15 Oct 02. L-3 Communications (NYSE:LLL – News) today announced results for the third quarter of 2002, reflecting strong growth in sales, operating income, free cash flow and diluted earnings per share compared to the same period last year.
For comparative purposes, results for the third quarter of 2001 have been adjusted to reflect the impact of Statement of Financial Accounting Standards (SFAS) No. 142, Accounting for Goodwill and Other Intangible Assets, by adding back $11.1m to operating income and $0.10 per diluted share for the goodwill amortization expense recorded in the 2001 third quarter.
In the 2002 third quarter, the company reported sales of $1,053.6 million, an increase of 70.4% over sales of $618.2 million in the third quarter of 2001.
In the third quarter of 2002, operating income increased 47.6% to $127.4m, (2001: $86.3m), as adjusted, in the third quarter of 2001. As a percentage of sales, operating income in the 2002 third quarter was 12.1% versus 14.0%, as adjusted, in the third quarter of 2001. As expected, this decrease primarily reflects lower margins on commercial aviation and commercial communication products because of declines in sales, as well as lower margins associated with recently acquired businesses. On a sequential basis, operating income as a percentage of sales improved from 10.2% in the second quarter of 2002, in keeping with the company’s prior guidance that operating margins would improve on a sequential basis throughout the second half of 2002.
Free cash flow for the third quarter of 2002, defined as cash flow from operating activities less net capital expenditures, was approximately $138.0m, an increase of $96.4m over free cash flow of $41.6m in the year-ago period. Free cash flow for the third quarter includes an increase in customer advances of about $75.0m related to a contract, which the company expects to fully liquidate in the fourth quarter of 2002. Earnings before interest, taxes, depreciation and amortization (EBITDA) was $147.2m, an increase of 50.8% (2001: $97.6m).
Net income for the third quarter of 2002 increased 45.1% to $61.8m (2001:$42.6m) .Diluted earnings per share rose 21.6% to $0.62 per diluted share, (2001: $0.51)
In the third quarter of 2002, diluted shares outstanding increased approximately 18.2% to $104.5m (2001: $88.4m), principally reflecting the company’s public offering of 14.0m shares of common stock, effective June 28, 2002. Shares outstanding for all periods have been restated to reflect the company’s two-for-one stock split on May 20, 2002.
In the 2002 third quarter, the company’s strong bookings growth continued, with funded orders reaching $1,166.7 million, an increase of 86.8%,(2001: $624.6m). As of September 30, 2002, funded backlog was $2,884.9m, an increase of 67.8% (2001: $1,719.3m).
“We are very pleased with our performance in the third quarter,” said Frank C. Lanza, chairman and chief executive officer of L-3 Communications. “We had excellent results in our Intelligence, Surveillance, Reconnaissance and Communications (ISR&C) businesses, data links and secure communications operations. Other solid performers included training, simulation and support services, military displays and especially our security systems business, with explosive detection systems for airport and cargo security. These business areas more than made up for continued weakness in the commercial aviation and commercial communication product areas.”
“Increased defense spending this year has fueled good growth for L-3’s products, as U.S. military forces continue to modernize and upgrade their existing assets,” continued Mr. Lanza. “U.S. defense spending in the 2002-2003 timeframe is up 19%, with the investment account rising from $109 billion to $130 billion, not including supplemental increases. Growth in the defense electronics segment of that budget is over 20%, and this is the area where L-3 has many