- Sales increased 10% to $2.5
billion
- Diluted earnings per share (EPS)
from continuing operations of $2.54
- Adjusted diluted EPS from continuing
operations(1) of $2.85
- Funded orders increased 16% to $3.2
billion, with a book-to-bill ratio of 1.27x
- Updated consolidated 2018 financial
guidance
L3 Technologies, Inc. (NYSE: LLL) today reported preliminary
diluted earnings per share (EPS) from continuing operations of
$2.54 and adjusted diluted EPS from continuing operations of $2.85
for the quarter ended September 28, 2018 (2018 third quarter)
compared to diluted EPS from continuing operations for the quarter
ended September 29, 2017 (2017 third quarter) of $1.79. Adjusted
diluted EPS from continuing operations represents diluted EPS from
continuing operations excluding: (1) a debt retirement charge of
$0.21 per diluted share, and (2) merger, acquisition and
divestiture related expenses of $0.10 per diluted share. Net sales
of $2,519 million for the 2018 third quarter increased by 10%
compared to the 2017 third quarter. The effective income tax rate
for the 2018 third quarter declined to 8.0%, compared to 24.0% for
the 2017 third quarter due to the reversal of previously accrued
amounts related to various U.S. Federal, foreign and state tax
matters, and tax benefits from the U.S. Tax Cuts and Jobs Act (U.S.
Tax Reform) and stock-based compensation expense.
__________________________
(1) Adjusted diluted EPS from continuing
operations is not calculated in accordance with accounting
principles generally accepted in the United States of America (U.S.
GAAP). The company believes that the debt retirement charge and
merger, acquisition and divestiture related expenses affect the
comparability of the results of operations and that disclosing
diluted EPS from continuing operations excluding these items is
useful to investors as it allows investors to more easily compare
2018 results to 2017 results. However, these non-GAAP financial
measures may not be defined or calculated by other companies in the
same manner.
L3 Preliminary Consolidated Results
The table below provides select preliminary financial data for
L3 and presents the adoption of Accounting Standards Update (ASU)
2014-09, Revenue from Contracts with Customers (commonly known as
ASC 606), effective January 1, 2018 using the modified
retrospective transition method. In accordance with the modified
retrospective transition method, the 2018 third quarter is
presented under ASC 606, while the 2017 third quarter is presented
under ASC 605, Revenue Recognition, the accounting standard in
effect for periods ending prior to January 1, 2018. The cumulative
effect of the change in accounting for periods prior to January 1,
2018 was recognized through retained earnings at the date of
adoption.
Preliminary Unaudited Consolidated Results
Third Quarter Ended (in
millions, except per share data)
Sept. 28,2018
Sept. 29,2017
Increase/
(decrease)
Net sales
$ 2,519 $ 2,293 10 % Operating
income
$ 272 $ 232 17 % Merger, acquisition and
divestiture related expenses
9 —
nm Segment operating income
$ 281 $ 232
21 % Operating margin
10.8 % 10.1 % 70bpts Segment
operating margin
11.2 % 10.1 % 110bpts Interest
expense
$ 40 $ 42 (5 )% Interest and other income,
net
$ 15 $ 2 nm Debt retirement charge
$
21 — nm Effective income tax rate
8.0 % 24.0 %
nm Minority interest expense
6 3 nm Net income from
continuing operations attributable to L3
$ 202 $ 143
41 % Diluted earnings per share from continuing operations
$
2.54 $ 1.79 42 % Adjusted diluted earnings per share from
continuing operations
$ 2.85 $ 1.79 59 % Diluted
weighted average common shares outstanding
79.4 79.8 (1 )%
Net cash provided from operating activities from continuing
operations
$ 163 $ 265 (38 )% Less: Capital
expenditures, net of dispositions
(58 ) (53 ) 9 %
Plus: Income tax payments attributable to discontinued operations
69 7 nm Divestiture related costs
16
— nm Free cash flow(a)(b)
$ 190
$ 219 (13 )% Funded Orders $ 3,187 $ 2,744 16 %
_________________
(a) 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), plus income tax
payments attributable to discontinued operations and divestiture
related costs. 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 also uses free cash flow as a performance measure in
evaluating management.
(b) Excludes free cash flow from
discontinued operations.
nm = not meaningful
Preliminary Unaudited Segment Results ($ in
millions) Third Quarter Ended Sept. 28,
2018 Sept. 29, 2017 Increase/
(decrease)
Net
Sales:
ISR Systems $ 1,096 $ 963 14 % Communications & Networked
Systems $ 734 $ 752 (2 )% Electronic Systems $ 689 $ 578 19 %
Segment Operating
Margin:
ISR Systems 11.0 % 7.6 % 340 bpts Communications & Networked
Systems
9.4
%
10.8 % (140) bpts Electronic Systems 13.2 %
13.5 % (30) bpts
Financial Guidance
Based on information known as of the date of this release, the
company has updated its consolidated financial guidance for the
year ending December 31, 2018, which was previously provided on
July 26, 2018, as presented in the tables below. All financial
guidance amounts are based on results from continuing operations
and are estimates subject to change, including as a result of
matters discussed under the “Forward-Looking Statements” cautionary
language on the next page. The company undertakes no duty to update
its financial guidance.
Consolidated 2018 Financial Guidance (in millions,
except per share data) Current Guidance
Prior Guidance
(July 26, 2018)
Net sales $10,000 to $10,200 $10,000 to $10,200 Segment operating
margin(1) 11.2% 11.2% Interest expense and other, net(2)
$131 $135 Debt retirement charges $69 $69 Effective tax rate
16.5% 18.0% Minority interest expense(3) $21 $20 Diluted shares 80
80 Diluted EPS from continuing operations $9.77 to $9.87 $9.46 to
$9.66 Adjusted diluted EPS from continuing operations(4) $10.20 to
$10.30 $9.80 to $10.00 Net cash from operating activities from
continuing operations $1,125 $1,170 Capital expenditures, net of
dispositions of property, plant and equipment (230) (255)
Divestiture related costs 20 — Free cash flow $915 $915
_________________
(1) Segment operating margin excludes: (1)
the gain of $44 million ($22 million after income taxes, or $0.28
per diluted share) related to the sale of the company's Crestview
& TCS businesses and (ii) merger and acquisition related
expenses.
(2) Interest expense and other is
comprised of: (i) interest expense of $165 million and (ii)
interest and other income, net, of $34 million (including $9
million of income related to employee benefit plans).
(3) Minority interest expense represents
net income from continuing operations attributable to
noncontrolling interests.
(4) Adjusted diluted EPS from continuing
operations represents diluted EPS from continuing operations
excluding: (i) the $0.28 gain related to the sale of the company's
Crestview & TCS businesses, (iii) $0.06 of merger and
acquisition related expenses and (iii) $0.65 of debt retirement
charges. Adjusted diluted EPS from continuing operations is not
calculated in accordance with U.S. GAAP. The company believes that
the gain relating to the Crestview & TCS businesses
divestiture, merger and acquisition related expenses and the debt
retirement charge affect the comparability of the results of
operations and that disclosing diluted EPS from continuing
operations excluding these items is useful to investors as it
allows investors to more easily compare the 2018 guidance to the
2017 results. However, these non-GAAP financial measures may not be
defined or calculated by other companies in the same manner.
The current guidance for 2018 is subject to potential changes to
interpretations of U.S. Tax Reform and excludes: (i) any potential
goodwill impairment charges for which the information is presently
unknown, (ii) potential adverse results related to litigation
contingencies, (iii) other items related to potential business
divestitures and the impact of potential acquisitions and (iv)
merger and acquisition related expenses.
Forward-Looking Statements
Certain of the matters discussed in this press release,
including information regarding the company’s 2018 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: the effect of the announcement of the
proposed merger with Harris Corporation on our ability to retain
and hire key personnel and maintain relationships with our
customers, suppliers and others with whom we do business, including
the U.S. Government and other governments, or on our operating
results and business generally; 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; our reliance
on contracts with a limited number of customers and the possibility
of termination of government contracts by unilateral 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; 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 the 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,
2017 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.
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