L-3 Communications Announces Fourth Quarter 2005 Results; Sales, Operating Income and Diluted Earnings Per Share Increase 51.7%, 39.5% and 22.8%, Respectively

For the 2005 fourth quarter, consolidated sales increased by$989.0 million, or 51.7%, to $2,900.2 million from consolidated salesof $1,911.2 million for the 2004 fourth quarter. The increase inconsolidated sales from acquired businesses was $784.4 million, or41.0%, including $608.6 million from the acquisition of The TitanCorporation (Titan) on July 29, 2005. Consolidated organic salesgrowth(2) was 10.7%, or $204.6 million. Organic sales growth for thecompany's defense businesses was 11.0%, or $186.2 million, drivenprimarily by strong demand for intelligence, surveillance andreconnaissance (ISR) systems and products, secure networkedcommunications systems, aircraft modernization and maintenance,government services and several specialized products, including thosefor simulation devices, guidance and navigation,electro-optical/infrared (EO/IR) and acoustic undersea anti-submarinewarfare products. Organic sales growth for the company's commercialbusinesses was 8.5%, or $18.4 million, primarily due to volumeincreases for airport security products and microwave components,which were partially offset by volume decreases for commercialaviation products.

Consolidated operating income for the 2005 fourth quarterincreased by 39.5% to $306.1 million from $219.5 million for the 2004fourth quarter. Consolidated operating income as a percentage of sales(operating margin) was 10.6% for the 2005 fourth quarter, compared to11.5% for the 2004 fourth quarter. This decrease was principally dueto the Titan acquired businesses, which reduced consolidated operatingmargin by 60 basis points because Titan's business is largelyperformed under lower margin (and lower risk) cost-reimbursable typeand time-and-material type contracts. The changes in operating marginare further explained in the company's segment results discussedbelow.

Interest and other (income) expense was a loss of $0.9 million forthe 2005 fourth quarter, compared with income of $9.0 million for the2004 fourth quarter. The decrease in other income is due primarily toa write-down of $5.8 million of the carrying value of certaininvestments because the decline in values were determined to be otherthan temporary.

Interest expense for the 2005 fourth quarter increased by $29.1million, or 75.6%, to $67.6 million, compared to the 2004 fourthquarter, primarily due to interest incurred on debt issued to financethe Titan acquisition.

Net income for the 2005 fourth quarter increased by 26.9% to$151.4 million, compared to net income of $119.3 million for the 2004fourth quarter. Diluted earnings per share (EPS) increased by 22.8% to$1.24, compared to $1.01 for the 2004 fourth quarter.

For the 2005 fourth quarter, funded orders increased by 32.1% to$2,773.0 million, compared to funded orders of $2,098.6 million forthe 2004 fourth quarter. At December 31, 2005, funded backlog was$7,000.9 million, an increase of 47.1%, compared to funded backlog of$4,757.9 million at December 31, 2004.

Net cash from operating activities for the 2005 fourth quarterincreased by 25.7% to $267.3 million from $212.7 million for the 2004fourth quarter. The 2005 fourth quarter included payments of $67.4million to settle Titan shareholder class action and derivative actionlawsuits, which were assumed by L-3 as part of the Titan acquisition.Free cash flow for the 2005 fourth quarter increased by $98.9 million,or 52.6%, to $287.0 million, compared to free cash flow of $188.1million for the 2004 fourth quarter. Free cash flow for the 2005fourth quarter excludes the aforementioned legal settlement payments.

"L-3 finished the year with strong fourth-quarter performance,"said Frank C. Lanza, chairman and chief executive officer of L-3Communications. "We had solid growth in several of our business areas,including ISR, secure communications, government services, securitydetection systems, simulation devices, microwave components, EO/IRproducts and displays."

FULL YEAR RESULTS

For the year ended December 31, 2005, consolidated sales increasedby $2,547.7 million, or 36.9%, to $9,444.7 million from consolidatedsales of $6,897.0 million for the year ended December 31, 2004. Theincrease in consolidated sales from acquired businesses was $1,744.4million, or 25.3%, including $1,052.3 million from the Titanacquisition. Consolidated organic sales growth was 11.6%, or $803.3million. Organic sales growth for the company's defense businesses was11.7%, or $722.1 million, driven primarily by continued strong demandfor ISR systems and products, secure networked communications systems,aircraft modernization and maintenance, government services andseveral specialized products, including simulation devices, acousticundersea anti-submarine warfare products, naval power equipment,military displays and antenna systems and EO/IR products. Organicsales growth for the company's commercial businesses was 11.0%, or$81.2 million, primarily due to increases for airport security systemsand commercial aviation products.

Consolidated operating income for the year ended December 31, 2005increased by 33.1% to $996.7 million from $748.6 million for the yearended December 31, 2004. Consolidated operating margin was 10.6% forthe year ended December 31, 2005, compared to 10.9% for the year endedDecember 31, 2004. The decrease in operating margin was primarily dueto the Titan acquired businesses.

Other income for the year ended December 31, 2005 was $5.5million, compared to $7.3 million for the year ended December 31,2004. The decrease is primarily due to write-downs of the carryingvalue of investments, as discussed earlier, offset by higher interestincome earned because of higher average interest rates on cash andcash equivalents.

Interest expense for the year ended December 31, 2005 increased by$58.9 million, or 40.5%, to $204.2 million, compared to the year endedDecember 31, 2004, primarily due to interest incurred on debt issuedto finance the Titan acquisition.

The income tax provision for the year ended December 31, 2005, wasbased on an effective income tax rate of 35.5%, compared to 36.0%, forthe year ended December 31, 2004. The income tax provision for 2005included a tax benefit for the favorable disposition of certain taxcontingencies, which reduced the full year effective tax rate byapproximately 100 basis points and was recorded in the 2005 thirdquarter. Additionally, during 2005 the company's income tax creditsfor research and experimentation expenditures declined because of theTitan acquired businesses.

Net income for the year ended December 31, 2005 increased by 33.2%to $508.5 million, compared to net income of $381.9 million for theyear ended December 31, 2004. Diluted EPS increased by 26.1% to $4.20,compared to $3.33 for the year ended December 31, 2004.

For the year ended December 31, 2005, funded orders increased by37.0% to $10,365.4 million, compared to funded orders of $7,563.7million for the year ended December 31, 2004.

Net cash from operating activities for the year ended December 31,2005 increased by 36.4% to $846.8 million from $620.7 million for theyear ended December 31, 2004. Free cash flow for the year endedDecember 31, 2005 increased by $245.4 million, or 44.4%, to $797.5million, compared to free cash flow of $552.1 million for the yearended December 31, 2004. As discussed earlier, the 2005 fourth quarterincluded payments of $67.4 million to settle Titan shareholder classaction and derivative action lawsuits, which were assumed by L-3 aspart of the Titan acquisition. Free cash flow for the year endedDecember 31, 2005 excludes the aforementioned legal settlementpayments.

The company's cash and cash equivalents decreased by $259.5million to $393.9 million at December 31, 2005, compared to $653.4million at December 31, 2004. The decrease in cash was primarily dueto amounts used to finance business acquisitions, including the Titanacquisition, partially offset by increases in the company's free cashflow and net proceeds from debt offerings.

Total debt increased by $2,443.7 million to $4,633.5 million atDecember 31, 2005 from $2,189.8 million at December 31, 2004,primarily due to $2,450.0 million of borrowings to finance the Titanacquisition. Available borrowings under the company's revolving creditfacilities after reduction for outstanding letters of credit wereapproximately $895.2 million at December 31, 2005.

Shareholders' equity increased by $690.9 million to $4,490.7million at December 31, 2005, compared to $3,799.8 million at December31, 2004, resulting from the company's net income, less dividends paidplus proceeds from the exercise of stock options during the year endedDecember 31, 2005.

Total debt as a percentage of book capitalization (total debt plusminority interests plus shareholders' equity) increased to 50.3% atDecember 31, 2005, from 36.1% at December 31, 2004, reflecting theadditional borrowings described above.

REPORTABLE SEGMENTS

Command, Control, Communications, Intelligence, Surveillance andReconnaissance (C3ISR)

C3ISR sales for the 2005 fourth quarter increased by $281.9million, or 66.6%, to $705.2 million from sales of $423.3 million forthe 2004 fourth quarter. The increase in sales from acquiredbusinesses was $215.0 million, primarily related to the Titan acquiredbusinesses. Organic sales growth was $66.9 million, or 15.8%, drivenby demand for upgrades of airborne mission and ISR systems for alliedforeign governments, secure networked communications systems andsecure terminal equipment. C3ISR generated operating income of $71.4million for the 2005 fourth quarter, compared to $61.4 million for the2004 fourth quarter. Operating margin decreased to 10.1% from 14.5%for the 2004 fourth quarter. The decrease in operating margin isprimarily due to lower margins from the Titan acquired businesses,lower unit sales prices on secure terminal equipment and certaincontracts in the early stages of performance that replacedhigher-margin sales on certain mature contracts. Orders for the C3ISRsegment were $622.1 million during the 2005 fourth quarter.

For the year ended December 31, 2005, sales for C3ISR increased by$506.5 million, or 30.4%, to $2,170.1 million from sales of $1,663.6million for the year ended December 31, 2004. The increase in salesfrom acquired businesses was $377.0 million. Organic sales growth was$129.5 million, or 7.8%. C3ISR generated operating income of $249.9million for the year ended December 31, 2005, compared to $218.0million for the year ended December 31, 2004. Operating margindecreased to 11.5% from 13.1%. The trends affecting C3ISR results forthe year ended December 31, 2005 were similar to those affecting the2005 fourth quarter, except that organic sales growth was greater inthe 2005 fourth quarter due to the timing of product shipments and anincrease in production. Additionally, for the full year 2005 thenegative effects on operating margins from the Titan acquiredbusinesses and lower margins on contracts in the early stages ofperformance were less pronounced than in the 2005 fourth quarter.

Government Services

Government Services sales for the 2005 fourth quarter increased by$384.0 million, or 130.4%, to $678.5 million from sales of $294.5million for the 2004 fourth quarter. The increase in sales fromacquired businesses was $320.4 million, primarily related to the Titanacquired businesses. Organic sales growth was $63.6 million, or 21.6%,driven primarily by increased volume for international trainingservices and intelligence support services, as well as sales growthfor communications systems and engineering support, equipmentlogistics support and recruiting services for the U.S. Army.Government Services generated operating income of $65.5 million forthe 2005 fourth quarter, compared to $39.0 million for the 2004 fourthquarter. Operating margin decreased to 9.7% from 13.2%, primarily dueto lower margins from the Titan acquired businesses, and lower marginson certain contracts in the early stages of performance that replacedhigher-margin sales on certain mature contracts. Orders for theGovernment Services segment were $728.2 million during the 2005 fourthquarter.

For the year ended December 31, 2005, sales for GovernmentServices increased by $759.9 million, or 71.7%, to $1,819.8 millionfrom sales of $1,059.9 million for the year ended December 31, 2004.The increase in sales from acquired businesses was $600.5 million.Organic sales growth was $159.4 million, or 15.0%. Government Servicesgenerated operating income of $168.6 million for the year endedDecember 31, 2005, compared to $124.1 million for the year endedDecember 31, 2004. Operating margin decreased to 9.3% from 11.7%. Thetrends affecting Government Services results for the year endedDecember 31, 2005 were similar to those affecting the 2005 fourthquarter, but the full year 2005 also included higher sales due toincreased support services for the U.S. Missile Defense Agency.Operating margins for the full year 2005 also included cost overrunson certain fixed price contracts, which occurred in the first quarterof 2005. In addition, the negative impact on operating margins fromthe Titan acquired businesses for the full year 2005 was lesspronounced than in the 2005 fourth quarter.

Aircraft Modernization and Maintenance (AM&M)

AM&M sales for the 2005 fourth quarter increased by $40.0 million,or 7.4%, to $584.2 million from sales of $544.2 million in the 2004fourth quarter. Organic sales growth was $16.4 million, or 3.0%,driven by the recent competitively awarded Canadian MaritimeHelicopter Program (MHP). Aircraft base operations support volumedeclined slightly due to the loss of a utility aircraft supportcontract. The increase in sales from the L-3 Electronics Systemsacquired business, which was acquired on December 30, 2004, was $23.6million. AM&M generated operating income of $57.7 million for the 2005fourth quarter, compared to $44.8 million for 2004 fourth quarter.Operating margin increased to 9.9% from 8.2%, primarily due to highersales volume on MHP, and aircraft base operations, support andmaintenance. Orders for the AM&M segment were $606.8 million duringthe 2005 fourth quarter.

For the year ended December 31, 2005, sales for AM&M increased by$376.2 million, or 19.7%, to $2,289.1 million from sales of $1,912.9million for the year ended December 31, 2004. Organic sales growth was$285.4 million, or 14.9%, driven by volume increases in aircraft baseoperations support and the MHP contract. The increase in sales fromacquired businesses was $90.8 million. AM&M generated operating incomeof $227.4 million for the year ended December 31, 2005, compared to$186.1 million for the year ended December 31, 2004. Operating marginincreased to 9.9% from 9.7%, primarily due to higher volume onaircraft base operations support, partially offset by lower marginsfor the L-3 Electronics Systems acquired business.

Specialized Products

Specialized Products sales for the 2005 fourth quarter increasedby $283.1 million, or 43.6%, to $932.3 million from sales of $649.2million in the 2004 fourth quarter. The increase in sales fromacquired businesses was $225.4 million. Acquired businesses primarilyinclude certain divisions of Titan, CAE's Marine Controls division,Boeing Electron Dynamic Devices, Inc., and General Dynamics'Propulsion Systems business unit, all of which were acquired in 2005,and the Raytheon Commercial Infrared business and CincinnatiElectronics, Inc., both of which were acquired in 2004. Organic salesgrowth was $57.7 million, or 8.9%, primarily due to higher salesvolume for airport security systems, as well as increases forsimulation devices, microwave components, guidance, navigation, EO/IRand acoustic undersea anti-submarine warfare products. These increaseswere partially offset by volume declines for commercial aviationproducts. Specialized Products generated operating income of $111.5million for the 2005 fourth quarter, compared to $74.3 million for the2004 fourth quarter. Operating margin increased to 12.0% from 11.4%,primarily due to higher margins from several of the acquiredbusinesses, continued cost improvements for naval power equipment andhigher sales volume for microwave components. These increases inoperating margin were partially reduced by lower sales of highermargin commercial aviation products. Operating income for the 2005fourth quarter also included a gain of $3.1 million for the recoveryof a claim against a supplier related to the Combat Survivor EvaderLocator (CSEL) program. During the nine months ended September 30,2005, the company had recorded an aggregate charge of $4.3 million forthe recall and replacement of previously shipped products for the CSELprogram. Orders for the Specialized Products segment were $815.9million during the 2005 fourth quarter.

For the year ended December 31, 2005, sales for SpecializedProducts increased by $905.1 million, or 40.0%, to $3,165.7 million,from sales of $2,260.6 million for the year ended December 31, 2004.The increase in sales from acquired businesses was $676.1 million.Organic sales growth was $229.0 million, or 10.1%, driven by the sametrends affecting the 2005 fourth quarter, but also included highervolume for commercial aviation products due primarily to FederalAviation Administration (FAA) mandates for Terrain Awareness WarningSystems (TAWS), which became effective in March 2005. Organic salesgrowth for the year also included higher sales of military displays,antennas and telemetry products. Specialized Products generatedoperating income of $350.8 million for the year ended December 31,2005, compared to $220.4 million for the year ended December 31, 2004.Operating margin increased to 11.1% from 9.7%, a larger improvementthan for the 2005 fourth quarter, due to trends similar to thoseaffecting the 2005 fourth quarter, as well as higher sales volume andcost improvements for simulation devices and commercial aviationproducts, partially offset by lower margins on recently introducedcargo security systems. Operating income for the full year 2005 alsoincluded a charge of $1.2 million, net of a recovery from a claimagainst a supplier on the CSEL program.

OUTLOOK

"We expect that 2006 will be another year of growth for L-3," saidMr. Lanza. "Our current funded backlog continues to be very solid andthe defense outlook for 2006 remains strong." Mr. Lanza noted thatoverall defense spending in 2006 is at $451.5 billion, including $76.9billion for weapons and equipment and $70.0 billion for research anddevelopment, as well as $50.0 billion for the war efforts in Iraq andAfghanistan.

Mr. Lanza also said that for some time both parties in the U.S.Congress have expressed concern about spiraling platform costs andhave insisted on a number of reforms, including monitoring changes inbase-line cost estimates and stricter standards for accounting andcost management. Congress has also asked the Department of Defense(DoD) to provide a report in September 2006, that reviews key LeadSystems Integrator (LSI) practices such as pass-through fees,signifying the legislature's expectation that the Pentagon find waysof improving supervision and reducing costs.

"It is clear that with new platform costs rising dramatically fromtheir original projections, the DoD will not be able to afford everyone under development," said Mr. Lanza. "The DoD budgets for 2007 and2008 in all likelihood will be unable to sustain major increases toaccommodate the rising costs of platforms because of demands fromother sectors of the federal budget. Instead, we believe that top-linegrowth for the defense budgets from 2007 on will be in the order of 3%to 4% per year."

"As a result, we expect that in the 2008 timeframe the DoD willhave to make the difficult decisions on affordability to either delay,reduce or cancel several new programs in order to keep within budgetlimitations. The need to maintain readiness will require the DoD tocontinue its modernization and upgrade program, which will beaccelerated when troops and their assets are returned from the wars inIraq and Afghanistan. This is further confirmed by the U.S. Army'schief, who has declared the modernization of the modular brigadesBasic Combat Training a top priority."

"Some have speculated that the upcoming Quadrennial Defense Review(QDR) will focus on specific program cancellations or changes, butthat has not been the historical role of this document," continued Mr.Lanza. "We believe the QDR will continue to be a capabilities andforce structure road map, outlining how the military will transformitself, how it needs to be structured to handle new threats such asinsurgencies and reiterating the need for trained forces and equipmentfor postwar nation building efforts."

"We believe that the transformational capabilities outlined in theQDR and the need for modernization and upgrade of existing assets willfavor each of L-3's business segments," said Mr. Lanza. He noted thatthe capabilities consistently requested by the DoD are communicationsand ISR, special operations forces (SOF), mobility programs, sea andprecision weaponry, unmanned aerial vehicles (UAVs) and robotics. Alsoa key focus of the DoD will be stability of "fragile states",post-conflict reconstruction, force analysis, simulators andsimulations, mobilization and pre-deployment training, leap-aheadnon-lethal technologies and sensors.

"We see several areas of opportunity for L-3 as we move into theend of the decade," said Mr. Lanza. "We have deliberately structuredL-3 to participate in the priority sectors of the investment account,as well as the growing Operations and Maintenance (O&M) budget. Nationbuilding has become an increasingly important part of the capabilityneeded by the DoD, Department of Justice and the State Department, andL-3 has strategic, long-term contracts with each of those agencies."

"In addition, L-3 has increased its position as a prime contractorin a number of areas, including ISR, Government Services and AM&Mprograms. As the roles and missions of the SOF expand, L-3 canincrease its existing support of those missions. There are alsonear-term opportunities in Canada and in the United Kingdom toparticipate in their in-country C3ISR modernization initiatives."

In the homeland security market, Mr. Lanza said that naturaldisasters in the fall of 2005 have alerted federal, state and localgovernments to the need for crisis management, emergency vehicles andproducts for law enforcement, areas in which L-3 has an array ofofferings. L-3 also has one of the largest portfolios of systems,products and services for airport, maritime and port security andintrusion detection and there are many international opportunities toprovide these solutions in 2006. The company's Advanced ContainerSecurity Device (ACSD) has been funded by the Homeland SecurityAdvanced Research Projects Agency and will enter sea trials when thispre-production phase is completed. L-3's ACSD is designed to sensecontainer breaches, door intrusion, over-temperature and high shockevents, and the presence of a living being. The system is designed tohave a very low false alarm rate and has an embedded digital signalprocessor and a wireless communication system.

Mr. Lanza also noted that there continues to be many attractivebusiness acquisition opportunities in the defense sector. "Many ofthese potential targets are affordable and in the revenue range of $50million to $500 million," said Mr. Lanza. "We continue to look to fillniche areas within our existing businesses in key areas such assurface ship power and propulsion, UAVs, optics, government services,robotics, heavy propulsion, training, simulators, signal intelligenceand communications, sensors, general aviation products, sensors forbiological, chemical and weapons of mass destruction (WMD) analysis,aircraft modernization facilities and microwave and laser products forcommunications and radar."

"In fact, two of our recent acquisitions, EOTech and AppliedSignal and Image Technology (ASIT) are already making significantcontributions to the expansion of L-3's sensors and signalsintelligence with recent contract awards."

Financial Outlook for 2006

The company also revised its financial guidance for the yearending December 31, 2006, as follows:

-- sales in excess of $12 billion including all acquisitions completed to date and SAM Electronics. The 2006 sales includes estimated organic sales growth for the year of between 8% and 10%, although actual organic sales growth could vary significantly each quarter;

-- diluted EPS of between $4.80 and $4.95, with operating margin of approximately 10.2%, interest expense of approximately $290 million, an estimated effective income tax rate of between 37.0% and 37.5% and weighted average diluted shares outstanding slightly above 123 million. The company's diluted EPS and operating margin estimates for 2006 include the impact of adopting SFAS No. 123R, Share-Based Payment, which is expected to reduce diluted EPS for 2006 by approximately $0.20 and reduce operating margin by 30 basis points; and

-- free cash flow in excess of $800 million, comprised of net cash from operating activities in excess of $940 million, less net capital expenditures of about $140 million.

CONFERENCE CALL

In conjunction with this release, L-3 Communications will host aconference call on the same day at 10:00 AM ET that will besimultaneously broadcast live over the Internet. Frank C. Lanza,chairman and chief executive officer, Michael T. Strianese, seniorvice president and chief financial officer, and Cynthia Swain, vicepresident - corporate communications, will host the call today,Tuesday, January 31, 2006.
10:00 AM ET
9:00 AM CT
8:00 AM MT
7:00 AM PT

Listeners may access the conference call live over the Internet at
the following web address:

http://phx.corporate-ir.net/playerlink.zhtml?c=120146&s=wm&e=1195908

or

http://www.L-3com.com

Please allow fifteen minutes prior to the call to download andinstall any necessary audio software. The archived version of the callmay be accessed at these sites or by dialing (800) 642-1687 (passcode:4276033), beginning approximately two hours after the call ends, andwill be available until the company's next quarterly earnings release.

Headquartered in New York City, L-3 Communications is a leadingprovider of Intelligence, Surveillance and Reconnaissance (ISR)systems, secure communications systems, aircraft modernization,training and government services. The company is a leading merchantsupplier of a broad array of high technology products, includingguidance and navigation, sensors, scanners, fuzes, data links,propulsion systems, simulators, avionics, electro optics, satellitecommunications, electrical power equipment, encryption, signalintelligence, antennas and microwave components. L-3 also supports avariety of Homeland Security initiatives with products and services.Its customers include the Department of Defense, Department ofHomeland Security, selected U.S. Government intelligence agencies andaerospace prime contractors.

To learn more about L-3 Communications, please visit the company'sweb site at www.L-3com.com.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATIONREFORM ACT OF 1995

Except for historical information contained herein, the mattersset forth in this news release are forward-looking statements.Statements that are predictive in nature, that depend upon or refer toevents or conditions or that include words such as "expects,""anticipates," "intends," "plans," "believes," "estimates" and similarexpressions are forward-looking statements. The forward-lookingstatements set forth above involve a number of risks and uncertaintiesthat could cause actual results to differ materially from any suchstatement, including the risks and uncertainties discussed in thecompany's Safe Harbor Compliance Statement for Forward-lookingStatements included in the company's recent filings, including Forms10-K and 10-Q, with the Securities and Exchange Commission. Theforward-looking statements speak only as of the date made, and thecompany undertakes no obligation to update these forward-lookingstatements.

Notes:

(1) See discussion, definition and calculation of free cash flowon the financial tables attached to this press release.

(2) Organic sales growth is defined as the current period vs.prior period increase or decrease in sales excluding the increase insales from acquired businesses.

- Financial Tables Follow -
L-3 COMMUNICATIONS HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME DATA
(In millions, except per share data)
----------------------------------------------------------------------


Three Months Ended Year Ended
December 31, December 31,
------------------- -------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Sales:

Contracts, primarily U.S.
Government $2,649.0 $1,693.6 $8,549.2 $6,155.6
Commercial, primarily
products 251.2 217.6 895.5 741.4
--------- --------- --------- ---------
Consolidated sales $2,900.2 $1,911.2 $9,444.7 $6,897.0
--------- --------- --------- ---------

Costs and expenses:

Contracts, primarily U.S.
Government $2,372.5 $1,499.0 $7,633.3 $5,476.8
Commercial, primarily
products:
Cost of sales 163.8 138.1 582.2 459.0
Selling, general and
administrative
expenses 41.9 33.9 166.8 141.4
Research and development
expenses 15.9 20.7 65.7 71.2

--------- --------- --------- ---------
Consolidated costs and
expenses $2,594.1 $1,691.7 $8,448.0 $6,148.4
--------- --------- --------- ---------

Operating income 306.1 219.5 996.7 748.6


Interest and other (income)
expense 0.9 (9.0 ) (5.5 ) (7.3 )
Interest expense 67.6 38.5 204.2 145.3
Minority interests in net
income of
consolidated subsidiaries 1.8 1.8 9.7 8.9
Loss on retirement of debt -- 5.0 -- 5.0
--------- --------- --------- ---------

Income before income taxes 235.8 183.2 788.3 596.7
Provision for income taxes 84.4 63.9 279.8 214.8
--------- --------- --------- ---------
Net income $151.4 $119.3 $508.5 $381.9
========= ========= ========= =========

Earnings per share:

Basic $1.26 $1.05 $4.28 $3.54
========= ========= ========= =========

Diluted $1.24 $1.01 (a) $4.20 $3.33 (a)
========= ========= ========= ======

Weighted average common
shares outstanding:
-----------------------------

Basic 120.1 113.7 118.8 107.8
========= ========= ========= =========

Diluted 122.4 118.6 121.2 117.4
========= ========= ========= =========


(a)In order to calculate diluted earnings per share for the three and
twelve months ended December 31, 2004, the after-tax interest
expense savings on the assumed conversions of the CODES must be
added to net income and then divided by the weighted average
number of shares outstanding. The amount to add to net income is
$0.8 million for the three months ended December 31, 2004 and $9.1
million for the twelve months ended December 31, 2004.


L-3 COMMUNICATIONS HOLDINGS, INC.
UNAUDITED SELECTED FINANCIAL DATA
(In millions)
----------------------------------------------------------------------


Three Months Ended Year Ended
December 31, December 31,
------------------- --------------------

2005 2004 2005 2004
--------- --------- ---------- ---------

Funded Orders $2,773.0 $2,098.6 $10,365.4 $7,563.7

Reportable Segment Operating
Data:
------------------------------

Sales:
C3ISR $705.2 $423.3 $2,170.1 $1,663.6
Government Services 678.5 294.5 1,819.8 1,059.9
Aircraft Modernization and
Maintenance 584.2 544.2 2,289.1 1,912.9
Specialized Products 932.3 649.2 3,165.7 2,260.6
--------- --------- ---------- ---------
Consolidated $2,900.2 $1,911.2 $9,444.7 $6,897.0
========= ========= ========== =========

Operating income:
C3ISR $71.4 $61.4 $249.9 $218.0
Government Services 65.5 39.0 168.6 124.1
Aircraft Modernization and
Maintenance 57.7 44.8 227.4 186.1
Specialized Products 111.5 74.3 350.8 220.4
--------- --------- ---------- ---------
Consolidated $306.1 $219.5 $996.7 $748.6
========= ========= ========== =========

Operating margin:
C3ISR 10.1 % 14.5 % 11.5 % 13.1%
Government Services 9.7 % 13.2 % 9.3 % 11.7%
Aircraft Modernization and
Maintenance 9.9 % 8.2 % 9.9 % 9.7%
Specialized Products 12.0 % 11.4 % 11.1 % 9.7%
Consolidated 10.6 % 11.5 % 10.6 % 10.9%

Depreciation and
amortization:
C3ISR $11.2 $7.7 $35.8 $32.3
Government Services 4.1 1.8 12.6 6.3
Aircraft Modernization and
Maintenance 7.9 5.4 26.9 21.9
Specialized Products 20.6 14.6 77.5 58.5
--------- --------- ---------- ---------
Consolidated $43.8 $29.5 $152.8 $119.0
========= ========= ========== =========
Cash flow data:
-----------------------------
Net cash from operating
activities $267.3 $212.7 $846.8 $620.7
Net cash used in investing
activities (101.4 ) (371.6 ) (3,547.3 ) (555.5 )
Net cash from financing
activities 1.7 444.9 2,441.0 453.3
--------- --------- ---------- --------
Net increase (decrease) in
cash $167.6 $286.0 $(259.5 ) $518.5
========= ========= ========== ========

Reconciliation of GAAP to
Non-GAAP measurements:
-----------------------------

Net cash from operating
activities $267.3 $212.7 $846.8 $620.7
Less: Capital expenditures (48.7 ) (27.0 ) (119.9 ) (80.5 )
Add: Dispositions of
property, plant and
equipment 1.0 2.4 3.2 11.9
Titan class action
settlement payments 67.4 -- 67.4 --
--------- --------- ---------- --------
Free cash flow(b) $287.0 $188.1 $797.5 $552.1
========= ========= ========== ========

December 31, December 31,
2005 2004
------------- --------------
Period end data:
----------------

Funded Backlog $7,000.9 $4,757.9

Cash & cash equivalents $393.9 $653.4

Total debt $4,633.5 $2,189.8

Minority interests $81.2 $77.5

Shareholders' equity $4,490.7 $3,799.8

(b) The company discloses free cash flow because the company believes
that, subject to the limitations discussed below, it is one
indicator of the cash flow generated that is available for
investing activities and financing activities. Free cash flow is
defined as net cash from operating activities less net capital
expenditures (capital expenditures less cash proceeds from
dispositions of property, plant and equipment). For the three
months and year ended December 31, 2005, free cash flow also
excludes payments of $67.4 million to settle Titan shareholder
class action and derivative action lawsuits, which were approved
by L-3 as part of the Titan acquisition and are included in net
cash from operating activities. Free cash flow represents cash
generated after paying for interest on borrowings, income taxes,
capital expenditures and changes in working capital, but before
repaying principal amount of outstanding debt, paying cash
dividends on a common stock and investing cash to acquire
businesses and making other strategic investments. Thus, key
assumptions underlying free cash flow are that the company will
be able to supplementally finance its existing debt and that the
company will be able to supplementally finance any new business
acquisitions it makes by raising new debt or equity capital.
Because of these assumptions, free cash flow is not a measure
that can be relied upon to represent the residual cash flow
available for discretionary expenditures.