Document and Company Information (USD $) In Billions, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2009	Feb. 22, 2010	Jun. 26, 2009
Document and Company Information [Abstract]
Entity Registrant Name	L 3 COMMUNICATIONS HOLDINGS INC
Entity Central Index Key	0001056239
Document Type	10-K
Document Period End Date	Dec. 31, 2009
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float			$ 8
Entity Common Stock, Shares Outstanding		0

Consolidated Balance Sheets (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2009	Dec. 31, 2008
Current assets:
Cash and cash equivalents	$ 1,016	$ 867
Billed receivables, net of allowances of $32 in 2009 and $26 in 2008	1,149	1,226
Contracts in process	2,377	2,267
Inventories	239	259
Deferred income taxes	247	211
Other current assets	123	131
Total current assets	5,151	4,961
Property, plant and equipment, net	854	821
Goodwill	8,190	8,029
Identifiable intangible assets	377	417
Deferred debt issue costs	47	44
Other assets	194	212
Total assets	14,813	14,484
Current liabilities:
Accounts payable, trade	464	602
Accrued employment costs	642	700
Accrued expenses	482	479
Advance payments and billings in excess of costs incurred	521	530
Income taxes	10	45
Other current liabilities	363	351
Total current liabilities	2,482	2,707
Pension and postretirement benefits	817	802
Deferred income taxes	272	127
Other liabilities	470	414
Long-term debt	4,112	4,493
Total liabilities	8,153	8,543
Commitments and contingencies (see Note 16)
L-3 shareholders' equity:
L-3 Communications Holdings, Inc's common stock: $.01 par value; 300,000,000 shares authorized, 115,353,546 shares outstanding at December 31, 2009 and 118,633,746 shares outstanding at December 31, 2008 (L-3 Communications Corporation's common stock: $.01 par value, 100 shares authorized, issued and outstanding)	4,449	4,136
L-3 Communications Holdings, Inc's treasury stock (at cost), 21,040,541 shares at December 31, 2009 and 13,995,450 shares at December 31, 2008	(1,824)	(1,319)
Retained earnings	4,108	3,373
Accumulated other comprehensive loss	(166)	(332)
Total L-3 shareholders' equity	6,567	5,858
Noncontrolling interests	93	83
Total equity	6,660	5,941
Total liabilities and equity	$ 14,813	$ 14,484

Consolidated Balance Sheets (Parenthetical) (USD $) In Millions, except Share data, unless otherwise specified	Dec. 31, 2009	Dec. 31, 2008
Current assets:
Allowances	$ 32	$ 26
L-3 Communications Holdings, Inc.
L-3 shareholders' equity:
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	300,000,000	300,000,000
Common stock, shares outstanding	115,353,546	118,633,746
Treasury stock at cost, shares	21,040,541	13,995,450
L-3 Communications Corporation
L-3 shareholders' equity:
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	100	100
Common stock, shares issued	100	100
Common stock, shares outstanding	100	100

Consolidated Statements of Operations (USD $) In Millions, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2009	Dec. 31, 2008	Dec. 31, 2007
Net sales:
Products	$ 7,516	$ 7,130	$ 6,572
Services	8,099	7,771	7,389
Total net sales	15,615	14,901	13,961
Cost of sales:
Products	6,671	6,380	5,844
Services	7,288	6,962	6,669
Total cost of sales	13,959	13,342	12,513
Litigation gain	0	126	0
Operating income	1,656	1,685	1,448
Interest and other income, net	19	28	31
Interest expense	279	290	314
Debt retirement charge	10	0	0
Income from continuing operations before income taxes	1,386	1,423	1,165
Provision for income taxes	475	494	411
Income from continuing operations	911	929	754
Gain on sale of a business, net of income taxes of $13 million	0	20	0
Net income	911	949	754
Less: Net income attributable to noncontrolling interests	10	11	9
Net income attributable to L-3	901	938	745
Less: Net income allocable to participating securities	8	9	5
Net income allocable to L-3 Holdings' common shareholders	$ 893	$ 929	$ 740
Basic:
Income from continuing operations	$ 7.65	$ 7.5	$ 5.92
Gain on sale of a business, net of income taxes	$ 0	$ 0.17	$ 0
Net income	$ 7.65	$ 7.67	$ 5.92
Diluted:
Income from continuing operations	$ 7.61	$ 7.43	$ 5.86
Gain on sale of a business, net of income taxes	$ 0	$ 0.16	$ 0
Net income	$ 7.61	$ 7.59	$ 5.86
L-3 Holdings' weighted average common shares outstanding:
Basic	116.8	121.2	124.9
Diluted	117.4	122.4	126.2

Consolidated Statements of Shareholders Equity (USD $) In Millions, unless otherwise specified	Total	L-3 Holdings' Common Stock	Additional Paid-in Capital	Treasury Stock	Retained Earnings	Accumulated Other Comprehensive (Loss) Income	Noncontrolling Interest
Beginning Balance at Dec. 31, 2006	$ 5,439	$ 1	$ 3,465	$ (25)	$ 1,963	$ (49)	$ 84
Beginning Balance, Shares at Dec. 31, 2006		125.2
Measurement date change for retirement benefit plans	35				(4)	39
Cumulative effect adjustment for uncertain income tax positions	4				4
Comprehensive income:
Net income	745				745
Net Income Attributable to Noncontrolling Interest	9						9
Pension and postretirement benefit plans:
Net gain (loss) arising during the period, net of income taxes of $10, $174 and $13, in the year 2007, 2008 and 2009 respectively	18					18
Net prior service cost arising during the period, net of income taxes of $1, $1 and $1, in the year 2007, 2008 and 2009 respectively	(2)					(2)
Amortization of net loss previously recognized, net of income taxes of $5, $2 and $20, in the year 2007, 2008 and 2009 respectively	9					9
Amortization of prior service cost (credit) previously recognized, net of income taxes of $1 in 2007 and $1 in 2009	(1)					(1)
Foreign currency translation adjustment	135					135
Unrealized gains on hedging instruments, net of income taxes of $3 in 2007 and $4 in 2008	4					4
Total comprehensive income	917
Distributions to noncontrolling interests	(6)						(6)
Cash dividends paid on common stock $1.00, $1.20 and $1.40 per share, in the year 2007, 2008 and 2009 respectively	(126)				(126)
Shares issued:
Employee savings plans	125		125
Employee savings plans, Shares		1.3
Exercise of stock options	112		112
Exercise of stock options, Shares		1.6
Employee stock purchase plan	65		65
Employee stock purchase plan, Shares		0.8
Stock-based compensation expense	53		53
Treasury stock purchased	(500)			(500)
Treasury stock purchased, Shares		(5.2)
Other	(4)		(4)
Other, Shares		0.5
Ending Balance at Dec. 31, 2007	6,114	1	3,816	(525)	2,582	153	87
Ending Balance, Shares at Dec. 31, 2007		124.2
Comprehensive income:
Net income	938				938
Net Income Attributable to Noncontrolling Interest	11						11
Pension and postretirement benefit plans:
Net gain (loss) arising during the period, net of income taxes of $10, $174 and $13, in the year 2007, 2008 and 2009 respectively	(271)					(271)
Net prior service cost arising during the period, net of income taxes of $1, $1 and $1, in the year 2007, 2008 and 2009 respectively	(1)					(1)
Amortization of net loss previously recognized, net of income taxes of $5, $2 and $20, in the year 2007, 2008 and 2009 respectively	3					3
Foreign currency translation adjustment	(222)					(222)
Unrealized gains on hedging instruments, net of income taxes of $3 in 2007 and $4 in 2008	6					6
Total comprehensive income	464
Distributions to noncontrolling interests	(12)						(12)
Derecognition of noncontrolling interest	(3)						(3)
Cash dividends paid on common stock $1.00, $1.20 and $1.40 per share, in the year 2007, 2008 and 2009 respectively	(147)				(147)
Shares issued:
Employee savings plans	141		141
Employee savings plans, Shares		1.5
Exercise of stock options	51		51
Exercise of stock options, Shares		0.7
Employee stock purchase plan	69		69
Employee stock purchase plan, Shares		0.8
Stock-based compensation expense	64		64
Treasury stock purchased	(794)			(794)
Treasury stock purchased, Shares		(8.5)
Other	(6)		(6)
Other, Shares		(0.1)
Ending Balance at Dec. 31, 2008	5,941	1	4,135	(1,319)	3,373	(332)	83
Ending Balance, Shares at Dec. 31, 2008		118.6
Comprehensive income:
Net income	901				901
Net Income Attributable to Noncontrolling Interest	10						10
Pension and postretirement benefit plans:
Net gain (loss) arising during the period, net of income taxes of $10, $174 and $13, in the year 2007, 2008 and 2009 respectively	19					19
Net prior service cost arising during the period, net of income taxes of $1, $1 and $1, in the year 2007, 2008 and 2009 respectively	(1)					(1)
Amortization of net loss previously recognized, net of income taxes of $5, $2 and $20, in the year 2007, 2008 and 2009 respectively	30					30
Amortization of prior service cost (credit) previously recognized, net of income taxes of $1 in 2007 and $1 in 2009	1					1
Foreign currency translation adjustment	117					117
Total comprehensive income	1,077
Distributions to noncontrolling interests	(8)						(8)
Recognition of noncontrolling interest in a consolidated subsidiary	8						8
Cash dividends paid on common stock $1.00, $1.20 and $1.40 per share, in the year 2007, 2008 and 2009 respectively	(165)				(165)
Shares issued:
Employee savings plans	139		139
Employee savings plans, Shares		2.0
Exercise of stock options	28		28
Exercise of stock options, Shares		0.5
Employee stock purchase plan	70		70
Employee stock purchase plan, Shares		1.1
Stock-based compensation expense	74		74
Treasury stock purchased	(505)			(505)
Treasury stock purchased, Shares		(7.0)
Other	1		2		(1)
Other, Shares		0.2
Ending Balance at Dec. 31, 2009	$ 6,660	$ 1	$ 4,448	$ (1,824)	$ 4,108	$ (166)	$ 93
Ending Balance, Shares at Dec. 31, 2009		115.4

Consolidated Statements of Shareholders Equity (Parenthetical) (USD $) In Millions, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2009	Dec. 31, 2008	Dec. 31, 2007
Pension and postretirement benefit plans:
Income tax effect on net gain (loss) arising during the period	$ 13	$ 174	$ 10
Income tax effect on net prior service cost arising during the period	1	1	1
Income tax effect on amortization of net loss	20	2	5
Income tax effect on amortization of prior service cost (credit)	1		1
Income tax effect on unrealized gains on hedging instruments		4	3
Cash dividends paid on common stock, per share	$ 1.4	$ 1.2	$ 1
Retained Earnings
Pension and postretirement benefit plans:
Cash dividends paid on common stock, per share	$ 1.4	$ 1.2	$ 1
Accumulated Other Comprehensive (Loss) Income
Pension and postretirement benefit plans:
Income tax effect on net gain (loss) arising during the period	13	174	10
Income tax effect on net prior service cost arising during the period	1	1	1
Income tax effect on amortization of net loss	20	2	5
Income tax effect on amortization of prior service cost (credit)	1		1
Income tax effect on unrealized gains on hedging instruments		$ 4	$ 3

Consolidated Statements of Cash Flows (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2009	Dec. 31, 2008	Dec. 31, 2007
Operating activities:
Net income	$ 911	$ 949	$ 754
Depreciation of property, plant and equipment	158	152	150
Amortization of intangibles and other assets	60	54	57
Deferred income tax provision	74	153	106
Stock-based employee compensation expense	74	64	53
Contributions to employee savings plans in L-3 Holdings' common stock	139	141	125
Amortization of pension and postretirement benefit plans net loss and prior service cost	52	5	12
Amortization of bond discounts (included in interest expense)	23	21	20
Amortization of deferred debt issue costs (included in interest expense)	11	11	10
Gain on sale of a business	0	(20)	0
Impairment charge	0	28	0
Gain on sale of a product line	0	(12)	0
Other non-cash items	(3)	(6)	(4)
Subtotal	1,499	1,540	1,283
Changes in operating assets and liabilities, excluding acquired and divested amounts:
Billed receivables	107	49	(51)
Contracts in process	(79)	(162)	(188)
Inventories	14	(25)	4
Accounts payable, trade	(118)	31	90
Accrued employment costs	(59)	66	51
Accrued expenses	(39)	81	65
Advance payments and billings in excess of costs incurred	(15)	101	(2)
Income taxes	27	(2)	116
Excess income tax benefits related to share-based payment arrangements	(4)	(10)	(17)
Other current liabilities	9	(128)	(9)
Pension and postretirement benefits	43	(81)	(10)
All other operating activities	22	(73)	(62)
Subtotal	(92)	(153)	(13)
Net cash from operating activities	1,407	1,387	1,270
Investing activities:
Business acquisitions, net of cash acquired	(90)	(283)	(235)
Proceeds from sale of a business and product lines	0	63	0
Capital expenditures	(186)	(218)	(157)
Dispositions of property, plant and equipment	4	15	8
Other investing activities	0	(9)	(4)
Net cash used in investing activities	(272)	(432)	(388)
Financing activities:
Proceeds from sale of senior notes	996	0	0
Repayment of borrowings under term loan facility	(650)	0	0
Redemption of senior subordinated notes	(750)	0	0
Common stock repurchased	(505)	(794)	(500)
Cash dividends paid on L-3 Holdings' common stock	(165)	(147)	(126)
Proceeds from exercise of stock options	24	40	89
Proceeds from employee stock purchase plan	70	69	65
Debt issue costs	(22)	0	0
Excess income tax benefits related to share-based payment arrangements	4	10	17
Other financing activities	(7)	(18)	(9)
Net cash used in financing activities	(1,005)	(840)	(464)
Effect of foreign currency exchange rate changes on cash and cash equivalents	19	(28)	14
Net increase in cash and cash equivalents	149	87	432
Cash and cash equivalents, beginning of the year	867	780	348
Cash and cash equivalents, end of the year	$ 1,016	$ 867	$ 780

Description of Business

12 Months Ended

Dec. 31, 2009

Description of Business [Abstract]

Description of Business


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 Company’s customers include the United States (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 foreign commercial customers and select other U.S. federal, state and local government agencies.

The Company has the following four reportable segments: (1) C³ISR, (2) Government Services, (3) Aircraft Modernization and Maintenance (AM&M), and (4) Electronic Systems (previously named Specialized Products). During the 2009 fourth quarter, the Company renamed the Specialized Products reportable segment Electronic Systems to better describe the nature of the segment’s businesses. Financial information with respect to each of the Company’s reportable segments is included in Note 22. C³ISR provides products and services for the global ISR market, C³ systems, 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 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. Government Services provides a full range of engineering, technical, analytical, information technology (IT), advisory, training, logistics and support services to the DoD, DoS, DoJ, and U.S. Government intelligence agencies and allied foreign governments. AM&M provides modernization, upgrades and sustainment, maintenance and logistics support services for military and various government aircraft and other platforms. The Company sells these services primarily to the DoD, the Canadian Department of National Defense and other allied foreign governments. Electronic Systems provides a broad range of products and services, including components, products, subsystems, systems, and related services to military and commercial customers in several niche markets across several business areas, including power & control systems, electro-optic/infrared (EO/IR), microwave, simulation & training, precision engagement, aviation products, security & detection, propulsion systems, displays, telemetry & advanced technology, undersea warfare, and marine services.

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2009

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies


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 Revolving 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 accounting standards for pushdown accounting. 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 24 for additional information regarding the audited financial information of L-3 Communications and its subsidiaries.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) 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.

During the quarter ended March 27, 2009, the Company revised its reportable segment presentations to conform to certain re-alignments in the Company’s management and organization structure. Consequently, the Company made certain reclassifications between its C³ISR, Government Services, and AM&M reportable segments. See Note 22 for the prior period amounts reclassified between reportable segments.

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.

Revenue Recognition: The majority of the Company’s contracts are generally fixed price, cost-plus 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-plus), 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 contract accounting standards 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 the 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 become evident. 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-plus type contracts that are covered by contract accounting standards 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-plus 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-plus type contracts are included as an element of total estimated contract revenues and are recorded to sales 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 the production of tangible assets (Fixed-Price Service Contracts) and (2) certain commercial customers are recognized in accordance with revenue recognition accounting standards for revenue arrangements with commercial customers. Sales for the Company’s 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 collectability 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-plus and time-and-material type contracts to perform services are recognized in the same manner as those within the scope of contract accounting standards, 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 that contain collection risk because the contracts are incrementally funded and subject to the availability of funds appropriated, are deferred until a contract modification is obtained, indicating that adequate funds are available to the contract or task order.

Research and Development: Independent research and development (IRAD) costs sponsored by the Company and bid and proposal (B&P) costs relate to both U.S. Government products and services and those for commercial and international customers. The IRAD and B&P costs for the Company’s 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 research and development accounting standards. 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 Company’s businesses that are not U.S. Government contractors are accounted for in accordance with research and development accounting standards and are expensed as incurred to cost of sales.

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, and are also not indirect contract costs. Instead, these costs are direct contract costs and are expensed to cost of sales 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-plus type contracts with the U.S. Government.

Computer Software Costs: The Company’s 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. Substantially all of the capitalized software development costs pertain to the Company’s commercial aviation businesses. Capitalized software development costs, net of accumulated amortization, was $48 million at December 31, 2009 and $47 million at December 31, 2008, respectively, and is included in Other Assets on the Consolidated Balance Sheets. Amortization expense for capitalized software development costs was $8 million for 2009, $8 million for 2008, and $6 million for 2007. The Company recorded a non-cash impairment charge of $28 million relating to a write-down of capitalized software development costs associated with 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.

The table below presents the changes in the Company’s accrued product warranty costs.


	Year Ended December 31,
	2009			2008
	(in millions)

Accrued product warranty costs⁽¹⁾:
Balance at January 1	$	102		$	98
Acquisitions during this period		—			5
Accruals for product warranties issued during the period		51			44
Changes to accruals for product warranties existing before January 1		2			2
Foreign currency translation adjustments		2			(3	)
Settlements made during the period		(58	)		(44	)

Balance at December 31	$	99		$	102


⁽¹⁾		Warranty obligations incurred in connection with long-term production contracts that are accounted for under the POC cost-to-cost method are included within the contract estimates at completion (EACs) and are excluded from these amounts. The balance at December 31 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.

Stock-Based Compensation: The Company follows the fair value based method of accounting for stock-based employee compensation, which 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, except for certain performance unit awards that are payable in cash.

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 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 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.

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.

Income tax accounting standards prescribe (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 Company’s 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 potential interest and penalties on uncertain income tax positions as elements of the provision for income taxes on its financial statements.

Cash and Cash Equivalents: Cash equivalents consist of highly liquid investments with an original maturity of three months or less at the time of purchase.

Contracts in Process: Contracts in process include unbilled contract receivables and inventoried contract costs for which sales and profits are recognized using a POC method of accounting. 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 Company’s 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), IRAD costs and 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 costs are incurred or milestone payments as work is performed. 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 incurred and related estimated profits are reported on the Company’s balance sheet as Advance Payments and Billings in Excess of Costs Incurred.

The Company values its acquired contracts in process in connection with business acquisitions on the date of acquisition at contract value less the Company’s estimated costs to complete the contract and a reasonable profit allowance on the Company’s completion effort commensurate with the profit margin that the Company earns on similar contracts.

Inventories: 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 Company’s 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 fair value.

Goodwill: The carrying value of goodwill and indefinite lived identifiable intangible assets are not amortized, but are tested for impairment annually as of November 30 as well as whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable using a two-step process for each reporting unit. The first step in the process is to identify any potential impairment by comparing the carrying value of a reporting unit and its fair value. The Company determines the fair value of its reporting units using a discounted cash flows valuation approach. 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. There were no impairment charges that resulted from the annual impairment assessment or change in circumstances during 2009.

Identifiable Intangible Assets: Identifiable intangible assets represent assets acquired as part of the Company’s 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. Identifiable intangible assets are amortized over their estimated useful lives as the economic benefits are consumed, ranging from 4 to 30 years.

Derivative Financial Instruments: The Company’s derivative financial instruments include foreign currency forward contracts, which are entered into for risk management purposes, and an embedded derivative representing the contingent interest payment provision related to the CODES.

The Company’s U.S. and foreign businesses enter into contracts with customers, subcontractors or vendors that are denominated in currencies other than their functional currencies. To protect the functional currency equivalent cash flows associated with certain of these contracts, the Company enters into foreign currency forward contracts. The Company’s activities involving foreign currency forward contracts are designed to hedge the changes in the functional currency equivalent cash flows due to movements in foreign exchange rates compared to the functional currency. The foreign currencies hedged are primarily the Canadian dollar, the Euro, the British pound and the U.S. dollar. The Company manages exposure to counterparty non-performance 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. Foreign currency forward contracts are recorded in the Company’s Consolidated Balance Sheets at fair value and are generally designated and accounted for as cash flow hedges in accordance with the accounting standards for derivative instruments and hedging activities. Gains and losses on designated foreign currency forward contracts that are highly effective in offsetting the corresponding change in the cash flows of the hedged transactions are recorded net of income taxes in accumulated other comprehensive income (loss) (accumulated OCI) and then recognized in income when the underlying hedged transaction affects income. Gains and losses on foreign currency forward contracts that do not meet hedge accounting criteria are recognized in income immediately.

The embedded derivatives related to the issuance of the Company’s debt are recorded at fair value with changes reflected in the Consolidated 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, 2009, 2008 and 2007 are not material to the Company’s results of operations. The operations of the Company’s 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 the assets and liabilities of the Company’s foreign subsidiaries. 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).

Accounting Standards Issued and Not Yet Implemented: In October 2009, the Financial Accounting Standards Board (FASB) issued a revised accounting standard for revenue arrangements with multiple deliverables. The revision: (1) removes the objective-and-reliable-evidence-of-fair-value criterion from the separation criteria used to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting, (2) provides a hierarchy that entities must use to estimate the selling price, (3) eliminates the use of the residual method for allocation, and (4) expands the ongoing disclosure requirements. The revised accounting standard is effective for the Company beginning on January 1, 2011, with early adoption permitted. The Company is currently assessing the impact the revised accounting standard will have on its consolidated financial statements.

In October 2009, the FASB issued a revised accounting standard for certain revenue arrangements that include software elements. Under the revised standard, tangible products that contain both software and non-software components that work together to deliver a product’s essential functionality will be removed from scope of pre-existing software revenue recognition standards. In addition, hardware components of a tangible product containing software components will always be excluded from software revenue recognition standards. The revised accounting standard is effective for the Company beginning on January 1, 2011, with early adoption permitted. The Company is currently assessing the impact the revised accounting standard will have on its consolidated financial statements.

In June 2009, the FASB issued a revised standard for the accounting for variable interest entities, which replaces the quantitative-based risks and rewards approach with a qualitative approach that focuses on identifying which enterprise has the power and control to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance. The accounting standard also requires an ongoing assessment of whether an entity is the primary beneficiary and requires additional disclosures about an enterprise’s involvement in variable interest entities. The revised accounting standard is effective for the Company beginning on January 1, 2010. The Company is currently assessing the impact the revised accounting standard will have on its consolidated financial statements; however, the preliminary assessment indicates that the adoption of this standard will not have a material impact on the Company’s financial position, results of operation or cash flows.

New Accounting Standards Implemented

12 Months Ended

Dec. 31, 2009

New Accounting Standards Implemented [Abstract]

New Accounting Standards Implemented


3.	New Accounting Standards Implemented

In June 2009, the FASB issued the FASB Accounting Standards Codification (ASC or Codification). The Codification has become the single source for all authoritative U.S. GAAP recognized by the FASB, does not change U.S. GAAP and did not impact the Company’s financial position, results of operations or cash flows. All references to U.S. GAAP in this report are in accordance with the Codification.

The Company adopted nine newly issued accounting standards during the year ended December 31, 2009. The following six standards were effective January 1, 2009:


	•	Accounting for convertible debt instruments that may be settled in cash upon conversion (Convertible Debt). The new standard is contained in ASC 470, Debt;

	•	Determining whether instruments granted in share-based payment transactions are participating securities (Participating Securities). The new standard is contained in ASC 260, Earnings Per Share;

	•	Noncontrolling interests in consolidated financial statements (Noncontrolling Interests). The new standard is contained in ASC 810, Consolidation;

	•	Disclosures about derivative instruments and hedging activities (Derivative Disclosures). The new standard is contained in ASC 815, Derivatives and Hedging;

	•	Business combinations (Business Combinations). The new standard is contained in ASC 805, Business Combinations; and

	•	Fair value measurements and disclosures (Fair Value Measurements). The new standard is contained in ASC 820, Fair Value Measurements and Disclosures.

For the impact of the adoption of the newly issued standards for Convertible Debt, Participating Securities and Noncontrolling Interests on the Company’s: (1) Condensed Consolidated Balance Sheet, at December 31, 2008, (2) Consolidated Equity Account Balances, at December 31, 2007, and (3) Condensed Consolidated Statements of Operations for the years ended December 31, 2008 and 2007, see pages F-17-F-19. The adoption of the new accounting standards for Derivative Disclosures, Business Combinations and Fair Value Measurements did not have a material impact on the Company’s prior period financial statements.

Convertible Debt: In accordance with the provisions of the newly issued standard for convertible debt, the Company is separately accounting for the liability and equity (conversion option) components of the CODES in a manner that reflects the Company’s non-convertible debt borrowing rate when interest expense is recognized. Previously, the CODES were recorded at maturity value. The Convertible Debt standard does not apply to the Company’s other outstanding debt instruments because they are not convertible debt instruments within its scope. The Company has retrospectively applied the provisions of this standard and adjusted the prior period financial statements accordingly.

The following table presents the impact of the provisions of the Convertible Debt standard on the Statement of Operations for the year ended December 31, 2009.


	Year Ended
	December 31, 2009
	(in millions, except
	per share data)

Interest expense	$	20
Provision for income taxes		(8	)
Net income attributable to L-3		(12	)
L-3 Holdings’ earnings per common share:
Basic	$	(0.10	)
Diluted	$	(0.10	)

Participating Securities: In accordance with the provisions of the newly issued standard for participating securities, the Company is including the impact of restricted stock and restricted stock units that are entitled to receive non-forfeitable dividends when calculating both basic EPS and diluted EPS. The Company has retrospectively applied the provisions of this standard and adjusted the prior period financial statements accordingly. The adoption of the provisions of this standard decreased basic EPS by $0.07 and diluted EPS by $0.03 for the year ended December 31, 2009.

Noncontrolling Interests: The Company retrospectively applied the presentation requirements of the newly issued standard for noncontrolling interests by: (1) reclassifying noncontrolling interests (minority interests) to equity on the Company’s balance sheets, and (2) including net income attributable to noncontrolling interests in net income on the Company’s statements of operations.

Derivative Disclosures: The enhanced disclosures for derivative instruments and related hedging activities required in accordance with the provisions of this standard can be found in Note 14.

Business Combinations: The Company adopted the provisions of the newly issued standard for business combinations to its acquisition of Chesapeake Sciences Corporation (CSC), which was completed on January 30, 2009. See Note 4 for additional information regarding the CSC acquisition. There were no other material business acquisitions completed during the year ended December 31, 2009. In accordance with the provisions of this standard, the Company is: (1) expensing transaction and restructuring costs, (2) recognizing and measuring contingent consideration at fair value, (3) measuring contingent assets and liabilities at fair value, or in accordance with the accounting standard for contingencies as appropriate, and (4) capitalizing in-process research and development as part of identifiable intangible assets. In addition, the difference between the ultimate resolution and the amount recorded on the balance sheet for acquired uncertain tax positions is recorded through earnings. Previously, the difference would have been recorded through goodwill. Other than the net reversal of amounts previously accrued of $31 million disclosed in Note 17, the adoption of this standard did not have a material impact on the Company’s financial position, results of operations or cash flows for the year ended December 31, 2009.

Fair Value Measurements: The Company applied the provisions of the standard for fair value measurements to non-financial assets and non-financial liabilities not recognized or disclosed at fair value in the financial statements on a recurring basis. The effective date for application of the provisions of this standard to all non-financial assets and non-financial liabilities not recognized or disclosed at fair value on a recurring basis was previously delayed until January 1, 2009. The application of the provisions of the fair value measurement standard had no impact on the Company’s financial position, results of operations and cash flows as the Company did not have any non-financial assets and non-financial liabilities that were recognized or disclosed at fair value on a non-recurring basis at December 31, 2009.

Effective June 26, 2009, the Company adopted the following two new accounting standards:


	•	Subsequent Events (Subsequent Events). The new standard is contained in ASC 855, Subsequent Events; and

	•	Interim Disclosures about Fair Value of Financial Instruments (Financial Instruments). The new standard is contained in ASC 825, Financial Instruments.

Subsequent Events: The adoption of the provisions of the newly issued standard for subsequent events codified the requirement for the Company to evaluate events after the balance sheet date. The Company continues to evaluate events after the balance sheet date in accordance with this standard.

Financial Instruments: The adoption of the provisions of the newly issued standard for financial instruments requires: (1) the fair value disclosures of an entity’s financial instruments for interim financial statements, and (2) disclosures about the methods and significant assumptions used to estimate the fair value of financial instruments. See Note 13 for the disclosures required by the provisions of the Financial Instruments standard.

Pension and Other Postretirement Plan Assets: Effective December 31, 2009, the Company adopted the new accounting standard that expands the disclosure requirements for pension and other postretirement plan assets. The application of the provisions of this standard had no impact on the Company’s financial position, results of operations or cash flows. See Note 20 for the disclosures required by the provisions of this standard.

The tables below present the Company’s As Previously Reported and As Currently Reported: (1) Condensed Consolidated Balance Sheet, at December 31, 2008, (2) Consolidated Equity Account Balances, at December 31, 2007, and (3) Condensed Consolidated Statement of Operations, for the years ended December 31, 2008 and 2007, in each case to reflect the adjustments made to adopt the provisions of the newly issued standards for Noncontrolling Interests, Convertible Debt and Participating Securities, as applicable.


				Adjustments for:
	As Previously			Noncontrolling			Convertible			As Currently
	Reported			Interests			Debt			Reported
	(in millions)

Condensed Consolidated Balance Sheet, at December 31, 2008:

ASSETS
Total current assets	$	4,961		$	—		$	—		$	4,961
Property, plant and equipment, net		821			—			—			821
Goodwill		8,029			—			—			8,029
Identifiable intangible assets		417			—			—			417
Deferred debt issue costs		45			—			(1	)		44
Other assets		212			—			—			212

Total assets	$	14,485		$	—		$	(1	)	$	14,484


LIABILITIES AND EQUITY
Total current liabilities	$	2,707		$	—		$	—		$	2,707
Pension and postretirement benefits		802			—			—			802
Deferred income taxes		110			—			17			127
Other liabilities		414			—			—			414
Long-term debt		4,538			—			(45	)		4,493

Total liabilities		8,571			—			(28	)		8,543

Minority interests		83			(83	)		—			—

Equity:
L-3 shareholders’ equity:
L-3 Communications Holdings, Inc.’s common stock		4,072			—			64			4,136
L-3 Communications Holdings, Inc.’s treasury stock at cost		(1,319	)		—			—			(1,319	)
Retained earnings		3,410			—			(37	)		3,373
Accumulated other comprehensive loss		(332	)		—			—			(332	)

Total L-3 shareholders’ equity		5,831			—			27			5,858
Noncontrolling interests		—			83			—			83

Total equity		5,831			83			27			5,941

Total liabilities and equity	$	14,485		$	—		$	(1	)	$	14,484

Consolidated Equity Account Balances, at December 31, 2007:
L-3 Communications Holdings, Inc.’s common stock, net of treasury stock	$	3,228		$	—		$	64		$	3,292
Retained earnings		2,608			—			(26	)		2,582
Accumulated other comprehensive income		153			—			—			153
Noncontrolling interests		—			87			—			87

Total equity	$	5,989		$	87		$	38		$	6,114


			Adjustments for:
												As
	As Previously		Noncontrolling			Participating			Convertible			Currently
	Reported		Interests			Securities			Debt			Reported
	(in millions, except per share data)

Condensed Consolidated Statement of Operations, for the year ended December 31, 2008:
Net sales	$	14,901	$	—		$	—		$	—		$	14,901
Cost of sales		13,342		—			—			—			13,342
Litigation Gain		126		—			—			—			126

Operating income		1,685		—			—			—			1,685
Interest and other income, net		28		—			—			—			28
Interest expense		271		—			—			19			290
Minority interests in net income of consolidated subsidiaries		11		(11	)		—			—			—

Income from continuing operations before income taxes		1,431		11			—			(19	)		1,423
Provision for income taxes		502		—			—			(8	)		494

Income from continuing operations		929		11			—			(11	)		929
Gain on sale of a business, net of income taxes of $13 million		20		—			—			—			20

Net income	$	949	$	11		$	—		$	(11	)	$	949
Less: Net income attributable to noncontrolling interests		—		11			—			—			11

Net income attributable to L-3	$	949	$	—		$	—		$	(11	)	$	938
Less: Net income allocable to participating securities		—		—			9			—			9

Net income allocable to L-3 Holdings’ common shareholders	$	949	$	—		$	(9	)	$	(11	)	$	929

Earnings per share allocable to L-3 Holdings’ common shareholders:
Basic:
Income from continuing operations	$	7.66	$	—		$	(0.06	)	$	(0.10	)	$	7.50

Net income	$	7.83	$	—		$	(0.06	)	$	(0.10	)	$	7.67

Diluted:
Income from continuing operations	$	7.56	$	—		$	(0.04	)	$	(0.09	)	$	7.43

Net income	$	7.72	$	—		$	(0.04	)	$	(0.09	)	$	7.59

L-3 Holdings’ weighted average common shares outstanding:
Basic		121.2		—			—			—			121.2

Diluted		122.9		—			(0.5	)		—			122.4


			Adjustments for:
												As
	As Previously		Noncontrolling			Participating			Convertible			Currently
	Reported		Interests			Securities			Debt			Reported
	(in millions, except per share data)

Condensed Consolidated Statement of Operations, for the year ended December 31, 2007:
Net sales	$	13,961	$	—		$	—		$	—		$	13,961
Cost of sales		12,513		—			—			—			12,513

Operating income		1,448		—			—			—			1,448
Interest and other income, net		31		—			—			—			31
Interest expense		296		—			—			18			314
Minority interests in net income of consolidated subsidiaries		9		(9	)		—			—			—

Income before income taxes		1,174		9			—			(18	)		1,165
Provision for income taxes		418		—			—			(7	)		411

Net income	$	756	$	9		$	—		$	(11	)	$	754
Less: Net income attributable to noncontrolling interests		—		9			—			—			9

Net income attributable to L-3	$	756	$	—		$	—		$	(11	)	$	745
Less: Net income allocable to participating securities		—		—			5			—			5

Net income allocable to L-3 Holdings’ common shareholders	$	756	$	—		$	(5	)	$	(11	)	$	740

Earnings per share allocable to L-3 Holdings’ common shareholders:
Basic	$	6.05	$	—		$	(0.04	)	$	(0.09	)	$	5.92

Diluted	$	5.98	$	—		$	(0.03	)	$	(0.09	)	$	5.86

L-3 Holdings’ weighted average common shares outstanding:
Basic		124.9		—			—			—			124.9

Diluted		126.5		—			(0.3	)		—			126.2

Acquisitions and Dispositions

12 Months Ended

Dec. 31, 2009

Acquisitions and Dispositions [Abstract]

Acquisitions and Dispositions


4.	Acquisitions and Dispositions

All of the business acquisitions are included in the Company’s results of operations from their respective dates of acquisition.

2009 Business Acquisitions

On January 30, 2009, the Company acquired all of the outstanding stock of CSC for a purchase price of $91 million in cash, which includes a $7 million net working capital adjustment, of which $6 million was for cash acquired, and $4 million related to certain tax benefits acquired. The acquisition was financed using cash on hand. CSC is a developer and manufacturer of anti-submarine warfare systems for use onboard submarines and surface ship combatants. Based on the final purchase price allocation, the amount of goodwill recognized was $56 million, which was assigned to the Electronic Systems reportable segment, and is not expected to be deductible for income tax purposes.

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 $264 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 $191 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, 2009
	(in millions)

Electronic Systems	$	150
Government Services		41

Total	$	191

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 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.

The Company has completed the purchase price allocations for all acquisitions made during 2008, 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 Company’s results of operations or financial position.

2007 Business Acquisitions

During the year ended December 31, 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 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, 2009
	(in millions)

Electronic Systems	$	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 ended 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 business acquisitions, compared to their preliminary purchase price allocations, did not have a material impact on the Company’s 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, 2009, 2008 and 2007, assuming that the business acquisitions completed during 2009 and 2008 had occurred on January 1, 2008, and that the business acquisitions completed during 2008 and 2007 had occurred on January 1, 2007.


	Year Ended December 31,
	2009		2008		2007
	(in millions, except per share data)

Pro forma net sales	$	15,621	$	15,071	$	14,307
Pro forma net income attributable to L-3	$	900	$	939	$	745
Pro forma diluted earnings per share	$	7.60	$	7.60	$	5.86

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 was within the Electronic Systems reportable segment. The sale resulted in an after-tax gain of $20 million (pre-tax gain of $33 million), which was excluded from income from continuing operations. The revenues, operating results and net assets of METI for all periods presented were not material and therefore not presented as discontinued operations. METI generated $48 million of sales and $4 million of operating income for the year ended December 31, 2008 and $52 million of sales and $4 million of operating income for the year ended December 31, 2007.

On May 9, 2008, the Company sold the Electron Technologies Passive Microwave Devices (PMD) product line, which was within the Electronic Systems reportable 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 Consolidated Statement of Cash Flows. The PMD product line generated $8 million of sales for the year ended December 31, 2008 and $23 million of sales for the year ended December 31, 2007.

Contracts in Process

12 Months Ended

Dec. 31, 2009

Contracts in Process [Abstract]

Contracts in Process


5.	Contracts in Process

The components of contracts in process are presented in the table below. The unbilled contract receivables, inventoried contract costs and unliquidated progress payments are principally related to contracts with the U.S. Government and prime contractors or subcontractors of the U.S. Government. 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,
	2009			2008
	(in millions)

Unbilled contract receivables, gross	$	2,373		$	2,026
Less: unliquidated progress payments		(700	)		(409	)

Unbilled contract receivables, net		1,673			1,617

Inventoried contract costs, gross		819			754
Less: unliquidated progress payments		(115	)		(104	)

Inventoried contract costs, net		704			650

Total contracts in process	$	2,377		$	2,267

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-plus 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 95% of the unbilled contract receivables at December 31, 2009 will be billed and collected within one year.

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 contract accounting standards, the Company accounts for the portion of its G&A, IRAD 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 Company’s 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,
	2009			2008			2007
	(in millions)

Amounts included in inventoried contract costs at beginning of the year	$	74		$	68		$	59
Add: Contract costs incurred⁽¹⁾		1,309			1,272			1,150
Amounts included in acquired inventoried contract costs		—			6			—
Less: Amounts charged to cost of sales		(1,306	)		(1,272	)		(1,141	)

Amounts included in inventoried contract costs at end of the year	$	77		$	74		$	68


⁽¹⁾		Incurred costs include IRAD and B&P costs of $317 million for 2009, $287 million for 2008 and $263 million for 2007.

The table below presents a summary of selling, general and administrative expenses and research and development expenses for the Company’s commercial businesses, which are expensed as incurred and not included in inventoried contracts costs.


	Year Ended December 31,
	2009		2008		2007
	(in millions)

Selling, general and administrative expenses	$	247	$	298	$	273
Research and development expenses		62		78		86

Total	$	309	$	376	$	359

Inventories

12 Months Ended

Dec. 31, 2009

Inventories [Abstract]

Inventories


6.	Inventories

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,
	2009		2008
	(in millions)

Raw materials, components and sub-assemblies	$	85	$	95
Work in process		118		121
Finished goods		36		43

Total	$	239	$	259

Goodwill and Identifiable Intangible Assets

12 Months Ended

Dec. 31, 2009

Goodwill and Identifiable Intangible Assets [Abstract]

Goodwill and Identifiable Intangible Assets


7.	Goodwill and Identifiable Intangible Assets

Goodwill. In accordance with the accounting standards for business combinations, 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 Company’s 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, the Company does not recognize any intangible assets apart from goodwill for the assembled workforces of its business acquisitions. At December 31, 2009, the Company had approximately 67,000 employees, and the substantial majority of the sales generated by the Company’s 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 assets from the businesses that the Company acquires are the 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 Company’s 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 Company’s 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 Company’s acquired businesses. Furthermore, the Company’s U.S. Government contracts (revenue arrangements) generally permit other companies to use the Company’s 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 ASC 805, the substantial majority of the intangible assets for the Company’s business acquisitions is recognized as goodwill. Additionally, the value assigned to goodwill for the Company’s business acquisitions also includes the value that the Company expects to realize from cost reduction measures that it implements for its acquired businesses.

The table below presents the changes in goodwill allocated to the Company’s reportable segments.


				Government						Electronic			Consolidated
	C³ISR			Services			AM&M			Systems			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	)
Segment reclassification⁽³⁾		(34	)		17			17			—			—

Balance at December 31, 2008	$	862		$	2,313		$	1,121		$	3,733		$	8,029
Business acquisitions		2			5			—			57			64
Foreign currency translation adjustments⁽⁴⁾		6			2			37			52			97

Balance at December 31, 2009	$	870		$	2,320		$	1,158		$	3,842		$	8,190


⁽¹⁾		For further discussion regarding the completion of IRS audits of L-3’s U.S. Federal income tax returns for 2004 and 2005, including income tax positions taken in connection with certain business acquisitions, see Note 17.

⁽²⁾		The decrease in goodwill in 2008 from foreign currency translation adjustments was due to the strengthening of the U.S. dollar during 2008 against the functional currencies of L-3’s foreign subsidiaries, primarily in Canada, Germany and the United Kingdom.

⁽³⁾		As a result of certain re-alignments in our management and organization structure as discussed in Note 2, goodwill was reclassified from the C³ISR reportable segment to the Government Services and AM&M reportable segments.

⁽⁴⁾		The increase in goodwill in 2009 from foreign currency translation adjustments was due to the weakening of the U.S. dollar during 2009 against the functional currencies of L-3 foreign subsidiaries, primarily in Canada.

For the year ended December 31, 2009, the increase of $64 million related to business acquisitions was comprised of (1) an increase of $56 million for a business acquisition completed during the year ended December 31, 2009, (2) an increase of $4 million primarily for earnouts related to certain business acquisitions completed prior to January 1, 2009, and (3) an increase of $4 million related to final purchase price determinations for certain business acquisitions completed prior to January 1, 2009.

For the year ended December 31, 2008, 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 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 for the Company’s business acquisitions is customer contractual relationships. All of the Company’s 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.

Information on the Company’s identifiable intangible assets that are subject to amortization is presented in the table below.


	December 31, 2009								December 31, 2008
	Weighted
	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	$	515	$	163	$	352	$	505	$	124	$	381
Technology		9		78		58		20		76		47		29
Other, primarily favorable leasehold interests		7		14		9		5		14		7		7

Total		22	$	607	$	230	$	377	$	595	$	178	$	417

Amortization expense recorded by the Company for its identifiable intangible assets is presented in the table below.


	Year Ended December 31,
	2009		2008		2007
	(in millions)

Amortization expense	$	52	$	45	$	47

Based on gross carrying amounts at December 31, 2009, the Company’s estimate of amortization expense for identifiable intangible assets for the years ending December 31, 2010 through 2014 are presented in the table below.


	Year Ending December 31,
	2010		2011		2012		2013		2014
	(in millions)

Estimated amortization expense	$	51	$	46	$	39	$	30	$	30

As of December 31, 2009 and December 31, 2008, the Company had approximately $1 million of indefinite-lived identifiable intangible assets.

- Definition

Discloses the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain or loss on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss. This element may be used as a single block of text to include the entire intangible asset disclosure including data and tables.

+ References+ Details

Other Current Liabilities and Other Liabilities

12 Months Ended

Dec. 31, 2009

Other Current Liabilities and Other Liabilities [Abstract]

Other Current Liabilities and Other Liabilities


8.	Other Current Liabilities and Other Liabilities

The table below presents the components of other current liabilities.


	December 31,
	2009		2008
	(in millions)

Other Current Liabilities:
Accruals for pending and threatened litigation (see Note 19)	$	2	$	4
Accrued product warranty costs		90		97
Accrued interest		76		66
Estimated costs in excess of estimated contract value to complete contracts in process in a loss position		74		58
Deferred revenues		28		25
Aggregate purchase price payable for acquired businesses		4		—
Other		89		101

Total other current liabilities	$	363	$	351

The table below presents the components of other liabilities.


	December 31,
	2009		2008
	(in millions)

Other Liabilities:
Non-current income taxes payable (see Note 17)	$	232	$	177
Deferred compensation		83		79
Accrued workers’ compensation		46		45
Notes payable and capital lease obligations		10		10
Accrued product warranty costs		9		5
Unfavorable lease obligations		6		8
Non-current portion of net deferred gains from terminated interest rate swap agreements		2		9
Other non-current liabilities		82		81

Total other liabilities	$	470	$	414

Property, Plant and Equipment

12 Months Ended

Dec. 31, 2009

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment


9.	Property, Plant and Equipment


	December 31,
	2009			2008
	(in millions)

Land	$	57		$	55
Buildings and improvements		321			257
Machinery, equipment, furniture and fixtures		1,167			1,055
Leasehold improvements		253			272

Gross property, plant and equipment		1,798			1,639
Accumulated depreciation and amortization		(944	)		(818	)

Property, plant and equipment, net	$	854		$	821

Debt

12 Months Ended

Dec. 31, 2009

Debt [Abstract]

Debt


10.	Debt

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


	December 31,
	2009			2008
	(in millions)

L-3 Communications:
Borrowings under Revolving Credit Facility⁽¹⁾	$	—		$	—
Borrowings under Term Loan Facility maturing 2010⁽²⁾		—			650
5¹/₅% Senior Notes due 2019		1,000			—
7⁵/₈% Senior Subordinated Notes due 2012		—			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		3,450			3,850

L-3 Holdings:
3% Convertible Contingent Debt Securities due 2035		700			700

Principal amount of long-term debt		4,150			4,550
Unamortized discounts		(38	)		(57	)

Carrying amount of long-term debt	$	4,112		$	4,493


⁽¹⁾		At December 31, 2009, available borrowings under the Revolving Credit Facility were $968 million after reductions for outstanding letters of credit of $32 million.

⁽²⁾		The interest rate at December 31, 2008 was 2.70% and was based on the LIBOR rate (as defined in the credit agreement) plus a spread.

L-3 Communications

On October 23, 2009, L-3 Communications replaced its $1 billion Senior Credit Facility with a new $1 billion three-year Revolving Credit Facility maturing on October 23, 2012. Borrowings under the new Revolving Credit Facility bear interest, at L-3 Communications’ option, at either (i) a “base rate” equal to the higher of (a) 0.50% per annum above the latest federal funds rate, (b) the Bank of America “prime rate” (as defined in the Revolving Credit Facility), and (c) 1.00% per annum above a “LIBOR rate” (as defined in the Revolving Credit Facility), plus a spread ranging from 1.25% to 3.00% per annum, or (ii) a “LIBOR rate” (as defined in the Revolving Credit Facility) plus a spread ranging from 2.25% to 4.00% per annum. The spread, in both cases, depends 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 0.375% to 0.75% per annum, (2) letter of credit fees ranging from 1.50% to 2.67% per annum for performance and commercial letters of credit and (3) letter of credit fees ranging from 2.25% to 4.00% for financial letters of credit. The fee rate, in all cases, depends on L-3 Communications’ debt rating at the time of determination. The debt rating is based on the credit ratings as determined by Standard & Poor’s Rating Services, Moody’s Investors Service, Inc. and Fitch Ratings of L-3 Communications’ non-credit enhanced senior, unsecured long-term debt.

On October 2, 2009, L-3 Communications issued $1 billion in aggregate principal amount of 5.20% Senior Notes due October 15, 2019 (Senior Notes) at a discount of $4 million. The discount was recorded as a reduction to the principal amount of the notes and will be amortized as an interest expense over the term of the notes. The effective interest rate of the Senior Notes is 5.25%. Interest on the Senior Notes is payable semi-annually on April 15 and October 15 of each year, commencing on April 15, 2010. The net cash proceeds from this offering amounted to approximately $987 million after deducting the discounts, commissions and estimated expenses, and were used, together with cash on hand, to redeem L-3 Communications’ $750 million 7⁵/₈% Senior Subordinated Notes due in 2012 (2002 Notes) on November 2, 2009 and to repay L-3 Communications’ outstanding $650 million Term Loan on October 7, 2009. In connection with the redemption of the 2002 Notes, the Company recorded a debt retirement charge of approximately $10 million ($6 million after income tax). The Senior Notes are unsecured senior obligations of L-3 Communications. The Senior Notes may be redeemed at any time prior to their maturity at the option of L-3 Communications, in whole or in part, at a redemption price equal to the greater of: (1) 100% of the principal amount, or (2) the present value of the remaining principal and interest payments discounted to the date of redemption, on a semi-annual basis, at the Treasury Rate (as defined in the Indenture dated as of October 2, 2009 (the Senior Indenture)), plus 0.30%. Upon the occurrence of a change in control (as defined in the Senior Indenture), each holder of the notes will have the right to require L-3 Communications to repurchase all or any part of such holder’s notes at an offer price in cash equal to 101% of the aggregate principle amount plus accrued and unpaid interest and special interest (as defined in the Senior Indenture), if any, to the date of the purchase.

L-3 Communications 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 outstanding 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⁾
		(in millions)

6¹/₈% Senior Subordinated Notes due July 15, 2013	May 21, 2003	$	400	$	2	$	391		6.170	%	July 15, 2008		102.042	%
6¹/₈% Senior Subordinated Notes due January 15, 2014	December 22, 2003	$	400	$	7	$	390		6.310	%	January 15, 2009		102.042	%
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. Effective January 1, 2009, the Company is separately accounting for the liability and equity (conversion option) components of the CODES in a manner that reflects the Company’s non-convertible debt borrowing rate when interest expense is realized in accordance with the provisions of the accounting standard for convertible debt. The effective interest rate of the CODES is 6.33%. Interest expense relates to both the contractual coupon interest and amortization of the discount on the liability components. Interest expense recognized was $42 million and $41 million for the years ended December 31, 2009 and December 31, 2008, respectively. The following table provides the carrying amount of the liability and equity (conversion option) of the Company’s CODES:


	December 31,		December 31,
	2009		2008
	(in millions)

Carrying amount of the equity component (conversion feature)	$	64	$	64
Unamortized discount of liability component being amortized through February 1, 2011	$	24	$	45
Net carrying amount of liability component	$	676	$	655

The CODES are convertible into cash and shares of L-3 Holdings’ common stock based on a conversion rate of 9.9862 shares of L-3 Holdings common stock per one thousand dollars in principal amount of the CODES (equivalent to a conversion price of $100.14 per share) only under the following circumstances: (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 $120.17) 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 $120.17); (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, 2009, the conversion feature of the CODES had no impact on diluted earnings per share (EPS) (see Note 16).

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, 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.

Guarantees

L-3 Communications

The borrowings under the Revolving Credit Facility are fully and unconditionally guaranteed by L-3 Holdings and by substantially all of the material wholly-owned domestic subsidiaries of L-3 Communications on an unsecured senior basis. The payment of principal and premium, if any, and interest on the Senior Notes are fully and unconditionally guaranteed, on an unsecured senior basis, jointly and severally, by L-3 Communications’ material wholly-owned domestic subsidiaries that guarantee any of its other indebtedness. 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 L-3 Communications’ material wholly-owned domestic subsidiaries that guarantee any of its other indebtedness.

L-3 Holdings

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.

Subordination

The guarantees of the Revolving Credit Facility and the Senior Notes rank senior to the guarantees of the Senior Subordinated Notes and the CODES and pari passu with each other. The guarantees of the Senior Subordinated Notes and CODES rank pari passu with each other and are junior to the guarantees of the Revolving Credit Facility and Senior Notes.

Covenants

Financial and other restrictive covenants. The Revolving Credit Facility and Senior Subordinated Notes indentures contain financial and other restrictive covenants that limit, among other things, the ability of the subsidiaries of L-3 Communications to borrow additional funds, and the ability of L-3 Communications and its subsidiaries to incur liens, make investments, merge or consolidate, dispose of assets, pay dividends or repurchase its common stock. The Company’s Revolving Credit Facility contains covenants that require that (1) the Company’s consolidated leverage ratio be less than or equal to 4.0 to 1.0; (2) the Company’s consolidated interest coverage ratio be greater than or equal to 3.0 to 1.0; and (3) the Company’s consolidated senior leverage ratio be less than or equal to 3.5 to 1.0, in each case, as of the end of any fiscal quarter. Calculations of the financial covenants are to exclude, among other things, certain items such as impairment losses on goodwill or other intangible assets, non-cash gains or losses from discontinued operations, gains or losses in connection with asset dispositions, and gains or losses with respect to judgments or settlements in connection with litigation matters. As of December 31, 2009, the Company was in compliance with its financial and other restrictive covenants.

The Senior Indenture contains covenants customary for investment grade notes, including covenants that restrict the ability of L-3 Communications and its wholly-owned domestic subsidiaries to create, incur, assume or permit to exist any lien, except permitted liens (as defined in the Senior Indenture) and restrict the ability of L-3 Communications and its subsidiaries to enter into certain sale and leaseback transactions (as defined in the Senior Indenture).

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 Company’s 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 Company’s credit facilities up to a specified amount.

Restricted Payments. L-3 Holdings relies on dividends paid by L-3 Communications to generate the funds necessary to pay dividends on and repurchase its common stock. The Revolving Credit Facility contains provisions that limit the ability of L-3 Communications to pay dividends, repurchase L-3 Holdings’ common stock or other distributions with respect to any capital stock and make investments in L-3 Holdings. However, the Revolving 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 does not exceed the sum of (a) 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 that is guaranteed by L-3 Communications and (b) the amount of any premium, penalty, or accreted value payable in connection with such payment, prepayment or redemption;

	•	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 $2.0 billion, increased (or decreased) on a cumulative basis at the end of each quarter, commencing with the quarter ended December 31, 2009 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 October 23, 2009, provided 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 October 23, 2009 provided 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 October 23, 2009.

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, 2009, L-3 Holdings and L-3 Communications did not have any disqualified preferred stock.

The Senior Subordinated Notes indentures 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 Revolving 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, swap contracts or guarantees of L-3 Holdings, L-3 Communications or its subsidiaries, so long as the aggregate amount of such indebtedness, swap contracts or guarantees is at least $50 million and such defaults (other than payment defaults and defaults that have resulted in acceleration) have not been cured within 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. The Senior Notes indenture contains a cross acceleration provision that is triggered when a default or acceleration occurs under any indenture or instrument of L-3 Communications or its subsidiaries or the payment of which is guaranteed by L-3 Communications or its subsidiaries in an aggregate amount of at least $100 million.

Equity

12 Months Ended

Dec. 31, 2009

Equity [Abstract]

Equity


11.	Equity

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 management’s 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, 2009, the remaining dollar value under the share repurchase program was $426 million.

From January 1, 2010 through February 25, 2010, L-3 Holdings had repurchased 776,567 shares of its common stock at an average price of $86.81 per share for an aggregate amount of approximately $67 million.

Fair Value Measurements

12 Months Ended

Dec. 31, 2009

Fair Value Measurements [Abstract]

Fair Value Measurements


12.	Fair Value Measurements

The Company applies the accounting standards for fair value measurements to all of the Company’s assets and liabilities that are measured and recorded at fair value. Fair value is defined 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. The standards establish a fair value hierarchy that gives the highest priority to observable inputs and the lowest priority to unobservable inputs.

The following table presents the fair value hierarchy level for each of the Company’s assets and liabilities that are measured at fair value on a recurring basis.


	December 31,
	2009						2008
Description	Level 1⁽¹⁾		Level 2⁽²⁾		Level 3⁽³⁾		Level 1⁽¹⁾		Level 2⁽²⁾		Level 3⁽³⁾
	(in millions)

Assets
Cash equivalents	$	891	$	—	$	—	$	794	$	—	$	—
Derivatives (Foreign Currency Forward Contracts)		—		16		—		—		22		—


Total Assets	$	891	$	16	$	—	$	794	$	22	$	—


Liabilities
Derivatives (Foreign Currency Forward Contracts)	$	—	$	10	$	—	$	—	$	21	$	—


⁽¹⁾		Level 1 is based on quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

⁽²⁾		Level 2 is based on pricing inputs other than quoted prices in active markets, which are either directly or indirectly observable. The fair value is determined using a valuation model based on observable market inputs, including quoted foreign currency forward exchange rates and consideration of non-performance risk.

⁽³⁾		Level 3 is based on pricing inputs that are not observable and not corroborated by market data. The Company has no Level 3 assets or liabilities.

- Definition

This item represents the complete disclosure regarding the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments, assets, and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the Company is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risk is are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References+ Details

Financial Instruments

12 Months Ended

Dec. 31, 2009

Financial Instruments [Abstract]

Financial Instruments


13.	Financial Instruments

At December 31, 2009 and 2008, the Company’s financial instruments consisted primarily of cash and cash equivalents, billed receivables, trade accounts payable, Senior Notes, 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 the Senior Notes and CODES are based on quoted prices for the same or similar debt issues. 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 foreign currency forward contracts are based on forward exchange rates. The carrying amounts and estimated fair values of the Company’s financial instruments are presented in the table below.


	December 31, 2009				December 31, 2008
	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value
			(in millions)

Borrowings under the Term Loan Facility	$	—	$	—	$	650	$	608
Senior Notes		996		995		—		—
Senior Subordinated Notes		2,440		2,461		3,188		2,916
CODES		676		736		655		697
Foreign currency forward contracts⁽¹⁾		6		6		1		1


⁽¹⁾		See Note 14 for additional disclosures regarding the notional amounts and fair values of foreign currency forward contracts.

- Definition

This item represents certain of the disclosures concerning the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments, assets, and liabilities. Such certain disclosures about the financial instruments, assets, and liabilities include: (1) the fair value of the required items together with their carrying amounts (as appropriate) and (2) the methodology and assumptions used in developing such estimates of fair value.

+ References+ Details

Derivative Financial Instruments

12 Months Ended

Dec. 31, 2009

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments


14.	Derivative Financial Instruments

Notional amounts are used to measure the volume of foreign currency forward contracts and do not represent exposure to foreign currency losses. The table below presents the notional amounts of the Company’s outstanding foreign currency forward contracts by currency as of December 31, 2009:


Currency	Notional Amount
	(in millions)

U.S. dollar	$	112
Canadian dollar		98
British pound		95
Euro		39
Other		8

Total	$	352

At December 31, 2009, the Company’s foreign currency forward contracts had maturities through 2016. The table below presents the fair values and the location of the Company’s derivative instruments in the Consolidated Balance Sheet as of December 31, 2009.


	Fair Values of Derivative Instruments⁽¹⁾
	Other				Other
	Current		Other		Current		Other
	Assets		Assets		Liabilities		Liabilities
			(in millions)

Derivatives designated as hedging instruments:
Foreign currency forward contracts	$	6	$	7	$	4	$	2
Derivatives not designated as hedging instruments:
Foreign currency forward contracts		2		1		3		1
Embedded derivative related to the CODES		—		—		—		—

Total derivative instruments	$	8	$	8	$	7	$	3


⁽¹⁾		See Note 12 for a description of the fair value hierarchy related to the Company’s foreign currency forward contracts.

The effect of gains or losses from foreign currency forward contracts was not material to the Consolidated Statement of Operations for the year ended December 31, 2009. The estimated net amount of existing gains at December 31, 2009 that is expected to be reclassified into income within the next 12 months is $2 million.

Accumulated Other Comprehensive (Loss) Income

12 Months Ended

Dec. 31, 2009

Accumulated Other Comprehensive (Loss) Income [Abstract]

Accumulated Other Comprehensive (Loss) Income


15.	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:


							Unrecognized			Total
				Unrealized			gains			accumulated
	Foreign			gains (losses)			(losses) and			other
	currency			on hedging			prior service			comprehensive
	translation			instruments			cost, net			(loss) income
				(in millions)

Balance at December 31, 2006	$	125		$	(5	)	$	(169	)	$	(49	)
Measurement date change for retirement benefit plans		—			—			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	)
Period change		117			—			49			166

Balance at December 31, 2009	$	155		$	5		$	(326	)	$	(166	)

- Definition

This label may include the following: 1) the amount of income tax expense or benefit allocated to each component of other comprehensive income, including reclassification adjustments, 2) the reclassification adjustments for each classification of other comprehensive income and 3) the ending accumulated balances for each component of comprehensive income. Components of comprehensive income include: (1) foreign currency translation adjustments; (2) gains and losses on foreign currency transactions that are designated as, and are effective as, economic hedges of a net investment in a foreign entity; (3) gains and losses on intercompany foreign currency transactions that are of a long-term-investment nature, when the entities to the transaction are consolidated, combined, or accounted for by the equity method in the reporting enterprise's financial statements; (4) change in the market value of a futures contract that qualifies as a hedge of an asset reported at fair value; (5) unrealized holding gains and losses on available-for-sale securities and that resulting from transfers of debt securities from the held-to-maturity category to the available-for-sale category; (6) a net loss recognized as an additional pension liability not yet recognized as net periodic pension cost; and (7) the net gain or loss and net prior service cost or credit for pension plans and other postretirement benefit plans.

+ References+ Details

L-3 Holdings' Earnings Per Share

12 Months Ended

Dec. 31, 2009

L-3 Holdings' Earnings Per Share [Abstract]

L-3 Holdings' Earnings Per Share


16.	L-3 Holdings’ Earnings Per Share

A reconciliation of basic and diluted EPS is presented in the table below.


	Year Ended December 31,
	2009			2008			2007
	(in millions, except per share data)

Reconciliation of net income:
Income from continuing operations	$	911		$	929		$	754
Net income attributable to noncontrolling interests		(10	)		(11	)		(9	)
Net income allocable to participating securities		(8	)		(9	)		(5	)

Income from continuing operations allocable to L-3 Holdings		893			909			740
Gain on sale of a business, net of income taxes		—			20			—

Net income allocable to L-3 Holdings	$	893		$	929		$	740

Earnings per share allocable to L-3 Holdings’ common shareholders:
Basic:
Weighted average common shares outstanding		116.8			121.2			124.9

Basic earnings per share:
Income from continuing operations	$	7.65		$	7.50		$	5.92
Gain on sale of a business, net of income taxes		—			0.17			—

Net income	$	7.65		$	7.67		$	5.92

Diluted:
Common and potential common shares:
Weighted average common shares outstanding		116.8			121.2			124.9
Assumed exercise of stock options		3.5			4.1			5.0
Unvested restricted stock awards		0.4			—			—
Employee stock purchase plan contributions		0.4			0.4			0.4
Performance unit awards		—			—			—
Assumed purchase of common shares for treasury		(3.7	)		(3.5	)		(4.2	)
Assumed conversion of the CODES		—	⁽¹⁾		0.2			0.1

Common and potential common shares		117.4			122.4			126.2

Diluted earnings per share:
Income from continuing operations	$	7.61		$	7.43		$	5.86
Gain on sale of a business, net of income taxes		—			0.16			—

Net income	$	7.61		$	7.59		$	5.86


⁽¹⁾		L-3 Holdings’ CODES had no impact on diluted EPS for the year ended December 31, 2009 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, 2009, the conversion price was $100.14.

Excluded from the computations of diluted EPS are shares related to stock options, restricted stock, and restricted stock units underlying employee stock-based compensation of 3.0 million for the year ended December 31, 2009, 2.3 million for the year ended December 31, 2008 and 1.6 million for the year ended December 31, 2007, because they were anti-dilutive.

Diluted EPS for the year ended December 31, 2008 included (1) a gain of $0.66 per share for the reversal of a current liability as a result of a June 27, 2008 decision by the U.S. Court of Appeals which vacated an adverse 2006 jury verdict and related accrued interest, (2) a gain of $0.06 per share for the sale of a product line (see Note 4), and (3) a non-cash impairment charge of $0.14 per share related to a write-down of capitalized software development costs associated with a general aviation product.

Income Taxes

12 Months Ended

Dec. 31, 2009

Income Taxes [Abstract]

Income Taxes


17.	Income Taxes

Income before income taxes is summarized in the table below.


	Year Ended December 31,
	2009		2008		2007
	(in millions)

Domestic	$	1,210	$	1,272	$	1,003
Foreign		176		151		162

Income from continuing operations before income taxes	$	1,386	$	1,423	$	1,165

The components of the Company’s current and deferred portions of the provision for income taxes are presented in the table below.


	Year Ended December 31,
	2009		2008			2007
	(in millions)

Current income tax provision:
Federal	$	304	$	244		$	228
State and local		58		47			43
Foreign		39		50			34

Subtotal		401		341			305

Deferred income tax provision (benefit):
Federal		60		137			82
State and local		5		23			13
Foreign		9		(7	)		11

Subtotal		74		153			106

Total provision for income taxes	$	475	$	494		$	411

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,
	2009			2008			2007

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			3.1
Foreign income taxes		(0.5	)		(1.1	)		(1.3	)
Manufacturing benefits		(0.8	)		(0.9	)		(0.7	)
Research and experimentation and other tax credits		(1.3	)		(1.0	)		(0.9	)
Resolution of tax contingencies		(1.9	)		(1.2	)		(1.0	)
Other, net		0.7			0.8			1.1

Effective income tax rate		34.3	%		34.7	%		35.3	%

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


	December 31,
	2009			2008
	(in millions)

Deferred tax assets:
Inventoried costs	$	12		$	3
Compensation and benefits		137			69
Pension and postretirement benefits		290			293
Income recognition on contracts in process		—			90
Loss carryforwards		21			15
Tax credit carryforwards		14			10
Other		132			107

Gross deferred tax assets		606			587

Deferred tax liabilities:
Goodwill and other intangible assets	$	538		$	439
Income recognition on contracts in process		17			—
Property, plant and equipment		58			41
Other		15			19

Gross deferred tax liabilities		628			499

Valuation allowance		3			4

Net deferred tax (liabilities) assets	$	(25	)	$	84

The following table presents the classification of the Company’s deferred tax assets and liabilities.


	December 31,
	2009			2008
	(in millions)

Current deferred tax assets	$	247		$	211
Non-current deferred tax liabilities		(272	)		(127	)

Total net deferred tax (liabilities) assets	$	(25	)	$	84

At December 31, 2009, the Company’s loss carryforwards included $3 million of U.S. Federal net operating losses that are subject to certain limitations and will expire, if unused, between 2023 and 2028, and approximately $118 million of state net operating losses that will expire, if unused, between 2010 and 2029. The Company also has $9 million of tax credit carryforwards related to state research and experimentation credits and investment tax credits that will expire, if unused, 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, $112 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.

As of December 31, 2009, the total amount of unrecognized tax benefits was $219 million, $125 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.


	2009			2008			2007
				(in millions)

Balance at January 1	$	171		$	253		$	302
Additions for tax positions related to the current year		17			10			10
Additions for tax positions related to prior years		64			14			1
Reductions for tax positions related to prior years		—			(87	)		(24	)
Reductions for tax positions related to settlements with taxing authorities		(2	)		(19	)		(31	)
Reduction for tax positions related to prior years as a result of a lapse of statute of limitations		(31	)		—			(5	)

Balance at December 31	$	219		$	171		$	253

The U.S. Federal income tax jurisdiction is the Company’s major tax jurisdiction. The statute of limitations for the Company’s U.S. Federal income tax returns for the years ended December 31, 2006 through 2008 is open as of December 31, 2009. The Internal Revenue Service (IRS) began its audit of the Company’s 2006 and 2007 U.S. Federal income tax returns in April 2009. In addition, the Company has numerous state and foreign income tax audits currently in process. As of December 31, 2009, the Company anticipates that unrecognized tax benefits will decrease by approximately $55 million over the next 12 months.

In 2009, the statute of limitations for the 2004 and 2005 U.S. Federal income tax returns of the Company, certain foreign income tax returns and certain returns of its acquired subsidiaries expired. As a result, the Company reduced its income tax provision by $31 million for the reversal of previously accrued amounts.

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 for the Company’s 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 Company’s 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, 2009 and 2008, current and non-current income taxes payable include accrued interest of $23 million ($14 million after income taxes) and $18 million ($11 million after income taxes), respectively, and penalties of $9 million and $7 million, respectively. The Company’s income tax expense included an expense (benefit) of $3 million, $(2) million and $1 million for interest related items in the years ended December 31, 2009, 2008 and 2007, respectively.

Stock-Based Compensation

12 Months Ended

Dec. 31, 2009

Stock-Based Compensation [Abstract]

Stock-Based Compensation


18.	Stock-Based Compensation

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 Company’s 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.

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, 2009, the number of shares of L-3 Holdings’ common stock authorized for grant under the 2008 Plans was 5.3 million, of which 2.5 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 Company’s 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 vest ratably over a three year period on the annual anniversary of the date of grant. All unvested options are subject to forfeiture upon termination of employment (subject to customary exceptions for death or disability). Compensation expense for stock option awards was $16 million ($10 million after income taxes) for the year ended December 31, 2009, $17 million ($10 million after income taxes) for the year ended December 31, 2008, and $20 million ($12 million after income taxes) for the year ended December 31, 2007. All of the stock option awards issued under the Plans are non-qualified stock options for U.S. income tax regulations. The table below presents a summary of the Company’s stock option activity as of December 31, 2009 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, 2009		5,158.3		$	72.12		6.7	$	45

Options granted		681.3			73.61
Options exercised		(466.2	)		52.27
Options forfeited		(139.5	)		87.00

Outstanding at December 31, 2009		5,233.9		$	73.68		6.3	$	83

Vested and expected to vest at December 31, 2009⁽¹⁾		5,038.0		$	73.32		6.3	$	81

Exercisable at December 31, 2009		3,887.1		$	69.59		5.4	$	74


⁽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 $14.67, $18.65, and $22.24 for the years ended December 31, 2009, 2008 and 2007, respectively. The aggregate intrinsic value, disclosed in the table above, represents the difference between L-3 Holding’s 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 $12 million, $35 million, and $66 million for the years ended December 31, 2009, 2008 and 2007, respectively. At December 31, 2009, unrecognized compensation costs related to stock options was $17 million ($10 million after income taxes), which is expected to be recognized over a weighted average remaining period of 2.0 years.

The actual income tax benefit realized related to compensation deductions arising from the exercise of stock options by the Company’s employees totaled $5 million, $13 million, and $25 million for the years ended December 31, 2009, 2008 and 2007, respectively.

Stock Option Fair Value Estimation Assumptions. The Company estimates the fair value of its stock options at the date of grant using the Black-Scholes option-pricing valuation model. The Company’s 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 stock option exercise data to estimate the expected holding period.

	•	Expected Volatility. Expected volatility is based on L-3 Holdings’ historical share price volatility matching the expected holding period.

	•	Expected Dividend Yield. Expected dividend yield is based on L-3 Holdings’ anticipated dividend payments and historical pattern of dividend increases over the expected holding period.

	•	Risk-Free Interest Rate. The risk-free interest rates for stock options are based on U.S. Treasuries for a maturity matching the expected holding period.

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.


	2009			2008			2007
	Grants			Grants			Grants

Expected holding period (in years)		4.6			4.7			4.5
Expected volatility		26.2	%		20.2	%		20.5	%
Expected dividend yield		2.4	%		1.6	%		1.3	%
Risk-free interest rate		2.5	%		3.2	%		4.6	%

Restricted Stock Units. The Company awards restricted stock units that automatically convert into shares of L-3 Holdings’ common stock upon vesting (in the case of awards granted to employees) or upon the date on which the recipient ceases to be a director (in the case of awards granted to directors). These awards are subject to forfeiture until certain restrictions have lapsed, including a three year cliff vesting period for employees and a one year cliff vesting period for directors, in each case starting on the date of grant. The weighted average grant date fair value of each restricted stock unit awarded was $74.02, $98.18 and $96.15 for the years ended December 31, 2009, 2008 and 2007, respectively. The grant date fair value of the restricted stock unit 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 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 unit awards was $42 million ($25 million after income taxes) for the year ended December 31, 2009, $32 million ($19 million after income taxes) for the year ended December 31, 2008, and $21 million ($13 million after income taxes) for the year ended December 31, 2007. The table below presents a summary of the Company’s nonvested restricted stock unit awards as of December 31, 2009 and changes during the year then ended.


				Weighted
				Average
	Number of			Grant Date
	Shares			Fair Value
	(in thousands)

Nonvested balance at January 1, 2009		1,288.9		$	91.88
Granted		822.2			74.02
Vested		(305.6	)		75.56
Forfeited		(98.3	)		90.20

Nonvested balance at December 31, 2009		1,707.2		$	86.30

As of December 31, 2009, total unrecognized compensation costs related to nonvested restricted stock unit awards were $67 million ($41 million after income taxes) and are expected to be recognized over a weighted average remaining period of 2.1 years. The total fair value of restricted stock unit awards vested during the years ended December 31, 2009, 2008 and 2007 as of their vesting dates was $23 million, $20 million and $6 million, respectively.

Performance Units. The Company’s Long-Term Incentive Program (LTIP) is a multi-year performance program under which each 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 number of units ultimately earned can range from zero to 200% of the target award. The final value of each award will vary based upon (1) the level of performance achieved by the Company over the associated performance period in relation to pre-determined performance goals 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.

In 2009, 2008, and 2007, the Company awarded performance units with a weighted average grant date fair value per unit of $87.18, $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-3’s diluted earnings per share (the EPS Element) and (2) the final value of half of the units is contingent upon L-3’s total stockholder return relative to a peer group of companies (the TSR Element). The performance period for units awarded during 2009, 2008 and 2007 begins on the first day of the Company’s 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, 2009, 2008, and 2007 was $9 million ($5 million after income taxes), $4 million ($2 million after income taxes), and $1 million ($1 million after income taxes), respectively. As of December 31, 2009, total unrecognized compensation costs related to the performance units were $9 million ($6 million after income taxes) and are expected to be recognized over a weighted average remaining period of 1.7 years.

The table below presents a summary of the Company’s performance unit awards based on expected performance as of December 31, 2009 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)

Outstanding at January 1, 2009		64.3		$	113.39		70.5		$	98.24
Granted		39.9			100.75		39.9			73.61
Increase due to expected performance		26.7			107.71		16.8			96.80
Vested		(38.9	)		117.68		(43.2	)		99.58
Forfeited		(1.0	)		108.51		(1.1	)		88.90

Outstanding at December 31, 2009		91.0		$	104.44		82.9		$	85.51

The performance period for the units awarded in 2007 ended on December 31, 2009. Based on the EPS element and TSR element achieved during the performance period, total performance units of 82,131 having a fair market value of $7 million as of their vesting date were earned by the LTIP participants on December 31, 2009.

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 and the variables described below.


	•	Expected Volatility. Expected volatility is based on L-3 Holdings’ historical share price volatility matching the remaining measurement period.

	•	Expected Dividend Yield. Expected dividend yield is based on L-3 Holdings’ anticipated dividend payments and historical pattern of dividend increases over the remaining measurement period.

	•	Risk-Free Interest Rate. Risk-free interest rates for the performance units are based on U.S. Treasuries for a maturity matching the remaining measurement period.

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, 2009 are presented in the table below.


	2009			2008
	Grants			Grants

Expected volatility		31.6	%		26.5	%
Expected dividend yield		1.6	%		1.6	%
Risk-free interest rate		1.1	%		0.5	%

Employee Stock Purchase Plan. Effective July 1, 2009, the Company adopted the 2009 Employee Stock Purchase Plan (2009 ESPP). As a result, no subsequent options to purchase shares of L-3 Holdings’ common stock have been or will be granted under the Company’s prior employee stock purchase plan (2001 ESPP).

The general terms of the 2009 ESPP are substantially identical to those of the 2001 ESPP. Under the 2009 ESPP, eligible employees are offered options to purchase shares of L-3 Holdings’ common stock at 85% of fair market value based on the average of the highest and lowest sales prices for the stock on the last day of each six-month offering period. Eligible employees generally include all employees of the Company and each subsidiary or affiliate of the Company that has been designated to participate in the 2009 ESPP. Offering periods begin on the first trading day in January and July of each calendar year and end on the last trading day in June and December of each calendar year. Share purchases are funded through payroll deductions of up to 10% of an employee’s eligible compensation for each payroll period, or $21,250 each calendar year.

After adjustment for the shares issued under the 2001 ESPP, the 2009 ESPP authorizes L-3 Holdings to issue up to 7.4 million shares, all of which were available for future issuance as of December 31, 2009 (i.e., excluding the effect of shares issued in January 2010 as described below). In July 2009, the Company issued 0.6 million shares under the 2001 ESPP at an average price of $58.92 per share, which covered employee contributions for the six months ended June 30, 2009. In January 2010, the Company issued 0.5 million shares under the 2009 ESPP at an average price of $74.83 per share, which covered employee contributions for the six months ended December 31, 2009. For both years ended December 31, 2009 and 2008, 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 2001 ESPP and 2009 ESPP.

Commitments and Contingencies

12 Months Ended

Dec. 31, 2009

Commitments and Contingencies [Abstract]

Commitments and Contingencies


19.	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 Company’s 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, 2009.


	Real Estate		Equipment		Total
	(in millions)

2010	$	151	$	23	$	174
2011		147		16		163
2012		100		12		112
2013		77		7		84
2014		67		6		73
Thereafter		166		23		189

Total minimum payments required		708		87		795
Less: Sublease rentals under non-cancelable leases		25		—		25

Net minimum payments required	$	683	$	87	$	770

Rent expense, net of sublease income, was $170 million for 2009, $166 million for 2008 and $162 million for 2007.

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 to $360 million, of which, $32 million reduces the amount available to the Company under the Revolving Credit Facility at December 31, 2009, and $372 million, of which, $60 million reduced the amount of available borrowings under the revolving credit facility at December 31, 2008. These letters of credit may be drawn upon in the event of the Company’s 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 Company’s 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 Kingdom’s Astute Class Submarine Training Service program. The Company has guaranteed 50% of certain bank debt borrowed by FAST to finance its activities on this program. At December 31, 2009, the Company’s guarantee amounted to $46 million. The Company will be released from the guarantee 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 Company’s 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 (July 15, 2017), the Company shall pay to the lessor, as additional rent, $3 million and return the simulator systems to the lessors.

U.S. and Foreign Government Procurement Regulations

A substantial majority of the Company’s 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, individually or in the aggregate, 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 Company’s U.S. Government contracts: (1) are subject to audit and various pricing and cost controls, (2) include standard provisions for termination for the convenience of the U.S. Government or for default, and (3) 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 Company’s 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 Company’s consolidated results of operations. The Company accrues for these contingencies when it is probable that a liability has been incurred and the amount of the 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 the accounting standard 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 estimated amounts 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, 2009, the Company did not record any amounts for recoveries from insurance contracts or third parties in connection with the amount of liabilities recorded for pending and threatened litigation. Legal defense costs are expensed as incurred. 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. While it is reasonably possible that an unfavorable outcome may occur in one or more of the following matters, unless otherwise stated below, the Company believes that it is not probable that a loss has been incurred in any of these matters. 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 liability. Although the Company believes that it has valid defenses with respect to legal matters and investigations pending against it, litigation is inherently unpredictable, including those that are expected to be resolved with jury trials, for which outcomes are difficult to predict. 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 or other contingencies.

Kalitta Air. On January 31, 1997, a predecessor of Kalitta Air filed a lawsuit in the U.S. District Court for the Northern District of California (the trial court) asserting, among other things, negligence and negligent misrepresentation against Central Texas Airborne Systems, Inc. (CTAS), a predecessor to L-3 Integrated Systems, in connection with work performed by a predecessor to CTAS to convert two Boeing 747 aircraft from passenger configuration to cargo freighters. The work was performed using Supplemental Type Certificates (STCs) issued in 1988 by the Federal Aviation Administration (FAA). In 1996, following completion of the work, the FAA issued an airworthiness directive with respect to the STCs that effectively grounded the aircraft. On August 11, 2000, the trial court granted CTAS’ motion for summary judgment as to negligence, dismissing that claim. In January 2001, after a ruling by the trial court that excluded certain evidence from trial, a jury rendered a unanimous defense verdict in favor of CTAS on the negligent misrepresentation claim. On December 10, 2002, the U.S. Court of Appeals for the Ninth Circuit (the Court of Appeals) reversed the trial court’s decisions as to summary judgment and the exclusion of evidence, and remanded the case for a new trial on both the negligence and negligent misrepresentation claims. The retrial ended on March 2, 2005 with a deadlocked jury and mistrial. On July 22, 2005, the trial court granted CTAS’ motion for judgment as a matter of law as to negligence, dismissing that claim, and denied CTAS’ motion for judgment as a matter of law as to negligent misrepresentation. On October 8, 2008, the Court of Appeals reversed the trial court’s dismissal of the negligence claim and affirmed the trial court’s ruling as to the negligent misrepresentation claim. As a result, the case was remanded to the trial court to reconsider the negligence claim and for further proceedings on the negligent misrepresentation claim. The trial court held a new hearing on CTAS’ motion to dismiss the negligence claim on April 30, 2009, after which it determined to take the matter under advisement. The case is currently scheduled to go to a third trial on November 1, 2010. The parties have participated in court-ordered mediations from time to time, and are expected to participate in future court-ordered mediations prior to trial, but to date such mediations have not resulted in a mutually acceptable resolution of this matter. In connection with these mediations, Kalitta Air has claimed it may seek damages at the third trial of between $430 million and $900 million, including between $200 million and $240 million of pre-judgment interest. CTAS’ insurance carrier has accepted defense of this matter and has retained counsel, subject to a reservation of rights by the insurer to dispute its obligations under the applicable insurance policies in the event of a finding against L-3. The Company believes that it has meritorious defenses to the claims asserted and the damages sought and intends to defend itself vigorously.

Korean Lot II Program. On April 4, 2005, Lockheed Martin Corporation (Lockheed) filed a lawsuit in the U.S. 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 Lockheed’s intellectual property rights as a result of its performance of a subcontract awarded to L-3 IS for the Korean Lot II program. On May 21, 2009, a jury found in favor of Lockheed and awarded $30 million on the misappropriation claim, approximately $7 million on the breach of license agreement claim, plus legal fees and expenses. On July 2, 2009, Lockheed filed a motion with the court seeking a final judgment, approximately $17 million in legal fees and expenses and an injunction prohibiting L-3’s further use of the intellectual property that was the basis of the jury’s award. On August 3, 2009, L-3 IS filed a motion for judgment in its favor notwithstanding the verdict and opposing the relief sought by Lockheed in its July 2nd motion. The court held a hearing on the motions on September 2, 2009. On August 28, 2009, L-3 IS filed another motion seeking dismissal or a retrial of the case on various grounds. The court has ordered further briefing by the parties with respect to the issues raised in the August 28th motion and has advised the parties that it will resolve these issues before it considers the matters raised in the other outstanding motions. The Company believes that the verdict and the damages awarded are inconsistent with the law and evidence presented, and intends to appeal in the event of an adverse decision on the motions.

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 November 2006 and December 2007 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 Lockheed’s allegations or produced in the civil litigation. The Company is cooperating fully with the U.S. Government.

Titan Government Investigation. In October 2002, The Titan Corporation (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 had 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 DoJ’s Criminal Antitrust Division that it was considering indictment. Additionally, a former Titan employee received a letter from the DoJ indicating that he was a target of the investigation. In December 2008, the DoJ contacted the Company to arrange additional employee interviews concerning a teaming agreement relating to the Wright-Patterson Air Force Base procurement. In January 2010, counsel for the Company was again informed by the New York Field Office that it was considering indictment. If the Field Office recommends indictment then, under normal DoJ procedures, Titan (now known as L-3 Services, Inc.) will be afforded an opportunity to make a presentation to the Criminal Antitrust Division in Washington, D.C. before the DoJ acts on the recommendation. It is not known whether an indictment of L-3 Services or any of its current or former 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. The Company is cooperating fully with the U.S. Government.

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 and has been asked to facilitate employee interviews. The Company is cooperating fully with the U.S. Government. The Company believes that it is entitled to indemnification for any course of defense related to this matter out of, and has made a claim against, a $15 million escrow fund established in connection with the Company’s acquisition of 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, Thales USA, Thales France, the Company and Aviation Communications & Surveillance Systems (ACSS), which is a joint venture of L-3 and Thales. 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 Company’s insurers have accepted defense of the matter and retained counsel, subject to a reservation of rights by the insurers to dispute their obligations under the applicable insurance policies in the event of an adverse finding. The matters were consolidated in the U.S. District Court for the District of 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 Court’s Registry in Spain. The trial for this matter was completed on April 22, 2009, and the parties are awaiting the court’s decision.

Gol Airlines. A complaint was filed on November 7, 2006 in the U.S. District Court for the Eastern District of New York against ExcelAire, Joseph Lepore, Jan Paul Paladino, and Honeywell. On October 23, 2007, an amended complaint was filed to include Lockheed, Raytheon, Amazon Technologies and ACSS. 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 Company’s insurers have accepted defense of this matter and have retained counsel, subject to a reservation of rights by the insurers to dispute their obligations under the applicable insurance policies in the event of an adverse finding. On July 2, 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 December 2, 2009, the U.S. Court of Appeals for the Second Circuit upheld this decision. Some of the plaintiffs re-filed their complaints in the Lower Civil Court in the Judicial District of Peixoto de Azevedo in Brazil on July 3, 2009.

Pensions and Other Employee Benefits

12 Months Ended

Dec. 31, 2009

Pensions and Other Employee Benefits [Abstract]

Pensions and Other Employee Benefits


20.	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 participant’s compensation and/or years of service. The Company’s funding policy is generally to contribute in accordance with cost accounting standards that affect government contractors, subject to the Internal Revenue Code and regulations thereon. Plan assets are invested primarily in listed stocks, mutual funds, corporate 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 Company’s pension plans. These benefits are funded primarily on a pay-as-you-go basis with the retiree generally paying a portion of the cost through contributions, deductibles and coinsurance provisions.

In accordance with accounting standards for employee pension and postretirement benefits, the Company recognizes the unfunded status of its pension and postretirement benefit plans in the consolidated financial statements and measures its pension and postretirement benefit plan assets and benefit obligations as of December 31.

The following table summarizes changes in the benefit obligations, the plan assets and funded status for all of the Company’s pension and postretirement benefit plans, as well as the aggregate balance sheet impact.


							Postretirement
	Pension Plans						Benefit Plans
	2009			2008			2009			2008
	(in millions)

Change in benefit obligation:
Benefit obligation at the beginning of the year	$	1,722		$	1,688		$	162		$	183
Service cost		93			89			4			6
Interest cost		112			104			11			10
Plan participants’ contributions		3			3			4			4
Amendments		7			—			(4	)		3
Actuarial loss/(gain)		68			(45	)		21			(24	)
Foreign currency exchange rate changes		31			(44	)		5			(7	)
Curtailments, settlements and special termination benefits		—			1			—			1
Transfers for product line divestiture		—			(8	)		—			(1	)
Benefits paid		(72	)		(66	)		(15	)		(13	)

Benefit obligation at the end of the year	$	1,964		$	1,722		$	188		$	162

Change in plan assets:
Fair value of plan assets at the beginning of the year	$	1,064		$	1,407		$	27		$	34
Actual return (loss) on plan assets		212			(394	)		5			(9	)
Employer contributions		67			162			12			11
Plan participants’ contributions		3			3			4			4
Foreign currency exchange rate changes		30			(43	)		—			—
Transfers for product line divestiture		—			(5	)		—			—
Benefits paid		(72	)		(66	)		(15	)		(13	)

Fair value of plan assets at the end of the year	$	1,304		$	1,064		$	33		$	27

Funded status at the end of the year	$	(660	)	$	(658	)	$	(155	)	$	(135	)

Amounts recognized in the consolidated balance sheets consist of:
Non-current assets	$	11		$	16		$	—		$	—
Current liabilities		(1	)		—			(8	)		(7	)
Non-current liabilities		(670	)		(674	)		(147	)		(128	)

	$	(660	)	$	(658	)	$	(155	)	$	(135	)

The table below summarizes the net loss and prior service cost balances at December 31, in the accumulated other comprehensive loss account, before related tax effects, for all of the Company’s pension and postretirement benefit plans.


					Postretirement
	Pension Plans				Benefit Plans
	2009		2008		2009			2008
	(in millions)

Net loss (gain)	$	518	$	621	$	9		$	(11	)
Prior service cost (credit)		24		21		(16	)		(14	)

Total amount recognized	$	542	$	642	$	(7	)	$	(25	)

The aggregate accumulated benefit obligation (ABO) for all of the Company’s pension plans was $1,659 million at December 31, 2009 and $1,443 million at December 31, 2008. The table below presents information for the pension plans with an ABO in excess of the fair value of plan assets at December 31, 2009 and 2008.


	Pension Plans
	2009		2008
	(in millions)

Projected benefit obligation	$	1,863	$	1,542
Accumulated benefit obligation		1,566		1,278
Fair value of plan assets		1,196		870

The table below summarizes the weighted average assumptions used to determine the benefit obligations for the Company’s pension and postretirement plans disclosed at December 31, 2009 and 2008.


							Postretirement
	Pension Plans						Benefit Plans
	2009			2008			2009			2008

Benefit obligations:
Discount rate		6.26	%⁽¹⁾		6.49	%⁽¹⁾		5.94	%⁽²⁾		6.74	%⁽²⁾
Rate of compensation increase		4.50	%		4.50	%		4.50	%		4.50	%


⁽¹⁾		The discount rate assumptions used to determine the benefit obligations for the Company’s pension plans at December 31, 2009 and 2008 were 6.3% and 6.4% for the U.S. based plans, 6.1% and 7.4% for the Canadian based plans and 5.8% and 6.2% for the German based plans.

⁽²⁾		The discount rate assumptions used to determine the benefit obligations for the Company’s postretirement benefit plans at December 31, 2009 and 2008 were 5.9% and 6.6% for the U.S. based plans and 6.1% and 7.4% for the Canadian based plans.

The following table summarizes the components of net periodic benefit cost for the Company’s pension and postretirement benefit plans for the years ended December 31, 2009, 2008 and 2007.


										Postretirement
	Pension Plans									Benefit Plans
	2009			2008			2007			2009			2008			2007
	(in millions)

Components of net periodic benefit cost:
Service cost	$	93		$	89		$	95		$	4		$	6		$	7
Interest cost		112			104			95			11			10			10
Expected return on plan assets		(91	)		(117	)		(112	)		(2	)		(2	)		(2	)
Amortization of prior service costs (credits)		4			3			3			(2	)		(3	)		(5	)
Amortization of net loss (gain)		53			7			11			(3	)		(2	)		3
Curtailment or settlement loss		2			1			1			—			—			—

Net periodic benefit cost	$	173		$	87		$	93		$	8		$	9		$	13

The following table summarizes the other changes in plan assets and benefit obligations recognized in other comprehensive income for the Company’s pension and postretirement benefit plans for the year ended December 31, 2009.


	Pension			Postretirement
	Plans			Benefit Plans
	(in millions)

Other changes in plan assets and benefit obligations recognized in other comprehensive income:
Net (gain) loss	$	(50	)	$	18
Prior service cost (credit)		7			(5	)
Amortization of net (loss) gain		(53	)		3
Amortization of prior service (cost) credit		(4	)		2

Total recognized in other comprehensive income		(100	)		18

Total recognized in net periodic benefit cost and other comprehensive income	$	73		$	26

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 2010.


	Pension		Postretirement
	Plans		Benefit Plans			Total
	(in millions)

Net loss (gain)	$	37	$	1		$	38
Prior service cost (credit)		4		(3	)		1

	$	41	$	(2	)	$	39

The table below summarizes the weighted average assumptions used to determine the net periodic benefit cost for the years ended December 31, 2009, 2008 and 2007.


										Postretirement
	Pension Plans									Benefit Plans
	2009			2008			2007			2009			2008			2007
	(in millions)

Net periodic benefit cost:
Discount rate		6.49	%⁽¹⁾		6.36	%⁽¹⁾		5.85	%⁽¹⁾		6.74	%⁽³⁾		6.07	%⁽³⁾		5.62	%⁽³⁾
Expected long-term return on plan assets		8.54	%⁽²⁾		8.55	%⁽²⁾		8.54	%⁽²⁾		6.18	%		6.36	%		6.25	%
Rate of compensation increase		4.50	%		4.50	%		4.50	%		4.50	%		4.50	%		4.50	%


⁽¹⁾		The discount rate assumptions used to determine the net periodic benefit cost for the Company’s pension plans during the years ended December 31, 2009, 2008 and 2007 were 6.4%, 6.5% and 6.0% for the U.S. based plans, 7.4%, 5.75% and 5.25% for the Canadian based plans and 6.2%, 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, 2009, 2008 and 2007 were 8.75% for the U.S. based plans and 7.5% for the Canadian based plans.

⁽³⁾		The discount rate assumptions used to determine the net periodic benefit cost for the Company’s postretirement benefit plans during the years ended December 31, 2009, 2008 and 2007 were 6.6%, 6.25% and 5.75% for the U.S. based plans and 7.4%, 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 Company’s 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 10.0% in 2010 and is assumed to gradually decrease to a rate of 5.0% in 2020 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		9		(8	)

Plan Assets. The Company’s Benefit Plan Committee (Committee) has the responsibility to formulate the investment policies and strategies for the plans’ assets. The Committee structures the investment of plan assets to achieve the following goals: (1) maximize the plans’ long-term rate of return on assets for an acceptable level of risk; and (2) limit the volatility of investment returns and consequent impact on the plans’ assets. In the pursuit of these goals, the Committee has formulated the following investment policies and objectives: (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 the Committee and help ensure that the above policies and strategies are met. The Committee does not actively manage the day to day operations and selection process of individual securities and investments, as it retains the professional services of qualified investment management organizations to fulfill those tasks. Qualified investment management organizations are evaluated on several criteria for selection, with a focus on the investment management organizations’ demonstrated capability to achieve results that will meet or exceed the investment objectives they have been assigned and conform to the policies established by the Committee. While 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.

The Committee has established the allowable range that the plans’ assets may be invested in for each major asset category. In addition, the Committee has established guidelines regarding diversification within asset categories to limit risk and exposure to a single or limited number of securities. The investments of the plans’ include a diversified portfolio of both equity and fixed income investments. Equity investments are further diversified across U.S. and non-U.S. stocks, small to large capitalization stocks, and growth and value stocks. Fixed income assets are diversified across U.S. and non-U.S. issuers, corporate and governmental issuers, and credit quality. The plan also invests in real estate through publicly traded real estate securities. Derivatives may be used only for hedging purposes or to create synthetic long positions. The plans are prohibited from directly owning commodities, unregistered securities, restricted stock, private placements, or interest in oil, gas, mineral exploration, or other development programs. Further, short selling or utilizing margin buying for investment purposes is prohibited.

The table below presents the allowable range for each major category of the plans’ assets at December 31, 2009, as well as the Company’s pension plan and postretirement benefit plan weighted-average asset allocations at December 31, 2009 and 2008, by asset category.


	U.S.							Canada
Asset Category	Range	2009			2008			Range	2009			2008

Domestic equity⁽¹⁾	30%-60%		44	%		43	%	15%-30%		20	%		16	%
International equity⁽²⁾	10%-20%		17			15		20%-50%		25			25
Fixed income securities	20%-40%		28			26		30%-55%		49			42
Real estate securities	0%-15%		5			5		—		—			—
Other, primarily cash and cash equivalents	0%-15%		6			11		0%-15%		6			17

Total			100	%		100	%			100	%		100	%


⁽¹⁾		Domestic equities for Canadian plans refers to equities of Canadian companies.

⁽²⁾		International equities for Canadian plans includes equities of U.S. companies.

The Committee regularly monitors the investment of the plans’ assets to ensure that the actual investment allocation remains within the established range. The Committee also regularly measures and monitors investment risk through ongoing performance reporting and investment manager reviews. Investment manager reviews include assessing the managers’ performance versus the appropriate benchmark index both in the short and long-term period, performance versus peers, and an examination of risk the managers assumed in order to achieve rates of return.

The table below presents the fair value of the Company’s pension plans’ assets at December 31, 2009, by asset category segregated by level within the fair value hierarchy, as described in Note 12:


	U.S. Plans’ Assets										Canadian Plans’ Assets
	Fair Value Measured at										Fair Value Measured at
	December 31, 2009										December 31, 2009
	Level 1			Level 2			Level 3		Total		Level 1			Level 2			Level 3		Total
	(in millions)										(in millions)

Asset Category
Equity securities:
U.S. Equity		470	⁽¹⁾		—			—		470		—			19	⁽¹⁾		—		19
International Equity		85	⁽¹⁾		103	⁽¹⁾		—		188		41	⁽¹⁾		38	⁽¹⁾		—		79
Fixed Income – Investment Grade		125	⁽²⁾		109	⁽³⁾		—		234		—			109	⁽³⁾		—		109
Fixed Income – High Yield		—			70	⁽⁴⁾		—		70		—			—			—		—
Real Estate Investment Trusts		55	⁽⁵⁾		—			—		55		—			—			—		—
Other		—			65	⁽⁶⁾		—		65		—			15	⁽⁶⁾		—		15

Total	$	735		$	347		$	—	$	1,082	$	41		$	181		$	—	$	222


⁽¹⁾		Equity securities consist of investments in common stock of U.S. and foreign companies.The fair value of equity securities is based on quoted market prices available in active markets at the close of a trading day, primarily the New York Stock Exchange (NYSE), National Association of Securities Dealers Automated Quotations (NASDAQ), and various foreign exchanges. The Level 2 investment balance is derived from pooled equity funds offered by registered investment companies.

⁽²⁾		Approximately 53% of the total investment in fixed income — investment grade for U.S. Plan Assets consists of a mutual fund offered by a registered investment company. The mutual fund invests in investment grade fixed income securities, mortgaged-backed securities, U.S. treasury and agency bonds and corporate bonds. This fund is classified by the Company as a Level 1 measurement within the fair value hierarchy as the mutual fund trades on an active market and daily, quoted prices are available.

⁽³⁾		The remaining 47% of the total investment in fixed income — investment grade for U.S. plan assets as well as the investment in fixed income — investment grade for Canadian plan assets is derived from pooled bond funds offered by registered investment companies. As these funds do not trade in an active market, the fair value is based on net asset values (NAV’s) calculated by fund managers based on yields currently available on comparable bonds of issuers with similar credit ratings, quoted prices of similar bonds in an active market, or cash flows based on observable input.

⁽⁴⁾		Fixed income — high yield consists of investments in corporate high-yield bonds from various industries. The fair values of these investments are based on yields currently available on comparable bonds of issuers with similar credit ratings, quoted prices of similar bonds in an active market, or cash flows based on observable inputs.

⁽⁵⁾		Real Estate Investment Trusts (REITs) consist of securities that trade on the major exchanges and invest in real estate directly, either through properties or mortgages.

⁽⁶⁾		Other consists primarily of short term investments maintained in a commingled trust or pooled fund, which primarily invests in short term, high quality money market securities such as government obligations, commercial paper, time deposits and certificates of deposit.

The table below presents the fair value of the Company’s postretirement benefit plans’ assets at December 31, 2009, by asset category segregated by level within the fair value hierarchy, as described in Note 12:


	Postretirement Benefit Plans’ Assets
	Fair Value Measured at
	December 31, 2009
	Level 1			Level 2			Level 3		Total
	(in millions)

Asset Category
Equity securities:
U.S. Equity		13	⁽¹⁾		—			—		13
International Equity		1	⁽¹⁾		1	⁽¹⁾		—		2
Fixed Income – Investment Grade		14	⁽²⁾		1	⁽³⁾		—		15
Fixed Income – High Yield		—			1	⁽⁴⁾		—		1
Real Estate Investment Trusts		1	⁽⁵⁾		—			—		1
Other		—			1	⁽⁶⁾		—		1

Total	$	29		$	4		$	—	$	33


⁽¹⁾		Equity securities consist of investments in common stock of U.S. and foreign companies. The fair value of equity securities is based on quoted market prices available in active markets at the close of a trading day, primarily the New York Stock Exchange (NYSE), National Association of Securities Dealers Automated Quotations (NASDAQ), and various foreign exchanges. The Level 2 investment balance is derived from a pooled equity fund offered by a registered investment company.

⁽²⁾		Approximately 93% of the total investment in fixed income — investment grade consists of a mutual fund offered by a registered investment company. The mutual fund invests in investment grade fixed income securities, mortgaged-backed securities, U.S. treasury and agency bonds and corporate bonds. This fund is classified by the Company as a Level 1 measurement within the fair value hierarchy as the mutual fund trades on an active market and daily, quoted prices are available.

⁽³⁾		The remaining 7% of the total investment in fixed income — investment grade is derived from a pooled bond fund offered by a registered investment company, which does not trade in an active market. The fair value is based on NAV’s calculated by the fund manager based on yields currently available on comparable bonds of issuers with similar credit ratings, quoted prices of similar bonds in an active market, or cash flows based on observable input.

⁽⁴⁾		Fixed income — high yield consists of investments in corporate high-yield bonds from various industries. The fair values of these investments are based on yields currently available on comparable bonds of issuers with similar credit ratings, quoted prices of similar bonds in an active market, or cash flows based on observable inputs.

⁽⁵⁾		Real Estate Investment Trusts (REITs) consist of securities that trade on the major exchanges and invest in real estate directly, either through properties or mortgages.

⁽⁶⁾		Other consists primarily of short term investments maintained in a commingled trust or pooled fund, which primarily invests in short term, high quality money market securities such as government obligations, commercial paper, time deposits and certificates of deposit.

Contributions. For the year ending December 31, 2010, the Company currently expects to contribute approximately $140 million to its pension plans and approximately $13 million to its postretirement benefit plans.

Multi-employer Benefit Plans. Certain of the Company’s 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 $15 million for 2009, $13 million for 2008 and $11 million for 2007.

Lockheed Martin Commitment. In connection with the Company’s 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 PBGC’s 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 Company’s 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, 2009, the Company contributed $10 million to the Subject Plans. At December 31, 2009, the aggregate projected benefit obligation was $256 million and the aggregate plan assets were $174 million for the Subject Plans. At December 31, 2009, the Company had recorded a liability of $82 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)

2010	$	87		12		1
2011		89		13		1
2012		94		14		1
2013		102		15		1
2014		110		15		1
Years 2015-2019		699		85		7

Employee Savings Plans. Under its various employee savings plans, the Company matches the contributions of participating employees up to a designated level. The extent of the match, vesting terms and the form of the matching contributions vary among the plans. Under these plans, the Company’s matching contributions in L-3 Holdings’ common stock and cash were $143 million for 2009, $144 million for 2008 and $126 million for 2007.

- Definition

Description containing the entire pension and other postretirement benefits disclosure as a single block of text.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 158

-Paragraph 7, 21, 22

Reference 2: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 132R

-Paragraph 5, 6, 7, 8

Reference 3: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 132R

-Paragraph 8

-Subparagraph m

Reference 4: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 106

-Paragraph 518

Reference 5: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 87

-Paragraph 264

Reference 6: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 132R

-Paragraph 5

-Subparagraph b

Reference 7: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 132R

-Paragraph 5

-Subparagraph a

Reference 8: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 132R

-Paragraph 5

-Subparagraph h

Reference 9: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 132R

-Paragraph 5

-Subparagraph q

Reference 10: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name FASB Staff Position (FSP)

-Number FAS106-2

-Paragraph 20, 21, 22

Reference 11: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Emerging Issues Task Force (EITF)

-Number 03-2

-Paragraph 8

Reference 12: http://www.xbrl.org/2003/role/presentationRef

-Publisher AICPA

-Name Accounting Principles Board Opinion (APB)

-Number 30

-Paragraph 26

Reference 13: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Implementation Guide (Q and A)

-Number FAS88

-Paragraph 63

+ Details

Supplemental Cash Flow Information

12 Months Ended

Dec. 31, 2009

Supplemental Cash Flow Information [Abstract]

Supplemental Cash Flow Information


21.	Supplemental Cash Flow Information


	Year Ended December 31,
	2009		2008		2007
	(in millions)

Interest paid	$	237	$	267	$	280
Income tax payments		387		343		200
Income tax refunds		13		8		7

Segment Information

12 Months Ended

Dec. 31, 2009

Segment Information [Abstract]

Segment Information


22.	Segment Information

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 Company’s 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 (which was not included in the Company’s segment performance measures), are included in the Company’s measure of segment profitability.

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


	Year Ended December 31,
	2009			2008⁽¹⁾			2007⁽¹⁾
	(in millions)

Net Sales
Products
C³ISR	$	2,082		$	1,794		$	1,742
Government Services		302			282			273
AM&M		688			647			640
Electronic Systems		4,739			4,607			4,102
Elimination of intercompany sales		(295	)		(200	)		(185	)

Total products sales		7,516			7,130			6,572

Services
C³ISR		1,090			778			564
Government Services		3,942			4,121			4,172
AM&M		2,255			2,031			1,913
Electronic Systems		1,035			972			853
Elimination of intercompany sales		(223	)		(131	)		(113	)

Total services sales		8,099			7,771			7,389

Consolidated total	$	15,615		$	14,901		$	13,961

Operating Income
C³ISR	$	344		$	244		$	225
Government Services		397			426			407
AM&M		243			243			250
Electronic Systems		672			646	⁽²⁾		566

Segment Total	$	1,656		$	1,559		$	1,448
Litigation gain (charge)		—			126	⁽³⁾		—

Consolidated total	$	1,656		$	1,685		$	1,448

Depreciation and amortization
C³ISR	$	43		$	40		$	40
Government Services		40			35			33
AM&M		19			24			28
Electronic Systems		116			107			106

Consolidated total	$	218		$	206		$	207

Capital Expenditures
C³ISR	$	60		$	86		$	34
Government Services		12			14			14
AM&M		15			12			13
Electronic Systems		95			100			94
Corporate		4			6			2

Consolidated total	$	186		$	218		$	157

Total Assets
C³ISR	$	1,865		$	1,755		$	1,725
Government Services		3,333			3,494			3,467
AM&M		1,914			1,836			1,972
Electronic Systems		6,524			6,319			6,193
Corporate		1,177			1,080			1,032

Consolidated total	$	14,813		$	14,484		$	14,389


⁽¹⁾		As a result of certain re-alignments in the Company’s management and organization structure as discussed in Note 2, sales of $15 million and $12 million and operating income of $5 million and $3 million were reclassified from the C³ISR reportable segment to the Government Services reportable segment for the years ended December 31, 2008 and 2007, and sales of $15 million and $21 million and operating income of $2 million and $3 million were reclassified from the C³ISR reportable segment to the AM&M reportable segment for the years ended December 31, 2008 and 2007. At December 31, 2008, $30 million of total assets were reclassified from the C³ISR reportable segment to the Government Services reportable segment and $29 million of total assets were reclassified from the C³ISR reportable segment to the AM&M reportable segment. At December 31, 2007, $29 million of total assets was reclassified from the C³ISR reportable segment to the Government Services reportable segment and $44 million of total assets was reclassified from the C³ISR reportable segment to the AM&M reportable segment.

⁽²⁾		Operating income for the Electronic Systems reportable segment includes: (i) a gain of $12 million from the sale of the PMD product line (see note 4) and (ii) a non-cash impairment charge of $28 million related to a write-down of capitalized software development costs, which were both recorded in the second quarter of 2008.

⁽³⁾		Represents a gain recorded in the second quarter of 2008 for the reversal of a current liability for pending and threatening litigations as a result of a June 27, 2008 decision by the U.S. Court of Appeals which vacated an adverse 2006 jury verdict.

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 Company’s assets are located in North America.

The Company’s 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,
	2009		2008		2007
	(in millions)

U.S.	$	13,666	$	12,815	$	11,867
Foreign:
Canada		283		308		368
Germany		276		324		318
Australia		176		147		93
United Kingdom		173		212		216
South Korea		132		140		193
Italy		76		93		39
China		63		59		42
Other		770		803		825

Total foreign		1,949		2,086		2,094

Consolidated	$	15,615	$	14,901	$	13,961

Net sales to principal customers are summarized in the table below.


	Year Ended December 31,
	2009		2008		2007
	(in millions)

U.S. Government agencies⁽¹⁾	$	13,059	$	12,126	$	11,203
Commercial		1,474		1,676		1,786
Allied foreign governments⁽¹⁾		1,082		1,099		972

Consolidated	$	15,615	$	14,901	$	13,961


⁽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.

Unaudited Quarterly Financial Data

12 Months Ended

Dec. 31, 2009

Unaudited Quarterly Financial Data [Abstract]

Unaudited Quarterly Financial Data


23.	Unaudited Quarterly Financial Data

Unaudited summarized financial data by quarter for the years ended December 31, 2009 and 2008 is presented in the table below. The Company’s unaudited quarterly results of operations are affected, significantly in some periods, by our business acquisitions. See Note 4.


	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
	(in millions, except per share data)

2009
Sales	$	3,636	$	3,929	$	3,842	$	4,208
Operating income		376		417		418		446
Net income attributable to L-3		199		225		250		227
Basic EPS⁽¹⁾		1.66		1.91		2.13		1.94
Diluted EPS⁽¹⁾		1.66		1.90		2.12		1.93
2008
Sales	$	3,506	$	3,722	$	3,662	$	4,011
Operating income		368		501		400		416
Income from continuing operations attributable to L-3		189		275		210		244
Net income attributable to L-3		189		275		210		264
Basic EPS⁽¹⁾:
Income from continuing operations	$	1.53	$	2.24	$	1.71	$	2.02
Gain on sale of a business, net of income taxes		—		—		—		0.16

Net income	$	1.53	$	2.24	$	1.71	$	2.18

Diluted EPS⁽¹⁾:
Income from continuing operations	$	1.51	$	2.21	$	1.70	$	2.01
Gain on sale of a business, net of income taxes		—		—		—		0.16

Net income	$	1.51	$	2.21	$	1.70	$	2.17


⁽¹⁾		Basic and diluted EPS amounts in each quarter are computed using the weighted-average number of shares outstanding during that quarter, while basic and diluted EPS for the full year is computed using the weighted-average number of shares outstanding during the year. Therefore, the sum of the four quarters’ basic or diluted EPS may not equal the full year basic or diluted EPS.

- Definition

This element can be used to disclose the entire quarterly financial data disclosure in the annual financial statements as a single block of text. The disclosure includes a tabular presentation of financial information for each fiscal quarter for the current and previous year, including revenues, gross profit, income (loss) before extraordinary items and cumulative effect of a change in accounting principle and earnings per share data. It also includes an indication if the information in the note is unaudited, comments on the aggregate effect of year-end adjustments, and an explanation of matters or transactions that affect comparability or are pertinent to an understanding of the information furnished. Alternatively, the details of this disclosure can be reported using the elements in this group, or by using other taxonomy elements and applying the appropriate quarterly date and period contexts when creating an instance document. For example, the element for "Interest and Dividend Income, Operating" may be used by financial institutions from the Statement of Income, applying the appropriate quarterly date and period context when creating an instance document.

+ References+ Details

Financial Information of L-3 Communications and Its Subsidiaries

12 Months Ended

Dec. 31, 2009

Financial Information of Parent Company and Its Subsidiaries [Abstract]

Financial Information of L-3 Communications and Its Subsidiaries


24.	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, 2009.


	L-3 Communications
	Common Stock				Additional
	Shares		Par		Paid-in		Treasury		Retained
	Issued		Value		Capital		Stock		Earnings			Total
					(in millions)

Balance at December 31, 2006		100		—	$	3,466	$	—	$	1,938		$	5,404
Net income attributable to L-3		—		—		—		—		745			745
Contributions from L-3 Holdings		—		—		351		—		—			351
Dividends to L-3 Holdings		—		—		—		—		(626	)		(626	)

Balance at December 31, 2007		100		—		3,817		—		2,057			5,874
Net income attributable to L-3		—		—		—		—		938			938
Contributions from L-3 Holdings		—		—		319		—		—			319
Dividends to L-3 Holdings		—		—		—		—		(941	)		(941	)

Balance at December 31, 2008		100		—		4,136		—		2,054			6,190
Net income attributable to L-3		—		—		—		—		901			901
Contributions from L-3 Holdings		—		—		313		—		—			313
Dividends to L-3 Holdings		—		—		—		—		(671	)		(671	)

Balance at December 31, 2009		100		—	$	4,449	$	—	$	2,284		$	6,733

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 Company’s 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.

L-3 Communications is a wholly-owned subsidiary of L-3 Holdings. The debt of L-3 Communications, including the Senior Notes, Senior Subordinated Notes and borrowings under amounts drawn against the Revolving 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.

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, 2009:
Current assets:
Cash and cash equivalents	$	—		$	797		$	4		$	364		$	(149	)	$	1,016
Billed receivables, net		—			321			629			199			—			1,149
Contracts in process		—			593			1,533			251			—			2,377
Other current assets		—			334			164			111			—			609

Total current assets		—			2,045			2,330			925			(149	)		5,151
Goodwill		—			1,144			5,874			1,172			—			8,190
Other assets		3			485			810			177			(3	)		1,472
Investment in and amounts due from consolidated subsidiaries		7,240			8,771			1,949			24			(17,984	)		—

Total assets	$	7,243		$	12,445		$	10,963		$	2,298		$	(18,136	)	$	14,813

Current liabilities	$	—		$	714		$	1,338		$	579		$	(149	)	$	2,482
Other long-term liabilities		—			1,052			226			281			—			1,559
Long-term debt		676			4,112			—			—			(676	)		4,112

Total liabilities		676			5,878			1,564			860			(825	)		8,153

L-3 shareholders’ equity		6,567			6,567			9,399			1,438			(17,404	)		6,567
Noncontrolling interests		—			—			—			—			93			93

Total equity		6,567			6,567			9,399			1,438			(17,311	)		6,660

Total liabilities and equity	$	7,243		$	12,445		$	10,963		$	2,298		$	(18,136	)	$	14,813

At December 31, 2008:
Current assets:
Cash and cash equivalents	$	—		$	720		$	2		$	228		$	(83	)	$	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			2,334			788			(83	)		4,961
Goodwill		—			1,171			5,746			1,112			—			8,029
Other assets		6			475			837			182			(6	)		1,494
Investment in and amounts due from consolidated subsidiaries		6,507			8,489			1,283			80			(16,359	)		—

Total assets	$	6,513		$	12,057		$	10,200		$	2,162		$	(16,448	)	$	14,484

Current liabilities	$	—		$	824		$	1,395		$	571		$	(83	)	$	2,707
Other long-term liabilities		—			882			219			242			—			1,343
Long-term debt		655			4,493			—			—			(655	)		4,493

Total liabilities		655			6,199			1,614			813			(738	)		8,543

L-3 shareholders’ equity		5,858			5,858			8,586			1,349			(15,793	)		5,858
Noncontrolling interests		—			—			—			—			83			83

Total equity		5,858			5,858			8,586			1,349			(15,710	)		5,941

Total liabilities and equity	$	6,513		$	12,057		$	10,200		$	2,162		$	(16,448	)	$	14,484

Condensed Combining Statements of Operations:
For the year ended December 31, 2009:
Net sales	$	—		$	3,419		$	10,397		$	1,929		$	(130	)	$	15,615
Cost of sales		74			2,987			9,413			1,689			(204	)		13,959

Operating (loss) income		(74	)		432			984			240			74			1,656
Interest and other income, net		—			14			3			2			—			19
Interest expense		45			163			110			6			(45	)		279
Debt retirement charge		—			10			—			—			—			10

(Loss) income before income taxes		(119	)		273			877			236			119			1,386
(Benefit) provision for income taxes		(37	)		119			275			81			37			475
Equity in net income of consolidated subsidiaries		983			747			—			—			(1,730	)		—

Net income		901			901			602			155			(1,648	)		911
Net income attributable to noncontrolling interests		—			—			—			—			10			10

Net income attributable to L-3	$	901		$	901		$	602		$	155		$	(1,658	)	$	901

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		43			287			110			7			(157	)		290

(Loss) income from continuing operations before income taxes		(107	)		393			828			202			107			1,423
(Benefit) provision for income taxes		(39	)		116			304			74			39			494

(Loss) income from continuing operations		(68	)		277			524			128			68			929
Gain on sale of a business, net of income taxes		—			20			—			—			—			20
Equity in net income of consolidated subsidiaries		1,006			641			—			—			(1,647	)		—

Net income		938			938			524			128			(1,579	)		949
Net income attributable to noncontrolling interests		—			—			—			—			11			11

Net income attributable to L-3	$	938		$	938		$	524		$	128		$	(1,590	)	$	938

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		42			312			1			5			(46	)		314

(Loss) income before income taxes		(95	)		50			891			224			95			1,165
(Benefit) provision for income taxes		(34	)		14			317			80			34			411
Equity in net income of consolidated subsidiaries		806			709			—			—			(1,515	)		—

Net income		745			745			574			144			(1,454	)		754
Net income attributable to noncontrolling interests		—			—			—			—			9			9

Net income attributable to L-3	$	745		$	745		$	574		$	144		$	(1,463	)	$	745

Condensed Combining Statements of Cash Flows:
For the year ended December 31, 2009:
Operating activities:
Net cash from operating activities	$	670		$	132		$	1,093		$	248		$	(736	)	$	1,407

Investing activities:
Business acquisitions, net of cash acquired		—			(90	)		—			—			—			(90	)
Other investing activities		(87	)		(64	)		(103	)		(15	)		87			(182	)

Net cash used in investing activities		(87	)		(154	)		(103	)		(15	)		87			(272	)

Financing activities:
Common stock repurchased		(505	)		—			—			—			—			(505	)
Proceeds from sale of senior notes		—			996			—			—			—			996
Repayment of borrowings under term loan facility		—			(650	)		—			—			—			(650	)
Redemption of senior subordinated notes		—			(750	)		—			—			—			(750	)
Other financing activities		(78	)		503			(988	)		(116	)		583			(96	)

Net cash (used in) from financing activities		(583	)		99			(988	)		(116	)		583			(1,005	)

Effect of foreign currency exchange rate on cash		—			—			—			19			—			19

Net increase (decrease) in cash		—			77			2			136			(66	)		149
Cash and cash equivalents, beginning of the year		—			720			2			228			(83	)		867

Cash and cash equivalents, end of the year	$	—		$	797		$	4		$	364		$	(149	)	$	1,016

For the year ended December 31, 2008:
Operating activities:
Net cash from operating activities	$	941		$	38		$	1,215		$	204		$	(1,011	)	$	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			(1,109	)		(162	)		921			(46	)

Net cash (used in) from financing activities		(838	)		348			(1,109	)		(162	)		921			(840	)

Effect of foreign currency exchange rate on cash		—			—			—			(28	)		—			(28	)

Net increase (decrease) in cash		—			88			(5	)		(9	)		13			87
Cash and cash equivalents, beginning of the year		—			632			7			237			(96	)		780

Cash and cash equivalents, end of the year	$	—		$	720		$	2		$	228		$	(83	)	$	867

For the year ended December 31, 2007:
Operating activities:
Net cash from operating activities	$	626		$	107		$	995		$	229		$	(687	)	$	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			(905	)		(123	)		542			36

Net cash (used in) from financing activities		(473	)		495			(905	)		(123	)		542			(464	)

Effect of foreign currency exchange rate on cash		—			—			—			14			—			14

Net increase in cash		—			329			3			92			8			432
Cash and cash equivalents, beginning of the year		—			303			4			145			(104	)		348

Cash and cash equivalents, end of the year	$	—		$	632		$	7		$	237		$	(96	)	$	780

Consolidated Statements of Operations (Parenthetical) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2008
Statements of Operations [Abstract]
Income taxes effect on gain on sale of a business	$ 13