L-3 Announces Third Quarter 2013 Results

L-3 Communications Holdings, Inc. (NYSE:LLL) today reported diluted earnings per share (diluted EPS) from continuing operations of $2.23 for the quarter ended September 27, 2013 (2013 third quarter), compared to $1.98 for the quarter ended September 28, 2012 (2012 third quarter). The 2013 third quarter included tax benefits of $24 million ($0.26 per diluted share) compared to $11 million ($0.11 per diluted share) for the 2012 third quarter, which are discussed below. Net sales of $3.0 billion for the 2013 third quarter decreased by 8.7% compared to the 2012 third quarter.

“Even in this challenging environment our third quarter results overall reflect good operational performance, with higher operating margins, EPS and solid cash flow achieved by the hard work and dedication of L-3’s employees,” said Michael T. Strianese, chairman, president and chief executive officer. “We continue to successfully expand our commercial and international business, which partially offset declines resulting from sequestration and the Afghanistan drawdown. Notwithstanding the uncertain federal budget environment, we remain focused on outstanding execution, achieving and exceeding customer requirements and gaining market share.”

“As such, we are delivering shareholder value and prudently deploying capital by repurchasing $156 million of our common stock and paying dividends of $50 million for the quarter, representing $555 million of cash returned to shareholders year-to-date. At the same time, we remain committed to our strategy of increasing efficiencies, making calculated investments in innovative technologies and aligning our operations with both customer priorities and realities.”

Key competitive contract wins for the quarter included: (1) new international business to provide night vision goggles to the United Arab Emirates, (2) a contract to provide the eXaminer ® XLB high performance certified detection system for baggage screening at multiple airports for the Canadian Air Transport Security Authority, (3) an international contract to provide state-of-the-art Ground Laser Target Designators (GLTD) to the Republic of Korea, (4) an indefinite-delivery/indefinite-quantity (ID/IQ) contract to provide ongoing contractor logistics support and training system support center activities for the U.S. Air Force’s Predator Mission Aircrew Training System (PMATS) program, and (5) several other ID/IQ awards including the U.S. Army’s Communications and Transmissions Systems (CTS) program, the Department of Homeland Security’s Enterprise Acquisition Gateway for Leading Edge Solutions (EAGLE) II program and the U.S. Air Force’s Network-Centric Solutions -2 (NETCENTS-2) program.
               

L-3 Consolidated Results
                     
Third Quarter Ended Year-to-Date Ended

 

Sept. 27,
 

Sept. 28,
Increase/

Sept. 27,
 

Sept. 28,
Increase/

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

$

2,996
$ 3,283 (8.7 )%

$

9,373
$     9,586 (2.2 )%
Operating income $ 314 $ 331 (5.1 )%

$

934
$ 987 (5.4 )%
Operating margin 10.5 % 10.1 %

40

 bpts

 
10.0 % 10.3 %

(30

) bpts
Interest expense $ 44 $ 48 (8.3 )%

$

131
$ 138 (5.1 )%
Interest and other income, net $ 3

$

nm

$

11
$ 6 nm
Debt retirement charge

$

$ 8 nm

$

 
$ 8 nm
Effective income tax rate 23.8 % 29.1 %

(530

) bpts
27.8 % 32.3 %

(450

) bpts
Net income from continuing operations
attributable to L-3 $ 204 $ 193 5.7 % $ 582 $ 570 2.1 %
Diluted EPS from continuing operations $ 2.23 $ 1.98

12.6
%

$

6.37
$ 5.78 10.2 %

Diluted weighted average common shares

outstanding
91.3 97.4 (6.3 )% 91.3 98.7 (7.5 )%

__________________________
nm – not meaningful                                                
 

Third Quarter Results of Operations: For the 2013 third quarter, consolidated net sales of $3.0 billion decreased $287 million, or 9%, compared to the 2012 third quarter as lower sales to the Department of Defense (DoD) impacted each segment. Acquired businesses (1), which are all included in the Electronic Systems segment, added $9 million to net sales in the 2013 third quarter. Net sales to commercial and international customers increased 2%, or $20 million, to $828 million in the 2013 third quarter, including $9 million from acquired businesses, compared to $808 million in the 2012 third quarter. Net sales to commercial and international customers, as a percentage of consolidated net sales, increased to 28% for the 2013 third quarter compared to 25% for the 2012 third 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 third quarter of $314 million decreased $17 million, or 5%, as compared to the 2012 third quarter. Operating income as a percentage of sales (operating margin) increased by 40 basis points to 10.5% for the 2013 third quarter compared to 10.1% for the 2012 third quarter. The increase in operating margin is primarily due to improved contract performance for the Electronic Systems segment and lower operating costs at National Security Solutions (NSS), partially offset by higher costs and reduced productivity for the Command, Control, Communications, Intelligence, Surveillance and Reconnaissance (C 3ISR) segment. Higher pension expense of $3 million ($2 million after income taxes, or $0.02 per diluted share) reduced operating margin by 10 basis points. In addition, both the 2013 third quarter and the 2012 third quarter included severance charges that reduced operating income by $5 million. See segment results below for additional discussion of sales and operating margin trends.

Interest expense declined by $4 million, primarily due to lower outstanding debt. The increase in interest and other income, net, was primarily due to a $3 million ($2 million after income tax, or $0.02 per diluted share) non-cash impairment charge in the 2012 third quarter related to the dissolution of an unconsolidated joint venture.

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