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 $13 million ($10 million after income taxes) for the first half period ended June 29, 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 $13 million to discontinued operations for the first half period ended June 29, 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.


	Second Quarter Ended			First Half Ended
	June 29, 2012			June 29, 2012
	(in millions)
Product and service revenues	$	415		$	843

Operating income from discontinued operations before income taxes		36			68
Interest expense allocated to discontinued operations		(7	)		(13	)

Income from discontinued operations before income taxes	$	29		$	55
Income tax expense		12			22

Income from discontinued operations, net of income taxes	$	17		$	33
Less: Net income from discontinued operations attributable to noncontrolling interests		3			4

Net income from discontinued operations attributable to L-3	$	14		$	29

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 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 preliminary and final 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 prices and purchase price allocations for L-3 KEO and MAVCO were finalized as of June 28, 2013 and December 31, 2012, respectively, with no significant changes from the preliminary amounts. The final purchase price and price allocation for Link U.K. is expected to be completed by the third quarter of 2013. The final purchase price for the Link U.K acquisition is subject to adjustment based on the closing date net working capital. The final purchase price allocation for the Link U.K acquisition is subject to adjustment based on the final purchase price, final appraisals and other analysis of fair values of acquired assets and liabilities. The Company does not expect that the difference between the preliminary and final purchase price allocation for the Link U.K. acquisition 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.


	Second Quarter Ended		First Half Ended
	June 29, 2012		June 29, 2012
	(in millions, except per share data)
Pro forma net sales	$	3,186	$	6,392
Pro forma income from continuing operations	$	192	$	378
Pro forma net income attributable to L-3	$	206	$	406
Pro forma diluted earnings per share from continuing operations	$	1.95	$	3.79
Pro forma diluted earnings per share	$	2.09	$	4.08

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.