LLL
#I expect it to end comfortably where we maintain all of our existing investment grade credit ratings.
Each of the rating agencies calculate leverage ratios slightly differently because of the way they attribute certain items to debt and leverage.
But I expect that we're going to be down ---+ we'll be at around three times leverage.
On the way the ---+
Well, there's certainly no surprises there in the range, which was, I would say, representative range based on multiples and transactions we've seen before.
I don't want to go beyond that and get ahead of ourselves here because we are at that stage in the process where we're getting down to the end and I think less is better in terms of what we say in terms of pricing right now.
We're at a very sensitive point in the process.
In fact, with more confidence than I expect it to be concluded by the end of the year.
Good morning.
Yes.
Well, first of all, in terms of the incentives, yes, since we are trying to encourage that behavior of margin expansion and cost control, we are baking that into some of the measures that we have going forward.
Even though you might say that, well, their EPS or TSR centric, they'll still include those elements.
But if you look at the ---+ what the plan will be that is going through the basis for an incentive agreement, built into that plan will be a reasonable level of margin expansion.
So in that sense, yes, it's in there.
And it's always been in there, by the way, to some degree.
Each successive plan has had some level of margin expansion.
It's just it's becoming more of a focal point going forward.
And then in terms of L-3 structurally, I've been very mindful and careful not to take some of the very things that have made the Company successful in the past and throw that away.
The decentralized structure in many regards works well.
We do think that a little bit more control in a centralized sense could make ---+ could be appropriate at this point in the life of the Company.
That we do want to make sure we have the strongest oversight in place that we can have over our business units and that's done in conjunction with our group presidents.
But the answer is, no, we still intend to have a significant level of autonomy at our business unit level.
We believe that, that decision making is made best when it's done closest to the customer.
But as long as it's done within the parameters that we lay out for our people.
And with that in mind, I think adding Chris and his experience to the team will kind of enhance that whole process.
No.
The cost is an element of it, meaning consolidations, if that's what you're getting at.
That will be part of it is looking at our cost structure and seeing where there are opportunities to take cost out that we take advantage of that.
You're welcome.
Hi, Rich.
How are you doing.
Hi.
I would ---+ it's very new, Rich.
I expect that the task orders, you'll start to see them next year.
It would move the needle if we won several of them at the same time for sure, but there are multiple winners here and I think when you get to this place, it becomes a cost shootout, as they say, because you have a bunch of capable winners on the program.
So, I mean, we can give updates as we get into next year on it, but it's certainly not going to move the needle this year at all no matter what they do from a ---+ from a project basis, if you will, or a task order basis.
Even if there are task orders awarded this year, there's not enough runway left to really make much of a difference.
It will have to be things we see awarded early next year.
Well, I mean, by virtue of their lower margins, they're already pressuring the whole ---+ the overall margin profile.
But we don't expect margins to go any lower from that 2% that I talked about.
In fact, we do expect that we'll be able to modestly improve them through cost takeout activities, et cetera, but it's doubtful that can ever get to where we want to move the entire Company margin-wise.
With respect to the LPTA, there's certainly a lot of talk about the pendulum swinging away from it, but all we're seeing is talk right now.
In the actual RFPs and the award selection criteria, LPTA is still the main criteria on a lot of these competitions.
I think it's a function of the fact that even though the budgets for the US Defense Department are going to turn upward now, we're still in a constrained situation.
So there's definitely room for more budget and we hear a lot of our elected leaders talking about that.
Hopefully they can bring that to fruition the next couple of years.
Great.
<UNK>, I hope you'll join us at the Investor Day.
Chris will be joining us as well.
You can certainly rekindle that relationship and sit down and have a cup of coffee or something.
That's great.
Sure.
I can do more than roughly size it.
I can give you some more precision there, <UNK>.
<UNK>.
I mean <UNK>.
Well, you're both very good looking.
I'm say that.
(Laughter) So next year, I say that we expect aerospace system segment sales to decline about 4%.
That would put the segment sales in the $3.9 billion to $4 billion range and the way that spreads across three sectors is almost $2.1 billion in ISR systems, aircraft systems would be just under $700 million and logistic solutions just under $1.2 billion.
Is that rough enough, <UNK>.
The answer is it depends, <UNK>.
It depends on our ability to win new business, particularly in the Platform Integration division at Waco to replace those Head of State sales and also to replace the P3 sales that have been declining for a while.
Someone earlier talked about ---+ or asked about Compass Call, and that's also a Waco program where we're doing about $80 million a year now, and that's down from about $140 million a year ---+ a few years ago and that's because of what's been happening with respect to reducing the fleet size there.
To the extent that we can bring new business in and we'll definitely be able to improve those margins.
That's something that we're focused on as well in terms of new business development.
That's the threshold question there.
That's right, <UNK>.
There is a big range.
It's not just going to be the margins, it's going to be the outlook for the business going forward.
Without giving the wrong direction, if you think logistics, which keeps coming up, yes, the margins have been lower.
It's been hurt by competitive issues as well as the overall downward pressure on margins.
However, if you look at where the US service people are operating, it's all over the world and logistics happens to be a discriminator that makes that possible.
It's a key enabler for our military is having a very robust logistics environment around them.
So it's something that I think may get renewed focus by the DoD.
But, again, we here are focused on doing whatever it is we need to do to drive value.
It's the whole package, whether it's margin, top-line growth, a combination of the two.
It's all on the table.
We will take those actions, <UNK>.
Thank you.
Okay.
Just in concluding, moving forward, we plan ---+ we believe the actions that we've taken and the plans we put in place reflect our customers' priorities and give us a clear path to significantly improve our revenue and earnings performance over time.
At its core, our strategy for this win growth is simple and straightforward.
We're repositioning our portfolio and investing in our businesses, our people and our technologies, as well as levering our cash flow generation to maintain market leadership in our core businesses and return cash to our shareholders.
We're focused on higher-return businesses and markets where we maintain leading positions.
We're excited about L-3's progress and prospects for enhancing and expanding our defense electronics, ISR and communications businesses, areas where we have market-leading positions and that represent the core of L-3.
We're committed to long-term strategic growth and performance and we'll continue to deliver value for all shareholders.
As I've mentioned a couple of times now, we plan on hosting an Investor Day in New York on December 8th.
We will provide additional color and detail on our strategy, our ongoing business transformation and our key initiatives for 2016 and I look forward to seeing you all there and continuing this dialogue.
Our Board will be there.
Many of the members of the Board will be present as well.
So thanks again for joining us this morning and on the call.
We look forward to speaking to you in a couple of weeks.
Thank you.
