L-3 Announces First Quarter 2014 Results

  L-3 Announces First Quarter 2014 Results

  *Diluted earnings per share of $2.01
  *Net sales of $3.0 billion
  *Funded orders of $3.0 billion, funded backlog of $10.4 billion
  *Increased 2014 financial guidance

Business Wire

NEW YORK -- May 1, 2014

L-3 Communications Holdings, Inc. (NYSE:LLL) today reported diluted earnings
per share (diluted EPS) of $2.01 for the quarter ended March 28, 2014 (2014
first quarter), a decrease of 5%, compared to $2.11 for the quarter ended
March 29, 2013 (2013 first quarter). The 2013 first quarter included a $12
million ($0.13 per diluted share) tax benefit for the retroactive
reinstatement of the U.S. Federal research and experimentation (R&E) tax
credit for 2012 and 2013. Net sales of $3.0 billion for the 2014 first quarter
decreased by 7% compared to the 2013 first quarter.

“We delivered solid performance in the first quarter despite continued
reductions in U.S. defense spending. L-3 reported strong orders, resulting in
a book-to-bill ratio of 1.01, and sales to international and commercial
customers increased to 29% of our total sales. We continue to successfully
manage through the DoD (Department of Defense) sequestration budget cuts and
reduced spending on Afghanistan by focusing on program execution, growing our
international and commercial business and providing cost-effective solutions
to our customers worldwide,” said Michael T. Strianese, chairman, president
and chief executive officer. “We remain focused on improving efficiencies
across our businesses, increasing market share and pursuing opportunities in
adjacent markets.”

“We also continue to execute our disciplined M&A and cash allocation strategy.
During the quarter, we acquired Data Tactics Corporation, which enhances our
National Security Solutions (NSS) segment by adding capabilities in
large-scale data analytics, cybersecurity and cloud computing. The acquisition
also creates opportunities for our Intelligence, Surveillance and
Reconnaissance (ISR) Systems business. We also continued to deploy our cash
flow to increase shareholder value through repurchases of $133 million of our
common stock and dividends of $55 million. During the first quarter, our board
of directors increased L-3’s quarterly cash dividend by 9% to $0.60 per share,
marking our tenth consecutive annual increase and demonstrating our confidence
in L-3’s business strategy and outlook.”

Key competitive contract wins for the quarter included: (1) a foreign military
sales contract to provide MX-15HDi turret systems, complete with mission
equipment packages for the Algerian Air Force and Gendarmerie Eurocopter
AS355, (2) a contract to design, build, integrate and deliver the Aviation
Combined Tactical Trainer (AVCATT) for the Lakota UH-72A helicopter for the
U.S. Army, (3) a foreign military sales contract to provide contractor
logistics services for Kuwait’s KC-130J aircraft fleet, (4) a contract with
the Defense Advanced Research Projects Agency (DARPA) to develop and test
Air-to-Air and Air-to-Ground mobile hotspots for its Next Generation Mobile
Networking system, and (5) a contract to provide electrical propulsion and
platform systems, and cable installation for two commercial offshore supply
vessels at the Flensburger Shipyard in Germany.

L-3 Consolidated Results
                                  First Quarter Ended        
(in millions, except per              March 28,   March 29,       Increase/
share data)                           2014          2013            (decrease)
Net sales                             $ 2,971       $  3,185       (7   )%
Operating income                      $ 307         $   313         (2   )%
Operating margin                        10.3  %         9.8   %     50   bpts
Interest expense                      $ 43          $   43          ―
Interest and other income,            $ 3           $   3           ―
net
Effective income tax rate               31.8  %         28.9  %     290  bpts
Net income attributable to            $ 180         $   193         (7   )%
L-3
Diluted EPS                           $ 2.01        $   2.11        (5   )%
Diluted weighted average           89.4       91.5     (2   )%
common shares outstanding

First Quarter Results of Operations: For the 2014 first quarter, consolidated
net sales of $3.0 billion decreased $214 million, or 7%, compared to the 2013
first quarter. Sales to the U.S. Government, including the DoD, declined 11%
and impacted each segment. Acquired businesses^(1), which are included in the
Electronic Systems and NSS segments, increased net sales by $14 million in the
2014 first quarter. Net sales to international and commercial customers
increased 6%, or $46 million, to $853 million in the 2014 first quarter,
compared to $807 million in the 2013 first quarter. Net sales to international
and commercial customers, as a percentage of consolidated net sales, increased
to 29% for the 2014 first quarter as compared to 25% for the 2013 first
quarter.

________________________________
^(1) Net sales from acquired businesses are comprised of: (i) net sales from
business acquisitions that are included in L-3’s actual results for less than
12 months, less (ii) net sales from business and product line divestitures
that are included in L-3’s actual results for the 12 months prior to the
divestitures.


Operating income for the 2014 first quarter of $307 million decreased $6
million, or 2%, compared to the 2013 first quarter. Operating income as a
percentage of sales (operating margin) increased by 50 basis points to 10.3%
for the 2014 first quarter compared to 9.8% for the 2013 first quarter. The
increase in operating margin is primarily due to lower pension expense of $24
million, which increased operating margin by 80 basis points. Lower sales and
mix changes, primarily for Aerospace Systems, offset improved contract
performance across several business areas, reducing operating margin by
approximately 20 basis points. Additionally, 2014 first quarter severance
charges increased $3 million to $8 million compared to the 2013 first quarter.
See the reportable segment results below for additional discussion of sales
and operating margin trends.

The effective tax rate for the 2014 first quarter increased to 31.8% from
28.9% for the same period last year. The increase is primarily due to the $12
million tax benefit for the retroactive reinstatement in the 2013 first
quarter of the R&E tax credit for 2012 and 2013, compared to no R&E tax credit
in the 2014 first quarter. This increase was partially offset by a lower
effective tax rate on foreign earnings.

Net income attributable to L-3 in the 2014 first quarter decreased 7% to $180
million compared to the 2013 first quarter, and diluted EPS decreased 5% to
$2.01 from $2.11. Diluted weighted average common shares outstanding for the
2014 first quarter declined by 2% compared to the 2013 first quarter due to
repurchases of L-3 common stock.

Orders: Funded orders for the 2014 first quarter increased 4.5% to $3.0
billion compared to $2.9 billion for the 2013 first quarter. Funded backlog
increased 0.4% to $10.4 billion at March 28, 2014, compared to $10.3 billion
at December 31, 2013.

Cash flow and cash returned to shareholders: Net cash used in operating
activities was $62 million for the 2014 first quarter, compared to $146
million of cash generated from operating activities in the 2013 first quarter.
The use of cash in the 2014 first quarter was primarily due to increases in
working capital, including contracts in process and receivables. The table
below summarizes the cash returned to shareholders during the 2014 first
quarter compared to the 2013 first quarter.


                                              First Quarter Ended
                                                   March 28,         March 29,
($ in millions)                                                 
                                                   2014              2013
                                                                     
Net cash (used in) from operating                  $  (62  )         $  146
activities
Capital expenditures, net of                         (29  )           (48  )
dispositions
Free cash flow^(1)                                 $  (91  )         $  98   
Dividends paid                                     $  55             $  52
Common stock repurchases                             133             122  
Cash returned to shareholders                      $  188           $  174  

__________________________
^(1) Free cash flow is defined as net cash from operating activities less net
capital expenditures (capital expenditures less cash proceeds from
dispositions of property, plant and equipment). Free cash flow represents cash
generated after paying for interest on borrowings, income taxes, pension
benefit contributions, capital expenditures and changes in working capital,
but before repaying principal amount of outstanding debt, paying cash
dividends on common stock, repurchasing shares of our common stock, investing
cash to acquire businesses, and making other strategic investments. Thus, a
key assumption underlying free cash flow is that the company will be able to
refinance its existing debt. Because of this assumption, free cash flow is not
a measure that should be relied upon to represent the residual cash flow
available for discretionary expenditures.


Reportable Segment Results

As previously announced during the 2014 first quarter, the company reorganized
its segments to better align its organizational structure with customer
priorities and increase operational efficiencies. Accordingly, the company’s
structure consists of the following four segments: Aerospace Systems,
Electronic Systems, Communication Systems and NSS, as further described below.

Aerospace Systems: combines the operations of the former Platform & Logistics
Solutions (P&LS) segment with ISR Systems. ISR Systems was part of the former
Command, Control, Communications, Intelligence, Surveillance and
Reconnaissance (C^3ISR) segment;

Electronic Systems: includes all previous businesses except for the Microwave
Products businesses, which are now part of Communication Systems;

Communication Systems: combines the operations of the Microwave Products
businesses, previously part of the Electronic Systems segment, with the
operations of the Networked and Secure Communications Products businesses,
previously part of the former C^3ISR segment; and

NSS: remains unchanged.

The segment results presented in this release reflect the segment realignment
discussed above. Tables E and F (Unaudited Supplemental Segment Data)attached
to this release present: (1) the previous segment data presentation for the
quarterly periods ended March 29, June 28, September 27 and December 31, 2013,
and the years ended December 31, 2013, 2012 and 2011, (2) reclassifications to
the respective segments for these periods, and (3) the revised segment data
presentation for these periods.

Aerospace Systems
                      First Quarter Ended         
($ in millions)            March 28,    March 29,       Decrease
                           2014            2013
Net sales                  $ 1,082         $ 1,186         (8.8  )%
Operating income           $ 114           $ 140           (18.6 )%
Operating margin       10.5  %     11.8  %    (130  ) bpts

Aerospace Systems net sales for the 2014 first quarter decreased by $104
million, or 9%, compared to the 2013 first quarter. Sales decreased $62
million for Platform Systems and $42 million for ISR Systems. Sales for
Logistics Solutions remained substantially the same. Platform Systems sales
decreased: (1) $24 million due to lower U.S. Air Force (USAF) Joint Cargo
Aircraft (JCA) volume as the contract nears completion, (2) $22 million
primarily due to lower volume for aircraft maintenance for the Canadian
Department of National Defence due to timing and reduced funding, (3) $19
million due to lower volume for U.S. Navy maritime patrol aircraft resulting
from reduced funding caused by U.S. Government sequestration cuts, and (4) $16
million due to reduced deliveries of aircraft cabin assemblies. These
decreases were partially offset by a sales increase of $19 million for
Australia C-27J aircraft due to timing of contract deliverables. ISR Systems
sales declined primarily due to lower sales and volume for small ISR aircraft
and aircraft systems due to the U.S. military drawdown in Afghanistan,
partially offset by higher volume for logistic support and fleet management
services to the DoD and ISR platforms for foreign military customers.

Aerospace Systems operating income for the 2014 first quarter decreased by $26
million, or 19%, compared to the 2013 first quarter. Operating margin declined
by 130 basis points to 10.5%. Operating margin declined by 260 basis points
primarily due to lower sales and mix changes. This decrease was partially
offset by 70 basis points due to lower pension expense of $8 million and 60
basis points due to improved contract performance.

Electronic Systems                                 
                       First Quarter Ended         
($ in millions)            March 28,    March 29,       Increase/
                           2014            2013            (decrease)
Net sales                  $ 1,082         $ 1,111         (2.6   )%
Operating income           $ 125           $ 117           6.8    %
Operating margin        11.6  %     10.5  %    110    bpts

Electronic Systems net sales for the 2014 first quarter decreased by $29
million, or 3%, compared to the 2013 first quarter. Sales decreased: (1) $43
million for Precision Engagement & Training due to reduced deliveries of U.S.
Army rotary wing training systems for the Flight School XXI program, lower
volume for upgrades for F/A-18 flight simulator trainers and completed
contracts for guidance products and (2) $38 million for Sensor Systems
primarily due to the completion of a contract for force protection products
for a foreign ministry of defense and lower volume for airborne EO/IR turrets
due to the U.S. military drawdown from Afghanistan. These decreases were
partially offset by sales increases of $26 million primarily due to the timing
of deliveries of commercial shipbuilding products and $16 million for Space &
Propulsion Systems due to higher volume on an engine contract to a foreign
military and the Missile Defense Agency’s air-launched ballistic missile
target programs. Sales from the Mustang Technology Group acquisition added $10
million.

Electronic Systems operating income for the 2014 first quarter increased by $8
million, or 7%, compared to the 2013 first quarter. Operating margin increased
by 110 basis points to 11.6%. Lower pension expense of $8 million increased
operating margin by 70 basis points and improved contract performance,
primarily for Precision Engagement & Training, increased operating margin by
70 basis points. These increases were partially offset by 30 basis points due
to lower sales and mix changes primarily for Sensor Systems.

Communication Systems                                 
                          First Quarter Ended         
($ in millions)               March 28,    March 29,       Increase/
                              2014            2013            (decrease)
Net sales                     $  503          $  558          (9.9   )%
Operating income              $  50           $  35           42.9   %
Operating margin            9.9  %      6.3  %    360    bpts

Communication Systems net sales for the 2014 first quarter decreased by $55
million, or 10%, compared to the 2013 first quarter. Sales decreased $37
million for Tactical Satellite Communications products primarily due to
reduced deliveries of mobile and ground-based satellite communication systems
for the U.S. military due to lower demand and $29 million for Broadband
Communication Systems primarily due to: (1) lower volume for airborne and
ground-based networked communication systems as contracts near completion and
demand declines due to sequestration and other DoD budget reductions and (2)
lower U.S. Army demand for remote video terminals and ISR support services
primarily driven by the U.S. military drawdown from Afghanistan. These
decreases were partially offset by an increase of $11 million for Space &
Power Systems primarily due to increased deliveries of power devices for
commercial satellites.

Communication Systems operating income for the 2014 first quarter increased by
$15 million, or 43%, compared to the 2013 first quarter. Operating margin
increased 360 basis points to 9.9%. Operating margin increased 230 basis
points primarily due to lower development and production costs for Broadband
Communication Systems and 160 basis points due to lower pension expense of $8
million. These increases were partially offset by 30 basis points due to
higher severance costs of $2 million compared to the 2013 first quarter.

NSS                                              
                     First Quarter Ended         
($ in millions)          March 28,    March 29,       Decrease
                         2014            2013
Net sales                $  304          $  330          (7.9  )%
Operating income         $  18           $  21           (14.3 )%
Operating margin       5.9  %      6.4  %    (50   ) bpts

NSS net sales for the 2014 first quarter decreased by $26 million, or 8%,
compared to the 2013 first quarter. Sales declined by $13 million for
Intelligence Solutions primarily due to work scope reductions on a technical
support contract for a U.S. Government agency due to U.S. Government
sequestration cuts. Sales declined by $10 million for Federal Solutions
primarily due to the completion of a contract for the National Oceanic and
Atmospheric Administration. Sales also declined by $7 million for Defense
Solutions primarily due to lower demand and completed contracts, partially
offset by a new information technology (IT) services contract for the U.S.
Army reserve. These decreases were partially offset by the Data Tactics
acquisition, which added $4 million of sales.

NSS operating income for the 2014 first quarter decreased by $3 million, or
14%, compared to the 2013 first quarter. Operating margin decreased by 50
basis points to 5.9% primarily due to lower award fees for IT and intelligence
support services contracts and lower margins on new business due to
competitive pricing pressure.

Financial Guidance

Based on information known as of today, the company has updated its
consolidated and segment financial guidance for the year ending December 31,
2014, previously provided on March 25, 2014, as presented in the tables below.
All financial guidance amounts are estimates subject to change in the future,
including as a result of matters discussed under the “Forward-Looking
Statements” cautionary language beginning on page 7 and the company undertakes
no duty to update its guidance.

                                                                           
Consolidated 2014 Financial Guidance
($ in millions, except per share data)
                                                            Prior
                                 Current             
                                                            (March 25, 2014)
Net sales                            $11,950 to             $11,900 to
                                     $12,150                $12,100
Operating margin                            10.5      %            10.5      %
Interest expense                     $      177             $      176
Interest and other income            $      14              $      14
Effective tax rate                          32.5      %            33.0      %
Diluted shares                              88.6                   87.5
Diluted EPS                          $ 8.20 to $8.40        $ 8.15 to $8.35
Net cash from operating              $      1,195           $      1,195
activities
Capital expenditures, net of
dispositions of
property, plant and                        (195      )           (195      )
equipment
Free cash flow                       $      1,000          $      1,000     
                                                                 


Segment 2014 Financial Guidance
($ in millions)
                                                   Prior
                          Current           
                                                   (March 25, 2014)
Net Sales:
Aerospace Systems             $4,450 to $4,550     $4,450 to $4,550
Electronic Systems            $4,450 to $4,550     $4,450 to $4,550
Communication Systems         $1,800 to $1,900     $1,800 to $1,900
NSS                           $1,150 to $1,250     $1,100 to $1,200
Operating Margins:
Aerospace Systems             10.6% to 10.8%       10.6% to 10.8%
Electronic Systems            11.2% to 11.4%       11.0% to 11.2%
Communication Systems         9.9% to 10.1%        10.3% to 10.5%
NSS                           7.2% to 7.4%         7.3% to 7.5%
                                           

The revisions to our Current Guidance compared to our Prior Guidance include:
(1) a 20 basis point increase to Electronic Systems segment margin due to cost
reduction efforts, (2) a 40 basis point reduction to Communication Systems
segment margin primarily due to lower than planned productivity improvements
for the current year from enterprise resource planning (ERP) systems
implemented in 2013, (3) a $50 million increase in net sales and a 10 basis
point reduction to NSS segment margin primarily related to the acquisition of
Data Tactics Corporation, (4) a 50 basis point reduction in the effective tax
rate due to a lower effective tax rate on foreign earnings, and (5) an
increase in forecasted diluted shares outstanding primarily due to stock
option exercises.

The current guidance excludes any potential non-cash goodwill impairment
charges for which the information is presently unknown and assumes the R&E tax
credit that expired on December 31, 2013, is not extended. Additional
financial information regarding the 2014 first quarter results is available on
the company’s website at www.L-3com.com.

Conference Call

In conjunction with this release, L-3 will host a conference call today,
Thursday, May 1, 2014 at 11:00 a.m. ET that will be simultaneously broadcast
over the Internet. Michael T. Strianese, chairman, president and chief
executive officer, and Ralph G. D’Ambrosio, senior vice president and chief
financial officer, will host the call.

                                11:00 a.m. ET
                                10:00 a.m. CT
                                 9:00 a.m. MT
                                 8:00 a.m. PT

Listeners may access the conference call live over the Internet at the
company’s website at:

                            http://www.L-3com.com

Please allow fifteen minutes prior to the call to visit our website to
download and install any necessary audio software. The archived version of the
call may be accessed at our website or by dialing (877) 344-7529 (passcode:
10044133), beginning approximately two hours after the call ends and will be
available until the company’s next quarterly earnings release.

Headquartered in New York City, L-3 employs approximately 48,000 people
worldwide and is a prime contractor in aerospace systems and national security
solutions. L-3 is also a leading provider of a broad range of communication
and electronic systems and products used on military and commercial platforms.
The company reported 2013 sales of $12.6 billion.

To learn more about L-3, please visit the company’s website at www.L-3com.com.
L-3 uses its website as a channel of distribution of material company
information. Financial and other material information regarding L-3 is
routinely posted on the company’s website and is readily accessible.

Forward-Looking Statements

Certain of the matters discussed in this press release, including information
regarding the company’s 2014 financial outlook 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,” ‘‘expects,’’
‘‘anticipates,’’ ‘‘intends,’’ ‘‘plans,’’ ‘‘believes,’’ ‘‘estimates,’’ and
similar expressions are used to identify forward-looking statements. The
company cautions investors that these statements are subject to risks and
uncertainties many of which are difficult to predict and generally beyond the
company’s control that could cause actual results to differ materially from
those expressed in, or implied or projected by, the forward-looking
information and statements. Some of the factors that could cause actual
results to differ include, but are not limited to, the following: our
dependence on the defense industry; backlog processing and program slips
resulting from delayed funding of the Department of Defense (DoD) budget; U.S.
Government failure to raise the debt ceiling; our reliance on contracts with a
limited number of customers and the possibility of termination of government
contracts by unilateral 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; our significant amount of
debt and the restrictions contained in our debt agreements; our ability to
continue to recruit, retain and train our employees; actual future interest
rates, volatility and other assumptions used in the determination of pension
benefits and equity based compensation, as well as the market performance of
benefit plan assets; our collective bargaining agreements, our ability to
successfully negotiate contracts with labor unions and our ability to
favorably resolve labor disputes should they arise; the business, economic and
political conditions in the markets in which we operate; global economic
uncertainty; the DoD’s in-sourcing and efficiency initiatives; events beyond
our control such as acts of terrorism; our ability to perform contracts on
schedule; our international operations; our extensive use of fixed-price type
contracts; the rapid change of technology and high level of competition 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; results of audits by U.S.
Government agencies and of on-going governmental investigations; the impact on
our business of improper conduct by our employees, agents or business
partners; ultimate resolution of contingent matters, claims and investigations
relating to acquired businesses, and the impact on the final purchase price
allocations; and the fair values of our assets.

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 annual report on Form 10-K for the year ended December 31,
2013, 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.

Table A

L-3 COMMUNICATIONS HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

                                                   First Quarter Ended^(a)
                                                     March 28,      March 29,
                                                                 
                                                     2014           2013
Net sales                                            $ 2,971        $ 3,185
Cost of sales                                         (2,664 )      (2,872 )
Operating income                                       307            313
                                                                    
Interest expense                                       (43    )       (43    )
Interest and other income, net                        3            3      
Income before income taxes                             267            273
Provision for income taxes                            (85    )      (79    )
Net income                                           $ 182          $ 194
Net income attributable to noncontrolling             (2     )      (1     )
interests
Net income attributable to L-3                       $ 180         $ 193    
Earnings per share attributable to L-3 Holdings’
common shareholders:
Basic                                                $ 2.09        $ 2.14   
Diluted                                              $ 2.01        $ 2.11   
                                                                    
L-3 Holdings’ weighted average common shares
outstanding:
Basic                                                 86.1         90.3   
Diluted                                               89.4         91.5   

____________________
        It is the company’s established practice to close its books for the
        quarters ending March, June and September on the Friday nearest to the
^(a)   end of the calendar quarter. The interim financial statements and
        tables of financial information included herein have been prepared and
        are labeled based on that convention. The company closes its annual
        books on December 31 regardless of what day it falls on.
        

Table B

L-3 COMMUNICATIONS HOLDINGS, INC.

UNAUDITED SELECT FINANCIAL DATA

(in millions)

                                 First Quarter Ended
                                   March 28,      March 29,
                                               
                                   2014           2013
Segment operating data
Net sales:
Aerospace Systems                  $ 1,082        $ 1,186
Electronic Systems                   1,082          1,111
Communication Systems                503            558
NSS                                 304          330    
Total                              $ 2,971       $ 3,185  
Operating income:
Aerospace Systems                  $ 114          $ 140
Electronic Systems                   125            117
Communication Systems                50             35
NSS                                 18           21     
Total                              $ 307         $ 313    
Operating margin:
Aerospace Systems                    10.5   %       11.8   %
Electronic Systems                   11.6   %       10.5   %
Communication Systems                9.9    %       6.3    %
NSS                                  5.9    %       6.4    %
Total                                10.3   %       9.8    %
Depreciation and amortization:
Aerospace Systems                  $ 10           $ 9
Electronic Systems                   29             30
Communication Systems                12             12
NSS                                 3            3      
Total                              $ 54          $ 54     
Funded order data
Aerospace Systems                  $ 1,043        $ 1,009
Electronic Systems                   1,099          1,093
Communication Systems                483            470
NSS                                 367          292    
Total                              $ 2,992       $ 2,864  
                                                  
                                   March 28,      Dec. 31,
                                   2014           2013
Period end data
Funded backlog                     $ 10,358       $ 10,316
                                                  

Table C

L-3 COMMUNICATIONS HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED

BALANCE SHEETS

(in millions)

                                                        March 28,     Dec. 31,
                                                                 
                                                        2014          2013
ASSETS
                                                                      
Cash and cash equivalents                               $  227        $ 500
Billed receivables, net                                    1,093        1,015
Contracts in process                                       2,763        2,524
Inventories                                                375          359
Deferred income taxes                                      118          122
Other current assets                                      126         129
Total current assets                                      4,702       4,649
Property, plant and equipment, net                         1,028        1,039
Goodwill                                                   7,821        7,796
Identifiable intangible assets                             283          285
Deferred debt issue costs                                  23           24
Other assets                                              208         216
Total assets                                            $  14,065     $ 14,009
                                                                      
LIABILITIES AND EQUITY
                                                                      
Accounts payable, trade                                 $  590        $ 541
Accrued employment costs                                   538          543
Accrued expenses                                           403          455
Advance payments and billings in excess of costs           523          570
incurred
Income taxes                                               22           31
Other current liabilities                                 380         383
Total current liabilities                                 2,456       2,523
Pension and postretirement benefits                        729          727
Deferred income taxes                                      679          635
Other liabilities                                          382          396
Long-term debt                                            3,631       3,630
Total liabilities                                         7,877       7,911
Shareholders’ equity                                       6,113        6,023
Noncontrolling interests                                  75          75
Total equity                                              6,188       6,098
Total liabilities and equity                            $  14,065     $ 14,009
                                                                        

Table D

L-3 COMMUNICATIONS HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED

STATEMENTS OF CASH FLOWS

(in millions)
                                                    
                                                       First Quarter Ended
                                                       March 28,     March 29,
                                                                  
                                                       2014          2013
Operating activities
Net income                                             $  182        $  194
Depreciation of property, plant and equipment             42            42
Amortization of intangibles and other assets              12            12
Deferred income tax provision                             22            19
Stock-based employee compensation expense                 15            14
Contributions to employee savings plans in L-3            44            32
Holdings’ common stock
Amortization of pension and postretirement benefit        4             22
plans net loss and prior service cost
Amortization of bond discounts and deferred debt          2             2
issue costs (included in interest expense)
Other non-cash items                                      1             3
Changes in operating assets and liabilities,
excluding amounts from acquisitions and
divestitures:
Billed receivables                                        (74  )        (146 )
Contracts in process                                      (236 )        (145 )
Inventories                                               (16  )        8
Other assets                                              (4   )        49
Accounts payable, trade                                   49            105
Accrued employment costs                                  (12  )        13
Accrued expenses                                          (49  )        (41  )
Advance payments and billings in excess of costs          (46  )        (37  )
incurred
Income taxes                                              38            51
Excess income tax benefits related to share-based         (14  )        (2   )
payment arrangements
Other current liabilities                                 (8   )        4
Pension and postretirement benefits                       (2   )        4
All other operating activities                           (12  )       (57  )
Net cash (used in) from operating activities             (62  )       146  
Investing activities
Business acquisitions, net of cash acquired               (57  )     ―
Capital expenditures                                      (30  )        (49  )
Dispositions of property, plant and equipment             1             1
Other investing activities                             ―             (6   )
Net cash used in investing activities                    (86  )       (54  )
Financing activities
Borrowings under revolving credit facility                524           477
Repayment of borrowings under revolving credit            (524 )        (477 )
facility
Common stock repurchased                                  (133 )        (122 )
Dividends paid on L-3 Holdings’ common stock              (55  )        (52  )
Proceeds from exercises of stock options                  69            18
Proceeds from employee stock purchase plan                9             9
Excess income tax benefits related to share-based         14            2
payment arrangements
Other financing activities                               (28  )       (13  )
Net cash used in financing activities                    (124 )       (158 )
Effect of foreign currency exchange rate changes         (1   )       (7   )
on cash and cash equivalents
Net decrease in cash and cash equivalents                 (273 )        (73  )
Cash and cash equivalents, beginning of the period       500         349  
Cash and cash equivalents, end of the period           $  227       $  276  
                                                                             

Table E

L-3 COMMUNICATIONS HOLDINGS, INC.

UNAUDITED SUPPLEMENTAL SEGMENT DATA

FOR THE QUARTERLY PERIODS ENDED MARCH 29, JUNE 28,

SEPTEMBER 27, AND DECEMBER 31, 2013

(in millions)

                Previous Presentation                          Re-Alignments                                  Revised Presentation
                  Q1         Q2         Q3         Q4          Q1         Q2         Q3         Q4          Q1         Q2         Q3         Q4
Net sales:
                                                                                                                                                      
Aerospace         $ ―     $―     $―     $―     $ 1,186     $ 1,133     $ 1,084     $ 1,158     $ 1,186     $ 1,133     $ 1,084     $ 1,158
Systems
Electronic          1,350       1,357       1,333       1,484       (239  )     (229  )     (221  )     (230  )     1,111       1,128       1,112       1,254
Systems
Communication     ―    ―    ―    ―      558         599         477         534         558         599         477         534
Systems
NSS                 330         332         323         310       ―    ―    ―    ―      330         332         323         310
C^3ISR              888         883         750         846         (888  )     (883  )     (750  )     (846  )   ―    ―    ―    ―
P&LS               617       620       590       616       (617  )    (620  )    (590  )    (616  )   ―    ―    ―    ―
Consolidated      $ 3,185    $ 3,192    $ 2,996    $ 3,256    $ —        $ —        $ —        $ —        $ 3,185    $ 3,192    $ 2,996    $ 3,256 
                                                                                                                                                      
Operating
Income:
                                                                                                                                                      
Aerospace         $―     $―     $―     $―     $ 140       $ 121       $ 114       $ 107       $ 140       $ 121       $ 114       $ 107
Systems
Electronic          144         151         173         177         (27   )     (24   )     (30   )     (31   )     117         127         143         146
Systems
Communication     ―    ―    ―    ―      35          40          31          52          35          40          31          52
Systems
NSS                 21          19          26          19        ―    ―    ―    ―      21          19          26          19
C^3ISR              91          70          63          77          (91   )     (70   )     (63   )     (77   )   ―    ―    ―    ―
P&LS               57        67        52        51        (57   )    (67   )    (52   )    (51   )   ―    ―    ―    ―
Consolidated      $ 313      $ 307      $ 314      $ 324      $ —        $ —        $ —        $ —        $ 313      $ 307      $ 314      $ 324   
                                                                                                                                                      
Operating
Margin:
                                                                                                                                                      
Aerospace         ―    ―    ―    ―                                                      11.8  %     10.7  %     10.5  %     9.2   %
Systems
Electronic          10.7  %     11.1  %     13.0  %     11.9  %                                                     10.5  %     11.3  %     12.9  %     11.6  %
Systems
Communication     ―    ―    ―    ―                                                      6.3   %     6.7   %     6.5   %     9.7   %
Systems
NSS                 6.4   %     5.7   %     8.0   %     6.1   %                                                     6.4   %     5.7   %     8.0   %     6.1   %
C^3ISR              10.2  %     7.9   %     8.4   %     9.1   %                                                   ―    ―    ―    ―
P&LS                9.2   %     10.8  %     8.8   %     8.3   %                                                   ―    ―    ―    ―
Consolidated        9.8   %     9.6   %     10.5  %     10.0  %                                                     9.8   %     9.6   %     10.5  %     10.0  %
                                                                                                                                                      

Table F

L-3 COMMUNICATIONS HOLDINGS, INC.

UNAUDITED SUPPLEMENTAL SEGMENT DATA

FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 AND 2011

(in millions)

                Previous Presentation                  Re-Alignments                         Revised Presentation
                   2013      2012      2011        2013      2012      2011       2013      2012      2011   
Net sales:
                                                                                                                           
Aerospace         $ ―     $ ―     $  ―      $ 4,561      $ 4,627      $ 4,433      $ 4,561      $ 4,627      $ 4,433
Systems
Electronic          5,524        5,677        5,628         (919   )     (1,053 )     (952   )     4,605        4,624        4,676
Systems
Communication     ―    ―    ―       2,168        2,510        2,439        2,168        2,510        2,439
Systems
NSS                 1,295        1,385        1,610       ―    ―    ―      1,295        1,385        1,610
C^3ISR              3,367        3,601        3,480         (3,367 )     (3,601 )     (3,480 )   ―    ―    ―
P&LS               2,443      2,483      2,440       (2,443 )    (2,483 )    (2,440 )   ―    ―    ―
Consolidated      $ 12,629    $ 13,146    $ 13,158     $ —         $ —         $ —         $ 12,629    $ 13,146    $ 13,158 
                                                                                                                           
Operating
Income:
                                                                                                                           
Aerospace         $  ―     $―     $ ―      $ 482        $ 466        $ 456        $ 482        $ 466        $ 456
Systems
Electronic          645          672          719           (112   )     (99    )     (99    )     533          573          620
Systems
Communication     ―    ―    ―       158          233          265          158          233          265
Systems
NSS                 85           79           101         ―    ―    ―      85           79           101
C^3ISR              301          364          394           (301   )     (364   )     (394   )   ―    ―    ―
P&LS               227        236        228         (227   )    (236   )    (228   )   ―    ―    ―
Segment
Operating         $ 1,258     $ 1,351     $ 1,442      $ —         $ —         $ —         $ 1,258     $ 1,351     $ 1,442  
Income
Goodwill
Impairment        ―    ―     (43    )                                           ―    ―     (43    )
Charge
Consolidated      $ 1,258     $ 1,351     $ 1,399                                             $ 1,258     $ 1,351     $ 1,399  
                                                                                                                           
Operating
Margin:
                                                                                                                           
Aerospace         ―    ―    ―                                              10.6   %     10.1   %     10.3   %
Systems
Electronic          11.7   %     11.8   %     12.8   %                                             11.6   %     12.4   %     13.3   %
Systems
Communication     ―    ―    ―                                              7.3    %     9.3    %     10.9   %
Systems
NSS                 6.6    %     5.7    %     6.2    %                                             6.6    %     5.7    %     6.2    %
C^3ISR              8.9    %     10.1   %     11.3   %                                           ―    ―    ―
P&LS                9.3    %     9.5    %     9.4    %                                           ―    ―    ―
Segment
Operating           10.0   %     10.3   %     11.0   %                                             10.0   %     10.3   %     11.0   %
Margin
Goodwill
Impairment        ―%           ―%            (0.4   )%                                          ―%           ―%            (0.4   )%
Charge
Consolidated       10.0   %    10.3   %    10.6   %                                            10.0   %    10.3   %    10.6   %

Contact:

L-3 Communications Holdings, Inc.
Corporate Communications, 212-697-1111
 
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