L-3 Reports Sales of $2.8B in Q2; Down 7%

Estimated reading time: 4 minutes

L-3 Communications Holdings, Inc. today reported diluted earnings per share (diluted EPS) of $1.44 and adjusted diluted EPS of $1.41 for the quarter ended June 26, 2015 (2015 second quarter), compared to diluted EPS of $1.53 for the quarter ended June 27, 2014 (2014 second quarter). Results for the 2015 second quarter were impacted by the items discussed below, which, in the aggregate, decreased EPS by $0.34 per diluted share. Adjusted diluted EPS excludes a net gain related to the divestitures of Marine Systems International (MSI) and Broadcast Sports, Inc. (BSI) of $0.03 per diluted share. Net sales of $2.8 billion for the 2015 second quarter decreased by 7% compared to the 2014 second quarter.

The 2015 second quarter results in the Aerospace Systems segment were impacted by charges of $103 million, or $0.77 per diluted share, for contract cost growth at the Platform Integration division, primarily due to additional losses of $84 million, or $0.63 per diluted share, related to our international head-of-state aircraft modification contracts and $19 million of cost growth on three other aircraft modification contracts. These losses were partially offset by income tax benefits of $36 million, or $0.43 per diluted share. These items are further discussed below.

“Our second quarter results were impacted by disappointing charges in the Platform Integration division of our Aerospace Systems segment, as well as continuing headwinds from the U.S. defense budget constraints,” said Michael T. Strianese, chairman, president and chief executive officer. “Despite these challenges, we made progress repositioning our portfolio, investing in our core businesses and expanding our commercial aviation training solutions business through our recent acquisition of CTC Aviation Group, a higher margin business that we expect to be immediately accretive to our operating results, and also completed the sale of our MSI business. In addition, we received an extension of our Army C-12 contract on profitable terms, which begins on August 1, 2015.”

“We will continue to reposition our portfolio to sharpen our focus on our core defense electronics and communications systems businesses, which we expect will improve our sales growth and margin profile. In this regard, we are engaged in a process to evaluate strategic alternatives for the National Security Solutions business to maximize value for our shareholders. These strategic alternatives could include, among other possibilities, a potential sale, spin-off or other divestiture transactions for the business. We expect to conclude our review by the end of the year, although no timetable has been set.”

“Looking ahead, we believe L-3 will capture the significant opportunities we see in the defense and commercial markets. Supported by a book-to-bill ratio of 1.01x, or $2.8 billion in funded orders, we expect to significantly improve our performance during the second half of the year.”

Funded orders of $2.8 billion for the quarter included the following key wins:

• two indefinite-delivery/indefinite-quantity (ID/IQ) contracts to provide both application development services and network operations, infrastructure and service-oriented architecture implementation and transformation of the U.S. Air Force Enterprise IT through the U.S. Air Force Materiel Command,
• a foreign military sales ID/IQ contract to provide air operations center training to the Royal Saudi Air Force,
• a subcontract to supply the Australian Defence Force with TLTs (Transportable Land Terminals), additional support equipment and training,
• a contract to develop and build a new, slimmer version of the L-3 KEO photonics mast for the Naval Sea Systems Command,
• a contract to provide Airbus A320 and Boeing 787 full flight simulators to Hainan Airlines Training Centre,
• a contract to perform tasks in support of towed array sonar programs for the Naval Undersea Warfare Center, Newport Division, and
• a contract to provide eXaminer XLB (eXtra Large Bore) and MVT-HR (Multi-View Tomography High-Resolution) systems to the Singapore Changi Airport Group.

Adjusted diluted EPS for the 2015 second quarter excludes a net pre-tax gain of $2 million ($3 million after income taxes), or $0.03 per diluted share, related to the divestiture of MSI, which was completed on May 29, 2015, and the divestiture of BSI, which was completed on April 24, 2015.

Adjusted diluted EPS for the first half ended June 26, 2015 (2015 first half) excludes a pre-tax loss of $20 million ($12 million after income taxes), or $0.15 per diluted share, related to business divestitures. The loss related to business divestitures for the 2015 first half includes a pre-tax loss of $17 million related to the MSI divestiture, and a pre-tax loss of $3 million related to the BSI divestiture, and is included in consolidated operating income, but excluded from segment operating income, because it is excluded by management for purposes of assessing segment operating performance.

About L-3

Headquartered in New York City, L-3 employs approximately 43,000 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.