IT work drives L-3's $3.8B Top 100 success

Key contract wins with defense customers helped L-3 retain its market share during tough economic times.

Uneasiness about the federal budget shadows even robust defense companies such as L-3 Communications Corp.

During an April earnings call with analysts, Michael Strianese, L-3's chairman, president and CEO, said his company faces a "very challenging environment and the ongoing budget uncertainty.” But despite the challenge, the company has held its own. Earnings for the first quarter of 2011 have flattened and over the past 12 months, diluted earnings per share stood at $1.85 for the quarter ended April 1, versus $1.87 for 2010’s first quarter.

Still, L-3 was buoyed by its Government Services unit, which helps the company land at the No. 8 spot on the Top 100 with $3.8 billion in prime contracting revenue. This year is also off to a strong start as net sales for the 2011 first quarter increased by 4 percent compared with the 2010 first quarter.

The company points to 2010 federal contract wins for IT and system engineering support services as reasons for optimism in 2011.

One major L-3 win come last August, with a $170 million award from the U.S. Special Operations Command for portable satellite communications systems to provide special ops troops with high-speed transmission capacity for voice and data communications. Under the terms of the deal, L-3 will furnish the command with its Panther Very Small Aperture Terminal (VSAT) “manpack” satellite communications systems.

The company has been working for the past two years to reduce VSAT size to fit a megabit-per-second, beyond line-of-sight radio into a military field pack. The systems are being deployed as part of the Special Operations Forces Deployable Node-Lite program, enabling worldwide individual satellite communications connectivity.

The likely downtick in Defense Department spending as belt tightening continues doesn’t seem to faze L-3 officials. “Of the 20 programs that were reduced or eliminated, no significant L-3 programs were impacted,” Michael Strianese said in the April earnings call. Strianese pointed to several high-priority DOD items – including intelligence, surveillance and reconnaissance, as well as military equipment refurbishments and upgrades – that L-3 sees areas in which the company will continue to compete.

L-3’s Electronic Systems and Warrior Systems businesses continue as high performers, according to the company. Last October, L-3 won a $92.4 million multi-year, firm fixed-price, indefinite-delivery, indefinite-quantity contract from the Army for the service's Battlefield Anti-Intrusion System (BAIS). BAIS is a compact, sensor-based early warning system used by small tactical units for force protection and situational awareness. BAIS can be used either as a tactical standalone system or as a supplemental device for other security missions.

In January, L-3 acquired FUNA International, including it in the company’s Marine and Power Systems Group within the Electronic Systems unit. Headquartered in Germany, FUNA is a leading supplier of control and safety systems, communication systems and entertainment solutions for cruise ships, ferries and mega yachts. FUNA's fire detection and suppression systems are also used in offshore wind turbines. FUNA is expected to generate approximately $60 million in sales for L-3 by year’s end.

“FUNA … [fits] well with our strategy to grow business in the offshore wind energy segment,” said Robert Leskow, Marine and Power Systems president.

In late April, the company announced that its board of directors had authorized a new share repurchase program, allowing L-3 to buy back up to an additional $1.5 billion of its common stock. It’s the fifth such L-3 venture. In a statement, Strianese said that the “authorization reflects our strong financial position and confidence in L-3’s future. Share repurchases are a central element of our disciplined capital deployment strategy and reflect our ongoing commitment to deliver value to our shareholders.”

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