We believe the most serious impact of the accounting issues is the potential effect on free cash flow (FCF), with L-3 lowering its annual forecast by
The charge and the internal review are the results of what L-3 believes are misconduct and accounting errors in its aerospace segment. Fitch notes that the issues appear to be related to one contract and the amount of the charge is small relative to L-3's annual revenues and profits.
Fitch's rating concerns include a possibility that the company may find the accounting matters to be spread wider than initially believed, which could result in additional charges or effect Fitch's view of L-3's future operating results. The company's declining revenues are also expected to remain under modest pressure for at least the next two years due to lower
Key factors that support the ratings include L-3's adequate credit metrics, strong liquidity position, and Fitch's expectation of solid margins and substantial FCF. Other positive rating factors include L-3's diverse portfolio of products and services and L-3's increasing percentage of international military and commercial sales which accounted for 27% of sales in 2013, up from 24% and 18% in 2012 and 2011, respectively.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
David Petu, CFA
+1 212 908-0280
+1 212 908-9123
Source: Fitch Ratings
Most Popular Stories
- Bently Creates Alabama Small Business Commission
- California King Fire Roars Out of Control
- Is Alibaba's IPO Price a Fairytale?
- Mercedes Rolls Out S550 Plug-in Hybrid
- Kardashian: Kanye Never Told Fan in Wheelchair to Stand Up
- SBA Kicks off Hispanic Heritage Month
- CalPERS Pulls Out of Hedge Funds
- U.S. Tobacco Growers Lose Last of Price Supports
- Poverty Rate Drops for First Time Since 2006
- Two-thirds of Hispanics Doubt Media Accuracy