CONDITION AND RESULTS OF OPERATIONS

Financial Section Roadmap

Management's discussion and analysis (MD&A) can be found on pages 30 to 39, and
our unaudited condensed consolidated financial statements and related notes
contained in this quarterly report can be found on pages 1 to 29. The following
table is designed to assist in your review of MD&A.


Topic                                                                   Location

Overview and Outlook:
L-3's Business                                                        Pages 30 - 31
Key Performance Measures                                              Pages 31 - 32
Other 2009 Events                                                     Page 32
Business Acquisitions and Business and Product Line
Dispositions                                                          Page 32
Results of Operations (includes business segments)                    Pages 32 - 36
Liquidity and Capital Resources:
Anticipated Sources of Cash Flow                                      Page 36
Balance Sheet                                                         Pages 36 - 37
Statement of Cash Flows                                               Pages 37 - 39
Legal Proceedings and Contingencies                                   Page 39

Overview and Outlook

L-3's Business

L-3 is a prime system contractor in aircraft modernization and maintenance, Command, Control, Communications, Intelligence, Surveillance and Reconnaissance (C3ISR) systems, and government services. L-3 is also a leading provider of high technology products, subsystems and systems. Our customers include the U.S. Department of Defense (DoD) and its prime contractors, U.S. Government intelligence agencies, the U.S. Department of Homeland Security (DHS), U.S. Department of State (DoS), U.S. Department of Justice (DoJ), allied foreign governments, domestic and international commercial customers, and select other U.S. federal, state and local government agencies.

For the year ended December 31, 2008, we generated sales of $14.9 billion. The table below presents a summary of our 2008 sales by major category of end customer.

                                                              % of
                                        2008 Sales         Total Sales
                                       (in millions)

              DoD                     $        11,059              74.2 %
              Other U.S. Government             1,067               7.2

              Total U.S. Government            12,126              81.4 %
              Foreign Government                1,099               7.4
              Commercial - foreign                987               6.6
              Commercial - domestic               689               4.6

              Total sales             $        14,901               100 %

We have the following four reportable segments: (1) C3ISR, (2) Government Services, (3) Aircraft Modernization and Maintenance (AM&M), and (4) Specialized Products. Financial information relating to our reportable segments is included in Note 19 to our unaudited condensed consolidated financial statements contained in this quarterly report. C3ISR provides products and services for the global ISR market, networked communications systems and secure communications products. We believe that these products and services are critical elements for a substantial number of major command, control, communication, intelligence gathering and space systems. These products and services are used to connect a variety of airborne, space, ground and sea-based communication systems and are used in the transmission, processing, recording, monitoring, and dissemination functions of these

communication systems. Government Services provides training and operational support services, enterprise information technology solutions, intelligence solutions and support, command & control systems and software services and global security & engineering solutions services. AM&M provides modernization, upgrades and sustainment, maintenance and logistics support services for military and various government aircraft and other platforms. Specialized Products provides a broad range of products, including components, products, subsystems, systems, and related services to military and commercial customers in several niche markets across several business areas, including power & control systems, electro-optic/infrared (EO/IR), microwave, avionics & displays, simulation & training, precision engagement, security & detection, propulsion systems, telemetry & advanced technology, undersea warfare, and marine services. During the quarter ended March 27, 2009, we revised our reportable segment presentations to conform to certain re-alignments in our management and organization structure. Consequently, we made certain reclassifications between our C3ISR, Government Services and AM&M reportable segments. See Note 19 to our unaudited condensed consolidated financial statements contained in this quarterly report for the prior period amounts reclassified between reportable segments.

Key Performance Measures

The primary financial performance measures that L-3 uses to manage its businesses and monitor results of operations are sales growth and operating income growth. Management believes that these financial performance measures are the primary growth drivers for L-3's earnings per common share and net cash from operating activities. L-3's business strategy is focused on increasing sales from organic growth and select business acquisitions that add new products, services, technologies, programs or customers in areas that complement L-3's existing businesses. We define organic sales growth as the increase or decrease in sales for the current period compared to the prior period, excluding sales in the (1) current period from business and product line acquisitions that are included in L-3's actual results of operations for less than twelve months, and
(2) prior period from business and product line divestitures that are included in L-3's actual results of operations for the twelve-month period prior to the divestiture date. The two main determinants of our operating income growth are sales growth and improvements in operating margin. We define operating margin as operating income as a percentage of sales.

Sales Growth. Our average annual sales growth for the five years ended December 31, 2008 was 25%, with average annual organic sales growth of approximately 10% and average annual sales growth from business acquisitions of approximately 15%. Sales growth for the year ended December 31, 2008 was 7%, comprised of organic sales growth of 5%, and sales growth from business acquisitions, net of divestitures, of 2%. Sales growth for the quarter ended March 27, 2009 (2009 First Quarter) was 3.7%, comprised of organic sales growth of 1.5%, and sales growth from business acquisitions, net of divestitures, of 2.2%.

For the year ended December 31, 2008, our Special Operations Forces Support Activity (SOFSA) contract with the U.S. Special Operations Command (SOCOM) generated approximately $400 million, or 2.7% of our sales. On March 3, 2009, SOCOM announced that it did not select our proposal for the next SOFSA contract. We protested SOCOM's selection with the U.S. Government Accountability Office (GAO). In response to our protest, SOCOM has agreed to take corrective action. We continue to perform on the current SOFSA contract pending the outcome of the protest.

We, as most U.S. defense contractors, have benefited from the upward trend in DoD budget authorization and spending outlays over recent years, including supplemental appropriations for military operations in Iraq and Afghanistan. Even though we expect future DoD budgets, including supplemental appropriations, to grow at a slower pace than the past several years, we believe that our businesses should be able to continue to generate organic sales growth because we anticipate the defense budget will continue its focus on areas that match several of L-3's core competencies, such as: communications and ISR, sensors, precision engagement, Special Operations Forces, wartime support services and simulation & training. The increased DoD spending during recent years has included supplemental appropriations for military operations in Iraq and Afghanistan.

Operating Income Growth. Our consolidated operating income was $376 million for the 2009 First Quarter, an increase of 2% from $368 million for the 2008 First Quarter. Our consolidated operating margin was 10.3% for the 2009 First Quarter, a decrease of 20 basis points from 10.5% for the 2008 First Quarter. Our operating income and operating margins were impacted by higher pension expense because of declines in domestic and foreign equity and fixed income financial markets that negatively affected the 2008 actual return on our pension assets. Higher pension expense decreased operating income by $19 million ($12 million after income taxes, or $0.10 per diluted

share) and reduced operating margin by 60 basis points for the 2009 First Quarter. See segment results below for additional discussion of segment operating income and margin results.

Excluding an increase in our 2009 pension expense, due to a decline in pension plan asset returns as discussed above, we expect to continue to generate modest annual increases in operating margin. We expect to increase sales, grow sales at a rate faster than the increase in our indirect costs, and improve our overall contract performance. However, we may not be able to expand our operating margin annually. Additionally, in the future, select business acquisitions and select new business could reduce our operating margin if their margins are lower than L-3's existing operating margin. Our business objectives include growing earnings per common share and cash flow. Improving operating margin is one method for achieving this growth, but it is not the only one.

Other 2009 Events

We adopted six new accounting standards during the 2009 First Quarter. In accordance with the transition and disclosure provisions of three of these standards, we retrospectively applied those provisions and adjusted the prior period financial statements accordingly. See Note 3 to our unaudited condensed consolidated financial statements contained in this quarterly report for the standards adopted and their impact to our financial position and results of operations.

Business Acquisitions and Business and Product Line Dispositions

Our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 summarizes the business acquisitions and business and product line dispositions that we completed during the three years ended December 31, 2008. Also, see Note 4 to our unaudited condensed consolidated financial statements contained in this quarterly report for a discussion of the acquisition of Chesapeake Sciences Corporation (CSC) acquired on January 30, 2009. During the 2009 First Quarter, we used $82 million of cash (net of cash received) to acquire CSC.

All of our business acquisitions are included in our consolidated results of operations from their dates of acquisition. We regularly evaluate potential business acquisitions.

Results of Operations

The following information should be read in conjunction with our unaudited condensed consolidated financial statements contained in this quarterly report. Our results of operations for the periods presented are affected by our business acquisitions. See Note 4 to our audited consolidated financial statements for the year ended December 31, 2008, included in our Annual Report on Form 10-K, for a discussion of our 2008 business acquisitions, and Note 4 to our unaudited condensed consolidated financial statements, included in this report, for a discussion of the CSC acquisition on January 30, 2009.