L-3 Communications Holdings Inc. Annual Report 2011

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FY2011 Annual Report · L-3 Communications Holdings Inc.

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L - 3 C O M M U N I C A T I O N S

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L-3 2011 ANNUAL REPORT

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L - 3 C O M M U N I C A T I O N S

6 0 0 T H I R D A V E N U E

N E W Y O R K , N Y 1 0 0 1 6

L-3 2011 ANNUAL REPORT

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seleCt fInanCIal HIgHlIgHts

C o rp o r at e In f o rm at Io n

SUCCESS IN THIS ENVIRONMENT
DEPENDS ON ADAPTABILITY AND
KEEN SITUATIONAL AWARENESS.

Situational awareness has always been critical to

our customers, and L-3’s ability to adapt is integral

to everything we do. Our strategy is defined by our

focus on the evolving geopolitical, economic and

market forces that create the landscape in which we

operate. This is L-3’s strength — the ability to deliver

in every environment.

Cover:
L-3 is the prime contractor on the C-17 Training System
program, overseeing program management, training device
modification, courseware development and instruction.

In millions, except per share amounts

For the year ended December 31,

Net sales

Operating income

Q4 2011 and Q2 2008 Items

Operating income before Items

Income from continuing operations attributable to L-3

Q4 2011 and Q2 2008 Items

Income from continuing operations attributable to L-3 before Items

Net income attributable to L-3 (c)

Diluted earnings per share from continuing operations

Q4 2011 and Q2 2008 Items

Diluted earnings per share from continuing operations before Items

Diluted earnings per share (c)

Net cash from operating activities

Capital expenditures, net of dispositions

Free cash flow(d)

Equity

2011(a)

2010

2009

2008 (b)

2007

$15,169

$15,680

$15,615

$ 14,901

$ 13,961

1,598

1,750

1,656

—

1,641

1,750

1,656

956

(28)

928

956

9.03

(0.26)

8.77

9.03

955

—

955

8.25

—

8.25

901

—

901

7.61

—

7.61

1,685

(110)

1,575

918

(71)

847

938

7.43

(0.58)

6.85

7.59

1,448

—

1,448

745

—

745

5.86

—

5.86

1,484

1,461

1,407

1,387

1,270

186

1,298

6,724

171

1,290

6,855

182

1,225

6,660

203

1,184

5,941

149

1,121

6,114

(a) The year ended December 31, 2011, includes: (1) a tax benefit of $78 million, or $0.74 per diluted share, for a net reversal of amounts previously accrued related to tax years for

which the statutes of limitations expired, (2) a non-cash goodwill impairment charge of $43 million ($42 million after income taxes, or $0.40 per diluted share) due to a decline in
the estimated fair value of the Marine Services business, and (3) $14 million ($8 million after income taxes, or $0.08 per diluted share) for L-3’s portion of an impairment charge for
long-lived assets at an equity method investment (collectively the “Q4 2011 Items”).

(b) The year ended December 31, 2008, includes: (1) a pre-tax gain of $133 million ($81 million after income taxes, or $0.66 per diluted share) related to the reversal of a $126 million

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 $7 million of related accrued interest, (2) a gain of $12
million ($7 million after income taxes, or $0.06 per diluted share) related to the sale of a product line, and (3) a non-cash impairment charge of $28 million ($17 million after income
taxes, or $0.14 per diluted share) related to a write-down of capitalized software development costs for a general aviation product (collectively the “Q2 2008 Items”).

(c) Net income attributable to L-3 and diluted earnings per share for the year ended December 31, 2008 includes an after-tax gain of $20 million, or $0.16 per diluted share, related to

the divestiture of our 85% ownership interest in Medical Education Technologies, Inc.

(d) We define “free cash flow” as net cash from operating activities, less capital expenditures, net of dispositions.

Sales
(In millions)

$
1
4
,
9
0
1

$
1
3
,
9
6
1

$
1
5
,
6
1
5

$
1
5
,
6
8
0

$
1
5
,
1
6
9

Operating Income
Excluding items* (In millions)

$
1
,
6
5
6

$
1
,
5
7
5

$
1
,
4
4
8

$
1
,
7
5
0

1
,
6
4
1

Diluted EPS
from continuing operations
Excluding items*

Free Cash Flow
(In millions)

$
8
.
7
7

$
8
.
2
5

$
7
.
6
1

$
1
,
1
8
4

$
1
,
2
2
5

$
1
,
1
2
1

$
1
,
2
9
0

$
1
,
2
9
8

$
6
.
8
5

$
5
.
8
6

CAGR 2%

CAGR 3%

CAGR 11%

CAGR 4%

*Operating income and diluted EPS for 2011 and 2008 exclude the Q4 2011 and Q2 2008 items, respectively, described above.

This Summary Annual Report should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2011, included in this book.

Corporate Headquarters

equal opportunIty employer

You can contact the corporate headquarters by writing to:

L-3 Communications is an equal opportunity employer and does not discriminate

L-3 Communications

600 Third Avenue

New York, NY 10016

on the basis of age, race, sex, sexual orientation, creed, color, national origin,

ancestry, marital status, disability or any other characteristic protected by law.

All employment-related decisions are based solely on business needs and relevant

or by calling 212-697-1111. To send a fax, dial 212-867-5249.

requisite skills related to the position.

Corporate InformatIon

safe Harbor statement under tHe prIvate

News media, analysts, shareholders and others seeking corporate

seCurItIes lItIgatIon reform aCt of 1995

information about L-3 Communications should contact corporate

Except for historical information contained herein, the matters set forth in this

communications at 212-697-1111.

prInted materIals

Annual Report are forward-looking statements. Statements that are predictive in

nature, that depend upon or refer to events or conditions or that include words such

as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates” and similar

Printed financial and governance materials may be obtained without

expressions are forward-looking statements. The forward-looking statements set

charge by calling (866) INFO-LLL (866-463-6555).

forth herein involve a number of risks and uncertainties that could cause actual

Internet

results to differ materially from any such statement, including the risks and

uncertainties discussed in the Company’s “Forward-looking Statements” included

You can access quarterly and annual financial information, news

in the Company’s recent filings, including Forms 10-K and 10-Q, with the Securities

releases and an overview of the company’s products and services

and Exchange Commission. The forward-looking statements speak only as of the

through the L-3 Communications website at www.L-3com.com

date made, and the Company undertakes no obligation to update these forward-

looking statements. For a discussion of other risks and uncertainties that could

stoCk exCHange lIstIng

impair our results of operations or financial condition, see Part I - Item 1A -“Risk

The common stock of L-3 Communications Holdings, Inc. is traded on the

Factors” and Note 19 to our audited consolidated financial statements, included in

New York Stock Exchange (NYSE) under the symbol LLL.

our Annual Report on Form 10-K for the year ended December 31, 2011.

annual meetIng

CredIts

The annual meeting of shareholders will be held at 2:30 p.m. on Tuesday,

Design: Froeter Design Company, Chicago.

Use of DoD images featured throughout this report does not imply or constitute

DoD endorsement of this organization, its products or services.

Printed in the U.S.A.

April 24, 2012, at The Ritz-Carlton New York, Battery Park, Two West Street,

New York, NY.

sHareHolder assIstanCe

If you have questions concerning your shareholder account, please contact

the stock transfer agent:

regular maIl

Computershare Trust Company, N.A.

P.O. Box 43078

Providence, RI 02940-3078

overnIgHt delIverIes

250 Royall Street

Canton, MA 02021

or call 877-282-1168 (781-575-2879 from outside the United States).

For the hearing impaired, the phone number is TDD: 800-952-9245.

You can also contact the stock transfer agent at its website at:

www.computershare.com

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Bowne Communications bow121289a_Cov_p2 Proof 3

seleCt fInanCIal HIgHlIgHts

C o rp o r at e In f o rm at Io n

SUCCESS IN THIS ENVIRONMENT
DEPENDS ON ADAPTABILITY AND
KEEN SITUATIONAL AWARENESS.

Situational awareness has always been critical to

our customers, and L-3’s ability to adapt is integral

to everything we do. Our strategy is defined by our

focus on the evolving geopolitical, economic and

market forces that create the landscape in which we

operate. This is L-3’s strength — the ability to deliver

in every environment.

Cover:
L-3 is the prime contractor on the C-17 Training System
program, overseeing program management, training device
modification, courseware development and instruction.

In millions, except per share amounts

For the year ended December 31,

Net sales

Operating income

Q4 2011 and Q2 2008 Items

Operating income before Items

Income from continuing operations attributable to L-3

Q4 2011 and Q2 2008 Items

Income from continuing operations attributable to L-3 before Items

Net income attributable to L-3 (c)

Diluted earnings per share from continuing operations

Q4 2011 and Q2 2008 Items

Diluted earnings per share from continuing operations before Items

Diluted earnings per share (c)

Net cash from operating activities

Capital expenditures, net of dispositions

Free cash flow(d)

Equity

2011(a)

2010

2009

2008 (b)

2007

$15,169

$15,680

$15,615

$ 14,901

$ 13,961

1,598

1,750

1,656

—

1,641

1,750

1,656

956

(28)

928

956

9.03

(0.26)

8.77

9.03

955

—

955

8.25

—

8.25

901

—

901

7.61

—

7.61

1,685

(110)

1,575

918

(71)

847

938

7.43

(0.58)

6.85

7.59

1,448

—

1,448

745

—

745

5.86

—

5.86

1,484

1,461

1,407

1,387

1,270

186

1,298

6,724

171

1,290

6,855

182

1,225

6,660

203

1,184

5,941

149

1,121

6,114

(a) The year ended December 31, 2011, includes: (1) a tax benefit of $78 million, or $0.74 per diluted share, for a net reversal of amounts previously accrued related to tax years for

(b) The year ended December 31, 2008, includes: (1) a pre-tax gain of $133 million ($81 million after income taxes, or $0.66 per diluted share) related to the reversal of a $126 million

(c) Net income attributable to L-3 and diluted earnings per share for the year ended December 31, 2008 includes an after-tax gain of $20 million, or $0.16 per diluted share, related to

the divestiture of our 85% ownership interest in Medical Education Technologies, Inc.

(d) We define “free cash flow” as net cash from operating activities, less capital expenditures, net of dispositions.

Sales
(In millions)

$
1
4
,
9
0
1

$
1
3
,
9
6
1

$
1
5
,
6
1
5

$
1
5
,
6
8
0

$
1
5
,
1
6
9

Operating Income
Excluding items* (In millions)

$
1
,
6
5
6

$
1
,
5
7
5

$
1
,
4
4
8

$
1
,
7
5
0

1
,
6
4
1

Diluted EPS
from continuing operations
Excluding items*

Free Cash Flow
(In millions)

$
8
.
7
7

$
8
.
2
5

$
7
.
6
1

$
1
,
1
8
4

$
1
,
2
2
5

$
1
,
1
2
1

$
1
,
2
9
0

$
1
,
2
9
8

$
6
.
8
5

$
5
.
8
6

CAGR 2%

CAGR 3%

CAGR 11%

CAGR 4%

*Operating income and diluted EPS for 2011 and 2008 exclude the Q4 2011 and Q2 2008 items, respectively, described above.

This Summary Annual Report should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2011, included in this book.

Corporate Headquarters

equal opportunIty employer

You can contact the corporate headquarters by writing to:

L-3 Communications is an equal opportunity employer and does not discriminate

L-3 Communications

600 Third Avenue

New York, NY 10016

on the basis of age, race, sex, sexual orientation, creed, color, national origin,

ancestry, marital status, disability or any other characteristic protected by law.

All employment-related decisions are based solely on business needs and relevant

or by calling 212-697-1111. To send a fax, dial 212-867-5249.

requisite skills related to the position.

Corporate InformatIon

safe Harbor statement under tHe prIvate

News media, analysts, shareholders and others seeking corporate

seCurItIes lItIgatIon reform aCt of 1995

information about L-3 Communications should contact corporate

Except for historical information contained herein, the matters set forth in this

communications at 212-697-1111.

prInted materIals

Annual Report are forward-looking statements. Statements that are predictive in

nature, that depend upon or refer to events or conditions or that include words such

as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates” and similar

Printed financial and governance materials may be obtained without

expressions are forward-looking statements. The forward-looking statements set

charge by calling (866) INFO-LLL (866-463-6555).

forth herein involve a number of risks and uncertainties that could cause actual

Internet

results to differ materially from any such statement, including the risks and

uncertainties discussed in the Company’s “Forward-looking Statements” included

You can access quarterly and annual financial information, news

in the Company’s recent filings, including Forms 10-K and 10-Q, with the Securities

releases and an overview of the company’s products and services

and Exchange Commission. The forward-looking statements speak only as of the

through the L-3 Communications website at www.L-3com.com

date made, and the Company undertakes no obligation to update these forward-

looking statements. For a discussion of other risks and uncertainties that could

stoCk exCHange lIstIng

impair our results of operations or financial condition, see Part I - Item 1A -“Risk

The common stock of L-3 Communications Holdings, Inc. is traded on the

Factors” and Note 19 to our audited consolidated financial statements, included in

New York Stock Exchange (NYSE) under the symbol LLL.

our Annual Report on Form 10-K for the year ended December 31, 2011.

annual meetIng

CredIts

The annual meeting of shareholders will be held at 2:30 p.m. on Tuesday,

Design: Froeter Design Company, Chicago.

Use of DoD images featured throughout this report does not imply or constitute

DoD endorsement of this organization, its products or services.

Printed in the U.S.A.

April 24, 2012, at The Ritz-Carlton New York, Battery Park, Two West Street,

New York, NY.

sHareHolder assIstanCe

If you have questions concerning your shareholder account, please contact

the stock transfer agent:

regular maIl

Computershare Trust Company, N.A.

P.O. Box 43078

Providence, RI 02940-3078

overnIgHt delIverIes

250 Royall Street

Canton, MA 02021

or call 877-282-1168 (781-575-2879 from outside the United States).

For the hearing impaired, the phone number is TDD: 800-952-9245.

You can also contact the stock transfer agent at its website at:

www.computershare.com

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Bowne Communications bow121289b_Text_p1 Proof 2

dear fellow shareholders:

L-3 delivered solid performance,
innovation and program execution
in 2011. We also strengthened
the company’s competitiveness and
enhanced shareholder value.

delivering value

In the midst of the challenging Department of Defense (DoD)
environment, L-3 delivered record diluted earnings per share
and strong free cash flow in 2011. Diluted EPS (before Q4 2011
Items of $0.26) was $8.77, up from 2010’s $8.25. The
company also generated free cash flow of $1.298 billion in
2011. Other elements of our 2011 financial performance
showed modest declines, as company-wide net sales in 2011
were $15.2 billion, a 3 percent decline from 2010, with growth
in our Command, Control, Communications, Intelligence,
Surveillance and Reconnaissance (C3ISR) business offset by
declines in other L-3 segments. Operating income (before Q4
2011 Items of $43 million) was down 6 percent for the year at
$1,641 million, and our book-to-bill ratio was 0.97 at year-end.
We returned the majority of our free cash flow to L-3
shareholders in the form of dividends and share buybacks,
increasing our dividend for the seventh consecutive year
and repurchasing 13 million shares of L-3 stock. We have
reduced our outstanding weighted average diluted shares
by 16% over the last five years—a testament to our commit-
ment to deploy cash in a disciplined manner to generate
shareholder value. Reflecting confidence in L-3’s future,
our board of directors authorized the repurchase of up to
an additional $1.5 billion of L-3 common stock through
April 30, 2013, and increased our dividend rate for 2012.

We also continued to strengthen our balance sheet in 2011,
improving our maturity profile and reducing interest costs on
our outstanding debt.

reshaping to strengthen our business

Throughout 2011, we continued to review and reshape our
business operations, sharpening our focus and bolstering our
capabilities to maintain a competitive advantage in a constantly
evolving marketplace.

After completing a comprehensive assessment of our

business units, on July 28, 2011, we announced our plan to
spin off certain businesses from our Government Services
segment to create an independent company that will be
publicly traded. Under this plan, the new company will be
a leader in acquisition and engineering services, training
programs, and sustainment support for U.S. government
operations worldwide.

The new company will be named Engility, combining

the words “engineering” with “agility” to express the unique
combination of strengths it will bring to the marketplace.
L-3 will retain the cybersecurity, enterprise information
technology and intelligence solutions businesses that are also
part of the Government Services segment. The Government
Services segment will be renamed National Security
Solutions (NSS) to better reflect its mission going forward.

L-3 2011 AnnuAL RepoRt

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throughout our company, cross-

segment collaboration is an integral

part of our culture, making us more

versatile and agile.

This transaction will be beneficial to both L-3 and
Engility, enabling the two businesses to more closely align
with customer challenges and priorities in their respective
markets. The separation will free Engility from organizational
conflicts of interest (OCI) that constrained it within L-3.
We also believe that it will enable Engility to streamline its
cost structure to more effectively pursue new and existing
opportunities and capture share in its addressable markets.

For L-3, the spin-off will enable us to focus on technology-
based solutions in areas of increasing customer need. As NSS,
we will be able to better apply our resources to develop next-
generation offerings and leverage complementary capabilities
through cross-segment collaboration.

In late 2011, we announced an agreement to acquire
the Kollmorgen Electro-Optical (KEO) unit of Danaher
Corporation. This acquisition will bring new customers and
proprietary systems to L-3 that will broaden our capabilities,
including submarine photonics systems and periscopes, ship
fire control systems, and visual landing aids. KEO extends
our base in the electro-optical/infrared (EO/IR) market with
products that enhance L-3 content in high-priority areas such
as Virginia-class submarines. This transaction exemplifies
our disciplined, highly selective approach to acquisitions that
enhance our core business mix at attractive prices.

We also added to the strength of our board with the
election of General (R) H. Hugh Shelton. As the 14th Chairman
of the Joint Chiefs of Staff and former commander of the U.S.
Special Operations Command, General Shelton’s broad
strategic perspective on military and global affairs and wealth
of leadership and experience in technology and national
security make him an asset to our organization.

aligned with customer priorities

With the increased budget pressure on the DoD, its “force for
the future” will be smaller, leaner, quick to deploy and techno-
logically advanced. To that end, the DoD is terminating some
programs and implementing efficiency initiatives to reduce
costs. We believe that the savings will be invested in key L-3
strengths, such as C3ISR, EO/IR sensors, special operations,
intelligence support and counter-terrorism.

Throughout our company, cross-segment collaboration

is an integral part of our culture, making us more versatile

and agile. Communication and teamwork among L-3’s
different businesses enhance the speed with which we apply
our expertise and allocate resources to develop innovative,
cost-effective solutions.

In our C3ISR business, an excellent example of this is

SPYDR, which leverages the integrated capabilities we
showcased in the highly successful Project Liberty program.
SPYDR is a platform-agnostic airborne intelligence data
collection, processing, exploitation and dissemination system
designed specifically for military and civilian customers who
want a versatile intelligence solution at a disruptive price. While
we are marketing the system to international customers as a
turnkey solution, it is also generating domestic interest.

C3ISR was a major driver of our 2011 results. Our best-
in-class systems enabled us to hold significant market share
in key areas where technical innovation and customer service
are essential. We were awarded a contract to assist the U.S.
Air Force (USAF) with development of next-generation data
link communications. The contract includes multi-spectral
RF equipment, communications waveform development and
security studies for future communications systems. We also
received follow-on work in networked communications systems
for manned and unmanned platforms, airborne ISR logistics
support and fleet management services for the DoD.

As NSS, we will place greater emphasis on high-perfor-
mance computing and cybersecurity, analytics, information
technology and intelligence services and solutions. In October,
we announced that L-3 had joined Virginia Tech as an industry
partner in the Security and Software Engineering Research
Center (S2ERC), established with a grant from the National
Science Foundation. Our participation in the S2ERC is part
of our strategy to facilitate the development of next-generation
cybersecurity solutions.

New business wins during 2011 included a contract to
provide distributed computing management services to the
U.S. Special Operations Command and a key recompetition
to establish and maintain the DoD-wide intelligence
infrastructure under the Joint Deployable Intelligence
Support System program. We also surpassed a performance
milestone as a prime contractor in support of the U.K.’s high-
priority Integrated Broadcast Service program, achieving the
project’s in-service date within budget and ahead of schedule.

L-3 2011 AnnuAL RepoRt

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L-3’s AM&M business segment gained market share in

2011 by offering cost-effective solutions for customers looking
to maintain their fleets in a budget-constrained environment.
Competitive wins from 2011 included a follow-on program to
provide aircraft sustainment services for the U.S. Navy’s fleet
of P-3, EP-3 and NP-3 aircraft, and a contract for modification,
operation and maintenance of special-purpose aircraft that
utilize complex EO/IR sensors under the U.S. Missile Defense
Agency’s Airborne Sensor program. We were also recognized
with the 2011 Materiel Readiness Award from the Army Avia-
tion Association of America. This prestigious honor is awarded
to defense contractors making outstanding contributions to the
warfighter. We are honored to have received this recognition.

Our Electronic Systems segment continued to build upon
L-3’s technology leadership with a contract for 3.9-meter Quad
Band Large Aperture Antennas for the USAF. These antennas
will be deployed with Ground Multi-band Terminals to provide
worldwide tactical SATCOM capability for our warfighters.
L-3 is the prime contractor for the USAF C-17 Training System,
its largest airlift transport training program. We also won a
recompetition for the F-16 Training System to provide pilot and
maintenance training device support for the USAF. L-3 is now
providing all F-16 pilot and maintenance training support for
USAF locations around the world, in addition to Foreign Mili-
tary Sales (FMS) customers Bahrain, Greece and Jordan. L-3
also received an order from the U.S. Transportation Security
Administration for 300 additional millimeter wave ProVision®
systems featuring our Automatic Target Detection software
that eliminates privacy concerns for travelers. Deployments are
under way, with over 900 systems in use or on order worldwide.

L-3 sells a wide range of solutions to international
customers. In addition to aviation and cargo security, we see
opportunities in commercial shipbuilding, aviation products
and VIP aircraft modification. In FMS, the demand for manned
and unmanned airborne ISR is particularly strong.

Our wins in 2011 demonstrate L-3’s continued focus on
quality of service and speed of response to customer needs.

A POSITIVE FORCE IN OUR COMMUNITIES

L-3 is committed to being a responsible and ethical corporate
citizen. As an aerospace and defense contractor, we are part of
an industry that contributes more than a million highly skilled

jobs to local economies. We are a major employer of former
military personnel and are committed to veterans’ issues as a
member of the Employer Partnership of the Armed Forces and
a proud supporter of the Fisher House Foundation, Homes for
Our Troops and the Wounded Warrior Project. From board
membership in key organizations to strategic partnerships with
leading research universities, we are supporting education and
diversity in science, technology, engineering and math—critical
needs in our nation and industry today. Across the organiza-
tion, L-3 divisions make significant contributions to their local
communities every day.

A HEALTHY, DIVERSE COMPANY

THAT IS POSITIONED FOR THE FUTURE

L-3 remains well-positioned to successfully compete, build
our business and deliver shareholder value. We are focused on
customer priorities, growing market share through disruptive,
cost-effective solutions, demonstrated program performance
and collaboration across L-3. We will continue to aggressively
manage our costs and streamline our infrastructure, while
maintaining our disciplined, balanced approach to capital
allocation and value creation.

Although the uncertainty surrounding future DoD budgets

is yet to be resolved, one thing remains clear: the threats to
national and global security are not decreasing. The U.S. defense
industry has provided the products and expertise to make our
military the strongest and most technologically advanced in the
world—an advantage our nation cannot afford to compromise.

Budget pressures on the DoD notwithstanding, we are

confident that several of the key areas of investment in the
defense budget are where L-3 is strongest. The foresight and
strategic vision—the situational awareness—of our management
team and solid execution by our employees across the globe put
us where we are today and will drive our success going forward.

Sincerely,

Michael T. Strianese
Chairman, President and Chief Executive Officer

L-3 2011 ANNUAL REPORT

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Continuously evolving threats worldwide are
driving demand for ISR enhancements that
play directly to our strengths. L-3 is a clear
leader in C3ISR—from integrated platforms
and secure ground communications products
to large, highly complex systems. L-3’s
solutions combine encryption capabilities and
network infrastructure expertise to provide
the highest levels of security and interopera-
bility for legacy and next-generation systems.

LeveRAging

C3ISR Command, ContRol, CommunICatIonS, IntellIgenCe, SuRveIllanCe and ReConnaISSanCe

L-3’s SPYDR is a small manned airborne
ISR platform that delivers mission-critical
intelligence in real time. Its modular,
reconfigurable design can be tailored to
rapidly adapt to dynamic global requirements.

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Market-leading products and outstanding
program performance are why our
communications systems are on virtually
every airborne ISR platform in theater
today. By advancing our networking tech-
nologies to fuse data from multiple sources,
we are satisfying the demand for higher
data rates in surveillance missions. Our
systems also provide forensic capabilities

that allow users to reconstruct an event
after the fact.

L-3 has earned a strong reputation for
meeting the most demanding customer
schedules with products that perform
from day one. We have hundreds of
forward-deployed employees in the field,
giving us the ability to enhance and

refine our technologies based on combat-
condition experience. As industry
competition increases in this space, L-3’s
speed to market, combined with our proven
performance on key aircraft ISR programs
like Project Liberty, position the company
for continued success.

L-3’s secure communications
are on virtually every ISR
aircraft, from the pioneering
U-2 and P-3 to the unmanned
Predator and Global Hawk.

L-3 continues aircraft modification
and crew training as part of the
U.K.’s AIRSEEKER signals intelligence
aircraft program.

L-3 is providing its Hawklink common data link terminals for the U.S. Navy’s MH-60R helicopter.
This system provides secure real-time, high-speed air-to-surface digital transmission of imagery,
sensor data, communications and radar information.

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Challenging times call for new strategies
for success. With the Engility spin-off, L-3’s
Government Services business segment will
be renamed National Security Solutions,
focused on solving our customers’ toughest
security challenges with high-performance

computing, cybersecurity, analytics, intel-
ligence, and IT services and solutions.
Today’s defense, government and civil agen-
cies responsible for protecting our national
interests are faced with unprecedented
challenges in effectively accumulating,
securing, processing, analyzing and acting

Refocusing goveRnment seRvices to

natIonal SeCuRItY SolutIonS

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L-3 2011 AnnuAL RepoRt

With the world’s growing dependence on instantly
accessible, relevant and accurate information,
we offer customers a solutions-based approach
to communications intelligence.

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upon the enormous and growing amount
of data from multiple sources, including
sensors, UAS and satellites. This environ-
ment represents an opportunity for L-3 to
offer discriminating solutions that ensure
end-to-end mission success for customers.

From systems architecture and engineering
to application development and cyber solu-
tions, we have the experience and cleared
personnel to help sort, protect and analyze
vast, disparate databases, along with

products and technologies from other L-3
segments to enable the secure transmission
of actionable information to users.
Data and network security represent a
critical, growing need for all organizations
today, whether military, government or
commercial. As customers make increasing
use of mobile computing, secure access to
information will be critical and will present
significant opportunities. L-3’s unique cloud
computing, encryption and cybersecurity
solutions will enable us to address these

opportunities. Our know-how spans from
protection to prevention.

Both in classified and non-classified
environments, L-3’s extensive experience
with securing networks and communica-
tions creates an in-depth understanding
of the immediate and long-term challenges
of our customers. We are forming strategic
partnerships that leverage commercial
technologies to speed the development of
next-generation solutions.

L-3’s technologies support a variety of critical
intelligence needs, including enterprise IT,
identity management and data protection.

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L-3’s Aircraft Modernization and
Maintenance (AM&M) business operates
in a market that has been shaped by a high
operational tempo environment for more than
a decade. In the current budget environment,
relatively few new platforms are expected
to be developed, which will drive continued
demand for modification and sustainment
services to optimize the government’s
existing fleets.

positioning

am&m aIRCRaft modeRnIzatIon and maIntenanCe

Targeted investment in AM&M to improve
productivity over the past few years has
increased L-3’s ability to maintain or modify
aircraft faster and more cost-effectively
than our competition. We also provide
Contractor Logistics Support (CLS) services,
supporting comprehensive sustainment
of a wide range of rotary- and fixed-wing
aircraft. L-3 has built a solid reputation in the
field by performing in-theater CLS in some of
the world’s most demanding environments
and terrains.

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L-3’s AM&M operations are essential to
our performance as a systems integrator.
Our diverse product portfolio and
expertise in other segments give us
significant competitive advantages.
We continue to leverage opportunities
for pull-through of L-3 products from our
C3ISR and Electronic Systems segments
to improve aircraft performance. With an
organization structured to enable rapid
configuration of multiple services, we

create tailored solutions for our customers.
L-3’s track record of success in mission-
driven aircraft modification has solidified
our reputation for delivering integrated
solutions, including logistics, on budget
and within accelerated time frames.

Outside of the defense marketplace, L-3
remains a leader in VIP/Head-of-State
aircraft with considerable experience on
numerous platforms. L-3 was awarded one

of the first contracts to modify the new
747-8 and will be the first to deliver a
completed VIP interior on this platform for
a prestigious Head of State.

Cross-segment collaboration across L-3 supported
the U.S. Special Operations Command’s MC-130W
Dragon Spear program that won the 2011 William
J. Perry Award for the nation’s best precision-
strike program. L-3 provided quick-reaction
engineering and integration for a system that
incorporated our battle-proven sensors.

L-3 provides a broad array of rotary-wing
aircraft services—from maintenance and
logistics support for the U.S. Army, Air
Force, Navy and Marines, to fabrication
and assembly of parts and aerostructures
for manufacturers of new helicopters.

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For Electronic Systems, L-3’s broad portfolio
of solutions and technology leadership are
key discriminators. We stay ahead of our
competition by quickly translating that leader-
ship into innovative solutions that anticipate
the evolving needs of our customers.

deLiveRing

eleCtRonIC SYStemS

Demand for effective intelligence-gathering
capabilities continues to grow among military
and non-military customers. L-3’s electro-
optical/infrared (EO/IR) products, integrated
sensor systems and other advanced
technologies deliver industry-best reliability
and performance in this essential area. As
equipment becomes smaller, lighter and faster,
our expertise is also valuable in areas such
as small VSAT systems, where our solutions
include flyaway and manpackable communi-
cation products.

L-3’s broad range of aviation
products can be found on tens
of thousands of military and
commercial aircraft worldwide.

L-3’s VideoScout® App delivers
full-motion video and data to
Android™ devices utilizing local
area network connections.

L-3 provides satellite communications
technology solutions for military and
commercial use, from mobile VSAT
terminals to very large SATCOM devices.

L-3 is a world leader in the development and
production of advanced night vision and
electro-optical systems and components.

L-3 is supplying essential products and systems for
enhanced performance and cost reduction on the U.S.
Navy’s Virginia-class submarine program.

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Security is another vital need. L-3’s safe,
innovative millimeter wave airport
detection technology holds potential in
comprehensive checkpoint systems that
include baggage and cargo. Force
protection and anti-IED jamming technolo-
gies from our precision engagement
business, our work in vehicle up-armoring,
and L-3’s night vision leadership all support
the security and mission performance of
U.S. and allied ground forces.

Our leading technologies deliver solutions
that help our customers operate more
efficiently. Highly sophisticated L-3 training
and simulation systems span from jet
fighters to transport aircraft, optimizing the
productivity of our armed forces’ training
programs, a key benefit in today’s budget-
constrained environment. Meanwhile, the
recovering commercial aviation and
maritime markets expand opportunities for
L-3’s products and systems. Our aviation
offerings help airlines reduce fuel emissions

and operating costs—from our GreenTaxi™
electric drive technology, which eliminates
the use of aircraft engines on taxi, to
products that support the FAA’s NextGen
air traffic control initiative.

Our marine and power technologies
also provide turnkey solutions with full
integration and interoperability for a wide
range of platforms for the U.S. Navy and
U.S. Coast Guard, as well as commercial
and international navy customers.

L-3’s MX™-Series of imaging turrets provides
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and ground-based platforms.

L-3 2011 ANNUAL REPORT

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m a n ag em e n t

b oa r d o f d i r e c t o r s

Michael T. Strianese

Chairman, President and

Chief Executive Officer

Claude R. Canizares

General (R) H. Hugh Shelton

Alan H. Washkowitz

Member of the Audit Committee

Member of the Nominating/Corporate

Chairman of the Nominating/Corporate

Governance Committee

Member of the Executive Committee

Thomas A. Corcoran

Member of the Compensation Committee

Robert B. Millard

Lead Independent Director

Chairman of the Audit Committee

Arthur L. Simon

Member of the Executive Committee

Member of the Audit Committee

John P. White

Member of the Nominating/Corporate

Member of the Compensation Committee

Chairman of the Executive Committee

Lewis Kramer

Governance Committee

Member of the Nominating/Corporate

Chairman of the Compensation Committee

Member of the Audit Committee

Governance Committee

Member of the Compensation Committee

e x e c u t i v e m a n ag em e n t

Curtis Brunson

Ralph G. D’Ambrosio

Executive Vice President of Corporate

Senior Vice President and

Strategy and Development

Chief Financial Officer

Steven M. Post

Senior Vice President,

General Counsel and

Corporate Secretary

Richard A. Cody

Senior Vice President of

Washington Operations

g r o u p p r e s i d e n t s

James W. Dunn

Steve Kantor

John C. McNellis

Senior Vice President and President

Senior Vice President and

of Electronic Systems Group

President of L-3 Services Group

President of Integrated Systems Group

Robert E. Leskow

John S. Mega

Susan D. Opp

Vice President and President

of Marine & Power Systems Group

of Microwave Group

of Communication Systems Group

L-3 2011 AnnuAL RepoRt

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seleCt fInanCIal HIgHlIgHts

C o rp o r at e In f o rm at Io n

SUCCESS IN THIS ENVIRONMENT
DEPENDS ON ADAPTABILITY AND
KEEN SITUATIONAL AWARENESS.

Situational awareness has always been critical to

our customers, and L-3’s ability to adapt is integral

to everything we do. Our strategy is defined by our

focus on the evolving geopolitical, economic and

market forces that create the landscape in which we

operate. This is L-3’s strength — the ability to deliver

in every environment.

Cover:
L-3 is the prime contractor on the C-17 Training System
program, overseeing program management, training device
modification, courseware development and instruction.

In millions, except per share amounts

For the year ended December 31,

Net sales

Operating income

Q4 2011 and Q2 2008 Items

Operating income before Items

Income from continuing operations attributable to L-3

Q4 2011 and Q2 2008 Items

Income from continuing operations attributable to L-3 before Items

Net income attributable to L-3 (c)

Diluted earnings per share from continuing operations

Q4 2011 and Q2 2008 Items

Diluted earnings per share from continuing operations before Items

Diluted earnings per share (c)

Net cash from operating activities

Capital expenditures, net of dispositions

Free cash flow(d)

Equity

2011(a)

2010

2009

2008 (b)

2007

$15,169

$15,680

$15,615

$ 14,901

$ 13,961

1,598

1,750

1,656

—

1,641

1,750

1,656

956

(28)

928

956

9.03

(0.26)

8.77

9.03

955

—

955

8.25

—

8.25

901

—

901

7.61

—

7.61

1,685

(110)

1,575

918

(71)

847

938

7.43

(0.58)

6.85

7.59

1,448

—

1,448

745

—

745

5.86

—

5.86

1,484

1,461

1,407

1,387

1,270

186

1,298

6,724

171

1,290

6,855

182

1,225

6,660

203

1,184

5,941

149

1,121

6,114

(a) The year ended December 31, 2011, includes: (1) a tax benefit of $78 million, or $0.74 per diluted share, for a net reversal of amounts previously accrued related to tax years for

(b) The year ended December 31, 2008, includes: (1) a pre-tax gain of $133 million ($81 million after income taxes, or $0.66 per diluted share) related to the reversal of a $126 million

(c) Net income attributable to L-3 and diluted earnings per share for the year ended December 31, 2008 includes an after-tax gain of $20 million, or $0.16 per diluted share, related to

the divestiture of our 85% ownership interest in Medical Education Technologies, Inc.

(d) We define “free cash flow” as net cash from operating activities, less capital expenditures, net of dispositions.

Sales
(In millions)

$
1
4
,
9
0
1

$
1
3
,
9
6
1

$
1
5
,
6
1
5

$
1
5
,
6
8
0

$
1
5
,
1
6
9

Operating Income
Excluding items* (In millions)

$
1
,
6
5
6

$
1
,
5
7
5

$
1
,
4
4
8

$
1
,
7
5
0

1
,
6
4
1

Diluted EPS
from continuing operations
Excluding items*

Free Cash Flow
(In millions)

$
8
.
7
7

$
8
.
2
5

$
7
.
6
1

$
1
,
1
8
4

$
1
,
2
2
5

$
1
,
1
2
1

$
1
,
2
9
0

$
1
,
2
9
8

$
6
.
8
5

$
5
.
8
6

CAGR 2%

CAGR 3%

CAGR 11%

CAGR 4%

*Operating income and diluted EPS for 2011 and 2008 exclude the Q4 2011 and Q2 2008 items, respectively, described above.

This Summary Annual Report should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2011, included in this book.

Corporate Headquarters

equal opportunIty employer

You can contact the corporate headquarters by writing to:

L-3 Communications is an equal opportunity employer and does not discriminate

L-3 Communications

600 Third Avenue

New York, NY 10016

on the basis of age, race, sex, sexual orientation, creed, color, national origin,

ancestry, marital status, disability or any other characteristic protected by law.

All employment-related decisions are based solely on business needs and relevant

or by calling 212-697-1111. To send a fax, dial 212-867-5249.

requisite skills related to the position.

Corporate InformatIon

safe Harbor statement under tHe prIvate

News media, analysts, shareholders and others seeking corporate

seCurItIes lItIgatIon reform aCt of 1995

information about L-3 Communications should contact corporate

Except for historical information contained herein, the matters set forth in this

communications at 212-697-1111.

prInted materIals

Annual Report are forward-looking statements. Statements that are predictive in

nature, that depend upon or refer to events or conditions or that include words such

as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates” and similar

Printed financial and governance materials may be obtained without

expressions are forward-looking statements. The forward-looking statements set

charge by calling (866) INFO-LLL (866-463-6555).

forth herein involve a number of risks and uncertainties that could cause actual

Internet

results to differ materially from any such statement, including the risks and

uncertainties discussed in the Company’s “Forward-looking Statements” included

You can access quarterly and annual financial information, news

in the Company’s recent filings, including Forms 10-K and 10-Q, with the Securities

releases and an overview of the company’s products and services

and Exchange Commission. The forward-looking statements speak only as of the

through the L-3 Communications website at www.L-3com.com

date made, and the Company undertakes no obligation to update these forward-

looking statements. For a discussion of other risks and uncertainties that could

stoCk exCHange lIstIng

impair our results of operations or financial condition, see Part I - Item 1A -“Risk

The common stock of L-3 Communications Holdings, Inc. is traded on the

Factors” and Note 19 to our audited consolidated financial statements, included in

New York Stock Exchange (NYSE) under the symbol LLL.

our Annual Report on Form 10-K for the year ended December 31, 2011.

annual meetIng

CredIts

The annual meeting of shareholders will be held at 2:30 p.m. on Tuesday,

Design: Froeter Design Company, Chicago.

Use of DoD images featured throughout this report does not imply or constitute

DoD endorsement of this organization, its products or services.

Printed in the U.S.A.

April 24, 2012, at The Ritz-Carlton New York, Battery Park, Two West Street,

New York, NY.

sHareHolder assIstanCe

If you have questions concerning your shareholder account, please contact

the stock transfer agent:

regular maIl

Computershare Trust Company, N.A.

P.O. Box 43078

Providence, RI 02940-3078

overnIgHt delIverIes

250 Royall Street

Canton, MA 02021

or call 877-282-1168 (781-575-2879 from outside the United States).

For the hearing impaired, the phone number is TDD: 800-952-9245.

You can also contact the stock transfer agent at its website at:

www.computershare.com

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L - 3 C O M M U N I C A T I O N S

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L-3 2011 ANNUAL REPORT

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