L3 Releases Second Quarter 2017 Results; Net Sales Up 3% to $2.7 billion

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L3 Technologies, Inc. today reported diluted EPS from continuing operations of $2.54 for the quarter ended June 30, 2017 (2017 second quarter), as compared to diluted EPS from continuing operations for the quarter ended June 24, 2016 (2016 second quarter) of $1.88. The 2017 second quarter includes a pre-tax gain of $42 million ($26 million after-tax, or $0.33 per share) in connection with the sale of the company’s property in San Carlos, California. This property sale was previously expected to occur by the fourth quarter of 2017. Net sales of $2,732 million for the 2017 second quarter increased by 3% compared to the 2016 second quarter.

“We had strong second quarter results including increases in sales, margins, operating income and EPS,” said Michael T. Strianese, L3’s Chairman and Chief Executive Officer. “Our program execution and targeted strategy of disciplined growth enable us to move into the second half of 2017 with the ability to leverage our quick reaction capabilities to pursue new market opportunities. We expect to build on our positive momentum by continuing to improve our operations and delivering affordable and innovative solutions, while creating value for our customers and shareholders.”

Second Quarter Results of Operations: For the 2017 second quarter, consolidated net sales of $2,732 million increased $68 million, or 3%, compared to the 2016 second quarter, including organic sales(1) growth of 1%. Organic sales exclude $54 million of sales increases related to business acquisitions and $15 million of sales declines related to business divestitures. For the 2017 second quarter, organic sales to the U.S. Government increased $92 million, or 5%, to $1,982 million, and organic sales to international and commercial customers decreased $63 million, or 8%, to $696 million.

The effective tax rate for the 2017 second quarter decreased to 24.2% from 26.0%, primarily due to the reversal of previously accrued amounts related to foreign tax matters.

Diluted EPS from continuing operations was $2.54 for the 2017 second quarter, compared to $1.88 for the 2016 second quarter, and includes $0.33 per share related to the gain on the sale of the company’s property in San Carlos, California. Diluted weighted average common shares outstanding for the 2017 second quarter increased slightly compared to the 2016 second quarter due to changes in the dilutive impact of common share equivalents, primarily caused by a higher L3 stock price and fewer share repurchases.

First Half Results of Operations: For the first half ended June 30, 2017 (2017 first half), consolidated net sales of $5,401 million increased $384 million, or 8%, compared to the first half ended June 24, 2016 (2016 first half). Organic sales increased by $299 million, or 6%, to $5,296 million for the 2017 first half. Organic sales exclude $105 million of sales increases related to business acquisitions and $20 million of sales declines related to business divestitures. For the 2017 first half, organic sales to the U.S. Government increased $310 million, or 9%, to $3,932 million, and organic sales to international and commercial customers decreased $11 million, or 1%, to $1,364 million.

Due to the calendarization of the company’s fiscal quarter end dates, the 2017 first half had 3% more business days compared to the 2016 first half. The extra days for the 2017 first half will reverse in the 2017 fourth quarter.

Operating income for the 2017 first half increased by $66 million, or 13%, compared to the 2016 first half and includes a pre-tax gain of $42 million related to the sale of the company’s property in San Carlos, California, in connection with the consolidation of the EDD/ETI TWT businesses. Operating margin increased by 60 basis points to 10.5% for the 2017 first half, compared to 9.9% for the 2016 first half. Consolidation activities related to the EDD/ETI TWT businesses increased operating margin by 50 basis points consisting of: (1) a gain on the sale of the company’s property in San Carlos, California, which increased operating margin by 80 basis points and (2) severance and restructuring expenses, which decreased operating margin by 30 basis points. Excluding these consolidation activities, operating margin increased by 10 basis points. See the reportable segment results for additional discussion of sales and operating margin trends.

The effective tax rate for the 2017 first half decreased to 23.3% from 24.1%, primarily due to: (1) the benefit from the release of a valuation allowance for capital losses, (2) an increase in the U.S. federal research and experimentation (R&E) tax credit and (3) tax benefits related to domestic production activities deduction. These decreases were partially offset by a lower tax benefit related to share-based compensation awards in the 2017 first half compared to the 2016 first half.

Diluted EPS from continuing operations was $4.61 for the 2017 first half, compared to $3.95 for the 2016 first half and includes $0.33 per share related to the gain on the sale of the company’s property in San Carlos, California. Diluted weighted average common shares outstanding for the 2017 first half increased slightly compared to the 2016 first half due to changes in the dilutive impact of common share equivalents, primarily caused by a higher L3 stock price and fewer share repurchases.

Orders: Funded orders for the 2017 second quarter increased 10% to $2,357 million compared to $2,136 million for the 2016 second quarter. Funded orders for the 2017 first half increased 5% to $4,981 million compared to $4,727 million for the 2016 first half. The book-to-bill ratio was 0.86x for the 2017 second quarter and 0.92x for the 2017 first half. Funded backlog decreased 4% to $8,513 million at June 30, 2017 compared to $8,896 million at December 31, 2016.

Cash Flow: Net cash from operating activities from continuing operations was $351 million for the 2017 first half, a decrease of $25 million, compared to $376 million for the 2016 first half. The decrease in net cash from operating activities from continuing operations was driven by higher uses of cash for working capital and income tax payments compared to the 2016 first half. Capital expenditures, net of dispositions, were $33 million for the 2017 first half. Excluding the proceeds of $64 million from the sale of the company’s San Carlos, California, property, capital expenditures, net of dispositions for the 2017 first half, were $97 million compared to $64 million for the 2016 first half. The company paid dividends of $119 million during the 2017 first half compared to $112 million during the 2016 first half. Repurchases of the company’s common stock were $26 million during the 2017 first half, compared to $276 million during the 2016 first half.

About L3 Technologies

Headquartered in New York City, L3 Technologies employs approximately 38,000 people worldwide and is a leading provider of a broad range of communication, electronic and sensor systems used on military, homeland security and commercial platforms. L3 is also a prime contractor in aerospace systems, security and detection systems and pilot training.