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
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(Exact Name of Registrant as Specified in Its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
001-14141 13-3937434
333-46983 13-3937436
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(Commission File Number) (IRS Employer Identification No.)
600 Third Avenue, New York, New York 10016
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(Address of Principal Executive Offices) (Zip Code)
(212) 697-1111
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(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