- Diluted earnings per share of $1.25;
Adjusted diluted earnings per share(1) of
$1.43
- Net sales of $2.7 billion
- Net cash from operating activities
of $87 million
- Book-to-bill ratio of 1.06x
- Updated 2015 financial guidance for
the expected divestiture of Marine Systems International
L-3 Communications Holdings, Inc. (NYSE:LLL) today reported
diluted earnings per share (diluted EPS) of $1.25 and adjusted
diluted EPS of $1.43 for the quarter ended March 27, 2015 (2015
first quarter) compared to diluted EPS of $1.90 for the quarter
ended March 28, 2014 (2014 first quarter). Adjusted diluted EPS
excludes a loss related to the expected divestiture of Marine
Systems International (MSI) of $0.18 per diluted share, which is
discussed below. Net sales of $2.7 billion for the 2015 first
quarter decreased by 8% compared to the 2014 first quarter.
“Our book-to-bill ratio continues a positive trend and gives us
confidence in our full-year 2015 financial estimates,” said Michael
T. Strianese, chairman, president and chief executive officer. “The
fundamental growth drivers of our business remained strong during
the first quarter as demonstrated by all four of our segments
delivering book-to-bill ratios of greater than 1.0x. However, our
results for the quarter were below our expectations and were
negatively impacted by additional cost growth on international
head-of-state aircraft modification contracts in the Platform
Systems business of our Aerospace Systems segment. Accordingly, in
order to strengthen the Platform Systems management, improve its
program performance and enhance its competitiveness, we recently
integrated the business into our ISR Systems sector. Additionally,
we anticipate opportunities elsewhere in Aerospace Systems later
this year that will improve the segment’s results. Despite these
challenges, we continued to execute our strategy, capturing key new
business wins during the quarter, which resulted in strong funded
orders of $2.9 billion and a book-to-bill ratio of 1.06x.”
“The acquisition of Miteq and the divestiture of MSI that we
expect to complete next month continue to sharpen our focus on our
core businesses, improving margins and enhancing our future growth
profile. We also delivered on our commitment to return value to our
shareholders, repurchasing $100 million of our common stock and
paying dividends of $58 million during the quarter. In addition, we
increased our quarterly cash dividend by 8% to $0.65 per share,
which represents our 11th consecutive annual dividend
increase.”
Key competitive wins for the year-to-date period included:
- a contract to provide language
proficiency, area studies and iso-immersion training to the
National Security Agency (NSA), the Intelligence Community and at
numerous contiguous U.S. and outside the contiguous U.S.
sites,
- a contract to provide computer network
defense and information assurance enterprise security services to
the U.S. Army Information Technology Agency,
- a contract to provide network
operations and security center support to the U.S. Air Force
Central Command,
- a contract to supply Dynamic Unit
Hybrid Replacement units for the BAE Systems Paladin and Paladin
Integrated Management programs,
- a contract to provide Boeing 787 flight
training devices and an associated range of tailored services to
Virgin Atlantic Airways,
- an
indefinite-delivery/indefinite-quantity contract to provide
binocular night vision devices to the U.S. Special Operations
Command Naval Surface Warfare Center Crane Division and
- a subcontract to design and produce
binocular night vision devices as a sole-source supplier to BAE
Systems for the U.S. Army Enhanced Night Vision Goggle (ENVG) III
Program.
____________________
(1) Adjusted diluted earnings per share is a non-GAAP
financial measure. See Table E for a reconciliation and a
discussion on why this information is presented.
Adjusted diluted EPS excludes charges related to the MSI
business divestiture, expected to be completed on May 29, 2015, of
$22 million ($15 million after income taxes), or $0.18 per diluted
share, and is comprised of: (1) a non-cash impairment charge of $17
million related to the MSI net assets classified as held for sale
resulting from a decline in the estimated U.S. dollar equivalent
divestiture proceeds due to the weakening of the Euro against the
U.S. dollar and (2) an unrealized loss of $5 million on a forward
contract to sell at an exchange rate of approximately $1.08 the
estimated Euro proceeds to be obtained from the divestiture of MSI.
These charges are included in consolidated operating income, but
excluded from segment operating income because they are excluded by
management for purposes of assessing segment operating
performance.
L-3 Consolidated Results
First Quarter Ended
(in millions, except per share data)
March 27,2015
March 28,2014
Increase/(decrease)
Net sales
$ 2,713 $ 2,957 (8 )% Operating income
$ 200 $ 286 (30 )% Segment operating income
$
222 $ 286 (22 )% Operating margin
7.4 % 9.7 %
(230) bpts Segment operating margin
8.2 % 9.7 % (150)
bpts Interest expense
$ 44 $ 43 2 % Interest and
other income, net
$ 3 $ 5 (40 )% Effective income tax
rate
31.4 % 30.6 % 80 bpts Net income attributable to
L-3
$ 105 $ 170 (38 )% Adjusted net income
attributable to L-3(a)
$ 120 $ 170 (29 )% Diluted EPS
$ 1.25 $ 1.90 (34 )% Adjusted diluted EPS(a)
$
1.43 $ 1.90 (25 )% Diluted weighted average common shares
outstanding
83.8 89.4 (6 )%
____________________
(a) Non-GAAP metric that excludes the
aggregate loss related to the expected MSI business divestiture.
See Table E for reconciliation.
First Quarter Results of Operations: For the 2015 first quarter,
consolidated net sales of $2.7 billion decreased $244 million, or
8%, compared to the 2014 first quarter. Sales to the U.S.
Government, including $5 million of sales from acquired
businesses(2), declined 10%, or $209 million, to $1,899 million in
the 2015 first quarter, compared to $2,108 million in the 2014
first quarter, driven by the U.S. military drawdown in Afghanistan
and U.S. Government budget reductions. Sales to international and
commercial customers, including $11 million of sales from acquired
businesses, declined 4%, or $35 million, to $814 million in the
2015 first quarter, compared to $849 million in the 2014 first
quarter, driven by a $28 million decline in sales for MSI,
primarily due to the weakening of the Euro against the U.S. dollar.
Excluding MSI from both the first quarters of 2015 and 2014, sales
to international and commercial customers would have declined 1%,
or $7 million.
Consolidated operating income for the 2015 first quarter
decreased by $86 million, or 30%, compared to the 2014 first
quarter. Segment operating income for the 2015 first quarter
decreased by $64 million, or 22%, compared to the 2014 first
quarter. Segment operating income as a percentage of sales (segment
operating margin) decreased by 150 basis points to 8.2% for the
2015 first quarter compared to 9.7% for the 2014 first quarter.
Segment operating margin decreased by: (1) 60 basis points due to
$17 million of unfavorable contract performance adjustments on
international head-of-state aircraft modification contracts, (2) 50
basis points due to higher pension expense of $14 million and (3)
40 basis points due to lower sales and mix changes.
____________________
(2) 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 divestitures that are included in L-3’s actual results for
the 12 months prior to the divestitures.
See the reportable segment results below for additional
discussion of sales and operating margin trends.
Net income attributable to L-3 in the 2015 first quarter
decreased 38% to $105 million compared to the 2014 first quarter,
and diluted EPS decreased 34% to $1.25 from $1.90. Adjusted net
income attributable to L-3 decreased 29% to $120 million compared
to the 2014 first quarter, and adjusted diluted EPS decreased 25%
to $1.43. Diluted weighted average common shares outstanding for
the 2015 first quarter declined by 6% compared to the 2014 first
quarter due to repurchases of L-3 common stock.
Excluding the MSI business, consolidated net sales would have
decreased by 8% to $2,610 million for the 2015 first quarter from
$2,827 million for the 2014 first quarter, and segment operating
margin would have decreased by 150 basis points to 8.5% for the
2015 first quarter from 10.0% for the 2014 first quarter.
Orders: Funded orders for the 2015 first quarter were $2.9
billion, a decrease of 4% compared to the 2014 first quarter.
Funded backlog increased 1% to $10.3 billion at March 27, 2015
compared to $10.2 billion at December 31, 2014.
Cash Flow and Cash Returned to Shareholders: Net cash from
operating activities increased by $149 million, to $87 million for
the 2015 first quarter, compared to net cash used in operating
activities of $62 million for the 2014 first quarter. The increase
in net cash from operating activities was due to a lower increase
in working capital in the 2015 first quarter compared to the 2014
first quarter, primarily related to contracts in process and
receivables.
The table below summarizes the cash returned to shareholders
during the 2015 and 2014 first quarters.
First Quarter Ended ($ in
millions)
March 27, 2015
March 28,2014
Net cash from (used in) operating activities
$
87 $ (62 ) Capital expenditures, net of dispositions
(40 ) (29 ) Free
cash flow(1)
$ 47
$ (91 ) Dividends paid
$ 58
$ 55 Common stock repurchases
100
133 Cash returned to shareholders
$ 158 $
188
____________________
(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.
Reportable Segment
ResultsElectronic Systems
First Quarter Ended
($ in millions)
March 27,2015
March 28,2014
Decrease
Net sales
$ 1,009 $ 1,077 (6.3 ) % Operating income
$ 114 $ 125 (8.8 ) % Operating margin
11.3 % 11.6 %
(30) bpts
Electronic Systems net sales for the 2015 first quarter
decreased by $68 million, or 6%, compared to the 2014 first
quarter. Sales decreased: (1) $28 million for Marine Systems
International, primarily due to the weakening of the Euro against
the U.S. dollar, (2) $15 million for Precision Engagement &
Training on lower volume, primarily for ordnance products due to
completed contracts for the U.S. Army, (3) $15 million for Warrior
Systems on lower volume of night vision goggles to the U.S. Army
and foreign militaries due to timing of deliveries and (4) $10
million primarily for Security and Detection Systems due to timing
of deliveries of airport security system products to international
customers.
Electronic Systems operating income for the 2015 first quarter
decreased by $11 million, or 9%, compared to the 2014 first
quarter. Operating margin decreased by 30 basis points to 11.3%
primarily due to higher pension expense of $3 million, as sales mix
largely offset volume declines.
Aerospace Systems
First Quarter Ended
($ in millions)
March 27,2015
March 28,2014
Decrease Net sales
$ 1,026 $ 1,073 (4.4 ) % Operating
income
$ 62 $ 93 (33.3 )% Operating margin
6.0 % 8.7 %
(270) bpts
Aerospace Systems net sales for the 2015 first quarter decreased
by $47 million, or 4%, compared to the 2014 first quarter. Sales
decreased $52 million for Platform and Logistics Solutions,
partially offset by an increase in sales of $5 million for
Intelligence, Surveillance and Reconnaissance (ISR) Systems.
Platform and Logistics Solutions sales decreased due to lower
volume of: (1) $27 million for field maintenance and sustainment
services, primarily for U.S. Air Force (USAF) and U.S. Navy
training aircraft due to lower demand and pricing on recompeted
contracts due to competitive pressures, (2) $19 million to the USAF
from the Department of Defense’s (DoD) planned reduction of the
Compass Call aircraft fleet and the DoD’s retirement of the Joint
Cargo Aircraft (JCA), (3) $14 million on international
head-of-state aircraft modification contracts due to unfavorable
contract performance adjustments and (4) $5 million for aircraft
cabin assemblies and subassemblies due to reduced deliveries. These
decreases in sales were partially offset by increases of $13
million primarily due to higher volume for foreign military
aircraft modification contracts, including $7 million for the
Australia C-27J aircraft. The increase in sales for ISR Systems was
due to higher volume of $53 million primarily for large ISR
aircraft systems for U.S. Government customers and small ISR
aircraft systems to a foreign government, partially offset by lower
volume of $48 million for logistics support and fleet management
services to the DoD due primarily to the U.S. military drawdown in
Afghanistan.
Aerospace Systems operating income for the 2015 first quarter
decreased by $31 million, or 33%, compared to the 2014 first
quarter. Operating margin decreased by 270 basis points to 6.0%.
Operating margin decreased by: (1) 210 basis points due to
unfavorable contract performance adjustments at Platform Systems,
which includes $17 million of cost growth on international
head-of-state aircraft modification contracts, (2) 120 basis points
due to reduced flight hours and lower pricing due to competitive
pressures at Logistics Solutions, including the new U.S. Navy T-45
contract and continued losses on the Army C-12 contract, which ends
on July 31, 2015, and (3) 60 basis points due to higher pension
expense of $6 million. These decreases in operating margin were
partially offset by an increase of 120 basis points primarily for
favorable contract performance at ISR Systems.
Communication Systems
First Quarter Ended
($ in millions)
March 27,2015
March 28,2014
Decrease Net sales
$ 435 $ 503 (13.5 )% Operating
income
$ 35 $ 50 (30.0 )% Operating margin
8.0 % 9.9 %
(190) bpts
Communication Systems net sales for the 2015 first quarter
decreased by $68 million, or 14%, compared to the 2014 first
quarter due to lower volume and reduced deliveries on lower demand.
Sales decreased: (1) $23 million for Broadband Communication
Systems, primarily airborne and ground-based networked
communication systems as contracts near completion and for
ground-based communication devices to the U.S. Army, (2) $21
million for Tactical Satellite Communications products, primarily
mobile and ground-based satellite communication systems for the
U.S. military, (3) $19 million for Space & Power Systems,
primarily satellite command and control software for U.S.
Government agencies and high frequency radios for a foreign
government and (4) $17 million for Advanced Communications
products, primarily data recorders for the U.S. military as the
contract nears completion and unattended ground tactical sensors
for the U.S. Army. The Miteq, Inc. acquisition increased sales by
$12 million.
Communication Systems operating income for the 2015 first
quarter decreased by $15 million, or 30%, compared to the 2014
first quarter. Operating margin decreased by 190 basis points to
8.0%. Operating margin decreased by: (1) 100 basis points due to
higher pension expense of $5 million and (2) 90 basis points
primarily due to lower sales and mix changes, partially offset by
improved contract performance at Broadband Communication
Systems.
NSS
First Quarter Ended
($ in millions) March 27,2015
March 28,2014 Decrease Net sales
$ 243 $ 304
(20.1 )% Operating income
$ 11 $ 18 (38.9 )%
Operating margin
4.5 %
5.9 % (140) bpts
NSS net sales for the 2015 first quarter decreased by $61
million, or 20%, compared to the 2014 first quarter. Sales
decreased due to lower volume of: (1) $24 million for Defense
Solutions primarily due to lower demand driven by the U.S. military
drawdown in Afghanistan and completed contracts, (2) $21 million
for Global Solutions primarily due to completed contracts and (3)
$21 million primarily for Intelligence Solutions due to work scope
reductions on a technical support contract for a U.S. Government
agency as a result of U.S. Government budget reductions. The Data
Tactics Corporation acquisition increased sales by $5 million.
NSS operating income for the 2015 first quarter decreased by $7
million, or 39%, compared to the 2014 first quarter. Operating
margin decreased by 140 basis points to 4.5%. Operating margin
decreased by: (1) 100 basis points primarily due to lower margins
on new business and recompetitions due to competitive pricing
pressure, (2) 70 basis points due to lower sales and higher
overhead expense rates caused by delayed contract awards for
international contracts and (3) 60 basis points due to favorable
contract performance adjustments in the 2014 first quarter for a
completed contract that did not recur in the 2015 first quarter.
These decreases were partially offset by 90 basis points due to
higher award fees for intelligence and defense support services
contracts.
Financial Guidance
Based on information known as of today, the company has updated
its consolidated and segment financial guidance for the year ending
December 31, 2015, previously provided on January 29, 2015, as
presented in the tables below. All financial guidance amounts are
estimates subject to change in the future, including as a result of
matters discussed under the “Forward-Looking Statements” cautionary
language beginning on page 8 and the impact, if any, of the
litigation and investigations relating to the matters subject to
our Internal Review. The company undertakes no duty to update its
guidance.
Consolidated 2015 Financial
Guidance($ in millions, except per share data)
Current
Prior(January 29, 2015)
Net sales $11,450 to $11,650 $11,750 to $11,950 Segment operating
margin 9.4% 9.3% Interest expense $ 190 $ 190 Interest and other
income $ 15 $ 15 Effective tax rate 32.0% 32.0% Diluted shares 81.9
82.8 Diluted EPS $ 7.17 to $7.47 $ 7.35 to $7.65 Adjusted diluted
EPS(1) $ 7.35 to $7.65 NA Net cash from operating activities $
1,120 $ 1,120 Capital expenditures, net of dispositions of
property, plant and equipment
(195)
(195) Free cash flow
$ 925
$ 925
___________________
(1) Adjusted diluted EPS excludes the aggregate loss of $22
million, or $0.18 per diluted share, related to the expected MSI
divestiture. See Table E for a reconciliation and a discussion on
why this information is presented. NA – Not Applicable. The Prior
Guidance excluded the impact related to the expected divestiture of
MSI.
Segment 2015 Financial Guidance
($ in millions)
Current
Prior(January 29, 2015)
Net
Sales:
Electronic Systems $4,250 to $4,350 $4,550 to $4,650 Aerospace
Systems $4,100 to $4,200 $4,100 to $4,200 Communication Systems
$1,900 to $2,000 $1,900 to $2,000 NSS $1,100 to $1,200 $1,100 to
$1,200
Operating
Margins:
Electronic Systems 11.7% to 11.9% 11.4% to 11.6% Aerospace Systems
7.7% to 7.9% 7.7% to 7.9% Communication Systems 9.0% to 9.2% 9.0%
to 9.2% NSS 6.6% to 6.8% 6.6% to 6.8%
The revisions to our Current Guidance compared to our Prior
Guidance include:
- A decrease in consolidated and
Electronic Systems segment net sales of $300 million related to the
expected divestiture of MSI on May 29, 2015,
- An increase in segment operating margin
of 10 basis points and Electronic Systems segment operating margin
of 30 basis points related to the expected divestiture of MSI on
May 29, 2015, and
- An increase of $300 million in planned
share repurchases from $500 million to $800 million, funded with
the expected proceeds from the MSI divestiture.
The Current Guidance excludes any potential non-cash goodwill
impairment charges for which the information is presently unknown,
and potential litigation charges, if any, and additional expenses
relating to the Internal Review at Aerospace Systems, which was
completed in October 2014, and assumes that the R&E tax credit
that expired on December 31, 2014 is not re-enacted for 2015. If
re-enacted for 2015, the annual R&E tax credit would reduce the
effective tax rate by 220 basis points and increase diluted EPS by
$0.24.
Additional financial information regarding the 2015 first
quarter results and the 2015 financial guidance is available on the
company’s website at www.L-3com.com.
Conference Call
In conjunction with this release, L-3 will host
a conference call today, Thursday, April 30, 2015 at 11:00 a.m. ET
that will be simultaneously broadcast over the Internet. Michael T.
Strianese, chairman, president and chief executive officer, and
Ralph G. D’Ambrosio, senior vice president and chief financial
officer, will host the call.
11:00 a.m. ET10:00 a.m. CT9:00 a.m. MT8:00 a.m.
PT
Listeners may access the conference call live over the Internet
at the company’s website at:
http://www.L-3com.com
Please allow fifteen minutes prior to the call to visit our
website to download and install any necessary audio software. The
archived version of the call may be accessed at our website or by
dialing (877) 344-7529 passcode: 10063590, beginning approximately
two hours after the call ends and will be available until the
company’s next quarterly earnings release.
Headquartered in New York City, L-3 employs approximately 45,000
people worldwide and is a prime contractor in aerospace systems and
national security solutions. L-3 is also a leading provider of a
broad range of communication and electronic systems and products
used on military and commercial platforms.
To learn more about L-3, please visit the company’s website at
www.L-3com.com. L-3 uses its website as a channel of distribution
of material company information. Financial and other material
information regarding L-3 is routinely posted on the company’s
website and is readily accessible.
Forward-Looking Statements
Certain of the matters discussed in this press release,
including information regarding the company’s 2015 financial
guidance are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. All statements
other than historical facts, may be forward-looking statements,
such as “may,” “will,” “should,” “likely,” “projects,” ‘‘expects,’’
‘‘anticipates,’’ ‘‘intends,’’ ‘‘plans,’’ ‘‘believes,’’
‘‘estimates,’’ and similar expressions are used to identify
forward-looking statements. The company cautions investors that
these statements are subject to risks and uncertainties many of
which are difficult to predict and generally beyond the company’s
control that could cause actual results to differ materially from
those expressed in, or implied or projected by, the forward-looking
information and statements. Some of the factors that could cause
actual results to differ include, but are not limited to, the
following: our dependence on the defense industry; backlog
processing and program slips resulting from delayed awards and/or
funding from the Department of Defense (DoD) and other major
customers; the U.S. Government fiscal situation; changes in DoD
budget levels and spending priorities; U.S. Government failure to
raise the debt ceiling; our reliance on contracts with a limited
number of customers and the possibility of termination of
government contracts by unilateral government action or for failure
to perform; the extensive legal and regulatory requirements
surrounding many of our contracts; our ability to retain our
existing business and related contracts; our ability to
successfully compete for and win new business; or, identify,
acquire and integrate additional businesses; our ability to
maintain and improve our operating margin; the availability of
government funding and changes in customer requirements for our
products and services; our significant amount of debt and the
restrictions contained in our debt agreements and actions taken by
rating agencies that could result in a downgrade of our debt; our
ability to continue to recruit, retain and train our employees;
actual future interest rates, volatility and other assumptions used
in the determination of pension benefits and equity based
compensation, as well as the market performance of benefit plan
assets; our collective bargaining agreements, our ability to
successfully negotiate contracts with labor unions and our ability
to favorably resolve labor disputes should they arise; the
business, economic and political conditions in the markets in which
we operate; global economic uncertainty; the DoD’s Better Buying
Power and other efficiency initiatives; events beyond our control
such as acts of terrorism; our ability to perform contracts on
schedule; our international operations; our extensive use of
fixed-price type revenue arrangements; the rapid change of
technology and high level of competition in which our businesses
participate; risks relating to technology and data security; our
introduction of new products into commercial markets or our
investments in civil and commercial products or companies; the
outcome of litigation matters; results of audits by U.S. Government
agencies and of on-going governmental investigations, including the
internal review of the Aerospace Systems segment; the impact on our
business of improper conduct by our employees, agents or business
partners; ultimate resolution of contingent matters, claims and
investigations relating to acquired businesses, and the impact on
the final purchase price allocations; and the fair values of our
assets.
Our forward-looking statements speak only as of the date of this
press release or as of the date they were made, and we undertake no
obligation to update forward-looking statements. For a more
detailed discussion of these factors, also see the information
under the captions “Risk Factors” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in our
most recent report on Form 10-K for the year ended December 31,
2014, and any material updates to these factors contained in any of
our future filings.
As for the forward-looking statements that relate to future
financial results and other projections, actual results will be
different due to the inherent uncertainties of estimates, forecasts
and projections and may be better or worse than projected and such
differences could be material. Given these uncertainties, you
should not place any reliance on these forward-looking
statements.
# # #
– Financial Tables Follow –
Table
A
L-3 COMMUNICATIONS HOLDINGS,
INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS(in millions, except per share data)
First Quarter Ended(a)
March 27,2015
March 28,2014
Net sales $ 2,713 $ 2,957
Cost of sales
(2,491 ) (2,671 )
Loss related to business
divestiture(b) (22 )
― Operating income 200 286
Interest expense (44 ) (43 )
Interest and
other income, net 3
5 Income before income taxes 159
248
Provision for income taxes
(50 ) (76 )
Net
income $ 109 $ 172
Net income attributable to
noncontrolling interests (4 )
(2 )
Net income attributable to L-3
$ 105 $
170 Earnings per share attributable to L-3
Holdings’ common shareholders: Basic
$ 1.28
$ 1.97 Diluted
$ 1.25
$ 1.90 L-3 Holdings’
weighted average common shares outstanding: Basic
82.3 86.1
Diluted 83.8
89.4
____________________
(a)
It is the company’s established practice to close its books
for the quarters ending March, June and September on the Friday
nearest to the end of the calendar quarter. The interim financial
statements and tables of financial information included herein have
been prepared and are labeled based on that convention. The company
closes its annual books on December 31 regardless of what day it
falls on.
(b)
The loss related to business divestiture includes a $17 million
non-cash impairment charge related to the MSI assets classified as
held for sale, and a $5 million unrealized loss on a forward
contract to sell the estimated Euro proceeds to be obtained in
connection with the divestiture of MSI for U.S. dollars.
Table
B
L-3 COMMUNICATIONS HOLDINGS,
INC.UNAUDITED SELECT FINANCIAL DATA(in
millions)
First Quarter Ended
March 27,
2015
March 28,2014
Segment operating
data
Net sales: Electronic Systems $ 1,009 $
1,077
Aerospace Systems 1,026 1,073
Communication
Systems 435 503
NSS
243 304
Total $ 2,713
$ 2,957 Operating income:
Electronic Systems $ 114 $ 125
Aerospace
Systems 62 93
Communication Systems 35 50
NSS 11
18 Total $
222 $ 286
Operating margin: Electronic Systems
11.3 % 11.6 %
Aerospace Systems 6.0
% 8.7 %
Communication Systems 8.0 % 9.9
%
NSS 4.5 % 5.9 %
Total 8.2
% 9.7 %
Depreciation and amortization: Electronic
Systems $ 28 $ 29
Aerospace Systems
12 10
Communication Systems 12 12
NSS
3 3
Total $ 55
$ 54
Funded order
data
Electronic Systems $ 1,044 $ 1,099
Aerospace Systems 1,078 1,043
Communication
Systems 459 483
NSS
303 367
Total $ 2,884
$ 2,992 March 27,
December 31,
2015 2014
Period end
data
Funded backlog $ 10,332 $ 10,224
Table
C
L-3 COMMUNICATIONS HOLDINGS,
INC.UNAUDITED CONDENSED CONSOLIDATEDBALANCE
SHEETS(in millions)
March 27,2015
Dec. 31,2014
ASSETS Cash and cash equivalents $
317 $ 442
Billed receivables, net 836 852
Contracts in process 2,402 2,295
Inventories
336 288
Deferred income taxes 129 127
Other
current assets 196 186
Assets held for sale
496 547 Total
current assets 4,712
4,737 Property, plant and equipment, net
1,082 1,088
Goodwill 7,462 7,501
Identifiable intangible assets 240 243
Deferred
debt issue costs 25 27
Other assets
261 240 Total assets
$ 13,782 $
13,836 LIABILITIES AND EQUITY
Accounts payable, trade $ 484 $ 382
Accrued employment costs 508 510
Accrued
expenses 341 402
Advance payments and billings in
excess of costs incurred 541 573
Income taxes
21 23
Other current liabilities 405 398
Liabilities held for sale 225
237 Total current liabilities
2,525 2,525 Pension and
postretirement benefits 1,192 1,187
Deferred income
taxes 437 443
Other liabilities 387 382
Long-term debt 3,939
3,939 Total liabilities
8,480 8,476
Shareholders’ equity 5,228 5,285
Noncontrolling
interests 74 75
Total equity 5,302
5,360 Total liabilities and equity
$ 13,782 $
13,836
Table
D
L-3 COMMUNICATIONS HOLDINGS,
INC.UNAUDITED CONDENSED CONSOLIDATEDSTATEMENTS OF
CASH FLOWS(in millions)
First Quarter Ended
March 27,2015
March 28,2014
Operating
activities
Net income $ 109 $ 172
Depreciation of
property, plant and equipment 44 42
Amortization of
intangibles and other assets 11 12
Deferred income
tax provision 11 23
Stock-based employee compensation
expense 13 15
Contributions to employee savings plans
in L-3 Holdings’ common stock 29 44
Amortization of
pension and postretirement benefit plans net loss and prior service
cost 17 4
Amortization of bond discounts and deferred
debt issue costs (included in interest expense) 2 2
Other non-cash items 11 1
Changes in operating
assets and liabilities, excluding amounts from acquisitions and
divestitures: Billed receivables 12 (73 )
Contracts in process (147 ) (201 )
Inventories (31 ) (9 )
Other assets
― (10 )
Accounts payable, trade 105 55
Accrued employment costs (4 ) (10 )
Accrued
expenses (58 ) (56 )
Advance payments and
billings in excess of costs incurred (22 ) (46 )
Income taxes 30 28
Excess income tax benefits
related to share-based payment arrangements (23 )
(14 )
Other current liabilities 5 (25 )
Pension
and postretirement benefits 4 (2 )
All other
operating activities (31
) (14 ) Net
cash from (used in) operating activities
87 (62
)
Investing
activities
Business acquisitions, net of cash acquired (41
) (57 )
Capital expenditures (41 ) (30
)
Dispositions of property, plant and equipment 1 1
Other investing activities 6
― Net cash used in investing activities
(75 )
(86 )
Financing
activities
Borrowings under revolving credit facility 108 524
Repayment of borrowings under revolving credit facility
(108 ) (524 )
Common stock repurchased
(100 ) (133 )
Dividends paid on L-3 Holdings’
common stock (58 ) (55 )
Proceeds from
exercises of stock options 37 69
Proceeds from
employee stock purchase plan 9 9
Excess income tax
benefits related to share-based payment arrangements 23
14
Other financing activities (38
) (28 )
Net cash used in financing
activities (127 )
(124 )
Effect of foreign currency exchange rate
changes on cash and cash equivalents
(11 )
(1 ) Change in cash balance included
in assets held for sale 1
― Net decrease in cash and cash equivalents
(125 ) (273 )
Cash and cash equivalents, beginning
of the period 442
500 Cash and cash equivalents, end of the
period $ 317
$ 227
TABLE
E
L-3 COMMUNICATIONS HOLDINGS,
INC.NON-GAAP FINANCIAL MEASURESFIRST QUARTER
2015(in millions, except per share amounts)
Adjusted Diluted
EPS Non-GAAP Reconciliation
First Quarter Ended
2015Current Guidance
March 27, 2015
March 28,2014
Low endof range
High endof range
Diluted EPS attributable to L-3 Holdings' common
stockholders $ 1.25 $ 1.90
$ 7.17
$ 7.47
EPS impact of the non-cash impairment
charge related to MSI
assets held for sale (A)
0.14 ―
0.14 0.14
EPS impact of the unrealized loss on a
forward contract to sell
Euro proceeds from the MSI
divestiture(B)
0.04 ―
0.04 0.04
Adjusted diluted EPS(1) $
1.43 $ 1.90
$ 7.35
$ 7.65
(A)
Non-cash impairment charge
related to MSI assets held
for sale
$ 17 $ 17 $ 17 Tax
effect 5
5 5 After-tax
impact 12 12 12 Diluted weighted
average common shares outstanding 83.8 81.9
81.9 Per share impact(2) $
0.14 $
0.14 $
0.14
(B)
Unrealized loss on a forward contract
to sell Euro
proceeds from the MSI
divestiture
$ 5 $ 5 $ 5 Tax
effect 2
2 2 After-tax
impact 3 3 3 Diluted weighted average
common shares outstanding 83.8 81.9 81.9
Per share impact $
0.04 $
0.04 $
0.04
Adjusted Net
Income Attributable to L-3 Non-GAAP Reconciliation
First Quarter Ended
March 27, 2015
March 28,2014
Net income attributable to L-3 $ 105 $ 170
Non-cash impairment charge related to MSI assets held for
sale 12 ―
Unrealized loss on a forward contract to
sell Euro proceeds from the MSI divestiture
3 ― Adjusted net income
attributable to L-3(1) $
120 $ 170
____________________
(1) Adjusted diluted EPS is diluted EPS attributable to L-3
Holdings’ common stockholders, excluding the charges relating to
the MSI business divestiture. Adjusted net income attributable to
L-3 is net income attributable to L-3, excluding the charges
relating to the MSI business divestiture. These amounts are not
measures of financial performance under accounting principles
generally accepted in the United States of America (U.S. GAAP). The
company believes that the charges relating to the MSI business
divestiture affect the comparability of the results of operations
of 2015 to the results of operations for 2014. The company also
believes that disclosing net income and diluted EPS excluding the
charges relating to the MSI business divestiture will allow
investors to more easily compare the 2015 results to the 2014
results. However, these measures may not be defined or calculated
by other companies in the same manner. (2) Amounts may not
recalculate directly due to rounding.
L-3 Communications Holdings, Inc.Corporate
Communications212-697-1111
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