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L-3 Announces Fourth Quarter 2013 Results

L-3 Communications Holdings, Inc. (NYSE:LLL) today reported diluted earnings per share (diluted EPS) from continuing operations of $2.17 for the quarter ended December 31, 2013 (2013 fourth quarter), compared to $2.25 for the quarter ended December 31, 2012 (2012 fourth quarter). Net sales of $3.3 billion for the 2013 fourth quarter decreased by 9% compared to the 2012 fourth quarter.

“We performed well in the fourth quarter amid very challenging conditions caused by declining U.S. national security budgets and sequestration. We generated solid operating margin and cash flow despite declining sales,” said Michael T. Strianese, chairman, president and chief executive officer. “We also expanded our international and commercial business, which partially offset declines in our U.S. national security business. Our consistent and strong program execution, combined with cost take out measures, continues to drive our performance as we focus on growing in areas that align with our customers’ priorities.”

“Our acquisition in December of Mustang Technology Group, a developer and manufacturer of radar-based sensors and systems, adds important synergies, technologies and customers in our Electronic Systems segment. Mustang is another example of a niche acquisition that enhances L-3’s portfolio with innovative and disruptive products to grow our market share. We also continued to deploy our cash flow to increase shareholder value, with $444 million of cash returned to shareholders during the quarter and $1 billion for 2013, through repurchases and dividends.”

Key competitive contract wins for the quarter included: (1) a contract to design, manufacture and test Medium Range Ballistic Missile (MRBM) target launch vehicles and support equipment for the U.S. Missile Defense Agency (MDA), (2) a contract to design and develop a next generation transmission system for the U.S. Army’s Gemini Transmission program to modernize its ground combat vehicles, (3) a contract to provide network operations support to the U.S. Strategic Command for the Phoenix Air to Ground Communications Network (PAGCN) Contractor Logistics Support program, (4) a contract to design, build and install mission-critical shelters and electromagnetic shielding at the MDA’s Aegis Ashore site in Romania, and (5) a contract to provide Cathay Pacific Airlines full motion flight simulators and support for its Airbus 350 fleet.

L-3 Consolidated Results

    Fourth Quarter Ended     Increase/ (decrease)     Year Ended Dec. 31,    

Increase/ (decrease)

($ in millions, except per share data) 2013   2012 2013   2012
Net sales

$

3,256

$ 3,560

 (8.5)%

$

12,629

$ 13,146 (3.9)%
Operating income $ 324 $ 364 (11.0)% $ 1,258 $ 1,351 (6.9)%
Operating margin 10.0 % 10.2 %

       (20) bpts

10.0 % 10.3 %

     (30) bpts

Interest expense $ 46 $ 46

 nm

$ 177 $ 184

(3.8)%

Interest and other income, net $ 4 $ 2

 nm

$ 15 $ 8

nm

Debt retirement charge

$

―  

 

$

5

 nm

$

―  

$

13

nm

Effective income tax rate 29.4 % 31.7 %

      (230) bpts

28.2 % 32.2 %

    (400) bpts

Net income from continuing operations attributable to L-3 $ 196 $ 212

  (7.5)%

$

778

$ 782 (0.5)%
Diluted EPS from continuing operations $ 2.17 $ 2.25

  (3.6)%

$ 8.54 $ 8.01 6.6%
Diluted weighted average common shares outstanding 90.5 94.3

  (4.0)%

91.1 97.6 (6.7)%

______________________________

 

nm – not meaningful                

 

                 
 

Fourth Quarter Results of Operations: For the 2013 fourth quarter, consolidated net sales of $3.3 billion decreased $304 million, or 9%, compared to the 2012 fourth quarter as lower sales to the Department of Defense (DoD) impacted each segment. Net sales to international and commercial customers increased 8%, or $73 million, to $970 million in the 2013 fourth quarter, compared to $897 million in the 2012 fourth quarter. Net sales to international and commercial customers, as a percentage of consolidated net sales, increased to 30% for the 2013 fourth quarter compared to 25% for the 2012 fourth quarter.

Operating income for the 2013 fourth quarter of $324 million decreased $40 million, or 11%, as compared to the 2012 fourth quarter. Operating income as a percentage of sales (operating margin) decreased by 20 basis points to 10.0% for the 2013 fourth quarter compared to 10.2% for the 2012 fourth quarter. The decrease in operating margin is primarily due to lower sales and higher severance costs. The 2013 fourth quarter included severance charges that reduced operating income by $11 million ($7 million after taxes, or $0.08 per diluted share) compared to severance charges of $6 million ($4 million after taxes, or $0.04 per diluted share) in the 2012 fourth quarter, reducing operating margin by 10 basis points. See segment results below for additional discussion of sales and operating margin trends.

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