<PAGE>
   
                                                                  EXHIBIT 99.5 

                          ALLIEDSIGNAL OCEAN SYSTEMS 
                A WHOLLY-OWNED OPERATION OF ALLIEDSIGNAL, INC. 
                        COMBINED FINANCIAL STATEMENTS 
                AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997 
    

                                1           
<PAGE>
                        REPORT OF INDEPENDENT AUDITORS 

   
To the Management and Board of Directors 
L-3 Communications Holdings, Inc. 

   We have audited the accompanying combined balance sheet of AlliedSignal 
Ocean Systems, a wholly owned operation of AlliedSignal, Inc. ("Ocean 
Systems"), as of December 31, 1997 and the related combined statements of 
operations, equity and cash flows for the year then ended. These financial 
statements are the responsibility of Ocean System's management. Our 
responsibility is to express an opinion on these financial statements based 
on our audit. 

   We conducted our audit in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management as well as evaluating the overall 
financial statement presentation. We believe that our audit provides a 
reasonable basis for our opinion. 

   In our opinion, the financial statements referred to above present fairly, 
in all material respects, the combined financial position of Ocean Systems as 
of December 31, 1997, and the combined results of their operations and cash 
flows for the year ended December 31, 1997, in conformity with generally 
accepted accounting principles. 

Coopers & Lybrand L.L.P. 

Los Angeles, California 
February 23, 1998 
    

                                2           
<PAGE>
   
                          ALLIEDSIGNAL OCEAN SYSTEMS 
               (A WHOLLY-OWNED OPERATION OF ALLIEDSIGNAL, INC.) 
                            COMBINED BALANCE SHEET 
                           AS OF DECEMBER 31, 1997 
                                (IN THOUSANDS) 

<TABLE>
<CAPTION>
<S>                                                                   <C>
                                     ASSETS 
Current assets: 
 Accounts receivable, net of allowances for doubtful accounts of $81   $13,313 
 Inventories ........................................................   25,274 
 Contracts in progress ..............................................      793 
 Prepaid expenses and other current assets ..........................    1,743 
                                                                      --------- 
  Total current assets ..............................................   41,123 
Property, plant and equipment, net ..................................   16,845 
Capitalized software, net ...........................................    2,248 
Goodwill, net .......................................................    1,820 
Other assets ........................................................       31 
                                                                      --------- 
Total assets ........................................................  $62,067 
                                                                      ========= 
                             LIABILITIES AND EQUITY 

Current liabilities: 
 Accounts payable ...................................................  $ 2,626 
 Accrued liabilities ................................................   16,112 
 Advance payments ...................................................   16,162 
                                                                      --------- 
  Total current liabilities .........................................   34,900 
Accrued pension and postretirement benefits .........................   10,959 
                                                                      --------- 
Total liabilities ...................................................   45,859 
                                                                      --------- 
Commitment and contingencies 
Equity: 
 Invested equity.....................................................    9,312 
 ELAC common stock ..................................................    3,424 
 ELAC retained earnings .............................................    4,570 
 Cumulative translation adjustment ..................................   (1,098) 
                                                                      --------- 
Total equity.........................................................   16,208 
                                                                      --------- 
Total liabilities and equity ........................................  $62,067 
                                                                      ========= 
</TABLE>


         See accompanying notes to the combined financial statements 
    

                                3           
<PAGE>
   
                          ALLIEDSIGNAL OCEAN SYSTEMS 
               (A WHOLLY-OWNED OPERATION OF ALLIEDSIGNAL, INC.) 
                      COMBINED STATEMENTS OF OPERATIONS 
                     FOR THE YEAR ENDED DECEMBER 31, 1997 
                                (IN THOUSANDS) 


<TABLE>
<CAPTION>
<S>                                     <C>
Sales .................................  $73,033 
Cost of sales .........................   56,049 
                                        --------- 
 Gross profit .........................   16,984 
Operating expenses: 
 General and administrative ...........   11,981 
 Selling ..............................    5,933 
 Bid and proposal .....................    2,053 
 Independent research and development      2,765 
                                        --------- 
  Total operating expenses ............   22,732 
                                        --------- 
Loss from operations ..................   (5,748) 

Interest expense, net .................      490 
Other income ..........................     (185) 
                                        --------- 
Loss before income taxes ..............   (6,053) 
Benefit for income taxes ..............   (2,378) 
                                        --------- 
  Net loss ............................  $(3,675) 
                                        ========= 
</TABLE>


         See accompanying notes to the combined financial statements 
    

                                4           
<PAGE>
   
                          ALLIEDSIGNAL OCEAN SYSTEMS 
               (A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.) 
                         COMBINED STATEMENT OF EQUITY 
                     FOR THE YEAR ENDED DECEMBER 31, 1997 
                                (IN THOUSANDS) 


<TABLE>
<CAPTION>
                                       INVESTED       ELAC      ELAC      CUMULATIVE 
                                     EQUITY IN OS    COMMON   RETAINED    TRANSLATION    TOTAL 
                                       (DEFICIT)     STOCK    EARNINGS    ADJUSTMENT     EQUITY 
                                    -------------- --------  ---------- -------------  --------- 
<S>                                 <C>            <C>       <C>        <C>            <C>
Balance at December 31, 1996  .....     $ 8,298      $3,424    $6,403       $    87     $18,212 
Net loss ..........................      (2,680)         --      (995)           --      (3,675) 
Cumulative translation adjustment            --          --        --        (1,185)     (1,185) 

Advances from (repayments to) 
 AlliedSignal .....................       3,694          --      (838)           --       2,856 
                                    -------------- --------  ---------- -------------  --------- 
Balance at December 31, 1997  .....     $ 9,312      $3,424    $4,570       $(1,098)    $16,208 
                                    ============== ========  ========== =============  ========= 
</TABLE>


         See accompanying notes to the combined financial statements 
    

                                5           
<PAGE>
   
                          ALLIEDSIGNAL OCEAN SYSTEMS 
               (A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.) 
                       COMBINED STATEMENT OF CASH FLOWS 
                     FOR THE YEAR ENDED DECEMBER 31, 1997 
                                (IN THOUSANDS) 


<TABLE>
<CAPTION>
<S>                                                                             <C>
 Cash flows from operating activities: 
 Net loss .....................................................................  ($  3,675) 
 Adjustments to reconcile net loss to net cash provided by operating 
  activities: 
  Depreciation of property, plant and equipment ...............................     2,976 
  Amortization of capitalized software ........................................     1,078 
  Amortization of intangible assets ...........................................        70 
  Loss on the disposal of property, plant and equipment .......................         8 
  Changes in operating assets and liabilities: 
   Accounts receivable ........................................................    13,561 
   Inventories ................................................................      (359) 
   Contracts in progress ......................................................     1,666 
   Prepaid and other current assets ...........................................      (220) 
   Accounts payable ...........................................................    (1,976) 
   Accrued liabilities ........................................................   (10,472) 
   Advance payments ...........................................................    (1,092) 
   Accrued pension and postretirement benefits ................................       (20) 
                                                                                ---------- 
    Net cash provided by operating activities .................................     1,545 
                                                                                ---------- 
Cash flows from investing activities: 
 Property, plant and equipment purchased ......................................    (3,090) 
 Software purchased ...........................................................      (265) 
                                                                                ---------- 
    Net cash used in investing activities .....................................    (3,355) 
                                                                                ---------- 
Cash flows from financing activities: 
 Advances from AlliedSignal, net ..............................................     3,198 
                                                                                ---------- 
    Net cash provided by financing activities .................................     3,198 
                                                                                ---------- 
 Effect of foreign currency exchange rate changes on cash .....................    (1,388) 
                                                                                ---------- 
Net change in cash ............................................................        -- 
Cash and cash equivalents at the beginning of the year ........................        -- 
                                                                                ---------- 
Cash and cash equivalents at the end of the year ..............................  $     -- 
                                                                                ========== 
Supplement disclosures of cash flow information: 
 Cash paid during the year for: 
  Interest--AlliedSignal ......................................................  $    552 
                                                                                ---------- 
</TABLE>


         See accompanying notes to the combined financial statements 
    

                                6           
<PAGE>
   
                          ALLIEDSIGNAL OCEAN SYSTEMS 
               (A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.) 
                    NOTES TO COMBINED FINANCIAL STATEMENTS 
                              DECEMBER 31, 1997 
                            (DOLLARS IN THOUSANDS) 

1. BACKGROUND AND DESCRIPTION OF BUSINESS 

   The Ocean Systems business ("Ocean Systems" or the "Company") is a wholly 
owned operation of AlliedSignal Inc. ("AlliedSignal") comprised of the Ocean 
Systems Division ("OS"), and AlliedSignal ELAC Nautik GmbH ("ELAC"). The OS 
Division headquarters and principal operations, including one manufacturing 
site, are located in Sylmar, California, a suburb of Los Angeles. OS also 
operates marketing offices located in Canada ("ASCI") and England ("BOSL"). 
OS was acquired through AlliedSignal's merger with the Bendix Corporation in 
1982. ELAC is a wholly owned subsidiary of AlliedSignal Deutschland ("AS 
Deutschland") and is a separate legal entity located in Kiel, Germany. ELAC 
was acquired from Honeywell Inc. in 1994. 

   On December 22, 1997, L-3 Communications Corporation, a wholly owned 
subsidiary of L-3 Communications Holdings, Inc. ("L-3") entered into a 
definitive Purchase Agreement with AlliedSignal to acquire substantially all 
the net assets excluding land and buildings, and assumed certain of the 
liabilities of OS and purchased the outstanding capital stock of ELAC from AS 
Deutschland. 

   Ocean Systems develops, manufactures and sells sophisticated sonar 
detection and tracking devices for underwater use. The Company's customers 
include the U.S. Government, foreign governments, defense industry prime 
contractors and commercial customers. The Company operates primarily in one 
industry segment, electronic sonar components and systems. 

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

   The decline in the U.S. defense budget since the late 1980s has resulted 
in program delays, cancellations and scope reduction for defense contracts in 
general. These events may or may not have an effect on the Company's 
programs; however, in the event that U.S. Government expenditures for 
products of the type manufactured by the Company are reduced, and not offset 
by greater foreign sales or other new programs or products, or acquisitions, 
there may be a reduction in the volume of contracts or subcontracts awarded 
to the Company. 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES 

BASIS OF PRESENTATION AND USE OF ESTIMATES 

   The accompanying combined financial statements reflect the assets, 
liabilities and operations of Ocean Systems including OS and ELAC which are 
combined herein as they are entities under common control and management. All 
significant intercompany accounts and transactions have been eliminated. 

   The preparation of financial statements in conformity with generally 
accepted accounting principals requires the Company's management to make 
estimates and assumptions that affect the reported amounts of assets and 
liabilities and disclosure of contingent assets and liabilities at the date 
of the combined financial statements and the reported amounts of revenue and 
expenses during the reporting period. The most significant of these estimates 
and assumptions relate to contract estimates of sales and costs, excess and 
obsolete inventory reserves, warranty reserves, pension estimates and 
recoverability of recorded amounts of fixed assets. Actual results could 
differ from these estimates. 

REVENUE RECOGNITION 

   Under fixed-price contracts, sales and related costs are recorded upon 
delivery and customer acceptance. Sales and related costs under 
cost-reimbursable contracts are recorded on the percentage of 
    

                                7           
<PAGE>
                          ALLIEDSIGNAL OCEAN SYSTEMS 
               (A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.) 
                    NOTES TO COMBINED FINANCIAL STATEMENTS 
                              DECEMBER 31, 1997 
                            (DOLLARS IN THOUSANDS) 

   
completion method. Anticipated future losses on contracts are charged to 
income when identified. Revisions in profit estimates are reflected in the 
period in which the facts, which require the revision, become known. 

ACCOUNTS RECEIVABLE 

   Management assesses the credit risk and records an allowance for 
uncollectable accounts as considered necessary based on several factors 
including, but not limited to, an analysis of specific customers, historical 
trends, current economic conditions and other information. The U.S. Navy 
comprises a significant portion of Ocean System's revenues. The Company's 
other customers include the navies of many foreign countries. The Company's 
credit risk is affected by conditions or occurrences within the U.S. 
Government and economic conditions of the countries in which the Company 
operates or has customers. Sales are made on unsecured, customer-specific 
credit terms, which may include extended terms. 

INVENTORIES 

   Inventories are valued at the lower of cost or market using the average 
cost method. Inventories consist of raw materials and supplies, work in 
process and finished goods. An excess and obsolete inventory reserve has been 
established primarily for raw materials and parts that have not been 
allocated to firm contracts. The excess and obsolete inventory reserve is 
based on estimates of future usage of inventory on hand. 

CONTRACTS IN PROCESS 

   Costs accumulated under cost-reimbursable contracts include direct costs, 
as well as manufacturing overhead. In accordance with industry practice, 
these amounts are included in current assets. 

PROPERTY, PLANT AND EQUIPMENT 

   Property, plant and equipment are stated at historical cost net of 
accumulated depreciation. For financial purposes, property, plant and 
equipment is generally depreciated on the straight line method using 
estimated useful lives ranging from 3 to 20 years. Leasehold improvements are 
amortized over the shorter of the lease term or the estimated useful life of 
the improvements. Interest costs incurred during the construction of plant 
and equipment are capitalized using an imputed interest rate approximating 
8%. Interest costs capitalized during 1997 amounted to $57. 

CAPITALIZED SOFTWARE 

   Capitalized software primarily represents costs incurred related to the 
purchase and implementation of the Company's MRP II business system. 
Capitalized software is reported at historical cost less accumulated 
amortization. Amortization is based on the estimated useful service life not 
to exceed five years. Amortization of capitalized software was $1,078 for the 
year ended December 31, 1997. Accumulated amortization was $2,368 at December 
31, 1997. 

GOODWILL 

   Goodwill represents the excess of the cost of the purchased business over 
the net assets acquired and is being amortized on a straight-line basis over 
40 years. This excess relates primarily to the allocated portion of goodwill 
arising out of the AlliedSignal merger with Bendix in 1982 and was allocated 
to OS 
    

                                8           
<PAGE>
                          ALLIEDSIGNAL OCEAN SYSTEMS 
               (A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.) 
                    NOTES TO COMBINED FINANCIAL STATEMENTS 
                              DECEMBER 31, 1997 
                            (DOLLARS IN THOUSANDS) 

   
based on the proportionate percentage of OS pretax earnings to the total 
Bendix Aerospace Group pretax earnings at the time of the AlliedSignal 
acquisition from Bendix. Amortization expense was $70 for the year ended 
December 31, 1997. Accumulated amortization was $980 at December 31, 1997. 

   The carrying amounts of intangible assets are reviewed if the facts and 
circumstances indicate potential impairment of their carrying value. If this 
review indicates that intangible assets are not recoverable, as determined 
based on the undiscounted cash flows of the entity acquired over the 
remaining amortization period, the Company's carrying values related to the 
intangible assets are reduced to the fair value of the asset. 

RESEARCH AND DEVELOPMENT AND SIMILAR COSTS 

   Research and development costs sponsored by the Company include research 
and development and bid and proposal efforts related to government products 
and services. Customer-sponsored research and development costs incurred are 
included in contract costs. 

FOREIGN OPERATIONS AND FOREIGN CURRENCY TRANSLATION 

   The Company's major foreign operation is ELAC located in Germany with the 
Deutsche mark as its functional currency. Assets and liabilities are 
translated at current exchange rates at the end of the period. Income and 
expenses are translated using the monthly average exchange rates. The effect 
of the unrealized rate fluctuations on translating foreign currency assets 
and liabilities into U.S. dollars are accumulated as a separate component of 
equity in the accompanying combined balance sheet. 

   There are no material foreign currency gains or losses for the year ended 
December 31, 1997 as the Company's U.S. sales to foreign customers are 
denominated in U.S. dollars. ASCI Canadian sales are denominated in Canadian 
dollars and the ELAC foreign sales are denominated in Deutsche Marks. 

FINANCIAL INSTRUMENTS 

   At December 31, 1997, the carrying value of the Company's financial 
instruments, such as receivables, accounts payable and accrued liabilities, 
approximate fair value, based on the short-term maturities of these 
instruments. 

INCOME TAXES 

   The benefit for income taxes for OS was computed by applying statutory tax 
rates to the reported loss before income taxes after considering items that 
do not enter into the determination of taxable income and tax credits 
reflected in the consolidated provision of AlliedSignal which are related to 
OS. Income taxes for OS are assumed to have been settled with AlliedSignal at 
December 31, 1997 and there are no separate tax attributes related to OS. For 
ELAC, separate tax attributes that relate specifically to ELAC have been 
considered in computing taxes. 

3. TRANSACTIONS WITH ALLIEDSIGNAL 

   Ocean Systems relies on AlliedSignal for certain services, including 
treasury, cash management, employee benefits, taxes, risk management, 
internal audit, financial reporting, legal, contract administration and 
general corporate services. Although certain assets, liabilities and expenses 
related to these services have been allocated to the Company, the combined 
financial position, results of operations and cash flows presented in the 
accompanying combined financial statements would not be the same as would 
have occurred had the Company been an independent entity. The following 
describes the related party transactions. 
    

                                9           
<PAGE>
                          ALLIEDSIGNAL OCEAN SYSTEMS 
               (A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.) 
                    NOTES TO COMBINED FINANCIAL STATEMENTS 
                              DECEMBER 31, 1997 
                            (DOLLARS IN THOUSANDS) 

   
ALLOCATION OF CORPORATE EXPENSES 

   The amount of allocated corporate expenses reflected in these combined 
financial statements has been estimated based primarily on an allocation 
methodology prescribed by government regulations pertaining to government 
contractors. Corporate expenses allocated to Ocean Systems were $2,258 for 
the year ended December 31, 1997, and are included in general and 
administrative expense in the accompanying combined statement of operations. 

PENSIONS 

   Certain of the Company's employees participate in various AlliedSignal 
sponsored pension plans covering certain employees. Eligibility for 
participation in these plans varies, and benefits are generally based on 
employees' compensation and years of service. 

   AlliedSignal funding policy is generally to contribute in accordance with 
cost accounting standards that affect government contractors subject to the 
Internal Revenue code and regulations. Although the aforementioned pension 
arrangements are part of certain AlliedSignal defined benefit plans, separate 
actuarial estimates were made for the portion allocable to the Company. 
Pension expense included in the accompanying combined statement of operations 
was $1,452 for the year ended December 31, 1997. The pension plan liability 
at December 31, 1997 was fully funded. The Company also has a supplemental 
pension plan for highly compensated employees as defined by IRS rules. The 
liability reflected in the accompanying combined balance sheet was $650 at 
December 31, 1997. Pension expense included in the combined statement of 
operations for the supplemental pension plan was $24 for the year ended 
December 31, 1997. 

   The Company's German employees of ELAC are covered by a separate pension 
plan. Pension costs included the following components for the year ended 
December 31, 1997: 

<TABLE>
<CAPTION>
<S>                                             <C>
 Service costs earned during the year  ......... $163 
Interest cost on projected benefit obligation     119 
Actual return on plan assets ..................   (92) 
Amortization of unrecognized net obligation  ..    24 
                                                ------ 
Net periodic pension cost .....................  $214 
                                                ====== 
</TABLE>
    

                               10           
<PAGE>
                          ALLIEDSIGNAL OCEAN SYSTEMS 
               (A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.) 
                    NOTES TO COMBINED FINANCIAL STATEMENTS 
                              DECEMBER 31, 1997 
                            (DOLLARS IN THOUSANDS) 

   
   The following table sets forth the ELAC pension plan funded status and 
amounts recognized in the Company's combined balance sheet at December 31, 
1997: 

<TABLE>
<CAPTION>
<S>                                                      <C>
 Actuarial present value of benefit obligation 
 Vested ................................................  $1,067 
 Nonvested .............................................     296 
                                                         -------- 
  Accumulated benefit obligation .......................   1,363 
                                                         ======== 
 Projected benefit obligation ..........................   1,919 
 Plan assets at fair value .............................   1,422 
                                                         -------- 
  Projected benefit obligation in excess of plan assets      497 
  Unrecognized net loss ................................      37 
  Unrecognized prior service costs ..................... 
  Unrecognized net obligation ..........................    (361) 
                                                         -------- 
   Accrued pension costs ...............................  $  173 
                                                         ======== 
</TABLE>

<TABLE>
<CAPTION>
    <S>                                                  <C>
 Major assumptions were: 
    Discount Rate ...................................    6.8% 
    Expected long-term rate of return on assets  ....    6.8% 
    Rate of increase in compensation levels  ........    4.0% 
</TABLE>

POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS 

   In addition to participating in AlliedSignal pension plans, employees of 
OS are provided varying levels of health care and life insurance benefits for 
retired employees and dependents. Participants are eligible for these 
benefits when they retire from active service and meet the pension plan 
eligibility requirements. These benefits are funded primarily on a 
pay-as-you-go basis with the retiree generally paying of the cost through 
contributions, deductibles and coinsurance provisions. 

   Although the aforementioned postretirement benefits are part of certain 
AlliedSignal postretirement arrangements, separate actuarial estimates were 
made for the portion allocable to the Company. The weighted average discount 
rate utilized in determining the accumulated postretirement benefit 
obligation was 7.25% for 1997. Net postretirement benefit costs included in 
the combined statements of operations was $1,072 for the year ended December 
31, 1997. 

   The net postretirement benefit costs for 1997 included the following 
components: 

<TABLE>
<CAPTION>
<S>                                                             <C>
 Service cost-benefits attributed to service during the period   $  545 
Interest cost on accumulated postretirement benefit obligation      704 
Amortization of gain ..........................................    (177) 
                                                                ======= 
 Net postretirement benefit cost ..............................  $1,072 
                                                                ======= 
</TABLE>
    

                               11           
<PAGE>
                          ALLIEDSIGNAL OCEAN SYSTEMS 
               (A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.) 
                    NOTES TO COMBINED FINANCIAL STATEMENTS 
                              DECEMBER 31, 1997 
                            (DOLLARS IN THOUSANDS) 

   
   The funded status of the plan and related liability amounts recognized in 
the accompanying combined balance sheet at December 31, 1997 were as follows: 

<TABLE>
<CAPTION>
<S>                                             <C>
 Accumulated postretirement benefit obligation: 
 Fully eligible active plan participants  .....  $2,698 
 Other active plan participants ...............   7,049 
                                                -------- 
                                                  9,747 
Unrecognized prior service costs ..............      -- 
Unrecognized net gain (loss) ..................      -- 
                                                -------- 
 Accrued postretirement benefit cost  .........  $9,747 
                                                ======== 
</TABLE>

EMPLOYEE SAVINGS PLANS 

   Ocean Systems North American operation also has a supplemental savings 
plan in which the Company matches the contributions of participating 
employees up to a designated level. Under this plan, the matching 
contributions, in cash, were $54 for the year ended December 31, 1997 and the 
liability recorded at December 31, 1997 was $562. 

INTEREST EXPENSE 

   Interest expense has been allocated to the Company by applying 
AlliedSignal's weighted average consolidated interest rate to the portion of 
the beginning of the period equity account deemed to be financed by 
consolidated debt, which has been determined based on AlliedSignal's debt to 
equity ratio on such date. Management of the Company believes that this 
allocation methodology is reasonable. 

   The allocated interest expense was calculated using the following equity 
balance and interest rate, for the year ended December 31, 1997: 

<TABLE>
<CAPTION>
<S>                 <C>
Equity ........  $5,751 
Interest Rate       9.6% 
</TABLE>

   Allocated interest expense for the year ended December 31, 1997 amounted 
to $552 and is included in interest expense, net in the accompanying combined 
statement of operations. 

INCOME TAXES 

   The Company will be included in the consolidated Federal income tax 
return, foreign tax returns and certain combined and separate state and local 
income tax returns of AlliedSignal for 1997. Income taxes for OS are 
considered to have been settled with AlliedSignal at December 31, 1997 and 
are recorded through the invested equity account with AlliedSignal as there 
are no separate stand alone tax attributes related to OS. 

   ELAC participates in the AlliedSignal Deutschland GmbH profit pooling 
agreement for corporate income tax and municipal trade tax. Since entering 
into this agreement ELAC has not paid German taxes, as any profits or losses 
of ELAC are transferred to AlliedSignal Deutschland. For purposes of these 
combined financial statements, the tax attributes that relate to ELAC prior 
to entering into the pooling agreement have been considered in computing the 
separate ELAC tax computations as these attributes will remain with ELAC 
after the termination of the pooling agreement after the acquisition by L-3. 
    

                               12           
<PAGE>
                          ALLIEDSIGNAL OCEAN SYSTEMS 
               (A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.) 
                    NOTES TO COMBINED FINANCIAL STATEMENTS 
                              DECEMBER 31, 1997 
                            (DOLLARS IN THOUSANDS) 

   
STATEMENT OF CASH FLOWS 

   The company participates in the AlliedSignal cash management system, under 
which all cash is received and payments are made by AlliedSignal. All 
transactions between the Company and AlliedSignal have been accounted for as 
settled in cash at the time such transactions were recorded by the Company. 

4. INVENTORIES AND CONTRACTS IN PROCESS 

   Net inventories are comprised of the following components at December 31, 
1997: 

<TABLE>
<CAPTION>
<S>                                     <C>
Raw materials and supplies ............  $14,894 
Work in process .......................    6,675 
Finished goods ........................   12,080 
Excess and obsolete inventory reserve     (7,772) 
                                        --------- 
 Net inventories ......................   25,877 
 Less, unliquidated progress payments       (603) 
                                        --------- 
                                         $25,274 
                                        ========= 
</TABLE>

   For the year ended December 31, 1997, there were no general and 
administrative, independent research and development, or bid and proposal 
costs charged to inventory. 

   Contracts in process, amounting to $793 as of December 31, 1997, include 
accumulated inventoried costs and profits on cost or cost-reimbursement 
contracts, principally with the U.S. Government. The U.S. Government has 
title to, or a security interest in, inventories to which progress payments 
are applied. The Company believes that substantially all such amounts will be 
billed and collected within one year. 

5. PROPERTY, PLANT AND EQUIPMENT 

   Property, plant and equipment at December 31, 1997 are comprised of the 
following components: 

<TABLE>
<CAPTION>
<S>                                            <C>
Buildings, building improvements and land 
 improvements ................................  $  9,108 
Machinery, equipment, furniture and fixtures      48,060 
Leasehold improvements .......................       300 
                                               ---------- 
                                                  57,468 
Less, accumulated depreciation and 
 amortization ................................   (43,324) 
                                               ---------- 
                                                  14,144 
Land .........................................       388 
Construction in progress .....................     2,313 
                                               ---------- 
                                                $ 16,845 
                                               ========== 
</TABLE>

   Depreciation and amortization expense was $2,976 for the year ended 
December 31, 1997. 
    

                               13           
<PAGE>
                          ALLIEDSIGNAL OCEAN SYSTEMS 
               (A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.) 
                    NOTES TO COMBINED FINANCIAL STATEMENTS 
                              DECEMBER 31, 1997 
                            (DOLLARS IN THOUSANDS) 

   
6. INCOME TAXES 

   The effective tax rate differs from the statutory federal income tax rate 
for the following reasons: 

<TABLE>
<CAPTION>
<S>                                     <C>
Statutory federal income tax rate ....   (35.0)% 
State taxes net of federal benefit ...    (6.0)% 
Foreign losses with no tax benefit ...     6.7 % 
Foreign sales corporation tax 
 benefit..............................    (4.5)% 
Other, net............................    (0.5)% 
                                       --------- 
                                         (39.3)% 
                                       ========= 
</TABLE>

   At December 31, 1997, the German trade tax and corporate income tax net 
operating loss ("NOL") carryovers amounted to $953 and $1,180, respectively, 
and may be carried forward indefinitely. 

   At December 31, 1997, deferred tax assets related to ELAC's German trade 
tax and corporate income tax NOL carryovers amounted to $468. A full 
valuation is recorded against the deferred tax asset. 

   The valuation allowance for deferred taxes was based on ELAC's historical 
losses from operations and its current year loss. In addition, certain 
aspects of the acquisition could limit the utilization of a portion or all of 
these NOL carryovers. Accordingly, management believes currently there is not 
enough historical information to support that it is more likely than not that 
ELAC will realize the future tax benefit of these NOL carryovers. 

7. EQUITY 

   Invested equity represents the equity contributed to OS by AlliedSignal 
and related accumulated results of operations of OS. ELAC common stock 
represents the one share of common stock held by AS Deutschland. ELAC's 
retained earnings includes the impact of ELAC's accumulated operating losses, 
and repayments to AlliedSignal offset by the effects of the amortization of 
negative goodwill associated with the ELAC acquisition from Honeywell. 

8. SALES TO PRINCIPAL CUSTOMERS 

   The Company operates primarily in one industry segment, electronic sonar 
components and systems. Sales to principal customers are as follows for the 
year ended December 31, 1997: 

<TABLE>
<CAPTION>
<S>                                              <C>
U.S. Government agencies and prime contractors    $36,133 
German government...............................    5,895 
Other foreign governments.......................   24,883 
Commercial customers............................    6,122 
                                                 --------- 
                                                  $73,033 
                                                 ========= 
</TABLE>
    

                               14           
<PAGE>
                          ALLIEDSIGNAL OCEAN SYSTEMS 
               (A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.) 
                    NOTES TO COMBINED FINANCIAL STATEMENTS 
                              DECEMBER 31, 1997 
                            (DOLLARS IN THOUSANDS) 

   
   Summarized data of the Company's operations by geographic area for the 
year ended December 31, 1997 are as follows: 

<TABLE>
<CAPTION>
                          NORTH               REST OF 
                         AMERICA    GERMANY    EUROPE     ASIA      OTHER      ELIM       TOTAL 
                        --------- ---------  --------- ---------  -------- -----------  --------- 
<S>                     <C>       <C>        <C>       <C>        <C>      <C>          <C>
Sales to unaffiliated 
 customer .............  $39,002    $ 8,146    $6,220    $18,611   $1,054          --    $73,033 
Inter-area sales ......   19,536      4,334        --         --       --    $(23,870)        -- 
Loss from operations  .   (4,658)    (1,090)       --         --       --          --     (5,748) 
Identifiable assets at 
 December 31, 1997  ...   51,613     10,454        --         --       --          --     62,067 
</TABLE>

9. COMMITMENTS AND CONTINGENCIES 

   The Company leases certain facilities and equipment under agreements 
expiring at various dates through 2011. At December 31, 1997, future minimum 
payments for noncancellable operating leases with initial or remaining terms 
in excess of one year are $933 for 1998, $340 for 1999, $161 for 2000, $35 
for 2001 and $7 for 2002. 

   Leases covering major items of real estate and equipment contain renewal 
and or purchase options which may be exercised by the company. Rent expense, 
net of sublease income from other AlliedSignal entities, was $1,342 for the 
year ended December 31, 1997. 

   Management is continually assessing the Company's obligations with respect 
to applicable environmental protection laws. While it is difficult to 
determine the timing and ultimate cost to be incurred by the Company in order 
to comply with these laws, based upon available internal and external 
assessments, with respect to those environmental loss contingencies of which 
management of the Company is aware, the Company believes 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 the Company's combined financial position, cash flows and 
results of operations. The Company accrues for these contingencies when it is 
probable that a liability has been incurred and the amount of the loss can be 
reasonably estimated. 

   The Company is engaged in providing products and services under contracts 
with the U.S. Government and foreign government agencies. All such contracts 
are subject to extensive legal and regulatory requirements, and, from time to 
time, agencies of the U.S. Government investigate whether such contracts were 
and are being conducted in accordance with these requirements. Under 
government procurement regulations, an indictment of the Company by a federal 
grand jury could result in the Company being suspended for a period of time 
from eligibility for awards of new government contracts. A conviction could 
result in debarment from contracting with federal government for a specified 
term. 

   The Company is also periodically subject to periodic review or audit by 
agencies of the U.S. Government. At December 31, 1997, there are several 
pending issues with these agencies that are incidental to the Company's 
business. One of these reviews was critical of the Company's procedures for 
maintaining control of Government owned property in the Company's custody. 
The Company is responsible and liable for $93 million of Government-owned 
property in its possession. With respect to this and other U.S. Government 
matters, the Company's management believes the ultimate resolution of any 
such matters will not have a material adverse effect on the combined 
financial position, cash flows or results of operations of the Company. 
    

                               15           
<PAGE>
                          ALLIEDSIGNAL OCEAN SYSTEMS 
               (A WHOLLY OWNED OPERATION OF ALLIEDSIGNAL, INC.) 
                    NOTES TO COMBINED FINANCIAL STATEMENTS 
                              DECEMBER 31, 1997 
                            (DOLLARS IN THOUSANDS) 

   
   The Company is periodically subject to litigation, claims or assessments 
and various contingent liabilities (including environmental matters) 
incidental to their business. With respect to those investigative actions, 
items of litigation, claims or assessments of which they are aware, 
management of the Company is of the opinion that the probability is remote 
that, after taking into account certain 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 the combined financial position, cash flows or results of 
operations of the Company. 
    

                               16