L-3 Releases Second Quarter 2016 Results

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Second Quarter: Aerospace Systems net sales for the 2016 second quarter increased by $153 million, or 15%, compared to the 2015 second quarter. Sales increased $64 million for Aircraft Systems, $63 million for ISR Systems and $26 million for Vertex Aerospace. Sales increased for Aircraft Systems primarily due to unfavorable contract performance adjustments in the 2015 second quarter that did not recur in the 2016 second quarter on international head-of-state aircraft modification contracts. Sales increased by $78 million for ISR Systems primarily due to the procurement and delivery of two business jets to a foreign military customer, which was partially offset by a decrease of $15 million primarily for small ISR aircraft fleet management services to the U.S. Air Force due to reduced demand resulting from the U.S. military drawdown in Afghanistan. The increase in sales for Vertex Aerospace was due to a $12 million contract price adjustment for a recovery of cost overruns on the previous U.S. Army C-12 contract, which ended on July 31, 2015, and pre-production activities related to U.S. Navy training aircraft.

Aerospace Systems operating income for the 2016 second quarter increased by $88 million, compared to the 2015 second quarter. Operating margin increased by 790 basis points to 6.1%. Operating margin increased by: (1) 730 basis points primarily due to $84 million of unfavorable contract performance adjustments related to cost growth in the 2015 second quarter that did not recur in the 2016 second quarter on international head-of-state aircraft modification contracts at Aircraft Systems, (2) 130 basis points primarily due to a $12 million contract price adjustment received in the 2016 second quarter for a recovery of cost overruns recognized in prior periods on the previous U.S. Army C-12 contract, and better terms on the new U.S. Army C-12 contract, which began in August 2015, and (3) 40 basis points due to lower pension expense of $4 million. These increases were partially offset by a $13 million charge at Aircraft Systems to reduce internal-use simulator training assets to net realizable value, decreasing operating margin by 110 basis points.

First Half: Aerospace Systems net sales for the 2016 first half increased by $132 million, or 7%, compared to the 2015 first half. Sales increased $64 million for Aircraft Systems, $45 million for ISR Systems and $23 million for Vertex Aerospace due to trends similar to the 2016 second quarter.

Aerospace Systems operating income for the 2016 first half increased by $134 million, or 319%, compared to the 2015 first half. Operating margin increased by 610 basis points to 8.2% due to trends similar to the 2016 second quarter, as well as lower pension expense of $9 million.

Communication Systems        

Second Quarter: Communication Systems net sales for the 2016 second quarter decreased by $9 million, or 2%, compared to the 2015 second quarter. Sales for Space & Power Systems decreased by $30 million primarily due to reduced demand for power devices for commercial satellites. This decrease was partially offset by $17 million primarily for Broadband Communication Systems due to increased volume and deliveries of secure networked communication systems for the U.S. Department of Defense (DoD) and $4 million related to business acquisitions.

Communication Systems operating income for the 2016 second quarter increased by $1 million, or 2%, compared to the 2015 second quarter. Operating margin increased by 40 basis points to 10.5% primarily due to lower pension expense of $3 million.

First Half: Communication Systems net sales for the 2016 first half increased by $17 million, or 2%, compared to the 2015 first half. The increase was due to: (1) $34 million for Broadband Communication Systems, primarily due to increased volume and deliveries of secure networked communication systems for the DoD, (2) $9 million related to business acquisitions, (3) $8 million for Tactical Satellite Communications products primarily due to increased deliveries on a satellite communication land terminals contract for the Australian Defence Force and (4) $6 million for Advanced Communications products primarily due to increased deliveries of secure mission data storage systems for the Joint Strike Fighter program. These increases were partially offset by a decrease of $40 million for Space & Power Systems, primarily due to reduced demand for power devices for commercial satellites.

Communication Systems operating income for the 2016 first half increased by $16 million, or 18%, compared to the 2015 first half. Operating margin increased by 150 basis points to 10.7%. Operating margin increased by: (1) 90 basis points primarily due to increased manufacturing productivity, overhead cost reductions and favorable contract performance adjustments for Broadband Communication Systems and (2) 60 basis points due to lower pension expense of $6 million.

About L-3

Headquartered in New York City, L-3 employs approximately 38,000 people worldwide and is a leading provider of a broad range of communication and electronic systems and products used on military and commercial platforms. L-3 is also a prime contractor in aerospace systems.                                                                                                                                                          

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