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L3 2003 ar

  1. 1. What’s New High-Performance Defending Training Transformational in Avionics Products Our Shores Our Troops ISR L-3 Communications summary Annu al Report 2003 On Course Military Transformation and Homeland Security – How L-3 is Positioning Itself for the Future
  2. 2. FINANCIAL HIGHLIGHT S For the years ended December 31, 2003 2002 2001 2000 1999 (In thousands, except per share amounts) Sales . . . . . . . . . . . . . . . . . . . . . . . . . . $5,061,594 $4,011,229 $2,347,422 $1,910,061 $1,405,462 Operating income(a) . . . . . . . . . . . . . . . . . 581,021 453,979 275,330 222,718 150,486 Income before cumulative effect of a change in accounting principle(a) . . . . . . . . . . . . 277,640(d) 202,467(d) (e) . 115,458 82,727 58,689 Diluted earnings per share before cumulative effect of a change in accounting principle(a) (b) . . . . . . . . . . . 2.71(d) 2.18(d) (e) . 1.47 1.18 0.88 Cash flow from operating activities . . . . . . . 456,063 318,460 172,968 113,805 99,018 Capital expenditures, net of disposition of property, plant and equipment . . . . . . . . 79,020 58,510 46,884 15,520 16,743 Free cash flow(c) . . . . . . . . . . . . . . . . . . . 377,043 259,950 126,084 98,285 82,275 Shareholders’ equity . . . . . . . . . . . . . . . . 2,574,496 2,202,202 1,213,892 692,569 583,175 (a) The statement of operations data for 2001, 2000 and 1999 includes goodwill amortization expense. (b) Diluted earnings per share for all periods reflects our two-for-one stock split that became effective May 20, 2002. (c) We define free cash flow as net cash from operating activities, less net capital expenditures (capital expenditures less cash proceeds from disposition of property, plant and equipment). (d) Includes debt retirement charge of $7.2 million after taxes, or $0.06 per diluted share in 2003 and $9.9 million after taxes, or $0.11 per diluted share in 2002. (e) The year ended December 31, 2002 excludes the cumulative effect of a change in accounting principle for a goodwill impairment of $24.4 million or $0.25 per diluted share. Operating Income in millions Free Cash Flow in millions Sales in millions $600 $6,000 $400 480 4,800 320 % % % .2 .8 .4 40 37 46 360 3,600 240 GR GR GR CA CA CA 240 2,400 160 120 1,200 80 99 00 01 02 03 99 00 01 02 03 99 00 01 02 03 MILESTONES May 2003 September 2003 October 2003 March 2003 L-3 sold $400.0 million of 6 1/8% Senior L-3 acquired Klein Associates, Inc., a busi- L-3 successfully completed the acquisition L-3 acquired the Avionics Systems business Subordinated Notes. The company used a ness unit of OYO Corporation of Japan. of the Military Aviation Services (MAS) from Goodrich Corporation. Avionics portion of the proceeds to redeem its Klein is a pioneer in the development of business of Bombardier Inc. MAS is a Systems is a leading designer and manu- $180.0 million of 8 1/2% Senior side-scan sonars, sub-bottom profilers and leader in systems engineering support and facturer of advanced cockpit equipment, Subordinated Notes. related instruments and accessories for aircraft modernization, providing a full innovative avionics solutions and safety undersea search and survey. range of technical services in the areas of systems. May 2003 aircraft maintenance, repair and upgrade L-3 completed its acquisition of Aeromet, for military aircraft and regional jets and Inc., a leader in electro-optical and selected commercial aircraft. infrared (EO/IR) programs supporting Intelligence, Surveillance and Reconnaissance (ISR) missions and spe- cialized meteorological applications.
  3. 3. L-3 Communications 2003 Summary Annual Report Contents 3 Letter to Shareholders 2003 shaped up to be an excellent year for L-3. Contributors: Frank C. Lanza and Robert V LaPenta. . Secure Communications & ISR 6 ISR is at the forefront of military transformation. Contributors include: Communication Systems-East, Communication Systems-West, Integrated Systems, Aeromet & ComCept. Training, Simulation & Support 10 Readiness and cost-effectiveness are driving a push for more training, simulation and support services. Contributors include: Link Simulation and Training, GSI, MPRI, MPRI-Ship Analytics, SYColeman & ILEX. Aviation Products & Aircraft Modernization 14 Key products and strategic acquisitions make L-3 a world player in this arena. Contributors include: Aviation Recorders, Avionics Systems, ACSS, Display Systems, Electrodynamics, Integrated Systems, Vertex Aerospace, MAS & Spar Aerospace. Specialized Products 18 With the broadest base of products in defense, L-3 added key products to its arsenal in 2003. Contributors include: IEC, KDI, BT Fuze Products, Space and Navigation, SPD Technologies, Ocean Systems, ESSCO, Narda Microwave-East, Narda Microwave-West, Narda Satellite Networks, Security and Detection Systems, Telemetry-East, Telemetry-West, Storm Control Systems, Ruggedized Command and Control Solutions, Randtron, WESCAM, Electron Devices & Wolf Coach. Homeland Security 22 The threat of terrorism has not abated and the US government is working on protecting the nation’s citizens and infrastructure. Contributors include: Security and Detection Systems, Communication Systems-East, Communication Systems-West, Aviation Recorders, GSI, MPRI, MPRI-Ship Analytics & Wolf Coach. Shareholder Information 26 Condensed Consolidated Financial Data and Management Team 28 December 2003 January 2004 December 2003 December 2003 L-3 successfully completed its acquisition L-3’s Board of Directors declared the com- L-3 acquired certain defense and aero- L-3 sold $400.0 million of 6 1/8% Senior of Vertex Aerospace LLC. Vertex is a lead- pany’s first quarterly cash dividend of space assets of IPICOM, Inc. This busi- Subordinated Notes. The company initiat- ing provider of aerospace and other tech- $0.10 per share, payable March 15, 2004, ness is a leading manufacturer of broad- ed the redemption of $300.0 million of nical services to the Department of to shareholders of record at the close of band communications products and sys- 5 1/4% Convertible Senior Subordinated Defense (DoD) and other government business on February 17, 2004. tems, including advanced performance Notes, which resulted in the conversion of agencies, including the US Air Force, US analog, digital and fiber-optic transmission substantially all the 5 1/4% Notes into L-3 Navy, US Army, US Marine Corps, systems widely used in broadband, cable common stock in January, 2004. Department of Homeland Security (DHS), TV, security and surveillance applications. Drug Enforcement Administration (DEA) and NASA.
  4. 4. Robert V. LaPenta Frank C. Lanza The President and Chairman and Chief Financial Officer Chief Executive Officer
  5. 5. Dear Shareholders: n 2003, our military forces were I engaged in a fierce conflict in Iraq, while in the US, federal, state and local authorities were continuing their work to secure the nation against terrorist threats. L-3 Communications – its employees, products and services – played a major role in sustaining and equipping our troops, as well as helping domestic agencies and local govern- ments meet the difficult challenges they faced after September 11, 2001. L-3 is proud of its support of the successful missions of the Special Operations Forces (SOF), whose role has been greatly expanded in both Iraq and Afghanistan. One of the key advan- tages the US military had in detecting and eliminating the enemy was its Intelligence, Surveillance and Reconnaissance (ISR) capability, as well as secure data links and systems provided by L-3 for all important manned intelligence aircraft and Unmanned Aerial Vehicles (UAV). The challenging demands of ongoing operations increased the need for highly trained military personnel, and L-3’s training, simulation and sup- port services dramatically helped to improve combat skills and readiness for our forces. These demands also called for increased aircraft maintenance, sys- tems integration and system upgrades by L-3 to ensure that the military’s exist- ing assets performed at their best. L-3’s work in ISR and secure communications, as well as precision weaponry products, global positioning equipment and safety and arming devices, enabled precise targeting of enemy assets with minimal collateral damage. There were thousands of L-3 personnel assisting our military forces and hundreds of L-3 products in use, including displays, antennas, satellite Future for L-3 3
  6. 6. communications terminals, command $4,011.2 million in 2002, a 26.2% L-3 closed the year 2003 with a and control systems, microwave subsys- increase, including 15.4% organic strong balance sheet. The company’s tems for radars, precision weapons and growth for L-3's defense business (5.4% debt to book capitalization was at 48.1% guidance systems, telemetry products for all of L-3 including the declines in at December 31, 2003 (42.3% after and electronic wide-area remote securi- L-3's explosives detection systems and adjusting for the conversion of $300.0 ty sensors. commercial businesses). million of 5 1/4% Convertible Notes into In the area of homeland security, For 2003, operating income rose common stock in January 2004), com- L-3’s eXaminer® 3DX 6000s are hard at 28.0% to $581.0 million, increasing pared to 44.8% at December 31, 2002. work at American airports inspecting from $454.0 million in 2002. Diluted Acquisitions checked baggage; the company’s cargo earnings per share for 2003 rose 24.3% inspection systems are also in operation to $2.71, from $2.18 (before cumulative uring 2003, L-3 made a number of D around the world protecting ports and effect of a change in accounting princi- key acquisitions with an aggregate facilities. L-3’s intrusion detection sys- ple) in 2002. purchase price of $1.0 billion. These tems are guarding US borders and US In May 2003, L-3 completed an companies complemented L-3’s existing military bases around the world. L-3’s offering of $400.0 million principal operations in three of its four business crisis management systems are helping amount of 6 1/8% Senior Subordinated segments and allowed L-3 to take advan- New York City’s anti-terrorism unit, as Notes and redeemed all outstanding tage of synergies and offer more prod- well as other state and local authorities, $180.0 million aggregate principal ucts, services and added value to cus- defend against threats. amount of 8 1/2% Senior Subordinated tomers. In many ways, L-3 has become a Notes. Later that year, L-3 raised $400.0 In Secure Communications and major partner in US efforts to protect million in funds through a private place- ISR, L-3 added two important compa- and equip its military and its homeland ment of Senior Subordinated Notes and nies. Aeromet offers a broad array of security authorities. This partnership called for redemption of all its outstand- services, including electro-optical and has grown substantially from the compa- ing $300.0 million aggregate principal infrared (EO/IR) programs for ISR and ny’s beginnings. amount of 5 1/4% Convertible Senior specialized meteorological applications In 1997, L-3 had revenues of Subordinated Notes due 2009, substan- for key mission areas. The defense and $705.4 million and was a product sup- tially all of which were converted into aerospace assets purchased from plier of secure communications, avion- L-3 common stock in January 2004. IPICOM have leadership positions in ics, telemetry and instrumentation and The net proceeds were used to repay secure optical data link systems for microwave products. Through internal indebtedness outstanding under our sen- defense and aerospace applications for a growth and acquisition, L-3 is now a ior credit facilities and for general cor- variety of classified and unclassified Fortune 500 company, with over $5 bil- porate purposes, including acquisitions. customers. lion in revenues in 2003. The company L-3 generated $377.0 million in L-3 significantly expanded its has evolved into a prime systems con- free cash flow, compared to $260.0 mil- position in its Aviation Products and tractor for secure communications and lion in 2002, an increase of 45.0%. L-3 Aircraft Modernization segment with ISR, training and simulation, govern- ended the year with $134.9 million cash key acquisitions. In commercial avia- ment services and aircraft moderniza- on hand and $665.9 million of available tion products, L-3 acquired Goodrich tion and has become the largest and borrowings under the company’s bank Avionics Systems (renamed L-3 broadest supplier of products for the credit facilities. These funds are avail- Avionics Systems), which supplies a merchant market in the defense industry. able for investments in strategic acquisi- variety of safety-related avionics prod- ucts, including the new SmartDeck® tions and other business opportunities. Strong Results It was a banner year for orders at integrated flight control and display sys- n 2003, L-3 again demonstrated its I L-3. The company recorded $5,477.4 tem for the general aviation market. commitment to high-performance million in funded orders from all of Avionics Systems also offers products standards, setting financial records and L-3’s major business areas. Backlog for military platforms, such as the Joint establishing new milestones. Sales was $3,893.3 million at December 31, Primary Aircraft Training System increased to $5,061.6 million from 2003. (JPATS). Despite the slowdown in the overall commercial aviation sector, L-3 Accolades ComCept received the Outstanding Communication Systems-East’s ComCept was awarded a James S. Link Simulation and Training’s Achievement award from the Defense Improved Remotely Monitored Cogswell Outstanding Industrial founder, Ed Link, developer of the first Industry in network-centric warfare Battlefield Sensor System (IREM- Security Achievement Award for 2003. pilot training device in 1929, was from the Institute for Defense and BASS) has been awarded Government The Defense Security Service estab- inducted into the National Inventors Government Advancement (IDGA). Executive Magazine's 2002 Grace lished this award in 1996 as a way to Hall of Fame (NIHF) in Akron, Ohio. ComCept was selected by a distin- Hopper Government Technology recognize a few of the cleared contrac- Link received the 2003 Market Leader- guished panel of experts over a field of Leadership Award in the category of tor facilities for outstanding perform- ship Award in Military Flight Simula- strong competitors for its work on the quot;Contributing to Advances in ance in the field of security. tion from Frost & Sullivan, a global Network-Centric Collaborative Homeland Security and the War on consulting and market research organi- Targeting (NCCT) program with the Terrorism.quot; zation. US Air Force's Big Safari Program Office. 4
  7. 7. mation of the military, the US defense Avionics Systems, with its balanced airport, port and maritime security, budget will continue to be strong well business mix of military, business and intrusion detection, crisis management into the future. In an election year and general aviation and air transport prod- and vehicles for communications, with troops overseas, we believe ucts, continues to demonstrate solid bioterrorism and command and control. Congress and the American people will growth. The opportunities for internal continue to support the DoD's require- With joint-venture partner Vertex growth are significant in the years ments, as well as future transformation. Aerospace, L-3 won a major ten-year ahead, as is the pipeline for acquisitions. In 2006, the president will have contract to provide logistics support for Throughout its history, L-3 has been the opportunity to reexamine DoD US Army aircraft training at Fort very selective in choosing companies requirements, make decisions on the Rucker, Alabama. This successful part- with products and systems in high- modernization of existing platforms and nership led L-3 to its largest acquisition growth areas of defense spending. In determine the survival of new plat- of 2003 – Vertex Aerospace, a leading 2004 and beyond, this combination of forms. Readiness will continue to be a provider of logistics support, modern- focused internal growth and opportunis- mandatory funding commitment as well ization, maintenance, supply chain man- tic acquisitions will help to deliver dou- as spiral modernization of current agement and depot services with a ble-digit growth rates and enable L-3 to weapons and platforms, regardless of worldwide presence. become even more critical to the US strategic direction. L-3 further solidified its position military, as well as federal, state and L-3 is in a position of strength in as a leader in aircraft modernization local homeland security initiatives. either a growing or flat defense budget with the acquisition of Bombardier’s None of this growth would be pos- environment. We are teamed on major Military Aviation Services (MAS). This sible without the effort, dedication and new start programs in a growth market operation adds to L-3’s other Canadian skill of our L-3 workforce. Year after and we are strongly positioned on legacy aircraft modernization company – Spar year, they have delivered on their prom- programs in a flat market. L-3’s products Aerospace – and provides systems engi- ise to provide excellent value to our cus- and services are in the higher growth neering support, aircraft modernization tomers and growth to our shareholders areas of procurement – ISR, UAVs, pre- and a full range of technical services. and they will continue that commitment cision weapons, training and simulation With L-3’s Integrated Systems opera- in 2004. systems and networked secure communi- tions and its new subsidiary Vertex, Reflecting our confidence in L-3's cations. along with Spar and MAS, L-3 is now future growth, the L-3 Board of In addition, L-3’s sizeable pres- one of the largest aircraft modernization Directors declared L-3’s first quarterly ence in aircraft modernization will companies in the world. cash dividend to the company's common enable the company to take advantage of In the Specialized Products seg- stock holders payable on March 15, growth in the Operations and ment, L-3 added Klein Associates, a 2004. This year’s annual report will Maintenance segment of the defense leading sensor technology company, examine how the company is on course budget. Upgrading legacy platforms is which provides high-resolution sonar for the future with promising technolo- one of the DoD’s priorities, not only to systems, marine navigation systems and gies, new programs and future growth ensure military readiness, but to provide intrusion detection systems. Klein mar- opportunities. an affordable alternative to purchasing kets to US and international government larger quantities of expensive new plat- and military organizations and offshore forms. oil companies, among others. Klein’s The Department of Homeland products were utilized as the principal Frank C. Lanza Security (DHS) budget in 2004 will be sonar sensors in the search for the Chairman and Chief over $36 billion, 7% more than 2003 Titanic, Space Shuttle Challenger, Executive Officer levels. The focus of its spending will be Space Shuttle Columbia and TWA on securing borders, air transportation Flight 800. and ports, as well as responding to Prospects for 2004 and Beyond national emergencies. L-3 has the broadest array of key products to protect e at L-3 expect that 2004 will be Robert V. LaPenta W US citizens and the national infrastruc- another solid year for the com- President and Chief ture, including products and systems for pany. With the post-Cold War transfor- Financial Officer ESSCO was honored with a Gold Display Systems was selected in 2003 BT Fuze Products was awarded the Security and Detection Systems Supplier award from Northrop as Boeing’s 2002 Supplier of the Year quot;We Make a Difference Awardquot; for received an award in the category of Grumman Space Technology as a for Aerospace Support. its Integrated Product Team (IPT) Innovative Security Technology for its result of the company’s performance efforts on the M762A1/M767A1 Fuze VCT30 explosives detection system on a contract to supply a 100-foot- Display Systems also received the dis- Program from the US Army's (EDS). Awarded in Rome, Italy at diameter metal space frame radome. tinguished Preferred Supplier Armament Research, Engineering AVSEC World 2002 – a cooperative Certification Award from The Boeing and Development Center. forum comprised of government Space and Navigation has received the Company in recognition of its com- organizations, airlines and airports in Large Business of the Year award mitment and dedication to continuous Electrodynamics received certification the global air transport industry – the from United Space Alliance (USA). business process improvements, on- in the Process Validation Program VCT30 is the only Federal Aviation This honor is in recognition of the time delivery, achievements in (PVP) from Lockheed Martin Administration (FAA) ARGUS system outstanding performance demonstrat- advanced quality systems, customer Aeronautics Company and retained its to receive such an award. ed on the Space Shuttle program. satisfaction and affordability. certification as a Silver Supplier with The Boeing Company.
  8. 8. SECURE COMMUNICATIONS AND INTELLIGENCE, SURVEILLANCE AND RECONNAISSANCE (ISR) secure communications, providing secure data links, secure telephone and network communications infrastructure equipment and encryption management L-3’s systems provide the command, and communication systems for tactical, control and communications needed for unmanned and reconnaissance aircraft, surface and undersea vessels and network-centric interoperability. manned space flights and satellites. The US Air Force selected L-3 T he war in Iraq had many battlefield information from multiple Communication Systems-West to design transformational elements, platforms and sources to the warfight- and develop the Multi-Platform including joint operations, ers. A leader in secure communications Common Data Link (MP-CDL), sup- the effective use of Special and ISR, L-3 is also continuing its vital porting the transmission and receipt of Operations Forces (SOF) and role in assisting the US military in real- data between ground facilities and mul- speedy movement of troops and sup- izing that vision. There were several tiple simultaneous air vehicle platforms. plies. But perhaps two of the most effec- key developments in 2003 that will con- L-3 is also developing the third-genera- tive advantages were the superiority of tinue into the future. tion Tactical Common Data Link US technology – data links, satellites and (TCDL) system, called the Multi-Role The future of NCCT and ISR airborne sensors – that detect the enemy TCDL (MR-TCDL). This Joint Tactical through challenging weather conditions; L-3 serves as a prime contractor Radio System (JTRS)-compliant system and the coordination among ground, air for ISR by supplying signals intelli- provides wideband backbone and net- and space assets to deliver precision- gence (SIGINT) and communications working services and operates in numer- guided weaponry and eliminate threats. intelligence (COMINT) systems, which ous CDL, MP-CDL and satellite com- These technological achievements when combined with human intelli- munications modes. Both MP-CDL and are the continuation of US efforts to fully gence (HUMINT), provide real-time sit- MR-TCDL are cornerstones for future realize the promise of network-centric uational awareness for the responding network-centric communications – pro- warfare – providing real-time, executable warfighter. L-3 is also a leader in viding the wideband communication 6
  9. 9. portive role for the Predator and Global fies transformational ISR. architecture that connects critical infor- Hawk UAV platforms and for the U-2 mation flow within the ISR community. Reconnaissance reconnaissance aircraft. In addition, L-3 ComCept is the L-3 IS had record bookings for its L-3 Communication Systems- prime contractor for Joint and Coalition tactical reconnaissance programs, which West is also a major supplier to special Forces – Network-Centric Collaborative resulted in important new capability intelligence military programs and air- Targeting (NCCT), which is transform- development efforts for the RC-135 craft. In 2003, L-3 continued its sup- ing network-centric warfare technology. L-3’s Network Enabled Technologies (NET) allow forces to use their plat- (left) forms, sensors and weapons more effi- Outfitting Special Operations Soldiers ciently by managing all of their net- worked resources as a single high-per- The Joint Operations Group of L-3 Integrated Systems formance system. NCCT is being installed on the core ISR-enabled fleets provides worldwide logistics support to the US Special for the US and UK and is on track for a Operations Command (USSOCOM) as part of the $1.5 successful demonstration in 2004. NCCT participants include the Airborne billion Special Operations Forces Support Activity con- Warning and Control System (AWACS), tract, one of the largest contracts in L-3’s history. L-3’s Distributed Common Ground Systems (DCGS), Joint Surveillance Target integrated logistics support includes a full range of Attack Radar System (JSTARS), Special Operations Aviation systems integration and Nimrod, Rivet Joint, Guardrail and the Combined Air Operations Center. Also maintenance, unique wheeled vehicle engineering and in 2003, L-3 Integrated Systems (IS) design, integrated logistics support, gunsmithing, water- demonstrated its Lightweight SIGINT (LITES) technology, which dramatically craft refurbishment and communications-electronics and increases SIGINT capability via multi- night vision device repair and return. ple-platform collaboration. This key enabler for the NCCT system exempli- NCCT uses a collaborative machine-to-machine interface to integrate air, space and surface ISR assets. www.L-3com.com L-3 Communications Summary Annual Report 7
  10. 10. Secure Communications and ISR development program. The proposed (right) The High Altitude AIRS system consists of a high-per- Observatory (HALO- formance, infrared telescope and data II), a modified collection system capable of being inte- Gulfstream business grated on either manned or unmanned jet, carries the L-3 Aeromet-developed air vehicles to detect, track and discrim- Heimdall-IR™ surveil- inate ballistic missiles in all phases of lance system, which flight. The system is also capable of uses precision EO/IR providing infrared detection and radiometric and track- ing data to support key detailed imaging of ground targets. test and measurement L-3 is also playing a critical role in objectives during mis- the MDA’s development of the Ground- sile defense develop- based Midcourse Defense Segment ment. Aeromet was acquired by L-3 in (GMDS). Communication Systems- May 2003 and is now East is under contract to provide Solid part of L-3 IS. State Power Amplifier Assemblies (PAA) for the GMD Extremely High Frequency (EHF) communications sub- (left) system. The PAA, developed, manufac- L-3 IS continues to mod- tured and tested by L-3, resides on the ernize and support the Ground-Based Interceptor (GBI) boost- US Air Force’s RC-135 Rivet Joint fleet by per- er and is part of the communications forming airframe and system between the kill vehicle and mission systems modifi- the ground-based command and control cations. The on-board system. It collects and processes target sensor suite allows the mission crew to detect, acquisition information and provides in- identify and geolocate sig- flight updates that enable the kill vehicle nals throughout the elec- to acquire, intercept and destroy the tar- tromagnetic spectrum. get. Secure Products Rivet Joint. In addition, L-3 IS received tems will allow the TARS pod to provide L-3 Communication Systems-East increased funding for ongoing and con- the warfighter with real-time Image has recently received National Security tinuous support of the Big Safari Intelligence (IMINT) for Bomb Damage Agency (NSA) certification for the Logistics program. L-3 also won Assessment (BDA) that is superior to RedEagle™ KG-240, a 100 Mbps net- expanded work to provide special mis- their current reconnaissance pod. work encryptor. The RedEagle KG-240 sion self-protection and communica- A key tactical communications is the first product ever to both receive tions systems installation for a variety of project for the US Army is the Phoenix NSA certification and meet the US gov- aircraft platforms. program. L-3 Communication Systems- ernment's stringent High Assurance The 14-aircraft EH-130H Com- West will design, integrate and test the Internet Protocol Interoperability pass Call fleet performs tactical com- Tri-Band Satellite Communication Specification (HAIPIS). L-3's Red- mand, control and communications System to be mounted on High Mobility Eagle family of products is expected to countermeasures and recently complet- Multipurpose Wheeled Vehicles play a key role in establishing a secure ed missions in support of Operation (HMMWV). The Phoenix system will infrastructure in support of the DoD's Iraqi Freedom. In addition to its support replace the Army’s aging fleet of more transformational communication net- of the Compass Call program, L-3 IS than 150 Ground Mobile Forces (GMF) working initiatives. will now supply periodic depot mainte- Tactical Satellite Communication L-3 Communication Systems-East nance, modifications and contractor Systems for higher bandwidth satellite reached a major program milestone in support services for the EH-130H. communications. 2003 with the delivery of its 100,000th L-3 Communication Systems- Secure Terminal Equipment (STE) unit EXPanded Capability – EO/IR East's state-of-the-art S/TAR™ Digital since procurement began in 1998. In Solid State Recorder was selected for L-3 expanded its electro-optical 2003, there were also orders for L-3’s the US Air Force’s F-16 Theater and infrared (EO/IR) services capability Secure Voice Conference Services Airborne Reconnaissance System with the acquisition of Aeromet. In (SVCS) from the DHS and for STE-R as (TARS) Electro-Optical Pre-Planned 2003, the business received an option the next member of the STE family of products. ◊ Product Improvement (P3I) program. from the Missile Defense Agency Along with an L-3 Communication (MDA) for the extension of the Airborne Systems-West data link, the new subsys- Infrared Surveillance (AIRS) concept 8
  11. 11. On the battlefield, there are no runners up. There's a reason why L-3 is an incumbent on major C4ISR programs. L-3's secure communications and ISR products prove themselves successfully every day in every theater – on the ground, in the air and at sea. At the heart of the DoD's network-centric warfare systems are L-3's SATCOM terminals, secure communications products, data links and sensors. Helping Build the Internet in the Sky
  12. 12. T he superior performance of US troops in both Training, Afghanistan and Iraq was due to many factors, including the personal courage and skill of our forces, their sharing of intelligence Simulation and information, the precision and lethality of their weapons – and the qual- ity of their training. By using state-of-the-art training and simulation systems that replicate the and Support challenges, terrain and weather condi- tions of specific combat zones, military personnel can achieve the readiness needed to embark on missions. A high degree of realism in a training environ- ment facilitates a better response in actu- al action and provides a key psychologi- cal advantage in the field. Training will continue to be a high priority for the DoD for many reasons. Ongoing operations and a shift toward joint coalition forces are creating an increased need for simulated training, as cost factors, complex environments and deployment schedules decrease live training opportunities. New training technologies, which provide realistic, immersive experiences, will be used to maintain optimum readiness and L-3 Link Simulation and Training is at the forefront of this initiative with advanced simulation products and training services. AVCATT-A In 2003, Link delivered four of its unique Aviation Combined Arms Tactical Trainer-Aviation Reconfigurable Manned Simulator (AVCATT-A) suites to the Army and Army National Guard. AVCATT-A suites replicate five separate helicopter platforms to support a highly realistic combat environment. This envi- (clockwise from top left) In 2004, Link will deliver an F-16C Block 52+ Aircrew Training Device to the Hellenic Air Force. Link continues to deliver F/A-18E/F Tactical Operational Flight Trainers (TOFT) to the US Navy to support pilot and weapon systems officer train- ing. These F/A-18E/F TOFTs are the first simulators to incorporate the company’s SimuSphere™ dodecahedron visual system display. E-3 Airborne Warning and Control System flight crews now use modern simulators to practice challenging air refueling operations. The F/A-22 Weapons Tactics Trainer enables Raptor pilots to gain extensive procedural training and build competence in both individual and team weapon systems employment. 10
  13. 13. Flight School xxi ronment enables aircrews to fly in all pilots use helmets that provide a 360- combat modes, day and night, against an degree field-of-regard. L-3 is continu- In early 2004, Link won a contract enemy force in networked exercises. ing to make investments in this technol- to provide simulators and contractor Each suite consists of two mobile 53-foot ogy and is working on a new, light- logistics support for the Army’s Flight trailers that house six reconfigurable sim- weight system, which will attach to a School XXI, a major program designed ulators, a Battle Master Control Room pilot’s actual helmet, enabling on- to increase aviators’ aircraft experience and an After Action Review Theater that demand training anytime and anywhere. prior to their first combat unit assign- can be transported wherever necessary. In addition to AVCATT-A, L-3 ment. Under this program, Link will L-3 will deliver three more suites and provides howitzer crew gunnery simula- develop, test, install, operate and main- expects to receive additional production tors and training simulators for such tain all of Flight School XXI’s Advanced contracts during 2004. major air platforms as the F/A-18, Aircraft Virtual Simulators and One of the most innovative tech- F/A-22, F-117, F-16 and the B-2. L-3 Reconfigurable Training Devices. nologies associated with AVCATT-A is also supplies computer-based training These training devices will incorporate its helmet-mounted display, which sets a and simulators for the E-3 AWACS and the latest virtual simulation technologies new standard in visual simulation dis- the P-3 maritime surveillance aircraft. developed at Link and will contribute to play capability. Each of the suite’s 12 the Army’s goal of increasing pilot pro- ficiency and better supporting units’ efforts to sustain combat readiness. Link will also provide extended logistics support for these products for the life of the program. There were many key awards dur- ing 2003, including funding from Boeing to build additional F/A-22 pilot training devices and a delivery order award for concurrency upgrades on air- crew and maintenance training systems for the US Air Force B-2A Spirit train- ing program. There was also a strategic win to provide contractor aircrew train- ing services for the US Air Force’s E-8C JSTARS Flight Crew Training program. Link trainers already account for over 90% of the fielded flight simulators for F/A-18 training. In 2003, Link received a contract to build and upgrade F/A-18E/F flight simulators and a Link and L-3 Government Services, Inc. (GSI) team was awarded a contract option to develop a second F/A-18C Distributed Mission Training suite. On the international front, the Commonwealth of Australia announced it has entered into a Deed of Agreement with Link and Raytheon Australia to provide the Royal Australian Air Force (RAAF) with a modern F/A-18 Hornet Aircrew Training System. Also in conjunction with Link, GSI was selected to bid on the US Navy’s $3 billion Training Systems Contract II from the Naval Air Systems Command (NAVAIR) Training Systems Division. Through 2011, Link and GSI will have the opportunity to bid on delivery orders for training design, development, production, modification, evaluation, delivery, product support www.L-3com.com L-3 Communications Summary Annual Report 11
  14. 14. Training, Simulation and Support The L-3 GSI team has also and system test and evaluation. and Common Ground Station received awards under a major intelli- The market for government out- Systems. gence community client blanket pur- sourcing services also continues to be a In addition, L-3 provides adminis- chase agreement to provide information growth area, as it accommodates trative support to the Defense Intelligence technology services, such as systems expanding requirements cost-effectively. Agency, performing document searches and enterprise engineering, communi- L-3 divisions are equipped to respond to and providing linguists in the Middle cations, information technology infra- governmental agency requests for expe- East. In Iraq, MPRI is working closely structure operations and life-cycle sup- rienced support personnel in national with the New Iraqi Army Training port to members of the intelligence security and organizational management Program, augmenting the Defense community. programs, emergency management sys- Intelligence Agency, as well as providing During 2003, L-3 MPRI contin- tems and leadership training and educa- staff instruction to the Iraqi Ministry of ued to provide its expertise in the US tional development areas. Defense. MPRI also provides staff and around the world with programs instruction to the Afghanistan Ministry of Greater Demand for Services that support the US DoD, non-DoD Defense and training programs for the agencies and companies in the corpo- In 2003, L-3 consolidated four Afghan National Army. In Kuwait, MPRI rate sector. MPRI provided a wide companies, creating GSI from its has been working with the Kuwaiti range of services to foreign govern- Analytics, EER Systems, IMC and TMA National Guard to enhance its profession- ments, including organizing democracy businesses. GSI serves a customer base al development program and is also pro- transition efforts and strategic planning. that includes the DoD, DHS, state and viding Observer/Controller assistance to MPRI supports the Program local governments and selected US gov- its units. Executive Office (PEO) Soldier ernment intelligence agencies. L-3 is also a leading provider of program, which distributes equipment In 2003, GSI was awarded a task intelligence technology service and sup- to those US Army units deploying to order under a USSOCOM 5-year port to several US space and missile Afghanistan and Iraq. In addition, Indefinite Delivery/Indefinite Quantity defense organizations and is a supplier L-3 ILEX Systems Field Software (ID/IQ) contract to provide intelligence of engineering and scientific services Engineers were deployed at the onset and security support to the Joint Special and information technology services to of Operation Enduring Freedom in Operations Command (JSOC). Under the government sector. In 2003, L-3 Afghanistan. In Iraq, engineers are this order, L-3 will provide analytical received awards for NUMAS (NORAD providing direct systems support to more support for intelligence services, includ- and US Space Command Mission than 400 All Source Analysis Systems, ing exploitation and analysis operations, Architecture Support) supporting Integrated Meteorological Systems, operational and exercise planning, NORTHCOM in areas such as cruise Digital Topographic Support Systems imagery system exploitation and securi- missile defense and strategic intelli- ty management support. gence for special operations units devel- oping critical communications links around the world. ◊ Photo: Courtesy of Department of Defense MPRI is recognized worldwide as a leader in providing services related to military leadership and organizational development, strategic analysis, studies and assessments, homeland security, anti-terrorism and emergency management. MPRI currently distributes equipment to those US Army units deploying to Afghanistan and Iraq and provides training programs for the Afghan National Army. 12
  15. 15. Preparing for battle. Anytime. Anywhere. For the first time…a mobile, reconfigurable training system, enabling teams to operate the US Army's full complement of tactical helicopters and collectively train as they will fight…before they ever leave the ground. The Aviation Combined Arms Tactical Trainer-Aviation Reconfigurable Manned Simulator (AVCATT–A) - developed exclusively by Link Simulation and Training. Training as Real as the Battlefield
  16. 16. Aviation Products and Aircraft Modernization T he Aviation Products and providers in this market niche. L-3 Aircraft Modernization made the second-largest acquisition in segment expanded sig- its history with the addition of a former nificantly in 2003, taking joint-venture partner, Vertex Aerospace advantage of growth in LLC, a leader in logistics support, mod- the military aircraft modernization por- ernization, maintenance, supply chain tion of the DoD budget and providing management and depot services. Now additional capabilities to key interna- an L-3 IS subsidiary, Vertex brings sup- tional allies and customers. Supporting port for 2,800 active fixed- and rotary- current operations in Afghanistan and wing aircraft, as well as over 85 vehicle Iraq necessitates modernization and platforms and operations in 306 military maintenance services to keep the fleet in sites and other US government sites good working order. worldwide to L-3. At the same time, the balance Prior to its acquisition of Vertex between new platforms and fleet Aerospace, L-3 had partnered with the upgrades is another important develop- company, as well as Paragon Systems ment that will impact DoD spending and U.S. Helicopter, to win a competi- over the next several years. Although tively bid, 10-year, $2.7 billion contract the DoD anticipates the production of to provide contractor logistics support at new and expensive platforms for the Fort Rucker, Alabama. The partnership armed services, there is a limit to its will provide personnel, management, spending. DoD officials are already material parts, supplies, transportation decreasing the quantities they order of and equipment to perform aviation unit each new platform and are looking to maintenance, aviation unit intermediate upgrade and maintain existing platforms maintenance and approved depot main- to ensure readiness and keep within tenance in support of flight training of spending limits. They are citing the all assigned rotary-wing aircraft at Fort superior performance of upgraded US Rucker. platforms in Afghanistan and Iraq as L-3 also acquired the US and evidence that the US can be effective by Canada-based Military Aviation using existing aircraft in transformation- Services (MAS) from Bombardier Inc. al ways. L-3 MAS is a leader in systems engi- neering support and aircraft moderniza- L-3 adds Vertex and MAS tion and offers a full range of technical In military aircraft modernization, services in maintenance, repair and L-3 added two synergistic companies to upgrade for military aircraft and region- its L-3 IS and Spar Aerospace opera- al jets. This acquisition significantly tions, making it one of the largest enhances L-3’s Canadian operations 14
  17. 17. optimized C-130 weapon systems man- (WESCAM and Spar Aerospace) and (below) agement requirements of the DND. favorably positions other divisions with- An L-3 joint-venture team won the contract In addition, L-3 MAS is instru- in L-3 for future in-country opportuni- to provide maintenance and logistics sup- mental in the Canadian CF-18 modern- ties. port for rotary-wing aircraft at Fort ization program, retrofitting the first In 2003, L-3 Spar completed the Rucker, Alabama, which represents the largest aircraft maintenance contract in the CF-18 with an upgraded avionics suite design, development and prototyping of DoD. Aviation operations at Fort Rucker in 2003. MAS is developing a Center a number of structural life extension and account for approximately 40% of the US Barrel Replacement prototype, a critical systems reliability improvements for the Army's total flying program. Supported milestone for the CF-18 mid-life struc- Lockheed Martin C-130 transport air- aircraft types include AH-64A, AH-64D, tural program. L-3 MAS is also work- craft. In addition, Spar was awarded the CH-47D, EH-60A, OH-58A/C, OH-58D, TH-67, UH-1 and UH-60A. ing with Sikorsky Aircraft Corporation production phase of the Canadian and General Dynamics Canada to offer Department of National Defence (DND) in-service support of the H-92 helicop- C-130 structural refurbishment and ter for the Maritime Helicopter Program wiring upgrade program. Spar intends – the Canadian government’s largest to combine its C-130 depot-level main- military capital program for the foresee- tenance, structural modification and able future. avionics upgrade capabilities and pro- gram experience to offer comprehensive Integrated systems Contract Wins fleet support to respond to the upcoming L-3 IS has maintained a long and successful relationship with the USSOCOM and in 2003 was awarded a 10-year, $1.5 billion ID/IQ award. Under this contract, L-3 will provide logistics support to the USSOCOM, its component commands, selected DoD customers and designated government agencies. The program is known as Special Operations Forces Support Activity (SOFSA). L-3 IS was also awarded an initial contract for the Multimission Command and Control Aircraft (MC2A) for design of important radar-related aircraft sys- tems as part of the MC2A Weapon Systems Integration effort. L-3 also completed the upgrade of the US Navy’s E-6 fleet to an E-6B configuration, which now performs the missions of the E-6A Take Charge and Move Out (TACAMO) and the US Air Force EC-135 Airborne Command Post fleets. In 2003, L-3 IS extended its record of consecutive on-time US Navy deliveries to 158, which includes E-6B and P-3 air- craft. In the international arena, L-3 IS continued its work on designing and modifying the prototype aircraft for the Canadian CP-140 Aurora Incremental Modernization Program. L-3 will also continue delivering upgraded AP-3Cs to the RAAF as part of the Sea Sentinel program. The AP-3Cs have already been successful in service in the Middle East and in winning the prestigious Fincastle trophy, an international anti-submarine warfare competition. www.L-3com.com L-3 Communications Summary Annual Report 15
  18. 18. Aviation Products and Aircraft Modernization L-3’s Military Airborne The RAAF has also certified L-3 MAS tration (FAA) Technical Standard Order Surveillance System (MASS™), an as an Authorized Engineering Organ- (TSO) certification approval of its first enhanced TCAS for military formation ization (AEO) to perform work on its product specifically developed for the and rendezvous operations, made its F/A-18 aircraft. commercial avionics marketplace – the PVI-600™ Series commercial Multi- first flight in August of 2003. Produced Aviation Products by L-3’s Aviation Communication & Function Display (MFD). This active Surveillance Systems (ACSS), MASS In aviation products, L-3 received matrix liquid crystal display (AMLCD) has been selected for the Boeing 767 a host of key contracts in 2003, includ- replaces existing radar indicators with Global Tanker Transport Aircraft. In ing Communication Management an instrument capable of displaying addition, L-3 Electrodynamics received Systems for B737 aircraft to support the radar, Traffic Alert and Collision a follow-on contract from Lockheed Special Air Mission of the US Air Force, Avoidance System (TCAS) and Terrain Martin for Crash Survivable Memory as well as displays for the C-130J and Awareness and Warning System Units (CSMU) for the F-22 Raptor, as KC-130J and the F-15K Eagle fighter (TAWS) data. L-3 also delivered the well as a contract from Boeing for the aircraft. There was also an award for the Display & Control Subsystem (DCS) for initial production of ten Advanced Army Airspace Command and Control the Virtual Imaging System for Signal Data Computers (ASDC) for the (A2C2) program, a tactical operations Approach and Landing (VISUAL) ini- T-45 Goshawk trainer. Additionally, L-3 command post hosted on a UH-60 Black tiative. This system provides vital situa- Targa Systems has developed an Hawk helicopter. L-3 Display Systems tional awareness information to the Ethernet Data Transfer System for the also won awards for the AH-64 Apache, Landing Signal Officer during aircraft X-45 Unmanned Combat Aerial Vehicle C-130H Hercules, CH-46 Sea Knight, recovery operations on conventional air- (UCAV) development program. C-27J Spartan, C-17 Globemaster, craft carriers. L-3 has the distinction of being T-38C Talon, A/MH-6 SOF helicopters involved in the creation of the world’s and JAS-39 Gripen. largest airborne observatory for NASA In 2003, Display Systems and the German space agency DLR. A received Federal Aviation Adminis- 2.5-meter telescope assembly from Germany was installed by L-3 IS aboard the 747 aircraft that will serve as the Stratospheric Observatory for Infrared Astronomy (SOFIA). Growing General Aviation Markets In addition to providing compre- hensive military aviation products and services, L-3 offers the marketplace a broad range of products for commercial (above left to right) and general aviation. These include Display Systems will be providing mission computer Display Units (DU) for the C-17 cockpit displays, collision avoidance Globemaster III airlifter. These 4-inch by 3-inch active matrix liquid crystal displays feature and proximity warning systems, flight high-resolution, high-brightness performance and night vision goggle compatibility. management systems and solid state SkyWatch is the leading general aviation collision avoidance system, providing pilots with up flight data and cockpit voice recorders to the second traffic information anywhere in the world. Its active technology operates and data transfer units. independently of ground-based radar and easily integrates with most MFDs, Electronic Flight In 2003, commercial air travel Instrument Systems (EFIS) and radar indicators. continued to be weak due to a combina- (below left to right) tion of economic recession, the presence Display Systems was awarded a multi-year contract to provide cockpit displays for C-130J of SARS in Asia and lingering air travel aircraft for the US Air Force and KC-130J aircraft for the US Marines. safety concerns. However, during the The ACSS FAA-certified T2CAS is a unique safety avionics product that combines a Terrain fourth quarter, there was an increase in Awareness and Warning System (TAWS) with the industry's leading Traffic Alert and Collision travel and many analysts believe that Avoidance System, the TCAS 2000. T2CAS can be applied to any air transport, regional, business or military aircraft and provides unique predictive warnings and cockpit displays. there will be a recovery in this industry beginning in 2004. Despite this environment, L-3 ACSS achieved some key milestones in 2003. Its next-generation TCAS was selected by Dassault to be a standard installation on the new Falcon 7X busi- ness jet. T2CAS™, a combined TCAS 16

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