L-3 Communications Announces Third Quarter 2004 Results; -Sales, Operating Income and Diluted Earnings Per Share Increase 41.1%, 30.8% and 25.7%, Respectively.NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- L-3 Communications
L-3 Communications Holdings, Inc. (NYSE: LLL) is a company that supplies command, control, communications, intelligence, surveillance and reconnaissance (C3ISR) systems and (NYSE NYSE See: New York Stock Exchange : LLL LLL abbr. left lower lobe (of the lung) ) today announced strong results for the 2004 third quarter, including sales of $1,784.2 million, operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. of $199.4 million, diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of of $0.93, net cash from operating activities of $164.0 million and free cash flow(1) of $144.1 million. For the 2004 third quarter, sales increased by 41.1% to $1,784.2 million from sales of $1,264.6 million for the 2003 third quarter. The increase in sales from acquired businesses was 22.7%, or $286.6 million. Consolidated organic(2) sales growth was 18.4%, or $233.0 million. Organic sales growth for the company's defense businesses was 17.3%, or $193.4 million, driven by continued strong demand for secure communications and intelligence, surveillance and reconnaissance Intelligence, Surveillance and Reconnaissance may refer to:
Transformation of a society from a rural and agrarian condition to a secular, urban, and industrial one. It is closely linked with industrialization. As societies modernize, the individual becomes increasingly important, gradually replacing the family, , aviation products, training and government services, training devices, imaging products and naval power equipment and services. Organic sales growth for the company's commercial and other non-military businesses was 27.4%, or $39.6 million, primarily due to increased volume for commercial aviation products and for security products and maintenance services. Consolidated operating income for the 2004 third quarter increased by 30.8% to $199.4 million from $152.4 million for the 2003 third quarter. Consolidated operating income as a percentage of sales (operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: ) decreased to 11.2% for the 2004 third quarter, compared to 12.0% for the 2003 third quarter. This decrease was principally due to lower margins for the Vertex Aerospace business, which was acquired on December 1, 2003, and changes in product sales mix sales mix See product mix. for certain businesses within the specialized spe·cial·ize v. spe·cial·ized, spe·cial·iz·ing, spe·cial·iz·es v.intr. 1. To pursue a special activity, occupation, or field of study. 2. products segment. The changes in operating margin are explained in the company's segment results discussed below. Net income for the 2004 third quarter increased by 34.7% to $102.5 million, compared to net income of $76.1 million for the 2003 third quarter. Diluted earnings per share (EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. ) increased by 25.7% to $0.93, compared to $0.74 for the 2003 third quarter. For the 2004 third quarter, funded orders increased by 41.2% to $1,950.1 million, compared to funded orders of $1,380.8 million for the 2003 third quarter. At September 30, 2004, funded backlog was $4,406.4 million, an increase of 13.2%, compared to funded backlog of $3,893.3 million at December 31, 2003. Notes: (1) See discussion, definition and calculation of free cash flow on the financial tables attached to this press release. (2) Organic sales growth is defined as the current period vs. prior period increase or decrease in sales excluding the increase in sales from acquired businesses. Net cash from operating activities for the 2004 third quarter increased by 38.0% to $164.0 million from $118.8 million for the 2003 third quarter. Free cash flow for the 2004 third quarter increased by 39.8% to $144.1 million, compared to free cash flow of $103.1 million for the 2003 third quarter. "I am pleased to report that L-3's third quarter results were excellent," said Frank C. Lanza, chairman and chief executive officer of L-3 Communications. "As we look across our businesses, we had solid performance in ISR systems, network communications, communication products, training and simulation, aircraft modernization, operations and maintenance, aviation products, homeland security Noun 1. Homeland Security - the federal department that administers all matters relating to homeland security Department of Homeland Security executive department - a federal department in the executive branch of the government of the United States products, government services, sensors and imaging products." YEAR TO DATE RESULTS For the 2004 nine-month period, sales increased by 39.2% to $4,985.8 million from sales of $3,580.5 million for the 2003 nine-month period. The increase in sales from acquired businesses was 23.7%, or $849.5 million. Consolidated organic sales growth was 15.5%, or $555.8 million. Organic sales growth for the company's defense businesses was 16.3%, or $513.6 million, driven by continued strong demand for secure communications and ISR systems, aircraft modernization, aviation products, training and government services, training devices, imaging products and naval power equipment and services. Organic sales growth for the company's commercial and other non-military businesses was 9.9%, or $42.2 million, principally due to increased volume for commercial aviation products. Operating income for the 2004 nine-month period, increased by 35.7% to $529.1 million from $390.0 million for the 2003 nine-month period. Consolidated operating margin decreased to 10.6% for the 2004 nine-month period compared to 10.9% for the 2003 nine-month period, principally due to lower margins from the Vertex Aerospace acquired business. Net income for the 2004 nine-month period increased by 46.5% to $262.6 million, compared to net income of $179.2 million for the 2003 nine-month period. Diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. EPS increased by 36.2% to $2.41, compared to $1.77 for the 2003 nine-month period. Net income for the 2003 nine-month period, includes an after-tax debt retirement charge of $7.2 million, or $0.07 per diluted share, for the early retirement of L-3's $180 million of 8 1/2% senior subordinated notes. Excluding this debt retirement charge, diluted EPS would have increased by 31.0% for the 2004 nine-month period as compared to the 2003 nine-month period. For the 2004 nine-month period, funded orders increased by 36.7% to $5,465.1 million, compared to funded orders of $3,998.5 million for the 2003 nine-month period. Net cash from operating activities for the 2004 nine-month period increased by 24.7% to $408.0 million from $327.1 million for the 2003 nine-month period. Free cash flow for the 2004 nine-month period increased by 32.7% to $364.0 million, compared to free cash flow of $274.2 million for the 2003 nine-month period. The company's cash and cash equivalents increased by $232.4 million to $367.3 million at September 30, 2004, from $134.9 million at December 31, 2003, principally due to the company's free cash flow less amounts expended ex·pend tr.v. ex·pend·ed, ex·pend·ing, ex·pends 1. To lay out; spend: expending tax revenues on government operations. See Synonyms at spend. 2. for business acquisitions. Total debt declined by $299.8 million to $2,157.5 million at September 30, 2004, compared to $2,457.3 million at December 31, 2003, principally due to the conversion of $298.2 million of the company's 5.25% senior subordinated convertible notes into 7.3 million shares of L-3 common stock in January 2004. Shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. increased by $630.0 million to $3,204.5 million at September 30, 2004, from $2,574.5 million at December 31, 2003, principally related to the company's net income, less dividends paid during the first nine months of 2004 and the conversion of the 5.25% senior subordinated notes into L-3 common stock. Total debt as a percentage of book capitalization capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets. (total debt plus minority interests plus shareholders' equity) decreased to 39.7% at September 30, 2004, compared to 48.1% at December 31, 2003. Available borrowings under the company's revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. facilities were $671.5 million at September 30, 2004. On October 5, 2004, L-3 initiated a full redemption of all its $420 million of 4.00% Senior Subordinated Convertible Contingent Debt Securities (CODES) due 2011 (the "CODES"). On or prior to the close of business on Thursday, October 21, 2004, holders of the CODES were able to convert their CODES into L-3 common stock at a conversion price of $53.8125 per share, and $419.8 million of the principal amount of CODES were converted into 7.8 million shares of L-3 common stock through October 21, 2004. The $0.2 million remaining balance of the CODES were redeemed re·deem tr.v. re·deemed, re·deem·ing, re·deems 1. To recover ownership of by paying a specified sum. 2. To pay off (a promissory note, for example). 3. for cash on October 25, 2004, at a redemption price Redemption price See: Call price redemption price 1. The price at which an open-end investment company will buy back its shares from the owners. In most cases, the redemption price is the net asset value per share. 2. of 102.0% of the principal amount, plus accrued ac·crue v. ac·crued, ac·cru·ing, ac·crues v.intr. 1. To come to one as a gain, addition, or increment: interest accruing in my savings account. 2. and unpaid interest (including contingent interest contingent interest n. an interest in real property which, according to the deed (or a will or trust), a party will receive only if a certain event occurs or certain circumstances happen. ) to October 25, 2004. As a result of the conversion of the CODES into L-3 common stock, L-3's total debt was reduced by approximately $418 million and shareholders equity was increased by approximately the same amount as compared to September 30, 2004, L-3's future annual pre-tax cash interest payments will be reduced by approximately $17 million and L-3's pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma total debt as a percentage of book capitalization would have been 32.0%. The company's estimated effective income tax rate included in the results of operations for the 2004 third quarter and 2004 nine-month period was 36.5%. During October 2004, Congress enacted a new tax law which restored the U.S. Federal income tax credit for research and experimentation expenses (the "R&E tax credit"), retroactively ret·ro·ac·tive adj. Influencing or applying to a period prior to enactment: a retroactive pay increase. [French rétroactif, from Latin from July 1, 2004 to December 31, 2005. As a result of applying the R&E tax credit to all of 2004, the estimated effective income tax rate for the full year 2004 is expected to decline from 36.5% to 36.0%. The lower tax rate will be included in L-3's results for the 2004 fourth quarter and for the year ending December 31, 2004. SEGMENT RESULTS Secure Communications & ISR Secure Communications & ISR (SC&ISR) 2004 third quarter sales increased by 17.8% to $442.4 million from $375.6 million for the 2003 third quarter. Organic sales growth was $63.0 million, or 16.8%, reflecting continued strong demand from the U.S. Department of Defense (DoD) and other U.S. Government agencies for the company's secure network communications, ISR systems and communication products. The increase in sales from acquired businesses was $3.8 million, or 1.0%. The acquired businesses include certain defense and aerospace assets of IPICOM, Inc., which was acquired in 2003. SC&ISR generated operating income of $53.6 million for the 2004 third quarter, compared with $45.1 million for the 2003 third quarter. Operating margin increased to 12.1% from 12.0% due to slightly higher operating margins for communications products. Orders for the SC&ISR segment were $518.0 million during the 2004 third quarter and included: --An award for the New Zealand New Zealand (zē`lənd), island country (2005 est. pop. 4,035,000), 104,454 sq mi (270,534 sq km), in the S Pacific Ocean, over 1,000 mi (1,600 km) SE of Australia. The capital is Wellington; the largest city and leading port is Auckland. P-3 systems upgrade, which involves the installation of new imaging radar Traditional radar sends directional pulses of electromagnetic energy and detects the presence, position and motion of an object (such as an aircraft) by analyzing the portion of the energy reflected from the object back to the radar station. , electronic sensor equipment and mission management systems. --An award for the Airborne Maritime Fixed (AMF AMF ACE (Allied Command, Europe) Mobile Force AMF Autorité des Marchés Financiers (French) AMF Action Message Format AMF Arab Monetary Fund AMF Asian Monetary Fund AMF Autocrine Motility Factor ) Joint Tactical Radio System (JTRS JTRS Joint Tactical Radio System JtRS Just The Right Shoe JTRS Just the Right Size JTRS Johnson Technical Reports Server JTRS Joint Tenancy with Right of Survivorship JTRS Jefferson Township Rescue Squad ) program. --A contract for the initial System Development and Demonstration (SDD (Software Design Description) The architecture of an information system. See IDD. ) Phase I of the KG-3X Crytographic Modernization Initiative (CMI (Computer-Managed Instruction) Using computers to organize and manage an instructional program for students. It helps create test materials, tracks the results and monitors student progress. ) program. --Selection by the U.S. Air Force for Battle Management Command and Control (BMC (BMC Software, Inc., Houston, TX, www.bmc.com) A leading supplier of software that supports and improves the availability, performance, and recovery of applications in complex computing environments. 2). --A contract from PM Win-7 (U.S. Army) for Phoenix Tri-band Tactical SHF SHF abbr. superhigh frequency Noun 1. SHF - 3 to 30 gigahertz superhigh frequency radio frequency - an electromagnetic wave frequency between audio and infrared Satellite Terminals (TSST TSST Toxic Shock Syndrome Toxin TSST Toshiba Samsung Storage Technology TSST Trier Social Stress Task TSST Tron Superspeed Tunnel (Disneyland) TSST Time Sensitive Surface Target TSST Total Ships Survivability Testing ). --Funding to provide Air and Ground Systems for the Global Hawk hawk, name generally applied to the smaller members of the Accipitridae, a heterogeneous family of diurnal birds of prey, such as the eagle, the kite, the Old World vulture, and the secretary bird. program. --An award for Airborne Data Links and ground terminals in support of the Peace Sky F-16 Reconnaissance  This article or section needs copy editing for grammar, style, cohesion, tone and/or spelling.You can assist by [ editing it] now. program for Poland. --Funding for Information Processing information processing: see data processing. information processing Acquisition, recording, organization, retrieval, display, and dissemination of information. Today the term usually refers to computer-based operations. Systems to provide Signals Intelligence (SIGINT Noun 1. SIGINT - intelligence information gathered from communications intelligence or electronics intelligence or telemetry intelligence signals intelligence ) solutions to classified customers for use in the war on terrorism Terrorist acts and the threat of Terrorism have occupied the various law enforcement agencies in the U.S. government for many years. The Anti-Terrorism and Effective Death Penalty Act of 1996, as amended by the usa patriot act and in support of the warfighter. In addition, L-3 is a key member of the by Lockheed Martin For the former company, see . Lockheed Martin (NYSE: LMT) is a leading multinational aerospace manufacturer and advanced technology company formed in 1995 by the merger of Lockheed Corporation with Martin Marietta. team selected to receive a Systems Development and Design (SDD) contract for the U.S. Army's next-generation airborne ISR program, Aerial Common Sensor The Lockheed Martin Aerial Common Sensor (ACS) platform was a reconnaissance aircraft airframe, for the United States Army and Navy. The aircraft would have been able to detect troop movements, intercept enemy communications and radar transmissions, and communicate with other (ACS (Asynchronous Communications Server) See network access server. ). L-3's workshare will include aircraft integration, interior and avionics avionics (ā'vēŏn`ĭks), electronic instruments used in air or space flight; also the design and production of such instruments. Early planes had few instruments, but as aviation and aircraft became more complex, so did instrumentation. modification, implementation of a self protection system and mission system integration and test. For the 2004 nine-month period, sales for SC&ISR increased by 17.5% to $1,240.3 million from $1,055.9 million for the 2003 nine-month period. Organic sales growth was $157.7 million, or 14.9%, driven by trends similar to those affecting SC&ISR's results for the 2004 third quarter (discussed above). The increase in sales from acquired businesses was $26.7 million. The acquired businesses include Aeromet and certain defense and aerospace assets of IPICOM, Inc. SC&ISR generated operating income of $156.6 million for the 2004 nine-month period, compared to $120.0 million for the 2003 nine-month period. Operating margin increased to 12.6% from 11.4%, primarily due to higher operating margins for communications products. Training, Simulation and Government Services Training, Simulation and Government Services (TS&GS) sales for the 2004 third quarter increased by 32.1% to $329.4 million from $249.3 million for the 2003 third quarter. Organic sales growth was $77.4 million, or 31.0%, driven by increased sales of training and government services. The increase in sales from acquired businesses was $2.7 million, or 1.1%. The acquired businesses include Beamhit LLC (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control and the General Electric Driver Development (GEDD GEDD Global Environmental Data Directory ) business, which were acquired during the 2004 second quarter. Operating income was $33.7 million for the 2004 third quarter, compared to $25.2 million for the 2003 third quarter. Operating margin increased slightly to 10.2% from 10.1% due to volume increases for training and operations services. Orders for the TS&GS segment were $254.6 million during the 2004 third quarter and included: --A contract extension for the U.S. Central Command's support to develop and institutionalize in·sti·tu·tion·a·lize v. To place a person in the care of an institution, especially one providing care for the disabled or mentally ill. in the Ministry of Defense (MoD) in Afghanistan. --Incremental funding for worldwide individual soldier equipment fieldings under the U.S. Army's PEO-Soldier Rapid Fielding Initiative (RFI (Radio Frequency Interference) High-frequency electromagnetic waves that emanate from electronic devices such as chips. RFI - Radio Frequency Interference ). --An award from the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. Intelligence and Security Command (INSCOM INSCOM United States Army Intelligence & Security Command ), Rapid Labor Services Support Requirements (RLSSR) to provide support for intelligence analysis, force management and program planning. --Incremental funding for administrative, logistics and central personnel processing support for the Defense Intelligence Agency Noun 1. Defense Intelligence Agency - an intelligence agency of the United States in the Department of Defense; is responsible for providing intelligence in support of military planning and operations and weapons acquisition DIA (DIA). --An award to install vehicle barricades on U.S. Air Force bases worldwide. --An award to upgrade maintenance training devices and provide multi-functional color display systems for F-16 training equipment. --An award for the E-6 Level D Equivalent Simulator (1) Software that enables the execution of an application written for a different computer environment. Same as emulator. (2) Software that models the interactions of hypothetical or real-world objects or business processes. (ELDES). For the 2004 nine-month period, sales for TS&GS increased by 21.4% to $911.4 million from $750.6 million for the 2003 nine-month period. Organic sales growth was $154.1 million, or 20.5%, driven by trends similar to those affecting TS&GS's results for the 2004 third quarter (discussed above). The increase in sales from acquired businesses was $6.7 million, or 0.9%. The acquired businesses include Beamhit LLC and GEDD. TS&GS generated operating income of $100.9 million for the 2004 nine-month period, compared to $85.6 million for the 2003 nine-month period. Operating margin decreased to 11.1% from 11.4%, due to higher sales from cost-reimbursable, time & material, and unit-price type contracts, which generally have lower profit margins than fixed-priced type contracts. Aircraft Modernization, O&M(3) and Products (formerly Aviation Products & Aircraft Modernization) Aircraft Modernization, O&M and Products 2004 third quarter sales increased by 123.7% to $573.6 million from $256.4 million in the 2003 third quarter. The increase in sales from acquired businesses was $262.9 million, or 102.5%. The acquired businesses include Vertex Aerospace and Military Aviation Services (MAS), which were acquired during 2003, and AVISYS, Inc., which was acquired in 2004. Organic sales growth was $54.3 million, or 21.2%, driven by sales from the U.S. Army Aviation and Missile Command Missile Command is a 1980 arcade game by Atari Inc. that was also licensed to Sega for European release. The plot of Missile Command is simple: the player's six cities are being attacked by an endless hail of ballistic missiles, some of them even splitting like (AMCOM AMCOM Aviation and Missile Command (US Army) ) contract for maintenance and logistics support of rotary-wing training aircraft at Fort Rucker Fort Rucker is a U.S. Army post located mostly in Dale County, Alabama. It was named for Confederate General Edmund Rucker. The post is the primary flight training base for Army Aviation and is home to the United States Army Aviation Warfighting Center (USAAWC) and the United , Alabama, and an increase in volume for commercial aviation products. Operating income was $79.9 million for the 2004 third quarter, compared with $38.2 million for the 2003 third quarter. Operating margin decreased to 13.9% from 14.9%, primarily because of lower operating margins from the Vertex Aerospace acquired business and certification costs for new commercial aviation products, partially offset by incentive and award fees earned on the AMCOM contract. Orders for this segment were $754.5 million during the 2004 third quarter and included: --An award to support the U.S. Army Forces Command under the U.S. Army Aviation Joint Administrative Management Support Services support services Psychology Non-health care-related ancillary services–eg, transportation, financial aid, support groups, homemaker services, respite services, and other services (AVJAMSS) program. --An award to provide Contractor Logistics Support for the U.S. Navy Undergraduate Military Flight Officer Training System (UMFOTS). --Continued funding for Special Operations Forces Those Active and Reserve Component forces of the Military Services designated by the Secretary of Defense and specifically organized, trained, and equipped to conduct and support special operations. Also called SOF. Support Activity (SOF-SA) full service logistics support. --An award from Piaggio Aero Piaggio Aero Industries is an aircraft manufacturing company born from the former Rinaldo Piaggio SPA, an Italian company. The company is one of the world's oldest airplane manufacturers, and its planes have been well known from the early days of aviation history. Industries for Skywatch HP Traffic Avoidance and LandMark Class B Terrain Awareness Warning Systems. --An award for the Agusta A109 Helicopter Data Recording and Acquisition System program. --An order from the Canadian Department of National Defense (DND DND Drag and Drop DND Department of National Defence (Canada & Australia) DND Do Not Disturb DND Dungeons and Dragons DND Den Norske Dataforening DND Direct Nanoparticle Deposition DND Drugs for Neglected Diseases ) for the CF-18 Systems Engineering Support Contract (SESC SESC Servico Social do Comercio (Brazil) SESC Securities and Exchange Surveillance Commission (Bank of Japan) SESC Software Engineering Standards Committee (IEEE) ). --Winning the competition to replace the cockpit This article is about the flight deck of an aircraft. For other uses, see Cockpit (disambiguation). A cockpit is the area usually nearer the front of a piloted aircraft from which a pilot controls the aircraft. displays for the T-38 NASA NASA: see National Aeronautics and Space Administration. NASA in full National Aeronautics and Space Administration Independent U.S. aircraft. --An award for the production phase of the Virtual Imaging System for Approach and Landing (VISUAL) Landing Signal Officer (LSO LSO London Symphony Orchestra LSO Lesotho (ISO Country code) LSO Laser Safety Officer LSO Landing Signal Officer LSO Large Send Offload LSO Longwood Symphony Orchestra (Brookline, MA) ) Workstation. Notes: (3) O&M is defined as operations and maintenance. For the 2004 nine-month period, sales for this segment increased by 148.7% to $1,647.4 million from $662.5 million for the 2003 nine-month period. The increase in sales from acquired businesses was $788.9 million. The acquired businesses include Avionics Systems, Vertex Aerospace, MAS and Flight Systems Engineering, which were acquired during 2003, and AVISYS, Inc., which was acquired in 2004. Organic sales growth was $196.0 million, or 29.6%, driven by higher sales for aircraft modernization, operations and maintenance, including the AMCOM contract, and commercial and military aviation products. Most of the organic sales growth for commercial aviation products occurred during the 2004 second quarter and 2004 third quarter. This segment generated operating income of $183.9 million for the 2004 nine-month period, compared to $92.7 million for the 2003 nine-month period. Operating margin decreased to 11.2% from 14.0%, primarily because of lower operating margins from the Vertex Aerospace acquired business and increased certification costs for new commercial aviation products. Specialized Products Specialized Products 2004 third quarter sales increased by 14.5% to $438.8 million from $383.3 million in the 2003 third quarter. Organic sales growth was $38.3 million, or 10.0%, driven by increased sales of training devices, imaging products, naval power equipment and services, security products and maintenance of security systems. The increase in sales from acquired businesses was $17.2 million, or 4.5%. The acquired businesses include Klein Associates Klein Associates Inc. is the company founded by Dr. Gary A. Klein to apply his research on decision-making in naturalistic settings. On September 2, 2005, Klein Associates was acquired by Applied Research Associates, a New Mexico based firm that develops engineering solutions for , which was acquired in September, 2003, and Bay Metals and Brashear, LP, which were both acquired during the 2004 second quarter. These increases were partially offset by lower sales for fuzing products. Operating income was $32.2 million for the 2004 third quarter, compared with $43.9 million for the 2003 third quarter. Operating margin decreased to 7.3% from 11.4%, primarily because of changes in product sales mix for security products, including fewer than expected sales of higher margin explosives detection systems (EDS (Electronic Data Systems, Plano, TX, www.eds.com) Founded in 1962 by H. Ross Perot (independent candidate for the President of the U.S. in 1992), EDS is the largest outsourcing and data processing services organization in the country. ), production delays for undersea dipping sonars caused by efforts to improve the reliability of certain products and lower volume and additional acceptance testing (programming) acceptance testing - Formal testing conducted to determine whether a system satisfies its acceptance criteria and thus whether the customer should accept the system. for certain fuzing products. These decreases were partially offset by cost reductions for microwave components and imaging products. The 2003 third quarter operating income also included a $4.5 million gain related to the settlement of a claim. Orders for the Specialized Products segment were $423.0 million during the 2004 third quarter and included: --Awards for additional eXaminer(R)-3DX6000 EDS systems for U.S. and international airport customers. --An award from Dutch customs to supply and maintain the CX-3800M mobile cargo x-ray system. --An order from the New York Police New York Police may refer to:
--An award to provide DC switchboards for installation on Virginia Class submarines The Virginia class (or SSN-774 class) of attack submarines are the first U.S. subs to be designed for a broad spectrum of open-ocean and littoral missions around the world. . --A follow-on order for the Eaglevision program, a mobile antenna system sold through EADS EADS European Aeronautic Defence and Space Company N.V. EADS Expeditionary Air Defense System (USMC) EADS Extended Air Defense Systems EADS Environmental Assessment Data System EADS Echelons Above Division Study to the U.S. Air Force that can be loaded onto a C-130 transport. --An award to complete the design package for the P-3 Tactical Operational Readiness The capability of a unit/formation, ship, weapon system, or equipment to perform the missions or functions for which it is organized or designed. May be used in a general sense or to express a level or degree of readiness. Also called OR. See also combat readiness. Trainers, including upgrades of previously built P-3 TACTS TACTS Tactical Aircrew Combat Training System TACTS Tactical Air Combat Training System TACTS Tactical Trunk Signaling (Tactical Aircrew Coordination Trainers). --Additional funding for software design work on the F/A-22 Pilot program, including operational flight programs for the latest block updates. For the 2004 nine-month period, sales for Specialized Products increased by 6.8% to $1,186.7 million, from $1,111.5 million for the 2003 nine-month period. The increase in sales from acquired businesses was $27.2 million, or 2.4%. The acquired businesses include Klein Associates, which was acquired in 2003, and Bay Metals and Brashear, LP, which were acquired in 2004. Organic sales growth was $48.0 million, or 4.3%, driven by the trends similar to those affecting the 2004 third quarter (discussed above), as well as by volume declines for undersea warfare Operations conducted to establish battlespace dominance in the underwater environment, which permits friendly forces to accomplish the full range of potential missions and denies an opposing force the effective use of underwater systems and weapons. products and ruggedized computers and displays. Specialized Products generated operating income of $87.7 million for the 2004 nine-month period, compared to $91.7 million for the 2003 nine-month period. Operating margin decreased to 7.4% from 8.3%, primarily because of trends similar to those affecting the 2004 third quarter (discussed above), and lower volume for ruggedized computers and displays, which were partially offset by higher volume for imaging products. GOVERNMENT AND COMMERCIAL BUSINESSES RESULTS For the 2004 third quarter, sales from the company's government businesses increased by 43.1% to $1,586.1 million from $1,108.6 million for the 2003 third quarter. Operating income from the company's government businesses for the 2004 third quarter increased by 29.8% to $184.1 million from $141.8 million for the 2003 third quarter. Operating margin declined to 11.6% from 12.8%, primarily due to lower margins from the Vertex Aerospace acquired business and lower sales for fuzing products. The 2003 third quarter operating income also included a $4.5 million gain related to the settlement of a claim. Sales from the company's commercial businesses increased by 27.0% to $198.1 million, compared to $156.0 million for the 2003 third quarter. Operating income from the company's commercial businesses for the 2004 third quarter increased by 44.3% to $15.3 million, compared to operating income of $10.6 million for the 2003 third quarter. Operating margin increased to 7.7% from 6.8%, principally due to cost improvements for microwave components and higher sales volume for commercial aviation products. For the 2004 nine-month period, sales from the company's government businesses increased by 42.5% to $4,462.0 million from $3,132.0 million for the 2003 nine-month period. Operating income from the company's government businesses for the 2004 nine-month period increased by 31.3% to $484.2 million from $368.8 million for the 2003 nine-month period. Operating margin declined to 10.9% from 11.8%, primarily due to trends similar to those affecting the 2004 third quarter. For the 2004 nine-month period, sales from the company's commercial businesses increased by 16.8% to $523.8 million from $448.5 million for the 2003 nine-month period. Operating income from the company's commercial businesses for the 2004 nine-month period increased by 111.8% to $44.9 million from $21.2 million for the 2003 nine-month period. Operating margin increased to 8.6% from 4.7%, primarily due to trends similar to those affecting the 2004 third quarter. NON-CASH REDUCTIONS TO DILUTED EPS FROM NEW ACCOUNTING RULE On September 30, 2004, the Emerging Issues Task Force (EITF EITF Emerging Issues Task Force EITF Edinburgh International Television Festival EITF Europe International Taekwon-Do Federation ) of the Financial Accounting Standards Board Financial Accounting Standards Board (FASB) Board composed of independent members who create and interpret Generally Accepted Accounting Principles (GAAP). (FASB FASB See: Financial Accounting Standards Board FASB See Financial Accounting Standards Board (FASB). ) reached a consensus on EITF Issue No. 04-8, The Effect of Contingently Convertible Debt on Diluted Earning Per Share Noun 1. earning per share - the portion of a company's profit allocated to each outstanding share of common stock net income, net profit, profit, profits, earnings, lucre, net - the excess of revenues over outlays in a given period of time (including depreciation , which addresses when the diluted effect of contingently convertible debt instruments should be included in diluted earnings per share (EPS). EITF 04-8 requires that contingently convertible debt instruments are to be included in the computation Computation is a general term for any type of information processing that can be represented mathematically. This includes phenomena ranging from simple calculations to human thinking. of diluted EPS regardless of whether the market price trigger has been met. For comparative purposes, the adoption of EITF 04-8 will also require that previously reported diluted EPS amounts be restated to include the provisions of EITF 04-8. EITF 04-8 is expected to be effective for reporting periods ending after December 15, 2004. L-3 will adopt the provisions of EITF 04-8 during the 2004 fourth quarter. The impact of applying EITF 04-8 to L-3's CODES will result in non-cash reductions to L-3's reported diluted EPS, as follows: for the 2004 third quarter by $0.04 from $0.93 to $0.89; for the 2003 third quarter by $0.03 from $0.74 to $0.71; for the 2004 nine-month period by $0.09 from $2.41 to $2.32; and for the 2003 nine-month period by $0.05 from $1.77 to $1.72. As discussed above, substantially all of L-3's CODES were converted into L-3 common stock as of October 21, 2004, following L-3's notice of redemption for the CODES which was made on October 5, 2004. OUTLOOK "We expect our fourth quarter performance to continue to be strong, helping us to achieve excellent full year results," said Mr. Lanza. "We also see continued growth in 2005 and beyond. The DoD is in the initial stages of its transformation strategy, which we believe will continue for the rest of the decade and will impact the size and capabilities of the U.S. military, including the way in which they engage and defeat the enemy, the platforms they use and how they use them. We believe that the DoD will continue to prioritize pri·or·i·tize v. pri·or·i·tized, pri·or·i·tiz·ing, pri·or·i·tiz·es Usage Problem v.tr. To arrange or deal with in order of importance. v.intr. funding for this transformation, upgrading ISR systems, communications, sensors, precision weaponry, and putting more focus on UAVs and modernizing existing assets to fight more efficiently and effectively." Mr. Lanza also noted that there has been much debate about increases in defense spending over the next few years, considering the impact of the upcoming elections and other government budget demands. "We believe that defense spending has the continued support of Congress and will remain a priority in any administration," said Mr. Lanza. He noted that L-3 should continue to benefit even if the overall DoD budget were to remain flat, because it is expected that the procurement The fancy word for "purchasing." The procurement department within an organization manages all the major purchases. and research and development segments of the budget will continue to grow and L-3's systems, products and services are in higher growth areas of defense spending. "We anticipate that there will be changes in spending priorities for the armed forces as they review their 2006 defense budget proposals," continued Mr. Lanza. "The military will have to balance its requirements with the affordability of new platforms on the drawing board today and some may have to be sacrificed and/or stretched. The DoD also will have to determine how transformation plays into today's threat environment, the impact that spiral modernization will have and how our forces can be optimized to succeed in urban warfare Urban warfare is a modern warfare conducted in urban areas such as towns and cities. As a distinction, warfare conducted in population centers before the 20th century is generally considered siege warfare. , along with a number of other unstable world conditions." "Both Congress and the DoD have been concerned about the viability of certain segments of the defense industry," said Mr. Lanza, "and we believe they have taken an important step in ensuring that small and medium-sized vendor companies can continue to bring innovation to defense platforms." Historically, one of the key drivers of innovation and cost-effective products in the defense industry has been the technological contributions of the vendor base. However, over the years, the Years, The the seven decades of Eleanor Pargiter’s life. [Br. Lit.: Benét, 1109] See : Time number of vendor companies has been shrinking due to industry consolidation and vertical integration. As a result, Michael Wynn, DoD deputy undersecretary (Acquisition, Technology and Logistics) has issued a policy to ensure that the military receives the benefits of competition. This policy requires that large scale integrators allow vendors to compete on platform "make or buy" decisions. In addition, the DoD is looking for Looking for In the context of general equities, this describing a buy interest in which a dealer is asked to offer stock, often involving a capital commitment. Antithesis of in touch with. ways to leverage its existing and new platforms and assets to assist the Department of Homeland Security Noun 1. Department of Homeland Security - the federal department that administers all matters relating to homeland security Homeland Security executive department - a federal department in the executive branch of the government of the United States (DHS DHS Department of Homeland Security (USA) DHS Department of Human Services DHS Department of Health Services DHS Demographic and Health Surveys DHS Dirhams (Morocco national currency) ) in protecting the U.S. There are many areas of homeland security where the DoD can play a significant mission role. For instance, the government is studying how it could combine its vast air, land and sea sensors and communications infrastructure and battle-management systems to create a layered, interoperable The ability for one system to communicate or work with another. See interoperability. defense for the U.S. On the issue of homeland security spending, Mr. Lanza reiterated his view that protecting U.S. citizens and infrastructure will continue to be a priority in any administration. "L-3 believes it has the broadest base of homeland security products and services in the industry," said Mr. Lanza. "Major business areas for L-3 are aviation security, military force protection, mobile command, control and communications, communications for the U.S. Coast Guard Deepwater program and U.S. customs P-3 support. Other large potential business areas include port, cargo and transportation security." L-3 also manufactures a number of other homeland security products, including biometric bi·o·met·rics n. (used with a sing. verb) The statistical study of biological phenomena. bi access and vehicle barrier products, airborne stabilized sta·bi·lize v. sta·bi·lized, sta·bi·liz·ing, sta·bi·liz·es v.tr. 1. To make stable or steadfast. 2. imaging systems, border security, crisis management systems and secure communications. Regarding the acquisition climate, Mr. Lanza commented that "there are still a large number of companies in the defense arena, primarily in the range of $50 million to $300 million in revenue that are available for acquisition. We are looking for companies that add greater depth, capability and synergies to our existing business segments. As we have in the past, we will select those companies with products that are number-one or number-two in their niche markets A niche market also known as a target market is a focused, targetable portion (subset) of a market sector. By definition, then, a business that focuses on a niche market is addressing a need for a product or service that is not being addressed by mainstream providers. , exercise great discipline in what we will pay for these assets and ensure they are accretive within a year." 2004 Financial Outlook. The company expects sales for 2004 compared to 2003 to grow in excess of 34% to about $6.8 billion, including organic sales growth of between 13% and 14%, with the remaining growth coming from acquired businesses. Operating income is expected to grow by about 28%, resulting in 2004 diluted earnings per share of approximately $3.33. The company's diluted EPS estimate of approximately $3.33 for the full year 2004 includes (i) a non-cash reduction of $0.13 caused by the new accounting rule (EITF 04-8) concerning the effect of contingently convertible debt on diluted EPS, which is expected to become effective for L-3 in the 2004 fourth quarter, and the conversion of the CODES from debt into L-3 common stock, which occurred in October 2004 (discussed above), and (ii) a $0.03 increase for the restoration of the R&E tax credit and the related reduction to the effective income tax rate for the full year 2004 from 36.5% to 36.0% (discussed above). The company expects to generate free cash flow of about $460 million for 2004, which is comprised of net cash from operating activities of approximately $545 million, less approximately $85 million of capital expenditures, net of dispositions of property, plant and equipment. CONFERENCE CALL In conjunction with this release, L-3 Communications will host a conference call, which will be broadcast live over the Internet. Frank C. Lanza, chairman and chief executive officer, Robert V. LaPenta, president and chief financial officer, and Cynthia Swain, vice president corporate communications Corporate communications is the process of facilitating information and knowledge exchanges with internal and key external groups and individuals that have a direct relationship with an enterprise. , will host the call today, Tuesday, October 26, 2004.
2:00 PM ET
1:00 PM CT
12:00 PM MT
11:00 AM PT
Listeners may access the conference call live over the Internet at the following web address: http://www.firstcallevents.com/service/ajwz410151337gf12.html or http://www.L-3com.com Please allow fifteen minutes prior to the call to download To receive a file transmitted over a network. In any communications session, "download" means receive, and "upload" means send. The download/upload often implies a big/little scenario, in which data is being downloaded from the "big" server into the "little" user's computer. and install any necessary audio software. The archived version of the call may be accessed at these sites or by dialing (800) 642-1687 (passcode: 1295241), beginning approximately two hours after the call ends through November 2, 2004. Headquartered in New York City New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. , L-3 Communications is a leading provider of Intelligence, Surveillance and Reconnaissance (ISR) systems, secure communications systems In telecommunication, a communications system is a collection of individual communications networks, transmission systems, relay stations, tributary stations, and data terminal equipment (DTE) usually capable of interconnection and interoperation to form an integrated whole. , aircraft modernization, training and government services and is a merchant supplier of a broad array of high technology products. Its customers include the Department of Defense, Department of Homeland Security, selected U.S. Government intelligence agencies and aerospace prime contractors. To learn more about L-3 Communications, please visit the company's web site at www.L-3Com.com. SAFE HARBOR Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and OF 1995 Except for historical information contained herein, the matters set forth in this news release are forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. . The forward-looking statements set forth above involve a number of risks and uncertainties that could cause actual results to differ materially from any such statement, including the risks and uncertainties discussed in the company's Safe Harbor Compliance Statement for Forward-looking Statements included in the company's recent filings, including Forms 10-K and 10-Q, with the Securities and Exchange Commission. The forward-looking statements speak only as of the date made, and the company undertakes no obligation to update these forward-looking statements.
L-3 COMMUNICATIONS HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME DATA
(In millions, except per share data)
----------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2004 2003 2004 2003
--------- --------- --------- ---------
Sales:
Contracts, primarily U.S.
Government(a) $1,586.1 $1,108.6 $4,462.0 $3,132.0
Commercial, primarily
products(a) 198.1 156.0 523.8 448.5
--------- --------- --------- ---------
Consolidated sales $1,784.2 $1,264.6 $4,985.8 $3,580.5
--------- --------- --------- ---------
Costs and expenses:
Contracts, primarily U.S.
Government 1,402.0 966.8 3,977.8 2,763.2
Commercial, primarily
products:
Cost of sales 127.7 90.4 320.9 278.4
Selling, general and
administrative
expenses 37.1 39.2 107.5 108.6
Research and development
expenses 18.0 15.8 50.5 40.3
--------- --------- --------- ---------
Consolidated costs and
expenses 1,584.8 1,112.2 4,456.7 3,190.5
--------- --------- --------- ---------
Operating income(a) 199.4 152.4 529.1 390.0
Interest and other (income)
expense (1.7) (0.8) 1.7 (2.1)
Interest expense 34.9 32.4 106.8 98.3
Minority interests in net
income of
consolidated subsidiaries 4.8 1.9 7.1 2.6
Loss on retirement of debt - - - 11.2
--------- --------- --------- ---------
Income before income taxes 161.4 118.9 413.5 280.0
Provision for income taxes 58.9 42.8 150.9 100.8
--------- --------- --------- ---------
Net income $102.5 $76.1 $262.6 $179.2
========= ========= ========= =========
Earnings per share:
Basic $0.96 $0.79 $2.48 $1.87
========= ========= ========= =========
Diluted(b) $0.93 $0.74 $2.41 $1.77
========= ========= ========= =========
Weighted average common shares
outstanding:
-------------------------------
Basic 107.0 96.4 105.9 95.7
========= ========= ========= =========
Diluted 110.0 106.6 109.1 105.8
========= ========= ========= =========
(a)In 2004, we consolidated the explosives detection systems (EDS)
business into L-3 Security and Detection Systems, the IMC business
into L-3 Government Services, Inc., the EMP business into our
ESSCO business and the Apcom business into our Communication
System-East business. As a result of these business realignments,
certain reclassifications have been made to the prior period sales
and operating income amounts to conform them to the current period
presentation. Specifically, for the three months ended September
30, 2003, $6.9 million of sales and $6.1 million of operating
income was reclassified from "Contracts, primarily U.S.
Government" to "Commercial, primarily products" primarily for the
EDS business, and $4.3 million of sales and $0.4 million of
operating loss was reclassified from "Commercial, primarily
products" to "Contracts, primarily U.S. Government," primarily for
the IMC business. For the nine months ended September 30, 2003,
$50.1 million of sales and $11.8 million of operating income was
reclassified from "Contracts, primarily U.S. Government" to
"Commercial, primarily products," primarily for the EDS business
and $25.0 million of sales and $0.4 million of operating income
was reclassified from "Commercial primarily products" to
"Contracts, primarily U.S. Government," primarily for the IMC
business.
(b)In order to calculate diluted earnings per share for the three and
nine months ended September 30, 2003, the after-tax interest
expense savings on the assumed conversion of Convertible Notes
must be added to net income and then divided by the weighted
average number of shares outstanding. The amount to add to net
income is $2.6 million for the three months ended September 30,
2003 and $7.8 million for the nine months ended September 30,
2003. %
%%%-DO-NOT-MODIFY-THIS-LINE-%%%%_Table_2_End
L-3 COMMUNICATIONS HOLDINGS, INC.
UNAUDITED SELECTED FINANCIAL DATA
(In millions)
----------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2004 2003 2004 2003
--------- --------- --------- ---------
Funded Orders $1,950.1 $1,380.8 $5,465.1 $3,998.5
Reportable Segment Operating
Data:
-------------------------------
Sales:
Secure Communications & ISR $442.4 $375.6 $1,240.3 $1,055.9
Training, Simulation & Govt.
Svs.(c) 329.4 249.3 911.4 750.6
Aircraft Modernization, O&M
and Products 573.6 256.4 1,647.4 662.5
Specialized Products(c) 438.8 383.3 1,186.7 1,111.5
--------- --------- --------- ---------
Consolidated $1,784.2 $1,264.6 $4,985.8 $3,580.5
========= ========= ========= =========
Operating income:
Secure Communications & ISR $53.6 $45.1 $156.6 $120.0
Training, Simulation & Govt.
Svs. (c) 33.7 25.2 100.9 85.6
Aircraft Modernization, O&M
and Products 79.9 38.2 183.9 92.7
Specialized Products(c) 32.2 43.9 87.7 91.7
--------- --------- --------- ---------
Consolidated $199.4 $152.4 $529.1 $390.0
========= ========= ========= =========
Operating margin:
Secure Communications & ISR 12.1% 12.0% 12.6% 11.4%
Training, Simulation & Govt.
Svs. (c) 10.2% 10.1% 11.1% 11.4%
Aircraft Modernization, O&M
and Products 13.9% 14.9% 11.2% 14.0%
Specialized Products(c) 7.3% 11.4% 7.4% 8.3%
Consolidated 11.2% 12.0% 10.6% 10.9%
Depreciation and amortization:
Secure Communications & ISR $8.6 $7.6 $24.6 $21.3
Training, Simulation & Gov't
Svs. 1.8 1.9 5.4 5.9
Aircraft Modernization, O&M
and Products 8.4 4.3 24.9 13.3
Specialized Products 11.9 9.8 34.6 30.7
--------- --------- --------- ---------
Consolidated $30.7 $23.6 $89.5 $71.2
========= ========= ========= =========
Cash flow data:
------------------------------
Net cash from operating
activities $164.0 $118.8 $408.0 $327.1
Net cash used in investing
activities (24.5) (59.7) (183.9) (316.8)
Net cash from (used in)
financing activities (0.1) 11.4 8.4 232.1
--------- --------- --------- -------
Net increase in cash $139.4 $70.5 $232.5 $242.4
========= ========= ========= =======
Reconciliation of GAAP to
-------------------------
Non-GAAP measurements:
----------------------
Net cash from operating
activities $164.0 $118.8 $408.0 $327.1
Less: Capital expenditures (20.6) (15.9) (53.5) (54.0)
Add: Dispositions of property,
plant and equipment 0.7 0.2 9.5 1.1
--------- --------- --------- -------
Free cash flow(d) $144.1 $103.1 $364.0 $274.2
========= ========= ========= =======
September 30, December 31,
2004 2003
------------- -------------
Period end data:
----------------
Funded Backlog $4,406.4 $3,893.3
Cash & cash equivalents $367.3 $134.9
Total debt $2,157.5 $2,457.3
Minority interests $79.1 $76.2
Shareholders' equity $3,204.5 $2,574.5
(c) In 2004, we consolidated the IMC business into L-3 Government
Services, Inc. As a result of this realignment, $4.3 million of
sales and $0.5 million of operating loss was reclassified from the
Specialized Products segment to the Training, Simulation &
Government Services segment for the three months ended September
30, 2003. For the nine months ended September 30, 2003, $23.4
million of sales and $2.2 million of operating income was
reclassified from the Specialized Products segment to the
Training, Simulation & Government Services segment.
(d) The company discloses free cash flow because the company believes
that, subject to the limitations discussed below, it is one
indicator of the cash flow generated that is available for
investing activities, other than capital expenditures and
financing activities. Free cash flow is defined as net cash from
operating activities 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, capital
expenditures and changes in working capital, but before repaying
principal amount of outstanding debt, paying cash dividends on
common stock and investing cash to acquire businesses and making
other strategic investments. Thus, key assumptions underlying free
cash flow are that the company will be able to refinance its
existing debt when it matures with new debt, and that the company
will be able to finance any new business acquisitions it makes by
raising new debt or equity capital. Because of these assumptions,
free cash flow is not a measure that can be relied upon to
represent the residual cash flow available for discretionary
expenditures.
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