L-3 announces first quarter 2011 results
New york--(business wire)--l-3 communications holdings, inc. (nyse: lll) today reported diluted earnings per share (diluted eps) of $1.85 for the quarter ended april 1, 2011 (2011 first quarter), compared to $1.87 for the quarter ended march 26, 2010 (2010 first quarter). excluding $0.10 related to a debt retirement charge, discussed below, diluted eps would have been $1.95. net sales of $3.6 billion decreased by approximately 1% compared to the 2010 first quarter. “l-3’s strong overall program performance provides a good start to the year despite challenging market conditions during the first quarter, particularly in services,” said michael t. strianese, chairman, president and chief executive officer. “we continue to focus on operational program performance, developing innovative products, and managing our costs. key contract re-compete wins during the quarter included a u.s. air force and navy c-12 aircraft cls contract and a socom enterprise it support services contract. we also continued to deploy our strong cash flow to increase shareholder value. we repurchased $205 million of our common stock and paid dividends of $49 million during the quarter, and, our board of directors increased l-3’s quarterly cash dividend by 13% to $0.45 per share. this dividend increase marks our seventh consecutive yearly increase and demonstrates our confidence in l-3’s strategic position and future prospects.” as previously announced, the company refinanced $650 million of its debt during the 2011 first quarter. on february 7, 2011, the company completed an offering of $650 million 4.95% senior notes that mature on february 15, 2021. the proceeds from the offering, together with cash on hand, were used to redeem the company’s $650 million 5⅞% senior subordinated notes due 2015 (2015 notes). in connection with the redemption of the 2015 notes, the company recorded a debt retirement charge of $18 million ($11 million after income tax, or $0.10 per diluted share). consolidated results april 1, 2011 march 26,2010 increase/(decrease) (50 ) bpts (320 ) bpts first quarter results of operations: consolidated net sales of $3.6 billion decreased by approximately 1% as compared to the 2010 first quarter. lower sales from the aircraft modernization and maintenance (am&m) segment, primarily due to the loss of a special operations forces support activity (sofsa) contract, and the electronic systems segment were partially offset by sales growth from the command, control, communications, intelligence, surveillance and reconnaissance (c3isr) and government services segments. additional days in the 2011 first quarter as compared to the 2010 first quarter favorably impacted sales, primarily for the government services and am&m segments. acquired businesses(1), which are all included in the electronics systems segment, contributed $82 million to net sales in the 2011 first quarter. operating income for the 2011 first quarter decreased by 5% compared to the 2010 first quarter. operating income as a percentage of sales (operating margin) decreased by 50 basis points to 10.8% for the 2011 first quarter compared to 11.3% for the 2010 first quarter. lower operating margin in the c3isr segment was partially offset by an increase in operating margin for the am&m segment. see segment results below for additional discussion of segment operating margin. net interest expense and other income increased by $19 million for the 2011 first quarter compared to the same period last year. the increase was primarily due to an $18 million debt retirement charge related to the company’s redemption of the 2015 notes. net interest expense included $3 million ($2 million after income taxes, or $0.02 per diluted share) related to overlapping debt prior to the redemption of the 2015 notes, which was partially offset by lower interest rates on outstanding debt. the effective tax rate for the 2011 first quarter decreased by 320 basis points compared to the same period last year. the decrease in the effective tax rate was primarily due to: (1) an increased benefit from foreign earnings, (2) the reenactment of the u.s. federal research and experimentation tax credit, and (3) a 2010 first quarter tax provision of $5 million, or $0.04 per diluted share, related to the unfavorable tax treatment of the u.s. federal patient protection and affordable care act that did not recur. net income attributable to l-3 in the 2011 first quarter decreased by $17 million compared to the 2010 first quarter, and diluted eps decreased 1% to $1.85 from $1.87. diluted weighted average common shares outstanding for the 2011 first quarter compared to the 2010 first quarter declined by 6% due to share repurchases of l-3 common stock. orders: funded orders for the 2011 first quarter decreased 8% to $3.4 billion compared to $3.6 billion for the 2010 first quarter. funded backlog was $10.9 billion at april 1, 2011, compared to $11.1 billion at december 31, 2010. cash flow: net cash from operating activities was $220 million for the 2011 first quarter, a decrease of $51 million, compared to $271 million for the 2010 first quarter. the decrease in net cash from operating activities was primarily due to the timing of quarterly employer pension contributions. capital expenditures, net of dispositions of property, plant and equipment, were $34 million for the 2011 first quarter, compared to $26 million for the 2010 first quarter. reportable segment results effective during the 2011 first quarter, the company re-aligned certain business units in the company’s management and organizational structure, and accordingly has made related reclassifications among its c3isr, government services and electronic systems segments. the segment results presented in this earnings release reflect these reclassifications. tables e and f (unaudited supplemental segment data) attached to this earnings release present: (1) the previous segment data presentation for the year ended december 31, 2010, and the quarterly periods ended march 26, june 25, september 24 and december 31, 2010, (2) reclassifications for these periods to the respective segments, and (3) the revised segment data presentation for these periods. c3isr april 1,2011 march 26,2010 increase/(decrease) ) bpts c3isr net sales for the 2011 first quarter increased by 2% compared to the 2010 first quarter primarily due to increased demand and new business for networked communication systems for manned and unmanned platforms, airborne isr logistics support and fleet management services to the u.s. department of defense (dod) and international isr systems. these increases were partially offset by lower sales of force protection products to foreign ministries of defense. c3isr operating income for the 2011 first quarter decreased by 14% compared to the 2010 first quarter. operating margin decreased by 220 basis points, primarily due to an $8 million loss on a contract termination and favorable contract performance adjustments in the 2010 first quarter for airborne isr systems that did not recur. government services april 1,2011 march 26,2010 increase/(decrease) ) bpts government services net sales for the 2011 first quarter increased by 4% compared to the 2010 first quarter. additional days in the 2011 first quarter as compared to the 2010 first quarter increased sales by approximately $60 million. excluding the impact of the additional days, sales decreased by approximately $23 million. the decrease was primarily due to reduced subcontractor pass-through sales volume of $29 million related to task order renewals for u.s. army systems and software engineering and sustainment services and the loss of an afghanistan ministry of defense support contract. these decreases were partially offset by increased demand for: (1) information technology support services and system engineering for the u.s. government and other agencies and (2) logistics, training and law enforcement support services for the u.s. army on new and existing contracts. government services operating income for the 2011 first quarter decreased by 1% compared to the 2010 first quarter. operating margin decreased by 40 basis points. operating margin was reduced by 110 basis points primarily due to lower margins on select new and existing contracts and task orders due to competitive price pressures. the decrease in operating margin was partially offset by an increase of 70 basis points related to costs in the 2010 first quarter for a security systems contract that did not recur and the timing of receipt of an award fee for linguist services. am&m april 1,2011 march 26,2010 increase/(decrease) bpts am&m net sales for the 2011 first quarter decreased by 9% compared to the 2010 first quarter. additional days in the 2011 first quarter as compared to the 2010 first quarter increased sales by approximately $23 million. excluding the impact of the additional days, sales decreased by $82 million. the decrease was primarily due to: (1) lower sales of $99 million from the sofsa contract loss and (2) sales volume declines for contract field services as fewer task orders were received due to increased competition. the decreases were partially offset by higher demand from existing and new contracts for system field support services for c-12 and rotary wing aircraft for the u.s. army and higher sales volume for joint cargo aircraft (jca). am&m operating income for the 2011 first quarter increased by 11% compared to the 2010 first quarter. operating margin increased by 200 basis points. a favorable price adjustment of $10 million for an international aircraft modernization contract increased operating margin by 150 basis points, improved contract performance on rotary wing cabin assemblies increased operating margin by 120 basis points, and a decline in lower margin sales, primarily from the sofsa contract, increased operating margin by 90 basis points. these increases were partially offset primarily by startup costs related to a u.s. army c-12 aircraft maintenance contract and lower margin sales mix, primarily for higher jca volume. electronic systems april 1,2011 march 26,2010 ) bpts electronic systems net sales for the 2011 first quarter decreased by 1% compared to the 2010 first quarter, reflecting lower sales volume for: (1) microwave products, primarily due to decreased deliveries of power devices for satellite communication systems, (2) combat propulsion systems due to a continued reduction in dod funding for bradley fighting vehicles, (3) training & simulation primarily due to lower sales volume on an egyptian maritime simulation contract, and (4) warrior systems due to lower shipments of night vision products. the decreases were partially offset primarily by: (1) sales from acquired businesses of $82 million for insight technology, 3di technologies, airborne technologies, and funa international gmbh and (2) higher demand for eo/ir products. electronic systems operating income for the 2011 first quarter decreased by 6% compared to the 2010 first quarter. operating margin decreased by 70 basis points. operating margin was reduced by 340 basis points primarily due to: (1) lower sales volume and favorable contract performance adjustments in the 2010 first quarter, primarily for combat propulsion systems, training & simulation and warrior systems, (2) lower margin sales from acquired businesses, and (3) a favorable volume price adjustment on a supply contract in the 2010 first quarter that did not recur. the decrease was partially offset by 270 basis points due primarily to increased eo/ir sales volume, favorable sales mix as well as improved contract performance. financial guidance based on information known as of today, the company has revised its consolidated and segment financial guidance for the year ending december 31, 2011, 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 6, and the company undertakes no duty to update its guidance. prior(jan. 27, 2011) $8.50 to $8.60 $8.40 to $8.55 _______________ the update of the company’s 2011 consolidated financial guidance compared to the previous guidance provided on january 27, 2011, is primarily due to the items listed below. an additional $300 million of share repurchases, resulting in total 2011 planned repurchases of $800 million that increases diluted eps by approximately $0.11; an increase in estimated operating margin due to additional cost management and more favorable sales mix, primarily for the c3isr and electronic systems segments, that increases diluted eps by approximately $0.08; a decrease in the estimated effective tax rate of 50 basis points that increases diluted eps by approximately $0.07; reduced sales expectations, primarily for the government services segment, that decreases diluted eps by approximately $0.12; and the 2011 first quarter debt refinancing, including a debt retirement charge, partially offset by reduced interest expense of approximately $6 million, that decreases diluted eps by approximately $0.07. segment 2011 financial guidance prior(jan. 27, 2011) net sales: operating margins: additional financial information regarding the 2011 first quarter results and the 2011 updated 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 21, 2011 at 11:00 a.m. edt 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. edt 10:00 a.m. cdt 9:00 a.m. mdt 8:00 a.m. pdt 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 (888) 286-8010 (passcode: 77765387), 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 63,000 people worldwide and is a prime contractor in c3isr (command, control, communications, intelligence, surveillance and reconnaissance) systems, aircraft modernization and maintenance, and government services. l-3 is also a leading provider of a broad range of electronic systems used on military and commercial platforms. the company reported 2010 sales of $15.7 billion. 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 release, including information regarding the company’s 2011 financial outlook that are predictive in nature, that depend upon or refer to events or conditions or that include words such as ‘‘expects,’’ ‘‘anticipates,’’ ‘‘intends,’’ ‘‘plans,’’ ‘‘believes,’’ ‘‘estimates,’’ and similar expressions constitute forward-looking statements. although we believe that these statements are based upon reasonable assumptions, including projections of total sales growth, sales growth from business acquisitions, organic sales growth, consolidated operating margins, total segment operating margins, interest expense, earnings, cash flow, research and development costs, working capital, capital expenditures and other projections, they are subject to several risks and uncertainties, and therefore, we can give no assurance that these statements will be achieved. such statements will also be influenced by factors which include, among other things: our dependence on the defense industry and the business risks peculiar to that industry, including changing priorities or reductions in the u.s. government defense budget; backlog processing and program slips resulting from delayed resolution of the department of defense (dod) fiscal year 2011 funding; our reliance on contracts with a limited number of agencies of, or contractors to, the u.s. government and the possibility of termination of government contracts by unilateral government action or for failure to perform; the extensive legal and regulatory requirements surrounding our contracts with the u.s. or foreign governments and the results of any investigation of our contracts undertaken by the u.s. or foreign governments; our ability to retain our existing business and related contracts (revenue arrangements); our ability to successfully compete for and win new business and related contracts (revenue arrangements) and to win re-competitions of our existing contracts; our ability to identify and acquire additional businesses in the future with terms that are attractive to l-3 and to integrate acquired business operations; our ability to maintain and improve our consolidated operating margin and total segment operating margin in future periods; our ability to obtain future government contracts (revenue arrangements) on a timely basis; the availability of government funding or cost-cutting initiatives and changes in customer requirements for our products and services; our significant amount of debt and the restrictions contained in our debt agreements; our ability to continue to retain and train our existing employees and to recruit and hire new qualified and skilled employees as well as our ability to retain and hire employees with u.s. government security clearances; 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, including those for the commercial aviation, shipbuilding and communications markets; global economic uncertainty; the dod’s contractor support services in-sourcing and efficiency initiatives; events beyond our control such as acts of terrorism; our ability to perform contracts (revenue arrangements) on schedule; our international operations; our extensive use of fixed-price type contracts as compared to cost-plus type and time-and-material type contracts; the rapid change of technology and high level of competition in the defense industry and the commercial industries in which our businesses participate; our introduction of new products into commercial markets or our investments in civil and commercial products or companies; the outcome of litigation matters, including in connection with jury trials; results of audits by u.s. government agencies; results of on-going governmental investigations, including potential suspensions or debarments; the impact on our business of improper conduct by our employees, agents or business partners; anticipated cost savings from business acquisitions not fully realized or realized within the expected time frame; the outcome of matters relating to the foreign corrupt practices act (fcpa) and similar non-u.s. regulations; ultimate resolution of contingent matters, claims and investigations relating to acquired businesses, and the impact on the final purchase price allocations; competitive pressure among companies in our industry; and the fair values of our assets, which can be impaired or reduced by other factors, some of which are discussed above. for a discussion of other risks and uncertainties that could impair our results of operations or financial condition, see ‘‘part i — item 1a — risk factors’’ and note 19 to our audited consolidated financial statements, included in our annual report on form 10-k for the year ended december 31, 2010, as well as any material updates to these factors in our future filings. our forward-looking statements are not guarantees of future performance and the actual results or developments may differ materially from the expectations expressed in the forward-looking statements. 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. these forward-looking statements also represent our estimates and assumptions only as of the date that they were made. we expressly disclaim a duty to provide updates to these forward-looking statements, and the estimates and assumptions associated with them, after the date of this release to reflect events or changes in circumstances or changes in expectations or the occurrence of anticipated events. table a l-3 communications holdings, inc. unaudited condensed consolidated statements of operations (in millions, except per share data) first quarter ended(a) april 1,2011 march 26,2010 ____________________ table b l-3 communications holdings, inc.unaudited select financial data(in millions) april 1,2011 march 26,2010 segment operating data funded order data: april 1,2011 period end data ____________________ table c l-3 communications holdings, inc.unaudited preliminary condensed consolidatedbalance sheets(in millions) april 1,2011 dec. 31,2010 table d l-3 communications holdings, inc.unaudited preliminary condensed consolidatedstatements of cash flows(in millions) april 1,2011 march 26,2010 operating activities investing activities financing activities table e l-3 communications holdings, inc.unaudited supplemental segment datafor the year ended december 31, 2010(in millions) previouspresentation revisedpresentation table f l-3 communications holdings, inc.unaudited supplemental segment datafor the quarterly periods ended march 26, june 25, september 24, and december 31, 2010(in millions)
