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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 11-K
(Mark one)
X ANNUAL REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED DECEMBER 31, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 001-14141
AVIATION COMMUNICATIONS &
SURVEILLANCE SYSTEMS 401(K) PLAN
(FULL TITLE OF THE PLAN AND THE ADDRESS OF THE PLAN,
IF DIFFERENT FROM THAT OF THE ISSUER NAMED BELOW)
L-3 COMMUNICATIONS HOLDINGS, INC.
600 Third Ave
New York, NY 10016
(Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office)
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AVIATION COMMUNICATIONS & SURVEILLANCE SYSTEMS 401(K) PLAN
INDEX TO FINANCIAL STATEMENTS
PAGES
-----
Report of Independent Auditors 2
Financial Statements:
Statements of Net Assets Available for Benefits
at December 31, 2002 and 2001 3-4
Statement of Changes in Net Assets Available for Benefits
for the Year Ended December 31, 2002 5
Notes to Financial Statements 6-13
REPORT OF INDEPENDENT AUDITORS
To the Participants and Administrator of
the Aviation Communications & Surveillance Systems 401(K) Plan:
We have audited the accompanying statements of net assets available for benefits
of the Aviation Communications & Surveillance Systems 401(K) Plan as of December
31, 2002 and 2001, and the related statement of changes in net assets available
for benefits for the year ended December 31, 2002. These financial statements
are the responsibility of the Plan's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits 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 misstatement. 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 audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 2002 and 2001, and the changes in net assets available for benefits
for the year ended December 31, 2002 in conformity with accounting principles
generally accepted in the United States of America.
/s/ PricewaterhouseCoopers LLP
New York, New York
June 27, 2003
2
AVIATION COMMUNICATIONS & SURVEILLANCE SYSTEMS 401(K) PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2002
(IN THOUSANDS)
Participant Non-Participant
Directed Directed Total
-------------- --------------- --------------
Assets:
Investment in Master Trust $1,481 $ 869 $ 2,350
Contributions receivable:
Participants 22 - 22
Company - 17 17
-------------- --------------- --------------
Net assets available for benefits $1,503 $ 886 $ 2,389
============== ============== ==============
See Notes to Financial Statements
3
AVIATION COMMUNICATIONS & SURVEILLANCE SYSTEMS 401(K) PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2001
(IN THOUSANDS)
Non-
Participant Participant
Directed Directed Total
-------------- -------------- --------------
Assets:
Investment in Master Trust $ 583 $ 366 $ 949
-------------- -------------- --------------
Net assets available for benefits $ 583 $ 366 $ 949
============== ============== ==============
See Notes to Financial Statements
4
AVIATION COMMUNICATIONS & SURVEILLANCE SYSTEMS 401(K) PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 2002
(IN THOUSANDS)
Non-
Participant Participant
Directed Directed Total
------------------ --------------- --------------
Additions:
Contributions:
Participant $ 1,019 $ -- $ 1,019
Company -- 630 630
Rollover 64 -- 64
Net depreciation in the fair value
of investments of Master Trust (149) (69) (218)
Interest and dividend income 23 -- 23
------------------ --------------- --------------
Total additions 957 561 1,518
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Deductions:
Benefit payments
37 41 78
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Net increase 920 520 1,440
Net assets available for benefits,
beginning of period 583 366 949
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Net assets available for benefits,
end of period $ 1,503 $ 86 $ 2,389
================== =============== ==============
See Notes to Financial Statements
5
AVIATION COMMUNICATIONS & SURVEILLANCE SYSTEMS 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
1. PLAN DESCRIPTION
General
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The Aviation Communications & Surveillance Systems 401(k) Plan (the "Plan") was
established effective June 1, 2001. Aviation Communications & Surveillance
Systems, LLC (the "Company") maintains the Plan for its eligible employees.
Employees of the Company who were participants in the L-3 Communications Master
Savings Plan (the "Prior Plan") became participants in the Plan on June 1, 2001.
The following description of the Plan provides only general information.
Complete descriptions of the Plan, including eligibility requirements and
vesting provisions, are contained in the Plan documents.
The Plan is a defined contribution 401(k) plan and is administered by the
Benefit Plan Committee ("Plan Administrator") appointed by the Company. The Plan
is designed to provide eligible employees with tax advantaged long-term savings
for retirement. The Plan is subject to the provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA"). Participants may direct their investment
to a combination of mutual funds, which are held in the L-3 Communications
Master Savings Plan Trust (the "Master Trust"), managed by Fidelity Management
Trust Company ("FMTC"), as Trustee.
Contributions
-------------
Full time employees are eligible to participate in the Plan as of their date of
hire. Part time employees must complete at least 1,000 hours of service, from
the date of hire, before being eligible to participate in the Plan. Each
eligible employee wishing to participate in the Plan must elect to authorize
pre-tax and/or post-tax contributions by payroll deduction. Participants may
contribute from 1% to 18% of total compensation, as defined. A participant may
elect to increase, decrease, suspend or resume contributions at any time. The
election will become effective as soon as administratively possible as of the
first day of the payroll period elected. The Internal Revenue Code of 1986, as
amended, limited the maximum amount an employee may contribute on a pre-tax
basis in 2002 to $11,000 for participants under 50 years of age and $12,000 for
participants 50 years of age and over. Participants are 100% vested in their
contributions and earnings thereon.
The Company matches 50% of participants' contributions up to a maximum
participant elected contribution percentage of 8% of compensation, which
increases to 100% of participants' contributions, up to 8% of compensation after
5 years of service. Company contributions are made in shares of L-3
Communications Holdings, Inc. common stock. Contributions are subject to
Internal Revenue Code ("IRC") limitations.
Vesting
-------
On June 1, 2001, participants of the Plan who were participants in the Prior
Plan on May 31, 2001 became fully vested in Company contributions and earnings
thereof in the Prior Plan. Participants will become fully vested in Company
contributions of the Plan upon 1) disability, 2) death or 3) the participants
65th birthday if the participant is actively employed by the Company. The
following table presents the vesting schedule for Plan participants.
Completed Years of Service Vested Percentage
-------------------------- -----------------
Less than 1 0%
1 20%
2 40%
3 60%
4 80%
5 or more 100%
6
AVIATION COMMUNICATIONS & SURVEILLANCE SYSTEMS 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS- CONTINUED
Participant Accounts
--------------------
Each participant's account is credited with the participant's contribution and
allocations of (a) the Company's contribution and (b) the Plan's earnings, and
may be charged with certain administrative expenses. Allocations are based on
participant earnings or account balances, as defined. The benefit to which a
participant is entitled is the benefit that can be provided from the
participant's vested account.
Participant account balances from the Prior Plan may not be transferred into the
Plan without the approval of the Benefit Plan Committee and such account
balances are excluded from the Plan's statement of net assets available for
benefits at December 31, 2002 and 2001.
Master Trust Investment Options
-------------------------------
All non-participant directed employer contributions must be invested in the L-3
Stock Fund. Participants have the option of investing employee contributions in
the L-3 Stock Fund, as well as other investment options that are described
below.
L-3 Stock Fund - This fund was established effective October 1, 1998 and invests
in L-3 Communications Holdings, Inc. ("L-3 Holdings") common stock and money
market funds. This fund represented 45.2% and 46.5% of net assets available for
benefits at December 31, 2002 and 2001, respectively.
Fidelity Freedom Funds - These funds invest in a combination of underlying
Fidelity stock, bond and money market mutual funds to provide moderate asset
allocation. Each Fidelity Freedom Fund has a target retirement date.
Fidelity Freedom 2000 Fund - This fund invests in approximately 22% in
Fidelity stock mutual funds, 43% in Fidelity bond mutual funds and 35% in
Fidelity money market funds and is targeted to investors who expect to
retire in the near future. This fund represented less than one percent of
net assets available for benefits at December 31, 2002 and 2001.
Fidelity Freedom 2010 Fund - This fund invests in approximately 45% in
Fidelity stock mutual funds, 45% in Fidelity bond mutual funds and 10% in
Fidelity money market funds and is targeted to investors who expect to
retire around the year 2010. This fund represented 1.5% and 2.0% of net
assets available for benefits at December 31, 2002 and 2001, respectively.
Fidelity Freedom 2020 Fund - This fund invests in approximately 70% in
Fidelity stock mutual funds and 30% in Fidelity bond mutual funds and is
targeted to investors who expect to retire around the year 2020. This fund
represented 4.0% and 3.8% of net assets available for benefits at December
31, 2002 and 2001, respectively.
Fidelity Freedom 2030 Fund - This fund invests in approximately 83% in
Fidelity stock mutual funds and 17% in Fidelity bond mutual funds and is
targeted to investors who expect to retire around the year 2030. This fund
represented 3.3% and 6.1% of net assets available for benefits at December
31, 2002 and 2001, respectively.
Fidelity Ginnie Mae Fund - Funds are invested for a high level of current income
primarily from Government National Mortgage Association mortgaged-backed
pass-through certificates that are guaranteed as to timely payment of interest
and principal by the full faith and credit of the U.S. Government. This fund
represented 2.8% and 2.2% of net assets available for benefits at December 31,
2002 and 2001, respectively.
7
AVIATION COMMUNICATIONS & SURVEILLANCE SYSTEMS 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS- CONTINUED
Fidelity Growth & Income Portfolio - Funds are invested mainly in securities of
companies that offer potential capital appreciation while paying current
dividends. This fund represented 4.8% and 3.7% of net assets available for
benefits at December 31, 2002 and 2001, respectively.
Fidelity Magellan Fund - Funds are invested for capital appreciation in a broad
range of equities of domestic, multinational and foreign companies. This fund
represented 7.7% and 6.7% of net assets available for benefits at December 31,
2002 and 2001, respectively.
Fidelity Managed Income Portfolio II - Funds are invested in investment
contracts offered by major insurance companies and in fixed income securities.
This fund represented 14.9% and 13.8% of net assets available for benefits at
December 31, 2002 and 2001, respectively.
Fidelity OTC Portfolio - This fund invests at least 80% of its assets in
securities traded on NASDAQ or another over-the-counter (OTC) market, which has
more small and medium-sized companies than other markets. This fund invests more
than 25% of its assets in the technology sector. This fund represented less than
one percent of net assets available for benefits at December 31, 2002 and 2001.
INVESCO Dynamics Fund - Funds are invested in domestic common stocks of rapidly
growing mid-sized companies. Mid-sized companies are defined as those companies
that have a market capitalization of between $2.5 billion and $15.0 billion.
This fund represented 2.9% and 3.6% of net assets available for benefits at
December 31, 2002 and 2001, respectively.
Invesco Small Company Growth Fund - This fund invests in equities of companies
with market capitalizations of less than $2.5 billion. This fund focuses on
companies with accelerating earnings attributable to rapid sales growth. This
fund represented less than one percent of net assets available for benefits at
December 31, 2002 and 2001.
Janus Overseas Fund - Funds are invested in common stocks of foreign companies.
This fund represented 2.9% and 3.8% of net assets available for benefits at
December 31, 2002 and 2001, respectively.
Spartan U.S. Equity Index Fund - This fund invests at least 80% of its assets in
common stocks of the 500 companies that comprise the Standard & Poor's 500
Index. This fund represented 3.9% and 4.5% of net assets available for benefits
at December 31, 2002 and 2001, respectively.
T. Rowe Price Small-Cap Stock Fund - This fund invests at least 80% of its
assets in equities of small companies. A small company is defined as having a
market capitalization that falls within the range of the companies in the
Russell 2000 Index. This fund represented 2.1% and 1.3% of net assets available
for benefits at December 31, 2002 and 2001, respectively.
8
AVIATION COMMUNICATIONS & SURVEILLANCE SYSTEMS 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS- CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment in Master Trust
--------------------------
Investment assets of the Plan are maintained in the Master Trust administered by
FMTC, as Trustee. The Plan participates in the Master Trust along with all the
assets of the L-3 Communications Master Savings Plan, the L-3 Communications
Systems- East Savings Plan, the Coleman Research Corporation Money Purchase Plan
and the SPD Technologies Defined Contribution Retirement Plan, collectively
referred to as the Participating Plans. During the year ended December 31, 2002,
the L-3 Communications Systems- East Savings Plan and the Coleman Research
Corporation Money Purchase Plan were merged into the L-3 Communications Master
Savings Plan.
The investment in the Master Trust represents the Plan's proportionate share of
assets held in the Master Trust. The assets consist of units of funds described
in Note 1 maintained by FMTC. Contributions, benefit payments and certain
administrative expenses are specifically identified to the Plan.
Valuation of Investments
------------------------
The investment in the Master Trust is stated at fair value.
The L-3 Stock Fund is a unitized fund whose underlying assets consist primarily
of shares of L-3 Holdings' common stock. Shares of L-3 Holdings' common stock
are valued at the last reported quoted market price of a share on the last
business day of the year.
Investments in mutual funds are valued at quoted market prices, which represent
the net asset value per share as reported by Fidelity Management and Research
Company. Participant loans are valued at cost, which approximates fair value.
Basis of Accounting
-------------------
The financial statements of the Plan are prepared under the accrual method of
accounting.
Investment Transactions and Investment Income
---------------------------------------------
Investment transactions are accounted for on a trade-date basis. Dividend income
is recorded on the ex-dividend date. Interest income is recorded on an accrual
basis. Gains and losses on sales of investment securities are determined based
on the average cost method.
Net depreciation in the fair value of the Plan's investments, as shown in the
Statement of Changes in Net Assets Available for Benefits, consists of the
Plan's proportionate share of realized gains or losses and net unrealized
depreciation on those investments. The net depreciation and interest and
dividends are allocated to the L-3 Participating Plans based upon the
relationship of each L-3 Participating Plan's respective monthly balances in the
investment pool to the total investment pool of the Master Trust, as determined
at the beginning of each month.
Forfeitures
-----------
Non-vested Company contributions are forfeited upon termination and used to pay
plan expenses and to reduce future Company contributions. Forfeitures available
were approximately $5,000 at December 31, 2002.
9
AVIATION COMMUNICATIONS & SURVEILLANCE SYSTEMS 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS- CONTINUED
Benefit Payments
----------------
Benefit payments are recorded when paid.
Plan Expenses
-------------
The Company pays all administrative expenses of the Plan including trust, record
keeping, consulting, audit and legal fees, with the exception of loan
administration fees, which are charged to participants. Taxes and investment
fees related to the stock funds or mutual funds are paid from the net assets of
such funds.
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 of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results will differ from these estimates. The most
significant estimate relates to valuations of investments in the Master Trust.
Risks and Uncertainties
-----------------------
The Plan provides for investment options in various mutual funds and the L-3
Stock Fund. Investment securities are exposed to various risks, such as interest
rate, market and credit risk. Due to the level of risk associated with certain
investment securities and the level of uncertainty related to changes in the
value of investment securities, it is at least reasonably possible that changes
in risks in the near term would materially affect participants' account balances
and the amounts reported in the statement of net assets available for benefits
and the statement of changes in net assets available for benefits.
10
AVIATION COMMUNICATIONS & SURVEILLANCE SYSTEMS 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS- CONTINUED
3. MASTER TRUST
The fair value of the net assets of the Master Trust held by the Trustee and the
Plan's portion of the fair value at December 31, 2002 and 2001 are presented in
the table below. The Plan's percentage interest in the Master Trust was less
than one percent at December 31, 2002 and 2001.
Master Trust Plan's Portion
-------------------------------- ----------------------------------
Fund 2002 2001 2002 2001
------------------------------------------------ -------------- ------------ -------------- -------------
(in thousands)
L-3 Stock Fund $ 111,997 $ 71,717 $ 1,063 $ 441
Fidelity Blue Chip Fund - 2,359 - -
Fidelity Contrafund - 1,933 - -
Fidelity Diversified International Fund - 708 - -
Fidelity Equity Income Fund - 1,100 - -
Fidelity Freedom 2000 Fund 5,051 3,129 18 6
Fidelity Freedom 2010 Fund 46,689 46,133 36 19
Fidelity Freedom 2020 Fund 15,253 9,765 94 36
Fidelity Freedom 2030 Fund 7,098 5,545 78 58
Fidelity Freedom 2040 Fund 97 18 - -
Fidelity Freedom Income Fund - 60 - -
Fidelity Ginnie Mae Fund 44,804 23,069 65 21
Fidelity Growth & Income Portfolio 76,540 76,831 112 35
Fidelity Low-Priced Stock Fund - 2,101 - -
Fidelity Magellan Fund 108,998 127,522 180 64
Fidelity Managed Income Portfolio II 175,271 119,351 349 131
Fidelity OTC Portfolio 6,497 6,286 18 5
Fidelity Puritan Fund - 552 - -
Fidelity Retirement Money Market Portfolio - 3,390 - -
INVESCO Dynamics Fund 22,612 24,237 67 34
INVESCO Small Company Growth Fund 3,366 1,885 10 5
Janus Overseas Fund 25,663 24,361 69 36
Loral Space Stock Fund 66 478 - -
Pimco Total Return Fund - 491 - -
Chicago Trust Safety of Principal Fund - 1,578 - -
Spartan U.S. Equity Index Fund 28,249 27,827 92 43
T. Rowe Price Small-Cap Stock Fund 18,811 9,875 49 12
Participant Loans (5.3% to 7.0%) 21,947 14,407 50 3
-------------- ------------ -------------- -------------
$ 719,009 $606,708 $ 2,350 $ 949
============== ============ ============== =============
11
AVIATION COMMUNICATIONS & SURVEILLANCE SYSTEMS 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS- CONTINUED
The net change in the fair value of the Master Trust and the Plan's portion of
the net change in fair value for the year ended December 31, 2002 is presented
in the table below.
Master Trust Plan's Portion
------------ --------------
(in thousands)
Net depreciation in fair value of investments $(95,552) $(218)
Interest and dividend income 14,106 23
------------ ------------
Net decrease in fair value $(81,446) $(195)
============ ============
4. BENEFIT PAYMENTS
Upon termination, participants may receive the vested portion of their account
balance as soon as practicable after termination, at the participants option,
either in a lump sum or in periodic installments as provided for in the Plan
document. Terminated participants who have an account balance in excess of
$5,000 may elect to leave their account balance in the Plan and withdraw it at
any time up to age 65.
Assets in a participant's account may be withdrawn before termination of
employment or before reaching age 59 1/2 only for financial hardship. Financial
hardship is determined pursuant to provisions of the Plan and the IRC.
Generally, a penalty will be imposed on withdrawals made before the participant
reaches age 59 1/2. In the event of retirement or termination of employment
prior to age 59 1/2, funds may be rolled over to another qualified plan or
individual retirement account without being subject to income tax or a penalty.
5. LOANS
The Plan provides for loans to active participants. Participants may not have
more than one loan outstanding at any time. The maximum loan allowed to each
participant is the lesser of (1) $50,000 less the highest outstanding loan
balance over the prior 12 months or (2) 50% of the vested value of the
participant's account in the Plan. The minimum loan amount is $1,000. The
interest rate is based on the prime interest rate, as defined, plus one percent.
The maximum term of a loan is 5 years or 30 years if used to purchase a
principal residence.
Loan repayments are made through payroll deductions, with principal and interest
credited to the participants' fund accounts. Repayment of the entire balance is
permitted at any time. Participants who terminate employment may continue to
repay their outstanding loans as permitted by the Plan document. Participant
loans are secured by the participant's vested account balance.
6. TAX STATUS
The Internal Revenue Service has determined and informed the Company by a letter
dated May 6, 2003, that the Plan and related trust are designed in accordance
with applicable sections of the IRC, and thus is exempt from federal income
taxes. The Plan Administrator and the Plan's counsel believe that the Plan is
designed and is currently being operated in compliance with the applicable
regulations of the IRC.
7. RELATED-PARTY TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by FMTC and
therefore these transactions qualify as party-in-interest. Fees paid by the
Company for record keeping services were $2,250 for the year ended December 31,
2002.
12
AVIATION COMMUNICATIONS & SURVEILLANCE SYSTEMS 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS- CONTINUED
8. TERMINATION PRIORITIES
Although the Company has not expressed intent to do so, the Company can
discontinue its contributions and/or terminate the Plan at any time, subject to
the provisions of ERISA. In the event of a discontinuance and/or termination of
the Plan, participants in that plan will become 100 percent vested in Company
contributions and the net assets of the Plan will be allocated among the
participants and their beneficiaries in accordance with the provisions of ERISA.
13
Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees of the Aviation Communications & Surveillance Systems 401(k) Plan
have duly caused this annual report to be signed on their behalf by the
undersigned thereunto duly authorized.
Aviation Communications & Surveillance
Systems 401(k) Plan Registrant
Date: June 27, 2003
/s/ Michael T. Strianese
-------------------------------
Name: Michael T. Strianese
Title: Senior Vice President, Finance
of L-3 Communications Holdings, Inc.
(Principal Accounting Officer)
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (File No.'s 333-59281, 333-64389, 333-78317, 333-64300 and 333-103752)
and on Form S-3 (File No.'s 333-58328, 333-75558, 333-84826 and 333-99693) of
L-3 Communications Holdings, Inc. of our report dated June 27, 2003 on our audit
of the financial statements of Aviation Communications & Surveillance Systems
401(k) Plan as of December 31, 2002 and for the year then ended, which report is
included in this Annual Report on Form 11-K.
/s/ PricewaterhouseCoopers LLP
New York, NY
June 27, 2003
EXHIBIT INDEX
Exhibit Number Description of Exhibit
-------------------- -------------------------------------------------------
** 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
** 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
**Filed herewith