10-K 1 h10041700x1_10k.htm FORM 10-K

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2016

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

For the transition period from           to          

Commission file number 001-14141

L3 TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

Delaware
13-3937436
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
600 Third Avenue, New York, NY
10016
(Address of principal executive offices)
(Zip Code)

(212) 697-1111
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Name of each exchange on which registered:
Common stock, par value $0.01 per share
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☒  Yes o  No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
o  Yes ☒  No

Indicate by check mark whether the registrant (1) has 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒  Yes o  No

Indicate by check mark whether the registrant has submitted electronically and posted on the corporate Website, 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 registrant was required to submit and post such files). ☒  Yes o  No

Indicate by check mark if disclosure of the delinquent filer pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a 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  o
Non-accelerated filer  o
Smaller reporting company  o
 
 
(Do not check if a smaller reporting company)
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o  Yes ☒  No

The aggregate market value of the registrant’s voting stock held by non-affiliates as of June 24, 2016 was approximately $10.8 billion. For purposes of this calculation, the registrant has assumed that the directors and executive officers are affiliates.

There were 77,798,844 shares of the registrant’s common stock with a par value of $0.01 outstanding as of the close of business on February 17, 2017.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement to be filed with the Securities and Exchange Commission (“SEC”) pursuant to Regulation 14A relating to the registrant’s Annual Meeting of Shareholders, to be held on May 9, 2017, will be incorporated by reference in this Form 10-K in response to Items 10, 11, 12, 13 and 14 of Part III. The definitive proxy statement will be filed with the SEC no later than 120 days after the registrant’s fiscal year ended December 31, 2016.

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PART I

Effective December 31, 2016, L-3 Communications Holdings, Inc. merged into L-3 Communications Corporation and then L-3 Communications Corporation changed its name to L3 Technologies, Inc. References to “L3”, “Company”, “we”, “us” and “our” in this filing on Form 10-K refer to L3 Technologies, Inc.

Item 1. Business

Overview

L-3 Communications Holdings, Inc. (L-3 Holdings), a Delaware corporation organized in April 1997, derived all of its operating income and cash flows from its wholly-owned subsidiary, L-3 Communications Corporation (L-3 Corp). On December 31, 2016, we completed an internal reorganization to eliminate our holding company structure. Pursuant to the reorganization, L-3 Holdings was merged (the Merger) with and into L-3 Corp, with the subsidiary being the surviving entity in the Merger (the Surviving Entity). Immediately following the completion of the Merger, the name of the Surviving Entity was changed to L3 Technologies, Inc. (the Name Change).

As a result of the Merger and the Name Change, all outstanding shares of L-3 Holdings’ common stock were automatically converted into the same number of shares of common stock of L3 Technologies, Inc., with economic, voting and other rights that are substantially identical. The common stock of L3 Technologies, Inc. commenced trading effective January 3, 2017 (the first trading day of 2017) on the New York Stock Exchange under the ticker symbol “LLL”, the same ticker symbol previously used by us.

L3 is a prime contractor in Intelligence, Surveillance and Reconnaissance (ISR) systems, aircraft sustainment (including modifications, logistics and maintenance), simulation and training, night vision and image intensification equipment and security and detection systems. L3 is also a leading provider of a broad range of communication and electronic systems and products 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), foreign governments, and domestic and international commercial customers.

We have the following three reportable segments: (1) Electronic Systems, (2) Aerospace Systems and (3) Communication Systems. Effective March 1, 2017, we will realign our Electronic Systems segment in connection with the retirement of the segment’s president in the second quarter of 2017. The current Electronic Systems segment will be split into two separate segments named (1) Electronic Systems and (2) Sensor Systems. Accordingly, our structure will consist of the following four segments: (1) Aerospace Systems, (2) Communication Systems, (3) Electronic Systems and (4) Sensor Systems. We will report our results under the realigned business segments commencing in the first quarter of 2017 at which time we will restate the corresponding information for prior periods. Financial information for our segments, including sales by geographic area, is included in “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 21 to our audited consolidated financial statements.

On December 7, 2015, we entered into a definitive agreement to sell our National Security Solutions (NSS) business to CACI International Inc. The transaction was completed on February 1, 2016. NSS provided cybersecurity solutions, high-performance computing, enterprise IT services, analytics and intelligence analysis to the DoD, U.S. Government intelligence agencies, federal civilian agencies and foreign governments. In accordance with Accounting Standards Update (ASU) 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, the assets and liabilities and results of operations of NSS are reported as discontinued operations for all periods presented. Accordingly, all references made to financial data in this Annual Report on Form 10-K are to L3’s continuing operations, unless otherwise specifically noted.

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For the year ended December 31, 2016, we generated sales of $10,511 million, consolidated and segment operating income of $1,008 million and net cash from operating activities from continuing operations of $1,097 million. The table below presents a summary of our 2016 sales by major category of end customer. For a more detailed presentation of our sales by end customer, see “Major Customers” within this Business section.

 
2016 Sales
% of
Total Sales
 
(in millions)
 
DoD
$
7,299
 
 
70
%
Other U.S. Government
 
350
 
 
3
 
Total U.S. Government
 
7,649
 
 
73
 
International (foreign governments)
 
1,580
 
 
15
 
Commercial — international
 
732
 
 
7
 
Commercial — domestic
 
550
 
 
5
 
Total sales
$
10,511
 
 
100
%

Business Strategy

The goal of our strategy is to build disciplined growth. The key elements of this strategy are summarized in the paragraphs below. Our business strategy is customer-focused and aims to increase shareholder value by strengthening our market positions in aerospace systems, electronic systems, sensor systems and communication systems by leveraging our excellent customer relationships and pursuing adjacent market opportunities, including international sales. We intend to gain market share with innovative and affordable solutions, collaboration across L3’s business units and demonstrated past performance that address customer imperatives. We expect that we will continue to focus our business portfolio to emphasize products and systems in our core defense electronics, ISR and Communication businesses. Financially, our emphasis is on growing sales, operating income, earnings per share and cash flow, as well as increasing operating margin. Our goal of disciplined growth involves a flexible and balanced combination of organic growth, cost reductions, and select business acquisitions and divestitures, enabling us to grow the company and also return cash to our shareholders in a balanced and disciplined manner. Our strategy includes the elements discussed below.

Maintain an Agile Culture of Excellence, Integrity and Accountability.   A key part of L3’s strategy is our agile, accountable, and results-driven culture that focuses on meeting our customers’ needs and on achieving L3’s strategic goals and growth objectives. L3’s culture is made up of diverse people providing creative, innovative and affordable solutions and ideas in an environment that fosters teamwork and collaboration across our business units. Operating with integrity and a commitment to the highest standards of ethical conduct and maintaining strong internal controls are foundational elements of our strategy to build and maintain the trust of our customers, shareholders, employees, suppliers and communities where we live and work.

Strengthen and Expand Our Market Positions and Unique Capabilities.   We intend to use our existing prime contractor and supplier positions and internal investments to increase our market share, grow our sales organically and continue to build strong businesses with durable discriminators that have a number one or number two market position. We intend to expand our prime contractor roles in select business areas where we have domain expertise, including special operations forces and U.S. Government classified business. We expect to benefit from and expand our supplier positions to multiple bidders by leveraging our customer relationships, pursuing adjacent market opportunities and expanding our content on Original Equipment Manufacturers (OEMs) platforms. As an independent supplier of a broad range of products, subsystems and systems in several key business areas, our growth will partially be driven by expanding our share of existing programs and participating in new programs. Teaming arrangements with other prime contractors and platform OEMs is one way we intend to pursue select new business opportunities and expand our content on select platforms. We plan to maintain our diversified and broad business mix with limited reliance on any single contract, follow-on or new business opportunity. While sales to the U.S. Government, especially the DoD, will remain an integral part of L3’s business, we also intend to continue to increase our sales to foreign governments and domestic and international commercial businesses. We expect to continue to supplement our organic sales growth by acquiring, on a select basis, businesses that provide attractive returns on investment and add new products, technologies, programs and contracts, or provide access to select DoD, other U.S. Government, international and/or commercial customers.

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Collaborate to Increase Growth Opportunities through Innovation.   We intend to deepen the collaboration among our diversified businesses to develop new business opportunities, combine our leading technologies and deliver the right solutions to our customers quickly. We expect that our core strengths of agility, responsiveness and cost-effectiveness will allow us to continue to provide exceptional performance to our customers. We intend to continue to focus on innovation and research and development, which will allow us to enhance our existing products and to create new and more affordable solutions and products for our customers.

Leverage Our Excellent Customer Relationships.   We intend to maintain and expand our excellent customer relationships. We also intend to continue to leverage our customer relationships and our capabilities, including proprietary technologies, to expand the scope of our products to existing and new customers. We also intend to continue to align our products, services, investments in research and development and business acquisitions to proactively address customer priorities and requirements and invest in growth areas such as aerospace systems, sensor systems, U.S. Government classified business and special operations.

Increase Margins by Proactively Managing Our Cost Structure and Optimizing Our Business Portfolio.   We intend to increase our operating margin by improving productivity and reducing direct contract costs and overhead costs, including general and administrative costs. Our effective management of labor, material, subcontractor and other direct costs is also an important element of cost control and favorable contract performance. We believe that proactively re-sizing our businesses to their anticipated sales, combined with continuous cost improvement, will enable us to increase our cost competitiveness and operating margin and to also selectively invest in new product development, business acquisitions, bids and proposals and other business development activities to win new business. We intend to continue to evaluate our portfolio of businesses to address the needs of a dynamic and demanding market place and to strengthen our core business through select business acquisitions or divestitures.

Achieve Outstanding Program Performance.   We believe that outstanding performance on our existing programs and contracts, in terms of on-budget, on-schedule and satisfying and exceeding technical and other contractual performance requirements, is the foundation for expanding L3’s prime contractor and supplier positions and winning new business. We believe that a prerequisite for growing and winning new business is to retain our existing business by successfully meeting the performance criteria included in our contracts. We will continue to focus on delivering superior contract performance with affordable prices to our customers in order to maintain our reputation as an agile and responsive contractor and to differentiate ourselves from our competitors.

Attract and Retain Skilled Personnel.   The success of our businesses is, to a large extent, dependent upon the knowledge and skills of our employees. We intend to continue to attract and retain employees who have management, contracting, engineering and technical skills and who have U.S. Government security clearances, particularly those with clearances of top-secret and above.

Business Acquisitions and Divestitures

During the years ended December 31, 2016, 2015 and 2014, we used net cash of $388 million, $320 million and $57 million for business acquisitions, respectively. See “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Business Acquisitions and Divestitures” for additional information regarding our business acquisitions and divestitures, including the sale of NSS on February 1, 2016 for a sale price of $547 million.

Products and Services

Our three reportable segments provide a wide range of products and services to various customers and are described below. See “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Reportable Segment Results of Operations” and Note 21 to our audited consolidated financial statements for financial information about each segment.

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Electronic Systems Reportable Segment

In 2016, Electronic Systems had net sales of $4,219 million, representing 40% of our total net sales. The businesses in this reportable segment provide a broad range of products and services, including components, products, subsystems, systems and related services to military and commercial customers in several niche markets. The table below provides a summary of the segment’s business areas and the percentage that each contributed to Electronic Systems’ net sales in 2016.

Business Area
% of 2016
Segment Sales
Precision Engagement & Training
 
26
%
Aviation Products & Security
 
22
 
Power & Propulsion Systems
 
21
 
Sensor Systems
 
18
 
Warrior Systems
 
10
 
Advanced Programs
 
3
 
Total Electronic Systems
 
100
%

The table below provides additional information for the systems, products and services; selected applications; and selected platforms or end users of our Electronic Systems reportable segment.

Systems/Products/Services
Selected Applications
Selected Platforms/End Users
Precision Engagement & Training
Military and commercial aircraft flight simulators, reconfigurable training devices, distributed mission training suites
Advanced simulation technologies and training for pilots, navigators, flight engineers, gunners and operators
Fixed and rotary winged aircraft and ground vehicles for U.S. Air Force (USAF), U.S. Navy (USN), U.S. Army, foreign militaries, commercial airlines and aircraft OEMs
Training services, courseware integrated logistics support and maintenance
Systems management, operations and maintenance
Various DoD and foreign military customers
Global airline pilot training and crew resourcing
Commercial flight training for pilots
Commercial airlines and flight training companies
Fuzing and ordnance systems
Precision munitions, fuzes, and electronic and electro safety arming devices (ESADs)
Various DoD and foreign military customers
Unmanned systems and components
Tactical unmanned air systems (UAS), medium altitude long endurance (MALE) UAS, small expendable UAS, flight controls, sensors and remote viewing systems
U.S. DoD and foreign ministries of defense
Radar-based sensors and systems
Electronic warfare, unmanned systems, ISR and precision-guided munitions
U.S. DoD and DHS
Global Positioning System (GPS) receivers
Location tracking
Guided projectiles and precision munitions
Navigation systems and positioning navigation units
Satellite launch and orbiting navigation and navigation for ground vehicles and fire control systems
USAF, U.S. Army, U.S. Marine Corps (USMC) and National Aeronautics Space Administration (NASA)
   

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Systems/Products/Services
Selected Applications
Selected Platforms/End Users
Aviation Products & Security
Cockpit and mission displays
High performance, ruggedized flat panel and cathode ray tube displays and processors
Various military aircraft
Airborne traffic and collision avoidance systems, terrain awareness warning systems
Reduce the potential for midair aircraft collisions and crashes into terrain by providing visual and audible warnings and maneuvering instructions to pilots
Commercial transport, business, regional and military aircraft
Advanced cockpit avionics
Pilot safety, navigation and situation awareness products
Commercial transport, business, regional and military aircraft
Solid state crash protected cockpit voice and flight data recorders
Aircraft voice and flight data recorders that continuously record voice and sounds from cockpit and aircraft intercommunications
Commercial transport, business, regional and military aircraft
Airport security screening solutions, explosives detection systems and whole body scanning systems
Rapid scanning of passengers and their checked baggage and carry-on luggage, scanning of air cargo
U.S. Transportation Security Administration (TSA), Canadian TSA, domestic and international airports
Non-intrusive inspection systems for threat and contraband detection
Protection of critical infrastructure including ports, borders, power generators, government buildings, public transportation, petro-chemical facilities
U.S. Customs and Border Protection and international equivalents, domestic and international Port Operators, private enterprises
Power & Propulsion Systems
Naval power delivery, conversion and switching products, and hybrid electric drives
Switching, distribution and protection, frequency and voltage conversion, propulsion motors and drive units
Naval submarines, surface ships and aircraft carriers
Military combat vehicle and unmanned aerial vehicle propulsion systems, electrical power generation systems and mobile electric power generators
Ground and aerial platforms and portable prime power units
U.S. Army, USMC, USAF, USN and foreign ministries of defense, manned/unmanned military platforms
Airborne dipping sonars, submarine and surface ship towed arrays
Submarine and surface ship detection and localization
USN and foreign navies
Underwater sensor ranges
Monitor nuclear testing, track submarines and surface vessels
U.S. and foreign military and commercial customers
Service life extensions
Landing craft air cushion amphibious vehicle
USN
   

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Systems/Products/Services
Selected Applications
Selected Platforms/End Users
In-service engineering, ship repair, overhaul, upgrades and maintenance, and battle force tactical training
Embedded shipboard training systems, towed arrays, navigation systems, radar systems and electronic warfare systems
USN, U.S. Coast Guard (USCG), U.S. Army and commercial ship owners
Power plant simulation modeling, computer systems and training services
Submarines, nuclear and other power plants
Foreign navies, nuclear and other power plant companies
Automation, navigation, communications, and sensors and integrated Command, Control, Communications, Computers and Navigation (C4N) solutions
Vessel bridge and machinery plant platform management systems, and C4N systems
USN, USCG and foreign navies
High power microwave sources, systems & effects, pulse power systems and electromagnetics hardened construction
Forensic analysis of weapons of mass destruction, and active detection of special nuclear material.
U.K. Ministry of Defence (MoD), U.S. Defense Threat Reduction Agency, U.S. Army and USAF
Ballistic missile targets
Targets for ground based ballistic missile intercept systems
U.S. Missile Defense Agency (MDA)
Sensor Systems
Targeted stabilized camera systems with integrated sensors and wireless communication systems
ISR data collection and surveillance and reconnaissance
DoD, foreign ministries of defense, intelligence and security agencies, law enforcement, manned/unmanned platforms (air, land and sea)
Airborne and ground based high energy laser beam directors, laser designators and high tracking rate telescopes
Directed energy systems, space surveillance, satellite laser ranging and laser communications, airborne and ground target designation/illumination
USAF and NASA
Submarine photonic systems and periscopes
ISR for undersea platforms
All classes of USN and allied submarines
Naval surface imaging systems
Situational awareness and precision long-range targeting and tracking of surface targets
USN DDG and cruisers, international AEGIS weapons system operators
Force protection, electronic warfare and satellite monitoring
Counter Improvised Explosive Device (IED) systems, jamming and satellite monitoring
U.K. MoD and other foreign security agencies and ministries of defense
ISR mission management software and geospatial application technology programs
Cueing system software, hardware and video algorithms and wide-area sensor integration solutions and software
USAF, U.S. Special Operations Command (USSOCOM), Naval Surface Warfare Center and various other DoD agencies
   

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Systems/Products/Services
Selected Applications
Selected Platforms/End Users
Warrior Systems
Enhanced vision, weapon sights products, laser designation and range finder systems
Image intensified night vision goggles/sights, holographic weapon sights, thermal sights and imagers for special forces, pilots and aircrews, soldiers, marines, sailors and law enforcement personnel and airborne and ground target designation/illumination
U.S. DoD, U.S. federal agencies, U.S. law enforcement agencies, and foreign militaries
Advanced Programs
Optics, telescopes and precision optical subsystems
Airborne pointing and scanning mirrors and stabilized lightweight multi-spectral telescopes
NASA, DoD and commercial space
Electronic systems and software development
Defense and intelligence capabilities
DoD and intelligence community
   

Aerospace Systems Reportable Segment

In 2016, Aerospace Systems had net sales of $4,240 million, representing 40% of our total net sales. The businesses in this reportable segment provide products and services for the global ISR and Command, Control and Communications (C3) markets, specializing in signals intelligence (SIGINT) and multi-intelligence platforms, to include full motion video, electro-optical, infrared, and synthetic aperture radars, along with other types of information gathering systems. These strategic and tactical products and services provide the warfighter with the ability to detect, collect, identify, analyze and disseminate information from command centers, communication nodes and air defense systems for real-time situational awareness and response. These products and services also include highly specialized fleet management sustainment and support services, including procurement, systems integration, sensor development, modifications and periodic depot maintenance for ISR and special mission aircraft and airborne systems. We believe that these products and services are critical elements for a substantial number of major C3 and intelligence gathering systems. The businesses in this reportable segment also provide engineering, modernization, upgrades and sustainment, maintenance and logistics support solutions for military and various government aircraft, ground vehicles, personnel equipment and other platforms. These solutions include aerospace and other technical services related to large fleet support, such as repair and overhaul, logistics and supply chain management, primarily for military training, tactical, transport cargo and utility aircraft. We sell these products and services primarily to the DoD and select foreign governments.

The table below provides a summary of the segment’s business areas and the percentage that each contributed to Aerospace Systems’ net sales in 2016.

Business Area
% of 2016
Segment Sales
ISR Systems
 
51
%
Vertex Aerospace
 
31
 
Aircraft Systems
 
18
 
Total Aerospace Systems
 
100
%

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The table below provides additional information for the systems, products and services; selected applications; and selected platforms or end users of our Aerospace Systems reportable segment.

Systems/Products/Services
Selected Applications
Selected Platforms/End Users
ISR Systems
Prime mission systems integration, sensor development and operations and support
Signal processing and exploitation, airborne ISR applications, antenna technology, real-time process control and software development
DoD, USAF, U.K. MoD, and other select foreign military ISR aircraft platforms and ground systems
Fleet management of special mission aircraft, including avionics and mission system upgrades and logistics support
Measurement collection and signal intelligence, special missions
DoD and classified customers within the U.S. Government
ISR operations and support
Data link support and services, special applications, classified projects, spares and repairs
USAF and U.S. Army ISR aircraft platforms and ground systems
Vertex Aerospace
Logistics support and maintenance
Aircraft maintenance and repair, flight operations support for training, transport/cargo and special mission aircraft
U.S. Army, USAF, USN and select foreign militaries
Contract Field Teams (CFT)
Deployment of highly mobile, quick response field teams to customer locations to supplement the customer’s resources for various ground vehicles and aircraft
U.S. Army, USAF, USN and USMC
Contractor Operated and Managed Base Supply (COMBS)
Inventory management activities relating to flight support and maintenance, including procurement and field distribution
Military training and transport/cargo aircraft for USN, USAF and U.S. Army
Aircraft Systems
Modernization and life extension maintenance upgrades and support
Aircraft structural modifications and inspections, installation of mission equipment, navigation and avionics products and interior modifications
USN, USAF, select foreign governments, OEMs, VIP and Head-of-State (HOS) aircraft, and various military fixed and rotary wing aircraft
Fabrication and assembly of fixed and rotary wing aerostructures
Rotary wing cabin assemblies, new and modified wings and subassemblies, structure and parts fabrication for OEMs
U.S. Army, USN, USMC and OEMs
   

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Communication Systems Reportable Segment

In 2016, Communication Systems had net sales of $2,052 million, representing 20% of our total net sales. The businesses in this reportable segment provide network and communication systems, secure communications products, radio frequency components, satellite communication terminals and space, microwave and telemetry products. These products include secure data links that are used to connect a variety of space, airborne, ground and sea-based communication systems and are used in the transmission, processing, recording, monitoring and dissemination functions of these communication systems.

The table below provides a summary of the segment’s business areas and the percentage that each contributed to Communication Systems’ net sales in 2016.

Business Area
% of 2016
Segment Sales
Broadband Communication Systems
 
55
%
Advanced Communications
 
21
 
Space & Power Systems
 
15
 
Tactical Satellite Communication Products
 
9
 
Total Communication Systems
 
100
%

The table below provides additional information for the systems, products and services; selected applications; and selected platforms or end users of our Communication Systems reportable segment.

Systems/Products/Services
Selected Applications
Selected Platforms/End Users
Broadband Communication Systems
Airborne, space and surface data link terminals, ground stations, and transportable tactical satellite communications (SATCOM) systems
High performance, wideband secure communication links for relaying of intelligence and reconnaissance information
Manned aircraft, unmanned aerial vehicles (UAVs), naval ships, ground vehicles and satellites for the DoD
Multi-band Manpack Receivers
Portable, ruggedized terminals used for receiving reconnaissance video and sensor data from multiple airborne platforms
USSOCOM, USAF and other DoD customers
Multi-frequency time division multiple access modems and high dynamic small aperture band terminals that support SATCOM on the move using X, Ku, and Ka bands
On the move SATCOM and other tactical communications systems utilizing small aperture terminals; off road use on military vehicles, watercraft, and airborne platforms to provide two-way broadband connectivity while on the move
U.S. Army, USMC and select foreign allies
Tactical ground based signal intercept and direction finding systems
Man portable and military vehicle mounted tactical signal intercept/exploitation and direction finding systems
U.S. Army and other DoD/U.S. intelligence agencies
   

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Systems/Products/Services
Selected Applications
Selected Platforms/End Users
Advanced Communications
Passive and active microwave components and subsystems, microwave waveguides and specialized coaxial components and non-ionizing radiation monitoring equipment
Radio transmission, switching and conditioning, transponder control, channel and frequency separation, ground vehicles, aircraft and satellites
DoD and OEMs, SATCOM for DoD and various government agencies
Secure communications terminals and equipment, and secure network encryption products
Secure and non-secure voice, data and video communication for office, battlefield and secure internet protocol (IP) network applications
DoD and U.S. Government intelligence agencies
Shipboard communications systems
Internal and external communications (radio rooms and workstations)
USN, USCG and foreign navies
Ultra-wide frequency and advanced radar antennas and radomes
Surveillance and radar detection
Military fixed and rotary winged aircraft, SATCOM
Low-power SATCOM products
Low-noise and low-power amplifiers, solid-state switch assemblies, uplink power control products and frequency converters
U.S. Army, other government agencies and commercial customers
Space & Power Systems
Traveling wave tube amplifiers (TWTA’s), power modules, klystrons and digital broadcast
Microwave vacuum electron devices and power modules
DoD and foreign military manned/unmanned platforms, including satellites, radar systems, communication systems, UAVs, missile defense systems, various missile programs and commercial broadcast
Telemetry and instrumentation systems
Spacecraft telemetry tracking and control, encryption and high data rate transmitters, satellite command and control software, airborne and ground test telemetry systems, and tactical intelligence receivers
Aircraft, missiles and satellites
Tactical Satellite Communications Products
Quick-deploy flyaway very small aperture terminals (VSAT) and vehicular satellite systems
Satellite communications
U.S. Army, USAF, USSOCOM and other DoD agencies, and commercial customers
Managed communications security (COMSEC) satellite networks and integrated remote VSAT satellite systems
Deployment and support of global communication networks for tactical and enterprise applications
U.S. Army, DoD/U.S. intelligence agencies, allied forces and commercial contractors
   

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Funded Backlog and Orders

We define funded backlog as the value of funded orders received from customers, less the cumulative amount of sales recognized on such orders. We define funded orders as the value of contract awards received from the U.S. Government, for which the U.S. Government has appropriated funds, plus the value of contract awards and orders received from customers other than the U.S. Government. The table below presents our funded backlog, percentage of funded backlog at December 31, 2016, expected to be recorded as sales in 2017 and funded orders for each of our reportable segments and on a consolidated basis.

 
Funded Backlog at
December 31,
Percentage of
Funded Backlog at
December 31, 2016
Expected to be
Recorded as
Sales in 2017
Funded Orders
 
2016
2015
2016
2015
 
(in millions)
 
(in millions)
Reportable Segment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Electronic Systems
$
4,230
 
$
3,688
 
61%
$
4,784
 
$
4,137
 
Aerospace Systems
 
2,735
 
 
2,741
 
77%
 
4,243
 
 
3,569
 
Communication Systems
 
1,931
 
 
1,994
 
76%
 
1,965
 
 
2,156
 
Consolidated
$
8,896
 
$
8,423
 
69%
$
10,992
 
$
9,862
 

Our funded backlog does not include the full potential value of our contract awards, including those pertaining to multi-year, cost-plus type contracts, which are generally funded on an annual basis. Funded backlog also excludes the potential future orders and related sales from unexercised priced contract options that may be exercised by customers under existing contracts and the potential future orders and related sales of purchase orders that we may receive in the future under indefinite quantity contracts or basic ordering agreements during the term of such agreements.

Major Customers

The table below presents a summary of our sales by end customer and the percent contributed by each to our total sales. For additional information regarding domestic and international sales, see Note 21 to our audited consolidated financial statements.

 
2016
2015
 
Sales
% of
Total Sales
Sales
% of
Total Sales
 
(in millions)
 
(in millions)
 
Air Force
$
3,079
 
 
30
%
$
3,166
 
 
30
%
Army
 
1,787
 
 
17
 
 
1,715
 
 
17
 
Navy/Marines
 
1,610
 
 
15
 
 
1,447
 
 
14
 
Other Defense
 
823
 
 
8
 
 
621
 
 
6
 
Total DoD
 
7,299
 
 
70
 
 
6,949
 
 
67
 
Other U.S. Government
 
350
 
 
3
 
 
342
 
 
3
 
Total U.S. Government
 
7,649
 
 
73
 
 
7,291
 
 
70
 
International (foreign governments)
 
1,580
 
 
15
 
 
1,799
 
 
17
 
Commercial — international
 
732
 
 
7
 
 
759
 
 
7
 
Commercial — domestic
 
550
 
 
5
 
 
617
 
 
6
 
Total sales
$
10,511
 
 
100
%
$
10,466
 
 
100
%

Direct sales to the end customer represented approximately 67% of our consolidated 2016 sales, and sales as a subcontractor or supplier represented the remaining 33%.

Our sales are predominantly derived from contracts with agencies of, and prime system contractors to, the U.S. Government. Various U.S. Government agencies and contracting entities exercise independent and individual purchasing decisions, subject to annual appropriations by the U.S. Congress. For the year ended December 31, 2016, our five largest contracts (revenue arrangements) generated 15% of our consolidated sales and our largest contract

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(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 Aerospace Systems segment. Under this contract, which generated approximately 4% of our 2016 sales, we provide maintenance, logistics and other related sustainment support services for rotary wing aircraft assigned to Fort Rucker and satellite units in Alabama. Our period of performance under this contract continues through September 30, 2017. We are one of several contractors expected to bid on the re-competition of this contract and expect an award decision in the second half of 2017.

Research and Development

We conduct research and development activities that consist of projects involving applied research, new product and systems development and select concept studies. We employ scientific, engineering and other personnel to improve our existing product lines and systems and develop new products, technologies and systems. At December 31, 2016, we employed approximately 8,000 engineers, substantially all of whom hold advanced degrees, who work on company-sponsored research and development efforts and customer funded research and development contracts.

Company-sponsored (Independent) research and development costs for our businesses that are U.S. Government contractors are allocated to U.S. Government contracts and are charged to cost of sales when the related sales are recognized as revenue. Research and development costs for our commercial businesses are expensed as incurred and are also charged to cost of sales. The table below presents company-sponsored (Independent) research and development expenses incurred for our U.S. Government businesses and our commercial businesses.

 
Year Ended December 31,
 
2016
2015
2014
 
(in millions)
Company-Sponsored Research and Development Costs:
 
 
 
 
 
 
 
 
 
U.S. Government Contractor Businesses
$
204
 
$
176
 
$
166
 
Commercial Businesses
 
54
 
 
52
 
 
63
 
Total
$
258
 
$
228
 
$
229
 

Customer-funded research and development costs pursuant to contracts (revenue arrangements) are not included in the table above because they are direct contract costs and are charged to cost of sales when the corresponding revenue is recognized. See Note 2 to our audited consolidated financial statements for additional information regarding our research and development efforts.

Competition

While we believe that we are a major provider for many of the products and services we offer to our DoD, government and commercial customers, our businesses generally encounter significant competition.

Our ability to compete for existing and new business depends on a variety of factors, including:

the effectiveness and innovation of our technologies, systems and research and development programs;
our ability to offer superior program performance at an affordable and competitive cost;
historical, technical, cost and schedule performance;
our ability to attain supplier positions on contracts;
our ability to maintain an effective supplier and vendor base;
our ability to retain our employees and hire new ones, particularly those who have U.S. Government security clearances;
the capabilities of our facilities, equipment and personnel to undertake the business for which we compete; and
our ability to quickly and flexibly meet customer requirements and priorities.

L3 is an aerospace and defense contractor with a broad and diverse portfolio of products and services. We have prime contractor and subcontractor positions. We supply our products and services to other prime system contractors.

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However, we also compete directly with other large prime system contractors for: (1) certain products, subsystems and systems, where they have vertically integrated businesses, and (2) niche areas where we are a prime contractor. We also compete with numerous other aerospace and defense contractors, which generally provide similar products, subsystems, systems or services.

In addition, our ability to compete for select contracts may require us to “team” with one or more of the other prime system contractors that bid and compete for major platform programs, and our ability to “team” with them is often dependent upon the outcome of a competition for subcontracts they award.

Patents and Licenses

Generally, we do not believe that our patents, trademarks and licenses are material to our operations. Furthermore, most of our U.S. Government contracts generally permit us to use patents owned by other U.S. Government contractors. Similar provisions in U.S. Government contracts awarded to other companies prohibit us from preventing the use of our patents in most DoD work performed by other companies for the U.S. Government.

Raw Materials

Although we generated 61% of our 2016 sales from products and systems, our businesses are generally engaged in limited manufacturing activities and have minimal exposure to fluctuations in the supply of raw materials. For those businesses that manufacture and sell products and systems, most of the value that we provide is labor oriented, such as design, engineering, assembly and test activities. In manufacturing our products, we use our own production capabilities as well as a diverse base of third party suppliers and subcontractors. Although certain aspects of our manufacturing activities require relatively scarce raw materials, we have not experienced difficulty in our ability to procure raw materials, components, sub-assemblies and other supplies required in our manufacturing processes.

Contracts

Generally, the sales price arrangements for our contracts are either fixed-price, cost-plus or time-and-material type. Generally, a fixed-price type contract offers higher profit margin potential than a cost-plus type or time-and-material type contract due to the greater levels of risk we assume on a fixed-price type contract.

On a fixed-price type contract (revenue arrangement), we agree to perform the contractual statement of work for a predetermined sales price. Although a fixed-price type contract generally permits us to retain profits if the total actual contract costs are less than the estimated contract costs, we bear the risk that increased or unexpected costs may reduce our profit or cause us to sustain losses on the contract. Accounting for the sales on a fixed-price type contract that is covered by contract accounting standards requires the preparation of estimates for: (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. Adjustments to original estimates for a contract’s revenue, estimated costs at completion and estimated total profit or loss are often required as work progresses under a contract, as experience is gained and as more information is obtained, even though the scope of work required under the contract may not change.

On a cost-plus type contract (revenue arrangement), we are paid our allowable incurred costs plus a profit which can be fixed or variable depending on the contract’s fee arrangement up to predetermined funding levels determined by our customers. Cost-plus type contracts with award and incentive fee provisions are our primary variable contract fee arrangement. Award fees provide for a fee based on actual performance relative to contractually specified performance criteria. Incentive fees provide for a fee based on the relationship which total allowable costs bear to target cost. Award and incentive fees earned were not material to our results of operations for 2016, 2015 and 2014.

On a time-and-material type contract (revenue arrangement), we are paid on the basis of direct labor hours expended at specified fixed-price hourly rates (that include wages, overhead, allowable general and administrative expenses and profit) and materials at cost. Therefore, on cost-plus type and time-and-material type contracts, we do not bear the risks of unexpected cost overruns, provided that we do not incur costs that exceed the predetermined funded amounts.

Substantially all of our cost-plus type contracts and time-and-material type contracts are with U.S. Government customers, while sales to commercial customers are transacted under fixed-price sales arrangements and are included in our fixed-price contract type sales. The table below presents the percentage of our total sales generated from each contract type.

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Year Ended December 31,
Contract Type
2016
2015
2014
Fixed-price(1)
 
73
%
 
74
%
 
76
%
Cost-plus(2)
 
23
 
 
21
 
 
19
 
Time-and-material
 
4
 
 
5
 
 
5
 
Total sales
 
100
%
 
100
%
 
100
%
(1)Includes fixed-price incentive fee type contracts, which contributed approximately 1% to our total sales for the years ended December 31, 2016, 2015 and 2014.
(2)Includes cost-plus award and incentive fee type contracts, which contributed approximately 8% to our total sales for the year ended December 31, 2016 and 7% for the years ended 2015 and 2014.

Regulatory Environment

Most of our revenue arrangements with agencies of the U.S. Government, including the DoD, are subject to unique procurement and administrative rules. These rules are based on both laws and regulations, including the U.S. Federal Acquisition Regulation, that: (1) impose various profit and cost controls, (2) regulate the allocations of costs, both direct and indirect, to contracts and (3) provide for the non-reimbursement of unallowable costs. Unallowable costs include, but are not limited to, lobbying expenses, interest expenses and certain costs related to business acquisitions, including, for example, the incremental depreciation and amortization expenses arising from fair value increases to the historical carrying values of acquired assets. Our contract administration and cost accounting policies and practices are also subject to oversight by government inspectors, technical specialists and auditors. See “Part I — Item 1A — Risk Factors” for a discussion of certain additional business risks specific to our government contracts.

Our 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 our operations are being conducted in accordance with these requirements. Investigations could result in administrative, civil or criminal liabilities, including repayments, disallowance of certain costs, or fines and penalties. As is common in the U.S. defense industry, we are subject to business risks, including changes in the U.S. Government’s procurement policies (such as greater emphasis on competitive procurement), governmental appropriations, national defense policies or regulations, service modernization plans and availability of funds. A reduction in expenditures by the U.S. Government for products and services of the type we manufacture and provide, lower margins resulting from increasingly competitive procurement policies, a reduction in the volume of contracts or subcontracts awarded to us or the incurrence of substantial contract cost overruns could materially adversely affect our business.

In 2016, sales under foreign military sales (FMS) agreements, which are included in the international (foreign governments) category in the “Major Customers” table above, were $547 million, or 5% of our total consolidated sales. FMS agreements are made directly between the U.S. Government and foreign governments. In such cases, because we serve only as the supplier, we do not have unilateral control over the terms of the agreements. Certain of our sales are direct commercial sales to foreign governments. These sales are subject to U.S. Government approval and licensing under the Arms Export Control Act. Legal restrictions on sales of sensitive U.S. technology also limit the extent to which we can sell our products to foreign governments or private parties.

All of our U.S. Government contracts can be terminated by the U.S. Government either for its convenience or if we default by failing to perform under the contract. Termination for convenience provisions provide only for our recovery of costs incurred or committed settlement expenses and profit on the work completed prior to termination. Termination for default provisions provide for the contractor to be liable for excess costs incurred by the U.S. Government in procuring undelivered items from another source. Our contracts with foreign governments generally contain similar provisions relating to termination at the convenience of the customer.

Environmental Matters

Our operations are subject to various environmental laws and regulations relating to the discharge, storage, treatment, handling, disposal and remediation of certain materials, substances and wastes used in our operations. We continually assess our obligations and compliance with respect to these requirements.

We have also assessed the risk of environmental contamination for our various manufacturing facilities, including our acquired businesses and, where appropriate, have obtained indemnification, either from the sellers of

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those acquired businesses or through pollution liability insurance. We believe that our current operations are in substantial compliance with all existing applicable environmental laws and permits. We believe our current expenditures will allow us to continue to be in compliance with applicable environmental laws and regulations. While it is difficult to determine the timing and ultimate cost to be incurred in order to comply with these laws, based upon available internal and external assessments, with respect to those environmental loss contingencies of which we are aware, we believe there are no environmental loss contingencies that, individually or in the aggregate, would be material to our consolidated results of operations, financial position or cash flows.

Employees

At December 31, 2016, we employed approximately 38,000 full-time and part-time employees, 84% of whom were located in the United States. Of these employees, approximately 22% are covered by approximately 85 separate collective bargaining agreements with various labor unions. The success of our business is, to a large extent, dependent upon the knowledge of our employees and on the management, contracting, engineering and technical skills of our employees. In addition, our ability to grow our businesses, obtain additional orders for our products and services and to satisfy contractual obligations under certain of our existing revenue arrangements is largely dependent upon our ability to attract and retain employees who have U.S. Government security clearances, particularly those with clearances of top-secret and above. Historically, we have renegotiated labor agreements without significant disruptions to operating activities, and we believe that relations with our employees are positive.

Available Information

We are subject to the informational requirements of the Securities Exchange Act of 1934 and, in accordance therewith, file reports, including annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission the (“SEC”). Such reports and other information can be inspected and copied at the Public Reference Room of the SEC located at 100 F Street, NE, Washington, DC 20549. Copies of such material can be obtained from the Public Reference Room of the SEC at prescribed rates. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Such material may also be accessed electronically by means of the SEC’s home page on the Internet at http://www.sec.gov.

You may also obtain a free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statement for the annual shareholders’ meeting, as well as any amendments to those reports as soon as reasonably practicable after electronic filing with the SEC through our website on the Internet at http://www.L3T.com.

We also have a Corporate Governance webpage. You can access our Corporate Governance Guidelines and charters for the audit, compensation and nominating/corporate governance committees of our Board of Directors through our website, http://www.L3T.com, by clicking on the “Corporate Governance” link under the heading “Investor Relations.” You can access our Code of Ethics and Business Conduct by clicking on the “Code of Ethics and Business Conduct” link under the heading “Code of Ethics.” Our Code of Ethics and Business Conduct applies to all directors, officers and employees, including our chairman and chief executive officer, our senior vice president and chief financial officer, and our vice president, controller and principal accounting officer. We will post any amendments to the Code of Ethics and Business Conduct, and any waivers that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange, Inc. (NYSE), on our website within the required periods. The information on or accessible through our website is not incorporated by reference into this report.

To learn more about L3, please visit our website at http://www.L3T.com. From time to time, we use our website as a channel of distribution of material company information. Financial and other material information regarding L3 is routinely posted on our website and is readily accessible.

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Item 1A. Risk Factors

You should carefully consider the following risk factors and other information contained in this Form 10-K, including “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Any of these risks could materially affect our business and our financial condition, results of operations and cash flows, which could in turn materially affect the price of our common stock.

Our contracts (revenue arrangements) with U.S. Government customers entail certain risks.

A decline in or a redirection of the U.S. defense budget could result in a material decrease in our sales, results of operations and cash flows.

Our government contracts and sales are highly correlated and dependent upon the U.S. defense budget which is subject to the congressional budget authorization and appropriations process. Congress usually appropriates funds for a given program on a September 30 fiscal year basis, even though contract periods of performance may extend over many years. Consequently, at the beginning of a major program, the contract is usually partially funded, and additional monies are normally committed to the contract by the procuring agency only as appropriations are made by Congress in future fiscal years. DoD budgets are determined by factors beyond our control, including, but not limited to, changes in U.S. procurement policies, budget considerations, current and future economic conditions, presidential administration priorities, changing national security and defense requirements, geopolitical developments and actual fiscal year congressional appropriations for defense budgets. Any of these factors could result in a significant decline in, or redirection of, current and future DoD budgets and impact our future results of operations, including our sales and operating income growth rates.

The total DoD budget for FY 2015 was $560 billion, a decline of 4% as compared to the FY 2014 budget due to a decrease in the Overseas Contingency Operations (OCO) budget. The FY 2015 base budget remained substantially unchanged from FY 2014 at $497 billion, while the OCO budget decreased by $22 billion. The total DoD budget for FY 2016 is $581 billion, an increase of 4% compared to FY 2015. The increase is due to a base budget of $522 billion, higher by $25 billion compared to FY 2015. The FY 2016 OCO budget declined slightly to $59 billion compared to $63 billion for FY 2015.

On February 9, 2016, the Obama Administration submitted its FY 2017 DoD Budget Request. The total FY 2017 DoD budget request is $583 billion ($524 billion base budget, $59 billion OCO), which is substantially unchanged compared to the appropriated FY 2016 DoD budget. However, the FY 2017 DoD budget was not approved or appropriated by Congress before October 1, 2016, and FY 2017 began with a Continuing Resolution (CR) to fund the government, which expires on April 28, 2017. The CR maintains funding at the current FY 2016 appropriated level resulting in a prohibition on new program starts and multi-year contract awards. On December 23, 2016, President Obama signed the FY 2017 National Defense Authorization Act (NDAA), which includes defense spending priorities and guidelines but does not appropriate money for those items. The NDAA largely supports the FY17 DoD Budget Request.

Furthermore, the Bipartisan Budget Act of 2015 (BBA), which suspended the debt ceiling through March 15, 2017 and raised spending caps previously enacted by Congress under the Budget Control Act of 2011 (BCA), places spending caps on defense programs. The BBA target for the DoD base budget is $551 billion for FY 2017 and $59 billion for the FY 2017 OCO funding. The BBA, however, does not change the previously enacted BCA sequestration cuts after FY 2017. The BCA specifies base budget spending caps and can only be changed through law enacted by Congress. Consequently, the U.S. Government’s overall fiscal challenges remain, including uncertainties regarding BCA sequestration cuts scheduled to resume in FY 2018 and therefore, future DoD budgets and spending levels are difficult to predict. A significant decline in or redirection of U.S. military expenditures in the future, or the loss or significant reduction in U.S. Government funding of a large program in which we participate, could have a material adverse effect on our financial position, results of operations and cash flows.

We rely predominantly on sales to U.S. Government entities, and the loss or delay of a significant number of our contracts would have a material adverse effect on our results of operations and cash flows.

Our sales are predominantly derived from contracts (revenue arrangements) with agencies of, and prime system contractors to, the U.S. Government. The loss or delay of all or a substantial portion of our sales to the U.S. Government would have a material adverse effect on our results of operations and cash flows. Approximately 73%, or $7.6 billion, of our sales for the year ended December 31, 2016 were made directly or indirectly to U.S.

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Government agencies, including 70% to the DoD. Aggregate sales for our five largest contracts (revenue arrangements) amounted to approximately $1.5 billion, or 15% of our consolidated sales for the year ended December 31, 2016. Our largest contract (revenue arrangement) in terms of annual sales for the year ended December 31, 2016, 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 Aerospace Systems segment and generated approximately 4% of our 2016 sales. Our period of performance under this contract continues through September 30, 2017. We are one of several contractors expected to bid on the re-competition of this contract and expect an award decision in the second half of 2017.

A substantial majority of our total sales are for products and services under contracts with various agencies and procurement offices of the DoD or with prime contractors to the DoD. Although these various agencies, procurement offices and prime contractors are subject to common budgetary pressures and other factors, our customers exercise independent purchasing decisions. Because of this concentration of contracts, if a significant number of our DoD contracts and subcontracts are simultaneously delayed or cancelled for budgetary, performance or other reasons, it would have a material adverse effect on our results of operations and cash flows.

In addition to contract cancellations and declines in agency budgets, our backlog and future financial results may be adversely affected by:

curtailment of the U.S. Government’s use of technology or other services and product providers, including curtailment due to government budget reductions and related fiscal matters;
geopolitical developments that affect demand for our products and services;
our ability to hire and retain personnel to meet demand for our services; and
technological developments that impact purchasing decisions or our competitive position.

The DoD’s wide-ranging efficiency and better buying power initiatives, which target affordability and cost growth, could have a material effect on the procurement process and may adversely affect our existing contracts and the award of new contracts.

Since 2010, the DoD has implemented efficiency initiatives and other best practices for procurement that are intended to reduce prices, ensure adequate competition and control costs throughout the acquisition cycle. In addition, under the Better Buying Power 3.0 (BBP) initiative, the DoD has focused on technology innovation, incentive-based cost-plus and fixed-price contracts and Company sponsored Independent research and development efforts. The U.S. Government may continue to implement changes to its procurement practices that change the way contracts are solicited, negotiated and managed and may impact our future sales, earnings and cash flows, and could affect whether, and how we pursue opportunities to provide our products and services to the U.S. Government, including the terms and conditions under which we do so.

Our government contracts contain unfavorable termination provisions and are subject to audit and modification. If a termination right is exercised by the government, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Companies engaged primarily in supplying defense-related equipment and services to U.S. Government agencies are subject to certain business risks peculiar to the defense industry. These risks include the ability of the U.S. Government to unilaterally:

suspend us from receiving new contracts pending resolution of alleged violations of procurement laws or regulations;
terminate existing contracts;
reduce the value of existing contracts; and
audit our contract-related costs and fees, including allocated indirect costs.

All of our U.S. Government contracts can be terminated by the U.S. Government either for its convenience or if we default by failing to perform under the contract. Termination for convenience provisions provide only for our recovery of costs incurred or committed settlement expenses and profit on the work completed prior to termination. Termination for default provisions provide for the contractor to be liable for excess costs incurred by the U.S.

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Government in procuring undelivered items from another source. Our contracts with foreign governments generally contain similar provisions relating to termination at the convenience of the customer.

U.S. Government agencies, including the Defense Contract Audit Agency and various agency Inspectors General, routinely audit and investigate our costs and performance on contracts, as well as our accounting and general business practices. Based on the results of such audits, the U.S. Government have adjusted, and may in the future adjust, our contract related costs and fees, including allocated indirect costs. In addition, under U.S. Government purchasing regulations, some of our costs, including certain business acquisition costs, most financing costs, portions of research and development costs and certain marketing expenses, may not be reimbursable under U.S. Government contracts.

As of December 31, 2016, we had a backlog of funded orders, primarily under contracts with the U.S. Government, totaling $8,896 million. As described above, the U.S. Government may unilaterally modify or terminate its contracts with us. Accordingly, most of our backlog could be modified or terminated by the U.S. Government, which would have a material adverse effect on our future sales, results of operations and cash flows.

We may not be able to win competitively awarded contracts or receive required licenses to export our products, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and future prospects.

Our government contracts are subject to competitive bidding. We obtain many of our U.S. Government contracts through a competitive bidding process. We may not be able to continue to win competitively awarded contracts, such as the Fort Rucker Maintenance Support contract re-competition. In addition, awarded contracts may not generate sales sufficient to result in our profitability. We are also subject to risks associated with the following:

the frequent need to bid on programs in advance of the completion of their design, which may result in unforeseen technological difficulties and/or cost overruns;
the substantial time, effort and experience required to prepare bids and proposals for competitively awarded contracts that may not be awarded to us;
design complexity and rapid technological obsolescence; and
the constant need for design improvement.

In addition to these risks, we are not permitted to export some of our products, and we are required to obtain licenses from U.S. Government agencies to export many of our other products and systems. Failure to receive required licenses would eliminate our ability to sell our products and systems outside the United States.

Intense competition and bid protests may adversely affect our sales, results of operations and cash flows.

The defense and commercial industries in which our businesses operate are highly competitive. We expect that the DoD’s increased use of commercial off-the-shelf products and components in military equipment will continue to encourage new competitors to enter the market. We also expect increased competition for our products and services from other providers due to the uncertainty of future U.S. defense budgets. Furthermore, the current competitive environment has resulted in an increase of bid protests from unsuccessful bidders, which typically extends the time until work on a contract can begin. For more information concerning the factors that affect our ability to compete, see “Part I — Item 1 — Business — Competition.”

We are subject to government investigations, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and future prospects.

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. As discussed in Note 18 to our audited consolidated financial statements, we are currently cooperating with the U.S. Government on several investigations. Under U.S. Government regulations, an indictment of L3 by a federal grand jury, or an administrative finding against us as to our present responsibility to be a U.S. Government contractor or subcontractor, could result in us 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, which could have a material adverse effect on our results of operations and cash flows. A conviction, or an administrative finding against us that satisfies the requisite level of seriousness, could result in debarment from contracting with the federal government for a specific term, which could have a material adverse effect on our results of operations and cash flows.

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Our commercial aviation products and services businesses are affected by global demand and economic factors that could negatively impact our financial results.

The operating results of our commercial aviation products and services businesses may be adversely affected by downturns in the global demand for air travel which impacts new aircraft production and orders, and global flying hours, which impacts air transport, regional and business aircraft utilization rates and pilot training needs. The aviation industry is highly cyclical, and the level of demand for air travel is correlated to the strength of the U.S. and international economies and is impacted by long-term trends in airline passenger and cargo traffic. The results of our commercial aviation business also depend on other factors, including general economic growth, political stability in both developed and emerging markets, pricing pressures, trends in capital goods markets and changes in OEM production rates.

Our sales to certain international customers expose us to risks associated with operating internationally.

For the year ended December 31, 2016, sales to international customers, excluding our international sales made under FMS agreements directly between the U.S. Government and foreign governments, represented approximately 17% of our consolidated sales. Consequently, our businesses are subject to a variety of risks that are specific to international operations, including the following:

export regulations that could erode profit margins or restrict exports;
compliance with the U.S. Foreign Corrupt Practices Act and similar non-U.S. regulations;
the burden and cost of compliance with foreign laws, treaties and technical standards and changes in those regulations;
contract award and funding delays;
potential restrictions on transfers of funds;
currency fluctuations;
import and export duties and value added taxes;
transportation delays and interruptions;
uncertainties arising from international local business practices and cultural considerations;
sovereign government credit risk; and
potential military conflicts and political risks.

Our international contracts may include industrial cooperation agreements requiring specific local purchases, manufacturing agreements or financial support obligations, known as offset obligations, and provide for penalties if we fail to meet such requirements. See “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations” for further discussion. While we have and will continue to adopt measures to reduce the potential impact of losses resulting from the risks of our international business, these measures may not be adequate.

We are subject to the risks of legal proceedings, which could have a material adverse effect on our business, financial condition, results of operations, cash flows and future prospects.

At any given time, we are a defendant in various material legal proceedings and litigation matters arising in the ordinary course of business, including litigation, claims and assessments that have been asserted against acquired businesses, which we have assumed. Although we maintain insurance policies, these policies may not be adequate to protect us from all material judgments and expenses related to current or future claims and may not cover the conduct that is the subject of the litigation. Desired levels of insurance may not be available in the future at economical prices or at all. In addition, we believe that while we have valid defenses with respect to legal matters pending against us, the results of litigation can be difficult to predict, including 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 be wrong. A significant judgment against us, arising out of any of our current or future legal proceedings and litigation, could have a material adverse effect on our business, financial condition, results of operations, cash flows and future prospects. For a discussion of material litigation to which we are currently a party, see Note 18 to our audited consolidated financial statements.

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If we are unable to keep pace with rapidly evolving products and service offerings and technological change, there could be a material adverse effect on our business, financial condition, results of operations, cash flows and future prospects.

The rapid change of technology is a key feature of most of the markets in which our products, services and systems oriented businesses operate. To succeed in the future, we will need to continue to design, develop, manufacture, assemble, test, market and support new products and enhancements on a timely and cost-effective basis. Historically, our technology has been developed through customer-funded and internally funded research and development and through certain business acquisitions. We may not be able to continue to maintain comparable levels of research and development or successfully complete such acquisitions. In the past, we have allocated substantial funds to capital expenditures, programs and other investments. This practice will continue to be required in the future. Even so, we may not be able to successfully identify new opportunities and may not have the necessary financial resources to develop new products and systems in a timely or cost-effective manner. At the same time, products and technologies developed by others may render our products, services and systems obsolete or non-competitive.

Goodwill represents a significant asset on our balance sheet and may become impaired.

Goodwill represents the largest asset on our balance sheet, with an aggregate balance of $6,560 million at December 31, 2016. We review goodwill and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable and also review goodwill annually in accordance with the accounting standards for goodwill and intangible assets. The annual impairment test requires us to determine the fair value of our reporting units in comparison to their carrying values. A decline in the estimated fair value of a reporting unit could result in a goodwill impairment and a related non-cash impairment charge against earnings if the estimated fair value for the reporting unit is less than the carrying value of the net assets of the reporting unit, including its goodwill.

Our annual impairment test at November 30, 2016, did not result in impairments to goodwill. The fair value of all of our reporting units exceeded the carrying value of the net assets of those reporting units by more than 20% at November 30, 2016, the date of our most recent annual impairment assessment. A decline in the estimated fair value of one or more of our reporting units could potentially trigger goodwill impairment charges and a material adverse effect on our results of operations. Our annual impairment test at November 30, 2015, resulted in goodwill impairment charges of $955 million ($384 million in continuing operations and $571 million in discontinued operations). See “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Goodwill and Identifiable Intangible Assets” for further discussion.

Our results of operations and cash flows are substantially affected by our mix of fixed-price, cost-plus and time-and-material type contracts.

Our sales are transacted using written revenue arrangements, or contracts, which are generally fixed-price, cost-plus or time-and-material. For a description of our revenue recognition policies, see “Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies.” For information on the percentage of our total sales generated from each contract type, see “Item 1 —Business — Contracts.”

Substantially all of our cost-plus and time-and-material type contracts are with the U.S. Government, primarily the DoD. Substantially all of our sales to commercial customers are transacted under fixed-price sales arrangements and are included in our fixed-price type contract sales.

On a fixed-price type contract (revenue arrangement), we agree to perform the contractual statement of work for a predetermined sales price. Although a fixed-price type contract generally permits us to retain profits if the total actual contract costs are less than the estimated contract costs, we bear the risk that increased or unexpected costs may reduce our profit or cause us to sustain losses on the contract.

On a cost-plus type contract (revenue arrangement), we are paid our allowable incurred costs plus a profit, which can be fixed or variable depending on the contract’s fee arrangement up to predetermined funding levels established by our customers. On a time-and-material type contract (revenue arrangement), we are paid on the basis of direct labor hours expended at specified fixed-price hourly rates (that include wages, overhead, allowable general and administrative expenses and profit) and materials at cost. Therefore, on cost-plus and time-and-material type contracts, we do not bear the risks of unexpected cost overruns, provided that we do not incur costs that exceed the predetermined funded amounts.

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Additionally, the impact of revisions in profit or loss estimates for all types of contracts subject to percentage of completion accounting are recognized on a cumulative catch-up basis in the period in which the revisions are made. Provisions for anticipated losses on contracts are recorded in the period in which they become evident. Amounts representing contract change orders or claims are included in sales only when they can be reliably estimated and their realization is reasonably assured. The revisions in contract estimates, if significant, can materially affect our 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.

Pension expense and funding may fluctuate significantly because of changes in key estimates and assumptions, including discount rates and the assumed long-term rate of return on plan assets, as well as our actual investment returns and regulatory actions, which could negatively impact our results of operations, cash flows and financial condition.

Determining our pension expense requires significant judgment, particularly with respect to our discount rates, the assumed long-term rates of return on plan assets and other actuarial assumptions. If our assumptions change significantly due to changes in economic, legislative, demographic experience and/or circumstances, our pension expense, the funded status of our plans and our cash contributions to such plans would be impacted, which could negatively affect our results of operations, cash flows and financial condition. In addition, differences between our actual investment returns and our assumed long-term rate of return on plan assets could also impact our pension expense, the funded status of our plans and our required cash contributions to the plans. Further, our pension expense and the funded status of our plans, including required cash contributions to the plans, may be impacted by regulatory actions in any given year.

Additionally, pension plan cost recoveries under Cost Accounting Standards (CAS) for our U.S. Government contracts occur in different periods from when pension expense is recognized under accounting principles generally accepted in the U.S. or when cash contributions are made. Although CAS has been revised to better align the minimum required contributions under the Employee Retirement Income Security Act of 1974 (ERISA), as amended by the Pension Protection Act of 2006, with pension plan cost recoveries under CAS, timing differences could have a material adverse effect on our cash flow.

Our business could be negatively impacted by cybersecurity threats and other disruptions.

As a U.S. defense contractor, we have faced, and continue to face, various security threats, including, but not limited to, threats to the physical security of our facilities and employees, cybersecurity threats to our information technology infrastructure and attempts to gain access to our proprietary or classified information as well as the proprietary or classified information of our customers.

Although we utilize various procedures and controls to monitor, deter and mitigate these threats, these procedures and controls may not be sufficient to prevent disruptions in mission critical systems, the unauthorized release of confidential, sensitive or classified information and the corruption of data, systems or networks. Any significant operational delays, or any destruction, manipulation or improper use of our or our customers’ data, information systems or networks, could materially and adversely affect our financial results, damage the reputation of our products and services and require significant management attention and expense. In addition, our insurance coverage and/or indemnification arrangements that we enter into, if any, may not be adequate to cover all of the costs related to cybersecurity attacks or disruptions resulting from such events.

To date, cyber attacks directed at us have not had a material impact on our financial results. Due to the evolving nature and increased frequency of security threats, however, the impact of any future incident cannot be predicted. The threats we face vary from those common to most industries to more advanced and persistent, highly organized adversaries who target us because we operate in the defense industry and protect national security information. If we are unable to protect sensitive information, our customers or governmental authorities could question the adequacy of our threat mitigation and detection processes and procedures, which could result in us having to spend a significant amount of money to upgrade our networks and systems and could otherwise have a material adverse effect on our business, financial condition, results of operations and cash flows.

In the current environment, there are also numerous and evolving risks to cybersecurity and privacy, including the use of viruses, worms or other malicious software programs and threats involving criminal hackers, state-sponsored intrusions, terrorist attacks, industrial espionage, employee malfeasance, and human or technological error. As these risks develop and these attacks become more frequent and sophisticated, we may find it necessary to make significant further investments to protect data and infrastructure from cyber and other security attacks.

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We must also rely on the safeguards put in place by customers, suppliers, vendors, subcontractors, venture partners or other third parties to minimize the impact of cyber threats, other security threats or business disruptions. These third parties may have varying levels of cybersecurity expertise and safeguards and their relationships with government contractors, such as L3, may increase the likelihood that they are targeted by the same cyber threats we face. In the event of a breach affecting these third parties, our business and financial results could suffer materially. With respect to our commercial arrangements with these third parties, we have processes designed to require that the third parties and their employees and agents agree to maintain certain standards for the storage, protection and transfer of confidential, personal and proprietary information. However, we remain at risk of a data breach due to the intentional or unintentional non-compliance by a third party’s employee or agent, the breakdown of a third party’s data protection processes, which may not be as sophisticated as ours, or a cyber attack on a third party’s information network and systems.

If we are unable to attract and retain key management and personnel, we may become unable to operate our business effectively.

Our future success depends to a significant degree upon the continued contributions of our management, and our ability to attract and retain highly qualified management and technical personnel, including employees who have U.S. Government security clearances, particularly clearances of top-secret and above. We do not maintain any key person life insurance policies for members of our management. We face competition for management and technical personnel from other companies and organizations. Failure to attract and retain such personnel would damage our future prospects.

Environmental laws and regulations may subject us to significant liability.

Our operations are subject to various U.S. federal, state and local as well as certain foreign environmental laws and regulations within the countries in which we operate relating to the discharge, storage, treatment, handling, disposal and remediation of certain materials, substances and wastes used in our operations.

New laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new clean-up requirements may require us to incur a significant amount of additional costs in the future and could decrease the amount of cash flow available to us for other purposes, including capital expenditures, research and development and other investments and could have a material adverse effect on our business, financial condition, results of operations, cash flows and future prospects.

Our business acquisition strategy involves risks, and we may not successfully implement our strategy.

We opportunistically seek to acquire businesses that enhance our capabilities and add new technologies, products, services, programs, contracts and customers to our existing businesses. We may not be able to continue to identify acquisition candidates on commercially reasonable terms or at all. If we make additional business acquisitions, we may not realize the benefits anticipated from these acquisitions, including sales growth, cost synergies and margin improvement. Furthermore, we may not be able to obtain additional financing for business acquisitions, since such additional financing could be restricted or limited by the terms of our debt agreements or due to unfavorable capital market conditions.

The process of integrating the operations of acquired businesses into our existing operations may result in unforeseen difficulties and may require significant financial and managerial resources that would otherwise be available for the ongoing development or expansion of our existing operations. Possible future business acquisitions could result in the incurrence of additional debt and related interest expense and contingent liabilities, each of which could result in an increase to our already significant level of outstanding debt, as well as more restrictive covenants. Furthermore, in certain of our business acquisitions we have assumed all claims against and liabilities of the acquired business, including both asserted and unasserted claims and liabilities.

Our spin-off of Engility could result in substantial tax liability to us and our shareholders.

In connection with our spin-off of Engility in 2012, we received an Internal Revenue Service (IRS) Ruling stating that L3 and its shareholders would not recognize any taxable income, gain or loss for U.S. federal income tax purposes as a result of the transaction. In addition, we received an opinion of counsel that the spin-off satisfied certain requirements for tax-free treatment that are not covered in the IRS Ruling; however, an opinion of counsel is not binding on the IRS. Accordingly, the IRS or the courts may reach conclusions with respect to the spin-off that are

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different from the conclusions reached in the opinion of counsel. Moreover, both the IRS Ruling and the opinion of counsel are based on certain factual statements and representations made by us, which, if incomplete or untrue in any material respect, could invalidate the IRS Ruling or opinion of counsel.

If, notwithstanding receipt of the IRS Ruling and opinion of counsel, the spin-off and certain related transactions were determined to be taxable, then we would be subject to a substantial tax liability. In addition, if the spin-off were taxable, each holder of our common stock who received shares of Engility would generally be treated as having received a taxable distribution of property in an amount equal to the fair market value of the shares of Engility received.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

At December 31, 2016, we operated in 273 locations consisting of manufacturing facilities, administration, research and development and other properties throughout the United States and internationally. Of these, we owned 32 locations consisting of approximately 5.2 million square feet and leased space at 241 locations consisting of approximately 9.4 million square feet. Additionally, our Aerospace Systems segment utilized a facility consisting of approximately 3.3 million square feet through a land lease expiring in 2031 with the city of Greenville, Texas.

A summary of square footage by reportable segment at December 31, 2016, is presented below.

 
Leased
Owned
Government-
Owned
Total
 
(Square feet in millions)
Electronic Systems
 
4.9
 
 
3.0
 
 
 
 
7.9
 
Aerospace Systems
 
1.3
 
 
1.6
 
 
3.3
 
 
6.2
 
Communication Systems
 
3.0
 
 
0.6
 
 
 
 
3.6
 
Total
 
9.2
 
 
5.2
 
 
3.3
 
 
17.7
 

Our reportable segments have major operations at the following locations:

Electronic Systems — Phoenix and Tempe, Arizona; Anaheim, San Diego, San Leandro and Sylmar, California; Orlando, Sarasota and St. Petersburg, Florida; Northampton and Wilmington, Massachusetts; Grand Rapids and Muskegon, Michigan; Londonderry, New Hampshire; Mount Olive, New Jersey; Kirkwood, New York; Cincinnati and Mason, Ohio; Tulsa, Oklahoma; Philadelphia and Pittsburgh, Pennsylvania; Arlington, Garland, Grand Prairie and Plano, Texas; Ontario, Canada; Bologna, Italy; Hamilton, New Zealand; and Crawley, Droitwich, Luton and Tewkesbury, U.K.
Aerospace Systems — Huntsville, Alabama; Crestview, Florida; Madison, Mississippi; Greenville, Rockwall and Waco, Texas; and Quebec, Canada.
Communication Systems — San Carlos, San Diego, Simi Valley and Torrance, California; Ayer, Massachusetts; Camden, New Jersey; Hauppauge, New York; Williamsport, Pennsylvania; and Salt Lake City, Utah.

Additionally, our Corporate staff occupies a total of 0.2 million square feet of office space in New York, New York and Arlington, Virginia. Management believes all of our properties have been well maintained, are in good condition and are adequate and suitable for our business as presently conducted.

Item 3. Legal Proceedings

The information required with respect to this item can be found in Note 18 to our audited consolidated financial statements and is incorporated by reference into this Item 3.

Item 4. Mine Safety Disclosures

None.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The common stock of L3 is traded on the New York Stock Exchange (NYSE) under the symbol “LLL.” On February 17, 2017, the number of holders of L3’s common stock was 176,555. On February 17, 2017, the closing price of L3’s stock, as reported by the NYSE, was $168.23 per share.

The table below sets forth the amount of dividends paid per share and the high and low closing price of L3’s common stock as reported on the NYSE during the past two calendar years.

 
Dividends Paid
Closing Price
(High-Low)
 
2016
2015
2016
2015
Common Stock — Dividends Paid and Market Prices
 
 
 
 
 
 
 
 
 
 
 
 
First Quarter
$
0.70
 
$
0.65
 
$120.55 — 108.05
$132.87 — 123.06
Second Quarter
 
0.70
 
 
0.65
 
147.90 — 118.50
126.69 — 113.38
Third Quarter
 
0.70
 
 
0.65
 
151.63 — 140.11
124.04 — 103.07
Fourth Quarter
 
0.70
 
 
0.65
 
161.56 — 134.05
128.40 — 101.90
Year Ended December 31
$
2.80
 
$
2.60
 
$161.56 — 108.05
$132.87 — 101.90

On February 13, 2017, L3 announced that its Board of Directors increased L3’s regular quarterly cash dividend by 7% to $0.75 per share, payable on March 15, 2017, to shareholders of record at the close of business on March 1, 2017.

Issuer Purchases of Equity Securities

The following table provides information about repurchases of L3’s common stock made in the quarterly period ended December 31, 2016. Repurchases are made from time to time at management’s discretion in accordance with applicable federal securities laws. All share repurchases of L3’ common stock have been recorded as treasury shares.

Period
Total Number
of Shares
Purchased
Average
Price Paid
per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs
Maximum Number
(or Approximate
Dollar Value) of
Shares that May
Yet Be Purchased
Under the Plan
or Program(1)
 
 
 
 
(in millions)
September 24 — October 31, 2016
 
133,190
 
$
150.14
 
 
133,190
 
$
460
 
November 1 — 30, 2016
 
198,982
 
 
138.31
 
 
198,982
 
$
433
 
December 1 — 31, 2016
 
 
 
 
 
 
$
433
 
Total
 
332,172
 
$
143.05
 
 
332,172
 
 
 
 
(1)The share repurchases described in the table above were made pursuant to the $1.5 billion share repurchase program authorized by L3’s Board of Directors on December 4, 2014, which authorization expires on June 30, 2017.

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The graph below compares the cumulative total returns of our common stock with the cumulative total return of the Standard & Poor’s 500 Composite Stock Index and the Standard & Poor’s 1500 Aerospace & Defense Index, for the period from December 31, 2011 to December 31, 2016. These figures assume that all dividends paid over the performance period were reinvested. On July 17, 2012, we completed the Engility spin-off. Our shareholders received one share of Engility common stock for every six shares of our common stock held on the record date (July 16, 2012). The effect of the spin-off is reflected in the cumulative total return as a reinvested dividend for the year ended December 31, 2012. The figures also assume that the starting value of each index and the investment in our common stock was $100 on December 31, 2011.

We are one of the companies included in the Standard & Poor’s 1500 Aerospace & Defense Index and the Standard & Poor’s 500 Composite Stock Index. The starting point for the measurement of our common stock cumulative total return was our closing stock price of $66.68 per share on December 30, 2011. The graph is not, and is not intended to be, indicative of future performance of our common stock.


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Item 6. Selected Financial Data

The selected financial data presented below is derived from our audited consolidated financial statements and has been adjusted to reflect the divestiture of NSS in 2016 and the spin-off of Engility in 2012 and related classification of their assets, liabilities, results of operations and cash flows as discontinued operations.

 
Year Ended December 31,
 
2016
2015(1)
2014
2013
2012
 
(in millions, except per share data)
Statements of Operations Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
10,511
 
$
10,466
 
$
10,986
 
$
11,420
 
$
11,802
 
Operating income
$
1,008
 
$
475
 
$
1,012
 
$
1,117
 
$
1,219
 
Loss related to business divestitures
 
 
 
31
 
 
 
 
 
 
 
Goodwill impairment charges
 
 
 
384
 
 
 
 
 
 
 
Segment operating income
$
1,008
 
$
890
 
$
1,012
 
$
1,117
 
$
1,219
 
Operating margin
 
9.6
%
 
4.5
%
 
9.2
%
 
9.8
%
 
10.3
%
Segment operating margin
 
9.6
%
 
8.5
%
 
9.2
%
 
9.8
%
 
10.3
%
Interest and other, net
$
(158
)
$
(153
)
$
(140
)
$
(137
)
$
(166
)
Income from continuing operations before income taxes
$
850
 
$
322
 
$
872
 
$
980
 
$
1,053
 
Provision for income taxes
 
(189
)
 
(25
)
 
(227
)
 
(264
)
 
(333
)
Income from continuing operations
 
661
 
 
297
 
 
645
 
 
716
 
 
720
 
Net income from continuing operations attributable to noncontrolling interests
 
(14
)
 
(15
)
 
(13
)
 
(9
)
 
(6
)
Net income from continuing operations attributable to L3
$
647
 
$
282
 
$
632
 
$
707
 
$
714
 
Earnings per share from continuing operations allocable to L3 common shareholders:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
$
8.36
 
$
3.49
 
$
7.40
 
$
7.91
 
$
7.41
 
Diluted
$
8.21
 
$
3.44
 
$
7.20
 
$
7.76
 
$
7.32
 
L3 weighted average common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
 
77.4
 
 
80.7
 
 
85.4
 
 
89.4
 
 
96.3
 
Diluted
 
78.8
 
 
81.9
 
 
87.8
 
 
91.1
 
 
97.6
 
Cash dividends declared per common share
$
2.80
 
$
2.60
 
$
2.40
 
$
2.20
 
$
2.00
 
(1)Income from continuing operations for the year ended December 31, 2015 includes: (1) non-cash goodwill impairment charges of $384 million ($264 million after income taxes), or $3.22 per diluted share, including $338 million related to a decline in the estimated fair value of the Vertex Aerospace reporting unit and $46 million related to a business retained by L3 in connection with the sale of the NSS business comprised of (i) $37 million related to the re-allocation of impairment charges recorded for the NSS reporting unit during 2015 and (ii) $9 million related to the re-allocation of goodwill, and (2) a pre-tax loss of $31 million ($20 million after income taxes), or $0.25 per diluted share, related to business divestitures.

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Year Ended December 31,
 
2016
2015
2014
2013
2012
 
(in millions)
Balance Sheet Data (at year end):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Working capital(1)
$
1,562
 
$
909
 
$
1,689
 
$
1,853
 
$
1,735
 
Total assets
 
11,865
 
 
12,069
 
 
13,692
 
 
13,849
 
 
13,665
 
Long-term debt, including current portion
 
3,325
 
 
3,626
 
 
3,916
 
 
3,611
 
 
3,607
 
Equity
 
4,624
 
 
4,429
 
 
5,360
 
 
6,056
 
 
5,527
 
Cash Flow Data:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net cash from operating activities from continuing operations
$
1,097
 
$
1,069
 
$
1,088
 
$
1,160
 
$
1,067
 
Net cash used in investing activities from continuing operations
 
(16
)
 
(192
)
 
(221
)
 
(256
)
 
(198
)
Net cash used in financing activities from continuing operations
 
(856
)
 
(1,205
)
 
(893
)
 
(853
)
 
(1,530
)
(1)Based on continuing operations and excludes net assets held for sale.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview and Outlook

L3’s Business

L3 is a prime contractor in Intelligence, Surveillance and Reconnaissance (ISR) systems, aircraft sustainment (including modifications, logistics and maintenance), simulation and training, night vision and image intensification equipment and security and detection systems. L3 is also a leading provider of a broad range of communication and electronic systems and products 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), foreign governments, and domestic and international commercial customers.

We have the following three reportable segments: (1) Electronic Systems, (2) Aerospace Systems and (3) Communication Systems. Financial information for our segments is included in Note 21 to our audited consolidated financial statements. Electronic Systems provides a broad range of products and services, including components, products, subsystems, systems, and related services for military and commercial customers in several niche markets across several business areas. These business areas include precision engagement & training, sensor systems, power & propulsion systems, aviation products & security systems, warrior systems and advanced programs. Aerospace Systems delivers integrated solutions for the global ISR market and provides engineering, modernization, upgrade, sustainment, and maintenance and logistics support for a wide variety of aircraft and ground systems. Communication Systems delivers products and services for the global communications market, specializing in strategic and tactical space, airborne, ground and sea-based communication systems. Effective March 1, 2017, we will realign our Electronic Systems segment in connection with the retirement of the segment’s president in the second quarter of 2017. The current Electronic Systems segment will be split into two separate segments named (1) Electronic Systems and (2) Sensor Systems. Accordingly, our structure will consist of the following four segments: (1) Aerospace Systems, (2) Communication Systems, (3) Electronic Systems and (4) Sensor Systems. We will report our results under the realigned business segments commencing in the first quarter of 2017 at which time we will restate the corresponding information for prior periods.

On December 7, 2015, we entered into a definitive agreement to sell our National Security Solutions (NSS) business to CACI International Inc. The transaction was completed on February 1, 2016. NSS provided cybersecurity solutions, high-performance computing, enterprise IT services, analytics and intelligence analysis to the DoD, U.S. Government intelligence agencies, federal civilian agencies and foreign governments. In accordance with Accounting Standards Update (ASU) 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, the assets and liabilities and results of operations of NSS are reported as discontinued operations for all periods presented. Accordingly, all references made to financial data in this Annual Report on Form 10-K are to L3’s continuing operations, unless specifically noted.

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We generated sales of $10,511 million and $10,466 million for the years ended December 31, 2016 and 2015, respectively, and our primary customer was the DoD. See “Part I — Item 1 — Business — Major Customers” for additional information regarding a summary of our sales by end customer and the percent contributed by each to our total sales.

Most of our contracts (revenue arrangements) with the U.S. Government are subject to U.S. Defense Contract Audit Agency audits and various cost and pricing regulations and include standard provisions for termination for the convenience of the U.S. Government. Multiyear U.S. Government contracts and related orders are subject to cancellation if funds for contract performance for any subsequent year become unavailable. Foreign government contracts generally include comparable provisions relating to termination for the convenience of the relevant foreign government.

Business Environment

U.S. Government Markets. Sales to U.S. Government customers represented 73% of our 2016 sales and were primarily to DoD customers, which comprised 70% of our sales. Therefore, our annual sales are generally highly correlated to changes in U.S. Government spending levels, especially DoD budget levels.

The total DoD budget for FY 2015 was $560 billion, a decline of 4% as compared to the FY 2014 budget due to a decrease in the Overseas Contingency Operations (OCO) budget. The FY 2015 base budget remained substantially unchanged from FY 2014 at $497 billion, while the OCO budget decreased by $22 billion. The total DoD budget for FY 2016 is $581 billion, an increase of 4% compared to FY 2015. The increase is due to a base budget of $522 billion, higher by $25 billion compared to FY 2015. The FY 2016 OCO budget declined slightly to $59 billion compared to $63 billion for FY 2015.

On February 9, 2016, the Obama Administration submitted its FY 2017 DoD Budget Request. The total FY 2017 DoD Budget Request is $583 billion ($524 billion base budget, $59 billion OCO), which is substantially unchanged compared to the appropriated FY 2016 DoD budget. However, the FY 2017 DoD Budget Request was not approved or appropriated by Congress before October 1, 2016, and FY 2017 began with a Continuing Resolution (CR) to fund the government, which expires on April 28, 2017. The CR maintains funding at the current FY 2016 appropriated level resulting in a prohibition on new program starts and multi-year contract awards. On December 23, 2016, President Obama signed the FY 2017 National Defense Authorization Act (NDAA), which includes defense spending priorities and guidelines but does not appropriate money for those items. The NDAA largely supports the FY17 DoD Budget Request.

Furthermore, the Bipartisan Budget Act of 2015 (BBA), which suspended the debt ceiling through March 15, 2017 and raised spending caps previously enacted by Congress under the Budget Control Act of 2011 (BCA), places spending caps on defense programs. The BBA target for the DoD base budget is $551 billion for FY 2017 and $59 billion for the FY 2017 OCO funding. The BBA, however, does not change the previously enacted BCA sequestration cuts after FY 2017. The BCA specifies base budget spending caps and can only be changed through law enacted by Congress.

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The table below presents the FY 2011 through FY 2016 DoD enacted budgets and the FY17 DoD Future Years Defense Plan (FYDP), as provided in the FY 2017 DoD Budget Request.

 
DoD Budget
Annual
Total
Budget
Change(1)
Fiscal Year (Ending September 30)
Base
OCO
Total
 
 
(in billions)
 
2011
$
528
 
$
159
 
$
687
 
 
0
%
2012
$
530
 
$
115
 
$
645
 
 
-6
%
2013
$
496
 
$
82
 
$
578
 
 
-10
%
2014
$
496
 
$
85
 
$
581
 
 
+1
%
2015
$
497
 
$
63
 
$
560
 
 
-4
%
2016
$
522
 
$
59
 
$
581
 
 
+4
%
2017
$
524
 
$
59
 
$
583
 
 
0
%
2018
$
557
 
 
(2
)
 
 
 
 
+6
%
2019
$
565
 
 
(2
)
 
 
 
 
+1
%
2020
$
570
 
 
(2
)
 
 
 
 
+1
%
2021
$
585
 
 
(2
)
 
 
 
 
+3
%

Source: United States Department of Defense fiscal year 2017 budget request.

(1)The annual budget changes for FY 2018 to FY 2021 are calculated on only the base budgets. The base budget cumulative average growth rate over the five-year period from FY 2016 to FY 2021 is approximately 2%.
(2)The FY 2017 DoD Budget Request did not include a budget amount for OCO appropriations after FY 2017, which will be addressed by the Trump Administration.

Future DoD budgets and spending levels are determined by a number of factors beyond our control, including changes to U.S. procurement policies, current and future domestic and international budget conditions, presidential administration priorities and changing national security and defense requirements. Furthermore, the U.S. Government’s overall fiscal challenges remain, including uncertainties regarding BCA sequestration cuts scheduled to resume in FY 2018. We expect the new Congress and the Trump Administration to continue to discuss various options throughout the budget appropriations process and complete the FY 2017 budget and submit an FY18 budget that includes an increase in OCO and supplemental budgets to address readiness shortfalls, as well as reforms to the federal income tax code and other significant policy initiatives. Although, we cannot predict the outcome of these efforts, which could have an impact on the Company, we believe that L3 will benefit from several of the DoD’s focus areas such as ISR, unmanned systems, undersea warfare, precision strike, secure communications, missile defense and space programs, electronic warfare, aircraft readiness and the ability to project power in denied environments. For more information on the risks and uncertainties related to our U.S. Government contracts, see “Part I — Item 1A — Risk Factors” in this Annual Report on Form 10-K.

International and Commercial Markets. Sales to end customers other than the U.S. Government represented 27% of our 2016 sales. We expect sales to international and commercial customers to represent 28% of our consolidated 2017 sales, an increase of 1% compared to 2016 primarily due to sales from businesses we acquired during 2016. These sales are generally affected by global economic conditions, geopolitical and security conditions and commodity prices, as well as our competitive success in winning new business and increasing market share. We believe that L3 will benefit from a large addressable international market with sales directly to foreign allied governments and under FMS agreements between the U.S. Government and foreign governments. Although our international sales are experiencing near-term softness, we believe the focus of our international markets in areas such as ISR, simulators, communication systems, night vision products and sensors systems will benefit L3 in the long term. We also believe that the commercial markets in which we participate such as aviation products, security and screening, simulation and training, and RF microwave and power have long term favorable fundamentals.

Key Performance Measures

The primary financial performance measures that we use to manage our businesses and monitor results of operations are (i) sales, (ii) operating income and (iii) net cash from operating activities (“Operating Cash Flow”). Management believes that these financial performance measures are the primary growth drivers for our earnings per

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share and cash flow per common share. Generally, in evaluating our businesses and contract performance, we focus on net sales, operating income, operating margin, which we define as operating income as a percentage of sales, and Operating Cash Flow, and not the type or amount of operating costs.

One of our primary business objectives is to increase sales organically and through select business acquisitions. We define organic sales as net sales excluding the sales impact of acquisitions and divestitures. Sales declines related to business divestitures are sales from divestitures that are included in our actual results for the twelve-month period prior to the divestitures. Sales increases related to acquired businesses are sales from acquisitions that are included in our actual results for less than twelve-month period. 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, because sales growth combined with operating margin levels determine our operating income levels. Operating Cash Flow is also an important financial performance measure because Operating Cash Flow measures our ability to convert operating income into cash after paying income taxes and interest expenses and investing in working capital.

Sales Trends. For the year ended December 31, 2016, consolidated net sales of $10,511 million increased by 0.4%, compared to the year ended December 31, 2015. Organic sales increased $161 million, or 1.5% and net sales from business acquisitions was $93 million, or 0.9%. These increases were partially offset by divestitures of $209 million, or 2.0%. Our average annual sales declined for the five years ended December 31, 2016 by 2% due to a decline in average annual organic sales of approximately 2%. See “Results of Operations,” including segment results below for a further discussion of sales.

For the years ended December 31, 2016, 2015 and 2014, 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 Aerospace Systems segment. Under this contract, which generated approximately 4% of our 2016, 2015 and 2014 sales, we provide maintenance, logistics and other related sustainment support services for rotary wing aircraft assigned to Fort Rucker and satellite units in Alabama. Our period of performance under this contract continues through September 30, 2017. We are one of several contractors expected to bid on the re-competition of this contract and expect an award decision in the second half of 2017.

We derived approximately 70% of our 2016 sales from DoD customers and, as a result, our sales are highly correlated to DoD budget levels. 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 sequestration and other DoD budget reductions. Any of these factors could result in a significant increase, decrease or redirection of DoD budgets and impact L3’s future results of operations, including our sales and operating income growth rates. Additionally, L3’s 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 re-compete for existing business and 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, particularly those with clearances of top-secret and above. We expect our 2017 consolidated sales to increase by approximately 2% compared to 2016, including an organic sales increase of 1%. We expect organic international sales to decline by approximately 3% due to the completion of certain contracts with foreign governments, and organic sales to the DoD and U.S. Government to increase by approximately 1%. We expect organic commercial sales to increase by approximately 2% primarily for commercial aviation products.

Operating Income Trends. For the year ended December 31, 2016, our consolidated and segment operating income was $1,008 million, an increase of 13% from $890 million for the year ended December 31, 2015, and our segment operating income as a percentage of sales (segment operating margin) was 9.6% for the year ended December 31, 2016, an increase of 110 basis points from 8.5% for the year ended December 31, 2015. Our consolidated operating income and consolidated operating margin for the year ended December 31, 2015 were impacted by a pre-tax goodwill impairment charge of $384 million and pre-tax losses of $31 million related to

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business divestitures. The pre-tax goodwill impairment charge and pre-tax losses related to business divestitures are excluded from segment operating income because they are excluded by management for purposes of evaluating the operating performance of our business segments. See “Results of Operations”, including segment results below, for a further discussion of operating margin.

Our effective management of labor, material, subcontractor and other direct costs is an important element of cost control and favorable contract performance. We believe that proactively re-sizing our businesses to their anticipated sales, combined with continuous cost improvement, will enable us to increase our cost competitiveness. While we continue to undertake cost management actions, such as reducing our indirect costs, resizing select business units and improving our productivity and contract performance in an effort to maintain or even increase operating margin, these efforts may not be successful and may be partially or fully offset by other cost increases. Although we expect our 2017 annual consolidated and segment operating margin to increase as compared to 2016, changes in the competitive environment and DoD procurement practices, lower consolidated sales and changes in annual pension expense, including related assumptions such as the benefit obligation discount rates, among other factors, could result in lower operating margin. Furthermore, select business acquisitions and new business, including contract renewals and new contracts, could have lower future operating margins compared to our operating margins on existing contracts and could reduce future consolidated and segment operating margins.

Operating Cash Flow Trends. For the year ended December 31, 2016, Operating Cash Flow was $1,097 million, an increase of 3%, compared to the year ended December 31, 2015. The increase is primarily due to higher operating income adjusted for non-cash expenses, partially offset by higher uses of cash for working capital in the year ended December 31, 2016.

Other Events

Name Change and Elimination of Holding Company Structure. On December 31, 2016, we completed an internal reorganization to eliminate our holding company structure. Pursuant to the reorganization, L-3 Communications Holdings, Inc. (L-3 Holdings) was merged (the Merger) with and into our wholly-owned subsidiary, L-3 Communications Corporation (L-3 Corp), with the subsidiary being the surviving entity in the Merger (the Surviving Entity). Immediately following the completion of the Merger, the name of the Surviving Entity was changed to L3 Technologies, Inc. (the Name Change).

As a result of the Merger and the Name Change, all outstanding shares of L-3 Holdings’ common stock were automatically converted into the same number of shares of common stock of L3 Technologies, Inc., as the Surviving Entity, with economic, voting and other rights that are substantially identical. The common stock of L3 Technologies, Inc. commenced trading effective January 3, 2017 (the first trading day of 2017) on the New York Stock Exchange under the ticker symbol “LLL”, the same ticker symbol previously used by us.

Issuance of Senior Notes. On December 5, 2016, we issued $550 million aggregate principal amount of 3.85% Senior Notes that mature on December 15, 2026 (the 2026 Notes). The 2026 Notes were issued at a bond discount of $3 million. The net cash proceeds of $542 million from the offering plus cash on hand were used primarily to: (1) replenish the amount of cash used, and the amount of revolving credit borrowings drawn, to repay $200 million aggregate principal amount of our 3.95% Senior Notes which matured on November 15, 2016 (the 2016 Notes), and (2) redeem all of our outstanding 1.50% Senior Notes due May 28, 2017 (the 2017 Notes), which had an aggregate principal amount of $350 million.

Repurchases, Redemption and Maturities of Senior Notes. The repurchases, redemptions and maturities of senior notes are presented in the table below.

Note
Settlement Type
Date Settled
Aggregate
Amount
Debt
Retirement
Charge
Cash
Payments
 
 
 
(in millions)
1.50% Senior Notes due 2017(1)
Redemption
December 30, 2016
$
350
 
$
2
 
$
351
 
3.95% Senior Notes due 2016
Maturity
November 15, 2016
$
200
 
$
 
$
200
 
3.95% Senior Notes due 2016(2)
Redemption
May 20, 2016
$
300
 
$
5
 
$
305
 
3.95% Senior Notes due 2024
Tender Offer
December 22, 2015
$
300
 
$
1
 
$
297
 
CODES due 2035(3)
Redemption
June 20, 2014
$
689
 
$
 
$
935
 
(1)The 1.50% Senior Notes due 2017 were redeemed at a price equal to 100.323% of the principal amount thereof, plus accrued and unpaid interest to the redemption date. Interest ceased to accrue on and after the redemption date.

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(2)The 3.95% Senior Notes due 2016 were redeemed at a price equal to 101.475% of the principal amount thereof, plus accrued and unpaid interest. Interest ceased to accrue on and after May 20, 2016 and the only remaining right of holders of such Notes was to receive payment of the Redemption Price and accrued interest.
(3)In 2005, we sold $700 million of 3% Convertible Contingent Debt Securities (CODES) due August 1, 2035. On February 2, 2011, we repurchased approximately $11 million of the CODES. The conversion value of CODES of $935 million was calculated in accordance with the indenture governing the CODES. We settled the entire conversion value with respect to converted CODES in cash. As a result of the conversion, we recorded a reduction to shareholders’ equity of $161 million, related to the excess conversion value over the fair value of the debt component of the CODES, net of deferred tax liability. Interest expense recognized for the CODES was $2 million for the year ended December 31, 2014.

Discontinued Operations. On February 1, 2016, we completed the sale of our NSS business to CACI International Inc. for a sales price of $547 million. The sales price was finalized as of September 23, 2016, with no significant changes to preliminary amounts.

The table below presents the statements of operations data for NSS, which was previously a reportable segment and has been classified as a discontinued operation and includes allocated interest expense for debt not directly attributable or related to L3’s other operations. Interest expense was allocated in accordance with the accounting standards for discontinued operations and was based on the ratio of NSS’s net assets to the sum of: (1) total L3 consolidated net assets and (2) L3 consolidated total debt. See Note 3 to the audited consolidated financial statements for additional information.

 
Year Ended December 31,
 
2016
2015
2014
 
(in millions)
Net sales
$
86
 
$
1,088
 
$
1,138
 
Cost of sales
 
(92
)
 
(1,040
)
 
(1,065
)
Gain related to business divestiture(1)
 
64
 
 
 
 
 
Goodwill impairment charges
 
 
 
(571
)
 
 
Operating income (loss) from discontinued operations
 
58
 
 
(523
)
 
73
 
Interest expense allocated to discontinued operations
 
 
 
(20
)
 
(20
)
Income (loss) from discontinued operations before income taxes
 
58
 
 
(543
)
 
53
 
Income tax benefit (expense)
 
5
 
 
21
 
 
(21
)
Income (loss) from discontinued operations, net of income taxes
$
63
 
$
(522
)
$
32
 
(1)The year ended December 31, 2016 includes a gain of $64 million (before and after income taxes) on the sale of the NSS business.

Business Acquisitions and Divestitures

As discussed above, one aspect of our strategy is to selectively acquire businesses that add new products and technologies, or provide access to select customers, programs and contracts. We intend to continue acquiring select businesses for reasonable valuations that will provide attractive returns to L3. Our business acquisitions, depending on their contract-type, sales mix or other factors, could reduce L3’s consolidated operating margin while still increasing L3’s operating income, earnings per share, and net cash from operating activities. In addition, we may also dispose of certain businesses if we determine that they no longer fit into L3’s overall business strategy and we are able to receive an attractive price.

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Acquisitions. The table below summarizes the acquisitions that we have completed during the years ended December 31, 2014, 2015 and 2016 referred to herein as business acquisitions. See Note 3 to our audited consolidated financial statements for further information regarding our business acquisitions. During the year ended December 31, 2016, we used net cash of $388 million for business acquisitions.

Business Acquisitions
Date Acquired
Segment
Purchase
Price(1)
 
 
 
(in millions)
2014
 
 
 
 
 
 
 
 
 
Data Tactics Corporation (L3 Data Tactics)
March 4, 2014
Discontinued Operations
$
57
 
Total 2014
 
 
$
57
 
2015
 
 
 
 
 
MITEQ, Inc.
January 21, 2015
Communication Systems
$
41
 
CTC Aviation Group (L3 CTC)
May 27, 2015
Electronic Systems
 
236
 
ForceX, Inc. (L3 ForceX)
October 13, 2015
Electronic Systems
 
61
 
Total 2015
 
 
$
338
 
2016
 
 
 
 
 
Advanced Technical Materials, Inc. (ATM)
January 22, 2016
Communication Systems
$
27
 
Micreo Limited (Micreo) and Flight Training Acqusitions LLC (Aerosim)
September 30, 2016
Electronic Systems
 
86
 
MacDonald Humfrey (Automation) Limited (L3 MacDonald Humfrey)
November 22, 2016
Electronic Systems
 
327
(2)
Total 2016
 
 
$