No. 7: L-3 cuts bigger slice of govt pie

Titan buy helps build on company's defense and intelligence services

L-3 Communications Corp.

Prime IT contracting revenue: $1.8 billion

Location: New York

Leader: Frank Lanza, chairman and CEO

Employees: 59,500


2005 revenue: $9.4 billion

2005 net earnings: $508.5 million

2004 revenue: $6.9 billion

2004 net earnings: $381.9 million

Frank Lanza paints a grim picture of the world. A resolution to the war in Iraq is uncertain. Congress and the White House can't agree. The United States' roster of allies has shrunk. His list goes on and on.

"We're in an era where we don't know anything," Lanza, chairman and CEO of L-3 Communications Corp., said in an earnings call with shareholders. "We can't win the peace with technology ... We don't have a lot of allies we can count on."

Despite weighty times, however, L-3 Communications is stronger than ever, with 2005 income up by more than 30 percent, and revenue getting a near 40 percent boost. The company posted $508.5 million in net income on $9.4 billion in revenue.

The growth in 2005 was driven largely by the demand for intelligence, surveillance and reconnaissance systems and products, secure networked communications systems, aircraft modernization and maintenance, government services and several specialized products.

The New York company moved up eight slots on this year's Top 100, landing at No. 7, with more than $1.8 billion in federal IT prime contracts.

Last summer's $2.65 billion acquisition of Titan Corp., which was No. 12 on the 2005 Top 100, helped boost L-3's rating. The company said that Titan contributed more than $600 million in sales for L-3 in 2005.

Titan, which now is known as L-3 Communica- tions Titan Corp., made its bread and butter on information and communications systems and so- lutions for defense, homeland security and intelligence agencies. It had several high-profile awards under its belt, including a team win with Accenture Ltd. for the Homeland Security Department's U.S. Visit contract.

Another of Titan's attractions was its work providing IT, engineering services and products to the Air Force, Army, Navy, Special Operations Command and Northern Command. Some of its biggest wins before its acquisition include a $200 million contract in 2004 to furnish intelligence analysis, planning support and other assistance to the joint services in the European theater.

The Titan acquisition also brought a linguist operations and technical support expertise, which L-3 broke out as a separate unit in its government services division. The unit offers translation, interpretation, and linguist and analyst support services to military organizations.

The division has teamed with Northrop Grumman Corp. to pursue the Army's Interpreter and Translator Management Services program in Iraq, which could be worth as much as $2.6 billion over five years.

Of L-3's four divisions, government services grew the fastest in 2005, with a more than 70 percent boost in sales. The company attributed the growth of the division, which has a dozen units, to increased support services for the Missile Defense Agency.

But soon after the Titan acquisition, the company announced several contract wins, including in November 2005 a Coast Guard contract that could hit $105 million. The division is providing training program management, curriculum development, instructions and other administrative support personnel to Coast Guard training centers throughout the country.

The Titan acquisition helps L-3 expand to new and current intelligence and security customers such as the FBI, Marine Corps, National Reconnaissance Office, National Security Agency and Defense Department intelligence agencies.

"Titan has built up market share in terms of classified communications and running entire systems for the government," said Peter Arment, vice president of JSA Research Inc., an equity research firm. The company has made a concerted effort to develop contracts on "the operations and maintenance side of the defense budget, which is more stable than the weapons procurement side," he said.

Titan, which generates about 15 percent of its sales from non-defense work and 25 percent from products, brought with it 9,000 employees who have classified clearances ? 5,000 of them with some of the highest security clearances in the government. More than 2,400 employees have special clearances focused on communications, networks, cryptology, signal intelligence, electronic warfare and data fusion.

The company in November struck a $22 million deal with the National Security Agency for process engineering and technical support for the Joint Office of the Secretary of Defense and intelligence com- munity programs.

The Titan acquisition "really secured their government services-related business, particularly in the classified world," Arment said. "The area is growing in the double digits, and it positions L-3 very well."

In a statement last year, Lanza said that Titan strengthens L-3's command and control business, as well as its naval warfare offerings in air and surface, technical services and network communications sectors.

The government services division of Titan is on pace to continue strong growth in 2006. The first quarter saw a boost in government services sales of nearly 150 percent, generating $683.1 million.

L-3 has developed a reputation as an aggressive acquirer, and analysts expect the company to live up to that image. The company is also a potential take-over candidate, although some potential buyers may be scared off by L-3's size, Arment said.

The buyers' list is short as "there are not that many companies that want to take on a $12 billion defense company," he said.

Additional 2006 Top 100 Profiles
  • No. 1: 12 times the fun for Lockheed

  • No. 2: Northrop takes aim on health IT

  • No. 3: SAIC prepares for public debut

  • No. 4: Revving the acquisition engine

  • No. 5: CSC holds a lure for a buyer

  • No. 6: Raytheon works the system

  • No. 7: L-3 cuts bigger slice of govt pie

  • No. 8: For EDS, steady as she goes

  • No. 9: Booz Allen adapts to stay on top

  • No. 10: Dell solutions get superpowered

  • No. 11: BAE keeps acquisition fires burning

  • No. 12: Despite sale, Anteon's vision lives on

  • No. 13: Intelligence work fuels CACI's growth

  • No. 14: Verizon-MCI combination packs a punch

  • No. 15: Restructured IDS lets Boeing help clients

  • No. 16: ITT Industries aims for the sweet spot

  • No. 17: IBM Corp. steps up as a subcontractor

  • No. 18: Sprint Nextel goes for convergence

  • No. 19: For SRA, the profit is in its people

  • No. 20: It's always mission possible for Unisys

  • Overview: The Billion-Dollar Club

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