10-K
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
x ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the
fiscal year ended December 31, 2008
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the
transition period
from
to
Commission file numbers
001-14141
and
333-46983
L-3 COMMUNICATIONS HOLDINGS,
INC.
L-3 COMMUNICATIONS
CORPORATION
(Exact names
of registrants as specified in their charters)
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Delaware
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13-3937434 and 13-3937436
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification Nos.)
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600 Third Avenue, New York, NY
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10016
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(Address of principal executive offices)
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(Zip Code)
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(212) 697-1111
(Telephone
number)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered:
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L-3 Communications Holdings, Inc.
common stock, par value $0.01 per share
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark if the registrants are well-known
seasoned issuers, as defined in Rule 405 of the Securities
Act.
x Yes o No
Indicate by check mark if the registrants are not required to
file reports pursuant to Section 13 or Section 15(d)
of the Act.
o Yes x No
Indicate by check mark whether the registrants (1) have
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) have
been subject to such filing requirements for the past
90 days.
x Yes o No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. x
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large accelerated
filer x
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Accelerated
filer o
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Non-accelerated filer
(Do not check if a smaller
reporting company)
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Smaller reporting
Company o
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Indicate by check mark whether the registrants are shell
companies (as defined in
Rule 12b-2
of the Act).
o Yes x No
The aggregate market value of the L-3 Communications Holdings,
Inc. voting stock held by non-affiliates of the registrants as
of June 27, 2008 was approximately $11.0 billion. For
purposes of this calculation, the Registrants have assumed that
their directors and executive officers are affiliates.
There were 118,585,242 shares of L-3 Communications Holdings,
Inc. common stock with a par value of $0.01 outstanding as of
the close of business on February 23, 2009.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the definitive proxy statement to be filed with
Securities and Exchange Commission (SEC) pursuant to
Regulation 14A relating to the Registrants Annual
Meeting of Shareholders, to be held on April 28, 2009, will
be incorporated by reference in this
Form 10-K
in response to Items 10, 11, 12, 13 and 14 of
Part III. Such proxy statement will be filed with the SEC
not later than 120 days after the registrants fiscal
year ended December 31, 2008.
L-3
COMMUNICATIONS HOLDINGS, INC.
L-3 COMMUNICATIONS CORPORATION
INDEX TO ANNUAL REPORT ON
FORM 10-K
For the Year Ended December 31, 2008
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Business
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1
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Risk Factors
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17
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Unresolved Staff Comments
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25
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Properties
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25
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Legal Proceedings
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26
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Submission of Matters to a Vote of Security
Holders
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26
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PART II
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Market for Registrants Common Equity,
Related Stockholder Matters and Issuer Purchases of
Equity Securities
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27
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Selected Financial Data
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29
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Managements Discussion and Analysis of
Financial Condition and Results of Operations
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30
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Quantitative and Qualitative Disclosures about
Market Risk
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61
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Financial Statements and Supplementary Data
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61
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Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
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61
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Controls and Procedures
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61
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Other Information
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62
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PART III
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Directors, Executive Officers and Corporate
Governance
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63
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Executive Compensation
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63
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Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters
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64
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Certain Relationships and Related Transactions,
and Director Independence
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64
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Principal Accountant Fees and Services
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64
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PART IV
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Exhibits, Financial Statement Schedules
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65
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69
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EX-4.5: SUPP.IND., FEB.20,2009-7 5/8% NOTES DUE 2012 |
EX-4.7: SUPP.IND.,FEB.20,2009-6 1/8% NOTES DUE 2013 |
EX-4.9: SUPP.IND., FEB.20,2009-6 1/8% NOTES DUE 2014 |
EX-4.11: SUPP.IND.,FEB. 20, 2009-5 7/8% NOTES DUE 2015 |
EX-4.13: SUPP.IND., FEB.20,2009-6 3/8% NOTES DUE 2015 |
EX-4.15: SUPP.IND.,FEB.20,2009-CODES DUE 2035 |
EX-10.14: 2008 LTP |
EX-10.17: RSU AGREEMENT (2009 VERSION) |
EX-10.20: 2008 DSIP |
EX-10.21: AMEND/REST. CHANGE IN CONTROL SEV.PLAN |
EX-10.22: AMEND/REST. SERP |
EX-10.25: DEFERRED COMP. PLAN II |
EX-10.26: MPRI LT DEF. INC. PLAN |
EX-12: RATIO OF EARNINGS TO FIXED CHARGES |
EX-18: GW IMPAIR. PREF. LETTER |
EX-21: SUBSIDIARIES |
EX-23: CONSENT OF PRICEWATERHOUSECOOPERS LLP |
EX-31.1: CERTIFICATION |
EX-31.2: CERTIFICATION |
EX-32: CERTIFICATION |
PART I
For convenience purposes in this filing on
Form 10-K,
L-3 Holdings refers to L-3 Communications Holdings,
Inc., and L-3 Communications refers to L-3
Communications Corporation, a wholly-owned operating subsidiary
of L-3 Holdings. L-3, we, us
and our refer to L-3 Holdings and its subsidiaries,
including L-3 Communications.
Overview
L-3 Holdings, a Delaware corporation organized in April 1997,
derives all of its operating income and cash flows from its
wholly-owned subsidiary, L-3 Communications. L-3 Communications,
a Delaware corporation, was organized in April 1997. L-3 is a
prime system contractor in aircraft modernization and
maintenance, Command, Control, Communications, Intelligence,
Surveillance and Reconnaissance
(C3ISR)
systems, and government services. L-3 is also a leading provider
of high technology products, subsystems and systems. Our
customers include the U.S. Department of Defense (DoD) and
its prime contractors, U.S. Government intelligence
agencies, the U.S. Department of Homeland Security (DHS),
U.S. Department of State (DoS), U.S. Department of
Justice (DoJ), allied foreign governments, domestic and
international commercial customers and select other
U.S. federal, state and local government agencies.
For the year ended December 31, 2008, we generated sales of
$14.9 billion, operating income of $1,685 million and
net cash from operating activities of $1,387 million. The
table below presents a summary of our 2008 sales by major
category of end customer. For a more detailed presentation of
our sales by end customer, see Major Customers on
page 12.
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% of
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2008 Sales
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Total Sales
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(in millions)
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DoD
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$
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11,059
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74
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%
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Other U.S. Government
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1,067
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7
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Total U.S. Government
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$
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12,126
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81
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International
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2,086
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14
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Commercial domestic
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689
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5
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Total sales
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$
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14,901
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100
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%
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We have the following four reportable segments:
(1) C3ISR,
(2) Government Services, (3) Aircraft Modernization
and Maintenance (AM&M), and (4) Specialized Products.
Financial information for our reportable segments, including
financial information about geographic areas, is included in
Part II Item 7
Managements Discussion and Analysis of Financial Condition
and Results of Operations and in Note 21 to our
audited consolidated financial statements.
Business
Strategy
Our business strategy is customer-focused and aims to increase
shareholder value by providing products and services to our
customers that create value for them with responsive,
high-quality and affordable solutions. Financially, our emphasis
is on sustainably growing earnings per share and cash flow. Our
strategy involves a flexible and balanced combination of organic
growth, cost reductions, select business acquisitions and
divestitures, dividends and share repurchases, enabling us to
grow the company and return cash to our shareholders. We intend
to maintain and expand our position as a leading supplier of
products, subsystems, systems and services to the DoD, other
U.S. Government agencies, allied foreign governments and
commercial customers, both domestic and international. Our
strategy includes the objectives discussed below.
Expand Prime Contractor and Supplier
Positions. We intend to expand our prime system
contractor roles in select business areas where we have domain
expertise, including
C3ISR,
aircraft modernization and maintenance and government technical
services. We also intend to enter into teaming
arrangements with
1
other prime system contractors and platform original equipment
manufacturers to compete for select new business opportunities.
As an independent supplier of a broad range of products,
subsystems and systems in several key business areas, our growth
will partially be driven by expanding our share on existing
programs and participating on new programs. We also expect to
identify opportunities to use our customer relationships and
leverage the capabilities of our various businesses, including
proprietary technologies, to expand the scope of our products
and services to existing and new customers. We also intend to
continue to supplement our growth by participating on and
competing for new programs internationally, particularly in
Canada, the United Kingdom and Australia.
Grow Sales Organically and Selectively Acquire
Businesses. We intend to use our existing prime
contractor and supplier positions and internal investments to
grow our sales organically. We expect to benefit from our
positions as a supplier to multiple bidders on select prime
contract bids. We plan to maintain our diversified and broad
business mix with its limited reliance on any single contract
and significant follow-on and new business opportunities. We
also expect to continue to supplement our organic sales growth
by selectively acquiring businesses that add new products,
services, technologies, programs or customers to our existing
businesses, and provide attractive returns on investment.
Favorably Perform on Contracts. We believe
that favorable performance on our existing contracts is the
foundation for successfully meeting our objectives of expanding
L-3s prime contractor and supplier positions and growing
sales organically. We believe that a prerequisite for growing
and winning new business is to retain our existing business with
successful contract performance, including schedule, cost,
technical and other performance criteria. Therefore, we will
continue to focus on delivering superior contract performance to
our customers to maintain our reputation as an agile and
responsive contractor and to differentiate L-3 from its
competitors.
Continuously Improve our Cost Structure. We
intend to continue to aggressively improve and reduce our direct
contract costs and overhead costs, including general and
administrative costs. Effective management of labor, material,
subcontractor and other direct costs is a primary element of
favorable contract performance. We also intend to grow sales at
a faster rate than overhead costs. We believe continuous cost
improvement will enable us to increase our cost competitiveness,
expand operating margin and selectively invest in new product
development, bids and proposals and other business development
activities to organically grow sales.
Align Research & Development, and Capital
Expenditures. We intend to continue to align our
internal investments in research and development, business
development and capital expenditures to proactively address
customer requirements and priorities with our products, services
and solutions. We also intend to grow our sales through the
introduction of new products and services and continued
increased collaboration between our businesses to offer the best
quality and competitive solutions and services to our customers.
Selected
Recent Business Acquisitions and Business and Product Line
Dispositions
During the year ended December 31, 2008, we used cash of
$283 million for business acquisitions and generated cash
of $63 million from business and product line dispositions.
See Part II Item 7
Managements Discussion and Analysis of Financial Condition
and Results of Operations Business Acquisitions and
Business and Product Line Dispositions on page 36 for
additional details about our 2008 business acquisitions,
including their aggregate purchase prices, and our 2008 business
and product line dispositions.
Products
and Services
Our four reportable segments provide a wide range of products
and services to various customers and are described below.
2
C3ISR
Reportable Segment
In 2008,
C3ISR net
sales of $2,567 million represented 17% of our total net
sales. The businesses in this segment provide products and
services for the global ISR market, specializing in signals
intelligence (SIGINT) and communications intelligence (COMINT)
systems. These products and services provide to the warfighter
in real-time, the unique ability to collect and analyze unknown
electronic signals from command centers, communication nodes and
air defense systems for real-time situational awareness and
response. The businesses in this reportable segment also provide
C3
systems, networked communications systems and secure
communications products for military and other
U.S. Government and foreign government intelligence,
reconnaissance and surveillance applications. We believe that
these products and services are critical elements for a
substantial number of major command, control and communication,
intelligence gathering and space systems. These products and
services 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. Major
products and services for this reportable segment include:
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highly specialized fleet management sustainment and support,
including procurement, systems integration, sensor development,
modifications and periodic depot maintenance for SIGINT and ISR
special mission aircraft and airborne surveillance systems;
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strategic and tactical SIGINT systems that detect, collect,
identify, analyze and disseminate information;
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secure data links that enable real-time information collection
and dissemination to users of networked communications for
airborne, satellite, ground and sea-based remote platforms, both
manned and unmanned;
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secure terminal and communication network equipment and
encryption management; and
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communication systems for surface and undersea vessels and
manned space flights.
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3
The table below provides additional information for the systems,
products and services, selected applications and selected
platforms or end users of our
C3ISR
reportable segment.
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Systems/Products/Services
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Selected Applications
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Selected Platforms/End Users
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ISR Systems
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Prime mission systems integration, sensor
development and operations and support
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Signal processing, airborne SIGINT
applications, antenna technology, real-time process control and
software development
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U.S. Air Force (USAF), United Kingdom (U.K.)
Ministry of Defence (MoD) and other allied foreign militaries
ISR aircraft platforms
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Fleet management of special mission aircraft,
including avionics and mission system upgrades and logistics
support
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Measurement collection and signal
intelligence, special missions
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DoD and special customers within the U.S.
Government
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ISR operations and support
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Data link support and services, special
applications, classified projects, spares and repairs
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USAF and U.S. Army ISR aircraft platforms
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Networked Communications
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Airborne, space and surface data link
terminals, ground stations, and transportable tactical SATCOM
(satellite communications) systems
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High performance, wideband secure
communication links for relaying of intelligence and
reconnaissance information
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Manned aircraft, unmanned aerial vehicles
(UAVs), naval ships, ground vehicles and satellites for the DoD
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Multi-band Manpack Receivers
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Portable, ruggedized terminals used for
receiving reconnaissance video and sensor data from multiple
airborne platforms
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U.S. Special Operations Command (USSOCOM),
USAF and other DoD customers
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Satellite command and control sustainment and
support
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Software integration, test and maintenance
support, satellite control network and engineering support for
satellite launch systems
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USAF Space Command (AFSC), USAF Satellite
Control Network and launch ranges
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Secure Communications Products
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Secure communication terminals and equipment,
and secure network encryption products
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Secure and non-secure voice, data and video
communication for office, battlefield and secure internet
protocol (IP) network applications
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DoD and U.S. Government intelligence agencies
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Ground-based satellite communication terminals
and payloads
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Interoperable, transportable ground terminals
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DoD and U.S. Government intelligence agencies
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Satellite communication and tracking systems
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On-board satellite external communications,
video systems, solid state recorders and ground support equipment
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International Space Station, Space Shuttle and
various satellites for National Aeronautics and Space
Administration (NASA)
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Shipboard communications systems
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Internal and external communications (radio
rooms)
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U.S. Navy (USN), U.S. Coast Guard and allied
foreign navies
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4
Government
Services Reportable Segment
In 2008, Government Services net sales of $4,303 million
represented 29% of our total net sales. The businesses in this
segment provide a full range of engineering, technical,
information technology (IT), advisory, training and support
services to the DoD, DoS, DoJ and U.S. Government
intelligence agencies and allied foreign governments. Major
services for this reportable segment include:
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communication software support, information technology services
and a wide range of engineering development services and
integration support;
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high-end engineering and information systems support services
used for command, control, communications and ISR architectures,
as well as for air warfare modeling and simulation tools for
applications used by the DoD, DHS and U.S. Government
intelligence agencies, including missile and space systems, UAVs
and manned military aircraft;
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developing and managing extensive programs in the United States
and internationally that focus on teaching, training and
education, logistics, strategic planning, organizational design,
democracy transition and leadership development;
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human intelligence support and other services, including
linguist and translation services and related management to
support contingency operations and current
intelligence-gathering requirements;
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Command & Control Systems and Software services in support
of maritime and expeditionary warfare;
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intelligence solutions support to the DoD, including the
U.S. Armed Services combatant commands and the
U.S. Government intelligence agencies, including those
within the U.S. Armed Services;
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technical and management services, which provide support of
intelligence, logistics,
C3 and
combatant commands; and
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conventional high-end enterprise IT support, systems and other
services to the DoD and other U.S. federal agencies.
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The table below provides additional information for the systems,
products and services, selected applications and selected
platforms or end users of our Government Services reportable
segment.
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Systems/Products/Services
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Selected Applications
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Selected Platforms/End Users
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Training and Operational Support
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Training systems, courseware and doctrine
development
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Training, leadership development and education
services for U.S. and allied foreign armed forces,
counterintelligence and law enforcement personnel
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U.S. Army, U.S. Marine Corps (USMC), DoS, DoJ
and allied foreign governments
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Acquisition management and staff augmentation
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Rapid fielding support for combatants and
physical location management
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U.S. Army
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Weapons Training Systems
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Laser marksmanship training systems and
advanced integrated technologies for security products and
services
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DoD and law enforcement agencies
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5
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Systems/Products/Services
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Selected Applications
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Selected Platforms/End Users
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Specialized management, policy and training in
energy, environmental and natural resource management
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Water and Coastal resource management,
sustainable agriculture and food security, climate change
mitigation strategies, emergency preparedness, response and
reconstruction, power sector restructuring and energy economics
and finance
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U.S. Agency for International Development,
foreign governments, World bank and Non-Governmental
Organizations
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Enterprise IT Solutions
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Network and enterprise administration and
management
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Systems engineering, assurance and risk
management, network and systems administration, management,
software development and life cycle support and systems
integration
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U.S. Army, U.S. Joint Chiefs of Staff, USAF,
USSOCOM, Federal Aviation Administration (FAA) and NASA
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Systems acquisition and advisory support and
comprehensive operational support services
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Requirements definition, program management,
planning and analysis, systems engineering, integration and
development, intelligence analysis and managing and network
engineering
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U.S. Army, USAF, USN and DHS
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Intelligence Solutions and Support
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System support and concept operations (CONOPS)
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C3ISR,
modeling and simulation
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DoD, U.S. Missile Defense Agency (MDA), U.S.
Government intelligence agencies, and NASA
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IT services
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IT infrastructure modernization and operations
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U.S. Government intelligence agencies and U.K.
MoD
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Information management and IT systems support
and software design, development and systems integration
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Intelligence and operations support,
C3
systems, network centric operations and information operations
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DoD and U.S. Government intelligence agencies
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Linguistic, interpretation, translation and
analyst services
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Counterintelligence, threat protection and
counter terrorism
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U.S. Army
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6
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Systems/Products/Services
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Selected Applications
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Selected Platforms/End Users
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Command & Control Systems and Software
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Software engineering/software sustainment,
operations analysis, research, technical analysis and test and
evaluation
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Systems engineering and operational analysis
of every aircraft and vessels in the USN fleet,
C3 and
Computers
(C4)
systems acquisitions, logistics and administrative support, as
well as systems life cycle support
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U.S. Army, USN and USMC
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Communication systems and software engineering
services
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Value-added, critical software support for
C3ISR
systems, electronic warfare and fire support systems
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U.S. Army Communications
Electronics Command (CECOM)
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Acquisition Support
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Support defense acquisition programs, develop
acquisition roadmaps, capability assessments and develop
requirements
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U.S. Army, USN and USMC
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Systems Engineering and Integration Support
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System design and development, platform
simulations, systems testing, prototype development and
deployment and hardware and software integration
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USMC, U.S. Army and, USSOCOM
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Global Security & Engineering Solutions
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Surveillance systems and products, including
installation and logistics support
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Remote surveillance for U.S. borders
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DHS
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Security Solutions
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Border security systems, area surveillance and
access control, critical infrastructure protection, continuity
planning and emergency management
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DHS, USMC and Customs and Border Patrol
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Engineering and technical solutions
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Systems engineering and design, analysis and
integration, technical support and test & evaluation,
Weapons of Mass Destruction (WMD) effects analysis and
Improvised Explosive Device (IED) counter measures
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DoD and U.S. Government agencies
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Program management and operational support
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Command center operations, systems
acquisitions, emergency management training, continuity of
operations and government planning
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Federal Emergency Management Agency, FAA,
Joint Task Force Civil Support
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7
Aircraft
Modernization and Maintenance (AM&M) Reportable
Segment
In 2008, AM&M net sales of $2,657 million represented
18% of our total net sales. The businesses in this segment
provide modernization, upgrades and sustainment, maintenance and
logistics support services for military and various government
aircraft and other platforms. We sell these services primarily
to the DoD, the Canadian Department of National Defense (DND)
and other allied foreign governments. Major products and
services for this reportable segment include:
|
|
|
|
|
engineering, modification, maintenance, logistics and upgrades
for aircraft, vehicles and personnel equipment;
|
|
|
|
turnkey aviation life cycle management services that integrate
custom developed and commercial off-the-shelf products for
various military fixed and rotary wing aircraft, including heavy
maintenance and structural modifications and interior
modifications and construction; and
|
|
|
|
aerospace and other technical services related to large fleet
support, such as aircraft and vehicle modernization,
maintenance, repair and overhaul, logistics, support and supply
chain management, primarily for military training, tactical,
cargo and utility aircraft, anti-missile defense systems and
tanks.
|
The table below provides additional information for the systems,
products and services, selected applications and selected
platforms or end users of our AM&M reportable segment.
|
|
|
|
|
Systems/Products/Services
|
|
Selected Applications
|
|
Selected Platforms/End Users
|
|
Aircraft and Base Support
Services
|
|
|
|
|
Logistics support, maintenance and
refurbishment
|
|
Aircraft maintenance repair and overhaul,
flight operations support for training, cargo and special
mission aircraft
|
|
U.S. Army, USAF, USN, USSOCOM, Canadian DND
and other allied foreign militaries
|
Contract Field Teams (CFT)
|
|
Deployment of highly mobile, quick response
field teams to customer locations to supplement the
customers resources for various ground vehicles and
aircraft
|
|
U.S. Army, USAF, USN and USMC
|
Contractor operated and managed base supply
(COMBS)
|
|
Inventory management activities relating to
flight support and maintenance, including procurement and field
distribution
|
|
Military training and cargo aircraft
|
Aircraft Modernization
|
|
|
|
|
Modernization and life extension maintenance
upgrades and support
|
|
Aircraft structural modifications and
inspections, installation of mission equipment, navigation and
avionics products
|
|
USN, USAF, USSOCOM, Canadian DND, Royal
Australian Air Force, other allied foreign governments, various
military, fixed and rotary wing aircraft and Head of State
aircraft
|
8
Specialized
Products Reportable Segment
In 2008, Specialized Products net sales of $5,374 million
represented 36% of our total net sales. The businesses in this
reportable segment provide a broad range of products, including
components, products, subsystems, systems and related services
to military and commercial customers in several niche markets.
The table below provides a summary of the segments
business areas and the percentage that each contributed to
Specialized Products net sales in 2008.
|
|
|
|
|
|
|
% of 2008
|
|
Business Area
|
|
Segment Sales
|
|
|
Power & Control Systems
|
|
|
17
|
%
|
Electro-Optic/Infrared (EO/IR)
|
|
|
14
|
|
Microwave
|
|
|
14
|
|
Avionics & Displays
|
|
|
11
|
|
Simulation & Training
|
|
|
11
|
|
Precision Engagement
|
|
|
9
|
|
Security & Detection
|
|
|
6
|
|
Propulsion Systems
|
|
|
6
|
|
Telemetry & Advanced Technology
|
|
|
5
|
|
Undersea Warfare
|
|
|
4
|
|
Marine Services
|
|
|
3
|
|
|
|
|
|
|
Total Specialized Products
|
|
|
100
|
%
|
|
|
|
|
|
9
The table below provides additional information for the systems
and products, selected applications and selected platforms or
end users of our Specialized Products reportable segment.
|
|
|
|
|
|
|
|
|
Systems/Products
|
|
|
|
Selected Applications
|
|
|
|
Selected Platforms/End Users
|
|
Power & Control Systems
|
|
|
|
|
|
|
|
|
Shipboard electrical power packages,
electric drives and propulsion, automation, navigation and
communication systems
|
|
|
|
Surface ships ranging from shipping vessels, container carriers,
environmental and research ships, ferries and cruise liners
|
|
|
|
Commercial shipbuilders and allied foreign navies
|
Naval power delivery, conversion and
switching products
|
|
|
|
Switching, distribution and protection, as well as frequency and
voltage conversion
|
|
|
|
Naval submarines, surface ships and aircraft carriers
|
EO/IR
|
|
|
|
|
|
|
|
|
Targeted stabilized camera systems with
integrated sensors and wireless communication systems
|
|
|
|
Intelligence Data Collection, Surveillance and Reconnaissance
|
|
|
|
DoD, intelligence and security agencies, law enforcement,
manned/unmanned platforms
|
Airborne and ground based high energy
laser beam directors and high tracking rate telescopes
|
|
|
|
Directed energy systems, space surveillance, satellite laser
ranging and laser communications
|
|
|
|
USAF and NASA
|
Night Vision (NV) technology and
electro-optical systems and products
|
|
|
|
Free-standing or mounted image intensified NV goggles, weapon
sights, and driver viewers for special forces, pilots and
aircrews, soldiers, Marines, sailors and law enforcement
personnel
|
|
|
|
U.S. Army, USN, USMC, DHS, allied foreign militaries and law
enforcement agencies
|
Microwave
|
|
|
|
|
|
|
|
|
Passive components, switches and
wireless assemblies
|
|
|
|
Radio transmission, switching and conditioning, antenna and base
station testing and monitoring
|
|
|
|
DoD, wireless communications service providers and original
equipment manufacturers
|
Satellite and wireless components
(channel amplifiers, transceivers, converters, filters and
multiplexers)
|
|
|
|
Satellite transponder control, channel and frequency separation
|
|
|
|
SATCOM and wireless communications equipment for DoD and various
government agencies
|
Traveling wave tubes, power modules,
klystrons and digital broadcast
|
|
|
|
Microwave vacuum electron devices and power modules
|
|
|
|
DoD and allied foreign military manned/unmanned platforms,
various missile programs and commercial broadcast
|
Quick-deploy flyaway very small aperture
terminals (VSAT) and vehicular satellite systems
|
|
|
|
Satellite communication systems
|
|
|
|
U.S. Army, USAF and various DoD customers
|
Ultra-wide frequency and advanced radar
antennas and radomes
|
|
|
|
Surveillance and radar detection
|
|
|
|
Military fixed and rotary winged aircraft, SATCOM
|
Avionics & Displays
|
|
|
|
|
|
|
|
|
Solid state crash protected cockpit
voice and flight data recorders
|
|
|
|
Aircraft voice and flight data recorders that continuously
record voice and sounds from cockpit and aircraft
intercommunications
|
|
|
|
Commercial transport, business, regional and military aircraft
|
Airborne traffic and collision avoidance
systems, terrain awareness warning systems
|
|
|
|
Reduce the potential for midair aircraft collisions and crashes
into terrain by providing visual and audible warnings and
maneuvering instructions to pilots
|
|
|
|
Commercial transport, business, regional and military aircraft
|
Advanced cockpit avionics
|
|
|
|
Pilot safety, navigation and situation awareness products
|
|
|
|
Commercial transport, business, regional and military aircraft
|
Cockpit and mission displays
|
|
|
|
High performance, ruggedized flat panel and cathode ray tube
displays and processors
|
|
|
|
Various military aircraft
|
Simulation & Training
|
|
|
|
|
|
|
|
|
Military aircraft flight simulators,
reconfigurable training devices, distributed mission training
(DMT) suites
|
|
|
|
Advanced simulation technologies and training for pilots,
navigators, flight engineers, gunners and operators
|
|
|
|
Fixed and rotary winged aircraft and ground vehicles for USAF,
USN, U.S. Army, Canadian DND and allied foreign militaries
|
10
|
|
|
|
|
|
|
|
|
Systems/Products
|
|
|
|
Selected Applications
|
|
|
|
Selected Platforms/End Users
|
|
Precision Engagement
|
|
|
|
|
|
|
|
|
Global Positioning System (GPS) receivers
|
|
|
|
Location tracking
|
|
|
|
Guided projectiles and precision munitions
|
Navigation systems and positioning
navigation units
|
|
|
|
Satellite launch and orbiting navigation and navigation for
ground vehicles and fire control systems
|
|
|
|
USAF, U.S. Army, USMC and NASA
|
Premium fuzing products
|
|
|
|
Munitions and electronic and electromechanical safety arming
devices (ESADs)
|
|
|
|
Various DoD and allied foreign military customers
|
Security & Detection
|
|
|
|
|
|
|
|
|
Explosives detection systems and airport
security systems
|
|
|
|
Rapid scanning of passenger checked baggage and carry-on
luggage, scanning of large cargo containers
|
|
|
|
DHS, including the U.S. Transportation and Security
Administration (TSA), domestic and international airports and
state and local governments
|
Non-invasive security systems and
portals, and sophisticated sensors with threat detection
capabilities
|
|
|
|
Aviation, rail and border crossing security
|
|
|
|
TSA, U.S. Customs agency, various regulatory authorities and
private security companies
|
Propulsion Systems
|
|
|
|
|
|
|
|
|
Heavy fuel engines, cross drive variable
transmissions, turret drive systems, vehicle suspension,
advanced drive systems and auxiliary power generators
|
|
|
|
Power trains and suspension systems for military vehicles, power
and energy management for military hybrid electric vehicles, non
portable and under armor auxiliary power units, and heavy fueled
engines for unmanned systems
|
|
|
|
U.S. Army, USMC and allied foreign ministries of defense,
manned/unmanned military platforms
|
Telemetry & Advanced Technology
|
|
|
|
|
|
|
|
|
Telemetry and instrumentation systems
|
|
|
|
Real-time data acquisition, measurement, processing, simulation,
distribution, display and storage for flight tracking, testing
and termination
|
|
|
|
Aircraft, missiles and satellites
|
High power microwave sources, systems
& effects, pulse power systems and electromagnetics
hardened construction
|
|
|
|
Forensic analysis of weapons of mass destruction, active
detection of special nuclear material and irradiation systems
for decontamination and industrial applications
|
|
|
|
U.K. MoD, U.S. Defense Threat Reduction Agency, U.S. Army and
USAF
|
Undersea Warfare
|
|
|
|
|
|
|
|
|
Airborne dipping sonars, submarine and
surface ship towed arrays
|
|
|
|
Submarine and surface ship detection and localization
|
|
|
|
USN and allied foreign navies
|
Marine Services
|
|
|
|
|
|
|
|
|
Shipboard electronics racks, rugged
computers, rugged displays and communication terminals
|
|
|
|
Ruggedized displays, computers and electronic systems
|
|
|
|
Naval vessels and other DoD applications
|
Service life extensions
|
|
|
|
Landing craft air cushion amphibious vehicles
|
|
|
|
USN
|
Backlog
and Orders
We define funded backlog as the value of funded orders received
from customers, less the cumulative amount of sales recognized
on such orders. We define funded orders as the value of contract
awards received from the U.S. Government, for which the
U.S. Government has appropriated funds, plus the value of
contract
11
awards and orders received from customers other than the
U.S. Government. A table that presents our funded backlog,
percent of December 31, 2008 funded backlog expected to be
recorded as sales in 2009 and funded orders for each of our
reportable segments is located in Part II
Item 7 Managements Discussion and
Analysis of Financial Condition and Results of
Operations Backlog and Orders beginning on
page 58.
Major
Customers
The table below presents a summary of our 2008 sales by end
customer and the percent contributed by each to our total 2008
sales. For additional information regarding domestic and foreign
sales, see Note 21 to our audited consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
2008 Sales
|
|
|
Total Sales
|
|
|
|
(in millions)
|
|
|
|
|
|
Army
|
|
$
|
4,180
|
|
|
|
28
|
%
|
Air Force
|
|
|
2,944
|
|
|
|
20
|
|
Navy/Marines
|
|
|
2,295
|
|
|
|
15
|
|
Other Defense
|
|
|
1,640
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
Total DoD
|
|
$
|
11,059
|
|
|
|
74
|
%
|
Other U.S. Government
|
|
|
1,067
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Government
|
|
$
|
12,126
|
|
|
|
81
|
%
|
Foreign governments
|
|
|
1,099
|
|
|
|
7
|
|
Commercial foreign
|
|
|
987
|
|
|
|
7
|
|
Commercial domestic
|
|
|
689
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
14,901
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Approximately 73% of our DoD sales for 2008 were direct to the
customer, and approximately 27% were indirect through other
prime system contractors and subcontractors of the DoD.
Our sales are predominantly derived from contracts with agencies
of, and prime system contractors to, the U.S. Government.
Various U.S. Government agencies and contracting entities
exercise independent and individual purchasing decisions,
subject to annual appropriations by the U.S. Congress. For
the year ended December 31, 2008, our five largest
contracts generated 12% of our consolidated sales. For the year
ended December 31, 2008, our largest contract, the
U.S. Air Force (USAF) Contract Field Teams (CFT) contract,
generated 3% of our sales. CFT is a multi-sourced contract,
which provides worldwide quick reaction maintenance of deployed
aircraft and ground vehicles for the U.S. military.
Research
and Development
We conduct research and development activities that consist of
projects involving applied research, new product development and
select concept studies. We employ scientific, engineering and
other personnel to improve our existing product-lines and
develop new products and technologies. As of December 31,
2008, we employed approximately 11,000 engineers, a substantial
portion of whom hold advanced degrees, and work on company
sponsored research and development efforts and customer funded
research and development contracts.
Company-sponsored (Independent) research and development costs
for our businesses that are U.S. Government contractors are
allocated to U.S. Government contracts and are charged to
cost of sales when the related sales are recognized as revenue.
Research and development costs for our commercial businesses are
expensed as incurred. The table below presents company-sponsored
(Independent) research and development
12
expenses incurred for the years ended December 31, 2008,
2007 and 2006 for our U.S. Government businesses and our
commercial businesses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Company-Sponsored Research and Development Costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government Contractor Businesses
|
|
$
|
287
|
|
|
$
|
263
|
|
|
$
|
243
|
|
Commercial Businesses
|
|
|
86
|
|
|
|
93
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
373
|
|
|
$
|
356
|
|
|
$
|
320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer-funded research and development costs pursuant to
contracts (revenue arrangements) are direct contract costs and
are expensed when the corresponding revenue is recognized. See
Note 2 to our audited consolidated financial statements for
additional information regarding research and development.
Competition
Our businesses generally encounter intense competition. We
believe that we are a major provider for many of the products
and services we offer to our DoD, government and commercial
customers.
Our ability to compete for existing and new business depends on
a variety of factors, including,
|
|
|
|
|
the effectiveness and innovation of our technologies and
research and development programs;
|
|
|
|
our ability to offer better program performance than our
competitors at a lower cost;
|
|
|
|
historical technical and schedule performance;
|
|
|
|
us maintaining an effective supplier and vendor base;
|
|
|
|
our ability to retain our employees and hire new ones,
particularly those who have U.S. Government security
clearances; and
|
|
|
|
the capabilities of our facilities, equipment and personnel to
undertake the business for which we compete.
|
In some instances, we are the incumbent supplier or have been
the sole provider on a contract for many years, and we refer to
these positions as sole-source. On our sole-source
contracts, there may be other suppliers who have the capability
to compete for the contracts involved, but they can only enter
the market if the customer chooses to reopen the particular
contract to competition. Sole-source contracts are generally
re-competed every three to five years and at times more
frequently. For the year ended December 31, 2008, contracts
where we held sole-source positions accounted for 50% of our
total sales and contracts which we had competitively won
accounted for 50% of our total sales.
We believe we are the defense supplier with one of the broadest
and most diverse product portfolios. We supply our products and
services to other prime system contractors. However, we also
compete directly with other large prime system contractors for
(i) certain products and subsystems where they have
vertically integrated businesses and (ii) niche areas where
we are a prime system contractor. We also compete with numerous
other aerospace, defense and government technical services
contractors, which generally provide similar products,
subsystems or services. We believe that a majority of our
businesses enjoy the number one or number two competitive
position in their market niches. We believe that the primary
competitive factors for our businesses are technology, research
and development capabilities, quality, cost, market position and
past performance. However, some of these competitors are larger
than we are and have more financial and other resources than we
have.
In addition, our ability to compete for select contracts may
require us to team with one or more of the other
prime system contractors that bid and compete for major platform
programs, and our ability to team with them is often
dependent upon the outcome of a competition for subcontracts
they award.
13
Patents
and Licenses
Generally, we do not believe that our patents, trademarks and
licenses are material to our operations. Furthermore, most of
our U.S. Government contracts generally permit us to use
patents owned by other U.S. Government contractors. Similar
provisions in U.S. Government contracts awarded to other
companies make it impossible for us to prevent the use of our
patents in most DoD work performed by other companies for the
U.S. Government.
Raw
Materials
Generally, our businesses engage in limited manufacturing
activities. In manufacturing our products, we use our own
production capabilities as well as a diverse base of third party
suppliers and subcontractors. Although aspects of certain of our
businesses require relatively scarce raw materials, we have not
experienced difficulty in our ability to procure raw materials,
components,
sub-assemblies
and other supplies required in our manufacturing processes.
Contracts
A significant portion of our sales are derived from sole-source
contracts as discussed above. We believe that our customers
award sole-source contracts to the most capable supplier in
terms of quality, responsiveness, design, engineering and
program management competency and cost. However, as discussed
above, we are increasingly competing against other prime system
contractors for major subsystems business. As a consequence of
our competitive position, for the year ended December 31,
2008, we won contract awards at a rate in excess of 61% on new
competitive contracts that we bid on, and at a rate in excess of
95% on the number of contracts we rebid for when we were the
incumbent supplier.
Generally, the sales price arrangements for our contracts are
either fixed-price, cost-reimbursable or
time-and-material
type. Generally, a fixed-price type contract offers higher
profit margin potential than a cost-reimbursable type or
time-and-material
type contract, which is commensurate with the greater levels of
risk we assume on a fixed-price type contract. Our operating
margins (pretax operating income as a percentage of sales) on
fixed-price type contracts generally range between 10% and 15%,
while on cost-reimbursable type contracts they generally range
between 5% and 10%, and on
time-and-material
type contracts they generally range between 8% and 12%.
On a fixed-price type contract (revenue arrangement), we agree
to perform the contractual statement of work for a predetermined
sales price. Although a fixed-price type contract generally
permits us to retain profits if the total actual contract costs
are less than the estimated contract costs, we bear the risk
that increased or unexpected costs may reduce our profit or
cause us to sustain losses on the contract. Accounting for the
sales on a fixed-price type contract requires the preparation of
estimates of (1) the total contract revenue, (2) the
total costs at completion, which is equal to the sum of the
actual incurred costs to date on the contract and the estimated
costs to complete the contracts statement of work, and
(3) the measurement of progress towards completion.
Adjustments to original estimates for a contracts revenue,
estimated costs at completion and estimated total profit or loss
are often required as work progresses under a contract, as
experience is gained and as more information is obtained, even
though the scope of work required under the contract may not
change.
On a cost-reimbursable type contract (revenue arrangement), we
are paid our allowable incurred costs plus a profit which can be
fixed or variable depending on the contracts fee
arrangement up to predetermined funding levels determined by our
customers. Cost-reimbursable type contracts with award and
incentive fee provisions are our primary variable contract fee
arrangement. Award fees provide for a fee based on actual
performance relative to contractually specified performance
criteria. Incentive fees provide for a fee based on the
relationship which total allowable costs bear to target cost.
Sales from cost-reimbursable type contracts with award fees were
approximately $1.3 billion for the year ended
December 31, 2008. Sales from cost-reimbursable type
contracts with incentive fees were approximately
$589 million for the year ended December 31, 2008.
14
On a
time-and-material
type contract (revenue arrangement), we are paid on the basis of
direct labor hours expended at specified fixed-price hourly
rates (that include wages, overhead, allowable general and
administrative expenses and profit) and materials at cost.
Therefore, on cost-reimbursable type and
time-and-material
type contracts we do not bear the risks of unexpected cost
overruns, provided that we do not incur costs that exceed the
predetermined funded amounts. Our customer satisfaction and
performance record is evidenced by our receipt of
performance-based award fees achieving 92% of the available
award fees on average during the year ended December 31,
2008.
We believe we have a favorable balance of fixed-price,
cost-reimbursable and time and material type contracts, a
significant sole-source follow-on business and an attractive
customer profile with limited reliance on any single contract.
The table below presents the percentage of our total sales
generated from each contract-type.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Contract-Type
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Fixed-price
|
|
|
54
|
%
|
|
|
51
|
%
|
|
|
50
|
%
|
Cost-reimbursable
|
|
|
27
|
%
|
|
|
30
|
%
|
|
|
31
|
%
|
Time-and-material
|
|
|
19
|
%
|
|
|
19
|
%
|
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Substantially all of our cost-reimbursable type contracts and
time-and-material
type contracts are with U.S. Government customers.
Substantially all of our sales to commercial customers are
transacted under fixed-price sales arrangements and are included
in our fixed-price contract sales.
Regulatory
Environment
Most of our revenue arrangements with agencies of the
U.S. Government, including the DoD, are subject to unique
procurement and administrative rules. These rules are based on
both laws and regulations, including the U.S. Federal
Acquisition Regulation (FAR), that: (1) impose various
profit and cost controls, (2) regulate the allocations of
costs, both direct and indirect, to contracts and
(3) provide for the non-reimbursement of unallowable costs.
Unallowable costs include, but are not limited to, lobbying
expenses, interest expenses and certain costs related to
business acquisitions, including, for example, the incremental
depreciation and amortization expenses arising from fair value
increases to the historical carrying values of acquired assets.
Our contract administration and cost accounting policies and
practices are also subject to oversight by government
inspectors, technical specialists and auditors. See
Part I Item 1A Risk
Factors on page 17 for a discussion of certain
additional business risks specific to our government contracts.
As is common in the U.S. defense industry, we are subject
to business risks, including changes in the
U.S. Governments procurement policies (such as
greater emphasis on competitive procurement), governmental
appropriations, national defense policies or regulations,
service modernization plans, and availability of funds. A
reduction in expenditures by the U.S. Government for
products and services of the type we manufacture and provide,
lower margins resulting from increasingly competitive
procurement policies, a reduction in the volume of contracts or
subcontracts awarded to us or the incurrence of substantial
contract cost overruns could materially adversely affect our
business.
Certain of our sales are under foreign military sales (FMS)
agreements directly between the U.S. Government and allied
foreign governments. In such cases, because we serve only as the
supplier, we do not have unilateral control over the terms of
the agreements. These contracts are subject to extensive legal
and regulatory requirements and, from time to time, agencies of
the U.S. Government investigate whether our operations are
being conducted in accordance with these laws and regulations.
Investigations could result in administrative, civil, or
criminal liabilities, including repayments, disallowance of
certain costs, or fines and penalties. Certain of our sales are
direct commercial sales to allied foreign governments. These
sales are subject to U.S. Government approval and licensing
under the Arms Export Control Act. Legal restrictions on sales
of sensitive U.S. technology also limit the extent to which
we can sell our products to allied foreign governments or
private parties.
15
Environmental
Matters
Our operations are subject to various environmental laws and
regulations relating to the discharge, storage, treatment,
handling, disposal and remediation of certain materials,
substances and wastes used in our operations. We continually
assess our obligations and compliance with respect to these
requirements.
We have also assessed the risk of environmental contamination
for our various manufacturing facilities, including our acquired
businesses and, where appropriate, have obtained
indemnification, either from the sellers of those acquired
businesses or through pollution liability insurance. We believe
that our current operations are in substantial compliance with
all existing applicable environmental laws and permits. We
believe our current expenditures will allow us to continue to be
in compliance with applicable environmental laws and
regulations. While it is difficult to determine the timing and
ultimate cost to be incurred in order to comply with these laws,
based upon available internal and external assessments, with
respect to those environmental loss contingencies of which we
are aware, we believe that after considering recorded
liabilities, there are no environmental loss contingencies that,
individually or in the aggregate, would be material to our
consolidated results of operations, financial position or cash
flows.
Certain
Acquired Pension Plans
In connection with our acquisition of ten business units from
Lockheed Martin and the formation of L-3 in 1997, we assumed
certain defined benefit pension plan liabilities for present and
former employees and retirees of certain of these businesses
from Lockheed Martin. Lockheed Martin had previously received a
letter from the Pension Benefit Guaranty Corporation (PBGC),
indicating that the pension plans of two businesses were under
funded using the PBGCs actuarial assumptions (Subject
Plans).
With respect to the Subject Plans, Lockheed Martin entered into
an agreement (Lockheed Martin Commitment) with L-3 and the PBGC
dated as of April 30, 1997. The terms and conditions of the
Lockheed Martin Commitment include a commitment by Lockheed
Martin to the PBGC to, under certain circumstances, assume
sponsorship of the Subject Plans or provide another form of
financial support for the Subject Plans. The Lockheed Martin
Commitment will continue until the Subject Plans are no longer
under funded on a PBGC basis for two consecutive years, or
immediately if we achieve investment grade credit ratings on all
of our outstanding debt.
If Lockheed Martin did assume sponsorship of the Subject Plans,
it would be primarily liable for the costs associated with
funding the Subject Plans or any costs associated with the
termination of the Subject Plans. The terms and conditions of
the Lockheed Martin Commitment would require us to reimburse
Lockheed Martin for these costs. Lockheed Martin has not assumed
sponsorship or provided another form of financial support for
the Subject Plans.
We believe we have performed our obligations under the Lockheed
Martin Commitment and have not received any communications from
the PBGC concerning actions that the PBGC contemplates taking in
respect of the Subject Plans.
For the year ended December 31, 2008, we contributed
$3 million to the Subject Plans. For subsequent years, our
funding requirements will depend upon prevailing interest rates,
return on pension plan assets and underlying actuarial
assumptions. At December 31, 2008, the aggregate projected
benefit obligation was $245 million and the aggregate plan
assets were $144 million for the Subject Plans. At
December 31, 2008, we have recorded a liability of
$101 million for the under funded status of the Subject
Plans.
Employees
As of December 31, 2008, we employed approximately
65,000 full-time and part-time employees, 84% of whom were
located in the United States. Of these employees, approximately
15% are covered by 123 separate collective bargaining agreements
with various labor unions. The success of our business is
primarily dependent upon the knowledge of our employees and on
the management, contracting, engineering and technical skills of
our employees. In addition, our ability to grow our businesses,
obtain additional orders for our products and services and to
satisfy contractual obligations under certain of our existing
revenue
16
arrangements is largely dependent upon our ability to attract
and retain employees who have U.S. Government security
clearances, particularly those with clearances of top-secret and
above. We believe that relations with our employees are positive.
L-3
Holdings Obligations
The only obligations of L-3 Holdings at December 31, 2008
were: (1) its 3% Convertible Contingent Debt
Securities (CODES) due 2035, which were issued by L-3 Holdings
on July 29, 2005, (2) its guarantee of borrowings
under the senior credit facility of L-3 Communications and
(3) its guarantee of other contractual obligations of L-3
Communications and its subsidiaries. L-3 Holdings
obligations relating to the CODES have been jointly, severally,
fully and unconditionally guaranteed by L-3 Communications and
certain of its wholly-owned domestic subsidiaries. In order to
generate the funds necessary to repurchase common stock and pay
dividends declared and principal and interest on its outstanding
indebtedness, if any, L-3 Holdings relies on dividends and other
payments from its subsidiaries or it must raise funds in public
or private equity or debt offerings.
Available
Information
We are subject to the informational requirements of the
Securities Exchange Act of 1934 and, in accordance therewith,
file reports, including annual, quarterly and current reports,
proxy statements and other information with the SEC. Such
reports and other information can be inspected and copied at the
Public Reference Room of the SEC located at
100 F Street, N.E., Washington, D.C. 20549.
Copies of such material can be obtained from the Public
Reference Room of the SEC at prescribed rates. You may obtain
information on the operation of the Public Reference Room by
calling the SEC at
1-800-SEC-0330.
Such material may also be accessed electronically by means of
the SECs home page on the Internet at
http://www.sec.gov.
You may also obtain a free copy of our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and proxy statement for the annual shareholders meeting,
as well as any amendments to those reports as soon as reasonably
practicable after electronic filing with the SEC through our
website on the Internet at
http://www.L-3com.com.
The Company also has a Corporate Governance webpage. You can
access the Companys Corporate Governance Guidelines and
charters for the audit, compensation and nominating/corporate
governance committees of our Board of Directors through our Web
site,
http://www.L-3com.com,
by clicking on the Corporate Governance link under
the heading Investor Relations. The Company posts
its Code of Ethics and Business Conduct on its Corporate
Governance webpage under the link Code of Ethics and
Business Conduct. The Companys Code of Ethics and
Business Conduct applies to all directors, officers and
employees, including our chairman, president and chief executive
officer, our vice president and chief financial officer, and our
corporate controller and principal accounting officer. We will
post any amendments to the Code of Ethics and Business Conduct,
and any waivers that are required to be disclosed by the rules
of either the SEC or the New York Stock Exchange, Inc.
(NYSE), on our Web site within the required periods.
The information on the Companys Web site is not
incorporated by reference into this report. You can request a
copy of our Code of Ethics and Business Conduct or any other
corporate governance document or periodic report at no cost by
contacting (866) INFO-LLL
(866-463-6555).
To learn more about L-3, please visit the Companys Web
site at www.L-3com.com. L-3 uses its Web site as a channel of
distribution of material Company information. Financial and
other material information regarding L-3 is routinely posted on
the Companys Web site and is readily accessible.
Item 1A. Risk
Factors
You should carefully consider the following risk factors and
other information contained or incorporated by reference in this
Form 10-K,
including Part II Item 7
Managements Discussion and Analysis of Financial Condition
and Results of Operations. Any of these risks could
materially adversely affect our business and our financial
condition, results of operations and cash flows, which could in
turn materially adversely affect the price of our common
stock.
17
Our contracts (revenue arrangements) with
U.S. Government customers entail certain risks.
A decline in or a redirection of the U.S. defense budget
could result in a material decrease in our sales, earnings and
cash flows.
Our government contracts are primarily dependent upon the
U.S. defense budget. We, as well as other defense
contractors, have benefited from increased overall DoD spending
over recent years, including supplemental appropriations for
military operations in Iraq, Afghanistan and the Global War on
Terror (GWOT). The Presidents DoD base defense budget
request, for the governments fiscal year ending
September 30, 2009, excluding a fiscal year 2009 GWOT
supplemental request, indicates continued growth over the fiscal
year 2008 period. However, future DoD budgets could be
negatively affected by several factors, including events we
cannot foresee, U.S. Government budget deficits, current or
future economic conditions, new administration priorities,
U.S. national security strategies, a change in spending
priorities, the cost of sustaining U.S. military and
related security operations in Iraq and Afghanistan and other
locales around the world where U.S. military support may be
pivotal, and other related exigencies and contingencies. While
we are unable to predict the impact and outcome of these
uncertainties, the effect of changes in these DoD imperatives
could cause the DoD budget to remain unchanged or to decline (or
even to increase). A significant decline in or redirection of
U.S. military expenditures in the future could result in a
decrease to our sales, earnings and cash flows. The loss or
significant reduction in government funding of a large program
in which we participate could also result in a decrease in our
future sales, earnings and cash flows. U.S. Government
contracts are also conditioned upon continuing approval by
Congress of the amount of necessary spending. Congress usually
appropriates funds for a given program on a September 30 fiscal
year basis, even though contract periods of performance may
extend over many years. Consequently, at the beginning of a
major program, the contract is usually partially funded, and
additional monies are normally committed to the contract by the
procuring agency only as appropriations are made by Congress for
future fiscal years. Given the potential for uncertainty in the
DoD fiscal process as we begin a new political era in the United
States, and given the dangerous and volatile global condition in
which the U.S. is a primary stabilizing force, our approach
to future business planning will include our best assessments
and judgments on how to account for change and adapt to new
conditions and circumstances.
We rely predominantly on sales to U.S. Government
entities, and the loss of a significant number of our contracts
would have a material adverse effect on our results of
operations and cash flows.
Our sales are predominantly derived from contracts (revenue
arrangements) with agencies of, and prime system contractors to,
the U.S. Government. The loss of all or a substantial
portion of our sales to the U.S. Government would have a
material adverse effect on our results of operations and cash
flows. At December 31, 2008, we had approximately 2,100
contracts (revenue arrangements) with individual estimated
contract values in excess of $1 million. Approximately 81%,
or $12 billion, of our sales for the year ended
December 31, 2008 were made directly or indirectly to
U.S. Government agencies, including the DoD. For the year
ended December 31, 2008, our largest contract (revenue
arrangement) in terms of annual sales was the U.S. Air
Force (USAF) Contract Field Teams (CFT) contract, which
generated 3% of our sales. CFT is a multi-sourced contract,
which provides worldwide quick reaction maintenance of deployed
aircraft and ground vehicles for the U.S. military.
Additionally, aggregate sales from our five largest contracts
amounted to $1.8 billion, or 12% of our sales.
A substantial majority of our total sales are for products and
services under contracts with various agencies and procurement
offices of the DoD or with prime contractors to the DoD.
Although these various agencies, procurement offices and prime
contractors are subject to common budgetary pressures and other
factors, our customers exercise independent purchasing
decisions. Because of this concentration of contracts, if a
significant number of our DoD contracts and subcontracts are
simultaneously delayed or cancelled for budgetary, performance
or other reasons, it would have a material adverse effect on our
results of operations and cash flows.
18
In addition to contract cancellations and declines in agency
budgets, our backlog and future financial results may be
adversely affected by:
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curtailment of the U.S. Governments use of technology
or other services and products providers, including curtailment
due to government budget reductions and related fiscal matters;
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developments in Iraq, Afghanistan or other geopolitical
developments that affect demand for our products and services;
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our ability to hire and retain personnel to meet increasing
demand for our services; and
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technological developments that impact purchasing decisions or
our competitive position.
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Our government contracts contain unfavorable termination
provisions and are subject to audit and modification. If a
termination right is exercised by the government, it could have
a material adverse effect on our business, financial condition
and results of operations.
Companies engaged primarily in supplying defense-related
equipment and services to U.S. Government agencies are
subject to certain business risks peculiar to the defense
industry. These risks include the ability of the
U.S. Government to unilaterally:
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suspend us from receiving new contracts pending resolution of
alleged violations of procurement laws or regulations;
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terminate existing contracts;
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reduce the value of existing contracts;
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audit our contract-related costs and fees, including allocated
indirect costs; and
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control and potentially prohibit the export of our products.
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All of our U.S. Government contracts can be terminated by
the U.S. Government either for its convenience or if we
default by failing to perform under the contract. Termination
for convenience provisions provide only for our recovery of
costs incurred or committed settlement expenses and profit on
the work completed prior to termination. Termination for default
provisions provide for the contractor to be liable for excess
costs incurred by the U.S. Government in procuring
undelivered items from another source. Our contracts with
foreign governments generally contain similar provisions
relating to termination at the convenience of the customer.
U.S. Government agencies, including the Defense Contract
Audit Agency and various agency Inspectors General routinely
audit and investigate our costs and performance on contracts, as
well as our accounting and general business practices. Based on
the results of such audits, the U.S. Government may adjust
our contract-related costs and fees, including allocated
indirect costs. In addition, under U.S. Government
purchasing regulations, some of our costs, including most
financing costs, portions of research and development costs, and
certain marketing expenses may not be reimbursable under
U.S. Government contracts.
We may not be able to win competitively awarded contracts or
receive required licenses to export our products, which would
have a material adverse effect on our business, financial
condition, results of operations and future prospects.
Our government contracts are subject to competitive bidding. We
obtain many of our U.S. Government contracts through a
competitive bidding process. We may not be able to continue to
win competitively awarded contracts. In addition, awarded
contracts may not generate sales sufficient to result in our
profitability. We are also subject to risks associated with the
following:
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the frequent need to bid on programs in advance of the
completion of their design, which may result in unforeseen
technological difficulties
and/or cost
overruns;
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the substantial time, effort and experience required to prepare
bids and proposals for competitively awarded contracts that may
not be awarded to us;
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design complexity and rapid technological obsolescence; and
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the constant need for design improvement.
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In addition to these U.S. Government contract risks, we are
required to obtain licenses from U.S. Government agencies
to export many of our products and systems. Additionally, we are
not permitted to export some of our products. Failure to receive
required licenses would eliminate our ability to sell our
products outside the United States.
We are subject to government investigations, which could have
a material adverse effect on our business, financial condition,
results of operations and future prospects.
We are from time to time subject to governmental investigations
relating to our operations. We are currently cooperating with
the U.S. Government on several investigations, including
but not limited to, an investigation by the Department of
Justice Criminal Antitrust Division regarding information
technology services performed for the Air Force. For a
discussion of this matter, see the Titan Government
Investigation in Note 18 to our audited consolidated
financial statements.
We are subject to the risks of current and future legal
proceedings, which could have a material adverse effect on our
business, financial condition, results of operations and future
prospects.
At any given time, we are a defendant in various material legal
proceedings and litigation matters arising in the ordinary
course of business, including litigation, claims and assessments
that have been asserted against acquired businesses, which we
have assumed. Although we maintain insurance policies, these
policies may not be adequate to protect us from all material
judgments and expenses related to potential future claims and
these levels of insurance may not be available in the future at
economical prices or at all. A significant judgment against us,
arising out of any of our current or future legal proceedings
and litigation, could have a material adverse effect on our
business, financial condition, results of operations and future
prospects. For a discussion of the material litigation to which
we are currently a party, see Note 18 to our audited
consolidated financial statements.
If we are unable to keep pace with rapidly evolving products
and service offerings and technological change, there could be a
material adverse effect on our business, financial condition,
results of operations and future prospects.
The rapid change of technology is a key feature of most of the
markets in which our products, services and systems oriented
businesses operate. To succeed in the future, we will need to
continue to design, develop, manufacture, assemble, test, market
and support new products and enhancements on a timely and
cost-effective basis. Historically, our technology has been
developed through customer-funded and internally funded research
and development and through certain business acquisitions. We
may not be able to continue to maintain comparable levels of
research and development or successfully complete such
acquisitions. In the past, we have allocated substantial funds
to capital expenditures, programs and other investments. This
practice will continue to be required in the future. Even so, we
may not be able to successfully identify new opportunities and
may not have the needed financial resources to develop new
products in a timely or cost-effective manner. At the same time,
products and technologies developed by others may render our
products, services and systems obsolete or non-competitive.
Our business acquisition strategy involves risks, and we may
not successfully implement our strategy.
We seek to selectively acquire businesses that add new products,
technologies, programs or customers to our existing businesses.
We may not be able to continue to identify acquisition
candidates on commercially reasonable terms or at all. If we
make additional acquisitions, we may not realize the benefits
anticipated from these acquisitions, including cost synergies
and improving margins. Furthermore, we may not be able to obtain
additional financing for acquisitions, since such additional
financing could be restricted or limited by the terms of our
debt agreements or due to unfavorable credit market conditions.
The process of integrating the operations of acquired businesses
into our existing operations may result in unforeseen
difficulties and may require significant financial and
managerial resources that would otherwise be
20
available for the ongoing development or expansion of our
existing operations. Possible future business acquisitions could
result in the incurrence of additional debt and related interest
expense and contingent liabilities, each of which could result
in an increase to our already significant level of outstanding
debt, as well as more restrictive covenants. We consider and
execute strategic acquisitions on an ongoing basis and may be
evaluating acquisitions or engage in acquisition negotiations at
any given time. We regularly evaluate potential acquisitions and
joint venture transactions, and, except as disclosed in
Part II Item 7
Managements Discussion and Analysis of Financial Condition
and Results of Operations Business Acquisitions and
Business and Product Line Dispositions beginning on
page 36, we have not entered into any agreements with
respect to any material transactions at this time. Furthermore,
in certain of our business acquisitions we have assumed all
claims against and liabilities of the acquired business,
including both asserted and unasserted claims and liabilities.
Goodwill represents a significant asset on our balance sheet. We
review goodwill and intangible assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of these assets may not be recoverable, and also review
goodwill annually in accordance with SFAS No. 142,
Goodwill and Other Intangible Assets (SFAS 142). The
annual impairment test is based on determining the fair value of
our reporting units. A decline in the estimated fair value of a
reporting unit could result in a goodwill impairment, and a
related non-cash impairment charge against earnings, if
estimated fair value for the reporting unit is less than the
carrying value of the net assets of the reporting unit,
including its goodwill. A large decline in estimated fair value
of a reporting unit could result in an adverse effect on our
financial condition and results of operations. See
Part II Item 7
Managements Discussion and Analysis of Financial Condition
and Results of Operations Critical Accounting
Policies beginning on page 38.
Our results of operations and cash flows are substantially
affected by our mix of fixed-price,
cost-reimbursable
and
time-and-material
type contracts.
Our sales are transacted using written revenue arrangements, or
contracts, which are generally either fixed-price,
cost-reimbursable or
time-and-material.
For a description of our revenue recognition policies, see
Part II Item 7
Managements Discussion and Analysis of Financial Condition
and Results of Operations Critical Accounting
Policies beginning on page 38.
The table below presents the percentage of our total sales
generated from each contract-type as of December 31, 2008.
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% of
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Contract-Type
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Total Sales
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Fixed-price
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54
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%
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Cost-reimbursable
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27
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%
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Time-and-material
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%
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Total sales
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100
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%
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Substantially all of our cost-reimbursable and
time-and-material
type contracts are with the U.S. Government, primarily the
DoD. Substantially all of our sales to commercial customers are
transacted under fixed-price sales arrangements, and are
included in our fixed-price type contract sales.
On a fixed-price type contract (revenue arrangement), we agree
to perform the contractual statement of work for a predetermined
sales price. Although a fixed-price type contract generally
permits us to retain profits if the total actual contract costs
are less than the estimated contract costs, we bear the risk
that increased or unexpected costs may reduce our profit or
cause us to sustain losses on the contract.
On a cost-reimbursable type contract (revenue arrangement), we
are paid our allowable incurred costs plus a profit which can be
fixed or variable depending on the contracts fee
arrangement up to predetermined funding levels determined by our
customers. On a
time-and-material
type contract (revenue arrangement), we are paid on the basis of
direct labor hours expended at specified fixed-price hourly
rates (that include wages, overhead, allowable general and
administrative expenses and profit) and materials at cost.
Therefore, on cost-
21
reimbursable type and
time-and-material
type contracts, we do not bear the risks of unexpected cost
overruns, provided that we do not incur costs that exceed the
predetermined funded amounts.
Additionally, the impact of revisions in profit or loss
estimates for all types of contracts subject to percentage of
completion accounting are recognized on a cumulative
catch-up
basis in the period in which the revisions are made. Provisions
for anticipated losses on contracts are recorded in the period
in which they become evident. Amounts representing contract
change orders or claims are included in sales only when they can
be reliably estimated and their realization is reasonably
assured. The revisions in contract estimates, if significant,
can materially affect our results of operations and cash flows,
as well as reduce the valuations of receivables and inventories;
and in some cases, result in liabilities to complete contracts
in a loss position.
Intense competition in the industries in which our businesses
operate could limit our ability to attract and retain
customers.
The defense industry and the other industries in which our
businesses operate and the market for defense applications is
highly competitive. We expect that the DoDs increased use
of commercial
off-the-shelf
products and components in military equipment will continue to
encourage new competitors to enter the market. We also expect
that competition for original equipment manufacturing business
will increase due to the continued emergence of merchant
suppliers. Additionally, some of our competitors are larger than
we are and have more financial and other resources than we have.
For more information concerning the factors that affect our
ability to compete, see Part I
Item 1 Business Competition
beginning on page 13.
Our significant level of debt and our ability to make
payments on or service our indebtedness may adversely affect our
financial and operating activities or ability to incur
additional debt.
In prior years we incurred substantial indebtedness to finance
our business acquisitions. At December 31, 2008, we had
approximately $4,550 million in aggregate principal amount
of outstanding debt, which includes a $650 million term
loan facility. In addition, at December 31, 2008, we had
additional borrowing capacity of $940 million available to
us under our revolving credit facility, after reductions of
$60 million for outstanding letters of credit. In the
future, we may increase our borrowings, subject to limitations
imposed on us by our debt agreements. The first scheduled
maturity of our existing debt is our senior credit facility,
comprised of the $650 million term loan facility and the
revolving credit facility, on March 9, 2010. For further
discussion concerning the scheduled maturity of our senior
credit facility, see Part II
Item 7 Managements Discussion and
Analysis of Financial Condition and Results of
Operations Liquidity and Capital
Resources Anticipated Sources of Cash Flow on
page 51.
Our ability to make scheduled payments of principal and interest
on our indebtedness and to refinance our existing debt,
including the scheduled maturity of our senior credit facility,
depends on our future financial performance as well as our
ability to access the capital markets, and the relative
attractiveness of available financing terms. We do not have
complete control over our future financial performance because
it is subject to economic, political, financial (including
credit market conditions), competitive, regulatory and other
factors affecting the aerospace and defense industry, as well as
commercial industries in which we operate. It is possible that
in the future our business may not generate sufficient cash flow
from operations to allow us to service our debt and make
necessary capital expenditures. If this situation occurs, we may
have to reduce costs and expenses, sell assets, restructure debt
or obtain additional equity capital. We may not be able to do so
in a timely manner or upon acceptable terms in accordance with
the restrictions contained in our debt agreements.
Our level of indebtedness has important consequences to us.
These consequences may include:
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requiring a substantial portion of our net cash flow from
operations to be used to pay interest and principal on our debt
and therefore be unavailable for other purposes, including
acquisitions, capital expenditures, paying dividends to our
shareholders, repurchasing shares of our common stock, research
and development and other investments;
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limiting our ability to obtain additional financing for
acquisitions, working capital, investments or other
expenditures, which, in each case, may limit our ability to
carry out our acquisition strategy;
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increasing interest expenses due to higher interest rates on our
borrowings that have variable interest rates;
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heightening our vulnerability to downturns in our business or in
the general economy and restricting us from making acquisitions,
introducing new technologies and products or exploiting business
opportunities; and
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impacting debt covenants that limit our ability to borrow
additional funds, dispose of assets, pay cash dividends or
repurchase shares of our common stock. Failure to comply with
such covenants could result in an event of default which, if not
cured or waived, could result in the acceleration of our
outstanding indebtedness.
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Additionally, on December 31, 2008, we had
$9,556 million of contractual obligations (including
outstanding indebtedness). For a detailed listing of the
components of our contractual obligations, see
Part II Item 7
Managements Discussion and Analysis of Financial Condition
and Results of Operations Contractual
Obligations on page 56.
Our debt agreements restrict our ability to finance our
future operations and, if we are unable to meet our financial
ratios, could cause our existing debt to be accelerated.
Our debt agreements contain a number of significant covenants
that, among other things, restrict our ability to:
|
|
|
|
|
sell assets;
|
|
|
|
incur more indebtedness;
|
|
|
|
repay certain indebtedness;
|
|
|
|
pay dividends on the common stock of L-3 Holdings;
|
|
|
|
make certain investments or business acquisitions;
|
|
|
|
repurchase or redeem capital stock;
|
|
|
|
make certain capital expenditures;
|
|
|
|
engage in business mergers or consolidations; and
|
|
|
|
engage in certain transactions with subsidiaries and affiliates.
|
These restrictions could impair our ability to finance our
future operations or capital needs or engage in other business
activities that may be in our interest. In addition, some of our
debt agreements also require us to maintain compliance with
certain financial ratios, including (1) total consolidated
earnings before interest, taxes, depreciation and amortization
to total consolidated cash interest expense and (2) total
consolidated funded indebtedness less designated cash balances
to total consolidated earnings before interest, taxes,
depreciation and amortization. Our ability to comply with these
ratios and covenants may be affected by events beyond our
control. A breach of any of these agreements or our inability to
comply with the required financial ratios or covenants could
result in a default under those debt agreements. In the event of
any such default, the lenders under those debt agreements could
elect to:
|
|
|
|
|
declare all outstanding debt, accrued interest and fees to be
due and immediately payable;
|
|
|
|
require us to apply all of our available cash to repay our
outstanding senior debt; and
|
|
|
|
prevent us from making debt service payments on our other debt.
|
For further discussion of our financial ratios, debt agreements
and other payment restrictions, see Note 10 to our audited
consolidated financial statements.
If we are unable to attract and retain key management and
personnel, we may become unable to operate our business
effectively.
Our future success depends to a significant degree upon the
continued contributions of our management, and our ability to
attract and retain highly qualified management and technical
personnel, including employees who have U.S. Government
security clearances, particularly clearances of top-secret and
above.
23
We do not maintain any key person life insurance policies for
members of our management. We face competition for management
and technical personnel from other companies and organizations.
Failure to attract and retain such personnel would damage our
future prospects.
Environmental laws and regulations may subject us to
significant liability.
Our operations are subject to various U.S. federal, state
and local as well as certain foreign environmental laws and
regulations within the countries in which we operate relating to
the discharge, storage, treatment, handling, disposal and
remediation of certain materials, substances and wastes used in
our operations.
New laws and regulations, stricter enforcement of existing laws
and regulations, the discovery of previously unknown
contamination or the imposition of new
clean-up
requirements may require us to incur a significant amount of
additional costs in the future and could decrease the amount of
free cash flow available to us for other purposes, including
capital expenditures, research and development and other
investments and could have a material adverse effect on our
business, financial condition, results of operations and future
prospects.
Termination of our backlog of orders could negatively impact
our results of operations and cash flows.
We currently have a backlog of funded orders, primarily under
contracts with the U.S. Government. Our total funded
backlog was $11,572 million at December 31, 2008. As
described above, the U.S. Government may unilaterally
modify or terminate its contracts. Accordingly, most of our
backlog could be modified or terminated by the
U.S. Government, which would negatively impact our results
of operations and cash flows.
Our sales to certain foreign customers expose us to risks
associated with operating internationally.
For the year ended December 31, 2008, sales to foreign
customers, excluding our foreign sales made under foreign
military sales (FMS) agreements directly between the
U.S. Government and allied foreign governments, represented
approximately 11% of our consolidated sales. Consequently, our
businesses are subject to a variety of risks that are specific
to international operations, including the following:
|
|
|
|
|
export regulations that could erode profit margins or restrict
exports;
|
|
|
|
compliance with the U.S. Foreign Corrupt Practices Act
(FCPA);
|
|
|
|
the burden and cost of compliance with foreign laws, treaties
and technical standards and changes in those regulations;
|
|
|
|
contract award and funding delays;
|
|
|
|
potential restrictions on transfers of funds;
|
|
|
|
foreign currency fluctuations;
|
|
|
|
import and export duties and value added taxes;
|
|
|
|
transportation delays and interruptions;
|
|
|
|
uncertainties arising from foreign local business practices and
cultural considerations; and
|
|
|
|
potential military conflicts and political risks.
|
While we have and will continue to adopt measures to reduce the
potential impact of losses resulting from the risks of our
foreign business, we cannot ensure that such measures will be
adequate.
Global economic recession, continued tightening of credit
markets, and U.S. Government intervention in financial and other
industries may adversely affect our results.
Domestic and foreign economies and equity and fixed income
markets have recently experienced significant declines, and
severely diminished liquidity and credit availability. These
economic conditions are currently negatively impacting, and
could continue to adversely affect, our sales to the commercial
markets in which we operate, including our commercial aviation
products and commercial shipbuilding products businesses. Sales
to commercial customers were $1.7 billion for 2008, or
11.2% of our total sales.
24
Additionally, while we are unable to predict the impact and
outcome of these economic events and the U.S. Governments
intervention to shore up financial and other industries, these
events could also negatively affect future U.S. defense budgets
and spending and, consequently, our financial condition, results
of operations and cash flows. Sales to the DoD represented 74%
of our total sales for 2008.
These economic conditions could also continue to adversely
affect our pension plan funded status and annual pension
expense. See Part II Item 7
Managements Discussion and Analysis of Financial Condition
and Results of Operations Liquidity and Capital
Resources Pension Plans on page 53 and
Note 19 to our audited consolidated financial statements.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
At December 31, 2008, we operated in 536 locations
consisting of manufacturing facilities, administration, research
and development and other properties throughout the United
States and internationally. Of these, we owned 45 locations
consisting of approximately 5.5 million square feet and
leased space at 491 locations consisting of approximately
17.9 million square feet.
Our reportable segments have major operations at the following
locations:
|
|
|
|
|
C3ISR
Camden, New Jersey; Greenville and Waco, Texas; and Salt Lake
City, Utah.
|
|
|
|
Government Services Huntsville, Alabama; Tucson,
Arizona; Washington, DC; Orlando, Florida; Annapolis, Maryland;
and Alexandria, Arlington, Chantilly and Reston, Virginia.
|
|
|
|
AM&M Crestview, Florida; Lexington, Kentucky;
South Madison, Mississippi; Greenville and Waco, Texas; and
Edmonton and Quebec, Canada.
|
|
|
|
Specialized Products Phoenix and Tempe, Arizona;
Anaheim, San Carlos, San Diego, San Leandro,
Santa Barbara, Simi Valley, Sylmar and Torrance,
California; Orlando, Sarasota and St. Petersburg, Florida; Ayer,
Massachusetts; Grand Rapids and Muskegon, Michigan; Budd Lake,
New Jersey; Albuquerque, New Mexico; Binghamton and Hauppauge,
New York; Cincinnati and Mason, Ohio; Tulsa, Oklahoma;
Philadelphia, Pittsburgh and Williamsport, Pennsylvania;
Arlington, Dallas and Garland, Texas; Norfolk, Virginia;
Burlington and Toronto, Canada; and Hamburg and Elmenhorst,
Germany.
|
Corporate and other locations New York, New York and
Arlington, Virginia.
A summary of square footage by reportable segment as of
December 31, 2008 is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased
|
|
|
Owned
|
|
|
Total
|
|
|
|
(Square feet in millions)
|
|
|
C3ISR
|
|
|
4.3
|
|
|
|
0.7
|
|
|
|
5.0
|
|
Government Services
|
|
|
3.1
|
|
|
|
|
|
|
|
3.1
|
|
AM&M
|
|
|
3.2
|
|
|
|
1.4
|
|
|
|
4.6
|
|
Specialized Products
|
|
|
7.2
|
|
|
|
3.4
|
|
|
|
10.6
|
|
Corporate
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
17.9
|
|
|
|
5.5
|
|
|
|
23.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management believes all of our properties have been well
maintained, are in good condition, and are adequate to meet
current contractual requirements.
25
|
|
Item 3.
|
Legal
Proceedings
|
The information required with respect to this item can be found
in Note 18 to our audited consolidated financial statements
and is included in this Item 3 by reference.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
None.
26
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
The common stock of L-3 Holdings is traded on the New York Stock
Exchange (NYSE) under the symbol LLL. On
February 23, 2009, the closing price of L-3 Holdings
common stock, as reported by the NYSE, was $72.35 per share and
the number of holders of L-3 Holdings common stock was
approximately 75,000. The table below sets forth the high and
low closing price of L-3 Holdings common stock as reported
on the NYSE composite transaction tape and the amount of
dividends paid per share during the past two calendar years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing Price
|
|
|
|
Dividends Paid
|
|
|
(High-Low)
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Common Stock Dividends Paid and Market Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
$0.30
|
|
|
|
$0.25
|
|
|
$
|
110.48
|
$101.99
|
|
|
$
|
88.99
|
$80.02
|
|
Second Quarter
|
|
|
0.30
|
|
|
|
0.25
|
|
|
|
114.46
|
90.63
|
|
|
|
99.20
|
87.81
|
|
Third Quarter
|
|
|
0.30
|
|
|
|
0.25
|
|
|
|
105.88
|
87.57
|
|
|
|
102.68
|
92.11
|
|
Fourth Quarter
|
|
|
0.30
|
|
|
|
0.25
|
|
|
|
98.32
|
59.32
|
|
|
|
114.69
|
103.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
$1.20
|
|
|
|
$1.00
|
|
|
|
114.46
|
59.32
|
|
|
|
114.69
|
80.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On February 5, 2009, L-3 Holdings announced that its Board
of Directors had increased L-3 Holdings regular quarterly
cash dividend by 17% to $0.35 per share, payable on
March 16, 2009, to shareholders of record at the close of
business on February 19, 2009.
L-3 Holdings relies on dividends received from L-3
Communications to generate the funds necessary to pay dividends
on L-3 Holdings common stock. See Note 10 to our
audited consolidated financial statements for the financial and
other restrictive covenants that limit the payment of dividends
by L-3 Communications to L-3 Holdings.
Issuer
Purchases of Equity Securities
The following table provides information about share repurchases
made by L-3 Holdings of its common stock that are registered
pursuant to Section 12 of the Exchange Act during the 2008
fourth quarter. Repurchases are made from time to time at
managements discretion in accordance with applicable
federal securities laws. All share repurchases of L-3
Holdings common stock have been recorded as treasury
shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum number
|
|
|
|
|
|
|
|
|
|
|
|
|
(or approximate
|
|
|
|
|
|
|
|
|
|
Total number of
|
|
|
dollar value) of
|
|
|
|
|
|
|
|
|
|
shares purchased as
|
|
|
shares that may
|
|
|
|
Total number
|
|
|
Average
|
|
|
part of publicly
|
|
|
yet be purchased
|
|
|
|
of shares
|
|
|
price paid
|
|
|
announced plans or
|
|
|
under the plans
|
|
|
|
purchased
|
|
|
per share
|
|
|
programs
|
|
|
or programs
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
September 27 October 31,
2008(1)
|
|
|
1,846,332
|
|
|
$
|
82.12
|
|
|
|
1,846,332
|
|
|
$
|
|
|
November 1 30,
2008(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,000
|
|
December 1 31, 2008
|
|
|
1,037,564
|
|
|
|
66.61
|
|
|
|
1,037,564
|
|
|
$
|
931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,883,896
|
|
|
$
|
76.54
|
|
|
|
2,883,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
In October 2008, L-3 Holdings
completed its previously announced $750 million share
repurchase program, which was approved by its Board of Directors
on December 11, 2007.
|
|
(2)
|
|
On November 24, 2008,
L-3 Holdings Board of Directors approved a new share
repurchase program that authorizes L-3 Holdings to repurchase up
to an additional $1 billion of its outstanding shares of
common stock through December 31, 2010.
|
27
From January 1, 2009 through February 25, 2009, L-3
Holdings has repurchased 980,609 shares of its common
stock at an average price of $76.65 per share for an
aggregate amount of $75 million.
The graph below compares the cumulative total returns of our
common stock with the cumulative total return of the
Standard & Poors 500 Composite Stock Index and
the Standard & Poors 1500 Aerospace &
Defense Index, for the period from December 31, 2003 to
December 31, 2008. These figures assume that all dividends
paid over the performance period were reinvested, and that the
starting value of each index and the investment in our common
stock was $100 on December 31, 2003.
We are one of the companies included in the Standard &
Poors 1500 Aerospace & Defense Index and the
Standard & Poors 500 Composite Stock Index. The
starting point for the measurement of our common stock
cumulative total return was our stock price of $51.36 per share
on December 31, 2003. The graph is not, and is not intended
to be, indicative of future performance of our common stock.
28
|
|
Item 6.
|
Selected
Financial Data
|
We derived the selected financial data presented below at
December 31, 2008 and 2007 and for each of the three years
in the period ended December 31, 2008 from our audited
consolidated financial statements included elsewhere in this
Form 10-K.
We derived the selected financial data presented below at
December 31, 2006, 2005 and 2004 and for the years ended
December 31, 2005 and 2004 from our audited consolidated
financial statements not included in this
Form 10-K.
The selected financial data should be read in conjunction with
our Managements Discussion and Analysis of Financial
Condition and Results of Operations and our audited
consolidated financial statements. Our results of operations,
cash flows and financial position are affected significantly by
our business acquisitions, the more significant of which are
described elsewhere herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008(1)
|
|
|
2007
|
|
|
2006(2)
|
|
|
2005
|
|
|
2004
|
|
|
|
(in millions, except per share data)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
14,901
|
|
|
$
|
13,961
|
|
|
$
|
12,477
|
|
|
$
|
9,445
|
|
|
$
|
6,897
|
|
Cost of sales
|
|
|
13,342
|
|
|
|
12,513
|
|
|
|
11,198
|
|
|
|
8,448
|
|
|
|
6,148
|
|
Litigation gain
(charge)(3)
|
|
|
126
|
|
|
|
|
|
|
|
(129
|
)
|
|
|
|
|
|
|
|
|
Stock-based
charge(4)
|
|
|
|
|
|
|
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,685
|
|
|
|
1,448
|
|
|
|
1,111
|
|
|
|
997
|
|
|
|
749
|
|
Interest and other income, net
|
|
|
28
|
|
|
|
31
|
|
|
|
20
|
|
|
|
6
|
|
|
|
7
|
|
Interest
expense(3)
|
|
|
271
|
|
|
|
296
|
|
|
|
296
|
|
|
|
204
|
|
|
|
145
|
|
Minority interests in net income of consolidated subsidiaries
|
|
|
11
|
|
|
|
9
|
|
|
|
10
|
|
|
|
10
|
|
|
|
9
|
|
Loss on retirement of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
1,431
|
|
|
|
1,174
|
|
|
|
825
|
|
|
|
789
|
|
|
|
597
|
|
Provision for income taxes
|
|
|
502
|
|
|
|
418
|
|
|
|
299
|
|
|
|
280
|
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
929
|
|
|
$
|
756
|
|
|
$
|
526
|
|
|
$
|
509
|
|
|
$
|
382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income(5)
|
|
$
|
949
|
|
|
$
|
756
|
|
|
$
|
526
|
|
|
$
|
509
|
|
|
$
|
382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L-3 Holdings earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
7.66
|
|
|
$
|
6.05
|
|
|
$
|
4.27
|
|
|
$
|
4.28
|
|
|
$
|
3.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
7.83
|
|
|
$
|
6.05
|
|
|
$
|
4.27
|
|
|
$
|
4.28
|
|
|
$
|
3.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
7.56
|
|
|
$
|
5.98
|
|
|
$
|
4.22
|
|
|
$
|
4.20
|
|
|
$
|
3.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
7.72
|
|
|
$
|
5.98
|
|
|
$
|
4.22
|
|
|
$
|
4.20
|
|
|
$
|
3.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L-3 Holdings weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
121.2
|
|
|
|
124.9
|
|
|
|
123.1
|
|
|
|
118.8
|
|
|
|
107.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
122.9
|
|
|
|
126.5
|
|
|
|
124.8
|
|
|
|
121.2
|
|
|
|
117.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share on L-3 Holdings common
stock
|
|
$
|
1.20
|
|
|
$
|
1.00
|
|
|
$
|
0.75
|
|
|
$
|
0.50
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The year ended December 31,
2008 includes: (1) a gain of $12 million
($7 million after income taxes, or $0.06 per share) from
the sale of a product line (the Product Line Divestiture
Gain), and (2) a non-cash impairment charge of
$28 million ($17 million after income taxes,
|
29
|
|
|
|
|
or $0.14 per share) related to a
write-down of capitalized software development costs for a
general aviation product (the Impairment Charge).
|
|
(2) |
|
Effective January 1, 2006, we
adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 123R, Share-Based Payment
(SFAS 123(R)), which reduced 2006 operating income by
$42 million, net income by $29 million and diluted
earnings per share by $0.23.
|
|
(3) |
|
The year ended December 31,
2008 includes a pre-tax gain of $133 million
($81 million after income taxes, or $0.66 per diluted
share) recorded in the second quarter of 2008, comprised of a
$126 million reversal of a current liability for pending
and threatened litigation (the Litigation Gain) and
$7 million for related accrued interest as a result of a
June 27, 2008 decision by the U.S. Court of Appeals which
vacated an adverse 2006 jury verdict. For the year ended
December 31, 2006, the Company recorded $129 million
($78 million after income taxes, or $0.63 per diluted
share) related to this adverse jury verdict, which was rendered
on May 24, 2006.
|
|
(4) |
|
The Stock-Based Charge
of $39 million ($25 million after income taxes, or
$0.20 per diluted share) was recorded in the second quarter of
2006 in connection with L-3s voluntary review of its past
stock option granting practices and the related accounting.
|
|
(5) |
|
Net Income includes an after-tax
gain of $20 million or $0.16 per diluted share for the sale
of our 85% ownership interest in Medical Education Technologies,
Inc. (METI) on October 8, 2008. The gain is excluded from
income from continuing operations for the year ended
December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(in millions)
|
|
|
Balance Sheet Data (at year end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
2,254
|
|
|
$
|
2,181
|
|
|
$
|
1,553
|
|
|
$
|
1,789
|
|
|
$
|
1,633
|
|
Total assets
|
|
|
14,485
|
|
|
|
14,391
|
|
|
|
13,287
|
|
|
|
11,909
|
|
|
|
7,781
|
|
Long-term debt
|
|
|
4,538
|
|
|
|
4,537
|
|
|
|
4,535
|
|
|
|
4,634
|
|
|
|
2,190
|
|
Minority interests
|
|
|
83
|
|
|
|
87
|
|
|
|
84
|
|
|
|
81
|
|
|
|
78
|
|
Shareholders equity
|
|
|
5,831
|
|
|
|
5,989
|
|
|
|
5,306
|
|
|
|
4,491
|
|
|
|
3,800
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
$
|
1,387
|
|
|
$
|
1,270
|
|
|
$
|
1,074
|
|
|
$
|
847
|
|
|
$
|
621
|
|
Net cash used in investing activities
|
|
|
(432
|
)
|
|
|
(388
|
)
|
|
|
(1,091
|
)
|
|
|
(3,547
|
)
|
|
|
(556
|
)
|
Net cash (used in) from financing activities
|
|
|
(840
|
)
|
|
|
(464
|
)
|
|
|
(29
|
)
|
|
|
2,441
|
|
|
|
453
|
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Financial
Section Roadmap
Managements discussion and analysis (MD&A) can be
found on pages 30 to 61, the report related to the financial
statements and internal control over financial reporting can be
found on page 62 and the financial statements and related
notes can be found on pages F-1 to F-64. The following table is
designed to assist in your review of MD&A.
30
|
|
|
Topic
|
|
Location
|
|
Overview and Outlook:
|
|
|
L-3s Business
|
|
Pages 31-32
|
Business Strategy
|
|
Pages 32-33
|
Industry Considerations
|
|
Pages 33-34
|
Key Performance Measures
|
|
Pages 34-36
|
Liquidity
|
|
Page 36
|
Business Acquisitions and Business and Product Line Dispositions
|
|
Pages 36-38
|
Critical Accounting Policies:
|
|
|
Contract Revenue Recognition and Contract Estimates
|
|
Pages 38-40
|
Goodwill and Identifiable Intangible Assets
|
|
Pages 40-42
|
Pension Plan and Postretirement Benefit Plan Obligations
|
|
Page 42
|
Valuation of Deferred Income Tax Assets and Liabilities
|
|
Page 42
|
Liabilities for Pending and Threatened Litigation
|
|
Pages 42-43
|
Valuation of Long-Lived Assets
|
|
Page 43
|
Results of Operations, including business segments
|
|
Pages 43-51
|
Liquidity and Capital Resources:
|
|
|
Anticipated Sources of Cash Flow
|
|
Page 51
|
Balance Sheet
|
|
Pages 51-53
|
Pension Plans
|
|
Page 53-54
|
Statement of Cash Flows
|
|
Pages 54-56
|
Contractual Obligations
|
|
Pages 56-57
|
Off Balance Sheet Arrangements
|
|
Page 57
|
Legal Proceedings and Contingencies
|
|
Pages 57-58
|
Overview
and Outlook
L-3s
Business
L-3 is a prime system contractor in aircraft modernization and
maintenance, Command, Control, Communications, Intelligence,
Surveillance and Reconnaissance
(C3ISR)
systems, and government services. L-3 is also a leading provider
of high technology products, subsystems and systems. Our
customers include the U.S. Department of Defense (DoD) and
its prime contractors, U.S. Government intelligence
agencies, the U.S. Department of Homeland Security (DHS),
U.S. Department of State (DoS) and U.S. Department of
Justice (DoJ), allied foreign governments, domestic and
international commercial customers and select other
U.S. federal, state and local government agencies.
We have the following four reportable segments: (1)
C3ISR,
(2) Government Services, (3) Aircraft Modernization
and Maintenance (AM&M), and (4) Specialized Products.
Financial information for our reportable segments is included in
Note 21 to our audited consolidated financial statements.
C3ISR
provides products and services for the global ISR market,
networked communications systems and secure communications
products. We believe that these products and services are
critical elements for a substantial number of major command,
control, communication, intelligence gathering and space
systems. These products and services 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. Government Services provides training and operational
support services, enterprise information technology solutions,
intelligence solutions and support, command & control
systems and software services and global security &
engineering solutions services. AM&M provides
modernization, upgrades and sustainment, maintenance and
logistics support services for military and various government
aircraft and other platforms. Specialized Products provides a
broad range of products and related services
31
across several business areas that include power &
control systems, electro-optic/infrared (EO/IR), microwave,
avionics & displays, simulation & training,
precision engagement, security & detection systems,
propulsion systems, telemetry & advanced technology,
undersea warfare, and marine services.
For the year ended December 31, 2008, we generated sales of
$14,901 million. Our primary customer was the DoD. The
table below presents a summary of our 2008 sales by end customer
and the percent contributed by each to our total 2008 sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
2008 Sales
|
|
|
Total Sales
|
|
|
|
(in millions)
|
|
|
|
|
|
Army
|
|
$
|
4,180
|
|
|
|
28
|
%
|
Air Force
|
|
|
2,944
|
|
|
|
20
|
|
Navy/Marines
|
|
|
2,295
|
|
|
|
15
|
|
Other Defense
|
|
|
1,640
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
Total DoD
|
|
$
|
11,059
|
|
|
|
74
|
%
|
Other U.S. Government
|
|
|
1,067
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Total U.S. Government
|
|
$
|
12,126
|
|
|
|
81
|
%
|
Foreign governments
|
|
|
1,099
|
|
|
|
7
|
|
Commercial foreign
|
|
|
987
|
|
|
|
7
|
|
Commercial domestic
|
|
|
689
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
14,901
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
Most of our contracts (revenue arrangements) with the
U.S. Government are subject to U.S. Defense Contract
Audit Agency audits and various cost and pricing regulations,
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.
Business
Strategy
Our business strategy is customer-focused and aims to increase
shareholder value by providing products and services to our
customers that create value for them with responsive,
high-quality and affordable solutions. Financially, our emphasis
is on sustainably growing earnings per share and cash flow. Our
strategy involves a flexible and balanced combination of organic
growth, cost reductions, select business acquisitions and
divestitures, dividends and share repurchases, enabling us to
grow the company and return cash to our shareholders. We intend
to maintain and expand our position as a leading supplier of
products, subsystems, systems and services to the DoD, other
U.S. Government agencies, allied foreign governments and
commercial customers, both domestic and international. Our
strategy includes the objectives discussed below.
We intend to expand our prime system contractor roles in select
business areas where we have domain expertise, including
C3ISR,
aircraft modernization and maintenance and government technical
services. We also intend to enter into teaming
arrangements with other prime system contractors and platform
original equipment manufacturers to compete for select new
business opportunities. As an independent supplier of a broad
range of products, subsystems and systems in several key
business areas, our growth will partially be driven by expanding
our share on existing programs and participating on new
programs. We also expect to identify opportunities to use our
customer relationships and leverage the capabilities of our
various businesses, including proprietary technologies, to
expand the scope of our products and services to existing and
new customers. We also intend to continue to supplement our
growth by participating on and competing for new programs
internationally, particularly in Canada, the United Kingdom and
Australia.
We intend to use our existing prime contractor and supplier
positions and internal investments to grow our sales
organically. We expect to benefit from our positions as a
supplier to multiple bidders on select prime
32
contract bids. We plan to maintain our diversified and broad
business mix with its limited reliance on any single contract
and significant follow-on and new business opportunities. We
also expect to continue to supplement our organic sales growth
by selectively acquiring businesses that add new products,
services, technologies, programs or customers to our existing
businesses, and provide attractive returns on investment.
We believe that favorable performance on our existing contracts
is the foundation for successfully meeting our objectives of
expanding L-3s prime contractor and supplier positions and
growing sales organically. We believe that a prerequisite for
growing and winning new business is to retain our existing
business with successful contract performance, including
schedule, cost, technical and other performance criteria.
Therefore, we will continue to focus on delivering superior
contract performance to our customers to maintain our reputation
as an agile and responsive contractor and to differentiate L-3
from its competitors.
We intend to continue to aggressively improve and reduce our
direct contract costs and overhead costs, including general and
administrative costs. Effective management of labor, material,
subcontractor and other direct costs is a primary element of
favorable contract performance. We also intend to grow sales at
a faster rate than overhead costs. We believe continuous cost
improvement will enable us to increase our cost competitiveness,
expand operating margin and selectively invest in new product
development, bids and proposals and other business development
activities to organically grow sales.
We intend to continue to align our internal investments in
research and development, business development and capital
expenditures to proactively address customer requirements and
priorities with our products, services and solutions. We also
intend to grow our sales through the introduction of new
products and services and continued increased collaboration
between our businesses to offer the best quality and competitive
solutions and services to our customers.
Industry
Considerations
In recent years, a variety of changing conditions have
significantly affected the markets for defense systems, products
and services. There has been a fundamental shift in focus from a
traditional threat-based model to one that
emphasizes a broad range of capabilities needed to respond to
all contingencies and to defeat all adversaries (all hazards,
all threats). This expanded scope has transformed the
U.S. defense posture to a capabilities-based
orientation that can be tailored and structured to meet the
demands of contemporary and future national and homeland
security requirements. This new approach involves creating a
more flexible response with appropriate capability, agility and
force while highlighting changing technologies and operational
approaches applied to the challenges we face at every level of
warfare and in conditions short of war. The entire set of
capabilities resident in the DoD inventory will be examined for
change, with special attention given to improved strategic
defense systems, interoperable and brilliant networked
information and communications systems, precise weapons and
survivable delivery platforms, improved and enhanced
intelligence, reconnaissance, surveillance and target
acquisition (IRSTA) systems, and security systems in general.
This transformation also includes the application of military
capabilities for homeland defense and selected emergency
response efforts.
We anticipate that the 2010 U.S. Quadrennial Defense Review
(QDR) will incorporate lessons learned from
U.S. military operations in Iraq, Afghanistan, the Balkans,
and from other conflicts and security-related events around the
world. We anticipate the promotion of enhanced special
operations and irregular warfare capabilities, improved
intelligence gathering and application, greater language and
cultural capabilities, more effective communications and
information sharing, and enhanced security cooperation with
partner nations. We also anticipate increased attention to
selected strategic capabilities to maintain a strong deterrent
posture against future challenges to our security.
In recent years DoD budgets have reflected increased focus on
C5ISR
(command, control, communications, computers, collaboration and
intelligence, surveillance and reconnaissance), precision-guided
weapons, UAVs and other electro-mechanical robotic capabilities,
networked information technologies, special operations forces,
and missile defense. In addition, the DoD has focused on a
transformation strategy that seeks to balance modernization and
recapitalization (or upgrading existing platforms and
capabilities) while enhancing readiness and joint
operations all while engaging in demanding on-going
military operations.
33
As a result, defense budget program allocations continue to
favor immediate war-fighting improvements and concurrent limited
investment in future programs. DoDs emphasis on systems
interoperability, force multipliers, advances in intelligence
gathering, and the provision of real-time relevant data to
battle commanders often referred to as the common
operating picture (COP), have increased the electronic content
of nearly all major military procurement and research programs.
Therefore, it is expected that the DoD budget for information
technologies and defense electronics will grow. We believe L-3
is well positioned to benefit from the expected focus in those
areas.
While the DoD budget could be affected by several factors,
including current and future economic conditions and the new
administration priorities, we are unable to predict the impact
and outcome of these uncertainties. However, the current outlook
is one of more precise application of DoD spending, which will
continue to support L-3s future orders and sales,
operating results and cash flows. Conversely, a decline in the
DoD budget would generally have a negative effect on future
orders, sales, operating profits, and cash flows of defense
contractors, including L-3, depending on the platforms and
programs affected by such budget reductions.
With regard to U.S. homeland defense and security,
increased emphasis in these important endeavors may increase the
demand for our capabilities in areas such as security systems,
information assurance and cyber security, crisis management,
preparedness and prevention services, and non-DoD security
operations.
On balance, L-3 is one of the key U.S. providers of
product, capability and support and services in both defense and
homeland security. Anticipated business in these key critical
areas favors a vital and rewarding future for our company.
Key
Performance Measures
The primary financial performance measures that L-3 uses to
manage its businesses and monitor results of operations are
sales growth and operating income growth. Management believes
that these financial performance measures are the primary growth
drivers for L-3s earnings per share and net cash from
operating activities. L-3s business strategy is focused on
increasing sales from organic growth and select business
acquisitions that add new products, services, technologies,
programs or customers in areas that complement L-3s
existing businesses. We define organic sales growth as the
increase or decrease in sales for the current period compared to
the prior period, excluding sales in the (1) current period
from business and product line acquisitions that have been
included in L-3s actual results of operations for less
than twelve months, and (2) prior period from business and
product line divestitures that are included in L-3s actual
results of operations for the twelve-month period prior to the
divestiture date. The two main determinants of our operating
income growth are sales growth and improvements in operating
margin. We define operating margin as operating income as a
percentage of sales.
Sales Growth. Our average annual sales growth for
the five years ended December 31, 2008, was 25%, with
average annual organic sales growth of approximately 10% and
average annual sales growth from business acquisitions of
approximately 15%. Sales growth for the year ended
December 31, 2008 was 7%, comprised of organic sales growth
of 5%, and sales growth from business acquisitions, net of
divestitures, of 2%.
For the year ended December 31, 2008, our largest contract
(revenue arrangement) in terms of annual sales was the USAF CFT
contract, which generated 3% of our sales. CFT is a
multi-sourced contract, which provides worldwide quick reaction
maintenance of deployed aircraft and ground vehicles for the
U.S. military. The USAF recently selected L-3 as one of the
winning contractors for the next CFT indefinite
delivery/indefinite quantity contract that began on
October 1, 2008. There will be more contractors competing
for task orders on the new CFT contract compared to the existing
contract, and therefore, we may not be able to maintain our
annual sales on the new contract.
For the year ended December 31, 2007, our largest contract
(revenue arrangement) in terms of annual sales was the World
Wide Linguist Support Services contract (Linguist Contract),
which generated 5% of 2007 consolidated sales. On
February 15, 2008, the U.S. Army Intelligence and
Security Command
34
(INSCOM) announced that it did not select our proposal for the
Translation and Interpretation Management Services (TIMS)
contract. The TIMS contract is the successor contract to the
portion of the Linguist Contract that provides translators and
linguists in support of the U.S. military operations in
Iraq. On June 9, 2008, we transitioned from our prime
contract to a subcontract with Global Linguist Solutions (GLS)
to supply translation and interpretation services in Iraq under
the TIMS contract.
We, as most U.S. defense contractors, have benefited from
the upward trend in DoD budget authorization and spending
outlays over recent years, including supplemental appropriations
for military operations in Iraq, Afghanistan and the Global War
on Terror (GWOT). We believe that our businesses should be able
to generate organic sales growth for the foreseeable future
because we anticipate the defense budget will continue its focus
on areas that match certain of the core competencies of L-3:
communications and persistent ISR, sensors, precision
engagement, Special Operations Forces, wartime support services
and simulation & training. The increased DoD spending
during recent years has included supplemental appropriations for
military operations in Iraq and Afghanistan. These
appropriations have enabled the DoD to proceed with its
recapitalization and reconstitution programs that are directly
related to the U.S. military operations in Iraq and
Afghanistan, which allowed for the focus of base budget
resources on transformational modernization programs.
The current and future DoD budgets and level of future
Congressional supplemental appropriations for U.S. military
operations in Iraq and Afghanistan could remain unchanged or
decline because of several factors, including but not limited
to, changes in U.S. procurement policies, budget
considerations, current and future economic conditions, new
administration priorities, changing national security and
defense requirements, and geo-political developments, which are
beyond our control. Any of these factors could result in a
significant decline in or redirection of current and future DoD
budgets and impact L-3s future results of operations,
including our organic sales growth rate. Additionally,
L-3s future results of operations and sales growth are
affected by our ability to retain our existing business and to
successfully compete for new business, which largely depend on:
(1) our successful performance on existing contracts,
(2) the effectiveness and innovation of our technologies
and research and development activities, (3) our ability to
offer better program performance than our competitors at a lower
cost, and (4) our ability to retain our employees and hire
new ones, particularly those employees who have
U.S. Government security clearances.
Operating Income Growth. For the year ended
December 31, 2008, our consolidated operating income was
$1,685 million and our consolidated operating margin was
11.3%. Our operating income and operating margins for the year
ended December 31, 2008, were impacted by certain items
which occurred during the 2008 second quarter, as further
discussed below. Excluding these same items, our consolidated
operating income was $1,575 million for the year ended
December 31, 2008, an increase of 9% from
$1,448 million for the year ended December 31, 2007,
and our consolidated operating margin was 10.6% for the year
ended December 31, 2008, an increase of 20 basis
points from 10.4% for the year ended December 31, 2007.
Excluding an increase in our 2009 pension expense because of a
28% decline in pension plan asset returns as a result of
declines in equity and fixed income financial markets during
2008, we expect to continue to generate modest annual increases
in operating margin as we expect to increase sales, grow sales
at a faster rate than indirect costs and improve our overall
contract performance. However, we may not be able to expand our
operating margin on an annual basis. Additionally, in the
future, select business acquisitions and select new business
could reduce our operating margins, if the margins are lower
than L-3s existing operating margin. In addition, any
further decline in pension plan asset returns during 2009 could
reduce our operating margins in 2010. Our business objectives
include growing earnings per share and cash flow. Improving
operating margins is one method for achieving this growth, but
it is not the only one.
Other
2008 Events
Our 2008 results were affected by three matters, which increased
consolidated operating income by $110 million, income
before income taxes by $117 million, net income by
$71 million and diluted earnings per share (EPS) by $0.58,
which are collectively referred to as the Q2 2008 Items:
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|
|
|
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A gain of $133 million ($81 million after income
taxes, or $0.66 per share) for the reversal of a
$126 million current liability for pending and threatening
litigation as a result of a June 27, 2008
|
35
|
|
|
|
|
decision by the U.S. Court of Appeals that vacated an
adverse 2006 jury verdict and $7 million of related accrued
interest, which is recorded in interest expense and other items
(the Litigation Gain);
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|
|
|
|
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A gain of $12 million ($7 million after income taxes,
or $0.06 per share) from the sale of a product line (the
Product Line Divestiture Gain); and
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A non-cash impairment charge of $28 million
($17 million after income taxes, or $0.14 per share)
relating to a write-down of capitalized software development
costs for a general aviation product (the Impairment
Charge).
|
Also, on October 8, 2008, we divested our 85% ownership
interest in METI and recorded a gain in the year ended
December 31, 2008 of $33 million ($20 million
after income taxes, or $0.16 per diluted share). The gain
is excluded from income from continuing operations for the year
ended December 31, 2008.
Liquidity
Our primary source of liquidity is cash flow generated from
operations. We generated $1,387 million of cash from
operating activities during the year ended December 31,
2008. We also had cash and cash equivalents of $867 million
at December 31, 2008. Notwithstanding the recent declines
in equity and fixed income financial markets and diminished
liquidity and credit availability, we currently believe that our
liquidity is adequate to meet our anticipated requirements. Our
first scheduled maturity of outstanding debt is our
$650 million term loan facility, which matures on
March 9, 2010. Our intention is to refinance all or a
portion of the $650 million term loan facility borrowings,
if we are able to do so on terms that are acceptable to us. If
such terms are not available to us, we intend to repay the term
loan facility with cash on hand. Our revolving credit facility
also matures on March 9, 2010. We intend to enter into a
new revolving credit facility at or before that time. See
Part II Item 7
Managements Discussion and Analysis of Financial Condition
and Results of Operations Liquidity and Capital
Resources on page 51.
Business
Acquisitions and Business and Product Line
Dispositions
As discussed above, a portion of our growth strategy is to
selectively acquire businesses that add new products, services,
technologies, programs or customers to our existing businesses.
We intend to continue acquiring select businesses for reasonable
valuations that will provide attractive returns to L-3. Our
business acquisitions, depending on their business-type,
contract-type, sales mix or other factors, could reduce
L-3s consolidated operating margin while still increasing
L-3s operating income, earnings per share, and net cash
from operating activities.
36
Business
Acquisitions and Divestitures
Acquisitions. The table below summarizes the
acquisitions that we have completed during the years ended
December 31, 2006, 2007 and 2008, referred to herein as
business acquisitions. See Note 4 to our audited
consolidated financial statements for further information
regarding our business acquisitions. During the year ended
December 31, 2008, we used $283 million in the
aggregate for business acquisitions, including earnout payments
and remaining contractual purchase prices.
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|
|
|
|
|
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Purchase
|
|
Business Acquisitions
|
|
Date Acquired
|
|
|
Price(1)
|
|
|
|
|
|
|
(in millions)
|
|
|
2006
|
|
|
|
|
|
|
|
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SAM Electronics GmbH
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January 31, 2006
|
|
|
$
|
189
|
|
SafeView, Inc. (SafeView) and CyTerra Corporation
|
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|
March 2006
|
|
|
|
190
|
(2)
|
METI
|
|
|
April 4, 2006
|
|
|
|
11
|
(3)
|
SSG Precision Optronics, Inc.
|
|
|
June 1, 2006
|
|
|
|
68
|
|
Nautronix Defence Group (Nautronix)
|
|
|
June 1, 2006
|
|
|
|
71
|
(4)
|
Crestview Aerospace Corporation
|
|
|
June 29, 2006
|
|
|
|
153
|
|
TRL Electronics plc
|
|
|
July 12, 2006
|
|
|
|
171
|
|
Nova Engineering (Nova)
|
|
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October 25, 2006
|
|
|
|
47
|
(5)
|
Advanced Systems Architecture Ltd., TCS Design and Management
Services, Incorporated, Magnet-Motor GmbH, gForce Technologies,
Inc. and TACNET
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Various
|
|
|
|
72
|
(6)
|
|
|
|
|
|
|
|
|
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Total 2006
|
|
|
|
|
|
$
|
972
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
Geneva Aerospace, Inc. (Geneva)
|
|
|
January 31, 2007
|
|
|
$
|
16
|
(7)
|
Global Communication Solutions, Inc.
|
|
|
May 4, 2007
|
|
|
|
152
|
|
APSS S.r.l.
|
|
|
August 31, 2007
|
|
|
|
12
|
|
MKI Systems, Inc.
|
|
|
December 3, 2007
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
Total 2007
|
|
|
|
|
|
$
|
225
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
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HSA Systems Pty. Ltd.
|
|
|
March 14, 2008
|
|
|
$
|
16
|
|
METI
|
|
|
April 4, 2008
|
|
|
|
3
|
(3)
|
Electro-Optical Systems
|
|
|
April 21, 2008
|
|
|
|
178
|
|
G.A. International Electronics and subsidiaries (GAI)
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|
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July 25, 2008
|
|
|
|
4
|
(8)
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International Resources Group Ltd.
|
|
|
December 3, 2008
|
|
|
|
58
|
(9)
|
|
|
|
|
|
|
|
|
|
Total 2008
|
|
|
|
|
|
$
|
259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
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|
The purchase price represents the
contractual consideration for the acquired business, excluding
adjustments for net cash acquired and acquisition transaction
costs.
|
|
(2)
|
|
Excludes additional purchase price
for SafeView, not to exceed $35 million, in the aggregate,
which is contingent upon its financial performance through
December 31, 2008. The remaining contractual purchase price
is currently subject to an arbitration proceeding, see
Note 18 to our audited consolidated financial statements.
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(3)
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We increased our ownership interest
in METI from approximately 47% to 80% in 2006 and from 80% to
85% in 2008. METI was sold on October 8, 2008, as described
below.
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(4)
|
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Excludes additional purchase price,
not to exceed $2 million, in the aggregate, which is
contingent upon certain contract awards to Nautronix through
2010.
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|
(5)
|
|
Excludes additional purchase price,
not to exceed $5 million, in the aggregate, which is
contingent upon the financial performance of Nova for the years
ending December 31, 2009 and 2010.
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|
(6)
|
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Excludes additional purchase price,
not to exceed $1 million, in the aggregate, which is
contingent upon the financial performance of TACNET for the
years ending December 31, 2009 and 2010.
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37
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|
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(7)
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Excludes additional purchase price,
not to exceed $13 million, in the aggregate, which is
contingent upon the financial performance of Geneva for the year
ending December 31, 2009.
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(8)
|
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Excludes additional purchase price,
not to exceed $1 million, in the aggregate, which is
contingent upon the financial performance of GAI through July
2011.
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(9)
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The final purchase price is subject
to adjustment based on final closing date net assets.
|
All of our business acquisitions are included in our
consolidated results of operations from their dates of
acquisition. We regularly evaluate potential business
acquisitions. Additionally, on January 30, 2009, we
acquired Chesapeake Sciences Corporation (CSC). CSC is a
developer and manufacturer of anti-submarine warfare systems for
use onboard submarines and surface ship combatants.
Divestitures. On October 8, 2008, we divested
our 85% ownership interest in METI, which is within the
Specialized Products segment. The sale resulted in a gain in the
year ended December 31, 2008 of $33 million
($20 million after income taxes). The gain is excluded from
income from continuing operations in accordance with
SFAS No. 144, Accounting for Impairment or Disposal
of Long-Lived Assets. The revenues, operating results and
net assets of METI for all periods presented were not material
and therefore not presented as discontinued operations. The
sales price and related gain with respect to this business
divestiture are subject to adjustment based on actual closing
date net working capital, which is expected to be resolved
during the first quarter of 2009. On May 9, 2008, we sold
the Electron Technologies Passive Microwave Devices (PMD)
product line within the Specialized Products segment and
recognized an after-tax gain of approximately $7 million
(pre-tax gain of $12 million).
Critical
Accounting Policies
Our significant accounting policies are described in Note 2
to our audited consolidated financial statements. The
preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires us to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of net sales
and cost of sales during the reporting period. The most
significant of these estimates and assumptions relate to
contract revenue, profit and loss recognition, fair values of
assets acquired and liabilities assumed in business
combinations, market values for inventories reported at lower of
cost or market, pension and post-retirement benefit obligations,
stock-based employee compensation expense, valuation of deferred
taxes, litigation reserves and environmental obligations,
accrued product warranty costs and the recoverability, useful
lives and valuation of recorded amounts of long-lived assets,
identifiable intangible assets and goodwill. Actual amounts will
differ from these estimates and could differ materially. We
believe that our critical accounting estimates have the
following attributes: (1) we are required to make
assumptions about matters that are uncertain and inherently
judgmental at the time of the estimate; (2) use of
reasonably different assumptions could have changed our
estimates, particularly with respect to estimates of contract
revenues and costs, and recoverability of assets, and
(3) changes in the estimate could have a material effect on
our financial condition or results of operations. We believe the
following critical accounting policies contain the more
significant judgments and estimates used in the preparation of
our financial statements.
Contract Revenue Recognition and Contract
Estimates. A large portion of our revenue is generated
using written contracts (revenue arrangements) that require us
to design, develop, manufacture, modify, upgrade, test and
integrate complex aerospace and electronic equipment, and to
provide related engineering and technical services according to
the buyers specifications. These revenue arrangements or
contracts are generally fixed price, cost-reimbursable, or
time-and-material.
These contracts are covered by the American Institute of
Certified Public Accountants Statement of Position
81-1,
Accounting for Performance of Construction-Type and Certain
Production-Type Contracts
(SOP 81-1)
and Accounting Research Bulletin No. 45, Long-Term
Construction-Type Contracts (ARB 45). Cost-reimbursable type
contracts are also specifically covered by Accounting Research
Bulletin No. 43, Chapter 11, Section A,
Government Contracts, Cost-Plus-Fixed Fee Contracts (ARB
43). Substantially all of our cost-reimbursable type and time
and material type contracts are with the U.S. Government,
primarily the DoD. Certain of our contracts with the
38
U.S. Government are multi-year contracts that are funded
annually by the customer, and sales on these multi-year
contracts are based on amounts appropriated (funded) by the
U.S. Government.
Sales and profits on fixed-price type contracts that are covered
by
SOP 81-1,
ARB 43 and ARB 45 are substantially recognized using
percentage-of-completion
(POC) methods of accounting. Sales and profits on fixed-price
production contracts under which units are produced and
delivered in a continuous or sequential process are recorded as
units are delivered based on their contractual selling prices
(the
units-of-delivery
method). Sales and profits on each fixed-price production
contract under which units are not produced and delivered in a
continuous or sequential process, or under which a relatively
few number of units are produced, are recorded based on the
ratio of actual cumulative costs incurred to total estimated
costs at completion of the contract multiplied by the total
estimated contract revenue, less cumulative sales recognized in
prior periods (the
cost-to-cost
method). Under the POC methods of accounting, a single estimated
total profit margin is used to recognize profit for each
contract over its entire period of performance, which can exceed
one year.
Accounting for the sales on these fixed-price contracts, require
the preparation of estimates of (1) the total contract
revenue, (2) the total costs at completion, which is equal
to the sum of the actual incurred costs to date on the contract
and the estimated costs to complete the contracts
statement of work, and (3) the measurement of progress
towards completion. The estimated profit or loss at completion
on a contract is equal to the difference between the total
estimated contract revenue and the total estimated cost at
completion. Under the
units-of-delivery
method, sales on a fixed-price type contract are recorded as the
units are delivered during the period based on their contractual
selling prices. Under the
cost-to-cost
method, sales on a fixed-price type contract are recorded at
amounts equal to the ratio of actual cumulative costs incurred
divided by total estimated costs at completion, multiplied by
(i) the total estimated contract revenue, less
(ii) the cumulative sales recognized in prior periods. The
profit recorded on a contract in any period using either the
units-of-delivery
method or
cost-to-cost
method is equal to (i) the current estimated total profit
margin multiplied by the cumulative sales recognized, less
(ii) the amount of cumulative profit previously recorded
for the contract. In the case of a contract for which the total
estimated costs exceed the total estimated revenues, a loss
arises, and a provision for the entire loss is recorded in the
period that the loss becomes evident. The unrecoverable costs on
a loss contract that are expected to be incurred in future
periods are recorded as a component of other current liabilities
entitled Estimated cost in excess of estimated contract
value to complete contracts in process in a loss position.
Adjustments to estimates for a contracts revenue,
estimated costs at completion and estimated profit or loss are
often required as work progresses under a contract, as
experience is gained and as more information is obtained, even
though the scope of work required under the contract may not
change, or if contract modifications occur. The impact of
revisions in profit (loss) estimates for all types of contracts
subject to
percentage-of-completion
accounting are recognized on a cumulative
catch-up
basis in the period in which the revisions are made. Amounts
representing contract change orders or claims are included in
sales only when they can be reliably estimated and their
realization is reasonably assured. The revisions in contract
estimates, if significant, can materially affect our results of
operations and cash flows, as well as reduce the valuations of
receivables and inventories, and in some cases result in
liabilities to complete contracts in a loss position.
Sales and profits on cost-reimbursable type contracts that are
within the scope of ARB 43, in addition to
SOP 81-1,
are recognized as allowable costs are incurred on the contract,
at an amount equal to the allowable costs plus the estimated
profit on those costs. The estimated profit on a
cost-reimbursable contract is fixed or variable based on the
contractual fee arrangement. Incentive and award fees are our
primary variable fee contractual arrangement. Incentive and
award fees on cost-reimbursable type contracts are included as
an element of total estimated contract revenues and recorded to
sales in accordance with
SOP 81-1
when a basis exists for the reasonable prediction of performance
in relation to established contractual targets and we are able
to make reasonably dependable estimates for them. Sales and
profits on
time-and-material
type contracts are recognized on the basis of direct labor hours
expended multiplied by the contractual fixed rate per hour, plus
the actual costs of material and other direct non-labor costs.
On a
time-and-material
type contract, the fixed hourly rates include amounts for the
cost of direct labor, indirect contract costs and profit.
Cost-reimbursable type or
time-and-material
type contracts generally contain less estimation risks than
fixed-price type contracts.
39
Sales on arrangements for (1) fixed-price type contracts
that require us to perform services that are not related to
production of tangible assets (Fixed-Price Service Contracts),
and (2) certain commercial customers are recognized in
accordance with the U.S. Securities and Exchange
Commissions (SEC) Staff Accounting Bulletin (SAB)
No. 104, Revenue Recognition (SAB 104). Sales
for our businesses whose customers are primarily commercial
business enterprises are substantially generated from single
element revenue arrangements. Sales are recognized when there is
persuasive evidence of an arrangement, delivery has occurred or
services have been performed, the selling price to the buyer is
fixed or determinable and collectibility is reasonably assured.
Sales for Fixed-Price Service Contracts that do not contain
measurable units of work performed are generally recognized on a
straight-line basis over the contractual service period, unless
evidence suggests that the revenue is earned, or obligations
fulfilled, in a different manner. Sales for Fixed-Price Service
Contracts that contain measurable units of work performed are
generally recognized when the units of work are completed. Sales
and profit on cost-reimbursable and time and material type
contracts within the scope of SAB 104 are recognized in the
same manner as those within the scope of ARB 43 and
SOP 81-1,
except for incentive and award fees. Cost-based incentive fees
are recognized when they are realizable in the amount that would
be due under the contractual termination provisions as if the
contract was terminated. Performance based incentive fees and
award fees are recorded as sales when awarded by the customer.
Sales and profit in connection with contracts to provide
services to the U.S. Government within the scope of
SAB 104 that may be at risk of collection because the
contracts are incrementally funded and subject to the
availability of funds appropriated are deferred until the
contract modification is obtained, indicating that adequate
funds are available to the contract or task order.
Goodwill and Identifiable Intangible Assets. In
accordance with SFAS No. 141, Business Combinations
(SFAS 141), we allocate the cost of business
acquisitions to the assets acquired and liabilities assumed
based on their estimated fair values at the date of acquisition
(commonly referred to as the purchase price allocation). As part
of the purchase price allocations for our business acquisitions,
identifiable intangible assets are recognized as assets apart
from goodwill if they arise from contractual or other legal
rights, or if they are capable of being separated or divided
from the acquired business and sold, transferred, licensed,
rented or exchanged. However, in accordance with SFAS 141,
we do not recognize any intangible assets apart from goodwill
for the assembled workforces of our business acquisitions.
Generally, the largest separately identifiable intangible asset
from the businesses that we acquire is the value of their
assembled workforces, which includes the human capital of the
management, administrative, marketing and business development,
scientific, engineering and technical employees of the acquired
businesses. The success of our businesses, including their
ability to retain existing business (revenue arrangements) and
to successfully compete for and win new business (revenue
arrangements), is primarily dependent on the management,
marketing and business development, contracting, engineering and
technical skills and knowledge of our employees, rather than on
productive capital (plant and equipment, and technology and
intellectual property). Additionally, for a significant portion
of our businesses, our ability to attract and retain employees
who have U.S. Government security clearances, particularly
those with top-secret and above clearances, is critical to our
success, and is often a prerequisite for retaining existing
revenue arrangements and pursuing new ones. Generally, patents,
trademarks and licenses are not material for our acquired
businesses. Furthermore, our U.S. Government contracts
(revenue arrangements) generally permit other companies to use
our patents in most domestic work performed by such other
companies for the U.S. Government. Therefore, because
intangible assets for assembled workforces are part of goodwill
in accordance with paragraph 39 of SFAS 141, the
substantial majority of the intangible assets for our acquired
business acquisitions are recognized as goodwill. Additionally,
the value assigned to goodwill for our business acquisitions
also includes the value that we expect to realize from cost
reduction measures that we implement for our acquired
businesses. Goodwill equals the amount of the purchase price of
the business acquired in excess of the sum of the amounts
assigned to identifiable acquired assets, both tangible and
intangible, less liabilities assumed. At December 31, 2008,
we had goodwill of $8,029 million and identifiable
intangible assets of $417 million.
The most significant identifiable intangible asset that is
separately recognized in accordance with SFAS 141 for our
business acquisitions is customer contractual relationships. All
of our customer
40
relationships are established through written customer contracts
(revenue arrangements). The fair value for customer contractual
relationships is determined, as of the date of acquisition,
based on estimates and judgments regarding expectations for the
estimated future after-tax earnings and cash flows (including
cash flows from working capital) arising from the follow-on
sales on contract (revenue arrangement) renewals expected from
customer contractual relationships over their estimated lives,
including the probability of expected future contract renewals
and sales, less a contributory assets charge, all of which is
discounted to present value. If actual future after-tax cash
flows are significantly lower than our estimates, we may be
required to record an impairment charge to write down the
identifiable intangible assets to their realizable values. All
identifiable intangible assets are amortized over their
estimated useful lives as the economic benefits are consumed,
ranging from 4 to 30 years.
We review goodwill and intangible assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of these assets may not be recoverable, and also review
goodwill annually in accordance with SFAS No. 142,
Goodwill and Other Intangible Assets (SFAS 142).
Pursuant to our adoption of SFAS 142 on January 1,
2002, we selected a goodwill impairment measurement date of
January 1 of each year; and we have determined that goodwill was
not impaired as of January 1, 2008. In the fourth quarter
of 2008, we changed our impairment measurement date to November
30 of each year. See Note 2 to our audited consolidated
financial statements for a discussion of the change in the
goodwill impairment date.
SFAS 142 requires that goodwill be tested, at a minimum,
annually for each reporting unit using a two-step process. A
reporting unit is an operating segment, as defined in
paragraph 10 of SFAS No. 131, Disclosures
About Segments of an Enterprise and Related Information, or
a component of an operating segment. A component of an operating
segment is a reporting unit if the component constitutes a
business for which discrete financial information is available
and is reviewed by operating segment management. Two or more
components of an operating segment may be aggregated and deemed
a single reporting unit for goodwill impairment testing purposes
if the components have similar economic characteristics. The
first step is to identify any potential impairment by comparing
the carrying value of the reporting unit to its fair value. If a
potential impairment is identified, the second step is to
measure the impairment loss by comparing the implied fair value
of goodwill with the carrying value of goodwill of the reporting
unit. Our methodology for determining the fair value of a
reporting unit is estimated using a discounted cash flow (DCF)
valuation approach, and is dependent on estimates for future
sales, operating income, depreciation and amortization, income
tax payments, working capital changes, and capital expenditures,
as well as, expected growth rates for cash flows and long-term
interest rates, all of which are affected by economic conditions
related to the industries in which we operate, as well as,
conditions in the U.S. capital markets.
The more significant assumptions used in a DCF valuation
regarding the estimated fair values of our reporting units in
connection with goodwill valuation assessments are:
(1) detailed five year cash flow projections for each of
our reporting units, (2) a risk adjusted discount rate
including the estimated risk-free rate of return, and
(3) the expected long-term growth rate of our businesses,
which approximates the expected long-term growth rate for the
U.S. economy and the industries in which we operate. The
risk adjusted discount rate represents the estimated
weighted-average cost of capital (WACC) for the reporting units.
It is comprised of (1) an estimated required rate of return
on equity, based on publicly traded companies with business
characteristics comparable to L-3s reporting units,
including a risk free rate of return and an equity risk premium,
and (2) the current after-tax market rate of return on
L-3s debt, each weighted by the relative market value
percentages of L-3s equity and debt. The valuation of our
reporting units performed as of November 30, 2008 in
connection with our annual impairment test used a weighted
average risk adjusted discount rate of approximately 9%. The
table below presents the impact on the fair value of reporting
units for select changes in the risk adjusted discount rate,
expected long-term growth rate and cash flow projections.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
Increase
|
|
Decrease in Fair Value
|
|
Assumption
|
|
(decrease)
|
|
of reporting units
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Risk adjusted discount rate
|
|
|
25 bpts
|
|
|
$
|
717
|
|
|
|
4
|
%
|
Expected long-term growth rate
|
|
|
(25) bpts
|
|
|
$
|
480
|
|
|
|
3
|
%
|
Cash flow projections
|
|
|
(1)%
|
|
|
$
|
86
|
|
|
|
|
%
|
41
A decline in the estimated fair value of a reporting unit could
result in a goodwill impairment, and a related non-cash
impairment charge against earnings, if estimated fair value for
the reporting unit is less than the carrying value of the net
assets of the reporting unit, including its goodwill. A large
decline in estimated fair value of a reporting unit could result
in an adverse effect on our financial condition and results of
operations.
Pension Plan and Postretirement Benefit Plan
Obligations. The obligations for our pension plans and
postretirement benefit plans and the related annual costs of
employee benefits are calculated based on several long-term
assumptions, including discount rates for employee benefit
liabilities, rates of return on plan assets, expected annual
rates for salary increases for employee participants in the case
of pension plans, and expected annual increases in the costs of
medical and other health care benefits in the case of
postretirement benefit obligations. These long-term assumptions
are subject to revision based on changes in interest rates,
financial market conditions, expected versus actual returns on
plan assets, participant mortality rates and other actuarial
assumptions, including future rates of salary increases, benefit
formulas and levels, and rates of increase in the costs of
benefits. Changes in the assumptions, if significant, can
materially affect the amount of annual net periodic benefit
costs recognized in our results of operations from one year to
the next, the liabilities for the pension plans and
postretirement benefit plans, and our annual cash requirements
to fund these plans. Changes to our expected long-term
assumptions for 2009 are not expected to significantly impact
our 2009 pension expense compared to 2008. However, due to
negative pension plan asset returns during 2008, our pension
expense for 2009 is expected to increase by $76 million to
$163 million from $87 million in 2008. See Part
II Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital
Resources Pension Plans on page 53 for a
further discussion of our estimated 2009 pension expense.
Discount rates are used to determine the present value of our
pension obligations and also affect the amount of pension
expense in any given period. The discount rate assumptions used
to determine our pension and postretirement benefit obligations
at December 31, 2008 and 2007 were based on a hypothetical
double A yield curve represented by a series of annualized
individual discount rates. Each bond issue underlying the yield
curve is required to have a rating of AA or better by
Moodys Investors Service, Inc. and/or Standard &
Poors. The resulting discount rate reflects the matching
of plan liability cash flows to the yield curve. For a
sensitivity analysis projecting the impact of a change in the
discount rate on our projected benefit obligation and pension
expense, see Part II Item 7
Managements Discussion and Analysis of Financial Condition
and Results of Operations Liquidity and Capital
Resources Pension Plans on page 53.
Valuation of Deferred Income Tax Assets and
Liabilities. At December 31, 2008, we had net
deferred tax assets of $101 million, including
$15 million for loss carryforwards and $10 million for
tax credit carryforwards which are subject to various
limitations and will expire if unused within their respective
carryforward periods. Deferred income taxes are determined
separately for each of our tax-paying entities in each tax
jurisdiction. The future realization of our deferred income tax
assets ultimately depends on our ability to generate sufficient
taxable income of the appropriate character (for example,
ordinary income or capital gains) within the carryback and
carryforward periods available under the tax law and, to a
lesser extent, our ability to execute successful tax planning
strategies. Based on our estimates of the amounts and timing of
future taxable income and tax planning strategies, we believe
that L-3 will be able to realize its net deferred tax assets. A
change in the ability of our operations to continue to generate
future taxable income, or our ability to implement desired tax
planning strategies, could affect our ability to realize the
future tax deductions underlying our net deferred tax assets,
and require us to provide a valuation allowance against our net
deferred tax assets. The recognition of a valuation allowance
would result in a reduction to net income and, if significant,
could have a material impact on our effective tax rate, results
of operations and financial position in any given period.
Liabilities for Pending and Threatened
Litigation. We are subject to litigation, government
investigations, proceedings, claims or assessments and various
contingent liabilities incidental to our business or assumed in
connection with certain business acquisitions. In accordance
with SFAS No. 5, Accounting for Contingencies,
we accrue a charge for a loss contingency when we believe it is
both probable that a liability has been incurred, and the amount
of the loss can be reasonably estimated. If the loss is within a
range of
42
specified amounts, the most likely amount is accrued, and if no
amount within the range represents a better estimate we accrue
the minimum amount in the range. Generally, we record the loss
contingency at the amount we expect to pay to resolve the
contingency and the amount is generally not discounted to the
present value. Amounts recoverable under insurance contracts are
recorded as assets when recovery is deemed probable.
Contingencies that might result in a gain are not recognized
until realizable. Changes to the amount of the estimated loss,
or resolution of one or more contingencies could have a material
impact on our results of operations, financial position and cash
flows.
Valuation of Long-Lived Assets. In addition to
goodwill and identifiable intangible assets recognized in
connection with our business acquisitions, our long-lived assets
also include property, plant and equipment, capitalized software
development costs for software to be sold, leased or otherwise
marketed, and certain long-term investments. As of
December 31, 2008, the consolidated carrying values of our
property, plant and equipment were $821 million,
capitalized software development costs were $47 million and
certain long-term investments were $30 million. As of
December 31, 2008, the carrying value of our property,
plant and equipment represented 6% of total assets and the
carrying value of our capitalized software development costs and
certain long-term investments each represented less than 1% of
total assets. We review the valuation of our long-lived assets
whenever events or changes in circumstances indicate that the
carrying amount of these assets may not be recoverable. An
impairment loss is recognized when the carrying amount of a
long-lived asset exceeds its fair value or net realizable value
expected to result from the assets use and eventual
disposition. We use a variety of factors to assess valuation,
depending upon the asset. Long-lived assets are evaluated based
upon the expected period the asset will be utilized, and other
factors depending on the asset, including estimated future
sales, profits and related cash flows, estimated product
acceptance and product life cycles, changes in technology and
customer demand, and the performance of invested companies and
joint ventures, as well as volatility in external markets for
investments. Changes in estimates and judgments on any of these
factors could have a material impact on our results of
operations and financial position.
Results
of Operations
The following information should be read in conjunction with our
audited consolidated financial statements. Our results of
operations for certain periods presented are affected
significantly by our business acquisitions. See Note 4 to
our audited consolidated financial statements for a discussion
of our business acquisitions.
43
Consolidated
Results of Operations
The table below provides selected financial data for L-3 for the
years ended December 31, 2008, 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase/
|
|
|
Year Ended December 31,
|
|
|
Increase/
|
|
(Dollars in millions, except per share data)
|
|
2008(1)
|
|
|
2007
|
|
|
(decrease)
|
|
|
2007
|
|
|
2006
|
|
|
(decrease)
|
|
|
Net sales
|
|
$
|
14,901
|
|
|
$
|
13,961
|
|
|
$
|
940
|
|
|
$
|
13,961
|
|
|
$
|
12,477
|
|
|
$
|
1,484
|
|
Operating income
|
|
$
|
1,685
|
|
|
$
|
1,448
|
|
|
$
|
237
|
|
|
$
|
1,448
|
|
|
$
|
1,111
|
|
|
$
|
337
|
|
Litigation
Gain(2)
|
|
|
(126
|
)
|
|
|
|
|
|
|
(126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Q2 2006
Charges(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168
|
|
|
|
(168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
|
$
|
1,559
|
|
|
$
|
1,448
|
|
|
$
|
111
|
|
|
$
|
1,448
|
|
|
$
|
1,279
|
|
|
$
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
11.3
|
%
|
|
|
10.4
|
%
|
|
|
90
|
bpts
|
|
|
10.4
|
%
|
|
|
8.9
|
%
|
|
|
150
|
bpts
|
Litigation
Gain(2)
|
|
|
(0.8
|
)%
|
|
|
|
|
|
|
(80
|
) bpts
|
|
|
|
|
|
|
|
|
|
|
|
bpts
|
Q2 2006
Charges(3)
|
|
|
|
|
|
|
|
|
|
|
|
bpts
|
|
|
|
|
|
|
1.4
|
%
|
|
|
(140
|
)bpts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating margin
|
|
|
10.5
|
%
|
|
|
10.4
|
%
|
|
|
10
|
bpts
|
|
|
10.4
|
%
|
|
|
10.3
|
%
|
|
|
10
|
bpts
|
Interest expense and other items
|
|
$
|
254
|
(2)
|
|
$
|
274
|
|
|
$
|
(20
|
)
|
|
$
|
274
|
|
|
$
|
286
|
|
|
$
|
(12
|
)
|
Effective income tax rate
|
|
|
35.1
|
%
|
|
|
35.6
|
%
|
|
|
(50
|
) bpts
|
|
|
35.6
|
%
|
|
|
36.2
|
%
|
|
|
(60
|
)bpts
|
Income from continuing operations
|
|
$
|
929
|
|
|
$
|
756
|
|
|
$
|
173
|
|
|
$
|
756
|
|
|
$
|
526
|
|
|
$
|
230
|
|
Net Income
|
|
$
|
949
|
|
|
$
|
756
|
|
|
$
|
193
|
|
|
$
|
756
|
|
|
$
|
526
|
|
|
$
|
230
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
7.56
|
|
|
$
|
5.98
|
|
|
$
|
1.58
|
|
|
$
|
5.98
|
|
|
$
|
4.22
|
|
|
$
|
1.76
|
|
Net Income
|
|
$
|
7.72
|
|
|
$
|
5.98
|
|
|
$
|
1.74
|
|
|
$
|
5.98
|
|
|
$
|
4.22
|
|
|
$
|
1.76
|
|
Diluted shares
|
|
|
122.9
|
|
|
|
126.5
|
|
|
|
(3.6
|
)
|
|
|
126.5
|
|
|
|
124.8
|
|
|
|
1.7
|
|
|
|
|
(1) |
|
The year ended December 31,
2008 includes: (1) a gain of $12 million ($7 million
after income taxes, or $0.06 per share) from the sale of a
product line (the Product Line Divestiture Gain),
and (2) a non-cash impairment charge of $28 million
($17 million after income taxes, or $0.14 per share)
related to a write-down of capitalized software development
costs for a general aviation product (the Impairment
Charge). Together with the Litigation Gain described in
Note (2), these items are referred to as the Q2 2008 Items.
|
|
(2) |
|
The Litigation Gain
represents a June 27, 2008 decision by the U.S Court of
Appeals to vacate an adverse 2006 jury verdict, see
Note (3) below. In the second quarter of 2008, we
recorded a gain of $133 million ($81 million after
income taxes, or $0.66 per diluted share), comprised of a
$126 million reversal of a current liability for pending
and threatened litigation and $7 million for related
accrued interest.
|
|
(3) |
|
Includes (1) a pre-tax charge
of $129 million ($78 million after income taxes or
$0.63 per diluted share) related to an adverse jury verdict on
May 24, 2006 (see OSI Systems, Inc. in Note 18 to our
audited consolidated financial statements), and (2) a
pre-tax charge of $39 million ($25 million after
income taxes or $0.20 per diluted share) in connection with our
voluntary review of our past stock option granting practices
(see Note 3 to our audited consolidated financial
statements). These two 2006 charges are collectively referred to
herein as the Q2 2006 Charges.
|
2008
Compared with 2007
Net sales: For the year ended December 31,
2008, consolidated net sales increased by 7% compared to the
year ended December 31, 2007. Consolidated organic sales
growth of 5%, or $675 million, was driven primarily by
growth in all business segments except for Government Services,
which decreased because of lower linguist services. The increase
in consolidated net sales from acquired businesses was
$265 million, or 2%. Sales from services increased by
$382 million to $7,771 million, representing
approximately 52% of consolidated net sales for the year ended
December 31, 2008, compared to $7,389 million, or 53%
of consolidated net sales for the year ended December 31,
2007. The increase in service sales was primarily due to organic
sales growth in Government Services, excluding lower linguist
services, and ISR systems, networked communications systems,
base and aircraft support services and several areas in the
Specialized Products reportable segment. Sales from products
increased by $558 million to $7,130 million for the
year
44
ended December 31, 2008, compared to $6,572 million
for the year ended December 31, 2007. The increase in
product sales was primarily due to organic sales growth in
aircraft modernization, networked communications systems, and
several product areas in the Specialized Products reportable
segment. See the reportable segment discussions below for more
analysis of our sales growth.
Operating income and operating margin: For the year
ended December 31, 2008 compared to the year ended
December 31, 2007, consolidated operating income increased
by $237 million, and consolidated operating margin
increased to 11.3% from 10.4%. The Q2 2008 Items increased
consolidated operating income by $110 million and operating
margin by 70 basis points. Excluding the Q2 2008 Items,
consolidated operating margin increased by 20 basis points
to 10.6% for the year ended December 31, 2008 compared to
10.4% for the year ended December 31, 2007. The changes in
operating margin are further explained in our reportable segment
results discussed below.
Interest expense and other items: Interest expense
and other items for the year ended December 31, 2008
decreased by $20 million, or 7%, compared to
December 31, 2007 due to the reversal of $7 million of
accrued interest during the 2008 second quarter in connection
with the Litigation Gain. Lower interest rates on our
outstanding variable rate debt also reduced interest expense for
the year ended December 31, 2008 compared to the year ended
December 31, 2007.
Effective income tax rate: The effective tax rate
for the year ended December 31, 2008 decreased by
50 basis points compared to the same period last year.
Excluding the Q2 2008 Items, the effective tax rate decreased by
90 basis points. The tax rate for the year ended
December 31, 2008 included a reversal of previously accrued
amounts of $18 million, or $0.15 per share, primarily
related to the completion of examinations of the 2004 and 2005
U.S. Federal income tax returns, and certain state and foreign
tax accruals. The reversal of previously accrued amounts during
the year ended December 31, 2007 was $12 million, or
$0.10 per share.
Diluted earnings per share from continuing operations and
income from continuing operations: For the year ended
December 31, 2008, diluted EPS from continuing operations
increased to $7.56 per share compared to $5.98 per share for the
year ended December 31, 2007. Income from continuing
operations for the year ended December 31, 2008 increased
to $929 million compared to $756 million for the year
ended December 31, 2007. Excluding the Q2 2008 Items,
income from continuing operations increased by
$102 million, or 13%, to $858 million and EPS from
continuing operations increased $1.00, or 17%, to $6.98.
Diluted earnings per share and net income: For the
year ended December 31, 2008, diluted EPS increased to
$7.72 per share and net income increased to
$949 million, which includes a gain on the sale of METI of
$33 million ($20 million after income taxes, or
$0.16 per diluted share).
Diluted shares outstanding: Diluted shares
outstanding for the year ended December 31, 2008 decreased
by 3.6 million shares, compared to the year ended
December 31, 2007. The decrease was primarily due to
repurchases of our common stock in connection with our share
repurchase programs authorized by our Board of Directors,
partially offset by additional shares issued in connection with
various stock based compensation programs and contributions to
employee savings plans made in common stock.
2007
Compared with 2006
Net sales: For the year ended December 31,
2007, consolidated net sales increased by 12% compared to the
year ended December 31, 2006. Consolidated organic sales
growth of 10%, or $1,193 million, was driven primarily by
continued strong demand for ISR systems, government services,
networked communications systems, aircraft and base support
services, aircraft modernization and several specialized product
areas, including power & control systems,
electro-optic/infrared (EO/IR), undersea warfare,
simulation & training and propulsion systems. The
increase in consolidated net sales from acquired businesses was
$291 million, or 2%. Sales from services increased by
$845 million to $7,389 million, representing
approximately 53% of consolidated net sales for the year ended
December 31, 2007, compared to $6,544 million, or 52%
of consolidated net sales for the year ended December 31,
2006. The increase in service sales was primarily due to organic
sales growth in government services, ISR systems, aircraft and
base support services and aircraft
45
modernization. Sales from products increased by
$639 million to $6,572 million for the year ended
December 31, 2007, compared to $5,933 million for the
year ended December 31, 2006. The increase in product sales
was primarily due to organic sales growth in several product
areas in the Specialized Products reportable segment. See the
reportable segment discussions below for more analysis of our
sales growth.
Operating income and operating margin: For the year
ended December 31, 2007 compared to the year ended
December 31, 2006, consolidated operating income increased
by $337 million, and consolidated operating margin
increased to 10.4% from 8.9%. Excluding the Q2 2006 Charges,
consolidated operating income increased by $169 million, or
13%, for the year ended December 31, 2007 compared to
$1,279 million for the year ended December 31, 2006,
and consolidated operating margin increased by 10 basis
points from 10.3% for the year ended December 31, 2006. The
changes in operating margin are further explained in our
reportable segment results discussed below.
Interest expense and other items: Interest expense
and other items for the year ended December 31, 2007
decreased by $12 million, or 4%, compared to
December 31, 2006, primarily due to interest income on
higher cash balances.
Effective income tax rate: The effective income tax
rate for the year ended December 31, 2007 of 35.6% included
a benefit of $12 million, or $0.10 per share for the
reversal of previously accrued amounts, primarily interest,
related to the 2002 and 2003 U.S. Federal income tax
returns, and without these benefits, the tax rate was 36.6%.
Before giving effect to the Q2 2006 Charges, the tax rate for
the year ended December 31, 2006 was 36.6%.
Diluted earnings per share and net income: For the
year ended December 31, 2007, diluted EPS increased to
$5.98 per share compared to $4.22 per share for the year ended
December 31, 2006. Net income for the year ended
December 31, 2007 increased to $756 million compared
to $526 million for the year ended December 31, 2006.
Excluding the Q2 2006 Charges, diluted EPS for the year ended
December 31, 2007 increased by $0.93, or 18%, compared to
$5.05 per share for the year ended December 31, 2006.
Similarly, net income for the year ended December 31, 2007
increased by $126 million, or 20%, from $630 million
for the year ended December 31, 2006.
Diluted shares outstanding: Diluted shares
outstanding for the year ended December 31, 2007 increased
by 1.7 million shares, compared to the year ended
December 31, 2006. The increase was primarily due to
additional shares issued in connection with various stock based
compensation programs and contributions to employee savings
plans made in common stock. These increases were partially
offset by repurchases of our common stock in connection with our
share repurchase programs.
46
Reportable
Segment Results of Operations
The table below presents selected data by reportable segment
reconciled to consolidated totals. See Note 21 to our
audited consolidated financial statements for our reportable
segment data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(dollars in millions)
|
|
|
Net
sales:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
C3ISR
|
|
$
|
2,566.9
|
|
|
$
|
2,310.4
|
|
|
$
|
2,025.3
|
|
Government Services
|
|
|
4,303.0
|
|
|
|
4,333.5
|
|
|
|
3,834.4
|
|
AM&M
|
|
|
2,657.4
|
|
|
|
2,527.7
|
|
|
|
2,327.5
|
|
Specialized Products
|
|
|
5,373.8
|
|
|
|
4,788.9
|
|
|
|
4,289.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated net sales
|
|
$
|
14,901.1
|
|
|
$
|
13,960.5
|
|
|
$
|
12,476.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
C3ISR
|
|
$
|
251.2
|
|
|
$
|
231.6
|
|
|
$
|
215.8
|
|
Government Services
|
|
|
421.1
|
|
|
|
403.5
|
|
|
|
342.9
|
|
AM&M
|
|
|
240.9
|
|
|
|
246.6
|
|
|
|
232.6
|
|
Specialized Products
|
|
|
645.8
|
(2)
|
|
|
566.4
|
|
|
|
487.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income
|
|
$
|
1,559.0
|
(2)
|
|
$
|
1,448.1
|
|
|
$
|
1,279.1
|
|
Litigation Gain
|
|
|
125.6
|
|
|
|
|
|
|
|
|
|
Q2 2006
Charges(3)
|
|
|
|
|
|
|
|
|
|
|
(168.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating income
|
|
$
|
1,684.6
|
|
|
$
|
1,448.1
|
|
|
$
|
1,110.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
C3ISR
|
|
|
9.8
|
%
|
|
|
10.0
|
%
|
|
|
10.7
|
%
|
Government Services
|
|
|
9.8
|
%
|
|
|
9.3
|
%
|
|
|
8.9
|
%
|
AM&M
|
|
|
9.1
|
%
|
|
|
9.8
|
%
|
|
|
10.0
|
%
|
Specialized Products
|
|
|
12.0
|
%(2)
|
|
|
11.8
|
%
|
|
|
11.4
|
%
|
Segment operating margin
|
|
|
10.5
|
%(2)
|
|
|
10.4
|
%
|
|
|
10.3
|
%
|
Litigation Gain
|
|
|
0.8
|
%
|
|
|
|
%
|
|
|
|
%
|
Q2 2006
Charges(3)
|
|
|
|
%
|
|
|
|
%
|
|
|
(1.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated operating margin
|
|
|
11.3
|
%
|
|
|
10.4
|
%
|
|
|
8.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net sales are after intercompany
eliminations.
|
|
(2) |
|
Segment operating income includes
the Product Line Divestiture gain of $12 million and a
non-cash Impairment Charge of $28 million, which is
recorded in Specialized Products. The Product Line Divestiture
gain and non-cash Impairment Charge reduced total segment
operating margin by 10 basis points and Specialized
Products operating margin by 30 basis points.
|
|
(3) |
|
See Notes 3 and 18 to our
audited consolidated financial statements.
|
47
C3ISR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase /
|
|
|
Year Ended December 31,
|
|
|
Increase /
|
|
|
|
2008
|
|
|
2007
|
|
|
(decrease)
|
|
|
2007
|
|
|
2006
|
|
|
(decrease)
|
|
|
|
($ in millions)
|
|
|
Net sales
|
|
$
|
2,566.9
|
|
|
$
|
2,310.4
|
|
|
$
|
256.5
|
|
|
$
|
2,310.4
|
|
|
$
|
2,025.3
|
|
|
$
|
285.1
|
|
Operating income
|
|
|
251.2
|
|
|
|
231.6
|
|
|
|
19.6
|
|
|
|
231.6
|
|
|
|
215.8
|
|
|
|
15.8
|
|
Operating margin
|
|
|
9.8
|
%
|
|
|
10.0
|
%
|
|
|
(20
|
) bpts
|
|
|
10.0
|
%
|
|
|
10.7
|
%
|
|
|
(70
|
) bpts
|
2008
Compared with 2007
For the year ended December 31, 2008,
C3ISR net
sales increased by 11% compared to the year ended
December 31, 2007 driven by higher sales volume of
$257 million primarily for continued demand and new
contracts from the DoD for airborne ISR and networked
communications systems for manned and unmanned platforms.
C3ISR
operating income for the year ended December 31, 2008
increased by 8% compared to the year ended December 31,
2007. Operating margin decreased by 20 basis points. Higher
costs for international airborne ISR systems reduced operating
margin by 140 basis points. This decrease was partially
offset by higher sales volume for airborne ISR systems and
networked communications systems for the DoD and lower
development costs for new secure communications products.
2007
Compared with 2006
For the year ended December 31, 2007,
C3ISR net
sales increased by 14% compared to the year ended
December 31, 2006, driven by higher sales volume of
$226 million primarily for airborne surveillance and ISR
systems, and continued strong demand from the DoD for networked
communications systems. These increases were partially offset by
$5 million for lower sales volume for Secure Terminal
Equipment (STE), a product with declining demand as it continues
to approach full deployment in the marketplace. The increase in
net sales from acquired businesses was $64 million, or 3%.
C3ISR
operating income for the year ended December 31, 2007
increased by 7% compared to the year ended December 31,
2006 primarily because of higher sales volume, partially offset
by a lower operating margin. Operating margin for the year ended
December 31, 2007 decreased by 70 basis points of
which 80 basis points were primarily due to higher
development costs for new secure communications products and a
decrease in higher margin STE sales. Acquired businesses reduced
operating margin by 10 basis points. These decreases were
partially offset by an increase of 20 basis points
primarily due to higher sales volume and improved contract
performance for networked communications systems.
Government
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
(Decrease)
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
increase/
|
|
|
2007
|
|
|
2006
|
|
|
Increase
|
|
|
|
($ in millions)
|
|
|
Net sales
|
|
$
|
4,303.0
|
|
|
$
|
4,333.5
|
|
|
$
|
(30.5
|
)
|
|
$
|
4,333.5
|
|
|
$
|
3,834.4
|
|
|
$
|
499.1
|
|
Operating income
|
|
|
421.1
|
|
|
|
403.5
|
|
|
|
17.6
|
|
|
|
403.5
|
|
|
|
342.9
|
|
|
|
60.6
|
|
Operating margin
|
|
|
9.8
|
%
|
|
|
9.3
|
%
|
|
|
50
|
bpts
|
|
|
9.3
|
%
|
|
|
8.9
|
%
|
|
|
40
|
bpts
|
2008
Compared with 2007
For the year ended December 31, 2008, Government Services
net sales decreased by 1% compared to the year ended
December 31, 2007. A decline in sales of $319 million
for linguist services was partially offset by an increase in
sales of $224 million primarily for IT and software
engineering solution services, training and other support
services to the DoD. Total linguist-Iraq sales for the year
ended December 31, 2008 were $399 million. The
increase in net sales from acquired businesses, net of
divestitures, was $64 million, or 1%.
48
Government Services operating income for the year ended
December 31, 2008 increased by 4% compared to the year
ended December 31, 2007. Operating margin for the year
ended December 31, 2008 increased by 50 basis points.
Operating margin increased by 10 basis points because of a
decline in lower margin linguist sales. Higher sales for
business areas other than linguist services and lower indirect
costs as a percentage of sales increased operating margin by
80 basis points. These increases were partially offset by
(1) 20 basis points due to lower sale prices on
certain new contracts and (2) 20 basis points due to a
$4 million litigation accrual for costs to settle a claim
and $4 million for severance and other costs related to
business realignment and consolidation activities.
2007
Compared with 2006
For the year ended December 31, 2007, Government Services
net sales increased by 13% compared to the year ended
December 31, 2006, driven primarily by (1) volume
increases of $327 million on existing contracts and recent
new business awards for several services including linguists and
translators, training and operational support for the
U.S. military operations in Iraq and Afghanistan as well as
broader U.S. national security objectives on a global basis
and (2) higher sales of $166 million for information
technology solutions to support U.S. Army communications
and surveillance activities and support services for the
U.S. Special Operations Command because of growth on
existing contracts. The Linguist Contract generated sales of
$738 million for the year ended December 31, 2007, an
increase of $127 million compared with $611 million
for 2006. The increase in net sales from acquired businesses was
$6 million.
Government Services operating income increased by 18% compared
to the year ended December 31, 2006 due to higher sales
volume and higher operating margin. Operating margin for the
year ended December 31, 2007 increased by 40 basis
points due to higher sales volume, lower overhead costs as a
percentage of sales, and improved contract performance,
partially offset by higher sales volume on the Linguist Contract.
Aircraft
Modernization and Maintenance (AM&M)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Increase /
|
|
|
Year Ended December 31,
|
|
|
Increase/
|
|
|
|
2008
|
|
|
2007
|
|
|
(decrease)
|
|
|
2007
|
|
|
2006
|
|
|
(decrease)
|
|
|
|
($ in millions)
|
|
|
Net sales
|
|
$
|
2,657.4
|
|
|
$
|
2,527.7
|
|
|
$
|
129.7
|
|
|
$
|
2,527.7
|
|
|
$
|
2,327.5
|
|
|
$
|
200.2
|
|
Operating income
|
|
|
240.9
|
|
|
|
246.6
|
|
|
|
(5.7
|
)
|
|
|
246.6
|
|
|
|
232.6
|
|
|
|
14.0
|
|
Operating margin
|
|
|
9.1
|
%
|
|
|
9.8
|
%
|
|
|
(70
|
) bpts
|
|
|
9.8
|
%
|
|
|
10.0
|
%
|
|
|
(20
|
) bpts
|
2008
Compared with 2007
For the year ended December 31, 2008, AM&M net sales
increased by 5% compared to the year ended December 31,
2007. The increase in sales volume was primarily driven by
$115 million higher base and aircraft support services and
$118 million for the Joint Cargo Aircraft (JCA) program.
These increases were partially offset by lower sales volume of
$44 million for the Canadian Maritime Helicopter program
and lower aircraft modernization sales of $59 million for
international customers and
head-of-state
aircraft for foreign government customers.
AM&M operating income for the year ended December 31,
2008 decreased by 2% compared to the year ended
December 31, 2007. Operating margin for the year ended
December 31, 2008 compared to the year ended
December 31, 2007 decreased by 70 basis points. The
year ended December 31, 2008 included $10 million of
litigation accruals for costs to settle certain claims, which
reduced operating margin by 30 basis points. Operating
margin for the year ended December 31, 2008 compared to the
year ended December 31, 2007 also declined by another
110 basis points due to a change in sales mix, primarily
sales volume for JCA and lower international sales. These
decreases were partially offset by 70 basis points because
of improved contract performance.
49
2007
Compared with 2006
For the year ended December 31, 2007, AM&M net sales
increased by 9% compared to the year ended December 31,
2006, driven by increased volume of (1) $104 million
for aircraft and base support services related to continued
support of U.S. military operations in Iraq and
Afghanistan, partially offset by lower sales volume due to a
loss of a contract in June 2006 to provide maintenance and
support for U.S. Navy fixed-wing training aircraft and
(2) $34 million for aircraft modernization, primarily
to modify C-130 aircraft for international customers,
U.S. Presidential helicopter and
head-of-state
aircraft for foreign government customers. The increase in net
sales from acquired businesses was $62 million, or 3%.
AM&M operating income for the year ended December 31,
2007 increased by 6% compared to the year ended
December 31, 2006 primarily because of higher sales volume,
partially offset by lower operating margin. Operating margin
decreased by 20 basis points primarily due to lower
incentive fees on a contract related to a reduction in the
annual contractual target costs.
Specialized
Products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Increase
|
|
|
2007
|
|
|
2006
|
|
|
Increase
|
|
|
|
($ in millions)
|
|
|
Net sales
|
|
$
|
5,373.8
|
|
|
$
|
4,788.9
|
|
|
$
|
584.9
|
|
|
$
|
4,788.9
|
|
|
$
|
4,289.7
|
|
|
$
|
499.2
|
|
Operating income
|
|
|
645.8
|
|
|
|
566.4
|
|
|
|
79.4
|
|
|
|
566.4
|
|
|
|
487.8
|
|
|
|
78.6
|
|
Operating margin
|
|
|
12.0
|
%
|
|
|
11.8
|
%
|
|
|
20
|
bpts
|
|
|
11.8
|
%
|
|
|
11.4
|
%
|
|
|
40
|
bpts
|
2008
Compared with 2007
For the year ended December 31, 2008, Specialized Products
net sales increased by 12% compared to the year ended
December 31, 2007 reflecting higher sales volume of
(1) $118 million for power & control systems
mostly for commercial shipbuilding, and power generation,
distribution, conditioning and conversion products primarily for
the U.S. Army and U.S. Navy, (2) $86 million
for microwave products due to higher demand and deliveries of
mobile satellite communications systems, satellite and space
components, and communication services primarily to the DoD,
(3) $65 million primarily for combat propulsion
systems due to new and existing contracts, aviation products
primarily related to spare parts for the U.S. military and
data recorders for aviation and maritime markets, and acoustic
undersea warfare products and ocean mapping related to new and
existing contracts, (4) $56 million for precision
engagement primarily related to new contracts and increased
shipments on existing contracts for situational awareness
systems and fuzing products, (5) $54 million for EO/IR
products primarily due to increased demand and deliveries from
new and existing contracts, and (6) $41 million for
simulation & training primarily related to new
contracts and timing of deliveries on existing contracts. These
increases were partially offset by a decrease of
$36 million for displays primarily due to timing of
contractual deliveries and contracts completed or nearing
completion. The increase in net sales from acquired businesses,
net of divestitures, was $201 million, or 4%.
Specialized Products operating income for the year ended
December 31, 2008 increased by 14% compared to the year
ended December 31, 2007. The year ended December 31,
2008 included a gain of $12 million for the Product Line
Divestiture Gain and a non-cash Impairment Charge of
$28 million. Excluding these two items, operating income
was $661.1 million and operating margin for the year ended
December 31, 2008 compared to December 31, 2007
increased 50 basis points to 12.3%. Operating margin
increased by 70 basis points due to improved contract
performance and higher sales across several business areas.
These increases were partially offset by 10 basis points
due to a $6 million litigation accrual for costs to settle
a claim and 10 basis points because of a $7 million
gain in the 2007 third quarter from the settlement of a third
party claim that did not recur.
2007
Compared with 2006
For the year ended December 31, 2007, Specialized Products
net sales increased by 12% compared to the year ended
December 31, 2006, reflecting higher sales volume of
(1) $138 million for EO/IR and undersea
50
warfare products, simulation devices and advanced mine detection
systems, primarily related to new contracts,
(2) $118 million for power & control systems
due to recent new business awards to provide marine control
systems and products to foreign allied navies, higher volume for
commercial shipbuilding, power conversion and switching
products, and service life extensions for landing craft air
cushion amphibious vehicles, (3) $60 million primarily
due to higher volumes for precision engagement,
telemetry & advanced technology, and aviation products
on existing contracts, and (4) $24 million for combat
vehicle propulsion systems for U.S. military reset and
replacement of equipment consumed in the U.S. military
operations in Iraq. The increase in net sales from acquired
businesses was $159 million, or 4%.
Specialized Products operating income for the year ended
December 31, 2007 increased by 16% compared to the year
ended December 31, 2006, due to higher sales volume and
higher operating margin. Operating margin for the year ended
December 31, 2007 increased by 40 basis points.
Improved contract performance and higher sales in several
business areas including EO/IR products, display systems and
precision engagement, increased operating margin by
70 basis points. A smaller gain on a settlement of a claim
of $7 million during 2007, compared to an unrelated gain
from a settlement of a claim against a third party of
$12 million during 2006, reduced operating margin by
10 basis points. Additionally, lower margins from acquired
businesses reduced operating margin by 20 basis points.
Liquidity
and Capital Resources
Anticipated
Sources of Cash Flow
Our primary source of liquidity is cash flow generated from
operations. We also have funds of $940 million available to
use under our revolving credit facility, after reductions of
$60 million for outstanding letters of credit, subject to
certain conditions, as of December 31, 2008. Our revolving
credit facility matures on March 9, 2010. We intend to
enter into a new revolving credit facility at or before that
time. Notwithstanding the current challenging credit market
conditions, we currently believe that our cash from operating
activities together with our cash on hand at December 31,
2008 ($867 million) will be adequate to meet our
anticipated requirements for working capital, capital
expenditures, defined benefit plan contributions, commitments,
contingencies, research and development expenditures, contingent
purchase price payments on previous business acquisitions,
program and other discretionary investments, interest payments,
income tax payments, L-3 Holdings dividends and share
repurchase program for the foreseeable future. Our business may
not continue to generate cash flow at current levels, and it is
possible that currently anticipated improvements may not be
achieved. If we are unable to generate sufficient cash flow from
operations to service our debt, we may be required to reduce
costs and expenses, sell assets, reduce capital expenditures,
refinance all or a portion of our existing debt or obtain
additional financing and we may not be able to do so on a timely
basis, on satisfactory terms, or at all. 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. Our first scheduled
maturity of our principal amount of outstanding debt is our
$650 million term loan facility, which matures on
March 9, 2010. Our intention is to refinance all or a
portion of the $650 million term loan facility borrowings,
if we are able to do so, on terms that are acceptable to us. If
such terms are not available to us, we intend to repay the term
loan facility with cash on hand. Our remaining principal amount
of outstanding debt matures between June 15, 2012 and
August 1, 2035. See Part II
Item 7 Managements Discussion and
Analysis of Financial Condition and Results of
Operations Liquidity and Capital
Resources Contractual Obligations on
page 56.
Balance
Sheet
Billed receivables decreased by $53 million to
$1,226 million at December 31, 2008 from
$1,279 million at December 31, 2007 primarily due to
(1) collections primarily for ISR systems and government
services, (2) the divestiture of METI on October 8,
2008, and (3) foreign currency translation adjustments.
These decreases were partially offset by $34 million of
acquired billed receivable balances from business acquisitions.
51
Contracts in process increased by $168 million to
$2,267 million at December 31, 2008, from
$2,099 million at December 31, 2007. The increase
included $16 million of acquired
contracts-in-process
balances for business acquisitions and $162 million from:
|
|
|
|
|
Increases of $138 million in unbilled contract receivables
primarily due to sales exceeding billings for ISR systems,
command and control systems and software services, aircraft
modernization, training services, and intelligence solutions.
These increases were partially offset by lower sales for
linguist services; and
|
|
|
|
Increases of $24 million in inventoried contract costs
across several business areas to support customer demand.
|
These increases were partially offset by a decrease of
$10 million primarily due to foreign currency translation
adjustments.
L-3s receivables days sales outstanding (DSO) was 69 at
December 31, 2008, compared with 72 at December 31,
2007. We calculate our DSO by dividing (1) our aggregate
end of period billed receivables and net unbilled contract
receivables, by (2) our trailing 12 month sales
adjusted, on a pro forma basis, to include sales from business
acquisitions and exclude sales from business divestitures that
we completed as of the end of the period, multiplied by the
number of calendar days in the trailing 12 month period
(366 days at December 31, 2008 and 365 days at
December 31, 2007). Our trailing 12 month pro forma
sales were $14,976 million at December 31, 2008 and
$14,042 million at December 31, 2007.
The increase in inventories was primarily for commercial
shipbuilding customers due to timing of deliveries and to
support demand.
The increase in net property, plant and equipment (PP&E)
during the year ended December 31, 2008 was principally due
to capital expenditures and completed business acquisitions,
partially offset by depreciation expense. The percentage of
depreciation expense to average gross PP&E was 10.2% for
the year ended December 31, 2008 compared to 11.2% for the
year ended December 31, 2007. We did not change any of the
depreciation methods or assets estimated useful lives that L-3
uses to calculate its depreciation expense.
Goodwill decreased by $136 million to $8,029 million
at December 31, 2008 from $8,165 million at
December 31, 2007. The table below presents the changes in
goodwill allocated to our reportable segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
|
|
|
|
|
|
Specialized
|
|
|
Consolidated
|
|
|
|
C3ISR
|
|
|
Services
|
|
|
AM&M
|
|
|
Products
|
|
|
Total
|
|
|
|
(in millions)
|
|
|
Balance at December 31, 2007
|
|
$
|
986
|
|
|
$
|
2,264
|
|
|
$
|
1,199
|
|
|
$
|
3,716
|
|
|
$
|
8,165
|
|
Business acquisitions
|
|
|
3
|
|
|
|
44
|
|
|
|
3
|
|
|
|
149
|
|
|
|
199
|
|
Completion of Internal Revenue Service (IRS)
audits(1)
|
|
|
(42
|
)
|
|
|
(12
|
)
|
|
|
(44
|
)
|
|
|
(43
|
)
|
|
|
(141
|
)
|
Sale of business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
(11
|
)
|
Foreign currency translation
adjustments(2)
|
|
|
(51
|
)
|
|
|
|
|
|
|
(54
|
)
|
|
|
(78
|
)
|
|
|
(183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
896
|
|
|
$
|
2,296
|
|
|
$
|
1,104
|
|
|
$
|
3,733
|
|
|
$
|
8,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For further discussion regarding
the completion of IRS audits of L-3s U.S. Federal income
tax returns for 2004 and 2005, including income tax positions
taken in connection with certain business acquisitions, see
Note 16 to our audited consolidated financial statements.
|
(2) |
|
The decrease in goodwill from
foreign currency translation adjustments is due to the
strengthening of the U.S. dollar during 2008 against the
functional currencies of L-3s foreign subsidiaries,
primarily in Canada, Germany and the United Kingdom.
|
The increase of $199 million related to business
acquisitions was comprised of: (1) an increase of
$187 million for business acquisitions completed and an
additional ownership interest acquired during the year ended
December 31, 2008, (2) an increase of $10 million
for earnouts related to certain business acquisitions completed
prior to January 1, 2008, and (3) an increase of
$5 million primarily related to final purchase price
determinations for certain business acquisitions completed prior
to January 1, 2008. These increases were partially offset
by a decrease of $3 million related to the completion
of the final estimate of the fair value of assets acquired and
liabilities assumed for certain business acquisitions completed
prior to January 1, 2008.
52
The increases in accounts payable and accrued expenses were
primarily due to increased purchases of materials, components
and services required for the increase in sales during the year
ended December 31, 2008, and to the timing of payments and
invoices received for purchases from third-party vendors and
subcontractors. The increase in accrued employment costs was due
to the timing of payroll dates for salaries, wages and bonuses.
The increase in advance payments and billings in excess of costs
incurred was primarily due to advance payments received on
contracts for ISR systems, power & control systems for
commercial shipbuilding customers and government services. Other
current liabilities decreased primarily due to the reversal of a
current liability in connection with the Litigation Gain.
Non-current deferred income tax liabilities decreased primarily
due to pension plan actuarial losses experienced in 2008 that
were caused by the negative actual pension plan assets return
for 2008.
Pension
Plans
L-3 maintains defined benefit pension plans covering employees
at certain of its businesses. At December 31, 2008,
L-3s projected benefit obligation, which includes
accumulated benefits plus the incremental benefits attributable
to projected future salary increases for covered employees, was
$1,722 million and exceeded the fair value of L-3s
pension plan assets of $1,064 million by $658 million.
At the end of 2007, L-3s projected benefit obligation was
$1,688 million and exceeded the fair value of L-3s
pension plan assets of $1,407 million by $281 million.
At December 31, 2008, our unfunded status increased by
$377 million from $281 million at December 31,
2007. The increase was primarily due to (1) an increase of
$449 million in accumulated other comprehensive loss due to
net actuarial losses experienced in 2008 and (2) pension
expenses of $87 million for the year ended
December 31, 2008. These increases were partially offset by
employer pension contributions of $162 million.
The increase of $449 million in accumulated other
comprehensive loss was principally due to the actuarial loss
that we experienced in 2008 as a result of a decline in the fair
value of our pension plan assets. Recent declines in equity and
fixed income financial markets and diminished liquidity and
diminished credit availability have negatively affected the 2008
actual return on our pension plan assets. L-3s actual
return on plan assets for the year ended December 31, 2008,
was a loss of $394 million, or 28%, on the fair value of
plan assets at the beginning of the year. The actuarial gains
and losses that our pension plans experience are not recognized
in pension expense in the year incurred, but rather are recorded
as a component of accumulated other comprehensive income and
amortized to pension expense in future periods over the
estimated average remaining service periods of the covered
employees. See Note 19 to our audited consolidated
financial statements.
Our pension expense for 2008 was $87 million. We currently
expect pension expense for 2009 to be approximately
$163 million. As discussed above, for the year ended
December 31, 2008, L-3s actual return on plan assets
was a loss of $394 million, which is the primary reason
that the amortization of net loss component of pension expense
is expected to increase by approximately $45 million and
the expected return on plan assets component of pension expense
is expected to decrease by approximately $27 million for
2009. In addition, our actual pension expense for 2009 will be
based upon a number of factors, including the effect of any
future business acquisitions for which we assume liabilities for
pension benefits, changes in headcount at our businesses that
sponsor pension plans, actual pension plan contributions and
changes (if any) to our pension assumptions for 2009, including
the discount rate, expected long-term return on plan assets and
salary increases.
Our contributions for the full year 2008 were $162 million,
of which $100 million represented a pre-funding of
contributions that were previously scheduled for 2009. We
currently expect to contribute approximately $65 million to
our pension plans in 2009. Actual 2009 pension contributions
will be affected by L-3s actual amount of net cash from
operating activities for the year ending December 31, 2009,
as well as the funded status of our pension plans during 2009. A
substantial portion of our pension plan contributions for
L-3s
businesses that are U.S. Government contractors are
recoverable as allowable indirect contract costs at amounts
generally equal to the annual pension contributions, except for
pre-funded contributions, which are generally recoverable in the
following year.
53
Our projected benefit obligation and annual pension expense are
significantly affected by the discount rate assumption we use.
For example, an additional reduction to the discount rate of
25 basis points would have increased our projected benefit
obligation at December 31, 2008 by approximately
$56 million, and our estimated pension expense for 2009 by
approximately $8 million. Conversely, an increase to the
discount rate of 25 basis points would have decreased our
projected benefit obligation at December 31, 2008 by
approximately $52 million, and our estimated pension
expense for 2009 by approximately $7 million.
Statement
of Cash Flows
The table below provides a summary of our cash flows from
operating, investing, and financing activities for the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
|
Net cash from operating activities
|
|
$
|
1,387
|
|
|
$
|
1,270
|
|
|
$
|
1,074
|
|
Net cash used in investing activities
|
|
|
(432
|
)
|
|
|
(388
|
)
|
|
|
(1,091
|
)
|
Net cash used in financing activities
|
|
|
(840
|
)
|
|
|
(464
|
)
|
|
|
(29
|
)
|
Operating
Activities
2008 Compared with 2007. We generated
$1,387 million of cash from operating activities during the
year ended December 31, 2008, an increase of
$117 million compared with $1,270 million generated
during the year ended December 31, 2007. The increase was
due to (1) an increase in net income of $193 million,
and (2) higher non-cash expenses of $64 million,
primarily due to higher deferred income taxes and the non-cash
Impairment Charge, partially offset by
(3) $140 million of more cash used for changes in
operating assets and liabilities, primarily for other current
liabilities (mainly the Litigation Gain) and income taxes. The
net cash used from changes in operating assets and liabilities
is further discussed above under Liquidity and Capital
Resources Balance Sheet on page 51.
2007 Compared with 2006. We generated
$1,270 million of cash from operating activities during the
year ended December 31, 2007, an increase of
$196 million compared with $1,074 million generated
during the year ended December 31, 2006. The increase was
primarily due to an increase in net income of $230 million,
partially offset by a decrease of $41 million because of
more cash used for changes in operating assets and liabilities
primarily for contracts in process and other current liabilities.
Interest Payments. Our cash from operating
activities includes interest payments on debt of
$267 million for the year ended December 31, 2008,
$280 million for the year ended December 31, 2007, and
$287 million for the year ended December 31, 2006. Our
interest expense also includes amortization of deferred debt
issue costs and bond discounts and deferred gains on terminated
interest rate swap agreements, which are non-cash items.
Investing
Activities
During 2008, we used $283 million of cash in the aggregate
to (1) acquire four businesses discussed under
Business Acquisitions, (2) pay earnouts and the
remaining contractual purchase price for certain business
acquisitions completed prior to January 1, 2008, and
(3) increase our ownership interest in METI by 5% from 80%
to 85%. We also used $218 million of cash for capital
expenditures. Investing activities for the year ended
December 31, 2008 included a $63 million source of
cash in the aggregate from the sale of METI on October 8,
2008 and the sale of the PMD product line during the second
quarter.
During 2007, we used $235 million of cash for business
acquisitions. We paid $207 million in connection with our
2007 business acquisitions discussed under Business
Acquisitions. We also paid $17 million for earnouts
and $11 million primarily for the remaining contractual
purchase prices, for the Crestview and TRL business acquisitions
made prior to January 1, 2007. We also used
$157 million for capital expenditures.
54
During 2006, we used $943 million of cash for business
acquisitions. We paid $900 million in connection with our
2006 business acquisitions discussed above under Business
Acquisitions. We also paid $21 million for the
remaining contractual purchase price for the ASIT acquisition
and $11 million for an additional 10% interest in the Army
Fleet Support joint venture, which increased our total ownership
interest to 90%. We also paid $10 million for earnouts and
$25 million primarily for adjustments to the contractual
purchase prices for certain business acquisitions. We received
$24 million, in the aggregate, for reductions to the
contractual purchase prices for the Aircraft Integration Systems
(AIS), Marine Controls division of CAE (MAPPS) and The Titan
Corporation (Titan) acquired businesses.
Financing
Activities
Debt
Senior Credit Facility. Our senior credit facility
provides for a term loan facility and a $1 billion
revolving credit facility.
At December 31, 2008, borrowings under the term loan
facility were $650 million, and available borrowings under
our revolving credit facility were $940 million, after
reduction for outstanding letters of credit of $60 million.
There were no outstanding revolving credit borrowings under our
senior credit facility at December 31, 2008. The senior
credit facility matures on March 9, 2010. Our remaining
outstanding debt matures between June 15, 2012 and
August 1, 2035. Total outstanding debt was
$4,538 million at December 31, 2008, compared to
$4,537 million at December 31, 2007.
Debt Issuances. During 2008, 2007 and 2006, we did
not issue any debt obligations. For additional details about the
terms of our debt, see Note 10 to our audited consolidated
financial statements.
Credit Ratings. Our credit ratings as of February
2009 are as follows:
|
|
|
|
|
|
|
|
|
Rating Agency
|
|
Senior Debt
|
|
Subordinated Debt
|
|
Standard & Poors
|
|
|
BBB-
|
|
|
|
BB+
|
|
Fitch Ratings
|
|
|
BBB-
|
|
|
|
BB+
|
|
Moodys Investors Service
|
|
|
Ba2
|
|
|
|
Ba3
|
|
Agency ratings are not a recommendation to buy, sell or hold any
security, and they may be revised or withdrawn at any time by
the rating agency. Each agencys rating should be evaluated
independently of any other agencys rating. The system and
the number of rating categories can vary widely from rating
agency to rating agency. Customers usually focus on
claims-paying ratings, while creditors focus on debt ratings.
Investors use both to evaluate a companys overall
financial strength. The ratings issued on L-3 or its
subsidiaries by any of these agencies are announced publicly and
are available from the agencies. Our ability to access the
capital markets could be impacted by a downgrade in one or more
of our debt ratings. If this were to occur, we could incur
higher borrowing costs.
Debt Covenants and Other Provisions. The senior
credit facility and senior subordinated notes agreements contain
financial covenants and other restrictive covenants. See
Note 10 to our audited consolidated financial statements
for a description of our debt and related financial covenants,
including dividend payment and share repurchase restrictions and
cross default provisions, under our senior credit facility. As
of December 31, 2008, we were in compliance with our
financial and other restrictive covenants.
The borrowings under the senior credit facility are guaranteed
by L-3 Holdings and by substantially all of the material
wholly-owned domestic subsidiaries of L-3 Communications on a
senior basis. The payment of principal and premium, if any, and
interest on the senior subordinated notes are unconditionally
guaranteed, on an unsecured senior subordinated basis, jointly
and severally, by substantially all of L-3 Communications
wholly-owned domestic subsidiaries. The guarantees of the senior
subordinated notes rank pari passu with one another and are
junior to the guarantees of the senior credit facility. The
payment of principal and premium, if any, and interest on the
3% Convertible Contingent Debt Securities CODES due 2035
are fully and unconditionally guaranteed, on an unsecured senior
subordinated basis, jointly and severally, by certain
55
of L-3 Holdings wholly-owned domestic subsidiaries. The
guarantees of the CODES rank pari passu with all of the
guarantees of the senior subordinated notes and are junior to
the guarantees of the senior credit facility.
Equity
During 2008 and 2007, L-3 Holdings Board of Directors
authorized the following quarterly cash dividends:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Dividends
|
|
|
|
|
Total Dividends
|
|
Date Declared
|
|
Record Date
|
|
Per Share
|
|
|
Date Paid
|
|
Paid
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
February 5
|
|
February 19
|
|
$
|
0.30
|
|
|
March 17
|
|
$
|
37
|
|
April 29
|
|
May 16
|
|
$
|
0.30
|
|
|
June 16
|
|
$
|
37
|
|
July 8
|
|
August 18
|
|
$
|
0.30
|
|
|
September 15
|
|
$
|
37
|
|
October 7
|
|
November 17
|
|
$
|
0.30
|
|
|
December 15
|
|
$
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
February 6
|
|
February 21
|
|
$
|
0.25
|
|
|
March 15
|
|
$
|
31
|
|
April 24
|
|
May 16
|
|
$
|
0.25
|
|
|
June 15
|
|
$
|
32
|
|
July 10
|
|
August 16
|
|
$
|
0.25
|
|
|
September 17
|
|
$
|
32
|
|
October 9
|
|
November 16
|
|
$
|
0.25
|
|
|
December 17
|
|
$
|
31
|
|
On February 5, 2009, L-3 Holdings announced that its Board
of Directors had increased L-3 Holdings regular quarterly
cash dividend by 17% to $0.35 per share, payable on
March 16, 2009, to shareholders of record at the close of
business on February 19, 2009.
On February 23, 2009, the closing price of L-3 Holdings
common stock, as reported by the NYSE, was $72.35 per share and
the number of holders of L-3 Holdings common stock was
approximately 75,000.
For the year ended December 31, 2008, L-3 repurchased
$794 million of its common stock compared to
$500 million for the year ended December 31, 2007.
Contractual
Obligations
The table below presents our estimated total contractual
obligations at December 31, 2008, including the amounts
expected to be paid or settled for each of the periods indicated
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
Total
|
|
|
1 year
|
|
|
1-3 years
|
|
|
3-5 years
|
|
|
5 years
|
|
|
|
(in millions)
|
|
|
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L-3 Communications long-term
debt(1)
|
|
$
|
3,850
|
|
|
$
|
|
|
|
$
|
650
|
|
|
$
|
1,150
|
|
|
$
|
2,050
|
|
L-3 Holdings long-term
debt(1)(2)
|
|
|
700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
700
|
|
Interest
payments(3)
|
|
|
1,676
|
|
|
|
247
|
|
|
|
462
|
|
|
|
359
|
|
|
|
608
|
|
Non-cancelable operating
leases(4)
|
|
|
843
|
|
|
|
166
|
|
|
|
283
|
|
|
|
158
|
|
|
|
236
|
|
Notes payable and capital lease obligations
|
|
|
11
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
9
|
|
Purchase
obligations(5)
|
|
|
2,237
|
|
|
|
1,811
|
|
|
|
401
|
|
|
|
25
|
|
|
|
|
|
Other long-term
liabilities(6)
|
|
|
239
|
|
|
|
78
|
(7)
|
|
|
61
|
|
|
|
14
|
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(8)
|
|
$
|
9,556
|
|
|
$
|
2,303
|
|
|
$
|
1,858
|
|
|
$
|
1,706
|
|
|
$
|
3,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
|
|
|
(1) |
|
Represents principal amount of
long-term debt and only includes scheduled principal payments.
|
|
(2) |
|
The conversion feature of the CODES
may require L-3 Holdings to settle the $700 million
principal amount with the holders of the CODES if L-3 Holdings
common stock price is more than 120% of the then current
conversion price (currently $121.36) for a specified period (see
Note 10 to our audited consolidated financial statements).
L-3 Holdings stock price on February 23, 2009 was $72.35.
|
|
(3) |
|
Represents expected interest
payments on L-3s long-term debt balance as of
December 31, 2008 using the stated interest rate on our
fixed rate debt and the variable interest rate in effect at
December 31, 2008 on the outstanding borrowings under our
term loan facility, assuming that current borrowings remain
outstanding to the contractual maturity date.
|
|
(4) |
|
Non-cancelable operating leases are
presented net of estimated sublease rental income.
|
|
(5) |
|
Represents open purchase orders at
December 31, 2008 for amounts expected to be paid for goods
or services that are legally binding.
|
|
(6) |
|
Other long-term liabilities
primarily consist of workers compensation and deferred
compensation for the years ending December 31, 2010 and
thereafter and also include pension and postretirement benefit
plan contributions that we expect to pay in 2009.
|
|
(7) |
|
Our pension and postretirement
benefit plan funding policy is generally to contribute in
accordance with cost accounting standards that affect government
contractors, subject to the Internal Revenue Code and
regulations thereon. For 2009, we expect to contribute
approximately $65 million to our pension plans and
approximately $13 million to our postretirement benefit
plans. Due to the current uncertainty of the amounts used to
compute our expected pension and postretirement benefit plan
funding, we believe it is not practicable to reasonably estimate
such future funding for periods in excess of one year and we may
decide or be required to contribute more than we expect to our
pension and postretirement plans.
|
|
(8) |
|
Excludes all income tax
obligations, a portion of which represents unrecognized tax
benefits in connection with uncertain tax positions taken, or
expected to be taken on our income tax returns as of
December 31, 2008 since we cannot determine the time period
of future tax consequences. For additional information regarding
income taxes, see Note 16 to our audited consolidated
financial statements.
|
Off
Balance Sheet Arrangements
The table below presents our estimated total contingent
commitments and other guarantees at December 31, 2008,
including the amounts expected to be paid or settled for each of
the periods indicated below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 and
|
|
|
|
Total
|
|
|
2009
|
|
|
2010-2011
|
|
|
2012-2013
|
|
|
thereafter
|
|
|
|
(in millions)
|
|
|
Contingent Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby letters of credit under our Senior Credit
Facility(1)
|
|
$
|
60
|
|
|
$
|
57
|
|
|
$
|
3
|
|
|
$
|
|
|
|
$
|
|
|
Other standby letters of
credit(1)
|
|
|
312
|
|
|
|
242
|
|
|
|
68
|
|
|
|
2
|
|
|
|
|
|
Other
guarantees(2)
|
|
|
44
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
3
|
|
Contingent commitments for earnout payments on business
acquisitions(3)
|
|
|
64
|
|
|
|
44
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
480
|
|
|
$
|
343
|
|
|
$
|
132
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents outstanding letters of
credit with financial institutions covering performance and
financial guarantees per contractual requirements with certain
customers. These letters of credit may be drawn upon in the
event of L-3s nonperformance.
|
|
(2) |
|
Represents the minimum guarantees
made by L-3 or lessee (i) under the purchase option for
certain operating leases in which the lease renewal is not
exercised and (ii) for 50% of certain bank debt related to
a joint venture arrangement (see Note 18 to our audited
consolidated financial statements for a description of these
guarantees).
|
|
(3) |
|
Represents potential additional
contingent purchase payments for business acquisitions that are
contingent upon the post-acquisition financial performance or
certain other performance conditions of the acquired businesses
in accordance with the contractual purchase agreement.
|
For a discussion of the conversion and contingent interest
features of our CODES, see Note 10 to our audited
consolidated financial statements.
Legal
Proceedings and Contingencies
We are engaged in providing products and services under
contracts with the U.S. Government and, to a lesser degree,
under foreign government contracts, some of which are funded by
the U.S. Government. All such contracts are subject to
extensive legal and regulatory requirements, and, periodically,
agencies of the
57
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 by a
federal grand jury could result in the suspension for a period
of time from eligibility for awards of new government contracts.
A conviction could result in debarment from contracting with the
federal government for a specified term. Additionally, in the
event that U.S. Government budget and expenditures for
products and services of the type we manufacture and provide are
reduced, there may be a reduction in our sales volume. We are
currently cooperating with the U.S. Government on several
investigations, none of which we anticipate will have a material
adverse effect on our consolidated financial position, results
of operations or cash flows.
We continually assess our obligations with respect to applicable
environmental protection laws. While it is difficult to
determine the timing and ultimate cost that we will incur to
comply with these laws, based upon available internal and
external assessments, with respect to those environmental loss
contingencies of which we are aware, we believe that even
without considering potential insurance recoveries, if any,
there are no environmental loss contingencies that, in the
aggregate, would be material to our consolidated financial
position, results of operations or cash flows. Also, we have
been periodically subject to litigation, government
investigations, proceedings, claims or assessments and various
contingent liabilities incidental to our business. We accrue for
these contingencies when it is probable that a liability has
been incurred and the amount of the loss can be reasonably
estimated. For a description of our legal proceedings and
contingencies, see Note 18 to our audited consolidated
financial statements.
Derivative
Financial Instruments and Other Market Risk
Included in our derivative financial instruments are foreign
currency forward contracts. All of our derivative financial
instruments that are sensitive to market risk are entered into
for purposes other than trading.
Interest Rate Risk. The borrowings under our senior
revolving credit facility and term loan facility contain
variable interest only and are sensitive to changes in interest
rates. The interest rates on the senior subordinated notes and
CODES are fixed-rate and are not affected by changes in interest
rates.
Additional data on our debt obligations and our applicable
borrowing spreads included in the interest rates we pay on
borrowings under the Senior Credit Facility are provided in
Note 10 to our audited consolidated financial statements.
Foreign Currency Exchange Risk. Our U.S. and
foreign businesses enter into contracts with customers,
subcontractors or vendors, and certain of these contracts are
denominated in currencies other than the functional currencies
of our businesses. To protect the functional currency equivalent
cash flows associated with certain of these contracts
denominated in a foreign currency, we have entered into foreign
currency forward contracts, which are accounted for as cash flow
hedges. At December 31, 2008, the notional value of foreign
currency forward contracts was $414 million and the fair
value of these contracts was $1 million, which represented
an asset. The notional values of our foreign currency forward
contracts with maturities ranging through 2013 and thereafter
are presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of Maturity
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013 and thereafter
|
|
|
|
(in million)
|
|
|
Notional value
|
|
$
|
266
|
|
|
$
|
72
|
|
|
$
|
35
|
|
|
$
|
17
|
|
|
$
|
24
|
|
Backlog
and Orders
We define funded backlog as the value of funded orders received
from customers, less the cumulative amount of sales recognized
on such orders. We define funded orders as the value of contract
awards received from the U.S. Government, for which the
U.S. Government has appropriated funds, plus the value of
contract awards and orders received from customers other than
the U.S. Government. The table below presents our funded
backlog; percent of funded backlog at December 31, 2008
expected to be recorded as sales in 2009 and funded orders for
each of our reportable segments.
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Backlog
|
|
|
|
|
|
|
|
|
|
Funded Backlog
|
|
|
Expected to be
|
|
|
|
|
|
|
|
|
|
at December 31,
|
|
|
Recorded as
|
|
|
Funded Orders
|
|
|
|
2008
|
|
|
2007
|
|
|
Sales in 2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
|
|
|
(in millions)
|
|
|
Reportable Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C3ISR
|
|
$
|
2,324
|
|
|
$
|
1,935
|
|
|
|
84
|
%
|
|
$
|
2,956
|
|
|
$
|
2,505
|
|
Government Services
|
|
|
2,212
|
|
|
|
1,989
|
|
|
|
94
|
|
|
|
4,495
|
|
|
|
4,412
|
|
AM&M
|
|
|
1,810
|
|
|
|
1,496
|
|
|
|
77
|
|
|
|
2,971
|
|
|
|
2,395
|
|
Specialized Products
|
|
|
5,226
|
|
|
|
4,151
|
|
|
|
69
|
|
|
|
6,110
|
|
|
|
5,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
11,572
|
|
|
$
|
9,571
|
|
|
|
78
|
%
|
|
$
|
16,532
|
|
|
$
|
14,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our funded backlog does not include the full value of our
contract awards including those pertaining to multi-year,
cost-plus reimbursable contracts, which are generally funded on
an annual basis. Funded backlog also excludes the sales value of
unexercised priced contract options that may be exercised by
customers under existing contracts and the sales value of
purchase orders that we may receive under indefinite quantity
contracts or basic ordering agreements.
Accounting
Standards Issued and Not Yet Implemented
For a discussion of accounting standards issued and not yet
implemented, see Note 2 to our audited consolidated
financial statements.
Inflation
The effect of inflation on our sales and earnings has not been
significant. Although a majority of our sales are made under
long-term contracts (revenue arrangements), the selling prices
of such contracts, established for deliveries in the future,
generally reflect estimated costs to be incurred in these future
periods. In addition, some of our contracts provide for price
adjustments through cost escalation clauses.
Forward-Looking
Statements
Certain of the matters discussed concerning our operations, cash
flows, financial position, economic performance and financial
condition, including in particular, the likelihood of our
success in developing and expanding our business and the
realization of sales from backlog, include forward-looking
statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act.
Statements that are predictive in nature, that depend upon or
refer to events or conditions or that include words such as
expects, anticipates,
intends, plans, believes,
estimates and similar expressions are
forward-looking statements. Although we believe that these
statements are based upon reasonable assumptions, including
projections of total sales growth, sales growth from business
acquisitions, organic sales growth, consolidated operating
margins, total segment operating margins, interest expense
earnings, cash flow, research and development costs, working
capital, capital expenditures and other projections, they are
subject to several risks and uncertainties, and therefore, it is
possible that these statements may not be achieved. Such
statements will also be influenced by factors which include,
among other things:
|
|
|
|
|
our dependence on the defense industry and the business risks
peculiar to that industry, including changing priorities or
reductions in the U.S. Government defense budget;
|
|
|
|
our reliance on contracts with a limited number of agencies of,
or contractors to, the U.S. Government and the possibility
of termination of government contracts by unilateral government
action or for failure to perform;
|
59
|
|
|
|
|
the extensive legal and regulatory requirements surrounding our
contracts with the U.S. or foreign governments and the
results of any investigation of our contracts undertaken by the
U.S. or foreign governments;
|
|
|
|
our ability to retain our existing business and related
contracts (revenue arrangements);
|
|
|
|
our ability to successfully compete for and win new business and
related contracts (revenue arrangements) and to win
re-competitions of our existing contracts;
|
|
|
|
our ability to identify and acquire additional businesses in the
future with terms, including the purchase price, that are
attractive to L-3 and to integrate acquired business operations;
|
|
|
|
our ability to maintain and improve our consolidated operating
margin and total segment operating margin in future periods;
|
|
|
|
our ability to obtain future government contracts (revenue
arrangements) on a timely basis;
|
|
|
|
uncertainties arising from a change in the presidential
administration;
|
|
|
|
the availability of government funding or cost-cutting
initiatives and changes in customer requirements for our
products and services;
|
|
|
|
our significant amount of debt and the restrictions contained in
our debt agreements;
|
|
|
|
our ability to continue to retain and train our existing
employees and to recruit and hire new qualified and skilled
employees, as well as our ability to retain and hire employees
with U.S. Government security clearances that are a
prerequisite to compete for and to perform work on classified
contracts for the U.S. Government;
|
|
|
|
actual future interest rates, volatility and other assumptions
used in the determination of pension, benefits and equity-based
compensation, as well as the market performance of benefit plan
assets;
|
|
|
|
our collective bargaining agreements, our ability to
successfully negotiate contracts with labor unions and our
ability to favorably resolve labor disputes should they arise;
|
|
|
|
the business, economic and political conditions in the markets
in which we operate, including those for the commercial
aviation, shipbuilding and communications markets;
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|
|
|
global economic uncertainty and continued tightening of the
credit markets;
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|
|
|
events beyond our control such as acts of terrorism;
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|
|
|
our ability to perform contracts (revenue arrangements) on
schedule;
|
|
|
|
our international operations, including sales to foreign
customers;
|
|
|
|
our extensive use of fixed-price type contracts as compared to
cost-reimbursable type and
time-and-material
type contracts;
|
|
|
|
the rapid change of technology and high level of competition in
the defense industry and the commercial industries in which our
businesses participate;
|
|
|
|
our introduction of new products into commercial markets or our
investments in civil and commercial products or companies;
|
|
|
|
the outcome of current or future litigation matters;
|
|
|
|
results of audits by U.S. Government agencies, including
the Defense Contract Audit Agency, of our sell prices, costs and
performance on contracts (revenue arrangements), and our
accounting and general business practices;
|
|
|
|
anticipated cost savings from business acquisitions not fully
realized or realized within the expected time frame;
|
60
|
|
|
|
|
Titans compliance with its plea agreement and consent to
entry of judgment with the U.S. Government relating to the
Foreign Corrupt Practices Act (FCPA), including Titans
ability to maintain its export licenses as well as the outcome
of other FCPA matters;
|
|
|
|
ultimate resolution of contingent matters, claims and
investigations relating to acquired businesses, and the impact
on the final purchase price allocations;
|
|
|
|
significant increase in competitive pressure among companies in
our industry; and
|
|
|
|
the fair values of our assets, including identifiable intangible
assets and the estimated fair value of the goodwill balances for
our reporting units, which can be impaired or reduced by other
factors, some of which are discussed above.
|
In addition, for a discussion of other risks and uncertainties
that could impair our results of operations or financial
condition, see Part I
Item 1A Risk Factors and Note 18 to
our audited consolidated financial statements.
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 and such differences could be material. Given these
uncertainties, you should not place any reliance on these
forward-looking statements. These forward-looking statements
also represent our estimates and assumptions only as of the date
that they were made. We expressly disclaim a duty to provide
updates to these forward-looking statements, and the estimates
and assumptions associated with them, after the date of this
filing to reflect events or changes or circumstances or changes
in expectations or the occurrence of anticipated events.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
For data regarding quantitative and qualitative disclosures
related to our market risk sensitive financial instruments, see
Part II Item 7
Managements Discussion and Analysis of Financial Condition
and Results of Operations Liquidity and Capital
Resources Derivative Financial Instruments and Other
Market Risk on page 58 and Note 13 to our
audited consolidated financial statements.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
See our audited consolidated financial statements beginning on
page F-1.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Conclusions
Regarding Effectiveness of Disclosure Controls and
Procedures
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our
reports under the Securities Exchange Act of 1934 related to L-3
Holdings and L-3 Communications is recorded, processed,
summarized and reported within the time periods specified in the
U.S. Securities and Exchange Commissions (SEC) rules
and forms, and that such information is accumulated and
communicated to our management, including our Chairman,
President and Chief Executive Officer, and our Vice President
and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosures. Any controls and
procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired
control objectives. Our management, with the participation of
our Chairman, President and Chief Executive Officer, and our
Vice President and Chief Financial Officer, has
61
evaluated the effectiveness of the design and operation of our
disclosure controls and procedures as of December 31, 2008.
Based upon that evaluation and subject to the foregoing, our
Chairman, President and Chief Executive Officer, and our Vice
President and Chief Financial Officer concluded that, as of
December 31, 2008, the design and operation of our
disclosure controls and procedures were effective.
There were no changes in our internal control over financial
reporting that occurred during the quarter ended
December 31, 2008 that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
Managements
Report on Internal Control Over Financial
Reporting
As required by the SEC rules and regulations for the
implementation of Section 404 of the Sarbanes-Oxley Act,
our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Our internal
control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of our consolidated financial
statements for external reporting purposes in accordance with
accounting principles generally accepted in the United States of
America. Our internal control over financial reporting includes
those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the
assets of L-3, (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America,
and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors,
and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on
the consolidated financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements in
our consolidated financial statements. Also, projections of any
evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in
conditions, or that the degree or compliance with the policies
or procedures may deteriorate.
Management assessed the effectiveness of L-3 Holdings and
L-3 Communications internal control over financial
reporting as of December 31, 2008. In making these
assessments, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control Integrated
Framework. Based on our assessments and those criteria,
management determined that L-3 Holdings and L-3 Communications
maintained effective internal control over financial reporting
as of December 31, 2008.
Our independent registered public accounting firm has audited
and issued their attestation report on the Companys
internal control over financial reporting as of
December 31, 2008. See
page F-2
to our audited consolidated financial statements for their
report.
|
|
Item 9B:
|
Other
Information
|
None.
62
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The following table provides information concerning the
directors and executive officers of the Registrants as of
February 23, 2009.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
Michael T. Strianese
|
|
|
52
|
|
|
Chairman, President and Chief Executive Officer
|
Curtis Brunson
|
|
|
61
|
|
|
Executive Vice President Corporate Strategy and
Development
|
Jimmie V. Adams
|
|
|
72
|
|
|
Senior Vice President Washington D.C. Operations
|
David T. Butler III
|
|
|
52
|
|
|
Senior Vice President Business Operations
|
Steven M. Post
|
|
|
56
|
|
|
Senior Vice President, General Counsel and Corporate Secretary
|
Robert W. RisCassi
|
|
|
73
|
|
|
Senior Vice President
|
Ralph G. DAmbrosio
|
|
|
41
|
|
|
Vice President and Chief Financial Officer
|
James W. Dunn
|
|
|
65
|
|
|
Senior Vice President and President of Sensors and Simulation
Group
|
Steven Kantor
|
|
|
64
|
|
|
Senior Vice President and President of Marine and Power Systems
Group
|
John McNellis
|
|
|
56
|
|
|
Senior Vice President and President of Integrated Systems Group
|
Charles J. Schafer
|
|
|
61
|
|
|
Senior Vice President and President of Products Group
|
Carl E. Vuono
|
|
|
74
|
|
|
Senior Vice President and President of Services Group
|
Dan Azmon
|
|
|
45
|
|
|
Controller and Principal Accounting Officer
|
Robert B.
Millard(1)(3)
|
|
|
58
|
|
|
Director, Lead Independent Director of the Board of Directors
and Chairman of the Executive Committee
|
Claude R.
Canizares(2)
|
|
|
63
|
|
|
Director
|
Peter A.
Cohen(1)(3)
|
|
|
62
|
|
|
Director, Chairman of the Compensation Committee
|
Thomas A.
Corcoran(1)(2)
|
|
|
64
|
|
|
Director, Chairman of the Audit Committee
|
John M.
Shalikashvili(3)(4)
|
|
|
72
|
|
|
Director
|
Arthur L.
Simon(2)(4)
|
|
|
76
|
|
|
Director
|
Alan H.
Washkowitz(3)(4)
|
|
|
68
|
|
|
Director, Chairman of the Nominating/Corporate Governance
Committee
|
John P.
White(4)
|
|
|
71
|
|
|
Director
|
|
|
|
(1) |
|
Member of the Executive Committee.
|
|
(2) |
|
Member of the Audit Committee.
|
|
(3) |
|
Member of the Compensation
Committee.
|
|
(4) |
|
Member of the Nominating/Corporate
Governance Committee.
|
All executive officers serve at the discretion of the Board of
Directors.
The remaining information called for by Item 10 is
incorporated herein by reference to the definitive proxy
statement relating to the Annual Meeting of Shareholders of L-3
Holdings, to be held on April 28, 2009. L-3 Holdings will
file such definitive proxy statement with the SEC pursuant to
Regulation 14A within 120 days after the end of the
fiscal year covered by this
Form 10-K.
|
|
Item 11.
|
Executive
Compensation
|
The information called for by Item 11 is incorporated
herein by reference to the definitive proxy statement referred
to above in Item 10.
63
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information called for by Item 12 is incorporated
herein by reference to the definitive proxy statement referred
to above in Item 10.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information called for by Item 13 is incorporated
herein by reference to the definitive proxy statement referred
to above in Item 10.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
This information called for by Item 14 is incorporated
herein by reference to the definitive proxy statement referred
to above in Item 10.
64
PART IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules
|
(a)(1) Financial statements filed as part of this
report:
|
|
|
|
|
|
|
Page
|
|
|
Number
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
(a)(2) Financial Statement Schedules
Financial statement schedules are omitted since the required
information is either not applicable or is included in our
audited consolidated financial statements.
65
Exhibits
Exhibits identified in parentheses below are on file with the
SEC and are incorporated herein by reference to such previous
filings.
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description of Exhibits
|
|
|
3.1
|
|
|
Certificate of Incorporation of L-3 Communications Holdings,
Inc. (incorporated by reference to Exhibit 3.1 to the
Registrants Quarterly Report on Form 10-Q for the period
ended June 30, 2002).
|
|
3.2
|
|
|
Amended and Restated By-Laws of L-3 Communications Holdings,
Inc. (incorporated by reference to Exhibit 3.1 to the
Registrants Current Report on Form 8-K filed on December
17, 2007).
|
|
3.3
|
|
|
Certificate of Incorporation of L-3 Communications Corporation
(incorporated by reference to Exhibit 3.1 to L-3 Communications
Corporations Registration Statement on Form S-4 (File No.
333-31649)).
|
|
3.4
|
|
|
Amended and Restated Bylaws of L-3 Communications Corporation
(incorporated by reference to Exhibit 3.2 to the
Registrants Current Report on Form 8-K filed on December
17, 2007).
|
|
4.1
|
|
|
Form of Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to L-3 Communications Holdings Registration
Statement on Form S-1 (File No. 333-46975)).
|
|
4.2
|
|
|
Amended and Restated Credit Agreement, dated as of July 29,
2005, among L-3 Communications Corporation, L-3 Communications
Holdings, Inc. and certain subsidiaries of the Registrants from
time to time party thereto as guarantors, the lenders from time
to time party thereto, and Bank of America, N.A., as
administrative agent (incorporated by reference to Exhibit 10.40
to the Registrants Quarterly Report on Form 10-Q for the
quarter ended June 30, 2005).
|
|
4.3
|
|
|
Form of L-3 Communications Corporation First Amendment to
Amended and Restated Credit Agreement, dated as of October 25,
2006, among L-3 Communications Corporation, L-3 Communications
Holdings, Inc. and certain subsidiaries of the Registrants from
time to time party thereto as guarantors, the lenders from time
to time party thereto, and Bank of America, N.A., as
administrative agent (incorporated by reference to Exhibit 10.41
to the Registrants Current Report on Form 8-K dated
October 25, 2006).
|
|
4.4
|
|
|
Indenture dated as of June 28, 2002, among L-3 Communications
Corporation, the guarantors named therein and The Bank of New
York, as Trustee (incorporated by reference to Exhibit 4.1 of
L-3 Communications Corporations Registration Statement on
Form S-4 (File No. 333-99757)).
|
|
*4.5
|
|
|
Supplemental Indenture dated as of February 20, 2009 among L-3
Communications Corporation, The Bank of New York, as trustee,
and the guarantors named therein to the Indenture dated as of
June 28, 2002 among L-3 Communications Corporation, the
guarantors named therein and The Bank of New York, as trustee.
|
|
4.6
|
|
|
Indenture dated as of May 21, 2003 among L-3 Communications
Corporation, the Guarantors named therein and The Bank of New
York, as Trustee (incorporated by reference to Exhibit 4.1 to
L-3 Communications Corporations Registration Statement on
Form S-4 (File No. 333-106106)).
|
|
*4.7
|
|
|
Supplemental Indenture dated as of February 20, 2009 among L-3
Communications Corporation, The Bank of New York, as trustee,
and the guarantors named therein to the Indenture dated as of
May 21, 2003 among L-3 Communications Corporation, the
guarantors named therein and The Bank of New York, as trustee.
|
|
4.8
|
|
|
Indenture dated as of December 22, 2003 among L-3 Communications
Corporation, the Guarantors named therein and The Bank of New
York, as Trustee (incorporated by reference to Exhibit 10.33 to
the Registrants Annual Report on Form 10-K for the year
ended December 31, 2003).
|
|
*4.9
|
|
|
Supplemental Indenture dated as of February 20, 2009 among L-3
Communications Corporation, The Bank of New York, as trustee,
and the guarantors named therein to the Indenture dated as of
December 22, 2003 among L-3 Communications Corporation, the
guarantors named therein and The Bank of New York, as trustee.
|
|
4.10
|
|
|
Indenture dated as of November 12, 2004 among L-3 Communications
Corporation, the Guarantors and The Bank of New York, as Trustee
(incorporated by reference to Exhibit 4.1 to L-3 Communications
Corporations Registration Statement on Form S-4 (File No.
333-122499)).
|
|
*4.11
|
|
|
Supplemental Indenture dated as of February 20, 2009 among L-3
Communications Corporation, The Bank of New York, as trustee,
and the guarantors named therein to the Indenture dated as of
November 12, 2004 among L-3 Communications Corporation, the
guarantors named therein and The Bank of New York, as trustee.
|
|
4.12
|
|
|
Indenture dated as of July 29, 2005 (Notes Indenture) among L-3
Communications Corporation, the guarantors named therein and The
Bank of New York, as Trustee (incorporated by reference to
Exhibit 10.69 to the Registrants Quarterly Report on Form
10-Q for the quarter ended June 30, 2005).
|
66
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description of Exhibits
|
|
|
*4.13
|
|
|
Supplemental Indenture dated as of February 20, 2009 among L-3
Communications Corporation, The Bank of New York, as trustee,
and the guarantors named therein to the Notes Indenture dated as
of July 29, 2005 among L-3 Communications Corporation, the
guarantors named therein and The Bank of New York, as trustee.
|
|
4.14
|
|
|
Indenture dated as of July 29, 2005 (CODES Indenture) among L-3
Communications Holdings, Inc., the guarantors named therein and
The Bank of New York, as Trustee (incorporated by reference to
Exhibit 10.70 to the Registrants Quarterly Report on Form
10-Q for the quarter ended June 30, 2005).
|
|
*4.15
|
|
|
Supplemental Indenture dated as of February 20, 2009 among L-3
Communications Holdings, Inc., The Bank of New York, as trustee,
and the guarantors named therein to the CODES Indenture dated as
of July 29, 2005 among L-3 Communications Holdings, Inc., the
guarantors named therein and The Bank of New York, as trustee.
|
|
10.1
|
|
|
L-3 Communications Holdings, Inc. 1997 Option Plan for Key
Employees (incorporated by reference to Exhibit 10.91 to L-3
Communications Holdings, Inc.s Registration Statement on
Form S-1, No. 333-46975).
|
|
10.2
|
|
|
Form of L-3 Communications Holdings, Inc. 1997 Option Plan for
Key Employees Nonqualified Stock Option Agreement (incorporated
by reference to Exhibit 10.9 to L-3 Communications Holdings,
Inc.s Registration Statement on Form S-1 No. 333-46975).
|
|
10.3
|
|
|
L-3 Communications Holdings, Inc. Amended and Restated
1998 Directors Stock Option Plan for Non-Employee Directors
(incorporated by reference to Exhibit 10.16 to the
Registrants Annual Report on Form 10-K for the year ended
December 31, 2006).
|
|
10.4
|
|
|
Form of L-3 Communications Holdings, Inc. 1998 Directors
Stock Option Plan Nonqualified Stock Option Agreement
(incorporated by reference to Exhibit 10.96 of the
Registrants Annual Report on Form 10-K for the year ended
December 31, 2004).
|
|
10.5
|
|
|
Form of L-3 Communications Holdings, Inc. 1998 Directors
Stock Option Plan Nonqualified Stock Option Agreement (2007
Version) (incorporated by reference to Exhibit 10.3 of the
Registrants Annual Report on Form 10-K for the year ended
December 31, 2008).
|
|
10.6
|
|
|
L-3 Communications Holdings, Inc. Amended and Restated 1999 Long
Term Performance Plan (Conformed copy reflecting all amendments
through February 11, 2008) (incorporated by reference to Exhibit
10.4 of the Registrants Annual Report on Form 10-K for the
year ended December 31, 2008).
|
|
10.7
|
|
|
Form of L-3 Communications Holdings, Inc. 1999 Long Term
Performance Plan Nonqualified Stock Option Agreement
(incorporated by reference to Exhibit 10.97 of the
Registrants Quarterly Report on Form 10-Q for the period
ended September 30, 2004).
|
|
10.8
|
|
|
Form of L-3 Communications Holdings, Inc. 1999 Long Term
Performance Plan Nonqualified Stock Option Agreement (2006
Version) (incorporated by reference to Exhibit 10.64 to the
Registrants Annual Report on Form 10-K for the year ended
December 31, 2006).
|
|
10.9
|
|
|
Form of L-3 Communication Holdings, Inc. 1999 Long Term
Performance Plan Restricted Stock Agreement (incorporated by
reference to Exhibit 10.99 of the Registrants Annual
Report on Form 10-K for the year ended December 31, 2005).
|
|
10.10
|
|
|
Form of L-3 Communications Holdings, Inc. 1999 Long Term
Performance Plan Restricted Stock Unit Agreement (2006 Version)
(incorporated by reference to Exhibit 10.63 to the
Registrants Annual Report on Form 10-K for the year ended
December 31, 2006).
|
|
10.11
|
|
|
L-3 Communications Holdings, Inc. 1999 Long Term Performance
Plan Amendment No. 1 to Restricted Stock Unit Agreements
(incorporated by reference to Exhibit 10.6 of the
Registrants Quarterly Report on Form 10-Q for the period
ended June 27, 2008).
|
|
10.12
|
|
|
Form of L-3 Communications Holdings, Inc. 1999 Long Term
Performance Plan Performance Unit Agreement (incorporated by
reference to Exhibit 99.1 to the Registrants Current
Report on Form 8-K filed on August 7, 2007).
|
|
10.13
|
|
|
Form of L-3 Communications Holdings, Inc. 1999 Long Term
Performance Plan Performance Unit Agreement Award Notice
(incorporated by reference to Exhibit 99.2 to the
Registrants Current Report on Form 8-K filed on August 7,
2007).
|
|
*10.14
|
|
|
L-3 Communications Holdings, Inc. 2008 Long Term Performance
Plan.
|
|
10.15
|
|
|
Form of L-3 Communications Holdings, Inc. 2008 Long Term
Performance Plan Nonqualified Stock Option Agreement
(incorporated by reference to Exhibit 10.2 of the
Registrants Quarterly Report on Form 10-Q for the period
ended June 27, 2008).
|
67
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description of Exhibits
|
|
|
10.16
|
|
|
Form of L-3 Communications Holdings, Inc. 2008 Long Term
Performance Plan Restricted Stock Unit Agreement (incorporated
by reference to Exhibit 10.3 of the Registrants Quarterly
Report on Form 10-Q for the period ended June 27, 2008).
|
|
*10.17
|
|
|
Form of L-3 Communications Holdings, Inc. 2008 Long Term
Performance Plan Restricted Stock Unit Agreement (2009 Version).
|
|
10.18
|
|
|
Form of L-3 Communications Holdings, Inc. 2008 Long Term
Performance Plan Performance Unit Agreement (incorporated by
reference to Exhibit 10.4 of the Registrants Quarterly
Report on Form 10-Q for the period ended June 27, 2008).
|
|
10.19
|
|
|
Form of L-3 Communications Holdings, Inc. 2008 Long Term
Performance Plan Performance Unit Award Notice (2008 Version)
(incorporated by reference to Exhibit 10.5 of the
Registrants Quarterly Report on Form 10-Q for the period
ended June 27, 2008).
|
|
*10.20
|
|
|
L-3 Communications Holdings, Inc. 2008 Directors Stock
Incentive Plan.
|
|
*10.21
|
|
|
L-3 Communications Holdings, Inc. Amended and Restated Change in
Control Severance Plan.
|
|
*10.22
|
|
|
L-3 Communications Corporation Amended and Restated Supplemental
Executive Retirement Plan.
|
|
10.23
|
|
|
L-3 Communications Corporation Deferred Compensation Plan I
(incorporated by reference to Exhibit 10.15 of the
Registrants Annual Report on Form 10-K for the year ended
December 31, 2008).
|
|
10.24
|
|
|
Amendment No. 1 to the L-3 Communications Corporation Deferred
Compensation Plan I (incorporated by reference to Exhibit 10.16
of the Registrants Annual Report on Form 10-K for the year
ended December 31, 2008).
|
|
*10.25
|
|
|
L-3 Communications Corporation Deferred Compensation Plan II.
|
|
*10.26
|
|
|
MPRI Long Term Deferred Incentive Plan.
|
|
**11
|
|
|
L-3 Communications Holdings, Inc. Computation of Basic Earnings
Per Share and Diluted Earnings Per Share.
|
|
*12
|
|
|
Ratio of Earnings to Fixed Charges.
|
|
*18
|
|
|
Preferability Letter of PricewaterhouseCoopers LLP.
|
|
*21
|
|
|
Subsidiaries of the Registrant.
|
|
*23
|
|
|
Consent of PricewaterhouseCoopers LLP.
|
|
*31.1
|
|
|
Certification of President and Chief Executive Officer pursuant
to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange
Act, as amended.
|
|
*31.2
|
|
|
Certification of Vice President and Chief Financial Officer
pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities
and Exchange Act, as amended.
|
|
*32
|
|
|
Section 1350 Certification.
|
|
|
|
*
|
|
Filed herewith.
|
|
**
|
|
The information required in this
exhibit is presented in Note 15 to the audited consolidated
financial statements as of December 31, 2008 in accordance
with the provisions of SFAS No. 128, Earnings Per
Share.
|
|
|
|
Represents management contract,
compensatory plan or arrangement in which directors and/or
executive officers are eligible to participate.
|
68
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrants have duly
caused this report to be signed on their behalf by the
undersigned, thereunto duly authorized, on February 26, 2009.
L-3 COMMUNICATIONS HOLDINGS, INC.
L-3 COMMUNICATIONS CORPORATION
|
|
|
|
By:
|
/s/ Ralph
G. DAmbrosio
|
|
|
|
|
Title:
|
Vice President and Chief Financial
Officer
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrants in the capacities indicated
on February 26, 2009.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ Michael
T. Strianese
Michael
T. Strianese
|
|
Chairman, President and Chief Executive Officer
(Principal Executive Officer) and Director
|
|
|
|
/s/ Ralph
G. DAmbrosio
Ralph
G. DAmbrosio
|
|
Vice President and Chief Financial Officer
(Principal Financial Officer)
|
|
|
|
/s/ Dan
Azmon
Dan
Azmon
|
|
Controller and Principal Accounting Officer
|
|
|
|
/s/ Robert
B. Millard
Robert
B. Millard
|
|
Director
|
|
|
|
/s/ Claude
R. Canizares
Claude
R. Canizares
|
|
Director
|
|
|
|
/s/ Peter
A. Cohen
Peter
A. Cohen
|
|
Director
|
|
|
|
/s/ Thomas
A. Corcoran
Thomas
A. Corcoran
|
|
Director
|
|
|
|
/s/ John
M. Shalikashvili
John
M. Shalikashvili
|
|
Director
|
|
|
|
/s/ Arthur
L. Simon
Arthur
L. Simon
|
|
Director
|
|
|
|
/s/ Alan
H. Washkowitz
Alan
H. Washkowitz
|
|
Director
|
|
|
|
/s/ John
P. White
John
P. White
|
|
Director
|
69
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements as of December 31, 2008
and 2007 and for the years ended December 31, 2008, 2007
and 2006.
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
|
|
|
|
|
Consolidated Balance Sheets as of December 31, 2008 and
December 31, 2007
|
|
|
F-3
|
|
|
|
|
|
|
Consolidated Statements of Operations for the years ended
December 31, 2008, 2007 and 2006
|
|
|
F-4
|
|
|
|
|
|
|
Consolidated Statements of Shareholders Equity for the
years ended December 31, 2008, 2007 and 2006
|
|
|
F-5
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows for the years ended
December 31, 2008, 2007 and 2006
|
|
|
F-6
|
|
|
|
|
|
|
Notes to Consolidated Financial Statements
|
|
|
F-7
|
|
F-1
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of L-3 Communications
Holdings, Inc. and L-3 Communications Corporation:
In our opinion, the accompanying consolidated financial
statements listed in the index appearing under
Item 15(a)(1) present fairly, in all material respects, the
financial position of L-3 Communications Holdings, Inc. and L-3
Communications Corporation and its subsidiaries (collectively,
the Company) at December 31, 2008 and 2007, and
the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2008 in
conformity with accounting principles generally accepted in the
United States of America. Also in our opinion, the Company
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2008, based on
criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these financial
statements, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in
Managements Report on Internal Control Over Financial
Reporting appearing under Item 9A. Our responsibility is to
express opinions on these financial statements and on the
Companys internal control over financial reporting based
on our integrated audits. We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and
whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. Our audits of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
As indicated in Note 19 to the consolidated financial
statements, in 2006 the Company adopted the recognition and
disclosure provisions of Statement of Financial Accounting
Standards No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans - an
amendment of FASB Statements No. 87, 88, 106, and 132(R)
(SFAS 158) and in 2007 the Company changed
the measurement date of its pension and postretirement benefits
plans in accordance with the provisions of SFAS 158. As
indicated in Note 2 to the consolidated financial
statements, in 2008 the Company changed its annual goodwill
impairment measurement date.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
February 26, 2009
F-2
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
867
|
|
|
$
|
780
|
|
Billed receivables, net of allowances of $26 in 2008 and $21 in
2007
|
|
|
1,226
|
|
|
|
1,279
|
|
Contracts in process
|
|
|
2,267
|
|
|
|
2,099
|
|
Inventories
|
|
|
259
|
|
|
|
249
|
|
Deferred income taxes
|
|
|
211
|
|
|
|
246
|
|
Other current assets
|
|
|
131
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
4,961
|
|
|
|
4,763
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
821
|
|
|
|
754
|
|
Goodwill
|
|
|
8,029
|
|
|
|
8,165
|
|
Identifiable intangible assets
|
|
|
417
|
|
|
|
441
|
|
Deferred debt issue costs
|
|
|
45
|
|
|
|
56
|
|
Other assets
|
|
|
212
|
|
|
|
212
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
14,485
|
|
|
$
|
14,391
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable, trade
|
|
$
|
602
|
|
|
$
|
571
|
|
Accrued employment costs
|
|
|
700
|
|
|
|
633
|
|
Accrued expenses
|
|
|
479
|
|
|
|
369
|
|
Advance payments and billings in excess of costs incurred
|
|
|
530
|
|
|
|
463
|
|
Income taxes
|
|
|
45
|
|
|
|
63
|
|
Other current liabilities
|
|
|
351
|
|
|
|
483
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,707
|
|
|
|
2,582
|
|
|
|
|
|
|
|
|
|
|
Pension and postretirement benefits
|
|
|
802
|
|
|
|
450
|
|
Deferred income taxes
|
|
|
110
|
|
|
|
245
|
|
Other liabilities
|
|
|
414
|
|
|
|
501
|
|
Long-term debt
|
|
|
4,538
|
|
|
|
4,537
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
8,571
|
|
|
|
8,315
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (see Note 18)
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
83
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
L-3 Holdings common stock: $.01 par value;
300,000,000 shares authorized, 118,633,746 shares
outstanding at December 31, 2008 and
124,174,825 shares outstanding at December 31, 2007
(L-3 Communications common stock: $.01 par value,
100 shares authorized, issued and outstanding)
|
|
|
4,072
|
|
|
|
3,753
|
|
L-3 Holdings treasury stock (at cost),
13,995,450 shares at December 31, 2008 and
5,533,159 shares at December 31, 2007
|
|
|
(1,319
|
)
|
|
|
(525
|
)
|
Retained earnings
|
|
|
3,410
|
|
|
|
2,608
|
|
Accumulated other comprehensive (loss) income
|
|
|
(332
|
)
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
5,831
|
|
|
|
5,989
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
14,485
|
|
|
$
|
14,391
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
7,130
|
|
|
$
|
6,572
|
|
|
$
|
5,933
|
|
Services
|
|
|
7,771
|
|
|
|
7,389
|
|
|
|
6,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
|
14,901
|
|
|
|
13,961
|
|
|
|
12,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Products (excludes stock-based charge of $24 in 2006)
|
|
|
6,380
|
|
|
|
5,844
|
|
|
|
5,272
|
|
Services (excludes stock-based charge of $15 in 2006)
|
|
|
6,962
|
|
|
|
6,669
|
|
|
|
5,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
|
13,342
|
|
|
|
12,513
|
|
|
|
11,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Litigation gain (charge)
|
|
|
126
|
|
|
|
|
|
|
|
(129
|
)
|
Stock-based charge
|
|
|
|
|
|
|
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,685
|
|
|
|
1,448
|
|
|
|
1,111
|
|
Interest and other income, net
|
|
|
28
|
|
|
|
31
|
|
|
|
20
|
|
Interest expense
|
|
|
271
|
|
|
|
296
|
|
|
|
296
|
|
Minority interests in net income of consolidated subsidiaries
|
|
|
11
|
|
|
|
9
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
1,431
|
|
|
|
1,174
|
|
|
|
825
|
|
Provision for income taxes
|
|
|
502
|
|
|
|
418
|
|
|
|
299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
929
|
|
|
|
756
|
|
|
|
526
|
|
Gain on sale of a business, net of income taxes of
$13 million
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
949
|
|
|
$
|
756
|
|
|
$
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L-3 Holdings earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
7.66
|
|
|
$
|
6.05
|
|
|
$
|
4.27
|
|
Gain on sale of a business, net of income taxes
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
7.83
|
|
|
$
|
6.05
|
|
|
$
|
4.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
7.56
|
|
|
$
|
5.98
|
|
|
$
|
4.22
|
|
Gain on sale of a business, net of income taxes
|
|
$
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
7.72
|
|
|
$
|
5.98
|
|
|
$
|
4.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L-3 Holdings weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
121.2
|
|
|
|
124.9
|
|
|
|
123.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
122.9
|
|
|
|
126.5
|
|
|
|
124.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-4
For the
Years Ended December 31, 2008, 2007 and 2006
(in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L-3 Holdings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Shares
|
|
|
Par
|
|
|
Paid-in
|
|
|
Treasury
|
|
|
Retained
|
|
|
Unearned
|
|
|
Comprehensive
|
|
|
Shareholders
|
|
|
|
Issued
|
|
|
Value
|
|
|
Capital
|
|
|
Stock
|
|
|
Earnings
|
|
|
Compensation
|
|
|
(Loss) Income
|
|
|
Equity
|
|
|
Balance at December 31, 2005
|
|
|
120.4
|
|
|
$
|
1
|
|
|
$
|
3,040
|
|
|
$
|
|
|
|
$
|
1,545
|
|
|
$
|
(18
|
)
|
|
$
|
(77
|
)
|
|
$
|
4,491
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
526
|
|
|
|
|
|
|
|
|
|
|
|
526
|
|
Minimum pension liability, net of income taxes of $14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
21
|
|
Foreign currency translation adjustment, net of income taxes of
$1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123
|
|
|
|
123
|
|
Unrealized losses on hedging instruments, net of income taxes of
$4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
663
|
|
Adjustment to adopt SFAS 158, net of income taxes of $70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(109
|
)
|
|
|
(109
|
)
|
Cash dividends paid on common stock ($0.75 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(93
|
)
|
|
|
|
|
|
|
|
|
|
|
(93
|
)
|
Shares issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee savings plans
|
|
|
1.4
|
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111
|
|
Exercise of stock options
|
|
|
3.0
|
|
|
|
|
|
|
|
132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132
|
|
Employee stock purchase plan
|
|
|
0.9
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
|
|
Treasury stock purchased
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
Reclassification to adopt SFAS 123(R)
|
|
|
|
|
|
|
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
125.2
|
|
|
|
1
|
|
|
|
3,401
|
|
|
|
(25
|
)
|
|
|
1,978
|
|
|
|
|
|
|
|
(49
|
)
|
|
|
5,306
|
|
Adoption of SFAS 158 measurement date provision
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
39
|
|
|
|
35
|
|
Cumulative effect adjustment of FIN 48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
756
|
|
|
|
|
|
|
|
|
|
|
|
756
|
|
Pension and postretirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain arising during the period, net of income taxes of $10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
18
|
|
Net prior service cost arising during the period, net of income
taxes of $1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Amortization of net loss, net of income taxes of $5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
9
|
|
Amortization of prior service cost (credit), net of income taxes
of $1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135
|
|
|
|
135
|
|
Unrealized gains on hedging instruments, net of income taxes of
$3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
919
|
|
Cash dividends paid on common stock ($1.00 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(126
|
)
|
|
|
|
|
|
|
|
|
|
|
(126
|
)
|
Shares issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee savings plans
|
|
|
1.3
|
|
|
|
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125
|
|
Exercise of stock options
|
|
|
1.6
|
|
|
|
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112
|
|
Employee stock purchase plan
|
|
|
0.8
|
|
|
|
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
Treasury stock purchased
|
|
|
(5.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(500
|
)
|
Other
|
|
|
0.5
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
124.2
|
|
|
|
1
|
|
|
|
3,752
|
|
|
|
(525
|
)
|
|
|
2,608
|
|
|
|
|
|
|
|
153
|
|
|
|
5,989
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
949
|
|
|
|
|
|
|
|
|
|
|
|
949
|
|
Pension and postretirement benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss arising during the period, net of income taxes of $174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(271
|
)
|
|
|
(271
|
)
|
Net prior service cost arising during the period, net of income
taxes of $1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Amortization of net loss, net of income taxes of $2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(222
|
)
|
|
|
(222
|
)
|
Unrealized gains on hedging instruments, net of income taxes of
$4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
464
|
|
Cash dividends paid on common stock ($1.20 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(147
|
)
|
|
|
|
|
|
|
|
|
|
|
(147
|
)
|
Shares issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee savings plans
|
|
|
1.5
|
|
|
|
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141
|
|
Exercise of stock options
|
|
|
0.7
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
Employee stock purchase plan
|
|
|
0.8
|
|
|
|
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
|
|
Treasury stock purchased
|
|
|
(8.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(794
|
)
|
Other
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
118.6
|
|
|
$
|
1
|
|
|
$
|
4,071
|
|
|
$
|
(1,319
|
)
|
|
$
|
3,410
|
|
|
$
|
|
|
|
$
|
(332
|
)
|
|
$
|
5,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-5
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
949
|
|
|
$
|
756
|
|
|
$
|
526
|
|
Depreciation of property, plant and equipment
|
|
|
152
|
|
|
|
150
|
|
|
|
136
|
|
Amortization of intangibles and other assets
|
|
|
54
|
|
|
|
57
|
|
|
|
53
|
|
Deferred income tax provision
|
|
|
161
|
|
|
|
113
|
|
|
|
128
|
|
Stock-based compensation expense
|
|
|
64
|
|
|
|
53
|
|
|
|
47
|
|
Contributions to employee savings plans in L-3 Holdings
common stock
|
|
|
141
|
|
|
|
125
|
|
|
|
111
|
|
Non-cash portion of stock-based charge
|
|
|
|
|
|
|
|
|
|
|
31
|
|
Amortization of deferred debt issue costs (included in interest
expense)
|
|
|
11
|
|
|
|
10
|
|
|
|
10
|
|
Gain on sale of a business
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
Impairment charge
|
|
|
28
|
|
|
|
|
|
|
|
|
|
Gain on sale of a product line
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
Other non-cash items
|
|
|
12
|
|
|
|
19
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
1,540
|
|
|
|
1,283
|
|
|
|
1,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities, excluding acquired
amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Billed receivables
|
|
|
49
|
|
|
|
(51
|
)
|
|
|
(34
|
)
|
Contracts in process
|
|
|
(162
|
)
|
|
|
(188
|
)
|
|
|
(133
|
)
|
Inventories
|
|
|
(25
|
)
|
|
|
4
|
|
|
|
8
|
|
Accounts payable, trade
|
|
|
31
|
|
|
|
90
|
|
|
|
(8
|
)
|
Accrued employment costs
|
|
|
66
|
|
|
|
51
|
|
|
|
75
|
|
Accrued expenses
|
|
|
81
|
|
|
|
65
|
|
|
|
11
|
|
Advance payments and billings in excess of costs incurred
|
|
|
101
|
|
|
|
(2
|
)
|
|
|
44
|
|
Income taxes
|
|
|
(2
|
)
|
|
|
116
|
|
|
|
106
|
|
Excess income tax benefits related to share-based payment
arrangements
|
|
|
(10
|
)
|
|
|
(17
|
)
|
|
|
(63
|
)
|
Other current liabilities
|
|
|
(128
|
)
|
|
|
(9
|
)
|
|
|
89
|
|
Pension and postretirement benefits
|
|
|
(81
|
)
|
|
|
(10
|
)
|
|
|
(68
|
)
|
All other operating activities
|
|
|
(73
|
)
|
|
|
(62
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
(153
|
)
|
|
|
(13
|
)
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
|
1,387
|
|
|
|
1,270
|
|
|
|
1,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Business acquisitions, net of cash acquired
|
|
|
(283
|
)
|
|
|
(235
|
)
|
|
|
(943
|
)
|
Proceeds from sale of a business and product lines
|
|
|
63
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(218
|
)
|
|
|
(157
|
)
|
|
|
(156
|
)
|
Dispositions of property, plant and equipment
|
|
|
15
|
|
|
|
8
|
|
|
|
2
|
|
Other investing activities
|
|
|
(9
|
)
|
|
|
(4
|
)
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(432
|
)
|
|
|
(388
|
)
|
|
|
(1,091
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving credit facility
|
|
|
|
|
|
|
|
|
|
|
864
|
|
Repayment of borrowings under revolving credit facility
|
|
|
|
|
|
|
|
|
|
|
(864
|
)
|
Repayment of borrowings under term loan facility
|
|
|
|
|
|
|
|
|
|
|
(100
|
)
|
Common stock repurchased
|
|
|
(794
|
)
|
|
|
(500
|
)
|
|
|
(25
|
)
|
Cash dividends paid on L-3 Holdings common stock
|
|
|
(147
|
)
|
|
|
(126
|
)
|
|
|
(93
|
)
|
Proceeds from exercise of stock options
|
|
|
40
|
|
|
|
89
|
|
|
|
74
|
|
Proceeds from employee stock purchase plan
|
|
|
69
|
|
|
|
65
|
|
|
|
60
|
|
Excess income tax benefits related to share-based payment
arrangements
|
|
|
10
|
|
|
|
17
|
|
|
|
63
|
|
Other financing activities
|
|
|
(18
|
)
|
|
|
(9
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(840
|
)
|
|
|
(464
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange rate changes on cash and
cash equivalents
|
|
|
(28
|
)
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
87
|
|
|
|
432
|
|
|
|
(46
|
)
|
Cash and cash equivalents, beginning of the year
|
|
|
780
|
|
|
|
348
|
|
|
|
394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the year
|
|
$
|
867
|
|
|
$
|
780
|
|
|
$
|
348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-6
|
|
1.
|
Description
of Business
|
L-3 Communications Holdings, Inc. derives all of its operating
income and cash flows 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, referred to herein as L-3 or the Company) is a
prime system contractor in aircraft modernization and
maintenance, Command, Control, Communications, Intelligence,
Surveillance and Reconnaissance
(C3ISR)
systems, and government services. L-3 is also a leading provider
of high technology products, subsystems and systems. The
Companys customers include the U.S. Department of
Defense (DoD) and its prime contractors, U.S. Government
intelligence agencies, the U.S. Department of Homeland
Security (DHS), U.S. Department of State (DoS),
U.S. Department of Justice (DoJ), allied foreign
governments, domestic and international commercial customers and
select other U.S. federal, state and local government
agencies.
The Company has the following four reportable segments,
comprised of:
(1) C3ISR,
(2) Government Services, (3) Aircraft Modernization
and Maintenance (AM&M) and (4) Specialized Products.
Financial information relating to the Companys reportable
segments is included in Note 21.
C3ISR
provides products and services for the global ISR market,
networked communications systems and secure communications
products. The Company believes that these products and services
are critical elements for a substantial number of major command,
control, communication, intelligence gathering and space
systems. These products and services 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. Government Services provides training and operational
support services, enterprise information technology solutions,
intelligence solutions and support, command & control
systems and software services and global security &
engineering solutions services. AM&M provides
modernization, upgrades and sustainment, maintenance and
logistics support services for military and various government
aircraft and other platforms. Specialized Products provides a
broad range of products and related services across several
business areas that include power & control systems,
electro-optic/infrared (EO/IR), microwave, avionics &
displays, simulation & training, precision engagement,
security & detection systems, propulsion systems,
telemetry & advanced technology, undersea warfare and
marine services.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Basis of Presentation: The accompanying
financial statements comprise the consolidated financial
statements of L-3 Holdings and L-3 Communications. L-3
Holdings only asset is its investment in the common stock
of L-3 Communications, its wholly-owned subsidiary, and its only
obligations are (1) the 3% Convertible Contingent Debt
Securities (CODES) due 2035, which were issued by L-3 Holdings
on July 29, 2005, (2) its guarantee of borrowings
under the senior credit facility of L-3 Communications and
(3) its guarantee of other contractual obligations of L-3
Communications and its subsidiaries. L-3 Holdings
obligations relating to the CODES have been jointly, severally,
fully and unconditionally guaranteed by L-3 Communications and
certain of its wholly-owned domestic subsidiaries. Accordingly,
such debt has been reflected as debt of L-3 Communications in
its consolidated financial statements in accordance with the
U.S. Securities and Exchange Commissions (SEC) Staff
Accounting Bulletin (SAB) No. 54. All issuances of and
conversions into L-3 Holdings equity securities, including
grants of stock options, restricted stock, restricted stock
units and performance units by L-3 Holdings to employees and
directors of L-3 Communications and its subsidiaries, have been
reflected in the consolidated financial statements of L-3
Communications. As a result, the consolidated financial
positions, results of operations and cash flows of L-3 Holdings
and L-3 Communications are substantially the same. See
Note 23 for additional information regarding the audited
financial information of L-3 Communications and its subsidiaries.
F-7
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of sales and
costs of sales during the reporting period. The most significant
of these estimates and assumptions relate to contract revenue,
profit and loss recognition, fair values of assets acquired and
liabilities assumed in business combinations, market values for
inventories reported at lower of cost or market, pension and
post-retirement benefit obligations, stock-based employee
compensation expense, income taxes, including the valuations of
deferred tax assets, litigation reserves and environmental
obligations, accrued product warranty costs, and the
recoverability, useful lives and valuation of recorded amounts
of long-lived assets, identifiable intangible assets and
goodwill. Changes in estimates are reflected in the periods
during which they become known. Actual amounts will differ from
these estimates and could differ materially.
Certain reclassifications have been made to conform prior-year
amounts to the current-year presentation.
Principles of Consolidation: The consolidated
financial statements of the Company include all wholly-owned and
majority-owned subsidiaries. All significant intercompany
transactions are eliminated in consolidation. Investments in
equity securities, joint ventures and limited liability
corporations over which the Company has significant influence
but does not have voting control are accounted for using the
equity method. Investments over which the Company does not have
significant influence are accounted for using the cost method.
Cash and Cash Equivalents: Cash equivalents
consist of highly liquid investments with an original maturity
of three months or less at time of purchase.
Contracts in Process: Contracts in process
include unbilled receivables and inventories for contracts that
are within the scope of the American Institute of Certified
Public Accountants (AICPA) Statement of Position
81-1,
Accounting for Performance of Construction-Type and Certain
Production-Type Contracts
(SOP 81-1),
Accounting Research Bulletin No. 43, Chapter 11,
Section A, Government Contracts, Cost-Plus-Fixed Fee
Contracts (ARB 43) and Accounting Research
Bulletin No. 45, Long-Term Construction Type
Contracts (ARB 45). Unbilled Contract Receivables represent
accumulated incurred costs and earned profits or losses on
contracts in process that have been recorded as sales, primarily
using the cost-to-cost method, which have not yet been billed to
customers. Inventoried Contract Costs represent incurred costs
on contracts in process that have not yet been recognized as
costs and expenses because the related sales, which are
primarily recorded using the units-of-delivery method, have not
been recognized. Contract costs include direct costs and
indirect costs, including overhead costs. As discussed in
Note 5, the Companys inventoried contract costs for
U.S. Government contracts, and contracts with prime
contractors or subcontractors of the U.S. Government
include allocated general and administrative costs (G&A),
independent research and development (IRAD) costs and bid and
proposal (B&P) costs. Contracts in Process contain amounts
relating to contracts and programs with long performance cycles,
a portion of which may not be realized within one year. For
contracts in a loss position, the unrecoverable costs expected
to be incurred in future periods are recorded in Estimated Costs
in Excess of Estimated Contract Value to Complete Contracts in
Process in a Loss Position, which is a component of Other
Current Liabilities. Under the terms of certain revenue
arrangements (contracts) with the U.S. Government, the
Company may receive progress payments as it incurs costs, or
milestone payments as it performs work. The U.S. Government
has a security interest in the Unbilled Contract Receivables and
Inventoried Contract Costs to which progress payments have been
applied, and such progress payments are reflected as a reduction
of the related amounts. Milestone payments that have been
received in excess of contract costs and estimated profits on
revenue arrangements are reported on the Companys balance
sheet as Advance Payments and Billings in Excess of Costs
Incurred.
F-8
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company values its acquired contracts in process in
connection with business acquisitions on the date of acquisition
at contract value less the Companys estimated costs to
complete the contract and a reasonable profit allowance on the
Companys completion effort commensurate with the profit
margin that the Company earns on similar contracts.
Inventory: Inventories other than Inventoried
Contract Costs are stated at cost (first-in, first-out or
average cost), but not in excess of realizable value. A
provision for excess or inactive inventory is recorded based
upon an analysis that considers current inventory levels,
historical usage patterns and future sales expectations.
Property, Plant and Equipment: Property,
plant and equipment are stated at cost, less accumulated
depreciation. Depreciation is computed by applying principally
the straight-line method to the estimated useful lives of the
related assets. Useful lives range substantially from 10 to
40 years for buildings and improvements and 3 to
10 years for machinery, equipment, furniture and fixtures.
Leasehold improvements are amortized over the shorter of the
lease term or the estimated useful life of the improvements.
When property or equipment is retired or otherwise disposed of,
the net book value of the asset is removed from the
Companys balance sheet and the net gain or loss is
included in the determination of operating income. Property,
plant and equipment acquired as part of a business acquisition
is valued at current replacement cost, unless the expected
future use indicates a lower value.
Goodwill: The Company accounts for goodwill
in accordance with Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and other Intangible
Assets. The carrying value of goodwill and indefinite lived
identifiable intangible assets are not amortized, but are tested
for impairment based on their estimated fair values using a
discounted cash flows valuation annually as well as whenever
events or changes in circumstances indicate that the carrying
amount of these assets may not be recoverable.
Pursuant to the Companys adoption of SFAS 142 on
January 1, 2002, the Company selected an annual goodwill
impairment measurement date of January 1; and the Company has
determined that goodwill was not impaired as of January 1,
2008. In the fourth quarter of 2008, the Company changed its
annual impairment measurement date to November 30. The change
was made to better align the impairment test date with:
(1) the Companys fiscal year-end, (2) the most
recent financial information such that the results would better
reflect the fiscal year being reported on, (3) the U.S.
Federal Governments fiscal year-end of September 30,
and the related annual budgeting process, which has a
significant impact on the Companys business, and
(4) the Companys business planning and forecasting
process. This change to the date of the Companys annual
goodwill impairment test constitutes a change in the method of
applying an accounting principle, as discussed in
paragraph 4 of SFAS No. 154 (as amended),
Accounting Changes and Error Corrections
(SFAS 154). The Company believes that this change in
accounting principle is preferable.
SFAS 154 requires the Company to report a change in
accounting principle through retrospective application of the
new accounting principle to all periods, unless it is
impractical to do so. However, the change to the impairment
measurement date had no impact on L-3s prior period
financial statements. Furthermore, there were no impairment
charges that resulted from the November 30, 2008 impairment
test, and no event indicating an impairment has occurred
subsequent to November 30, 2008.
Identifiable Intangible Assets: Identifiable
intangible assets represent assets acquired as part of the
Companys business acquisitions and include customer
contractual relationships, technology and favorable leasehold
interests. The initial measurement of these intangible assets is
based on their fair values. The values assigned to acquired
identifiable intangible assets are determined, as of the date of
acquisition, based on estimates and judgments regarding
expectations for the estimated future after-tax earnings and
cash flows (including cash flows from working capital) from
these assets over their estimated lives, including the
probability of expected future contract renewals and sales, less
a cost-of-capital charge, all of which is
F-9
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
discounted to present value. Identifiable intangible assets are
amortized over their estimated useful lives as the economic
benefits are consumed, ranging from 4 to 30 years.
Revenue Recognition: The majority of the
Companys contracts are generally fixed price,
cost-reimbursable or
time-and-material
type contracts. Depending on the type of contract, sales and
profits are recognized based on: (1) a
percentage-of-completion (POC) method of accounting,
(2) allowable costs incurred plus the estimated profit on
those costs (cost-reimbursable), or (3) direct labor hours
expended multiplied by the contractual fixed rate per hour plus
incurred costs for material
(time-and-material).
Sales and profits on fixed-price type contracts that are covered
by
SOP 81-1,
ARB 43 and ARB 45 are substantially recognized using POC
methods of accounting. Sales and profits on fixed-price
production contracts under which units are produced and
delivered in a continuous or sequential process are recorded as
units are delivered based on their contractual selling prices
(the units-of-delivery method). Sales and profits on
each fixed-price production contract under which units are not
produced and delivered in a continuous or sequential process, or
under which a relatively few number of units are produced, are
recorded based on the ratio of actual cumulative costs incurred
to the total estimated costs at completion of contract
multiplied by the total estimated contract revenue, less
cumulative sales recognized in prior periods (the
cost-to-cost method). Under both POC methods of
accounting, a single estimated total profit margin is used to
recognize profit for each contract over its entire period of
performance, which can exceed one year. Losses on contracts are
recognized in the period in which they are determined. The
impact of revisions of contract estimates, which may result from
contract modifications, performance or other reasons, are
recognized on a cumulative
catch-up
basis in the period in which the revisions are made.
Sales and profits on cost-reimbursable type contracts that are
within the scope of ARB 43, in addition to
SOP 81-1,
are recognized as allowable costs are incurred on the contract,
at an amount equal to the allowable costs plus the estimated
profit on those costs. The estimated profit on a
cost-reimbursable type contract is fixed or variable based on
the contractual fee arrangement. Incentive and award fees are
the primary variable fee contractual arrangements. Incentive and
award fees on cost-reimbursable type contracts are included as
an element of total estimated contract revenues and are recorded
to sales in accordance with
SOP 81-1
when a basis exists for the reasonable prediction of performance
in relation to established contractual targets and the Company
is able to make reasonably dependable estimates for them.
Sales and profits on time and material type contracts are
recognized on the basis of direct labor hours expended
multiplied by the contractual fixed rate per hour, plus the
actual costs of materials and other direct non-labor costs.
Sales on arrangements for (1) fixed-price type contracts
that require us to perform services that are not related to
production of tangible assets (Fixed-Price Service Contracts)
and (2) certain commercial customers are recognized in
accordance with SAB 104, Revenue Recognition
(SAB 104). Sales for the Companys businesses
whose customers are primarily commercial business enterprises
are substantially all generated from single element revenue
arrangements. Sales are recognized when there is persuasive
evidence of an arrangement, delivery has occurred or services
have been performed, the selling price to the buyer is fixed or
determinable and collectibility is reasonably assured. Sales for
Fixed-Price Service Contracts that do not contain measurable
units of work performed are generally recognized on
straight-line basis over the contractual service period, unless
evidence suggests that the revenue is earned, or obligations
fulfilled, in a different manner. Sales for Fixed-Price Service
Contracts that contain measurable units of work performed are
generally recognized when the units of work are completed. Sales
and profit on cost-reimbursable and time and material type
contracts within the scope of SAB 104 are recognized in the
same manner as those within the scope of ARB 43 and
SOP 81-1,
except for incentive and award fees. Cost-based incentive fees
are recognized when they are realizable in the amount that would
be due under the contractual termination provisions as if the
F-10
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
contract was terminated. Performance based incentive fees and
award fees are recorded as sales when awarded by the customer.
Sales and profit in connection with contracts to provide
services to the U.S. Government within the scope of
SAB 104 that may be at risk of collection because the
contracts are incrementally funded and subject to the
availability of funds appropriated are deferred until the
contract modification is obtained, indicating that adequate
funds are available to the contract or task order.
Research and Development: IRAD costs
sponsored by the Company include B&P costs, and relate to
both U.S. Government products and services and those for
commercial and international customers. The IRAD and B&P
costs for the Companys businesses that are
U.S. Government contractors are recoverable indirect
contract costs that are allocated to our U.S. Government
contracts in accordance with U.S. Government procurement
regulations, and are specifically excluded from the scope of
SFAS No. 2, Accounting for Research and Development
Costs (SFAS 2). In accordance with
SOP 81-1
and the AICPA Audit and Accounting Guide, Audits of Federal
Government Contractors, the Company includes IRAD and
B&P costs allocated to U.S. Government contracts in
inventoried contract costs, and charges them to costs of sales
when the related contract sales are recognized as revenue.
Research and development costs for the Companys businesses
that are not U.S. Government contractors are expensed as
incurred in accordance with SFAS 2.
Customer-funded research and development costs are incurred
pursuant to contracts (revenue arrangements) to perform research
and development activities according to customer specifications.
These costs are not accounted for as research and development
expenses in accordance with SFAS 2, and are also not
indirect contract costs. Instead, these costs are direct
contract costs and are expensed when the corresponding revenue
is recognized, which is generally as the research and
development services are performed. Customer-funded research and
development costs are substantially all incurred under
cost-reimbursable type contracts with the U.S. Government.
Computer Software Costs: The Companys
software development costs for computer software products to be
sold, leased or marketed that are incurred after establishing
technological feasibility for the computer software products are
capitalized as other assets and amortized on a product by
product basis using the amount that is the greater of the
straight-line method over the useful life or the ratio of
current revenues to total estimated revenues in accordance with
SFAS No. 86, Accounting for the Costs of Computer
Software to Be Sold, Leased or Otherwise Marketed.
Substantially all of the capitalized software development costs
pertain to the Companys commercial aviation businesses.
Capitalized software development costs, net of accumulated
amortization, was $47 million at December 31, 2008 and
$64 million at December 31, 2007, and is included in
Other Assets on the consolidated balance sheets. Amortization
expense for capitalized software development costs was
$8 million for 2008, and $6 million for both 2007 and
2006. The Company recorded a non-cash Impairment Charge of
$28 million relating to a write-down of capitalized
software development costs for a general aviation product line
in the second quarter of 2008, which is recorded in cost of
sales for products in the Consolidated Statement of Operations.
Product Warranties: Product warranty costs
are accrued when revenue is recognized for the covered products.
Product warranty expense is recognized based on the terms of the
product warranty and the related estimated costs. Accrued
warranty costs are reduced as product warranty costs are
incurred.
F-11
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The table below presents the changes in the Companys
accrued product warranty costs.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
Accrued product warranty
costs(1):
|
|
|
|
|
|
|
|
|
Balance at January 1
|
|
$
|
98
|
|
|
$
|
92
|
|
Acquisitions during this period
|
|
|
5
|
|
|
|
|
|
Accruals for product warranties issued during the period
|
|
|
44
|
|
|
|
44
|
|
Changes to accruals for product warranties existing before
January 1
|
|
|
2
|
|
|
|
5
|
|
Foreign currency translation adjustments
|
|
|
(3
|
)
|
|
|
2
|
|
Settlements made during the period
|
|
|
(44
|
)
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
102
|
|
|
$
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Warranty obligations incurred in
connection with long-term production contracts are accounted for
within the contract estimates at completion (EACs) and are
excluded from the above amounts. The balance at end of period
includes both long-term and short-term amounts.
|
Deferred Debt Issue Costs: Costs to issue
debt are capitalized and deferred when incurred, and
subsequently amortized to interest expense over the term of the
related debt using the effective interest rate method.
Derivative Financial Instruments: The Company
enters into foreign currency forward contracts. Foreign currency
forward contracts are recorded in the Companys
Consolidated Balance Sheets at fair value and are generally
designated and accounted for as cash flow hedges. Gains and
losses on designated foreign currency forward contracts that are
considered highly effective in offsetting the corresponding
change in the cash flows of the hedged transaction are recorded
net of income taxes in accumulated other comprehensive income
(loss) and then recognized in earnings when the underlying
hedged transaction affects earnings. Gains and losses on foreign
currency forward contracts that are not considered highly
effective are recognized in earnings immediately and were not
material to the Companys results of operations for all
periods presented. At December 31, 2008, the maximum term
of foreign currency forward contracts that hedge forecasted
transactions was approximately seven years. Derivative financial
instruments also include embedded derivatives. The embedded
derivatives related to the issuance of the Companys debt
are recorded at fair value with changes reflected in the
Statements of Operations.
Translation of Foreign Currency and Foreign Currency
Transactions: Transactions in foreign currencies
are translated into the local (functional) currency of the
respective business at the approximate prevailing rate at the
time of the transaction. Foreign exchange transaction gains and
losses in the years ended December 31, 2008, 2007 and 2006
are not material to the Companys results of operations.
The operations of the Companys foreign subsidiaries are
translated from the local (functional) currencies into
U.S. dollars using weighted average rates of exchange
during each reporting period. The rates of exchange at each
balance sheet date are used for translating certain balance
sheet accounts, and gains or losses resulting from these
translation adjustments are included in the accompanying
Consolidated Balance Sheets as a component of accumulated other
comprehensive income (loss).
Stock-Based Compensation: The Company follows
the fair value based method of accounting for stock-based
employee compensation in accordance with
SFAS No. 123R, Share-Based Payment
(SFAS 123(R)). The fair value based method requires the
Company to expense all stock-based employee compensation.
Stock-based employee compensation is primarily a non-cash
expense because the Company settles these obligations by issuing
shares of L-3 Holdings common stock instead of settling such
obligations with cash payments.
F-12
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Compensation expense for all restricted stock, restricted stock
unit and stock option awards is recognized on a straight-line
basis over the requisite service period for the entire award
based on the grant date fair value. All of the stock options
granted to employees by the Company are non-qualified stock
options under U.S. income tax regulations. Compensation
expense for long-term performance units payable in L-3 Holdings
common stock are based on the fair value of the units at the
grant date (measurement date), adjusted each reporting period
for progress towards the target award, and recognized on a
straight line basis over the requisite service period.
Compensation expense for long-term performance units that are
payable in cash is based on a binomial valuation technique (the
Monte Carlo valuation model) adjusted for historical performance
each reporting period and recognized on a straight-line basis
over the requisite service period.
SFAS 123(R) replaces SFAS No. 123, Accounting
for Stock-Based Compensation (SFAS 123) and
supersedes Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25). Prior to
January 1, 2006, the Company accounted for employee
stock-based compensation under the recognition and measurement
principles of APB 25. Under APB 25, compensation expense for
employee stock-based compensation was required to be recognized
based on the excess, if any, of the fair value of L-3
Holdings common stock on the grant date over the amount an
employee had to pay to acquire the stock. The Company
historically did not recognize compensation expense for stock
options prior to January 1, 2006. However, based on the
results of a review completed in 2006, the Company determined
that its accounting treatment in accordance with APB 25 has not
been historically applied correctly. See Note 3 for the
scope and findings of the review of past stock option granting
practices.
Income Taxes: The Company provides for income
taxes using the liability method. Deferred income tax assets and
liabilities reflect tax carryforwards and the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting and income tax purposes, as
determined under enacted tax laws and rates. The effect of
changes in tax laws or rates is accounted for in the period of
enactment. Valuation allowances for deferred tax assets are
provided when it is more likely than not that the assets will
not be realized, considering, when appropriate, tax planning
strategies.
Effective January 1, 2007, the Company adopted Financial
Accounting Standards Board (FASB) Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
an interpretation of FASB Statement 109 (FIN 48).
FIN 48 prescribes (1) a minimum recognition threshold
that an income tax benefit arising from an uncertain income tax
position taken, or expected to be taken, on an income tax return
is required to meet before being recognized in the financial
statements and (2) the measurement of the income tax
benefits recognized from such positions. The Companys
accounting policy is to classify uncertain income tax positions
that are not expected to be resolved in one year as non-current
income tax liabilities and to classify interest and penalties on
uncertain income tax positions as elements of the provision for
income taxes on its financial statements. See Note 16 for
the implementation impact of the adoption of FIN 48.
Accounting Standards Issued and Not Yet
Implemented: In December 2008, the FASB issued FASB
Staff Position (FSP) FAS 132(R)-1, Employers
Disclosures about Pensions and Other Postretirement
Benefit (FSP FAS 132(R)-1). FSP FAS 132(R)-1
expands the disclosures of an employers defined benefit
pension or other postretirement plan assets, amending
SFAS No. 132 (R), Employers Disclosures
about Pensions and Other Postretirement Benefits. FSP
FAS 132(R)-1 is effective for the Company beginning
December 31, 2009. The adoption of FSP FAS 132(R)-1
will not have a material effect on the Companys financial
position, results of operations and cash flows, but will have an
impact on the Companys pension and other postretirement
benefit plan assets disclosures.
In June 2008, the FASB issued FSP Emerging Issues Task Force
03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities (FSP
EITF 03-6-1).
FSP
EITF 03-6-1
clarifies that unvested share-based awards, such as restricted
stock or restricted stock
F-13
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
units, which entitle the holder to receive non-forfeitable
rights to dividends before vesting, meet the definition of
participating securities. As participating securities, these
securities are therefore included in the calculation of basic
earnings per share (EPS). FSP
EITF 03-6-1
is effective for the Company beginning January 1, 2009. All
prior-period EPS data presented shall be adjusted
retrospectively to conform to the provisions of FSP
EITF 03-6-1.
FSP
EITF 03-6-1
will decrease basic and diluted EPS, but will not have an impact
on the Companys financial position, results of operations,
or cash flows. The estimated decreases in basic and diluted EPS
are presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
Diluted
|
|
|
|
EPS
|
|
|
EPS
|
|
|
Year ended December 31, 2006
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
Year ended December 31, 2007
|
|
$
|
(0.04
|
)
|
|
$
|
(0.03
|
)
|
Year ended December 31, 2008
|
|
$
|
(0.06
|
)
|
|
$
|
(0.04
|
)
|
In May 2008, the FASB issued FSP Accounting Pronouncement
Bulletin 14-1,
Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash
Settlement) (FSP APB
14-1). FSP
APB 14-1
provides new accounting guidance for convertible debt
instruments that may be settled in cash upon conversion,
including partial cash settlement. The FSP clarifies that:
(1) these types of convertible debt instruments are not
considered debt instruments within the scope of APB Opinion
No. 14, Accounting for Convertible Debt and Debt Issued
with Stock Purchase Warrants, and (2) issuers of these
types of convertible debt instruments separately account for the
liability and equity components in a manner that reflects the
Companys non-convertible debt borrowing rate. FSP APB
14-1 is
effective for the Company beginning on January 1, 2009 and
will be applied retrospectively. A cumulative effect adjustment
will be reflected in the carrying amounts of the Companys
assets and liabilities as of the beginning of the first period
presented. FSP APB
14-1 will
have an impact on the Companys financial position and
reduce the Companys results of operations, but will not
have an impact on the Companys cash flows. The estimated
impact on the Companys financial position and results of
operations is presented in the tables below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
|
|
increase/(decrease)
|
|
|
Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred debt issue costs
|
|
$
|
(1.2
|
)
|
|
$
|
(1.7
|
)
|
|
$
|
(2.2
|
)
|
Long-term debt
|
|
$
|
(45.4
|
)
|
|
$
|
(65.2
|
)
|
|
$
|
(83.8
|
)
|
Deferred income tax liability
|
|
$
|
17.7
|
|
|
$
|
25.4
|
|
|
$
|
32.6
|
|
Shareholders equity
|
|
$
|
26.5
|
|
|
$
|
38.1
|
|
|
$
|
49.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Diluted
|
|
|
|
Income
|
|
|
EPS
|
|
|
Year ended December 31, 2006
|
|
$
|
(10.1
|
)
|
|
$
|
(0.08
|
)
|
Year ended December 31, 2007
|
|
$
|
(10.9
|
)
|
|
$
|
(0.09
|
)
|
Year ended December 31, 2008
|
|
$
|
(11.5
|
)
|
|
$
|
(0.09
|
)
|
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities (SFAS 161), which amends
SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS 133). SFAS 161
enhances the disclosures for derivative instruments and related
hedging activities to include, among other disclosures, the
location and fair value amounts of derivative instruments,
hedged items and related gains and losses in the balance sheet
and income statements, presented in a tabular
F-14
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
format. SFAS 161 is effective for the Company beginning
January 1, 2009 and will be applied prospectively.
SFAS 161 will not have a material effect on the
Companys financial position, results of operations and
cash flows.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations (SFAS 141(R)), which
supercedes SFAS No. 141, Business Combinations
(SFAS 141). SFAS 141(R) changes how business
acquisitions will be accounted for and affects how business
acquisitions will be reflected in the Companys financial
statements. Among other items, the standard requires:
(1) expensing of most transaction and restructuring costs,
(2) recognizing and measuring contingent consideration at
fair value on the acquisition date, with subsequent changes in
fair value recorded in earnings, and (3) capitalizing
in-process research and development. SFAS 141(R) is to be
applied prospectively to business combinations completed on or
after January 1, 2009. The adoption of SFAS 141(R) is
not expected to have a material effect on the Companys
financial position, results of operations and cash flows when it
becomes effective. Subsequent to adoption, the resolution for
uncertain tax positions related to prior acquisitions that
differ from recorded amounts will be adjusted through earnings,
rather than goodwill.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements
(SFAS 160). SFAS 160 amends Accounting Research
Bulletin No. 5, Consolidated Financial Statements.
SFAS 160 changes the accounting and reporting for
minority interests, which will be re-characterized as
noncontrolling interests and classified as a component of equity
in the Companys consolidated balance sheet. The
Companys Statement of Operations will include:
(1) net income from both L-3 and the minority
shareholder(s) share of earnings and (2) a new category
called Net Earnings Attributable to Parent, which is similar to
current net income. SFAS 160 will also expand disclosures
to clearly identify and distinguish between the interests of the
parent and the interests of noncontrolling owners. SFAS 160
is effective for the Company beginning January 1, 2009 and
will be applied prospectively, except for presentation and
disclosure requirements, which will be applied retrospectively
for all periods presented. As of December 31, 2008, the
initial impact on the Company of implementing SFAS 160
would be to reclassify $83 million of minority interests to
non-controlling interests within stockholders equity.
|
|
3.
|
Review of
Past Stock Option Granting Practices
|
In June 2006, the Company voluntarily initiated a review of its
historical stock-based compensation award practices and related
accounting treatment. The review was completed in 2006 and was
conducted by the Audit Committee of the Board of Directors with
the assistance of outside legal counsel. In accordance with New
York Stock Exchange requirements, the Audit Committee is
composed solely of independent directors.
The scope of the review included all stock-based awards granted
by the Company from May 1998, when the Company completed its
initial public offering, through the quarter ended
March 31, 2006, with a focus on the period from May 1998
through July 2003, when stock-based awards were generally
approved by unanimous written consents of the Compensation
Committee of the Board. Since July 2003, the Compensation
Committee approves all stock-based compensation awards to
employees, including officers, at Compensation Committee
meetings and these approval/meeting dates for the stock option
grants were correctly used as the accounting measurement date
for the grant. In addition, the review focused on the exercises
of stock options that may not be deductible under
Section 162(m) of the Internal Revenue Code (Code) and on
issues relating to amounts that may be considered deferred
compensation under Section 409A of the Code.
Based on the reviews findings, during the quarter ended
June 30, 2006, the Company recorded the Stock-Based Charge.
The review found that from May 1998 through July 2003, the price
of L-3 Holdings stock on the date selected as the grant
date and accounting measurement date was less than the stock
price on the formal
F-15
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
approval date in substantially all cases. In addition, the
review found that the date selected by management as
(i) the grant date, which was in most cases the date
specified in the unanimous written consent, (ii) the date
used to determine the exercise price for the stock options, and
(iii) the accounting measurement date, preceded the date of
formal approval for the stock options, and in many cases also
preceded the date of submission of the grants for approval by
the Companys Compensation Committee or entire Board of
Directors. The Company concluded that a number of the unanimous
written consents may not have been effective on the date
specified in the unanimous written consent because there was
insufficient evidence to conclude that all the signatures were
received by the Company on that date. Therefore, the use of the
date specified in the unanimous written consent as the
accounting measurement date, as well as in certain circumstances
the option exercise price, was incorrect. As part of the review,
L-3 determined that it received each signature to the unanimous
written consents prior to the time the letters notifying
employees of their options awards (Notification
Letters) were sent to employees. Accordingly, the Company
used the dates of the Notification Letters sent to employees
(and not the dates of the unanimous written consents) as the
measurement dates for purposes of calculating its Stock-Based
Charge.
The review also found that the accounting measurement dates used
for stock option grants to one future employee and employees of
three acquired businesses were incorrectly the dates specified
in the unanimous written consent and not the employees
hire date or the acquisition dates, which occurred later. In
connection with these grants, L-3 used the new hire date or
acquisition dates, as applicable, for purposes of calculating
its Stock-Based Charge.
The review was not able to determine the reasons for the
original errors that caused the Company to use incorrect
accounting measurement dates in its historical option granting
practices.
This charge included non-cash compensation expense of
$31 million ($20 million after income taxes) primarily
related to stock option grants made during the period from May
1998 to July 2003 that should have been measured as compensation
cost at the requisite stock option grant dates, and subsequently
amortized to expense over the three-year vesting period for each
stock option grant. The Stock-Based Charge also included
$8 million ($5 million after income taxes) relating to
amounts that would be considered deferred compensation under
Section 409A of the Code and an accrual for external legal
and accounting costs incurred for the review through
June 30, 2006. The impact of the non-cash compensation
expense by year and for the quarter ended March 31, 2006 on
the Companys previously reported net income is presented
in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income as
|
|
|
Net Income if
|
|
|
|
|
|
%
|
|
Period
|
|
Reported
|
|
|
Adjusted
|
|
|
Decrease
|
|
|
Decrease
|
|
|
|
(in millions)
|
|
|
1998
|
|
$
|
32.6
|
|
|
$
|
32.3
|
|
|
$
|
0.3
|
|
|
|
0.9
|
%
|
1999
|
|
|
58.7
|
|
|
|
57.8
|
|
|
|
0.9
|
|
|
|
1.5
|
|
2000
|
|
|
82.7
|
|
|
|
81.7
|
|
|
|
1.0
|
|
|
|
1.2
|
|
2001
|
|
|
115.5
|
|
|
|
113.4
|
|
|
|
2.1
|
|
|
|
1.8
|
|
2002
|
|
|
178.1
|
|
|
|
173.1
|
|
|
|
5.0
|
|
|
|
2.8
|
|
2003
|
|
|
277.6
|
|
|
|
271.8
|
|
|
|
5.8
|
|
|
|
2.1
|
|
2004
|
|
|
381.9
|
|
|
|
377.5
|
|
|
|
4.4
|
|
|
|
1.2
|
|
2005
|
|
|
508.5
|
|
|
|
507.8
|
|
|
|
0.7
|
|
|
|
0.1
|
|
Q1 2006
|
|
|
138.9
|
|
|
|
138.7
|
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,774.5
|
|
|
$
|
1,754.1
|
|
|
$
|
20.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition, the Stock-Based Charge reduced retained earnings as
of June 30, 2006 by $25 million, and increased
additional
paid-in-capital
by $20 million. The findings did not identify any
compensation
F-16
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
deductions related to the exercises of stock options that were
improperly deducted on the Companys tax returns in
violation of Section 162(m) of the Code.
With respect to the portion of the Stock-Based Charge that
related to amounts that would be deferred compensation under
Section 409A of the Code, on November 20, 2006 the
Company filed an Offer to Amend Certain Options
under the Tender Offer rules of the Exchange Act for employees
who were issued stock options with an exercise price less than
the fair market value on the date of grant, which vested after
December 31, 2004 and were outstanding. For those employees
who accepted the tender offer, the Company modified the
outstanding stock options covered by the tender offer, subject
to certain limitations, on December 19, 2006. This
modification allowed the affected employees to avoid adverse tax
consequences by increasing the exercise price to the fair market
value of such option on the date of grant and paying the
difference in the exercise prices in cash during 2007. The
Stock-Based Charge included an estimated cost resulting from
such modifications of approximately $4 million
($2 million after income taxes) that should have been
recorded as a liability during 2005, which was not included in
the non-cash compensation expense in the table above. In
addition, for employees with stock options that have vested
after December 31, 2004, which were exercised during 2006
before the tender offer was filed, these employees were subject
to an incremental 20% income tax on the amount considered
deferred compensation. The Company paid these affected employees
an amount equal to such incremental taxes. The Stock-Based
Charge included such expected payments of approximately
$2 million ($1 million after income taxes).
The Company does not believe that a restatement of its
prior-period financial statements for the years ended prior to
January 1, 2006, is required for the Stock-Based Charge.
Based on the materiality guidelines contained in
SAB No. 99, Materiality (SAB 99), the
Company believes that the Stock-Based Charge is not material to
any of the individual prior periods affected.
Beginning in July 2006, the Compensation Committee determined
that it would, subject to limited exceptions, grant stock-based
compensation awards on pre-determined annual dates.
|
|
4.
|
Acquisitions
and Dispositions
|
All of the business acquisitions are included in the
Companys results of operations from their respective dates
of acquisition.
2008
Business Acquisitions
During the year ended December 31, 2008, in separate
transactions, the Company acquired four businesses and increased
its ownership interest in a subsidiary for an aggregate purchase
price of $259 million in cash, plus acquisition costs.
These acquisitions were all financed with cash on hand. Based on
preliminary and final purchase price allocations, the aggregate
goodwill recognized for these businesses and increase in
ownership interest was $187 million, of which
$86 million is expected to be deductible for income tax
purposes. The goodwill was assigned to the reportable segments
listed below:
|
|
|
|
|
Segment
|
|
December 31, 2008
|
|
|
|
(in millions)
|
|
|
Specialized Products
|
|
$
|
150
|
|
Government Services
|
|
|
37
|
|
|
|
|
|
|
Total
|
|
$
|
187
|
|
|
|
|
|
|
In certain instances, the purchase price is subject to
adjustment based on post-acquisition financial performance not
to exceed an aggregate amount of $1 million, as discussed
below. Any such additional
F-17
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
consideration will be accounted for as goodwill. A description
of each business acquisition made by the Company during 2008 is
listed below:
|
|
|
|
|
All of the outstanding stock of International Resources Group
Ltd. (IRG) on December 3, 2008. IRG is an
international professional services firm that provides
specialized management, policy and training support in the areas
of energy, environment and natural resource management, relief
and reconstruction, and economic development to
U.S. Government agencies and international development
organizations;
|
|
|
|
All of the outstanding stock of G.A. International Electronics
and subsidiaries (GAI) on July 25, 2008. Headquartered in
Florida, GAI provides repair services and retrofit installation
of navigation and communication systems for cruise vessels and
cargo ships. The purchase price for GAI is subject to additional
consideration not to exceed $1 million that is contingent
upon its post-acquisition financial performance through
July 25, 2011;
|
|
|
|
All of the assets and liabilities of the Northrop Grumman
Electro-Optical Systems (EOS) business on April 21, 2008.
The EOS business is a provider of night vision technology and
electro-optical products for military, commercial and public
safety customers;
|
|
|
|
On April 4, 2008, the Company increased its ownership
interest in its Medical Education Technologies, Inc. (METI)
business from 80% to 85% for a purchase price of
$3 million. This business supplies human patient and
surgical simulators, as well as related educational products. On
October 8, 2008, the Company sold its 85% ownership
interest in METI, as described below under 2008 Business and
Product Line Dispositions; and
|
|
|
|
All of the outstanding stock of HSA Systems Pty Ltd. (HSA) on
March 14, 2008. HSA is a provider of geospatial, marine and
electronic systems for maritime and defense customers.
|
During the quarter ended December 31, 2008, the Company
completed the final purchase price allocations for EOS and HSA.
The final purchase price allocations for these business
acquisitions, compared to their preliminary purchase price
allocations, did not have a material impact on the
Companys results of operations or financial position. The
purchase price allocations for IRG and GAI are expected to be
completed during the first quarter of 2009, and will be based on
their final purchase prices, including the payment of contingent
consideration, if any, and final appraisals and other analyses
of fair values for acquired assets and assumed liabilities. The
purchase price for IRG is subject to adjustment based on actual
closing date net assets, which has not been finalized.
Additional consideration, if any, will be accounted for as
goodwill. The Company does not expect the difference, if any,
between the preliminary and final purchase price allocations to
have a material impact on its results of operations or financial
position.
Additionally, on January 30, 2009, the Company acquired
Chesapeake Sciences Corporation (CSC). CSC is a developer and
manufacturer of anti-submarine warfare systems for use onboard
submarines and surface ship combatants.
2007
Business Acquisitions
During 2007, in separate transactions, the Company acquired
ownership interests in four businesses for an aggregate purchase
price of $225 million in cash, plus acquisition costs.
These acquisitions were all financed with cash on hand. Based on
preliminary and final purchase price allocations, the aggregate
goodwill
F-18
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
recognized for these businesses was $178 million, of which
$140 million is expected to be deductible for income tax
purposes. The goodwill was assigned to the reportable segments
listed below:
|
|
|
|
|
Segment
|
|
December 31, 2008
|
|
|
|
(in millions)
|
|
|
Specialized Products
|
|
$
|
146
|
|
Government Services
|
|
|
32
|
|
|
|
|
|
|
Total
|
|
$
|
178
|
|
|
|
|
|
|
In certain instances, the purchase price is subject to
adjustment based on post-acquisition financial performance not
to exceed an aggregate amount of $13 million, as discussed
below. Any such additional consideration will be accounted for
as goodwill. A description of each business acquisition made by
the Company during 2007 is listed below:
|
|
|
|
|
All of the outstanding stock of Geneva Aerospace, Inc. (Geneva)
on January 31, 2007. The Geneva acquisition is subject to
additional consideration not to exceed $13 million, which
is contingent upon its post acquisition financial performance
for the year ending December 31, 2009. Geneva is a provider
of guidance and navigation systems for unmanned aerial vehicles;
|
|
|
|
All of the outstanding stock of Global Communication Solutions,
Inc. (GCS) on May 4, 2007. GCS is a provider of satellite
communications systems that integrate data, broadband internet,
telephony, multimedia, audio, video and computer networking;
|
|
|
|
All of the outstanding stock of APSS S.r.l. (APSS) on
August 31, 2007. APSS is a provider of mechanical, electric
and automation systems for ships; and
|
|
|
|
All of the outstanding stock of MKI Systems, Inc. (MKI) on
December 3, 2007. MKI focuses on acquisition, logistics and
program management for the DoD, especially the Marine Corps.
|
The Company has completed the purchase price allocations for all
acquisitions made during 2007, except for those business
acquisitions in which the purchase price is subject to
adjustment, as described above. The final purchase price
allocations were based on the final purchase prices, including
the payment of contingent consideration, if any, and final
appraisals and other analyses of fair values. The final purchase
price allocations for these businesses acquisitions, compared to
their preliminary purchase price allocations, did not have a
material impact on the Companys results of operations or
financial position.
2006
Business Acquisitions
During 2006, in separate transactions, the Company acquired
ownership interests in 14 businesses, for an aggregate purchase
price of $972 million, plus acquisition costs. The 2006
business acquisitions were initially financed with a combination
of cash on hand and revolving credit facility borrowings, which
have subsequently been repaid. Based on preliminary and final
purchase price allocations, the aggregate goodwill recognized
for
F-19
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
these business acquisitions was $849 million, of which
goodwill of $42 million is considered deductible for income
tax purposes. The goodwill was assigned to the reportable
segments listed below:
|
|
|
|
|
Segment
|
|
December 31, 2008
|
|
|
|
(in millions)
|
|
Specialized Products
|
|
$
|
491
|
|
C3 ISR
|
|
|
210
|
|
AM&M
|
|
|
144
|
|
Government Services
|
|
|
4
|
|
|
|
|
|
|
Total
|
|
$
|
849
|
|
|
|
|
|
|
In certain instances, the purchase price is subject to
adjustment based on post-acquisition financial performance or
certain other performance conditions not to exceed an aggregate
amount of $43 million, as discussed below. Any such
additional consideration will be accounted for as goodwill. A
description of each business acquisition made by the Company
during 2006 is listed below:
|
|
|
|
|
All of the outstanding stock of SAM Electronics GmbH (SAM) on
January 31, 2006, for $189 million in cash, plus
acquisition costs. SAM, which has its principal operations in
Germany, is a manufacturer and supplier of maritime electrical
and electronic systems to commercial shipyards and international
navies;
|
|
|
|
All of the outstanding stock of SafeView, Inc. (SafeView) on
March 9, 2006, and CyTerra Corporation (CyTerra) on
March 21, 2006, for an aggregate purchase price of
$190 million in cash, plus additional consideration, not to
exceed $35 million, which is contingent upon
SafeViews financial performance through December 31,
2008. The remaining contractual purchase price is currently
subject to an arbitration proceeding, see Note 18. SafeView
is a developer and manufacturer of non-invasive security systems
and portals for military and public safety use, including
airports. CyTerra is a leader in the development and manufacture
of a number of sophisticated sensors with threat detection
capabilities for the military and homeland security markets;
|
|
|
|
Increased its ownership in METI on April 4, 2006 from
approximately 47% to 80% for a purchase price of
$11 million in cash.
|
|
|
|
All of the outstanding stock of SSG Precision Optronics, Inc.
(SSG) on June 1, 2006, for $68 million in cash. SSG
specializes in optics, telescopes and precision optical
subsystems for government, military and commercial customers;
|
|
|
|
All of the outstanding stock of Nautronix Defense Group
(Nautronix) on June 1, 2006 for $71 million in cash,
plus additional consideration, not to exceed $2 million,
which is contingent upon certain contract awards to Nautronix
through 2010. Nautronix is a leader in through-water
communications, acoustic ranges and positioning technology;
|
|
|
|
All of the outstanding stock of Crestview Aerospace Corporation
(Crestview) on June 29, 2006 for $153 million in cash,
part of which was used for the payoff of mortgages on
facilities. The purchase price includes a $6 million
increase based on final closing date net assets. Crestview
provides aircraft structures, major airframe assemblies and
military aircraft modifications for leading prime contractors
and original equipment manufacturers;
|
|
|
|
All of the outstanding stock of TRL Electronics plc (TRL) for
$165 million in cash and $6 million in notes payable
issued by the Company to certain shareholders of TRL, which were
due and paid on March 30, 2007. The Company acquired a
controlling ownership interest in TRL on July 12, 2006.
TRL, which has its principal operations in the United Kingdom,
offers advanced radio and satellite
|
F-20
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
communications systems, providing governments and defense
organizations around the world with the ability to trace,
locate, monitor and defend transmissions, as well as to
communicate securely;
|
|
|
|
|
All of the outstanding stock of Nova Engineering (Nova) on
October 25, 2006, for $47 million in cash, plus
additional consideration, not to exceed $5 million, which
is contingent upon its financial performance through the year
ending December 31, 2010. Nova offers engineering services
plus unique commercial-off-the-shelf products, including mobile
ad hoc networking routers, flight test telemetry equipment and
sensor communications systems. Nova products and services
support critical defense programs as well as industrial and
public safety customers; and
|
|
|
|
All of the outstanding stock of Advanced Systems Architectures
Ltd. (ASA) on January 25, 2006, TCS on January 26,
2006, Magnet-Motor on March 20, 2006, gForce Technologies,
Inc. (gForce) on October 12, 2006 and TACNET on
November 27, 2006 for an aggregate purchase price of
$72 million in cash, plus additional consideration, not to
exceed $1 million, which is contingent upon the financial
performance of TACNET through December 31, 2010. ASA is a
systems engineering and software developer of multi-sensor
fusion and tracking systems for military applications. TCS
specializes in fixed and rotary wing aircraft and avionics
system engineering services for the U.S. Air Force. TACNET
provides an integrated suite of electronics designed for use in
a variety of law enforcement vehicles.
|
The Company has completed the purchase price allocations for all
acquisitions made during 2006, except for those business
acquisitions in which the purchase price is subject to
adjustment, as described above. The final purchase price
allocations were based on the final purchase prices, including
the payment of contingent consideration, if any, and final
appraisals and other analyses of fair values. The final purchase
price allocations for these business acquisitions, compared to
their preliminary purchase price allocations, did not have a
material impact on the Companys results of operations or
financial position.
Unaudited
Pro Forma Statements of Operations Data
The following unaudited pro forma Statements of Operations data
presents the combined results of the Company and its business
acquisitions completed during the years ended December 31,
2008, 2007 and 2006, assuming that the business acquisitions
completed during 2008 and 2007 had occurred on January 1,
2007, and that the business acquisitions completed during 2007
and 2006 had occurred on January 1, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions, except per share data)
|
|
|
Pro forma net sales
|
|
$
|
15,024
|
|
|
$
|
14,307
|
|
|
$
|
12,783
|
|
Pro forma net income
|
|
$
|
949
|
|
|
$
|
756
|
|
|
$
|
517
|
|
Pro forma diluted earnings per share
|
|
$
|
7.72
|
|
|
$
|
5.98
|
|
|
$
|
4.14
|
|
The unaudited pro forma results disclosed in the table above are
based on various assumptions and are not necessarily indicative
of the results of operations that would have occurred had the
Company completed these acquisitions on the dates indicated
above.
2008
Business and Product Line Dispositions
On October 8, 2008, the Company divested its 85% ownership
interest in METI, which is within the Specialized Products
segment. The sale resulted in an after-tax gain of
$20 million (pre-tax gain of $33 million). The gain is
excluded from income from continuing operations in accordance
with SFAS No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets. The revenues, operating
results and net assets of
F-21
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
METI for all periods presented were not material and therefore
not presented as discontinued operations. The sales price and
related gain with respect to this business divestiture are
subject to adjustment based on closing date net working capital.
The net proceeds from the sale are included in investing
activities on the Statement of Cash Flows. This business
generated $48 million of sales and $4 million of
operating income for the year ended December 31, 2008,
$52 million of sales and $4 million of operating
income for the year ended December 31, 2007 and
$32 million of sales and $3 million of operating
income for the year ended December 31, 2006.
On May 9, 2008, the Company sold the Electron Technologies
Passive Microwave Devices (PMD) product line within the
Specialized Products segment and recognized an after-tax gain of
approximately $7 million (pre-tax gain of
$12 million), which was recorded as a reduction of cost of
sales for products in the Consolidated Statement of Operations.
The net proceeds from the sale are included in investing
activities on the statement of cash flows. The PMD product line
generated $8 million of sales for the year ended
December 31, 2008, $23 million of sales for the year
ended December 31, 2007 and $21 million of sales for
the year ended December 31, 2006.
The components of contracts in process are presented in the
table below. The unbilled contract receivables, inventoried
contract costs and unliquidated progress payments are
principally related to contracts with the U.S. Government
and prime contractors or subcontractors of the
U.S. Government. Identifiable intangible assets related to
contracts in process assumed by the Company in its business
acquisitions and the underlying contractual customer
relationships are separately recognized at the date of
acquisition, and are discussed and presented in Note 7.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
Unbilled contract receivables, gross
|
|
$
|
2,026
|
|
|
$
|
1,876
|
|
Less: unliquidated progress payments
|
|
|
(409
|
)
|
|
|
(391
|
)
|
|
|
|
|
|
|
|
|
|
Unbilled contract receivables, net
|
|
|
1,617
|
|
|
|
1,485
|
|
|
|
|
|
|
|
|
|
|
Inventoried contract costs, gross
|
|
|
754
|
|
|
|
673
|
|
Less: unliquidated progress payments
|
|
|
(104
|
)
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
Inventoried contract costs, net
|
|
|
650
|
|
|
|
614
|
|
|
|
|
|
|
|
|
|
|
Total contracts in process
|
|
$
|
2,267
|
|
|
$
|
2,099
|
|
|
|
|
|
|
|
|
|
|
Unbilled Contract Receivables. Unbilled
contract receivables represent accumulated incurred costs and
earned profits on contracts (revenue arrangements), which have
been recorded as sales, but have not yet been billed to
customers. Unbilled contract receivables arise from the
cost-to-cost method of revenue recognition that is used to
record sales on certain fixed-price contracts. Unbilled contract
receivables from fixed-price type contracts are converted to
billed receivables when amounts are invoiced to customers
according to contractual billing terms, which generally occur
when deliveries or other performance milestones are completed.
Unbilled contract receivables also arise from cost-reimbursable
type contracts and
time-and-material
type contracts, for revenue amounts that have not been billed by
the end of the accounting period due to the timing of
preparation of invoices to customers. The Company believes that
approximately 92% of the unbilled contract receivables at
December 31, 2008 will be billed and collected within one
year.
F-22
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Unliquidated Progress Payments. Unliquidated
progress payments arise from fixed-price type contracts with the
U.S. Government that contain progress payment clauses, and
represent progress payments on invoices that have been collected
in cash, but have not yet been liquidated. Progress payment
invoices are billed to the customer as contract costs are
incurred at an amount generally equal to 75% to 80% of incurred
costs. Unliquidated progress payments are liquidated as
deliveries or other contract performance milestones are
completed, at an amount equal to a percentage of the contract
sales price for the items delivered or work performed, based on
a contractual liquidation rate. Therefore, unliquidated progress
payments are a contra asset account, and are classified against
unbilled contract receivables if revenue for the underlying
contract is recorded using the cost-to-cost method, and against
inventoried contract costs if revenue is recorded using the
units-of-delivery method.
Inventoried Contract Costs. In accordance
with
SOP 81-1
and the AICPA Audit and Accounting Guide, Audits of Federal
Government Contractors, the Company accounts for the portion
of its G&A costs, IRAD costs and B&P costs that are
allowable and reimbursable indirect contract costs under
U.S. Government procurement regulations on its
U.S. Government contracts (revenue arrangements) as
inventoried contract costs. G&A, IRAD and B&P costs
are allocated to contracts for which the U.S. Government is
the end customer and are charged to costs of sales when sales on
the related contracts are recognized. The Companys
unallowable portion of its G&A, IRAD and B&P costs for
its U.S. Government contractor businesses are expensed as
incurred and are not included in inventoried contract costs.
The table below presents a summary of G&A, IRAD and
B&P costs included in inventoried contract costs and the
changes to them, including amounts charged to cost of sales for
U.S. Government contracts for the period presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
|
Amounts included in inventoried contract costs at beginning of
the year
|
|
$
|
68
|
|
|
$
|
59
|
|
|
$
|
56
|
|
Add: Contract costs
incurred(1)
|
|
|
1,272
|
|
|
|
1,150
|
|
|
|
1,040
|
|
Amounts included in acquired inventoried contract
costs
|
|
|
6
|
|
|
|
|
|
|
|
3
|
|
Less: Amounts charged to cost of sales
|
|
|
(1,272
|
)
|
|
|
(1,141
|
)
|
|
|
(1,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts included in inventoried contract costs at end of the year
|
|
$
|
74
|
|
|
$
|
68
|
|
|
$
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Incurred costs include IRAD and
B&P costs of $287 million for 2008, $263 million
for 2007 and $243 million for 2006.
|
The table below presents a summary of selling, general and
administrative expenses and research and development expenses
for the Companys commercial businesses, which are expensed
as incurred and not included in inventoried contracts costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
|
Selling, general and administrative expenses
|
|
$
|
290
|
|
|
$
|
266
|
|
|
$
|
216
|
|
Research and development expenses
|
|
|
86
|
|
|
|
93
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
376
|
|
|
$
|
359
|
|
|
$
|
293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Inventories at Lower of Cost or Market. The
table below presents the components of inventories at cost
(first-in, first-out or average cost), but not in excess of
realizable value.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
Raw materials, components and sub-assemblies
|
|
$
|
95
|
|
|
$
|
106
|
|
Work in process
|
|
|
121
|
|
|
|
106
|
|
Finished goods
|
|
|
43
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
259
|
|
|
$
|
249
|
|
|
|
|
|
|
|
|
|
|
|
|
7.
|
Goodwill
and Identifiable Intangible Assets
|
Goodwill. In accordance with SFAS No. 141,
Business Combinations (SFAS 141), the Company allocates
the cost of business acquisitions to the assets acquired and
liabilities assumed based on their estimated fair values at the
date of acquisition (commonly referred to as the purchase price
allocation). As part of the purchase price allocations for the
Companys business acquisitions, identifiable intangible
assets are recognized as assets apart from goodwill if they
arise from contractual or other legal rights, or if they are
capable of being separated or divided from the acquired business
and sold, transferred, licensed, rented or exchanged. However,
in accordance with SFAS 141, the Company does not recognize
any intangible assets apart from goodwill for the assembled
workforces of its business acquisitions. At December 31,
2008, the Company had approximately 65,000 employees, and
the substantial majority of the sales generated by the
Companys businesses are from the productive labor efforts
of its employees, as compared to selling manufactured products
or right-to-use technology.
Generally, the largest intangible asset from the businesses that
the Company acquires are the value of their assembled
workforces, which includes the human capital of the management,
administrative, marketing and business development, scientific,
engineering and technical employees of the acquired businesses.
The success of the Companys businesses, including their
ability to retain existing business (revenue arrangements) and
to successfully compete for and win new business (revenue
arrangements), is primarily dependent on the management,
marketing and business development, contracting, engineering and
technical skills and knowledge of its employees, rather than on
productive capital (plant and equipment, and technology and
intellectual property). Additionally, for a significant portion
of its businesses, the Companys ability to attract and
retain employees who have U.S. Government security
clearances, particularly those of top-secret and above, is
critical to its success, and is often a prerequisite for
retaining existing revenue arrangements and pursuing new ones.
Generally, patents, trademarks and licenses are not material for
the Companys acquired businesses. Furthermore, the
Companys U.S. Government contracts (revenue
arrangements) generally permit other companies to use the
Companys patents in most domestic work performed by such
other companies for the U.S. Government. Therefore, because
intangible assets for assembled workforces are part of goodwill
in accordance with paragraph 39 of SFAS 141, the
substantial majority of the intangible assets for the
Companys business acquisitions is recognized as goodwill.
Additionally, the value assigned to goodwill for the
Companys business acquisitions also includes the value
that the Company expects to realize from cost reduction measures
that it implements for its acquired businesses.
F-24
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The table below presents the changes in goodwill allocated to
the Companys reportable segments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government
|
|
|
|
|
|
Specialized
|
|
|
Consolidated
|
|
|
|
C3ISR
|
|
|
Services
|
|
|
AM&M
|
|
|
Products
|
|
|
Total
|
|
|
|
(in millions)
|
|
|
Balance at December 31, 2007
|
|
$
|
986
|
|
|
$
|
2,264
|
|
|
$
|
1,199
|
|
|
$
|
3,716
|
|
|
$
|
8,165
|
|
Business acquisitions
|
|
|
3
|
|
|
|
44
|
|
|
|
3
|
|
|
|
149
|
|
|
|
199
|
|
Completion of Internal Revenue Service (IRS)
audits(1)
|
|
|
(42
|
)
|
|
|
(12
|
)
|
|
|
(44
|
)
|
|
|
(43
|
)
|
|
|
(141
|
)
|
Sale of business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
(11
|
)
|
Foreign currency translation
adjustments(2)
|
|
|
(51
|
)
|
|
|
|
|
|
|
(54
|
)
|
|
|
(78
|
)
|
|
|
(183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
896
|
|
|
$
|
2,296
|
|
|
$
|
1,104
|
|
|
$
|
3,733
|
|
|
$
|
8,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For further discussion regarding
the completion of IRS audits of L-3s U.S. Federal income
tax returns for 2004 and 2005, including income tax positions
taken in connection with certain business acquisitions, see
Note 16.
|
|
(2) |
|
The decrease in goodwill from
foreign currency translation adjustments is due to the
strengthening of the U.S. dollar during 2008 against the
functional currencies of L-3s foreign subsidiaries,
primarily in Canada, Germany and the United Kingdom.
|
The increase of $199 million related to business
acquisitions was comprised of (1) an increase of
$187 million for business acquisitions completed and an
additional ownership interest acquired during the year ended
December 31, 2008, (2) an increase of $10 million
for earnouts related to certain business acquisitions completed
prior to January 1, 2008, and (3) an increase of
$5 million primarily related to final purchase price
determinations for certain business acquisitions completed prior
to January 1, 2008. These increases were partially offset
by a decrease of $3 million related to the completion of
the final estimate of the fair value of assets acquired and
liabilities assumed for certain business acquisitions completed
prior to January 1, 2008.
Identifiable Intangible Assets. The most significant
identifiable intangible asset that is separately recognized in
accordance with SFAS 141 for the Companys business
acquisitions is customer contractual relationships. All of the
Companys customer relationships are established through
written customer contracts (revenue arrangements). The fair
value for customer contractual relationships is determined, as
of the date of acquisition, based on estimates and judgments
regarding expectations for the estimated future after-tax
earnings and cash flows (including cash flows for working
capital) arising from the follow-on sales on contract (revenue
arrangement) renewals expected from the customer contractual
relationships over their estimated lives, including the
probability of expected future contract renewals and sales, less
a contributory assets charge, all of which is discounted to
present value.
F-25
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Information on the Companys identifiable intangible assets
that are subject to amortization is presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
Average
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Amortization
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Period
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
(in years)
|
|
|
(in millions)
|
|
|
Customer contractual relationships
|
|
|
23
|
|
|
$
|
505
|
|
|
$
|
124
|
|
|
$
|
381
|
|
|
$
|
488
|
|
|
$
|
92
|
|
|
$
|
396
|
|
Technology
|
|
|
8
|
|
|
|
76
|
|
|
|
47
|
|
|
|
29
|
|
|
|
73
|
|
|
|
36
|
|
|
|
37
|
|
Other, primarily favorable leasehold interests
|
|
|
8
|
|
|
|
14
|
|
|
|
7
|
|
|
|
7
|
|
|
|
14
|
|
|
|
6
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
22
|
|
|
$
|
595
|
|
|
$
|
178
|
|
|
$
|
417
|
|
|
$
|
575
|
|
|
$
|
134
|
|
|
$
|
441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense recorded by the Company for its
identifiable intangible assets is presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
|
Amortization expense
|
|
$
|
45
|
|
|
$
|
47
|
|
|
$
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on gross carrying amounts at December 31, 2008, the
Companys estimate of amortization expense for identifiable
intangible assets for the years ending December 31, 2009
through 2013 are presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
|
(in millions)
|
|
|
Estimated amortization expense
|
|
$
|
51
|
|
|
$
|
51
|
|
|
$
|
46
|
|
|
$
|
37
|
|
|
$
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008 and December 31, 2007, the
Company had $1 million of indefinite-lived identifiable
intangible assets.
F-26
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
8.
|
Other
Current Liabilities and Other Liabilities
|
The table below presents the components of other current
liabilities.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
Other Current Liabilities:
|
|
|
|
|
|
|
|
|
Accruals for pending and threatened litigation (see Note 18)
|
|
$
|
4
|
|
|
$
|
134
|
|
Accrued product warranty costs
|
|
|
97
|
|
|
|
98
|
|
Accrued interest
|
|
|
66
|
|
|
|
74
|
|
Estimated costs in excess of estimated contract value to
complete contracts in process in a loss position
|
|
|
58
|
|
|
|
58
|
|
Deferred revenues
|
|
|
25
|
|
|
|
13
|
|
Aggregate purchase price payable for acquired businesses
|
|
|
|
|
|
|
10
|
|
Other
|
|
|
101
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
Total other current liabilities
|
|
$
|
351
|
|
|
$
|
483
|
|
|
|
|
|
|
|
|
|
|
The table below presents the components of other liabilities.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
Other Liabilities:
|
|
|
|
|
|
|
|
|
Non-current income taxes payable (see Note 16)
|
|
$
|
177
|
|
|
$
|
238
|
|
Deferred compensation
|
|
|
79
|
|
|
|
79
|
|
Accrued workers compensation
|
|
|
45
|
|
|
|
41
|
|
Unfavorable lease obligations
|
|
|
8
|
|
|
|
12
|
|
Non-current portion of net deferred gains from terminated
interest rate swap agreements
|
|
|
9
|
|
|
|
12
|
|
Notes payable and capital lease obligations
|
|
|
10
|
|
|
|
11
|
|
Accrued product warranty costs
|
|
|
5
|
|
|
|
|
|
Accruals for pending and threatened litigation (see Note 18)
|
|
|
|
|
|
|
5
|
|
Other non-current liabilities
|
|
|
81
|
|
|
|
103
|
|
|
|
|
|
|
|
|
|
|
Total other liabilities
|
|
$
|
414
|
|
|
$
|
501
|
|
|
|
|
|
|
|
|
|
|
F-27
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
Property,
Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
Land
|
|
$
|
55
|
|
|
$
|
49
|
|
Buildings and improvements
|
|
|
257
|
|
|
|
236
|
|
Machinery, equipment, furniture and fixtures
|
|
|
1,055
|
|
|
|
935
|
|
Leasehold improvements
|
|
|
272
|
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
Gross property, plant and equipment
|
|
|
1,639
|
|
|
|
1,466
|
|
Less: Accumulated depreciation and amortization
|
|
|
(818
|
)
|
|
|
(712
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
821
|
|
|
$
|
754
|
|
|
|
|
|
|
|
|
|
|
The components of long-term debt and a reconciliation to the
carrying amount of long-term debt are presented in the table
below.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
L-3 Communications:
|
|
|
|
|
|
|
|
|
Borrowings under Revolving Credit Facility
|
|
$
|
|
|
|
$
|
|
|
Borrowings under Term Loan Facility maturing
2010(1)
|
|
|
650
|
|
|
|
650
|
|
75/8% Senior
Subordinated Notes due 2012
|
|
|
750
|
|
|
|
750
|
|
61/8% Senior
Subordinated Notes due 2013
|
|
|
400
|
|
|
|
400
|
|
61/8% Senior
Subordinated Notes due 2014
|
|
|
400
|
|
|
|
400
|
|
57/8% Senior
Subordinated Notes due 2015
|
|
|
650
|
|
|
|
650
|
|
63/8% Senior
Subordinated Notes due 2015
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
3,850
|
|
|
|
3,850
|
|
|
|
|
|
|
|
|
|
|
L-3 Holdings:
|
|
|
|
|
|
|
|
|
3% Convertible Contingent Debt Securities due 2035
|
|
|
700
|
|
|
|
700
|
|
|
|
|
|
|
|
|
|
|
Principal amount of long-term debt
|
|
|
4,550
|
|
|
|
4,550
|
|
Less: Unamortized discounts
|
|
|
(12
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
Carrying amount of long-term debt
|
|
$
|
4,538
|
|
|
$
|
4,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The interest rate at
December 31, 2008 and 2007 was 2.70% and 6.34%,
respectively, and is based on the LIBOR rate (as defined) plus a
spread.
|
L-3
Communications
At December 31, 2008, the Companys Senior Credit
Facility was comprised of a $1 billion five-year revolving
credit facility and a term loan facility, collectively referred
to as the Senior Credit Facility, maturing on March 9, 2010.
F-28
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At December 31, 2008, available borrowings under the
revolving credit facility were $940 million after
reductions for outstanding letters of credit of $60 million.
Borrowings under the Senior Credit Facility bear interest, at
L-3 Communications option, at either a base
rate equal to the higher of 0.50% per annum above the
latest federal funds rate and the Bank of America prime
rate (as defined) plus a spread ranging from 0.00% to
0.75% per annum or a LIBOR rate (as defined) plus a
spread ranging from 0.625% to 1.75% per annum, both depending on
L-3 Communications debt rating at the time of
determination. L-3 Communications pays (1) commitment fees
calculated on the daily amounts of the available unused
commitments at a rate ranging from 0.125% to 0.375% per annum,
(2) letter of credit fees ranging from 0.46875% to 1.3125%
per annum for performance and commercial letters of credit and
(3) letter of credit fees ranging from 0.625% to 1.75% for
financial letters of credit, in all cases depending on L-3
Communications debt rating at the time of determination.
The debt rating is based on the ratings as determined by
Standard & Poors Ratings Services, Moodys
Investors Service, Inc. and Fitch Ratings of L-3
Communications non-credit-enhanced, senior unsecured
long-term debt.
The Company sold Senior Subordinated Notes from June 28,
2002 to July 29, 2005, which are included as components of
long-term debt in the table above. The 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 terms of each Senior Subordinated Note
are presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
Effective
|
|
|
|
|
Redemption
|
|
|
|
|
|
Amount
|
|
|
|
|
|
Cash
|
|
|
Interest
|
|
|
|
|
Price % of
|
|
Note
|
|
Date of Issuance
|
|
Issued
|
|
|
Discount(1)
|
|
|
Proceeds
|
|
|
Rate
|
|
|
Call
Date(2)
|
|
Principal(3)
|
|
|
75/8% Senior
Subordinated Notes due June 15, 2012
|
|
June 28, 2002
|
|
$
|
750
|
|
|
$
|
|
|
|
$
|
732
|
|
|
|
7.625
|
%
|
|
June 15, 2007
|
|
|
102.542
|
%
|
61/8% Senior
Subordinated Notes due July 15, 2013
|
|
May 21, 2003
|
|
$
|
400
|
|
|
$
|
2
|
|
|
$
|
391
|
|
|
|
6.170
|
%
|
|
July 15, 2008
|
|
|
103.063
|
%
|
61/8% Senior
Subordinated Notes due January 15, 2014
|
|
December 22, 2003
|
|
$
|
400
|
|
|
$
|
7
|
|
|
$
|
390
|
|
|
|
6.310
|
%
|
|
January 15, 2009
|
|
|
103.063
|
%
|
57/8% Senior
Subordinated Notes due January 15, 2015
|
|
November 12, 2004
|
|
$
|
650
|
|
|
$
|
|
|
|
$
|
639
|
|
|
|
5.875
|
%
|
|
January 15, 2010
|
|
|
102.938
|
%
|
63/8% Senior
Subordinated Notes due October 15, 2015
|
|
July 29, 2005
|
|
$
|
1,000
|
|
|
$
|
9
|
|
|
$
|
972
|
|
|
|
6.470
|
%
|
|
October 15, 2010
|
|
|
103.188
|
%
|
|
|
|
(1) |
|
Discounts are recorded as a
reduction to the principal amount of the notes and are amortized
as interest expense over the term of the notes.
|
|
(2) |
|
Notes are subject to redemption at
any time, at the option of L-3 Communications, in whole or in
part, on or after the call date.
|
|
(3) |
|
Redemption prices (plus accrued and
unpaid interest) include a premium on the principal amount (plus
accrued and unpaid interest). The prices above represent the
current redemption prices or the price during the
12-month
period starting on the first allowable date of redemption, which
decline annually to 100% of principal (plus accrued and unpaid
interest) starting three years from the first allowable date of
redemption, and thereafter.
|
L-3
Holdings
On July 29, 2005, L-3 Holdings sold $600 million of
3% Convertible Contingent Debt Securities (CODES) due
August 1, 2035. Interest is payable semi-annually on
February 1 and August 1 of each year. On August 4, 2005,
L-3 Holdings sold an additional $100 million of CODES,
pursuant to an over-allotment option exercised by the initial
purchasers of the CODES.
The CODES are convertible into cash and shares of L-3
Holdings common stock based on a conversion rate of
9.8882 shares of L-3 Holdings common stock per one thousand
dollars in principal amount of the CODES (equivalent to a
conversion price of $101.13 per share) only under the following
circumstances:
F-29
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(1) prior to August 1, 2033, on any date during any
fiscal quarter (and only during such fiscal quarter) beginning
after September 30, 2005, if the closing sales price of the
common stock of L-3 Holdings is more than 120% of the then
current conversion price (currently $121.36) for at least 20
trading days in the 30 consecutive
trading-day
period ending on the last trading day of the previous fiscal
quarter; (2) on or after August, 1, 2033, at all times on
or after any date on which the closing sale price of the common
stock of L-3 Holdings is more than 120% of the then current
conversion price (currently $121.36); (3) if we distribute
to all holders of our common stock, rights or warrants (other
than pursuant to a rights plan) entitling them to purchase, for
a period of 45 calendar days or less, shares of L-3
Holdings common stock at a price less than the average
closing sales price for the ten trading days preceding the
declaration date for such distribution; (4) if we
distribute to all holders of our common stock, cash and other
assets, debt securities or rights to purchase L-3 Holdings
securities (other than pursuant to a rights plan), which
distribution has a per share value exceeding 10% of the closing
sale price of L-3 Holdings common stock on the trading day
preceding the declaration date for such distribution;
(5) during the five consecutive
business-day
period following any five consecutive
trading-day
period in which the average trading price of the CODES was less
than 98% of the average of the closing sale price of L-3
Holdings common stock during such five trading day period
multiplied by the then current conversion rate; (6) during
a specified period if the CODES have been called for redemption;
or (7) during a specified period if a fundamental
change (as such term is defined in the indenture governing
the CODES) occurs. The conversion rate is subject to adjustments
in certain circumstances set forth in the indenture governing
the CODES. For the year ended December 31, 2008, the
conversion feature of the CODES was dilutive to earnings per
share until the third quarter (see Note 15).
Upon conversion of the CODES, the settlement amount will be
computed as follows: (1) if L-3 Holdings elects to satisfy
the entire conversion obligation in cash, L-3 Holdings will
deliver to the holder for each one thousand dollars in principal
amount of the CODES converted cash in an amount equal to the
conversion value; or (2) if L-3 Holdings elects to satisfy
the conversion obligation in a combination of cash and common
stock, L-3 Holdings will deliver to the holder for each one
thousand dollars in principal amount of the CODES converted
(x) cash in an amount equal to (i) the fixed dollar
amount per one thousand dollars in principal amount of the CODES
of the conversion obligation to be satisfied in cash specified
in the notice regarding L-3 Holdings chosen method of
settlement or, if lower, the conversion value, or (ii) the
percentage of the conversion obligation to be satisfied in cash
specified in the notice regarding L-3 Holdings chosen method of
settlement multiplied by the conversion value, as the case may
be (the cash amount); provided that in either case
the cash amount shall in no event be less than the lesser of
(a) the principal amount of the CODES converted and
(b) the conversion value; and (y) a number of shares
of common stock of L-3 Holdings for each of the 20 trading days
in the conversion period equal to 1/20th of (i) the
conversion rate then in effect minus (ii) the quotient of
the cash amount divided by the closing price of common stock of
L-3 Holdings for that day (plus cash in lieu of fractional
shares, if applicable.)
The CODES are senior unsecured obligations of L-3 Holdings and
rank equal in right of payment with all existing and future
senior indebtedness and senior to all future senior subordinated
indebtedness of L-3 Holdings. The CODES are jointly and
severally guaranteed on a senior subordinated basis by the
existing and future domestic subsidiaries of L-3 Holdings that
guarantee any other indebtedness of L-3 Holdings or any of its
domestic subsidiaries.
At any time on or after February 1, 2011, the CODES are
subject to redemption at the option of L-3 Holdings, in whole or
in part, at a cash redemption price (plus accrued and unpaid
interest, including contingent interest and additional interest,
if any) equal to 100% of the principal amount of the CODES.
Holders of the CODES may require L-3 Holdings to repurchase the
CODES, in whole or in part, on February 1, 2011,
February 1, 2016, February 1, 2021, February 1,
2026 and February 1, 2031 at a cash repurchase price equal
to 100% of the principal amount of the CODES (plus accrued and
unpaid interest,
F-30
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
including contingent interest and additional interest, if any).
In addition, holders of the CODES may require L-3 Holdings to
repurchase the CODES at a repurchase price equal to 100% of the
principal amount of the CODES (plus accrued and unpaid interest,
including contingent interest and additional interest, if any)
if a fundamental change occurs prior to maturity of
the CODES.
Holders of the CODES have a right to receive contingent interest
payments, which will be paid on the CODES during any six-month
period commencing February 1, 2011 in which the trading
price of the CODES for each of the five trading days ending on
the second trading day preceding the first day of the applicable
six-month interest period equals or exceeds 120% of the
principal amount of the CODES. The contingent interest payable
per one thousand dollars in principal amount of CODES will equal
0.25% of the average trading price of one thousand dollars in
principal amount of CODES during the five trading days ending on
the second trading day preceding the first day of the applicable
six-month interest period. The contingent interest payment
provision has been accounted for as an embedded derivative. The
embedded derivative had an initial fair value of zero. The
amount assigned to the embedded derivative will be adjusted
periodically through other income (expense) for changes in its
fair value, if any.
Subordination
and Guarantees
The borrowings under the Senior Credit Facility are guaranteed
by L-3 Holdings and by substantially all of the material
wholly-owned domestic subsidiaries of L-3 Communications on a
senior basis. The payment of principal and premium, if any, and
interest on the Senior Subordinated Notes are fully and
unconditionally guaranteed, on an unsecured senior subordinated
basis, jointly and severally, by certain of L-3
Communications wholly-owned domestic subsidiaries. The
guarantees of the Senior Subordinated Notes rank pari passu with
one another and are junior to the guarantees of the Senior
Credit Facility. The payment of principal and premium, if any,
and interest on the CODES are fully and unconditionally
guaranteed, on an unsecured senior subordinated basis, jointly
and severally by certain of L-3 Holdings wholly-owned
domestic subsidiaries. The guarantees of the CODES rank pari
passu with the guarantees of the Senior Subordinated Notes and
are junior to the guarantees of the Senior Credit Facility.
Covenants
Financial and other restrictive covenants. The
Senior Credit Facility and Senior Subordinated Notes indentures
contain financial and other restrictive covenants that limit,
among other things, the ability of the Company to borrow
additional funds, incur liens, make investments, merge or
consolidate, dispose of assets, pay dividends or repurchase its
common stock. The Companys Senior Credit Facility contains
covenants that require that (1) the Companys
consolidated leverage ratio be less than or equal to 4.0 to 1.0
for each fiscal quarter and (2) the Companys
consolidated interest coverage ratio be greater than or equal to
3.0 to 1.0. Calculations of the consolidated leverage ratio and
consolidated interest coverage ratio are to (a) take into
account acquisitions on a pro forma basis as if they had
occurred at the beginning of the applicable period and
(b) exclude the $126 million litigation charge and
associated reversal related to the OSI Systems, Inc. matter,
which is more fully described in Note 18, and certain
non-recurring costs incurred by the Companys acquired
businesses prior to the acquisition date from the pro forma
results of operations of those acquired businesses. As of
December 31, 2008, the Company was in compliance with its
financial and other restrictive covenants.
In addition, the Senior Subordinated Notes indentures contain
covenants that restrict the ability of L-3 Communications to
incur indebtedness and issue capital stock that matures or is
redeemable 91 days or less after the maturity date of such
series of notes, and the ability of its restricted subsidiaries
to incur indebtedness or issue preferred stock, unless the
Companys fixed charge coverage ratio would have been at
least 2.0 to 1.0 on a pro forma basis. The covenants are subject
to several material exceptions, including an exception for
indebtedness under the Companys credit facilities up to a
specified amount.
F-31
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In the event that the long-term senior debt rating of L-3
Communications is reduced below BBB−, or the equivalent,
by two of the three rating agencies, Standard &
Poors Ratings Services, Moodys Investors Service,
Inc. or Fitch Ratings prior to the date the long-term debt
rating of L-3 Communications is at least BBB− , or the
equivalent, from all three rating agencies, L-3 Holdings will be
required, within 45 business days, to pledge 100% of the capital
stock of L-3 Communications, and L-3 Communications and each
subsidiary guarantor will be required to pledge 100% of the
capital stock of each of their material wholly-owned domestic
subsidiaries and 65% of their first tier material wholly-owned
foreign subsidiaries, in favor of the lenders under the Senior
Credit Facility.
Restricted Payments. L-3 Holdings relies on
dividends paid by L-3 Communications to generate the funds
necessary to pay dividends on its common stock. The Senior
Credit Facility contains provisions that limit the ability of
L-3 Communications to pay dividends or other distributions with
respect to any capital stock and make investments in L-3
Holdings. However, the Senior Credit Facility permits L-3
Communications to:
|
|
|
|
|
fund payments of interest on indebtedness of L-3 Holdings and to
fund payments of dividends on disqualified preferred stock
issued by L-3 Holdings, so long as (1) any such
indebtedness or disqualified preferred stock is guaranteed by
L-3 Communications and (2) the proceeds received by L-3
Holdings from the issuance of such indebtedness or disqualified
preferred stock have been invested by L-3 Holdings in L-3
Communications;
|
|
|
|
fund payments and prepayments of principal of indebtedness of
L-3 Holdings and to fund optional and mandatory redemptions of
disqualified preferred stock issued by L-3 Holdings, so long as
(1) any such indebtedness or disqualified preferred stock
is guaranteed by L-3 Communications and (2) the amount of
such fundings, together with the amount of permitted
intercompany advances does not exceed the aggregate amount of
investments made by L-3 Holdings in L-3 Communications with the
proceeds from any issuance of indebtedness or disqualified
preferred stock by L-3 Holdings after March 9, 2005 that is
guaranteed by L-3 Communications;
|
|
|
|
pay regularly scheduled dividends on disqualified preferred
stock issued by L-3 Communications;
|
|
|
|
redeem disqualified preferred stock issued by L-3 Communications
so long as the amount of such redemptions does not exceed the
aggregate proceeds received by L-3 Communications from the
issuance of disqualified preferred stock after March 9,
2005; and
|
|
|
|
beginning with the quarter ended March 25, 2005, pay other
dividends on and make other redemptions of its equity interests
(including for the benefit of L-3 Holdings) and make other
investments in L-3 Holdings, so long as no default or event of
default has occurred and is continuing, up to an aggregate
amount of $1.0 billion, increased (or decreased) quarterly
by an amount equal to 50% of the consolidated net income (or
deficit) of L-3 Communications for the quarter, plus
(1) 100% of the proceeds from any issuance of capital stock
(other than disqualified preferred stock) by L-3 Holdings after
March 9, 2005 if those proceeds were invested in L-3
Communications, plus (2) 100% of the proceeds from any
issuance of indebtedness or disqualified preferred stock by L-3
Holdings after March 9, 2005 if those proceeds were
invested in L-3 Communications and the indebtedness or
disqualified preferred stock is not guaranteed by L-3
Communications, plus (3) 100% of the proceeds from any
issuance of capital stock (other than disqualified preferred
stock) by L-3 Communications after March 9, 2005.
|
Disqualified preferred stock discussed above is stock, other
than common stock, that is not classified as a component of
shareholders equity on the balance sheet. At
December 31, 2008, L-3 Holdings and L-3 Communications did
not have any disqualified preferred stock.
F-32
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Senior Subordinated Notes indentures also contain provisions
that limit the ability of L-3 Communications to pay dividends to
L-3 Holdings and make investments in L-3 Holdings, subject to
exceptions. Subject to certain limitations, the indentures
permit L-3 Communications to make such restricted payments so
long as it would be able to incur at least one dollar of
additional indebtedness under the fixed charge coverage ratio
test described above and meet other conditions.
Cross default provisions. The Senior Credit Facility
contains cross default provisions that are triggered when a
payment default occurs or certain other defaults occur that
would allow the acceleration of indebtedness, guarantee
obligations or certain other agreements of L-3 Communications or
its subsidiaries in an aggregate amount of at least
$40 million and those defaults (other than payment defaults
and defaults that have resulted in acceleration) have not been
cured after 10 days. The Senior Subordinated Notes
indentures contain cross acceleration provisions that are
triggered when holders of the indebtedness of L-3 Holdings, L-3
Communications or their restricted subsidiaries (or the payment
of which is guaranteed by such entities) accelerate at least
$10 million in aggregate principal amount of those
obligations.
In October 2008, L-3 Holdings completed its previously announced
$750 million share repurchase program, which was approved
by its Board of Directors on December 11, 2007. On
November 24, 2008, L-3 Holdings Board of Directors
approved a new share repurchase program that authorizes L-3
Holdings to repurchase up to an additional $1 billion of
its outstanding shares of common stock through December 31,
2010. Repurchases are made from time to time at
managements discretion in accordance with applicable
federal securities laws. All share repurchases of L-3 Holdings
common stock have been recorded as treasury shares. At
December 31, 2008, the dollar value of the remaining
authorized repurchase program was $931 million.
From January 1, 2009 through February 25, 2009, L-3
Holdings had repurchased 980,609 shares of its common stock
at an average price of $76.65 per share for an aggregate
amount of $75 million.
|
|
12.
|
Fair
Value Measurements
|
Effective January 1, 2008, the Company adopted
SFAS No. 157, Fair Value Measurements
(SFAS 157). The provisions of SFAS 157 are
applicable to all of the Companys assets and liabilities
that are measured and recorded at fair value. SFAS 157
establishes a new framework for measuring fair value and expands
related disclosures. SFAS 157 defines fair value as the
price that would be received for an asset or the exit price that
would be paid to transfer a liability in the principal or most
advantageous market in an orderly transaction between market
participants. SFAS 157 establishes a fair value hierarchy
that gives the highest priority to observable inputs and the
lowest priority to unobservable inputs. The three levels of the
fair value hierarchy defined by SFAS 157 are described
below.
|
|
Level 1:
|
Quoted market prices available in active markets for identical
assets or liabilities as of the reporting date. The
Companys Level 1 assets include cash equivalents,
primarily institutional money market funds, whose carrying value
represents fair value because of the short-term maturities of
the investments held by these funds.
|
|
Level 2:
|
Pricing inputs other than quoted prices in active markets
included in Level 1, which are either directly or
indirectly observable as of the reporting date. The
Companys Level 2 assets and liabilities include
foreign currency forward contracts. Fair value is determined
using a valuation model based on observable market inputs,
including quoted forward foreign currency exchange rates, and
consideration of non-performance risk.
|
F-33
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
Level 3: |
Pricing inputs that are generally unobservable inputs and not
corroborated by market data. The Company has no Level 3
assets or liabilities.
|
The following table presents our assets and liabilities by level
measured at fair value on a recurring basis at December 31,
2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(in millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
794
|
|
|
$
|
|
|
|
$
|
|
|
Derivatives
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
794
|
|
|
$
|
22
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
|
|
|
$
|
21
|
|
|
$
|
|
|
The Company has deferred the provisions of SFAS 157 for
non-financial assets and non-financial liabilities not
recognized or disclosed at fair value in the financial
statements on a recurring basis in accordance with FSP Financial
Accounting Standard
157-2,
Effective Date of FASB Statement No. 157
(FSP 157-2).
FSP 157-2
delayed the effective date of application of SFAS 157 to
all non-financial assets and non-financial liabilities not
recognized or disclosed at fair value on a recurring basis until
January 1, 2009. The adoption of SFAS 157 to those
assets and liabilities within the scope of
FSP 157-2
is not expected to have a material effect on the Companys
financial position, results of operations and cash flows when it
becomes effective. The Company does not have any non-financial
assets and non-financial liabilities that would be recognized or
disclosed at fair value on a recurring basis at
December 31, 2008.
|
|
13.
|
Financial
Instruments
|
Fair Value of Financial Instruments. At
December 31, 2008 and 2007, the Companys financial
instruments consisted primarily of cash and cash equivalents,
billed receivables, trade accounts payable, borrowings under the
term loan facility, Senior Subordinated Notes, CODES and foreign
currency forward contracts. The carrying amounts of cash and
cash equivalents, billed receivables and trade accounts payable
are representative of their respective fair values because of
the short-term maturities or expected settlement dates of these
instruments. The fair value of borrowings under the term loan
facility are based on similar debt issued as of
December 31, 2008. The Senior Subordinated Notes are
registered, unlisted public debt traded in the over-the-counter
market and their fair values are based on quoted trading
activity. The fair values of the CODES are based on quoted
prices for the same or similar issues. The fair values of
foreign currency forward contracts were estimated based on
forward exchange rates at December 31, 2008 and 2007. The
carrying amounts and estimated fair values of the Companys
financial instruments are presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Borrowings under the Term Loan Facility
|
|
$
|
650
|
|
|
$
|
608
|
|
|
$
|
650
|
|
|
$
|
650
|
|
Senior Subordinated Notes
|
|
|
3,188
|
|
|
|
2,916
|
|
|
|
3,187
|
|
|
|
3,172
|
|
CODES
|
|
|
700
|
|
|
|
697
|
|
|
|
700
|
|
|
|
849
|
|
Foreign currency forward
contracts(1)
|
|
|
1
|
|
|
|
1
|
|
|
|
(12
|
)
|
|
|
(12
|
)
|
|
|
|
(1) |
|
Notional amounts of foreign
currency forward contracts were $414 million at
December 31, 2008 and $288 million at
December 31, 2007.
|
F-34
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Foreign Currency Exchange Risk Management. The
Companys U.S. and foreign businesses enter into
contracts with customers, subcontractors or vendors, and certain
of these contracts are denominated in currencies other than the
functional currencies of the U.S. and foreign businesses.
To protect the functional currency equivalent cash flows
associated with certain of these contracts denominated in a
foreign currency, the Company has entered into foreign currency
forward contracts. The Companys activities involving
foreign currency forward contracts are designed to hedge the
changes in the functional currency equivalent cash flows due to
movements in the foreign exchange rate compared to the
functional currency. The foreign currencies hedged are primarily
the Canadian dollar, Euro, British Pound and U.S. dollar.
The Company manages exposure to counterparty credit risk by
entering into foreign currency forward contracts only with major
financial institutions that are expected to fully perform under
the terms of such contracts. The notional amounts, as noted
above, are used to measure the volume of these contracts and do
not represent exposure to foreign currency losses.
|
|
14.
|
Accumulated
Other Comprehensive (Loss) Income
|
The changes in the accumulated other comprehensive (loss) income
balances, net of related tax effects are presented in the table
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrecognized
|
|
|
accumulated
|
|
|
|
Foreign
|
|
|
gains (losses)
|
|
|
Minimum
|
|
|
losses and
|
|
|
other
|
|
|
|
currency
|
|
|
on hedging
|
|
|
pension
|
|
|
prior service
|
|
|
comprehensive
|
|
|
|
translation
|
|
|
instruments
|
|
|
liability
|
|
|
cost, net
|
|
|
(loss) income
|
|
|
|
(in millions)
|
|
|
Balance at December 31, 2005
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
(81
|
)
|
|
$
|
|
|
|
$
|
(77
|
)
|
Adoption of SFAS 158
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
(169
|
)
|
|
|
(109
|
)
|
Period change
|
|
|
123
|
|
|
|
(7
|
)
|
|
|
21
|
|
|
|
|
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
125
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
(169
|
)
|
|
|
(49
|
)
|
Adoption of SFAS 158 measurement date provision (See
Note 19)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
39
|
|
Period change
|
|
|
135
|
|
|
|
4
|
|
|
|
|
|
|
|
24
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
260
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(106
|
)
|
|
|
153
|
|
Period change
|
|
|
(222
|
)
|
|
|
6
|
|
|
|
|
|
|
|
(269
|
)
|
|
|
(485
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
38
|
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
(375
|
)
|
|
$
|
(332
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-35
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
15.
|
L-3
Holdings Earnings Per Share
|
A reconciliation of basic and diluted EPS is presented in the
table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions, except per share data)
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
929
|
|
|
$
|
756
|
|
|
$
|
526
|
|
Gain on sale of a business, net of income taxes
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
949
|
|
|
$
|
756
|
|
|
$
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
121.2
|
|
|
|
124.9
|
|
|
|
123.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
7.66
|
|
|
$
|
6.05
|
|
|
$
|
4.27
|
|
Gain on sale of a business, net of income taxes
|
|
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
7.83
|
|
|
$
|
6.05
|
|
|
$
|
4.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
929
|
|
|
$
|
756
|
|
|
$
|
526
|
|
Gain on sale of a business, net of income taxes
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
949
|
|
|
$
|
756
|
|
|
$
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common and potential common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
121.2
|
|
|
|
124.9
|
|
|
|
123.1
|
|
Assumed exercise of stock options
|
|
|
4.1
|
|
|
|
5.0
|
|
|
|
5.0
|
|
Unvested restricted stock awards
|
|
|
1.1
|
|
|
|
0.9
|
|
|
|
0.6
|
|
Employee stock purchase plan contributions
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
0.5
|
|
Assumed purchase of common shares for treasury
|
|
|
(4.1
|
)
|
|
|
(4.8
|
)
|
|
|
(4.4
|
)
|
Assumed conversion of the CODES
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common and potential common shares
|
|
|
122.9
|
|
|
|
126.5
|
|
|
|
124.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
7.56
|
|
|
$
|
5.98
|
|
|
$
|
4.22
|
|
Gain on sale of a business, net of income taxes
|
|
|
0.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
7.72
|
|
|
$
|
5.98
|
|
|
$
|
4.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L-3 Holdings CODES had no impact on diluted EPS for the
year ended December 31, 2006 because the average market
price of L-3 Holdings common stock during this period was less
than the price at which the CODES would have been convertible
into L-3 Holdings common stock. As of December 31, 2008,
the conversion price was $101.13.
Excluded from the computations of diluted EPS are equity
securities underlying employee stock-based compensation of
1.0 million for the year ended December 31, 2008,
0.7 million for the year ended December 31, 2007 and
2.1 million for the year ended December 31, 2006,
because they were anti-dilutive.
F-36
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Diluted EPS for the year ended December 31, 2008 includes
(1) a gain of $0.66 per share for the reversal of a current
liability for pending and threatened litigation as a result of a
June 27, 2008 decision by the U.S. Court of Appeals
which vacated an adverse 2006 jury verdict (see Note 18),
(2) a gain of $0.06 per share for the sale of the PMD
product line (see Note 4), and (3) a non-cash charge
of $0.14 per share related to a write-down of capitalized
software development costs (see Note 2).
Diluted EPS for the year ended December 31, 2006 includes
(1) a charge of $0.63 per share for an adverse jury verdict
(see Note 18), and (2) a charge of $0.20 per share
related to stock-based awards granted during the period from May
1998 to July 2003 (see Note 3).
Income before income taxes is summarized in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
|
Domestic
|
|
$
|
1,280
|
|
|
$
|
1,012
|
|
|
$
|
727
|
|
Foreign
|
|
|
151
|
|
|
|
162
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
$
|
1,431
|
|
|
$
|
1,174
|
|
|
$
|
825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the Companys current and deferred
portions of the provision for income taxes are presented in the
table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
|
Current income tax provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
244
|
|
|
$
|
228
|
|
|
$
|
107
|
|
State and local
|
|
|
47
|
|
|
|
43
|
|
|
|
36
|
|
Foreign
|
|
|
50
|
|
|
|
34
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
341
|
|
|
|
305
|
|
|
|
171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
144
|
|
|
|
88
|
|
|
|
125
|
|
State and local
|
|
|
24
|
|
|
|
14
|
|
|
|
(1
|
)
|
Foreign
|
|
|
(7
|
)
|
|
|
11
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
161
|
|
|
|
113
|
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
502
|
|
|
$
|
418
|
|
|
$
|
299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A reconciliation of the statutory federal income tax rate to the
effective income tax rate of the Company is presented in the
table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Statutory federal income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State and local income taxes, net of federal income tax benefit
|
|
|
3.1
|
|
|
|
3.1
|
|
|
|
2.7
|
|
Foreign income taxes
|
|
|
(1.1
|
)
|
|
|
(1.3
|
)
|
|
|
(1.6
|
)
|
Extraterritorial income exclusion benefits
|
|
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
Manufacturing benefits
|
|
|
(0.9
|
)
|
|
|
(0.7
|
)
|
|
|
(0.7
|
)
|
Research and experimentation and other tax credits
|
|
|
(1.0
|
)
|
|
|
(0.9
|
)
|
|
|
(0.6
|
)
|
Resolution of tax contingencies
|
|
|
(1.2
|
)
|
|
|
(1.0
|
)
|
|
|
|
|
Other, net
|
|
|
1.2
|
|
|
|
1.4
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
35.1
|
%
|
|
|
35.6
|
%
|
|
|
36.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The significant components of the Companys net deferred
tax assets and liabilities are presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Inventoried costs
|
|
$
|
3
|
|
|
$
|
32
|
|
Compensation and benefits
|
|
|
69
|
|
|
|
61
|
|
Pension and postretirement benefits
|
|
|
293
|
|
|
|
148
|
|
Income recognition on contracts in process
|
|
|
90
|
|
|
|
81
|
|
Litigation charge
|
|
|
|
|
|
|
50
|
|
Loss carryforwards
|
|
|
15
|
|
|
|
27
|
|
Tax credit carryforwards
|
|
|
10
|
|
|
|
7
|
|
Other
|
|
|
107
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
587
|
|
|
|
490
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Goodwill and other intangible assets
|
|
$
|
439
|
|
|
$
|
442
|
|
Property, plant and equipment
|
|
|
41
|
|
|
|
34
|
|
Other
|
|
|
2
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
482
|
|
|
|
480
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
4
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
101
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
F-38
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the classification of the
Companys net deferred tax assets.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
Current deferred tax assets
|
|
$
|
211
|
|
|
$
|
246
|
|
Non-current deferred tax liabilities
|
|
|
(110
|
)
|
|
|
(245
|
)
|
|
|
|
|
|
|
|
|
|
Total net deferred tax assets
|
|
$
|
101
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008, the Companys loss carryforwards
included $4 million of U.S. Federal net operating loss
carryforwards that are subject to limitations and will expire,
if unused, between 2023 and 2027, and approximately
$124 million of state net operating losses that will
expire, if unused, between 2009 and 2028. The Company also has
$10 million of tax credit carryforwards related to state
research and experimentation credits and investment tax credits
that will expire, if unused, primarily beginning in 2012. The
Company believes that it will generate sufficient taxable
income, of the appropriate character, to fully utilize all the
U.S. Federal net operating losses, $73 million of the
state net operating losses and all the state credit
carryforwards before they expire. The Company previously had a
valuation allowance against its U.S. Federal capital loss
carryforward from the 2005 acquisition of The Titan Corporation
(Titan). The Company utilized these capital loss carryforwards
in 2008 and reversed the related $5 million valuation
allowance as a reduction to goodwill.
The Company adopted the provisions of FIN 48 on
January 1, 2007. As a result, the Company recognized a net
decrease in income tax liabilities at January 1, 2007 of
$4 million for income tax deductions taken on the
Companys income tax returns, which were accounted for as
an increase to retained earnings. In addition, the Company
reclassified uncertain income tax positions that are not
expected to be resolved within one year as non-current income
tax liabilities at the balance sheet date.
As of December 31, 2008, the total amount of unrecognized
tax benefits was $171 million, $144 million of which
would reduce the effective income tax rate, if recognized. A
reconciliation of the change in unrecognized income tax
benefits, excluding interest and penalties, is presented in the
table below.
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
Balance at January 1
|
|
$
|
253
|
|
|
$
|
302
|
|
Additions for tax positions related to the current year
|
|
|
10
|
|
|
|
10
|
|
Additions for tax positions related to prior years
|
|
|
14
|
|
|
|
1
|
|
Reductions for tax positions related to prior years
|
|
|
(87
|
)
|
|
|
(24
|
)
|
Reductions for tax positions related to settlements with taxing
authorities
|
|
|
(19
|
)
|
|
|
(31
|
)
|
Reduction for tax positions related to prior years as a result
of a lapse of statute of limitations
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
$
|
171
|
|
|
$
|
253
|
|
|
|
|
|
|
|
|
|
|
The U.S. Federal income tax jurisdiction is the
Companys major tax jurisdiction. The statute of
limitations (the Statute) for the Companys U.S. Federal
income tax returns for the years ended December 31, 2004
through 2007 is open as of December 31, 2008. The Company
expects the Statute on the 2004 and 2005 years to close in the
third quarter of 2009. The Company also expects that the IRS
will begin its audit of the Companys 2006 and 2007 Federal
income tax returns in 2009. In addition, the Company has
numerous state and foreign income tax audits in process. As of
December 31, 2008, the Company anticipates that
unrecognized tax benefits will decrease by approximately
$30 million over the next 12 months.
F-39
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In December 2008, the Company reached an agreement with the IRS
relating to the audit of its 2004 and 2005 U.S. Federal income
tax returns. The Company also settled numerous state and local
income tax audits during 2008. As a result of these settlements,
the Company reduced its provision for income tax by
approximately $27 million in 2008 for the reversal of
previously accrued amounts, including interest. In addition, the
Company finalized the deferred tax assets acquired in various
business acquisitions, resulting in the Company increasing its
deferred tax assets by $98 million, reducing its current
and non-current tax liabilities by $38 million and reducing
its goodwill by $136 million.
In March 2007, the IRS completed a limited scope audit of
certain income tax positions taken by the Company on its
U.S. Federal income tax returns in connection with two
business acquisition transactions that resulted in the Company
paying additional U.S. Federal income taxes of
$7 million. The additional income tax payment was
previously accrued as a liability and does not affect the
effective income tax rate for 2007. In addition, the statute of
limitations of the Companys 2002 U.S. Federal income
tax return expired in April 2007 and for its 2003
U.S. Federal income tax return expired in September 2007.
As a result, the Company reduced its provision for income taxes
by approximately $7 million during the second quarter of
2007 and $5 million during the third quarter of 2007 for
the reversal of previously accrued amounts, primarily interest.
In August 2007 the IRS completed its audit of the
pre-acquisition U.S. Federal income tax returns of Titan for the
2002 and 2003 tax years (the Company acquired Titan on
July 29, 2005). As a result of the completion of the Titan
audits, the Company reduced unrecognized income tax benefits by
$47 million, which did not impact the Companys
effective income tax rate. Of the $47 million,
$25 million of net operating loss carryforwards were
disallowed on audit, and the remaining $22 million of
allowed losses were recorded as a reduction to goodwill.
As of December 31, 2008 and 2007, current and non-current
income taxes payable include accrued interest of
$18 million ($11 million after income taxes) and
$22 million ($13 million after income taxes),
respectively, and penalties of $7 million and
$5 million, respectively. The Companys income tax
expense included a benefit of $2 million and an expense of
$1 million for interest related items in the years ended
December 31, 2008 and 2007, respectively.
|
|
17.
|
Stock-Based
Compensation
|
In 2006, the Company voluntarily initiated and completed a
review of its historical stock-based compensation practices and
related accounting treatment. See Note 3 for a discussion
of the scope and findings of the review.
Stock-based Compensation Plans. Effective
April 29, 2008, the Company adopted the 2008 Long Term
Performance Plan (2008 LTPP) and the 2008 Directors Stock
Incentive Plan (2008 DSIP). As a result, no subsequent awards in
respect of shares of L-3 Holdings common stock have been or
will be issued under the Companys 1997 Stock Option
Plan, the 1998 Directors Stock Option Plan and the 1999 Long
Term Performance Plan (Prior Plans).
Awards under the 2008 LTPP may be granted to any officer or
employee of the Company or any of its subsidiaries, or to any
other individual who provides services to or on behalf of the
Company or any of its subsidiaries. Awards under the 2008 LTPP
may be in the form of stock options, stock appreciation rights,
restricted stock and other stock-based awards (including
restricted stock units and performance units). Awards under the
2008 DSIP may be granted only to non-employee directors of the
Company. Awards under the 2008 DSIP may be in the form of stock
options, restricted stock, restricted stock units and minimum
ownership stock. The 2008 LTPP and the 2008 DSIP are
collectively referred to as the 2008 Plans.
F-40
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Under the terms of the 2008 LTPP, (i) the maximum number of
shares of L-3 Holdings common stock that may be issued
pursuant to full value awards (i.e., all awards
other than stock options and stock appreciation rights) is
2,500,000, (ii) the maximum number of shares of L-3
Holdings common stock that may be issued pursuant to
incentive stock option awards (i.e., stock options
granted in accordance with Section 422 of the
U.S. Internal Revenue Code of 1986, as amended) is
3,000,000, (iii) the maximum number of shares of L-3
Holdings common stock that may be issued (or paid in cash
by reference to such shares) pursuant to all awards granted
during a calendar year to any individual participant is 500,000
and (iv) the maximum number of shares of L-3 Holdings
common stock that may be issued (or paid in cash by reference to
such shares) to any participant over the life of the 2008 LTPP
with respect to performance-based awards may not exceed 5% of
L-3 Holdings total outstanding shares of common stock.
At December 31, 2008, the number of shares of L-3
Holdings common stock authorized for grant under the 2008
Plans was 5.3 million, of which 4.0 million shares
were still available for awards.
To date, awards under the 2008 Plans and Prior Plans
(collectively, the Plans) have been in the form of L-3
Holdings restricted stock, restricted stock units,
performance units and options to purchase L-3 Holdings
common stock. The Company adopted the Plans in order to provide
incentives to directors, officers, employees and other
individuals providing services to or on behalf of the Company
and its subsidiaries. The Company believes that its stock-based
compensation awards encourage high levels of performance by
individuals who contribute to the success of the Company and
enable the Company to attract, retain and reward talented and
experienced individuals. This is accomplished by providing
eligible individuals with an opportunity to obtain or increase a
proprietary interest in the Company
and/or by
providing eligible individuals with additional incentives to
join or remain with the Company. The Plans serve to better align
the interests of management and its employees with those of the
Companys shareholders.
Stock Options. The exercise price of stock options
that may be granted under the 2008 Plans may not be less than
the fair market value of L-3 Holdings common stock on the
date of grant. Options expire after 10 years from the date
of grant and are vested ratably over a three year period on the
annual anniversary of the date of grant. All unvested options
are subject to forfeiture following termination of employment.
Compensation expense for stock option awards was
$17 million ($10 million after income taxes) for the
year ended December 31, 2008, $20 million
($12 million after income taxes) for the year ended
December 31, 2007 and $23 million ($14 million
after income taxes) for the year ended December 31, 2006.
All of the stock option awards issued under the Plans are
non-qualified stock options for U.S. income tax
regulations. The table below
F-41
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
presents a summary of the Companys stock option activity
under the Plans as of December 31, 2008 and changes during
the year then ended.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
|
(in thousands)
|
|
|
|
|
|
(in Years)
|
|
|
(in millions)
|
|
|
Number of shares under option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2008
|
|
|
5,209.1
|
|
|
$
|
66.13
|
|
|
|
7.0
|
|
|
$
|
207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
839.7
|
|
|
|
96.90
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(720.6
|
)
|
|
|
55.70
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(169.9
|
)
|
|
|
80.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
5,158.3
|
|
|
$
|
72.12
|
|
|
|
6.7
|
|
|
$
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31,
2008(1)
|
|
|
4,956.4
|
|
|
$
|
71.39
|
|
|
|
6.6
|
|
|
$
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2008
|
|
|
3,527.8
|
|
|
$
|
63.44
|
|
|
|
5.7
|
|
|
$
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents outstanding options
reduced by expected forfeitures for options not fully vested.
|
The weighted average grant date fair value of each stock option
awarded was $18.65, $22.24 and $19.53 for the years ended
December 31, 2008, 2007 and 2006, respectively. The
aggregate intrinsic value, disclosed in the table above,
represents the difference between L-3 Holdings closing
stock price on the last trading day for the period, and the
exercise price, multiplied by the number of in-the-money stock
options.
The total intrinsic value of stock options exercised, based on
the difference between the L-3 Holdings stock price at the time
of exercise and the related exercise price, was
$35 million, $66 million and $165 million for the
years ended December 31, 2008, 2007 and 2006, respectively.
At December 31, 2008, unrecognized compensation costs
related to stock options was $23 million ($14 million
after income taxes), which is expected to be recognized over a
weighted average remaining period of 1.4 years.
The actual income tax benefit realized related to compensation
deductions arising from the exercise of stock options by the
Companys employees totaled $13 million,
$25 million and $63 million for the years ended
December 31, 2008, 2007 and 2006, respectively.
Stock Option Fair Value Estimation Assumptions. For
purposes of estimating the fair value provisions of
SFAS 123(R), the Company estimates the fair value of its
stock options at the date of grant using the Black-Scholes
option-pricing valuation model. The Companys valuation
model is affected by L-3 Holdings stock price as well as
weighted average assumptions for a number of subjective
variables described below.
|
|
|
|
|
Expected Holding Period. The expected holding period
of stock options granted represents the period of time that
stock options granted are expected to be outstanding until they
are exercised. The Company uses historical data to estimate
stock option exercise data within the valuation model.
|
|
|
|
Expected Volatility. Expected volatility is based on
L-3 Holdings actual historical share price volatility.
|
|
|
|
Expected Dividend Yield. Expected dividend yield is
based on L-3 Holdings anticipated dividend payments and
historical pattern of dividend increases.
|
F-42
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Risk-Free Interest Rate. The risk-free interest
rates for stock options are based on the U.S. Treasury
yield curve in effect at the time of grant for maturities
similar to the expected holding period of the stock options.
|
Changes in assumptions can materially impact the estimated fair
value of stock options. The weighted average assumptions used in
the valuation model are presented in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
Grants
|
|
|
Grants
|
|
|
Grants
|
|
|
Expected holding period (in years)
|
|
|
4.7
|
|
|
|
4.5
|
|
|
|
4.4
|
|
Expected volatility
|
|
|
20.2
|
%
|
|
|
20.5
|
%
|
|
|
25.8
|
%
|
Expected dividend yield
|
|
|
1.6
|
%
|
|
|
1.3
|
%
|
|
|
1.2
|
%
|
Risk-free interest rate
|
|
|
3.2
|
%
|
|
|
4.6
|
%
|
|
|
4.8
|
%
|
Restricted Stock. The Company awards shares of
restricted stock in the form of restricted stock units that
automatically convert into shares of L-3 Holdings common
stock upon vesting. These awards are subject to forfeiture until
certain restrictions have lapsed, including a three year cliff
vesting period starting on the date of grant. The weighted
average grant date fair value of each restricted stock unit
awarded was $98.18, $96.15 and $75.44 for the years ended
December 31, 2008, 2007 and 2006, respectively. The grant
date fair value of the restricted stock awards is based on L-3
Holdings closing stock price at the date of grant, and
will generally be recognized as compensation expense on a
straight-line basis over the three year cliff vesting period.
However, for employees who attain retirement eligibility status
prior to the end of the three year cliff vesting period, and who
have provided at least one year of service after the date of
grant, compensation expense is recognized over the shorter
period from the date of grant to the retirement eligibility
date. Retirement eligible employees are those employees that
have attained the age of 65 and have completed at least five
years of service (which service must be continuous through the
date of termination except for a single break in service that
does not exceed one year in length).
Compensation expense for all restricted stock awards was
$32 million ($19 million after income taxes) for the
year ended December 31, 2008, $21 million
($13 million after income taxes) for the year ended
December 31, 2007 and $13 million ($8 million
after income taxes) for the year ended December 31, 2006.
The table below presents a summary of the Companys
nonvested restricted stock and restricted stock unit awards as
of December 31, 2008 and changes during the year then ended.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
|
|
|
|
Nonvested balance at January 1, 2008
|
|
|
1,063.4
|
|
|
$
|
85.06
|
|
Granted
|
|
|
539.6
|
|
|
|
98.18
|
|
Vested
|
|
|
(221.4
|
)
|
|
|
76.66
|
|
Forfeited
|
|
|
(92.7
|
)
|
|
|
86.73
|
|
|
|
|
|
|
|
|
|
|
Nonvested balance at December 31, 2008
|
|
|
1,288.9
|
|
|
$
|
91.88
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, total unrecognized compensation
costs related to nonvested restricted stock awards were
$56 million ($34 million after income taxes) and are
expected to be recognized over a weighted average remaining
period of 1.6 years. The total fair value of restricted
stock awards vested during the years ended December 31,
2008, 2007 and 2006 as of their vesting dates was
$20 million, $6 million and $6 million,
respectively.
F-43
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Long-Term Incentive Program. On August 1, 2007,
the Compensation Committee of the Board of Directors approved
and established the Companys Long-Term Incentive Program
(LTIP). The LTIP is a multi-year performance program. Each LTIP
participant receives a target award of performance units, with
each unit having a value at the time of grant equal to a share
of L-3 Holdings common stock. The final value of each unit
will vary based upon (1) the level of performance achieved
by the Company over the associated performance period in
relation to a pre-determined performance goal established by the
Compensation Committee and (2) the closing price of L-3
Holdings common stock at the end of the performance
period. Units issued under the program are payable in either
cash or shares of L-3 Holdings common stock as determined
at the time of grant by the Compensation Committee.
The table below presents a summary of the Companys
performance unit awards as of December 31, 2008 and changes
during the year then ended.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable in Cash (TSR)
|
|
|
Payable in Shares (EPS)
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Weighted Average
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
Number of
|
|
|
Grant Date
|
|
|
|
Units
|
|
|
Fair Value
|
|
|
Units
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Nonvested balance at January 1, 2008
|
|
|
22.6
|
|
|
$
|
117.68
|
|
|
|
22.6
|
|
|
$
|
99.58
|
|
Granted
|
|
|
29.2
|
|
|
|
109.85
|
|
|
|
29.2
|
|
|
|
96.34
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(0.8
|
)
|
|
|
117.68
|
|
|
|
(0.8
|
)
|
|
|
99.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested balance at December 31, 2008
|
|
|
51.0
|
|
|
$
|
113.19
|
|
|
|
51.0
|
|
|
$
|
97.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2008 and 2007, the Company awarded performance units with a
weighted average grant date fair value per unit of $103.10 and
$108.63, respectively. Of these units, (1) the final value
of half of the units is contingent upon the compound annual
growth rate in L-3s diluted EPS (the EPS Element) and
(2) the final value of half of the units, is contingent
upon L-3s Total Stockholder Return relative to a peer
group of companies (the TSR Element). The performance period for
all such units begins on the first day of the Companys
fiscal third quarter of the applicable grant year and ends on
the December 31 that is two and a half years later. Units
related to the EPS Element are payable in shares of L-3
Holdings common stock, while units related to the TSR
Element are payable in cash based on the closing price of L-3
Holdings common stock at the end of the performance
period. The total compensation expense recognized under the LTIP
for the years ended December 31, 2008 and 2007 was
$4 million ($2 million after income taxes) and
$1 million ($1 million after income taxes),
respectively. As of December 31, 2008, total unrecognized
compensation costs related to the performance units were
$7 million ($4 million after income taxes) and are
expected to be recognized over a weighted average remaining
period of 1.6 years.
Performance Units Fair Value Assumptions. The
TSR element is initially measured at fair value and subsequently
remeasured each reporting period using a Monte Carlo valuation
model that incorporates current assumptions, including L-3
Holdings stock price. Changes in assumptions can
materially impact the estimated fair value of the TSR element
from period to period. The weighted average assumptions used in
the valuation model as of December 31, 2008 are presented
in the table below.
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Grants
|
|
|
Grants
|
|
|
Expected volatility
|
|
|
29.4
|
%
|
|
|
36.1
|
%
|
Expected dividend yield
|
|
|
1.5
|
%
|
|
|
1.5
|
%
|
Risk-free interest rate
|
|
|
0.8
|
%
|
|
|
0.4
|
%
|
F-44
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The assumptions above used in the Monte Carlo valuation model
for the TSR element are similar to certain of the assumptions
used by the Company in its Black-Scholes option-pricing
valuation model, which are described above, except for the
risk-free interest rate. The risk-free interest rate used in the
Monte Carlo valuation model is based on U.S. Treasuries with a
maturity matching the remaining measurement period.
Employee Stock Purchase Plan. The Company offers an
employee stock purchase plan for all eligible employees.
Eligible employees include all employees of the Company, its
U.S. subsidiaries and certain foreign subsidiaries. Under
this plan, shares of L-3 Holdings common stock may be
purchased by employees of the Company at 85% of the fair market
value of L-3 Holdings common stock on the last trading day
of each six-month offering period. Fair market value is defined
as the average of the highest and lowest sales price of a share
of L-3 Holdings common stock on the last day of the
trading period. Employees may purchase shares through payroll
deductions not to exceed 10% of their salary and wages for each
payroll period, or $21,250 for each year. Employees may not
purchase more than $25,000 worth of L-3 Holdings common
stock for each year based on the value of the common stock at
the beginning of each offering period during the year. The plan
authorizes L-3 Holdings to issue up to 8.0 million shares,
of which 3.2 million shares were available for future
issuance as of December 31, 2008 (i.e., excluding the
effect of shares issued in January 2009 as described
below). In July 2008, the Company issued 0.5 million shares
under its employee stock purchase plan at an average price of
$77.30 per share, which covered employee contributions for the
six months ended June 30, 2008. In January 2009, the
Company issued an additional 0.6 million shares under its
employee stock purchase plan at an average price of $62.29 per
share, which covered employee contributions for the six months
ended December 31, 2008. For both the years ended
December 31, 2008 and 2007, the Company recognized
$12 million ($10 million after income taxes) in
compensation expense related to the discount for L-3
Holdings common stock purchases under the employee stock
purchase plan.
|
|
18.
|
Commitments
and Contingencies
|
Non-Cancelable
Operating Leases
The Company leases certain facilities and equipment under
agreements expiring at various dates through 2028. Certain
leases contain renewal options or escalation clauses providing
for increased rental payments based upon maintenance, utility
and tax increases. No lease agreement imposes a restriction on
the Companys ability to pay dividends, engage in debt or
equity financing transactions, or enter into further lease
agreements.
The following table presents future minimum payments under
non-cancelable operating leases with initial or remaining terms
in excess of one year at December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
Equipment
|
|
|
Total
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
2009
|
|
$
|
152
|
|
|
$
|
23
|
|
|
$
|
175
|
|
2010
|
|
|
153
|
|
|
|
18
|
|
|
|
171
|
|
2011
|
|
|
109
|
|
|
|
13
|
|
|
|
122
|
|
2012
|
|
|
83
|
|
|
|
10
|
|
|
|
93
|
|
2013
|
|
|
65
|
|
|
|
7
|
|
|
|
72
|
|
Thereafter
|
|
|
208
|
|
|
|
29
|
|
|
|
237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum payments required
|
|
|
770
|
|
|
|
100
|
|
|
|
870
|
|
Less: Sublease rentals under non-cancelable leases
|
|
|
27
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net minimum payments required
|
|
$
|
743
|
|
|
$
|
100
|
|
|
$
|
843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-45
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Rent expense, net of sublease income, was $166 million for
2008, $162 million for 2007 and $157 million for 2006.
Letters
of Credit
The Company enters into standby letters of credit with financial
institutions covering performance and financial guarantees
pursuant to contractual arrangements with certain customers. The
Company had total outstanding letters of credit aggregating
$372 million at December 31, 2008, and
$435 million at December 31, 2007. These letters of
credit may be drawn upon in the event of the Companys
nonperformance.
Guarantees
The Company, from time to time, enters into contractual
guarantees that arise in connection with its business
acquisitions, dispositions, and other contractual arrangements
in the normal course of business.
In connection with the Companys acquisition of MAPPS in
2005, the Company acquired a 47.5% interest in FAST Holdings
Limited (FAST), a joint venture corporation. FAST has been
contracted to provide and operate training facilities and
equipment for the United Kingdoms Astute
Class Training Service (ACTS) program. The Company has
guaranteed 50% of certain bank debt borrowed by FAST to finance
its activities on the ACTS program. At December 31, 2008,
the Companys guarantee amounted to $41 million. The
Companys guarantee is expected to decrease as FAST makes
its scheduled repayments of the bank debt that is guaranteed by
the Company and will be released upon customer acceptance of all
contract deliverables, which is expected to occur no later than
2010.
The Company has two existing real estate lease agreements, which
include residual guarantee amounts, expiring on August 31,
2010 and are accounted for as operating leases. On or before the
lease expiration date, the Company can exercise options under
the lease agreements to either renew the leases, purchase both
properties for $28 million, or sell both properties on
behalf of the lessor (the Sale Option). If the
Company elects the Sale Option, the Company must pay the lessor
a residual guarantee amount of $23 million for both
properties, on or before the lease expiration date. In addition,
at the time both properties are sold, the Company must pay the
lessor a supplemental rent payment equal to the gross sales
proceeds in excess of the residual guarantee, provided that such
amount shall not exceed $5 million. For these real estate
lease agreements, if the gross sales proceeds are less than the
sum of the residual guarantee amount and the supplemental rent
payment, the Company is required to pay a supplemental rent
payment to the extent the reduction in the fair value of the
properties is demonstrated by an independent appraisal to have
been caused by the Companys failure to properly maintain
the properties. The aggregate residual guarantee amounts equal
$23 million and are included in the future minimum payments
under non-cancelable real estate operating lease payments
relating to the expiration dates of such leases.
The Company has a contract to provide and operate for the
U.S. Air Force (USAF) a full-service training facility,
including simulator systems adjacent to a USAF base in Oklahoma.
The Company acted as the construction agent on behalf of the
third-party owner-lessors for procurement and construction for
the simulator systems, which were completed and delivered in
August 2002. The Company, as lessee, entered into operating
lease agreements for a term of 15 years for the simulator
systems with the owner-lessors. At the end of the lease term,
the Company may elect to purchase the simulator systems at fair
market value, which can be no less than $7 million and no
greater than $21 million. If the Company does not elect to
purchase the simulator systems on the date of expiration, the
Company shall pay to the lessor, as additional rent,
$3 million and return the simulator systems to the lessors.
F-46
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
U.S.
and Foreign Government Procurement Regulations
A substantial majority of the Companys revenues are
generated from providing products and services under legally
binding agreements, or contracts, with U.S. Government and
foreign government customers. U.S. Government 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. The Company is currently
cooperating with the U.S. Government on several
investigations from which civil, criminal or administrative
proceedings could result and give rise to fines, penalties,
compensatory and treble damages, restitution
and/or
forfeitures. The Company does not currently anticipate that any
of these investigations will have a material adverse effect on
its consolidated financial position, results of operations or
cash flows. However, under U.S. Government 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 or in a loss
of export privileges. A conviction could result in debarment
from contracting with the federal government for a specified
term. In addition, all of the Companys
U.S. Government contracts are subject to audit and various
pricing and cost controls, include standard provisions for
termination for the convenience of the U.S. Government or
for default, and are subject to cancellation if funds for
contracts become unavailable. Foreign government contracts
generally include comparable provisions relating to terminations
for convenience and default, as well as other procurement
clauses relevant to the foreign government.
Environmental
Matters
Management continually assesses the Companys obligations
with respect to applicable environmental protection laws,
including those obligations assumed in connection with certain
business acquisitions. 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, after considering amounts accrued there are no
environmental loss contingencies that, individually or in the
aggregate, would be material to the Companys consolidated
results of operations. The Company accrues for these
contingencies when it is probable that a liability has been
incurred and the amount of the liability can be reasonably
estimated.
Litigation
Matters
The Company has been subject to and is involved in litigation,
government investigations, proceedings, claims or assessments
and various contingent liabilities incidental to its businesses,
including those specified below. Furthermore, in connection with
certain business acquisitions, the Company has assumed some or
all claims against, and liabilities of, the acquired business,
including both asserted and unasserted claims and liabilities.
In accordance with SFAS No. 5, Accounting for
Contingencies, the Company records a liability when
management believes that it is both probable that a liability
has been incurred and the Company can reasonably estimate the
amount of the loss. Generally, the loss is recorded at the
amount the Company expects to resolve the liability. The amount
of liabilities recorded for pending and threatened litigation is
disclosed in Note 8. Amounts recoverable from insurance
contracts or third parties are recorded as assets when deemed
probable. At December 31, 2008, the Company did not record
any amounts for recoveries from insurance contracts or third
parties. The Company believes it has recorded adequate
provisions for its litigation matters. The Company reviews these
provisions quarterly and adjusts these provisions to reflect the
impact of negotiations, settlements, rulings, advice of legal
counsel and other information and events pertaining to a
particular matter. An estimate of loss or range of loss is
disclosed for a particular litigation matter when such amount or
amounts can be reasonably estimated and no loss has been
accrued. The Company believes that any damage amounts claimed in
the specific matters discussed below are not meaningful
indicators of potential
F-47
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
liability. Although the Company believes that it has valid
defenses with respect to legal matters and investigations
pending against it, litigation is inherently unpredictable.
Therefore, it is possible that the financial position, results
of operations or cash flows of the Company could be materially
adversely affected in any particular period by the unfavorable
resolution of one or more of these contingencies.
Kalitta Air. L-3 Integrated Systems and its
predecessors have been involved in litigation with Kalitta Air
arising from a contract to convert Boeing 747 aircraft from
passenger configuration to cargo freighters. The lawsuit was
brought in the United States District Court for the Northern
District of California on January 31, 1997. The aircraft
were modified using Supplemental Type Certificates (STCs) issued
in 1988 by the Federal Aviation Administration (FAA) to Hayes
International, Inc. (Hayes/Pemco) as a subcontractor to
GATX/Airlog Company (GATX). Between 1988 and 1990, Hayes/Pemco
modified five aircraft as a subcontractor to GATX using the
STCs. Between 1990 and 1994, Chrysler Technologies Airborne
Systems, Inc. (CTAS), a predecessor to L-3 Integrated Systems,
performed as a subcontractor to GATX and modified an additional
five aircraft using the STCs. Two of the aircraft modified by
CTAS were owned by American International Airways, the
predecessor to Kalitta Air. In 1996, the FAA determined that the
engineering data provided by Hayes/Pemco supporting the STCs was
inadequate and issued an Airworthiness Directive that
effectively grounded the ten modified aircraft. The Kalitta Air
aircraft have not been in revenue service since that date. The
matter was tried in January 2001 against GATX and CTAS with the
jury finding fault on the part of GATX, but rendering a
unanimous defense verdict in favor of CTAS. Certain
co-defendants had settled prior to trial. The U.S. Court of
Appeals for the Ninth Circuit subsequently reversed and remanded
the trial courts summary judgment rulings in favor of CTAS
regarding a negligence claim by Kalitta Air, which asserts that
CTAS as an expert in aircraft modification should have known
that the STCs were deficient. The retrial began on
January 18, 2005, and ended on March 2, 2005 with a
deadlocked jury and mistrial. At the retrial, Kalitta Air
claimed damages of $235 million. By order dated
July 22, 2005, the Trial Court granted the Companys
motion for judgment as a matter of law as to negligence
dismissing that claim, denied the Companys motion for
judgment as a matter of law as to negligent misrepresentation,
and certified the decision for interlocutory appeal to the
U.S. Court of Appeals for the Ninth Circuit. On
October 8, 2008, the Ninth Circuit reversed the trial
courts dismissal of the negligence claim and affirmed the
trial courts ruling as to the negligent misrepresentation
claim. The case has been remanded to the trial court to
reconsider the negligence claim and for further proceedings on
the negligent misrepresentation claim. CTAS insurance
carrier has accepted defense of the matter with a reservation of
rights to dispute its obligations under the applicable insurance
policy in the event of an adverse jury finding. The Court has
ordered the parties to participate in a mediation, which is
currently scheduled for March 3, 2009.
OSI Systems, Inc. On November 18, 2002,
the Company initiated a proceeding against OSI in the United
States District Court sitting in the Southern District of New
York seeking, among other things, a declaratory judgment that
the Company had fulfilled all of its obligations under a letter
of intent with OSI (the Letter of Intent). Under the Letter of
Intent, the Company was to negotiate definitive agreements with
OSI for the sale to OSI by the Company of certain businesses,
which the Company acquired from PerkinElmer, Inc. on
June 14, 2002. On February 7, 2003, OSI filed an
answer and counterclaims alleging, among other things, that the
Company defrauded OSI, breached obligations of fiduciary duty to
OSI and breached its obligations under the Letter of Intent.
Under the Letter of Intent, the Company proposed selling to OSI
the conventional detection business and the ARGUS business that
the Company acquired from PerkinElmer, Inc. Negotiations lasted
for almost one year and ultimately broke down over issues
regarding, among other things, intellectual property,
product-line definitions, allocation of employees and due
diligence. On May 24, 2006, a jury found in favor of OSI
and awarded OSI $126 million in damages, including awards
of $33 million for compensatory damages and
$93 million for punitive damages, principally on the basis
of OSIs fiduciary-based claims. As a result of the jury
verdict, the Company recorded a $129 million litigation
charge in connection with this litigation, which was accrued as
a current liability, and included an estimate of $3 million
for external legal
F-48
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
costs incurred through June 30, 2006. On June 27,
2008, the U.S. Court of Appeals for the Second Circuit
vacated the jury verdict, ruled in favor of L-3 on the
fiduciary-based claims, and remanded the case for a new trial
solely on OSIs claim of actual fraud. Based on the June 27
decision, the Company reversed the $126 million current
liability for pending and threatened litigation and
$7 million of related accrued interest in the second
quarter of 2008. On September 4, 2008, the Second Circuit
denied a motion by OSI seeking a rehearing of the June 27
decision.
Korean Lot II Program. On April 4,
2005, Lockheed Martin Corporation (Lockheed) filed a lawsuit in
the Federal District Court for the Northern District of Georgia
alleging misappropriation of proprietary information and breach
of a license agreement. The complaint alleges that L-3
Integrated Systems (L-3 IS) is in breach of its license
agreement with Lockheed and is infringing on Lockheeds
intellectual property rights as a result of its performance of a
subcontract awarded to L-3 IS for the Korean Lot II
program. The complaint seeks unspecified monetary damages,
including punitive damages and attorneys fees, and an
injunction enjoining L-3 from use or disclosure of the
intellectual property at issue in the lawsuit. The case is
scheduled to go to trial in May 2009.
SafeView Arbitration. The Company is currently
subject to an American Arbitration Association proceeding
initiated by Paladin Homeland Security Fund on behalf of all
former stockholders of SafeView. The Claimants are alleging
violations of federal securities laws, fraud, negligent
misrepresentation, breach of contract and unjust enrichment in
connection with L-3s acquisition of SafeView, and in
particular the earnout provisions of the acquisition agreement
providing for certain payments contingent upon SafeViews
financial performance during the three year period ended
December 31, 2008. The Claimants are seeking damages of
approximately $35 million (the maximum amount payable under
the earnout provisions), unspecified punitive damages and
attorneys and arbitration fees.
Aircrew Training and Rehearsal Support (ATARS)
Investigation. Following a lawsuit filed by
Lockheed on April 6, 2006 in the U.S. District Court
for the Middle District of Florida against the Company and
certain individuals related to the ATARS II Program (which was
settled in November 2007), the Company received Grand Jury
subpoenas in connection with an investigation being conducted by
the United States Attorney for the Middle District of Florida,
Orlando Division. The subpoenas request the production of
documents related to Lockheeds allegations or produced in
the civil litigation. The Company is cooperating fully with the
U.S. Government.
Titan Government Investigation. In October
2002, Titan received a grand jury subpoena from the Antitrust
Division of the DoJ requesting the production of documents
relating to information technology services performed for the
U.S. Air Force at Hanscom Air Force Base in Massachusetts
and Wright-Patterson Air Force Base in Ohio. Titan was informed
that other companies who have performed similar services have
received subpoenas as well. The Company acquired Titan in July
2005. On September 20, 2006, counsel for the Company was
informed by the New York Field Office of the Department of
Justice Criminal Antitrust Division that it is considering
indictment. Additionally, a former Titan employee received a
letter from the DoJ indicating that he is a target of the
investigation. If the Field Office recommends indictment then,
under normal DoJ procedures, Titan (now known as L-3 Services)
will be afforded an opportunity to make a presentation to the
Criminal Antitrust Division in Washington, D.C., before the
Department of Justice acts on the recommendation. It is not
known whether an indictment of L-3 Services or any of its
employees will occur. If it does occur, it is possible that L-3
Services could be suspended or debarred from conducting business
with the U.S. Government. In December 2008, the DoJ
indicated its interest in conducting additional employee
interviews concerning a teaming agreement relating to the Wright
Patterson Air Force Base procurement. The Company is cooperating
fully with the DoJ.
F-49
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
SEC Inquiry. In March 2007, the Company was
contacted by the U.S. Securities and Exchange Commission,
Enforcement Division, requesting that the Company provide
certain information relating to its previously disclosed review
of its historical stock option granting practices. The Company
voluntarily provided the requested information and continues to
cooperate fully with the SEC.
CyTerra Government Investigation. Since
November 2006, CyTerra has been served with civil and Grand Jury
subpoenas by the DoD Office of the Inspector General and the
DoJ. The Company is cooperating with the Government and is
providing the requested documents. The Company believes that it
is entitled to indemnification for any course of defense related
to this matter and has made a claim against the escrow under the
purchase agreement by which the Company acquired CyTerra in
March 2006.
Bashkirian Airways. On July 1, 2004,
lawsuits were filed on behalf of the estates of 31 Russian
children in the state courts of Washington, Arizona, California,
Florida, New York and New Jersey against Honeywell, Honeywell
TCAS, the Company, ACSS, Thales USA and Thales France. The suits
relate to the crash over southern Germany of Bashkirian Airways
Tupelov TU 154M aircraft and a DHL Boeing 757 cargo aircraft.
On-board the Tupelov aircraft were 9 crew members and 60
passengers, including 45 children. The Boeing aircraft carried a
crew of two. Both aircraft were equipped with Honeywell/ACSS
Model 2000, Change 7 Traffic Collision and Avoidance Systems
(TCAS). Sensing the other aircraft, the on-board DHL TCAS
instructed the DHL pilot to descend, and the Tupelov on-board
TCAS instructed the Tupelov pilot to climb. However, the Swiss
air traffic controller ordered the Tupelov pilot to descend. The
Tupelov pilot disregarded the on-board TCAS and put the Tupelov
aircraft into a descent striking the DHL aircraft in midair at
approximately 35,000 feet. All crew and passengers of both
planes were lost. Investigations by the National Transportation
Safety Board after the crash revealed that both TCAS units were
performing as designed. The suits allege negligence and strict
product liability based upon the design of the units and the
training provided to resolve conflicting commands and seek
approximately $315 million in damages, including
$150 million in punitive damages. The Companys
insurers have accepted defense of the matter and retained
counsel. The matters were consolidated in the Federal Court in
New Jersey, which has dismissed the actions on the basis of
forum non conveniens. The plaintiffs re-filed a complaint on
April 23, 2007 with the Barcelona Courts Registry in
Spain. The trial for this matter began in January 2009 and is
ongoing.
Gol Airlines. The Company was served with
complaints filed in the U.S. District Court for the Eastern
District of New York against ExcelAire, Joseph Lepore, Jan Paul
Paladino, Honeywell, Lockheed, Raytheon, and Amazon Technologies
and Aviation Communications & Surveillance Systems
(ACSS), a joint venture of L-3 and Thales. The complaints relate
to the September 29, 2006 airplane crash over Brazil of a
Boeing
737-800
operated by GOL Linhas Aereas Inteligentes, S.A. and an Embraer
600 business jet operated by ExcelAire. The complaints allege
that ACSS designed the Traffic Collision and Avoidance System
(TCAS) on the ExcelAire jet, and assert claims of negligence,
strict products liability and breach of warranty against ACSS
based on the design of the TCAS and the instructions provided
for its use. The complaints seek unspecified monetary damages,
including punitive damages. The Companys insurers have
accepted defense of this matter and have retained counsel. On
July 3, 2008, the District Court dismissed the actions on
the basis of forum non conveniens on the grounds that Brazil was
the location of the accident and is more convenient for
witnesses and document availability. On August 1, 2008, the
plaintiffs filed an appeal of this ruling with the
U.S. Court of Appeals for the Second Circuit.
Pilatus PC-12 Aircraft. On July 6, 2007,
the Company was served with an amended complaint filed in the
U.S. District Court for the Eastern District of
Pennsylvania against Pilatus Aircraft, Ltd., Pilatus Flugzeuweke
Aktiengellschaft, Rosemont Aerospace, Inc., Revue Thommen AC,
EMCA, Goodrich Corp., Goodrich Avionics Systems, Inc. (the
predecessor to L-3 Avionics) and the Company. The amended
complaint relates to the March 26, 2005 crash of a Pilatus
PC-12 aircraft near Belafonte, Pennsylvania in which all six on
board were lost. The amended complaint alleges that L-3 Avionics
(and/or its predecessor company, Goodrich
F-50
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Avionics) designed, manufactured, tested, marketed, and sold the
stick shaker/pusher servo actuator on the Pilatus PC-12, and
asserts claims against L-3 Avionics and the Company based on
negligence, breach of warranty, and strict liability. The
amended complaint seeks unspecified monetary damages, including
punitive damages. The Companys insurers have accepted
defense of the matter and have retained counsel.
T-39 Sabreliner Aircraft. On January 16,
2008, the Company was served with three wrongful death lawsuits
filed in the U.S. District Court for the Southern District
of New York arising from the crash of a T-39 Sabreliner Aircraft
near Rome, GA on January 10, 2006. The Plaintiffs allege
that L-3 Vertex employed the pilot in command, David Roark, and
maintained the aircraft, and are seeking unspecified monetary
damages. The cases have been consolidated and transferred to the
U.S. District Court for the Northern District of Florida.
The Companys insurers have accepted defense of the matter
and have retained counsel.
Blackhawk Helicopter. On August 7, 2008,
a lawsuit was filed in the U.S. District Court for the
Southern District of Texas relating to the August 22, 2007
crash of a U.S. Army Blackhawk helicopter near Kirkuk,
Iraq. The complaint, which was brought on behalf of 14
passengers who were killed in the crash, alleges that the crash
was the result of L-3 Vertexs negligence in connection
with a phased maintenance inspection performed approximately one
week before the crash, and seeks unspecified monetary damages,
including punitive damages. The Companys insurers have
accepted defense of this matter and have retained counsel.
|
|
19.
|
Pensions
and Other Employee Benefits
|
The Company maintains multiple pension plans, both contributory
and non-contributory, covering employees at certain locations.
Eligibility for participation in these plans varies and benefits
are generally based on the participants compensation
and/or years
of service. The Companys funding policy is generally to
contribute in accordance with cost accounting standards that
affect government contractors, subject to the Internal Revenue
Code and regulations thereon. Plan assets are invested primarily
in listed stocks, mutual funds, bonds, U.S. Government
obligations and U.S. Government agency obligations.
The Company also provides postretirement medical and life
insurance benefits for retired employees and dependents at
certain locations. Participants are eligible for these benefits
when they retire from active service and meet the eligibility
requirements for the Companys pension plans. These
benefits are funded primarily on a pay-as-you-go basis with the
retiree generally paying a portion of the cost through
contributions, deductibles and coinsurance provisions.
In September 2006, the FASB issued SFAS No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an amendment of FASB
Statements No. 87, 88, 106 and 132(R) (SFAS 158).
In accordance with SFAS 158, the Company recognizes the
unfunded status of its pension and postretirement benefit plans
in the consolidated financial statements. SFAS 158 also
required the Company to measure pension and postretirement
benefit plan assets and benefit obligations as of
December 31, beginning no later than the year ended
December 31, 2008. The Company elected to early adopt a
December 31 measurement date for the year ended
December 31, 2007. Previously, the Company used a November
30 measurement date for its pension and post-retirement benefit
plans. Due to the change in the measurement date, the 2007
beginning of year retained earnings balance decreased by
$4 million and accumulated other comprehensive income
balance increased by $39 million, after income taxes. In
connection with the change in measurement date, the Company also
elected to re-measure its plan assets and benefit obligations as
of January 1, 2007, which were used to determine pension
and other post retirement benefit plan expenses for the year
ended December 31, 2007.
F-51
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes changes in the benefit
obligations, the plan assets and funded status for all of the
Companys pension and postretirement benefit plans, as well
as the aggregate balance sheet impact.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2008
|
|
|
2007(1)
|
|
|
2008
|
|
|
2007(1)
|
|
|
|
(in millions)
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at the beginning of the year
|
|
$
|
1,688
|
|
|
$
|
1,658
|
|
|
$
|
183
|
|
|
$
|
187
|
|
Service cost
|
|
|
89
|
|
|
|
103
|
|
|
|
6
|
|
|
|
7
|
|
Interest cost
|
|
|
104
|
|
|
|
103
|
|
|
|
10
|
|
|
|
11
|
|
Plan participants contributions
|
|
|
3
|
|
|
|
3
|
|
|
|
4
|
|
|
|
3
|
|
Amendments
|
|
|
|
|
|
|
7
|
|
|
|
3
|
|
|
|
(2
|
)
|
Actuarial gain
|
|
|
(45
|
)
|
|
|
(162
|
)
|
|
|
(24
|
)
|
|
|
(16
|
)
|
Foreign currency exchange rate changes
|
|
|
(44
|
)
|
|
|
44
|
|
|
|
(7
|
)
|
|
|
6
|
|
Curtailments, settlements and special termination benefits
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
Transfers for product line divestiture
|
|
|
(8
|
)
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
Benefits paid
|
|
|
(66
|
)
|
|
|
(67
|
)
|
|
|
(13
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at the end of the year
|
|
$
|
1,722
|
|
|
$
|
1,688
|
|
|
$
|
162
|
|
|
$
|
183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at the beginning of the year
|
|
$
|
1,407
|
|
|
$
|
1,298
|
|
|
$
|
34
|
|
|
$
|
30
|
|
Actual (loss) return on plan assets
|
|
|
(394
|
)
|
|
|
42
|
|
|
|
(9
|
)
|
|
|
2
|
|
Employer contributions
|
|
|
162
|
|
|
|
94
|
|
|
|
11
|
|
|
|
12
|
|
Plan participants contributions
|
|
|
3
|
|
|
|
3
|
|
|
|
4
|
|
|
|
3
|
|
Foreign currency exchange rate changes
|
|
|
(43
|
)
|
|
|
37
|
|
|
|
|
|
|
|
|
|
Transfers for product line divestiture
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(66
|
)
|
|
|
(67
|
)
|
|
|
(13
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at the end of the year
|
|
$
|
1,064
|
|
|
$
|
1,407
|
|
|
$
|
27
|
|
|
$
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at the end of the year
|
|
$
|
(658
|
)
|
|
$
|
(281
|
)
|
|
$
|
(135
|
)
|
|
$
|
(149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets consist
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
$
|
16
|
|
|
$
|
28
|
|
|
$
|
|
|
|
$
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
(8
|
)
|
Non-current liabilities
|
|
|
(674
|
)
|
|
|
(309
|
)
|
|
|
(128
|
)
|
|
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(658
|
)
|
|
$
|
(281
|
)
|
|
$
|
(135
|
)
|
|
$
|
(149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Due to the change in measurement
date as discussed above, the change in benefit obligation and
plan assets information in the table covers the 13 month
period from November 2006 to December 2007. For the month ended
December 31, 2006, service cost was $7 million,
interest cost was $8 million, actuarial gains were
$60 million, benefits paid were $4 million, and actual
return on plan assets was $9 million for the pension plans.
For the month ended December 31, 2006, service cost was
$1 million, interest cost was $1 million, actuarial
gains were $5 million, and benefits paid were
$1 million for the postretirement benefit plans.
|
F-52
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The table below summarizes the net loss and prior service cost
balances at December 31, in the accumulated other
comprehensive income (loss) account, before related tax effects,
for all of the Companys pension and postretirement benefit
plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
Net loss (gain)
|
|
$
|
621
|
|
|
$
|
168
|
|
|
$
|
(11
|
)
|
|
$
|
|
|
Prior service cost (credit)
|
|
|
21
|
|
|
|
25
|
|
|
|
(14
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amount recognized
|
|
$
|
642
|
|
|
$
|
193
|
|
|
$
|
(25
|
)
|
|
$
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate accumulated benefit obligation (ABO) for all of
the Companys pension plans was $1,443 million at
December 31, 2008 and $1,404 million at
December 31, 2007. The table below presents information for
the pension plans with an ABO in excess of the fair value of
plan assets at December 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(in millions)
|
|
|
Projected benefit obligation
|
|
$
|
1,542
|
|
|
$
|
672
|
|
Accumulated benefit obligation
|
|
|
1,278
|
|
|
|
598
|
|
Fair value of plan assets
|
|
|
870
|
|
|
|
494
|
|
The table below summarizes the weighted average assumptions used
to determine the benefit obligations for the Companys
pension and postretirement plans disclosed at December 31,
2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
Pension Plans
|
|
Benefit Plans
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.49
|
%(1)
|
|
|
6.36
|
%(1)
|
|
|
6.74
|
%(2)
|
|
|
6.07
|
%(2)
|
Rate of compensation increase
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
|
|
|
(1) |
|
The discount rate assumptions used
to determine the benefit obligations for the Companys
pension plans at December 31, 2008 and 2007 were 6.4% and
6.5% for the U.S. based plans, 7.4% and 5.75% for the Canadian
based plans and 6.2% and 5.4% for the German based plans.
|
|
(2) |
|
The discount rate assumptions used
to determine the benefit obligations for the Companys
postretirement benefit plans at December 31, 2008 and 2007
were 6.6% and 6.25% for the U.S. based plans and 7.4% and 5.5%
for the Canadian based plans.
|
F-53
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the components of net periodic
benefit cost for the Companys pension and postretirement
benefit plans for the years ended December 31, 2008, 2007
and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
89
|
|
|
$
|
95
|
|
|
$
|
88
|
|
|
$
|
6
|
|
|
$
|
6
|
|
|
$
|
6
|
|
Interest cost
|
|
|
104
|
|
|
|
95
|
|
|
|
85
|
|
|
|
10
|
|
|
|
10
|
|
|
|
9
|
|
Expected return on plan assets
|
|
|
(117
|
)
|
|
|
(112
|
)
|
|
|
(90
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
Amortization of prior service costs (credits)
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
(4
|
)
|
|
|
(4
|
)
|
Amortization of net loss (gain)
|
|
|
7
|
|
|
|
11
|
|
|
|
19
|
|
|
|
(2
|
)
|
|
|
3
|
|
|
|
1
|
|
Curtailment or settlement loss
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
87
|
|
|
$
|
93
|
|
|
$
|
105
|
|
|
$
|
9
|
|
|
$
|
13
|
|
|
$
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the other changes in plan assets
and benefit obligations recognized in other comprehensive income
for the Companys pension and postretirement benefit plans
for the year ended December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Postretirement
|
|
|
|
Plans
|
|
|
Benefit Plans
|
|
|
|
(in millions)
|
|
|
Other changes in plan assets and benefit obligations
recognized in other comprehensive income:
|
|
|
|
|
|
|
|
|
Net loss (gain)
|
|
$
|
459
|
|
|
$
|
(13
|
)
|
Prior service cost
|
|
|
|
|
|
|
2
|
|
Amortization of net (loss) gain
|
|
|
(7
|
)
|
|
|
2
|
|
Amortization of prior service (cost) credit
|
|
|
(3
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Total recognized in other comprehensive income
|
|
|
449
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit cost and other
comprehensive income
|
|
$
|
536
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the amounts expected to be
amortized from accumulated other comprehensive (loss) income and
recognized as components of net periodic benefit costs during
2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Postretirement
|
|
|
|
|
|
|
Plans
|
|
|
Benefit Plans
|
|
|
Total
|
|
|
|
(in millions)
|
|
|
Net loss (gain)
|
|
$
|
52
|
|
|
$
|
(1
|
)
|
|
$
|
51
|
|
Prior service cost (credit)
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
55
|
|
|
$
|
(4
|
)
|
|
$
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-54
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The table below summarizes the weighted average assumptions used
to determine the net periodic benefit cost for the years ended
December 31, 2008, 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.36
|
%(1)
|
|
|
5.85
|
%(1)
|
|
|
5.75
|
%
|
|
|
6.07
|
%(3)
|
|
|
5.62
|
%(3)
|
|
|
5.50
|
%
|
Expected long-term return on plan assets
|
|
|
8.55
|
%(2)
|
|
|
8.54
|
%(2)
|
|
|
8.55
|
%(2)
|
|
|
6.36
|
%
|
|
|
6.25
|
%
|
|
|
6.39
|
%
|
Rate of compensation increase
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
|
|
4.50
|
%
|
|
|
|
(1) |
|
The discount rate assumptions used
to determine the net periodic benefit cost for the
Companys pension plans during the years ended
December 31, 2008 and 2007 were 6.5% and 6.0% for the U.S.
based plans, 5.75% and 5.25% for the Canadian based plans and
5.4% and 4.5% for the German based plans, respectively.
|
|
(2) |
|
The expected long-term return on
plan assets assumptions used to determine the net periodic
benefit costs for the years ended December 31, 2008, 2007
and 2006 were 8.75% for the U.S. based plans and 7.5% for the
Canadian based plans.
|
|
(3) |
|
The discount rate assumptions used
to determine the net periodic benefit cost for the
Companys postretirement benefit plans during the years
ended December 31, 2008 and 2007 were 6.25% and 5.75% for
the U.S. based plans and 5.5% and 5.0% for the Canadian based
plans, respectively.
|
The expected long-term return on plan asset assumption
represents the average rate that the Company expects to earn
over the long-term on the assets of the Companys benefit
plans, including those from dividends, interest income and
capital appreciation. The assumption has been determined based
on expectations regarding future long-term rates of return for
the plans investment portfolio, with consideration given
to the allocation of investments by asset class and historical
rates of return for each individual asset class.
The annual increase in cost of benefits (health care cost trend
rate) is assumed to be an average of 9.75% in 2009 and is
assumed to gradually decrease to a rate of 5.0% in 2014 and
thereafter. Assumed health care cost trend rates have a
significant effect on amounts reported for postretirement
medical benefit plans. A one percentage point change in the
assumed health care cost trend rates would have the following
effects:
|
|
|
|
|
|
|
|
|
|
|
1 percentage point
|
|
|
|
Increase
|
|
|
Decrease
|
|
|
|
(in millions)
|
|
|
Effect on total service and interest cost
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
Effect on postretirement benefit obligations
|
|
|
8
|
|
|
|
(7
|
)
|
Plan Assets. The Companys Benefit Plan
Committee (Committee) has the responsibility to formulate the
investment policies and strategies for the plans assets.
These policies and strategies are to: (1) invest assets of
the plans in a manner consistent with the fiduciary standards of
ERISA; (2) preserve the plans assets;
(3) maintain sufficient liquidity to fund benefit payments
and pay plan expenses; (4) evaluate the performance of
investment managers; and (5) achieve, on average, a minimum
total rate of return equal to the established benchmarks for
each asset category.
The Committee retains a professional investment consultant to
advise and help ensure that the above policies and strategies
are met. The Committee does not involve itself with the day to
day operations and selection process of individual securities
and investments, and, accordingly, has retained the professional
services of investment management organizations to fulfill those
tasks. The investment management organizations have investment
discretion over the assets placed under their management. The
Committee provides each investment manager with specific
investment guidelines relevant to its asset class.
F-55
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Committee has established the allowable range that the
plans assets may be invested in for each major asset
category and regularly monitors each to make sure that the
actual investment allocation remains within guidelines. The
table below presents the range for each major category of the
plans assets at December 31, 2008, as well as the
Companys pension plan and postretirement benefit plan
weighted-average asset allocations at December 31, 2008 and
2007, by asset category.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
Non-U.S.(1)
|
|
Asset Category
|
|
Range
|
|
2008
|
|
|
2007
|
|
|
Range
|
|
2008
|
|
|
2007
|
|
|
Domestic equity
|
|
40% - 60%
|
|
|
43
|
%
|
|
|
51
|
%
|
|
15% - 40%
|
|
|
16
|
%
|
|
|
24
|
%
|
International equity
|
|
10% - 20%
|
|
|
15
|
|
|
|
18
|
|
|
20% - 40%
|
|
|
25
|
|
|
|
24
|
|
Fixed income securities
|
|
20% - 40%
|
|
|
26
|
|
|
|
21
|
|
|
30% - 55%
|
|
|
42
|
|
|
|
35
|
|
Real estate securities
|
|
5% - 15%
|
|
|
5
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
Other, primarily cash and cash equivalents
|
|
0% - 10%
|
|
|
11
|
|
|
|
4
|
|
|
0% - 15%
|
|
|
17
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Non-U.S.
pension plans represent the Companys participating
Canadian subsidiaries. The plans percentage asset
allocation at December 31, 2007 for certain business
acquisitions includes a receivable due from the seller to fund
the acquisition date pension obligations, which is included in
other, primarily cash and cash equivalents.
|
Contributions. For the year ending December 31,
2009, the Company currently expects to contribute approximately
$65 million to its pension plans and approximately
$13 million to its postretirement benefit plans.
Multi-employer Benefit Plans. Certain of the
Companys businesses participate in multi-employer defined
benefit pension plans. The Company makes cash contributions to
these plans based on a fixed rate per hour of service worked by
the covered employees. Under these plans, the Company
contributed cash and recorded expenses of $13 million for
2008, $11 million for 2007 and $10 million for 2006.
Lockheed Martin Commitment. In connection with the
Companys acquisition of ten business units from Lockheed
Martin and the formation of the Company in 1997, the Company
assumed certain defined benefit pension plan liabilities for
present and former employees and retirees of certain businesses
from Lockheed Martin. Lockheed Martin previously received a
letter from the Pension Benefit Guaranty Corporation (PBGC),
indicating that the pension plans of two businesses were under
funded using the PBGCs actuarial assumptions (Subject
Plans).
With respect to the Subject Plans, Lockheed Martin entered into
an agreement (Lockheed Martin Commitment) with L-3 and the PBGC
dated as of April 30, 1997. The terms and conditions of the
Lockheed Martin Commitment include a commitment by Lockheed
Martin to the PBGC to, under certain circumstances, assume
sponsorship of the Subject Plans or provide another form of
financial support for the Subject Plans. The Lockheed Martin
Commitment will continue until the Subject Plans are no longer
under funded on a PBGC basis for two consecutive years, or
immediately if the Company achieves investment grade credit
ratings on all of the Companys outstanding debt. If
Lockheed Martin did assume sponsorship of the Subject Plans, it
would be primarily liable for the costs associated with funding
the Subject Plans or any costs associated with the termination
of the Subject Plans. The terms and conditions of the Lockheed
Martin Commitment would require the Company to reimburse
Lockheed Martin for these costs. Lockheed Martin has not assumed
sponsorship or provided another form of financial support for
the Subject Plans.
The Company believes it has performed its obligations under the
Lockheed Martin Commitment and has not received any
communications from the PBGC concerning actions which the PBGC
contemplates taking in respect of the Subject Plans. For the
year ended December 31, 2008, the Company contributed
$3 million to the Subject Plans. At December 31, 2008,
the aggregate projected benefit obligation was $245 million
and the
F-56
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
aggregate plan assets were $144 million for the Subject
Plans. At December 31, 2008, the Company had recorded a
liability of $101 million for the under funded status of
the Subject Plans.
Estimated Future Benefit Payments. The following
table presents expected pension and postretirement benefit
payments and expected postretirement subsidies due to the
Medicare Prescription Drug, Improvement and Modernization Act of
2003, which reflect expected future service, as appropriate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
|
|
|
Benefits
|
|
|
|
Pension
|
|
|
Benefit
|
|
|
Subsidy
|
|
|
|
Benefits
|
|
|
Payments
|
|
|
Receipts
|
|
|
|
(in millions)
|
|
|
2009
|
|
$
|
75
|
|
|
|
11
|
|
|
|
1
|
|
2010
|
|
|
81
|
|
|
|
12
|
|
|
|
1
|
|
2011
|
|
|
86
|
|
|
|
13
|
|
|
|
1
|
|
2012
|
|
|
90
|
|
|
|
13
|
|
|
|
1
|
|
2013
|
|
|
96
|
|
|
|
14
|
|
|
|
1
|
|
Years
2014-2018
|
|
|
619
|
|
|
|
78
|
|
|
|
9
|
|
Employee Savings Plans. Under its various employee
savings plans, the Company matches the contributions of
participating employees up to a designated level. The extent of
the match, vesting terms and the form of the matching
contributions vary among the plans. Under these plans, the
Companys matching contributions in L-3 Holdings
common stock and cash were $144 million for 2008,
$126 million for 2007 and $112 million for 2006.
|
|
20.
|
Supplemental
Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
|
Interest paid
|
|
$
|
267
|
|
|
$
|
280
|
|
|
$
|
287
|
|
Income tax payments
|
|
|
343
|
|
|
|
200
|
|
|
|
67
|
|
Income tax refunds
|
|
|
8
|
|
|
|
7
|
|
|
|
6
|
|
The Company has four reportable segments, 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. All corporate expenses are allocated to
the Companys operating segments using an allocation
methodology prescribed by U.S. Government regulations for
government contractors. Accordingly, all costs and expenses,
except for the litigation gain in 2008 and the litigation and
stock-based charges in 2006 (which were not included in the
Companys segment performance measures), are included in
the Companys measure of segment profitability.
F-57
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tables below present net sales, operating income,
depreciation and amortization, capital expenditures and total
assets by reportable segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
|
|
|
|
|
|
|
|
|
|
C3ISR
|
|
$
|
1,780
|
|
|
$
|
1,751
|
|
|
$
|
1,671
|
|
Government Services
|
|
|
282
|
|
|
|
273
|
|
|
|
181
|
|
AM&M
|
|
|
661
|
|
|
|
631
|
|
|
|
582
|
|
Specialized Products
|
|
|
4,607
|
|
|
|
4,102
|
|
|
|
3,650
|
|
Elimination of intercompany sales
|
|
|
(200
|
)
|
|
|
(185
|
)
|
|
|
(151
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total products sales
|
|
|
7,130
|
|
|
|
6,572
|
|
|
|
5,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
C3ISR
|
|
|
829
|
|
|
|
589
|
|
|
|
393
|
|
Government Services
|
|
|
4,105
|
|
|
|
4,160
|
|
|
|
3,751
|
|
AM&M
|
|
|
1,996
|
|
|
|
1,900
|
|
|
|
1,746
|
|
Specialized Products
|
|
|
972
|
|
|
|
853
|
|
|
|
766
|
|
Elimination of intercompany sales
|
|
|
(131
|
)
|
|
|
(113
|
)
|
|
|
(112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total services sales
|
|
|
7,771
|
|
|
|
7,389
|
|
|
|
6,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
14,901
|
|
|
$
|
13,961
|
|
|
$
|
12,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
C3ISR
|
|
$
|
251
|
|
|
$
|
232
|
|
|
$
|
216
|
|
Government Services
|
|
|
421
|
|
|
|
403
|
|
|
|
343
|
|
AM&M
|
|
|
241
|
|
|
|
247
|
|
|
|
232
|
|
Specialized Products
|
|
|
646
|
|
|
|
566
|
|
|
|
488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Total
|
|
$
|
1,559
|
|
|
$
|
1,448
|
|
|
$
|
1,279
|
|
Litigation gain (charge)
|
|
|
126
|
|
|
|
|
|
|
|
(129
|
)
|
Stock-based charge
|
|
|
|
|
|
|
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
1,685
|
|
|
$
|
1,448
|
|
|
$
|
1,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
C3ISR
|
|
$
|
39
|
|
|
$
|
39
|
|
|
$
|
35
|
|
Government Services
|
|
|
35
|
|
|
|
33
|
|
|
|
28
|
|
AM&M
|
|
|
26
|
|
|
|
29
|
|
|
|
26
|
|
Specialized Products
|
|
|
106
|
|
|
|
106
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
206
|
|
|
$
|
207
|
|
|
$
|
189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
C3ISR
|
|
$
|
86
|
|
|
$
|
32
|
|
|
$
|
34
|
|
Government Services
|
|
|
13
|
|
|
|
14
|
|
|
|
8
|
|
AM&M
|
|
|
12
|
|
|
|
14
|
|
|
|
21
|
|
Specialized Products
|
|
|
100
|
|
|
|
94
|
|
|
|
85
|
|
Corporate
|
|
|
7
|
|
|
|
3
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
218
|
|
|
$
|
157
|
|
|
$
|
156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-58
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Total Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
C3ISR
|
|
$
|
1,814
|
|
|
$
|
1,798
|
|
|
$
|
1,697
|
|
Government Services
|
|
|
3,464
|
|
|
|
3,438
|
|
|
|
3,333
|
|
AM&M
|
|
|
1,807
|
|
|
|
1,928
|
|
|
|
1,871
|
|
Specialized Products
|
|
|
6,319
|
|
|
|
6,193
|
|
|
|
5,671
|
|
Corporate
|
|
|
1,081
|
|
|
|
1,034
|
|
|
|
715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
14,485
|
|
|
$
|
14,391
|
|
|
$
|
13,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate assets not allocated to the reportable segments
primarily include cash and cash equivalents, corporate office
fixed assets, deferred income tax assets and deferred debt issue
costs. In addition, substantially all of the Companys
assets are located in North America.
The Companys sales attributable to U.S. customers and
foreign customers, based on location of the customer, are
summarized in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
|
U.S.
|
|
$
|
12,815
|
|
|
$
|
11,867
|
|
|
$
|
10,683
|
|
Foreign:
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany
|
|
|
324
|
|
|
|
318
|
|
|
|
258
|
|
Canada
|
|
|
308
|
|
|
|
368
|
|
|
|
351
|
|
United Kingdom
|
|
|
212
|
|
|
|
216
|
|
|
|
178
|
|
Australia
|
|
|
147
|
|
|
|
93
|
|
|
|
87
|
|
South Korea
|
|
|
140
|
|
|
|
193
|
|
|
|
193
|
|
Italy
|
|
|
93
|
|
|
|
39
|
|
|
|
33
|
|
New Zealand
|
|
|
42
|
|
|
|
88
|
|
|
|
111
|
|
Other
|
|
|
820
|
|
|
|
779
|
|
|
|
583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total foreign
|
|
|
2,086
|
|
|
|
2,094
|
|
|
|
1,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
14,901
|
|
|
$
|
13,961
|
|
|
$
|
12,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales to principal customers are summarized in the table
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(in millions)
|
|
|
U.S. Government
agencies(1)
|
|
$
|
12,126
|
|
|
$
|
11,203
|
|
|
$
|
10,062
|
|
Commercial
|
|
|
1,676
|
|
|
|
1,786
|
|
|
|
1,532
|
|
Allied foreign
governments(1)
|
|
|
1,099
|
|
|
|
972
|
|
|
|
883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
14,901
|
|
|
$
|
13,961
|
|
|
$
|
12,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes sales for which the
Company is the prime contractor as well as sales based on the
ultimate customer for which the Company is a subcontractor.
|
F-59
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
22.
|
Unaudited
Quarterly Financial Data
|
Unaudited summarized financial data by quarter for the years
ended December 31, 2008 and 2007 is presented in the table
below. The Companys unaudited quarterly results of
operations are affected significantly by our business
acquisitions. See Note 4.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(in millions, except per share data)
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
3,506
|
|
|
$
|
3,722
|
|
|
$
|
3,662
|
|
|
$
|
4,011
|
|
Operating income
|
|
|
368
|
|
|
|
501
|
|
|
|
400
|
|
|
|
416
|
|
Income from continuing operations
|
|
|
192
|
|
|
|
278
|
|
|
|
212
|
|
|
|
247
|
|
Net income
|
|
|
192
|
|
|
|
278
|
|
|
|
212
|
|
|
|
267
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.57
|
|
|
$
|
2.28
|
|
|
$
|
1.75
|
|
|
$
|
2.06
|
|
Gain on sale of a business, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1.57
|
|
|
$
|
2.28
|
|
|
$
|
1.75
|
|
|
$
|
2.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1.54
|
|
|
$
|
2.24
|
|
|
$
|
1.73
|
|
|
$
|
2.04
|
|
Gain on sale of a business, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1.54
|
|
|
$
|
2.24
|
|
|
$
|
1.73
|
|
|
$
|
2.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
3,300
|
|
|
$
|
3,407
|
|
|
$
|
3,448
|
|
|
$
|
3,806
|
|
Operating income
|
|
|
326
|
|
|
|
355
|
|
|
|
371
|
|
|
|
396
|
|
Net income
|
|
|
162
|
|
|
|
188
|
|
|
|
199
|
|
|
|
207
|
|
Basic EPS
|
|
|
1.30
|
|
|
|
1.51
|
|
|
|
1.58
|
|
|
|
1.66
|
|
Diluted EPS
|
|
|
1.29
|
|
|
|
1.49
|
|
|
|
1.56
|
|
|
|
1.63
|
|
F-60
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
23.
|
Financial
Information of L-3 Communications and Its Subsidiaries
|
Total shareholders equity for L-3 Communications equals
that of L-3 Holdings, but the components, common stock,
additional paid-in capital, treasury stock and retained
earnings, are different. The table below presents information
regarding the balances and changes in common stock, additional
paid-in capital, treasury stock and retained earnings of L-3
Communications for each of the three years ended
December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L-3 Communications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Par
|
|
|
Paid-in
|
|
|
Treasury
|
|
|
Retained
|
|
|
|
|
|
|
Issued
|
|
|
Value
|
|
|
Capital
|
|
|
Stock
|
|
|
Earnings
|
|
|
Total
|
|
|
|
(in millions)
|
|
|
Balance at December 31, 2005
|
|
|
100
|
|
|
|
|
|
|
$
|
3,041
|
|
|
|
|
|
|
$
|
1,545
|
|
|
$
|
4,586
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
526
|
|
|
|
526
|
|
Contributions from L-3 Holdings
|
|
|
|
|
|
|
|
|
|
|
361
|
|
|
|
|
|
|
|
|
|
|
|
361
|
|
Dividends to L-3 Holdings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(118
|
)
|
|
|
(118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
100
|
|
|
|
|
|
|
|
3,402
|
|
|
|
|
|
|
|
1,953
|
|
|
|
5,355
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
756
|
|
|
|
756
|
|
Contributions from L-3 Holdings
|
|
|
|
|
|
|
|
|
|
|
351
|
|
|
|
|
|
|
|
|
|
|
|
351
|
|
Dividends to L-3 Holdings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(626
|
)
|
|
|
(626
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
100
|
|
|
|
|
|
|
|
3,753
|
|
|
|
|
|
|
|
2,083
|
|
|
|
5,836
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
949
|
|
|
|
949
|
|
Contributions from L-3 Holdings
|
|
|
|
|
|
|
|
|
|
|
319
|
|
|
|
|
|
|
|
|
|
|
|
319
|
|
Dividends to L-3 Holdings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(941
|
)
|
|
|
(941
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
100
|
|
|
|
|
|
|
$
|
4,072
|
|
|
$
|
|
|
|
$
|
2,091
|
|
|
$
|
6,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The net proceeds received by L-3 Holdings from (i) the sale
of its common stock, (ii) exercise of L-3 Holdings
employee and director stock options, and related tax benefits,
and (iii) L-3 Holdings common stock contributed to
the Companys savings plans are contributed to L-3
Communications. The amounts paid by L-3 Holdings for dividends
and share repurchases are generated from dividends received from
L-3 Communications.
The debt of L-3 Communications, including the Senior
Subordinated Notes and borrowings under amounts drawn against
the Senior Credit Facility are guaranteed, on a joint and
several, full and unconditional basis, by certain of its
domestic subsidiaries (the Guarantor Subsidiaries).
See Note 10. The foreign subsidiaries and certain domestic
subsidiaries of L-3 Communications (the Non-Guarantor
Subsidiaries) do not guarantee the debt of L-3
Communications. None of the debt of L-3 Communications has been
issued by its subsidiaries. There are no restrictions on the
payment of dividends from the Guarantor Subsidiaries to L-3
Communications.
In lieu of providing separate audited financial statements for
the Guarantor Subsidiaries, the Company has included the
accompanying condensed combining financial statements based on
Rule 3-10
of SEC
Regulation S-X.
The Company does not believe that separate financial statements
of the Guarantor Subsidiaries are material to users of the
financial statements.
F-61
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following condensed combining financial information presents
the results of operations, financial position and cash flows of
(1) L-3 Holdings, excluding L-3 Communications and its
consolidated subsidiaries (the Parent), (2) L-3
Communications, excluding its consolidated subsidiaries,
(3) the Guarantor Subsidiaries, (4) the Non-Guarantor
Subsidiaries and (5) the eliminations to arrive at the
information for L-3 on a consolidated basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L-3
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
L-3
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
Consolidated
|
|
|
|
(Parent)
|
|
|
Communications
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
L-3
|
|
|
|
(in millions)
|
|
|
Condensed Combining Balance Sheets
At December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
720
|
|
|
$
|
(81
|
)
|
|
$
|
228
|
|
|
$
|
|
|
|
$
|
867
|
|
Billed receivables, net
|
|
|
|
|
|
|
324
|
|
|
|
701
|
|
|
|
201
|
|
|
|
|
|
|
|
1,226
|
|
Contracts in process
|
|
|
|
|
|
|
587
|
|
|
|
1,461
|
|
|
|
219
|
|
|
|
|
|
|
|
2,267
|
|
Other current assets
|
|
|
|
|
|
|
291
|
|
|
|
170
|
|
|
|
140
|
|
|
|
|
|
|
|
601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
1,922
|
|
|
|
2,251
|
|
|
|
788
|
|
|
|
|
|
|
|
4,961
|
|
Goodwill
|
|
|
|
|
|
|
1,171
|
|
|
|
5,746
|
|
|
|
1,112
|
|
|
|
|
|
|
|
8,029
|
|
Other assets
|
|
|
8
|
|
|
|
476
|
|
|
|
837
|
|
|
|
182
|
|
|
|
(8
|
)
|
|
|
1,495
|
|
Investment in and amounts due from consolidated subsidiaries
|
|
|
6,523
|
|
|
|
8,489
|
|
|
|
1,283
|
|
|
|
80
|
|
|
|
(16,375
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
6,531
|
|
|
$
|
12,058
|
|
|
$
|
10,117
|
|
|
$
|
2,162
|
|
|
$
|
(16,383
|
)
|
|
$
|
14,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
|
|
|
$
|
824
|
|
|
$
|
1,312
|
|
|
$
|
571
|
|
|
$
|
|
|
|
$
|
2,707
|
|
Other long-term liabilities
|
|
|
|
|
|
|
865
|
|
|
|
219
|
|
|
|
242
|
|
|
|
|
|
|
|
1,326
|
|
Long-term debt
|
|
|
700
|
|
|
|
4,538
|
|
|
|
|
|
|
|
|
|
|
|
(700
|
)
|
|
|
4,538
|
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
|
|
|
|
83
|
|
Shareholders equity
|
|
|
5,831
|
|
|
|
5,831
|
|
|
|
8,586
|
|
|
|
1,349
|
|
|
|
(15,766
|
)
|
|
|
5,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
6,531
|
|
|
$
|
12,058
|
|
|
$
|
10,117
|
|
|
$
|
2,162
|
|
|
$
|
(16,383
|
)
|
|
$
|
14,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
632
|
|
|
$
|
(89
|
)
|
|
$
|
237
|
|
|
$
|
|
|
|
$
|
780
|
|
Billed receivables, net
|
|
|
|
|
|
|
291
|
|
|
|
767
|
|
|
|
221
|
|
|
|
|
|
|
|
1,279
|
|
Contracts in process
|
|
|
|
|
|
|
505
|
|
|
|
1,347
|
|
|
|
247
|
|
|
|
|
|
|
|
2,099
|
|
Other current assets
|
|
|
|
|
|
|
332
|
|
|
|
142
|
|
|
|
131
|
|
|
|
|
|
|
|
605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
1,760
|
|
|
|
2,167
|
|
|
|
836
|
|
|
|
|
|
|
|
4,763
|
|
Goodwill
|
|
|
|
|
|
|
961
|
|
|
|
5,912
|
|
|
|
1,292
|
|
|
|
|
|
|
|
8,165
|
|
Other assets
|
|
|
11
|
|
|
|
397
|
|
|
|
865
|
|
|
|
201
|
|
|
|
(11
|
)
|
|
|
1,463
|
|
Investment in and amounts due from consolidated subsidiaries
|
|
|
6,678
|
|
|
|
9,027
|
|
|
|
460
|
|
|
|
12
|
|
|
|
(16,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
6,689
|
|
|
$
|
12,145
|
|
|
$
|
9,404
|
|
|
$
|
2,341
|
|
|
$
|
(16,188
|
)
|
|
$
|
14,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
|
|
|
$
|
879
|
|
|
$
|
1,133
|
|
|
$
|
570
|
|
|
$
|
|
|
|
$
|
2,582
|
|
Other long-term liabilities
|
|
|
|
|
|
|
740
|
|
|
|
241
|
|
|
|
215
|
|
|
|
|
|
|
|
1,196
|
|
Long-term debt
|
|
|
700
|
|
|
|
4,537
|
|
|
|
|
|
|
|
|
|
|
|
(700
|
)
|
|
|
4,537
|
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
|
|
|
|
87
|
|
Shareholders equity
|
|
|
5,989
|
|
|
|
5,989
|
|
|
|
8,030
|
|
|
|
1,556
|
|
|
|
(15,575
|
)
|
|
|
5,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
6,689
|
|
|
$
|
12,145
|
|
|
$
|
9,404
|
|
|
$
|
2,341
|
|
|
$
|
(16,188
|
)
|
|
$
|
14,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-62
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L-3
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
L-3
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
Consolidated
|
|
|
|
(Parent)
|
|
|
Communications
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
L-3
|
|
|
|
(in millions)
|
|
|
Condensed Combining Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
3,192
|
|
|
$
|
9,826
|
|
|
$
|
2,000
|
|
|
$
|
(117
|
)
|
|
$
|
14,901
|
|
Cost of sales
|
|
|
64
|
|
|
|
2,768
|
|
|
|
8,893
|
|
|
|
1,798
|
|
|
|
(181
|
)
|
|
|
13,342
|
|
Litigation gain
|
|
|
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(64
|
)
|
|
|
550
|
|
|
|
933
|
|
|
|
202
|
|
|
|
64
|
|
|
|
1,685
|
|
Interest and other income, net
|
|
|
|
|
|
|
130
|
|
|
|
5
|
|
|
|
7
|
|
|
|
(114
|
)
|
|
|
28
|
|
Interest expense
|
|
|
24
|
|
|
|
268
|
|
|
|
110
|
|
|
|
7
|
|
|
|
(138
|
)
|
|
|
271
|
|
Minority interests in net income of consolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss (income) from continuing operations before income taxes
|
|
|
(88
|
)
|
|
|
412
|
|
|
|
828
|
|
|
|
202
|
|
|
|
77
|
|
|
|
1,431
|
|
(Benefit) provision for income taxes
|
|
|
(32
|
)
|
|
|
124
|
|
|
|
304
|
|
|
|
74
|
|
|
|
32
|
|
|
|
502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
(56
|
)
|
|
|
288
|
|
|
|
524
|
|
|
|
128
|
|
|
|
45
|
|
|
|
929
|
|
Gain on sale of a business, net of income taxes
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
Equity in net income of consolidated subsidiaries
|
|
|
1,005
|
|
|
|
641
|
|
|
|
|
|
|
|
|
|
|
|
(1,646
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
949
|
|
|
$
|
949
|
|
|
$
|
524
|
|
|
$
|
128
|
|
|
$
|
(1,601
|
)
|
|
$
|
949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
2,706
|
|
|
$
|
9,426
|
|
|
$
|
1,911
|
|
|
$
|
(82
|
)
|
|
$
|
13,961
|
|
Cost of sales
|
|
|
53
|
|
|
|
2,371
|
|
|
|
8,537
|
|
|
|
1,687
|
|
|
|
(135
|
)
|
|
|
12,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(53
|
)
|
|
|
335
|
|
|
|
889
|
|
|
|
224
|
|
|
|
53
|
|
|
|
1,448
|
|
Interest and other income, net
|
|
|
|
|
|
|
27
|
|
|
|
3
|
|
|
|
5
|
|
|
|
(4
|
)
|
|
|
31
|
|
Interest expense
|
|
|
24
|
|
|
|
294
|
|
|
|
1
|
|
|
|
5
|
|
|
|
(28
|
)
|
|
|
296
|
|
Minority interests in net income of consolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(77
|
)
|
|
|
68
|
|
|
|
891
|
|
|
|
224
|
|
|
|
68
|
|
|
|
1,174
|
|
(Benefit) provision for income taxes
|
|
|
(27
|
)
|
|
|
21
|
|
|
|
317
|
|
|
|
80
|
|
|
|
27
|
|
|
|
418
|
|
Equity in net income of consolidated subsidiaries
|
|
|
806
|
|
|
|
709
|
|
|
|
|
|
|
|
|
|
|
|
(1,515
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
756
|
|
|
$
|
756
|
|
|
$
|
574
|
|
|
$
|
144
|
|
|
$
|
(1,474
|
)
|
|
$
|
756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
|
$
|
2,733
|
|
|
$
|
8,168
|
|
|
$
|
1,612
|
|
|
$
|
(36
|
)
|
|
$
|
12,477
|
|
Cost of sales
|
|
|
47
|
|
|
|
2,411
|
|
|
|
7,376
|
|
|
|
1,447
|
|
|
|
(83
|
)
|
|
|
11,198
|
|
Litigation charge
|
|
|
|
|
|
|
(129
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(129
|
)
|
Stock-Based charge
|
|
|
(39
|
)
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(86
|
)
|
|
|
154
|
|
|
|
792
|
|
|
|
165
|
|
|
|
86
|
|
|
|
1,111
|
|
Interest and other income, net
|
|
|
|
|
|
|
26
|
|
|
|
4
|
|
|
|
6
|
|
|
|
(16
|
)
|
|
|
20
|
|
Interest expense
|
|
|
24
|
|
|
|
295
|
|
|
|
1
|
|
|
|
16
|
|
|
|
(40
|
)
|
|
|
296
|
|
Minority interests in net income of consolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(110
|
)
|
|
|
(115
|
)
|
|
|
795
|
|
|
|
155
|
|
|
|
100
|
|
|
|
825
|
|
(Benefit) provision for income taxes
|
|
|
(40
|
)
|
|
|
(45
|
)
|
|
|
288
|
|
|
|
56
|
|
|
|
40
|
|
|
|
299
|
|
Equity in net income of consolidated subsidiaries
|
|
|
596
|
|
|
|
596
|
|
|
|
|
|
|
|
|
|
|
|
(1,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
526
|
|
|
$
|
526
|
|
|
$
|
507
|
|
|
$
|
99
|
|
|
$
|
(1,132
|
)
|
|
$
|
526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-63
L-3
COMMUNICATIONS HOLDINGS, INC.
AND L-3 COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L-3
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
Holdings
|
|
|
L-3
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
|
|
|
Consolidated
|
|
|
|
(Parent)
|
|
|
Communications
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
L-3
|
|
|
|
(in millions)
|
|
|
Condensed Combining Statements of Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
$
|
941
|
|
|
$
|
38
|
|
|
$
|
1,202
|
|
|
$
|
204
|
|
|
$
|
(998
|
)
|
|
$
|
1,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business acquisitions, net of cash acquired
|
|
|
|
|
|
|
(283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(283
|
)
|
Other investing activities
|
|
|
(103
|
)
|
|
|
(15
|
)
|
|
|
(111
|
)
|
|
|
(23
|
)
|
|
|
103
|
|
|
|
(149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(103
|
)
|
|
|
(298
|
)
|
|
|
(111
|
)
|
|
|
(23
|
)
|
|
|
103
|
|
|
|
(432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock repurchased
|
|
|
(794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(794
|
)
|
Other financing activities
|
|
|
(44
|
)
|
|
|
348
|
|
|
|
(1,083
|
)
|
|
|
(162
|
)
|
|
|
895
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) from financing activities
|
|
|
(838
|
)
|
|
|
348
|
|
|
|
(1,083
|
)
|
|
|
(162
|
)
|
|
|
895
|
|
|
|
(840
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
|
|
|
|
88
|
|
|
|
8
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
87
|
|
Cash and cash equivalents, beginning of the year
|
|
|
|
|
|
|
632
|
|
|
|
(89
|
)
|
|
|
237
|
|
|
|
|
|
|
|
780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the year
|
|
$
|
|
|
|
$
|
720
|
|
|
$
|
(81
|
)
|
|
$
|
228
|
|
|
$
|
|
|
|
$
|
867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
$
|
626
|
|
|
$
|
107
|
|
|
$
|
987
|
|
|
$
|
229
|
|
|
$
|
(679
|
)
|
|
$
|
1,270
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business acquisitions, net of cash acquired
|
|
|
|
|
|
|
(235
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(235
|
)
|
Other investing activities
|
|
|
(153
|
)
|
|
|
(38
|
)
|
|
|
(87
|
)
|
|
|
(28
|
)
|
|
|
153
|
|
|
|
(153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(153
|
)
|
|
|
(273
|
)
|
|
|
(87
|
)
|
|
|
(28
|
)
|
|
|
153
|
|
|
|
(388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock repurchased
|
|
|
(500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(500
|
)
|
Other financing activities
|
|
|
27
|
|
|
|
495
|
|
|
|
(890
|
)
|
|
|
(122
|
)
|
|
|
526
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) from financing activities
|
|
|
(473
|
)
|
|
|
495
|
|
|
|
(890
|
)
|
|
|
(122
|
)
|
|
|
526
|
|
|
|
(464
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rates on cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
|
|
|
|
329
|
|
|
|
10
|
|
|
|
93
|
|
|
|
|
|
|
|
432
|
|
Cash and cash equivalents, beginning of the year
|
|
|
|
|
|
|
303
|
|
|
|
(100
|
)
|
|
|
145
|
|
|
|
|
|
|
|
348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the year
|
|
$
|
|
|
|
$
|
632
|
|
|
$
|
(90
|
)
|
|
$
|
238
|
|
|
$
|
|
|
|
$
|
780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from operating activities
|
|
$
|
118
|
|
|
$
|
94
|
|
|
$
|
858
|
|
|
$
|
142
|
|
|
$
|
(138
|
)
|
|
$
|
1,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business acquisitions, net of cash acquired
|
|
|
|
|
|
|
(943
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(943
|
)
|
Other investing activities
|
|
|
(132
|
)
|
|
|
(48
|
)
|
|
|
(74
|
)
|
|
|
(26
|
)
|
|
|
132
|
|
|
|
(148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(132
|
)
|
|
|
(991
|
)
|
|
|
(74
|
)
|
|
|
(26
|
)
|
|
|
132
|
|
|
|
(1,091
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares repurchased
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
Other financing activities
|
|
|
39
|
|
|
|
912
|
|
|
|
(889
|
)
|
|
|
(72
|
)
|
|
|
6
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash from (used in) financing activities
|
|
|
14
|
|
|
|
912
|
|
|
|
(889
|
)
|
|
|
(72
|
)
|
|
|
6
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
|
|
|
|
15
|
|
|
|
(105
|
)
|
|
|
44
|
|
|
|
|
|
|
|
(46
|
)
|
Cash and cash equivalents, beginning of the year
|
|
|
|
|
|
|
288
|
|
|
|
5
|
|
|
|
101
|
|
|
|
|
|
|
|
394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the year
|
|
$
|
|
|
|
$
|
303
|
|
|
$
|
(100
|
)
|
|
$
|
145
|
|
|
$
|
|
|
|
$
|
348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-64
EX-4.5
Exhibit 4.5
SUPPLEMENTAL INDENTURE TO BE DELIVERED
BY GUARANTEEING SUBSIDIARIES
Supplemental Indenture (this Supplemental Indenture), dated as of February 20, 2009, among
L-3 Communications Corporation (or its permitted successor), a Delaware corporation (the
Company), each subsidiary of the Company signatory hereto (each, a Guaranteeing Subsidiary, and
collectively, the Guaranteeing Subsidiaries), and The
Bank of New York Mellon (formerly known as The Bank of New York), as trustee under the
indenture referred to below (the Trustee).
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the
Indenture), dated as of June 28, 2002 providing for the issuance of an aggregate principal amount
of up to $750,000,000 of 7 5/8% Senior Subordinated Notes due 2012 (the Notes);
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiaries
shall execute and deliver to the Trustee a supplemental indenture pursuant to which the
Guaranteeing Subsidiaries shall unconditionally guarantee all of the Companys obligations under
the Notes and the Indenture on the terms and conditions set forth herein (the Subsidiary
Guarantee); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and
deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiaries and the
Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes
as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the
meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. Each Guaranteeing Subsidiary hereby agrees as follows:
|
(a) |
|
Such Guaranteeing Subsidiary, jointly and
severally with all other current and future guarantors of the Notes
(collectively, the Guarantors and each, a Guarantor),
unconditionally guarantees to each Holder of a Note authenticated and
delivered by the Trustee and to the Trustee and its successors and
assigns, regardless of the validity and enforceability of the
Indenture, the Notes or the Obligations of the Company under the
Indenture or the Notes, that: |
|
(i) |
|
the principal of, premium,
interest and Additional Amounts, if any, on the Notes will be
promptly paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on the
overdue principal of, premium, interest and Additional
Amounts, if any, on the Notes, to the extent lawful, and all
other Obligations of the Company to the Holders or the Trustee
thereunder or under the Indenture will be promptly paid in
full, all in accordance with the terms thereof; and |
1
|
(ii) |
|
in case of any extension of
time for payment or renewal of any Notes or any of such other
Obligations, that the same will be promptly paid in full when
due in accordance with the terms of the extension or renewal,
whether at stated maturity, by acceleration or otherwise. |
|
(b) |
|
Notwithstanding the foregoing, in the event
that this Subsidiary Guarantee would constitute or result in a
violation of any applicable fraudulent conveyance or similar law of any
relevant jurisdiction, the liability of such Guaranteeing Subsidiary
under this Supplemental Indenture and its Subsidiary Guarantee shall be
reduced to the maximum amount permissible under such fraudulent
conveyance or similar law. |
3. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEES.
|
(a) |
|
To evidence its Subsidiary Guarantee set forth
in this Supplemental Indenture, such Guaranteeing Subsidiary hereby
agrees that a notation of such Subsidiary Guarantee substantially in
the form of Exhibit F to the Indenture shall be endorsed by an officer
of such Guaranteeing Subsidiary on each Note authenticated and
delivered by the Trustee after the date hereof. |
|
|
(b) |
|
Notwithstanding the foregoing, such
Guaranteeing Subsidiary hereby agrees that its Subsidiary Guarantee set
forth herein shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation of such Subsidiary
Guarantee. |
|
|
(c) |
|
If an Officer whose signature is on this
Supplemental Indenture or on the Subsidiary Guarantee no longer holds
that office at the time the Trustee authenticates the Note on which a
Subsidiary Guarantee is endorsed, the Subsidiary Guarantee shall be
valid nevertheless. |
|
|
(d) |
|
The delivery of any Note by the Trustee, after
the authentication thereof under the Indenture, shall constitute due
delivery of the Subsidiary Guarantee set forth in this Supplemental
Indenture on behalf of each Guaranteeing Subsidiary. |
|
|
(e) |
|
Each Guaranteeing Subsidiary hereby agrees that
its obligations hereunder shall be unconditional, regardless of the
validity, regularity or enforceability of the Notes or the Indenture,
the absence of any action to enforce the same, any waiver or consent by
any Holder of the Notes with respect to any provisions hereof or
thereof, the recovery of any judgment against the Company, any action
to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor. |
|
|
(f) |
|
Each Guaranteeing Subsidiary hereby waives
diligence, presentment, demand of payment, filing of claims with a
court in the event of insolvency or bankruptcy of the Company, any
right to require a proceeding first against the Company, protest,
notice and all demands whatsoever and covenants that its Subsidiary
Guarantee made pursuant |
2
|
|
|
to this Supplemental Indenture will not be discharged except by
complete performance of the Obligations contained in the Notes and
the Indenture. |
|
|
(g) |
|
If any Holder or the Trustee is required by any
court or otherwise to return to the Company or any Guaranteeing
Subsidiary, or any custodian, Trustee, liquidator or other similar
official acting in relation to either the Company or such Guaranteeing
Subsidiary, any amount paid by either to the Trustee or such Holder,
the Subsidiary Guarantee made pursuant to this Supplemental Indenture,
to the extent theretofore discharged, shall be reinstated in full force
and effect. |
|
|
(h) |
|
Each Guaranteeing Subsidiary agrees that it
shall not be entitled to any right of subrogation in relation to the
Holders in respect of any Obligations guaranteed hereby until payment
in full of all Obligations guaranteed hereby. Each Guaranteeing
Subsidiary further agrees that, as between such Guaranteeing
Subsidiary, on the one hand, and the Holders and the Trustee, on the
other hand: |
|
(i) |
|
the maturity of the
Obligations guaranteed hereby may be accelerated as provided
in Article 6 of the Indenture for the purposes of the
Subsidiary Guarantee made pursuant to this Supplemental
Indenture, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the
obligations guaranteed hereby; and |
|
|
(ii) |
|
in the event of any
declaration of acceleration of such obligations as provided in
Article 6 of the Indenture, such obligations (whether or not
due and payable) shall forthwith become due and payable by
such Guaranteeing Subsidiary for the purpose of the Subsidiary
Guarantee made pursuant to this Supplemental Indenture. |
|
(i) |
|
Each Guaranteeing Subsidiary shall have the
right to seek contribution from any other non-paying Guaranteeing
Subsidiary so long as the exercise of such right does not impair the
rights of the Holders or the Trustee under the Subsidiary Guarantee
made pursuant to this Supplemental Indenture. |
4. GUARANTEEING SUBSIDIARY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS.
|
(a) |
|
Except as set forth in Articles 4 and 5 of the
Indenture, nothing contained in the Indenture, this Supplemental
Indenture or in the Notes shall prevent any consolidation or merger of
any Guaranteeing Subsidiary with or into the Company or any other
Guarantor or shall prevent any transfer, sale or conveyance of the
property of any Guaranteeing Subsidiary as an entirety or substantially
as an entirety, to the Company or any other Guarantor. |
|
|
(b) |
|
Except as set forth in Article 4 of the
Indenture, nothing contained in the Indenture, this Supplemental
Indenture or in the Notes shall prevent any consolidation or merger of
any Guaranteeing Subsidiary with or into a |
3
|
|
|
corporation or corporations other than the Company or any other
Guarantor (in each case, whether or not affiliated with the
Guaranteeing Subsidiary), or successive consolidations or mergers in
which a Guaranteeing Subsidiary or its successor or successors shall
be a party or parties, or shall prevent any sale or conveyance of the
property of any Guaranteeing Subsidiary as an entirety or
substantially as an entirety, to a corporation other than the Company
or any other Guarantor (in each case, whether or not affiliated with
the Guaranteeing Subsidiary) authorized to acquire and operate the
same; provided, however, that each Guaranteeing Subsidiary hereby
covenants and agrees that (i) subject to the Indenture, upon any such
consolidation, merger, sale or conveyance, the due and punctual
performance and observance of all of the covenants and conditions of
the Indenture and this Supplemental Indenture to be performed by such
Guaranteeing Subsidiaries, shall be expressly assumed (in the event
that such Guaranteeing Subsidiary is not the surviving corporation in
the merger), by supplemental indenture satisfactory in form to the
Trustee, executed and delivered to the Trustee, by the corporation
formed by such consolidation, or into which such Guaranteeing
Subsidiary shall have been merged, or by the corporation which shall
have acquired such property and (ii) immediately after giving effect
to such consolidation, merger, sale or conveyance no Default or Event
of Default exists. |
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(c) |
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In case of any such consolidation, merger, sale
or conveyance and upon the assumption by the successor corporation, by
supplemental indenture, executed and delivered to the Trustee and
satisfactory in form to the Trustee, of the Subsidiary Guarantee made
pursuant to this Supplemental Indenture and the due and punctual
performance of all of the covenants and conditions of the Indenture and
this Supplemental Indenture to be performed by such Guaranteeing
Subsidiary, such successor corporation shall succeed to and be
substituted for such Guaranteeing Subsidiary with the same effect as if
it had been named herein as the Guaranteeing Subsidiary. Such successor
corporation thereupon may cause to be signed any or all of the
Subsidiary Guarantees to be endorsed upon the Notes issuable under the
Indenture which theretofore shall not have been signed by the Company
and delivered to the Trustee. All the Subsidiary Guarantees so issued
shall in all respects have the same legal rank and benefit under the
Indenture and this Supplemental Indenture as the Subsidiary Guarantees
theretofore and thereafter issued in accordance with the terms of the
Indenture and this Supplemental Indenture as though all of such
Subsidiary Guarantees had been issued at the date of the execution
hereof. |
5. RELEASES.
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(a) |
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Concurrently with any sale of assets
(including, if applicable, all of the Capital Stock of a Guaranteeing
Subsidiary), all Liens, if any, in favor of the Trustee in the assets
sold thereby shall be released; provided that in the event of an Asset
Sale, the Net Proceeds from such sale or other disposition are treated
in accordance with the provisions of Section 4.10 of the Indenture. If
the assets sold in such sale or other disposition |
4
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include all or substantially all of the assets of a Guaranteeing
Subsidiary or all of the Capital Stock of a Guaranteeing Subsidiary,
then the Guaranteeing Subsidiary (in the event of a sale or other
disposition of all of the Capital Stock of such Guaranteeing
Subsidiary) or the Person acquiring the property (in the event of a
sale or other disposition of all or substantially all of the assets
of such Guaranteeing Subsidiary) shall be released from and relieved
of its Obligations under this Supplemental Indenture and its
Subsidiary Guarantee made pursuant hereto; provided that in the event
of an Asset Sale, the Net Proceeds from such sale or other
disposition are treated in accordance with the provisions of Section
4.10 of the Indenture. Upon delivery by the Company to the Trustee of
an Officers Certificate to the effect that such sale or other
disposition was made by the Company or the Guaranteeing Subsidiary,
as the case may be, in accordance with the provisions of the
Indenture and this Supplemental Indenture, including without
limitation, Section 4.10 of the Indenture, the Trustee shall execute
any documents reasonably required in order to evidence the release of
the Guaranteeing Subsidiary from its Obligations under this
Supplemental Indenture and its Subsidiary Guarantee made pursuant
hereto. If the Guaranteeing Subsidiary is not released from its
obligations under its Subsidiary Guarantee, it shall remain liable
for the full amount of principal of and interest on the Notes and for
the other obligations of such Guaranteeing Subsidiary under the
Indenture as provided in this Supplemental Indenture. |
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(b) |
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Upon the designation of a Guaranteeing
Subsidiary as an Unrestricted Subsidiary in accordance with the terms
of the Indenture, such Guaranteeing Subsidiary shall be released and
relieved of its obligations under its Subsidiary Guarantee and this
Supplemental Indenture. Upon delivery by the Company to the Trustee of
an Officers Certificate and an Opinion of Counsel to the effect that
such designation of such Guaranteeing Subsidiary as an Unrestricted
Subsidiary was made by the Company in accordance with the provisions of
the Indenture, including without limitation Section 4.07 of the
Indenture, the Trustee shall execute any documents reasonably required
in order to evidence the release of such Guaranteeing Subsidiary from
its obligations under its Subsidiary Guarantee. Any Guaranteeing
Subsidiary not released from its Obligations under its Subsidiary
Guarantee shall remain liable for the full amount of principal of and
interest on the Notes and for the other Obligations of any Guaranteeing
Subsidiary under the Indenture as provided herein. |
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(c) |
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Each Guaranteeing Subsidiary shall be released
and relieved of its obligations under this Supplemental Indenture in
accordance with, and subject to, Section 4.18 of the Indenture. |
6. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee,
incorporator, stockholder or agent of any Guaranteeing Subsidiary, as such, shall have any
liability for any obligations of the Company or any Guaranteeing Subsidiary under the Notes, any
Subsidiary Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by
accepting a Note waives and releases all such liability. The waiver and release are part of the
consideration for issuance of
5
the Notes. Such waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the SEC that such a waiver is against public policy.
7. SUBORDINATION OF SUBSIDIARY GUARANTEES; ANTI-LAYERING. No Guaranteeing Subsidiary shall
incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt of a Guaranteeing Subsidiary and
senior in any respect in right of payment to any of the Subsidiary Guarantees. Notwithstanding the
foregoing sentence, the Subsidiary Guarantee of each Guaranteeing Subsidiary shall be subordinated
to the prior payment in full of all Senior Debt of that Guaranteeing Subsidiary (in the same manner
and to the same extent that the Notes are subordinated to Senior Debt), which shall include all
guarantees of Senior Debt.
8. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
9. COUNTERPARTS. The parties may sign any number of copies of this Supplemental Indenture.
Each signed copy shall be an original, but all of them together represent the same agreement.
10. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not
affect the construction hereof.
11. THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in
respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the
recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiaries
and the Company.
6
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly
executed, all as of the date first above written.
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Dated: February 20, 2009 |
L-3 COMMUNICATIONS CORPORATION
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Senior Vice President, General Counsel and
Corporate Secretary |
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Dated: February 20, 2009
Broadcast Sports Inc., a Delaware corporation
D.P. Associates, Inc., a Virginia corporation
Electrodynamics, Inc., an Arizona corporation
Henschel Inc., a Delaware corporation
International Resources Group Ltd., a Delaware corporation
Interstate Electronics Corporation, a California corporation
LinCom Wireless, Inc., a Delaware corporation
L-3 Communications Advanced Laser Systems Technology, Inc., a Florida corporation
L-3 Communications AIS GP Corporation, a Delaware corporation
L-3 Communications Applied Signal and Image Technology, Inc., a Maryland corporation
L-3 Communications Avionics Systems, Inc., a Delaware corporation
L-3 Communications Cincinnati Electronics, Inc., an Ohio corporation
L-3 Communications Crestview Aerospace Corporation, a Delaware corporation
L-3 Communications CyTerra Corporation, a Delaware corporation
L-3 Communications Dynamic Positioning and Control Systems, Inc., a California corporation
L-3 Communications Electron Technologies, Inc., a Delaware corporation
L-3 Communications EO/IR, Inc., a Florida corporation
L-3 Communications EOTech, Inc., a Delaware corporation
L-3 Communications ESSCO, Inc., a Delaware corporation
L-3 Communications Foreign Holdings, Inc., a Delaware corporation
L-3 Communications Geneva Aerospace, Inc., a Texas corporation
L-3 Communications InfraredVision Technology Corporation, a California corporation
L-3 Communications Investments Inc., a Delaware corporation
L-3 Communications Klein Associates, Inc., a Delaware corporation
L-3 Communications MariPro, Inc., a California corporation
L-3 Communications Mobile-Vision, Inc., a New Jersey corporation
L-3 Communications Nautronix Holdings, Inc., a Delaware corporation
L-3 Communications Nova Engineering, Inc., an Ohio corporation
L-3 Communications SafeView, Inc., a Delaware corporation
L-3 Communications Security and Detection Systems, Inc., a Delaware corporation
L-3 Communications Sonoma EO, Inc., a California corporation
L-3 Communications TCS, Inc., a Delaware corporation
L-3 Communications Westwood Corporation, a Nevada corporation
L-3 Fuzing and Ordnance Systems, Inc., a Delaware corporation
L-3 G.A. International, Inc., a Florida corporation
L-3 Global Communications Solutions, Inc., a Virginia corporation
L-3 Services, Inc., a Delaware corporation
Microdyne Communications Technologies Incorporated, a Maryland corporation
Microdyne Corporation, a Maryland corporation
Microdyne Outsourcing Incorporated, a Maryland corporation
Pac Ord Inc., a Delaware corporation
Power Paragon, Inc., a Delaware corporation
SPD Electrical Systems, Inc., a Delaware corporation
SPD Switchgear Inc., a Delaware corporation
Titan Facilities, Inc., a Virginia corporation
Troll Technology Corporation, a California corporation
Wescam Air Ops Inc., a Delaware corporation
Wescam Holdings (US) Inc., a Delaware corporation
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As Guaranteeing Subsidiaries
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Vice President and Secretary |
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L-3 Communications Integrated Systems L.P., a Delaware limited partnership
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By: L-3 COMMUNICATIONS AIS GP CORPORATION, as General Partner
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Vice President and Secretary |
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L-3 Communications Flight Capital LLC, a Delaware limited liability company
L-3 Communications Flight International Aviation LLC, a Delaware limited liability company
L-3 Communications Vector International Aviation LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS VERTEX AEROSPACE LLC, as Sole Member
By: L-3 COMMUNICATIONS INTEGRATED SYSTEMS L.P., as Sole Member
By: L-3 COMMUNICATIONS AIS GP CORPORATION, as General Partner
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Vice President and Secretary |
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L-3 Communications Vertex Aerospace LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS INTEGRATED SYSTEMS L.P., as Sole Member
By: L-3 COMMUNICATIONS AIS GP CORPORATION, as General Partner
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Vice President and Secretary |
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L-3 Communications Germany Holdings, LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS CORPORATION, as Sole Member
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Senior Vice President, General Counsel and Corporate Secretary |
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L-3 Communications Shared Services, LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS CORPORATION, as Sole Member
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Senior Vice President, General Counsel and Corporate Secretary |
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Dated: February 20, 2009 |
THE BANK OF NEW YORK MELLON, as Trustee
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By: |
/s/ Franca Ferrera |
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Name: |
Franca Ferrera |
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Title: |
Assistant Vice President |
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NOTATION ON SENIOR SUBORDINATED NOTE RELATING TO SUBSIDIARY GUARANTEE
Pursuant to the Supplemental Indenture (the Supplemental Indenture) dated as of February 20,
2009 among L-3 Communications Corporation, a Delaware corporation, the Guarantors party thereto
(each a Guarantor and collectively the
Guarantors) and The Bank of New York Mellon (formerly known as The Bank of New York), as trustee (the
Trustee), each Guarantor (i) has jointly and severally unconditionally guaranteed (a) the due and
punctual payment of the principal of, and premium, interest and Additional Amounts on the Notes,
whether at maturity or an interest payment date, by acceleration, call for redemption or otherwise,
(b) the due and punctual payment of interest on the overdue principal and premium of, and interest
and Additional Amounts on the Notes, and (c) in case of any extension of time of payment or renewal
of any Notes or any of such other Obligations, the same will be promptly paid in full when due in
accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration
or otherwise and (ii) has agreed to pay any and all costs and expenses (including reasonable
attorneys fees) incurred by the Trustee or any Holder in enforcing any rights under the Subsidiary
Guarantee (as defined in the Supplemental Indenture).
Notwithstanding the foregoing, in the event that the Subsidiary Guarantee of any Guarantor
would constitute or result in a violation of any applicable fraudulent conveyance or similar law of
any relevant jurisdiction, the liability of such Guarantor under its Subsidiary Guarantee shall be
reduced to the maximum amount permissible under such fraudulent conveyance or similar law.
No past, present or future director, officer, employee, agent, incorporator, stockholder or
agent of any Guarantor, as such, shall have any liability for any Obligations of the Company or any
Guarantor under the Notes, any Subsidiary Guarantee, the Indenture, any supplemental indenture
delivered pursuant to the Indenture by such Guarantor, or for any claim based on, in respect of or
by reason of such Obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability.
The Subsidiary Guarantee shall be binding upon each Guarantor and its successors and assigns
and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in
the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and
privileges herein conferred upon that party shall automatically extend to and be vested in such
transferee or assignee, all subject to the terms and conditions hereof.
The Subsidiary Guarantee shall not be valid or obligatory for any purpose until the
certificate of authentication on the Note upon which the Subsidiary Guarantee is noted has been
executed by the Trustee under the Indenture by the manual signature of one of its authorized
officers. Capitalized terms used herein have the meaning assigned to them in the Indenture, dated
as of June 28, 2002, among L-3 Communications Corporation, the Guarantors party thereto and the
Trustee.
Dated: February 20, 2009
Broadcast Sports Inc., a Delaware corporation
D.P. Associates, Inc., a Virginia corporation
Electrodynamics, Inc., an Arizona corporation
Henschel Inc., a Delaware corporation
International Resources Group Ltd., a Delaware corporation
Interstate Electronics Corporation, a California corporation
LinCom Wireless, Inc., a Delaware corporation
L-3 Communications Advanced Laser Systems Technology, Inc., a Florida corporation
L-3 Communications AIS GP Corporation, a Delaware corporation
L-3 Communications Applied Signal and Image Technology, Inc., a Maryland corporation
L-3 Communications Avionics Systems, Inc., a Delaware corporation
L-3 Communications Cincinnati Electronics, Inc., an Ohio corporation
L-3 Communications Crestview Aerospace Corporation, a Delaware corporation
L-3 Communications CyTerra Corporation, a Delaware corporation
L-3 Communications Dynamic Positioning and Control Systems, Inc., a California corporation
L-3 Communications Electron Technologies, Inc., a Delaware corporation
L-3 Communications EO/IR, Inc., a Florida corporation
L-3 Communications EOTech, Inc., a Delaware corporation
L-3 Communications ESSCO, Inc., a Delaware corporation
L-3 Communications Foreign Holdings, Inc., a Delaware corporation
L-3 Communications Geneva Aerospace, Inc., a Texas corporation
L-3 Communications InfraredVision Technology Corporation, a California corporation
L-3 Communications Investments Inc., a Delaware corporation
L-3 Communications Klein Associates, Inc., a Delaware corporation
L-3 Communications MariPro, Inc., a California corporation
L-3 Communications Mobile-Vision, Inc., a New Jersey corporation
L-3 Communications Nautronix Holdings, Inc., a Delaware corporation
L-3 Communications Nova Engineering, Inc., an Ohio corporation
L-3 Communications SafeView, Inc., a Delaware corporation
L-3 Communications Security and Detection Systems, Inc., a Delaware corporation
L-3 Communications Sonoma EO, Inc., a California corporation
L-3 Communications TCS, Inc., a Delaware corporation
L-3 Communications Westwood Corporation, a Nevada corporation
L-3 Fuzing and Ordnance Systems, Inc., a Delaware corporation
L-3 G.A. International, Inc., a Florida corporation
L-3 Global Communications Solutions, Inc., a Virginia corporation
L-3 Services, Inc., a Delaware corporation
Microdyne Communications Technologies Incorporated, a Maryland corporation
Microdyne Corporation, a Maryland corporation
Microdyne Outsourcing Incorporated, a Maryland corporation
Pac Ord Inc., a Delaware corporation
Power Paragon, Inc., a Delaware corporation
SPD Electrical Systems, Inc., a Delaware corporation
SPD Switchgear Inc., a Delaware corporation
Titan Facilities, Inc., a Virginia corporation
Troll Technology Corporation, a California corporation
Wescam Air Ops Inc., a Delaware corporation
Wescam Holdings (US) Inc., a Delaware corporation
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As Guaranteeing Subsidiaries
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
|
|
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Title: |
Vice President and Secretary |
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L-3 Communications Integrated Systems L.P., a Delaware limited partnership
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By: L-3 COMMUNICATIONS AIS GP CORPORATION, as General Partner
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Vice President and Secretary |
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L-3 Communications Flight Capital LLC, a Delaware limited liability company
L-3 Communications Flight International Aviation LLC, a Delaware limited liability company
L-3 Communications Vector International Aviation LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS VERTEX AEROSPACE LLC, as Sole Member
By: L-3 COMMUNICATIONS INTEGRATED SYSTEMS L.P., as Sole Member
By: L-3 COMMUNICATIONS AIS GP CORPORATION, as General Partner
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Vice President and Secretary |
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L-3 Communications Vertex Aerospace LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS INTEGRATED SYSTEMS L.P., as Sole Member
By: L-3 COMMUNICATIONS AIS GP CORPORATION, as General Partner
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Vice President and Secretary |
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L-3 Communications Germany Holdings, LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS CORPORATION, as Sole Member
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Senior Vice President. General Counsel and Corporate Secretary |
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L-3 Communications Shared Services, LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS CORPORATION, as Sole Member
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Senior Vice President, General Counsel and Corporate Secretary |
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EX-4.7
Exhibit 4.7
SUPPLEMENTAL INDENTURE TO BE DELIVERED
BY GUARANTEEING SUBSIDIARIES
Supplemental Indenture (this Supplemental Indenture), dated as of February 20, 2009, among
L-3 Communications Corporation (or its permitted successor), a Delaware corporation (the
Company), each a direct or indirect subsidiary of the Company signatory hereto (each, a
Guaranteeing Subsidiary, and collectively, the Guaranteeing Subsidiaries), and The Bank of New
York Mellon (formerly known as The Bank of New York), as trustee under the indenture referred to below (the Trustee).
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the
Indenture), dated as of May 21, 2003 providing for the issuance of an unlimited amount of 6 1/8%
Senior Subordinated Notes due 2013 (the Notes);
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiaries
shall execute and deliver to the Trustee a supplemental indenture pursuant to which the
Guaranteeing Subsidiaries shall unconditionally guarantee all of the Companys Obligations (as
defined in the Indenture) under the Notes and the Indenture on the terms and conditions set forth
herein (the Subsidiary Guarantee); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and
deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiaries and the
Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes
as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the
meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. Each Guaranteeing Subsidiary hereby agrees as follows:
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(a) |
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Such Guaranteeing Subsidiary, jointly and
severally with all other current and future guarantors of the Notes
(collectively, the Guarantors and each, a Guarantor),
unconditionally guarantees to each Holder of a Note authenticated and
delivered by the Trustee and to the Trustee and its successors and
assigns, regardless of the validity and enforceability of the
Indenture, the Notes or the Obligations of the Company under the
Indenture or the Notes, that: |
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(i) |
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the principal of, premium,
interest and Additional Amounts, if any, on the Notes will be
promptly paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on the
overdue principal of, premium, interest and Additional
Amounts, if any, on the Notes, to the extent lawful, and all
other Obligations of the Company to the Holders or the Trustee
thereunder or under the Indenture will be promptly paid in
full, all in accordance with the terms thereof; and |
1
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(ii) |
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in case of any extension of
time for payment or renewal of any Notes or any of such other
Obligations, that the same will be promptly paid in full when
due in accordance with the terms of the extension or renewal,
whether at stated maturity, by acceleration or otherwise. |
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(b) |
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Notwithstanding the foregoing, in the event
that this Subsidiary Guarantee would constitute or result in a
violation of any applicable fraudulent conveyance or similar law of any
relevant jurisdiction, the liability of such Guaranteeing Subsidiary
under this Supplemental Indenture and its Subsidiary Guarantee shall be
reduced to the maximum amount permissible under such fraudulent
conveyance or similar law. |
3. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEES.
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(a) |
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To evidence its Subsidiary Guarantee set forth
in this Supplemental Indenture, such Guaranteeing Subsidiary hereby
agrees that a notation of such Subsidiary Guarantee substantially in
the form of Exhibit F to the Indenture shall be endorsed by an officer
of such Guaranteeing Subsidiary on each Note authenticated and
delivered by the Trustee after the date hereof. |
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(b) |
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Notwithstanding the foregoing, such
Guaranteeing Subsidiary hereby agrees that its Subsidiary Guarantee set
forth herein shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation of such Subsidiary
Guarantee. |
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(c) |
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If an Officer whose signature is on this
Supplemental Indenture or on the Subsidiary Guarantee no longer holds
that office at the time the Trustee authenticates the Note on which a
Subsidiary Guarantee is endorsed, the Subsidiary Guarantee shall be
valid nevertheless. |
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(d) |
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The delivery of any Note by the Trustee, after
the authentication thereof under the Indenture, shall constitute due
delivery of the Subsidiary Guarantee set forth in this Supplemental
Indenture on behalf of each Guaranteeing Subsidiary. |
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(e) |
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Each Guaranteeing Subsidiary hereby agrees that
its Obligations hereunder shall be unconditional, regardless of the
validity, regularity or enforceability of the Notes or the Indenture,
the absence of any action to enforce the same, any waiver or consent by
any Holder of the Notes with respect to any provisions hereof or
thereof, the recovery of any judgment against the Company, any action
to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor. |
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(f) |
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Each Guaranteeing Subsidiary hereby waives
diligence, presentment, demand of payment, filing of claims with a
court in the event of insolvency or bankruptcy of the Company, any
right to require a proceeding first against the Company, protest,
notice and all demands |
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whatsoever and covenants that its Subsidiary Guarantee made pursuant
to this Supplemental Indenture will not be discharged except by
complete performance of the Obligations contained in the Notes and
the Indenture. |
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(g) |
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If any Holder or the Trustee is required by any
court or otherwise to return to the Company or any Guaranteeing
Subsidiary, or any custodian, Trustee, liquidator or other similar
official acting in relation to either the Company or such Guaranteeing
Subsidiary, any amount paid by either to the Trustee or such Holder,
the Subsidiary Guarantee made pursuant to this Supplemental Indenture,
to the extent theretofore discharged, shall be reinstated in full force
and effect. |
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(h) |
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Each Guaranteeing Subsidiary agrees that it
shall not be entitled to any right of subrogation in relation to the
Holders in respect of any Obligations guaranteed hereby until payment
in full of all Obligations guaranteed hereby. Each Guaranteeing
Subsidiary further agrees that, as between such Guaranteeing
Subsidiary, on the one hand, and the Holders and the Trustee, on the
other hand: |
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(i) |
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the maturity of the
Obligations guaranteed hereby may be accelerated as provided
in Article 6 of the Indenture for the purposes of the
Subsidiary Guarantee made pursuant to this Supplemental
Indenture, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the
Obligations guaranteed hereby; and |
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(ii) |
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in the event of any
declaration of acceleration of such Obligations as provided in
Article 6 of the Indenture, such Obligations (whether or not
due and payable) shall forthwith become due and payable by
such Guaranteeing Subsidiary for the purpose of the Subsidiary
Guarantee made pursuant to this Supplemental Indenture. |
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(i) |
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Each Guaranteeing Subsidiary shall have the
right to seek contribution from any other non-paying Guaranteeing
Subsidiary so long as the exercise of such right does not impair the
rights of the Holders or the Trustee under the Subsidiary Guarantee
made pursuant to this Supplemental Indenture. |
4. GUARANTEEING SUBSIDIARY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS.
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(a) |
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Except as set forth in Articles 4 and 5 of the
Indenture, nothing contained in the Indenture, this Supplemental
Indenture or in the Notes shall prevent any consolidation or merger of
any Guaranteeing Subsidiary with or into the Company or any other
Guarantor or shall prevent any transfer, sale or conveyance of the
property of any Guaranteeing Subsidiary as an entirety or substantially
as an entirety, to the Company or any other Guarantor. |
3
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(b) |
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Except as set forth in Article 4 and 5 of the
Indenture, nothing contained in the Indenture, this Supplemental
Indenture or in the Notes shall prevent any consolidation or merger of
any Guaranteeing Subsidiary with or into a corporation or corporations
other than the Company or any other Guarantor (in each case, whether or
not affiliated with the Guaranteeing Subsidiary), or successive
consolidations or mergers in which a Guaranteeing Subsidiary or its
successor or successors shall be a party or parties, or shall prevent
any sale or conveyance of the property of any Guaranteeing Subsidiary
as an entirety or substantially as an entirety, to a corporation other
than the Company or any other Guarantor (in each case, whether or not
affiliated with the Guaranteeing Subsidiary) authorized to acquire and
operate the same; provided, however, that each Guaranteeing Subsidiary
hereby covenants and agrees that (i) subject to the Indenture, upon any
such consolidation, merger, sale or conveyance, the due and punctual
performance and observance of all of the covenants and conditions of
the Indenture and this Supplemental Indenture to be performed by such
Guaranteeing Subsidiaries, shall be expressly assumed (in the event
that such Guaranteeing Subsidiary is not the surviving corporation in
the merger), by supplemental indenture satisfactory in form to the
Trustee, executed and delivered to the Trustee, by the corporation
formed by such consolidation, or into which such Guaranteeing
Subsidiary shall have been merged, or by the corporation which shall
have acquired such property and (ii) immediately after giving effect to
such consolidation, merger, sale or conveyance no Default or Event of
Default exists. |
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(c) |
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In case of any such consolidation, merger, sale
or conveyance and upon the assumption by the successor corporation, by
supplemental indenture, executed and delivered to the Trustee and
satisfactory in form to the Trustee, of the Subsidiary Guarantee made
pursuant to this Supplemental Indenture and the due and punctual
performance of all of the covenants and conditions of the Indenture and
this Supplemental Indenture to be performed by such Guaranteeing
Subsidiary, such successor corporation shall succeed to and be
substituted for such Guaranteeing Subsidiary with the same effect as if
it had been named herein as the Guaranteeing Subsidiary. Such successor
corporation thereupon may cause to be signed any or all of the
Subsidiary Guarantees to be endorsed upon the Notes issuable under the
Indenture which theretofore shall not have been signed by the Company
and delivered to the Trustee. All the Subsidiary Guarantees so issued
shall in all respects have the same legal rank and benefit under the
Indenture and this Supplemental Indenture as the Subsidiary Guarantees
theretofore and thereafter issued in accordance with the terms of the
Indenture and this Supplemental Indenture as though all of such
Subsidiary Guarantees had been issued at the date of the execution
hereof. |
5. RELEASES.
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(a) |
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Concurrently with any sale of assets
(including, if applicable, all of the Capital Stock of a Guaranteeing
Subsidiary), all Liens, if any, in favor of |
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the Trustee in the assets sold thereby shall be released; provided
that in the event of an Asset Sale, the Net Proceeds from such sale
or other disposition are treated in accordance with the provisions of
Section 4.10 of the Indenture. If the assets sold in such sale or
other disposition include all or substantially all of the assets of a
Guaranteeing Subsidiary or all of the Capital Stock of a Guaranteeing
Subsidiary, then the Guaranteeing Subsidiary (in the event of a sale
or other disposition of all of the Capital Stock of such Guaranteeing
Subsidiary) or the Person acquiring the property (in the event of a
sale or other disposition of all or substantially all of the assets
of such Guaranteeing Subsidiary) shall be released from and relieved
of its Obligations under this Supplemental Indenture and its
Subsidiary Guarantee made pursuant hereto; provided that in the event
of an Asset Sale, the Net Proceeds from such sale or other
disposition are treated in accordance with the provisions of Section
4.10 of the Indenture. Upon delivery by the Company to the Trustee of
an Officers Certificate to the effect that such sale or other
disposition was made by the Company or the Guaranteeing Subsidiary,
as the case may be, in accordance with the provisions of the
Indenture and this Supplemental Indenture, including without
limitation, Section 4.10 of the Indenture, the Trustee shall execute
any documents reasonably required in order to evidence the release of
the Guaranteeing Subsidiary from its Obligations under this
Supplemental Indenture and its Subsidiary Guarantee made pursuant
hereto. If the Guaranteeing Subsidiary is not released from its
obligations under its Subsidiary Guarantee, it shall remain liable
for the full amount of principal of and interest on the Notes and for
the other obligations of such Guaranteeing Subsidiary under the
Indenture as provided in this Supplemental Indenture. |
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(b) |
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Upon the designation of a Guaranteeing
Subsidiary as an Unrestricted Subsidiary in accordance with the terms
of the Indenture, such Guaranteeing Subsidiary shall be released and
relieved of its Obligations under its Subsidiary Guarantee and this
Supplemental Indenture. Upon delivery by the Company to the Trustee of
an Officers Certificate and an Opinion of Counsel to the effect that
such designation of such Guaranteeing Subsidiary as an Unrestricted
Subsidiary was made by the Company in accordance with the provisions of
the Indenture, including without limitation Section 4.07 of the
Indenture, the Trustee shall execute any documents reasonably required
in order to evidence the release of such Guaranteeing Subsidiary from
its Obligations under its Subsidiary Guarantee. Any Guaranteeing
Subsidiary not released from its Obligations under its Subsidiary
Guarantee shall remain liable for the full amount of principal of and
interest on the Notes and for the other Obligations of any Guaranteeing
Subsidiary under the Indenture as provided herein. |
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(c) |
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Each Guaranteeing Subsidiary shall be released
and relieved of its obligations under this Supplemental Indenture in
accordance with, and subject to, Section 4.18 of the Indenture. |
5
6. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee,
incorporator, stockholder or agent of any Guaranteeing Subsidiary, as such, shall have any
liability for any Obligations of the Company or any Guaranteeing Subsidiary under the Notes, any
Subsidiary Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in
respect of, or by reason of, such Obligations or their creation. Each Holder of the Notes by
accepting a Note waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the SEC that such a waiver is against
public policy.
7. SUBORDINATION OF SUBSIDIARY GUARANTEES; ANTI-LAYERING. No Guaranteeing Subsidiary shall
incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt of a Guaranteeing Subsidiary and
senior in any respect in right of payment to any of the Subsidiary Guarantees. Notwithstanding the
foregoing sentence, the Subsidiary Guarantee of each Guaranteeing Subsidiary shall be subordinated
to the prior payment in full of all Senior Debt of that Guaranteeing Subsidiary (in the same manner
and to the same extent that the Notes are subordinated to Senior Debt), which shall include all
guarantees of Senior Debt.
8. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
9. COUNTERPARTS. The parties may sign any number of copies of this Supplemental Indenture.
Each signed copy shall be an original, but all of them together represent the same agreement.
10. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not
affect the construction hereof.
11. THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in
respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the
recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiaries
and the Company.
6
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly
executed, all as of the date first above written.
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Dated: February 20, 2009 |
L-3 COMMUNICATIONS CORPORATION
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Senior Vice President, General Counsel and
Corporate Secretary |
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Dated: February 20, 2009
Broadcast Sports Inc., a Delaware corporation
D.P. Associates, Inc., a Virginia corporation
Electrodynamics, Inc., an Arizona corporation
Henschel Inc., a Delaware corporation
International Resources Group Ltd., a Delaware corporation
Interstate Electronics Corporation, a California corporation
LinCom Wireless, Inc., a Delaware corporation
L-3 Communications Advanced Laser Systems Technology, Inc., a Florida corporation
L-3 Communications AIS GP Corporation, a Delaware corporation
L-3 Communications Applied Signal and Image Technology, Inc., a Maryland corporation
L-3 Communications Avionics Systems, Inc., a Delaware corporation
L-3 Communications Cincinnati Electronics, Inc., an Ohio corporation
L-3 Communications Crestview Aerospace Corporation, a Delaware corporation
L-3 Communications CyTerra Corporation, a Delaware corporation
L-3 Communications Dynamic Positioning and Control Systems, Inc., a California corporation
L-3 Communications Electron Technologies, Inc., a Delaware corporation
L-3 Communications EO/IR, Inc., a Florida corporation
L-3 Communications EOTech, Inc., a Delaware corporation
L-3 Communications ESSCO, Inc., a Delaware corporation
L-3 Communications Foreign Holdings, Inc., a Delaware corporation
L-3 Communications Geneva Aerospace, Inc., a Texas corporation
L-3 Communications InfraredVision Technology Corporation, a California corporation
L-3 Communications Investments Inc., a Delaware corporation
L-3 Communications Klein Associates, Inc., a Delaware corporation
L-3 Communications MariPro, Inc., a California corporation
L-3 Communications Mobile-Vision, Inc., a New Jersey corporation
L-3 Communications Nautronix Holdings, Inc., a Delaware corporation
L-3 Communications Nova Engineering, Inc., an Ohio corporation
L-3 Communications SafeView, Inc., a Delaware corporation
L-3 Communications Security and Detection Systems, Inc., a Delaware corporation
L-3 Communications Sonoma EO, Inc., a California corporation
L-3 Communications TCS, Inc., a Delaware corporation
L-3 Communications Westwood Corporation, a Nevada corporation
L-3 Fuzing and Ordnance Systems, Inc., a Delaware corporation
L-3 G.A. International, Inc., a Florida corporation
L-3 Global Communications Solutions, Inc., a Virginia corporation
L-3 Services, Inc., a Delaware corporation
Microdyne Communications Technologies Incorporated, a Maryland corporation
Microdyne Corporation, a Maryland corporation
Microdyne Outsourcing Incorporated, a Maryland corporation
Pac Ord Inc., a Delaware corporation
Power Paragon, Inc., a Delaware corporation
SPD Electrical Systems, Inc., a Delaware corporation
SPD Switchgear Inc., a Delaware corporation
Titan Facilities, Inc., a Virginia corporation
Troll Technology Corporation, a California corporation
Wescam Air Ops Inc., a Delaware corporation
Wescam Holdings (US) Inc., a Delaware corporation
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As Guaranteeing Subsidiaries
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Vice President and Secretary |
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L-3 Communications Integrated Systems L.P., a Delaware limited partnership
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By: L-3 COMMUNICATIONS AIS GP CORPORATION, as General Partner
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Vice President and Secretary |
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L-3 Communications Flight Capital LLC, a Delaware limited liability company
L-3 Communications Flight International Aviation LLC, a Delaware limited liability company
L-3 Communications Vector International Aviation LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS VERTEX AEROSPACE LLC, as Sole Member
By: L-3 COMMUNICATIONS INTEGRATED SYSTEMS L.P., as Sole Member
By: L-3 COMMUNICATIONS AIS GP CORPORATION, as General Partner
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Vice President and Secretary |
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L-3 Communications Vertex Aerospace LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS INTEGRATED SYSTEMS L.P., as Sole Member
By: L-3 COMMUNICATIONS AIS GP CORPORATION, as General Partner
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Vice President and Secretary |
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L-3 Communications Germany Holdings, LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS CORPORATION, as Sole Member
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Senior Vice President, General Counsel and Corporate Secretary |
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L-3 Communications Shared Services, LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS CORPORATION, as Sole Member
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Senior Vice President, General Counsel and Corporate Secretary |
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Dated: February 20, 2009 |
THE BANK OF NEW YORK MELLON, as Trustee
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By: |
/s/ Franca Ferrera |
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Name: |
Franca Ferrera |
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Title: |
Assistant Vice President |
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NOTATION ON SENIOR SUBORDINATED NOTE RELATING TO SUBSIDIARY GUARANTEE
Pursuant to the Supplemental Indenture (the Supplemental Indenture) dated as of February 20,
2009 among L-3 Communications Corporation, the Guarantors party thereto (each a Guarantor and
collectively the Guarantors) and The Bank of New York Mellon (formerly known as The Bank of New York), as trustee (the Trustee), each Guarantor
(i) has jointly and severally unconditionally guaranteed (a) the due and punctual payment of the
principal of, and premium, interest and Additional Amounts on the Notes, whether at maturity or an
interest payment date, by acceleration, call for redemption or otherwise, (b) the due and punctual
payment of interest on the overdue principal and premium of, and interest and Additional Amounts on
the Notes, and (c) in case of any extension of time of payment or renewal of any Notes or any of
such other Obligations, the same will be promptly paid in full when due in accordance with the
terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise and
(ii) has agreed to pay any and all costs and expenses (including reasonable attorneys fees)
incurred by the Trustee or any Holder in enforcing any rights under the Subsidiary Guarantee (as
defined in the Supplemental Indenture).
Notwithstanding the foregoing, the Subsidiary Guarantee of each Guarantor shall be
subordinated to the prior payment in full of all Senior Debt (as defined in the Indenture) of that
Guarantor (in the same manner and to the same extent that the Notes are subordinated to the Senior
Debt), which shall include all guarantees of Senior Debt.
Notwithstanding the foregoing, in the event that the Subsidiary Guarantee of any Guarantor
would constitute or result in a violation of any applicable fraudulent conveyance or similar law of
any relevant jurisdiction, the liability of such Guarantor under its Subsidiary Guarantee shall be
reduced to the maximum amount permissible under such fraudulent conveyance or similar law.
No past, present or future director, officer, employee, agent, incorporator, stockholder or
agent of any Guarantor, as such, shall have any liability for any Obligations of the Company or any
Guarantor under the Notes, any Subsidiary Guarantee, the Indenture, any supplemental indenture
delivered pursuant to the Indenture by such Guarantor, or for any claim based on, in respect of or
by reason of such Obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability.
The Subsidiary Guarantee shall be binding upon each Guarantor and its successors and assigns
and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in
the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and
privileges herein conferred upon that party shall automatically extend to and be vested in such
transferee or assignee, all subject to the terms and conditions hereof.
The Subsidiary Guarantee shall not be valid or obligatory for any purpose until the
certificate of authentication on the Note upon which the Subsidiary Guarantee is noted has been
executed by the Trustee under the Indenture by the manual signature of one of its authorized
officers. Capitalized terms used herein have the meaning assigned to them in the Indenture, dated
as of May 21, 2003, among L-3 Communications Corporation, the Guarantors party thereto and the
Trustee.
Dated: February 20, 2009
Broadcast Sports Inc., a Delaware corporation
D.P. Associates, Inc., a Virginia corporation
Electrodynamics, Inc., an Arizona corporation
Henschel Inc., a Delaware corporation
International Resources Group Ltd., a Delaware corporation
Interstate Electronics Corporation, a California corporation
LinCom Wireless, Inc., a Delaware corporation
L-3 Communications Advanced Laser Systems Technology, Inc., a Florida corporation
L-3 Communications AIS GP Corporation, a Delaware corporation
L-3 Communications Applied Signal and Image Technology, Inc., a Maryland corporation
L-3 Communications Avionics Systems, Inc., a Delaware corporation
L-3 Communications Cincinnati Electronics, Inc., an Ohio corporation
L-3 Communications Crestview Aerospace Corporation, a Delaware corporation
L-3 Communications CyTerra Corporation, a Delaware corporation
L-3 Communications Dynamic Positioning and Control Systems, Inc., a California corporation
L-3 Communications Electron Technologies, Inc., a Delaware corporation
L-3 Communications EO/IR, Inc., a Florida corporation
L-3 Communications EOTech, Inc., a Delaware corporation
L-3 Communications ESSCO, Inc., a Delaware corporation
L-3 Communications Foreign Holdings, Inc., a Delaware corporation
L-3 Communications Geneva Aerospace, Inc., a Texas corporation
L-3 Communications InfraredVision Technology Corporation, a California corporation
L-3 Communications Investments Inc., a Delaware corporation
L-3 Communications Klein Associates, Inc., a Delaware corporation
L-3 Communications MariPro, Inc., a California corporation
L-3 Communications Mobile-Vision, Inc., a New Jersey corporation
L-3 Communications Nautronix Holdings, Inc., a Delaware corporation
L-3 Communications Nova Engineering, Inc., an Ohio corporation
L-3 Communications SafeView, Inc., a Delaware corporation
L-3 Communications Security and Detection Systems, Inc., a Delaware corporation
L-3 Communications Sonoma EO, Inc., a California corporation
L-3 Communications TCS, Inc., a Delaware corporation
L-3 Communications Westwood Corporation, a Nevada corporation
L-3 Fuzing and Ordnance Systems, Inc., a Delaware corporation
L-3 G.A. International, Inc., a Florida corporation
L-3 Global Communications Solutions, Inc., a Virginia corporation
L-3 Services, Inc., a Delaware corporation
Microdyne Communications Technologies Incorporated, a Maryland corporation
Microdyne Corporation, a Maryland corporation
Microdyne Outsourcing Incorporated, a Maryland corporation
Pac Ord Inc., a Delaware corporation
Power Paragon, Inc., a Delaware corporation
SPD Electrical Systems, Inc., a Delaware corporation
SPD Switchgear Inc., a Delaware corporation
Titan Facilities, Inc., a Virginia corporation
Troll Technology Corporation, a California corporation
Wescam Air Ops Inc., a Delaware corporation
Wescam Holdings (US) Inc., a Delaware corporation
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As Guaranteeing Subsidiaries
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
|
|
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Title: |
Vice President and Secretary |
|
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L-3 Communications Integrated Systems L.P., a Delaware limited partnership
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By: L-3 COMMUNICATIONS AIS GP CORPORATION, as General Partner
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Vice President and Secretary |
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L-3 Communications Flight Capital LLC, a Delaware limited liability company
L-3 Communications Flight International Aviation LLC, a Delaware limited liability company
L-3 Communications Vector International Aviation LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS VERTEX AEROSPACE LLC, as Sole Member
By: L-3 COMMUNICATIONS INTEGRATED SYSTEMS L.P., as Sole Member
By: L-3 COMMUNICATIONS AIS GP CORPORATION, as General Partner
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Vice President and Secretary |
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L-3 Communications Vertex Aerospace LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS INTEGRATED SYSTEMS L.P., as Sole Member
By: L-3 COMMUNICATIONS AIS GP CORPORATION, as General Partner
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Vice President and Secretary |
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L-3 Communications Germany Holdings, LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS CORPORATION, as Sole Member
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Senior Vice President, General Counsel and Corporate Secretary |
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L-3 Communications Shared Services, LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS CORPORATION, as Sole Member
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Senior Vice President, General Counsel and Corporate Secretary |
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EX-4.9
Exhibit 4.9
SUPPLEMENTAL INDENTURE TO BE DELIVERED
BY GUARANTEEING SUBSIDIARIES
Supplemental Indenture (this Supplemental Indenture), dated as of February 20, 2009, among
L-3 Communications Corporation (or its permitted successor), a Delaware corporation (the
Company), each a direct or indirect subsidiary of the Company signatory hereto (each, a
Guaranteeing Subsidiary, and collectively, the Guaranteeing Subsidiaries), and The Bank of New
York Mellon (formerly known as The Bank of New York), as trustee under the indenture referred to below (the Trustee).
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the
Indenture), dated as of December 22, 2003 providing for the issuance of an unlimited amount of 6
1/8% Senior Subordinated Notes due 2014 (the Notes);
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiaries
shall execute and deliver to the Trustee a supplemental indenture pursuant to which the
Guaranteeing Subsidiaries shall unconditionally guarantee all of the Companys Obligations (as
defined in the Indenture) under the Notes and the Indenture on the terms and conditions set forth
herein (the Subsidiary Guarantee); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and
deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiaries and the
Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes
as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the
meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. Each Guaranteeing Subsidiary hereby agrees as follows:
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(a) |
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Such Guaranteeing Subsidiary, jointly and
severally with all other current and future guarantors of the Notes
(collectively, the Guarantors and each, a Guarantor),
unconditionally guarantees to each Holder of a Note authenticated and
delivered by the Trustee and to the Trustee and its successors and
assigns, regardless of the validity and enforceability of the
Indenture, the Notes or the Obligations of the Company under the
Indenture or the Notes, that: |
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(i) |
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the principal of, premium,
interest and Additional Interest, if any, on the Notes will be
promptly paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on the
overdue principal of, premium, interest and Additional
Amounts, if any, on the Notes, to the extent lawful, and all
other Obligations of the Company to the Holders or the Trustee
thereunder or under the Indenture will be promptly paid in
full, all in accordance with the terms thereof; and |
1
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(ii) |
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in case of any extension of
time for payment or renewal of any Notes or any of such other
Obligations, that the same will be promptly paid in full when
due in accordance with the terms of the extension or renewal,
whether at stated maturity, by acceleration or otherwise. |
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(b) |
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Notwithstanding the foregoing, in the event
that this Subsidiary Guarantee would constitute or result in a
violation of any applicable fraudulent conveyance or similar law of any
relevant jurisdiction, the liability of such Guaranteeing Subsidiary
under this Supplemental Indenture and its Subsidiary Guarantee shall be
reduced to the maximum amount permissible under such fraudulent
conveyance or similar law. |
3. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEES.
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(a) |
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To evidence its Subsidiary Guarantee set forth
in this Supplemental Indenture, such Guaranteeing Subsidiary hereby
agrees that a notation of such Subsidiary Guarantee substantially in
the form of Exhibit F to the Indenture shall be endorsed by an officer
of such Guaranteeing Subsidiary on each Note authenticated and
delivered by the Trustee after the date hereof. |
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(b) |
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Notwithstanding the foregoing, such
Guaranteeing Subsidiary hereby agrees that its Subsidiary Guarantee set
forth herein shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation of such Subsidiary
Guarantee. |
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(c) |
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If an Officer whose signature is on this
Supplemental Indenture or on the Subsidiary Guarantee no longer holds
that office at the time the Trustee authenticates the Note on which a
Subsidiary Guarantee is endorsed, the Subsidiary Guarantee shall be
valid nevertheless. |
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(d) |
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The delivery of any Note by the Trustee, after
the authentication thereof under the Indenture, shall constitute due
delivery of the Subsidiary Guarantee set forth in this Supplemental
Indenture on behalf of each Guaranteeing Subsidiary. |
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(e) |
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Each Guaranteeing Subsidiary hereby agrees that
its Obligations hereunder shall be unconditional, regardless of the
validity, regularity or enforceability of the Notes or the Indenture,
the absence of any action to enforce the same, any waiver or consent by
any Holder of the Notes with respect to any provisions hereof or
thereof, the recovery of any judgment against the Company, any action
to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor. |
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(f) |
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Each Guaranteeing Subsidiary hereby waives
diligence, presentment, demand of payment, filing of claims with a
court in the event of insolvency or bankruptcy of the Company, any
right to require a proceeding first against the Company, protest,
notice and all demands whatsoever and covenants that its Subsidiary
Guarantee made pursuant |
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to this Supplemental Indenture will not be
discharged except by complete performance of the Obligations contained
in the Notes and the Indenture. |
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(g) |
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If any Holder or the Trustee is required by any
court or otherwise to return to the Company or any Guaranteeing
Subsidiary, or any custodian, Trustee, liquidator or other similar
official acting in relation to either the Company or such Guaranteeing
Subsidiary, any amount paid by either to the Trustee or such Holder,
the Subsidiary Guarantee made pursuant to this Supplemental Indenture,
to the extent theretofore discharged, shall be reinstated in full force
and effect. |
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(h) |
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Each Guaranteeing Subsidiary agrees that it
shall not be entitled to any right of subrogation in relation to the
Holders in respect of any Obligations guaranteed hereby until payment
in full of all Obligations guaranteed hereby. Each Guaranteeing
Subsidiary further agrees that, as between such Guaranteeing
Subsidiary, on the one hand, and the Holders and the Trustee, on the
other hand: |
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(i) |
|
the maturity of the
Obligations guaranteed hereby may be accelerated as provided
in Article 6 of the Indenture for the purposes of the
Subsidiary Guarantee made pursuant to this Supplemental
Indenture, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the
Obligations guaranteed hereby; and |
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(ii) |
|
in the event of any
declaration of acceleration of such Obligations as provided in
Article 6 of the Indenture, such Obligations (whether or not
due and payable) shall forthwith become due and payable by
such Guaranteeing Subsidiary for the purpose of the Subsidiary
Guarantee made pursuant to this Supplemental Indenture. |
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(i) |
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Each Guaranteeing Subsidiary shall have the
right to seek contribution from any other non-paying Guaranteeing
Subsidiary so long as the exercise of such right does not impair the
rights of the Holders or the Trustee under the Subsidiary Guarantee
made pursuant to this Supplemental Indenture. |
4. GUARANTEEING SUBSIDIARY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS.
|
(a) |
|
Except as set forth in Articles 4 and 5 of the
Indenture, nothing contained in the Indenture, this Supplemental
Indenture or in the Notes shall prevent any consolidation or merger of
any Guaranteeing Subsidiary with or into the Company or any other
Guarantor or shall prevent any transfer, sale or conveyance of the
property of any Guaranteeing Subsidiary as an entirety or substantially
as an entirety, to the Company or any other Guarantor. |
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(b) |
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Except as set forth in Article 4 and 5 of the
Indenture, nothing contained in the Indenture, this Supplemental
Indenture or in the Notes shall prevent any consolidation or merger of
any Guaranteeing Subsidiary |
3
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with or into a corporation or corporations
other than the Company or any other Guarantor (in each case, whether or
not affiliated with the Guaranteeing Subsidiary), or successive
consolidations or mergers in which a Guaranteeing Subsidiary or its
successor or successors shall be a
party or parties, or shall prevent any sale or conveyance of the
property of any Guaranteeing Subsidiary as an entirety or
substantially as an entirety, to a corporation other than the Company
or any other Guarantor (in each case, whether or not affiliated with
the Guaranteeing Subsidiary) authorized to acquire and operate the
same; provided, however, that each Guaranteeing Subsidiary hereby
covenants and agrees that (i) subject to the Indenture, upon any such
consolidation, merger, sale or conveyance, the due and punctual
performance and observance of all of the covenants and conditions of
the Indenture and this Supplemental Indenture to be performed by such
Guaranteeing Subsidiaries, shall be expressly assumed (in the event
that such Guaranteeing Subsidiary is not the surviving corporation in
the merger), by supplemental indenture satisfactory in form to the
Trustee, executed and delivered to the Trustee, by the corporation
formed by such consolidation, or into which such Guaranteeing
Subsidiary shall have been merged, or by the corporation which shall
have acquired such property and (ii) immediately after giving effect
to such consolidation, merger, sale or conveyance no Default or Event
of Default exists. |
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(c) |
|
In case of any such consolidation, merger, sale
or conveyance and upon the assumption by the successor corporation, by
supplemental indenture, executed and delivered to the Trustee and
satisfactory in form to the Trustee, of the Subsidiary Guarantee made
pursuant to this Supplemental Indenture and the due and punctual
performance of all of the covenants and conditions of the Indenture and
this Supplemental Indenture to be performed by such Guaranteeing
Subsidiary, such successor corporation shall succeed to and be
substituted for such Guaranteeing Subsidiary with the same effect as if
it had been named herein as the Guaranteeing Subsidiary. Such successor
corporation thereupon may cause to be signed any or all of the
Subsidiary Guarantees to be endorsed upon the Notes issuable under the
Indenture which theretofore shall not have been signed by the Company
and delivered to the Trustee. All the Subsidiary Guarantees so issued
shall in all respects have the same legal rank and benefit under the
Indenture and this Supplemental Indenture as the Subsidiary Guarantees
theretofore and thereafter issued in accordance with the terms of the
Indenture and this Supplemental Indenture as though all of such
Subsidiary Guarantees had been issued at the date of the execution
hereof. |
5. RELEASES.
|
(a) |
|
Concurrently with any sale of assets
(including, if applicable, all of the Capital Stock of a Guaranteeing
Subsidiary), all Liens, if any, in favor of the Trustee in the assets
sold thereby shall be released; provided that in the event of an Asset
Sale, the Net Proceeds from such sale or other disposition are treated
in accordance with the provisions of Section 4.10 of the Indenture. If
the assets sold in such sale or other disposition |
4
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include all or
substantially all of the assets of a Guaranteeing Subsidiary or all of
the Capital Stock of a Guaranteeing Subsidiary, then the Guaranteeing
Subsidiary (in the event of a sale or other disposition of all of the
Capital Stock of such Guaranteeing Subsidiary) or the Person acquiring
the property (in the event of a sale or other disposition of all or
substantially all of the assets of such Guaranteeing Subsidiary)
shall be released from and relieved of its Obligations under this
Supplemental Indenture and its Subsidiary Guarantee made pursuant
hereto; provided that in the event of an Asset Sale, the Net Proceeds
from such sale or other disposition are treated in accordance with
the provisions of Section 4.10 of the Indenture. Upon delivery by the
Company to the Trustee of an Officers Certificate to the effect that
such sale or other disposition was made by the Company or the
Guaranteeing Subsidiary, as the case may be, in accordance with the
provisions of the Indenture and this Supplemental Indenture,
including without limitation, Section 4.10 of the Indenture, the
Trustee shall execute any documents reasonably required in order to
evidence the release of the Guaranteeing Subsidiary from its
Obligations under this Supplemental Indenture and its Subsidiary
Guarantee made pursuant hereto. If the Guaranteeing Subsidiary is not
released from its obligations under its Subsidiary Guarantee, it
shall remain liable for the full amount of principal of and interest
on the Notes and for the other obligations of such Guaranteeing
Subsidiary under the Indenture as provided in this Supplemental
Indenture. |
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(b) |
|
Upon the designation of a Guaranteeing
Subsidiary as an Unrestricted Subsidiary in accordance with the terms
of the Indenture, such Guaranteeing Subsidiary shall be released and
relieved of its Obligations under its Subsidiary Guarantee and this
Supplemental Indenture. Upon delivery by the Company to the Trustee of
an Officers Certificate and an Opinion of Counsel to the effect that
such designation of such Guaranteeing Subsidiary as an Unrestricted
Subsidiary was made by the Company in accordance with the provisions of
the Indenture, including without limitation Section 4.07 of the
Indenture, the Trustee shall execute any documents reasonably required
in order to evidence the release of such Guaranteeing Subsidiary from
its Obligations under its Subsidiary Guarantee. Any Guaranteeing
Subsidiary not released from its Obligations under its Subsidiary
Guarantee shall remain liable for the full amount of principal of and
interest on the Notes and for the other Obligations of any Guaranteeing
Subsidiary under the Indenture as provided herein. |
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(c) |
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Each Guaranteeing Subsidiary shall be released
and relieved of its obligations under this Supplemental Indenture in
accordance with, and subject to, Section 4.18 of the Indenture. |
6. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee,
incorporator, stockholder or agent of any Guaranteeing Subsidiary, as such, shall have any
liability for any Obligations of the Company or any Guaranteeing Subsidiary under the Notes, any
Subsidiary Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in
respect of, or by reason of, such Obligations or their creation. Each Holder of the Notes by
accepting a Note waives and releases all such liability. The waiver and release are part of the
consideration for issuance of
5
the Notes. Such waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the SEC that such a waiver is against
public policy.
7. SUBORDINATION OF SUBSIDIARY GUARANTEES; ANTI-LAYERING. No Guaranteeing Subsidiary shall
incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt of a Guaranteeing
Subsidiary and senior in any respect in right of payment to any of the Subsidiary Guarantees.
Notwithstanding the foregoing sentence, the Subsidiary Guarantee of each Guaranteeing Subsidiary
shall be subordinated to the prior payment in full of all Senior Debt of that Guaranteeing
Subsidiary (in the same manner and to the same extent that the Notes are subordinated to Senior
Debt), which shall include all guarantees of Senior Debt.
8. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
9. COUNTERPARTS. The parties may sign any number of copies of this Supplemental Indenture.
Each signed copy shall be an original, but all of them together represent the same agreement.
10. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not
affect the construction hereof.
11. THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in
respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the
recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiaries
and the Company.
6
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly
executed, all as of the date first above written.
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Dated: February 20, 2009 |
L-3 COMMUNICATIONS CORPORATION
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Senior Vice President, General Counsel and
Corporate Secretary |
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|
Dated: February 20, 2009
Broadcast Sports Inc., a Delaware corporation
D.P. Associates, Inc., a Virginia corporation
Electrodynamics, Inc., an Arizona corporation
Henschel Inc., a Delaware corporation
International Resources Group Ltd., a Delaware corporation
Interstate Electronics Corporation, a California corporation
LinCom Wireless, Inc., a Delaware corporation
L-3 Communications Advanced Laser Systems Technology, Inc., a Florida corporation
L-3 Communications AIS GP Corporation, a Delaware corporation
L-3 Communications Applied Signal and Image Technology, Inc., a Maryland corporation
L-3 Communications Avionics Systems, Inc., a Delaware corporation
L-3 Communications Cincinnati Electronics, Inc., an Ohio corporation
L-3 Communications Crestview Aerospace Corporation, a Delaware corporation
L-3 Communications CyTerra Corporation, a Delaware corporation
L-3 Communications Dynamic Positioning and Control Systems, Inc., a California corporation
L-3 Communications Electron Technologies, Inc., a Delaware corporation
L-3 Communications EO/IR, Inc., a Florida corporation
L-3 Communications EOTech, Inc., a Delaware corporation
L-3 Communications ESSCO, Inc., a Delaware corporation
L-3 Communications Foreign Holdings, Inc., a Delaware corporation
L-3 Communications Geneva Aerospace, Inc., a Texas corporation
L-3 Communications InfraredVision Technology Corporation, a California corporation
L-3 Communications Investments Inc., a Delaware corporation
L-3 Communications Klein Associates, Inc., a Delaware corporation
L-3 Communications MariPro, Inc., a California corporation
L-3 Communications Mobile-Vision, Inc., a New Jersey corporation
L-3 Communications Nautronix Holdings, Inc., a Delaware corporation
L-3 Communications Nova Engineering, Inc., an Ohio corporation
L-3 Communications SafeView, Inc., a Delaware corporation
L-3 Communications Security and Detection Systems, Inc., a Delaware corporation
L-3 Communications Sonoma EO, Inc., a California corporation
L-3 Communications TCS, Inc., a Delaware corporation
L-3 Communications Westwood Corporation, a Nevada corporation
L-3 Fuzing and Ordnance Systems, Inc., a Delaware corporation
L-3 G.A. International, Inc., a Florida corporation
L-3 Global Communications Solutions, Inc., a Virginia corporation
L-3 Services, Inc., a Delaware corporation
Microdyne Communications Technologies Incorporated, a Maryland corporation
Microdyne Corporation, a Maryland corporation
Microdyne Outsourcing Incorporated, a Maryland corporation
Pac Ord Inc., a Delaware corporation
Power Paragon, Inc., a Delaware corporation
SPD Electrical Systems, Inc., a Delaware corporation
SPD Switchgear Inc., a Delaware corporation
Titan Facilities, Inc., a Virginia corporation
Troll Technology Corporation, a California corporation
Wescam Air Ops Inc., a Delaware corporation
Wescam Holdings (US) Inc., a Delaware corporation
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As Guaranteeing Subsidiaries
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
|
|
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Title: |
Vice President and Secretary |
|
L-3 Communications Integrated Systems L.P., a Delaware limited partnership
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By: |
L-3 COMMUNICATIONS AIS GP CORPORATION, as General Partner
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By: |
/s/ Steven M. Post |
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Name: |
|
Steven M. Post |
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Title: |
|
Vice President and Secretary |
|
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L-3 Communications Flight Capital LLC, a Delaware limited liability company
L-3 Communications Flight International Aviation LLC, a Delaware limited liability company
L-3 Communications Vector International Aviation LLC, a Delaware limited liability company
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By: |
L-3 COMMUNICATIONS VERTEX AEROSPACE LLC, as Sole Member
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By: |
L-3 COMMUNICATIONS INTEGRATED SYSTEMS L.P., as Sole Member
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By: |
L-3 COMMUNICATIONS AIS GP CORPORATION, as General Partner
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By: |
/s/ Steven M. Post |
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Name: |
|
Steven M. Post |
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Title: |
|
Vice President and Secretary |
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L-3 Communications Vertex Aerospace LLC, a Delaware limited liability company
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By: |
L-3 COMMUNICATIONS INTEGRATED SYSTEMS L.P., as Sole Member
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By: |
L-3 COMMUNICATIONS AIS GP CORPORATION, as General Partner
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By: |
/s/ Steven M. Post |
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Name: |
|
Steven M. Post |
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Title: |
|
Vice President and Secretary |
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L-3 Communications Germany Holdings, LLC, a Delaware limited liability company
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By: |
L-3 COMMUNICATIONS CORPORATION, as Sole Member
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By: |
/s/ Steven M. Post |
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Name: |
|
Steven M. Post |
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Title: |
|
Senior Vice President, General Counsel and
Corporate Secretary |
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L-3 Communications Shared Services, LLC, a Delaware limited liability company
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By: |
L-3 COMMUNICATIONS CORPORATION, as Sole Member
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By: |
/s/ Steven M. Post |
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Name: |
|
Steven M. Post |
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Title: |
|
Senior Vice President, General Counsel and
Corporate Secretary |
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Dated: February 20, 2009 |
THE BANK OF NEW YORK MELLON,
as Trustee
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By: |
/s/ Franca Ferrera |
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Name: |
Franca Ferrera |
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Title: |
Assistant Vice President |
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NOTATION ON SENIOR SUBORDINATED NOTE RELATING TO SUBSIDIARY GUARANTEE
Pursuant to the Supplemental Indenture (the Supplemental Indenture) dated as of February 20,
2009 among L-3 Communications Corporation, the Guarantors party thereto (each a Guarantor and
collectively the Guarantors) and The Bank of New York Mellon (formerly known as The Bank of New York), as trustee (the Trustee), each Guarantor
(i) has jointly and severally unconditionally guaranteed (a) the due and punctual payment of the
principal of, and premium, interest and Additional Interest on the Notes, whether at maturity or an
interest payment date, by acceleration, call for redemption or otherwise, (b) the due and punctual
payment of interest on the overdue principal and premium of, and interest and Additional Interest
on the Notes, and (c) in case of any extension of time of payment or renewal of any Notes or any of
such other Obligations, the same will be promptly paid in full when due in accordance with the
terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise and
(ii) has agreed to pay any and all costs and expenses (including reasonable attorneys fees)
incurred by the Trustee or any Holder in enforcing any rights under the Subsidiary Guarantee (as
defined in the Supplemental Indenture).
Notwithstanding the foregoing, the Subsidiary Guarantee of each Guarantor shall be
subordinated to the prior payment in full of all Senior Debt (as defined in the Indenture) of that
Guarantor (in the same manner and to the same extent that the Notes are subordinated to the Senior
Debt), which shall include all guarantees of Senior Debt.
Notwithstanding the foregoing, in the event that the Subsidiary Guarantee of any Guarantor
would constitute or result in a violation of any applicable fraudulent conveyance or similar law of
any relevant jurisdiction, the liability of such Guarantor under its Subsidiary Guarantee shall be
reduced to the maximum amount permissible under such fraudulent conveyance or similar law.
No past, present or future director, officer, employee, agent, incorporator, stockholder or
agent of any Guarantor, as such, shall have any liability for any Obligations of the Company or any
Guarantor under the Notes, any Subsidiary Guarantee, the Indenture, any supplemental indenture
delivered pursuant to the Indenture by such Guarantor, or for any claim based on, in respect of or
by reason of such Obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability.
The Subsidiary Guarantee shall be binding upon each Guarantor and its successors and assigns
and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in
the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and
privileges herein conferred upon that party shall automatically extend to and be vested in such
transferee or assignee, all subject to the terms and conditions hereof.
The Subsidiary Guarantee shall not be valid or obligatory for any purpose until the
certificate of authentication on the Note upon which the Subsidiary Guarantee is noted has been
executed by the Trustee under the Indenture by the manual signature of one of its authorized
officers. Capitalized terms used herein have the meaning assigned to them in the Indenture, dated
as of December 22, 2003, among L-3 Communications Corporation, the Guarantors party thereto and the
Trustee.
Dated: February 20, 2009
Broadcast Sports Inc., a Delaware corporation
D.P. Associates, Inc., a Virginia corporation
Electrodynamics, Inc., an Arizona corporation
Henschel Inc., a Delaware corporation
International Resources Group Ltd., a Delaware corporation
Interstate Electronics Corporation, a California corporation
LinCom Wireless, Inc., a Delaware corporation
L-3 Communications Advanced Laser Systems Technology, Inc., a Florida corporation
L-3 Communications AIS GP Corporation, a Delaware corporation
L-3 Communications Applied Signal and Image Technology, Inc., a Maryland corporation
L-3 Communications Avionics Systems, Inc., a Delaware corporation
L-3 Communications Cincinnati Electronics, Inc., an Ohio corporation
L-3 Communications Crestview Aerospace Corporation, a Delaware corporation
L-3 Communications CyTerra Corporation, a Delaware corporation
L-3 Communications Dynamic Positioning and Control Systems, Inc., a California corporation
L-3 Communications Electron Technologies, Inc., a Delaware corporation
L-3 Communications EO/IR, Inc., a Florida corporation
L-3 Communications EOTech, Inc., a Delaware corporation
L-3 Communications ESSCO, Inc., a Delaware corporation
L-3 Communications Foreign Holdings, Inc., a Delaware corporation
L-3 Communications Geneva Aerospace, Inc., a Texas corporation
L-3 Communications InfraredVision Technology Corporation, a California corporation
L-3 Communications Investments Inc., a Delaware corporation
L-3 Communications Klein Associates, Inc., a Delaware corporation
L-3 Communications MariPro, Inc., a California corporation
L-3 Communications Mobile-Vision, Inc., a New Jersey corporation
L-3 Communications Nautronix Holdings, Inc., a Delaware corporation
L-3 Communications Nova Engineering, Inc., an Ohio corporation
L-3 Communications SafeView, Inc., a Delaware corporation
L-3 Communications Security and Detection Systems, Inc., a Delaware corporation
L-3 Communications Sonoma EO, Inc., a California corporation
L-3 Communications TCS, Inc., a Delaware corporation
L-3 Communications Westwood Corporation, a Nevada corporation
L-3 Fuzing and Ordnance Systems, Inc., a Delaware corporation
L-3 G.A. International, Inc., a Florida corporation
L-3 Global Communications Solutions, Inc., a Virginia corporation
L-3 Services, Inc., a Delaware corporation
Microdyne Communications Technologies Incorporated, a Maryland corporation
Microdyne Corporation, a Maryland corporation
Microdyne Outsourcing Incorporated, a Maryland corporation
Pac Ord Inc., a Delaware corporation
Power Paragon, Inc., a Delaware corporation
SPD Electrical Systems, Inc., a Delaware corporation
SPD Switchgear Inc., a Delaware corporation
Titan Facilities, Inc., a Virginia corporation
Troll Technology Corporation, a California corporation
Wescam Air Ops Inc., a Delaware corporation
Wescam Holdings (US) Inc., a Delaware corporation
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As Guaranteeing Subsidiaries
|
|
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By: |
/s/ Steven M. Post |
|
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|
Name: |
Steven M. Post |
|
|
|
Title: |
Vice President and Secretary |
|
L-3 Communications Integrated Systems L.P., a Delaware limited partnership
|
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By: |
L-3 COMMUNICATIONS AIS GP CORPORATION, as General Partner
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By: |
/s/ Steven M. Post |
|
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Name: |
|
Steven M. Post |
|
|
Title: |
|
Vice President and Secretary |
|
L-3 Communications Flight Capital LLC, a Delaware limited liability company
L-3 Communications Flight International Aviation LLC, a Delaware limited liability company
L-3 Communications Vector International Aviation LLC, a Delaware limited liability company
|
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By: |
L-3 COMMUNICATIONS VERTEX AEROSPACE LLC, as Sole Member
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By: |
L-3 COMMUNICATIONS INTEGRATED SYSTEMS L.P., as Sole Member
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By: |
L-3 COMMUNICATIONS AIS GP CORPORATION, as General Partner
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By: |
/s/ Steven M. Post |
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Name: |
|
Steven M. Post |
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Title: |
|
Vice President and Secretary |
|
L-3 Communications Vertex Aerospace LLC, a Delaware limited liability company
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By: |
L-3 COMMUNICATIONS INTEGRATED SYSTEMS L.P., as Sole Member
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By: |
L-3 COMMUNICATIONS AIS GP CORPORATION, as General Partner
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By: |
/s/ Steven M. Post |
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Name: |
|
Steven M. Post |
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Title: |
|
Vice President and Secretary |
|
L-3 Communications Germany Holdings, LLC, a Delaware limited liability company
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By: |
L-3 COMMUNICATIONS CORPORATION, as Sole Member
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By: |
/s/ Steven M. Post |
|
|
Name: |
|
Steven M. Post |
|
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Title: |
|
Senior Vice President, General Counsel and
Corporate Secretary |
|
L-3 Communications Shared Services, LLC, a Delaware limited liability company
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By: |
L-3 COMMUNICATIONS CORPORATION, as Sole Member
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By: |
/s/ Steven M. Post |
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Name: |
|
Steven M. Post |
|
|
Title: |
|
Senior Vice President, General Counsel and
Corporate Secretary |
|
EX-4.11
Exhibit 4.11
SUPPLEMENTAL INDENTURE TO BE DELIVERED
BY GUARANTEEING SUBSIDIARIES
Supplemental Indenture (this Supplemental Indenture), dated as of February 20, 2009, among
L-3 Communications Corporation (or its permitted successor), a Delaware corporation (the
Company), each a direct or indirect subsidiary of the Company signatory hereto (each, a
Guaranteeing Subsidiary, and collectively, the Guaranteeing Subsidiaries), and The Bank of New
York Mellon (formerly known as The Bank of New York), as trustee under the indenture referred to below (the Trustee).
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the
Indenture), dated as of November 12, 2004 providing for the issuance of an unlimited amount of 5
7/8% Senior Subordinated Notes due 2015 (the Notes);
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiaries
shall execute and deliver to the Trustee a supplemental indenture pursuant to which the
Guaranteeing Subsidiaries shall unconditionally guarantee all of the Companys Obligations (as
defined in the Indenture) under the Notes and the Indenture on the terms and conditions set forth
herein (the Subsidiary Guarantee); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and
deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiaries and the
Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes
as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the
meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. Each Guaranteeing Subsidiary hereby agrees as follows:
|
(a) |
|
Such Guaranteeing Subsidiary, jointly and
severally with all other current and future guarantors of the Notes
(collectively, the Guarantors and each, a Guarantor),
unconditionally guarantees to each Holder of a Note authenticated and
delivered by the Trustee and to the Trustee and its successors and
assigns, regardless of the validity and enforceability of the
Indenture, the Notes or the Obligations of the Company under the
Indenture or the Notes, that: |
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(i) |
|
the principal of, premium,
interest and Additional Interest, if any, on the Notes will be
promptly paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on the
overdue principal of, premium, interest and Additional
Amounts, if any, on the Notes, to the extent lawful, and all
other Obligations of the Company to the Holders or the Trustee
thereunder or under the Indenture will be promptly paid in
full, all in accordance with the terms thereof; and |
1
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(ii) |
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in case of any extension of
time for payment or renewal of any Notes or any of such other
Obligations, that the same will be promptly paid in full when
due in accordance with the terms of the extension or renewal,
whether at stated maturity, by acceleration or otherwise. |
|
(b) |
|
Notwithstanding the foregoing, in the event
that this Subsidiary Guarantee would constitute or result in a
violation of any applicable fraudulent conveyance or similar law of any
relevant jurisdiction, the liability of such Guaranteeing Subsidiary
under this Supplemental Indenture and its Subsidiary Guarantee shall be
reduced to the maximum amount permissible under such fraudulent
conveyance or similar law. |
3. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEES.
|
(a) |
|
To evidence its Subsidiary Guarantee set forth
in this Supplemental Indenture, such Guaranteeing Subsidiary hereby
agrees that a notation of such Subsidiary Guarantee substantially in
the form of Exhibit F to the Indenture shall be endorsed by an officer
of such Guaranteeing Subsidiary on each Note authenticated and
delivered by the Trustee after the date hereof. |
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(b) |
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Notwithstanding the foregoing, such
Guaranteeing Subsidiary hereby agrees that its Subsidiary Guarantee set
forth herein shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation of such Subsidiary
Guarantee. |
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(c) |
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If an Officer whose signature is on this
Supplemental Indenture or on the Subsidiary Guarantee no longer holds
that office at the time the Trustee authenticates the Note on which a
Subsidiary Guarantee is endorsed, the Subsidiary Guarantee shall be
valid nevertheless. |
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(d) |
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The delivery of any Note by the Trustee, after
the authentication thereof under the Indenture, shall constitute due
delivery of the Subsidiary Guarantee set forth in this Supplemental
Indenture on behalf of each Guaranteeing Subsidiary. |
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(e) |
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Each Guaranteeing Subsidiary hereby agrees that
its Obligations hereunder shall be unconditional, regardless of the
validity, regularity or enforceability of the Notes or the Indenture,
the absence of any action to enforce the same, any waiver or consent by
any Holder of the Notes with respect to any provisions hereof or
thereof, the recovery of any judgment against the Company, any action
to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor. |
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(f) |
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Each Guaranteeing Subsidiary hereby waives
diligence, presentment, demand of payment, filing of claims with a
court in the event of insolvency or bankruptcy of the Company, any
right to require a proceeding first against the Company, protest,
notice and all demands whatsoever and covenants that its Subsidiary
Guarantee made pursuant |
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to this Supplemental Indenture will not be discharged except by
complete performance of the Obligations contained in the Notes and
the Indenture. |
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(g) |
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If any Holder or the Trustee is required by any
court or otherwise to return to the Company or any Guaranteeing
Subsidiary, or any custodian, Trustee, liquidator or other similar
official acting in relation to either the Company or such Guaranteeing
Subsidiary, any amount paid by either to the Trustee or such Holder,
the Subsidiary Guarantee made pursuant to this Supplemental Indenture,
to the extent theretofore discharged, shall be reinstated in full force
and effect. |
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(h) |
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Each Guaranteeing Subsidiary agrees that it
shall not be entitled to any right of subrogation in relation to the
Holders in respect of any Obligations guaranteed hereby until payment
in full of all Obligations guaranteed hereby. Each Guaranteeing
Subsidiary further agrees that, as between such Guaranteeing
Subsidiary, on the one hand, and the Holders and the Trustee, on the
other hand: |
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(i) |
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the maturity of the
Obligations guaranteed hereby may be accelerated as provided
in Article 6 of the Indenture for the purposes of the
Subsidiary Guarantee made pursuant to this Supplemental
Indenture, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the
Obligations guaranteed hereby; and |
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(ii) |
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in the event of any
declaration of acceleration of such Obligations as provided in
Article 6 of the Indenture, such Obligations (whether or not
due and payable) shall forthwith become due and payable by
such Guaranteeing Subsidiary for the purpose of the Subsidiary
Guarantee made pursuant to this Supplemental Indenture. |
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(i) |
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Each Guaranteeing Subsidiary shall have the
right to seek contribution from any other non-paying Guaranteeing
Subsidiary so long as the exercise of such right does not impair the
rights of the Holders or the Trustee under the Subsidiary Guarantee
made pursuant to this Supplemental Indenture. |
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4. |
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GUARANTEEING SUBSIDIARY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS. |
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(a) |
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Except as set forth in Articles 4 and 5 of the
Indenture, nothing contained in the Indenture, this Supplemental
Indenture or in the Notes shall prevent any consolidation or merger of
any Guaranteeing Subsidiary with or into the Company or any other
Guarantor or shall prevent any transfer, sale or conveyance of the
property of any Guaranteeing Subsidiary as an entirety or substantially
as an entirety, to the Company or any other Guarantor. |
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(b) |
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Except as set forth in Article 4 and 5 of the
Indenture, nothing contained in the Indenture, this Supplemental
Indenture or in the Notes shall prevent any consolidation or merger of
any Guaranteeing Subsidiary |
3
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with or into a corporation or corporations other than the Company or
any other Guarantor (in each case, whether or not affiliated with the
Guaranteeing Subsidiary), or successive consolidations or mergers in
which a Guaranteeing Subsidiary or its successor or successors shall
be a party or parties, or shall prevent any sale or conveyance of the
property of any Guaranteeing Subsidiary as an entirety or
substantially as an entirety, to a corporation other than the Company
or any other Guarantor (in each case, whether or not affiliated with
the Guaranteeing Subsidiary) authorized to acquire and operate the
same; provided, however, that each Guaranteeing Subsidiary hereby
covenants and agrees that (i) subject to the Indenture, upon any such
consolidation, merger, sale or conveyance, the due and punctual
performance and observance of all of the covenants and conditions of
the Indenture and this Supplemental Indenture to be performed by such
Guaranteeing Subsidiaries, shall be expressly assumed (in the event
that such Guaranteeing Subsidiary is not the surviving corporation in
the merger), by supplemental indenture satisfactory in form to the
Trustee, executed and delivered to the Trustee, by the corporation
formed by such consolidation, or into which such Guaranteeing
Subsidiary shall have been merged, or by the corporation which shall
have acquired such property and (ii) immediately after giving effect
to such consolidation, merger, sale or conveyance no Default or Event
of Default exists. |
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(c) |
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In case of any such consolidation, merger, sale
or conveyance and upon the assumption by the successor corporation, by
supplemental indenture, executed and delivered to the Trustee and
satisfactory in form to the Trustee, of the Subsidiary Guarantee made
pursuant to this Supplemental Indenture and the due and punctual
performance of all of the covenants and conditions of the Indenture and
this Supplemental Indenture to be performed by such Guaranteeing
Subsidiary, such successor corporation shall succeed to and be
substituted for such Guaranteeing Subsidiary with the same effect as if
it had been named herein as the Guaranteeing Subsidiary. Such successor
corporation thereupon may cause to be signed any or all of the
Subsidiary Guarantees to be endorsed upon the Notes issuable under the
Indenture which theretofore shall not have been signed by the Company
and delivered to the Trustee. All the Subsidiary Guarantees so issued
shall in all respects have the same legal rank and benefit under the
Indenture and this Supplemental Indenture as the Subsidiary Guarantees
theretofore and thereafter issued in accordance with the terms of the
Indenture and this Supplemental Indenture as though all of such
Subsidiary Guarantees had been issued at the date of the execution
hereof. |
5. RELEASES.
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(a) |
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Concurrently with any sale of assets
(including, if applicable, all of the Capital Stock of a Guaranteeing
Subsidiary), all Liens, if any, in favor of the Trustee in the assets
sold thereby shall be released; provided that in the event of an Asset
Sale, the Net Proceeds from such sale or other disposition are treated
in accordance with the provisions of Section 4.10 of the Indenture. If
the assets sold in such sale or other disposition
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include all or substantially all of the assets of a Guaranteeing
Subsidiary or all of the Capital Stock of a Guaranteeing Subsidiary,
then the Guaranteeing Subsidiary (in the event of a sale or other
disposition of all of the Capital Stock of such Guaranteeing
Subsidiary) or the Person acquiring the property (in the event of a
sale or other disposition of all or substantially all of the assets
of such Guaranteeing Subsidiary) shall be released from and relieved
of its Obligations under this Supplemental Indenture and its
Subsidiary Guarantee made pursuant hereto; provided that in the event
of an Asset Sale, the Net Proceeds from such sale or other
disposition are treated in accordance with the provisions of Section
4.10 of the Indenture. Upon delivery by the Company to the Trustee of
an Officers Certificate to the effect that such sale or other
disposition was made by the Company or the Guaranteeing Subsidiary,
as the case may be, in accordance with the provisions of the
Indenture and this Supplemental Indenture, including without
limitation, Section 4.10 of the Indenture, the Trustee shall execute
any documents reasonably required in order to evidence the release of
the Guaranteeing Subsidiary from its Obligations under this
Supplemental Indenture and its Subsidiary Guarantee made pursuant
hereto. If the Guaranteeing Subsidiary is not released from its
obligations under its Subsidiary Guarantee, it shall remain liable
for the full amount of principal of and interest on the Notes and for
the other obligations of such Guaranteeing Subsidiary under the
Indenture as provided in this Supplemental Indenture. |
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(b) |
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Upon the designation of a Guaranteeing
Subsidiary as an Unrestricted Subsidiary in accordance with the terms
of the Indenture, such Guaranteeing Subsidiary shall be released and
relieved of its Obligations under its Subsidiary Guarantee and this
Supplemental Indenture. Upon delivery by the Company to the Trustee of
an Officers Certificate and an Opinion of Counsel to the effect that
such designation of such Guaranteeing Subsidiary as an Unrestricted
Subsidiary was made by the Company in accordance with the provisions of
the Indenture, including without limitation Section 4.07 of the
Indenture, the Trustee shall execute any documents reasonably required
in order to evidence the release of such Guaranteeing Subsidiary from
its Obligations under its Subsidiary Guarantee. Any Guaranteeing
Subsidiary not released from its Obligations under its Subsidiary
Guarantee shall remain liable for the full amount of principal of and
interest on the Notes and for the other Obligations of any Guaranteeing
Subsidiary under the Indenture as provided herein. |
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(c) |
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Each Guaranteeing Subsidiary shall be released
and relieved of its obligations under this Supplemental Indenture in
accordance with, and subject to, Section 4.18 of the Indenture. |
6. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee,
incorporator, stockholder or agent of any Guaranteeing Subsidiary, as such, shall have any
liability for any Obligations of the Company or any Guaranteeing Subsidiary under the Notes, any
Subsidiary Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in
respect of, or by reason of, such Obligations or their creation. Each Holder of the Notes by
accepting a Note waives and releases all such liability. The waiver and release are part of the
consideration for issuance of
5
the Notes. Such waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the SEC that such a waiver is against public policy.
7. SUBORDINATION OF SUBSIDIARY GUARANTEES; ANTI-LAYERING. No Guaranteeing Subsidiary shall
incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt of a Guaranteeing Subsidiary and
senior in any respect in right of payment to any of the Subsidiary Guarantees. Notwithstanding the
foregoing sentence, the Subsidiary Guarantee of each Guaranteeing Subsidiary shall be subordinated
to the prior payment in full of all Senior Debt of that Guaranteeing Subsidiary (in the same manner
and to the same extent that the Notes are subordinated to Senior Debt), which shall include all
guarantees of Senior Debt.
8. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
9. COUNTERPARTS. The parties may sign any number of copies of this Supplemental Indenture.
Each signed copy shall be an original, but all of them together represent the same agreement.
10. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not
affect the construction hereof.
11. THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in
respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the
recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiaries
and the Company.
6
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly
executed, all as of the date first above written.
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Dated: February 20, 2009 |
L-3 COMMUNICATIONS CORPORATION
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Senior Vice President, General Counsel and
Corporate Secretary |
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Dated: February 20, 2009
Broadcast Sports Inc., a Delaware corporation
D.P. Associates, Inc., a Virginia corporation
Electrodynamics, Inc., an Arizona corporation
Henschel Inc., a Delaware corporation
International Resources Group Ltd., a Delaware corporation
Interstate Electronics Corporation, a California corporation
LinCom Wireless, Inc., a Delaware corporation
L-3 Communications Advanced Laser Systems Technology, Inc., a Florida corporation
L-3 Communications AIS GP Corporation, a Delaware corporation
L-3 Communications Applied Signal and Image Technology, Inc., a Maryland corporation
L-3 Communications Avionics Systems, Inc., a Delaware corporation
L-3 Communications Cincinnati Electronics, Inc., an Ohio corporation
L-3 Communications Crestview Aerospace Corporation, a Delaware corporation
L-3 Communications CyTerra Corporation, a Delaware corporation
L-3 Communications Dynamic Positioning and Control Systems, Inc., a California corporation
L-3 Communications Electron Technologies, Inc., a Delaware corporation
L-3 Communications EO/IR, Inc., a Florida corporation
L-3 Communications EOTech, Inc., a Delaware corporation
L-3 Communications ESSCO, Inc., a Delaware corporation
L-3 Communications Foreign Holdings, Inc., a Delaware corporation
L-3 Communications Geneva Aerospace, Inc., a Texas corporation
L-3 Communications InfraredVision Technology Corporation, a California corporation
L-3 Communications Investments Inc., a Delaware corporation
L-3 Communications Klein Associates, Inc., a Delaware corporation
L-3 Communications MariPro, Inc., a California corporation
L-3 Communications Mobile-Vision, Inc., a New Jersey corporation
L-3 Communications Nautronix Holdings, Inc., a Delaware corporation
L-3 Communications Nova Engineering, Inc., an Ohio corporation
L-3 Communications SafeView, Inc., a Delaware corporation
L-3 Communications Security and Detection Systems, Inc., a Delaware corporation
L-3 Communications Sonoma EO, Inc., a California corporation
L-3 Communications TCS, Inc., a Delaware corporation
L-3 Communications Westwood Corporation, a Nevada corporation
L-3 Fuzing and Ordnance Systems, Inc., a Delaware corporation
L-3 G.A. International, Inc., a Florida corporation
L-3 Global Communications Solutions, Inc., a Virginia corporation
L-3 Services, Inc., a Delaware corporation
Microdyne Communications Technologies Incorporated, a Maryland corporation
Microdyne Corporation, a Maryland corporation
Microdyne Outsourcing Incorporated, a Maryland corporation
Pac Ord Inc., a Delaware corporation
Power Paragon, Inc., a Delaware corporation
SPD Electrical Systems, Inc., a Delaware corporation
SPD Switchgear Inc., a Delaware corporation
Titan Facilities, Inc., a Virginia corporation
Troll Technology Corporation, a California corporation
Wescam Air Ops Inc., a Delaware corporation
Wescam Holdings (US) Inc., a Delaware corporation
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As Guaranteeing Subsidiaries
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Vice President and Secretary |
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L-3 Communications Integrated Systems L.P., a Delaware limited partnership
By: L-3 COMMUNICATIONS AIS GP CORPORATION, as General
Partner
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Vice President and Secretary |
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L-3 Communications Flight Capital LLC, a Delaware limited liability company
L-3 Communications Flight International Aviation LLC, a Delaware limited liability company
L-3 Communications Vector International Aviation LLC, a Delaware limited liability company
By: L-3 COMMUNICATIONS VERTEX AEROSPACE LLC, as Sole
Member
By: L-3 COMMUNICATIONS INTEGRATED SYSTEMS L.P., as Sole
Member
By: L-3 COMMUNICATIONS AIS GP CORPORATION, as General
Partner
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Vice President and Secretary |
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L-3 Communications Vertex Aerospace LLC, a Delaware limited liability company
By: L-3 COMMUNICATIONS INTEGRATED SYSTEMS L.P., as Sole
Member
By: L-3 COMMUNICATIONS AIS GP CORPORATION, as General
Partner
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Vice President and Secretary |
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L-3 Communications Germany Holdings, LLC, a Delaware limited liability company
By: L-3 COMMUNICATIONS CORPORATION, as Sole Member
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Senior Vice President, General Counsel and
Corporate Secretary |
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L-3 Communications Shared Services, LLC, a Delaware limited liability company
By: L-3 COMMUNICATIONS CORPORATION, as Sole Member
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Senior Vice President, General Counsel and
Corporate Secretary |
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Dated: February 20, 2009 |
THE BANK OF NEW YORK MELLON,
as Trustee
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By: |
/s/ Franca Ferrera |
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Name: |
Franca Ferrera |
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Title: |
Assistant Vice President |
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NOTATION ON SENIOR SUBORDINATED NOTE RELATING TO SUBSIDIARY GUARANTEE
Pursuant to the Supplemental Indenture (the Supplemental Indenture) dated as of February 20,
2009 among L-3 Communications Corporation, the Guarantors party thereto (each a Guarantor and
collectively the Guarantors) and The Bank of New York Mellon (formerly known as The Bank of New York), as trustee (the Trustee), each Guarantor
(i) has jointly and severally unconditionally guaranteed (a) the due and punctual payment of the
principal of, and premium, interest and Additional Interest on the Notes, whether at maturity or an
interest payment date, by acceleration, call for redemption or otherwise, (b) the due and punctual
payment of interest on the overdue principal and premium of, and interest and Additional Interest
on the Notes, and (c) in case of any extension of time of payment or renewal of any Notes or any of
such other Obligations, the same will be promptly paid in full when due in accordance with the
terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise and
(ii) has agreed to pay any and all costs and expenses (including reasonable attorneys fees)
incurred by the Trustee or any Holder in enforcing any rights under the Subsidiary Guarantee (as
defined in the Supplemental Indenture).
Notwithstanding the foregoing, the Subsidiary Guarantee of each Guarantor shall be
subordinated to the prior payment in full of all Senior Debt (as defined in the Indenture) of that
Guarantor (in the same manner and to the same extent that the Notes are subordinated to the Senior
Debt), which shall include all guarantees of Senior Debt.
Notwithstanding the foregoing, in the event that the Subsidiary Guarantee of any Guarantor
would constitute or result in a violation of any applicable fraudulent conveyance or similar law of
any relevant jurisdiction, the liability of such Guarantor under its Subsidiary Guarantee shall be
reduced to the maximum amount permissible under such fraudulent conveyance or similar law.
No past, present or future director, officer, employee, agent, incorporator, stockholder or
agent of any Guarantor, as such, shall have any liability for any Obligations of the Company or any
Guarantor under the Notes, any Subsidiary Guarantee, the Indenture, any supplemental indenture
delivered pursuant to the Indenture by such Guarantor, or for any claim based on, in respect of or
by reason of such Obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability.
The Subsidiary Guarantee shall be binding upon each Guarantor and its successors and assigns
and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in
the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and
privileges herein conferred upon that party shall automatically extend to and be vested in such
transferee or assignee, all subject to the terms and conditions hereof.
The Subsidiary Guarantee shall not be valid or obligatory for any purpose until the
certificate of authentication on the Note upon which the Subsidiary Guarantee is noted has been
executed by the Trustee under the Indenture by the manual signature of one of its authorized
officers. Capitalized terms used herein have the meaning assigned to them in the Indenture, dated
as of November 12, 2004, among L-3 Communications Corporation, the Guarantors party thereto and the
Trustee.
Dated: February 20, 2009
Broadcast Sports Inc., a Delaware corporation
D.P. Associates, Inc., a Virginia corporation
Electrodynamics, Inc., an Arizona corporation
Henschel Inc., a Delaware corporation
International Resources Group Ltd., a Delaware corporation
Interstate Electronics Corporation, a California corporation
LinCom Wireless, Inc., a Delaware corporation
L-3 Communications Advanced Laser Systems Technology, Inc., a Florida corporation
L-3 Communications AIS GP Corporation, a Delaware corporation
L-3 Communications Applied Signal and Image Technology, Inc., a Maryland corporation
L-3 Communications Avionics Systems, Inc., a Delaware corporation
L-3 Communications Cincinnati Electronics, Inc., an Ohio corporation
L-3 Communications Crestview Aerospace Corporation, a Delaware corporation
L-3 Communications CyTerra Corporation, a Delaware corporation
L-3 Communications Dynamic Positioning and Control Systems, Inc., a California corporation
L-3 Communications Electron Technologies, Inc., a Delaware corporation
L-3 Communications EO/IR, Inc., a Florida corporation
L-3 Communications EOTech, Inc., a Delaware corporation
L-3 Communications ESSCO, Inc., a Delaware corporation
L-3 Communications Foreign Holdings, Inc., a Delaware corporation
L-3 Communications Geneva Aerospace, Inc., a Texas corporation
L-3 Communications InfraredVision Technology Corporation, a California corporation
L-3 Communications Investments Inc., a Delaware corporation
L-3 Communications Klein Associates, Inc., a Delaware corporation
L-3 Communications MariPro, Inc., a California corporation
L-3 Communications Mobile-Vision, Inc., a New Jersey corporation
L-3 Communications Nautronix Holdings, Inc., a Delaware corporation
L-3 Communications Nova Engineering, Inc., an Ohio corporation
L-3 Communications SafeView, Inc., a Delaware corporation
L-3 Communications Security and Detection Systems, Inc., a Delaware corporation
L-3 Communications Sonoma EO, Inc., a California corporation
L-3 Communications TCS, Inc., a Delaware corporation
L-3 Communications Westwood Corporation, a Nevada corporation
L-3 Fuzing and Ordnance Systems, Inc., a Delaware corporation
L-3 G.A. International, Inc., a Florida corporation
L-3 Global Communications Solutions, Inc., a Virginia corporation
L-3 Services, Inc., a Delaware corporation
Microdyne Communications Technologies Incorporated, a Maryland corporation
Microdyne Corporation, a Maryland corporation
Microdyne Outsourcing Incorporated, a Maryland corporation
Pac Ord Inc., a Delaware corporation
Power Paragon, Inc., a Delaware corporation
SPD Electrical Systems, Inc., a Delaware corporation
SPD Switchgear Inc., a Delaware corporation
Titan Facilities, Inc., a Virginia corporation
Troll Technology Corporation, a California corporation
Wescam Air Ops Inc., a Delaware corporation
Wescam Holdings (US) Inc., a Delaware corporation
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As Guaranteeing Subsidiaries
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
|
|
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Title: |
Vice President and Secretary |
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|
L-3 Communications Integrated Systems L.P., a Delaware limited partnership
By: L-3 COMMUNICATIONS AIS GP CORPORATION, as General
Partner
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
|
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Title: |
Vice President and Secretary |
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|
L-3 Communications Flight Capital LLC, a Delaware limited liability company
L-3 Communications Flight International Aviation LLC, a Delaware limited liability company
L-3 Communications Vector International Aviation LLC, a Delaware limited liability company
By: L-3 COMMUNICATIONS VERTEX AEROSPACE LLC, as Sole
Member
By: L-3 COMMUNICATIONS INTEGRATED SYSTEMS L.P., as Sole
Member
By: L-3 COMMUNICATIONS AIS GP CORPORATION, as General
Partner
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Vice President and Secretary |
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L-3 Communications Vertex Aerospace LLC, a Delaware limited liability company
By: L-3 COMMUNICATIONS INTEGRATED SYSTEMS L.P., as Sole
Member
By: L-3 COMMUNICATIONS AIS GP CORPORATION, as General
Partner
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Vice President and Secretary |
|
L-3 Communications Germany Holdings, LLC, a Delaware limited liability company
By: L-3 COMMUNICATIONS CORPORATION, as Sole Member
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
|
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Title: |
Senior Vice President, General Counsel and
Corporate Secretary |
|
|
L-3 Communications Shared Services, LLC, a Delaware limited liability company
By: L-3 COMMUNICATIONS CORPORATION, as Sole Member
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Senior Vice President, General Counsel and
Corporate Secretary |
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EX-4.13
Exhibit 4.13
SUPPLEMENTAL INDENTURE TO BE DELIVERED
BY GUARANTEEING SUBSIDIARIES
Supplemental Indenture (this Supplemental Indenture), dated as of February 20, 2009, among
L-3 Communications Corporation (or its permitted successor), a Delaware corporation (the
Company), each a direct or indirect subsidiary of the Company signatory hereto (each, a
Guaranteeing Subsidiary, and collectively, the Guaranteeing Subsidiaries), and The Bank of New
York Mellon (formerly known as The Bank of New York), as trustee under the indenture referred to below (the Trustee).
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the
Indenture), dated as of July 29, 2005 providing for the issuance of an unlimited amount of 6 3/8%
Senior Subordinated Notes due 2015 (the Notes);
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiaries
shall execute and deliver to the Trustee a supplemental indenture pursuant to which the
Guaranteeing Subsidiaries shall unconditionally guarantee all of the Companys Obligations (as
defined in the Indenture) under the Notes and the Indenture on the terms and conditions set forth
herein (the Subsidiary Guarantee); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and
deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiaries and the
Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes
as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the
meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. Each Guaranteeing Subsidiary hereby agrees as follows:
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(a) |
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Such Guaranteeing Subsidiary, jointly and
severally with all other current and future guarantors of the Notes
(collectively, the Guarantors and each, a Guarantor),
unconditionally guarantees to each Holder of a Note authenticated and
delivered by the Trustee and to the Trustee and its successors and
assigns, regardless of the validity and enforceability of the
Indenture, the Notes or the Obligations of the Company under the
Indenture or the Notes, that: |
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(i) |
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the principal of, premium,
interest and Additional Interest, if any, on the Notes will be
promptly paid in full when due, whether at maturity, by
acceleration, redemption or otherwise, and interest on the
overdue principal of, premium, interest and Additional
Interest, if any, on the Notes, to the extent lawful, and all
other Obligations of the Company to the Holders or the Trustee
thereunder or under the Indenture will be promptly paid in
full, all in accordance with the terms thereof; and |
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(ii) |
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in case of any extension of
time for payment or renewal of any Notes or any of such other
Obligations, that the same will be promptly paid in full when
due in accordance with the terms of the extension or renewal,
whether at stated maturity, by acceleration or otherwise. |
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(b) |
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Notwithstanding the foregoing, in the event
that this Subsidiary Guarantee would constitute or result in a
violation of any applicable fraudulent conveyance or similar law of any
relevant jurisdiction, the liability of such Guaranteeing Subsidiary
under this Supplemental Indenture and its Subsidiary Guarantee shall be
reduced to the maximum amount permissible under such fraudulent
conveyance or similar law. |
3. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEES.
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(a) |
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To evidence its Subsidiary Guarantee set forth
in this Supplemental Indenture, such Guaranteeing Subsidiary hereby
agrees that a notation of such Subsidiary Guarantee substantially in
the form of Exhibit F to the Indenture shall be endorsed by an officer
of such Guaranteeing Subsidiary on each Note authenticated and
delivered by the Trustee after the date hereof. |
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(b) |
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Notwithstanding the foregoing, such
Guaranteeing Subsidiary hereby agrees that its Subsidiary Guarantee set
forth herein shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation of such Subsidiary
Guarantee. |
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(c) |
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If an Officer whose signature is on this
Supplemental Indenture or on the Subsidiary Guarantee no longer holds
that office at the time the Trustee authenticates the Note on which a
Subsidiary Guarantee is endorsed, the Subsidiary Guarantee shall be
valid nevertheless. |
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(d) |
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The delivery of any Note by the Trustee, after
the authentication thereof under the Indenture, shall constitute due
delivery of the Subsidiary Guarantee set forth in this Supplemental
Indenture on behalf of each Guaranteeing Subsidiary. |
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(e) |
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Each Guaranteeing Subsidiary hereby agrees that
its Obligations hereunder shall be unconditional, regardless of the
validity, regularity or enforceability of the Notes or the Indenture,
the absence of any action to enforce the same, any waiver or consent by
any Holder of the Notes with respect to any provisions hereof or
thereof, the recovery of any judgment against the Company, any action
to enforce the same or any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor. |
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(f) |
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Each Guaranteeing Subsidiary hereby waives
diligence, presentment, demand of payment, filing of claims with a
court in the event of insolvency or bankruptcy of the Company, any
right to require a proceeding first against the Company, protest,
notice and all demands whatsoever and covenants that its Subsidiary
Guarantee made pursuant |
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to this Supplemental Indenture will not be
discharged except by complete performance of the Obligations contained
in the Notes and the Indenture. |
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(g) |
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If any Holder or the Trustee is required by any
court or otherwise to return to the Company or any Guaranteeing
Subsidiary, or any custodian, Trustee, liquidator or other similar
official acting in relation to either the Company or such Guaranteeing
Subsidiary, any amount paid by either to the Trustee or such Holder,
the Subsidiary Guarantee made pursuant to this Supplemental Indenture,
to the extent theretofore discharged, shall be reinstated in full force
and effect. |
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(h) |
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Each Guaranteeing Subsidiary agrees that it
shall not be entitled to any right of subrogation in relation to the
Holders in respect of any Obligations guaranteed hereby until payment
in full of all Obligations guaranteed hereby. Each Guaranteeing
Subsidiary further agrees that, as between such Guaranteeing
Subsidiary, on the one hand, and the Holders and the Trustee, on the
other hand: |
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(i) |
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the maturity of the
Obligations guaranteed hereby may be accelerated as provided
in Article 6 of the Indenture for the purposes of the
Subsidiary Guarantee made pursuant to this Supplemental
Indenture, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the
Obligations guaranteed hereby; and |
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(ii) |
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in the event of any
declaration of acceleration of such Obligations as provided in
Article 6 of the Indenture, such Obligations (whether or not
due and payable) shall forthwith become due and payable by
such Guaranteeing Subsidiary for the purpose of the Subsidiary
Guarantee made pursuant to this Supplemental Indenture. |
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(i) |
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Each Guaranteeing Subsidiary shall have the
right to seek contribution from any other non-paying Guaranteeing
Subsidiary so long as the exercise of such right does not impair the
rights of the Holders or the Trustee under the Subsidiary Guarantee
made pursuant to this Supplemental Indenture. |
4. GUARANTEEING SUBSIDIARY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS.
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(a) |
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Except as set forth in Articles 4 and 5 of the
Indenture, nothing contained in the Indenture, this Supplemental
Indenture or in the Notes shall prevent any consolidation or merger of
any Guaranteeing Subsidiary with or into the Company or any other
Guarantor or shall prevent any transfer, sale or conveyance of the
property of any Guaranteeing Subsidiary as an entirety or substantially
as an entirety, to the Company or any other Guarantor. |
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(b) |
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Except as set forth in Article 4 and 5 of the
Indenture, nothing contained in the Indenture, this Supplemental
Indenture or in the Notes shall prevent any consolidation or merger of
any Guaranteeing Subsidiary |
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with or into a corporation or corporations
other than the Company or any other Guarantor (in each case, whether or
not affiliated with the Guaranteeing Subsidiary), or successive
consolidations or mergers in which a Guaranteeing Subsidiary or its
successor or successors shall be a
party or parties, or shall prevent any sale or conveyance of the
property of any Guaranteeing Subsidiary as an entirety or
substantially as an entirety, to a corporation other than the Company
or any other Guarantor (in each case, whether or not affiliated with
the Guaranteeing Subsidiary) authorized to acquire and operate the
same; provided, however, that each Guaranteeing Subsidiary hereby
covenants and agrees that (i) subject to the Indenture, upon any such
consolidation, merger, sale or conveyance, the due and punctual
performance and observance of all of the covenants and conditions of
the Indenture and this Supplemental Indenture to be performed by such
Guaranteeing Subsidiaries, shall be expressly assumed (in the event
that such Guaranteeing Subsidiary is not the surviving corporation in
the merger), by supplemental indenture satisfactory in form to the
Trustee, executed and delivered to the Trustee, by the corporation
formed by such consolidation, or into which such Guaranteeing
Subsidiary shall have been merged, or by the corporation which shall
have acquired such property and (ii) immediately after giving effect
to such consolidation, merger, sale or conveyance no Default or Event
of Default exists. |
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(c) |
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In case of any such consolidation, merger, sale
or conveyance and upon the assumption by the successor corporation, by
supplemental indenture, executed and delivered to the Trustee and
satisfactory in form to the Trustee, of the Subsidiary Guarantee made
pursuant to this Supplemental Indenture and the due and punctual
performance of all of the covenants and conditions of the Indenture and
this Supplemental Indenture to be performed by such Guaranteeing
Subsidiary, such successor corporation shall succeed to and be
substituted for such Guaranteeing Subsidiary with the same effect as if
it had been named herein as the Guaranteeing Subsidiary. Such successor
corporation thereupon may cause to be signed any or all of the
Subsidiary Guarantees to be endorsed upon the Notes issuable under the
Indenture which theretofore shall not have been signed by the Company
and delivered to the Trustee. All the Subsidiary Guarantees so issued
shall in all respects have the same legal rank and benefit under the
Indenture and this Supplemental Indenture as the Subsidiary Guarantees
theretofore and thereafter issued in accordance with the terms of the
Indenture and this Supplemental Indenture as though all of such
Subsidiary Guarantees had been issued at the date of the execution
hereof. |
5. RELEASES.
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(a) |
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Concurrently with any sale of assets
(including, if applicable, all of the Capital Stock of a Guaranteeing
Subsidiary), all Liens, if any, in favor of the Trustee in the assets
sold thereby shall be released; provided that in the event of an Asset
Sale, the Net Proceeds from such sale or other disposition are treated
in accordance with the provisions of Section 4.10 of the Indenture (it
being understood that only such portion of the Net |
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Proceeds as is
required to be applied on or before the date of such sale or other
disposition in accordance with the terms of the Indenture needs to be
applied in accordance therewith at such time). If the assets sold in
such sale or other disposition include all or substantially all of the
assets of a Guaranteeing Subsidiary or all of the Capital Stock of a
Guaranteeing Subsidiary, then the Guaranteeing Subsidiary (in the
event of a sale or other disposition of all of the Capital Stock of
such Guaranteeing Subsidiary) or the Person acquiring the property
(in the event of a sale or other disposition of all or substantially
all of the assets of such Guaranteeing Subsidiary) shall be released
from and relieved of its Obligations under this Supplemental
Indenture and its Subsidiary Guarantee made pursuant hereto; provided
that in the event of an Asset Sale, the Net Proceeds from such sale
or other disposition are treated in accordance with the provisions of
Section 4.10 of the Indenture (it being understood that only such
portion of the Net Proceeds as is required to be applied on or before
the date of such sale or other disposition in accordance with the
terms of the Indenture needs to be applied in accordance therewith at
such time). Upon delivery by the Company to the Trustee of an
Officers Certificate to the effect that such sale or other
disposition was made by the Company or the Guaranteeing Subsidiary,
as the case may be, in accordance with the provisions of the
Indenture and this Supplemental Indenture, including without
limitation, Section 4.10 of the Indenture, the Trustee shall execute
any documents reasonably required in order to evidence the release of
the Guaranteeing Subsidiary from its Obligations under this
Supplemental Indenture and its Subsidiary Guarantee made pursuant
hereto. If the Guaranteeing Subsidiary is not released from its
obligations under its Subsidiary Guarantee, it shall remain liable
for the full amount of principal of and interest on the Notes and for
the other obligations of such Guaranteeing Subsidiary under the
Indenture as provided in this Supplemental Indenture. |
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(b) |
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Upon the designation of a Guaranteeing
Subsidiary as an Unrestricted Subsidiary in accordance with the terms
of the Indenture or upon the release of a Guarantor from its Guarantees
of, and all pledges and security interests granted in connection with,
all other Indebtedness of the Company or any of their Restricted
Subsidiaries, such Guaranteeing Subsidiary shall be released and
relieved of its Obligations under its Subsidiary Guarantee and this
Supplemental Indenture. Upon delivery by the Company to the Trustee of
an Officers Certificate and an Opinion of Counsel to the effect that
such designation of such Guaranteeing Subsidiary as an Unrestricted
Subsidiary was made by the Company in accordance with the provisions of
the Indenture, including without limitation Section 4.07 of the
Indenture, the Trustee shall execute any documents reasonably required
in order to evidence the release of such Guaranteeing Subsidiary from
its Obligations under its Subsidiary Guarantee. Any Guaranteeing
Subsidiary not released from its Obligations under its Subsidiary
Guarantee shall remain liable for the full amount of principal of and
interest on the Notes and for the other Obligations of any Guaranteeing
Subsidiary under the Indenture as provided herein.
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(c) |
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Each Guaranteeing Subsidiary shall be released
and relieved of its obligations under this Supplemental Indenture in
accordance with, and subject to, Section 4.13 of the Indenture. |
6. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee,
incorporator, stockholder or agent of any Guaranteeing Subsidiary, as such, shall have any
liability for any Obligations of the Company or any Guaranteeing Subsidiary under the Notes, any
Subsidiary Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in
respect of, or by reason of, such Obligations or their creation. Each Holder of the Notes by
accepting a Note waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the SEC that such a waiver is against
public policy.
7. SUBORDINATION OF SUBSIDIARY GUARANTEES. The Guarantee of each Guarantor shall be
subordinated to the prior payment in full of all Senior Debt of that Guarantor (in the same manner
and to the same extent that the Notes are subordinated to Senior Debt), which shall include all
guarantees of Senior Debt
8. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
9. COUNTERPARTS. The parties may sign any number of copies of this Supplemental Indenture.
Each signed copy shall be an original, but all of them together represent the same agreement.
10. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not
affect the construction hereof.
11. THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in
respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the
recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiaries
and the Company.
6
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly
executed, all as of the date first above written.
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Dated: February 20, 2009 |
L-3 COMMUNICATIONS CORPORATION
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By: |
/s/ Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Senior Vice President, General Counsel and Corporate Secretary |
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Dated: February 20, 2009
Broadcast Sports Inc., a Delaware corporation
D.P. Associates, Inc., a Virginia corporation
Electrodynamics, Inc., an Arizona corporation
Henschel Inc., a Delaware corporation
International Resources Group Ltd., a Delaware corporation
Interstate Electronics Corporation, a California corporation
LinCom Wireless, Inc., a Delaware corporation
L-3 Communications Advanced Laser Systems Technology, Inc., a Florida corporation
L-3 Communications AIS GP Corporation, a Delaware corporation
L-3 Communications Applied Signal and Image Technology, Inc., a Maryland corporation
L-3 Communications Avionics Systems, Inc., a Delaware corporation
L-3 Communications Cincinnati Electronics, Inc., an Ohio corporation
L-3 Communications Crestview Aerospace Corporation, a Delaware corporation
L-3 Communications CyTerra Corporation, a Delaware corporation
L-3 Communications Dynamic Positioning and Control Systems, Inc., a California corporation
L-3 Communications Electron Technologies, Inc., a Delaware corporation
L-3 Communications EO/IR, Inc., a Florida corporation
L-3 Communications EOTech, Inc., a Delaware corporation
L-3 Communications ESSCO, Inc., a Delaware corporation
L-3 Communications Foreign Holdings, Inc., a Delaware corporation
L-3 Communications Geneva Aerospace, Inc., a Texas corporation
L-3 Communications InfraredVision Technology Corporation, a California corporation
L-3 Communications Investments Inc., a Delaware corporation
L-3 Communications Klein Associates, Inc., a Delaware corporation
L-3 Communications MariPro, Inc., a California corporation
L-3 Communications Mobile-Vision, Inc., a New Jersey corporation
L-3 Communications Nautronix Holdings, Inc., a Delaware corporation
L-3 Communications Nova Engineering, Inc., an Ohio corporation
L-3 Communications SafeView, Inc., a Delaware corporation
L-3 Communications Security and Detection Systems, Inc., a Delaware corporation
L-3 Communications Sonoma EO, Inc., a California corporation
L-3 Communications TCS, Inc., a Delaware corporation
L-3 Communications Westwood Corporation, a Nevada corporation
L-3 Fuzing and Ordnance Systems, Inc., a Delaware corporation
L-3 G.A. International, Inc., a Florida corporation
L-3 Global Communications Solutions, Inc., a Virginia corporation
L-3 Services, Inc., a Delaware corporation
Microdyne Communications Technologies Incorporated, a Maryland corporation
Microdyne Corporation, a Maryland corporation
Microdyne Outsourcing Incorporated, a Maryland corporation
Pac Ord Inc., a Delaware corporation
Power Paragon, Inc., a Delaware corporation
SPD Electrical Systems, Inc., a Delaware corporation
SPD Switchgear Inc., a Delaware corporation
Titan Facilities, Inc., a Virginia corporation
Troll Technology Corporation, a California corporation
Wescam Air Ops Inc., a Delaware corporation
Wescam Holdings (US) Inc., a Delaware corporation
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As Guaranteeing Subsidiaries
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By: |
/s/
Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Vice President and Secretary |
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L-3 Communications Integrated Systems L.P., a Delaware limited partnership
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By: L-3 COMMUNICATIONS AIS GP CORPORATION, as General Partner
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By: |
/s/
Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Vice President and Secretary |
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L-3 Communications Flight Capital LLC, a Delaware limited liability company
L-3 Communications Flight International Aviation LLC, a Delaware limited liability company
L-3 Communications Vector International Aviation LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS VERTEX AEROSPACE LLC, as Sole Member |
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By: L-3 COMMUNICATIONS INTEGRATED SYSTEMS L.P., as Sole Member |
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By: L-3 COMMUNICATIONS AIS GP CORPORATION, as General Partner |
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By: |
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/s/
Steven M. Post |
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Name:
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Steven M. Post |
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Title:
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Vice President and Secretary |
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L-3 Communications Vertex Aerospace LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS INTEGRATED SYSTEMS L.P., as Sole Member |
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By: L-3 COMMUNICATIONS AIS GP CORPORATION, as General Partner |
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By: |
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/s/
Steven M. Post |
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Name:
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Steven M. Post |
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Title:
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Vice President and Secretary |
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L-3 Communications Germany Holdings, LLC, a Delaware limited liability company
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By: |
L-3 COMMUNICATIONS CORPORATION, as Sole Member
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By: |
/s/
Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Senior Vice President, General Counsel and Corporate Secretary |
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L-3 Communications Shared Services, LLC, a Delaware limited liability company
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By: |
L-3 COMMUNICATIONS CORPORATION, as Sole Member
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By: |
/s/
Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Senior Vice President, General Counsel and Corporate Secretary |
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Dated: February 20, 2009 |
THE BANK OF NEW YORK MELLON,
as Trustee
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By: |
/s/ Franca Ferrera |
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Name: |
Franca Ferrera |
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Title: |
Assistant Vice President |
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NOTATION ON SENIOR SUBORDINATED NOTE RELATING TO SUBSIDIARY GUARANTEE
Pursuant to the Supplemental Indenture (the Supplemental Indenture) dated as of February 20,
2009 among L-3 Communications Corporation, the Guarantors party thereto (each a Guarantor and
collectively the Guarantors) and The Bank of New York Mellon (formerly known as The Bank of New York), as trustee (the Trustee), each Guarantor
(i) has jointly and severally unconditionally guaranteed (a) the due and punctual payment of the
principal of, and premium, interest and Additional Interest on the Notes, whether at maturity or an
interest payment date, by acceleration, call for redemption or otherwise, (b) the due and punctual
payment of interest on the overdue principal and premium of, and interest and Additional Interest
on the Notes, and (c) in case of any extension of time of payment or renewal of any Notes or any of
such other Obligations, the same will be promptly paid in full when due in accordance with the
terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise and
(ii) has agreed to pay any and all costs and expenses (including reasonable attorneys fees)
incurred by the Trustee or any Holder in enforcing any rights under the Subsidiary Guarantee (as
defined in the Supplemental Indenture).
Notwithstanding the foregoing, the Subsidiary Guarantee of each Guarantor shall be
subordinated to the prior payment in full of all Senior Debt (as defined in the Indenture) of that
Guarantor (in the same manner and to the same extent that the Notes are subordinated to the Senior
Debt), which shall include all guarantees of Senior Debt.
Notwithstanding the foregoing, in the event that the Subsidiary Guarantee of any Guarantor
would constitute or result in a violation of any applicable fraudulent conveyance or similar law of
any relevant jurisdiction, the liability of such Guarantor under its Subsidiary Guarantee shall be
reduced to the maximum amount permissible under such fraudulent conveyance or similar law.
No past, present or future director, officer, employee, agent, incorporator, stockholder or
agent of any Guarantor, as such, shall have any liability for any Obligations of the Company or any
Guarantor under the Notes, any Subsidiary Guarantee, the Indenture, any supplemental indenture
delivered pursuant to the Indenture by such Guarantor, or for any claim based on, in respect of or
by reason of such Obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability.
The Subsidiary Guarantee shall be binding upon each Guarantor and its successors and assigns
and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in
the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and
privileges herein conferred upon that party shall automatically extend to and be vested in such
transferee or assignee, all subject to the terms and conditions hereof.
The Subsidiary Guarantee shall not be valid or obligatory for any purpose until the
certificate of authentication on the Note upon which the Subsidiary Guarantee is noted has been
executed by the Trustee under the Indenture by the manual signature of one of its authorized
officers. Capitalized terms used herein have the meaning assigned to them in the Indenture, dated
as of July 29, 2005, among L-3 Communications Corporation, the Guarantors party thereto and the
Trustee.
Dated: February 20, 2009
Broadcast Sports Inc., a Delaware corporation
D.P. Associates, Inc., a Virginia corporation
Electrodynamics, Inc., an Arizona corporation
Henschel Inc., a Delaware corporation
International Resources Group Ltd., a Delaware corporation
Interstate Electronics Corporation, a California corporation
LinCom Wireless, Inc., a Delaware corporation
L-3 Communications Advanced Laser Systems Technology, Inc., a Florida corporation
L-3 Communications AIS GP Corporation, a Delaware corporation
L-3 Communications Applied Signal and Image Technology, Inc., a Maryland corporation
L-3 Communications Avionics Systems, Inc., a Delaware corporation
L-3 Communications Cincinnati Electronics, Inc., an Ohio corporation
L-3 Communications Crestview Aerospace Corporation, a Delaware corporation
L-3 Communications CyTerra Corporation, a Delaware corporation
L-3 Communications Dynamic Positioning and Control Systems, Inc., a California corporation
L-3 Communications Electron Technologies, Inc., a Delaware corporation
L-3 Communications EO/IR, Inc., a Florida corporation
L-3 Communications EOTech, Inc., a Delaware corporation
L-3 Communications ESSCO, Inc., a Delaware corporation
L-3 Communications Foreign Holdings, Inc., a Delaware corporation
L-3 Communications Geneva Aerospace, Inc., a Texas corporation
L-3 Communications InfraredVision Technology Corporation, a California corporation
L-3 Communications Investments Inc., a Delaware corporation
L-3 Communications Klein Associates, Inc., a Delaware corporation
L-3 Communications MariPro, Inc., a California corporation
L-3 Communications Mobile-Vision, Inc., a New Jersey corporation
L-3 Communications Nautronix Holdings, Inc., a Delaware corporation
L-3 Communications Nova Engineering, Inc., an Ohio corporation
L-3 Communications SafeView, Inc., a Delaware corporation
L-3 Communications Security and Detection Systems, Inc., a Delaware corporation
L-3 Communications Sonoma EO, Inc., a California corporation
L-3 Communications TCS, Inc., a Delaware corporation
L-3 Communications Westwood Corporation, a Nevada corporation
L-3 Fuzing and Ordnance Systems, Inc., a Delaware corporation
L-3 G.A. International, Inc., a Florida corporation
L-3 Global Communications Solutions, Inc., a Virginia corporation
L-3 Services, Inc., a Delaware corporation
Microdyne Communications Technologies Incorporated, a Maryland corporation
Microdyne Corporation, a Maryland corporation
Microdyne Outsourcing Incorporated, a Maryland corporation
Pac Ord Inc., a Delaware corporation
Power Paragon, Inc., a Delaware corporation
SPD Electrical Systems, Inc., a Delaware corporation
SPD Switchgear Inc., a Delaware corporation
Titan Facilities, Inc., a Virginia corporation
Troll Technology Corporation, a California corporation
Wescam Air Ops Inc., a Delaware corporation
Wescam Holdings (US) Inc., a Delaware corporation
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As Guaranteeing Subsidiaries
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By: |
/s/
Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Vice President and Secretary |
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L-3 Communications Integrated Systems L.P., a Delaware limited partnership
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By: L-3 COMMUNICATIONS AIS GP CORPORATION, as General Partner
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By: |
/s/
Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Vice President and Secretary |
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L-3 Communications Flight Capital LLC, a Delaware limited liability company
L-3 Communications Flight International Aviation LLC, a Delaware limited liability company
L-3 Communications Vector International Aviation LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS VERTEX AEROSPACE LLC, as Sole Member
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By: L-3 COMMUNICATIONS INTEGRATED SYSTEMS L.P., as Sole Member
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By: L-3 COMMUNICATIONS AIS GP CORPORATION, as General Partner
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By: |
/s/
Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Vice President and Secretary |
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L-3 Communications Vertex Aerospace LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS INTEGRATED SYSTEMS L.P., as Sole Member
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By: L-3 COMMUNICATIONS AIS GP CORPORATION, as General Partner
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By: |
/s/
Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Vice President and Secretary |
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L-3 Communications Germany Holdings, LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS CORPORATION, as Sole Member
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By: |
/s/
Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Senior Vice President, General Counsel and Corporate Secretary |
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L-3 Communications Shared Services, LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS CORPORATION, as Sole Member
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By: |
/s/
Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Senior Vice President, General Counsel and Corporate Secretary |
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3
EX-4.15
Exhibit 4.15
SUPPLEMENTAL INDENTURE TO BE DELIVERED
BY GUARANTEEING SUBSIDIARIES
Supplemental Indenture (this Supplemental Indenture), dated as of February 20, 2009, among
L-3 Communications Holdings, Inc. (or its permitted successor), a Delaware corporation (the
Company), each a direct or indirect subsidiary of the Company signatory hereto (each, a
Guaranteeing Subsidiary, and collectively, the Guaranteeing Subsidiaries), and The Bank of New
York Mellon (formerly known as The Bank of New York), as trustee under the indenture referred to below (the Trustee).
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the
Indenture), dated as of July 29, 2005 providing for the issuance of up to $700,000,000 of 3.0%
Convertible Contingent Debt Securities (CODES) due 2035 (the CODES);
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiaries
shall execute and deliver to the Trustee a supplemental indenture pursuant to which the
Guaranteeing Subsidiaries shall unconditionally guarantee all of the Companys Obligations (as
defined in the Indenture) under the CODES and the Indenture on the terms and conditions set forth
herein (the Subsidiary Guarantee); and
WHEREAS, pursuant to the Indenture, the parties hereto are authorized to execute and deliver
this Supplemental Indenture and the Trustee has determined that this Supplemental Indenture is in
form satisfactory to it.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiaries and the
Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the CODES
as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the
meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. Each Guaranteeing Subsidiary hereby agrees as follows:
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(a) |
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Such Guaranteeing Subsidiary, jointly and
severally with all other current and future guarantors of the CODES
(collectively, the Guarantors and each, a Guarantor),
unconditionally guarantees to each Holder of a CODE authenticated and
delivered by the Trustee and to the Trustee and its successors and
assigns, regardless of the validity and enforceability of the
Indenture, the CODES or the Obligations of the Company under the
Indenture or the CODES, that: |
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(i) |
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the principal of and interest
(including Contingent Interest and Additional Interest, if
any) on the CODES will be promptly paid in full when due,
whether at maturity, by acceleration, redemption or otherwise,
and interest on the overdue principal of and interest
(including Contingent Interest and Additional Interest, if
any) on the CODES, to the extent lawful, and all other
Obligations of the Company to the Holders or the Trustee
thereunder or under the Indenture will be promptly paid in
full, all in accordance with the terms thereof; and |
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(ii) |
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in case of any extension of
time for payment or renewal of any CODES or any of such other
Obligations, that the same will be promptly paid in full when
due in accordance with the terms of the extension or renewal,
whether at stated maturity, by acceleration or otherwise. |
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(b) |
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Notwithstanding the foregoing, in the event
that this Subsidiary Guarantee would constitute or result in a
violation of any applicable fraudulent conveyance or similar law of any
relevant jurisdiction, the liability of such Guaranteeing Subsidiary
under this Supplemental Indenture and its Subsidiary Guarantee shall be
reduced to the maximum amount permissible under such fraudulent
conveyance or similar law. |
3. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEES.
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(a) |
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To evidence its Subsidiary Guarantee set forth
in this Supplemental Indenture, such Guaranteeing Subsidiary hereby
agrees that a notation of such Subsidiary Guarantee substantially in
the form of Exhibit A to the Indenture shall be endorsed by an Officer
of such Guaranteeing Subsidiary on each CODE authenticated and
delivered by the Trustee after the date hereof. |
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(b) |
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Notwithstanding the foregoing, such
Guaranteeing Subsidiary hereby agrees that its Subsidiary Guarantee set
forth herein shall remain in full force and effect notwithstanding any
failure to endorse on each CODE a notation of such Subsidiary
Guarantee. |
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(c) |
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If an Officer whose signature is on this
Supplemental Indenture or on the Subsidiary Guarantee no longer holds
that office at the time the Trustee authenticates the CODE on which a
Subsidiary Guarantee is endorsed, the Subsidiary Guarantee shall be
valid nevertheless. |
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(d) |
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The delivery of any CODE by the Trustee, after
the authentication thereof under the Indenture, shall constitute due
delivery of the Subsidiary Guarantee set forth in this Supplemental
Indenture on behalf of each Guaranteeing Subsidiary. |
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(e) |
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Each Guaranteeing Subsidiary hereby agrees that
its Obligations hereunder shall, to the extent permitted by applicable
law, be unconditional, regardless of the validity, regularity or
enforceability of the CODES or the Indenture, the absence of any action
to enforce the same, any waiver or consent by any Holder of the CODES
with respect to any provisions hereof or thereof, the recovery of any
judgment against the Company, any action to enforce the same or any
other circumstance which might otherwise constitute a legal or
equitable discharge or defense of a guarantor. |
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(f) |
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Each Guaranteeing Subsidiary, to the extent
permitted by applicable law, hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands
whatsoever and covenants that its |
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Subsidiary Guarantee made pursuant to this Supplemental Indenture
will not be discharged except by complete performance of the
Obligations contained in the CODES and the Indenture. |
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(g) |
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If any Holder or the Trustee is required by any
court or otherwise to return to the Company or any Guaranteeing
Subsidiary, or any Custodian, Trustee, liquidator or other similar
official acting in relation to either the Company or such Guaranteeing
Subsidiary, any amount paid by either to the Trustee or such Holder,
the Subsidiary Guarantee made pursuant to this Supplemental Indenture,
to the extent theretofore discharged, shall be reinstated in full force
and effect. |
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(h) |
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Each Guaranteeing Subsidiary agrees that it
shall not be entitled to any right of subrogation in relation to the
Holders in respect of any Obligations guaranteed hereby until payment
in full of all Obligations guaranteed hereby. Each Guaranteeing
Subsidiary further agrees that, as between such Guaranteeing
Subsidiary, on the one hand, and the Holders and the Trustee, on the
other hand: |
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(i) |
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the maturity of the
Obligations guaranteed hereby may be accelerated as provided
in Article 4 of the Indenture for the purposes of the
Subsidiary Guarantee made pursuant to this Supplemental
Indenture, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the
Obligations guaranteed hereby; |
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(ii) |
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in the event of any
declaration of acceleration of such Obligations as provided in
Article 4 of the Indenture, such Obligations (whether or not
due and payable) shall forthwith become due and payable by
such Guaranteeing Subsidiary for the purpose of the Subsidiary
Guarantee made pursuant to this Supplemental Indenture; and |
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(iii) |
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Each Guaranteeing Subsidiary
shall have the right to seek contribution from any other
non-paying Guaranteeing Subsidiary so long as the exercise of
such right does not impair the rights of the Holders or the
Trustee under the Subsidiary Guarantee made pursuant to this
Supplemental Indenture. |
4. GUARANTEEING SUBSIDIARY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS.
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(a) |
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Except as set forth in Articles 6 and 9 of the
Indenture, nothing contained in the Indenture, this Supplemental
Indenture or in the CODES shall prevent (i) any consolidation or merger
of any Guaranteeing Subsidiary with or into the Company or any other
Guarantor, (ii) any transfer, sale or conveyance of the property of any
Guaranteeing Subsidiary as an entirety or substantially as an entirety,
to the Company or any other Guarantor or (iii) any merger of a
Guarantor with or into with an Affiliate of that Guarantor that has not
significant assets or liabilities and was incorporated solely for the
purpose of reincorporating such Guarantor in another State of the
United States so long as the amount of |
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Indebtedness of the Company and the domestic non-Guarantor
subsidiaries is not increased thereby. |
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(b) |
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Except as set forth in Article 9 of the
Indenture, nothing contained in the Indenture, this Supplemental
Indenture or in the CODES shall prevent any consolidation or merger of
any Guaranteeing Subsidiary with or into any Person organized under the
laws of the United States of America, any state thereof, the District
of Columbia or any territory thereof other than the Company or any
other Guarantor (in each case, whether or not affiliated with the
Guaranteeing Subsidiary), or successive consolidations or mergers in
which a Guaranteeing Subsidiary or its successor or successors shall be
a party or parties, or shall prevent any sale or conveyance of the
property of any Guaranteeing Subsidiary as an entirety or substantially
as an entirety, to any Person organized under the laws of the United
States of America, any state thereof, the District of Columbia or any
territory thereof other than the Company or any other Guarantor (in
each case, whether or not affiliated with the Guaranteeing Subsidiary)
authorized to acquire and operate the same; provided, however, that
each Guaranteeing Subsidiary hereby covenants and agrees that (i)
subject to the Indenture, upon any such consolidation, merger, sale or
conveyance, the due and punctual performance and observance of all of
the covenants and conditions of the Indenture and this Supplemental
Indenture to be performed by such Guaranteeing Subsidiaries, shall be
expressly assumed (in the event that such Guaranteeing Subsidiary is
not the surviving corporation in the merger), by supplemental indenture
satisfactory in form to the Trustee, executed and delivered to the
Trustee, by any Person formed by such consolidation, or into which such
Guaranteeing Subsidiary shall have been merged, or by any Person which
shall have acquired such property, (ii) immediately after giving effect
to such consolidation, merger, sale or conveyance no Default or Event
of Default exists and (iii) such transaction will only be permitted
under the Indenture if it would be permitted under the terms of all of
the indentures governing the Outstanding Senior Subordinated Notes as
the same are in effect on the date of the Indenture (whether or not
those indentures are subsequently amended, waived, modified or
terminated or expire and whether or not any of these notes continue to
be outstanding). |
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(c) |
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In case of any such consolidation, merger, sale
or conveyance and upon the assumption by the successor corporation, by
supplemental indenture, executed and delivered to the Trustee and
satisfactory in form to the Trustee, of the Subsidiary Guarantee made
pursuant to this Supplemental Indenture and the due and punctual
performance of all of the covenants and conditions of the Indenture and
this Supplemental Indenture to be performed by such Guaranteeing
Subsidiary, such successor Person shall succeed to and be substituted
for such Guaranteeing Subsidiary with the same effect as if it had been
named herein as the Guaranteeing Subsidiary. Such successor Person
thereupon may cause to be signed any or all of the Subsidiary
Guarantees to be endorsed upon the CODES issuable under the Indenture
which theretofore shall not have been signed by the Company and
delivered to the Trustee. All the Subsidiary Guarantees so issued shall
in all respects have the same legal rank and |
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benefit under the Indenture and this Supplemental Indenture as the
Subsidiary Guarantees theretofore and thereafter issued in accordance
with the terms of the Indenture and this Supplemental Indenture as
though all of such Subsidiary Guarantees had been issued at the date
of the execution hereof. |
5. RELEASES.
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(a) |
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Concurrently with any sale of assets
(including, if applicable, all of the Capital Stock of a Guaranteeing
Subsidiary), all Liens, if any, in favor of the Trustee in the assets
sold thereby shall be released. If the assets sold in such sale or
other disposition (including by way of merger or consolidation) include
all or substantially all of the assets of a Guaranteeing Subsidiary or
all of the Capital Stock of a Guaranteeing Subsidiary, then the
Guaranteeing Subsidiary (in the event of a sale or other disposition of
all of the Capital Stock of such Guaranteeing Subsidiary) or the Person
acquiring the property (in the event of a sale or other disposition of
all or substantially all of the assets of such Guaranteeing Subsidiary)
shall be released from and relieved of its Obligations under this
Supplemental Indenture and its Subsidiary Guarantee made pursuant
hereto. Upon delivery by the Company to the Trustee of an Officers
Certificate to the effect that such sale or other disposition was made
by the Company or the Guaranteeing Subsidiary, as the case may be, in
accordance with the provisions of the Indenture and this Supplemental
Indenture, the Trustee shall execute any documents reasonably required
in order to evidence the release of the Guaranteeing Subsidiary from
its obligations under this Supplemental Indenture and its Subsidiary
Guarantee made pursuant hereto. If the Guaranteeing Subsidiary is not
released from its obligations under its Subsidiary Guarantee, it shall
remain liable for the full amount of principal of and interest
(including Contingent Interest and Additional Interest, if any) on the
CODES and for the other obligations of such Guaranteeing Subsidiary
under the Indenture as provided in this Supplemental Indenture. |
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(b) |
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Upon the designation of a Guaranteeing
Subsidiary as an Excluded Subsidiary in accordance with the terms of
the Indenture and the indentures governing the Outstanding Senior
Subordinated Notes as the same are in effect on the date of the
Indenture (whether or not those indentures are subsequently amended,
waived, modified or terminated or expire and whether or not any of
those notes continue to be outstanding), such Guaranteeing Subsidiary
shall be released and relieved of all of its obligations under its
Subsidiary Guarantee and this Supplemental Indenture. Upon delivery by
the Company to the Trustee of an Officers Certificate and an Opinion
of Counsel to the effect that such designation of such Guaranteeing
Subsidiary as an Unrestricted Subsidiary was made by the Company in
accordance with the provisions of the Indenture and the indentures
governing , the Outstanding Senior Subordinated Notes as the same are
in effect on the date of the Indenture (whether or not those indentures
are subsequently amended, waived, modified or terminated or expire and
whether or not any of those notes continue to be outstanding), |
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the Trustee shall execute any documents reasonably required in order
to evidence the release of such Guaranteeing Subsidiary from its
Obligations under its Subsidiary Guarantee. Any Guaranteeing
Subsidiary not released from its obligations under its Subsidiary
Guarantee shall remain liable for the full amount of principal of and
interest on the CODES and for the other obligations of any
Guaranteeing Subsidiary under the Indenture as provided herein. |
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(c) |
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Upon any Guarantor being released from its
guarantees of, and all pledges and security interests granted in
connection with, Indebtedness of the Company or any of its Subsidiaries
(other than a Foreign Subsidiary), such Guarantor shall be released and
relieved of its obligations under this Supplemental Indenture. |
6. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee,
incorporator, stockholder or agent of any Guaranteeing Subsidiary, as such, shall have any
liability for any obligations of the Company or any Guaranteeing Subsidiary under the CODES, any
Subsidiary Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in
respect of, or by reason of, such Obligations or their creation. Each Holder of the CODES by
accepting a CODE waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the CODES. Such waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the SEC that such a waiver is against
public policy.
7. SUBORDINATION OF SUBSIDIARY GUARANTEES; ANTI-LAYERING. No Guaranteeing Subsidiary shall
incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt of a Guaranteeing Subsidiary and
senior in any respect in right of payment to any of the Subsidiary Guarantees. No Indebtedness
shall be deemed to be subordinated or junior in right of payment to any other Indebtedness solely
by virtue of being unsecured.
8. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK.
9. COUNTERPARTS. The parties may sign any number of copies of this Supplemental Indenture.
Each signed copy shall be an original, but all of them together represent the same agreement.
10. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not
affect the construction hereof.
11. THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in
respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the
recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiaries
and the Company.
6
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly
executed, all as of the date first above written.
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Dated: February 20, 2009 |
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L-3 COMMUNICATIONS HOLDINGS, INC. |
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By: |
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/s/
Steven M. Post |
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Name: Steven M. Post |
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Title: Senior Vice President, General Counsel and
Corporate Secretary |
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Dated: February 20, 2009
Broadcast Sports Inc., a Delaware corporation
D.P. Associates, Inc., a Virginia corporation
Electrodynamics, Inc., an Arizona corporation
Henschel Inc., a Delaware corporation
International Resources Group Ltd., a Delaware corporation
Interstate Electronics Corporation, a California corporation
LinCom Wireless, Inc., a Delaware corporation
L-3 Communications Advanced Laser Systems Technology, Inc., a Florida corporation
L-3 Communications AIS GP Corporation, a Delaware corporation
L-3 Communications Applied Signal and Image Technology, Inc., a Maryland corporation
L-3 Communications Avionics Systems, Inc., a Delaware corporation
L-3 Communications Cincinnati Electronics, Inc., an Ohio corporation
L-3 Communications Crestview Aerospace Corporation, a Delaware corporation
L-3 Communications CyTerra Corporation, a Delaware corporation
L-3 Communications Dynamic Positioning and Control Systems, Inc., a California corporation
L-3 Communications Electron Technologies, Inc., a Delaware corporation
L-3 Communications EO/IR, Inc., a Florida corporation
L-3 Communications EOTech, Inc., a Delaware corporation
L-3 Communications ESSCO, Inc., a Delaware corporation
L-3 Communications Foreign Holdings, Inc., a Delaware corporation
L-3 Communications Geneva Aerospace, Inc., a Texas corporation
L-3 Communications InfraredVision Technology Corporation, a California corporation
L-3 Communications Investments Inc., a Delaware corporation
L-3 Communications Klein Associates, Inc., a Delaware corporation
L-3 Communications MariPro, Inc., a California corporation
L-3 Communications Mobile-Vision, Inc., a New Jersey corporation
L-3 Communications Nautronix Holdings, Inc., a Delaware corporation
L-3 Communications Nova Engineering, Inc., an Ohio corporation
L-3 Communications SafeView, Inc., a Delaware corporation
L-3 Communications Security and Detection Systems, Inc., a Delaware corporation
L-3 Communications Sonoma EO, Inc., a California corporation
L-3 Communications TCS, Inc., a Delaware corporation
L-3 Communications Westwood Corporation, a Nevada corporation
L-3 Fuzing and Ordnance Systems, Inc., a Delaware corporation
L-3 G.A. International, Inc., a Florida corporation
L-3 Global Communications Solutions, Inc., a Virginia corporation
L-3 Services, Inc., a Delaware corporation
Microdyne Communications Technologies Incorporated, a Maryland corporation
Microdyne Corporation, a Maryland corporation
Microdyne Outsourcing Incorporated, a Maryland corporation
Pac Ord Inc., a Delaware corporation
Power Paragon, Inc., a Delaware corporation
SPD Electrical Systems, Inc., a Delaware corporation
SPD Switchgear Inc., a Delaware corporation
Titan Facilities, Inc., a Virginia corporation
Troll Technology Corporation, a California corporation
Wescam Air Ops Inc., a Delaware corporation
Wescam Holdings (US) Inc., a Delaware corporation
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As Guaranteeing Subsidiaries |
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By: |
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/s/
Steven M. Post |
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Name: Steven M. Post |
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Title: Vice President and Secretary |
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L-3 Communications Corporation, a Delaware corporation
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By: |
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/s/
Steven M. Post |
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Name: Steven M. Post
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Title: Senior Vice President, General Counsel and
Corporate Secretary |
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L-3 Communications Integrated Systems L.P., a Delaware limited partnership
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By: L-3 COMMUNICATIONS
AIS GP CORPORATION, as General Partner |
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By: |
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/s/
Steven M. Post |
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Name: Steven M. Post |
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Title: Vice President and Secretary |
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L-3 Communications Flight Capital LLC, a Delaware limited liability company
L-3 Communications Flight International Aviation LLC, a Delaware limited liability company
L-3 Communications Vector International Aviation LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS
VERTEX AEROSPACE LLC, as Sole Member |
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By: L-3 COMMUNICATIONS INTEGRATED SYSTEMS L.P., as Sole
Member |
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By: L-3 COMMUNICATIONS
AIS GP CORPORATION, as General Partner |
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By: |
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/s/
Steven M. Post |
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Name: Steven M. Post |
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Title: Vice President and Secretary |
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L-3 Communications Vertex Aerospace LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS INTEGRATED SYSTEMS L.P., as Sole
Member |
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By: L-3 COMMUNICATIONS
AIS GP CORPORATION, as General Partner |
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By: |
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/s/
Steven M. Post |
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Name: Steven M. Post |
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Title: Vice President and Secretary |
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L-3 Communications Germany Holdings, LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS CORPORATION, as Sole Member |
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By: |
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/s/
Steven M. Post |
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Name: Steven M. Post |
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Title: Senior Vice President, General Counsel and
Corporate Secretary |
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L-3 Communications Shared Services, LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS CORPORATION, as Sole Member |
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By: |
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/s/
Steven M. Post |
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Name: Steven M. Post |
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Title: Senior Vice President, General Counsel and
Corporate Secretary |
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Dated: February 20, 2009 |
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THE BANK OF NEW YORK
MELLON,
as Trustee |
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By: |
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/s/ Franca Ferrera |
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Name: Franca Ferrera |
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Title: Assistant Vice President |
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NOTATION ON SENIOR SUBORDINATED NOTE RELATING TO SUBSIDIARY GUARANTEE
Pursuant to the Supplemental Indenture (the Supplemental Indenture) dated as of February 20,
2009 among L-3 Communications Holdings, Inc., the Guarantors party thereto (each a Guarantor and
collectively the Guarantors) and The Bank of New York Mellon (formerly known as The Bank of New York), as trustee (the Trustee), each Guarantor
(i) has jointly and severally unconditionally guaranteed (a) the due and punctual payment of the
principal of and interest (including Contingent Interest and Additional Interest, if any) on the
CODES, whether at maturity or an interest payment date, by acceleration, call for redemption or
otherwise, (b) the due and punctual payment of interest on the overdue principal and interest
(including Contingent Interest and Additional Interest, if any) on the CODES, and (c) in case of
any extension of time of payment or renewal of any CODES or any of such other Obligations, the same
will be promptly paid in full when due in accordance with the terms of the extension or renewal,
whether at stated maturity, by acceleration or otherwise and (ii) has agreed to pay any and all
costs and expenses (including reasonable attorneys fees) incurred by the Trustee or any Holder in
enforcing any rights under the Subsidiary Guarantee (as defined in the Supplemental Indenture).
This Guarantee is subordinated to the Senior Debt of each Guarantor to extent set forth in Article
13 of the Indenture.
Notwithstanding the foregoing, in the event that the Subsidiary Guarantee of any Guarantor
would constitute or result in a violation of any applicable fraudulent conveyance or similar law of
any relevant jurisdiction, the liability of such Guarantor under its Subsidiary Guarantee shall be
reduced to the maximum amount permissible under such fraudulent conveyance or similar law.
No past, present or future director, officer, employee, agent, incorporator, stockholder or
agent of any Guarantor, as such, shall have any liability for any Obligations of the Company or any
Guarantor under the CODES, any Subsidiary Guarantee, the Indenture, any supplemental indenture
delivered pursuant to the Indenture by such Guarantor, or for any claim based on, in respect of or
by reason of such Obligations or their creation. Each Holder by accepting a CODE waives and
releases all such liability.
The Subsidiary Guarantee shall be binding upon each Guarantor and its successors and assigns
and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in
the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and
privileges herein conferred upon that party shall automatically extend to and be vested in such
transferee or assignee, all subject to the terms and conditions hereof.
The Subsidiary Guarantee shall not be valid or obligatory for any purpose until the
certificate of authentication on the CODE upon which the Subsidiary Guarantee is noted has been
executed by the Trustee under the Indenture by the manual signature of one of its authorized
officers. Capitalized terms used herein have the meaning assigned to them in the Indenture, dated
as of July 29, 2005, among L-3 Communications Holdings, Inc., the Guarantors party thereto and the
Trustee.
Dated: February 20, 2009
Broadcast Sports Inc., a Delaware corporation
D.P. Associates, Inc., a Virginia corporation
Electrodynamics, Inc., an Arizona corporation
Henschel Inc., a Delaware corporation
International Resources Group Ltd., a Delaware corporation
Interstate Electronics Corporation, a California corporation
LinCom Wireless, Inc., a Delaware corporation
L-3 Communications Advanced Laser Systems Technology, Inc., a Florida corporation
L-3 Communications AIS GP Corporation, a Delaware corporation
L-3 Communications Applied Signal and Image Technology, Inc., a Maryland corporation
L-3 Communications Avionics Systems, Inc., a Delaware corporation
L-3 Communications Cincinnati Electronics, Inc., an Ohio corporation
L-3 Communications Crestview Aerospace Corporation, a Delaware corporation
L-3 Communications CyTerra Corporation, a Delaware corporation
L-3 Communications Dynamic Positioning and Control Systems, Inc., a California corporation
L-3 Communications Electron Technologies, Inc., a Delaware corporation
L-3 Communications EO/IR, Inc., a Florida corporation
L-3 Communications EOTech, Inc., a Delaware corporation
L-3 Communications ESSCO, Inc., a Delaware corporation
L-3 Communications Foreign Holdings, Inc., a Delaware corporation
L-3 Communications Geneva Aerospace, Inc., a Texas corporation
L-3 Communications InfraredVision Technology Corporation, a California corporation
L-3 Communications Investments Inc., a Delaware corporation
L-3 Communications Klein Associates, Inc., a Delaware corporation
L-3 Communications MariPro, Inc., a California corporation
L-3 Communications Mobile-Vision, Inc., a New Jersey corporation
L-3 Communications Nautronix Holdings, Inc., a Delaware corporation
L-3 Communications Nova Engineering, Inc., an Ohio corporation
L-3 Communications SafeView, Inc., a Delaware corporation
L-3 Communications Security and Detection Systems, Inc., a Delaware corporation
L-3 Communications Sonoma EO, Inc., a California corporation
L-3 Communications TCS, Inc., a Delaware corporation
L-3 Communications Westwood Corporation, a Nevada corporation
L-3 Fuzing and Ordnance Systems, Inc., a Delaware corporation
L-3 G.A. International, Inc., a Florida corporation
L-3 Global Communications Solutions, Inc., a Virginia corporation
L-3 Services, Inc., a Delaware corporation
Microdyne Communications Technologies Incorporated, a Maryland corporation
Microdyne Corporation, a Maryland corporation
Microdyne Outsourcing Incorporated, a Maryland corporation
Pac Ord Inc., a Delaware corporation
Power Paragon, Inc., a Delaware corporation
SPD Electrical Systems, Inc., a Delaware corporation
SPD Switchgear Inc., a Delaware corporation
Titan Facilities, Inc., a Virginia corporation
Troll Technology Corporation, a California corporation
Wescam Air Ops Inc., a Delaware corporation
Wescam Holdings (US) Inc., a Delaware corporation
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As Guaranteeing Subsidiaries |
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By: |
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/s/
Steven M. Post |
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Name: Steven M. Post |
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Title: Vice President and Secretary |
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L-3 Communications Corporation, a Delaware corporation
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By: |
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/s/
Steven M. Post |
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Name: Steven M. Post
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Title: Senior Vice President, General Counsel and
Corporate Secretary |
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L-3 Communications Integrated Systems L.P., a Delaware limited partnership
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By: L-3 COMMUNICATIONS
AIS GP CORPORATION, as General Partner |
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By: |
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Steven M. Post |
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Name: Steven M. Post |
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Title: Vice President and Secretary |
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L-3 Communications Flight Capital LLC, a Delaware limited liability company
L-3 Communications Flight International Aviation LLC, a Delaware limited liability company
L-3 Communications Vector International Aviation LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS
VERTEX AEROSPACE LLC, as Sole Member |
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By: L-3 COMMUNICATIONS INTEGRATED SYSTEMS L.P., as Sole
Member |
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By: L-3 COMMUNICATIONS
AIS GP CORPORATION, as General Partner |
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By: |
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Steven M. Post |
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Name: Steven M. Post |
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Title: Vice President and Secretary |
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L-3 Communications Vertex Aerospace LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS INTEGRATED SYSTEMS L.P., as Sole
Member |
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By: L-3 COMMUNICATIONS
AIS GP CORPORATION, as General Partner |
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By: |
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Steven M. Post |
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Name: Steven M. Post |
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Title: Vice President and Secretary |
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L-3 Communications Germany Holdings, LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS CORPORATION, as Sole Member |
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By: |
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Steven M. Post |
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Name: Steven M. Post |
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Title: Senior Vice President, General Counsel and
Corporate Secretary |
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L-3 Communications Shared Services, LLC, a Delaware limited liability company
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By: L-3 COMMUNICATIONS CORPORATION, as Sole Member |
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By: |
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Steven M. Post |
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Name: Steven M. Post |
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Title: Senior Vice President, General Counsel and
Corporate Secretary |
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EX-10.14
Exhibit
10.14
L-3 COMMUNICATIONS HOLDINGS, INC.
2008 LONG TERM PERFORMANCE PLAN
TABLE OF CONTENTS
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PAGE |
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SECTION 1. |
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Purpose |
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1 |
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SECTION 2. |
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Definitions; Rules of Construction |
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1 |
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SECTION 3. |
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Eligibility |
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3 |
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SECTION 4. |
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Awards |
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3 |
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SECTION 5. |
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Shares of Stock and Share Units Available Under Plan |
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SECTION 6. |
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Award Agreements |
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SECTION 7. |
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Adjustments; Change in Control; Acquisitions |
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SECTION 8. |
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Administration |
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SECTION 9. |
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Amendment and Termination of this Plan |
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SECTION 10. |
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Miscellaneous |
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16 |
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L-3 COMMUNICATIONS HOLDINGS, INC.
2008 LONG TERM PERFORMANCE PLAN
SECTION 1. Purpose.
The purpose of this Plan is to benefit the Corporations stockholders by encouraging high
levels of performance by individuals who contribute to the success of the Corporation and its
Subsidiaries and to enable the Corporation and its Subsidiaries to attract, motivate, retain and
reward talented and experienced individuals. This purpose is to be accomplished by providing
eligible individuals with an opportunity to obtain or increase a proprietary interest in the
Corporation and/or by providing eligible individuals with additional incentives to join or remain
with the Corporation and its Subsidiaries.
SECTION 2. Definitions; Rules of Construction.
(a) Defined Terms. The terms defined in this Section shall have the following meanings for
purposes of this Plan:
Award means an award granted pursuant to Section 4.
Award Agreement means an agreement described in Section 6 by the Corporation for the
benefit of a Participant, setting forth (or incorporating by reference) the terms and
conditions of an Award granted to a Participant.
Beneficiary means a person or persons (including a trust or trusts) validly
designated by a Participant or, in the absence of a valid designation, entitled by will or
the laws of descent and distribution, to receive the benefits specified in the Award
Agreement and under this Plan in the event of a Participants death.
Board of Directors or Board means the Board of Directors of the Corporation.
Change in Control means change in control as defined in Section 7(c).
Code means the Internal Revenue Code of 1986, as amended from time to time.
Committee means the Committee described in Section 8(a).
Corporation means L-3 Communications Holdings, Inc.
Employee means any person, including an officer (whether or not also a director) in
the regular full-time employment of the Corporation or any of
its Subsidiaries who, in the opinion of the Committee is, or is expected to be,
primarily responsible for the management, growth or protection of some part or all of the
business of the Corporation or any of its Subsidiaries, but excludes, in the case of an
Incentive Stock Option, an Employee of any Subsidiary that is not a subsidiary corporation
of the Corporation as defined in Code Section 424(f).
Exchange Act means the Securities Exchange Act of 1934, as amended from time to time.
Executive Officer means executive officer as defined in Rule 3b-7 under the Exchange
Act. If the Board has designated the executive officers of the Corporation for purposes of
reporting under the Exchange Act, the designation shall be conclusive for purposes of this
Plan.
Fair Market Value means the closing price of the relevant security as reported on the
composite tape of New York Stock Exchange issues (or if, at the date of determination, the
security is not so listed or if the principal market on which it is traded is not the New
York Stock Exchange, such other reporting system as shall be selected by the Committee) on
the relevant date, or, if no sale of the security is reported for that date, the next
preceding day for which there is a reported sale. The Committee shall determine the Fair
Market Value of any security that is not publicly traded, using criteria as it shall
determine, in its sole direction, to be appropriate for the valuation.
Insider means any person who is subject to Section 16(b) of the Exchange Act.
Minimum Ownership Stock means any Award of shares of Stock of the Corporation that
are issued, in accordance with Section 4(a)(5), in lieu of cash compensation in order to
satisfy applicable stock ownership guidelines from time to time in effect.
Option means a Nonqualified Stock Option or an Incentive Stock Option as described in
Section 4(a)(1) or (2).
Participant means a person who is granted an Award, pursuant to this Plan, that
remains outstanding.
Performance-Based Awards is defined in Section 4(b).
Performance Goals means any combination of one or more of the following criteria:
cash flow, earnings per share, return on equity, return on invested capital, total
stockholder return or any other performance goal that the Committee in its sole discretion
establishes in accordance with the requirements of Section 162(m) of the Code for which
applicable shareholder
approval requirements are met. Performance Goals may be stated in absolute terms or
relative to comparison companies or indices to be achieved during a period of time.
2
Rule 16b-3 means Rule 16b-3 under Section 16 of the Exchange Act, as amended from
time to time.
Share Units means the number of units under an Award (or portion thereof) that is
payable solely in cash or is actually paid in cash, determined by reference to the number of
shares of Stock by which the Award (or portion thereof) is measured.
Stock means shares of Common Stock of the Corporation, par value $0.01 per share,
subject to adjustments made under Section 7 or by operation of law.
Subsidiary means, as to any person, any corporation, association, partnership, joint
venture or other business entity of which 50% or more of the voting stock or other equity
interests (in the case of entities other than corporations), is owned or controlled
(directly or indirectly) by that entity, or by one or more of the Subsidiaries of that
entity, or by a combination thereof.
(b) Rules of Construction. For purposes of this Plan and the Award Agreements, unless
otherwise expressly provided or the context otherwise requires, the terms defined in this Plan
include the plural and the singular, and pronouns of either gender or neuter shall include, as
appropriate, the other pronoun forms.
SECTION 3. Eligibility.
Any one or more Awards may be granted to any Employee, or any non-Employee who provides
services to or on behalf of the Corporation or any of its Subsidiaries, who is designated by the
Committee to receive an Award.
SECTION 4. Awards.
(a) Type of Awards. The Committee may from time to time grant any of the following types of
Awards, either singly, in tandem or in combination with other Awards:
(1) Nonqualified Stock Options. A Nonqualified Stock Option is an Award in the form of
an option to purchase Stock that is not intended to comply with the requirements of Code
Section 422. The exercise price of each Nonqualified Stock Option granted under this Plan
shall not be less than the Fair Market Value of the Stock on the date that the Option is
granted.
3
(2) Incentive Stock Options. An Incentive Stock Option is an Award in the form of an
option to purchase Stock that is intended to comply with the requirements of Code Section
422 or any successor section thereof. The exercise price of each Incentive Stock Option
granted under this Plan shall not be less than the Fair Market Value of the Stock on the
date the Option is granted. If a Participant on the date an Incentive Stock Option is
granted owns, directly or indirectly within the meaning of Code Section 424(d), stock
possessing more than ten percent (10%) of the total combined voting power of all classes of
stock of the Corporation, the exercise price per share of the Incentive Stock Option shall
not be less than one hundred and ten percent (110%) of the Fair Market Value per share of
the Stock at the time of grant, and such Incentive Stock Option shall not be exercisable
after the expiration of five (5) years from the date such Incentive Stock Option is granted.
To the extent that the aggregate Fair Market Value of Stock with respect to which one or
more incentive stock options first become exercisable by a Participant in any calendar year
exceeds $100,000, taking into account both Stock subject to Incentive Stock Options under
this Plan and stock subject to incentive stock options under all other plans of the
Corporation or of other entities referenced in Code Section 422(d)(1), the options shall be
treated as Nonqualified Stock Options. For this purpose, the Fair Market Value of the Stock
subject to options shall be determined as of the date the Options were granted.
(3) Stock Appreciation Rights. A Stock Appreciation Right is an Award in the form of a
right to receive, upon surrender of the right, but without other payment, an amount based on
the appreciation in the value of the Stock or the Option over a base price established in
the Award, payable in cash, Stock or such other form or combination of forms of payout, at
times and upon conditions (which may include a Change in Control), as may be approved by the
Committee. The minimum base price of a Stock Appreciation Right granted under this Plan
shall not be less than the Fair Market Value of the underlying Stock on the date the Stock
Appreciation Right is granted.
(4) Restricted Stock. Restricted Stock is an Award of issued shares of Stock of the
Corporation (other than Minimum Ownership Stock) that are subject to restrictions on
transfer and/or such other restrictions on incidents of ownership as the Committee may
determine.
(5) Other Share-Based Awards. The Committee may from time to time grant Awards under
this Plan that provide the Participants with Stock or the right to purchase Stock, or
provide other incentive Awards (including, but not limited to, Minimum Ownership Stock,
phantom stock or units, performance stock or units, bonus stock, dividend equivalent units,
or similar securities or rights) that have a value derived from the value of, or an
exercise or conversion privilege at a price related to, or that are otherwise payable
in shares of Stock. The Awards shall be in a form determined by the Committee, provided
that the Awards shall not be inconsistent with the other express terms of this Plan
applicable to such Awards.
4
(b) Special Performance-Based Awards. Without limiting the generality of the foregoing, any
of the type of Awards listed in Section 4(a) may be granted as awards that satisfy the requirements
for performance-based compensation within the meaning of Code Section 162(m) (Performance-Based
Awards), the grant, vesting, exercisability or payment of which may depend on the degree of
achievement of the Performance Goals relative to preestablished targeted levels for the Corporation
or any of its Subsidiaries, divisions or other business units. Performance-Based Awards shall be
subject to the requirements of clauses (1) through (7) below, except that notwithstanding anything
contained in this Section 4(b) to the contrary, any Option or Stock Appreciation Right intended to
qualify as a Performance-Based Award shall not be subject to the requirements of clauses (2), (4),
(5) and (6) below (with such Awards hereinafter referred to as a Qualifying Option or a
Qualifying Stock Appreciation Right, respectively). An Award that is intended to satisfy the
requirements of this Section 4(b) shall be designated as a Performance-Based Award at the time of
grant.
(1) Eligible Class. The eligible class of persons for Awards under this Section 4(b)
shall be all Employees.
(2) Performance Goals. The performance goals for any Awards under this Section 4(b)
(other than Qualifying Options and Qualifying Stock Appreciation Rights) shall be, on an
absolute or relative basis, one or more of the Performance Goals. The specific performance
target(s) with respect to Performance Goal(s) must be established by the Committee in
advance of the deadlines applicable under Code Section 162(m) and while the performance
relating to the Performance Goal(s) remains substantially uncertain.
(3) Individual Limits. The maximum number of shares of Stock or Share Units that are
issuable under Options, Stock Appreciation Rights, Restricted Stock or other Awards
(described under Section 4(a)(5)) that are granted as Performance-Based Awards to any
Participant shall not exceed five percent of the total shares outstanding of the Corporation
during the life of the Plan, either individually or in the aggregate, subject to adjustment
as provided in Section 7. The maximum number of shares of Stock and Share Units issuable or
payable pursuant to all Performance-Based Awards (including Qualifying Options and
Qualifying Stock Appreciation Rights) granted during a calendar year to any Employee shall
be 500,000, subject to adjustment as provided in Section 7. Awards that are cancelled
during the year shall be counted against these limits to the extent required by Code Section
162(m).
5
(4) Committee Certification. Before any Performance-Based Award under this Section
4(b) (other than Qualifying Options and Qualifying Stock Appreciation Rights) is paid, the
Committee must certify in writing (by resolution or otherwise) that the applicable
Performance Goal(s) and any other material terms of the Performance-Based Award were
satisfied; provided, however, that a Performance-Based Award may be paid without regard to
the satisfaction of the applicable Performance Goal in the event of the Participants death,
permanent disability or retirement or in the event of a Change in Control as provided in
Section 7(b).
(5) Terms and Conditions of Awards. Committee Discretion to Reduce Performance Awards.
The Committee shall have discretion to determine the conditions, restrictions or other
limitations, in accordance with the terms of this Plan and Code Section 162(m), on the
payment of individual Performance-Based Awards under this Section 4(b). To the extent set
forth in an Award Agreement, the Committee may reserve the right to reduce the amount
payable in accordance with any standards or on any other basis (including the Committees
discretion), as the Committee may impose.
(6) Adjustments for Material Changes. To the extent set forth in an Award Agreement,
in the event of (i) a change in corporate capitalization, a corporate transaction or a
complete or partial corporate liquidation, or (ii) any extraordinary gain or loss or other
event that is treated for accounting purposes as an extraordinary item under generally
accepted accounting principles, or (iii) any material change in accounting policies or
practices affecting the Corporation and/or the Performance Goals or targets, the Committee
shall make adjustments to the Performance Goals and/or targets, applied as of the date of
the event, and based solely on objective criteria, so as to neutralize, in the Committees
judgment, the effect of the event on the applicable Performance-Based Award.
(7) Interpretation. Except as specifically provided in this Section 4(b), the
provisions of this Section 4(b) shall be interpreted and administered by the Committee in a
manner consistent with the requirements for exemption of Performance-Based Awards granted to
Executive Officers as performance-based compensation under Code Section 162(m) and
regulations and other interpretations issued by the Internal Revenue Service thereunder.
SECTION 5. Shares of Stock and Share Units Available Under Plan.
(a) Aggregate Limits on Shares and Share Units. (i) The maximum number of shares of Stock that
may be issued pursuant to all Awards under the Plan is 5,000,000, (ii) the maximum number of such
shares of Stock that may be issued pursuant to all Awards of Incentive Stock Options is 3,000,000,
and (iii) the
maximum number of shares of Stock and Share Units that may be issuable or payable pursuant to
all Awards granted during a calendar year to any Participant shall be 500,000, in each case subject
to adjustment as provided in this Section 5 or Section 7.
6
(b) Sublimit on Full Value Awards. The maximum number of shares of Stock that may be issued
pursuant to Awards under the Plan other than Options and Stock Appreciation Rights is 2,500,000,
subject to adjustment as provided in this Section 5 or Section 7.
(c) Reissue of Shares and Share Units. Any unexercised, unconverted or undistributed portion
of any expired, cancelled, terminated or forfeited Award, or any alternative form of consideration
under an Award that is not paid in connection with the settlement of an Award or any portion of an
Award, shall again be available for Awards under Sections 5(a) and (b), as applicable, whether or
not the Participant has received benefits of ownership (such as dividends or dividend equivalents
or voting rights) during the period in which the Participants ownership was restricted or
otherwise not vested. To the extent an Award is settled in cash in lieu of issuing shares of Stock
subject thereto, such shares shall be deemed to constitute Cash Units (and not shares of Stock
issued pursuant to an Award) for purposes of the limits set forth in Sections 5(a) and (b). For
the avoidance of doubt, the following shares of Stock shall not become available for reissuance
under the Plan: (1) shares tendered by Participants as full or partial payment to the Corporation
upon exercise of Options or other Awards granted under the Plan; (2) shares of Stock reserved for
issuance upon the grant of Stock Appreciation Rights, to the extent the number of reserved shares
exceeds the number of shares actually issued upon exercise of the Stock Appreciation Rights; and
(3) shares withheld by, or otherwise remitted to, the Corporation to satisfy a Participants tax
withholding obligations upon the lapse of restrictions on Restricted Stock or the exercise of
Options or Stock Appreciation Rights or upon any other payment or issuance of shares under any
other Award granted under the Plan.
(d) Interpretive Issues. Additional rules for determining the number of shares of Stock or
Share Units authorized under this Plan may be adopted by the Committee, as it deems necessary or
appropriate.
(e) Treasury Shares; No Fractional Shares. The Stock which may be issued (which term includes
Stock reissued or otherwise delivered) pursuant to an Award under this Plan may be treasury or
authorized but unissued Stock or Stock acquired, subsequently or in anticipation of a transaction
under this Plan, in the open market or in privately negotiated transactions to satisfy the
requirements of this Plan. No fractional shares shall be issued but fractional interests may be
accumulated.
7
(f) Consideration. The Stock issued under this Plan may be issued (subject to Section 10(d))
for any lawful form of consideration, the value of which equals the par value of the Stock or such
greater or lesser value as the Committee, consistent with Sections 10(d) and 4(a)(1), (2) and (3),
may require.
(g) Purchase or Exercise Price; Withholding. The exercise or purchase price (if any) of the
Stock issuable pursuant to any Award and any withholding obligation under applicable tax laws shall
be paid at or prior to the time of the delivery of such Stock in cash or, subject to the
Committees express authorization and the restrictions, conditions and procedures as the Committee
may impose, any one or combination of (i) cash, (ii) the delivery of shares of Stock, or (iii) a
reduction in the amount of Stock or other amounts otherwise issuable or payable pursuant to such
Award. In the case of a payment by the means described in clause (ii) or (iii) above, the Stock to
be so delivered or offset shall be determined by reference to the Fair Market Value of the Stock on
the date as of which the payment or offset is made.
(h) Cashless Exercise. The Committee may also permit the exercise of the Award and payment of
any applicable withholding tax in respect of an Award by delivery of written notice, subject to the
Corporations receipt of a third party payment in full in cash (or in such other form as permitted
under Section 5(g)) for the exercise price and the applicable withholding at or prior to the time
of issuance of Stock, in the manner and subject to the procedures as may be established by the
Committee.
SECTION 6. Award Agreements.
Each Award under this Plan shall be evidenced by an Award Agreement in a form approved by the
Committee setting forth the number of shares of Stock or Share Units, as applicable, subject to the
Award, and the price (if any) and term of the Award and, in the case of Performance-Based Awards,
the applicable Performance Goals, if any. The Award Agreement shall also set forth (or incorporate
by reference) other material terms and conditions applicable to the Award as determined by the
Committee consistent with the limitations of this Plan.
(a) Incorporated Provisions. Award Agreements shall be subject to the terms of this Plan and
shall be deemed to include the following terms:
(1) Transferability: An Award shall not be assignable nor transferable, except by will
or by the laws of descent and distribution, and during the lifetime of a Participant the
Award shall be exercised only by such Participant or by his or her guardian or legal
representative, except that Awards, other than Incentive Stock Options, may be transferred
to and thereafter exercised by a family member or family members of a Participant, or
transferred to an irrevocable trust or trusts (or other similar estate
planning entity or entities) established for the benefit of a Participant and/or one or
more of the Participants family members, during the Participants lifetime. The
designation of a Beneficiary hereunder shall not constitute a transfer prohibited by the
foregoing provisions.
8
(2) Rights as Stockholder: A Participant shall have no rights as a holder of Stock with
respect to any unissued securities covered by an Award until the date the Participant
becomes the holder of record of these securities. Except as provided in Section 7, no
adjustment or other provision shall be made for dividends or other stockholder rights,
except to the extent that the Award Agreement provides for dividend equivalents or similar
economic benefits.
(3) Withholding: The Participant shall be responsible for payment of any taxes or
similar charges required by law to be withheld from an Award or an amount paid in
satisfaction of an Award and these obligations shall be paid by the Participant on or prior
to the payment of the Award. In the case of an Award payable in cash, the withholding
obligation shall be satisfied by withholding the applicable amount and paying the net amount
in cash to the Participant. In the case of an Award paid in shares of Stock, a Participant
shall satisfy the withholding obligation as provided in Section 5(g) or Section 5(h).
(4) Option Holding Period: Subject to the authority of the Committee under Section 7,
and except as otherwise provided by the Committee or as allowed under Rule 16b-3 of the
Exchange Act, a minimum six-month period shall elapse between the date of initial grant of
any Option and the sale of the underlying shares of Stock, and the Corporation may impose
legend and other restrictions on the Stock issued on exercise of the Options to enforce this
requirement; provided, however, that such limitation shall not apply to the extent provided
by the Committee on account of the Participants death, permanent disability or retirement
or in the event of a Change in Control as provided in Section 7(b).
(5) Maximum Term of Awards. No Award that contemplates exercise or conversion may be
exercised or converted to any extent, and no other Award that defers vesting, shall remain
outstanding and unexercised, unconverted or unvested more than ten years after the date the
Award was initially granted.
(b) Other Provisions. Award Agreements may include other terms and conditions as the
Committee shall approve, including but not limited to the following:
9
(1) Termination of Employment: A provision describing the treatment of an Award in the
event of the retirement, disability, death or other termination of a Participants
employment with or services to the Company, including any provisions relating to the
vesting, exercisability, forfeiture or cancellation of the Award in these circumstances,
subject, in the case of Performance-Based Awards, to the requirements for performance-based
compensation under Code Section 162(m).
(2) Vesting; Effect of Termination; Change in Control: Any other terms consistent with
the terms of this Plan as are necessary and appropriate to effect the Award to the
Participant, including but not limited to the vesting provisions, any requirements for
continued employment, any other restrictions or conditions (including performance
requirements) of the Award, and the method by which (consistent with Section 7) the
restrictions or conditions lapse, and the effect on the Award of a Change in Control.
Unless otherwise provided by the Committee in the applicable Award Agreement, (1) the
minimum vesting period for Awards of Restricted Stock shall be three years from the date of
grant (or one year in the case of Restricted Stock Awards that are Performance-Based Awards)
and (2) the vesting period of an Award of Restricted Stock may not be accelerated to a date
that is within such minimum vesting period except in the event of the Participants death,
permanent disability or retirement or in the event of a Change in Control.
(3) Replacement and Substitution: Any provisions permitting or requiring the surrender
of outstanding Awards or securities held by the Participant in whole or in part in order to
exercise or realize rights under or as a condition precedent to other Awards, or in exchange
for the grant of new or amended Awards under similar or different terms; provided, that
except in connection with an adjustment contemplated by Section 7, no such provisions of an
Award Agreement shall permit a Repricing as defined in Section 8(d).
(4) Dividends: Any provisions providing for the payment of dividend equivalents on
unissued shares of Stock or unpaid Share Units underlying an Award, on either a current or
deferred or contingent basis, and either in cash or in additional shares of Stock; provided
that dividend equivalents may not be paid with respect to Awards of Options or Stock
Appreciation Rights.
(c) Contract Rights, Forms and Signatures. Any obligation of the Corporation to any
Participant with respect to an Award shall be based solely upon contractual obligations created by
this Plan and an Award Agreement. No Award shall be enforceable until the Award Agreement has been
signed on behalf of the Corporation by an Executive Officer (other than the recipient) or his or
her delegate. By accepting receipt of the Award Agreement, a Participant shall be deemed to have
accepted and consented to the terms of this Plan and any action taken in good faith
under this Plan by and within the discretion of the Committee, the Board of Directors or their
delegates. Unless the Award Agreement otherwise expressly provides, there shall be no third party
beneficiaries of the obligations of the Corporation to the Participant under the Award Agreement.
10
SECTION 7. Adjustments; Change in Control; Acquisitions.
(a) Adjustments. If there shall occur any recapitalization, stock split (including a stock
split in the form of a stock dividend), reverse stock split, merger, combination, consolidation, or
other reorganization or any extraordinary dividend or other extraordinary distribution in respect
of the Stock (whether in the form of cash, Stock or other property), or any split-up, spin-off,
extraordinary redemption, or exchange of outstanding Stock, or there shall occur any other similar
corporate transaction or event in respect of the Stock, or a sale of substantially all the assets
of the Corporation as an entirety, then the Committee shall, in the manner and to the extent, if
any, as it deems appropriate and equitable to the Participants and consistent with the terms of
this Plan, and taking into consideration the effect of the event on the holders of the Stock:
(1) proportionately adjust any or all of:
(A) the number and type of shares of Stock and Share Units which thereafter may
be made the subject of Awards (including the specific maxima and numbers of shares
of Stock or Share Units set forth elsewhere in this Plan),
(B) the number and type of shares of Stock, other property, Share Units or cash
subject to any or all outstanding Awards,
(C) the grant, purchase or exercise price, or conversion ratio of any or all
outstanding Awards, or of the Stock, other property or Share Units underlying the
Awards,
(D) the securities, cash or other property deliverable upon exercise or
conversion of any or all outstanding Awards,
(E) subject to Section 4(b), the performance targets or standards appropriate
to any outstanding Performance-Based Awards, or
(F) any other terms as are affected by the event; and/or
(2) provide for:
(A) an appropriate and proportionate cash settlement or distribution, or
(B) the substitution or exchange of any or all outstanding Awards, or the cash,
securities or property deliverable on exercise, conversion or vesting of the Awards.
11
Notwithstanding the foregoing, in the case of an Incentive Stock Option, no adjustment shall
be made which would cause this Plan to violate Section 424(a) of the Code or any successor
provisions thereto, without the written consent of the Participant adversely affected thereby. The
Committee shall act prior to an event described in this paragraph (a) (including at the time of an
Award by means of more specific provisions in the Award Agreement) if deemed necessary or
appropriate to permit the Participant to realize the benefits intended to be conveyed by an Award
in respect of the Stock in the case of an event described in paragraph (a).
(b) Change in Control. The Committee may, in the Award Agreement, provide for the effect of a
Change in Control on an Award. Such provisions may include, but are not limited to any one or more
of the following with respect to any or all Awards: (i) the specific consequences of a Change in
Control on the Awards; (ii) a reservation of the Committees right to determine in its discretion
at any time that there shall be full acceleration or no acceleration of benefits under the Awards;
(iii) that only certain or limited benefits under the Awards shall be accelerated; (iv) that the
Awards shall be accelerated for a limited time only; or (v) that acceleration of the Awards shall
be subject to additional conditions precedent (such as a termination of employment following a
Change in Control).
In addition to any action required or authorized by the terms of an Award, the Committee may
take any other action it deems appropriate to ensure the equitable treatment of Participants in the
event of or in anticipation of a Change in Control, including but not limited to any one or more of
the following with respect to any or all Awards: (i) the acceleration or extension of time periods
for purposes of exercising, vesting in, or realizing gain from, the Awards; (ii) the waiver of
conditions on the Awards that were imposed for the benefit of the Corporation, (iii) provision for
the cash settlement of the Awards for their equivalent cash value, as determined by the Committee,
as of the date of the Change in Control; or (iv) such other modification or adjustment to the
Awards as the Committee deems appropriate to maintain and protect the rights and interests of
Participants upon or following the Change in Control. The Committee also may accord any
Participant a right to refuse any acceleration of exercisability, vesting or benefits, whether
pursuant to the Award Agreement or otherwise, in such circumstances as the Committee may approve.
Notwithstanding the foregoing provisions of this Section 7(b) or any provision in an Award
Agreement to the contrary, if any Award to any Insider is accelerated to a date that is less than
six months after the date of the Award, the Committee may prohibit a sale of the underlying Stock
(other than a sale by operation or law in
exchange for or through conversion into other securities), and the Corporation may impose
legend and other restrictions on the Stock to enforce this prohibition.
12
(c) Change in Control Definition. For purposes of this Plan, with respect to any Award other
than an Award issued pursuant to an Award Agreement that separately defines the term change in
control, a change in control shall include and be deemed to occur upon the following events:
(1) The acquisition by any person or group (including a group within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act), other than the Corporation or any of its
Subsidiaries, of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange
Act) of a majority of the combined voting power of the Corporations then outstanding voting
securities, other than by any employee benefit plan maintained by the Corporation;
(2) The sale of all or substantially all of the assets of the Corporation or of L-3
Communications Corporation or any successor thereto;
(3) The election, including the filling of vacancies, during any period of 24 months or
less, of 50 percent or more, of the members of the Board, without the approval of Continuing
Directors, as constituted at the beginning of such period. Continuing Directors shall
mean any director of the Company who either (i) is a member of the Board on the date of
grant of the relevant Award, or (ii) is nominated for election to the Board by a majority of
the Board which is comprised of Directors who were, at the time of such nomination,
Continuing Directors; or
(4) In the Committees sole discretion on a case-by-case basis and solely with respect
to Awards granted to Employees of a Subsidiary of the Corporation, or of a business unit or
division of the Corporation or such Subsidiary, (i) the sale of all or substantially all of
the assets of such Subsidiary, business unit or division or (ii) the sale (including without
limitation by way of merger) of a majority of the combined voting power of such Subsidiarys
then outstanding voting securities.
(d) Business Acquisitions. Awards may be granted under this Plan on the terms and conditions
as the Committee considers appropriate, which may differ from those otherwise required by this Plan
to the extent necessary to reflect a substitution for or assumption of stock incentive awards held
by employees of other entities who become employees of the Corporation or a Subsidiary as the
result of a merger of the employing entity with, or the acquisition of the property or stock of the
employing entity by, the Corporation or a Subsidiary, directly or indirectly.
13
SECTION 8. Administration.
(a) Committee Authority and Structure. This Plan and all Awards granted under this Plan shall
be administered by the Compensation Committee of the Board or such other committee of the Board or
subcommittee of the Compensation Committee as may be designated by the Board and constituted so as
to permit this Plan to comply with the disinterested administration requirements of Rule 16b-3
under the Exchange Act and the outside director requirement of Code Section 162(m). The members
of the Committee shall be designated by the Board. A majority of the members of the Committee (but
not fewer than two) shall constitute a quorum. The vote of a majority of a quorum or the unanimous
written consent of the Committee shall constitute action by the Committee.
(b) Selection and Grant. The Committee shall have the authority to determine the individuals
(if any) to whom Awards will be granted under this Plan, the type of Award or Awards to be made,
and the nature, amount, pricing, timing, and other terms of Awards to be made to any one or more of
these individuals, subject to the terms of this Plan.
(c) Construction and Interpretation. The Committee shall have the power to interpret and
administer this Plan and Award Agreements, and to adopt, amend and rescind related rules and
procedures. All questions of interpretation and determinations with respect to this Plan, the
number of shares of Stock, Stock Appreciation Rights, or units or other Awards granted, and the
terms of any Award Agreements, the adjustments required or permitted by Section 7, and other
determinations hereunder shall be made by the Committee and its determination shall be final and
conclusive upon all parties in interest. In the event of any conflict between an Award Agreement
and any non-discretionary provisions of this Plan, the terms of this Plan shall govern.
(d) Express Authority to Change Terms of Awards. The Committee may, at any time, alter or
amend any or all Award Agreements under this Plan in any manner that would be authorized for a new
Award under this Plan, including but not limited to any manner set forth in Section 9 (subject to
any applicable limitations thereunder), except that no amendment or cancellation of an Award may
effect a Repricing of such Award, except in connection with an adjustment pursuant to Section 7. A
Repricing means any of the following: (i) changing the terms of an Award to lower its exercise
price or base price, (ii) cancelling an Award with an exercise price or base price in exchange for
other Awards with a lower exercise price or base price, or (iii) cancelling an Award with an
exercise price or base price at a time when such price is equal to or greater than the Fair Market
Value of the underlying Stock in exchange for other Awards, cash or property. Without limiting the
Committees authority under this plan (including Sections 7 and 9), but subject to any express
limitations of this Plan (including the prohibitions on Repricing set forth in this Section 8(d)),
the Committee shall have the authority to accelerate the
exercisability or vesting of an Award, to extend the term or waive early termination
provisions of an Award (subject to the maximum ten-year term under Section 6(a)(5)), and to waive
the Corporations rights with respect to an Award or restrictive conditions of an Award (including
forfeiture conditions), in any case in such circumstances as the Committee deems appropriate.
14
(e) Rule 16b-3 Conditions; Bifurcation of Plan. It is the intent of the Corporation that this
Plan and Awards hereunder satisfy and be interpreted in a manner, that, in the case of Participants
who are or may be Insiders, satisfies any applicable requirements of Rule 16b-3, so that these
persons will be entitled to the benefits of Rule 16b-3 or other exemptive rules under Section 16
under the Exchange Act and will not be subjected to avoidable liability thereunder as to Awards
intended to be entitled to the benefits of Rule 16b-3. If any provision of this Plan or of any
Award would otherwise frustrate or conflict with the intent expressed in this Section 8(e), that
provision to the extent possible shall be interpreted and deemed amended so as to avoid such
conflict. To the extent of any remaining irreconcilable conflict with this intent, the provision
shall be deemed disregarded as to Awards intended as Rule 16b-3 exempt Awards. Notwithstanding
anything to the contrary in this Plan, the provisions of this Plan may at any time be bifurcated by
the Board or the Committee in any manner so that certain provisions of this Plan or any Award
Agreement intended (or required in order) to satisfy the applicable requirements of Rule 16b-3 are
only applicable to Insiders and to those Awards to Insiders intended to satisfy the requirements of
Rule 16b-3.
(f) Delegation and Reliance. The Committee may delegate to the officers or employees of the
Corporation the authority to execute and deliver those instruments and documents, to do all acts
and things, and to take all other steps deemed necessary, advisable or convenient for the effective
administration of this Plan in accordance with its terms and purpose, except that the Committee may
not delegate any discretionary authority to grant or amend an award or with respect to substantive
decisions or functions regarding this Plan or Awards as these relate to the material terms of
Performance-Based Awards to Executive Officers or to the timing, eligibility, pricing, amount or
other material terms of Awards to Insiders. In making any determination or in taking or not taking
any action under this Plan, the Board and the Committee may obtain and may rely upon the advice of
experts, including professional advisors to the Corporation. No director, officer, employee or
agent of the Corporation shall be liable for any such action or determination taken or made or
omitted in good faith.
(g) Exculpation and Indemnity. Neither the Corporation nor any member of the Board of
Directors or of the Committee, nor any other person participating in any determination of any
question under this Plan, or in the interpretation, administration or application of this Plan,
shall have any liability to any party for any action taken or not taken in good faith under this
Plan or for the failure of an Award (or action in respect of an Award) to satisfy Code requirements
as to
incentive stock options or to realize other intended tax consequences, to qualify for
exemption or relief under Rule 16b-3 or to comply with any other law, compliance with which is not
required on the part of the Corporation.
15
SECTION 9. Amendment and Termination of this Plan.
The Board of Directors may at any time amend, suspend or discontinue this Plan, subject to any
stockholder approval that may be required under applicable law. Notwithstanding the foregoing, no
such action by the Board or the Committee shall, in any manner adverse to a Participant other than
as expressly permitted by the terms of an Award Agreement, affect any Award then outstanding and
evidenced by an Award Agreement without the consent in writing of the Participant or a Beneficiary,
a Participants family member or a trust (or similar estate planning entity) established for the
benefit of a Participant and/or one or more of the Participants family members entitled to an
Award. Notwithstanding the above, any amendment that would (i) materially increase the benefits
accruing to any Participant or Participants hereunder, (ii) materially increase the aggregate
number of shares of Stock, Share Units or other equity interest(s) that may be issued hereunder, or
(iii) materially modify the requirements as to eligibility for participation in this Plan, shall be
subject to shareholder approval.
SECTION 10. Miscellaneous.
(a) Unfunded Plans. This Plan shall be unfunded. Neither the Corporation nor the Board of
Directors nor the Committee shall be required to segregate any assets that may at any time be
represented by Awards made pursuant to this Plan. Neither the Corporation, the Committee, nor the
Board of Directors shall be deemed to be a trustee of any amounts to be paid or securities to be
issued under this Plan.
(b) Rights of Employees.
(1) No Right to an Award. Status as an Employee shall not be construed as a commitment
that any one or more Awards will be made under this Plan to an Employee or to Employees
generally. Status as a Participant shall not entitle the Participant to any additional
Award.
(2) No Assurance of Employment. Nothing contained in this Plan (or in any other
documents related to this Plan or to any Award) shall confer upon any Employee or
Participant any right to continue in the employ or other service of the Corporation or any
Subsidiary or constitute any contract (of employment or otherwise) or limit in any way the
right of the Corporation or any Subsidiary to change a persons compensation or other
benefits or to terminate the employment or services of a person with or without cause.
16
(c) Effective Date; Duration. This Plan has been adopted by the Board of Directors of the
Corporation. This Plan shall become effective upon and shall be subject to the approval of the
stockholders the Corporation. This Plan shall remain in effect until any and all Awards under this
Plan have been exercised, converted or terminated under the terms of this Plan and applicable Award
Agreements. Notwithstanding the foregoing, no Award may be granted under this Plan after April 29,
2018; provided, however, that any Award granted prior to such date may be amended after such date
in any manner that would have been permitted hereunder prior to such date.
(d) Compliance with Laws. This Plan, Award Agreements, and the grant, exercise, conversion,
operation and vesting of Awards, and the issuance and delivery of shares of Stock and/or other
securities or property or the payment of cash under this Plan, Awards or Award Agreements, are
subject to compliance with all applicable federal and state laws, rules and regulations (including
but not limited to state and federal insider trading, registration, reporting and other securities
laws and federal margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may be necessary or, in the opinion of counsel for the Corporation,
advisable in connection therewith. Any securities delivered under this Plan shall be subject to
such restrictions (and the person acquiring such securities shall, if requested by the Corporation,
provide such evidence, assurance and representations to the Corporation as to compliance with any
of such restrictions) as the Corporation may deem necessary or desirable to assure compliance with
all applicable legal requirements.
(e) Section 409A. Notwithstanding other provisions of the Plan or any Award Agreements
thereunder, no Award shall be granted, deferred, accelerated, extended, paid out or modified under
this Plan in a manner that would result in the imposition of an additional tax under Section 409A
of the Code upon a Participant. In the event that it is reasonably determined by the Board or
Committee that, as a result of Section 409A of the Code, payments in respect of any Award under the
Plan may not be made at the time contemplated by the terms of the Plan or the relevant Award
agreement, as the case may be, without causing the Participant holding such Award to be subject to
taxation under Section 409A of the Code, the Company will make such payment on the first day that
would not result in the Participant incurring any tax liability under Section 409A of the Code;
which, if the Participant is a specified employee within the meaning of the Section 409A, shall
be the first day following the six-month period beginning on the date of Participants termination
of Employment.
(f) Applicable Law. This Plan, Award Agreements and any related documents and matters shall
be governed by, and construed in accordance with, the laws of the State of New York and applicable
Federal law.
(g) Non-Exclusivity of Plan. Nothing in this Plan shall limit or be deemed to limit the
authority of the Corporation, the Board or the Committee to grant awards or authorize any other
compensation, with or without reference to the Stock, under any other plan or authority.
17
EX-10.17
Exhibit 10.17
L-3 COMMUNICATIONS HOLDINGS, INC.
2008 LONG TERM PERFORMANCE PLAN
RESTRICTED STOCK UNIT AGREEMENT
(Version 0004)
This Restricted Stock Unit Agreement (this Agreement), effective as of the Grant Date (as
defined below), is between L-3 Communications Holdings, Inc., a Delaware corporation (the
Corporation), and the Participant (as defined below).
1. Definitions. The following terms shall have the following meanings for purposes of
this Agreement:
(a) Award Letter shall mean the letter to the Participant attached hereto as Exhibit A.
(b) Code shall mean the Internal Revenue Code of 1986, as amended from time to time.
(c) Grant Date shall mean the Grant Date listed in the Award Letter.
(d) Participant shall mean the Participant listed in the Award Letter.
(e) Restricted Units shall mean that number of restricted units listed in the Award Letter
as Awards Granted.
(f) Section 409A Change in Control Event shall mean a change in ownership or effective
control of the Corporation, or in the ownership of a substantial portion of the assets of the
Corporation, within the meaning of Section 409A(a)(2)(A)(v) of the Code.
(g) Shares shall mean a number of shares of the Corporations Common Stock, par value $0.01
per share, equal to the number of Restricted Units.
2. Grant of Units. The Corporation hereby grants the Restricted Units to the
Participant, each of which represents the right to receive one Share upon the expiration or
termination of the Restricted Period (as defined below), subject to the terms, conditions and
restrictions set forth in the L-3 Communications Holdings, Inc. 2008 Long Term Performance Plan
(the Plan) and this Agreement.
3. Restricted Unit Account. The Corporation shall cause an account (the Unit
Account) to be established and maintained on the books of the Corporation to record the number of
Restricted Units credited to the Participant under the terms of this Agreement. The Participants
interest in the Unit Account shall be that of a general, unsecured creditor of the Corporation.
4. Restricted Period. Except as otherwise provided in paragraphs 6 and 7 hereof, the
Restricted Period shall mean the period beginning on the Grant Date and expiring on the third
anniversary of the Grant Date. Upon the expiration or termination of the Restricted Period, the
Shares shall be issued to the Participant in accordance with Section 13.
5. Restrictions on Transfer During Restricted Period. Until the Restricted Period has
expired or terminated, the Restricted Units shall not be sold, assigned, transferred, pledged,
hypothecated, loaned, or otherwise disposed of, and during the Participants lifetime the
Participants rights with respect
to the Restricted Units shall be exercised only by such Participant or by his or her guardian
or legal representative, except that the Restricted Units may be transferred by will or by the laws
of descent and distribution. Any sale, assignment, transfer, pledge, hypothecation, loan or other
disposition other than in accordance with this Section 5 shall be null and void.
6. Change in Control During Restricted Period. Upon the occurrence of a change in
control that constitutes a Section 409A Change in Control Event, the Restricted Period shall
automatically terminate and the Shares shall thereafter be issued to the Participant in accordance
with Section 13. In the event of any other change in control, the Restricted Period shall not be
immediately affected, but shall subsequently terminate (and the Shares shall thereafter be issued
to the Participant in accordance with Section 13) upon the earliest to occur of: (a) a Section 409A
Change in Control Event, (b) the Participants death, (c) the six-month anniversary of the
termination of the Participants employment with the Corporation and its subsidiaries due to
disability (as defined in Section 7(c) hereof) or (d) the third anniversary of the Grant Date.
For purposes of this Agreement, a change in control means:
(a) The acquisition by any person or group (including a group within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act), other than the Corporation or any of its
subsidiaries, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of a majority of the combined voting power of the Corporations then outstanding
voting securities, other than by any employee benefit plan maintained by the Corporation;
(b) The sale of all or substantially all the assets of the Corporation and its subsidiaries
taken as a whole; or
(c) The election, including the filling of vacancies, during any period of 24 months or less,
of 50% or more of the members of the Board of Directors, without the approval of Continuing
Directors, as constituted at the beginning of such period. Continuing Directors shall mean any
director of the Corporation who either (i) is a member of the Board of Directors on the Grant Date,
or (ii) is nominated for election to the Board of Directors by a majority of the Board which is
comprised of directors who were, at the time of such nomination, Continuing Directors.
7. Termination of Employment During Restricted Period.
(a) In the event that the Participants employment with the Corporation and its subsidiaries
is terminated (other than by reason of death, retirement or disability, as defined below) prior
to the expiration or termination of the Restricted Period and prior to the occurrence of a change
in control (as defined in Section 6), the Participant shall forfeit the Restricted Units and all
of the Participants rights hereunder shall cease (unless otherwise provided for by the Committee
in accordance with the Plan). The Participants rights to the Restricted Units shall not be
affected by any change in the nature of the Participants employment so long as the Participant
continues to be an employee of the Corporation or any of its subsidiaries.
(b) In the event the Participant terminates employment with the Corporation and its
subsidiaries because of retirement prior to the expiration or termination of the Restricted
Period and prior to the occurrence of a change in control (as defined in Section 6), the
Restricted Period shall not be affected and shall expire with the passage of time in accordance
with paragraph 4, except that (i) in the event that the Participant dies following retirement but
prior to the expiration of the Restricted Period, the Restricted Period shall automatically
terminate and the Shares shall thereafter be delivered to the Participants transferee(s) in
accordance with Sections 5 and 13 and (ii) the Restricted Period may earlier
2
terminate in accordance with Section 6. For purposes of this Agreement, retirement means the
Participant (A) terminates employment with the Corporation and its subsidiaries other than for
Cause (and is not subject to termination for Cause at the time of such termination) more than one
year after the Grant Date, (B) is available for consultation with the Corporation or any of its
subsidiaries at the reasonable request of the Corporation or one of its subsidiaries and (C)
terminates employment on or after attaining age 65 and completing at least five years of service in
the aggregate with the Corporation and its subsidiaries (which service must be continuous through
the date of termination except for a single break in service that does not exceed one year in
length). For purposes of this Agreement, Cause means the Participants (1) intentional failure
to perform reasonably assigned duties, (2) dishonesty or willful misconduct in the performance of
duties, (3) engaging in a transaction in connection with the performance of duties to the
Corporation or its subsidiaries which transaction is adverse to the interests of the Corporation
and is engaged in for personal profit or (4) willful violation of any law, rule or regulation in
connection with the performance of duties (other than traffic violations or similar offenses).
(c) If the Participants employment with the Corporation and its subsidiaries is terminated
because of death, the Restricted Period shall automatically terminate and the Shares shall
thereafter be issued to the Participant (or to the Participants transferee(s) under Section 5 as
the case may be) in accordance with Section 13. If the Participants employment with the
Corporation and its subsidiaries is terminated because of disability, the Restricted Period shall
not be immediately affected, but shall subsequently terminate (and the Shares shall thereafter be
issued to the Participant in accordance with Section 13) upon the earliest to occur of: (i) the
six-month anniversary of the date of termination, (ii) the Participants death, (iii) a Section
409A Change in Control Event or (iv) the third anniversary of the Grant Date. For purposes of this
Agreement, disability means the Participant, as a result of incapacity due to physical or mental
illness, becomes eligible for benefits under the long-term disability plan or policy of the
Corporation or a subsidiary in which the Participant is eligible to participate.
(d) Whether (and the circumstances under which) employment has been terminated and the
determination of the termination date for the purposes of this Agreement shall be determined by the
Committee or (with respect to any employee other than an Executive Officer as defined under the
Plan) its designee (who, at the date of this Agreement, shall be the Corporations Vice President
of Human Resources), whose good faith determination shall be final, binding and conclusive;
provided, that such designee may not make any such determination with respect to his or her
own employment.
8. Dividends. If the Corporation pays a cash dividend on its common stock, the
Participant shall accrue in his or her Dividend Account (as defined below) a cash dividend
equivalent with respect to the Restricted Units credited to the Participants Unit Account as of
the record date for the dividend, with each Restricted Unit being equivalent to one share of common
stock. The Corporation shall cause an account (the Dividend Account) to be established and
maintained as part of the records of the Corporation to evidence the aggregate cash dividend
equivalents accrued by the Participant from time to time under this Section. No interest shall
accrue on any amounts reflected in the Dividend Account. The Participants interest in the amounts
reflected in the Dividend Account shall be that of a general, unsecured creditor of the
Corporation. Subject to, and as promptly as practicable following, the issuance of the Shares
pursuant to Section 13 hereunder, the Corporation shall pay an amount in cash (without interest and
subject to applicable withholding taxes) to the Participant (or his or her transferee(s) who are
issued the Shares pursuant to Section 13 hereunder) equal to the aggregate cash dividend
equivalents accrued in the Participants Dividend Account and the Participants Dividend Account
shall be eliminated at that time. In the event that the Participant forfeits his or her rights to
the Restricted Units, the Participant also shall be deemed to have forfeited his or her rights to
any cash dividend equivalents accrued in the Participants Dividend Account and the Participants
Dividend Account shall be eliminated at that time.
3
9. No Right to Continued Employment. Nothing in this Agreement or the Plan shall be
interpreted or construed to confer upon the Participant any right to continue employment by the
Corporation or any of its subsidiaries, nor shall this Agreement or the Plan interfere in any way
with the right of the Corporation or any of its subsidiaries to terminate the Participants
employment at any time for any reason whatsoever, whether or not with cause.
10. No Rights as a Stockholder. The Participants interest in the Restricted Units
shall not entitle the Participant to any rights as a stockholder of the Corporation. The
Participant shall not be deemed to be the holder of, or have any of the rights and privileges of a
stockholder of the Corporation in respect of, the Shares unless and until such Shares have been
issued to the Participant in accordance Section 13.
11. Adjustments Upon Change in Capitalization. In the event of any reorganization,
merger, consolidation, recapitalization, reclassification, stock split, stock dividend or similar
capital adjustment, as a result of which shares of any class shall be issued in respect of
outstanding shares of the Corporations Common Stock or shares of Corporations Common Stock shall
be changed into a different number of shares or into another class or classes or into other
property or cash, the Restricted Units, the Participants Unit Account and/or the Shares shall be
adjusted to reflect such event so as to preserve (without enlarging) the value of the award
hereunder, with the manner of such adjustment to be determined by the Committee in its sole
discretion. This paragraph shall also apply with respect to any extraordinary dividend or other
extraordinary distribution in respect of the Corporations Common Stock (whether in the form of
cash or other property).
12. General Restrictions. Notwithstanding anything in this Agreement to the contrary,
the Corporation shall have no obligation to issue or transfer the Shares as contemplated by this
agreement unless and until such issuance or transfer shall comply with all relevant provisions of
law and the requirements of any stock exchange on which the Corporations shares are listed for
trading.
13. Issuance of Shares. Upon the expiration or termination of the Restricted Period
and payment by the Participant of any applicable taxes pursuant to Section 14 of this Agreement,
the Corporation shall, as soon as reasonably practicable (and in any event within 75 days of the
termination or expiration of the Restricted Period), but subject to any delay necessary to comply
with Section 12 hereof, issue the Shares to the Participant, free and clear of all restrictions;
provided, that if the termination of the Restricted Period results from a Section 409A
Change in Control Event, then notwithstanding the foregoing, the Shares shall be issued within 30
days of the Section 409A Change in Control Event. The Corporation shall not be required to deliver
any fractional Shares, but shall pay, in lieu thereof, the fair market value (as defined in the
Plan) as of the date the restrictions lapse of such fractional share to the Participant. The
Corporation shall pay any costs incurred in connection with issuing the Shares. Upon the issuance
of the Shares to the Participant, the Participants Unit Account shall be eliminated.
Notwithstanding the provisions of this Section, if the Restricted Units have been transferred in
accordance with the provisions of Section 5 prior to the issuance of the Shares to the Participant
in accordance with this Section, then the issuance of the Shares and any payment in lieu of
fractional Shares shall be made to the transferee(s).
14. Tax Withholding. Upon the expiration or termination of the Restricted Period, the
Participant shall remit to the Corporation the minimum amount necessary to satisfy Federal, state,
local or foreign withholding tax requirements, if any (Withholding Taxes) as a condition to the
Corporations issuance of any Shares as provided in Section 13. The payment shall be in (i) cash,
(ii) the delivery of Shares, (iii) a reduction in the number of Shares otherwise issuable or
deliverable or other amounts
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otherwise payable to the Participant pursuant to this Agreement, or (iv) a combination of (i), (ii)
and/or (iii). The value of any Shares delivered or withheld as payment in respect of withholding
tax requirements shall be determined by reference to the Fair Market Value of such Shares as of the
date of such withholding or delivery. In the event that Withholding Taxes are satisfied by
withholding a portion of the Shares otherwise issuable or deliverable to the Participant pursuant
to this Agreement, the Corporation shall not withhold any Shares in excess of the minimum number of
Shares necessary to satisfy the applicable Withholding Taxes.
15. Subsidiary. As used herein, the term subsidiary shall mean, as to any person,
any corporation, association, partnership, joint venture or other business entity of which 50% or
more of the voting stock or other equity interests (in the case of entities other than
corporations), is owned or controlled (directly or indirectly) by that entity, or by one or more of
the Subsidiaries of that entity, or by a combination thereof.
16. Plan Governs. The Participant hereby acknowledges receipt of a copy of the Plan
and agrees to be bound by its terms, all of which are incorporated herein by reference. The Plan
shall govern in the event of any conflict between this Agreement and the Plan.
17. Modification of Agreement. This Agreement may be modified, amended, suspended or
terminated, and any terms or conditions may be waived, but, subject to the terms and conditions of
the Plan and this Agreement, only by a written instrument executed by the parties hereto.
18. Severability. Should any provision of this Agreement be held by a court of
competent jurisdiction to be unenforceable or invalid for any reason, the remaining provisions of
this Agreement shall not be affected by such holding and shall continue in full force in accordance
with their terms.
19. Governing Law. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of New York without giving effect to the
conflicts of laws principles thereof. If the Participant has received a copy of this Agreement (or
the Plan or any other document related hereto or thereto) translated into a language other than
English, such translated copy is qualified in its entirety by reference to the English version
thereof, and in the event of any conflict the English version will govern.
20. Successors in Interest. This Agreement shall inure to the benefit of and be
binding upon any successor to the Corporation. This Agreement shall inure to the benefit of the
Participant or the Participants legal representatives. All obligations imposed upon the
Participant and all rights granted to the Corporation under this Agreement shall be final, binding
and conclusive upon the Participants heirs, executors, administrators and successors.
21. Administration. The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and application of the
Plan as are consistent therewith and to interpret or revoke any such rules. All actions taken and
all interpretations and determinations made by the Committee shall be final and binding upon the
Participant, the Corporation and all other interested persons. No member of the Committee shall be
personally liable for any action determination or interpretation made in good faith with respect to
the Plan or the Restricted Units. In its absolute discretion, the Board of Directors may at any
time and from time to time exercise any and all rights and duties of the Committee under the Plan
and this Agreement.
22. Resolution of Disputes. Any dispute or disagreement which may arise under, or as a
result of, or in any way related to, the interpretation, construction or application of this
Agreement shall
5
be determined by the Committee. Any determination made hereunder shall be final, binding and
conclusive on the Participant and Corporation for all purposes.
23. Data Privacy Consent. As a condition of the grant of the Restricted Units, the
Participant hereby consents to the collection, use and transfer of personal data as described in
this paragraph. The Participant understands that the Corporation and its subsidiaries hold certain
personal information about the Participant, including name, home address and telephone number, date
of birth, social security number, salary, nationality, job title, ownership interests or
directorships held in the Corporation or its subsidiaries, and details of all restricted units or
other equity awards or other entitlements to shares of common stock awarded, cancelled, exercised,
vested or unvested (Data). The Participant further understands that the Corporation and its
subsidiaries will transfer Data among themselves as necessary for the purposes of implementation,
administration and management of the Participants participation in the Plan, and that the
Corporation and any of its subsidiaries may each further transfer Data to any third parties
assisting the Corporation in the implementation, administration and management of the Plan. The
Participant understands that these recipients may be located in the European Economic Area or
elsewhere, such as the United States. The Participant hereby authorizes them to receive, possess,
use, retain and transfer such Data as may be required for the administration of the Plan or the
subsequent holding of shares of common stock on the Participants behalf, in electronic or other
form, for the purposes of implementing, administering and managing the Participants participation
in the Plan, including any requisite transfer to a broker or other third party with whom the
Participant may elect to deposit any shares of common stock acquired under the Plan. The
Participant may, at any time, view such Data or require any necessary amendments to it.
24. Limitation on Rights; No Right to Future Grants; Extraordinary Item of
Compensation. By accepting this Agreement and the grant of the Restricted Units contemplated
hereunder, the Participant expressly acknowledges that (a) the Plan is discretionary in nature and
may be suspended or terminated by the Corporation at any time; (b) the grant of Restricted Units is
a one-time benefit that does not create any contractual or other right to receive future grants of
restricted units, or benefits in lieu of restricted units; (c) all determinations with respect to
future grants of restricted units, if any, including the grant date, the number of Shares granted
and the restricted period, will be at the sole discretion of the Corporation; (d) the Participants
participation in the Plan is voluntary; (e) the value of the Restricted Units is an extraordinary
item of compensation that is outside the scope of the Participants employment contract, if any,
and nothing can or must automatically be inferred from such employment contract or its
consequences; (f) grants of restricted units are not part of normal or expected compensation for
any purpose and are not to be used for calculating any severance, resignation, redundancy, end of
service payments, bonuses, long-service awards, pension or retirement benefits or similar payments,
and the Participant waives any claim on such basis; and (g) the future value of the underlying
Shares is unknown and cannot be predicted with certainty. In addition, the Participant understands,
acknowledges and agrees that the Participant will have no rights to compensation or damages related
to restricted unit proceeds in consequence of the termination of the Participants employment for
any reason whatsoever and whether or not in breach of contract.
25. Award Administrator. The Corporation may from time to time to designate a third
party (an Award Administrator) to assist the Corporation in the implementation, administration
and management of the Plan and any Restricted Units granted thereunder, including by sending Award
Letters on behalf of the Corporation to Participants, and by facilitating through electronic means
acceptance of Restricted Unit Agreements by Participants.
26. Section 409A. This Agreement is intended to comply with the provisions of
Section 409A of the Code and the regulations promulgated thereunder. Without limiting the
foregoing,
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the Committee shall have the right to amend the terms and conditions of this Agreement in any
respect as may be necessary or appropriate to comply with Section 409A of the Code or any
regulations promulgated thereunder, including without limitation by delaying the issuance of the
Shares contemplated hereunder.
27. Book Entry Delivery of Shares. Whenever reference in this Agreement is made to
the issuance or delivery of certificates representing one or more Shares, the Corporation may elect
to issue or deliver such Shares in book entry form in lieu of certificates.
28. Acceptance. This Agreement shall not be enforceable until it has been executed by
the Participant. In the event the Corporation has designated an Award Administrator, the
acceptance (including through electronic means) of the Restricted Unit award contemplated by this
Agreement in accordance with the procedures established from time to time by the Award
Administrator shall be deemed to constitute the Participants acknowledgment and agreement to the
terms and conditions of this Agreement and shall have the same legal effect in all respects of the
Participant having executed this Agreement by hand.
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By:
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L-3 COMMUNICATIONS HOLDINGS, INC. |
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/s/ Michael T. Strianese
Michael T. Strianese
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President and Chief Executive Officer
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/s/ Steven M. Post
Steven M. Post
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Senior Vice President, General Counsel and
Corporate Secretary |
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Acknowledged and Agreed
as of the date first written above: |
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7
EX-10.20
Exhibit
10.20
L-3 COMMUNICATIONS HOLDINGS, INC.
2008 DIRECTORS STOCK INCENTIVE PLAN
1. Purpose of the Plan
The L-3 Communications Holdings, Inc. 2008 Directors Stock Incentive Plan (the Plan) is
designed:
(a) to promote the long-term financial interests and growth of L-3 Communications Holdings,
Inc. (the Corporation) and its Subsidiaries by attracting and retaining Non-Employee Directors
with the training, experience and ability to enable them to make a substantial contribution to the
success of the Corporations business; and
(b) to further the alignment of interests of Non-Employee Directors with those of the
stockholders of the Corporation through opportunities for increased stock, or stock-based,
ownership in the Corporation.
2. Definitions
As used in the Plan, the following words shall have the following meanings:
(a) Award means any award granted pursuant to Section 3.
(b) Award Agreement means an agreement described in Section 6 by the Corporation for the
benefit of a Participant, setting forth (or incorporating by reference) the terms and conditions of
an Award granted to a Participant.
(c) Board of Directors means the Board of Directors of the Corporation.
(d) Code means the Internal Revenue Code of 1986, as amended.
(e) Committee means the Compensation Committee of the Board of Directors.
(f) Common Stock or Share means common stock, par value $.01 per share of the Corporation,
subject to adjustments made under Sections 8 and 9 or by operation of law.
(g) Exchange Act means the Securities Exchange Act of 1934, as amended.
(h) Fair Market Value means, unless otherwise defined in an Award Agreement, the closing
price of the Common Stock as reported on the composite tape of New York Stock Exchange issues (or
if, at the date of determination, the Common Stock is not so listed or if the principal market on
which it is traded is not the New York Stock Exchange, such other reporting system as shall be
selected by the Committee) on the relevant date, or, if no sale of the Common Stock is reported for
that date, the next preceding day for which there is a reported sale. The
Committee shall determine the Fair Market Value of any security that is not publicly traded, using
criteria as it shall determine, in its sole direction, to be appropriate for the valuation.
(i) Non-Employee Director means a director of the Corporation who is not (i) an employee of
the Corporation or any of its Subsidiaries, (ii) a director, officer or employee of any entity
that owns, beneficially or of record, directly or indirectly, 10% or more of the Common Stock
outstanding on the date of grant of the Award or (iii) a person that owns, beneficially or of
record, directly or indirectly, 10% or more of the Common Stock outstanding on the date of grant of
the Award.
(j) Participant means a Non-Employee Director to whom one or more grants of Awards have been
made and such grants have not all been forfeited or terminated under the Plan.
(k) Subsidiary shall mean any corporation in an unbroken chain of corporations beginning
with the Corporation if each of the corporations, or group of commonly controlled corporations,
other than the last corporation in the unbroken chain then owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other corporations in such chain.
3. Awards
(a) Type of Awards. Participants may be granted any of the following types of
Awards, either singly, in tandem or in combination with other Awards, at such times and for such
number of shares of Common Stock as shall be determined from time to time by the Board of Directors
(and/or the Committee to the extent such authority is delegated thereto in whole or in part by the
Board of Directors):
(1) Options. An Option is an Award in the form of an option to purchase shares of Common
Stock that is not intended to comply with requirements of Section 422 of the Code. The exercise
price of each Option granted under this Plan shall not be less than the Fair Market Value of the
Common Stock on the date that the Option is granted. No dividend equivalents may be paid on
unissued shares of Common Stock underlying an Award of Options.
(2) Restricted Stock. Restricted Stock is an Award of issued shares of Common Stock (other
than Minimum Ownership Stock) that are subject to restrictions on transfer and/or such other
restrictions on incidents of ownership as the Committee may determine. Unless otherwise provided
by the Committee in the applicable Award Agreement, the vesting period for Awards of Restricted
Stock shall be three years following date of grant.
(3) Restricted Stock Units. A Restricted Stock Unit is an Award of bookkeeping credits that
automatically convert into shares of Common Stock upon satisfaction of a stated vesting period or
requirement. Restricted Stock Units are not outstanding shares of Common Stock and do not entitle
a Participant to voting or other rights with respect to Common Stock; provided, however, that the
applicable Award Agreement may provide for the payment of dividend equivalents on unissued shares
of Common Stock underlying an Award of Restricted
Stock Units, on either a current or deferred or contingent basis, and either in cash or in
additional shares of Common Stock.
(4) Minimum Ownership Stock. Minimum Ownership Stock is an Award of shares of Common Stock
that are issued to the Participant in lieu of cash compensation otherwise payable to the
Participant in order to satisfy the Corporations applicable stock ownership guidelines from time
to time in effect. Minimum Ownership Stock shall not be subject to any vesting period or
requirement, but may be subject to restrictions on transfer and/or such other restrictions on
incidents of ownership as the Committee may determine.
(b) At or prior to the time of the grant of each Award the Committee shall determine, and
shall include or incorporate by reference in the Award Agreement, such other conditions or
restrictions on the grant or exercise of the Award as the Committee deems appropriate.
4. Shares of Common Stock Subject to the Plan
(a) Subject to the provisions of Section 8 and this Section 4, the maximum number of shares of
Common Stock that may be issued pursuant to all Awards under the Plan is 300,000. Any unexercised,
unconverted or undistributed portion of any expired, cancelled, terminated or forfeited Award, or
any alternative form of consideration under an Award that is not paid in connection with the
settlement of an Award or any portion of an Award (including any shares under an Award that are not
issued in consideration for a cash settlement of equivalent value), shall again be available for
Awards under the Plan, whether or not the Participant has received benefits of ownership (such as
dividends or dividend equivalents or voting rights) during the period in which the Participants
ownership was restricted or otherwise not vested. For the avoidance of doubt, the following shares
of Common Stock shall not become available for reissuance under the Plan: (1) shares tendered by
Participants as full or partial payment to the Corporation upon exercise of Options and (2) shares
withheld by, or otherwise remitted to, the Corporation to satisfy a Participants tax withholding
obligations in connection with an Award.
(b) Shares of Common Stock deliverable under the terms of the Plan may be, in whole or in
part, authorized and unissued shares of Common Stock, or issued shares of Common Stock held in the
Corporations treasury, or both.
(c) The Corporation shall at all times reserve a number of shares of Common Stock (authorized
and unissued shares of Common Stock, issued shares of Common Stock held in the Corporations
treasury, or both) equal to the maximum number of shares of Common Stock that may be subject to
outstanding Award grants and future Award grants under the Plan.
5. Administration of the Plan
(a) The Plan shall be administered by the Committee or a subcommittee appointed by the
Committee. The Committee may adopt its own rules of procedure, and action of a majority of the
members of the Committee taken at a meeting, or action taken without a meeting by
unanimous written consent, shall constitute action by the Committee. The Committee shall have the
power and authority to administer, construe and interpret the Plan, to make rules for carrying it
out and to make changes in such rules. Any such interpretations, rules and administration shall be
consistent with the basic purposes of the Plan.
(b) The participating members of the Committee administering the Plan shall include only those
members of the Committee who are Non-Employee Directors (as defined in Rule 16b-3 promulgated
under the Exchange Act).
(c) Unless in contravention to any laws, rules and regulations governing the Plan, including
the Exchange Act, the Committee may delegate to the chief executive officer and to other senior
officers of the Corporation its duties under the Plan subject to such conditions and limitations as
the Committee shall prescribe; provided that under no circumstances may the chief executive officer
or any other senior officer be delegated any authority (including the authority to approve or award
the grant of an Award), except as permitted under New York and Delaware law.
(d) The Committee may employ attorneys, consultants, accountants, appraisers, brokers or other
persons in respect of the administration of the Plan, who may be employees of the Corporation or
outside advisers to the Corporation. The Committee, the Corporation, and the officers and
directors of the Corporation shall be entitled to rely upon the advice, opinions or valuations of
any such persons. All actions taken and all interpretations and determinations made by the
Committee in good faith shall be final and binding upon all Participants, the Corporation and all
other interested persons. No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or Award grants, and
all members of the Committee shall be fully protected, indemnified and held harmless by the
Corporation with respect to any such action, determination or interpretation.
6. Eligibility
Award grants may be made under this Plan only to Non-Employee Directors of the Corporation.
The terms, conditions and limitations of each Award granted under the Plan shall be set forth or
incorporated by reference in an Award Agreement, in a form approved by the Committee, consistent,
however, with the terms of the Plan; provided, however, that such Award Agreement shall contain or
incorporate by reference provisions dealing with the treatment of Awards (including forfeiture or
acceleration of vesting of all or a portion of the Award) in the event of the termination, death or
disability of a Participant, or a change of control of the Corporation.
7. Limitations and Conditions
(a) No Award that contemplates exercise or conversion may be exercised or converted to any
extent, and no other Award that defers vesting shall remain outstanding and unexercised,
unconverted or unvested, more than ten years after the date the Award was initially granted.
(b) Nothing contained herein shall affect the right of the Corporation or its directors or
stockholders to remove any Non-Employee Director in accordance with the Certificate of
Incorporation, By-laws of the Corporation or applicable law.
(c) Other than by will or by the laws of descent and distribution, no benefit under the Plan
shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge, and any attempt to do so shall be void, except that Awards may be
transferred to and exercised by a family member or family members of a Participant, or transferred
to an irrevocable trust or trusts (or other similar estate planning entity or entities) established
for the benefit of a Participant and/or one or more of the Participants family members. No such
benefit shall, prior to receipt thereof by the Participant, be in any manner or subject to
attachment, satisfaction or discharge of the debts, contracts, liabilities, engagements, or
obligations arising in respect of torts of the Participant. The designation of a beneficiary
hereunder shall not constitute a transfer prohibited by the foregoing provisions.
(d) A Participant shall have no rights as a holder of Common Stock with respect to any
unissued securities covered by an Award until the date the Participant becomes the holder of record
of these securities. Except as provided in Section 8, no adjustment or other provision shall be
made for dividends or other stockholder rights, except to the extent that the Award Agreement
provides for dividend equivalents or similar economic benefits.
(e) During the lifetime of a Participant, an election as to benefits and/or the exercise of
Awards may be made only by such Participant or by his or her guardian, trustee or other legal
representative, except that Awards may be transferred to and exercised by a family member or family
members of a Participant, or transferred to an irrevocable trust or trusts (or other similar estate
planning entity or entities) established for the benefit of a Participant and/or one or more of the
Participants family members.
(f) Absent express provisions to the contrary, any grant of Awards under this Plan shall not
be deemed compensation for purposes of computing benefits or contributions under any retirement
plan of the Corporation or its Subsidiaries and shall not affect any benefits under any other
benefit plan of any kind now or subsequently in effect under which the availability or amount of
benefits is related to level of compensation. This Plan is not a Retirement Plan or Welfare
Plan under the Employee Retirement Income Security Act of 1974, as amended.
(g) Unless the Committee determines otherwise, no benefit, Award or other promise under the
Plan shall be secured by any specific assets of the Corporation or any of its Subsidiaries, nor
shall any assets of the Corporation or any of its Subsidiaries be designated as attributable or
allocated to the satisfaction of the Corporations obligations under the Plan or any applicable
Award Agreement.
8. Adjustments
If there shall occur any recapitalization, stock split (including a stock split in the form of
a stock dividend), reverse stock split, merger, combination, consolidation, or other reorganization
or any extraordinary dividend or other extraordinary distribution in respect of the Common Stock
(whether in the form of cash, Common Stock or other property), or any split up, spin off,
extraordinary redemption, or exchange of outstanding Common Stock, or there shall occur any other
similar corporate transaction or event in respect of the Common Stock, or a sale of substantially
all the assets of the Corporation as an entirety, then the Committee shall, in the manner and to
the extent, if any, as it deems appropriate and equitable to the Participants and consistent with
the terms of this Plan, and taking into consideration the effect of the event on the holders of the
Common Stock:
(a) proportionately adjust any or all of:
(1) the number and type of shares of Common Stock which thereafter may be made the
subject of Awards (including the specific maxima and numbers of shares of Common Stock set
forth elsewhere in this Plan),
(2) the number and type of shares of Common Stock, other property or cash subject to
any or all outstanding Awards,
(3) the grant, purchase or exercise price, or conversion ratio of any or all
outstanding Awards, or of the Common Stock or other property underlying the Awards,
(4) the securities, cash or other property deliverable upon exercise or conversion of
any or all outstanding Awards, or
(5) any other terms as are affected by the event; and/or
(b) provide for:
(1) an appropriate and proportionate cash settlement or distribution, or
(2) the substitution or exchange of any or all outstanding Awards, or the cash,
securities or property deliverable on exercise, conversion or vesting of the Awards.
The Committee shall act prior to an event described in this Section 8 (including at the time
of an Award by means of more specific provisions in the Award Agreement) if deemed necessary or
appropriate to permit the Participant to realize the benefits intended to be conveyed by an Award
in respect of the Common Stock in the case of an event described in this Section 8.
9. Change in Control
The Committee may, in the Award Agreement, provide for the effect of a Change in Control (as
defined in the L-3 Communications Holdings, Inc. 2008 Long Term Performance Plan, as amended or
replaced from time to time) on an Award. Such provisions may include, but are not limited to any
one or more of the following with respect to any or all Awards: (i) the specific consequences of a
Change in Control on the Awards; (ii) a reservation of the Committees right to determine in its
discretion at any time that there shall be full acceleration or no acceleration of benefits under
the Awards; (iii) that only certain or limited benefits under the Awards shall be accelerated; (iv)
that the Awards shall be accelerated for a limited time only; or (v) that acceleration of the
Awards shall be subject to additional conditions precedent (such as a termination of employment
following a Change in Control).
In addition to any action required or authorized by the terms of an Award, the Committee may
take any other action it deems appropriate to ensure the equitable treatment of Participants in the
event of or in anticipation of a Change in Control, including but not limited to any one or more of
the following with respect to any or all Awards: (i) the acceleration or extension of time periods
for purposes of exercising, vesting in, or realizing gain from, the Awards; (ii) the waiver of
conditions on the Awards that were imposed for the benefit of the Corporation, (iii) provision for
the cash settlement of the Awards for their equivalent cash value, as determined by the Committee,
as of the date of the Change in Control; or (iv) such other modification or adjustment to the
Awards as the Committee deems appropriate to maintain and protect the rights and interests of
Participants upon or following the Change in Control. The Committee also may accord any
Participant a right to refuse any acceleration of exercisability, vesting or benefits, whether
pursuant to the Award Agreement or otherwise, in such circumstances as the Committee may approve.
Notwithstanding the foregoing provisions of this Section 9 or any provision in an Award
Agreement to the contrary, if any Award is accelerated to a date that is less than six months after
the date of the Award, the Committee may prohibit a sale of the underlying Common Stock (other than
a sale by operation of law in exchange for or through conversion into other securities), and the
Corporation may impose legend and other restrictions on the Common Stock to enforce this
prohibition.
10. Amendment and Termination
(a) The Committee shall have the authority to make such amendments to any terms and conditions
applicable to outstanding Awards as are consistent with this Plan; provided that, except for
adjustments under Section 8 hereof, no such action shall modify any such Award in a manner adverse
to the Participant without the Participants consent; provided further that, no amendment or
cancellation of an Award may effect a Repricing of such Award, except in connection with an
adjustment pursuant to Sections 8 or 9. A Repricing means any of the following: (i) changing the
terms of an Award to lower its exercise price or base price, (ii) cancelling an Award with an
exercise price or base price in exchange for other Awards with a lower exercise price or base
price, or (iii) cancelling an Award with an exercise price or base price at a time when such price
is equal to or greater than the Fair Market Value of the underlying Common Stock in exchange for
other Awards, cash or property.
(b) The Board of Directors may at any time amend, suspend or terminate this Plan, subject to
any stockholder approval that may be required under applicable law. Notwithstanding the foregoing,
no such action, other than an action under Section 8 or 9 hereof, may be taken that would modify an
outstanding Award in a manner adverse to the Participant without the Particpants consent, change
the requirements relating to the Committee, or (without obtaining stockholder approval) extend the
term of the Plan.
11. Purchase or Exercise Price; Withholding
The exercise or purchase price (if any) of the Common Stock issuable pursuant to any Award and
the withholding obligation, if any, under applicable tax laws shall be paid at or prior to the time
of the delivery of such Common Stock in cash or, subject to the Committees express authorization
and the restrictions, conditions and procedures as the Committee may impose, any one or combination
of (i) cash, (ii) the delivery of shares of Common Stock, or (iii) a reduction in the amount of
Common Stock or other amounts otherwise issuable or payable pursuant to such Award. In the case of
a payment by the means described in clause (ii) or (iii) above, the Common Stock to be so delivered
or offset shall be determined by reference to the Fair Market Value of the Common Stock on the date
as of which the payment or offset is made.
12. Effective Date; Duration
This Plan has been adopted by the Board of Directors of the Corporation. This Plan shall
become effective upon and shall be subject to the approval of the stockholders of the Corporation.
Subject to Section 10(b), this Plan shall remain in effect until any and all Awards under this Plan
have been exercised, converted or terminated under the terms of this Plan and applicable Award
Agreements. Notwithstanding the foregoing, no Award may be granted under this Plan after April 29,
2018; provided, however, that any Award granted prior to such date may be amended after such date
in any manner that would have been permitted hereunder prior to such date.
13. Governing Law
The validity, interpretation, construction and performance of this Plan and all Award
Agreements hereunder shall be governed by, and construed in accordance with, the laws of the
State of New York.
14. Severability
If any provisions of this Plan or any applicable Award Agreement shall be held by a court of
competent jurisdiction to be invalid or unenforceable, the remaining provisions hereof shall
continue to be fully effective.
15. Section 409A
Notwithstanding other provisions of the Plan or any Award Agreements thereunder, no Award
shall be granted, deferred, accelerated, extended, paid out or modified under this Plan in a manner
that would result in the imposition of an additional tax under Section 409A of the Code upon a
Participant. In the event that it is reasonably determined by the Board or Committee that, as a
result of Section 409A of the Code, payments in respect of any Award under the Plan may not be made
at the time contemplated by the terms of the Plan or the relevant Award agreement, as the case may
be, without causing the Participant holding such Award to be subject to taxation under Section 409A
of the Code, the Company will make such payment on the first day that would not result in the
Participant incurring any tax liability under Section 409A of the Code.
16. Option Holding Period
Subject to the authority of the Committee under Sections 8 and 9, and except as otherwise
provided by the Committee or as allowed under Rule 16b-3 of the Exchange Act, a minimum six month
period shall elapse between the date of initial grant of any Option and the sale of the underlying
shares of Common Stock, and the Corporation may impose legend and other restrictions on the Common
Stock issued on exercise of the Options to enforce this requirement; provided, however, that such
limitation shall not apply to the extent provided by the Committee on account of the Participants
death, permanent disability or retirement or in the event of a Change in Control.
17. Compliance with Laws; Exculpation and Indemnity
This Plan, Award Agreements, and the grant, exercise, conversion, operation and vesting of
Awards, and the issuance and delivery of shares of Common Stock and/or other securities or property
or the payment of cash under this Plan, Awards or Award Agreements, are subject to compliance with
all applicable federal and state laws, rules and regulations (including but not limited to state
and federal insider trading, registration, reporting and other securities laws and federal margin
requirements) and to such approvals by any listing, regulatory or governmental authority as may be
necessary or, in the opinion of counsel for the Corporation, advisable in connection therewith.
Any securities delivered under this Plan shall be subject to such restrictions (and the person
acquiring such securities shall, if requested by the Corporation, provide such evidence, assurance
and representations to the Corporation as to compliance with any of such restrictions) as the
Corporation may deem necessary or desirable to assure compliance with all applicable legal
requirements.
Neither the Corporation nor any member of the Board of Directors or of the Committee, nor any
other person participating in any determination of any question under this Plan, or in the
interpretation, administration or application of this Plan, shall have any liability to any party
for any action taken or not taken in good faith under this Plan or for the failure of an Award (or
action in respect of an Award) to realize intended tax consequences, to qualify for exemption or
relief under Rule 16b-3 or to comply with any other law, compliance with which is not required on
the part of the Corporation.
18. Non Exclusivity of Plan
Nothing in this Plan shall limit or be deemed to limit the authority of the Corporation, the
Board or the Committee to grant awards or authorize any other compensation, with or without
reference to the Common Stock, under any other plan or authority.
EX-10.21
Exhibit 10.21
L-3 COMMUNICATIONS HOLDINGS, INC.
AMENDED AND RESTATED
CHANGE IN CONTROL SEVERANCE PLAN
THIS CHANGE IN CONTROL SEVERANCE PLAN, originally adopted on August 15, 2006 (the
Effective Date) by L-3 COMMUNICATIONS HOLDINGS, INC., a Delaware corporation, as amended
and restated as of February 19, 2009, has been established to provide for the payment of severance
benefits to Employees (as defined below).
Section 1. Definitions. Unless the context clearly indicates otherwise, when used in
this Plan:
(a) Actual Bonus means any Bonus actually paid or payable to an Eligible
Employee (excluding any reduction in amount resulting from an adverse change to the
assumptions (including the Employees Target Bonus) or calculation methodology for
determining the amount of such Bonus made on or after a Change in Control).
(b) Affiliate means, with respect to any entity, any other corporation,
organization, association, partnership, sole proprietorship or other type of entity, whether
incorporated or unincorporated, directly or indirectly controlling or controlled by or under
direct or indirect common control with such entity.
(c) Annual Compensation means the sum of (x) the greater of the Eligible
Employees Base Salary in effect (A) immediately prior to the date of the Change in Control
or (B) immediately prior to the date of termination of the Eligible Employee (or, if the
termination is for Good Reason, immediately prior to the event set forth in the notice of
termination given in accordance with Section 15 of this Plan), and (y) the Eligible
Employees Average Bonus.
(d) Anticipatory Termination means a termination of an Employee made in
connection with or in anticipation of a Change in Control at the request of, or upon the
initiative of, the acquiror in the Change in Control transaction or otherwise in connection
with or anticipation of the Change in Control.
(e) Average Bonus means the average of all Bonuses paid or payable to an
Eligible Employee in respect of the three Fiscal Years occurring prior to the Fiscal Year in
which the employment of the Eligible Employee is terminated (or, if the Eligible Employee
was not an Employee during each of such Fiscal Years, such lesser number of Fiscal Years
during which the Eligible Employee was an Employee); provided, that for purposes of
this calculation, any Bonus awarded to the Eligible Employee for a Fiscal Year in which the
Employee was employed for less than the full Fiscal Year shall be annualized;
provided, further, that if the Bonus for the last of the three Fiscal Years
utilized in this calculation (i) (x) has not been paid because the Employee was terminated
prior to the scheduled date for payment of such Bonus and (y) is not determinable by way of
a formula or calculation applied on a basis consistent with past practice or (ii) has been
paid based on an adverse change to the assumptions (including the Employees Target Bonus)
or calculation methodology for determining the amount of such Bonus made on
2
or after a Change in Control, then the Bonus for such year shall be disregarded and the
calculation shall be made on the basis of the average of the other Fiscal Years;
provided, further, that if the Employee was not an Employee prior to the
last of the three Fiscal Years utilized in this calculation and the Bonus for such last
Fiscal Year is disregarded by operation of the immediately preceding proviso, then the term
Average Bonus shall mean the Eligible Employees Target Bonus.
(f) Base Salary means an Employees annual rate of base salary in effect on
the date in question, determined on a gross wages basis (i.e. prior to reduction for any
employee-elected salary reduction contributions made to an Employer-sponsored non-qualified
deferred compensation plan or an Employer-sponsored plan pursuant to Section 401(k) or 125
of the Code), and excluding bonuses, overtime, allowances, commissions, deferred
compensation payments and any other extraordinary remuneration.
(g) Board means the board of directors of the Company.
(h) Bonus Fraction means, with respect to any Eligible Employee, a fraction,
the numerator of which shall equal the number of days the Eligible Employee was employed by
the Eligible Employees Employer in the Fiscal Year in which the Eligible Employers
termination occurs and the denominator of which shall equal 365.
(i) Bonus means the amount payable to an Employee under the Employers
applicable annual cash incentive bonus plan with respect to a Fiscal Year.
(j) Cause means an Employees:
(1) intentional failure to perform reasonably assigned duties;
(2) dishonesty or willful misconduct in the performance of duties;
(3) engaging in a transaction in connection with the performance of duties to
the Company or its Affiliates which transaction is adverse to the interests of the
Company and is engaged in for personal profit or;
(4) willful violation of any law, rule or regulation in connection with the
performance of duties (other than traffic violations or similar offenses).
For purposes of this definition, an act, or failure to act, on Employees part shall
be deemed willful if done, or omitted to be done, by Employee in bad faith and
without reasonable belief that Employees action or omission was in the best
interest of the Company.
(k) Change in Control means:
(1) the acquisition by any person or group (including a group within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act), other than the Company
or any of its subsidiaries, of beneficial ownership (within the meaning
3
of Rule 13d-3 promulgated under the Exchange Act) of a majority of the combined
voting power of the Companys then outstanding voting securities, other than by any
employee benefit plan maintained by the Company;
(2) the sale of all or substantially all the assets of the Company and its
subsidiaries taken as a whole; or
(3) the election, including the filling of vacancies, during any period of 24
months or less, of 50% or more of the members of the Board, without the approval of
Continuing Directors, as constituted at the beginning of such period.
For purposes of this definition, Continuing Directors shall mean, with respect to
any date, any director of the Company who either (i) is a member of the Board on
such date, or (ii) is subsequently nominated for election to the Board by a majority
of the Board which is comprised of directors who were, at the time of such
nomination, Continuing Directors.
(l) COBRA means the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended.
(m) Code means the Internal Revenue Code of 1986, as amended.
(n) Committee means the committee designated pursuant to Section 6 to
administer this Plan.
(o) Company means L-3 Communications Holdings, Inc., a Delaware corporation
and, after a Change in Control, any successor or successors thereto.
(p) Director means (a) any Director of the Company and (b) any other Employee
who participates in the Executive Benefits Plan of the Company at the benefit level provided
to Directors of the Company generally. For the avoidance of doubt, the phrase Director of
the Company as used in clause (a) of this definition refers to an Employee serving with a
title of Director, and not to a member of the Board.
(q) Disability means an Employee, as a result of incapacity due to physical
or mental illness, becomes eligible for benefits under the long-term disability plan or
policy of the Company or a subsidiary in which the Employee is eligible to participate.
(r) Elected Officer means a person who is elected or appointed as an officer
of the Company pursuant to any resolution adopted by Board on or after the date of the most
recent annual meeting of Company stockholders and prior to the date of the Change in Control
(which election or appointment is not revoked prior to such date).
(s) Eligible Employee means an Employee whose employment with Employees
Employer (i) is terminated by the Employer for any reason other than Cause, Disability or
death (A) as an Anticipatory Termination, but only (x) if an anticipated Change in Control
actually occurs during the period in which this Plan is effective and (y) to the extent such
Change in Control also constitutes a change in ownership or
4
effective control, or in the ownership of a substantial portion of the assets, within
the meaning of Section 409A(a)(2)(A)(v) of the Code or (B) during the two-year period
beginning on the effective date of a Change in Control, or (ii) terminates during the
two-year period beginning on the effective date of a Change in Control on account of such
Employees resignation for Good Reason within six months from the date the Employee first
becomes actually aware of the existence of Good Reason.
(t) Employee means (1) any Elected Officer of the Company and (2) any other
employee of the Company or any of its wholly-owned subsidiaries, whose payroll expenses are
primarily allocated and recorded as a corporate expense of L-3 Communications Corporation or
any successor entity (and not as an expense of a group, division or subsidiary thereof) for
financial reporting purposes, as applied immediately prior to the date of a Change in
Control.
(u) Employer means, with respect to any Employee, the legal entity that
employed such Employee prior to any termination of employment contemplated hereunder.
(v) Exchange Act means the Securities Exchange Act of 1934, as amended.
(w) Executive means a person qualifying as any of following immediately prior
to the date of a Change in Control: (i) the Chief Executive Officer, the Chief Financial
Officer and the General Counsel of the Company, (ii) any Executive Vice President, Senior
Vice President, Chief Operating Officer or Group President of the Company and (iii) any Vice
President or Director of the Company (as such positions are defined in this Section 1). For
the avoidance of doubt, the term Executive shall not include any Employee who holds a
title of Chief Executive Officer, Chief Financial Officer, General Counsel, Executive Vice
President, Senior Vice President, Vice President or Director solely with respect to a
Company group, division or subsidiary and not with respect to the Company generally.
(x) Fiscal Year means any given fiscal year of the Company.
(y) Good Reason means any of the following actions on or after a Change in
Control, without Employees express prior written approval, other than due to Employees
Disability or death:
(1) (A) any reduction in Base Salary or annual or long-term incentive
opportunity (including Target Bonus, if applicable) or (B) any adverse change to the
calculation methodology for determining Bonuses or long-term incentives which is
reasonably likely to have an adverse impact on the amounts the Eligible Employee has
the potential to earn under such programs (which for the avoidance of doubt shall
not be deemed to have occurred if an acquiror fails to continue or provide any
equity-based incentive plan);
(2) any failure by acquiror to continue to provide employee benefits that are
substantially similar in the aggregate to those afforded to the Employee
5
immediately prior to the Change in Control; for this purpose employee benefits
shall mean pension and retirement, fringe and welfare benefits;
(3) any material adverse change in Employees duties or responsibilities;
(4) any relocation of Employees principal place of business of 50 miles or
more, provided that such relocation also increases Employees commute by at
least 25 miles; or
(5) any failure to pay Employees Base Salary and other amounts earned by
Employee within ten (10) days after the date such compensation is due;
(6) the failure of any successor or assignee (whether direct or indirect, by
purchase, merger, consolidation, or otherwise) to all or substantially all of the
business and/or assets of the Company in connection with any Change in Control, by
agreement in writing in form and substance reasonably satisfactory to Employee,
expressly, absolutely and unconditionally to assume and agree to perform all
obligations under this Plan.
(z) Plan means the L-3 COMMUNICATIONS HOLDINGS, INC. CHANGE IN CONTROL
SEVERANCE PLAN, as in effect from time to time.
(aa) Plan Year means the calendar year.
(bb) Release means a release to be signed by an Eligible Employee in such
form as the Company shall reasonably determine, which shall, to the extent permitted by law,
waive all claims and actions against the Employers and such other related parties and
entities as the Company reasonably chooses to include in the release except for claims and
actions for benefits provided under (or contemplated by) the terms of this Plan (which
Release is not revoked by the Eligible Employee).
(cc) Severance Multiple means, with respect to any Eligible Employee, the
highest of the following multiples applicable to such person:
(1) the multiple of three (3), for each of the Chief Executive Officer, Chief
Financial Officer, General Counsel and any Executive Vice President of the Company;
(2) the multiple of two and one-half (2.5), for each Senior Vice President,
Chief Operating Officer or Group President of the Company;
(3) the multiple of two (2), for each Vice President of the Company who is also
an Elected Officer;
(4) the multiple of one and one-half (1.5), for each Vice President of the
Company who is not also an Elected Officer; and
6
(5) the multiple of one (1), for each Director of the Company.
(dd) Target Bonus means the greater of (1) an Employees target Bonus in
effect immediately prior to the date of the Change in Control or (2) an Employees target
Bonus in effect immediately prior to the date on which the Eligible Employee is terminated
(or, if the termination is for Good Reason, immediately prior to the event set forth in the
notice of termination given in accordance with Section 15).
(ee) Vice President means (a) any Vice President of the Company and (b) any
other Employee who participates in the Executive Benefits Plan of the Company at the benefit
level provided to Vice Presidents of the Company generally.
Section 2. Severance Benefits. Each Eligible Employee who executes a Release in the
manner prescribed by the Company within 45 days following such Eligible Employees date of
termination and additionally, for each Eligible Employee who is also an Elected Officer, who agrees
at such time to be subject to the restrictive covenants set forth on Exhibit A shall be entitled to
the following:
(a) Severance Pay.
(1) Each such Eligible Employee who is an Executive shall be entitled to
receive severance pay from his or her Employer in a lump sum amount equal to the sum
of:
(i) the Eligible Employees Severance Multiple, multiplied by
the Eligible Employees Annual Compensation; and
(ii) the Average Bonus (or, if determinable on the date of termination
(i.e., by way of a formula or calculation applied on a basis consistent with
past practice), the Actual Bonus for the year of termination),
multiplied by the Bonus Fraction.
(2) Each such Eligible Employee who is not an Executive shall be entitled to
receive severance pay from his or her Employer in a lump sum amount equal to the sum
of:
(i) the Average Bonus (or, if determinable on the date of termination
(i.e., by way of a formula or calculation applied on a basis consistent with
past practice), the Actual Bonus for the year of termination),
multiplied by the Bonus Fraction; plus
(ii) four (4) weeks of the Eligible Employees Annual Compensation;
plus
(iii) two (2) or three (3) weeks (as determined by the Chief Executive
Officer of the Company on or prior to the date of the Change in Control) of
the Eligible Employees Annual Compensation for each completed year of
service by the Eligible Employee with the Company, its
7
Affiliates and any of their respective predecessor entities;
provided, however, that the sum of the amounts determined
under clauses (ii) and (iii) above shall be limited to the amount of the
Eligible Employees Annual Compensation (i.e., 52 weeks of the Eligible
Employees Annual Compensation).
(b) Medical, Dental and Life Insurance Benefit Continuation.
(1) For each Eligible Employee who is an Executive, for a period of years (or
fractions thereof) equal to the Severance Multiple following the Eligible Employees
termination of employment (the Executive Welfare Continuation Period), the
Eligible Employee and such Eligible Employees spouse and dependents (each as
defined under the applicable program) shall receive the following benefits:
(x) medical and dental insurance coverages at the same benefit levels as provided to
the Eligible Employee immediately prior to the Change in Control, for which the
Company will (A) reimburse the Eligible Employee during the first 18 months of the
Executive Welfare Continuation Period or, if shorter, the period of actual COBRA
continuation coverage received by the Eligible Employee during the Executive Welfare
Continuation Period, for the total amount of the monthly COBRA medical and dental
insurance premiums payable by the Eligible Employee for such continued benefits in
excess of the cost the Eligible Employee paid for such coverage (on a monthly
premium basis) immediately prior to such termination of employment and (B) provide
such coverage for any remaining portion of the Executive Welfare Continuation Period
at the same cost to the Eligible Employee as is generally provided to similarly
situated active employees of the Company (or, if it is not possible, or is
cost-prohibitive for the Company to provide such coverage for such remaining
portion, the Company will pay the Eligible Employee a cash lump sum payment equal to
the premiums the Company would have paid if the Eligible Employee had remained an
active employer), provided, however, that if, during the Executive
Welfare Continuation Period, the Eligible Employee becomes employed by a new
employer, continuing medical and dental coverage from the Company will become
secondary to any coverage afforded by the new employer in which the Eligible
Employee becomes enrolled); and (y) life insurance coverage at the same benefit
level as provided to the Eligible Employee immediately prior to the Change in
Control and at the same cost to the Eligible Employee as is generally provided to
similarly situated active employees of the Company (or if such coverage is no longer
provided by the Company, then at the Employees cost immediately prior to the Change
in Control).
(2) For each Eligible Employee who is not an Executive, for a period not to
exceed the number of weeks of Annual Compensation payable to the Eligible Employee
pursuant to Section 2(a)(2) above, (the Employee Welfare Continuation
Period), the Eligible Employee and such Eligible Employees spouse and
dependents (each as defined under the applicable program) shall receive the
following benefits: (x) medical and dental insurance coverages at the same benefit
levels as provided to the Eligible Employee immediately prior to the
8
Change in Control, for which the Company will reimburse the Eligible Employee
during the first 52 weeks of the Employee Welfare Continuation Period or, if
shorter, the period of actual COBRA continuation coverage received by the Eligible
Employee during the Employee Welfare Continuation Period, for the total amount of
the monthly COBRA medical and dental insurance premiums payable by the Eligible
Employee for such continued benefits in excess of the cost the Eligible Employee
paid for such coverage (on a monthly premium basis) immediately prior to such
termination of employment, provided, however, that if, during the
Employee Welfare Continuation Period, the Eligible Employee becomes employed by a
new employer, continuing medical and dental coverage from the Company will become
secondary to any coverage afforded by the new employer in which the Eligible
Employee becomes enrolled); and (y) life insurance coverage at the same benefit
level as provided to the Eligible Employee immediately prior to the Change in
Control and at the same cost to the Eligible Employee as is generally provided to
similarly situated active employees of the Company (or if such coverage is no longer
provided by the Company, then at the Employees cost immediately prior to the Change
in Control).
(c) Outplacement. Such Eligible Employee shall receive reasonable outplacement
services to be provided by a provider selected by such Eligible Employee, the cost of which
shall be borne by the Company.
(d) Accrued Benefits. Such Eligible Employee shall be entitled to receive any
unpaid Base Salary through the date of such Eligible Employees termination, any Bonus
earned but unpaid as of the date of such Eligible Employees termination for any previously
completed Fiscal Year (which, if not determinable by way of a formula or calculation applied
on a basis consistent with past practice, shall be an amount equal to the Eligible
Employees Average Bonus), and all compensation previously deferred by such Eligible
Employee but not yet paid as well as all accrued interest thereon. In addition, such
Eligible Employee shall be entitled to prompt reimbursement of any unreimbursed expenses
properly incurred by such Eligible Employee in accordance with Company policies prior to the
date of such Eligible Employees termination. Such Eligible Employee shall also be able to
receive and enjoy such other benefits, if any, to which such Eligible Employee may be
entitled pursuant to the terms and conditions of (1) the employee compensation, incentive,
equity, benefit or fringe benefit plans, policies or programs of the Company, other than any
Company severance policy and as provided in Section 12(a) of this Plan, and (2) the
indemnification and D&O insurance plans, policies or programs of the Company.
Section 3. Form and Time of Payment. The cash severance pay benefits payable to an
Eligible Employee under Section 2 above shall be paid to such Eligible Employee in a single lump
sum less applicable withholdings under Section 4 of this Plan within 75 days after the Eligible
Employees date of termination, except with respect to any additional bonus amount payable after
such time period to the extent required pursuant to Section 2(d) above and except as provided
pursuant to Section 5 of this Plan; provided, however, that the Company shall not be
required to pay or continue to pay the cash severance pay benefits in the event such Eligible
9
Employee does not sign a Release or such Eligible Employee revokes the Release during the time
to revoke, if any.
Section 4. Tax Withholding and Section 409A. Each Employer shall withhold from any
amount payable to an Eligible Employee pursuant to this Plan, and shall remit to the appropriate
governmental authority, any income, employment or other tax the Employer is required by applicable
law to so withhold from and remit on behalf of such Eligible Employee. Notwithstanding any other
provision of this Plan or certain compensation and benefit plans of the Employer, any payments or
benefits due under this Plan or such Employer compensation and benefit plans upon or in connection
with a termination of an Eligible Employees employment shall be paid, and this Plan shall be
interpreted, in a manner that shall ensure that any such payments or benefits shall not be subject
to any tax or interest under Section 409A of the Code (including, for the avoidance of doubt, by
requiring that the payment of any severance due under Section 2 of this Plan to an Employee who is
a specified employee within the meaning of the Section 409A of the Code be deferred until the
date that is six months following such termination of the Employees employment, to the extent such
delay is required to comply with Section 409A of the Code). Each payment made under this Plan
shall be designated as a separate payment within the meaning of Section 409A of the Code. To the
extent any reimbursements or in-kind benefits due to an Employee under this Plan constitute
deferred compensation under Section 409A of the Code, any such reimbursements or in-kind benefits
shall be paid to such Employee in a manner consistent with Treas. Reg. Section 1.409A-3(i)(1)(iv).
Notwithstanding the foregoing, neither the Company nor any of its employees or representatives
shall have any liability to any Eligible Employee to the extent that any payment or benefit
hereunder is determined to be subject to any tax or interest under Section 409A of the Code.
Section 5. Limitation of Certain Payments.
(a) In the event the Company determines, based upon the advice of the independent
public accountants for the Company, that part or all of the consideration, compensation or
benefits to be paid to an Employee under this Plan constitute parachute payments under
Section 280G(b)(2) of the Code, as amended, then, if the aggregate present value of such
parachute payments, singularly or together with the aggregate present value of any
consideration, compensation or benefits to be paid to Employee under any other plan,
arrangement or agreement which constitute parachute payments (collectively, the
Parachute Amount) exceeds 2.99 times the Employees base amount, as
defined in Section 280G(b)(3) of the Code (the Employee Base Amount), the amounts
constituting parachute payments which would otherwise be payable to or for the benefit of
Employee shall be reduced to the extent necessary so that the Parachute Amount is equal to
2.99 times the Employee Base Amount (the Reduced Amount); provided
that such amounts shall not be so reduced if the Company determines, based upon the advice
of an independent nationally recognized public accounting firm (which may, but need not be
the independent public accountants of the Company), that without such reduction Employee
would be entitled to receive and retain, on a net after-tax basis (including, without
limitation, any excise taxes payable under Section 4999 of the Code), an amount which is
greater than the amount, on a net after tax basis, that the Employee would be entitled to
retain upon his receipt of the Reduced Amount.
10
(b) If the determination made pursuant to clause (a) of this Section 5 results in a
reduction of the payments that would otherwise be paid to Employee except for the
application of clause (a) of this Section 5, the cash severance pay benefits payable under
Section 2(a) shall be reduced. Within ten days following Employers notice to the Employee
of its determination of the reduction in payments, the Company shall pay to or distribute to
or for the benefit of Employee such amounts as are then due to Employee under this Plan and
shall promptly pay to or distribute to or for the benefit of Employee in the future such
amounts as become due to Employee pursuant to this Plan.
(c) As a result of potential uncertainty in the application of Section 280G of the Code
at the time of a determination hereunder, it is possible that payments will be made by the
Employer which should not have been made under clause (a) of this Section 5
(Overpayment) or that additional payments which are not made by the Employer
pursuant to clause (a) of this Section 5 should have been made (Underpayment). In
the event that there is a final determination by the Internal Revenue Service, or a final
determination by a court of competent jurisdiction, that an Overpayment has been made, any
such Overpayment shall be repaid by Employee to the Employer together with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Code. In the event that
there is a final determination by the Internal Revenue Service, a final determination by a
court of competent jurisdiction or a change in the provisions of the Code or regulations
pursuant to which an Underpayment arises under this Plan, any such Underpayment shall be
promptly paid by the Employer to or for the benefit of Employee, together with interest at
the applicable Federal rate provided for in Section 7872(f)(2) of the Code.
Section 6. Plan Administration. This Plan shall be administered by the Compensation
Committee of the Board or, following a Change in Control, such other successor body as is
designated by the acquiror in the Change in Control transaction (the Committee). Subject
to the provisions of Section 7 of this Plan, the Committee shall have discretionary and final
authority to interpret and implement the provisions of this Plan and to determine eligibility for
benefits under the Plan. The Committee shall perform all of the duties and exercise all of the
powers and discretion that the Committee deems necessary or appropriate for the proper
administration of this Plan. The Committee may adopt such rules and regulations for the
administration of this Plan as are consistent with the terms hereof, and shall keep adequate
records of its proceedings and acts. The Committee may employ such agents, accountants and legal
counsel (who may be agents, accountants and legal counsel for an Employer) as may be appropriate
for the administration of the Plan. All reasonable administration expenses incurred by the
Committee in connection with the administration of the Plan shall be paid by the Employer.
Section 7. Dispute Resolution. Any dispute hereunder or with regard to any document
or agreement referred to herein shall be resolved by arbitration before the American Arbitration
Association in New York City, New York. The determination of the arbitrator shall be final and
binding on the parties hereto and may be entered in any court of competent jurisdiction.
11
Section 8. Applicable Law. This Plan shall be governed and construed in accordance
with applicable federal law; provided, however, that wherever such law does not otherwise preempt
state law, the laws of the State of New York shall govern.
Section 9. Legal Fees. All reasonable legal fees and expenses incurred by an Eligible
Employee in connection with any non-frivolous claim made pursuant to this Plan shall be borne by
the Company.
Section 10. Plan Amendment and Termination. Prior to the occurrence of a Change in
Control, each of the Board and the Committee shall have the right and power at any time, and from
time to time, subject to ninety (90) days advance written notice to all Employees, to amend or
terminate this Plan, in whole or in part; provided, that no such amendment or termination
shall be effective if made in connection with or in anticipation of a Change in Control at the
request of, or upon the initiative of, the acquiror in the Change in Control transaction or
otherwise in connection with or anticipation of the Change in Control. After the occurrence of a
Change in Control and during the two-year period beginning on the effective date of the Change in
Control, this Plan may not be amended or terminated without the consent of a majority of the
Employees who are employed by an Employer at the time of the proposed amendment or termination or
who are Eligible Employees receiving severance benefits pursuant to Section 2 of this Plan at such
time. Any action to amend or terminate this Plan on or after the date on which a Change in Control
occurs, without the foregoing consent, shall not be effective prior to the end of the two-year
period beginning on the effective date of the Change in Control.
Section 11. Nature of Plan and Rights. This Plan is an unfunded employee welfare
benefit plan and no provision of this Plan shall be deemed or construed to create a trust fund of
any kind or to grant a property interest of any kind to any Employee or former Employee. Any
payment which becomes due under this Plan to an Eligible Employee shall be made by his or her
Employer out of its general assets, and the right of any Eligible Employee to receive a payment
hereunder from his or her Employer shall be no greater than the right of any unsecured general
creditor of such Employer.
Section 12. Entire Agreement; Offset; No Interference.
(a) This Plan constitutes the entire agreement between the parties and, except as
expressly provided herein, supersedes the provisions of all other prior agreements expressly
concerning the payment of severance benefits upon a termination of employment in connection
with or following a Change in Control; provided, that in no event shall payments or
benefits provided pursuant to any other severance agreement or policy entitle Employee to a
duplication of payments and benefits pursuant to this Plan and, in the event of an
Anticipatory Termination, any amount payable hereunder shall be offset and reduced by the
amount of any termination payments or benefits previously provided to Employee under any
other severance arrangement with the Company.
(b) Except as expressly provided herein, this Plan shall not interfere in any way with
the right of the Company to reduce Employees compensation or other benefits or terminate
Employees employment, with or without Cause. Any rights that Employee
12
shall have in that regard shall be as set forth in any applicable employment agreement
between Employee and the Company.
Section 13. Anticipatory Changes. Notwithstanding any provision in this Agreement to
the contrary, no Employee shall suffer any reduction in the level of protections or benefits that
would otherwise be enjoyed by the Employee hereunder as a result of any adverse change (including
without limitation any such change in Base Salary; Target Bonus; assumptions or calculation
methodology used for determining Actual Bonus; insurance coverages; or rank or status as an Elected
Officer, Executive or Employee), made in connection with or in anticipation of a Change in Control
at the request of, or upon the initiative of, the acquiror in the Change in Control transaction or
otherwise in connection with or anticipation of the Change in Control (each, an Anticipatory
Change). In the event of any such Anticipatory Change, the provisions of this Agreement shall
be applied, and any amounts under this Agreement shall be calculated, as if such Anticipatory
Change had not occurred.
Section 14. Spendthrift Provision. No right or interest of an Eligible Employee under
this Plan may be assigned, transferred or alienated, in whole or in part, either directly or by
operation of law, and no such right or interest shall be liable for or subject to any debt,
obligation or liability of such Eligible Employee.
Section 15. Notice. Notice of termination for Cause or for Good Reason shall be given
in accordance with this Section, and shall indicate the specific termination provision under the
Plan relied upon, the relevant facts and circumstances and the effective date of termination. For
the purpose of this Plan, any notice and all other communication provided for in this Plan shall be
in writing and shall be deemed to have been duly given when received at the respective addresses
set forth below, or to such other address as the Company or the Eligible Employee may have
furnished to the other in writing in accordance herewith.
If to the Company:
L-3 Communications Holdings, Inc.
600 Third Avenue
New York, New York 10016
If to Employee:
To the most recent address of Employee set forth in the personnel records of the Company.
13
Section 16. Effectiveness. This Plan shall be effective as of the Effective Date and
shall remain in effect until terminated pursuant to Section 10 of this Plan.
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L-3 COMMUNICATIONS HOLDINGS, INC.
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By: |
/s/
Steven M. Post |
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Name: |
Steven M. Post |
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Title: |
Senior Vice President, General Counsel and
Corporate Secretary |
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A-1
Exhibit A
CONFIDENTIALITY AND NON-COMPETITION RESTRICTIVE COVENANTS
I. While employed by the Company, and at any time thereafter, no Eligible Employee shall, without
the prior written consent of the Company, use, divulge, disclose or make accessible to any other
person, firm, partnership, corporation or other entity any Confidential Information pertaining to
the business of the Company or any of its affiliates, except when required to do so by applicable
law, by a court, by any governmental agency, or by any administrative body or legislative body
(including a committee thereof); provided, however, that the Eligible Employee shall give
reasonable notice under the circumstances to the Company that he or she has been notified that he
or she will be required to so disclose as soon as possible after receipt of such notice in order to
permit the Company to take whatever action it reasonably deems necessary to prevent such disclosure
and the Eligible Employee shall cooperate with the Company to the extent that it reasonably
requests him or her to do so. For purposes of this paragraph I, Confidential Information shall
mean non-public information concerning the financial data, strategic business plans, product
development (or other proprietary product data), customer lists, marketing plans and other
non-public, proprietary and confidential information of the Company, its subsidiaries, its
affiliates or customers, that, in any case, is not otherwise available to the public (other than by
the Eligible Employees breach of the terms hereof).
II. In consideration of the Companys obligations under the Plan to which this Exhibit A is
attached, each Eligible Employee agrees that for a period of twelve (12) months after termination
of employment with his or her Employer, without the prior written consent of the Board, (A) he or
she will not, directly or indirectly, either as principal, manager, agent, consultant, officer,
stockholder, partner, investor, lender or employee or in any other capacity, carry on, be engaged
in or have any financial interest in, any (i) entity which is in Competition with the business of
the Company or its subsidiaries or (ii) Competitive Activity and (B) he or she shall not, on his or
her own behalf or on behalf of any person, firm or company, directly or indirectly, solicit or
offer employment to any person who is or has been employed by the Company or its subsidiaries at
any time during the twelve (12) months immediately preceding such solicitation. For purposes of
this paragraph II: (a) an entity shall be deemed to be in Competition with the Company or its
subsidiaries if it is principally involved in the purchase, sale or other dealing in any property
or the rendering of any service purchased, sold, dealt in or rendered by the Company or its
subsidiaries as a part of the business of the Company or its subsidiaries within the same
geographic area in which the Company effects such sales or dealings or renders such services at the
Relevant Date; and (b) Competitive Activity shall mean any business into which the Company or any
of its subsidiaries has taken substantial steps to engage, as of the Relevant Date, which would be
deemed to be in Competition with the business of the Company or its subsidiaries if such steps had
been completed prior to the Relevant Date; and (c) the term Relevant Date shall mean the
effective date of termination of Employees employment with his or her Employer.
III. Notwithstanding anything contained in this Exhibit A, nothing herein shall (i) prohibit any
Eligible Employee from serving as an officer, employee or independent consultant of any business
unit or subsidiary which would not otherwise be in Competition with the Company or
A-2
its subsidiaries or a Competitive Activity, but which business unit is a part of, or which
subsidiary is controlled by, or under common control with, an entity that would be in competition
with the Company or its subsidiaries, so long as the Eligible Employee does not engage in any
activity which is in Competition with any business of the Company or its subsidiaries or is
otherwise a Competitive Activity or (ii) be construed so as to preclude the Eligible Employee from
investing in any publicly or privately held company, provided the Eligible Employees beneficial
ownership of any class of such companys securities does not exceed 5% of the outstanding
securities of such class.
IV. In the event the Company determines that an Eligible Employee has breached the covenants
contained in this Exhibit A, the Company may, in addition to pursuing any other remedies it may
have in law or in equity, cease making any payments otherwise required by this Plan and/or obtain
an injunction against the Eligible Employee from any court having jurisdiction over the matter
restraining any further violation of this Exhibit A by the Eligible Employee. Further, if in the
opinion of any court of competent jurisdiction any of the restraints identified herein is not
reasonable in any respect, such court shall have the right, power and authority to excise or modify
such provision or provisions of this covenant as to the court shall appear not reasonable and to
enforce the remainder of the covenant as so amended.
EX-10.22
Exhibit 10.22
L-3 COMMUNICATIONS CORPORATION
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(Restated January 1, 2005)
ARTICLE I
PURPOSE OF THE SERP
The purpose of this L-3 Communications Corporation Supplemental Executive Retirement Plan is
to provide supplemental retirement income for a select group of management and highly compensated
employees of L-3 Communications Corporation and certain of its subsidiaries and divisions by
providing benefits equal to those benefits that can not be provided under certain tax-qualified
pension plans because of the limitations of Sections 401(a)(17) and 415 of the Internal Revenue
Code of 1986, as amended.
The Plan was effective as of May 1, 1997. It was amended and restated in 1999 and 2000. The
Plan is amended and restated effective January 1, 2005 to comply with the requirements of Section
409A of the Code, except for Sections 3.4 and 3.5 which are amended effective January 1, 2009.
ARTICLE II
DEFINITIONS
Additional SERP Participant An employee of a Participating Company who is not
eligible to participate in an L-3 sponsored defined benefit pension plan and designated by the
Board or the Compensation Committee thereof as eligible to participate in the SERP.
Adjusted Compensation The Participants compensation as defined in the applicable
Pension Plan provided that (1) base salary deferred by a Participant under any deferred
compensation plan sponsored by the Company shall be taken into account, (2) management incentive
bonuses, whether or not deferred by a Participant under any deferred compensation plan sponsored by
the Company shall be taken into account, and (3) the limitations under Section 401(a)(17) of the
Code shall not apply.
Beneficiary The Participants beneficiary with respect to the Pension Benefit
payable under the Pension Plan or such Beneficiary elected at the time of benefit commencement.
Board The Board of Directors of L-3 Communications Corporation.
Code The Internal Revenue Code of 1986, as amended.
Committee The committee described in Section 6.1, which administers this SERP.
Company L-3 Communications Corporation.
Holdings L-3 Communications Holdings, Inc.
Participant The individuals who are described in (a) or (b) below:
(a) An employee of a Participating Company who participates in a Pension Plan and (1) whose
Adjusted Compensation for a calendar year, including all amounts deferred by the employee under any
deferred compensation plan sponsored by the Company, exceeds the maximum dollar amount for that
year under Section 401(a)(17) of the Code, or (2) for whom benefits under the Pension Plan are
limited by Sections 401(a)(17) or 415 of the Code, provided that the employee meets any other
requirements as determined by the Committee in its sole and exclusive discretion. An employee who
satisfies the requirements for participation in this SERP for any calendar year shall continue to
be a Participant for all subsequent years regardless of whether he or she meets the participation
requirements of this paragraph for any such subsequent year.
(b) An employee who is an Additional SERP Participant.
The Committee shall limit participation in this SERP to a select group of management or highly
compensated employees within the meaning of Title I of the Employee Retirement Income Security Act
of 1974, as amended, as determined by the Committee, in its sole and exclusive discretion.
Participating Company The Company and any affiliate thereof that maintains a
Pension Plan listed in Appendix A.
Pension Benefit The Participants accrued benefit under the Pension Plan.
Pension Plan The tax-qualified defined benefit plan, among those listed in Appendix
A, in which the Participant participates (or, in the case of an Additional SERP Participant, would
have been eligible to participate had he or she been an employee of the Participating Company on
the date prior to the date the Pension Plan was frozen to newly hired employees).
Section 409A Change of Control Event A change in ownership or effective control of
Holdings, or in the ownership of a substantial portion of the assets of Holdings, within the
meaning of Section 409A(a)(2)(A)(v) of the Code.
SERP This L-3 Communications Corporation Supplemental Executive Retirement Plan.
Supplemental Pension Benefit The benefit, if any, to which a Participant is
entitled under the terms of this SERP.
L-3 Communications Corporation
Supplemental Executive Retirement Plan
2
ARTICLE III
ELIGIBILITY FOR AND AMOUNT OF BENEFITS
3.1 Eligibility for Benefits. A Participant who terminates employment and is entitled
to a Pension Benefit under the terms of the Pension Plan (or, in the case of an Additional SERP
Participant, would have been entitled to a Pension Benefit had he or she been an employee of the
Participating Company on the date prior to the date the Pension Plan was frozen to newly hired
employees) shall be entitled to a Supplemental Pension Benefit in an amount determined in
accordance with Section 3.2 or any applicable Appendix and payable in accordance with Sections 3.4
, 3.5 and 3.6.
3.2. Amount of Benefit for General SERP Participants. Except as otherwise provided in
Section 3.3, Appendix B-1 or B-2, the Supplemental Pension Benefit shall be equal to the excess, if
any, of:
(a) the benefit that would have been paid under the applicable Pension Plan to such
Participant (or his or her Beneficiary), in the normal form of benefit payable to a single
participant pursuant to the terms of the Pension Plan, based on Adjusted Compensation and
irrespective of the limitations of Sections 401(a)(17) and 415 of the Code, less
(b) the Pension Benefit that is actually payable under the Pension Plan to such Participant
(or his or her Beneficiary), in the normal form of benefit payable to a single participant, based
on compensation as defined in the Pension Plan and taking into account the limitations of
Sections 401(a)(17) and 415 of the Code.
The Supplemental Pension Benefit resulting from (a) less (b) in this Section 3.2 is then further
reduced based upon early commencement and optional form elected, if any. The reduction factors
utilized for an early commencement are equivalent to the early reduction factors provided under the
Pension Plan. For a surviving spouse Beneficiary where the Participant is deceased prior to
commencement of the Pension Plan or Supplemental Pension Plan Benefit the Supplemental Pension
Benefit will be reduced for early commencement, if applicable, and payable as a survivor benefit of
a 50% joint and survivor annuity.
3.3 Amount of Benefit for Additional SERP Participants. The Supplemental Pension
Benefit for an Additional SERP Participant shall be the benefit that would have been paid under the
Pension Plan to such Participant (or his or her Beneficiary), based on Adjusted Compensation and
irrespective of the limitations of Sections 401(a)(17) and 415 of the Code, if the Additional SERP
Participant had been eligible to participate in the Pension Plan had it not been frozen to newly
hired employees (but without regard to the Pension Plan provisions reflecting the limitations of
Sections 401(a)(17) and 415 of the Code).
L-3 Communications Corporation
Supplemental Executive Retirement Plan
3
3.4. Form of Benefit Payments.
(a) Except as otherwise provided in subsections (b) or (c) below, any Supplemental Pension
Benefit to which a Participant is entitled under this SERP shall be paid in the form of a life
annuity.
(b) A Participant may elect not more than 90 days prior to the event that gives rise to the
right to benefit payments to receive any Supplemental Pension Benefit to which he or she is
entitled in the form of a 50%, 75% or 100% joint and survivor annuity, or a life annuity with ten
years certain, each of which shall be the actuarial equivalent of the Participants Supplemental
Pension Benefit payable as a life annuity using a 6% interest rate and the mortality table under
Rev. Rul. 2001-62. Upon the death of a Participant who has commenced a Supplemental Pension
Benefit and has elected a 50%, 75% or 100% joint and survivor annuity or a life annuity with ten
years certain, benefits shall continue to be paid to the Participants Beneficiary, provided that
such Beneficiary survives the Participant.
(c) If the present value of the Participants Supplemental Pension Benefit is $5,000 or less
at the time payments are to commence, the entire amount of such Supplemental Pension Benefit,
payable as a life annuity, shall be paid to the Participant in one payment. The present value of
the Participants Supplement Pension Benefit shall be determined using the actuarial assumptions
under Section 417(e) of the Code as such actuarial assumptions are incorporated in the Pension Plan
and in effect on the date of payment.
3.5 Time of Benefit Payments.
(a) Except as otherwise provided in subsection (b) or (c) below, a Supplemental Pension
Benefit to which a Participant is entitled under this SERP shall be payable on the later of
Participants termination of employment date or the Participants earliest retirement date under
the applicable Pension Plan. The Participants earliest retirement date under the applicable
Pension Plan shall mean the earliest date on which the Participant may begin to receive payment of
his Pension Benefit.
(b) If the Supplemental Pension Benefit becomes payable due to termination of employment
(other than due to death), the first payment shall be made on the date that is six months following
the termination of employment date. In such case, the amount of Supplemental Pension Benefit shall
be determined as of the termination of employment date but actuarially increased to reflect the
six-month delay in payment using the actuarial factors set forth in Section 3.4(b) or (c) (as
applicable) or, with respect to a Supplemental Pension Benefit payable in the form set forth in
Section 3.4(a), the same actuarial assumptions provided for under Section 3.4(b).
(c) Notwithstanding the foregoing, if a Participant elects on or after January 1, 2008 and on
or before December 31, 2008, in accordance with Notice 2007-86, 2007-46 IRB 990, the date on which
benefit payments are to commence, payment of his or her Supplemental Pension Benefit shall be paid
in accordance with such election. Such election will be effective
L-3 Communications Corporation
Supplemental Executive Retirement Plan
4
only if it applies to amounts that would not otherwise be payable in 2008 and does not cause any
amount to be paid prior to January 1, 2009.
3.6. Payment on Change of Control.
(a) Notwithstanding any other provision of this SERP to the contrary, in the event of a Change
of Control, a Participant who has not begun receiving benefits under this SERP and either (1) has a
vested right to a Pension Benefit under the terms of the Pension Plan at the time of the Change of
Control or (2) in the case of an Additional SERP Participant has completed five years of service
with the Company at the time of the Change of Control shall be entitled to receive a Supplemental
Pension Benefit in the amount determined under Section 3.2 or 3.3 or Appendix B-1 or B-2, in each
case as of the date immediately preceding the Change of Control, which benefit shall be paid in a
lump sum within 60 days following the date of the Change of Control. A Participant who began to
receive benefits under this SERP prior to a Change of Control shall continue to receive payment of
benefits in the same amount and in the same form as such benefits were paid prior to the Change of
Control. The lump sum value of the Participants Supplement Pension Benefit shall be determined
using the actuarial assumptions under Section 417(e) of the Code as such actuarial assumptions are
incorporated in the Pension Plan and in effect on the day of payment.
(b) For purposes of this SERP, a Change in Control shall be deemed to occur upon a Section
409A Change of Control Event that also constitutes one or more of the following:
(1) The acquisition by any person or group (including a group within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the Exchange Act)),
other than Holdings or any of its subsidiaries, of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of a majority of the combined voting power of Holdings
then outstanding voting securities, other than by any employee benefit plan maintained by the
Company;
(2) The sale of all or substantially all of the assets of Holdings and its subsidiaries taken
as a whole; or
(3) The election, including the filling of vacancies, during any period of 24 months or less,
of 50 percent or more of the members of the Board of Directors of Holdings without the approval of
Continuing Directors, as constituted at the beginning of such period. Continuing Directors shall
mean any director of Holdings who either (i) is a member of the Board on July 1, 1997, or (ii) is
nominated for election to the Board by a majority of the Board which is comprised of directors who
were, at the time of such nomination, Continuing Directors.
3.7. Forfeiture of Benefits.
(a) Notwithstanding any other provision of this SERP to the contrary, a Participant shall
forfeit any and all benefits under this SERP (including benefits that are to be paid in the future
and benefits that have already commenced payment) if the Participant (1) is
L-3 Communications Corporation
Supplemental Executive Retirement Plan
5
dismissed for Cause, (2) becomes employed by another employer (or becomes self-employed) in
substantial competition with a Participating Company, or (3) engages in conduct detrimental or
contrary to the best interests of a Participating Company. Cause means an Employees:
(1) intentional failure to perform reasonably assigned duties;
(2) dishonesty or willful misconduct in the performance of duties;
(3) engaging in a transaction in connection with the performance of duties to the Company or
its affiliates which transaction is adverse to the interests of the Company and is engaged in for
personal profit or;
(4) willful violation of any law, rule or regulation in connection with the performance of
duties (other than traffic violations or similar offenses).
For purposes of this definition, an act, or failure to act, on an Employees part shall be deemed
willful if done, or omitted to be done, by an Employee in bad faith and without reasonable belief
that Employees action or omission was in the best interest of the Company.
(b) The Committee shall have full discretionary authority to make determinations under this
Section 3.7. Any forfeiture determination made by the Committee shall be final and binding. The
Committee may make a retroactive determination that a Participants SERP benefits are forfeited
under this Section 3.7 after payment of SERP benefits has commenced. Such a forfeiture shall be
effective as of the date that the Committee determines the events of forfeiture have occurred. Any
SERP benefits that have been paid after the effective date of the retroactive forfeiture
determination shall be considered a mistaken payment under Section 7.5.
ARTICLE IV
UNFUNDED PLAN
4.1. Unfunded Status of SERP.
(a) This SERP constitutes a contractual promise by each Participating Company to make payments
in the future, and a Participants rights shall be those of a general, unsecured creditor of the
Participating Company. A Participant shall not have any beneficial interest in this SERP.
Notwithstanding the foregoing, to assist each Participating Company in meeting its obligations
under this SERP, the Committee may set aside assets in a trust described in Revenue Procedure
92-64, 1992-2 C.B. 422 (generally known as a rabbi trust), and the Committee may direct that its
obligations under this SERP be satisfied by payments out of such trust or trusts. It is each
Participating Companys intention that this SERP be unfunded for federal income tax purposes and
for purposes of Title I of the Employee Retirement Income Security Act of 1974.
L-3 Communications Corporation
Supplemental Executive Retirement Plan
6
(b) Notwithstanding the above, in the event of a Change of Control, each Participating Company
shall promptly fund all benefits due under this SERP to those Participants who are current
employees or former employees with vested rights of such Participating Company, determined as of
the date of the Change of Control, by making a contribution to an irrevocable trust established to
pay benefits under this SERP.
4.2. Nonalienability of Benefits. A Participants rights to benefit payments under
this SERP shall not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment, or garnishment by creditors of the Participant or his
or her Beneficiary except as otherwise required by law.
ARTICLE V
AMENDMENT OR TERMINATION
5.1. Amendment. The Board, the Compensation Committee of the Board or, to the extent
permitted by Board resolution, any delegate of the Board or Compensation Committee may amend,
modify, suspend or discontinue this SERP at any time; provided, however, that no such amendment,
modification, suspension or discontinuance of the SERP shall have the effect of reducing a
Participants Supplemental Pension Benefit determined as though the Participant had terminated
employment with the Participating Company on the date of the amendment, modification, suspension or
discontinuance.
5.2. Termination. The Board or the Compensation Committee of the Board reserves the
right to terminate this SERP (by amendment to the SERP) at any time and to pay any benefits under
this SERP in a lump sum immediately following such termination or at such time thereafter as it may
determine, provided that any payments on termination of the Plan must comply with the requirements
of Treasury Regulation §1.409A-3(j)(4)(ix).
ARTICLE VI
ADMINISTRATION
6.1. The Committee. This SERP shall be administered by the Compensation Committee of
the Board or such other committee (whether of the Board or of executives of the Company) as may be
designated by the Board to administer this SERP. The Compensation Committee or such other
committee designated by the Board to administer this SERP is referred to in this document as the
Committee.
6.2. Delegation and Reliance. The Committee may delegate to any officer or employee
of the Company the authority to execute and deliver those instruments and documents and to take, or
refrain from taking, all actions deemed necessary, advisable or convenient for the effective
administration of this SERP in accordance with its terms and purposes. The Committee may also
appoint a plan administrator or any other agent and delegate to such administrator or agent such
powers and duties in connection with the administration of the SERP as the Committee may deem
appropriate. In making any determination or in taking or not taking any
L-3 Communications Corporation
Supplemental Executive Retirement Plan
7
action under this SERP, the Committee may obtain and rely upon the advice of experts, including
professional advisors to the Company. No member of the Committee or officer of any Participating
Company who is a Participant may participate in any decision specifically relating to his or her
individual rights or benefits under this SERP.
6.3 Powers of the Committee. The Committee shall administer this SERP in accordance
with its terms. The Committee shall have full discretion to construe and interpret the terms and
provisions of this SERP, which interpretation or construction shall be final and binding on all
parties, including but not limited to the Company, the Participating Companies and any Participant
or Beneficiary. The Committee shall administer this SERP in a uniform and nondiscriminatory manner
and in full accordance with any and all laws applicable to the SERP. The Committee shall have all
powers necessary to administer the SERP, including without limitation, in addition to those powers
set forth above, the following:
(a) to determine whether individuals qualify as the Participants in the SERP;
(b) to determine the amount of benefits payable to Participants and their Beneficiaries;
(c) to maintain all records that may be necessary for the administration of the SERP; and
(d) to make and publish rules and procedures for the administration of the SERP.
6.4. Exculpation and Indemnity. To the extent permitted by applicable law, the
Company shall indemnify and hold harmless the Committee and each member thereof and delegates of
the Committee who are employees of the Company or a Participating Company against any and all
expenses, liabilities and claims, including legal fees to defend against such liabilities and
claims, arising out of their discharge of responsibilities under or incident to the SERP, other
than expenses, liabilities and claims arising out of their willful misconduct. This indemnity shall
not preclude such further indemnities as may be available under insurance purchased by the Company
or provided by the Company under any bylaw, agreement or otherwise, as such indemnities are
permitted under applicable law.
6.5. Facility of Payment. If a minor, person declared incompetent, or person
incapable of handling the disposition of his or her property, is entitled to receive a benefit,
make an application, or make an election hereunder, the Committee may direct that such benefits be
paid to, or such application or election be made by, the guardian, legal representative, or person
having the care and custody of such minor, incompetent, or incapable person. Any payment made,
application allowed, or election implemented in accordance with this Section shall completely
discharge the Participating Company and the Committee from all liability with respect thereto.
L-3 Communications Corporation
Supplemental Executive Retirement Plan
8
6.6. Proof of Claims. The Committee may require proof of the death, disability,
competency, minority, or incapacity of any Participant or Beneficiary and of the right of a person
to receive any benefit or make any application or election.
6.7. Claim Procedure.
(a) Any person claiming a benefit, requesting an interpretation or ruling under this SERP, or
requesting information under this SERP shall present the request in writing to the Committee, which
shall respond in writing within 90 days. The Committee may, however, extend the reply period for
an additional ninety 90 days for special circumstances. If the claim or request is denied, the
written notice of denial shall state (1) the reason for denial, with specific reference to the plan
provisions on which the denial is based, (2) a description of any additional material or
information required and an explanation of why it is necessary, and (3) an explanation of the
claims review procedure.
(b) Within 60 days after the receipt by a claimant of the written decision described above or
the expiration of the claims review period described above including any extension, the claimant
may request review by giving written notice to the Committee. The claim or request shall be
reviewed by the Committee, which may, but shall not be required to, grant the claimant a hearing.
On review, the claimant may have representation, examine pertinent documents, and submit issues and
comments in writing. If the claimant does not request a review within such sixty-day period, he or
she shall be barred from challenging the original determination.
(c) The decision on review shall normally be made within 60 days after the Committees receipt
of a request for review. If an extension of time is required for a hearing or other special
circumstances, the claimant shall be notified and the time limit shall be 120 days. The decision
shall be in writing and shall state the reason and the relevant plan provisions. All decisions on
review shall be final and binding on all parties concerned.
(d) In the event of any dispute over benefits under this SERP, all remedies available to the
disputing individual under this Section 6.7 must be exhausted, within the specified deadlines,
before legal recourse of any type is sought.
ARTICLE VII
GENERAL PROVISIONS
7.1. No Guarantee of Employment. This SERP shall in no way obligate any Participating
Company to continue the employment of a Participant with the Participating Company or limit the
right of the Participating Company at any time and for any reason to terminate the Participants
employment. In no event shall the SERP constitute an employment contract between the Participating
Company and a Participant or in any way limit the right of the Participating Company to change a
Participants compensation or other benefits.
L-3 Communications Corporation
Supplemental Executive Retirement Plan
9
7.2. Other SERP Benefits. Amounts under this SERP shall not be treated as
compensation for purposes of calculating the amount of a Participants benefits or contributions
under any pension, retirement, or other plan maintained by the Participating Company (or a
subsidiary or division of the Participating Company), except as provided in such other plan.
7.3. Tax Withholding. To the extent required by law, the Participating Company shall
withhold from benefit payments hereunder any Federal, state, or local income or payroll taxes
required to be withheld and shall furnish the recipient and the applicable government agency or
agencies with such reports, statements, or information as may be legally required.
7.4. Missing Payees. If all or portion of a Participants SERP benefit becomes
payable and the Committee after a reasonable search cannot locate the Participant (or his or her
Beneficiary if such Beneficiary is entitled to payment), the Committee may forfeit the
Participants SERP benefit. If the Participant (or his or her Beneficiary) subsequently presents
a valid claim for benefits to the Committee, the Committee shall restore and pay the appropriate
SERP benefit.
7.5. Mistaken Payment. No Participant or Beneficiary shall have any right to any
payment made in error or in contravention of the terms of the SERP, the Code, or ERISA. The
Committee shall have full rights under the law to recover any such mistaken payment, and the right
to recover attorneys fees and other costs incurred with respect to such recovery. Recovery shall
be made from future SERP payments, or by any other available means.
7.6. Receipt and Release for Payments. Any payment to a Participant, Beneficiary, or
to any such persons legal representative, parent, guardian, or any person or entity specified in
Section 6.5, shall be in full satisfaction of all claims that can be made under the SERP against
the Participating Company. The Participating Company may require such Participant, Beneficiary,
legal representative, or any other person or entity described in Section 6.5, as a condition
precedent to such payment, to execute a receipt and release thereof in such form as shall be
determined by the Participating Company.
7.7. Successors. The provisions of this SERP shall be binding upon and inure to the
benefit of each Participating Company, its successors, and its assigns, and to the Participants and
their heirs, executors, administrators, and legal representatives.
7.8. Governing Law. The validity of this SERP and any of its provisions shall be
construed, administered, and governed in all respects under and by the laws of the State of New
York (including its statute of limitations and all substantive and procedural law, and without
regard to its conflict of laws provisions), except as to matters of Federal law. If any provision
of this instrument shall be held by a court of competent jurisdiction to be invalid or
unenforceable, the remaining provisions hereof shall continue to be fully effective.
L-3 Communications Corporation
Supplemental Executive Retirement Plan
10
IN WITNESS WHEREOF, this L-3 Communications Corporation Supplemental Executive Retirement Plan
is hereby restated as of the dates set forth in the last sentence of Article I.
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L-3 COMMUNICATIONS CORPORATION
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Date: 12/22/2008 |
By: |
/s/
Kenneth W. Manne |
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Kenneth W. Manne |
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Vice President Human Resources. |
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L-3 Communications Corporation
Supplemental Executive Retirement Plan
11
EX-10.25
Exhibit 10.25
L-3 COMMUNICATIONS CORPORATION
DEFERRED COMPENSATION PLAN II
(Effective January 1, 2009)
ARTICLE I
PURPOSE AND INTENT OF THE PLAN
1. Purpose. The purpose of this L-3 Communications Corporation Deferred Compensation
Plan II is to provide certain key management employees of the Company with the opportunity to elect
to defer receipt of (a) a portion of their Base Salary, and (b) all or a portion of
their Incentive Bonus. Elections to defer Base Salary and Incentive Bonuses and distributions of
such Deferred Base Salary and Deferred Incentive Bonuses that have been made on or after January 1,
2005 and before the effective date of this Plan have been made in accordance with the terms of this
Plan as in effect on January 1, 2009.
2. Intent. The Plan is intended to comply with the requirements of Section 409A of the
Code and shall be interpreted in a manner that is consistent with such intent. The Plan also is
intended to be a top-hat plan under the Employee Retirement Income Security Act of 1974, as amended
and shall be interpreted in a manner consistent with such intent.
ARTICLE II
DEFINITIONS
Unless the context indicates otherwise, the following words and phrases shall have the
meanings hereinafter indicated:
Base Salary An Eligible Employees annual base salary.
Beneficiary The person or persons designated by the Participant in his or her most
recent beneficiary designation made in accordance with procedures prescribed by the Company to
receive any benefits payable under this Plan as a result of the Participants death. The
Participant may change his or her Beneficiary designation at any time by making a subsequent
designation in accordance with procedures prescribed by the Company. If no Beneficiary has been
designated, or no designated Beneficiary survives the Participant, Beneficiary means the
Participants estate.
Board The Board of Directors of L-3 Communications Corporation.
Code The Internal Revenue Code of 1986, as amended.
Committee The committee described in Article VIII, Section 1, which administers the Plan.
Company L-3 Communications Corporation, including its divisions and subsidiaries.
Deferral Account The bookkeeping account maintained by the Company for each
Participant which is credited with any (a) Deferred Base Salary and Deferred Incentive
Bonus made on behalf of the Participant, and (b) earnings on those amounts.
Deferral Agreement The annual agreement executed or otherwise acknowledged by an
Eligible Employee under procedures prescribed by the Company under which the Eligible Employee
elects to defer Base Salary and/or Incentive Bonus for a calendar year.
Deferred Base Salary The amount of Base Salary deferred and credited to a
Participants Deferral Account for a calendar year.
Deferred Incentive Bonus The amount of Incentive Bonus deferred and credited to a
Participants Deferral Account for a calendar year.
Eligible Employee An employee who is subject to U.S. income taxes for a calendar
year and who is eligible for an MIB award for such calendar year and whose Base Salary for a
calendar year equals or exceeds the dollar amount in Code Section 414(q) shall be an Eligible
Employee for such year. The Committee shall limit participation in this Plan to employees whom the
Committee believes to be a select group of management or highly compensated employees within the
meaning of Title I of the Employee Retirement Income Security Act of 1974, as amended. Whether an
individual is an Eligible Employee shall be determined each calendar year.
Incentive Bonus The incentive bonus amount awarded to an Eligible Employee for a
calendar year under the MIB.
MIB The formal or informal program of the Company under which an employee receives
an annual incentive bonus.
Open Enrollment Period The period of time during which an Eligible Employee may
make an election to participate in the Plan for a calendar year as determined by the Company. The
Open Enrollment Period for an Employee who is a Participant shall end no later than December 31 of
the year preceding the calendar year for which the Deferral Agreement is made. The Open Enrollment
Period for an employee who is first eligible to participate in the Plan mid-year either because he
or she is newly hired or newly promoted shall begin on the date such individual is first notified
by the Company that he or she is eligible to participate and shall end 30 days after such date.
Participant An Eligible Employee who enters into a Deferral Agreement. An Eligible
Employee who enters into a Deferral Agreement shall continue to participate in this Plan until his
or her Deferral Account balance has been fully distributed.
Plan This L-3 Communications Corporation Deferred Compensation Plan II.
L-3 Communications Corporation
Deferred Compensation Plan II
2
Section 409A Change of Control Event A change in ownership or effective control of
Holdings, or in the ownership of a substantial portion of the assets of Holdings, within the
meaning of Section 409A(a)(2)(A)(v) of the Code.
Separate from Service /Separation from Service; Separates from Service An Eligible
Employee separates from service or experiences a separation from service if he or she dies,
retires, or otherwise terminates employment as defined in Treasury Regulation §1.409A-1(h).
Specified Employee A specified employee as defined in Treasury Regulation
§ 1.409A-1(i).
Unforeseeable Emergency An unforeseeable emergency as defined in Treasury
Regulation § 1.409A-3(i)(3).
U.S. Prime Rate The U.S. prime rate as reported in the Wall Street Journal or such
other source as may be designated by the Committee.
ARTICLE III
ELECTION OF DEFERRED COMPENSATION
1. Deferral Agreement.
(a) An Eligible Employee for a calendar year may elect to defer a portion of his or her
Base Salary and/or Incentive Bonus payable for services performed during a calendar year by
executing or otherwise acknowledging under procedures prescribed by the Company a Deferral
Agreement during the Open Enrollment Period.
(b) An Eligible Employees Deferral Agreement shall be irrevocable for the calendar
year for which it is made. Such Deferral Agreement shall not continue in effect for any
succeeding calendar year.
(c) An individual who continues to be an Eligible Employee for a succeeding calendar
year may make a new Deferral Agreement with respect to such succeeding calendar year by
executing or otherwise acknowledging under procedures prescribed by the Company a new
Deferral Agreement during the Open Enrollment Period for such succeeding calendar year.
(d) Notwithstanding subsection (b) above, an Eligible Employee may revoke his or her
Deferral Agreement in the event of an Unforeseeable Emergency, his or her disability as
defined in Treasury Regulation § 1.409A-3(j)(4)(xii), or following a financial hardship
distribution pursuant to Treasury Regulation § 1.401(k)-1(d)(3) with the consent of the
Company and subject to such procedures as the Company shall proscribe. If an Eligible
Employee revokes his or her Deferral Agreement, then he or she may not make a new Deferral
Agreement until the next Open Enrollment Period for the succeeding calendar year.
L-3 Communications Corporation
Deferred Compensation Plan II
3
2. Amount of Deferral. An Eligible Employee may elect to defer (a) up to 50
percent of his or her Base Salary for a calendar year, and (b) up to 100 percent of his or
her Incentive Bonus for a calendar year; provided, however, that to be eligible to defer all or a
portion of his or her Incentive Bonus for a calendar year, the Incentive Bonus for such calendar
year must be at least $10,000 and the Deferred Incentive Bonus for such calendar year must be at
least $5,000.
3. Time when Deferral Agreement Takes Effect. An Eligible Employees Deferral
Agreement shall take effect on January 1 of the calendar year following the year in which the
Deferral Agreement is made; provided, that the Deferral Agreement of an individual who becomes an
Eligible Employee mid-year and makes a Deferral Agreement during the applicable Open Enrollment
Period shall take effect as soon as administratively possible after such Deferral Agreement is
executed or otherwise acknowledged by the Eligible Employee under the procedures prescribed by the
Company. An individual shall first become eligible to participate in the Plan upon being notified
by Company that he or she is an Eligible Employee.
ARTICLE IV
DEFERRAL ACCOUNT
1. Establishment of Deferral Account. A Deferral Account shall be established for
each Participant, which shall be credited with his or her Deferred Base Salary, Deferred Incentive
Bonus and earnings.
2. Crediting of Deferred Amounts. Deferred Base Salary and Deferred Incentive Bonus
shall be credited to a Participants Deferral Account as of the fifteenth (15th) day (or
if such day is not a business day, the nearest prior business day) of the month following the date
on which such amounts would have been paid to the Participant if no Deferral Agreement were in
effect.
3. Crediting of Earnings. Deferred Base Salary and Deferred Incentive Bonus shall be
credited with earnings beginning on the first day (or if such day is not a business day, the next
following business day) of the month following the month in which such amounts would have been paid
to the Participant if no Deferral Agreement were in effect and ending on the business day
immediately preceding the day on which such amounts are distributed or withdrawn. Earnings shall
be compounded and credited to a Participants Deferral Account each day based on the U.S. Prime
Rate in effect on the first business day of the calendar quarter preceding the date on which the
earnings are credited.
4. Vesting of Deferral Account Balance. A Participants Deferral Account balance
shall be fully vested at all times.
L-3 Communications Corporation
Deferred Compensation Plan II
4
ARTICLE V
PAYMENT OF BENEFITS
1. General. The Companys liability to pay benefits to a Participant or Beneficiary
under this Plan shall be measured by, and in no event shall exceed, the Participants Deferral
Account balance. All benefit payments shall be made in cash.
2. Payment of Deferral Account Balance.
(a) At the time an Eligible Employee executes or otherwise acknowledges under
procedures prescribed by the Company a Deferral Agreement for a calendar year, he or she
shall irrevocably elect the date on which his or her Deferred Base Salary and Deferred
Incentive Bonus for that calendar year (as adjusted for earnings) shall be paid.
(b) The Participant may elect that his or her Deferred Base Salary and Deferred
Incentive Bonus for the calendar year be paid (i) on Separation from Service for
any reason or (ii) on the first business day of any calendar year that is at least
five full calendar years following the calendar year for which the Deferral Agreement is
made.
(c) Notwithstanding subsection (b) above, if a Participant Separates from Service for
any reason prior to the date the Participant elected to have his or her Deferred Base Salary
and Deferred Incentive Bonus paid out, such amount shall be paid on the Participants
Separation from Service.
(d) Notwithstanding any other provision in this Plan to the contrary, any payment to a
Specified Employee due to Separation from Service for any reason other than death shall be
delayed for six months following the date the payment is otherwise due. Earnings shall
continue to be credited to the Specified Employees Deferral Account in accordance with
Article IV, Section 3 above during the six-month delay period.
(e) If a Participant fails to make an election with respect to the time of payment of
his or her Deferred Base Salary and Deferred Incentive Bonus for a calendar year, such
amount shall be paid on the Participants Separation from Service, or, with respect to a
Participant who is a Specified Employee, the date that is six months following the
Participants Separation from Service.
(f) Any Deferred Base Salary and Deferred Incentive Bonus to be paid on Separation from
Service pursuant to subsection (b), (c) or (e) above shall be paid on or before December 31
of the year in which the Participants Separation from Service occurs or the 15th
day of the third month following the Participants Separation from Service date, whichever
is later.
3. Form of Payment.
(a) At the time an Eligible Employee executes or otherwise acknowledges under
procedures prescribed by the Company a Deferral Agreement for a calendar year,
L-3 Communications Corporation
Deferred Compensation Plan II
5
he or she shall irrevocably elect the form of payment of his or her Deferral Account
balance from among the following options:
(1) A lump sum, or
(2) Annual payments for a period of up to 20 years, as designated by the
Participant. The amount of each annual payment shall be determined by dividing the
Participants Deferral Account balance on the date such payment is processed by the
number of annual payments remaining in the designated installment period. If the
total value of the Participants Deferral Account balance is less than $5,000 at the
time an installment payment is due, the entire Deferral Account balance shall be
paid to the Participant (or Beneficiary) in a lump sum.
(b) A Participants election as to the form of payment shall be irrevocable and may not
be changed. In the event a Participant fails to timely elect a form of payment, The
Participant shall be deemed to have elected a lump sup form of payment, which deemed
election shall be irrevocable and may not be changed.
4. Death Benefits. Upon the death of a Participant, his or her unpaid Deferral
Account balance, if any, will be paid to the Participants Beneficiary in accordance with the
election made by the Participant, or, if the Participant fails to make a proper election form, in a
lump sum. Such payment shall be made on or before the later of December 31 of the year in which
the Participants death occurs or the 15th day of the third month following the
Participants date of death.
5. Distribution on Account of Unforeseeable Emergency. A Participant, or a
Beneficiary upon the Participants death, may request a distribution or all or a portion of his or
her Deferral Account balance on account of an Unforeseeable Emergency, which request must be
approved by the Company and shall be subject to such procedures as the Company shall proscribe. A
distribution on account of an Unforeseeable Emergency shall meet the requirements of Treasury
Regulation § 1.409A-3(i)(3).
6. Acceleration upon Change in Control.
(a) Notwithstanding any other provision of this Plan, the Deferral Account balance of
each Participant shall be distributed in a single lump sum within 60 calendar days following
a Change in Control.
(b) For purposes of this Plan, a Change in Control shall be deemed to occur upon a
Section 409A Change of Control Event that also constitutes one or more of the following:
(1) The acquisition by any person or group (including a group within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
Exchange Act)), other than L-3 Communications Holdings, Inc. (Holdings) or any of its
subsidiaries, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of a majority of the combined voting
L-3 Communications Corporation
Deferred Compensation Plan II
6
power of Holdings then outstanding voting securities, other than by any employee
benefit plan maintained by the Company;
(2) The sale of all or substantially all of the assets of Holdings and its subsidiaries
taken as a whole; or
(3) The election, including the filling of vacancies, during any period of 24 months or
less, of 50 percent or more of the members of the Board of Directors of Holdings without the
approval of Continuing Directors, as constituted at the beginning of such period.
Continuing Directors shall mean any director of Holdings who either (i) is a member of the
Board on July 1, 1997, or (ii) is nominated for election to the Board by a majority of the
Board which is comprised of directors who were, at the time of such nomination, Continuing
Directors.
7. Acceleration of or Delay in Payments. The Committee, in its sole and absolute
discretion, may accelerate the time or form of payment of a benefit owed to a Participant, provided
such acceleration is permitted under Treasury Regulation § 1.409A-3(j)(4). The Committee may also,
in its sole and absolute discretion, delay the time for payment of a benefit owed to a Participant,
provided such delay is permitted under Treasury Regulation §1.409A-2(b)(7). If the Plan receives a
domestic relations order (within the meaning of Code Section 414(p)(1)(B)) directing that all or a
portion of a Participants Accounts be paid to an alternate payee, any amounts to be paid to the
alternate payee(s) shall be paid in a single lump sum.
8. Change of Law. Notwithstanding anything to the contrary herein, if the Committee
determines in good faith, based on consultation with counsel, that the federal income tax treatment
or legal status of this Plan has or may be adversely affected by a change in the Internal Revenue
Code, Title I of the Employee Retirement Income Security Act of 1974, or other applicable law, or
by an administrative or judicial construction thereof, the Committee may direct that the Deferral
Account balances of affected Participants or of all Participants be distributed as soon as
practicable after such determination is made, to the extent deemed necessary or advisable by the
Committee and permitted by applicable law.
ARTICLE VI
PARTICIPANTS RIGHTS
1. Unfunded Status of Plan. This Plan constitutes a contractual promise by the
Company to make payments in the future, and a Participants rights shall be those of a general,
unsecured creditor of the Company. A Participant shall not have any beneficial interest in this
Plan. Notwithstanding the foregoing, to assist the Company in meeting its obligations under this
Plan, the Company may set aside assets in a trust described in Revenue Procedure 92-64, 1992-2 C.B.
422 (generally known as a rabbi trust), and the Company may direct that its obligations under
this Plan be satisfied by payments out of such trust or trusts. It is the Companys intention that
this Plan be unfunded for federal income tax purposes and for purposes of Title I of the Employee
Retirement Income Security Act of 1974.
L-3 Communications Corporation
Deferred Compensation Plan II
7
2. Nonalienability of Benefits. A Participants rights to benefit payments under this
Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, attachment, or garnishment by creditors of the Participant or the
Participants Beneficiary, except as set forth in Article VI, Section 7(a) except as otherwise
required by law.
ARTICLE VII
AMENDMENT OR TERMINATION
1. Amendment. The Board or the Compensation Committee of the Board or, to the extent
permitted by Board resolution, any delegate of the Board or Compensation Committee, may amend,
modify, suspend or discontinue this Plan at any time; provided, however, that no such amendment,
modification, suspension or discontinuance shall have the effect of reducing a Participants
Deferral Account balance or postponing the time when a Participant is entitled to receive a
distribution of his or her Deferral Account balance.
2. Termination. The Board or the Compensation Committee of the Board reserves the
right to terminate this Plan (by Plan amendment) at any time and to pay all Participants their
Deferral Account balances in a lump sum immediately following such termination or at such time
thereafter as the Board or the Compensation Committee of the Board may determine, provided that any
payments on termination of the Plan must comply with the requirements of Treasury Regulation
§1.409A-3(j)(4)(ix).
ARTICLE VIII
ADMINISTRATION
1. The Committee. This Plan shall be administered by the Compensation Committee of
the Board or such other committee (whether of the Board or of executives of the Company) as may be
designated by the Board to administer this Plan. The Compensation Committee or such other
committee designated by the Board to administer this Plan is referred to in this document as the
Committee.
2. Delegation and Reliance. The Committee may delegate to any officer or employee of
the Company the authority to execute and deliver those instruments and documents and to take, or
refrain from taking, all actions deemed necessary, advisable or convenient for the effective
administration of this Plan in accordance with its terms and purposes. The Committee may also
appoint a plan administrator or any other agent and delegate to such administrator or agent such
powers and duties in connection with the administration of the Plan as the Committee may deem
appropriate. In making any determination or in taking or not taking any action under this Plan, the
Committee may obtain and rely upon the advice of experts, including professional advisors to the
Company. No member of the Committee or officer or employee of the Company (or any of its divisions
or subsidiaries) who is a Participant may participate in any decision specifically relating to his
or her individual rights or benefits under this Plan.
L-3 Communications Corporation
Deferred Compensation Plan II
8
3. Powers of the Committee. The Committee shall administer this Plan in accordance
with its terms. The Committee shall have full discretion to construe and interpret the terms and
provisions of this Plan, which interpretation or construction shall be final and binding on all
parties, including but not limited to the Company and any Participant or Beneficiary. The Committee
shall administer this Plan in a uniform and nondiscriminatory manner and in full accordance with
any and all laws applicable to the Plan. The Committee shall have all powers necessary to
administer the Plan, including without limitation, in addition to those powers set forth above, the
following:
(a) to determine whether individuals qualify as the Participants in this Plan;
(b) to determine the amount of benefits payable to Participants and their Beneficiaries;
(c) to maintain all records that may be necessary for the administration of this Plan; and
(d) to make and publish rules and procedures for the administration of this Plan.
4. Exculpation and Indemnity. To the extent permitted by applicable law, the Company
shall indemnify and hold harmless the Committee and each member thereof and delegates of the
Committee who are employees of the Company against any and all expenses, liabilities and claims,
including legal fees to defend against such liabilities and claims, arising out of their discharge
of responsibilities under or incident to the Plan, other than expenses, liabilities and claims
arising out of their willful misconduct. This indemnity shall not preclude such further indemnities
as may be available under insurance purchased by the Company or provided by the Company under any
bylaw, agreement or otherwise, as such indemnities are permitted under applicable law.
5. Facility of Payment. If a minor, person declared incompetent, or person incapable
of handling the disposition of his or her property, is entitled to receive a benefit, make an
application, or make an election hereunder, the Committee may direct that such benefits be paid to,
or such application or election be made by, the guardian, legal representative, or person having
the care and custody of such minor, incompetent, or incapable person. Any payment made,
application allowed, or election implemented in accordance with this Section shall completely
discharge the Company and the Committee from all liability with respect thereto.
6. Proof of Claims. The Committee may require proof of the death, disability,
competency, minority, or incapacity of any Participant or Beneficiary and of the right of a person
to receive any benefit or make any application or election.
7. Claim Procedure.
(a) Any person claiming a benefit, requesting an interpretation or ruling under this Plan, or
requesting information under this Plan shall present the request in writing to the Committee, which
shall respond in writing within 90 days. The Committee may, however, extend the reply period for
an additional ninety 90 days for special circumstances. If the claim or
L-3 Communications Corporation
Deferred Compensation Plan II
9
request is denied, the written notice of denial shall state (1) the reason for denial, with
specific reference to the plan provisions on which the denial is based, (2) a description of any
additional material or information required and an explanation of why it is necessary, and (3) an
explanation of the claims review procedure.
(b) Within 60 days after the receipt by a claimant of the written decision described above or
the expiration of the claims review period described above including any extension, the claimant
may request review by giving written notice to the Committee. The claim or request shall be
reviewed by the Committee, which may, but shall not be required to, grant the claimant a hearing.
On review, the claimant may have representation, examine pertinent documents, and submit issues and
comments in writing. If the claimant does not request a review within such sixty-day period, he or
she shall be barred from challenging the original determination.
(c) The decision on review shall normally be made within 60 days after the Committees receipt
of a request for review. If an extension of time is required for a hearing or other special
circumstances, the claimant shall be notified and the time limit shall be 120 days. The decision
shall be in writing and shall state the reason and the relevant plan provisions. All decisions on
review shall be final and binding on all parties concerned.
(d) In the event of any dispute over benefits under this Plan, all remedies available to the
disputing individual under this Section 7 must be exhausted, within the specified deadlines, before
legal recourse of any type is sought.
ARTICLE IX
GENERAL PROVISIONS
1. No Guarantee of Employment. This Plan shall in no way obligate the Company (or any
of its affilites) to continue the employment of a Participant with the Company (or its affiliates)
or limit the right of the Company (or its affiliates) at any time and for any reason to terminate
the Participants employment. In no event shall this Plan constitute an employment contract
between the Company (or its affiliates) and a Participant or in any way limit the right of the
Company (and its affiliates) to change a Participants compensation or other benefits.
2. Other Plan Benefits. No amount credited to a Participants Deferral Account under
this Plan shall be treated as compensation for purposes of calculating the amount of a
Participants benefits or contributions under any pension, retirement, or other plan maintained by
the Company, except as provided in such other plan.
3. Tax Withholding; Section 409A. To the extent required by law, the Company shall
withhold from benefit payments hereunder any Federal, state, or local income or payroll taxes
required to be withheld and shall furnish the recipient and the applicable government agency or
agencies with such reports, statements, or information as may be legally required. This Plan shall
be interpreted in a manner that is intended to ensure that any such payments or benefits shall not
be subject to any tax or interest under Section 409A of the Code; provided, that neither
the Company, the Committee nor any employee or representative thereof shall have any
L-3 Communications Corporation
Deferred Compensation Plan II
10
liability to a Participant or a Beneficiary with respect thereto. Each payment made under
this Plan shall be designated as a separate payment within the meaning of Section 409A of the
Code.
4. Missing Payees. If all or portion of a Participants Plan benefit becomes payable
and the Committee after a reasonable search cannot locate the Participant (or his or her
Beneficiary if such Beneficiary is entitled to payment), the Committee may forfeit the
Participants Plan benefit. If the Participant (or his or her Beneficiary) subsequently presents
a valid claim for benefits to the Committee, the Committee shall restore and pay the appropriate
Plan benefit.
5. Mistaken Payment. No Participant or Beneficiary shall have any right to any
payment made in error or in contravention of the terms of this Plan, the Code, or ERISA. The
Committee shall have full rights under the law to recover any such mistaken payment, and the right
to recover attorneys fees and other costs incurred with respect to such recovery. Recovery shall
be made from future Plan payments, or by any other available means.
6. Receipt and Release for Payments. Any payment to a Participant, Beneficiary, or to
any such persons legal representative, parent, guardian, or any person or entity specified in
Section 5 of Article VIII shall be in full satisfaction of all claims that can be made under the
Plan against the Company (and its affiliates). The Company may require such Participant,
Beneficiary, legal representative, or any other person or entity specified in Section 5 of Article
VIII, as a condition precedent to such payment, to execute a receipt and release thereof in such
form as shall be determined by the Company.
7. Successors. The provisions of this Plan shall be binding upon and inure to the
benefit of the Company, its successors, and its assigns, and to the Participants and their heirs,
executors, administrators, and legal representatives.
8. Governing Law. The validity of this Plan and any of its provisions shall be
construed, administered, and governed in all respects under and by the laws of the State of New
York (including its statute of limitations and all substantive and procedural law, and without
regard to its conflict of laws provisions), except as to matters of Federal law. If any provision
of this instrument shall be held by a court of competent jurisdiction to be invalid or
unenforceable, the remaining provisions hereof shall continue to be fully effective.
IN WITNESS WHEREOF, this L-3 Communications Corporation Deferred Compensation Plan II is
hereby adopted effective as of January 1, 2009.
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L-3 COMMUNICATIONS CORPORATION |
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Date:
12/19/2008 |
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By: |
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/s/ Kenneth W. Manne |
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Title:
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Vice President, Human Resources |
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L-3 Communications Corporation
Deferred Compensation Plan II
11
EX-10.26
Exhibit 10.26
MPRI Long Term Deferred Incentive Plan
(Restated Effective January 1, 2009)
1. Introduction.
The MPRI division of L-3 Services, Inc. offers the MPRI Long Term Deferred Incentive Plan for
the individuals listed on Appendix A. This plan document reflects the terms of the Plan and is
effective January 1, 2009.
The Plan is frozen. The last and final Annual Award Credit was made on January 1, 2007.
2. Definitions.
(a) Account means an account established solely for recordkeeping purposes on behalf of each
Participant to reflect the Annual Bonus Award.
(b) Annual Award Credit means the annual amount, if any, credited to the Account maintained
for each Participant based on the formula set forth in Section 3.
(c) Board means the Board of Directors of L-3 Services, Inc.
(d) Code means the Internal Revenue Code of 1986, as amended.
(e) Committee means the committee described in Section 7, which administers this Plan.
(f) Company means the MPRI division of L-3 Services, Inc., and its predecessors.
(g) EBIT means the earnings before interest and taxes for the Company for each twelve-month
period beginning on July 1 and ending on June 30 or such other period specified in the applicable
Employment Agreement.
(h) Employment Agreement means, with respect to each Participant, the employment
agreement(s) entered into between each Participant and the Company on the date(s) indicated on
Appendix A.
(i) ERISA means the Employee Retirement Income Security Act of 1974, as amended.
(j) Participant means the individuals listed on Appendix A.
(k) Plan means this MPRI Long Term Deferred Incentive Plan as restated effective January 1,
2009.
3. Annual Award Credit.
(a) Amount of Annual Award Credit. No Annual Award Credits have been, or will be,
made after January 1, 2007. The amount of a Participants Annual Award Credit made prior to that
date was determined under the terms of the Participants Employment Agreement and was conditioned
on the Companys EBIT exceeding the amount set forth in the Employment Agreement. The Annual
Award Credit, if any, for a twelve-month period was credited to the Participants Account on the
July 1st immediately following the end of such twelve-month period. The Annual Award
Credit, if any, for a period of less than twelve months was credited to the Participants Account
on the day immediately following the end of the period.
(b) Interest on Annual Award Amount. Each Annual Award Amount shall be credited with
interest beginning on the day (or if such day is not a business day, the next following business
day) on which the Annual Award Amount was credited to the Participants Account and ending on the
last business day of the month immediately preceding the day on which such Annual Award Amount is
distributed. Earnings shall be compounded and credited to a Participants Deferral Account each
day based on the U.S. Prime Rate in effect on the first business day of each calendar quarter
preceding the date on which the earnings are credited as reported in the Wall Street Journal or
such other source as may be designated by the Committee.
4. Vesting.
The Annual Award Credit for each year shall become vested at the rate of one-third on the
first anniversary of the date the Annual Award Credit is credited to the Participants Account,
one-third on the second anniversary of the date the Annual Award Credit is credited to the
Participants Account, and one-third on the third anniversary of the date the Annual Award Credit
is credited to the Participants Account.
5. Payment of Annual Award Credit.
(a) Time of Payment. Each Annual Award Credit will be distributed on termination of
employment or a specified date as elected by the Participant in accordance with Notice 2007-86,
2007- 46 IRB 990, which election is irrevocable. In the event that a Participant failed to make a
valid election with respect to an Annual Award Credit in accordance with Notice 2007-86, 2007- 46
IRB 990, the Participant shall be deemed to have elected to receive such Annual Award Credit on
termination of employment. With respect to each Annual Award Credit that is payable on
termination of employment, the amount payable shall be paid on the date that is six months
following the termination of employment date.
2
(b) Form of Payment. Each Annual Award Credit will be distributed either in a lump
sum or annual installments over five, ten, fifteen or twenty years as elected by the Participant in
accordance with Notice 2007-86, 2007- 46 IRB 990, which election is irrevocable. In the event that
a Participant failed to make a valid election with respect to an Annual Award Credit in accordance
with Notice 2007-86, 2007- 46 IRB 990, the Participant shall be deemed to have elected to receive
such Annual Award Credit in a lump sum.
(c) Payment on Death. Each Participant must designate a beneficiary to receive a
distribution of his vested Account balance if the Participant dies before such amount is fully
distributed to him. In the absence of a valid or effective beneficiary designation, the
Participants surviving spouse will be his beneficiary or, if there is no surviving spouse, the
Participants estate will be his beneficiary. Upon the Participants death prior to full
distribution of his Account balance, the vested Account balance shall be paid to the Participants
beneficiary in accordance with the Participants election or deemed election under this Section 5.
6. Employment Termination.
In the event of a voluntary termination of employment with the Company and its affiliates, or
in the event of a termination by the Company other than for Cause, as defined in the Employment
Agreement or due to Disability, as defined in the Employment Agreement, or death, any unvested
Annual Award Credit will continue to vest in accordance with Section 4, provided that the
Participant abides by the covenants set forth in Section 7 of the Employment Agreement. In the
event of a termination by the Company for Cause, any unvested Annual Award Credit shall be
forfeited. No additional Annual Award Credits will be credited to the Participants Account
following the termination of employment date.
7. Administration.
(a) This Plan shall be administered by the L-3 Retirement Plan Administrative Committee of L-3
Communications Corporation or such other committee (comprised of members of the Board or executives
of the Company) as may be designated by the Board to administer this Plan. The committee that
administers this Plan is referred to in this document as the Committee.
(b) The Committee has the full and exclusive discretion to interpret and administer the Plan.
All actions, interpretations and decisions of the Committee are conclusive and binding on all
persons, and will be given the maximum possible deference allowed by law. Neither the Committee
nor any member thereof shall be liable to any person for any action taken or omitted in connection
with the interpretation or administration of the Plan.
(c) The Committee may delegate to any officer or employee of the Company or its affiliates the
authority to execute and deliver those instruments and documents and
3
to take, or refrain from taking, all actions deemed necessary, advisable or convenient for the
effective administration of the Plan in accordance with its terms and purposes. The Committee may
also appoint any other agent and delegate to such agent such powers and duties in connection with
the administration of the Plan as the Committee may deem appropriate. In making any determination
or in taking or not taking any action under the Plan, the Committee may obtain and rely upon the
advice of experts, including professional advisors to the Committee or the Company or its
affiliates. No individual who is a Participant may participate in any decision specifically
relating to his or her individual rights or benefits under the Plan.
8. Amendment or Termination.
The Committee may amend or terminate the Plan provided that any such amendment does not reduce
or increase any benefit to which a Participant has accrued and is otherwise entitled to under the
terms of the Plan, nor accelerate the timing of any payment under the Plan, except as permitted
under Code Section 409A. The Plan shall
terminate on the date when no Participant (or Beneficiary) has any right to or expectation of
payment of further benefits under the Plan.
9. Claims Procedure.
(a) Any person claiming a benefit, requesting an interpretation or ruling under this Plan, or
requesting information under this Plan shall present the request in writing to the Committee, which
shall respond in writing within 90 days. The Committee may, however, extend the reply period for
an additional ninety 90 days for special circumstances. If the claim or request is denied, the
written notice of denial shall state (1) the reason for denial, with specific reference to the plan
provisions on which the denial is based, (2) a description of any additional material or
information required and an explanation of why it is necessary, and (3) an explanation of the
claims review procedure.
(b) Within 60 days after the receipt by a claimant of the written decision described above or
the expiration of the claims review period described above including any extension, the claimant
may request review by giving written notice to the Committee. The claim or request shall be
reviewed by the Committee, which may, but shall not be required to, grant the claimant a hearing.
On review, the claimant may have representation, examine pertinent documents, and submit issues and
comments in writing. If the claimant does not request a review within such sixty-day period, he or
she shall be barred from challenging the original determination.
(c) The decision on review shall normally be made within 60 days after the Committees receipt
of a request for review. If an extension of time is required for a hearing or other special
circumstances, the claimant shall be notified and the time limit shall be 120 days. The decision
shall be in writing and shall state the reason and the relevant plan provisions. All decisions on
review shall be final and binding on all parties concerned.
4
(d) In the event of any dispute over benefits under this Plan, all remedies available to the
disputing individual under this Section 9 must be exhausted, within the specified deadlines, before
legal recourse of any type is sought.
10. Unfunded Status of the Plan.
This Plan constitutes a contractual promise by the Company to make payments in the future, and
a Participants rights shall be those of a general, unsecured creditor of the Company. A
Participant shall not have any beneficial interest in this Plan. Notwithstanding the foregoing, to
assist the Company in meeting its obligations under this Plan, the Company may set aside assets in
a trust described in Revenue Procedure 92-64, 1992-2 C.B. 422 (generally known as a rabbi trust),
and the Committee may direct that the Companys obligations under this Plan be satisfied by
payments out of such trust or trusts. It is the Companys intention that this Plan be unfunded for
federal income tax purposes and for purposes of Title I of the Employee Retirement Income Security
Act of 1974.
11. Nonalienability of Benefits.
A Participants rights to benefit payments under this Plan shall not be subject in any manner
to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors of the Participant or his Beneficiary.
12. No Guarantee of Employment.
This Plan shall in no way obligate the Company to continue the employment of a Participant
with the Company or limit the right of the Company at any time and for any reason to terminate the
Participants employment. In no event shall this Plan constitute an employment contract between
the Company and a Participant or in any way limit the right of the Company to change a
Participants compensation or other benefits.
13. Other Plan Benefits.
Amounts under this Plan shall not be treated as compensation for purposes of calculating the
amount of a Participants benefits or contributions under any pension, retirement, or other plan
maintained by the Company (or affiliate), except as provided in such other plan.
14. Tax Withholding.
To the extent required by law, the Company shall withhold from benefit payments hereunder any
Federal, state, or local income or payroll taxes required to be withheld and shall furnish the
recipient and the applicable government agency or agencies with such reports, statements, or
information as may be legally required.
15. Receipt and Release for Payments.
5
Any payment to a Participant, Beneficiary, or to any such persons legal representative shall
be in full satisfaction of all claims that can be made under the Plan against the Company. The
Company may require such Participant, Beneficiary, or legal representative as a condition precedent
to such payment, to execute a receipt and release thereof in such form as shall be determined by
the Company.
16. Successors.
The provisions of this Plan shall be binding upon and inure to the benefit of the Company, its
successors, and its assigns, and to the Participants and their heirs, executors, administrators,
and legal representatives.
17. Governing Law.
The validity of this Plan and any of its provisions shall be construed, administered, and
governed in all respects under and by the laws of the Commonwealth of Virginia (including its
statute of limitations and all substantive and procedural law, and without regard to its conflict
of laws provisions), except as to matters of Federal law. If any provision of this instrument
shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining
provisions hereof shall continue to be fully effective.
18. Status of Plan as ERISA Top Hat Plan.
The Plan is intended to be an unfunded plan maintained primarily for the purpose of providing
deferred compensation for a select group of management or highly compensated employees and
individuals within the meaning of Title I of the ERISA. The Plan will be administered and
construed to effectuate this intent.
IN WITNESS WHEREOF, the Company, by its duly authorized officer, has
executed this MPRI Long Term Deferred Incentive Plan on the date indicated below.
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L-3 Services, Inc. |
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Date:
12/22/2008 |
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By: |
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/s/ Kenneth W. Manne |
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Title: |
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Vice President |
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6
EX-12
Exhibit 12
L-3
Communications Holdings, Inc.
and L-3 Communications Corporation
Ratio of Earnings to Fixed Charges
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Year Ended December 31,
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2008
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2007
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2006
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2005
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2004
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(in millions, except ratio of earnings to fixed charges)
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Earnings:
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Income from continuing operations before income taxes
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$
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1,431
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$
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1,174
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$
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825
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$
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788
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$
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597
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Add:
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Interest expense
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260
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286
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286
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199
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138
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Amortization of debt expense
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11
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10
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10
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5
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7
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Interest component of rent expense
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58
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56
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53
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41
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27
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Earnings
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$
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1,760
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$
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1,526
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$
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1,174
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$
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1,033
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$
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769
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Fixed charges:
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Interest expense
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260
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286
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286
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199
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138
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Amortization of debt expense
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11
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10
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10
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5
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7
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Interest component of rent expense
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58
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56
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53
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41
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27
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Fixed charges
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$
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329
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$
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352
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$
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349
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$
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245
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$
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172
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Ratio of earnings to fixed charges
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5.4
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x
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4.3
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x
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3.4
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x
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4.2
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x
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4.5
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x
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EX-18
Exhibit 18
February 26, 2009
Board of Directors
L-3 Communications Holdings, Inc. and
L-3 Communications Corporation
600 Third Avenue
New York, NY 10016
Dear Directors:
We are providing this letter to you for inclusion as an exhibit to your Form 10-K filing pursuant
to Item 601 of Regulation S-K.
We have audited the consolidated financial statements included in L-3 Communications Holdings, Inc.
and L-3 Communications Corporations (the Companys) Annual Report on Form 10-K for the year
ended December 31, 2008 and issued our report thereon dated
February 26, 2009. Note 2 to the
consolidated financial statements describes a change in accounting principle as it relates to the
Companys annual goodwill impairment test date. It should be understood that the preferability of
one acceptable method of accounting over another as it relates to a companys annual goodwill
impairment test date has not been addressed in any authoritative accounting literature, and in
expressing our concurrence below we have relied on managements determination that this change in
accounting principle is preferable. Based on our reading of managements stated reasons and
justification for this change in accounting principle in the Form 10-K, and our discussions with
management as to their judgment about the relevant business planning factors relating to the
change, we concur with management that such change represents, in the Companys circumstances, the
adoption of a preferable accounting principle in conformity with Statement of Financial Accounting
Standards No. 154, Accounting Changes and Error Corrections.
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Very truly yours,
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/s/ PricewaterhouseCoopers LLP
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PricewaterhouseCoopers LLP |
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New York, New York |
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February 26, 2009 |
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EX-21
Exhibit 21
L-3
Communications Holdings, Inc. and Subsidiaries
As of December 31, 2008
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Name
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Jurisdiction
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Advanced Systems Architectures (Holdings) Limited
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United Kingdom
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Amplidan A/S
|
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Denmark
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APSS S.r.l.
|
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Italy
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Army Fleet Support, LLC*
|
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Delaware
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ASA Technologies Limited
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United Kingdom
|
Astrid Energy Enterprises S.R.L*
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Italy
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Aviation Communications & Surveillance Systems, LLC*
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Delaware
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Aydin Foreign Sales Limited
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Guam
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Aydin Yazilim ve Elektronik Sanayi A.S.*
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Turkey
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Binary lonization Inc.*
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Delaware
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Broadcast Sports Inc.
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Delaware
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C3-ilex, LLC*
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California
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Cayenta, Inc.*
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Delaware
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Civilian Police International, LLC*
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Delaware
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Combat Advanced Propulsion, LLC*
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Delaware
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CPI Police Services, Ltd*
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Cayman Islands
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D.P. Associates Inc.
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Virginia
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Datron / Trans World Communications Intl. Ltd.
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U.S. Virgin Islands
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Delta Lord Joint Venture*
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Florida
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EarthVTS Pty Ltd
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Australia
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EDI (Europe) Limited
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United Kingdom
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ELAC Nautik Unterstützungskaße GmbH
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Germany
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Electrodynamics, Inc.
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Arizona
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Electronic Space Systems International Corp.
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U.S. Virgin Islands
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EMC S.r.l.*
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Italy
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Engility Corp.
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Delaware
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ESSCO Collins Limited
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Ireland
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EuroAtlas Gesellschaft für Leistungselektronik mbH
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Germany
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FAST Holdings Limited*
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United Kingdom
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FAST Training Services Limited*
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United Kingdom
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Film Europe Limited*
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Belgium
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Forfeiture Support Associates, LLC*
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Delaware
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Global Military Aircraft Systems, LLC*
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Delaware
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Henschel Inc.
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Delaware
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Honeywell TCAS Inc.*
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Delaware
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Horizons Technology International, Ltd.
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Barbados
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HSA Systems Ltd
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New Zealand
|
HSA Systems Pty Ltd
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Australia
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International Aerospace Management Company Scrl*
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Italy
|
International Resources Group Ltd.
|
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Delaware
|
Interstate Electronics Corporation
|
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California
|
IRG Systems South Asia Pvt. Ltd.*
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India
|
JovyAtlas Elektrische Umformtechnik GmbH
|
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Germany
|
J-R Technical Management, L.L.C.*
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Texas
|
J-R Technical Services Limited Partnership, L.L.P.*
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Texas
|
L-3 Canada Acquisition Inc.
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Canada
|
L-3 Communications Advanced Laser Systems Technology, Inc.
|
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Florida
|
L-3 Communications AIS GP Corporation
|
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Delaware
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Name
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Jurisdiction
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|
L-3 Communications Applied Signal and Image Technology,
Inc.
|
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Maryland
|
L-3 Communications ASA Limited
|
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United Kingdom
|
L-3 Communications Australia Group Pty Ltd
|
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Australia
|
L-3 Communications Australia Pty Ltd
|
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Australia
|
L-3 Communications Avionics Systems, Inc.
|
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Delaware
|
L-3 Communications Canada Inc.
|
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Canada
|
L-3 Communications Cincinnati Electronics Corporation
|
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Ohio
|
L-3 Communications Corporation
|
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Delaware
|
L-3 Communications Crestview Aerospace Corporation
|
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Delaware
|
L-3 Communications CyTerra Corporation
|
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Delaware
|
L-3 Communications Dynamic Positioning and Control Systems,
Inc.
|
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California
|
L-3 Communications ELAC Nautik GmbH
|
|
Germany
|
L-3 Communications Electron Technologies, Inc.
|
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Delaware
|
L-3 Communications Electronic Systems Inc.
|
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Canada
|
L-3 Communications EO/IR, Inc.
|
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Florida
|
L-3 Communications EOTech, Inc.
|
|
Delaware
|
L-3 Communications ESSCO, Inc.
|
|
Delaware
|
L-3 Communications Flight Capital LLC
|
|
Delaware
|
L-3 Communications Flight International Aviation LLC
|
|
Delaware
|
L-3 Communications Foreign Holdings, Inc.
|
|
Delaware
|
L-3 Communications Geneva Aerospace, Inc.
|
|
Texas
|
L-3 Communications Germany Holdings, LLC
|
|
Delaware
|
L-3 Communications Global Network Solutions U.K. Ltd.
|
|
United Kingdom
|
L-3 Communications Group Limited
|
|
United Kingdom
|
L-3 Communications Holding GmbH
|
|
Germany
|
L-3 Communications Holdings, Inc.
|
|
Delaware
|
L-3 Communications Hong Kong Limited
|
|
Hong Kong
|
L-3 Communications India Private Limited
|
|
India
|
L-3 Communications InfraredVision Technology Corporation
|
|
California
|
L-3 Communications Integrated Systems L.P.
|
|
Delaware
|
L-3 Communications Investments Inc.
|
|
Delaware
|
L-3 Communications Italy S.r.l.
|
|
Italy
|
L-3 Communications Klein Associates, Inc.
|
|
Delaware
|
L-3 Communications Korea Corporation
|
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South Korea
|
L-3 Communications Ltd.
|
|
United Kingdom
|
L-3 Communications Magnet-Motor GmbH
|
|
Germany
|
L-3 Communications Malaysia Sdn. Bhd.
|
|
Malaysia
|
L-3 Communications MAPPS Inc.
|
|
Canada
|
L-3 Communications MAPPS Investments, LLC
|
|
Delaware
|
L-3 Communications MAPPS Malaysia Sdn. Bhd.
|
|
Malaysia
|
L-3 Communications Marine Holdings AS
|
|
Norway
|
L-3 Communications Marine Systems UK Ltd.
|
|
United Kingdom
|
L-3 Communications MariPro, Inc.
|
|
California
|
L-3 Communications MAS (Canada) Inc.
|
|
Canada
|
L-3 Communications Mobile-Vision, Inc.
|
|
New Jersey
|
L-3 Communications Nautronix Holdings, Inc.
|
|
Delaware
|
L-3 Communications Nautronix Limited
|
|
Australia
|
L-3 Communications Navigation AS
|
|
Norway
|
L-3 Communications Nova Engineering, Inc.
|
|
Ohio
|
L-3 Communications SafeView, Inc.
|
|
Delaware
|
L-3 Communications Security and Detection Systems, Inc.
|
|
Delaware
|
L-3 Communications Shared Services, LLC
|
|
Delaware
|
L-3 Communications Singapore Pte Ltd
|
|
Singapore
|
|
|
|
Name
|
|
Jurisdiction
|
|
L-3 Communications Sonoma EO, Inc.
|
|
California
|
L-3 Communications TCS, Inc.
|
|
Georgia
|
L-3 Communications U.K. Ltd.
|
|
United Kingdom
|
L-3 Communications Valmarine AS
|
|
Norway
|
L-3 Communications Vector International Aviation LLC
|
|
Delaware
|
L-3 Communications Vermögensverwaltungs GmbH &
Co. KG
|
|
Germany
|
L-3 Communications Vertex Aerospace LLC
|
|
Delaware
|
L-3 Communications Verwaltungs GmbH
|
|
Germany
|
L-3 Communications Westwood Corporation
|
|
Nevada
|
L-3 Fuzing and Ordnance Systems, Inc.
|
|
Delaware
|
L-3 G.A. International, Inc.
|
|
Florida
|
L-3 Global Communications Solutions, Inc.
|
|
Virginia
|
L-3 Services, Inc.
|
|
Delaware
|
L-Tres Comunicaciones Costa Rica, S.A.
|
|
Costa Rica
|
LinCom Wireless, Inc.*
|
|
Delaware
|
Lyngsø Marine A/S
|
|
Denmark
|
McCorkills Marine Pty Ltd
|
|
Australia
|
MGS Montage GmbH
|
|
Germany
|
Microdyne Communications Technologies Incorporated
|
|
Maryland
|
Microdyne Corporation
|
|
Maryland
|
Microdyne Ltd.
|
|
U.S. Virgin Islands
|
Microdyne Outsourcing Incorporated
|
|
Maryland
|
Mosaic Mapping Inc.*
|
|
Canada
|
MPRI International Services, Ltd.
|
|
Bermuda
|
MVT Equity LLC*
|
|
Delaware
|
Narda Safety Test Solutions GmbH
|
|
Germany
|
Narda Safety Test Solutions S.r.l.
|
|
Italy
|
Nautronix (Singapore) Pte Ltd
|
|
Singapore
|
Nautronix Asia Pacific Pte Limited
|
|
Singapore
|
Nordakademie gAG*
|
|
Germany
|
Pac Ord Inc.
|
|
Delaware
|
Power Paragon (Deutschland) Holding GmbH
|
|
Germany
|
Power Paragon, Inc.
|
|
Delaware
|
Sakon Calling Cards, LLC*
|
|
New Jersey
|
Sakon, LLC*
|
|
Delaware
|
SAM East Asia Ltd.
|
|
Hong Kong
|
SAM Electronics GmbH
|
|
Germany
|
SAM Electronics Japan Ltd.
|
|
Japan
|
SAM Electronics Korea Co. Ltd.
|
|
South Korea
|
SAM Electronics Nederland B.V.
|
|
Netherlands
|
SAM Electronics Norge A/S
|
|
Norway
|
SAM Electronics United Kingdom Ltd.
|
|
United Kingdom
|
SAM Taihang Electronics Co. Ltd.
|
|
China
|
Sovcan Star Satellite Communications Inc.*
|
|
Canada
|
Spar Aerospace Limited
|
|
Canada
|
SPD Electrical Systems, Inc.
|
|
Delaware
|
SPD Switchgear Inc.
|
|
Delaware
|
STN Schiffselektrik GmbH & Co. KG
|
|
Germany
|
STN Schiffselektrik Verwaltungs GmbH
|
|
Germany
|
Storm Control Systems Limited
|
|
United Kingdom
|
Terra Cable Singapore Pte Ltd
|
|
Singapore
|
Titan Deutschland GmbH
|
|
Germany
|
Titan Facilities, Inc.
|
|
Virginia
|
|
|
|
Name
|
|
Jurisdiction
|
|
Titan Italia Srl
|
|
Italy
|
Titan Systems Solutions UK Ltd.
|
|
United Kingdom
|
Titan Wireless, Inc.*
|
|
Delaware
|
TRL Electronics Limited
|
|
United Kingdom
|
TRL Technology Limited
|
|
United Kingdom
|
Troll Technology Corporation
|
|
California
|
URS Coleman, LLC*
|
|
Maryland
|
W.G. Schulz GmbH
|
|
Germany
|
Wescam Air Ops Inc.
|
|
Delaware
|
Wescam Asia PTE Ltd.*
|
|
Singapore
|
Wescam Financial (U.S.A.) LLC
|
|
Delaware
|
Wescam Holdings (US) Inc.
|
|
Delaware
|
Wescam Inc.
|
|
Canada
|
|
|
|
*
|
|
Represents a non-wholly owned
subsidiary.
|
EX-23
Exhibit 23
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the
Registration Statements on
Form S-3
(Nos. 333-84826,
333-99693
and
333-129949)
and on
Form S-8
(Nos.
333-59281,
333-64389,
333-78317,
333-64300,
333-103752,
333-120393,
333-123424,
333-134607,
333-144135
and 333-151964) of L-3 Communications Holdings, Inc. and
subsidiaries of our report dated February 26, 2009 relating
to the financial statements and the effectiveness of internal
control over financial reporting, which appears in this
Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
February 26, 2009
EX-31.1
Exhibit 31.1
CERTIFICATION
I, Michael T. Strianese, certify
that:
|
|
1.
|
I have reviewed this report on
Form 10-K
of L-3 Communications Holdings, Inc. and L-3 Communications
Corporation;
|
|
2.
|
Based on my knowledge, this 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 report;
|
|
3.
|
Based on my knowledge, the financial statements, and other
financial information included in this 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 report;
|
|
4.
|
The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in
Exchange Act Rules
13a-15(f)
and
15d-15(f))
for the registrants and have:
|
|
|
|
|
a)
|
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under my
supervision, to ensure that material information relating to the
registrants, including their consolidated subsidiaries, is made
known to me by others within those entities, particularly during
the period in which this report is being prepared;
|
|
|
b)
|
Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under my supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
|
|
|
c)
|
Evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
|
|
|
d)
|
Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during
the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting; and
|
|
|
5. |
The registrants other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of the registrants board
of directors (or persons performing the equivalent functions):
|
|
|
|
|
a)
|
All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and
|
|
|
b)
|
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the
registrants internal control over financial reporting.
|
Date: February 26, 2009
/s/ Michael T. Strianese
Michael T. Strianese
Chairman, President and Chief
Executive Officer
EX-31.2
Exhibit 31.2
CERTIFICATION
I, Ralph G. DAmbrosio,
certify that:
|
|
1.
|
I have reviewed this report on
Form 10-K
of L-3 Communications Holdings, Inc. and L-3 Communications
Corporation;
|
|
2.
|
Based on my knowledge, this 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 report;
|
|
3.
|
Based on my knowledge, the financial statements, and other
financial information included in this 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 report;
|
|
4.
|
The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in
Exchange Act Rules
13a-15(f)
and
15d-15(f))
for the registrants and have:
|
|
|
|
|
a)
|
Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under my
supervision, to ensure that material information relating to the
registrants, including their consolidated subsidiaries, is made
known to me by others within those entities, particularly during
the period in which this report is being prepared;
|
|
|
b)
|
Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be
designed under my supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
|
|
|
c)
|
Evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
|
|
|
d)
|
Disclosed in this report any change in the registrants
internal control over financial reporting that occurred during
the registrants most recent fiscal quarter (the
registrants fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting; and
|
|
|
5. |
The registrants other certifying officer and I have
disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of the registrants board
of directors (or persons performing the equivalent functions):
|
|
|
|
|
a)
|
All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and
|
|
|
b)
|
Any fraud, whether or not material, that involves management or
other employees who have a significant role in the
registrants internal control over financial reporting.
|
Date: February 26, 2009
/s/ Ralph G. DAmbrosio
Ralph G. DAmbrosio
Vice President and Chief Financial
Officer
EX-32
Exhibit 32
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Report of L-3 Communications Holdings,
Inc. (L-3 Holdings) and L-3 Communications
Corporation (L-3 Communications; together with L-3
Holdings referred to as L-3) on
Form 10-K
for the year ended December 31, 2008 as filed with the
Securities and Exchange Commission on the date hereof (the
Report), Michael T. Strianese, Chairman, President
and Chief Executive Officer and Ralph G. DAmbrosio, Vice
President and Chief Financial Officer, in each case, of L-3
Holdings and L-3 Communications, each certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
|
|
|
|
(1)
|
The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
|
|
|
(2)
|
The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of L-3.
|
Date: February 26, 2009
|
|
|
/s/ Michael T. Strianese
|
|
/s/ Ralph G. DAmbrosio
|
|
|
|
Michael T. Strianese
Chairman, President and Chief Executive Officer
|
|
Ralph G. DAmbrosio
Vice President and Chief Financial Officer
|