8-K 1 file001.txt FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported) November 9, 2001 ----------------- L-3 Communications Holdings, Inc. L-3 Communications Corporation -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Delaware -------------------------------------------------------------------------------- (State or Other Jurisdiction of Incorporation) 001-14141 13-3937434 333-46983 13-3937436 -------------------------------------------------------------------------------- (Commission File Number) (IRS Employer Identification No.) 600 Third Avenue, New York, New York 10016 -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (212) 697-1111 -------------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Item 5. Other Events On November 9, 2001, the Company designated certain of its domestic subsidiaries as additional guarantors of the debt of L-3 Communications Corporation ("L-3 Communications"), including the Senior Subordinated Notes and borrowings under amounts drawn against the senior credit facilities, all of which are guaranteed, on a joint and several, full and unconditional basis, by certain of the Company's wholly owned domestic subsidiaries. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
A. Financial Statements EER Systems, Inc. o Report of Independent Auditors................................................................ A-1 o Financial Statements -- Consolidated Balance Sheet as of December 31, 2000 ....................................... A-2 -- Consolidated Statement of Operations, Retained Earnings and other Comprehensive Income for the year ended December 31, 2000 ....................................................... A-3 -- Consolidated Statement of Cash Flows for the year ended December 31, 2000 ................ A-4 -- Notes to Consolidated Financial Statements ............................................... A-5 -- Condensed Consolidated Balance Sheet as of March 31, 2001..................................A-9 -- Condensed Consolidated Statements of Operations, Retained Earnings and Other Comprehensive Income for the Three Months Ended March 31, 2001 and 2000 ..............................A-10 -- Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000................................................................................A-11 -- Notes to Unaudited Condensed Consolidated Financial Statements............................A-12 L-3 Communications Holdings, Inc. and L-3 Communications Corporation o Unaudited Financial Information of L-3 Communications and its Subsidiaries....................A-14 -- Condensed Combining Balance Sheets .......................................................A-15 -- Condensed Combining Statements of Operations .............................................A-16 -- Condensed Combining Statements of Cash Flows .............................................A-17 C. Exhibits 23. Consent of PricewaterhouseCoopers LLP
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. L-3 COMMUNICATIONS HOLDINGS, INC. By: /s/ Robert V. LaPenta ------------------------------------ President and Chief Financial Officer L-3 COMMUNICATIONS CORPORATION Date December 19, 2001 By: /s/ Robert V. LaPenta ----------------- ------------------------------------ President and Chief Financial Officer REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders of EER Systems, Inc. We have audited the accompanying consolidated balance sheet of EER Systems Inc. (the "Company") as of December 31, 2000, and related statements of operations, retained earnings and other comprehensive income and of cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2000, and its consolidated results of operations and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. 1751 Pinnacle Drive McLean, Virginia March 9, 2001 A-1 EER SYSTEMS, INC. CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS DECEMBER 31, 2000 ----------------- Current assets: Cash and cash equivalents ...................................................... $ 597 Marketable equity securities ................................................... 219 Accounts receivable ............................................................ 34,890 Other accounts receivable ...................................................... 328 Prepaid expenses ............................................................... 323 ------- Total current assets ........................................................ 36,357 ------- Property and equipment, net ..................................................... 2,146 Investment in unimproved land ................................................... 764 Goodwill, net ................................................................... 11,236 Other intangible assets, net .................................................... 1,265 Other assets .................................................................... 115 ------- Total assets ................................................................ $51,883 ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Line of credit ................................................................. $ 7,197 Accounts payable and accrued expenses .......................................... 4,966 Accrued salaries ............................................................... 1,648 Unearned revenue ............................................................... 3,048 ------- Total current liabilities ................................................... 16,859 Other long-term liabilities ..................................................... 28 ------- Total liabilities ........................................................... 16,887 ------- Stockholders' equity: Common stock, par value $.01; 25,000 shares authorized; 15,750 shares issued and outstanding .................................................................. -- Capital in excess of par ....................................................... 12,071 Accumulated other comprehensive income ......................................... 28 Retained earnings .............................................................. 22,897 ------- Total stockholders' equity .................................................. 34,996 ------- Total liabilities and stockholders' equity .................................. $51,883 =======
See notes to consolidated financial statements. A-2 EER SYSTEMS, INC. CONSOLIDATED STATEMENT OF OPERATIONS, RETAINED EARNINGS, AND OTHER COMPREHENSIVE INCOME (IN THOUSANDS)
YEAR ENDED DECEMBER 31, 2000 ----------------- Contract revenue .......................................... $146,164 -------- Operating costs: Contract salaries ........................................ 41,769 Subcontractors and consultants ........................... 29,040 Other direct costs and materials ......................... 25,670 Overhead, general and administrative expenses ............ 36,762 -------- Total operating costs ................................. 133,241 -------- Operating income .......................................... 12,923 -------- Other income (expense): Gain on sale of assets ................................... 178 Loss on sale of marketable securities .................... (2,506) Loss on investment in affiliated company ................. (886) Interest expense ......................................... (1,201) Other, net ............................................... 58 -------- Total other expense ................................... (4,357) -------- Net income ............................................... 8,566 Retained earnings, beginning of year ...................... 19,283 Stockholders distributions ................................ (4,952) -------- Retained earnings, end of year ............................ $22,897 ======== Other comprehensive income: Net income ............................................... $ 8,566 Unrealized gain on marketable equity securities .......... (1) -------- Total other comprehensive income ...................... $ 8,565 ========
See notes to consolidated financial statements. A-3 EER SYSTEMS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, 2000 ----------------- Cash flows from operating activities: Net income .................................................................... $ 8,566 Adjustments to reconcile change in net income to net cash provided by operating activities: Depreciation and amortization ............................................... 3,258 Loss on sale of marketable securities ....................................... 2,506 Loss on investment in affiliated company .................................... 886 Gain on sale of assets ...................................................... (178) Changes in operating assets and liabilities: Accounts receivable ........................................................ 7,686 Other accounts receivable .................................................. 130 Prepaid expenses ........................................................... 457 Other assets ............................................................... (26) Accounts payable and accrued expenses ...................................... (586) Accrued salaries ........................................................... (314) Unearned revenue ........................................................... 3,048 Other liabilities .......................................................... (28) --------- Net cash provided by operating activities ................................ 25,405 --------- Cash flows from investing activities: Proceeds from note receivable from related party .............................. 1,137 Additions of equipment ........................................................ (800) Proceeds from sale of assets .................................................. 735 Purchases of marketable securities ............................................ (527) Advances to affiliated company ................................................ (696) Proceeds from sales of marketable securities .................................. 392 --------- Net cash provided by investing activities ................................ 241 --------- Cash flows from financing activities: Net decrease in borrowings on line of credit .................................. (10,427) Payments on debt .............................................................. (10,000) Distributions to stockholders ................................................. (4,952) --------- Net cash used by financing activities .................................... (25,379) --------- Increase in cash .............................................................. 267 Cash and cash equivalents, beginning of year .................................. 330 --------- Cash and cash equivalents, end of year ........................................ $ 597 ========= Supplementary disclosures of cash flow: Information and non-cash activities: Interest paid during the year .............................................. $ 1,201 =========
See notes to consolidated financial statements. A-4 EER SYSTEMS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization EER Systems, Inc. ("EER" or the "Company") was incorporated December 16, 1985, under the laws of the Commonwealth of Virginia. The Company derives the major portion of its revenue from consulting services rendered to the Federal Government. For 2000, these contracts were time and material and cost-type contracts (85%) and fixed-price contracts (15%). On January 1, 2000, the operations of Technautics, Inc. ("Technautics"), a wholly-owned subsidiary, were merged into EER Systems, Inc. Technautics was subsequently dissolved. Principles of Consolidation The consolidated financial statements include the accounts of the Company and the majority owned and controlled subsidiary Iatros, Inc. ("Iatros"). The consolidated financial statements include 100% of losses incurred by Iatros as the portion of such losses attributed to the minority interest exceeds their investment basis. All significant intercompany accounts and transactions have been eliminated. Revenue Recognition The principal source of revenue of the Company is derived from contracts with various agencies of the Federal government. Revenue on time-and-materials contracts is recognized based on hours delivered at the contracted billable hourly rate plus the cost of materials incurred. Revenue on firm fixed-price contracts is recognized using the percentage-of-completion method based on costs incurred in relation to total estimated costs. Revenue on cost-type contracts is recognized to the extent of costs incurred plus a proportionate amount of fee earned. The fees under certain government contracts may be increased or decreased in accordance with cost or performance incentive provisions that measure actual performance against established targets or other criteria. Such incentive fee awards or penalties are included in revenues at the time the amounts can be reasonably determined. Provision for anticipated contract losses are recognized as soon as they become known and estimable. Cash and Cash Equivalents Cash and cash equivalents include cash on hand and in banks. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. As of December 31, 2000, cash equivalents included money market funds of $46,000. Concentration of Credit Risk At times during the year, the Company maintains cash balances at financial institutions in excess of Federal Deposit Insurance Corporation (FDIC) limits. In addition, the Company had cash balances of $46,000 held in non-FDIC insured money market funds at local institutions as of December 31, 2000. Management believes the risk in these situations to be minimal. Marketable Securities The Company determines the appropriate classification of marketable securities at the time of purchase and reevaluates such designation as of each balance sheet date. The Company's marketable securities are categorized as "available for sale" and accordingly, are carried at fair value, with unrealized gains and losses, reported as accumulated other comprehensive income within the stockholders' equity section of the balance sheet. Marketable securities consist of equity securities that have a readily determinable fair market value. For the year ended December 31, 2000, the Company sold the majority of its marketable A-5 EER SYSTEMS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED securities for $392,000 resulting in gross realized losses of $2,506,000. The cost basis of the securities sold was based on specific identification. As of December 31, 2000, unrealized gains on marketable securities were $28,000. Long-lived Assets The Company evaluates the recoverability of its long-lived assets in accordance with the Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-lived Assets and Long-lived Assets to be Disposed of ("SFAS 121"). SFAS 121 requires recognition of impairment of long-lived assets in the event net book value of such assets exceeds the future undiscounted net cash flows attributable to such assets. Impairment, if any, is recognized in the period of identification to the extent the carrying amount of an asset exceeds discounted net cash flows attributable to such assets. Based on its most recent analysis, the Company believes that there was no impairment of its long-lived assets as of December 31, 2000. Property and Equipment Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed on property and equipment using the straight-line method over the estimated useful lives of the assets, generally three to seven years. Maintenance and repairs are charged to expense as incurred; major renewals and improvements are capitalized. When items of property and equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in earnings. Goodwill Goodwill represents the excess of the purchase price over fair value of net assets acquired. Goodwill is amortized on a straight-line basis over a seven-year period. Accumulated amortization was $3,480,000 as of December 31, 2000. Total amortization expense for goodwill for the year ended December 31, 2000 was $2,109,000. Licenses During September 1999, the Company purchased four Local-to-Multipoint Distribution licenses to operate a Radio Transmitting Station from the Federal Communications Commission for $1,758,000. One of the four licenses was sold in September 2000 for $400,000 resulting in a gain of $147,000. Accumulated amortization was $209,000 as of December 31, 2000. Total amortization expense for licenses for the year ended December 31, 2000 was $169,000. Investment in Unimproved Land Investment in unimproved land is carried at cost. At a time when a permanent decline in market value occurs, the value of the investment is written down by the amount of the estimated permanent impairment, and the loss is included in earnings. Deferred Revenue and Contract Advance Payments The Company invoices its customers for some of its contracts based on provisional indirect cost rates. These invoiced amounts are adjusted when the actual rates have been determined by audit. Other contracts are billed periodically based on terms established by the contract, independent of the percent the contract is completed, which in some situations, result in funds being advanced to the Company in excess of the amounts earned. As of December 31, 2000, the Company had received $3,048,000 of funds in excess of revenues to be earned and recognized on various contracts. A-6 EER SYSTEMS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Income Taxes Effective July l, 1991, the Company was granted a Subchapter S status under Federal Income Tax Regulations. Instead of paying corporate income taxes, the stockholders of an "S" corporation are taxed individually on their proportionate share of the Company's taxable income. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. 2. ACCOUNTS RECEIVABLE Accounts receivable as of December 31, 2000 consists of the following: (IN THOUSANDS) --------------- Billed ............................................... $22,651 Unbilled ............................................. 12,239 ------- $34,890 ======= Unbilled accounts receivable comprise recognized recoverable costs and accrued profits on contracts for which billings had not been presented to clients as of the balance sheet date. Management anticipates the collection of these amounts within 180 days of the balance sheet date. Payments to the Company on contracts with agencies and departments of the U.S. government are subject to adjustment upon audit by the U.S government. Years ended after December 31, 1998 are subject to U.S. Government audit. Management believes the effect of audit adjustments, if any, on periods not yet audited, will not have a material effect on the financial statements. 3. PROPERTY AND EQUIPMENT Property and equipment consisted of the following as of December 31, 2000: (IN THOUSANDS) --------------- Equipment ............................................ $ 4,727 Furniture & fixtures ................................. 446 Automobiles .......................................... 172 Leasehold improvements ............................... 210 -------- 5,555 Accumulated depreciation and amortization .......... (3,409) -------- Property and equipment, net .......................... $ 2,146 ======== Depreciation and amortization of property and equipment was $980,000 for the year ended December 31, 2000. 4. OPERATING LEASES The Company has entered into lease agreements for office space in various locations throughout the country. The operating leases have various expiration dates through 2007. During the year ended December 31, 2000, the Company incurred rent expense of $2,615,000. A-7 EER SYSTEMS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Future minimum lease payments for noncancellable operating leases are as follows: YEAR (IN THOUSANDS) ---- -------------- 2001 .................................................. $ 2,603 2002 .................................................. 2,449 2003 .................................................. 2,288 2004 .................................................. 1,860 2005 .................................................. 1,529 Thereafter ............................................ 6,249 ------- Total minimum lease payments .......................... $16,978 ======= 5. FINANCING Revolving line of credit: As of December 31, 2000, the Company has a line of credit with commercial lenders, which provides borrowings up to $20,000,000, of which $7,197,000 was outstanding. This line of credit expires May 30, 2004. Advances bear interest at either the Base Rate or LlBOR plus the Applicable Margin in effect. The Base Rate is defined as the higher of the Federal Funds Rate plus .50% or the lending banks' prime rate. Applicable Margin is defined as the finance charged based on interest rates relative to outstanding borrowings and accrued expenses and accounts payable. The interest rate at December 31, 2000 was 7.829%. The line of credit is collateralized by the accounts receivable and property and equipment of the Company. The revolving line of credit is classified as short-term as of December 31, 2000 as a result of management's intent to repay the borrowed amounts within the subsequent year. Acquisition notes As of December 31, 1999, the Company had two notes payable to commercial lenders related to 1999 acquisitions totaling $10,000,000. The principal was due in equal monthly installments over 42 months beginning on January 1, 2000, plus interest at either the Base Rate or LIBOR plus the Applicable Margin in effect. These notes were paid off as of December 31, 2000. 6. PENSION PLAN The Company has a contributory 401(k) pension plan covering all qualified employees. The Company matches one-half of an employee's contribution up to a maximum of three percent of an employee's annual salary. The Company's contribution for the year ended December 31, 2000 was $1,150,000. A-8 EER SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE AMOUNTS) (UNAUDITED) --------
ASSETS MARCH 31, 2001 Current assets: Cash and cash equivalents $ 4,025 Marketable equity securities 219 Accounts receivable 34,096 Other accounts receivable 201 Prepaid expenses 861 ------------ Total current assets 39,402 ------------ Property and equipment, net 2,006 Investment in unimproved land 764 Goodwill, net 10,708 Other intangible assets, net - Other assets 110 ------------ Total assets $ 52,990 ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Line of credit $ - Accounts payable and accrued expenses 9,562 Accrued salaries 4,383 Unearned revenue 2,726 ------------ Total current liabilities 16,671 Other long-term liabilities 27 ------------ Total liabilities 16,698 ------------ Stockholders' equity: Common stock, par value $.01; 25,000 shares authorized; 15,750 shares issued and outstanding - Capital in excess of par 12,071 Accumulated other comprehensive income 28 Retained earnings 24,193 ------------ Total stockholders' equity 36,292 ------------ Total liabilities and stockholders' equity $ 52,990 ============
See notes to unaudited condensed consolidated financial statements A-9 EER SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS, RETAINED EARNINGS, AND OTHER COMPREHENSIVE INCOME (IN THOUSANDS) (UNAUDITED) -------- Three months ended March 31, ---------------------------- 2001 2000 ---------------------------- Contract revenue $ 37,018 $ 32,895 ----------------------------- Operating costs: Contract salaries 10,936 10,314 Subcontractors and consultants 6,367 5,247 Other direct costs and materials 6,181 5,135 Overhead, general and administrative expenses 9,434 8,978 ---------------------------- Total operating costs 32,918 29,674 ---------------------------- Operating income 4,100 3,221 ---------------------------- Other (income) expense: Loss on sale of marketable securities - 911 Interest (income) expense (70) 483 Other, net (6) (16) ---------------------------- Total other (income) expense (76) 1,378 ---------------------------- Net income 4,176 1,843 Retained earnings, beginning of year 22,897 19,283 Stockholder distributions (2,880) - ---------------------------- Retained earnings, end of year $ 24,193 $ 21,126 ============================ Other comprehensive income: Net income $ 4,176 $ 1,843 Unrealized gain on marketable equity securities - - ---------------------------- Total other comprehensive income $ 4,176 $ 1,843 ============================ See notes to unaudited condensed consolidated financial statements A-10 EER SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) --------
Three months ended March 31, ---------------------------- 2001 2000 ---------------------------- Cash flows from operating activities: Net income $ 4,176 $ 1,843 Adjustments to reconcile change in net income to net cash provided by operating activities: Depreciation and amortization 864 829 Changes in operating assets and liabilities: Accounts receivable 793 (4,200) Other accounts receivable 81 (318) Prepaid expenses (538) (614) Accounts payable and accrued expenses 4,672 6,159 Accrued salaries 2,659 2,413 Unearned revenue (322) - Other liabilities - 24 ---------------------------- Net cash provided by operating activities 12,385 6,136 ---------------------------- Cash flows from investing activities: Collection (issuance) of notes receivable 50 (128) Additions of equipment (171) (327) Proceeds from sale of assets 1,241 1,447 ---------------------------- Net cash provided by investing activities 1,120 992 ---------------------------- Cash flows from financing activities: Net decrease in borrowings on line of credit (7,197) (6,744) Payments on debt - (714) Distributions to stockholders (2,880) - ---------------------------- Net cash used by financing activities (10,077) (7,458) ---------------------------- Increase (decrease) in cash 3,428 (330) Cash and cash equivalents, beginning of year 597 330 ---------------------------- Cash and cash equivalents, end of year $ 4,025 $ - ============================
See notes to unaudited condensed consolidated financial statements A-11 EER SYSTEMS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION EER Systems, Inc. ("EER" or the "Company") was incorporated December 16, 1985, under the laws of the Commonwealth of Virginia. The Company derives the major portion of its revenue from consulting services rendered to the Federal Government. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and the majority owned and controlled subsidiary Iatros, Inc. ("Iatros"). The consolidated financial statements include 100% of losses incurred by Iatros as the portion of such losses attributed to the minority interest exceeds their investment basis. All significant intercompany accounts and transactions have been eliminated. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the rules of the Securities and Exchange Commission, and accordingly may not include all disclosures required by accounting principles generally accepted in the United States of America for a complete set of financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results for the interim periods have been included. The results of operations for the interim periods are not necessarily indicative of results for the full year. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures. Accordingly, actual results could differ from those estimates. GOODWILL Goodwill represents the excess of the purchase price over fair value of net assets acquired. Goodwill is amortized on a straight-line basis over a seven-year period. Accumulated amortization was $4,053,569 as of March 31, 2001. Total amortization expense for goodwill the three months ended March 31, 2001 and 2000 was $527,178. A-12 EER SYSTEMS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED LICENSES During March of 2001, the Company sold its three remaining Local-to- Multipoint Distribution licenses to a shareholder of the Company for $1,240,617 in cash. Proceeds from the sale of the licenses were equivalent to the net book value of the licenses at the time of sale. Accordingly, no gain or loss was recorded in the unaudited condensed consolidated statement of operations for the three months ended March 31, 2001. Total amortization expense for licenses for the three months ended March 31, 2001 and 2000 was $24,567 and $43,950, respectively. 2. FINANCING As of March 31, 2001, the Company had a line of credit with commercial lenders, which provided borrowings up to $20,000,000. This line of credit expires May 30, 2004. Advances bear interest at either the Base Rate or LlBOR plus the Applicable Margin in effect. The Base Rate is defined as the higher of the Federal Funds Rate plus .50% or the lending banks' prime rate. Applicable Margin is defined as the finance charged based on interest rates relative to outstanding borrowings and accrued expenses and accounts payable. The line of credit is collateralized by the accounts receivable and property and equipment of the Company. As of March 31, 2001, the Company had $20,000,000 available under the line of credit. The revolving line of credit was terminated in June 2001. 3. STOCK PURCHASE AGREEMENT On May 8, 2001, the Company's stockholders entered into a stock purchase agreement with L-3 Communications Corporation to sell all issued and outstanding shares of the capital stock, consisting of 15,750 shares of common stock, $0.01 par value per share. 4. LITIGATION The Company is the defendant in a lawsuit seeking damages in connection with the Company's award of a federal contract and the employment of individuals who were previously employed by the predecessor contractor, the plaintiff. The plaintiff is seeking actual and consequential damages in an amount, which has not yet been stated, plus certain other damages under Virginia law. Based on the advice of legal counsel, the Company does not believe the ultimate resolution of this litigation will have a material adverse effect on stockholders' equity as of March 31, 2001. A-13 L-3 COMMUNICATIONS HOLDINGS, INC. AND L-3 COMMUNICATIONS CORPORATION Unaudited Financial Information of L-3 Communications and Its Subsidiaries The following unaudited condensed combining financial information gives effect to the inclusion of additional subsidiaries as guarantors on the results of operations, financial position and cash flows for the periods presented of (i) L-3 Communications excluding its consolidated subsidiaries ("Parent"), (ii) the Guarantors, (iii) the non-guarantor subsidiaries and (iv) the eliminations to arrive at the information for the Company on a consolidated basis. The following information should be read together with L-3 Communications Corporation's quarterly report on Form 10-Q, for the nine months ended September 30, 2001 and the annual report on Form 10-K, for the year ended December 31, 2000. A-14 L-3 COMMUNICATIONS HOLDINGS, INC. AND L-3 COMMUNICATIONS CORPORATION CONDENSED COMBINING BALANCE SHEETS (DOLLARS IN THOUSANDS)
GUARANTOR NON-GUARANTOR CONSOLIDATED PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS L-3 COMMUNICATIONS ------------- -------------- --------------- ---------------- ------------------- AS OF SEPTEMBER 30, 2001 Total current assets ..................... $ 550,572 $ 327,554 $ 88,441 $ -- $ 966,567 Other long-term assets ................... 841,281 699,384 282,429 -- 1,823,094 Investment in and amounts due from consolidated subsidiaries .............. 1,129,669 114,634 33,756 (1,278,059) -- ---------- ---------- --------- ----------- ---------- Total assets .......................... $2,521,522 $1,141,572 $ 404,626 $(1,278,059) $2,789,661 ========== ========== ========= =========== ========== Total current liabilities ................ $ 300,961 $ 120,988 $ 40,414 $ -- $ 462,363 Other long-term liabilities .............. 133,333 31,764 3,048 -- 168,145 Long-term debt ........................... 911,608 -- -- -- 911,608 Minority interest ........................ -- -- 71,925 -- 71,925 Shareholders' equity ..................... 1,175,620 988,820 289,239 (1,278,059) 1,175,620 ---------- ---------- --------- ----------- ---------- Total liabilities and shareholders' equity ............................... $2,521,522 $1,141,572 $ 404,626 $(1,278,059) $2,789,661 ========== ========== ========= =========== ========== AS OF DECEMBER 31, 2000 Total current assets ..................... $ 530,672 $229,531 $ 69,367 $ -- $ 829,570 Other long-term assets ................... 1,110,082 433,763 90,129 -- 1,633,974 Investment in and amounts due from (to) consolidated subsidiaries ...... 613,153 55,805 (27,022) (641,936) -- ---------- -------- --------- ----------- ---------- Total assets .......................... $2,253,907 $719,099 $ 132,474 $ (641,936) $2,463,544 ========== ======== ========= =========== ========== Total current liabilities ................ $ 365,123 $ 71,948 $ 31,598 $ -- $ 468,669 Other long-term liabilities .............. 101,215 103,173 2,918 -- 207,306 Long-term debt ........................... 1,095,000 -- -- -- 1,095,000 Shareholders' equity ..................... 692,569 543,978 97,958 (641,936) 692,569 ---------- -------- --------- ----------- ---------- Total liabilities and shareholders' equity ............................... $2,253,907 $719,099 $ 132,474 $ (641,936) $2,463,544 ========== ======== ========= =========== ==========
A-15 L-3 COMMUNICATIONS HOLDINGS, INC. AND L-3 COMMUNICATIONS CORPORATION CONDENSED COMBINING STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS)
GUARANTOR NON-GUARANTOR CONSOLIDATED PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS L-3 COMMUNICATIONS ------------ -------------- --------------- -------------- ------------------- FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 Sales .................................... $341,317 $ 230,994 $ 46,655 $ (802) $ 618,164 -------- --------- -------- --------- ---------- Operating income ......................... 56,201 12,062 6,945 -- 75,208 Interest and other income (expense) ...... 147 (333) (13) -- (199) Interest expense ......................... 18,249 -- 201 -- 18,450 Minority interest ........................ -- -- 2,370 -- 2,370 Provision for income taxes ............... 14,591 4,492 1,671 -- 20,754 Equity in net income of consolidated subsidiaries ............................ 9,927 -- -- (9,927) -- -------- --------- -------- --------- ---------- Net income ............................... $ 33,435 $ 7,237 $ 2,690 $ (9,927) $ 33,435 ======== ========= ======== ========= ========== FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 Sales .................................... $349,433 $ 120,979 $ 44,003 $ -- $ 514,415 -------- --------- -------- --------- ---------- Operating income (loss) .................. 73,816 (4,009) (6,992) -- 62,815 Interest and other income (expense) ...... 2,274 49 (1,419) -- 904 Interest expense ......................... 24,646 14 171 -- 24,831 Provision (benefit) for income taxes ..... 19,238 (1,485) (2,981) -- 14,772 Equity in net loss of consoldiated subsidiaries ............................ (8,090) -- -- 8,090 -- -------- --------- -------- --------- ---------- Net income (loss) ........................ $ 24,116 $ (2,489) $ (5,601) $ 8,090 $ 24,116 ======== ========= ======== ========= ========== FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 Sales .................................... $939,146 $ 604,691 $100,829 $ (3,041) $1,641,625 -------- --------- -------- --------- ---------- Operating income ......................... 144,959 24,188 13,397 -- 182,544 Interest and other income (expense) ...... 8,127 (532) (6,340) -- 1,255 Interest expense ......................... 64,647 -- 239 -- 64,886 Minority interest ........................ -- -- 3,955 -- 3,955 Provision for income taxes ............... 33,872 9,060 1,097 -- 44,029 Equity in net income of consolidated subsidiaries ............... 16,362 -- -- (16,362) -- -------- --------- -------- --------- ---------- Net income ............................... $ 70,929 $ 14,596 $ 1,766 $ (16,362) $ 70,929 ======== ========= ======== ========= ========== FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 Sales .................................... $911,281 $ 318,347 $122,815 $ -- $1,352,443 -------- --------- -------- --------- ---------- Operating income (loss) .................. 148,123 3,034 (4,020) -- 147,137 Interest and other income (expense) ...... 4,563 227 (1,329) -- 3,461 Interest expense ......................... 66,804 140 178 -- 67,122 Provision (benefit) for income taxes ..... 32,634 1,304 (1,966) -- 31,972 Equity in net loss of consolidated subsidiaries ............................ (1,744) -- -- 1,744 -- -------- --------- -------- --------- ---------- Net income (loss) ........................ $ 51,504 $ 1,817 $ (3,561) $ 1,744 $ 51,504 ======== ========= ======== ========= ==========
A-16 L-3 COMMUNICATIONS HOLDINGS, INC. AND L-3 COMMUNICATIONS CORPORATION CONDENSED COMBINING STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
GUARANTOR NON-GUARANTOR CONSOLIDATED PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS L-3 COMMUNICATIONS ------------- -------------- --------------- -------------- ------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 Net cash from operating activities ..... $ 31,054 $ 29,947 $ 22,839 -- $ 83,840 ---------- --------- ---------- ---------- ---------- Net cash used in investing activities .. (165,613) (217,206) (17,621) 215,147 (185,293) ---------- --------- ---------- ---------- ---------- Net cash from financing activities ..... 184,697 192,657 5,037 (215,147) 167,244 ---------- --------- ---------- ---------- ---------- Net increase in cash ................... 50,138 5,398 10,255 -- 65,791 Cash and cash equivalents, beginning of period ............................. 18,708 4,911 9,061 -- 32,680 ---------- --------- ---------- ---------- ---------- Cash and cash equivalents, end of period ................................ $ 68,846 $ 10,309 $ 19,316 $ -- $ 98,471 ========== ========= ========== ========== ========== FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 Net cash from (used in) operating activities ............................ $ 46,384 $ 18,432 $ (2,144) $ -- $ 62,672 ---------- --------- ---------- ---------- ---------- Net cash used in investing activities .. (540,017) (30,389) (11,260) 36,527 (545,139) ---------- --------- ---------- ---------- ---------- Net cash from financing activities ..... 484,360 11,341 10,724 (36,527) 469,898 ---------- --------- ---------- ---------- ---------- Net decrease in cash ................... (9,273) (616) (2,680) -- (12,569) Cash and cash equivalents, beginning of period ............................. 34,037 5,164 3,587 -- 42,788 ---------- --------- ---------- ---------- ---------- Cash and cash equivalents, end of period ................................ $ 24,764 $ 4,548 $ 907 $ -- $ 30,219 ========== ========= ========== ========== ==========
A-17