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L-3 Announces Second Quarter 2013 Results

L-3 Communications Holdings, Inc. (NYSE: LLL) today reported diluted earnings per share (diluted EPS) from continuing operations of $2.03 for the quarter ended June 28, 2013 (2013 second quarter), an increase of 5%, compared to $1.94 for the quarter ended June 29, 2012 (2012 second quarter). Net sales of $3.2 billion for the 2013 second quarter increased by 2% compared to the 2012 second quarter.

“Our second quarter results were very good, underscored by strong orders, sales and EPS growth and solid cash flow. International and commercial sales rose 17%, offsetting declines in our U.S. national security-related businesses. We recorded several strategic new business wins during the quarter that expanded both our international and domestic security work, demonstrating that we continue to successfully execute our strategy to grow international and commercial sales and to increase market share. For the quarter, our funded orders were $3.5 billion, resulting in a book-to-bill ratio of 1.09,” said Michael T. Strianese, chairman, president and chief executive officer. “We continue to closely monitor the effects of sequestration and subsequent budget uncertainties. Although we have experienced some impacts from sequestration, including funding delays and cuts, award deferrals and staffing reductions at select customers, the result is manageable and we are taking the appropriate action at the affected business units.”

“We continued to execute on our commitment to deliver shareholder value by repurchasing $126 million of our common stock and paying dividends of $49 million during the quarter, resulting in $349 million of cash returned to our shareholders year-to-date. At the same time, we continue to increase the efficiency of our business units, invest wisely in R&D, ensure that our operations are appropriately sized, address important customer priorities, and pursue acquisition opportunities that strengthen and expand our business and customer base.”

Key competitive contract wins for the quarter included: (1) a contract to provide sustainment and maintenance services for the Canadian Department of National Defence’s long-range, multi-use A310 aircraft, (2) a contract to provide fleet management, maintenance and logistics support for the U.S. Navy’s TH-57 fleet of training helicopters, (3) maintenance and material management for the National Aeronautics and Space Administration (NASA) fleet of manned and unmanned aircraft, (4) new international business to upgrade eight P-3C aircraft for the Republic of Korea, (5) a contract to provide a full range of professional and information technology (IT) support services to the Centers for Disease Control (CDC), and (6) a contract to supply SATCOM terminals to the Australian Defence Force (ADF).

                                       

L-3 Consolidated Results

               
 
Second Quarter Ended First Half Ended
($ in millions, except per share data)

June 28, 2013

   

June 29, 2012

Increase/ (decrease)

June 28, 2013

   

June 29, 2012

Increase/ (decrease)

 
Net sales

$

3,192

$ 3,143 $ 49

$

6,377

$

6,303 $ 74
Operating income $ 307 $ 331 $

(24

)

 

$

620

$ 656 $

(36

)

 

Operating margin 9.6 % 10.5 %

 

(90

)

 bpts

9.7 % 10.4 %

 

(70

)

 bpts

Interest expense $ 44 $ 45 $

(1

)

 

$

87

$ 90 $

(3

)

 

Interest and other income, net $ 5 $ 3 $ 2

$

8

$ 6 $ 2
Effective income tax rate 30.6 % 33.9 %

 

(330

)

 bpts

 

 

29.8

% 33.9 %

 

(410

)

 bpts

Net income from continuing operations  attributable to L-3

$ 185 $ 191 $

(6

)

 

$

378

$ 377 $ 1

 

Diluted EPS from continuing operations

$ 2.03 $ 1.94 $ 0.09

$

4.14

$ 3.79

$

0.35

Diluted weighted average common sharesoutstanding

91.1 98.5

 

(7.4

)

 

91.3

99.4

 

(8.1

)

 

                                                   
 

Second Quarter Results of Operations: For the 2013 second quarter, consolidated net sales of $3.2 billion increased $49 million, or 2%, compared to the 2012 second quarter. Sales growth was primarily from the Platform & Logistics Solutions (P&LS) and Command, Control, Communications, Intelligence, Surveillance and Reconnaissance (C 3ISR) segments. Acquired businesses (1), which are all included in the Electronic Systems segment, added $24 million to net sales in the 2013 second quarter. Net sales to commercial and international customers increased 17%, or $126 million, to $856 million in the 2013 second quarter, including $24 million from acquired businesses, compared to $730 million in the 2012 second quarter. Net sales to commercial and international customers, as a percentage of consolidated net sales, increased to 27% for the 2013 second quarter compared to 23% for the 2012 second quarter.

_____________________________________

(1)

Net sales from acquired businesses are comprised of: (i) net sales from business 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.

Operating income for the 2013 second quarter of $307 million decreased $24 million, or 7%, as compared to the 2012 second quarter. Operating income as a percentage of sales (operating margin) decreased by 90 basis points to 9.6% for the 2013 second quarter compared to 10.5% for the 2012 second quarter. The decrease in operating margin is primarily due to less favorable contract adjustments and sales mix changes for the C 3ISR and Electronic Systems segments. In addition, acquired businesses reduced operating margin by 10 basis points and higher pension expense of $4 million ($3 million after income taxes, or $0.03 per diluted share) reduced operating margin by 10 basis points. Furthermore, the 2013 second quarter included severance charges that reduced operating income by $9 million ($6 million after income taxes, or $0.07 per diluted share), which was higher by $4 million compared to the 2012 second quarter. Higher severance costs reduced operating margin by 10 basis points. See segment results below for additional discussion of sales and operating margin trends.

Interest expense declined by $1 million, as lower outstanding debt reduced interest expense by $8 million, which was partially offset by $7 million of interest expense that was allocated to discontinued operations in the 2012 second quarter.

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