L3 Technologies: A Strong Investment in Aerospace & Defense

1. LLL – NYSE Industrials – Aerospace & Defense Steven Gundersen, Mitchell Haddad October 11, 2018 Disclosure Statement: All views and opinions expressed are those solely of the analysts listed on this presentation. Statistics and Multiples were calculated by the analysts listed on this presentation using figures from the company’s 10K & 10Q documents. The Bloomberg Database was used for research purposes and fact checking of company figures.

2. Idea Source L3 Technologies is a strong investment due to L3’s businessrestructuring progress, recent acquisitions, and an overall increase in U.S. defence spending. How did you get the idea? • We have a positive outlook on the Aerospace & Defense industry as it is less exposed to the overall economy compared to the rest of the Industrials sector • Screening A&D companies through Bloomberg, we looked for a promising mid-large cap defense company • L3 Technologies stood out from the rest of the pack due to consolidating in order to create cost synergies.and aggressive acquisition strategy L3 Technologies | ‹#›

3. What is the investment thesis/catalyst? L3 Technologies’ aggressive growth strategy and proactive leadership, evident through their sale of underperforming units, business segment consolidation, and frequent acquisitions, along with increased US and international defense spending, will enable the company to become the United State’s ‘6th prime’. For these reasons, we believe the company offers a strong investment opportunity that is currently undervalued by the market. CATALYSTS 1 2 3 Increased Defense Spending The bipartisan support of 2019’s $716B US defense spending bill sets a favorable outlook on the future of US’s defense spending. Business Restructuring The sale of L3’s underperforming units and consolidation of their business segments will create cost synergies and improve margins Acquisitions L3’s aggressive growth strategy and large amounts of cash on hand puts the company in good position to make large acquisitions to expand their portfolio Recommendation: Buy Current Price: $211.81 Target Price: $245-$265 RISKS • Risk 1 - Increasing United States national debt and deficit could put the defence spending budget at risk • Risk 2 - Significant strides towards better international relations could slow demand for greater military spending • Risk 3 - Failure to integrate acquisitions properly could result in decreased profits in each business segment • Risk 4 - Failure to deliver on key contracts could result lost trust with customers L3 Technologies | ‹#›

4. Company Background BUSINESS MODEL MANAGEMENT OVERVIEW BRIEF DESCRIPTION: Founded in 1997, L3 Technologies is a large, US-based defense contractor, composed of 3 business segments: ISR (Intelligence, Surveillance, Reconnaissance) Systems, Communication and Networked Systems, Electronic Systems Currently, there are 5 major US prime defense contractors. CEO Kubasik stated when he took over at the beginning of 2018 that their goal is to become the “6th prime” BUSINESS MODEL • Defense companies produce revenue through long-term contracts primarily with governments . • In most cases, prime contractors compete to win large contracts from the US government, and the winner engages with subcontractors to fulfill smaller supply and equipment needs of the prime • Among the 5 primes and L3, the U.S. DoD is each company’s biggest customer, accounting for about 65%-85% of sales among primes and 66% for L3 Chris Kubasik (Chairman, CEO, President) • Became CEO on January 1, 2018 after joining L3 in 2015 as COO • From 2010-2012, he was President and COO of Lockheed Martin, overseeing day-to-day operations and was a part of several acquisitions • Started at Lockheed in 2001 as Executive VP and CFO • Appointed to Seabury Capital’s Board of Directors in 2014, a leading A&D professional services firm • Was a Partner at Ernst & Young, where he worked from 1983-1999 L3 Technologies | ‹#›

5. Industry Outlook - Aerospace & Defense The Aerospace & Defense industry looks to offer steady growth for the next several years due to the strong outlook of U.S. defense spending with the current administration. According to Deloitte, the global A&D industry has a CAGR of 3% for 2017-2022 after being stagnant from 2010-2016. With global tensions persisting, defense spending will likely grow consistently and has a non-cyclical nature. Percent Change Increase in International Demand Rising US Defense Spending • $716B budget, an increase from $696B in 2018 • The 2019 Defense Bill offers a promising outlook on defense spending to come • Earliest a defense bill was passed in 40 years • Passed 87-10 in Senate • First time in over a decade to begin fiscal year with enacted appropriation instead of continuing resolution • Procurement spending (budget for military equipment) at $144.3B, an increase from $125.2B in 2018 • China announced a $175B defense budget for 2018, an 8.1% increase YoY • European countries military spending expected to increase due to pressure from US on NATO countries • Oil prices will be a key factor for future defense spending on Middle Eastern countries, but national security threats should drive strong order flow Sources: Deloitte, Washington Post L3 Technologies | ‹#›

6. Catalyst 1 - Business Consolidation Sale of Underperforming Units Business Realignment • L3 Technologies has been realigning its business units in order to create cost synergies • L3 Technologies has also been consolidating to better target specific market opportunities Recently L3 Technologies has sold Vertex, Crestview Aerospace, and TCS for 540 million to American Industrial Partners • Vertex supplied aviation logistic services, maintenance and repair services, and supply chain management • Crestview Aerospace produced and constructed rotary aircraft components • TCS provided logistic and engineering services • These business units were causing the Aerospace Systems Segment revenue growth to decrease • These units were sold in order to strengthen its core business portfolio • TTM operating expenses have dropped by 44.77% and L3 Technologies will have over 400 million cash for acquisitions L3 Technologies has been realigning its business units and segments • Melanie Heitkamp was hired as the Chief Transformation Officer in order to lead the company through consolidation of its business units and segments • L3’s four segments have been reduced to three as of september • Intelligence Surveillance & Reconnaissance Systems combines the Aerospace segment with the Sensor Systems • Communications & Networked Systems includes the Naval Power Systems Unit, Maritime Sensor Unit, and the Communication Systems Segment • Overall this will help streamline business segments Sources: Simplywall.st L3 Technologies | ‹#›

7. Catalyst 2 - Acquisitions L3’s Growth Strategy • L3 has a history of growing aggressively through acquisitions • However, it has not made an acquisition over $1B since 2005 • CEO Chris Kubasik looks to get back to larger acquisitions, stating that while other primes use FCF for share repurchases, L3 intends to grow inorganically. • While it also looks to grow organically through its own R&D efforts, L3 believes acquisitions will accelerate innovation Unmanned Undersea Vehicles (UUV) • The UUV project launched in 2017 provides a prime example of how L3 plans to operate • Through 3 acquisitions in 2017 for a total purchase price of $100M, L3 established a position in a potentially large market • Increasing maritime threats and the rising number of offshore drilling activity will drive growth in this market • The UUV market is currently estimated a $2.69B and grow at a CAGR of 14% from 2017-2022 • L3’s UUV segment has already drawn strong interest from international customers and allows them to be a prime contractor for UUVs Sources: Marketandmarkets, Defense News L3 Technologies | ‹#›

8. Catalyst 2 - Acquisitions L3’s M&A Lifecycle Strategy 2018 Outlook • Currently, L3 is holding $1.3B in cash • CEO Kubasik has said they are able to make an acquisition of over $3B • However, they do not want to lose their investment grade credit rating (currently at BBB-) • In 2017, Kubasik claimed that there are currently 18 companies on their target list • So far in 2018, L3 has made 4 acquisitions for about $270M, growing their space portfolio and cybersecurity presence Becoming the ‘6th Prime’ • Becoming a prime contractor allows L3 to have direct contact with the customer • Prime contractors have higher margins and better relationships with customers, leading to more contracts in the future • Seen with the UUV project, L3 has proven it can quickly become a prime contractor in markets they were previously uninvolved with • Their 2018 acquisitions give them greater capabilities in the ISR segment, which they believe will be a high growth segment internationally L3 Technologies | ‹#›

9. Catalyst 3 - Increase in Defense Spending Increase In Defense Spending - Domestic Increase In Defense Spending - Foreign • On August 13, 2018 President Trump signed the 2019 National Defence Authorization Act which increased the defence budget for 2018 and 2019. • The defence budget increased by 9.4% to $654,618 million • Due to the fact that 75% of L3’s budget comes from the U.S. government this means that L3 will see bigger and better contracts coming their way which will result in higher profits. • Global defense spending is also projected to increase. • NATO has been steadily increasing their defence budget as a proportion of their GDP • Currently NATO, Europe, and Canada defence expenditure is expected to increase by 3.78% this year • This is important as these countriesaccount for 52% of overall global military spending Sources:Deloitte, NATO L3 Technologies | ‹#›

10. Headwinds The future of tariffs and the ongoing trade war will continue to be the greatest headwind for L3 Technologies and the A&D industry as a whole. Defense companies’ stock performance has been highly sensitive to news of the trade war over the past year. Additionally, while L3 and other US prime contractors offer superior defense products, Chinese companies are becoming bigger competitors. US Trade War Growing Chinese Defense Companies • Chinese defense companies account for 5 of the largest 22 defense companies, each producing at least $5B in revenue • These companies pose as a threat to L3’s international sales growth • While they remain technologically inferior, threats of systematic hacking and foreign acquisitions could give them larger international market share • While L3 primarily buys its steel and aluminum domestically, prices will naturally rise, cutting into margins • International customers may be discouraged from purchasing US-based defense products. • In 2017, the US was the biggest A&D exporter, accounting for 34% of industry exports • The Pentagon has remained quiet on the tariffs. Dana White, DoD chief spokeswoman, stated in June that they need time to understand the tariffs’ impact Sources: Aerospace Industries Association, International Institute of Strategic Studies L3 Technologies | ‹#›

11. Tailwinds Increasing global tensions will act as the greatest tailwind for L3 Technologies. Heightened global threats will cause countries to look took defense as a safeguard. In addition, L3 Technologies has made large strides to become the 6th Prime in which L3 will have access to larger contracts. Sixth Prime Heightened Global Threats • As global tensions rise , government will invest in defense • There has been a growing risk of cyber-attacksglobally mostly performed by Russia, China, and North Korea • The South China Sea continues to spark national conflicts over territorial disputes • ISIS continues to persist as they attack the world • North Korea continues to test their ballistic missiles • The G-7 Summit proved to be unsuccessful as Trump isolated himself from his european allies • The five primes are the major U.S. defence contractors which include General Dynamics, Lockheed Martin, Northrop Grumman, Raytheon and, Boeing • L3 Technologies continues their progress to become the 6th prime • L3 CEO Chris Kubasik stated that this would occur by cutting costs and increasing the volume of contracts • To meet their goal L3 has consolidated to focus more on becoming experts in their business segments • L3 has also visited Taiwan, Japan, Singapore, and Saudi Arabia in order to better relationships overseas Sources:Vision of Humanity L3 Technologies | ‹#›

12. Product Portfolio L3 Technologies has three sectors in their business: ISR Systems, Communications and Network Systems, Electronic Systems: Intelligence, Surveillance & Reconnaissance (ISR) Systems Systems: • “Provides a broad range of multi-domain intelligence, surveillance and reconnaissance mission solutions, including space avionics and payloads, soldier systems, airborne sensors and aircraft, mission command & control, intelligence solutions, modeling and simulation and life-cycle support” (L3) • Encryption • Aircraft Modification & Upgrades • Anti-Submarine Warfare & Mine Warfare Systems • Automatic Tracking & Detection • Image Collection & Processing • Training: In-Class Instructor-Led, In-Flight, In-Vehicle Training & eLearning Communications and Network Systems: • “Provides secure communications for connecting space, airborne, ground and sea-based platforms with secure, real-time data” (L3) • Antennas for Land, Sea and Air in EW, SATCOM and CNI Applications • Satellite Communications Services and Bandwidth Support • Simulation and Training • Tactical Radios Electronic Systems: • “Provides pilot training simulation, security and detection systems, power and propulsion systems, precision engagement solutions, night vision products, and screening technology” (L3) • Displays • Electric Propulsion Drive Systems • Power Generation, Conversion & Distribution L3 Technologies | ‹#›

13. Revenue Breakdown L3 Technologies | ‹#›

14. Backlog • L3’s 2017 backlog was $8.879B, a 6% increase from 2016 • All 5 US primes have large backlogs, showing that they have steady revenue streams for years ahead • However, excessively large backlogs can lead to delays and customers may reopen their contracts to competitors • While large backlogs are important for A&D companies, it is equally important to fulfill these orders quickly • In June 2017, the US Air Force reopened a $7.2 billion contract after Lockheed had excessive delays on production L3 Backlog L3 Technologies | ‹#›

15. Financials – Balance Sheet Cash has increased from 662 million to 1,366 million largely due to L3 Technologies sale of their Vertex unit Inventories increased from 389 million to 934 million due to L3 Technologies acquisition of Azimuth Security and Linchpin Labs L3 Technologies | ‹#›

16. Financials – Income Statement Due to recent consolidation, acquisitions, and increase in defense spending: • Revenue increased by 3.25% to 10,174 million • Gross Profit decreased by 16.40% to 1,546 million • Operating Expenses decreased by 40.77% to 488 million • Net Income increased by 26.64% to 889 million • EPS increased by 25.66% L3 Technologies | ‹#›

17. Financials – Cash Flows Statement First Half Ended 6/29/2018 6/30/2017 • Business acquisitions will be an active part of L3’s strategy moving forward, which the sale of Vertex will give them adequate cash on hand to do • On top of having cash on hand, the company issued $800M and $1B in senior notes due 2023 and 2028, respectively • The company’s $1.3B cash on hand puts them in a prime position for future acquisitions “Given the cash on hand... we can easily do $1 billion a year of acquisition without impacting the credit rating.” - Chris Kubasik, 7/15/18 L3 Technologies | ‹#›

18. Credit Ratings L3 Technologies | ‹#›

19. 13F Filings Capital Group bought 2.3M shares according to their 13F filing on 6/30/18 L3 Technologies | ‹#›

20. Stock Performance FIVE YEAR RELATIVE STOCK PERFORMANCE TEN YEAR RELATIVE STOCK PERFORMANCE L3 Technologies | ‹#›

21. Stock Performance FIVE YEAR RELATIVE STOCK PERFORMANCE TEN YEAR RELATIVE STOCK PERFORMANCE L3 Technologies | ‹#›

22. Stock Performance ONE YEAR STOCK PERFORMANCE Reasoning • In January L3 announced that they were expanding their multi-purpose Pilot Training Center and L3 released their annual earnings report. • In April L3’s stock fell due to denuclearization talks and friendlier relations between North Korea and South Korea. The stock price rose when L3 reported first quarter earnings • In July L3’s stock price rose due to their release of second quarter earnings L3 Technologies | ‹#›

23. Dividends and Stock Splits 10 Year Split and Buyback History • 10000 for 9602 split in July 18, 2012 • 2 for 1 split in May 21, 2002 • Currently in the middle of a $1.5B share repurchase program, which was started 7/1/17 10 Year Dividend History • Current 12 month dividend of 3.15 • Current 12 month dividend yield of 1.5 • L3 has been increasing their dividend by .05 per year since 2008 • 5 year net growth of 7.94% L3 Technologies | ‹#›

24. Benchmark Multiples L3 Technologies | ‹#›

25. Industry Specific Multiples L3 Technologies | ‹#›

26. Company Valuation Assumptions Bull • L3 continues to make acquisitions, including a large acquisition which CEO Kubasik has spoken about, which are integrated quickly into the company • L3 gets more exposure as a prime contractor, becoming a direct contractor to the Pentagon and international governments and winning larger contracts • L3 becomes one of the market leaders for UUVs and the market grows at the projected CAGR of 14% until 2022 • Business consolidation and restructuring allow for significant cost synergies and increased margins • US defense spending continues to receive bipartisan support and grows at least 2% YoY Base • L3 does not find a large acquisition for the next 5 years, but continues to make smaller acquisitions that drive future growth • L3 gradually builds its presence as a prime contractor, dealing with the Pentagon directly and building a strong relationship • Business restructuring goes as planned and meet projected cost synergies • US defense spending grows gradually for the next 3-5 years at about 1-1.5% YoY Bear • Acquisitions slow for the company over the next 3-5 years, slowing their growth as a whole • L3 maintains their current relationship with its customers, still acting as a prime with several projects with the Pentagon • Business restructuring moves slowly and does not meet cost synergy projections • US defense spending levels off after 2020 L3 Technologies | ‹#›

27. Company Valuation Perpetuity Growth Rate= 2% WACC = 9.12% L3 Technologies | ‹#›

28. Risk Analysis L3 Technologies | ‹#›

29. Risk & Mitigation Risks Mitigation • Defence spending has always been a priority for the U.S. and increases in defence spending overseas should more than mitigate and possible decreases in the U.S. defence budget • These conflicts have been ongoing for years and with the U.S. and NATO currently on shaky terms it seems unlikely for significant strides in peace to occur • L3 Technologies has done a fantastic job integrating acuisions into their business segments • L3 has a great track record in completing contracts and providing products and services that their customers will continue to come back for • Increasing United States national debt and deficit could put the defence spending budget at risk • Significant strides are made for peace around the world including North Korea and U.S. relations and conflicts in the South China Sea • Failure to integrate acquisitionsproperly could result in a decrease of profit in various business segments • Failure to perform on key contracts would result in customers relying less on L3 and subsequently L3 acquiring less contracts resulting in a decrease in revenue L3 Technologies | ‹#›

30. Conclusion Led by their new, proactive CEO Chris Kubasik, L3 Technologies’ aggressive growth strategy of actively acquiring companies and restructuring their business will enable L3 to become the US’s ‘6th prime’. A positive outlook on defense spending in both the United States and internationally gives the company reliable revenue streams for the next 3-5 years, making L3 Technologies a compelling investment opportunity. Recommendation: Buy Current Price: $211.81 Target Price: $245-$265 CATALYSTS RISKS • The growing US national debt could put future defense spending at risk • Significant strides towards better international relations could slow demand for greater military spending • Failure to integrate acquisitions properly and in a timely manner could slow future growth • Failure to deliver on key contracts, especially in L3’s newer markets, could lose the trust of large customers • Selling off underperforming units and consolidating from 4 segments to 3 will create cost synergies and improve margins • L3’s plan for aggressively seeking acquisitions and their large amount of cash will fuel future growth and build their product portfolio • Increases in defense spending, both in the US and internationally, will provide consistent revenue streams L3 Technologies | ‹#›