þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the quarterly period ended April 1, 2011 | ||
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
|
For the transition period from to |
Delaware
|
13-3937434 and 13-3937436 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Nos.) |
|
600 Third Avenue, New York, NY
|
10016 | |
(Address of principal executive offices)
|
(Zip Code) |
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | (Do not check if a smaller reporting company) | Smaller reporting company o |
Page |
||||||
No. | ||||||
PART I FINANCIAL INFORMATION
|
||||||
ITEM 1.
|
Financial Statements
|
1 | ||||
Condensed Consolidated Balance Sheets as of April 1, 2011
(Unaudited) and December 31, 2010
|
1 | |||||
Unaudited Condensed Consolidated Statements of Operations for
the Quarterly periods ended April 1, 2011 and
March 26, 2010
|
2 | |||||
Unaudited Condensed Consolidated Statements of Equity for the
Quarterly periods ended April 1, 2011 and March 26,
2010
|
3 | |||||
Unaudited Condensed Consolidated Statements of Cash Flows for
the Quarterly periods ended April 1, 2011 and
March 26, 2010
|
4 | |||||
Notes to Unaudited Condensed Consolidated Financial Statements
|
5 | |||||
ITEM 2.
|
Managements Discussion and Analysis of Financial Condition
and Results of Operations
|
25 | ||||
ITEM 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
36 | ||||
ITEM 4.
|
Controls and Procedures
|
36 | ||||
PART II OTHER INFORMATION
|
||||||
ITEM 1.
|
Legal Proceedings
|
37 | ||||
ITEM 1A.
|
Risk Factors
|
37 | ||||
ITEM 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
37 | ||||
ITEM 3.
|
Defaults Upon Senior Securities
|
38 | ||||
ITEM 4.
|
(Removed and Reserved)
|
38 | ||||
ITEM 5.
|
Other Information
|
38 | ||||
ITEM 6.
|
Exhibits
|
38 | ||||
Signature
|
39 |
ITEM 1. | FINANCIAL STATEMENTS |
(Unaudited) |
||||||||
April 1, |
December 31, |
|||||||
2011 | 2010 | |||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 548 | $ | 607 | ||||
Billed receivables, net of allowances of $33 in 2011 and $34 in
2010
|
1,267 | 1,299 | ||||||
Contracts in process
|
2,711 | 2,548 | ||||||
Inventories
|
341 | 303 | ||||||
Deferred income taxes
|
114 | 114 | ||||||
Other current assets
|
198 | 207 | ||||||
Total current assets
|
5,179 | 5,078 | ||||||
Property, plant and equipment, net
|
916 | 923 | ||||||
Goodwill
|
8,776 | 8,730 | ||||||
Identifiable intangible assets
|
456 | 470 | ||||||
Deferred debt issue costs
|
39 | 39 | ||||||
Other assets
|
204 | 211 | ||||||
Total assets
|
$ | 15,570 | $ | 15,451 | ||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities:
|
||||||||
Current portion of long-term debt
|
$ | | $ | 11 | ||||
Accounts payable, trade
|
582 | 463 | ||||||
Accrued employment costs
|
660 | 672 | ||||||
Accrued expenses
|
543 | 569 | ||||||
Advance payments and billings in excess of costs incurred
|
552 | 580 | ||||||
Income taxes
|
56 | 49 | ||||||
Other current liabilities
|
389 | 389 | ||||||
Total current liabilities
|
2,782 | 2,733 | ||||||
Pension and postretirement benefits
|
912 | 943 | ||||||
Deferred income taxes
|
341 | 308 | ||||||
Other liabilities
|
483 | 486 | ||||||
Long-term debt
|
4,126 | 4,126 | ||||||
Total liabilities
|
8,644 | 8,596 | ||||||
Commitments and contingencies (see Note 17)
|
||||||||
Equity:
|
||||||||
L-3 shareholders equity:
|
||||||||
L-3 Communications Holdings, Inc.s common stock:
$.01 par value; 300,000,000 shares authorized,
107,364,727 shares outstanding at April 1, 2011 and
108,623,509 shares outstanding at December 31, 2010
(L-3 Communications Corporations common stock:
$.01 par value, 100 shares authorized, issued and
outstanding)
|
4,863 | 4,801 | ||||||
L-3 Communications Holdings, Inc.s treasury stock (at
cost), 34,651,486 shares at April 1, 2011 and
32,037,454 shares at December 31, 2010
|
(2,863 | ) | (2,658 | ) | ||||
Retained earnings
|
5,031 | 4,877 | ||||||
Accumulated other comprehensive loss
|
(195 | ) | (256 | ) | ||||
Total L-3 shareholders equity
|
6,836 | 6,764 | ||||||
Noncontrolling interests
|
90 | 91 | ||||||
Total equity
|
6,926 | 6,855 | ||||||
Total liabilities and equity
|
$ | 15,570 | $ | 15,451 | ||||
1
First Quarter Ended | ||||||||
April 1, |
March 26, |
|||||||
2011 | 2010 | |||||||
Net sales:
|
||||||||
Products
|
$ | 1,731 | $ | 1,714 | ||||
Services
|
1,870 | 1,910 | ||||||
Total net sales
|
3,601 | 3,624 | ||||||
Cost of sales:
|
||||||||
Products
|
1,512 | 1,488 | ||||||
Services
|
1,699 | 1,726 | ||||||
Total cost of sales
|
3,211 | 3,214 | ||||||
Operating income
|
390 | 410 | ||||||
Interest and other income, net
|
2 | 4 | ||||||
Interest expense
|
63 | 64 | ||||||
Debt retirement charge
|
18 | | ||||||
Income before income taxes
|
311 | 350 | ||||||
Provision for income taxes
|
104 | 128 | ||||||
Net income
|
$ | 207 | $ | 222 | ||||
Less: Net income attributable to noncontrolling interests
|
3 | 1 | ||||||
Net income attributable to L-3
|
$ | 204 | $ | 221 | ||||
Less: Net income allocable to participating securities
|
1 | 2 | ||||||
Net income allocable to L-3 Holdings common shareholders
|
$ | 203 | $ | 219 | ||||
Earnings per share allocable to L-3 Holdings common
shareholders:
|
||||||||
Basic
|
$ | 1.87 | $ | 1.89 | ||||
Diluted
|
$ | 1.85 | $ | 1.87 | ||||
Cash dividends paid per common share
|
$ | 0.45 | $ | 0.40 | ||||
L-3 Holdings weighted average common shares outstanding:
|
||||||||
Basic
|
108.5 | 115.9 | ||||||
Diluted
|
109.5 | 116.9 | ||||||
2
L-3 Holdings |
Accumulated |
|||||||||||||||||||||||||||||||
Common Stock |
Additional |
Other |
||||||||||||||||||||||||||||||
Shares |
Par |
Paid-in |
Treasury |
Retained |
Comprehensive |
Noncontrolling |
Total |
|||||||||||||||||||||||||
Issued | Value | Capital | Stock | Earnings | (Loss) Income | Interests | Equity | |||||||||||||||||||||||||
For the quarter ended April 1, 2011:
|
||||||||||||||||||||||||||||||||
Balance at December 31, 2010
|
108.6 | $ | 1 | $ | 4,800 | $ | (2,658 | ) | $ | 4,877 | $ | (256 | ) | $ | 91 | $ | 6,855 | |||||||||||||||
Comprehensive income:
|
||||||||||||||||||||||||||||||||
Net income
|
204 | 3 | 207 | |||||||||||||||||||||||||||||
Pension and postretirement benefit plans:
|
||||||||||||||||||||||||||||||||
Amortization of net loss and prior service cost previously
recognized, net of income taxes of $5
|
8 | 8 | ||||||||||||||||||||||||||||||
Foreign currency translation adjustment
|
54 | 54 | ||||||||||||||||||||||||||||||
Unrealized losses on hedging instruments, net of an income tax
benefit of $1
|
(1 | ) | (1 | ) | ||||||||||||||||||||||||||||
Total comprehensive income
|
268 | |||||||||||||||||||||||||||||||
Distributions to noncontrolling interests
|
(4 | ) | (4 | ) | ||||||||||||||||||||||||||||
Cash dividends paid on common stock ($0.45 per share)
|
(49 | ) | (49 | ) | ||||||||||||||||||||||||||||
Shares issued:
|
||||||||||||||||||||||||||||||||
Employee savings plans
|
0.6 | 40 | 40 | |||||||||||||||||||||||||||||
Exercise of stock options
|
0.1 | 7 | 7 | |||||||||||||||||||||||||||||
Employee stock purchase plan
|
0.6 | | | |||||||||||||||||||||||||||||
Stock-based compensation expense
|
15 | 15 | ||||||||||||||||||||||||||||||
Treasury stock purchased
|
(2.6 | ) | (205 | ) | (205 | ) | ||||||||||||||||||||||||||
Other
|
0.1 | | (1 | ) | (1 | ) | ||||||||||||||||||||||||||
Balance at April 1, 2011
|
107.4 | $ | 1 | $ | 4,862 | $ | (2,863 | ) | $ | 5,031 | $ | (195 | ) | $ | 90 | $ | 6,926 | |||||||||||||||
For the quarter ended March 26, 2010:
|
||||||||||||||||||||||||||||||||
Balance at December 31, 2009
|
115.4 | $ | 1 | $ | 4,448 | $ | (1,824 | ) | $ | 4,108 | $ | (166 | ) | $ | 93 | $ | 6,660 | |||||||||||||||
Comprehensive income:
|
||||||||||||||||||||||||||||||||
Net income
|
221 | 1 | 222 | |||||||||||||||||||||||||||||
Pension and postretirement benefit plans:
|
||||||||||||||||||||||||||||||||
Net gain arising during the period
|
2 | 2 | ||||||||||||||||||||||||||||||
Amortization of net loss previously recognized, net of income
taxes of $4
|
6 | 6 | ||||||||||||||||||||||||||||||
Foreign currency translation adjustment
|
(19 | ) | (19 | ) | ||||||||||||||||||||||||||||
Unrealized gains on hedging instruments, net of income taxes of
$2
|
3 | 3 | ||||||||||||||||||||||||||||||
Total comprehensive income
|
214 | |||||||||||||||||||||||||||||||
Distributions to noncontrolling interests
|
(2 | ) | (2 | ) | ||||||||||||||||||||||||||||
Cash dividends paid on common stock ($0.40 per share)
|
(47 | ) | (47 | ) | ||||||||||||||||||||||||||||
Shares issued:
|
||||||||||||||||||||||||||||||||
Employee savings plans
|
0.4 | 30 | 30 | |||||||||||||||||||||||||||||
Exercise of stock options
|
0.8 | 48 | 48 | |||||||||||||||||||||||||||||
Employee stock purchase plan
|
0.5 | | | |||||||||||||||||||||||||||||
Stock-based compensation expense
|
19 | 19 | ||||||||||||||||||||||||||||||
Treasury stock purchased
|
(1.4 | ) | (123 | ) | (123 | ) | ||||||||||||||||||||||||||
Other
|
(2 | ) | (1 | ) | (3 | ) | ||||||||||||||||||||||||||
Balance at March 26, 2010
|
115.7 | $ | 1 | $ | 4,543 | $ | (1,947 | ) | $ | 4,281 | $ | (174 | ) | $ | 92 | $ | 6,796 | |||||||||||||||
3
First Quarter Ended | ||||||||
Apri1 1, |
March 26, |
|||||||
2011 | 2010 | |||||||
Operating activities:
|
||||||||
Net income
|
$ | 207 | $ | 222 | ||||
Depreciation of property, plant and equipment
|
42 | 41 | ||||||
Amortization of intangibles and other assets
|
17 | 15 | ||||||
Deferred income tax provision
|
26 | 29 | ||||||
Stock-based employee compensation expense
|
15 | 19 | ||||||
Contributions to employee savings plans in L-3 Holdings
common stock
|
40 | 30 | ||||||
Amortization of pension and postretirement benefit plans net
loss and prior service cost
|
13 | 10 | ||||||
Amortization of bond discounts (included in interest expense)
|
2 | 6 | ||||||
Amortization of deferred debt issue costs (included in interest
expense)
|
2 | 3 | ||||||
Non-cash portion of debt retirement charge
|
5 | | ||||||
Other non-cash items
|
2 | | ||||||
Subtotal
|
371 | 375 | ||||||
Changes in operating assets and liabilities, excluding acquired
and divested amounts:
|
||||||||
Billed receivables
|
38 | (157 | ) | |||||
Contracts in process
|
(159 | ) | (75 | ) | ||||
Inventories
|
(32 | ) | (10 | ) | ||||
Accounts payable, trade
|
116 | 87 | ||||||
Accrued employment costs
|
(27 | ) | (17 | ) | ||||
Accrued expenses
|
(32 | ) | (12 | ) | ||||
Advance payments and billings in excess of costs incurred
|
(33 | ) | 1 | |||||
Income taxes
|
44 | 80 | ||||||
Excess income tax benefits related to share-based payment
arrangements
|
(1 | ) | (5 | ) | ||||
Other current liabilities
|
(4 | ) | (3 | ) | ||||
Pension and postretirement benefits
|
(35 | ) | 24 | |||||
All other operating activities
|
(26 | ) | (17 | ) | ||||
Subtotal
|
(151 | ) | (104 | ) | ||||
Net cash from operating activities
|
220 | 271 | ||||||
Investing activities:
|
||||||||
Business acquisitions, net of cash acquired
|
| (1 | ) | |||||
Capital expenditures
|
(35 | ) | (26 | ) | ||||
Dispositions of property, plant and equipment
|
1 | | ||||||
Investments in equity investees
|
| (9 | ) | |||||
Other investing activities
|
| 1 | ||||||
Net cash used in investing activities
|
(34 | ) | (35 | ) | ||||
Financing activities:
|
||||||||
Proceeds from sale of senior notes
|
646 | | ||||||
Redemption of senior subordinated notes
|
(650 | ) | | |||||
Redemption of CODES
|
(11 | ) | | |||||
Borrowings under revolving credit facility
|
81 | | ||||||
Repayment of borrowings under revolving credit facility
|
(81 | ) | | |||||
Common stock repurchased
|
(205 | ) | (123 | ) | ||||
Dividends paid on L-3 Holdings common stock
|
(49 | ) | (47 | ) | ||||
Proceeds from exercises of stock options
|
7 | 44 | ||||||
Proceeds from employee stock purchase plan
|
13 | 18 | ||||||
Debt issue costs
|
(6 | ) | | |||||
Excess income tax benefits related to share-based payment
arrangements
|
1 | 5 | ||||||
Other financing activities
|
(3 | ) | (1 | ) | ||||
Net cash used in financing activities
|
(257 | ) | (104 | ) | ||||
Effect of foreign currency exchange rate changes on cash and
cash equivalents
|
12 | (13 | ) | |||||
Net (decrease) increase in cash and cash equivalents
|
(59 | ) | 119 | |||||
Cash and cash equivalents, beginning of the period
|
607 | 1,016 | ||||||
Cash and cash equivalents, end of the period
|
$ | 548 | $ | 1,135 | ||||
4
1. | Description of Business |
2. | Basis of Presentation |
5
3. | New Accounting Standards Implemented |
4. | Acquisitions and Dispositions |
6
First Quarter Ended |
||||
March 26, 2010 | ||||
(in millions, |
||||
except per share data) | ||||
Pro forma net sales
|
$ | 3,718 | ||
Pro forma net income attributable to L-3
|
$ | 228 | ||
Pro forma diluted earnings per share
|
$ | 1.93 |
5. | Contracts in Process |
April 1, |
December 31, |
|||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Unbilled contract receivables, gross
|
$ | 2,945 | $ | 2,769 | ||||
Less: unliquidated progress payments
|
(1,137 | ) | (1,007 | ) | ||||
Unbilled contract receivables, net
|
1,808 | 1,762 | ||||||
Inventoried contract costs, gross
|
1,011 | 882 | ||||||
Less: unliquidated progress payments
|
(108 | ) | (96 | ) | ||||
Inventoried contract costs, net
|
903 | 786 | ||||||
Total contracts in process
|
$ | 2,711 | $ | 2,548 | ||||
7
First Quarter Ended | ||||||||
April 1, |
March 26, |
|||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Amounts included in inventoried contract costs at beginning of
the period
|
$ | 97 | $ | 77 | ||||
Add: Contract costs
incurred(1)
|
312 | 313 | ||||||
Less: Amounts charged to cost of sales
|
(307 | ) | (306 | ) | ||||
Amounts included in inventoried contract costs at end of the
period
|
$ | 102 | $ | 84 | ||||
(1) | Includes IRAD and B&P costs of $81 million for each of the quarters ended April 1, 2011 and March 26, 2010 and other G&A costs of $231 million for the quarter ended April 1, 2011 and $232 million for the quarter ended March 26, 2010. |
First Quarter Ended | ||||||||
April 1, |
March 26, |
|||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Selling, general and administrative expenses
|
$ | 76 | $ | 63 | ||||
Research and development expenses
|
18 | 12 | ||||||
Total
|
$ | 94 | $ | 75 | ||||
6. | Inventories |
April 1, |
December 31, |
|||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Raw materials, components and
sub-assemblies
|
$ | 129 | $ | 114 | ||||
Work in process
|
160 | 130 | ||||||
Finished goods
|
52 | 59 | ||||||
Total
|
$ | 341 | $ | 303 | ||||
7. | Goodwill and Identifiable Intangible Assets |
Government |
Electronic |
Consolidated |
||||||||||||||||||
C3ISR | Services | AM&M | Systems | Total | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Balance at December 31, 2010
|
$ | 868 | $ | 2,285 | $ | 1,172 | $ | 4,405 | $ | 8,730 | ||||||||||
Business acquisitions
|
2 | | 2 | | 4 | |||||||||||||||
Foreign currency translation
adjustments(1)
|
3 | 1 | 9 | 29 | 42 | |||||||||||||||
Segment
reclassification(2)
|
(5 | ) | (94 | ) | | 99 | | |||||||||||||
Balance at April 1, 2011
|
$ | 868 | $ | 2,192 | $ | 1,183 | $ | 4,533 | $ | 8,776 | ||||||||||
8
(1) | The increases in goodwill presented in each of the segments were due to the weakening of the U.S. dollar against the Euro, Canadian dollar, and British pound in the quarter ended April 1, 2011. | |
(2) | As a result of re-alignments of business units in the Companys management and organizational structure as discussed in Note 2, goodwill was reclassified on a relative fair value basis among the C3ISR, Government Services and Electronic Systems segments during the quarter ended April 1, 2011. |
April 1, 2011 | December 31, 2010 | |||||||||||||||||||||||||||
Weighted |
||||||||||||||||||||||||||||
Average |
Gross |
Net |
Gross |
Net |
||||||||||||||||||||||||
Amortization |
Carrying |
Accumulated |
Carrying |
Carrying |
Accumulated |
Carrying |
||||||||||||||||||||||
Period | Amount | Amortization | Amount | Amount | Amortization | Amount | ||||||||||||||||||||||
(in years) | (in millions) | |||||||||||||||||||||||||||
Customer contractual relationships
|
23 | $ | 585 | $ | 215 | $ | 370 | $ | 584 | $ | 205 | $ | 379 | |||||||||||||||
Technology
|
11 | 145 | 76 | 69 | 145 | 72 | 73 | |||||||||||||||||||||
Other
|
15 | 29 | 12 | 17 | 28 | 10 | 18 | |||||||||||||||||||||
Total
|
21 | $ | 759 | $ | 303 | $ | 456 | $ | 757 | $ | 287 | $ | 470 | |||||||||||||||
First Quarter Ended | ||||||||
April 1, |
March 26, |
|||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Amortization expense
|
$ | 15 | $ | 13 | ||||
Year Ending December 31, | ||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Estimated amortization expense
|
$ | 61 | $ | 53 | $ | 43 | $ | 43 | $ | 38 | ||||||||||
8. | Other Current Liabilities and Other Liabilities |
April 1, |
December 31, |
|||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Other Current Liabilities:
|
||||||||
Accruals for pending and threatened litigation (see Note 17)
|
$ | 18 | $ | 19 | ||||
Accrued product warranty costs
|
86 | 86 | ||||||
Estimated costs in excess of estimated contract value to
complete contracts in process in a loss position
|
85 | 93 | ||||||
Accrued interest
|
71 | 75 | ||||||
Deferred revenues
|
39 | 34 | ||||||
Aggregate purchase price payable for acquired businesses
|
3 | | ||||||
Other
|
87 | 82 | ||||||
Total other current liabilities
|
$ | 389 | $ | 389 | ||||
9
April 1, |
December 31, |
|||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Other Liabilities:
|
||||||||
Non-current income taxes payable (see Note 11)
|
$ | 254 | $ | 248 | ||||
Deferred compensation
|
55 | 53 | ||||||
Accrued workers compensation
|
53 | 57 | ||||||
Estimated contingent purchase price payable for acquired
businesses
|
9 | 9 | ||||||
Notes payable and capital lease obligations
|
10 | 10 | ||||||
Accrued product warranty costs
|
6 | 6 | ||||||
Other
|
96 | 103 | ||||||
Total other liabilities
|
$ | 483 | $ | 486 | ||||
First Quarter Ended | ||||||||
April 1, |
March 26, |
|||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Accrued product warranty costs:
(1)
|
||||||||
Balance at January 1
|
$ | 92 | $ | 99 | ||||
Accruals for product warranties issued during the period
|
18 | 13 | ||||||
Foreign currency translation adjustments
|
1 | (2 | ) | |||||
Settlements made during the period
|
(19 | ) | (12 | ) | ||||
Balance at end of period
|
$ | 92 | $ | 98 | ||||
(1) | Warranty obligations incurred in connection with long-term production contracts that are accounted for under the percentage-of-completion cost-to-cost method are included within the contract estimates at completion and are excluded from the above amounts. The balances above include both the current and non-current amounts. |
10
9. | Debt |
April 1, |
December 31, |
|||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
L-3 Communications:
|
||||||||
Borrowings under Revolving Credit
Facility(1)
|
$ | | $ | | ||||
5.20% Senior Notes due 2019
|
1,000 | 1,000 | ||||||
4.75% Senior Notes due 2020
|
800 | 800 | ||||||
4.95% Senior Notes due 2021
|
650 | | ||||||
5 7/8% Senior Subordinated Notes due 2015
|
| 650 | ||||||
6 3/8% Senior Subordinated Notes due 2015
|
1,000 | 1,000 | ||||||
Subtotal
|
3,450 | 3,450 | ||||||
L-3 Holdings:
|
||||||||
3% Convertible Contingent Debt Securities due
2035(2)
|
689 | 700 | ||||||
Principal amount of long-term debt
|
4,139 | 4,150 | ||||||
Less: Unamortized discounts
|
(13 | ) | (13 | ) | ||||
Carrying amount of long-term debt
|
4,126 | 4,137 | ||||||
Less: Current portion of long-term
debt(3)
|
| (11 | ) | |||||
Carrying amount of long-term debt, excluding current portion
|
$ | 4,126 | $ | 4,126 | ||||
(1) | The Companys Revolving Credit Facility, which matures on October 23, 2012, provides for total aggregate borrowings of up to $1 billion. At April 1, 2011, available borrowings under the Revolving Credit Facility were $989 million after reductions for outstanding letters of credit of $11 million. | |
(2) | Under select conditions, including if L-3 Holdings common stock price is more than 120% (currently $117.35) of the then current conversion price ($97.79 as of March 1, 2011) for a specified period, the conversion feature of the CODES will require L-3 Holdings, upon conversion, to pay the holders of the CODES the principal amount in cash, and if the settlement amount exceeds the principal amount, the excess will be settled in cash or stock or a combination thereof, at the Companys option. At the current conversion price of $97.79, the aggregate consideration to be delivered upon conversion would be determined based on 7.0 million shares of L-3 Holdings common stock. See Note 10 to the audited consolidated financial statements for the year ended December 31, 2010, included in the Companys Annual Report on Form 10-K for additional information regarding the CODES, including conditions for conversion. L-3 Holdings closing stock price on May 4, 2011 was $81.37 per share. Through February 1, 2011, the effective interest rate on the CODES was 6.33% and interest expense related to both the contractual coupon interest and amortization of the discount on the liability components. The Company amortized the discount on the liability component of the CODES through February 1, 2011 which was the first date that the holders of the CODES had a contractual right to require L-3 Holdings to repurchase the CODES. Interest expense for the CODES after February 1, 2011 relates only to the contractual coupon interest. Interest expense recognized was $7 million and $10 million for the first quarter periods ended April 1, 2011 and March 26, 2010, respectively. The following table provides additional information about the Companys CODES: |
April 1, |
December 31, |
|||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Carrying amount of the equity component (conversion feature)
|
$ | 64 | $ | 64 | ||||
Unamortized discount of liability component amortized through
February 1, 2011
|
$ | | $ | 2 | ||||
Net carrying amount of liability component
|
$ | 689 | $ | 698 |
(3) | On February 2, 2011, L-3 Holdings repurchased approximately $11 million of the CODES as a result of the exercise by the holders of their contractual right to require L-3 Holdings to repurchase their CODES. At April 1, 2011 and December 31, 2010, the remaining $689 million principal amount of CODES are classified as long-term debt. |
11
10. | Comprehensive Income |
First Quarter Ended | ||||||||
April 1, |
March 26, |
|||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Net income
|
$ | 207 | $ | 222 | ||||
Other comprehensive income (loss):
|
||||||||
Foreign currency translation adjustments
|
54 | (19 | ) | |||||
Unrealized (losses) gains on hedging
instruments(1)
|
(1 | ) | 3 | |||||
Net gain from pension and postretirement benefit plans arising
during the period
|
| 2 | ||||||
Amortization of pension and postretirement benefit plans net
loss and prior service
cost(2)
|
8 | 6 | ||||||
Total comprehensive income
|
268 | 214 | ||||||
Less: Comprehensive income attributable to noncontrolling
interests
|
3 | 1 | ||||||
Comprehensive income attributable to L-3
|
$ | 265 | $ | 213 | ||||
(1) | Amounts are net of an income tax benefit of $1 million for the quarterly period ended April 1, 2011 and income taxes of $2 million for the quarterly period ended March 26, 2010. | |
(2) | Amounts are net of income taxes of $5 million for the quarterly period ended April 1, 2011 and $4 million for the quarterly period ended March 26, 2010. See Note 18. |
11. | Income Taxes |
12
12. | L-3 Holdings Earnings Per Common Share |
First Quarter Ended | ||||||||
April 1, |
March 26, |
|||||||
2011 | 2010 | |||||||
(in millions, except per share data) | ||||||||
Reconciliation of net income:
|
||||||||
Net income
|
$ | 207 | $ | 222 | ||||
Net income attributable to noncontrolling interests
|
(3 | ) | (1 | ) | ||||
Net income allocable to participating securities
|
(1 | ) | (2 | ) | ||||
Net income allocable to L-3 Holdings common shareholders
|
$ | 203 | $ | 219 | ||||
Earnings per share allocable to L-3 Holdings common
shareholders:
|
||||||||
Basic:
|
||||||||
Weighted average common shares outstanding
|
108.5 | 115.9 | ||||||
Basic earnings per share:
|
||||||||
Net income
|
$ | 1.87 | $ | 1.89 | ||||
Diluted:
|
||||||||
Common and potential common shares:
|
||||||||
Weighted average common shares outstanding
|
108.5 | 115.9 | ||||||
Assumed exercise of stock options
|
2.8 | 3.6 | ||||||
Unvested restricted stock awards
|
1.3 | 1.1 | ||||||
Employee stock purchase plan contributions
|
0.3 | 0.5 | ||||||
Performance unit awards
|
0.1 | 0.1 | ||||||
Assumed purchase of common shares for treasury
|
(3.5 | ) | (4.3 | ) | ||||
Assumed conversion of the CODES
|
| (1) | | (1) | ||||
Common and potential common shares
|
109.5 | 116.9 | ||||||
Diluted earnings per share:
|
||||||||
Net income
|
$ | 1.85 | $ | 1.87 | ||||
(1) | L-3 Holdings CODES had no impact on diluted EPS for the quarters ended April 1, 2011 or March 26, 2010 because the average market price of L-3 Holdings common stock during these periods was less than the price at which the CODES would have been convertible into L-3 Holdings common stock. As of March 1, 2011, the conversion price was $97.79. |
13. | Equity |
13
14. | Fair Value Measurements |
April 1, 2011 | December 31, 2010 | |||||||||||||||||||||||
Description | Level 1(1) | Level 2(2) | Level 3(3) | Level 1(1) | Level 2(2) | Level 3(3) | ||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Assets
|
||||||||||||||||||||||||
Cash equivalents
|
$ | 234 | $ | | $ | | $ | 347 | $ | | $ | | ||||||||||||
Derivatives (foreign currency forward contracts)
|
| 20 | | | 22 | | ||||||||||||||||||
Total Assets
|
$ | 234 | $ | 20 | $ | | $ | 347 | $ | 22 | $ | | ||||||||||||
Liabilities
|
||||||||||||||||||||||||
Derivatives (foreign currency forward contracts)
|
$ | | $ | 5 | $ | | $ | | $ | 5 | $ | |
(1) | Level 1 is based on quoted market prices available in active markets for identical assets or liabilities as of the reporting date. Cash equivalents are primarily held in registered money market funds which are valued using quoted market prices. | |
(2) | Level 2 is based on pricing inputs other than quoted prices in active markets, which are either directly or indirectly observable. The fair value is determined using a valuation model based on observable market inputs, including quoted foreign currency forward exchange rates and consideration of non-performance risk. | |
(3) | Level 3 is based on pricing inputs that are not observable and not corroborated by market data. The Company has no Level 3 assets or liabilities. |
15. | Financial Instruments |
April 1, 2011 | December 31, 2010 | |||||||||||||||
Carrying |
Estimated |
Carrying |
Estimated |
|||||||||||||
Amount | Fair Value | Amount | Fair Value | |||||||||||||
(in millions) | ||||||||||||||||
Senior notes
|
$ | 2,442 | $ | 2,497 | $ | 1,794 | $ | 1,810 | ||||||||
Senior subordinated notes
|
995 | 1,033 | 1,645 | 1,691 | ||||||||||||
CODES
|
689 | 696 | 698 | 701 | ||||||||||||
Foreign currency forward
contracts(1)
|
15 | 15 | 17 | 17 |
(1) | See Note 16 for additional disclosures regarding the notional amounts and fair values of foreign currency forward contracts. |
16. | Derivative Financial Instruments |
14
Currency | Notional Amount | |||
(in millions) | ||||
Canadian dollar
|
$ | 123 | ||
U.S. dollar
|
84 | |||
British pound
|
52 | |||
Euro
|
32 | |||
Other
|
2 | |||
Total
|
$ | 293 | ||
Fair Values of Derivative Instruments(1) | ||||||||||||||||||||||||||||||||||||
April 1, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||||||
Other |
Other |
Other |
Other |
|||||||||||||||||||||||||||||||||
Current |
Other |
Current |
Other |
Current |
Other |
Current |
Other |
|||||||||||||||||||||||||||||
Assets | Assets | Liabilities | Liabilities | Assets | Assets | Liabilities | Liabilities | |||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||||||
Derivatives designated as hedging instruments:
|
||||||||||||||||||||||||||||||||||||
Foreign currency forward contracts
|
$ | 10 | $ | 6 | $ | 2 | $ | | $ | 11 | $ | 8 | $ | 2 | $ | | ||||||||||||||||||||
Derivatives not designated as
hedging instruments:
|
||||||||||||||||||||||||||||||||||||
Foreign currency forward contracts
|
3 | 1 | 3 | | 2 | 1 | 3 | | ||||||||||||||||||||||||||||
Embedded derivative related to the CODES
|
| | | | | | | | ||||||||||||||||||||||||||||
Total derivative instruments
|
$ | 13 | $ | 7 | $ | 5 | $ | | $ | 13 | $ | 9 | $ | 5 | $ | | ||||||||||||||||||||
(1) | See Note 14 for a description of the fair value hierarchy related to the Companys foreign currency forward contracts. |
15
17. | Commitments and Contingencies |
16
17
18. | Pension and Other Postretirement Benefits |
Pension Plans | Postretirement Benefit Plans | |||||||||||||||
First Quarter Ended | ||||||||||||||||
April 1, |
March 26, |
April 1, |
March 26, |
|||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(in millions) | ||||||||||||||||
Components of net periodic benefit cost:
|
||||||||||||||||
Service cost
|
$ | 28 | $ | 24 | $ | 1 | $ | 1 | ||||||||
Interest cost
|
32 | 30 | 3 | 3 | ||||||||||||
Expected return on plan assets
|
(35 | ) | (28 | ) | (1 | ) | | |||||||||
Amortization of prior service costs (credits)
|
| 1 | (1 | ) | (1 | ) | ||||||||||
Amortization of net losses
|
14 | 10 | | | ||||||||||||
Curtailment loss
|
1 | | 1 | | ||||||||||||
Net periodic benefit cost
|
$ | 40 | $ | 37 | $ | 3 | $ | 3 | ||||||||
19. | Employee Stock-Based Compensation |
Expected holding period (in years)
|
5.2 | |||
Expected volatility
|
26.4 | % | ||
Expected dividend yield
|
2.8 | % | ||
Risk-free interest rate
|
2.2 | % |
18
20. | Supplemental Cash Flow Information |
First Quarter Ended | ||||||||
April 1, |
March 26, |
|||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Interest paid on outstanding debt
|
$ | 62 | $ | 57 | ||||
Income tax payments
|
41 | 23 | ||||||
Income tax refunds
|
7 | 4 |
19
21. | Segment Information |
First Quarter Ended | ||||||||
April 1, |
March 26, |
|||||||
2011 | 2010(1) | |||||||
(in millions) | ||||||||
Net Sales:
|
||||||||
C3ISR
|
$ | 789 | $ | 787 | ||||
Government Services
|
948 | 912 | ||||||
AM&M
|
643 | 720 | ||||||
Electronic Systems
|
1,309 | 1,315 | ||||||
Elimination of intercompany sales
|
(88 | ) | (110 | ) | ||||
Consolidated total
|
$ | 3,601 | $ | 3,624 | ||||
Operating Income:
|
||||||||
C3ISR
|
$ | 90 | $ | 104 | ||||
Government Services
|
71 | 72 | ||||||
AM&M
|
66 | 60 | ||||||
Electronic Systems
|
163 | 174 | ||||||
Consolidated total
|
$ | 390 | $ | 410 | ||||
Depreciation and amortization:
|
||||||||
C3ISR
|
$ | 12 | $ | 14 | ||||
Government Services
|
8 | 9 | ||||||
AM&M
|
4 | 5 | ||||||
Electronic Systems
|
35 | 28 | ||||||
Consolidated total
|
$ | 59 | $ | 56 | ||||
April 1, |
December 31, |
|||||||
2011 | 2010(1) | |||||||
(in millions) | ||||||||
Total Assets:
|
||||||||
C3ISR
|
$ | 2,148 | $ | 2,054 | ||||
Government Services
|
3,207 | 3,207 | ||||||
AM&M
|
2,030 | 1,962 | ||||||
Electronic Systems
|
7,778 | 7,677 | ||||||
Corporate
|
407 | 551 | ||||||
Consolidated total
|
$ | 15,570 | $ | 15,451 | ||||
(1) | As a result of re-alignments of business units in the Companys management and organizational structure as discussed in Note 2, sales of $36 million were reclassified from the Government Services segment to the Electronic Systems segment and sales of $18 million were reclassified from the C3ISR segment to the Government Services segment for the quarter ended March 26, 2010. Operating income of $6 million was reclassified from the Government Services segment to the Electronic Systems segment and operating income of $1 million was reclassified from the C3ISR segment to the Government Services segment. At December 31, 2010, $129 million of assets were reclassified from the Government Services segment to the Electronic Systems segment and $13 million of assets were reclassified from the C3ISR segment to the Government Services segment. |
20
22. | Employee Severance and Termination Costs |
23. | Condensed Combining Financial Information of L-3 Communications and Its Subsidiaries |
21
L-3 |
Non- |
|||||||||||||||||||||||
Holdings |
L-3 |
Guarantor |
Guarantor |
Consolidated |
||||||||||||||||||||
(Parent) | Communications | Subsidiaries | Subsidiaries | Eliminations | L-3 | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Condensed Combining Balance Sheets:
|
||||||||||||||||||||||||
At April 1, 2011:
|
||||||||||||||||||||||||
Current assets:
|
||||||||||||||||||||||||
Cash and cash equivalents
|
$ | | $ | 171 | $ | 5 | $ | 439 | $ | (67 | ) | $ | 548 | |||||||||||
Billed receivables, net
|
| 343 | 701 | 223 | | 1,267 | ||||||||||||||||||
Contracts in process
|
| 880 | 1,529 | 302 | | 2,711 | ||||||||||||||||||
Other current assets
|
| 289 | 163 | 201 | | 653 | ||||||||||||||||||
Total current assets
|
| 1,683 | 2,398 | 1,165 | (67 | ) | 5,179 | |||||||||||||||||
Goodwill
|
| 1,858 | 5,594 | 1,324 | | 8,776 | ||||||||||||||||||
Other assets
|
| 686 | 744 | 185 | | 1,615 | ||||||||||||||||||
Investment in and amounts due from consolidated subsidiaries
|
7,525 | 9,030 | 2,450 | | (19,005 | ) | | |||||||||||||||||
Total assets
|
$ | 7,525 | $ | 13,257 | $ | 11,186 | $ | 2,674 | $ | (19,072 | ) | $ | 15,570 | |||||||||||
Current liabilities
|
$ | | $ | 894 | $ | 1,343 | $ | 612 | $ | (67 | ) | $ | 2,782 | |||||||||||
Amounts due to consolidated subsidiaries
|
| | | 429 | (429 | ) | | |||||||||||||||||
Other long-term liabilities
|
| 1,401 | 231 | 104 | | 1,736 | ||||||||||||||||||
Long-term debt
|
689 | 4,126 | | | (689 | ) | 4,126 | |||||||||||||||||
Total liabilities
|
689 | 6,421 | 1,574 | 1,145 | (1,185 | ) | 8,644 | |||||||||||||||||
L-3 shareholders equity
|
6,836 | 6,836 | 9,612 | 1,529 | (17,977 | ) | 6,836 | |||||||||||||||||
Noncontrolling interests
|
| | | | 90 | 90 | ||||||||||||||||||
Total equity
|
6,836 | 6,836 | 9,612 | 1,529 | (17,887 | ) | 6,926 | |||||||||||||||||
Total liabilities and equity
|
$ | 7,525 | $ | 13,257 | $ | 11,186 | $ | 2,674 | $ | (19,072 | ) | $ | 15,570 | |||||||||||
At December 31, 2010:
|
||||||||||||||||||||||||
Current assets:
|
||||||||||||||||||||||||
Cash and cash equivalents
|
$ | | $ | 257 | $ | 3 | $ | 482 | $ | (135 | ) | $ | 607 | |||||||||||
Billed receivables, net
|
| 387 | 680 | 232 | | 1,299 | ||||||||||||||||||
Contracts in process
|
| 801 | 1,525 | 222 | | 2,548 | ||||||||||||||||||
Other current assets
|
| 295 | 161 | 168 | | 624 | ||||||||||||||||||
Total current assets
|
| 1,740 | 2,369 | 1,104 | (135 | ) | 5,078 | |||||||||||||||||
Goodwill
|
| 1,857 | 5,592 | 1,281 | | 8,730 | ||||||||||||||||||
Other assets
|
| 693 | 763 | 187 | | 1,643 | ||||||||||||||||||
Investment in and amounts due from consolidated subsidiaries
|
7,462 | 8,912 | 2,417 | | (18,791 | ) | | |||||||||||||||||
Total assets
|
$ | 7,462 | $ | 13,202 | $ | 11,141 | $ | 2,572 | $ | (18,926 | ) | $ | 15,451 | |||||||||||
Current portion of long-term debt
|
$ | 11 | $ | 11 | $ | | $ | | $ | (11 | ) | $ | 11 | |||||||||||
Other current liabilities
|
| 898 | 1,388 | 571 | (135 | ) | 2,722 | |||||||||||||||||
Amounts due to consolidated subsidiaries
|
| | | 439 | (439 | ) | | |||||||||||||||||
Other long-term liabilities
|
| 1,403 | 235 | 99 | | 1,737 | ||||||||||||||||||
Long-term debt
|
687 | 4,126 | | | (687 | ) | 4,126 | |||||||||||||||||
Total liabilities
|
698 | 6,438 | 1,623 | 1,109 | (1,272 | ) | 8,596 | |||||||||||||||||
L-3 shareholders equity
|
6,764 | 6,764 | 9,518 | 1,463 | (17,745 | ) | 6,764 | |||||||||||||||||
Noncontrolling interests
|
| | | | 91 | 91 | ||||||||||||||||||
Total equity
|
6,764 | 6,764 | 9,518 | 1,463 | (17,654 | ) | 6,855 | |||||||||||||||||
Total liabilities and equity
|
$ | 7,462 | $ | 13,202 | $ | 11,141 | $ | 2,572 | $ | (18,926 | ) | $ | 15,451 | |||||||||||
22
L-3 |
Non- |
|||||||||||||||||||||||
Holdings |
L-3 |
Guarantor |
Guarantor |
Consolidated |
||||||||||||||||||||
(Parent) | Communications | Subsidiaries | Subsidiaries | Eliminations | L-3 | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Condensed Combining Statements of Operations:
|
||||||||||||||||||||||||
For the quarter ended April 1, 2011:
|
||||||||||||||||||||||||
Net sales
|
$ | | $ | 852 | $ | 2,235 | $ | 600 | $ | (86 | ) | $ | 3,601 | |||||||||||
Cost of sales
|
15 | 746 | 2,024 | 528 | (102 | ) | 3,211 | |||||||||||||||||
Operating (loss) income
|
(15 | ) | 106 | 211 | 72 | 16 | 390 | |||||||||||||||||
Interest and other income, net
|
| 31 | (2 | ) | 1 | (28 | ) | 2 | ||||||||||||||||
Interest expense
|
7 | 62 | 27 | 1 | (34 | ) | 63 | |||||||||||||||||
Debt retirement charge
|
| 18 | | | | 18 | ||||||||||||||||||
(Loss) income before income taxes
|
(22 | ) | 57 | 182 | 72 | 22 | 311 | |||||||||||||||||
(Benefit) provision for income taxes
|
(7 | ) | 19 | 61 | 24 | 7 | 104 | |||||||||||||||||
Equity in net income of consolidated subsidiaries
|
219 | 166 | | | (385 | ) | | |||||||||||||||||
Net income
|
204 | 204 | 121 | 48 | (370 | ) | 207 | |||||||||||||||||
Net income attributable to noncontrolling interests
|
| | | | 3 | 3 | ||||||||||||||||||
Net income attributable to L-3
|
$ | 204 | $ | 204 | $ | 121 | $ | 48 | $ | (373 | ) | $ | 204 | |||||||||||
For the quarter ended March 26, 2010:
|
||||||||||||||||||||||||
Net sales
|
$ | | $ | 797 | $ | 2,390 | $ | 492 | $ | (55 | ) | $ | 3,624 | |||||||||||
Cost of sales
|
19 | 669 | 2,165 | 435 | (74 | ) | 3,214 | |||||||||||||||||
Operating (loss) income
|
(19 | ) | 128 | 225 | 57 | 19 | 410 | |||||||||||||||||
Interest and other income, net
|
| 32 | | | (28 | ) | 4 | |||||||||||||||||
Interest expense
|
11 | 64 | 27 | 1 | (39 | ) | 64 | |||||||||||||||||
(Loss) income before income taxes
|
(30 | ) | 96 | 198 | 56 | 30 | 350 | |||||||||||||||||
(Benefit) provision for income taxes
|
(11 | ) | 35 | 72 | 21 | 11 | 128 | |||||||||||||||||
Equity in net income of consolidated subsidiaries
|
240 | 160 | | | (400 | ) | | |||||||||||||||||
Net income
|
221 | 221 | 126 | 35 | (381 | ) | 222 | |||||||||||||||||
Net income attributable to noncontrolling interests
|
| | | | 1 | 1 | ||||||||||||||||||
Net income attributable to L-3
|
$ | 221 | $ | 221 | $ | 126 | $ | 35 | $ | (382 | ) | $ | 221 | |||||||||||
23
L-3 |
Non- |
|||||||||||||||||||||||
Holdings |
L-3 |
Guarantor |
Guarantor |
Consolidated |
||||||||||||||||||||
(Parent) | Communications | Subsidiaries | Subsidiaries | Eliminations | L-3 | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Condensed Combining Statements of Cash Flows:
|
||||||||||||||||||||||||
For the quarter ended April 1, 2011:
|
||||||||||||||||||||||||
Operating activities:
|
||||||||||||||||||||||||
Net cash from operating activities
|
$ | 265 | $ | 54 | $ | 181 | $ | 27 | $ | (307 | ) | $ | 220 | |||||||||||
Investing activities:
|
||||||||||||||||||||||||
Investments in L-3 Communications
|
(16 | ) | | | | 16 | | |||||||||||||||||
Other investing activities
|
| (18 | ) | (12 | ) | (4 | ) | | (34 | ) | ||||||||||||||
Net cash used in investing activities
|
(16 | ) | (18 | ) | (12 | ) | (4 | ) | 16 | (34 | ) | |||||||||||||
Financing activities:
|
||||||||||||||||||||||||
Proceeds from sale of senior notes
|
| 646 | | | | 646 | ||||||||||||||||||
Redemption of senior subordinated notes
|
(11 | ) | (650 | ) | | | | (661 | ) | |||||||||||||||
Common stock repurchased
|
(205 | ) | | | | | (205 | ) | ||||||||||||||||
Dividends paid on L-3 Holdings common stock
|
(49 | ) | | | | | (49 | ) | ||||||||||||||||
Dividends paid to L-3 Holdings
|
| (265 | ) | | | 265 | | |||||||||||||||||
Investments from L-3 Holdings
|
| 16 | | | (16 | ) | | |||||||||||||||||
Other financing activities
|
16 | 131 | (167 | ) | (78 | ) | 110 | 12 | ||||||||||||||||
Net cash used in financing activities
|
(249 | ) | (122 | ) | (167 | ) | (78 | ) | 359 | (257 | ) | |||||||||||||
Effect of foreign currency exchange rate changes on cash
|
| | | 12 | | 12 | ||||||||||||||||||
Net (decrease) increase in cash
|
| (86 | ) | 2 | (43 | ) | 68 | (59 | ) | |||||||||||||||
Cash and cash equivalents, beginning of the period
|
| 257 | 3 | 482 | (135 | ) | 607 | |||||||||||||||||
Cash and cash equivalents, end of the period
|
$ | | $ | 171 | $ | 5 | $ | 439 | $ | (67 | ) | $ | 548 | |||||||||||
For the quarter ended March 26, 2010:
|
||||||||||||||||||||||||
Operating activities:
|
||||||||||||||||||||||||
Net cash from operating activities
|
$ | 170 | $ | 104 | $ | 124 | $ | 43 | $ | (170 | ) | $ | 271 | |||||||||||
Investing activities:
|
||||||||||||||||||||||||
Business acquisitions, net of cash acquired
|
| (1 | ) | | | | (1 | ) | ||||||||||||||||
Investments in L-3 Communications
|
(58 | ) | | | | 58 | | |||||||||||||||||
Other investing activities
|
| (10 | ) | (22 | ) | (2 | ) | | (34 | ) | ||||||||||||||
Net cash used in investing activities
|
(58 | ) | (11 | ) | (22 | ) | (2 | ) | 58 | (35 | ) | |||||||||||||
Financing activities:
|
||||||||||||||||||||||||
Common stock repurchased
|
(123 | ) | | | | | (123 | ) | ||||||||||||||||
Dividends paid on L-3 Holdings common stock
|
(47 | ) | | | | | (47 | ) | ||||||||||||||||
Dividends paid to L-3 Holdings
|
| (170 | ) | | | 170 | | |||||||||||||||||
Investments from L-3 Holdings
|
| 58 | | | (58 | ) | | |||||||||||||||||
Other financing activities
|
58 | (45 | ) | (101 | ) | 30 | 124 | 66 | ||||||||||||||||
Net cash (used in) from financing activities
|
(112 | ) | (157 | ) | (101 | ) | 30 | 236 | (104 | ) | ||||||||||||||
Effect of foreign currency exchange rate changes on cash
|
| | | (13 | ) | | (13 | ) | ||||||||||||||||
Net (decrease) increase in cash
|
| (64 | ) | 1 | 58 | 124 | 119 | |||||||||||||||||
Cash and cash equivalents, beginning of the period
|
| 797 | 4 | 364 | (149 | ) | 1,016 | |||||||||||||||||
Cash and cash equivalents, end of the period
|
$ | | $ | 733 | $ | 5 | $ | 422 | $ | (25 | ) | $ | 1,135 | |||||||||||
24
Topic | Location | |
Overview and Outlook:
|
||
L-3s Business
|
Pages 25 26 | |
Industry Considerations
|
Page 26 | |
Key Performance Measures
|
Pages 26 27 | |
Business Acquisitions and Business and Product Line Dispositions
|
Page 27 | |
Results of Operations, including business segments
|
Pages 27 31 | |
Liquidity and Capital Resources:
|
||
Anticipated Sources and Uses of Cash Flow
|
Page 31 | |
Balance Sheet
|
Pages 31 32 | |
Statement of Cash Flows
|
Pages 32 34 | |
Legal Proceedings and Contingencies
|
Page 34 |
% of |
||||||||
2010 Sales | 2010 Sales | |||||||
(in millions) | ||||||||
DoD
|
$ | 11,932 | 76 | % | ||||
Other U.S. Government
|
1,145 | 7 | ||||||
Total U.S. Government
|
13,077 | 83 | % | |||||
Foreign governments
|
1,142 | 8 | ||||||
Commercial foreign
|
791 | 5 | ||||||
Commercial domestic
|
670 | 4 | ||||||
Total sales
|
$ | 15,680 | 100 | % | ||||
25
26
First Quarter Ended | ||||||||||||
April 1, |
March 26, |
Increase/ |
||||||||||
(in millions, except per share data) | 2011 | 2010 | (decrease) | |||||||||
Net sales
|
$ | 3,601 | $ | 3,624 | $ | (23 | ) | |||||
Operating income
|
$ | 390 | $ | 410 | $ | (20 | ) | |||||
Operating margin
|
10.8 | % | 11.3 | % | (50 | ) bpts | ||||||
Net interest expense and other income
|
$ | 79 | $ | 60 | $ | 19 | ||||||
Effective income tax rate
|
33.4 | % | 36.6 | % | (320 | ) bpts | ||||||
Net income attributable to L-3
|
$ | 204 | $ | 221 | $ | (17 | ) | |||||
Diluted earnings per share
|
$ | 1.85 | $ | 1.87 | $ | (0.02 | ) | |||||
Diluted weighted average common shares outstanding
|
109.5 | 116.9 | (7.4 | ) |
27
28
First Quarter Ended | ||||||||
April 1, |
March 26, |
|||||||
2011 | 2010(1) | |||||||
(dollars in millions) | ||||||||
Net
sales:(2)
|
||||||||
C3ISR
|
$ | 785.6 | $ | 770.2 | ||||
Government Services
|
946.8 | 909.6 | ||||||
AM&M
|
592.9 | 652.1 | ||||||
Electronic Systems
|
1,276.1 | 1,291.8 | ||||||
Consolidated net sales
|
$ | 3,601.4 | $ | 3,623.7 | ||||
Operating income:
|
||||||||
C3ISR
|
$ | 89.5 | $ | 104.6 | ||||
Government Services
|
71.0 | 71.8 | ||||||
AM&M
|
66.0 | 59.5 | ||||||
Electronic Systems
|
163.1 | 173.8 | ||||||
Consolidated operating income
|
$ | 389.6 | $ | 409.7 | ||||
Operating margin:
|
||||||||
C3ISR
|
11.4 | % | 13.6 | % | ||||
Government Services
|
7.5 | % | 7.9 | % | ||||
AM&M
|
11.1 | % | 9.1 | % | ||||
Electronic Systems
|
12.8 | % | 13.5 | % | ||||
Consolidated operating margin
|
10.8 | % | 11.3 | % |
(1) | As a result of re-alignments of business units in our management and organizational structure as discussed in Note 2 to our unaudited condensed consolidated financial statements contained in this quarterly report, sales of $36 million from the Government Services segment were reclassified to the Electronic Systems segment and sales of $18 million were reclassified from the C3ISR segment to the Government Services segment for the 2010 First Quarter. In addition, operating income of $6 million was reclassified from the Government Services segment to the Electronic Systems segment and operating income of $1 million was reclassified from the C3ISR segment to the Government Services segment. | |
(2) | Net sales are after intercompany eliminations. |
First Quarter Ended | ||||||||||||
April 1, |
March 26, |
Increase/ |
||||||||||
2011 | 2010 | (decrease) | ||||||||||
(dollars in millions) | ||||||||||||
Net sales
|
$ | 785.6 | $ | 770.2 | $ | 15.4 | ||||||
Operating income
|
89.5 | 104.6 | (15.1 | ) | ||||||||
Operating margin
|
11.4 | % | 13.6 | % | (220 | ) bpts |
29
First Quarter Ended | ||||||||||||
April 1, |
March 26, |
Increase/ |
||||||||||
2011 | 2010 | (decrease) | ||||||||||
(dollars in millions) | ||||||||||||
Net sales
|
$ | 946.8 | $ | 909.6 | $ | 37.2 | ||||||
Operating income
|
71.0 | 71.8 | (0.8 | ) | ||||||||
Operating margin
|
7.5 | % | 7.9 | % | (40 | ) bpts |
First Quarter Ended | ||||||||||||
April 1, |
March 26, |
Increase/ |
||||||||||
2011 | 2010 | (decrease) | ||||||||||
(dollars in millions) | ||||||||||||
Net sales
|
$ | 592.9 | $ | 652.1 | $ | (59.2 | ) | |||||
Operating income
|
66.0 | 59.5 | 6.5 | |||||||||
Operating margin
|
11.1 | % | 9.1 | % | 200 | bpts |
First Quarter Ended | ||||||||||||
April 1, |
March 26, |
|||||||||||
2011 | 2010 | Decrease | ||||||||||
(dollars in millions) | ||||||||||||
Net sales
|
$ | 1,276.1 | $ | 1,291.8 | $ | (15.7 | ) | |||||
Operating income
|
163.1 | 173.8 | (10.7 | ) | ||||||||
Operating margin
|
12.8 | % | 13.5 | % | (70 | ) bpts |
30
| Increases of $44 million in unbilled contract receivables primarily due to sales exceeding billings for aircraft modernization, networked communication systems, and simulation & training, partially offset by decreases due to lower sales and billings for combat propulsion systems; and | |
| Increases of $115 million in inventoried contract costs across several business areas, primarily networked communications systems, systems field support, EO/IR products and combat propulsion systems to support current and anticipated customer demand. |
31
Government |
Electronic |
Consolidated |
||||||||||||||||||
C3ISR | Services | AM&M | Systems | Total | ||||||||||||||||
(in millions) | ||||||||||||||||||||
Balance at December 31, 2010
|
$ | 868 | $ | 2,285 | $ | 1,172 | $ | 4,405 | $ | 8,730 | ||||||||||
Business acquisitions
|
2 | | 2 | | 4 | |||||||||||||||
Foreign currency translation
adjustments(1)
|
3 | 1 | 9 | 29 | 42 | |||||||||||||||
Segment
reclassification(2)
|
(5 | ) | (94 | ) | | 99 | | |||||||||||||
Balance at April 1, 2011
|
$ | 868 | $ | 2,192 | $ | 1,183 | $ | 4,533 | $ | 8,776 | ||||||||||
(1) | The increases in goodwill presented in each of the segments were due to the weakening of the U.S. dollar against the Euro, Canadian dollar, and British pound in the 2011 First Quarter. | |
(2) | As a result of re-alignments of business units in our management and organizational structure as discussed in Note 2 to our unaudited condensed consolidated financial statements contained in this quarterly report, goodwill was reclassified on a relative fair value basis among the C3ISR, Government Services and Electronic Systems segments during the 2011 First Quarter. |
First Quarter Ended | ||||||||
April 1, |
March 26, |
|||||||
2011 | 2010 | |||||||
(in millions) | ||||||||
Net cash from operating activities
|
$ | 220 | $ | 271 | ||||
Net cash used in investing activities
|
(34 | ) | (35 | ) | ||||
Net cash used in financing activities
|
(257 | ) | (104 | ) |
32
33
Total Number of |
Average Price Paid |
|||||||||||
Shares Purchased | Per Share | Treasury Stock | ||||||||||
(at cost in millions) | ||||||||||||
January 1 April 1, 2011
|
2,614,032 | $ | 78.40 | $ | 205 |
Cash Dividend |
Total Dividends |
|||||||||||
Date Declared | Record Date | Per Share | Date Paid | Paid | ||||||||
(in millions) | ||||||||||||
February 8, 2011
|
March 1, 2011 | $ | 0.45 | March 15, 2011 | $ | 49 |
| our dependence on the defense industry and the business risks peculiar to that industry, including changing priorities or reductions in the U.S. Government defense budget; | |
| backlog processing and program slips resulting from delayed resolution of DoD fiscal year 2011 funding; | |
| our reliance on contracts with a limited number of agencies of, or contractors to, the U.S. Government and the possibility of termination of government contracts by unilateral government action or for failure to perform; | |
| the extensive legal and regulatory requirements surrounding our contracts with the U.S. or foreign governments and the results of any investigation of our contracts undertaken by the U.S. or foreign governments, including potential suspensions or debarments; | |
| our ability to retain our existing business and related contracts (revenue arrangements); | |
| our ability to successfully compete for and win new business and related contracts (revenue arrangements) and to win re-competitions of our existing contracts; | |
| our ability to identify and acquire additional businesses in the future with terms, including the purchase price, that are attractive to L-3 and to integrate acquired business operations; | |
| our ability to maintain and improve our consolidated operating margin and total segment operating margin in future periods; | |
| our ability to obtain future government contracts (revenue arrangements) on a timely basis; |
34
| the availability of government funding or cost-cutting initiatives and changes in customer requirements for our products and services; | |
| our significant amount of debt and the restrictions contained in our debt agreements; | |
| our ability to continue to retain and train our existing employees and to recruit and hire new qualified and skilled employees, as well as our ability to retain and hire employees with U.S. Government security clearances that are a prerequisite to compete for and to perform work on classified contracts for the U.S. Government; | |
| actual future interest rates, volatility and other assumptions used in the determination of pension benefits and equity-based compensation, as well as the market performance of benefit plan assets; | |
| our collective bargaining agreements, our ability to successfully negotiate contracts with labor unions and our ability to favorably resolve labor disputes should they arise; | |
| the business, economic and political conditions in the markets in which we operate, including those for the commercial aviation, shipbuilding and communications markets; | |
| global economic uncertainty; | |
| the DoDs contractor support services in-sourcing and efficiency initiatives; | |
| events beyond our control such as acts of terrorism; | |
| our ability to perform contracts (revenue arrangements) on schedule; | |
| our international operations, including sales to foreign customers; | |
| our extensive use of fixed-price type contracts as compared to cost-plus type and time-and-material type contracts; | |
| the rapid change of technology and high level of competition in the defense industry and the commercial industries in which our businesses participate; | |
| our introduction of new products into commercial markets or our investments in civil and commercial products or companies; | |
| the outcome of litigation matters, particularly in connection with jury trials; | |
| results of audits by U.S. Government agencies, including the Defense Contract Audit Agency, of our sell prices, costs and performance on contracts (revenue arrangements), and our accounting and general business practices; | |
| results of on-going governmental investigations, including potential suspensions or debarments; | |
| the impact on our business of improper conduct by our employees, agents, or business partners; | |
| anticipated cost savings from business acquisitions not fully realized or realized within the expected time frame; | |
| the outcome of matters relating to the Foreign Corrupt Practices Act (FCPA) and similar non-U.S. regulations; | |
| ultimate resolution of contingent matters, claims and investigations relating to acquired businesses, and the impact on the final purchase price allocations; | |
| significant increase in competitive pressure among companies in our industry; and | |
| the fair values of our assets, including identifiable intangible assets and the estimated fair value of the goodwill balances for our reporting units, which can be impaired or reduced by other factors, some of which are discussed above. |
35
36
Maximum Number |
||||||||||||||||
Total Number |
(or Approximate |
|||||||||||||||
of Shares |
Dollar Value) |
|||||||||||||||
Purchased |
of Shares That |
|||||||||||||||
Total Number |
Average |
as Part of |
May Yet be |
|||||||||||||
of Shares |
Price Paid |
Publicly Announced |
Purchased Under |
|||||||||||||
Purchased | per Share | Plans or Programs | the Plans or Programs(1) | |||||||||||||
(in millions) | ||||||||||||||||
January 1 January 31, 2011
|
283,612 | $ | 71.69 | 283,612 | $ | 572 | ||||||||||
February 1 February 28, 2011
|
1,210,446 | $ | 79.27 | 1,210,446 | $ | 476 | ||||||||||
March 1 April 1, 2011
|
1,119,974 | $ | 79.15 | 1,119,974 | $ | 387 | ||||||||||
Total
|
2,614,032 | $ | 78.40 | 2,614,032 | ||||||||||||
(1) | All purchases of shares described in the table above were made pursuant to the $1 billion share repurchase program approved by L-3 Holdings Board of Directors on July 14, 2010, which expires on December 31, 2012. On April 26, 2011, L-3 Holdings Board of Directors approved a new share repurchase program that authorizes L-3 Holdings to repurchase up to an additional $1.5 billion of its outstanding shares of common stock through April 30, 2013. |
37
38
By: |
/s/ Ralph
G. DAmbrosio
|
Title: | Senior Vice President and Chief Financial Officer |
39
Exhibit |
||||
No. | Description of Exhibits | |||
3 | .1 | Certificate of Incorporation of L-3 Communications Holdings, Inc. (incorporated by reference to Exhibit 3.1 to the Registrants Quarterly Report on Form 10-Q for the period ended June 30, 2002 (File Nos. 001-14141 and 333-46983)). | ||
3 | .2 | Amended and Restated By-Laws of L-3 Communications Holdings, Inc. (incorporated by reference to Exhibit 3(ii) to the Registrants Current Report on Form 8-K filed on October 27, 2010 (File Nos. 001-14141 and 333-46983)). | ||
3 | .3 | Certificate of Incorporation of L-3 Communications Corporation (incorporated by reference to Exhibit 3.1 to L-3 Communications Corporations Registration Statement on Form S-4 (File No. 333-31649)). | ||
3 | .4 | Amended and Restated Bylaws of L-3 Communications Corporation (incorporated by reference to Exhibit 3.2 to the Registrants Current Report on Form 8-K filed on December 17, 2007 (File Nos. 001-14141 and 333-46983)). | ||
4 | .1 | Form of Common Stock Certificate of L-3 Communications Holdings, Inc. (incorporated by reference to Exhibit 4.1 to the Registrants Quarterly Report on Form 10-Q for the quarter ended June 25, 2010 (File Nos. 001-14141 and 333-46983)). | ||
4 | .2 | Credit Agreement, dated as of October 23, 2009, among L-3 Communications Corporation, L-3 Communications Holdings, Inc. and certain subsidiaries of the Registrants from time to time party thereto as guarantors, the lenders from time to time party thereto, and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K dated October 26, 2009 (File Nos. 001-14141 and 333-46983)). | ||
4 | .3 | Indenture dated as of July 29, 2005 (Notes Indenture) among L-3 Communications Corporation, the guarantors named therein and The Bank of New York Mellon (formerly known as The Bank of New York), as Trustee (incorporated by reference to Exhibit 10.69 to the Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (File Nos. 001-14141 and 333-46983)). | ||
4 | .4 | Supplemental Indenture dated as of October 1, 2009 among L-3 Communications Corporation, The Bank of New York Mellon (formerly known as The Bank of New York), as trustee, and the guarantors named therein to the Notes Indenture dated as of July 29, 2005 among L-3 Communications Corporation, the guarantors named therein and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.12 to the Registrants Quarterly Report on Form 10-Q for the quarter ended September 25, 2009 (File Nos. 001-14141 and 333-46983)). | ||
4 | .5 | Indenture dated as of July 29, 2005 (CODES Indenture) among L-3 Communications Holdings, Inc., the guarantors named therein and The Bank of New York Mellon (formerly known as The Bank of New York), as Trustee (incorporated by reference to Exhibit 10.70 to the Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (File Nos. 001-14141 and 333-46983)). | ||
4 | .6 | Supplemental Indenture dated as of October 1, 2009 among L-3 Communications Holdings, Inc., The Bank of New York Mellon (formerly known as The Bank of New York), as trustee, and the guarantors named therein to the CODES Indenture dated as of July 29, 2005 among L-3 Communications Holdings, Inc., the guarantors named therein and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.14 to the Registrants Quarterly Report on Form 10-Q for the quarter ended September 25, 2009 (File Nos. 001-14141 and 333-46983)). | ||
4 | .7 | Indenture dated as of October 2, 2009 among L-3 Communications Corporation, the guarantors named therein and The Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.15 to the Registrants Quarterly Report on Form 10-Q for the quarter ended September 25, 2009 (File Nos. 001-14141 and 333-46983)). | ||
4 | .8 | Indenture, dated as of May 21, 2010, among L-3 Communications Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to the Registrants Current Report on Form 8-K dated May 24, 2010 (File Nos. 001-14141 and 333-46983)). | ||
4 | .9 | First Supplemental Indenture, dated as of May 21, 2010, among L-3 Communications Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.2 to the Registrants Current Report on Form 8-K dated May 24, 2010 (File Nos. 001-14141 and 333-46983)). | ||
4 | .10 | Second Supplemental Indenture, dated as of February 7, 2011, among L-3 Communications Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.2 to the Registrants Current Report on Form 8-K dated February 8, 2011 (File Nos. 001-14141 and 333-46983)). |
Exhibit |
||||
No. | Description of Exhibits | |||
*10 | .1 | Amendment to L-3 Communications Holdings, Inc. 1998 Directors Stock Option Plan Nonqualified Stock Option Agreements of John M. Shalikashvili. | ||
*10 | .2 | Professional Services Agreement, effective April 27, 2011, between L-3 Communications Holdings, Inc. and John M. Shalikashvili. | ||
**11 | L-3 Communications Holdings, Inc. Computation of Basic Earnings Per Share and Diluted Earnings Per Common Share. | |||
*12 | Ratio of Earnings to Fixed Charges. | |||
*31 | .1 | Certification of Chairman, President and Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. | ||
*31 | .2 | Certification of Senior Vice President and Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. | ||
*32 | Section 1350 Certification | |||
***101 | .INS | XBRL Instance Document | ||
***101 | .SCH | XBRL Taxonomy Extension Schema Document | ||
***101 | .CAL | XBRL Taxonomy Extension Calculation Linkbase Document | ||
***101 | .LAB | XBRL Taxonomy Extension Label Linkbase Document | ||
***101 | .PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
* | Filed herewith. | |
** | The information required in this exhibit is presented in Note 12 to the unaudited condensed consolidated financial statements as of April 1, 2011 in accordance with the provisions of ASC 260, Earnings Per Share. | |
*** | Furnished electronically with this report. | |
| Represents management contract, compensatory plan or arrangement in which directors and/or executive officers are entitled to participate. |
1. | Section 6 is deleted in its entirety and replaced with the following: |
6. | Effect of Certain Events on the Option. |
2. | The last sentence of Section 7 is deleted and replaced with the following: |
By: | L-3 COMMUNICATIONS HOLDINGS, INC. |
1. | ATTACHMENTS. Any Attachments to this Professional Services Agreement referenced herein are fully incorporated and form a part of this agreement (hereinafter, Agreement). |
2. | CONSULTING ARRANGEMENT. L-3 hereby retains the Consultant, and the Consultant hereby agrees to serve as a consultant to L-3, on the terms and subject to the conditions of this Agreement. The Consultant will, from time to time and at the request of L-3 upon reasonable advance notice, assist L-3, including by providing advice with respect to the business of L-3, its strategic business plan and such other matters as may be reasonably requested by L-3. It is understood that such consulting services shall be incidental to, and shall not interfere with, the other business activities and commitments of the Consultant which are permitted pursuant to Section 7 below. The Consultant shall not be required to travel, except at his convenience, in performing services hereunder. In addition, so long as the Consultant continues to provide consulting services pursuant to this Agreement, Consultant shall have the title Director Emeritus of L-3. |
3. | TERM OF AGREEMENT. This Agreement is intended to be a master set of terms and conditions between L-3 and Consultant. This Agreement shall be effective upon execution hereof for a term of one year from the date hereof and shall be renewable annually at L-3s written request. This Agreement and Consultants retention hereunder may be terminated by either party on 30 days advance written notice. In the event of a termination of the consulting term for any reason, neither L-3 nor the Consultant shall have any further obligations hereunder. |
4. | COMPENSATION. |
4.1 | The Consultants compensation for his services will consist of an annual retainer of $210,000. The annual retainer is payable quarterly in arrears on March 1, June 1, September 1 and December 1 of each year, provided that the Agreement has not been terminated prior to the applicable payment date. | |
4.2 | Consultant shall be responsible for taxes based upon Consultants income or any Federal, State or local employment taxes assessed to Consultant. |
5. | REIMBURSABLE EXPENSES. L-3 shall reimburse Consultant for reasonable out of pocket expenses incurred for meals, lodging, and travel, as set forth in Attachment A and for which funding has been previously authorized as part of an assigned task. Consultant shall invoice L-3 for actual, substantiated out of pocket expenses and L-3 shall pay Consultant net thirty (30) days after receipt of an undisputed invoice. |
6. | WARRANTIES AND INDEMNITY. Consultant warrants the services provided to L-3 will be performed in a professional and competent manner. |
7. | CONFIDENTIAL INFORMATION; NON-COMPETITION UNDERTAKING; ENGAGEMENTS WITH THIRD PARTIES. Consultant shall maintain proprietary, confidential and secret all L-3 information which may be disclosed to Consultant as being proprietary, confidential and secret in nature, and Consultant shall not disclose this information to any other person (including L-3 employees in any other division, group, or entity), firm, or corporation. Consultant shall also maintain as confidential the know-how and future plans of L-3 relating to the fields of endeavor in which Consultant performs investigations, evaluations, and services for L-3, as well as the nature of certain work projects to which Consultant is exposed, and the identity of persons working on those projects. If, in connection with its performance, Consultant discloses to L-3 any ideas, developments, or suggestions conceived or actually reduced to practice by Consultant prior to its performance hereunder, no relationship, proprietary or otherwise, express or implied, is established with L-3 by the disclosure, no obligation of any kind is assumed by, nor may be implied against L-3, unless a separate written contract regarding the subject of disclosure is consummated by the parties, and then the obligation shall be only as expressed in the separate contract. |
7.3 | Consultant agrees to refrain from making any disparaging or derogatory remarks, comments or publications regarding L-3 or any of its affiliates, predecessors or successors or any of their respective officers, directors, employees, products or services. | |
7.4 | Consultant hereby agrees that during the term of this Agreement and the 12- month period immediately thereafter, without the prior written consent of L-3, (i) he or she will not, directly or indirectly, either as principal, manager, agent, consultant, officer, |
stockholder, partner, investor, lender or employee or in any other capacity, carry on, be engaged in or have any financial interest in, any (a) entity which is in Competition with the business of L-3 or (b) Competitive Activity and (ii) he or she shall not, on his or her own behalf or on behalf of any person, firm or company, directly or indirectly, solicit or offer employment to any person who is or has been employed by L-3 at any time during the twelve (12) months immediately preceding such solicitation. For purposes of this Section 7.4: (A) an entity shall be deemed to be in Competition with L-3 if it is principally involved in the purchase, sale or other dealing in any property or the rendering of any service purchased, sold, dealt in or rendered by L-3 as a part of the business of L-3 within the same geographic area in which L-3 effects such sales or dealings or renders such services at the Relevant Date; and (B) Competitive Activity shall mean any business into which L-3 has taken substantial steps to engage, as of the Relevant Date, which would be deemed to be in Competition with the business of L-3 if such steps had been completed prior to the Relevant Date; and (C) the term Relevant Date shall mean each date during the term of this Agreement through (and including) the effective date of termination of this Agreement. Notwithstanding the foregoing, nothing contained in this Section 7.4 shall (x) prohibit Consultant from serving as an officer, employee or independent consultant of any business unit or subsidiary which would not otherwise be in Competition with L-3 or a Competitive Activity, but which business unit is a part of, or which subsidiary is controlled by, or under common control with, an entity that would be in competition with L-3, so long as Consultant does not engage in any activity which is in Competition with any business of L-3 or is otherwise a Competitive Activity or (y) be construed so as to preclude Consultant from investing in any publicly or privately held company, provided Consultants beneficial ownership of any class of such companys securities does not exceed 5% of the outstanding securities of such class. |
7.5 | The parties hereto agree that the provisions of Section 7.4 are reasonable. If a court determines, however, that any provision of Section 7.4 is unreasonable, either in period of time, geographical area or otherwise, then the parties hereto agree that the provisions of Section 7.4 should be interpreted and enforced to the maximum extent which such court deems reasonable. | |
7.6 | Subject to Section 7.4, Consultant shall have the right to accept employment and/or perform consulting work for one or more third parties, so long as such employment or work does not impair his ability to perform his responsibilities hereunder. |
8. | NOTICES. Written notice shall be sent to the parties by hand, by overnight carrier or by U.S. certified mail at the following address: |
L-3 Communications Corporation 600 Third Avenue New York, New York 10016 Attention: General Counsel |
General (Ret.) John M. Shalikashvili 55 Chapman Loop Steilacoom, WA 98388 |
9. | CONFLICTING AGREEMENTS. Consultant warrants that it is not a party to any other existing agreement which would prevent Consultant from entering into this Agreement or which would adversely affect this Agreement. |
10. | INDEPENDENT CONTRACTOR. It is understood and agreed that Consultant shall be acting as an independent contractor and not as an agent or employee of L-3. Accordingly, the Consultant assumes all risks and hazards encountered in its performance of this agreement. Consultant shall not have the power or authority to create or modify any binding obligation or agreement on behalf of L-3, and Consultant shall not represent to any third party that he or she has such power or authority. Consultant acknowledges that he or she shall not participate in (and shall not receive any benefits or awards under) any L-3 employee benefit plans by virtue of this agreement. |
11. | TERMINATION. The provisions of Sections 6, 7, and 14 shall survive termination of this Agreement. |
12. | ETHICAL CONDUCT. It is acknowledged that any payment, gift, tip, meal, transportation, entertainment or other benefit or promise of a benefit provided to or paid for a U.S. Government employee by the Consultant other than pursuant to the limited authorized exceptions in the appropriate agency internal standard of conduct, is prohibited, whether or not the situation involved pertains to L-3 business. |
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13. | ACCESS TO L-3 FACILITIES. Consultants use and access to any applicable facility shall be subject to all L-3s security, traffic, smoke free environment restrictions, as well as any other L-3 rules and regulations, and any and all other reasonable restrictions which L-3 may impose from time to time. Access may be limited to L-3s normal hours of operations (excluding holidays and shutdown periods, if any). L-3 may limit or deny access to any other Consultant representatives. |
14.1 | ASSIGNMENT OF SERVICES AGREEMENT. The Consultant may not assign any of its rights or obligations hereunder without the prior written consent of L-3. L-3 may assign its rights and obligations under this Agreement to any subsidiary, affiliate or successor in interest of L-3 without the consent of the Consultant. The Consultant shall be provided with written notice of such assignment. In all such cases, the assignment of this Agreement and the assumption of the rights and obligations thereunder shall be at no additional cost to L-3. | |
14.2 | FORCE MAJEURE. Neither party shall be liable for any delays resulting from acts of God, strikes, riots, acts of war, epidemics, or governmental regulations. | |
14.3 | NO PUBLICITY. Neither party hereto shall, without securing written consent of the other party, publicly announce the existence of this Agreement or advertise or release any publicity in regard thereto, except that L-3 and Consultant may disclose the terms of this Agreement to extent required by law or regulation, including in proxy statements and periodic reports filed with the Securities and Exchange Commission. | |
14.4 | BINDING AGREEMENT. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of L-3 and shall be binding upon and inure to the benefit of Consultants heirs, legal representatives, successors, and assigns. | |
14.5 | GOVERNING LAW; WAIVER OF JURY TRIAL. The validity, performance, and construction of this Agreement shall be governed by the laws of the State of New York, excluding conflicts of laws provisions. EACH PARTY HERETO HEREBY EXPRESSLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO TRIAL BY JURY IN ANY SUIT, LITIGATION, ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT. | |
14.6 | SEVERABILITY. If any of the provisions or portions of this Agreement are invalid under any applicable statute or rule of law, they are to that extent to be deemed omitted. | |
14.7 | ASSIGNMENT. Except as otherwise provided in this Agreement, neither party shall assign or transfer any of its rights or obligations hereunder without the prior written consent of the other party hereto, which assignment shall not be unreasonably withheld, and any such attempted assignment shall be void. | |
14.8 | MERGER OF AGREEMENT. This Agreement constitutes the entire understanding between the parties relating to the subject matter hereof, and supersedes all previous communications, representations, or agreements, either oral or written, with respect to the subject matter hereof, and no representations or statements of any kind made by any representative of Consultant or L-3, which are not stated in this Agreement, shall be binding on Consultant or L-3. No addition to or modification of any provision of this Agreement shall be binding upon Consultant or L-3 unless made in writing and signed by the respective duly authorized representatives of Consultant and L-3. | |
14.9 | EQUITABLE RELIEF. Consultant acknowledges and agrees that money damages would not be an adequate remedy for any breach of his or her agreements contained in Section 7 hereof, and that in addition to any other remedies available to L-3, L-3 shall be entitled to the remedies of injunction, specific performance and other equitable relief for any threatened or actual breach of the agreements contained in such Section. |
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By: |
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Title: | Chairman, President and Chief Executive Officer |
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1. | Air transportation expenses: All approved travel should be booked using L-3s Travel Service to minimize costs. L-3 will reimburse for first-class fares on domestic flights and business-class fares for international travel (first class is reimbursable for international travel only when approved in advance by L-3 Senior Management). Trips should also be booked as far in advance as possible to qualify for special air fare promotions and discount fares. |
2. | Lodging expense: Consultant should coordinate with the L-3 contact designated in the applicable SOW, to identify hotels with whom L-3 has negotiated special rates, or when such accommodations are not available, use hotels where corporate discounts are offered. |
3. | Meal expenses: The reasonable cost of meals on overnight trips is allowed while traveling on L-3s behalf. When dining with L-3 employees, separate checks should be requested. Entertainment, such as theater tickets and hotel room movies, are personal expenses, and are not reimbursable. Expenses for meals and other entertainment provided to L-3 employees are not reimbursable. Meals pertaining to travel on one-day trips that meet or exceed a 55 mile radius, will be reimbursed by L-3. |
4. | Alcoholic beverages: Alcoholic beverage costs are not reimbursable under noirnal business expenses. It could be covered under rare cases if approved by L-3 Senior Management. In those cases, all alcoholic beverage expenses will be listed separately as entertaining expense. |
5. | Tips: Tips are an acceptable expense if they represent customary and reasonable amounts for meals, porter, taxi, or similar services. Tips for meals must be included in the meal cost and tips for the ground transportation must be included in transportation costs. Tips to porters, bellhops, etc. should be listed as miscellaneous travel. |
6. | Laundry expense: Charges for laundry are reimbursable by L-3 if the trip exceeds four (4) days. |
7. | Car rental: In the U.S., compact cars will be rented when available, and comparable models will be rented when traveling internationally. All optional insurance for rental cars while on L-3 business in the U.S. and Canada, are not reimbursable. Optional collision insurance purchased internationally is acceptable where obligatory. Fines for parking or traffic violations are not reimbursable expenses whether incurred in a rental car or while using ones personal automobile for L-3 business. |
8. | Local travel: The approved reimbursement rate for use of ones personal automobile for L-3s business is the maximum amount allowed by current IRS regulations. Local travel between the Consultant and L-3 as a normal part of doing business is not reimbursable. |
9. | Telephone expense: L-3 allows reasonable and customary personal telephone expenses while traveling (called safe arrival or time of departure calls NTE $10-$20). In those instances where approved business calls are charged to a personal telephone, the original bill must be submitted with an explanation for each call. L-3/IS will not be responsible for the entire phone bill or wireless service or personal internet access. |
10. | Expense statements: Expense Statements, when traveling on L-3s behalf, should contain information pertaining to only one (1) trip and must be prepared on a timely basis. Original copies of airline tickets, itinerary and hotel charges, car rentals and other expense in excess of twenty-five dollars ($25.00) must be included. |
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First Quarter Ended | ||||
April 1, 2011 | ||||
($ in millions) | ||||
Earnings: |
||||
Income before income taxes |
$ 311 | |||
Less: Net income attributable to noncontrolling interests |
(3 | ) | ||
Income before income taxes after noncontrolling interests |
$ 308 | |||
Add: |
||||
Interest expense |
61 | |||
Amortization of debt expense |
2 | |||
Interest component of rent expense |
15 | |||
Earnings |
$ 386 | |||
Fixed charges: |
||||
Interest expense |
61 | |||
Amortization of debt expense |
2 | |||
Interest component of rent expense |
15 | |||
Fixed charges |
$ 78 | |||
Ratio of earnings to fixed charges |
4.9 | x | ||
1. | I have reviewed this report on Form 10-Q for the quarter ended April 1, 2011 of L-3
Communications Holdings, Inc. and L-3 Communications Corporation; |
|
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
3. | Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrants as of, and for, the periods presented in this
report; |
|
4. | The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrants and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrants, including their consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is
being prepared; |
||
b) | Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles; |
||
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and |
||
d) | Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information; and |
||
b) | Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting. |
/s/ Michael T. Strianese
|
||
Chairman, President and Chief Executive Officer |
1. | I have reviewed this report on Form 10-Q for the quarter ended April 1, 2011 of L-3
Communications Holdings, Inc. and L-3 Communications Corporation; |
|
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this report; |
|
3. | Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrants as of, and for, the periods presented in this
report; |
|
4. | The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrants and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information
relating to the registrants, including their consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is
being prepared; |
||
b) | Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles; |
||
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report based on such evaluation;
and |
||
d) | Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants
fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over financial
reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the
audit committee of the registrants board of directors (or persons performing the equivalent
functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrants ability to record, process, summarize and report financial information; and |
||
b) | Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal control over financial reporting. |
/s/ Ralph G. DAmbrosio
|
||
Senior Vice President and Chief Financial Officer |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and |
||
(2) | The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of L-3. |
/s/ Michael T. Strianese
|
/s/ Ralph G. DAmbrosio
|
|||
Michael T. Strianese
|
Ralph G. DAmbrosio | |||
Chairman, President and Chief Executive Officer
|
Senior Vice President and Chief Financial Officer |