|
☒
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Delaware
|
13-3937436
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(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer
Identification No.)
|
|
|
600 Third Avenue, New York, NY
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10016
|
(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer
x
|
Accelerated filer
|
¨
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Non-accelerated filer
¨
(Do not check if a smaller reporting company)
|
Smaller reporting company
|
¨
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Emerging growth company
|
¨
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Page
No.
|
|
PART I — FINANCIAL INFORMATION
|
|
|
|
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ITEM 1.
|
|
|
|
||
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||
|
||
|
||
|
||
|
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ITEM 2.
|
||
ITEM 3.
|
||
ITEM 4.
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||
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PART II — OTHER INFORMATION
|
|
|
|
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ITEM 1.
|
||
ITEM 1A.
|
||
ITEM 2.
|
||
ITEM 5.
|
||
ITEM 6.
|
||
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(Unaudited)
|
|
|
||||
|
June 29,
2018 |
|
December 31,
2017 |
||||
ASSETS
|
|
|
|
|
|
||
Current assets:
|
|
|
|
|
|
||
Cash and cash equivalents
|
$
|
1,366
|
|
|
$
|
662
|
|
Billed receivables, net of allowances of $18 in 2018 and 2017
|
863
|
|
|
723
|
|
||
Contract assets
|
1,611
|
|
|
—
|
|
||
Contracts in process
|
—
|
|
|
1,933
|
|
||
Inventories
|
934
|
|
|
389
|
|
||
Prepaid expenses and other current assets
|
332
|
|
|
300
|
|
||
Assets held for sale
|
—
|
|
|
135
|
|
||
Assets of discontinued operations
|
—
|
|
|
306
|
|
||
Total current assets
|
5,106
|
|
|
4,448
|
|
||
Property, plant and equipment, net
|
1,137
|
|
|
1,110
|
|
||
Goodwill
|
6,651
|
|
|
6,615
|
|
||
Identifiable intangible assets
|
288
|
|
|
292
|
|
||
Other assets
|
348
|
|
|
264
|
|
||
Total assets
|
$
|
13,530
|
|
|
$
|
12,729
|
|
LIABILITIES AND EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Current portion of long-term debt
|
$
|
581
|
|
|
$
|
—
|
|
Accounts payable, trade
|
588
|
|
|
531
|
|
||
Accrued employment costs
|
453
|
|
|
493
|
|
||
Accrued expenses
|
264
|
|
|
217
|
|
||
Contract liabilities
|
554
|
|
|
—
|
|
||
Advance payments and billings in excess of costs incurred
|
—
|
|
|
509
|
|
||
Income taxes payable
|
25
|
|
|
19
|
|
||
Other current liabilities
|
338
|
|
|
367
|
|
||
Liabilities held for sale
|
—
|
|
|
17
|
|
||
Liabilities of discontinued operations
|
—
|
|
|
226
|
|
||
Total current liabilities
|
2,803
|
|
|
2,379
|
|
||
Pension and postretirement benefits
|
1,290
|
|
|
1,313
|
|
||
Deferred income taxes
|
190
|
|
|
158
|
|
||
Other liabilities
|
416
|
|
|
398
|
|
||
Long-term debt
|
3,319
|
|
|
3,330
|
|
||
Total liabilities
|
8,018
|
|
|
7,578
|
|
||
Commitments and contingencies (see Note 19)
|
|
|
|
|
|
||
Equity:
|
|
|
|
||||
Shareholders’ equity:
|
|
|
|
||||
Common stock: $.01 par value; 300,000,000 shares authorized, 78,242,526 shares outstanding at June 29, 2018 and 77,876,687 shares outstanding at December 31, 2017
|
6,723
|
|
|
6,519
|
|
||
Treasury stock (at cost), 84,821,829 shares at June 29, 2018 and 83,362,412 shares at December 31, 2017
|
(7,691
|
)
|
|
(7,404
|
)
|
||
Retained earnings
|
7,126
|
|
|
6,659
|
|
||
Accumulated other comprehensive loss
|
(714
|
)
|
|
(691
|
)
|
||
Total shareholders’ equity
|
5,444
|
|
|
5,083
|
|
||
Noncontrolling interests
|
68
|
|
|
68
|
|
||
Total equity
|
5,512
|
|
|
5,151
|
|
||
Total liabilities and equity
|
$
|
13,530
|
|
|
$
|
12,729
|
|
|
Second Quarter Ended
|
||||||
|
June 29,
2018 |
|
June 30,
2017 |
||||
Net sales:
|
|
|
|
||||
Products
|
$
|
1,786
|
|
|
$
|
1,680
|
|
Services
|
797
|
|
|
705
|
|
||
Total net sales
|
2,583
|
|
|
2,385
|
|
||
Operating costs and expenses:
|
|
|
|
||||
Cost of sales — Products
|
(1,349
|
)
|
|
(1,253
|
)
|
||
Cost of sales — Services
|
(578
|
)
|
|
(479
|
)
|
||
General and administrative expenses
|
(383
|
)
|
|
(359
|
)
|
||
Total operating costs and expenses
|
(2,310
|
)
|
|
(2,091
|
)
|
||
Gain on sale of the Crestview Aerospace and TCS businesses
|
48
|
|
|
—
|
|
||
Operating income
|
321
|
|
|
294
|
|
||
Interest expense
|
(44
|
)
|
|
(42
|
)
|
||
Interest and other income, net
|
8
|
|
|
2
|
|
||
Debt retirement charge
|
(48
|
)
|
|
—
|
|
||
Income from continuing operations before income taxes
|
237
|
|
|
254
|
|
||
Provision for income taxes
|
(48
|
)
|
|
(59
|
)
|
||
Income from continuing operations
|
189
|
|
|
195
|
|
||
Income from discontinued operations, net of income taxes
|
190
|
|
|
12
|
|
||
Net income
|
379
|
|
|
207
|
|
||
Net income from continuing operations attributable to noncontrolling interests
|
(4
|
)
|
|
(5
|
)
|
||
Net income attributable to L3
|
$
|
375
|
|
|
$
|
202
|
|
Basic earnings per share attributable to common shareholders:
|
|
|
|
||||
Continuing operations
|
$
|
2.36
|
|
|
$
|
2.44
|
|
Discontinued operations
|
2.42
|
|
|
0.15
|
|
||
Basic earnings per share
|
$
|
4.78
|
|
|
$
|
2.59
|
|
Diluted earnings per share attributable to common shareholders:
|
|
|
|
||||
Continuing operations
|
$
|
2.33
|
|
|
$
|
2.39
|
|
Discontinued operations
|
2.39
|
|
|
0.15
|
|
||
Diluted earnings per share
|
$
|
4.72
|
|
|
$
|
2.54
|
|
Cash dividends declared per common share
|
$
|
0.80
|
|
|
$
|
0.75
|
|
Weighted average common shares outstanding:
|
|
|
|
||||
Basic
|
78.4
|
|
|
78.0
|
|
||
Diluted
|
79.4
|
|
|
79.5
|
|
|
First Half Ended
|
||||||
|
June 29,
2018 |
|
June 30,
2017 |
||||
Net sales:
|
|
|
|
||||
Products
|
$
|
3,432
|
|
|
$
|
3,284
|
|
Services
|
1,522
|
|
|
1,422
|
|
||
Total net sales
|
4,954
|
|
|
4,706
|
|
||
Operating costs and expenses:
|
|
|
|
||||
Cost of sales — Products
|
(2,540
|
)
|
|
(2,441
|
)
|
||
Cost of sales — Services
|
(1,110
|
)
|
|
(1,017
|
)
|
||
General and administrative expenses
|
(780
|
)
|
|
(717
|
)
|
||
Total operating costs and expenses
|
(4,430
|
)
|
|
(4,175
|
)
|
||
Gain on sale of the Crestview Aerospace and TCS businesses
|
48
|
|
|
—
|
|
||
Operating income
|
572
|
|
|
531
|
|
||
Interest expense
|
(85
|
)
|
|
(84
|
)
|
||
Interest and other income, net
|
14
|
|
|
6
|
|
||
Debt retirement charge
|
(48
|
)
|
|
—
|
|
||
Income from continuing operations before income taxes
|
453
|
|
|
453
|
|
||
Provision for income taxes
|
(72
|
)
|
|
(101
|
)
|
||
Income from continuing operations
|
381
|
|
|
352
|
|
||
Income from discontinued operations, net of income taxes
|
206
|
|
|
23
|
|
||
Net income
|
587
|
|
|
375
|
|
||
Net income from continuing operations attributable to noncontrolling interests
|
(9
|
)
|
|
(9
|
)
|
||
Net income attributable to L3
|
$
|
578
|
|
|
$
|
366
|
|
Basic earnings per share attributable to common shareholders:
|
|
|
|
||||
Continuing operations
|
$
|
4.75
|
|
|
$
|
4.40
|
|
Discontinued operations
|
2.63
|
|
|
0.30
|
|
||
Basic earnings per share
|
$
|
7.38
|
|
|
$
|
4.70
|
|
Diluted earnings per share attributable to common shareholders:
|
|
|
|
||||
Continuing operations
|
$
|
4.67
|
|
|
$
|
4.32
|
|
Discontinued operations
|
2.59
|
|
|
0.29
|
|
||
Diluted earnings per share
|
$
|
7.26
|
|
|
$
|
4.61
|
|
Cash dividends declared per common share
|
$
|
1.60
|
|
|
$
|
1.50
|
|
Weighted average common shares outstanding:
|
|
|
|
||||
Basic
|
78.3
|
|
|
77.8
|
|
||
Diluted
|
79.6
|
|
|
79.4
|
|
|
Second Quarter Ended
|
|
First Half Ended
|
||||||||||||
|
June 29,
2018 |
|
June 30,
2017 |
|
June 29,
2018 |
|
June 30,
2017 |
||||||||
Net income
|
$
|
379
|
|
|
$
|
207
|
|
|
$
|
587
|
|
|
$
|
375
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
||||||||
Foreign currency translation adjustments
|
(72
|
)
|
|
52
|
|
|
(39
|
)
|
|
71
|
|
||||
Unrealized lossess on hedging instruments
(1)
|
(10
|
)
|
|
—
|
|
|
(11
|
)
|
|
—
|
|
||||
Pension and postretirement benefit plans:
|
|
|
|
|
|
|
|
||||||||
Amortization of net loss and prior service cost previously recognized
(2)
|
13
|
|
|
10
|
|
|
27
|
|
|
19
|
|
||||
Total other comprehensive (loss) income
|
(69
|
)
|
|
62
|
|
|
(23
|
)
|
|
90
|
|
||||
Comprehensive income
|
310
|
|
|
269
|
|
|
564
|
|
|
465
|
|
||||
Comprehensive income attributable to noncontrolling interests
|
(4
|
)
|
|
(5
|
)
|
|
(9
|
)
|
|
(9
|
)
|
||||
Comprehensive income attributable to L3
|
$
|
306
|
|
|
$
|
264
|
|
|
$
|
555
|
|
|
$
|
456
|
|
(1)
|
Net of income tax benefit of
$3 million
for each of the quarterly and
first half period
s ended
June 29, 2018
.
|
(2)
|
Net of income taxes of
$4 million
and
$5 million
for the quarterly periods ended
June 29, 2018
and
June 30, 2017
, respectively, and net of income taxes of
$8 million
and
$11 million
for the
first half period
s ended
June 29, 2018
and
June 30, 2017
, respectively.
|
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Treasury Stock
|
|
Retained
Earnings
|
|
Accumulated Other Comprehensive Loss
|
|
Noncontrolling Interests
|
|
Total Equity
|
|||||||||||||||||
|
Shares
Outstanding
|
|
Par Value
|
|
||||||||||||||||||||||||||
For the First Half Ended June 29, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Balance at December 31, 2017 - as reported
|
77.9
|
|
|
$
|
1
|
|
|
$
|
6,518
|
|
|
$
|
(7,404
|
)
|
|
$
|
6,659
|
|
|
$
|
(691
|
)
|
|
$
|
68
|
|
|
$
|
5,151
|
|
Cumulative effect adjustment of ASC 606 on January 1, 2018, net of taxes
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
13
|
|
|||||||||||||
Net income
|
|
|
|
|
|
|
|
|
578
|
|
|
|
|
9
|
|
|
587
|
|
||||||||||||
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
(23
|
)
|
|||||||||||||
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
(9
|
)
|
|||||||||||||
Cash dividends declared ($1.60 per share)
|
|
|
|
|
|
|
|
|
(126
|
)
|
|
|
|
|
|
(126
|
)
|
|||||||||||||
Shares issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Employee savings plans
|
0.3
|
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
72
|
|
||||||||||||
Exercise of stock options
|
1.2
|
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
103
|
|
||||||||||||
Employee stock purchase plan
|
0.1
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
17
|
|
||||||||||||
Vesting of restricted stock and performance units
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|||||||||||||
Repurchases of common stock to satisfy tax withholding obligations
|
(0.1
|
)
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
(24
|
)
|
||||||||||||
Stock-based compensation expense
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|||||||||||||
Treasury stock purchased
|
(1.5
|
)
|
|
|
|
|
|
(287
|
)
|
|
|
|
|
|
|
|
(287
|
)
|
||||||||||||
Other
|
|
|
|
|
2
|
|
|
|
|
2
|
|
|
|
|
|
|
4
|
|
||||||||||||
Balance at June 29, 2018
|
78.2
|
|
|
$
|
1
|
|
|
$
|
6,722
|
|
|
$
|
(7,691
|
)
|
|
$
|
7,126
|
|
|
$
|
(714
|
)
|
|
$
|
68
|
|
|
$
|
5,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
For the First Half Ended June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance at December 31, 2016
|
77.2
|
|
|
$
|
1
|
|
|
$
|
6,284
|
|
|
$
|
(7,224
|
)
|
|
$
|
6,218
|
|
|
$
|
(726
|
)
|
|
$
|
71
|
|
|
$
|
4,624
|
|
Net income
|
|
|
|
|
|
|
|
|
366
|
|
|
|
|
9
|
|
|
375
|
|
||||||||||||
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
90
|
|
|
|
|
90
|
|
|||||||||||||
Distributions to noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
(9
|
)
|
|||||||||||||
Cash dividends declared ($1.50 per share)
|
|
|
|
|
|
|
|
|
(118
|
)
|
|
|
|
|
|
(118
|
)
|
|||||||||||||
Shares issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Employee savings plans
|
0.4
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
60
|
|
||||||||||||
Exercise of stock options
|
0.3
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
25
|
|
||||||||||||
Employee stock purchase plan
|
0.1
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
16
|
|
||||||||||||
Vesting of restricted stock and performance units
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|||||||||||||
Repurchases of common stock to satisfy tax withholding obligations
|
(0.1
|
)
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
(18
|
)
|
||||||||||||
Stock-based compensation expense
|
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|||||||||||||
Treasury stock purchased
|
(0.2
|
)
|
|
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
(26
|
)
|
||||||||||||
Balance at June 30, 2017
|
78.0
|
|
|
$
|
1
|
|
|
$
|
6,395
|
|
|
$
|
(7,250
|
)
|
|
$
|
6,466
|
|
|
$
|
(636
|
)
|
|
$
|
71
|
|
|
$
|
5,047
|
|
|
First Half Ended
|
||||||
|
June 29,
2018 |
|
June 30,
2017 |
||||
Operating activities:
|
|
|
|
||||
Net income
|
$
|
587
|
|
|
$
|
375
|
|
Less: income from discontinued operations, net of tax
|
(206
|
)
|
|
(23
|
)
|
||
Income from continuing operations
|
381
|
|
|
352
|
|
||
Depreciation of property, plant and equipment
|
90
|
|
|
82
|
|
||
Amortization of intangibles and other assets
|
26
|
|
|
24
|
|
||
Deferred income tax provision
|
21
|
|
|
25
|
|
||
Stock-based compensation expense
|
34
|
|
|
28
|
|
||
Contributions to employee savings plans in L3's common stock
|
68
|
|
|
56
|
|
||
Amortization of pension and postretirement benefit plans net loss and prior service cost
|
35
|
|
|
30
|
|
||
Gain on sale of property, plant and equipment
|
—
|
|
|
(42
|
)
|
||
Gain on sale of the Crestview Aerospace and TCS businesses
|
(48
|
)
|
|
—
|
|
||
Debt retirement charge
|
48
|
|
|
—
|
|
||
Other non-cash items
|
1
|
|
|
6
|
|
||
Changes in operating assets and liabilities, excluding amounts from acquisitions and divestitures, and discontinued operations:
|
|
|
|
||||
Billed receivables
|
(137
|
)
|
|
(88
|
)
|
||
Contract assets
|
(266
|
)
|
|
—
|
|
||
Contracts in process
|
—
|
|
|
(123
|
)
|
||
Inventories
|
(10
|
)
|
|
(12
|
)
|
||
Prepaid expenses and other current assets
|
(82
|
)
|
|
(15
|
)
|
||
Accounts payable, trade
|
61
|
|
|
(99
|
)
|
||
Accrued employment costs
|
(38
|
)
|
|
(28
|
)
|
||
Accrued expenses
|
63
|
|
|
158
|
|
||
Contract liabilities
|
(2
|
)
|
|
—
|
|
||
Advance payments and billing in excess of costs incurred
|
—
|
|
|
(10
|
)
|
||
Income taxes
|
(22
|
)
|
|
(12
|
)
|
||
All other operating activities
|
(45
|
)
|
|
(17
|
)
|
||
Net cash from operating activities from continuing operations
|
178
|
|
|
315
|
|
||
|
|
|
|
||||
Investing activities:
|
|
|
|
||||
Business acquisitions, net of cash acquired
|
(69
|
)
|
|
(191
|
)
|
||
Proceeds from the sale of businesses, net of closing date cash balances
|
535
|
|
|
16
|
|
||
Capital expenditures
|
(108
|
)
|
|
(96
|
)
|
||
Dispositions of property, plant and equipment
|
1
|
|
|
65
|
|
||
Other investing activities
|
(29
|
)
|
|
(1
|
)
|
||
Net cash from (used in) investing activities from continuing operations
|
330
|
|
|
(207
|
)
|
||
|
|
|
|
||||
Financing activities:
|
|
|
|
||||
Proceeds from sale of senior notes
|
1,798
|
|
|
—
|
|
||
Repurchases and redemptions of senior notes
|
(1,263
|
)
|
|
—
|
|
||
Borrowings under revolving credit facility
|
501
|
|
|
1,158
|
|
||
Repayments of borrowings under revolving credit facility
|
(501
|
)
|
|
(1,158
|
)
|
||
Common stock repurchased
|
(287
|
)
|
|
(26
|
)
|
||
Dividends paid
|
(128
|
)
|
|
(119
|
)
|
||
Proceeds from exercises of stock options
|
103
|
|
|
25
|
|
||
Proceeds from employee stock purchase plan
|
17
|
|
|
16
|
|
||
Repurchases of common stock to satisfy tax withholding obligations
|
(24
|
)
|
|
(18
|
)
|
||
Debt issue costs
|
(13
|
)
|
|
—
|
|
||
Other financing activities
|
(6
|
)
|
|
(8
|
)
|
||
Net cash from (used in) financing activities from continuing operations
|
197
|
|
|
(130
|
)
|
||
Effect of foreign currency exchange rate changes on cash and cash equivalents
|
(8
|
)
|
|
10
|
|
||
Net cash from (used in) discontinued operations:
|
|
|
|
||||
Operating activities
|
9
|
|
|
36
|
|
||
Investing activities
|
(2
|
)
|
|
(2
|
)
|
||
Net cash from discontinued operations
|
7
|
|
|
34
|
|
||
Net increase cash and cash equivalents
|
704
|
|
|
22
|
|
||
Cash and cash equivalents, beginning of the period
|
662
|
|
|
363
|
|
||
Cash and cash equivalents, end of the period
|
$
|
1,366
|
|
|
$
|
385
|
|
|
Second Quarter Ended
|
|
First Half Ended
|
||||||||||||
|
June 29,
2018 |
|
June 30,
2017 |
|
June 29,
2018 |
|
June 30,
2017 |
||||||||
|
(in millions, except per share data)
|
||||||||||||||
Operating income
|
$
|
64
|
|
|
$
|
42
|
|
|
$
|
128
|
|
|
$
|
84
|
|
Diluted earnings per share
|
$
|
0.61
|
|
|
$
|
0.35
|
|
|
$
|
1.22
|
|
|
$
|
0.67
|
|
BALANCE SHEET
|
December 31, 2017
As Reported Under ASC 605
|
|
Adjustments Due to ASC 606
|
|
January 1, 2018 As
Adjusted Under
ASC 606
|
||||||
|
|
|
(in millions)
|
|
|
||||||
Assets
|
|
|
|
|
|
||||||
Current assets:
|
|
|
|
|
|
||||||
Contract assets
|
$
|
—
|
|
|
$
|
1,349
|
|
|
$
|
1,349
|
|
Contracts in process
|
1,933
|
|
|
(1,933
|
)
|
|
—
|
|
|||
Inventories
|
389
|
|
|
537
|
|
|
926
|
|
|||
Prepaid expenses and other current assets
|
300
|
|
|
17
|
|
|
317
|
|
|||
Assets held for sale
|
135
|
|
|
3
|
|
|
138
|
|
|||
Assets of discontinued operations
|
306
|
|
|
(21
|
)
|
|
285
|
|
|||
Total current assets
|
4,448
|
|
|
(48
|
)
|
|
4,400
|
|
|||
Other assets
|
264
|
|
|
49
|
|
|
313
|
|
|||
Total assets
|
$
|
12,729
|
|
|
$
|
1
|
|
|
$
|
12,730
|
|
|
|
|
|
|
|
||||||
Liabilities
|
|
|
|
|
|
||||||
Current liabilities:
|
|
|
|
|
|
||||||
Accrued expenses
|
$
|
217
|
|
|
$
|
(13
|
)
|
|
$
|
204
|
|
Contract liabilities
|
—
|
|
|
565
|
|
|
565
|
|
|||
Advance payments and billing in excess of costs incurred
|
509
|
|
|
(509
|
)
|
|
—
|
|
|||
Other current liabilities
|
367
|
|
|
(49
|
)
|
|
318
|
|
|||
Liabilities held for sale
|
17
|
|
|
(1
|
)
|
|
16
|
|
|||
Liabilities of discontinued operations
|
226
|
|
|
(23
|
)
|
|
203
|
|
|||
Total current liabilities
|
2,379
|
|
|
(30
|
)
|
|
2,349
|
|
|||
Deferred income taxes
|
158
|
|
|
4
|
|
|
162
|
|
|||
Other liabilities
|
398
|
|
|
14
|
|
|
412
|
|
|||
Total liabilities
|
7,578
|
|
|
(12
|
)
|
|
7,566
|
|
|||
Shareholders' Equity
|
|
|
|
|
|
||||||
Retained earnings
|
6,659
|
|
|
13
|
|
|
6,672
|
|
|||
Total equity
|
$
|
5,151
|
|
|
$
|
13
|
|
|
$
|
5,164
|
|
|
Second Quarter Ended June 29, 2018
|
||||||||||
STATEMENT OF OPERATIONS
|
Under
ASC 605
|
|
Effect of
ASC 606
|
|
As Reported
Under ASC 606
|
||||||
|
|
|
(in millions)
|
|
|
||||||
Net Sales:
|
|
|
|
|
|
||||||
Products
|
$
|
1,741
|
|
|
$
|
45
|
|
|
$
|
1,786
|
|
Services
|
797
|
|
|
—
|
|
|
797
|
|
|||
Total
|
2,538
|
|
|
45
|
|
|
2,583
|
|
|||
|
|
|
|
|
|
||||||
Operating costs and expenses:
|
|
|
|
|
|
||||||
Cost of sales — Products
|
$
|
(1,316
|
)
|
|
$
|
(33
|
)
|
|
$
|
(1,349
|
)
|
Cost of sales — Services
|
(561
|
)
|
|
(17
|
)
|
|
(578
|
)
|
|||
General and administrative expenses
|
(387
|
)
|
|
4
|
|
|
(383
|
)
|
|||
Gain on sale of the Crestview & TCS Businesses
|
47
|
|
|
1
|
|
|
48
|
|
|||
Operating income
|
321
|
|
|
—
|
|
|
321
|
|
|||
Income from continuing operations before income taxes
|
237
|
|
|
—
|
|
|
237
|
|
|||
Provision for income taxes
|
(48
|
)
|
|
—
|
|
|
(48
|
)
|
|||
Income from continuing operations
|
189
|
|
|
—
|
|
|
189
|
|
|||
Income from discontinued operations, net of income taxes
|
191
|
|
|
(1
|
)
|
|
190
|
|
|||
Net income
|
380
|
|
|
(1
|
)
|
|
379
|
|
|||
Net income attributable to L3
|
$
|
376
|
|
|
$
|
(1
|
)
|
|
$
|
375
|
|
|
|
|
|
|
|
||||||
Basic earnings per share attributable to common shareholders:
|
|
|
|
|
|
||||||
Continuing operations
|
$
|
2.36
|
|
|
$
|
—
|
|
|
$
|
2.36
|
|
Discontinued operations
|
2.44
|
|
|
(0.02
|
)
|
|
2.42
|
|
|||
Basic earnings per share
|
$
|
4.80
|
|
|
$
|
(0.02
|
)
|
|
$
|
4.78
|
|
Diluted earnings per share attributable to common shareholders:
|
|
|
|
|
|
||||||
Continuing operations
|
$
|
2.33
|
|
|
$
|
—
|
|
|
$
|
2.33
|
|
Discontinued operations
|
2.41
|
|
|
(0.02
|
)
|
|
2.39
|
|
|||
Diluted earnings per share
|
$
|
4.74
|
|
|
$
|
(0.02
|
)
|
|
$
|
4.72
|
|
|
First Half Ended June 29, 2018
|
||||||||||
STATEMENT OF OPERATIONS
|
Under
ASC 605
|
|
Effect of
ASC 606
|
|
As Reported
Under ASC 606
|
||||||
|
|
|
(in millions)
|
|
|
||||||
Net Sales:
|
|
|
|
|
|
||||||
Products
|
$
|
3,315
|
|
|
$
|
117
|
|
|
$
|
3,432
|
|
Services
|
1,518
|
|
|
4
|
|
|
1,522
|
|
|||
Total
|
4,833
|
|
|
121
|
|
|
4,954
|
|
|||
|
|
|
|
|
|
||||||
Operating costs and expenses:
|
|
|
|
|
|
||||||
Cost of sales — Products
|
$
|
(2,461
|
)
|
|
$
|
(79
|
)
|
|
$
|
(2,540
|
)
|
Cost of sales — Services
|
(1,089
|
)
|
|
(21
|
)
|
|
(1,110
|
)
|
|||
General and administrative expenses
|
(777
|
)
|
|
(3
|
)
|
|
(780
|
)
|
|||
Gain on sale of the Crestview & TCS Businesses
|
47
|
|
|
1
|
|
|
48
|
|
|||
Operating income
|
553
|
|
|
19
|
|
|
572
|
|
|||
Income from continuing operations before income taxes
|
434
|
|
|
19
|
|
|
453
|
|
|||
Provision for income taxes
|
(67
|
)
|
|
(5
|
)
|
|
(72
|
)
|
|||
Income from continuing operations
|
367
|
|
|
14
|
|
|
381
|
|
|||
Income from discontinued operations, net of income taxes
|
206
|
|
|
—
|
|
|
206
|
|
|||
Net income
|
573
|
|
|
14
|
|
|
587
|
|
|||
Net income attributable to L3
|
$
|
564
|
|
|
$
|
14
|
|
|
$
|
578
|
|
|
|
|
|
|
|
||||||
Basic earnings per share attributable to common shareholders:
|
|
|
|
|
|
||||||
Continuing operations
|
$
|
4.57
|
|
|
$
|
0.18
|
|
|
$
|
4.75
|
|
Discontinued operations
|
2.63
|
|
|
—
|
|
|
2.63
|
|
|||
Basic earnings per share
|
$
|
7.20
|
|
|
$
|
0.18
|
|
|
$
|
7.38
|
|
Diluted earnings per share attributable to common shareholders:
|
|
|
|
|
|
||||||
Continuing operations
|
$
|
4.50
|
|
|
$
|
0.17
|
|
|
$
|
4.67
|
|
Discontinued operations
|
2.59
|
|
|
—
|
|
|
2.59
|
|
|||
Diluted earnings per share
|
$
|
7.09
|
|
|
$
|
0.17
|
|
|
$
|
7.26
|
|
|
Effect of ASC 606
|
||||||||||||||
|
Second Quarter Ended June 29, 2018
|
|
First Half Ended June 29, 2018
|
||||||||||||
|
Sales
|
|
Operating Income
|
|
Sales
|
|
Operating Income
|
||||||||
|
(in millions)
|
||||||||||||||
Electronic Systems
|
$
|
14
|
|
|
$
|
4
|
|
|
$
|
44
|
|
|
$
|
7
|
|
Aerospace Systems
|
(2
|
)
|
|
(7
|
)
|
|
2
|
|
|
(6
|
)
|
||||
Communication Systems
|
21
|
|
|
(1
|
)
|
|
41
|
|
|
3
|
|
||||
Sensor Systems
|
12
|
|
|
3
|
|
|
34
|
|
|
14
|
|
||||
Segment totals
|
$
|
45
|
|
|
$
|
(1
|
)
|
|
$
|
121
|
|
|
$
|
18
|
|
|
June 29, 2018
|
||||||||||
BALANCE SHEET
|
Under
ASC 605 |
|
Effect of
ASC 606 |
|
As Reported
Under ASC 606
|
||||||
|
|
|
(in millions)
|
|
|
||||||
Assets
|
|
|
|
|
|
||||||
Current assets:
|
|
|
|
|
|
||||||
Contract assets
|
$
|
—
|
|
|
$
|
1,611
|
|
|
$
|
1,611
|
|
Contracts in process
|
2,185
|
|
|
(2,185
|
)
|
|
—
|
|
|||
Inventories
|
405
|
|
|
529
|
|
|
934
|
|
|||
Prepaid expenses and other current assets
|
316
|
|
|
16
|
|
|
332
|
|
|||
Assets held for sale
|
—
|
|
|
—
|
|
|
—
|
|
|||
Assets of discontinued operations
|
—
|
|
|
—
|
|
|
—
|
|
|||
Total current assets
|
5,135
|
|
|
(29
|
)
|
|
5,106
|
|
|||
Other assets
|
300
|
|
|
48
|
|
|
348
|
|
|||
Total assets
|
$
|
13,511
|
|
|
$
|
19
|
|
|
$
|
13,530
|
|
|
|
|
|
|
|
||||||
Liabilities
|
|
|
|
|
|
||||||
Current liabilities:
|
|
|
|
|
|
||||||
Accrued expenses
|
$
|
279
|
|
|
$
|
(15
|
)
|
|
$
|
264
|
|
Contract liabilities
|
—
|
|
|
554
|
|
|
554
|
|
|||
Advance payments and billings in excess of costs incurred
|
522
|
|
|
(522
|
)
|
|
—
|
|
|||
Other current liabilities
|
384
|
|
|
(46
|
)
|
|
338
|
|
|||
Total current liabilities
|
2,832
|
|
|
(29
|
)
|
|
2,803
|
|
|||
Deferred income taxes
|
181
|
|
|
9
|
|
|
190
|
|
|||
Other liabilities
|
402
|
|
|
14
|
|
|
416
|
|
|||
Total liabilities
|
8,024
|
|
|
(6
|
)
|
|
8,018
|
|
|||
Shareholders' Equity
|
|
|
|
|
|
||||||
Retained earnings
|
7,101
|
|
|
25
|
|
|
7,126
|
|
|||
Total equity
|
$
|
5,487
|
|
|
$
|
25
|
|
|
$
|
5,512
|
|
|
Second Quarter Ended
|
|
First Half Ended
|
||||||||||||
|
June 29,
2018 |
|
June 30,
2017 |
|
June 29,
2018 |
|
June 30,
2017 |
||||||||
|
(in millions, except per share data)
|
||||||||||||||
Pro forma net sales
|
$
|
2,592
|
|
|
$
|
2,413
|
|
|
$
|
4,973
|
|
|
$
|
4,765
|
|
Pro forma income from continuing operations attributable to L3
|
$
|
187
|
|
|
$
|
189
|
|
|
$
|
375
|
|
|
$
|
343
|
|
Pro forma net income attributable to L3
|
$
|
377
|
|
|
$
|
201
|
|
|
$
|
581
|
|
|
$
|
366
|
|
Pro forma diluted earnings per share from continuing operations
|
$
|
2.36
|
|
|
$
|
2.38
|
|
|
$
|
4.71
|
|
|
$
|
4.32
|
|
Pro forma diluted earnings per share
|
$
|
4.75
|
|
|
$
|
2.53
|
|
|
$
|
7.30
|
|
|
$
|
4.61
|
|
|
First Half Ended
|
||
|
June 29, 2018
|
||
|
(in millions)
|
||
Net Sales
|
$
|
64
|
|
Gain on sale of businesses
|
$
|
48
|
|
Income from continuing operations before income taxes
|
$
|
3
|
|
|
December 31,
2017 |
||
|
(in millions)
|
||
Assets
|
|
||
Billed receivables
|
$
|
14
|
|
Contracts in process
|
33
|
|
|
Total current assets
|
47
|
|
|
Property, plant and equipment, net
|
34
|
|
|
Goodwill
|
52
|
|
|
Identifiable intangible assets
|
2
|
|
|
Total assets classified as held for sale
|
$
|
135
|
|
|
|
||
Liabilities
|
|
||
Accounts payable, trade
|
$
|
3
|
|
Accrued employment costs
|
2
|
|
|
Accrued expenses
|
3
|
|
|
Other current liabilities
|
5
|
|
|
Total current liabilities
|
13
|
|
|
Deferred income taxes
|
4
|
|
|
Total liabilities classified as held for sale
|
$
|
17
|
|
|
Second Quarter Ended
|
|
First Half Ended
|
||||||||||||
|
June 29,
2018 |
|
June 30,
2017 |
|
June 29,
2018 |
|
June 30,
2017 |
||||||||
|
(in millions)
|
||||||||||||||
Net sales
|
$
|
226
|
|
|
$
|
351
|
|
|
$
|
597
|
|
|
$
|
703
|
|
Operating costs and expenses
(1)
|
(212
|
)
|
|
(332
|
)
|
|
(561
|
)
|
|
(667
|
)
|
||||
Operating income from discontinued operations
|
14
|
|
|
19
|
|
|
36
|
|
|
36
|
|
||||
Interest expense allocated to discontinued operations
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
||||
Gain on sale of businesses
|
237
|
|
|
—
|
|
|
237
|
|
|
—
|
|
||||
Income from discontinued operations before income taxes
|
251
|
|
|
19
|
|
|
272
|
|
|
35
|
|
||||
Income tax expense
|
(61
|
)
|
|
(7
|
)
|
|
(66
|
)
|
|
(12
|
)
|
||||
Income from discontinued operations, net of income taxes
|
$
|
190
|
|
|
$
|
12
|
|
|
$
|
206
|
|
|
$
|
23
|
|
(1)
|
For the quarterly and first half periods ended June 29, 2018, the Company recognized $3 million of trailing expenses related to the sale of NSS.
|
|
December 31,
2017 |
||
|
(in millions)
|
||
Assets
|
|
||
Current assets
|
$
|
284
|
|
Property, plant and equipment, net
|
13
|
|
|
Other intangible assets
|
7
|
|
|
Other assets
|
2
|
|
|
Total assets of discontinued operations
|
$
|
306
|
|
|
|
||
Liabilities
|
|
||
Accounts payable, trade
|
$
|
63
|
|
Other current liabilities
|
131
|
|
|
Current liabilities
|
194
|
|
|
Long-term liabilities
|
32
|
|
|
Total liabilities of discontinued operations
|
$
|
226
|
|
|
First Half Ended June 30, 2017
|
||||||||||
|
Pre-Tax (Loss) gain
|
|
Proceeds Received
|
|
Net Sales
|
||||||
|
(in millions)
|
||||||||||
Aviation Jet Services divestiture
|
$
|
(5
|
)
|
|
$
|
1
|
|
|
$
|
1
|
|
Coleman divestiture
|
(3
|
)
|
|
17
|
|
|
9
|
|
|||
Display Product Line divestiture
|
4
|
|
|
7
|
|
|
—
|
|
|||
Total
|
$
|
(4
|
)
|
|
$
|
25
|
|
|
$
|
10
|
|
|
First Half Ended
|
||
|
June 30, 2017
|
||
|
(in millions)
|
||
Net sales
|
$
|
10
|
|
Income before income taxes
|
$
|
2
|
|
|
June 29,
2018 |
|
January 1,
2018 |
||||
|
(in millions)
|
||||||
Contract assets
|
$
|
1,611
|
|
|
$
|
1,349
|
|
Contract liabilities — current
|
(554
|
)
|
|
(565
|
)
|
||
Contract liabilities — non-current
|
(33
|
)
|
|
(28
|
)
|
||
Net contract assets (liabilities)
|
$
|
1,024
|
|
|
$
|
756
|
|
|
June 29,
2018 |
|
January 1,
2018 |
||||
|
(in millions)
|
||||||
Unbilled contract receivables, gross
|
$
|
2,643
|
|
|
$
|
2,232
|
|
Unliquidated progress payments and advances
|
(1,032
|
)
|
|
(883
|
)
|
||
Total contract assets
|
$
|
1,611
|
|
|
$
|
1,349
|
|
|
December 31,
2017 |
||
|
(in millions)
|
||
Unbilled contract receivables, gross
|
$
|
1,874
|
|
Unliquidated progress payments
|
(761
|
)
|
|
Unbilled contract receivables, net
|
1,113
|
|
|
Inventoried contract costs, gross
|
891
|
|
|
Unliquidated progress payments
|
(71
|
)
|
|
Inventoried contract costs, net
|
820
|
|
|
Total contracts in process
|
$
|
1,933
|
|
|
Second Quarter Ended
|
|
First Half Ended
|
||||
|
June 30, 2017
|
|
June 30, 2017
|
||||
|
(in millions)
|
||||||
Amounts included in inventoried contract costs at beginning of the period
|
$
|
177
|
|
|
$
|
173
|
|
Contract costs incurred:
|
|
|
|
||||
IRAD and B&P
|
78
|
|
|
154
|
|
||
Other G&A
|
199
|
|
|
399
|
|
||
Total
|
277
|
|
|
553
|
|
||
Amounts charged to operating costs and expenses
|
(280
|
)
|
|
(552
|
)
|
||
Amounts included in inventoried contract costs at end of the period
|
$
|
174
|
|
|
$
|
174
|
|
|
June 29,
2018 |
|
December 31,
2017 |
||||
|
(in millions)
|
||||||
Raw materials, components and sub-assemblies
|
$
|
318
|
|
|
$
|
184
|
|
Work in process
|
430
|
|
|
98
|
|
||
Finished goods
|
186
|
|
|
107
|
|
||
Total
|
$
|
934
|
|
|
$
|
389
|
|
|
Electronic Systems
|
|
Aerospace Systems
|
|
Communication Systems
|
|
Sensor Systems
|
|
Consolidated Total
|
||||||||||
|
(in millions)
|
||||||||||||||||||
Goodwill
|
$
|
2,856
|
|
|
$
|
1,146
|
|
|
$
|
1,058
|
|
|
$
|
1,659
|
|
|
$
|
6,719
|
|
Accumulated impairment losses
|
(43
|
)
|
|
—
|
|
|
(35
|
)
|
|
(26
|
)
|
|
(104
|
)
|
|||||
December 31, 2017
|
2,813
|
|
|
1,146
|
|
|
1,023
|
|
|
1,633
|
|
|
6,615
|
|
|||||
Business acquisitions
(1)
|
16
|
|
|
—
|
|
|
—
|
|
|
43
|
|
|
59
|
|
|||||
Foreign currency translation adjustments
|
(15
|
)
|
|
(3
|
)
|
|
—
|
|
|
(5
|
)
|
|
(23
|
)
|
|||||
June 29, 2018
|
2,814
|
|
|
1,143
|
|
|
1,023
|
|
|
1,671
|
|
|
6,651
|
|
|||||
Goodwill
|
2,857
|
|
|
1,143
|
|
|
1,058
|
|
|
1,697
|
|
|
6,755
|
|
|||||
Accumulated impairment losses
|
(43
|
)
|
|
—
|
|
|
(35
|
)
|
|
(26
|
)
|
|
(104
|
)
|
|||||
|
$
|
2,814
|
|
|
$
|
1,143
|
|
|
$
|
1,023
|
|
|
$
|
1,671
|
|
|
$
|
6,651
|
|
(1)
|
The increase for the Electronic Systems segment was due to the acquisition of the Latitude Engineering business and the purchase price allocation adjustments for the Doss Aviation and G-Air business acquisitions. The increase for the Sensor Systems segment was due to the acquisition of the Applied Defense Solutions business and the purchase price allocation adjustments for the Adaptive Methods and Kigre business acquisitions.
|
|
|
|
June 29, 2018
|
|
December 31, 2017
|
||||||||||||||||||||
|
Weighted Average
Amortization Period
|
|
Gross
Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
||||||||||||
|
(in years)
|
|
(in millions)
|
||||||||||||||||||||||
Customer contractual relationships
|
15
|
|
$
|
406
|
|
|
$
|
273
|
|
|
$
|
133
|
|
|
$
|
393
|
|
|
$
|
257
|
|
|
$
|
136
|
|
Technology
|
10
|
|
190
|
|
|
121
|
|
|
69
|
|
|
189
|
|
|
114
|
|
|
75
|
|
||||||
Other
|
14
|
|
34
|
|
|
14
|
|
|
20
|
|
|
29
|
|
|
14
|
|
|
15
|
|
||||||
Total subject to amortization
|
|
|
630
|
|
|
408
|
|
|
222
|
|
|
611
|
|
|
385
|
|
|
226
|
|
||||||
IPR&D
|
indefinite
|
|
66
|
|
|
—
|
|
|
66
|
|
|
66
|
|
|
—
|
|
|
66
|
|
||||||
Total
|
|
|
$
|
696
|
|
|
$
|
408
|
|
|
$
|
288
|
|
|
$
|
677
|
|
|
$
|
385
|
|
|
$
|
292
|
|
|
Second Quarter Ended
|
|
First Half Ended
|
||||||||||
|
June 29,
2018 |
|
June 30,
2017 |
|
June 29, 2018
|
|
June 30, 2017
|
||||||
|
(in millions)
|
||||||||||||
Amortization expense
|
$
|
11
|
|
|
$
|
10
|
|
|
22
|
|
|
20
|
|
|
Year Ending December 31,
|
||||||||||||||||||
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
||||||||||
|
(in millions)
|
||||||||||||||||||
Estimated amortization expense
|
$
|
44
|
|
|
$
|
42
|
|
|
$
|
33
|
|
|
$
|
27
|
|
|
$
|
23
|
|
|
June 29,
2018 |
|
December 31,
2017 |
||||
|
(in millions)
|
||||||
Other Current Liabilities:
|
|
|
|
|
|
||
Accrued product warranty costs
|
$
|
75
|
|
|
$
|
69
|
|
Estimated costs in excess of estimated contract value to complete contracts in process in a loss position
|
55
|
|
|
63
|
|
||
Accrued interest
|
28
|
|
|
43
|
|
||
Estimated contingent purchase price payable for acquired businesses and other investments (see Note 16)
|
17
|
|
|
11
|
|
||
Deferred revenues
|
—
|
|
|
38
|
|
||
Other
|
163
|
|
|
143
|
|
||
Total other current liabilities
|
$
|
338
|
|
|
$
|
367
|
|
|
June 29,
2018 |
|
December 31,
2017 |
||||
|
(in millions)
|
||||||
Other Liabilities:
|
|
|
|
|
|
||
Non-current income taxes payable (see Note 12)
|
$
|
179
|
|
|
$
|
164
|
|
Deferred compensation
|
53
|
|
|
49
|
|
||
Contract liabilities (see Note 6)
|
33
|
|
|
—
|
|
||
Accrued workers' compensation
|
24
|
|
|
23
|
|
||
Accrued product warranty costs
|
23
|
|
|
30
|
|
||
Notes payable and capital lease obligations
|
19
|
|
|
16
|
|
||
Estimated contingent purchase price payable for acquired businesses (see Note 16)
|
10
|
|
|
20
|
|
||
Deferred revenues
|
—
|
|
|
19
|
|
||
Other
|
75
|
|
|
77
|
|
||
Total other liabilities
|
$
|
416
|
|
|
$
|
398
|
|
|
First Half Ended
|
||||||
|
June 29,
2018 |
|
June 30,
2017 |
||||
|
(in millions)
|
||||||
Accrued product warranty costs:
|
|
|
|
|
|
||
Balance at January 1
|
$
|
99
|
|
|
$
|
109
|
|
Acquisitions during the period
|
—
|
|
|
3
|
|
||
Accruals for product warranties issued during the period
|
25
|
|
|
22
|
|
||
Changes to accruals for product warranties existing before January 1
|
1
|
|
|
—
|
|
||
Settlements made during the period
|
(26
|
)
|
|
(29
|
)
|
||
Foreign currency translation adjustments
|
(1
|
)
|
|
1
|
|
||
Balance at end of period
|
$
|
98
|
|
|
$
|
106
|
|
|
June 29,
2018 |
|
December 31,
2017 |
||||
|
(in millions)
|
||||||
Borrowings under Revolving Credit Facility
(1)
|
$
|
—
|
|
|
$
|
—
|
|
5.20% Senior Notes due 2019
|
317
|
|
|
1,000
|
|
||
4.75% Senior Notes due 2020
|
265
|
|
|
800
|
|
||
4.95% Senior Notes due 2021
|
650
|
|
|
650
|
|
||
3.85% Senior Notes due 2023
|
800
|
|
|
—
|
|
||
3.95% Senior Notes due 2024
|
350
|
|
|
350
|
|
||
3.85% Senior Notes due 2026
|
550
|
|
|
550
|
|
||
4.40% Senior Notes due 2028
|
1,000
|
|
|
—
|
|
||
Principal amount of long-term debt
|
3,932
|
|
|
3,350
|
|
||
Unamortized discounts
|
(8
|
)
|
|
(7
|
)
|
||
Deferred debt issue costs
|
(24
|
)
|
|
(13
|
)
|
||
Carrying amount of long-term debt
|
3,900
|
|
|
3,330
|
|
||
Current portion of long-term debt
|
(581
|
)
|
|
—
|
|
||
Carrying amount of long-term debt, excluding current portion
|
$
|
3,319
|
|
|
$
|
3,330
|
|
(1)
|
During the
first half period
ended
June 29, 2018
, L3’s aggregate borrowings and repayments under the Credit Facility were
$501 million
. At
June 29, 2018
, L3 had the full availability of its
$1 billion
Credit Facility.
|
Note
|
|
Date of Issuance
|
|
Amount Issued
|
|
Discount
(1)
|
|
Net
Cash
Proceeds
(2)
|
|
Effective Interest Rate
|
|
Redemption
at Treasury
Rate
(3)(4)
|
|||||||
|
|
|
|
(dollars in millions)
|
|
|
|
|
|||||||||||
3.85% Senior Notes due June 15, 2023 (the 2023 Notes)
|
|
June 6, 2018
|
|
$
|
800
|
|
|
$
|
2
|
|
|
$
|
792
|
|
|
3.89
|
%
|
|
20 bps
|
4.40% Senior Notes due June 15, 2028 (the 2028 Notes)
|
|
June 6, 2018
|
|
$
|
1,000
|
|
|
$
|
1
|
|
|
$
|
990
|
|
|
4.41
|
%
|
|
25 bps
|
(1)
|
Bond discounts are recorded as a reduction to the principal amount of the notes and are amortized as interest expense over the term of the notes.
|
(2)
|
The net cash proceeds of
$1,782 million
(after deduction of the discount, underwriting expenses and commissions and other related expenses) plus cash on hand were used to fund the concurrent cash tender offers (the Tender Offers) for any and all of
$1 billion
aggregate principal amount of
5.20%
Senior Notes due October 15, 2019 (the 2019 Notes) and
$800 million
aggregate principal amount of
4.75%
Senior Notes due July 15, 2020 (the 2020 Notes) and any related redemption of notes not tendered in the Tender Offers.
|
(3)
|
The 2023 Notes may be redeemed at any time prior to May 15, 2023 (one month prior to maturity) and the 2028 Notes may be redeemed at any time prior to March 15, 2028 (three months prior to maturity), at the option of L3, in whole or in part, at a redemption price equal to the greater of: (i)
100%
of the principal amount, or (ii) the present value of the remaining principal and interest payments discounted to the date of redemption, on a semi-annual basis, at the Treasury Rate (as defined in the indentures governing the senior notes), plus the spread indicated in the table above. In addition, if the 2023 Notes and the 2028 Notes are redeemed at any time on or after May 15, 2023 and March 15, 2028, respectively, the redemption price would be equal to
100%
of the principal amount.
|
(4)
|
Upon the occurrence of a change in control (as defined in the indentures governing the senior notes), each holder of the notes will have the right to require L3 to repurchase all or any part of such holder’s notes at an offer price in cash equal to
101%
of the aggregate principal amount plus accrued and unpaid interest, if any, to the date of purchase.
|
Note
|
|
Settlement Type
|
|
Date Settled
|
|
Aggregate Principal
|
|
Principal Tendered
|
|
Tender Premium
|
|
Cash
Tendered
(1)
|
|
Interest
|
|
Total Cash Payments
|
|
Debt
Retirement
Charge
(2)
|
|||||||||||||
|
|
|
|
|
|
(dollars in millions)
|
|||||||||||||||||||||||||
5.20% Senior Notes due 2019
|
|
Tender Offer
|
|
June 6, 2018
|
|
$
|
1,000
|
|
|
$
|
683
|
|
|
103.282
|
%
|
|
$
|
705
|
|
|
$
|
5
|
|
|
$
|
710
|
|
|
$
|
24
|
|
4.75% Senior Notes due 2020
|
|
Tender Offer
|
|
June 6, 2018
|
|
$
|
800
|
|
|
$
|
535
|
|
|
104.092
|
%
|
|
$
|
557
|
|
|
$
|
10
|
|
|
$
|
567
|
|
|
$
|
24
|
|
(1)
|
Excludes
$1 million
of tender offer fees.
|
(2)
|
The debt retirement charge includes
$1 million
of tender offer fees and
$3 million
which represents the non-cash retirement of associated unamortized debt issue costs and discounts.
|
Note
|
|
Settlement Type
|
|
Date Settled
|
|
Principal
Redeemed |
|
Redemption Premium
|
|
Cash
Payments
|
|
Interest
|
|
Total Cash Payments
|
|
Debt
Retirement
Charge
(1)
|
|||||||||||
|
|
|
|
|
|
(dollars in millions)
|
|||||||||||||||||||||
5.20% Senior Notes due 2019
|
|
Redemption
|
|
July 6, 2018
|
|
$
|
317
|
|
|
103.048
|
%
|
|
$
|
327
|
|
|
$
|
4
|
|
|
$
|
331
|
|
|
$
|
10
|
|
4.75% Senior Notes due 2020
|
|
Redemption
|
|
July 6, 2018
|
|
$
|
265
|
|
|
103.818
|
%
|
|
$
|
275
|
|
|
$
|
6
|
|
|
$
|
281
|
|
|
$
|
11
|
|
(1)
|
The debt retirement charge includes
$1 million
which represents the non-cash retirement of associated unamortized debt issue costs and discounts.
|
|
|
Foreign currency translation
|
|
Unrealized gains (losses) on hedging instruments
|
|
Unrecognized (losses) gains
and prior service cost, net
|
|
Total accumulated other comprehensive loss
|
||||||||
|
|
(in millions)
|
||||||||||||||
Balance at December 31, 2017
|
|
$
|
(54
|
)
|
|
$
|
9
|
|
|
$
|
(646
|
)
|
|
$
|
(691
|
)
|
Other comprehensive loss before reclassifications, net of tax
|
|
(39
|
)
|
|
(10
|
)
|
|
—
|
|
|
(49
|
)
|
||||
Amounts reclassified from AOCI, net of tax
|
|
—
|
|
|
(1
|
)
|
|
27
|
|
|
26
|
|
||||
Net current period other comprehensive (loss) income
|
|
(39
|
)
|
|
(11
|
)
|
|
27
|
|
|
(23
|
)
|
||||
Balance at June 29, 2018
|
|
$
|
(93
|
)
|
|
$
|
(2
|
)
|
|
$
|
(619
|
)
|
|
$
|
(714
|
)
|
|
|
|
|
|
|
|
|
|
||||||||
Balance at December 31, 2016
|
|
$
|
(178
|
)
|
|
$
|
6
|
|
|
$
|
(554
|
)
|
|
$
|
(726
|
)
|
Other comprehensive income before reclassifications, net of tax
|
|
71
|
|
|
1
|
|
|
—
|
|
|
72
|
|
||||
Amounts reclassified from AOCI, net of tax
|
|
—
|
|
|
(1
|
)
|
|
19
|
|
|
18
|
|
||||
Net current period other comprehensive income
|
|
71
|
|
|
—
|
|
|
19
|
|
|
90
|
|
||||
Balance at June 30, 2017
|
|
$
|
(107
|
)
|
|
$
|
6
|
|
|
$
|
(535
|
)
|
|
$
|
(636
|
)
|
|
|
Amount Reclassified from AOCI
(a)
|
|
Affected Line Item in the
Unaudited Condensed Consolidated
Statements of Operations
|
||||||||||||||
|
|
Second Quarter Ended
|
|
First Half Ended
|
|
|||||||||||||
Details About AOCI Components
|
|
June 29,
2018 |
|
June 30,
2017 |
|
June 29,
2018 |
|
June 30,
2017 |
|
|||||||||
|
|
(in millions)
|
|
|
||||||||||||||
Gain on hedging instruments
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
Income from continuing operations before income taxes
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
Income from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Amortization of defined benefit
pension and postretirement items:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Net loss
(b)
|
|
$
|
(17
|
)
|
|
$
|
(15
|
)
|
|
$
|
(35
|
)
|
|
$
|
(30
|
)
|
|
Income from continuing operations before income taxes
|
|
|
4
|
|
|
5
|
|
|
8
|
|
|
11
|
|
|
Provision for income taxes
|
||||
|
|
$
|
(13
|
)
|
|
$
|
(10
|
)
|
|
$
|
(27
|
)
|
|
$
|
(19
|
)
|
|
Income from continuing operations
|
Total reclassification for the period
|
|
$
|
(13
|
)
|
|
$
|
(9
|
)
|
|
$
|
(26
|
)
|
|
$
|
(18
|
)
|
|
Income from continuing operations
|
(a)
|
Amounts in parenthesis indicate charges to the unaudited condensed consolidated statements of operations.
|
(b)
|
Amounts related to pension and postretirement benefit plans were reclassified from AOCI and recorded as a component of net periodic benefit cost (see Note
20
for additional information).
|
|
Second Quarter Ended
|
|
First Half Ended
|
||||||||||||
|
June 29,
2018 |
|
June 30,
2017 |
|
June 29,
2018 |
|
June 30,
2017 |
||||||||
|
(in millions, except per share data)
|
||||||||||||||
Reconciliation of net income:
|
|
|
|
|
|
|
|
||||||||
Net income
|
$
|
379
|
|
|
$
|
207
|
|
|
$
|
587
|
|
|
$
|
375
|
|
Net income from continuing operations attributable to noncontrolling interests
|
(4
|
)
|
|
(5
|
)
|
|
(9
|
)
|
|
(9
|
)
|
||||
Net income attributable to L3’s common shareholders
|
$
|
375
|
|
|
$
|
202
|
|
|
$
|
578
|
|
|
$
|
366
|
|
Earnings attributable to L3’s common shareholders:
|
|
|
|
|
|
|
|
||||||||
Continuing operations
|
$
|
185
|
|
|
$
|
190
|
|
|
$
|
372
|
|
|
$
|
343
|
|
Discontinued operations, net of income tax
|
190
|
|
|
12
|
|
|
206
|
|
|
23
|
|
||||
Net income attributable to L3’s common shareholders
|
$
|
375
|
|
|
$
|
202
|
|
|
$
|
578
|
|
|
$
|
366
|
|
Earnings per share attributable to L3’s common
shareholders:
|
|
|
|
|
|
|
|
||||||||
Basic:
|
|
|
|
|
|
|
|
||||||||
Weighted average common shares outstanding
|
78.4
|
|
|
78.0
|
|
|
78.3
|
|
|
77.8
|
|
||||
Basic earnings per share:
|
|
|
|
|
|
|
|
||||||||
Continuing operations
|
$
|
2.36
|
|
|
$
|
2.44
|
|
|
$
|
4.75
|
|
|
$
|
4.40
|
|
Discontinued operations, net of income tax
|
2.42
|
|
|
0.15
|
|
|
2.63
|
|
|
0.30
|
|
||||
Net income
|
$
|
4.78
|
|
|
$
|
2.59
|
|
|
$
|
7.38
|
|
|
$
|
4.70
|
|
Diluted:
|
|
|
|
|
|
|
|
||||||||
Common and potential common shares:
|
|
|
|
|
|
|
|
||||||||
Weighted average common shares outstanding
|
78.4
|
|
|
78.0
|
|
|
78.3
|
|
|
77.8
|
|
||||
Effect of dilutive securities
|
1.0
|
|
|
1.5
|
|
|
1.3
|
|
|
1.6
|
|
||||
Common and potential common shares
|
79.4
|
|
|
79.5
|
|
|
79.6
|
|
|
79.4
|
|
||||
Diluted earnings per share:
|
|
|
|
|
|
|
|
||||||||
Continuing operations
|
$
|
2.33
|
|
|
$
|
2.39
|
|
|
$
|
4.67
|
|
|
$
|
4.32
|
|
Discontinued operations, net of income tax
|
2.39
|
|
|
0.15
|
|
|
2.59
|
|
|
0.29
|
|
||||
Net income
|
$
|
4.72
|
|
|
$
|
2.54
|
|
|
$
|
7.26
|
|
|
$
|
4.61
|
|
|
|
June 29, 2018
|
|
December 31, 2017
|
||||||||||||||||||||
Description
|
|
Level 1
(1)
|
|
Level 2
(2)
|
|
Level 3
(3)
|
|
Level 1
(1)
|
|
Level 2
(2)
|
|
Level 3
(3)
|
||||||||||||
|
|
(in millions)
|
||||||||||||||||||||||
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cash equivalents
|
|
$
|
955
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
310
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Derivatives (foreign currency forward contracts)
|
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
11
|
|
|
—
|
|
||||||
Total assets
|
|
$
|
955
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
310
|
|
|
$
|
11
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Derivatives (foreign currency forward contracts)
|
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
Contingent consideration
|
|
—
|
|
|
—
|
|
|
27
|
|
|
—
|
|
|
—
|
|
|
31
|
|
||||||
Total liabilities
|
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
27
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
31
|
|
(1)
|
Level 1 is based on quoted market prices available in active markets for identical assets or liabilities as of the reporting date. Cash equivalents are primarily held in registered money market funds, which are valued using quoted market prices.
|
(2)
|
Level 2 is based on pricing inputs other than quoted prices in active markets, which are either directly or indirectly observable. The fair value is determined using a valuation model based on observable market inputs, including quoted foreign currency forward exchange rates and consideration of non-performance risk.
|
(3)
|
Level 3 is based on pricing inputs that are not observable and not corroborated by market data.
|
|
June 29, 2018
|
||
|
(in millions)
|
||
Balance at beginning of period
|
$
|
31
|
|
Acquisitions and investments
|
10
|
|
|
Cash payments
|
(2
|
)
|
|
Changes in fair value of contingent consideration, net
|
(12
|
)
|
|
Balance at end of period
|
$
|
27
|
|
|
June 29, 2018
|
|
December 31, 2017
|
||||||||||||
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
||||||||
|
(in millions)
|
||||||||||||||
Senior notes
(1)
|
$
|
3,900
|
|
|
$
|
3,944
|
|
|
$
|
3,330
|
|
|
$
|
3,502
|
|
Foreign currency forward contracts
(2)
|
$
|
(5
|
)
|
|
$
|
(5
|
)
|
|
$
|
10
|
|
|
$
|
10
|
|
(1)
|
The Company measures the fair value of its senior notes using Level 2 inputs based primarily on current market yields for its existing debt traded in the secondary market.
|
(2)
|
The Company measures the fair values of foreign currency forward contracts based on forward exchange rates. See Note
18
for additional disclosures regarding the notional amounts and fair values of foreign currency forward contracts.
|
Currency
|
|
Notional Amounts
|
||
|
|
(in millions)
|
||
Canadian dollar
|
|
$
|
183
|
|
U.S. dollar
|
|
145
|
|
|
Euro
|
|
80
|
|
|
United Arab Emirates dirham
|
|
12
|
|
|
British pound
|
|
11
|
|
|
New Zealand dollar
|
|
7
|
|
|
Total
|
|
$
|
438
|
|
|
June 29, 2018
|
|
December 31, 2017
|
||||||||||||||||||||||||||||
|
Other Current Assets
|
|
Other Assets
|
|
Other Current Liabilities
|
|
Other Liabilities
|
|
Other Current Assets
|
|
Other Assets
|
|
Other Current Liabilities
|
|
Other Liabilities
|
||||||||||||||||
|
(in millions)
|
||||||||||||||||||||||||||||||
Derivatives designated as
hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Foreign currency forward contracts
(1)
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
2
|
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
Derivatives not designated as
hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Contingent consideration
(2)
|
—
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Total derivative instruments
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
12
|
|
|
$
|
2
|
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
(1)
|
See Note
16
for a description of the fair value hierarchy related to the Company’s foreign currency forward contracts.
|
(2)
|
See Note
16
for additional information on Peak Nano contingent consideration liability.
|
|
Pension Plans
|
|
Postretirement Benefit Plans
|
||||||||||||||||||||||||||||
|
Second Quarter Ended
|
|
First Half Ended
|
|
Second Quarter Ended
|
|
First Half Ended
|
||||||||||||||||||||||||
|
June 29,
2018 |
|
June 30,
2017 |
|
June 29,
2018 |
|
June 30,
2017 |
|
June 29,
2018 |
|
June 30,
2017 |
|
June 29,
2018 |
|
June 30,
2017 |
||||||||||||||||
|
(in millions)
|
||||||||||||||||||||||||||||||
Components of net
periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Service cost
|
$
|
26
|
|
|
$
|
25
|
|
|
$
|
52
|
|
|
$
|
50
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost
|
36
|
|
|
36
|
|
|
72
|
|
|
71
|
|
|
1
|
|
|
1
|
|
|
2
|
|
|
2
|
|
||||||||
Expected return on plan assets
|
(56
|
)
|
|
(49
|
)
|
|
(112
|
)
|
|
(98
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
(2
|
)
|
|
(2
|
)
|
||||||||
Amortization of net loss (gains)
|
18
|
|
|
15
|
|
|
37
|
|
|
31
|
|
|
(1
|
)
|
|
—
|
|
|
(2
|
)
|
|
(1
|
)
|
||||||||
Net periodic benefit cost
|
$
|
24
|
|
|
$
|
27
|
|
|
$
|
49
|
|
|
$
|
54
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
Expected holding period (in years)
|
5.2
|
|
Expected volatility
|
19.8
|
%
|
Expected dividend yield
|
1.8
|
%
|
Risk-free interest rate
|
2.7
|
%
|
|
First Half Ended
|
||||||
|
June 29,
2018 |
|
June 30,
2017 |
||||
|
(in millions)
|
||||||
Interest paid
|
$
|
97
|
|
|
$
|
83
|
|
Income tax payments
|
$
|
54
|
|
|
$
|
96
|
|
Income tax refunds
|
$
|
3
|
|
|
$
|
7
|
|
|
Second Quarter Ended
|
|
First Half Ended
|
||||||||||||
|
June 29,
2018 |
|
June 30,
2017 |
|
June 29,
2018 |
|
June 30,
2017 |
||||||||
|
(in millions)
|
||||||||||||||
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
||||
Electronic Systems
|
$
|
828
|
|
|
$
|
789
|
|
|
$
|
1,630
|
|
|
$
|
1,549
|
|
Aerospace Systems
|
751
|
|
|
681
|
|
|
1,450
|
|
|
1,382
|
|
||||
Communication Systems
|
563
|
|
|
555
|
|
|
1,062
|
|
|
1,098
|
|
||||
Sensor Systems
|
482
|
|
|
394
|
|
|
894
|
|
|
748
|
|
||||
Elimination of intercompany sales
|
(41
|
)
|
|
(34
|
)
|
|
(82
|
)
|
|
(71
|
)
|
||||
Consolidated total
|
$
|
2,583
|
|
|
$
|
2,385
|
|
|
$
|
4,954
|
|
|
$
|
4,706
|
|
Operating Income:
|
|
|
|
|
|
|
|
||||||||
Electronic Systems
|
$
|
113
|
|
|
$
|
103
|
|
|
$
|
221
|
|
|
$
|
193
|
|
Aerospace Systems
|
61
|
|
|
56
|
|
|
118
|
|
|
112
|
|
||||
Communication Systems
|
45
|
|
|
84
|
|
|
82
|
|
|
126
|
|
||||
Sensor Systems
|
54
|
|
|
51
|
|
|
103
|
|
|
100
|
|
||||
Segment total
|
273
|
|
|
294
|
|
|
524
|
|
|
531
|
|
||||
Gain on sale of the Crestview & TCS Businesses
|
48
|
|
|
—
|
|
|
48
|
|
|
—
|
|
||||
Consolidated total
|
$
|
321
|
|
|
$
|
294
|
|
|
$
|
572
|
|
|
$
|
531
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
||||||||
Electronic Systems
|
$
|
24
|
|
|
$
|
17
|
|
|
$
|
43
|
|
|
$
|
35
|
|
Aerospace Systems
|
12
|
|
|
13
|
|
|
24
|
|
|
24
|
|
||||
Communication Systems
|
11
|
|
|
12
|
|
|
24
|
|
|
24
|
|
||||
Sensor Systems
|
13
|
|
|
12
|
|
|
25
|
|
|
23
|
|
||||
Consolidated total
|
$
|
60
|
|
|
$
|
54
|
|
|
$
|
116
|
|
|
$
|
106
|
|
|
June 29,
2018 |
|
December 31,
2017 |
||||
|
(in millions)
|
||||||
Total Assets:
|
|
|
|
|
|||
Electronic Systems
|
$
|
4,990
|
|
|
$
|
4,796
|
|
Aerospace Systems
|
2,200
|
|
|
2,014
|
|
||
Communication Systems
|
2,142
|
|
|
2,063
|
|
||
Sensor Systems
|
2,890
|
|
|
2,706
|
|
||
Corporate
|
1,308
|
|
|
709
|
|
||
Assets held for sale
|
—
|
|
|
135
|
|
||
Assets of discontinued operations
|
—
|
|
|
306
|
|
||
Consolidated total
|
$
|
13,530
|
|
|
$
|
12,729
|
|
|
|
Second Quarter Ended June 29, 2018
|
||||||||||||||||||
End Customer
|
|
Electronic Systems
|
|
Aerospace Systems
|
|
Communication Systems
|
|
Sensor Systems
|
|
Consolidated L3
|
||||||||||
|
|
|
|
|
|
(in millions)
|
|
|
|
|
||||||||||
Total DoD
|
|
$
|
443
|
|
|
$
|
624
|
|
|
$
|
426
|
|
|
$
|
240
|
|
|
$
|
1,733
|
|
Other U.S. Government
|
|
40
|
|
|
7
|
|
|
24
|
|
|
22
|
|
|
93
|
|
|||||
Total U.S. Government
|
|
483
|
|
|
631
|
|
|
450
|
|
|
262
|
|
|
1,826
|
|
|||||
Foreign governments
(1)
|
|
74
|
|
|
103
|
|
|
39
|
|
|
155
|
|
|
371
|
|
|||||
Commercial — foreign
|
|
177
|
|
|
6
|
|
|
25
|
|
|
14
|
|
|
222
|
|
|||||
Commercial — domestic
|
|
78
|
|
|
1
|
|
|
40
|
|
|
45
|
|
|
164
|
|
|||||
Total
|
|
$
|
812
|
|
|
$
|
741
|
|
|
$
|
554
|
|
|
$
|
476
|
|
|
$
|
2,583
|
|
|
|
First Half Ended June 29, 2018
|
||||||||||||||||||
End Customer
|
|
Electronic Systems
|
|
Aerospace Systems
|
|
Communication Systems
|
|
Sensor Systems
|
|
Consolidated L3
|
||||||||||
|
|
|
|
|
|
(in millions)
|
|
|
|
|
||||||||||
Total DoD
|
|
$
|
860
|
|
|
$
|
1,192
|
|
|
$
|
797
|
|
|
$
|
446
|
|
|
$
|
3,295
|
|
Other U.S. Government
|
|
79
|
|
|
12
|
|
|
48
|
|
|
47
|
|
|
186
|
|
|||||
Total U.S. Government
|
|
939
|
|
|
1,204
|
|
|
845
|
|
|
493
|
|
|
3,481
|
|
|||||
Foreign governments
(1)
|
|
142
|
|
|
206
|
|
|
73
|
|
|
281
|
|
|
702
|
|
|||||
Commercial — foreign
|
|
344
|
|
|
14
|
|
|
46
|
|
|
35
|
|
|
439
|
|
|||||
Commercial — domestic
|
|
172
|
|
|
3
|
|
|
83
|
|
|
74
|
|
|
332
|
|
|||||
Total
|
|
$
|
1,597
|
|
|
$
|
1,427
|
|
|
$
|
1,047
|
|
|
$
|
883
|
|
|
$
|
4,954
|
|
(1)
|
Includes sales under foreign military sales agreements, which are made directly between the U.S. Government and foreign governments.
|
|
|
Second Quarter Ended June 29, 2018
|
||||||||||||||||||
Contract Type
|
|
Electronic Systems
|
|
Aerospace Systems
|
|
Communication Systems
|
|
Sensor Systems
|
|
Consolidated L3
|
||||||||||
|
|
|
|
|
|
(in millions)
|
|
|
|
|
||||||||||
Fixed-price
(1)
|
|
$
|
680
|
|
|
$
|
398
|
|
|
$
|
403
|
|
|
$
|
391
|
|
|
$
|
1,872
|
|
Cost-plus
(2)
|
|
118
|
|
|
292
|
|
|
133
|
|
|
83
|
|
|
626
|
|
|||||
Time-and-material
|
|
14
|
|
|
51
|
|
|
18
|
|
|
2
|
|
|
85
|
|
|||||
Total sales
|
|
$
|
812
|
|
|
$
|
741
|
|
|
$
|
554
|
|
|
$
|
476
|
|
|
$
|
2,583
|
|
|
|
First Half Ended June 29, 2018
|
||||||||||||||||||
Contract Type
|
|
Electronic Systems
|
|
Aerospace Systems
|
|
Communication Systems
|
|
Sensor Systems
|
|
Consolidated L3
|
||||||||||
|
|
|
|
|
|
(in millions)
|
|
|
|
|
||||||||||
Fixed-price
(1)
|
|
$
|
1,344
|
|
|
$
|
764
|
|
|
$
|
732
|
|
|
$
|
724
|
|
|
$
|
3,564
|
|
Cost-plus
(2)
|
|
226
|
|
|
561
|
|
|
281
|
|
|
154
|
|
|
1,222
|
|
|||||
Time-and-material
|
|
27
|
|
|
102
|
|
|
34
|
|
|
5
|
|
|
168
|
|
|||||
Total sales
|
|
$
|
1,597
|
|
|
$
|
1,427
|
|
|
$
|
1,047
|
|
|
$
|
883
|
|
|
$
|
4,954
|
|
(1)
|
Includes fixed-price incentive fee type contracts, which contributed approximately
1%
to the Company's total net sales for quarterly period ended
June 29, 2018
and
2%
for the
first half period
ended
June 29, 2018
.
|
(2)
|
Includes cost-plus award and incentive fee type contracts, which contributed approximately
4%
to the Company's total net sales for each of the
quarterly and first half periods
ended
June 29, 2018
.
|
|
|
Second Quarter Ended June 29, 2018
|
||||||||||||||||||
Sales by Deliverable Type
|
|
Electronic Systems
|
|
Aerospace Systems
|
|
Communication Systems
|
|
Sensor Systems
|
|
Consolidated L3
|
||||||||||
|
|
|
|
|
|
(in millions)
|
|
|
|
|
||||||||||
Products
|
|
$
|
578
|
|
|
$
|
405
|
|
|
$
|
397
|
|
|
$
|
406
|
|
|
$
|
1,786
|
|
Services
|
|
234
|
|
|
336
|
|
|
157
|
|
|
70
|
|
|
797
|
|
|||||
Total sales
|
|
$
|
812
|
|
|
$
|
741
|
|
|
$
|
554
|
|
|
$
|
476
|
|
|
$
|
2,583
|
|
|
|
First Half Ended June 29, 2018
|
||||||||||||||||||
Sales by Deliverable Type
|
|
Electronic Systems
|
|
Aerospace Systems
|
|
Communication Systems
|
|
Sensor Systems
|
|
Consolidated L3
|
||||||||||
|
|
|
|
|
|
(in millions)
|
|
|
|
|
||||||||||
Products
|
|
$
|
1,138
|
|
|
$
|
777
|
|
|
$
|
761
|
|
|
$
|
756
|
|
|
$
|
3,432
|
|
Services
|
|
459
|
|
|
650
|
|
|
286
|
|
|
127
|
|
|
1,522
|
|
|||||
Total sales
|
|
$
|
1,597
|
|
|
$
|
1,427
|
|
|
$
|
1,047
|
|
|
$
|
883
|
|
|
$
|
4,954
|
|
|
|
Second Quarter Ended June 29, 2018
|
||||||||||||||||||
Revenue Recognition Method
|
|
Electronic Systems
|
|
Aerospace Systems
|
|
Communication Systems
|
|
Sensor Systems
|
|
Consolidated L3
|
||||||||||
|
|
|
|
|
|
(in millions)
|
|
|
|
|
||||||||||
Cost to cost method
|
|
$
|
548
|
|
|
$
|
713
|
|
|
$
|
455
|
|
|
$
|
226
|
|
|
$
|
1,942
|
|
Point in time
|
|
175
|
|
|
11
|
|
|
76
|
|
|
222
|
|
|
484
|
|
|||||
Output method
|
|
71
|
|
|
1
|
|
|
5
|
|
|
11
|
|
|
88
|
|
|||||
Billing method
|
|
18
|
|
|
16
|
|
|
18
|
|
|
17
|
|
|
69
|
|
|||||
Total sales
|
|
$
|
812
|
|
|
$
|
741
|
|
|
$
|
554
|
|
|
$
|
476
|
|
|
$
|
2,583
|
|
|
|
First Half Ended June 29, 2018
|
||||||||||||||||||
Revenue Recognition Method
|
|
Electronic Systems
|
|
Aerospace Systems
|
|
Communication Systems
|
|
Sensor Systems
|
|
Consolidated L3
|
||||||||||
|
|
|
|
|
|
(in millions)
|
|
|
|
|
||||||||||
Cost to cost method
|
|
$
|
1,081
|
|
|
$
|
1,379
|
|
|
$
|
845
|
|
|
$
|
439
|
|
|
$
|
3,744
|
|
Point in time
|
|
369
|
|
|
13
|
|
|
153
|
|
|
381
|
|
|
916
|
|
|||||
Output method
|
|
122
|
|
|
1
|
|
|
12
|
|
|
27
|
|
|
162
|
|
|||||
Billing method
|
|
25
|
|
|
34
|
|
|
37
|
|
|
36
|
|
|
132
|
|
|||||
Total sales
|
|
$
|
1,597
|
|
|
$
|
1,427
|
|
|
$
|
1,047
|
|
|
$
|
883
|
|
|
$
|
4,954
|
|
|
Second Quarter Ended
|
|
First Half Ended
|
||||||||||||
|
June 29,
2018 |
|
June 30,
2017 |
|
June 29,
2018 |
|
June 30,
2017 |
||||||||
|
(in millions)
|
||||||||||||||
Reportable Segment
|
|
|
|
|
|
|
|
||||||||
Electronic Systems
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
4
|
|
|
$
|
5
|
|
Aerospace Systems
|
—
|
|
|
1
|
|
|
1
|
|
|
1
|
|
||||
Communication Systems
|
3
|
|
|
9
|
|
|
8
|
|
|
18
|
|
||||
Sensor Systems
|
1
|
|
|
—
|
|
|
1
|
|
|
2
|
|
||||
Consolidated
|
$
|
6
|
|
|
$
|
12
|
|
|
$
|
14
|
|
|
$
|
26
|
|
|
June 29, 2018
|
||
|
(in millions)
|
||
Balance at beginning of period
|
$
|
23
|
|
Additional provisions
|
14
|
|
|
Cash payments
|
(22
|
)
|
|
Balance at end of period
|
$
|
15
|
|
|
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 Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
For the first half period ended June 29, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total net sales
|
$
|
1,726
|
|
|
$
|
2,567
|
|
|
$
|
853
|
|
|
$
|
(192
|
)
|
|
$
|
4,954
|
|
Total operating costs and expenses
|
(1,541
|
)
|
|
(2,394
|
)
|
|
(687
|
)
|
|
192
|
|
|
(4,430
|
)
|
|||||
Gain on sale of the Crestview & TCS Businesses
|
—
|
|
|
48
|
|
|
—
|
|
|
—
|
|
|
48
|
|
|||||
Operating income
|
185
|
|
|
221
|
|
|
166
|
|
|
—
|
|
|
572
|
|
|||||
Interest expense
|
(84
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(85
|
)
|
|||||
Interest and other income, net
|
11
|
|
|
1
|
|
|
2
|
|
|
—
|
|
|
14
|
|
|||||
Debt retirement charge
|
(48
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(48
|
)
|
|||||
Income from continuing operations before income taxes
|
64
|
|
|
222
|
|
|
167
|
|
|
—
|
|
|
453
|
|
|||||
Provision for income taxes
|
(10
|
)
|
|
(35
|
)
|
|
(27
|
)
|
|
—
|
|
|
(72
|
)
|
|||||
Equity in net income of consolidated subsidiaries
|
318
|
|
|
93
|
|
|
—
|
|
|
(411
|
)
|
|
—
|
|
|||||
Income from continuing operations
|
372
|
|
|
280
|
|
|
140
|
|
|
(411
|
)
|
|
381
|
|
|||||
Income from discontinued operations, net of income tax
|
206
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
206
|
|
|||||
Net income
|
578
|
|
|
280
|
|
|
140
|
|
|
(411
|
)
|
|
587
|
|
|||||
Net income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
(9
|
)
|
|
(9
|
)
|
|||||
Net income attributable to L3
|
$
|
578
|
|
|
$
|
280
|
|
|
$
|
140
|
|
|
$
|
(420
|
)
|
|
$
|
578
|
|
Comprehensive income attributable to L3
|
$
|
555
|
|
|
$
|
237
|
|
|
$
|
96
|
|
|
$
|
(333
|
)
|
|
$
|
555
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
For the first half period ended June 30, 2017:
|
|
|
|
|
|
|
|
|
|
||||||||||
Total net sales
|
$
|
1,744
|
|
|
$
|
2,389
|
|
|
$
|
750
|
|
|
$
|
(177
|
)
|
|
$
|
4,706
|
|
Total operating costs and expenses
|
(1,581
|
)
|
|
(2,145
|
)
|
|
(626
|
)
|
|
177
|
|
|
(4,175
|
)
|
|||||
Operating income
|
163
|
|
|
244
|
|
|
124
|
|
|
—
|
|
|
531
|
|
|||||
Interest expense
|
(84
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(84
|
)
|
|||||
Interest and other income, net
|
5
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
6
|
|
|||||
Income from continuing operations before income taxes
|
84
|
|
|
244
|
|
|
125
|
|
|
—
|
|
|
453
|
|
|||||
Provision for income taxes
|
(19
|
)
|
|
(54
|
)
|
|
(28
|
)
|
|
—
|
|
|
(101
|
)
|
|||||
Equity in net income of consolidated subsidiaries
|
278
|
|
|
58
|
|
|
—
|
|
|
(336
|
)
|
|
—
|
|
|||||
Income from continuing operations
|
343
|
|
|
248
|
|
|
97
|
|
|
(336
|
)
|
|
352
|
|
|||||
Income from discontinued operations, net of income tax
|
23
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23
|
|
|||||
Net income
|
366
|
|
|
248
|
|
|
97
|
|
|
(336
|
)
|
|
375
|
|
|||||
Net income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
(9
|
)
|
|
(9
|
)
|
|||||
Net income attributable to L3
|
$
|
366
|
|
|
$
|
248
|
|
|
$
|
97
|
|
|
$
|
(345
|
)
|
|
$
|
366
|
|
Comprehensive income attributable to L3
|
$
|
456
|
|
|
$
|
308
|
|
|
$
|
170
|
|
|
$
|
(478
|
)
|
|
$
|
456
|
|
|
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
|
|
|
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
|
)
|
|
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
|
)
|
|
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
|
)
|
|
2017 Sales
|
|
% of
2017 Sales |
|||
|
(in millions)
|
|
|
|||
DoD
|
$
|
6,329
|
|
|
66
|
%
|
Other U.S. Government
|
368
|
|
|
4
|
|
|
Total U.S. Government
|
6,697
|
|
|
70
|
|
|
Foreign governments
|
1,420
|
|
|
15
|
|
|
Commercial — foreign
|
809
|
|
|
8
|
|
|
Commercial — domestic
|
647
|
|
|
7
|
|
|
Total sales
|
$
|
9,573
|
|
|
100
|
%
|
|
Second Quarter Ended
|
|
First Half Ended
|
||||||||||||
|
June 29,
2018 |
|
June 30,
2017 |
|
June 29,
2018 |
|
June 30,
2017 |
||||||||
|
(in millions)
|
||||||||||||||
Net sales
|
$
|
226
|
|
|
$
|
351
|
|
|
$
|
597
|
|
|
$
|
703
|
|
Operating costs and expenses
(1)
|
(212
|
)
|
|
(332
|
)
|
|
(561
|
)
|
|
(667
|
)
|
||||
Operating income from discontinued operations
|
14
|
|
|
19
|
|
|
36
|
|
|
36
|
|
||||
Interest expense allocated to discontinued operations
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
||||
Gain on sale of businesses
|
237
|
|
|
—
|
|
|
237
|
|
|
—
|
|
||||
Income from discontinued operations before income taxes
|
251
|
|
|
19
|
|
|
272
|
|
|
35
|
|
||||
Income tax expense
|
(61
|
)
|
|
(7
|
)
|
|
(66
|
)
|
|
(12
|
)
|
||||
Income from discontinued operations, net of income taxes
|
$
|
190
|
|
|
$
|
12
|
|
|
$
|
206
|
|
|
$
|
23
|
|
(1)
|
For the quarterly and first half periods ended June 29, 2018, we recognized $3 million of trailing expenses related to the sale of NSS.
|
|
|
Second Quarter Ended
|
|
|
|
|
First Half Ended
|
|
|
|
|
||||||||||||
|
(in millions, except per share data)
|
June 29,
2018 |
|
June 30,
2017 |
|
Increase/(decrease)
|
|
June 29,
2018 |
|
June 30,
2017 |
|
Increase/(decrease)
|
|
||||||||||
|
Net sales
(1)
|
$
|
2,583
|
|
|
$
|
2,385
|
|
|
8
|
%
|
|
$
|
4,954
|
|
|
$
|
4,706
|
|
|
5
|
%
|
|
|
Operating income
(1)
|
321
|
|
|
294
|
|
|
9
|
%
|
|
572
|
|
|
531
|
|
|
8
|
%
|
|
||||
|
Gain on sale of the Crestview & TCS Businesses
|
(48
|
)
|
|
—
|
|
|
nm
|
|
|
(48
|
)
|
|
—
|
|
|
nm
|
|
|
||||
|
Segment operating income
(2)
|
$
|
273
|
|
|
$
|
294
|
|
|
(7)
|
%
|
|
$
|
524
|
|
|
$
|
531
|
|
|
(1)
|
%
|
|
|
Operating margin
|
12.4
|
%
|
|
12.3
|
%
|
|
10
|
bpts
|
|
11.5
|
%
|
|
11.3
|
%
|
|
20
|
bpts
|
|
||||
|
Segment operating margin
|
10.6
|
%
|
|
12.3
|
%
|
|
(170)
|
bpts
|
|
10.6
|
%
|
|
11.3
|
%
|
|
(70)
|
bpts
|
|
||||
|
Interest expense and other
|
$
|
(36
|
)
|
|
$
|
(40
|
)
|
|
(10)
|
%
|
|
$
|
(71
|
)
|
|
$
|
(78
|
)
|
|
(9)
|
%
|
|
|
Debt retirement charge
|
$
|
(48
|
)
|
|
$
|
—
|
|
|
nm
|
|
|
$
|
(48
|
)
|
|
$
|
—
|
|
|
nm
|
|
|
|
Effective income tax rate
|
20.3
|
%
|
|
23.2
|
%
|
|
(290)
|
bpts
|
|
15.9
|
%
|
|
22.3
|
%
|
|
(640)
|
bpts
|
|
||||
|
Net income from continuing operations attributable to L3
|
$
|
185
|
|
|
$
|
190
|
|
|
(3)
|
%
|
|
$
|
372
|
|
|
$
|
343
|
|
|
8
|
%
|
|
|
Diluted earnings per share from continuing operations
|
$
|
2.33
|
|
|
$
|
2.39
|
|
|
(3)
|
%
|
|
$
|
4.67
|
|
|
$
|
4.32
|
|
|
8
|
%
|
|
|
Adjusted diluted earnings per share from continuing operations
(3)
|
$
|
2.47
|
|
|
$
|
2.39
|
|
|
3
|
%
|
|
$
|
4.81
|
|
|
$
|
4.32
|
|
|
11
|
%
|
|
|
Diluted weighted average common shares outstanding
|
79.4
|
|
|
79.5
|
|
|
—
|
%
|
|
79.6
|
|
|
79.4
|
|
|
—
|
%
|
|
||||
|
__________________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
(1)
___
The adoption of ASC 606 resulted in a net increase to sales of approximately $45 million and no impact to operating income for the 2018 second quarter and resulted in net increases to sales and operating income by approximately $121 million and $19 million, respectively, for the 2018 first half. Under ASC 606, sales from certain contracts previously accounted for under the units-of-delivery method are recognized earlier in the performance period as costs are incurred as opposed to when the units are delivered under ASC 605. See Note 3 to our unaudited condensed consolidated financial statements for additional information on the impact by segment.
|
|
|||||||||||||||||||||
|
(2)
___
Results for the 2017 second quarter and first half include the sale of the company's property in San Carlos, California, which resulted in a pre-tax gain of $42 million ($26 million after-tax or $0.33 per share) and $64 million of cash proceeds.
|
|
|||||||||||||||||||||
|
(3)
___
Adjusted diluted EPS from continuing operations is diluted EPS from continuing operations excluding: (i) the gain on sale of the Crestview & TCS Businesses of $0.31 per diluted share and (ii) the debt retirement charge of $0.45 per diluted share. Adjusted diluted EPS from continuing operations is not calculated in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). We believe that the gain relating to the Crestview & TCS Businesses divestiture and the debt retirement charge affect the comparability of the results of operations and that disclosing diluted EPS from continuing operations excluding these items is useful to investors as it allows investors to more easily compare 2018 results to 2017 results. However, these non-GAAP financial measures may not be defined or calculated by other companies in the same manner.
|
|
|||||||||||||||||||||
|
nm - not meaningful
|
|
|
Second Quarter Ended
|
|
First Half Ended
|
||||||||||||
|
June 29,
2018 |
|
June 30,
2017 |
|
June 29,
2018 |
|
June 30,
2017 |
||||||||
|
(dollars in millions)
|
||||||||||||||
Net sales:
(1)
|
|
|
|
|
|
|
|
||||||||
Electronic Systems
|
$
|
812
|
|
|
$
|
767
|
|
|
$
|
1,597
|
|
|
$
|
1,505
|
|
Aerospace Systems
|
741
|
|
|
679
|
|
|
1,427
|
|
|
1,375
|
|
||||
Communication Systems
|
554
|
|
|
550
|
|
|
1,047
|
|
|
1,087
|
|
||||
Sensor Systems
|
476
|
|
|
389
|
|
|
883
|
|
|
739
|
|
||||
Consolidated net sales
|
$
|
2,583
|
|
|
$
|
2,385
|
|
|
$
|
4,954
|
|
|
$
|
4,706
|
|
Operating income:
|
|
|
|
|
|
|
|
||||||||
Electronic Systems
|
$
|
113
|
|
|
$
|
103
|
|
|
$
|
221
|
|
|
$
|
193
|
|
Aerospace Systems
|
61
|
|
|
56
|
|
|
118
|
|
|
112
|
|
||||
Communication Systems
|
45
|
|
|
84
|
|
|
82
|
|
|
126
|
|
||||
Sensor Systems
|
54
|
|
|
51
|
|
|
103
|
|
|
100
|
|
||||
Total segment operating income
|
273
|
|
|
294
|
|
|
524
|
|
|
531
|
|
||||
Gain on sale of the Crestview and TCS Businesses
|
48
|
|
|
—
|
|
|
48
|
|
|
—
|
|
||||
Consolidated operating income
|
$
|
321
|
|
|
$
|
294
|
|
|
$
|
572
|
|
|
$
|
531
|
|
Operating margin:
|
|
|
|
|
|
|
|
||||||||
Electronic Systems
|
13.9
|
%
|
|
13.4
|
%
|
|
13.8
|
%
|
|
12.8
|
%
|
||||
Aerospace Systems
|
8.2
|
%
|
|
8.2
|
%
|
|
8.3
|
%
|
|
8.1
|
%
|
||||
Communication Systems
|
8.1
|
%
|
|
15.3
|
%
|
|
7.8
|
%
|
|
11.6
|
%
|
||||
Sensor Systems
|
11.3
|
%
|
|
13.1
|
%
|
|
11.7
|
%
|
|
13.5
|
%
|
||||
Total segment operating margin
|
10.6
|
%
|
|
12.3
|
%
|
|
10.6
|
%
|
|
11.3
|
%
|
||||
Gain related to sales of business
|
1.8
|
%
|
|
—
|
|
|
0.9
|
%
|
|
—
|
|
||||
Consolidated operating margin
|
12.4
|
%
|
|
12.3
|
%
|
|
11.5
|
%
|
|
11.3
|
%
|
(1)
|
Net sales after intercompany eliminations.
|
|
|
Second Quarter Ended
|
|
|
|
|
First Half Ended
|
|
|
|
|
||||||||||||
|
|
June 29,
2018 |
|
June 30,
2017 |
|
Increase
|
|
June 29,
2018 |
|
June 30,
2017 |
|
Increase
|
|
||||||||||
|
|
(dollars in millions)
|
|
|
|||||||||||||||||||
|
Net sales
|
$
|
812
|
|
|
$
|
767
|
|
|
6
|
%
|
|
$
|
1,597
|
|
|
$
|
1,505
|
|
|
6
|
%
|
|
|
Operating income
|
$
|
113
|
|
|
$
|
103
|
|
|
10
|
%
|
|
$
|
221
|
|
|
$
|
193
|
|
|
15
|
%
|
|
|
Operating margin
|
13.9
|
%
|
|
13.4
|
%
|
|
50
|
bpts
|
|
13.8
|
%
|
|
12.8
|
%
|
|
100
|
bpts
|
|
|
|
Second Quarter Ended
|
|
|
|
|
First Half Ended
|
|
|
|
|
||||||||||||
|
|
June 29,
2018 |
|
June 30,
2017 |
|
Increase
|
|
June 29,
2018 |
|
June 30,
2017 |
|
Increase
|
|
||||||||||
|
|
(dollars in millions)
|
|
|
|||||||||||||||||||
|
Net sales
|
$
|
741
|
|
|
$
|
679
|
|
|
9
|
%
|
|
$
|
1,427
|
|
|
$
|
1,375
|
|
|
4
|
%
|
|
|
Operating income
|
$
|
61
|
|
|
$
|
56
|
|
|
9
|
%
|
|
$
|
118
|
|
|
$
|
112
|
|
|
5
|
%
|
|
|
Operating margin
|
8.2
|
%
|
|
8.2
|
%
|
|
—
|
bpts
|
|
8.3
|
%
|
|
8.1
|
%
|
|
20
|
bpts
|
|
|
|
Second Quarter Ended
|
|
|
|
|
First Half Ended
|
|
|
|
|
||||||||||||
|
|
June 29,
2018 |
|
June 30,
2017 |
|
Increase/ (decrease)
|
|
June 29,
2018 |
|
June 30,
2017 |
|
Decrease
|
|
||||||||||
|
|
(dollars in millions)
|
|
|
|||||||||||||||||||
|
Net sales
|
$
|
554
|
|
|
$
|
550
|
|
|
1
|
%
|
|
$
|
1,047
|
|
|
$
|
1,087
|
|
|
(4)
|
%
|
|
|
Operating income
|
$
|
45
|
|
|
$
|
84
|
|
|
(46)
|
%
|
|
$
|
82
|
|
|
$
|
126
|
|
|
(35)
|
%
|
|
|
Operating margin
|
8.1
|
%
|
|
15.3
|
%
|
|
(720)
|
bpts
|
|
7.8
|
%
|
|
11.6
|
%
|
|
(380)
|
bpts
|
|
|
|
Second Quarter Ended
|
|
|
|
|
First Half Ended
|
|
|
|
|
||||||||||||
|
|
June 29,
2018 |
|
June 30,
2017 |
|
Increase/ (decrease)
|
|
June 29,
2018 |
|
June 30,
2017 |
|
Increase/ (decrease)
|
|
||||||||||
|
|
(dollars in millions)
|
|
|
|||||||||||||||||||
|
Net sales
|
$
|
476
|
|
|
$
|
389
|
|
|
22
|
%
|
|
$
|
883
|
|
|
$
|
739
|
|
|
19
|
%
|
|
|
Operating income
|
$
|
54
|
|
|
$
|
51
|
|
|
6
|
%
|
|
$
|
103
|
|
|
$
|
100
|
|
|
3
|
%
|
|
|
Operating margin
|
11.3
|
%
|
|
13.1
|
%
|
|
(180)
|
bpts
|
|
11.7
|
%
|
|
13.5
|
%
|
|
(180)
|
bpts
|
|
|
Electronic Systems
|
|
Aerospace Systems
|
|
Communication Systems
|
|
Sensor Systems
|
|
Consolidated Total
|
||||||||||
|
(in millions)
|
||||||||||||||||||
December 31, 2017
|
$
|
2,813
|
|
|
$
|
1,146
|
|
|
$
|
1,023
|
|
|
$
|
1,633
|
|
|
$
|
6,615
|
|
Business acquisitions
(1)
|
16
|
|
|
—
|
|
|
—
|
|
|
43
|
|
|
59
|
|
|||||
Foreign currency translation adjustments
|
(15
|
)
|
|
(3
|
)
|
|
—
|
|
|
(5
|
)
|
|
(23
|
)
|
|||||
June 29, 2018
|
$
|
2,814
|
|
|
$
|
1,143
|
|
|
$
|
1,023
|
|
|
$
|
1,671
|
|
|
$
|
6,651
|
|
(1)
|
The increase for the Electronic Systems segment was due to the acquisition of the Latitude Engineering business and the purchase price allocation adjustments for the Doss Aviation and G-Air business acquisitions. The increase for the Sensor Systems segment was due to the acquisition of the Applied Defense Solutions business and the purchase price allocation adjustments for the Adaptive Methods and Kigre business acquisitions.
|
|
First Half Ended
|
||||||||||
|
June 29,
2018 |
|
June 30,
2017 |
|
Cash Flow
Increase/
(decrease)
|
||||||
|
(in millions)
|
||||||||||
Net cash from (used in) provided from operating activities from continuing operations
|
$
|
178
|
|
|
$
|
315
|
|
|
$
|
(137
|
)
|
Net cash from (used in) investing activities from continuing operations
|
330
|
|
|
(207
|
)
|
|
537
|
|
|||
Net cash from (used in) financing activities from continuing operations
|
197
|
|
|
(130
|
)
|
|
327
|
|
Note
|
|
Date of Issuance
|
|
Amount Issued
|
|
Discount
(1)
|
|
Net
Cash
Proceeds
(2)
|
|
Effective Interest Rate
|
|
Redemption
at Treasury
Rate
(3)(4)
|
|||||||
|
|
|
|
(dollars in millions)
|
|
|
|
|
|||||||||||
3.85% Senior Notes due June 15, 2023 (the 2023 Notes)
|
|
June 6, 2018
|
|
$
|
800
|
|
|
$
|
2
|
|
|
$
|
792
|
|
|
3.89
|
%
|
|
20 bps
|
4.40% Senior Notes due June 15, 2028 (the 2028 Notes)
|
|
June 6, 2018
|
|
$
|
1,000
|
|
|
$
|
1
|
|
|
$
|
990
|
|
|
4.41
|
%
|
|
25 bps
|
(1)
|
Bond discounts are recorded as a reduction to the principal amount of the notes and are amortized as interest expense over the term of the notes.
|
(2)
|
The net cash proceeds of
$1,782 million
(after deduction of the discount, underwriting expenses and commissions and other related expenses) plus cash on hand were used to fund the concurrent cash tender offers (the Tender Offers) for any and all of
$1 billion
aggregate principal amount of
5.20%
Senior Notes due October 15, 2019 (the 2019 Notes) and
$800 million
aggregate principal amount of
4.75%
Senior Notes due July 15, 2020 (the 2020 Notes) and any related redemption of notes not tendered in the Tender Offers.
|
(3)
|
The 2023 Notes may be redeemed at any time prior to May 15, 2023 (one month prior to maturity) and the 2028 Notes may be redeemed at any time prior to March 15, 2028 (three months prior to maturity), at the option of L3, in whole or in part, at a redemption price equal to the greater of: (i)
100%
of the principal amount, or (ii) the present value of the remaining principal and interest payments discounted to the date of redemption, on a semi-annual basis, at the Treasury Rate (as defined in the indentures governing the senior notes), plus the spread indicated in the table above. In addition, if the 2023 Notes and the 2028 Notes are redeemed at any time on or after May 15, 2023 and March 15, 2028, respectively, the redemption price would be equal to
100%
of the principal amount.
|
(4)
|
Upon the occurrence of a change in control (as defined in the indentures governing the senior notes), each holder of the notes will have the right to require L3 to repurchase all or any part of such holder’s notes at an offer price in cash equal to
101%
of the aggregate principal amount plus accrued and unpaid interest, if any, to the date of purchase.
|
Note
|
|
Settlement Type
|
|
Date Settled
|
|
Aggregate Principal
|
|
Principal Tendered
|
|
Tender Premium
|
|
Cash
Tendered
(1)
|
|
Interest
|
|
Total Cash Payments
|
|
Debt
Retirement
Charge
(2)
|
|||||||||||||
|
|
|
|
|
|
(dollars in millions)
|
|||||||||||||||||||||||||
5.20% Senior Notes due 2019
|
|
Tender Offer
|
|
June 6, 2018
|
|
$
|
1,000
|
|
|
$
|
683
|
|
|
103.282
|
%
|
|
$
|
705
|
|
|
$
|
5
|
|
|
$
|
710
|
|
|
$
|
24
|
|
4.75% Senior Notes due 2020
|
|
Tender Offer
|
|
June 6, 2018
|
|
$
|
800
|
|
|
$
|
535
|
|
|
104.092
|
%
|
|
$
|
557
|
|
|
$
|
10
|
|
|
$
|
567
|
|
|
$
|
24
|
|
(1)
|
Excludes
$1 million
of tender offer fees.
|
(2)
|
The debt retirement charge includes
$1 million
of tender offer fees and
$3 million
which represents the non-cash retirement of associated unamortized debt issue costs and discounts.
|
Note
|
|
Settlement Type
|
|
Date Settled
|
|
Principal
Redeemed |
|
Redemption Premium
|
|
Cash
Payments
|
|
Interest
|
|
Total Cash Payments
|
|
Debt
Retirement
Charge
(1)
|
|||||||||||
|
|
|
|
|
|
(dollars in millions)
|
|||||||||||||||||||||
5.20% Senior Notes due 2019
|
|
Redemption
|
|
July 6, 2018
|
|
$
|
317
|
|
|
103.048
|
%
|
|
$
|
327
|
|
|
$
|
4
|
|
|
$
|
331
|
|
|
$
|
10
|
|
4.75% Senior Notes due 2020
|
|
Redemption
|
|
July 6, 2018
|
|
$
|
265
|
|
|
103.818
|
%
|
|
$
|
275
|
|
|
$
|
6
|
|
|
$
|
281
|
|
|
$
|
11
|
|
(1)
|
The debt retirement charge includes
$1 million
which represents the non-cash retirement of associated unamortized debt issue costs and discounts.
|
|
Total Number of
Shares Purchased
|
|
Average Price Paid
Per Share
|
|
Treasury Stock
|
|||||
|
|
|
|
|
(at cost in millions)
|
|||||
January 1 — March 30, 2018
|
581,229
|
|
|
$
|
203.93
|
|
|
$
|
119
|
|
March 31 — June 29, 2018
|
878,188
|
|
|
$
|
192.35
|
|
|
$
|
168
|
|
Date Declared
|
|
Record Date
|
|
Cash Dividend Per Share
|
|
Total Cash Dividends Declared
|
|
Date Paid
|
|||||
|
|
|
|
|
|
(in millions)
|
|
|
|||||
February 12, 2018
|
|
March 1, 2018
|
|
$
|
0.80
|
|
|
$
|
63
|
|
(1)
|
|
March 15, 2018
|
May 8, 2018
|
|
May 18, 2018
|
|
$
|
0.80
|
|
|
$
|
63
|
|
(1)
|
|
June 15, 2018
|
(1)
|
During the
2018
first half
, we paid
$128 million
of cash dividends, including a
$2 million
net reduction of previously accrued dividends for employee-held stock awards.
|
Period
|
|
Total Number of Shares Purchased
|
|
Average Price Paid Per Share
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans
or Programs
|
|
Maximum Number (or Approximate Dollar Value) of Shares That May Yet be Purchased Under the Plans
or Programs
(1)
|
||||||
|
|
|
|
|
|
|
|
(in millions)
|
||||||
March 31 — April 30, 2018
|
|
131,554
|
|
|
$
|
207.75
|
|
|
131,554
|
|
|
$
|
1,201
|
|
May 1 — May 31, 2018
|
|
603,882
|
|
|
188.80
|
|
|
603,882
|
|
|
1,087
|
|
||
June 1 — June 29, 2018
|
|
142,752
|
|
|
193.19
|
|
|
142,752
|
|
|
1,059
|
|
||
Total
|
|
878,188
|
|
|
192.35
|
|
|
878,188
|
|
|
|
(1)
|
The share repurchases described in the table above were made pursuant to the $1.5 billion share repurchase program authorized by L3’s Board of Directors on May 8, 2017. The program became effective on July 1, 2017 and has no set expiration date.
|
1.
|
Adoption of a new Executive Severance Plan to provide for severance benefits in the event of qualified terminations occurring outside a change in control of the Company (the “non-CIC Severance Plan”);
|
2.
|
Approval of amendments to the Company’s existing Amended and Restated Change in Control Severance Plan (the “CIC Severance Plan”) regarding the calculation of an employee’s “average bonus” for purposes of that plan; and
|
3.
|
Approval of “double triggered” vesting provisions with respect to a portion of the Company’s outstanding long-term performance awards.
|
•
|
A lump sum cash payment equal to two times (in the case of the CEO) or one times (in the case of other senior executives) the participant’s annualized salary and target bonus at the time of termination;
|
•
|
In the event the termination occurs after the end of the second quarter of the Company’s fiscal year, a pro-rated bonus based on actual performance for the year of termination;
|
•
|
Continued health care coverage for a period of 18 months following the participant’s termination of employment at the same cost charged to similarly-situated active employees; and
|
•
|
Outplacement assistance for up to 12 months.
|
Exhibit
No.
|
|
Description of Exhibit
|
|
Distribution Agreement between L-3 Communications Holdings, Inc. and Engility Holdings, Inc. dated as of July 16, 2012 (incorporated by reference to Exhibit 2.1 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 28, 2012 (File No. 333-46983)).
|
|
|
Stock Purchase Agreement, dated as of December 7, 2015, by and among L-3 Communications Corporation, CACI International Inc and CACI, Inc.-Federal (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on December 11, 2015 (File No. 333-46983)).
|
|
|
Stock and Asset Purchase Agreement, dated as of May 1, 2018, by and among L-3 Communications Integrated Systems L.P., L3 Technologies, Inc. and 450 Madison Acquireco LLC (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on May 2, 2018 (File No. 001-37975)).
|
|
|
Restated Certificate of Incorporation of L3 Technologies, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on January 3, 2017 (File No. 001-37975)).
|
|
|
Amended and Restated Bylaws of L3 Technologies, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on February 13, 2018 (File No. 333-46983)).
|
|
|
Form of Common Stock Certificate of L3 Technologies, Inc. (incorporated by reference to Exhibit 4.1 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (File No. 001-37975)).
|
|
|
Indenture, dated as of May 21, 2010, among L-3 Communications Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated May 24, 2010 (File No. 333-46983)).
|
|
|
Second Supplemental Indenture, dated as of February 7, 2011, among L-3 Communications Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated February 8, 2011 (File No. 333-46983)).
|
|
|
Third Supplemental Indenture, dated as of November 22, 2011, among L-3 Communications Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A, as Trustee (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated November 22, 2011 (File No. 333-46983)).
|
|
|
Fourth Supplemental Indenture, dated as of February 3, 2012, among L-3 Communications Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A, as Trustee (incorporated by reference to Exhibit 4.12 to the Registrant’s Annual Report on Form 10‑K for the fiscal year ended December 31, 2011 (File No. 333-46983)).
|
|
|
Fifth Supplemental Indenture, dated as of May 28, 2014, among L-3 Communications Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A, as Trustee (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K dated May 28, 2014 (File No. 333-46983)).
|
|
|
Sixth Supplemental Indenture, dated as of June 21, 2016, among L-3 Communications Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A, as Trustee (incorporated by reference to Exhibit 4.2 to L-3 Communications Corporation’s Registration Statement on Form S-3ASR filed on June 21, 2016 (File No. 333-212152)).
|
|
|
Seventh Supplemental Indenture, dated as of October 31, 2016, among L-3 Communications Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A, as Trustee (incorporated by reference to Exhibit 4.12 of the Registrant’s Annual Report on Form 10‑K for the period ended December 31, 2016 (File No. 001-37975)).
|
|
|
Eighth Supplemental Indenture, dated as of December 5, 2016, among L-3 Communications Corporation, the guarantors named therein and The Bank of New York Mellon Trust Company, N.A, as Trustee (incorporated by reference to Exhibit 4.6 to the Registrant’s Current Report on Form 8-K dated December 5, 2016 (File No. 333-46983)).
|
|
|
Ninth Supplemental Indenture, dated as of March 30, 2018 among L3 Technologies, Inc., The Bank of New York Mellon Trust Company, N.A., as Trustee, and the guarantors named therein (incorporated by reference to Exhibit 4.15 to the Registrant’s Quarterly Report on Form 10-Q for the period ended March 30. 2018 (File No. 001-37975)).
|
|
|
Tenth Supplemental Indenture, dated as of June 6, 2018, among L3 Technologies, Inc., The Bank of New York Mellon Trust Company, N.A., as Trustee, and the guarantors named therein (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on June 6, 2018 (File No. 001-37975)).
|
|
Form of L3 Technologies, Inc. 2008 Long Term Performance Plan Deferred Stock Unit Agreement (2018 Non-Employee Directors Annual Equity Award Version).
|
|
|
L3 Technologies, Inc. Executive Severance Plan.
|
|
|
L3 Technologies, Inc. Amended and Restated Change in Control Severance Plan.
|
|
|
Global Amendment to Performance Unit Agreements dated as of July 25, 2018.
|
|
|
Global Amendment to Performance Cash Award Agreements dated as of July 25, 2018.
|
|
|
L3 Technologies, Inc. Computation of Basic Earnings Per Share and Diluted Earnings Per Common Share.
|
|
|
Certification of Chairman, Chief Executive Officer and President pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
|
|
|
Certification of Senior Vice President and Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
|
|
|
Section 1350 Certification.
|
|
***101.INS
|
|
XBRL Instance Document.
|
***101.SCH
|
|
XBRL Taxonomy Extension Schema Document.
|
***101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
***101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
***101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document.
|
***101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
*
|
Filed herewith.
|
**
|
The information required in this exhibit is presented in Note
15
to the unaudited condensed consolidated financial statements as of
June 29, 2018
contained in this quarterly report in accordance with the provisions of ASC 260,
Earnings Per Share
.
|
***
|
Filed electronically with this report.
|
+
|
Certain schedules and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. The descriptions of the omitted schedules and exhibits are contained within the relevant agreement. A copy of any omitted schedule and/or exhibit will be furnished supplementally to the SEC upon request.
|
†
|
Represents management contract or compensatory plan, contract or arrangement in which directors and/or executive officers are entitled to participate.
|
|
L3 TECHNOLOGIES, INC.
|
|
|
|
|
|
By:
|
/s/ Ralph G. D’Ambrosio
|
|
Title:
|
Senior Vice President and Chief Financial Officer
|
|
|
(Principal Financial Officer and Authorized Signatory)
|
|
|
|
Date: July 26, 2018
|
|
|
|
By: L3 TECHNOLOGIES, INC.
_______
|
|
————————————————————
Christopher E. Kubasik
_________________
Chief Executive Officer and President
__ ___
|
|
|
|
————————————————————
Ann D. Davidson
______________________
Senior Vice President, General Counsel and
_
Corporate Secretary
__________________
|
|
By: L3 TECHNOLOGIES, INC.
|
|
/s/ Christopher E. Kubasik
————————————————————
Christopher E. Kubasik
Chairman, Chief Executive Officer and President
|
|
|
|
/s/ Melanie M. Heitkamp
————————————————————
Melanie M. Heitkamp
Senior Vice President and Chief Human Resources Officer
|
|
By: L3 TECHNOLOGIES, INC.
|
|
/s/ Christopher E. Kubasik
————————————————————
Christopher E. Kubasik
Chairman, Chief Executive Officer and President
|
|
|
|
/s/ Melanie M. Heitkamp
————————————————————
Melanie M. Heitkamp
Senior Vice President and Chief Human Resources Officer
|
1.
|
I have reviewed this report on Form 10-Q for the quarter ended
June 29, 2018
of L3 Technologies, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Christopher E. Kubasik
|
|
Christopher E. Kubasik
|
|
Chairman, Chief Executive Officer and President
|
|
1.
|
I have reviewed this report on Form 10-Q for the quarter ended
June 29, 2018
of L3 Technologies, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
/s/ Ralph G. D’Ambrosio
|
|
Ralph G. D’Ambrosio
|
|
Senior Vice President and Chief Financial Officer
|
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of L3.
|
/s/ Christopher E. Kubasik
|
|
/s/ Ralph G. D’Ambrosio
|
Christopher E. Kubasik
|
|
Ralph G. D’Ambrosio
|
Chairman, Chief Executive Officer and President
|
|
Senior Vice President and Chief Financial Officer
|