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, 1996
Commission File Number: 1-6222
FLIGHTSAFETY INTERNATIONAL, INC.
(Exact name of registrant as specified in charter)
New York 11-1671001
(State or other jurisdiction (I.R.S.Employer Identification No.)
of 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 24, 1996, the Company had 30,183,965
shares of its common stock outstanding.
FLIGHTSAFETY INTERNATIONAL, INC.
INDEX
PART I - FINANCIAL INFORMATION
Page
Item 1 - Financial Statements (Unaudited)
Consolidated Balance Sheets at September 30,
1996 and December 31, 1995 3 - 4
Consolidated Statements of Income,
Nine Months Ended September 30, 1996 and 1995 5
Consolidated Statements of Income,
Three Mos. Ended September 30, 1996 and 1995 6
Consolidated Statements of Cash Flows,
Nine Months Ended September 30, 1996 and 1995 7
Notes to Consolidated Financial Statements 8 - 9
as of September 30, 1996
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of 10
Operations
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of 11
Security Holders
Item 6 - Exhibits and Reports on Form 8-K 11
SIGNATURES 12
Page 2 of 12
FLIGHTSAFETY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(UNAUDITED)
Sept.30, Dec. 31,
1996 1995
Current assets:
Cash $ 1,715,000 $ 6,128,000
Short-term investments, at cost which
approximates market value 159,770,000 194,084,000
Accounts receivable, less allowance
for doubtful accounts of $1,429,000
($1,481,000 in 1995) 75,573,000 69,575,000
Inventories 8,926,000 7,640,000
Prepaid expenses and other current
assets 6,041,000 11,482,000
Total current assets 252,025,000 288,909,000
Equipment and facilities, at cost 978,679,000 894,308,000
Less - accumulated depreciation and
amortization (424,849,000) (384,491,000)
553,830,000 509,817,000
Intangible and other assets 54,391,000 45,709,000
Total assets 860,246,000 844,435,000
See accompanying notes to consolidated financial statements.
Page 3 of 12
FLIGHTSAFETY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES and SHAREHOLDERS' EQUITY
(UNAUDITED)
September December
30, 31,
1996 1995
Current liabilities:
Current portion of long-term debt $ 1,384,000 $ 1,759,000
Accounts payable and accrued expenses 40,646,000 47,016,000
Dividends payable 4,829,000 4,311,000
Income taxes payable 3,438,000 3,229,000
Unearned income for contract training 38,047,000 30,265,000
Total current liabilities 88,344,000 86,580,000
Long-term debt 36,894,000 38,054,000
Deferred income taxes 111,547,000 111,537,000
Other liabilities 4,431,000 5,263,000
Total liabilities 241,216,000 241,434,000
Shareholders' equity:
Common stock - par value $.10 per
share
Authorized - 100,000,000 shares
Issued and outstanding 30,183,683
shares (30,792,681 in 1995) 3,018,000 3,079,000
Capital in excess of par value 40,633,000 37,092,000
Retained earnings 577,187,000 564,549,000
620,838,000 604,720,000
Less - restricted stock compensation (1,808,000) (1,719,000)
Total shareholders' equity 619,030,000 603,001,000
Total liabilities and shareholders'
equity $860,246,000 $844,435,000
See accompanying notes to consolidated financial statements.
Page 4 of 12
FLIGHTSAFETY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Nine Months Ended Sept. 30
1996 1995*
Revenues $266,979,000 $234,688,000
Costs and expenses:
Salaries and wages 66,544,000 57,368,000
Depreciation and amortization 39,714,000 37,037,000
Operating expenses 35,398,000 22,437,000
General and administrative 25,235,000 22,694,000
Cost and expenses of product
sales 13,925,000 12,068,000
180,816,000 151,604,000
Income from operations 86,163,000 83,084,000
Other income (expense):
Interest and other income 10,821,000 10,062,000
Interest expense (2,345,000) (2,210,000)
Income before income taxes 94,639,000 90,936,000
Income taxes 33,584,000 30,504,000
Net income for the period $ 61,055,000 $ 60,432,000
Net income per share $ 2.00 $ 1.93
Average shares outstanding 30,543,897 31,290,479
See accompanying notes to consolidated financial statements.
*Reclassified to conform to 1996 presentation.
Page 5 of 12
FLIGHTSAFETY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
September 30,
1996 1995*
Revenues $87,078,000 $77,463,000
Costs and Expenses:
Salaries and wages 23,021,000 19,984,000
Depreciation and amortization 13,328,000 12,607,000
Operating expenses 10,117,000 7,520,000
General and administrative 9,461,000 7,827,000
Cost and expenses of product
sales 4,755,000 2,684,000
60,682,000 50,622,000 0
Income from operations 26,396,000 26,841,000 0
Other income (expense):
Interest and other income 3,625,000 3,503,000
Interest expense (834,000) (731,000)
Income before income taxes 29,187,000 29,613,000
Income taxes 10,288,000 10,258,000
Net income for the period $18,899,000 $19,355,000
Net income per share $ .62 $ .62
Average shares outstanding 30,353,539 31,218,890
See accompanying notes to consolidated financial statements.
*Reclassified to conform to 1996 presentation.
Page 6 of 12
FLIGHTSAFETY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
1996 1995
Increase (decrease) in cash
Cash flows from operating activities:
Net income $61,055,000 $60,432,000
Items in net income not using cash:
Depreciation and amortization 39,714,000 37,037,000
Provision for losses on accounts
receivable 415,000 326,000
Deferred income taxes 1,363,000 2,611,000
Increase in cash surrender value of
corporate-owned life insurance (2,287,000) (1,140,000)
Other, net (51,000) 423,000
Changes in working capital other
than cash:
(Increase) in accounts receivable (6,413,000) (527,000)
(Increase) decrease in inventories (1,286,000) 7,776,000
(Decrease in prepaid expenses and
other current assets 5,441,000 2,607,000
(Decrease) increase in accounts
payable and accrued expenses (6,370,000) 5,738,000
Increase in dividends payable 518,000 571,000
Increase (decrease) in income taxes
payable 209,000 (3,650,000)
Increase in unearned income 7,782,000 4,500,000
Net cash provided by operating
activities 100,090,000 116,704,000
Cash flows from investing activities:
Capital expenditures (84,447,000) (60,091,000)
Decrease (increase) in short-term
investments 34,314,000 (21,599,000)
Decrease in cash surrender value of
corporate-owned life insurance 7,437,000
Corporate-owned life insurance
premiums paid (3,473,000) (2,703,000)
Other, net (2,282,000) 2,878,000
Net cash used in investing (48,451,000) (81,515,000)
activities
Cash flows from financing activities:
Repayment of long-term debt (1,160,000) (1,409,000)
Repurchase of common stock (35,107,000) (23,728,000)
Cash dividends (13,380,000) (11,847,000)
(Decrease) increase in long-term
borrowings against cash surrender
value of corporate-owned life
insurance (8,370,000) 2,622,000
Exercise of stock options 3,318,000 2,501,000
Reversal of tax benefits from tax
leases (1,353,000) (1,269,000)
Net cash used in financing (56,052,000) (33,130,000)
activities
Net (decrease) increase in cash (4,413,000) 2,059,000
Cash at beginning of period 6,128,000 2,062,000
Cash at end of period $ 1,715,000 $ 4,121,000
Page 7 of 12
FLIGHTSAFETY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(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 1995, are unaudited but include all
adjustments of a normal recurring nature that the Company
considers necessary for a fair presentation of the results
for the periods presented. Results for interim periods are
not necessarily indicative of results for a full year.
2) Debt consists of: September December
30, 31,
1996 1995
Industrial development
obligations and other $38,278,000 $39,813,000
and debt due 1996-2012
Less - current portion (1,384,000) (1,759,000)
$36,894,000 $38,054,000
The Company's industrial development obligations have
variable interest rates between 2.5 and 5.7 percent.
The interest capitalized on major equipment
acquisitions for the nine months ended September 30, 1996
was $1,137,000 ($1,353,000 in 1995).
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, 1995 $3,079,000 $37,092,000 $564,549,000
Net income for the 61,055,000
period
Exercise of
options and
restricted stock
issued pursuant to 9,000 3,541,000
employee stock
plans
Repurchase of
common stock (70,000) (35,037,000)
Dividends declared
($.44 per share) (13,380,000)
Balance at
September 30, 1996 $3,018,000 $40,633,000 $577,187,000
Page 8 of 12
On September 12, 1995 the Company's Board of Directors
authorized the repurchase of an additional 4,000,000 shares
of the Company's outstanding common stock. The Company is
now authorized to repurchase 8,000,000 shares. As of
September 30, 1996, 4,625,800 shares had been repurchased
and subsequently retired. At its September meeting, the
Company's Board of Directors declared a regular quarterly
cash dividend of sixteen cents per share on its common stock
payable November 6, 1996 to shareholders of record on
October 15, 1996.
Page 9 of 12
FLIGHTSAFETY INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
In the first nine months of 1996, $100.1 million of cash was
provided by operations and $34.3 million was provided by a
reduction in short-term investments. Cash was principally used
for the purchase of additional equipment and facilities ($84.4
million), repurchase of shares of the Company's common stock
($35.1 million) and payment of dividends ($13.4 million).
Capital expenditures, which are primarily revenue generating
assets such as simulators, are expected to exceed $105 million in
1996. In September 1995, the Board of Directors increased the
shares authorized for the stock repurchase program to 8,000,000
shares from 4,000,000 shares. There were 697,100 shares
repurchased under the program in the first nine months of 1996.
The Company has repurchased and retired 4,625,800 shares as of
September 30, 1996. The Company expects to principally fund its
capital expenditures from cash provided by operations.
Accounts receivable increased by $6.0 million, or nine percent,
primarily due to an increase in amounts billed in the first nine
months of 1996 as compared to the 1995 nine month period.
Results of Operations
Revenues for the nine and three month periods ended September 30,
1996 increased by $32.3 million, or 14 percent, and $9.6 million,
or 12 percent, respectively, compared to the same periods in
1995. Increases in training revenues for the 1996 periods were
experienced in most areas of the Company's training operations.
Training revenue increased by $30.1 million, or 14 percent and
$7.8 million, or 11 percent, respectively, for the nine and three
month periods ended September 30, 1996. The nine and three month
training revenue increases include approximately $12.8 million
and $1.5 million, respectively, from an increase in a U. S. Air
Force contract. The three month training revenues were adversely
affected in part by reduced training at the Company's Atlanta and
Savannah learning centers due to their proximity to the Summer
Olympics and reduced new hire pilot training. Product sales
increased by $2.2 million, or 14 percent, and $1.9 million, or 44
percent, respectively, for the nine and three month periods ended
September 30, 1996 over the comparable 1995 periods due to
additional equipment being produced for unaffiliated customers.
Total expenses for the nine months ended September 30, 1996
increased by $29.2 million, or 19 percent. Salary and wages
increased by $9.2 million, or 16 percent, due to personnel
additions and salary increases. Depreciation and amortization
increased by $2.7 million, or seven percent, due to the addition
of new simulators since the first nine months of 1995. Operating
expenses increased by $13.0 million, or 58 percent, primarily due
to increases in subcontractor expenses associated with the
increase in the U. S. Air Force contract previously referred to,
and increases in training supplies and facility costs. General
and administrative expenses increased by $2.5 million, or 11
percent, primarily due to increases in professional fees and
overall increases in general and administrative costs. Cost and
expenses of product sales increased due to additional equipment
sales to unaffiliated customers.
Income taxes for the nine months ended September 30, 1996
increased by $3.1 million, as compared to the 1995 period, and
was virtually unchanged for the three month comparable periods
ended September 30, 1996 and 1995. Income taxes, as a percentage
of pre-tax income for the nine months ended September 30, 1996
increased to 35.5 percent in 1996 from 33.5 percent for the same
period in 1995, and increased to 35.2 percent from 34.6 percent
for the three month periods ended September 30, 1996 and 1995,
respectively. The higher effective income tax rates were due
principally to income tax refunds received in the first nine
months of 1995 related to prior years and a decrease in tax
advantaged income as a percentage of pre-tax income.
Page 10 of 12
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.
On October 16, 1996, the Company filed a Current Report on
Form 8-K with the Securities and Exchange Commission (the
"Commission") reporting that the Company, Berkshire
Hathaway Inc. ("Berkshire") and N. Y. Acquisition Sub Inc.
had entered into an Agreement and Plan of Merger, dated as
of October 14, 1996, pursuant to which Berkshire will
acquire the Company, subject to approval by the
shareholders of the Company and the satisfaction of
certain other customary conditions.
Exhibit 1 - Agreement and Plan of Merger, dated as of
October 14, 1996, among FlightSafety
International, Inc., Berkshire Hathaway Inc. and
NY Acquisition Sub Inc. (incorporated by reference
to the Current Report on Form 8-K filed by the
Company with the Commission on October 16, 1996).
Exhibit 2 - Joint Press Release of FlightSafety
International, Inc. and Berkshire Hathaway Inc.
issued on October 15, 1996 announcing the
execution of the Agreement and Plan of Merger
(incorporated by reference to the Current Report
on Form 8-K filed by the Company with the
Commission on October 16, 1996).
Exhibit 3 - Letter, dated as of October 14, 1996, among
Mr. Albert L. Ueltschi, Berkshire Hathaway Inc.
and NY Acquisition Sub Inc. (incorporated by
reference to the Current Report on Form 8-K filed
by the Company with the Commission on October 16,
1996).
Page 11 of 12
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 6, 1996 s/A.L. UELTSCHI
President
Date: November 6, 1996 s/K. W. MOTSCHWILLER
Vice President/Treasurer
Page 12 of 12