26. Financial Information of L-3 Communications and Its Subsidiaries

Total shareholders’ equity for L-3 Communications equals that of L-3 Holdings, but the components (common stock, additional paid-in capital, treasury stock and retained earnings) are different. The table below presents information regarding the balances and changes in common stock, additional paid-in capital, treasury stock and retained earnings of L-3 Communications for each of the three years ended December 31, 2013.


	L-3 Communications Common Stock				Additional Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Total
	Shares Issued		Par Value		Additional Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Total
			(in millions, except shares issued)
Balance at December 31, 2010		100	$	—	$	4,801	$	—	$	2,226	$	(256)	$	6,771
Net income attributable to L-3		—		—		—		—		958		—		958
Contributions from L-3 Holdings		—		—		263		—		—		—		263
Dividends to L-3 Holdings		—		—		—		—		(1,157)		—		(1,157)
Comprehensive loss		—		—		—		—		—		(198)		(198)
Other		—		—		—		—		7		—		7

Balance at December 31, 2011		100	$	—	$	5,064	$	—	$	2,034	$	(454)	$	6,644
Net income attributable to L-3		—		—		—		—		784		—		784
Contributions from L-3 Holdings		—		—		250		—		—		—		250
Dividends to L-3 Holdings		—		—		—		—		(1,064)		—		(1,064)
Comprehensive loss		—		—		—		—		—		(96)		(96)
Net change of equity due to spin-off of Engility		—		—		—		—		(1,063)		—		(1,063)
Other		—		—		—		—		(4)		—		(4)

Balance at December 31, 2012		100	$	—	$	5,314	$	—	$	687	$	(550)	$	5,451
Net income attributable to L-3		—		—		—		—		751		—		751
Contributions from L-3 Holdings		—		—		339		—		—		—		339
Dividends to L-3 Holdings		—		—		—		—		(997)		—		(997)
Comprehensive gain		—		—		—		—		—		440		440
Other		—		—		—		—		(3)		—		(3)

Balance at December 31, 2013		100	$	—	$	5,653	$	—	$	438	$	(110)	$	5,981

The net proceeds received by L-3 Holdings from (i) the sale of its common stock, (ii) exercise of L-3 Holdings’ employee and director stock options, and related tax benefits, and (iii) L-3 Holdings’ common stock contributed to the Company’s savings plans are contributed to L-3 Communications. The amounts paid by L-3 Holdings for dividends and share repurchases are generated from dividends received from L-3 Communications.

L-3 Communications is a 100% owned subsidiary of L-3 Holdings. The debt of L-3 Communications, including the Senior Notes and borrowings under amounts drawn against the Amended and Restated Revolving Credit Facility are guaranteed, on a joint and several, full and unconditional basis, by certain of its domestic subsidiaries (the “Guarantor Subsidiaries”). The debt of L-3 Holdings, including the CODES, are guaranteed on a joint and several, full and unconditional basis, by L-3 Communications and the Guarantor Subsidiaries. See Note 11 for additional information. The foreign subsidiaries and certain domestic subsidiaries of L-3 Communications (the “Non-Guarantor Subsidiaries”) do not guarantee the debt of L-3 Communications or L-3 Holdings. None of the debt of L-3 Communications has been issued by its subsidiaries. There are no restrictions on the payment of dividends from the Guarantor Subsidiaries to L-3 Communications.

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 L-3 Communications Corporation, or (2) upon the determination that such guarantor is no longer a “domestic subsidiary”. Under the terms of the indenture governing the CODES, the guarantees of the CODES will be automatically and unconditionally released and discharged: (1) upon the release of guarantees of all other outstanding indebtedness of L-3 Holdings and its subsidiaries (other than a foreign subsidiary) or (2) upon the designation of such guarantor as an “excluded subsidiary.” In addition, the guarantees of the Senior Notes and the CODES will unconditionally be 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 or other disposition of all of the capital stock of such guarantor.

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. As discussed in Note 3, the Company is revising its previously issued financial statements. As part of that revision, the Company has revised the accompanying condensed combining financial statements contained herein. The adjustments related to the internal review of the Aerospace Systems segment, excluding certain adjustments related to the Platform Systems segment, were recorded as adjustments to the Guarantor Subsidiaries financial statement amounts. Adjustments from the internal review that related to a foreign subsidiary of the Platform Systems segment, with a cumulative operating impact through December 31, 2013 of $10 million, were recorded to the Non-Guarantor Subsidiaries financial statement amounts. The adjustments for the accounting related to a sales-type lease transaction for flight simulator systems within its Electronic Systems segment have been recorded as adjustments to the L-3 Communications financial statement amounts. The adjustments for the previously identified immaterial errors were recorded as adjustments to the Guarantor Subsidiaries financial statement amounts.

The following condensed combining financial information presents the results of operations, financial position and cash flows of (1) L-3 Holdings, excluding L-3 Communications and its consolidated subsidiaries (the “Parent”), (2) L-3 Communications, excluding its consolidated subsidiaries, (3) the Guarantor Subsidiaries, (4) the Non-Guarantor Subsidiaries and (5) the eliminations to arrive at the information for L-3 on a consolidated basis.


	L-3 Holdings (Parent)		L-3 Communications		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations		Consolidated L-3
	(in millions)
Condensed Combining Balance Sheets:
At December 31, 2013:
Current assets:
Cash and cash equivalents	$	—	$	258	$	—	$	261	$	(19)	$	500
Billed receivables, net		—		364		401		226		—		991
Contracts in process		—		925		1,152		354		—		2,431
Other current assets		—		344		159		169		—		672

Total current assets		—		1,891		1,712		1,010		(19)		4,594
Goodwill		—		2,307		4,326		1,163		—		7,796
Other assets		—		838		532		228		—		1,598
Investment in and amounts due from consolidated subsidiaries		6,670		6,940		3,744		—		(17,354)		—

Total assets	$	6,670	$	11,976	$	10,314	$	2,401	$	(17,373)	$	13,988

Current liabilities	$	—	$	914	$	1,011	$	628	$	(19)	$	2,534
Amounts due to consolidated subsidiaries		—		—		—		270		(270)		—
Other long-term liabilities		—		1,451		193		124		—		1,768
Long-term debt		689		3,630		—		—		(689)		3,630

Total liabilities		689		5,995		1,204		1,022		(978)		7,932

L-3 shareholders’ equity		5,981		5,981		9,110		1,379		(16,470)		5,981
Noncontrolling interests		—		—		—		—		75		75

Total equity		5,981		5,981		9,110		1,379		(16,395)		6,056

Total liabilities and equity	$	6,670	$	11,976	$	10,314	$	2,401	$	(17,373)	$	13,988

At December 31, 2012:
Current assets:
Cash and cash equivalents	$	—	$	246	$	—	$	242	$	(139)	$	349
Billed receivables, net		—		290		441		237		—		968
Contracts in process		—		893		1,275		342		—		2,510
Other current assets		—		308		161		188		—		657

Total current assets		—		1,737		1,877		1,009		(139)		4,484
Goodwill		—		2,010		4,627		1,139		—		7,776
Other assets		—		757		572		211		—		1,540
Investment in and amounts due from consolidated subsidiaries		6,140		7,153		3,299		101		(16,693)		—

Total assets	$	6,140	$	11,657	$	10,375	$	2,460	$	(16,832)	$	13,800

Current liabilities	$	—	$	823	$	1,221	$	658	$	(139)	$	2,563
Other long-term liabilities		—		1,754		210		117		—		2,081
Long-term debt		689		3,629		—		—		(689)		3,629

Total liabilities		689		6,206		1,431		775		(828)		8,273

L-3 shareholders’ equity		5,451		5,451		8,944		1,685		(16,080)		5,451
Noncontrolling interests		—		—		—		—		76		76

Total equity		5,451		5,451		8,944		1,685		(16,004)		5,527

Total liabilities and equity	$	6,140	$	11,657	$	10,375	$	2,460	$	(16,832)	$	13,800

Condensed Combining Statements of Operations:
For the year ended December 31, 2013:
Net sales	$	—	$	3,842	$	6,804	$	2,363	$	(387)	$	12,622
Cost of sales		(59)		(3,549)		(6,139)		(2,109)		446		(11,410)

Operating (loss) income		(59)		293		665		254		59		1,212
Interest expense		(21)		(176)		—		(1)		21		(177)
Interest and other income (expense), net		—		15		—		5		—		20

(Loss) income from continuing operations before income taxes		(80)		132		665		258		80		1,055
Benefit (provision) for income taxes		22		(38)		(184)		(73)		(22)		(295)
Equity in net income of consolidated subsidiaries		809		657		—		—		(1,466)		—

Net income		751		751		481		185		(1,408)		760
Net income attributable to noncontrolling interests		—		—		—		—		(9)		(9)

Net income attributable to L-3	$	751	$	751	$	481	$	185	$	(1,417)	$	751

Comprehensive income attributable to L-3	$	1,191	$	1,191	$	480	$	159	$	(1,830)	$	1,191

For the year ended December 31, 2012:
Net sales	$	—	$	3,737	$	7,475	$	2,278	$	(383)	$	13,107
Cost of sales		(59)		(3,434)		(6,749)		(1,999)		442		(11,799)

Operating (loss) income		(59)		303		726		279		59		1,308
Interest expense		(21)		(183)		—		(1)		21		(184)
Interest and other income (expense), net		—		14		(5)		2		—		11
Debt retirement charge		—		(13)		—		—		—		(13)

(Loss) income from continuing operations before income taxes		(80)		121		721		280		80		1,122
Benefit (provision) for income taxes		26		(37)		(230)		(93)		(26)		(360)
Equity in net income of consolidated subsidiaries		838		668		—		—		(1,506)		—

Income from continuing operations		784		752		491		187		(1,452)		762
Income from discontinued operations, net of income tax		—		32		—		—		—		32

Net income		784		784		491		187		(1,452)		794
Net income attributable to noncontrolling interests		—		—		—		—		(10)		(10)

Net income attributable to L-3	$	784	$	784	$	491	$	187	$	(1,462)	$	784

Comprehensive income attributable to L-3	$	688	$	688	$	493	$	215	$	(1,396)	$	688

For the year ended December 31, 2011:
Net sales	$	—	$	3,735	$	7,572	$	2,187	$	(340)	$	13,154
Cost of sales		(57)		(3,335)		(6,857)		(1,861)		397		(11,713)
Impairment charge		—		(43)		—		—		—		(43)

Operating (loss) income		(57)		357		715		326		57		1,398
Interest expense		(23)		(201)		(1)		(5)		26		(204)
Interest and other income (expense), net		—		17		(15)		4		(3)		3
Debt retirement charge		—		(35)		—		—		—		(35)

(Loss) income from continuing operations before income taxes		(80)		138		699		325		80		1,162
Benefit (provision) for income taxes		20		(35)		(178)		(83)		(20)		(296)
Equity in net income of consolidated subsidiaries		1,018		751		—		—		(1,769)		—

Income from continuing operations		958		854		521		242		(1,709)		866
Income from discontinued operations, net of income tax		—		104		—		—		—		104

Net income		958		958		521		242		(1,709)		970
Net income attributable to noncontrolling interests		—		—		—		—		(12)		(12)

Net income attributable to L-3	$	958	$	958	$	521	$	242	$	(1,721)	$	958

Comprehensive income attributable to L-3	$	760	$	760	$	511	$	221	$	(1,492)	$	760


	L-3 Holdings (Parent)		L-3 Communications		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations		Consolidated L-3
	(in millions)
Condensed Combining Statements of Cash Flows: For the year ended December 31, 2013:
Operating activities:
Net cash from operating activities	$	999	$	437	$	776	$	231	$	(1,180)	$	1,263

Investing activities:
Business acquisitions, net of cash acquired		—		(62)		—		—		—		(62)
Investments in L-3 Communications		(149)		—		—		—		149		—
Other investing activities		—		(88)		(89)		(22)		—		(199)

Net cash used in investing activities		(149)		(150)		(89)		(22)		149		(261)

Financing activities:
Common stock repurchased		(800)		—		—		—		—		(800)
Dividends paid on L-3 Holdings common stock		(199)		—		—		—		—		(199)
Dividends paid to L-3 Holdings		—		(999)		—		—		999		—
Investments from L-3 Holdings		—		149		—		—		(149)		—
Other financing activities		149		575		(687)		(188)		301		150

Net cash used in financing activities		(850)		(275)		(687)		(188)		1,151		(849)

Effect of foreign currency exchange rate changes on cash		—		—		—		(2)		—		(2)

Net (decrease) increase in cash		—		12		—		19		120		151
Cash and cash equivalents, beginning of the year		—		246		—		242		(139)		349

Cash and cash equivalents, end of the year	$	—	$	258	$	—	$	261	$	(19)	$	500

For the year ended December 31, 2012:
Operating activities:
Net cash from operating activities from continuing operations	$	1,067	$	252	$	858	$	265	$	(1,211)	$	1,231

Investing activities:
Business acquisitions, net of cash acquired		—		(348)		—		—		—		(348)
Investments in L-3 Communications		(42)		—		—		—		42		—
Other investing activities		—		225		(59)		(18)		—		148

Net cash used in investing activities from continuing operations		(42)		(123)		(59)		(18)		42		(200)

Financing activities:
Redemption of senior subordinated notes		—		(500)		—		—		—		(500)
Common stock repurchased		(872)		—		—		—		—		(872)
Dividends paid on L-3 Holdings common stock		(195)		—		—		—		—		(195)
Dividends paid to L-3 Holdings		—		(1,067)		—		—		1,067		—
Investments from L-3 Holdings		—		42		—		—		(42)		—
Other financing activities		42		924		(799)		(234)		107		40

Net cash used in financing activities from continuing operations		(1,025)		(601)		(799)		(234)		1,132		(1,527)

Effect of foreign currency exchange rate changes on cash		—		—		—		7		—		7
Net increase in cash and cash equivalents of discontinued operations		—		74		—		—		—		74

Net (decrease) increase in cash		—		(398)		—		20		(37)		(415)
Cash and cash equivalents, beginning of the year		—		644		—		222		(102)		764

Cash and cash equivalents, end of the year	$	—	$	246	$	—	$	242	$	(139)	$	349


	L-3 Holdings (Parent)		L-3 Communications		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations		Consolidated L-3
	(in millions)
For the year ended December 31, 2011:
Operating activities:
Net cash from operating activities from continuing operations	$	1,157	$	476	$	792	$	220	$	(1,414)	$	1,231

Investing activities:
Business acquisitions, net of cash acquired		—		(20)		—		—		—		(20)
Investments in L-3 Communications		(55)		—		—		—		55		—
Other investing activities		—		(84)		(75)		(20)		—		(179)

Net cash used in investing activities from continuing operations		(55)		(104)		(75)		(20)		55		(199)

Financing activities:
Proceeds from sale of senior notes		—		1,143		—		—		—		1,143
Redemption of senior subordinated notes and CODES		(11)		(1,150)		—		—		—		(1,161)
Common stock repurchased		(958)		—		—		—		—		(958)
Dividends paid on L-3 Holdings common stock		(188)		—		—		—		—		(188)
Dividends paid to L-3 Holdings		—		(1,157)		—		—		1,157		—
Investments from L-3 Holdings		—		55		—		—		(55)		—
Other financing activities		55		882		(717)		(447)		272		45

Net cash used in financing activities from continuing operations		(1,102)		(227)		(717)		(447)		1,374		(1,119)

Effect of foreign currency exchange rate changes on cash		—		—		—		(4)		—		(4)
Net increase in cash and cash equivalents of discontinued operations		—		248		—		—		—		248

Net (decrease) increase in cash		—		393		—		(251)		15		157
Cash and cash equivalents, beginning of the year		—		251		—		473		(117)		607

Cash and cash equivalents, end of the year	$	—	$	644	$	—	$	222	$	(102)	$	764