Fitch: Proposed Titan Acquisition May Lead to Outlook Revision for L-3.

NEW YORK -- Earlier today, L-3 Communications Corp. (LLL) announced it had reached an agreement to acquire Titan Corp (TTN) for approximately $2.65 billion in cash, including the assumption of approximately $508 million in net debt. While Fitch Ratings does not anticipate that the approximately $2.3 billion in additional debt needed to fund the transaction will negatively affect Fitch's debt ratings for LLL, Fitch will likely revise LLL's Outlook to Negative from Stable upon completion of the transaction. The likely Outlook revision will reflect the size of the transaction, reduced financial flexibility as LLL's debt will double, and LLL's continued appetite for acquisitions.

Fitch currently rates LLL as follows:

-- Indicative senior unsecured 'BBB-';

-- Senior subordinated 'BB';

-- Rating Outlook Stable.

Approximately $2.2 billion in debt is covered by the ratings.

Fitch's ratings and Outlook for LLL incorporate expectations for $3 billion to $4 billion of acquisitions and dividend increases in the 2005-2007 period. Fitch estimates that LLL has the debt capacity to complete the TTN transaction while retaining a credit profile consistent with the existing ratings. With $500 million in acquisitions already closed this year and $2.7 billion expected for TTN, additional acquisitions will likely pressure the ratings in the absence of offsetting factors such as better-than-expected cash generation and/or equity issuances.

TTN, with 2004 revenues of approximately $2 billion, is a major supplier of intelligence services to the U.S. government and a major provider of information technology, engineering services and products to the Department of Defense. The acquisition will enhance LLL's position in Command, Control, Communications, Intelligence, Surveillance and Reconnaissance; enterprise information technology; and homeland security programs.

Fitch has some concern regarding the price being paid for TTN at more than 12 times (x) projected 2005 EBITDA. Pricing is rich by LLL standards, but not out of line with other recently announced transactions in the defense industry. Mitigating this concern are TTN's high growth rates, its position within an area of the DoD budget which is expected to grow faster than the overall procurement budget, and its role in Homeland Security. Additionally, TTN has had margins lower than its peers and one of LLL's strengths has been its ability to increase margins of acquired companies.

LLL's ratings reflect high levels of defense spending, strong free cash flow generation, financial flexibility with no debt coming due before 2012 and none likely to come due before 2010 after the acquisition, ability to increase margins at acquired companies, and expected growth in homeland security spending. The ratings also consider LLL's diversification within the defense and homeland security arena, and the alignment between LLL's products and expected Department's of Defense and Homeland Security needs. Fitch's concerns center on LLL's acquisition strategy, potential changes within the DoD budget, and management succession. The former president of LLL announced his retirement in late December 2004 and a replacement and potential successor to Frank Lanza has yet to be identified. This is partly mitigated by a number of other experienced executives on LLL's management team.

Liquidity at March 31, 2005, was $1.2 billion, consisting of $286 million in cash and $910 million of credit facilities net of outstanding letters of credit. LLL's leverage, as defined by Debt to EBITDAP and adjusted debt to EBITDAPR, was 2.2x and 2.6x, respectively, for the twelve months ending March 31, 2005, improving from 2.3x and 2.7x, respectively, for full year 2004. Interest coverage, as defined by EBITDAP/interest and EBITDAPR/(interest plus rents) was 6.8x and 4.8x for the twelve months ending March 31, 2005, improving from 6.5x and 4.6x, respectively, for full year 2004.