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Condensed Combining Financial Information of L3 and Its Subsidiaries
 6 Months Ended
Jun. 29, 2018
Condensed Financial Information of Parent Company Only Disclosure [Abstract]  
Condensed Combining Financial Information of L3 and Its Subsidiaries
. Condensed Combining Financial Information of L3 and Its Subsidiaries
The debt of L3, including the senior notes and borrowings under amounts drawn against the Credit Facility, are guaranteed, on a joint and several, full and unconditional basis, by certain of its 100% owned domestic subsidiaries (the Guarantor Subsidiaries). See Note 9 to the audited consolidated financial statements for the year ended December 31, 2017, included in the Company’s Annual Report on Form 10-K for additional information. The foreign subsidiaries and certain domestic subsidiaries of L3 (the Non-Guarantor Subsidiaries) do not guarantee the debt of L3. None of the debt of L3 has been issued by its subsidiaries.
Under the terms of the indentures governing the senior notes, the guarantees of the senior notes will automatically and unconditionally be released and discharged: (1) upon the release of all guarantees of all other outstanding indebtedness of L3 or (2) upon the determination that such guarantor is no longer a “domestic subsidiary.” In addition, the guarantees of the senior notes will be automatically and unconditionally released and discharged in the event of a sale or other disposition of all of the assets of any guarantor, by way of merger, consolidation or otherwise, or a sale of all of the capital stock of such guarantor. There are no restrictions on the payment of dividends from the Guarantor Subsidiaries to L3.
The following unaudited condensed combining financial information presents the results of operations, financial position and cash flows of: (1) L3 excluding its consolidated subsidiaries (the Parent), (2) the Guarantor Subsidiaries, (3) the Non-Guarantor Subsidiaries and (4) the eliminations to arrive at the information for L3 on a consolidated basis.
 
L3
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated L3
 
(in millions)
Condensed Combining Balance Sheets:
 
 
 
 
 
 
 
 
 
At June 29, 2018
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,055

 
$
19

 
$
307

 
$
(15
)
 
$
1,366

Billed receivables, net
285

 
315

 
263

 
—

 
863

Contract assets
616

 
810

 
185

 
—

 
1,611

Inventories
393

 
315

 
226

 
—

 
934

Prepaid expenses and other current assets
112

 
150

 
70

 
—

 
332

Total current assets
2,461


1,609


1,051


(15
)

5,106

Goodwill
2,273

 
2,828

 
1,550

 
—

 
6,651

Other assets
707

 
712

 
354

 
—

 
1,773

Investment in and amounts due from consolidated subsidiaries
5,668

 
6,614

 
—

 
(12,282
)
 
—

Total assets
$
11,109


$
11,763


$
2,955


$
(12,297
)

$
13,530

Current portion of long-term debt
$
581

 
$
—

 
$
—

 
$
—

 
$
581

Current liabilities
774

 
864

 
599

 
(15
)
 
2,222

Amounts due to consolidated subsidiaries
—

 
—

 
426

 
(426
)
 
—

Other long-term liabilities
991

 
757

 
148

 
—

 
1,896

Long-term debt
3,319

 
—

 
—

 
—

 
3,319

Total liabilities
5,665


1,621


1,173


(441
)

8,018

L3 shareholders’ equity
5,444

 
10,142

 
1,782

 
(11,924
)
 
5,444

Noncontrolling interests
—

 
—

 
—

 
68

 
68

Total equity
5,444


10,142


1,782


(11,856
)

5,512

Total liabilities and equity
$
11,109


$
11,763


$
2,955


$
(12,297
)

$
13,530


 
L3
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated L3
 
(in millions)
At December 31, 2017
 

 
 

 
 

 
 

 
 

Current assets:
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
432

 
$
16

 
$
285

 
$
(71
)
 
$
662

Billed receivables, net
266

 
244

 
213

 
—

 
723

Contracts in process
706

 
912

 
315

 
—

 
1,933

Prepaid expenses and other current assets
330

 
235

 
124

 
—

 
689

Assets held for sale
—

 
135

 
—

 
—

 
135

Assets of discontinued operations
306

 
—

 
—

 
—

 
306

Total current assets
2,040


1,542


937


(71
)

4,448

Goodwill
2,248

 
2,844

 
1,523

 
—

 
6,615

Other assets
658

 
687

 
321

 
—

 
1,666

Investment in and amounts due from consolidated subsidiaries
5,513

 
6,398

 
—

 
(11,911
)
 
—

Total assets
$
10,459


$
11,471


$
2,781


$
(11,982
)

$
12,729

Current liabilities
$
811

 
$
832

 
$
564

 
$
(71
)
 
$
2,136

Liabilities held for sale
—

 
17

 
—

 
—

 
17

Liabilities of discontinued operations
226

 
—

 
—

 
—

 
226

Amounts due to consolidated subsidiaries
—

 
—

 
330

 
(330
)
 
—

Other long-term liabilities
1,009

 
729

 
131

 
—

 
1,869

Long-term debt
3,330

 
—

 
—

 
—

 
3,330

Total liabilities
5,376


1,578


1,025


(401
)

7,578

L3 shareholders’ equity
5,083

 
9,893

 
1,756

 
(11,649
)
 
5,083

Noncontrolling interests
—

 
—

 
—

 
68

 
68

Total equity
5,083


9,893


1,756


(11,581
)

5,151

Total liabilities and equity
$
10,459


$
11,471


$
2,781


$
(11,982
)

$
12,729



 
L3
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated L3
 
(in millions)
Condensed Combining Statements of Operations:
 

 
 

 
 

 
 

 
 

For the quarter ended June 29, 2018:
 

 
 

 
 

 
 

 
 

Total net sales
$
919

 
$
1,328

 
$
431

 
$
(95
)
 
$
2,583

Total operating costs and expenses
(819
)
 
(1,239
)
 
(347
)
 
95

 
(2,310
)
Gain on sale of the Crestview & TCS Businesses
—

 
48

 
—

 
—

 
48

Operating income
100


137


84


—


321

Interest expense
(43
)
 
—

 
(1
)
 
—

 
(44
)
Interest and other income, net
6

 
1

 
1

 
—

 
8

Debt retirement charge
(48
)
 
—

 
—

 
—

 
(48
)
Income from continuing operations before income taxes
15


138


84


—


237

Provision for income taxes
(4
)
 
(26
)
 
(18
)
 
—

 
(48
)
Equity in net income of consolidated subsidiaries
174

 
47

 
—

 
(221
)
 
—

Income from continuing operations
185


159


66


(221
)

189

Income from discontinued operations, net of income taxes
190

 
—

 
—

 
—

 
190

Net income
375


159


66


(221
)

379

Net income attributable to noncontrolling interests
—

 
—

 
—

 
(4
)
 
(4
)
Net income attributable to L3
$
375


$
159


$
66


$
(225
)

$
375

Comprehensive income attributable to L3
$
306

 
$
85

 
$
(11
)
 
$
(74
)
 
$
306

 
 
 
 
 
 
 
 
 
 
For the quarter ended June 30, 2017:
 
 
 
 
 
 
 
 
 
Total net sales
$
894

 
$
1,193

 
$
399

 
$
(101
)
 
$
2,385

Total operating costs and expenses
(810
)
 
(1,049
)
 
(333
)
 
101

 
(2,091
)
Operating income
84


144


66


—


294

Interest expense
(42
)
 
—

 
—

 
—

 
(42
)
Interest and other income, net
2

 
—

 
—

 
—

 
2

Income from continuing operations before income taxes
44


144


66


—


254

Provision for income taxes
(10
)
 
(34
)
 
(15
)
 
—

 
(59
)
Equity in net income of consolidated subsidiaries
156

 
35

 
—

 
(191
)
 
—

Income from continuing operations
190

 
145

 
51

 
(191
)
 
195

Income from discontinued operations, net of income taxes
12

 
—

 
—

 
—

 
12

Net income
202


145


51


(191
)

207

Net income attributable to noncontrolling interests
—

 
—

 
—

 
(5
)
 
(5
)
Net income attributable to L3
$
202


$
145


$
51


$
(196
)

$
202

Comprehensive income attributable to L3
$
264

 
$
192

 
$
104

 
$
(296
)
 
$
264

 
L3
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated L3
 
(in millions)
Condensed Combining Statements of Cash Flows
 

 
 

 
 

 
 

 
 

For the first half period ended June 29, 2018:
 

 
 

 
 

 
 

 
 

Operating activities:
 

 
 

 
 

 
 

 
 

Net cash from (used in) operating activities from continuing operations
$
195

 
$
(100
)
 
$
88

 
$
(5
)
 
$
178

Investing activities:
 
 
 
 
 
 
 
 
 
Business acquisitions, net of cash acquired
(69
)
 
—

 
—

 
—

 
(69
)
Proceeds from sale of businesses, net of closing date cash balances
360

 
175

 
—

 
—

 
535

Other investing activities
(79
)
 
(38
)
 
(19
)
 
—

 
(136
)
Net cash from (used in) investing activities from continuing operations
212

 
137

 
(19
)
 
—

 
330

Financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from sale of senior notes
1,798

 
—

 
—

 
—

 
1,798

Repurchases and redemptions of senior notes
(1,263
)
 
—

 
—

 
—

 
(1,263
)
Common stock repurchased
(287
)
 
—

 
—

 
—

 
(287
)
Dividends paid
(128
)
 
—

 
—

 
—

 
(128
)
Other financing activities
89

 
(34
)
 
(39
)
 
61

 
77

Net cash from (used in) financing activities from continuing operations
209

 
(34
)
 
(39
)
 
61

 
197

Effect of foreign currency exchange rate changes on cash
—

 
—

 
(8
)
 
—

 
(8
)
Net increase in cash and cash equivalents of discontinued operations
7

 
—

 
—

 
—

 
7

Net increase in cash
623

 
3

 
22

 
56

 
704

Cash and cash equivalents, beginning of the period
432

 
16

 
285

 
(71
)
 
662

Cash and cash equivalents, end of the period
$
1,055

 
$
19

 
$
307

 
$
(15
)
 
$
1,366

For the first half period ended June 30, 2017:
 

 
 

 
 

 
 

 
 

Operating activities:
 

 
 

 
 

 
 

 
 

Net cash from operating activities from continuing operations
$
137

 
$
101

 
$
118

 
$
(41
)
 
$
315

Investing activities:
 
 
 
 
 
 
 
 
 
Business acquisitions, net of cash acquired
(191
)
 
—

 
—

 
—

 
(191
)
Proceeds from sale of businesses, net of closing date cash balances
15

 
—

 
1

 
—

 
16

Other investing activities
(33
)
 
11

 
(10
)
 
—

 
(32
)
Net cash (used in) from investing activities from continuing operations
(209
)
 
11

 
(9
)
 
—

 
(207
)
Financing activities:
 
 
 
 
 
 
 
 
 
Common stock repurchased
(26
)
 
—

 
—

 
—

 
(26
)
Dividends paid
(119
)
 
—

 
—

 
—

 
(119
)
Other financing activities
164

 
(117
)
 
(124
)
 
92

 
15

Net cash from (used in) financing activities from continuing operations
19

 
(117
)
 
(124
)
 
92

 
(130
)
Effect of foreign currency exchange rate changes on cash
—

 
—

 
10

 
—

 
10

Net increase in cash and cash equivalents of discontinued operations
34

 
—

 
—

 
—

 
34

Net decrease in cash
(19
)
 
(5
)
 
(5
)
 
51

 
22

Cash and cash equivalents, beginning of the period
291

 
5

 
203

 
(136
)
 
363

Cash and cash equivalents, end of the period
$
272

 
$
—

 
$
198

 
$
(85
)
 
$
385

During the preparation of the condensed consolidating financial information of the Company and its subsidiaries for the quarter ended June 29, 2018, the Company determined the Guarantor Subsidiaries and Non-Guarantor Subsidiaries columns of the Condensed Combining Balance Sheet at December 31, 2017 and March 30, 2018 contained errors which understated total assets, total liabilities and equity of the guarantor subsidiaries reflected as non-guarantor subsidiaries and overstated total assets, total liabilities and equity of the non-guarantor subsidiaries. The errors related to certain guarantor subsidiaries reflected as non-guarantor subsidiaries and understating the equity in net income of certain guarantor subsidiaries. As a result of these errors, the guarantor subsidiaries and non-guarantor subsidiaries columns of the Condensed Combining Statements of Operations for the quarter ended June 30, 2017 and for the half year ended June 30, 2017 understated net income of the guarantor subsidiaries and overstated net income of the non-guarantor subsidiaries. The errors did not impact the Condensed Combining Statement of Cash Flows. The Company assessed the materiality of these items on previously issued annual and interim financial statements in accordance with SEC Staff Accounting Bulletin No. 99 and No. 108, and concluded that the disclosure errors were not material to the Company's previously issued annual and quarter financial statements taken as a whole. The Company has revised the reported amounts for Guarantor Subsidiaries, Non-Guarantor Subsidiaries and Eliminations in the December 31, 2017 Condensed Combining Balance Sheet, and the Condensed Combining Statements of Operations for the quarterly period ended June 30, 2017 and for the first half period ended June 30, 2017, to correct for these errors as enumerated below. Additionally, the effect of changes in the guarantor subsidiaries resulting from the sale of Vertex Aerospace which occurred on June 29, 2018 are being retrospectively reflected in the below guarantor adjustment column.

Condensed Combining Balance Sheet (at December 31, 2017)
 
As Reported
 
Adjustment
 
As Adjusted
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Elimination
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Elimination
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Elimination
 
(in millions)
Total assets
$
10,270

 
$
3,156

 
$
(10,930
)
 
$
1,201

 
$
(375
)
 
$
(1,052
)
 
$
11,471

 
$
2,781

 
$
(11,982
)
Total liabilities
$
1,756

 
$
1,091

 
$
(419
)
 
$
(178
)
 
$
(66
)
 
$
18

 
$
1,578

 
$
1,025

 
$
(401
)
Total equity
$
8,514

 
$
2,065

 
$
(10,511
)
 
$
1,379

 
$
(309
)
 
$
(1,070
)
 
$
9,893

 
$
1,756

 
$
(11,581
)

Condensed Combining Statement of Operations (Second Quarter Ended June 30, 2017)
 
As Reported
 
Adjustment
 
As Adjusted
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Elimination
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Elimination
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Elimination
 
(in millions)
Net income
$
117

 
$
52

 
$
(164
)
 
$
28

 
$
(1
)
 
$
(27
)
 
$
145

 
$
51

 
$
(191
)

Condensed Combining Statement of Operations (First Half Ended June 30, 2017)
 
As Reported
 
Adjustment
 
As Adjusted
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Elimination
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Elimination
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Elimination
 
(in millions)
Net Income
$
201

 
$
100

 
$
(292
)
 
$
47

 
$
(3
)
 
$
(44
)
 
$
248

 
$
97

 
$
(336
)