Poly-Scientific (a Unit of Northrop Grumman Corporation) (the "Company") is a manufacturer of motion control and data-transmission devices. The Company's principal products are electrical and fiber-optic slip rings, brushless direct current motors and electromechanical actuators. The Company's sales are primarily derived from the aerospace and defense markets as well as the medical equipment market. The Company employs approximately 1,000 people in three locations: Blacksburg, Virginia; Springfield, Pennsylvania; and Murphy, North Carolina. The Company was acquired in the early 1960s by Litton Industries, Inc.  Northrop Grumman Corporation (the "Parent") acquired the Company as a part of its acquisition of Litton Industries, Inc. in 2001.

The accompanying financial statements present, in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"), the assets, liabilities, revenues and expenses related to the historical operations of the Company on a carve-out basis. The Company is not a legal entity. The operations included in these financial statements are substantially those of Poly-Scientific, a Division of Northrop Grumman Corporation, and include the locations in Blacksburg, Virginia; Springfield, Pennsylvania; and Murphy, North Carolina. However, for purposes of these financial statements, the operations which will be retained by Northrop Grumman Corporation located in Charlotte, North Carolina, have been excluded because the assets and liabilities related to this operation are not included in the sale of the Company to Moog Inc. (see Note 12). Northrop Grumman Corporation's net investment in the Company ("Parent's Equity in Unit") is shown in lieu of stockholder's equity in the financial statements.

The statement of operations includes all revenues and costs directly attributable to the Company, including costs for certain functions and services performed by centralized Northrop Grumman Corporation organizations and directly charged or allocated to the Company. Specific identifiable costs and expenses incurred by the Parent on behalf of the Company are recognized in the accompanying financial statements within costs and expenses. Overhead costs and expenses incurred by the Parent that are not specifically identifiable to the Company are allocated by the Parent to the Company based on sales and have been recorded within the accompanying financial statements as overhead allocations from Parent.

All of the allocations and estimates in the financial statements are based on assumptions that management believes are reasonable under the circumstances. However, these allocations and estimates are not necessarily indicative of the costs and expenses that would have resulted if the Company had been operated as a separate entity.

A summary of the significant accounting policies used in the preparation of the accompanying financial statements are as follows:

New Accounting Standards-Effective July 1, 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 141, Business Combinations. SFAS No. 141 requires all business combinations entered into after June 30, 2001 to be accounted for under the purchase method and specifies the types of acquired intangible assets that are required to be recognized and reported separate from goodwill.

Effective January 1, 2002, the Company adopted the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 replaces SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and establishes a single accounting model for the impairment or disposal of long-lived assets, including discontinued operations. The adoption of SFAS No. 144 on January 1, 2002 did not have a material effect on the Company's financial position, results of operations or cash flows.

In November 2002, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. ("FIN") 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires that the guarantor recognize, at the inception of certain guarantees, a liability for the fair value of the obligation undertaken in issuing such guarantee. The initial recognition and measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Company adopted the disclosure provisions of FIN 45 during the fourth quarter of fiscal 2002, and such adoption did not have a material impact on its financial statements. The Company is currently evaluating the recognition provisions of FIN 45 but expects that they will not have a material adverse impact on its financial statements upon adoption.

Revenue Recognition-Revenues and related costs are recognized upon transfer of ownership, which generally coincides with the shipment of products to customers.

In the period in which it is determined that a loss will result from the performance of a contract, the entire amount of the estimated loss is charged against income.

Shipping and Handling Fees and Costs-The Company records amounts billed to customers for shipping and handling as product sales. The corresponding expense is recorded within cost of sales. Such shipping and handling fees for the year ended December 31, 2002 were $127.

Research and Development-The Company expenses research and development costs as incurred. Such expense for the year ended December 31, 2002 was $1,660, which is included within cost of sales.

Product Warranty Costs-The Company provides certain product warranties that require repair or replacement of non-conforming items for a specified period of time (generally one year). Provisions for estimated expenses related to warranties are based on historical trends in warranty claims and are recorded upon shipment of products to customers.

Environmental Costs-Environmental liabilities are accrued on an undiscounted basis when the Company determines it is responsible for remediation costs and such amounts are reasonably estimable.

Income Taxes-Historically, the results of the Company's operations have been included in the consolidated U.S. federal income tax return of the Parent. The income tax expense and other tax-related information in these statements is presented as if the Company had not been eligible to be included in the consolidated tax returns of the Parent and filed tax returns on a stand-alone basis. The recognition and measurement of income tax expense and deferred income taxes required certain assumptions, allocations and significant estimates which management believes are reasonable to measure the tax consequences as if the Company was a stand-alone taxpayer.

Provisions for federal, state and local income taxes are calculated on reported financial statement pretax income based on current tax law and also include the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Such provisions differ from the amounts currently payable because certain items of income and expense are recognized in different time periods for financial reporting purposes than for income tax purposes.

For purposes of these financial statements, the current income tax provision has been recorded within income tax expense and current income tax liabilities are assumed to be immediately settled by the Parent and are relieved through Parent's Equity in Unit.

Inventories-Work in process inventory represents accumulated costs under fixed-price-type contracts or purchase orders less the portion of such costs allocated to delivered items. Accumulated contract costs include direct production costs and factory and engineering overhead. Raw material inventory is stated at the lower of cost or market. Cost is determined using the first-in, first-out method.

Depreciable Properties-Property, plant and equipment owned by the Company are carried at cost, net of accumulated depreciation, and are depreciated over the estimated useful lives of individual assets. These assets are generally depreciated using the straight-line method, with the following lives:

Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Assets are determined impaired when the estimated future undiscounted cash flows expected to result from the use of the assets are less than the carrying value of the assets. The Company measures an impairment loss as the difference between the carrying value of the asset and its fair value.

Fair Value of Financial Instruments-The carrying amounts of the Company's accounts receivable and accounts payable approximate fair value because of their short-term nature.

In connection with the transition provisions for adopting SFAS No. 142 a transitional impairment test was performed and an impairment charge of $83,930 was recorded on January 1, 2002. No tax effect was recognized for this impairment charge of $83,930, as the related goodwill is not deductible for income tax purposes. There were no other impairments during 2002. Through December 31, 2001, goodwill was amortized on a straight-line basis over 15 years. Amortization expense for the year ended December 31, 2001 amounted to approximately $6,298.

Finite-lived intangible assets are amortized over the following useful lives:

401(k) Plan-The Company participates in a defined contribution plan of the Parent in which most employees are eligible to participate. The plan provides for matching contributions that totaled $865 for the year ended December 31, 2002, which was recorded within costs and expenses in the statement of operations.

Stock Compensation Plans-Certain key employees of the Company participate in stock compensation plans of the Parent. The Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for awards made under the plans. Total compensation expense related to the Company's employees who participate in the plans was $182 for the year ended December 31, 2002 and was recorded as an expense within costs and expenses in the statement of operations. Had compensation expense been determined based on fair value, consistent with SFAS No. 123, Accounting for Stock-Based Compensation, net income would have decreased by $103.

Debt and Interest-The Parent has not allocated any portion of its debt or related interest cost to the Company, and no portion of the Parent's debt is specifically related to the operations of the Company. Accordingly, the Company's financial statements include no charges for interest or capitalized interest.

Concentration of Credit Risk-In conducting its business, the Company performs ongoing evaluations of its customers' financial condition. The Company requires those customers with a poor credit history to prepay their orders. The Company does not believe that significant risk of loss from a concentration of credit risk exists given the large number of customers that compose its customer base and their geographical dispersion.

Use of Estimates-The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes the estimates and assumptions used in the preparation of these financial statements were appropriate in the circumstances, actual results could differ from those estimates and assumptions.

Accounts receivable consist of the following at December 31, 2002: