24. 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 domestic subsidiaries (the Guarantor Subsidiaries). See Note 9 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.

In lieu of providing separate audited financial statements for the Guarantor Subsidiaries, the Company has included the accompanying condensed combining financial statements based on Rule 3-10 of SEC Regulation S-X. The Company does not believe that separate financial statements of the Guarantor Subsidiaries are material to users of the financial statements.

The following 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 December 31, 2017:
Current assets:
Cash and cash equivalents	$	432	$	14	$	287	$	(71	)	$	662
Billed receivables, net		266		232		225		—			723
Contracts in process		706		891		336		—			1,933
Prepaid expenses and other current assets		330		231		128		—			689
Assets held for sale		—		118		17		—			135
Assets of discontinued operations		—		306		—		—			306
Total current assets		1,734		1,792		993		(71	)		4,448
Goodwill		2,248		2,652		1,715		—			6,615
Other assets		658		556		452		—			1,666
Investment in and amounts due from consolidated subsidiaries		5,593		5,270		—		(10,863	)		—
Total assets	$	10,233	$	10,270	$	3,160	$	(10,934	)	$	12,729
Current liabilities	$	811	$	800	$	596	$	(71	)	$	2,136
Liabilities held for sale		—		16		1		—			17
Liabilities of discontinued operations		—		226		—		—			226
Amounts due to consolidated subsidiaries		—		—		352		(352	)		—
Other long-term liabilities		1,009		714		146		—			1,869
Long-term debt		3,330		—		—		—			3,330
Total liabilities		5,150		1,756		1,095		(423	)		7,578
L3 shareholders’ equity		5,083		8,514		2,065		(10,579	)		5,083
Noncontrolling interests		—		—		—		68			68
Total equity		5,083		8,514		2,065		(10,511	)		5,151
Total liabilities and equity	$	10,233	$	10,270	$	3,160	$	(10,934	)	$	12,729

	L3		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated L3
	(in millions)
At December 31, 2016:
Current assets:
Cash and cash equivalents	$	291	$	1	$	207	$	(136	)	$	363
Billed receivables, net		261		254		185		—			700
Contracts in process		694		928		236		—			1,858
Prepaid expenses and other current assets		236		144		125		—			505
Assets of discontinued operations		—		481		—		—			481
Total current assets		1,482		1,808		753		(136	)		3,907
Goodwill		2,258		2,613		1,503		—			6,374
Other assets		705		567		312		—			1,584
Investment in and amounts due from consolidated subsidiaries		5,721		5,272		—		(10,993	)		—
Total assets	$	10,166	$	10,260	$	2,568	$	(11,129	)	$	11,865
Current liabilities	$	789	$	846	$	460	$	(136	)	$	1,959
Liabilities of discontinued operations		—		235		—		—			235
Amounts due to consolidated subsidiaries		—		—		763		(763	)		—
Other long-term liabilities		1,499		191		32		—			1,722
Long-term debt		3,325		—		—		—			3,325
Total liabilities		5,613		1,272		1,255		(899	)		7,241
L3 shareholders’ equity		4,553		8,988		1,313		(10,301	)		4,553
Noncontrolling interests		—		—		—		71			71
Total equity		4,553		8,988		1,313		(10,230	)		4,624
Total liabilities and equity	$	10,166	$	10,260	$	2,568	$	(11,129	)	$	11,865

	L3			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated L3
	(in millions)
Condensed Combining Statements of Operations:
For the year ended December 31, 2017:
Total net sales	$	3,519		$	4,748		$	1,690		$	(384	)	$	9,573
Total cost of sales		(3,179	)		(4,350	)		(1,408	)		384			(8,553	)
Operating income		340			398			282			—			1,020
Interest expense		(168	)		—			(1	)		—			(169	)
Interest and other income, net		17			—			3			—			20
Income from continuing operations before income taxes		189			398			284			—			871
Provision for income taxes		(22	)		(47	)		(33	)		—			(102	)
Equity in net income of consolidated subsidiaries		511			—			—			(511	)		—
Income from continuing operations		678			351			251			(511	)		769
Loss from discontinued operations, net of income tax		(1	)		(75	)		—			—			(76	)
Net income		677			276			251			(511	)		693
Net income attributable to noncontrolling interests		—			—			—			(16	)		(16	)
Net income attributable to L3	$	677		$	276		$	251		$	(527	)	$	677
Comprehensive income attributable to L3	$	712		$	278		$	378		$	(656	)	$	712
For the year ended December 31, 2016:
Total net sales	$	3,350		$	4,809		$	1,381		$	(330	)	$	9,210
Total cost of sales		(3,069	)		(4,378	)		(1,136	)		330			(8,253	)
Operating income		281			431			245			—			957
Interest expense		(164	)		—			—			—			(164	)
Interest and other income, net		15			—			3			—			18
Debt retirement charges		(7	)		—			—			—			(7	)
Income from continuing operations before income taxes		125			431			248			—			804
Provision for income taxes		(26	)		(92	)		(53	)		—			(171	)
Equity in net income of consolidated subsidiaries		611			—			—			(611	)		—
Income from continuing operations		710			339			195			(611	)		633
Income from discontinued operations, net of income tax		—			91			—			—			91
Net income		710			430			195			(611	)		724
Net income attributable to noncontrolling interests		—			—			—			(14	)		(14	)
Net income attributable to L3	$	710		$	430		$	195		$	(625	)	$	710
Comprehensive income attributable to L3	$	558		$	440		$	118		$	(558	)	$	558
For the year ended December 31, 2015:
Total net sales	$	3,267		$	4,866		$	1,449		$	(351	)	$	9,231
Total cost of sales		(3,031	)		(4,441	)		(1,248	)		351			(8,369	)
Goodwill impairment charges		—			(26	)		(20	)		—			(46	)
(Loss) gain related to business divestitures		(13	)		(31	)		13			—			(31	)
Operating income		223			368			194			—			785
Interest expense		(161	)		(1	)		—			—			(162	)
Interest and other income, net		17			—			—			—			17
Debt retirement charge		(1	)		—			—			—			(1	)
Income from continuing operations before income taxes		78			367			194			—			639
Provision for income taxes		(16	)		(76	)		(40	)		—			(132	)
Equity in net loss of consolidated subsidiaries		(302	)		—			—			302			—
(Loss) income from continuing operations		(240	)		291			154			302			507
Loss from discontinued operations, net of income tax		—			(732	)		—			—			(732	)
Net (loss) income		(240	)		(441	)		154			302			(225	)
Net income attributable to noncontrolling interests		—			—			—			(15	)		(15	)
Net (loss) income attributable to L3	$	(240	)	$	(441	)	$	154		$	287		$	(240	)
Comprehensive (loss) income attributable to L3	$	(230	)	$	(445	)	$	43		$	402		$	(230	)

	L3			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated L3
	(in millions)
Condensed Combining Statements of Cash
Flows: For the year ended December 31, 2017:
Operating activities:
Net cash from operating activities from continuing operations	$	374		$	438		$	251		$	(78	)	$	985
Investing activities:
Business acquisitions, net of cash acquired		(316	)		—			—			—			(316	)
Proceeds from sale of businesses, net of closing date cash balances		17			—			1			—			18
Other investing activities		(84	)		(41	)		(30	)		—			(155	)
Net cash used in investing activities from
continuing operations		(383	)		(41	)		(29	)		—			(453	)
Financing activities:
Common stock repurchased		(180	)		—			—			—			(180	)
Dividends paid on L3’s common stock		(236	)		—			—			—			(236	)
Other financing activities		565			(496	)		(162	)		143			50
Net cash from (used in) financing activities from continuing operations		149			(496	)		(162	)		143			(366	)
Effect of foreign currency exchange rate changes on cash		—			—			20			—			20
Net increase in cash and cash equivalents of discontinued operations		1			112			—			—			113
Net increase in cash		141			13			80			65			299
Cash and cash equivalents, beginning of the year		291			1			207			(136	)		363
Cash and cash equivalents, end of the year	$	432		$	14		$	287		$	(71	)	$	662

	L3			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated L3
	(in millions)
For the year ended December 31, 2016:
Operating activities:
Net cash from operating activities from continuing operations	$	441		$	509		$	258		$	(186	)	$	1,022
Investing activities:
Business acquisitions, net of cash acquired		(388	)		—			—			—			(388	)
Proceeds from sale of businesses, net of closing date cash cash balances		563			—			(2	)		—			561
Other investing activities		(60	)		(80	)		(43	)		—			(183	)
Net cash from (used in) investing activities from continuing operations		115			(80	)		(45	)		—			(10	)
Financing activities:
Proceeds from sale of senior notes		547			—			—			—			547
Redemption of senior notes		(856	)		—			—			—			(856	)
Common stock repurchased		(373	)		—			—			—			(373	)
Dividends paid on L3’s common stock		(220	)		—			—			—			(220	)
Other financing activities		496			(441	)		(158	)		149			46
Net cash used in financing activities from continuing operations		(406	)		(441	)		(158	)		149			(856	)
Effect of foreign currency exchange rate changes on cash		—			—			(13	)		—			(13	)
Net increase in cash and cash equivalents of discontinued operations		—			13			—			—			13
Net increase in cash		150			1			42			(37	)		156
Cash and cash equivalents, beginning of the year		141			—			165			(99	)		207
Cash and cash equivalents, end of the year	$	291		$	1		$	207		$	(136	)	$	363
For the year ended December 31, 2015:
Operating activities:
Net cash from operating activities from continuing operations	$	634		$	425		$	161		$	(185	)	$	1,035
Investing activities:
Business acquisitions, net of cash acquired		(320	)		—			—			—			(320	)
Proceeds from sale of businesses, net of closing date cash balances		14			28			276			—			318
Other investing activities		(75	)		(78	)		(35	)		—			(188	)
Net cash (used in) from investing activities from continuing operations		(381	)		(50	)		241			—			(190	)
Financing activities:
Repurchases of senior notes		(297	)		—			—			—			(297	)
Common stock repurchased		(740	)		—			—			—			(740	)
Dividends paid on L3's common stock		(214	)		—			—			—			(214	)
Other financing activities		781			(463	)		(420	)		148			46
Net cash used in financing activities from continuing operations		(470	)		(463	)		(420	)		148			(1,205	)
Effect of foreign currency exchange rate changes on cash		—			—			(19	)		—			(19	)
Net increase in cash and cash equivalents of discontinued operations		—			83			—			—			83
Change in cash balance in assets held for sale		—			1			60			—			61
Net (decrease) increase in cash		(217	)		(4	)		23			(37	)		(235	)
Cash and cash equivalents, beginning of the year		358			4			142			(62	)		442
Cash and cash equivalents, end of the year	$	141		$	—		$	165		$	(99	)	$	207