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<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 3 - us-gaap:DisposalGroupsIncludingDiscontinuedOperationsDisclosureTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>3. DISCONTINUED OPERATIONS</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">On September 19, 2010, the Company has entered into an agreement to be acquired by Safran, in a
merger transaction providing for L-1 shareholders to receive $12.00 per share in cash, for an
aggregate enterprise value of approximately $1.6 billion, inclusive of outstanding debt. The Safran
merger is conditioned on, among other things, the consummation of the BAE transaction described below.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">Also on September 19, 2010, BAE agreed to acquire the stock and membership interests of the
entities comprising the L-1 intelligence services businesses for a purchase price of approximately
$295.8 million in cash and approximately $7.2 million of assumed obligations. These businesses include SpecTal, LLC, Advanced Concepts, Inc., and
McClendon, LLC. The BAE transaction remains subject, among other conditions, to certain U.S. regulatory
clearances, and is expected to close in the fourth quarter of 2010. The Company is required to use the net cash proceeds
(as defined in the Company’s credit agreement) from the closing of the BAE transaction to repay a substantial portion of the Company’s indebtedness under its credit facility. The purchase price is subject to adjustment based on the Intel Business
working capital at closing. It is expected that the sale of the intelligence services businesses will result in a gain which will be
recorded upon consummation of the sale.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Safran and BAE transactions are not subject to financing. The closing of the Safran merger is
conditioned on the closing of the BAE transaction; however, the closing of the BAE transaction is
not conditioned on the closing of the Safran merger.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The major classes of assets and liabilities that are included as part of the intelligence services
business (and presented as held for sale at September 30, 2010) are
included in the table below. The December 31, 2009 amounts have not been reclassified as assets held for sale. (in thousands)
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="76%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>December 31,</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Assets</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Cash
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">370</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Accounts receivable, net
</div></td>
<td> </td>
<td> </td>
<td align="right">34,335</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">40,319</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Other current assets
</div></td>
<td> </td>
<td> </td>
<td align="right">1,446</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,291</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Property and equipment, net
</div></td>
<td> </td>
<td> </td>
<td align="right">382</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">458</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Goodwill and intangible assets, net
</div></td>
<td> </td>
<td> </td>
<td align="right">226,353</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">229,383</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Other assets
</div></td>
<td> </td>
<td> </td>
<td align="right">124</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">124</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:45px; text-indent:-15px">Total current assets held for sale
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">262,640</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">272,945</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Liabilities</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Accounts payable and accrued expenses
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">22,680</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">23,250</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Other current liabilities
</div></td>
<td> </td>
<td> </td>
<td align="right">894</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">34</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Deferred tax liability
</div></td>
<td> </td>
<td> </td>
<td align="right">13,422</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">14,016</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Other liabilities
</div></td>
<td> </td>
<td> </td>
<td align="right">5</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">44</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:45px; text-indent:-15px">Total current liabilities held for sale
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">37,001</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">37,344</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">The Company expects to recognize a gain on the sale of the Intel Business ranging from $40.0
million to $50.0 million pre-tax, depending on the net assets of the business at the date of
closing.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">A summary of the results of operations of the discontinued operations follows (in thousands):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%" nowrap="nowrap">         </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%" nowrap="nowrap">         </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Three Months Ended</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Nine Months Ended</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>September 30,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>September 30,</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2009</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Revenues
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">54,877</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">53,305</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">164,610</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">160,644</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Cost of sales
</div></td>
<td> </td>
<td> </td>
<td align="right">38,956</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">37,803</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">117,148</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">113,795</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Operating expenses
</div></td>
<td> </td>
<td> </td>
<td align="right">10,727</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">9,780</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">32,923</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">30,190</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Operating income
</div></td>
<td> </td>
<td> </td>
<td align="right">5,194</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">5,722</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">14,539</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">16,659</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Interest expense
</div></td>
<td> </td>
<td> </td>
<td align="right">6,169</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">8,013</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">17,956</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">20,851</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Strategic alternative transaction costs
</div></td>
<td> </td>
<td> </td>
<td align="right">3,328</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">3,328</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Other income (expense)
</div></td>
<td> </td>
<td> </td>
<td align="right">26</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(65</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td> </td>
<td align="right">51</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(111</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Loss before income taxes
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(4,277</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(2,356</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(6,694</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(4,303</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Benefit for income taxes
</div></td>
<td> </td>
<td> </td>
<td align="right">1,672</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">689</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">2,240</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">1,596</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Net loss from discontinued operations
</div></td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(2,605</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(1,667</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(4,454</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(2,707</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
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<div align="left" style="font-size: 10pt; margin-top: 6pt">Effective on September 19, 2010, the Company ceased recording depreciation and amortization of
long-lived assets related to the discontinued operations. Included in discontinued operations is
interest expense related to the estimated debt that is required to be repaid from the net proceeds
of the sale of the business in accordance with the terms of our credit agreement. Interest has been
allocated to discontinued operations based on the ratio that the estimated debt to be repaid bears
to the total average debt outstanding during the period. Strategic alternative transaction costs
attributed in discontinued operations represent costs incurred in connection with the sale of the
Intel Business.
</div>
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Disclosure includes the facts and circumstances leading to the completed or expected disposal, manner and timing of disposal, the gain or loss recognized in the income statement and the income statement caption that includes that gain or loss, amounts of revenues and pretax profit or loss reported in discontinued operations, the segment in which the disposal group was reported, and the classification (whether sold or classified as held for sale) and carrying value of the assets and liabilities comprising the disposal group. Includes all disposal groups, including those classified as components of the entity (discontinued operations).
Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 144
-Paragraph 43-48
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