<PAGE>






================================================================================
               UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


                                   FORM 10-K

 [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.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the definitive proxy statement to be filed with Securities and
Exchange Commission ("SEC") pursuant to Regulation 14A relating to the
registrant's Annual Meeting of Shareholders, to be held on April 23, 2002, will
be incorporated by reference in Part III of this Form 10-K. Such proxy
statement will be filed with the SEC not later than 120 days after the
registrant's fiscal year ended December 31, 2001.

================================================================================

<PAGE>

                        L-3 COMMUNICATIONS HOLDINGS, INC.
                         L-3 COMMUNICATIONS CORPORATION
                       INDEX TO ANNUAL REPORT ON FORM 10-K

                      FOR THE YEAR ENDED DECEMBER 31, 2001


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                                                                                      PAGE
                                                                                     -----
<S>       <C>                                                                        <C>
PART I

 Item 1:  Business .................................................................   1

 Item 2:  Properties ...............................................................  22

 Item 3:  Legal Proceedings ........................................................  22

 Item 4:  Submission of Matters to a Vote of Security Holders ......................  22

PART II

 Item 5:  Market for Registrant's Common Equity and Related Stockholder
           Matters .................................................................  23

 Item 6:  Selected Financial Data ..................................................  24

 Item 7:  Management's Discussion and Analysis of Results of Operations and
           Financial Condition .....................................................  25

 Item 7A: Quantitative and Qualitative Disclosures about Market Risk ...............  41

 Item 8:  Financial Statements and Supplementary Data ..............................  41

 Item 9:  Changes in and Disagreements with Accountants on Accounting and
           Financial Disclosure ....................................................  41
PART III

 Item 10: Directors and Executive Officers of the Registrant .......................  42

 Item 11: Executive Compensation ...................................................  42

 Item 12: Security Ownership of Certain Beneficial Owners and Management ...........  42

 Item 13: Certain Relationships and Related Transactions ...........................  42

PART IV

 Item 14: Exhibits, Financial Statement Schedules and reports on Form 8-K ..........  43

Signatures .......................................................................    46
</TABLE>

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                      [THIS PAGE INTENTIONALLY LEFT BLANK]




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                                    PART I

     For convenience purposes in this Annual Report on Form 10-K, "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 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;


                                       1
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    o communication systems for surface and undersea vessels and manned space
      flights; and

    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
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 DEVELOPING COMMERCIAL OPPORTUNITIES

     An integral part of our growth strategy is to identify and exploit
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 an
explosive detection system for checked baggage at airports, cruise ship voyage
recorders, power propulsion systems and power switches and displays for rail
transportation and internet service providers. We are developing additional
products, including an enhanced collision avoidance product that incorporates
ground proximity warning.

     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.

     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, computers (C4), 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.

     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


                                       3
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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 aviation
recorders, telemetry, instrumentation and space products, advanced antenna
products and high performance microwave components. We continue to invest in
company-sponsored independent research


                                       4
<PAGE>

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.

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<PAGE>

     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.


                         SELECTED RECENT ACQUISITIONS

<TABLE>
<CAPTION>
                                                                      PRICE
     BUSINESS NAME         DATE ACQUIRED        ACQUIRED FROM         ($ MM)            BUSINESS DESCRIPTION
----------------------- ------------------- --------------------- ------------- -----------------------------------
<S>                     <C>                 <C>                   <C>           <C>
 Aircraft Integration   March 8, 2002       Raytheon Company       $  1,130.0   Provides products and services for the
 Systems                                                                        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.
 SY Technology          December 31, 2001   SY Technology, Inc.          48.0   Specializes in air warfare
                                                                                simulation; command, control,
                                                                                communications, computers 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>



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PRODUCTS AND SERVICES


     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.


                          SECURE COMMUNICATION SYSTEMS

<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
   support services                       support for C3I (Command,
                                          Control, Communication and
                                          Intelligence)

 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 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
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                      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  C4ISR (Command, Control,         o  U.S. Armed services, intelligence
                               Communications, Computers,          and security agencies, Ballistic
                               Intelligence, Surveillance and      Missile Defense Organization
                               Reconnaissance), modeling and       and NASA
                               simulation
</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 business designs, develops and manufacturers advanced
reality simulation and training products for training air crews with
high-fidelity representations of cockpits and operator stations for aircraft and
vehicle simulation. 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 pilots, navigators, flight engineers, gunners, operators 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.


                                       10
<PAGE>

     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 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 C4ISR engineering support, wargames simulation and modeling of
battlefield communications.


     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.


                              SPECIALIZED PRODUCTS



<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 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 explosive detection system, the eXaminer 3DXTM
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 was $2,456.1, for the year ended
December 31, 2000 was $2,013.7 million and for the year ended December 31, 1999
was $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.

     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


                                       17
<PAGE>

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 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:

<TABLE>
<CAPTION>
     <S>                                                          <C>

    o  Pricing;                                                    o  Customer relationships, service and support; and

    o  Product features and performance;                           o  Brand recognition.

    o  Reliability, scalability and compatibility;
</TABLE>

                                       18
<PAGE>

     In these 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

     Although we own some patents and have filed applications for additional
patents, we do not believe that our operations depend upon our ownership of
patents. In addition, 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.


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, 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


                                       19
<PAGE>

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.

     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. Management believes 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.


                                       20
<PAGE>

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
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, the impact on pension expense and funding
requirements resulting from this arrangement has not been significant. However,
should Lockheed Martin assume sponsorship of the Subject Plans or if these plans
were terminated, the impact of any increased pension expenses or funding
requirements could be material to us. 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.


                                       21
<PAGE>

ITEM 2. PROPERTIES

     The table below sets forth information with respect to our significant
facilities and properties as of December 31, 2001.




<TABLE>
<CAPTION>
                     LOCATION                          OWNED       LEASED
--------------------------------------------------   ---------   ---------
                                                     (thousands of square
                                                             feet)
<S>                                                  <C>         <C>
L-3 Corporate Offices, New York, NY ..............        --         35.4
L-3 Washington Operations, Arlington, VA .........        --          6.3
SECURE COMMUNICATION SYSTEMS:
 Camden, NJ ......................................        --        575.0
 Binghamton, NY ..................................        --        428.0
 Arlington, TX ...................................       82.0       182.6
 Grand Prairie, TX ...............................        --        125.0
 Salt Lake City, UT ..............................        --        487.5
 Orlando, FL .....................................        --        193.6
SPECIALIZED PRODUCTS:
 Phoenix, AZ .....................................        --         90.0
 Anaheim, CA .....................................        --        474.2
 Folsom, CA ......................................        --         59.4
 Menlo Park, CA ..................................        --         97.5
 San Diego, CA ...................................      196.0        87.1
 Sylmar, CA ......................................        --        253.0
 Ocala, FL .......................................      111.7         --
 Sarasota, FL ....................................        --        143.7
 Alpharetta, GA ..................................       93.0         --
 Concord, MA .....................................        --         60.0
 Newburyport, MA .................................        --         82.5
 Teterboro, NJ ...................................        --        250.0
 Hauppauge, NY ...................................       90.0       150.0
 Cincinnati, OH ..................................      222.6         --
 Lancaster, PA ...................................        --        146.8
 Newton, PA ......................................       80.0         --
 Philadelphia, PA ................................        --        231.9
 Alberta, Canada .................................      163.0       107.9
 Ontario, Canada .................................        --         73.8
 Quebec, Canada ..................................      165.2        54.9
 Kiel, Germany ...................................        --         67.2
 Leer, Germany ...................................       32.2        33.2
</TABLE>

     In total, at December 31, 2001, we owned approximately 1.4 million square
feet and leased approximately 5.7 million square feet of manufacturing
facilities and properties.


ITEM 3. LEGAL PROCEEDINGS

     From time to time we are involved in legal proceedings arising in the
ordinary course of our business. We believe we are adequately reserved for
these liabilities and that there is no litigation pending that could have a
material adverse effect on our consolidated results of operations, financial
condition or cash flows.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not applicable.

                                       22
<PAGE>

                                    PART II


ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS


PRICE RANGE OF COMMON STOCK

     The common stock of L-3 Holdings is traded on the New York Stock Exchange
(the "NYSE") under the symbol "LLL". The following table sets forth, for each
of the quarterly periods indicated, the high and low closing price of the
common stock as reported on the NYSE.

<TABLE>
<CAPTION>
                                                  PRICE RANGE
                                                OF COMMON STOCK
                                           -------------------------
                                               HIGH          LOW
                                           -----------   -----------
<S>                                        <C>           <C>
FISCAL YEAR ENDED DECEMBER 31, 2000:
Quarter Ended:
   March 31, 2000 ..................        $  51.94      $  35.69
   June 30, 2000 ...................           58.63         45.25
   September 30, 2000 ..............           63.75         52.56
   December 31, 2000 ...............           77.56         57.19
FISCAL YEAR ENDED DECEMBER 31, 2001:
Quarter Ended:
   March 31, 2001 ..................        $  90.00      $  65.00
   June 30, 2001 ...................           88.90         76.08
   September 30, 2001 ..............           87.45         62.48
   December 31, 2001 ...............           96.47         79.39
</TABLE>

     On March 12, 2002, the closing price of L-3 Holdings common stock, as
reported by the NYSE, was $110.97 per share. As of March 12, 2002, there were
144 stockholders of record of L-3 Holdings' common stock, not including the
stockholders for whom shares are held in a "nominee" or "street" name.

     L-3 Communications is a wholly owned subsidiary of L-3 Holdings.


DIVIDEND POLICY

     L-3 Holdings currently intends to retain its earnings to finance future
growth and, therefore, does not anticipate paying any cash dividends on its
common stock in the foreseeable future. Since its formation, L-3 Holdings has
not paid any cash dividends to its stockholders. Any determination as to the
payment of dividends will depend upon the future results of operations, capital
requirements and financial condition of L-3 Holdings and its subsidiaries and
such other facts as the Board of Directors of L-3 Holdings may consider,
including any contractual or statutory restrictions on L-3 Holdings' ability to
pay dividends. Moreover, L-3 Holdings is a holding company and its ability to
pay dividends is dependent upon receipt of dividends, distributions, advances,
loans or other cash transfers from L-3 Communications. Certain outstanding debt
instruments of L-3 Communications limit its ability to pay dividends or other
distributions on its common stock or to make advances, loans or other cash
transfers to L-3 Holdings.


                                       23
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

     We derived the selected financial data presented below as of December 31,
2001 and 2000 and for each of the three years in the period ended December 31,
2001 from our audited consolidated financial statements included elsewhere
herein. We derived the selected financial data presented below as of December
31, 1999, 1998 and 1997 and for the nine months ended December 31, 1997 from our
audited consolidated financial statements not included herein. We derived the
selected financial data presented below for the three months ended March 31,
1997 from the audited combined financial statements of our predecessor company
not included herein. You should read the selected financial data together with
our "Management's Discussion and Analysis of Results of Operations and Financial
Condition" and our audited consolidated financial statements.


<TABLE>
<CAPTION>
                                                                                                                       PREDECESSOR
                                                                               L-3                                       COMPANY
                                             ------------------------------------------------------------------------ ------------
                                                                                                                          THREE
                                                                   YEAR ENDED                           NINE MONTHS      MONTHS
                                                                  DECEMBER 31,                             ENDED          ENDED
                                             -------------------------------------------------------   DECEMBER 31,     MARCH 31,
                                                2001(1)       2000(1)       1999(1)       1998(1)         1997(2)         1997
                                             ------------- ------------- ------------- ------------- ---------------- ------------
                                                               (in millions, except per share data)
<S>                                          <C>           <C>           <C>           <C>           <C>              <C>
STATEMENT OF OPERATIONS DATA:
Sales ......................................  $ 2,347.4     $ 1,910.1     $ 1,405.5     $ 1,037.0       $ 546.5         $  158.9
Operating income ...........................      275.3         222.7         150.5         100.3          51.5  (3)         7.9
Interest expense, net of interest and
 other income ..............................       84.5          88.6          55.1          46.9          28.5              8.4
Provision (benefit) for income taxes .......       70.8          51.4          36.7          20.9          10.7             (0.2)
Minority interest ..........................        4.5             --            --            --            --              --
Net income (loss) ..........................      115.5          82.7          58.7          32.6          12.3  (3)        (0.3)
Earnings per common share:                                                                                    --
 Basic .....................................  $     3.08    $     2.48    $     1.83    $     1.32     $    0.62(3)           --
 Diluted ...................................  $     2.95    $     2.37    $     1.75    $     1.26     $    0.61(3)           --
Weighted average common shares
 outstanding:
 Basic .....................................       37.4          33.4          32.1          24.7          20.0               --
 Diluted ...................................       42.7          35.0          33.5          25.9          20.0               --
BALANCE SHEET DATA
 (AT PERIOD END):
Working capital ............................  $   714.3     $   360.9     $   255.5     $   157.8      $  143.2               --
Total assets ...............................    3,335.4       2,463.5       1,628.7       1,285.4         697.0               --
Long-term debt .............................    1,315.3       1,095.0         605.0         605.0         392.0               --
Shareholders' equity .......................    1,213.9         692.6         583.2         300.0         113.7               --
</TABLE>

----------
(1)  The results of operations are impacted significantly by our acquisitions
     described elsewhere herein.

(2)  Reflects the acquisition of our predecessor company and the commencement
     of our operations effective April 1, 1997.

(3)  Includes a nonrecurring, noncash compensation charge of $4.4 million
     ($0.22 per share) related to our initial capitalization, which we
     recorded effective April 1, 1997.


                                       24
<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.

     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.


                                       25
<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>
 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
 TDTS business of Raytheon Company ("TDTS")         February 10, 2000       $ 158.1 (2)
 Trex Communications Corporation                    February 14, 2000       $  49.3
 Traffic Alert and Collision Avoidance Systems
  ("TCAS")                                             April 28, 2000       $ 239.2
 MPRI, Inc. ("MPRI")                                    June 30, 2000       $  39.6 (3)
 Coleman Research Corporation ("Coleman")           December 29, 2000       $  60.0 (4)
 KDI Precision Products                                   May 4, 2001       $  78.9
 EER Systems ("EER")                                     May 31, 2001       $ 119.4 (5)
 Spar Aerospace Limited ("Spar")                    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 ("SY")                               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.

                                       26
<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 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



                                       27
<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 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 contract value and the estimated
total cost at completion. Adjustments to original estimates 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.

     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.


                                       28
<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.) 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
                                                      ==========      =========      =========
Depreciation and amortization expenses included in
 operating income:
 Secure Communication Systems ....................    $     33.7      $    26.4      $    18.4
 Specialized Products ............................          53.3           47.9           35.3
                                                      ----------      ---------      ---------
    Total ........................................    $     87.0      $    74.3      $    53.7
                                                      ==========      =========      =========
EBITDA(2)
 Secure Communication Systems ....................    $    179.9      $   117.7      $    65.4
 Specialized Products ............................         182.4          179.3          138.8
                                                      ----------      ---------      ---------
    Total ........................................    $    362.3      $   297.0      $   204.2
                                                      ==========      =========      =========
</TABLE>

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

(2)   EBITDA is defined as operating income plus depreciation expense and
      amortization expense (excluding the amortization of debt issuance costs).
      EBITDA is not a substitute for operating income, net income or cash flows
      from operating activities as determined in accordance with accounting
      principles generally accepted in the United States as a measure of
      profitability or liquidity. EBITDA is presented as additional information
      because we believe it to be a useful indicator of our ability to meet
      debt service and capital expenditure requirements. EBITDA as we defined
      it may differ from similarly named measures used by other entities.


 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. Sales grew $394.5 million in the Secure Communication Systems segment and
$42.8 million in the Specialized Products segment. Operating income increased
$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%.
Depreciation and amortization expenses increased $12.7 million to $87.0 million
in 2001, reflecting increased goodwill amortization associated with our
acquisitions and additional depreciation related to our capital expenditures and
acquired businesses. Our EBITDA for 2001 increased $65.3 million to $362.3
million. EBITDA as a percentage of sales ("EBITDA margin") was 15.4% in 2001
compared with 15.5% in 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 April 2001, and the dilutive effect
of our Convertible Notes we sold in the fourth quarter of 2000 (see Liquidity
and Capital Resources section below).

     Sales within our Secure Communication Systems segment increased $394.5
million or 46.6% to $1,241.6 million in 2001 compared with 2000. Operating
income increased $54.9 million to $146.2 million in 2001. Operating margin
improved to 11.8% from 10.8%. The increase in sales was principally attributed
to the Coleman Research, MPRI and EER acquired businesses and internal growth in
our secure secure data links, secure telephone equipment, airport security
systems, Prime Wave fixed wireless access products and training, teaching and
logistic services. The increase in operating margin was principally attributable



                                       29
<PAGE>

to benefits from increased volumes, cost reductions and improved operating
efficiencies on sales of secure telephone equipment and airport security
systems. Additionally, the operating margins for our training and simulation
businesses continued to improve because of reductions in overhead costs, as well
as other contract costs related to favorable performance 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. These operating margin improvements were substantially
offset by negative margins and increased expenditures associated with our Prime
Wave business. EBITDA increased $62.2 million to $179.9 million in 2001 and
EBITDA margin improved to 14.5% from 13.9% in 2000.

     Sales within our Specialized Products segment increased $42.8
million or 4.0% to $1,105.8 million in 2001 compared with 2000. Operating income
decreased $2.3 million in 2001 to $129.1 million. Operating margin decreased to
11.7% from 12.4%. The increase in sales was principally attributable to internal
growth in aviation products, microwave components and acoustic undersea warfare
products and to the KDI acquired business. These increases in sales were
partially offset by decreases in sales of telemetry and space products, naval
power equipment and displays. 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 market.
The decline in operating margin was principally attributable to increased costs
related to unfavorable performance on certain contracts and lower production and
shipment levels for naval power equipment and lower operating margins on
telemetry and space products arising from reduced sales volumes. We had higher
operating margins on aviation products and microwave components related to
increased sales volumes. EBITDA increased $3.1 million to $182.4 million in 2001
and EBITDA margin decreased to 16.5% from 16.9% in 2000.

     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 $4.3 million from the sale of
a 30% interest in ACSS to Thales Avionics and an after-tax charge of $3.9
million on the write-down in the carrying amount of an investment in common
stock. 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 value of
certain investments and intangible assets. 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.


 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. Sales grew $304.2 million in the Secure Communication Systems segment and
$200.4 million in the Specialized Products segment. Operating income increased
$72.2 million to $222.7 million in 2000. Operating margin improved to 11.7% from
10.7%. Depreciation and amortization expenses increased $20.6 million to $74.3
million in 2000, reflecting increased goodwill amortization associated with our
acquisitions and


                                       30
<PAGE>

additional depreciation related to our capital expenditures and acquired
businesses. Our EBITDA for 2000 increased $92.8 million to $297.0 million.
EBITDA margin increased to 15.5% in 2000 from 14.5% in 1999. 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.

     Sales within our Secure Communication Systems segment increased $304.2
million to $847.1 million in 2000 compared with 1999. Operating income increased
$44.3 million to $91.3 million in 2000. Operating margin improved to 10.8% from
8.7%. We attribute the increase in sales principally to the acquisitions of Link
Training and Simulation and MPRI and increased sales of secure telephone
equipment, wideband secure data link programs, communication software support
services and airport security systems. The increase in operating margin was
principally attributable to improved margins on military communication systems
and high data rate communication systems. These margin improvements arose from
cost reductions and improved operating efficiencies. 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. EBITDA increased $52.3 million to $117.7 million in 2000 and EBITDA
margin improved to 13.9% from 12.0% in 1999.

     Sales within our Specialized Products segment increased $200.4 million to
$1,063.0 million in 2000 compared with 1999. Operating income increased $27.9
million to $131.4 million in 2000. Operating margin improved to 12.4% from
12.0%. We attribute this increase in sales principally to the acquisitions of
TCAS and Space and Navigation Systems and 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. We
attribute our increase in operating margin principally to improved margins on
avionics and ocean products. These margin improvements arose from sales volume
increases, cost reductions and the higher margins from the TCAS business. Lower
margins on our naval power equipment due to less shipments and on our telemetry
products and microwave components due to changes in product sales mix partially
offset these operating margin improvements. EBITDA increased $40.5 million to
$179.3 million in 2000 and EBITDA margin improved to 16.9% from 16.1% in 1999.

     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 value of certain investments and intangible assets.
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.


LIQUIDITY AND CAPITAL RESOURCES

BALANCE SHEET

     During 2001, contracts in process increased $101.7 million 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


                                       31
<PAGE>

    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.

     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 table below provides our cash flow statement data for the years
presented.

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                  ----------------------------------------
                                                      2001          2000          1999
                                                  -----------   -----------   ------------
<S>                                               <C>           <C>           <C>
                                                                 (in millions)
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

                                       32
<PAGE>

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.

     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


                                       33
<PAGE>

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 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.

                                       34
<PAGE>

     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 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.



                                       35
<PAGE>

     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>

<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.


                                       36
<PAGE>

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, which 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.

     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.

                                       37
<PAGE>


     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>

     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.


                                       38
<PAGE>


     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 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



                                       39
<PAGE>

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 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


                                       40
<PAGE>


    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 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.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Data regarding quantitative and qualitative disclosures related to our
market risk sensitive financial instruments are presented in "Management's
Discussion and Analysis of Results of Operations and Financial Condition --
Liquidity and Capital Resources -- Derivative Financial Instruments" included
herein under Item 7 and in Note 8 to the consolidated financial statements.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See Financial Statements beginning on page F-1.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     Not applicable.

                                       41
<PAGE>

                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table provides information concerning the directors and
executive officers of the Registrants as of March 12, 2002.

<TABLE>
<CAPTION>
NAME                                 AGE                         POSITION
----------------------------------- ----- -----------------------------------------------------
<S>                                 <C>   <C>
Frank C. Lanza .................... 70    Chairman, Chief Executive Officer and Director
Robert V. LaPenta ................. 56    President, Chief Financial Officer and Director
Michael T. Strianese .............. 46    Senior Vice President, Finance
Christopher C. Cambria ............ 43    Senior Vice President, General Counsel and Secretary
Jimmie V. Adams ................... 65    Vice President -- Washington D.C. Operations
David T. Butler III ............... 45    Vice President -- Planning
Ralph G. D'Ambrosio ............... 34    Vice President -- Controller
Joseph S. Paresi .................. 46    Vice President -- Product Development
Robert W. RisCassi ................ 66    Vice President -- Washington D.C. Operations
Charles J. Schafer ................ 54    Vice President -- Business Operations
Stephen M. Souza .................. 49    Vice President -- Treasurer
Dr. Jill J. Wittels ............... 52    Vice President -- Business Development
Thomas A. Corcoran(1) ............. 57    Director
Robert B. Millard(2) .............. 51    Director
John E. Montague(2) ............... 47    Director
John M. Shalikashvili(1) .......... 65    Director
Arthur L. Simon(1) ................ 70    Director
Alan H. Washkowitz(2) ............. 61    Director
</TABLE>

----------
(1)   Member of the Audit Committee.

(2)   Member of the Compensation Committee.


     All Executive Officers serve at the discretion of the Board of Directors.

     The remaining information called for by Item 10 is incorporated herein by
reference to the definitive proxy statement relating to Annual Meeting of
Shareholders of L-3 Holdings, to be held on April 23, 2002. L-3 Holdings will
file such definitive proxy statement with the Securities and Exchange
Commission pursuant to regulation 14A within 120 days after the end of the
fiscal year covered by this Form 10-K.


ITEM 11. EXECUTIVE COMPENSATION

     The information called for by Item 11 is incorporated herein by reference
to the definitive proxy statement referred to above in Item 10.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information called for by Item 12 is incorporated herein by reference
to the definitive proxy statement referred to above in Item 10.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information called for by Item 13 is incorporated herein by reference
to the definitive proxy statement referred to above in Item 10.


                                       42
<PAGE>

                                    PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.


(A) 1. FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT:

<TABLE>
<CAPTION>
                                                                                           PAGE
                                                                                          NUMBER
                                                                                         -------
<S>                                                                                      <C>
Report of Independent Auditors .......................................................   F-2
Consolidated Balance Sheets as of December 31, 2001 and December 31, 2000 ............   F-3
Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and
 1999 ................................................................................   F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2001,
 2000 and 1999 .......................................................................   F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and
 1999 ................................................................................   F-6
Notes to Consolidated Financial Statements ...........................................   F-7
</TABLE>

(A) 2. FINANCIAL STATEMENT SCHEDULES

     Not applicable


(B) REPORTS FILED ON FORM 8-K.

     Report filed on October 20, 2001 announcing that L-3 Communications
Holdings, Inc. has sold $350.0 million in 4% Senior Subordinated Convertible
Contingent Debt Securities due 2011 in a private placement, and announced its
third quarter 2001 results of operations.

     Report filed on December 19, 2001, designating certain domestic
subsidiaries as additional guarantors of the debt of L-3 Communications, and
regarding the financial statements for the year ended December 31, 2000 of EER
Systems, Inc.


(C) EXHIBITS

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

<TABLE>
<CAPTION>
 EXHIBIT NO.                                   DESCRIPTION OF EXHIBIT
------------- ----------------------------------------------------------------------------------------
<S>           <C>
 3.1          Certificate of Incorporation of L-3 Communications Holdings, Inc. (incorporated by
              reference to Exhibit 3.1 to the Registrant's Registration Statement of Form S-1 No.
               333-46975).
 3.2          By laws of L-3 Communications Holdings, Inc. (incorporated by reference to Exhibit 3.2
              to the Registration Statement on Form S-1 No. 333-46975)
 4.1          Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the
              Registrant's Registration Statement on Form S-1 No. 333-46975).
10.3          Indenture dated as of April 30, 1997 ("1997 Indenture") between L-3 Communications
              Corporation and The Bank of New York, as Trustee (incorporated by reference to
              Exhibit 4.1 to L-3 Communications Corporation's Registration Statement on Form S-4
              No. 333-31649).
10.6          Employment Agreement dated April 30, 1997 between Frank C. Lanza and L-3
              Communications Holdings, Inc. (incorporated by reference to Exhibit 10.5 to the
              Registrant's Registration Statement on Form S-1 No. 333-46975).
10.7          Employment Agreement dated April 30, 1997 between Robert V. LaPenta and L-3
              Communications Holdings, Inc. (incorporated by reference to Exhibit 10.51 to the
              Registrant Statement on Form S-1 No. 333-46975).
10.10         Form of Stock Option Agreement of Employee Options (incorporated by reference to
              Exhibit 10.9 to the Registrant's Registration Statement on Form S-1 No. 333-46975).
</TABLE>

                                       43
<PAGE>

<TABLE>
<CAPTION>
     EXHIBIT NO.                                        DESCRIPTION OF EXHIBIT
--------------------- ------------------------------------------------------------------------------------------
<S>                   <C>
         10.11        1997 Stock Option Plan for Key Employees (incorporated by reference to Exhibit 10.11
                      to Registrant's Registration Statement on Form S-1, No. 333-70125).
         10.12        Non-Qualified Stock Option Agreement dated as of April 30, 1997 by and between L-3
                      Communications Holdings, Inc. and Frank C. Lanza (incorporated by reference to
                      Exhibit 10.12 to Registrant" Registration Statement on Form S-1, No. 333-70125).
         10.13        Non-Qualified Stock Option Agreement dated as of April 30, 1997 by and between L-3
                      Communications Holdings, Inc. and Robert V. LaPenta (incorporated by reference to
                      Exhibit 10.13 to Registrant's Registration Statement on Form S-1, No. 333-70125).
         10.15        Option Plan for Non-Employee Directors of L-3 Communication's Holdings, Inc.
                      (incorporated by reference to Exhibit 10.15 to Registrant's annual report on Form 10-K
                      filed on March 31, 1999).
         10.16        1999 Long Term Performance Plan dated as of April 27, 1999 (incorporated by reference
                      to Exhibit 10.16 to the Registrant's annual report on Form 10-K filed on March 30,
                      2000).
         10.20        L-3 Communications Corporation Pension Plan (incorporated by reference to Exhibit
                      10.10 to the Registrant's Registration Statement on Form S-1 No. 333-46975).
         10.25        L-3 Communications Corporation Employee Stock Purchase Plan (incorporated by
                      reference to Appendix A of the Registrants' Definitive Proxy Statement filed April 2,
                      2001).
         10.31        Indenture dated as of May 22, 1998 ("May 1998 Indenture") between L-3
                      Communications Corporation and The Bank of New York, as Trustee (incorporated by
                      reference to Exhibit 10.6 to L-3 Communications Corporation's Registration Statement
                      on Form S-4 No. 333-70199).
         10.32        Indenture dated as of December 11, 1998 ("December 1998 Indenture") among L-3
                      Communications Corporation, the Guarantors named therein and The Bank of New
                      York, as Trustee (incorporated by reference to Exhibit 10.32 to Registrant's Registration
                      Statement on Form S-1, No. 333-70125).
         10.33        Indenture dated as of November 21, 2000 ("2000 Indenture") among L-3
                      Communications Holdings, Inc., the Guarantors named therein and the Bank of New
                      York, as Trustee (incorporated by reference to Exhibit 10.33 of the Registrants' Annual
                      Report on Form 10-K for the year ended December 31, 2000).
       **10.40        Third Amended and Restated Credit Agreement dated as of May 16, 2001 among L-3
                      Communications Corporation, the lenders named therein and the other parties thereto.
       **10.41        Second Amended and Restated 364-Day Credit Agreement dated as of May 16, 2001
                      among L-3 Communications Corporation, the lenders named therein and the other
                      parties thereto.
       **10.42        First Amendment to Third Amended and Restated Credit Agreement dated as of
                      October 17, 2001 among L-3 Communications Corporation, the lenders named therein
                      and the other parties thereto.
       **10.43        First Amendment to Second Amended and Restated 364-Day Credit Agreement dated
                      as of October 17, 2001 among L-3 Communications Corporation, the lenders named
                      therein and the other parties thereto.
       **10.44        Second Amendment to Third Amended and Restated Credit Agreement dated as of
                      February 25, 2002 among L-3 Communications Corporation, the lenders named therein
                      and the other parties thereto.
       **10.45        Consent and Second Amendment to Second Amended and Restated 364-Day Credit
                      Agreement dated as of February 25, 2002 among L-3 Communications Corporation, the
                      lenders named therein and the other parties thereto.
       **10.50        Bridge Loan Agreement dated as of March 8, 2002 among L-3 Communications
                      Corporation, L-3 Communications Holdings, Inc., the lenders and guarantors named
                      therein and the other parties thereto.
       **10.51      Indenture dated as of March 8, 2002 among L-3 Communications Corporation, The
                    Bank of New York, as trustee, and the guarantors named therein.

</TABLE>

                                       44
<PAGE>


<TABLE>
<CAPTION>
      EXHIBIT NO.                                         DESCRIPTION OF EXHIBIT
----------------------- -----------------------------------------------------------------------------------------
<S>                     <C>
       **10.52      Debt Registration Rights Agreement dated as of March 8, 2002 among L-3
                    Communications Corporation, Lehman Brothers Inc., Banc of America Bridge LLC,
                    Banc of America Securities LLC, Credit Suisse First Boston Corporation, Credit Suisse
                    First Boston, Caymen Islands branch, Lehman Commercial Paper Inc. and the guarantors
                    named therein.
         10.53      Indenture dated as of October 24, 2001 ("2001 Indenture") among L-3 Communications
                    Holdings, Inc., the guarantors named therein and Lehman Brothers Inc., Bear, Stearns &
                    Co., and Credit Suisse First Boston Corporation as initial purchasers (Incorporated by
                    reference to Exhibit 4.f of our registration Statement on Form S-3, No. 333-75558).
       **10.54      Supplemental Indenture dated as of November 9, 2001 among L-3 Communications
                    Corporation, The Bank of New York, as trustee, and the guarantors named therein to
                    the 1997 Indenture.
       **10.55      Supplemental Indenture dated as of November 9, 2001 among L-3 Communications
                    Corporation, The Bank of New York, as trustee, and the guarantors named therein to
                    the May 1998 Indenture.
       **10.56      Supplemental Indenture dated as of November 9, 2001 among L-3 Communications
                    Corporation, The Bank of New York, as trustee, and the guarantors named therein to
                    the December 1998 Indenture.
       **10.57      Supplemental Indenture dated as of November 9, 2001 among L-3 Communications
                    Corporation, L-3 Holdings, Inc., The Bank of New York, as trustee, and the guarantors
                    named therein to the 2000 Indenture.
       **10.58      Supplemental Indenture dated as of November 9, 2001 among L-3 Communications
                    Corporation, L-3 Holdings, Inc., The Bank of New York, as trustee, and the guarantors
                    named therein to the 2001 Indenture.
       **10.59      Asset Purchase Agreement dated as of January 11, 2002 among Raytheon Company,
                    Raytheon Australia Pty Ltd. and L-3 Communications Corporation.
       **10.60      Amendment dated as of March 8, 2002 among Raytheon Company, Raytheon Australia
                    Pty Ltd., L-3 Communications Corporation, L-3 Communications Integrated Systems L.P.
                    and L-3 Communications Australia Pty Ltd to the Asset Purchase Agreement dated as
                    of January 11, 2002.
         10.91      Asset Purchase Agreement relating to the Honeywell TCAS Business by and among
                    Honeywell Inc., L-3 Communications Corporation and, solely in respect of the Guaranty
                    in Article XIV, Honeywell International Inc. dated as of February 10, 2000 (incorporated
                    by reference to Exhibit 10.91 of the Registrants' Annual Report on Form 10-K for the
                    year ended December 31, 2000).
         10.92      Asset Purchase and Sale Agreement, dated January 7, 2000 by and between L-3
                    Communications Corporation and Raytheon Company (incorporated by reference to
                    Exhibit 10.92 of the Registrants' Annual Report on Form 10-K for the year ended
                    December 31, 2000).
        *11         L-3 Communications Holdings, Inc. Computation of Basic Earnings Per Share and
                    Diluted Earnings Per Share.
       **12         Ratio of Earnings to Fixed Charges.
       **21         Subsidiaries of the Registrant.
       **23.1       Consent of PricewaterhouseCoopers LLP.
</TABLE>

----------
*     The information required in this exhibit is presented on Note 10 to the
      Consolidated Financial Statements as of December 31, 2001 in accordance
      with the provisions of SFAS No. 128, Earnings Per Share.

**    Filed herewith


                                       45
<PAGE>

                                  SIGNATURES


     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrants have duly caused this report to be signed
on their behalf by the undersigned, thereunto duly authorized, on March 18,
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


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrants on
March 18, 2002 and in the capacities indicated.

<TABLE>
<CAPTION>
             SIGNATURE                                          TITLE
-----------------------------------   --------------------------------------------------------
<S>                                   <C>
         /s/ Frank C. Lanza           Chairman, Chief Executive Officer (Principal
-----------------------------------   Executive Officer) and Director
           Frank C. Lanza

          /s/ Robert V. LaPenta       President, Chief Financial Officer (Principal Financial
-----------------------------------   Officer) and Director
           Robert V. LaPenta

        /s/ Michael T. Strianese      Senior Vice President, Finance (Principal Accounting
-----------------------------------   Officer)
            Michael T. Strianese

         /s/ Thomas A. Corcoran       Director
-----------------------------------
            Thomas A. Corcoran

          /s/ Robert B. Millard       Director
-----------------------------------
            Robert B. Millard

           /s/ John E. Montague       Director
-----------------------------------
            John E. Montague

        /s/ John M. Shalikashvili     Director
-----------------------------------
            John M. Shalikashvili

         /s/ Arthur L. Simon          Director
-----------------------------------
            Arthur L. Simon

         /s/ Alan H. Washkowitz       Director
-----------------------------------
            Alan H. Washkowitz
</TABLE>

                                       46
<PAGE>

                         INDEX TO FINANCIAL STATEMENTS

     Consolidated Financial Statements as of December 31, 2001 and 2000 and for
the years ended December 31, 2001, 2000 and 1999.



<TABLE>
<S>                                                                                      <C>
Report of Independent Auditors .......................................................   F-2

Consolidated Balance Sheets as of December 31, 2001 and December 31, 2000 ............   F-3

Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and
 1999 ................................................................................   F-4

Consolidated Statements of Shareholders' Equity for the years ended December 31, 2001,
 2000 and 1999 .......................................................................   F-5

Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and
 1999 ................................................................................   F-6

Notes to Consolidated Financial Statements ...........................................   F-7
</TABLE>


                                      F-1
<PAGE>

                        REPORT OF INDEPENDENT AUDITORS

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

We have audited the accompanying consolidated balance sheets of L-3
Communications Holdings, Inc. ("L-3 Holdings") and L-3 Communications
Corporation ("L-3 Communications") and subsidiaries (collectively, the
"Company") as of December 31, 2001 and 2000, and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for
each of the three years ended December 31, 2001. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatements. 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
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of L-3
Holdings and L-3 Communications and subsidiaries as of December 31, 2001 and
2000 and their respective consolidated results of operations and cash flows for
each of the three years ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.


                                                  /s/ PricewaterhouseCoopers LLP


1177 Avenue of the Americas
New York, New York
February 4, 2002


                                      F-2
<PAGE>

                      L-3 COMMUNICATIONS HOLDINGS , INC.
                      AND L-3 COMMUNICATIONS CORPORATION
                          CONSOLIDATED BALANCE SHEETS

                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                                               ------------------------------
                                                                    2001            2000
                                                               -------------   --------------
<S>                                                            <C>             <C>
                            ASSETS
Current assets:
 Cash and cash equivalents .................................    $  361,022       $   32,680
 Contracts in process ......................................       801,824          700,133
 Deferred income taxes .....................................        62,965           89,732
 Other current assets ......................................        12,774            7,025
                                                                ----------       ----------
   Total current assets ....................................     1,238,585          829,570
                                                                ----------       ----------
Property, plant and equipment, net .........................       203,374          156,128
Intangibles, primarily goodwill ............................     1,711,551        1,371,368
Deferred income taxes ......................................        97,883           57,111
Deferred debt issue costs ..................................        40,190           29,907
Other assets ...............................................        43,850           19,460
                                                                ----------       ----------
   Total assets ............................................    $3,335,433       $2,463,544
                                                                ==========       ==========
              LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
 Accounts payable, trade ...................................    $  129,538       $  159,901
 Accrued employment costs ..................................       126,981          102,606
 Accrued expenses ..........................................        38,823           55,576
 Customer advances .........................................        74,060           55,203
 Accrued interest ..........................................        13,288           16,335
 Income taxes ..............................................        16,768            7,251
 Other current liabilities .................................       124,819           71,797
                                                                ----------       ----------
   Total current liabilities ...............................       524,277          468,669
                                                                ----------       ----------
Pension and postretirement benefits ........................       155,052          105,523
Other liabilities ..........................................        57,063          101,783
Long-term debt .............................................     1,315,252        1,095,000
                                                                ----------       ----------
   Total liabilities .......................................     2,051,644        1,770,975
Minority interest ..........................................        69,897               --
Commitments and contingencies
Shareholders' equity:
 L-3 Holdings' common stock; $.01 par value; authorized
   100,000,000 shares, issued and outstanding 39,248,313 and
   33,606,645 shares (L-3 Communications' common stock;
   $.01 par value, 100 shares authorized, issued and
   outstanding) ............................................       939,037          515,926
 Retained earnings .........................................       301,730          186,272
 Unearned compensation .....................................        (3,205)          (2,457)
 Accumulated other comprehensive loss ......................       (23,670)          (7,172)
                                                                ----------       ----------
Total shareholders' equity .................................     1,213,892          692,569
                                                                ----------       ----------
   Total liabilities and shareholders' equity ..............    $3,335,433       $2,463,544
                                                                ==========       ==========
</TABLE>

                See notes to consolidated financial statements.

                                      F-3
<PAGE>

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

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                               ---------------------------------------------------
                                                     2001              2000              1999
                                               ---------------   ---------------   ---------------
<S>                                            <C>               <C>               <C>
Sales ......................................     $ 2,347,422       $ 1,910,061       $ 1,405,462
Costs and expenses .........................       2,072,092         1,687,343         1,254,976
                                                 -----------       -----------       -----------
Operating income ...........................         275,330           222,718           150,486
Interest and other income ..................           1,739             4,393             5,534
Interest expense ...........................          86,390            93,032            60,590
Minority interest ..........................           4,457                --                --
                                                 -----------       -----------       -----------
Income before income taxes .................         186,222           134,079            95,430
Provision for income taxes .................          70,764            51,352            36,741
                                                 -----------       -----------       -----------
Net income .................................     $   115,458       $    82,727       $    58,689
                                                 ===========       ===========       ===========
L-3 Holdings' earnings per common share:
 Basic .....................................     $      3.08       $      2.48       $      1.83
                                                 ===========       ===========       ===========
 Diluted ...................................     $      2.95       $      2.37       $      1.75
                                                 ===========       ===========       ===========
L-3 Holdings' weighted average common shares
 outstanding:
 Basic .....................................          37,440            33,355            32,107
                                                 ===========       ===========       ===========
 Diluted ...................................          42,719            34,953            33,516
                                                 ===========       ===========       ===========
</TABLE>



                See notes to consolidated financial statements.

                                      F-4
<PAGE>

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

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

                                (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                L-3 HOLDINGS'
                                                 COMMON STOCK    ADDITIONAL
                                                 SHARES   PAR     PAID-IN    RETAINED
                                                ISSUED   VALUE    CAPITAL    EARNINGS
                                               -------- ------- ----------- ----------
<S>                                            <C>      <C>     <C>         <C>
Balance December 31, 1998 ....................  27,402   $274    $264,495    $ 44,856
Comprehensive income:
 Net income ..................................                                 58,689
 Minimum pension liability adjustment ........
 Unrealized loss on securities ...............
 Foreign currency translation adjustment

Shares issued:
 Sale of common stock ........................   5,000     50     201,763
 Employee benefit plans ......................     163      2       6,991
 Acquisition consideration ...................     151      2       6,432
 Exercise of stock options ...................      79     --       1,764
Grant of restricted stock ....................                      1,921
Amortization of unearned compensation ........  ------   ----    --------    --------
Balance December 31, 1999 ....................  32,795    328     483,366     103,545
Comprehensive income:
 Net income ..................................                                 82,727
 Minimum pension liability adjustment,
  net of ($553) tax benefit...................
 Foreign currency translation adjustment
 Unrealized loss on securities, net of
  ($2,316) tax benefit........................

Shares issued:
 Employee benefit plans ......................     235      2      12,640
 Exercise of stock options ...................     577      6      18,056
Grant of restricted stock ....................                      1,512
Amortization of unearned compensation ........
Other ........................................                         16
                                                ------   ----    --------    --------
Balance December 31, 2000 ....................  33,607    336     515,590     186,272
Comprehensive income:
 Net income ..................................                                115,458
 Minimum pension liability adjustment,
  net of ($11,955) tax benefit................
 Foreign currency translation
  adjustment, net of ($164) tax benefit ......
 Unrealized loss on securities, net of
  $111 tax benefit ...........................
 Unrealized loss on securities reclassified
  into net income, net of $2,274 tax
  expense ....................................
 Unrealized losses on hedging
  instruments, net of ($100) tax benefit......

Shares issued:
 Sale of common stock ........................   4,575     46     353,576
 Employee benefit plans ......................     208      2      16,866
 Acquisition consideration ...................     294      3      17,354
 Exercise of stock options ...................     564      6      28,258
Employee stock purchase plan
 contributions ...............................                      4,861
Grant of restricted stock ....................                      2,118
Amortization of unearned compensation.........
Other ........................................                         21
                                                ------   ----    --------    --------
Balance December 31, 2001 ....................  39,248   $393    $938,644    $301,730
                                                ======   ====    ========    ========



<CAPTION>
                                                                ACCUMULATED
                                                                   OTHER
                                                  UNEARNED     COMPREHENSIVE
                                                COMPENSATION   INCOME (LOSS)      TOTAL
                                               -------------- -------------- --------------
<S>                                            <C>            <C>            <C>
Balance December 31, 1998 ....................    $      -      $  (9,651)     $  299,974
Comprehensive income:
 Net income ..................................                                     58,689
 Minimum pension liability adjustment ........                      9,443           9,443
 Unrealized loss on securities ...............                       (970)           (970)
 Foreign currency translation adjustment                           (1,225)         (1,225)
                                                                               ----------
                                                                                   65,937
Shares issued:
 Sale of common stock ........................                                    201,813
 Employee benefit plans ......................                                      6,993
 Acquisition consideration ...................                                      6,434
 Exercise of stock options ...................                                      1,764
Grant of restricted stock ....................      (1,921)                            --
Amortization of unearned compensation ........         260                            260
                                                  --------       --------      ----------
Balance December 31, 1999 ....................      (1,661)        (2,403)        583,175
Comprehensive income:
 Net income ..................................                                     82,727
 Minimum pension liability adjustment,
  net of ($553) tax benefit...................                       (819)           (819)
 Foreign currency translation adjustment                           (1,222)         (1,222)
 Unrealized loss on securities, net of
  ($2,316) tax benefit........................                     (2,728)         (2,728)
                                                                               ----------
                                                                                   77,958
Shares issued:
 Employee benefit plans ......................                                     12,642
 Exercise of stock options ...................                                     18,062
Grant of restricted stock ....................      (1,512)                            --
Amortization of unearned compensation ........         716                            716
Other ........................................                                         16
                                                  --------       --------      ----------
Balance December 31, 2000 ....................      (2,457)        (7,172)        692,569
Comprehensive income:
 Net income ..................................                                    115,458
 Minimum pension liability adjustment,
  net of ($11,955) tax benefit................                    (19,519)        (19,519)
 Foreign currency translation
  adjustment, net of ($164) tax benefit ......                       (268)           (268)
 Unrealized loss on securities, net of
  $111 tax benefit ...........................                       (180)           (180)
 Unrealized loss on securities reclassified
  into net income, net of $2,274 tax
  expense ....................................                      3,632           3,632
 Unrealized losses on hedging
  instruments, net of ($100) tax benefit......                       (163)           (163)
                                                                               ----------
                                                                                   98,960
Shares issued:
 Sale of common stock ........................                                    353,622
 Employee benefit plans ......................                                     16,868
 Acquisition consideration ...................                                     17,357
 Exercise of stock options ...................                                     28,264
Employee stock purchase plan
 contributions ...............................                                      4,861
Grant of restricted stock ....................      (2,118)                            --
Amortization of unearned compensation.........       1,370                          1,370
Other ........................................                                         21
                                                  --------      ---------      ----------
Balance December 31, 2001 ....................    $ (3,205)     $ (23,670)     $1,213,892
                                                  ========      =========      ==========
</TABLE>

                See notes to consolidated financial statements.

                                      F-5
<PAGE>

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

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31,
                                                                    --------------------------------------------
                                                                         2001           2000            1999
                                                                    -------------   ------------   -------------
<S>                                                                 <C>             <C>            <C>
OPERATING ACTIVITIES:
Net income ......................................................    $  115,458      $   82,727     $   58,689
Goodwill amortization ...........................................        42,606          35,327         20,970
Depreciation and other amortization .............................        44,345          38,927         32,748
Amortization of deferred debt issue costs .......................         6,388           5,724          3,904
Minority interest ...............................................         4,457              --             --
Deferred income tax provision ...................................        52,638          25,103         28,831
Other noncash items .............................................        17,576          12,517          6,617
Changes in operating assets and liabilities, net of amounts
acquired:
 Contracts in process ...........................................       (40,652)        (66,402)       (61,670)
 Other current assets ...........................................         1,643          (2,599)           (70)
 Other assets ...................................................       (12,033)           (416)           552
 Accounts payable ...............................................       (43,165)         38,065          2,896
 Accrued employment costs .......................................        11,931           6,239          2,052
 Accrued expenses ...............................................       (20,300)          2,274         (6,280)
 Customer advances ..............................................        12,627         (17,087)         5,766
 Accrued interest ...............................................        (3,047)          3,637          5,985
 Income taxes ...................................................        14,431          13,161          3,917
 Other current liabilities ......................................       (37,555)        (59,286)       (13,554)
 Pension and postretirement benefits ............................         4,550          (7,214)         1,788
 Other liabilities ..............................................         1,423           1,959          7,102
 All other operating activities .................................          (353)          1,149         (1,225)
                                                                     ----------      ----------     ----------
Net cash from operating activities ..............................       172,968         113,805         99,018
                                                                     ----------      ----------     ----------
INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired .................      (446,911)       (599,608)      (272,195)
Proceeds from sale of interest in subsidiary ....................        75,206              --             --
Capital expenditures ............................................       (48,121)        (33,580)       (23,456)
Disposition of property, plant and equipment ....................         1,237          18,060          6,713
Other investing activities ......................................        (6,301)          6,905          4,136
                                                                     ----------      ----------     ----------
Net cash (used in) investing activities .........................      (424,890)       (608,223)      (284,802)
                                                                     ----------      ----------     ----------
FINANCING ACTIVITIES:
Borrowings under revolving credit facility ......................       316,400         858,500         74,700
Repayment of borrowings under revolving credit facility .........      (506,400)       (668,500)       (74,700)
Proceeds from sale of convertible senior subordinated notes             420,000         300,000             --
Proceeds from sale of L-3 Holdings' common stock, net ...........       353,622              --        201,582
Debt issuance costs .............................................       (16,671)        (12,916)          (323)
Proceeds from exercise of stock options .........................        16,325           8,954            658
Employee stock purchase plan contributions ......................         4,861              --             --
Distributions to minority interest ..............................        (2,530)             --             --
Other financing activities ......................................        (5,343)         (1,728)           525
                                                                     ----------      ----------     ----------
Net cash from financing activities ..............................       580,264         484,310        202,442
                                                                     ----------      ----------     ----------
Net increase (decrease) in cash .................................       328,342         (10,108)        16,658
Cash and cash equivalents, beginning of period ..................        32,680          42,788         26,130
                                                                     ----------      ----------     ----------
Cash and cash equivalents, end of period ........................    $  361,022      $   32,680     $   42,788
                                                                     ==========      ==========     ==========
</TABLE>

                See notes to consolidated financial statements.

                                      F-6
<PAGE>

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

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


1. DESCRIPTION OF BUSINESS

     L-3 Communications Holdings, Inc. derives all its operating income and cash
flow from its wholly-owned subsidiary L-3 Communications Corporation ("L-3
Communications"). L-3 Communications Holdings, Inc. ("L-3 Holdings", and
together with its subsidiaries, "L-3" or "the Company") is a merchant supplier
of sophisticated secure communication systems and specialized products. The
Company produces 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. The Company's 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. The
Company's 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. The Company has two reportable segments, Secure
Communication Systems and Specialized Products.

     Secure Communication Systems. This segment provides secure, high data rate
communication systems for military and other U.S. Government reconnaissance and
surveillance applications. The 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

    o  wide-area security systems.

     The Secure Communication Systems segment includes the training and
simulation business, which produces advanced simulation and training products,
with high-fidelity representations of cockpits and operator stations for
aircraft and vehicle system simulation. This segment also provides 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.

     Specialized Products. This segment supplies products to
military and commercial customers, and focuses on niche markets in which the
Company believes it can achieve a market leadership position. This reportable
segment includes three product categories:

    o  avionics and ocean products including 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;

    o  telemetry, instrumentation and space products including commercial
       off-the-shelf, real-time data collection and transmission products and
       components for missile, aircraft and space-based electronic systems; and


                                      F-7
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

    o  microwave components including commercial off-the-shelf,
       high-performance microwave components and frequency monitoring equipment.



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BASIS OF PRESENTATION: The accompanying financial statements comprise the
consolidated financial statements of L-3 Holdings and L-3 Communications. L-3
Holdings' only asset is its investment in L-3 Communications. The only
obligations of L-3 Holdings are the 5 1/4% Convertible Senior Subordinated Notes
and the 4% Senior Subordinated Convertible Contingent Debt Securities. L-3
Holdings has also guaranteed the borrowings under the senior credit facilities
of L-3 Communications. Because obligations of L-3 Holdings have been jointly,
severally, fully and unconditionally guaranteed by L-3 Communications and
certain of its domestic subsidiaries, such debt has been reflected as debt of
L-3 Communications in its consolidated financial statements in accordance with
the Securities and Exchange Commission's ("SEC") Staff Accounting Bulletin
("SAB") No. 54. In addition, all issuances of equity securities including
grants of stock options and restricted stock by L-3 Holdings to employees of
L-3 Communications have been reflected in the consolidated financial statements
of L-3 Communications. As a result, the consolidated financial positions,
results of operations and cash flows of L-3 Holdings and L-3 Communications are
substantially the same.

     PRINCIPLES OF CONSOLIDATION: The consolidated financial statements of the
Company include all wholly-owned and significant majority-owned subsidiaries.
All significant intercompany transactions are eliminated in consolidation.
Investments over which the Company has significant influence but does not have
voting control are accounted for by the equity method.

     CASH AND CASH EQUIVALENTS: Cash equivalents consist of highly liquid
investments with a maturity of three months or less at time of purchase.

     REVENUE RECOGNITION: The substantial majority of the Company's direct and
indirect sales to the U.S. Government and certain of the Company's 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.
Losses on contracts are recognized in the period in which they are determined.
The impact of revisions of contract estimates, which may result from contract
modifications, performance or other reasons, are recognized on a cumulative
catch-up basis in the period in which the revisions are made.

     Sales on arrangements that are not within the scope of SOP 81-1 are
recognized in accordance with the SEC's SAB No. 101. Sales are recognized when
there is persuasive evidence of an arrangement, delivery has occurred or
services have been performed, the selling price to the buyer is fixed or
determinable and collectibility is reasonably assured.


                                      F-8
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

     CONTRACTS IN PROCESS: For the Company's contracts that are within the
scope of SOP 81-1, accumulated costs incurred that are allowable under the
terms of the contract and profits earned on contract sales are reported in
Contracts in Process. Billed Receivables represent the uncollected portion of
amounts recorded as sales and billed to customers, including those amounts for
sales arrangements that are not within the scope of SOP 81-1. Unbilled Contract
Receivables represent accumulated recoverable costs and earned profits or
losses on contracts in process that have been recorded as sales, but have not
yet been billed to customers. Inventoried Contract Costs represent recoverable
incurred costs on contracts in process. Incurred contract costs include direct
costs and overhead costs, and for U.S. Government contracts and contracts with
prime contractors or subcontractors of the U.S. Government, general and
administrative costs, independent research and development costs and bid and
proposal costs. Contracts in Process also contain amounts relating to contracts
and programs with long performance cycles, a portion of which may not be
realized within one year. Provisions for contracts in a loss position in excess
of the amounts included in Contracts in Process represent the unrecoverable
costs on the loss contracts that will be incurred in future periods and are
reported in Estimated Costs in Excess of Billings to Complete Contracts in
Process, which is a component of Other Current Liabilities and Other
Liabilities. Under the contractual arrangements on certain contracts with the
U.S. Government, the Company receives progress payments as it incurs costs. The
U.S. Government has a security interest in the Unbilled Contract Receivables
and Inventoried Contract Costs to which progress payments have been applied,
and such progress payments are reflected as a reduction of the related Unbilled
Contract Receivables and Inventoried Contract Costs. Customer Advances are
classified as current liabilities.

     Inventories other than Inventoried Contract Costs are stated at the lower
of cost or market primarily using the average cost method.

     DERIVATIVE FINANCIAL INSTRUMENTS: In connection with its risk management
and financial derivatives, the Company has entered into interest rate swap
agreements, interest rate cap and floor contracts and foreign currency forward
contracts. The interest rate swap agreements are accounted for as fair value
hedges. The foreign currency forward contracts are accounted for as cash flow
hedges. The embedded derivatives related to the issuance of the Company's debt
is recorded at fair value with changes reflected in the statement of
operations. The differential to be paid or received as interest rates change on
the interest rate swap agreements is recorded as an adjustment to interest
expense.

     PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at
cost. Depreciation is computed by applying principally the straight-line method
to the estimated useful lives of the related assets. Useful lives range
substantially from 10 to 40 years for buildings and improvements and 3 to 10
years for machinery, equipment, furniture and fixtures. Leasehold improvements
are amortized over the shorter of the lease term or the estimated useful life
of the improvements.

     DEBT ISSUANCE COSTS: Costs incurred to issue debt are deferred and
amortized as interest expense over the term of the related debt using a method
that approximates the effective interest method.

     INTANGIBLES: Intangibles consist primarily of the excess of the purchase
cost of acquired businesses over the fair value of identifiable net assets
acquired ("goodwill"). Goodwill related to acquisitions consummated after June
30, 2001 is not amortized. Other intangibles are amortized on a straight-line
basis over periods ranging from 5 to 15 years. Accumulated goodwill
amortization was $117,975 at December 31, 2001 and $76,001 at December 31,
2000. The carrying amount of goodwill is evaluated on a recurring basis.
Current and estimated future profitability and undiscounted cash flows
excluding financing costs of the acquired businesses are the primary indicators
used to assess the recoverability of goodwill. For the years ended December 31,
2001 and 2000, there were no material adjustments to the carrying amounts of
goodwill resulting from these evaluations (see Recently Issued Accounting
Standards below for a description of changes in accounting for goodwill).


                                      F-9
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

     INCOME TAXES: The Company provides for income taxes using the liability
method. Deferred income tax assets and liabilities reflect tax carryforwards
and the net tax effects of temporary differences between the carrying amounts
of assets and liabilities for financial reporting and income tax purposes, as
determined under enacted tax laws and rates. The effect of changes in tax laws
or rates is accounted for in the period of enactment.

     RESEARCH AND DEVELOPMENT: Research and development costs sponsored by the
Company include bid and proposal costs related to government products and
services. These costs generally are allocated among all contracts in progress
under U.S. Government contractual arrangements. Customer-funded research and
development costs, including software development costs, incurred pursuant to
contracts are accounted for as direct contract costs. Other software
development costs incurred after establishing technological feasibility are
capitalized and are amortized on a product by product basis using the amount
that is the greater of the straight line method over the useful life or the
ratio of current revenues to total estimated revenues.

     STOCK OPTIONS: Compensation expense for stock options is recognized in
income based on the excess, if any, of L-3 Holdings' fair value of the stock at
the grant date of the award or other measurement date over the amount an
employee must pay to acquire the stock. When the exercise price for stock
options granted to employees equals or exceeds the fair value of the L-3
Holdings common stock at the date of grant, the Company does not recognize
compensation expense. See Note 12 for the fair value pro forma disclosure of
stock-based compensation.

     USE OF ESTIMATES: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
sales and costs 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, litigation and environmental obligations.
Actual results could differ from these estimates.

     RECENTLY ISSUED 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. Effective January 1,
2002, the Company will not record goodwill amortization expense, but will be
required to amortize identifiable intangibles with finite lives. Goodwill
amortization expense for the year ended December 31, 2001 was $42,606.

     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


                                      F-10
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

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 the Company's fiscal years
beginning January 1, 2003. SFAS No. 143 will not have a material effect on the
Company's 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 the
Company's fiscal years beginning January 1, 2002, and interim periods within
those fiscal years. SFAS No. 144 will not have a material effect on the
Company's consolidated results of operations and financial position.

     RECLASSIFICATIONS: Certain reclassifications have been made to conform
prior-year amounts to the current-year presentation.


3. ACQUISITIONS, DIVESTITURES AND OTHER TRANSACTIONS

     On October 3, 2001, the Company announced that it had signed a definitive
agreement with Spar Aerospace Limited ("Spar"), a leading provider of high-end
aviation product modernization, pursuant to which L-3 offered to acquire all
of the outstanding common stock of Spar for Cdn$15.50 per share or
approximately Cdn$182,000, net of cash to be acquired of approximately
Cdn$47,500. The acquisition of Spar provides the Company significant
opportunity for pull-through sales of its avionics products. The acquisition
also opens up the Canadian and worldwide high-end aviation product
modernization marketplace to the Company.

     On November 23, 2001, the Company acquired 65.8% of the outstanding common
stock of Spar for $97,223 in cash and acquired control of Spar and the ability
to require the remaining stockholders to tender their shares. The Company
acquired an additional 4.5% of the outstanding common stock of Spar for $7,855
in cash, during the remainder of 2001. Additional consideration of $43,641 for
the remaining outstanding common stock of Spar at December 31, 2001, that the
Company acquired and paid for in January 2002, has been recorded in other
current liabilities in the consolidated balance sheet at December 31, 2001.
During January 2002, the Company completed the acquisition and paid for the
remaining outstanding common stock of Spar.


                                      F-11
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

     The table below presents a summary of the preliminary estimates of fair
values of the assets acquired and liabilities assumed on the date the Company
obtained a majority ownership interest in Spar.

Cash .....................................................         $ 29,460
Other current assets .....................................           33,108
Property, plant and equipment ............................           12,565
Goodwill .................................................          104,289
Other non-current assets .................................              229
                                                                   --------
 Total assets acquired ...................................          179,651
                                                                   --------
Current liabilities ......................................           23,816
Long-term liabilities ....................................            7,116
                                                                   --------
 Total liabilities assumed ...............................           30,932
                                                                   --------
 Net assets acquired .....................................         $148,719
                                                                   ========

     The goodwill was assigned to the Specialized Products segment and is not
deductible for tax purposes.

     During the fourth quarter of 2001, the Company acquired three other
businesses for an aggregate purchase price of $137,290 in cash plus acquisition
costs, subject to adjustment based on the closing date net assets or net working
capital of the acquired business and, in one case, additional purchase price
contingent upon the post-acquisition performance of the acquired company. The
Company acquired:

   (1)   the net assets of SY Technology, Inc. ("SY"), a provider of air
         warfare simulation services, on December 31, 2001. This acquisition is
         subject to additional purchase price not to exceed $4,800 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;

   (2)   the net assets of Bulova Technologies, a producer of military fuzes
         that prevent the inadvertent firing and detonation of weapons during
         handling, on December 19, 2001. Bulova Technology was later renamed BT
         Fuze Products ("BT Fuze"); and,

   (3)   the common stock of Emergent Government Services Group ("Emergent"),
         a provider of engineering and information services to the U.S. Air
         Force, Army, Navy and intelligence agencies, on November 30, 2001.
         Following the acquisition we changed Emergent Government Services
         Group's name to L-3 Communications Analytics.

Based on the preliminary purchase price allocations, the goodwill recognized in
the acquisitions of SY, BT Fuze and Emergent was $102,145, of which
approximately $74,000 is expected to be fully deductible for tax purposes.
Goodwill of $60,525 was assigned to the Secure Communication Systems segment and
$41,620 was assigned to the Specialized Products segment.

     On May 4, 2001, the Company acquired all of the outstanding common stock
of KDI Precision Products ("KDI") for $79,432 in cash including acquisition
costs. On May 31, 2001, the Company acquired all of the outstanding common
stock of EER Systems ("EER") for $119,533 in cash including acquisition costs,
and additional purchase price not to exceed $10,000 which is contingent upon
the financial performance of EER for the year ended December 31, 2001 and the
year ending December 31, 2002.

     On February 10, 2000, the Company acquired the assets of the Training
Devices and Training Services ("TDTS") business of Raytheon Company for
$159,203 in cash including acquisition costs. Following the acquisition, the
Company changed TDTS's name to L-3 Communications Link Simulation and Training
("Link Simulation and Training"). On February 14, 2000, the Company acquired
the assets

                                      F-12
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

of Trex Communications Corporation ("TrexCom") for $50,069 in cash including
acquisition costs. On April 28, 2000, the Company acquired the Traffic Alert
and Collision Avoidance System ("TCAS") product line from Honeywell Inc. for a
purchase price of $239,988 in cash including acquisition costs. On June 30,
2000, the Company acquired all the outstanding common stock of MPRI Inc.
("MPRI") for $39,725 in cash including acquisition costs and $4,000 of
additional purchase price that was based on the financial performance of MPRI
for the year ended June 30, 2001. On December 29, 2000, the Company acquired
all of the outstanding common stock of Coleman Research Corporation
("Coleman"), a subsidiary of Thermo Electron Corporation, for $60,565 in cash
including acquisition costs, and additional purchase price not to exceed $5,000
which is contingent upon the financial performance of Coleman for the year
ended December 31, 2001.

     Additionally, during the years ended December 31, 2001, 2000 and 1999, the
Company purchased other businesses, which individually and in the aggregate were
not material to its consolidated results of operations, financial position or
cash flows in the year acquired.

     All of the acquisitions were financed with cash on hand or borrowings on
bank credit facilities.

     All of the Company's acquisitions have been accounted for as purchase
business combinations and are included in the Company's results of operations
from their respective effective dates. The assets and liabilities recorded in
connection with the purchase price allocations for the acquisitions of KDI, EER,
Spar, Emergent, BT Fuze and SY are based upon preliminary estimates of fair
values for contracts in process, estimated costs in excess of billings to
complete contracts in process, inventories, identifiable intangibles and
deferred taxes. Actual adjustments will be based on the final purchase prices
and final appraisals and other analyses of fair values which are in process. The
Company has valued acquired contracts in process at contract price, less the
estimated costs to complete and an allowance for the Company's normal profit on
its effort to complete such contracts. The preliminary assets and liabilities
recorded in connection with the acquisitions of KDI, EER, Emergent, BT Fuze and
SY were $367,570 and $31,214. The Company does not expect the differences
between the preliminary and final purchase price allocations for the
acquisitions to be material. Goodwill is amortized on a straight-line basis over
periods of 40 years for KDI and EER. In accordance with SFAS No. 142, goodwill
is not amortized for Spar, Emergent, BT Fuze and SY.

     Had the acquisitions of KDI, EER, SY, BT Fuze, Emergent and Spar and the
related financing transactions occurred on January 1, 2001, the unaudited pro
forma sales, net income and diluted earnings per share for the year ended
December 31, 2001 would have been $2,638,700, $121,300 and $2.98. Had the
acquisitions of TDTS, TrexCom, TCAS, MPRI, Coleman, KDI, EER, SY, BT Fuze,
Emergent and Spar and the related financing transactions occurred on January 1,
2000 the unaudited pro forma sales, net income and diluted earnings per share
for the year ended December 31, 2000 would have been $2,554,600, $103,700 and
$2.62. The pro forma results are based on various assumptions and are not
necessarily indicative of the results of operations that would have occurred
had the acquisitions and the related financing transactions occurred on January
1, 2000 and 2001.

     On January 14, 2002, the Company agreed to acquire Aircraft Integration
Systems ("AIS"), a division of Raytheon Company, for $1,130,000 in cash plus
acquisition costs. The acquisition is expected to close in March 2002. The
acquisition is expected to be financed using cash on hand, borrowings under the
Company's senior credit facilities and a $500,000 senior subordinated bridge
loan. The Company expects to offer and sell approximately $1,000,000 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 $500,000
senior subordinated bridge loan and the borrowings made under the senior credit
facilities.


                                      F-13
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

     On January 2, 2002, the Company agreed to acquire the detection system
business of PerkinElmer for $100,000 in cash plus acquisition costs. The
acquisition is subject to customary closing conditions, including clearance
under the Hart-Scott-Rodino Antitrust Improvements Act and is expected to close
by the end of the second quarter of 2002.

     On May 31, 2001, the Company sold a 30% interest in Aviation
Communications and Surveillance Systems LLC ("ACSS") which comprised the
Company's TCAS business to Thales Avionics, a wholly owned subsidiary of Thales
(formerly Thomson-CSF), for $75,206 of cash. L-3 continues to consolidate the
financial statements of ACSS.

     Interest and other income for the year ended December 31, 2001 includes a
gain of $6,966 from the sale of a 30% interest in ACSS which was largely offset
by a $6,341 write-down in the carrying amount of an investment in common stock.
Also included in interest and other income for 2001 is a charge of $515 to
account for the increase, in accordance with SFAS No. 133, in the fair value
assigned to the embedded derivatives in L-3 Holdings' $420,000 4% Senior
Subordinated Contingent Debt Securities due 2011 sold in the fourth quarter of
2001, and a loss of $751 from an equity method investment. Interest and other
income for the year ended December 31, 2000 includes gains of $14,940 from the
sales of the Company's interests in certain businesses. These gains were
largely offset by losses of $12,456 on the write-down in the carrying value of
certain investments and intangible assets. The net proceeds from the sales were
$19,638, and are included in Other Investing Activities on the Statement of
Cash Flows.

     In March 2001, the Company settled certain items with a third party
provider related to an existing services agreement. In connection with the
settlement, L-3 received a net cash payment of $14,200. The payment represents
a credit for fees being paid over the term of the services agreement and
incremental costs incurred by the Company over the same period arising from
performance deficiencies under the services agreement. These incremental costs
include additional operating costs for material management, vendor replacement,
rework, warranty, manufacturing and engineering support, and administrative
activities. The $14,200 cash receipt was recorded as a reduction of costs and
expenses in 2001.


4. CONTRACTS IN PROCESS

     The components of contracts in process are presented in the table below.
The unbilled contract receivables, inventoried contract costs and unliquidated
progress payments are principally related to contracts with the U.S. Government
and prime contractors or subcontractors of the U.S. Government.

<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
                                                                      ---------------------------
                                                                           2001           2000
                                                                      -------------   -----------
<S>                                                                   <C>             <C>
Billed receivables, less allowances of $11,649 and $6,430 .........    $  330,795      $ 310,185
                                                                       ----------      ---------
Unbilled contract receivables .....................................       353,262        277,026
Less: unliquidated progress payments ..............................      (102,739)       (69,529)
                                                                       ----------      ---------
 Unbilled contract receivables, net ...............................       250,523        207,497
                                                                       ----------      ---------
Inventoried contract costs, gross .................................       110,244         83,808
Less: unliquidated progress payments ..............................        (6,575)        (5,685)
                                                                       ----------      ---------
 Inventoried contract costs, net ..................................       103,669         78,123
Inventories at lower of cost or market ............................       116,837        104,328
                                                                       ----------      ---------
 Total contracts in process .......................................    $  801,824      $ 700,133
                                                                       ==========      =========
</TABLE>

     The Company believes that approximately $289,396 of the unbilled contract
receivables at December 31, 2001 will be billed and collected within one year.


                                      F-14
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

     The selling, general and administrative ("SG&A") cost data presented in
the table below have been used in the determination of the costs and expenses
presented on the statements of operations.

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31
                                                ------------------------------------
                                                   2001         2000         1999
                                                ----------   ----------   ----------
<S>                                             <C>          <C>          <C>
SG&A costs included in inventoried contract
 costs ......................................    $ 19,970     $ 24,396     $ 23,637
SG&A incurred costs .........................     418,002      350,561      265,136
Independent research and development,
 including bid and proposal costs included in
 SG&A incurred costs ........................     107,466      101,883       76,134
</TABLE>


5. OTHER CURRENT LIABILITIES AND OTHER LIABILITIES

     At December 31, 2001, other current liabilities include an accrual of
$43,641 for the remaining Spar common shares outstanding at December 31, 2001
which the Company acquired in January 2002, and $19,236 of estimated costs in
excess of billings to complete contracts in process. At December 31, 2001,
other liabilities include $18,814 for the non-current portion of estimated
costs in excess of billings to complete contracts in process.

     At December 31, 2000, other current liabilities include $31,737 of
estimated costs in excess of billings to complete contracts in process
principally related to contracts assumed as part of the TDTS business that was
acquired from Raytheon in February 2000, including the U.S. Army Aviation
Combined Arms Tactical Trainer ("AVCATT") contract. At December 31, 2000, other
liabilities include $59,641 for the non-current portion of estimated costs in
excess of billings to complete contracts in process, principally for the AVCATT
contract.

     At December 31, 2001, current and non-current estimated costs in excess of
billings to complete contracts in process reflect contract costs incurred
during 2001 that were charged against the estimated costs in excess of
billings and favorable performance on the AVCATT contract related to cost
reductions arising from engineering design changes, material sourcing changes,
unit price reductions on several parts in the contract bill of materials and
lower overhead costs that occurred during 2001.


6. PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                            -----------------------
                                                               2001         2000
                                                            ----------   ----------
<S>                                                         <C>          <C>
Land ....................................................    $ 12,947     $ 11,242
Buildings and improvements ..............................      38,544       25,942
Machinery, equipment, furniture and fixtures ............     260,338      192,679
Leasehold improvements ..................................      29,232       24,514
                                                             --------     --------
 Gross property, plant and equipment ....................     341,061      254,377
Less: accumulated depreciation and amortization .........     137,687       98,249
                                                             --------     --------
 Property, plant and equipment, net .....................    $203,374     $156,128
                                                             ========     ========
</TABLE>

     Depreciation and amortization expense for property, plant and equipment
was $40,362 for 2001, $36,158 for 2000, and $29,554 for 1999.


                                      F-15
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


7. DEBT

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


<TABLE>
<CAPTION>
                                                                         DECEMBER 31,
                                                                 -----------------------------
                                                                      2001            2000
                                                                 -------------   -------------
<S>                                                              <C>             <C>
Borrowings under Senior Credit Facilities ....................    $       --      $  190,000
10 3/8% Senior Subordinated Notes due 2007 ...................       225,000         225,000
8 1/2% Senior Subordinated Notes due 2008 ....................       180,000         180,000
8% Senior Subordinated Notes due 2008 ........................       200,000         200,000
5 1/4% Convertible Senior Subordinated Notes due 2009 ........       300,000         300,000
4% Senior Subordinated Convertible Contingent
 Debt Securities due 2011 ....................................       420,000              --
                                                                  ----------      ----------
Principal amount of long-term debt ...........................     1,325,000       1,095,000
Less: Unamortized discount ...................................         2,502              --
   Fair value of interest rate swap agreements ...............         7,246              --
                                                                  ----------      ----------
 Carrying amount of long-term debt ...........................    $1,315,252      $1,095,000
                                                                  ==========      ==========
</TABLE>

     The borrowings under the Senior Credit Facilities, 10 3/8% Senior
Subordinated Notes due 2007, 8 1/2% Senior Subordinated Notes due 2008 and 8%
Senior Subordinated Notes due 2008 are the indebtedness of L-3 Communications.
The 5 1/4% Convertible Senior Subordinated Notes due 2009 and the 4% Senior
Subordinated Convertible Contingent Debt Securities due 2011 are the
indebtedness of L-3 Holdings. Details on all of the outstanding debt of both
L-3 Communications and L-3 Holdings are discussed below.

     In May 2001, L-3 Communications restructured its Senior Credit Facilities.
At December 31, 2001, the Senior Credit Facilities were comprised of a $400,000
five year revolving credit facility maturing on May 15, 2006 and a $200,000
364-day revolving facility maturing on May 15, 2002 under which at the maturity
date L-3 Communications may, (1) at its 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 its 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 L-3 Communications 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 $150,000 in the aggregate.

     At December 31, 2001, available borrowings under the Company's Senior
Credit Facilities were $497,594, after reductions for outstanding letters of
credit of $102,406. There were no outstanding borrowings under the Senior
Credit Facilities at December 31, 2001.

     Borrowings under the Senior Credit Facilities bear interest, at L-3
Communications' option, at either: (i) a "base rate" equal to the higher of
0.50% per annum above the latest federal funds rate and the Bank of America
"reference rate" (as defined) plus a spread ranging from 2.00% to 0.50% per
annum depending on L-3 Communications' Debt Ratio at the time of determination
or (ii) a "LIBOR rate" (as defined) plus a spread ranging from 3.00% to 1.50%
per annum depending on L-3 Communications' Debt Ratio at the time of
determination. The Debt Ratio is defined as the ratio of Consolidated Total Debt
to Consolidated EBITDA. Consolidated Total Debt is equal to outstanding debt
plus capitalized lease obligations minus the lesser of actual unrestricted cash
or $50,000. Consolidated EBITDA is equal to consolidated net income (excluding
extraordinary gains and losses, and gains and losses in connection with asset
dispositions and discontinued operations) for the most recent four quarters,
plus consolidated interest expense, income taxes, depreciation and amortization
minus depreciation and amortization related to minority interest. At December
31, 2001, there were no borrowings outstanding under the Senior Credit


                                      F-16
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Facilities. L-3 Communications pays commitment fees calculated on the daily
amounts of the available unused commitments under the Senior Credit Facilities
at a rate ranging from 0.50% to 0.35% per annum, depending on L-3
Communications' Debt Ratio in effect at the time of determination. L-3
Communications pays letter of credit fees calculated at a rate ranging from
1.50% to 0.75% per annum for performance letters of credit and 3.00% to 1.50%
for all other letters of credit, in each case depending on L-3 Communications'
Debt Ratio at the time of determination.

     Additionally, in February 2002, the Company expects the lenders to approve
a $150,000 increase in the amount of the Senior Credit Facilities. The five year
revolving credit facility will increase by $100,000 to $500,000 and the 364-day
revolving credit facility will increase by $50,000 to $250,000. Additionally,
the maturity date of the $200,000 364-day revolving credit facility is expected
to be extended to February 2003.

     In March 2002, L-3 Communications expects to borrow $500,000 under a senior
subordinated Bridge Loan Facility to finance a portion of the purchase price of
AIS and related expenses. The Bridge Loan Facility will be subordinated in right
of payment to all of L-3 Communications' existing and future senior debt.
Borrowings under the Bridge Loan Facility will bear interest through March 2003,
at L-3 Communications' option, at either the one-month or three-month LIBOR rate
plus a spread equal to 350 basis points. The Bridge Loan Facility will mature in
May 2009, but if the loans under the facility are not repaid by March 2003, each
lender's loan will be automatically converted into an exchange note with terms
substantially similar to those of the senior subordinated notes 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 that will be set forth in the Bridge
Loan Facility, L-3 Communications will be 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 $420,000 of 4% Senior
Subordinated Convertible Contingent Debt Securities ("CODES") due September 15,
2011. The net proceeds from this offering amounted to approximately $407,450
after underwriting discounts and commissions and other 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 the Company,
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


                                      F-17
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


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. The initial aggregate fair values assigned to the embedded
derivatives was $2,502, which was also recorded as a discount to the CODES. The
carrying values assigned to the embedded derivatives were recorded in other
liabilities and will be adjusted periodically through other income (expense) for
changes in their fair values. The CODES are subject to redemption at any time at
the option of L-3 Holdings, in whole or in part, on or after October 24, 2004 at
redemption prices (plus accrued and unpaid interest -- including contingent
interest) starting at 102% of principal (plus accrued and unpaid interest --
including contingent interest) during the 12 month period beginning October 24,
2004 and declining annually to 100% of principal (plus accrued and unpaid
interest -- including contingent interest) on September 15, 2006. The CODES are
general unsecured obligations of L-3 Holdings and are subordinated in right of
payment to all existing and future senior debt of L-3.

     In the fourth quarter of 2000, L-3 Holdings sold $300,000 of 5 1/4%
Convertible Senior Subordinated Notes (the "Convertible Notes") due June 1,
2009. The net proceeds from this offering amounted to approximately $290,500
after underwriting discounts and other offering expenses, and were used to repay
revolver borrowings outstanding under the Company's Senior Credit Facilities.
Interest is payable semi-annually on June 1 and December 1 of each year
commencing June 1, 2001. The Convertible Notes may be converted at any time into
L-3 Holdings common stock at a conversion price of $81.50 per share. If all the
Convertible Notes were converted, an additional 3,680,982 shares of L-3 Holdings
common stock would have been outstanding at December 31, 2001. The Convertible
Notes are general unsecured obligations of L-3 Holdings and are subordinated in
right of payment to all existing and future senior debt of L-3 Holdings and L-3
Communications. The Convertible Notes are subject to redemption at any time, at
the option of L-3 Holdings, in whole or in part, on or after December 1, 2003 at
redemption prices (plus accrued and unpaid interest) starting at 102.625% of
principal (plus accrued and unpaid interest) during the 12-month period
beginning December 1, 2003 and declining annually to 100% of principal (plus
accrued and unpaid interest) on December 1, 2005 and thereafter.

     In December 1998, L-3 Communications sold $200,000 of 8% Senior
Subordinated Notes due August 1, 2008 (the "December 1998 Notes") with interest
payable semi-annually on February 1 and August 1 of each year commencing
February 1, 1999. The December 1998 Notes are general unsecured obligations of
L-3 Communications and are subordinated in right of payment to all existing and
future senior debt of L-3 Communications. The December 1998 Notes are subject to
redemption at any time, at the option of L-3 Communications, in whole or in
part, on or after August 1, 2003 at redemption prices (plus accrued and unpaid
interest) starting at 104% of principal (plus accrued and unpaid interest)
during the 12-month period beginning August 1, 2003 and declining annually to
100% of principal (plus accrued and unpaid interest) on August 1, 2006 and
thereafter.

     In May 1998, L-3 Communications sold $180,000 of 8 1/2% Senior Subordinated
Notes due May 15, 2008 (the "May 1998 Notes") with interest payable
semi-annually on May 15 and November 15 of each year commencing November 15,
1998. The May 1998 Notes are general unsecured obligations of L-3 Communications
and are subordinated in right of payment to all existing and future senior debt
of L-3 Communications. The May 1998 Notes are subject to redemption at any time,
at the option of L-3 Communications, in whole or in part, on or after May 15,
2003 at redemption prices (plus accrued and unpaid interest) starting at
104.250% of principal (plus accrued and unpaid interest) during the 12-month
period beginning May 15, 2003 and declining annually to 100% of principal (plus
accrued and unpaid interest) on May 15, 2006 and thereafter.

     In April 1997, L-3 Communications sold $225,000 of 10 3/8% Senior
Subordinated Notes due May 1, 2007 (the "1997 Notes") with interest payable
semi-annually on May 1 and November 1 of each year commencing November 1, 1997.
The 1997 Notes are general unsecured obligations of L-3 Communica-



                                      F-18
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


tions and are subordinated in right of payment to all existing and future senior
debt of L-3 Communications. The 1997 Notes are subject to redemption at any
time, at the option of L-3 Communications, in whole or in part, on or after May
1, 2002 at redemption prices (plus accrued and unpaid interest) starting at
105.188% of principal (plus accrued and unpaid interest) during the 12-month
period beginning May 1, 2002 and declining annually to 100% of principal (plus
accrued and unpaid interest) on May 1, 2005 and thereafter.

     Collectively the 1997 Notes, May 1998 Notes and December 1998 Notes
comprise the "Senior Subordinated Notes". The maturities on the Senior
Subordinated Notes, Convertible Notes and CODES are $225,000 in 2007, $380,000
in 2008, $300,000 in 2009 and $420,000 in 2011.

     In November 2001, L-3 Communications entered into interest rate swap
agreements on its $180,000 of 8 1/2% Senior Subordinated Notes due 2008. These
swap agreements exchange the fixed interest rate for a variable interest rate on
the entire principal amount. Under these swap agreements, L-3 Communications
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 determined two
business days prior to the interest payment date of the senior subordinated
notes equal to (1) the six month LIBOR rate, set in arrears, plus (2) an average
of 350.8 basis points. In July 2001, L-3 Communications entered into interest
rate swap agreements on its $200,000 of 8% Senior Subordinated Notes due 2008.
These swap agreements exchange the fixed interest rate for a variable interest
rate on the entire principal amount. Under these swap agreements, L-3
Communications will pay or receive the difference between the fixed interest
rate of 8% on the senior subordinated notes and a variable interest rate
determined two business days prior to the interest payment date of the senior
subordinated notes equal to (1) the six month LIBOR rate, set in arrears, plus
(2) an average of 192 basis points. The difference to be paid or received on
these swap agreements as interest rates change is recorded as an adjustment to
interest expense. The swap agreements are accounted for as fair value hedges.

     The Senior Credit Facilities, Senior Subordinated Notes, Convertible Notes
and CODES agreements contain (and the Bridge Loan Facility will contain)
financial and other restrictive covenants that limit, among other things, the
ability of the Company to borrow additional funds, dispose of assets, or pay
cash dividends. The Company's most restrictive covenants are contained in the
Senior Credit Facilities, as amended. The covenants require that (1) the
Company's Debt Ratio be less than or equal to 4.50 for the quarter ended
December 31, 2001, and that the maximum allowable Debt Ratio be 4.85 for the
quarters ending March 31, 2002 and June 30, 2002, thereafter declining over time
to less than or equal to 3.50 for the quarters ending December 31, 2004 and
thereafter, and (2) the Company's Interest Coverage Ratio be greater
than or equal to 2.50 for the quarter ended December 31, 2001, and that the
minimum allowable Interest Coverage Ratio, thereafter increase over time to
greater than or equal to at least 3.00 for the quarters ending December 31, 2003
and thereafter. The Interest Coverage Ratio is equal to the ratio of
Consolidated EBITDA to Consolidated Cash Interest Expense. Consolidated Cash
Interest Expense is equal to interest expense less the amortization of deferred
debt issue costs included in interest expense. For purposes of calculating the
financial covenants under the Senior Credit Facilities, the Convertible Notes
and CODES are considered debt of L-3 Communications. The Senior Credit
Facilities also limit the payment of dividends by L-3 Communications to L-3
Holdings except for payment of franchise taxes, fees to maintain L-3 Holdings'
legal existence, income taxes up to certain amounts, interest accrued on the
Convertible Notes and CODES or to provide for operating costs of up to $1,000
annually. Under the covenant, L-3 Communications may also pay permitted
dividends to L-3 Holdings from its excess cash flow, as defined, a cumulative
amount of $5,000, provided that the Debt Ratio is no greater than 3.5 to 1 as of
the most recent fiscal quarter. As a result, at December 31, 2001, $5,000 of L-3
Communications net assets were available for payment of dividends to L-3
Holdings. Through December 31, 2001, the Company was in compliance with these
covenants at all times.



                                      F-19
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

     In connection with the Senior Credit Facilities, the Company has granted
the lenders a first priority lien on the stock of L-3 Communications and
substantially all of its domestic subsidiaries. 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 payment of
principal and premium, if any, and interest on the Senior Subordinated Notes are
(and the Bridge Loan Facility will be) unconditionally guaranteed, on an
unsecured senior subordinated basis, jointly and severally, by all of L-3
Communications' restricted subsidiaries other than its foreign subsidiaries. The
guarantees of the Senior Subordinated Notes are (and the Bridge Loan Facility
will be) 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.
Additionally, 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 will rank pari passu with the guarantees of the
Bridge Loan Facility.


8. FINANCIAL INSTRUMENTS

     Fair Value of Financial Instruments. The Company's financial instruments
consist primarily of cash and cash equivalents, billed receivables, investments,
trade accounts payable, customer advances, Senior Credit Facilities, Senior
Subordinated Notes, Convertible Notes, CODES, foreign currency forward
contracts, interest rate cap and floor contracts, interest rate swap agreements
and embedded derivatives related to the issuance of the CODES. The carrying
amounts of cash and cash equivalents, billed receivables, trade accounts
payable, Senior Credit Facilities, and customer advances are representative of
their respective fair values because of the short-term maturities or expected
settlement dates of these instruments. 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. The
Senior Subordinated Notes are registered, unlisted public debt which are traded
in the over-the-counter market and their fair values are based on quoted trading
activity. The fair values of the Convertible Notes and CODES are based on quoted
prices for the same or similar issues. The fair value of foreign currency
forward contracts were estimated based on exchange rates at December 31, 2001
and 2000. The fair values of the interest rate cap and floor contracts, interest
rate swap agreements and the embedded derivatives were estimated by discounting
expected cash flows using quoted market interest rates. The carrying amounts and
estimated fair values of the Company's financial instruments are presented in
the table below.

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                              ----------------------------------------------
                                                       2001                    2000
                                              ----------------------- ----------------------
                                               CARRYING    ESTIMATED   CARRYING   ESTIMATED
                                                AMOUNT    FAIR VALUE    AMOUNT    FAIR VALUE
                                              ---------- ------------ ---------- -----------
<S>                                           <C>        <C>          <C>        <C>
Investments .................................  $ 16,532    $ 16,532    $  8,985   $  8,985
Senior Subordinated Notes ...................   597,754     630,925     605,000    586,300
Convertible Notes ...........................   300,000     387,000     300,000    331,350
CODES .......................................   417,498     432,600          --         --
Borrowings under Senior Credit Facilities ...        --          --     190,000    190,000
Interest rate caps ..........................        --          --         431          2
Interest rate floor .........................      (432)       (432)        (74)      (104)
Foreign currency forward contracts ..........       258         258          --        392
Interest rate swaps .........................    (7,246)     (7,246)         --         --
Embedded derivatives ........................    (3,060)     (3,060)         --         --
</TABLE>



                                      F-20
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

     Interest Rate Risk Management. To mitigate risks associated with changing
interest rates on borrowings under the Senior Credit Facilities, the Company
entered into interest rate cap and interest rate floor contracts. The interest
rate caps and floors are denominated in U.S. dollars and have designated
maturities which occur every three months until the interest rate cap and floor
contracts expire in March 2002. In 2001, the Company entered into interest rate
swap agreements on $380,000 of its Senior Subordinated Notes to take advantage
of the current low interest rate environment. These swap agreements exchanged
the fixed interest rate for a variable interest rate on the entire notional
amount, are denominated in U.S. dollars and have designated maturities which
occur on the interest payment dates of the related Senior Subordinated Notes.
Collectively the interest rate cap and floor contracts and interest rate swap
agreements are herein referred to as the ("interest rate agreements"). Cash
payments received from or paid to the counterparties on the interest rate
agreements are the difference between the amount that the reference interest
rates are greater than or less than the contract rates on the designated
maturity dates, multiplied by the notional amounts underlying the respective
interest rate agreements. Cash payments or receipts between the Company and
counterparties are recorded as a component of interest expense. The initial cost
or receipt of these arrangements, if any, are deferred and amortized as a
component of interest expense over the term of the interest rate agreement. The
Company manages exposure to counterparty credit risk by entering into the
interest rate agreements only with major financial institutions that are
expected to fully perform under the terms of such agreements. The notional
amounts are used to measure the volume of these agreements and do not represent
exposure to credit loss.

     Foreign Currency Exchange Risk Management. Some of the Company's U.S.
operations have contracts with foreign customers which are denominated in
foreign currencies. To mitigate the risk associated with certain of these
contracts denominated in foreign currency, the Company has entered into foreign
currency forward contracts. The Company's activities involving foreign currency
forward contracts are designed to hedge the foreign denominated cash paid or
received, primarily Euro, British Pound and Italian Lira. The Company manages
exposure to counterparty credit risk by entering into foreign currency forward
contracts only with major financial institutions that are expected to fully
perform under the terms of such contracts. The notional amounts are used to
measure the volume of these contracts and do not represent exposure to foreign
currency losses.

     Information with respect to the interest rate agreements and foreign
currency forward contracts is presented in the table below.

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                               ------------------------------------------------------------
                                                           2001                            2000
                                               -----------------------------   ----------------------------
                                                NOTIONAL       UNREALIZED       NOTIONAL       UNREALIZED
                                                 AMOUNT      GAINS (LOSSES)      AMOUNT      GAINS (LOSSES)
                                               ----------   ----------------   ----------   ---------------
<S>                                            <C>          <C>                <C>          <C>
Interest rate swaps ........................    $380,000             --               --            --
Interest rate caps .........................     100,000         $ (107)        $100,000        $ (429)
Interest rate floor ........................      50,000           (414)          50,000           (30)
Foreign currency forward contracts .........       7,138            258            6,863           392
</TABLE>


9. L-3 HOLDINGS COMMON STOCK

     On June 29, 2001, the Company established the L-3 Communications
Corporation Employee Stock Purchase Plan ("ESPP") and registered 1,500,000
shares of L-3 Holdings common stock, which may be purchased by employees of L-3
Communications Corporation and its U.S. subsidiaries through payroll deductions.
In general, an eligible employee who participates in the ESPP may purchase L-3
Holdings' common stock at a fifteen percent discount. The ESPP is not subject to
the Employment Retirement Income Security Act of 1974, as amended. As of
December 31, 2001, $4,861 of employee contributions to the employee stock
purchase plan were received by the Company and recorded as a component of




                                      F-21
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

shareholders' equity in the consolidated balance sheet. On January 7, 2002, the
Company transferred 74,285 shares of L-3 Holdings' common stock to the trustee
of the ESPP on behalf of those employees who made contributions to the ESPP in
2001.

     On May 2, 2001, L-3 Holdings sold 6,900,000 shares of common stock in a
public offering for $80.00 per share. L-3 Holdings sold 4,575,000 shares and
other selling stockholders, including affiliates of Lehman Brothers Inc., sold
2,325,000 secondary shares. Upon closing, L-3 Holdings received net proceeds
after underwriting discounts and commissions and other offering expenses of
$353,622. The net proceeds were contributed to L-3 Communications and were used
to repay borrowings under the Senior Credit Facilities, pay for the KDI and EER
acquisitions and to increase cash and cash equivalents.

     As additional consideration for the ILEX acquisition, L-3 Holdings issued
294,124 shares of its common stock valued at $17,357 in April 2001 based on the
financial performance of ILEX in 1999 and 2000, and in August 1999, L-3 Holdings
issued 150,955 shares of its common stock valued at $6,434 based on the
financial performance of ILEX in 1998. There is no remaining contingent
consideration for the ILEX acquisition.

     On February 4, 1999, L-3 Holdings sold 5,000,000 shares of common stock in
a public offering for $42.00 per share (the "February 1999 Common Stock
Offering"); the net proceeds amounted to $201,582 and were contributed by L-3
Holdings to L-3 Communications. In addition, 6,500,000 shares were also sold in
the February 1999 Common Stock Offering by the Lehman Partnership and Lockheed
Martin. In October 1999, Lockheed Martin sold its remaining interest in L-3
Holdings' common stock. In December 1999, the Lehman Partnership distributed to
its partners approximately 3,800,000 shares of L-3 Holdings' common stock. As of
December 31, 2001, the Lehman Partnership owned approximately 4.4% of the
outstanding common stock of L-3 Holdings.

     On May 19, 1998, L-3 Holdings sold 6,900,000 shares of its common stock in
an initial public offering ("IPO"). The net proceeds of the IPO amounted to
$139,500 and were contributed by L-3 Holdings to L-3 Communications. Prior to
the IPO, the common stock of L-3 Holdings consisted of three classes Class A,
Class B, and Class C common stock. Immediately prior to the IPO, each authorized
share of L-3 Holdings Class A common stock, Class B common stock and Class C
common stock was converted into one class of common stock and the authorized L-3
Holdings common stock was increased to 100,000,000 shares.


                                      F-22
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


10. L-3 HOLDINGS EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                        -------------------------------------------
                                                             2001           2000           1999
                                                        -------------   ------------   ------------
<S>                                                     <C>             <C>            <C>
Basic:
 Net income .........................................     $ 115,458      $  82,727      $  58,689
                                                          ---------      ---------      ---------
 Weighted average common shares outstanding .........        37,440         33,355         32,107
                                                          ---------      ---------      ---------
 Basic earnings per share ...........................     $    3.08      $    2.48      $    1.83
                                                          =========      =========      =========
Diluted:
 Net income .........................................     $ 115,458      $  82,727      $  58,689
 After-tax interest expense savings on the assumed
   conversion of Convertible Notes ..................        10,502             --             --
                                                          ---------      ---------      ---------
 Net income including assumed conversion ............     $ 125,960      $  82,727      $  58,689
                                                          =========      =========      =========
 Common and potential common shares:
 Weighted average common shares outstanding .........        37,440         33,355         32,107
 Assumed exercise of stock options ..................         3,846          3,940          3,376
 Assumed purchase of common shares for treasury .....        (2,248)        (2,342)        (1,967)
 Assumed conversion of Convertible Notes ............         3,681             --             --
                                                          ---------      ---------      ---------
Common and potential common shares ..................        42,719         34,953         33,516
                                                          =========      =========      =========
Diluted earnings per share ..........................     $    2.95      $    2.37      $    1.75
                                                          =========      =========      =========
</TABLE>

     The 3,902,439 shares of L-3 Holdings' common stock that are issuable upon
conversion of the CODES were not included in the computation of diluted EPS for
the year ended December 31, 2001 because the conditions required for the CODES
to become convertible have not been met.


11. INCOME TAXES

     Pretax income of the Company was $186,222 for 2001, $134,079 for 2000, and
$95,430 for 1999 substantially all of which was derived from domestic
operations. The components of the Company's provision for income taxes are
presented in the table below.

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                              -----------------------------------
                                                                 2001         2000         1999
                                                              ----------   ----------   ---------
<S>                                                           <C>          <C>          <C>
Current income tax provision, primarily federal . .........    $18,126      $26,249      $ 7,910
Deferred income tax provision:
 Federal ..................................................     43,965       23,130       27,881
 State and local ..........................................      8,673        1,973          950
                                                               -------      -------      -------
   Subtotal ...............................................     52,638       25,103       28,831
                                                               -------      -------      -------
Total provision for income taxes ..........................    $70,764      $51,352      $36,741
                                                               =======      =======      =======
</TABLE>


                                      F-23
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

     A reconciliation of the statutory federal income tax rate to the effective
income tax rate of the Company is presented in the table below.


<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                            ------------------------------------
                                                               2001         2000         1999
                                                            ----------   ----------   ----------
<S>                                                         <C>          <C>          <C>
Statutory federal income tax rate . .....................       35.0%        35.0%        35.0%
State and local income taxes, net of federal income
 tax benefit ............................................        5.3          4.4          4.6
Foreign sales corporation and extra territorial income
 benefits ...............................................       (3.6)        (2.6)          --
Nondeductible goodwill amortization and other
 expenses ...............................................        4.8          6.8          5.2
Research and experimentation and other tax credits ......       (5.0)        (6.1)        (7.1)
Other, net ..............................................        1.5          0.8          0.8
                                                                ----         ----         ----
Effective income tax rate ...............................       38.0%        38.3%        38.5%
                                                                ====         ====         ====
</TABLE>

     The provision for income taxes excludes current tax benefits related to
compensation expense deductions for the exercise of stock options that were
credited directly to shareholders' equity of $11,939 for 2001, $9,108 for 2000
and $1,011 for 1999.

     The significant components of the Company's net deferred tax assets and
liabilities are presented in the table below.

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                            ---------------------------
                                                                2001           2000
                                                            ------------   ------------
<S>                                                         <C>            <C>
Deferred tax assets:
 Inventoried costs ......................................    $   8,520      $  14,868
 Compensation and benefits ..............................       11,460         10,461
 Pension and postretirement benefits ....................       59,397         39,486
 Property, plant and equipment ..........................       16,579          9,081
 Income recognition on contracts in process .............       16,670         55,942
 Net operating loss carryforwards .......................       32,480          9,660
 Tax credit carryforwards ...............................       31,943         18,444
 Other, net .............................................       21,555         14,430
                                                             ---------      ---------
   Total deferred tax assets ............................      198,604        172,372
                                                             ---------      ---------
Deferred tax liabilities:
 Goodwill ...............................................      (26,493)       (18,903)
 Other, net .............................................      (11,263)        (6,626)
                                                             ---------      ---------
   Total deferred tax liabilities .......................      (37,756)       (25,529)
                                                             ---------      ---------
    Net deferred tax assets .............................    $ 160,848      $ 146,843
                                                             =========      =========
   The following table presents the classification of
      the Company's net deferred tax assets.

Current deferred tax assets . ...........................    $  62,965      $  89,732
Long-term deferred tax assets ...........................       97,883         57,111
                                                             ---------      ---------
   Total net deferred tax assets ........................    $ 160,848      $ 146,843
                                                             =========      =========
</TABLE>

                                      F-24
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

     At December 31, 2001, the Company had $82,340 of U.S. net operating losses
and $31,943 of tax credit carryforwards primarily related to U.S. and state
research and experimentation credits and state investment tax credits. The net
operating losses, some of which are subject to limitation, expire, if unused,
between 2011 and 2021. The tax credits primarily expire, if unused, beginning in
2012. The Company believes that it will generate sufficient taxable income to
utilize these net operating losses and tax credit carryforwards before they
expire.


12. STOCK OPTIONS

     The Company adopted the 1999 Long Term Performance Plan in April 1999, and
adopted the 1997 Option Plan in April 1997. As of December 31, 2001, the number
of shares of L-3 Holdings' common stock authorized for grant of options or
awards under these plans was 8,305,815. On April 26, 2001, an additional
3,000,000 shares of L-3 Holdings' common stock were authorized for grant of
options or awards under the 1999 Long Term Performance Plan. The grants may be
awarded to employees of the Company in the form of non-qualified stock options,
incentive stock options, stock appreciation rights, restricted stock or other
incentive awards. The price at which options may be granted shall not be less
than 100% of the fair market value of L-3 Holdings' common stock on the date of
grant. In general, options expire after 10 years and are exercisable ratably
over a 3 year period. As of December 31, 2001, the Company had 2,502,919 shares
of L-3 Holdings' common stock available for awards under these plans.

     On January 1, 2001, January 1, 2000 and May 19, 1999, the Company awarded
30,464, 42,896 and 40,339 shares of restricted stock of L-3 Holdings to
employees. The 2001 and 1999 awards vest January 1, 2004 and the 2000 award
vests January 1, 2005.

     On April 5, 1999, the Company amended the terms of the stock options
granted to Frank C. Lanza, Chairman, Chief Executive Officer and Robert V.
LaPenta, President, Chief Financial Officer on April 30, 1997 for the purchase
of 1,142,857 shares each of L-3 Holdings' common stock at an option price of
$6.47. Such amendment eliminated the performance target acceleration provisions
on the unvested performance options, so that 457,143 options for each of Mr.
Lanza and Mr. LaPenta, vested on April 5, 1999. These performance options would
have originally vested nine years after the grant date, but would have become
exercisable with respect to 25% of the shares subject to such performance
options on each of April 30, 1999, 2000, 2001 and 2002, to the extent certain
targets for the Company's EBITDA were achieved.


                                      F-25
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

     The table below presents the Company's stock option activity.

                                                            WEIGHTED
                                                            AVERAGE
                                            NUMBER OF       EXERCISE
                                             OPTIONS         PRICE
                                         ---------------   ---------
                                          (IN THOUSANDS)
Balance at December 31, 1998 .........        2,878        $  9.27
Options granted ......................        1,009          39.09
Options exercised ....................          (79)          8.37
Options cancelled ....................          (43)         29.99
                                              -----
Balance at December 31, 1999 .........        3,765          17.02
Options granted ......................          661          47.73
Options exercised ....................         (577)         15.52
Options cancelled ....................         (221)         39.82
                                              -----
Balance at December 31, 2000 .........        3,628          21.42
Options granted ......................        1,107          71.61
Options exercised ....................         (564)         29.14
Options cancelled ....................         (181)         42.46
                                              -----
Balance at December 31, 2001 .........        3,990        $ 33.36
                                              =====

     The following table summarizes information about stock options outstanding
at December 31, 2001.

<TABLE>
<CAPTION>
                                           OUTSTANDING                                  EXERCISABLE
                            ------------------------------------------   -----------------------------------------
                                              WEIGHTED                                     WEIGHTED
                                               AVERAGE       WEIGHTED                       AVERAGE       WEIGHTED
         RANGE OF                             REMAINING       AVERAGE                      REMAINING      AVERAGE
         EXERCISE              NUMBER        CONTRACTUAL     EXERCISE       NUMBER        CONTRACTUAL     EXERCISE
          PRICES             OF OPTIONS     LIFE (YEARS)       PRICE      OF OPTIONS     LIFE (YEARS)      PRICE
-------------------------   ------------   --------------   ----------   ------------   --------------   ---------
<S>                         <C>            <C>              <C>          <C>            <C>              <C>
$6.47 ...................       1,859             5.5        $  6.47         1,630             5.5       $  6.47
$22.00 ..................          85             6.3        $ 22.00            85             6.3       $ 22.00
$32.75 - $39.99 .........         370             7.7        $ 37.53           215             7.7       $ 37.23
$40.00 - $47.00 .........         410             7.6        $ 41.59           128             7.3       $ 41.10
$58.00 ..................         184             8.6        $ 58.00            50             8.6       $ 58.00
$65.00 - $70.00..........         642             9.3        $ 66.50            --             --             --
$79.39...................         440             9.9        $ 79.39            --             --             --
                                -----                                        -----
 Total ..................       3,990             7.2        $ 33.36         2,108             5.9       $ 13.55
                                =====                                        =====
</TABLE>


                                      F-26
<PAGE>

     The weighted average fair values of stock options at their grant date
during 2001, 2000 and 1999, where the exercise price equaled the market price
(estimated fair value) on the grant date were $29.73, $20.19 and $14.60,
respectively. In accordance with APB 25, no compensation expense was recognized.
The following table reflects pro forma net income and L-3 Holdings EPS had the
Company elected to adopt the fair value approach of SFAS 123.

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

                                      YEAR ENDED DECEMBER 31,
                            -------------------------------------------
                                 2001           2000           1999
                            -------------   ------------   ------------
Net income:
 As reported ............     $ 115,458       $ 82,727       $ 58,689
 Pro forma ..............       107,573         75,064         54,625
L-3 Holdings Basic EPS:
 As reported ............     $    3.08       $   2.48       $   1.83
 Pro forma ..............          2.87           2.25           1.70
L-3 Holdings Diluted EPS:
 As reported ............     $    2.95       $   2.37       $   1.75
 Pro forma ..............          2.76           2.15           1.63

     The estimated fair value of options granted was calculated using the
Black-Scholes option-pricing valuation model. The weighted average assumptions
used in the valuation models are presented in the table below.

                                       YEAR ENDED DECEMBER 31,
                                    ------------------------------
                                      2001       2000       1999
                                    --------   --------   --------
Expected option term ............      5.0        5.0        4.8
Expected volatility .............     39.5%      35.8%      31.0%
Expected dividend yield .........       --         --         --
Risk-free interest rate .........      4.5%       6.4%       4.7%

13. COMMITMENTS AND CONTINGENCIES

     The Company leases certain facilities and equipment under agreements
expiring at various dates through 2028. The following table presents future
minimum payments under noncancellable operating leases with initial or
remaining terms in excess of one year as of December 31, 2001.

                                   OPERATING LEASES
                       ----------------------------------------
                        REAL ESTATE     EQUIPMENT       TOTAL
                       -------------   -----------   ----------
2002 ...............      $ 60,163        $1,735      $ 61,898
2003 ...............        48,302           996        49,298
2004 ...............        32,693           379        33,072
2005 ...............        28,788           104        28,892
2006 ...............        25,722            12        25,734
Thereafter .........       151,561            --       151,561
                          --------        ------      --------
 Total .............      $347,229        $3,226      $350,455
                          ========        ======      ========



                                      F-27
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

     Real estate lease commitments have been reduced by minimum sublease rental
income of $5,127 due in the future under noncancellable subleases. Leases
covering major items of real estate and equipment contain renewal and or
purchase options. Rent expense, net of sublease income was $41,370 for 2001,
$34,123 for 2000 and $22,452 for 1999.

     On March 30, 1998, the Company entered into a real estate lease agreement,
as lessee, with an unrelated lessor which expired on March 30, 2001, which is
accounted for as an operating lease. On March 29, 2001, the Company exercised
its option to renew the lease through March 30, 2003. On or before the lease
expiration date, the Company can exercise options under the lease agreement to
either renew the lease, purchase the property for $12,500, or sell the property
on behalf of the lessor (the "Sale Option"). If the Company elects the Sale
Option, the Company must pay the lessor a residual guarantee amount of $10,894,
on or before the lease expiration date, and at the time the property is sold,
the Company must pay the lessor a supplemental rent equal to the gross sales
proceeds in excess of the residual guarantee amount not to exceed $1,606.

     On June 30, 1999, the Company entered into a real estate lease agreement,
as lessee, with an unrelated lessor which expires on June 30, 2002, which is
accounted for as an operating lease. On or before the lease expiration date, the
Company can exercise options under the lease agreement to either renew the
lease, purchase the property for $15,500, or sell the property on behalf of the
lessor. If the Company elects the Sale Option, the Company must pay the lessor a
residual guarantee amount of $13,524, on or before the lease expiration date,
and at the time the property is sold, the Company must pay the lessor a
supplemental rent equal to the gross sales proceeds in excess of the residual
guarantee amount not to exceed $1,976.

     For both real estate lease agreements discussed above, if the gross sales
proceeds are less than the sum of the residual guarantee amount and the
supplemental rent, the Company is required to pay a supplemental rent to the
extent the reduction in the fair value of the property is demonstrated by an
independent appraisal to have been caused by the Company's failure to properly
maintain the property. Accordingly, the aggregate residual guarantee amounts of
$24,418 have been included in the noncancellable real estate operating lease
payments relating to the expiration of such leases.

     On December 28, 2000, the Company entered into a sale-leaseback transaction
on its facility located in Hauppauge, NY. The facility was sold for $13,650. The
lease agreement which is accounted for as an operating lease, has an initial
term of 14 years with a fixed annual rent that increases 2.5% annually. The
Company has the option to extend the lease term for an additional 3 terms of 5
years each. The gain of $4,110 on the sale of the facility has been deferred and
will be recognized ratably over the term of the lease.

     The Company has a contract to provide and operate for the U.S. Air Force
("USAF") a full-service training facility including simulator systems near a
USAF base. The Company expects to lease the simulator systems from unrelated
third parties, and has entered into agreements with the owner-lessors of the
simulator systems, under which the Company is acting as the construction agent
on behalf of the owner-lessors for procurement and construction for the
simulator systems. The estimated project costs to construct the simulator
systems is approximately $48,360. During the construction period, if certain
events occur that are caused by the Company's actions or failures to act, these
agreements may obligate the Company to make payments to the owner-lessors which
may be equal to 89.9% of the incurred project costs for the simulator systems at
the time of such defaults. At December 30, 2002, the estimated completion date
of the construction, pursuant to these agreements, the Company, as lessee, will
enter into leases each with a term of 15 years with the owner-lessors for the
use of the simulator systems. These leases are expected to be accounted for as
operating leases and the aggregate noncancellable rental payments under such
leases are estimated to be $89,241.



                                      F-28
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

     The Company is 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, 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 U.S.
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 the federal government for a specified term.
Additionally, in the event that U.S. Government expenditures for products and
services of the type manufactured and provided by the Company 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 the Company.

     The Company has been periodically subject to litigation, claims or
assessments and various contingent liabilities incidental to its business.
Management continually assesses 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 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 consolidated 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.

     With respect to those investigative actions, items of litigation, claims or
assessments of which it is 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 consolidated financial
position, results of operations or cash flows of the Company.


14. PENSIONS AND OTHER EMPLOYEE BENEFITS

     The Company maintains a number of pension plans, both contributory and
noncontributory, covering employees at certain locations. Eligibility for
participation in these plans varies and benefits are generally based on the
participant's compensation and/or years of service. The Company's funding
policy is generally to contribute in accordance with cost accounting standards
that affect government contractors, subject to the Internal Revenue Code and
regulations thereon. Plan assets are invested primarily in U.S. government and
agency obligations and listed stocks and bonds.

     The Company also provides postretirement medical and life insurance
benefits for retired employees and dependents at certain locations.
Participants are eligible for these benefits when they retire from active
service and meet the eligibility requirements for the Company's pension plans.
These benefits are funded primarily on a pay-as-you-go basis with the retiree
generally paying a portion of the cost through contributions, deductibles and
coinsurance provisions.


                                      F-29
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

     The following table summarizes the balance sheet impact, as well as the
benefit obligations, assets, funded status and rate assumptions associated with
the pension and postretirement benefit plans.

<TABLE>
<CAPTION>
                                                                                        POSTRETIREMENT
                                                         PENSION PLANS                   BENEFIT PLANS
                                                 -----------------------------   -----------------------------
                                                      2001            2000            2001            2000
                                                 --------------   ------------   -------------   -------------
<S>                                              <C>              <C>            <C>             <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year ......     $  415,483      $ 328,541       $  68,538       $  65,554
Service cost .................................         18,516         16,343           1,709           1,670
Interest cost ................................         31,428         28,029           4,746           4,754
Participants' contributions ..................             62             36             607              --
Amendments ...................................             --            853              --              --
Actuarial loss (gain) ........................         22,277          8,867           4,043          (1,271)
Acquisitions .................................         63,793         48,187          12,369           1,879
Benefits paid ................................        (18,108)       (15,373)         (4,869)         (4,048)
                                                   ----------      ---------       ---------       ---------
Benefit obligation at end of year ............     $  533,451      $ 415,483       $  87,143       $  68,538
                                                   ----------      ---------       ---------       ---------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of
 year ........................................     $  391,263      $ 367,451       $      --       $      --
Actual return on plan assets .................        (13,754)       (21,905)             --              --
Acquisitions .................................         63,344         49,709              --              --
Employer contributions .......................          8,108         11,345           4,262           4,048
Participants' contributions ..................             62             36             607              --
Benefits paid ................................        (18,108)       (15,373)         (4,869)         (4,048)
                                                   ----------      ---------       ---------       ---------
Fair value of plan assets at end of year .....     $  430,915      $ 391,263       $      --       $      --
                                                   ----------      ---------       ---------       ---------
FUNDED STATUS OF THE PLANS ...................     $ (102,536)     $ (24,220)      $ (87,143)      $ (68,538)
Unrecognized actuarial loss (gain) ...........         69,697         (5,044)         (5,032)         (9,401)
Unrecognized prior service cost ..............          3,426          3,777            (547)         (1,207)
                                                   ----------      ---------       ---------       ---------
Net amount recognized ........................     $  (29,413)     $ (25,487)      $ (92,722)      $ (79,146)
                                                   ==========      =========       =========       =========
AMOUNTS RECOGNIZED IN THE BALANCE SHEETS
 CONSIST OF:
Accrued benefit liability ....................     $  (62,330)     $ (26,377)      $ (92,722)      $ (79,146)
Accumulated other comprehensive income........         32,917            890              --              --
                                                   ----------      ---------       ---------       ---------
Net amount recognized ........................     $  (29,413)     $ (25,487)      $ (92,722)      $ (79,146)
                                                   ==========      =========       =========       =========
RATE ASSUMPTIONS:
Discount rate ................................           7.25%          7.50%           7.25%           7.50%
Rate of return on plan assets ................           9.50%          9.50%        n.a.            n.a.
Salary increases .............................           4.50%          4.50%           4.50%           4.50%
</TABLE>

     The annual increase in cost of benefits ("health care cost trend rate") is
assumed to be an average of 10.00% in 2001 and is assumed to gradually decrease
to a rate of 4.5% thereafter. Assumed health care cost trend rates have a
significant effect on amounts reported for postretirement medical benefit plans.
A one percentage point decrease in the assumed health care cost trend rates
would have the effect of decreasing the aggregate service and interest cost by
$540 and the postretirement medical obligations by $6,139. A one percentage
point increase in the assumed health care cost trend rate would have the effect
of increasing the aggregate service and interest cost by $658 and the
postretirement medical obligations by $6,651.



                                      F-30
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


     The following table summarizes the components of net periodic pension and
postretirement medical costs.


<TABLE>
<CAPTION>
                                                                                POSTRETIREMENT
                                                      PENSION PLANS              PENSION PLANS
                                               ---------------------------   ---------------------
                                                   2001           2000          2001        2000
                                               ------------   ------------   ---------   ---------
<S>                                            <C>            <C>            <C>         <C>
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost ...............................    $  18,516      $  16,343      $1,709      $1,670
Interest cost ..............................       31,428         28,029       4,746       4,754
Amortization of prior service cost .........          351            351         (99)        (99)
Expected return on plan assets .............      (37,716)       (39,109)         --          --
Recognized actuarial (gain) loss ...........         (424)        (3,981)       (887)       (865)
Recognition due to settlement ..............           --            307          --          --
                                                ---------      ---------      ------      ------
 Net periodic benefit cost .................    $  12,155      $   1,940      $5,469      $5,460
                                                =========      =========      ======      ======
</TABLE>

     The accumulated benefit obligation, projected benefit obligation, and fair
value of plan assets for pension plans with accumulated benefit obligations in
excess of plan assets were $300,072, $324,840, and $247,383, respectively, as of
December 31, 2001 and $86,426, $92,180 and $78,773, respectively, as of December
31, 2000.

     In connection with the Company's assumption of certain plan obligations
pursuant to the Company's acquisition of the predecessor company, Lockheed
Martin has provided the Pension Benefit Guaranty Corporation ("PBGC") with
commitments to assume sponsorship or other forms of financial support under
certain circumstances with respect to the Company's pension plans for
Communication Systems -- West and Aviation Recorders (the "Subject Plans"). Upon
the occurrence of certain events, Lockheed Martin, at its option, has the right
to decide whether to cause the Company 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
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. The Company
notified Lockheed Martin of the 1998 triggering event, and in February 1999,
Lockheed Martin informed the Company that it had no present intention to
exercise its right to cause the Company 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 L-3
Communications would be required to reimburse Lockheed Martin for these costs.
To date, the impact on pension expense and funding requirements resulting from
this arrangement has not been significant. However, should Lockheed Martin
assume sponsorship of the Subject Plans or if these plans were terminated, the
impact of any increased pension expenses or funding requirements could be
material to the Company. The Company has performed its obligations under the
letter agreement with Lockheed Martin and the Lockheed Martin Commitment and has
not received any communications from the PBGC concerning actions which the PBGC
contemplates taking in respect of the Subject Plans.

     Employee Savings Plans. Under its various employee savings plans, the
Company matches the contributions of participating employees up to a designated
level. The extent of the match, vesting terms and the form of the matching
contributions vary among the plans. Under these plans, the Company's matching
contributions in L-3 Holdings common stock and cash were $21,462 for 2001,
$15,201 for 2000 and $8,798 for 1999.


                                      F-31
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


15. SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                           ------------------------------------
                                                              2001         2000         1999
                                                           ----------   ----------   ----------
<S>                                                        <C>          <C>          <C>
Interest paid ..........................................    $81,552      $81,390      $50,532
Income taxes paid ......................................      4,904       10,052        6,317
Noncash transactions:
 Common stock issued related to acquisition ............     17,357           --        6,432
 Contribution in common stock to savings plans .........     16,868       12,642        6,993
</TABLE>


16. SEGMENT INFORMATION

     The Company has two reportable segments, Secure Communication Systems and
Specialized Products, which are described in Note 1. The Company evaluates the
performance of its operating divisions and reportable segments based on sales
and operating income. All corporate expenses are allocated to the Company's
divisions using an allocation methodology prescribed by U.S. Government
regulations for government contractors. Accordingly, all costs and expenses are
included in the Company's measure of segment profitability.


<TABLE>
<CAPTION>
                                           SECURE                                  ELIMINATION OF
                                       COMMUNICATION    SPECIALIZED                 INTERSEGMENT   CONSOLIDATED
                                          SYSTEMS         PRODUCTS     CORPORATE       SALES          TOTAL
                                      --------------- --------------- ----------- --------------- -------------
<S>                                   <C>             <C>             <C>         <C>             <C>
2001
----
Sales ...............................    $1,241,981      $1,109,641                  $  (4,200)    $2,347,422
Operating income ....................       146,270         129,060                                   275,330
Total assets ........................     1,021,924       1,769,453    $544,056                     3,335,433
Capital expenditures . ..............        16,115          31,727         279                        48,121
Depreciation and amortization .......        33,723          53,228                                    86,951
2000
----
Sales ...............................    $  856,970      $1,065,136                  $ (12,045)    $1,910,061
Operating income ....................        91,310         131,408                                   222,718
Total assets ........................       792,949       1,480,790    $189,805                     2,463,544
Capital expenditures ................        10,750          22,830                                    33,580
Depreciation and amortization .......        26,417          47,837                                    74,254
1999
----
Sales ...............................    $  544,418      $  867,495                  $  (6,451)    $1,405,462
Operating income ....................        46,955         103,531                                   150,486
Total assets ........................       370,918       1,065,236    $192,587                     1,628,741
Capital expenditures . ..............         6,980          16,476                                    23,456
Depreciation and amortization .......        18,451          35,267                                    53,718
</TABLE>

     Corporate assets not allocated to the reportable segments primarily include
cash and cash equivalents, corporate office fixed assets, deferred income tax
assets and deferred debt issuance costs.


                                      F-32
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

     Substantially all of the Company's operations are domestic. The Company's
foreign operations are not material to the Company's results of operations, cash
flows or financial position. Sales to principal customers are summarized in the
table below.

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                ---------------------------------------------
                                                     2001            2000            1999
                                                -------------   -------------   -------------
<S>                                             <C>             <C>             <C>
U.S. Government agencies . ..................    $1,614,858      $1,284,379      $  924,006
Foreign Governments .........................       200,913         144,274         127,637
Commercial export . .........................       218,971         172,101         144,274
Other (principally U.S. commercial) .........       312,680         309,307         209,545
                                                 ----------      ----------      ----------
 Consolidated sales .........................    $2,347,422      $1,910,061      $1,405,462
                                                 ==========      ==========      ==========
</TABLE>


17. UNAUDITED QUARTERLY FINANCIAL DATA


     Unaudited summarized financial data by quarter for the years ended December
31, 2001 and 2000 is presented in the table below.

<TABLE>
<CAPTION>
                                MARCH 31        JUNE 30       SEPTEMBER 30     DECEMBER 31
                             -------------   -------------   --------------   ------------
<S>                          <C>             <C>             <C>              <C>
2001
Sales ....................     $ 461,901       $ 561,560       $ 618,164       $ 705,797
Operating income .........        46,869          60,467          75,208          92,786
Net income ...............        14,158          23,336          33,435          44,529
Basic EPS . ..............     $    0.42       $    0.62       $    0.86       $    1.14
Diluted EPS ..............     $    0.40       $    0.60       $    0.82       $    1.06
2000
Sales ....................     $ 377,052       $ 460,976       $ 514,415       $ 557,618
Operating income .........        34,669          49,653          62,815          75,581
Net income ...............        10,929          16,459          24,116          31,223
Basic EPS ................     $    0.33       $    0.49       $    0.72       $    0.93
Diluted EPS ..............     $    0.32       $    0.47       $    0.69       $    0.89
</TABLE>


                                      F-33
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


18. FINANCIAL INFORMATION OF L-3 COMMUNICATIONS AND ITS SUBSIDIARIES

     The shareholders' equity of L-3 Communications equals that of L-3 Holdings
but its components of the common stock and additional paid-in capital accounts
are different. The table below presents information regarding changes in common
stock and additional paid-in capital of L-3 Communications for each of the
three years ended December 31, 2001.

<TABLE>
<CAPTION>
                                             L-3 COMMUNICATIONS
                                                COMMON STOCK
                                             ------------------
                                                                    ADDITIONAL
                                              SHARES      PAR        PAID-IN
                                              ISSUED     VALUE       CAPITAL          TOTAL
                                             --------   -------   -------------   -------------
<S>                                          <C>        <C>       <C>             <C>
Balance at December 31, 1998 .............   100          $--      $  264,769      $  264,769
 Contributions from L-3 Holdings .........                            218,925         218,925
                                             ---          ---      ----------      ----------
Balance at December 31, 1999 .............   100           --         483,694         483,694
 Contributions from L-3 Holdings .........                            322,732         322,732
 Push down of Convertible Notes ..........                           (290,500)       (290,500)
                                             ---          ---      ----------      ----------
Balance at December 31, 2000 .............   100           --         515,926         515,926
 Contributions from L-3 Holdings .........                            830,561         830,561
 Push down of CODES ......................                           (407,450)       (407,450)
                                             ---          ---      ----------      ----------
Balance at December 31, 2001 .............   100          $        $  939,037      $  939,037
                                             ===          ===      ==========      ==========
</TABLE>

     The net proceeds received by L-3 Holdings from the sale of its common
stock, exercise of L-3 Holdings employee stock options and L-3 Holdings common
stock contributed to the Company's savings plans are contributed to L-3
Communications. The net proceeds from the sale of the Convertible Notes and
CODES by L-3 Holdings were also contributed to L-3 Communications and are
reflected as indebtedness of L-3 Communications. See Notes 2 and 7.

     The debt of L-3 Communications, including the Senior Subordinated Notes and
borrowings under amounts drawn against the Senior Credit Facilities are
guaranteed, on a joint and several, full and unconditional basis, by certain of
its wholly-owned domestic subsidiaries (the "Guarantor Subsidiaries"). See Note
7. The foreign subsidiaries and certain domestic subsidiaries of L-3
Communications (the "Non-Guarantor Subsidiaries") do not guarantee the debt of
L-3 Communications. None of the debt of L-3 Communications has been issued by
its subsidiaries. There are no restrictions on the payment of dividends from the
Guarantor Subsidiaries to L-3 Communications.

     In lieu of providing separate audited financial statements for the
Guarantor Subsidiaries, the Company has included the accompanying condensed
combining financial statement based on Rule 3-10 of SEC Regulation S-X . The
Company does not believe that separate financial statements of the Guarantor
Subsidiaries are material to users of the financial statements.

     The following condensed combining financial information present the results
of operations, financial position and cash flows of (i) L-3 Communications
excluding its consolidated subsidiaries (the "Parent") (ii) the Guarantor
Subsidiaries, (iii) the Non-Guarantor Subsidiaries and (iv) the eliminations to
arrive at the information for L-3 Communications on a consolidated basis.


                                      F-34
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                           GUARANTOR    NON-GUARANTOR                       CONSOLIDATED
                                              PARENT     SUBSIDIARIES    SUBSIDIARIES    ELIMINATIONS    L-3 COMMUNICATIONS
                                          ------------- -------------- --------------- ---------------- -------------------
<S>                                       <C>           <C>            <C>             <C>              <C>
CONDENSED COMBINING BALANCE
 SHEETS:
--------
AS OF DECEMBER 31, 2001:
------------------------
Total current assets ....................  $  782,682     $  300,585      $ 155,318      $         --        $1,238,585
Other long-term assets ..................     965,566        701,887        429,395                --         2,096,848
Investment in and amounts due
 from consolidated subsidiaries .........   1,229,572        150,580         43,236        (1,423,388)               --
                                           ----------     ----------      ---------      ------------        ----------
 Total assets ...........................  $2,977,820     $1,153,052      $ 627,949      $ (1,423,388)       $3,335,433
                                           ==========     ==========      =========      ============        ==========
Total current liabilities ...............  $  278,304     $  136,579      $ 109,394      $         --        $  524,277
Other long-term liabilities .............     170,372         31,080         10,663                --           212,115
Long-term debt ..........................   1,315,252             --             --                --         1,315,252
Minority interest .......................          --             --         69,897                --            69,897
Shareholders' equity ....................   1,213,892        985,393        437,995        (1,423,388)        1,213,892
                                           ----------     ----------      ---------      ------------        ----------
 Total liabilities and
   shareholders' equity .................  $2,977,820     $1,153,052      $ 627,949      $ (1,423,388)        3,335,433
                                           ==========     ==========      =========      ============        ==========
AS OF DECEMBER 31, 2000
Total current assets ....................  $  530,672     $  229,531      $  69,367      $         --        $  829,570
Other long-term assets ..................   1,110,082        433,763         90,129                --         1,633,974
Investment in and amounts due
 from (to) consolidated
 subsidiaries ...........................     613,153         55,805        (27,022)         (641,936)               --
                                           ----------     ----------      ---------      ------------        ----------
 Total assets ...........................  $2,253,907     $  719,099      $ 132,474      $   (641,936)       $2,463,544
                                           ==========     ==========      =========      ============        ==========
Total current liabilities ...............  $  365,123     $   71,948      $  31,598      $         --        $  468,669
Other long-term liabilities .............     101,215        103,173          2,918                --           207,306
Long-term debt ..........................   1,095,000             --             --                --         1,095,000
Shareholders' equity ....................     692,569        543,978         97,958          (641,936)          692,569
                                           ----------     ----------      ---------      ------------        ----------
 Total liabilities and
   shareholders' equity .................  $2,253,907     $  719,099      $ 132,474      $   (641,936)       $2,463,544
                                           ==========     ==========      =========      ============        ==========
</TABLE>


                                      F-35
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                                GUARANTOR    NON-GUARANTOR                     CONSOLIDATED
                                                   PARENT     SUBSIDIARIES    SUBSIDIARIES   ELIMINATIONS   L-3 COMMUNICATIONS
                                               ------------- -------------- --------------- -------------- -------------------
<S>                                            <C>           <C>            <C>             <C>            <C>
CONDENSED COMBINING STATEMENTS OF
 OPERATIONS:
------------
FOR THE YEAR ENDED DECEMBER 31, 2001:
----------------------------------------------
Sales ........................................  $1,328,702      $854,094       $168,558       $  (3,932)        $2,347,422
                                                ----------      --------       --------       ---------         ----------
Operating income .............................     219,373        30,237         25,720              --            275,330
Interest and other income (expense) ..........       8,335          (515)        (6,081)             --              1,739
Interest expense .............................      86,024            51            315              --             86,390
Minority interest ............................          --            --          4,457              --              4,457
Provision for income taxes ...................      53,840        11,275          5,649              --             70,764
Equity in net income of consolidated
 subsidiaries ................................      27,614            --             --         (27,614)                --
                                                ----------      --------       --------       ---------         ----------
Net income ...................................  $  115,458      $ 18,396       $  9,218       $ (27,614)        $  115,458
                                                ==========      ========       ========       =========         ==========
FOR THE YEAR ENDED DECEMBER 31, 2000:
-----------------------------------------------
Sales ........................................  $1,313,998      $441,677       $159,735       $  (5,349)        $1,910,061
                                                ----------      --------       --------       ---------         ----------
Operating income .............................     206,680         5,755         10,283              --            222,718
Interest and other income ....................       3,061           264          1,068              --              4,393
Interest expense .............................      92,633           149            250              --             93,032
Provision for income taxes ...................      44,852         2,248          4,252              --             51,352
Equity in net income of consolidated
 subsidiaries ................................      10,471            --             --         (10,471)                --
                                                ----------      --------       --------       ---------         ----------
Net income ...................................  $   82,727      $  3,622       $  6,849       $ (10,471)        $   82,727
                                                ==========      ========       ========       =========         ==========
FOR THE YEAR ENDED DECEMBER 31, 1999:
-----------------------------------------------
Sales ........................................  $  837,924      $440,160       $130,122       $  (2,744)        $1,405,462
                                                ----------      --------       --------       ---------         ----------
Operating income (loss) ......................     103,753        52,016         (5,283)             --            150,486
Interest and other income ....................       4,738           469            327              --              5,534
Interest expense .............................      60,307            --            283              --             60,590
Provision (benefit) for income taxes .........      18,238        20,091         (1,588)             --             36,741
Equity in net income of consolidated
 subsidiaries ................................      28,743            --             --         (28,743)                --
                                                ----------      --------       --------       ---------         ----------
Net income (loss) ............................  $   58,689      $ 32,394       $ (3,651)      $ (28,743)        $   58,689
                                                ==========      ========       ========       =========         ==========
</TABLE>


                                      F-36
<PAGE>

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

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                                GUARANTOR    NON-GUARANTOR                     CONSOLIDATED
                                                   PARENT     SUBSIDIARIES    SUBSIDIARIES   ELIMINATIONS   L-3 COMMUNICATIONS
                                               ------------- -------------- --------------- -------------- -------------------
<S>                                            <C>           <C>            <C>             <C>            <C>
CONDENSED COMBINING STATEMENTS OF CASH
 FLOWS:
-------
FOR THE YEAR ENDED DECEMBER 31, 2001:
----------------------------------------------
Net cash from operating activities ...........  $  104,169     $   30,014      $  38,785      $       --       $  172,968
                                                ----------     ----------      ---------      ----------       ----------
Net cash (used in) investing activities ......    (470,091)      (227,199)       (61,820)        334,220         (424,890)
                                                ----------     ----------      ---------      ----------       ----------
Net cash from financing activities ...........     667,424        187,862         59,198        (334,220)         580,264
                                                ----------     ----------      ---------      ----------       ----------
Net increase (decrease) in cash ..............     301,502         (9,323)        36,163              --          328,342
Cash and cash equivalents, beginning of
 period ......................................      18,708          4,911          9,061              --           32,680
                                                ----------     ----------      ---------      ----------       ----------
Cash and cash equivalents, end of period .....  $  320,210     $   (4,412)     $  45,224      $       --       $  361,022
                                                ==========     ==========      =========      ==========       ==========
FOR THE YEAR ENDED DECEMBER 31, 2000:
-----------------------------------------------
Net cash from (used in) operating activities .  $  108,726     $  (10,504)     $  15,583      $       --       $  113,805
                                                ----------     ----------      ---------      ----------       ----------
Net cash (used in) investing activities ......    (607,579)       (21,819)        (8,163)         29,338         (608,223)
                                                ----------     ----------      ---------      ----------       ----------
Net cash from (used in) financing activities .     483,524         32,070         (1,946)        (29,338)         484,310
                                                ----------     ----------      ---------      ----------       ----------
Net increase (decrease) in cash ..............     (15,329)          (253)         5,474              --          (10,108)
Cash and cash equivalents, beginning of
 period ......................................      34,037          5,164          3,587              --           42,788
                                                ----------     ----------      ---------      ----------       ----------
Cash and cash equivalents, end of period .....  $   18,708     $    4,911      $   9,061      $       --       $   32,680
                                                ==========     ==========      =========      ==========       ==========
FOR THE YEAR ENDED DECEMBER 31, 1999:
-----------------------------------------------
Net cash from (used in) operating activities .  $   75,737     $   31,315      $  (8,034)     $       --       $   99,018
                                                ----------     ----------      ---------      ----------       ----------
Net cash (used in) investing activities ......    (280,118)      (155,607)       (62,408)        213,331         (284,802)
                                                ----------     ----------      ---------      ----------       ----------
Net cash from financing activities ...........     214,681        128,997         72,095        (213,331)         202,442
                                                ----------     ----------      ---------      ----------       ----------
Net increase in cash .........................      10,300          4,705          1,653              --           16,658
Cash and cash equivalents, beginning of
 period ......................................      23,737            459          1,934              --           26,130
                                                ----------     ----------      ---------      ----------       ----------
Cash and cash equivalents, end of period .....  $   34,037     $    5,164      $   3,587      $       --       $   42,788
                                                ==========     ==========      =========      ==========       ==========
</TABLE>


                                      F-37
<PAGE>









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