<PAGE>


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


                                   FORM 10-K/A-1



[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the fiscal year ended December 31, 2001

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

     For the transition period from               to

                 Commission file numbers 001-14141 and 333-46983

                        L-3 COMMUNICATIONS HOLDINGS, INC.
                         L-3 COMMUNICATIONS CORPORATION
           (Exact names of registrants as specified in their charters)

<TABLE>

<S>                                                        <C>
               DELAWARE                                   13-3937434 AND 13-3937436
      (State or other jurisdiction of               (I.R.S. Employer Identification Nos.)
      incorporation or organization)

 600 THIRD AVENUE, NEW YORK, NEW YORK                              10016
(Address of principal executive offices)                         (Zip Code)

                                 (212) 697-1111
                               (Telephone number)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
                               TITLE OF EACH CLASS
    L-3 Communications Holdings, Inc. common stock, par value $0.01 per share

                   NAME OF EACH EXCHANGE ON WHICH REGISTERED:
                             New York Stock Exchange

           Securities registered pursuant to section 12(g) of the Act:
                                      None.
</TABLE>


     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.  [X] Yes   [ ] No


     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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. [ ]



     There were 39,600,795 shares of L-3 Communications Holdings, Inc. common
stock with a par value of $0.01 outstanding as of the close of business on March
12, 2002. The aggregate market value of the L-3 Communications Holdings, Inc.
voting stock held by non-affiliates of the registrant as of March 12, 2002 was
approximately $4,394.5 million.


================================================================================
<PAGE>


                        L-3 COMMUNICATIONS HOLDINGS, INC.
                         L-3 COMMUNICATIONS CORPORATION

                      INDEX TO ANNUAL REPORT ON FORM 10-K/A-1
                      FOR THE YEAR ENDED DECEMBER 31, 2001

<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
<S>     <C>                                                               <C>
Form 10-K/A-1 .........................................................     i
Item 1: Business ........................................................   1
Item 7: Management's Discussion and Analysis of Results of Operations and
         Financial Condition ............................................  23
</TABLE>






































                                       i
<PAGE>





                        L-3 COMMUNICATIONS HOLDINGS INC.

                         L-3 COMMUNICATIONS CORPORATION

                                   FORM 10-K/A-1

                                DECEMBER 31, 2001

The undersigned Registrants hereby amend the 2001 Annual Report on Form 10-K as
set forth in the pages attached hereto to amend the information contained in
Item 1 "Business" and Item 7 "Management's Discussion and Analysis of Results of
Operations and Financial Condition".

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this amendment to be signed on their behalf by the
undersigned, thereunto duly authorized, on June 19, 2002.


                                    L-3 COMMUNICATIONS HOLDINGS, INC.
                                    L-3 COMMUNICATIONS CORPORATION

                                    By: /s/ Robert V. LaPenta
                                    ------------------------------------
                                    Name: Robert V. LaPenta
                                    Title: President and Chief Financial Officer













                                        ii
<PAGE>











     For convenience purposes in this Annual Report on Form 10-K/A-1, "L-3
Holdings" refers to L-3 Communications Holdings, Inc., and "L-3 Communications"
refers to L-3 Communications Corporation, a wholly-owned operating subsidiary of
L-3 Holdings. "L-3", "we", "us" and "our" refer to L-3 Holdings and its
subsidiaries, including L-3 Communications. The predecessor company refers to
the ten initial business units we purchased from Lockheed Martin Corporation in
April 1997.



ITEM 1. BUSINESS

     L-3 Holdings, a Delaware corporation organized in 1997, derives all of its
operating income and cash flow from its wholly-owned subsidiary L-3
Communications. L-3 Communications, a Delaware corporation, was organized in
1997 to acquire the predecessor company. The only indebtedness of L-3 Holdings
are its 5.25% Convertible Senior Subordinated Notes due 2009 and its 4.00%
Senior Subordinated Convertible Contingent Debt Securities due 2011 which are
jointly and severally guaranteed by substantially all of its direct and indirect
domestic subsidiaries including L-3 Communications. L-3 Holdings also has
guaranteed the indebtedness under the bank credit facilities of L-3
Communications. L-3 Holdings relies on dividends and other payments from its
subsidiaries or must raise funds in public or private equity or debt offerings
to generate the funds necessary to pay principal and interest on its
indebtedness.

OVERVIEW

     We are a leading merchant supplier of sophisticated secure communication
systems and specialized products. We produce secure, high data rate
communication systems, training and simulation systems, engineering development
and integration support, avionics and ocean products, fuzing products,
telemetry, instrumentation, space and guidance products and microwave
components. These systems and products are critical elements of virtually all
major communication, command and control, intelligence gathering and space
systems. Our systems and specialized products are used to connect a variety of
airborne, space, ground-and sea-based communication systems and are used in the
transmission, processing, recording, monitoring and dissemination functions of
these communication systems. Our customers include the U.S. Department of
Defense ("DoD"), certain U.S. Government intelligence agencies, major aerospace
and defense contractors, foreign governments, commercial customers and certain
other U.S. federal, state and local government agencies. For the year ended
December 31, 2001, direct and indirect sales to the DoD provided 64.7% of our
sales, and sales to commercial customers, foreign governments and U.S. federal,
state and local government agencies other than the DoD provided 35.3% of our
sales. Our business areas employ proprietary technologies and capabilities and
have leading positions in their respective primary markets. For the year ended
December 31, 2001, we had sales of $2,347.4 million, of which U.S. customers
accounted for 82.1% and foreign customers accounted for 17.9%, and operating
income of $275.3 million. We have two reportable segments: Secure Communication
Systems and Specialized Products. Information on our reportable segments is
included in Note 16 of our consolidated financial statements included elsewhere
herein.

 SECURE COMMUNICATION SYSTEMS

     We are an established leader in secure, high data rate communication
systems for military and other U.S. Government reconnaissance and surveillance
applications and we believe that we have developed virtually every high
bandwidth data link that is currently used by the DoD for surveillance and
reconnaissance. Our major secure communication programs and systems include:

     o    secure data links for airborne, satellite, ground and sea-based remote
          platforms for real time information collection and dissemination to
          users;

     o    strategic and tactical signal intelligence systems that detect,
          collect, identify, analyze and disseminate information;

     o    secure telephone and network equipment and encryption management;

     o    communication software support services;

     o    communication systems for surface and undersea vessels and manned
          space flights; and


                                        1

<PAGE>

     o    wide-area security systems.

     Our Secure Communication Systems segment includes our training and
simulation businesses. We design, develop and manufacture advanced simulation
and training products with high-fidelity representations of cockpits and
operator stations for aircraft and vehicle system simulation. We also provide a
wide range of engineering development and integration support to the DoD and
other government agencies, a full range of teaching, training, logistic and
training device support services to domestic and international military
customers, and custom ballistic targets for the DoD.

     Our Secure Communication Systems segment provided $1,241.6 million or 52.9%
of our total sales for the year ended December 31, 2001.

 SPECIALIZED PRODUCTS


     We are a leading merchant supplier of products to military and commercial
customers. We focus on niche markets in which we believe we can achieve a market
leadership position. This reportable segment includes three product categories:

     o    Avionics and Ocean Products;

     o    Telemetry, Instrumentation and Space Products; and

     o    Microwave Components.

     Avionics and Ocean Products. This business area includes our aviation and
maritime recorders, airborne collision avoidance products, displays, antennas,
acoustic undersea warfare products, naval power distribution, conditioning,
switching and protection equipment, premium fuzing products and aircraft
modernization services. We believe we are the leading manufacturer of commercial
cockpit voice and flight data recorders (known as "black boxes") and a leading
supplier of acoustic undersea warfare products and airborne dipping sonars to
the U.S. Navy and over 20 foreign navies. These products represented 60.8% of
our Specialized Products segment sales for the year ended December 31, 2001.

     Telemetry, Instrumentation and Space Products. We develop and manufacture
commercial off-the-shelf, real-time data collection and transmission products
and components for missile, aircraft and space-based electronic systems. These
products are used to gather flight data and other critical information and
transmit it from air or space to the ground. We are a leader in digital Global
Positioning System receiver technology for high performance military
applications. We are also a leading global satellite communications systems
provider offering systems and services used in the satellite transmission of
voice, video and data through earth stations for uplink and downlink terminals.
We provide commercial, off-the-shelf satellite control software, telemetry,
tracking and control, mission processors and software engineering services to
foreign governments and commercial satellite markets. We are a leading producer
of navigation products, gyroscopes, controlled momentum devices and star sensors
for commercial, military and other applications. These products represented
29.1% of our Specialized Products segment sales for the year ended December 31,
2001.

     Microwave Products. We are a premier worldwide supplier of commercial
off-the-shelf, high-performance microwave components, base station antenna
monitoring equipment, and RF radiation measurement instrumentation. Our
microwave components are sold under the industry-recognized Narda brand name
using an extensive catalog, which are distributed to the wireless, industrial
and military communication markets. We also provide state-of-the-art,
space-qualified communication components including channel amplifiers and
frequency filters for the commercial communications satellite market. Narda also
supplies filters to the cellular & PCS market worldwide. These products
represented 10.1% of our Specialized Products segment sales for the year ended
December 31, 2001.

     Our Specialized Products segment provided $1,105.8 million or 47.1% of our
total sales for the year ended December 31, 2001.

                                        2

<PAGE>

 DEVELOPING COMMERCIAL OPPORTUNITIES



     Our growth strategy includes identifying and exploiting commercial
applications for select products and technologies currently sold to defense
customers. We have currently identified two vertical markets where we believe
there are significant opportunities to expand our existing commercial sales:
Transportation Products and Broadband Wireless Communications Products. We
believe that these vertical markets, together with our existing commercial
products, provide us with the opportunity for substantial commercial growth in
future years.

     Within the transportation market, we have developed and are offering (1) an
explosives detection system for checked baggage at airports, power propulsion
systems and power switches, all of which are part of our Specialized Products
segment, and (2) displays for rail transportation and internet service providers
and cruise ship voyage recorders, all of which are part of our Aviation Products
& Aircraft Modernization segment. We are developing additional products,
including an enhanced collision avoidance product that incorporates ground
proximity warning, also part of our Aviation Products & Aircraft Modernization
segment.

     Within the communications product market, we are offering local fixed
wireless access equipment for voice, DSL and internet access, transceivers for
LMDS (Local Multipoint Distribution Service) and a broad range of commercial
components and digital test equipment for broadband communications providers,
all of which are part of our Secure Communications & ISR segment.



     We have developed the majority of our commercial products employing
technology funded by and used in our defense electronics businesses, thereby
minimizing any required incremental development expenses. Sales generated from
our developing commercial opportunities have not yet been material to us.

INDUSTRY OVERVIEW



     The U.S. defense industry has undergone significant changes precipitated by
ongoing U.S. federal budget pressures and adjustments in political roles and
missions to reflect changing strategic and tactical threats. From the mid-1980s
to the late 1990s, the U.S. defense budget experienced a decline in real
dollars. This trend was reversed by an increase in defense spending in 1999,
followed by current dollar increases in fiscal 2000, 2001 and 2002 with an
anticipated increase in fiscal 2003 to $379.0 billion. In addition, the DoD
philosophy has focused on its transformation strategy that balances
modernization and recapitalization (or upgrading existing platforms) while
enhancing readiness and joint operations which include digital command and
control communications capabilities by incorporating advanced electronics to
improve performance, reduce operating costs, and extend the life expectancy of
its existing and future platforms. As a result, defense budget program
allocations continue to favor advanced information technologies related to
command and control, communications, (C(3)), intelligence, surveillance and
reconnaissance (ISR). In addition, the DoD's emphasis on system
interoperability, force multipliers and providing battlefield commanders with
real-time data is increasing the electronic content of nearly all major military
procurement and research programs. As a result, it is expected that the DoD's
budget for communications and defense electronics will continue to grow.



     The U.S. defense industry has also undergone dramatic consolidation
resulting in the emergence of five dominant prime system contractors: The Boeing
Company, Lockheed Martin Corporation, Northrop Grumman Corporation, Raytheon
Company and General Dynamics Corporation. We believe that one outcome of this
consolidation is that the DoD wants to ensure that continued vertical
integration does not further diminish the fragmented, yet critical DoD vendor
base. Additionally, we believe it has become uneconomical for the prime
contractors to design, develop and manufacture numerous essential products,
components and subsystems for their own use. We believe this situation has and
will continue to create opportunities for merchant suppliers such as L-3. As the
prime contractors continue to evaluate their core competencies and competitive
positions, focusing their resources on larger programs and platforms, we expect
the prime contractors to continue to exit non-strategic business areas and
procure these needed elements on more favorable terms from independent,
commercially oriented merchant suppliers. Examples of this trend include recent
divestitures of certain non-core defense-related businesses by several of the
prime contractors.

                                        3

<PAGE>

     The focus on cost reduction by the prime contractors and DoD is also
driving increased use of commercial off-the-shelf products for upgrades of
existing systems and in new systems. We believe the prime contractors will
continue to be under pressure to reduce their costs and will increasingly seek
to focus their resources and capabilities on major platforms and systems,
turning to commercially oriented "best of breed" merchant suppliers to produce
subsystems, components and products. We believe successful merchant suppliers
will continue to use their resources to complement and support, rather than
compete with, the prime contractors. We anticipate that the relationships
between the major prime contractors and their primary suppliers will continue to
evolve in a fashion similar to those employed in the automotive and commercial
aircraft industries. We expect that these relationships will be defined by
critical partnerships encompassing increasingly greater outsourcing of non-core
products and systems by the prime contractors to their key merchant suppliers
and increasing supplier participation in the development of future programs. We
believe early involvement in the upgrading of existing systems and the design
and engineering of new systems incorporating these outsourced products will
provide merchant suppliers, including us, with a competitive advantage in
securing new business and provide the prime contractors with significant cost
reduction opportunities through coordination of the design, development and
manufacturing processes.

BUSINESS STRATEGY

     We intend to grow our sales, enhance our profitability and build on our
position as a leading merchant supplier of communication systems and products to
the major contractors in the aerospace and defense industry as well as the U.S.
Government. We also intend to leverage our expertise and products into selected
new commercial business areas where we can adapt our existing products and
technologies. Our strategy to achieve our objectives includes:

     EXPAND MERCHANT SUPPLIER RELATIONSHIPS. We have developed strong
relationships with the DoD, several other U.S. Government agencies and all of
the major U.S. defense prime contractors, enabling us to identify new business
opportunities and anticipate customer needs. As an independent merchant
supplier, we anticipate that our growth will be driven by expanding our share of
existing programs and by participating in new programs. We identify
opportunities where we are able to use our strong relationships to increase our
business presence and allow customers to reduce their costs. We also expect to
benefit from increased outsourcing by prime contractors who in the past may have
limited their purchases to captive suppliers and who are now expected to view
our capabilities on a more favorable basis due to our status as an independent
company, which positions us to be a merchant supplier to multiple bidders on
prime contract bids.

     SUPPORT CUSTOMER REQUIREMENTS. A significant portion of our sales is
derived from strategic, long-term programs and from programs for which we have
been the incumbent supplier, and in many cases acted as the sole provider over
many years. Our customer satisfaction and excellent performance record are
evidenced by our performance-based award fees exceeding an average of 90% of the
available award fees since our inception in April 1997. We believe that prime
contractors will increasingly award long-term, outsourcing contracts to the
best-of-breed merchant suppliers they believe to be most capable on the basis of
quality, responsiveness, design, engineering and program management support as
well as cost. We intend to continue to align our research and development,
manufacturing and new business efforts to complement our customers' requirements
and provide state-of-the-art products.

     ENHANCE OPERATING MARGINS. We have a history of improving the operating
performance of the businesses we acquire through the reduction of corporate
administrative expenses and facilities costs, increasing sales, improving
contract bidding controls and practices and increasing competitive contract
award win rates. We have a tradition of enhancing operating margins, primarily
due to efficient management and elimination of significant corporate expense
allocations. We intend to continue to enhance our operating performance by
reducing overhead expenses, continuing consolidation and increasing
productivity.

     LEVERAGE TECHNICAL AND MARKET LEADERSHIP POSITIONS. We have developed
strong, proprietary technical capabilities that have enabled us to capture the
number one or number two market position in most of our key business areas,
including secure, high data rate communications systems, solid state

                                        4

<PAGE>

aviation recorders, telemetry, instrumentation and space products, advanced
antenna products and high performance microwave components. We continue to
invest in company-sponsored independent research and development, including bid
and proposal costs, in addition to making substantial investments in our
technical and manufacturing resources. Further, we have a highly skilled
workforce, including approximately 7,600 engineers. We are applying our
technical expertise and capabilities to several closely aligned commercial
business markets and applications such as transportation and broadband wireless
communications and we expect to continue to explore other similar commercial
opportunities.

     MAINTAIN DIVERSIFIED BUSINESS MIX. We have a diverse and broad business mix
with limited reliance on any particular program, a balance of cost-reimbursable
and fixed-price contracts, a significant follow-on business and an attractive
customer profile. Our largest program represented 3.9% of our sales for the year
ended December 31, 2001 and is a long term, firm-fixed price contract for
intelligence agencies and the DoD. No other program represented more than 3.2%
of sales for the year ended December 31, 2001. Furthermore, 31.7% of our sales
for the same period were from cost-reimbursable contracts, and 68.3% were from
fixed-price contracts, providing us with a mix of predictable profitability
(cost-reimbursable) and higher margin (fixed-price) business. We also enjoy a
mix of defense and non-defense business, with direct and indirect sales to the
DoD accounting for 64.7%, and sales to commercial customers, foreign governments
and U.S. federal, state and local government agencies other than the DoD
accounting for 35.3% of our sales for the year ended December 31, 2001. We
intend to leverage this business profile to expand our merchant supplier
business base.

     CAPITALIZE ON STRATEGIC ACQUISITION OPPORTUNITIES. Recent U.S. defense
industry consolidation has dramatically reduced the number of traditional
middle-tier aerospace and defense companies, which are smaller than the five
dominant prime system contractors and larger than the many smaller publicly and
privately owned companies, as well as non-core aerospace and defense businesses
of the prime contractors. We intend to enhance our existing product base through
internal research and development efforts and selective acquisitions that will
add new products in areas that complement our present technologies. We intend to
continue acquiring potential targets with the following criteria:

     o    significant market position(s) in their business area(s);

     o    product offerings which complement and/or extend our product
          offerings; and

     o    positive future growth and earnings prospects.

     Since January 1, 2001, we acquired thirteen businesses for an aggregate
adjusted purchase price of $1,636.0 million, of which twelve businesses were
acquired for an aggregate adjusted purchase price of $506.0 million during 2001.
For certain of these acquisitions, the purchase price may be subject to further
adjustment based on actual closing date net assets or net working capital of the
acquired business and the post-acquisition financial performance of the acquired
business. The table below summarizes our primary acquisitions completed since
January 1, 2001.

                                        5

<PAGE>

                          SELECTED RECENT ACQUISITIONS


<TABLE>
<CAPTION>
                                                                      PRICE
     BUSINESS NAME         DATE ACQUIRED        ACQUIRED FROM         ($ MN)           BUSINESS DESCRIPTION
----------------------- ------------------- --------------------- ------------- ------------------------------------------------
<S>                     <C>                 <C>                   <C>           <C>
 Aircraft Integration   March 8, 2002       Raytheon Company       $  1,130.0   Provides products and services
 Systems                                                                        for the global Intelligence,
                                                                                Surveillance and Reconnaissance (ISR)
                                                                                market, specializing in signals intelligence
                                                                                (SIGINT) and communications intelligence
                                                                                (COMINT) systems, which provide the unique
                                                                                ability to collect, decode and analyze
                                                                                electronic signals from command centers,
                                                                                communication nodes and air defense for
                                                                                real-time communication and response to the
                                                                                warfighter. Also provides complete aircraft
                                                                                and mission system integration, test and
                                                                                support capability

 SY Technology          December 31, 2001   SY Technology, Inc.          48.0   Specializes in air warfare simulation; command,
                                                                                control, communications and intelligence
                                                                                architectures; and missile defense and space
                                                                                systems technologies.

 BT Fuze Products       December 19, 2001   Bulova Technologies          49.5   Produces military fuzes that prevent the
                                                                                inadvertent firing and detonation of weapons
                                                                                during handling.

 Government Services    November 30, 2001   Emergent                     39.8   Provides high-end engineering
 Group (renamed L-3                         Technologies                        and information services to the
 Communications                                                                 U.S. Air Force, Army, Navy and
 Analytics)                                                                     intelligence agencies.

 Spar Aerospace         November 23, 2001   Spar Stockholders           146.8   Provides turnkey aviation life
 Limited                                                                        cycle management services for
                                                                                wide body and rotary wing aircraft. Also
                                                                                providing value-added engineering and
                                                                                modernization for selected military and
                                                                                commercial aviation programs.


 EER Systems            May 31, 2001        EER Systems                 119.4   Provides a wide range of
                                            Stockholders                        engineering development and
                                                                                integration support to the DoD, Federal
                                                                                civilian agencies, state and local
                                                                                governments and commercial customers.

 KDI Precision          May 4, 2001         KDI Precision                78.9   Produces military fuzes that
 Products                                   Stockholders                        prevent the inadvertent firing
                                                                                and detonation of weapons
                                                                                during handling.
</TABLE>


                                        6

<PAGE>



PRODUCTS AND SERVICES


                          SECURE COMMUNICATION SYSTEMS


     The systems, products and services, selected applications and selected
platforms or end users of our Secure Communication Systems segment as of
December 31, 2001 are summarized in the table below.




<TABLE>
<CAPTION>

        SYSTEMS/PRODUCTS/SERVICES                 SELECTED APPLICATIONS              SELECTED PLATFORMS/END USERS
---------------------------------------- -------------------------------------- --------------------------------------
<S>                                      <C>                                    <C>
 HIGH DATA RATE COMMUNICATIONS
 o  Wideband data links and ground        o  High performance, wideband          o  Manned and unmanned aircraft,
    terminals                                secure communication links for         naval ships, terminals and
                                             relaying of intelligence and           satellites
                                             reconnaissance information

 SATELLITE COMMUNICATION TERMINALS
 o  Ground-based satellite                o  Interoperable, transportable        o  Remote personnel provided with
    communication terminals and              ground terminals                       communication links to distant
    payloads                                                                        forces

 SPACE COMMUNICATION AND SATELLITE CONTROL
 o  Satellite communication and           o  On-board satellite external         o  International Space Station,
    tracking system                          communications, video systems,         Space Shuttle and various
                                             solid state recorders and ground       satellites
                                             support equipment

 o  Satellite command and control         o  Software integration, test and      o  U.S. Air Force Satellite Control
    sustainment and support                  maintenance support satellite          Network and rocket launch
                                             control network and engineering        system
                                             support for satellite launch
                                             system

 MILITARY COMMUNICATIONS
 o  Shipboard communications              o  Internal and external               o  Naval vessels
    systems                                  communications (radio room)

 o  Communication software                o  Value-added, critical software      o  DoD, FAA and NASA
    support services                         support for C(3)I (Command,
                                             Control, Communication and
                                             Intelligence) systems and other
                                             engineering and technical
                                             services

 INFORMATION SECURITY SYSTEMS
 o  STE (Secure Terminal                  o  Secure and non-secure voice,        o  U.S. Armed services, intelligence
    Equipment)                               data and video communication           and security agencies
                                             for office and battlefield
                                             utilizing ISDN and ATM commercial
                                             network technologies

 TRAINING AND SIMULATION
 o  Military Aircraft Flight              o  Training for pilots, navigators,    o  Military fixed and rotary winged
    Simulators                               flight engineers, gunners and          aircraft and ground vehicles
                                             operators

 o  Battlefield and Weapon                o  Missile system modeling and         o  U.S. Army Missile Command
    Simulation                               simulation

                                          o  Design and manufacture ballistic    o  U.S. Army Missile Command
                                             missile targets that are ground
                                             launched and air launched for
                                             threat replication targets

  o     Training                          o  Training for soldiers on complex    o  DoD
                                             command and control systems
                                          o  Training and logistics services     o  DoD and foreign governments
                                             and training device support

  o     Human Patient Simulators          o  Medical training                    o  Medical schools, nursing schools,
                                                                                    and DoD

</TABLE>


                                        7

<PAGE>

                     SECURE COMMUNICATION SYSTEMS (CONT.)


<TABLE>
<CAPTION>

  SYSTEMS/PRODUCTS/SERVICES          SELECTED APPLICATIONS           SELECTED PLATFORMS/END USERS
----------------------------- ---------------------------------- --------------------------------------
<S>                           <C>                                 <C>
 ENGINEERING DEVELOPMENT AND
  INTEGRATION SUPPORT
 o  System Support             o  C3ISR (Command, Control,        o  U.S. Armed services, intelligence
                                  Communications, Intelligence,      and security agencies, Ballistic
                                  Surveillance and                   Missile Defense Organization,
                                  Reconnaissance), modeling and      NASA and other U.S.
                                  simulation                         Government agencies
</TABLE>


SECURE COMMUNICATION SYSTEMS

     We are an established leader in the development, construction and
installation of communication systems for high performance intelligence
collection, imagery processing and ground, air, sea and satellite communications
for the DoD and other U.S. Government agencies. We provide secure, high data
rate, real-time communication systems for surveillance, reconnaissance and other
intelligence collection systems. We also design, develop, produce and integrate
communication systems and support equipment for space, ground and naval
applications, as well as provide communication software support services to
military and related government intelligence markets. Product lines of the
Secure Communication Systems business include high data rate communications
links, satellite communications terminals, naval vessel communication systems,
space communications and satellite control systems, signal intelligence
information processing systems, information security systems, tactical
battlefield sensor systems and commercial communication systems.

 High Data Rate Communications

     We are a technology leader in high data rate, covert, jam-resistant
microwave communications used in military and other national agency
reconnaissance and surveillance applications. Our product line covers a full
range of tactical and strategic secure point-to-point and relay data
transmission systems, products and support services that conform to military and
intelligence specifications. Our systems and products are capable of providing
battlefield commanders with real-time, secure surveillance and targeting
information and were used extensively by U.S. armed forces in the Persian Gulf
War and during operations in Bosnia, Kosovo and Afghanistan.

     Our current family of strategic and tactical data links or CDL (Common Data
Link) systems are considered DoD standards for data link hardware. Our primary
focus is spread spectrum secure communication links technology, which involves
transmitting a data signal with a high-rate noise signal making it difficult to
detect by others, and then re-capturing the signal and removing the noise. Our
data links are capable of providing information at over 300 megabytes per second
and use point-to-point and point-to-multipoint architectures.

     We provide these secure high bandwidth products to the U.S. Air Force, the
U.S. Navy, the U.S. Army and various U.S. Government agencies, many through
long-term programs. The scope of these programs include air-to-ground,
air-to-air, ground-to-air and satellite communications such as the U-2 Support
Program, GUARDRAIL, ASTOR and major UAV (unmanned aerial vehicle) programs, such
as Predator, Global Hawk and Fire Scout.

     We remain the industry leader in the mobile airborne satellite terminal
product market, delivering mobile satellite communication services to many
airborne platforms. These services provide real time connectivity between the
battlefield and non-local exploiters of ISR data.

 Satellite Communication Terminals

     We provide ground-to-satellite, high availability, real-time global
communications capability through a family of transportable field terminals used
to communicate with commercial, military and international satellites. These
terminals provide remote personnel with constant and effective communication

                                        8

<PAGE>

capability and provide communications links to distant forces. Our TSS (TriBand
SATCOM Subsystem) employs a 6.25 meter tactical dish with a single point feed
that provides C, Ku and X band communication to support the U.S. Army. We also
offer an 11.3 meter antenna satellite terminal which is transportable on two
C-130 aircraft. The SHF PTS (Portable Terminal System) is a lightweight (28
pounds), portable terminal, which communicates through DSCS, NATO or SKYNET
satellites and brings connectivity to small military tactical units and mobile
command posts.

     We provide System Engineering and Software/Life-cycle support to the Air
Force Satellite control network as well as the Eastern and Western Test Rangers.
These contracts were recently won and last well beyond 2010.

 Space Communications and Satellite Control

     We produced and are delivering three communication subsystems for the ISS
(International Space Station). These systems will control all ISS radio
frequency communications and external video activities. We also provide
solid-state recorders and memory units for data capture, storage, transfer and
retrieval for space applications. Our standard NASA tape recorder has completed
over five million hours of service without a mission failure. Our recorders are
on National Oceanic & Atmospheric Administration weather satellites, the Earth
Observing Satellite, AM spacecraft and Landsat-7 Earth-monitoring spacecraft. We
have extended this technology to our Strategic Tactical Airborne Recorder (S/TAR
(Trade Mark) ) which was selected for the New Shared Reconnaissance Port (SHARD)
Program. We also provide space and satellite system simulation, satellite
operations and computer system training, depot support, network engineering,
resource scheduling, launch system engineering, support, software integration
and test through cost-plus contracts with the U.S. Air Force.

 Military Communications

     We provide integrated, computer controlled switching systems for the
interior and exterior voice and data needs of naval vessels. Our products
include the MarCom Integrated Voice Communication Systems for Aegis class
destroyers and for the LPD amphibious ship class. We produced the MarCom
Baseband Switch for Los Angeles class submarines. Our MarCom secure digital
switching system provides an integrated approach to the specialized voice and
data communications needs of shipboard environment for internal and external
communications, command and control and air traffic control. Along with the
Keyswitch Integrated Terminals, MarCom provides automated switching of
radio/cryptocircuits, which results in significant timesavings. We also offer
on-board, high data rate communications systems, which provide a data link for
carrier battle groups, which are interoperable with the U.S. Air Force's
Surveillance/reconnaissance terminals. We supply the "communications on the
move" capability needed for the digital battlefield by packaging advanced
communications into the U.S. Army's Interim Brigade Combat Team Commander's
Vehicle.

     Our Ilex Systems business provides systems and software engineering
products and services for military applications. We specialize in the innovative
application of state-of-the-art software technology and software development
methodologies to produce comprehensive real-time solutions satisfying our
customers' systems and software needs. We specialize in providing engineering
services to the U.S. Army military intelligence community including the
Communications-Electronics Command (CECOM) Software Engineering Center, for the
development and maintenance of Intelligence, Electronic Warfare, Fusion and
Sensor systems and software.

 Information Security Systems

     We believe we are a leader in the development of secure communications
equipment for both military and commercial applications. We are producing the
next generation digital, ISDN-compatible STE (secure telephone equipment). STE
provides clearer voice and thirteen-times faster data/fax transmission
capabilities than the previous generation secure telecommunications equipment.
STE also supports secure conference calls and secure video teleconferencing. STE
uses a CryptoCard security system which consists of a small, portable,
cryptographic module holding the algorithms, keys and

                                        9

<PAGE>

personalized credentials to identify its user for secure communications access.
We also provide the workstation component of the U.S. Government's EKMS
(Electronic Key Management System), the next generation of information security
systems. EKMS is the government's system to replace current "paper" encryption
keys used to secure government communications with "electronic" encryption keys.
The component we provide produces and distributes the electronic keys. We also
develop specialized strategic and tactical signal intelligence systems to
detect, acquire, collect, and process information derived from electronic
sources. These systems are used by classified customers for intelligence
gathering and require high-speed digital signal processing and high-density
custom hardware designs.

 Training and Simulation

     We believe we are a leading provider of fully-integrated simulation
training systems and related support services to the U.S. and foreign military
agencies.



     Our training devices and motion simulators business designs, develops and
manufacturers advanced virtual reality simulation and high-fidelity
representations of cockpits and mission stations for aircraft and land vehicles.
We have developed flight simulators for most of the U.S. military aircraft in
active operation. We have numerous proprietary technologies and fully-developed
systems integration capabilities that provide competitive advantages. Our
proprietary software is used for visual display systems, high-fidelity system
models, database production, digital radar land mass image simulation and
creation of synthetic environments. We are also a leader in developing training
systems which allow multiple trainees at multiple sites to engage in networked
group, unit and task force training and combat simulations. In addition we are
developing, demonstrating, evaluating and transitioning training technologies
and methods for use by warfighters at the US Air Force's Fighter Training
Research Division.

     Our products and services are designed to meet customer training
requirements for aircrews, navigators, mission operators, gunners and
maintenance technicians for virtually any platform, including military fixed and
rotary wing aircraft, air vehicles and various ground vehicles. As one of the
leading suppliers of both simulator systems and training services, we believe we
are able to leverage our unique full-service capabilities to develop
fully-integrated, innovative solutions for training systems, propose and provide
program upgrades and modifications, as well as provide hands-on, best-in-class
training operations in accordance with virtually any customer requirement in a
timely manner.



     We also design and develop prototypes of ballistic missile targets for
present and future threat scenarios. We provide high-fidelity custom targets to
the DoD that are complementary to the U.S. Government's growing focus and
priority on national missile defense and space programs. We are the only
provider of Ballistic Missile targets that have successfully launched a
Ballistic Missile Target from an Air Force Cargo Aircraft.



     We also develop and manage extensive programs in the United States and
internationally, focusing on training and education, strategic planning,
organizational design, democracy transition and leadership development. To
provide these services, we utilize a pool of experienced former armed service,
law enforcement and other national security professionals. In the United States,
our personnel are instructors in the U.S. Army's Force Management School and
other schools and courses and are also involved in recruiting for the U.S. Army.
In addition, we own a one-third interest in Medical Education Technologies,
Inc., which has developed and is producing human patient simulators for sale to
medical teaching and training institutions and the DoD.



 Engineering Development and Integration Support

     We are a premier provider of numerous air campaign modeling and simulation
tools for applications, such as Thunder, Storm and Brawler, for the U.S. Air
Force Studies and Analysis Agency and of space science research for NASA. We
also provide high-end systems support for the HAWK and PATRIOT missile systems,
Unmanned Aerial Vehicles (UAVs), the Cooperative Engagement Capacity (CEC)
Program, and the F/A-18.

     Our products and services specialize in communication systems, training
and simulation equipment and a broad range of hardware and software for the
U.S. Army, Air Force and Navy, the Federal Aviation


                                       10

<PAGE>



Administration and the Ballistic Missile Defense Organization (BMDO). As one of
the leading suppliers of high-end engineering and information support, we
believe we are able to provide value-added C(3)ISR engineering support, wargames
simulation and modeling of battlefield communications.


                              SPECIALIZED PRODUCTS


     The products and services, selected applications and selected platforms or
end users of our Specialized Communication Products segment as of December 31,
2001, are summarized in the table below.



<TABLE>
<CAPTION>

             PRODUCTS/SERVICES                      SELECTED APPLICATIONS              SELECTED PLATFORMS/END USERS
------------------------------------------ -------------------------------------- -------------------------------------
<S>                                        <C>                                    <C>
 AVIONICS AND OCEAN PRODUCTS
 Aviation Products
 o  Solid state crash protected             o  Voice recorders continuously        o  Business and commercial aircraft
    cockpit voice and flight data              record most recent 30-120              and certain military transport
    recorders                                  minutes of voice and sounds            aircraft; sold to both aircraft
                                               from cockpit and aircraft              manufacturers and airlines under
                                               intercommunications. Flight data       the Fairchild brand name
                                               recorders record the last 25
                                               hours of flight parameters

 o  TCAS (Traffic Alert and                 o  Reduce the potential for midair     o  Commercial, business, regional
    Collision Avoidance System)                aircraft collisions by providing       and military transport aircraft
                                               visual and audible warnings and
                                               maneuvering instructions to
                                               pilots
 Antenna Products

 o  Ultra-wide frequency and                o  Surveillance and radar detection    o  Military aircraft including
    advanced radar antennas and                                                       surveillance, fighters and
    rotary joints                                                                     bombers, attack helicopters and
                                                                                      transport

 o  Precision antennas serving major        o  Antennas for high frequency,        o  Various military and commercial
    military and commercial                    millimeter satellite                   customers including scientific
    frequencies, including Ka band             communications                         astronomers

 Display Products
 o  Cockpit and mission displays            o  High performance, ruggedized        o  Military aircraft including
    and controls                               flat panel and cathode ray tube        surveillance, fighters and
                                               displays and processors                bombers, attack helicopters,
                                                                                      transport aircraft and land
                                                                                      vehicles

 Aircraft Modernization

 o  High end aviation product               o  Turnkey aviation life cycle         o  Various military and commercial
    modernization services                     management services                    wide body and rotary wing
                                                                                      aircraft

 Ocean Products
 o  Airborne dipping sonars                 o  Submarine detection and             o  Various military helicopters
                                               localization

 o  Submarine and surface ship              o  Submarine and surface ship          o  U.S. Navy and foreign navies
    towed arrays                               detection and localization

 o  Naval and commercial power              o  Switching, distribution and         o  All naval combatants:
    delivery and switching products            protection, as well as frequency       submarines, surface ships and
                                               and voltage conversion                 aircraft carriers
</TABLE>

                                       11

<PAGE>

                         SPECIALIZED PRODUCTS (CONT.)



<TABLE>
<CAPTION>

            PRODUCTS/SERVICES                      SELECTED APPLICATIONS              SELECTED PLATFORMS/END USERS
----------------------------------------- -------------------------------------- --------------------------------------
<S>                                       <C>                                    <C>
 o  Commercial transfer switches,         o  Production and maintenance of         o  Federal Aviation
    uninterruptible power supplies           systems and high-speed switches          Administration, internet service
    and power products                       for power interruption                   providers, financial institutions
                                             prevention                               and rail transportation
 Premium Fuzing Products
 o  Fuzing products                       o  Munitions and electronic and          o  Various DoD and foreign
                                             electro-mechanical safety and            military customers
                                             arming devices (ESADs)

 TELEMETRY, INSTRUMENTATION AND SPACE PRODUCTS
 Airborne, Ground and Space Telemetry

 o  Aircraft, missile and satellite       o  Real-time data acquisition,           o  Aircraft, missiles and satellites
    telemetry and instrumentation            measurement, processing,
    systems                                  simulation, distribution, display
                                             and storage for flight testing

 o  GPS (Global Positioning               o  Location tracking                     o  Guided projectiles
    Systems) receivers

 o  Navigation systems and                o  Space navigation                      o  Hubble Space Telescope,
    subsystems, gyroscopes, reaction                                                  Delta IV launch vehicle and
    wheels, star sensor                                                               satellites

 Space Products

 o  Global satellite communications       o  Satellite transmission of voice,      o  Rural telephony or private
    systems                                  video and data                           networks, direct to home
                                                                                      uplinks, satellite news gathering
                                                                                      and wideband applications
 MICROWAVE COMPONENTS
 o  Passive components, switches          o  Radio transmission, switching         o  DoD, telephony service
    and wireless assemblies                  and conditioning, antenna and            providers and original
                                             base station testing and                 equipment manufacturers
                                             monitoring, broad-band and
                                             narrow-band applications (PCS,
                                             cellular, SMR and paging
                                             infrastructure)

 o  Safety products                       o  Radio frequency monitoring and        o  Monitor cellular base station and
                                             measurement for safety                   industrial radio frequency
                                                                                      emissions

 o  Satellite and wireless                o  Satellite transponder control,        o  Communications satellites and
    components (channel amplifiers,          channel and frequency                    wireless communications
    transceivers, converters, filters        separation                               equipment
    and multiplexers)

 o  Amplifiers and amplifier based        o  Automated test equipment,             o  DoD and commercial satellite
    components (amplifiers, up/down          military electronic warfare,             operators
    converters and Ka assemblies)            ground and space
                                             communications

</TABLE>

SPECIALIZED PRODUCTS

 Avionics and Ocean Products

     Aviation and Maritime Recorders. We manufacture commercial, solid-state,
crash-protected recorders, commonly known as black boxes, under the Fairchild
brand name for the aviation and maritime industries, and have delivered nearly
55,000 flight recorders to aircraft manufacturers and airlines around the world.
We believe we are the leading manufacturer of commercial cockpit voice recorders
and flight data recorders. The hardened voyage recorder, launched from our
state-of-the-art aviation technology,

                                       12

<PAGE>

and expanded to include cutting edge internet communication protocols, has taken
an early leadership position within the maritime industry. We offer three types
of recorders:

     o    the cockpit voice recorder, which records the last 30 to 120 minutes
          of crew conversation and ambient sounds from the cockpit;

     o    the flight data recorder, which records the last 25 hours of aircraft
          flight parameters such as speed, altitude, acceleration and thrust
          from each engine and direction of the flight in its final moments; and

     o    the hardened voyage recorder, which stores and protects 12 hours of
          voice, radar, radio and shipboard performance data on solid state
          memory.

     Recorders are highly ruggedized instruments, designed to absorb the shock
equivalent to that of an object traveling at 268 knots stopping in 18 inches,
fire resistant to 1,100 degrees centigrade and pressure resistant to 20,000 feet
undersea for 30 days. Our recorders are mandated and regulated by various
worldwide agencies for use in commercial airlines and a large portion of
business aviation aircraft. In addition, our aviation recorders are certified
and approved for installation at the world's leading aircraft original equipment
manufacturers ("OEM's"), while our maritime recorders are an integral component
to a mandated recording system for numerous vessels that travel on international
waters. The U.S. military has recently required the installation of black boxes
in military transport aircraft. We believe this development will provide us with
new opportunities for expansion into the military market.

     We have completed development of a combined voice and data recorder and are
developing an enhanced recorder that monitors engine and other aircraft
parameters for use in maintenance and safety applications.

     Traffic Alert and Collision Avoidance Systems (TCAS). TCAS is an avionics
safety system that was developed to reduce the potential for mid-air collisions.
The system is designed to operate independently from the air traffic control
("ATC") system to provide a complementary supplement to the existing ATC system.
TCAS operates by transmitting interrogations that elicit replies from
transponders in nearby aircraft. The system tracks aircraft within certain range
and altitude bands to determine whether they have the potential to become a
collision threat.

     There are two levels of TCAS protection currently in operation: TCAS I and
TCAS II. In the United States, passenger aircraft with 10 to 30 seats must be
equipped with a TCAS I system. The TCAS II system is required for passenger
aircraft with more than 30 seats. These aircraft, as well as aircraft used in
all-cargo operations, must also be equipped with transponders, either Mode S or
Mode C. The transponder provides altitude and airplane identification to
TCAS-equipped aircraft as well as to the ATC system.

     If the TCAS I system calculates that an aircraft may be a threat, it
provides the pilot with a visual and audible traffic advisory. The advisory
information provides the intruder aircraft's range and relative
altitude/bearing. In addition to traffic advisories, a TCAS II system will
provide the pilot a resolution advisory ("RA"). This resolution advisory
recommends a vertical maneuver to provide separation from the intruder aircraft.

     TCAS systems have proven to be very effective, with many documented
successful RA's. TCAS II has been in worldwide operation in many aircraft types
since 1990. Today, over 16,000 airline, corporate and military aircraft are
equipped with TCAS II-type systems, logging over 100 million hours of operation.
The number of reported near mid-air collisions in the U.S. has decreased
significantly since 1989, a period during which both passenger and cargo air
traffic has increased substantially.

     Antenna Products. We produce high performance antennas under the Randtron
brand name which are designed for:

     o    surveillance of high-resolution, ultra-wide frequency bands;

     o    detection of low radar cross-section targets and low radar
          cross-section installations;


                                       13

<PAGE>

     o    severe environmental applications; and

     o    polarization diversity.

     Our primary product is a sophisticated 24-foot diameter antenna used on all
E-2C surveillance aircraft. This airborne antenna is a rotating aerodynamic
radome containing a UHF surveillance radar antenna, an IFF antenna, and forward
and aft auxiliary antennas. Production is planned beyond 2001 for the E-2C, P-3
and C-130 AEW aircraft. We have been funded to begin the development of the next
generation for this antenna. We also produce broadband antennas for a variety of
tactical aircraft, as well as rotary joints for the AWAC antenna. We have
delivered over 2,000 sets of antennas for aircraft and have a backlog of orders
through 2004.

     We are a leading supplier of ground based radomes used for air traffic
control, weather radar, defense and scientific purposes. These radomes enclose
an antenna system as a protective shield against the environment and are
intended to enhance the performance of an antenna system.

     Display Products. We design, develop and manufacture ruggedized displays
for military and high-end commercial applications. Our current product line
includes a family of high performance display processing systems, which use
either a cathode ray tube or active matrix liquid crystal display. Our displays
are used in numerous airborne, ship-board and ground based platforms and are
designed to survive in military and harsh environments.

     Aircraft Modernization. We are a leading global provider of turnkey
aviation life cycle management services, providing value-added engineering and
upgrades for selected military and commercial aviation programs, component
repair and overhaul and support services. Our major programs include high-end
aviation product modernization and services on the C-130 for a number of
military organizations around the world, including the Canadian Department of
National Defense, U.S. Coast Guard, Mexican Air Force, Royal Malaysian Air Force
and Royal Australian Air Force. We also provide avionics maintenance, repair and
overhaul for the Sikorsky S-61/H-3 Sea King helicopter for a number of military
organizations including the Canadian military, the U.S. Navy and the Brazilian
Air Force. We are also a full service provider for the Boeing 727 and 737 to a
number of airlines, including Canada's WestJet.

     Ocean Products. We are one of the world's leading suppliers of acoustic
undersea warfare systems. Our experience spans a wide range of platforms,
including helicopters, submarines and surface ships. Our products include towed
array sonar, hull mounted sonar, airborne dipping sonar and ocean mapping sonar
for navies around the world.

     We are also a leading provider of state-of-the-art power electronics
systems and electrical power delivery systems and subsystems. We provide
communications and control systems for the military and commercial customers. We
offer the following:

     o    military power propulsion, distribution and conversion equipment and
          components which focus on motor drives switching, distribution and
          protection, providing engineering design and development,
          manufacturing and overhaul and repair services; and

     o    ship control and interior communications equipment.

     We have been able to apply our static transfer switch technology, which we
developed for the U.S. military, to commercial applications. Our commercial
customers for static transfer switches are primarily financial institutions and
internet service providers, including American Express, AOL-Time Warner, AT&T,
Charles Schwab and the Federal Aviation Administration. In addition, we provide
electrical products for rail transportation and utilities businesses.

     Premium Fuzing Products. We are a leading provider of premium fuzing
products, including proximity fuzes, electronic and electro-mechanical safety
and arming devices (ESADs) and self-destruct/ sub-munition grenade fuzes. ESADs
prevent the inadvertent firing and detonation of guided missiles during
handling, flight operations and the initial phases of launch. Our proximity
fuzes are used in smart munitions. All are considered to be critical safety and
arming products. Additionally, during missile flight the ESAD independently
analyzes flight conditions and determines safe separation distance after a
missile launch.

                                       14

<PAGE>

 Telemetry, Instrumentation and Space Products

     We are a leader in the development and marketing of component products and
systems used in telemetry and instrumentation for airborne applications such as
satellites, aircraft, UAVs, launch vehicles, guided missiles, projectiles and
targets. Telemetry involves the collection of data for various equipment
performance parameters and is required when the object under test is moving too
quickly or is of too great a distance to use a direct connection. Telemetry
products measure, process, receive and collect thousands of parameters of a
platform's operation including heat, vibration, stress and operational
performance and transmits this data to the ground.

     Additionally, our satellite telemetry equipment transmits data necessary
for ground processing. These applications demand high reliability of components
because of the high cost of satellite repair and the need for uninterrupted
service. Telemetry products also provide the data used to terminate the flight
of missiles and rockets under errant conditions and/or at the end of a mission.
These telemetry and command/control products are currently used for a variety of
missile and satellite programs.

     Airborne, Ground and Space Telemetry. We provide airborne equipment and
data link systems that gather critical information and then process, format and
transmit the data to the ground from communications satellites, spacecraft,
aircraft and missiles. These products are available in both commercial
off-the-shelf and custom configurations and include software and software
engineering services. Primary customers include many of the major defense
contractors who manufacture aircraft, missiles, warheads, launch vehicles and
munitions. Our ground station instrumentation receives, encrypts and/or decrypts
the serial stream of combined data in real-time as it is received from the
airborne platform. We are a leader in digital GPS (Global Positioning System)
receiver technology for high performance military applications. These GPS
receivers are currently in use on aircraft, cruise missiles and precision guided
bombs and provide highly accurate positioning and navigational information.
Additionally, we provide navigation systems for high performance weapon pointing
and positioning systems for programs such as MLRS (Multiple Launch Rocket
System) and MFCS (Mortar Fire Control System).

     Space Products. We offer value-added solutions that provide our customers
with complex product integration and comprehensive support. We focus on the
following niches within the satellite ground segment equipment market:
telephony, video broadcasting and multimedia. Our customers include foreign
communications companies, domestic and international prime communications
infrastructure contractors, telecommunications or satellite service providers,
broadcasters and media-related companies. We also provide space products for
advanced guidance and control systems including gyroscopes, controlled momentum
devices and star sensors. These products are used on satellites, launch
vehicles, the Hubble Telescope, the Space Shuttle and the International Space
Station.

 Microwave Components



     We are a premier worldwide supplier of commercial off-the-shelf and custom,
high performance RF (radio frequency) microwave components, assemblies and
instruments supplying the wireless communications, industrial and military
markets. We are also a leading provider of state-of-the-art space-qualified
commercial satellite and strategic military RF products and millimeter amplifier
based products. We sell many of these components under the well-recognized Narda
brand name through a comprehensive catalog of standard, stocked hardware. We
also sell our products through a direct sales force and an extensive network of
market representatives. Specific catalog offerings include wireless products,
Electro-mechanical switches, power dividers and hybrids, couplers/detectors,
attenuators, terminations and phase shifters, isolators and circulators,
adapters, control products, sources, mixers, waveguide components, RF safety
products, power meters/monitors and custom passive products. Passive components
are generally purchased in both narrow and broadband frequency configurations by
wireless equipment manufacturers, wireless service providers and military
equipment suppliers. Commercial applications include cellular and PCS base
station automated test equipment, and equipment for the paging industry.
Military applications include electronic surveillance and countermeasure
systems.



                                       15

<PAGE>

     Our space-qualified and wireless components separate various signals and
direct them to sections of the satellites' payload. Our main satellite products
are channel amplifiers and linearizers, payload products, transponders and
antennas. Channel amplifiers amplify the weak signals received from earth
stations, and then drive the power amplifier tubes that broadcast the signal
back to earth. Linearizers, used either in conjunction with a channel amplifier
or by themselves, pre-distort a signal to be transmitted back to earth before it
enters a traveling wave tube for amplification. This pre-distortion is exactly
the opposite of the distortion created at peak power by the traveling wave tube
and, consequently, has a cancellation effect that keeps the signal linear over a
much larger power band of the tube. The traveling wave tube and area covered by
the satellite is significantly increased.

     Narda is the world's largest supplier of non-ionizing radiation safety
detection equipment. These devices are used to quantify and alarm of exposure to
excessive RF radiation. This equipment is used by wireless tower operators and
the military to protect personnel, and insure compliance to various published
standards. We design and manufacture both broad and narrow band amplifiers and
amplifier-based products in the microwave and millimeter wave frequencies. We
use these amplifiers in defense and communications applications. These devices
can be narrow band for communication needs or broadband for electronic warfare.

     We offer standard packaged amplifiers for use in various test equipment and
system applications. We design and manufacture millimeter range (at least 20 to
38GHz) amplifier products for use in emerging communication applications such as
back haul radios, LMDS (Local Multipoint Distribution Service) and ground
terminals for LEO satellites. Narda filters are sold to some of the world's
leading service providers and base station OEM's. Robust demand continues for
Narda filters due to ongoing system upgrades by service providers for 2.5G and
3.0G applications geared toward providing higher data rate capabilities for the
commercial cellular and PCS marketplace.

     We also design, manufacture and market solid state, broadband wireless
communications infrastructure equipment, subsystems and modules used to provide
point-to-Multipoint ("PMP") and point-to-point ("PTP") terrestrial and
satellite-based distribution services in frequency bands from 24 to 38
Gigahertz. Our products include solid-state power amplifiers, hub transmitters,
active repeaters, cell-to-cell relays, Internet access systems and other
millimeter wave-based modules and subsystems. These products are used in various
applications, such as broadband communications, local loop services and Ka-band
satellite communications.

DEVELOPING COMMERCIAL OPPORTUNITIES

     Part of our growth strategy is to identify commercial applications for
select products and technologies currently sold to defense customers. We have
initially identified two vertical markets where we believe there are significant
opportunities to expand our products: transportation and broadband wireless
communications.


     Transportation. Our products, designed to meet strict government quality
and reliability standards, are easily adapted to the commercial transportation
marketplace. Our aircraft voice recorders, designed to meet FAA requirements,
have been successfully marketed to the cruise ship, marine shipping and railroad
industries. Similarly, our state-of-the-art power propulsion products,
originally designed for the U.S. Navy, meet the needs of commuter railroads,
including Philadelphia's regional rail system and New York City's Metropolitan
Transportation Authority. Our explosives detection system, the eXaminer 3DX(TM)
6000, enables the rapid scanning of passenger checked baggage at airports using
state-of-the-art technology. The new Transportation Security Administration
(TSA), of the Department of Transportation, created as a result of the Aviation
and Transportation Security Act enacted by Congress on January 3, 2002, has
expressed requirements for as many as 500 examiner units.


     Communications. The wireless communications technology we developed for our
military customers also meets the needs of a growing commercial marketplace for
technologically advanced communications products. Some of the products we have
developed or are developing to exploit this market include wireless loop
products, transceivers, LMDS, compression products, remote sensing internet

                                       16

<PAGE>

networks, microwave links and products for microwave base stations. Our Prime
Wave fixed wireless loop products are an example of our expanding involvement in
the commercial communications industry. Using synchronous CDMA technology that
supports terrestrial, space, fixed and mobile communications, we produce
wireless loop equipment for use in areas that do not have an adequate
telecommunications infrastructure, including emerging market countries and
customers in rural areas.

     In the expanding broadband wireless commercial communications market, we
also have developed a broad assortment of other products including transponders,
payloads, uplinks- downlinks, fly-away SATCOM terminals, telemetry tracking and
control and test equipment and waveform generators.

     These new commercial products are subject to certain risks and may require
      us to:

     o    develop and maintain marketing, sales and customer support
          capabilities;

     o    secure sales and customer support capabilities;

     o    obtain customer and/or regulatory certification;

     o    respond to rapidly changing technologies including those developed by
          others that may render our products and systems obsolete or
          non-competitive; and

     o    obtain customer acceptance of these products and product performance.

     Our efforts to expand our presence in commercial markets require
significant resources, including additional working capital and capital
expenditures, as well as the use of our management's time. Our ability to sell
certain commercial products, particularly our broadband wireless communications
products, depends to a significant degree on the efforts of independent
distributors or communications service providers and on the financial viability
of our existing and target customers for the commercial products. Certain of our
existing and target customers are agencies or affiliates of governments of
emerging and under-developed countries or private business enterprises operating
in those countries. In addition, we have made equity investments in entities
that plan to commence operations as communications service providers using some
of our commercial products. We can give no assurance that these distributors or
service providers will be able to market our products or their services
successfully or that we will be able to realize a return of investment in them.
We also cannot assure you that we will be successful in addressing these risks
or in developing these commercial business opportunities.

     BACKLOG AND ORDERS



     We define funded backlog as the value of contract awards received from the
U.S. Government, 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, which have yet to be recognized as sales. Our funded backlog as of
December 31, 2001 was $1,719.3 million and as of December 31, 2000 was $1,354.0
million. We expect to record as sales approximately 69.7% of our funded backlog
as of December 31, 2001 during 2002. However, there can be no assurance that our
funded backlog will become sales in any particular period, if at all. Our funded
orders for the year ended December 31, 2001 were $2,456.1 million, for the year
ended December 31, 2000 were $2,013.7 million and for the year ended December
31, 1999 were $1,423.1 million.



     Our funded backlog does not include the full value of our contract awards
including those pertaining to multi-year, cost-reimbursable contracts, which are
generally funded on an annual basis. Funded backlog also excludes the sales
value of unexercised contract options that may be exercised by customers under
existing contracts and the sales value of purchase orders that may be issued
under indefinite quantity contracts or basic ordering agreements.

MAJOR CUSTOMERS

     For the year ended December 31, 2001, direct and indirect sales to the DoD
provided 64.7% of our sales, and sales to commercial, foreign governments and
U.S. federal, state and local government agencies other than the DoD provided
35.3% of our sales.

                                       17

<PAGE>

     Our U.S. Government sales are predominantly derived from contracts with
agencies of, and prime 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. As
of December 31, 2001, we had approximately 575 contracts each with a value
exceeding $1.0 million. For the year ended December 31, 2001, sales of our five
largest programs amounted to $249.7 million or 10.6% of our sales.

RESEARCH AND DEVELOPMENT

     We conduct research and development activities that consist of projects
involving basic research, applied research, development, and systems and other
concept studies. We employ scientific, engineering and other personnel to
improve our existing product lines and develop new products and technologies. As
of December 31, 2001, we employed approximately 7,600 engineers, a substantial
portion of whom hold advanced degrees. For the year ended December 31, 2001, we
incurred $319.4 million on research and development costs for customer-funded
contracts and spent $107.5 million on company-sponsored research and development
projects, including bid and proposal costs.

COMPETITION

     We encounter intense competition in all of our businesses. We believe that
we are a significant supplier of many of the products that we manufacture and
services we provide in our defense and government businesses, as well as in our
commercial businesses.

 Defense and Government Business

     Our ability to compete for defense contracts depends on a variety of
factors, including:

     o    the effectiveness and innovation of our research and development
          programs;

     o    our ability to offer better program performance than our competitors
          at a lower cost; and

     o    the availability of our facilities, equipment and personnel to
          undertake the programs for which we compete.

     In some instances, we are the incumbent supplier or have been the sole
provider for many years for certain programs. We refer to such contracts as
"sole-source" contracts. In such cases, there may be other suppliers who have
the capability to compete for the programs involved, but they can only enter or
reenter the market if the customer chooses to reopen the particular program to
competition. Sole-source contracts accounted for approximately 62.4% and
competitive contracts accounted for approximately 37.6% of our total sales for
the year ended December 31, 2001. The majority of our sales are derived from
contracts with the U.S. Government and its prime contractors, which are
principally awarded on the basis of negotiations or competitive bids.



     We believe that the U.S. defense industry structure contains three tiers of
defense contractors. The first tier is dominated by five prime system
contractors: The Boeing Company, Lockheed Martin Corporation, Northrop Grumman
Corporation, Raytheon Company and General Dynamics Corporation, all of whom
compete for major platform programs. The second tier defense contractors are
smaller products and niche systems contractors and are comprised of traditional
aerospace and defense companies, as well as, the non-core aerospace and defense
sectors of certain industrial conglomerates and include L-3, Honeywell Inc.,
Rockwell Collins Inc., Harris Corporation, TRW Inc., ITT Industries, Inc.,
Alliant Techsystems Inc., United Technologies Corporation, and United Defense
Industries Inc. The third tier, which represents the vendor base and supply
chain for niche products, is comprised of numerous smaller publicly and
privately owned aerospace and defense contractors.



     We believe we are the aerospace and defense "merchant supplier" with the
broadest and most diverse product portfolio. We supply our products to all of
the five prime system contractors and in some cases directly to the end
customer. We primarily compete with third tier contractors and certain of the
second tier contractors and to a lesser extent with the prime system contractors
in certain niche areas.

                                       18

<PAGE>

Some of the second tier contractors are larger than we are and have greater
resources than we have available to us. We are larger than all of the third tier
contractors and believe we have greater resources than all of them. We believe
that most of our businesses enjoy the number one or number two competitive
position in their respective market niches. We believe that the primary
competitive factors for our businesses are: technology, quality, cost, market
position and past performance. In addition, our ability to compete for non "sole
source" contracts often requires us to "team" with one or more of the prime
system contractors that bids and competes for major platform programs.
Furthermore, our ability to "team" with a prime system contractor is often
dependent upon the outcome of a competitive process.

     We believe that we will continue to be a successful participant in the
business areas in which we compete, based upon the quality and cost
competitiveness of our products and services.

 Commercial Activities

     Our commercial activities have become an increasingly significant portion
of our business mix, and comprised 22.6% of our total sales for the year ended
December 31, 2001. Our ability to compete for commercial business depends on a
variety of factors, including:

     o    Pricing;

     o    Product features and performance;

     o    Reliability, scalability and compatibility;

     o    Customer relationships, service and support; and

     o    Brand recognition.

     Inthese markets, we compete with various companies, several of which are
       listed below.

     o    Agilent Technologies, Inc.;         o    Honeywell Inc.;

     o    Globecomm Systems, Inc.;            o    Smiths Industries; and

     o    ViaSat, Inc.;                       o    Airspan Networks, Inc.

     We believe that our sales in these business areas will continue to grow as
a percentage of our total sales, even though several of our competitors may have
greater resources and technologies than we have available to us.

PATENTS AND LICENSES

     We do not believe that our patents, trademarks and licenses are material to
our operations. Furthermore, our U.S. Government contracts generally permit us
to use patents owned by others. Similar provisions in U.S. Government contracts
awarded to other companies make it impossible for us to prevent the use of our
patents in most domestic work performed by other companies for the U.S.
Government.

RAW MATERIALS

     In manufacturing our products, we use our own production capabilities as
well as a diverse base of third party suppliers and sub-contractors. Although
aspects of certain of our businesses 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

     A significant portion of our sales are derived from strategic, long-term
programs and from sole-source contracts. Approximately 62.4% of our sales for
the year ended December 31, 2001 were generated from sole-source contracts. Our
customer satisfaction and performance record are evidenced by our receipt of
performance-based award fees exceeding 91% of the available award fees on
average during the year ended December 31, 2001. We believe that our customers
will award long-term,

                                       19

<PAGE>

sole-source, outsourcing contracts to the most capable merchant supplier in
terms of quality, responsiveness, design, engineering and program management
support as well as cost. As a consequence of our strong competitive position,
for the year ended December 31, 2001, we won contract awards in excess of 50% on
new competitive contracts that we bid on, and in excess of 90% on the contracts
we rebid for which we were the incumbent supplier.

     We have a diverse business mix with limited reliance on any single program,
a balance of cost-plus and fixed price contracts, a significant sole-source
follow-on business and an attractive customer profile. For the year ended
December 31, 2001, 31.7% of our sales were generated from cost-reimbursable
contracts and 68.3% from fixed-price contracts, providing us with a sales mix of
predictable profitability (cost-reimbursable) and higher profit margin
(fixed-price) business.

     Generally, contracts are either fixed-price or cost-reimbursable. Under a
fixed-price contract we agree to perform the scope of work required by the
contract for a predetermined contract price. Although a fixed-price 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. Conversely, on a cost-reimbursable contract we are paid up to
predetermined funding levels determined by our customers, our allowable incurred
costs and generally a fee representing a profit on those costs, which can be
fixed or variable depending on the contract's pricing arrangement. Therefore, on
a cost-reimbursable contract we do not bear the risks of unexpected cost
overruns. Generally, a fixed-price contract offers higher profit margins than a
cost-reimbursable contract which is commensurate with the greater levels of risk
assumed on a fixed-price contract.

     Most of our U.S. Government business is subject to unique procurement and
administrative rules based on both laws and regulations, including various
profit and cost controls, allocations of costs to contracts and
non-reimbursement of unallowable costs such as lobbying expenses and interest
expenses. Our contract administration and cost accounting policies and practices
are subject to oversight by government inspectors, technical specialists and
auditors.

     Certain of our sales are under foreign military sales agreements 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. These 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 laws and
regulations. Investigations could result in administrative, civil, or criminal
liabilities, including repayments, disallowance of certain costs, or fines and
penalties.

     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.

     U.S. Government contracts are, by their terms, subject to termination by
the U.S. Government either for its convenience or default by the contractor if
the contractor fails to perform the contracts' scope of work. Upon termination
other than for a contractor's default, the contractor will normally be entitled
to reimbursement for allowable costs and an allowance for profit. Foreign
defense contracts generally contain comparable provisions permitting termination
at the convenience of the government. To date, none of our significant fixed
price contracts have been terminated.

     Companies supplying defense-related equipment to the U.S Government are
subject to certain additional business risks peculiar to the U.S. defense
industry. Among these risks are the ability of the U.S. Government to
unilaterally suspend a company from new contracts pending resolution of alleged
violations of procurement laws or regulations. In addition, U.S. Government
contracts are conditioned upon the continuing availability of Congressional
appropriations. Congress usually appropriates funds for a given program on a
September 30 fiscal year basis, even though contract performance may take years.
Consequently, at the outset 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 for future
fiscal years.

                                       20

<PAGE>

     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 if we incur substantial
contract cost overruns could materially adversely affect our business.

ENVIRONMENTAL MATTERS



     Our operations are subject to various federal, state and local
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 on various manufacturing facilities of our acquired
businesses and, where appropriate, have obtained indemnification, either from
the sellers of 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 that
even without considering potential insurance recoveries, if any, there are no
environmental loss contingencies that, individually or in the aggregate, would
be material to our consolidated results of operations.



     Despite our current level of compliance, 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 costs in the future that could have a negative effect on our
financial condition or results of operations.

PENSION PLANS

     In connection with our acquisition of the predecessor company, we assumed
certain liabilities relating to defined benefit pension plans for present and
former employees and retirees of certain businesses which were transferred from
Lockheed Martin to us. Prior to the consummation of our acquisition of the
predecessor company, Lockheed Martin received a letter from the Pension Benefit
Guaranty Corporation (the "PBGC") which requested information regarding the
transfer of such pension plans and indicated that the PBGC believed certain of
such pension plans were underfunded using the PBGC's actuarial assumptions. The
PBGC assumptions result in a larger liability for accrued benefits than the
assumptions used for financial reporting under Statement of Financial Accounting
Standards No. 87. The PBGC underfunding is related to the Communication Systems
-- West and Aviation Recorders pension plans (the "Subject Plans").

     With respect to the Subject Plans, Lockheed Martin entered into an
agreement (the "Lockheed Martin Commitment") among Lockheed Martin, L-3
Communications and the PBGC dated as of April 30, 1997. The material terms and
conditions of the Lockheed Martin Commitment include a commitment by Lockheed
Martin to the PBGC to, under certain circumstances, assume sponsorship of the
Subject Plans or provide another form of financial support for the Subject
Plans. The Lockheed Martin Commitment will continue with respect to any Subject
Plan until such time as such Subject Plan is no longer underfunded on a PBGC
basis for two consecutive years or, at any time after May 31, 2002, if we
achieve investment grade credit ratings. Pursuant to the Lockheed Martin
Commitment, the PBGC agreed that it would take no further action in connection
with our acquisition of the predecessor company.

     Upon the occurrence of certain events, Lockheed Martin, at its option, has
the right to decide whether to cause us to transfer sponsorship of any or all of
the Subject Plans to Lockheed Martin, even if the PBGC has not sought to
terminate the Subject Plans. Such a triggering event occurred in 1998, but

                                       21

<PAGE>

reversed in 1999, relating to a decrease in the PBGC-mandated discount rate in
1998 that had resulted in an increase in the underlying liability. We notified
Lockheed Martin of the 1998 triggering event, and in February 1999, Lockheed
Martin informed us that it had no present intention to exercise its right to
cause us to transfer sponsorship of the Subject Plans. If Lockheed Martin did
assume sponsorship of these plans, it would be primarily liable for the costs
associated with funding the Subject Plans or any costs associated with the
termination of the Subject Plans, but we would be required to reimburse Lockheed
Martin for these costs. To date, there has been no impact on pension expense and
funding requirements resulting from this arrangement. In the event Lockheed
Martin assumes sponsorship of the Subject Plans we would be required to
reimburse Lockheed Martin for all amounts that it contributes to, or costs it
incurs with respect to, the Subject Plans. For the year ended December 31, 2001,
no pension contributions were required to be made by us to the Subject Plans.
For subsequent years, our funding requirements will depend upon prevailing
interest rates, return on plan assets and underlying actuarial assumptions.

     We have performed our obligations under the letter agreement with Lockheed
Martin and the Lockheed Martin Commitment and have not received any
communications from the PBGC concerning actions which the PBGC contemplates
taking in respect of the Subject Plans.

EMPLOYEES

     As of December 31, 2001, we employed approximately 18,000 full-time and
part-time employees, the majority of whom are located in the United States. Of
these employees, approximately 11.1% are covered by 35 separate collective
bargaining agreements with various labor unions. We have a continuing need for
skilled and professional personnel to meet contract schedules and obtain new and
ongoing orders for our products. We believe that relations with our employees
are good.

                                       22

<PAGE>



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
        FINANCIAL CONDITION


OVERVIEW

     We are a leading merchant supplier of sophisticated secure communication
systems and specialized products. These systems and products are critical
elements of virtually all major communication, command and control, intelligence
gathering and space systems. Our customers include the U.S. Department of
Defense ("DoD"), certain U.S. Government intelligence agencies, major aerospace
and defense contractors, foreign governments, commercial customers and certain
other government agencies. We have two reportable segments: Secure Communication
Systems and Specialized Products.

     Our Secure Communication Systems segment provides secure, high data rate
communication systems for military and other U.S. Government reconnaissance and
surveillance applications. The Secure Communication Systems segment also
produces advanced simulation and training products, and provides a wide range of
engineering development and integration support to the DoD and other U.S.
federal, state and local government agencies, communication software support
services and a full range of teaching, training, logistic and training device
support services to domestic and international military customers, and custom
ballistic targets for the DoD. Our Specialized Products segment includes three
product categories: avionics and ocean products, telemetry, instrumentation and
space products and microwave components.



     In recent years, domestic and worldwide political and economic developments
have significantly affected the markets for defense systems, products and
services. Two events in 2001 had a dramatic impact on the domestic and
international political and economic landscape. They impacted L-3 and the
defense industry generally. First, the events of September 11 created
uncertainty and exposed vulnerabilities in security and the overall defense of
the U.S. homeland. Second, in the conclusions of the U.S. Quadrennial Defense
Review (QDR) there was a fundamental and philosophical shift in focus from a
"threat-based" model to one that emphasizes the capabilities needed to defeat a
full spectrum of adversaries. Transforming the nation's defense posture to a
capabilities-based approach involves creating the ability for a more flexible
response, with greater force mobility, stronger space capabilities, missile
defense, improved communications and information systems security and an
increased emphasis on homeland defense.



     The current defense budget and proposed budgets for 2003 through 2006 have
been increased by approximately 20% over previous budgets for those same years
with increased focus on command, control, communications, intelligence,
surveillance and reconnaissance (C(3)ISR), precision-guided weapons, unmanned
aerial vehicles (UAVs), communications networks and missile defense. We believe
we are well positioned to benefit from increased spending in those areas. In
addition, increased emphasis on homeland defense may increase demand for our
capabilities in areas such as airport security systems, information security,
crisis management, preparedness and prevention services, and civilian security
operations. While there is no assurance that the proposed increased DoD budget
levels will be approved by Congress, after over a decade of downward trends, the
current outlook is one of increased spending, which we believe should positively
affect our future sales and could potentially favorably affect our future
operating profits because of increased sale volumes.

     All of our domestic government contracts and subcontracts are subject to
audit and various cost controls, 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.

                                       23

<PAGE>

ACQUISITIONS AND DIVESTITURES


     The table below summarizes the material acquisitions that we have completed
during the three years ended December 31, 2001.


<TABLE>
<CAPTION>

                                                                                        PURCHASE
ACQUIRED COMPANY                                              DATE ACQUIRED             PRICE (1)
--------------------------------------------------------   -------------------   ----------------------
<S>                                                        <C>                   <C>
                                                                                      (in millions)
 Microdyne Corporation                                       January 8, 1999             $ 91.1
 Aydin Corporation                                            April 16, 1999             $ 70.5
 Interstate Electronics Corporation                            June 30, 1999             $ 40.0
 Space and Navigation Systems                              December 31, 1999             $ 55.2
 Training Devices and Training Services (TDTS) business
  of Raytheon Company                                      February 10, 2000             $158.1 (2)
 Trex Communications Corporation                           February 14, 2000             $ 49.3
 Traffic Alert and Collision Avoidance Systems                April 28, 2000             $239.2
 MPRI, Inc.                                                    June 30, 2000             $ 39.6 (3)
 Coleman Research Corporation                              December 29, 2000             $ 60.0 (4)
 KDI Precision Products                                          May 4, 2001             $ 78.9
 EER Systems                                                    May 31, 2001             $119.4 (5)
 Spar Aerospace Limited                                    November 23, 2001             $146.8 (6)
 Emergent Government Services Group                        November 30, 2001             $ 39.8 (7)(8)
 BT Fuze Products                                          December 19, 2001             $ 49.5 (7)
 SY Technology                                             December 31, 2001             $ 48.0 (7)(9)
</TABLE>


 ----------
 (1)   Purchase price represents the contractual consideration for the acquired
       business excluding adjustments for net cash acquired and acquisition
       costs.

 (2)   Following the acquisition we changed TDTS's name to L-3 Communications
       Link Simulation and Training.

 (3)   Includes $4.0 million of additional purchase price that was based on the
       financial performance of MPRI for the year ended June 30, 2001.

 (4)   Excludes additional purchase price, not to exceed $5.0 million, which is
       contingent upon the financial performance of Coleman for the year ended
       December 31, 2001.

 (5)   Excludes additional purchase price, not to exceed $10.0 million, which is
       contingent upon the financial performance of EER for the year ended
       December 31, 2001 and the year ending December 31, 2002.

 (6)   Includes $43.6 million for the remaining 29.7% of the outstanding common
       stock of Spar at December 31, 2001 that we acquired and paid for in
       January 2002.

 (7)   Purchase price is subject to adjustment based on actual closing date net
       assets or net working capital of the acquired business.

 (8)   Following the acquisition we changed Emergent Government Services Group's
       name to L-3 Communications Analytics.

 (9)   Excludes additional purchase price, not to exceed $4.8 million, which is
       contingent upon the financial performance of SY for the year ended
       December 31, 2001 and the years ending December 31, 2002 and 2003.

                                       24

<PAGE>

     On January 14, 2002, we agreed to acquire Aircraft Integration Systems
("AIS"), a division of Raytheon Company, for $1.13 billion in cash. The
acquisition was completed on March 8, 2002, and was financed using cash on hand,
borrowings under our senior credit facilities and a $500.0 million senior
subordinated bridge loan. We expect to offer and sell approximately $1.0 billion
of debt and equity securities during the first half of 2002, depending on
capital market conditions, and use the proceeds from those offerings to repay
the $500.0 million senior subordinated bridge loan and the borrowings made under
the senior credit facilities.


     On January 2, 2002, we agreed to acquire the explosives detection systems
business of PerkinElmer for $100.0 million in cash. The acquisition is subject
to customary closing conditions, including clearance under the Hart-Scott-Rodino
Antitrust Improvements Act. We expect to complete this acquisition during the
second quarter of 2002.


     Additionally, we purchased other businesses during 1999, 2000 and 2001,
which individually and in the aggregate were not material to our consolidated
results of operations, financial position or cash flows in the year acquired.

     All of our acquisitions have been accounted for as purchase business
combinations and are included in our consolidated results of operations from
their respective effective dates.

     On May 31, 2001, we sold a 30% interest in Aviation Communications and
Surveillance Systems LLC ("ACSS") which comprises our TCAS business to Thales
Avionics, a wholly owned subsidiary of Thales (formerly Thomson-CSF), for $75.2
million of cash. We continue to consolidate the financial statements of ACSS.

     We regularly evaluate potential acquisitions and joint venture
transactions, but we have not entered into any other agreements with respect to
any material transactions at this time.

CRITICAL ACCOUNTING POLICIES

     Our significant accounting policies are described in Note 2 to the
consolidated financial statements. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires us to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
sales and costs and expenses during the reporting period. The most significant
of these estimates and assumptions relate to contract estimates of sales and
estimated costs to complete contracts in process, estimates of market values for
inventories reported at lower of cost or market, estimates of pension and
postretirement benefit obligations, recoverability of recorded amounts of fixed
assets and goodwill, income taxes, including the valuations of deferred tax
assets, litigation and environmental obligations. Actual results could differ
from these estimates. We believe the following critical accounting policies
contain the more significant judgements and estimates used in the preparation of
our financial statements.

     Revenue Recognition on Contracts and Contract Estimates. The substantial
majority of our direct and indirect sales to the U.S. Government and certain of
our sales to foreign governments and commercial customers are made pursuant to
written contractual arrangements or "contracts" to design, develop, manufacture
and or modify complex products, and to the specifications of the buyers
(customers) or to provide services related to the performance of such contracts.
These contracts are within the scope of the American Institute of Certified
Public Accountants Statement of Position 81-1 Accounting for Performance of
Construction-Type and Certain Production-Type Contracts ("SOP 81-1"), and sales
and profits on them are recognized using percentage-of-completion methods of
accounting. Sales and profits on fixed-price production contracts whose units
are produced and delivered in a continuous or sequential process are recorded as
units are delivered based on their selling prices (the "units-of-delivery"
method). Sales and profits on other fixed-price contracts are recorded based on
the ratio of total actual incurred costs to date to the total estimated costs
for each contract (the "cost-to-cost method"). Sales and fees on
cost-reimbursable contracts are recognized as costs are incurred. Amounts
representing contract change orders or claims are included in sales only when
they can be reliably estimated and their realization is reasonably assured.
Under the percentage-of-completion methods of accounting, a single estimated
total

                                       25

<PAGE>

profit margin is used to recognize profit for each contract over its entire
period of performance which can exceed one year. The impact of revisions in
profit estimates 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. The revisions in contract
estimates, if significant, can materially affect our results of operations and
cash flows, as well as our valuations of Contracts in Process.

     Accounting for the sales and profit on a contract requires estimates of (1)
the contract value or 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 scope of work and (3) the
measurement of progress towards completion. The estimated profit or loss on a
contract is equal to the difference between the total contract value and the
estimated total cost at completion. Under the units-of-delivery percentage of
completion method, sales on a contract are recorded as the units are delivered
during the period at an amount equal to the contractual selling price of those
units. Under the cost-to-cost percentage of completion method, sales on a
contract are recorded at amounts equal to the ratio of cumulative costs incurred
to date to total estimated costs at completion multiplied by the contract value,
less the cumulative sales recognized in prior periods. The profit recorded on a
contract under both the units-of-delivery method and cost-to-cost method is
equal to the estimated total profit margin for the contract stated as a
percentage of contract revenue multiplied by the sales recorded on the contract
during the period. Adjustments to original estimates for a contract's revenues,
estimated costs at completion and estimated total profit 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, or if contract modifications occur. Sales on a
cost-reimbursable contract are recorded as costs are incurred at an amount equal
to the costs incurred plus the fee (profit) on the contract which is determined
according to the contract's fee arrangement.



     For the year ended December 31, 2001: (1) sales recognized using the
units-of-delivery percentage of completion method accounted for 17.9% of total
sales, (2) sales recognized using the cost-to-cost percentage of completion
method accounted for 36.8% of total sales, and (3) sales on cost-reimbursable
contracts, which are recognized as costs are incurred, accounted for 26.4% of
total sales. The remaining 18.9% of sales for the year ended December 31, 2001
pertain to sales on arrangements that are not within the scope of SOP 81-1,
which are recorded when products are delivered and services are performed.



     Valuation of Deferred Tax Assets and Liabilities. At December 31, 2001, we
had net deferred tax assets of $160.8 million, including $32.5 million for net
operating loss carryforwards and $31.9 million for tax credit carryforwards
which are subject to various limitations and will expire if unused within their
respective carryforward periods. Deferred taxes are determined separately for
each of our tax-paying entities in each tax jurisdiction. Future realization of
deferred tax assets ultimately depends on the existence of sufficient taxable
income of the appropriate character (for example, ordinary income or capital
gain) within the carryback and carryforward periods available under the tax law.
Based on our estimates of the amounts and timing of future taxable income, we
believe that we will realize our recorded deferred tax assets. A change in the
ability of our operations to continue to generate future taxable income could
affect our ability to realize the future tax deductions underlying our net
deferred tax assets, and require us to provide a valuation allowance against our
net deferred tax assets. Such changes, if significant, could have a material
impact in our effective tax rate, results of operations and financial position
in any given period.

                                       26

<PAGE>

RESULTS OF OPERATIONS

     The following information should be read in conjunction with our
consolidated financial statements. Our results of operations for the periods
presented are impacted significantly by our acquisitions. (See Note 3 to the
consolidated financial statements for a discussion of our acquisitions,
including pro forma sales, net income and diluted earnings per share data for
the years ended December 31, 2001 and 2000). The tables below provide our
selected income statement data for the years ended December 31, 2001, 2000 and
1999.

                             SEGMENT OPERATING DATA

<TABLE>
<CAPTION>

                                                   YEAR ENDED DECEMBER 31,
                                          ------------------------------------------
                                               2001           2000           1999
                                          -------------   ------------   -----------
                                                        (in millions)
<S>                                       <C>             <C>            <C>
Sales(1):

 Secure Communication Systems .........    $  1,241.6      $   847.1      $   542.9
 Specialized Products .................       1,105.8        1,063.0          862.6
                                           ----------      ---------      ---------
    Total .............................    $  2,347.4      $ 1,910.1      $ 1,405.5
                                           ==========      =========      =========
Operating income:
 Secure Communication Systems .........    $    146.2      $    91.3      $    47.0
 Specialized Products .................         129.1          131.4          103.5
                                           ----------      ---------      ---------
    Operating income ..................    $    275.3      $   222.7      $   150.5
                                           ==========      =========      =========
</TABLE>

----------
(1)   Sales are after intersegment eliminations. See Note 16 to the
      consolidated financial statements.


 YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

     Sales increased $437.3 million to $2,347.4 million in 2001 compared with
2000. The MPRI, Coleman KDI, and EER acquisitions contributed $335.6 million of
the sales increase in 2001. The remaining sales increase in 2001 was primarily
attributable to volume increases of (1) $66.0 million on secure telephone
equipment and secure data links, (2) $53.1 million on aviation products, (3)
$21.2 million on training devices and services, (4) $20.8 million in microwave
components, (5) $16.2 million on acoustic undersea warfare products and (6) $4.4
million on airport security systems. These sale increases were partially offset
by declines of $56.7 million on naval power equipment arising from lower
shipments caused by production quality control problems and customer-directed
reductions in delivery requirements, and volume declines of $23.3 million
primarily on telemetry and space products related to the continued decline in
the space and broadband commercial communications markets.

     Cost of sales increased $313.6 million to $1,648.1 million in 2001 from
$1,334.5 million in 2000 consistent with the increases in sales. Selling,
general and administrative ("SG&A") expenses increased $71.1 million to $424.0
million in 2001 from $352.9 million in 2000 due to the SG&A associated with our
acquired businesses. SG&A expenses as a percentage of sales declined to 18.1% in
2001 from 18.5% in 2000 primarily due to our cost reductions.

     Operating income increased because of higher sales by $52.6 million to
$275.3 million in 2001 compared with 2000. Operating income as a percentage of
sales ("operating margin") remained unchanged at 11.7% although operating
margins improved in our Secure Communications Systems segment and declined in
our Specialized Products segment, the details of which are discussed below.

     Interest expense decreased $6.6 million to $86.4 million in 2001 because of
lower interest rates, changes in the components and levels of our debt, and
savings of $4.1 million from the interest rate swap agreements we entered into
in July 2001 and November 2001. The interest rate swap agreements exchange the
fixed interest rate of 8% on our $200.0 million Senior Subordinated Notes due
2008 and the fixed interest rate of 8 1/2% on our $180.0 million Senior
Subordinated Notes due 2008 to variable interest rates determined using the six
month LIBOR rate (see Liquidity and Capital Resources section below).

     Interest and other income decreased $2.6 million to $1.8 million. Interest
and other income for 2001 includes a net pre-tax gain of $0.6 million ($0.01 per
diluted share), consisting of an after-tax gain of

                                       27

<PAGE>

$4.3 million from the sale of a 30% interest in ACSS to Thales Avionics and an
after-tax charge of $3.9 million to write-down the carrying amount of an
investment in common stock of a telecommunications company because the decline
of its value was determined to be other than temporary. Also included in
interest and other income for 2001 is a pre-tax charge of $0.5 million to
account for the increase, in accordance with the Financial Accounting Standards
Board's ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities, in the fair value
assigned to the embedded derivatives in our $420.0 million 4% Senior
Subordinated Convertible Contingent Debt Securities due 2011 ("CODES"), we sold
in the fourth quarter of 2001 (see Liquidity and Capital Resources section
below), and a pre-tax loss of $0.8 million from an equity method investment.
Interest and other income for 2000 includes a net pre-tax gain of $2.5 million
($0.04 per diluted share), consisting of an after-tax gain of $9.2 million from
the sale of our interests in certain businesses and an after-tax charge of $7.6
million on the write-down in the carrying amount of an investment in a
telecommunications venture that is no longer a going concern, the carrying
amount of an investment in a telecommunications equipment provider that was
determined to be permanently impaired and a related intangible asset. Excluding
these net gains from both 2001 and 2000, diluted EPS increased 26.2% to $2.94 in
2001 from $2.33 in 2000.

     The income tax provision for 2001 is based on an effective income tax rate
for 2001 of 38.0% which declined slightly from the effective tax rate of 38.3%
for 2000.

     Basic earnings per share ("EPS") grew 24.2% to $3.08 in 2001 and diluted
EPS grew 24.5% to $2.95 in 2001. Diluted weighted-average common shares
outstanding increased 22.2% in 2001, primarily because of the sale of our common
stock in May 2001, and the dilutive effect of our Convertible Notes we sold in
the fourth quarter of 2000 (see Liquidity and Capital Resources section below).

SECURE COMMUNICATIONS SYSTEMS

     Sales within our Secure Communication Systems segment increased $394.5
million or 46.6% to $1,241.6 million in 2001 compared with 2000. The increase in
sales was principally attributed to $277.0 million from the Coleman Research,
MPRI and EER acquired businesses and $117.5 million of increased sales primarily
from secure data links, secure telephone equipment, airport security systems,
Prime Wave fixed wireless access products and training, teaching and logistic
services.

     Operating income increased because of higher sales and operating margin by
$54.9 million to $146.2 million in 2001. Operating margin improved 1.0
percentage points from 10.8% in 2000 to 11.8% in 2001. Reductions in contract
costs related to favorable performances on the AVCATT Contract, arising from
engineering design changes, material sourcing changes and unit price reductions
on several parts in the contract bill of materials that occurred during 2001
accounted for an increase of 1.1 percentage points. Reductions in engineering
and production overhead costs in our Training and Simulation businesses
accounted for 0.9 percentage points of the increase. Increased volume, cost
reductions and improved operating efficiencies on secure telephone equipment and
airport security systems accounted for 0.5 percentage points of the increase.
These increases were partially offset by a decrease of 1.4 percentage points due
to negative contract margins and increased expenditures and bad debts associated
with our Prime Wave business and a net 0.1 percentage point decrease was due to
our other businesses.

SPECIALIZED PRODUCTS

     Sales within our Specialized Products segment increased $42.8 million or
4.0% to $1,105.8 million in 2001 compared with 2000. The increase in sales was
principally attributable to the KDI acquired business offset by decreases in
sales of telemetry and space products, naval power equipment and displays
partially offset by increases in aviation products, microwave components and
acoustic undersea warfare products. We expect sales of our telemetry and space
products for 2002 to remain essentially unchanged as compared to 2001, due to
continued softness in the space and broadband commercial communications markets.

     Operating income decreased because of lower operating margin by $2.3
million in 2001 to $129.1 million. Operating margin decreased 0.7 percentage
points to 11.7% in 2001 from 12.4% in 2000.

                                       28

<PAGE>

Unfavorable performance on certain contracts and lower production levels for
naval power equipment accounted for 3.2 percentage points of the decrease.
Reduced volume on telemetry and space products accounted for a decrease of 0.5
percentage points. These decreases were partially offset by a 3.3 percentage
point improvement from increased volume on aviation products and microwave
components. The remaining net 0.3 percentage point decrease was attributable to
our other businesses.

 YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999



     Sales increased $504.6 million to $1,910.1 million in 2000 compared with
1999. The TDTS, TCAS, MPRI and Space and Navigation Systems acquisitions
contributed $429.1 million of the increase in sales. The remaining increase in
sales during 2000 was principally attributable to volume increases of (1) $30.7
million on aviation recorders and display products, (2) $17.7 million on
communications software support services, (3) $15.2 million on acoustic undersea
warfare products, (4) $13.6 million on microwave components, and (5) $9.4
million on secure telephone equipment. These increases were partially offset by
declines in volume of $17.6 million, primarily on naval power equipment.



     Cost of sales increased $355.0 million to $1,334.5 million in 2000 from
$979.5 million in 1999 consistent with the increases in sales. SG&A expenses
increased $77.4 million to $352.9 million in 2000 from $275.5 million in 1999
due to the SG&A associated with our acquired businesses. SG&A expenses as a
percentage of sales declined to 18.5% in 2000 from 19.6% in 1999 primarily due
to cost reductions.

     Operating income increased $72.2 million to $222.7 million in 2000.
Operating margin improved to 11.7% from 10.7% and was attributable to
improvements in both of the Secure Communication Systems and Specialized
Products segments which are described below.

     Interest expense increased $32.4 million to $93.0 million in 2000
principally because of the higher average outstanding debt during 2000. Interest
and other income decreased $1.1 million to $4.4 million. Interest and other
income for 2000 includes a net pre-tax gain of $2.5 million ($0.04 per diluted
share), consisting of an after-tax gain of $9.2 million from the sale of our
interests in certain businesses and an after-tax charge of $7.6 million on the
write-down in the carrying amount of an investment in a telecommunications
venture that is no longer a going concern, the carrying amount of an investment
in a telecommunications equipment provider that was determined to be permanently
impaired and a related intangible asset. Excluding the net gain, diluted EPS was
$2.33, an increase of 33.1% in 2000 compared with 1999.

     The income tax provision for 2000 is based on an effective income tax rate
for 2000 of 38.3% which declined slightly from the effective tax rate of 38.5%
for 1999.

     Basic EPS grew 35.5% to $2.48 in 2000 and diluted EPS grew 35.4% to $2.37
in 2000. Basic weighted-average common shares outstanding increased 3.9% in
2000, and diluted weighted-average common shares outstanding increased 4.3% in
2000, primarily because of common stock issued for exercises of employee stock
options.

SECURE COMMUNICATIONS SYSTEMS

     Sales within our Secure Communication Systems segment increased $304.2
million to $847.1 million in 2000 compared with 1999. We attribute the increase
in sales principally to $308.0 million from the Link Training and Simulation and
MPRI acquired businesses. The remaining change in sales was due to the decline
on the U-2 Support services contract and on communications subsystems from the
International Space Station partially offset by increased sales of secure
telephone equipment, wideband secure data links, communication software support
services and airport security systems.

     Operating income increased because of higher sales and operating margin by
$44.3 million to $91.3 million in 2000. Operating margin improved 2.1 percentage
points from 8.7% in 1999 to 10.8% in 2000. Cost improvements on high data rate
and military communication systems accounted for 2.0 percentage points of the
increase. Our divestiture of the Network Security Systems business during 2000
accounted for another 0.9 percentage point increase. The increase in operating
margin was partially offset by a decrease of 0.7 percentage points in our Prime
Wave business due to higher marketing and development

                                       29

<PAGE>

costs. The remaining net 0.1 percentage point decrease was attributable to our
other businesses. Additionally, during 2000, a larger percentage of our sales
were generated from fixed-price contracts which generally have higher margins
than sales generated from cost-reimbursable contracts.

SPECIALIZED PRODUCTS

     Sales within our Specialized Products segment increased $200.4 million to
$1,063.0 million in 2000 compared with 1999. We attribute this increase in sales
principally to $121.0 million from the TCAS and Space and Navigation Systems
acquired businesses and $79.4 million from volume increases on acoustic undersea
warfare products, aviation recorders, and display products. These increases in
sales were partially offset by decreased shipments of naval power equipment in
2000 compared with 1999 principally due to the slippage of certain sales into
2001 which were previously anticipated to occur in 2000. Sales of our telemetry
products were essentially unchanged in 2000 compared with 1999 due to continued
softness in the space and broadband commercial communications markets.

     Operating income increased because of higher sales and operating margin by
$27.9 million to $131.4 million in 2000. Operating margin improved 0.4
percentage points to 12.4% in 2000 from 12.0% from 1999. Increased volume on the
TCAS acquired business accounted for 2.3 percentage points of the increase.
Increased volume and cost improvements in aviation recorders, display and
acoustic undersea warfare products accounted for another 2.0 percentage points
of the increase. These increases were partially offset by a decrease of 2.3
percentage points on our naval power equipment due to less shipments and a
decrease of 1.4 percentage points in telemetry and space products and microwave
components as a result of reduced volumes and a change in the sales mix to lower
margin products. The remaining net 0.2 percentage point decrease was
attributable to our other businesses.

LIQUIDITY AND CAPITAL RESOURCES

BALANCE SHEET

     Contracts in process increased $101.7 million from December 31, 2000 to
$801.8 million at December 31, 2001. The increase included $61.0 million related
to acquired businesses and $40.7 million principally from:

     o    increases of $56.2 million in unbilled contract receivables
          principally arising from an increase in programs in production phases,
          during which unbilled costs and profits generally exceed progress
          payments and advances received from the customers until contract
          shipments are completed;

     o    increases of $31.9 million in inventories, including inventories of
          our Prime Wave business, naval power equipment products and on certain
          other programs and products; and

     o    decreases of $47.4 million in billed receivables due to improved
          collections on certain programs, partially offset by increases at our
          Prime Wave business.

     Included in contracts in process at December 31, 2001, are billed
receivables of $15.8 million and inventories of $30.2 million related to our
Prime Wave business. At December 31, 2000, we had $6.4 million of billed
receivables and $17.4 million of inventories related to our Prime Wave business.

     The increases in property, plant and equipment, intangibles, and accrued
employment costs during 2001 were principally related to acquired businesses.
The decreases in accounts payable and accrued expenses were principally related
to the timing of payments to vendors partially offset by balances of acquired
businesses. The increase in other current liabilities is primarily attributable
to balances of acquired businesses and an accrual of $43.6 million related to
the remaining outstanding common stock of Spar at December 31, 2001, that we
acquired and paid for in January 2002, and was partially offset by a decline in
estimated contract costs in excess of billings to complete contracts in process.
The decrease in other liabilities is in part related to the issuance of common
stock in April 2001 to satisfy our $17.7 million obligation for the additional
purchase price for the ILEX acquisition completed in 1998. The decrease is also
related to a reclassification of the current portion of estimated costs in
excess of billings to complete contracts in process to other current
liabilities.

                                       30

<PAGE>

     The decrease in accrued interest was due to the effect of lower interest
rates, as well as interest savings of $4.1 million from the interest rate swap
agreements we entered into in July 2001 and November 2001, partially offset by
an increase in accrued interest due to higher outstanding debt balances at
December 31, 2001, attributable to our sale of the CODES in the fourth quarter
of 2001. The quarterly cash interest payments on our Senior Subordinated Notes
and Convertible Notes in 2001 were $8.0 million in the first quarter and third
quarter, $27.6 million in the second quarter and $27.2 million in the fourth
quarter. Our cash interest payments may be adjusted in future years due to the
interest rate swap agreements we entered into on our $200.0 million 8% Senior
Subordinated Notes due 2008 and our $180.0 million 8 1/2% Senior Subordinated
Notes due 2008 and changes in the amount of our outstanding debt.

STATEMENT OF CASH FLOWS

     The following table provides cash flow statement data:


<TABLE>
<CAPTION>

                                                          YEARS ENDED DECEMBER 31,
                                                   --------------------------------------
                                                       2001          2000         1999
                                                   -----------   -----------   ----------
                                                               (IN MILLIONS)
<S>                                                <C>           <C>           <C>
 Net cash from operating activities ............    $  173.0      $  113.8      $   99.0
 Net cash used in investing activities .........      (424.9)       (608.2)       (284.8)
 Net cash from financing activities ............       580.3         484.3         202.4
</TABLE>


 OPERATING ACTIVITIES

     During 2001, we generated $173.0 million of cash from our operating
activities, an increase of $59.2 million from the $113.8 million generated
during 2000. Earnings adjusted for non-cash items and deferred income taxes
increased $83.2 million to $283.5 million in 2001 from $200.3 million in 2000.
During 2001, our working capital and operating assets and liabilities increased
$110.5 million compared with an increase of $86.5 million in 2000.

     In 2001, we used cash for increases in inventories, receivables and
negative operating margins related to our Prime Wave business and naval power
equipment products, as well as for incurred contract costs in excess of billings
for the continued effort on the AVCATT contract. These uses of cash were
partially offset by a settlement of certain items related to a services
agreement and lower income tax payments related to an increase in tax deductions
for temporary differences between the tax basis and financial reporting amounts
for inventoried costs, income recognition on contracts in process, and
long-lived assets including goodwill and other intangibles. We expect the amount
of our deferred income tax provision for 2002, excluding any additional income
tax benefits arising from the acquisition of AIS, to be consistent with that for
2001.

     During 2000, we generated $113.8 million of cash from our operating
activities, an increase of $14.8 million from the $99.0 million generated during
1999. Earnings adjusted for non-cash items and deferred taxes increased $48.5
million to $200.3 million in 2000 from $151.8 million in 1999. During 2000, our
working capital and operating assets and liabilities increased $86.5 million
compared with an increase of $52.8 million in 1999. Our cash flows from
operating activities during 2000 include uses of cash relating to performance on
certain contracts in process including the AVCATT contract that were assumed in
the TDTS acquisition for which the estimated costs exceed the estimated billings
to complete these contracts.

 INVESTING ACTIVITIES

     In 2001, we invested $446.9 million to acquire businesses, compared with
$599.6 million in 2000 and $272.2 million in 1999.

     We make capital expenditures for the improvement of manufacturing
facilities and equipment. We expect that our capital expenditures for the year
ending December 31, 2002 will be between $75 million and $80 million, including
Aircraft Integration Systems, compared with $48.1 million for the year ended
December 31, 2001. The anticipated increase is principally due to capital
expenditures for our acquired businesses. Dispositions of property, plant and
equipment for 2000 includes net proceeds of $13.3 million related to a facility
located in Hauppauge, NY which we sold and leased back in December 2000.

                                       31

<PAGE>

     On May 31, 2001, we sold a 30% interest in ACSS to Thales Avionics for
$75.2 million in cash. In 2000, we sold our interests in two businesses for net
cash proceeds of $19.6 million, which are included in other investing
activities.

     On January 14, 2002, we agreed to acquire AIS for $1.13 billion in cash
plus acquisition costs. The acquisition was completed on March 8, 2002. The
acquisition was financed using cash on hand, borrowings under our senior credit
facilities and a $500.0 million senior subordinated bridge loan. We expect to
offer and sell approximately $1.0 billion of debt and equity securities during
the first half of 2002, depending on capital market conditions, and use the
proceeds from those offerings to repay the $500.0 million senior subordinated
bridge loan and the borrowings made under the senior credit facilities.

 FINANCING ACTIVITIES

     DEBT. In May 2001, we restructured our senior credit facilities. At
December 31, 2001, the senior credit facilities were comprised of a $400.0
million five year revolving credit facility maturing on May 15, 2006 and a
$200.0 million 364-day revolving facility maturing on May 15, 2002 under which
at the maturity date we may, (1) at our request and subject to approval of the
lenders, extend the maturity date, in whole or in part, for an additional
364-day period, or (2) at our election, convert the outstanding principal amount
thereunder into a term loan which would be repayable in a single payment two
years from the conversion date. Additionally, the senior credit facilities
provided us the ability to increase, on an uncommitted basis, the amount of
either the five year revolving credit facility or the 364-day revolving credit
facility up to an additional $150.0 million in the aggregate.

     At December 31, 2001, available borrowings under our senior credit
facilities were $497.6 million, after reductions for outstanding letters of
credit of $102.4 million. There were no outstanding borrowings under our senior
credit facilities at December 31, 2001.

     On February 26, 2002, the lenders approved a $150.0 million increase in the
amount of our senior credit facilities. The five year revolving credit facility
increased by $100.0 million to $500.0 million. The 364-day revolving credit
facility increased by $50.0 million to $250.0 million. Additionally, the
maturity date of the $200.0 million 364-day revolving credit facility was
extended to February 26, 2003.

     On March 8, 2002, we borrowed $500.0 million under a senior subordinated
bridge loan facility ("Bridge Loan Facility") to finance a portion of the
purchase price of AIS and related expenses as discussed above. The Bridge Loan
Facility is subordinated in right of payment to all of L-3 Communications'
existing and future senior debt and ranks pari passu with our other senior
subordinated indebtedness and related guarantees discussed below. Borrowings
under the Bridge Loan Facility bear interest through March 8, 2003, at our
option, at either the one-month or three-month LIBOR rate plus a spread equal to
350 basis points. The Bridge Loan Facility matures on May 15, 2009, but if the
loans under the facility are not repaid by March 8, 2003, each lender's loan
will be automatically converted into an exchange note with terms substantially
similar to those of our other senior subordinated indebtedness discussed below,
and will bear interest at a fixed rate equal to the yield to maturity on our
highest yielding existing subordinated indebtedness at the time of exchange plus
100 basis points. Subject to the exceptions set forth in the Bridge Loan
Facility, we are required to prepay the Bridge Loan Facility with the net cash
proceeds from:

     o    any debt offerings by L-3 Holdings or its subsidiaries, including L-3
          Communications;

     o    issuance of any equity interests in L-3 Holdings or L-3
          Communications;

     o    incurrence of any other indebtedness of L-3 Holdings or any of its
          subsidiaries, including L-3 Communications (other than under the
          senior credit facilities and certain permitted indebtedness); and

     o    any sale of assets or stock of any subsidiaries of L-3 Communications.

     In the fourth quarter of 2001, L-3 Holdings sold $420.0 million of 4%
Senior Subordinated Convertible Contingent Debt Securities due 2011 ("CODES").
The net proceeds from this offering amounted to approximately $407.5 million
after underwriting discounts and commissions and other

                                       32

<PAGE>

offering expenses. Interest is payable semi-annually on March 15 and September
15 of each year commencing March 15, 2002. The CODES are convertible into L-3
Holdings' common stock at a conversion price of $107.625 per share (3,902,439
shares) under any of the following circumstances: (1) during any Conversion
Period (defined below) if the closing sales price of the common stock of L-3
Holdings is more than 120% of the conversion price ($129.15) for at least 20
trading days in the 30 consecutive trading-day period ending on the first day of
the respective Conversion Period, (2) during the five business day period
following any 10 consecutive trading-day period in which the average of the
trading prices for the CODES was less than 105% of the conversion value, (3) if
the credit ratings assigned to the CODES by either Moody's or Standard & Poor's
are below certain specified ratings, (4) if they have been called for redemption
by us, or (5) upon the occurrence of certain specified corporate transactions. A
Conversion Period is the period from and including the thirtieth trading day in
a fiscal quarter to, but not including, the thirtieth trading day of the
immediately following fiscal quarter. There are four Conversion Periods in each
fiscal year. Additionally, holders of the CODES have a right to receive
contingent interest payments, not to exceed a per annum rate of 0.5% of the
outstanding principal amount of the CODES, which will be paid on the CODES
during any six-month period following a six-month period in which the average
trading price of the CODES is above 120% of the principal amount of the CODES.
The contingent interest payment provision as well as the ability of the holders
of the CODES to exercise the conversion features as a result of changes in the
credit ratings assigned to the CODES have been accounted for as embedded
derivatives.

     In the fourth quarter of 2000, L-3 Holdings sold $300.0 million of 5 1/4%
Convertible Senior Subordinated Notes due 2009 (the "Convertible Notes"). The
net proceeds from this offering amounted to $290.5 million after underwriting
discounts and commissions and other offering expenses, and were used to repay
revolver borrowings outstanding under our senior credit facilities. The
Convertible Notes may be converted at any time into L-3 Holdings common stock at
a conversion price of $81.50 per share (3,680,982 shares).

     In April 1997, May 1998 and December 1998, L-3 Communications sold $225.0
million of 10 3/8% Senior Subordinated Notes due 2007, $180.0 million of 8 1/2%
Senior Subordinated Notes due 2008, and $200.0 million of 8% Senior Subordinated
Notes due 2008 (collectively, the "Senior Subordinated Notes"), whose aggregate
net proceeds amounted to $576.0 million after underwriting discounts and
commissions and other offering expenses.

     In November 2001, we entered into interest rate swap agreements on our
$180.0 million of 8 1/2% Senior Subordinated Notes due 2008. These swap
agreements exchange our fixed interest rate for a variable interest rate on the
entire principal amount. Under these swap agreements, we will pay or receive the
difference between the fixed interest rate of 8 1/2% on the senior subordinated
notes and a variable interest rate, set in arrears, determined two business days
prior to the interest payment date of the related senior subordinated notes
equal to (1) the six month LIBOR rate plus (2) an average of 350.8 basis points.
In July 2001, we entered into interest rate swap agreements on our $200.0
million of 8% Senior Subordinated Notes due 2008. These swap agreements exchange
our fixed interest rate for a variable interest rate on the entire principal
amount. Under these swap agreements, we will pay or receive the difference
between the fixed interest rate of 8% on the senior subordinated notes and a
variable interest rate, set in arrears, determined two business days prior to
the interest payment date of the related senior subordinated notes equal to (1)
the six month LIBOR rate plus (2) an average of 192 basis points. The difference
to be paid or received on these swap agreements is recorded as an adjustment to
interest expense. The swap agreements are accounted for as fair value hedges.

     The senior credit facilities, Bridge Loan Facility, Senior Subordinated
Notes, Convertible Notes and CODES agreements contain financial covenants and
other restrictive covenants which remain in effect so long as we owe any amount
or any commitment to lend exists thereunder. As of December 31, 2001, we were in
compliance with those covenants at all times. The borrowings under the senior
credit facilities are guaranteed by L-3 Holdings and by substantially all of the
domestic subsidiaries of L-3 Communications on a senior basis. The payments of
principal and premium, if any, and interest on the Senior Subordinated Notes and
Bridge Loan Facility are unconditionally guaranteed, on an unsecured senior
subordinated basis, jointly and severally, by all of L-3 Communications'
restricted subsidiaries other than its foreign

                                       33

<PAGE>

subsidiaries. The guarantees of the Senior Subordinated Notes and Bridge Loan
Facility are junior to the guarantees of the senior credit facilities and rank
pari passu with each other and the guarantees of the Convertible Notes and the
CODES. The Convertible Notes and CODES are unconditionally guaranteed, on an
unsecured senior subordinated basis, jointly and severally, by L-3
Communications and substantially all of its direct and indirect domestic
subsidiaries. These guarantees rank junior to the guarantees of the senior
credit facilities and rank pari passu with each other and the guarantees of the
Senior Subordinated Notes and Bridge Loan Facility. See Note 7 to our
consolidated financial statements for a description of our debt and related
financial covenants at December 31, 2001.


 EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION (EBITDA)



     Our EBITDA was $362.3 million for 2001, $297.0 million for 2000 and $204.2
million for 1999. We define EBITDA as operating income plus depreciation expense
and amortization expense. Other than our amount of debt and interest expense,
EBITDA is the major component in the calculation of the debt ratio and interest
coverage ratio which are part of the financial covenants for our debt. The debt
ratio is defined as the ratio of consolidated total debt to consolidated EBITDA.
The interest coverage ratio is equal to the ratio of consolidated EBITDA to
consolidated cash interest expense. The higher our EBITDA is on a relative basis
to our outstanding debt, the lower our debt ratio will be. A lower debt ratio
indicates a higher borrowing capacity. Similarly, an increase in our EBITDA on a
relative basis to consolidated cash interest expense, results in a higher
interest coverage ratio, which indicates a greater capacity to service debt.



     EBITDA is presented as additional information because we believe it to be a
useful indicator of an entity's debt capacity and its ability to service its
debt. EBITDA is not a substitute for operating income, net income or cash flows
from operating activities as determined in accordance with generally accepted
accounting principles in the United States of America. EBITDA is not a complete
net cash flow measure because EBITDA is a financial performance measurement that
does not include reductions for cash payments for an entity's obligation to
service its debt, fund its working capital and capital expenditures and pay its
income taxes. Rather, EBITDA is one potential indicator of an entity's ability
to fund these cash requirements. EBITDA as we defined it may differ from
similarly named measures used by other entities and, consequently could be
misleading unless all entities calculate and define EBITDA in the same manner.
EBITDA is also not a complete measure of an entity's profitability because it
does not include costs and expenses for depreciation and amortization, interest
and income taxes.


 CONTRACTAL OBLIGATIONS AND CONTINGENT COMMITMENTS

     The tables below present our contractual obligations and contingent
commitments as of December 31, 2001.

<TABLE>
<CAPTION>

                                                                           YEARS ENDING DECEMBER 31,
                                                               -------------------------------------------------
                                                                                                      2005 AND
CONTRACTUAL OBLIGATIONS:                           TOTAL          2002        2003        2004       THEREAFTER
--------------------------------------------   -------------   ---------   ---------   ---------   -------------
                                                                         (IN MILLIONS)
<S>                                            <C>             <C>         <C>         <C>         <C>
Principal amount of long-term debt .........    $  1,325.0       $  --       $  --       $  --      $  1,325.0
Non-cancelable operating leases ............         350.5        61.9        49.3        33.1           206.2
Capital leases .............................           4.7         1.7         1.4         0.9             0.7
                                                ----------       -----       -----       -----      ----------
 Total .....................................    $  1,680.2      $ 63.6      $ 50.7      $ 34.0      $  1,531.9
                                                ==========      ======      ======      ======      ==========
</TABLE>

                                       34

<PAGE>

<TABLE>
<CAPTION>

                                                                                  YEARS ENDING DECEMBER 31,
                                                                      -------------------------------------------------
                                                                                                              2005 AND
CONTINGENT COMMITMENTS:                                    TOTAL         2002         2003         2004      THEREAFTER
-----------------------------------------------------   -----------   ----------   ----------   ---------   -----------
                                                                                 (IN MILLIONS)
<S>                                                     <C>           <C>          <C>          <C>         <C>
Outstanding letters of credit under our senior credit
 facilities .........................................    $  102.4      $  86.5      $  10.6      $  3.6       $  1.7
Other outstanding letters of credit .................        20.0         12.5          7.3          --          0.2
Construction agency agreement .......................        43.5         43.5           --          --           --
Simulator systems operating leases ..................        89.2           --          4.2         5.2         79.8
Guarantees of affiliate debt ........................         1.0          1.0           --          --           --
Capital contributions for limited partnership
 investments ........................................         5.0          5.0           --          --           --
                                                         --------      -------      -------      ------       ------
 Total ..............................................    $  261.1      $ 148.5      $  22.1      $  8.8       $ 81.7
                                                         ========      =======      =======      ======       ======
</TABLE>

     EQUITY. On May 2, 2001, we sold 4.6 million shares of L-3 Holdings common
stock in a public offering for $80.00 per share. In addition, as part of the
transaction, other selling stockholders including affiliates of Lehman Brothers
Inc. sold 2.3 million secondary shares. Upon closing, we received net proceeds
of $353.6 million, which we used to repay borrowings outstanding under our
senior credit facilities, pay for the KDI and EER acquisitions and to increase
cash and cash equivalents.

     On February 4, 1999, we sold 5.0 million shares of L-3 Holdings common
stock in a public offering for $42.00 per share which generated net proceeds of
$201.6 million. In addition, as part of the same transaction, 6.5 million shares
of L-3 Holdings common stock were sold by Lehman Brothers Capital Partners III,
L.P. and its affiliates ("the Lehman Partnership") and Lockheed Martin in a
secondary public offering. In October 1999, Lockheed Martin sold its remaining
L-3 Holdings common stock. In December 1999, the Lehman Partnership distributed
approximately 3.8 million shares of its shares of common stock of L-3 Holdings
to its partners. On December 31, 2001, the Lehman Partnership owned
approximately 4.4% of the outstanding common stock of L-3 Holdings.

     Based upon our current level of operations, we believe that our cash from
operating activities, together with available borrowings under the senior credit
facilities, will be adequate to meet our anticipated requirements for working
capital, capital expenditures, commitments, research and development
expenditures, contingent purchase prices, program and other discretionary
investments, and interest payments for the foreseeable future. There can be no
assurance, however, that our business will continue to generate cash flow at
current levels, or that currently anticipated improvements will be achieved. If
we are unable to generate sufficient cash flow from operations to service our
debt, we may be required to sell assets, reduce capital expenditures, refinance
all or a portion of our existing debt or obtain additional financing. Our
ability to make scheduled principal payments or to pay interest on or to
refinance our indebtedness depends on our future performance and financial
results, which, to a certain extent, are subject to general conditions in or
affecting the defense industry and to general economic, political, financial,
competitive, legislative and regulatory factors beyond our control. There can be
no assurance that sufficient funds will be available to enable us to service our
indebtedness, to make necessary capital expenditures and to make discretionary
investments.

DERIVATIVE FINANCIAL INSTRUMENTS

     Included in our derivative financial instruments are interest rate swap
agreements, caps, floors, foreign currency forward contracts and the embedded
derivatives related to the issuance of our CODES. All of our derivative
financial instruments that are sensitive to market risk are entered into for
purposes other than trading.

     EMBEDDED DERIVATIVES. The contingent interest payment and contingent
conversion features of the CODES are embedded derivatives which were bifurcated
from the CODES, and a portion of the net proceeds received from the CODES equal
to their aggregate fair value of $2.5 million was ascribed to the embedded
derivatives as required by SFAS No. 133. The subsequent changes in the fair
values of the embedded derivatives are recorded in the statement of operations.
Their fair values at December 31, 2001 were $3.1 million.

                                       35

<PAGE>

     INTEREST RATE RISK. Our financial instruments that are sensitive to changes
in interest rates include borrowings under the senior credit facilities and our
purchased interest rate cap contracts, written interest rate floor contracts and
interest rate swap agreements, all of which are denominated in U.S. dollars. The
interest rates on the Senior Subordinated Notes, Convertible Notes and CODES are
fixed-rate and are not affected by changes in interest rates.

     To mitigate risks associated with changing interest rates on borrowings
under the senior credit facilities that bear interest at variable rates we
entered into interest rate cap and floor contracts. The interest rate cap
contract provides protection against increases in interest rates on borrowings
to the extent:

     o    those borrowings are less than or equal to the notional amount of the
          cap contract; and

     o    the interest rate paid on the borrowings rises above the sum of the
          cap reference rate plus our applicable borrowing spread.

     However, the written interest rate floor limits our ability to enjoy
decreases in interest rates on our borrowings to the extent:

     o    those borrowings are less than or equal to the notional amount of the
          floor contract; and

     o    the interest rate paid on those borrowings falls below the sum of the
          floor reference rate plus our applicable borrowing spread.

     In 2001, we entered into interest rate swap agreements on $380.0 million of
our senior subordinated notes to convert their fixed interest rates to variable
rates and to take advantage of the current low interest rate environment. These
swap agreements are described above. For every basis point (0.01%) that the six
month LIBOR interest rate is greater than 4.99%, we will incur an additional
$18,000 of interest expense above the fixed interest rate on $180.0 million of
senior subordinated notes calculated on a per annum basis until maturity. For
every basis point that the six month LIBOR interest rate is greater than 6.08%,
we will incur an additional $20,000 of interest expense above the fixed interest
rate on $200.0 million of senior subordinated notes calculated on a per annum
basis until maturity. Conversely, for every basis point that the six month LIBOR
interest rate is less than 4.99%, we will recognize $18,000 of interest income
on $180.0 million of senior subordinated notes calculated on a per annum basis
until maturity. For every basis point that the six month LIBOR interest rate is
less than 6.08%, we will recognize $20,000 of interest income on $200.0 million
of senior subordinated notes calculated on a per annum basis until maturity. The
six month LIBOR rate at December 31, 2001 was 1.96%.

     We attempt to manage exposure to counterparty credit risk by entering into
interest rate agreements only with major financial institutions that are
expected to perform fully under the terms of such agreements. Cash payments
between us and the counterparties are made at the end of each quarter on the
caps and floors and on the interest payment dates of the senior subordinated
notes on the interest rate swap agreements. Such payments are recorded as
adjustments to interest expense. Additional data on our debt obligations, our
applicable borrowing spreads included in the interest rates we pay on borrowings
under the senior credit facilities and interest rate agreements are provided in
Notes 7 and 8 to our consolidated financial statements.

     The table below presents significant contract terms and fair values as of
December 31, 2001 for our interest rate agreements.

<TABLE>
<CAPTION>

                                       CAPS                FLOORS             INTEREST RATE SWAP AGREEMENTS
                                ------------------   ------------------   --------------------------------------
                                                                 (in millions)
<S>                             <C>                  <C>                  <C>                  <C>
Notional amount .............   $   100.0            $   50.0               $   200.0           $   180.0
Interest rate ...............        7.5%                5.5%                     8.0%                8.5%
Reference rate ..............   3 month LIBOR        3 month LIBOR          6 month LIBOR        6 month LIBOR
Designated maturity .........      Quarterly            Quarterly            Semi-Annual          Semi-Annual
Expiration date .............   March 28, 2002       March 28, 2002         August 1, 2008        May 15, 2008
Fair value ..................   $    --              $   (0.4)                   $2.4               $(9.6)
</TABLE>

                                       36

<PAGE>

     FOREIGN CURRENCY EXCHANGE RISK. We conduct some of our operations outside
the U.S. in functional currencies other than the U.S. dollar. Additionally, some
of our U.S. operations have contracts with foreign customers denominated in
foreign currencies. To mitigate the risk associated with certain of these
contracts denominated in foreign currency we have entered into foreign currency
forward contracts. At December 31, 2001, the notional value of foreign currency
forward contracts was $7.1 million and the fair value of these contracts was
$0.3 million. We account for these contracts as cash flow hedges.

     EQUITY PRICE RISK. Our investments in common equities are subject to equity
price risk. The fair values of the Company's investments are based on quoted
market prices, as available, and on historical cost for investments which it is
not practicable to estimate fair value. Both the carrying values and estimated
fair values of such instruments amounted to $16.5 million at the end of 2001.

BACKLOG AND ORDERS

     We define funded backlog as the value of contract awards received from the
U.S. Government, 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 which have yet to be recognized as sales. Our funded backlog as of
December 31, 2001 was $1,719.3 million and as of December 31, 2000 was $1,354.0
million. We expect to record as sales approximately 69.7% of our December 31,
2001 funded backlog during 2002. However, there can be no assurance that our
funded backlog will become sales in any particular period, if at all. Our funded
orders were $2,456.1 million for 2001, $2,013.7 million for 2000 and $1,423.1
million for 1999.

     Our funded backlog does not include the full value of our contract awards
including those pertaining to multi-year, cost-plus reimbursable contracts,
which are generally funded on an annual basis. Funded backlog also excludes the
sales value of unexercised contract options that may be exercised by customers
under existing contracts and the sales value of purchase orders that may be
issued under indefinite quantity contracts or basic ordering agreements.

RESEARCH AND DEVELOPMENT

     Company-sponsored research and development costs including bid and proposal
costs were $107.5 million for 2001, $101.9 million for 2000 and $76.1 million
for 1999. Customer-funded research and development costs were $319.4 million for
2001, $299.3 million for 2000 and $226.3 million for 1999.

CONTINGENCIES

     We are engaged in providing products and services under contracts with the
U.S. Government and to a lesser degree, under foreign government contracts, some
of which are funded by the U.S. Government. All such contracts are subject to
extensive legal and regulatory requirements, and, periodically, agencies of the
U.S. Government investigate whether such contracts were and are being conducted
in accordance with these requirements. Under government procurement regulations,
an indictment by a federal grand jury could result in the suspension for a
period of time from eligibility for awards of new government contracts. A
conviction could result in debarment from contracting with the federal
government for a specified term. Additionally, in the event that U.S. Government
expenditures for products and services of the type we manufacture and provide
are reduced, and not offset by greater commercial sales or other new programs or
products, or acquisitions, there may be a reduction in the volume of contracts
or subcontracts awarded to us.

     We continually assess our obligations with respect to applicable
environmental protection laws. 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 that even without
considering potential insurance recoveries, if any, there are no environmental
loss contingencies that, individually or in the aggregate, would be material to
our consolidated financial position, results of operations or cash flows. Also,
we have been periodically subject to litigation, claims or assessments and
various contingent liabilities incidental to our business. We accrue for these
contingencies when it is probable that a liability has been incurred and the
amount of the loss can be reasonably estimated.

     With respect to those investigative actions, items of litigation, claims or
assessments of which we are aware, we are of the opinion that the probability is
remote that, after taking into account certain

                                       37

<PAGE>

provisions that have been made with respect to these matters, the ultimate
resolution of any such investigative actions, items of litigation, claims or
assessments will have a material adverse effect on our consolidated financial
position, results of operations or cash flows.

RECENTLY ISSUED AND PROPOSED ACCOUNTING STANDARDS

     In July 2001, the FASB issued SFAS No. 141, Business Combinations, which
supersedes Accounting Principles Board Opinion ("APB") No. 16, Business
Combinations. SFAS No. 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001 and establishes
specific criteria for the recognition of intangible assets separately from
goodwill. In July 2001, the FASB also issued SFAS No. 142, Goodwill and Other
Intangible Assets, which supersedes APB No. 17, Intangible Assets. SFAS No. 142
revises the standards for accounting for goodwill and intangible assets. SFAS
No. 142 requires that goodwill and indefinite lived identifiable intangible
assets shall no longer be amortized, but be tested for impairment at least
annually. SFAS No. 142 also requires that the amortization period of
identifiable intangible assets with finite lives be no longer limited to forty
years. The provisions of SFAS No. 142 are effective beginning January 1, 2002,
with full implementation of the impairment measurement provisions completed by
December 31, 2002. Under SFAS No. 142, we will not amortize goodwill, but will
be required to amortize identifiable intangibles with finite lives. Our goodwill
amortization expense for the year ended December 31, 2001 was $42.6 million.
Based on a preliminary internal assessment, we do not believe that the
cumulative effect of the accounting change resulting from the adoption of the
transitional impairment provisions of SFAS No. 142 will be material.

     In August of 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 applies to legal obligations associated
with the retirement of tangible long-lived assets that result from the
acquisition, construction, development or normal operation of a long-lived
asset, except for certain obligations of lessees. This statement does not apply
to obligations that arise solely from a plan to dispose of a long-lived asset.
SFAS No. 143 requires that estimated asset retirement costs be measured at their
fair values and recognized as assets and depreciated over the useful life of the
related asset. Similarly, liabilities for the present value of asset retirement
obligations are to be recognized and accreted as interest expense each year to
their estimated future value until the asset is retired. These provisions will
be applied to existing asset retirement obligations as of the adoption date as a
cumulative-effect of a change in accounting policy. SFAS No. 143 is effective
for our fiscal years beginning January 1, 2003. SFAS No. 143 will not have a
material effect on our consolidated results of operations and financial
position.

     In October of 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This statement supersedes SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the
accounting and reporting provisions of Accounting Principles Board Opinion No.
30, Reporting the Results of Operations -- Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions (APB No. 30), for the disposal of a segment of a
business (as previously defined in that Opinion). SFAS No. 144 expands the scope
of accounting for disposals to include all components of an entity, including
reportable segments and operating segments, reporting units, subsidiaries and
certain asset groups. It requires the gain or loss on disposal to be measured as
the difference between (1) the fair value less the costs to sell and (2) the
carrying value of the component, and such gain or loss cannot include the
estimated future operating losses of the component, which were included in the
gain or loss determination under APB No. 30. SFAS No. 144 also amends Accounting
Research Bulletin No. 51, Consolidated Financial Statements, to eliminate the
exception to consolidation for a subsidiary for which control is likely to be
temporary. The provisions of SFAS No. 144 are effective for our fiscal years
beginning January 1, 2002, and interim periods within those fiscal years. SFAS
No. 144 will not have a material effect on our consolidated results of
operations and financial position.

INFLATION

     The effect of inflation on our sales and earnings has not been significant.
Although a majority of our sales are made under long-term contracts, the selling
prices of such contracts, established for deliveries in

                                       38

<PAGE>

the future, generally reflect estimated costs to be incurred in these future
periods. In addition, some contracts provide for price adjustments through
escalation clauses.

FORWARD-LOOKING STATEMENTS

     Certain of the matters discussed concerning our operations, cash flows,
financial position, economic performance, and financial condition, including in
particular, the likelihood of our success in developing and expanding our
business and the realization of sales from backlog, include forward- looking
statements within the meaning of section 27A of the Securities Act and Section
21E of the Exchange Act.

     Statements that are predictive in nature, that depend upon or refer to
events or conditions or that include words such as "expects," "anticipates,"
"intends," "plans," "believes," "estimates" and similar expressions are
forward-looking statements. Although we believe that these statements are based
upon reasonable assumptions, including projections of orders, sales, operating
margins, earnings, cash flow, research and development costs, working capital,
capital expenditures and other projections, they are subject to several risks
and uncertainties, and therefore, we can give no assurance that these statements
will be achieved.

     Such statements will also be influenced by factors such as:

     o    our dependence on the defense industry and the business risks peculiar
          to that industry including changing priorities or reductions in the
          U.S. Government defense budget;

     o    our reliance on contracts with a limited number of agencies of, or
          contractors to, the U.S. Government and the possibility of termination
          of government contracts by unilateral government action or for failure
          to perform;

     o    our ability to obtain future government contracts on a timely basis;

     o    the availability of government funding and changes in customer
          requirements for our products and services;

     o    our significant amount of debt and the restrictions contained in our
          debt agreements;

     o    collective bargaining agreements and labor disputes;

     o    economic conditions, competitive environment, international business
          and political conditions, timing of international awards and
          contracts;

     o    our extensive use of fixed-price contracts as compared to
          cost-reimbursable contracts;

     o    our ability to identify future acquisition candidates or to integrate
          acquired operations;

     o    the rapid change of technology and high level of competition in the
          communication equipment industry;

     o    our introduction of new products into commercial markets or our
          investments in commercial products or companies;

     o    pension, environmental or legal matters or proceedings and various
          other market, competition and industry factors, many of which are
          beyond our control; and

     o    the fair values of the assets including goodwill and other intangibles
          of our businesses which can be impaired or reduced by the other
          factors discussed above.

     Readers of this document are cautioned that our forward-looking statements
are not guarantees of future performance and the actual results or developments
may differ materially from the expectations expressed in the forward-looking
statements.

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

                                       39

<PAGE>



assumptions only as of the date that they were made. We expressly disclaim a
duty to provide updates to these forward-looking statements, and the estimates
and assumptions associated with them, after the date of this filing to reflect
events or changes or circumstances or changes in expectations or the occurrence
of anticipated events.



















                                       40