L-3 Communications Holdings, Inc.
) announced that it has completed the spin-off of 100% of a new,
independent, publicly traded government services company - Engility
Holdings, Inc. - to L-3 shareholders. The spin-off announcement was
made in July 2011 and the company received the final nod for the
spin-off from its Board of Directors in June 2012.
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Engility is a leader in Systems Engineering and Technical
Assistance, Training and Operational Support services. It will
begin trading as an independent publicly traded company on the New
York Stock Exchange under the ticker symbol "EGL" from July 18,
With the spin-off, L-3 shareholders of record as of July 16, 2012
received one share of Engility common stock for every six shares of
L-3 common stock held on the record date. Except for cash received
in lieu of fractional shares, the spin-off transaction has been
structured in a way that it leads to a tax-free distribution to L-3
The company has retained its cyber, intelligence and security
solutions businesses. Going forward, the segment will be known as
National Security Solutions. It develops unique solutions to deal
with the challenges faced by U.S. Department of Defense,
intelligence and global security customers.
From the third quarter of 2012, L-3 will report Engility financial
results as discontinued operations. Comparable periods will also be
On July 26, 2012, along with its second quarter earnings release,
the company plans to redeem $250 million aggregate principal amount
of its 6.375% Senior Subordinated Notes due in 2015 at a redemption
price of 102.125% of the principal amount thereof, plus accrued and
unpaid interest with the net proceeds received from the spin-off.
It also plans to repurchase approximately $75 million of its
outstanding shares form the proceeds.
The company maintained its 2012 financial outlook as issued in June
this year. The company expects sales in the range of $12,950
million to $13,150 million. It expects earnings per share in the
range of $7.70 to $7.85. The company projects operating margin of
10.3%, net cash from operating activities of $1,240 million and
capital expenditure of $195 million.
The Zacks Consensus Estimate for the second quarter and fiscal 2012
are $2.03 and $8.49, respectively.
The spin-off has removed uncertainty with reference to revenue and
will also take away some of the lowest margins at the company. With
the completion of the transaction, L-3 will be able to focus on
areas that are important for the company to provide market-leading,
value-added products and solutions to its customers.
In addition to the spin-off, the company is working on a number of
additional internal consolidations and divestitures in order to
lower overhead costs, mainly in the Electronic Systems segment.
However, negative offsets include the loss of key contracts,
defense spending cuts and lack of near-term catalysts. The company
presently retains a short-term Zacks #4 Rank (Sell). We have a
long-term Neutral recommendation on the stock.
L-3 Communications Holdings, Inc. operates through its wholly owned
subsidiary, L-3 Communications Corporation. L-3 Communications is a
leading supplier of a broad range of products and services used in
a number of aerospace and defense platforms. The company mainly
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