executive Officer and President, and Ralph G. D’Ambrosio, Senior Vice President and Chief Financial Officer, will host the call.
Listeners can access the conference call live at the following website address:
http://www.L3T.com
Please allow 15 minutes prior to the call to visit this site to download and install any necessary audio software. The archived version of the call may be accessed at the site or by dialing 1-877-344-7529 (for domestic callers) or 1-412-317-0088 (for international callers) and using the Replay Access Code: 10118138 approximately one hour after the call ends. The Conference Replay will be available through Tuesday, May 15, 2018.
Headquartered in New York City, L3 Technologies employs approximately 31,000 people worldwide and is a leading provider of a broad range of communication, electronic and sensor systems used on military, homeland security and commercial platforms. L3 is also a prime contractor in aerospace systems, security and detection systems and pilot training.
To learn more about L3, please visit the company’s website at www.L3T.com. L3 uses its website as a channel of distribution of material company information. Financial and other material information regarding L3 is routinely posted on the company’s website and is readily accessible.
Forward-Looking Statements
Certain of the matters discussed in this press release, including information regarding the company’s 2018 financial guidance, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than historical facts may be forward-looking statements, such as “may,” “will,” “should,” “likely,” “projects,” “financial guidance,” ‘‘expects,’’ ‘‘anticipates,’’ ‘‘intends,’’ ‘‘plans,’’ ‘‘believes,’’ ‘‘estimates,’’ and similar expressions are used to identify forward-looking statements. The company cautions investors that these statements are subject to risks and uncertainties, many of which are difficult to predict and generally beyond the company’s control, that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. Some of the factors that could cause actual results to differ include, but are not limited to, the following: our dependence on the defense industry; backlog processing and program slips resulting from delayed awards and/or funding from the Department of Defense (DoD) and other major customers; the U.S. Government fiscal situation; changes in DoD budget levels and spending priorities; our reliance on contracts with a limited number of customers and the possibility of termination of government contracts by unilateral government action or for failure to perform; the extensive legal and regulatory requirements surrounding many of our contracts; our ability to retain our existing business and related contracts; our ability to successfully compete for and win new business, or, identify, acquire and integrate additional businesses; our ability to maintain and improve our operating margin; the availability of government funding and changes in customer requirements for our products and services; the outcome of litigation matters (see Notes to our annual report on Form 10-K and quarterly reports on Form 10-Q); results of audits by U.S. Government agencies and of ongoing governmental investigations; our significant amount of debt and the restrictions contained in our debt agreements and actions taken by rating agencies that could result in a downgrade of our debt; our ability to continue to recruit, retain and train our employees; 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; the risk that our commercial aviation products and services businesses are affected by a downturn in global demand for air travel or a reduction in commercial aircraft OEM (Original Equipment Manufacturer) production rates; the DoD’s Better Buying Power and other efficiency initiatives; events beyond our control such as acts of terrorism; our ability to perform contracts on schedule; our international operations including currency risks and compliance with foreign laws; our extensive use of fixed-price type revenue arrangements; the rapid change of technology and high level of
L3 Announces Results for the 2018 First Quarter | Page 8 | ||
competition in which our businesses participate; risks relating to technology and data security; our introduction of new products into commercial markets or our investments in civil and commercial products or companies; the impact on our business of improper conduct by our employees, agents or business partners; goodwill impairments and the fair values of our assets; and the ultimate resolution of contingent matters, claims and investigations relating to acquired businesses, and the impact on the final purchase price allocations.
Our forward-looking statements speak only as of the date of this press release or as of the date they were made, and we undertake no obligation to update forward-looking statements. For a more detailed discussion of these factors, also see the information under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent report on Form 10-K for the year ended December 31, 2017 and any material updates to these factors contained in any of our future filings.
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.
# # #
- Financial Tables Follow -
Table A
L3 TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, expect per share data)
First Quarter Ended(a) | |||||||
March 30, 2018(b) | March 31, 2017(b) | ||||||
Net sales | $ | 2,371 | $ | 2,321 | |||
Cost of sales | (2,120 | ) | (2,084 | ) | |||
Operating income | 251 | 237 | |||||
Interest expense | (41 | ) | (42 | ) | |||
Interest and other income, net | 6 | 4 | |||||
Income from continuing operations before income taxes | 216 | 199 | |||||
Provision for income taxes | (24 | ) | (42 | ) | |||
Income from continuing operations | 192 | 157 | |||||
Income from discontinued operations, net of income tax | 16 | 11 | |||||
Net income | 208 | 168 | |||||
Net income from continuing operations attributable to noncontrolling interests | (5 | ) | (4 | ) | |||
Net income attributable to L3 | $ | 203 | $ | 164 | |||
Basic earnings per share attributable to L3’s common shareholders: | |||||||
Continuing operations | $ | 2.40 | $ | 1.97 | |||
Discontinued operations | 0.20 | 0.14 | |||||
Basic earnings per share | $ | 2.60 | $ | 2.11 | |||
Diluted earnings per share attributable to L3's common shareholders: | |||||||
Continuing operations | $ | 2.34 | $ | 1.93 | |||
Discontinued operations | 0.20 | 0.14 | |||||
Diluted earnings per share | $ | 2.54 | $ | 2.07 | |||
L3’s weighted average common shares outstanding: | |||||||
Basic | 78.2 | 77.7 | |||||
Diluted | 79.9 | 79.3 | |||||
_______________
(a) | It is the company's established practice to close its books for the quarters ending March, June and September on the Friday preceding 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. |
(b) | The company's statement of operations for the quarter ended March 30, 2018 is presented under ASC 606 while the company's statement of operations for the quarter ended March 31, 2017 is presented under ASC 605. Table E quantifies the impact of adopting ASC 606 on the quarter ended March 30, 2018. |
Table B
L3 TECHNOLOGIES, INC.
UNAUDITED SELECT FINANCIAL DATA
(in millions)
First Quarter Ended | ||||||||
March 30, 2018(a) | March 31, 2017(a) | |||||||
Segment operating data | ||||||||
Net sales: | ||||||||
Electronic Systems | $ | 785 | $ | 738 | ||||
Aerospace Systems | 686 | 696 | ||||||
Communication Systems | 493 | 537 | ||||||
Sensor Systems | 407 | 350 | ||||||
Total | $ | 2,371 | $ | 2,321 | ||||
Operating income: | ||||||||
Electronic Systems | $ | 108 | $ | 90 | ||||
Aerospace Systems | 57 | 56 | ||||||
Communication Systems | 37 | 42 | ||||||
Sensor Systems | 49 | 49 | ||||||
Total | $ | 251 | $ | 237 | ||||
Operating margin: | ||||||||
Electronic Systems | 13.8 | % | 12.2 | % | ||||
Aerospace Systems | 8.3 | % | 8.0 | % | ||||
Communication Systems | 7.5 | % | 7.8 | % | ||||
Sensor Systems | 12.0 | % | 14.0 | % | ||||
Total | 10.6 | % | 10.2 | % | ||||
Depreciation and amortization: | ||||||||
Electronic Systems | $ | 19 | $ | 18 | ||||
Aerospace Systems | 12 | 11 | ||||||
Communication Systems | 13 | 12 | ||||||
Sensor Systems | 12 | 11 | ||||||
Total | $ | 56 | $ | 52 | ||||
Funded order data | ||||||||
Electronic Systems | $ | 940 | $ | 903 | ||||
Aerospace Systems | 710 | 648 | ||||||
Communication Systems | 525 | 456 | ||||||
Sensor Systems | 461 | 382 | ||||||
Total | $ | 2,636 | $ | 2,389 | ||||
March 30, | January 1, | |||||||
2018 | 2018(b) | |||||||
Backlog | ||||||||
Funded | $ | 8,774 | $ | 8,493 | ||||
_______________
(a) | The company's statement of operations for the quarter ended March 30, 2018 is presented under ASC 606 while the company's statement of operations for the quarter ended March 31, 2017 is presented under ASC 605. Table E quantifies the impact of adopting ASC 606 on the quarter ended March 30, 2018. |
(b) | Funded backlog at January 1, 2018 is adjusted for the effects on sales related to the adoption of ASC 606. |
Table C
L3 TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED
BALANCE SHEETS
(in millions)
March 30, 2018(a) | December 31, 2017(a) | ||||||
ASSETS | |||||||
Cash and cash equivalents | $ | 374 | $ | 662 | |||
Billed receivables, net | 798 | 723 | |||||
Contract assets | 1,499 | — | |||||
Contracts in process | — | 1,933 | |||||
Inventories | 994 | 389 | |||||
Prepaid expenses and other current assets | 392 | 300 | |||||
Assets held for sale | 136 | 135 | |||||
Assets of discontinued operations | 287 | 306 | |||||
Total current assets | 4,480 | 4,448 | |||||
Property, plant and equipment, net | 1,131 | 1,110 | |||||
Goodwill | 6,632 | 6,615 | |||||
Identifiable intangible assets | 284 | 292 | |||||
Other assets | 346 | 264 | |||||
Total assets | $ | 12,873 | $ | 12,729 | |||
LIABILITIES AND EQUITY | |||||||
Accounts payable, trade | $ | 587 | $ | 531 | |||
Accrued employment costs | 446 | 493 | |||||
Accrued expenses | 197 | 217 | |||||
Contract liabilities | 607 | — | |||||
Advance payments and billings in excess of costs incurred | — | 509 | |||||
Income taxes payable | 6 | 19 | |||||
Other current liabilities | 319 | 367 | |||||
Liabilities held for sale | 19 | 17 | |||||
Liabilities of discontinued operations | 154 | 226 | |||||
Total current liabilities | 2,335 | 2,379 | |||||
Pension and postretirement benefits | 1,313 | 1,313 | |||||
Deferred income taxes | 177 | 158 | |||||
Other liabilities | 397 | 398 | |||||
Long-term debt | 3,331 | 3,330 | |||||
Total liabilities | 7,553 | 7,578 | |||||
Shareholders’ equity | 5,253 | 5,083 | |||||
Noncontrolling interests | 67 | 68 | |||||
Total equity | 5,320 | 5,151 | |||||
Total liabilities and equity | $ | 12,873 | $ | 12,729 | |||
_______________
(a) | The company's balance sheet as of March 30, 2018 is presented under ASC 606 while the company's balance sheet as of December 31, 2017 is presented under ASC 605. Table F quantifies the impact of adopting ASC 606 on the period ended March 30, 2018. |
Table D
L3 TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in millions)
First Quarter Ended | |||||||
March 30, 2018 | March 31, 2017 | ||||||
Operating activities | |||||||
Net income | $ | 208 | $ | 168 | |||
Less: income from discontinued operations, net of tax | (16 | ) | (11 | ) | |||
Income from continuing operations | 192 | 157 | |||||
Depreciation of property, plant and equipment | 43 | 40 | |||||
Amortization of intangibles and other assets | 13 | 12 | |||||
Deferred income tax provision | 16 | 15 | |||||
Stock-based employee compensation expense | 20 | 14 | |||||
Contributions to employee savings plans in common stock | 32 | 34 | |||||
Amortization of pension and postretirement benefit plans net loss and prior service cost | 18 | 15 | |||||
Other non-cash items | 1 | 5 | |||||
Changes in operating assets and liabilities, excluding amounts from acquisitions and divestitures and | |||||||
discontinued operations: | |||||||
Billed receivables | (73 | ) | (48 | ) | |||
Contract assets | (145 | ) | — | ||||
Contracts in process | — | (180 | ) | ||||
Inventories | (65 | ) | (9 | ) | |||
Prepaid expenses and other current assets | (99 | ) | (24 | ) | |||
Accounts payable, trade | 56 | 91 | |||||
Accrued employment costs | (54 | ) | (68 | ) | |||
Accrued expenses | (6 | ) | 23 | ||||
Contract liabilities | 41 | — | |||||
Advance payments and billings in excess of costs incurred | — | (9 | ) | ||||
Income taxes | (11 | ) | 12 | ||||
All other operating activities | (14 | ) | 6 | ||||
Net cash (used in) from operating activities from continuing operations | (35 | ) | 86 | ||||
Investing activities | |||||||
Business acquisitions, net of cash acquired | — | (139 | ) | ||||
Proceeds from the sale of businesses, net of closing date cash balances | — | 16 | |||||
Capital expenditures | (56 | ) | (41 | ) | |||
Dispositions of property, plant and equipment | 2 | 1 | |||||
Other investing activities | (29 | ) | 5 | ||||
Net cash used in investing activities from continuing operations | (83 | ) | (158 | ) | |||
Financing activities | |||||||
Borrowings under revolving credit facility | 207 | 664 | |||||
Repayments of borrowings under revolving credit facility | (207 | ) | (664 | ) | |||
Common stock repurchased | (119 | ) | — | ||||
Dividends paid | (65 | ) | (61 | ) | |||
Proceeds from exercise of stock options | 55 | 12 | |||||
Proceeds from employee stock purchase plan | 8 | 8 | |||||
Repurchases of common stock to satisfy tax withholding obligations | (23 | ) | (18 | ) | |||
Other financing activities | (2 | ) | (4 | ) | |||
Net cash used in financing activities from continuing operations | (146 | ) | (63 | ) | |||
Effect of foreign currency exchange rate changes on cash and cash equivalents | 6 | 4 | |||||
Cash from (used in) discontinued operations: | |||||||
Operating activities | (29 | ) | (1 | ) | |||
Investing activities | (1 | ) | (1 | ) | |||
Cash from discontinued operations | (30 | ) | (2 | ) | |||
Net decrease in cash and cash equivalents | (288 | ) | (133 | ) | |||
Cash and cash equivalents, beginning of the period | 662 | 363 | |||||
Cash and cash equivalents, end of the period | $ | 374 | $ | 230 | |||
Table E
L3 TECHNOLOGIES, INC.
IMPACT OF NEW REVENUE RECOGNITION STANDARD
ON THE UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in millions)
The table below presents the impact of adopting ASC 606 on the company’s statement of operations.
First Quarter Ended March 30, 2018 | |||||||||||
STATEMENT OF OPERATIONS | Under ASC 605 | Effect of ASC 606 | As Reported Under ASC 606 | ||||||||
(in millions) | |||||||||||
Net sales | $ | 2,295 | $ | 76 | $ | 2,371 | |||||
Cost of sales | (2,063 | ) | (57 | ) | (2,120 | ) | |||||
Operating income | 232 | 19 | 251 | ||||||||
Income from continuing operations before income taxes | 197 | 19 | 216 | ||||||||
Provision for income taxes | (19 | ) | (5 | ) | (24 | ) | |||||
Income from continuing operations | 178 | 14 | 192 | ||||||||
Income from discontinued operations, net of income taxes | 15 | 1 | 16 | ||||||||
Net income | 193 | 15 | 208 | ||||||||
Net income attributable to L3 | $ | 188 | $ | 15 | $ | 203 | |||||
Basic earnings per share attributable to common shareholders: | |||||||||||
Continuing operations | $ | 2.21 | $ | 0.19 | $ | 2.40 | |||||
Discontinued operations | 0.19 | 0.01 | 0.20 | ||||||||
Basic earnings per share | $ | 2.40 | $ | 0.20 | $ | 2.60 | |||||
Diluted earnings per share attributable to common shareholders: | |||||||||||
Continuing operations | $ | 2.16 | $ | 0.18 | $ | 2.34 | |||||
Discontinued operations | 0.19 | 0.01 | 0.20 | ||||||||
Diluted earnings per share | $ | 2.35 | $ | 0.19 | $ | 2.54 | |||||
The following table quantifies the impact of adopting ASC 606 on segment net sales and operating income.
First Quarter Ended March 30, 2018 | |||||||
Effect of ASC 606 | |||||||
Sales | Operating Income | ||||||
(in millions) | |||||||
Electronic Systems | $ | 30 | $ | 3 | |||
Aerospace Systems | 4 | 1 | |||||
Communication Systems | 20 | 4 | |||||
Sensor Systems | 22 | 11 | |||||
Consolidated | $ | 76 | 19 | ||||
Table F
L3 TECHNOLOGIES, INC.
IMPACT OF NEW REVENUE RECOGNITION STANDARD
ON THE UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
(in millions)
The table below presents the impact of adopting ASC 606 on the company’s balance sheet.
March 30, 2018 | |||||||||||
BALANCE SHEET | Under ASC 605 | Effect of ASC 606 | As Reported Under ASC 606 | ||||||||
(in millions) | |||||||||||
Assets | |||||||||||
Current assets: | |||||||||||
Contract assets | $ | — | $ | 1,499 | $ | 1,499 | |||||
Contracts in process | 2,124 | (2,124 | ) | — | |||||||
Inventories | 424 | 570 | 994 | ||||||||
Prepaid expenses and other current assets | 377 | 15 | 392 | ||||||||
Assets of discontinued operations | 312 | (25 | ) | 287 | |||||||
Total current assets | 4,545 | (65 | ) | 4,480 | |||||||
Other assets | 296 | 50 | 346 | ||||||||
Total assets | $ | 12,888 | $ | (15 | ) | $ | 12,873 | ||||
Liabilities | |||||||||||
Current liabilities: | |||||||||||
Accrued expenses | $ | 218 | $ | (21 | ) | $ | 197 | ||||
Contract liabilities | — | 607 | 607 | ||||||||
Advance payments and billings in excess of costs incurred | 576 | (576 | ) | — | |||||||
Other current liabilities | 367 | (48 | ) | 319 | |||||||
Liabilities held for sale | 20 | (1 | ) | 19 | |||||||
Liabilities of discontinued operations | 181 | (27 | ) | 154 | |||||||
Total current liabilities | 2,401 | (66 | ) | 2,335 | |||||||
Deferred income taxes | 169 | 8 | 177 | ||||||||
Other liabilities | 382 | 15 | 397 | ||||||||
Total liabilities | 7,596 | (43 | ) | 7,553 | |||||||
Shareholders' Equity | |||||||||||
Retained earnings | 6,786 | 28 | 6,814 | ||||||||
Total equity | $ | 5,292 | $ | 28 | $ | 5,320 | |||||