<PAGE>
   
                                UNITED STATES 
                      SECURITIES AND EXCHANGE COMMISSION 

                            WASHINGTON, D.C. 20549 

(Mark One) 

                                 FORM 10-K/A 
    

 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
     ACT OF 1934 
     For the fiscal year ended December 31, 1997 
                                      or 

 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
     EXCHANGE ACT OF 1934 
     For the transition period from                  to 
     Commission file number 

                        L-3 COMMUNICATIONS CORPORATION 

            (Exact name of registrant as specified in its charter) 

<TABLE>
<CAPTION>
                   DELAWARE                          13-3937436 
       <S>                                      <C>
       (State or other jurisdiction of            (I.R.S. Employer 
        incorporation or organization)          Identification No.) 

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

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

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

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

   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.  [ ] 

   As of December 31, 1997, L-3 Communications Corporation (the "Company" or 
"L-3 Communications") had 100 shares of common stock outstanding, which were 
held by its parent, L-3 Communications Holdings, Inc. ("Holdings"). 

                     DOCUMENTS INCORPORATED BY REFERENCE 
                                    None. 

<PAGE>
                                    PART I 

   As used herein, unless the context requires otherwise: (i) "Holdings" 
means L-3 Communications Holdings, Inc., (ii) "L-3" means Holdings, its 
wholly-owned operating subsidiary, L-3 Communications Corporation, their 
predecessors, and the businesses acquired in the 1998 Acquisitions (as 
defined), (iii) "L-3 Communications" or the "Company" means L-3 
Communications Corporation, (iv) "L-3 Acquisition" means the purchase of the 
Company from Lockheed Martin Corporation in April 1997 described under 
"--History", (v) "1998 Acquisitions" means the recently completed acquisition 
of STS (as defined), ILEX (as defined) and Ocean Systems (as defined) 
described under "--Recent Developments", (vi) "Notes Offering" means $150 
million aggregate principal amount of Senior Subordinated Notes due 2008 to 
be offered by L-3 Communications, (vii) "Common Stock Offering" means an 
initial public offering of common stock by Holdings which is made 
concurrently with the Notes Offering, (viii) "Offerings" means the Notes 
Offering and the contribution by Holdings of the proceeds of the Common Stock 
Offering and (ix) unless otherwise indicated, "pro forma" financial data 
reflect the L-3 Acquisition, the 1998 Acquisitions and the Offerings as if 
such transactions had occurred in the beginning of the period indicated. 

ITEM 1. BUSINESS. 

COMPANY OVERVIEW 

   L-3 is a leading merchant supplier of sophisticated secure communication 
systems and specialized communication products including secure, high data 
rate communication systems, microwave components, avionics and ocean systems, 
and telemetry, instrumentation and space products. 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 incorporated into the 
transmission, processing, recording, monitoring and dissemination functions 
of these communication systems. The Company's customers include the U.S. 
Department of Defense (the "DoD"), selected U.S. government (the 
"Government") intelligence agencies, major aerospace/defense prime 
contractors, foreign governments and commercial customers. In 1997, L-3 had 
pro forma sales of $894.0 million and pro forma EBITDA (as defined) of $95.1 
million. The Company's pro forma funded backlog as of December 31, 1997 was 
$638.1 million. These results reflect internal growth as well as the 
execution of the Company's strategy of acquiring businesses that complement 
or extend L-3's product lines. 

   The Company's business areas enjoy proprietary technologies and 
capabilities and have leading positions in their respective primary markets. 
Management has organized the Company's operations into two primary business 
areas: Secure Communication Systems and Specialized Communication Products. 
In 1997, the Secure Communication Systems and Specialized Communication 
Products business areas generated approximately $456.0 million and $438.0 
million of pro forma sales, respectively, and $52.3 million and $42.8 million 
of pro forma EBITDA, respectively. In addition, the Company is seeking to 
expand its products and technologies in commercial markets. See " -- Emerging 
Commercial Products" below. 

   
   SECURE COMMUNICATION SYSTEMS. L-3 is the established leader in secure, 
high data rate communications in support of military and other national 
agency reconnaissance and surveillance applications. The Company's Secure 
Communication Systems operations are located in Salt Lake City, Utah, Camden, 
New Jersey, and Shrewsbury, New Jersey. These operations are predominantly 
cost plus, sole source contractors supporting long-term programs for the U.S. 
Armed Forces and classified customers. The Company's major secure 
communication programs and systems include: secure data links for airborne, 
satellite, ground-and sea-based information collection and transmission; 
strategic and tactical signal intelligence systems that detect, collect, 
identify, analyze and disseminate information and related support contracts 
for military and national agency intelligence efforts; as well as secure 
telephone and network equipment. The Company believes that it has developed 
virtually every high bandwidth data link used by the military for 
surveillance and reconnaissance in operation today. L-3 is also a leading 
supplier of communication software support services to military and related 
government intelligence markets. In addition to these core Government 
programs, L-3 is leveraging its technology base by expanding into 
    

                                1           
<PAGE>
related commercial communication equipment markets, including applying its 
high data rate communications and archiving technology to the medical image 
archiving market and its wireless communication expertise to develop local 
wireless loop telecommunications equipment. 

   SPECIALIZED COMMUNICATION PRODUCTS. This business area includes (i) 
Microwave Components, (ii) Avionics and Ocean Systems and (iii) Telemetry, 
Instrumentation and Space Products operations of the Company. 

   Microwave Components. L-3 is the preeminent worldwide supplier of 
commercial off-the-shelf, high performance microwave components and frequency 
monitoring equipment. L-3's microwave products are sold under the 
industry-recognized Narda brand name through a standard catalog to wireless, 
industrial and military communication markets. L-3 also provides 
state-of-the-art communication components including channel amplifiers and 
frequency filters for the commercial communication satellite market. 
Approximately 76% of Microwave Components sales is made to commercial 
customers, including Loral Space & Communications, Ltd., Motorola, Inc., 
Lucent Technologies Inc., AT&T Corp. and Lockheed Martin Corporation 
("Lockheed Martin"). 

   
   Avionics and Ocean Systems. Avionics and Ocean Systems include the 
Company's Aviation Recorders, Display Systems, Antenna Systems and Acoustic 
Undersea Warfare Systems operations. L-3 is the world's leading manufacturer 
of commercial cockpit voice and flight data recorders ("black boxes"). These 
recorders are sold under the Fairchild brand name both on an original 
equipment manufacturer ("OEM") basis to aircraft manufacturers as well as 
directly to the world's major airlines for their existing fleets of aircraft. 
L-3 aviation recorders are also installed on military transport aircraft 
throughout the world. L-3 provides military and high-end commercial displays 
for use on a number of DoD programs including the F-14, V-22, F-117 and E-2C. 
Further, L-3 manufactures high performance surveillance antennas and related 
equipment for U.S. Air Force, U.S. Army and U.S. Navy aircraft including the 
F-15, F-16, AWACS, E-2C and B-2, as well as the U.K.'s maritime patrol 
aircraft. L-3 is also one of the world's leading product suppliers of 
acoustic undersea warfare systems and airborne dipping sonar systems to the 
U.S. and over 20 foreign navies. 
    

   Telemetry, Instrumentation and Space Products. The Company's Telemetry, 
Instrumentation and Space Products operations 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 parameter data and other critical 
information and transmit it from air or space to the ground. Telemetry 
products are also used for range safety and training applications to simulate 
battlefield situations. L-3 is also a leading global satellite communications 
systems and services provider offering systems and services used in satellite 
transmission of voice, video and data. 

   
   EMERGING COMMERCIAL PRODUCTS. Building upon its core technical expertise 
and capabilities, the Company is seeking to expand into several closely 
aligned commercial business areas and applications. Emerging Commercial 
Products currently include the following three niche markets: (i) medical 
archiving and simulation systems; (ii) local wireless loop telecommunications 
equipment; and (iii) airport security equipment. These commercial products 
were developed based on technology used in the Company's military businesses 
with relatively small incremental financial investments. The Company is 
applying its technical capabilities in high data rate communications and 
archiving technology developed in its Secure Communication Systems business 
area to the medical image archiving market jointly with the General Electric 
Company's ("GE") medical systems business ("GE Medical Systems"). Based on 
secure, high data rate communications technology also developed in its Secure 
Communication Systems business area, the Company has developed local wireless 
loop telecommunications equipment that is primarily designed for emerging 
market countries and rural areas where voice and data communication 
infrastructure is inadequate or non-existent. L-3 has completed the 
development phase for the local wireless loop telecommunications equipment 
and made its initial shipment in January 1998. In addition, the Federal 
Aviation Administration (the "FAA") has awarded the Company a development 
contract for next generation airport security equipment for explosive 
detection. L-3 has shipped two prototype test units and FAA certification 
testing commenced in the first quarter of 1998. To date, revenues generated 
from L-3's Emerging Commercial Products have not been, in the aggregate, 
material to the Company. 
    

                                2           
<PAGE>
   The Company's systems and products are summarized in the following tables: 

     SECURE COMMUNICATION SYSTEMS (1997 PRO FORMA SALES: $456.0 MILLION) 

<TABLE>
<CAPTION>
                SYSTEMS                         SELECTED APPLICATIONS                 SELECTED PLATFORMS/END USES 
-------------------------------------  --------------------------------------- ---------------------------------------- 
<S>                                    <C>                                     <C>
SECURE HIGH DATA RATE COMMUNICATIONS 
o Wideband data links                  o High performance, secure              o Used on aircraft and naval ships and 
                                         communication links for interoperable   unmanned aerial vehicles with military 
                                         tactical communication and              and commercial satellites 
                                         reconnaissance 

SATELLITE COMMUNICATION TERMINALS 
o Ground-based satellite               o Interoperable, transportable ground   o Provide remote personnel with 
  communication terminals                terminals for remote data links to      communication links to distant forces 
                                         distant segments via commercial or 
                                         military satellites 

SPACE COMMUNICATION AND SATELLITE CONTROL 
o Satellite communication and          o On-board satellite external           o International Space Station; Earth 
  tracking systems                       communications, video systems, solid    Observing Satellite; Landsat-7; Space 
                                         state recorders and ground support      Shuttle; and National Oceanic and 
                                         equipment                               Atmospheric Administration weather 
                                                                                 satellites 
o Satellite command and control        o Software integration, test and        o Air Force satellite control network 
  sustainment and support                maintenance support for Air Force       and Titan IV launch system 
                                         satellite control network; 
                                         engineering support for satellite 
                                         launch systems 

MILITARY COMMUNICATIONS 
o Shipboard communication systems      o Shipboard and ship-to-ship            o Shipboard voice communications systems 
                                         communications                          for Aegis cruisers and destroyers and 
                                                                                 fully automated Integrated Radio Room 
                                                                                 (IRR) for ship-to-ship communications 
                                                                                 on Trident submarines 
o Digital battlefield communications   o Communications on the move for        o Communication systems for U.S. Army 
                                         tactical battlefield                    C(2)V 
o Communication software support       o Value added, critical software        o ASAS, JSTARS and GUARDRAIL 
  services                               support for C(3)I systems 

INFORMATION SECURITY SYSTEMS 
o Secure Telephone Unit (STU           o Secure and non-secure voice, data and o Office and battlefield secure and 
  III)/Secure Terminal Equipment         video communication utilizing ISDN      non-secure communication for armed 
  (STE)                                  and ATM commercial network              services, intelligence and security 
                                         technologies                            agencies 
o Local management device/key          o Provides electronic key material      o User authorization and recognition and 
  processor (LMD/KP)                     accounting, system management and       message encryption for secure 
                                         audit support functions for secure      communication 
                                         data communication 
o Information processing systems       o Custom designed strategic and         o Classified military and national 
                                         tactical signal intelligence systems    agency intelligence efforts 
                                         that detect, collect, identify, 
                                         analyze and disseminate information 
                                         and related support contracts 
-------------------------------------  --------------------------------------- ---------------------------------------- 
</TABLE>

                                3           
<PAGE>
  SPECIALIZED COMMUNICATION PRODUCTS (1997 PRO FORMA SALES: $438.0 MILLION) 

<TABLE>
<CAPTION>
                PRODUCTS                          SELECTED APPLICATIONS                 SELECTED PLATFORMS/END USES 
---------------------------------------  --------------------------------------- ---------------------------------------- 
<S>                                      <C>                                     <C>
MICROWAVE COMPONENTS 
o Passive components, mechanical         o Radio transmission, switching and     o Broad-band and narrow-band commercial 
  switches and wireless assemblies         conditioning; antenna and base          applications (PCS, cellular, SMR, and 
                                           station testing and monitoring          paging infrastructure) sold under the 
                                                                                   Narda brand name; and broad- 
                                                                                   band military applications 
o Safety products                        o Radio frequency (RF) monitoring and   o Monitor cellular base station and 
                                           measurement                             industrial RF emissions frequency 
                                                                                   monitoring 
o Semiconductors (diodes, capacitors)    o Radio frequency switches, limiters,   o Various industrial and military end 
                                           voltage control, oscillators,           uses, including commercial satellites, 
                                           harmonic generators                     avionics and specialty communication 
                                                                                   products 
o Satellite and wireless components      o Satellite transponder control,        o China Sat, PanAmSat, Telstar, Sirius, 
  (channel amplifiers, transceivers,       channel and frequency separation        Tempo, Tiros, Milstar, GPS and LandSat 
  converters, filters and multiplexers) 

AVIONICS AND OCEAN SYSTEMS 
Aviation Recorders 
o Solid state cockpit voice and flight   o Voice recorders continuously record   o Installed on business and commercial 
  data recorders                           most recent 30-120 minutes of voice     aircraft and certain military 
                                           and sounds from cockpit and aircraft    transport aircraft; sold to both 
                                           inter-communications. Flight data       aircraft OEMs and airlines under the 
                                           recorders record the last 25 hours of   Fairchild brand name 
                                           flight parameters 
Antenna Systems 
o Ultra-wide frequency and advanced      o Surveillance; radar detection         o F-15, F-16, F-18, E-2C, P-3, C-130, 
  radar antenna systems and rotary                                                 B-2, AWACS, Apache, Cobra, Mirage 
  joints                                                                           (France), Maritime Patrol (U.K.) and 
                                                                                   Tornado (U.K.) 
Display Systems 
o Cockpit and mission display systems    o High performance, ruggedized flat     o E-2C, V-22, F-14, F-117, E-6B, C-130, 
                                           panel and cathode ray tube displays     AWACS and JSTARS 
Ocean Systems 
o Airborne dipping sonar systems         o Submarine detection and localization  o SH-60, SH-2/3, AB-212, EH-101 and Lynx 
                                                                                   Helicopters 
o Submarine and surface ship towed       o Submarine and surface ship detection  o SSN, SSBN, DDG-963 and FFG-7 
  arrays                                   and localization 
o Torpedo defense systems                o Torpedo detection and jamming         o SSN, SSBN and DDG-963 
o Mine countermeasure systems            o Coastal and route survey              o MCDV (Canada) 

TELEMETRY, INSTRUMENTATION AND SPACE PRODUCTS 
Airborne, Ground and Space Telemetry 
o Aircraft, missile and satellite        o Real time data acquisition,           o JSF, F-15, F-18, F-22, Comanche, 
  telemetry systems                        measurement, processing, simulation,    Nimrod (U.K.), Tactical Hellfire, 
                                           distribution, display and storage for   Titan, EELV, A2100 and ATHENA 
                                           flight testing 
o Training range telemetry systems       o Battlefield simulation                o Combat simulation 
Space Products 
o Global satellite communications        o Satellite transmission of voice,      o Rural telephony or private networks, 
  systems supplier                         video and data                          direct to home uplinks, satellite news 
                                                                                   gathering and wideband applications 
---------------------------------------  --------------------------------------- ---------------------------------------- 
</TABLE>

                                4           
<PAGE>
INDUSTRY OVERVIEW 

   The defense industry has recently undergone significant changes 
precipitated by ongoing federal budget pressures and new roles and missions 
to reflect changing strategic and tactical threats. Since the mid-1980's, the 
overall U.S. defense budget has declined in real dollars. In response, the 
DoD has focused its resources on enhancing its military readiness, joint 
operations and digital command and control communications by incorporating 
advanced electronics to improve the performance, reduce operating cost and 
extend the life expectancy of its existing and future platforms. The emphasis 
on system interoperability, force multipliers and providing battlefield 
commanders with real-time data is increasing the electronics content of 
nearly all of the major military procurement and research programs. As a 
result, the DoD's budget for communications and defense electronics is 
expected to grow. According to Federal Sources, an independent private 
consulting group, the defense budget for command, control, communications and 
intelligence ("C(3)I") is expected to increase from $31.0 billion in the 
fiscal year ended September 30, 1997 to $42.0 billion in the fiscal year 
ended September 30, 2002, a compound annual growth rate of 6.3%. 

   The industry has also undergone dramatic consolidation resulting in the 
emergence of three dominant prime system contractors (The Boeing Company, 
Lockheed Martin and Raytheon Company ("Raytheon")). One outgrowth of this 
consolidation among the remaining major prime contractors is their desire to 
limit purchases of products and sub-systems from one another. However, there 
are numerous essential products, components and systems that are not 
economical for the major prime contractors to design, develop or manufacture 
for their own internal use which creates opportunities for merchant suppliers 
such as L-3. As the prime contractors continue to evaluate their core 
competencies and competitive position, focusing their resources on larger 
programs and platforms, the Company expects 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. Recent examples of this trend include divestitures of certain 
non-core businesses by AlliedSignal Inc. ("AlliedSignal"), Ceridian 
Corporation ("Ceridian"), Lockheed Martin and Raytheon. 

   
   The prime contractors' focus on cost control is also driving increased use 
of commercial off-the-shelf products for upgrades of existing systems and in 
new systems. The Company believes the prime contractors will continue to be 
under pressure to reduce their costs and will increasingly seek to focus 
their resources and capabilities on major systems, turning to commercially 
oriented merchant suppliers to produce sub-systems, components and products. 
Going forward, successful merchant suppliers will use their resources to 
complement and support, rather than compete with the prime contractors. L-3 
anticipates the relationship between the major prime contractors and their 
primary suppliers will, as in the automotive and commercial aircraft 
industry, develop into 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. 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 the 
Company, 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. 
    

RECENT DEVELOPMENTS 

   
   Since the formation of the Company in April 1997, the Company has actively 
pursued its acquisition strategy. The Company recently purchased the assets 
and liabilities of three businesses described below which collectively 
comprise the "1998 Acquisitions". The combined purchase prices for these 
acquisitions was $146.4 million of cash, subject to certain post-closing 
adjustments, and in one case certain additional consideration based on 
post-closing performance. The Company has financed these acquisitions through 
the use of its existing cash balances as well as through borrowings under the 
$375.0 million Senior Credit Facilities (as defined herein). These three 
businesses complement and extend L-3's product offerings. 
    

 Ocean Systems 

   On March 30, 1998, L-3 Communications purchased the assets of the Ocean 
Systems business ("Ocean Systems") of AlliedSignal for $67.5 million in cash. 
In 1997, Ocean Systems had sales of 

                                5           
<PAGE>
$73.0 million. Ocean Systems is one of the world's leading products suppliers 
of acoustic undersea warfare systems, having designed, manufactured and 
supported a broad range of compact, lightweight, high performance acoustic 
systems for navies around the world for over 40 years. Ocean Systems is the 
leading products supplier of airborne dipping sonar systems in the world with 
substantial market share of the sector and systems in service with the U.S. 
and 20 foreign navies. Ocean Systems also produces several sea systems 
products including towed array sonar, integrated side-looking sonar, acoustic 
jammers, mine detection and torpedo defense systems and supplies commercial 
navigation and hydrographic survey systems worldwide. Ocean Systems is 
further supported by ELAC Nautik GmbH ("ELAC") located in Kiel, Germany. ELAC 
manufactures a broad range of naval defense products including submarine, 
torpedo and navigation sonars as well as survey and navigation systems for 
the commercial nautical products industry. 

 ILEX Systems 

   On March 4, 1998, L-3 Communications purchased the assets of ILEX Systems 
("ILEX") for $51.9 million in cash plus additional consideration based on 
post-closing performance which could include up to 540,000 shares of Common 
Stock over the next three years. In 1997, ILEX had sales of $63.5 million. 
ILEX is a leading supplier of communication software support services to 
military and related government intelligence markets. ILEX also provides 
environmental consulting, software and systems engineering services and 
complementary products to several commercial markets. 

 Satellite Transmission Systems 

   
   On February 5, 1998, L-3 Communications purchased the assets of Satellite 
Transmission Systems division ("STS") of California Microwave, Inc. for $27.0 
million, subject to adjustment based on closing net assets. For the fiscal 
year ended June 30, 1997, STS had sales of $68.0 million. STS is a leading 
global satellite communications systems and services provider. Its customers 
include foreign post, telephone and telegraph administrations, domestic and 
international prime communications infrastructure contractors, 
telecommunication and satellite service providers, broadcasters and 
media-related companies, government agencies and large corporations. 
    

   The Company considers and executes strategic acquisitions on an ongoing 
basis and may be evaluating acquisitions or engaged in acquisition 
negotiations at any given time. As of the date hereof, the Company has 
completed, has reached agreement on or is in discussions regarding certain 
acquisitions, in addition to the 1998 Acquisitions, that are either 
individually or in the aggregate not material to the financial condition or 
results of operations of the Company. 

HISTORY 

   Holdings and L-3 Communications were formed in April 1997 by Mr. Frank C. 
Lanza, the former President and Chief Operating Officer of Loral Corporation 
("Loral"), Mr. Robert V. LaPenta, the former Senior Vice President and 
Controller of Loral (collectively, "Senior Management"), Lehman Brothers 
Capital Partners III, L.P. and its affiliates (the "Lehman Partnership") and 
Lockheed Martin to acquire (the "L-3 Acquisition") substantially all of the 
assets and certain liabilities of (i) nine business units previously 
purchased by Lockheed Martin as part of its acquisition of Loral in April 
1996 (the "Loral Acquired Businesses") and (ii) one business unit, 
Communication Systems -- East, purchased by Lockheed Martin as part of its 
acquisition of the aerospace business of GE in April 1993 (collectively, the 
"Businesses"). L-3 Communications is a wholly-owned subsidiary of Holdings. 
At December 31, 1997, Messrs. Lanza and LaPenta and certain other members of 
management collectively own 15.9%; the Lehman Partnership owns 50.1%; and 
Lockheed Martin owns 34.0% of the outstanding capital stock of Holdings. 

   The Company's executive offices are located at 600 Third Avenue, New York, 
New York, 10016, and the telephone number at that address is 212-697-1111. 

                                6           
<PAGE>
PRODUCTS AND SERVICES 

SECURE COMMUNICATION SYSTEMS 

   L-3 is a leader in communication systems for high performance intelligence 
collection, imagery processing and ground, air, sea and satellite 
communications for the DoD and other government agencies. The Salt Lake City 
operation provides secure, high data rate, real-time communication systems 
for surveillance, reconnaissance and other intelligence collection systems. 
The Camden operation designs, develops, produces and integrates communication 
systems and support equipment for space, ground and naval applications. The 
Shrewsbury operation provides 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 ("SATCOM") terminals, Navy 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. 

O HIGH DATA RATE COMMUNICATIONS 

   The Company is a technology leader in high data rate, covert, 
jam-resistant microwave communications in support of military and other 
national agency reconnaissance and surveillance applications. L-3's 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. The Company's 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. 

   During the 1980s, largely based on its prior experience with command and 
control guidance systems for remotely-piloted vehicles, L-3 developed its 
current family of strategic and tactical data links, including its Modular 
Interoperable Data Link ("MIDL") systems and Modular Interoperable Surface 
Terminals ("MIST"). MIDL and MIST technologies are considered virtual DoD 
standards in terms of data link hardware. The Company's primary focus is 
spread spectrum communication (based on CDMA technology), which involves 
transmitting a data signal with a high rate noise signal so as to make it 
difficult to detect by others, and then re-capturing the signal and removing 
the noise. The Company's data links are capable of providing information at 
over 200 Mb/s. 

   L-3 provides these secure high band width products to the U.S. Air Force, 
Navy, Army and various Government agencies, many through long-term sole 
source programs. The scope of these programs include air-to-ground, 
air-to-air, ground-to-air and satellite communications. Government programs 
include: U-2 Support Program, Common High-Band Width Data Link ("CHBDL"), 
Battle Group Passive Horizon Extension System ("BGPHES"), Light Airborne 
Multi-Purpose System ("LAMPS"), TriBand SATCOM Subsystem ("TSS"), major 
unmanned aerial vehicle ("UAV") programs and Direct Air-Satellite Relay 
("DASR"). 

O SATELLITE COMMUNICATION TERMINALS 

   L-3 provides ground-to-satellite, high availability, real-time global 
communications capability through a family of transportable field terminals 
to communicate with commercial, military and international satellites. These 
terminals provide remote personnel with anywhere, anytime effective 
communication capability and provide communications links to distant forces. 
The Company's TriBand SATCOM Subsystem ("TSS") 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. The Company also offers an 11.3 meter dish which is 
transportable on two C-130 aircraft. The SHF Portable Terminal System ("PTS") 
is a lightweight (28 lbs.), manportable terminal, which communicates through 
DSCS, NATO or SKYNET satellites and brings unprecedented connectivity to 
small military tactical units and mobile command posts. L-3 delivered 14 of 
these terminals for use by NATO forces in Bosnia. 

                                7           
<PAGE>
O SPACE COMMUNICATIONS AND SATELLITE CONTROL 

   Continuing L-3's tradition of providing communications for every manned 
U.S. space flight since Mercury, the Company is currently designing and 
testing three communication subsystems for the International Space Station 
("ISS"). These systems will control all ISS radio frequency ("RF") 
communications and external video activities. The Company also provides 
solid-state recorders and memory units for data capture, storage, transfer 
and retrieval for space applications. The standard NASA tape recorder, which 
was developed and produced by the Company, has completed over four million 
hours of service without a mission failure. Current programs include 
recorders for the National Oceanic & Atmospheric Administration ("NOAA") 
weather satellites, the Earth Observing Satellite ("EOS"), AM spacecraft and 
Landsat-7 Earth-monitoring spacecraft. The Company also provides 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. 

O MILITARY COMMUNICATIONS 

   
   The Company provides integrated, computer controlled switching systems for 
the interior and exterior voice and data needs of today's Navy military 
vessels. The Company's products include Integrated Voice Communication 
Systems ("IVCS") for Aegis cruisers and destroyers and the Integrated Radio 
Room ("IRR") for Trident class submarines, the first computer controlled 
communications center in a submarine. These products integrate the intercom, 
tactical and administrative communications network into one system accessing 
various types of communication terminals throughout the ship. The Company's 
MarCom 2000 secure digital switching system is in development for the Los 
Angeles class attack submarine and provides an integrated approach to the 
specialized voice and data communications needs of a shipboard environment 
for internal and external communications, command and control and air traffic 
control. The Company also offers 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 terminal 
platforms. The Company provides the US Army's Command and Control Vehicle 
("C2V") Mission Module Systems ("MMS"). MMS provides the "communications on 
the move" capability needed for the digital battlefield by packaging advanced 
communications into a modified Bradley Fighting Vehicle. The Company is a 
proven supplier of superior technological expertise to the DoD, including its 
contractors and related government intelligence agencies. 
    

O INFORMATION SECURITY SYSTEMS 

   The Company has produced more than 100,000 secure telephone units ("STU 
III") which are in use today by the U.S. Armed Forces to provide secure 
telephone capabilities for classified confidential communication over public 
commercial telephone networks. The Company has begun producing the 
next-generation digital, ISDN-compatible STE. STE provides clearer voice and 
thirteen-times faster data/fax transmission capability than the STU III. STE 
also supports secure conference calls and secure video teleconferencing. STE 
uses a CryptoCard security system which consists of a small, portable, 
cryptographic module mounted on a PCMCIA card holding the algorithms, keys 
and personalized credentials to identify its user for secure communications 
access. The Company also provides LMD/KP which is the workstation component 
of the Government's Electronic Key Management System ("EKMS"), the next 
generation of information security systems. EKMS is the Government system to 
replace current "paper" secret keys used to secure government communications 
with "electronic" secret keys. LMD/KP is the component of the EKMS which 
produces and distributes the electronic keys. L-3 also develops specialized 
strategic and tactical SIGINT 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. 

O TACTICAL SECURITY SYSTEMS 

   The Company manufactures the IREMBASS, an unattended ground sensor system 
which uses sensors placed along likely avenues of enemy approach or intrusion 
in a battlefield environment. The 

                                8           
<PAGE>
sensors respond to seismic and acoustic disturbances, infrared energy and 
magnetic field changes and thus detect enemy activities. IREMBASS is 
currently in use by U.S. Special Operations Forces, the U.S. Army's Light 
Divisions and several foreign governments. The Company also provides the 
Intrusion Detection Early Warning System ("IDEWS"), a sensor system designed 
for platoon-level physical security applications. Weighing less than two 
pounds, this sensor system is ideal for covert perimeter intrusion detection, 
border protection and airfield or military installation security. 

SPECIALIZED COMMUNICATION PRODUCTS 

MICROWAVE COMPONENTS 

   L-3 is the preeminent worldwide supplier of commercial off-the-shelf, high 
performance radio frequency ("RF") microwave components, assemblies and 
instruments supplying the wireless communications, industrial and military 
markets. The Company is also a leading provider of state-of-the-art 
space-qualified commercial satellite and strategic military RF products. L-3 
sells many of these components under the well-recognized Narda brand name and 
through the world's most comprehensive catalog of standard, stocked hardware. 
L-3 also sells its products through a direct sales force and an extensive 
network of premier 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. The Company operates from two sites, Hauppauge, New York ("Narda 
East"), and Sacramento, California ("Narda West"). 

   Narda East represents approximately 65% of L-3's microwave sales volume, 
offering high performance microwave components, networks and instruments to 
the wireless, industrial and military communications markets. Narda East's 
products can be divided into three major categories: passive components, 
higher level wireless assemblies/monitoring systems and safety instruments. 

   Passive components are generally purchased in narrow frequency 
configurations by wireless OEM equipment manufacturers and service providers. 
Similar components are purchased in wide frequency configurations by first 
tier military equipment suppliers. Commercial applications for Narda 
components are primarily in cellular or PCS base stations. Narda also 
manufactures higher level assemblies for wireless base stations and the 
paging industry. These products include communication antenna test sets, 
devices that monitor reflected power to determine if a cellular base station 
antenna is working and whether the base station radios are operating at peak 
power levels. Military applications include general procurement for test 
equipment or electronic surveillance and countermeasure systems. RF safety 
products are instruments which are used to measure the level of non-ionizing 
radiation in a given area, i.e., from an antenna, test set or other emitting 
source, and determine whether human exposure limits are within federal 
standards. 

   Narda West designs and manufactures state-of-the-art space-qualified and 
wireless components. Space qualified components include channel amplifiers 
for satellite transponder control and diplexers/ multiplexers, which are used 
to separate various signals and direct them to the appropriate other sections 
of the payload. Narda West's primary areas of focus are communications 
satellite payload products. Channel amplifiers constitute Narda West's main 
satellite product. These components amplify the weak signals received from 
earth stations by a factor of 1 million, and then drive the power amplifier 
tubes that broadcast the signal back to earth. These products are sold to 
satellite manufacturers and offer lower cost, lower weight and improved 
performance versus in-house alternatives. On a typical satellite, for which 
there are 20 to 50 channel amps, Narda West's channel amps offer cost savings 
of up to 60% (up to $1 million per satellite) and decrease launch weight by 
up to 25 kilograms. 

   Narda West products include wireless microwave components for cellular and 
PCS base station applications. These products include filters used to 
transmit and receive channel separation as well as ferrite components, which 
isolate certain microwave functions, thereby preventing undesired signal 
interaction. Other products include a wide variety of high-reliability power 
splitters, combiners and filters 

                                9           
<PAGE>
for spacecraft and launch vehicles, such as LLV, Tiros, THAAD, Mars Surveyor, 
Peacekeeper, Galileo, Skynet, Cassini, Milstar, Space Shuttle, LandSat, 
FltSatCom, GPS, GPS Block IIR, IUS, ACE, SMEX and certain classified 
programs. The balance of the operation's business is of an historical nature 
and involves wideband filters used for electronic warfare applications. 

AVIONICS AND OCEAN SYSTEMS 

O  AVIATION RECORDERS 

   L-3 manufactures commercial solid-state crash-protected aviation recorders 
("black boxes") under the Fairchild brand name, and has delivered over 40,000 
flight recorders to airplane manufacturers and airlines around the world. 
Recorders are mandated and regulated by various worldwide agencies for 
commercial airlines and a large portion of business aviation aircraft. 
Management anticipates growth opportunities in Aviation Recorders as a result 
of the current high level of orders for new commercial aircraft. Expansion 
into the military market shows continued growth opportunities. L-3 Recorders 
were recently selected for installation on the fleet of the Royal Australian 
Air Force and Royal Australian Army transport aircraft and are currently 
being installed on the U.S. Navy C-9 aircraft. There are two types of 
recorders: (i) the Cockpit Voice Recorder ("CVR") which records the last 30 
to 120 minutes of crew conversation and ambient sounds from the cockpit and 
(ii) the Flight Data Recorder ("FDR") which records the last 25 hours of 
aircraft flight parameters such as speed, altitude, acceleration, thrust from 
each engine and direction of the flight in its final moments. 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. Management believes that the Company has the leading 
worldwide market position for CVR's and FDR's. 

O  ANTENNA SYSTEMS 

   Under the Randtron brand name, L-3 produces high performance antennas 
designed for surveillance, high-resolution, ultra-wide frequency bands, 
detection of low radar cross section ("LRCS") targets, LRCS installations, 
severe environmental applications and polarization diversity. L-3's main 
antenna product is a sophisticated 24-foot diameter antenna operational on 
all E-2C aircraft. This airborne antenna consists of a 24-foot rotating 
aerodynamic radome containing a UHF surveillance radar antenna, IFF antenna 
and forward and aft auxiliary antennas. Production of this antenna began in 
the early 1980s, and production is planned beyond 2000 for the E-2C, P-3 and 
C-130 AEW aircraft. The replacement for this antenna is a very adaptive radar 
currently under development for introduction early in the next decade. L-3 
also produces broad-band antennas for a variety of tactical aircraft and 
rotary joints for the AWAC's and E-2C's antenna. Randtron has delivered over 
2,000 aircraft sets of antennas and has a current backlog through 1999. 

O  DISPLAY SYSTEMS 

   L-3 specializes in the design, development and manufacture of ruggedized 
display system solutions for military and high-end commercial applications. 
L-3's current product lines include cathode ray tubes ("CRTs"), the Actiview 
family of active matrix liquid crystal displays ("AMLCD"), and a family of 
high performance Display Processing systems. L-3 manufactures flat-panel 
displays that are used on platforms such as E-2C, F-117, and the LCAC 
(Landing Craft Air Cushion) vehicle. Recent new contracts for flat-panel 
displays include the SH-60J helicopter and the C-130 Senior Scout. L-3 also 
manufactures CRT displays for the E-2C Hawkeye, V-22 Osprey, and F-14 Tomcat 
and electronics used in aircraft anti-lock braking systems. 

O  OCEAN SYSTEMS 

   The Company is one of the world's leading suppliers of acoustic undersea 
warfare systems, having designed, manufactured and supported a broad range of 
compact, lightweight, high performance acoustic systems for navies around the 
world for over forty years. This experience spans a wide range of platforms, 
including helicopters, submarines and surface ships, that employ the 
Company's sonar systems and countermeasures. 

                               10           
<PAGE>
TELEMETRY, INSTRUMENTATION AND SPACE 

   The Company is a leader in 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 from these platforms, its 
transmission to ground stations for analysis, and its further dissemination 
or transportation to another platform. A principal use of this telemetry data 
is to measure as many as 1,000 different parameters of the platform's 
operation (in much the same way as a flight data recorder on an airplane 
measures various flight parameters) and transmit this data to the ground. 

   Additionally, for satellite platforms, the equipment also acquires the 
command uplink that controls the satellite and transmits the necessary data 
for ground processing. In these applications, high reliability of components 
is crucial because of the high cost of satellite repair and the length of 
uninterrupted service required. Telemetry also provides the data to terminate 
the flight of missiles and rockets under errant conditions and/or at the end 
of a mission. Telemetry and command/control products are currently provided 
on missile programs such as AMRAAM, ASRAAM, AIM-9X, JASSM, JDAM, FOTT, ATACMS 
and PAC-3, as well as satellite programs such as GPS BLK IIF, GLOBALSTAR, 
EARTHWATCH, SBIRS, LUNAR PROSPECTOR and MTSAT. 

O AIRBORNE, GROUND AND SPACE TELEMETRY 

   The Company provides airborne equipment and data link systems to gather 
critical information and to process, format and transmit it to the ground 
through communication data links from a communications satellite, spacecraft, 
aircraft and/or missile. These products are available in both COTS and custom 
configurations. Major customers are the major defense contractors who 
manufacture aircraft, missiles, warheads, launch vehicles, munitions and 
bombs. Ground instrumentation activity occurs at the ground station where the 
serial stream of combined data is received and decoded in real-time, as it is 
received from the airborne platform. Data can be encrypted and decrypted 
during this process, an additional expertise that the Company offers. The 
Company recently introduced the NeTstar satellite ground station, which 
collapses racks of satellite RF receivers, demodulators and related units 
into a PC. 

O  SPACE PRODUCTS 

   L-3 offers value-added solutions that require complex product integration, 
rich software content and comprehensive support to its customers. The Company 
focuses on the following niches within the satellite ground segment equipment 
market: telephony, video broadcasting and multimedia. The Company's customers 
include foreign PTT's, domestic and international prime communications 
infrastructure contractors, telecommunications or satellite service 
providers, broadcasters and media-related companies. 

EMERGING COMMERCIAL PRODUCTS 

   
O  MEDICAL ARCHIVING AND SIMULATION SYSTEMS 

   The Company markets jointly with GE Medical Systems GEMnet(Trademark), a 
cardiac image management and archive system through an exclusive reseller 
arrangement with GE Medical Systems. GEMnet(Trademark) eliminates the use of 
cinefilm in a cardiac catheterization laboratory by providing a direct 
digital connection to the laboratory. The system provides for acquisition, 
display, analysis and short-and long-term archive of cardiac patient studies, 
providing significant cost savings and process improvements to the hospital. 
The Company is an exclusive reseller of EchoNet(Trademark) pursuant to a 
reseller arrangement with Heartlab, Inc. EchoNet(Trademark) is a digital 
archive management and review system designed specifically for the 
echocardiology profession. The system accepts digital echocardiology studies 
from a variety of currently available ultrasound systems, manages the 
studies, making them available on a network, and allows the physicians and 
technicians to become more productive. EchoNet(Trademark) is a trademark of 
Heartlab, Inc. GEMnet(Trademark) is a trademark of GE. 
    

   The Company has approximately a one-third equity ownership interest in 
Medical Education Technologies, Inc. ("METI"). METI is a medical technology 
company engaged in the development, 

                               11           
<PAGE>
manufacture and sale of Human Patient Simulators ("HPS"). The HPS is a 
computerized system with a life-like mannequin that reacts to medical 
treatments and interventions similar to a human being. Originally oriented to 
the anesthesiology training and education domain, METI has expanded into 
cardiology, critical care, trauma care, allied health care, military medicine 
and continuing medical education. METI's target customers for its HPS include 
medical schools throughout the world, colleges with registered nursing 
programs, community colleges and state, local and volunteer emergency medical 
service organizations. 

O  WIRELESS LOOP TELECOMMUNICATIONS EQUIPMENT 

   The Company is applying its wireless communication expertise to introduce 
local wireless loop telecommunications equipment using a synchronous Code 
Division Multiple Access technology ("CDMA") supporting terrestrial and space 
based, fixed and mobile communication services. The system's principal 
targeted customer base is emerging market countries and rural areas where 
existing telecommunications infrastructure is inadequate or non-existent. The 
Company's system will have the potential to interface with low earth orbit 
("LEO") PCS systems such as Globalstar, Iridium and/or any local public 
telephone network. The Company expects to manufacture for sale certain of the 
infrastructure equipment. The Company intends to pursue joint ventures with 
third parties for service and distribution capabilities. The Company has 
entered into product distribution agreements with Granger Telecom Ltd. for 
distribution in parts of Africa, the Middle East and the United Kingdom, and 
with Unisys for distribution in parts of Mexico and South America. This same 
technology is also being introduced into the Ellipso "big LEO" program to 
provide the key communications capability in the ground and user segments. In 
this program, the Company will provide the CDMA processing equipment in the 
Ground Control Segment and the Ellipso user terminals, both fixed and mobile. 

O  AIRPORT SECURITY EQUIPMENT 

   The FAA has awarded the Company a development contract for next generation 
airport security equipment for explosive detection. L-3 has teamed with 
Analogic Corporation and GE to design and produce an explosive detection 
system ("EDS") utilizing a dual energy computer tomography ("CT") X-ray 
system. L-3's EDS system, the eXaminer 3DX(Trademark) 6000, will analyze the 
contents of checked baggage at airports for a wide-range of explosive 
material as specified by the FAA. The eXaminer 3DX(Trademark) 6000 will 
inspect baggage at an average of 675 bags per hour, which will allow 
screening of passenger-checked baggage for a large body aircraft, such as a 
Boeing 747, in approximately 40 minutes. It can be installed as a stand-alone 
unit in a conveyor system or in a mobile van. L-3 has shipped two prototype 
test units and FAA certification testing commenced in the first quarter of 
1998. 

MAJOR CUSTOMERS 

   
   The Company's sales are predominantly derived from contracts with agencies 
of, and prime contractors to, the Government. Various Government customers 
exercise independent purchasing decisions. Sales to the Government generally 
are not regarded as constituting sales to one customer. Instead, each 
contracting entity is considered to be a separate customer. In 1997, the 
Company performed under approximately 150 contracts with value exceeding $1 
million for the Government. Pro forma 1997 sales to the Government, including 
sales through prime contractors, were $651.1 million. Pro forma sales to 
Lockheed Martin were $81.6 million in 1997. The Company's largest program, 
representing 13% of 1997 pro forma sales, is a long-term, sole source cost 
plus support contract for the U-2 Program. No other program represented more 
than 7% of pro forma 1997 sales. 
    

RESEARCH AND DEVELOPMENT 

   The Company employs scientific, engineering and other personnel to improve 
its existing product lines and to develop new products and technologies in 
the same or related fields. As of December 31, 1997, the Company employed 
approximately 2,000 engineers (of whom over 20% hold advanced degrees). The 
pro forma amounts of research and development performed under customer-funded 
contracts and Company-sponsored research projects, including bid and proposal 
costs, for 1997 were $150.2 million and $46.2 million, respectively. 

                               12           
<PAGE>
COMPETITION 

   The Company's ability to compete for defense contracts depends to a large 
extent on the effectiveness and innovativeness of its research and 
development programs, its ability to offer better program performance than 
its competitors at a lower cost to the Government customer, and its readiness 
in facilities, equipment and personnel to undertake the programs for which it 
competes. In some instances, programs are sole source or work directed by the 
Government to a single supplier. 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 Government should choose to reopen 
the particular program to competition. Approximately 65% of the Company's 
1997 pro forma sales related to sole source contracts. 

   
   The Company experiences competition from industrial firms and U.S. 
government agencies, some of which have substantially greater resources than 
the Company. These competitors include: AlliedSignal, AMP, Inc., Aydin 
Corporation, Cubic Corporation, GTE Corporation, Harris Corporation, Hughes, 
Motorola and Titan Corporation. A majority of the sales of the Company is 
derived from contracts with the Government and its prime contractors, and 
such contracts are awarded on the basis of negotiations or competitive bids. 
Management does not believe any one competitor or a small number of 
competitors is dominant in any of the business areas of the Company. 
Management believes the Company will continue to be able to compete 
successfully based upon the quality and cost competitiveness of its products 
and services. 
    

PATENTS AND LICENSES 

   Although the Company owns some patents and has filed applications for 
additional patents, it does not believe that its operations depend upon its 
patents. In addition, the Company's Government contracts generally license it 
to use patents owned by others. Similar provisions in the Government 
contracts awarded to other companies make it impossible for the Company to 
prevent the use by other companies of its patents in most domestic work. 

BACKLOG 

   As of December 31, 1997, the Company's pro forma funded backlog was 
approximately $638.1 million. This backlog provides management with a useful 
tool to project sales and plan its business on an on-going basis; however, no 
assurance can be given that the Company's backlog will become revenues in any 
particular period or at all. Funded backlog does not include the total 
contract value of multi-year, cost-plus reimbursable contracts, which are 
funded as costs are incurred by the Company. Funded backlog also does not 
include unexercised contract options which represent the amount of revenue 
which would be recognized from the performance of contract options that may 
be exercised by customers under existing contracts and from purchase orders 
to be issued under indefinite quantity contracts or basic ordering 
agreements. Backlog is a more relevant predictor of future sales in the 
Secure Communication Systems business area. Current funded backlog in Secure 
Communication Systems as of December 31, 1997 was $306.0 million, of which 
approximately 93% is expected to be shipped in 1998. The Company believes 
backlog is a less relevant factor in the Specialized Communication Products 
business area given the nature of its catalog and commercial oriented 
business. Overall, approximately 85% of the Company's December 31, 1997 
funded backlog is expected to be shipped in 1998. 

<TABLE>
<CAPTION>
                                                   PRO FORMA 
                                              FUNDED BACKLOG AS OF 
                                               DECEMBER 31, 1997 
                                             -------------------- 
                                                ($ IN MILLIONS) 
<S>                                          <C>                             
Secure Communication Systems ...............         $306.0 
Specialized Communication Products..........          332.1 
                                             -------------------- 
                                                     $638.1 
                                             ==================== 
</TABLE>

GOVERNMENT CONTRACTS 

   Approximately 73% of the Company's 1997 pro forma sales were made to 
agencies of the Government or to prime contractors or subcontractors of the 
Government. 

                               13           
<PAGE>
   Approximately 64% of the Company's pro forma 1997 sales mix of contracts 
were firm fixed price contracts under which the Company agrees to perform for 
a predetermined price. Although the Company's fixed price contracts generally 
permit the Company to keep profits if costs are less than projected, the 
Company does bear the risk that increased or unexpected costs may reduce 
profit or cause the Company to sustain losses on the contract. Generally, 
firm fixed price contracts offer higher margin than cost plus type contracts. 
All domestic defense contracts and subcontracts to which the Company is a 
party are subject to audit, various profit and cost controls and standard 
provisions for termination at the convenience of the Government. Upon 
termination, other than for a contractor's default, the contractor will 
normally be entitled to reimbursement for allowable costs and to an allowance 
for profit. Foreign defense contracts generally contain comparable provisions 
relating to termination at the convenience of the government. To date, no 
significant fixed price contract of the Company has been terminated. 

   Companies supplying defense-related equipment to the Government are 
subject to certain additional business risks peculiar to that industry. Among 
these risks are the ability of the Government to unilaterally suspend the 
Company from new contracts pending resolution of alleged violations of 
procurement laws or regulations. Other risks include a dependence on 
appropriations by the Government, changes in the Government's procurement 
policies (such as greater emphasis on competitive procurements) and the need 
to bid on programs in advance of design completion. A reduction in 
expenditures by the Government for products of the type manufactured by the 
Company, lower margins resulting from increasingly competitive procurement 
policies, a reduction in the volume of contracts or subcontracts awarded to 
the Company or substantial cost overruns would have an adverse effect on the 
Company's cash flow. 

ENVIRONMENTAL MATTERS 

   The Company's 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 its operations. The Company continually 
assesses its obligations and compliance with respect to these requirements. 
Management believes that the Company's current operations are in substantial 
compliance with all existing applicable environmental laws and permits. The 
Company does not believe that its environmental compliance expenditures will 
have a material adverse effect on its financial condition or results of its 
operations. 

   Pursuant to the L-3 Acquisition Agreement, the Company has agreed to 
assume certain on-site and off-site environmental liabilities related to 
events or activities occurring prior to the L-3 Acquisition. Lockheed Martin 
has agreed to retain all environmental liabilities for all facilities no 
longer used by the Businesses and to indemnify fully the Company for such 
prior site environmental liabilities. Lockheed Martin has also agreed, for 
the first eight years following April 1997, to pay 50% of all costs incurred 
by the Company above those reserved for on the Company's balance sheet at 
April 1997 relating to certain Company-assumed environmental liabilities and, 
for the seven years thereafter, to pay 40% of certain reasonable operation 
and maintenance costs relating to any environmental remediation projects 
undertaken in the first eight years. The Company is aware of environmental 
contamination at two of the facilities acquired from Lockheed Martin that 
will require ongoing remediation. In November 1997, the Company sold one such 
facility located in Sarasota, Florida, while retaining a leasehold interest 
in a portion of that facility, to Dames & Moore/Brookhill LLC ("DMB") in a 
transaction in which DMB contractually agreed to assume responsibility for 
further remediation of the Sarasota site. Management believes that the 
Company has established adequate reserves for the potential costs associated 
with the assumed environmental liabilities. However, there can be no 
assurance that any costs incurred will be reimbursable from the Government or 
covered by Lockheed Martin under the terms of the L-3 Acquisition Agreement 
or that the Company's environmental reserves will be sufficient. 

   In connection with the acquisition of Ocean Systems, the Company has 
acquired the stock of ELAC. The premises currently leased by ELAC have 
environmental contamination consisting of chlorinated solvents in the 
groundwater beneath and adjoining the site. However, Honeywell Inc. 
("Honeywell"), the previous owner of ELAC and the current owner of the 
property, has retained the liability for remediating the ELAC site and has 
contractually agreed to indemnify AlliedSignal and ELAC. Management believes 
that any necessary remediation will be covered by the Honeywell 
indemnification. 

                               14           
<PAGE>
PENSION PLANS 

   
   In connection with the L-3 Acquisition Agreement, Holdings and L-3 
Communications 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 Holdings and L-3 
Communications. Prior to the consummation of the L-3 Acquisition, Lockheed 
Martin received a letter from 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 (which assumptions result in a larger liability for accrued 
benefits than the assumptions used for financial reporting under FASB 87). 
The PBGC underfunding is related to the Subject Plans. As of December 31, 
1997, the Company calculated the net funding position of the Subject Plans 
and believes them to be overfunded by approximately $5.9 million under ERISA 
assumptions, underfunded by approximately $10.2 million under FASB 87 
assumptions and, on a termination basis, underfunded by as much as $57.5 
million under PBGC assumptions. 
    

   With respect to the Subject Plans, Lockheed Martin entered into an 
agreement (the "Lockheed Martin Commitment Agreement") among Lockheed Martin, 
L-3 and the PBGC dated as of April 30, 1997. The material terms and 
conditions of the Lockheed Martin Commitment Agreement include a commitment 
by Lockheed Martin 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 Agreement 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, the Company achieves investment grade credit ratings. Pursuant 
to the Lockheed Martin Commitment Agreement, the PBGC agreed that it would 
take no further action in connection with the L-3 Acquisition. 

   In return for the Lockheed Martin Commitment, the Company entered into an 
agreement with Lockheed Martin, dated as of April 30, 1997, pursuant to which 
the Company provided certain assurances to Lockheed Martin including, but not 
necessarily limited to, (i) continuing to fund the Subject Plans consistent 
with prior practices and to the extent deductible for tax purposes and, where 
appropriate, recoverable under Government contracts, (ii) agreeing to not 
increase benefits under the Subject Plans without the consent of Lockheed 
Martin, (iii) restricting the Company from a sale of any businesses employing 
individuals covered by the Subject Plans if such sale would not result in 
reduction or elimination of the Lockheed Martin Commitment with regard to the 
specific plan and (iv) if the Subject Plans were returned to Lockheed Martin, 
granting Lockheed Martin the right to seek recovery from the Company of those 
amounts actually paid, if any, by Lockheed Martin with regard to the Subject 
Plans after their return. In addition, upon the occurrence of certain events, 
Lockheed Martin, at its option, will have the right to decide whether to 
assume sponsorship of any or all of the Subject Plans, even if the PBGC has 
not sought to terminate the Subject Plans. 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. 

EMPLOYEES 

   As of December 31, 1997, the Company employed approximately 6,100 
full-time and part-time employees. The Company believes that its relations 
with its employees are good. 

   Approximately 540 of the Company's employees at its Communication Systems 
-- East operation in Camden, New Jersey are represented by four unions, the 
Association of Scientists and Professional Engineering Personnel, the 
International Federation of Professional and Technical Engineers, the 
International Union of Electronic, Electrical, Salaried, Machine and 
Furniture Workers and an affiliate of the International Brotherhood of 
Teamsters. Three of the four collective bargaining agreements expire in 
mid-1998. While the Company has not yet initiated discussions with 
representatives of these unions, management believes it will be able to 
negotiate, without material disruption to its business, satisfactory new 
collective bargaining agreements with these employees. However, there can be 
no assurance that a satisfactory agreement will be reached with the covered 
employees or that a material disruption to the Company's Camden operations 
will not occur. 

                               15           
<PAGE>
   Approximately 200 employees of Ocean Systems are represented by the United 
Auto Workers. The collective bargaining agreement expires in mid-1999. 
Approximately 140 of the employees at Ocean Systems' ELAC subsidiary in Kiel, 
Germany are represented by the Metal Trade Industrial Workers of the Hamburg 
Region and ELAC is represented by the Association of Metal Industry Employers 
for Schleswig-Holstein. The labor contract expires in mid-1998. While the 
Company has not yet initiated discussions with representatives of these 
unions, management believes it will be able to negotiate, without material 
disruption to its business, a satisfactory new labor contract with these 
employees. However, there can be no assurance that a satisfactory agreement 
will be reached with the covered employees or that material disruption to 
operations of ELAC or Ocean Systems will not occur. 

ITEM 2. PROPERTIES. 

   The table below sets forth certain information with respect to 
manufacturing facilities and properties of the Company, excluding 
non-operating properties held for sale. 

<TABLE>
<CAPTION>
                  LOCATION                       OWNED         LEASED 
-------------------------------------------- ------------- ------------- 
                                              (THOUSANDS OF SQUARE FEET) 
<S>                                          <C>           <C>
L-3 Headquarters, NY .......................        --           58.7 
SECURE COMMUNICATION SYSTEMS: 
 Camden, NJ.................................        --          588.7 
 Salt Lake City, UT.........................        --          457.6 
 Sierra Vista, AZ...........................        --           18.8 
 Camarillo, CA..............................        --            2.4 
 El Segundo, CA ............................        --            1.4 
 Milpitas, CA...............................        --           21.4 
 Oakland, CA................................        --            5.2 
 Santa Ana, CA..............................        --            5.0 
 Santa Clara, CA ...........................        --            6.2 
 Santa Maria, CA ...........................        --            9.8 
 Colorado Springs, CO ......................        --            5.8 
 Hartford, CT...............................        --            1.8 
 Chicago, IL................................        --            7.3 
 Boston, MA.................................        --           25.6 
 Annapolis Junction, MD ....................        --            6.6 
 Wheaton, MD................................        --            0.5 
 Moorestown, NJ.............................        --            2.8 
 Shrewsbury, NJ.............................        --           22.5 
 New York, NY...............................        --            5.9 
 Cleveland, OH..............................        --            1.4 
 Fairfax, VA................................        --            1.6 
 Warrentown, VA ............................        --            0.8 
SPECIALIZED COMMUNICATION PRODUCTS: 
 Folsom, CA ................................        --           57.5 
 Lancaster, CA .............................        --            5.4 
 Menlo Park, CA ............................        --           98.3 
 San Diego, CA .............................     196.0           68.9 
 San Mateo, CA .............................        --           14.8 
 Santa Clara, CA ...........................        --            2.0 
 Sylmar, CA.................................        --          240.0 
 Sarasota, FL...............................        --          143.7 
 Merritt Island, FL ........................        --            1.2 
 Atlanta, GA ...............................        --           52.1 
 Alpharetta, GA ............................      40.0             -- 
 Norcross, GA ..............................        --            4.8 
 Lowell, MA.................................        --           47.0 
 Hauppauge, NY .............................     240.0             -- 
 Warminster, PA ............................      44.7             -- 
 Hampshire (U.K.)...........................        --            1.2 
 Kiel, Germany..............................        --          143.0 
                                             ------------- ------------- 
Total.......................................     520.7        2,137.7 
                                             ============= ============= 
</TABLE>

                               16           
<PAGE>
ITEM 3. LEGAL PROCEEDINGS. 

   
   From time to time the Company is involved in legal proceedings arising in 
the ordinary course of its business. Management believes it is adequately 
reserved for these liabilities and that there is no litigation pending that 
could have a material adverse effect on the Company's financial condition and 
its results of operations. 
    

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

   None 

                                   PART II 

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

   There is no established public trading market for the Company's common 
stock. All of the issued and outstanding shares of common stock of the 
Company are held by its parent, Holdings. 

ITEM 6. SELECTED FINANCIAL DATA. 

   
   The selected unaudited pro forma data as of December 31, 1997 and for the 
year then ended have been derived from, and should be read in conjunction 
with, the unaudited pro forma condensed consolidated financial statements 
included elsewhere herein. The unaudited pro forma statement of operations 
and other data reflect the L-3 Acquisition, the 1998 Acquisitions and the 
Offerings as if such transactions had occurred on January 1, 1997 for the 
statement of operations and other data. The balance sheet data reflect the 
1998 Acquisitions and the Offerings as if such transactions had occurred on 
December 31, 1997. 

   The selected consolidated (combined) financial data as of December 31, 
1997, 1996, 1995 and 1994, and for the nine months ended December 31, 1997, 
the three months ended March 31, 1997 and the years ended December 31, 1996 
and 1995 have been derived from the audited financial statements for the 
respective periods. The selected consolidated (combined) financial data as of 
December 31, 1993 and March 31, 1993, the nine months ended December 31, 1993 
and the three months ended March 31, 1993 have been derived from the 
unaudited financial statements of the Company. In the opinion of management, 
such unaudited financial statements reflect all adjustments (consisting of 
normal recurring adjustments) considered necessary for a fair presentation of 
the results for the interim periods presented. 

   These selected financial data should be read in conjunction with 
"Management's Discussion and Analysis of Financial Condition and Results of 
Operations" and the Consolidated (Combined) Financial Statements of the 
Company (Predecessor Company) and the Loral Acquired Businesses included 
elsewhere herein. Prior to April 1, 1996, the Predecessor Company was only 
comprised of Communications Systems -- East. 
    

                               17           
<PAGE>
   
<TABLE>
<CAPTION>
                                        COMPANY                            PREDECESSOR COMPANY 
                             ---------------------------  ------------------------------------------------------ 
                                                 NINE        THREE                                      NINE        THREE 
                                YEAR ENDED      MONTHS       MONTHS      YEAR ENDED DECEMBER 31,       MONTHS       MONTHS 
                               DECEMBER 31,      ENDED       ENDED    -----------------------------    ENDED        ENDED 
                                   1997       DEC. 31,(1)  MARCH 31,                                DEC. 31,(3)  MARCH 31,(4) 
                                PRO FORMA        1997         1997      1996(2)   1995(3)  1994(3)      1993         1993 
                             --------------  -----------  -----------  ---------  -------- --------  ----------- ------------ 
                                                           (IN MILLIONS, EXCEPT PER SHARE DATA) 
<S>                          <C>             <C>          <C>         <C>         <C>      <C>       <C>         <C>               
STATEMENT OF OPERATIONS DATA:
Sales .......................    $894.0        $ 546.5      $158.9     $ 543.1   $166.8    $218.9     $200.0       $67.8 
Operating income ............      58.4           51.5(5)      7.9        43.7      4.7       8.4       12.4         5.1 
Interest expense, net(6)  ...      42.5           28.5         8.4        24.2      4.5       5.5        4.1 
Provision (benefit) for      
 income taxes(6)  ...........       4.7           10.7        (0.2)        7.8      1.2       2.3        3.8         2.0 
Net income (loss)  ..........      11.2           12.3(5)     (0.3)       11.7     (1.0)      0.6        4.5         3.1 
BALANCE SHEET DATA:          
Working capital  ............     131.7        $ 131.8                 $  98.8   $ 21.1    $ 19.3     $ 24.7       $22.8 
Total assets  ...............     881.1          703.4                   593.3    228.5     233.3      241.7        93.5 
Long-term debt  .............     414.9          392.0 
Invested equity  ............                                            473.6    194.7     199.5      202.0        59.9 
Shareholders' equity  .......     229.2          132.7 
OTHER DATA:                  
EBITDA(7)  ..................    $ 95.1        $  78.1      $ 15.7     $  71.8   $ 16.3    $ 19.9     $ 23.4       $ 7.0 
Net cash from (used in)      
 operating activities  ......                     73.9       (16.3)       30.7      9.3      21.8 
Net cash (used in) investing 
 activities  ................                   (457.8)       (4.3)     (298.0)    (5.5)     (3.7) 
Net cash from (used in)      
 financing activities  ......                    461.4        20.6       267.3     (3.8)    (18.1) 
Depreciation expense  .......      22.0           13.3         4.5        14.9      5.5       5.4        6.1         1.8 
Amortization expense  .......      14.7            8.9         3.3        13.2      6.1       6.1        4.9         0.1 
Capital expenditures  .......      19.9           11.9         4.3        13.5      5.5       3.7        2.6         0.8 
Ratios of:                   
 Earnings to fixed           
  charges(8)  ...............       1.3X           1.7X         --(9)      1.7X     1.0X      1.4X       2.5X 
 EBITDA to cash interest     
  expense(10)(11)  ..........       2.4X 
 Net debt to EBITDA(11)  ....       4.0X 
</TABLE>
    

   
------------ 
(1)    Reflects the L-3 Acquisition effective April 1, 1997. 
(2)    Reflects ownership of Loral's Communication Systems -- West and 
       Specialized Communication Products businesses commencing April 1, 1996. 
(3)    Reflects ownership of Communication Systems -- East by Lockheed Martin 
       effective April 1, 1993. 
(4)    Reflects the ownership of Communications Systems -- East by GE 
       Aerospace. The amounts shown herein include only those amounts as 
       reflected in the financial records of Communications Systems --East. 
(5)    Includes a nonrecurring, noncash compensation charge of $4.4 million 
       related to the initial capitalization of the Company, effective April 
       1, 1997. 
(6)    For periods prior to April 1, 1997, interest expense and income tax 
       (benefit) provision were allocated from Lockheed Martin. 
(7)    EBITDA is defined as operating income plus depreciation expense and 
       amortization expense (excluding the amortization of deferred debt 
       issuance costs) and the nonrecurring, noncash compensation charge of 
       $4.4 million recorded on April 1, 1997. EBITDA is not a substitute for 
       operating income, net income and cash flow from operating activities as 
       determined in accordance with generally accepted accounting principles 
       as a measure of profitability or liquidity. EBITDA is presented as 
       additional information because management believes it to be a useful 
       indicator of the Company's ability to meet debt service and capital 
       expenditure requirements. 
(8)    For purposes of this computation, earnings consist of income before 
       income taxes plus fixed charges. Fixed charges consist of interest on 
       indebtedness plus that portion of lease rental expense representative 
       of the interest element. 
(9)    Earnings were insufficient to cover fixed charges by $0.5 million for 
       the three months ended March 31, 1997. 
(10)   For purposes of this computation, cash interest expense consists of pro 
       forma interest expense excluding amortization of deferred debt issuance 
       costs. 
(11)   Net debt is defined as long-term debt plus current portion of long-term 
       debt less cash and cash equivalents. 
    

                               18           
<PAGE>
   
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS. 

GENERAL 

   The Company is a leading merchant supplier of sophisticated secure 
communication systems and specialized communication products including 
secure, high data rate communication systems, microwave components, avionics 
and ocean systems, telemetry, instrumentation and space products. 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 
incorporated into the transmission, processing, recording, monitoring and 
dissemination functions of these communication systems. The Company's 
customers include the DoD, selected Government intelligence agencies, major 
aerospace/defense prime contractors, foreign governments and commercial 
customers. The Company operates primarily in one industry segment, electronic 
components and systems. 

   All domestic government contracts and subcontracts of the Company are 
subject to audit and various cost controls, and include standard provisions 
for termination for the convenience of the Government. Multi-year 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. 

   The defense industry has recently undergone significant changes 
precipitated by ongoing federal budget pressures and new roles and missions 
to reflect changing strategic and tactical threats. Since the mid-1980's, the 
overall U. S. defense budget has declined in real dollars. In response, the 
DoD has focused its resources on enhancing its military readiness, joint 
operations and digital command and control communications by incorporating 
advanced electronics to improve the performance, reduce operating cost and 
extend the life expectancy of its existing and future platforms. The emphasis 
on system interoperability, force multipliers and providing battlefield 
commanders with real-time data is increasing the electronics content of 
nearly all of the major military procurement and research programs. As a 
result, the DoD's budget for communications and defense electronics is 
expected to grow. According to Federal Sources, an independent private 
consulting group, the defense budget for C(3)I is expected to increase from 
$31.0 billion in the fiscal year ended September 30, 1997 to $42.0 billion in 
the fiscal year ended September 30, 2002, a compound annual growth rate of 
6.3%. 

 ACQUISITION HISTORY 

   The Company was formed to acquire substantially all of the assets of (i) 
nine business units previously purchased by Lockheed Martin as part of its 
acquisition of Loral in April 1996 (the "Loral Acquired Businesses") which 
include eight business units of Loral ("Specialized Communications products") 
and one business unit purchased by Loral as part of its acquisition of the 
Defense Systems business of Unisys Corporation in May 1995 ("Communications 
System --West"), and (ii) one business unit purchased by Lockheed Martin as 
part of its acquisition of the aerospace business of General Electric Company 
in April 1993 ("Communication Systems -- East"). Collectively, the Loral 
Acquired Businesses and Communications Systems -- East comprise the 
"Predecessor Company" or "Businesses". 

   The Company acquired the assets of the Ocean Systems business ("Ocean 
Systems") of Allied Signal, Inc., ILEX Systems ("ILEX") and Satellite 
Transmission Systems division ("STS") of California Microwave, Inc. on March 
30, 1998, March 4, 1998 and February 5, 1998, respectively. 

RESULTS OF OPERATIONS 

   The following information should be read in conjunction with the Company's 
Condensed Consolidated Financial Statements and Consolidated (Combined) 
Financial Statements and the notes thereto included herein. 

   The financial statements reflect the Company's results of operations from 
the effective date of the L-3 Acquisition, April 1, 1997. 
    

                               19           
<PAGE>
   
   The Predecessor Company's results of operations is for the three months 
ended March 31, 1997 and the years ended December 31, 1996 and 1995 which 
include the results of operations of the Loral Acquired Businesses beginning 
on April 1, 1996, the effective date of that acquisition by Lockheed Martin. 
Therefore, the results of operations for the year ended December 31, 1996 
reflect the results of operations of the Loral Acquired Businesses for the 
nine months from April 1, 1996 to December 31, 1996. Accordingly, changes 
between periods for the year ended December 31, 1997 and the year ended 
December 31, 1996 of the Predecessor Company are significantly affected by 
the timing of the L-3 Acquisition and Loral Acquired Businesses acquisition. 
The results of operations for the year ended December 31, 1995 and the period 
from January 1 to March 31, 1996 only comprise the results of operations of 
Communications Systems -- East. Operating income of the Company and the 
Predecessor Company are not directly comparable between periods indicated as 
a result of the effects of valuation of assets and liabilities recorded in 
accordance with Accounting Principles Board Opinion No. 16 ("APB 16") by the 
Company and the Predecessor Company, in the purchase accounting for the L-3 
Acquisition and Loral Acquired Businesses acquisition. Interest expense and 
income taxes expense for the periods are also not comparable and the impact 
of interest expense and income tax expense on the Company is discussed below. 

   As indicated in Note 6 to the Consolidated (Combined) Financial Statements 
as of December 31, 1997, effective April 1, 1997 the Company has accounted 
for the sale of its Hycor business in accordance with FASB Emerging Issues 
Task Force Issue No. 87-11 "Allocation of Purchase Price to Assets to Be 
Sold". Accordingly, the results of operations of the Hycor business are not 
included in the results of operations of the Company for the three months 
ended March 31, 1998 and the nine months ended December 31, 1997. Hycor is a 
business unit of the Loral Acquired Businesses, and, accordingly, Hycor is 
only included in the results of operations of the Predecessor Company 
beginning on April 1, 1996, the effective date of the Loral Acquired 
Businesses acquisition by Lockheed Martin. On January 29, 1998, the Company 
sold the Hycor business, excluding land and buildings, for $3.5 million in 
cash subject to adjustment based on final closing net assets. 

   The results of operations of the Predecessor Company for the three months 
ended March 31, 1997 and the years ended December 31, 1996 and 1995, include 
certain costs and expenses allocated by Lockheed Martin for corporate office 
expenses based primarily on the allocation methodology prescribed by 
government regulations pertaining to government contractors. Interest expense 
was allocated based on Lockheed Martin's actual weighted average consolidated 
interest rate applied to the portion of the beginning of the year invested 
equity deemed to be financed by consolidated debt based on Lockheed Martin's 
debt to equity ratio on such date. The provision (benefit) for income taxes 
was allocated to the Predecessor Company as if it were a separate taxpayer, 
calculated by applying statutory rates to reported pre-tax income after 
considering items that do not enter into the determination of taxable income 
and tax credits related to the Predecessor Company. Also, pension and 
post-employment benefit costs were allocated based on employee headcount. 
Accordingly, the results of operations and financial position hereinafter of 
the Predecessor Company may not be the same as would have occurred had the 
Predecessor Company been an independent entity. 
    

                               20           
<PAGE>
   
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 

   The following table sets forth selected statement of operations data for 
the Company and the Predecessor Company for the periods indicated. 

<TABLE>
<CAPTION>
                                        COMPANY                          PREDECESSOR COMPANY 
                                    -------------- -------------------------------------------------------------- 
                                      NINE MONTHS    NINE MONTHS     THREE MONTHS    THREE MONTHS       YEAR 
                                         ENDED          ENDED           ENDED           ENDED           ENDED 
                                     DECEMBER 31,    DECEMBER 31,     MARCH 31,       MARCH 31,     DECEMBER 31, 
                                         1997            1996            1997            1996           1996 
                                    --------------  --------------  --------------- --------------  -------------- 
                                                    ($ IN MILLIONS) 
<S>                                 <C>            <C>              <C>             <C>             <C>
Sales .............................    $546.5          $501.9          $158.9           $41.2          $543.1 
Costs and expenses ................     490.6           459.9           151.0            39.5           499.4 
Noncash compensation charge........       4.4              --              --              --             -- 
Operating income ..................      51.5            42.0             7.9             1.7            43.7 
Net interest expense ..............      28.5            22.2             8.4             2.0            24.2 
Income (loss) before income taxes        23.0            19.8            (0.5)           (0.3)           19.5 
Income tax provision (benefit)  ...      10.7             7.6            (0.2)            0.2             7.8 
Net income (loss)..................      12.3            12.2            (0.3)           (0.5)           11.7 
</TABLE>
    
   
   Sales for the nine months ended December 31, 1997 as compared to the 
corresponding period in 1996 increased by $44.6 million, of which $30.5 
million is attributable to the Loral Acquired Businesses and $14.1 million to 
Communication Systems -- East. The increase in sales is attributable to 
increased volume in sales of microwave components, CHBDL, UAV programs, F-14 
display system contract, power supplies and P3-C Repair Depot. 

   Operating income for the nine months ended December 31, 1997 as compared 
to the corresponding period in 1996 increased by $9.5 million. The net 
increase was comprised of increases of $5.8 million attributable to the Loral 
Acquired Businesses and $8.1 million to Communication Systems -- East, 
partially offset by a nonrecurring, noncash compensation charge of $4.4 
million recorded effective April 1, 1997, related to the initial 
capitalization of L-3. The increase in operating income for the nine months 
ended December 31, 1997 is attributable to increased sales, improved 
operating performance on sales of aviation recorders, passive microwave 
components and display systems, the GEMnet product-line and P3-C Repair Depot 
sales, partially offset by $3.3 million of cost of sales related to ongoing 
certification efforts for the Company's Explosive Detection System ("EDS") 
contract and lower sales volume on the U-2 Program. 

   Sales and operating income for the three months ended March 31, 1997 
increased by $117.7 million and $6.2 million, respectively, as compared to 
the corresponding period in 1996. The increases are attributable to the 
acquisition of the Loral Acquired Businesses, offset by losses incurred on 
three programs by Communication Systems -- East. 

   Sales and operating income of the Hycor business included in the 
Predecessor Company's results of operations for the three months ended March 
31, 1997 and the year ended December 31, 1996 were $1.8 million and $0.0 
million, and $7.5 million and $0.3 million, respectively. 

   Net interest expense for the nine months ended December 31, 1997 was $28.5 
million representing interest expense on the Company's outstanding borrowings 
(see Note 8 to Consolidated (Combined) Financial Statements as of December 
31, 1997), and amortization of debt issuance costs, less interest income of 
$1.4 million and interest expense of $0.6 million allocated to the Hycor 
business net assets held for sale. Interest expense for the three months 
ended March 31, 1997 and the year ended December 31, 1996 was $8.4 million 
and $24.2 million, respectively, and was allocated to the Predecessor Company 
by applying Lockheed Martin's weighted average consolidated interest rate to 
the portion of the Predecessor Company's invested equity account deemed to be 
financed by Lockheed Martin's consolidated debt. The increase in interest 
expense reflects higher interest rates on the third party debt, as compared 
to the interest rate utilized to calculate interest expense by the 
Predecessor Company. 

   The income tax provision for the nine months ended December 31, 1997 
reflects the Company's effective income tax rate of 46.5%, which was 
significantly impacted by the noncash compensation charge 
    

                               21           
<PAGE>
   
of $4.4 million which is not deductible for income tax purposes. For the 
three months ended March 31, 1997 and in the prior period, income taxes were 
allocated to the Predecessor Company by Lockheed Martin and the effective 
income tax rate was significantly impacted by amortization of costs in excess 
of net assets acquired, which were not deductible for income tax purposes. 
See Note 11 to Consolidated (Combined) Financial Statements as of December 
31, 1997. 

SUPPLEMENTAL ANALYSIS OF ANNUAL RESULTS OF OPERATIONS OF THE COMPANY AND THE 
PREDECESSOR COMPANY 

   As noted above, the Company's financial statements reflect operations 
since the effective date of the L-3 Acquisition, April 1, 1997, and the 
results of operations for the year ended December 31, 1996 represent the 
results of operations of the Predecessor Company, and include the results of 
operations of the Loral Acquired Businesses beginning on April 1, 1996, the 
effective date of that acquisition. Accordingly, changes between periods for 
the year ended December 31, 1997 to the year ended December 31, 1996 of the 
Predecessor Company are significantly affected by the timing of these 
acquisitions. To enable investors to better assess the trends in the results 
of operations and to facilitate comparisons, the following presentation of 
results of operations for the year ended December 31, 1997 were obtained by 
aggregating, without adjustment, the historical results of operations of the 
Predecessor Company for the period from January 1, 1997 through March 31, 
1997 with the historical results of operations of the Company for the nine 
months period from April 1, 1997 through December 31, 1997 (the "1997 
period"), and the results of operations for the year ended December 31, 1996 
were obtained by aggregating, without adjustments, the historical results of 
operations of the Predecessor Company for the year ended December 31, 1996 
with the historical results of operations of the Loral Acquired Businesses 
for the period from January 1, 1996 through March 31, 1996 (the "1996 
period"). All the historical results were derived from the audited financial 
statements for respective periods included herein. 

   The following table sets forth historical selected statement of operations 
data for the Company, Predecessor Company and the Loral Acquired Businesses 
for the periods indicated and the related calendar year results of operation 
data derived therefrom. 
    

   
<TABLE>
<CAPTION>
                                       PREDECESSOR              PREDECESSOR   LORAL ACQUIRED 
                          COMPANY        COMPANY                  COMPANY       BUSINESSES 
                      -------------- --------------           --------------  -------------- 
                        NINE MONTHS    THREE MONTHS                 YEAR       THREE MONTHS 
                           ENDED          ENDED                    ENDED           ENDED 
                       DECEMBER 31,     MARCH 31,      1997     DECEMBER 31,     MARCH 31,      1996 
                           1997            1997       PERIOD        1996           1996        PERIOD 
                      -------------- --------------  -------- --------------   -------------- -------- 
                                                      ($ IN MILLIONS) 
<S>                   <C>            <C>             <C>      <C>             <C>            <C>       
Sales................     $546.5          $158.9      $705.4       $543.1         $132.2       $675.3 
Costs and expenses ..      490.6           151.0       641.6        499.4          124.4        623.8 
Noncash compensation 
 charge..............        4.4              --         4.4           --             --           -- 
                       ----------------------------  -------- --------------  -------------- -------- 
Operating income ....     $ 51.5          $  7.9      $ 59.4       $ 43.7         $  7.8       $ 51.5 
                      ============== ==============  ======== ==============  ============== ======== 
EBITDA(1) ...........     $ 78.1          $ 15.7      $ 93.8       $ 71.8         $ 12.8       $ 84.6 
                      ============== ==============  ======== ==============  ============== ======== 
</TABLE>
    

   
------------ 
(1)    EBITDA is defined as operating income plus depreciation expense and 
       amortization expense (excluding the amortization of debt issuance 
       costs) and the nonrecurring, noncash compensation charge. EBITDA is not 
       a substitute for operating income, net income or cash flows from 
       operating activities as determined in accordance with generally 
       accepted accounting principles as a measure of profitability or 
       liquidity. EBITDA is presented as additional information because the 
       Company believes it to be a useful indicator of the Company's ability 
       to meet debt service and capital expenditure requirements. 

   Sales for the 1997 period increased to $705.4 million from $675.3 million 
for the 1996 period. Operating income increased to $63.1 million in the 1997 
period from $51.5 million in the 1996 period. Operating income is not 
directly comparable between the periods as a result of the effects of 
valuation of assets and liabilities in accordance with Accounting Principles 
Opinion No. 16. 
    

                               22           
<PAGE>
   
   The sales increase in the 1997 period was primarily attributable to sales 
of the Loral Acquired Businesses which increased by $18.1 million to $531.4 
million in the 1997 period as compared to $513.3 million in the 1996 period. 
This sales increase was primarily attributable to increased sales volume on 
E2-C antenna program, the E2-C and F-14 display systems and passive microwave 
components, additional production and shipments on CHBDL and UAV programs, 
and partially offset by lower sales volume on the U-2 Program. Additionally, 
sales of Communication Systems --East increased by $12.0 million to $174.0 
million in the current period from $162.0 million in the 1996 period, and 
were primarily attributable to increased sales of power supplies, the GEMnet 
product line and the P3-C Repair Depot. 

   Operating income increased by $7.9 million or 15.3% to $59.4 million in 
the 1997 period from $51.5 million in the 1996 period. Operating income as a 
percentage of sales increased to 8.4% in the 1997 period as compared to 7.6% 
in the 1996 period. The increase in operating income was largely attributable 
to cost reductions, increased sales volume of the Loral Acquired Businesses 
and operating improvements at Communications Systems -- East. Operating 
income for the 1997 period also included (i) a nonrecurring, noncash 
compensation charge of $4.4 million recorded effective April 1, 1997, related 
to the initial capitalization of L-3 and (ii) fourth quarter cost of sales of 
$3.3 million related to on-going certification efforts for the Company's EDS 
contract. Excluding the noncash compensation charge and these EDS costs, 
operating income would have been $67.1 million for the 1997 period and 
operating income as a percentage of sales would have been 9.5%. 

   EBITDA for the 1997 period increased by $9.2 million to $93.8 million from 
$84.6 million from the 1996 period. EBITDA margin increased to 13.3% for the 
1997 period from 12.5% for the 1996 period. The increases in EBITDA and 
EBITDA margin were attributable to the items affecting the trends in 
operating income between the 1997 period and 1996 period discussed above. 

 YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 

   The following table sets forth selected statement of operations data for 
the Predecessor Company for the periods indicated. 
    
   
<TABLE>
<CAPTION>
                               PREDECESSOR 
                                 COMPANY 
                            ------------------ 
                                YEAR ENDED 
                               DECEMBER 31, 
                            ------------------ 
                              1996      1995 
                            -------- -------- 
                             ($ IN MILLIONS) 
<S>                         <C>      <C>
Sales......................  $543.1    $166.8 
Costs and expenses.........   499.4     162.1 
Operating income...........    43.7       4.7 
Net interest expense.......    24.2       4.5 
Income before income 
 taxes.....................    19.5       0.2 
Income tax provision  .....     7.8       1.2 
Net income (loss)..........    11.7      (1.0) 
</TABLE>
    
   
   The results of operations of the Loral Acquired Businesses are reflected 
in the results of operations of the Predecessor Company beginning on April 1, 
1996, the effective date of that acquisition by Lockheed Martin. During 1996, 
sales increased to $543.1 million from $166.8 million in 1995. Operating 
income increased to $43.7 million compared with $4.7 million in 1995. Net 
income increased to $11.7 million as compared to a net loss of $1.0 million 
in 1995. The Loral Acquired Businesses contributed $13.6 million to net 
income for the year ended December 31, 1996. 

   The sales increase in 1996 was attributable to the sales of the Loral 
Acquired Businesses which contributed $381.1 million of the increase. Sales 
of Communication Systems -East decreased in 1996 by $4.8 million as compared 
to 1995 primarily due to lower volume on Aegis power supplies and SIGINT 
system production, partially offset by Local Management Device/Key Processor 
("LMD/KP") production startup. 

   The increase in 1996 operating income was largely attributable to the 
Loral Acquired Businesses, which contributed $36.9 million of the increase. 
Communication Systems -East operating income in 1996 

                               23           
    
<PAGE>
   
increased $2.2 million primarily due to improved operating performance on the 
Shipboard Telephone Communications ("STC-2") program partially offset by 
increased costs on the Space Station contract. As a percentage of sales, 
operating income increased to 8.0% from 2.8%. This increase is attributable 
to the improvement in Communication Systems -- East noted above, higher 
contract margins and operating improvements in the Loral Acquired Businesses. 

   Allocated interest expense increased to $24.2 million in 1996 from $4.5 
million in 1995 due primarily to the acquisition of the Loral Acquired 
Businesses, which was assumed to be fully financed by debt, coupled with a 
higher debt-to-equity ratio used in the allocation for Communication Systems 
-- East. See Note 9 to Consolidated (Combined) Financial Statements. 

   The effective income tax rate declined to 40% in 1996 as compared to 681% 
in 1995. The 1995 effective rate was significantly impacted by non-deductible 
amortization of costs in excess of net assets acquired. As a percentage of 
income subject to tax, such amortization declined significantly in 1996. 

LIQUIDITY AND CAPITAL RESOURCES 

 THE L-3 ACQUISITION 

   Effective April 1, 1997, the Company purchased the Businesses from 
Lockheed Martin for $503.8 million, after a purchase price adjustment of 
$21.2 million and acquisition costs of $8.0 million. On November 5, 1997 the 
L-3 Acquisition Agreement was amended to finalize the purchase price 
adjustment which amounted to $21.2 million of which $15.9 million was 
received on April 30, 1997 and $5.3 million was received on November 7, 1997, 
plus interest thereon. The amendment also included the assumption by the 
Company of Lockheed Martin's rights and obligations under a contract for the 
U.S. Army's Command and Control Vehicle ("C(2)V") Mission Module Systems 
("MMS"), for which the Company received a cash payment of $12.2 million from 
Lockheed Martin. 

 FINANCING 

   The L-3 Acquisition was funded by a combination of debt and equity 
aggregating $525.0 million. The equity of $125.0 million was comprised of 
$80.0 million in cash contributed to Holdings by the Lehman Partnership and 
Senior Management and a $45.0 million retained interest in Holdings by 
Lockheed Martin representing partial consideration to Lockheed Martin for its 
sale of the Businesses to the Company. In connection with the L-3 
Acquisition, the Company entered into a $275.0 million credit facility 
consisting of $175.0 million of term loans (the "Term Loan Facilities") and a 
$100.0 million revolving credit facility (the "Revolving Credit Facility") 
(collectively, the "Senior Credit Facilities"). The initial debt balance of 
$400.0 million consisted of $175.0 million of borrowings under the Term Loan 
Facilities and $225.0 million of 10 3/8% Senior Subordinated Notes (the "1997 
Notes") due May 1, 2007. 

   The required principal payments under the Term Loans Facilities are: $5.0 
million in 1998, $11.0 million in 1999, $19.0 million in 2000, $25.0 million 
in 2001, $33.2 million in 2002, $20.0 million in 2003, and $25.2 million in 
2004, $24.9 million in 2005, and $8.7 million in 2006. Interest payments on 
the Term Loan Facilities vary in accordance with the type of borrowings and 
are made at a minimum every three months. At December 31, 1997, the Senior 
Credit Facilities also included a $100.0 million Revolving Credit Facility. 
In February 1998, the Senior Credit Facilities were amended to, among other 
things, increase the amount available under the revolving credit facility to 
$200.0 million, waive certain excess cash flow prepayments, as defined, 
otherwise required, and permit the incurrence of up to an additional $150.0 
million of subordinated debt. Other than upon a change of control or the 
occurrence of certain asset sales, L-3 Communications will not be required to 
repurchase the 1997 Notes until maturity on May 1, 2007. L-3 Communications 
is required to make semi-annual interest payments with respect to the 1997 
Notes. 

   The Company has a substantial amount of indebtedness. Based upon the 
current level of operations, management believes that the Company's cash flow 
from operations, together with available borrowings under the Revolving 
Credit Facility, will be adequate to meet its anticipated requirements for 
working capital, capital expenditures, research and development expenditures, 
program and other discretionary 

                               24           
    
<PAGE>
   
investments, interest payments and scheduled principal payments for the 
foreseeable future including at least the next three years. There can be no 
assurance, however, that the Company's business will continue to generate 
cash flow at or above current levels or that currently anticipated 
improvements will be achieved. If the Company is unable to generate 
sufficient cash flow from operations in the future to service its debt, it 
may be required to sell assets, reduce capital expenditures, refinance all or 
a portion of its existing debt or obtain additional financing. The Company's 
ability to make scheduled principal payments, to pay interest on or to 
refinance its indebtedness depends on its 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 its control. There can 
be no assurance that sufficient funds will be available to enable the Company 
to service its indebtedness, including the 1997 Notes, or make necessary 
capital expenditures and program and discretionary investments. 

   On November 5, 1997, L-3 Communications completed its exchange offer 
relating to the 1997 Notes and the holders of the 1997 Notes received 
registered securities. The 1997 Notes are redeemable at the option of L-3 
Communications, in whole or in part, at any time on or after May 1, 2002, at 
various redemption prices plus accrued and unpaid interest to the applicable 
redemption date. In addition, prior to May 1, 2000, L-3 Communications may 
redeem up to 35% of the aggregate principal amount of the 1997 Notes at a 
redemption price of 109.375% of the principal amount thereof, plus accrued 
and unpaid interest to the redemption date with the net cash proceeds of one 
or more equity offerings by Holdings that are contributed to L-3 
Communications as common equity capital. See "Risk Factors -- Substantial 
Leverage". 

   The Senior Credit Facilities and the 1997 Notes contain financial 
covenants, which remain in effect so long as any amount is owed thereunder by 
L-3 Communications. The financial covenants under the Senior Credit 
Facilities require that (i) L-3 Communications' debt ratio, as defined, be 
less than or equal to 5.50 for the quarter ended December 31, 1997, and that 
the maximum allowable debt ratio, as defined, thereafter be further reduced 
to less than or equal to 3.1 for the quarters ending after June 30, 2002, and 
(ii) L-3 Communications' interest coverage ratio, as defined, be at least 
1.85 for the quarter ended December 31, 1997, and thereafter increasing the 
interest coverage ratio, as defined, to at least 3.10 for any fiscal quarters 
ending after June 30, 2002. At December 31, 1997, L-3 Communications was and 
has been in compliance with these covenants at all times. 

   On February 27, 1998, the Company filed a registration statement with the 
Securities and Exchange Commission ("SEC") for the sale of $150.0 million 
aggregate principal amount of Senior Subordinated Notes due 2008 (the "Notes 
Offering"), and concurrently with the Notes Offering, Holdings filed a 
registration statement with the SEC for the sale of common stock for a 
proposed maximum aggregate offering price of $100.0 million (the "Common 
Stock Offering"). 

   To mitigate risks associated with changing interest rates on certain of 
its debt, the Company entered into the interest rate cap and floor contracts 
(the "interest rate agreements"). The Company manages exposure to 
counterparty credit risk by entering into the interest rate agreements only 
with major financial institutions that are expected to perform fully under 
the terms of such agreements. Cash payments to (from) the Company and the 
counterparties are made at the end of the quarter to the extent due under the 
terms of the interest rate agreements. Such payments are recorded as 
adjustments to interest expense. The initial costs of the interest rate 
agreements are capitalized as deferred debt issuance costs and amortized into 
interest expense. The impact of the interest rate agreements on interest 
expense was not material for the nine months ended December 31, 1997. See 
Note 10 to the Consolidated (Combined) Financial Statements. 

1998 ACQUISITIONS 

   On March 30, 1998, the Company purchased the assets of Ocean Systems for 
$67.5 million of cash. On March 4, 1998, the Company purchased the assets of 
ILEX for $51.9 million of cash, subject to adjustment based on closing net 
assets, and additional consideration based on post-acquisition performance of 
ILEX. On February 5, 1998, the Company purchased the assets of STS for $27.0 
million in cash, subject to adjustment based upon closing net assets. 
    

                               25           
<PAGE>
   
   The Company financed the 1998 Acquisitions using cash on hand and 
borrowings under the Revolving Credit Facility. 

   The Company considers and executes strategic acquisitions on an ongoing 
basis and may be evaluating acquisitions or engaged in acquisition 
negotiations at any given time. As of the date hereof, the Company has 
completed, has reached agreement on or is in discussions regarding certain 
acquisitions, in addition to the 1998 Acquisitions, that are either 
individually or in the aggregate not material to the financial condition of 
results of operations of the Company. 

CASH FLOWS 

 YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEARS ENDED DECEMBER 31, 1996 AND 
1995 

   The following table sets forth selected cash flow statement data for the 
Company and the Predecessor Company for the periods indicated: 
    
   
<TABLE>
<CAPTION>
                                                               PREDECESSOR      PREDECESSOR 
                                                  COMPANY        COMPANY          COMPANY 
                                              -------------- --------------  ------------------ 
                                                NINE MONTHS    THREE MONTHS      YEAR ENDED 
                                                   ENDED          ENDED         DECEMBER 31, 
                                               DECEMBER 31,     MARCH 31,    ------------------ 
                                                   1997            1997         1996     1995 
                                              -------------- --------------  --------- ------- 
                                                                  ($ IN MILLIONS) 
<S>                                           <C>            <C>             <C>       <C>
Net cash from (used in) operating 
 activities..................................     $  73.9         $(16.3)     $  30.7    $ 9.3 
Net cash (used in) investing activities .....      (457.8)          (4.3)      (298.0)    (5.5) 
Net cash from (used in) financing 
 activities..................................       461.4           20.6        267.3     (3.8) 
</TABLE>
    
   
   NET CASH FROM (USED IN) OPERATING ACTIVITIES: Cash provided by operating 
activities of the Company for the nine months ended December 31, 1997 was 
$73.9 million. Cash provided by operations benefited from improved operating 
results, effective management of contracts in process and increases in 
accrued employment costs. Contracts in process declined by $18.2 million to 
$167.2 million from April 1, 1997 to December 31, 1997, and was primarily 
attributable to collections of and reductions in the levels of commercial and 
affiliate receivables. 

   Net cash used in operating activities of the Predecessor Company was $16.3 
million for the quarter ended March 31, 1997, resulting primarily from the 
increase in contracts in process and decrease in current liabilities. Cash 
flows used by the Loral Acquired Businesses was 10.2 million. Cash used for 
operating activities by Communication Systems -- East amounted to $6.1 
million. 

   Cash provided by operating activities of the Predecessor Company was $30.7 
million in 1996 and $9.3 million in 1995. The increase of $21.4 million in 
1996 was due primarily to the impact of the Loral Acquired Businesses which 
were acquired by Lockheed Martin effective April 1, 1996. Earnings after 
adjustment for non-cash items provided $36.7 million, offset by changes in 
other operating assets and liabilities. Without the Loral Acquired 
Businesses, cash provided by operating activities for Communication 
Systems--East increased to $13.7 million in 1996, 46% over 1995. 

   The Company's current ratio at December 31, 1997 remained constant at 2.0: 
1 as compared to the Predecessor Company's current ratio at December 31, 
1996. 

   NET CASH (USED IN) INVESTING ACTIVITIES:  Cash used in investing 
activities for the nine months ended December 31, 1997 consisted primarily of 
$466.3 million paid by the Company for the L-3 Acquisition (See Note 1 to 
Consolidated (Combined) Financial Statements); offset by proceeds from the 
sale of the Company's Sarasota, Florida property of approximately $9.5 
million and cash received in connection with the assumption of obligations 
under the C(2)V MMS contract from Lockheed Martin of $12.2 million. During 
the year ended December 31, 1996, $287.8 million was paid by the Predecessor 
Company for the acquisition of the Loral Acquired Businesses. See Note 4 to 
the Consolidated (Combined) Financial Statements. In addition, for the nine 
months ended December 31, 1997 and the three months ended March 31, 1997, 
$11.9 million and $4.3 million, respectively, was used for capital 
expenditures, and $5.1 million and $0.0, respectively, for purchase of 
investments. The Company typically 
    

                               26           
<PAGE>
   
makes capital expenditures related primarily to improvement of manufacturing 
facilities and equipment. The Company expects that its capital expenditures 
for 1998 will be approximately $27.0 million. 

   All transactions between the Businesses and Lockheed Martin have been 
accounted as settled in cash at the time such transactions were recorded by 
the Businesses. Accordingly, in 1996, cash flows reflect the purchase of the 
Loral Acquired Businesses. 

   NET CASH FROM (USED IN) FINANCING ACTIVITIES: Cash from financing 
activities of the Company was $461.4 million for the nine months ended 
December 31, 1997, and was due to the debt incurred and proceeds from the 
issuance of common stock which were issued to finance the L-3 Acquisition. 
See "--Financing" above. Net cash from financing activities also reflects the 
payment of debt issue costs of $15.6 million and $3.0 million of scheduled 
debt payments of the Term Loan Facilities. 

   Prior to the L-3 Acquisition, the Businesses participated in the Lockheed 
Martin cash management system, under which all cash was received and all 
payments were made by Lockheed Martin. For purposes of the statements of cash 
flows, all transactions with Lockheed Martin were deemed to have been settled 
in cash at the time they were recorded by the Predecessor Company. Net cash 
from (used in) financing activities of the Predecessor Company for the three 
months ended March 31, 1997 and the years ended December 31, 1996 and 1995, 
were approximately $20.6 million, $267.3 million and ($3.8) million, 
respectively, and represent advances from (repayments to) Lockheed Martin, 
the Predecessor Company's parent company. 

BACKLOG 

   The Company's funded backlog at December 31, 1997 totaled $516.9 million, 
as compared with the Predecessor Company's funded backlog at December 31, 
1996 of $542.5 million. Funded orders, on a pro forma basis, for the Company 
for 1997 were $711.5 million. The Predecessor Company's funded orders for 
1996 were $619.5 million. It is expected that 86.0% of the backlog at 
December 31, 1997 will be recorded as sales during 1998. However, there can 
be no assurance that the Company's backlog will become revenues in any 
particular period, if at all. See "Risk Factors -- Backlog". Approximately 
81% of the total backlog at December 31, 1997 was directly or indirectly for 
defense contracts for end use by the Government. Approximately $434.0 million 
of total backlog was directly or indirectly for U.S. and foreign government 
defense contracts, and approximately $19.5 million of total backlog was 
directly or indirectly for U.S. and foreign government non-defense contracts. 
Foreign customers account for approximately $34.6 million of the total 
backlog. 

RESEARCH AND DEVELOPMENT 

   Research and development, including bid and proposal, costs ("R&D costs") 
sponsored by the Company was $28.9 million for the nine months ended December 
31, 1997. R&D costs sponsored by the Predecessor Company were $12.0 million, 
$36.5 million and $9.8 million for the three months ended March 31, 1997 and 
the years ended December 31, 1996 and 1995, respectively. The Loral Acquired 
Businesses sponsored R&D costs of $5.6 million for the three months ended 
March 31, 1996 and $21.4 million for the year ended December 31, 1995. 
Accordingly, the Company, Predecessor Company and the Loral Acquired 
Businesses, in the aggregate, sponsored R&D costs of $40.9 million, $42.1 
million and $31.2 million, respectively, for the years ended December 31, 
1997, 1996 and 1995. Customer-funded research and development was $117.1 
million in 1997, as compared with $153.5 million for 1996. The decrease in 
customer-funded research and development in 1997 is due primarily to research 
and development programs existing in 1996 which moved into the production 
phase during 1997. 



CONTINGENCIES 

   See Note 13 to the Consolidated (Combined) Financial Statements as of 
December 31, 1997. 

RECENT ACCOUNTING PRONOUNCEMENTS 

   In June 1997, the Financial Accounting Standards Board ("FASB") issued 
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure 
about Segments of an Enterprise and Related 
    

                               27           
<PAGE>
   
Information". SFAS No. 131 establishes accounting standards for the way that 
public business enterprises report information about operating segments and 
requires that those enterprises report selected information about operating 
segments in interim financial reports issued to shareholders. In February 
1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions 
and Other Postretirement Benefits". SFAS No. 132 revises employers' 
disclosures about pension and other postretirement benefits plans. It does 
not change the measurement or recognition of those plans. It standardizes the 
disclosure requirements for pensions and other postretirement benefits to the 
extent practicable, requires additional information on changes in the benefit 
obligations and fair values of plan assets that will facilitate financial 
analysis, and eliminates certain disclosures that are no longer as useful as 
they were when SFAS No. 87 "Employers' Accounting for Pensions", SFAS No. 88 
"Employers' Accounting for Settlements and Curtailments of Defined Benefit 
Pension Plans and for Termination Benefits" and SFAS No. 106 "Employers' 
Accounting for Postretirement Benefits Other Than Pensions" were issued. SFAS 
132 suggests combined formats for presentation of pension and other 
postretirement benefits disclosures. The Company is currently evaluating the 
impact, if any, of SFAS No. 131 and SFAS No. 132. 

INFLATION 

   The effect of inflation on the Company's sales and earnings has not been 
significant. Although a majority of the Company's 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. 

YEAR 2000 CONVERSION 

   Under the Company's decentralized structure, each division maintains 
and/or outsources its computer-based data processing functions. While each 
division is responsible for its own computer-based functions, in late 1997 a 
corporate-wide Year 2000 program (the "Program") was instituted for purposes 
of overseeing Year 2000 compliance efforts. The Program's major phases 
include (i) identification of areas requiring update, which began in late 
1997; (ii) assessment of required actions and related impacts, which 
commenced in the first quarter of 1998; (iii) development of update schedule 
and cost estimates, which is scheduled to be concluded in the second quarter 
of 1998 and (iv) implementation of such plan, including follow-up testing, 
which is scheduled to commence during the second quarter of 1998 and be 
completed by mid-1999. Through December 31, 1997, the costs incurred in 
connection with the Program were not material. While these cost estimates 
have not been finalized, based upon the type of systems employed by the 
Company, costs of the Program are not expected to be material to the results 
of operations, liquidity or capital resources of the Company. 
    

                               28           
<PAGE>
   
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. 

                        L-3 COMMUNICATIONS CORPORATION 
                        (and the Predecessor Company) 

   Consolidated (Combined) Financial Statements as of December 31, 1997 and 
1996 and for the nine months ended December 31, 1997, the three months ended 
March 31, 1997 and the years ended December 31, 1997 and 1996. 
    

                               29           
<PAGE>
                        REPORT OF INDEPENDENT AUDITORS 

   
To the Board of Directors of 
 L-3 Communications Corporation: 

   We have audited the accompanying (i) consolidated balance sheet of L-3 
Communications Corporation and subsidiaries (the "Company") as of December 
31, 1997, and the related consolidated statements of operations, changes in 
shareholders' equity, and cash flows for the nine months then ended, (ii) the 
combined statements of operations and cash flows of the Predecessor Company, 
as defined in Note 1 to the financial statements, for the three months ended 
March 31, 1997 and (iii) combined balance sheet of the Predecessor Company, 
as of December 31, 1996 and the related combined statements of operations, 
changes in invested equity and cash flows for the year then ended. 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 did not audit the 1996 financial statements of the Lockheed 
Martin Communications Systems Division, which statements reflect total assets 
and sales constituting 35 percent and 30 percent of the related combined 
totals. Those statements were audited by other auditors whose report has been 
furnished to us, and our opinion, insofar as it relates to the amounts 
included for the Communications Systems Division for 1996, is based solely on 
the report of the other auditors. 

   We conducted our audits in accordance with generally accepted auditing 
standards. 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 and the report 
of the other auditors provide a reasonable basis for our opinion. 

   In our opinion, the financial statements referred to above (i) present 
fairly, in all material respects, the consolidated financial position of the 
Company and subsidiaries as of December 31, 1997 and their consolidated 
results of operations and cash flows for the nine months then ended, and (ii) 
based on our audit and the report of other auditors for 1996, present fairly 
in all material respects, the combined financial position of the Predecessor 
Company as of December 31, 1996 and their combined results of operations, and 
cash flows for the year then ended and the three months ended March 31, 1997, 
in conformity with generally accepted accounting principles. 

                                           /s/ Coopers & Lybrand L.L.P. 

1301 Avenue of the Americas 
New York, New York 10019 
February 2, 1998 
    

                               30           
<PAGE>
                        REPORT OF INDEPENDENT AUDITORS 

   
Board of Directors 
Lockheed Martin Corporation 

   We have audited the combined balance sheet of Lockheed Martin 
Communications Systems Division, as defined in Note 1 to the financial 
statements, as of December 31, 1996, and the related combined statements of 
operations, changes in shareholders' equity and invested equity, and cash 
flows for the two years in the period ended December 31, 1996. These 
financial statements are the responsibility of the Division's and Lockheed 
Martin Corporation's management. Our responsibility is to express an opinion 
on these financial statements based on our audits. 

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

   In our opinion, the combined financial statements referred to above 
present fairly, in all material respects, the combined financial position of 
Lockheed Martin Communications Systems Division at December 31, 1996 (not 
presented separately herein), and the combined results of its operations and 
its cash flows for the year ended December 31, 1996 (not presented separately 
herein), and the results of its operations and its cash flows for the period 
ended December 31, 1995, in conformity with generally accepted accounting 
principles. 

                                           /s/ Ernst & Young LLP 

Washington, D.C. 
March 7, 1997 
    

                               31           
<PAGE>
   
                        L-3 COMMUNICATIONS CORPORATION 
                    CONSOLIDATED (COMBINED) BALANCE SHEETS 
                    (IN THOUSANDS, EXCEPT PER SHARE DATA) 

<TABLE>
<CAPTION>
                                                                       COMPANY       PREDECESSOR COMPANY 
                                                                     CONSOLIDATED         COMBINED 
                                                                  ----------------- ------------------- 
                                                                  DECEMBER 31, 1997   DECEMBER 31, 1996 
                                                                  ----------------- ------------------- 
<S>                                                               <C>               <C>
                              ASSETS 
Current assets: 
 Cash and cash equivalents ......................................      $ 77,474                 -- 
 Contracts in process ...........................................       167,202           $198,073 
 Net assets held for sale .......................................         6,653                 -- 
 Deferred income taxes ..........................................        13,298                 -- 
 Other current assets ...........................................         2,750              3,661 
                                                                  ----------------- ------------------- 
   Total current assets .........................................       267,377            201,734 
                                                                  ----------------- ------------------- 
Property, plant and equipment ...................................        95,034            116,566 
 Less, accumulated depreciation and amortization ................        12,025             24,983 
                                                                  ----------------- ------------------- 
                                                                         83,009             91,583 
                                                                  ----------------- ------------------- 
Intangibles, primarily cost in excess of net assets acquired, 
 net of amortization ............................................       297,503            282,674 
Deferred income taxes ...........................................        24,217                 -- 
Other assets ....................................................        31,298             17,307 
                                                                  ----------------- ------------------- 
   Total assets .................................................      $703,404           $593,298 
                                                                  ================= =================== 
                  LIABILITIES AND SHAREHOLDERS' (INVESTED) EQUITY 
Current liabilities: 
 Current portion of long-term debt ..............................      $  5,000                 -- 
 Accounts payable, trade ........................................        33,052           $ 35,069 
 Accrued employment costs .......................................        31,162             27,313 
 Customer advances ..............................................        15,989              3,381 
 Amounts in excess of costs incurred ............................        18,469             10,918 
 Accrued interest ...............................................         4,419                 -- 
 Other current liabilities ......................................        27,476             26,207 
                                                                  ----------------- ------------------- 
   Total current liabilities ....................................       135,567            102,888 
                                                                  ----------------- ------------------- 
Pension and postretirement benefits .............................        38,113                 -- 
Other liabilities ...............................................         5,009             16,801 
Long-term debt ..................................................       392,000                 -- 
Commitments and contingencies ................................... 
Shareholders' equity 
 Common Stock, $.01 par value; 100 shares authorized and 
  outstanding....................................................            --                 -- 
 Additional paid-in capital .....................................       129,410                 -- 
 Retained earnings ..............................................        12,305                 -- 
 Deemed distribution ............................................        (9,000)                -- 
                                                                  ----------------- ------------------- 
Total shareholders' and invested equity .........................       132,715            473,609 
                                                                  ----------------- ------------------- 
   Total liabilities and shareholders' and invested equity  .....      $703,404           $593,298 
                                                                  ================= =================== 
</TABLE>

          See notes to consolidated (combined) financial statements. 
    

                               32           
<PAGE>
   
                        L-3 COMMUNICATIONS CORPORATION 
               CONSOLIDATED (COMBINED) STATEMENTS OF OPERATIONS 
                                (IN THOUSANDS) 
    

<TABLE>
<CAPTION>
                                         COMPANY                PREDECESSOR COMPANY 
                                       CONSOLIDATED                  COMBINED 
                                    ----------------- -------------------------------------- 
                                       NINE MONTHS      THREE MONTHS  YEAR ENDED DECEMBER 31,
                                          ENDED            ENDED      ---------------------- 
                                    DECEMBER 31, 1997  MARCH 31, 1997    1996        1995 
                                     ----------------- -------------- ---------- ---------- 
<S>                                 <C>               <C>             <C>        <C>
Sales .............................      $546,525         $158,873     $543,081    $166,781 
Costs and expenses ................       490,669          150,937      499,390     162,132 
Noncash compensation charge........         4,410               --           --          -- 
                                    ----------------- --------------  ---------- ---------- 
Operating income ..................        51,466            7,936       43,691       4,649 
Interest income ...................         1,430               --           --          -- 
Interest expense ..................        29,884            8,441       24,197       4,475 
                                    ----------------- --------------  ---------- ---------- 
Income (loss) before income taxes          22,992             (505)      19,494         174 
Income tax expense (benefit)  .....        10,687             (247)       7,798       1,186 
                                    ----------------- --------------  ---------- ---------- 
Net income (loss) .................      $ 12,305         $   (258)    $ 11,696    $ (1,012) 
                                    ================= ==============  ========== ========== 
</TABLE>

   
          See notes to consolidated (combined) financial statements. 
    

                               33           
<PAGE>
   
                        L-3 COMMUNICATIONS CORPORATION 
  CONSOLIDATED (COMBINED) STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND 
                               INVESTED EQUITY 
       FOR THE NINE MONTHS ENDED DECEMBER 31, 1997, THREE MONTHS ENDED 
          MARCH 31, 1997 AND YEARS ENDED DECEMBER 31, 1996 AND 1995 
                       (IN THOUSANDS EXCEPT SHARE DATA) 
    

   
<TABLE>
<CAPTION>
                             PREDECESSOR 
                               COMPANY                                     COMPANY 
                               COMBINED                                  CONSOLIDATED 
                            ------------- ------------------------------------------------------------------------ 
                                               COMMON STOCK 
                                          ---------------------   ADDITIONAL 
                               INVESTED     SHARES                 PAID-IN     RETAINED      EQUITY 
                                EQUITY      ISSUED   PAR VALUE     CAPITAL     EARNINGS    ADJUSTMENTS     TOTAL 
                            ------------- --------   ----------- ------------  ---------- -------------  ---------- 
<S>                         <C>           <C>       <C>         <C>           <C>        <C>            <C>
Balance January 1, 1995 ...    $199,506 
 Repayments to Lockheed 
  Martin...................      (3,831) 
 Net loss..................      (1,012) 
                            ------------- 
Balance December 31, 1995 .     194,663 
 Advances from Lockheed 
  Martin...................     267,250 
 Net income................      11,696 
                            ------------- 
Balance December 31, 1996 .     473,609 
 Advances from Lockheed 
  Martin...................      20,579 
 Net loss..................        (258) 
                            ------------- 
Balance March 31, 1997 ....    $493,930 
                            ============= ========  =========== ============  ========== =============  ========== 
 Shares Issued.............                  100        $--        $125,000                              $125,000 
 Noncash compensation 
  charge ..................                                           4,410                                 4,410 
 Deemed distribution.......                                                                  $(9,000)      (9,000) 
 Net Income................                                                     $12,305                    12,305 
                                          --------  ----------- ------------  ---------- -------------  ---------- 
Balance December 31, 1997 .                  100        $--        $129,410     $12,305      $(9,000)    $132,715 
                                          ========  =========== ============  ========== =============  ========== 
</TABLE>
    

   
          See notes to consolidated (combined) financial statements. 
    

                               34           
<PAGE>
   
                        L-3 COMMUNICATIONS CORPORATION 
               CONSOLIDATED (COMBINED) STATEMENTS OF CASH FLOWS 
                                (IN THOUSANDS) 
    

   
<TABLE>
<CAPTION>
                                                   COMPANY                PREDECESSOR COMPANY 
                                              ----------------- --------------------------------------- 
                                                 NINE MONTHS      THREE MONTHS  YEAR ENDED DECEMBER 31, 
                                                    ENDED            ENDED      ----------------------- 
                                              DECEMBER 31, 1997  MARCH 31, 1997     1996        1995 
                                               ----------------- -------------- ----------- ---------- 
<S>                                           <C>               <C>             <C>         <C>
OPERATING ACTIVITIES: 
Net income (loss) ...........................     $  12,305         $   (258)    $  11,696    $(1,012) 
Depreciation and amortization ...............        22,190            7,786        28,139     11,578 
Noncash compensation charge..................         4,410               --            --         -- 
Amortization of deferred debt issuance costs          1,517               --            --         -- 
Deferred income taxes .......................         9,991               --            --         -- 
Changes in operating assets and liabilities, 
 net of amounts acquired 
 Contracts in process .......................        18,161          (17,475)       23,543     (3,267) 
 Other current assets .......................          (275)            (481)        3,049        788 
 Other assets ...............................         2,141             (761)       (8,346)     1,245 
 Accounts payable ...........................        (6,146)            (207)        4,104       (648) 
 Accrued employment costs ...................         6,363             (625)        2,282       (611) 
 Customer advances ..........................          (611)           1,146        (5,541)        -- 
 Amounts in excess of costs incurred  .......         1,156           (3,037)       (6,045)    (2,041) 
 Accrued interest ...........................         4,419               --            --         -- 
 Other current liabilities ..................        (7,132)          (1,867)        3,180      4,004 
 Pension and postretirement benefits  .......         4,284               --            --         -- 
 Other liabilities ..........................         1,087             (500)      (25,327)      (699) 
                                              ----------------- --------------  ----------- ---------- 
Net cash from (used in) operating activities         73,860          (16,279)       30,734      9,337 
                                              ----------------- --------------  ----------- ---------- 
INVESTING ACTIVITIES: 
Acquisition of business .....................      (466,317)              --      (287,803)        -- 
Proceeds from assumption of contract 
 obligation .................................        12,176               --            --         -- 
Net cash from assets held for sale ..........         3,179               --            --         -- 
Proceeds from sale of property ..............         9,458               --            --         -- 
Purchases of investments ....................        (5,113)              --            --         -- 
Capital expenditures ........................       (11,934)          (4,300)      (13,528)    (5,532) 
Disposition of property, plant and equipment            771               --         3,347         26 
                                              ----------------- --------------  ----------- ---------- 
Net cash (used in) investing activities  ....      (457,780)          (4,300)     (297,984)    (5,506) 
                                              ----------------- --------------  ----------- ---------- 
FINANCING ACTIVITIES: 
Borrowings under senior credit facility  ....       175,000               --            --         -- 
Proceeds from sale of 10 3/8% senior 
 subordinated notes .........................       225,000               --            --         -- 
Proceeds from issuance of common stock  .....        80,000               --            --         -- 
Debt issuance costs .........................       (15,606)              --            --         -- 
Payment of debt .............................        (3,000)              --            --         -- 
Advances from (repayments to) Lockheed 
 Martin .....................................            --           20,579       267,250     (3,831) 
                                              ----------------- --------------  ----------- ---------- 
Net cash from (used in) financing 
 activities..................................       461,394           20,579       267,250     (3,831) 
                                              ----------------- --------------  ----------- ---------- 
Net change in cash ..........................        77,474               --            --         -- 
Cash and cash equivalents, beginning of the 
 period......................................            --               --            --         -- 
                                              ----------------- --------------  ----------- ---------- 
Cash and cash equivalents, end of the period      $  77,474         $     --     $      --    $    -- 
                                              ================= ==============  =========== ========== 
</TABLE>
    

   
          See notes to consolidated (combined) financial statements. 
    

                               35           
<PAGE>
   
                        L-3 COMMUNICATIONS CORPORATION 
            NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS 
                            (Dollars in thousands) 

1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS 

   The accompanying consolidated financial statements include the assets, 
liabilities and results of operations of L-3 Communications Corporation, 
Inc., successor company, ("L-3" or the "Company"), a wholly owned subsidiary 
of L-3 Communications Holdings, Inc. ("Holdings") following the change in 
ownership (see Note 2) effective as of April 1, 1997 and for the period from 
April 1, 1997 to December 31, 1997. Prior to April 1, 1997, the statements 
comprise substantially all of the assets and liabilities and results of 
operations of (i) nine business units previously purchased by Lockheed Martin 
Corporation ("Lockheed Martin") as part of its acquisition of Loral 
Corporation ("Loral") in April 1996 (the "Loral Acquired Businesses"), and 
(ii) one business unit, Communications Systems -- East purchased by Lockheed 
Martin as part of its acquisition of the aerospace business of GE in April 
1993 (collectively, the "Businesses" or the "Predecessor Company"). The 
combined financial statements of the Predecessor Company reflect the 
Businesses' assets, liabilities and results of operations included in 
Lockheed Martin's historical financial statements. Intercompany accounts 
between Lockheed Martin and the Businesses have been included in Invested 
Equity. The assets and operations of the semiconductor product line and 
certain other facilities which are not material have been excluded from the 
combined financial statements. Significant intercompany and inter-business 
transactions and balances have been eliminated. 

   The Company is a supplier of sophisticated secure communication systems 
and specialized communication products including secure, high data rate 
communication systems, microwave components, avionics, recorders, telemetry 
and space products. The Company's customers include the Department of Defense 
(the "DoD"), selected U.S. government intelligence agencies, major 
aerospace/defense prime contractors and commercial customers. The Company 
operates primarily in one industry segment, electronic components and 
systems. 

   Substantially all the Company's products are sold to agencies of the U.S. 
Government, primarily the Department of Defense, to foreign government 
agencies or to prime contractors or subcontractors thereof. All domestic 
government contracts and subcontracts of the Businesses are subject to audit 
and various cost controls, and include standard provisions for termination 
for the convenience of the U.S. Government. Multi-year 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 government. 

2. CHANGE IN OWNERSHIP TRANSACTION 

   Holdings and L-3 were formed by Mr. Frank C. Lanza, the former President 
and Chief Operating Officer of Loral, Mr. Robert V. LaPenta, the former 
Senior Vice President and Controller of Loral (collectively, the "Equity 
Executives"), Lehman Brothers Capital Partners III, L.P. and its affiliates 
(the "Lehman Partnership") and Lockheed Martin to acquire the Businesses. The 
Company was capitalized with an equity contribution from Holdings of 
$125,000. 

   On March 28, 1997, Lanza, LaPenta, the Lehman Partnership, L-3, and 
Lockheed Martin entered into a Transaction Agreement (the "L-3 Acquisition 
Agreement") whereby Holdings would acquire the Businesses from Lockheed 
Martin (the "L-3 Acquisition"). Also included in the acquisition is a 
semiconductor product line of another business and certain leasehold 
improvements in New York City which were not material. Pursuant to the L-3 
Acquisition Agreement, L-3 acquired the Businesses from Lockheed Martin for 
$525,000, comprising $458,779 of cash, after a $21,221 reduction related to a 
purchase price adjustment, and $45,000 of common equity, representing a 34.9% 
interest in Holdings retained by Lockheed Martin, plus acquisition costs of 
$8,000. 

   The Company and Lockheed Martin finalized the purchase price adjustment 
pursuant to an amendment to the L-3 Acquisition Agreement dated November 5, 
1997, which also included the 
    

                               36           
<PAGE>
                        L-3 COMMUNICATIONS CORPORATION 
      NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued) 
                            (Dollars in thousands) 
   
assumption by the Company of Lockheed Martin's rights and obligations under a 
contract for the production of mission communication systems for track 
vehicles, for which the Company received cash of $12,176. 

   In connection with the L-3 Acquisition Agreement, Holdings and the Company 
anticipated entering into a transition services agreement with Lockheed 
Martin pursuant to which Lockheed Martin would provide to L-3 and its 
subsidiaries (and L-3 would provide to Lockheed Martin) certain corporate 
services of a type previously provided at costs consistent with past 
practices until December 31, 1997 (or, in the case of Communication Systems 
-- East (formerly known as Communication Systems -- Camden), for a period of 
up to 18 months after the Closing). Lockheed Martin is providing L-3 the 
services contemplated by the proposed transaction services agreement in the 
absence of any executed agreement. The parties also entered into supply 
agreements which reflect previously existing inter-company work transfer 
agreements or similar support arrangements upon prices and other terms 
consistent with previously existing arrangements. Holdings, the Company and 
Lockheed Martin have entered into certain subleases of real property and 
cross-licenses of intellectual property. 

   Pursuant to the L-3 Acquisition Agreement the Company also assumed certain 
obligations relating to environmental liabilities and benefit plans. 

   In accordance with Accounting Principles Board Opinion No. 16, the 
acquisition of the Businesses by Holdings and L-3 has been accounted for as a 
purchase business combination effective as of April 1, 1997. The purchase 
cost (including the fees and expenses related thereto) was allocated to the 
tangible and intangible assets and liabilities of the Company based upon 
their respective fair values. The assets and liabilities recorded in 
connection with the purchase price allocation were $664,800 and $164,400, 
respectively. The excess of the purchase price over the fair value of net 
assets acquired of $303,200 was recorded as goodwill, and is being amortized 
on a straight-line basis over a period of 40 years. As a result of the 34.9% 
ownership interest retained by Lockheed Martin, the provisions of Emerging 
Issues Task Force Issue Number 88-16 were applied in connection with the 
purchase price allocation, which resulted in the recognition of a deemed 
distribution of $9,000. 

   In connection with the determination of the fair value of assets acquired 
and pursuant to the provisions of Accounting Principles Board Opinion No. 16, 
the Company has valued acquired contracts in process at contract price, less 
the estimated cost to complete and an allowance for the Company's normal 
profit on its effort to complete such contracts. 

   Had the L-3 Acquisition occurred on January 1, 1996, the unaudited pro 
forma sales and net income for the years ended December 31, 1997 and 1996 
would have been $703,600 and $11,890, and $663,200 and $5,290, respectively. 
The pro forma results, which are based on various assumptions, are not 
necessarily indicative of what would have occurred had the acquisition been 
consummated on January 1, 1996. The 1997 and 1996 pro forma sales and net 
income have been adjusted to (a) include the operations of the Loral Acquired 
Businesses from January 1, 1996 (Note 3) and (b) exclude the operations of 
the Hycor business net assets held for sale from January 1, 1996 (Note 6). 

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

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

   STATEMENTS OF CASH FLOWS: Changes in operating assets and liabilities are 
net of the impact of acquisitions and final purchase price allocations. The 
Predecessor Company participated in Lockheed Martin's cash management system, 
under which all cash was received and payments were made by Lockheed Martin. 
All transactions between the Predecessor Company and Lockheed Martin have 
been accounted for as settled in cash at the time the transactions were 
recorded by the Predecessor Company. 
    

                               37           
<PAGE>
                        L-3 COMMUNICATIONS CORPORATION 
      NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued) 
                            (Dollars in thousands) 
   
   REVENUE RECOGNITION: Sales on production-type contracts are recorded as 
units are shipped; profits applicable to such shipments are recorded pro 
rata, based upon estimated total profit at completion of the contract. Sales 
and profits on cost reimbursable contracts are recognized as costs are 
incurred. Sales and estimated profits under other long-term contracts are 
recognized under the percentage of completion method of accounting using the 
cost-to-cost method. Amounts representing contract change orders or claims 
are included in sales only when they can be reliably estimated and their 
realization is probable. 

   Losses on contracts are recognized when determined. Revisions in profit 
estimates are reflected in the period, on a cumulative catch-up basis, in 
which the facts, requiring the revision, become known. 

   CONTRACTS IN PROCESS: Costs accumulated on contracts in process include 
direct costs, as well as manufacturing overhead, and for government 
contracts, general and administrative costs, independent research and 
development costs and bid and proposal costs. In accordance with industry 
practice, contracts in process contain amounts relating to contracts and 
programs with long performance cycles, a portion of which may not be realized 
within one year. 

   PROPERTY, PLANT AND EQUIPMENT:  Property, plant and equipment are stated 
at cost. Depreciation is provided primarily on the straight-line method over 
the estimated useful lives of the related assets. Leasehold improvements are 
amortized over the shorter of the lease term or the estimated useful life of 
the improvements. 

   COST IN EXCESS OF NET ASSETS ACQUIRED: The excess of the cost of the L-3 
Acquisition over the fair value of the net assets acquired is being amortized 
using a straight-line method over a 40 year period. Accumulated amortization 
of the Company amounted to $5,741 at December 31, 1997. 

   The carrying amount of cost in excess of net assets acquired is evaluated 
on a recurring basis. Current and future profitability as well as current and 
future undiscounted cash flows, excluding financing costs, of the acquired 
businesses are primary indicators of recoverability. For the nine months 
ended December 31, 1997, there was no reduction to the carrying amount of the 
cost in excess of net assets acquired resulting from these evaluations. 

   PREDECESSOR COMPANY INTANGIBLES: Intangibles, primarily the excess of the 
cost of Businesses over the fair value of the net assets acquired, was 
amortized using a straight-line method primarily over a 40-year period. Other 
intangibles were amortized over their estimated useful lives which range from 
11 to 15 years. Amortization expense of the Businesses was $2,655 for the 
three months ended March 31, 1997; $10,115 and $6,086 for the years ended 
December 31, 1996 and 1995, respectively. Accumulated amortization was 
$26,524 at December 31, 1996. 

   Intangibles of the Predecessor Company include costs allocated to the 
Businesses relating to the Request for Funding Authorization ("RFA"), 
consisting of over 20 restructuring projects to reduce operating costs, 
initiated by General Electric ("GE") Aerospace in 1990 and to the REC Advance 
Agreement ("RAA"), a restructuring plan initiated after Lockheed Martin's 
acquisition of GE Aerospace. The RAA was initiated to close two regional 
electronic manufacturing centers. Restructure costs are reimbursable from the 
U.S. Government if savings can be demonstrated to exceed costs. The total 
cost of restructuring under the RFA and the RAA represented approximately 15% 
of the estimated savings to the U.S. Government and, therefore, a deferred 
asset has been recorded by Lockheed Martin. The deferred asset is being 
allocated to all the former GE Aerospace sites, including the Communications 
Systems Division, on a basis that includes manufacturing labor, overhead, and 
direct material less non-hardware subcontracts. At December 31, 1997 and 
1996, approximately $2,313 and $4,400, respectively, of unamortized RFA and 
RAA costs are deferred on the Company's and the Predecessor Company's 
consolidated (combined) balance sheets in other current assets and other 
assets. 

   The carrying values of the Predecessor Company intangibles were reviewed 
if the facts and circumstances indicated potential impairment of their 
carrying value. If this review indicated that 
    

                               38           
<PAGE>
                        L-3 COMMUNICATIONS CORPORATION 
      NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued) 
                            (Dollars in thousands) 
   
intangible assets were not recoverable, as determined based on the 
undiscounted cash flows of the entity acquired over the remaining 
amortization period, the Businesses carrying values related to the intangible 
asset were reduced by the estimated shortfall of cash flows. 

   INCOME TAXES: The Company provides for income taxes using the liability 
method prescribed by the Financial Accounting Standards Board ("FASB") 
Statement No. 109, "Accounting for Income Taxes." Under 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 financial effect of changes 
in tax laws or rates is accounted for in the period of enactment. 

   PREDECESSOR COMPANY INCOME TAXES: The Predecessor Company was included in 
the consolidated Federal income tax return and certain combined and separate 
state and local income tax returns of Lockheed Martin. However, for purposes 
of these financial statements, the provision for income taxes has been 
allocated to the Predecessor Company based upon reported combined income 
before income taxes. Income taxes, current and deferred, are considered to 
have been paid or charged to Lockheed Martin and are recorded through the 
invested equity account with Lockheed Martin. The principal components of the 
deferred taxes are contract accounting methods, property, plant and 
equipment, goodwill amortization and timing of accruals. 

   RESEARCH AND DEVELOPMENT: Research and development costs sponsored by the 
Company and the Predecessor Company include research and development, bid and 
proposal costs related to government products and services. These costs 
generally are allocated among all contracts and programs in progress under 
U.S. Government contractual arrangements. Customer-sponsored research and 
development costs incurred pursuant to contracts are accounted for as direct 
contract costs. 

   STOCK OPTIONS: In accordance with Accounting Principles Board Opinion No. 
25, "Accounting for Stock Issued to Employees" ("APB 25") and related 
interpretations, compensation expense for stock options is recognized in 
income based on the excess, if any, of the Company's 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. The exercise price for stock options 
granted to employees equals or exceeds the fair value of Holdings common 
stock at the date of grant, thereby resulting in no recognition of 
compensation expense by the Company. The Company has adopted the disclosure 
-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" 
("SFAS 123"). 

   DERIVATIVE FINANCIAL INSTRUMENTS: In the normal course of financing 
operations, the Company enters into interest rate cap and floor transactions 
for interest rate protection purposes, and not for speculative or trading 
purposes. Cash payments to and from the Company and the counterparties are 
recorded as a component of interest expense. The initial cost of these 
arrangements are deferred and amortized as interest expense. 

   USE OF ESTIMATES: The preparation of financial statements in conformity 
with generally accepted accounting principles 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 revenue and expenses 
during the reporting period. The most significant of these estimates and 
assumptions relate to contract estimates of sales and costs, allocations from 
Lockheed Martin, recoverability of recorded amounts of fixed assets and cost 
in excess of net assets acquired, litigation and environmental obligations. 
Actual results could differ from these estimates. 

   EARNINGS PER SHARE: Earnings per share data is not presented since the 
Company and the Predecessor Company are wholly owned subsidiaries. 
    

                               39           
<PAGE>
                        L-3 COMMUNICATIONS CORPORATION 
      NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued) 
                            (Dollars in thousands) 

   
   ACCOUNTING PRONOUNCEMENTS: In June 1997, the FASB issued Statement of 
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive 
Income" and SFAS No. 131, "Disclosure about Segments of an Enterprise and 
Related Information." SFAS No. 130 establishes standards for reporting and 
display of comprehensive income and its components (revenues, expenses, gains 
and losses) in full set general purpose financial statements. SFAS No. 131 
establishes accounting standards for the way that public business enterprises 
report selected information about operating segments and requires that those 
enterprises report selected information about operating segments in interim 
financial reports issued to shareholders. In February 1998, the FASB issued 
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement 
Benefits." SFAS No. 132 revises employers' disclosures about pension and 
other postretirement benefits plans. It does not change the measurement or 
recognition of those plans. It standardizes the disclosure requirements for 
pensions and other postretirement benefits to the extent practicable, 
requires additional information on changes in the benefit obligations and 
fair values of plan assets that will facilitate financial analysis, and 
eliminates certain disclosures that are no longer as useful as they were when 
SFAS No. 87 "Employers' Accounting for Pensions", SFAS No. 88 "Employers' 
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans 
and for Termination Benefits" and SFAS No. 106 "Employers' Accounting for 
Postretirement Benefits Other Than Pensions" were issued. SFAS No. 132 
suggests combined formats for presentation of pension and other 
postretirement benefits disclosures. SFAS No. 130 and SFAS No. 131 and SFAS 
No. 132 are required to be adopted by 1998. The Company is currently 
evaluating the impact, if any, of SFAS No. 130, SFAS No. 131 and SFAS 132. 

   Effective January 1, 1996, the Businesses adopted SFAS No. 121, 
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets To 
Be Disposed Of" ("SFAS 121"). SFAS 121 establishes the accounting standards 
for the impairment of long-lived assets, certain intangible assets and cost 
in excess of net assets acquired to be held and used for long-lived assets 
and certain intangible assets to be disposed of. The impact of adopting SFAS 
121 was not material. 

   Effective in December 1997 the Company adopted the provisions of SFAS No. 
129, "Disclosure of Information about Capital Structure" ("SFAS 129"). 

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

4. PREDECESSOR COMPANY ACQUISITION 

   Effective April 1, 1996, Lockheed Martin acquired substantially all the 
assets and liabilities of the defense businesses of Loral, including the 
Wideband Systems Division and the Products Group which are included in the 
Businesses. The acquisition of the Wideband Systems Division and Products 
Group businesses (the "Loral Acquired Businesses") has been accounted for as 
a purchase by Lockheed Martin Communications Systems -- Camden Division 
("Division"). The acquisition has been reflected in the financial statements 
based on the purchase price allocated to those acquired businesses by 
Lockheed Martin. The assets and liabilities recorded in connection with the 
purchase price allocation were $401,000 and $113,200, respectively. As such, 
the accompanying condensed combined financial statements for periods prior to 
April 1, 1997 reflect the results of operations of the Division and the Loral 
Acquired Businesses from the effective date of acquisition including the 
effects of an allocated portion of cost in excess of net assets acquired 
resulting from the acquisition. 
    

                               40           
<PAGE>
                        L-3 COMMUNICATIONS CORPORATION 
      NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued) 
                            (Dollars in thousands) 

5. CONTRACTS IN PROCESS 

   
   Billings and accumulated costs and profits on long-term contracts, 
principally with the U.S. Government, comprise the following: 

<TABLE>
<CAPTION>
                                                                              PREDECESSOR 
                                                                   COMPANY      COMPANY 
                                                                 ---------- ------------- 
                                                                       DECEMBER 31, 
                                                                 ------------------------- 
                                                                    1997         1996 
                                                                 ---------- ------------- 
<S>                                                              <C>        <C>
Billed contract receivables.....................................  $ 39,029     $ 45,212 
Unbilled contract receivables ..................................    33,136       84,814 
Other billed receivables, principally commercial and affiliates     31,253       41,154 
Inventoried costs ..............................................    82,954       72,880 
                                                                 ---------- ------------- 
                                                                   186,372      244,060 
Less, unliquidated progress payments                               (19,170)     (45,987) 
                                                                 ---------- ------------- 
Net contracts in process........................................  $167,202     $198,073 
                                                                 ========== ============= 
</TABLE>

   The U.S. Government has title to or a secured interest in, inventory to 
which progress payments are applied. Unbilled contract receivables represent 
accumulated costs and profits earned but not yet billed to customers. The 
Company believes that substantially all such amounts will be billed and 
collected within one year. 

   The following data has been used in the determination of costs and 
expenses: 

<TABLE>
<CAPTION>
                                                         COMPANY           PREDECESSOR COMPANY 
                                                     -------------- -------------------------------- 
                                                          NINE          THREE 
                                                         MONTHS        MONTHS    FOR THE YEAR ENDED   
                                                          ENDED         ENDED       DECEMBER 31,
                                                      DECEMBER 31,    MARCH 31,  ------------------- 
                                                          1997          1997        1996      1995 
                                                      -------------- ----------- --------- -------- 
<S>                                                  <C>            <C>          <C>       <C>       
Selling, general and administrative ("SG&A") costs 
 included in inventoried costs......................     $15,379       $14,536    $14,700    $1,156 
Selling, general and administrative costs incurred .      88,527        28,449     82,226     6,525 
Independent research and development, including bid 
 and proposal costs, included in SG&A incurred .....     $28,893       $12,024    $36,500    $9,800 
</TABLE>

6. NET ASSETS HELD FOR SALE 

   The Company has accounted for the allocation of purchase price and the net 
assets of its Hycor business in accordance with the FASB's Emerging Issues 
Task Force Issue 87-11 "Allocation of Purchase Price to Assets to be Sold" 
("EITF 87-11"). Accordingly, the net assets related to the Hycor business as 
of April 1, 1997 are included in the accompanying consolidated balance sheet 
as "Net assets held for sale". The fair value assigned to such net assets is 
based upon management's estimate of the proceeds from the sale of the Hycor 
business less the estimated income from operations for such business during 
the holding period of April 1, 1997 through January 29, 1998 (the "holding 
period"), plus interest expense on debt allocated to such net assets during 
the holding period. On January 29, 1998, the Company sold the Hycor business, 
excluding land and buildings for $3,500 in cash subject to adjustment based 
on final closing net assets. In accordance with EITF 87-11, loss from the 
operations of the Hycor business of $108 and interest expense of $552 on the 
debt allocated to the Hycor net assets have been excluded from the Company's 
consolidated statements of operations for the nine months ended December 31, 
1997. Management of the Company expects that any gain or loss realized on the 
ultimate disposition of the Hycor business will not have a material impact on 
the original purchase price allocation. 
    

                               41           
<PAGE>
                        L-3 COMMUNICATIONS CORPORATION 
      NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued) 
                            (Dollars in thousands) 
   
   Also included in net assets held for sale at December 31, 1997 is a 
Company property located in Atlanta, Georgia. 

7. PROPERTY, PLANT AND EQUIPMENT 

<TABLE>
<CAPTION>
                                                            PREDECESSOR 
                                                 COMPANY      COMPANY 
                                               ---------- ------------- 
                                                     DECEMBER 31, 
                                               ------------------------- 
                                                  1997         1996 
                                               ---------- ------------- 
<S>                                            <C>        <C>
Land..........................................   $ 6,670     $  9,200 
Buildings and improvements ...................    19,487       27,000 
Machinery, equipment, furniture and fixtures      58,978       73,137 
Leasehold improvements .......................     9,899        7,229 
                                               ---------- ------------- 
                                                 $95,034     $116,566 
                                               ========== ============= 
</TABLE>

   Depreciation and amortization expense attributable to property, plant and 
equipment was $13,320 for the nine months ended December 31, 1997; $4,529 for 
the three months ended March 31, 1997, and $14,924 and $5,492 for the years 
ended December 31, 1996 and 1995, respectively. 

8. DEBT 

   Long-term debt consists of: 

<TABLE>
<CAPTION>
                                        DECEMBER 31, 1997 
                                        ----------------- 
<S>                                     <C>
Term loans.............................      $172,000 
10 3/8 Senior Subordinated Notes due 
 2007 .................................       225,000 
                                        ----------------- 
                                             $397,000 
Less current portion of term loans  ...         5,000 
                                        ----------------- 
 Total long-term debt..................      $392,000 
                                        ================= 
</TABLE>


   In connection with the L-3 Acquisition, the Company entered into a credit 
facility (the "Senior Credit Facilities") with a syndicate of banks and 
financial institutions for $275,000 consisting of $175,000 of term loans (the 
"Term Loan Facilities") and a $100,000 revolving credit facility (the 
"Revolving Credit Facility"). The Senior Credit Facilities bear interest, at 
the option of the Company, at a rate related to (i) the higher of federal 
funds rate plus 0.50% per annum or the reference rate published by Bank of 
America NT&SA or (ii) LIBOR. At December 31, 1997, such interest rates, based 
on various maturities, ranged from 7.625% to 8.625%. Interest payments vary 
in accordance with the type of borrowing and are made at a minimum every 
three months. The Revolving Credit Facility expires in 2003 and is available 
for ongoing working capital and letter of credit needs. The Term Loans mature 
in installments until the final maturity date in 2006. Approximately $93,428 
of the Revolving Credit Facility is available at December 31, 1997 reflecting 
letters of credit of $6,572 drawn against the Revolving Credit Facility of 
$100,000. In February 1998, the Senior Credit Facilities were amended to, 
among other things, increase the Revolving Credit Facility to $200,000, waive 
certain excess cash flow prepayments, as defined, otherwise required and 
permit the incurrence of up to an additional $150,000 of subordinated debt. 
The Company pays a commitment fee of 0.375% per annum on the unused portion 
of the Revolving Credit Facility. 

   In April 1997, the Company issued $225,000 of 10 3/8% senior subordinated 
notes (the "1997 Notes") due May 1, 2007 with interest payable semi-annually 
on May 1 and November 1 of each year, commencing November 1, 1997. On 
November 5, 1997, the Company completed its exchange offer relating to the 
1997 
    

                               42           
<PAGE>
                        L-3 COMMUNICATIONS CORPORATION 
      NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued) 
                            (Dollars in thousands) 

   
Notes and the holders of the 1997 Notes received registered securities. The 
1997 Notes are redeemable at the option of the Company, in whole or in part, 
at any time on or after May 1, 2002, at various redemption prices plus 
accrued and unpaid interest to the applicable redemption date. In addition, 
prior to May 1, 2000, the Company may redeem up to 35% of the aggregate 
principal amount of 1997 Notes at a redemption price of 109.375% of the 
principal amount thereof, plus accrued and unpaid interest to the redemption 
date with the net cash proceeds of one or more equity offerings by Holdings 
that are contributed to the Company as common equity capital. 

   The Senior Credit Facilities and the 1997 Notes agreement contain 
financial and restrictive covenants that limit, among other things, the 
ability of the Company to borrow additional funds, dispose of assets, or pay 
cash dividends. At December 31, 1997, none of the Company's retained earnings 
were available to pay dividends. The Senior Credit Facilities contain 
financial covenants, which remain in effect so long as any amount is owed by 
the Company thereunder. These financial covenants require that (i) the 
Company's debt ratio, as defined, be less than or equal to 5.50 for the 
quarter ended December 31, 1997, and that the maximum allowable debt ratio, 
as defined, thereafter be further reduced to less than or equal to 3.1 for 
the quarters ending after June 30, 2002, and (ii) the Company's interest 
coverage ratio, as defined, be at least 1.85 for the quarter ended December 
31, 1997, and thereafter increasing the interest coverage ratio, as defined, 
to at least 3.10 for any fiscal quarters ended after June 30, 2002. At 
December 31, 1997, the Company was in compliance with these covenants. 

   In connection with the Senior Credit Facilities, the Company has granted 
the lenders a first priority lien on substantially all of the Company's 
assets including the stock of L-3 Communications Corporation. 

   The aggregate principal payments for debt, excluding borrowings under the 
Revolving Credit Facility, for the five years ending December 31, 1998 
through 2002 are: $5,000, $11,000, $19,000, $25,000 and $33,200, 
respectively. 

   The costs related to the issuance of debt have been deferred and are being 
amortized as interest expense over the term of the related debt using a 
method that approximates the effective interest method. 

9. PREDECESSOR COMPANY'S INTEREST EXPENSE 

   Interest expense has been allocated to the Predecessor Company by applying 
Lockheed Martin's weighted average consolidated interest rate to the portion 
of the beginning of the period invested equity account deemed to be financed 
by consolidated debt, which has been determined based on Lockheed Martin's 
debt to equity ratio on such date, except that the acquisition of the Loral 
Acquired Businesses has been assumed to be fully financed by debt. Management 
of the Businesses believes that this allocation methodology is reasonable. 

   Interest expense of the Predecessor Company was calculated using the 
following balances and interest rates: 

<TABLE>
<CAPTION>
                                  YEARS ENDED DECEMBER 
                   THREE MONTHS 
                                           31, 
                       ENDED     ---------------------- 
                  MARCH 31, 1997     1996       1995 
                  -------------- ----------   ---------- 
<S>               <C>            <C>          <C>
Invested Equity      $473,609      $482,466   $199,506 
Interest Rate  ..        7.10%         7.20%      7.40% 
</TABLE>

10. FINANCIAL INSTRUMENTS 

   The Company's financial instruments consist primarily of cash and cash 
equivalents, billed contract receivables, other billed receivables 
(principally commercial and affiliates), trade accounts payable, customer 
advances, debt instruments, and interest rate cap and interest rate floor 
contracts. The book values of cash and cash equivalents, billed contract 
receivables, other billed receivables (principally 
    

                               43           
<PAGE>
                        L-3 COMMUNICATIONS CORPORATION 
      NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued) 
                            (Dollars in thousands) 

   
commercial and affiliates), trade accounts payable and customer advances are 
considered to be representative of their respective fair values at December 
31, 1997 due to the short-term maturities or expected settlement dates of 
these instruments. 

   The Company's debt instruments consist of term loans and 1997 Notes (Note 
8). The carrying values of the term loans approximate fair value because they 
are variable-rate loans which bear interest at current market rates. 

   The 1997 Notes are registered, unlisted public debt which is traded in the 
over-the-counter market. The fair value of such debt at December 31, 1997 was 
estimated to be approximately $243,000, based on trading activity on December 
31, 1997. 

   To mitigate risks associated with changing interest rates on certain of 
its debt, the Company entered into the interest rate agreements. The fair 
values of the interest rate caps and interest rate floors (collectively, the 
"interest rate agreements") were estimated by discounting expected cash flows 
using quoted market interest rates. 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. The 
impact of the interest rate agreements was not material to interest expense 
for the nine months ended December 31, 1997. Information with respect to the 
interest rate agreements is as follows: 

<TABLE>
<CAPTION>
                          DECEMBER 31, 1997 
                      -------------------------- 
                       NOTIONAL     UNREALIZED 
                        AMOUNT    GAINS (LOSSES) 
                      ---------- -------------- 
<S>                   <C>        <C>
Interest rate caps  .  $100,000      $(1,008) 
                      ---------- -------------- 
Interest rate 
 floors..............  $ 50,000      $  (263) 
                      ---------- -------------- 
</TABLE>

   At December 31, 1996, the Predecessor Company's financial instruments 
consisted primarily of billed contract receivables, other billed receivables 
(principally commercial and affiliates), trade accounts payable and customer 
advances. The book value of billed contract receivables, other billed 
receivables (principally commercial and affiliates), trade accounts payable 
and customer advances approximated their respective fair values at December 
31, 1996, due to the short-term maturities or expected settlement dates of 
those instruments. 

11. NONCASH COMPENSATION CHARGE 

   Holdings' Class A Common Stock and Class B Common Stock were issued at per 
share prices of $6.47 and $5.00, respectively. The aggregate difference in 
issuance prices of $4,410 has been accounted for as a noncash compensation 
charge to expense effective on April 1, 1997, related to the initial 
capitalization of L-3. 

12. INCOME TAXES 

THE COMPANY 

   Pretax income of the Company for the nine months ended December 31, 1997 
was $22,992 and was primarily domestic. The components of the Company's 
provision for income taxes for the nine months ended December 31, 1997 are: 

<TABLE>
<CAPTION>
<S>                                                 <C>
 Income taxes currently payable, primarily federal   $   696 
Deferred income taxes: 
 Federal ..........................................    8,635 
 State and local ..................................    1,356 
                                                    -------- 
 Subtotal .........................................  $ 9,991 
                                                    -------- 
Total provision for income taxes ..................  $10,687 
                                                    ======== 
</TABLE>
    

                               44           
<PAGE>
                        L-3 COMMUNICATIONS CORPORATION 
      NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued) 
                            (Dollars in thousands) 

   
   The effective income tax rate of the Company for the nine months ended 
December 31, 1997 differs from the statutory federal income tax rate for the 
following reasons: 

<TABLE>
<CAPTION>
<S>                                                              <C>
 Statutory federal income tax rate ..............................  35.0% 
State and local income taxes, net of federal income tax benefit     3.8 
Noncash compensation charge.....................................    6.8 
Non-deductible goodwill amortization and other expenses  .......    4.4 
Research and development and other tax credits .................   (3.5) 
                                                                 ------- 
Effective income tax rate ......................................   46.5 % 
                                                                 ======= 
</TABLE>

   The significant components of the Company's net deferred tax assets at 
December 31, 1997 are: 

<TABLE>
<CAPTION>
<S>                                                    <C>
 Deferred tax assets: 
 Other postretirement benefits .......................  $ 8,649 
 Inventoried costs ...................................    8,711 
 Compensation and benefits ...........................      528 
 Pension costs .......................................    4,177 
 Property, plant and equipment .......................    8,098 
 Income recognition on long-term contracts  ..........    3,691 
 Other, net ..........................................    1,861 
 Net operating loss and other credit carryforwards  ..    2,969 
                                                       --------- 
  Total deferred tax assets...........................   38,684 
Deferred tax liabilities: 
 Cost in excess of net assets acquired ...............   (1,099) 
 Other, net ..........................................      (70) 
                                                       --------- 
  Total deferred tax liabilities......................   (1,169) 
                                                       --------- 
Net deferred tax assets...............................  $37,515 
                                                       ========= 
 The net deferred tax assets are classified as 
  follows: 
 Current deferred tax assets .........................  $13,298 
 Long-term deferred tax assets........................   24,217 
                                                       --------- 
                                                        $37,515 
                                                       ========= 
</TABLE>

   At December 31, 1997, the Company had $2,969 of tax credit carryforwards, 
primarily related to U.S. federal net operating losses and research and 
experimentation tax credits which expire, if unused, in 2012. The Company 
believes that these carryforwards will be available to reduce future income 
tax liabilities and has recorded these carryforwards as non-current deferred 
tax assets. 

PREDECESSOR COMPANY 

   The (benefit) provision for income taxes for the Predecessor Company was 
calculated by applying statutory tax rates to the reported income (loss) 
before income taxes after considering items that do not enter into the 
determination of taxable income and tax credits reflected in the consolidated 
provision of Lockheed Martin, which are related to the Businesses. 
Substantially all the income of the Businesses are from domestic operations. 
For the three months ended March 31, 1997, it is estimated that the benefit 
for deferred taxes represents $1,315. For the years ended December 31, 1996 
and 1995, it is estimated that the (benefit) provision for deferred taxes 
represents ($2,143) and $3,994, respectively. 
    

                               45           
<PAGE>
                        L-3 COMMUNICATIONS CORPORATION 
      NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued) 
                            (Dollars in thousands) 

   
   The effective income tax rate of the Predecessor Company differs from the 
statutory Federal income tax rate for the following reasons: 

<TABLE>
<CAPTION>
                                                            FOR THE 
                                                         THREE MONTHS     YEARS ENDED      
                                                             ENDED       DECEMBER 31, 
                                                           MARCH 31,   ---------------- 
                                                             1997        1996     1995 
                                                         ---------------------  ------- 
<S>                                                     <C>            <C>      <C>
Statutory federal income tax rate .....................      (35.0)%     35.0%    34.0% 
Amortization of cost in excess of net assets acquired         (8.1)         2      529 
Research and development and other tax credits  .......      (11.3)        (2)      -- 
State and local income taxes, net of federal income 
 tax benefit and state and local income tax credits  ..        4.8          6      101 
Foreign sales corporation tax benefits ................       (8.4)        (1)      -- 
Other, net ............................................        9.1         --     17.0 
                                                        -------------- -------  ------- 
Effective income tax rate .............................      (48.9)%     40.0%     681% 
                                                        ============== =======  ======= 
</TABLE>

13. STOCK OPTIONS 

THE COMPANY 

   Holdings sponsors an option plan for key employees, pursuant to which 
options to purchase up to 3,255,815 shares of common stock have been 
authorized for grant. 

   On April 30, 1997, Holdings adopted the 1997 Option Plan for key employees 
and granted to the Equity Executives nonqualified options to purchase, at 
$6.47 per share, 2,285,714 shares of Class A common stock of Holdings. In 
each case, half of the options are "Time Options" and half are "Performance 
Options" (collectively, the "Options"). The Time Options become exercisable 
with respect to 20% of the shares subject to the Time Options on each of the 
first five anniversaries if employment continues through and including such 
date. The Performance Options become exercisable nine years after the grant 
date, but may become exercisable earlier with respect to up to 20% of the 
shares subject to the Performance Options on each of the first five 
anniversaries, to the extent certain defined targets are achieved. The 
Options, which have a ten year term, become fully exercisable under certain 
circumstances, including a change in control. 

   On July 1, 1997 and November 11, 1997, Holdings granted nonqualified 
options to certain officers and other employees of the Company to purchase at 
$6.47 per share 689,500 shares of Class A common stock of Holdings 
(collectively, the "1997 Options"). Generally, the 1997 Options vest over a 
three-year vesting period and expire ten years from the date of grant. 

   The exercise price for Holdings' stock options granted to employees in 
1997 equaled the estimated fair value of Holdings' common stock at the date 
of grant. Accordingly, in accordance with APB 25, no compensation expense was 
recognized by the Company. 

   Pro forma information regarding net earnings as required by SFAS 123 has 
been determined as if the Company had accounted for its employee stock 
options under the fair value method. Because Holdings is a nonpublic entity 
the fair value for the options was estimated at the date of grant using the 
minimum value method prescribed in SFAS 123, which does not consider the 
expected volatility of Holdings' stock price, with the following 
weighted-average assumptions for 1997: risk-free interest rate of 6.3%; 
dividend yield of 0%; and weighted-average expected option life of 5.49 
years. 
    

                               46           
<PAGE>
                        L-3 COMMUNICATIONS CORPORATION 
      NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued) 
                            (Dollars in thousands) 

   
   For purposes of pro forma disclosures, the compensation cost of the 
options based on their estimated fair values is amortized to expense over 
vesting periods of the options. The Company's net income for the nine months 
ended December 31, 1997 would have decreased to the pro forma amounts 
indicated below: 

<TABLE>
<CAPTION>
<S>             <C>
 Net income: 
 As reported  .  $12,305 
                ========= 
 Pro forma.....  $11,751 
                ========= 
</TABLE>

   A summary of the stock option activity for the nine months ended December 
31, 1997 is as follows: 

<TABLE>
<CAPTION>
                                             SHARES      WEIGHTED AVERAGE 
                                         (IN THOUSANDS)   EXERCISE PRICE 
                                         -------------- ---------------- 
<S>                                      <C>            <C>
Options granted ........................      2,975           $6.47 
Options exercised ......................         --              -- 
Options cancelled ......................          4           $6.47 
Options outstanding, December 31, 1997        2,971           $6.47 
Options exercisable, December 31, 1997           --              -- 
</TABLE>

   The weighted-average grant-date fair value of options granted during the 
nine months ended December 31, 1997 was $1.82 per option. The weighted 
average remaining contract life of the Company's outstanding stock options 
was 9.37 years at December 31, 1997. 


PREDECESSOR COMPANY 

   During the three months ended March 31, 1997 and the years ended December 
31, 1996 and 1995, certain employees of the Predecessor Company participated 
in Lockheed Martin's stock option plans. All stock options granted had 10 
year terms and vested over a two year service period. Exercise prices of 
options awarded in both years were equal to the market price of the stock on 
the date of grant. Pro forma information regarding net earnings (loss) as 
required by SFAS No. 123 has been determined as if the Predecessor Company 
had accounted for its employee stock options under the fair value method. The 
fair value for these options was estimated at the date of grant using a 
Black-Scholes option pricing model with the following weighted-average 
assumptions for the three months ended March 31, 1997 and the years ended 
December 31, 1996 and 1995, respectively: risk-free interest rates of 5.58%, 
5.58% and 6.64%; dividend yield of 1.70%; volatility factors related to the 
expected market price of the Lockheed Martin's common stock of .186, .186 and 
 .216; weighted-average expected option life of five years. The 
weighted-average fair values of options granted during 1997, 1996 and 1995 
were $17.24, $17.24 and $16.09, respectively. 

   For the purposes of pro forma disclosures, the options' estimated fair 
values are amortized to expense over the options' vesting periods. The 
Predecessor Company's pro forma net loss for the three months ended March 31, 
1997 and the years ended December 31, 1996 and 1995 were ($386), $11,531, and 
$(1,040), respectively. 
    

                               47           
<PAGE>
                        L-3 COMMUNICATIONS CORPORATION 
      NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued) 
                            (Dollars in thousands) 

   
14. COMMITMENTS AND CONTINGENCIES 

   The Company and Predecessor Company leases certain facilities and 
equipment under agreements expiring at various dates through 2011. At 
December 31, 1997, the Company's future minimum payments for noncancellable 
operating leases with initial or remaining terms in excess of one year are as 
follows: 

<TABLE>
<CAPTION>
                         OPERATING LEASES 
               ------------------------------------ 
                REAL ESTATE    EQUIPMENT    TOTAL 
               ------------- -----------  -------- 
<S>            <C>           <C>          <C>
1998..........    $ 8,599        $295      $ 8,894 
1999 .........      7,734         244        7,978 
2000 .........     10,030         232       10,262 
2001 .........      8,926          29        8,955 
2002 .........      2,795          22        2,817 
Thereafter  ..     14,393          --       14,393 
               ------------- -----------  -------- 
                  $52,477        $822      $53,299 
               ============= ===========  ======== 
</TABLE>

   Real estate lease commitments have been reduced by minimum sublease 
rentals of $22,106 due in the future under noncancellable subleases. 

   Leases covering major items of real estate and equipment contain renewal 
and or purchase options which may be exercised by the Company and Predecessor 
Company. Rent expense, net of sublease income from other Lockheed Martin 
entities, was $7,330 for the Company for the nine months ended December 31, 
1997; $2,553 for the Predecessor Company for the three months ended March 31, 
1997 and $8,495 and $4,772 for the Predecessor Company for the years ended 
December 31, 1996 and 1995, respectively. 

   The Company is and the Predecessor Company has been 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 government procurement regulations, 
an indictment of the Company and the Predecessor Company by a federal grand 
jury could result in the Company and the Predecessor 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. 

   The decline in the U.S. defense budget since the mid-1980s has resulted in 
program delays, cancellations and scope reduction for defense contracts in 
general. These events may or may not have an effect on the Company's 
programs; however, in the event that U.S. Government expenditures for 
products of the type manufactured by the Company are reduced, and not offset 
by greater 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. 

   Pursuant to the L-3 Acquisition Agreement, Holdings and the Company have 
agreed to assume certain on-site and off-site environmental liabilities 
related to events or activities occurring prior to the consummation of the 
L-3 Acquisition. Lockheed Martin has agreed to retain all environmental 
liabilities for all facilities not used by the Businesses as of April, 1997 
and to indemnify fully Holdings for such prior site environmental 
liabilities. Lockheed Martin has also agreed, for the first eight years 
following April 1997 to pay 50% of all costs incurred by Holdings above those 
reserved for on the Company's balance sheet at March 31, 1997 relating to 
certain Company-assumed environmental liabilities and, for the seven years 
thereafter, to pay 40% of certain reasonable operation and maintenance costs 
relating to any 

                               48           
    
<PAGE>

                        L-3 COMMUNICATIONS CORPORATION 
      NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued) 
                            (Dollars in thousands) 

   
environmental remediation projects undertaken in the first eight years. The 
Company believes that its total liability for known or reasonably probable 
environmental claims, even without consideration of the Lockheed Martin 
indemnification, would not either individually or collectively have a 
material adverse effect upon the Company's financial condition or upon the 
results of its operations. 

   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 results 
of operations. The Company accrues for these contingencies when it is 
probable that a liability has been incurred and the amount of the loss can be 
reasonably estimated. 

   The Company and the Predecessor Company have been periodically subject to 
litigation, claims or assessments and various contingent liabilities 
(including environmental matters) incidental to its business. With respect to 
those investigative actions, items of litigation, claims or assessments of 
which they are aware, management of the Company is of the opinion that the 
probability is remote that, after taking into account certain provisions that 
have been made with respect to these matters, the ultimate resolution of any 
such investigative actions, items of litigation, claims or assessments will 
have a material adverse effect on the financial position or results of 
operations of the Company and the Predecessor Company. 

15. PENSIONS AND OTHER EMPLOYEE BENEFITS 

THE COMPANY 

   PENSIONS: Holdings and the Company maintain a number of pension plans, 
both contributory and noncontributory, covering certain employees. 
Eligibility for participation in these plans varies and benefits are 
generally based on members' compensation and 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. 

   Pension expense for the nine months ended December 31, 1997 includes the 
following components: 

<TABLE>
<CAPTION>
<S>                            <C>
 Service cost ................. $  5,109 
Interest cost ................     8,883 
Actual return on plan assets     (11,285) 
Net deferral .................     1,581 
                               ---------- 
Total pension cost ...........  $  4,288 
                               ========== 
</TABLE>
    

                               49           
<PAGE>
                        L-3 COMMUNICATIONS CORPORATION 
      NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued) 
                            (Dollars in thousands) 

   
   The following presents the funded status and amounts recognized in the 
balance sheet for the Company's pension plans: 

<TABLE>
<CAPTION>
                                                                         DECEMBER 31, 1997 
                                                                  -------------------------------- 
                                                                   ASSETS EXCEED     ACCUMULATED 
                                                                    ACCUMULATED       BENEFITS 
                                                                      BENEFITS      EXCEED ASSETS 
                                                                  --------------- --------------- 
<S>                                                               <C>             <C>
Actuarial present value of benefit obligations: 
 Vested benefits ................................................     $13,742         $152,133 
                                                                  --------------- --------------- 
 Accumulated benefits ...........................................     $13,825         $155,474 
 Effect of projected future salary increases ....................       3,337           25,795 
                                                                  --------------- --------------- 
 Projected benefits..............................................     $17,162         $181,269 
                                                                  =============== =============== 
Plan assets at fair value........................................     $18,172         $155,278 
                                                                  --------------- --------------- 
Plan assets in excess of (less than) projected benefit 
 obligation......................................................       1,010          (25,991) 
Unrecognized net (gain) loss ....................................        (559)           5,683 
                                                                  --------------- --------------- 
Prepaid (accrued) pension cost...................................     $   451         $(20,308) 
                                                                  =============== =============== 
</TABLE>

   The following assumptions were used in accounting for pension plans for 
the Company: 

<TABLE>
<CAPTION>
                                    APRIL 1, 1997   DECEMBER 31, 1997 
                                   --------------- ----------------- 
<S>                                <C>             <C>
Discount rate ....................       7.50%            7.25% 
Rate of increase in compensation         5.00%            5.00% 
Rate of return on plan assets  ...       9.00%            9.00% 
</TABLE>

   In connection with the Company's assumption of certain plan obligations 
pursuant to the L-3 Acquisition, Lockheed Martin has provided the PBGC with 
commitments to assume sponsorship or other forms of financial support under 
certain circumstances. In this connection, the Company has provided certain 
assurances to Lockheed Martin including, but not limited to, (i) continuing 
to fund the pension plans consistent with prior practices and to the extent 
deductible for tax purposes and, where appropriate, recoverable under 
Government contracts, (ii) agreeing to not increase benefits under the 
pension plans without the consent of Lockheed Martin, (iii) restricting the 
Company from a sale of any businesses employing individuals covered by the 
pension plans if such sale would not result in reduction or elimination of 
the Lockheed Martin Commitment with regard to the specific plan and (iv) if 
the pension plans were returned to Lockheed Martin, granting Lockheed Martin 
the right to seek recovery from the Company of those amounts actually paid, 
if any, by Lockheed Martin with regard to the pension plans after their 
return. 

   POST-RETIREMENT HEALTH CARE AND LIFE INSURANCE: In addition to providing 
pension benefits, the Company provides certain health care 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. 
    

                               50           
<PAGE>
                        L-3 COMMUNICATIONS CORPORATION 
      NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued) 
                            (Dollars in thousands) 

   
   Post-retirement health care and life insurance costs for the nine months 
ended December 31, 1997 include the following components: 

<TABLE>
<CAPTION>
<S>                                                         <C>
Service cost ..............................................  $  466 
Interest cost .............................................     840 
                                                            ------- 
Total post-retirement health care and life insurance costs   $1,306 
                                                            ======= 
</TABLE>

   The following table presents the amounts recognized in the balance sheet 
for the Company at December 31, 1997: 

<TABLE>
<CAPTION>
<S>                                                           <C>
 Accumulated post-retirement benefit obligation: 
 Retirees....................................................  $ 4,702 
 Fully eligible plan participants ...........................    3,188 
 Other active plan participants .............................   10,990 
                                                              --------- 
Total accumulated post-retirement benefit obligation ........  $18,880 
Unrecognized net loss .......................................      624 
                                                              --------- 
Accrued post-retirement health care and life insurance costs   $18,256 
                                                              ========= 
</TABLE>

   Actuarial assumptions used in determining the December 31, 1997 
accumulated post-retirement benefit obligation include a discount rate of 
7.25%, an average rate of compensation increase of 5.0% and an assumed health 
care cost trend rate of 6.5% in 1997 decreasing gradually to a rate of 4.5% 
by the year 2001. The discount rate used at April 1, 1997 was 7.50%. The 
other assumptions did not change from April 1, 1997. Increasing the assumed 
health care cost trend rate by 1% would change the accumulated 
post-retirement benefits obligation at December 31, 1997 by approximately 
$2,218 and the aggregate service and interest cost components for the nine 
months ended December 31, 1997 by approximately $81 and $113, respectively. 

   EMPLOYEE SAVINGS PLAN: 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 contribution vary among the plans. Under these plans, the Company's 
matching contributions, in cash, for the nine months ended December 31, 1997 
was $3,742. 

THE PREDECESSOR COMPANY 

   Certain of the Businesses for the Predecessor Company participated in 
various Lockheed Martin-sponsored pension plans covering certain employees. 
Eligibility for participation in these plans varies, and benefits are 
generally based on members' compensation and years of service. Lockheed 
Martin's funding policy was generally to contribute in accordance with cost 
accounting standards that affect government contractors, subject to the 
Internal Revenue Code and regulations. Since the aforementioned pension 
arrangements are part of certain Lockheed Martin defined benefit plans, no 
separate actuarial data is available for the portion allocable to the 
Businesses. Therefore, no liabilities or assets are reflected in the 
accompanying combined financial statements of the Predecessor Company as of 
December 31, 1996. The Businesses have been allocated pension costs based 
upon participant employee headcount. Net pension expense included in the 
accompanying combined financial statements of the Predecessor Company was 
$1,848 for the three months ended March 31, 1997, and $7,027 and $4,134, for 
the years ended December 31, 1996 and 1995, respectively. 

   In addition to participating in Lockheed Martin-sponsored pension plans, 
certain of the Businesses of the Predecessor Company provided varying levels 
of health care and life insurance benefits for retired 
    

                               51           
<PAGE>
                        L-3 COMMUNICATIONS CORPORATION 
      NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued) 
                            (Dollars in thousands) 

   
employees and dependents. Participants were eligible for these benefits when 
they retired from active service and met the pension plan eligibility 
requirements. 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. Since the 
aforementioned postretirement benefits are part of certain Lockheed Martin 
postretirement arrangements, no separate actuarial data is available for the 
portion allocable to the Businesses. Accordingly, no liability is reflected 
in the accompanying combined financial statements as of combined December 31, 
1996 and 1995. The Businesses have been allocated postretirement benefits 
cost based on participant employee headcount. Postretirement benefit costs 
included in the accompanying combined financial statements was $616 for the 
three months ended March 31, 1997 and $2,787 and $2,124 for the years ended 
December 31, 1996 and 1995, respectively. Under various employee savings 
plans sponsored by Lockheed Martin, the Predecessor Company matched 
contributions of participating employees up to a designated level. Under 
these plans the matching contributions for the three months ended March 31, 
1997 and for the years ended December 31, 1996 and 1995 were $1,241, $3,940 
and $1,478, respectively. 

16. SUPPLEMENTAL CASH FLOW INFORMATION 

   Supplemental disclosures to the consolidated statement of cash flows are 
as follows: 

<TABLE>
<CAPTION>
                         COMPANY            PREDECESSOR COMPANY 
                    ----------------- ------------------------------ 
                                                        YEAR ENDED 
                       NINE MONTHS      THREE MONTHS   DECEMBER 31,        
                          ENDED            ENDED      -------------- 
                    DECEMBER 31, 1997  MARCH 31, 1997  1996    1995 
                     ----------------- -------------- ------ ------ 
<S>                 <C>               <C>             <C>    <C>
Interest paid .....      $21,245             --         --      -- 
                    ================= ==============  ====== ====== 
Income taxes paid        $   109             --         --      -- 
                    ================= ==============  ====== ====== 
</TABLE>

   The Company issued $45,000 of Holdings Class A Common Stock to Lockheed 
Martin in a non-cash transaction as partial consideration paid to Lockheed 
Martin for the L-3 Acquisition. 

17. SALES TO PRINCIPAL CUSTOMERS 

   The Company and the Predecessor Company operate primarily in one industry 
segment, government electronic systems. Sales to principal customers are as 
follows: 

<TABLE>
<CAPTION>
                                  COMPANY                PREDECESSOR COMPANY 
                              -------------- ------------------------------------------- 
                                                 THREE 
                                   NINE         MONTHS         YEAR            YEAR 
                               MONTHS ENDED      ENDED         ENDED          ENDED 
                               DECEMBER 31,    MARCH 31,   DECEMBER 31,    DECEMBER 31, 
                                   1997          1997          1996            1995 
                              -------------- -----------  -------------- -------------- 
<S>                           <C>            <C>          <C>            <C>
U.S. Government Agencies  ...    $434,020      $128,505      $425,033        $161,617 
Foreign (principally foreign 
 governments) ...............      12,090        13,612        33,475           4,945 
Other (principally U.S. 
 commercial) ................     100,415        16,756        84,573             219 
                              -------------- -----------  -------------- -------------- 
                                 $546,525      $158,873      $543,081        $166,781 
                              ============== ===========  ============== ============== 
</TABLE>

18. OTHER TRANSACTIONS WITH LOCKHEED MARTIN 

   The Company and the Predecessor Company sell products to Lockheed Martin 
and its affiliates, net sales for which were $60,402 for the nine months 
ended December 31, 1997; $21,171 for the three months 
    

                               52           
<PAGE>
                        L-3 COMMUNICATIONS CORPORATION 
      NOTES TO CONSOLIDATED (COMBINED) FINANCIAL STATEMENTS--(continued) 
                            (Dollars in thousands) 

   
ended March 31, 1997 and $70,658 and $25,874 for the years ended December 31, 
1996 and 1995, respectively. Included in Contracts in Process are receivables 
from Lockheed Martin and its affiliates of $8,846 and $10,924 at December 31, 
1997 and 1996, respectively. 

   Lockheed Martin provides the Company information systems and other 
services and previously provided similar services to the Predecessor Company 
for which the Company and the Predecessor Company was charged $13,690, 
$4,210, $20,901 and $20,508 for the nine months ended December 31, 1997, the 
three months ended March 31, 1997 and the years ended December 31, 1996 and 
1995, respectively. 

   The Predecessor Company relied on Lockheed Martin for certain services, 
including treasury, cash management, employee benefits, taxes, risk 
management, internal audit, financial reporting, contract administration and 
general corporate services. Although certain assets, liabilities and expenses 
related to these services have been allocated to the Businesses, the combined 
financial position, results of operations and cash flows presented in the 
accompanying combined financial statements would not be the same had the 
Businesses been independent entities. 

   The amount of allocated corporate expenses to the Predecessor Company and 
reflected in these combined financial statements was estimated based 
primarily on an allocation methodology prescribed by government regulations 
pertaining to government contractors. Allocated costs to the Businesses were 
$5,208 for the three months ended March 31, 1997, and $10,057 and $2,964 for 
the years ended December 31, 1996 and 1995, respectively. 

19. SUBSEQUENT EVENTS 

   In February 1998, the Company purchased substantially all the assets and 
liabilities of the Satellite Transmission Systems division of California 
Microwave, Inc. The purchase price of $27,000 is subject to adjustment based 
on closing net assets. The Company used cash on hand to fund the purchase 
price. 

   On December 22, 1997, the Company signed a definitive agreement to 
purchase substantially all the assets and liabilities of the Ocean Systems 
division of AlliedSignal Inc. The purchase price of $67,500, subject to 
adjustment based on closing net working capital, will be financed through 
cash on hand and/or borrowings available under the Senior Credit Facilities. 

   In February 1998, the Company entered into a definitive agreement to 
purchase the assets of ILEX Systems ("ILEX") for $51,900 in cash and 
additional consideration based on post-acquisition performance of ILEX. 

   The acquisition of ILEX and Ocean Systems are expected to close during the 
first quarter of 1998. The Company plans to finance the purchase prices using 
its cash on hand and available borrowings under its revolving credit 
facility. 

   In February 1998, the Company filed a registration statement with the 
Securities and Exchange Commission ("SEC") for the sale of $150,000 aggregate 
principal amount of Senior Subordinated Notes due 2008 (the "Notes 
Offering"), and concurrently with the Notes Offering, Holdings filed a 
registration statement with the SEC for the sale of 5.5 million shares of 
common stock of Holdings. 
    

                               53           
<PAGE>

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

   None 

                               54           
<PAGE>
                                   PART III 

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. 

DIRECTORS AND EXECUTIVE OFFICERS 
   
   The following table provides information concerning the directors and 
executive officers of Holdings and L-3 Communications. 

<TABLE>
<CAPTION>
 NAME                       AGE                      POSITION 
-------------------------  ----- ----------------------------------------------- 
<S>                        <C>   <C>
Frank C. Lanza ...........   66  Chairman, Chief Executive Officer and Director 
Robert V. LaPenta ........   52  President, Chief Financial Officer and Director 
Michael T. Strianese  ....   42  Vice President--Finance and Controller 
Christopher C. Cambria  ..   39  Vice President--General Counsel and Secretary 
Robert F. Mehmel .........   35  Vice President--Planning and Assistant Secretary 
Lawrence H. Schwartz  ....   60  Vice President--Business Development 
Jimmie V. Adams ..........   61  Vice President--Washington D.C. Operations 
Robert RisCassi ..........   62  Vice President--Washington D.C. Operations 
David J. Brand(a) ........   36  Director 
Alberto M. Finali ........   43  Director 
Eliot M. Fried(a) ........   65  Director 
Robert B. Millard(b)  ....   47  Director 
Alan H. Washkowitz(b)  ...   57  Director 
Thomas A. Corcoran .......   53  Director 
Frank H. Menaker, Jr.(a)     57  Director 
John E. Montague(b)  .....   44  Director 
</TABLE>

------------ 
(a)    Member of the Audit Committee. 
(b)    Member of the Compensation Committee. 

   Frank C. Lanza, Chairman and CEO. Mr. Lanza joined the Company in April 
1997. From April 1996, when Loral was acquired by Lockheed Martin, until 
April 1997, Mr. Lanza was Executive Vice President of Lockheed Martin, a 
member of Lockheed Martin's Executive Council and Board of Directors and 
President and COO of Lockheed Martin's C(3)I and Systems Integration Sector, 
which comprised many of the businesses acquired by Lockheed Martin from 
Loral. Prior to the April 1996 acquisition of Loral, Mr. Lanza was President 
and COO of Loral, a position he held since 1981. He joined Loral in 1972 as 
President of its largest division, Electronic Systems. His earlier experience 
was with Dalmo Victor and Philco Western Development Laboratory. 

   Robert V. LaPenta, President and Chief Financial Officer. Mr. LaPenta 
joined the Company in April 1997. From April 1996, when Loral was acquired by 
Lockheed Martin, until April 1997, Mr. LaPenta was a Vice President of 
Lockheed Martin and was Vice President and Chief Financial Officer of 
Lockheed's C(3)I and Systems Integration Sector. Prior to the April 1996 
acquisition of Loral, he was Loral's Senior Vice President and Controller, a 
position he held since 1981. He joined Loral in 1972 and was named Vice 
President and Controller of its largest division in 1974. He became Corporate 
Controller in 1978 and was named Vice President in 1979. 

   Michael T. Strianese, Vice President-Finance and Controller. Mr. Strianese 
joined the Company in April 1997. From April 1996, when Loral was acquired by 
Lockheed Martin, until April 1997, Mr. 

                               55           
    
<PAGE>
   
Strianese was Vice President and Controller of Lockheed Martin's C(3)I and 
Systems Integration Sector. From 1991 to the April 1996 acquisition of Loral, 
he was Director of Special Projects at Loral. Prior to joining Loral, he 
spent 11 years with Ernst & Young. Mr. Strianese is a Certified Public 
Accountant. 

   Christopher C. Cambria, Vice President-General Counsel and Secretary. Mr. 
Cambria joined the Company in June 1997. From 1994 until joining the Company, 
Mr. Cambria was an associate with Fried, Frank, Harris, Shriver & Jacobson. 
From 1986 until 1993, he was an associate with Cravath, Swaine & Moore. 

   Robert F. Mehmel, Vice President-Planning and Assistant Secretary. Mr. 
Mehmel joined the Company in April 1997. From April 1996, when Loral was 
acquired by Lockheed Martin, until April 1997, Mr. Mehmel was the Director of 
Financial Planning and Capital Review for Lockheed Martin's C(3)I and Systems 
Integration Sector. From 1984 to 1996, Mr. Mehmel held several accounting and 
financial analysis positions at Loral Electronic Systems and Loral. At the 
time of Lockheed Martin's acquisition of Loral, he was Corporate Manager of 
Business Analysis. 

   Lawrence H. Schwartz, Vice President-Business Development. Mr. Schwartz 
joined the Company in May 1997. From April 1996 until May 1997, Mr. Schwartz 
was Vice President of Technology for the C(3)I and System Integration Sector 
of Lockheed Martin. Prior to the April 1996 acquisition of Loral, he was 
Corporate Vice President of Technology for Loral, a position he held since 
1987. Between 1976 and 1987, Mr. Schwartz was Vice President of Engineering, 
Senior Vice President of Business Development, Senior Vice President of the 
Rapport Program and Senior Vice President of Development Programs at Loral 
Electronic Systems. 

   Jimmie V. Adams, Vice President-Washington, D.C. Operations. General 
Jimmie V. Adams (U.S.A.F.-ret.) joined the Company in April 1997. From April 
1996 until April 1997, he was Vice President of Lockheed Martin's Washington 
Operations for the C(3)I and Systems Integration Sector. Prior to the April 
1996 acquisition of Loral he held the same position at Loral since 1993. 
Before joining Loral in 1993, he was Commander in Chief, Pacific Air Forces, 
Hickam Air Force Base, Hawaii, capping a 35-year career with the U.S. Air 
Force. He was also Deputy Chief of Staff for plans and operation for U.S. Air 
Force headquarters and Vice Commander of Headquarters Tactical Air Command 
and Vice Commander in Chief of the U.S. Air Forces Atlantic at Langley Air 
Force Base. He is a command pilot with more than 141 combat missions. 

   Robert RisCassi, Vice President-Washington, D.C. Operations. General 
Robert W. RisCassi (U.S. Army-ret.) joined the Company in April 1997. From 
April 1996 until April 1997, he was Vice President of Land Systems for 
Lockheed Martin's C(3)I and Systems Integration Sector. Prior to the April 
1996 acquisition of Loral he held the same position for Loral since 1993. He 
joined Loral in 1993 after retiring 

                               56           
    
<PAGE>
   
as U.S. Army Commander in Chief, United Nations Command/Korea. His 35-year 
military career included posts as Army Vice Chief of Staff; Director, Joint 
Staff, Joint Chiefs of Staff; Deputy Chief of Staff for Operations and Plans; 
and Commander of the Combined Arms Center. 

   David J. Brand, Director. Mr. Brand has served as a director since April 
1997 and is a Managing Director of Lehman Brothers and a principal in the 
Global Mergers & Acquisitions Group, leading Lehman Brothers' Technology 
Mergers and Acquisitions business. Mr. Brand joined Lehman Brothers in 1987 
and has been responsible for merger and corporate finance advisory services 
for many of Lehman Brothers' technology and defense industry clients. Mr. 
Brand is currently a director of K&F Industries, Inc. Mr. Brand holds an 
M.B.A. from Stanford University's Graduate School of Business and a B.S. in 
Mechanical Engineering from Boston University. 

   Alberto M. Finali, Director. Mr. Finali has served as a director since 
April 1997 and is a Managing Director of Lehman Brothers and principal of the 
Merchant Banking Group, based in New York. Prior to joining the Merchant 
Banking Group, Mr. Finali spent four years in Lehman Brothers' London office 
as a senior member of the M&A Group. Mr. Finali joined Lehman Brothers in 
1987 as a member of the M&A Group in New York and became a Managing Director 
in 1997. Prior to joining Lehman Brothers, Mr. Finali worked in the Pipelines 
and Production Technology Group of Bechtel, Inc. in San Francisco. Mr. Finali 
holds an M.E. and an M.B.A. from the University of California at Berkeley, 
and a Laurea Degree in Civil Engineering from the Polytechnic School in 
Milan, Italy. 

   Eliot M. Fried, Director. Mr. Fried has served as a director since April 
1997 and is a Managing Director of Lehman Brothers. Mr. Fried joined 
Shearson, Hayden Stone, a predecessor firm, in 1976 and became a Managing 
Director in 1982. Mr. Fried has extensive experience in portfolio management 
and equity research. Mr. Fried is currently a director of Bridgeport 
Machines, Inc., Energy Ventures, Inc., SunSource L.P., Vernitron Corporation 
and Walter Industries, Inc. Mr. Fried holds an M.B.A. from Columbia 
University and a B.A. from Hobart College. 

   Robert B. Millard, Director. Mr. Millard has served as a director since 
April 1997 and is a Managing Director of Lehman Brothers, Head of Lehman 
Brothers' Principal Trading & Investments Group and principal of the Merchant 
Banking Group. Mr. Millard joined Kuhn Loeb & Co. in 1976 and became a 
Managing Director of Lehman Brothers in 1983. Mr. Millard is currently a 
director of GulfMark International, Inc. and Energy Ventures, Inc. Mr. 
Millard holds an M.B.A. from Harvard University and a B.S. from the 
Massachusetts Institute of Technology. 

   Alan H. Washkowitz, Director. Mr. Washkowitz has served as a director 
since April 1997 and is a Managing Director of Lehman Brothers and head of 
the Merchant Banking Group, and is responsible for the oversight of Lehman 
Brothers Merchant Banking Portfolio Partnership L.P. Mr. Washkowitz joined 
Lehman Brothers in 1978 when Kuhn Loeb & Co. was acquired by Lehman Brothers. 
Mr. Washkowitz is currently a director of Illinois Central Corporation, K&F 
Industries, Inc. and McBride plc. Mr. Washkowitz holds an M.B.A. from Harvard 
University, a J.D. from Columbia University and an A.B. from Brooklyn 
College. 

   Thomas A. Corcoran, Director. Mr. Corcoran has served as a director since 
July 1997 and has been the President and Chief Operating Officer of the 
Electronic Systems Sector of Lockheed Martin Corporation since March 1995. 
From 1993 to 1995, Mr. Corcoran was President of the Electronics Group of 
Martin Marietta Corporation. Prior to that he worked for General Electric for 
26 years and from 1983 to 1993 he held various management positions with GE 
Aerospace; he was a company officer from 1990 to 1993. Mr. Corcoran is a 
member of the Board of Trustees of Worcester Polytechnic Institute, the Board 
of Trustees of Stevens Institute of Technology, the Board of Governors of the 
Electronic Industries Association, a Director of the U.S. Navy Submarine 
League and a Director of REMEC Corporation. 

   Frank H. Menaker, Jr., Director. Mr. Menaker has served as a director 
since April 1997 and has served as Senior Vice President and General Counsel 
of Lockheed Martin since July 1996. He served as Vice President and General 
Counsel of Lockheed Martin from March 1995 to July 1996, as Vice President of 
Martin Marietta Corporation from 1982 until 1995 and as General Counsel of 
Martin Marietta 

                               57           
    
<PAGE>
   
Corporation from 1981 until 1995. He is a director of Martin Marietta 
Materials, Inc., a member of the American Bar Association and has been 
admitted to practice before the United States Supreme Court. Mr. Menaker is a 
graduate of Wilkes University and the Washington College of Law at American 
University. 

   John E. Montague, Director. Mr. Montague has served as a director since 
April 1997 and has been Vice President, Financial Strategies at Lockheed 
Martin responsible for mergers, acquisitions and divestiture activities and 
shareholder value strategies since March 1995. Previously, he was Vice 
President, Corporate Development and Investor Relations at Martin Marietta 
Corporation from 1991 to 1995. From 1988 to 1991, he was Director of 
Corporate Development at Martin Marietta Corporation, which he joined in 1977 
as a member of the engineering staff. Mr. Montague is a director of Rational 
Software Corporation. Mr. Montague received his B.S. from the Georgia 
Institute of Technology and an M.S. in engineering from the University of 
Colorado. 

   The Board of Directors intends to appoint two additional directors who are 
not affiliated with the Company promptly following the Common Stock Offering. 
The additional directors have not yet been identified. 

   Upon closing of the Common Stock Offering, the Company's certificate of 
incorporation will provide for a classified Board of Directors divided into 
three classes. Class I will expire at the annual meeting of the stockholders 
to be held in 1999; Class II will expire at the annual meeting of the 
stockholders to be held in 2000; and Class III will expire at the annual 
meeting of the stockholders to be held in 2001. At each annual meeting of the 
stockholders, beginning with the 1999 annual meeting, the successors to 
directors whose terms will then expire will be elected to serve from the time 
of election and qualification until the third annual meeting following 
election and until their successors have been duly elected and qualified, or 
until their earlier resignation or removal, if any. To the extent there is an 
increase or reduction in the number of directors, increase or decrease in 
directorships resulting therefrom will be distributed among the three classes 
so that, as nearly as possible, each class will consist of an equal number of 
directors. 

   Each executive officer and key employee serves at the discretion of the 
Board of Directors. 

COMMITTEES OF THE BOARD OF DIRECTORS 

   The Board of Directors has two standing committees: an Audit Committee and 
a Compensation Committee. Currently, the Audit Committee consists of Messrs. 
Brand, Fried and Menaker. The Company intends to appoint to the Audit 
Committee only persons who qualify as an "independent" director for purposes 
of the rules and regulations of the NYSE. The Audit Committee will select and 
engage, on behalf of the Company, the independent public accountants to audit 
the Company's annual financial statements, and will review and approve the 
planned scope of the annual audit. Currently, Messrs. Millard, Montague and 
Washkowitz serve as members of the Compensation Committee. The Compensation 
Committee establishes remuneration levels for certain officers of the 
Company, performs such functions as provided under the Company's employee 
benefit programs and executive compensation programs and administers the 1997 
Option Plan of Key Employees of Holdings. 

COMPENSATION OF DIRECTORS 

   The current directors of the Company do not receive compensation for their 
services as directors. Any non-affiliated directors will receive directors' 
fees and reimbursements for their reasonable out-of-pocket expenses in 
connection with their travel to and attendance at meetings of the board of 
directors or committees thereof. 

LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS 

   The Company's Certificate of Incorporation provides that to the fullest 
extent permitted by the Delaware General Corporation Law (the "DGCL"), a 
director of the Company shall not be liable to the Company or its 
stockholders for monetary damages for breach of fiduciary duty as a director. 
Under the DGCL, liability of a director may not be limited (i) for any breach 
of the director's duty of loyalty to the 

                               58           
    
<PAGE>
   
Company or its stockholders, (ii) for acts or omissions not in good faith or 
that involve intentional misconduct or a knowing violation of law, (iii) in 
respect of certain unlawful dividend payments or stock redemptions or 
repurchases and (iv) for any transaction from which the director derives an 
improper personal benefit. The effect of the provisions of the Company's 
Certificate of Incorporation is to eliminate the rights of the Company and 
its stockholders (through stockholders' derivative suits on behalf of the 
Company) to recover monetary damages against a director for breach of the 
fiduciary duty of care as a director (including breaches resulting from 
negligent or grossly negligent behavior), except in the situations described 
in clauses (i) through (iv) above. This provision does not limit or eliminate 
the rights of the Company or any stockholder to seek nonmonetary relief such 
as an injunction or rescission in the event of a breach of a director's duty 
of care. In addition, the Company's Bylaws provide that the Company shall 
indemnify its directors, officers, employees and agents against losses 
incurred by any such person by reason of the fact that such person was acting 
in such capacity. 

   Insofar as indemnification for liabilities arising under the Securities 
Act may be permitted to directors, officers or persons controlling the 
Company pursuant to the foregoing provisions, the Company has been informed 
that, in the opinion of the Commission, such indemnification is against 
public policy as expressed in the Securities Act and is therefore 
unenforceable. 
    

                               59           
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION. 

   
EXECUTIVE COMPENSATION 

   Summary Compensation Table. The following table provides certain summary 
information concerning compensation paid or accrued by the Company to or on 
behalf of the Company's Chief Executive Officer and each of the four other 
most highly compensated executive officers of the Company (the "Named 
Executive Officers") during the nine months ended December 31, 1997: 

                          SUMMARY COMPENSATION TABLE 

<TABLE>
<CAPTION>
                                                               LONG TERM COMPENSATION AWARDS 
                                                              ------------------------------- 
                                               ANNUAL 
                                                                                SECURITIES 
                                            COMPENSATION 
                                        ---------------------   RESTRICTED      UNDERLYING       ALL OTHER 
NAME AND PRINCIPAL POSITION               SALARY      BONUS    STOCK AWARDS    STOCK OPTIONS  COMPENSATION(1) 
                                         ---------- ---------  -----------------------------  --------------- 
<S>                                      <C>        <C>       <C>            <C>              <C>              
Frank C. Lanza (Chairman and Chief 
 Executive Officer)(2).................  $542,654         --                     1,142,857            -- 
Robert V. LaPenta (President and Chief 
 Financial Officer)(2).................   356,538         --                     1,142,857            -- 
Lawrence H. Schwartz (Vice President) .   145,327    $80,000                        17,000            -- 
Jimmie V. Adams (Vice President) ......   157,854     70,000                        15,000          $ 61 
Robert RisCassi (Vice President) ......   125,704     60,000                        15,000           611 
</TABLE>

------------ 
(1)    Represents Company match under savings plan. 
(2)    On March 2, 1998, each of Mr. Lanza and Mr. LaPenta exercised 228,571 
       options. 

   Stock Options Granted in 1997. The following table sets forth information 
concerning individual grants of stock options to purchase Holdings' Common 
Stock made in 1997 to each of the Named Executive Officers. 

                                OPTION GRANTS 

<TABLE>
<CAPTION>
                                                                   INDIVIDUAL GRANTS 
                                        ------------------------------------------------------------------------ 
                                           NUMBER OF      PERCENT OF 
                                          SECURITIES     TOTAL OPTIONS 
                                          UNDERLYING      GRANTED TO     EXERCISE 
                                            OPTIONS      EMPLOYEES IN      PRICE      EXPIRATION    GRANT-DATE 
NAME AND PRINCIPAL POSITION               GRANTED (#)     FISCAL YEAR     ($/SH)         DATE        VALUE(1) 
--------------------------------------  -------------- ---------------  ---------- --------------  ------------ 
<S>                                     <C>            <C>              <C>        <C>             <C>
Frank C. Lanza (Chairman and Chief 
 Executive Officer)....................    1,142,857(2)      38.2%         $6.47    April 30, 2007  $2,326,731 
Robert V. LaPenta (President and Chief 
 Financial Officer) ...................    1,142,857(2)      38.2%         $6.47    April 30, 2007  $2,326,731 
Lawrence H. Schwartz (Vice President)         17,000          0.6%         $6.47     July 1, 2007   $   17,571 
Jimmie V. Adams (Vice President) ......       15,000          0.5%         $6.47     July 1, 2007   $   15,504 
Robert RisCassi (Vice President) ......       15,000          0.5%         $6.47     July 1, 2007   $   15,504 
</TABLE>

------------ 
(1)    The grant-date valuation of the options was calculated using the 
       minimum value method described in SFAS No. 123. The minimum value is 
       computed as the current price of stock at the grant date reduced to 
       exclude the present value of any expected dividends during the option's 
       expected life minus the present value of the exercise price, and does 
       not consider the expected volatility of the price of the stock 
       underlying the option. The material assumptions underlying the 
       computations are: an average discount rate 6.3%; a dividend yield of 0% 
       and a weighted average expected option life of 5.49 years, with the 
       option lives ranging from 2 years to 10 years. 
(2)    Half of the options granted consists of Time Options and half consists 
       of Performance Options. See "--Employment Agreements" for descriptions 
       of the terms of these options. 
    

                               60           
<PAGE>
   
             AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND 
                             FY-END OPTION VALUES 
    

   
<TABLE>
<CAPTION>
                                                                                                             VALUE OF 
                                                                             NUMBER OF                      UNEXERCISED 
                                                                       SECURITIES UNDERLYING               IN-THE-MONEY 
                                                                        UNEXERCISED OPTIONS                 OPTIONS AT 
                                                                           AT FY-END(1)                       FY-END 
                                                                  ------------------------------- ------------------------------ 
                                            SHARES       VALUE 
                                         ACQUIRED ON    REALIZED 
NAME AND PRINCIPAL POSITION             EXERCISES (#)     ($)      EXERCISEABLE    UNEXERCISABLE   EXERCISABLE    UNEXERCISABLE 
--------------------------------------  ------------- ----------  -------------- ---------------  ------------- --------------- 
<S>                                     <C>           <C>         <C>            <C>              <C>           <C>
Frank C. Lanza (Chairman and Chief 
 Executive Officer)....................       --           --           --           1,142,857          --         $1,748,571 
Robert V. LaPenta (President and Chief 
 Financial Officer) ...................       --           --           --           1,142,857          --          1,748,571 
Lawrence H. Schwartz (Vice President)         --           --           --              17,000          --             26,010 
Jimmie V. Adams (Vice President) ......       --           --           --              15,000          --             22,950 
Robert RisCassi (Vice President) ......       --           --           --              15,000          --             22,950 
</TABLE>
    

   
------------ 
(1)    At December 31, 1997, none of the outstanding options were exercisable. 
    

PENSION PLAN 

   The following table shows the estimated annual pension benefits payable 
under the L-3 Communications Corporation Pension Plan and Supplemental 
Employee Retirement Plan to a covered participant upon retirement at normal 
retirement age, based on the career average compensation (salary and bonus) 
and years of credited service with the Company. 

<TABLE>
<CAPTION>
 CAREER AVERAGE COMPENSATION              YEARS OF CREDITED SERVICE 
---------------------------  ---------------------------------------------------- 
                                 15        20         25        30         35 
                             --------- ---------  --------- ---------  --------- 
<S>                          <C>       <C>        <C>       <C>        <C>
$125,000....................  $ 18,981  $ 24,937   $ 29,833  $ 33,856   $ 37,164 
 150,000....................    23,172    30,408     36,355    41,243     45,260 
 175,000....................    27,364    35,879     42,877    48,629     53,357 
 200,000....................    31,556    41,349     49,399    56,015     61,454 
 225,000....................    35,747    46,820     55,921    63,402     69,550 
 250,000....................    39,939    52,291     62,444    70,788     77,647 
 300,000....................    48,322    63,233     75,488    85,561     93,840 
 400,000....................    65,089    85,116    101,577   115,106    126,226 
 450,000....................    73,472    96,057    114,621   129,879    142,420 
 500,000....................    81,855   106,999    127,665   144,651    158,613 
 750,000....................   123,772   161,707    192,887   218,515    239,579 
</TABLE>

   As of December 31, 1997, the current annual compensation and current years 
of credited service (including for Messrs. LaPenta, Adams and RisCassi, years 
of credited service as an employee of Loral and Lockheed Martin) for each of 
the following persons were: Mr. Lanza, $750,000 and one year; Mr. LaPenta, 
$500,000 and 26 years; Mr. Adams, $216,011 and 5 years; Mr. RisCassi, 
$172,016 and 4 years; and Mr. Schwartz, $229,000 and one year. Compensation 
covered under the pension plans includes amounts reported as salary and bonus 
in the Summary Compensation Table. 

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION 

   
   The Board of Directors of Holdings established a Compensation Committee in 
June 1997. During the 1997 fiscal year, Messrs. Robert Millard, Steven Berger 
and John Montague served as members of the Compensation Committee. None of 
these individuals has served at any time as an officer or employee of 
Holdings or L-3 Communications. Mr. Berger resigned from Holdings' Board of 
Directors and the Compensation Committee in January 1998 and Mr. Washkowitz 
was appointed to the Compensation Committee in March 1998. Prior to the 
establishment of the Compensation Committee, all decisions relating to 
executive compensation were made by Holdings' Board of Directors. Messrs. 
Millard and Montague are affiliated with the Lehman Partnership which, 
assuming the consummation of the Common Stock Offering and full exercise of 
the over-allotment option, holds 37.4% of the Common Stock and is 

                               61           
    
<PAGE>
   
a party to the Stockholders Agreement. Pursuant to the Stockholders 
Agreement, the Lehman Partnership has the right, from time to time on or 
after the 180-day period following that completion of the initial public 
offering and subject to certain conditions, to require the Company to 
register under the Securities Act shares of Common Stock held by them. The 
Lehman Partnership has the right to request up to four demand registrations 
and also has piggyback registration rights. The Company has agreed in the 
Stockholders Agreement to pay expenses in connection with, among other 
things, (i) up to three demand registrations requested by the Lehman 
Partnership and (ii) any registration in which the existing stockholders 
participate through piggyback registration rights granted under such 
agreement. The Stockholders Agreement also provides that Lehman Brothers Inc. 
has the exclusive right to provide investment banking services to Holdings 
for the five-year period after the closing of the L-3 Acquisition (except 
that the exclusivity period is three years as to cash acquisitions undertaken 
by L-3) so long as the Lehman Partnership owns at least 10% of the 
outstanding Common Stock. In the event that Lehman Brothers Inc. agrees to 
provide any investment banking services to L-3, it will be paid fees that are 
mutually agreed upon based on similar transactions and practices in the 
investment banking industry. 

   No executive officer of Holdings or L-3 Communications serves as a member 
of the board of directors or compensation committee of any entity which has 
one or more executive officers serving as a member of Holdings' Board of 
Directors or Compensation Committee. 

1997 STOCK OPTION PLAN 

   In April 1997, Holdings adopted the 1997 Option Plan for Key Employees of 
Holdings (the "1997 Stock Option Plan") which authorizes the Compensation 
Committee to grant options to key employees of Holdings and its subsidiaries. 
On March 10, 1998, the 1997 Stock Option Plan was amended to increase the 
shares available for option grants to 4,255,815 shares of Common Stock, of 
which 3,246,084 had been granted as of March 31, 1998. The Compensation 
Committee of the Board of Directors of Holdings, in its sole discretion, 
determines the terms of option agreements, including without limitation the 
treatment of option grants in the event of a change of control. The 1997 
Stock Option Plan remains in effect for 10 years following the date of 
approval. 

   On April 30, 1997, Holdings granted each of Messrs. Lanza and LaPenta 
options to purchase 1,142,857 shares of Common Stock. See "--Employment 
Agreements" for a description of the terms of these grants. On July 1, 1997 
and November 11, 1997, the Compensation Committee authorized grants of 
options to employees of Holdings and its subsidiaries, other than Messrs. 
Lanza and LaPenta, to acquire an aggregate of 689,500 shares of Common Stock 
at an exercise price of $6.47 per share (the "Employee Options"). Each 
Employee Option was granted pursuant to an individual agreement that provides 
(i) 20% of shares underlying the option will become exercisable on the first 
anniversary of the grant date, 50% will become exercisable on the second 
anniversary of the grant date and 30% will become exercisable on the third 
anniversary of the grant date; provided that, in the event of an initial 
public offering of Common Stock, 15% of the shares underlying the option 
(which would otherwise become exercisable on the second anniversary of the 
grant date) will become exercisable on the earlier to occur of (A) the 
completion of the initial public offering of the Common Stock and (B) the 
first anniversary of the grant date; (ii) all shares underlying the option 
will become exercisable upon certain events constituting a change of control; 
and (iii) the option will expire upon the earliest to occur of (A) the tenth 
anniversary of the grant date, (B) one year after termination of employment 
due to the optionee's death or permanent disability, (C) immediately upon 
termination of the optionee's employment for cause and (D) three months after 
termination of optionee's employment for any other reason. On March 2, 1998, 
each of Mr. Lanza and Mr. LaPenta exercised options to acquire 228,571 shares 
of Common Stock. 

EMPLOYMENT AGREEMENTS 

   Holdings entered into an employment agreement (the "Employment 
Agreements") effective on April 30, 1997 with each of Mr. Lanza, Chairman and 
Chief Executive Officer of Holdings and L-3 Communications, who will receive 
a base salary of $750,000 per annum and appropriate executive level benefits, 
and Mr. LaPenta, President and Chief Financial Officer of Holdings and L-3 
Communications, who will receive a base salary of $500,000 per annum and 
appropriate executive level benefits. The 

                               62           
    
<PAGE>
   
Employment Agreements provide for an initial term of five years, which will 
automatically renew for one-year periods thereafter, unless a party thereto 
gives notice of its intent to terminate at least 90 days prior to the 
expiration of the term. 

   Upon a termination without cause or resignation for good reason, Holdings 
will be obligated, through the end of the term, to (i) continue to pay the 
base salary and (ii) continue to provide life insurance and medical and 
hospitalization benefits comparable to those provided to other senior 
executives; provided, however, that any such coverage shall terminate to the 
extent that Mr. Lanza or Mr. LaPenta, as the case may be, is offered or 
obtains comparable benefits coverage from any other employer. The Employment 
Agreements provide for confidentiality during employment and at all times 
thereafter. There is also a noncompetition and non-solicitation covenant 
which is effective during the employment term and for one year thereafter; 
provided, however, that if the employment terminates following the expiration 
of the initial term, the noncompetition covenant will only be effective 
during the period, if any, that Holdings pays the severance described above. 

   Holdings has granted each of Messrs. Lanza and LaPenta (collectively, the 
"Equity Executives") nonqualified options to purchase, at $6.47 per share of 
Common Stock, 1,142,857 shares of Holdings' initial fully-diluted common 
stock. In each case, half of the options will be "Time Options" and half will 
be "Performance Options" (collectively, the "Options"). The Time Options will 
become exercisable with respect to 20% of the shares subject to the Time 
Options on March 2, 1998 and each of the second through fifth anniversaries 
of the closing of the L-3 Acquisition (the "Closing") if employment continues 
through and including such date. The Performance Options will become 
exercisable nine years after the Closing, but will become exercisable earlier 
with respect to up to 20% of the shares subject to the Performance Options on 
March 2, 1998 and each of the second through fifth anniversaries of the 
Closing, to the extent certain EBITDA targets are achieved. The Options will 
become fully exercisable under certain circumstances, including a change in 
control. The Option term is ten years from the Closing; except that (i) if 
the Equity Executive is fired for cause or resigns without good reason, the 
Options expire upon termination of employment; (ii) if the Equity Executive 
is fired without cause, resigns for good reason, dies, becomes disabled or 
retires, the Options expire one year after termination of employment. 
Unexercisable Options will terminate upon termination of employment, unless 
acceleration is expressly provided for. Upon a change of control, Holdings 
may terminate the Options, so long as the Equity Executives are cashed out or 
permitted to exercise their Options prior to such change of control. 
    

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. 

   All outstanding capital stock of L-3 Communications is owned by Holdings. 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. 

   Under the L-3 Acquisition Agreement, Lockheed Martin has agreed to 
indemnify L-3, subject to certain limitations, for Lockheed Martin's breach 
of representations and warranties and L-3 has assumed certain obligations 
relating to environmental matters and benefits plans. These obligations 
include certain on-site and off-site environmental liabilities related to 
events or activities of the Businesses occurring prior to the L-3 
Acquisition. Lockheed Martin has agreed to indemnify Holdings, subject to 
certain limitations, for its breach of (i) non-environmental representations 
and warranties up to $50 million (subject to a $5 million threshold) and (ii) 
for the first eight years following April 1997, to pay 50% of all costs 
incurred by the Company above those reserved for on the Company's balance 
sheet at April 1997 relating to certain Company-assumed environmental 
liabilities and, for the seven years thereafter, 40% of certain reasonable 
operation and maintenance costs relating to any environmental remediation 
projects undertaken in the first eight years (subject to a $6 million 
threshold). 

   Lockheed Martin provides to certain divisions of the Company certain 
management information systems services at Lockheed Martin's fully-burdened 
cost but without profit. Holdings, L-3 Communications and Lockheed Martin 
have entered into certain subleases of real property and cross-licenses of 
intellectual property. 

   In addition, Holdings and Lockheed Martin have entered into a Limited 
Noncompetition Agreement (the "Noncompetition Agreement") which, for up to 
three years from April 1997, in certain circumstances, 

                               63           
<PAGE>
precludes Lockheed Martin from engaging in the sale of any products that 
compete with the products of the Company that are set forth in the 
Noncompetition Agreement for specifically identified application of the 
products. Under the Noncompetition Agreement, Lockheed Martin is prohibited, 
with certain exceptions, from acquiring any business engaged in the sale of 
the specified products referred to in the preceding sentence, although 
Lockheed Martin may acquire such a business under circumstances where the 
exceptions do not apply provided that it offers to sell such business to L-3 
within 90 days of its acquisition. The Noncompetition Agreement does not, 
among other exceptions, (i) apply to businesses operated and managed by 
Lockheed Martin on behalf of the Government, (ii) prohibit Lockheed Martin 
from engaging in any existing businesses and planned businesses as of the 
closing of the L-3 Acquisition or businesses that are reasonably related to 
existing or planned businesses or (iii) apply to selling competing products 
where such products are part of a larger system sold by Lockheed Martin. 

   In the ordinary course of business L-3 sells products to Lockheed Martin 
and its affiliates. Pro forma and aggregated sales to Lockheed Martin were 
$81.6 million, $70.7 million and $25.9 million for the years ended December 
31, 1997, 1996 and 1995, respectively. See Note 19 to the Consolidated 
(Combined) Financial Statements. 

   Sales of products to Lockheed Martin, excluding those under existing 
intercompany work transfer agreements, are made on terms no less favorable 
than those which would be available from non-affiliated third party 
customers. A significant portion of L-3's sales to Lockheed Martin are either 
based on competitive bidding or catalog prices. 

STOCKHOLDERS AGREEMENT 

   Holdings, Lockheed Martin, the Lehman Partnership and Messrs. Lanza and 
LaPenta entered into a stockholders agreement (the "Stockholders Agreement") 
which, except the terms relating to (i) the registration rights, (ii) 
provision of services by Lehman Brothers Inc. and (iii) the standstill 
agreement by Lockheed Martin, terminates upon the consummation of the Common 
Stock Offering. Prior to the consummation of the Common Stock Offering, the 
Lehman Partnership is entitled to designate a majority of the members of the 
Board of Directors provided that it holds at least 35% of the capital stock 
of Holdings and remains the single largest shareholder. 

   Pursuant to the Stockholders Agreement, certain of the existing 
stockholders have the right, from time to time on or after the 180-day period 
following the completion of the initial public offering and subject to 
certain conditions, to require the Company to register under the Securities 
Act shares of Common Stock held by them. Lockheed Martin, the Lehman 
Partnership and each of the Senior Management has three, four and one demand 
registration rights, respectively. In addition, the Stockholders Agreement 
also provides certain existing stockholders with certain piggyback 
registration rights. The Stockholders Agreement provides, among other things, 
that the Company will pay expenses in connection with (i) up to two demand 
registrations requested by Lockheed Martin, up to three demand registrations 
requested by the Lehman Partnership and the two demand registrations 
requested by the Senior Management and (ii) any registration in which the 
existing stockholders participate through piggyback registration rights 
granted under such agreement. 

   
   The Stockholders Agreement also provides that Lehman Brothers Inc. has the 
exclusive right to provide investment banking services to Holdings for the 
five-year period after the closing of the L-3 Acquisition (except that the 
exclusivity period is three years as to cash acquisitions undertaken by L-3) 
so long as the Lehman Partnership owns at least 10% of the Outstanding Common 
Stock. In the event that Lehman Brothers Inc. agrees to provide any 
investment banking services to L-3, it will be paid fees that are mutually 
agreed upon based on similar transactions and practices in the investment 
banking industry. 
    

   Under the Stockholders Agreement Lockheed Martin is subject to a 
standstill arrangement which generally prohibits any increase in its share 
ownership percentage over 34.9%. 

                               64           
<PAGE>
                                   PART IV 

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

(a) FINANCIAL STATEMENTS 

   The financial statements and notes to the Consolidated (Combined) 
Financial Statements are referred to in Item 8. 

(b) ADDITIONAL FINANCIAL INFORMATION 

   None 

(c) REPORTS FILED ON FORM 8-K 

   None 

(d) EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K) 

   
<TABLE>
<CAPTION>
  EXHIBIT NO.                                      DESCRIPTION OF EXHIBIT 
---------------  ------------------------------------------------------------------------------------------ 
<S>              <C>                                                                                         
      *3.1       Certificate of Incorporation. 
      *3.2       By-Laws of L-3 Communications Corporation. 
     *10.1       Credit Agreement, dated as of April 30, 1997 among L-3 Communications Corporation and 
                 lenders named therein, as amended. 
     *10.2       Indenture dated as of April 30, 1997 between L-3 Communications Corporation and The Bank 
                 of New York, as Trustee. 
     *10.3       Stockholders Agreement dated as of April 30, 1997 among L-3 Communications Corporation and 
                 the stockholders parties thereto. 
     *10.4       Transaction Agreement dated as of March 28, 1997, as amended, among Lockheed Martin 
                 Corporation, Lehman Brothers Capital Partners III, L.P., Frank C. Lanza, Robert V. LaPenta 
                 and L-3 Communications Holdings, Inc. 
     *10.5       Employment Agreement dated April 30, 1997 between Frank C. Lanza and L-3 Communications 
                 Holdings, Inc. 
     *10.51      Employment Agreement dated April 30, 1997 between Robert V. LaPenta and L-3 Communications 
                 Holdings, Inc. 
     *10.6       Lease dated as of April 29, 1997 among Lockheed Martin Tactical Systems, Inc., L-3 
                 Communications Corporation and KSL, Division of Bonneville International. 
     *10.61      Lease dated as of April 29, 1997 among Lockheed Martin Tactical Systems, L-3 
                 Communications Corporation and Unisys Corporation. 
     *10.62      Sublease dated as of April 29, 1997 among Lockheed Martin Tactical Systems, Inc., L-3 
                 Communications Corporation and Unisys Corporation. 
     *10.7       Limited Noncompetition Agreement dated April 30, 1997 between Lockheed Martin Corporation 
                 and L-3 Communications Corporation. 
     *10.8       Asset Purchase Agreement dated as of December 19, 1997 between L-3 Communications 
                 Corporation and California Microwave, Inc. 
     *10.81      Asset Purchase Agreement dated as of February 10, 1998 between FAP Trust and L-3 
                 Communications Corporation. 
     *10.82      Asset Purchase Agreement dated as of March 30, 1998 among AlliedSignal Inc., AlliedSignal 
                 Technologies, Inc., AlliedSignal Deutschland GMBH and L-3 Communications Corporation. 
     *10.9       Form of Stock Option Agreement for Employee Options. 
     *10.91      Form of 1997 Stock Option Plan for Key Employees. 

                               65           
<PAGE>
  EXHIBIT NO.                                      DESCRIPTION OF EXHIBIT 
---------------  ------------------------------------------------------------------------------------------ 
     *10.10      L-3 Communications Corporation Pension Plan. 
      12         Ratio of earnings to fixed charges. 
     *24         Powers of Attorney of L-3 Communications Corporation. 
      99.1       Unaudited Pro Forma Condensed Consolidated Financial Information. 
      99.2       Satellite Transmission Systems Division of California Microwave, Inc. Unaudited Condensed 
                 Financial Statements, Six months ended December 31, 1996 and 1997. 
      99.3       Satellite Transmission Systems Division of California Microwave, Inc. Financial Statements 
                 as of June 30, 1997 and 1996 and for the years ended June 30, 1997, 1996 and 1995. 
      99.4       ILEX Systems, Inc. and Subsidiary Consolidated Financial Statements, December 31, 1997. 
      99.5       AlliedSignal Ocean Systems Combined Financial Statements as of December 31, 1997 and for 
                 the year ended December 31, 1997. 
</TABLE>
    

   
------------ 
* Incorporated by reference from the Company's Registration Statement on Form 
  S-1, as amended (File no. 333-46983). 
    

                               66           
<PAGE>
   
                                    SIGNATURES 

   Pursuant to the requirements of Section 13 or 15(d) of the Securities 
Exchange Act of 1934, the registrant has duly caused this report to be signed 
on its behalf by the undersigned, thereunto duly authorized, on May 14, 1998. 
    

                                          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 below by the following persons on behalf of the 
registrant on May 14, 1998 and in the capacities indicated. 
    

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

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

  /s/ Michael T. Strianese     Vice President--Finance and Controller (Principal 
 ----------------------------  Accounting Officer) 
     Michael T. Strianese 

              *                Director 
 ---------------------------- 
        David J. Brand 

              *                Director 
 ---------------------------- 
      Thomas A. Corcoran 

              *                Director 
 ---------------------------- 
       Alberto M. Finali 

              *                Director 
 ---------------------------- 
        Eliot M. Fried 

              *                Director 
 ---------------------------- 
     Frank H. Menaker, Jr. 

              *                Director 
 ---------------------------- 
       Robert B. Millard 

              *                Director 
 ---------------------------- 
       John E. Montague 

              *                Director 
 ---------------------------- 
      Alan H. Washkowitz 

 By:/s/ Michael T. Strianese 
 ---------------------------- 
       Attorney-in-Fact 

</TABLE>

                               67           
<PAGE>
                              POWER OF ATTORNEY 

   We, the undersigned directors and officers of L-3 Communications 
Corporation, do hereby constitute and appoint Michael T. Strianese, 
Christopher C. Cambria and David J. Brand, or any of them, our true and 
lawful attorneys and agents, to do any and all acts and things in our name 
and on our behalf in our capacities as directors and officers and to execute 
any and all instruments for us and in our names in the capacities indicated 
below, which said attorneys and agents, or either of them, may deem necessary 
or advisable to enable said Corporation to comply with the Securities 
Exchange Act of 1934 and any rules, regulations and requirements of the 
Securities and Exchange Commission, in connection with this Annual Report, 
including specifically, but without limitation, power and authority to sign 
for us or any of us in our names in the capacities indicated below, any and 
all amendments (including post-effective amendments) hereto and we do hereby 
ratify and confirm all that said attorneys and agents, or either of them, 
shall do or cause to be done by virtue hereof. 

   
   Pursuant to the requirements of the Securities Exchange Act of 1934, this 
Annual Report has been signed on the 14th day of May, 1998 by the following 
persons in the capacities indicated: 
    

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

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

   /s/ Michael T. Strianese     Vice President--Finance and Controller (Principal 
 -----------------------------  Accounting Officer) 
      Michael T. Strianese 

      /s/ David J. Brand        Director 
 ----------------------------- 
         David J. Brand 

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

     /s/ Albert M. Finali       Director 
 ----------------------------- 
        Albert M. Finali 

      /s/ Eliot M. Fried        Director 
 ----------------------------- 
         Eliot M. Fried 

  /s/ Frank H. Menaker, Jr.     Director 
 ----------------------------- 
     Frank H. Menaker, Jr. 

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

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

    /s/ Alan H. Washkowitz      Director 
 ----------------------------- 
       Alan H. Washkowitz 
</TABLE>
                               68           
<PAGE>
                                EXHIBIT INDEX 

   
<TABLE>
<CAPTION>
  EXHIBIT NO.                                  DESCRIPTION OF EXHIBIT                                  PAGE 
---------------  ---------------------------------------------------------------------------------- -------- 
<S>              <C>                                                                                <C>
      *3.1       Certificate of Incorporation. 
      *3.2       By-Laws of L-3 Communications Corporation. 
     *10.1       Credit Agreement, dated as of April 30, 1997 among L-3 Communications Corporation 
                 and lenders named therein, as amended. 
     *10.2       Indenture dated as of April 30, 1997 between L-3 Communications Corporation and 
                 The Bank of New York, as Trustee. 
     *10.3       Stockholders Agreement dated as of April 30, 1997 among L-3 Communications 
                 Corporation and the stockholders parties thereto. 
     *10.4       Transaction Agreement dated as of March 28, 1997, as amended, among Lockheed 
                 Martin Corporation, Lehman Brothers Capital Partners III, L.P., Frank C. Lanza, 
                 Robert V. LaPenta and L-3 Communications Holdings, Inc. 
     *10.5       Employment Agreement dated April 30, 1997 between Frank C. Lanza and L-3 
                 Communications Holdings, Inc. 
     *10.51      Employment Agreement dated April 30, 1997 between Robert V. LaPenta and L-3 
                 Communications Holdings, Inc. 
     *10.6       Lease dated as of April 29, 1997 among Lockheed Martin Tactical Systems, Inc., L-3 
                 Communications Corporation and KSL, Division of Bonneville International. 
     *10.61      Lease dated as of April 29, 1997 among Lockheed Martin Tactical Systems, L-3 
                 Communications Corporation and Unisys Corporation. 
     *10.62      Sublease dated as of April 29, 1997 among Lockheed Martin Tactical Systems, Inc., 
                 L-3 Communications Corporation and Unisys Corporation. 
     *10.7       Limited Noncompetition Agreement dated April 30, 1997 between Lockheed Martin 
                 Corporation and L-3 Communications Corporation. 
     *10.8       Asset Purchase Agreement dated as of December 19, 1997 between L-3 Communications 
                 Corporation and California Microwave, Inc. 
     *10.81      Asset Purchase Agreement dated as of February 10, 1998 between FAP Trust and L-3 
                 Communications Corporation. 
     *10.82      Asset Purchase Agreement dated as of March 30, 1998 among AlliedSignal Inc., 
                 AlliedSignal Technologies, Inc., AlliedSignal Deutschland GMBH and L-3 
                 Communications Corporation. 
     *10.9       Form of Stock Option Agreement for Employee Options. 
     *10.91      Form of 1997 Stock Option Plan for Key Employees. 
     *10.10      L-3 Communications Corporation Pension Plan. 
      12         Ratio of earnings to fixed charges. 
     *24         Powers of Attorney of L-3 Communications Corporation. 
      99.1       Unaudited Pro Forma Condensed Consolidated Financial Information. 

                               69           
<PAGE>
  EXHIBIT NO.                                  DESCRIPTION OF EXHIBIT                                  PAGE 
---------------  ---------------------------------------------------------------------------------- -------- 
      99.2       Satellite Transmission Systems Division of California Microwave, Inc. Unaudited 
                 Condensed Financial Statements, Six months ended December 31, 1996 and 1997. 
      99.3       Satellite Transmission Systems Division of California Microwave, Inc. Financial 
                 Statements as of June 30, 1997 and 1996 and for the years ended June 30, 1997, 
                 1996 and 1995. 
      99.4       ILEX Systems, Inc. and Subsidiary Consolidated Financial Statements, December 31, 
                 1997. 
      99.5       AlliedSignal Ocean Systems Combined Financial Statements as of December 31, 1997 
                 and for the year ended December 31, 1997. 
</TABLE>
    

   
------------ 
* Incorporated by reference from the Company's Registration Statement on Form 
  S-1, as amended (File no. 333-46983). 
    

                               70