L-3 Communications Cleaning Balance Sheet

• By Zacks Equity Research
• On 10:37 am EDT, Monday October 5, 2009

Related Quotes

Symbol	Price	Change
HRLY	11.57	-0.48
LLL	78.45	-1.55
RTN	51.63	-0.39

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L-3 Communications Holdings Inc. (NYSE: LLL - News) yesterday announced that its subsidiary L-3 Communications Corporation will issue $1 billion in senior notes with coupon rate of 5.2%. The said notes are due in October 2019.

L-3 Communications will use the proceeds from the note issue along with available cash to reduce its debt burden. The company plans to redeem $750 million in senior subordinated notes due in 2012 and repay a $650 million term loan. Apart from that the company will also replace its existing $1 billion revolving credit facility with a 3-year facility of at least $750 million.

L-3 Communications has one of the strongest balance sheets among its peers with a low debt-to-capitalization of 38.3% after the first half of fiscal 2009. The company continues to be a strong cash generator and closed the first half of fiscal 2009 with cash and cash equivalents of $897 million. Debt burden also steadily improved from $4.5 billion at year-end 2008 to $3.9 billion after the first half of the fiscal 2009. This provides ample opportunity for appreciation of the company’s earnings per share through share repurchase.

Headquartered in New York, L-3 Communications is a leading provider of Intelligence, Surveillance and Reconnaissance (ISR) systems and products; secure communications systems; aircraft modernization, training and government services; and is a merchant supplier of a broad array of high technology products. L-3’s functions through four primary business segments: Specialized Products; Government Services; Aircraft Modernization and Maintenance (AM&M); and Command, Control, Communications and Intelligence, Surveillance, and Reconnaissance (C3ISR).

L-3 Communications remains a key player in the defense segment and mainly competes with FLIR Systems Inc. (FLIR), Herley Industries Inc. (NasdaqGM: HRLY - News), and Raytheon Company (NYSE: RTN - News). The company we believe is one of the best positioned pure defense plays by virtue of its non-platform focus, and broad diversification of programs.

Our bullish outlook for L-3 Communications is supported by strong performance mainly in the C3ISR and Specialized Products segments, the GLS subcontract, and strong operating results and robust cash flow; partially offset by divestitures, higher pension funding, and declining Linguist and CFT revenues. We also expect that L-3’s ongoing share repurchase program will be accretive to earnings over the near-term. We maintain our market Outperform recommendation on the shares.

L-3 COMMUNICATIONS HLDGS INC (LLL): Read the Full Research Report

RAYTHEON CO (RTN): Read the Full Research Report

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