- Net sales of $2.8 billion
- Adjusted diluted earnings per
share(1) of $2.09; Diluted loss per share of
$3.74
- Goodwill impairment charge of $5.79
per diluted share for National Security Solutions
- Net cash from operating activities
of $317 million
- Funded orders of $2.4 billion,
funded backlog of $9.4 billion
- Updated 2015 financial
guidance
- Preliminary 2016 financial
outlook
L-3 Communications Holdings, Inc. (NYSE:LLL) today reported
adjusted diluted earnings per share (EPS) of $2.09 and diluted loss
per share of $3.74 for the quarter ended September 25, 2015 (2015
third quarter), compared to diluted EPS of $1.78 for the quarter
ended September 26, 2014 (2014 third quarter). Adjusted diluted EPS
excludes: (i) a non-cash goodwill impairment charge for the
National Security Solutions (NSS) segment of $5.79 per diluted
share and (ii) a loss related to a business divestiture of $0.08
per diluted share. Net sales of $2.8 billion for the 2015 third
quarter decreased by 4% compared to the 2014 third quarter.
Excluding sales from divestitures and acquisitions, net sales
(organic sales) decreased 1%.
“Our results for the third quarter reflect continued execution
of our strategy, including the ongoing repositioning of our
portfolio to focus on structurally stronger, higher-yielding
businesses where we maintain leading positions,” said Michael T.
Strianese, chairman and chief executive officer. “While we had
improved operating results, demonstrated by higher segment
operating margins, we recorded a non-cash goodwill impairment
charge for National Security Solutions. We continue to evaluate
strategic alternatives for National Security Solutions and the
process is proceeding as expected. We expect to undertake other
significant portfolio actions in addition to National Security
Solutions, and we have begun to evaluate strategic alternatives for
our other service and hardware businesses with lower returns. By
transforming our portfolio, we expect to enhance L-3’s growth
prospects, margin profile and overall competitive positioning.”
Mr. Strianese added, “We are confident that our strategy and
healthy cash flow coupled with our disciplined capital allocation
will enhance shareholder value.”
Funded orders of $2.4 billion for the quarter included the
following key wins:
- a contract to missionize two C-130J
aircraft with options to missionize ten additional C-130J aircraft
and provide ground/flight test support to the U.S. Coast
Guard,
- a subcontract from Science and
Engineering Services, LLC to provide broadband communication
systems to the U.S. Army in support of the Apache helicopter
program,
- a prime contractor position to compete
on the U.S. Air Force’s (USAF) Training Systems Acquisition III
multi-award indefinite-delivery/indefinite-quantity (ID/IQ)
contract to provide analysis, design, development, production,
installation, test and sustainment for USAF training configurations
encompassing complex aircrew, maintenance and system-specific
training systems, and
- a prime contractor position to compete
on the USAF Agile Acquisition multi-award ID/IQ contract to provide
pre-program activities, technology development activities,
engineering and manufacturing activities, and production activities
for the development of new systems or modification of existing
systems for the USAF.
Adjusted diluted EPS for the 2015 third quarter excludes: (1) a
goodwill impairment charge of $491 million ($463 million after
income taxes), or $5.79 per diluted share, due to a decline in the
estimated fair value of the NSS segment and (2) a pre-tax loss of
$9 million ($6 million after income taxes), or $0.08 per diluted
share, related to business divestitures, primarily the divestiture
of the Tinsley Product Line, which was completed on July 27, 2015
for a sales price of $4 million. The goodwill impairment charge was
a result of a decline in the projected future cash flows of NSS
caused by NSS’s inability to achieve its planned 2015 orders, sales
and operating income, primarily due to lower than expected new
commercial and international business awards, and a reduced outlook
for operating margin and international sales.
Adjusted diluted EPS for the year-to-date period ended September
25, 2015 (2015 year-to-date period) excludes: (1) a goodwill
impairment charge of $491 million ($463 million after income
taxes), or $5.68 per diluted share, related to the NSS segment and
(2) a pre-tax loss of $29 million ($18 million after income taxes),
or $0.22 per diluted share, related to business divestitures, of
which $17 million relates to the divestiture of Marine Systems
International (MSI), completed on May 29, 2015, $8 million relates
to the Tinsley Product Line divestiture, and $4 million relates to
the Broadcast Sports, Inc. (BSI) divestiture, completed on April
24, 2015.
The goodwill impairment charge and pre-tax losses related to
business divestitures are included in consolidated operating (loss)
income, but excluded from segment operating income, because they
are excluded by management for purposes of assessing segment
operating performance.
(1)Adjusted diluted earnings per share is a non-GAAP financial
measure. See Table E for a reconciliation and a discussion on why
this information is presented.
L-3 Consolidated Results
Third Quarter Ended
Year-to-Date Ended ($ in millions,
except per share data)
Sept. 25,
2015
Sept. 26,2014
Increase/(decrease)
Sept. 25,
2015
Sept. 26,2014
Increase/(decrease)
Net sales $ 2,817 $ 2,940 (4 )% $ 8,323 $ 8,916 (7 )%
Operating (loss) income
$ (214 ) $ 257 nm
$ 152 $ 782 (81 )% Loss related to business
divestitures
9 ― nm
29 ― nm Goodwill
impairment charge
491
― nm
491
― nm Segment operating income
$ 286 $
257 11 %
$
672 $ 782
(14 )% Operating margin
nm 8.7 % nm
1.8
% 8.8 %
(700)
bpts
Segment operating margin
10.2 % 8.7 %
150
bpts
8.1 % 8.8 %
(70)
bpts
Interest expense
$ 47 $ 47 —
$
139 $ 129 8 % Interest and other income, net
$
3 $ 5 (40 )%
$ 11 $ 14 (21 )% Effective
income tax rate
nm 27.0 % nm
nm 29.5 % nm Net
(loss) income attributable to L-3
$ (299 ) $
154 nm
$ (74 ) $ 461 nm Adjusted net
income attributable to L-3(a)
$ 170 $ 154 10 %
$ 407 $ 461 (12 )% Diluted (loss) earnings per
share
$ (3.74 ) $ 1.78 nm
$
(0.91 ) $ 5.21 nm Adjusted diluted EPS(a)
$ 2.09 $ 1.78 17 %
$ 4.92 $ 5.21 (6 )%
Diluted weighted average common shares outstanding
80.0 86.6 (8 )%
81.5 88.4 (8 )%
_______________________
(a) Non-GAAP metric that excludes the goodwill impairment charge
and the aggregate loss related to business divestitures. See Table
E for a reconciliation of this measure.nm – not meaningful
Third Quarter Results of Operations: For the 2015 third quarter,
consolidated net sales of $2.8 billion decreased $123 million, or
4%, compared to the 2014 third quarter. Sales to the U.S.
Government declined 3%, or $58 million, to $2,040 million in the
2015 third quarter, compared to $2,098 million in the 2014 third
quarter, driven primarily by U.S. defense budget constraints and
reductions caused by sequestration, and by the U.S. military
drawdown in Afghanistan. Sales to international and commercial
customers declined 8%, or $65 million, to $777 million in the 2015
third quarter, compared to $842 million in the 2014 third quarter
driven by a $125 million decline related to business
divestitures(2), primarily MSI, partially offset by $32 million of
sales from the Miteq, Inc. and CTC business acquisitions(2). This
decrease was partially offset by an increase of $28 million
primarily due to a new contract for satellite communication systems
to the Australian Defence Force (ADF). Organic sales for the 2015
third quarter declined 1%. Organic sales to the U.S. Government
declined 3%, while organic sales grew 3% for international and
commercial customers.
Consolidated operating income for the 2015 third quarter
decreased by $471 million, compared to the 2014 third quarter, to
an operating loss of $214 million. Segment operating income for the
2015 third quarter increased $29 million, or 11%, compared to the
2014 third quarter. Segment operating income as a percentage of
sales (segment operating margin) increased by 150 basis points to
10.2% for the 2015 third quarter compared to 8.7% for the 2014
third quarter. Segment operating margin increased by: (1) 90 basis
points due to $24 million of outside accounting and legal advisory
expenses incurred in the 2014 third quarter for the internal review
of the Aerospace Systems segment (Internal Review) completed in
October 2014, (2) 70 basis points due to favorable contract
performance adjustments for the Intelligence, Surveillance and
Reconnaissance (ISR) Systems sector in the Aerospace Systems
segment, (3) 40 basis points due to the divestitures of MSI, BSI
and the Tinsley Product Line and (4) 10 basis points due to sales
mix changes. These increases were partially offset by a decrease of
60 basis points due to a higher pension expense of $18 million. See
the reportable segment results below for additional discussion of
sales and operating margin trends.
The effective income tax rate for the 2015 third quarter is not
meaningful because the company reported a pre-tax loss and income
tax expense during the period due to the goodwill impairment
charge. The marginal effective income tax rate on the goodwill
impairment charge relating to the NSS segment was 6% because a
significant portion of the NSS goodwill is not deductible for tax.
Excluding the goodwill impairment charge and related income tax
benefit, the effective income tax rate for the 2015 third quarter
would have increased to 28.3% compared to 27.0%, primarily due to
higher pre-tax income and state income tax expense.
Net (loss) income attributable to L-3 in the 2015 third quarter
decreased by $453 million to a loss of $299 million, compared to
income of $154 million in the 2014 third quarter. Diluted EPS
decreased by $5.52 to a loss of $3.74 from $1.78 in the 2014 third
quarter. Adjusted net income attributable to L-3 increased 10% to
$170 million compared to the 2014 third quarter, and adjusted
diluted EPS increased 17% to $2.09. Diluted weighted average common
shares outstanding for the 2015 third quarter declined by 8%
compared to the 2014 third quarter primarily due to repurchases of
L-3 common stock.
Year-to-Date Results of Operations: For the 2015 year-to-date
period, consolidated net sales of $8.3 billion decreased $593
million, or 7%, compared to the year-to-date period ended September
26, 2014 (2014 year-to-date period). Sales to the U.S. Government,
including $5 million of sales from acquired businesses, declined
6%, or $395 million, to $5,981 million in the 2015 year-to-date
period compared to $6,376 million in the 2014 year-to-date period,
driven primarily by U.S. defense budget constraints and reductions
caused by sequestration, and by the U.S. military drawdown in
Afghanistan. Sales to international and commercial customers
declined 8%, or $198 million, to $2,342 million in the 2015
year-to-date period, compared to $2,540 million in the 2014
year-to-date period driven by: (1) a $187 million decline relating
to business divestitures, partially offset by $66 million of sales
from the Miteq, Inc. and CTC business acquisitions, (2) a $82
million decline due to foreign currency exchange rate changes and
(3) a $59 million decline on international head-of-state aircraft
modification contracts primarily due to unfavorable contract
performance adjustments. These decreases were partially offset by
an increase of $64 million primarily due to higher volume for small
ISR aircraft systems to a foreign government and a new contract for
satellite communication systems to the ADF. Organic consolidated
sales for the 2015 year-to-date period declined 5%. Organic sales
to the U.S. Government declined 6% and organic sales to
international and commercial customers declined 3%.
Consolidated operating income for the 2015 year-to-date period
decreased $630 million, or 81%, compared to the 2014 year-to-date
period. Segment operating income for the 2015 year-to-date period
decreased by $110 million, or 14%, compared to the 2014
year-to-date period. Segment operating margin decreased by 70 basis
points to 8.1% for the 2015 year-to-date period compared to 8.8%
for the 2014 year-to-date period. Segment operating margin
decreased by: (1) 60 basis points due to unfavorable contract
performance adjustments at the Aerospace Systems segment, (2) 60
basis points due to higher pension expense of $46 million, (3) 10
basis points due to lower sales and mix changes and (4) 10 basis
points related to a product specification matter in the Electronic
Systems segment. Improved contract performance in Communication
Systems and Electronic Systems increased segment operating margin
by 40 basis points. Operating margin increased by 30 basis points
due to $24 million of outside accounting and legal advisory
expenses incurred in 2014 for the Internal Review completed in
October 2014. See the reportable segment results below for
additional discussion of sales and operating margin trends.
Interest expense in the 2015 year-to-date period increased by
$10 million compared to the 2014 year-to-date period due to the
issuance of $1 billion in new debt on May 28, 2014, partially
offset by the redemption of our convertible contingent debt
securities (CODES) in June 2014.
The effective income tax rate for the 2015 year-to-date period
is not meaningful because the company reported income tax expense
greater than pre-tax income during the period due to the goodwill
impairment charge. Excluding the goodwill impairment charge and
related income tax benefit, the effective income tax rate for the
2015 year-to-date period would have decreased to 22.3%, compared to
29.5% for the same period last year primarily due to $36 million of
tax benefits recorded in the second quarter of 2015, including: (1)
$17 million of foreign tax benefits related to a legal
restructuring of our foreign entities, (2) a $10 million benefit
related to the resolution of various outstanding income tax matters
with U.S. and foreign tax authorities and (3) $9 million related to
deferred tax benefits.
Net (loss) income attributable to L-3 in the 2015 year-to-date
period decreased by $535 million to a loss of $74 million, compared
to income of $461 million in the 2014 year-to-date period. Diluted
EPS decreased by $6.12 to a loss of $0.91 from $5.21 in the 2014
year-to-date period. Adjusted net income attributable to L-3
decreased 12% to $407 million compared to the 2014 year-to-date
period, and adjusted diluted EPS decreased 6% to $4.92. Diluted
weighted average common shares outstanding for the 2015
year-to-date period declined by 8% compared to the 2014
year-to-date period primarily due to repurchases of L-3 common
stock.
Orders: Funded orders for the 2015 third quarter were $2.4
billion, a decrease of 0.5% compared to the 2014 third quarter.
Funded orders for the 2015 year-to-date period were $8.1 billion
compared to $8.7 billion for the 2014 year-to-date period. The
book-to-bill ratio was 0.86x for the 2015 third quarter and 0.98x
for the 2015 year-to-date period. Funded backlog declined 8% to
$9.4 billion at September 25, 2015, compared to $10.2 billion at
December 31, 2014, primarily due to the divestiture of MSI.
Cash flow and cash returned to shareholders: Net cash from
operating activities decreased by $73 million, or 19%, to $317
million for the 2015 third quarter, compared to $390 million for
the 2014 third quarter. Net cash from operating activities
increased by $26 million, or 4%, to $631 million for the 2015
year-to-date period, compared to $605 million for the 2014
year-to-date period. The increase in net cash from operating
activities in the 2015 year-to-date period was due to a lower
increase in net working capital in the 2015 year-to-date period
compared to the 2014 year-to-date period.
(2) Sales from acquired businesses are defined as sales from
business acquisitions that are included in L-3’s actual results for
less than 12 months. Sales from business divestitures are defined
as sales from business divestitures that are included in L-3’s
actual results for the 12 months prior to the divestitures.
The table below summarizes the cash returned to shareholders
during the 2015 and 2014 third quarter and year-to-date
periods.
Third Quarter Ended Year-to-Date Ended
($ in millions)
Sept. 25, 2015
Sept. 26,2014
Sept. 25, 2015
Sept. 26,2014
Net cash from operating activities
$ 317 $ 390
$ 631 $ 605 Capital expenditures, net of dispositions
(54 ) (46 )
(138 ) (111 )
Free cash flow(1)
$ 263
$ 344 $
493 $ 494
Dividends paid
$ 52 $ 51
$ 163 $
158 Common stock repurchases
259
80 605
413 Cash returned to shareholders
$ 311 $
131 $
768 $ 571
_______________________
(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 Results
Electronic Systems
Third Quarter Ended Year-to-Date
Ended ($ in millions)
Sept. 25, 2015
Sept. 26,2014
Increase/
(decrease)
Sept. 25, 2015
Sept. 26,2014
Increase/
(decrease)
Net sales
$ 982 $ 1,106 (11.2) %
$
3,027 $ 3,286 (7.9) % Operating income
$ 123 $
125 (1.6) %
$ 356 $ 383 (7.0) % Operating margin
12.5 % 11.3 % 120
bpts
11.8 % 11.7 % 10
bpts
Third Quarter: Electronic Systems net sales for the 2015 third
quarter decreased by $124 million, or 11%, compared to the 2014
third quarter. The divestitures of MSI, BSI and the Tinsley Product
Line reduced sales by $125 million and the CTC acquisition
increased sales by $19 million. Organic sales declined 2%, or $18
million, primarily for Precision Engagement and Training due to the
completion of contracts for commercial flight simulators to
international customers.
Electronic Systems operating income for the 2015 third quarter
decreased by $2 million, or 2%, compared to the 2014 third quarter.
Operating margin increased by 120 basis points to 12.5%. Operating
margin increased by: (1) 100 basis points due to the divestitures
of MSI, BSI and the Tinsley Product Line, which generated lower
operating margins than the remainder of the Electronic Systems
segment and (2) 50 basis points primarily for favorable contract
performance adjustments. These increases were partially offset by
30 basis points due to higher pension expense of $3 million.
Severance expense for the 2015 third quarter was $2 million,
compared to $1 million for the 2014 third quarter.
Year-to-Date: Electronic Systems net sales for the 2015
year-to-date period decreased by $259 million, or 8%, compared to
the 2014 year-to-date period. The divestitures of MSI, BSI, and the
Tinsley Product Line reduced sales by $187 million, and the CTC
acquisition increased sales by $25 million. Organic sales declined
3%, or $97 million, including: (1) $74 million due to foreign
currency exchange rate changes and (2) $23 million primarily
related to reduced sales at Warrior Systems due to temporarily
suspended shipments of holographic weapon sights for most of the
2015 second quarter in connection with a product specification
matter, and lower volume for night vision goggles and precision
targeting equipment.
Electronic Systems operating income for the 2015 year-to-date
period decreased by $27 million, or 7%, compared to the 2014
year-to-date period. Operating margin increased by 10 basis points
to 11.8%. Operating margin increased by: (1) 50 basis points due to
the divestitures of MSI, BSI and the Tinsley Product Line, which
generated lower operating margins than the remainder of the
Electronic Systems segment, (2) 40 basis points for favorable
contract performance adjustments and (3) 30 basis points due to
lower severance expense of $10 million. Severance expense for the
2015 year-to-date period was $4 million, compared to $14 million
for the 2014 year-to-date period. These increases were partially
offset by decreases of: (1) 30 basis points due to higher pension
expense of $9 million, (2) 30 basis points due to an increased
provision of $8 million during the second quarter of 2015 in
anticipation of a settlement with the U.S. Government related to a
product specification matter, (3) 30 basis points for sales mix
changes and (4) 20 basis points due to a $6 million charge during
the second quarter of 2015 related to an adverse arbitration ruling
to resolve a dispute for the termination of a supply arrangement in
the Aviation Products & Security business.
Aerospace Systems
Third Quarter Ended Year-to-Date
Ended ($ in millions)
Sept. 25, 2015
Sept. 26,2014
Increase
Sept. 25, 2015
Sept. 26,2014
Decrease Net sales
$ 1,066 $ 1,035 3.0 %
$
3,087 $ 3,169 (2.6) % Operating income
$ 103 $
64 60.9 %
$ 148 $ 196 (24.5) % Operating margin
9.7 % 6.2 % 350
bpts
4.8 % 6.2 % (140)
bpts
Third Quarter: Aerospace Systems net sales for the 2015 third
quarter increased by $31 million, or 3%, compared to the 2014 third
quarter. Sales increased $35 million for ISR Systems and $8 million
for Aircraft Systems. Sales for Logistics Solutions decreased by
$12 million. Sales increased for ISR Systems due to higher volume
of $45 million for large ISR aircraft systems for U.S. Government
customers and small ISR aircraft systems to the Department of
Defense (DoD), partially offset by $10 million of lower sales for
small ISR aircraft fleet management services primarily to the DoD
due to the U.S. military drawdown in Afghanistan. Sales increased
for Aircraft Systems by $20 million due to higher volume for
foreign military aircraft modification contracts, including $16
million for the Australian C-27J aircraft, partially offset by $12
million of lower sales primarily to the USAF from the DoD’s planned
reduction of the Compass Call aircraft fleet and the DoD’s
retirement of the Joint Cargo Aircraft (JCA). The decrease in sales
for Logistics Solutions was due to lower volume for field
maintenance and sustainment services, primarily for U.S. Navy
aircraft due to the completion of contracts and lower demand and
lower prices due to competitive pressures.
Aerospace Systems operating income for the 2015 third quarter
increased by $39 million, or 61%, compared to the 2014 third
quarter. Operating margin increased by 350 basis points to 9.7%.
Operating margin increased by: (1) 160 basis points due to
favorable contract performance adjustments at ISR Systems and (2)
140 basis points for improved performance on the Army C-12
contract, due to better terms on the new contract which began
August 1, 2015, and $8 million due to a partial recovery of cost
overruns recognized in prior periods on the previous contract that
ended on July 31, 2015. These increases were partially offset by
110 basis points primarily for reduced flight hours and lower
pricing due to competitive pressures on logistics and maintenance
contracts, including the U.S Navy T-45 contract and 70 basis points
due to higher pension expense of $7 million. Operating margin also
increased by 230 basis points, due to $24 million of outside
accounting and legal advisory expenses incurred during the 2014
third quarter for the Internal Review completed in October
2014.
Year-to-Date: Aerospace Systems net sales for the 2015
year-to-date period decreased by $82 million, or 3%, compared to
the 2014 year-to-date period. Sales decreased $99 million for
Aircraft Systems and $43 million for Logistic Solutions. Sales for
ISR Systems increased by $60 million. Sales decreased for Aircraft
Systems due to lower volume of: (1) $60 million primarily to the
USAF from the DoD’s planned reduction of the Compass Call aircraft
fleet and the DoD’s retirement of the JCA and (2) $59 million on
international head-of-state aircraft modification contracts
primarily due to unfavorable contract performance adjustments.
These decreases were partially offset by an increase of $20 million
primarily due to higher volume for foreign military aircraft
modification contracts. The decrease in sales for Logistics
Solutions was due to lower volume for field maintenance and
sustainment services, primarily for U.S. Navy aircraft due to the
completion of contracts and lower demand and lower prices due to
competitive pressures. The increase in ISR Systems was due to an
increase in sales of $152 million primarily from higher volume for
large ISR aircraft systems for U.S. Government customers and small
ISR aircraft systems to the DoD and a foreign government, partially
offset by $92 million of lower sales for small ISR aircraft fleet
management services to the DoD due to the U.S. military drawdown in
Afghanistan.
Aerospace Systems operating income for the 2015 year-to-date
period decreased by $48 million, or 25%, compared to the 2014
year-to-date period. Operating margin decreased by 140 basis points
to 4.8%. Operating margin decreased by: (1) 310 basis points due to
contract performance adjustments at Aircraft Systems, which
includes $101 million of cost growth on international head-of-state
aircraft modification contracts, compared to $15 million of cost
growth on the same contracts in the 2014 year-to-date period, (2)
70 basis points due to higher pension expense of $20 million and
(3) 60 basis points primarily due to reduced flight hours and lower
pricing due to competitive pressures on logistics and maintenance
contracts, including the U.S. Navy T-45 contract. These decreases
were partially offset by: (1) 160 basis points due to favorable
contract performance adjustments at ISR Systems, (2) 80 basis
points due to $24 million of outside accounting and legal advisory
expenses incurred for the Internal Review completed in October 2014
and (3) 60 basis points due to a $17 million increase in reserves
for excess and obsolete inventory at Logistics Solutions recorded
during the 2014 year-to-date period, which did not recur.
Communication Systems
Third Quarter Ended Year-to-Date
Ended ($ in millions)
Sept. 25, 2015
Sept. 26,2014
Increase
Sept. 25, 2015
Sept. 26,2014
Decrease Net sales
$ 505 $ 493 2.4 %
$
1,441 $ 1,516 (4.9) % Operating income
$ 53 $
49 8.2 %
$ 140 $ 147 (4.8) % Operating margin
10.5 % 9.9 % 60
bpts
9.7 % 9.7 % —
bpts
Third Quarter: Communication Systems net sales for the 2015
third quarter increased by $12 million, or 2%, compared to the 2014
third quarter. The Miteq, Inc. acquisition increased sales by $13
million. Organic sales declined by $1 million for the 2015 third
quarter due to reduced sales to the U.S. DoD, partially offset by
an increase of $31 million on a new contract for satellite
communication systems to the ADF.
Communication Systems operating income for the 2015 third
quarter increased by $4 million, or 8%, compared to the 2014 third
quarter. Operating margin increased by 60 basis points to 10.5%.
Sales mix changes increased operating margin by 140 basis points. A
$3 million settlement relating to the resolution of a dispute with
a supplier increased operating margin by 60 basis points. Higher
pension expense of $7 million decreased operating margin by 140
basis points.
Year-to-Date: Communication Systems net sales for the 2015
year-to-date period decreased by $75 million, or 5%, compared to
the 2014 year-to-date period due to lower volume and reduced
deliveries on lower demand. The Miteq, Inc. acquisition increased
sales by $41 million. Organic sales declined by $116 million, or
8%, including: (1) $52 million for Space & Power Systems,
primarily satellite command and control software for U.S.
Government agencies, power devices for commercial satellites and
high frequency radios for a foreign government, (2) $40 million for
Advanced Communications products, primarily data recorders and
secure communications equipment for the U.S. military as contracts
near completion and (3) $24 million primarily for Tactical
Satellite Communications products, primarily mobile and
ground-based satellite communication systems for the U.S. military,
partially offset by sales on a new contract for satellite
communication systems to the ADF.
Communication Systems operating income for the 2015 year-to-date
period decreased by $7 million, or 5%, compared to the 2014
year-to-date period. Operating margin remained at 9.7% compared to
the 2014 year-to-date-period. Operating margin decreased by 110
basis points due to higher pension expense of $16 million. Improved
contract performance, partially offset by lower sales and mix
changes, increased operating margin by 110 basis points.
NSS
Third Quarter Ended Year-to-Date
Ended ($ in millions)
Sept. 25, 2015
Sept. 26,2014
Decrease
Sept. 25, 2015
Sept. 26,2014
Decrease
Net sales
$ 264 $ 306 (13.7) %
$ 768 $
945 (18.7) % Operating income
$ 7 $ 19 (63.2) %
$ 28 $ 56 (50.0) % Operating margin
2.7
% 6.2 % (350)
bpts
3.6 % 5.9 % (230)
bpts
Third Quarter: NSS net sales for the 2015 third quarter
decreased by $42 million, or 14%, compared to the 2014 third
quarter. Sales decreased due to lower volume of: (1) $29 million
for Defense Solutions primarily due to lower material requirements
on a systems and software sustainment contract with the U.S. Army,
and lower demand driven by the U.S. military drawdown in
Afghanistan and completed contracts, (2) $8 million for Global
Solutions primarily due to completed contracts and (3) $5 million
primarily for Data Tactics Corporation due to lower demand on U.S.
Government contracts for software and systems support.
NSS operating income for the 2015 third quarter decreased by $12
million, or 63%, compared to the 2014 third quarter. Operating
margin decreased by 350 basis points to 2.7%. Operating margin
decreased by: (1) 140 basis points due to a $4 million charge
related to a write-down of excess inventory, (2) 130 basis points
primarily due to lower margins on new business and recompetitions
caused by competitive pricing pressures, (3) 50 basis points
primarily due to lower sales and higher overhead rates caused by
delayed contract awards for commercial contracts and (4) 40 basis
points due to higher pension expense of $1 million. These decreases
were partially offset by 10 basis points due to higher award fees
for intelligence contracts.
Year-to-Date: NSS net sales for the 2015 year-to-date period
decreased by $177 million, or 19%, compared to the 2014
year-to-date period. Sales decreased due to trends similar to the
2015 third quarter and due to lower sales for Intelligence
Solutions related to reduced tasking for technical support services
for a U.S. Government Agency because of defense budget reductions.
The decrease in sales at NSS was partially offset by $5 million of
sales related to the Data Tactics Corporation acquisition.
NSS operating income for the 2015 year-to-date period decreased
by $28 million, or 50%, compared to the 2014 year-to-date period.
Operating margin decreased by 230 basis points to 3.6% due to: (1)
120 basis points due to lower sales and higher overhead expense
rates caused by delayed contract awards for international and
commercial contracts, (2) 100 basis points primarily due to lower
margins on new business and recompetitions caused by competitive
pricing pressures, (3) 50 basis points due to a $4 million charge
related to a write-down of excess inventory and (4) 10 basis points
due to higher pension expense of $1 million. These decreases were
partially offset by 50 basis points due to higher award fees for
intelligence and defense contracts.
Financial Guidance
Based on information known as of today, the company has updated
its consolidated and segment financial guidance for the year ending
December 31, 2015, previously provided on July 30, 2015, and has
provided a preliminary financial outlook for 2016, as presented in
the tables below. All financial guidance amounts are estimates
subject to change in the future, including as a result of matters
discussed under the “Forward-Looking Statements” cautionary
language beginning on page 11. The company undertakes no duty to
update its guidance.
Consolidated 2015 Financial
Guidance
($ in millions, except per share data)
Current Prior
(July 30, 2015)
Net sales $ 11,400 to $11,500 $ 11,450 to $11,650 Segment operating
margin 8.3 % 8.4 % Interest expense and other $ 178 $ 180 Effective
tax rate 25.4 % 27.0 % Diluted shares 81.9 81.9 Diluted EPS $ 0.93
to $1.03 $ 6.55 to $6.85 Adjusted diluted EPS(1) $ 6.80 to $6.90 $
6.70 to $7.00 Net cash from operating activities $ 1,045 $ 1,045
Capital expenditures, net of dispositions of property, plant and
equipment
(195 )
(195 ) Free cash flow
$ 850 $ 850
_______________________
(1) Adjusted diluted EPS excludes an after-tax non-cash goodwill
impairment charge of $463 million, or $5.65 per diluted share for
NSS and an aggregate after-tax loss of $18 million, or $0.22 per
diluted share, related to the MSI, BSI and Tinsley divestitures.
See Table E for a reconciliation and a discussion on why this
information is presented.
Segment 2015 Financial Guidance
($ in millions) Current Prior
(July 30, 2015)
Net
Sales:
Electronic Systems $4,250 to $4,300 $4,300 to $4,400 Aerospace
Systems $4,100 to $4,150 $4,050 to $4,150 Communication Systems
$1,950 to $2,000 $1,900 to $2,000
NSS
$1,050 to $1,100 $1,100 to $1,200
Operating
Margins:
Electronic Systems
11.8% to 11.9
%
11.6% to 11.8
%
Aerospace Systems
5.1% to 5.2
%
4.9% to 5.1
%
Communication Systems
9.5% to 9.6
%
9.0% to 9.2
%
NSS
4.0% to 4.1
%
6.6% to 6.8
%
The revisions to our Current Guidance compared to our Prior
Guidance primarily include:
- A decrease in Electronic Systems sales
primarily due to delays for certain new contract awards and reduced
funding for existing contracts,
- An increase in Aerospace Systems sales
primarily for ISR systems,
- A decrease in NSS sales and operating
margin primarily due to delayed and lower contract awards for new
international and commercial business, and
- Planned share repurchases of $740
million for 2015, compared to $800 million in the prior guidance.
The decrease in expected share repurchases is due to the $60
million of cash used to finance the ForceX acquisition completed on
October 13, 2015.
The following table presents our preliminary
consolidated financial outlook for 2016.
2016 Consolidated Preliminary
Outlook
Net sales growth -2.8 % Organic sales growth -1.6 %
Operating margin change
+80
bpts
Tax rate 31 % Diluted EPS growth +6 % Free cash flow
approx. $850
million
The 2016 consolidated preliminary outlook for operating income
includes a net pension expense decrease of $8 million to $23
million for 2016 compared to an estimate of $31 million net pension
expense for 2015. The 2016 preliminary pension expense estimate
assumes a weighted average discount rate of 4.45%, compared to
4.14% for 2015 and a weighted average asset return of approximately
4% in 2015, compared to our planned weighted average asset return
of 8.13%. The preliminary outlook also assumes share repurchases
for 2016 of $500 million.
The current guidance for 2015 and the preliminary consolidated
outlook for 2016 exclude: (i) any potential non-cash goodwill
impairment charges (in addition to the non-cash goodwill impairment
charge related to NSS), for which the information is presently
unknown, (ii) additional expenses relating to the Internal Review
at Aerospace Systems, which was completed in October 2014 and (iii)
the U.S. Federal Research & Experimentation (R&E) tax
credit. If re-enacted for 2015 or 2016, the annual R&E tax
credit would reduce the effective tax rate for 2015 by
approximately 250 basis points and by approximately 230 basis
points for 2016, and increase each of the 2015 and 2016 diluted EPS
by approximately $0.24.
Additional financial information regarding the 2015 third
quarter results, the 2015 financial guidance and the preliminary
2016 outlook 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, October 29, 2015 at 11:00 a.m. ET that will
be simultaneously broadcast over the Internet. Michael T.
Strianese, chairman and chief executive officer, and Ralph G.
D’Ambrosio, senior vice president and chief financial officer, will
host the call.
11:00 a.m. ET
10:00 a.m. CT
9:00 a.m. MT 8:00 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: 10073990), 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 and 2016 preliminary outlook 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,” “financial guidance,” ‘‘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 ongoing 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; goodwill impairments and the fair values of our assets;
and ultimate resolution of contingent matters, claims and
investigations relating to acquired businesses, and the impact on
the final purchase price allocations.
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)
Third Quarter Ended(a)
Year-to-Date Ended
Sept. 25, 2015
Sept. 26,2014
Sept. 25, 2015
Sept. 26,2014
Net sales $
2,817 $ 2,940
$ 8,323 $ 8,916
Cost of
sales (2,531 ) (2,683 )
(7,651 )
(8,134 )
Loss related to business divestitures(b)
(9 ) ―
(29 ) ―
Impairment
charge(c) (491
) ―
(491 ) ―
Operating (loss) income (214 ) 257
152
782
Interest expense (47 ) (47 )
(139 ) (129 )
Interest and other income, net
3 5
11 14
(Loss) income before income taxes (258 ) 215
24 667
Provision for income taxes
(38 )
(58 ) (87
) (197 )
Net (loss) income (296 ) 157
(63
) 470
Net income attributable to noncontrolling
interests (3 )
(3 )
(11 )
(9 )
Net (loss) income attributable to
L-3 $ (299
) $ 154
$ (74 )
$ 461 (Loss) earnings per share
attributable to L-3 Holdings’ common shareholders: Basic
$ (3.74
) $ 1.81
$ (0.91
) $ 5.38
Diluted $ (3.74
) $ 1.78
$ (0.91
) $ 5.21
L-3 Holdings’ weighted average common shares
outstanding: Basic 80.0
85.1
81.5 85.7
Diluted
80.0
(d)
86.6
81.5
(d)
88.4
___________________________
(a)
It is the company’s established practice
to close its books for the quarters ending March, June and
September on the Friday preceding 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 divestitures
for the 2015 third quarter includes an $8 million loss on the
divestiture of the Tinsley Product Line and a $1 million loss on
the divestiture of BSI. The loss related to the business
divestitures for the 2015 year-to-date period includes a $17
million loss related to the divestiture of MSI, an $8 million loss
on the divestiture of the Tinsley Product Line and a $4 million
loss on the divestiture of BSI.
(c)
Represents a non-cash goodwill impairment
charge due to a decline in the estimated fair value of our NSS
segment.
(d)
Due to a loss for the 2015 third quarter
and year-to-date period, zero incremental weighted average common
shares are included because the effect would be antidilutive.
Table
B
L-3 COMMUNICATIONS HOLDINGS, INC. UNAUDITED SELECT
FINANCIAL DATA (in millions)
Third Quarter Ended
Year-to-Date Ended
Sept.
25,2015
Sept. 26,2014
Sept.
25,2015
Sept. 26,2014
Segment operating
data
Net sales: Electronic Systems $ 982 $
1,106
$ 3,027 $ 3,286
Aerospace Systems
1,066 1,035
3,087 3,169
Communication Systems
505 493
1,441 1,516
NSS
264 306
768 945
Total $ 2,817
$ 2,940
$ 8,323
$ 8,916 Operating income:
Electronic Systems $ 123 $ 125
$
356 $ 383
Aerospace Systems 103 64
148
196
Communication Systems 53 49
140 147
NSS 7
19 28
56 Total $
286 $ 257
$ 672
$ 782 Operating margin:
Electronic Systems 12.5 % 11.3 %
11.8
% 11.7 %
Aerospace Systems 9.7 % 6.2 %
4.8 % 6.2 %
Communication Systems 10.5
% 9.9 %
9.7 % 9.7 %
NSS 2.7
% 6.2 %
3.6 % 5.9 %
Total 10.2
% 8.7 %
8.1 % 8.8 %
Depreciation and
amortization: Electronic Systems $ 26 $ 30
$ 81 $ 89
Aerospace Systems 13 11
37 30
Communication Systems 12 13
37 38
NSS 3
2 9
8 Total $
54 $ 56
$ 164 $
165
Funded order
data
Electronic Systems $ 929 $ 1,147
$
3,048 $ 3,434
Aerospace Systems 693 504
2,615 2,929
Communication Systems 548 493
1,592 1,423
NSS 259
296 877
916 Total
$ 2,429
$ 2,440 $
8,132 $ 8,702
Sept. 25, Dec. 31,
2015
2014
Period end
data
Funded backlog $ 9,404 $ 10,224
Table
C
L-3 COMMUNICATIONS HOLDINGS, INC. UNAUDITED PRELIMINARY
CONDENSED CONSOLIDATED BALANCE SHEETS (in
millions)
Sept. 25,2015
Dec. 31,2014
ASSETS Cash and cash equivalents $
323 $ 442
Billed receivables, net 796 852
Contracts in process 2,483 2,295
Inventories
374 288
Deferred income taxes 129 127
Other
current assets 190 186
Assets held for sale
― 547 Total current
assets 4,295
4,737 Property, plant and equipment, net
1,108 1,088
Goodwill 7,112 7,501
Identifiable intangible assets 256 243
Deferred
debt issue costs 22 27
Other assets
243 240 Total assets
$ 13,036 $
13,836 LIABILITIES AND EQUITY
Accounts payable, trade $ 490 $ 382
Accrued employment costs 562 510
Accrued
expenses 369 402
Advance payments and billings in
excess of costs incurred 629 573
Income taxes
18 23
Other current liabilities 396 398
Liabilities held for sale ―
237 Total current liabilities
2,464 2,525 Pension and
postretirement benefits 1,163 1,187
Deferred income
taxes 407 443
Other liabilities 403 382
Long-term debt 3,940
3,939 Total liabilities
8,377 8,476
Shareholders’ equity 4,584 5,285
Noncontrolling
interests 75 75
Total equity 4,659
5,360 Total liabilities and equity
$ 13,036 $
13,836
Table
D
L-3 COMMUNICATIONS HOLDINGS, INC. UNAUDITED PRELIMINARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in
millions)
Year-to-Date Ended
Sept. 25, 2015
Sept. 26,2014
Operating
activities
Net (loss) income $ (63 ) $ 470
Depreciation of property, plant and equipment 129 127
Amortization of intangibles and other assets 35 38
Deferred income tax (benefit) provision (21 )
91
Stock-based employee compensation expense 36 39
Excess income tax benefits related to share-based payment
arrangements (24 ) (16 )
Contributions to
employee savings plans in L-3 Holdings’ common stock 95
105
Impairment charge 491 ―
Amortization of
pension and postretirement benefit plans net loss and prior service
cost 50 11
Amortization of bond discounts and
deferred debt issue costs (included in interest expense)
6 5
Loss related to business divestitures 29
―
Other non-cash items (4 ) (5 )
Changes in
operating assets and liabilities, excluding amounts from
acquisitions and divestitures: Billed receivables
48 118
Contracts in process (165 ) (144
)
Inventories (77 ) (11 )
Other assets
(13 )
—
Accounts payable, trade 121 (119 )
Accrued
employment costs 47 26
Accrued expenses
(40 ) (57 )
Advance payments and billings in
excess of costs incurred 2 39
Income taxes ― (4 )
Other current liabilities (11 ) (40 )
Pension and postretirement benefits (18 ) (40
)
All other operating activities
(22 ) (28 )
Net
cash from operating activities 631
605
Investing
activities
Business acquisitions, net of cash acquired (260
) (57 )
Proceeds from the sale of businesses
308 —
Capital expenditures (140 ) (115
)
Dispositions of property, plant and equipment 2 4
Other investing activities 4
6 Net cash used in investing
activities (86 )
(162 )
Financing
activities
Proceeds from sale of senior notes ― 996
Retirement of CODES ― (935 )
Borrowings under
revolving credit facility 861 1,367
Repayment of
borrowings under revolving credit facility (861 )
(1,367 )
Common stock repurchased (605 ) (413
)
Dividends paid on L-3 Holdings’ common stock (163
) (158 )
Proceeds from exercises of stock options
41 87
Proceeds from employee stock purchase plan
26 27
Excess income tax benefits related to share-based
payment arrangements 24 16
Debt issue costs
― (8 )
Employee restricted stock units
surrendered in lieu of income tax withholding
(33 ) (27 )
Other financing activities
(1 )
(11 ) Net cash used in financing
activities (711 )
(426 )
Effect of foreign currency exchange rate
changes on cash and cash equivalents (14 ) (9 )
Change in cash balance in assets held for sale
61 ―
Net (decrease) increase in cash and
cash equivalents
(119 ) 8
Cash and cash equivalents, beginning of
the period 442
500 Cash and cash equivalents, end of the
period $ 323
$ 508
Table
E
L-3 COMMUNICATIONS HOLDINGS, INC. NON-GAAP FINANCIAL
MEASURES (in millions, except per share amounts)
Adjusted Diluted
EPS Non-GAAP Reconciliation
Third Quarter Ended
Year-to-Date Ended
2015Current Guidance
Sept. 25,2015
Sept. 26,2014
Sept. 25,2015
Sept. 26,2014
Low endof range
High endof range
Diluted EPS attributable to L-3 Holdings' common
stockholders $ (3.74 ) $ 1.78
$
(0.91 ) $ 5.21
$ 0.93 $
1.03
EPS impact of loss on business divestitures (A)
0.08 ―
0.05 ―
0.05 0.05
EPS impact of the non-cash impairment
charge related to MSI assets
held for sale (B)
― ―
0.15 ―
0.15 0.15
EPS impact of the loss on a forward
contract to sell Euro proceeds
from the MSI divestiture (C)
― ―
0.02 ―
0.02 0.02 EPS impact of
the goodwill impairment charge (D) 5.79 ―
5.68 ―
5.65 5.65 Dilutive impact of common
share equivalents (0.04
) ―
(0.07 ) ―
― ― Adjusted diluted EPS(1)
$ 2.09
$ 1.78 $
4.92 $ 5.21
$ 6.80
$ 6.90
(A)
Loss on business divestitures
$ (9 ) $ (8 ) $
(8 ) $ (8 ) Tax benefit
3 4
4
4 After-tax impact (6
) (4 ) (4 ) (4 )
Diluted weighted average common
shares
outstanding
80.0 81.5 81.9 81.9 Per share
impact $ (0.08
) $
(0.05 )
$ (0.05
) $
(0.05 )
(B)
Non-cash impairment charge related to
MSI
assets held
for sale
$ (17 ) $ (17 ) $
(17 ) Tax benefit 5
5
5 After-tax impact (12
) (12 ) (12 )
Diluted weighted average common
shares outstanding
81.5 81.9 81.9 Per share impact
$ (0.15
) $
(0.15 )
$ (0.15
)
(C)
Loss on a forward contract to sell Euro
proceeds from
the MSI divestiture
$ (4 ) $ (4 ) $
(4 ) Tax benefit 2
2
2 After-tax impact (2
) (2 ) (2 )
Diluted weighted average common
shares outstanding
81.5 81.9 81.9 Per share impact
$ (0.02
) $
(0.02 )
$ (0.02
)
(D)
Goodwill impairment charge
$ (491 ) $ (491 )
$ (491 ) $ (491 ) Tax
benefit 28
28 28
28 After-tax impact
(463 ) (463 ) (463 )
(463 )
Diluted weighted average common
shares outstanding
80.0 81.5 81.9 81.9 Per share
impact $ (5.79
) $
(5.68 )
$ (5.65
) $
(5.65 )
Adjusted Net
Income Attributable to L-3 Non-GAAP Reconciliation
Third Quarter Ended
Year-to-Date Ended
Sept. 25,2015
Sept. 26,2014
Sept. 25,2015
Sept. 26,2014
Net (loss) income attributable to L-3 $ (299
) $ 154
$ (74 ) $ 461
Loss on
business divestitures 6 ―
4 ―
Non-cash
impairment charge related to MSI assets held for sale ― ―
12 ―
Loss on a forward contract to sell Euro proceeds
from the MSI divestiture — ―
2 ―
Goodwill
impairment charge 463
― 463 ―
Adjusted net income attributable to L-3(1)
$ 170 $
154 $ 407
$ 461
_______________________
(1)
Adjusted diluted EPS is diluted EPS
attributable to L-3 Holdings’ common stockholders, excluding the
charges or credits relating to business divestitures and non-cash
goodwill impairment charges. Adjusted net income attributable to
L-3 is net income attributable to L-3, excluding the charges or
credits relating to business divestitures and non-cash goodwill
impairment charges. These amounts are not calculated in accordance
with accounting principles generally accepted in the United States
of America (U.S. GAAP). The company believes that the charges or
credits relating to business divestitures and non-cash goodwill
impairment charges affect the comparability of the results of
operations and financial guidance for 2015 to the results of
operations for 2014. The company also believes that disclosing net
income and diluted EPS excluding the charges or credits relating to
business divestitures and non-cash goodwill impairment charges will
allow investors to more easily compare the 2015 results and
financial guidance to the 2014 results. However, these measures may
not be defined or calculated by other companies in the same
manner.
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