L-3 Communications Holdings (LLL)

Q2 2011 Earnings Call

July 28, 2011 8:00 am ET


Ralph D'Ambrosio - Chief Financial Officer and Senior Vice President

Michael Strianese - Chairman, Chief Executive Officer, President and Member of Executive Committee

Eric Boyriven - Investor Relations


Cai Von Rumohr - Cowen and Company, LLC

Howard Rubel - Jefferies & Company, Inc.

George Shapiro - Citi

Joseph Nadol - JP Morgan Chase & Co

Joseph Campbell - Barclays Capital

Myles Walton - Deutsche Bank AG

Peter Skibitski - SunTrust Robinson Humphrey, Inc.



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Good day, ladies and gentlemen, and welcome to the L-3 Communications Second Quarter 2011 Earnings Call. My name is Modesta, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Eric Boyriven of FD. Please proceed, sir.

Eric Boyriven

Good morning, and thanks for joining us. With me are Michael Strianese, Chairman, President and Chief Executive Officer; and Ralph D'Ambrosio, Senior Vice President and Chief Financial Officer. After their formal remarks, management will be available to take your questions.

Please note that during this call, management will reiterate forward-looking statements that were made in the press release issued this morning. Please refer to this press release as well as the company's SEC filings for a more detailed description of the factors that may cause actual results to differ materially from those anticipated.

Also please note that this call is being simultaneously broadcast over the internet. I will now turn the call over to Michael Strianese. Mike, please go ahead.

Michael Strianese

Thanks, Eric, and good morning, everyone. Thanks for joining our call. I know it's early. Let me begin by saying overall, we performed well in the second quarter. We won new awards and received key follow-on contracts, and our business continue to perform well.

We did have a decline in sales. It was primarily driven by the loss of the Special Operation Forces Support Activity and Afghan Ministry of Defense support contracts last year in 2010 and continued lower pass-through volume related to the Army's systems and software engineering and sustainment services contract due to a change in the contract vehicle that have occurred in 2009. And we had a delay in the 2011 order for Joint Cargo Aircraft.

Notwithstanding, we have achieved a book-to-bill ratio for the quarter of 1, and this a result of our strong sales mix which continues to be driven by our C3ISR business. In keeping with our strategy, we continue to take the actions necessary to enhance our ability to anticipate and effectively address our customer priorities and promote growth while also optimizing the efficiency of our business.

With this in mind, we've completed our strategic review across our business units, which as you know, has been going on for about the last year. In our Electronics Systems segment, as I mentioned back in April, we consolidated our Sensors and Simulation and Products Group businesses into a single unit named Electronic Systems group.

We also consolidated administrative operations within our Marine and Power Systems Group in the second quarter within our Warrior Systems business. We completed a consolidation of production facilities, including EOS and EOTech, with the newly acquired Insight, and that was done to streamline manufacturing processes and reduce redundancies and overhead. We also sold to smaller operations in that business area.

And recently, we also consolidated our Unmanned Systems business including the ATI unit, which we acquired last summer. So now, all of our Unmanned locations are operating under the Unmanned Systems name, and we have a wide ranging scope of platforms and capabilities to offer.

And finally, as we announced this morning, we intend to execute a tax-free spin-off of businesses in our Government Services segment to create an independent, publicly traded company. This decision has been unanimously approved by L-3's board. The newly formed company will be called Engility, and it will be a leader in SETA and training and operational support.

The name Engility is a combination of engineering and agility, and you might recognize it because it's been used by one of our wholly owned subsidiaries in the past. It's recognized in the industry.

L-3 we'll retain our Cyber, Intel and Security businesses that currently are part of Services, and we'll change the segment name to national security solutions upon completion of the spin-off transaction. There's a presentation posted on the website that I'll cover in a few minutes. Let me just finish up some comments on the quarter first.

On top of those actions, there are a number of additional internal consolidations and divestitures that we're working on, but they are much smaller and they have more fine tuning in particularly the electronics area.

These initiatives enable us to build on our core strengths of agility and innovation, sharpen our focus and increase our efficiency to drive performance and drive shareholder value. L-3 develops next-generation solutions by fusing our current capabilities across all of our businesses.

Overall, we remain confident in L-3's business mix and capabilities, and we believe we are well-positioned across the company for the future.

We were, once again, recognized by the DOD's Defense Security Service for our outstanding security program when we received 3 2011 James S. Cogswell Awards for Outstanding Industrial Security Achievement, and this really shows that we set the benchmark for outstanding security practices and excellence in handling classified information.

Our program performance was also very strong in the quarter. Our Intel and Cyber business achieved significant milestones on the U.K.'s Integrated Broadcasts System Program when we delivered an extremely complex secure communications infrastructure and data dissemination systems on budget and actually ahead of schedule.

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