<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUATERLY PERIOD ENDED MARCH 31, 1999
Commission file numbers 001-14141 and 333-46983
L-3 COMMUNICATIONS HOLDINGS, INC.
AND
L-3 COMMUNICATIONS CORPORATION
600 THIRD AVENUE
NEW YORK, NY 10016
TELEPHONE: (212) 697-1111
STATE OF INCORPORATION: DELAWARE
IRS IDENTIFICATION NUMBERS: 13-3937434 AND 13-3937436
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the proceeding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X Yes No
---- ----
There were 32,483,867 shares of L-3 Communications Holdings, Inc. common
stock with a par value of $0.01 outstanding as of the close of business on May
11, 1999.
- --------------------------------------------------------------------------------
<PAGE>
L-3 COMMUNICATIONS HOLDINGS, INC. AND
L-3 COMMUNICATIONS CORPORATION
FORM 10-Q QUARTERLY REPORT FOR
QUARTER ENDED MARCH 31, 1999
PART I -- FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
PAGE NO.
---------
<S> <C> <C>
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998 ..................................................... 1
Condensed Consolidated Statements of Operations for the Three Months
ended March 31, 1999 and March 31, 1998 ............................... 2
Condensed Consolidated Statements of Cash Flows for the Three Months
ended March 31, 1999 and March 31, 1998 ............................... 3
Notes to Condensed Consolidated Financial Statements ................... 4
ITEM 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition ................................................... 10
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk ............. 16
PART II -- OTHER INFORMATION:
ITEM 6. Exhibits and Reports on Form 8-K ....................................... 17
</TABLE>
<PAGE>
L-3 COMMUNICATIONS HOLDINGS , INC.
AND L-3 COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
-------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................................... $ 125,531 $ 26,130
Contracts in process .............................................. 399,132 351,049
Deferred income taxes ............................................. 17,881 16,591
Other current assets .............................................. 12,443 11,597
---------- ----------
Total current assets ............................................ 554,987 405,367
---------- ----------
Property, plant and equipment ...................................... 164,646 155,712
Less, accumulated depreciation and amortization ................... 38,624 32,557
---------- ----------
126,022 123,155
---------- ----------
Intangibles, primarily cost in excess of net assets acquired, net of
amortization ...................................................... 730,464 669,362
Deferred income taxes .............................................. 48,188 39,139
Other assets ....................................................... 48,207 48,373
---------- ----------
Total assets .................................................... $1,507,868 $1,285,396
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade ........................................... $ 67,732 $ 81,826
Accrued employment costs .......................................... 61,500 58,380
Accrued expenses .................................................. 20,362 18,241
Customer advances ................................................. 54,155 45,874
Accrued interest .................................................. 18,883 6,698
Other current liabilities ......................................... 38,683 36,515
---------- ----------
Total current liabilities ....................................... 261,315 247,534
---------- ----------
Pension and postretirement benefits ................................ 113,747 114,293
Other liabilities .................................................. 19,341 18,595
Long-term debt ..................................................... 605,000 605,000
Commitments and contingencies
Shareholders' equity:
Common stock $.01 par value; authorized 100,000,000 shares, issued
and outstanding 32,468,043 and 27,402,429 shares ................ 469,219 264,769
Retained earnings ................................................. 52,055 44,856
Equity adjustments ................................................ (12,809) (9,651)
---------- ----------
Total shareholders' equity ........................................ 508,465 299,974
---------- ----------
Total liabilities and shareholders' equity ...................... $1,507,868 $1,285,396
========== ==========
</TABLE>
See notes to condensed consolidated (combined) financial statements.
1
<PAGE>
L-3 COMMUNICATIONS HOLDINGS , INC.
AND L-3 COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Sales ..................................... $ 275,562 $ 186,564
Costs and expenses ........................ 249,395 172,471
--------- ---------
Operating income .......................... 26,167 14,093
Interest and investment income ............ 1,014 796
Interest expense .......................... 15,475 10,605
--------- ---------
Income before income taxes ................ 11,706 4,284
Provision for income taxes ................ 4,507 1,671
--------- ---------
Net income ................................ $ 7,199 $ 2,613
========= =========
Earnings per common share: ................
Basic .................................... $ 0.24 $ 0.13
========= =========
Diluted .................................. $ 0.23 $ 0.13
========= =========
Weighted average common shares outstanding:
Basic .................................... 30,491 20,152
========= =========
Diluted .................................. 31,884 20,804
========= =========
</TABLE>
See notes to condensed consolidated (combined) financial statements.
2
<PAGE>
L-3 COMMUNICATIONS HOLDINGS , INC.
AND L-3 COMMUNICATIONS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------
MARCH 31, 1999 MARCH 31, 1998
---------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ...................................................... $ 7,199 $ 2,613
Depreciation and amortization ................................... 12,774 7,490
Amortization of deferred debt issuance costs..................... 978 502
Deferred income taxes ........................................... 3,155 1,671
Other noncash items ............................................. 2,175 --
Changes in operating assets and liabilities, net of amounts
acquired:
Contracts in process ........................................... (23,677) (19,790)
Other current assets ........................................... 2,081 (752)
Other assets ................................................... (1,417) (72)
Accounts payable and accrued expenses .......................... (10,787) 15,020
Customer advances .............................................. 8,112 (229)
Other current liabilities ...................................... (822) 514
Pension and postretirement benefits ............................ (546) 2,956
Other liabilities .............................................. (742) 1,159
--------- ----------
Net cash (used in) from operating activities .................... (1,517) 11,082
--------- ----------
INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired ................. (96,312) (151,428)
Proceeds from net assets held for sale .......................... -- 4,785
Capital expenditures ............................................ (4,545) (2,273)
Disposition of property, plant and equipment .................... 269 220
Other investing activities ...................................... 1,189 --
--------- ----------
Net cash (used in) investing activities ......................... (99,399) (148,696)
--------- ----------
FINANCING ACTIVITIES:
Repayment of borrowings under term loan facilities .............. -- (1,000)
Borrowings under revolving credit facility ...................... 74,700 67,800
Repayment of borrowings under revolving credit facility ......... (74,700) --
Proceeds from sale of common stock, net ......................... 201,582 --
Other financing activities ...................................... (1,265) 2,398
--------- ----------
Net cash from financing activities .............................. 200,317 69,198
--------- ----------
Net increase (decrease) in cash ................................. 99,401 (68,416)
Cash and cash equivalents, beginning of the period .............. 26,130 77,474
--------- ----------
Cash and cash equivalents, end of the period .................... $ 125,531 $ 9,058
========= ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
L-3 COMMUNICATIONS HOLDINGS, INC. AND
L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
L-3 Communications Holdings, Inc. and its subsidiaries ("Holdings" or the
"Company") is a leading merchant supplier of sophisticated secure communication
systems and specialized communication products, which are critical elements of
virtually all major communication, command and control, intelligence gathering
and space systems. The Company's customers include the U.S. department of
defense (the "DoD"), certain U.S. government intelligence agencies, major
aerospace and defense contractors, foreign governments and commercial customers.
The Company has two reportable segments, Secure Communication Systems and
Specialized Communication Products.
Secure Communication Systems. This segment provides secure, high data rate
communications systems for military and other U.S. government reconnaissance and
surveillance applications. These operations are principally performed under cost
plus, sole source contracts supporting long-term programs for the U.S. armed
forces and classified customers. Major secure communications programs and
systems include: secure data links for airborne, satellite, ground and seabased
remote platforms for information collection, command and control and
dissemination to users in real-time; strategic and tactical signal intelligence
systems that detect, collect, identify, analyze and disseminate information and
related support contracts for military and intelligence efforts; secure
telephone, fax and network equipment and encryption management; communication
software support services to military and related government intelligence
markets; and communications systems for surface and undersea platforms and
manned space flights.
Specialized Communication Products. This segment includes three product
categories: microwave components, avionics and ocean products, and telemetry,
instrumentation and space products. Microwave Components includes commercial off
the shelf, high performance microwave components and frequency monitoring
equipment. Avionics and Ocean Products include aviation recorders, display
products, antenna products, acoustic undersea warfare systems and naval power
distribution, conditioning, switching and protection equipment for naval ships
and submarines. Telemetry, Instrumentation and Space Products include commercial
off the shelf real-time data collection and transmission products and components
for missile, aircraft and space based electronic systems. The Specialized
Communication Products segment provides products, systems and services used in
the satellite transmission of voice, video and data through earth stations for
uplink and downlink terminals. This segment also provides commercial off the
shelf satellite control software, telemetry, tracking and control, mission
processors and software engineering services to the worldwide military, civilian
and commercial satellite markets.
The accompanying unaudited condensed consolidated financial statements also
include those of L-3 Communications Corporation ("L-3 Communications"), which is
a wholly owned subsidiary of Holdings. Holdings owns all of the authorized,
issued and outstanding common stock, par value $0.01 per share, of L-3
Communications. Holdings has no operations other than through its subsidiary,
L-3 Communications.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X of the Securities and Exchange Commission ("SEC");
accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for a complete set of financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation of the results
for the interim periods presented have been included. The results of operations
for the interim periods are not necessarily indicative of results for the full
year. For further information, these interim
4
<PAGE>
L-3 COMMUNICATIONS HOLDINGS, INC. AND
L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
financial statements should be read in conjunction with the Consolidated
Financial Statements of Holdings and L-3 Communications for the fiscal year
ended December 31, 1998, included in the Annual Report on Form 10-K for fiscal
year ended December 31, 1998 of Holdings and L-3 Communications.
2. COMMON STOCK OFFERING
On February 4, 1999, Holdings sold 5.0 million shares of common stock in a
public offering for $42.00 per share (the "February 1999 Common Stock Offering")
representing 15.4% of Holdings outstanding common stock immediately after the
February 1999 Common Stock Offering. The net proceeds to Holdings from the
February 1999 Common Stock Offering amounted to $201.5 million and were
contributed to L-3 Communications. In addition, 6.5 million shares were sold in
the February 1999 Common Stock Offering by the Lehman Brothers Capital Partners
III, LLP and its affiliates ("the Lehman Partnership") and Lockheed Martin
Corporation ("Lockheed Martin"), after which the Lehman Partnership owned 24.7%
and Lockheed Martin owned 7.1% of the outstanding shares of Holding's common
stock.
3. ACQUISITIONS
On August 13, 1998, the Company purchased all of the outstanding stock of
SPD Technologies, Inc. ("SPD") for $241,405 of cash including expenses, net of
cash acquired. On February 5, 1998, March 4, 1998 and March 30, 1998 the Company
purchased the assets of the Satellite Transmission Systems division ("STS") of
California Microwave, Inc. and ILEX Systems ("ILEX"), Ocean Systems business
("Ocean Systems") of AlliedSignal, Inc. for cash of $26,517, $51,905 and
$68,812, respectively. SPD, STS, ILEX and Ocean Systems, collectively comprise
the "1998 Acquisitions". All of the acquisitions have been accounted for as
purchase business combinations and are included in the Company's results of
operations from their effective dates.
Had the 1998 Acquisitions and the related financing transactions occurred
on January 1, 1998, the unaudited pro forma sales, operating income, net income
and diluted earnings per common share would have been $257,900, $16,500, $700
and $0.02, respectively, for the three months ended March 31, 1998. The pro
forma results are based on various assumptions and are not necessarily
indicative of the result of operations that would have occurred had the 1998
Acquisitions and the related financing transactions occurred on January 1, 1998.
The 1998 Acquisitions are included in the Company's historical results of
operations for the three months ended March 31, 1999.
During the first quarter of 1999, the Company acquired all of the
outstanding common stock of Microdyne Corporation ("Microdyne") for
approximately $93,441 of cash, including the repayment of assumed debt and
expenses, net of cash acquired. The acquisition was accounted for as a
purchase business combination.
The assets and liabilities recorded in connection with the acquisitions of
SPD and Microdyne are based upon preliminary estimates of fair values for the
valuation of contracts in process, inventories, pension and post retirement
benefit liabilities and deferred taxes could be material. Actual adjustments
will be based on the final purchase prices and the final appraisals and other
analyses of fair values which are in process. Management does not expect that
differences between the preliminary and final purchase price allocations will
have a material impact on the Company's financial position or results of
operations.
On March 1, 1999, the Company signed an agreement to acquire all of the
outstanding common stock of Aydin Corporation for approximately $73,800 in cash
before reductions for Aydin's cash on hand which amounted to approximately
$15,144 at the end of March 1999. The Company completed the acquisition and
merger of Aydin in April 1999.
5
<PAGE>
L-3 COMMUNICATIONS HOLDINGS, INC. AND
L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
On April 9, 1999, the Company signed an agreement to acquire all the
outstanding common stock of Interstate Electronics Corporation for approximately
$60,000 in cash including certain real estate with an estimated fair value in
excess of $10,000. The Company expects to complete this acquisition in the
second quarter of 1999.
4. CONTRACTS IN PROCESS
Contracts in process consists of:
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
---------------- ------------------
<S> <C> <C>
Billed contract receivables ........................ $ 92,278 $ 100,234
Unbilled contract receivables ...................... 115,659 69,361
Other billed receivables, principally commercial and
affiliates ....................................... 90,252 81,372
Inventoried costs .................................. 153,683 130,350
--------- ---------
451,872 381,317
Less, unliquidated progress payments ............... (52,740) (30,268)
--------- ---------
Contracts in process ............................. $ 399,132 $ 351,049
========== ==========
</TABLE>
5. DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
---------------- ------------------
<S> <C> <C>
103/8% Senior Subordinated Notes due 2007 .......... $225,000 $225,000
81/2% Senior Subordinated Notes due 2008 ........... 180,000 180,000
8% Senior Subordinated Notes due 2008 .............. 200,000 200,000
-------- --------
Total debt ........................................ 605,000 605,000
Less current portion ............................... -- --
-------- --------
Long-term debt .................................... $605,000 $605,000
======== ========
</TABLE>
Available borrowings under the Revolving Credit Facility and the Revolving
364 Day Credit Facility at March 31, 1999 were $100,059 and $200,000,
respectively, after reductions for outstanding letters of credit of $99,941. In
March 1999, an amendment to the Senior Credit Facilities increased the Revolving
364-Day Credit Facility by $15,000 to $200,000.
In February 1999, the Company exchanged all of the $200,000 of 8% senior
subordinated notes (the "December 1998 Notes") for new notes identical in all
material respects to the December 1998 Notes, except that they are registered
under the Securities Exchange Act of 1933.
6
<PAGE>
L-3 COMMUNICATIONS HOLDINGS, INC. AND
L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
6. L-3 COMMUNICATIONS SHAREHOLDERS' EQUITY
The table below presents the components of the shareholders' equity of L-3
Communications.
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
---------------- ------------------
<S> <C> <C>
Common stock, $0.1 par value; 100 shares authorized
and outstanding ................................. $ -- $ --
Additional paid in capital ........................ 469,219 264,769
Retained earnings ................................. 52,055 44,856
Accumulated other comprehensive loss .............. (12,809) (9,651)
--------- --------
Total shareholders' equity ....................... $ 508,465 $299,974
========= ========
</TABLE>
The increase in additional paid-in capital at March 31, 1999 reflects the
contribution to L-3 Communications by Holdings of the $201,500 of net proceeds
from its sale on February 4, 1999 of 5.0 million shares of common stock in an
offering for $42.00 per share.
7. STOCK OPTIONS
On January 19, 1999, Holdings granted to certain of its employees options
to purchase 414,150 shares of its common stock at an exercise price of $40.50.
8. COMPREHENSIVE INCOME
For the three months ended March 31, 1999, comprehensive income was $4,041
and was comprised of net income of $7,199 and other comprehensive losses of
$1,086 and $2,072, respectively, relating to foreign currency translations and
unrealized losses on investments. For the three months ended March 31, 1998,
there were no differences between net income and comprehensive income.
9. EARNINGS PER SHARE
Weighted-average shares used in the computation of earnings per share are
presented in the table below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
BASIC:
Net income ............................................ $ 7,199 $ 2,613
Weighted average common share outstanding ............. 30,491 20,152
-------- --------
Basic earnings per share ............................... $ 0.24 $ 0.13
======== ========
DILUTED:
Net income ........................................... $ 7,199 $ 2,613
-------- --------
Common and potential common shares:
Weighted average common share outstanding .............. 30,491 20,152
Assumed exercise of stock options ...................... 3,197 2,819
Assumed purchase of common shares for treasury ......... (1,804) (2,167)
-------- --------
Common and potential common shares ................... 31,884 20,804
======== ========
Diluted earnings per share ............................. $ 0.23 $ 0.13
======== ========
</TABLE>
7
<PAGE>
L-3 COMMUNICATIONS HOLDINGS, INC. AND
L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
10. CONTINGENCIES
The Company is engaged in providing products and services under contracts
with the U.S. government and to a lesser degree, under foreign government
contracts, some of which are funded by the U.S. government. All such contracts
are subject to extensive legal and regulatory requirements, and, from time to
time, agencies of the U.S. government investigate whether such contracts were
and are being conducted in accordance with these requirements. Under government
procurement regulations, an indictment of the Company by a federal grand jury
could result in the Company being suspended for a period of time from
eligibility for awards of new government contracts. A conviction could result in
debarment from contracting with the federal government for a specified term.
Management continually assesses the Company's obligations with respect to
applicable environmental protection laws. While it is difficult to determine the
timing and ultimate cost to be incurred by the Company in order to comply with
these laws, based upon available internal and external assessments, with respect
to those environmental loss contingencies of which management is aware, the
Company believes that even without considering potential insurance recoveries,
if any, there are no environmental loss contingencies that, individually or in
the aggregate, would be material to the Company's results of operations. The
Company accrues for these contingencies when it is probable that a liability has
been incurred and the amount of the loss can be reasonably estimated.
The Company has been periodically subject to litigation, claims or
assessments and various contingent liabilities incidental to its business. With
respect to those investigative actions, items of litigation, claims or
assessments of which they are aware, management of the Company is of the opinion
that the probability is remote that, after taking into account certain
provisions that have been made with respect to these matters, the ultimate
resolution of any such investigative actions, items of litigation, claims or
assessments will have a material adverse effect on the financial position or
results of operations of the Company.
11. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH
31,
---------------------
1999 1998
--------- ---------
<S> <C> <C>
Interest paid ................................. $2,328 $3,495
Income taxes paid ............................. 322 18
Noncash transactions:
Savings plan employer matching contribution in
common stock ............................... 2,175 --
</TABLE>
12. SEGMENT INFORMATION
The Company has two reportable segments, Secure Communication Systems and
Specialized Communication Products. Secure Communication Systems consists of
secure, high data rate communications in support of military and other U.S.
government reconnaissance and surveillance applications. Specialized
Communication Products consists of the microwave components, avionics and ocean
products, and telemetry, instrumentation and space products operations of the
Company. See Note 1.
The Company evaluates the performance of its operating divisions and
reportable segments based on sales and operating income. The table below
presents sales and operating income by reportable segment for the three-month
periods ended March 31, 1999 and 1998 and assets by reportable segment as of
March 31, 1999 and December 31, 1998.
8
<PAGE>
L-3 COMMUNICATIONS HOLDINGS, INC. AND
L-3 COMMUNICATIONS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SECURE SPECIALIZED ELIMINATION OF
COMMUNICATION COMMUNICATION INTERSEGMENT CONSOLIDATED
SYSTEMS PRODUCTS CORPORATE SALES TOTAL
--------------- --------------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Three Months Ended
March 31, 1999:
Sales ..................... $117,514 $158,607 $ (559) $ 275,562
Operating income .......... 10,446 15,721 26,167
Three Months Ended
March 31, 1998:
Sales ..................... 104,053 84,481 (1,970) 186,564
Operating income .......... 8,142 5,951 14,093
Assets as of:
March 31, 1999 ............ 427,807 861,773 $218,288 1,507,868
December 31, 1998 ......... 368,891 797,469 119,036 1,285,396
</TABLE>
13. NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1999, the Company adopted Statement of Position 98-5,
Reporting on the Costs of Startup Activities ("SOP 98-5"), which provides
guidance on the financial reporting of startup and organization costs, including
precontract costs. It requires costs of startup activities and organization
costs to be expensed as incurred. The impact of adopting SOP 98-5 was not
material to the Company's results of operations or financial position.
In September 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"), which establishes accounting
and reporting standards for derivative instruments including certain derivative
instruments embedded in other contracts and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value and
is effective for all quarters of fiscal years beginning after June 15, 1999. The
Company does not expect SFAS 133 to have a material impact on its financial
position.
9
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
L-3 Communications Holdings, Inc. and its subsidiaries ("Holdings, "L-3" or
"the Company") is a leading merchant supplier of sophisticated secure
communication systems and specialized communication products. These systems and
products are critical elements of virtually all major communication, command and
control, intelligence gathering and space systems. Holdings has no other assets
or liabilities and conducts no other operations other than through its wholly
owned subsidiary, L-3 Communications Corporation ("L-3 Communications"). The
Company's customers include the DoD, certain U.S. government intelligence
agencies, major aerospace and defense contractors, foreign governments and
commercial customers. The Company has two reportable segments, Secure
Communication Systems and Specialized Communication Products.
The Secure Communication Systems segment provides secure, high data rate
communications systems for military and other U.S. government reconnaissance and
surveillance applications. These operations are principally performed under cost
plus, sole source contracts supporting long term programs for the U.S. armed
forces and classified customers. The Secure Communication Systems segment also
supplies communication software support services to military and related
government intelligence markets. The Specialized Communication Products segment
includes three product categories: microwave components, avionics and ocean
products, and telemetry, instrumentation and space products.
All domestic government contracts and subcontracts of the Company are
subject to audit and various cost controls, and include standard provisions for
termination for the convenience of the U.S. government. Multiyear U.S.
government contracts and related orders are subject to cancellation if funds for
contract performance for any subsequent year become unavailable. Foreign
government contracts generally include comparable provisions relating to
termination for the convenience of the relevant foreign government.
The defense industry has undergone significant changes precipitated by
ongoing U.S. federal budget pressures and new roles and missions to reflect
changing strategic and tactical threats. Since the mid-1980's, the overall U.S.
defense budget has declined in real dollars. In response, the DoD has focused
its resources on enhancing its military readiness, joint operations and the
value added capability of digital command and control communications by
incorporating advanced electronics to improve the performance, reduce operating
costs and extend the life expectancy of its existing and future platforms. The
emphasis on system interoperability, force multipliers and providing battlefield
commanders with real time data is increasing the electronics content of nearly
all of the major military procurement and research programs. As a result, the
DoD's budget for communications and defense electronics is expected to grow.
ACQUISITION HISTORY
On August 13, 1998, the Company purchased all of the outstanding stock of
SPD Technologies, Inc. ("SPD"). On March 30, 1998, March 4, 1998 and February
5, 1998, respectively, the Company acquired the assets of the Ocean Systems
business ("Ocean Systems") of AlliedSignal, Inc., ILEX Systems ("ILEX") and
Satellite Transmission Systems ("STS") of California Microwave, Inc.
Collectively, the acquisitions of SPD, Ocean Systems, ILEX and STS comprise the
"1998 Acquisitions". Additionally, during 1998, the Company purchased several
other operations and product lines, which individually and in the aggregate
were not material to the results of operations or financial position of the
Company.
During the first quarter of 1999, the Company acquired all of the
outstanding common stock of Microdyne Corporation ("Microdyne") for $93.4
million in cash, including expenses and the repayment of assumed debt net of
cash acquired. The Company financed the acquisition using cash on hand and
borrowings under the Company's Senior Credit Facilities, which were
subsequently repaid during the first quarter of 1999.
10
<PAGE>
On March 1, 1999, the Company signed an agreement to acquire all of the
outstanding common stock of Aydin Corporation ("Aydin") for approximately $73.8
million in cash before taking into account Aydin's cash on hand which amounted
to approximately $15.1 million at the end of March 1999. The Company completed
this acquisition in April 1999 and financed it using cash on hand.
On April 19, 1999, the Company signed an agreement to acquire all of the
outstanding common stock of Interstate Electronics Corporation for
approximately $60.0 million in cash including certain real estate with an
estimated fair value in excess of $10.0 million. The Company expects to
complete this acquisition in the second quarter of 1999.
RESULTS OF OPERATIONS
The following information should be read in conjunction with the Condensed
Consolidated Financial Statements as of March 31, 1999, which reflect the
results of operations of the Company's acquisitions from their respective
effective dates. Accordingly, the results of operations for the three months
ended March 31, 1999 and 1998 are significantly affected by the timing of those
acquisitions. The table below provides selected statement of operations data for
the Company for the three-month period ended March 31, 1999 (the "1999 First
Quarter") and the three-month period ended March 31, 1998 (the "1998 First
Quarter").
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
-------------------------
1999 1998
----------- -----------
(in millions)
<S> <C> <C>
Sales(1):
Secure Communication Systems ...................................... $ 117.5 $ 104.1
Specialized Communication Products ................................ 158.1 82.5
-------- --------
Total ........................................................... $ 275.6 $ 186.6
======== ========
Operating income:
Secure Communication Systems ...................................... $ 10.5 $ 8.1
Specialized Communication Products ................................ 15.7 6.0
-------- --------
Total ........................................................... $ 26.2 $ 14.1
======== ========
Depreciation and amortization expenses included in operating income:
Secure Communication Systems ...................................... $ 4.8 $ 4.2
Specialized Communication Products ................................ 7.8 3.3
-------- --------
Total ........................................................... $ 12.6 $ 7.5
======== ========
EBITDA(2)
Secure Communication Systems ...................................... $ 15.3 $ 12.3
Specialized Communication Products ................................ 23.5 9.3
-------- --------
Total ........................................................... $ 38.8 $ 21.6
======== ========
</TABLE>
- ----------
(1) Sales are after intersegment eliminations. See Note 12 to the Condensed
Consolidated Financial Statements.
(2) EBITDA is defined as operating income plus depreciation expense and
amortization expense (excluding the amortization of debt issuance costs).
EBITDA is not a substitute for operating income, net income or cash flows
from operating activities as determined in accordance with generally
accepted accounting principles as a measure of profitability or liquidity.
EBITDA is presented as additional information because the Company believes
it to be a useful indicator of the Company's ability to meet debt service
and capital expenditure requirements.
11
<PAGE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1998
Sales increased $89.0 million to $275.6 million in 1999 First Quarter
compared with $186.6 million in the 1998 First Quarter comprised of sales
growth of $13.4 million for the Secure Communications Systems segment, and
$75.6 million for the Specialized Communications Products segment. Operating
income increased $12.1 million to $26.2 million, and operating income as a
percentage of sales ("operating margin") improved to 9.5% from 7.6% for the
reasons described below under the reportable segments discussion. 1999 First
Quarter depreciation and amortization expenses increased $5.1 million to $12.6
million, reflecting increased goodwill amortization associated with
acquisitions and additional depreciation related to capital expenditures.
EBITDA increased $17.2 million to $38.8 million. EBITDA as a percentage of
sales ("EBITDA margin") improved to 14.1% from 11.6%. Basic earnings per common
share ("EPS") and diluted EPS grew 84.6% to $0.24 and 76.9% to $0.23,
respectively. Basic weighted-average common shares outstanding and diluted
weighted-average common shares outstanding increased 51.3% and 53.3%,
respectively, because of the shares of common stock issued in connection with
the IPO in May 1998 and the February 1999 Common Stock Offering.
Sales of Secure Communication Systems segment increased $13.4 million or
12.9% to $117.5 million in 1999 First Quarter compared with the 1998 First
Quarter. Operating income increased $2.4 million to $10.5 million. Operating
margin improved to 8.9% from 7.8%. The increase in sales was primarily
attributable to the ILEX and Microdyne acquisitions and increased sales on the
U-2 Support Program, certain UAV programs and secure telephone equipment (STE),
partially offset by decreased production and shipments of the CHBDL and Raptor
high data rate communications systems. The increase in operating income was
principally attributable to (i) the sales growth during the 1999 first quarter
and (ii) improved margins on space communication systems, military communication
systems and space control systems arising from cost reductions and improved
operating efficiencies. EBITDA increased $2.9 million to $15.2 million in 1999
First Quarter and EBITDA margin improved to 12.9% from 11.8%. The increases in
EBITDA and EBITDA margin were primarily attributable to the items affecting the
trends in operating income.
Sales of the Specialized Communication Products segment increased $75.6
million or 91.6% to $158.1 million in 1999 First Quarter compared with the 1998
First Quarter. Operating income increased $9.7 million to $15.7 million and
operating margin improved to 9.9% from 7.3%. The increase in sales was
principally attributable to the SPD and Ocean Systems acquisitions and volume
increases on commercial aviation recorders and satellite control products
partially offset by lower sales volume on microwave components and decreased
shipments of antenna products. The increase in operating margin was principally
attributable to improved margins on aviation recorders because of volume
increases and higher margins from the SPD acquired business which was not
included in the results of operations for the 1998 First Quarter, partially
offset by lower margins on microwave components and antenna products
attributable to declines in sales. EBITDA increased $14.3 million to $23.6
million and EBITDA margin improved to 14.9% from 11.3%. The increases in EBITDA
and EBITDA margin were primarily attributable to the items affecting the trends
in operating income.
Interest expense, net of interest and investment income, increased $4.7
million to $14.5 million in the 1999 First Quarter because of higher average
outstanding debt during the 1999 First Quarter compared with the 1998 First
Quarter principally because of the $380.0 million of senior subordinated notes
sold by the Company in May 1998 and December 1998. The income tax provision for
the 1999 First Quarter reflects the Company's estimated effective income tax
rate for the year ending December 31, 1999 of 38.5%, compared with the effective
tax rate of 39.0% for the 1998 First Quarter.
LIQUIDITY AND CAPITAL RESOURCES
BALANCE SHEET
Contracts in process increased $48.1 million in the 1999 First Quarter, of
which $27.3 million was related to businesses acquired during the 1999 First
Quarter and $20.8 million was principally from (i) increases in unbilled
receivables arising from an increase in programs entering the production phase
wherein unbilled costs and profits generally exceed progress payments received
from the customers until contract shipments are completed, (ii) increases in
inventory because of production on certain programs and products in advance of
sales
12
<PAGE>
expected to occur later in 1999, and (iii) delays in the collection of billed
receivables from certain prime contractors. The increase in intangibles was
related to acquired businesses net of amortization expense. The decrease in
accounts payable was principally related to the timings of deliveries from and
payments to vendors.
Working capital, adjusted to exclude cash and the current portion of long
term debt, increased $36.4 million to $168.1 million at March 31, 1999 from
$131.7 million at December 31, 1998, of which $23.2 million was attributable to
the working capital of the acquired businesses.
STATEMENT OF CASH FLOWS
The following table provides cash flow statement data for the Company for
1999 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
------------------------
1999 1998
---------- -----------
(in millions)
<S> <C> <C>
Net cash (used in) from operating activities ......... $ (1.5) $ 11.1
Net cash (used in) investing activities .............. (99.4) (148.7)
Net cash from financing activities ................... 200.3 69.2
</TABLE>
OPERATING ACTIVITIES
During the 1999 First Quarter, L-3 used $1.5 million of cash in its
operating activities, a decrease of $12.6 million compared with the 1998 First
Quarter, principally as a result of investments of $25.1 million in working
capital. See discussion under "Balance Sheet" above. The Company expects its
rate of investment in working capital to decline during the remainder of 1999.
INVESTING ACTIVITIES
Since L-3's formation in April 1997, the Company has actively pursued its
acquisition strategy. In 1999 First Quarter, the Company purchased additional
businesses for an aggregate cash purchase price including expenses and the
repayment of assumed debt net of cash acquired of $96.3 million.
The Company makes capital expenditures for improvement of manufacturing
facilities and equipment. The Company expects that its capital expenditures for
1999 will be approximately $37.0 million.
FINANCING ACTIVITIES
On February 4, 1999, Holdings sold 5.0 million shares of common stock in an
offering for $42.00 per share (the "February 1999 Common Stock Offering")
representing 15.4% of Holdings' common stock immediately after the offering. In
addition, 6.5 million shares were sold by the Lehman Brothers Capital Partners
III, LLP and its affiliates ("the Lehman Partnership") and Lockheed Martin
Corporation ("Lockheed Martin") in the February 1999 Common Stock Offering,
after which the Lehman Partnership owned 24.7% and Lockheed Martin owned 7.1% of
the outstanding shares of Holding's common stock. The net proceeds to Holdings
from the February 1999 Common Stock Offering amounted to $201.5 million and were
contributed to the Company. The net proceeds were partially used to repay
borrowings made in January 1999 under the Senior Credit Facilities to finance
the acquisition of Microdyne in 1999 First Quarter 1999 and the acquisition of
Aydin in April 1999.
On March 3, 1999, the Senior Credit Facilities were amended to increase the
Company's revolving credit facilities thereunder by $15.0 million to $400.0
million. At March 31, 1999, available borrowings under the revolving credit
facilities were $300.1 million after reductions for outstanding letters of
credit of $99.9 million. Included within the Company's revolving credit
facilities is the 364 Day Revolving Credit Facility which expires on August 12,
1999. As provided for in the Senior Credit Facilities, the Company intends to
request that the creditors renew the 364 Day Revolving Credit Facility for one
additional 364-day period.
The Senior Credit Facilities and the Senior Subordinated Notes contain
financial covenants which remain in effect so long as any amount is owed or any
commitment to lend exists thereunder by
13
<PAGE>
L-3 Communications. As of March 31, 1999, L-3 Communications had been in
compliance with these covenants at all times. The borrowings under the Senior
Credit Facilities are guaranteed by Holdings and by substantially all of the
Company's subsidiaries. The payments of principal and premium, if any, and
interest on the Senior Subordinated Notes are unconditionally guaranteed, on an
unsecured senior subordinated basis, jointly and severally, by substantially
all of the subsidiaries of L-3 Communications, all of which guarantor
subsidiaries are wholly owned.
Based upon the current level of operations, management believes that the
Company's cash from operating activities, together with available borrowings
under the Senior Credit Facilities, will be adequate to meet its anticipated
requirements for working capital, capital expenditures, research and development
expenditures, program and other discretionary investments, and interest payments
for the foreseeable future including at least the next three years. There can be
no assurance, however, that the Company's business will continue to generate
cash flow at or above current levels or that currently anticipated improvements
will be achieved. If the Company is unable to generate sufficient cash flow from
operations in the future to service its debt, it may be required to sell assets,
reduce capital expenditures, refinance all or a portion of its existing debt or
obtain additional financing. The Company's ability to make scheduled principal
payments, to pay interest on or to refinance its indebtedness depends on its
future performance and financial results, which, to a certain extent, are
subject to general conditions in or affecting the defense industry and to
general economic, political, financial, competitive, legislative and regulatory
factors beyond its control. There can be no assurance that sufficient funds will
be available to enable the Company to service its indebtedness, or make
necessary capital expenditures and program and discretionary investments.
CONTINGENCIES
See Note 10 to the Condensed Consolidated Financial Statements.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective January 1, 1999, the Company adopted Statement of Position 98-5,
Reporting on the Costs of Start Up Activities ("SOP 98-5"), which provides
guidance on the financial reporting of startup and organization costs, including
precontract costs. It requires costs of startup activities and organization
costs to be expensed as incurred. The impact of adopting SOP 98-5 was not
material to the Company's results of operations or financial position.
In September 1998, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The Company is currently evaluating the impact, if any, of SFAS
133 which is effective for all quarters of fiscal years beginning after
September 15, 1999.
YEAR 2000
The inability of business processes to continue to function correctly after
the beginning of the Year 2000 could have serious adverse effects on companies
and entities throughout the world. Because the Company's business units operate
autonomously, each business unit has undertaken an effort to identify and
mitigate Year 2000 issues related to their information systems, products,
facilities, suppliers and customers. Therefore, the Company's Year 2000 effort
is a composite of its business units' Year 2000 efforts, coordinated through a
Company wide program instituted to oversee, guide and track business units' Year
2000 efforts and to facilitate Company-wide communications regarding Year 2000
methods.
Each business unit has appointed a Year 2000 project manager who oversees a
team responsible for performing its Year 2000 efforts in four phases: (i)
define, identify and inventory possible sources of Year 2000 issues, including
internal systems and products and services sold to customers; (ii) analyze and
determine the nature and extent of Year 2000 issues and develop project plans to
address those issues;
14
<PAGE>
(iii) implement and execute project plans to remediate or replace non-compliant
items, as appropriate, based upon assessed risk and priority; and (iv) commence
and complete testing, continue monitoring readiness and prepare necessary
contingency plans. The progress of this program is monitored at each business
unit with oversight by management. This oversight includes periodic reviews as
well as visits to each business unit to monitor progress with the plans.
The first three phases of the program have been completed for a substantial
majority of critical systems within the Company. Substantially all significant
information systems, products and facilities are in the final phase of the
program with a targeted completion by mid-1999.
The business units of the Company's recently completed acquisitions
including Microdyne and Aydin, have been incorporated into the Company's Year
2000 efforts and these acquired business units are currently performing their
respective Year 2000 efforts at various stages within the four phases
enumerated above. The Company plans to have nearly all significant information
systems, products and facilities of these acquired businesses in the final
phase of the program by the end of the third quarter of 1999.
The total estimated costs associated with the Company's Year 2000 efforts
have been updated to reflect recently acquired business units and estimated
costs for calendar year 2000. The revised estimated cost are $20.1 million and
include $7.6 million of capitalizable costs with the remaining costs to be
expensed as incurred. The Company has incurred approximately $12.2 million of
such costs to date. Substantially all of the remaining estimated costs are
expected to be incurred during the remainder of 1999.
The Company believes that there is low risk with respect to its operations
that any internal critical system will not be Year 2000 compliant by the end of
1999. The Company's business operations are also dependent on the Year 2000
readiness of its customers and infrastructure suppliers in areas such as
utilities, communications, transportation and other services. In those
environments, there could be instances of failure that could cause disruptions
in business transaction processes of the Company. The likelihood and effects of
failures in infrastructure systems and in the customer and supply chains cannot
be estimated, but such a failure could potentially result in a material adverse
impact on results of operations, liquidity or financial position of the
Company. The Company continues to attempt to assess the Year 2000 compliance
and readiness of its material third-party suppliers and customers. Such
attempts include written inquiries as to their Year 2000 certification of
compliance. As indicated above, contingency plans for suppliers, customers,
critical systems and utilities impacted by Year 2000 issues are being developed
with an anticipated completion date of June 30, 1999, except for recently
acquired businesses for which the anticipated completion is by the end of 1999.
It is anticipated that the contingency plans will be tested throughout the
remainder of 1999. These estimates and projections could change as the year
2000 efforts progress.
FORWARD LOOKING STATEMENTS
Certain of the matters discussed concerning our operations, cash flows,
financial position, economic performance, and financial condition, including in
particular, the likelihood of our success in developing and expanding our
business and the realization of sales from backlog, include forward looking
statements within the meaning of section 27A of the Securities Act and Section
21E of the Exchange Act. Statements that are predictive in nature, that depend
upon or refer to future events or conditions or that include words such as
"expects", "anticipates", "intends", "plans", "believes", "estimates" and
similar expressions are forward looking statements. Although we believe that
these statements are based upon reasonable assumptions, including projections
of orders, sales, operating margins, earnings, cash flow, research and
development costs, working capital, capital expenditures and other projections,
they are subject to several risks and uncertainties, and therefore, we can give
no assurance that these statements will be achieved. Such statements will also
be influenced by factors such as our dependence on the defense industry and the
business risks peculiar to that industry including changing priorities or
reductions in the U.S. government defense budget; our reliance on contracts
with a limited number of agencies of, or contractors to, the U.S. government
and the possibility of termination of government contracts by unilateral
government action or for failure to perform; our extensive use of fixed price
contracts as compared to cost plus contracts; our ability to identify future
acquisition candidates or to integrate acquired operations; the performance of
the businesses that we have acquired or may acquire in the future; the rapid
change of technology in the communication equipment industry; the high level of
competition in the
15
<PAGE>
communications equipment industry; our introduction of new products into
commercial markets or our investments in commercial products; the significant
amount of our debt and the restrictions contained in our debt agreements; Year
2000 issues including those relating to our information systems and the
products we have sold; collective bargaining labor disputes; pension,
environmental or legal matters or proceedings and various other market,
competition and industry factors, many of which are beyond our control.
Investors are cautioned that any such statements are not guarantees of future
performance and the actual results or developments may differ materially from
the expectations expressed in the forward looking statements.
ITEM 3.
QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See Part II, Item 7, "Management's Discussion and Analysis of Results of
Operations and Financial Condition- Liquidity and Capital Resources--Market
Risks", of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 for a discussion of the Company's exposure to market risks.
There was no significant change in those risks during the three months ended
March 31, 1999.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
*11 L-3 Communications Holdings, Inc. Computation of Basic Earnings Per
Share and Diluted Earnings Per Share
27 Financial Data Schedule
*The information required on this exhibit is presented on Note 9 to the
Condensed Consolidated Financial Statements as of March 31, 1999 in
accordance with the provisions of FASB SFAS No. 128, Earnings Per Share.
(b) Reports on Form 8-K
Report filed on March 3, 1999 regarding the acquisition of Aydin Corporation.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
L-3 Communications Holdings, Inc. and
L-3 Communications Corporation
----------------------------------------
Registrants
Date: May 17, 1999
/s/ Robert V. LaPenta
----------------------------------------
Name: Robert V. LaPenta
Title: President and Chief Financial
Officer
(Principal Financial Officer)
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001056239
<NAME> L-3 COMMUNICATIONS HOLDINGS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 125,531
<SECURITIES> 0
<RECEIVABLES> 283,879
<ALLOWANCES> (11,386)
<INVENTORY> 126,639
<CURRENT-ASSETS> 554,987
<PP&E> 164,646
<DEPRECIATION> 38,624
<TOTAL-ASSETS> 1,507,868
<CURRENT-LIABILITIES> 261,315
<BONDS> 605,000
0
0
<COMMON> 469,219
<OTHER-SE> 39,246
<TOTAL-LIABILITY-AND-EQUITY> 1,507,868
<SALES> 0
<TOTAL-REVENUES> 275,562
<CGS> 0
<TOTAL-COSTS> 249,395
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,475
<INCOME-PRETAX> 11,706
<INCOME-TAX> 4,507
<INCOME-CONTINUING> 7,199
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,199
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.23
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001039101
<NAME> L-3 COMMUNICATIONS CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 125,531
<SECURITIES> 0
<RECEIVABLES> 283,879
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0
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<COMMON> 469,219
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<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,475
<INCOME-PRETAX> 11,706
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</TABLE>
