##### Table of Contents





UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
  WASHINGTON, D.C. 20549
 FORM 10-K
  xANNUAL
    REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934
  For the
    fiscal year ended December 31, 2008
  o TRANSITION
    REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934
  For the
    transition period
    from          
    to
  Commission file numbers
    001-14141
    and
    333-46983
 L-3 COMMUNICATIONS HOLDINGS,
    INC.
 L-3 COMMUNICATIONS
    CORPORATION
 (Exact names
    of registrants as specified in their charters)
  Delaware

13-3937434 and 13-3937436(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification Nos.)600 Third Avenue, New York, NY

10016(Address of principal executive offices)

(Zip Code)   (212) 697-1111 (Telephone
    number)
    Title of each class

Name of each exchange on which registered:L-3 Communications Holdings, Inc. 
    common stock, par value $0.01 per share

New York Stock Exchange         x o
    o x
    x o
  Regulation S-K Form 10-K Form 10-K. x
  12b-2
  Large accelerated
    filer x

Accelerated
    filer o

Non-accelerated filer (Do not check if a smaller
    reporting company)

Smaller reporting
    Company o   Rule 12b-2
  o x
      DOCUMENTS
    INCORPORATED BY REFERENCE
 Form 10-K




---



##### 





L-3
    COMMUNICATIONS HOLDINGS, INC.
    L-3 COMMUNICATIONS CORPORATION
    INDEX TO ANNUAL REPORT ON
    FORM 10-K
    For the Year Ended December 31, 2008
   
 PART IItem 1:

Business


1Item 1A:

Risk Factors


17Item 1B:

Unresolved Staff Comments


25Item 2:

Properties


25Item 3:

Legal Proceedings


26Item 4:

Submission of Matters to a Vote of Security
    Holders


26PART IIItem 5:

Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases  of
    Equity Securities


27Item 6:

Selected Financial Data


29Item 7:

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


30Item 7A:

Quantitative and Qualitative Disclosures about
    Market Risk


61Item 8:

Financial Statements and Supplementary Data


61Item 9:

Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


61Item 9A:

Controls and Procedures


61Item 9B:

Other Information


62PART IIIItem 10:

Directors, Executive Officers and Corporate
    Governance


63Item 11:

Executive Compensation


63Item 12:

Security Ownership of Certain Beneficial Owners
    and Management and Related  Stockholder Matters


64Item 13:

Certain Relationships and Related Transactions,
    and Director Independence


64Item 14:

Principal Accountant Fees and Services


64PART IVItem 15:

Exhibits, Financial Statement Schedules


65Signatures


69EX-4.5: SUPP.IND., FEB.20,2009-7 5/8% NOTES DUE 2012EX-4.7: SUPP.IND.,FEB.20,2009-6 1/8% NOTES DUE 2013EX-4.9: SUPP.IND., FEB.20,2009-6 1/8% NOTES DUE 2014EX-4.11: SUPP.IND.,FEB. 20, 2009-5 7/8% NOTES DUE 2015EX-4.13: SUPP.IND., FEB.20,2009-6 3/8% NOTES DUE 2015EX-4.15: SUPP.IND.,FEB.20,2009-CODES DUE 2035EX-10.14: 2008 LTPEX-10.17: RSU AGREEMENT (2009 VERSION)EX-10.20: 2008 DSIPEX-10.21: AMEND/REST. CHANGE IN CONTROL SEV.PLANEX-10.22: AMEND/REST. SERPEX-10.25: DEFERRED COMP. PLAN IIEX-10.26: MPRI LT DEF. INC. PLANEX-12: RATIO OF EARNINGS TO FIXED CHARGESEX-18: GW IMPAIR. PREF. LETTEREX-21: SUBSIDIARIESEX-23: CONSENT OF PRICEWATERHOUSECOOPERS LLPEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32: CERTIFICATION




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##### Table of Contents



PART I  For convenience purposes in this filing on
    Form 10-K,
    L-3 Holdings refers to L-3 Communications Holdings,
    Inc., and L-3 Communications refers to L-3
    Communications Corporation, a wholly-owned operating subsidiary
    of L-3 Holdings. L-3, we, us
    and our refer to L-3 Holdings and its subsidiaries,
    including L-3 Communications.
  Item 1.
    Business  Overview
  3
    % of2008 Sales


Total Sales(in millions)DoD

$
11,059



74
%Other U.S. Government


1,067



7Total U.S. Government

$
12,126



81
%International


2,086



14Commercial  domestic


689



5Total sales

$
14,901



100
%   3
  Business
    Strategy
    Expand Prime Contractor and Supplier
    Positions. 3
 1




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##### Table of Contents



Grow Sales Organically and Selectively Acquire
    Businesses.
  Favorably Perform on Contracts.
  Continuously Improve our Cost Structure.
  Align Research & Development, and Capital
    Expenditures.
  Selected
    Recent Business Acquisitions and Business and Product Line
    Dispositions
    Products
    and Services
   2




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##### Table of Contents



C3ISR

    Reportable Segment
  3 3
  
    highly specialized fleet management sustainment and support,
    including procurement, systems integration, sensor development,
    modifications and periodic depot maintenance for SIGINT and ISR
    special mission aircraft and airborne surveillance systems;
    strategic and tactical SIGINT systems that detect, collect,
    identify, analyze and disseminate information;
    secure data links that enable real-time information collection
    and dissemination to users of networked communications for
    airborne, satellite, ground and sea-based remote platforms, both
    manned and unmanned;
    secure terminal and communication network equipment and
    encryption management; and
    communication systems for surface and undersea vessels and
    manned space flights. 3




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##### Table of Contents



3
  Systems/Products/Services

Selected Applications

Selected Platforms/End UsersISR Systems  Prime mission systems integration, sensor
    development and operations and support

  Signal processing, airborne SIGINT
    applications, antenna technology, real-time process control and
    software development

  U.S. Air Force (USAF), United Kingdom (U.K.)
    Ministry of Defence (MoD) and other allied foreign militaries
    ISR aircraft platforms  Fleet management of special mission aircraft,
    including avionics and mission system upgrades and logistics
    support

  Measurement collection and signal
    intelligence, special missions

  DoD and special customers within the U.S.
    Government  ISR operations and support

  Data link support and services, special
    applications, classified projects, spares and repairs

  USAF and U.S. Army ISR aircraft platformsNetworked Communications  Airborne, space and surface data link
    terminals, ground stations, and transportable tactical SATCOM
    (satellite communications) systems

  High performance, wideband secure
    communication links for relaying of intelligence and
    reconnaissance information

  Manned aircraft, unmanned aerial vehicles
    (UAVs), naval ships, ground vehicles and satellites for the DoD  Multi-band Manpack Receivers

  Portable, ruggedized terminals used for
    receiving reconnaissance video and sensor data from multiple
    airborne platforms

  U.S. Special Operations Command (USSOCOM),
    USAF and other DoD customers  Satellite command and control sustainment and
    support

  Software integration, test and maintenance
    support, satellite control network and engineering support for
    satellite launch systems

  USAF Space Command (AFSC), USAF Satellite
    Control Network and launch rangesSecure Communications Products  Secure communication terminals and equipment,
    and secure network encryption products

  Secure and non-secure voice, data and video
    communication for office, battlefield and secure internet
    protocol (IP) network applications

  DoD and U.S. Government intelligence agencies  Ground-based satellite communication terminals
    and payloads

  Interoperable, transportable ground terminals

  DoD and U.S. Government intelligence agencies  Satellite communication and tracking systems

  On-board satellite external communications,
    video systems, solid state recorders and ground support equipment

  International Space Station, Space Shuttle and
    various satellites for National Aeronautics and Space
    Administration (NASA)  Shipboard communications systems

  Internal and external communications (radio
    rooms)

  U.S. Navy (USN), U.S. Coast Guard and allied
    foreign navies
  4




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##### Table of Contents



Government
    Services Reportable Segment
    
    communication software support, information technology services
    and a wide range of engineering development services and
    integration support;
    high-end engineering and information systems support services
    used for command, control, communications and ISR architectures,
    as well as for air warfare modeling and simulation tools for
    applications used by the DoD, DHS and U.S. Government
    intelligence agencies, including missile and space systems, UAVs
    and manned military aircraft;
    developing and managing extensive programs in the United States
    and internationally that focus on teaching, training and
    education, logistics, strategic planning, organizational design,
    democracy transition and leadership development;
    human intelligence support and other services, including
    linguist and translation services and related management to
    support contingency operations and current
    intelligence-gathering requirements;
    Command & Control Systems and Software services in support
    of maritime and expeditionary warfare;
    intelligence solutions support to the DoD, including the
    U.S. Armed Services combatant commands and the
    U.S. Government intelligence agencies, including those
    within the U.S. Armed Services;
    technical and management services, which provide support of
    intelligence, logistics,
    C3 and

    combatant commands; and
    conventional high-end enterprise IT support, systems and other
    services to the DoD and other U.S. federal agencies.    Systems/Products/Services

Selected Applications

Selected Platforms/End UsersTraining and Operational Support  Training systems, courseware and doctrine
    development

  Training, leadership development and education
    services for U.S. and allied foreign armed forces,
    counterintelligence and law enforcement personnel

  U.S. Army, U.S. Marine Corps (USMC), DoS, DoJ
    and allied foreign governments  Acquisition management and staff augmentation

  Rapid fielding support for combatants and
    physical location management

  U.S. Army  Weapons Training Systems

  Laser marksmanship training systems and
    advanced integrated technologies for security products and
    services

  DoD and law enforcement agencies
 5




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##### Table of Contents



Systems/Products/Services

Selected Applications

Selected Platforms/End Users  Specialized management, policy and training in
    energy, environmental and natural resource management

  Water and Coastal resource management,
    sustainable agriculture and food security, climate change
    mitigation strategies, emergency preparedness, response and
    reconstruction, power sector restructuring and energy economics
    and finance

  U.S. Agency for International Development,
    foreign governments, World bank and Non-Governmental
    OrganizationsEnterprise IT Solutions  Network and enterprise administration and
    management

  Systems engineering, assurance and risk
    management, network and systems administration, management,
    software development and life cycle support and systems
    integration

  U.S. Army, U.S. Joint Chiefs of Staff, USAF,
    USSOCOM, Federal Aviation Administration (FAA) and NASA  Systems acquisition and advisory support and
    comprehensive operational support services

  Requirements definition, program management,
    planning and analysis, systems engineering, integration and
    development, intelligence analysis and managing and network
    engineering

  U.S. Army, USAF, USN and DHSIntelligence Solutions and Support  System support and concept operations (CONOPS)

  C3ISR,

    modeling and simulation

  DoD, U.S. Missile Defense Agency (MDA), U.S.
    Government intelligence agencies, and NASA  IT services

  IT infrastructure modernization and operations

  U.S. Government intelligence agencies and U.K.
    MoD  Information management and IT systems support
    and software design, development and systems integration

  Intelligence and operations support,
    C3

    systems, network centric operations and information operations

  DoD and U.S. Government intelligence agencies  Linguistic, interpretation, translation and
    analyst services

  Counterintelligence, threat protection and
    counter terrorism

  U.S. Army
 6




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Systems/Products/Services

Selected Applications

Selected Platforms/End UsersCommand & Control Systems and Software  Software engineering/software sustainment,
    operations analysis, research, technical analysis and test and
    evaluation

  Systems engineering and operational analysis
    of every aircraft and vessels in the USN fleet,
    C3 and

    Computers
    (C4)

    systems acquisitions, logistics and administrative support, as
    well as systems life cycle support

  U.S. Army, USN and USMC  Communication systems and software engineering
    services

  Value-added, critical software support for
    C3ISR

    systems, electronic warfare and fire support systems

  U.S. Army Communications 
    Electronics Command (CECOM)  Acquisition Support

  Support defense acquisition programs, develop
    acquisition roadmaps, capability assessments and develop
    requirements

  U.S. Army, USN and USMC  Systems Engineering and Integration Support

  System design and development, platform
    simulations, systems testing, prototype development and
    deployment and hardware and software integration

  USMC, U.S. Army and, USSOCOMGlobal Security & Engineering Solutions  Surveillance systems and products, including
    installation and logistics support

  Remote surveillance for U.S. borders

  DHS  Security Solutions

  Border security systems, area surveillance and
    access control, critical infrastructure protection, continuity
    planning and emergency management

  DHS, USMC and Customs and Border Patrol  Engineering and technical solutions

  Systems engineering and design, analysis and
    integration, technical support and test & evaluation,
    Weapons of Mass Destruction (WMD) effects analysis and
    Improvised Explosive Device (IED) counter measures

  DoD and U.S. Government agencies  Program management and operational support

  Command center operations, systems
    acquisitions, emergency management training, continuity of
    operations and government planning

  Federal Emergency Management Agency, FAA,
    Joint Task Force  Civil Support
 7




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##### Table of Contents



Aircraft
    Modernization and Maintenance (AM&M) Reportable
    Segment
    
    engineering, modification, maintenance, logistics and upgrades
    for aircraft, vehicles and personnel equipment;
    turnkey aviation life cycle management services that integrate
    custom developed and commercial off-the-shelf products for
    various military fixed and rotary wing aircraft, including heavy
    maintenance and structural modifications and interior
    modifications and construction; and
    aerospace and other technical services related to large fleet
    support, such as aircraft and vehicle modernization,
    maintenance, repair and overhaul, logistics, support and supply
    chain management, primarily for military training, tactical,
    cargo and utility aircraft, anti-missile defense systems and
    tanks.    Systems/Products/Services

Selected Applications

Selected Platforms/End UsersAircraft and Base Support
    Services  Logistics support, maintenance and
    refurbishment

  Aircraft maintenance repair and overhaul,
    flight operations support for training, cargo and special
    mission aircraft

  U.S. Army, USAF, USN, USSOCOM, Canadian DND
    and other allied foreign militaries  Contract Field Teams (CFT)

  Deployment of highly mobile, quick response
    field teams to customer locations to supplement the
    customers resources for various ground vehicles and
    aircraft

  U.S. Army, USAF, USN and USMC  Contractor operated and managed base supply
    (COMBS)

  Inventory management activities relating to
    flight support and maintenance, including procurement and field
    distribution

  Military training and cargo aircraftAircraft Modernization  Modernization and life extension maintenance
    upgrades and support

  Aircraft structural modifications and
    inspections, installation of mission equipment, navigation and
    avionics products

  USN, USAF, USSOCOM, Canadian DND, Royal
    Australian Air Force, other allied foreign governments, various
    military, fixed and rotary wing aircraft and Head of State
    aircraft
  8




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##### Table of Contents



Specialized
    Products Reportable Segment
    % of 2008Business Area

Segment SalesPower & Control Systems


17
%Electro-Optic/Infrared (EO/IR)


14Microwave


14Avionics & Displays


11Simulation & Training


11Precision Engagement


9Security & Detection


6Propulsion Systems


6Telemetry & Advanced Technology


5Undersea Warfare


4Marine Services


3Total Specialized Products


100
%  9




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##### Table of Contents



Systems/Products



Selected Applications



Selected Platforms/End UsersPower & Control Systems   Shipboard electrical power packages,
    electric drives and propulsion, automation, navigation and
    communication systems



Surface ships ranging from shipping vessels, container carriers,
    environmental and research ships, ferries and cruise liners



Commercial shipbuilders and allied foreign navies   Naval power delivery, conversion and
    switching products



Switching, distribution and protection, as well as frequency and
    voltage conversion



Naval submarines, surface ships and aircraft carriersEO/IR   Targeted stabilized camera systems with
    integrated sensors and wireless communication systems



Intelligence Data Collection, Surveillance and Reconnaissance



DoD, intelligence and security agencies, law enforcement,
    manned/unmanned platforms   Airborne and ground based high energy
    laser beam directors and high tracking rate telescopes



Directed energy systems, space surveillance, satellite laser
    ranging and laser communications



USAF and NASA   Night Vision (NV) technology and
    electro-optical systems and products



Free-standing or mounted image intensified NV goggles, weapon
    sights, and driver viewers for special forces, pilots and
    aircrews, soldiers, Marines, sailors and law enforcement
    personnel



U.S. Army, USN, USMC, DHS, allied foreign militaries and law
    enforcement agenciesMicrowave   Passive components, switches and
    wireless assemblies



Radio transmission, switching and conditioning, antenna and base
    station testing and monitoring



DoD, wireless communications service providers and original
    equipment manufacturers   Satellite and wireless components
    (channel amplifiers, transceivers, converters, filters and
    multiplexers)



Satellite transponder control, channel and frequency separation



SATCOM and wireless communications equipment for DoD and various
    government agencies   Traveling wave tubes, power modules,
    klystrons and digital broadcast



Microwave vacuum electron devices and power modules



DoD and allied foreign military manned/unmanned platforms,
    various missile programs and commercial broadcast   Quick-deploy flyaway very small aperture
    terminals (VSAT) and vehicular satellite systems



Satellite communication systems



U.S. Army, USAF and various DoD customers   Ultra-wide frequency and advanced radar
    antennas and radomes



Surveillance and radar detection



Military fixed and rotary winged aircraft, SATCOMAvionics & Displays   Solid state crash protected cockpit
    voice and flight data recorders



Aircraft voice and flight data recorders that continuously
    record voice and sounds from cockpit and aircraft
    intercommunications



Commercial transport, business, regional and military aircraft   Airborne traffic and collision avoidance
    systems, terrain awareness warning systems



Reduce the potential for midair aircraft collisions and crashes
    into terrain by providing visual and audible warnings and
    maneuvering instructions to pilots



Commercial transport, business, regional and military aircraft   Advanced cockpit avionics



Pilot safety, navigation and situation awareness products



Commercial transport, business, regional and military aircraft   Cockpit and mission displays



High performance, ruggedized flat panel and cathode ray tube
    displays and processors



Various military aircraftSimulation & Training   Military aircraft flight simulators,
    reconfigurable training devices, distributed mission training
    (DMT) suites



Advanced simulation technologies and training for pilots,
    navigators, flight engineers, gunners and operators



Fixed and rotary winged aircraft and ground vehicles for USAF,
    USN, U.S. Army, Canadian DND and allied foreign militaries
  10




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##### Table of Contents



Systems/Products



Selected Applications



Selected Platforms/End UsersPrecision Engagement   Global Positioning System (GPS) receivers



Location tracking



Guided projectiles and precision munitions   Navigation systems and positioning
    navigation units



Satellite launch and orbiting navigation and navigation for
    ground vehicles and fire control systems



USAF, U.S. Army, USMC and NASA   Premium fuzing products



Munitions and electronic and electromechanical safety arming
    devices (ESADs)



Various DoD and allied foreign military customersSecurity & Detection   Explosives detection systems and airport
    security systems



Rapid scanning of passenger checked baggage and carry-on
    luggage, scanning of large cargo containers



DHS, including the U.S. Transportation and Security
    Administration (TSA), domestic and international airports and
    state and local governments   Non-invasive security systems and
    portals, and sophisticated sensors with threat detection
    capabilities



Aviation, rail and border crossing security



TSA, U.S. Customs agency, various regulatory authorities and
    private security companiesPropulsion Systems   Heavy fuel engines, cross drive variable
    transmissions, turret drive systems, vehicle suspension,
    advanced drive systems and auxiliary power generators



Power trains and suspension systems for military vehicles, power
    and energy management for military hybrid electric vehicles, non
    portable and under armor auxiliary power units, and heavy fueled
    engines for unmanned systems



U.S. Army, USMC and allied foreign ministries of defense,
    manned/unmanned military platformsTelemetry & Advanced Technology   Telemetry and instrumentation systems



Real-time data acquisition, measurement, processing, simulation,
    distribution, display and storage for flight tracking, testing
    and termination



Aircraft, missiles and satellites   High power microwave sources, systems
    & effects, pulse power systems and electromagnetics
    hardened construction



Forensic analysis of weapons of mass destruction, active
    detection of special nuclear material and irradiation systems
    for decontamination and industrial applications



U.K. MoD, U.S. Defense Threat Reduction Agency, U.S. Army and
    USAFUndersea Warfare   Airborne dipping sonars, submarine and
    surface ship towed arrays



Submarine and surface ship detection and localization



USN and allied foreign naviesMarine Services   Shipboard electronics racks, rugged
    computers, rugged displays and communication terminals



Ruggedized displays, computers and electronic systems



Naval vessels and other DoD applications   Service life extensions



Landing craft air cushion amphibious vehicles



USN
   Backlog
    and Orders
   11




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##### Table of Contents



Major
    Customers
    % of2008 Sales


Total Sales(in millions)Army

$
4,180



28
%Air Force


2,944



20Navy/Marines


2,295



15Other Defense


1,640



11Total DoD

$
11,059



74
%Other U.S. Government


1,067



7Total U.S. Government

$
12,126



81
%Foreign governments


1,099



7Commercial  foreign


987



7Commercial  domestic


689



5Total sales

$
14,901



100
%       Research
    and Development
     12




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##### Table of Contents



Year Ended December 31,2008


2007


2006(In millions)Company-Sponsored Research and Development Costs:U.S. Government Contractor Businesses

$
287


$
263


$
243Commercial Businesses


86



93



77Total

$
373


$
356


$
320     Competition
      
    the effectiveness and innovation of our technologies and
    research and development programs;
    our ability to offer better program performance than our
    competitors at a lower cost;
    historical technical and schedule performance;
    us maintaining an effective supplier and vendor base;
    our ability to retain our employees and hire new ones,
    particularly those who have U.S. Government security
    clearances; and
    the capabilities of our facilities, equipment and personnel to
    undertake the business for which we compete.       13




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Patents
    and Licenses
    Raw
    Materials
  sub-assemblies
  Contracts
    time-and-material time-and-material time-and-material
     14




---



##### Table of Contents



time-and-material time-and-material
      Year Ended December 31,Contract-Type

2008


2007


2006Fixed-price


54
%


51
%


50
%Cost-reimbursable


27
%


30
%


31
%Time-and-material


19
%


19
%


19
%Total sales


100
%


100
%


100
%   time-and-material
  Regulatory
    Environment
       15




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##### Table of Contents



Environmental
    Matters
      Certain
    Acquired Pension Plans
            Employees
   16




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##### Table of Contents



L-3
    Holdings Obligations
    Available
    Information
  1-800-SEC-0330. http://www.sec.gov
  Form 10-K, Form 10-Q, Form 8-K http://www.L-3com.com
  http://www.L-3com.com (866-463-6555).
   Item 1A. Risk
    Factors  You should carefully consider the following risk factors and
    other information contained or incorporated by reference in this
    Form 10-K,
    including Part II  Item 7 
    Managements Discussion and Analysis of Financial Condition
    and Results of Operations. Any of these risks could
    materially adversely affect our business and our financial
    condition, results of operations and cash flows, which could in
    turn materially adversely affect the price of our common
    stock.
 17




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##### Table of Contents



Our contracts (revenue arrangements) with
    U.S. Government customers entail certain risks.
  A decline in or a redirection of the U.S. defense budget
    could result in a material decrease in our sales, earnings and
    cash flows.
    We rely predominantly on sales to U.S. Government
    entities, and the loss of a significant number of our contracts
    would have a material adverse effect on our results of
    operations and cash flows.
     18




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##### Table of Contents




    curtailment of the U.S. Governments use of technology
    or other services and products providers, including curtailment
    due to government budget reductions and related fiscal matters;
    developments in Iraq, Afghanistan or other geopolitical
    developments that affect demand for our products and services;
    our ability to hire and retain personnel to meet increasing
    demand for our services; and
    technological developments that impact purchasing decisions or
    our competitive position.  Our government contracts contain unfavorable termination
    provisions and are subject to audit and modification. If a
    termination right is exercised by the government, it could have
    a material adverse effect on our business, financial condition
    and results of operations.
    
    suspend us from receiving new contracts pending resolution of
    alleged violations of procurement laws or regulations;
    terminate existing contracts;
    reduce the value of existing contracts;
    audit our contract-related costs and fees, including allocated
    indirect costs; and
    control and potentially prohibit the export of our products.      We may not be able to win competitively awarded contracts or
    receive required licenses to export our products, which would
    have a material adverse effect on our business, financial
    condition, results of operations and future prospects.
    
    the frequent need to bid on programs in advance of the
    completion of their design, which may result in unforeseen
    technological difficulties
    and/or cost
    overruns;
    the substantial time, effort and experience required to prepare
    bids and proposals for competitively awarded contracts that may
    not be awarded to us; 19




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##### Table of Contents




    design complexity and rapid technological obsolescence; and
    the constant need for design improvement.    We are subject to government investigations, which could have
    a material adverse effect on our business, financial condition,
    results of operations and future prospects.
    We are subject to the risks of current and future legal
    proceedings, which could have a material adverse effect on our
    business, financial condition, results of operations and future
    prospects.
    If we are unable to keep pace with rapidly evolving products
    and service offerings and technological change, there could be a
    material adverse effect on our business, financial condition,
    results of operations and future prospects.
    Our business acquisition strategy involves risks, and we may
    not successfully implement our strategy.
     20




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##### Table of Contents



Goodwill and Other Intangible Assets
  Our results of operations and cash flows are substantially
    affected by our mix of fixed-price,
    cost-reimbursable
    and
    time-and-material
    type contracts.
  time-and-material.
    % ofContract-Type

Total SalesFixed-price


54
%Cost-reimbursable


27
%Time-and-material


19
%Total sales


100
%   time-and-material
    time-and-material
 21




---



##### Table of Contents



time-and-material
  catch-up
  Intense competition in the industries in which our businesses
    operate could limit our ability to attract and retain
    customers.
  off-the-shelf
  Our significant level of debt and our ability to make
    payments on or service our indebtedness may adversely affect our
    financial and operating activities or ability to incur
    additional debt.
        
    requiring a substantial portion of our net cash flow from
    operations to be used to pay interest and principal on our debt
    and therefore be unavailable for other purposes, including
    acquisitions, capital expenditures, paying dividends to our
    shareholders, repurchasing shares of our common stock, research
    and development and other investments;
    limiting our ability to obtain additional financing for
    acquisitions, working capital, investments or other
    expenditures, which, in each case, may limit our ability to
    carry out our acquisition strategy;
    increasing interest expenses due to higher interest rates on our
    borrowings that have variable interest rates; 22




---



##### Table of Contents




    heightening our vulnerability to downturns in our business or in
    the general economy and restricting us from making acquisitions,
    introducing new technologies and products or exploiting business
    opportunities; and
    impacting debt covenants that limit our ability to borrow
    additional funds, dispose of assets, pay cash dividends or
    repurchase shares of our common stock. Failure to comply with
    such covenants could result in an event of default which, if not
    cured or waived, could result in the acceleration of our
    outstanding indebtedness.    Our debt agreements restrict our ability to finance our
    future operations and, if we are unable to meet our financial
    ratios, could cause our existing debt to be accelerated.
    
    sell assets;
    incur more indebtedness;
    repay certain indebtedness;
    pay dividends on the common stock of L-3 Holdings;
    make certain investments or business acquisitions;
    repurchase or redeem capital stock;
    make certain capital expenditures;
    engage in business mergers or consolidations; and
    engage in certain transactions with subsidiaries and affiliates.    
    declare all outstanding debt, accrued interest and fees to be
    due and immediately payable;
    require us to apply all of our available cash to repay our
    outstanding senior debt; and
    prevent us from making debt service payments on our other debt.    If we are unable to attract and retain key management and
    personnel, we may become unable to operate our business
    effectively.
   23




---



##### Table of Contents



Environmental laws and regulations may subject us to
    significant liability.
    clean-up
  Termination of our backlog of orders could negatively impact
    our results of operations and cash flows.
    Our sales to certain foreign customers expose us to risks
    associated with operating internationally.
    
    export regulations that could erode profit margins or restrict
    exports;
    compliance with the U.S. Foreign Corrupt Practices Act
    (FCPA);
    the burden and cost of compliance with foreign laws, treaties
    and technical standards and changes in those regulations;
    contract award and funding delays;
    potential restrictions on transfers of funds;
    foreign currency fluctuations;
    import and export duties and value added taxes;
    transportation delays and interruptions;
    uncertainties arising from foreign local business practices and
    cultural considerations; and
    potential military conflicts and political risks.    Global economic recession, continued tightening of credit
    markets, and U.S. Government intervention in financial and other
    industries may adversely affect our results.
   24




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##### Table of Contents



Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties      
    C3ISR 

    Camden, New Jersey; Greenville and Waco, Texas; and Salt Lake
    City, Utah.
    Government Services  Huntsville, Alabama; Tucson,
    Arizona; Washington, DC; Orlando, Florida; Annapolis, Maryland;
    and Alexandria, Arlington, Chantilly and Reston, Virginia.
    AM&M  Crestview, Florida; Lexington, Kentucky;
    South Madison, Mississippi; Greenville and Waco, Texas; and
    Edmonton and Quebec, Canada.
    Specialized Products  Phoenix and Tempe, Arizona;
    Anaheim, San Carlos, San Diego, San Leandro,
    Santa Barbara, Simi Valley, Sylmar and Torrance,
    California; Orlando, Sarasota and St. Petersburg, Florida; Ayer,
    Massachusetts; Grand Rapids and Muskegon, Michigan; Budd Lake,
    New Jersey; Albuquerque, New Mexico; Binghamton and Hauppauge,
    New York; Cincinnati and Mason, Ohio; Tulsa, Oklahoma;
    Philadelphia, Pittsburgh and Williamsport, Pennsylvania;
    Arlington, Dallas and Garland, Texas; Norfolk, Virginia;
    Burlington and Toronto, Canada; and Hamburg and Elmenhorst,
    Germany.      Leased


Owned


Total(Square feet in millions)C3ISR


4.3



0.7



5.0Government Services


3.1







3.1AM&M


3.2



1.4



4.6Specialized Products


7.2



3.4



10.6Corporate


0.1







0.1Total


17.9



5.5



23.4    25




---



##### Table of Contents



Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders   26




---



##### Table of Contents



PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities    Closing PriceDividends Paid


(High-Low)2008


2007


2008


2007Common Stock  Dividends Paid and Market PricesFirst Quarter


$0.30



$0.25


$
110.48
 $101.99


$
88.99
 $80.02Second Quarter


0.30



0.25



114.46
  90.63



99.20
 87.81Third Quarter


0.30



0.25



105.88
  87.57



102.68
 92.11Fourth Quarter


0.30



0.25



98.32
  59.32



114.69
 103.69Year Ended December 31


$1.20



$1.00



114.46
  59.32



114.69
  80.02       Issuer
    Purchases of Equity Securities
    Maximum number(or approximateTotal number of


dollar value) ofshares purchased as


shares that mayTotal number


Average


part of publicly


yet be purchasedof shares


price paid


announced plans or


under the planspurchased


per share


programs


or programs(in millions)September 27  October 31,
    2008(1)


1,846,332


$
82.12



1,846,332


$
November 1  30,
    2008(2)













$
1,000December 1  31, 2008


1,037,564



66.61



1,037,564


$
931Total


2,883,896


$
76.54



2,883,896     (1)
    
    In October 2008, L-3 Holdings
    completed its previously announced $750 million share
    repurchase program, which was approved by its Board of Directors
    on December 11, 2007.(2)
    
    On November 24, 2008,
    L-3 Holdings Board of Directors approved a new share
    repurchase program that authorizes L-3 Holdings to repurchase up
    to an additional $1 billion of its outstanding shares of
    common stock through December 31, 2010. 27




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##### Table of Contents



28




---



##### Table of Contents



Item 6.
    Selected
    Financial Data  Form 10-K. Form 10-K.
  Year Ended December 31,2008(1)


2007


2006(2)


2005


2004(in millions, except per share data)Statement of Operations Data:Net sales

$
14,901


$
13,961


$
12,477


$
9,445


$
6,897Cost of sales


13,342



12,513



11,198



8,448



6,148Litigation gain
    (charge)(3)


126







(129
)






Stock-based
    charge(4)










(39
)






Operating income


1,685



1,448



1,111



997



749Interest and other income, net


28



31



20



6



7Interest
    expense(3)


271



296



296



204



145Minority interests in net income of consolidated subsidiaries


11



9



10



10



9Loss on retirement of debt


















5Income from continuing operations before income taxes


1,431



1,174



825



789



597Provision for income taxes


502



418



299



280



215Income from continuing operations

$
929


$
756


$
526


$
509


$
382Net
    income(5)

$
949


$
756


$
526


$
509


$
382L-3 Holdings earnings per common share:Basic:Income from continuing operations

$
7.66


$
6.05


$
4.27


$
4.28


$
3.54Net income

$
7.83


$
6.05


$
4.27


$
4.28


$
3.54Diluted:Income from continuing operations

$
7.56


$
5.98


$
4.22


$
4.20


$
3.33Net income

$
7.72


$
5.98


$
4.22


$
4.20


$
3.33L-3 Holdings weighted average common shares outstanding:Basic


121.2



124.9



123.1



118.8



107.8Diluted


122.9



126.5



124.8



121.2



117.4Cash dividends declared per share on L-3 Holdings common
    stock

$
1.20


$
1.00


$
0.75


$
0.50


$
0.40     (1)
    
    The year ended December 31,
    2008 includes: (1) a gain of $12 million
    ($7 million after income taxes, or $0.06 per share) from
    the sale of a product line (the Product Line Divestiture
    Gain), and (2) a non-cash impairment charge of
    $28 million ($17 million after income taxes, 29




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##### Table of Contents



or $0.14 per share) related to a
    write-down of capitalized software development costs for a
    general aviation product (the Impairment Charge).(2)
    
    Effective January 1, 2006, we
    adopted the provisions of Statement of Financial Accounting
    Standards (SFAS) No. 123R, Share-Based Payment(SFAS 123(R)), which reduced 2006 operating income by
    $42 million, net income by $29 million and diluted
    earnings per share by $0.23.(3)
    
    The year ended December 31,
    2008 includes a pre-tax gain of $133 million
    ($81 million after income taxes, or $0.66 per diluted
    share) recorded in the second quarter of 2008, comprised of a
    $126 million reversal of a current liability for pending
    and threatened litigation (the Litigation Gain) and
    $7 million for related accrued interest as a result of a
    June 27, 2008 decision by the U.S. Court of Appeals which
    vacated an adverse 2006 jury verdict. For the year ended
    December 31, 2006, the Company recorded $129 million
    ($78 million after income taxes, or $0.63 per diluted
    share) related to this adverse jury verdict, which was rendered
    on May 24, 2006.(4)
    
    The Stock-Based Charge
    of $39 million ($25 million after income taxes, or
    $0.20 per diluted share) was recorded in the second quarter of
    2006 in connection with L-3s voluntary review of its past
    stock option granting practices and the related accounting.(5)
    
    Net Income includes an after-tax
    gain of $20 million or $0.16 per diluted share for the sale
    of our 85% ownership interest in Medical Education Technologies,
    Inc. (METI) on October 8, 2008. The gain is excluded from
    income from continuing operations for the year ended
    December 31, 2008.  Year Ended December 31,2008


2007


2006


2005


2004(in millions)Balance Sheet Data (at year end):Working capital

$
2,254


$
2,181


$
1,553


$
1,789


$
1,633Total assets


14,485



14,391



13,287



11,909



7,781Long-term debt


4,538



4,537



4,535



4,634



2,190Minority interests


83



87



84



81



78Shareholders equity


5,831



5,989



5,306



4,491



3,800Cash Flow Data:Net cash from operating activities

$
1,387


$
1,270


$
1,074


$
847


$
621Net cash used in investing activities


(432
)


(388
)


(1,091
)


(3,547
)


(556
)Net cash (used in) from financing activities


(840
)


(464
)


(29
)


2,441



453   Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Financial
    Section Roadmap
   30




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##### Table of Contents



Topic

LocationOverview and Outlook:L-3s Business

Pages 31-32Business Strategy

Pages 32-33Industry Considerations

Pages 33-34Key Performance Measures

Pages 34-36Liquidity

Page  36Business Acquisitions and Business and Product Line Dispositions

Pages 36-38Critical Accounting Policies:Contract Revenue Recognition and Contract Estimates

Pages 38-40Goodwill and Identifiable Intangible Assets

Pages 40-42Pension Plan and Postretirement Benefit Plan Obligations

Page  42Valuation of Deferred Income Tax Assets and Liabilities

Page  42Liabilities for Pending and Threatened Litigation

Pages 42-43Valuation of Long-Lived Assets

Page  43Results of Operations, including business segments

Pages 43-51Liquidity and Capital Resources:Anticipated Sources of Cash Flow

Page  51Balance Sheet

Pages 51-53Pension Plans

Page  53-54Statement of Cash Flows

Pages 54-56Contractual Obligations

Pages 56-57Off Balance Sheet Arrangements

Page  57Legal Proceedings and Contingencies

Pages 57-58   Overview
    and Outlook
  L-3s
    Business
  3
  3 3
 31




---



##### Table of Contents



% of2008 Sales


Total Sales(in millions)Army

$
4,180



28
%Air Force


2,944



20Navy/Marines


2,295



15Other Defense


1,640



11Total DoD

$
11,059



74
%Other U.S. Government


1,067



7Total U.S. Government

$
12,126



81
%Foreign governments


1,099



7Commercial  foreign


987



7Commercial  domestic


689



5Total sales

$
14,901



100
%     Business
    Strategy
    3
   32




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##### Table of Contents



Industry
    Considerations
      5
 33




---



##### Table of Contents



Key
    Performance Measures
    Sales Growth.
     34




---



##### Table of Contents



Operating Income Growth.
    Other
    2008 Events
    
    A gain of $133 million ($81 million after income
    taxes, or $0.66 per share) for the reversal of a
    $126 million current liability for pending and threatening
    litigation as a result of a June 27, 2008 35




---



##### Table of Contents



decision by the U.S. Court of Appeals that vacated an
    adverse 2006 jury verdict and $7 million of related accrued
    interest, which is recorded in interest expense and other items
    (the Litigation Gain);  
    A gain of $12 million ($7 million after income taxes,
    or $0.06 per share) from the sale of a product line (the
    Product Line Divestiture Gain); and
    A non-cash impairment charge of $28 million
    ($17 million after income taxes, or $0.14 per share)
    relating to a write-down of capitalized software development
    costs for a general aviation product (the Impairment
    Charge).    Liquidity
    Business
    Acquisitions and Business and Product Line
    Dispositions
   36




---



##### Table of Contents



Business
    Acquisitions and Divestitures
  Acquisitions.
  PurchaseBusiness Acquisitions

Date Acquired


Price(1)(in millions)2006SAM Electronics GmbH


January 31, 2006


$
189SafeView, Inc. (SafeView) and CyTerra Corporation


March 2006



190
(2)METI


April 4, 2006



11
(3)SSG Precision Optronics, Inc.


June 1, 2006



68Nautronix Defence Group (Nautronix)


June 1, 2006



71
(4)Crestview Aerospace Corporation


June 29, 2006



153TRL Electronics plc


July 12, 2006



171Nova Engineering (Nova)


October 25, 2006



47
(5)Advanced Systems Architecture Ltd., TCS Design and Management
    Services, Incorporated, Magnet-Motor GmbH, gForce Technologies,
    Inc. and TACNET


Various



72
(6)Total 2006





$
9722007Geneva Aerospace, Inc. (Geneva)


January 31, 2007


$
16
(7)Global Communication Solutions, Inc.


May 4, 2007



152APSS S.r.l.


August 31, 2007



12MKI Systems, Inc.


December 3, 2007



45Total 2007





$
2252008HSA Systems Pty. Ltd.


March 14, 2008


$
16METI


April 4, 2008



3
(3)Electro-Optical Systems


April 21, 2008



178G.A. International Electronics and subsidiaries (GAI)


July 25, 2008



4
(8)International Resources Group Ltd.


December 3, 2008



58
(9)Total 2008





$
259     (1)
    
    The purchase price represents the
    contractual consideration for the acquired business, excluding
    adjustments for net cash acquired and acquisition transaction
    costs.(2)
    
    Excludes additional purchase price
    for SafeView, not to exceed $35 million, in the aggregate,
    which is contingent upon its financial performance through
    December 31, 2008. The remaining contractual purchase price
    is currently subject to an arbitration proceeding, see
    Note 18 to our audited consolidated financial statements.(3)
    
    We increased our ownership interest
    in METI from approximately 47% to 80% in 2006 and from 80% to
    85% in 2008. METI was sold on October 8, 2008, as described
    below.(4)
    
    Excludes additional purchase price,
    not to exceed $2 million, in the aggregate, which is
    contingent upon certain contract awards to Nautronix through
    2010.(5)
    
    Excludes additional purchase price,
    not to exceed $5 million, in the aggregate, which is
    contingent upon the financial performance of Nova for the years
    ending December 31, 2009 and 2010.(6)
    
    Excludes additional purchase price,
    not to exceed $1 million, in the aggregate, which is
    contingent upon the financial performance of TACNET for the
    years ending December 31, 2009 and 2010. 37




---



##### Table of Contents



(7)
    
    Excludes additional purchase price,
    not to exceed $13 million, in the aggregate, which is
    contingent upon the financial performance of Geneva for the year
    ending December 31, 2009.(8)
    
    Excludes additional purchase price,
    not to exceed $1 million, in the aggregate, which is
    contingent upon the financial performance of GAI through July
    2011.(9)
    
    The final purchase price is subject
    to adjustment based on final closing date net assets.    Divestitures. Accounting for Impairment or Disposal
    of Long-Lived Assets.
  Critical
    Accounting Policies
    Contract Revenue Recognition and Contract
    Estimates. time-and-material. 81-1, Accounting for Performance of Construction-Type and Certain
    Production-Type Contracts (SOP 81-1) Long-Term
    Construction-Type Contracts Government Contracts, Cost-Plus-Fixed Fee Contracts
 38




---



##### Table of Contents



SOP 81-1, percentage-of-completion units-of-delivery cost-to-cost
  units-of-delivery cost-to-cost units-of-delivery cost-to-cost
  percentage-of-completion catch-up
  SOP 81-1, SOP 81-1 time-and-material time-and-material time-and-material
 39




---



##### Table of Contents



Revenue Recognition SOP 81-1,
    Goodwill and Identifiable Intangible Assets. Business Combinations
     40




---



##### Table of Contents



Goodwill and Other Intangible Assets
  Disclosures
    About Segments of an Enterprise and Related Information
    AggregateIncrease

Decrease in Fair ValueAssumption

(decrease)

of reporting units(In millions)Risk adjusted discount rate


25  bpts


$
717



4
%Expected long-term growth rate


(25) bpts


$
480



3
%Cash flow projections


(1)%


$
86




%  41




---



##### Table of Contents



Pension Plan and Postretirement Benefit Plan
    Obligations.
    Valuation of Deferred Income Tax Assets and
    Liabilities.
  Liabilities for Pending and Threatened
    Litigation. Accounting for Contingencies
 42




---



##### Table of Contents



Valuation of Long-Lived Assets.
  Results
    of Operations
   43




---



##### Table of Contents



Consolidated
    Results of Operations
    Year Ended December 31,


Increase/


Year Ended December 31,


Increase/(Dollars in millions, except per share data)

2008(1)


2007


(decrease)


2007


2006


(decrease)Net sales

$
14,901


$
13,961


$
940


$
13,961


$
12,477


$
1,484Operating income

$
1,685


$
1,448


$
237


$
1,448


$
1,111


$
337Litigation
    Gain(2)


(126
)






(126
)










Q2 2006
    Charges(3)


















168



(168
)Segment operating income

$
1,559


$
1,448


$
111


$
1,448


$
1,279


$
169Operating margin


11.3
%


10.4
%


90
bpts


10.4
%


8.9
%


150
bptsLitigation
    Gain(2)


(0.8
)%






(80
) bpts











bptsQ2 2006
    Charges(3)











bpts






1.4
%


(140
)bptsSegment operating margin


10.5
%


10.4
%


10
bpts


10.4
%


10.3
%


10
bptsInterest expense and other items

$
254
(2)

$
274


$
(20
)

$
274


$
286


$
(12
)Effective income tax rate


35.1
%


35.6
%


(50
) bpts


35.6
%


36.2
%


(60
)bptsIncome from continuing operations

$
929


$
756


$
173


$
756


$
526


$
230Net Income

$
949


$
756


$
193


$
756


$
526


$
230Diluted EPS:Income from continuing operations

$
7.56


$
5.98


$
1.58


$
5.98


$
4.22


$
1.76Net Income

$
7.72


$
5.98


$
1.74


$
5.98


$
4.22


$
1.76Diluted shares


122.9



126.5



(3.6
)


126.5



124.8



1.7     (1)
    
    The year ended December 31,
    2008 includes: (1) a gain of $12 million ($7 million
    after income taxes, or $0.06 per share) from the sale of a
    product line (the Product Line Divestiture Gain),
    and (2) a non-cash impairment charge of $28 million
    ($17 million after income taxes, or $0.14 per share)
    related to a write-down of capitalized software development
    costs for a general aviation product (the Impairment
    Charge). Together with the Litigation Gain described in
    Note (2), these items are referred to as the Q2 2008 Items.(2)
    
    The Litigation Gain
    represents a June 27, 2008 decision by the U.S Court of
    Appeals to vacate an adverse 2006 jury verdict, see
    Note (3) below. In the second quarter of 2008, we
    recorded a gain of $133 million ($81 million after
    income taxes, or $0.66 per diluted share), comprised of a
    $126 million reversal of a current liability for pending
    and threatened litigation and $7 million for related
    accrued interest.(3)
    
    Includes (1) a pre-tax charge
    of $129 million ($78 million after income taxes or
    $0.63 per diluted share) related to an adverse jury verdict on
    May 24, 2006 (see OSI Systems, Inc. in Note 18 to our
    audited consolidated financial statements), and (2) a
    pre-tax charge of $39 million ($25 million after
    income taxes or $0.20 per diluted share) in connection with our
    voluntary review of our past stock option granting practices
    (see Note 3 to our audited consolidated financial
    statements). These two 2006 charges are collectively referred to
    herein as the Q2 2006 Charges.
  2008
    Compared with 2007
  Net sales:
 44




---



##### Table of Contents



Operating income and operating margin:
  Interest expense and other items:
  Effective income tax rate:
  Diluted earnings per share from continuing operations and
    income from continuing operations:
  Diluted earnings per share and net income:
  Diluted shares outstanding:
  2007
    Compared with 2006
  Net sales:
 45




---



##### Table of Contents



Operating income and operating margin:
  Interest expense and other items:
  Effective income tax rate:
  Diluted earnings per share and net income:
  Diluted shares outstanding:
 46




---



##### Table of Contents



Reportable
    Segment Results of Operations
    Year Ended December 31,2008


2007


2006(dollars in millions)Net
    sales:(1)C3ISR

$
2,566.9


$
2,310.4


$
2,025.3Government Services


4,303.0



4,333.5



3,834.4AM&M


2,657.4



2,527.7



2,327.5Specialized Products


5,373.8



4,788.9



4,289.7Consolidated net sales

$
14,901.1


$
13,960.5


$
12,476.9Operating income:C3ISR

$
251.2


$
231.6


$
215.8Government Services


421.1



403.5



342.9AM&M


240.9



246.6



232.6Specialized Products


645.8
(2)


566.4



487.8Segment operating income

$
1,559.0
(2)

$
1,448.1


$
1,279.1Litigation Gain


125.6







Q2 2006
    Charges(3)










(168.2
)Consolidated operating income

$
1,684.6


$
1,448.1


$
1,110.9Operating margin:C3ISR


9.8
%


10.0
%


10.7
%Government Services


9.8
%


9.3
%


8.9
%AM&M


9.1
%


9.8
%


10.0
%Specialized Products


12.0
%(2)


11.8
%


11.4
%Segment operating margin


10.5
%(2)


10.4
%


10.3
%Litigation Gain


0.8
%



%



%Q2 2006
    Charges(3)



%



%


(1.4
)%Consolidated operating margin


11.3
%


10.4
%


8.9
%     (1)
    
    Net sales are after intercompany
    eliminations.(2)
    
    Segment operating income includes
    the Product Line Divestiture gain of $12 million and a
    non-cash Impairment Charge of $28 million, which is
    recorded in Specialized Products. The Product Line Divestiture
    gain and non-cash Impairment Charge reduced total segment
    operating margin by 10 basis points and Specialized
    Products operating margin by 30 basis points.(3)
    
    See Notes 3 and 18 to our
    audited consolidated financial statements. 47




---



##### Table of Contents



C3ISR
  Year Ended December 31,


Increase /


Year Ended December 31,


Increase /2008


2007


(decrease)


2007


2006


(decrease)($ in millions)Net sales

$
2,566.9


$
2,310.4


$
256.5


$
2,310.4


$
2,025.3


$
285.1Operating income


251.2



231.6



19.6



231.6



215.8



15.8Operating margin


9.8
%


10.0
%


(20
) bpts


10.0
%


10.7
%


(70
) bpts
   2008
    Compared with 2007
  3
  3
  2007
    Compared with 2006
  3
  3
  Government
    Services
  Year Ended December 31,


(Decrease)


Year Ended December 31,2008


2007


increase/


2007


2006


Increase($ in millions)Net sales

$
4,303.0


$
4,333.5


$
(30.5
)

$
4,333.5


$
3,834.4


$
499.1Operating income


421.1



403.5



17.6



403.5



342.9



60.6Operating margin


9.8
%


9.3
%


50
bpts


9.3
%


8.9
%


40
bpts
   2008
    Compared with 2007
   48




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##### Table of Contents



2007
    Compared with 2006
      Aircraft
    Modernization and Maintenance (AM&M)
  Year Ended December 31,


Increase /


Year Ended December 31,


Increase/2008


2007


(decrease)


2007


2006


(decrease)($ in millions)Net sales

$
2,657.4


$
2,527.7


$
129.7


$
2,527.7


$
2,327.5


$
200.2Operating income


240.9



246.6



(5.7
)


246.6



232.6



14.0Operating margin


9.1
%


9.8
%


(70
) bpts


9.8
%


10.0
%


(20
) bpts
   2008
    Compared with 2007
  head-of-state
   49




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##### Table of Contents



2007
    Compared with 2006
  head-of-state
    Specialized
    Products
  Year Ended December 31,





Year Ended December 31,2008


2007


Increase


2007


2006


Increase($ in millions)Net sales

$
5,373.8


$
4,788.9


$
584.9


$
4,788.9


$
4,289.7


$
499.2Operating income


645.8



566.4



79.4



566.4



487.8



78.6Operating margin


12.0
%


11.8
%


20
bpts


11.8
%


11.4
%


40
bpts
   2008
    Compared with 2007
      2007
    Compared with 2006
   50




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##### Table of Contents



Liquidity
    and Capital Resources
  Anticipated
    Sources of Cash Flow
    Balance
    Sheet
   51




---



##### Table of Contents



contracts-in-process
  
    Increases of $138 million in unbilled contract receivables
    primarily due to sales exceeding billings for ISR systems,
    command and control systems and software services, aircraft
    modernization, training services, and intelligence solutions.
    These increases were partially offset by lower sales for
    linguist services; and
    Increases of $24 million in inventoried contract costs
    across several business areas to support customer demand.            Government





Specialized


ConsolidatedC3ISR


Services


AM&M


Products


Total(in millions)Balance at December 31, 2007

$
986


$
2,264


$
1,199


$
3,716


$
8,165Business acquisitions


3



44



3



149



199Completion of Internal Revenue Service (IRS)
    audits(1)


(42
)


(12
)


(44
)


(43
)


(141
)Sale of business














(11
)


(11
)Foreign currency translation
    adjustments(2)


(51
)






(54
)


(78
)


(183
)Balance at December 31, 2008

$
896


$
2,296


$
1,104


$
3,733


$
8,029     (1)
    
    For further discussion regarding
    the completion of IRS audits of L-3s U.S. Federal income
    tax returns for 2004 and 2005, including income tax positions
    taken in connection with certain business acquisitions, see
    Note 16 to our audited consolidated financial statements.(2)
    
    The decrease in goodwill from
    foreign currency translation adjustments is due to the
    strengthening of the U.S. dollar during 2008 against the
    functional currencies of L-3s foreign subsidiaries,
    primarily in Canada, Germany and the United Kingdom.   52




---



##### Table of Contents



Pension
    Plans
        L-3s
 53




---



##### Table of Contents



Statement
    of Cash Flows
    Year Ended December 31,2008


2007


2006(in millions)Net cash from operating activities

$
1,387


$
1,270


$
1,074Net cash used in investing activities


(432
)


(388
)


(1,091
)Net cash used in financing activities


(840
)


(464
)


(29
)   Operating
    Activities
  2008 Compared with 2007.
  2007 Compared with 2006.
  Interest Payments.
  Investing
    Activities
     54




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##### Table of Contents



Financing
    Activities
  Debt
  Senior Credit Facility.
    Debt Issuances.
  Credit Ratings.
  Rating Agency

Senior Debt

Subordinated DebtStandard & Poors


BBB-



BB+Fitch Ratings


BBB-



BB+Moodys Investors Service


Ba2



Ba3     Debt Covenants and Other Provisions.
   55




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##### Table of Contents



Equity
    Cash Dividends




Total DividendsDate Declared

Record Date

Per Share


Date Paid

Paid(in millions)2008February 5

February 19

$
0.30


March 17

$
37April 29

May 16

$
0.30


June 16

$
37July 8

August 18

$
0.30


September 15

$
37October 7

November 17

$
0.30


December 15

$
362007February 6

February 21

$
0.25


March 15

$
31April 24

May 16

$
0.25


June 15

$
32July 10

August 16

$
0.25


September 17

$
32October 9

November 16

$
0.25


December 17

$
31         Contractual
    Obligations
    Payments due by periodLess than








More thanTotal


1 year


1-3 years


3-5 years


5 years(in millions)Contractual ObligationsL-3 Communications long-term
    debt(1)

$
3,850


$



$
650


$
1,150


$
2,050L-3 Holdings long-term
    debt(1)(2)


700















700Interest
    payments(3)


1,676



247



462



359



608Non-cancelable operating
    leases(4)


843



166



283



158



236Notes payable and capital lease obligations


11



1



1







9Purchase
    obligations(5)


2,237



1,811



401



25



Other long-term
    liabilities(6)


239



78
(7)


61



14



86Total(8)

$
9,556


$
2,303


$
1,858


$
1,706


$
3,689  56




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##### Table of Contents



(1)
    
    Represents principal amount of
    long-term debt and only includes scheduled principal payments.(2)
    
    The conversion feature of the CODES
    may require L-3 Holdings to settle the $700 million
    principal amount with the holders of the CODES if L-3 Holdings
    common stock price is more than 120% of the then current
    conversion price (currently $121.36) for a specified period (see
    Note 10 to our audited consolidated financial statements).
    L-3 Holdings stock price on February 23, 2009 was $72.35.(3)
    
    Represents expected interest
    payments on L-3s long-term debt balance as of
    December 31, 2008 using the stated interest rate on our
    fixed rate debt and the variable interest rate in effect at
    December 31, 2008 on the outstanding borrowings under our
    term loan facility, assuming that current borrowings remain
    outstanding to the contractual maturity date.(4)
    
    Non-cancelable operating leases are
    presented net of estimated sublease rental income.(5)
    
    Represents open purchase orders at
    December 31, 2008 for amounts expected to be paid for goods
    or services that are legally binding.(6)
    
    Other long-term liabilities
    primarily consist of workers compensation and deferred
    compensation for the years ending December 31, 2010 and
    thereafter and also include pension and postretirement benefit
    plan contributions that we expect to pay in 2009.(7)
    
    Our pension and postretirement
    benefit plan 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. For 2009, we expect to contribute
    approximately $65 million to our pension plans and
    approximately $13 million to our postretirement benefit
    plans. Due to the current uncertainty of the amounts used to
    compute our expected pension and postretirement benefit plan
    funding, we believe it is not practicable to reasonably estimate
    such future funding for periods in excess of one year and we may
    decide or be required to contribute more than we expect to our
    pension and postretirement plans.(8)
    
    Excludes all income tax
    obligations, a portion of which represents unrecognized tax
    benefits in connection with uncertain tax positions taken, or
    expected to be taken on our income tax returns as of
    December 31, 2008 since we cannot determine the time period
    of future tax consequences. For additional information regarding
    income taxes, see Note 16 to our audited consolidated
    financial statements.  Off
    Balance Sheet Arrangements
    Payments due by period2014 andTotal


2009


2010-2011


2012-2013


thereafter(in millions)Contingent CommitmentsStandby letters of credit under our Senior Credit
    Facility(1)

$
60


$
57


$
3


$



$
Other standby letters of
    credit(1)


312



242



68



2



Other
    guarantees(2)


44







41







3Contingent commitments for earnout payments on business
    acquisitions(3)


64



44



20







Total

$
480


$
343


$
132


$
2


$
3     (1)
    
    Represents outstanding letters of
    credit with financial institutions covering performance and
    financial guarantees per contractual requirements with certain
    customers. These letters of credit may be drawn upon in the
    event of L-3s nonperformance.(2)
    
    Represents the minimum guarantees
    made by L-3 or lessee (i) under the purchase option for
    certain operating leases in which the lease renewal is not
    exercised and (ii) for 50% of certain bank debt related to
    a joint venture arrangement (see Note 18 to our audited
    consolidated financial statements for a description of these
    guarantees).(3)
    
    Represents potential additional
    contingent purchase payments for business acquisitions that are
    contingent upon the post-acquisition financial performance or
    certain other performance conditions of the acquired businesses
    in accordance with the contractual purchase agreement.    Legal
    Proceedings and Contingencies
   57




---



##### Table of Contents



Derivative
    Financial Instruments and Other Market Risk
    Interest Rate Risk.
    Foreign Currency Exchange Risk.
  Year of Maturity2009


2010


2011


2012


2013 and thereafter(in million)Notional value

$
266


$
72


$
35


$
17


$
24   Backlog
    and Orders
    58




---



##### Table of Contents



Percentage ofDecember 31, 2008Funded BacklogFunded Backlog


Expected to beat December 31,


Recorded as


Funded Orders2008


2007


Sales in 2009


2008


2007(in millions)





(in millions)Reportable Segment:C3ISR

$
2,324


$
1,935



84
%

$
2,956


$
2,505Government Services


2,212



1,989



94



4,495



4,412AM&M


1,810



1,496



77



2,971



2,395Specialized Products


5,226



4,151



69



6,110



5,429Consolidated

$
11,572


$
9,571



78
%

$
16,532


$
14,741     Accounting
    Standards Issued and Not Yet Implemented
    Inflation
    Forward-Looking
    Statements
      
    our dependence on the defense industry and the business risks
    peculiar to that industry, including changing priorities or
    reductions in the U.S. Government defense budget;
    our reliance on contracts with a limited number of agencies of,
    or contractors to, the U.S. Government and the possibility
    of termination of government contracts by unilateral government
    action or for failure to perform; 59




---



##### Table of Contents




    the extensive legal and regulatory requirements surrounding our
    contracts with the U.S. or foreign governments and the
    results of any investigation of our contracts undertaken by the
    U.S. or foreign governments;
    our ability to retain our existing business and related
    contracts (revenue arrangements);
    our ability to successfully compete for and win new business and
    related contracts (revenue arrangements) and to win
    re-competitions of our existing contracts;
    our ability to identify and acquire additional businesses in the
    future with terms, including the purchase price, that are
    attractive to L-3 and to integrate acquired business operations;
    our ability to maintain and improve our consolidated operating
    margin and total segment operating margin in future periods;
    our ability to obtain future government contracts (revenue
    arrangements) on a timely basis;
    uncertainties arising from a change in the presidential
    administration;
    the availability of government funding or cost-cutting
    initiatives and changes in customer requirements for our
    products and services;
    our significant amount of debt and the restrictions contained in
    our debt agreements;
    our ability to continue to retain and train our existing
    employees and to recruit and hire new qualified and skilled
    employees, as well as our ability to retain and hire employees
    with U.S. Government security clearances that are a
    prerequisite to compete for and to perform work on classified
    contracts for the U.S. Government;
    actual future interest rates, volatility and other assumptions
    used in the determination of pension, benefits and equity-based
    compensation, as well as the market performance of benefit plan
    assets;
    our collective bargaining agreements, our ability to
    successfully negotiate contracts with labor unions and our
    ability to favorably resolve labor disputes should they arise;
    the business, economic and political conditions in the markets
    in which we operate, including those for the commercial
    aviation, shipbuilding and communications markets;
    global economic uncertainty and continued tightening of the
    credit markets;
    events beyond our control such as acts of terrorism;
    our ability to perform contracts (revenue arrangements) on
    schedule;
    our international operations, including sales to foreign
    customers;
    our extensive use of fixed-price type contracts as compared to
    cost-reimbursable type and
    time-and-material
    type contracts;
    the rapid change of technology and high level of competition in
    the defense industry and the commercial industries in which our
    businesses participate;
    our introduction of new products into commercial markets or our
    investments in civil and commercial products or companies;
    the outcome of current or future litigation matters;
    results of audits by U.S. Government agencies, including
    the Defense Contract Audit Agency, of our sell prices, costs and
    performance on contracts (revenue arrangements), and our
    accounting and general business practices;
    anticipated cost savings from business acquisitions not fully
    realized or realized within the expected time frame; 60




---



##### Table of Contents




    Titans compliance with its plea agreement and consent to
    entry of judgment with the U.S. Government relating to the
    Foreign Corrupt Practices Act (FCPA), including Titans
    ability to maintain its export licenses as well as the outcome
    of other FCPA matters;
    ultimate resolution of contingent matters, claims and
    investigations relating to acquired businesses, and the impact
    on the final purchase price allocations;
    significant increase in competitive pressure among companies in
    our industry; and
    the fair values of our assets, including identifiable intangible
    assets and the estimated fair value of the goodwill balances for
    our reporting units, which can be impaired or reduced by other
    factors, some of which are discussed above.        Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk    Item 8.
    Financial
    Statements and Supplementary Data  page F-1.
  Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Conclusions
    Regarding Effectiveness of Disclosure Controls and
    Procedures
   61




---



##### Table of Contents



Managements
    Report on Internal Control Over Financial
    Reporting
      Internal Control  Integrated
    Framework
  page F-2
  Item 9B:
    Other
    Information   62




---



##### Table of Contents



PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance    Name

Age

PositionMichael T. Strianese


52


Chairman, President and Chief Executive OfficerCurtis Brunson


61


Executive Vice President  Corporate Strategy and
    DevelopmentJimmie V. Adams


72


Senior Vice President  Washington D.C. OperationsDavid T. Butler III


52


Senior Vice President  Business OperationsSteven M. Post


56


Senior Vice President, General Counsel and Corporate SecretaryRobert W. RisCassi


73


Senior Vice PresidentRalph G. DAmbrosio


41


Vice President and Chief Financial OfficerJames W. Dunn


65


Senior Vice President and President of Sensors and Simulation
    GroupSteven Kantor


64


Senior Vice President and President of Marine and Power Systems
    GroupJohn McNellis


56


Senior Vice President and President of Integrated Systems GroupCharles J. Schafer


61


Senior Vice President and President of Products GroupCarl E. Vuono


74


Senior Vice President and President of Services GroupDan Azmon


45


Controller and Principal Accounting OfficerRobert B.
    Millard(1)(3)


58


Director, Lead Independent Director of the Board of Directors
    and Chairman of the Executive CommitteeClaude R.
    Canizares(2)


63


DirectorPeter A.
    Cohen(1)(3)


62


Director, Chairman of the Compensation CommitteeThomas A.
    Corcoran(1)(2)


64


Director, Chairman of the Audit CommitteeJohn M.
    Shalikashvili(3)(4)


72


DirectorArthur L.
    Simon(2)(4)


76


DirectorAlan H.
    Washkowitz(3)(4)


68


Director, Chairman of the Nominating/Corporate Governance
    CommitteeJohn P.
    White(4)


71


Director     (1)
    
    Member of the Executive Committee.(2)
    
    Member of the Audit Committee.(3)
    
    Member of the Compensation
    Committee.(4)
    
    Member of the Nominating/Corporate
    Governance Committee.    Form 10-K.
  Item 11.
    Executive
    Compensation   63




---



##### Table of Contents



Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services   64




---



##### Table of Contents



PART IV  Item 15.
    Exhibits,
    Financial Statement Schedules  (a)(1)  Financial statements filed as part of this
    report:
  PageNumberReport of Independent Registered Public
    Accounting Firm


F-2Consolidated Balance Sheets as of
    December 31, 2008 and December 31, 2007


F-3Consolidated Statements of Operations for the
    years ended December 31, 2008, 2007 and 2006


F-4Consolidated Statements of Shareholders
    Equity for the years ended December 31, 2008, 2007 and
    2006


F-5Consolidated Statements of Cash Flows for the
    years ended December 31, 2008, 2007 and 2006


F-6Notes to Consolidated Financial Statements


F-7   (a)(2)  Financial Statement Schedules
   65




---



##### Table of Contents



Exhibits
    ExhibitNo.

Description of Exhibits3.1


Certificate of Incorporation of L-3 Communications Holdings,
    Inc. (incorporated by reference to Exhibit 3.1 to the
    Registrants Quarterly Report on Form 10-Q for the period
    ended June 30, 2002).3.2


Amended and Restated By-Laws of L-3 Communications Holdings,
    Inc. (incorporated by reference to Exhibit 3.1 to the
    Registrants Current Report on Form 8-K filed on December
    17, 2007).3.3


Certificate of Incorporation of L-3 Communications Corporation
    (incorporated by reference to Exhibit 3.1 to L-3 Communications
    Corporations Registration Statement on Form S-4 (File No.
    333-31649)).3.4


Amended and Restated Bylaws of L-3 Communications Corporation
    (incorporated by reference to Exhibit 3.2 to the
    Registrants Current Report on Form 8-K filed on December
    17, 2007).4.1


Form of Common Stock Certificate (incorporated by reference to
    Exhibit 4.1 to L-3 Communications Holdings Registration
    Statement on Form S-1 (File No. 333-46975)).4.2


Amended and Restated Credit Agreement, dated as of July 29,
    2005, among L-3 Communications Corporation, L-3 Communications
    Holdings, Inc. and certain subsidiaries of the Registrants from
    time to time party thereto as guarantors, the lenders from time
    to time party thereto, and Bank of America, N.A., as
    administrative agent (incorporated by reference to Exhibit 10.40
    to the Registrants Quarterly Report on Form 10-Q for the
    quarter ended June 30, 2005).4.3


Form of L-3 Communications Corporation First Amendment to
    Amended and Restated Credit Agreement, dated as of October 25,
    2006, among L-3 Communications Corporation, L-3 Communications
    Holdings, Inc. and certain subsidiaries of the Registrants from
    time to time party thereto as guarantors, the lenders from time
    to time party thereto, and Bank of America, N.A., as
    administrative agent (incorporated by reference to Exhibit 10.41
    to the Registrants Current Report on Form 8-K dated
    October 25, 2006).4.4


Indenture dated as of June 28, 2002, among L-3 Communications
    Corporation, the guarantors named therein and The Bank of New
    York, as Trustee (incorporated by reference to Exhibit 4.1 of
    L-3 Communications Corporations Registration Statement on
    Form S-4 (File No. 333-99757)).*4.5


Supplemental Indenture dated as of February 20, 2009 among L-3
    Communications Corporation, The Bank of New York, as trustee,
    and the guarantors named therein to the Indenture dated as of
    June 28, 2002 among L-3 Communications Corporation, the
    guarantors named therein and The Bank of New York, as trustee.4.6


Indenture dated as of May 21, 2003 among L-3 Communications
    Corporation, the Guarantors named therein and The Bank of New
    York, as Trustee (incorporated by reference to Exhibit 4.1 to
    L-3 Communications Corporations Registration Statement on
    Form S-4 (File No. 333-106106)).*4.7


Supplemental Indenture dated as of February 20, 2009 among L-3
    Communications Corporation, The Bank of New York, as trustee,
    and the guarantors named therein to the Indenture dated as of
    May 21, 2003 among L-3 Communications Corporation, the
    guarantors named therein and The Bank of New York, as trustee.4.8


Indenture dated as of December 22, 2003 among L-3 Communications
    Corporation, the Guarantors named therein and The Bank of New
    York, as Trustee (incorporated by reference to Exhibit 10.33 to
    the Registrants Annual Report on Form 10-K for the year
    ended December 31, 2003).*4.9


Supplemental Indenture dated as of February 20, 2009 among L-3
    Communications Corporation, The Bank of New York, as trustee,
    and the guarantors named therein to the Indenture dated as of
    December 22, 2003 among L-3 Communications Corporation, the
    guarantors named therein and The Bank of New York, as trustee.4.10


Indenture dated as of November 12, 2004 among L-3 Communications
    Corporation, the Guarantors and The Bank of New York, as Trustee
    (incorporated by reference to Exhibit 4.1 to L-3 Communications
    Corporations Registration Statement on Form S-4 (File No.
    333-122499)).*4.11


Supplemental Indenture dated as of February 20, 2009 among L-3
    Communications Corporation, The Bank of New York, as trustee,
    and the guarantors named therein to the Indenture dated as of
    November 12, 2004 among L-3 Communications Corporation, the
    guarantors named therein and The Bank of New York, as trustee.4.12


Indenture dated as of July 29, 2005 (Notes Indenture) among L-3
    Communications Corporation, the guarantors named therein and The
    Bank of New York, as Trustee (incorporated by reference to
    Exhibit 10.69 to the Registrants Quarterly Report on Form
    10-Q for the quarter ended June 30, 2005). 66




---



##### Table of Contents



ExhibitNo.

Description of Exhibits*4.13


Supplemental Indenture dated as of February 20, 2009 among L-3
    Communications Corporation, The Bank of New York, as trustee,
    and the guarantors named therein to the Notes Indenture dated as
    of July 29, 2005 among L-3 Communications Corporation, the
    guarantors named therein and The Bank of New York, as trustee.4.14


Indenture dated as of July 29, 2005 (CODES Indenture) among L-3
    Communications Holdings, Inc., the guarantors named therein and
    The Bank of New York, as Trustee (incorporated by reference to
    Exhibit 10.70 to the Registrants Quarterly Report on Form
    10-Q for the quarter ended June 30, 2005).*4.15


Supplemental Indenture dated as of February 20, 2009 among L-3
    Communications Holdings, Inc., The Bank of New York, as trustee,
    and the guarantors named therein to the CODES Indenture dated as
    of July 29, 2005 among L-3 Communications Holdings, Inc., the
    guarantors named therein and The Bank of New York, as trustee.10.1


L-3 Communications Holdings, Inc. 1997 Option Plan for Key
    Employees (incorporated by reference to Exhibit 10.91 to L-3
    Communications Holdings, Inc.s Registration Statement on
    Form S-1, No. 333-46975).10.2


Form of L-3 Communications Holdings, Inc. 1997 Option Plan for
    Key Employees Nonqualified Stock Option Agreement (incorporated
    by reference to Exhibit 10.9 to L-3 Communications Holdings,
    Inc.s Registration Statement on Form S-1 No. 333-46975).10.3


L-3 Communications Holdings, Inc. Amended and Restated
    1998 Directors Stock Option Plan for Non-Employee Directors
    (incorporated by reference to Exhibit 10.16 to the
    Registrants Annual Report on Form 10-K for the year ended
    December 31, 2006).10.4


Form of L-3 Communications Holdings, Inc. 1998 Directors
    Stock Option Plan Nonqualified Stock Option Agreement
    (incorporated by reference to Exhibit 10.96 of the
    Registrants Annual Report on Form 10-K for the year ended
    December 31, 2004).10.5


Form of L-3 Communications Holdings, Inc. 1998 Directors
    Stock Option Plan Nonqualified Stock Option Agreement (2007
    Version) (incorporated by reference to Exhibit 10.3 of the
    Registrants Annual Report on Form 10-K for the year ended
    December 31, 2008).10.6


L-3 Communications Holdings, Inc. Amended and Restated 1999 Long
    Term Performance Plan (Conformed copy reflecting all amendments
    through February 11, 2008) (incorporated by reference to Exhibit
    10.4 of the Registrants Annual Report on Form 10-K for the
    year ended December 31, 2008).10.7


Form of L-3 Communications Holdings, Inc. 1999 Long Term
    Performance Plan Nonqualified Stock Option Agreement
    (incorporated by reference to Exhibit 10.97 of the
    Registrants Quarterly Report on Form 10-Q for the period
    ended September 30, 2004).10.8


Form of L-3 Communications Holdings, Inc. 1999 Long Term
    Performance Plan Nonqualified Stock Option Agreement (2006
    Version) (incorporated by reference to Exhibit 10.64 to the
    Registrants Annual Report on Form 10-K for the year ended
    December 31, 2006).10.9


Form of L-3 Communication Holdings, Inc. 1999 Long Term
    Performance Plan Restricted Stock Agreement (incorporated by
    reference to Exhibit 10.99 of the Registrants Annual
    Report on Form 10-K for the year ended December 31, 2005).10.10


Form of L-3 Communications Holdings, Inc. 1999 Long Term
    Performance Plan Restricted Stock Unit Agreement (2006 Version)
    (incorporated by reference to Exhibit 10.63 to the
    Registrants Annual Report on Form 10-K for the year ended
    December 31, 2006).10.11


L-3 Communications Holdings, Inc. 1999 Long Term Performance
    Plan Amendment No. 1 to Restricted Stock Unit Agreements
    (incorporated by reference to Exhibit 10.6 of the
    Registrants Quarterly Report on Form 10-Q for the period
    ended June 27, 2008).10.12


Form of L-3 Communications Holdings, Inc. 1999 Long Term
    Performance Plan Performance Unit Agreement (incorporated by
    reference to Exhibit 99.1 to the Registrants Current
    Report on Form 8-K filed on August 7, 2007).10.13


Form of L-3 Communications Holdings, Inc. 1999 Long Term
    Performance Plan Performance Unit Agreement Award Notice
    (incorporated by reference to Exhibit 99.2 to the
    Registrants Current Report on Form 8-K filed on August 7,
    2007).*10.14


L-3 Communications Holdings, Inc. 2008 Long Term Performance
    Plan.10.15


Form of L-3 Communications Holdings, Inc. 2008 Long Term
    Performance Plan Nonqualified Stock Option Agreement
    (incorporated by reference to Exhibit 10.2 of the
    Registrants Quarterly Report on Form 10-Q for the period
    ended June 27, 2008). 67




---



##### Table of Contents



ExhibitNo.

Description of Exhibits10.16


Form of L-3 Communications Holdings, Inc. 2008 Long Term
    Performance Plan Restricted Stock Unit Agreement (incorporated
    by reference to Exhibit 10.3 of the Registrants Quarterly
    Report on Form 10-Q for the period ended June 27, 2008).*10.17


Form of L-3 Communications Holdings, Inc. 2008 Long Term
    Performance Plan Restricted Stock Unit Agreement (2009 Version).10.18


Form of L-3 Communications Holdings, Inc. 2008 Long Term
    Performance Plan Performance Unit Agreement (incorporated by
    reference to Exhibit 10.4 of the Registrants Quarterly
    Report on Form 10-Q for the period ended June 27, 2008).10.19


Form of L-3 Communications Holdings, Inc. 2008 Long Term
    Performance Plan Performance Unit Award Notice (2008 Version)
    (incorporated by reference to Exhibit 10.5 of the
    Registrants Quarterly Report on Form 10-Q for the period
    ended June 27, 2008).*10.20


L-3 Communications Holdings, Inc. 2008 Directors Stock
    Incentive Plan.*10.21


L-3 Communications Holdings, Inc. Amended and Restated Change in
    Control Severance Plan.*10.22


L-3 Communications Corporation Amended and Restated Supplemental
    Executive Retirement Plan.10.23


L-3 Communications Corporation Deferred Compensation Plan I
    (incorporated by reference to Exhibit 10.15 of the
    Registrants Annual Report on Form 10-K for the year ended
    December 31, 2008).10.24


Amendment No. 1 to the L-3 Communications Corporation Deferred
    Compensation Plan I (incorporated by reference to Exhibit 10.16
    of the Registrants Annual Report on Form 10-K for the year
    ended December 31, 2008).*10.25


L-3 Communications Corporation Deferred Compensation Plan II.*10.26


MPRI Long Term Deferred Incentive Plan.**11


L-3 Communications Holdings, Inc. Computation of Basic Earnings
    Per Share and Diluted Earnings Per Share.*12


Ratio of Earnings to Fixed Charges.*18


Preferability Letter of PricewaterhouseCoopers LLP.*21


Subsidiaries of the Registrant.*23


Consent of PricewaterhouseCoopers LLP.*31.1


Certification of President and Chief Executive Officer pursuant
    to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange
    Act, as amended.*31.2


Certification of Vice President and Chief Financial Officer
    pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities
    and Exchange Act, as amended.*32


Section 1350 Certification.     *
    
    Filed herewith.**
    
    The information required in this
    exhibit is presented in Note 15 to the audited consolidated
    financial statements as of December 31, 2008 in accordance
    with the provisions of SFAS No. 128, Earnings Per
    Share.
    
    Represents management contract,
    compensatory plan or arrangement in which directors and/or
    executive officers are eligible to participate. 68




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##### Table of Contents



Signatures    
  By:
    /s/  Ralph
    G. DAmbrosio  Title:
    Vice President and Chief Financial
    Officer    Signature

Title/s/  Michael
    T. StrianeseMichael
    T. Strianese

Chairman, President and Chief Executive Officer
    (Principal Executive Officer) and Director/s/  Ralph
    G. DAmbrosioRalph
    G. DAmbrosio

Vice President and Chief Financial Officer 
    (Principal Financial Officer)/s/  Dan
    AzmonDan
    Azmon

Controller and Principal Accounting Officer/s/  Robert
    B. MillardRobert
    B. Millard

Director/s/  Claude
    R. CanizaresClaude
    R. Canizares

Director/s/  Peter
    A. CohenPeter
    A. Cohen

Director/s/  Thomas
    A. CorcoranThomas
    A. Corcoran

Director/s/  John
    M. ShalikashviliJohn
    M. Shalikashvili

Director/s/  Arthur
    L. SimonArthur
    L. Simon

Director/s/  Alan
    H. WashkowitzAlan
    H. Washkowitz

Director/s/  John
    P. WhiteJohn
    P. White

Director  69




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##### Table of Contents



INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
    Report of Independent Registered Public Accounting Firm


F-2Consolidated Balance Sheets as of December 31, 2008 and
    December 31, 2007


F-3Consolidated Statements of Operations for the years ended
    December 31, 2008, 2007 and 2006


F-4Consolidated Statements of Shareholders Equity for the
    years ended December 31, 2008, 2007 and 2006


F-5Consolidated Statements of Cash Flows for the years ended
    December 31, 2008, 2007 and 2006


F-6Notes to Consolidated Financial Statements


F-7  F-1




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm    Internal Control - Integrated
    Framework
  Employers Accounting for
    Defined Benefit Pension and Other Postretirement Plans - an
    amendment of FASB Statements No. 87, 88, 106, and 132(R)
           F-2




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATIONCONSOLIDATED BALANCE SHEETS
    (in millions, except share data)
  December 31,2008


2007ASSETSCurrent assets:Cash and cash equivalents

$
867


$
780Billed receivables, net of allowances of $26 in 2008 and $21 in
    2007


1,226



1,279Contracts in process


2,267



2,099Inventories


259



249Deferred income taxes


211



246Other current assets


131



110Total current assets


4,961



4,763Property, plant and equipment, net


821



754Goodwill


8,029



8,165Identifiable intangible assets


417



441Deferred debt issue costs


45



56Other assets


212



212Total assets

$
14,485


$
14,391LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable, trade

$
602


$
571Accrued employment costs


700



633Accrued expenses


479



369Advance payments and billings in excess of costs incurred


530



463Income taxes


45



63Other current liabilities


351



483Total current liabilities


2,707



2,582Pension and postretirement benefits


802



450Deferred income taxes


110



245Other liabilities


414



501Long-term debt


4,538



4,537Total liabilities


8,571



8,315Commitments and contingencies (see Note 18)Minority interests


83



87Shareholders equity:L-3 Holdings common stock: $.01 par value;
    300,000,000 shares authorized, 118,633,746 shares
    outstanding at December 31, 2008 and
    124,174,825 shares outstanding at December 31, 2007
    (L-3 Communications common stock: $.01 par value,
    100 shares authorized, issued and outstanding)


4,072



3,753L-3 Holdings treasury stock (at cost),
    13,995,450 shares at December 31, 2008 and
    5,533,159 shares at December 31, 2007


(1,319
)


(525
)Retained earnings


3,410



2,608Accumulated other comprehensive (loss) income


(332
)


153Total shareholders equity


5,831



5,989Total liabilities and shareholders equity

$
14,485


$
14,391    F-3




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS
    (in millions, except per share data)
  Year Ended December 31,2008


2007


2006Net sales:Products

$
7,130


$
6,572


$
5,933Services


7,771



7,389



6,544Total net sales


14,901



13,961



12,477Cost of sales:Products (excludes stock-based charge of $24 in 2006)


6,380



5,844



5,272Services (excludes stock-based charge of $15 in 2006)


6,962



6,669



5,926Total cost of sales


13,342



12,513



11,198Litigation gain (charge)


126







(129
)Stock-based charge










(39
)Operating income


1,685



1,448



1,111Interest and other income, net


28



31



20Interest expense


271



296



296Minority interests in net income of consolidated subsidiaries


11



9



10Income from continuing operations before income taxes


1,431



1,174



825Provision for income taxes


502



418



299Income from continuing operations


929



756



526Gain on sale of a business, net of income taxes of
    $13 million


20







Net income

$
949


$
756


$
526L-3 Holdings earnings per common share:Basic:Income from continuing operations

$
7.66


$
6.05


$
4.27Gain on sale of a business, net of income taxes

$
0.17







Net income

$
7.83


$
6.05


$
4.27Diluted:Income from continuing operations

$
7.56


$
5.98


$
4.22Gain on sale of a business, net of income taxes

$
0.16







Net income

$
7.72


$
5.98


$
4.22L-3 Holdings weighted average common shares outstanding:Basic


121.2



124.9



123.1Diluted


122.9



126.5



124.8    F-4




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATIONCONSOLIDATED STATEMENTS OF SHAREHOLDERS
    EQUITY
  For the
    Years Ended December 31, 2008, 2007 and 2006
    (in millions, except per share data)
  L-3 Holdings














AccumulatedCommon Stock


Additional











Other


TotalShares


Par


Paid-in


Treasury


Retained


Unearned


Comprehensive


ShareholdersIssued


Value


Capital


Stock


Earnings


Compensation


(Loss) Income


EquityBalance at December 31, 2005


120.4


$
1


$
3,040


$



$
1,545


$
(18
)

$
(77
)

$
4,491Comprehensive income:Net income


















526











526Minimum pension liability, net of income taxes of $14


























21



21Foreign currency translation adjustment, net of income taxes of
    $1


























123



123Unrealized losses on hedging instruments, net of income taxes of
    $4


























(7
)


(7
)Total comprehensive income






























663Adjustment to adopt SFAS 158, net of income taxes of $70


























(109
)


(109
)Cash dividends paid on common stock ($0.75 per share)


















(93
)










(93
)Shares issued:Employee savings plans


1.4







111



















111Exercise of stock options


3.0







132



















132Employee stock purchase plan


0.9







60



















60Stock-based compensation expense










78



















78Treasury stock purchased


(0.3
)










(25
)














(25
)Reclassification to adopt SFAS 123(R)










(18
)










18







Other


(0.2
)






(2
)


















(2
)Balance at December 31, 2006


125.2



1



3,401



(25
)


1,978







(49
)


5,306Adoption of SFAS 158 measurement date provision


















(4
)






39



35Cumulative effect adjustment of FIN 48


















4











4Comprehensive income:Net income


















756











756Pension and postretirement benefit plans:Net gain arising during the period, net of income taxes of $10


























18



18Net prior service cost arising during the period, net of income
    taxes of $1


























(2
)


(2
)Amortization of net loss, net of income taxes of $5


























9



9Amortization of prior service cost (credit), net of income taxes
    of $1


























(1
)


(1
)Foreign currency translation adjustment


























135



135Unrealized gains on hedging instruments, net of income taxes of
    $3


























4



4Total comprehensive income






























919Cash dividends paid on common stock ($1.00 per share)


















(126
)










(126
)Shares issued:Employee savings plans


1.3







125



















125Exercise of stock options


1.6







112



















112Employee stock purchase plan


0.8







65



















65Stock-based compensation expense










53



















53Treasury stock purchased


(5.2
)










(500
)














(500
)Other


0.5







(4
)


















(4
)Balance at December 31, 2007


124.2



1



3,752



(525
)


2,608







153



5,989Comprehensive income:Net income


















949











949Pension and postretirement benefit plans:Net loss arising during the period, net of income taxes of $174


























(271
)


(271
)Net prior service cost arising during the period, net of income
    taxes of $1


























(1
)


(1
)Amortization of net loss, net of income taxes of $2


























3



3Foreign currency translation adjustment


























(222
)


(222
)Unrealized gains on hedging instruments, net of income taxes of
    $4


























6



6Total comprehensive income






























464Cash dividends paid on common stock ($1.20 per share)


















(147
)










(147
)Shares issued:Employee savings plans


1.5







141



















141Exercise of stock options


0.7







51



















51Employee stock purchase plan


0.8







69



















69Stock-based compensation expense










64



















64Treasury stock purchased


(8.5
)










(794
)














(794
)Other


(0.1
)






(6
)


















(6
)Balance at December 31, 2008


118.6


$
1


$
4,071


$
(1,319
)

$
3,410


$



$
(332
)

$
5,831    F-5




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
 CONSOLIDATED
    STATEMENTS OF CASH FLOWS(in millions) Year Ended December 31,2008


2007


2006Operating activities:Net income

$
949


$
756


$
526Depreciation of property, plant and equipment


152



150



136Amortization of intangibles and other assets


54



57



53Deferred income tax provision


161



113



128Stock-based compensation expense


64



53



47Contributions to employee savings plans in L-3 Holdings
    common stock


141



125



111Non-cash portion of stock-based charge










31Amortization of deferred debt issue costs (included in interest
    expense)


11



10



10Gain on sale of a business


(20
)






Impairment charge


28







Gain on sale of a product line


(12
)






Other non-cash items


12



19



4Subtotal


1,540



1,283



1,046Changes in operating assets and liabilities, excluding acquired
    amounts:Billed receivables


49



(51
)


(34
)Contracts in process


(162
)


(188
)


(133
)Inventories


(25
)


4



8Accounts payable, trade


31



90



(8
)Accrued employment costs


66



51



75Accrued expenses


81



65



11Advance payments and billings in excess of costs incurred


101



(2
)


44Income taxes


(2
)


116



106Excess income tax benefits related to share-based payment
    arrangements


(10
)


(17
)


(63
)Other current liabilities


(128
)


(9
)


89Pension and postretirement benefits


(81
)


(10
)


(68
)All other operating activities


(73
)


(62
)


1Subtotal


(153
)


(13
)


28Net cash from operating activities


1,387



1,270



1,074Investing activities:Business acquisitions, net of cash acquired


(283
)


(235
)


(943
)Proceeds from sale of a business and product lines


63







Capital expenditures


(218
)


(157
)


(156
)Dispositions of property, plant and equipment


15



8



2Other investing activities


(9
)


(4
)


6Net cash used in investing activities


(432
)


(388
)


(1,091
)Financing activities:Borrowings under revolving credit facility










864Repayment of borrowings under revolving credit facility










(864
)Repayment of borrowings under term loan facility










(100
)Common stock repurchased


(794
)


(500
)


(25
)Cash dividends paid on L-3 Holdings common stock


(147
)


(126
)


(93
)Proceeds from exercise of stock options


40



89



74Proceeds from employee stock purchase plan


69



65



60Excess income tax benefits related to share-based payment
    arrangements


10



17



63Other financing activities


(18
)


(9
)


(8
)Net cash used in financing activities


(840
)


(464
)


(29
)Effect of foreign currency exchange rate changes on cash and
    cash equivalents


(28
)


14



Net increase (decrease) in cash and cash equivalents


87



432



(46
)Cash and cash equivalents, beginning of the year


780



348



394Cash and cash equivalents, end of the year

$
867


$
780


$
348    F-6




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS
  1.
    Description
    of Business  3
  3 3
  2.
    Summary
    of Significant Accounting Policies  Basis of Presentation:
 F-7




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Principles of Consolidation:
  Cash and Cash Equivalents:
  Contracts in Process: 81-1, Accounting for Performance of Construction-Type and Certain
    Production-Type Contracts (SOP 81-1), Government Contracts, Cost-Plus-Fixed Fee
    Contracts , Long-Term Construction Type
    Contracts
 F-8




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Inventory:
  Property, Plant and Equipment:
  Goodwill: Goodwill and other Intangible
    Assets
  Accounting Changes and Error Corrections
    Identifiable Intangible Assets:
 F-9




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Revenue Recognition: time-and-material (time-and-material).
  SOP 81-1, catch-up
  SOP 81-1, SOP 81-1
    Revenue Recognition SOP 81-1,
 F-10




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Research and Development: Accounting for Research and Development
    Costs SOP 81-1 Audits of Federal
    Government Contractors
    Computer Software Costs: Accounting for the Costs of Computer
    Software to Be Sold, Leased or Otherwise Marketed
  Product Warranties:
 F-11




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2008


2007(in millions)Accrued product warranty
    costs(1):Balance at January 1

$
98


$
92Acquisitions during this period


5



Accruals for product warranties issued during the period


44



44Changes to accruals for product warranties existing before
    January 1


2



5Foreign currency translation adjustments


(3
)


2Settlements made during the period


(44
)


(45
)Balance at December 31

$
102


$
98    (1)
    
    Warranty obligations incurred in
    connection with long-term production contracts are accounted for
    within the contract estimates at completion (EACs) and are
    excluded from the above amounts. The balance at end of period
    includes both long-term and short-term amounts.  Deferred Debt Issue Costs:
  Derivative Financial Instruments:
  Translation of Foreign Currency and Foreign Currency
    Transactions:
  Stock-Based Compensation: Share-Based Payment
 F-12




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Accounting
    for Stock-Based Compensation ,
    Accounting for Stock Issued to Employees
  Income Taxes:
  Accounting for Uncertainty in Income Taxes 
    an interpretation of FASB Statement 109
  Accounting Standards Issued and Not Yet
    Implemented: Employers
    Disclosures about Pensions and Other Postretirement
    Benefit Employers Disclosures
    about Pensions and Other Postretirement Benefits
  03-6-1, Determining Whether Instruments Granted in Share-Based
    Payment Transactions Are Participating Securities EITF 03-6-1). EITF 03-6-1
 F-13




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  EITF 03-6-1 EITF 03-6-1. EITF 03-6-1
  Basic


DilutedEPS


EPSYear ended December 31, 2006

$
(0.02
)

$
(0.02
)Year ended December 31, 2007

$
(0.04
)

$
(0.03
)Year ended December 31, 2008

$
(0.06
)

$
(0.04
)   Bulletin 14-1, Accounting for Convertible Debt Instruments That May Be
    Settled in Cash upon Conversion (Including Partial Cash
    Settlement) 14-1). 14-1 Accounting for Convertible Debt and Debt Issued
    with Stock Purchase Warrants, 14-1 14-1
  December 31,


December 31,


December 31,2008


2007


2006(in millions)increase/(decrease)Financial PositionDeferred debt issue costs

$
(1.2
)

$
(1.7
)

$
(2.2
)Long-term debt

$
(45.4
)

$
(65.2
)

$
(83.8
)Deferred income tax liability

$
17.7


$
25.4


$
32.6Shareholders equity

$
26.5


$
38.1


$
49.0   Net


DilutedIncome


EPSYear ended December 31, 2006

$
(10.1
)

$
(0.08
)Year ended December 31, 2007

$
(10.9
)

$
(0.09
)Year ended December 31, 2008

$
(11.5
)

$
(0.09
)   Disclosures about Derivative Instruments and Hedging
    Activities Accounting for Derivative Instruments
    and Hedging Activities
 F-14




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Business Combinations Business Combinations
  Noncontrolling Interests in Consolidated Financial Statements Consolidated Financial Statements.
  3.
    Review of
    Past Stock Option Granting Practices       F-15




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          Net Income as


Net Income if





%Period

Reported


Adjusted


Decrease


Decrease(in millions)1998

$
32.6


$
32.3


$
0.3



0.9
%1999


58.7



57.8



0.9



1.52000


82.7



81.7



1.0



1.22001


115.5



113.4



2.1



1.82002


178.1



173.1



5.0



2.82003


277.6



271.8



5.8



2.12004


381.9



377.5



4.4



1.22005


508.5



507.8



0.7



0.1Q1 2006


138.9



138.7



0.2



0.1Total

$
1,774.5


$
1,754.1


$
20.4   paid-in-capital
 F-16




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Materiality
    4.
    Acquisitions
    and Dispositions    2008
    Business Acquisitions
    Segment

December 31, 2008(in millions)Specialized Products

$
150Government Services


37Total

$
187    F-17




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    
    All of the outstanding stock of International Resources Group
    Ltd. (IRG) on December 3, 2008. IRG is an
    international professional services firm that provides
    specialized management, policy and training support in the areas
    of energy, environment and natural resource management, relief
    and reconstruction, and economic development to
    U.S. Government agencies and international development
    organizations;
    All of the outstanding stock of G.A. International Electronics
    and subsidiaries (GAI) on July 25, 2008. Headquartered in
    Florida, GAI provides repair services and retrofit installation
    of navigation and communication systems for cruise vessels and
    cargo ships. The purchase price for GAI is subject to additional
    consideration not to exceed $1 million that is contingent
    upon its post-acquisition financial performance through
    July 25, 2011;
    All of the assets and liabilities of the Northrop Grumman
    Electro-Optical Systems (EOS) business on April 21, 2008.
    The EOS business is a provider of night vision technology and
    electro-optical products for military, commercial and public
    safety customers;
    On April 4, 2008, the Company increased its ownership
    interest in its Medical Education Technologies, Inc. (METI)
    business from 80% to 85% for a purchase price of
    $3 million. This business supplies human patient and
    surgical simulators, as well as related educational products. On
    October 8, 2008, the Company sold its 85% ownership
    interest in METI, as described below under 2008 Business and
    Product Line Dispositions; and
    All of the outstanding stock of HSA Systems Pty Ltd. (HSA) on
    March 14, 2008. HSA is a provider of geospatial, marine and
    electronic systems for maritime and defense customers.      2007
    Business Acquisitions
   F-18




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Segment

December 31, 2008(in millions)Specialized Products

$
146Government Services


32Total

$
178     
    All of the outstanding stock of Geneva Aerospace, Inc. (Geneva)
    on January 31, 2007. The Geneva acquisition is subject to
    additional consideration not to exceed $13 million, which
    is contingent upon its post acquisition financial performance
    for the year ending December 31, 2009. Geneva is a provider
    of guidance and navigation systems for unmanned aerial vehicles;
    All of the outstanding stock of Global Communication Solutions,
    Inc. (GCS) on May 4, 2007. GCS is a provider of satellite
    communications systems that integrate data, broadband internet,
    telephony, multimedia, audio, video and computer networking;
    All of the outstanding stock of APSS S.r.l. (APSS) on
    August 31, 2007. APSS is a provider of mechanical, electric
    and automation systems for ships; and
    All of the outstanding stock of MKI Systems, Inc. (MKI) on
    December 3, 2007. MKI focuses on acquisition, logistics and
    program management for the DoD, especially the Marine Corps.    2006
    Business Acquisitions
   F-19




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Segment

December 31, 2008(in millions)Specialized Products

$
491C3 ISR


210AM&M


144Government Services


4Total

$
849
     
    All of the outstanding stock of SAM Electronics GmbH (SAM) on
    January 31, 2006, for $189 million in cash, plus
    acquisition costs. SAM, which has its principal operations in
    Germany, is a manufacturer and supplier of maritime electrical
    and electronic systems to commercial shipyards and international
    navies;
    All of the outstanding stock of SafeView, Inc. (SafeView) on
    March 9, 2006, and CyTerra Corporation (CyTerra) on
    March 21, 2006, for an aggregate purchase price of
    $190 million in cash, plus additional consideration, not to
    exceed $35 million, which is contingent upon
    SafeViews financial performance through December 31,
    2008. The remaining contractual purchase price is currently
    subject to an arbitration proceeding, see Note 18. SafeView
    is a developer and manufacturer of non-invasive security systems
    and portals for military and public safety use, including
    airports. CyTerra is a leader in the development and manufacture
    of a number of sophisticated sensors with threat detection
    capabilities for the military and homeland security markets;
    Increased its ownership in METI on April 4, 2006 from
    approximately 47% to 80% for a purchase price of
    $11 million in cash.
    All of the outstanding stock of SSG Precision Optronics, Inc.
    (SSG) on June 1, 2006, for $68 million in cash. SSG
    specializes in optics, telescopes and precision optical
    subsystems for government, military and commercial customers;
    All of the outstanding stock of Nautronix Defense Group
    (Nautronix) on June 1, 2006 for $71 million in cash,
    plus additional consideration, not to exceed $2 million,
    which is contingent upon certain contract awards to Nautronix
    through 2010. Nautronix is a leader in through-water
    communications, acoustic ranges and positioning technology;
    All of the outstanding stock of Crestview Aerospace Corporation
    (Crestview) on June 29, 2006 for $153 million in cash,
    part of which was used for the payoff of mortgages on
    facilities. The purchase price includes a $6 million
    increase based on final closing date net assets. Crestview
    provides aircraft structures, major airframe assemblies and
    military aircraft modifications for leading prime contractors
    and original equipment manufacturers;
    All of the outstanding stock of TRL Electronics plc (TRL) for
    $165 million in cash and $6 million in notes payable
    issued by the Company to certain shareholders of TRL, which were
    due and paid on March 30, 2007. The Company acquired a
    controlling ownership interest in TRL on July 12, 2006.
    TRL, which has its principal operations in the United Kingdom,
    offers advanced radio and satellite F-20




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    
    All of the outstanding stock of Nova Engineering (Nova) on
    October 25, 2006, for $47 million in cash, plus
    additional consideration, not to exceed $5 million, which
    is contingent upon its financial performance through the year
    ending December 31, 2010. Nova offers engineering services
    plus unique commercial-off-the-shelf products, including mobile
    ad hoc networking routers, flight test telemetry equipment and
    sensor communications systems. Nova products and services
    support critical defense programs as well as industrial and
    public safety customers; and
    All of the outstanding stock of Advanced Systems Architectures
    Ltd. (ASA) on January 25, 2006, TCS on January 26,
    2006, Magnet-Motor on March 20, 2006, gForce Technologies,
    Inc. (gForce) on October 12, 2006 and TACNET on
    November 27, 2006 for an aggregate purchase price of
    $72 million in cash, plus additional consideration, not to
    exceed $1 million, which is contingent upon the financial
    performance of TACNET through December 31, 2010. ASA is a
    systems engineering and software developer of multi-sensor
    fusion and tracking systems for military applications. TCS
    specializes in fixed and rotary wing aircraft and avionics
    system engineering services for the U.S. Air Force. TACNET
    provides an integrated suite of electronics designed for use in
    a variety of law enforcement vehicles.    Unaudited
    Pro Forma Statements of Operations Data
    Year Ended December 31,2008


2007


2006(in millions, except per share data)Pro forma net sales

$
15,024


$
14,307


$
12,783Pro forma net income

$
949


$
756


$
517Pro forma diluted earnings per share

$
7.72


$
5.98


$
4.14     2008
    Business and Product Line Dispositions
  Accounting for Impairment or
    Disposal of Long-Lived Assets.
 F-21




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      5.
    Contracts
    in Process    December 31,2008


2007(in millions)Unbilled contract receivables, gross

$
2,026


$
1,876Less: unliquidated progress payments


(409
)


(391
)Unbilled contract receivables, net


1,617



1,485Inventoried contract costs, gross


754



673Less: unliquidated progress payments


(104
)


(59
)Inventoried contract costs, net


650



614Total contracts in process

$
2,267


$
2,099   Unbilled Contract Receivables. time-and-material
 F-22




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Unliquidated Progress Payments.
  Inventoried Contract Costs. SOP 81-1 Audits of Federal
    Government Contractors,
    Year Ended December 31,2008


2007


2006(in millions)Amounts included in inventoried contract costs at beginning of
    the year

$
68


$
59


$
56Add:  Contract costs
    incurred(1)


1,272



1,150



1,040Amounts included in acquired inventoried contract
    costs


6







3Less:  Amounts charged to cost of sales


(1,272
)


(1,141
)


(1,040
)Amounts included in inventoried contract costs at end of the year

$
74


$
68


$
59     (1)
    
    Incurred costs include IRAD and
    B&P costs of $287 million for 2008, $263 million
    for 2007 and $243 million for 2006.    Year Ended December 31,2008


2007


2006(in millions)Selling, general and administrative expenses

$
290


$
266


$
216Research and development expenses


86



93



77Total

$
376


$
359


$
293  F-23




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  6.
    Inventories  Inventories at Lower of Cost or Market.
  December 31,2008


2007(in millions)Raw materials, components and sub-assemblies

$
95


$
106Work in process


121



106Finished goods


43



37Total

$
259


$
249   7.
    Goodwill
    and Identifiable Intangible Assets  Goodwill. Business Combinations
   F-24




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Government





Specialized


ConsolidatedC3ISR


Services


AM&M


Products


Total(in millions)Balance at December 31, 2007

$
986


$
2,264


$
1,199


$
3,716


$
8,165Business acquisitions


3



44



3



149



199Completion of Internal Revenue Service (IRS)
    audits(1)


(42
)


(12
)


(44
)


(43
)


(141
)Sale of business














(11
)


(11
)Foreign currency translation
    adjustments(2)


(51
)






(54
)


(78
)


(183
)Balance at December 31, 2008

$
896


$
2,296


$
1,104


$
3,733


$
8,029     (1)
    
    For further discussion regarding
    the completion of IRS audits of L-3s U.S. Federal income
    tax returns for 2004 and 2005, including income tax positions
    taken in connection with certain business acquisitions, see
    Note 16.(2)
    
    The decrease in goodwill from
    foreign currency translation adjustments is due to the
    strengthening of the U.S. dollar during 2008 against the
    functional currencies of L-3s foreign subsidiaries,
    primarily in Canada, Germany and the United Kingdom.    Identifiable Intangible Assets.
 F-25




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31, 2008Weighted











December 31, 2007Average


Gross





Net


Gross





NetAmortization


Carrying


Accumulated


Carrying


Carrying


Accumulated


CarryingPeriod


Amount


Amortization


Amount


Amount


Amortization


Amount(in years)


(in millions)Customer contractual relationships


23


$
505


$
124


$
381


$
488


$
92


$
396Technology


8



76



47



29



73



36



37Other, primarily favorable leasehold interests


8



14



7



7



14



6



8Total


22


$
595


$
178


$
417


$
575


$
134


$
441     Year Ended December 31,2008


2007


2006(in millions)Amortization expense

$
45


$
47


$
41     Year Ending December 31,2009


2010


2011


2012


2013(in millions)Estimated amortization expense

$
51


$
51


$
46


$
37


$
29    F-26




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  8.
    Other
    Current Liabilities and Other Liabilities    December 31,2008


2007(in millions)Other Current Liabilities:Accruals for pending and threatened litigation (see Note 18)

$
4


$
134Accrued product warranty costs


97



98Accrued interest


66



74Estimated costs in excess of estimated contract value to
    complete contracts in process in a loss position


58



58Deferred revenues


25



13Aggregate purchase price payable for acquired businesses






10Other


101



96Total other current liabilities

$
351


$
483     December 31,2008


2007(in millions)Other Liabilities:Non-current income taxes payable (see Note 16)

$
177


$
238Deferred compensation


79



79Accrued workers compensation


45



41Unfavorable lease obligations


8



12Non-current portion of net deferred gains from terminated
    interest rate swap agreements


9



12Notes payable and capital lease obligations


10



11Accrued product warranty costs


5



Accruals for pending and threatened litigation (see Note 18)






5Other non-current liabilities


81



103Total other liabilities

$
414


$
501  F-27




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  9.
    Property,
    Plant and Equipment  December 31,2008


2007(in millions)Land

$
55


$
49Buildings and improvements


257



236Machinery, equipment, furniture and fixtures


1,055



935Leasehold improvements


272



246Gross property, plant and equipment


1,639



1,466Less: Accumulated depreciation and amortization


(818
)


(712
)Property, plant and equipment, net

$
821


$
754   10.
    Debt    December 31,2008


2007(in millions)L-3 Communications:Borrowings under Revolving Credit Facility

$



$
Borrowings under Term Loan Facility maturing
    2010(1)


650



65075/8% Senior
    Subordinated Notes due 2012


750



75061/8% Senior
    Subordinated Notes due 2013


400



40061/8% Senior
    Subordinated Notes due 2014


400



40057/8% Senior
    Subordinated Notes due 2015


650



65063/8% Senior
    Subordinated Notes due 2015


1,000



1,000Subtotal


3,850



3,850L-3 Holdings:3% Convertible Contingent Debt Securities due 2035


700



700Principal amount of long-term debt


4,550



4,550Less: Unamortized discounts


(12
)


(13
)Carrying amount of long-term debt

$
4,538


$
4,537     (1)
    
    The interest rate at
    December 31, 2008 and 2007 was 2.70% and 6.34%,
    respectively, and is based on the LIBOR rate (as defined) plus a
    spread.  L-3
    Communications
   F-28




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Net


Effective




RedemptionAmount





Cash


Interest




Price % ofNote

Date of Issuance

Issued


Discount(1)


Proceeds


Rate


Call
    Date(2)

Principal(3)75/8% Senior
    Subordinated Notes due June 15, 2012

June 28, 2002

$
750


$



$
732



7.625
%

June 15, 2007


102.542
%61/8% Senior
    Subordinated Notes due July 15, 2013

May 21, 2003

$
400


$
2


$
391



6.170
%

July 15, 2008


103.063
%61/8% Senior
    Subordinated Notes due January 15, 2014

December 22, 2003

$
400


$
7


$
390



6.310
%

January 15, 2009


103.063
%57/8% Senior
    Subordinated Notes due January 15, 2015

November 12, 2004

$
650


$



$
639



5.875
%

January 15, 2010


102.938
%63/8% Senior
    Subordinated Notes due October 15, 2015

July 29, 2005

$
1,000


$
9


$
972



6.470
%

October 15, 2010


103.188
%     (1)
    
    Discounts are recorded as a
    reduction to the principal amount of the notes and are amortized
    as interest expense over the term of the notes.(2)
    
    Notes are subject to redemption at
    any time, at the option of L-3 Communications, in whole or in
    part, on or after the call date.(3)
    
    Redemption prices (plus accrued and
    unpaid interest) include a premium on the principal amount (plus
    accrued and unpaid interest). The prices above represent the
    current redemption prices or the price during the
    12-month
    period starting on the first allowable date of redemption, which
    decline annually to 100% of principal (plus accrued and unpaid
    interest) starting three years from the first allowable date of
    redemption, and thereafter.  L-3
    Holdings
     F-29




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  trading-day business-day trading-day
         F-30




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Subordination
    and Guarantees
    Covenants
  Financial and other restrictive covenants.
   F-31




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Restricted Payments.
  
    fund payments of interest on indebtedness of L-3 Holdings and to
    fund payments of dividends on disqualified preferred stock
    issued by L-3 Holdings, so long as (1) any such
    indebtedness or disqualified preferred stock is guaranteed by
    L-3 Communications and (2) the proceeds received by L-3
    Holdings from the issuance of such indebtedness or disqualified
    preferred stock have been invested by L-3 Holdings in L-3
    Communications;
    fund payments and prepayments of principal of indebtedness of
    L-3 Holdings and to fund optional and mandatory redemptions of
    disqualified preferred stock issued by L-3 Holdings, so long as
    (1) any such indebtedness or disqualified preferred stock
    is guaranteed by L-3 Communications and (2) the amount of
    such fundings, together with the amount of permitted
    intercompany advances does not exceed the aggregate amount of
    investments made by L-3 Holdings in L-3 Communications with the
    proceeds from any issuance of indebtedness or disqualified
    preferred stock by L-3 Holdings after March 9, 2005 that is
    guaranteed by L-3 Communications;
    pay regularly scheduled dividends on disqualified preferred
    stock issued by L-3 Communications;
    redeem disqualified preferred stock issued by L-3 Communications
    so long as the amount of such redemptions does not exceed the
    aggregate proceeds received by L-3 Communications from the
    issuance of disqualified preferred stock after March 9,
    2005; and
    beginning with the quarter ended March 25, 2005, pay other
    dividends on and make other redemptions of its equity interests
    (including for the benefit of L-3 Holdings) and make other
    investments in L-3 Holdings, so long as no default or event of
    default has occurred and is continuing, up to an aggregate
    amount of $1.0 billion, increased (or decreased) quarterly
    by an amount equal to 50% of the consolidated net income (or
    deficit) of L-3 Communications for the quarter, plus
    (1) 100% of the proceeds from any issuance of capital stock
    (other than disqualified preferred stock) by L-3 Holdings after
    March 9, 2005 if those proceeds were invested in L-3
    Communications, plus (2) 100% of the proceeds from any
    issuance of indebtedness or disqualified preferred stock by L-3
    Holdings after March 9, 2005 if those proceeds were
    invested in L-3 Communications and the indebtedness or
    disqualified preferred stock is not guaranteed by L-3
    Communications, plus (3) 100% of the proceeds from any
    issuance of capital stock (other than disqualified preferred
    stock) by L-3 Communications after March 9, 2005.   F-32




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Cross default provisions.
  11.
    Shareholders
    Equity      12.
    Fair
    Value Measurements  Fair Value Measurements
  Level 1:
    Quoted market prices available in active markets for identical
    assets or liabilities as of the reporting date. The
    Companys Level 1 assets include cash equivalents,
    primarily institutional money market funds, whose carrying value
    represents fair value because of the short-term maturities of
    the investments held by these funds.Level 2:
    Pricing inputs other than quoted prices in active markets
    included in Level 1, which are either directly or
    indirectly observable as of the reporting date. The
    Companys Level 2 assets and liabilities include
    foreign currency forward contracts. Fair value is determined
    using a valuation model based on observable market inputs,
    including quoted forward foreign currency exchange rates, and
    consideration of non-performance risk. F-33




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Level 3:
    Pricing inputs that are generally unobservable inputs and not
    corroborated by market data. The Company has no Level 3
    assets or liabilities.    Description

Level 1


Level 2


Level 3(in millions)AssetsCash equivalents

$
794


$



$
Derivatives






22



Total Assets

$
794


$
22


$
LiabilitiesDerivatives

$



$
21


$
   157-2, Effective Date of FASB Statement No. 157 (FSP 157-2). FSP 157-2 FSP 157-2
  13.
    Financial
    Instruments  Fair Value of Financial Instruments.
  December 31,2008


2007(in millions)Carrying


Estimated


Carrying


EstimatedAmount


Fair Value


Amount


Fair ValueBorrowings under the Term Loan Facility

$
650


$
608


$
650


$
650Senior Subordinated Notes


3,188



2,916



3,187



3,172CODES


700



697



700



849Foreign currency forward
    contracts(1)


1



1



(12
)


(12
)     (1)
    
    Notional amounts of foreign
    currency forward contracts were $414 million at
    December 31, 2008 and $288 million at
    December 31, 2007. F-34




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Foreign Currency Exchange Risk Management.
  14.
    Accumulated
    Other Comprehensive (Loss) Income    TotalUnrealized





Unrecognized


accumulatedForeign


gains (losses)


Minimum


losses and


othercurrency


on hedging


pension


prior service


comprehensivetranslation


instruments


liability


cost, net


(loss) income(in millions)Balance at December 31, 2005

$
2


$
2


$
(81
)

$



$
(77
)Adoption of SFAS 158










60



(169
)


(109
)Period change


123



(7
)


21







137Balance at December 31, 2006


125



(5
)






(169
)


(49
)Adoption of SFAS 158 measurement date provision (See
    Note 19)














39



39Period change


135



4







24



163Balance at December 31, 2007


260



(1
)






(106
)


153Period change


(222
)


6







(269
)


(485
)Balance at December 31, 2008

$
38


$
5


$



$
(375
)

$
(332
)  F-35




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##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  15.
    L-3
    Holdings Earnings Per Share    Year Ended December 31,2008


2007


2006(in millions, except per share data)Basic:Income from continuing operations

$
929


$
756


$
526Gain on sale of a business, net of income taxes


20







Net income

$
949


$
756


$
526Weighted average common shares outstanding


121.2



124.9



123.1Basic earnings per share:Income from continuing operations

$
7.66


$
6.05


$
4.27Gain on sale of a business, net of income taxes


0.17







Net income

$
7.83


$
6.05


$
4.27Diluted:Income from continuing operations

$
929


$
756


$
526Gain on sale of a business, net of income taxes


20







Net income

$
949


$
756


$
526Common and potential common shares:Weighted average common shares outstanding


121.2



124.9



123.1Assumed exercise of stock options


4.1



5.0



5.0Unvested restricted stock awards


1.1



0.9



0.6Employee stock purchase plan contributions


0.4



0.4



0.5Assumed purchase of common shares for treasury


(4.1
)


(4.8
)


(4.4
)Assumed conversion of the CODES


0.2



0.1



Common and potential common shares


122.9



126.5



124.8Diluted earnings per share:Income from continuing operations

$
7.56


$
5.98


$
4.22Gain on sale of a business, net of income taxes


0.16







Net income

$
7.72


$
5.98


$
4.22      F-36




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      16.
    Income
    Taxes    Year Ended December 31,2008


2007


2006(in millions)Domestic

$
1,280


$
1,012


$
727Foreign


151



162



98Income from continuing operations before income taxes

$
1,431


$
1,174


$
825     Year Ended December 31,2008


2007


2006(in millions)Current income tax provision:Federal

$
244


$
228


$
107State and local


47



43



36Foreign


50



34



28Subtotal


341



305



171Deferred income tax provision (benefit):Federal


144



88



125State and local


24



14



(1
)Foreign


(7
)


11



4Subtotal


161



113



128Total provision for income taxes

$
502


$
418


$
299  F-37




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2008


2007


2006Statutory federal income tax rate


35.0
%


35.0
%


35.0
%State and local income taxes, net of federal income tax benefit


3.1



3.1



2.7Foreign income taxes


(1.1
)


(1.3
)


(1.6
)Extraterritorial income exclusion benefits










(0.4
)Manufacturing benefits


(0.9
)


(0.7
)


(0.7
)Research and experimentation and other tax credits


(1.0
)


(0.9
)


(0.6
)Resolution of tax contingencies


(1.2
)


(1.0
)


Other, net


1.2



1.4



1.8Effective income tax rate


35.1
%


35.6
%


36.2
%     December 31,2008


2007(in millions)Deferred tax assets:Inventoried costs

$
3


$
32Compensation and benefits


69



61Pension and postretirement benefits


293



148Income recognition on contracts in process


90



81Litigation charge






50Loss carryforwards


15



27Tax credit carryforwards


10



7Other


107



84Gross deferred tax assets


587



490Deferred tax liabilities:Goodwill and other intangible assets

$
439


$
442Property, plant and equipment


41



34Other


2



4Gross deferred tax liabilities


482



480Valuation allowance


4



9Net deferred tax assets

$
101


$
1  F-38




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2008


2007(in millions)Current deferred tax assets

$
211


$
246Non-current deferred tax liabilities


(110
)


(245
)Total net deferred tax assets

$
101


$
1         2008


2007(in millions)Balance at January 1

$
253


$
302Additions for tax positions related to the current year


10



10Additions for tax positions related to prior years


14



1Reductions for tax positions related to prior years


(87
)


(24
)Reductions for tax positions related to settlements with taxing
    authorities


(19
)


(31
)Reduction for tax positions related to prior years as a result
    of a lapse of statute of limitations






(5
)Balance at December 31

$
171


$
253    F-39




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          17.
    Stock-Based
    Compensation    Stock-based Compensation Plans.
   F-40




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      and/or
  Stock Options.
 F-41




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    WeightedWeighted


AverageAverage


Remaining


AggregateNumber of


Exercise


Contractual


IntrinsicOptions


Price


Term


Value(in thousands)





(in Years)


(in millions)Number of shares under optionOutstanding at January 1, 2008


5,209.1


$
66.13



7.0


$
207Options granted


839.7



96.90Options exercised


(720.6
)


55.70Options forfeited


(169.9
)


80.97Outstanding at December 31, 2008


5,158.3


$
72.12



6.7


$
45Vested and expected to vest at December 31,
    2008(1)


4,956.4


$
71.39



6.6


$
45Exercisable at December 31, 2008


3,527.8


$
63.44



5.7


$
44     (1)
    
    Represents outstanding options
    reduced by expected forfeitures for options not fully vested.        Stock Option Fair Value Estimation Assumptions.
  
    Expected Holding Period. The expected holding period
    of stock options granted represents the period of time that
    stock options granted are expected to be outstanding until they
    are exercised. The Company uses historical data to estimate
    stock option exercise data within the valuation model.
    Expected Volatility. Expected volatility is based on
    L-3 Holdings actual historical share price volatility.
    Expected Dividend Yield. Expected dividend yield is
    based on L-3 Holdings anticipated dividend payments and
    historical pattern of dividend increases. F-42




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    Risk-Free Interest Rate. The risk-free interest
    rates for stock options are based on the U.S. Treasury
    yield curve in effect at the time of grant for maturities
    similar to the expected holding period of the stock options.    2008


2007


2006Grants


Grants


GrantsExpected holding period (in years)


4.7



4.5



4.4Expected volatility


20.2
%


20.5
%


25.8
%Expected dividend yield


1.6
%


1.3
%


1.2
%Risk-free interest rate


3.2
%


4.6
%


4.8
%   Restricted Stock.
    WeightedAverageNumber of


Grant DateShares


Fair Value(in thousands)Nonvested balance at January 1, 2008


1,063.4


$
85.06Granted


539.6



98.18Vested


(221.4
)


76.66Forfeited


(92.7
)


86.73Nonvested balance at December 31, 2008


1,288.9


$
91.88    F-43




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Long-Term Incentive Program.
    Payable in Cash (TSR)


Payable in Shares (EPS)Weighted Average





Weighted AverageNumber of


Grant Date


Number of


Grant DateUnits


Fair Value


Units


Fair Value(In thousands)





(In thousands)Nonvested balance at January 1, 2008


22.6


$
117.68



22.6


$
99.58Granted


29.2



109.85



29.2



96.34Vested














Forfeited


(0.8
)


117.68



(0.8
)


99.58Nonvested balance at December 31, 2008


51.0


$
113.19



51.0


$
97.73     Performance Units Fair Value Assumptions.
  2008


2007Grants


GrantsExpected volatility


29.4
%


36.1
%Expected dividend yield


1.5
%


1.5
%Risk-free interest rate


0.8
%


0.4
%  F-44




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Employee Stock Purchase Plan.
  18.
    Commitments
    and Contingencies  Non-Cancelable
    Operating Leases
      Real Estate


Equipment


Total(in millions)2009

$
152


$
23


$
1752010


153



18



1712011


109



13



1222012


83



10



932013


65



7



72Thereafter


208



29



237Total minimum payments required


770



100



870Less: Sublease rentals under non-cancelable leases


27







27Net minimum payments required

$
743


$
100


$
843  F-45




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Letters
    of Credit
    Guarantees
         F-46




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  U.S.
    and Foreign Government Procurement Regulations
  and/or
  Environmental
    Matters
    Litigation
    Matters
  Accounting for
    Contingencies,
 F-47




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Kalitta Air.
  OSI Systems, Inc.
 F-48




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Korean Lot II Program.
  SafeView Arbitration.
  Aircrew Training and Rehearsal Support (ATARS)
    Investigation.
  Titan Government Investigation.
 F-49




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  SEC Inquiry.
  CyTerra Government Investigation.
  Bashkirian Airways.
  Gol Airlines. 737-800
  Pilatus PC-12 Aircraft.
 F-50




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    T-39 Sabreliner Aircraft.
  Blackhawk Helicopter.
  19.
    Pensions
    and Other Employee Benefits  and/or
    Employers Accounting for Defined Benefit Pension and
    Other Postretirement Plans  an amendment of FASB
    Statements No. 87, 88, 106 and 132(R)
 F-51




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    PostretirementPension Plans


Benefit Plans2008


2007(1)


2008


2007(1)(in millions)Change in benefit obligation:Benefit obligation at the beginning of the year

$
1,688


$
1,658


$
183


$
187Service cost


89



103



6



7Interest cost


104



103



10



11Plan participants contributions


3



3



4



3Amendments






7



3



(2
)Actuarial gain


(45
)


(162
)


(24
)


(16
)Foreign currency exchange rate changes


(44
)


44



(7
)


6Curtailments, settlements and special termination benefits


1



(1
)


1



Transfers for product line divestiture


(8
)






(1
)


Benefits paid


(66
)


(67
)


(13
)


(13
)Benefit obligation at the end of the year

$
1,722


$
1,688


$
162


$
183Change in plan assets:Fair value of plan assets at the beginning of the year

$
1,407


$
1,298


$
34


$
30Actual (loss) return on plan assets


(394
)


42



(9
)


2Employer contributions


162



94



11



12Plan participants contributions


3



3



4



3Foreign currency exchange rate changes


(43
)


37







Transfers for product line divestiture


(5
)










Benefits paid


(66
)


(67
)


(13
)


(13
)Fair value of plan assets at the end of the year

$
1,064


$
1,407


$
27


$
34Funded status at the end of the year

$
(658
)

$
(281
)

$
(135
)

$
(149
)Amounts recognized in the consolidated balance sheets consist
    of:Non-current assets

$
16


$
28


$



$
Current liabilities










(7
)


(8
)Non-current liabilities


(674
)


(309
)


(128
)


(141
)$
(658
)

$
(281
)

$
(135
)

$
(149
)     (1)
    
    Due to the change in measurement
    date as discussed above, the change in benefit obligation and
    plan assets information in the table covers the 13 month
    period from November 2006 to December 2007. For the month ended
    December 31, 2006, service cost was $7 million,
    interest cost was $8 million, actuarial gains were
    $60 million, benefits paid were $4 million, and actual
    return on plan assets was $9 million for the pension plans.
    For the month ended December 31, 2006, service cost was
    $1 million, interest cost was $1 million, actuarial
    gains were $5 million, and benefits paid were
    $1 million for the postretirement benefit plans. F-52




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     PostretirementPension Plans


Benefit Plans2008


2007


2008


2007(in millions)Net loss (gain)

$
621


$
168


$
(11
)

$
Prior service cost (credit)


21



25



(14
)


(19
)Total amount recognized

$
642


$
193


$
(25
)

$
(19
)     Pension Plans2008


2007(in millions)Projected benefit obligation

$
1,542


$
672Accumulated benefit obligation


1,278



598Fair value of plan assets


870



494     PostretirementPension Plans

Benefit Plans2008

2007

2008

2007Benefit obligations:Discount rate


6.49
%(1)


6.36
%(1)


6.74
%(2)


6.07
%(2)Rate of compensation increase


4.50
%


4.50
%


4.50
%


4.50
%     (1)
    
    The discount rate assumptions used
    to determine the benefit obligations for the Companys
    pension plans at December 31, 2008 and 2007 were 6.4% and
    6.5% for the U.S. based plans, 7.4% and 5.75% for the Canadian
    based plans and 6.2% and 5.4% for the German based plans.(2)
    
    The discount rate assumptions used
    to determine the benefit obligations for the Companys
    postretirement benefit plans at December 31, 2008 and 2007
    were 6.6% and 6.25% for the U.S. based plans and 7.4% and 5.5%
    for the Canadian based plans. F-53




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     PostretirementPension Plans


Benefit Plans2008


2007


2006


2008


2007


2006(in millions)Components of net periodic benefit cost:Service cost

$
89


$
95


$
88


$
6


$
6


$
6Interest cost


104



95



85



10



10



9Expected return on plan assets


(117
)


(112
)


(90
)


(2
)


(2
)


(1
)Amortization of prior service costs (credits)


3



3



3



(3
)


(4
)


(4
)Amortization of net loss (gain)


7



11



19



(2
)


3



1Curtailment or settlement loss


1



1















Net periodic benefit cost

$
87


$
93


$
105


$
9


$
13


$
11     Pension


PostretirementPlans


Benefit Plans(in millions)Other changes in plan assets and benefit obligations
    recognized in other comprehensive income:Net loss (gain)

$
459


$
(13
)Prior service cost






2Amortization of net (loss) gain


(7
)


2Amortization of prior service (cost) credit


(3
)


3Total recognized in other comprehensive income


449



(6
)Total recognized in net periodic benefit cost and other
    comprehensive income

$
536


$
3     Pension


PostretirementPlans


Benefit Plans


Total(in millions)Net loss (gain)

$
52


$
(1
)

$
51Prior service cost (credit)


3



(3
)


$
55


$
(4
)

$
51  F-54




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    PostretirementPension Plans


Benefit Plans2008


2007


2006


2008


2007


2006Net periodic benefit cost:Discount rate


6.36
%(1)


5.85
%(1)


5.75
%


6.07
%(3)


5.62
%(3)


5.50
%Expected long-term return on plan assets


8.55
%(2)


8.54
%(2)


8.55
%(2)


6.36
%


6.25
%


6.39
%Rate of compensation increase


4.50
%


4.50
%


4.50
%


4.50
%


4.50
%


4.50
%    (1)
    
    The discount rate assumptions used
    to determine the net periodic benefit cost for the
    Companys pension plans during the years ended
    December 31, 2008 and 2007 were 6.5% and 6.0% for the U.S.
    based plans, 5.75% and 5.25% for the Canadian based plans and
    5.4% and 4.5% for the German based plans, respectively.(2)
    
    The expected long-term return on
    plan assets assumptions used to determine the net periodic
    benefit costs for the years ended December 31, 2008, 2007
    and 2006 were 8.75% for the U.S. based plans and 7.5% for the
    Canadian based plans.(3)
    
    The discount rate assumptions used
    to determine the net periodic benefit cost for the
    Companys postretirement benefit plans during the years
    ended December 31, 2008 and 2007 were 6.25% and 5.75% for
    the U.S. based plans and 5.5% and 5.0% for the Canadian based
    plans, respectively.      1 percentage pointIncrease


Decrease(in millions)Effect on total service and interest cost

$
1


$
(1
)Effect on postretirement benefit obligations


8



(7
)   Plan Assets.
   F-55




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    U.S.


Non-U.S.(1)Asset Category

Range

2008


2007


Range

2008


2007Domestic equity

40% - 60%


43
%


51
%

15% - 40%


16
%


24
%International equity

10% - 20%


15



18


20% - 40%


25



24Fixed income securities

20% - 40%


26



21


30% - 55%


42



35Real estate securities

5% - 15%


5



6









Other, primarily cash and cash equivalents

0% - 10%


11



4


0% - 15%


17



17Total




100
%


100
%




100
%


100
%   (1)
    
    Non-U.S.
    pension plans represent the Companys participating
    Canadian subsidiaries. The plans percentage asset
    allocation at December 31, 2007 for certain business
    acquisitions includes a receivable due from the seller to fund
    the acquisition date pension obligations, which is included in
    other, primarily cash and cash equivalents.  Contributions.
  Multi-employer Benefit Plans.
  Lockheed Martin Commitment.
     F-56




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Estimated Future Benefit Payments.
  PostretirementBenefitsPension


Benefit


SubsidyBenefits


Payments


Receipts(in millions)2009

$
75



11



12010


81



12



12011


86



13



12012


90



13



12013


96



14



1Years
    2014-2018


619



78



9   Employee Savings Plans.
  20.
    Supplemental
    Cash Flow Information  Year Ended December 31,2008


2007


2006(in millions)Interest paid

$
267


$
280


$
287Income tax payments


343



200



67Income tax refunds


8



7



6   21.
    Segment
    Information   F-57




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2008


2007


2006Net SalesProductsC3ISR

$
1,780


$
1,751


$
1,671Government Services


282



273



181AM&M


661



631



582Specialized Products


4,607



4,102



3,650Elimination of intercompany sales


(200
)


(185
)


(151
)Total products sales


7,130



6,572



5,933ServicesC3ISR


829



589



393Government Services


4,105



4,160



3,751AM&M


1,996



1,900



1,746Specialized Products


972



853



766Elimination of intercompany sales


(131
)


(113
)


(112
)Total services sales


7,771



7,389



6,544Consolidated total

$
14,901


$
13,961


$
12,477Operating IncomeC3ISR

$
251


$
232


$
216Government Services


421



403



343AM&M


241



247



232Specialized Products


646



566



488Segment Total

$
1,559


$
1,448


$
1,279Litigation gain (charge)


126







(129
)Stock-based charge










(39
)Consolidated total

$
1,685


$
1,448


$
1,111Depreciation and amortizationC3ISR

$
39


$
39


$
35Government Services


35



33



28AM&M


26



29



26Specialized Products


106



106



100Consolidated total

$
206


$
207


$
189Capital ExpendituresC3ISR

$
86


$
32


$
34Government Services


13



14



8AM&M


12



14



21Specialized Products


100



94



85Corporate


7



3



8Consolidated total

$
218


$
157


$
156   F-58




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  December 31,2008


2007


2006Total AssetsC3ISR

$
1,814


$
1,798


$
1,697Government Services


3,464



3,438



3,333AM&M


1,807



1,928



1,871Specialized Products


6,319



6,193



5,671Corporate


1,081



1,034



715Consolidated total

$
14,485


$
14,391


$
13,287       Year Ended December 31,2008


2007


2006(in millions)U.S.

$
12,815


$
11,867


$
10,683Foreign:Germany


324



318



258Canada


308



368



351United Kingdom


212



216



178Australia


147



93



87South Korea


140



193



193Italy


93



39



33New Zealand


42



88



111Other


820



779



583Total foreign


2,086



2,094



1,794Consolidated

$
14,901


$
13,961


$
12,477     Year Ended December 31,2008


2007


2006(in millions)U.S. Government
    agencies(1)

$
12,126


$
11,203


$
10,062Commercial


1,676



1,786



1,532Allied foreign
    governments(1)


1,099



972



883Consolidated

$
14,901


$
13,961


$
12,477   (1)
    
    Includes sales for which the
    Company is the prime contractor as well as sales based on the
    ultimate customer for which the Company is a subcontractor. F-59




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   22.
    Unaudited
    Quarterly Financial Data    First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter(in millions, except per share data)2008Sales

$
3,506


$
3,722


$
3,662


$
4,011Operating income


368



501



400



416Income from continuing operations


192



278



212



247Net income


192



278



212



267Basic EPS:Income from continuing operations

$
1.57


$
2.28


$
1.75


$
2.06Gain on sale of a business, net of income taxes














0.17Net income

$
1.57


$
2.28


$
1.75


$
2.23Diluted EPS:Income from continuing operations

$
1.54


$
2.24


$
1.73


$
2.04Gain on sale of a business, net of income taxes














0.17Net income

$
1.54


$
2.24


$
1.73


$
2.212007Sales

$
3,300


$
3,407


$
3,448


$
3,806Operating income


326



355



371



396Net income


162



188



199



207Basic EPS


1.30



1.51



1.58



1.66Diluted EPS


1.29



1.49



1.56



1.63  F-60




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  23.
    Financial
    Information of L-3 Communications and Its Subsidiaries    L-3 CommunicationsCommon Stock


AdditionalShares


Par


Paid-in


Treasury


RetainedIssued


Value


Capital


Stock


Earnings


Total(in millions)Balance at December 31, 2005


100






$
3,041






$
1,545


$
4,586Net income


















526



526Contributions from L-3 Holdings










361











361Dividends to L-3 Holdings


















(118
)


(118
)Balance at December 31, 2006


100







3,402







1,953



5,355Net income


















756



756Contributions from L-3 Holdings










351











351Dividends to L-3 Holdings


















(626
)


(626
)Balance at December 31, 2007


100







3,753







2,083



5,836Net income


















949



949Contributions from L-3 Holdings










319











319Dividends to L-3 Holdings


















(941
)


(941
)Balance at December 31, 2008


100






$
4,072


$



$
2,091


$
6,163       Rule 3-10 Regulation S-X.
 F-61




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    L-3








Non-Holdings


L-3


Guarantor


Guarantor





Consolidated(Parent)


Communications


Subsidiaries


Subsidiaries


Eliminations


L-3(in millions)Condensed Combining Balance Sheets
    At December 31, 2008:Current assets:Cash and cash equivalents

$



$
720


$
(81
)

$
228


$



$
867Billed receivables, net






324



701



201







1,226Contracts in process






587



1,461



219







2,267Other current assets






291



170



140







601Total current assets






1,922



2,251



788







4,961Goodwill






1,171



5,746



1,112







8,029Other assets


8



476



837



182



(8
)


1,495Investment in and amounts due from consolidated subsidiaries


6,523



8,489



1,283



80



(16,375
)


Total assets

$
6,531


$
12,058


$
10,117


$
2,162


$
(16,383
)

$
14,485Current liabilities

$



$
824


$
1,312


$
571


$



$
2,707Other long-term liabilities






865



219



242







1,326Long-term debt


700



4,538











(700
)


4,538Minority interests


















83



83Shareholders equity


5,831



5,831



8,586



1,349



(15,766
)


5,831Total liabilities and shareholders equity

$
6,531


$
12,058


$
10,117


$
2,162


$
(16,383
)

$
14,485At December 31, 2007:Current assets:Cash and cash equivalents

$



$
632


$
(89
)

$
237


$



$
780Billed receivables, net






291



767



221







1,279Contracts in process






505



1,347



247







2,099Other current assets






332



142



131







605Total current assets






1,760



2,167



836







4,763Goodwill






961



5,912



1,292







8,165Other assets


11



397



865



201



(11
)


1,463Investment in and amounts due from consolidated subsidiaries


6,678



9,027



460



12



(16,177
)


Total assets

$
6,689


$
12,145


$
9,404


$
2,341


$
(16,188
)

$
14,391Current liabilities

$



$
879


$
1,133


$
570


$



$
2,582Other long-term liabilities






740



241



215







1,196Long-term debt


700



4,537











(700
)


4,537Minority interests


















87



87Shareholders equity


5,989



5,989



8,030



1,556



(15,575
)


5,989Total liabilities and shareholders equity

$
6,689


$
12,145


$
9,404


$
2,341


$
(16,188
)

$
14,391  F-62




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  L-3








Non-Holdings


L-3


Guarantor


Guarantor





Consolidated(Parent)


Communications


Subsidiaries


Subsidiaries


Eliminations


L-3(in millions)Condensed Combining Statements of Operations:For the year ended December 31, 2008:Net sales

$



$
3,192


$
9,826


$
2,000


$
(117
)

$
14,901Cost of sales


64



2,768



8,893



1,798



(181
)


13,342Litigation gain






126















126Operating (loss) income


(64
)


550



933



202



64



1,685Interest and other income, net






130



5



7



(114
)


28Interest expense


24



268



110



7



(138
)


271Minority interests in net income of consolidated subsidiaries


















11



11Loss (income) from continuing operations before income taxes


(88
)


412



828



202



77



1,431(Benefit) provision for income taxes


(32
)


124



304



74



32



502(Loss) income from continuing operations


(56
)


288



524



128



45



929Gain on sale of a business, net of income taxes






20















20Equity in net income of consolidated subsidiaries


1,005



641











(1,646
)


Net income

$
949


$
949


$
524


$
128


$
(1,601
)

$
949For the year ended December 31, 2007:Net sales

$



$
2,706


$
9,426


$
1,911


$
(82
)

$
13,961Cost of sales


53



2,371



8,537



1,687



(135
)


12,513Operating (loss) income


(53
)


335



889



224



53



1,448Interest and other income, net






27



3



5



(4
)


31Interest expense


24



294



1



5



(28
)


296Minority interests in net income of consolidated subsidiaries


















9



9(Loss) income before income taxes


(77
)


68



891



224



68



1,174(Benefit) provision for income taxes


(27
)


21



317



80



27



418Equity in net income of consolidated subsidiaries


806



709











(1,515
)


Net income

$
756


$
756


$
574


$
144


$
(1,474
)

$
756For the year ended December 31, 2006:Net sales

$



$
2,733


$
8,168


$
1,612


$
(36
)

$
12,477Cost of sales


47



2,411



7,376



1,447



(83
)


11,198Litigation charge






(129
)














(129
)Stock-Based charge


(39
)


(39
)










39



(39
)Operating (loss) income


(86
)


154



792



165



86



1,111Interest and other income, net






26



4



6



(16
)


20Interest expense


24



295



1



16



(40
)


296Minority interests in net income of consolidated subsidiaries


















10



10(Loss) income before income taxes


(110
)


(115
)


795



155



100



825(Benefit) provision for income taxes


(40
)


(45
)


288



56



40



299Equity in net income of consolidated subsidiaries


596



596











(1,192
)


Net income

$
526


$
526


$
507


$
99


$
(1,132
)

$
526   F-63




---



##### Table of Contents



L-3
    COMMUNICATIONS HOLDINGS, INC.
    AND L-3 COMMUNICATIONS CORPORATION
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  L-3








Non-Holdings


L-3


Guarantor


Guarantor





Consolidated(Parent)


Communications


Subsidiaries


Subsidiaries


Eliminations


L-3(in millions)Condensed Combining Statements of Cash Flows:For the year ended December 31, 2008:Operating activities:Net cash from operating activities

$
941


$
38


$
1,202


$
204


$
(998
)

$
1,387Investing activities:Business acquisitions, net of cash acquired






(283
)














(283
)Other investing activities


(103
)


(15
)


(111
)


(23
)


103



(149
)Net cash used in investing activities


(103
)


(298
)


(111
)


(23
)


103



(432
)Financing activities:Common stock repurchased


(794
)


















(794
)Other financing activities


(44
)


348



(1,083
)


(162
)


895



(46
)Net cash (used in) from financing activities


(838
)


348



(1,083
)


(162
)


895



(840
)Effect of exchange rates on cash














(28
)






(28
)Net increase (decrease) in cash






88



8



(9
)






87Cash and cash equivalents, beginning of the year






632



(89
)


237







780Cash and cash equivalents, end of the year

$



$
720


$
(81
)

$
228


$



$
867For the year ended December 31, 2007:Operating activities:Net cash from operating activities

$
626


$
107


$
987


$
229


$
(679
)

$
1,270Investing activities:Business acquisitions, net of cash acquired






(235
)














(235
)Other investing activities


(153
)


(38
)


(87
)


(28
)


153



(153
)Net cash used in investing activities


(153
)


(273
)


(87
)


(28
)


153



(388
)Financing activities:Common stock repurchased


(500
)


















(500
)Other financing activities


27



495



(890
)


(122
)


526



36Net cash (used in) from financing activities


(473
)


495



(890
)


(122
)


526



(464
)Effect of exchange rates on cash














14







14Net increase in cash






329



10



93







432Cash and cash equivalents, beginning of the year






303



(100
)


145







348Cash and cash equivalents, end of the year

$



$
632


$
(90
)

$
238


$



$
780For the year ended December 31, 2006:Operating activities:Net cash from operating activities

$
118


$
94


$
858


$
142


$
(138
)

$
1,074Investing activities:Business acquisitions, net of cash acquired






(943
)














(943
)Other investing activities


(132
)


(48
)


(74
)


(26
)


132



(148
)Net cash used in investing activities


(132
)


(991
)


(74
)


(26
)


132



(1,091
)Financing activities:Common shares repurchased


(25
)


















(25
)Other financing activities


39



912



(889
)


(72
)


6



(4
)Net cash from (used in) financing activities


14



912



(889
)


(72
)


6



(29
)Net increase (decrease) in cash






15



(105
)


44







(46
)Cash and cash equivalents, beginning of the year






288



5



101







394Cash and cash equivalents, end of the year

$



$
303


$
(100
)

$
145


$



$
348  F-64