EX-99 2 exhibit99.htm EX-99 Contact:

 

        

 

                                                                                                                                      

Contact:   L3 Technologies, Inc.

                Corporate Communications                                                                            For Immediate Release

                212-697-1111

 

 

 

 

L3 Announces Second Quarter 2017 Results

 

 

·         Diluted earnings per share (EPS) from continuing operations of $2.54, including a gain of $0.33 from an earlier than planned sale of a property

·         Net sales increased 3% to $2.7 billion 

·         Net cash from operating activities from continuing operations of $266 million

·         Updated 2017 financial guidance

 

 

NEW YORK, July 27, 2017 – L3 Technologies, Inc. (NYSE: LLL) 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.” 

 

 

  

 

L3 Announces Results for the 2017 Second Quarter                                                                                    Page 2 

 

L3 Consolidated Results

The table below provides L3’s selected financial data.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Second Quarter Ended

 

 

 

 

First Half Ended

 

 

 

 

 

(in millions, except per share data)

June 30,

 

 

June 24,

 

Increase/

 

June 30,

 

 

June 24,

 

Increase/

 

 

 

2017

 

 

2016

 

(decrease)

 

2017

 

 

2016

 

(decrease)

 

 

Net sales

$

2,732

 

 

$

2,664

 

3

%

 

$

5,401

 

 

$

5,017

 

8

%

 

 

Operating income

$

312

 

 

$

247

 

26

%

 

$

565

 

 

$

499

 

13

%

 

 

Operating margin

 

11.4

%

 

 

9.3

%

210

bpts

 

 

10.5

%

 

 

9.9

%

60

bpts

 

 

Interest expense and other

$

(39)

 

 

$

(43)

 

(9)

%

 

$

(76)

 

 

$

(80)

 

(5)

%

 

 

Effective income tax rate 

  

24.2

%

 

 

26.0

%

(180)

bpts

 

  

23.3

%

 

 

24.1

%

(80)

bpts

 

 

Net income from continuing operations attributable to L3

$

202

 

 

$

147

 

37

%

 

$

366

 

 

$

311

 

18

%

 

 

Diluted earnings per share from continuing operations

$

2.54

 

 

$

1.88

 

35

%

 

$

4.61

 

 

$

3.95

 

17

%

 

 

Diluted weighted average common shares outstanding

 

79.5

 

 

 

78.4

 

1

%

 

  

79.4

 

 

 

78.7

 

1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash from operating activities from continuing operations

$

266

 

 

$

264

 

1

%

 

$

351

 

 

$

376

 

(7)

%

 

 

Less: Capital expenditures, net of dispositions(1)

 

8

 

 

 

(36)

 

(122)

%

 

 

(33)

 

 

 

(64)

 

(48)

%

 

 

Free cash flow(2)

$

274

 

 

$

228

 

20

%

 

$

318

 

 

$

312

 

2

%

 

 

___________________

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)     Results for each of the 2017 second quarter and first half include $64 million of cash proceeds related to the sale of the company's property in San Carlos,

 

 

California.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2)      Free cash flow is defined as net cash from operating activities from continuing operations 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.  The company believes free cash flow is a useful measure for investors because it portrays the company's ability to generate cash from operations for purposes such as repaying debt, returning cash to shareholders and funding acquisitions.  The company uses free cash flow as a performance measure in evaluating management.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

 

Operating income for the 2017 second quarter increased by $65 million, or 26%, compared to the 2016 second quarter 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 previously announced on-going consolidation of the EDD/ETI Traveling Wave Tube (TWT) businesses in the Communication Systems segment. Operating income as a percentage of sales (operating margin) increased by 210 basis points to 11.4% for the 2017 second quarter, compared to 9.3% for the 2016 second quarter. Consolidation activities related to the EDD/ETI TWT businesses increased operating margin by 120 basis points consisting of: (1) a gain on the sale of the company’s property in San Carlos, California, which increased operating margin by 150 basis points and (2) severance and restructuring expenses, which decreased operating margin by 30 basis points. Excluding these consolidation activities, operating margin increased by 90 basis points. See the reportable segment results for additional discussion of sales and operating margin trends.

 

 

(1)   Organic sales represent net sales excluding the sales impact of acquisitions and divestitures.  Sales declines related to business divestitures are sales from divestitures that are included in L3’s actual results for the 12 months prior to the divestitures. Sales increases related to acquired businesses are sales from acquisitions that are included in L3’s actual results for less than 12 months. The company believes organic sales is a useful measure for investors because it provides period-to-period comparisons of the company’s ongoing operational and financial performance.

 

 

L3 Announces Results for the 2017 Second Quarter                                                                                    Page 3 

 

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.

 

L3 Announces Results for the 2017 Second Quarter                                                                                    Page 4 

 

    Reportable Segment Results

The company has four reportable segments. The company evaluates the performance of its segments based on their sales, operating income and operating margin. Corporate expenses are allocated to the company’s operating segments using an allocation methodology prescribed by U.S. Government regulations for government contractors. Accordingly, segment results include all costs and expenses, except for goodwill impairment charges and certain other items that are excluded by management for purposes of evaluating the performance of the company’s business segments. 

 

 

Electronic Systems

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Second Quarter Ended

 

 

 

First Half Ended

 

 

 

 

 

 

June 30,

 

June 24,

 

 

 

June 30,

 

June 24,

 

Increase/

 

 

 

($ in millions)

2017

 

2016

 

Increase

 

2017

 

2016

 

(decrease)

 

 

 

Net sales

$

768

 

$

662

 

16

%

$

1,505

 

$

1,255

 

20

%

 

 

Operating income

$

105

 

$

83

 

27

%

$

196

 

$

168

 

17

%

 

 

Operating margin

 

13.7

%

 

12.5

%

120

bpts

 

13.0

%

 

13.4

%

(40)

bpts

 

 

Second Quarter: Electronic Systems net sales for the 2017 second quarter increased by $106 million, or 16%, compared to the 2016 second quarter. Organic sales increased by $73 million, or 11%, compared to the 2016 second quarter. Organic sales exclude $48 million of sales increases related to business acquisitions and $15 million of sales declines related to business divestitures. Organic sales increased by: (1) $63 million for Total Training Solutions primarily due to higher volume on commercial flight simulators and deliveries of training systems for the Flight School XXI program, (2) $23 million for Precision Engagement Systems primarily due to increased deliveries of fuzing and ordnance products for the U.S. Army and U.S. Air Force (USAF) and (3) $15 million for Power & Propulsion primarily due to higher volume for U.S. Navy (USN) power conversion and distribution systems, surface ship bridge system upgrades and guided destroyer modernization program.  These increases were offset by a $28 million decrease at Security & Detection due to the timing of deliveries of cargo screening devices to international customers and lower deliveries of airport screening devices to the U.S. Transportation Security Administration.

 

Electronic Systems operating income for the 2017 second quarter increased by $22 million, or 27%, compared to the 2016 second quarter. Operating margin increased by 120 basis points to 13.7% due to higher sales volume and mix changes primarily at Power & Propulsion and Total Training Solutions.

 

First Half: Electronic Systems net sales for the 2017 first half increased by $250 million, or 20%, compared to the 2016 first half. Organic sales increased by $174 million, or 14%, compared to the 2016 first half. Organic sales exclude $96 million of sales increases related to business acquisitions and $20 million of sales declines related to business divestitures. Organic sales increased by: (1) $98 million for Total Training Solutions due to trends similar to the 2017 second quarter and higher volume on the E-3 Dragon contract, (2) $58 million for Precision Engagement Systems primarily due to trends similar to the 2017 second quarter and guidance and control products for the USAF and foreign militaries, (3) $26 million for Power & Propulsion primarily due to trends similar to the 2017 second quarter and (4) $20 million for Aviation Products primarily due to deliveries of aviation recorders and traffic and collision avoidance systems for commercial airline customers and higher volume of overhaul and repair services for cockpit displays and aviation recorders for the U.S. military.  These increases were offset by a $28 million decrease at Security & Detection due to trends similar to the 2017 second quarter.

 

Electronic Systems operating income for the 2017 first half increased by $28 million, or 17%, compared to the 2016 first half. Operating margin decreased by 40 basis points to 13%. Operating margin decreased by: (1) 70 basis points due to net gains and losses related to business divestitures in the first quarters of 2016 and 2017, (2) 60 basis points due to lower margins related to acquisitions and higher severance expense of $3 million and (3) 50 basis points for lower favorable contract performance adjustments across several business areas, primarily Total Training Solutions. These decreases were partially offset by 140 basis points primarily due to higher sales volume and mix changes.

 

L3 Announces Results for the 2017 Second Quarter                                                                                    Page 5 

 

 

 

Aerospace Systems

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Second Quarter Ended

 

 

 

First Half Ended

 

 

 

 

 

 

June 30,

 

June 24,

 

Increase/

 

June 30,

 

June 24,

 

 

 

 

 

($ in millions)

2017

 

2016

 

(decrease)

 

2017

 

2016

 

Decrease

 

 

 

Net sales

$

1,026

 

$

1,148

 

(11)

%

$

2,071

 

$

2,153

 

(4)

%

 

 

Operating income

$

70

 

$

70

 

-

%

$

139

 

$

176

 

(21)

%

 

 

Operating margin

 

6.8

%

 

6.1

%

70

bpts

 

6.7

%

 

8.2

%

(150)

bpts

 

 

Second Quarter: Aerospace Systems net sales for the 2017 second quarter decreased by $122 million, or 11%, compared to the 2016 second quarter. Sales decreased $71 million for ISR Systems and $51 million for Aircraft Systems. Sales for Vertex Aerospace remained substantially the same. Sales decreased for ISR Systems due to the procurement and delivery of two business jets to a foreign military customer in the 2016 second quarter that did not recur and lower volume for large ISR aircraft systems for foreign military customers as contracts near completion. These decreases were partially offset by higher volume for large ISR aircraft systems for the U.S. Government. Sales decreased for Aircraft Systems due to reduced deliveries primarily for UH-1Y aircraft cabin assemblies as contracts near completion and lower volume for aircraft modifications, primarily international head-of-state aircraft and USAF Compass Call aircraft.  At Vertex Aerospace, higher volume on the USAF KC-10 contractor logistics support contract and aviation support for the U.S. Army rotary wing training aircraft at Fort Rucker was offset by lower maintenance volume primarily on U.S. Army, USN and USAF C-12 aircraft, USN and USAF training aircraft and contractor logistics support services at USAF bases due to completed contracts.

 

Aerospace Systems operating income for the 2017 second quarter remained substantially the same as the 2016 second quarter. Operating margin increased by 70 basis points to 6.8% primarily due to improved cost and program performance, primarily Vertex Aerospace.

 

First Half: Aerospace Systems net sales for the 2017 first half decreased by $82 million, or 4%, compared to the 2016 first half. Sales decreased $88 million for Aircraft Systems and $54 million for ISR Systems partially offset by higher sales of $60 million for Vertex Aerospace. Sales decreases for Aircraft Systems and ISR Systems were due to trends similar to the 2017 second quarter. Sales increased for Vertex Aerospace primarily due to higher volume on the U.S. Army C-12 contract, USAF KC-10 contractor logistics support contract, aviation support for the U.S. Army rotary wing training aircraft at Fort Rucker and USAF training aircraft. These increases were partially offset by lower volume for contractor logistics support services at USAF bases due to completed contracts.

 

Aerospace Systems operating income for the 2017 first half decreased by $37 million, or 21%, compared to the 2016 first half. Operating margin decreased by 150 basis points to 6.7% primarily due to lower favorable contract performance adjustments, primarily at ISR Systems.

  

 

L3 Announces Results for the 2017 Second Quarter                                                                                    Page 6 

 

 

Communication Systems

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Second Quarter Ended

 

 

 

First Half Ended

 

 

 

 

 

 

June 30,

 

June 24,

 

 

 

June 30,

 

June 24,

 

 

 

 

 

($ in millions)

2017

 

2016

 

Increase

 

2017

 

2016

 

Increase

 

 

 

Net sales

$

549

 

$

495

 

11

%

$

1,086

 

$

966

 

12

%

 

 

Operating income

$

85

 

$

52

 

63

%

$

128

 

$

103

 

24

%

 

 

Operating margin

 

15.5

%

 

10.5

%

500

bpts

 

11.8

%

 

10.7

%

110

bpts

 

 

Second Quarter: Communication Systems net sales for the 2017 second quarter increased by $54 million, or 11%, compared to the 2016 second quarter. The increase was primarily driven by Broadband Communication Systems due to increased volume and deliveries of secure networked communication systems for the U.S. Department of Defense (DoD).

Communication Systems operating income for the 2017 second quarter increased by $33 million, or 63%, compared to the 2016 second quarter 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 500 basis points to 15.5%. Consolidation activities related to the EDD/ETI TWT businesses increased operating margin by 610 basis points consisting of: (1) a gain on the sale of the company’s property in San Carlos, California, which increased operating margin by 770 basis points and (2) severance and restructuring expenses of $9 million, which decreased operating margin by 160 basis points. Excluding these consolidation activities, operating margin decreased by 110 basis points primarily due to lower favorable contract performance adjustments in Advanced Communications Systems.

First Half: Communication Systems net sales for the 2017 first half increased by $120 million, or 12%, compared to the 2016 first half due to trends similar to the 2017 second quarter.

Communication Systems operating income for the 2017 first half increased by $25 million, or 24%, 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 110 basis points to 11.8%. Consolidation activities related to the EDD/ETI TWT businesses increased operating margin by 220 basis points consisting of: (1) a gain on the sale of the company’s property in San Carlos, California, which increased operating margin by 390 basis points and (2) severance and restructuring expenses of $18 million, which decreased operating margin by 170 basis points. Excluding these consolidation activities, operating margin decreased by 110 basis points primarily due to sales mix changes in Space & Power Systems.

 

 

Sensor Systems

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Second Quarter Ended

 

 

 

First Half Ended

 

 

 

 

 

 

June 30,

 

June 24,

 

 

 

June 30,

 

June 24,

 

 

 

 

 

($ in millions)

2017

 

2016

 

Increase

 

2017

 

2016

 

Increase

 

 

 

Net sales

$

389

 

$

359

 

8

%

$

739

 

$

643

 

15

%

 

 

Operating income

$

52

 

$

42

 

24

%

$

102

 

$

52

 

96

%

 

 

Operating margin

 

13.4

%

 

11.7

%

170

bpts

 

13.8

%

 

8.1

%

570

bpts

 

 

Second Quarter: Sensor Systems net sales for the 2017 second quarter increased by $30 million, or 8%, compared to the 2016 second quarter. Organic sales increased by $24 million, or 7%, compared to the 2016 second quarter. Organic sales exclude $6 million of sales increases related to business acquisitions. Organic sales increased $24 million primarily for Integrated Sensor Systems due to increased deliveries of airborne turret systems for the USAF and higher volume for space electronics products.

 

L3 Announces Results for the 2017 Second Quarter                                                                                    Page 7 

 

Sensor Systems operating income for the 2017 second quarter increased by $10 million, or 24%, compared to the 2016 second quarter. Operating margin increased by 170 basis points to 13.4% due to higher sales volume primarily at Integrated Sensor Systems.

First Half: Sensor Systems net sales for the 2017 first half increased by $96 million, or 15%, compared to the 2016 first half. Organic sales increased by $88 million, or 14%, compared to the 2016 first half. Organic sales exclude $8 million of sales increases related to business acquisitions. Organic sales increased by: (1) $57 million primarily for Integrated Sensor Systems due to increased deliveries of airborne turret systems to the USAF and foreign military customers and higher volume for space electronics, (2) $16 million primarily for Advanced Programs due to increased task order volume on U.S. Government contracts and (3) $15 million for Warrior Systems primarily driven by lower return allowances.

Sensor Systems operating income for the 2017 first half increased by $50 million, or 96%, compared to the 2016 first half. Operating margin increased by 570 basis points to 13.8%. Operating margin increased by: (1) 250 basis points primarily due to higher sales volume primarily at Integrated Sensor Systems, (2) 170 basis points due to lower return allowances and (3) 150 basis points primarily for improved contract performance at Ocean Systems.

 

L3 Announces Results for the 2017 Second Quarter                                                                                    Page 8 

 

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, 2017, previously provided on April 27, 2017, 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 9. The company undertakes no duty to update its guidance.

 

 

Consolidated 2017 Financial Guidance

 

 

($ in millions, except per share data)

 

 

 

 

 

 

 

 

 

Prior Guidance

 

 

 

Current Guidance

 

(April 27, 2017)

 

 

 

Net sales

$10,800 to $11,000

 

$10,750 to $10,950

 

 

 

 

Operating margin

10.3%

 

10.3%

 

 

 

 

Interest expense and other(1)

$158

 

$158

 

 

 

 

Effective tax rate

25.8%

 

27.0%

 

 

 

 

Minority interest expense(2)

$17

 

$15

 

 

 

 

Diluted shares

80.0

 

79.8

 

 

 

 

Diluted EPS

$8.65 to $8.85

 

$8.50 to $8.70

 

 

 

 

Net cash from operating activities

$1,030

 

$1,085(3)

 

 

 

 

Capital expenditures, net of dispositions of property, plant and equipment

(155)

 

(220)

 

 

 

 

Free cash flow

$875

 

$865

 

 

 

 

___________________

 

 

 

 

 

 

 

 

 

 

 

 

 

   (1)  Interest expense and other is comprised of: (i) interest expense of $173 million and (ii) interest and other income, net, of $15 million.

 

 

 

   (2)   Minority interest expense represents net income from continuing operations attributable to non-controlling interests.

 

 

 

 

   (3)  Prior Guidance net cash from operating activities included the anticipated proceeds from the sale of the company's property in San Carlos, California,

 

 

 

 

        and the expected restructuring expenses in connection with the consolidation of the company's EDD/ETI TWT businesses. The current guidance

        includes the actual cash proceeds received from the sale of the company's property in San Carlos, California, in the capital expenditures line. See

        revisions to current guidance below.

 
                           

 

 

Segment 2017 Financial Guidance

 

($ in millions)

 

 

 

 

 

 

Current Guidance

 

Prior Guidance

(April 27, 2017)

 

 

 

 

 

 

 

 

 

 

Net Sales: 

 

 

 

 

 

 

 

 

 

   Electronic Systems

 

 

 

$3,000 to $3,100

 

$3,000 to $3,100

 

 

 

   Aerospace Systems

 

 

 

$4,050 to $4,150

 

$4,050 to $4,150

 

 

 

   Communication Systems

 

 

 

$2,125 to $2,225

 

$2,075 to $2,175

 

 

 

Sensor Systems

 

 

 

$1,525 to $1,625

 

$1,525 to $1,625

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Margins:  

 

 

 

 

 

 

 

 

 

   Electronic Systems

 

 

 

13.2% to 13.4%

 

13.2% to 13.4%

 

 

 

   Aerospace Systems

 

 

 

6.9% to 7.1%

 

6.9% to 7.1%

 

 

 

   Communication Systems

 

 

 

10.6% to 10.8%

 

10.5% to 10.7%

 

 

 

Sensor Systems

 

 

 

12.7% to 12.9%

 

12.7% to 12.9%

 

 

 

 

 

 

 

 

 

 

 

 

The revisions to our Current Guidance compared to our Prior Guidance primarily include:

·         An increase in estimated sales for Communication Systems primarily related to higher expected DoD sales;

·         An increase in estimated operating margin for Communication Systems due to higher sales volume and a higher than expected gain on the sale of the company’s property in San Carlos, California, partially offset by higher than expected restructuring expenses in connection with the consolidation of the EDD/ETI TWT businesses;

 

L3 Announces Results for the 2017 Second Quarter                                                                                    Page 9 

 

·         A decrease in the effective tax rate primarily due to higher than expected tax benefits related to share-based compensation awards and R&E tax credits, partially offset by increases in minority interest expense and diluted shares; and

·         With respect to free cash flow, reclassification of the actual proceeds received from the sale of the company’s property in San Carlos, California, to capital expenditures, net of dispositions from net cash from operating activities. Previously, the expected proceeds were presented as offsetting expected restructuring and severance expenses in connection with the consolidation of the company’s EDD/ETI TWT businesses and presented in net cash from operating activities.

The current guidance for 2017 excludes: (i) any potential non-cash goodwill impairment charges for which the information is presently unknown, (ii) potential adverse results related to litigation contingencies and (iii) other items such as gains or losses related to potential business divestitures and the impact of potential acquisitions.

Additional financial information regarding the 2017 second quarter results and the 2017 financial guidance is available on the company’s website at www.L3T.com.

 

Conference Call

In conjunction with this release, L3 will host a conference call today, Thursday, July 27, 2017 at 11:00 a.m. ET that will be simultaneously broadcast over the Internet.  Michael T. Strianese, Chairman and Chief Executive Officer, Christopher E. Kubasik, President and Chief Operating Officer, and Ralph G. D’Ambrosio, Senior Vice President and Chief Financial Officer, will host the call.

 

Listeners can access the conference call live at the following website address:

 

http://www.L3T.com

Please allow 15 minutes prior to the call to visit this site to download and install any necessary audio software.  The archived version of the call may be accessed at the site or by dialing (800) 585-8367/ passcode: 48967652 (for domestic callers) or (404) 537-3406/passcode: 48967652 (for international callers) 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, 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. 

To learn more about L3, please visit the company’s website at www.L3T.com.  L3 uses its website as a channel of distribution of material company information.  Financial and other material information regarding L3 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 2017 financial guidance 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

 

L3 Announces Results for the 2017 Second Quarter                                                                                    Page 10 

 

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; the outcome of litigation matters (see Notes to our annual report on Form 10-K and quarterly reports on Form 10-Q); results of audits by U.S. Government agencies and of ongoing governmental investigations; 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 risk that our commercial aviation products and services businesses are affected by a downturn in global demand for air travel or a reduction in commercial aircraft OEM (Original Equipment Manufacturer) production rates; 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 including currency risks and compliance with foreign laws; 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 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, 2016 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 –

  

 

 

Appl

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

L3 TECHNOLOGIES, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

 

 

 

 

 

 

 

 

 

 

Second Quarter Ended(a)

 

First Half Ended(a)

 

 

 

June 30,

 

June 24,

 

June 30,

 

June 24,

 

 

 

2017

 

2016

 

2017

 

2016

Net sales

 

$

2,732

 

$

2,664

 

$

5,401

 

$

5,017

Cost of sales

 

 

(2,420)

 

 

(2,417)

 

 

(4,836)

 

 

(4,518)

Operating income

 

 

312

 

 

247

 

 

565

 

 

499

Interest expense

 

 

(43)

 

 

(43)

 

 

(85)

 

 

(84)

Interest and other income, net

 

 

4

 

 

5

 

 

9

 

 

9

Debt retirement charge

 

 

-

 

 

(5)

 

 

-

 

 

(5)

Income from continuing operations before income taxes

 

 

273

 

 

204

 

 

489

 

 

419

Provision for income taxes

 

 

(66)

 

 

(53)

 

 

(114)

 

 

(101)

Income from continuing operations

 

 

207

 

 

151

 

 

375

 

 

318

Income from discontinued operations, net of income tax(b)

 

 

-

 

 

-

 

 

-

 

 

63

Net income

 

 

207

 

 

151

 

 

375

 

 

381

 

Net income from continuing operations attributable to noncontrolling interests

 

 

(5)

 

 

(4)

 

 

(9)

 

 

(7)

Net income attributable to L3

 

$

202

 

$

147

 

$

366

 

$

374

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to L3’s common shareholders:

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

2.59

 

$

1.90

 

$

4.70

 

$

4.02

 

Discontinued operations

 

 

-

 

 

-

 

 

-

 

 

0.81

 

Basic earnings per share

 

$

2.59

 

$

1.90

 

$

4.70

 

$

4.83

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share attributable to L3's common shareholders:

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

2.54

 

$

1.88

 

$

4.61

 

$

3.95

 

Discontinued operations

 

 

-

 

 

-

 

 

-

 

 

0.80

 

Diluted earnings per share

 

$

2.54

 

$

1.88

 

$

4.61

 

$

4.75

 

 

 

 

 

 

 

 

 

 

 

 

 

 

L3’s weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

78.0

 

 

77.2

 

 

77.8

 

 

77.5

 

Diluted

 

 

79.5

 

 

78.4

 

 

79.4

 

 

78.7

______________________

(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)

Income from discontinued operations, net of income taxes for the 2016 first half includes an after-tax gain of $64 million on the sale of the National Security Solutions business.

 

Appl

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table B

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

L3 TECHNOLOGIES, INC.

 

 

UNAUDITED SELECT FINANCIAL DATA

 

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Second Quarter Ended

 

First Half Ended

 

 

 

 

June 30,

 

June 24,

 

June 30,

 

June 24,

 

 

 

 

2017

 

2016

 

2017

 

2016

 

 

Segment operating data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Electronic Systems

 

$

768

 

$

662

 

$

1,505

 

$

1,255

 

 

Aerospace Systems

 

 

1,026

 

 

1,148

 

 

2,071

 

 

2,153

 

 

Communication Systems

 

 

549

 

 

495

 

 

1,086

 

 

966

 

 

Sensor Systems

 

 

389

 

 

359

 

 

739

 

 

643

 

 

Total

 

$

2,732

 

$

2,664

 

$

5,401

 

$

5,017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Electronic Systems

 

$

105

 

$

83

 

$

196

 

$

168

 

 

Aerospace Systems

 

 

70

 

 

70

 

 

139

 

 

176

 

 

Communication Systems

 

 

85

 

 

52

 

 

128

 

 

103

 

 

Sensor Systems

 

 

52

 

 

42

 

 

102

 

 

52

 

 

Total

 

$

312

 

$

247

 

$

565

 

$

499

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating margin:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Electronic Systems

 

 

13.7

%

 

12.5

%

 

13.0

%

 

13.4

%

 

Aerospace Systems

 

 

6.8

%

 

6.1

%

 

6.7

%

 

8.2

%

 

Communication Systems

 

 

15.5

%

 

10.5

%

 

11.8

%

 

10.7

%

 

Sensor Systems

 

 

13.4

%

 

11.7

%

 

13.8

%

 

8.1

%

 

Total

 

 

11.4

%

 

9.3

%

 

10.5

%

 

9.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Electronic Systems

 

$

17

 

$

16

 

$

35

 

$

30

 

 

Aerospace Systems

 

 

14

 

 

14

 

 

27

 

 

27

 

 

Communication Systems

 

 

12

 

 

11

 

 

24

 

 

23

 

 

Sensor Systems

 

 

12

 

 

11

 

 

23

 

 

22

 

 

Total

 

$

55

 

$

52

 

$

109

 

$

102

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Funded order data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Electronic Systems

 

$

704

 

$

556

 

$

1,607

 

$

1,224

 

 

Aerospace Systems

 

 

639

 

 

734

 

 

1,522

 

 

1,917

 

 

Communication Systems

 

 

514

 

 

473

 

 

970

 

 

924

 

 

Sensor Systems

 

 

500

 

 

373

 

 

882

 

 

662

 

 

Total

 

$

2,357

 

$

2,136

 

$

4,981

 

$

4,727

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

Dec. 31,

 

 

 

 

 

 

 

 

 

 

2017

 

2016

 

 

Period end data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Funded backlog

 

 

 

 

 

 

 

$

8,513

 

$

8,896

 

 

Appl

 

 

 

 

 

 

 

 

Table C

 

 

 

 

 

 

 

 

 

L3 TECHNOLOGIES, INC.

 

UNAUDITED CONDENSED CONSOLIDATED

 

BALANCE SHEETS

 

(in millions)

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

2017

 

2016

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

385

 

$

363

 

Billed receivables, net

 

 

843

 

 

731

 

Contracts in process

 

 

2,200

 

 

2,055

 

Inventories

 

 

355

 

 

330

 

Other current assets

 

 

238

 

 

218

 

Total current assets

 

 

4,021

 

 

3,697

 

Property, plant and equipment, net

 

 

1,113

 

 

1,121

 

Goodwill

 

 

6,739

 

 

6,560

 

Identifiable intangible assets

 

 

296

 

 

238

 

Other assets

 

 

263

 

 

249

 

Total assets

 

$

12,432

 

$

11,865

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable, trade

 

$

360

 

$

299

 

Accrued employment costs

 

 

494

 

 

516

 

Accrued expenses

 

 

409

 

 

375

 

Advance payments and billings in excess of costs incurred

 

 

492

 

 

492

 

Income taxes payable

 

 

14

 

 

22

 

Other current liabilities

 

 

426

 

 

431

 

Total current liabilities

 

 

2,195

 

 

2,135

 

Pension and postretirement benefits

 

 

1,186

 

 

1,177

 

Deferred income taxes

 

 

302

 

 

236

 

Other liabilities

 

 

375

 

 

368

 

Long-term debt

 

 

3,327

 

 

3,325

 

Total liabilities

 

 

7,385

 

 

7,241

 

Shareholders’ equity

 

 

4,976

 

 

4,553

 

Noncontrolling interests

 

 

71

 

 

71

 

Total equity

 

 

5,047

 

 

4,624

 

Total liabilities and equity

 

$

12,432

 

$

11,865

 

Appl

 

 

 

 

 

 

 

 

 

Table D

 

 

L3 TECHNOLOGIES, INC.

 

 

UNAUDITED CONDENSED CONSOLIDATED

 

 

STATEMENTS OF CASH FLOWS

 

 

(in millions)

 

 

 

 

First Half Ended

 

 

 

 

June 30,

 

June 24,

 

 

 

 

2017

 

2016

Operating activities

 

 

 

 

 

 

Net income

 

$

375

 

$

381

 

 

Less: Income from discontinued operations, net of tax

 

 

-

 

 

(63)

Income from continuing operations

 

 

375

 

 

318

Depreciation of property, plant and equipment

 

 

84

 

 

81

Amortization of intangibles and other assets

 

 

25

 

 

21

Deferred income tax provision

 

 

31

 

 

29

Stock-based employee compensation expense

 

 

28

 

 

19

Contributions to employee savings plans in L3’s common stock

 

 

60

 

 

58

Amortization of pension and postretirement benefit plans net loss and prior service cost

 

 

30

 

 

25

Amortization of bond discounts and deferred debt issue costs (included in interest expense)

 

 

3

 

 

4

Gain on sale of property, plant and equipment

 

 

(42)

 

 

(6)

Other non-cash items

 

 

3

 

 

22

Changes in operating assets and liabilities, excluding amounts from acquisitions and divestitures and

 

 

 

 

 

 

     discontinued operations:

 

 

 

 

 

 

 

 

Billed receivables

 

 

(105)

 

 

(62)

 

 

Contracts in process

 

 

(143)

 

 

(84)

 

 

Inventories

 

 

(12)

 

 

(24)

 

 

Other assets

 

 

(9)

 

 

(5)

 

 

Accounts payable, trade

 

 

50

 

 

118

 

 

Accrued employment costs

 

 

(24)

 

 

(23)

 

 

Accrued expenses

 

 

39

 

 

(2)

 

 

Advance payments and billings in excess of costs incurred

 

 

(8)

 

 

(111)

 

 

Income taxes

 

 

(6)

 

 

25

 

 

Other current liabilities

 

 

(18)

 

 

(10)

 

 

Pension and postretirement benefits

 

 

9

 

 

-

 

 

All other operating activities

 

 

(19)

 

 

(17)

Net cash from operating activities from continuing operations

 

 

351

 

 

376

Investing activities

 

 

 

 

 

 

Business acquisitions, net of cash acquired

 

 

(191)

 

 

(27)

Proceeds from the sale of businesses, net of closing date cash balances

 

 

16

 

 

575

Capital expenditures

 

 

(98)

 

 

(75)

Dispositions of property, plant and equipment

 

 

65

 

 

11

Other investing activities

 

 

(1)

 

 

6

Net cash (used in) from investing activities from continuing operations

 

 

(209)

 

 

490

Financing activities

 

 

 

 

 

 

Borrowings under revolving credit facility

 

 

1,158

 

 

320

Repayments of borrowings under revolving credit facility

 

 

(1,158)

 

 

(320)

Redemption of senior notes

 

 

-

 

 

(305)

Common stock repurchased

 

 

(26)

 

 

(276)

Dividends paid on L3’s common stock

 

 

(119)

 

 

(112)

Proceeds from exercise of stock options

 

 

25

 

 

38

Proceeds from employee stock purchase plan 

 

 

16

 

 

16

Repurchases of common stock to satisfy tax withholding obligations

 

 

(18)

 

 

(20)

Other financing activities

 

 

(8)

 

 

(6)

Net cash used in financing activities from continuing operations

 

 

(130)

 

 

(665)

Effect of foreign currency exchange rate changes on cash and cash equivalents

 

 

10

 

 

-

Net cash used in operating activities from discontinued operations:

 

 

-

 

 

(56)

Net (decrease) increase in cash and cash equivalents

 

 

22

 

 

145

Cash and cash equivalents, beginning of the period

 

 

363

 

 

207

Cash and cash equivalents, end of the period

 

$

385

 

$

352