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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 11-K
(Mark one)
X ANNUAL REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED DECEMBER 31, 2003
OR
TRANSITION REPORT PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 001-14141
AVIATION COMMUNICATIONS &
SURVEILLANCE SYSTEMS 401(K) PLAN
(FULL TITLE OF THE PLAN AND THE ADDRESS OF THE PLAN,
IF DIFFERENT FROM THAT OF THE ISSUER NAMED BELOW)
L-3 COMMUNICATIONS HOLDINGS, INC.
600 Third Ave
New York, NY 10016
(Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office)
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AVIATION COMMUNICATIONS & SURVEILLANCE SYSTEMS 401(K) PLAN
Index to Financial Statements
Pages
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Report of Independent Registered Public Accounting Firm 2
Financial Statements:
Statements of Net Assets Available for Benefits
at December 31, 2003 and 2002 3-4
Statement of Changes in Net Assets Available for Benefits
for the Year Ended December 31, 2003 5
Notes to Financial Statements 6-12
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Participants and Administrator of
the Aviation Communications & Surveillance Systems 401(K) Plan:
We have audited the accompanying statements of net assets available for benefits
of the Aviation Communications & Surveillance Systems 401(K) Plan (the "Plan")
as of December 31, 2003 and 2002, and the related statement of changes in net
assets available for benefits for the year ended December 31, 2003. These
financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits of these statements in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 2003 and 2002, and the changes in net assets available for benefits
for the year ended December 31, 2003 in conformity with accounting principles
generally accepted in the United States of America.
/s/ PricewaterhouseCoopers LLP
New York, New York
June 28, 2004
2
AVIATION COMMUNICATIONS & SURVEILLANCE SYSTEMS 401(K) PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2003
(IN THOUSANDS)
Non-
Participant Participant
Directed Directed Total
-------------- -------------- --------------
Assets:
Investment in Master Trust $3,436 $1,255 $4,691
-------------- -------------- --------------
Net assets available for benefits $3,436 $1,255 $4,691
============== ============== ==============
See Notes to Financial Statements
3
AVIATION COMMUNICATIONS & SURVEILLANCE SYSTEMS 401(K) PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2002
(IN THOUSANDS)
Non-
Participant Participant
Directed Directed Total
-------------- -------------- --------------
Assets:
Investment in Master Trust $1,481 $869 $2,350
Contributions receivable:
Participants 22 - 22
Company - 17 17
-------------- -------------- --------------
Net assets available for benefits $1,503 $886 $2,389
============== ============== ==============
See Notes to Financial Statements
4
AVIATION COMMUNICATIONS & SURVEILLANCE SYSTEMS 401(K) PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 2003
(IN THOUSANDS)
Non-
Participant Participant
Directed Directed Total
-------------- -------------- --------------
Additions:
Contributions:
Participant $983 $ -- $983
Company -- 590 590
Rollover 249 -- 249
Investment income:
Net appreciation in the fair value
of investment in Master Trust 389 173 562
Interest and dividend income 46 -- 46
Interest (participant loans) 5 -- 5
Transfers from non-participant directed
funds to participant directed funds 350 (350) --
---------- -------- -----------
Total additions 2,022 413 2,435
---------- -------- -----------
Deductions:
Benefit payments and other deductions 89 44 133
---------- -------- --------------
Net increase 1,933 369 2,302
Net assets available for benefits,
beginning of period 1,503 886 2,389
---------- -------- --------------
Net assets available for benefits,
end of period $3,436 $1,255 $4,691
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See Notes to Financial Statements
5
AVIATION COMMUNICATIONS & SURVEILLANCE SYSTEMS 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
1. PLAN DESCRIPTION
General
The Aviation Communications & Surveillance Systems 401(k) Plan (the "Plan")
was established effective June 1, 2001. Aviation Communications &
Surveillance Systems, LLC (the "Company") maintains the Plan for its
eligible employees. Employees of the Company who were participants in the
L-3 Communications Master Savings Plan (the "Prior Plan") became
participants in the Plan on June 1, 2001. The following description of the
Plan provides only general information. Complete descriptions of the Plan,
including eligibility requirements and vesting provisions, are contained in
the Plan documents.
The Plan is a defined contribution 401(k) plan and is administered by the
Benefit Plan Committee ("Plan Administrator") appointed by the Company. The
Plan is designed to provide eligible employees with tax advantaged
long-term savings for retirement. The Plan is subject to the provisions of
the Employee Retirement Income Security Act of 1974 ("ERISA"). Participants
may direct their investment to a combination of mutual funds, which are
held in the L-3 Communications Master Savings Plan Trust (the "Master
Trust"), managed by Fidelity Management Trust Company ("FMTC"), as Trustee.
Contributions
Full time employees are eligible to participate in the Plan as of their
date of hire. Part time employees must complete at least 1,000 hours of
service, from the date of hire, before being eligible to participate in the
Plan. Each eligible employee wishing to participate in the Plan must elect
to authorize pre-tax and/or post-tax contributions by payroll deduction.
Participants may contribute from 1% to 18% of total compensation, as
defined. A participant may elect to increase, decrease, suspend or resume
contributions at any time. The election will become effective as soon as
administratively possible as of the first day of the payroll period
elected. The Internal Revenue Code ("IRC") of 1986, as amended, limited the
maximum amount an employee may contribute on a pre-tax basis in 2003 to
$12,000 for participants under 50 years of age and $14,000 for participants
50 years of age and over. Participants are 100% vested in their
contributions and earnings thereon.
The Company matches 50% of participants' contributions up to a maximum
participant elected contribution percentage of 8% of compensation, which
increases to 100% of participants' contributions, up to 8% of compensation
after five years of service. Company contributions are made in shares of
L-3 Communications Holdings, Inc. common stock. Contributions are subject
to IRC limitations.
Vesting
On June 1, 2001, participants of the Plan who were participants in the
Prior Plan on May 31, 2001 became fully vested in Company contributions and
earnings thereof in the Prior Plan. The table below presents the normal
vesting schedule for Plan participants. Participants will also become fully
vested in Company contributions of the Plan upon 1) disability, 2) death or
3) the participants 65th birthday if the participant is actively employed
by the Company.
Completed Years of Service Vested Percentage
-------------------------- -----------------
Less than 1 0%
1 20%
2 40%
3 60%
4 80%
5 or more 100%
6
AVIATION COMMUNICATIONS & SURVEILLANCE SYSTEMS 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS- CONTINUED
Participant Accounts
Each participant's account is credited with the participant's contribution
and allocations of (a) the Company's contribution and (b) the Plan's
earnings, and may be charged with certain administrative expenses.
Allocations are based on participant earnings or account balances, as
defined. The benefit to which a participant is entitled is the benefit that
can be provided from the participant's vested account.
Participant account balances from the Prior Plan may not be transferred
into the Plan without the approval of the Benefit Plan Committee and such
account balances are excluded from the Plan's statement of net assets
available for benefits at December 31, 2003 and 2002.
Master Trust Investment Options
All non-participant directed employer contributions must be initially
invested in the L-3 Stock Fund, and may not be invested in other Master
Trust investment options until two years after the end of the plan year in
which the employer contribution is made. Participants have the option of
investing participant-directed employee contributions in the L-3 Stock
Fund, as well as other investment options that are described below.
L-3 Stock Fund - This fund was established effective October 1, 1998 and
invests in L-3 Communications Holdings, Inc. ("L-3 Holdings") common stock
and money market funds. This fund represented 42.9% and 45.2% of the Plan's
investment in the Master Trust at December 31, 2003 and 2002, respectively.
Fidelity Freedom Funds - These funds invest in a combination of underlying
Fidelity stock, bond and money market mutual funds to provide asset
allocation with moderate risk. Each Fidelity Freedom Fund has a target
retirement date and will gradually adopt a more conservative asset
allocation over time.
Fidelity Freedom 2000 Fund - This fund invests approximately 23% in
Fidelity stock mutual funds, 39% in Fidelity bond mutual funds and 38%
in Fidelity money market funds and is targeted to investors who expect
to retire in the near future. This fund represented less than one
percent of the Plan's investment in the Master Trust at December 31,
2003 and 2002.
Fidelity Freedom 2010 Fund - This fund invests approximately 45% in
Fidelity stock mutual funds, 45% in Fidelity bond mutual funds and 10%
in Fidelity money market funds and is targeted to investors who expect
to retire around the year 2010. This fund represented 1.4% and 1.5% of
the Plan's investment in the Master Trust at December 31, 2003 and
2002, respectively.
Fidelity Freedom 2020 Fund - This fund invests approximately 70% in
Fidelity stock mutual funds and 30% in Fidelity bond mutual funds and
is targeted to investors who expect to retire around the year 2020.
This fund represented 4.8% and 4.0% of the Plan's investment in the
Master Trust at December 31, 2003 and 2002, respectively.
Fidelity Freedom 2030 Fund - This fund invests approximately 82% in
Fidelity stock mutual funds and 18% in Fidelity bond mutual funds and
is targeted to investors who expect to retire around the year 2030.
This fund represented 3.0% and 3.3% of the Plan's investment in the
Master Trust at December 31, 2003 and 2002, respectively.
Fidelity Ginnie Mae Fund - Funds are invested for a high level of current
income primarily from Government National Mortgage Association
mortgaged-backed pass-through certificates that are guaranteed as to timely
payment of interest and principal by the full faith and credit of the U.S.
Government. This fund represented 3.9% and 2.8% of the Plan's investment in
the Master Trust at December 31, 2003 and 2002, respectively.
7
AVIATION COMMUNICATIONS & SURVEILLANCE SYSTEMS 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS- CONTINUED
Fidelity Growth & Income Portfolio - Funds are invested mainly in
securities of companies that offer potential capital appreciation while
paying current dividends. This fund represented 5.1% and 4.8% of the Plan's
investment in the Master Trust at December 31, 2003 and 2002, respectively.
Fidelity Magellan Fund - Funds are invested for capital appreciation in a
broad range of equities of domestic, multinational and foreign companies.
This fund represented 8.3% and 7.7% of the Plan's investment in the Master
Trust at December 31, 2003 and 2002, respectively.
Fidelity Managed Income Portfolio II - Funds are invested in investment
contracts offered by major insurance companies and in fixed income
securities. This fund represented 12.0% and 14.9% of the Plan's investment
in the Master Trust at December 31, 2003 and 2002, respectively.
Fidelity OTC Portfolio - This fund invests at least 80% of its assets in
securities traded on NASDAQ or other over-the-counter (OTC) markets that
primarily trade in small and medium-sized companies. This fund invests more
than 25% of its assets in the technology sector. This fund represented 1.1%
and less than one percent of the Plan's investment in the Master Trust at
December 31, 2003 and 2002, respectively.
INVESCO Dynamics Fund - Funds are invested in common stocks of rapidly
growing mid-sized domestic companies. Mid-sized companies are defined as
those companies that have a market capitalization of between $2.5 billion
and $15.0 billion. This fund represented 2.7% and 2.9% of the Plan's
investment in the Master Trust at December 31, 2003 and 2002, respectively.
Invesco Small Company Growth Fund - This fund invests in equities of
companies with market capitalizations of less than $2.5 billion. This fund
focuses on companies with accelerating earnings attributable to rapid sales
growth. This fund represented less than one percent of the Plan's
investment in the Master Trust at December 31, 2003 and 2002.
Janus Overseas Fund - Funds are invested in common stocks of foreign
companies. This fund represented 3.3% and 2.9% of the Plan's investment in
the Master Trust at December 31, 2003 and 2002, respectively.
Spartan U.S. Equity Index Fund - This fund invests at least 80% of its
assets in common stocks of the 500 companies that comprise the Standard &
Poor's 500 Index. This fund represented 3.8% and 3.9% of the Plan's
investment in the Master Trust at December 31, 2003 and 2002, respectively.
T. Rowe Price Small-Cap Stock Fund - This fund invests at least 80% of its
assets in equities of small companies. A small company is defined as having
a market capitalization that falls within the range of the companies in the
Russell 2000 Index. This fund represented 3.0% and 2.1% of the Plan's
investment in the Master Trust at December 31, 2003 and 2002, respectively.
8
AVIATION COMMUNICATIONS & SURVEILLANCE SYSTEMS 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS- CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment in Master Trust
Investment assets of the Plan are maintained in the Master Trust
administered by FMTC, as Trustee. The Plan participates in the Master Trust
along with all the assets of the L-3 Communications Master Savings Plan and
the SPD Technologies Defined Contribution Retirement Plan, collectively
referred to as the Participating Plans. During the year ended December 31,
2003, the SPD Technologies Defined Contribution Retirement Plan was merged
into the L-3 Communications Master Savings Plan.
The investment in the Master Trust represents the Plan's proportionate
share of assets held in the Master Trust. The assets consist of units of
funds that are maintained by FMTC. (See Note 1 for a description of the
fund options.) Contributions, benefit payments and certain administrative
expenses are specifically identified to the Plan.
Valuation of Investments
The investment in the Master Trust is stated at fair value.
The L-3 Stock Fund is a unitized fund whose underlying assets consist
primarily of shares of L-3 Holdings' common stock. Shares of L-3 Holdings'
common stock are valued at the last reported quoted market price of a share
on the last business day of the year.
Investments in mutual funds are valued at quoted market prices, which
represent the net asset value per share as reported by Fidelity Management
and Research Company. Participant loans are valued at cost, which
approximates fair value.
Basis of Accounting
The financial statements of the Plan are prepared under the accrual method
of accounting.
Investment Transactions and Investment Income
Investment transactions are accounted for on a trade-date basis. Dividend
income is recorded on the ex-dividend date. Interest income is recorded on
an accrual basis. Gains and losses on sales of investment securities are
determined based on the average cost method.
Net appreciation in the fair value of the Plan's investment, as shown in
the Statement of Changes in Net Assets Available for Benefits, consists of
the Plan's proportionate share of realized gains or losses and unrealized
appreciation or depreciation on those investments. The net appreciation and
interest and dividends are allocated to the L-3 Participating Plans based
upon the relationship of each L-3 Participating Plan's respective monthly
balances in the investment pool to the total investment pool of the Master
Trust, as determined at the beginning of each month.
Forfeitures
Non-vested Company contributions are forfeited upon termination and used to
pay plan expenses and to reduce future Company contributions. Forfeitures
available were approximately $8,000 and $5,000 at December 31, 2003 and
2002, respectively.
9
AVIATION COMMUNICATIONS & SURVEILLANCE SYSTEMS 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS- CONTINUED
Benefit Payments
Benefit payments are recorded when paid.
Plan Expenses
The Company pays all administrative expenses of the Plan including trustee,
record keeping, consulting, audit and legal fees, with the exception of
loan administration fees, which are charged to participants. Taxes and
investment fees related to the stock funds or mutual funds are paid from
the net assets of such funds.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
will differ from these estimates. The most significant estimate relates to
valuations of investments in the Master Trust.
Risks and Uncertainties
The Plan provides for investment options in various mutual funds and the
L-3 Stock Fund. Investment securities are exposed to various risks, such as
interest rate, market and credit risk. Due to the level of risk associated
with certain investment securities and the level of uncertainty related to
changes in the value of investment securities, it is at least reasonably
possible that changes in risks in the near term would materially affect
participants' account balances and the amounts reported in the statement of
net assets available for benefits and the statement of changes in net
assets available for benefits.
10
AVIATION COMMUNICATIONS & SURVEILLANCE SYSTEMS 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS- CONTINUED
3. MASTER TRUST
The fair value of the investments of the Master Trust held by the Trustee
and the Plan's portion of the fair value at December 31, 2003 and 2002 are
presented in the table below. The Plan's percentage interest in the Master
Trust was less than one percent at December 31, 2003 and 2002.
Master Trust Plan's Portion
-------------------------------- ----------------------------------
Fund 2003 2002 2003 2002
------------------------------------------------ -------------- ------------ -------------- -------------
(in thousands)
L-3 Stock Fund $ 163,886 $111,997 $ 2,013 $ 1,063
Fidelity Freedom 2000 Fund 7,340 5,051 34 18
Fidelity Freedom 2010 Fund 57,360 46,689 64 36
Fidelity Freedom 2020 Fund 26,681 15,253 225 94
Fidelity Freedom 2030 Fund 11,882 7,098 141 78
Fidelity Freedom 2040 Fund 1,608 97 - -
Fidelity Ginnie Mae Fund 45,371 44,804 184 65
Fidelity Growth & Income Portfolio 96,541 76,540 239 112
Fidelity Magellan Fund 146,006 108,998 387 180
Fidelity Managed Income Portfolio II 204,132 175,271 564 349
Fidelity OTC Portfolio 12,876 6,497 52 18
INVESCO Dynamics Fund 39,261 22,612 128 67
INVESCO Small Company Growth Fund 7,921 3,366 33 10
Janus Overseas Fund 37,591 25,663 154 69
Loral Space Stock Fund - 66 - -
Spartan U.S. Equity Index Fund 45,038 28,249 179 92
T. Rowe Price Small-Cap Stock Fund 33,525 18,811 139 49
Participant Loans (5.0% to 7.0%) 23,431 21,947 155 50
-------------- ------------ -------------- -------------
$ 960,450 $719,009 $ 4,691 $ 2,350
============== ============ ============== =============
The net change in the fair value of the Master Trust and the Plan's portion
of the net change in fair value for the year ended December 31, 2003 is
presented in the table below.
Master Trust Plan's Portion
-------------- ----------------
(in thousands)
Net appreciation in fair value of investment:
Registered investment companies $ 94,909 $ 291
L-3 Stock Fund 21,361 271
-------------- ------------
116,270 562
Interest and dividend income 16,168 46
-------------- ------------
Net increase in fair value $ 132,438 $ 608
============== ============
11
AVIATION COMMUNICATIONS & SURVEILLANCE SYSTEMS 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS- CONTINUED
4. BENEFIT PAYMENTS
Upon termination, participants may receive the vested portion of their
account balance as soon as practicable after termination, at the
participants' option, either in a lump sum or in periodic installments as
provided for in the Plan document. Terminated participants who have an
account balance in excess of $5,000 may elect to leave their account
balance in the Plan and withdraw it at any time up to age 65.
Assets in a participant's account may be withdrawn before termination of
employment or before reaching age 59 1/2 only for financial hardship.
Financial hardship is determined pursuant to provisions of the Plan and the
IRC. Generally, a penalty will be imposed on withdrawals made before the
participant reaches age 59 1/2. In the event of retirement or termination
of employment prior to age 59 1/2, funds may be rolled over to another
qualified plan or individual retirement account without being subject to
income tax or a penalty.
5. LOANS
The Plan provides for loans to active participants. Participants may not
have more than one loan outstanding at any time. The maximum loan allowed
to each participant is the lesser of (1) $50,000 less the highest
outstanding loan balance over the prior 12 months or (2) 50% of the vested
value of the participant's account in the Plan. The minimum loan amount is
$1,000. The interest rate is based on the prime interest rate, as defined,
plus one percent. The maximum term of a loan is 5 years or 30 years if used
to purchase a principal residence.
Loan repayments are made through payroll deductions, with principal and
interest credited to the participants' fund accounts. Repayment of the
entire balance is permitted at any time. Participants who terminate
employment may continue to repay their outstanding loans as permitted by
the Plan document. Participant loans are secured by the participant's
vested account balance.
6. TAX STATUS
The Internal Revenue Service has determined and informed the Company by a
letter dated May 6, 2003, that the Plan and related trust are designed in
accordance with applicable sections of the IRC, and thus is exempt from
federal income taxes. The Plan Administrator and the Plan's counsel believe
that the Plan is designed and is currently being operated in compliance
with the applicable regulations of the IRC.
7. RELATED-PARTY TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by FMTC and
therefore these transactions qualify as party-in-interest. Fees paid by the
Company for record keeping services were $4,250 for the year ended December
31, 2003.
8. TERMINATION PRIORITIES
Although the Company has not expressed intent to do so, the Company can
discontinue its contributions and/or terminate the Plan at any time,
subject to the provisions of ERISA. In the event of a discontinuance and/or
termination of the Plan, plan participants will become 100 percent vested
in Company contributions and the net assets of the Plan will be allocated
among the participants and their beneficiaries in accordance with the
provisions of ERISA.
12
Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees of the Aviation Communications & Surveillance Systems 401(k) Plan
have duly caused this annual report to be signed on their behalf by the
undersigned thereunto duly authorized.
Aviation Communications & Surveillance Systems
401(k) Plan
Registrant
Date: June 28, 2004
/s/ Michael T. Strianese
-------------------------------------
Name: Michael T. Strianese
Title: Senior Vice President, Finance
of L-3 Communications Holdings, Inc.
(Principal Accounting Officer)
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (File Nos. 333-59281, 333-64389, 333-78317, 333-64300 and 333-103752)
and on Form S-3 (File Nos. 333-75558, 333-84826 and 333-99693) of L-3
Communications Holdings, Inc. of our report dated June 28, 2004 on our audit of
the financial statements of the Aviation Communications & Surveillance Systems
401(k) Plan, included in this Form 11-K.
/s/ PricewaterhouseCoopers LLP
New York, NY
June 28, 2004