4. Dispositions and Acquisitions

2012 Spin-off of Engility

The Company completed the spin-off of its subsidiary, Engility Holdings, Inc. (Engility), to its shareholders on July 17, 2012. L-3 incurred transaction expenses in connection with the spin-off of $6 million ($5 million after income taxes) for the quarterly period ended March 30, 2012, which have been included in discontinued operations. In addition, L-3 allocated interest expense for debt not directly attributable or related to L-3’s other operations of $6 million to discontinued operations for the quarterly period ended March 30, 2012. Interest expense was allocated in accordance with the accounting standards for discontinued operations and was based on the ratio of Engility net assets to the sum of: (1) total L-3 consolidated net assets and (2) L-3 consolidated total debt.

Statement of operations data classified as discontinued operations related to Engility is provided in the table below:


	First Quarter Ended
	March 30, 2012
	(in millions)
Product and service revenues	$	428

Operating income from discontinued operations before income taxes		32
Interest expense allocated to discontinued operations		(6	)

Income from discontinued operations before income taxes	$	26
Income tax expense		10

Income from discontinued operations, net of income tax	$	16
Less: Net income from discontinued operations attributable to noncontrolling interests		1

Net income from discontinued operations attributable to L-3	$	15

2012 Business Acquisitions

All of the business acquisitions discussed below are included in the Company’s results of operations from their respective dates of acquisition.

During the year ended December 31, 2012, in separate transactions, the Company acquired: (1) the Kollmorgen Electro-Optical (L-3 KEO) business, (2) the assets and liabilities of MAVCO, Inc. (MAVCO), and (3) the commercial aircraft simulation business of Thales Group which was renamed by L-3, Link Simulation & Training U.K. Limited (Link U.K.), for an aggregate purchase price of $349 million. All business acquisitions were financed with cash on hand. Based on the purchase price allocations, the aggregate goodwill recognized for these acquired businesses was $250 million, of which $149 million is expected to be deductible for income tax purposes. The goodwill recognized for these three acquired businesses was assigned to the Electronic Systems segment.

The purchase price and purchase price allocation for MAVCO was finalized as of December 31, 2012, with no significant changes from the preliminary amounts. The purchase price and final purchase price allocation for L-3 KEO is subject to adjustment based on the closing date net working capital and is expected to be completed in the second quarter of 2013. The final purchase price and price allocation for Link U.K. is expected to be completed by the second quarter of 2013. The final purchase price and price allocation for the Link U.K acquisition is subject to adjustment based on the closing date net working capital, final appraisals and other analysis of fair values of acquired assets and liabilities. The Company does not expect that differences between the preliminary and final purchase price allocations for the L-3 KEO and Link U.K. acquisitions will have a material impact on its results of operations or financial position.

Unaudited Pro Forma Statement of Operations Data

The following unaudited pro forma Statement of Operations data presents the combined results of the Company and its business acquisitions completed during the year ended December 31, 2012, in each case assuming that the business acquisitions completed during the year ended December 31, 2012 had occurred on January 1, 2012.


	First Quarter Ended
	March 30, 2012
Pro forma net sales	$	3,206
Pro forma income from continuing operations		187
Pro forma net income attributable to L-3		201
Pro forma diluted earnings per share from continuing operations		1.86
Pro forma diluted earnings per share		2.01

The unaudited pro forma results disclosed in the table above are based on various assumptions and are not necessarily indicative of the results of operations that would have occurred had the Company completed these acquisitions on January 1, 2012.