Aerospace contractor and communications systems developer L-3 Communications has launched an internal review into accounting malpractice at its Aerospace Systems business.
The company revealed that certain staff at the unit had overstated net sales and…
Aerospace contractor and communications systems developer L-3 Communications has launched an internal review into accounting malpractice at its Aerospace Systems business.
The company revealed that certain staff at the unit had overstated net sales and inappropriately deferred contract cost overruns, with respect to a fixed-price maintenance and logistics support contract for the US Department of Defense.
The contract has averaged annual sales of about US$150m and began in December 2010. It is scheduled to end on January 2015.
Speaking on an investor call, Michael Strianese, L-3’s chairman, president and CEO, said: “We take this matter seriously and are dedicating the appropriate time and resources to resolving it promptly and thoroughly.
“Through our internal processes we became aware of the misconduct. We initiated a review and identified overstatements of net sales and contract cost overruns that were inappropriately deferred. The misconduct included concealment from L-3’s corporate staff and external auditors. As part of our review, we are examining the financial records of the entire Aerospace Systems segment.”
The review is being conducted with the assistance of outside accounting and legal advisers.
So far L-3 has fired four employees with a fifth having resigned. The company said it will take more remedial actions if necessary depending on the findings of the ongoing review.
L-3 currently expects to incur an aggregate pre-tax charge of US$84m against operating income and a related reduction in net sales of around US$43m.
Of these charges, roughly US$50m relates to periods prior to 2014, with US$34m to the first half of 2014. US$30m of this relates to the second quarter of 2014 alone.
Additionally, as a result of the review, the company has lowered its estimated operating income for the Aerospace Systems segment by approximately US$35m for the second half of 2014.
Following the announcement of the review, L-3’s stock fell by more than 15% on 31 July 2014.