L 3 COMMUNICATIONS CORP (Form: 10-Q, Received: 05/07/2013 15:02:44)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 29, 2013

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file numbers 001-14141 and 333-46983

L-3 COMMUNICATIONS HOLDINGS, INC.

L-3 COMMUNICATIONS CORPORATION

(Exact names of registrants as specified in their charters)


Delaware		13-3937434 and 13-3937436
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Nos.)

600 Third Avenue, New York, NY		10016
(Address of principal executive offices)		(Zip Code)

(212) 697-1111

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. þ Yes ¨ No

Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files). þ Yes ¨ No

Indicate by check mark whether the registrant, L-3 Communications Holdings, Inc., is a large accelerated filer, accelerated filer, non-accelerated filer, or smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer þ		Accelerated filer ¨		Non-accelerated filer ¨		(Do not check if a smaller reporting company)		Smaller reporting company ¨

Indicate by check mark whether the registrant, L-3 Communications Corporation, Inc., is a large accelerated filer, accelerated filer, non-accelerated filer, or smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer ¨		Accelerated filer ¨		Non-accelerated filer þ		(Do not check if a smaller reporting company)		Smaller reporting company ¨

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Act). ¨ Yes þ No

There were 89,995,841 shares of L-3 Communications Holdings, Inc. common stock with a par value of $0.01 outstanding as of the close of business on May 1, 2013.

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

INDEX TO QUARTERLY REPORT ON FORM 10-Q

For the quarterly period ended March 29, 2013


		Page No.
	PART I — FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of March 29, 2013 (Unaudited) and December 31, 2012		1
	Unaudited Condensed Consolidated Statements of Operations for the Quarterly periods ended March 29, 2013 and March 30, 2012		2
	Unaudited Condensed Consolidated Statements of Comprehensive Income for the Quarterly periods ended March 29, 2013 and March 30, 2012		3
	Unaudited Condensed Consolidated Statements of Equity for the Quarterly periods ended March 29, 2013 and March 30, 2012		4
	Unaudited Condensed Consolidated Statements of Cash Flows for the Quarterly periods ended March 29, 2013 and March 30, 2012		5
	Notes to Unaudited Condensed Consolidated Financial Statements		6
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		41
ITEM 4.	Controls and Procedures		41

	PART II — OTHER INFORMATION
ITEM 1.	Legal Proceedings		42
ITEM 1A.	Risk Factors		42
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds		43
ITEM 6.	Exhibits		43
Signature			44

PART I — FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share data)


	(Unaudited) March 29, 2013			December 31, 2012
ASSETS
Current assets:
Cash and cash equivalents	$	276		$	349
Billed receivables, net of allowances of $30 in 2013 and $33 in 2012		1,108			968
Contracts in process		2,748			2,652
Inventories		347			363
Deferred income taxes		85			95
Other current assets		126			144

Total current assets		4,690			4,571

Property, plant and equipment, net		998			1,017
Goodwill		7,720			7,744
Identifiable intangible assets		304			314
Deferred debt issue costs		28			29
Other assets		140			151

Total assets	$	13,880		$	13,826


LIABILITIES AND EQUITY
Current liabilities:
Accounts payable, trade	$	595		$	494
Accrued employment costs		568			551
Accrued expenses		417			462
Advance payments and billings in excess of costs incurred		579			671
Income taxes		10			21
Other current liabilities		398			398

Total current liabilities		2,567			2,597

Pension and postretirement benefits		1,367			1,360
Deferred income taxes		371			328
Other liabilities		358			373
Long-term debt		3,629			3,629

Total liabilities		8,292			8,287

Commitments and contingencies (see Note 17)
Equity:
L-3 shareholders’ equity:
L-3 Communications Holdings, Inc.’s common stock: $.01 par value; 300,000,000 shares authorized, 90,210,105 shares outstanding at March 29, 2013 and 90,433,743 shares outstanding at December 31, 2012 (L-3 Communications Corporation’s common stock: $.01 par value, 100 shares authorized, issued and outstanding)		5,367			5,314
L-3 Communications Holdings, Inc.’s treasury stock (at cost), 58,990,317 shares at March 29, 2013 and 57,418,645 shares at December 31, 2012		(4,610	)		(4,488	)
Retained earnings		5,334			5,191
Accumulated other comprehensive loss		(578	)		(554	)

Total L-3 shareholders’ equity		5,513			5,463
Noncontrolling interests		75			76

Total equity		5,588			5,539

Total liabilities and equity	$	13,880		$	13,826

See notes to unaudited condensed consolidated financial statements

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)


	First Quarter Ended
	March 29, 2013			March 30, 2012
Net sales:
Products	$	1,813		$	1,746
Services		1,372			1,414

Total net sales		3,185			3,160

Cost of sales:
Products		1,620			1,546
Services		1,252			1,289

Total cost of sales		2,872			2,835

Operating income		313			325
Interest expense		(43	)		(45	)
Interest and other income, net		3			3

Income from continuing operations before income taxes		273			283
Provision for income taxes		79			96

Income from continuing operations		194			187
Income from discontinued operations, net of income tax		—			16

Net income	$	194		$	203
Less: Net income attributable to noncontrolling interests		1			2

Net income attributable to L-3	$	193		$	201

Basic earnings per share attributable to L-3 Holdings’ common shareholders:
Continuing operations	$	2.14		$	1.88
Discontinued operations		—			0.15

Basic earnings per share	$	2.14		$	2.03

Diluted earnings per share attributable to L-3 Holdings’ common shareholders:
Continuing operations	$	2.11		$	1.86
Discontinued operations		—			0.15

Diluted earnings per share	$	2.11		$	2.01

Cash dividends paid per common share	$	0.55		$	0.50

L-3 Holdings’ weighted average common shares outstanding:
Basic		90.3			99.0

Diluted		91.5			100.2

See notes to unaudited condensed consolidated financial statements

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)


	First Quarter Ended
	March 29, 2013			March 30, 2012
Net income	$	194		$	203
Other comprehensive (loss) income:
Foreign currency translation adjustments		(34	)		29
Unrealized (losses) gains on hedging instruments ⁽¹⁾		(3	)		3
Pension and postretirement benefit plans:
Amortization of net loss and prior service cost previously recognized ⁽²⁾		13			11

Total other comprehensive (loss) income:		(24	)		43

Comprehensive income		170			246
Less: Comprehensive income attributable to noncontrolling interests		1			2

Comprehensive income attributable to L-3	$	169		$	244

⁽¹⁾	Amounts are net of an income tax benefit of $2 million and income taxes of $2 million for the quarterly periods ended March 29, 2013 and March 30, 2012, respectively.

⁽²⁾	Amounts are net of income taxes of $9 million and $6 million for the quarterly periods ended March 29, 2013 and March 30, 2012, respectively.

See notes to unaudited condensed consolidated financial statements

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(in millions, except per share data)


	L-3 Holdings’ Common Stock					Additional Paid-in Capital									Accumulated Other Comprehensive (Loss) Income
	Shares Outstanding			Par Value		Additional Paid-in Capital			Treasury Stock			Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Noncontrolling Interests			Total Equity
For the Quarter ended March 29, 2013:
Balance at December 31, 2012		90.4		$	1	$	5,313		$	(4,488	)	$	5,191		$	(554	)	$	76		$	5,539
Net income													193						1			194
Other comprehensive loss																(24	)					(24	)
Distributions to noncontrolling interests																			(2	)		(2	)
Cash dividends paid on common stock ($0.55 per share)													(50	)								(50	)
Shares issued:
Employee savings plans		0.5					37															37
Exercise of stock options		0.3					16															16
Employee stock purchase plan		0.3					—															—
Stock-based compensation expense							14															14
Treasury stock purchased		(1.6	)							(122	)											(122	)
Other		0.3					(14	)														(14	)

Balance at March 29, 2013		90.2		$	1	$	5,366		$	(4,610	)	$	5,334		$	(578	)	$	75		$	5,588

For the Quarter ended March 30, 2012:
Balance at December 31, 2011		99.0		$	1	$	5,063		$	(3,616	)	$	5,641		$	(454	)	$	89		$	6,724
Net income													201						2			203
Other comprehensive income																43						43
Distributions to noncontrolling interests																			(3	)		(3	)
Cash dividends paid on common stock ($0.50 per share)													(49	)								(49	)
Shares issued:
Employee savings plans		0.6					38															38
Exercise of stock options		0.1					6															6
Employee stock purchase plan		0.4
Stock-based compensation expense							14															14
Treasury stock purchased		(2.0	)							(138	)											(138	)
Other		0.1											(1	)								(1	)

Balance at March 30, 2012		98.2		$	1	$	5,121		$	(3,754	)	$	5,792		$	(411	)	$	88		$	6,837

See notes to unaudited condensed consolidated financial statements

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)


	First Quarter Ended
	March 29, 2013			March 30, 2012
Operating activities:
Net income	$	194		$	203
Less: Income from discontinued operations, net of tax		—			16

Income from continuing operations		194			187
Depreciation of property, plant and equipment		42			42
Amortization of intangibles and other assets		12			13
Deferred income tax provision		19			20
Stock-based employee compensation expense		14			13
Contributions to employee savings plans in L-3 Holdings’ common stock		32			34
Amortization of pension and postretirement benefit plans net loss and prior service cost		22			17
Amortization of bond discounts and deferred debt issue costs (included in interest expense)		2			2
Other non-cash items		3			(1	)
Changes in operating assets and liabilities, excluding amounts from acquisitions, divestitures and discontinued operations:
Billed receivables		(146	)		(4	)
Contracts in process		(106	)		(131	)
Inventories		13			(39	)
Accounts payable, trade		105			97
Accrued employment costs		13			(17	)
Accrued expenses		(35	)		(120	)
Advance payments and billings in excess of costs incurred		(85	)		19
Income taxes		51			62
Excess income tax benefits related to share-based payment arrangements		(2	)		(1	)
Other current liabilities		1			(8	)
Pension and postretirement benefits		4			(30	)
All other operating activities		(7	)		(35	)

Net cash from operating activities from continuing operations		146			120

Investing activities:
Business acquisitions, net of cash acquired		—			(205	)
Capital expenditures		(49	)		(27	)
Dispositions of property, plant and equipment		1			—
Other investing activities		(6	)		(2	)

Net cash used in investing activities from continuing operations		(54	)		(234	)

Financing activities:
Borrowings under revolving credit facility		477			16
Repayment of borrowings under revolving credit facility		(477	)		(16	)
Common stock repurchased		(122	)		(138	)
Dividends paid on L-3 Holdings’ common stock		(52	)		(49	)
Proceeds from exercises of stock options		18			6
Proceeds from employee stock purchase plan		9			12
Debt issue costs		—			(6	)
Excess income tax benefits related to share-based payment arrangements		2			1
Other financing activities		(13	)		(5	)

Net cash used in financing activities from continuing operations		(158	)		(179	)

Effect of foreign currency exchange rate changes on cash and cash equivalents		(7	)		5
Cash from discontinued operations:
Operating activities		—			17

Cash from discontinued operations		—			17

Net decrease in cash and cash equivalents		(73	)		(271	)
Cash and cash equivalents, beginning of the period		349			764

Cash and cash equivalents, end of the period	$	276		$	493

See notes to unaudited condensed consolidated financial statements

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

1. Description of Business

L-3 Communications Holdings, Inc. derives all of its operating income and cash flows from its wholly-owned subsidiary, L-3 Communications Corporation (L-3 Communications). L-3 Communications Holdings, Inc. (L-3 Holdings and, together with its subsidiaries, referred to herein as L-3 or the Company) is a prime contractor in Intelligence, Surveillance and Reconnaissance (ISR) systems, Command, Control, Communications (C ³ ) systems, platform and logistics solutions for aircrafts, maritime vessels and ground vehicles, and national security solutions. L-3 is also a leading provider of a broad range of electronic systems used on military and commercial platforms. The Company’s customers include the United States (U.S.) Department of Defense (DoD) and its prime contractors, U.S. Government intelligence agencies, the U.S. Department of Homeland Security (DHS), U.S. Department of State (DoS), allied international governments, and domestic and international commercial customers.

The Company has the following four reportable segments: (1) C ³ ISR, (2) Electronic Systems, (3) Platform & Logistics Solutions (P&LS) (formerly Aircraft Modernization and Maintenance) and (4) National Security Solutions (NSS). Financial information with respect to each of the Company’s segments is included in Note 21. C ³ ISR provides products and services for the global ISR market, C ³ systems, networked communication systems and secure communications products. The Company believes that these products and services are critical elements for a substantial number of major command, control and communication, intelligence gathering and space systems. These products and services are used to connect a variety of airborne, space, ground and sea-based communication systems and are used in the transmission, processing, recording, monitoring, and dissemination functions of these communication systems. Electronic Systems provides a broad range of products and services, including components, products, subsystems and systems and related services to military and commercial customers in several niche markets across several business areas. These business areas include microwave, power & control systems, marine systems international, sensor systems, simulation & training, aviation products, precision engagement, warrior systems, security & detection, space & propulsion, undersea warfare and marine services. P&LS provides modernization, upgrades and sustainment, maintenance and logistics support solutions for military and various government aircraft and other platforms. The Company sells these services primarily to the DoD, the Canadian Department of National Defence and other allied international governments. NSS provides a full range of cyber security, intelligence, enterprise information technology (IT) and security solutions services to the DoD, U.S. Government intelligence agencies, federal civilian agencies and allied international governments.

2. Basis of Presentation

These unaudited condensed consolidated financial statements for the quarterly period ended March 29, 2013 should be read in conjunction with the audited consolidated financial statements of L-3 Holdings and L-3 Communications included in their Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

Principles of Consolidation and Reporting

The accompanying financial statements comprise the consolidated financial statements of L-3 Holdings and L-3 Communications. L-3 Holdings’ only asset is its investment in the common stock of L-3 Communications, its wholly-owned subsidiary, and its only obligations are: (1) the 3% Convertible Contingent Debt Securities (CODES) due 2035, which were issued by L-3 Holdings on July 29, 2005, (2) its guarantee of borrowings under the Amended and Restated Revolving Credit Facility of L-3 Communications and (3) its guarantee of other contractual obligations of L-3 Communications and its subsidiaries. L-3 Holdings’ obligations relating to the CODES have been jointly, severally, fully and unconditionally guaranteed by L-3 Communications and certain of its wholly-owned domestic subsidiaries. Accordingly, such debt has been reflected as debt of L-3 Communications in its consolidated financial statements in accordance with the accounting standards for

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Continued)

pushdown accounting. All issuances of and conversions into L-3 Holdings’ equity securities, including grants of stock options, restricted stock, restricted stock units and performance units by L-3 Holdings to employees and directors of L-3 Communications and its subsidiaries, have been reflected in the consolidated financial statements of L-3 Communications. As a result, the consolidated financial positions, results of operations and cash flows of L-3 Holdings and L-3 Communications are substantially the same. See Note 23 for additional information regarding the unaudited financial information of L-3 Communications and its subsidiaries.

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC. Accordingly, they do not include all of the disclosures required by U.S. GAAP for a complete set of annual audited financial statements. The December 31, 2012 condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, all adjustments (consisting of normal and recurring adjustments) considered necessary for a fair presentation of the results for the interim periods presented have been included. The results of operations for the interim periods are not necessarily indicative of results for the full year.

It is the Company’s established practice to close its books for the quarters ending March, June and September on the Friday nearest to the end of the calendar quarter. The interim unaudited condensed consolidated financial statements included herein have been prepared and are labeled based on that convention. The Company closes its books for annual periods on December 31 regardless of what day it falls on.

Accounting Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and costs of sales during the reporting period. The most significant of these estimates and assumptions for L-3 relate to contract revenue, profit and loss recognition, fair values of assets acquired and liabilities assumed in business combinations, market values for inventories reported at lower of cost or market, pension and post-retirement benefit obligations, stock-based employee compensation expense, income taxes, including the valuation of deferred tax assets, litigation reserves and environmental obligations, accrued product warranty costs, and the recoverability, useful lives and valuation of recorded amounts of long-lived assets, identifiable intangible assets and goodwill. Changes in estimates are reflected in the periods during which they become known. Actual amounts will differ from these estimates and could differ materially.

Sales and profits on contracts that are covered by accounting standards for construction-type and production-type contracts and federal government contractors are recognized using percentage-of-completion (POC) methods of accounting. Approximately 48% of the Company’s net sales in 2012 were accounted for under contract accounting standards, of which, approximately 39% were fixed-price type contracts and approximately 9% were cost-plus type contracts. For contracts accounted for under contract accounting standards, sales and profits are recognized based on: (1) a POC method of accounting (fixed-price contracts), (2) allowable costs incurred plus the estimated profit on those costs (cost-plus contracts), or (3) direct labor hours expended multiplied by the contractual fixed rate per hour plus incurred costs for material (time-and-material contracts). Sales and profits on fixed-price production contracts under which units are produced and delivered in a continuous or sequential process are recorded as units are delivered based on their contractual selling prices (the “units-of-delivery” method). Sales and profits on each fixed-price production contract under which units are not produced and delivered in a continuous or sequential process, or under which a relatively few number of units are produced, are recorded based on the ratio of actual cumulative costs incurred to total estimated costs at

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Continued)

completion of the contract multiplied by the total estimated contract revenue, less cumulative sales recognized in prior periods (the “cost-to-cost” method). Under both POC methods of accounting, a single estimated total profit margin is used to recognize profit for each contract over its entire period of performance, which can exceed one year.

Accounting for the sales and profit on these fixed-price type contracts requires the preparation of estimates of (1) the total contract revenue, (2) the total costs at completion, which is equal to the sum of the actual incurred costs to date on the contract and the estimated costs to complete the contract’s statement of work, and (3) the measurement of progress towards completion. The estimated profit or loss at completion on a contract is equal to the difference between the total estimated contract revenue and the total estimated cost at completion. The profit recorded on a contract in any period using either the units-of-delivery method or cost-to-cost method is equal to the current estimated total profit margin multiplied by the cumulative sales recognized, less the amount of cumulative profit previously recorded for the contract.

Sales and profits on cost-plus type contracts that are covered by contract accounting standards are recognized as allowable costs are incurred on the contract, at an amount equal to the allowable costs plus the estimated profit on those costs. The estimated profit on a cost-plus type contract is fixed or variable based on the contractual fee arrangement. Incentive and award fees are the primary variable fee contractual arrangement types for the Company. Incentive and award fees on cost-plus type contracts are included as an element of total estimated contract revenues and are recorded to sales when a basis exists for the reasonable prediction of performance in relation to established contractual targets and the Company is able to make reasonably dependable estimates for them.

Sales and profits on time-and-material type contracts are recognized on the basis of direct labor hours expended multiplied by the contractual fixed rate per hour, plus the actual costs of materials and other direct non-labor costs.

Revisions or adjustments to estimates for a contract’s revenue, estimated costs at completion and estimated profit or loss are often required as work progresses under a contract, as experience is gained, as facts and circumstances change and as new information is obtained, even though the scope of work required under the contract may not change. Revisions or adjustments may also be required if contract modifications occur. The impact of revisions in profit (loss) estimates for all types of contracts subject to POC accounting are recognized on a cumulative catch-up basis in the period in which the revisions are made. The revisions in contract estimates, if significant, can materially affect the Company’s results of operations and cash flows, as well as reduce the valuations of receivables and inventories, and in some cases result in liabilities to complete contracts in a loss position. Aggregate net changes in contract estimates increased consolidated operating income by $10 million, or 3%, for the quarterly period ended March 29, 2013 and $19 million, or 6%, for the quarterly period ended March 30, 2012.

For a more complete discussion of these estimates and assumptions, see the Annual Report of L-3 Holdings and L-3 Communications on Form 10-K for the fiscal year ended December 31, 2012.

3. New Accounting Standards

Effective January 1, 2013, the Company adopted a new accounting standard issued by the Financial Accounting Standards Board (FASB), which adds new disclosure requirements for items reclassified out of accumulated other comprehensive income (loss) (AOCI). This standard requires entities to disclose additional information about reclassification adjustments, including: (1) changes in AOCI balances by component and (2) significant items reclassified out of AOCI. The adoption of this standard resulted in additional disclosures of items reclassified out of AOCI and did not impact the Company’s financial position, results of operations or cash flows. See Note 11 for these additional disclosures.

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Continued)

4. Dispositions and Acquisitions

2012 Spin-off of Engility

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

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


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

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

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

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

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

2012 Business Acquisitions

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

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

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

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Continued)

the preliminary and final purchase price allocations for the L-3 KEO and Link U.K. acquisitions will have a material impact on its results of operations or financial position.

Unaudited Pro Forma Statement of Operations Data

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


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

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

5. Contracts in Process

The components of contracts in process are presented in the table below.


	March 29, 2013			December 31, 2012
	(in millions)
Unbilled contract receivables, gross	$	2,863		$	2,874
Unliquidated progress payments		(1,162	)		(1,265	)

Unbilled contract receivables, net		1,701			1,609

Inventoried contract costs, gross		1,110			1,111
Unliquidated progress payments		(63	)		(68	)

Inventoried contract costs, net		1,047			1,043

Total contracts in process	$	2,748		$	2,652

Inventoried Contract Costs. In accordance with contract accounting standards, the Company’s U.S. Government contractor businesses account for the portion of their general and administrative (G&A), independent research and development (IRAD) and bids and proposal (B&P) costs that are allowable and reimbursable indirect contract costs under U.S. Government procurement regulations on their U.S. Government contracts (revenue arrangements) as inventoried contract costs. G&A, IRAD and B&P costs are allocated to contracts for which the U.S. Government is the end customer and are charged to costs of sales when sales on the related contracts are recognized. The Company’s U.S. Government contractor businesses record the unallowable portion of their G&A, IRAD and B&P costs to expense as incurred, and do not include them in inventoried contract costs.

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Continued)

The table below presents a summary of G&A, IRAD and B&P costs included in inventoried contract costs and the changes to them, including amounts charged to cost of sales by the Company’s U.S. Government contractor businesses for the periods presented.


	First Quarter Ended
	March 29, 2013			March 30, 2012
	(in millions)
Amounts included in inventoried contract costs at beginning of the period	$	110		$	91
Add: IRAD and B&P costs		73			82
Other G&A costs		205			213

Total contract costs incurred		278			295

Less: Amounts charged to cost of sales		(275	)		(286	)

Amounts included in inventoried contract costs at end of the period	$	113		$	100

The table below presents a summary of selling, general and administrative expenses and research and development expenses for the Company’s commercial businesses, which are expensed as incurred and not included in inventoried contract costs.


	First Quarter Ended
	March 29, 2013		March 30, 2012
	(in millions)
Selling, general and administrative expenses	$	72	$	70
Research and development expenses		20		21

Total	$	92	$	91

6. Inventories

Inventories at Lower of Cost or Market. The table below presents the components of inventories at the lower of cost (first-in, first-out or average cost) or realizable value.


	March 29, 2013		December 31, 2012
	(in millions)
Raw materials, components and sub-assemblies	$	155	$	168
Work in process		124		124
Finished goods		68		71

Total	$	347	$	363

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Continued)

7. Goodwill and Identifiable Intangible Assets

Goodwill. In accordance with the accounting standards for business combinations, the Company records the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition (commonly referred to as the purchase price allocation). The table below presents the changes in goodwill by segment for the quarter period ended March 29, 2013.


	C ³ ISR		Electronic Systems			P&LS			NSS			Consolidated Total
	(in millions)
Balance at December 31, 2012	$	797	$	4,804		$	1,175		$	968		$	7,744
Foreign currency translation adjustments ⁽¹⁾		—		(18	)		(5	)		(1	)		(24	)

Balance at March 29, 2013	$	797	$	4,786		$	1,170		$	967		$	7,720

⁽¹⁾	The decreases in goodwill presented in the Electronic Systems, P&LS and NSS segments were primarily due to the strengthening of the U.S. dollar against the Euro, Canadian dollar and British pound during the quarter ended March 29, 2013.

Identifiable Intangible Assets. Information on the Company’s identifiable intangible assets that are subject to amortization is presented in the table below.


	March 29, 2013								December 31, 2012
	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		19	$	459	$	232	$	227	$	460	$	225	$	235
Technology		11		164		100		64		164		98		66
Other		17		27		14		13		27		14		13

Total		17	$	650	$	346	$	304	$	651	$	337	$	314

Amortization expense recorded by the Company for its identifiable intangible assets is presented in the table below.


	First Quarter Ended
	March 29, 2013		March 30, 2012
Amortization Expense	$	9	$	11

Based on gross carrying amounts at March 29, 2013, the Company’s estimate of amortization expense for identifiable intangible assets for the years ending December 31, 2013 through 2017 are presented in the table below.


	Year Ending December 31,
	2013		2014		2015		2016		2017
	(in millions)
Estimated amortization expense	$	38	$	42	$	37	$	31	$	29

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Continued)

8. Other Current Liabilities and Other Liabilities

The table below presents the components of other current liabilities.


	March 29, 2013		December 31, 2012
	(in millions)
Other Current Liabilities:
Accruals for pending and threatened litigation (see Note 17)	$	10	$	7
Accrued product warranty costs		73		75
Estimated costs in excess of estimated contract value to complete contracts in process in a loss position		86		92
Accrued interest		47		53
Deferred revenues		39		37
Estimated contingent purchase price payable for acquired businesses		4		4
Other		139		130

Total other current liabilities	$	398	$	398

The table below presents the components of other liabilities.


	March 29, 2013		December 31, 2012
	(in millions)
Other Liabilities:
Non-current income taxes payable (see Note 10)	$	140	$	137
Deferred compensation		46		43
Accrued workers’ compensation		55		57
Estimated contingent purchase price payable for acquired businesses		5		5
Notes payable and capital lease obligations		22		24
Accrued product warranty costs		18		18
Other		72		89

Total other liabilities	$	358	$	373

The table below presents the changes in the Company’s accrued product warranty costs.


	First Quarter Ended
	March 29, 2013			March 30, 2012
	(in millions)
Accrued product warranty costs: ⁽¹⁾
Balance at January 1	$	93		$	94
Acquisitions during the period		—			2
Accruals for product warranties issued during the period		19			16
Settlements made during the period		(20	)		(17	)
Foreign currency translation adjustments		(1	)		1

Balance at end of period	$	91		$	96

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Continued)

⁽¹⁾

Warranty obligations incurred in connection with long-term production contracts that are accounted for under the POC cost-to-cost method are included within the contract estimates at completion and are excluded from the above amounts. The balances above include both the current and non-current amounts.

9. Debt

The components of debt and a reconciliation to the carrying amount of long-term debt is presented in the table below.


	March 29, 2013			December 31, 2012
	(in millions)
L-3 Communications:
Borrowings under Amended and Restated Revolving Credit Facility ⁽¹⁾	$	—		$	—
3.95% Senior Notes due 2016		500			500
5.20% Senior Notes due 2019		1,000			1,000
4.75% Senior Notes due 2020		800			800
4.95% Senior Notes due 2021		650			650

Subtotal		2,950			2,950

L-3 Holdings:
3% Convertible Contingent Debt Securities due 2035 ⁽²⁾		689			689

Principal amount of long-term debt		3,639			3,639
Less: Unamortized discounts		(10	)		(10	)

Carrying amount of long-term debt	$	3,629		$	3,629

⁽¹⁾	At March 29, 2013, L-3 Communications had the availability of substantially all of its $1 billion Amended and Restated Revolving Credit Facility, which expires on February 3, 2017.

⁽²⁾

Under select conditions, including if L-3 Holdings’ common stock price is more than 120% (currently $109.45) of the then current conversion price (currently $91.21) for a specified period, the conversion feature of the CODES will require L-3 Holdings, upon conversion, to pay the holders of the CODES the principal amount in cash, and if the settlement amount exceeds the principal amount, the excess will be settled in cash or stock or a combination thereof, at the Company’s option. At the current conversion price of $91.21, the aggregate consideration to be delivered upon conversion would be determined based on 7.6 million shares of L-3 Holdings’ common stock. See Note 10 to the audited consolidated financial statements for the year ended December 31, 2012, included in the Company’s Annual Report on Form 10-K for additional information regarding the CODES, including conditions for conversion. L-3 Holdings’ closing stock price on May 3, 2013 was $83.42 per share. Interest expense recognized was $5 million for both quarterly periods ended March 29, 2013 and March 30, 2012. A portion of this interest expense was allocated to discontinued operations for the quarterly period ended March 30, 2012 as a result of the spin-off of Engility. The carrying amount of the equity component (conversion feature) of the CODES was $64 million at March 29, 2013 and December 31, 2012.

10. Income Taxes

The Company and its subsidiaries file income tax returns in the U.S. Federal jurisdiction and various state and foreign jurisdictions. As of March 29, 2013, the statutes of limitations for the Company’s U.S. Federal income tax returns for the years ended December 31, 2009 through 2011 were open. The U.S Internal Revenue Service (IRS) announced that it plans to commence an audit of the Company’s 2011 U.S. Federal tax return, the outcome of which cannot be predicted at this time.

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Continued)

The effective tax rate for the quarter ended March 29, 2013 decreased to 28.9% from 33.9% for the quarter ended March 30, 2012 due primarily to the retroactive reinstatement of the U.S. Federal research and experimentation tax credit (R&E Credit). The R&E Credit was retroactively reinstated from January 1, 2012 to December 31, 2013 as part of The American Taxpayer Relief Act of 2012, which was signed into law on January 2, 2013. Accounting standards for income taxes require that the impact for tax law changes be recognized in the period that the law is enacted. As a result, the Company recognized a $12 million tax benefit related to the R&E Credit during the first quarter ended March 29, 2013, of which $10 million was attributable to 2012.

As of March 29, 2013, the Company anticipates that unrecognized tax benefits will decrease by approximately $17 million over the next 12 months due to the potential resolution of unrecognized tax benefits involving several jurisdictions and tax periods. The actual amount of the decrease over the next 12 months could vary significantly depending on the ultimate timing and nature of any settlement.

Non-current income taxes payable include accrued potential interest of $11 million ($7 million after income taxes) at March 29, 2013 and $11 million ($6 million after income taxes) at December 31, 2012, and potential penalties of $6 million at March 29, 2013 and $7 million at December 31, 2012.

11. Amounts Reclassified Out of Accumulated Other Comprehensive (Loss) Income

Amounts reclassified out of AOCI are presented in the tables below:


	Foreign currency translation			Unrealized gains (losses) on hedging instruments			Unrecognized losses and prior service cost, net			Total accumulated other comprehensive (loss) income
	(in millions)
Balance at December 31, 2012	$	163		$	3		$	(720	)	$	(554	)
Other comprehensive loss before reclassifications		(34	)		(3	)		—			(37	)
Amounts reclassified from other comprehensive income, net of tax		—			—			13			13

Net current period other comprehensive (loss) income	$	(34	)	$	(3	)	$	13		$	(24	)

Balance at March 29, 2013	$	129		$	—		$	(707	)	$	(578	)


Details About Accumulated Other Comprehensive (Loss) Income Components	Amount Reclassified from Accumulated Other Comprehensive (Loss) Income			Affected Line Item in the Consolidated Statement of Operations
	(in millions)
Amortization of defined benefit pension items:
Prior service costs	$	—		(a)
Net loss		22		(a)
Actuarial losses		—		(a)

		22		Income from continuing operations before income taxes
		(9	)	Provision for income taxes

Total reclassification for the period	$	13		Income from continuing operations

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Continued)

^(a)	Amounts related to pension and postretirement benefit plans were reclassified from AOCI and recorded as a component of net periodic benefit cost (see Note 18 for additional information).

12. Equity

On April 26, 2011, L-3 Holdings’ Board of Directors approved a share repurchase program that authorizes L-3 Holdings to repurchase up to $1.5 billion of its common stock through April 30, 2013. On February 5, 2013, L-3 Holdings’ Board of Directors approved a new share repurchase program that authorizes L-3 Holdings to repurchase up to an additional $1.5 billion of its common stock through June 30, 2015. Repurchases of L-3 Holdings’ common stock under both share repurchase programs are made at management’s discretion in accordance with applicable U.S. Federal securities laws in the open market or otherwise. The timing and actual number of shares to be repurchased in the future will depend on a variety of factors, including the Company’s financial position, earnings, legal requirements, other investment opportunities (including acquisitions), market conditions and other factors. All share repurchases of L-3 Holdings’ common stock have been recorded as treasury shares. L-3 Holdings repurchased 1.6 million shares of its common stock at an average price of $77.30 per share for an aggregate amount of $122 million from January 1, 2013 through March 29, 2013.

At March 29, 2013, the remaining dollar value of authorization under the April 26, 2011 share repurchase program was $140 million. From March 30, 2013 through April 30, 2013 (including all share repurchases that settled through May 3, 2013), L-3 Holdings repurchased 569,807 shares of its common stock at an average price of $81.50 per share for an aggregate amount of $46 million under the April 26, 2011 share repurchase program, which expired on April 30, 2013. At March 29, 2013, the Company had the full authorization of the $1.5 billion February 5, 2013 share repurchase program available.

On February 5, 2013, L-3 Holdings’ Board of Directors declared a cash dividend of $0.55 per share, which resulted in the Company paying total cash dividends of $50 million on March 15, 2013. In addition, during the quarter ended March 29, 2013, the Company paid $2 million of previously accrued dividends for employee held stock-awards. Also, on April 30, 2013, L-3 Holdings’ Board of Directors declared a quarterly cash dividend of $0.55 per share, payable on June 17, 2013, to shareholders of record at the close of business on May 17, 2013.

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Continued)

13. L-3 Holdings’ Earnings Per Common Share

A reconciliation of basic and diluted earnings per share (EPS) is presented in the table below.


	First Quarter Ended
	March 29, 2013			March 30, 2012
	(in millions, except per share data)
Reconciliation of net income:
Net income	$	194		$	203
Net income from continuing operations attributable to noncontrolling interests		(1	)		(1	)
Net income from discontinued operations attributable to noncontrolling interests		—			(1	)

Net income attributable to L-3 Holdings’ common shareholders	$	193		$	201

Earnings attributable to L-3 Holdings’ common shareholders:
Continuing operations	$	193		$	186
Discontinued operations, net of income tax		—			15

Net income attributable to L-3 Holdings’ common shareholders	$	193		$	201

Earnings per share attributable to L-3 Holdings’ common shareholders:
Basic:
Weighted average common shares outstanding		90.3			99.0

Basic earnings per share attributable to L-3 Holdings’ common shareholders:
Continuing operations	$	2.14		$	1.88
Discontinued operations, net of income tax		—			0.15

Basic earnings per share	$	2.14		$	2.03

Diluted:
Common and potential common shares:
Weighted average common shares outstanding		90.3			99.0
Assumed exercise of stock options		3.4			1.2
Unvested restricted stock awards		1.7			2.0
Employee stock purchase plan contributions		0.2			0.3
Performance unit awards		0.1			0.1
Assumed purchase of common shares for treasury		(4.2	)		(2.4	)
Assumed conversion of the CODES ⁽¹⁾		—			—

Common and potential common shares		91.5			100.2

Diluted earnings per share attributable to L-3 Holdings’ common shareholders:
Continuing operations	$	2.11		$	1.86
Discontinued operations, net of income tax		—			0.15

Diluted earnings per share	$	2.11		$	2.01

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Continued)

⁽¹⁾

L-3 Holdings’ CODES had no impact on diluted EPS for the quarterly periods ended March 29, 2013 or March 30, 2012 as the average market price of L-3 Holdings’ common stock during these periods was less than the price at which the CODES would have been convertible into L-3 Holdings’ common stock. As of March 29, 2013, the conversion price was $91.21.

The computation of diluted EPS excluded 1.8 million and 3.7 million of stock options for the quarterly periods ended March 29, 2013 and March 30, 2012, respectively, as they were anti-dilutive.

14. Fair Value Measurements

The following table presents the fair value hierarchy level for each of the Company’s assets and liabilities that are measured and recorded at fair value on a recurring basis.


	March 29, 2013						December 31, 2012
Description	Level 1 ⁽¹⁾		Level 2 ⁽²⁾		Level 3 ⁽³⁾		Level 1 ⁽¹⁾		Level 2 ⁽²⁾		Level 3 ⁽³⁾
	(in millions)
Assets
Cash equivalents	$	84	$	—	$	—	$	284	$	—	$	—
Derivatives (foreign currency forward contracts)		—		7		—		—		8		—

Total Assets	$	84	$	7	$	—	$	284	$	8	$	—

Liabilities
Derivatives (foreign currency forward contracts)	$	—	$	5	$	—	$	—	$	3	$	—

⁽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. The Company has no Level 3 assets or liabilities.

15. Financial Instruments

At March 29, 2013 and December 31, 2012, the Company’s financial instruments consisted primarily of cash and cash equivalents, billed receivables, trade accounts payable, Senior Notes, CODES and foreign currency forward contracts. The carrying amounts of cash and cash equivalents, billed receivables and trade accounts payable are representative of their respective fair values because of their short-term maturities or the expected settlement dates of these instruments. The carrying amounts and estimated fair values of the Company’s financial instruments are presented in the table below.


	March 29, 2013				December 31, 2012
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
	(in millions)
Senior Notes ⁽¹⁾	$	2,940	$	3,285	$	2,940	$	3,301
CODES ⁽¹⁾		689		698		689		697
Foreign currency forward contracts ⁽²⁾		2		2		5		5

⁽¹⁾	The Company measures the fair value of its Senior Notes and CODES using Level 2 inputs based primarily on current market yields for its existing debt traded in the secondary market.

⁽²⁾	See Note 16 for additional disclosures regarding the notional amounts and fair values of foreign currency forward contracts.

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Continued)

16. Derivative Financial Instruments

The Company’s derivative financial instruments include foreign currency forward contracts, which are entered into for risk management purposes, and an embedded derivative representing the contingent interest payment provision related to the CODES.

Foreign Currency Forward Contracts. The Company’s U.S. and foreign businesses enter into contracts with customers, subcontractors or vendors that are denominated in currencies other than their functional currencies. To protect the functional currency equivalent cash flows associated with certain of these contracts, the Company enters into foreign currency forward contracts. The Company’s activities involving foreign currency forward contracts are designed to hedge the changes in the functional currency equivalent cash flows due to movements in foreign exchange rates compared to the functional currency. The foreign currencies hedged are primarily the Canadian dollar, the U.S. dollar, the Euro, and the British pound. The Company manages exposure to counterparty non-performance credit risk by entering into foreign currency forward contracts only with major financial institutions that are expected to fully perform under the terms of such contracts. Foreign currency forward contracts are recorded in the Company’s condensed consolidated balance sheets at fair value and are generally designated and accounted for as cash flow hedges in accordance with the accounting standards for derivative instruments and hedging activities. Gains and losses on designated foreign currency forward contracts that are highly effective in offsetting the corresponding change in the cash flows of the hedged transactions are recorded net of income taxes in AOCI and then recognized in income when the underlying hedged transaction affects income. Gains and losses on foreign currency forward contracts that do not meet hedge accounting criteria are recognized in income immediately.

Notional amounts are used to measure the volume of foreign currency forward contracts and do not represent exposure to foreign currency losses. The table below presents the notional amounts of the Company’s outstanding foreign currency forward contracts by currency at March 29, 2013:


Currency	Notional Amount
	(in millions)
Canadian dollar	$	129
U.S. dollar		127
Euro		71
British pound		21

Total	$	348

At March 29, 2013, the Company’s foreign currency forward contracts had maturities through 2018.

Embedded Derivative . The embedded derivative related to the issuance of the CODES is recorded at fair value, which was zero at March 29, 2013 and December 31, 2012.

The table below presents the location of the Company’s derivative instruments recorded at fair value on the condensed consolidated balance sheets.


	March 29, 2013								December 31, 2012
	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⁾	$	4	$	3	$	4	$	1	$	4	$	4	$	2	$	1
Derivatives not designated as hedging instruments:
Foreign currency forward contracts ⁽¹⁾		—		—		—		—		—		—		—		—
Embedded derivative related to the CODES		—		—		—		—		—		—		—		—

Total derivative instruments	$	4	$	3	$	4	$	1	$	4	$	4	$	2	$	1

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Continued)

⁽¹⁾	See Note 14 for a description of the fair value hierarchy related to the Company’s foreign currency forward contracts.

The effect of gains or losses from foreign currency forward contracts was not material to the unaudited condensed consolidated statements of operations for the quarterly periods ended March 29, 2013 and March 30, 2012. At March 29, 2013, the estimated amount of existing gains that are expected to be reclassified into income within the next 12 months is $1 million.

17. Commitments and Contingencies

Guarantees

In connection with the spin-off of Engility, L-3 entered into a Distribution Agreement and several other agreements that govern certain aspects of L-3’s relationship with Engility, including employee matters, tax matters, transition services, and the future supplier/customer relationship between L-3 and Engility. These agreements generally provide cross-indemnities that, except as otherwise provided, are principally designed to place the financial responsibility for the obligations and liabilities of each entity with that respective entity. Engility has joint and several liability with L-3 to the U.S. Internal Revenue Service (IRS) for the consolidated U.S. Federal income taxes of L-3’s consolidated group for taxable periods in which Engility was a part of that group. However, the Tax Matters Agreement specifies the portion of this tax liability for which L-3 and Engility will each bear responsibility, and L-3 and Engility have agreed to indemnify each other against any amounts for which the other is not responsible. The Tax Matters Agreement also allocates responsibility between L-3 and Engility for other taxes, including special rules for allocating tax liabilities in the event that the spin-off is determined not to be tax-free. Though valid as between the parties, the Tax Matters Agreement is not binding on the IRS.

Procurement Regulations

A substantial majority of the Company’s revenues are generated from providing products and services under legally binding agreements or contracts with U.S. Government and foreign government customers. U.S. Government contracts are subject to extensive legal and regulatory requirements, and from time to time, agencies of the U.S. Government investigate whether such contracts were and are being conducted in accordance with these requirements. The Company is currently cooperating with the U.S. Government on several investigations from which civil, criminal or administrative proceedings have or could result and give rise to fines, penalties, compensatory and treble damages, restitution and/or forfeitures. The Company does not currently anticipate that any of these investigations will have a material adverse effect, individually or in the aggregate, on its consolidated financial position, results of operations or cash flows. However, under U.S. Government regulations, an indictment of the Company by a federal grand jury, or an administrative finding against the Company as to its present responsibility to be a U.S. Government contractor or subcontractor, could result in the Company being suspended for a period of time from eligibility for awards of new government contracts or task orders or in a loss of export privileges. A conviction, or an administrative finding against the Company that satisfies the requisite level of seriousness, could result in debarment from contracting with the federal government for a specified term. In addition, all of the Company’s U.S. Government contracts: (1) are subject to audit and various pricing and cost controls, (2) include standard provisions for termination for the convenience of the U.S. Government or for default, and (3) are subject to cancellation if funds for contracts become unavailable. Foreign government contracts generally include comparable provisions relating to terminations for convenience and default, as well as other procurement clauses relevant to the foreign government.

Litigation Matters

The Company is also subject to litigation, proceedings, claims or assessments and various contingent liabilities incidental to its businesses, including those specified below. Furthermore, in connection with certain business

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Continued)

acquisitions, the Company has assumed some or all claims against, and liabilities of, such acquired businesses, including both asserted and unasserted claims and liabilities.

In accordance with the accounting standard for contingencies, the Company records a liability when management believes that it is both probable that a liability has been incurred and the Company can reasonably estimate the amount of the loss. Generally, the loss is recorded at the amount the Company expects to resolve the liability. The estimated amounts of liabilities recorded for pending and threatened litigation are disclosed in Note 8. Amounts recoverable from insurance contracts or third parties are recorded as assets when deemed probable. At March 29, 2013, the Company did not record any amounts for recoveries from insurance contracts or third parties in connection with the amount of liabilities recorded for pending and threatened litigation. Legal defense costs are expensed as incurred. The Company believes it has recorded adequate provisions for its litigation matters. The Company reviews these provisions quarterly and adjusts these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular matter. While it is reasonably possible that an unfavorable outcome may occur in one or more of the following matters, unless otherwise stated below, the Company believes that it is not probable that a loss has been incurred in any of these matters. With respect to the litigation matters below for which it is reasonably possible that an unfavorable outcome may occur, an estimate of loss or range of loss is disclosed when such amount or amounts can be reasonably estimated. Although the Company believes that it has valid defenses with respect to legal matters and investigations pending against it, the results of litigation can be difficult to predict, particularly those involving jury trials. Accordingly, our current judgment as to the likelihood of our loss (or our current estimate as to the potential range of loss, if applicable) with respect to any particular litigation matter may turn out to be wrong. Therefore, it is possible that the financial position, results of operations or cash flows of the Company could be materially adversely affected in any particular period by the unfavorable resolution of one or more of these or other contingencies.

Kalitta Air. On January 31, 1997, a predecessor of Kalitta Air filed a lawsuit in the U.S. District Court for the Northern District of California (the trial court) asserting, among other things, negligence and negligent misrepresentation against Central Texas Airborne Systems, Inc. (CTAS), a predecessor to L-3 Integrated Systems (L-3 IS), in connection with work performed by a predecessor to CTAS to convert two Boeing 747 aircraft from passenger configuration to cargo freighters. CTAS’ insurance carrier has accepted defense of this matter and has retained counsel, subject to a reservation of rights by the insurer to dispute its obligations under the applicable insurance policies in the event a judgment is ultimately rendered against CTAS. The work at issue in the lawsuit was performed using Supplemental Type Certificates (STCs) issued in 1988 by the Federal Aviation Administration (FAA). In 1996, following completion of the work, the FAA issued an airworthiness directive with respect to the STCs that effectively grounded the aircraft. On August 11, 2000, the trial court granted CTAS’ motion for summary judgment as to negligence, dismissing that claim. In January 2001, after a ruling by the trial court that excluded certain evidence from trial, a jury rendered a unanimous defense verdict in favor of CTAS on the negligent misrepresentation claim. On December 10, 2002, the U.S. Court of Appeals for the Ninth Circuit (the Court of Appeals) reversed the trial court’s decisions as to summary judgment and the exclusion of evidence, and remanded the case for a new trial on both the negligence and negligent misrepresentation claims. The retrial ended on March 2, 2005 with a deadlocked jury and mistrial. On July 22, 2005, the trial court granted CTAS’ motion for judgment as a matter of law as to negligence, dismissing that claim, and denied CTAS’ motion for judgment as a matter of law as to negligent misrepresentation. On October 8, 2008, the Court of Appeals reversed the trial court’s dismissal of the negligence claim and affirmed the trial court’s ruling as to the negligent misrepresentation claim. As a result, the case was remanded to the trial court to reconsider the negligence claim and for further proceedings on the negligent misrepresentation claim. The trial court held a new hearing on CTAS’ motion to dismiss the negligence claim on April 30, 2009, after which it determined to take the matter under advisement. A third jury trial for this matter began on October 31, 2011, during which Kalitta Air sought damages of approximately $235 million plus an unspecified amount of pre-judgment interest that, in other contexts, has been claimed by Kalitta Air to exceed $240 million. Following the completion of the third

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Continued)

trial on November 30, 2011, the jury rendered a verdict in favor of CTAS, finding no negligence on the part of CTAS. The trial court entered a judgment upon the verdict on March 20, 2012. Kalitta Air filed an appeal of the judgment with the Court of Appeals on July 23, 2012.

Bashkirian Airways. On July 1, 2004, lawsuits were filed on behalf of the estates of 31 Russian children in the state courts of Washington, Arizona, California, Florida, New York and New Jersey against Honeywell, Honeywell TCAS, Thales USA, Thales France, the Company and Aviation Communications & Surveillance Systems (ACSS), which is a joint venture of L-3 and Thales. The suits relate to the crash over southern Germany of a Bashkirian Airways Tupelov TU 154M aircraft and a DHL Boeing 757 cargo aircraft. On-board the Tupelov aircraft were 9 crew members and 60 passengers, including 45 children. The Boeing aircraft carried a crew of two. Both aircraft were equipped with Honeywell/ACSS Model 2000, Change 7 Traffic Collision and Avoidance Systems (TCAS). Sensing the other aircraft, the on-board DHL TCAS instructed the DHL pilot to descend, and the Tupelov on-board TCAS instructed the Tupelov pilot to climb. However, the Swiss air traffic controller ordered the Tupelov pilot to descend. The Tupelov pilot disregarded the on-board TCAS and put the Tupelov aircraft into a descent striking the DHL aircraft in midair at approximately 35,000 feet. All crew and passengers of both planes were lost. Investigations by the National Transportation Safety Board after the crash revealed that both TCAS units were performing as designed. The suits allege negligence and strict product liability based upon the design of the units and the training provided to resolve conflicting commands and seek approximately $315 million in damages, including $150 million in punitive damages. The Company’s insurers have accepted defense of this matter and have retained counsel. The matters were consolidated in the U.S. District Court for the District of New Jersey, which then dismissed the actions on the basis of forum non conveniens. Plaintiffs representing 30 of the estates re-filed their complaint against ACSS on April 23, 2007 with the Barcelona Court’s Registry in Spain. On March 9, 2010, the court ruled in favor of the plaintiffs and entered judgment against ACSS in the amount of approximately $6.7 million, all of which represented compensatory damages. Both ACSS and the plaintiffs appealed the judgment. In May 2012, the appellate court ruled in favor of the plaintiffs and entered judgment against ACSS in the amount of $48 million. ACSS filed an appeal of the judgment with the Supreme Court of Spain on September 28, 2012. The Company believes that the ruling and the damages awarded are inconsistent with the law and evidence presented, and accordingly, that it is not probable that the Company has incurred a loss with respect to this matter. As of the date of this filing, 11 out of the 30 plaintiffs have released their claims against ACSS in consideration for payments made by the Company’s insurance carriers.

18. Pension and Other Postretirement Benefits

The following table summarizes the components of net periodic benefit cost for the Company’s pension and postretirement benefit plans.


	Pension Plans						Postretirement Benefit Plans
	First Quarter Ended						First Quarter Ended
	March 29, 2013			March 30, 2012			March 29, 2013			March 30, 2012
	(in millions)
Components of net periodic benefit cost:
Service cost	$	32		$	30		$	1		$	1
Interest cost		33			33			2			3
Expected return on plan assets		(42	)		(35	)		(1	)		(1	)
Amortization of prior service credits		—			—			1			—
Amortization of net loss (gain)		22			17			(1	)		—
Curtailment loss		—			1			—			—

Net periodic benefit cost	$	45		$	46		$	2		$	3

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Continued)

Contributions. For the year ending December 31, 2013, the Company currently expects to contribute cash of approximately $165 million to its pension plans, which includes $95 million of voluntary contributions, and approximately $11 million to its postretirement benefit plans. The Company contributed cash of $18 million to its pension plans and $2 million to its postretirement benefit plans during the quarterly period ended March 29, 2013.

19. Employee Stock-Based Compensation

On February 20, 2013, the Company granted stock-based compensation under the Amended and Restated 2008 Long Term Performance Plan (2008 LTPP) in the form of stock options, restricted stock units and performance units.

Stock Options. The Company granted 741,692 stock options with an exercise price equal to the closing price of L-3 Holdings’ common stock on the date of grant. The options expire after 10 years from the date of grant and vest ratably over a three-year period on the annual anniversary of the date of grant. The options granted to our Chairman, President and Chief Executive Officer are also subject to performance-based vesting conditions. The weighted average grant date fair value for the options awarded on February 20, 2013, was $12.09 per option and was estimated using the Black-Scholes option-pricing model. The weighted average assumptions used in the valuation model for this grant are presented in the table below.


Expected holding period (in years)	5.6
Expected volatility	26.4	%
Expected dividend yield	3.6	%
Risk-free interest rate	1.0	%

Restricted Stock Units. The Company granted 588,968 restricted stock units with a weighted average grant date fair value of $77.00 per share. Restricted stock units automatically convert into shares of L-3 Holdings’ common stock upon vesting, and are subject to forfeiture until certain restrictions have lapsed, including a three year cliff vesting period for employees and a one year cliff vesting period for non-employee directors, in each case starting on the date of grant.

Performance Units. The Company granted 61,690 performance units with a weighted average grant date fair value per unit of $77.00. The final payout for these units is based on the achievement of pre-determined EPS goals established by the compensation committee of the Company’s Board of Directors for the three-year period ending December 31, 2015. The payout can range from zero to 200% of the original number of units awarded, which are converted into shares of L-3 Holdings’ common stock based on the then existing closing price at the end of the performance period.

20. Supplemental Cash Flow Information


	First Quarter Ended
	March 29, 2013		March 30, 2012
	(in millions)
Interest paid on outstanding debt	$	48	$	48
Income tax payments		19		35
Income tax refunds		10		11

21. Segment Information

The Company has four reportable segments, which are described in Note 1. The Company evaluates the performance of its operating segments and reportable segments based on their sales and operating income. All corporate expenses are allocated to the Company’s operating segments using an allocation methodology prescribed by U.S. Government regulations for government contractors. Accordingly, all costs and expenses are

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Continued)

included in the Company’s measure of segment profitability. Certain corporate expenses of $5 million for the first quarter ended March 30, 2012, that had previously been allocated to the Engility businesses were retained by the Company and have been allocated to L-3’s four reportable segments.

The tables below present net sales, operating income, depreciation and amortization and total assets by reportable segment.


	First Quarter Ended
	March 29, 2013			March 30, 2012
	(in millions)
Net sales:
C ³ ISR	$	892		$	889
Electronic Systems		1,388			1,354
P&LS		681			670
NSS		331			350
Elimination of intercompany sales		(107	)		(103	)

Consolidated total	$	3,185		$	3,160

Operating income:
C ³ ISR	$	91		$	93
Electronic Systems		144			151
P&LS		57			62
NSS		21			19

Consolidated total	$	313		$	325

Depreciation and amortization:
C ³ ISR	$	11		$	11
Electronic Systems		36			36
P&LS		4			5
NSS		3			3

Consolidated total	$	54		$	55


	March 29, 2013			December 31, 2012
	(in millions)
Total assets:
C ³ ISR	$	2,081		$	2,030
Electronic Systems		8,133			8,062
P&LS		2,102			1,997
NSS		1,284			1,228
Corporate		280			509

Consolidated total	$	13,880		$	13,826

22. Employee Severance and Termination Costs

Consistent with the Company’s strategy to continuously improve its cost structure and right-size its businesses, the Company has completed employment reduction actions across several of its businesses to reduce both direct

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Continued)

and indirect costs, including overhead and general and administrative costs. As a result of these initiatives, the Company recorded $5 million in employee severance and other termination costs for approximately 350 employees during the quarterly period ended March 29, 2013. During the year ended December 31, 2012, the Company recorded a total of $23 million in employee severance and other termination costs for approximately 1,600 employees. Employee severance and other termination costs are reported within cost of sales on the unaudited condensed consolidated statement of operations. The remaining balance to be paid for these initiatives was $7 million at March 29, 2013 and $9 million at December 31, 2012. Employee severance and other termination costs incurred by reportable segment for the quarterly periods ended March 29, 2013 and March 30, 2012 are presented in the table below.


	First Quarter Ended
	March 29, 2013		March 30, 2012
	(in millions)
Reportable Segment
Electronic Systems	$	4	$	4
P&LS		—		3
NSS		1		—

Consolidated	$	5	$	7

23. Condensed Combining Financial Information of L-3 Communications and Its Subsidiaries

L-3 Communications is a wholly-owned subsidiary of L-3 Holdings. The debt of L-3 Communications, including the Senior Notes and borrowings under amounts drawn against the Amended and Restated Revolving Credit Facility are guaranteed, on a joint and several, full and unconditional basis, by certain of its domestic subsidiaries (the “Guarantor Subsidiaries”) and, in the case of the Amended and Restated Revolving Credit Facility, by L-3 Holdings. The debt of L-3 Holdings, including the CODES, are guaranteed on a joint and several, full and unconditional basis, by L-3 Communications and the Guarantor Subsidiaries. See Note 10 to the audited consolidated financial statements for the year ended December 31, 2012, included in the Company’s Annual Report on Form 10-K. The foreign subsidiaries and certain domestic subsidiaries of L-3 Communications (the “Non-Guarantor Subsidiaries”) do not guarantee the debt of L-3 Communications or L-3 Holdings. None of the debt of L-3 Communications has been issued by its subsidiaries. There are no restrictions on the payment of dividends from the Guarantor Subsidiaries to L-3 Communications or from L-3 Communications to L-3 Holdings.

Prior to the spin-off of Engility on July 17, 2012, Engility Holdings, Inc., Engility Corporation, International Resources Group Ltd. and LinCom Wireless, Inc. were guarantor subsidiaries. As a result of the spin-off, these entities no longer guarantee the debt of L-3 Communications or L-3 Holdings. Therefore, the results of operations and cash flows of the Engility businesses have been reclassified from guarantor subsidiaries to L-3 Communications as discontinued operations in the following condensed combining financial information.

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

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Continued)

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


	L-3 Holdings (Parent)		L-3 Communications		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated L-3
	(in millions)
Condensed Combining Balance Sheets:
At March 29, 2013:
Current assets:
Cash and cash equivalents	$	—	$	66	$	—	$	223	$	(13	)	$	276
Billed receivables, net		—		383		508		217		—			1,108
Contracts in process		—		1,031		1,320		397		—			2,748
Other current assets		—		258		118		182		—			558

Total current assets		—		1,738		1,946		1,019		(13	)		4,690
Goodwill		—		2,246		4,333		1,141		—			7,720
Other assets		—		754		523		193		—			1,470
Investment in and amounts due from consolidated subsidiaries		6,202		7,107		3,463		—		(16,772	)		—

Total assets	$	6,202	$	11,845	$	10,265	$	2,353	$	(16,785	)	$	13,880

Current liabilities	$	—	$	916	$	1,019	$	645	$	(13	)	$	2,567
Amounts due to consolidated subsidiaries		—		—		—		268		(268	)		—
Other long-term liabilities		—		1,787		206		103		—			2,096
Long-term debt		689		3,629		—		—		(689	)		3,629

Total liabilities		689		6,332		1,225		1,016		(970	)		8,292

L-3 shareholders’ equity		5,513		5,513		9,040		1,337		(15,890	)		5,513
Noncontrolling interests		—		—		—		—		75			75

Total equity		5,513		5,513		9,040		1,337		(15,815	)		5,588

Total liabilities and equity	$	6,202	$	11,845	$	10,265	$	2,353	$	(16,785	)	$	13,880

At December 31, 2012:
Current assets:
Cash and cash equivalents	$	—	$	246	$	—	$	242	$	(139	)	$	349
Billed receivables, net		—		290		441		237		—			968
Contracts in process		—		945		1,351		356		—			2,652
Other current assets		—		248		163		191		—			602

Total current assets		—		1,729		1,955		1,026		(139	)		4,571
Goodwill		—		1,993		4,586		1,165		—			7,744
Other assets		—		734		565		212		—			1,511
Investment in and amounts due from consolidated subsidiaries		6,152		7,204		3,326		43		(16,725	)		—

Total assets	$	6,152	$	11,660	$	10,432	$	2,446	$	(16,864	)	$	13,826

Current liabilities	$	—	$	823	$	1,255	$	658	$	(139	)	$	2,597
Other long-term liabilities		—		1,745		210		106		—			2,061
Long-term debt		689		3,629		—		—		(689	)		3,629

Total liabilities		689		6,197		1,465		764		(828	)		8,287

L-3 shareholders’ equity		5,463		5,463		8,967		1,682		(16,112	)		5,463
Noncontrolling interests		—		—		—		—		76			76

Total equity		5,463		5,463		8,967		1,682		(16,036	)		5,539

Total liabilities and equity	$	6,152	$	11,660	$	10,432	$	2,446	$	(16,864	)	$	13,826

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Continued)


	L-3 Holdings (Parent)			L-3 Communications			Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated L-3
	(in millions)
Condensed Combining Statements of Operations:
For the quarter ended March 29, 2013:
Total net sales	$	—		$	938		$	1,735	$	591	$	(79	)	$	3,185
Total cost of sales		14			866			1,554		531		(93	)		2,872

Operating (loss) income		(14	)		72			181		60		14			313
Interest expense		(5	)		(43	)		—		—		5			(43	)
Interest and other income, net		—			2			—		1		—			3

(Loss) income before income taxes		(19	)		31			181		61		19			273
(Benefit) provision for income taxes		(5	)		9			52		18		5			79
Equity in net income of consolidated subsidiaries		207			171			—		—		(378	)		—

Net income		193			193			129		43		(364	)		194
Net income attributable to noncontrolling interests		—			—			—		—		1			1

Net income attributable to L-3	$	193		$	193		$	129	$	43	$	(365	)	$	193

Comprehensive income attributable to L-3	$	169		$	169		$	129	$	6	$	(304	)	$	169


For the quarter ended March 30, 2012:
Total net sales	$	—		$	904		$	1,770	$	566	$	(80	)	$	3,160
Total cost of sales		13			830			1,601		484		(93	)		2,835

Operating (loss) income		(13	)		74			169		82		13			325
Interest expense		(5	)		(45	)		—		—		5			(45	)
Interest and other income, net		—			3			—		—		—			3

(Loss) income from continuing operations before income taxes		(18	)		32			169		82		18			283
(Benefit) provision for income taxes		(6	)		11			57		28		6			96
Equity in net income of consolidated subsidiaries from continuing operations		213			164			—		—		(377	)		—

Income from continuing operations		201			185			112		54		(365	)		187
Income from discontinued operations, net of income tax		—			16			—		—		—			16

Net income		201			201			112		54		(365	)		203
Net income attributable to noncontrolling interests		—			—			—		—		2			2

Net income attributable to L-3	$	201		$	201		$	112	$	54	$	(367	)	$	201

Comprehensive income attributable to L-3	$	244		$	244		$	115	$	84	$	(443	)	$	244

L-3 COMMUNICATIONS HOLDINGS, INC.

AND L-3 COMMUNICATIONS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS (Continued)


	L-3 Holdings (Parent)			L-3 Communications			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated L-3
	(in millions)
Condensed Combining Statements of Cash Flows:

For the quarter ended March 29, 2013:
Operating activities:
Net cash from operating activities	$	174		$	92		$	73		$	24		$	(217	)	$	146

Investing activities:
Investments in L-3 Communications		(13	)		—			—			—			13			—
Other investing activities		—			(25	)		(25	)		(4	)		—			(54	)

Net cash used in investing activities		(13	)		(25	)		(25	)		(4	)		13			(54	)

Financing activities:
Common stock repurchased		(122	)		—			—			—			—			(122	)
Dividends paid on L-3 Holdings’ common stock		(52	)		—			—			—			—			(52	)
Dividends paid to L-3 Holdings		—			(174	)		—			—			174			—
Investments from L-3 Holdings		—			13			—			—			(13	)		—
Other financing activities		13			(86	)		(48	)		(32	)		169			16

Net cash used in financing activities		(161	)		(247	)		(48	)		(32	)		330			(158	)

Effect of foreign currency exchange rate changes on cash		—			—			—			(7	)		—			(7	)

Net (decrease) increase in cash		—			(180	)		—			(19	)		126			(73	)
Cash and cash equivalents, beginning of the period		—			246			—			242			(139	)		349

Cash and cash equivalents, end of the period	$	—		$	66		$	—		$	223		$	(13	)	$	276


For the quarter ended March 30, 2012:
Operating activities:
Net cash from operating activities from continuing operations	$	187		$	75		$	44		$	41		$	(227	)	$	120

Investing activities:
Business acquisitions, net of cash acquired		—			(205	)		—			—			—			(205	)
Investments in L-3 Communications		(13	)		—			—			—			13			—
Other investing activities		—			(16	)		(10	)		(3	)		—			(29	)

Net cash used in investing activities from continuing operations		(13	)		(221	)		(10	)		(3	)		13			(234	)

Financing activities:
Common stock repurchased		(138	)		—			—			—			—			(138	)
Dividends paid on L-3 Holdings’ common stock		(49	)		—			—			—			—			(49	)
Dividends paid to L-3 Holdings		—			(187	)		—			—			187			—
Investments from L-3 Holdings		—			13			—			—			(13	)		—
Other financing activities		13			(51	)		(27	)		(52	)		125			8

Net cash used in financing activities from continuing operations		(174	)		(225	)		(27	)		(52	)		299			(179	)

Effect of foreign currency exchange rate changes on cash		—			—			—			5			—			5
Net increase in cash and cash equivalents of discontinued operations		—			17			—			—			—			17

Net (decrease) increase in cash		—			(354	)		7			(9	)		85			(271	)
Cash and cash equivalents, beginning of the period		—			644			—			222			(102	)		764

Cash and cash equivalents, end of the period	$	—		$	290		$	7		$	213		$	(17	)	$	493

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Overview and Outlook

L-3’s Business

L-3 is a prime contractor in Intelligence, Surveillance and Reconnaissance (ISR) systems, Command, Control, Communications (C ³ ) systems, platform and logistics solutions for aircrafts, maritime vessels and ground vehicles, and national security solutions. L-3 is also a leading provider of a broad range of electronic systems used on military and commercial platforms. Our customers include the United States (U.S.) Department of Defense (DoD) and its prime contractors, U.S. Government intelligence agencies, the U.S. Department of Homeland Security (DHS), U.S. Department of State (DoS), allied international governments, and domestic and international commercial customers.

For the year ended December 31, 2012, we generated sales of $13.1 billion. Our primary customer was the DoD. The table below presents a summary of our 2012 sales by end customer and the percent contributed by each to our total 2012 sales. We currently expect sales to the DoD to decline to 68% of total 2013 sales as compared to 71% of total 2012 sales. The table below presents a summary of our 2012 sales by major category of end customer.


	2012 Sales		% of 2012 Sales
	(in millions)
DoD	$	9,376		71	%
Other U.S. Government		650		5

Total U.S. Government		10,026		76	%
Foreign governments		1,463		11
Commercial — foreign		985		8
Commercial — domestic		672		5

Total sales	$	13,146		100	%

We have the following four reportable segments: (1) C ³ ISR, (2) Electronic Systems, (3) Platform & Logistics Solutions (P&LS) (formerly Aircraft Modernization and Maintenance), and (4) National Security Solutions (NSS). Financial information with respect to each of the Company’s segments is included in Note 21 to our unaudited condensed consolidated financial statements. C ³ ISR provides products and services for the global ISR market, C ³ systems, networked communication systems and secure communications products. The Company believes that these products and services are critical elements for a substantial number of major command, control and communication, intelligence gathering and space systems. These products and services are used to connect a variety of airborne, space, ground and sea-based communication systems and are used in the transmission, processing, recording, monitoring, and dissemination functions of these communication systems. Electronic Systems provides a broad range of products and services, including components, products, subsystems and systems and related services to military and commercial customers in several niche markets across several business areas. These business areas include microwave, power & control systems, marine systems international, sensor systems, simulation & training, aviation products, precision engagement, warrior systems, security & detection, space & propulsion, undersea warfare and marine services. P&LS provides modernization, upgrades and sustainment, maintenance and logistics support solutions for military and various government aircraft and other platforms. The Company sells these services primarily to the DoD, the Canadian Department of National Defence (DND) and other allied international governments. NSS provides a full range of cyber security, intelligence, enterprise information technology (IT) and security solutions services to the DoD, U.S. Government intelligence agencies, federal civilian agencies and allied international governments.

Business Environment

U.S. Government Markets. Sales to U.S. Government customers represented 76% of our 2012 sales, and were primarily to DoD customers, which comprised 71% of our sales. Therefore, our annual sales are generally highly correlated to changes in U.S. Government spending levels, and especially DoD budget levels.

Recent DoD budgets are declining, compared to the DoD budget growth that occurred during the last decade. The total DoD budget (base and Overseas Contingency Operations (OCO)) for the fiscal year ended September 30, 2012 (FY 2012) was $646 billion representing a decline of 6% compared to FY 2011. On March 26, 2013, the Consolidated and Further Continuing Appropriations Act of 2013 (CFCA) was enacted, which extends funding for the operation of all Federal agencies through September 30, 2013, including a full year of appropriations for the DoD. The total DoD enacted budget for the fiscal year ended September 30, 2013 (FY 2013) is $606 billion and includes $518 billion for the base budget and $88 billion for OCO, representing a 6% decline compared to FY 2012. The DoD budget declines in FY 2012 and FY 2013 are primarily due to lower OCO budgets relating to the U.S. military drawdowns from Iraq and Afghanistan.

The Obama Administration (“Administration”) submitted its FY 2014 Proposed Budget Request (PBR) to Congress on April 10, 2013 that requested a base budget of $527 billion and a placeholder for OCO of $88 billion. The FY 2014 PBR retains the national security strategy that was revised in the FY 2013 plan (February 2012) along five core tenets to: (1) resize U.S. Armed Forces to be smaller and leaner, but agile, flexible, ready and technologically advanced, (2) rebalance DoD’s global posture and presence to emphasize the Asia-Pacific region and the Middle East, (3) build innovative partnerships and strengthen key alliances and partnerships in all regions, (4) ensure that the U.S. can quickly confront and defeat aggression from any adversary — anytime, anywhere, and (5) protect investments in key technology areas and new capabilities, as well as DoD’s capacity to grow, adapt, and mobilize as needed. The table below presents the FY 2011 through FY 2013 enacted DoD budgets and the Administration’s DoD budget requests for FY 2014 to FY 2018, as provided in the FY 2014 PBR.


Fiscal Year (Ending September 30)	Base		OCO		Total		Annual Total Budget Change
	(in billions)
2011	$	528	$	159	$	687		0	%
2012	$	531	$	115	$	646		-6	%
2013	$	518	$	88	$	606		-6	%
2014	$	527	$	88	$	615		+1	%
2015	$	541	$	37	$	578		-6	%
2016	$	551	$	37	$	588		+2	%
2017	$	560	$	37	$	597		+2	%
2018	$	569	$	37	$	606		+2	%

Additionally, on March 1, 2013, the sequestration cuts required by the Budget Control Act of 2011 (BCA), as amended by The American Taxpayer Relief Act (ATRA), became effective and will reduce the FY 2013 DoD base budget by approximately $41 billion and the FY 2014 PBR base budget by approximately $52 billion. The FY 2013 CFCA, FY 2014 PBR and proposed DoD budgets through FY 2018 (summarized in the table above) do not include the sequestration cuts. Including the sequestration cuts, the FY 2013 enacted base budget will be reduced to approximately $477 billion, a 10% decline compared to the FY 2012 base budget, and the FY 2014 base budget would be reduced to approximately $475 billion. As a result, it is difficult to predict the outcome of ongoing budget negotiations between the Administration and Congress, their timing, or the effect on the FY 2013, FY 2014 and future fiscal years DoD budgets.

While we believe that L-3 is well positioned to benefit from several of the DoD’s focus areas, declining DoD budgets will generally pressure and possibly reduce funding for some of our contracts, which can negatively impact our results of operations and cash flows. Significant uncertainty exists regarding how sequestration cuts will be implemented and what challenges this may present for the defense industry, including L-3, our customers and suppliers. Further, while members of Congress and the Administration continue to discuss various options to address sequestration and the U.S. Government’s overall fiscal challenges, we cannot predict the outcome of these efforts. Currently, there is insufficient information to determine the full impact of the DoD sequestration

cuts on our 2013 results of operations and cash flows, including their potential our goodwill balances. Depending

on how the sequestration cuts are implemented, we believe they could have a material, negative impact on our results of operations and cash flows in the current year and in the future and could potentially trigger goodwill impairment charges. (See the discussion regarding goodwill in “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” included in our Annual Report on Form 10-K for the year ended December 31, 2012.)

Commercial and International Markets . Sales to end customers other than the U.S. Government represented 24% of our 2012 sales. These sales are generally affected by global economic conditions for our commercial end markets and foreign government security and military priorities, as well as the fiscal situations of our foreign government end customers.

Key Performance Measures

The primary financial performance measures that we use to manage our businesses and monitor results of operations are sales and operating income trends. Management believes that these financial performance measures are the primary growth drivers for our earnings and cash flow per common share. Generally, in evaluating our businesses and contract performance, we focus on net sales, operating income and operating margin, and not by type or amount of operating costs.

One of our primary business objectives is to increase sales from organic growth and select business acquisitions. We define organic sales growth as the increase or decrease in sales for the current period compared to the prior period, excluding sales in the: (1) current period from business acquisitions that are included in our actual results of operations for less than twelve months, and (2) prior period from business divestitures that are included in our actual results of operations for the twelve-month period prior to the divestiture date. We expect to supplement, strengthen and enhance our existing businesses by selectively acquiring businesses that: (1) add important new technologies and products, (2) provide access to select customers, programs and contracts and (3) provide attractive returns on investment. Another important financial performance measure that we use is operating margin, which we define as operating income as a percentage of sales, because sales growth combined with operating margin levels determine our operating income levels.

Sales Trend. For the year ended December 31, 2012, consolidated net sales of $13,146 million declined by 0.1%, comprised of an organic sales decline of 1.6%, partially offset by net sales from business acquisitions of 1.5%. For the quarter ended March 29, 2013 (2013 First Quarter), consolidated net sales of $3,185 million increased by $25 million, or 0.8%, due to net sales from acquisitions of $48 million, or 1.5%, partially offset by a decline in organic sales of $23 million, or 0.7%, compared to the quarter ended March 30, 2012 (2012 First Quarter). See Results of Operations, including segment results below for a discussion of sales.

For the year ended December 31, 2012 our largest contract (revenue arrangement) in terms of annual sales was the Fort Rucker Maintenance Support contract with the U.S. Army Aviation and Missile Life Cycle Management Command (AMCOM), which is included in our P&LS segment. Under this contract, which generated approximately 4% of our 2012 sales, we provide maintenance, logistics and other related sustainment support services for rotary wing aircraft assigned to Fort Rucker and satellite units in Alabama. On July 24, 2012, we won the AMCOM contract re-competition, which includes a one-year base period through September 30, 2013, and four one-year options, with an estimated total contract value of $1.98 billion.

Our sales trends are highly correlated to DoD budget levels because we derived approximately 71% of our 2012 sales from the DoD. DoD budgets are a function of several factors and uncertainties beyond our control, including, but not limited to, changes in U.S. procurement policies, budget considerations, current and future economic conditions, presidential administration priorities, U.S. military engagements, changing national security and defense requirements, geo-political developments, actual fiscal year congressional appropriations for defense budgets, and the outcome of the BCA sequestration cuts and continuing budget negotiations. Any of these factors could result in a significant increase, decrease or redirection of DoD budgets and impact our future results of operations, including our sales and operating income growth rates. Additionally, our future results of operations will be affected by our ability to retain our existing business, including our revenue arrangements with

DoD customers, and to successfully compete for new business, which largely depends on: (1) our successful performance on existing contracts, (2) the effectiveness and innovation of our technologies and research and development activities, (3) our ability to offer better program performance than our competitors at an affordable cost, and (4) our ability to retain our employees and hire new ones, particularly those employees who have U.S. Government security clearances.

Operating Income Trend. Operating income for the 2013 First Quarter was $313 million, a decrease of 4% from $325 million for the 2012 First Quarter. Our operating income as a percentage of sales (operating margin) was 9.8% for the 2013 First Quarter, a decrease of 50 basis points from 10.3% for the 2012 First Quarter. See Results of Operations, including segment results below for a discussion of operating margin.

We remain focused on increasing operating margin, to the extent possible, by reducing our indirect costs and improving our overall contract performance. Our 2013 First Quarter operating margin was lower than our 2012 First Quarter operating margin and we expect our 2013 annual operating margin to decline as compared to 2012. While we are taking actions in an effort to maintain and increase operating margin, these efforts may not be successful. Furthermore, select business acquisitions and select new business, including contract renewals and new contracts, could have lower operating margins than L-3’s operating margins on existing business and contracts. Changes in the competitive environment and DoD procurement practices, reductions to the DoD budget, changes in our annual pension expense and our consolidated sales levels could also result in lower operating margin.

Business Acquisitions and Dispositions

Our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 summarizes the business acquisitions and dispositions that we completed during the three years ended December 31, 2012. On July 17, 2012, we completed the spin-off of our subsidiary, Engility Holdings, Inc. (Engility), to our shareholders. See Note 4 to our unaudited condensed consolidated financial statements contained in this quarterly report for the impact of the spin-off of Engility on our 2012 First Quarter financial results.

Results of Operations

The following information should be read in conjunction with our unaudited condensed consolidated financial statements contained in this quarterly report. The following information for the 2012 First Quarter has been adjusted to reflect the spin-off of Engility and related classification of assets, liabilities, non-controlling interests, results of operations and cash flows as discontinued operations. Also, our results of operations for the periods presented are affected by our business acquisitions. See Note 4 to our audited consolidated financial statements for the year ended December 31, 2012, included in our Annual Report on Form 10-K, for a discussion of our 2012 business acquisitions.

Consolidated Results of Operations

The table below provides selected financial data, excluding discontinued operations, for L-3 for the 2013 First Quarter compared with the 2012 First Quarter.


	First Quarter Ended
(in millions, except per share data)	March 29, 2013			March 30, 2012			Increase/ (decrease)
Net sales	$	3,185		$	3,160		$	25
Operating income	$	313		$	325		$	(12	)
Operating margin		9.8	%		10.3	%		(50	)	bpts
Interest expense	$	43		$	45		$	(2	)
Interest and other income, net	$	3		$	3		$	—
Effective income tax rate		28.9	%		33.9	%		(500	)	bpts
Net income from continuing operations attributable to L-3	$	193		$	186		$	7
Diluted earnings per share from continuing operations	$	2.11		$	1.86		$	0.25
Diluted weighted average common shares outstanding		91.5			100.2			(8.7	)

Net Sales: For the 2013 First Quarter, consolidated net sales of $3.2 billion increased $25 million, or 1%, compared to the 2012 First Quarter. Sales growth primarily in the Electronic Systems segment was partially offset by lower sales from the NSS segment. Acquired businesses, which are all included in the Electronic Systems segment, added $48 million to net sales in the 2013 First Quarter. Net sales to commercial and international government end customers increased 18% or $122 million, including $41 million from acquired businesses. These sales increased to $807 million, or 25% of 2013 First Quarter net sales, compared to $685 million, or 22% of 2012 First Quarter net sales.

Sales from products, which primarily include products from our C ³ ISR and Electronic Systems segments, increased by $67 million to $1,813 million, representing approximately 57% of consolidated net sales for the 2013 First Quarter, compared to $1,746 million, or approximately 55% of consolidated net sales for the 2012 First Quarter. Sales from products increased primarily due to sales from the Link U.K. acquisition and organic sales growth primarily for: (1) ISR Systems primarily due to small ISR aircraft sales, (2) Platform Systems due to increased volume for EC-130 aircraft for the U.S. Air Force (USAF), international head-of-state aircraft and the Australia C-27J, (3) Simulation & Training due to increased deliveries of U.S. Army rotary wing training systems for the Flight School XXI program, (4) Microwave Products due to increased deliveries of mobile and ground-based satellite communication systems and (5) Precision Engagement due to increased deliveries of ordnance products. These increases were partially offset by sales declines for: (1) Networked Communications due to declining U.S. Army demand for remote video terminals and lower volume for manned and unmanned platforms, (2) Sensor Systems due to lower volume for airborne EO/IR turrets for Persistent Threat Detection Systems (PTDS) due to the U.S. military troop drawdown in Afghanistan (partially offset by increased volume for force protection products to a foreign ministry of defense), (3) Space & Propulsion Systems primarily due to certain funding constraints for the Missile Defense Agency’s (MDA) air-launched target programs, and (4) Power & Control Systems due to lower demand for commercial shipbuilding products.

Sales from services, which include services performed by businesses primarily in our C ³ ISR, P&LS, and NSS segments decreased by $42 million to $1,372 million, representing approximately 43% of consolidated net sales for the 2013 First Quarter, compared to $1,414 million, or approximately 45% of consolidated net sales for the 2012 First Quarter. Sales from services decreased primarily due to: (1) a decline for logistics support services due to the competitive loss of a task order for U.S. Army contract field team support services, and (2) less demand and work share for information technology (IT) support services for the U.S. Special Operations Command (USSOCOM).

See the segment results below for additional discussion of our sales.

Operating income and operating margin: Operating income for the 2013 First Quarter of $313 million decreased $12 million, or 4%, as compared to the 2012 First Quarter. Operating margin decreased by 50 basis points to 9.8% for the 2013 First Quarter compared to 10.3% for the 2012 First Quarter. The decrease in operating margin is primarily due to sales mix changes. In addition, higher pension expense of $4 million ($3 million after income tax, or $0.03 per diluted share) reduced operating margin by 10 basis points.

See the segment results below for additional discussion of our operating margin.

Interest expense: Interest expense declined by $2 million, as lower outstanding debt reduced interest expense by $8 million, which was partially offset by $6 million of interest expense that was allocated to discontinued operations in the 2012 First Quarter.

Effective income tax rate: The effective tax rate for the 2013 First Quarter decreased to 28.9% from 33.9% for the same period last year. The decrease is due to a $12 million tax benefit for the retroactive reinstatement in January 2013 of the U.S. Federal research and experimentation tax credit for all of 2012 and 2013, of which $10 million ($0.11 per diluted share) relates to the 2012 benefit.

Net income from continuing operations attributable to L-3 and diluted earnings per share (EPS) from continuing operations: Net income from continuing operations attributable to L-3 in the 2013 First Quarter increased 4% to $193 million compared to the 2012 First Quarter, and diluted EPS from continuing operations increased 13% to $2.11 from $1.86.

Diluted weighted average common shares outstanding: Diluted weighted average common shares outstanding for the 2013 First Quarter declined by 9% compared to the 2012 First Quarter. The decrease was primarily due to repurchases of L-3 common stock in connection with our share repurchase programs authorized by our Board of Directors, partially offset by additional shares issued in connection with various employee stock-based compensation programs and contributions to employee savings plans made in common stock.

Segment Results of Operations

The table below presents selected data by segment reconciled to consolidated totals. See Note 21 to our unaudited condensed consolidated financial statements contained in this quarterly report for additional segment data.


	First Quarter Ended
	March 29, 2013			March 30, 2012
Net sales: ⁽¹⁾
C ³ ISR	$	888.4		$	886.1
Electronic Systems		1,349.9			1,312.6
P&LS		616.5			614.0
NSS		329.7			347.7

Consolidated net sales	$	3,184.5		$	3,160.4

Operating income:
C ³ ISR	$	91.5		$	92.6
Electronic Systems		143.7			151.5
P&LS		57.5			62.3
NSS		20.6			18.9

Consolidated operating income	$	313.3		$	325.3

Operating margin:
C ³ ISR		10.3	%		10.5	%
Electronic Systems		10.6	%		11.5	%
P&LS		9.3	%		10.1	%
NSS		6.2	%		5.4	%
Consolidated operating margin		9.8	%		10.3	%

⁽¹⁾	Net sales are after intercompany eliminations.

C ³ ISR


	First Quarter Ended
	March 29, 2013			March 30, 2012			Increase/ (decrease)
	(dollars in millions)
Net sales	$	888.4		$	886.1		$	2.3
Operating income	$	91.5		$	92.6		$	(1.1	)
Operating margin		10.3	%		10.5	%		(20	)	bpts

C ³ ISR net sales for the 2013 First Quarter increased by $2 million compared to the 2012 First Quarter. Sales increased by $68 million for ISR Systems primarily due to small ISR aircraft sales to the DoD and higher volume for foreign military customers. These increases were partially offset by a $66 million decrease in sales primarily for Networked Communication Systems due to: (1) declining U.S. Army demand for remote video terminals and

(2) lower volume for manned and unmanned platforms for DoD customers as the production work for certain contracts near completion, including contracts for vehicle mounted satellite communication ground stations and datalinks for unmanned aircraft.

C ³ ISR operating income for the 2013 First Quarter decreased by $1 million, or 1%, compared to the 2012 First Quarter. Operating margin decreased by 20 basis points to 10.3%. Operating margin declined by 200 basis points due to higher development and material costs for Networked Communication Systems and 50 basis points due to higher pension expense of $4 million. These decreases were partially offset primarily by favorable sales mix changes at ISR Systems.

Electronic Systems


	First Quarter Ended
	March 29, 2013			March 30, 2012			Increase/ (decrease)
	(dollars in millions)
Net sales	$	1,349.9		$	1,312.6		$	37.3
Operating income	$	143.7		$	151.5		$	(7.8	)
Operating margin		10.6	%		11.5	%		(90	)	bpts

Electronic Systems net sales for the 2013 First Quarter increased by $37 million, or 3%, compared to the 2012 First Quarter. Sales increased: (1) $49 million for Simulation & Training, $29 million due to the Link U.K. acquisition and $20 million primarily due to increased deliveries of U.S. Army rotary wing training systems for the Flight School XXI program and upgrades for F/A-18 trainers, (2) $16 million for Precision Engagement primarily due to increased deliveries of ordnance products, (3) $14 million for Microwave Products primarily due to increased deliveries of mobile and ground-based satellite communication systems for the U.S. military and (4) $11 million for Marine Services primarily due to volume for the landing craft air cushion vehicle service life extension program. These increases were partially offset by sales decreases of: (1) $12 million for Sensor Systems ($44 million of lower volume primarily for airborne EO/IR turrets for the PTDS contract due to the U.S. military troop drawdown in Afghanistan, partially offset by $18 million in increased volume for force protection products to a foreign ministry of defense and sales of $14 million from the L-3 KEO acquisition), (2) $26 million for Power & Control Systems primarily due to lower demand for commercial shipbuilding products and (3) $15 million for Space & Propulsion Systems primarily due to certain funding constraints for the MDA’s air-launched target programs.

Electronic Systems operating income for the 2013 First Quarter decreased by $8 million, or 5%, compared to the 2012 First Quarter. Operating margin decreased by 90 basis points to 10.6%. Operating margin declined by 190 basis points due to the decreases in sales for Sensor Systems, Power & Control Systems and Space & Propulsion Systems discussed above and 70 basis points primarily due to sales mix changes. These decreases were partially offset by 170 basis points due to improved contract performance during the 2013 First Quarter compared to the 2012 First Quarter, because the 2012 First Quarter included unfavorable contract performance adjustments, primarily for Microwave Products and Space & Propulsion Systems.

P&LS


	First Quarter Ended
	March 29, 2013			March 30, 2012			Increase/ (decrease)
	(dollars in millions)
Net sales	$	616.5		$	614.0		$	2.5
Operating income	$	57.5		$	62.3		$	(4.8	)
Operating margin		9.3	%		10.1	%		(80	)	bpts

P&LS net sales for the 2013 First Quarter increased by $3 million compared to the 2012 First Quarter. Platform Solutions sales increased by $56 million, which was nearly fully offset by a sales decline of $53 million

for Logistics Solutions. The Platform Solutions sales increase was primarily due to increased volume for aircraft maintenance for the DND, EC-130 aircraft for the USAF, international head-of-state aircraft modifications and the Australia C-27J. The decrease in Logistics Solutions was primarily due to the competitive loss of a task order for U.S. Army contract field team support services in Southwest Asia, which was completed in 2012.

P&LS operating income for the 2013 First Quarter decreased by $5 million, or 8%, compared to the 2012 First Quarter. Operating margin declined by 80 basis points to 9.3% primarily due to lower margin sales mix for Platform Solutions.

NSS


	First Quarter Ended
	March 29, 2013			March 30, 2012			Increase/ (decrease)
	(dollars in millions)
Net sales	$	329.7		$	347.7		$	(18.0	)
Operating income	$	20.6		$	18.9		$	1.7
Operating margin		6.2	%		5.4	%		80		bpts

NSS net sales for the 2013 First Quarter decreased by $18 million, or 5%, compared to the 2012 First Quarter primarily due to less demand for USSOCOM IT support services, as our previous single-award contract converted to several multiple-award contracts which reduced our work share.

NSS operating income for the 2013 First Quarter increased by $2 million, or 9%, compared to the 2012 First Quarter. Operating margin increased by 80 basis points to 6.2%. Operating margin increased by 60 basis points due to higher margin sales mix and 20 basis points primarily due to higher award fees on an IT operation and maintenance support contract.

Liquidity and Capital Resources

Anticipated Sources and Uses of Cash Flow

At March 29, 2013, we had total cash and cash equivalents of $276 million as compared to $349 million at December 31, 2012. While no amounts of the cash and cash equivalents are considered restricted, $208 million was held by the Company’s foreign subsidiaries at March 29, 2013. The repatriation of cash held in non-U.S. jurisdictions is subject to local capital requirements, as well as income tax considerations. Our primary source of liquidity is cash flow generated from operations. We generated $146 million of cash from operating activities during the 2013 First Quarter. Significant cash used during the 2013 First Quarter included $122 million to repurchase shares of our common stock, $52 million paid for dividends and $49 million for capital expenditures.

As of March 29, 2013, we had the availability of substantially all of our $1 billion Amended and Restated Revolving Credit Facility. Our Amended and Restated Revolving Credit Facility expires on February 3, 2017. We currently believe that our cash from operating activities, together with our cash on hand, and available borrowings under our Amended and Restated Revolving Credit Facility will be adequate for the foreseeable future to meet our anticipated requirements for working capital, capital expenditures, defined benefit plan contributions, commitments, contingencies, research and development expenditures, business acquisitions (depending on the size), contingent purchase price payments on previous business acquisitions, program and other discretionary investments, interest payments, income tax payments, L-3 Holdings’ dividends and share repurchases.

Our business may not continue to generate cash flow at current levels, and it is possible that currently anticipated improvements may not be achieved. If we are unable to generate sufficient cash flow from operations to service our debt, we may be required to reduce costs and expenses, sell assets, reduce capital expenditures, reduce dividend payments, refinance all or a portion of our existing debt or obtain additional financing, which we may not be able to do on a timely basis, on satisfactory terms, or at all. Our ability to make scheduled principal

payments or to pay interest on or to refinance our indebtedness depends on our future performance and financial results, which, to a certain extent, are subject to general conditions in or affecting the U.S. defense industry and to general economic, political, financial, competitive, legislative and regulatory factors beyond our control.

Balance Sheet

Billed receivables increased by $140 million to $1,108 million at March 29, 2013, from $968 million at December 31, 2012 due to the timing of billings and collections primarily for Platform Solutions, ISR Systems and Networked Communication Systems.

Contracts in process increased by $96 million to $2,748 million at March 29, 2013, from $2,652 million at December 31, 2012 due to: (1) an increase of $97 million in unbilled contracts receivables and (2) an increase of $9 million in inventoried contracts cost. These increases were partially offset by $10 million of foreign currency translation adjustments. The increase in unbilled contracts receivables is due to liquidation of progress payments on deliveries of Networked Communication Systems and Joint Cargo Aircraft. The increase in inventoried contact costs is due to the timing of deliveries across several business areas, primarily Microwave Products.

L-3’s receivables days sales outstanding (DSO) was 77 at March 29, 2013, compared with 71 at December 31, 2012 and 76 at March 30, 2012. The increase in DSO was primarily due to the increase in our net billed and unbilled contract receivables. We calculate our DSO by dividing: (1) our aggregate end of period billed receivables and net unbilled contract receivables, by (2) our trailing 12 month sales adjusted, on a pro forma basis, to include sales from business acquisitions and exclude sales from business divestitures that we completed as of the end of the period, multiplied by the number of calendar days in the trailing 12 month period (364 days at March 29, 2013, 366 days at December 31, 2012 and 364 days at March 30, 2012). Our trailing 12 month pro forma sales were $13,220 million at March 29, 2013, $13,240 million at December 31, 2012 and $13,407 million at March 30, 2012.

The decrease in inventories was primarily due to shipments for Microwave Products and $4 million for foreign currency translation adjustments, partially offset by higher inventory for Warrior Systems to support customer demand.

The decrease in other current assets is primarily due to the application of accrued U.S. Federal income tax overpayments to offset estimated tax payments, partially offset by insurance payments for annual policies.

Goodwill decreased by $24 million to $7,720 million at March 29, 2013 from $7,744 million at December 31, 2012. The table below presents the changes in goodwill by segment.


	C ³ ISR		Electronic Systems			P&LS			NSS			Consolidated Total
	(in millions)
Balance at December 31, 2012	$	797	$	4,804		$	1,175		$	968		$	7,744
Foreign currency translation adjustments ⁽¹⁾		—		(18	)		(5	)		(1	)		(24	)

Balance at March 29, 2013	$	797	$	4,786		$	1,170		$	967		$	7,720

⁽¹⁾	The decreases in goodwill presented in the Electronic Systems, P&LS and NSS segments were primarily due to the strengthening of the U.S. dollar against the Euro, Canadian dollar and British pound during the quarter ended March 29, 2013.

The decrease in identifiable intangible assets was primarily due to amortization expense.

The fluctuations in accounts payable and accrued expenses were primarily due to the timing of when invoices for purchases from third party vendors and subcontractors were received and payments were made.

The decrease in advance payments and billings in excess of costs incurred was primarily due to the liquidation of balances on contracts for Platform Solutions, ISR Systems and Sensor Systems and $7 million of foreign currency translation adjustments.

The increase in pension and postretirement benefit plan liabilities was primarily due to pension expense (excluding amortization of net losses) exceeding cash contributions during the 2013 First Quarter. We expect to

contribute cash of approximately $165 million to our pension plans in 2013, including $95 million of voluntary contributions, of which $18 million was contributed during the 2013 First Quarter.

Non-current deferred income tax liabilities increased primarily due to amortization of certain goodwill and other identifiable intangible assets for tax purposes.

Statement of Cash Flows

2013 First Quarter Compared with 2012 First Quarter

The table below provides a summary of our cash flows from operating, investing, and financing activities for the periods indicated.


	First Quarter Ended
	March 29, 2013			March 30, 2012
	(in millions)
Net cash from operating activities from continuing operations	$	146		$	120
Net cash used in investing activities from continuing operations		(54	)		(234	)
Net cash used in financing activities from continuing operations		(158	)		(179	)

Operating Activities — Continuing Operations

We generated $146 million of cash from operating activities during the 2013 First Quarter, an increase of $26 million compared with $120 million generated during the 2012 First Quarter. The increase was due to: (1) an increase in income from continuing operations of $7 million, (2) higher non-cash expenses of $6 million, and (3) $13 million of less cash used for changes in operating assets and liabilities primarily due to lower income tax payments. See the discussion above under “Liquidity and Capital Resources — Balance Sheet” for additional information on changes in operating assets and liabilities.

Investing Activities — Continuing Operations

During the 2013 First Quarter, we used $54 million of cash, including $49 million for capital expenditures. The 2012 First Quarter includes $205 million of cash used for the L-3 KEO business acquisition and $27 million for capital expenditures.

Financing Activities — Continuing Operations

Debt

At March 29, 2013 and December 31, 2012, total outstanding debt was $3,629 million, of which $2,940 million was senior debt and $689 million was CODES. At March 29, 2013, there were no borrowings outstanding under our $1 billion Amended and Restated Revolving Credit Facility and we had substantially all of our $1 billion facility available for borrowings. We also had $492 million of outstanding standby letters of credit with financial institutions covering performance and financial guarantees per contractual requirements with certain customers, at March 29, 2013. These standby letters of credit may be drawn upon in the event that we do not perform on certain of our contractual requirements. At March 29, 2013, our outstanding debt matures between November 15, 2016 and August 1, 2035. See Note 9 to our unaudited condensed consolidated financial statements contained in this quarterly report for the components of our debt at March 29, 2013.

Debt Covenants and Other Provisions. The Amended and Restated Revolving Credit Facility and Senior Notes contain financial and/or other restrictive covenants. See Note 10 to our audited consolidated financial statements for the year ended December 31, 2012, included in our Annual Report on Form 10-K, for a description of our debt and related financial covenants and cross default provisions. As of March 29, 2013, we were in compliance with our financial and other restrictive covenants.

Guarantees. The borrowings under the Amended and Restated Revolving Credit Facility are fully and unconditionally guaranteed by L-3 Holdings and by substantially all of the material wholly-owned domestic subsidiaries of L-3 Communications on an unsecured senior basis. The payment of principal and premium, if any, and interest on the Senior Notes are fully and unconditionally guaranteed, on an unsecured senior basis, jointly and severally, by L-3 Communications’ material wholly-owned domestic subsidiaries that guarantee any of its other indebtedness. The payment of principal and premium, if any, and interest on the CODES are fully and unconditionally guaranteed, on an unsecured senior subordinated basis, jointly and severally, by L-3 Communications and its wholly-owned domestic subsidiaries that guarantee any of its other liabilities.

Prior to the spin-off of Engility, which was completed on July 17, 2012, Engility Holdings, Inc., Engility Corporation, International Resources Group Ltd. and LinCom Wireless, Inc. were guarantor subsidiaries. As a result of the spin-off, these entities no longer guarantee the debt of L-3 Communications or L-3 Holdings.

Subordination. The guarantees of the Amended and Restated Revolving Credit Facility and the Senior Notes rank senior to the guarantees of the CODES and rank pari passu with each other.

Equity

Repurchases of L-3 Holdings’ common stock, under the share repurchase programs approved by the Board of Directors, are made from time to time at management’s discretion in accordance with applicable U.S. Federal securities laws in the open market or otherwise. The timing and actual number of shares to be repurchased in the future will depend on a variety of factors, including the Company’s financial position, earnings, legal requirements, other investment opportunities (including acquisitions), market conditions and other factors. All share repurchases of L-3 Holdings’ common stock have been recorded as treasury shares.

The table below presents our repurchases of L-3 Holdings’ common stock during the 2013 First Quarter.


	Total Number of Shares Purchased		Average Price Paid Per Share		Treasury Stock
					(at cost in millions)
January 1 — March 29, 2013		1,571,672	$	77.30	$	122

At March 29, 2013, the remaining dollar value under the April 26, 2011 share repurchase program approved by L-3 Holdings’ Board of Directors was $140 million. From March 30, 2013 through April 30, 2013 (including all share repurchases that settled through May 3, 2013), L-3 Holdings repurchased 569,807 of its common stock at an average price of $81.50 per share for an aggregate amount of $46 million under the April 26, 2011 share repurchase program, which expired on April 30, 2013. At March 29, 2013, the Company had the full authorization of the $1.5 billion February 5, 2013 share repurchase program available.

During the 2013 First Quarter, L-3 Holdings’ Board of Directors authorized the following quarterly cash dividends:

Date Declared

Record Date

Cash Dividend
Per Share

Date Paid

Total Dividends
Paid

(in millions

)

February 5, 2013

March 1, 2013

0.55

March 15, 2013

In addition to the dividends in the table above, the Company paid $2 million of previously accrued dividends for employee held stock-awards during the quarterly period ended March 29, 2013.

On April 30, 2013, L-3 Holdings’ Board of Directors declared a quarterly cash dividend of $0.55 per share, payable on June 17, 2013, to shareholders of record at the close of business on May 17, 2013.

Legal Proceedings and Contingencies

For a discussion of legal proceedings and contingencies that could impact our results of operations, financial condition or cash flows, see Note 17 to our unaudited condensed consolidated financial statements contained in this quarterly report.

Forward-Looking Statements

Certain of the matters discussed in this report, including information regarding the Company’s 2013 financial outlook, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than historical facts, may be forward-looking statements, such as “may,” “will,” “should,” “likely,” “projects,” ‘‘expects,’’ ‘‘anticipates,’’ ‘‘intends,’’ ‘‘plans,’’ ‘‘believes,’’ ‘‘estimates,’’ and similar expressions are used to identify forward-looking statements. The Company cautions investors that these statements are subject to risks and uncertainties many of which are difficult to predict and generally beyond the Company’s control that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. Some of the factors that could cause actual results to differ include, but are not limited to, the following: our dependence on the defense industry; backlog processing and program slips resulting from delayed funding of the Department of Defense (DoD) budget; our reliance on contracts with a limited number of customers and the possibility of termination of government contracts by unilateral government action or for failure to perform; the extensive legal and regulatory requirements surrounding many of our contracts; our ability to retain our existing business and related contracts; our ability to successfully compete for and win new business; or, identify, acquire and integrate additional businesses; our ability to maintain and improve our operating margin; the availability of government funding and changes in customer requirements for our products and services; our significant amount of debt and the restrictions contained in our debt agreements; our ability to continue to recruit, retain and train our employees; actual future interest rates, volatility and other assumptions used in the determination of pension benefits and equity based compensation, as well as the market performance of benefit plan assets; our collective bargaining agreements, our ability to successfully negotiate contracts with labor unions and our ability to favorably resolve labor disputes should they arise; the business, economic and political conditions in the markets in which we operate; global economic uncertainty; the DoD’s in-sourcing and efficiency initiatives; events beyond our control such as acts of terrorism; our ability to perform contracts on schedule; our international operations; our extensive use of fixed-price type contracts; the rapid change of technology and high level of competition in which our businesses participate; our introduction of new products into commercial markets or our investments in civil and commercial products or companies; the outcome of litigation matters; results of audits by U.S. Government agencies and of on-going governmental investigations; the impact on our business of improper conduct by our employees, agents or business partners; ultimate resolution of contingent matters, claims and investigations relating to acquired businesses, and the impact on the final purchase price allocations; and the fair values of our assets.

Our forward-looking statements speak only as of the date of this report or as of the date they were made, and we undertake no obligation to update forward-looking statements. For a more detailed discussion of these factors, also see the information under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our most recent annual report on Form 10-K for the year ended December 31, 2012 and in this quarterly report on Form 10-Q, and any material updates to these factors contained in any of our future filings.

As for the forward-looking statements that relate to future financial results and other projections, actual results will be different due to the inherent uncertainties of estimates, forecasts and projections and may be better or worse than projected and such differences could be material. Given these uncertainties, you should not place any reliance on these forward-looking statements.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Derivative Financial Instruments and Other Market Risks,” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 for a discussion of our exposure to market risks. There were no material changes to our disclosure about market risks during the 2013 First Quarter. See Notes 15 and 16 to our unaudited condensed consolidated financial statements contained in this quarterly report for the aggregate fair values and notional amounts of our foreign currency forward contracts at March 29, 2013.

ITEM 4.

CONTROLS AND PROCEDURES

Conclusions Regarding Effectiveness of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934 related to L-3 Holdings and L-3 Communications is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chairman, President and Chief Executive Officer, and our Senior Vice President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our Chairman, President and Chief Executive Officer, and our Senior Vice President and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 29, 2013. Based upon that evaluation, our Chairman, President and Chief Executive Officer, and our Senior Vice President and Chief Financial Officer concluded that, as of March 29, 2013, the design and operation of our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 29, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

The information required with respect to this item can be found in Note 17 to our unaudited condensed consolidated financial statements contained in this quarterly report and is incorporated by reference into this Item 1.

ITEM 1A.

RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview and Outlook — Business Environment”, which could materially affect our business, financial condition or future results. Other than as described in “Business Environment”, there have been no material changes to the risk factors disclosed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012. The risks described in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table provides information about share repurchases made by L-3 Holdings of its common stock during the 2013 First Quarter. Repurchases are made from time to time at management’s discretion in accordance with applicable U.S. Federal securities laws. All share repurchases of L-3 Holdings’ common stock have been recorded as treasury shares.


	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)
January 1 — January 31, 2013		820,227	$	77.81		820,227	$	198
February 1 — February 28, 2013		542,785	$	76.79		542,785	$	1,656
March 1— March 29, 2013		208,660	$	76.65		208,660	$	1,640

Total		1,571,672	$	77.30		1,571,672

⁽¹⁾

The share repurchases described in the table above were made pursuant to the $1.5 billion share repurchase program authorized by L-3 Holdings’ Board of Directors on April 26, 2011, which had a remaining dollar value of authorization of $140 million at March 29, 2013. The April 26, 2011 share repurchase program expired on April 30, 2013. On February 5, 2013, L-3 Holdings’ Board of Directors approved a new share repurchase program that authorizes L-3 Holdings to repurchase up to an additional $1.5 billion of its shares of common stock through June 30, 2015. At March 29, 2013, the full authorization of the $1.5 billion February 5, 2013 share repurchase program was available.

ITEM 6.

EXHIBITS

For a list of exhibits, see the Exhibit Index in this Form 10-Q.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.


L-3 COMMUNICATIONS HOLDINGS, INC.

L-3 COMMUNICATIONS CORPORATION

By:		/s/ Ralph G. D’Ambrosio
Title: Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

Date: May 7, 2013

EXHIBIT INDEX

Exhibits identified in parentheses below are on file with the SEC and are incorporated herein by reference to such previous filings.


Exhibit No.		Description of Exhibits

2.1		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 Registrants’ Quarterly Report on Form 10-Q for the period ended September 28, 2012 (File Nos. 001-14141 and 333-46983)).

3.1		Amended and Restated Certificate of Incorporation of L-3 Communications Holdings, Inc. (incorporated by reference to Exhibit 3.1 to the Registrants’ Current Report on Form 8-K filed on May 2, 2013 (File Nos. 001-14141 and 333-46983)).

3.2		Amended and Restated By-Laws of L-3 Communications Holdings, Inc. (incorporated by reference to Exhibit 3.2 to the Registrants’ Current Report on Form 8-K filed on May 2, 2013 (File Nos. 001-14141 and 333-46983)).

3.3		Certificate of Incorporation of L-3 Communications Corporation (incorporated by reference to Exhibit 3.1 to L-3 Communications Corporation’s Registration Statement on Form S-4 (File No. 333-31649)).

3.4		Amended and Restated Bylaws of L-3 Communications Corporation (incorporated by reference to Exhibit 3.2 to the Registrants’ Current Report on Form 8-K filed on December 17, 2007 (File Nos. 001-14141 and 333-46983)).

4.1		Form of Common Stock Certificate of L-3 Communications Holdings, Inc. (incorporated by reference to Exhibit 4.1 to the Registrants’ Quarterly Report on Form 10-Q for the quarter ended June 25, 2010 (File Nos. 001-14141 and 333-46983)).

4.2		Indenture dated as of July 29, 2005 (CODES Indenture) among L-3 Communications Holdings, Inc., the guarantors named therein and The Bank of New York Mellon (formerly known as The Bank of New York), as Trustee (incorporated by reference to Exhibit 10.70 to the Registrants’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 (File Nos. 001-14141 and 333-46983)).

4.3		Supplemental Indenture dated as of February 3, 2012 among L-3 Communications Holdings, Inc., The Bank of New York Mellon (formerly known as The Bank of New York), as trustee, and the guarantors named therein to the CODES Indenture dated as of July 29, 2005 among L-3 Communications Holdings, Inc., the guarantors named therein and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.5 to the Registrants’ Annual Report on Form 10-K for the year ended December 31, 2011 (File Nos. 001-14141 and 333-46983)).

4.4		Indenture dated as of October 2, 2009 among L-3 Communications Corporation, the guarantors named therein and The Bank of New York Mellon, as Trustee (incorporated by reference to Exhibit 4.15 to the Registrants’ Quarterly Report on Form 10-Q for the quarter ended September 25, 2009 (File Nos. 001-14141 and 333-46983)).

4.5		Supplemental Indenture dated as of February 3, 2012 among L-3 Communications Corporation, The Bank of New York Mellon, as trustee, and the guarantors named therein to the Indenture dated as of October 2, 2009 among L-3 Communications Corporation, the guarantors named therein and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.7 to the Registrants’ Annual Report on Form 10-K for the year ended December 31, 2011 (File Nos. 001-14141 and 333-46983)).


Exhibit No.		Description of Exhibits

4.6		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 Registrants’ Current Report on Form 8-K dated May 24, 2010 (File Nos. 001-14141 and 333-46983)).

4.7		First Supplemental 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 4.2 to the Registrants’ Current Report on Form 8-K dated May 24, 2010 (File Nos. 001-14141 and 333-46983)).

4.8		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 Registrants’ Current Report on Form 8-K dated February 8, 2011 (File Nos. 001-14141 and 333-46983)).

4.9		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 Registrants’ Current Report on Form 8-K dated November 22, 2011 (File Nos. 001-14141 and 333-46983)).

4.10		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 Registrants’ Annual Report on Form 10-K for the fiscal year ended December 31, 2011 (File Nos. 001-14141 and 333-46983)).

10.1		Amended and Restated Credit Agreement, dated as of February 3, 2012, among L-3 Communications Corporation, L-3 Communications Holdings, Inc. and certain subsidiaries of the Registrants from time to time party thereto as guarantors, certain lenders from time to time party thereto, and Bank of America, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Registrants’ Current Report on Form 8-K dated February 3, 2012 (File Nos. 001-14141 and 333-46983)).

10.2		Tax Matters Agreement between L-3 Communications Holdings, Inc. and Engility Holdings, Inc. dated as of July 16, 2012 (incorporated by reference to Exhibit 10.2 to the Registrants’ Quarterly Report on Form 10-Q for the period ended September 28, 2012 (File Nos. 001-14141 and 333-46983)).

10.3		L-3 Communications Holdings, Inc. 2008 Amended and Restated Long Term Performance Plan (incorporated by reference to Exhibit 10.1 to the Registrants’ Current Report on Form 8-K filed on May 2, 2013 (File Nos. 001-14141 and 333-46983)).

†*10.4		Form of Amended and Restated L-3 Communications Holdings, Inc. 2008 Long Term Performance Plan Nonqualified Stock Option Agreement (2013 CEO Version).

†*10.5		Form of L-3 Communications Holdings, Inc. 2008 Long Term Performance Plan Restricted Stock Unit Agreement (2013 CEO Version).

†*10.6		Form of L-3 Communications Holdings, Inc. 2008 Long Term Performance Plan Restricted Stock Unit Agreement (2013 CEO Direct Report Version).

†*10.7		Form of L-3 Communications Holdings, Inc. 2008 Long Term Performance Plan Restricted Stock Unit Agreement (Non-Employee Directors Version).

†*10.8		Form of L-3 Communications Holdings, Inc. 2008 Long Term Performance Plan Performance Unit Award Notice (2013 Version).

†*10.9		Form of L-3 Communications Holdings, Inc. 2012 Cash Incentive Plan Performance Cash Award Notice (2013 Version).


Exhibit No.		Description of Exhibits

†*10.10		Global Amendment to Non-Employee Director RSU Agreements dated as of April 30, 2013.

**11		L-3 Communications Holdings, Inc. Computation of Basic Earnings Per Share and Diluted Earnings Per Common Share.

*12		Ratio of Earnings to Fixed Charges.

*31.1		Certification of Chairman, President and Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.

*31.2		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.

*32		Section 1350 Certification.

***101.INS		XBRL Instance Document.

***101.SCH		XBRL Taxonomy Extension Schema Document.

***101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

***101.CAL		XBRL Taxonomy Extension Calculation 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 13 to the unaudited condensed consolidated financial statements as of March 29, 2013 in accordance with the provisions of ASC 260, Earnings Per Share .

***	Filed electronically with this report.

†	Represents management contract, compensatory plan or arrangement in which directors and/or executive officers are entitled to participate.

Exhibit 10.4

L-3 COMMUNICATIONS HOLDINGS, INC.

2008 LONG TERM PERFORMANCE PLAN

NONQUALIFIED STOCK OPTION AGREEMENT

(Version CEO 2013)

THIS AGREEMENT , effective as of the Grant Date (as defined below), is between L-3 Communications Holdings, Inc., a Delaware corporation (the “Company”), and the Optionee (as defined below).

WHEREAS , the Company has adopted the L-3 Communications Holdings, Inc. 2008 Long Term Performance Plan (the “Plan”) in order to provide additional incentives to selected officers and employees of the Company and its subsidiaries; and

WHEREAS , the Committee responsible for administration of the Plan has determined to grant an option to the Optionee as provided herein and the Company and the Optionee hereby wish to memorialize the terms and conditions applicable to the Option (as defined below);

WHEREAS , the following terms shall have the following meanings for purposes of this Option Agreement:

“Award Letter” shall mean the letter to the Optionee attached hereto as Exhibit A;

“Common Stock” means the Company’s Common Stock, par value $0.01 per share;

“Diluted EPS” means earnings per common share of the Company on a fully diluted basis, determined in accordance with GAAP and as derived from the Company’s audited consolidated financial statements prepared in the ordinary course of business; provided , that Diluted EPS shall be calculated so as to eliminate the effect of any: (a) impairment losses incurred on goodwill and other intangible assets or on debt or equity investments computed in accordance with Financial Accounting Standard No. 142 or other GAAP; (b) gains or losses incurred on the retirement of debt computed in accordance with Financial Accounting Standard No. 145; (c) extraordinary gains and losses in accordance with GAAP; (d) gains and losses in connection with asset dispositions whether or not constituting extraordinary gains and losses; (e) non-cash gains or losses on discontinued operations; (f) adoption by the Company of any new accounting standards required by GAAP or the Securities and Exchange Commission following the Grant Date; (g) gains or losses of $5 million or more individually, or $25 million or more in the aggregate, in respect of litigation matters; and (h) gains or losses (other than accrued interest) related to the resolution of income tax contingencies for business acquisitions, to the extent that such contingencies were established as of the dates of such acquisitions in the GAAP purchase price allocations in respect thereof;

“Exercise Price” shall mean the “Grant Price” listed in the Award Letter;

“Free Cash Flow” means (a) the Company’s net cash from operating activities, minus (b) capital expenditures, plus (c) dispositions of property, plant and equipment, in each case determined in accordance with GAAP and as derived from the Company’s audited consolidated financial statements prepared in the ordinary course of business; provided , that Free Cash Flow shall be calculated so as to eliminate the effect of: (i) discretionary contributions to pension plans that exceed the contributions forecasted in the Company’s most recent internal plan for the year as presented to the Board of Directors prior to the Grant Date; (ii) premiums and other payments in excess of principal and accrued interest associated with the retirement of debt , including without limitation payments of income taxes incurred in connection therewith; and (iii) tax payments or benefits associated with gains or losses on business divestitures in calculating net cash from operating activities;

“GAAP” shall mean generally accepted accounting principles in the United States.

“Grant Date” shall mean the “Grant Date” listed in the Award Letter;

“Option Agreement” or this “Agreement” shall mean this agreement including (unless the context otherwise requires) the Award Letter.

“Optionee” shall mean the “Participant” listed in the Award Letter; and

“Shares” shall mean that number of shares of Common Stock listed in the Award Letter as “Awards Granted,” subject to Section 4.2.

NOW, THEREFORE , the parties hereto agree as follows:

1.	Grant of Option.

1.1 Effective as of the Grant Date, for good and valuable consideration, the Company hereby irrevocably grants to the Optionee the right and option (the “Option”) to purchase all or any part of the Shares, subject to, and in accordance with, the terms and conditions set forth in this Option Agreement.

1.2 The Option is not intended to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code.

1.3 This Option Agreement shall be construed in accordance and consistent with, and subject to, the terms of the Plan (the provisions of which are incorporated hereby by reference); and, except as otherwise expressly set forth herein, the capitalized terms used in this Option Agreement shall have the same definitions as set forth in the Plan. In the event of any conflict between one or more of this Option Agreement, the Award Letter and the Plan, the Plan shall govern this Option Agreement and the Award Letter, and the Option Agreement (to the extent not in conflict with the Plan) shall govern the Award Letter.

2.	Exercise Price.

The price at which the Optionee shall be entitled to purchase the Shares upon the exercise of the Option shall be the Exercise Price per share, subject to adjustment as provided in Section 9.

3.	Duration of Option.

The Option shall be exercisable to the extent and in the manner provided herein for a period of ten (10) years from the Grant Date (the “Exercise Term”); provided , however , that the Option may be earlier terminated as provided in Section 6 hereof.

4.	Exercisability of Option.

4.1 Subject to Section 4.2, and unless otherwise provided in this Option Agreement or the Plan, the Option shall entitle the Optionee to purchase, in whole at any time or in part from time to time, one-third (1/3 ^rd ) of the total number of Shares covered by the Option on the first anniversary of the Grant Date, an additional one-third (1/3 ^rd ) of the total number of Shares covered by the Option on the second anniversary of the Grant Date and the final one-third (1/3 ^rd ) of the total number of Shares covered by the Option on the expiration of the third anniversary of the Grant Date. Each such right of purchase shall be cumulative and shall continue, unless sooner exercised or terminated as herein provided, during the remaining period of the Exercise Term. Any fractional number of shares resulting from the application of the foregoing percentages shall be rounded to the next higher whole number of Shares (not to exceed the total number of Shares granted as provided in Section 1.1).

- 2 -

4.2 No right of purchase in respect of the Option shall become exercisable by virtue of Section 4.1 prior to the Determination Date. As promptly as practicable following December 31, 2013, the Committee shall determine, subject to Section 4.3, whether the following conditions have been satisfied (the “Performance Conditions”): (a) the Company’s Diluted EPS for the year ended December 31, 2013 is at least $7.01; and (b) the Company’s Free Cash Flow for the year ended December 31, 2013 is at least $876 million (the date of such determinations being referred to herein as the “Determination Date”). In the event that (i) the Committee determines that only one of the two Performance Conditions shall have been satisfied as of the Determination Date and (ii) the Option shall not have become fully exercisable prior to the Determination Date under Section 6 or 10, then the number of Shares subject to the Option shall be automatically reduced by 50% (rounded to the nearest whole Share). In the event that (1) the Committee determines that none of the Performance Conditions shall have been satisfied as of the Determination Date and (2) the Option shall not have become fully exercisable prior to the Determination Date under Section 6 or 10, then Optionee’s right to exercise all or any portion of the Option shall automatically be terminated, and all of Optionee’s rights hereunder shall cease.

4.3 In the event of an equity restructuring, as defined in Financial Accounting Standards Board Accounting Standards Codification 718-10 (formerly Statement of Financial Accounting Standards 123R ), the Committee shall adjust any Performance Conditions affected by such restructuring so as to preserve (without enlarging) the likelihood that such Performance Conditions shall be satisfied, with the manner of such adjustment to be determined by the Committee in its sole discretion.

5.	Manner of Exercise and Payment.

5.1 Subject to the terms and conditions of this Option Agreement and the Plan, the Option may be exercised by delivery of written notice to the Secretary of the Company (or his or her designee), at its principal executive office. Such notice shall state that the Optionee or other authorized person is electing to exercise the Option and the number of Shares in respect of which the Option is being exercised and shall be signed by the person or persons exercising the Option. In the event the Company has designated an Award Administrator (as defined below), the Option may also be exercised by giving notice (including through electronic means) in accordance with the procedures established from time to time by the Award Administrator. Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part, provided that partial exercise shall be for whole shares of Common Stock only. If requested by the Committee, such person or persons shall (i) deliver this Agreement (including the Award Letter) to the Secretary of the Company who shall endorse thereon a notation of such exercise and (ii) provide satisfactory proof as to the right of such person or persons to exercise the Option.

5.2 The notice of exercise described in Section 5.1 shall be accompanied by either (i) payment of the full purchase price for the Shares in respect of which the Option is being exercised and of all applicable Withholding Taxes (as defined in Section 11) pursuant to Section 11 hereof (such payment to be made in cash, by delivering Shares, by withholding a portion of the Shares otherwise issuable or by any combination thereof) or (ii) instructions from the Optionee to the Company directing the Company to deliver a specified number of Shares directly to a designated broker or dealer pursuant to a cashless exercise election, in which case the Company must receive, prior to the issuance of the Shares in respect of which the Option is being exercised, payment of the full purchase price for the Shares in respect of which the Option is being exercised and all applicable Withholding Taxes pursuant to Section 11 hereof (such payment to be made in cash, by delivering Shares, by withholding a portion of the Shares otherwise issuable or by any combination thereof). The value of any Shares withheld or delivered in satisfaction of the purchase price for the Shares in respect of which the Option is being exercised and/or Withholding Taxes shall be determined by reference to the Fair Market Value of such Shares as of the date of such withholding or delivery. In the event that Withholding Taxes are satisfied by withholding a portion of the Shares otherwise issuable in connection with an exercise of the Option, the Company shall not withhold any Shares in excess of the minimum number of Shares necessary to satisfy the applicable Withholding Taxes.

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5.3 Upon receipt of the notice of exercise and any payment or other documentation as may be necessary pursuant to Sections 5.1 and 5.2 relating to the Shares in respect of which the Option is being exercised, the Company shall, subject to the Plan and this Option Agreement, take such action as may be necessary to effect the transfer to the Optionee of the number of Shares as to which such exercise was effective.

5.4 The Optionee shall not be deemed to be the holder of, or to have any of the rights and privileges of a stockholder of the Company in respect of, Shares purchased upon exercise of the Option until (i) the Option shall have been exercised pursuant to the terms of this Option Agreement and the Optionee shall have paid the full purchase price for the number of Shares in respect of which the Option was exercised and any applicable Withholding Taxes and (ii) the Company shall have issued the Shares in connection with such exercise.

6.	Termination of Employment.

6.1 If, prior to the date of the initial vesting of the Option pursuant to Section 4 hereof (the “Initial Vesting Date”), the Optionee’s employment with the Company and its subsidiaries shall be terminated for any reason, other than death or permanent disability (as herein defined), the Optionee’s right to exercise the Option shall terminate as of the effective date of termination (the “Termination Date”) and all rights hereunder shall cease (unless otherwise provided for by the Committee in accordance with the Plan). For purposes hereof, “permanent disability” means incapacity due to physical or mental illness as a result of which the Optionee becomes eligible for benefits under the applicable long-term disability plan or policy of the Company or the applicable subsidiary of the Company which is in effect at the time Optionee became incapacitated.

6.2 If the Optionee’s employment with the Company and its subsidiaries shall be terminated by reason of death or permanent disability, the Option shall become immediately fully exercisable as to 100% of the Shares subject to the Option, and the Optionee or the executor or administrator of the estate of the Optionee or the person or persons to whom the Option shall have been validly transferred by the executor or the administrator pursuant to will or the laws of descent or distribution shall have the right, within one year from the date of the Optionee’s death or permanent disability, to exercise the Option, subject to any other limitation contained herein on the exercise of the Option in effect at the date of exercise.

6.3 If, on or after the Initial Vesting Date, the Optionee’s employment with the Company and its subsidiaries shall be terminated for any reason other than for Cause or death or permanent disability, the Optionee shall have the right within three months after the Termination Date (or, if the Optionee’s employment with the Company and its subsidiaries is terminated by reason of a qualified retirement as herein defined, within three years after the Termination Date) to exercise the Option to the extent that installments thereof shall have been or become exercisable at the Termination Date and shall not have been exercised, subject to any other limitation contained herein on the exercise of the Option in effect at the date of exercise, and (unless otherwise provided for by the Committee in accordance with the Plan) the Optionee’s right to exercise any installments of the Option that were not exercisable at the Termination Date (if any) shall terminate as of the Termination Date. If the Optionee’s employment is terminated for Cause, the Option shall terminate as of the Termination Date, whether or not exercisable. For purposes hereof, “Cause” means the Optionee’s (i) intentional failure to perform reasonably assigned duties, (ii) dishonesty or willful misconduct in the performance of duties, (iii) engaging in a transaction in connection with the performance of duties to the Company or its subsidiaries which transaction is adverse to the interests of the Company or its subsidiaries and is engaged in for personal profit or (iv) willful violation of any law, rule or regulation in connection with the performance of duties (other than traffic violations or similar offenses). In addition, “qualified retirement” means the

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Optionee (a) terminates employment with the Company and its subsidiaries other than for Cause (and is not subject to termination for Cause at the time of such termination) more than one year after the Grant Date, (b) is available for consultation with the Company or any of its subsidiaries at the reasonable request of the Company or one of its subsidiaries and (c) terminates employment on or after attaining age 65 and completing at least five years of service in the aggregate with the Company and its subsidiaries (which service must be continuous through the date of termination except for a single break in service that does not exceed one year in length).

6.4 If the Optionee shall die within the three-month period (or the three-year period, if applicable) referred to in Section 6.3 above, the Optionee or the executor or administrator of the estate of the Optionee or the person or persons to whom the Option shall have been validly transferred by the executor or administrator pursuant to will or the laws of descent and distribution shall have the right, within one year from the date of the Optionee’s death (or, if longer and applicable under Section 6.3 above, within the original three-year period referred to therein), to exercise the Option to the extent that the Option was exercisable at the date of death, subject to any other limitation contained herein on the exercise of the Option in effect at the date of exercise.

6.5 The Participant’s rights with respect to the Option shall not be affected by any change in the nature of the Participant’s employment so long as the Participant continues to be an employee of the Company or any of its subsidiaries. Whether (and the circumstances under which) employment has been terminated and the determination of the Termination Date for the purposes of this Agreement shall be determined by the Committee or (with respect to any employee other than an “Executive Officer” as defined under the Plan) its designee (who, at the date of this Agreement, shall be the Company’s Vice President of Human Resources), whose good faith determination shall be final, binding and conclusive; provided , that such designee may not make any such determination with respect to his or her own employment.

7.	Nontransferability.

The Option shall not be transferable other than by will or by the laws of descent and distribution, and during the lifetime of the Optionee, the Option shall be exercisable only by the Optionee. After the death of the Optionee, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 6.2 or 6.4, be exercised by the Optionee’s personal representative or by any person empowered to do so under the Optionee’s will or under the then applicable laws of descent and distribution.

8.	No Right to Continued Employment.

Nothing in this Option Agreement or the Plan shall be interpreted or construed to confer upon the Optionee any right to continue employment by the Company or any of its subsidiaries, nor shall this Agreement or the Plan interfere in any way with the right of the Company or any of its subsidiaries to terminate the Optionee’s employment at any time for any reason whatsoever, whether or not with Cause.

9.	Adjustments.

In the event that the outstanding shares of the Common Stock are, from time to time, changed into or exchanged for a different number or kind of shares of the capital stock of the Company or other securities of the Company by reason of a merger, consolidation, recapitalization, reclassification, stock split, stock dividend, combination of capital stock, or other similar increase or decrease in the number of shares outstanding without receiving compensation therefor, the Committee shall, in accordance with the terms of the Plan, make an appropriate and equitable adjustment in the number and kind of Shares or other consideration as to which such Option, or portions thereof then unexercised, shall be exercisable and the exercise price therefor. Any such adjustment made by the Committee shall be final, binding and conclusive upon the Optionee, the Company and all other interested persons. Any such

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adjustment may provide for the elimination of any fractional share which might otherwise become subject to the Option. This paragraph shall also apply with respect to any extraordinary dividend or other extraordinary distribution in respect of the Common Stock (whether in the form of cash or other property).

10.	Effect of a Change in Control.

10.1 Notwithstanding anything contained in the Plan or this Agreement to the contrary, in the event of a Change in Control, (a) the Option becomes immediately and fully exercisable as to 100% of the Shares subject to the Option, and (b) upon termination of an Optionee’s employment with the Company, following a Change in Control, the Option shall remain exercisable until one year after termination, but in no event beyond the Exercise Term. The Company reserves the right to change or modify in any way the definition of Change in Control set forth in this Option Agreement and any such change or modification shall be binding on the Optionee.

10.2 For the purposes of this Option Agreement, “Change in Control” shall mean the first to occur of the following:

The acquisition by any person or group (including a group within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act), other than the Company or any of its subsidiaries, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of a majority of the combined voting power of the Company’s then outstanding voting securities, other than by any employee benefit plan maintained by the Company;

The sale of all or substantially all the assets of the Company and its subsidiaries taken as a whole; or

The election, including the filling of vacancies, during any period of 24 months or less, of 50% or more, of the members of the Board of Directors, without the approval of Continuing Directors, as constituted at the beginning of such period. “Continuing Directors” shall mean any director of the Company who either (i) is a member of the Board of Directors on the Grant Date, or (ii) is nominated for election to the Board of Directors by a majority of the Board which is comprised of directors who were, at the time of such nomination, Continuing Directors.

11.	Withholding of Taxes.

As a condition to the issuance of Shares in respect of any exercise of the Option or any other issuance or payment to the Optionee hereunder, the Optionee shall pay to the Company (and the Company shall have the right to deduct from any distribution of cash to the Optionee) the minimum amount necessary to satisfy Federal, state, local and foreign withholding tax requirements, if any (“Withholding Taxes”) with respect to such exercise, issuance or payment.

12.	Optionee bound by the Plan.

The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof.

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13.	Modification of Agreement.

This Agreement may be modified, amended, suspended or terminated, and any terms or conditions may be waived, but, subject to paragraphs 6.5 and 10.1 and to the terms and conditions of the Plan, only by a written instrument executed by the parties hereto.

14.	Severability.

Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms.

15.	Governing Law.

The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York without giving effect to the conflicts of laws principles thereof. If the Optionee has received a copy of this Agreement (or the Plan or any other document related hereto or thereto) translated into a language other than English, such translated copy is qualified in its entirety by reference to the English version thereof, and in the event of any conflict the English version will govern.

16.	Successors in Interest.

This Agreement shall inure to the benefit of and be binding upon any successor to the Company. This Agreement shall inure to the benefit of the Optionee or the Optionee’s legal representatives. All obligations imposed upon the Optionee and all rights granted to the Company under this Agreement shall be final, binding and conclusive upon the Optionee’s heirs, executors, administrators and successors.

17.	Administration.

The Committee shall have the power to interpret the Plan and this Option Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee shall be final and binding upon the Optionee, the Company and all other interested persons. No member of the Committee shall be personally liable for any action determination or interpretation made in good faith with respect to the Plan or the Options. In its absolute discretion, the Board of Directors may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan and this Option Agreement.

18.	Resolution of Disputes.

Any dispute or disagreement which may arise under, or as a result of, or in any way related to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on the Optionee and Company for all purposes.

19.	Data Privacy Consent.

As a condition of the grant of the Option, the Optionee hereby consents to the collection, use and transfer of personal data as described in this paragraph. The Optionee understands that the Company and its subsidiaries hold certain personal information about the Optionee, including name, home address and telephone number, date of birth, social security number, salary, nationality, job title, ownership interests or directorships held in the Company or its subsidiaries, and details of all stock

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options or other equity awards or other entitlements to shares of common stock awarded, cancelled, exercised, vested or unvested (“Data”). The Optionee further understands that the Company and its subsidiaries will transfer Data among themselves as necessary for the purposes of implementation, administration and management of the Optionee’s participation in the Plan, and that the Company and any of its subsidiaries may each further transfer Data to any third parties assisting the Company in the implementation, administration and management of the Plan. The Optionee understands that these recipients may be located in the European Economic Area or elsewhere, such as the United States. The Optionee hereby authorizes them to receive, possess, use, retain and transfer such Data as may be required for the administration of the Plan or the subsequent holding of shares of common stock on the Optionee’s behalf, in electronic or other form, for the purposes of implementing, administering and managing the Optionee’s participation in the Plan, including any requisite transfer to a broker or other third party with whom the Optionee may elect to deposit any shares of common stock acquired under the Plan. The Optionee may, at any time, view such Data or require any necessary amendments to it.

20.	Limitation on Rights; No Right to Future Grants; Extraordinary Item of Compensation.

By accepting this Agreement and the grant of the Option evidenced hereby, the Optionee expressly acknowledges that (a) the Plan is discretionary in nature and may be suspended or terminated by the Company at any time; (b) the grant of the Option is a one-time benefit that does not create any contractual or other right to receive future grants of options, or benefits in lieu of options; (c) all determinations with respect to future option grants, if any, including the grant date, the number of Shares granted, the exercise price and the exercise date or dates, will be at the sole discretion of the Company; (d) the Optionee’s participation in the Plan is voluntary; (e) the value of the Option is an extraordinary item of compensation that is outside the scope of the Optionee’s employment contract, if any, and nothing can or must automatically be inferred from such employment contract or its consequences; (f) Options are not part of normal or expected compensation for any purpose and are not to be used for calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments, and the Optionee waives any claim on such basis; and (g) the future value of the underlying Shares is unknown and cannot be predicted with certainty. In addition, the Optionee understands, acknowledges and agrees that the Optionee will have no rights to compensation or damages related to option proceeds in consequence of the termination of the Optionee’s employment for any reason whatsoever and whether or not in breach of contract.

21.	Subsidiary.

As used herein, the term “subsidiary” shall mean, as to any person, any corporation, association, partnership, joint venture or other business entity of which 50% or more of the voting stock or other equity interests (in the case of entities other than corporations), is owned or controlled (directly or indirectly) by that entity, or by one or more of the Subsidiaries of that entity, or by a combination thereof.

22.	Award Administrator.

The Company may from time to time to designate a third party (an “Award Administrator”) to assist the Company in the implementation, administration and management of the Plan and any Options granted thereunder, including by sending Award Letters on behalf of the Company to Optionees, and by facilitating through electronic means acceptance of Option Agreements by Optionees and Option exercises by Optionees.

23.	Book Entry Delivery of Shares.

Whenever reference in this Agreement is made to the issuance or delivery of certificates representing one or more Shares, the Company may elect to issue or deliver such Shares in book entry form in lieu of certificates.

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24.	Acceptance.

This Agreement shall not be enforceable until it has been executed by the Optionee. In the event the Company has designated an Award Administrator, the acceptance (including through electronic means) of the Option contemplated by this Option Agreement in accordance with the procedures established from time to time by the Award Administrator shall be deemed to constitute the Optionee’s acknowledgment and agreement to the terms and conditions of this Option Agreement and shall have the same legal effect in all respects of the Optionee having executed this Option Agreement by hand.


By:		L-3 COMMUNICATIONS HOLDINGS, INC.


		Michael T. Strianese
		President and Chief Executive Officer


		Steven M. Post
		Senior Vice President, General Counsel and Corporate Secretary

Acknowledged and Agreed

as of the date first written above:

Optionee Signature

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Exhibit 10.5

L-3 COMMUNICATIONS HOLDINGS, INC.

2008 LONG TERM PERFORMANCE PLAN

RESTRICTED STOCK UNIT AGREEMENT

(CEO Version 2013)

This Restricted Stock Unit Agreement (this “Agreement”), effective as of the Grant Date (as defined below), is between L-3 Communications Holdings, Inc., a Delaware corporation (the “Corporation”), and the Participant (as defined below).

1. Definitions . The following terms shall have the following meanings for purposes of this Agreement:

(a) “Award Letter” shall mean the letter to the Participant attached hereto as Exhibit A.

(b) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

(c) “Determination Date” shall mean the date on which the Committee determines whether the Performance Condition (as defined below) has been satisfied.

(d) “Free Cash Flow” shall mean (1) the Corporation’s net cash from operating activities, minus (2) capital expenditures, plus (3) dispositions of property, plant and equipment, in each case determined in accordance with GAAP and as derived from the Corporation’s audited consolidated financial statements prepared in the ordinary course of business; provided, that Free Cash Flow shall be calculated so as to eliminate the effect of: (i) discretionary contributions to pension plans that exceed the contributions forecasted in the Corporation’s most recent internal plan for the year as presented to the Board of Directors prior to the Grant Date; (ii) premiums and other payments in excess of principal and accrued interest associated with the retirement of debt; and (iii) tax payments or benefits associated with gains or losses on business divestitures in calculating net cash from operating activities;

(e) “GAAP” shall mean generally accepted accounting principles in the United States.

(f) “Grant Date” shall mean the “Grant Date” listed in the Award Letter.

(g) “Participant” shall mean the “Participant” listed in the Award Letter.

(h) “Restricted Units” shall mean that number of restricted units listed in the Award Letter as “Awards Granted,” subjection to Section 4(b).

(i) “Section 409A Change in Control Event” shall mean a change in ownership or effective control of the Corporation, or in the ownership of a substantial portion of the assets of the Corporation, within the meaning of Section 409A(a)(2)(A)(v) of the Code.

(j) “Shares” shall mean a number of shares of the Corporation’s Common Stock, par value $0.01 per share, equal to the number of Restricted Units outstanding under this Agreement.

2. Grant of Units . The Corporation hereby grants the Restricted Units to the Participant, each of which represents the right to receive one Share upon the expiration or termination of the Restricted Period (as defined below), subject to the terms, conditions and restrictions set forth in the L-3 Communications Holdings, Inc. 2008 Long Term Performance Plan (the “Plan”) and this Agreement.

3. Restricted Unit Account . The Corporation shall cause an account (the “Unit Account”) to be established and maintained on the books of the Corporation to record the number of Restricted Units credited to the Participant under the terms of this Agreement, which Unit Account shall be subject to adjustment in accordance with the terms of the Plan and this Agreement, including without limitation Section 4(b). The Participant’s interest in the Unit Account shall be that of a general, unsecured creditor of the Corporation.

4. Restricted Period; Performance Condition .

(a) Except as otherwise provided in paragraphs 6 and 7 hereof, the “Restricted Period” shall mean the period beginning on the Grant Date and expiring on the third anniversary of the Grant Date. Subject to Section 4(b) below, upon the expiration or termination of the Restricted Period, the Shares shall be issued to the Participant in accordance with Section 13.

(b) As promptly as practicable following the last day of the fiscal year which includes the Grant Date, the Committee shall determine, subject to Section 4(c), whether: (x) the amount of 1.0% of the Company’s Free Cash Flow for such fiscal year, exceeds (y) the grant date fair value of the Shares underlying the Restricted Units, determined in accordance with GAAP (such condition, the “Performance Condition”). If the Performance Condition is not satisfied, then:

(1) the number of Restricted Units shall automatically be reduced to the highest whole number that would have resulted in the Performance Condition being satisfied; and

(2) any Restricted Units previously awarded in excess of the number calculated in accordance with clause (1) above (and any cash dividends accrued thereon in accordance with Section 8 hereof) shall be forfeited without any further action on behalf of the Corporation, the Committee or the Participant.

(c) In the event of an equity restructuring, as defined in Financial Accounting Standards Board Accounting Standards Codification 718-10 (formerly Statement of Financial Accounting Standards 123R), the Committee shall modify the Performance Condition to the extent it is affected by such restructuring so as to preserve (without enlarging) the likelihood that such Performance Condition shall be satisfied, with the manner of such adjustment to be determined by the Committee in its sole discretion.

5. Restrictions on Transfer During Restricted Period . Until the Restricted Period has expired or terminated, the Restricted Units shall not be sold, assigned, transferred, pledged, hypothecated, loaned, or otherwise disposed of, and during the Participant’s lifetime the Participant’s rights with respect to the Restricted Units shall be exercised only by such Participant or by his or her guardian or legal representative, except that the Restricted Units may be transferred by will or by the laws of descent and distribution. Any sale, assignment, transfer, pledge, hypothecation, loan or other disposition other than in accordance with this Section 5 shall be null and void.

6. Change in Control During Restricted Period . Upon the occurrence of a “change in control” that constitutes a Section 409A Change in Control Event, the Restricted Period shall automatically terminate and, if the Determination Date has not occurred, the Performance Condition shall automatically be waived, and the Shares shall thereafter be issued to the Participant in accordance with

Section 13. In the event of any other “change in control” prior to the Determination Date the Performance Condition shall automatically be waived, but the Restricted Period shall not be immediately affected, and shall subsequently terminate (and the Shares shall thereafter be issued to the Participant in accordance with Section 13) upon the earliest to occur of: (a) a Section 409A Change in Control Event, (b) the Participant’s death, (c) the six-month anniversary of the termination of the Participant’s employment with the Corporation and its subsidiaries due to “disability” (as defined in Section 7(c) hereof) or (d) the third anniversary of the Grant Date. For purposes of this Agreement, a “change in control” means:

(a) The acquisition by any person or group (including a group within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act), other than the Corporation or any of its subsidiaries, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of a majority of the combined voting power of the Corporation’s then outstanding voting securities, other than by any employee benefit plan maintained by the Corporation;

(b) The sale of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole; or

(c) The election, including the filling of vacancies, during any period of 24 months or less, of 50% or more of the members of the Board of Directors, without the approval of Continuing Directors, as constituted at the beginning of such period. “Continuing Directors” shall mean any director of the Corporation who either (i) is a member of the Board of Directors on the Grant Date, or (ii) is nominated for election to the Board of Directors by a majority of the Board which is comprised of directors who were, at the time of such nomination, Continuing Directors.

7. Termination of Employment During Restricted Period .

(a) In the event that the Participant’s employment with the Corporation and its subsidiaries is terminated (other than by reason of death, “retirement” or “disability,” as defined below) prior to the expiration or termination of the Restricted Period and prior to the occurrence of a “change in control” (as defined in Section 6), the Participant shall forfeit the Restricted Units and all of the Participant’s rights hereunder shall cease (unless otherwise provided for by the Committee in accordance with the Plan). The Participant’s rights to the Restricted Units shall not be affected by any change in the nature of the Participant’s employment so long as the Participant continues to be an employee of the Corporation or any of its subsidiaries.

(b) In the event the Participant terminates employment with the Corporation and its subsidiaries because of “retirement” prior to the expiration or termination of the Restricted Period and prior to the occurrence of a “change in control” (as defined in Section 6), the Restricted Period and the Performance Condition shall not be affected and shall expire with the passage of time or be satisfied or not satisfied, as applicable, in each case in accordance with paragraph 4, except that (i) in the event that the Participant dies following retirement but prior to the expiration of the Restricted Period, the Restricted Period shall automatically terminate and in the event the Determination Date has not occurred, the Performance Condition shall be waived, and the Shares shall thereafter be delivered to the Participant’s transferee(s) in accordance with Sections 5 and 13 and (ii) the Restricted Period may earlier terminate and the Performance Condition may be waived in accordance with Section 6. For purposes of this Agreement, retirement means the Participant (A) terminates employment with the Corporation and its subsidiaries other than for Cause (and is not subject to termination for Cause at the time of such termination) more than one year after the Grant Date, (B) is available for consultation with the Corporation or any of its subsidiaries at the reasonable request of the Corporation or one of its

subsidiaries and (C) terminates employment on or after attaining age 65 and completing at least five years of service in the aggregate with the Corporation and its subsidiaries (which service must be continuous through the date of termination except for a single break in service that does not exceed one year in length). For purposes of this Agreement, “Cause” means the Participant’s (1) intentional failure to perform reasonably assigned duties, (2) dishonesty or willful misconduct in the performance of duties, (3) engaging in a transaction in connection with the performance of duties to the Corporation or its subsidiaries which transaction is adverse to the interests of the Corporation and is engaged in for personal profit or (4) willful violation of any law, rule or regulation in connection with the performance of duties (other than traffic violations or similar offenses).

(c) If the Participant’s employment with the Corporation and its subsidiaries is terminated because of death, the Restricted Period shall automatically terminate and in the event the Determination Date has not occurred, the Performance Condition shall be waived, and the Shares shall thereafter be issued to the Participant (or to the Participant’s transferee(s) under Section 5 as the case may be) in accordance with Section 13. If the Participant’s employment with the Corporation and its subsidiaries is terminated because of “disability,” the Performance Condition shall be waived if the Determination Date has not occurred and the Restricted Period shall not be immediately affected, but shall subsequently terminate (and the Shares shall thereafter be issued to the Participant in accordance with Section 13) upon the earliest to occur of: (i) the six-month anniversary of the date of termination, (ii) the Participant’s death, (iii) a Section 409A Change in Control Event or (iv) the third anniversary of the Grant Date. For purposes of this Agreement, disability means the Participant, as a result of incapacity due to physical or mental illness, becomes eligible for benefits under the long-term disability plan or policy of the Corporation or a subsidiary in which the Participant is eligible to participate.

(d) Whether (and the circumstances under which) employment has been terminated and the determination of the termination date for the purposes of this Agreement shall be determined by the Committee or (with respect to any employee other than an “Executive Officer” as defined under the Plan) its designee (who, at the date of this Agreement, shall be the Corporation’s Vice President of Human Resources), whose good faith determination shall be final, binding and conclusive; provided , that such designee may not make any such determination with respect to his or her own employment.

8. Dividends . If the Corporation pays a cash dividend on its common stock, the Participant shall accrue in his or her Dividend Account (as defined below) a cash dividend equivalent with respect to the Restricted Units credited to the Participant’s Unit Account as of the record date for the dividend, with each Restricted Unit being equivalent to one share of common stock. The Corporation shall cause an account (the “Dividend Account”) to be established and maintained as part of the records of the Corporation to evidence the aggregate cash dividend equivalents accrued by the Participant from time to time under this Section. No interest shall accrue on any amounts reflected in the Dividend Account. The Participant’s interest in the amounts reflected in the Dividend Account shall be that of a general, unsecured creditor of the Corporation. Subject to, and as promptly as practicable following, the issuance of the Shares pursuant to Section 13 hereunder, the Corporation shall pay an amount in cash (without interest and subject to applicable withholding taxes) to the Participant (or his or her transferee(s) who are issued the Shares pursuant to Section 13 hereunder) equal to the aggregate cash dividend equivalents accrued in the Participant’s Dividend Account and the Participant’s Dividend Account shall be eliminated at that time. In the event that the Participant forfeits his or her rights to any or all of the Restricted Units, including pursuant to Section 4(b) hereof, the Participant also shall be deemed to have forfeited his or her rights to any cash dividend equivalents accrued in the Participant’s Dividend Account in respect of such forfeited Restricted Units and, if no Restricted Units remain outstanding under this Agreement the Participant’s Dividend Account shall be eliminated at that time.

9. No Right to Continued Employment . Nothing in this Agreement or the Plan shall be interpreted or construed to confer upon the Participant any right to continue employment by the Corporation or any of its subsidiaries, nor shall this Agreement or the Plan interfere in any way with the right of the Corporation or any of its subsidiaries to terminate the Participant’s employment at any time for any reason whatsoever, whether or not with cause.

10. No Rights as a Stockholder . The Participant’s interest in the Restricted Units shall not entitle the Participant to any rights as a stockholder of the Corporation. The Participant shall not be deemed to be the holder of, or have any of the rights and privileges of a stockholder of the Corporation in respect of, the Shares unless and until such Shares have been issued to the Participant in accordance Section 13.

11. Adjustments Upon Change in Capitalization . In the event of any reorganization, merger, consolidation, recapitalization, reclassification, stock split, stock dividend or similar capital adjustment, as a result of which shares of any class shall be issued in respect of outstanding shares of the Corporation’s Common Stock or shares of Corporation’s Common Stock shall be changed into a different number of shares or into another class or classes or into other property or cash, the Restricted Units, the Participant’s Unit Account and/or the Shares shall be adjusted to reflect such event so as to preserve (without enlarging) the value of the award hereunder, with the manner of such adjustment to be determined by the Committee in its sole discretion. This paragraph shall also apply with respect to any extraordinary dividend or other extraordinary distribution in respect of the Corporation’s Common Stock (whether in the form of cash or other property).

12. General Restrictions . Notwithstanding anything in this Agreement to the contrary, the Corporation shall have no obligation to issue or transfer the Shares as contemplated by this agreement unless and until such issuance or transfer shall comply with all relevant provisions of law and the requirements of any stock exchange on which the Corporation’s shares are listed for trading.

13. Issuance of Shares . Upon the expiration or termination of the Restricted Period and payment by the Participant of any applicable taxes pursuant to Section 14 of this Agreement, the Corporation shall, as soon as reasonably practicable (and in any event within 75 days of the termination or expiration of the Restricted Period), but subject to any delay necessary to comply with Section 12 hereof, issue the Shares to the Participant, free and clear of all restrictions; provided , that if the termination of the Restricted Period results from a Section 409A Change in Control Event, then notwithstanding the foregoing, the Shares shall be issued within 30 days of the Section 409A Change in Control Event. The Corporation shall not be required to deliver any fractional Shares, but shall pay, in lieu thereof, the fair market value (as defined in the Plan) as of the date the restrictions lapse of such fractional share to the Participant. The Corporation shall pay any costs incurred in connection with issuing the Shares. Upon the issuance of the Shares to the Participant, the Participant’s Unit Account shall be eliminated. Notwithstanding the provisions of this Section, if the Restricted Units have been transferred in accordance with the provisions of Section 5 prior to the issuance of the Shares to the Participant in accordance with this Section, then the issuance of the Shares and any payment in lieu of fractional Shares shall be made to the transferee(s).

14. Tax Withholding . Upon the expiration or termination of the Restricted Period, the Participant shall remit to the Corporation the minimum amount necessary to satisfy Federal, state, local or foreign withholding tax requirements, if any (“Withholding Taxes”) as a condition to the Corporation’s issuance of any Shares as provided in Section 13. The payment shall be in (i) cash, (ii) the delivery of Shares, (iii) a reduction in the number of Shares otherwise issuable or deliverable or other amounts otherwise payable to the Participant pursuant to this Agreement, or (iv) a combination of (i), (ii) and/or

(iii). The value of any Shares delivered or withheld as payment in respect of withholding tax requirements shall be determined by reference to the Fair Market Value of such Shares as of the date of such withholding or delivery. In the event that Withholding Taxes are satisfied by withholding a portion of the Shares otherwise issuable or deliverable to the Participant pursuant to this Agreement, the Corporation shall not withhold any Shares in excess of the minimum number of Shares necessary to satisfy the applicable Withholding Taxes.

15. Subsidiary . As used herein, the term “subsidiary” shall mean, as to any person, any corporation, association, partnership, joint venture or other business entity of which 50% or more of the voting stock or other equity interests (in the case of entities other than corporations), is owned or controlled (directly or indirectly) by that entity, or by one or more of the Subsidiaries of that entity, or by a combination thereof.

16. Plan Governs . The Participant hereby acknowledges receipt of a copy of the Plan and agrees to be bound by its terms, all of which are incorporated herein by reference. The Plan shall govern in the event of any conflict between this Agreement and the Plan.

17. Modification of Agreement . This Agreement may be modified, amended, suspended or terminated, and any terms or conditions may be waived, but, subject to the terms and conditions of the Plan and this Agreement, only by a written instrument executed by the parties hereto.

18. Severability . Should any provision of this Agreement be held by a court of competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be affected by such holding and shall continue in full force in accordance with their terms.

19. Governing Law . The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York without giving effect to the conflicts of laws principles thereof. If the Participant has received a copy of this Agreement (or the Plan or any other document related hereto or thereto) translated into a language other than English, such translated copy is qualified in its entirety by reference to the English version thereof, and in the event of any conflict the English version will govern.

20. Successors in Interest . This Agreement shall inure to the benefit of and be binding upon any successor to the Corporation. This Agreement shall inure to the benefit of the Participant or the Participant’s legal representatives. All obligations imposed upon the Participant and all rights granted to the Corporation under this Agreement shall be final, binding and conclusive upon the Participant’s heirs, executors, administrators and successors.

21. Administration . The Committee shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee shall be final and binding upon the Participant, the Corporation and all other interested persons. No member of the Committee shall be personally liable for any action determination or interpretation made in good faith with respect to the Plan or the Restricted Units. In its absolute discretion, the Board of Directors may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan and this Agreement.

22. Resolution of Disputes . Any dispute or disagreement which may arise under, or as a result of, or in any way related to, the interpretation, construction or application of this Agreement shall be determined by the Committee. Any determination made hereunder shall be final, binding and conclusive on the Participant and Corporation for all purposes.

23. Data Privacy Consent . As a condition of the grant of the Restricted Units, the Participant hereby consents to the collection, use and transfer of personal data as described in this paragraph. The Participant understands that the Corporation and its subsidiaries hold certain personal information about the Participant, including name, home address and telephone number, date of birth, social security number, salary, nationality, job title, ownership interests or directorships held in the Corporation or its subsidiaries, and details of all restricted units or other equity awards or other entitlements to shares of common stock awarded, cancelled, exercised, vested or unvested (“Data”). The Participant further understands that the Corporation and its subsidiaries will transfer Data among themselves as necessary for the purposes of implementation, administration and management of the Participant’s participation in the Plan, and that the Corporation and any of its subsidiaries may each further transfer Data to any third parties assisting the Corporation in the implementation, administration and management of the Plan. The Participant understands that these recipients may be located in the European Economic Area or elsewhere, such as the United States. The Participant hereby authorizes them to receive, possess, use, retain and transfer such Data as may be required for the administration of the Plan or the subsequent holding of shares of common stock on the Participant’s behalf, in electronic or other form, for the purposes of implementing, administering and managing the Participant’s participation in the Plan, including any requisite transfer to a broker or other third party with whom the Participant may elect to deposit any shares of common stock acquired under the Plan. The Participant may, at any time, view such Data or require any necessary amendments to it.

24. Limitation on Rights; No Right to Future Grants; Extraordinary Item of Compensation . By accepting this Agreement and the grant of the Restricted Units contemplated hereunder, the Participant expressly acknowledges that (a) the Plan is discretionary in nature and may be suspended or terminated by the Corporation at any time; (b) the grant of Restricted Units is a one-time benefit that does not create any contractual or other right to receive future grants of restricted units, or benefits in lieu of restricted units; (c) all determinations with respect to future grants of restricted units, if any, including the grant date, the number of Shares granted and the restricted period, will be at the sole discretion of the Corporation; (d) the Participant’s participation in the Plan is voluntary; (e) the value of the Restricted Units is an extraordinary item of compensation that is outside the scope of the Participant’s employment contract, if any, and nothing can or must automatically be inferred from such employment contract or its consequences; (f) grants of restricted units are not part of normal or expected compensation for any purpose and are not to be used for calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments, and the Participant waives any claim on such basis; and (g) the future value of the underlying Shares is unknown and cannot be predicted with certainty. In addition, the Participant understands, acknowledges and agrees that the Participant will have no rights to compensation or damages related to restricted unit proceeds in consequence of the termination of the Participant’s employment for any reason whatsoever and whether or not in breach of contract.

25. Award Administrator . The Corporation may from time to time to designate a third party (an “Award Administrator”) to assist the Corporation in the implementation, administration and management of the Plan and any Restricted Units granted thereunder, including by sending Award Letters on behalf of the Corporation to Participants, and by facilitating through electronic means acceptance of Restricted Unit Agreements by Participants.

26. Section 409A . This Agreement is intended to comply with the provisions of Section 409A of the Code and the regulations promulgated thereunder. Without limiting the foregoing, the Committee shall have the right to amend the terms and conditions of this Agreement in any respect as may be necessary or appropriate to comply with Section 409A of the Code or any regulations promulgated thereunder, including without limitation by delaying the issuance of the Shares contemplated hereunder.

27. Book Entry Delivery of Shares . Whenever reference in this Agreement is made to the issuance or delivery of certificates representing one or more Shares, the Corporation may elect to issue or deliver such Shares in book entry form in lieu of certificates.

28. Acceptance . This Agreement shall not be enforceable until it has been executed by the Participant. In the event the Corporation has designated an Award Administrator, the acceptance (including through electronic means) of the Restricted Unit award contemplated by this Agreement in accordance with the procedures established from time to time by the Award Administrator shall be deemed to constitute the Participant’s acknowledgment and agreement to the terms and conditions of this Agreement and shall have the same legal effect in all respects of the Participant having executed this Agreement by hand.


By:		L-3 COMMUNICATIONS HOLDINGS, INC.


		Michael T. Strianese
		President and Chief Executive Officer Chief Financial Officer


		Steven M. Post
		Senior Vice President, General Counsel and Corporate Secretary

Acknowledged and Agreed

as of the date first written above:

Participant Signature

Exhibit 10.6

L-3 COMMUNICATIONS HOLDINGS, INC.

2008 LONG TERM PERFORMANCE PLAN

RESTRICTED STOCK UNIT AGREEMENT

(Senior Executive Version 2013)