e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 10-Q
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended September 25,
2009
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission
file numbers 001-14141 and 333-46983
L-3 COMMUNICATIONS HOLDINGS,
INC.
L-3 COMMUNICATIONS
CORPORATION
(Exact names of registrants as
specified in their charters)
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Delaware
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13-3937434 and 13-3937436
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(State or other jurisdiction of incorporation or organization)
600 Third Avenue, New York, NY (Address of principal executive offices)
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(I.R.S. Employer Identification Nos.)
10016 (Zip Code)
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(212) 697-1111
(Telephone
number)
Indicate by check mark whether the registrants (1) have
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and
(2) have been subject to such filing requirements for the
past
90 days. x
Yes o No
Indicate by check mark whether the registrants have submitted
electronically and posted on their corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrants
were required to submit and post such
files). x Yes o No
Indicate by check mark whether the registrants are large
accelerated filers, accelerated filers, non-accelerated filers,
or smaller reporting companies. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act.
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Large
accelerated
filer x
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrants are shell
companies (as defined in
Rule 12b-2
of the
Act). o Yes x No
There were 116,225,477 shares of L-3 Communications
Holdings, Inc. common stock with a par value of $0.01
outstanding as of the close of business on October 30, 2009.
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
INDEX TO QUARTERLY REPORT ON
FORM 10-Q
For the quarterly period ended September 25, 2009
PART I
FINANCIAL INFORMATION
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ITEM 1.
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FINANCIAL
STATEMENTS
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L-3 COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
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September 25,
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December 31,
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2009
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2008
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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1,191
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$
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867
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Billed receivables, net of allowances, of $33 in 2009 and $26 in
2008
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1,270
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1,226
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Contracts in process
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2,398
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2,267
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Inventories
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258
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259
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Deferred income taxes
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169
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211
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Other current assets
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127
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131
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Total current assets
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5,413
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4,961
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Property, plant and equipment, net
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838
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821
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Goodwill
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8,188
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8,029
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Identifiable intangible assets
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390
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417
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Deferred debt issue costs
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35
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44
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Other assets
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204
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212
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Total assets
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$
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15,068
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$
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14,484
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LIABILITIES AND EQUITY
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Current liabilities:
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Current portion of long-term debt
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$
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650
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$
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Accounts payable, trade
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593
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602
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Accrued employment costs
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674
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700
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Accrued expenses
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525
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479
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Advance payments and billings in excess of costs incurred
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499
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530
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Income taxes
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30
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45
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Other current liabilities
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336
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351
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Total current liabilities
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3,307
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2,707
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Pension and postretirement benefits
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844
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802
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Deferred income taxes
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179
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127
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Other liabilities
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424
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414
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Long-term debt
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3,860
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4,493
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Total liabilities
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8,614
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8,543
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Commitments and contingencies (see Note 16)
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Equity:
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L-3 shareholders equity:
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L-3 Communications Holdings, Inc.s common stock:
$.01 par value; 300,000,000 shares authorized,
116,136,178 shares outstanding at September 25, 2009
and 118,633,746 shares outstanding at December 31,
2008 (L-3 Communications Corporations common stock:
$.01 par value, 100 shares authorized, issued and
outstanding)
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4,345
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4,136
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L-3 Communications Holdings, Inc.s treasury stock at cost,
19,633,649 shares at September 25, 2009 and
13,995,450 shares at December 31, 2008
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(1,715
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)
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(1,319
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)
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Retained earnings
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3,922
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3,373
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Accumulated other comprehensive loss
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(190
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)
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(332
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)
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Total L-3 shareholders equity
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6,362
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5,858
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Noncontrolling interests
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92
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83
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Total equity
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6,454
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5,941
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Total liabilities and equity
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$
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15,068
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$
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14,484
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See notes to unaudited condensed consolidated financial
statements.
1
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
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Third Quarter Ended
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September 25,
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September 26,
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2009
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2008
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Net sales:
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Products
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$
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1,810
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$
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1,752
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Services
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2,032
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1,910
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Total net sales
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3,842
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3,662
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Cost of sales:
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Products
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1,586
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1,561
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Services
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1,838
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1,701
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Total cost of sales
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3,424
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3,262
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Operating income
|
|
|
418
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|
400
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Interest and other income, net
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|
3
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|
|
|
7
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Interest expense
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68
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72
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|
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Income before income taxes
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353
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|
335
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Provision for income taxes
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|
100
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|
|
123
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|
|
|
|
|
|
|
|
|
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Net income
|
|
$
|
253
|
|
|
$
|
212
|
|
Less: Net income attributable to noncontrolling interests
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|
3
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|
|
2
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|
|
|
|
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|
|
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Net income attributable to L-3
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$
|
250
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$
|
210
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Less: Net income allocable to participating securities
|
|
|
2
|
|
|
|
3
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|
|
|
|
|
|
|
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Net income allocable to L-3 Communications Holdings, Inc.s
common shareholders
|
|
$
|
248
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|
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$
|
207
|
|
|
|
|
|
|
|
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|
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L-3 Communications Holdings, Inc.s earnings per common
share:
|
|
|
|
|
|
|
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Basic
|
|
$
|
2.13
|
|
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$
|
1.71
|
|
|
|
|
|
|
|
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Diluted
|
|
$
|
2.12
|
|
|
$
|
1.70
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|
|
|
|
|
|
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|
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L-3 Communications Holdings, Inc.s weighted average common
shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
116.4
|
|
|
|
121.0
|
|
|
|
|
|
|
|
|
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Diluted
|
|
|
117.0
|
|
|
|
122.0
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial
statements.
2
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
Year-to-Date Ended
|
|
|
|
September 25,
|
|
|
September 26,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
5,456
|
|
|
$
|
5,120
|
|
Services
|
|
|
5,951
|
|
|
|
5,770
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
|
11,407
|
|
|
|
10,890
|
|
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
Products
|
|
|
4,842
|
|
|
|
4,588
|
|
Services
|
|
|
5,354
|
|
|
|
5,159
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
|
10,196
|
|
|
|
9,747
|
|
|
|
|
|
|
|
|
|
|
Litigation Gain
|
|
|
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,211
|
|
|
|
1,269
|
|
Interest and other income, net
|
|
|
12
|
|
|
|
22
|
|
Interest expense
|
|
|
203
|
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,020
|
|
|
|
1,077
|
|
Provision for income taxes
|
|
|
339
|
|
|
|
395
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
681
|
|
|
$
|
682
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
7
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to L-3
|
|
$
|
674
|
|
|
$
|
674
|
|
Less: Net income allocable to participating securities
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to L-3 Communications Holdings, Inc.s
common shareholders
|
|
$
|
668
|
|
|
$
|
668
|
|
|
|
|
|
|
|
|
|
|
L-3 Communications Holdings, Inc.s earnings per common
share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
5.70
|
|
|
$
|
5.48
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
5.68
|
|
|
$
|
5.42
|
|
|
|
|
|
|
|
|
|
|
L-3 Communications Holdings, Inc.s weighted average common
shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
117.1
|
|
|
|
121.8
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
117.6
|
|
|
|
123.2
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial
statements.
3
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L-3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings, Inc.s
|
|
|
|
|
|
|
|
|
|
|
|
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
Year-to-Date
ended September 25, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
118.6
|
|
|
$
|
1
|
|
|
$
|
4,135
|
|
|
$
|
(1,319
|
)
|
|
$
|
3,373
|
|
|
$
|
(332
|
)
|
|
$
|
83
|
|
|
$
|
5,941
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
674
|
|
|
|
|
|
|
|
7
|
|
|
|
681
|
|
Pension and postretirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net loss and prior service cost previously
recognized, net of income taxes of $16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
23
|
|
Unrealized gain on hedging instruments, net of income taxes of $1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116
|
|
|
|
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
823
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(6
|
)
|
Cash dividends paid on common stock ($1.05 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(124
|
)
|
|
|
|
|
|
|
|
|
|
|
(124
|
)
|
Recognition of non-controlling interest in consolidated
subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
8
|
|
Shares issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee savings plans
|
|
|
1.6
|
|
|
|
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
Exercise of stock options
|
|
|
0.3
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
Employee stock purchase plan
|
|
|
1.1
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
Treasury stock purchased
|
|
|
(5.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(396
|
)
|
Other
|
|
|
0.1
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 25, 2009
|
|
|
116.1
|
|
|
$
|
1
|
|
|
$
|
4,344
|
|
|
$
|
(1,715
|
)
|
|
$
|
3,922
|
|
|
$
|
(190
|
)
|
|
$
|
92
|
|
|
$
|
6,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
Year-to-Date
ended
September 26, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
124.2
|
|
|
$
|
1
|
|
|
$
|
3,816
|
|
|
$
|
(525
|
)
|
|
$
|
2,582
|
|
|
$
|
153
|
|
|
$
|
87
|
|
|
$
|
6,114
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
674
|
|
|
|
|
|
|
|
8
|
|
|
|
682
|
|
Pension and postretirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net loss and prior service cost previously
recognized, net of income taxes of $1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Unrealized gain on hedging instruments, net of income taxes of $2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(54
|
)
|
|
|
|
|
|
|
(54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
634
|
|
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
(8
|
)
|
Cash dividends paid on common stock
($0.90 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
|
(111
|
)
|
Shares issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee savings plans
|
|
|
1.0
|
|
|
|
|
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108
|
|
Exercise of stock options
|
|
|
0.7
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
Employee stock purchase plan
|
|
|
0.8
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
|
|
Treasury stock purchased
|
|
|
(5.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(573
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 26, 2008
|
|
|
121.1
|
|
|
$
|
1
|
|
|
$
|
4,052
|
|
|
$
|
(1,098
|
)
|
|
$
|
3,145
|
|
|
$
|
105
|
|
|
$
|
87
|
|
|
$
|
6,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial
statements.
4
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
|
|
|
|
|
|
|
|
|
|
|
Year-to-Date Ended
|
|
|
|
September 25,
|
|
|
September 26,
|
|
|
|
2009
|
|
|
2008
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
681
|
|
|
$
|
682
|
|
Depreciation of property, plant and equipment
|
|
|
117
|
|
|
|
114
|
|
Amortization of intangibles and other assets
|
|
|
45
|
|
|
|
41
|
|
Deferred income tax provision
|
|
|
36
|
|
|
|
143
|
|
Stock-based employee compensation expense
|
|
|
53
|
|
|
|
48
|
|
Contributions to employee savings plans in L-3 Communications
Holdings, Inc.s common stock
|
|
|
110
|
|
|
|
108
|
|
Amortization of pension and postretirement benefit plans net
loss and prior service cost
|
|
|
39
|
|
|
|
3
|
|
Amortization of bond discounts (included in interest expense)
|
|
|
17
|
|
|
|
15
|
|
Amortization of deferred debt issue costs (included in interest
expense)
|
|
|
8
|
|
|
|
8
|
|
Impairment charge
|
|
|
|
|
|
|
28
|
|
Gain on sale of a product line
|
|
|
|
|
|
|
(12
|
)
|
Other non-cash items
|
|
|
(2
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
1,104
|
|
|
|
1,172
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities, excluding acquired
amounts:
|
|
|
|
|
|
|
|
|
Billed receivables
|
|
|
(18
|
)
|
|
|
(2
|
)
|
Contracts in process
|
|
|
(98
|
)
|
|
|
(161
|
)
|
Inventories
|
|
|
(3
|
)
|
|
|
(32
|
)
|
Other assets
|
|
|
|
|
|
|
(31
|
)
|
Accounts payable, trade
|
|
|
10
|
|
|
|
171
|
|
Accrued employment costs
|
|
|
(44
|
)
|
|
|
(23
|
)
|
Accrued expenses
|
|
|
1
|
|
|
|
30
|
|
Advance payments and billings in excess of costs incurred
|
|
|
(35
|
)
|
|
|
71
|
|
Income taxes
|
|
|
32
|
|
|
|
(10
|
)
|
Excess income tax benefits related to share-based payment
arrangements
|
|
|
(3
|
)
|
|
|
(10
|
)
|
Other current liabilities
|
|
|
(20
|
)
|
|
|
(143
|
)
|
Pension and postretirement benefits
|
|
|
40
|
|
|
|
17
|
|
All other operating activities
|
|
|
12
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(126
|
)
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
|
978
|
|
|
|
1,031
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Business acquisitions, net of cash acquired
|
|
|
(86
|
)
|
|
|
(224
|
)
|
Proceeds from sale of product lines
|
|
|
|
|
|
|
12
|
|
Capital expenditures
|
|
|
(128
|
)
|
|
|
(139
|
)
|
Dispositions of property, plant and equipment
|
|
|
3
|
|
|
|
5
|
|
Other investing activities
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(211
|
)
|
|
|
(352
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Common stock repurchased
|
|
|
(396
|
)
|
|
|
(573
|
)
|
Dividends paid on L-3 Communications Holdings, Inc.s
common stock
|
|
|
(124
|
)
|
|
|
(111
|
)
|
Proceeds from exercise of stock options
|
|
|
11
|
|
|
|
38
|
|
Proceeds from employee stock purchase plan
|
|
|
51
|
|
|
|
52
|
|
Excess income tax benefits related to share-based payment
arrangements
|
|
|
3
|
|
|
|
10
|
|
Other financing activities
|
|
|
(9
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(464
|
)
|
|
|
(595
|
)
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange rate changes on cash and
cash equivalents
|
|
|
21
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
324
|
|
|
|
77
|
|
Cash and cash equivalents, beginning of the period
|
|
|
867
|
|
|
|
780
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period
|
|
$
|
1,191
|
|
|
$
|
857
|
|
|
|
|
|
|
|
|
|
|
See notes to unaudited condensed consolidated financial
statements.
5
|
|
1.
|
Description
of Business
|
L-3 Communications Holdings, Inc. derives all of its operating
income and cash flows from its wholly-owned subsidiary, L-3
Communications Corporation (L-3 Communications). L-3
Communications Holdings, Inc. (L-3 Holdings and, together with
its subsidiaries, referred to herein as L-3 or the Company) is a
prime system contractor in aircraft modernization and
maintenance, Command, Control, Communications, Intelligence,
Surveillance and Reconnaissance
(C3ISR)
systems, and government services. L-3 is also a leading provider
of high technology products, subsystems and systems. The
Companys customers include the U.S. Department of
Defense (DoD) and its prime contractors, U.S. Government
intelligence agencies, the U.S. Department of Homeland
Security (DHS), U.S. Department of State (DoS),
U.S. Department of Justice (DoJ), allied foreign
governments, domestic and foreign commercial customers and
select other U.S. federal, state and local government
agencies.
The Company has the following four reportable segments:
(1) C3ISR,
(2) Government Services, (3) Aircraft Modernization
and Maintenance (AM&M), and (4) Specialized Products.
Financial information with respect to each of the Companys
reportable segments is included in Note 20.
C3ISR
provides products and services for the global ISR market,
C3
systems, networked communications systems and secure
communications products. The Company believes that these
products and services are critical elements for a substantial
number of major command, control and communication, intelligence
gathering and space systems. These products and services are
used to connect a variety of airborne, space, ground and
sea-based communication systems and are used in the
transmission, processing, recording, monitoring, and
dissemination functions of these communication systems.
Government Services provides a full range of engineering,
technical, information technology (IT), advisory, training and
support services to the DoD, DoS, DoJ, and U.S. Government
intelligence agencies and allied foreign governments. AM&M
provides modernization, upgrades and sustainment, maintenance
and logistics support services for military and various
government aircraft and other platforms. The Company sells these
services primarily to the DoD, the Canadian Department of
Defense (DND) and other allied foreign governments. Specialized
Products provides a broad range of products, including
components, products, subsystems, systems, and related services
to military and commercial customers in several niche markets
across several business areas, including power &
control systems, electro-optic/infrared (EO/IR), microwave,
simulation & training, precision engagement, aviation
products, security & detection, propulsion systems,
displays, telemetry & advanced technology, undersea
warfare, and marine services.
These unaudited condensed consolidated financial statements for
the quarterly period and
year-to-date
period ended September 25, 2009 should be read in
conjunction with the audited consolidated financial statements
of L-3 Holdings and L-3 Communications included in their Annual
Report on
Form 10-K
for the fiscal year ended December 31, 2008.
The Company adopted eight new accounting standards during the
year-to-date
period ended September 25, 2009, six of which were
effective January 1, 2009. In accordance with the
transition and disclosure provisions of three of these
standards, the Company retrospectively applied those provisions
and adjusted the prior period financial statements accordingly.
See Note 3 for the standards adopted and their impact to
the Companys financial position and results of operations.
The accompanying financial statements comprise the consolidated
financial statements of L-3 Holdings and L-3 Communications. L-3
Holdings only asset is its investment in the common stock
of L-3 Communications, its wholly-owned subsidiary, and its only
obligations are: (1) the 3% Convertible Contingent
Debt Securities (CODES) due 2035, which were issued by L-3
Holdings on July 29, 2005, (2) its guarantee of
borrowings under the senior credit facility of L-3
Communications and (3) its guarantee of other contractual
obligations of L-3 Communications and its subsidiaries. L-3
Holdings obligations relating to the CODES have been
jointly, severally, fully and
6
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
unconditionally guaranteed by L-3 Communications and certain of
its wholly-owned domestic subsidiaries. Accordingly, such debt
has been reflected as debt of L-3 Communications in its
consolidated financial statements in accordance with the
U.S. Securities and Exchange Commissions (SEC) Staff
Accounting Bulletin (SAB) No. 54. All issuances of and
conversions into L-3 Holdings equity securities, including
grants of stock options, restricted stock, restricted stock
units and performance units by L-3 Holdings to employees and
directors of L-3 Communications and its subsidiaries, have been
reflected in the consolidated financial statements of L-3
Communications. As a result, the consolidated financial
positions, results of operations and cash flows of L-3 Holdings
and L-3 Communications are substantially the same. See
Note 22 for additional information regarding the unaudited
financial information of L-3 Communications and its subsidiaries.
The unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally
accepted in the United States of America (U.S. GAAP) for
interim financial information and in accordance with the
instructions to
Form 10-Q
and Article 10 of
Regulation S-X
of the SEC. Accordingly, they do not include all of the
disclosures required by U.S. GAAP for a complete set of
annual audited financial statements. In the opinion of
management, all adjustments (consisting of normal and recurring
adjustments) considered necessary for a fair presentation of the
results for the interim periods presented have been included.
The results of operations for the interim periods are not
necessarily indicative of results for the full year.
Certain reclassifications have been made to conform prior year
amounts to the current year presentation.
It is the Companys established practice to close its books
for the quarters ending March, June and September on the Friday
nearest to the end of the calendar quarter. The interim
unaudited condensed consolidated financial statements 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.
The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of sales and costs of sales during the reporting period. The
most significant of these estimates and assumptions relate to
contract revenue, profit and loss recognition, fair values of
assets acquired and liabilities assumed in business
combinations, market values for inventories reported at lower of
cost or market, pension and post-retirement benefit obligations,
stock-based employee compensation expense, income taxes,
including the valuations of deferred tax assets, litigation
reserves and environmental obligations, accrued product warranty
costs, and the recoverability, useful lives and valuation of
recorded amounts of long-lived assets, identifiable intangible
assets and goodwill. Changes in estimates are reflected in the
periods during which they become known. Actual amounts will
differ from these estimates and could differ materially. For a
more complete discussion of these estimates and assumptions, see
the Annual Report of L-3 Holdings and L-3 Communications on
Form 10-K
for the fiscal year ended December 31, 2008.
During the quarter ended March 27, 2009, the Company
revised its reportable segment presentations to conform to
certain re-alignments in the Companys management and
organization structure. Consequently, the Company made certain
reclassifications between its
C3ISR,
Government Services, and AM&M reportable segments. See
Note 20 for the prior period amounts reclassified between
reportable segments.
7
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
3.
|
New
Accounting Standards Implemented
|
In June 2009, the Financial Accounting Standards Board (FASB)
issued the FASB Accounting Standards Codifications
(Codification). The Codification has become the single source
for all authoritative U.S. GAAP recognized by the FASB,
does not change U.S. GAAP and did not impact the
Companys financial position, results of operations and
cash flows. All references to U.S. GAAP in this report are
in accordance with the Codification.
The Company adopted eight newly issued accounting standards
during the
year-to-date
period ended September 25, 2009. The following six
standards were effective January 1, 2009:
|
|
|
|
|
Accounting for convertible debt instruments that may be settled
in cash upon conversion (Convertible Debt). The new standard is
contained in FASB Accounting Standards Codification (ASC) Topic
470, Debt;
|
|
|
|
Determining whether instruments granted in share-based payment
transactions are participating securities (Participating
Securities). The new standard is contained in FASB ASC Topic
260, Earnings Per Share;
|
|
|
|
Noncontrolling interests in consolidated financial statements
(Noncontrolling Interests). The new standard is contained in
FASB ASC Topic 810, Consolidation;
|
|
|
|
Disclosures about derivative instruments and hedging activities
(Derivative Disclosures). The new standard is contained in FASB
ASC Topic 815, Derivatives and Hedging;
|
|
|
|
Business combinations (Business Combinations). The new standard
is contained in FASB ASC Topic 805, Business Combinations;
and
|
|
|
|
Fair value measurements and disclosures (Fair Value
Measurements). The new standard is contained in FASB ASC Topic
820, Fair Value Measurements and Disclosures.
|
For the impact of the adoption of the newly issued standards for
Convertible Debt, Participating Securities and Noncontrolling
Interests on the Companys: (1) Condensed Consolidated
Balance Sheet, at December 31, 2008, (2) Consolidated
Equity Account Balances, at December 31, 2007, and
(3) Condensed Consolidated Statements of Operations for the
quarter and
year-to-date
periods ended September 26, 2008, see
pages 11-13.
The adoption of the new accounting standards for Derivative
Disclosures, Business Combinations and Fair Value Measurements
did not have a material impact on the Companys prior
period financial statements.
Convertible Debt: In accordance with the provisions
of the newly issued standard for convertible debt, the Company
is separately accounting for the liability and equity
(conversion option) components of the CODES in a manner that
reflects the Companys non-convertible debt borrowing rate
when interest expense is recognized. Previously, the CODES were
recorded at maturity value. The Convertible Debt standard does
not apply to the Companys other outstanding debt
instruments because they are not convertible debt instruments
within its scope. The Company has retrospectively applied the
provisions of this standard and adjusted the prior period
financial statements accordingly.
8
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The following table presents the impact of the provisions of the
Convertible Debt standard on the Statements of Operations for
the quarter and
year-to-date
period ended September 25, 2009.
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended
|
|
|
Year-to-Date Ended
|
|
|
|
September 25, 2009
|
|
|
September 25, 2009
|
|
|
|
(in millions, except per share data)
|
|
|
Interest expense
|
|
$
|
5
|
|
|
$
|
15
|
|
Provision for income taxes
|
|
|
(2
|
)
|
|
|
(6
|
)
|
Net income attributable to L-3
|
|
|
(3
|
)
|
|
|
(9
|
)
|
L-3 Holdings earnings per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.03
|
)
|
|
$
|
(0.08
|
)
|
Diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.08
|
)
|
Participating Securities: In accordance with the
provisions of the newly issued standard for participating
securities, the Company is including the impact of restricted
stock and restricted stock units that are entitled to receive
non-forfeitable dividends when calculating both basic EPS and
diluted EPS. The Company has retrospectively applied the
provisions of this standard and adjusted the prior period
financial statements accordingly. The adoption of the provisions
of this standard decreased basic EPS by $0.02 and diluted EPS by
$0.01 for the quarter ended September 25, 2009 and
decreased basic EPS by $0.05 and diluted EPS by $0.02 for the
year-to-date
period ended September 25, 2009.
Noncontrolling Interests: The Company
retrospectively applied the presentation requirements of the
newly issued standard for noncontrolling interest by:
(1) reclassifying noncontrolling interests (minority
interests) to equity on the Companys balance sheets, and
(2) including net income attributable to noncontrolling
interests in net income on the Companys statements of
operations.
Derivative Disclosures: The enhanced disclosures for
derivative instruments and related hedging activities required
in accordance with the provisions of this standard can be found
in Note 15.
Business Combinations: The Company adopted the
provisions of the newly issued standard for business
combinations to its acquisition of Chesapeake Sciences
Corporation (CSC), which was completed on January 30, 2009.
See Note 4 for additional information regarding the CSC
acquisition. There were no other material business acquisitions
completed during the
year-to-date
period ended September 25, 2009. In accordance with the
provisions of this standard, the Company is: (1) expensing
transaction and restructuring costs, (2) recognizing and
measuring contingent consideration at fair value,
(3) measuring contingent assets and liabilities at fair
value, or in accordance with FASB ASC Topic 450,
Contingencies, as appropriate, and (4) capitalizing
in-process research and development. In addition, the difference
between the ultimate resolution and the amount recorded on the
balance sheet for acquired uncertain tax positions is recorded
through earnings. Previously, the difference would have been
recorded through goodwill. Other than the net reversal of
amounts previously accrued of $26 million disclosed in
Note 11, the adoption of this standard did not have a
material impact on the Companys financial position,
results of operations and cash flows for the quarter and
year-to-date
period ended September 25, 2009.
9
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Fair Value Measurements: The Company applied the
provisions of the standard for fair value measurements to
non-financial assets and non-financial liabilities not
recognized or disclosed at fair value in the financial
statements on a recurring basis. The effective date for
application of the provisions of this standard to all
non-financial assets and non-financial liabilities not
recognized or disclosed at fair value on a recurring basis was
previously delayed until January 1, 2009. The application
of the provisions of the fair value measurement standard had no
impact on the Companys financial position, results of
operations and cash flows as the Company did not have any
non-financial assets and non-financial liabilities that were
recognized or disclosed at fair value on a non-recurring basis
at September 25, 2009.
Effective June 26, 2009, the Company adopted the following
two new accounting standards:
|
|
|
|
|
Subsequent Events (Subsequent Events). The new standard is
contained in FASB ASC Topic 855, Subsequent
Events; and
|
|
|
|
Interim Disclosures about Fair Value of Financial Instruments
(Financial Instruments). The new standard is contained in FASB
ASC Topic 825, Financial Instruments.
|
Subsequent Events: The adoption of the provisions of
the newly issued standard for subsequent events requires the
Company to evaluate events after the balance sheet date and
disclose the date through which the evaluation is performed. The
Company has evaluated subsequent events through the time of
filing this
Form 10-Q
with the SEC on November 4, 2009.
Financial Instruments: The adoption of the
provisions of the newly issued standard for financial
instruments requires: (1) the fair value disclosures of an
entitys financial instruments for interim financial
statements, and (2) disclosures about the methods and
significant assumptions used to estimate the fair value of
financial instruments. See Note 15 for the disclosures
required by the provisions of the Financial Instruments standard.
10
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The tables below present the Companys As Previously
Reported and As Currently Reported: (1) Condensed
Consolidated Balance Sheet, at December 31, 2008,
(2) Consolidated Equity Account Balances, at
December 31, 2007, and (3) Condensed Consolidated
Statement of Operations, for the quarter and
year-to-date
period ended September 26, 2008, in each case to reflect
the adjustments made to adopt the provisions of the newly issued
standards for Noncontrolling Interests, Convertible Debt and
Participating Securities, as applicable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments for:
|
|
|
|
|
|
|
As Previously
|
|
|
Noncontrolling
|
|
|
Convertible
|
|
|
As Currently
|
|
|
|
Reported
|
|
|
Interests
|
|
|
Debt
|
|
|
Reported
|
|
|
|
(in millions)
|
|
|
Condensed Consolidated Balance Sheet, at December 31,
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
$
|
4,961
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,961
|
|
Property, plant and equipment, net
|
|
|
821
|
|
|
|
|
|
|
|
|
|
|
|
821
|
|
Goodwill
|
|
|
8,029
|
|
|
|
|
|
|
|
|
|
|
|
8,029
|
|
Identifiable intangible assets
|
|
|
417
|
|
|
|
|
|
|
|
|
|
|
|
417
|
|
Deferred debt issue costs
|
|
|
45
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
44
|
|
Other assets
|
|
|
212
|
|
|
|
|
|
|
|
|
|
|
|
212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
14,485
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
14,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
$
|
2,707
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,707
|
|
Pension and postretirement benefits
|
|
|
802
|
|
|
|
|
|
|
|
|
|
|
|
802
|
|
Deferred income taxes
|
|
|
110
|
|
|
|
|
|
|
|
17
|
|
|
|
127
|
|
Other liabilities
|
|
|
414
|
|
|
|
|
|
|
|
|
|
|
|
414
|
|
Long-term debt
|
|
|
4,538
|
|
|
|
|
|
|
|
(45
|
)
|
|
|
4,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
8,571
|
|
|
|
|
|
|
|
(28
|
)
|
|
|
8,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
83
|
|
|
|
(83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L-3 shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L-3 Communications Holdings Inc.s common stock
|
|
|
4,072
|
|
|
|
|
|
|
|
64
|
|
|
|
4,136
|
|
L-3 Communications Holdings Inc.s treasury stock at cost
|
|
|
(1,319
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,319
|
)
|
Retained earnings
|
|
|
3,410
|
|
|
|
|
|
|
|
(37
|
)
|
|
|
3,373
|
|
Accumulated other comprehensive loss
|
|
|
(332
|
)
|
|
|
|
|
|
|
|
|
|
|
(332
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total L-3 shareholders equity
|
|
|
5,831
|
|
|
|
|
|
|
|
27
|
|
|
|
5,858
|
|
Noncontrolling interests
|
|
|
|
|
|
|
83
|
|
|
|
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
5,831
|
|
|
|
83
|
|
|
|
27
|
|
|
|
5,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
14,485
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
14,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Equity Account Balances, at December 31,
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L-3 Communications Holdings Inc.s common stock, net of
treasury stock
|
|
$
|
3,228
|
|
|
$
|
|
|
|
$
|
64
|
|
|
$
|
3,292
|
|
Retained earnings
|
|
|
2,608
|
|
|
|
|
|
|
|
(26
|
)
|
|
|
2,582
|
|
Accumulated other comprehensive income
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
153
|
|
Noncontrolling interests
|
|
|
|
|
|
|
87
|
|
|
|
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
$
|
5,989
|
|
|
$
|
87
|
|
|
$
|
38
|
|
|
$
|
6,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments for:
|
|
|
|
|
|
|
As Previously
|
|
|
Noncontrolling
|
|
|
Participating
|
|
|
Convertible
|
|
|
As Currently
|
|
|
|
Reported
|
|
|
Interests
|
|
|
Securities
|
|
|
Debt
|
|
|
Reported
|
|
|
|
(in millions, except per share data)
|
|
|
Condensed Consolidated Statement of Operations, for the
quarter ended September 26, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
3,662
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,662
|
|
Cost of sales
|
|
|
3,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400
|
|
Interest and other income, net
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Interest expense
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
72
|
|
Minority interests in net income of consolidated subsidiaries
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
337
|
|
|
|
2
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
335
|
|
Provision for income taxes
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
212
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
212
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to L-3
|
|
$
|
212
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(2
|
)
|
|
$
|
210
|
|
Less: Net income allocable to participating securities
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to L-3 Communications Holdings, Inc.s
common shareholders
|
|
$
|
212
|
|
|
$
|
|
|
|
$
|
(3
|
)
|
|
$
|
(2
|
)
|
|
$
|
207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L-3 Communications Holdings, Inc.s earnings per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.75
|
|
|
$
|
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
1.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
1.73
|
|
|
$
|
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
1.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L-3 Communications Holdings, Inc.s weighted average common
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
121.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
122.6
|
|
|
|
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
122.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments for:
|
|
|
|
|
|
|
As Previously
|
|
|
Noncontrolling
|
|
|
Participating
|
|
|
Convertible
|
|
|
As Currently
|
|
|
|
Reported
|
|
|
Interests
|
|
|
Securities
|
|
|
Debt
|
|
|
Reported
|
|
|
|
(in millions, except per share data)
|
|
|
Condensed Consolidated Statement of Operations, for the
year-to-date
period ended September 26, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
10,890
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10,890
|
|
Cost of sales
|
|
|
9,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,747
|
|
Litigation Gain
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,269
|
|
Interest and other income, net
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
Interest expense
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
214
|
|
Minority interests in net income of consolidated subsidiaries
|
|
|
8
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
1,083
|
|
|
|
8
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
1,077
|
|
Provision for income taxes
|
|
|
401
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
682
|
|
|
$
|
8
|
|
|
$
|
|
|
|
$
|
(8
|
)
|
|
$
|
682
|
|
Less: Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to L-3
|
|
$
|
682
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(8
|
)
|
|
$
|
674
|
|
Less: Net income allocable to participating securities
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to L-3 Communications Holdings, Inc.s
common shareholders
|
|
$
|
682
|
|
|
$
|
|
|
|
$
|
(6
|
)
|
|
$
|
(8
|
)
|
|
$
|
668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L-3 Communications Holdings, Inc.s earnings per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
5.60
|
|
|
$
|
|
|
|
$
|
(0.05
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
5.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
5.51
|
|
|
$
|
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
5.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L-3 Communications Holdings, Inc.s weighted average common
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
121.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
123.7
|
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
|
|
|
|
123.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.
|
Acquisitions
and Dispositions
|
All of the business acquisitions are included in the
Companys results of operations from their respective dates
of acquisition.
2009
Business Acquisitions
On January 30, 2009, the Company acquired all of the
outstanding stock of CSC for a preliminary purchase price of
$92 million, consisting of: (1) $87 million in
cash, including a $7 million net working capital
adjustment, of which $6 million was for cash acquired, and
(2) a purchase price payable of $5 million related to
certain tax benefits acquired. CSC is a developer and
manufacturer of anti-submarine warfare systems for use onboard
submarines and surface ship combatants. Based on the preliminary
purchase price allocation, the amount of goodwill recognized was
$57 million, which was assigned to the Specialized Products
reportable segment, and is not expected to be deductible for
income tax purposes. The final purchase price allocation is
expected to be completed during the
13
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
fourth quarter of 2009, and will be based on final appraisals
and other analyses of fair values for acquired assets and
assumed liabilities. The Company does not expect any of the
differences between the preliminary and final purchase price
allocations to have a material impact on its results of
operations and financial position. The acquisition was financed
with cash on hand.
2008
Business Acquisitions
During the
year-to-date
period ended September 25, 2009, the Company completed the
purchase price allocations for G.A. International (GAI) and
International Resources Group, Ltd. (IRG), subject to the
finalization of the purchase price for GAI. The purchase price
for GAI is subject to additional consideration not to exceed
$1 million that is contingent upon GAIs
post-acquisition financial performance through July 25,
2011. Any additional consideration paid that is contingent upon
post-acquisition performance will be accounted for as goodwill.
The final purchase price allocations for these business
acquisitions compared to the preliminary purchase price
allocations did not have a material impact on the Companys
results of operations or financial position.
Unaudited
Pro Forma Statements of Operations Data
The following unaudited pro forma Statements of Operations data
presents the combined results of the Company and its business
acquisitions completed during the
year-to-date
period ended September 25, 2009 and the year ended
December 31, 2008, in each case assuming that the business
acquisitions that were completed during these periods had
occurred on January 1, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended
|
|
Year-to-Date Ended
|
|
|
September 25,
|
|
September 26,
|
|
September 25,
|
|
September 26,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
(in millions, except per share data)
|
|
Pro forma net sales
|
|
$
|
3,842
|
|
|
$
|
3,694
|
|
|
$
|
11,413
|
|
|
$
|
11,034
|
|
Pro forma net income attributable to L-3
|
|
$
|
250
|
|
|
$
|
212
|
|
|
$
|
674
|
|
|
$
|
676
|
|
Pro forma diluted EPS
|
|
$
|
2.12
|
|
|
$
|
1.71
|
|
|
$
|
5.68
|
|
|
$
|
5.43
|
|
The unaudited pro forma results disclosed in the table above are
based on various assumptions and are not necessarily indicative
of the results of operations that would have occurred had the
Company completed these acquisitions on January 1, 2008.
2008
Business and Product Line Dispositions
On October 8, 2008, the Company divested its 85% ownership
interest in Medical Education Technologies, Inc. (METI), which
was within the Specialized Products reportable segment. The sale
resulted in a fourth quarter 2008 after-tax gain of
$20 million (pre-tax gain of $33 million). The gain
was excluded from income from continuing operations for the 2008
fourth quarter in accordance with U.S. GAAP for impairment
or disposal of long-lived assets (contained in FASB ASC Topic
360, Property, Plant, and Equipment and FASB ASC Topic
205, Presentation of Financial Statements).The
revenues, operating results and net assets of METI for all
periods presented were not material and, therefore, are not
presented as discontinued operations. METI generated
$17 million of sales and $2 million of operating
income for the quarter ended September 26, 2008,
$47 million of sales and $4 million of operating
income for the
year-to-date
period ended September 26, 2008, and $48 million of
sales and $4 million of operating income for the year ended
December 31, 2008.
On May 9, 2008, the Company sold the Electron Technologies
Passive Microwave Devices (PMD) product line, which was within
the Specialized Products reportable segment. The sale resulted
in a second quarter 2008 after-tax gain of approximately
$7 million (pre-tax gain of $12 million), which was
recorded as a reduction of cost
14
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
of sales for products in the Unaudited Condensed Consolidated
Statement of Operations. The net proceeds from the sale are
included in investing activities on the Unaudited Condensed
Consolidated Statement of Cash Flows. The PMD product line
generated $8 million of sales for both the
year-to-date
period ended September 26, 2008 and the year ended
December 31, 2008.
The components of contracts in process are presented in the
table below.
|
|
|
|
|
|
|
|
|
|
|
September 25,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Unbilled contract receivables, gross
|
|
$
|
2,318
|
|
|
$
|
2,079
|
|
Less: unliquidated progress payments
|
|
|
(629
|
)
|
|
|
(462
|
)
|
|
|
|
|
|
|
|
|
|
Unbilled contract receivables, net
|
|
|
1,689
|
|
|
|
1,617
|
|
|
|
|
|
|
|
|
|
|
Inventoried contract costs, gross
|
|
|
846
|
|
|
|
754
|
|
Less: unliquidated progress payments
|
|
|
(137
|
)
|
|
|
(104
|
)
|
|
|
|
|
|
|
|
|
|
Inventoried contract costs, net
|
|
|
709
|
|
|
|
650
|
|
|
|
|
|
|
|
|
|
|
Total contracts in process
|
|
$
|
2,398
|
|
|
$
|
2,267
|
|
|
|
|
|
|
|
|
|
|
Inventoried Contract Costs. In accordance
with FASB ASC Topic
605-35-25,
Revenue Recognition Construction-Type and
Production-Type Contracts General, the Company
accounts for the portion of its general and administrative
(G&A) costs, independent research and development (IRAD)
costs and bid and proposal (B&P) costs that are allowable
and reimbursable indirect contract costs under
U.S. Government procurement regulations on its
U.S. Government contracts (revenue arrangements) as
inventoried contract costs. G&A, IRAD and B&P costs
are allocated to contracts for which the U.S. Government is
the end customer and are charged to costs of sales when sales on
the related contracts are recognized. The Companys
unallowable portion of its G&A, IRAD and B&P costs for
its U.S. Government contractor businesses are expensed as
incurred and are not included in inventoried contract costs.
The table below presents a summary of G&A, IRAD and
B&P costs included in inventoried contract costs and the
changes to them, including amounts charged to cost of sales for
U.S. Government contracts for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended
|
|
|
Year-to-Date Ended
|
|
|
|
September 25,
|
|
|
September 26,
|
|
|
September 25,
|
|
|
September 26,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Amounts included in inventoried contract costs at beginning of
the period
|
|
$
|
79
|
|
|
$
|
79
|
|
|
$
|
74
|
|
|
$
|
68
|
|
Add: Contract costs
incurred(1)
|
|
|
305
|
|
|
|
335
|
|
|
|
951
|
|
|
|
935
|
|
Amounts included in acquired inventoried contract costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
Less: Amounts charged to cost of sales
|
|
|
(294
|
)
|
|
|
(339
|
)
|
|
|
(935
|
)
|
|
|
(935
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts included in inventoried contract costs at end of the
period
|
|
$
|
90
|
|
|
$
|
75
|
|
|
$
|
90
|
|
|
$
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
(1) |
|
Incurred costs include IRAD and
B&P costs of $76 million for the quarter ended
September 25, 2009, $74 million for the quarter ended
September 26, 2008, $232 million for the
year-to-date
period ended September 25, 2009 and $211 million for
the
year-to-date
period ended September 26, 2008.
|
The table below presents a summary of selling, general and
administrative expenses and research and development expenses
for the Companys commercial businesses, which are expensed
as incurred and not included in inventoried contract costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended
|
|
|
Year-to-Date Ended
|
|
|
|
September 25,
|
|
|
September 26,
|
|
|
September 25,
|
|
|
September 26,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Selling, general and administrative expenses
|
|
$
|
57
|
|
|
$
|
70
|
|
|
$
|
175
|
|
|
$
|
209
|
|
Research and development expenses
|
|
|
17
|
|
|
|
19
|
|
|
|
54
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
74
|
|
|
$
|
89
|
|
|
$
|
229
|
|
|
$
|
276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories at Lower of Cost or Market. The
table below presents the components of inventories at cost
(first-in,
first-out or average cost), but not in excess of realizable
value.
|
|
|
|
|
|
|
|
|
|
|
September 25,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Raw materials, components and
sub-assemblies
|
|
$
|
99
|
|
|
$
|
95
|
|
Work in process
|
|
|
127
|
|
|
|
121
|
|
Finished goods
|
|
|
32
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
258
|
|
|
$
|
259
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
Goodwill
and Identifiable Intangible Assets
|
Goodwill. In accordance with U.S. GAAP
for business combinations (contained in FASB ASC Topic 805,
Business Combinations), the Company allocates the cost of
business acquisitions to the assets acquired and liabilities
assumed based on their fair values at the date of acquisition
(commonly referred to as the purchase price allocation). The
table below presents the changes in goodwill allocated to the
Companys reportable segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
|
|
|
|
|
|
Specialized
|
|
|
Consolidated
|
|
|
|
C3ISR
|
|
|
Services
|
|
|
AM&M
|
|
|
Products
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
Balance at December 31,
2008(1)
|
|
$
|
862
|
|
|
$
|
2,313
|
|
|
$
|
1,121
|
|
|
$
|
3,733
|
|
|
$
|
8,029
|
|
Business acquisition
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
57
|
|
|
|
62
|
|
Foreign currency translation
adjustments(2)
|
|
|
14
|
|
|
|
2
|
|
|
|
30
|
|
|
|
51
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 25, 2009
|
|
$
|
876
|
|
|
$
|
2,320
|
|
|
$
|
1,151
|
|
|
$
|
3,841
|
|
|
$
|
8,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As a result of certain
re-alignments in the Companys management and organization
structure as discussed in Note 2, $17 million of
goodwill was reclassified from the
C3ISR
reportable segment to the Government Services reportable
segment, and $17 million of goodwill was reclassified from
the C3ISR
reportable segment to the AM&M reportable segment.
|
16
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
(2) |
|
The increase in goodwill from
foreign currency translation adjustments is due to the weakening
of the U.S. dollar during the
year-to-date
period ended September 25, 2009 against the functional
currencies of L-3s foreign subsidiaries, primarily in
Canada, Germany and the United Kingdom.
|
Identifiable Intangible Assets. Information
on the Companys identifiable intangible assets that are
subject to amortization is presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 25, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
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
|
|
|
$
|
515
|
|
|
$
|
154
|
|
|
$
|
361
|
|
|
$
|
505
|
|
|
$
|
124
|
|
|
$
|
381
|
|
Technology
|
|
|
8
|
|
|
|
78
|
|
|
|
55
|
|
|
|
23
|
|
|
|
76
|
|
|
|
47
|
|
|
|
29
|
|
Other, primarily favorable leasehold interests
|
|
|
7
|
|
|
|
14
|
|
|
|
8
|
|
|
|
6
|
|
|
|
14
|
|
|
|
7
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
22
|
|
|
$
|
607
|
|
|
$
|
217
|
|
|
$
|
390
|
|
|
$
|
595
|
|
|
$
|
178
|
|
|
$
|
417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense recorded by the Company for its
identifiable intangible assets is presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended
|
|
|
Year-to-Date Ended
|
|
|
|
September 25,
|
|
|
September 26,
|
|
|
September 25,
|
|
|
September 26,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Amortization expense
|
|
$
|
13
|
|
|
$
|
12
|
|
|
$
|
39
|
|
|
$
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on gross carrying amounts at September 25, 2009, the
Companys estimate of amortization expense for identifiable
intangible assets for the years ending December 31, 2009
through 2013 are presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ending December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
|
(in millions)
|
|
|
Estimated amortization expense
|
|
$
|
52
|
|
|
$
|
52
|
|
|
$
|
47
|
|
|
$
|
39
|
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 25, 2009 and December 31, 2008, the
Company had $1 million of indefinite-lived identifiable
intangible assets.
17
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
8.
|
Other
Current Liabilities and Other Liabilities
|
The table below presents the components of other current
liabilities.
|
|
|
|
|
|
|
|
|
|
|
September 25,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Other Current Liabilities:
|
|
|
|
|
|
|
|
|
Accruals for pending and threatened litigation (see Note 16)
|
|
$
|
3
|
|
|
$
|
5
|
|
Accrued product warranty costs
|
|
|
91
|
|
|
|
97
|
|
Accrued interest
|
|
|
65
|
|
|
|
66
|
|
Estimated costs in excess of estimated contract value to
complete contracts in process in a loss position
|
|
|
58
|
|
|
|
58
|
|
Deferred revenues
|
|
|
27
|
|
|
|
25
|
|
Aggregate purchase price payable for acquired businesses
|
|
|
5
|
|
|
|
|
|
Other
|
|
|
87
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
Total other current liabilities
|
|
$
|
336
|
|
|
$
|
351
|
|
|
|
|
|
|
|
|
|
|
The table below presents the components of other liabilities.
|
|
|
|
|
|
|
|
|
|
|
September 25,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Other Liabilities:
|
|
|
|
|
|
|
|
|
Non-current income taxes payable (see Note 11)
|
|
$
|
176
|
|
|
$
|
177
|
|
Deferred compensation
|
|
|
87
|
|
|
|
79
|
|
Accrued workers compensation
|
|
|
51
|
|
|
|
45
|
|
Unfavorable lease obligations
|
|
|
6
|
|
|
|
8
|
|
Non-current portion of net deferred gains from terminated
interest rate swap agreements
|
|
|
6
|
|
|
|
9
|
|
Notes payable and capital lease obligations
|
|
|
10
|
|
|
|
10
|
|
Accrued product warranty costs
|
|
|
7
|
|
|
|
5
|
|
Other non-current liabilities
|
|
|
81
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
Total other liabilities
|
|
$
|
424
|
|
|
$
|
414
|
|
|
|
|
|
|
|
|
|
|
The table below presents the changes in the Companys
accrued product warranty costs.
|
|
|
|
|
|
|
|
|
|
|
Year-to-Date Ended
|
|
|
|
September 25,
|
|
|
September 26,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Accrued product warranty
costs(1):
|
|
|
|
|
|
|
|
|
Balance at January 1
|
|
$
|
102
|
|
|
$
|
98
|
|
Acquisitions during the period
|
|
|
|
|
|
|
5
|
|
Accruals for product warranties issued during the period
|
|
|
36
|
|
|
|
27
|
|
Foreign currency translation adjustments
|
|
|
2
|
|
|
|
(1
|
)
|
Settlements made during the period
|
|
|
(42
|
)
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
98
|
|
|
$
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Warranty obligations incurred in
connection with long-term production contracts are accounted for
within the contract estimates at completion (EACs) and are
excluded from the above amounts. Balances include both long-term
and short-term amounts.
|
18
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The components of debt and a reconciliation to the carrying
amount of current and long-term debt are presented in the table
below.
|
|
|
|
|
|
|
|
|
|
|
September 25,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
L-3 Communications:
|
|
|
|
|
|
|
|
|
Borrowings under Revolving Credit
Facility(1)
|
|
$
|
|
|
|
$
|
|
|
Borrowings under Term Loan
Facility(2)
|
|
|
650
|
|
|
|
650
|
|
7
5/8% Senior
Subordinated Notes due 2012
|
|
|
750
|
|
|
|
750
|
|
6
1/8% Senior
Subordinated Notes due 2013
|
|
|
400
|
|
|
|
400
|
|
6
1/8% Senior
Subordinated Notes due 2014
|
|
|
400
|
|
|
|
400
|
|
5
7/8% Senior
Subordinated Notes due 2015
|
|
|
650
|
|
|
|
650
|
|
6
3/8% Senior
Subordinated Notes due 2015
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
3,850
|
|
|
|
3,850
|
|
|
|
|
|
|
|
|
|
|
L-3 Holdings:
|
|
|
|
|
|
|
|
|
3% Convertible Contingent Debt Securities due
2035(3)
|
|
|
700
|
|
|
|
700
|
|
|
|
|
|
|
|
|
|
|
Principal amount of long-term debt
|
|
|
4,550
|
|
|
|
4,550
|
|
Less: Unamortized discounts
|
|
|
(40
|
)
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
Carrying amount of long-term debt
|
|
|
4,510
|
|
|
|
4,493
|
|
Less: Current portion of long-term debt
|
|
|
(650
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount of long-term debt, excluding current portion
|
|
$
|
3,860
|
|
|
$
|
4,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Companys five-year
revolving credit facility, which was replaced on
October 23, 2009 by a new $1 billion three-year
revolving credit facility maturing on October 23, 2012,
allowed for total aggregate borrowings of up to $1 billion.
At September 25, 2009, available borrowings under the
revolving credit facility were $965 million after
reductions for outstanding letters of credit of $35 million.
|
|
(2) |
|
The interest rate at
September 25, 2009 and December 31, 2008 was 1.12% and
2.70%, respectively, and was based on the LIBOR rate (as defined
in the credit agreement) plus a spread. See Note 10 to the
audited consolidated financial statements included in the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2008 for additional
information regarding the interest on borrowings under the term
loan facility. Borrowings under the term loan facility were
repaid on October 7, 2009 and are classified as a current
liability as of September 25, 2009.
|
|
(3) |
|
Under select conditions, including
if L-3 Holdings common stock price is more than 120% (currently
$120.17) of the then current conversion price (currently
$100.14) for a specified period, the conversion feature of the
CODES will require L-3 Holdings, upon conversion, to pay the
$700 million 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
$100.14, 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, 2008, included in the Companys Annual
Report on
Form 10-K
for additional information regarding the CODES, including
conditions for conversion. L-3s stock price on
October 30, 2009 was $72.29 per share. The effective
interest rate on the CODES is 6.33%. Interest expense relates to
both the contractual coupon interest and amortization of the
discount on the liability components. Interest expense
recognized was $11 million and $10 million for the
third quarter periods ended September 25, 2009 and
September 26, 2008, respectively, and $31 million and
$30 million for the
year-to-date
periods ended September 25, 2009 and September 26,
2008, respectively. The following table provides additional
information about the Companys CODES:
|
|
|
|
|
|
|
|
|
|
|
|
September 25,
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
|
(in millions)
|
|
Carrying amount of the equity component (conversion feature)
|
|
$
|
64
|
|
|
$
|
64
|
|
Unamortized discount of liability component being amortized
through February 1, 2011
|
|
$
|
29
|
|
|
$
|
45
|
|
Net carrying amount of liability component
|
|
$
|
671
|
|
|
$
|
655
|
|
19
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
On October 2, 2009, L-3 Communications issued
$1 billion in aggregate principal amount of
5.20% Senior Notes due October 15, 2019 (2009 Notes).
The 2009 Notes have an effective interest rate of 5.25% and were
issued at a discount of $4 million. The discount was
recorded as a reduction to the principal amount of the notes and
will be amortized as an interest expense over the term of the
notes. Interest on the 2009 Notes is payable semi-annually on
April 15 and October 15 of each year, commencing on
April 15, 2010. The net cash proceeds from this offering
amounted to approximately $988 million after deducting the
discounts, commissions and estimated expenses, and were used,
together with cash on hand, to redeem L-3 Communications
$750 million
75/8% Senior
Subordinated Notes due in 2012 (2002 Notes) on November 2,
2009 and to repay L-3 Communications outstanding
$650 million term loan on October 7, 2009. In
connection with the redemption of the 2002 Notes, the Company
will record a debt retirement charge in the fourth quarter of
2009 of approximately $9 million ($6 million after
income tax, or $0.05 per diluted share). The 2009 Notes are
unsecured senior obligations of L-3 Communications, rank equal
in right of payment with all of L-3 Communications
existing and future senior indebtedness and rank senior in right
of payment to all of L-3 Communications existing and
future senior subordinated indebtedness. The 2009 Notes are also
guaranteed on a senior, unsecured basis by each of L-3
Communications material domestic subsidiaries that
guarantee any of L-3 Communications other indebtedness.
The 2009 Notes may be redeemed at any time prior to their
maturity at the option of L-3 Communications, in whole or in
part, at a redemption price equal to the greater of:
(1) 100% of the principal amount, or (2) the present
value of the remaining principal and interest payments
discounted to the date of redemption, on a semi-annual basis, at
the Treasury Rate (as defined in the credit agreement) plus
0.30%. For additional information on the terms of L-3
Communications 2009 Notes, including restrictive
covenants, see the Companys Current Report on
Form 8-K
dated October 2, 2009 and the indenture governing the terms
of the 2009 Notes, which is filed as an exhibit to this report.
On October 23, 2009, L-3 Communications replaced its
$1 billion revolving credit facility with a new
$1 billion three-year revolving credit facility maturing on
October 23, 2012. Borrowings under the new revolving credit
facility bear interest, at L-3 Communications option, at
either (i) a base rate equal to the higher of
(a) 0.50% per annum above the latest federal funds rate,
(b) the Bank of America prime rate (as defined
in the credit agreement), and (c) 1.00% per annum above a
LIBOR rate (as defined in the credit agreement),
plus a spread ranging from 1.25% to 3.00% per annum, or
(ii) a LIBOR rate (as defined in the credit
agreement) plus a spread ranging from 2.25% to 4.00% per annum.
The spread, in both cases, depends on L-3 Communications
debt rating at the time of determination. L-3 Communications
pays: (1) commitment fees calculated on the daily amounts
of the available unused commitments at a rate ranging from
0.375% to 0.75% per annum, (2) letter of credit fees
ranging from 1.50% to 2.67% per annum for performance and
commercial letters of credit and (3) letter of credit fees
ranging from 2.25% to 4.00% for financial letters of credit. The
fee rate, in all cases, depends on L-3 Communications debt
rating at the time of determination. The debt rating is based on
the ratings as determined by Standard & Poors
Rating Services, Moodys Investors Service, Inc. and Fitch
Ratings of L-3 Communications non-credit enhanced senior,
unsecured long-term debt. For additional information on the
terms of L-3 Communications new $1 billion three-year
revolving credit facility, including the financial and other
restrictive covenants, see the Companys Current Report on
Form 8-K
dated October 23, 2009, and the credit agreement governing
the terms of the new $1 billion three-year revolving credit
facility, which is incorporated by reference as an exhibit to
this report.
20
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
A reconciliation of net income to comprehensive income
attributable to L-3 is presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended
|
|
|
Year-to-Date Ended
|
|
|
|
September 25,
|
|
|
September 26,
|
|
|
September 25,
|
|
|
September 26,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
Net income
|
|
$
|
253
|
|
|
$
|
212
|
|
|
$
|
681
|
|
|
$
|
682
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
66
|
|
|
|
(57
|
)
|
|
|
116
|
|
|
|
(54
|
)
|
Unrealized gains on hedging
instruments(1)
|
|
|
4
|
|
|
|
3
|
|
|
|
3
|
|
|
|
4
|
|
Amortization of pension and postretirement benefit plans net
loss (gain) and prior service
cost(2)
|
|
|
8
|
|
|
|
(1
|
)
|
|
|
23
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
331
|
|
|
|
157
|
|
|
|
823
|
|
|
|
634
|
|
Less: Comprehensive income attributable to noncontrolling
interests
|
|
|
3
|
|
|
|
2
|
|
|
|
7
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to L-3
|
|
$
|
328
|
|
|
$
|
155
|
|
|
$
|
816
|
|
|
$
|
626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts are net of income taxes of
$2 million and $1 million for the quarterly periods
ended September 25, 2009 and September 26, 2008,
respectively, and $1 million and $2 million for the
year-to-date
periods ended September 25, 2009 and September 26,
2008, respectively.
|
(2) |
|
Amounts are net of income taxes of
$5 million for the quarterly period ended
September 25, 2009, and $16 million and
$1 million for the
year-to-date
periods ended September 25, 2009 and September 26,
2008, respectively. See Note 17.
|
The U.S. Federal income tax jurisdiction is the
Companys major tax jurisdiction. The statute of
limitations for the 2004 and 2005 tax years of the Company and
certain of its acquired subsidiaries expired during the third
quarter of 2009. The statute of limitations for the
Companys U.S. Federal income tax returns for the
years ended December 31, 2006 through 2008 remain open. The
Internal Revenue Service (IRS) began its audit of the
Companys 2006 and 2007 U.S. Federal income tax
returns in April 2009. In addition, the Company has numerous
state and foreign income tax audits currently in process. As of
September 25, 2009, the Company anticipates that
unrecognized tax benefits will decrease by approximately
$15 million over the next 12 months.
Current and non-current income taxes payable include potential
interest of $18 million ($11 million after income
taxes) at September 25, 2009 and December 31, 2008,
and potential penalties of $8 million at September 25,
2009 and $7 million at December 31, 2008.
During the third quarter of 2009, the Company recorded a tax
benefit of $26 million for a net reversal of amounts previously
accrued, related to the 2004 and 2005 tax years, for which the
statute of limitations has expired.
21
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
12.
|
L-3
Holdings Earnings Per Common Share
|
A reconciliation of basic EPS and diluted EPS is presented in
the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended
|
|
|
Year-to-Date Ended
|
|
|
|
September 25,
|
|
|
September 26,
|
|
|
September 25,
|
|
|
September 26,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions, except per share data)
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to L-3 Holdings common shareholders
|
|
$
|
248
|
|
|
$
|
207
|
|
|
$
|
668
|
|
|
$
|
668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
116.4
|
|
|
|
121.0
|
|
|
|
117.1
|
|
|
|
121.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
2.13
|
|
|
$
|
1.71
|
|
|
$
|
5.70
|
|
|
$
|
5.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to L-3 Holdings common shareholders
|
|
$
|
248
|
|
|
$
|
207
|
|
|
$
|
668
|
|
|
$
|
668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common and potential common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
116.4
|
|
|
|
121.0
|
|
|
|
117.1
|
|
|
|
121.8
|
|
Assumed exercise of stock options
|
|
|
3.5
|
|
|
|
4.0
|
|
|
|
3.5
|
|
|
|
4.3
|
|
Unvested restricted stock awards
|
|
|
0.6
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
Employee stock purchase plan contributions
|
|
|
|
|
|
|
0.4
|
|
|
|
0.3
|
|
|
|
0.4
|
|
Performance unit awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed purchase of common shares for treasury
|
|
|
(3.5
|
)
|
|
|
(3.4
|
)
|
|
|
(3.6
|
)
|
|
|
(3.5
|
)
|
Assumed conversion of the CODES
|
|
|
|
(1)
|
|
|
|
(1)
|
|
|
|
(1)
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common and potential common shares
|
|
|
117.0
|
|
|
|
122.0
|
|
|
|
117.6
|
|
|
|
123.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
2.12
|
|
|
$
|
1.70
|
|
|
$
|
5.68
|
|
|
$
|
5.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
L-3 Holdings CODES had no
impact on diluted EPS for the quarter and
year-to-date
period ended September 25, 2009 and the quarter ended
September 26, 2008, 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 September 25, 2009,
the conversion price was $100.14.
|
Excluded from the computations of diluted EPS are shares related
to stock options, restricted stock, and restricted stock units
underlying employee stock-based compensation of 3.5 million
and 3.0 million for the quarter and
year-to-date
period ended September 25, 2009, respectively, and
2.4 million and 1.9 million for the quarter and
year-to-date
period ended September 26, 2008, respectively, because they
were anti-dilutive.
EPS for the
year-to-date
period ended September 26, 2008 includes: (1) a gain
of $0.65 per diluted share for the reversal of a current
liability for pending and threatened litigation as a result of a
June 27, 2008 decision by the U.S. Court of Appeals
vacating an adverse 2006 jury verdict, (2) a gain of $0.06
per diluted share for the sale of the PMD product line (see
Note 4), and (3) a non-cash charge of $0.14 per
diluted share related to a write-down of capitalized software
development costs.
22
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Repurchases of L-3 Holdings common stock under the
$1 billion share repurchase program, approved by the Board
of Directors in November 2008, are made from time to time at
managements discretion in accordance with applicable
U.S. federal securities laws in the open market or
otherwise. All share repurchases of L-3 Holdings common stock
have been recorded as treasury shares. At September 25,
2009, the remaining dollar value under the share repurchase
program was $535 million.
From September 26, 2009 through November 4, 2009, L-3
repurchased 324,207 shares of L-3 Holdings common
stock at an average price of $74.10 per share for an aggregate
amount of $24 million.
On October 6, 2009, L-3 Holdings Board of Directors
declared a quarterly cash dividend of $0.35 per share, payable
on December 15, 2009 to shareholders of record at the close
of business on November 17, 2009.
|
|
14.
|
Fair
Value Measurements
|
The following table presents the fair value hierarchy level for
each of the Companys assets and liabilities that are
measured and recorded at fair value on a recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 25, 2009
|
|
|
December 31, 2008
|
|
Description
|
|
Level
1(a)
|
|
|
Level
2(b)
|
|
|
Level
3(c)
|
|
|
Level
1(a)
|
|
|
Level
2(b)
|
|
|
Level
3(c)
|
|
|
|
(in millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
958
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
794
|
|
|
$
|
|
|
|
$
|
|
|
Derivative instruments
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
958
|
|
|
$
|
18
|
|
|
$
|
|
|
|
$
|
794
|
|
|
$
|
22
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative instruments
|
|
$
|
|
|
|
$
|
9
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
21
|
|
|
$
|
|
|
|
|
|
(a) |
|
Level 1 is based on quoted
market prices available in active markets for identical assets
or liabilities as of the reporting date.
|
|
(b) |
|
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.
|
|
(c) |
|
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
|
Fair Value of Financial Instruments. At
September 25, 2009 and December 31, 2008, the
Companys financial instruments consisted primarily of cash
and cash equivalents, billed receivables, trade accounts
payable, borrowings under the term loan facility, senior
subordinated notes, CODES and foreign currency forward
contracts. The carrying amounts of cash and cash equivalents,
billed receivables and trade accounts payable are representative
of their respective fair values because of the short-term
maturities or expected settlement dates of these instruments.
The fair value of borrowings under the term loan facility are
based on similar debt issued. The senior subordinated notes are
registered, unlisted public debt traded in the
over-the-counter
market and their fair values are based on quoted trading
activity. The fair values of the CODES are based on quoted
prices for the same or similar issues. The fair values of
foreign currency
23
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
forward contracts were estimated based on forward exchange rates
at September 25, 2009 and December 31, 2008. The
carrying amounts and estimated fair values of the Companys
financial instruments are presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 25, 2009
|
|
|
December 31, 2008
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
(in millions)
|
|
|
Borrowings under the Term Loan Facility
|
|
$
|
650
|
|
|
$
|
643
|
|
|
$
|
650
|
|
|
$
|
608
|
|
Senior Subordinated Notes
|
|
|
3,189
|
|
|
|
3,172
|
|
|
|
3,188
|
|
|
|
2,916
|
|
CODES
|
|
|
671
|
|
|
|
717
|
|
|
|
655
|
|
|
|
697
|
|
Foreign currency forward
contracts(1)
|
|
|
9
|
|
|
|
9
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
(1) |
|
Notional amounts of foreign
currency forward contracts were $359 million at
September 25, 2009 and $414 million at
December 31, 2008.
|
Derivative Financial Instruments. The Companys
derivative financial instruments include foreign currency
forward contracts, which are entered into for risk management
purposes, and an embedded derivative representing the contingent
interest payment provision related to the CODES.
Foreign Currency Forward Contracts. The
Companys U.S. and foreign businesses enter into
contracts with customers, subcontractors or vendors that are
denominated in currencies other than their functional
currencies. To protect the functional currency equivalent cash
flows associated with certain of these contracts, the Company
enters into foreign currency forward contracts. The
Companys activities involving foreign currency forward
contracts are designed to hedge the changes in the functional
currency equivalent cash flows due to movements in foreign
exchange rates compared to the functional currency. The foreign
currencies hedged are primarily the Canadian dollar, Euro,
British pound and U.S. dollar. The Company manages exposure
to counterparty credit risk by entering into foreign currency
forward contracts only with major financial institutions that
are expected to fully perform under the terms of such contracts.
Foreign currency forward contracts are recorded in the
Companys Consolidated Balance Sheets at fair value and are
generally designated and accounted for as cash flow hedges in
accordance with U.S. GAAP for derivative instruments and
hedging activities (contained in FASB ASC Topic 815,
Derivatives and Hedging). Gains and losses on designated
foreign currency forward contracts that are considered highly
effective in offsetting the corresponding change in the cash
flows of the hedged transaction are recorded net of income taxes
in accumulated other comprehensive income (loss) (accumulated
OCI) and then recognized in income when the underlying hedged
transaction affects income. The estimated net amount of existing
gains at September 25, 2009 that are expected to be
reclassified into income within the next 12 months is
$5 million. Gains and losses on foreign currency forward
contracts that do not meet hedge accounting criteria are
recognized in income immediately.
The table below presents the notional amounts of the
Companys outstanding foreign currency forward contracts by
currency as of September 25, 2009:
|
|
|
|
|
Currency
|
|
Notional Amount
|
|
|
|
(in millions)
|
|
|
U.S. dollar
|
|
$
|
130
|
|
Canadian dollar
|
|
|
105
|
|
British pound
|
|
|
99
|
|
Euro
|
|
|
14
|
|
Other
|
|
|
11
|
|
|
|
|
|
|
Total
|
|
$
|
359
|
|
|
|
|
|
|
24
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The notional amounts are used to measure the volume of these
contracts and do not represent exposure to foreign currency
losses. At September 25, 2009, the Companys foreign
currency forward contracts had maturities through 2016.
The table below presents the fair values and the location of the
Companys derivative instruments in the Unaudited Condensed
Consolidated Balance Sheet as of September 25, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Values of Derivative
Instruments(1)
|
|
|
|
Other
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Current
|
|
|
Other
|
|
|
Current
|
|
|
Other
|
|
|
|
Assets
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Liabilities
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
6
|
|
|
$
|
9
|
|
|
$
|
3
|
|
|
$
|
2
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
|
2
|
|
|
|
1
|
|
|
|
3
|
|
|
|
1
|
|
Embedded derivative related to the CODES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivative instruments
|
|
$
|
8
|
|
|
$
|
10
|
|
|
$
|
6
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 14 for a description
of the fair value hierarchy related to the Companys
foreign currency forward contracts.
|
The tables below present the effects of the Companys
derivative instruments on the Unaudited Condensed Consolidated
Statement of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain or (Loss) Recognized
|
|
|
|
Amount of
|
|
|
|
|
|
|
|
in Income on Derivative
|
|
|
|
Gain or (Loss)
|
|
|
Gain or (Loss) Reclassified from Accumulated
|
|
|
(Ineffective Portion and
|
|
|
|
Recognized in
|
|
|
OCI into Income
|
|
|
Amount Excluded from
|
|
|
|
OCI on Derivative
|
|
|
(Effective Portion)
|
|
|
Effectiveness Testing)
|
|
Derivatives Designated as Hedging Instruments
|
|
(Effective Portion)
|
|
|
Location
|
|
Amount
|
|
|
Location
|
|
Amount
|
|
|
|
|
|
|
($ in millions)
|
|
|
|
|
|
|
|
For the quarter ended September 25, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
5
|
|
|
Cost of Sales
|
|
$
|
|
|
|
Cost of Sales
|
|
$
|
|
|
For the
year-to-date
ended September 25, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
$
|
|
|
|
Cost of Sales
|
|
$
|
(3
|
)
|
|
Cost of Sales
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Gain or (Loss) Recognized in Income on Derivative
|
|
Derivatives not Designated as Hedging Instruments
|
|
Location
|
|
Amount
|
|
|
|
|
|
(in millions)
|
|
|
For the quarter ended September 25, 2009:
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Cost of Sales
|
|
$
|
2
|
|
For the
year-to-date
ended September 25, 2009:
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
Cost of Sales
|
|
$
|
2
|
|
|
|
16.
|
Commitments
and Contingencies
|
U.S.
and Foreign Government Procurement Regulations
A substantial majority of the Companys revenues are
generated from providing products and services under legally
binding agreements, or contracts, with U.S. Government and
foreign government customers. U.S. Government contracts are
subject to extensive legal and regulatory requirements, and,
from time to time, agencies of the U.S. Government
investigate whether such contracts were and are being conducted
in accordance with these
25
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
requirements. The Company is currently cooperating with the
U.S. Government on several investigations from which civil,
criminal or administrative proceedings could result and give
rise to fines, penalties, compensatory and treble damages,
restitution
and/or
forfeitures. The Company does not currently anticipate that any
of these investigations will have a material adverse effect,
individually or in the aggregate, on its consolidated financial
position, results of operations or cash flows. However, under
U.S. Government regulations, an indictment of the Company
by a federal grand jury could result in the Company being
suspended for a period of time from eligibility for awards of
new government contracts or in a loss of export privileges. A
conviction could result in debarment from contracting with the
federal government for a specified term. In addition, all of the
Companys U.S. Government contracts: (1) are
subject to audit and various pricing and cost controls,
(2) include standard provisions for termination for the
convenience of the U.S. Government or for default, and
(3) are subject to cancellation if funds for contracts
become unavailable. Foreign government contracts generally
include comparable provisions relating to terminations for
convenience and default, as well as other procurement clauses
relevant to the foreign government.
Litigation
Matters
The Company has been subject to and is involved in litigation,
government investigations, proceedings, claims or assessments
and various contingent liabilities incidental to its businesses,
including those specified below. Furthermore, in connection with
certain business acquisitions, the Company has assumed some or
all claims against, and liabilities of, the acquired business,
including both asserted and unasserted claims and liabilities.
In accordance with U.S. GAAP for contingencies (contained
in FASB ASC Topic 450, Contingencies), the Company
records a liability when management believes that it is both
probable that a liability has been incurred and the Company can
reasonably estimate the amount of the loss. Generally, the loss
is recorded at the amount the Company expects to resolve the
liability. The estimated amounts of liabilities recorded for
pending and threatened litigation is disclosed in Note 8.
Amounts recoverable from insurance contracts or third parties
are recorded as assets when deemed probable. At
September 25, 2009, the Company did not record any amounts
for recoveries from insurance contracts or third parties in
connection with the amount of liabilities recorded for pending
and threatened litigation. Legal defense costs are expensed as
incurred. The Company believes it has recorded adequate
provisions for its litigation matters. The Company reviews these
provisions quarterly and adjusts these provisions to reflect the
impact of negotiations, settlements, rulings, advice of legal
counsel and other information and events pertaining to a
particular matter. While it is reasonably possible that an
unfavorable outcome may occur in one or more of the following
matters, unless otherwise stated below, the Company believes
that it is not probable that a loss has been incurred in any of
these matters. An estimate of loss or range of loss is disclosed
for a particular litigation matter when such amount or amounts
can be reasonably estimated and no loss has been accrued. The
Company believes that any damage amounts claimed in the specific
matters discussed below are not meaningful indicators of
potential liability. Although the Company believes that it has
valid defenses with respect to legal matters and investigations
pending against it, litigation is inherently unpredictable.
Therefore, it is possible that the financial position, results
of operations or cash flows of the Company could be materially
adversely affected in any particular period by the unfavorable
resolution of one or more of these contingencies.
Kalitta Air. L-3 Integrated Systems and its
predecessors have been involved in litigation with Kalitta Air
arising from a contract to convert Boeing 747 aircraft from
passenger configuration to cargo freighters. The lawsuit was
brought in the United States District Court for the Northern
District of California (the trial court) on January 31,
1997. The aircraft were modified using Supplemental Type
Certificates (STCs) issued in 1988 by the Federal Aviation
Administration (FAA) to Hayes International, Inc. (Hayes/Pemco)
as a subcontractor to GATX/Airlog Company (GATX). Between 1988
and 1990, Hayes/Pemco modified five aircraft as a subcontractor
to GATX using the STCs. Between 1990 and 1994, Chrysler
Technologies Airborne Systems, Inc. (CTAS), a predecessor to L-3
Integrated Systems, performed as a subcontractor to GATX and
modified an additional five aircraft using the STCs. Two of the
aircraft modified by CTAS were owned by American International
Airways, the predecessor to Kalitta
26
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Air. In 1996, the FAA determined that the engineering data
provided by Hayes/Pemco supporting the STCs was inadequate and
issued an Airworthiness Directive that effectively grounded the
ten modified aircraft. The Kalitta Air aircraft have not been in
revenue service since that date. The matter was tried in January
2001 against GATX and CTAS with the jury finding fault on the
part of GATX, but rendering a unanimous defense verdict in favor
of CTAS. Certain co-defendants had settled prior to trial. The
U.S. Court of Appeals for the Ninth Circuit subsequently
reversed and remanded the trial courts summary judgment
rulings in favor of CTAS regarding a negligence claim by Kalitta
Air, which asserts that CTAS as an expert in aircraft
modification should have known that the STCs were deficient. The
retrial began on January 18, 2005, and ended on
March 2, 2005 with a deadlocked jury and mistrial. At the
retrial, Kalitta Air claimed damages of $235 million plus
interest. By order dated July 22, 2005, the trial court
granted the Companys motion for judgment as a matter of
law as to negligence dismissing that claim, denied the
Companys motion for judgment as a matter of law as to
negligent misrepresentation, and certified the decision for
interlocutory appeal to the U.S. Court of Appeals for the
Ninth Circuit. On October 8, 2008, the Ninth Circuit
reversed the trial courts dismissal of the negligence
claim and affirmed the trial courts ruling as to the
negligent misrepresentation claim. The case has been remanded to
the trial court to reconsider the negligence claim and for
further proceedings on the negligent misrepresentation claim. A
court-ordered mediation held on March 18, 2009 was
unsuccessful. A hearing on the Companys motion to dismiss
the negligence claim was held on April 30, 2009, after
which the trial court determined to take the matter under
advisement and ordered the parties to attend another mediation,
which has yet to be scheduled. The case is currently scheduled
to go to a third trial on November 1, 2010. CTAS
insurance carrier has accepted defense of the matter and has
retained counsel, subject to a reservation of rights by the
insurer to dispute its obligations under the applicable
insurance policies in the event of an adverse finding.
Korean Lot II Program. On April 4, 2005,
Lockheed Martin Corporation (Lockheed) filed a lawsuit in the
Federal District Court for the Northern District of Georgia
alleging misappropriation of proprietary information and breach
of a license agreement. The complaint alleges that L-3
Integrated Systems (L-3 IS) is in breach of its license
agreement with Lockheed and is infringing on Lockheeds
intellectual property rights as a result of its performance of a
subcontract awarded to L-3 IS for the Korean Lot II
program. On May 21, 2009, a jury found in favor of Lockheed
and awarded $30 million on the misappropriation claim,
$7.28 million on the breach of license agreement claim,
plus legal fees and expenses. On July 3, 2009, Lockheed
filed a motion with the court seeking a final judgment,
approximately $17 million in legal fees and expenses and an
injunction prohibiting L-3s further use of the
intellectual property that was the basis of the jurys
award. On August 7, 2009, L-3 IS filed a motion for
judgment in its favor notwithstanding the verdict and opposing
the relief sought by Lockheed in its July
3rd
motion. The court held a hearing on the motions on
September 2, 2009, and the parties are awaiting the
courts decision. L-3 IS has also filed a motion seeking
dismissal or a retrial of the case on various grounds. The
motion is subject to further briefing by the parties and has not
yet been considered by the court. The Company believes that the
verdict and the damages awarded are inconsistent with the law
and evidence presented, and intends to appeal in the event of an
adverse decision on the motions.
Aircrew Training and Rehearsal Support (ATARS)
Investigation. Following a lawsuit filed by Lockheed on
April 6, 2006 in the U.S. District Court for the
Middle District of Florida against the Company and certain
individuals related to the ATARS II Program (which was settled
in November 2007), the Company received Grand Jury subpoenas in
connection with an investigation being conducted by the United
States Attorney for the Middle District of Florida, Orlando
Division. The subpoenas request the production of documents
related to Lockheeds allegations or produced in the civil
litigation settled in November 2007. The Company is cooperating
fully with the U.S. Government.
Titan Government Investigation. In October 2002, The
Titan Corporation (Titan) received a grand jury subpoena from
the Antitrust Division of the DoJ requesting the production of
documents relating to information technology services performed
for the U.S. Air Force at Hanscom Air Force Base in
Massachusetts and Wright-
27
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
Patterson Air Force Base in Ohio. Titan was informed that other
companies who have performed similar services had received
subpoenas as well. The Company acquired Titan in July 2005. On
September 20, 2006, counsel for the Company was informed by
the New York Field Office of the DoJs Criminal
Antitrust Division that it was considering indictment.
Additionally, a former Titan employee received a letter from the
DoJ indicating that he was a target of the investigation. If the
Field Office recommends indictment then, under normal DoJ
procedures, Titan (now known as L-3 Services) will be afforded
an opportunity to make a presentation to the Criminal Antitrust
Division in Washington, D.C. before the DoJ acts on the
recommendation. It is not known whether an indictment of L-3
Services or any of its employees will occur. If it does occur,
it is possible that L-3 Services could be suspended or debarred
from conducting business with the U.S. Government. In
December 2008, the DoJ indicated its interest in conducting
additional employee interviews concerning a teaming agreement
relating to the Wright Patterson Air Force Base procurement. The
Company is cooperating fully with the DoJ.
SEC Inquiry. In March 2007, the Company was
contacted by the U.S. Securities and Exchange Commission
(SEC), Enforcement Division, requesting that the Company provide
certain information relating to its previously disclosed review
of its historical stock option granting practices. On
September 3, 2009, the Company was notified by the SEC
staff that it had completed its inquiry and did not intend to
recommend that any enforcement action be taken against the
Company.
CyTerra Government Investigation. Since November
2006, CyTerra has been served with civil and Grand Jury
subpoenas by the DoD Office of the Inspector General and the
DoJ. The Company is cooperating fully with the Government. The
Company believes that it is entitled to indemnification for any
course of defense related to this matter and has made a claim
against the escrow under the purchase agreement by which the
Company acquired CyTerra in March 2006.
Bashkirian Airways. On July 1, 2004, lawsuits
were filed on behalf of the estates of 31 Russian children in
the state courts of Washington, Arizona, California, Florida,
New York and New Jersey against Honeywell, Honeywell TCAS,
Thales USA, Thales France, the Company and Aviation
Communications & Surveillance Systems (ACSS), which is
a joint venture of L-3 and Thales. The suits relate to the crash
over southern Germany of Bashkirian Airways Tupelov TU 154M
aircraft and a DHL Boeing 757 cargo aircraft. On-board the
Tupelov aircraft were 9 crew members and 60 passengers,
including 45 children. The Boeing aircraft carried a crew of
two. Both aircraft were equipped with Honeywell/ACSS Model 2000,
Change 7 Traffic Collision and Avoidance Systems (TCAS). Sensing
the other aircraft, the on-board DHL TCAS instructed the DHL
pilot to descend, and the Tupelov on-board TCAS instructed the
Tupelov pilot to climb. However, the Swiss air traffic
controller ordered the Tupelov pilot to descend. The Tupelov
pilot disregarded the on-board TCAS and put the Tupelov aircraft
into a descent striking the DHL aircraft in midair at
approximately 35,000 feet. All crew and passengers of both
planes were lost. Investigations by the National Transportation
Safety Board after the crash revealed that both TCAS units were
performing as designed. The suits allege negligence and strict
product liability based upon the design of the units and the
training provided to resolve conflicting commands and seek
approximately $315 million in damages, including
$150 million in punitive damages. The Companys
insurers have accepted defense of the matter and retained
counsel, subject to a reservation of rights by the insurers to
dispute their obligations under the applicable insurance
policies in the event of an adverse finding. The matters were
consolidated in the Federal Court in New Jersey, which has
dismissed the actions on the basis of forum non conveniens. The
plaintiffs re-filed a complaint on April 23, 2007 with the
Barcelona Courts Registry in Spain. The trial for this
matter was completed on April 22, 2009, and the parties are
awaiting the Courts decision.
Gol Airlines. The Company was served with complaints
filed in the U.S. District Court for the Eastern District
of New York against ExcelAire, Joseph Lepore, Jan Paul Paladino,
Honeywell, Lockheed, Raytheon, and Amazon Technologies and ACSS.
The complaints relate to the September 29, 2006 airplane
crash over Brazil of a Boeing
737-800
operated by GOL Linhas Aereas Inteligentes, S.A. and an Embraer
600 business jet operated by ExcelAire.
28
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The complaints allege that ACSS designed the Traffic Collision
and Avoidance System (TCAS) on the ExcelAire jet, and assert
claims of negligence, strict products liability and breach of
warranty against ACSS based on the design of the TCAS and the
instructions provided for its use. The complaints seek
unspecified monetary damages, including punitive damages. The
Companys insurers have accepted defense of this matter and
have retained counsel, subject to a reservation of rights by the
insurers to dispute their obligations under the applicable
insurance policies in the event of an adverse finding. On
July 3, 2008, the District Court dismissed the actions on
the basis of forum non conveniens on the grounds that Brazil was
the location of the accident and is more convenient for
witnesses and document availability. On August 1, 2008, the
plaintiffs filed an appeal of this ruling with the
U.S. Court of Appeals for the Second Circuit. Oral argument
on the appeal has been scheduled for November 12, 2009.
Although the appeal is still pending, some of the plaintiffs
re-filed their complaints in the Lower Civil Court in the
Judicial District of Peixoto de Azevedo in Brazil on
July 3, 2009.
Pilatus PC-12 Aircraft. On July 6, 2007, the
Company was served with an amended complaint filed in the
U.S. District Court for the Eastern District of
Pennsylvania against Pilatus Aircraft, Ltd., Pilatus Flugzeuweke
Aktiengellschaft, Rosemont Aerospace, Inc., Revue Thommen AC,
EMCA, Goodrich Corp., Goodrich Avionics Systems, Inc. (the
predecessor to L-3 Avionics) and the Company. The amended
complaint relates to the March 26, 2005 crash of a Pilatus
PC-12 aircraft near Belafonte, Pennsylvania in which all six on
board were lost. The amended complaint alleges that L-3 Avionics
(and/or its predecessor company, Goodrich Avionics) designed,
manufactured, tested, marketed, and sold the stick shaker/pusher
servo actuator on the Pilatus PC-12, and asserts claims against
L-3 Avionics and the Company based on negligence, breach of
warranty, and strict liability. The amended complaint seeks
unspecified monetary damages, including punitive damages. On
October 1, 2009, the court issued an order severing the
claims against Pilatus Aircraft, Ltd. and transferring those
claims to the U.S. District Court for the District of
Colorado. The Companys insurers have accepted defense of
the matter and have retained counsel, subject to a reservation
of rights by the insurers to dispute their obligations under the
applicable insurance policies in the event of an adverse finding.
T-39 Sabreliner Aircraft. On January 16, 2008,
the Company was served with three wrongful death lawsuits filed
in the U.S. District Court for the Southern District of New
York arising from the crash of a T-39 Sabreliner Aircraft near
Rome, GA on January 10, 2006. The Plaintiffs allege that
L-3 Vertex employed the pilot in command, David Roark, and
maintained the aircraft, and are seeking unspecified monetary
damages. The cases have been consolidated and transferred to the
U.S. District Court for the Northern District of Florida.
The Companys insurers have accepted defense of the matter
and have retained counsel, subject to a reservation of rights by
the insurers to dispute their obligations under the applicable
insurance policies in the event of an adverse finding. Two out
of the three lawsuits have been settled. The remaining lawsuit
is currently scheduled to go to trial in July of 2010.
Blackhawk Helicopter. On August 7, 2008, a
lawsuit was filed in the U.S. District Court for the
Southern District of Texas relating to the August 22, 2007
crash of a U.S. Army Blackhawk helicopter near Kirkuk,
Iraq. The complaint, which was brought on behalf of 14
passengers who were killed in the crash, alleges that the crash
was the result of L-3 Vertexs negligence in connection
with a phased maintenance inspection performed approximately one
week before the crash, and seeks unspecified monetary damages,
including punitive damages. Discovery is expected to be finished
by the end of February 2010, and the case is currently scheduled
to go to trial in May 2010. The Companys insurers have
accepted defense of this matter and have retained counsel,
subject to a reservation of rights by the insurers to dispute
their obligations under the applicable insurance policies in the
event of an adverse finding.
29
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
17.
|
Pension
and Other Postretirement Benefits
|
The following table summarizes the components of net periodic
benefit cost for the Companys pension and postretirement
benefit plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
Postretirement Benefit Plans
|
|
|
|
Third Quarter Ended
|
|
|
Year-to-Date Ended
|
|
|
Third Quarter Ended
|
|
|
Year-to-Date Ended
|
|
|
|
September 25,
|
|
|
September 26,
|
|
|
September 25,
|
|
|
September 26,
|
|
|
September 25,
|
|
|
September 26,
|
|
|
September 25,
|
|
|
September 26,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
22
|
|
|
$
|
21
|
|
|
$
|
67
|
|
|
$
|
67
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
3
|
|
|
$
|
4
|
|
Interest cost
|
|
|
29
|
|
|
|
26
|
|
|
|
84
|
|
|
|
79
|
|
|
|
2
|
|
|
|
3
|
|
|
|
8
|
|
|
|
8
|
|
Expected return on plan assets
|
|
|
(22
|
)
|
|
|
(29
|
)
|
|
|
(67
|
)
|
|
|
(89
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
(1
|
)
|
Amortization of prior service costs (credits)
|
|
|
1
|
|
|
|
|
|
|
|
3
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Amortization of net losses (gains)
|
|
|
13
|
|
|
|
1
|
|
|
|
39
|
|
|
|
5
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
Curtailment loss
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
43
|
|
|
$
|
20
|
|
|
$
|
127
|
|
|
$
|
65
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
6
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributions. For the year ending December 31,
2009, the Company currently expects to contribute cash of
approximately $65 million to its pension plans, and
approximately $13 million to its postretirement benefit
plans. The Company contributed cash of $46 million to its
pension plans and $8 million to its postretirement benefit
plans during the
year-to-date
period ended September 25, 2009.
|
|
18.
|
Employee
Stock-Based Compensation
|
At its Annual Meeting of Stockholders held on April 28,
2009, the stockholders of L-3 Holdings approved the L-3
Communications Corporation 2009 Employee Stock Purchase Plan
(2009 ESPP), which became effective on July 1, 2009. As a
result, no new options to purchase shares of L-3 Holdings
common stock will be granted under the Companys prior
employee stock purchase plan (2001 ESPP).
Under the 2009 ESPP, eligible employees are offered options to
purchase shares of L-3 Holdings common stock at 85% of the
fair market value of L-3 Holdings common stock on the last
day of each six-month offering period. Eligible employees
include all employees of the Company, or of a subsidiary or
affiliate of the Company that has been designated to participate
in the 2009 ESPP. Offering periods begin on the first trading
day in January and July of each calendar year and end on the
last trading day in June and December of each calendar year.
Fair market value is defined as the average of the highest and
lowest sales price of a share of L-3 Holdings common stock
on the last trading day of the trading period. Share purchases
are funded through payroll deductions of up to 10% of a
participating employees compensation for each payroll
period, or $21,250 each calendar year. Employees may not
purchase more than $25,000 worth of L-3 Holdings common
stock for each year based on the value of the common stock at
the beginning of each offering period during the year. After
adjustment for the shares issued under the 2001 ESPP, the 2009
ESPP authorizes L-3 Holdings to issue up to 7.4 million
shares. No shares will be issued under the 2009 ESPP until the
conclusion of the first six-month offering period, which began
on July 1, 2009 and ends on December 31, 2009.
30
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
19.
|
Supplemental
Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-Date Ended
|
|
|
|
September 25,
|
|
|
September 26,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Interest paid on outstanding debt
|
|
$
|
181
|
|
|
$
|
198
|
|
Income tax payments
|
|
|
271
|
|
|
|
265
|
|
Income tax refunds
|
|
|
3
|
|
|
|
6
|
|
The Company has four reportable segments, which are described in
Note 1. The tables below present net sales, operating
income, depreciation and amortization and total assets by
reportable segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended
|
|
|
Year-to-Date Ended
|
|
|
|
September 25,
|
|
|
September 26,
|
|
|
September 25,
|
|
|
September 26,
|
|
|
|
2009
|
|
|
2008(1)
|
|
|
2009
|
|
|
2008(1)
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C3ISR
|
|
$
|
772
|
|
|
$
|
622
|
|
|
$
|
2,258
|
|
|
$
|
1,794
|
|
Government Services
|
|
|
1,012
|
|
|
|
1,045
|
|
|
|
3,089
|
|
|
|
3,259
|
|
AM&M
|
|
|
775
|
|
|
|
636
|
|
|
|
2,176
|
|
|
|
1,956
|
|
Specialized Products
|
|
|
1,369
|
|
|
|
1,401
|
|
|
|
4,090
|
|
|
|
3,987
|
|
Elimination of intercompany sales
|
|
|
(86
|
)
|
|
|
(42
|
)
|
|
|
(206
|
)
|
|
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
3,842
|
|
|
$
|
3,662
|
|
|
$
|
11,407
|
|
|
$
|
10,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C3ISR
|
|
$
|
78
|
|
|
$
|
56
|
|
|
$
|
251
|
|
|
$
|
185
|
|
Government Services
|
|
|
103
|
|
|
|
100
|
|
|
|
295
|
|
|
|
322
|
|
AM&M
|
|
|
67
|
|
|
|
70
|
|
|
|
184
|
|
|
|
178
|
|
Specialized Products
|
|
|
170
|
|
|
|
174
|
|
|
|
481
|
|
|
|
458
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
$
|
418
|
|
|
$
|
400
|
|
|
$
|
1,211
|
|
|
$
|
1,143
|
|
Litigation gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
418
|
|
|
$
|
400
|
|
|
$
|
1,211
|
|
|
$
|
1,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C3ISR
|
|
$
|
11
|
|
|
$
|
10
|
|
|
$
|
32
|
|
|
$
|
30
|
|
Government Services
|
|
|
10
|
|
|
|
8
|
|
|
|
29
|
|
|
|
26
|
|
AM&M
|
|
|
5
|
|
|
|
7
|
|
|
|
15
|
|
|
|
19
|
|
Specialized Products
|
|
|
29
|
|
|
|
27
|
|
|
|
86
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
55
|
|
|
$
|
52
|
|
|
$
|
162
|
|
|
$
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
September 25,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008(1)
|
|
|
|
(in millions)
|
|
|
Total Assets:
|
|
|
|
|
|
|
|
|
C3ISR
|
|
$
|
1,877
|
|
|
$
|
1,755
|
|
Government Services
|
|
|
3,458
|
|
|
|
3,494
|
|
AM&M
|
|
|
1,968
|
|
|
|
1,836
|
|
Specialized Products
|
|
|
6,590
|
|
|
|
6,319
|
|
Corporate
|
|
|
1,175
|
|
|
|
1,080
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
15,068
|
|
|
$
|
14,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As a result of certain
re-alignments in the Companys management and organization
structure as discussed in Note 2, sales of $4 million and
$11 million and operating income of $1 million and
$2 million were reclassified from the
C3ISR
reportable segment to the Government Services reportable segment
for the quarter and
year-to-date
period ended September 26, 2008, and sales of
$4 million and $16 million and operating income of
less than $1 million and $2 million were reclassified
from the
C3ISR
reportable segment to the AM&M reportable segment for the
quarter and
year-to-date
period ended September 26, 2008. At December 31, 2008,
$30 million of total assets was reclassified from the
C3ISR
reportable segment to the Government Services reportable segment
and $29 million of total assets was reclassified from the
C3ISR
reportable segment to the AM&M reportable segment.
|
(2) |
|
Operating income for the
Specialized Products reportable segment includes: (i) a
gain of $12 million from the sale of the PMD product line
(see Note 4) and (ii) a non-cash impairment
charge of $28 million related to a write-down of
capitalized software development costs, which were both recorded
in the second quarter of 2008.
|
(3) |
|
Represents a gain recorded in the
second quarter of 2008 for the reversal of a current liability
for pending and threatened litigation as a result of a
June 27, 2008 decision by the U.S. Court of Appeals
vacating an adverse 2006 jury verdict.
|
|
|
21.
|
Accounting
Standards Issued and Not Yet Implemented
|
In October 2009, the FASB revised the accounting guidance for
revenue arrangements with multiple deliverables. The revision:
(1) removes the
objective-and-reliable-evidence-of-fair-value
criterion from the separation criteria used to determine whether
an arrangement involving multiple deliverables contains more
than one unit of accounting, (2) provides a hierarchy that
entities must use to estimate the selling price,
(3) eliminates the use of the residual method for
allocation, and (4) expands the ongoing disclosure
requirements. This update is effective for the Company beginning
January 1, 2011 and can be applied prospectively or
retrospectively. The Company is currently assessing the impact
of the revised accounting guidance.
In June 2009, the FASB issued an accounting standard for
variable interest entities which changes the approach to
determining the primary beneficiary of a variable interest
entity (VIE) and requires companies to assess more frequently
whether they must consolidate VIEs. The new accounting standard
is effective for the Company beginning on January 1, 2010.
The Company is currently assessing the impact of the new
accounting standard.
In December 2008, the FASB issued an accounting standard that
expands the disclosure requirements for pension and other
postretirement plan assets and is effective for the Company
beginning December 31, 2009. The adoption of this standard
will not have a material effect on the Companys financial
position, results of operations and cash flows, but will enhance
the Companys pension and other postretirement benefit plan
assets disclosures.
32
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
22.
|
Unaudited
Financial Information of L-3 Communications and Its
Subsidiaries
|
L-3 Communications is a wholly-owned subsidiary of L-3 Holdings.
The debt of L-3 Communications, including the Senior
Subordinated Notes and borrowings under amounts drawn against
the Senior Credit Facility, are guaranteed, on a joint and
several, full and unconditional basis, by certain of its
domestic subsidiaries (the Guarantor Subsidiaries).
The foreign subsidiaries and certain domestic subsidiaries of
L-3 Communications (the Non-Guarantor Subsidiaries)
do not guarantee the debt of L-3 Communications. None of the
debt of L-3 Communications has been issued by its subsidiaries.
There are no restrictions on the payment of dividends from the
Guarantor Subsidiaries to L-3 Communications.
The following unaudited condensed combining financial
information presents the results of operations, financial
position and cash flows of: (1) L-3 Holdings, excluding L-3
Communications and its consolidated subsidiaries (the
Parent), (2) L-3 Communications, excluding its
consolidated subsidiaries, (3) the Guarantor Subsidiaries,
(4) the Non-Guarantor Subsidiaries, and (5) the
eliminations to arrive at the information for L-3 on a
consolidated basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L-3
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
L-3
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
Consolidated
|
|
|
|
(Parent)
|
|
|
Communications
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
L-3
|
|
|
|
(in millions)
|
|
|
Condensed Combining Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 25, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
887
|
|
|
$
|
12
|
|
|
$
|
337
|
|
|
$
|
(45
|
)
|
|
$
|
1,191
|
|
Billed receivables, net
|
|
|
|
|
|
|
303
|
|
|
|
765
|
|
|
|
202
|
|
|
|
|
|
|
|
1,270
|
|
Contracts in process
|
|
|
|
|
|
|
641
|
|
|
|
1,494
|
|
|
|
263
|
|
|
|
|
|
|
|
2,398
|
|
Other current assets
|
|
|
|
|
|
|
250
|
|
|
|
176
|
|
|
|
128
|
|
|
|
|
|
|
|
554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
2,081
|
|
|
|
2,447
|
|
|
|
930
|
|
|
|
(45
|
)
|
|
|
5,413
|
|
Goodwill
|
|
|
|
|
|
|
1,144
|
|
|
|
5,876
|
|
|
|
1,168
|
|
|
|
|
|
|
|
8,188
|
|
Other assets
|
|
|
5
|
|
|
|
461
|
|
|
|
823
|
|
|
|
183
|
|
|
|
(5
|
)
|
|
|
1,467
|
|
Investment in and amounts due from consolidated subsidiaries
|
|
|
7,057
|
|
|
|
8,869
|
|
|
|
1,721
|
|
|
|
|
|
|
|
(17,647
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,062
|
|
|
$
|
12,555
|
|
|
$
|
10,867
|
|
|
$
|
2,281
|
|
|
$
|
(17,697
|
)
|
|
$
|
15,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
|
|
|
$
|
650
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
650
|
|
Other current liabilities
|
|
|
|
|
|
|
732
|
|
|
|
1,362
|
|
|
|
608
|
|
|
|
(45
|
)
|
|
|
2,657
|
|
Amounts due to consolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
|
|
Other long-term liabilities
|
|
|
|
|
|
|
951
|
|
|
|
230
|
|
|
|
266
|
|
|
|
|
|
|
|
1,447
|
|
Long-term debt
|
|
|
700
|
|
|
|
3,860
|
|
|
|
|
|
|
|
|
|
|
|
(700
|
)
|
|
|
3,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
700
|
|
|
|
6,193
|
|
|
|
1,592
|
|
|
|
877
|
|
|
|
(748
|
)
|
|
|
8,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L-3 shareholders equity
|
|
|
6,362
|
|
|
|
6,362
|
|
|
|
9,275
|
|
|
|
1,404
|
|
|
|
(17,041
|
)
|
|
|
6,362
|
|
Noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
6,362
|
|
|
|
6,362
|
|
|
|
9,275
|
|
|
|
1,404
|
|
|
|
(16,949
|
)
|
|
|
6,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
7,062
|
|
|
$
|
12,555
|
|
|
$
|
10,867
|
|
|
$
|
2,281
|
|
|
$
|
(17,697
|
)
|
|
$
|
15,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
720
|
|
|
$
|
2
|
|
|
$
|
228
|
|
|
$
|
(83
|
)
|
|
$
|
867
|
|
Billed receivables, net
|
|
|
|
|
|
|
324
|
|
|
|
701
|
|
|
|
201
|
|
|
|
|
|
|
|
1,226
|
|
Contracts in process
|
|
|
|
|
|
|
587
|
|
|
|
1,461
|
|
|
|
219
|
|
|
|
|
|
|
|
2,267
|
|
Other current assets
|
|
|
|
|
|
|
291
|
|
|
|
170
|
|
|
|
140
|
|
|
|
|
|
|
|
601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
1,922
|
|
|
|
2,334
|
|
|
|
788
|
|
|
|
(83
|
)
|
|
|
4,961
|
|
Goodwill
|
|
|
|
|
|
|
1,171
|
|
|
|
5,746
|
|
|
|
1,112
|
|
|
|
|
|
|
|
8,029
|
|
Other assets
|
|
|
8
|
|
|
|
475
|
|
|
|
837
|
|
|
|
182
|
|
|
|
(8
|
)
|
|
|
1,494
|
|
Investment in and amounts due from consolidated subsidiaries
|
|
|
6,550
|
|
|
|
8,489
|
|
|
|
1,283
|
|
|
|
80
|
|
|
|
(16,402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
6,558
|
|
|
$
|
12,057
|
|
|
$
|
10,200
|
|
|
$
|
2,162
|
|
|
$
|
(16,493
|
)
|
|
$
|
14,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
|
|
|
$
|
824
|
|
|
$
|
1,395
|
|
|
$
|
571
|
|
|
$
|
(83
|
)
|
|
$
|
2,707
|
|
Other long-term liabilities
|
|
|
|
|
|
|
882
|
|
|
|
219
|
|
|
|
242
|
|
|
|
|
|
|
|
1,343
|
|
Long-term debt
|
|
|
700
|
|
|
|
4,493
|
|
|
|
|
|
|
|
|
|
|
|
(700
|
)
|
|
|
4,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
700
|
|
|
|
6,199
|
|
|
|
1,614
|
|
|
|
813
|
|
|
|
(783
|
)
|
|
|
8,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L-3 shareholders equity
|
|
|
5,858
|
|
|
|
5,858
|
|
|
|
8,586
|
|
|
|
1,349
|
|
|
|
(15,793
|
)
|
|
|
5,858
|
|
Noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
5,858
|
|
|
|
5,858
|
|
|
|
8,586
|
|
|
|
1,349
|
|
|
|
(15,710
|
)
|
|
|
5,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
6,558
|
|
|
$
|
12,057
|
|
|
$
|
10,200
|
|
|
$
|
2,162
|
|
|
$
|
(16,493
|
)
|
|
$
|
14,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 25, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
789
|
|
|
$
|
2,627
|
|
|
$
|
459
|
|
|
$
|
(33
|
)
|
|
$
|
3,842
|
|
Cost of sales
|
|
|
18
|
|
|
|
678
|
|
|
|
2,377
|
|
|
|
402
|
|
|
|
(51
|
)
|
|
|
3,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(18
|
)
|
|
|
111
|
|
|
|
250
|
|
|
|
57
|
|
|
|
18
|
|
|
|
418
|
|
Interest and other income, net
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
(28
|
)
|
|
|
3
|
|
Interest expense
|
|
|
11
|
|
|
|
68
|
|
|
|
27
|
|
|
|
1
|
|
|
|
(39
|
)
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(29
|
)
|
|
|
74
|
|
|
|
223
|
|
|
|
56
|
|
|
|
29
|
|
|
|
353
|
|
(Benefit) provision for income taxes
|
|
|
(9
|
)
|
|
|
27
|
|
|
|
53
|
|
|
|
20
|
|
|
|
9
|
|
|
|
100
|
|
Equity in net income of consolidated subsidiaries
|
|
|
270
|
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
(473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
250
|
|
|
|
250
|
|
|
|
170
|
|
|
|
36
|
|
|
|
(453
|
)
|
|
|
253
|
|
Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to L-3
|
|
$
|
250
|
|
|
$
|
250
|
|
|
$
|
170
|
|
|
$
|
36
|
|
|
$
|
(456
|
)
|
|
$
|
250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the quarter ended September 26, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
803
|
|
|
$
|
2,408
|
|
|
$
|
489
|
|
|
$
|
(38
|
)
|
|
$
|
3,662
|
|
Cost of sales
|
|
|
18
|
|
|
|
689
|
|
|
|
2,161
|
|
|
|
450
|
|
|
|
(56
|
)
|
|
|
3,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(18
|
)
|
|
|
114
|
|
|
|
247
|
|
|
|
39
|
|
|
|
18
|
|
|
|
400
|
|
Interest and other income, net
|
|
|
|
|
|
|
32
|
|
|
|
2
|
|
|
|
2
|
|
|
|
(29
|
)
|
|
|
7
|
|
Interest expense
|
|
|
11
|
|
|
|
71
|
|
|
|
28
|
|
|
|
2
|
|
|
|
(40
|
)
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(29
|
)
|
|
|
75
|
|
|
|
221
|
|
|
|
39
|
|
|
|
29
|
|
|
|
335
|
|
(Benefit) provision for income taxes
|
|
|
(10
|
)
|
|
|
25
|
|
|
|
83
|
|
|
|
15
|
|
|
|
10
|
|
|
|
123
|
|
Equity in net income of consolidated subsidiaries
|
|
|
229
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
(389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
210
|
|
|
|
210
|
|
|
|
138
|
|
|
|
24
|
|
|
|
(370
|
)
|
|
|
212
|
|
Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to L-3
|
|
$
|
210
|
|
|
$
|
210
|
|
|
$
|
138
|
|
|
$
|
24
|
|
|
$
|
(372
|
)
|
|
$
|
210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
year-to-date
period ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 25, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
2,476
|
|
|
$
|
7,659
|
|
|
$
|
1,369
|
|
|
$
|
(97
|
)
|
|
$
|
11,407
|
|
Cost of sales
|
|
|
53
|
|
|
|
2,163
|
|
|
|
6,913
|
|
|
|
1,217
|
|
|
|
(150
|
)
|
|
|
10,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(53
|
)
|
|
|
313
|
|
|
|
746
|
|
|
|
152
|
|
|
|
53
|
|
|
|
1,211
|
|
Interest and other income, net
|
|
|
|
|
|
|
94
|
|
|
|
1
|
|
|
|
2
|
|
|
|
(85
|
)
|
|
|
12
|
|
Interest expense
|
|
|
33
|
|
|
|
202
|
|
|
|
82
|
|
|
|
4
|
|
|
|
(118
|
)
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(86
|
)
|
|
|
205
|
|
|
|
665
|
|
|
|
150
|
|
|
|
86
|
|
|
|
1,020
|
|
(Benefit) provision for income taxes
|
|
|
(29
|
)
|
|
|
71
|
|
|
|
214
|
|
|
|
54
|
|
|
|
29
|
|
|
|
339
|
|
Equity in net income of consolidated subsidiaries
|
|
|
731
|
|
|
|
540
|
|
|
|
|
|
|
|
|
|
|
|
(1,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
674
|
|
|
|
674
|
|
|
|
451
|
|
|
|
96
|
|
|
|
(1,214
|
)
|
|
|
681
|
|
Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to L-3
|
|
$
|
674
|
|
|
$
|
674
|
|
|
$
|
451
|
|
|
$
|
96
|
|
|
$
|
(1,221
|
)
|
|
$
|
674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
year-to-date
period ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 26, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
2,204
|
|
|
$
|
7,277
|
|
|
$
|
1,494
|
|
|
$
|
(85
|
)
|
|
$
|
10,890
|
|
Cost of sales
|
|
|
48
|
|
|
|
1,894
|
|
|
|
6,588
|
|
|
|
1,350
|
|
|
|
(133
|
)
|
|
|
9,747
|
|
Litigation gain
|
|
|
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(48
|
)
|
|
|
436
|
|
|
|
689
|
|
|
|
144
|
|
|
|
48
|
|
|
|
1,269
|
|
Interest and other income, net
|
|
|
|
|
|
|
99
|
|
|
|
4
|
|
|
|
5
|
|
|
|
(86
|
)
|
|
|
22
|
|
Interest expense
|
|
|
32
|
|
|
|
213
|
|
|
|
82
|
|
|
|
5
|
|
|
|
(118
|
)
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(80
|
)
|
|
|
322
|
|
|
|
611
|
|
|
|
144
|
|
|
|
80
|
|
|
|
1,077
|
|
(Benefit) provision for income taxes
|
|
|
(29
|
)
|
|
|
112
|
|
|
|
229
|
|
|
|
54
|
|
|
|
29
|
|
|
|
395
|
|
Equity in net income of consolidated subsidiaries
|
|
|
725
|
|
|
|
464
|
|
|
|
|
|
|
|
|
|
|
|
(1,189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
674
|
|
|
|
674
|
|
|
|
382
|
|
|
|
90
|
|
|
|
(1,138
|
)
|
|
|
682
|
|
Net income attributable to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to L-3
|
|
$
|
674
|
|
|
$
|
674
|
|
|
$
|
382
|
|
|
$
|
90
|
|
|
$
|
(1,146
|
)
|
|
$
|
674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
year-to-date
period ended
September 25, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
$
|
520
|
|
|
$
|
30
|
|
|
$
|
753
|
|
|
$
|
157
|
|
|
$
|
(482
|
)
|
|
$
|
978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business acquisitions, net of cash acquired
|
|
|
|
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86
|
)
|
Other investing activities
|
|
|
(55
|
)
|
|
|
(31
|
)
|
|
|
(85
|
)
|
|
|
(9
|
)
|
|
|
55
|
|
|
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(55
|
)
|
|
|
(117
|
)
|
|
|
(85
|
)
|
|
|
(9
|
)
|
|
|
55
|
|
|
|
(211
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock repurchased
|
|
|
(396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(396
|
)
|
Other financing activities
|
|
|
(69
|
)
|
|
|
254
|
|
|
|
(658
|
)
|
|
|
(60
|
)
|
|
|
465
|
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) from financing activities
|
|
|
(465
|
)
|
|
|
254
|
|
|
|
(658
|
)
|
|
|
(60
|
)
|
|
|
465
|
|
|
|
(464
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange rate on cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
|
|
|
|
167
|
|
|
|
10
|
|
|
|
109
|
|
|
|
38
|
|
|
|
324
|
|
Cash and cash equivalents, beginning of the period
|
|
|
|
|
|
|
720
|
|
|
|
2
|
|
|
|
228
|
|
|
|
(83
|
)
|
|
|
867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period
|
|
$
|
|
|
|
$
|
887
|
|
|
$
|
12
|
|
|
$
|
337
|
|
|
$
|
(45
|
)
|
|
$
|
1,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
year-to-date
period ended
September 26, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
$
|
684
|
|
|
$
|
13
|
|
|
$
|
848
|
|
|
$
|
140
|
|
|
$
|
(654
|
)
|
|
$
|
1,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business acquisitions, net of cash acquired
|
|
|
|
|
|
|
(224
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(224
|
)
|
Other investing activities
|
|
|
(87
|
)
|
|
|
(38
|
)
|
|
|
(76
|
)
|
|
|
(14
|
)
|
|
|
87
|
|
|
|
(128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(87
|
)
|
|
|
(262
|
)
|
|
|
(76
|
)
|
|
|
(14
|
)
|
|
|
87
|
|
|
|
(352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock repurchased
|
|
|
(573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(573
|
)
|
Other financing activities
|
|
|
(24
|
)
|
|
|
256
|
|
|
|
(770
|
)
|
|
|
(121
|
)
|
|
|
637
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) from financing activities
|
|
|
(597
|
)
|
|
|
256
|
|
|
|
(770
|
)
|
|
|
(121
|
)
|
|
|
637
|
|
|
|
(595
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange rate on cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
|
|
|
|
7
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
70
|
|
|
|
77
|
|
Cash and cash equivalents, beginning of the period
|
|
|
|
|
|
|
632
|
|
|
|
7
|
|
|
|
237
|
|
|
|
(96
|
)
|
|
|
780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period
|
|
$
|
|
|
|
$
|
639
|
|
|
$
|
9
|
|
|
$
|
235
|
|
|
$
|
(26
|
)
|
|
$
|
857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
ITEM 2.
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial
Section Roadmap
Managements discussion and analysis (MD&A) can be
found on pages 37 to 54, and our unaudited condensed
consolidated financial statements and related notes contained in
this quarterly report can be found on pages 1 to 36. The
following table is designed to assist in your review of
MD&A.
|
|
|
Topic
|
|
Location
|
|
Overview and Outlook:
|
|
|
L-3s Business
|
|
Pages 37 38
|
Key Performance Measures
|
|
Pages 38 39
|
Other Events
|
|
Pages 39 40
|
Business Acquisitions and Business and Product Line Dispositions
|
|
Page 40
|
Critical Accounting Policies
|
|
Pages 40 43
|
Results of Operations (includes business segments)
|
|
Pages 43 49
|
Liquidity and Capital Resources:
|
|
|
Anticipated Sources of Cash Flow
|
|
Page 50
|
Balance Sheet
|
|
Pages 50 51
|
Statement of Cash Flows
|
|
Pages 51 54
|
Legal Proceedings and Contingencies
|
|
Page 54
|
Overview
and Outlook
L-3s
Business
L-3 is a prime system contractor in aircraft modernization and
maintenance, Command, Control, Communications, Intelligence,
Surveillance and Reconnaissance
(C3ISR)
systems, and government services.
L-3 is also
a leading provider of high technology products, subsystems and
systems. Our customers include the U.S. Department of
Defense (DoD) and its prime contractors, U.S. Government
intelligence agencies, the U.S. Department of Homeland
Security (DHS), U.S. Department of State (DoS),
U.S. Department of Justice (DoJ), allied foreign
governments, domestic and foreign commercial customers, and
select other U.S. federal, state and local government
agencies.
For the year ended December 31, 2008, we generated sales of
$14.9 billion. The table below presents a summary of our
2008 sales by major category of end customer and the percent
contributed by each end customer to our total 2008 sales. We
currently do not anticipate significant changes to our end
customer sales mix for the year ending December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
2008 Sales
|
|
|
2008 Sales
|
|
|
|
(in millions)
|
|
|
|
|
|
DoD
|
|
$
|
11,059
|
|
|
|
74
|
%
|
Other U.S. Government
|
|
|
1,067
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Government
|
|
|
12,126
|
|
|
|
81
|
%
|
Foreign governments
|
|
|
1,099
|
|
|
|
7
|
|
Commercial foreign
|
|
|
987
|
|
|
|
7
|
|
Commercial domestic
|
|
|
689
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
14,901
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
37
We have the following four reportable segments:
(1) C3ISR,
(2) Government Services, (3) Aircraft Modernization
and Maintenance (AM&M), and (4) Specialized Products.
Financial information with respect to each of our reportable
segments is included in Note 20 to our unaudited condensed
consolidated financial statements contained in this quarterly
report.
C3ISR
provides products and services for the global ISR market,
C3
systems, networked communications systems and secure
communications products. We believe that these products and
services are critical elements for a substantial number of major
command, control and communication, intelligence gathering and
space systems. These products and services are used to connect a
variety of airborne, space, ground and sea-based communication
systems and are used in the transmission, processing, recording,
monitoring, and dissemination functions of these communication
systems. Government Services provides a full range of
engineering, technical, information technology (IT), advisory,
training and support services to the DoD, DoS, DoJ, and
U.S. Government intelligence agencies and allied foreign
governments. AM&M provides modernization, upgrades and
sustainment, maintenance and logistics support services for
military and various government aircraft and other platforms. We
sell these services primarily to the DoD, the Canadian
Department of Defense (DND) and other allied foreign
governments. Specialized Products provides a broad range of
products, including components, products, subsystems, systems,
and related services to military and commercial customers in
several niche markets across several business areas, including
power & control systems, electro-optic/infrared
(EO/IR), microwave, simulation & training, precision
engagement, aviation products, security & detection,
propulsion systems, displays, telemetry & advanced
technology, undersea warfare, and marine services. During the
quarter ended March 27, 2009, we revised our reportable
segment presentations to conform to certain re-alignments in our
management and organization structure. Consequently, we made
certain reclassifications between our
C3ISR,
Government Services and AM&M reportable segments. See
Note 20 to our unaudited condensed consolidated financial
statements contained in this quarterly report for the prior
period amounts reclassified between reportable segments.
Key
Performance Measures
The primary financial performance measures that L-3 uses to
manage its businesses and monitor results of operations are
sales growth and operating income growth. Management believes
that these financial performance measures are the primary growth
drivers for L-3s earnings per common share and net cash
from operating activities. L-3s business strategy is
focused on increasing sales from organic growth and select
business acquisitions that add important new products, services,
technologies, programs, contract vehicles or customers in areas
that complement L-3s existing businesses. We define
organic sales growth as the increase or decrease in sales for
the current period compared to the prior period, excluding sales
in the: (1) current period from business and product line
acquisitions that are included in L-3s actual results of
operations for less than twelve months, and (2) prior
period from business and product line divestitures that are
included in L-3s actual results of operations for the
twelve-month period prior to the divestiture date. The two main
determinants of our operating income growth are sales growth and
improvements in operating margin. We define operating margin as
operating income as a percentage of sales.
Sales Growth. Sales growth for the year ended
December 31, 2008 was 7%, comprised of organic sales growth
of 5%, and sales growth from business acquisitions, net of
divestitures, of 2%. Sales growth for the quarter ended
September 25, 2009 (2009 Third Quarter) was 4.9%, comprised
of organic sales growth of 4.1%, and sales growth from business
acquisitions, net of divestitures, of 0.8%. Sales growth for the
year-to-date
period ended September 25, 2009
(2009 Year-to-Date
Period) was 4.7%, comprised of organic sales growth of 3.4%, and
sales growth from business acquisitions, net of divestitures, of
1.3%.
For the year ended December 31, 2008, our Special
Operations Forces Support Activity (SOFSA) contract generated
approximately $400 million, or 2.7% of our sales. On
March 3, 2009, SOFSA announced that L-3 was not selected to
perform on the follow-on contract. L-3 subsequently protested
and, as a consequence, SOFSA has taken corrective action, which
will include the issuance of a revised solicitation. Once a new
solicitation is issued, proposals will be requested from all
bidders. In the interim, L-3s incumbent contract has been
extended until February 2010. We can provide no assurance as to
the outcome of the competition for the next SOFSA contact.
As is the case with most other U.S. defense contractors, we
have benefited from the upward trend in DoD budget authorization
and spending outlays over recent years, including supplemental
appropriations for military
38
operations in Iraq and Afghanistan. We expect future DoD
budgets, including supplemental appropriations, to grow at a
significantly slower pace than the past several years, and to
possibly flatten or decline. However, we believe that our
businesses should be able to continue to generate modest organic
sales growth because we anticipate the defense budget and
spending priorities will continue to focus on several areas that
match L-3s core competencies, such as communications and
ISR, sensors, special operations support, helicopter crew
training and maintenance and simulation & training.
The
2008 Year-to-Date
Period results were impacted by three items that, in the
aggregate, increased operating income for that period by
$110 million. These three items are collectively referred
to as the Q2 2008 Items and are further discussed below under
the caption Other Events. In addition, higher
pension expense for the 2009 Third Quarter compared to the 2008
Third Quarter reduced operating income by $21 million
($13 million after income taxes, or $0.11 per diluted
share) and $56 million ($34 million after income
taxes, or $0.29 per diluted share) for the
2009 Year-to-Date
Period compared to the
2008 Year-to-Date
Period. The Q2 2008 items increased the
2008 Year-to-Date
Period operating margin by 110 basis points. The increase
in pension expense reduced operating margin by 50 basis
points for both the 2009 Third Quarter and
2009 Year-to-Date
Period. The pension expense increase is primarily due to the
actuarial loss that we experienced in 2008 as a result of the
decline in the fair value of our pension plan assets, which is
being amortized as a component of pension expense. See segment
results below for additional discussion of segment operating
margin results.
Excluding the Q2 2008 Items and the increase in our 2009 pension
expense, we expect to continue to generate modest annual
increases in operating margin. We expect to increase sales, grow
sales at a rate faster than the increase in our indirect costs,
and improve our overall contract performance. However, we may
not be able to continue to expand our operating margin at the
rates we expect and our operating margin could also decrease.
Additionally, in the future, select business acquisitions and
select new business, including contract renewals and new
contracts, while increasing or maintaining our operating income
could also reduce our operating margin if their margins are
lower than L-3s existing operating margin. Our business
objectives include growing earnings per common share and net
cash from operating activities.
Other
Events
Accounting Standards Implemented. We adopted eight
newly issued accounting standards during the
2009 Year-to-Date
Period, six of which were effective January 1, 2009. In
accordance with the transition and disclosure provisions of
three of these standards, we retrospectively applied those
provisions and adjusted the prior period financial statements
accordingly. The adoption of these standards reduced net income
attributable to L-3 by $3 million ($0.03 per diluted share)
for the 2009 Third Quarter and $9 million ($0.10 per
diluted share) for the
2009 Year-to-Date
Period. See Note 3 to our unaudited condensed consolidated
financial statements contained in this quarterly report for the
standards adopted and their impact to our financial position and
results of operations.
Debt Refinancing. On October 2, 2009, L-3
Communications successfully completed a $1 billion offering
of 5.20% senior notes. The net cash proceeds from the
offering, together with cash on hand, were used by
L-3 Communications
to repay its outstanding $650 million term loan on
October 7, 2009 and to redeem its outstanding
$750 million
75/8% senior
subordinated notes on November 2, 2009. On October 23,
2009,
L-3 Communications
also replaced its $1 billion senior revolving credit
facility, which was due to expire on March 9, 2010, with a
new $1 billion three-year senior revolving credit facility
that expires on October 23, 2012. See Liquidity and
Capital Resources Debt on page 52 for a
further discussion.
2008 Year-to-Date
Events. As discussed above, our
2008 Year-to-Date
period results were affected by three matters, which increased
consolidated operating income by $110 million, income
before taxes by $117 million, net income by
$71 million and diluted earnings per share (EPS) by $0.57,
which are collectively referred to as the Q2 2008 Items:
|
|
|
|
|
A gain of $133 million ($81 million after income
taxes, or $0.65 per diluted share) relating to the reversal of a
$126 million liability as a result of a June 27, 2008
decision by the U.S. Court of Appeals vacating an adverse
2006 jury verdict and the reversal of $7 million of related
accrued interest (the Litigation Gain),
|
|
|
|
A gain of $12 million ($7 million after income taxes,
or $0.06 per diluted share) relating to the sale of a product
line (the Product Line Divestiture Gain), and
|
39
|
|
|
|
|
A non-cash impairment charge of $28 million
($17 million after income taxes, or $0.14 per diluted
share) relating to a write-down of capitalized software
development costs associated with a general aviation product
(the Impairment Charge).
|
Business
Acquisitions and Business and Product Line
Dispositions
Our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008 summarizes the
business acquisitions and business and product line dispositions
that we completed during the three years ended December 31,
2008. Also, see Note 4 to our unaudited condensed
consolidated financial statements contained in this quarterly
report for a discussion of the acquisition of Chesapeake
Sciences Corporation (CSC) acquired on January 30, 2009.
During the
2009 Year-to-Date
Period, we used $86 million of cash (net of cash received)
primarily to acquire CSC.
All of our business acquisitions are included in our
consolidated results of operations from their dates of
acquisition. We regularly evaluate potential business
acquisitions.
Critical
Accounting Policies Goodwill and Identifiable
Intangible Assets
The following paragraphs are an update to the discussion of our
critical accounting policies included in
Part II Item 7, Managements
Discussion and Analysis of Financial Condition and Results of
Operations of our Annual Report on
Form 10-K
for the year ended December 31, 2008. The update provides
additional information about the assumptions and estimates used
in connection with the 2008 annual goodwill impairment test.
There were no changes to our critical accounting policies since
December 31, 2008.
Goodwill and Identifiable Intangible Assets. We
review goodwill and intangible assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of these assets may not be recoverable and also review
goodwill annually as of November 30 in accordance with
U.S. Generally Accepted Accounting Principles
(U.S. GAAP) for goodwill and other intangible assets
(contained in Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) Topic 350,
Intangibles-Goodwill and Other).
U.S. GAAP for goodwill and other intangible assets require
that goodwill be tested, at a minimum, annually for each
reporting unit using a two-step process. A reporting unit is an
operating segment, as defined in U.S. GAAP for segment
reporting (contained in FASB ASC Topic 280, Segment
Reporting), or a component of an operating segment. A
component of an operating segment is a reporting unit if the
component constitutes a business for which discrete financial
information is available and is reviewed by operating segment
management. Two or more components of an operating segment may
be aggregated and deemed a single reporting unit for goodwill
impairment testing purposes if the components have similar
economic characteristics.
L-3 had 18 reporting units at December 31, 2008 and 2007.
The composition of our reporting units and associated goodwill
were substantially the same in 2008 as compared to 2007 except
for changes in goodwill caused primarily by business
acquisitions, a divestiture, the completion of Internal Revenue
Service audits related to previously acquired businesses and
foreign currency translation adjustments, in each case, as
disclosed in Note 7 to our audited consolidated financial
statements, included in our Annual Report on
Form 10-K
for the year ended December 31, 2008.
The table below presents the number of reporting units in each
of our reportable segments and the associated goodwill, at
December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Aggregate
|
|
Reportable Segment
|
|
Reporting Units
|
|
|
Goodwill
|
|
|
|
|
|
|
(in millions)
|
|
|
C3ISR
|
|
|
3
|
|
|
$
|
896
|
|
Government Services
|
|
|
1
|
|
|
|
2,296
|
|
AM&M
|
|
|
1
|
|
|
|
1,104
|
|
Specialized Products
|
|
|
13
|
|
|
|
3,733
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
18
|
|
|
$
|
8,029
|
|
|
|
|
|
|
|
|
|
|
40
The first step to identify any potential impairment in goodwill
is to compare the carrying value of the reporting unit to its
fair value. If a potential impairment is identified, the second
step is to measure the impairment loss by comparing the implied
fair value of goodwill with the carrying value of goodwill of
the reporting unit. Our methodology for determining the fair
value of a reporting unit uses a discounted cash flow (DCF)
valuation approach, and is dependent on estimates for future
sales, operating income, depreciation and amortization, income
tax payments, working capital changes, and capital expenditures,
as well as, expected long-term growth rates for cash flows and
interest rates. All of these factors are affected by economic
conditions related to the industries in which we operate
(predominantly the U.S. defense industry), and prevailing
conditions in the U.S. capital markets.
The more significant assumptions used in our DCF valuations to
determine the fair values of our reporting units in connection
with goodwill impairment assessments at November 30, 2008,
were: (1) detailed five-year cash flow projections for each
of our reporting units, which are based primarily on our
estimates of future sales and operating income, (2) the
expected long-term growth rates for each of our reporting units,
which approximate the expected long-term growth rate for the
U.S. economy and the respective industries in which the
reporting units operate, and (3) risk adjusted discount
rates, including the estimated risk-free rate of return that are
used to discount future cash flow projections to their present
values. There were no changes to the underlying methods used in
2008 as compared to the prior year DCF valuations of our
reporting units.
The risk adjusted discount rate represents the estimated
Weighted Average Cost of Capital (WACC) for each reporting unit
at the date of the annual impairment test. Each reporting unit
WACC was comprised of: (1) an estimated required rate of
return on equity, based on publicly traded companies with
business characteristics comparable to each of L-3s
reporting units, including a risk free rate of return (i.e.,
prevailing market yield of 3.5% on the 30 year
U.S. Treasury Bond as of November 30, 2008) and
an equity risk premium of 5%, and (2) the current after-tax
market rate of return on L-3s debt (which was 4.3% as of
November 30, 2008), each weighted by the relative market
value percentages of L-3s equity and debt. The WACC
assumptions for each reporting unit are based on a number of
market inputs that are outside of our control and are updated
annually to reflect changes to such market inputs as of the date
of our annual goodwill impairment assessments, including:
(1) changes to the estimated required rate of return on
equity based on historical returns on common stock securities of
publicly traded companies with business characteristics
comparable to each of L-3s reporting units and the
Standard & Poors 500 Index over a two-year
period, (2) changes to the risk free rate of return based
on the prevailing market yield on the 30 year
U.S. Treasury Bond on the date of our annual goodwill
impairment assessments, and (3) changes to the market rate
of return on L-3s debt based on the prevailing yields on
L-3s publicly traded debt securities on the date of our
annual goodwill impairment assessments. The 2008 equity risk
premium of 5% used to determine our WACC was unchanged from the
prior year.
The table below presents the weighted average risk adjusted
discount rate assumptions used in our DCF valuation for each of
our reportable segments in connection with the goodwill
impairment assessments at November 30, 2008.
|
|
|
|
|
|
|
|
|
Reportable Segment
|
|
2009 2018
|
|
|
After 2018
|
|
|
C3ISR(1)
|
|
|
7.9
|
%
|
|
|
8.6
|
%
|
Government
Services(2)
|
|
|
8.3
|
%
|
|
|
9.2
|
%
|
AM&M(2)
|
|
|
7.9
|
%
|
|
|
8.6
|
%
|
Specialized
Products(3)
|
|
|
8.2
|
%
|
|
|
9.0
|
%
|
|
|
|
(1)
|
|
All reporting units within the
C3ISR
reportable segment used the same risk adjusted discount rate for
both periods.
|
(2)
|
|
The Government Services and
AM&M reportable segments are each comprised of one
reporting unit.
|
(3)
|
|
The risk adjusted discount rates
used for reporting units within the Specialized Products
reportable segment range from 7.9% to 9.3% for 2009 to 2018, and
8.6% to 10.3% for the years after 2018.
|
As presented in the table below, L-3s historical
three-year average annual cash flow growth rates for 2008, 2007
and 2006 for our reportable segments ranged from 3% to 62%. The
annual cash flows generated by each of our reporting units
varies from year to year and, therefore, the annual cash flow
growth rates do not result in linear trends, due to a number of
factors. The factors that affect the level of annual cash flows
in each of our reporting units include, but are not limited to:
(1) variability of annual sales volume and sales growth
rates, (2) increases and decreases in working capital, and
customer advance payments and billings on multi-year contracts
(revenue
41
arrangements) with long-term performance periods (exceeding one
year), (3) the timing of invoicing and cash collections
between fiscal years from receivables due from customers on
multi-year contracts (revenue arrangements) that are affected by
the financing terms of individual contracts, (4) the timing
of increases and decreases of select inventories procured and
produced in anticipation of future product sales, which
frequently overlap the ending and beginning of fiscal years,
(5) the timing of the receipt of award fee and incentive
fee payments from customers on contracts (revenue arrangements),
(6) variability in annual cash outlays for research and
development costs, (7) changes in cash outlays for capital
expenditures for property, plant and equipment, and
(8) increases in annual sales and costs and expense volumes
of a reporting unit resulting from business acquisitions. As a
result of the factors discussed above and the varying sizes of
our reporting units, the annual cash flow levels and growth
rates at the reporting unit level tend to fluctuate
significantly from year to year. The 2008 cash flow amount and
the cash flow growth rate for each of the last three years for
each of our reportable segments is also presented below.
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|
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|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segment
|
|
Cash
Flow(1)
|
|
|
Growth Rate
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
3 Yr. Average
|
|
|
C3ISR(2)
|
|
$
|
169
|
|
|
|
17
|
%
|
|
|
(4
|
)%
|
|
|
1
|
%
|
|
|
5
|
%
|
Government
Services(3)
|
|
$
|
440
|
|
|
|
22
|
%
|
|
|
(16
|
)%
|
|
|
180
|
%
|
|
|
62
|
%
|
AM&M(4)
|
|
$
|
226
|
|
|
|
9
|
%
|
|
|
(6
|
)%
|
|
|
6
|
%
|
|
|
3
|
%
|
Specialized
Products(5)
|
|
$
|
488
|
|
|
|
(12
|
)%
|
|
|
30
|
%
|
|
|
32
|
%
|
|
|
17
|
%
|
|
|
|
(1) |
|
Reportable segment cash flow
excludes interest payments on debt and other corporate cash
flows.
|
(2) |
|
The increase in cash flow in 2008
for C3ISR
was primarily due to sales and operating income growth and a
smaller increase in working capital for ISR Systems as compared
to 2007. In 2007, cash generated from higher sales and operating
income, was offset by cash used for working capital attributable
to increased billed receivables associated with 2007 sales
growth, primarily for ISR Systems. In 2006, cash generated from
higher sales volume for networked communications and new
business awards for ISR Systems was substantially offset by
higher development costs for new secure communications products.
|
(3) |
|
The increase in cash flows in 2008
for Government Services was primarily due to higher sales and
operating income for business areas other than linguist services
and collection of receivables on the Linguist Contract for which
the period of performance ended June 9, 2008. The decrease
in cash flow in 2007 was due to collections of receivables in
2006 and the timing of cash payments in 2006 that did not recur
in 2007. These decreases in 2007 were partially offset by higher
operating income due to higher sales volume and improved
contract performance. The increase in cash flow in 2006 was
primarily due to the Titan acquisition and improved collections
and timing of payments.
|
(4) |
|
The increase in cash flows in 2008
for AM&M was primarily due to increases in accounts payable
balances and receivable collections for aircraft and base
support services due to the timing of payments and collections.
The decrease in cash flows in 2007 was primarily due to
increased purchases of spare parts inventory for aircraft and
base support services to support future requirements, partially
offset by higher sales volume and operating income primarily for
aircraft and base support services and aircraft modernization
for international customers. The increase in cash flow in 2006
was due to sales and operating income growth.
|
(5) |
|
The decrease in cash flows in 2008
for Specialized Products was primarily due to more cash used for
working capital across several business areas. These decreases
were partially offset by higher 2008 operating income. The
increase in cash flows in 2007 and 2006 was primarily due to
higher operating income for several business areas.
|
We consistently consider several factors to determine expected
future annual cash flows for our reporting units, including, but
not limited to historical multi-year average cash flow trends by
reporting unit, as well as: (1) the DoD budget and spending
priorities, (2) expansion into new markets,
(3) changing conditions in existing markets for our
products and services, (4) possible termination of certain
government contracts, (5) expected success in new business
competitions and re-competitions on existing business, and
(6) anticipated operating margins and working capital
requirements, which vary significantly depending on the stage of
completion (early, mature, ending) of contracts (revenue
arrangements). We closely monitor changes in these factors and
their impact on the expected cash flow growth rates of our
reporting units. In connection with our goodwill impairment
assessments as of November 30, 2008, we assumed a more
challenging economic environment, slower growth in DoD budgets,
and made additional assumptions that consider the factors noted
above that were relevant for each of our reporting units.
Specifically, our DCF valuation assumed lower projected cash
flows in 2009 for each of our reportable segments as compared to
2008. In our DCF valuations, the 2008 cash flow levels are not
projected to be achieved again until 2010 for
C3ISR,
2012 for Specialized Products, 2013 for AM&M, and not again
until after 2013 for Government Services. For 2014 to 2018, our
DCF valuation applied annual projected cash flow growth rates of
3% for
C3ISR,
AM&M and Specialized Products, and 1% for Government
Services. After 2018, our DCF valuation applied annual projected
long-term cash flow growth rates of 2% for
C3ISR,
AM&M and Specialized Products, and 1% for Government
Services.
42
A decline in the estimated fair value of a reporting unit could
result in a goodwill impairment, and a related non-cash
impairment charge against earnings, if estimated fair value for
the reporting unit is less than the carrying value of the net
assets of the reporting unit, including its goodwill. A large
decline in estimated fair value of a reporting unit could result
in an adverse effect on our financial condition and results of
operations.
In order to evaluate the sensitivity of the fair value
calculations relating to our goodwill impairment assessment, we
applied hypothetical decreases to the fair values of each of our
reporting units. We determined that a decrease in fair value of
at least 20% would be required before any reporting unit, with
the exception of four, would have a carrying value in excess of
its fair value. For each of these four reporting units, the
table below presents the: (1) risk adjusted discount rates,
(2) annual cash flow growth rate, (3) 2008 cash flow,
(4) goodwill balance, and (5) excess fair value
percentage. All four reporting units are included in our
Specialized Products reportable segment.
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|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reporting Unit
|
|
Discount Rates
|
|
|
Annual Cash Flow Growth Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 Year
|
|
|
2008
|
|
|
Goodwill
|
|
|
Excess
|
|
|
|
2009-2018
|
|
|
After 2018
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Average
|
|
|
Cash Flows
|
|
|
Balance
|
|
|
Fair
Value(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
Telemetry & Advanced
Technology(2)
|
|
|
8.9
|
%
|
|
|
9.9
|
%
|
|
|
2
|
%
|
|
|
(4
|
)%
|
|
|
110
|
%
|
|
|
36
|
%
|
|
$
|
22
|
|
|
$
|
193
|
|
|
|
1
|
%
|
Power & Control
System(3)
|
|
|
7.9
|
%
|
|
|
8.6
|
%
|
|
|
(25
|
)%
|
|
|
130
|
%
|
|
|
65
|
%
|
|
|
57
|
%
|
|
$
|
83
|
|
|
$
|
708
|
|
|
|
18
|
%
|
Marine
Services(4)
|
|
|
7.9
|
%
|
|
|
8.6
|
%
|
|
|
9
|
%
|
|
|
343
|
%
|
|
|
(123
|
)%
|
|
|
76
|
%
|
|
$
|
4
|
|
|
$
|
104
|
|
|
|
18
|
%
|
Microwave(5)
|
|
|
8.2
|
%
|
|
|
9.0
|
%
|
|
|
8
|
%
|
|
|
24
|
%
|
|
|
23
|
%
|
|
|
18
|
%
|
|
$
|
72
|
|
|
$
|
586
|
|
|
|
19
|
%
|
|
|
|
(1) |
|
The excess fair value represents
the percentage by which the fair value of a reporting unit must
decline before a potential impairment is identified and would
require the second step of the goodwill impairment assessment to
be performed.
|
(2) |
|
A decrease in fair value of
approximately $3 million for this reporting unit would be
required before its carrying value exceeded its fair value. Our
DCF valuation for this reporting unit assumed lower projected
cash flows for 2009 as compared to 2008. In addition, our DCF
valuation for this reporting unit assumed that its 2008 cash
flow level would not be achieved again until 2013 and that this
reporting units projected cash flows would grow annually
at approximately 3% after 2013. While not considered in our DCF
valuation, we are taking actions to increase this reporting
units profitability and cash flows, including reducing
administrative and other overhead costs, creating synergies with
other L-3 businesses, and securing new business from DoD and
non-DOD customers.
|
(3) |
|
A decrease in fair value of
approximately $179 million for this reporting unit would be
required before its carrying value exceeded its fair value. Our
DCF valuation for the reporting unit assumed lower projected
cash flows for 2009 as compared to 2008. In addition, our DCF
valuation for this reporting unit assumed that its 2008 cash
flow level will not be achieved again until after 2013 and that
this reporting units projected cash flows would grow
annually at 2.5% from 2014 to 2018 and 2% after 2018.
|
(4) |
|
A decrease in fair value of
approximately $28 million for this reporting unit would be
required before its carrying value exceeded its fair value. Our
DCF valuation for this reporting unit assumed higher projected
cash flows after 2008 due to higher sales and improved contract
performance, partially offset by a higher cash tax rate
assumption. In addition, our DCF valuation applied: (1) a 25%
average annual cash flow growth rate through 2013 due to working
capital improvements and average annual operating income growth
rate of 6%, (2) a 2.5% annual cash flow growth rate from
2014 to 2018 and (3) a 2% cash flow growth rate after 2018.
|
(5) |
|
A decrease in fair value of
approximately $193 million for the reporting unit would be
required before its carrying value exceeded its fair value. Our
DCF valuation for this reporting unit assumed lower projected
cash flows for 2009 as compared to 2008. In addition, our DCF
valuation for this reporting unit assumed that its 2008 cash
flow level will not be achieved again until after 2013 and that
this reporting units projected cash flows would grow
annually at 2.6% from 2014 to 2018 and 2.2% after 2018.
|
As noted above, our expected future growth rates for each of our
reporting units are based on our best estimates of future sales
and operating income. The substantial majority of our reporting
units are primarily dependent upon the DoD budget and spending.
Historically, more than 70% of L-3s annual sales have been
generated from DoD customers. The DoD budget has not been
meaningfully impacted by the current recessionary economic
environment. Moreover, consistent with our discussion of
industry considerations under Key Performance
Measures beginning on page 38, we anticipate the
defense budget and spending priorities will continue to focus on
areas that match several of L-3s core competencies.
However, there can be no assurance that our current estimates
and assumptions will result in the projected cash flow outcomes
due to a number of factors, including an economic environment
that is more challenging than we anticipated or the DoD budget
failing to continue to grow as expected.
Results
of Operations
The following information should be read in conjunction with our
unaudited condensed consolidated financial statements contained
in this quarterly report. Our results of operations for the
periods presented are affected by our business acquisitions. See
Note 4 to our audited consolidated financial statements for
the year ended December 31,
43
2008, included in our Annual Report on
Form 10-K,
for a discussion of our 2008 business acquisitions, and
Note 4 to our unaudited condensed consolidated financial
statements, included in this report, for a discussion of the CSC
acquisition on January 30, 2009.
Consolidated
Results of Operations
The table below provides selected financial data for L-3 for the
2009 Third Quarter compared with the 2008 Third Quarter and the
2009 Year-to-Date
Period compared with the
2008 Year-to-Date
Period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended
|
|
|
|
|
|
|
|
Year-to-Date Ended
|
|
|
|
|
|
|
|
|
|
|
|
September 25,
|
|
|
|
September 26,
|
|
|
|
Increase/
|
|
|
|
September 25,
|
|
|
|
September 26,
|
|
|
|
Increase/
|
|
|
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
(decrease)
|
|
|
|
2009
|
|
|
|
2008(1)
|
|
|
|
(decrease)
|
|
|
|
|
|
|
|
(in millions, except share data)
|
|
|
|
|
Net sales
|
|
|
$
|
3,842
|
|
|
|
$
|
3,662
|
|
|
|
$
|
180
|
|
|
|
$
|
11,407
|
|
|
|
$
|
10,890
|
|
|
|
$
|
517
|
|
|
|
|
Operating income
|
|
|
$
|
418
|
|
|
|
$
|
400
|
|
|
|
$
|
18
|
|
|
|
$
|
1,211
|
|
|
|
$
|
1,269
|
|
|
|
$
|
(58
|
)
|
|
|
|
Litigation
Gain(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(126
|
)
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
|
|
$
|
418
|
|
|
|
$
|
400
|
|
|
|
$
|
18
|
|
|
|
$
|
1,211
|
|
|
|
$
|
1,143
|
|
|
|
$
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
|
10.9
|
%
|
|
|
|
10.9
|
%
|
|
|
|
|
bpts
|
|
|
|
10.6
|
%
|
|
|
|
11.7
|
%
|
|
|
|
(110
|
)bpts
|
|
|
|
Litigation Gain
|
|
|
|
|
%
|
|
|
|
|
%
|
|
|
|
|
bpts
|
|
|
|
|
%
|
|
|
|
(1.2
|
)%
|
|
|
|
120
|
bpts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating margin
|
|
|
|
10.9
|
%
|
|
|
|
10.9
|
%
|
|
|
|
|
bpts
|
|
|
|
10.6
|
%
|
|
|
|
10.5
|
%
|
|
|
|
10
|
bpts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense and other income
|
|
|
$
|
65
|
|
|
|
$
|
65
|
|
|
|
$
|
|
|
|
|
$
|
191
|
|
|
|
$
|
192
|
|
|
|
$
|
(1
|
)
|
|
|
|
Effective income tax rate
|
|
|
|
28.3
|
%
|
|
|
|
36.7
|
%
|
|
|
|
(840
|
)bpts
|
|
|
|
33.2
|
%
|
|
|
|
36.7
|
%
|
|
|
|
(350
|
)bpts
|
|
|
|
Net income attributable to L-3
|
|
|
$
|
250
|
|
|
|
$
|
210
|
|
|
|
$
|
40
|
|
|
|
$
|
674
|
|
|
|
$
|
674
|
|
|
|
$
|
|
|
|
|
|
Diluted earnings per share
|
|
|
$
|
2.12
|
|
|
|
$
|
1.70
|
|
|
|
$
|
0.42
|
|
|
|
$
|
5.68
|
|
|
|
$
|
5.42
|
|
|
|
$
|
0.26
|
|
|
|
|
Diluted weighted average common shares outstanding
|
|
|
|
117.0
|
|
|
|
|
122.0
|
|
|
|
|
(5.0
|
)
|
|
|
|
117.6
|
|
|
|
|
123.2
|
|
|
|
|
(5.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The
2008 Year-to-Date
Period includes: (1) a gain of $12 million
($7 million after income taxes, or $0.06 per diluted share)
relating to the sale of a product line and (2) a non-cash
impairment charge of $28 million ($17 million
after income taxes, or $0.14 per diluted share) related to a
write-down of capitalized software development costs associated
with a general aviation product, both recorded in the second
quarter of 2008.
|
(2) The
Litigation Gain represents a June 27, 2008
decision by the U.S. Court of Appeals vacating an adverse 2006
jury verdict. In the second quarter of 2008, we recorded a gain
of $133 million ($81 million after income taxes, or
$0.65 per diluted share), comprised of the reversal of a
$126 million current liability for pending and threatened
litigation and the reversal of $7 million of related
accrued interest.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales: For the 2009 Third Quarter, consolidated
net sales increased 5% compared to the 2008 Third Quarter driven
primarily by growth in the
C3ISR and
AM&M reportable segments. These sales increases were
partially offset by a decrease in the Government Services
reportable segment. The increase in consolidated net sales from
acquired businesses net of divestitures was $28 million, or
0.8%.
Sales from services, which include services performed by
businesses primarily in our Government Services, AM&M and
C3ISR
reportable segments, as well as marine services and simulation
& training increased by $122 million to
$2,032 million, representing approximately 53% of
consolidated net sales for the 2009 Third Quarter, compared to
$1,910 million, or approximately 52% of consolidated net
sales for the 2008 Third Quarter. The increase in service sales
was primarily due to an increase in organic sales growth in ISR
systems, system field support services, information technology
(IT) support services, and marine systems. These increases were
partially offset by reduced subcontractor pass-through sales for
systems and software engineering and sustainment (SSES)
services, a decrease for Iraq-related linguist services and
lower volume for contract field services (CFS). Sales from
products, primarily from our Specialized Products and
C3ISR
reportable segments increased by $58 million to
$1,810 million, representing approximately 47% of
consolidated net sales for the 2009 Third Quarter, compared to
$1,752 million, or approximately 48% of consolidated net
sales for the 2008 Third Quarter. The increase in product
44
sales was primarily due to growth in
C3ISR
products, the Joint Cargo Aircraft, and several areas in the
Specialized Products reportable segment primarily for EO/IR and
microwave products. These increases were partially offset by a
decrease in simulation & training due to timing of
deliveries and naval power & control systems and
aviation products due to reduced demand from commercial
customers. See the reportable segment results below for
additional discussions of our sales growth.
For the
2009 Year-to-Date
Period, consolidated net sales increased 5% compared to the
2008 Year-to-Date
Period driven primarily by growth in the
C3ISR,
AM&M and Specialized Products reportable segments. These
increases were partially offset by a decrease in the Government
Services reportable segment. The increase in consolidated net
sales from acquired businesses net of divestitures was
$145 million, or 1%.
Sales from services increased by $181 million to
$5,951 million, representing approximately 52% of
consolidated net sales for the
2009 Year-to-Date
Period, compared to $5,770 million, or approximately 53% of
consolidated net sales for the
2008 Year-to-Date
Period. The increase in service sales was primarily due to
organic sales growth in ISR systems, system field support
services, (IT) support services and marine systems. These
increases were partially offset by a decrease for Iraq-related
linguist services and lower volume for CFS. Sales from products
increased by $336 million to $5,456 million,
representing approximately 48% of consolidated net sales for the
2009 Year-to-Date
Period, compared to $5,120 million, or approximately 47% of
consolidated net sales for the
2008 Year-to-Date
Period. The increase in product sales was primarily due to
growth in
C3ISR
products and several areas in the Specialized Products
reportable segment primarily for EO/IR and microwave products.
These increases were partially offset by a decrease in naval
power & control systems and aviation products. See the
reportable segment results below for additional discussions of
our sales growth.
Operating income and operating margin: The 2009
Third Quarter operating income increased by $18 million, or
5%, to $418 million from $400 million for the 2008
Third Quarter. The
2009 Year-to-Date
Period operating income decreased by $58 million, or 5%, to
$1,211 million from $1,269 million for the
2008 Year-to-Date
Period. Higher pension expense in the 2009 Third Quarter
decreased operating income by $21 million ($13 million
after income taxes, or $0.11 per diluted share) and
$56 million ($34 million after income taxes, or $0.29
per diluted share) for the
2009 Year-to-Date
Period. The Q2 2008 Items increased consolidated operating
income in the
2008 Year-to-Date
Period by an aggregate $110 million.
Operating margin for the 2009 Third Quarter remained the same at
10.9% compared to the 2008 Third Quarter and decreased by
110 basis points to 10.6% compared to 11.7% for the
2008 Year-to-Date
Period. The increase in pension expense reduced the 2009 Third
Quarter and the
2009 Year-to-Date
Period each by 50 basis points. See segment results below
for additional discussion of segment operating income and margin
results. The Q2 2008 Items increased the
2008 Year-to-Date
Period operating margin by 110 basis points.
Net interest expense and other income: Net interest
expense and other income for the 2009 Third Quarter remained the
same compared to the same period last year primarily due to
lower interest expense on our term loans, which are based on
variable interest rates, offset by lower interest income on cash
investments.
Net interest expense and other income for the
2009 Year-to-Date
Period decreased compared to the same period last year driven by
lower interest expense on our term loans partially offset by
$7 million of accrued interest reversed during the
2008 Year-to-Date
Period in connection with the Litigation Gain and lower interest
income on cash investments.
Effective income tax rate: The effective tax rate
for the 2009 Third Quarter decreased by 840 basis points
compared to the 2008 Third Quarter. The effective tax rate for
the
2009 Year-to-Date
period decreased by 350 basis points compared to the
2008 Year-to-Date
Period. Excluding the Q2 2008 Items, the effective tax rate for
the
2009 Year-to-Date
Period would have decreased by 320 basis points. The
decrease is primarily due to a tax benefit of $26 million,
or $0.22 per diluted share, for a net reversal during the 2009
Third Quarter of amounts previously accrued related to tax years
for which the statute of limitations has expired.
Diluted earnings per share and net
income: L-3s diluted earnings per share (diluted
EPS) increased by $0.42 to $2.12 for the 2009 Third Quarter from
$1.70 for the 2008 Third Quarter, and net income attributable to
L-3 increased by $40 million, or 19%, to $250 million
from $210 million for the same periods.
45
In the
2009 Year-to-Date
Period as compared to the
2008 Year-to-Date
Period, diluted EPS increased by $0.26 to $5.68 from $5.42, and
net income attributable to L-3 was $674 million for the
2009 Year-to-Date
Period and the
2008 Year-to-Date
Period. Excluding the Q2 2008 Items, diluted EPS increased $0.83
to $5.68 compared to $4.85 and net income attributable to L-3
increased $71 million to $674 million compared to
$603 million.
Diluted weighted average shares outstanding: Diluted
weighted average shares outstanding for the 2009 Third Quarter
decreased by 5.0 million shares, or 4%, compared to the
2008 Third Quarter and for the
2009 Year-to-Date
Period decreased by 5.6 million shares, or 5%, compared to
the
2008 Year-to-Date
Period. The decrease in both periods was primarily due to
repurchases of our common stock in connection with our share
repurchase program authorized by our Board of Directors,
partially offset by additional shares issued in connection with
various employee stock-based compensation programs and
contributions to employee savings plans made in common stock.
Reportable
Segment Results of Operations
The table below presents selected data by reportable segment
reconciled to consolidated totals. See Note 20 to our
unaudited condensed consolidated financial statements contained
in this quarterly report for our reportable segment data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended
|
|
|
Year-to-Date Ended
|
|
|
|
September 25,
|
|
|
September 26,
|
|
|
September 25,
|
|
|
September 26,
|
|
|
|
2009
|
|
|
2008(1)
|
|
|
2009
|
|
|
2008(1)
|
|
|
|
(dollars in millions)
|
|
|
Net
Sales:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C3ISR
|
|
$
|
752.9
|
|
|
|
621.0
|
|
|
$
|
2,224.4
|
|
|
$
|
1,790.0
|
|
Government Services
|
|
|
1,010.6
|
|
|
|
1,042.4
|
|
|
|
3,084.5
|
|
|
|
3,249.4
|
|
AM&M
|
|
|
742.0
|
|
|
|
633.7
|
|
|
|
2,100.8
|
|
|
|
1,953.0
|
|
Specialized Products
|
|
|
1,336.0
|
|
|
|
1,365.1
|
|
|
|
3,996.9
|
|
|
|
3,897.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,841.5
|
|
|
$
|
3,662.2
|
|
|
$
|
11,406.6
|
|
|
$
|
10,890.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C3ISR
|
|
$
|
78.1
|
|
|
$
|
55.8
|
|
|
$
|
251.4
|
|
|
$
|
184.7
|
|
Government Services
|
|
|
102.8
|
|
|
|
100.1
|
|
|
|
294.6
|
|
|
|
322.2
|
|
AM&M
|
|
|
67.1
|
|
|
|
70.3
|
|
|
|
183.9
|
|
|
|
178.5
|
|
Specialized Products
|
|
|
169.8
|
|
|
|
173.9
|
|
|
|
480.7
|
|
|
|
457.7
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income
|
|
|
417.8
|
|
|
|
400.1
|
|
|
|
1,210.6
|
|
|
|
1,143.1
|
(3)
|
Litigation gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income
|
|
$
|
417.8
|
|
|
$
|
400.1
|
|
|
$
|
1,210.6
|
|
|
$
|
1,269.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C3ISR
|
|
|
10.4
|
%
|
|
|
9.0
|
%
|
|
|
11.3
|
%
|
|
|
10.3
|
%
|
Government Services
|
|
|
10.2
|
%
|
|
|
9.6
|
%
|
|
|
9.6
|
%
|
|
|
9.9
|
%
|
AM&M
|
|
|
9.0
|
%
|
|
|
11.1
|
%
|
|
|
8.8
|
%
|
|
|
9.1
|
%
|
Specialized Products
|
|
|
12.7
|
%
|
|
|
12.7
|
%
|
|
|
12.0
|
%
|
|
|
11.7
|
%(3)
|
Total segment operating margin
|
|
|
10.9
|
%
|
|
|
10.9
|
%
|
|
|
10.6
|
%
|
|
|
10.5
|
%(3)
|
Litigation gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating margin
|
|
|
10.9
|
%
|
|
|
10.9
|
%
|
|
|
10.6
|
%
|
|
|
11.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As a result of certain
re-alignments in our management and organization structure as
discussed in Note 2 to our unaudited condensed consolidated
financial statements contained in this quarterly report, sales
of $3.0 million and $9.6 million and operating income
of $1.2 million and $2.3 million were reclassified
from the
C3ISR
reportable segment to the Government Services reportable segment
for the quarter and
Year-to-Date
Period ended September 26, 2008, and sales of
$2.2 million and $13.9 million and operating income of
less than
|
46
|
|
|
|
|
$1 million and
$1.8 million were reclassified from the
C3ISR
reportable segment to the AM&M reportable segment for the
quarter and
Year-to-Date
Period ended September 26, 2008.
|
(2) |
|
Net sales are after intercompany
eliminations.
|
(3) |
|
Total segment operating income
includes the $12 million Product Line Divestiture gain and
the $28 million Impairment Charge, which were recorded in
the Specialized Products reportable segment. The Product Line
Divestiture gain and Impairment Charge, on a net basis, reduced
total segment operating margin by 10 basis points and
operating margin for the Specialized Products reportable segment
by 40 basis points for the
2008 Year-to-Date
Period.
|
C3ISR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended
|
|
|
|
|
|
|
|
Year-to-Date Ended
|
|
|
|
|
|
|
|
|
|
|
|
September 25,
|
|
|
|
September 26,
|
|
|
|
|
|
|
|
September 25,
|
|
|
|
September 26,
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
Increase
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
Increase
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
Net sales
|
|
|
$
|
752.9
|
|
|
|
$
|
621.0
|
|
|
|
$
|
131.9
|
|
|
|
$
|
2,224.4
|
|
|
|
$
|
1,790.0
|
|
|
|
$
|
434.4
|
|
|
|
|
Operating income
|
|
|
|
78.1
|
|
|
|
|
55.8
|
|
|
|
|
22.3
|
|
|
|
|
251.4
|
|
|
|
|
184.7
|
|
|
|
|
66.7
|
|
|
|
|
Operating margin
|
|
|
|
10.4
|
%
|
|
|
|
9.0
|
%
|
|
|
|
140
|
bpts
|
|
|
|
11.3
|
%
|
|
|
|
10.3
|
%
|
|
|
|
100
|
bpts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C3ISR net
sales for the 2009 Third Quarter increased by 21% compared to
the 2008 Third Quarter primarily due to increased demand and new
business from the U.S. Department of Defense (DoD) for
airborne ISR and networked communication systems for manned and
unmanned platforms.
C3ISR
operating income for the 2009 Third Quarter increased by 40%
compared to the 2008 Third Quarter. Operating margin increased
by 140 basis points. Higher sales volume, improved contract
performance and a more favorable sales mix for airborne ISR and
networked communication systems increased operating margin by
260 basis points. These increases were partially offset by
an increase in pension expense of $9 million, which reduced
operating margin by 120 basis points.
C3ISR net
sales for the
2009 Year-to-Date
Period increased by 24% compared to the
2008 Year-to-Date
Period due to increased demand and new business from the DoD for
airborne ISR and networked communication systems for manned and
unmanned platforms.
C3ISR
operating income for the
2009 Year-to-Date
Period increased 36% compared to the
2008 Year-to-Date
Period. Operating margin increased by 100 basis points.
Higher sales volume, improved contract performance and a more
favorable sales mix for airborne ISR and networked communication
systems increased operating margin by 210 basis points.
These increases were partially offset by an increase in pension
expense of $24 million, which reduced operating margin by
110 basis points.
Government
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended
|
|
|
|
|
|
|
|
Year-to-Date Ended
|
|
|
|
|
|
|
|
|
|
|
|
September 25,
|
|
|
|
September 26,
|
|
|
|
Increase/
|
|
|
|
September 25,
|
|
|
|
September 26,
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
(decrease)
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
Decrease
|
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
|
Net sales
|
|
|
$
|
1,010.6
|
|
|
|
$
|
1,042.4
|
|
|
|
$
|
(31.8
|
)
|
|
|
$
|
3,084.5
|
|
|
|
$
|
3,249.4
|
|
|
|
$
|
(164.9
|
)
|
|
|
|
Operating income
|
|
|
|
102.8
|
|
|
|
|
100.1
|
|
|
|
|
2.7
|
|
|
|
|
294.6
|
|
|
|
|
322.2
|
|
|
|
|
(27.6
|
)
|
|
|
|
Operating margin
|
|
|
|
10.2
|
%
|
|
|
|
9.6
|
%
|
|
|
|
60
|
bpts
|
|
|
|
9.6
|
%
|
|
|
|
9.9
|
%
|
|
|
|
(30
|
)bpts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government Services net sales for the 2009 Third Quarter
decreased by 3% compared to the 2008 Third Quarter. Sales
declined due to: (1) reduced subcontractor pass-through
sales volume of $35 million related to task orders for
U.S. Army SSES services stemming from task order renewals
migrating to a different contract vehicle where L-3 is not a
prime contractor, (2) lower Iraq-related linguist services
of $19 million, and (3) $24 million of lower
sales volume primarily for intelligence support for the
U.S. Army and U.S. Government agencies. These
decreases were partially offset by increases in information
technology (IT) support services primarily for the
U.S. Special Operations Command (USSOCOM) and the executive
branch of the U.S. Government due to $14 million of
higher sales volume on new and existing contracts. Additionally,
net sales from acquired businesses were $32 million, or 3%.
47
Government Services operating income for the 2009 Third Quarter
increased by 3% compared to the 2008 Third Quarter. Operating
margin for the 2009 Third Quarter increased by 60 basis
points. Operating margins increased by 130 basis points
primarily due to an award fee for linguist services and
favorable close-outs on completed contracts, and a decline in
sales of lower margin linguist and SSES services. These
increases were partially offset by lower volume for intelligence
support services, which decreased operating margin by
50 basis points. Acquired businesses reduced operating
margin by 20 basis points.
Government Services net sales for the
2009 Year-to-Date
Period decreased by 5% compared to the
2008 Year-to-Date
Period. Sales declined due to: (1) lower Iraq-related
linguist services of $222 million,
(2) $25 million of lower sales volume due to timing of
deliveries for engineering support services, and
(3) $17 million of lower sales volume for intelligence
support services for the U.S. Army and U.S. Government
agencies. These decreases were partially offset by a net
increase of $17 million of higher sales volume primarily
for new and existing contracts for IT support services for
USSOCOM and the executive branch of the U.S. Government.
Additionally, net sales from acquired businesses were
$82 million, or 3%.
Government Services operating income for the
2009 Year-to-Date
Period decreased by 9% compared to the
2008 Year-to-Date
Period. Operating margin for the
2009 Year-to-Date
Period decreased by 30 basis points. Lower margins on
select contract renewals during the
2009 Year-to-Date
Period and higher profit margins on certain fixed price
contracts in the
2008 Year-to-Date
Period reduced operating margin by 60 basis points.
Acquired businesses also reduced operating margin by
10 basis points. These decreases were partially offset by a
decline in sales of lower margin linguist services, which
increased operating margin by 40 basis points.
Aircraft
Modernization and Maintenance (AM&M)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended
|
|
|
|
|
|
|
|
Year-to-Date Ended
|
|
|
|
|
|
|
|
|
|
|
September 25,
|
|
|
|
September 26,
|
|
|
|
Increase/
|
|
|
|
September 25,
|
|
|
|
September 26,
|
|
|
|
Increase/
|
|
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
(decrease)
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
(decrease)
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
Net sales
|
|
|
$
|
742.0
|
|
|
|
$
|
633.7
|
|
|
|
$
|
108.3
|
|
|
|
$
|
2,100.8
|
|
|
|
$
|
1,953.0
|
|
|
|
$
|
147.8
|
|
|
|
Operating income
|
|
|
|
67.1
|
|
|
|
|
70.3
|
|
|
|
|
(3.2
|
)
|
|
|
|
183.9
|
|
|
|
|
178.5
|
|
|
|
|
5.4
|
|
|
|
Operating margin
|
|
|
|
9.0
|
%
|
|
|
|
11.1
|
%
|
|
|
|
(210
|
)bpts
|
|
|
|
8.8
|
%
|
|
|
|
9.1
|
%
|
|
|
|
(30
|
)bpts
|
|
|
|
AM&M net sales for the 2009 Third Quarter increased by 17%
compared to the 2008 Third Quarter. The increase in sales is due
to: (1) $90 million of higher sales primarily for new
contracts and higher demand from existing contracts for systems
field support services for U.S. Army and U.S. Air
Force rotary and fixed wing training aircraft and
U.S. Special Operations Forces logistics support, and
(2) $48 million of higher sales volume for Joint Cargo
Aircraft (JCA). These increases were partially offset by
$30 million of sales volume declines for CFS as fewer task
orders were received because of more competitors on the current
contract that began on October 1, 2008.
AM&M operating income for the 2009 Third Quarter decreased
by 5% compared to the 2008 Third Quarter. Operating margin
decreased by 210 basis points. The decrease is due to:
(1) a change in sales mix, primarily higher sales volume
for lower margin JCA and system field support services, which
reduced operating margin by 130 basis points, and
(2) lower sales volume and sales prices for CFS, which
reduced operating margin by 30 basis points. In addition,
the 2008 Third Quarter included approximately $3 million of
income to adjust litigation accruals, which reduced operating
margin by 50 basis points.
AM&M net sales for the
2009 Year-to-Date
Period increased by 8% compared to the
2008 Year-to-Date
Period due to $196 million of higher sales volume primarily
for systems field support services and $40 million of
higher sales volume for JCA, which were partially offset by
sales volume declines of $88 million for CFS.
AM&M operating income for the
2009 Year-to-Date
Period increased 3% compared to the
2008 Year-to-Date
Period. Operating margin decreased by 30 basis points.
Sales volume declines for CFS reduced operating margin by
30 basis points and margins declined by 50 basis
points primarily due to cost increases on international aircraft
modernization contracts. In addition, the
2008 Year-to-Date
Period included $10 million of charges to adjust litigation
accruals, which increased operating margin by 50 basis
points.
48
Specialized
Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter Ended
|
|
|
|
|
|
|
|
Year-to-Date Ended
|
|
|
|
|
|
|
|
|
|
|
September 25,
|
|
|
|
September 26,
|
|
|
|
|
|
|
|
September 25,
|
|
|
|
September 26,
|
|
|
|
Increase/
|
|
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
Decrease
|
|
|
|
2009
|
|
|
|
2008
|
|
|
|
(decrease)
|
|
|
|
|
|
|
(dollars in millions)
|
|
|
|
Net sales
|
|
|
$
|
1,336.0
|
|
|
|
$
|
1,365.1
|
|
|
|
$
|
(29.1
|
)
|
|
|
$
|
3,996.9
|
|
|
|
$
|
3,897.9
|
|
|
|
$
|
99.0
|
|
|
|
Operating income
|
|
|
|
169.8
|
|
|
|
|
173.9
|
|
|
|
|
(4.1
|
)
|
|
|
|
480.7
|
|
|
|
|
457.7
|
|
|
|
|
23.0
|
|
|
|
Operating margin
|
|
|
|
12.7
|
%
|
|
|
|
12.7
|
%
|
|
|
|
|
bpts
|
|
|
|
12.0
|
%
|
|
|
|
11.7
|
%
|
|
|
|
30
|
bpts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialized Products net sales for the 2009 Third Quarter
decreased by 2% compared to the 2008 Third Quarter reflecting
lower sales volume primarily: (1) $40 million for
simulation & training, precision engagement and displays
due to the timing of certain deliveries and delays in receipt of
expected orders, (2) $15 million for naval
power & control systems and aviation products as a
result of reduced demand from commercial customers caused by the
global economic recession, and (3) $12 million for
combat propulsion systems due to a reduction in DoD funding for
the Bradley fighting vehicle. These decreases were partially
offset by increases of: (1) $22 million for microwave
products primarily due to deliveries of mobile and ground based
satellite communications systems and spare parts for the
U.S. military and higher sales volume for tactical signal
intelligence systems, and (2) $16 million for EO/IR
products primarily due to demand and deliveries on new and
existing contracts.
Specialized Products operating income for the 2009 Third Quarter
decreased by 2% as compared to the 2008 Third Quarter. Operating
margin remained the same as compared to the 2008 Third Quarter.
Operating margin increased by 110 basis points primarily due to
higher sales volume, favorable sales mix and improved contract
performance for EO/IR products and improved contract performance
for precision engagement. The 2008 Third Quarter also included a
charge of $4 million to adjust certain litigation accruals,
which increased operating margin by 30 basis points. These
increases were offset by: (1) an increase in pension
expense of $11 million, which reduced operating margin by
80 basis points, (2) lower sales volume for simulation
& training due to timing of deliveries, which reduced
operating margin by 50 basis points, and (3) acquired
businesses, which decreased operating margin by 10 basis
points.
Specialized Products net sales for the
2009 Year-to-Date
Period increased by 3% compared to the
2008 Year-to-Date
Period reflecting higher sales volume primarily:
(1) $64 million for EO/IR products and
$51 million for microwave products driven by trends similar
to the 2009 Third Quarter, (2) $14 million for
simulation & training primarily related to new and existing
contracts, and (3) $12 million for combat propulsion
systems mostly from continued performance on existing contracts.
The increase in net sales from acquired businesses, net of
divestitures, was $64 million, or 2%, and pertains mostly
to the Electro-Optical Systems (EOS) business acquired on
April 21, 2008 and to Chesapeake Sciences Corporation
acquired on January 30, 2009. These increases were
partially offset primarily by a decrease of $77 million for
naval power & control systems and aviation products,
$16 million for displays and $13 million for precision
engagement products driven by trends similar to the 2009 Third
Quarter.
Specialized Products operating income for the
2009 Year-to-Date
Period increased by 5% as compared to the
2008 Year-to-Date
Period. Operating margin of 12.0% for the
2009 Year-to-Date
Period increased by 30 basis points. Excluding the Product
Line Divestiture Gain and non-cash Impairment Charge, operating
margin for the
2009 Year-to-Date
Period of 12.0% decreased by 10 basis points compared to
the
2008 Year-to-Date
Period. An increase in pension expense of $31 million
reduced operating margin by 80 basis points and lower sales
volume for aviation products reduced operating margin by
30 basis points. These decreases were partially offset by
higher sales volume and favorable sales mix primarily for EO/IR
products and improved contract performance for precision
engagement, which increased operating margin by 80 basis
points, and acquired businesses, which increased operating
margin by 10 basis points. In addition, the
2008 Year-to-Date
Period included $6 million of charges to adjust litigation
accruals, which increased operating margin by 10 basis
points.
49
Liquidity
and Capital Resources
Anticipated
Sources of Cash Flow
Our primary source of liquidity is cash flow generated from
operations. As of September 25, 2009, we also had
$965 million of borrowings available under our
$1 billion revolving credit facility, after reductions of
$35 million for outstanding letters of credit, subject to
certain conditions. On October 23, 2009, we replaced our
$1 billion revolving credit facility, which was due to
expire on March 9, 2010, with a new $1 billion
three-year revolving credit facility that expires on
October 23, 2012. We currently believe that our cash from
operating activities together with our cash on hand will be
adequate for the foreseeable future to meet our anticipated
requirements for working capital, capital expenditures, defined
benefit plan contributions, commitments, contingencies, research
and development expenditures, business acquisitions (depending
on the size), contingent purchase price payments on previous
business acquisitions, program and other discretionary
investments, interest payments, income tax payments, L-3
Holdings dividends and share repurchases.
Our business may not continue to generate cash flow at current
levels, and it is possible that currently anticipated
improvements may not be achieved. If we are unable to generate
sufficient cash flow from operations to service our debt, we may
be required to reduce costs and expenses, sell assets, reduce
capital expenditures, refinance all or a portion of our existing
debt or obtain additional financing and we may not be able to do
so on a timely basis, on satisfactory terms, or at all. Our
ability to make scheduled principal payments or to pay interest
on or to refinance our indebtedness depends on our future
performance and financial results, which, to a certain extent,
are subject to general conditions in or affecting the defense
industry and to general economic, political, financial,
competitive, legislative and regulatory factors beyond our
control.
For a discussion of our recent debt refinancing during the
fourth quarter of 2009, which improved our debt maturity profile
and reduced our outstanding debt balance, see Financing
Activities-Debt on page 52.
Balance
Sheet
Billed receivables increased by $44 million to
$1,270 million at September 25, 2009 from
$1,226 million at December 31, 2008 primarily due to:
(1) higher sales primarily for systems field support
services, networked communications and ISR systems,
(2) $10 million for foreign currency translation
adjustments, and (3) $17 million of acquired billed
receivables. These increases were partially offset by
collections primarily for training services, propulsion systems,
naval power and control systems, secure communications products
and linguist services.
Contracts in process increased $131 million to
$2,398 million at September 25, 2009, from
$2,267 million at December 31, 2008. The increase
included $9 million for foreign currency translation
adjustments, $24 million primarily for acquired
contracts-in-process,
and $98 million from:
|
|
|
|
|
Increases of $55 million in unbilled contract receivables
primarily due to sales exceeding billings for aircraft
modernization, propulsion systems, simulation & training,
and networked communications; and
|
|
|
|
Increases of $43 million in inventoried contract costs
across several business areas, primarily EO/IR products,
propulsion systems, displays and secure communications products
to support customer demand.
|
L-3s receivables days sales outstanding (DSO) was 70 at
September 25, 2009, compared with 69 at December 31,
2008 and 71 at September 26, 2008. We calculate our DSO by
dividing: (1) our aggregate end of period billed
receivables and net unbilled contract receivables, by
(2) our trailing 12 month sales adjusted, on a pro
forma basis, to include sales from business acquisitions and
exclude sales from business divestitures that we completed as of
the end of the period, multiplied by the number of calendar days
in the trailing 12 month period (364 days at
September 25, 2009, 366 days at December 31, 2008
and 364 days at September 26, 2008). Our trailing
12 month pro forma sales were $15,492 million at
September 25, 2009, $14,976 million at
December 31, 2008 and $14,819 million at
September 26, 2008.
50
Goodwill increased by $159 million to $8,188 million
at September 25, 2009 from $8,029 million at
December 31, 2008. The table below presents the changes in
goodwill allocated to our reportable segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
|
|
|
|
|
|
Specialized
|
|
|
Consolidated
|
|
|
|
C3ISR
|
|
|
Services
|
|
|
AM&M
|
|
|
Products
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
Balance at December 31,
2008(1)
|
|
$
|
862
|
|
|
$
|
2,313
|
|
|
$
|
1,121
|
|
|
$
|
3,733
|
|
|
$
|
8,029
|
|
Business acquisitions
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
57
|
|
|
|
62
|
|
Foreign currency translation
adjustments(2)
|
|
|
14
|
|
|
|
2
|
|
|
|
30
|
|
|
|
51
|
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 25, 2009
|
|
$
|
876
|
|
|
$
|
2,320
|
|
|
$
|
1,151
|
|
|
$
|
3,841
|
|
|
$
|
8,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As a result of certain
re-alignments in our management and organization structure as
discussed in Note 2 to our unaudited condensed consolidated
financial statements contained in this quarterly report,
$17 million of goodwill was reclassified from the
C3ISR
reportable segment to the Government Services reportable
segment, and $17 million of goodwill was reclassified from
the C3ISR
reportable segment to the AM&M reportable segment.
|
|
(2) |
|
The increase in goodwill from
foreign currency translation adjustments is due to the weakening
of the U.S. dollar during the
2009 Year-to-Date
Period against the functional currencies of L-3s foreign
subsidiaries, primarily in Canada, Germany and the United
Kingdom.
|
The increase in accrued expenses was primarily due to the timing
of invoices received for purchases from third-party vendors and
subcontractors. The decrease in accrued employment costs was due
to the timing of payroll dates and payments for salaries and
wages. The decrease in advance payments and billings in excess
of costs incurred was primarily due to the liquidation of
balances on contracts for ISR systems, networked communications
and simulation & training, partially offset by an increase
due to performance based billings for certain aircraft
modernization contracts.
The increase in pension and postretirement benefit plan
liabilities was primarily due to pension plan expenses exceeding
cash contributions to pension plans during the
2009 Year-to-Date
Period. We expect to contribute cash of approximately
$65 million to our pension plans for all of 2009, of which
$46 million was contributed during the
2009 Year-to-Date
Period.
Statement
of Cash Flows
Year-to-Date
Period Ended September 25, 2009 Compared with
Year-to-Date
Period Ended September 26, 2008
The table below provides a summary of our cash flows from
operating, investing, and financing activities for the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
Year-to-Date Ended
|
|
|
|
September 25,
|
|
|
September 26,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in millions)
|
|
|
Net cash from operating activities
|
|
$
|
978
|
|
|
$
|
1,031
|
|
Net cash used in investing activities
|
|
|
(211
|
)
|
|
|
(352
|
)
|
Net cash used in financing activities
|
|
|
(464
|
)
|
|
|
(595
|
)
|
Operating
Activities
We generated $978 million of cash from operating activities
during the
2009 Year-to-Date
Period, a decrease of $53 million compared with
$1,031 million generated during the
2008 Year-to-Date
Period. The decrease was due to: (1) lower non-cash
expenses of $67 million, primarily due to lower deferred
income taxes, and (2) a decrease in net income of
$1 million. These decreases were partially offset by less
net cash used of $15 million for changes in operating
assets and liabilities primarily for contracts in process and
other current liabilities (mainly the Litigation Gain),
partially offset by more cash used for changes in accounts
payable and advance payments and billings in excess of costs
incurred. The net cash used for changes in operating assets and
liabilities is further discussed above under Liquidity and
Capital Resources Balance Sheet beginning on
page 50.
51
Investing
Activities
During the
2009 Year-to-Date
Period, we used $211 million of cash in the aggregate
primarily to: (1) acquire CSC, and (2) pay
$128 million for capital expenditures.
Financing
Activities
Debt
See Note 9 to our unaudited condensed consolidated
financial statements contained in this quarterly report for the
components of our long-term debt at September 25, 2009. Our
senior credit agreement at September 25, 2009 provided for
a term loan and a $1 billion revolving credit facility. At
September 25, 2009, borrowings under the term loan were
$650 million (classified as a current liability), and
available borrowings under our revolving credit facility were
$965 million, after reductions for outstanding letters of
credit of $35 million. There were no outstanding revolving
credit borrowings under our senior credit facility at
September 25, 2009. Total debt outstanding was
$4,510 million at September 25, 2009, compared to
$4,493 million at December 31, 2008.
On October 2, 2009, L-3 Communications issued
$1 billion in aggregate principal amount of
5.20% Senior Notes due October 15, 2019 (2009 Notes).
The 2009 Notes have an effective interest rate of 5.25% and were
issued at a discount of $4 million. Interest on the 2009
Notes is payable semi-annually on April 15 and October 15 of
each year, commencing on April 15, 2010. The net cash
proceeds from this offering amounted to approximately
$988 million after deducting the discounts, commissions and
estimated expenses, and were used, together with cash on hand,
to redeem L-3 Communications outstanding $750 million
7
5/8% Senior
Subordinated Notes due in 2012 (2002 Notes) on November 2,
2009 and to repay L-3 Communications outstanding
$650 million term loan on October 7, 2009. In
connection with the redemption of the 2002 Notes, we will record
a debt retirement charge in the fourth quarter of 2009 of
approximately $9 million ($6 million after income tax,
or $0.05 per diluted share). The 2009 Notes are unsecured,
senior obligations of L-3 Communications, rank equal in right of
payment with all of L-3 Communications existing and future
senior indebtedness and rank senior in right of payment to all
of L-3 Communications existing and future senior
subordinated indebtedness. The 2009 Notes are also guaranteed on
a senior, unsecured basis by each of L-3 Communications
material domestic subsidiaries that guarantee any of L-3
Communications other indebtedness. On a pro forma basis
after giving effect to the offering of the 2009 Notes, the
redemption of the 7
5/8% Senior
Subordinated Notes due 2012 and the repayment of the outstanding
$650 million term loan, total debt outstanding would have
been $4,106 million at September 25, 2009 and our
remaining outstanding debt would mature between July 15,
2013 and August 1, 2035.
On October 23, 2009, L-3 Communications replaced its
$1 billion revolving credit facility with a new
$1 billion three-year revolving credit facility maturing on
October 23, 2012.
Credit Ratings. Our credit ratings as of October
2009 are as follows:
|
|
|
|
|
Rating Agency
|
|
Senior Debt
|
|
Subordinated Debt
|
|
Standard & Poors
|
|
BBB-
|
|
BB+
|
Fitch Ratings
|
|
BBB-
|
|
BB+
|
Moodys Investors Service
|
|
Baa2
|
|
Ba2
|
Agency ratings are not a recommendation to buy, sell or hold any
security, and they may be revised or withdrawn at any time by
the rating agency. Each agencys rating should be evaluated
independently of any other agencys rating. The system and
the number of rating categories can vary widely from rating
agency to rating agency. Customers usually focus on
claims-paying ratings, while creditors focus on debt ratings.
Investors use both to evaluate a companys overall
financial strength. The ratings issued on L-3 Communications or
its subsidiaries by any of these agencies are announced publicly
and are available from the agencies. Our ability to access the
capital markets could be impacted by a downgrade in one or more
of our debt ratings. If this were to occur, we could incur
higher borrowing costs.
Debt Covenants and Other Provisions. The revolving credit
facility, senior notes and senior subordinated notes contain
financial covenants and other restrictive covenants. See
Note 10 to our audited consolidated financial statements
for the year ended December 31, 2008, included in our
Annual Report on
Form 10-K,
for a description of
52
our debt that was outstanding at September 25, 2009 and
related financial covenants, including dividend payment and
share repurchase restrictions and cross default provisions,
under our senior credit agreement in effect as of
September 25, 2009. As of September 25, 2009, we were
in compliance with our financial and other restrictive
covenants. For additional information on the terms of L-3
Communications 2009 Notes and $1 billion three-year
revolving credit facility maturing October 23, 2012,
including the financial and other restrictive covenants, see our
Current Reports on
Form 8-K
dated October 2, 2009 and October 23, 2009,
respectively. The indenture governing the terms of the 2009
Notes is filed as an exhibit to this report and the credit
agreement governing the terms of the new $1 billion
three-year revolving credit facility is incorporated by
reference as an exhibit to this report.
The borrowings under the senior credit agreement are guaranteed
by L-3 Holdings and by substantially all of the wholly-owned
domestic subsidiaries of L-3 Communications on a senior basis.
The payment of principal and premium, if any, and interest on
the senior notes are guaranteed on an unsecured senior basis,
jointly and severally, by each of L-3 Communications
material domestic subsidiaries that guarantee any of L-3
Communications other indebtedness. The guarantees of the
senior notes rank pari passu to the guarantees of the senior
credit agreement and rank senior to the guarantees of the senior
subordinated notes. The payment of principal and premium, if
any, and interest on the senior subordinated notes are
unconditionally guaranteed, on an unsecured senior subordinated
basis, jointly and severally, by substantially all of L-3
Communications wholly-owned domestic subsidiaries. The
guarantees of the senior subordinated notes rank pari passu with
one another and are junior to the guarantees of the senior
credit agreement and the senior notes. The payment of principal
and premium, if any, and interest on the 3% Convertible
Contingent Debt Securities (CODES) due 2035 are fully and
unconditionally guaranteed, on an unsecured senior subordinated
basis, jointly and severally, by certain of L-3 Holdings
wholly-owned domestic subsidiaries. The guarantees of the CODES
rank pari passu with all of the guarantees of the senior
subordinated notes and are junior to the guarantees of the
senior credit facility and the senior notes.
Under select conditions, including if L-3 Holdings common
stock price is more than 120% (currently $120.17) of the then
current conversion price (currently $100.14) for a specified
period, the conversion feature of the CODES will require L-3
Holdings, upon conversion, to pay the $700 million
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 our option. See Note 10
to our audited consolidated financial statements for the year
ended December 31, 2008, included in our Annual Report on
Form 10-K,
for additional information regarding the CODES, including
conditions for conversion. L-3 Holdings common stock price
on October 30, 2009 was $72.29 per share.
Equity
Repurchases of L-3 Holdings common stock under the
$1 billion share repurchase program, approved by the Board
of Directors in November 2008, are made from time to time at
managements discretion in accordance with applicable U.S.
federal securities laws in the open market or otherwise. All
share repurchases of L-3 Holdings common stock have been
recorded as treasury shares.
The table below presents our repurchases of L-3 Holdings common
stock during the
2009 Year-to-Date
Period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Average Price Paid
|
|
|
|
|
|
|
Shares Purchased
|
|
|
Per Share
|
|
|
Treasury Stock
|
|
|
|
|
|
|
|
|
|
(at cost in millions)
|
|
|
January 1 March 27, 2009
|
|
|
3,385,982
|
|
|
$
|
68.39
|
|
|
$
|
232
|
|
March 28 June 26, 2009
|
|
|
971,231
|
|
|
$
|
71.84
|
|
|
$
|
69
|
|
June 27 September 25, 2009
|
|
|
1,280,986
|
|
|
$
|
74.20
|
|
|
$
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,638,199
|
|
|
$
|
70.30
|
|
|
$
|
396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 25, 2009, the remaining dollar value under the
share repurchase program was $535 million.
From September 26, 2009 through November 4, 2009, L-3
repurchased 324,207 shares of L-3 Holdings common
stock at an average price of $74.10 per share for an aggregate
amount of $24 million.
53
During the
2009 Year-to-Date
Period, L-3 Holdings Board of Directors authorized the
following quarterly cash dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Dividends
|
|
|
|
|
Total Dividend
|
|
Date Declared
|
|
Record Date
|
|
Per Share
|
|
|
Date Paid
|
|
Paid
|
|
|
|
|
|
(In millions)
|
|
|
|
|
February 5, 2009
|
|
February 19, 2009
|
|
$
|
0.35
|
|
|
March 16, 2009
|
|
$
|
42
|
|
April 28, 2009
|
|
May 18, 2009
|
|
$
|
0.35
|
|
|
June 15, 2009
|
|
$
|
41
|
|
July 14, 2009
|
|
August 17, 2009
|
|
$
|
0.35
|
|
|
September 15, 2009
|
|
$
|
41
|
|
On October 6, 2009, L-3 Holdings Board of Directors
declared a quarterly cash dividend of $0.35 per share, payable
on December 15, 2009 to shareholders of record at the close
of business on November 17, 2009.
Legal
Proceedings and Contingencies
For a discussion of legal proceedings and contingencies that
could impact our results of operations, financial condition or
cash flows, see Note 16 to our unaudited condensed
consolidated financial statements contained in this quarterly
report.
Accounting
Standards Issued and Not Yet Implemented
For a discussion of accounting standards issued and not yet
implemented, see Note 21 to our unaudited condensed
consolidated financial statements contained in this quarterly
report.
Forward-Looking
Statements
Certain of the matters discussed concerning our operations, cash
flows, financial position, economic performance and financial
condition, including in particular, the likelihood of our
success in developing and expanding our business and the
realization of sales from backlog, include forward-looking
statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act.
Statements that are predictive in nature, that depend upon or
refer to events or conditions or that include words such as
expects, anticipates,
intends, plans, believes,
estimates and similar expressions are
forward-looking statements. Although we believe that these
statements are based upon reasonable assumptions, including
projections of total sales growth, sales growth from business
acquisitions, organic sales growth, consolidated operating
margins, total segment operating margins, interest expense
earnings, cash flow, research and development costs, working
capital, capital expenditures and other projections, they are
subject to several risks and uncertainties, and therefore, it is
possible that these statements may not be achieved. Such
statements will also be influenced by factors which include,
among other things:
|
|
|
|
|
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;
|
|
|
|
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;
|
|
|
|
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;
|
54
|
|
|
|
|
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;
|
|
|
|
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
initiative;
|
|
|
|
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-reimbursable 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 current or future litigation matters;
|
|
|
|
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;
|
|
|
|
anticipated cost savings from business acquisitions not fully
realized or realized within the expected time frame;
|
|
|
|
Titans compliance with its plea agreement and consent to
entry of judgment with the U.S. Government relating to the
Foreign Corrupt Practices Act (FCPA), including Titans
ability to maintain its export licenses as well as the outcome
of other FCPA matters;
|
|
|
|
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.
|
55
In addition, for a discussion of other risks and uncertainties
that could impair our results of operations or financial
condition, see Part I
Item 1A Risk Factors and Note 18 to
our audited consolidated financial statements, in each case
included in our Annual Report on
Form 10-K
for the year ended December 31, 2008, as well as the
factors updated in
Part II-Item 1A
Risk Factors contained in this quarterly report.
Readers of this document are cautioned that our forward-looking
statements are not guarantees of future performance and the
actual results or developments may differ materially from the
expectations expressed in the forward-looking statements.
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. These forward-looking statements
also represent our estimates and assumptions only as of the date
that they were made. We expressly disclaim a duty to provide
updates to these forward-looking statements, and the estimates
and assumptions associated with them, after the date of this
filing to reflect events or changes in circumstances or changes
in expectations or the occurrence of anticipated events.
ITEM 3.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Part II, Item 7, Managements
Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital
Resources Derivative Financial Instruments, of
our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008 for a
discussion of our exposure to market risks. There were no
material changes in those risks during the
2009 Year-to-Date
Period. See Notes 14 and 15 to our unaudited condensed
consolidated financial statements contained in this quarterly
report for the aggregate fair values and notional amounts of our
foreign currency forward contracts at September 25, 2009.
ITEM 4.
CONTROLS
AND PROCEDURES
Conclusions
Regarding Effectiveness of Disclosure Controls and
Procedures
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our
reports under the Securities Exchange Act of 1934 related to L-3
Holdings and L-3 Communications is recorded, processed,
summarized and reported within the time periods specified in the
U.S. Securities and Exchange Commissions (SEC) rules
and forms, and that such information is accumulated and
communicated to our management, including our Chairman,
President and Chief Executive Officer, and our Vice President
and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosures. Any controls and
procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired
control objectives. Our management, with the participation of
our Chairman, President and Chief Executive Officer, and our
Vice President and Chief Financial Officer, has evaluated the
effectiveness of the design and operation of our disclosure
controls and procedures as of September 25, 2009. Based
upon that evaluation and subject to the foregoing, our Chairman,
President and Chief Executive Officer, and our Vice President
and Chief Financial Officer concluded that, as of
September 25, 2009, the design and operation of our
disclosure controls and procedures were effective to accomplish
their objectives at the reasonable assurance level.
There were no changes in our internal control over financial
reporting that occurred during the quarter ended
September 25, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
56
PART II
OTHER INFORMATION
ITEM 1.
LEGAL
PROCEEDINGS
The information required with respect to this item can be found
in Note 16 to our unaudited condensed consolidated
financial statements contained in this quarterly report and is
incorporated by reference herein.
ITEM 1A.
RISK
FACTORS
In addition to the other information set forth in this report,
you should carefully consider the factors discussed in
Part I, Item 1A. Risk Factors in our
Annual Report on
Form 10-K
for the year ended December 31, 2008, and as updated below,
which could materially affect our business, financial condition
or future results. The risks described in this report and in our
Annual Report on
Form 10-K
are not the only risks we face. Additional risks and
uncertainties not currently known to us or that we currently
deem to be immaterial also may materially adversely affect our
business, financial condition
and/or
operating results.
Our
contracts (revenue arrangements) with U.S. Government
customers entail certain risks.
A
decline in or a redirection of the U.S. defense budget could
result in a material decrease in our sales, earnings and cash
flows.
Our government contracts are primarily dependent upon the
U.S. defense budget. As is the case with most other
U.S. defense contractors, we have benefited from the upward
trend in DoD budget authorization and spending outlays over
recent years, including supplemental appropriations for military
operations in Iraq and Afghanistan. We expect future DoD
budgets, including supplemental appropriations, to grow at a
significantly slower pace than the past several years, and to
possibly flatten. DoD budgets could be negatively affected by
several factors, including events we cannot foresee,
U.S. Government budget deficits, current or future economic
conditions, new administration priorities, U.S. national
security strategies, a change in spending priorities, the cost
of sustaining U.S. military and related security operations
in Iraq and Afghanistan and other locales around the world where
U.S. military support may be pivotal, and other related
exigencies and contingencies. While we are unable to predict the
impact and outcome of these uncertainties, the effect of changes
in these DoD imperatives could cause the DoD budget to remain
unchanged or to decline (or even to increase). A significant
decline in or redirection of U.S. military expenditures in
the future could result in a decrease to our sales, earnings and
cash flows. The loss or significant reduction in government
funding of a large program in which we participate could also
result in a decrease in our future sales, earnings and cash
flows. U.S. Government contracts are also conditioned upon
continuing approval by Congress of the amount of necessary
spending. Congress usually appropriates funds for a given
program on a September 30 fiscal year basis, even though
contract periods of performance may extend over many years.
Consequently, at the beginning of a major program, the contract
is usually partially funded, and additional monies are normally
committed to the contract by the procuring agency only as
appropriations are made by Congress for future fiscal years.
Given the potential for uncertainty in the DoD fiscal process as
we begin a new political era in the United States, and given the
dangerous and volatile global condition in which the
U.S. is a primary stabilizing force, our approach to future
business planning will include our best assessments and
judgments on how to account for change and adapt to new
conditions and circumstances. These assessments and judgments
are based on the best information we have at the time they are
being made and may or may not turn out to be correct.
We
rely predominantly on sales to U.S. Government entities, and the
loss of a significant number of our contracts would have a
material adverse effect on our results of operations and cash
flows.
Our sales are predominantly derived from contracts (revenue
arrangements) with agencies of, and prime system contractors to,
the U.S. Government. The loss of all or a substantial
portion of our sales to the U.S. Government would have a
material adverse effect on our results of operations and cash
flows. Approximately 81%, or $12 billion, of our sales for
the year ended December 31, 2008 were made directly or
57
indirectly to U.S. Government agencies, including the DoD.
Aggregate sales from our five largest contracts amounted to
$1.8 billion, or 12% of our sales for the year ended
December 31, 2008, and included our Special Operations
Forces Support Activity (SOFSA) contract. Sales from the SOFSA
contract were approximately $400 million, or 2.7% of our
sales during 2008. On March 3, 2009, SOFSA announced that
L-3 was not selected to perform on the follow-on contract. L-3
subsequently protested and, as a consequence, SOFSA has taken
corrective action, which will include the issuance of a revised
solicitation. Once a new solicitation is issued, proposals will
be requested from all bidders. We may not succeed in the
recompetition. In the interim, L-3s incumbent contract has
been extended until February 2010.
A substantial majority of our total sales are for products and
services under contracts with various agencies and procurement
offices of the DoD or with prime contractors to the DoD.
Although these various agencies, procurement offices and prime
contractors are subject to common budgetary pressures and other
factors, our customers exercise independent purchasing
decisions. Because of this concentration of contracts, if a
significant number of our DoD contracts and subcontracts are
simultaneously delayed or cancelled for budgetary, performance
or other reasons, it would have a material adverse effect on our
results of operations and cash flows.
In addition to contract cancellations and declines in agency
budgets, our backlog and future financial results may be
adversely affected by:
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curtailment of the U.S. Governments use of technology
or other services and products providers, including curtailment
due to government budget reductions and related fiscal matters;
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developments in Iraq or Afghanistan, or other geopolitical
developments that affect demand for our products and services;
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our ability to hire and retain personnel to meet increasing
demand for our services; and
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technological developments that impact purchasing decisions or
our competitive position.
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The
DoDs recent announcement to in-source contractor support
services jobs by fiscal year 2014 could result in material
decreases in our sales, earnings and cash flows.
The U.S. Government has announced an initiative to reduce
the role of private sector contractors currently performing
support services jobs. As part of this initiative, the
U.S. Government intends by fiscal year 2014 to convert
approximately 33,000 DoD support service jobs currently
performed by the private sector to government positions. This
initiative will primarily affect the businesses within the
Government Services reportable segment and could result in the
Company losing certain of its existing contracts (revenue
arrangements) depending on how the DoD implements this
initiative.
58
ITEM 2.
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer
Purchases of Equity Securities
The following table provides information about share repurchases
made by L-3 Holdings of its common stock that is registered
pursuant to Section 12 of the Exchange Act during the 2009
Third Quarter. Repurchases are made from time to time at
managements discretion in accordance with applicable
federal securities law. All share repurchases of L-3
Holdings common stock have been recorded as treasury
shares.
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Maximum number
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Total number
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(or approximate
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of shares
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dollar value)
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purchased
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of shares that
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Total number
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Average
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as part of
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may yet be
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of shares
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price paid
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publicly announced
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purchased under
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purchased
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per share
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plans or programs
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the plans or
programs(1)
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(in millions)
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June 27 July 31, 2009
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206,555
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$
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70.35
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206,555
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$
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615
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August 1 August 31, 2009
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747,800
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$
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74.41
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747,800
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$
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560
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September 1 September 25, 2009
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326,631
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$
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76.15
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326,631
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$
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535
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Total
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1,280,986
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$
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74.20
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1,280,986
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(1) |
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On November 24, 2008, L-3
Holdings Board of Directors approved a new share
repurchase program that authorizes L-3 Holdings to repurchase up
to an additional $1 billion of its outstanding shares of
common stock through December 31, 2010. All purchases of
shares described in the table above were made pursuant to the
new share repurchase program.
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ITEM 3.
DEFAULTS
UPON SENIOR SECURITIES
Not
applicable
ITEM 4.
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not
applicable
ITEM 5.
OTHER
INFORMATION
Not
applicable
ITEM 6.
EXHIBITS
For a list of exhibits, see the Exhibit Index in this
Form 10-Q.
59
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrants have duly caused this report to be signed
on their behalf by the undersigned, thereunto duly authorized.
L-3 COMMUNICATIONS HOLDINGS, INC.
L-3 COMMUNICATIONS CORPORATION
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By:
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/s/ Ralph
G. DAmbrosio
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Title:
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Vice President and Chief Financial Officer
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(Principal Financial Officer)
Date: November 4, 2009
60
EXHIBIT INDEX
Exhibits identified in parentheses below are on file with the
SEC and are incorporated herein by reference to such previous
filings.
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Exhibit
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No.
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Description of Exhibits
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3
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.1
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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).
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3
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.2
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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 April 29, 2009).
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3
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.3
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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)).
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3
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.4
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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).
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4
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.1
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Form of Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to L-3 Communications Holdings
Registration Statement on
Form S-1
(File
No. 333-46975)).
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4
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.2
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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).
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4
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.3
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Indenture dated as of June 28, 2002, 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 4.1
of L-3 Communications Corporations Registration Statement
on
Form S-4
(File
No. 333-99757)).
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*4
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.4
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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 Indenture dated as of
June 28, 2002 among L-3 Communications Corporation, the
guarantors named therein and The Bank of New York Mellon, as
trustee.
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4
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.5
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Indenture dated as of May 21, 2003 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 4.1 to L-3
Communications Corporations Registration Statement on
Form S-4
(File
No. 333-106106)).
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*4
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.6
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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 Indenture dated as of
May 21, 2003 among L-3 Communications Corporation, the
guarantors named therein and The Bank of New York Mellon, as
trustee.
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4
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.7
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Indenture dated as of December 22, 2003 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 10.33 to the Registrants Annual Report on
Form 10-K
for the year ended December 31, 2003).
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*4
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.8
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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 Indenture dated as of
December 22, 2003 among L-3 Communications Corporation, the
guarantors named therein and The Bank of New York Mellon, as
trustee.
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4
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.9
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Indenture dated as of November 12, 2004 among L-3
Communications Corporation, the Guarantors and The Bank of New
York Mellon (formerly known as The Bank of New York), as Trustee
(incorporated by reference to Exhibit 4.1 to L-3
Communications Corporations Registration Statement on
Form S-4
(File
No. 333-122499)).
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61
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*4
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.10
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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 Indenture dated as of
November 12, 2004 among L-3 Communications Corporation, the
guarantors named therein and The Bank of New York Mellon, as
trustee.
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4
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.11
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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).
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*4
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.12
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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.
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4
|
.13
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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).
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*4
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.14
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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.
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*4
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.15
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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.
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**11
|
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L-3 Communications Holdings, Inc. Computation of Basic Earnings
Per Share and Diluted Earnings Per Common Share.
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*12
|
|
|
Ratio of Earnings to Fixed Charges.
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*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, as amended.
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|
*31
|
.2
|
|
Certification of Vice President and Chief Financial Officer
pursuant to
Rule 13a-14(a)
and
Rule 15d-14(a)
of the Securities and Exchange Act, as amended.
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*32
|
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Section 1350 Certification.
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***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
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*
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|
Filed herewith.
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|
**
|
|
The information required in this
exhibit is presented in Note 12 to the unaudited condensed
consolidated financial statements as of September 25, 2009
in accordance with the provisions of SFAS No. 128,
Earnings Per Share.
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***
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Furnished electronically with this
report.
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62