L-3 Communications Holdings, Inc. (LLL)

LLL 
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L-3 Communications Holdings, Inc. (LLL)

Q4 2009 Earnings Call

January 28, 2010 11:00 am ET

Executives

Eric Boyriven - IR

Michael T. Strianese - Chairman, President and Chief Executive Officer

Ralph G. D'Ambrosio - Vice President and Chief Financial Officer

Analysts

Robert Spingarn - Credit Suisse

Cai von Rumohr - Cowen and Company

Joseph Campbell - Barclays Capital

Brian Ruttenbur - Morgan Keegan

Troy Lahr - Stifel Nicolaus

George Shapiro - Access 342

Howard Rubel – Jefferies & Co.

Michael Lewis – BB&T Capital Markets

Presentation

Operator

Good day, ladies and gentlemen and welcome to the fourth quarter 2009 L-3 Communications earnings conference call. My name is Malelia and I’ll be your coordinator for today. At this time all participants are in a listen only mode. We will be facilitating a question and answer session towards the end of this conference. (Operator’s instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s conference, Mr. Eric Boyriven with L-3, please proceed.

Eric Boyriven

Good morning and that’s for joining us for L-3 Communications fourth quarter earnings conference call. With me are Michael Strianese, Chairman, President and Chief Executive Officer, and Ralph D'Ambrosio, Vice President and Chief Financial Officer.

After their formal remarks, management will be available to take your questions. Please note that during this call management will reiterate forward looking statements that were made in the press release issued this morning. Please refer to this pres release as well as the company’s SEC filings for a more detailed description of the factors that may cause actual results to differ materially from those anticipated.

Please also note that this call is being simultaneously broadcast over the internet.

I will now turn the call over to Mike Strianese. Mike, please go ahead?

Michael T. Strianese

Thanks, Eric. And good morning everyone. Thanks for joining us for the fourth quarter earnings call. I’d like to being by thanking our employees who did a great job in the fourth quarter and showed very strong commitment to our program performance and satisfying customer needs. As well as our group presidents, their continued leadership and excellent performance.

Overall, we had a strong finish in 2009 and in our view a good fourth quarter. Our sales were up 5% to $4.2 billion. Earnings per share grew to $1.93 but while reported GAAP earnings were down 11%, when you compare to last year’s fourth quarter. Operationally earnings grew significantly. So in 2009 we had higher pension expense, and debt retirement charge in 2008’s fourth quarter we had gains both from a divesture and from an income tax matter that had closed. So when net those items out and you compare apples to apples, operationally earnings were up 18%, earnings per share.

Overall, we saw some of the same business trends in Q4 that we saw all year. The ISR business continued to do very well with significant growth. About 17% percent in the quarter, ahead of planned. And offsetting some of the weakness we saw in government services in our commercial businesses.

In addition, a few business areas in electronic systems that were not in the commercial space also did very well. And by the way, as you notice, we renamed specialized products electronic systems to better reflect the nature of our business. Which has been growing to be more of a systems business than a product business.

In the fourth quarter though in electronic systems, EOIR microwaves and procession engagement grew, benefiting from the ISR surge, as well as preliminary power and control systems and the marine services, parts of the business.

Declining in the fourth quarter, however, were our combat population systems and simulation and training sales, due to funding cuts and other delays that we experienced earlier in 2009. In addition, sales also declined in security detection systems, mostly due to timing and display systems with fewer new military air craft starts. And also aviation products were down because of the recession induced commercial aviation downturn.

Our backlog at December 31, was $10.9 billion. With fourth quarter orders of $4.2 billion and our book to bill was slightly over 1 at 1.01, reversing the below 1 book to bill ratios we had in both Q2 and Q3 of 2009.

Our book to bill for the full year, however was 0.94. Our free cash flow in the quarter was $372 million. We had some significant wins in the fourth quarter, several of which were competitive. They include imagery analytical services, gun ship modifications, the multi national forces, Intel support, services re-competition, the maritime security enhancement program for equatorial Guinea and two large and important classified contracts that were both competitively won.

In addition, we had a lot of follow on orders on our important legacy programs, which included our UAV com systems, our Rover product, Phoenix systems, the Compass Call aircraft, CF8 18s, LEP or the Law Enforcement Professionals training contract, Contract field services, our Fort Rucker maintenance work on rotary wing aircraft, project Liberty and other small aircraft ISR programs, River Joint, the P3s, M734 Fuses, AVCATT, C12 logistic services, and BLIR turrets, of course. So there’s a lot of activity.

In terms of major re-competes, the only outstanding re-competes continues to be the special operations force support contract, known as JOG. Where that stands as of today as cellcom is currently taking corrective action in response to our protest. They have indicated they will amend the RFP and obtain new proposals or amended proposals, I guess.

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