UNITED STATES
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 nine months ended
SEPTEMBER 30, 1994
Commission File Number: 1-6222
FLIGHTSAFETY INTERNATIONAL, INC.
(Exact name of registrant as specified in charter)
New York 11-1671001
(State or other jurisdiction of (I.R.S. employer identification No.)
incorporation or organization)
Marine Air Terminal, LaGuardia Airport
Flushing, New York 11371
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: 718-565-4100
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock (par value $.10 per share) New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Company (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Company
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of October 31, 1994, the Company had 31,428,866
shares of its common stock outstanding.
FLIGHTSAFETY INTERNATIONAL, INC.
INDEX
PART I - FINANCIAL INFORMATION Page
Item 1 - Financial Statements
Consolidated Balance Sheets
at September 30, 1994
and December 31, 1993 3 - 4
Consolidated Statements of Income,
Nine Months Ended September
30, 1994 and 1993 5
Consolidated Statements of Income,
Three Months Ended September
30, 1994 and 1993 6
Consolidated Statements of Cash Flows,
Nine Months Ended September
30, 1994 and 1993 7
Notes to Consolidated Financial Statements
as of September 30, 1994 8 - 9
Item 2 - Management's Discussion and
Analysis of Financial Condition
and Results of Operations 10 - 11
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 12
Item 6 - Exhibits and Reports on Form 8-K 12
SIGNATURES 13
Page 2 of 13
FLIGHTSAFETY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(UNAUDITED)
September 30, December 31,
1994 1993
---- ----
Current assets:
Cash $ 4,111,000 $ 2,100,000
Short-term investments stated at
cost which approximates
market value 194,209,000 178,949,000
Accounts receivable, less allowance
for doubtful accounts of
$1,567,000 ($1,442,000 in 1993) 49,838,000 48,963,000
Inventory 14,385,000 14,605,000
Prepaid expenses and other
current assets 5,489,000 8,586,000
----------- -----------
Total current assets 268,032,000 253,203,000
----------- -----------
Equipment and facilities, at cost 788,021,000 744,408,000
Less - accumulated depreciation
and amortization (324,646,000) (291,030,000)
----------- -----------
463,375,000 453,378,000
----------- -----------
Intangible and other assets 45,696,000 47,353,000
----------- -----------
Total assets $777,103,000 $753,934,000
=========== ===========
See accompanying notes to consolidated financial statements.
Page 3 of 13
FLIGHTSAFETY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES and SHAREHOLDERS' EQUITY
(UNAUDITED)
September 30, December 31,
1994 1993
---- ----
Current liabilities:
Current portion of long-term debt $ 1,774,000 $ 1,819,000
Accounts payable and
accrued expenses 36,729,000 36,964,000
Income taxes payable 4,858,000 5,299,000
Unearned income for
contract training 36,265,000 30,996,000
----------- ------------
Total current liabilities 79,626,000 75,078,000
Long-term debt 40,038,000 41,572,000
Deferred income taxes 105,635,000 103,515,000
Other liabilities 6,047,000 7,336,000
----------- -----------
Total liabilities 231,346,000 227,501,000
Shareholders' equity:
Common stock - par value $.10
Authorized - 100,000,000 shares
Issued and outstanding -
31,447,866 shares (32,007,558
in 1993) 3,145,000 3,201,000
Capital in excess of par value 32,923,000 30,778,000
Retained earnings 511,351,000 494,161,000
----------- -----------
547,419,000 528,140,000
Less - restricted stock compensation (1,662,000) (1,707,000)
Total shareholders' equity 545,757,000 526,433,000
----------- -----------
Total liabilities and
shareholders' equity $777,103,000 $753,934,000
=========== ===========
See accompanying notes to consolidated financial statements.
Page 4 of 13
FLIGHTSAFETY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Nine Months Ended September 30,
-------------------------------
1994 1993
---- ----
Revenues:
Training revenues $196,073,000 $179,072,000
Product sales 21,668,000 41,200,000
----------- -----------
217,741,000 220,272,000
----------- -----------
Costs and expenses:
Salaries and wages 54,079,000 48,010,000
Depreciation and amortization 34,821,000 33,033,000
General and administrative 19,238,000 17,920,000
Operating expenses 17,955,000 17,717,000
Cost of product sales 18,673,000 31,485,000
----------- -----------
144,766,000 148,165,000
----------- -----------
Income from operations 72,975,000 72,107,000
Other income (expense):
Interest and other income 8,278,000 8,134,000
Interest expense (1,626,000) (1,756,000)
----------- -----------
Income before income taxes 79,627,000 78,485,000
Income taxes 28,653,000 31,707,000
----------- -----------
Net income for the period $50,974,000 $46,778,000
=========== ===========
Net income per share $ 1.60 $ 1.40
=========== ===========
Average shares outstanding 31,796,596 33,495,676
=========== ===========
See accompanying notes to consolidated financial statements.
Page 5 of 13
FLIGHTSAFETY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended September 30,
--------------------------------
1994 1993
---- ----
Revenues:
Training revenues $63,997,000 $58,421,000
Product sales 6,489,000 9,432,000
----------- ------------
70,486,000 67,853,000
----------- ------------
Costs and expenses:
Salaries and wages 17,503,000 16,351,000
Depreciation and amortization 11,847,000 11,180,000
General and administrative 6,475,000 5,624,000
Operating expenses 6,473,000 6,691,000
Cost of product sales 5,481,000 7,140,000
----------- -----------
47,779,000 46,986,000
----------- -----------
Income from operations 22,707,000 20,867,000
Other income (expense):
Interest and other income 3,044,000 2,700,000
Interest expense (425,000) (239,000)
----------- -----------
Income before income taxes 25,326,000 23,328,000
Income taxes 9,090,000 12,293,000
----------- -----------
Net income for the period $16,236,000 $11,035,000
=========== ===========
Net income per share $ .51 $ .34
=========== ===========
Average shares outstanding 31,594,709 32,647,943
=========== ===========
See accompanying notes to consolidated financial statements.
Page 6 of 13
FLIGHTSAFETY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
-------------------------------
1994 1993*
---- ----
Increase (decrease) in cash
Cash flows from operating activities:
Net income $50,974,000 $46,778,000
Items in net income not using cash:
Depreciation and amortization 34,821,000 33,033,000
Provision for losses on
accounts receivable 225,000 609,000
Deferred income taxes 3,171,000 4,619,000
Increase in cash surrender value
of corporate-owned life insurance (1,237,000) (1,048,000)
Other, net 479,000 639,000
Changes in working capital other than cash:
Decrease (increase) in inventory 220,000 (1,311,000)
(Increase) in accounts receivable (1,100,000) (13,305,000)
Decrease (increase) in prepaid
expenses and other current assets 3,097,000 (8,191,000)
(Decrease) in accounts payable and
accrued expenses (235,000) (2,230,000)
(Decrease) increase in income
taxes payable (441,000) 761,000
Increase in unearned income 5,269,000 4,455,000
- -------------------------------------------------------------------------
Net cash provided by operating activities 95,243,000 64,809,000
- -------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (45,285,000) (44,782,000)
(Increase) decrease in
short-term investments (15,260,000) 100,815,000
Other, net (309,000) (21,000)
- -------------------------------------------------------------------------
Net cash (used in) provided
by investing activities (60,854,000) 56,012,000
- -------------------------------------------------------------------------
Cash flows from financing activities:
Intangible assets arising from
acquisition (5,082,000)
Repayment of short-term borrowings
and long-term debt (1,579,000) (29,572,000)
Repurchase of common stock (23,725,000) (82,264,000)
Cash dividends (10,122,000) (9,230,000)
Exercise of stock options 2,152,000 1,927,000
Other, net 896,000 4,307,000
- ------------------------------------------------------------------------
Net cash used in financing activities (32,378,000) (119,914,000)
- ------------------------------------------------------------------------
Net increase in cash 2,011,000 907,000
Cash at beginning of period 2,100,000 2,311,000
- ------------------------------------------------------------------------
Cash at end of period $ 4,111,000 $ 3,218,000
========================================================================
*Reclassified to conform to 1994 presentation.
Page 7 of 13
FLIGHTSAFETY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(UNAUDITED)
1) These financial statements, which should be read in conjunction with the
financial statements included in FlightSafety International, Inc.'s
Annual Report to Shareholders for 1993, are unaudited but include all
adjustments of a normal recurring nature that the Company considers
necessary for a fair presentation of the results for such interim period.
Results for interim periods are not necessarily indicative of results
for a full year.
2) Debt consists of: September 30, December 31,
1994 1993
Industrial development obligations
and other debt due 1994-2012 $41,812,000 $43,391,000
Less - current portion (1,774,000) (1,819,000)
----------- -----------
$40,038,000 $41,572,000
The Company's industrial development obligations have variable rates
between 1.8 and 4.7 percent.
The interest capitalized on major equipment acquisitions for the nine
months ended September 30, 1994 was $1,038,000 ($1,235,000 in 1993).
3) The changes in the Company's shareholders' equity account balances in
the current period were as follows:
Capital in
Common Excess of Retained
Stock Par Value Earnings
=========== =========== ===========
Balance at December 31, 1993 $3,201,000 $30,778,000 $494,161,000
Net income for the period 50,974,000
Exercise of options pursuant to
employee stock option plans 7,000 2,145,000
Repurchase of common stock (63,000) (23,662,000)
Dividends declared ($.32 per
share) (10,122,000)
----------- ----------- -----------
Balance at September 30, 1994 $3,145,000 $32,923,000 $511,351,000
=========== =========== ===========
Page 8 of 13
On February 19, 1993, the Company's Board of Directors authorized the
repurchase of up to 3,000,000 shares of the Company's outstanding
common stock. On December 3, 1993, the Board of Directors increased
its authorization to 4,000,000 shares. As of September 30, 1994,
3,150,800 shares had been repurchased and subsequently retired. At
its September meeting, the Company's Board of Directors declared a
regular quarterly cash dividend of twelve cents per share on its common
stock. The dividend is payable November 3, 1994 to shareholders of
record on October 13, 1994.
Page 9 of 13
FLIGHTSAFETY INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
- -------------------
In the first nine months of 1994, cash provided by operations was $95.2
million. Cash was principally used to purchase additional equipment and
facilities ($45.3 million), repurchase shares of the Company's common
stock ($23.7 million), purchase of short-term investments ($15.3 million)
and payment of dividends ($10.1 million).
Capital expenditures, which are primarily revenue generating assets such as
simulators, are expected to exceed $55 million in 1994. The Company also
expects to continue to purchase shares of its common stock. The Board
of Directors increased the shares authorized for the stock repurchase program
from 3,000,000 shares to 4,000,000 shares on December 3, 1993. The Company
had repurchased and retired 3,150,800 shares as of September 30, 1994. The
Company expects to fund its capital expenditures and stock repurchase
program from cash provided by operations, existing cash and short-term
investments.
Results of Operations
- ---------------------
Training revenues for the nine months ended September 30, 1994 increased by
$17.0 million or nine percent,and the 1994 third quarter training revenues
increased by $5.6 million, or ten percent, compared to the same periods in
1993. Increased training revenues for the 1994 periods were attributable to
all areas of the Company's training programs. Training revenues for the nine
months of 1994 include approximately $1.9 million related to an equivalent
amount of retroactive salary and benefit expenses from October 1, 1992 paid
to employees in accordance with the United States Government Services
Contract Act on one of the Company's contracts.
Product sales, which consist of simulators and visual systems, decreased
$19.5 million, or 47 percent, and $2.9 million, or 31 percent, respectively,
for the nine and three month periods ended September 30, 1994 due to decreases
in equipment being produced for unaffiliated customers by the Company's
Simulation Systems Division.
Total expenses for the nine months ended September 30, 1994 decreased by
$3.4 million, or two percent. The decrease in expenses is due to a decrease
in cost of product sales of $12.8 million due to a reduction in sales of
new simulators. This decrease was offset by increases in salaries and wages
($6.1 million) principally due to retroactive salary increases from October
1, 1992 paid in accordance with the United States Government Services
Contract Act on one of the Company's contracts, personnel added for the
KC- 135 U.S. Air Force contract and for new and expanded facilities,
depreciation and amortization ($1.8 million) due to the installation of
new simulators, and general and administrative expenses ($1.3 million)
primarily due to increased employee benefit costs.
Page 10 of 13
Income taxes for the nine and three months ended September 30, 1994 decreased
by $3.1 million, or 10 percent and $3.2 million, or 26 percent, respectively,
as compared to 1993. Income taxes, as a percentage of pre-tax income for
the nine months ended September 30, 1994, decreased to 36.0 percent from
40.4 percent for the same period in 1993 and decreased to 35.9 percent
from 52.7 percent for the three month periods ended September 30, 1994 and
1993. The 1993 nine month and three month periods included income tax
expense of $3.4 million for increased deferred income tax liabilities related
to temporary differences that arose prior to 1993. Additionally, an increase
in income tax expense was recorded in the 1993 third quarter of $0.6 million
to retroactively adjust income tax expense for the first six months of 1993.
The higher income tax expense for both the nine and three month periods of 1993
were due to an increase in the federal income tax rate to 35 percent from
34 percent in the third quarter of 1993.
Page 11 of 13
PART II - OTHER INFORMATION
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
None.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
None.
Page 12 of 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
FLIGHTSAFETY INTERNATIONAL, INC.
Date: November 7, 1994 s/ A.L. UELTSCHI
President
Date: November 7, 1994 s/ K.W. MOTSCHWILLER
Vice President/Treasurer
Page 13 of 13