Net interest expense and other income decreased by $10 million for the 2012 year-to-date period compared to the same period last year. Lower interest expense of $13 million on outstanding fixed rate debt was partially offset by the $3 million non-cash asset impairment charge, recorded in the 2012 third quarter, related to the planned dissolution of an unconsolidated joint venture.
The company recorded debt retirement charges of $8 million ($5 million after income tax, or $0.05 per diluted share) during the 2012 year-to-date period and $18 million ($11 million after income tax, or $0.10 per diluted share) during the 2011 year-to-date period as a result of debt redemptions and refinancings.
The effective tax rate for the 2012 year-to-date period increased by 120 basis points compared to the same period last year primarily due to the expiration of the U.S. Federal research and experimentation tax credit on December 31, 2011. The 2012 and 2011 year-to-date periods included tax benefits of $11 million and $12 million, respectively, primarily related to the reversal of amounts previously accrued for prior tax years.
Net income from continuing operations attributable to L-3 in the 2012 year-to-date period decreased 6% to $570 million compared to the 2011 year-to-date period, and diluted EPS from continuing operations increased 3% to $5.78 from $5.62. Diluted weighted average common shares outstanding for the 2012 year-to-date period declined by 8% compared to the 2011 year-to-date period due to repurchases of L-3 common stock.Orders: Funded orders for the 2012 year-to-date period increased 4% to $10.5 billion compared to $10.0 billion for the 2011 year-to-date period. Funded backlog grew 11% to $11.0 billion at September 28, 2012, compared to $9.9 billion at December 31, 2011. Cash flow: Net cash from operating activities was $692 million for the 2012 year-to-date period, a decrease of $57 million, compared to $749 million for the 2011 year-to-date period. The decrease in net cash from operating activities was primarily due to the decline in income from continuing operations and higher income tax payments, partially offset by lower interest payments. Capital expenditures, net of dispositions of property, plant and equipment, were $118 million for the 2012 year-to-date period, compared to $119 million for the 2011 year-to-date period. Cash returned to shareholders: The table below summarizes the cash returned to shareholders during the 2012 year-to-date period compared to the 2011 year-to-date period.
|($ in millions)||Sept. 28, 2012||Sept. 30,2011|
|Net cash from operating activities from continuing operations||$||692||$||749|
|Less: Capital expenditures, net of dispositions||118||119|
|Free cash flow (1)||$||574||$||630|
|Common stock repurchases||504||800|
|Cash returned to shareholders||$||653||$||943|
|Percent of free cash flow returned to shareholders||114||%||150||%|
|(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.|
|Third Quarter Ended||Year-to-Date Ended|
|($ in millions)||Sept. 28, 2012||Sept. 30,2011||Increase/(decrease)||Sept. 28, 2012||Sept. 30,2011||Decrease|
|Operating margin||11.3||%||12.0||%||(70) bpts||11.8||%||12.4||%||(60) bpts|
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