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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

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FORM 10-Q





QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934



FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002


Commission file numbers 001-14141 and 333-46983






L-3 COMMUNICATIONS HOLDINGS, INC.

AND

L-3 COMMUNICATIONS CORPORATION



600 Third Avenue
New York, NY 10016
Telephone: (212) 697-1111
State of incorporation: Delaware
IRS Employer Identification Numbers: 13-3937434 and 13-3937436




Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the proceeding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X Yes __ No


There were 94,468,908 shares of L-3 Communications Holdings, Inc. common
stock with a par value of $0.01 outstanding as of the close of business on
October 31, 2002.


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L-3 COMMUNICATIONS HOLDINGS, INC. AND
L-3 COMMUNICATIONS CORPORATION
FORM 10-Q QUARTERLY REPORT FOR
QUARTER ENDED SEPTEMBER 30, 2002


PART I -- FINANCIAL INFORMATION:



PAGE NO.
---------

ITEM 1. Financial Statements

Unaudited Condensed Consolidated Balance Sheets as of September 30, 2002
and December 31, 2001 ..................................................... 1

Unaudited Condensed Consolidated Statements of Operations for the Three
and Nine Months ended September 30, 2002 and September 30, 2001 ........... 2

Unaudited Condensed Consolidated Statements of Cash Flows for the Nine
Months ended September 30, 2002 and September 30, 2001 .................... 4

Notes to Unaudited Condensed Consolidated Financial Statements ............. 5

ITEM 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition ....................................................... 25

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk ................. 43

ITEM 4. Controls and Procedures .................................................... 44

PART II -- OTHER INFORMATION:

ITEM 1. Legal Proceedings .......................................................... 45

ITEM 6. Exhibits and Reports on Form 8-K ........................................... 46

Signatures ......................................................................... 47

Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ........... 48



i


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

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)






SEPTEMBER 30, DECEMBER 31,
2002 2001
--------------- ---------------

ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 448,176 $ 361,022
Contracts in process ............................................ 1,317,957 801,824
Deferred income taxes ........................................... 56,985 62,965
Other current assets ............................................ 43,177 16,590
---------- -----------
Total current assets .......................................... 1,866,295 1,242,401
---------- -----------
Property, plant and equipment, net ............................... 382,605 203,374
Goodwill ......................................................... 2,579,885 1,707,718
Deferred income taxes ............................................ 103,079 97,883
Deferred debt issue costs ........................................ 50,065 40,190
Other assets ..................................................... 77,413 47,683
---------- -----------
Total assets .................................................. $5,059,342 $ 3,339,249
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade ......................................... 122,996 129,538
Accrued employment costs ........................................ 200,455 126,981
Accrued expenses ................................................ 55,616 38,823
Customer advances ............................................... 138,831 74,060
Accrued interest ................................................ 31,653 13,288
Income taxes .................................................... 13,024 16,768
Other current liabilities ....................................... 79,036 125,113
---------- -----------
Total current liabilities ..................................... 641,611 524,571
---------- -----------
Pension and postretirement benefits .............................. 259,580 155,052
Other liabilities ................................................ 64,857 60,585
Long-term debt ................................................... 1,847,689 1,315,252
---------- -----------
Total liabilities ............................................. 2,813,737 2,055,460
Minority interest ................................................ 72,715 69,897
Commitments and contingencies

Shareholders' equity:
L-3 Holdings' common stock $.01 par value; authorized 300,000,000
shares, issued and outstanding 94,387,060 and 78,496,626 shares
(L-3 Communications common stock: $.01 par value, 100 shares
authorized, issued and outstanding) ........................... 1,776,348 939,037
Retained earnings ............................................... 424,409 301,730
Unearned compensation ........................................... (3,973) (3,205)
Accumulated other comprehensive loss ............................ (23,894) (23,670)
---------- -----------
Total shareholders' equity ....................................... 2,172,890 1,213,892
---------- -----------
Total liabilities and shareholders' equity .................... $5,059,342 $ 3,339,249
========== ===========


See notes to unaudited condensed consolidated financial statements

1


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

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)





THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2002 2001
-------------- ----------------

Sales:
Contracts, primarily long-term U.S. Government .......... $ 936,909 $ 510,943
Commercial, primarily products .......................... 116,704 107,221
----------- ----------
Total sales .......................................... 1,053,613 618,164
----------- ----------
Costs and expenses:
Contracts, primarily long-term U.S. Government .......... 815,933 443,429
Commercial, primarily products:
Cost of sales ......................................... 74,037 68,220
Selling, general and administrative ................... 36,256 31,307
----------- ----------
Total costs and expenses ............................. 926,226 542,956
----------- ----------
Operating income ......................................... 127,387 75,208
Interest and other income (expense) ...................... 1,635 (199)
Interest expense ......................................... 31,252 18,450
Minority interest ........................................ 2,313 2,370
----------- ----------
Income before income taxes ............................... 95,457 54,189
Provision for income taxes ............................... 33,697 20,754
----------- ----------
Net income ............................................... $ 61,760 $ 33,435
=========== ==========
L-3 Holdings' earnings per common share:
Basic ................................................. $ 0.66 $ 0.43
=========== ==========
Diluted ............................................... $ 0.62 $ 0.41
=========== ==========
L-3 Holdings' weighted average common shares outstanding:
Basic ................................................. 94,174 78,070
=========== ==========
Diluted ............................................... 104,473 88,444
=========== ==========


See notes to unaudited condensed consolidated financial statements.

2


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

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)





NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2002 2001
------------- -----------------

Sales:
Contracts, primarily long-term U.S. Government .................. $2,419,353 $ 1,341,904
Commercial, primarily products .................................. 286,289 299,721
---------- -----------
Total sales .................................................. 2,705,642 1,641,625
---------- -----------
Costs and expenses:
Contracts, primarily long-term U.S. Government .................. 2,123,357 1,194,409
Commercial, primarily products:
Cost of sales ................................................. 181,965 169,794
Selling, general and administrative ........................... 103,938 94,878
---------- -----------
Total costs and expenses ..................................... 2,409,260 1,459,081
---------- -----------
Operating income ................................................. 296,382 182,544
Interest and other income ........................................ 2,459 1,255
Interest expense ................................................. 88,915 64,886
Minority interest ................................................ 5,077 3,955
---------- -----------
Income before income taxes and extraordinary item ................ 204,849 114,958
Provision for income taxes ....................................... 72,312 44,029
---------- -----------
Income before extraordinary item ................................. 132,537 70,929
Extraordinary item-loss on extinguishment of debt, net of income
taxes of $6,329 ................................................. (9,858) --
---------- -----------
Net income ....................................................... $ 122,679 $ 70,929
========== ===========
L-3 Holdings' earnings per common share before extraordinary item:
Basic: .......................................................... $ 1.57 $ 0.96
========== ===========
Diluted: ........................................................ $ 1.48 $ 0.92
========== ===========
L-3 Holdings' earnings per common share:
Basic ........................................................... $ 1.45 $ 0.96
========== ===========
Diluted ......................................................... $ 1.37 $ 0.92
========== ===========
L-3 Holdings' weighted average common shares outstanding:
Basic ........................................................... 84,403 73,704
========== ===========
Diluted ......................................................... 94,955 76,918
========== ===========


See notes to unaudited condensed consolidated financial statements.

3


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

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)





NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2002 2001
--------------- ---------------

OPERATING ACTIVITIES:
Net income .......................................................... $ 122,679 $ 70,929
Extraordinary item-loss on extinguishment of debt ................... 9,858 --
Depreciation ........................................................ 46,957 29,800
Amortization of intangibles and other assets ........................ 7,245 3,624
Goodwill amortization ............................................... -- 31,565
Amortization of deferred debt issue costs ........................... 5,421 4,739
Deferred income taxes ............................................... 55,513 33,906
Minority interest ................................................... 5,077 3,955
Other non-cash items ................................................ 20,894 12,532
Changes in operating assets and liabilities, net of amounts acquired:
Contracts in process ............................................... (116,166) (67,713)
Other current assets ............................................... (2,748) (1,724)
Other assets ....................................................... (11,050) (5,117)
Accounts payable ................................................... (29,876) (24,437)
Customer advances .................................................. 59,691 5,721
Accrued liabilities ................................................ 97,651 15,681
Other current liabilities .......................................... (24,401) (37,091)
Pension and postretirement benefits ................................ 14,714 3,054
Other liabilities .................................................. 4,405 4,527
All other operating activities, net ................................ (1,484) (111)
------------ ----------
Net cash from operating activities .................................. 264,380 83,840
------------ ----------
INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired ..................... (1,414,254) (222,495)
Proceeds from sale of interest in subsidiary ........................ -- 72,060
Capital expenditures ................................................ (38,612) (29,990)
Disposition of property, plant and equipment ........................ 1,019 133
Other investing activities .......................................... (3,821) (5,001)
------------ ----------
Net cash used in investing activities ............................... (1,455,668) (185,293)
------------ ----------
FINANCING ACTIVITIES:
Borrowings under revolving credit facilities ........................ 566,000 316,400
Repayment of borrowings under revolving credit facilities ........... (566,000) (506,400)
Borrowings under bridge loan facility ............................... 500,000 --
Repayment of borrowings under bridge loan facility .................. (500,000) --
Proceeds from sale of senior subordinated notes ..................... 750,000 --
Redemption of senior subordinated notes ............................. (237,296) --
Proceeds from sale of common stock, net ............................. 766,738 353,621
Debt issuance costs ................................................. (19,541) (4,071)
Employee stock purchase plan contributions .......................... 7,630 --
Proceeds from exercise of stock options ............................. 16,687 10,367
Distributions paid to minority interest ............................. (2,259) --
Other financing activities, net ..................................... (3,517) (2,673)
------------ ----------
Net cash from financing activities .................................. 1,278,442 167,244
------------ ----------
Net increase in cash ................................................ 87,154 65,791
Cash and cash equivalents, beginning of the period .................. 361,022 32,680
------------ ----------
Cash and cash equivalents, end of the period ........................ $ 448,176 $ 98,471
============ ==========


See notes to unaudited condensed consolidated financial statements

4


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

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

1. DESCRIPTION OF BUSINESS

L-3 Communications Holdings, Inc. derives all of its operating income and
cash flow from its wholly owned subsidiary L-3 Communications Corporation ("L-3
Communications"). L-3 Communications Holdings, Inc. ("L-3 Holdings" and
together with its subsidiaries, "L-3" or "the Company") is a merchant supplier
of secure communications and intelligence, surveillance and reconnaissance
(ISR) systems, training, simulation and support services, aviation products and
aircraft modernization, as well as specialized products. The Company's
customers include the U.S. Department of Defense (DoD), prime contractors to
the DoD, certain U.S. Government intelligence agencies, major aerospace and
defense contractors, foreign governments, commercial customers and certain
other U.S. federal, state and local government agencies.

As a result of recently completed acquisitions (see Note 3) and their
effect on the Company's operations, effective January 1, 2002, the Company
began to present its businesses with the following four reportable segments:
(1) Secure Communications & ISR; (2) Training, Simulation & Support Services;
(3) Aviation Products & Aircraft Modernization; and (4) Specialized Products.
Prior to December 31, 2001, the Company had two reportable segments: Secure
Communications Systems and Specialized Products. Prior year segment data have
been reclassified to conform to the current year presentation of segments.

Secure Communications & ISR. This segment provides products and services
for the global ISR market, specializing in signals intelligence ("SIGINT") and
communications intelligence ("COMINT") systems, which provide the unique
ability to collect and analyze unknown electronic signals from command centers,
communication nodes and air defense systems for real-time situation awareness
and response to the warfighter. This segment also provides secure, high data
rate communications systems for military and other U.S. Government and foreign
government reconnaissance and surveillance applications. These systems and
products are critical elements of virtually all major communication, command
and control, intelligence gathering and space systems. The Company's systems
and products are used to connect a variety of airborne, space, ground and
sea-based communication systems and are used in the transmission, processing,
recording, monitoring and dissemination functions of these communication
systems. The major secure communication programs and systems include:

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

o highly specialized fleet management and support, including
procurement, systems integration, sensor development, modifications
and maintenance for signals intelligence and ISR special mission
aircraft and airborne surveillance systems;

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

o secure telephone and network equipment and encryption management
systems; and

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

Training, Simulation & Support Services. This segment provides a full
range of training, simulation and support services, including:

o services designed to meet customer training requirements for aircrews,
navigators, mission operators, gunners and maintenance technicians for
virtually any platform, including military fixed and rotary wing
aircraft, air vehicles and various ground vehicles;

o communication software support, information services and a wide range
of engineering development services and integration support;


5


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


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

o high-end engineering and information 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 and U.S. Government intelligence agencies, including missile and
space systems, Unmanned Aerial Vehicles (UAVs) and military aircraft;

o developing and managing extensive programs in the United States and
internationally, focusing on teaching, training and education,
logistics, strategic planning, organizational design, democracy
transition and leadership development; and

o design, prototype development and production of ballistic missile
targets for present and future threat scenarios.


Aviation Products & Aircraft Modernization. This segment provides aviation
products and aircraft modernization services, including:

o airborne traffic and collision avoidance systems (TCAS);

o commercial, solid-state, crash-protected cockpit voice recorders,
flight data recorders and cruise ship hardened voyage recorders;

o ruggedized displays for military and high-end commercial applications;

o turnkey aviation life cycle management services that integrate custom
developed and commercial off-the-shelf products for various military
and commercial wide-body and rotary wing aircraft, including heavy
maintenance and structural modifications and Head-of-State and
commercial interior completions; and

o engineering, modification, maintenance, logistics and upgrades for
U.S. Special Operations Command aircraft, vehicles and personal
equipment.

Specialized Products. This segment supplies products to military and
commercial customers in several niche markets. The products include:

o ocean products, including acoustic undersea warfare products for mine
hunting, dipping sonars, anti-submarine and naval power distribution,
conditioning, switching and protection equipment for surface and
undersea platforms;

o telemetry, instrumentation, space and guidance products including
tracking and flight termination;

o premium fuzing products;

o microwave components;

o detection systems for aviation, port and border applications to detect
explosives, concealed weapons, contraband and illegal narcotics,
inspection of agricultural products and examination of cargo;

o high performance antennas and ground based radomes; and

o training devices and motion simulators which produce advanced virtual
reality simulation and high-fidelity representations of cockpits and
mission stations for aircraft and land vehicles.

6


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


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

2. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements
comprise the unaudited condensed consolidated financial statements of L-3
Holdings and L-3 Communications. The only obligations of L-3 Holdings are the
5 1/4% Convertible Senior Subordinated Notes due 2009 (the "Convertible Notes")
and the 4% Senior Subordinated Convertible Contingent Debt Securities due 2011
("CODES"). L-3 Holdings has also guaranteed the borrowings under the senior
credit facilities of L-3 Communications. Because the debt obligations of L-3
Holdings have been jointly, severally, fully and unconditionally guaranteed by
L-3 Communications and certain of its domestic subsidiaries, such debt
obligations have been reported as debt of L-3 Communications in its unaudited
condensed consolidated financial statements in accordance with the Securities
and Exchange Commission's Staff Accounting Bulletin No. 54. In addition, all
issuances of equity securities including grants of stock options and restricted
stock by L-3 Holdings to employees of L-3 Communications have also been
reported in the unaudited condensed consolidated financial statements of L-3
Communications. As a result, the unaudited condensed consolidated financial
positions, results of operations and cash flows of L-3 Holdings and L-3
Communications are substantially the same.

L-3 Holdings has no independent assets or operations other than through
its wholly owned subsidiary, L-3 Communications. L-3 Communications and all of
the guarantor subsidiaries of L-3 Communications are guarantor subsidiaries of
L-3 Holdings. Financial information of the subsidiaries of L-3 Communications
is presented in Note 12.

The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
in the United States of America for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities
and Exchange Commission. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles in
the United States of America for a complete set of financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation of the results for the
interim periods presented have been included. The results of operations for the
interim periods are not necessarily indicative of results for the full year.

The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of sales and
costs and expenses during the reporting period. The most significant of these
estimates and assumptions relate to contract estimates of sales and estimated
costs to complete contracts in process, estimates of market values for
inventories reported at lower of cost or market, estimates of pension and
postretirement benefit obligations, recoverability of recorded amounts of fixed
assets and goodwill, income taxes, litigation and environmental obligations.
Changes in estimates are reflected in the periods during which they become
known. Actual results could differ from these estimates.

Certain reclassifications have been made to conform prior period amounts
to the current period presentation.

These interim financial statements should be read in conjunction with the
Consolidated Financial Statements of L-3 Holdings and L-3 Communications for
the fiscal year ended December 31, 2001, included in their Current Report on
Form 8-K dated June 19, 2002.

7


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


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

3. ACQUISITIONS, DIVESTITURES AND OTHER TRANSACTIONS

Aircraft Integration Systems. On March 8, 2002, the Company acquired the
assets of Aircraft Integration Systems ("AIS"), a division of Raytheon Company,
for $1,148,700 in cash, which includes $1,130,000 for the original contract
purchase price, and an increase to the contract purchase price of $18,700
related to additional net assets received at closing, plus acquisition costs.
Following the acquisition, the Company changed AIS's name to L-3 Integrated
Systems ("IS"). The purchase price is subject to adjustment based on the IS
closing date net tangible book value, as defined. The acquisition was financed
using approximately $229,000 of cash on hand, borrowings under the Company's
senior credit facilities of $420,000 and a $500,000 senior subordinated bridge
loan. (See Note 5)

The Company acquired IS because it is a long-standing, sole-source supplier
of critical COMINT, SIGINT and unique sensor systems for special customers
within the U.S. Government. The Company believes that IS has excellent operating
prospects as its major customers increasingly focus on intelligence gathering
and information distribution to the battlefield. The Company also believes there
are significant opportunities to apply its proven business integration and cost
control skills to further enhance IS's operating and financial performance. The
Company also believes that IS creates significant opportunities for the sale of
the Company's secure communications and aviation products, including
communication links, signal processing, antennas, data recorders, displays and
traffic control and collision avoidance systems. The table below presents a
summary of the preliminary estimates of fair values of the assets acquired and
liabilities assumed on the acquisition date and reflects preliminary valuations
of acquired contracts in process and pension liabilities. Final valuations are
expected to be recorded in the fourth quarter of 2002 in connection with the
final purchase price allocation, including an audit of IS's March 8, 2002
historical net assets acquired, as well as the adjustment to the purchase price,
which will be based on IS's final closing date net tangible book value. Based on
the preliminary purchase price allocation for IS, goodwill in the amount of
$460,571 was assigned to the Secure Communications & ISR segment and $248,000
was assigned to the Aviation Products & Aircraft Modernization segment.
Approximately $492,000 of such goodwill is expected to be deductible for income
tax purposes.




Contracts in process ................... $ 307,568
Other current assets ................... 12,158
Property, plant and equipment .......... 182,307
Goodwill ............................... 708,571
Other non-current assets ............... 55,870
----------
Total assets acquired ................. 1,266,474
----------
Current liabilities .................... 16,563
Long-term liabilities .................. 96,279
----------
Total liabilities assumed ............. 112,842
----------
Net assets acquired ................... $1,153,632
==========


Detection Systems. On June 14, 2002, the Company completed the acquisition
of the detection systems business of PerkinElmer ("Detection Systems") for
$110,000 in cash, which includes $100,000 for the original contract purchase
price, and an increase to the contract purchase price of $10,000 related to a
preliminary purchase price adjustment, plus acquisition costs. The purchase
price is subject to final adjustment based on closing date net working capital,
as defined. Detection Systems offers X-ray screening for several major security
applications, including: (1) aviation systems for checked and oversized
baggage, break bulk cargo and air freight; (2) port and border applications,
including pallets, break bulk and air freight; and (3) facility protection such
as parcels, mail and cargo. Detection Systems has a broad range of systems and
technology, and an installed base of over 16,000 units. Detection


8


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


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

Systems' customer base includes major airlines and airports, a number of
domestic agencies, such as the U.S. Customs Service, U.S. Marshals Service,
U.S. Department of Agriculture and U.S. Department of State, and international
authorities throughout Europe, Asia and South America. The acquisition broadens
the Company's capabilities and product offerings in the rapidly growing areas
of airport security and other homeland defense markets, including explosive
detection systems ("EDS"). The acquisition provides the Company with enhanced
manufacturing and marketing capabilities, which will be used as the Company
works to meet growing demand for its EDS products. Based on the preliminary
purchase price allocation for Detection Systems, the goodwill of $51,193 was
assigned to the Specialized Products segment and is not expected to be
deductible for income tax purposes.

In connection with a letter of intent entered into with OSI Systems, Inc.
("OSI"), the Company intends to sell the ARGUS and conventional product lines
of Detection Systems to OSI. The sale is subject to clearance under the
Hart-Scott-Rodino Antitrust Improvements Act.

Telos, ComCept and Technology, Management and Analysis Corporation. During
the third quarter of 2002, the Company acquired three businesses for an
aggregate consideration of $96,964, which was comprised of $86,357 in cash,
229,494 shares of L-3 Holdings common stock valued at $10,607, plus acquisition
costs. The purchase prices are subject to adjustment based on the closing date
net assets or net working capital of the acquired businesses. The Company
acquired:

o all of the outstanding common stock of Telos Corporation ("Telos"), a
business which provides software development for command, control and
communications and other related services for military and national
security requirements, on July 19, 2002;

o all of the outstanding common stock of ComCept, Inc. ("ComCept"), a
company with network-centric warfare capabilities, including
requirements development, modeling, simulation, communications and
systems development and integration for ISR, on July 31, 2002. This
acquisition is subject to additional consideration not to exceed
219,088 shares of L-3 Holdings common stock which is contingent upon
the financial performance of ComCept for the fiscal years ending June
30, 2003 and 2004 and which will be accounted for as goodwill; and

o all of the outstanding common common stock of Technology, Management
and Analysis Corporation ("TMA"), a provider of professional services
to the DoD, primarily in support of the Naval surface and combat
fleet, on September 23, 2002. The core competencies of TMA include
engineering, logistics, ship test and trials, network engineering and
support and hardware and software products. This acquisition is
subject to additional purchase price not to exceed $7,000 which is
contingent upon the financial performance of TMA for the years ending
December 31, 2002 and 2003 and which will be accounted for as
goodwill.

Based on the preliminary purchase price allocations, the goodwill recognized
for the acquisitions of Telos, ComCept and TMA was $82,134, of which $44,359 is
expected to be deductible for income tax purposes. Goodwill of $22,374 was
assigned to the Secure Communications & ISR segment and $59,760 was assigned to
the Training, Simulation & Support Services segment.

Spar Aerospace. At December 31, 2001, the Company had acquired 70.3% of
the outstanding common stock of Spar Aerospace Limited ("Spar"), a leading
provider of high-end aviation product modernization, for $105,078 in cash and
acquired control of Spar and the ability to require the remaining stockholders
to tender their shares. During January 2002, the Company completed the
acquisition and paid $43,641 for the remaining outstanding common stock of Spar
which was not tendered to the Company at December 31, 2001.

SY Tech, BT Fuze and Emergent. During the fourth quarter of 2001, the
Company acquired three other businesses for an aggregate purchase price of
$149,273 in cash plus acquisition costs, including net


9


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


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

purchase price increases of $10,183 based on the closing date balance sheets of
the acquired businesses and $1,800 of additional purchase price based on the
financial performance of the acquired companies for the year ended December 31,
2001. The Company acquired:

(1) the net assets of SY Technology, Inc. ("SY"), a provider of air
warfare simulation services, on December 31, 2001. This acquisition is
subject to additional purchase price not to exceed $3,000 which is
contingent upon the financial performance of SY for the years ending
December 31, 2002 and 2003 and which will be accounted for as
goodwill;

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

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

KDI and EER. On May 4, 2001, the Company acquired all of the outstanding
common stock of KDI Precision Products ("KDI") for $79,468 in cash including
acquisition costs. On May 31, 2001, the Company acquired all of the outstanding
common stock of EER Systems ("EER") for $119,782 in cash including acquisition
costs. The purchase price for EER is subject to adjustment not to exceed
$5,000, which is contingent upon the financial performance of EER for the year
ending December 31, 2002, and which will be accounted for as goodwill.

All of the Company's acquisitions have been accounted for as purchase
business combinations and are included in the Company's results of operations
from their respective effective dates. The Company values acquired contracts in
process at their estimated contract selling prices less the estimated costs to
complete and a reasonable profit allowance for the Company's effort to complete
such contracts. The assets and liabilities recorded in connection with the
purchase price allocations for the acquisitions of Spar, L-3 Analytics, BT
Fuze, SY, IS, Detection Systems, Telos, ComCept and TMA are based upon
preliminary estimates of fair values for contracts in process, estimated costs
in excess of billings to complete contracts in process, inventories,
identifiable intangibles and deferred income taxes. Actual adjustments will be
based on the final purchase prices and final appraisals and other analyses of
fair values which are in process, as well as, audited historical net assets
acquired for the IS acquisition as of March 8, 2002. With the exception of the
IS acquisition, the Company does not expect the differences between the
preliminary and final purchase price allocations for the acquisitions to be
material. Material differences between the preliminary and final purchase price
allocations for the IS acquisition are expected to result from the finalization
of the audit of the opening balance sheet which is currently being performed,
and the valuation of contracts in process, including unbilled contract
receivables, inventories and estimated costs in excess of billings to complete
acquired contracts in process in a loss position, as well as capitalized costs
for internal-use software and management information systems, identifiable
intangibles, goodwill, deferred income taxes and pension and postretirement
benefits liabilities. The Company expects to complete the purchase price
allocations for Spar, L-3 Analytics, BT Fuze, SY and IS in the fourth quarter
of 2002.

Had the acquisitions of IS, Detection Systems, Telos, ComCept and TMA and
the related financing transactions occurred on January 1, 2002, the unaudited
pro forma sales, net income and diluted earnings per share would have been
approximately $1,062,300, $62,000 and $0.62 for the three months ended
September 30, 2002 and $3,043,100, $127,600 and $1.29 for the nine months ended
September 30, 2002. Had the acquisitions of KDI, EER, SY, BT Fuze, L-3
Analytics, Spar, IS, Detection Systems, Telos, ComCept and TMA and the related
financing transactions occurred on January 1, 2001, the unaudited pro


10


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


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

forma sales, net income and diluted earnings per share would have been
approximately $950,200, $41,500 and $0.43 for the three months ended September
30, 2001 and $2,690,400, $83,200 and $0.87 for the nine months ended September
30, 2001. The pro forma results are based on various assumptions and are not
necessarily indicative of the result of operations that would have occurred had
the acquisitions and the related financing transactions occurred on January 1,
2001 and 2002.

L-3 Electron -- Devices and L-3 Ruggedized Command and Control
Solutions. On October 25, 2002, the Company acquired the assets of Northrop
Grumman's Electron Devices and Displays -- Navigation Systems -- San Diego
businesses for $135,000 in cash plus acquisition costs. Following the
acquisitions, the Company changed the names of these businesses to L-3 Electron
Devices and L-3 Ruggedized Command and Control Solutions. The purchase price is
subject to adjustment based on closing date net assets of the acquired
businesses, as defined.

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

4. CONTRACTS IN PROCESS

The components of contracts in process are presented in the table below.



SEPTEMBER 30, 2002 DECEMBER 31, 2001
-------------------- ------------------

Billed receivables, less allowances of $15,345 and $11,649 .......... $ 509,662 $ 330,795
---------- ----------
Unbilled contract receivables ....................................... 717,894 353,262
Less: unliquidated progress payments ................................ (215,053) (102,739)
---------- ----------
Unbilled contract receivables, net ................................. 502,841 250,523
---------- ----------
Inventoried contract costs, gross ................................... 173,088 122,211
Less: unliquidated progress payments ................................ (8,864) (6,575)
---------- ----------
Inventoried contract costs, net .................................... 164,224 115,636
---------- ----------
Inventories at lower of cost or market .............................. 141,230 104,870
---------- ----------
Total contracts in process ......................................... $1,317,957 $ 801,824
========== ==========


11


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


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

5. DEBT

The components of long-term debt are presented in the table below.



SEPTEMBER 30, 2002 DECEMBER 31, 2001
-------------------- ------------------

Borrowings under Senior Credit Facilities ..................... $ -- $ --
10 3/8% Senior Subordinated Notes due 2007 .................... -- 225,000
8 1/2% Senior Subordinated Notes due 2008 ..................... 180,000 180,000
8% Senior Subordinated Notes due 2008 ......................... 200,000 200,000
5 1/4% Convertible Senior Subordinated Notes due 2009 ......... 300,000 300,000
4% Senior Subordinated Convertible Contingent Debt
Securities due 2011 (CODES) .................................. 420,000 420,000
7 5/8% Senior Subordinated Notes due 2012 ..................... 750,000 --
---------- ----------
Principal amount of long-term debt ............................ $1,850,000 $1,325,000
Less: Unamortized discount on CODES ........................... 2,311 2,502
Fair value of interest rate swap agreements ............... -- 7,246
---------- ----------
Carrying amount of long-term debt ............................. $1,847,689 $1,315,252
========== ==========


On February 26, 2002, the Company's lenders approved a $150,000 increase
in the amount of the senior credit facilities. The five-year revolving credit
facility, which matures on May 15, 2006, was increased by $100,000 to $500,000,
and the 364-day revolving credit facility increased by $50,000 to $250,000.
Additionally, the maturity date of the $250,000 364-day revolving credit
facility was extended to February 25, 2003.

Available borrowings under the Company's senior credit facilities at
September 30, 2002 were $603,325, after reductions for outstanding letters of
credit of $146,675. There were no borrowings outstanding under the senior
credit facilities at September 30, 2002.

In June 2002, L-3 Communications sold $750,000 of 7 5/8% Senior
Subordinated Notes due June 15, 2012 (the "June 2002 Notes") with interest
payable semi-annually on June 15 and December 15 of each year commencing
December 15, 2002. The net proceeds from this offering and the concurrent sale
of common stock by L-3 Holdings (see Note 7) were used to (1) repay $500,000
borrowed on March 8, 2002, under the Company's senior subordinated bridge loan
facility, (2) repay the indebtedness outstanding under the Company's senior
credit facilities, (3) repurchase and redeem the 10 3/8% Senior Subordinated
Notes due 2007 and (4) increase cash and cash equivalents. The June 2002 Notes
are general unsecured obligations of L-3 Communications and are subordinated in
right of payment to all existing and future senior debt of L-3 Communications.
The June 2002 Notes are subject to redemption at any time, at the option of L-3
Communications, in whole or in part, on or after June 15, 2007 at redemption
prices (plus accrued and unpaid interest) starting at 103.813% of the principal
amount (plus accrued and unpaid interest) during the 12-month period beginning
June 15, 2007 and declining annually to 100% of principal (plus accrued and
unpaid interest) on June 15, 2010 and thereafter. Prior to June 15, 2005, L-3
Communications may redeem up to 35% of the June 2002 Notes with the proceeds of
certain equity offerings at a redemption price of 107.625% of the principal
amount (plus accrued and unpaid interest).

On June 6, 2002, L-3 Communications commenced a tender offer to purchase
any and all of its $225,000 aggregate principal amount of 10 3/8% Senior
Subordinated Notes due 2007. The tender offer expired on July 3, 2002. On June
25, 2002, L-3 Communications sent a notice of redemption for all of its
$225,000 aggregate principal amount of 10 3/8% Senior Subordinated Notes due
2007 that remained outstanding after the expiration of the tender offer. Upon
sending the notice, the remaining notes became due and payable at the
redemption price as of July 25, 2002. At September 30, 2002, L-3 Communications



12


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


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

had purchased and paid cash for all of these notes plus accrued interest, and
premiums, fees and other transaction costs of $12,296. For the nine month
period ended September 30, 2002, L-3 Communications recorded a pre-tax
extraordinary loss of $16,187 ($9,858 after-tax), comprising premiums, fees and
other transaction costs of $12,469 and $3,718 to write-off the remaining
balance of debt issue costs relating to these notes.


In June and August of 2002, L-3 Communications terminated the interest
rate swap agreements on $380,000 of its Senior Subordinated Notes due 2008 and
received cash of $9,302. L-3 Communications recorded a reduction in interest
expense for the nine months ended September 30, 2002 of $4,632, which
represented interest reductions related to the period prior to the termination
of these swap agreements. The remaining $4,670 was recorded as a deferred gain
and will be amortized as a reduction of interest expense over the remaining
terms of the $380,000 of Senior Subordinated Notes due 2008 at an amount of
$191 per quarter, or $764 annually. Additionally, L-3 Communications recorded a
reduction of interest expense for the nine months ended September 30, 2002 of
$2,504 relating to interest savings for interest periods which ended prior to
the termination of these interest rate swap agreements.


In June 2002, L-3 Communications entered into interest rate swap
agreements on $200,000 of its 7 5/8% Senior Subordinated Notes due 2012. These
swap agreements exchanged the fixed interest rate for a variable interest rate
on $200,000 of the $750,000 principal amount outstanding. On September 30,
2002, L-3 Communications terminated these interest rate swap agreements and
received cash of $13,935 in October 2002. L-3 Communications recorded a
reduction of interest expense for the nine months ended September 30, 2002 of
$1,762, which represented interest reductions related to the period prior to
the termination of these swap agreements. The remaining $12,173 was recorded as
a deferred gain and will be amortized as a reduction of interest expense over
the remaining term of the 7 5/8% Senior Subordinated Notes due 2012 at an amount
of $313 per quarter, or $1,254 annually.


Holders of the CODES have a right to receive contingent interest payments,
not to exceed a per annum rate of 0.5% of the outstanding principal amount of
the CODES, which will be paid on the CODES during any six-month period
following a six-month period in which the average trading price of the CODES
exceeds 120% of the principal amount of the CODES. In accordance with the
provision of the CODES, L-3 Holdings will accrue additional interest at a rate
of 0.4% per annum in addition to the 4.0% annual rate of interest on the CODES
for the period of September 15, 2002 to March 14, 2003 equal to $840.

13


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


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

6. COMPREHENSIVE INCOME

Comprehensive income for the three and nine months ended September 30,
2002 and 2001 is presented in the tables below.



THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2002 2001
---------- ----------

Net income ................................................................ $61,670 $33,435
Other comprehensive income (loss):
Foreign currency translation adjustments, net of income tax .............. 941 470
Unrealized gains (losses) on hedging instruments:
Unrealized gains (losses) arising during the period, net of income tax
expense of $45 in 2002 and income tax benefit of $280 in 2001 .......... 121 (452)
------- -------
Comprehensive income ...................................................... $62,732 $33,453
======= =======





NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2002 2001
----------- ----------

Net income ............................................................. $122,679 $70,929
Other comprehensive income (loss):
Foreign currency translation adjustment, net of income tax ............ (304) (70)
Unrealized gains (losses) on securities:
Unrealized losses arising during the period, net of income tax
benefit of $111..................................................... -- (180)
Reclassification adjustment for losses included in net income, net of
income tax expense of $2,274........................................ -- 3,632
Unrealized gains (losses) on hedging instruments:
Cumulative adjustment at January 1, 2001, net of income tax benefit
of $25.............................................................. -- (41)
Unrealized losses arising during the period, net of income tax
benefit of $151 in 2002 and $164 in 2001............................ (243) (263)
Reclassification adjustment for losses included in net income, net of
income tax expense of $198.......................................... 323 --
-------- -------
Comprehensive income ................................................... $122,455 $74,007
======== =======



14


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


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

Accumulated other comprehensive balances at September 30, 2002 and
December 31, 2001 are presented in the table below.



UNREALIZED UNREALIZED
FOREIGN GAINS GAINS MINIMUM ACCUMULATED
CURRENCY (LOSSES) (LOSSES) ON PENSION OTHER
TRANSLATION ON HEDGING LIABILITY COMPREHENSIVE
ADJUSTMENTS SECURITIES INSTRUMENTS ADJUSTMENTS LOSS
------------- ------------ ------------- ------------- --------------

SEPTEMBER 30, 2002
Balance January 1, 2002 ............ $ (2,852) $ (246) $ (163) $ (20,409) $ (23,670)
Period change ...................... (304) -- 80 -- (224)
-------- -------- ------ --------- ---------
Balance September 30, 2002 ......... $ (3,156) $ (246) $ (83) $ (20,409) $ (23,894)
======== ======== ====== ========= =========
DECEMBER 31, 2001
Balance January 1, 2001 ............ $ (2,584) $ (3,698) $ -- $ (890) $ (7,172)
Period change ...................... (268) 3,452 (163) (19,519) (16,498)
-------- -------- ------ --------- ---------
Balance December 31, 2001 .......... $ (2,852) $ (246) $ (163) $ (20,409) $ (23,670)
======== ======== ====== ========= =========


7. L-3 HOLDINGS EARNINGS PER SHARE

On April 23, 2002, the Company announced that its Board of Directors had
authorized a two-for-one stock split on all shares of L-3 Holdings common
stock. The stock split entitled all shareholders of record at the close of
business on May 6, 2002 to receive one additional share of L-3 Holdings common
stock for every share held on that date. The additional shares were distributed
to shareholders in the form of a stock dividend on May 20, 2002. Upon
completion of the stock split, L-3 Holdings had approximately 80 million shares
of common stock outstanding. All of L-3 Holdings' historical as reported share
and earnings per share (EPS) data have been restated to give effect to the
stock split.

On June 28, 2002, L-3 Holdings sold 14,000,000 shares of its common stock
in a public offering for $56.60 per share. Upon closing, L-3 Holdings received
net proceeds after deducting discounts, commissions and estimated expenses of
$766,738. The net proceeds of this offering and the concurrent sale of senior
subordinated notes by L-3 Communications (see Note 5) were used to (1) repay
$500,000 borrowed on March 8, 2002, under the Company's senior subordinated
bridge loan facility, (2) repay the indebtedness outstanding under the
Company's senior credit facilities, (3) repurchase and redeem the 10 3/8%
Senior Subordinated Notes due 2007 and (4) increase cash and cash equivalents.

15


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


NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--
CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
A reconciliation of basic and diluted EPS is presented in the table below.




THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

BASIC:
Income before extraordinary item ............................. $ 61,760 $ 33,435 $132,537 $ 70,929
Extraordinary item, net of income taxes ...................... -- -- (9,858) --
--------- --------- -------- ---------
Net income ................................................... $ 61,760 $ 33,435 $122,679 $ 70,929
========= ========= ======== =========
Weighted average common shares outstanding ................... 94,174 78,070 84,403 73,704
========= ========= ======== =========
Basic earnings per share before extraordinary item ........... $ 0.66 $ 0.43 $ 1.57 $ 0.96
========= ========= ======== =========
Basic earnings per share ..................................... $ 0.66 $ 0.43 $ 1.45 $ 0.96
========= ========= ======== =========
DILUTED:
Income before extraordinary item ............................. $ 61,760 $ 33,435 $132,537 $ 70,929
After-tax interest expense savings on the assumed
conversion of Convertible Notes ............................. 2,579 2,613 7,737 --
--------- --------- -------- ---------
Income before extraordinary item including assumed
conversion of Convertible Notes ............................. 64,339 36,048 140,274 70,929
Extraordinary item, net of income taxes ...................... -- -- (9,858) --
--------- --------- -------- ---------
Net income including assumed conversion of
Convertible Notes ........................................... $ 64,339 $ 36,048 $130,416 $ 70,929
========= ========= ======== =========
Common and potential common shares:
Weighted average common shares outstanding .................. 94,174 78,070 84,403 73,704
Assumed exercise of stock options ........................... 7,623 7,688 8,648 7,652
Assumed purchase of common shares for treasury .............. (4,686) (4,676) (5,458) (4,438)
Assumed conversion of Convertible Notes ..................... 7,362 7,362 7,362 --
--------- --------- -------- ---------
Common and potential common shares .......................... 104,473 88,444 94,955 76,918
========= ========= ======== =========
Diluted earnings per share before extraordinary item ......... $ 0.62 $ 0.41 $ 1.48 $ 0.92
========= ========= ======== =========
Diluted earnings per share ................................... $ 0.62 $ 0.41 $ 1.37 $ 0.92
========= ========= ======== =========


The 7,361,964 shares of L-3 Holdings common stock that are issuable upon
conversion of the Convertible Notes were not included in the computation of
diluted EPS for the nine months ended September 30, 2001 because the effect of
the assumed conversion would have been anti-dilutive for that period.

The 7,804,878 shares of L-3 Holdings' common stock that are issuable upon
conversion of the CODES were not included in the computation of diluted EPS for
the three and nine months ended September 30, 2002 because the conditions
required for the CODES to become convertible were not satisfied.

16


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


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

8. TRANSITIONAL DISCLOSURE REQUIRED BY SFAS NO. 142

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets, which supersedes Accounting Principles Board (APB) Opinion
No. 17, Intangible Assets. SFAS No. 142 revised the standards for accounting
for goodwill and other intangible assets. SFAS No. 142 requires that goodwill
and indefinite lived identifiable intangible assets no longer be amortized, but
be tested for impairment at least annually based on their estimated fair
values. The provisions of SFAS No. 142 became effective on January 1, 2002, and
full implementation of the impairment measurement provisions is required by
December 31, 2002. Effective January 1, 2002, the Company ceased recording
goodwill amortization expense. Based on the estimated fair values of the
Company's reporting units using a discounted cash flows valuation, the goodwill
for certain space and broadband commercial communications businesses included
in the Specialized Products segment may be impaired. The aggregate amount of
goodwill recorded for these businesses is approximately $21.0 million, net of
related income taxes. The Company expects to complete the valuation of the
assets and liabilities for these businesses and to determine the amount of the
goodwill impairment in the fourth quarter of 2002. Any resulting impairment
would be a non-cash charge, recorded effective January 1, 2002, as a cumulative
effect of a change in accounting principle in accordance with the adoption
provisions of SFAS No. 142.

The table below presents net income and basic and diluted EPS for the
three and nine months ended September 30, 2002 compared with those amounts for
the same periods in 2001, adjusted to exclude goodwill amortization expense,
net of income taxes.



THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------- ------------

Reported income before extraordinary item ........... $ 61,760 $ 33,435 $ 132,537 $ 70,929
Add: Goodwill amortization expense, net of income tax
and minority interest .............................. -- 9,130 -- 24,905
-------- -------- --------- --------
Adjusted income before extraordinary item ........... $ 61,760 $ 42,565 $ 132,537 $ 95,834
======== ======== ========= ========
Adjusted net income ................................. $ 61,760 $ 42,565 $ 122,679 $ 95,834
======== ======== ========= ========
BASIC EPS:
Reported before extraordinary item .................. $ 0.66 $ 0.43 $ 1.57 $ 0.96
Goodwill amortization expense, net of income tax and
minority interest .................................. -- 0.12 -- 0.34
-------- -------- --------- --------
Adjusted before extraordinary item .................. $ 0.66 $ 0.55 $ 1.57 $ 1.30
======== ======== ========= ========
Adjusted after extraordinary item ................... $ 0.66 $ 0.55 $ 1.45 $ 1.30
======== ======== ========= ========
DILUTED EPS:
Reported before extraordinary item .................. $ 0.62 $ 0.41 $ 1.48 $ 0.92
Goodwill amortization expense, net of income tax and
minority interest .................................. -- 0.10 -- 0.33
-------- -------- --------- --------
Adjusted before extraordinary item .................. $ 0.62 $ 0.51 $ 1.48 $ 1.25
======== ======== ========= ========
Adjusted after extraordinary item ................... $ 0.62 $ 0.51 $ 1.37 $ 1.25
======== ======== ========= ========


17


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


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

9. CONTINGENCIES

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

Management continually assesses the Company's obligations with respect to
applicable environmental protection laws. While it is difficult to determine
the timing and ultimate cost to be incurred by the Company in order to comply
with these laws, based upon available internal and external assessments, with
respect to those environmental loss contingencies of which management is aware,
the Company believes that even without considering potential insurance
recoveries, if any, there are no environmental loss contingencies that,
individually or in the aggregate, would be material to the Company's results of
operations. The Company accrues for these contingencies when it is probable
that a liability has been incurred and the amount of the loss can be reasonably
estimated.

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

On August 6, 2002, Aviation Communication & Surveillance Systems, LLC
(ACSS), a subsidiary of L-3 Communications Corporation, was sued by Honeywell
International, Inc. and Honeywell Intellectual Properties, Inc. for alleged
infringement of patents that relate to terrain awareness avionics. The lawsuit
was filed in the United States District Court for the District of Delaware. The
Company had previously investigated the Honeywell patents and believes that it
has valid defenses to Honeywell's claim. In addition, ACSS has been indemnified
to a certain extent by Thales Avionics, which has provided to ACSS the alleged
infringing technology. In the opinion of management, the ultimate disposition
of Honeywell's pending claim will not result in a material liability to the
Company.


10. SEGMENT INFORMATION

The Company has four reportable segments: (1) Secure Communications & ISR,
(2) Training, Simulation & Support Services (3) Aviation Products & Aircraft
Modernization and (4) Specialized Products which are described in Note 1. The
Company evaluates the performance of its operating segments and reportable
segments based on their sales and operating income.

18


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


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

The tables below present sales, operating income, depreciation and
amortization and assets by reportable segment.




THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -----------------------------
2002 2001 2002 2001
-------------- ----------- -------------- --------------

SALES:
Secure Communications & ISR ........................ $ 275,013 $136,719 $ 711,319 $ 309,408
Training, Simulation & Support Services ............ 198,440 157,716 596,742 426,476
Aviation Products & Aircraft Modernization ......... 241,628 57,084 552,420 188,538
Specialized Products ............................... 340,944 267,825 855,870 722,212
Elimination of intersegment sales .................. (2,412) (1,180) (10,709) (5,009)
---------- -------- ---------- ----------
Consolidated total ............................... $1,053,613 $618,164 $2,705,642 $1,641,625
========== ======== ========== ==========
OPERATING INCOME: ...................................
Secure Communications & ISR ........................ $ 30,296 $ 8,138 $ 76,361 $ 19,282
Training, Simulation & Support Services ............ 26,557 19,434 70,342 47,944
Aviation Products & Aircraft Modernization ......... 33,991 21,158 83,713 68,703
Specialized Products ............................... 36,543 26,478 65,966 46,615
---------- -------- ---------- ----------
Consolidated total ............................... $ 127,387 $ 75,208 $ 296,382 $ 182,544
========== ======== ========== ==========
DEPRECIATION AND AMORTIZATION:
Secure Communications & ISR ........................ $ 5,660 $ 3,164 $ 16,218 $ 10,008
Training, Simulation & Support Services ............ 1,678 3,465 5,693 9,411
Aviation Products & Aircraft Modernization ......... 4,894 2,903 11,515 8,855
Specialized Products ............................... 7,550 12,821 20,776 36,715
---------- -------- ---------- ----------
Consolidated total ............................... $ 19,782 $ 22,353 $ 54,202 $ 64,989
========== ======== ========== ==========





SEPTEMBER 30, 2002 DECEMBER 31, 2001
-------------------- ------------------

ASSETS:
Secure Communications & ISR ......................... $1,077,540 $ 366,482
Training, Simulation & Support Services ............. 642,531 497,368
Aviation Products & Aircraft Modernization .......... 1,087,388 545,517
Specialized Products ................................ 1,508,114 1,382,010
Corporate ........................................... 743,769 547,872
---------- ----------
Consolidated total ................................ $5,059,342 $3,339,249
========== ==========


The following table presents the changes in goodwill allocated to the
reportable segments during the nine months ended September 30, 2002.



AVIATION
SECURE TRAINING, PRODUCTS
COMMUNICATIONS SIMULATION & & AIRCRAFT SPECIALIZED CONSOLIDATED
& ISR SUPPORT SERVICES MODERNIZATION PRODUCTS TOTAL
---------------- ------------------ --------------- ------------- -------------

BALANCE JANUARY 1, 2002 ............ $181,215 $377,127 $371,222 $778,154 $1,707,718
Acquisitions ...................... 482,945 66,016 259,865 63,341 872,167
-------- -------- -------- -------- ----------
BALANCE SEPTEMBER 30, 2002 ......... $664,160 $443,143 $631,087 $841,495 $2,579,885
======== ======== ======== ======== ==========


19


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


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

The Company's sales by product and services are summarized in the table
below.






THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ----------------------------
2002 2001 2002 2001
------------- ------------ ------------- --------------

Aircraft modernization and maintenance ................... $ 185,079 $ -- $ 386,751 $ --
Avionics and ocean systems ............................... 129,255 147,227 379,721 439,901
Intelligence, surveillance and reconnaissance products ... 118,738 -- 283,765 --
Telemetry and instrumentation ............................ 83,967 85,079 246,726 241,121
Detection systems and premium fuzing products ............ 130,087 23,755 235,029 40,309
Military and high data rate communications ............... 77,790 64,433 220,906 164,712
Information security systems ............................. 49,482 43,305 144,212 87,171
Training devices and motion simulators ................... 42,519 43,935 109,779 110,748
Microwave components ..................................... 17,074 25,635 59,856 81,173
Space and commercial communications, satellite control
and tactical sensor systems ............................. 33,815 31,572 75,106 64,006
---------- -------- ---------- ----------
Subtotal products ..................................... 867,806 464,941 2,141,851 1,229,141
Training, simulation and support services ................ 198,440 157,716 596,742 426,476
---------- -------- ---------- ----------
Subtotal .............................................. 1,066,246 622,657 2,738,593 1,655,617
Intercompany eliminations ................................ (12,633) (4,493) (32,951) (13,992)
---------- -------- ---------- ----------
Total ................................................... $1,053,613 $618,164 $2,705,642 $1,641,625
========== ======== ========== ==========


11. NEW ACCOUNTING PRONOUNCEMENTS

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

In October of 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-lived Assets. SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This statement supersedes SFAS No. 121, Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to Be Disposed Of, and the
accounting and reporting provisions of APB Opinion No. 30, Reporting the
Results of Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions (APB No. 30), for the disposal of a segment of a business (as
previously defined in that Opinion). SFAS No. 144 expands the scope of
accounting for disposals to include all components of an entity, including
reportable segments and operating segments, reporting units, subsidiaries and
certain asset groups. It requires the gain or loss on disposal to be measured
as the difference between (1) the fair


20


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


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

value less the costs to sell and (2) the carrying value of the component, and
such gain or loss cannot include the estimated future operating losses of the
component, which were included in the gain or loss determination under APB No.
30. SFAS No. 144 also amends Accounting Research Bulletin No. 51, Consolidated
Financial Statements, to eliminate the exception to consolidate a subsidiary
for which control is likely to be temporary. The provisions of SFAS No. 144
became effective on January 1, 2002. SFAS No. 144 did not have a material
effect on the Company's consolidated results of operation and financial
position.

In May 2002, the FASB issued SFAS No. 145, Rescission of SFAS Nos. 4, 44
and 64, Amendment of SFAS No. 13, and Technical Corrections as of April 2002.
SFAS No. 145, rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and SFAS No. 64, Extinguishments of Debt made to
Satisfy Sinking-Fund Requirements. Under the provisions of SFAS No. 145, gains
and losses from extinguishment of debt can only be classified as extraordinary
items if they meet the criteria in APB Opinion No. 30. The provisions of this
Statement related to the rescission of SFAS No. 4 shall be applied in fiscal
years beginning after May 15, 2002. Earlier application is permitted. This
statement also amends SFAS No. 13, Accounting for Leases, to eliminate an
inconsistency between the accounting for sale-leaseback transactions and
certain lease modifications that have economic effects that are similar and is
effective for transactions occurring after May 15, 2002. This Statement also
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions and are effective for financial statements issued on or after May
15, 2002. SFAS No. 145 is not expected to have a material effect on the
Company's consolidated results of operations, financial position or cash flows.
However, in accordance with the provisions of SFAS No. 145, beginning on
January 1, 2003, the loss on the extinguishment of debt of $16,187 ($9,858
after-tax) that the Company recorded in June 2002 (see Note 5) will be included
in income from continuing operations and not be reported as an extraordinary
item.

In July of 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 replaces EITF No.
94-3 "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 requires companies to recognize costs associated
with exit or disposal activities when they are incurred rather than at the date
of a commitment to an exit or disposal plan as was required by EITF No. 94-3.
Examples of costs covered by SFAS No. 146 include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity. SFAS
No. 146 is to be applied to exit or disposal activities initiated after
December 31, 2002. SFAS No. 146 is not expected to have a material effect on
the Company's consolidated results of operations and financial position.


12. UNAUDITED FINANCIAL INFORMATION OF L-3 COMMUNICATIONS AND ITS SUBSIDIARIES

L-3 Communications is a wholly owned subsidiary of L-3 Holdings. The debt
of L-3 Communications, including its outstanding senior subordinated notes and
borrowings under amounts drawn against the senior credit facilities are
guaranteed, on a joint and several, full and unconditional basis, by certain of
its wholly owned domestic subsidiaries (the "Guarantor Subsidiaries"). The
foreign subsidiaries and certain domestic subsidiaries of L-3 Communications
(the "Non-Guarantor Subsidiaries") do not guarantee the debt of L-3
Communications. None of the debt of L-3 Communications has been issued by its
subsidiaries. There are no restrictions on the payment of dividends from the
Guarantor Subsidiaries to L-3 Communications.

21


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


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

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



L-3 NON- CONSOLIDATED
COMMUNICATIONS GUARANTOR GUARANTOR L-3
(PARENT) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS COMMUNICATIONS
---------------- -------------- -------------- ---------------- ---------------

UNAUDITED CONDENSED COMBINING
- -----------------------------
BALANCE SHEETS:
---------------
AS OF SEPTEMBER 30, 2002
- ------------------------
Total current assets .................... $ 997,903 $ 720,155 $ 148,237 $ -- $1,866,295
Other long-term assets .................. 998,521 1,735,641 458,885 -- 3,193,047
Investment in and amounts due from
(to) consolidated subsidiaries ......... 2,562,063 290,634 (31,224) (2,821,473) --
---------- ---------- --------- ------------ ----------
Total assets ......................... $4,558,487 $2,746,430 $ 575,898 $ (2,821,473) $5,059,342
========== ========== ========= ============ ==========
Total current liabilities ............... $ 353,061 $ 215,152 $ 73,398 $ -- $ 641,611
Other long-term liabilities ............. 184,847 129,965 9,625 -- 324,437
Long-term debt .......................... 1,847,689 -- -- -- 1,847,689
Minority interest ....................... -- -- 72,715 -- 72,715
Shareholders' equity .................... 2,172,890 2,401,313 420,160 (2,821,473) 2,172,890
---------- ---------- --------- ------------ ----------
Total liabilities and shareholders
equity' ............................. $4,558,487 $2,746,430 $ 575,898 $ (2,821,473) $5,059,342
========== ========== ========= ============ ==========
AS OF DECEMBER 31, 2001
- -----------------------
Total current assets .................... $ 786,498 $ 300,585 $ 155,318 $ -- $1,242,401
Other long-term assets .................. 965,566 701,887 429,395 -- 2,096,848
Investment in and amounts due from
consolidated subsidiaries .............. 1,229,572 150,580 43,236 (1,423,388) --
---------- ---------- --------- ------------ ----------
Total assets ......................... $2,981,636 $1,153,052 $ 627,949 $ (1,423,388) $3,339,249
========== ========== ========= ============ ==========
Total current liabilities ............... $ 278,598 $ 136,579 $ 109,394 $ -- $ 524,571
Other long-term liabilities ............. 173,894 31,080 10,663 -- 215,637
Long-term debt .......................... 1,315,252 -- -- -- 1,315,252
Minority interest ....................... -- -- 69,897 -- 69,897
Shareholders' equity .................... 1,213,892 985,393 437,995 (1,423,388) 1,213,892
---------- ---------- --------- ------------ ----------
Total liabilities and shareholders'
equity .............................. $2,981,636 $1,153,052 $ 627,949 $ (1,423,388) $3,339,249
========== ========== ========= ============ ==========


22


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


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



L-3 NON- CONSOLIDATED
COMMUNICATIONS GUARANTOR GUARANTOR L-3
(PARENT) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS COMMUNICATIONS
---------------- -------------- -------------- -------------- ---------------

UNAUDITED CONDENSED COMBINING
- -----------------------------
STATEMENTS OF OPERATIONS:
------------------------
FOR THE NINE MONTHS ENDED
- -------------------------
SEPTEMBER 30, 2002
------------------
Sales ................................... $1,199,249 $1,326,958 $193,034 $ (13,599) $2,705,642
---------- ---------- -------- --------- ----------
Operating income ........................ 148,393 114,914 33,075 -- 296,382
Interest and other income (expense) ..... 7,072 (301) 257 (4,569) 2,459
Interest expense ........................ 87,303 1,525 4,656 (4,569) 88,915
Minority interest ....................... -- -- 5,077 -- 5,077
Provision for income taxes .............. 24,062 39,920 8,330 -- 72,312
Equity in net income of consolidated
subsidiaries ........................... 88,437 -- -- (88,437) --
Extraordinary item-loss on
extinguishment of debt, net of
taxes .................................. (9,858) -- -- -- (9,858)
---------- ---------- -------- --------- ----------
Net income .............................. $ 122,679 $ 73,168 $ 15,269 $ (88,437) $ 122,679
========== ========== ======== ========= ==========
FOR THE NINE MONTHS ENDED
- -------------------------
SEPTEMBER 30, 2001
------------------
Sales ................................... $ 939,146 $ 604,691 $100,829 $ (3,041) $1,641,625
---------- ---------- -------- --------- ----------
Operating income ........................ 144,959 24,188 13,397 -- 182,544
Interest and other income (expense) ..... 8,127 (532) (6,340) -- 1,255
Interest expense ........................ 64,647 -- 239 -- 64,886
Minority interest ....................... -- -- 3,955 -- 3,955
Provision for income taxes .............. 33,872 9,060 1,097 -- 44,029
Equity in net income of consolidated
subsidiaries ........................... 16,362 -- -- (16,362) --
---------- ---------- -------- --------- ----------
Net income .............................. $ 70,929 $ 14,596 $ 1,766 $ (16,362) $ 70,929
========== ========== ======== ========= ==========
FOR THE THREE MONTHS ENDED
- --------------------------
SEPTEMBER 30, 2002
------------------
Sales ................................... $ 450,481 $ 539,677 $ 68,983 $ (5,528) $1,053,613
---------- ---------- -------- --------- ----------
Operating income ........................ 79,962 39,111 8,314 -- 127,387
Interest and other income (expense) ..... 3,426 (103) 76 (1,764) 1,635
Interest expense ........................ 31,176 129 1,711 (1,764) 31,252
Minority interest ....................... -- -- 2,313 -- 2,313
Provision for income taxes .............. 18,432 13,724 1,541 -- 33,697
Equity in net income of consolidated
subsidiaries ........................... 27,980 -- -- (27,980) --
---------- ---------- -------- --------- ----------
Net income .............................. $ 61,760 $ 25,155 $ 2,825 $ (27,980) $ 61,760
========== ========== ======== ========= ==========


23


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


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



L-3 NON- CONSOLIDATED
COMMUNICATIONS GUARANTOR GUARANTOR L-3
(PARENT) SUBSIDIARIES SUBSIDIARIES ELIMINATIONS COMMUNICATIONS
---------------- -------------- -------------- -------------- ---------------

FOR THE THREE MONTHS ENDED
- --------------------------
SEPTEMBER 30, 2001
------------------
Sales ..................................... $ 341,317 $ 230,994 $ 46,655 $ (802) $ 618,164
------------ ------------ ---------- ------------ ------------
Operating income .......................... 56,201 12,062 6,945 -- 75,208
Interest and other income (expense) ....... 147 (333) (13) -- (199)
Interest expense .......................... 18,249 -- 201 -- 18,450
Minority interest ......................... -- -- 2,370 -- 2,370
Provision for income taxes ................ 14,591 4,492 1,671 -- 20,754
Equity in net income of consolidated
subsidiaries ............................. 9,927 -- -- (9,927) --
------------ ------------ ---------- ------------ ------------
Net income ................................ $ 33,435 $ 7,237 $ 2,690 $ (9,927) $ 33,435
============ ============ ========== ============ ============
UNAUDITED CONDENSED COMBINING
- -----------------------------
STATEMENTS OF CASH FLOWS:
------------------------
FOR THE NINE MONTHS ENDED
- -------------------------
SEPTEMBER 30, 2002
------------------
Net cash from operating activities ........ $ 133,938 $ 120,696 $ 9,746 $ -- $ 264,380
------------ ------------ ---------- ------------ ------------
Net cash used in investing activities ..... (1,431,454) (1,320,394) (104,244) 1,400,424 (1,455,668)
------------ ------------ ---------- ------------ ------------
Net cash from financing activities ........ 1,425,750 1,184,763 68,353 (1,400,424) 1,278,442
------------ ------------ ---------- ------------ ------------
Net increase (decrease) in cash ........... 128,234 (14,935) (26,145) -- 87,154
Cash and cash equivalents, beginning
of period ................................ 320,210 (4,412) 45,224 -- 361,022
------------ ------------ ---------- ------------ ------------
Cash and cash equivalents, end of
period ................................... $ 448,444 $ (19,347) $ 19,079 $ -- $ 448,176
============ ============ ========== ============ ============
FOR THE NINE MONTHS ENDED
- -------------------------
SEPTEMBER 30, 2001
------------------
Net cash from operating activities ........ $ 31,054 $ 29,947 $ 22,839 $ -- $ 83,840
------------ ------------ ---------- ------------ ------------
Net cash used in investing activities ..... (165,613) (217,206) (17,621) 215,147 (185,293)
------------ ------------ ---------- ------------ ------------
Net cash from financing activities ........ 184,697 192,657 5,037 (215,147) 167,244
------------ ------------ ---------- ------------ ------------
Net increase in cash ...................... 50,138 5,398 10,255 -- 65,791
Cash and cash equivalents, beginning
of period ................................ 18,708 4,911 9,061 -- 32,680
------------ ------------ ---------- ------------ ------------
Cash and cash equivalents, end of
period ................................... $ 68,846 $ 10,309 $ 19,316 $ -- $ 98,471
============ ============ ========== ============ ============



24


ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION

GENERAL

We are a leading merchant supplier of secure communications and
intelligence, surveillance and reconnaissance (ISR) systems, training,
simulation and support services, aviation products and aircraft modernization,
as well as specialized products. Our customers include the DoD, prime
contractors to the DoD, certain U.S. Government intelligence agencies, major
aerospace and defense contractors, foreign governments, commercial customers
and certain other U.S. federal, state and local government agencies. As a
result of our recently completed acquisitions, including our acquisitions of
Aircraft Integration Systems, a division of Raytheon Company, on March 8, 2002,
and Spar, Analytics, BT Fuze and SY Technologies in November and December of
2001 and their effect on our operations, effective January 1, 2002, we began to
present our businesses in the following four reportable segments: (1) Secure
Communications & ISR; (2) Training, Simulation & Support Services; (3) Aviation
Products & Aircraft Modernization; and (4) Specialized Products. Prior to
December 31, 2001, we had two reportable segments: Secure Communications
Systems and Specialized Products.

Our Secure Communications & ISR segment provides products and services for
the global ISR market as well as secure, high data rate communications systems
for military and other U.S. Government reconnaissance and surveillance
applications. We believe our systems and products are critical elements of
virtually all major communication, command and control, intelligence gathering
and space systems. Our systems and products are used to connect a variety of
airborne, space, ground and sea-based communication systems and are used in
transmission, processing, recording, monitoring and dissemination functions of
these communication systems. Our Training, Simulation & Support Services
segment produces training systems, programs and related support services, and
provides a wide range of engineering development and integration support, a
full range of teaching, training, logistic and communication software support
services and custom ballistic targets. Our Aviation Products & Aircraft
Modernization segment provides TCAS products, cockpit voice, flight data and
cruise ship hardened voyage recorders, displays and specialized aircraft
modernization, upgrade and maintenance services. Our Specialized Products
segment provides ocean products, telemetry, instrumentation, space and guidance
products, premium fuzing products, detection systems, training devices and
microwave components.

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

The current U.S. defense budget and the proposed U.S. defense budgets for
fiscal years 2003 through 2006 have each been increased by approximately 20%
over their previous budgets for those same years with increased focus on
command, control, communications, intelligence, surveillance and reconnaissance
(C3ISR), precision-guided weapons, unmanned aerial vehicles (UAVs),
communications networks and missile defense. We believe we are well positioned
to benefit from increased spending in those areas. In addition, increased
emphasis on homeland defense may increase demand for our capabilities in areas
such as airport security systems, information security, crisis management,
preparedness and prevention services, and civilian security operations. While
there is no assurance that the proposed increased DoD budget levels will be
approved by Congress, after over a decade of downward trends, the current
outlook is one of increased spending, which we believe should positively affect
our future sales and could potentially favorably affect our future operating
profits because of increased sale volumes.


25


All of our domestic government contracts and subcontracts are subject to
audit and various cost controls, and include standard provisions for
termination for the convenience of the U.S. Government. Multiyear U.S.
Government contracts and related orders are subject to cancellation if funds
for contract performance for any subsequent year become unavailable. Foreign
government contracts generally include comparable provisions relating to
termination for the convenience of the relevant foreign government.


ACQUISITIONS

The table below summarizes the significant acquisitions that we have
completed during the year ended December 31, 2001 and the nine-month period
ended September 30, 2002.



PURCHASE
ACQUIRED COMPANY DATE ACQUIRED PRICE(1)
- ------------------------------------------------- -------------------- --------------------------

KDI Precision Products May 4, 2001 $ 78.9
EER Systems May 31, 2001 $ 119.4(2)
Spar Aerospace Limited November 23, 2001 $ 146.8(3)
Emergent Government Services Group(4) November 30, 2001 $ 39.7
BT Fuze Products December 19, 2001 $ 51.1
SY Technology December 31, 2001 $ 58.5(5)
Aircraft Integration Systems(7) March 8, 2002 $ 1,148.7(6)(7)
Detection Systems June 14, 2002 $ 110.0(6)(8)
Telos July 19, 2002 $ 20.0(6)(9)
ComCept, Inc. July 31, 2002 $ 25.5(6)(10)
Technology, Management and Analysis Corporation September 23, 2002 $ 51.4(6)(11)


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

(2) Excludes additional purchase price, not to exceed $5.0 million, which is
contingent upon the financial performance of EER for the year ending
December 31, 2002.

(3) Includes $43.6 million for the remaining 29.7% of the outstanding common
stock of Spar that we acquired and paid for in January 2002.

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

(5) Includes an $8.7 million purchase price adjustment based on actual
closing date net assets and $1.8 million of additional purchase price,
which was based on the financial performance of SY for the year ended
December 31, 2001. Excludes additional purchase price, not to exceed $3.0
million, which is contingent upon the financial performance of SY for the
years ending December 31, 2002 and 2003.

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

(7) Includes $18.7 million related to additional net assets received at
closing. Following the acquisition, we changed AIS's name to L-3
Integrated Systems (IS).

(8) Includes a $10.0 million preliminary purchase price adjustment.

(9) Telos was acquired by L-3's wholly-owned subsidiary, L-3 Communications
ILEX Systems, Inc.

(10) Purchase price consists of $14.9 million of cash and 229,494 shares of
L-3 Holdings common stock valued at $10.6 million. Excludes additional
purchase price in the form of L-3 Holdings common stock, which is
contingent upon the financial performance of ComCept for the fiscal years
ending June 30, 2003 and 2004. The maximum additional L-3 Holdings common
stock payable is 219,088 shares.

(11) Excludes additional purchase price, not to exceed $7.0 million, which is
contingent upon the financial performance of TMA for the years ending
December 31, 2002 and 2003.

- ----------
All of our acquisitions have been accounted for as purchase business
combinations and are included in our consolidated results of operations from
their respective effective dates. Additionally, we purchased other businesses
during the nine months ended September 30, 2002 and during the year ended


26


December 31, 2001, which individually and in the aggregate were not material to
our consolidated results of operations, financial position or cash flows for
the period acquired. On October 25, 2002, we acquired the assets of Northrop
Grumman's Electron Devices and Displays -- Navigation Systems -- San Diego
businesses for $135.0 million in cash plus acquisition costs. Following the
acquisitions, we changed the names of these businesses to L-3 Electron Devices
and L-3 Ruggedized Command and Control Solutions. The purchase price is subject
to adjustment based on closing date net assets of the acquired businesses, as
defined. We regularly evaluate potential acquisitions and joint venture
transactions, but we have not entered into any agreements with respect to any
material transactions at this time, other than our agreements to acquire Wescam
Inc. and Westwood Corporation, which we expect to acquire by the end of
November 2002.


RESULTS OF OPERATIONS

The following information should be read in conjunction with our unaudited
condensed consolidated financial statements as of September 30, 2002. Our
results of operations for the periods presented are impacted significantly by
our acquisitions. See Note 3 to the unaudited condensed consolidated financial
statements for a discussion of our acquisitions, including pro forma sales, net
income and diluted earnings per share data. The tables below provide our
selected statement of operations data for the three-month and nine-month
periods ended September 30, 2002, which we refer to as the 2002 Third Quarter
and 2002 Nine Month Period, and for the three-month and nine-month periods
ended September 30, 2001, which we refer to as the 2001 Third Quarter and 2001
Nine Month Period. Prior period reportable segment information has been
restated to conform to the current year presentation of reportable segments.
The comparability of operating income between the current and prior year
periods is affected by SFAS No. 142, because beginning January 1, 2002,
goodwill is no longer amortized (see Note 8 to the unaudited condensed
consolidated financial statements). The impact of not amortizing goodwill is
also discussed below.


THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 2001



THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------
2002 2001
------------ -----------------
(in millions)

Sales(1):
Secure Communications & ISR ........................ $ 274.9 $ 136.4
Training, Simulation & Support Services ............ 198.6 157.6
Aviation Products & Aircraft Modernization ......... 241.3 57.1
Specialized Products ............................... 338.8 267.1
--------- --------
Total ............................................ $ 1,053.6 $ 618.2
========= ========
Operating income:
Secure Communications & ISR ........................ $ 30.3 $ 8.2(2)
Training, Simulation & Support Services ............ 26.5 19.3(2)
Aviation Products & Aircraft Modernization ......... 34.0 21.2(2)
Specialized Products ............................... 36.6 26.5(2)
--------- -----------
Total ............................................ $ 127.4 $ 75.2
========= ===========


- ----------
(1) Sales are after intersegment eliminations. See Note 10 to the Unaudited
Condensed Consolidated Financial Statements.

(2) Operating income for the three months ended September 30, 2001, includes
goodwill amortization expense of $1.0 million for Secure Communications
and ISR, $2.0 million for Training, Simulation & Support Services, $2.0
million for Aviation Products & Aircraft Modernization, and $6.1 million
for Specialized Products, which aggregated $11.1 million for all of L-3.
In accordance with SFAS No. 142, beginning January 1, 2002, goodwill is
no longer amortized to expense.

- ----------
Consolidated sales increased $435.4 million to $1,053.6 million in the
2002 Third Quarter from sales of $618.2 million for the 2001 Third Quarter.
Sales grew $41.0 million or 6.6%, excluding the increase in sales from acquired
businesses of $394.4 million discussed below. Had these acquisitions occurred
on January 1, 2001, pro forma sales for the 2002 Third Quarter would have been
$1,062.3 million, an increase of 11.8% over pro forma sales of $950.2 million
for the 2001 Third Quarter (see Note 3 to the unaudited


27


condensed consolidated financial statements). The pro forma sales growth of
11.8% exceeded the actual sales growth excluding acquisitions of 6.6%, because
the IS and Detection Systems acquired businesses had growth higher than our
other businesses. Additionally, the pro forma sales for the 2002 Third Quarter
includes $12.1 million from the IS acquired business, which are not expected to
recur, relating to (i) the procurement of commercial aircraft for a certain
customer, whereas historically customers have provided IS with the aircraft to
be modified as customer-furnished equipment and (ii) a subcontract for
Raytheon's Boeing Business Jet (BBJ) program. The IS acquired business pro
forma sales for the 2001 Third Quarter did not include the BBJ program.

Sales to the U.S. Government, foreign governments and other customers that
are made pursuant to written contractual arrangements or "contracts" for
products and/or services according to the specifications of the customer are
within the scope of SOP 81-1, Accounting for Performance of Construction--type
and certain Production-type contracts, and are presented on the statement of
operations under the caption "Contracts, primarily long-term U.S. Government".
These sales increased $425.9 million to $936.9 million in the 2002 Third
Quarter from $511.0 million in the 2001 Third Quarter. The Spar, Analytics, SY,
BT Fuze, IS, Telos, ComCept and TMA acquired businesses contributed $357.2
million of the increase in sales. The remaining increase was primarily
attributable to volume increases of $28.8 million for secure communication
systems including secure telephone equipment (STE) and secure data links, $55.9
million for explosive detection systems and $10.1 million for guidance products
and displays. These increases were partially offset by declines of $26.1
million on naval power equipment, static transfer switches used for commercial
applications, ballistic missile targets and services, acoustic undersea warfare
products and telemetry and space products.

Sales arrangements that are not within the scope of SOP 81-1 are
recognized in accordance with the SEC's SAB No. 101, Revenue Recognition in
Financial Statements, and are presented on the statement of operations under
the caption "Commercial, primarily products". These sales increased $9.5
million to $116.7 million in the 2002 Third Quarter from $107.2 million in the
2001 Third Quarter. The Detection Systems acquired business contributed $37.2
million in sales. Lower volumes on commercial aviation products, microwave
components and communications products, including PrimeWave, caused a decline
in sales of $27.7 million.

Consolidated costs and expenses increased $383.2 million to $926.2 million
in the 2002 Third Quarter from $543.0 million in the 2001 Third Quarter
primarily as a result of the increase in sales. The impact of not amortizing
goodwill decreased consolidated costs and expenses by $11.1 million.

Costs and expenses for "Contracts, primarily long-term U.S. Government"
increased $372.4 million to $815.9 million in the 2002 Third Quarter from
$443.5 million in the 2001 Third Quarter primarily as a result of the increase
in sales. The impact of not amortizing goodwill decreased costs and expenses by
$8.4 million.

Costs and expenses for "Commercial, primarily products" increased $10.8
million to $110.3 million in the 2002 Third Quarter from $99.5 million in the
2001 Third Quarter. The increase is primarily due to increased sales as a
result of the acquisition of Detection Systems partially offset by lower
expenses for microwave components and other communications products due to
lower sales volume. The impact of not amortizing goodwill decreased costs and
expenses by $2.7 million.

Consolidated operating income increased by $52.2 million to $127.4 million
for the 2002 Third Quarter from $75.2 million for the 2001 Third Quarter. The
impact of not amortizing goodwill increased consolidated operating income by
$11.1 million. The remaining increase was primarily due to higher sales, which
were partially offset by lower operating margins. Consolidated operating income
as a percentage of sales ("operating margin") declined 0.1 percentage points to
12.1% in the 2002 Third Quarter from 12.2% in the 2001 Third Quarter. The
impact of not amortizing goodwill increased consolidated operating margin by
1.1 percentage points. This increase was offset by lower margins from the
Aviation Products & Aircraft Modernization, Training, Simulation & Support
Services and Specialized Products segments, which were partially offset by
higher margins from the Secure Communications & ISR segment. The changes in the
operating margins of the segments are discussed below. Additionally, a foreign
currency exchange loss of $3.7 million was recorded in the 2002 Third Quarter.


28


Operating income for "Contracts, primarily long-term U.S. Government"
increased $53.5 million to $121.0 million in the 2002 Third Quarter from $67.5
million in the 2001 Third Quarter. Operating margin for "Contracts, primarily
long-term U.S. Government" decreased 0.3 percentage points to 12.9% in the 2002
Third Quarter from 13.2% in the 2001 Third Quarter. The impact of not
amortizing goodwill increased operating margin by 0.9 percentage points. The
increase in operating margin was offset by lower margins from the acquired
businesses.

Operating income for "Commercial, primarily products" declined $1.3
million to $6.4 million in the 2002 Third Quarter from operating income of $7.7
million in the 2001 Third Quarter. Operating margin for "Commercial, primarily
products" declined 1.7 percentage points to 5.5% in the 2002 Third Quarter from
7.2% in the 2001 Third Quarter. The decline was principally attributable to
lower margins on commercial aviation products, microwave, and other
communication products because of volume declines in sales, as well as
continued marketing, selling and development expenses for the Prime Wave
business. These declines were partially offset by not amortizing goodwill in
the current period.

Interest expense increased $12.8 million to $31.3 million for the 2002
Third Quarter from $18.5 million for the 2001 Third Quarter, because of the
higher outstanding debt principally related to the borrowings incurred to
finance the IS acquisition, which was partially offset by savings of $2.5
million from fixed-to-variable interest rate swap agreements. For the period
beginning September 15, 2002 to March 14, 2003, we will accrue contingent
interest at a rate of 0.40% per annum, or $0.8 million, in addition to the 4%
annual rate of interest that the CODES are currently accruing. (See Note 5 to
the unaudited condensed consolidated financial statements).

Interest and other income (expense) increased $1.8 million to $1.6 million
in the 2002 Third Quarter from a $0.2 million expense in the 2001 Third Quarter
primarily from income earned on our cash and cash equivalents.

The income tax provision for the 2002 Third Quarter is based on the
estimated effective income tax rate for 2002 of 35.3%, compared with the
effective tax rate of 38.3% for the 2001 Third Quarter. The decrease in the
effective income tax rate is primarily attributable to the adoption of SFAS No.
142. Amortization expense for goodwill that is not deductible for income tax
purposes caused an increase in the effective income tax rate prior to the
adoption of SFAS No. 142.

Basic earnings per share (EPS) increased $0.23 to $0.66 for the 2002 Third
Quarter from $0.43 for the 2001 Third Quarter, and diluted EPS increased $0.21
to $0.62 from $0.41 for the 2001 Third Quarter. The impact of not amortizing
goodwill increased basic EPS by $0.12 and diluted EPS by $0.10. Excluding the
impact of not amortizing goodwill, basic EPS grew 20.0% and diluted EPS grew
21.6%. Diluted weighted-average common shares outstanding increased 18.1%
principally reflecting L-3 Holdings' public offering of 14.0 million shares of
common stock, effective June 28, 2002.

The 2002 Third Quarter diluted EPS computation did not include the effect
of the 7.8 million shares of L-3 Holdings common stock that are issuable upon
conversion of the CODES (See Notes 5 and 7 to the unaudited condensed
consolidated financial statements) because the conditions for their conversion
were not satisfied. However, if the CODES had been convertible, reported
diluted EPS would have decreased by approximately $0.02 for the 2002 Third
Quarter.


SECURE COMMUNICATIONS & ISR

Sales for the Secure Communications & ISR segment increased $138.5 million
or 101.5% to $274.9 million in the 2002 Third Quarter from $136.4 million for
the 2001 Third Quarter. The increase was principally attributed to $118.7
million from the IS-Tactical Reconnaissance Systems (TRS), including ComCept
and IS-Airborne Surveillance & Control (ASC) acquired businesses and $28.8
million of increased volume on secure communications systems, including STE and
secure data links caused by greater demand for secure communications from the
DoD and U.S. Government intelligence agencies. These increases were partially
offset by a decline in sales of $9.0 million, which was principally
attributable to lower volume on PrimeWave communications systems. We expect
segment sales to increase during the fourth quarter of 2002.

Operating income increased by $22.1 million to $30.3 million in the 2002
Third Quarter because of higher sales and operating margin. Operating margin
improved by 5.0 percentage points to 11.0% from


29


6.0%. The impact of not amortizing goodwill increased operating margin by 0.4
percentage points. Volume growth and cost improvements on secure communications
systems increased operating margin by 2.2 percentage points. The remaining
increase in operating margin was principally attributable to margins from the
acquired businesses which were higher than the segment operating margin for the
2001 Third Quarter. Additionally, the Prime Wave business continued to generate
losses in the 2002 Third Quarter because of lower sales volume as well as
continued marketing, selling and development expenses. We expect margins for
the segment to improve slightly in the fourth quarter of 2002 because of
expected volume increases and additional cost improvements on DoD business, as
well as lower losses for the Prime Wave business arising from anticipated
increases in sales.


TRAINING, SIMULATION & SUPPORT SERVICES

Sales for the Training, Simulation & Support Services segment increased
$41.0 million or 26.0% to $198.6 million for the 2002 Third Quarter from $157.6
million for the 2001 Third Quarter. The SY, Analytics, Telos and TMA acquired
businesses contributed $43.9 million to sales. This increase was partially
offset by a net decline in sales of $2.9 million, which was primarily
attributable to lower sales on a ballistic missile target and services
contract, which is approaching its scheduled completion, and to the delay in
the award of the follow-on contract to the first quarter of 2003, which is
related to a DoD policy decision to combine all national missile defense (NMD)
target requirements into a single contract for fiscal year 2003. The decline
was partially offset by a $13.5 million volume increase in training services
and software and systems engineering services for the DoD because of new
contracts and task orders. We expect sales for the segment to increase slightly
in the fourth quarter of 2002 primarily because the quarter will include the
TMA acquired business for three months.

Operating income increased by $7.2 million to $26.5 million in the 2002
Third Quarter because of higher sales and operating margins. Operating margin
improved by 1.1 percentage points to 13.3% for the 2002 Third Quarter from
12.2% for the 2001 Third Quarter. The impact of not amortizing goodwill
increased operating margin by 1.0 percentage points. We expect margins for the
segment to decline during the fourth quarter of 2002 primarily because of
contract mix.


AVIATION PRODUCTS & AIRCRAFT MODERNIZATION

Sales for the Aviation Products & Aircraft Modernization segment increased
$184.2 million or 322.6% to $241.3 million for the 2002 Third Quarter from
$57.1 million for the 2001 Third Quarter. The IS-Aircraft Modification &
Maintenance (AMM) and Spar acquired businesses contributed $184.8 million to
sales. This increase was offset by a net decline in sales of $0.6 million,
which was principally attributable to lower volume of $10.6 million on traffic
collision and avoidance systems (TCAS) and aviation recorders used primarily
for commercial applications, and an increase in volume for displays used in
military applications and commercial maritime hardened voyage recorders, a new
product that was introduced in 2001. The decline in sales of commercial
aviation products was caused by a decline in orders and customer-directed
deferrals of deliveries stemming from the downturn in the commercial aircraft
industry that began in 2001. We expect the sales volume for commercial aviation
products to continue to be weak in the fourth quarter of 2002.

Operating income increased by $12.8 million to $34.0 million for the 2002
Third Quarter from $21.2 million for the 2001 Third Quarter because of higher
sales, which were partially offset by lower operating margins. Operating margin
declined by 23.0 percentage points to 14.1% for the 2002 Third Quarter from
37.1% for the 2001 Third Quarter. The impact of not amortizing goodwill
increased operating margin by 0.8 percentage points. Lower volumes on TCAS and
aviation recorders which generated lower gross margin contributions, as well as
increased development expenses for a terrain awareness warning system and a
commercial displays product-line which are planned to be introduced later this
year and in 2003 reduced operating margin by 3.5 percentage points. The
remaining decrease in operating margin of 20.3 percentage points was
principally attributable to margins from the IS-AMM and Spar acquired
businesses, which were lower than the segment operating margins for the 2001
Third Quarter and a foreign currency exchange loss of $3.7 million incurred in
connection with the Spar acquired business.


30


SPECIALIZED PRODUCTS

Sales for the Specialized Products segment increased $71.7 million or
26.8% to $338.8 million in the 2002 Third Quarter from $267.1 million for the
2001 Third Quarter. The increase was principally related to the BT Fuze and
Detection Systems acquired businesses which contributed $47.0 million in sales,
and higher volume of $55.9 million for explosive detection systems. The
increase in volume for explosive detection systems was substantially all from a
contract with the Transportation Security Administration (TSA) of the U.S.
Department of Transportation valued at approximately $355 million for 425 units
of examiner 3DX(TM) 6000 explosive detection systems. Guidance products sales
also increased $3.6 million. Sales declined by $8.6 million on naval power
equipment because of lower shipments caused by production capacity diverted to
fixing quality control problems and the related rework activities. Sales of
acoustic undersea warfare products declined $9.6 million because of the
completion of a contract with Japan and the timing of production and shipments
on other contracts. Sales of static transfer switches to financial institutions
and internet service providers declined $2.3 million. The remaining decline in
sales of $14.3 million was caused by lower volume on microwave components and
other communications products arising from continued softness and declining
demand in the space, broadband and wireless commercial communications markets.
We expect sales of explosive detection systems to increase substantially in the
fourth quarter of 2002 as production for the TSA contract is increased.
Additionally, we expect to return to normal production levels for naval power
equipment by the end of 2002, and anticipate an increase in volume for space,
broadband and wireless commercial communications products.

Operating income increased by $10.1 million to $36.6 million for the 2002
Third Quarter from $26.5 million for the 2001 Third Quarter because of higher
sales and operating margin. Operating margin increased by 0.9 percentage points
to 10.8% for the 2002 Third Quarter from 9.9% for the 2001 Third Quarter. The
impact of not amortizing goodwill increased operating margin by 1.8 percentage
points. Higher volumes and operating margin for explosive detection systems
increased operating margin by 1.9 percentage points. Lower shipments and rework
efforts for naval power equipment and lower volume on microwave components and
acoustic undersea warfare products decreased operating margins. We expect the
operating margin for the Specialized Products segment to improve in the fourth
quarter of 2002 as a result of expected volume increases for explosive
detection systems, telemetry and space products and microwave components.

NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 2001



NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2002 2001
------------ -----------------
(in millions)

Sales(1):
Secure Communications & ISR ........................ $ 710.5 $ 308.0
Training, Simulation & Support Services ............ 590.6 426.3
Aviation Products & Aircraft Modernization ......... 552.1 188.5
Specialized Products ............................... 852.4 718.8
--------- ----------
Total ............................................ $ 2,705.6 $ 1,641.6
========= ==========
Operating income:
Secure Communications & ISR ........................ $ 76.4 $ 19.3(2)
Training, Simulation & Support Services ............ 70.3 47.9(2)
Aviation Products & Aircraft Modernization ......... 83.7 68.7(2)
Specialized Products ............................... 66.0 46.6(2)
--------- -------------
Total ............................................ $ 296.4 $ 182.5
========= =============


- ----------
(1) Sales are after intersegment eliminations. See Note 10 to the Unaudited
Condensed Consolidated Financial Statements.

(2) Operating income for the nine months ended September 30, 2001, includes
goodwill amortization expense of $2.9 million for Secure Communications
and ISR, $5.0 million for Training, Simulation & Support Services, $5.9
million for Aviation Products & Aircraft Modernization, and $17.8 million
for Specialized Products, which aggregated $31.6 million for all of L-3.
In accordance with SFAS No. 142, after December 31, 2001, goodwill is not
amortized to expense.
- ----------

31


Consolidated sales increased $1,064.0 million to $2,705.6 million for the
2002 Nine Month Period from $1,641.6 million for the 2001 Nine Month Period.
Sales grew $114.6 million or 7.0%, excluding the increase in sales from
acquired businesses of $949.4 million discussed below. Had these acquisitions
occurred on January 1, 2001, pro forma sales for the 2002 Nine Month Period
would have been $3,043.1 million, an increase of 13.1% over pro forma sales of
$2,690.4 million for the 2001 Nine Month Period (see Note 3 to the unaudited
condensed consolidated financial statements). The pro forma sales growth of
13.1% exceeded the actual sales growth excluding acquisitions of 7.0%, because
the IS and Detection Systems acquired businesses had growth higher than our
other businesses. Additionally, the pro forma sales for the 2002 Nine Month
Period includes $82.2 million from the IS acquired business, which are not
expected to recur, relating to (i) the procurement of commercial aircraft for a
certain customer, whereas historically customers have provided IS with the
aircraft to be modified as customer-furnished equipment and (ii) a subcontract
for Raytheon's BBJ program. The IS acquired business pro forma sales for the
2001 Nine Month Period did not include the BBJ program.

Sales from "Contracts, primarily long-term U.S. Government" increased
$1,077.4 million to $2,419.3 million for the 2002 Nine Month Period from
$1,341.9 million for the 2001 Nine Month Period. The KDI, EER, Spar, Analytics,
SY, BT Fuze, IS, Telos, ComCept and TMA acquired businesses contributed $904.3
million of the increase in sales. The remaining increase was primarily
attributable to volume increases of $126.6 million on secure communication
systems, including STE and secure data links, $71.4 million for explosive
detection systems, $18.3 million on guidance products, and $11.7 million for
displays. These sales increases were partially offset by declines of $29.3
million on naval power equipment and static transfer switches used for
commercial applications and $25.6 million principally for ballistic missile
targets and services and acoustic undersea warfare products.

Sales from "Commercial, primarily products" decreased $13.4 million to
$286.3 million in the 2002 Nine Month Period from $299.7 million in the 2001
Nine Month Period. The decline was principally caused by lower volume of $41.0
million on commercial aviation products and lower volume of $17.5 million
primarily on microwave components. These decreases were partially offset by
sales from the Detection Systems acquired business of $45.1 million.

Consolidated costs and expenses increased $950.1 million to $2,409.2
million in the 2002 Nine Month Period from $1,459.1 million in the 2001 Nine
Month Period, primarily as a result of the increase in sales. The impact of not
amoritizing goodwill decreased consolidated costs and expenses by $31.6
million.

Costs and expenses for "Contracts, primarily long-term U.S. Government"
increased $928.9 million to $2,123.3 million in the 2002 Nine Month Period from
$1,194.4 million in the 2001 Nine Month Period primarily as a result of the
increase in sales. The impact of not amortizing goodwill decreased costs and
expenses by $23.3 million.

Costs and expenses for "Commercial, primarily products" increased $21.2
million to $285.9 million in the 2002 Nine Month Period from $264.7 million in
the 2001 Nine Month Period primarily due to increased sales as a result of the
Detection Systems acquired businesses, which was partially offset by lower
expenses for microwave components and telemetry and space products due to lower
sales volume. The impact of not amortizing goodwill decreased costs and
expenses by $8.3 million.

Consolidated operating income increased by $113.9 million to $296.4
million in the 2002 Nine Month Period from $182.5 for the 2001 Nine Month
Period. The impact of not amortizing goodwill increased consolidated operating
income by $31.6 million. The remaining increase was primarily due to higher
sales, which was partially offset by lower operating margins. Consolidated
operating margin declined by 0.1 percentage points to 11.0% in the 2002 Nine
Month Period from 11.1% in the 2001 Nine Month Period. The impact of not
amortizing goodwill increased consolidated operating margin by 1.2 percentage
points. This increase was offset by lower margins from the Training, Simulation
& Support Services, Aviation Products & Aircraft Modernization and the
Specialized Products segments, which were partially offset by higher margins
from the Secure Communications & ISR segment. The changes in the operating
margins of the segments are discussed below. Additionally, during the 2002 Nine
Month Period, a loss of $3.0 million was recorded for the settlement of certain
litigations assumed as part of a prior acquisition, as well as a foreign
currency related net loss of $1.8 million.


32


Operating income for "Contracts, primarily long-term U.S Government"
increased $148.5 million to $296.0 million in the 2002 Nine Month Period from
$147.5 million in the 2001 Nine Month Period. Operating margin for "Contracts,
primarily long-term U.S. Government" increased 1.2 percentage points to 12.2%
in the 2002 Nine Month Period from 11.0% in the 2001 Nine Month Period, and the
increase was principally due to the impact of not amortizing goodwill.

Operating income for "Commercial, primarily products" declined $34.6
million to $0.4 million in the 2002 Nine Month Period from operating income of
$35.0 million in the 2001 Nine Month Period. Operating margin for "Commercial,
primarily products" declined 11.6 percentage points to 0.1% in the 2002 Nine
Month Period from 11.7% in the 2001 Nine Month Period. The decline was
principally attributable to lower margins on commercial aviation products,
microwave, space and broadband communication products because of volume
declines in sales, as well as continued marketing, selling and development
expenses for the Prime Wave business. These decreases were partially offset by
the impact of not amortizing goodwill.

Interest expense increased $24.0 million to $88.9 million in the 2002 Nine
Month Period from $64.9 for the 2001 Nine Month Period, because of the higher
outstanding debt, partially offset by savings of $9.1 million from the interest
rate swap agreements we entered into in 2001 and 2002 and lower interest rates
on our variable rate borrowings.

Interest and other income increased $1.2 million to $2.5 million for the
2002 Nine Month Period from $1.3 million for the 2001 Nine Month Period,
principally due to interest income earned on our cash and cash equivalents.
Additionally, the 2001 Nine Month Period included a net gain of $0.6 million.
The net gain relates to a gain on the sale of a 30% interest in the ACSS
business offset by the write-down of the carrying value of an investment in the
common stock of a telecommunications company because the decline in value was
determined to be other than temporary.

The income tax provision for the 2002 Nine Month Period is based on our
estimated effective income tax rate for 2002 of 35.3%, compared with the
effective tax rate of 38.3% for the 2001 Nine Month Period, as discussed above
in the 2002 Third Quarter discussion.

Basic EPS before extraordinary items increased $0.61 to $1.57 in the 2002
Nine Month Period from $0.96 in the 2001 Nine Month Period, and diluted EPS
before extraordinary items increased $0.56 to $1.48 in the 2002 Nine Month
Period from $0.92 in the 2001 Nine Month Period. The impact of not amortizing
goodwill increased basic EPS before extraordinary items by $0.34 and diluted
EPS before extraordinary items by $0.33. Excluding the impact of not amortizing
goodwill, basic EPS before extraordinary items grew 20.8% and diluted EPS
before extraordinary items grew 18.4%. For the 2002 Nine Month Period, basic
EPS was $1.45 and diluted EPS was $1.37 after an extraordinary loss of $9.9
million, net of income taxes, on the early extinquishment of debt arising from
the retirement of our $225.0 million of 103/8% senior subordinated notes.
Diluted weighted-average common shares outstanding increased 23.4% principally
reflecting the dilutive effect of the convertible notes, the sale of 9.2
million shares of our common stock in May 2001 and the sale of 14.0 million
shares of our common stock in June 2002.

The 2002 Nine Month Period diluted EPS computation did not include the
effect of the 7.8 million shares of L-3 Holdings common stock that are issuable
upon conversion of the CODES (See Notes 5 and 7 to the unaudited condensed
consolidated financial statements) because the conditions for their conversion
were not satisfied. However, if the CODES had been convertible, reported
diluted EPS would have decreased by approximately $0.02 for the 2002 Nine Month
Period.

SECURE COMMUNICATIONS & ISR

Sales for the Secure Communications & ISR segment increased $402.5 million
or 130.7% to $710.5 million for the 2002 Nine Month Period from $308.0 million
for the 2001 Nine Month Period. The increase was principally attributed to
$283.8 million from the IS-TRS, including ComCept and IS-ASC acquired
businesses and $126.6 million of increased volume principally on secure
communication systems, including STE, secure data links and military
communications products, which was attributable to greater demand for secure
communications from the DoD and U.S. Government intelligence agencies. These
increases were partially offset by a decline in sales of $7.9 million primarily
due to lower volumes of PrimeWave communications systems.


33


Operating income increased by $57.1 million to $76.4 million in the 2002
Nine Month Period from $19.3 million for the 2001 Nine Month Period, because of
higher sales and operating margin. Operating margin improved by 4.5 percentage
points to 10.8% in the 2002 Nine Month Period compared to 6.3% in the 2001 Nine
Month Period. The impact of not amortizing goodwill increased operating margin
by 0.4 percentage points. Increased volume and cost improvements on secure
communication systems increased margins by 1.7 percentage points. A provision
to increase the allowance for doubtful accounts by $3.0 million for certain
commercial customers decreased operating margin by 0.4 percentage points. The
remaining change in operating margins was principally attributable to margins
from the IS-TRS and IS-ASC acquired businesses, which were higher than the
segment operating margins for the 2001 Nine Month Period. Additionally, the
Prime Wave business continued to generate losses in the 2002 Nine Month Period
because of lower sales volume as well as higher marketing, selling and
development expenses.


TRAINING, SIMULATION & SUPPORT SERVICES

Sales for the Training, Simulation & Support Services segment increased
$164.3 million or 38.5% to $590.6 million for the 2002 Nine Month Period from
$426.3 million for the 2001 Nine Month Period. The EER, SY, Analytics, Telos
and TMA acquired businesses contributed $162.4 million of the increase in
sales. The remaining net increase of $1.9 million was principally attributable
to volume increases at our training and simulation business attributable to new
contracts competitively awarded during 2001, that were partially offset by
lower sales on a ballistic missiles target and services contract discussed
above, which is approaching its scheduled completion, and the delay in the
award of the follow-on contract.

Operating income increased by $22.4 million to $70.3 million in the 2002
Nine Month Period from $47.9 million for the 2001 Nine Month Period,
principally because of higher sales and operating margin. Operating margin
increased by 0.7 percentage points to 11.9% in the 2002 Nine Month Period
compared to 11.2% in the 2001 Nine Month Period. The impact of not amortizing
goodwill increased operating margin by 0.9 percentage points. This increase was
partially offset by a decrease in operating margin of 0.2 percentage points,
which was principally attributable to slightly lower margins from the acquired
businesses, as well as lower margins on training services in the current period
compared to the prior period as a result of profit improvements on certain
contracts during 2001.


AVIATION PRODUCTS & AIRCRAFT MODERNIZATION

Sales for the Aviation Products & Aircraft Modernization segment increased
$363.6 million or 192.9% to $552.1 million for the 2002 Nine Month Period from
$188.5 million for the 2001 Nine Month Period. The IS-AMM and Spar acquired
businesses contributed $386.5 million to sales. This increase was offset by a
net decline in sales of $22.9 million, which was principally attributable to
lower volume of $41.0 million on TCAS and aviation recorders used primarily for
commercial applications, and an increase in volume for displays used in
military applications and maritime hardened voyage recorders. The decline in
sales of commercial aviation products was caused by a decline in orders and
customer-directed deferrals of deliveries stemming from the continued downturn
in the commercial aircraft industry that began in 2001.

Operating income increased by $15.0 million to $83.7 million for the 2002
Nine Month Period from $68.7 million for the 2001 Nine Month Period, because of
higher sales, which were partially offset by lower operating margins. Operating
margin declined by 21.2 percentage points to 15.2% for the 2002 Nine Month
Period from 36.4% for the 2001 Nine Month Period. The impact of not amortizing
goodwill increased operating margin by 1.1 percentage points. Lower volumes on
TCAS and aviation recorders which generated lower gross margin contributions,
as well as increased development expenses for a terrain awareness warning
system and a commercial displays product-line which are planned to be
introduced later this year and in 2003 reduced operating margin by 5.9
percentage points. The remaining decrease in operating margin of 16.4
percentage points was principally attributable to margins from the IS-AMM and
Spar acquired businesses, which were lower than the Aviation Products &
Aircraft Modernization segment operating margins for the 2001 Nine Month
Period.


34


SPECIALIZED PRODUCTS

Sales for the Specialized Products segment increased $133.6 million or
18.6% to $852.4 million for the 2002 Nine Month Period from $718.8 million for
the 2001 Nine Month Period. The increase was principally related to the KDI, BT
Fuze and Detection Systems acquired businesses, which contributed $116.7
million in sales, higher volume of $18.3 million for guidance products and
$71.4 million for explosive detection systems. These increases were partially
offset by a decrease in sales that was principally attributable to lower volume
of $16.0 million on naval power equipment arising from lower shipments caused
by production capacity diverted to fixing quality control problems, $14.0
million for acoustic undersea warfare products arising from volume declines,
completion of a contract with Japan and the timing of production and of
shipments on other contracts, $13.2 million for commercial static transfer
switches because of the deterioration of the internet service provider market
and $29.6 million on microwave components and telemetry and space products
arising from continued softness and declining demand in the space, broadband
and wireless commercial communications markets.

Operating income increased by $19.4 million to $66.0 million in the 2002
Nine Month Period from $46.6 million for the 2001 Nine Month Period, because of
higher sales and operating margin. Operating margin improved by 1.2 percentage
points to 7.7% in the 2002 Nine Month Period compared to 6.5% in the 2001 Nine
Month Period. The impact of not amortizing goodwill increased operating margin
by 2.1 percentage points. Higher margins from the KDI and BT Fuze acquired
businesses related to new contracts entering production caused an increase in
operating margin of 0.8 percentage points. Higher volumes and operating margin
for explosive detection systems caused an increase in operating margin of 0.8
percentage points. These increases in operating margin were partially offset by
lower margins on naval power equipment, microwave components and telemetry and
space products, primarily as a result of lower volumes.


PENSION PLANS

We maintain a number of pension plans covering employees at certain
locations. At December 31, 2001, our balance sheet included $62.0 million in
pension benefits liabilities.

In connection with the IS acquisition, (see Note 3 to the unaudited
condensed consolidated financial statements), we agreed to provide future
pension benefits to IS employees based upon their service with IS. The pension
benefits liability for this obligation has not been finalized, however,
preliminary estimates indicate that it will be between $60.0 million and $80.0
million.

We have estimated that for 2002, pension expense will be approximately
$45.0 million. Additionally, primarily due to current financial market
conditions and our pension plan asset performance to date, we expect pension
expense for 2003 to increase by a non-cash amount of between $15.0 million and
$20.0 million over our 2002 estimated pension expense. Our actual pension
expense will be based upon the actual return on our pension plan assets and a
number of factors, including the aforementioned IS acquired pension benefit
liability, the effect of any additional acquisitions, actual pension plan
contributions and changes (if any) to our pension assumptions for 2003,
including the discount rate, asset return rate and salary increases.

We expect to make pension plan contributions for the full year 2002 of
approximately $42.0 million, which exceeds our original planned 2002
contributions by approximately $20.0 million. We expect to make pension plan
contributions in 2003 similar to those for 2002. A substantial portion of our
pension plan contributions are recoverable as allowable costs on our contracts
with the U.S. Government.

In addition, at December 31, 2002, we expect to record a non-cash charge
to shareholders' equity to increase our additional minimum pension liability in
accordance with SFAS No. 87. The exact amount of such charge cannot be
determined at this time because it will be based upon the factors, discussed
above, which have not been finalized. However, based upon our current estimate
of those factors we expect that such charge would be approximately $34.0
million, net of income taxes. The expected increase in the additional minimum
pension liability will have no effect on our compliance with the financial
covenants of our debt agreements and will not impact our reported earnings.


35


LIQUIDITY AND CAPITAL RESOURCES


BALANCE SHEET


Contracts in process increased $516.2 million from December 31, 2001 to
September 30, 2002. The increase included $400.0 million related to acquired
businesses and $116.2 million principally from:

o increases of $96.7 million in billed receivables due to higher sales
from aircraft modifications, secure data links, displays, training
devices and motion simulators and ISR systems;

o increases of $22.1 million in inventoried contract costs, primarily for
secure data links, ocean products, aircraft modifications and telemetry
products;

o increases of $0.3 million in inventories at lower of cost or market due
to increases for aviation products partially offset by declines of
PrimeWave inventory; and

o decreases of $2.9 million in unbilled contract receivables, net of
unliquidated progress payments, due to higher billings for ISR systems,
aircraft modifications and display systems and lower volumes for naval
power equipment partially offset by increases on training and support
services, training devices and motion simulators, fuzing products and
secure communications products.

Included in contracts in process at September 30, 2002, are net billed
receivables of $17.0 million and net inventories of $22.2 million related to
our Prime Wave business. At December 31, 2001, we had $15.8 million of net
billed receivables and $30.2 million of net inventories related to our Prime
Wave business.

The increase in property, plant and equipment (PP&E) during the 2002 Nine
Month Period was principally related to the acquisition of IS. The percentage
of depreciation expense to average gross PP&E declined to 9.7% for the 2002
Nine Month Period from 11.3% for the 2001 Nine Month Period. The decline was
attributable to (1) the impact from current acquisitions, for which the balance
sheet reflects all of the PP&E of the acquired businesses, but the statement of
operations only includes depreciation expense from the date of acquisition
rather than for the entire period, and (2) fully depreciated PP&E in certain of
our operations which are still being used despite having carrying values of
zero (after accumulated depreciation) and which are not derecognized from the
balance sheet until they are retired or otherwise disposed.

Goodwill increased $872.2 million to $2,579.9 million at September 30,
2002 from $1,707.7 million at December 31, 2001. The increase was principally
due to the IS, Detection Systems, Telos, ComCept and TMA acquisitions as well
as net purchase price increases based on the closing date balance sheets for
acquisitions completed prior to January 1, 2002.

The increases in accrued employment costs, accrued expenses, accrued
interest and pension and postretirement liabilities were primarily due to the
timing of payments as well as our acquisitions completed in 2002. The increase
in customer advances is attributable to the TSA contract. The decrease in other
current liabilities is primarily attributable to the payment in January 2002 of
$43.6 million for the remaining outstanding common stock of Spar that was not
tendered to L-3 as of December 31, 2001. The decrease in accounts payable was
due to the timing of payments and was partially offset by our acquisitions
completed in 2002.


STATEMENT OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 2001

Cash increased to $448.2 million at September 30, 2002 from $361.0 million
at December 31, 2001. The table below provides a summary of our cash flows.


36





NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2002 2001
-------------- ------------
(in millions)

Net cash from operating activities. ........... $ 264.4 $ 83.8
Net cash used in investing activities ......... (1,455.7) (185.3)
Net cash from financial activities ............ 1,278.5 167.3
--------- -------
Met increase in cash .......................... $ 87.2 $ 65.8
========= =======


OPERATING ACTIVITIES

During the 2002 Nine Month Period, we generated $264.4 million of cash
from our operating activities, an increase of $180.6 million over the $83.8
million generated during the 2001 Nine Month Period. Earnings adjusted for
non-cash items and deferred income taxes increased $82.7 million to $273.7
million in the 2002 Nine Month Period from $191.0 million in the 2001 Nine
Month Period. Deferred income taxes for the 2002 Nine Month Period compared
with the 2001 Nine Month Period increased primarily because of larger estimated
tax deductions arising from our recently completed acquisitions, including our
acquisition of IS. We expect our deferred income taxes to be higher in 2002
than they were in 2001. Other non-cash items consist primarily of contributions
of common stock to savings plans. During the 2002 Nine Month Period, our
working capital and operating assets and liabilities increased $9.3 million
compared with an increase of $107.2 million in the 2001 Nine Month Period. Our
cash flows from operating activities during the 2002 Nine Month Period reflect
increases in billed receivables and inventories. The use of cash related to
other current liabilities was due to the funding of certain contracts in
process, for which estimated costs exceed the estimated billings. The timing of
payments to employees for salaries and wages, as well as the timing of interest
payments, was a source of cash reflected in the change in accrued liabilities.
The source of cash arising from the increase in customer advances primarily
relates to receipts of $77.1 million for the TSA contract partially offset by
liquidations of $17.4 primarily on certain foreign contracts. We expect to
fully liquidate the TSA customer advances during the fourth quarter of 2002.
The source of cash from the change in pension and postretirement benefits was
due to pension and postretirement expenses for the 2002 Nine Month Period
exceeding related cash contributions. Pension plan contributions for the 2002
Nine Month Period amounted to $22.0 million, and we expect to make additional
contributions of approximately $20.0 million in the fourth quarter of 2002.


INVESTING ACTIVITIES

During the 2002 Nine Month Period, we invested $1,414.3 million to acquire
businesses, including IS, Detection Systems, Telos, ComCept and TMA, $43.6
million for the remaining outstanding common stock of Spar which was not
tendered to L-3 at December 31, 2001, and acquisition costs and purchase price
adjustments based on the closing date balance sheets for certain acquisitions
completed prior to January 1, 2002. During the 2001 Nine Month Period, we
invested $222.5 million to acquire businesses. The IS acquisition was financed
using approximately $229.0 million of cash on hand, borrowings under our senior
credit facilities of $420.0 million and a $500.0 million senior subordinated
bridge loan. We used a portion of the proceeds from the sale in June 2002 of
$750.0 million of senior subordinated notes and 14.0 million shares of common
stock to repay borrowings under the senior credit facilities and the senior
subordinated bridge loan as discussed below in Financing Activities. All of the
other acquisitions were financed using cash on hand.

On October 26, 2002, we completed the acquisition of Northrop Grumman's
Electron Devices and Displays-Navigation Systems businesses, and we expect to
complete the acquisitions of Wescam Inc. and Westwood Corporation in November
2002. The aggregate purchase price of approximately $275.0 million for these
three acquisitions will be financed using cash on hand.

We make capital expenditures for the improvement of manufacturing
facilities and equipment. We expect that capital expenditures, net of
dispositions of property, plant and equipment, for the full year of 2002, will
be about $60.0 million.


37


FINANCING ACTIVITIES

In June 2002, L-3 Communications sold $750.0 million of 7 5/8% Senior
Subordinated Notes due June 15, 2012 (the "June 2002 Notes") with interest
payable semi-annually on June 15 and December 15 of each year commencing
December 15, 2002. The net proceeds from that offering amounted to $731.8
million.

On June 28, 2002, L-3 Holdings sold 14.0 million shares of its common
stock in a public offering for $56.60 per share. Upon closing, L-3 Holdings
received net proceeds of $766.7 million after deducting discounts, commissions
and estimated expenses.

The net proceeds from both of these offerings were used to (1) repay
$500.0 million borrowed on March 8, 2002, under our senior subordinated bridge
loan facility, (2) repay the $359.0 million of indebtedness outstanding under
our senior credit facilities, (3) repurchase and redeem the 10 3/8% Senior
Subordinated Notes due 2007 and (4) increase cash and cash equivalents.

On June 6, 2002 we commenced a tender offer to purchase any and all of our
$225.0 million aggregate principal amount of 10 3/8% Senior Subordinated Notes
due 2007. The tender offer expired on July 3, 2002. On June 25, 2002 we sent a
notice of redemption for all of our $225.0 million aggregate principal amount
of 10 3/8% Senior Subordinated Notes due 2007 that remained outstanding after
the expiration of the tender offer. Upon sending the notice, the remaining
notes became due and payable at the redemption price as of July 25, 2002. At
September 30, 2002, we had purchased and paid cash for all of these notes plus
accrued interest, and premiums, fees and other transaction costs of $12.3
million. During the 2002 Nine Month Period, we recorded a pre-tax extraordinary
loss of $16.2 million ($9.9 million after-tax), comprising premiums, fees and
other transaction costs of $12.5 million and $3.7 million to write-off the
remaining balance of debt issue costs relating to these notes.

In June and August of 2002, we terminated the interest rate swap
agreements on $380.0 million of our Senior Subordinated Notes due 2008 and
received cash of $9.3 million. We recorded a reduction in interest expense for
the 2002 Nine Month Period of $4.6 million, which represented the interest
reductions related to the period prior to the termination of these swap
agreements. The remaining $4.7 million was recorded as a deferred gain and will
be amortized as a reduction of interest expense over the remaining terms of the
$380.0 million of Senior Subordinated Notes due 2008 at an amount of $0.2
million per quarter, or $0.8 million annually. Additionally, we recorded a
reduction of interest expense for the 2002 Nine Month Period of $2.5 million
relating to interest savings for interest periods which ended prior to the
termination of these interest rate swap agreements.

In June 2002, we entered into interest rate swap agreements on $200.0
million of our 7 5/8% Senior Subordinated Notes due 2012. These swap agreements
exchanged the fixed interest rate for a variable interest rate on $200.0
million of the $750.0 million principal amount outstanding. On September 30,
2002, we terminated these interest rate swap agreements and received cash of
$13.9 million in October 2002. We recorded a reduction of interest expense for
the 2002 Nine Month Period of $1.8 million, which represented interest
reductions related to the period prior to the termination of these swap
agreements. The remaining $12.2 million was recorded as a deferred gain and
will be amortized as a reduction of interest expense over the remaining term of
the 7 5/8% Senior Subordinated Notes due 2012 at an amount of $0.3 million per
quarter, or $1.3 million annually.

On April 23, 2002, we announced that our Board of Directors had authorized
a two-for-one stock split on all shares of our common stock. The stock split
entitled all shareholders of record at the close of business on May 6, 2002 to
receive one additional share of our common stock for every share held on that
date. The additional shares were distributed to shareholders in the form of a
stock dividend on May 20, 2002. Upon completion of the stock split, we had
approximately 80 million shares of common stock outstanding. Additionally, all
of our historical as reported EPS data has been restated to give effect to the
stock split.

On February 26, 2002, our lenders approved a $150.0 million increase in
the amount of our senior credit facilities. The five-year revolving credit
facility increased by $100.0 million to $500.0 million and the 364-day
revolving credit facility increased by $50.0 million to $250.0 million.
Additionally, the maturity date of the $250.0 million 364-day revolving credit
facility was extended to February 25, 2003.


38


At September 30, 2002, available borrowings under our senior credit
facilities were $603.3 million after reductions for outstanding letters of
credit of $146.7 million.

The senior credit facilities, senior subordinated notes, Convertible Notes
and CODES agreements contain financial covenants and other restrictive
covenants which remain in effect so long as we owe any amount or any commitment
to lend exists thereunder. We are in compliance with those covenants in all
material respects. The borrowings under the senior credit facilities are
guaranteed by L-3 Holdings and by substantially all of the material domestic
subsidiaries of L-3 Communications on a senior basis. The payments of principal
and premium, if any, and interest on the senior subordinated notes are
unconditionally guaranteed, on an unsecured senior subordinated basis, jointly
and severally, by all of L-3 Communications' restricted subsidiaries other than
its foreign subsidiaries. The guarantees of the senior subordinated notes are
junior to the guarantees of the senior credit facilities and rank pari passu
with each other and the guarantees of the Convertible Notes and the CODES. The
Convertible Notes and CODES are unconditionally guaranteed, on an unsecured
senior subordinated basis, jointly and severally, by L-3 Communications and
substantially all of its direct and indirect material domestic subsidiaries.
These guarantees rank junior to the guarantees of the senior credit facilities
and rank pari passu with each other and the guarantees of the senior
subordinated notes. See Note 7 to our consolidated financial statements for
fiscal year ended December 31, 2001, included in our Current Report on Form 8-K
dated June 19, 2002, for a description of our debt and related financial
covenants at December 31, 2001.

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


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

Our EBITDA was $147.2 million for the 2002 Third Quarter compared with
$97.6 million for the 2001 Third Quarter. Our EBITDA was $350.6 million for the
2002 Nine Month Period compared with $247.5 million for the 2001 Nine Month
Period. We define EBITDA as operating income plus depreciation expense and
amortization expense. Other than our amount of debt and interest expense,
EBITDA is the major component in the calculation of the debt ratio and interest
coverage ratio which are part of the financial covenants for our debt. The debt
ratio is defined as the ratio of consolidated total debt to consolidated
EBITDA. The interest coverage ratio is equal to the ratio of consolidated
EBITDA to consolidated cash interest expense. Higher EBITDA on a relative basis
to outstanding debt, results in a lower debt ratio which indicates a higher
borrowing capacity. Similarly, an increase in our EBITDA on a relative basis to
consolidated cash interest expense, results in a higher interest coverage
ratio, which indicates a greater capacity to service debt.

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


39


entities and, consequently could be misleading unless all entities calculate
and define EBITDA in the same manner. EBITDA is also not a complete measure of
an entity's profitability because it does not include costs and expenses for
depreciation and amortization, interest and income taxes.


CONTINGENCIES

See Note 9 to the Unaudited Condensed Consolidated Financial Statements.


RECENTLY ISSUED AND PROPOSED ACCOUNTING STANDARDS

In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets, which supersedes Accounting Principles Board (APB) Opinion
No. 17, Intangible Assets. SFAS No. 142 revised the standards for accounting
for goodwill and other intangible assets. SFAS No. 142 requires that goodwill
and indefinite lived identifiable intangible assets no longer be amortized, but
be tested for impairment at least annually based on their estimated fair
values. The provisions of SFAS No. 142 became effective on January 1, 2002, and
full implementation of the impairment measurement provisions is required by
December 31, 2002. Effective January 1, 2002, we ceased recording goodwill
amortization expense. Based on the estimated fair values of our reporting units
using a discounted cash flows valuation, the goodwill for certain space and
broadband commercial communications businesses included in the Specialized
Products segment may be impaired. The aggregate amount of goodwill recorded for
these businesses is approximately $21.0 million, net of related income taxes.
We expect to complete the valuation of the assets and liabilities for these
businesses and to determine the goodwill impairment in the fourth quarter of
2002. Any resulting impairment would be a non-cash charge, recorded effective
January 1, 2002, as a cumulative effect of a change in accounting principle in
connection with the adoption provisions of SFAS No. 142.

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

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


40


In May 2002, the FASB issued SFAS No. 145, Rescission of SFAS Nos. 4, 44
and 64, Amendment of SFAS No. 13, and Technical Corrections as of April 2002.
SFAS No. 145 rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and SFAS No. 64, Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements. Under the provisions of SFAS No. 145, gains
and losses from extinguishment of debt can only be classified as extraordinary
items if they meet the criteria in APB Opinion No. 30. The provisions of this
Statement related to the rescission of SFAS No. 4 shall be applied in fiscal
years beginning after May 15, 2002. Earlier application is permitted. This
statement also amends SFAS No. 13, Accounting for Leases, to eliminate an
inconsistency between the accounting for sale-leaseback transactions and
certain lease modifications that have economic effects that are similar and is
effective for transactions occurring after May 15, 2002. This Statement also
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions and are effective for financial statements issued on or after May
15, 2002. SFAS No. 145 is not expected to have a material effect on our
consolidated results of operations, financial position or cash flows. However,
in accordance with the provisions of SFAS No. 145, beginning on January 1,
2003, the loss on the extinguishment of debt of $16.2 million ($9.9 million
after-tax) that we recorded in June 2002 (see Note 5) will be included in
income from continuing operations and not be reported as an extraordinary item.

In July of 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 replaces EITF No.
94-3 "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS No. 146 requires companies to recognize costs associated
with exit or disposal activities when they are incurred rather than at the date
of a commitment to an exit or disposal plan as was required by EITF No. 94-3.
Examples of costs covered by SFAS No. 146 include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity. SFAS
No. 146 is to be applied to exit or disposal activities initiated after
December 31, 2002. SFAS No. 146 is not expected to have a material effect on
our consolidated results of operations and financial position.


FORWARD-LOOKING STATEMENTS

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

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

Our forward-looking statements will also be influenced by factors such as:

o international, political and economic conditions and U.S. Government
policies;

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

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

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

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


41


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

o collective bargaining agreements and labor disputes;

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

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

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

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

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

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

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

Readers of this document are cautioned that our forward-looking statements
are not guarantees of future performance and the actual results or developments
may differ materially from the expectations expressed in the forward-looking
statements. As for the forward-looking statements that relate to future
financial results and other projections, actual results will be different due
to the inherent uncertainties of estimates, forecasts and projections and may
be better or worse than projected. Given these uncertainties, you should not
place any reliance on these forward-looking statements. These forward-looking
statements also represent our estimates and assumptions only as of the date
that they were made. We expressly disclaim a duty to provide updates to these
forward-looking statements, and the estimates and assumptions associated with
them, after the date of this filing to reflect events or changes or
circumstances or changes in expectations or the occurrence of anticipated
events.


42


ITEM 3.


QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Part II, Item 7, "Management's Discussion and Analysis of Results of
Operations and Financial Condition--Liquidity and Capital Resources--Market
Risks", of the Company's Current Report on Form 8-K dated June 19, 2002 for a
discussion of the Company's exposure to market risks. The only substantial
change in those risks during the nine months ended September 30, 2002 is
discussed below.


Derivative Financial Instruments

INTEREST RATE RISK. Our financial instruments that are sensitive to
changes in interest rates include borrowings under the senior credit
facilities, all of which are denominated in U.S. dollars. The interest rates on
the senior subordinated notes, Convertible Notes and CODES are fixed-rate and
are not affected by changes in interest rates.

In 2001, we entered into interest rate swap agreements on $380.0 million
of our senior subordinated notes to convert their fixed interest rates to
variable interest rates and to take advantage of the current low interest rate
environment. These swap agreements are described in Part II, Item 7,
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Liquidity and Capital Resources--Market Risks", of the Company's
Current Report on Form 8-K dated June 19, 2002. During the nine month period
ended September 30, 2002, we terminated these and other interest rate swap
agreements. These transactions are described in "Management's Discussion and
Analysis of Results of Operation and Financial condition--Statement of Cash
Flows--Financing Activities" section of this report.

43


ITEM 4.


CONTROLS AND PROCEDURES

Within 90 days prior to the filing date of this report, the Company's
Chairman and Chief Executive Officer and the Company's President and Chief
Financial Officer evaluated the effectiveness of the design and operation of
the Company's "disclosure controls and procedures" (as defined in the
Securities Exchange Act of 1934 Rules 13a-14(c) and 15(d)-14(c)). Based on that
evaluation, the Company's Chairman and Chief Executive Officer and the
Company's President and Chief Financial Officer have concluded that the
Company's disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in the reports that it
files and submits under the Exchange Act is recorded, processed, summarized and
reported as and when required, and are effective to ensure that such
information is accumulated and communicated to the Company's management,
including its Chairman and Chief Executive Officer and its President and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure. There have been no significant changes in the Company's internal
controls or in other factors which could significantly affect internal controls
subsequent to the date of the evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

44


PART II -- OTHER INFORMATION


ITEM 1.


LEGAL PROCEEDINGS

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

On August 6, 2002, Aviation Communication & Surveillance Systems, LLC
(ACSS), a subsidiary of L-3 Communications Corporation, was sued by Honeywell
International, Inc. and Honeywell Intellectual Properties, Inc. for alleged
infringement of patents that relate to terrain awareness avionics. The lawsuit
was filed in the United States District Court for the District of Delaware. We
had previously investigated the Honeywell patents and believe that we have
valid defenses to Honeywell's claim. In addition, ACSS has been indemnified to
a certain extent by Thales Avionics, which has provided to ACSS the alleged
infringing technology. In the opinion of management, the ultimate disposition
of Honeywell's pending claim will not result in a material liability to us.

45


ITEM 6.


EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits



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

3.2 Bylaws of L-3 Communications Holdings, Inc. (incorporated herein by reference to Exhibit 3.2
of L-3 Communications Holdings, Inc.'s Registration Statement on Form S-1 (File No.
333-46975))

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

3.4 Bylaws of L-3 Communications Corporation (incorporated herein by reference to Exhibit 3.2
to L-3 Communications Corporation's Registration Statement on Form S-4 (File No. 333-
31649))

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

**12.1 Ratio of Earnings to Fixed Charges

**99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

**99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.



* The information required on this exhibit is presented in Note 7 to the
Unaudited Condensed Consolidated Financial Statements as of September 30,
2002 in accordance with the provisions of SFAS No. 128, Earnings Per
Share.


** Filed herewith


(b) Reports on Form 8-K


Report filed on August 5, 2002 stating that each of the principal
executive officer, Frank C. Lanza, and principal financial officer, Robert V.
Lapenta, of L-3 Communications Holdings, Inc. submitted to the SEC sworn
statements pursuant to Securities and Exchange Commission Order No. 4-460.

46


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.



L-3 Communications Holdings, Inc. and
L-3 Communications Corporation
-------------------------------
Registrants


Date: November 14, 2002
/s/ Robert V. LaPenta
---------------------

Name: Robert V. LaPenta
Title: President and Chief Financial Officer
(Principal Financial Officer)

47


CERTIFICATIONS

I, Frank C. Lanza, certify that:

1. I have reviewed this quarterly report on Form 10-Q of L-3
Communications Holdings, Inc. and L-3 Communications Corporation;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrants as of, and for, the periods presented in this quarterly report;

4. The registrants' other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrants and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrants, including their
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;

b) evaluated the effectiveness of the registrants' disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrants' other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants' auditors and the audit
committee of registrants' board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants' ability to record,
process, summarize and report financial data and have identified for the
registrants' auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants' internal
controls; and

6. The registrants' other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.



Date: November 14, 2002



/s/ Frank C. Lanza
- ------------------------------
Frank C. Lanza
Chairman and Chief Executive Officer

48


CERTIFICATIONS

I, Robert V. Lapenta, certify that:

1. I have reviewed this quarterly report on Form 10-Q of L-3 Communications
Holdings, Inc. and L-3 Communications Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrants as of, and for, the periods presented in this quarterly report;

4. The registrants' other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrants and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrants, including their
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;

b) evaluated the effectiveness of the registrants' disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrants' other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants' auditors and the audit
committee of registrants' board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants' ability to record,
process, summarize and report financial data and have identified for the
registrants' auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants' internal
controls; and

6. The registrants' other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.



Date: November 14, 2002




/s/ Robert V. LaPenta
- ------------------------------
Robert V. LaPenta
President and Chief Financial Officer

49


EXHIBIT INDEX





EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- ---------------- -------------------------------------------------------------------------------------

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

3.2 Bylaws of L-3 Communications Holdings, Inc. (incorporated herein by reference to
Exhibit 3.2 of L-3 Communications Holdings, Inc.'s Registration Statement on Form
S-1 (File No. 333-46975))

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

3.4 Bylaws of L-3 Communications Corporation (incorporated herein by reference to
Exhibit 3.2 to L-3 Communications Corporation's Registration Statement on Form S-4
(File No. 333-31649))

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

**12.1 Ratio of Earnings to Fixed Charges

**99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.

**99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.


- ----------
* The information required on this exhibit is presented in Note 7 to the
Unaudited Condensed Consolidated Financial Statements as of September 30,
2002 in accordance with the provisions of FASB SFAS No. 128, Earnings Per
Share.


** Filed herewith.


50