UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 2, 2004 |
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
Commission file number 0-27231
WIRELESS FACILITIES, INC.
(Exact name of Registrant as specified in its charter)
| Delaware | 13-3818604 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
4810 Eastgate Mall
San Diego, CA 92121
(858) 228-2000
(Address, including zip code, and telephone number, including
area code, of Registrant’s principal executive offices)
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 preceding 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. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2) Yes x No ¨
As of May 6, 2004 68,255,535 shares of the registrant’s common stock were outstanding.
WIRELESS FACILITIES, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED APRIL 2, 2004
| Page No. | ||||
| PART I. FINANCIAL INFORMATION | ||||
| Item 1. |
Financial Statements | |||
| Consolidated Balance Sheets at December 31, 2003 and March 31, 2004 (unaudited) | 3 | |||
| Consolidated Statements of Operations for the Three Months Ended March 31, 2003 and 2004 (unaudited) | 4 | |||
| Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2004 (unaudited) | 5 | |||
| Notes to Consolidated Financial Statements (unaudited) | 6 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 | ||
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 30 | ||
| Item 4. |
Controls and Procedures | 30 | ||
| PART II. OTHER INFORMATION | ||||
| Item 1. |
Legal Proceedings | 31 | ||
| Item 6. |
Exhibits and Reports on Form 8-K | 31 | ||
2
PART I. FINANCIAL INFORMATION
| Item 1. | Financial Statements |
WIRELESS FACILITIES, INC.
(in millions, except par value and number of shares)
| December 31, 2003 |
March 31, 2004 |
|||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 89.6 | $ | 53.7 | ||||
| Short-term investments |
24.6 | 2.0 | ||||||
| Accounts receivable, net |
96.8 | 112.7 | ||||||
| Accounts receivable - related party, net |
0.2 | — | ||||||
| Prepaid expenses |
1.9 | 3.9 | ||||||
| Employee loans and advances, net |
0.4 | 0.7 | ||||||
| Other current assets |
4.5 | 4.4 | ||||||
| Total current assets |
218.0 | 177.4 | ||||||
| Property and equipment, net |
11.3 | 12.4 | ||||||
| Goodwill and other intangibles, net |
51.6 | 100.0 | ||||||
| Deferred tax assets, net |
11.5 | 12.9 | ||||||
| Investments in unconsolidated affiliates |
8.1 | 9.3 | ||||||
| Other assets |
0.4 | 0.9 | ||||||
| Total assets |
$ | 300.9 | $ | 312.9 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 13.6 | $ | 15.1 | ||||
| Accrued expenses |
27.6 | 27.6 | ||||||
| Billings in excess of costs |
6.9 | 5.9 | ||||||
| Accrual for contingent acquisition consideration |
3.8 | 4.3 | ||||||
| Income taxes payable, net |
1.2 | 2.0 | ||||||
| Capital lease obligations |
0.5 | 0.4 | ||||||
| Accrual for unused office space |
1.5 | 1.0 | ||||||
| Total current liabilities |
55.1 | 56.3 | ||||||
| Capital lease obligations, net of current portion |
0.2 | 0.2 | ||||||
| Accrual for unused office space, net of current portion |
2.0 | 2.4 | ||||||
| Other liabilities |
1.3 | 1.3 | ||||||
| Total liabilities |
58.6 | 60.2 | ||||||
| Minority interest in subsidiary |
0.3 | 0.3 | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock, 5,000,000 shares authorized, Series B Convertible Preferred Stock, $.001 par value; 90,000 and 42,258 shares outstanding at December 31, 2003 and March 31, 2004, respectively (liquidation preference $45.0) |
— | — | ||||||
| Common Stock, $.001 par value, 195,000,000 shares authorized; 62,550,245 and 68,128,579 shares issued and outstanding at December 31, 2003 and March 31, 2004, respectively |
0.1 | 0.1 | ||||||
| Additional paid-in capital |
303.4 | 308.0 | ||||||
| Accumulated deficit |
(57.5 | ) | (51.6 | ) | ||||
| Accumulated other comprehensive loss |
(4.0 | ) | (4.1 | ) | ||||
| Total stockholders’ equity |
242.0 | 252.4 | ||||||
| Total liabilities and stockholders’ equity |
$ | 300.9 | $ | 312.9 | ||||
See accompanying notes to unaudited consolidated financial statements.
3
WIRELESS FACILITIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in millions, except per share amounts)
| Three months ended March 31, |
||||||||
| 2003 |
2004 |
|||||||
| Revenues |
$ | 53.9 | $ | 98.0 | ||||
| Cost of revenues |
39.0 | 76.4 | ||||||
| Gross profit |
14.9 | 21.6 | ||||||
| Selling, general and administrative expenses |
11.3 | 14.1 | ||||||
| Credit for doubtful accounts |
(1.3 | ) | (0.3 | ) | ||||
| Depreciation and amortization |
1.7 | 1.2 | ||||||
| Operating income |
3.2 | 6.6 | ||||||
| Other income (expense), net: |
||||||||
| Interest income, net |
0.3 | 0.1 | ||||||
| Foreign currency gain |
0.6 | 0.2 | ||||||
| Other income (expense), net |
(0.1 | ) | 0.4 | |||||
| Other income, net |
0.8 | 0.7 | ||||||
| Income before provision for income taxes |
4.0 | 7.3 | ||||||
| Provision for income taxes |
— | 1.4 | ||||||
| Net income |
$ | 4.0 | $ | 5.9 | ||||
| Net income per common share: |
||||||||
| Basic |
$ | 0.08 | $ | 0.09 | ||||
| Diluted |
$ | 0.06 | $ | 0.08 | ||||
| Weighted average common shares outstanding: |
||||||||
| Basic |
49.3 | 64.2 | ||||||
| Diluted |
68.7 | 76.9 | ||||||
See accompanying notes to unaudited consolidated financial statements.
4
WIRELESS FACILITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in millions)
| Three months ended March 31, |
||||||||
| 2003 |
2004 |
|||||||
| Operating activities: |
||||||||
| Net income |
$ | 4.0 | $ | 5.9 | ||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization |
2.3 | 1.6 | ||||||
| Provision for deferred income taxes |
— | 1.4 | ||||||
| Credit for doubtful accounts |
(1.3 | ) | (0.3 | ) | ||||
| Realized gain on sale of short-term investments |
— | (0.3 | ) | |||||
| Equity loss of unconsolidated affiliates |
0.1 | — | ||||||
| Changes in assets and liabilities, net of acquisitions: |
||||||||
| Accounts receivable |
(0.6 | ) | (8.3 | ) | ||||
| Accounts receivable – related party |
0.2 | 0.2 | ||||||
| Income taxes receivable |
1.8 | — | ||||||
| Prepaid expenses |
0.1 | (1.7 | ) | |||||
| Deferred tax asset |
— | (0.7 | ) | |||||
| Other assets |
0.7 | (0.5 | ) | |||||
| Accounts payable and accrued expenses |
3.1 | (1.7 | ) | |||||
| Accounts payable – related party |
(0.2 | ) | — | |||||
| Billings in excess of costs on completed contracts |
(3.7 | ) | (2.8 | ) | ||||
| Accrual for unused office space |
(0.4 | ) | (0.2 | ) | ||||
| Other liabilities |
(1.1 | ) | 0.6 | |||||
| Net cash provided by (used in) operating activities |
5.0 | (6.8 | ) | |||||
| Investing activities: |
||||||||
| Sale/maturity of short-term investments |
— | 22.9 | ||||||
| Investment in unconsolidated affiliate |
— | (1.0 | ) | |||||
| Cash paid for contingent acquisition consideration |
— | (4.0 | ) | |||||
| Cash paid for acquisitions, net of cash acquired |
(1.8 | ) | (48.4 | ) | ||||
| Capital expenditures |
(0.8 | ) | (2.1 | ) | ||||
| Net cash used in investing activities |
(2.6 | ) | (32.6 | ) | ||||
| Financing activities: |
||||||||
| Proceeds from issuance of common stock |
2.4 | 3.6 | ||||||
| Repayment of capital lease obligations |
(0.9 | ) | (0.1 | ) | ||||
| Net cash provided by financing activities |
1.5 | 3.5 | ||||||
| Effect of exchange rate on cash |
(0.7 | ) | — | |||||
| Net increase (decrease) in cash and cash equivalents |
3.2 | (35.9 | ) | |||||
| Cash and cash equivalents at beginning of period |
99.1 | 89.6 | ||||||
| Cash and cash equivalents at end of period |
$ | 102.3 | $ | 53.7 | ||||
| Supplemental disclosure of cash flow information: |
||||||||
| Cash received during the period for interest |
$ | — | $ | 0.1 | ||||
| Net cash refunded/(paid) during the period for income taxes |
$ | 1.0 | $ | (0.1 | ) | |||
| Supplemental disclosures of non-cash investing and financing transactions: |
||||||||
| Fair value of assets acquired in acquisitions |
$ | — | $ | 54.8 | ||||
| Cash paid for acquisitions |
— | (48.4 | ) | |||||
| Liabilities assumed in acquisitions |
$ | — | $ | 6.4 | ||||
| Common stock issued pursuant to Employee Stock Purchase Plan |
$ | 0.8 | $ | 0.9 | ||||
See accompanying notes to unaudited consolidated financial statements.
5
WIRELESS FACILITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Organization and Summary of Significant Accounting Policies
(a) Description of Business
Wireless Facilities, Inc. (“WFI”) was initially incorporated in the state of New York on December 19, 1994, commenced operations in March 1995 and was reincorporated in Delaware in 1998. WFI is an independent, global provider of outsourced communications and security systems engineering and integration services for the wireless communications industry, the U.S. government, and enterprise customers. Such services include, but are not limited to, the design, deployment, integration, and the overall management of communications, information technology, and security networks. WFI’s work for the wireless communications industry primarily involves radio frequency engineering, site development, project management and the installation of radio equipment networks. WFI also provides network management services, which involve day-to-day optimization and maintenance of wireless networks. WFI’s work for the federal government primarily involves systems engineering, systems integration, and the outsourcing of technical services such as operational test and evaluation and program management. WFI also provides services in the areas of mission assurance, product and process validation and verification, and software and applications development. WFI’s work for enterprise customers primarily involves the design, deployment, and integration of security and other in-building systems including access control and intrusion detection and is focused on opportunities to integrate wireless technology into enterprise networks, especially physical and electronic security systems, and voice and data networks. WFI’s customers are primarily mature providers of wireless telecommunication services, wireless equipment vendors and a large range of customers from varied commercial, governmental and industry sectors that require security integration services. WFI’s engagements range from small and short in duration, to large multi-year contracts performed on a domestic and international level. WFI’s services are performed either on a time and materials basis, a cost plus fixed fee, or on a fixed price, time certain basis.
(b) Fiscal Calendar and Basis of Presentation
The Company operates and reports using a 52-53 week fiscal year ending the last Friday in December. As a result, a fifty-third week is added every five or six years. Our 52 week fiscal year consists of four equal quarters of 13 weeks each, and our 53 week fiscal year consists of three 13 week quarters and one 14 week quarter. The financial results for our 53 week fiscal years and our 14 week fiscal quarters will not be exactly comparable to our 52 week fiscal years and our 13 week fiscal quarters. The periods presented in this quarterly report are not exactly comparable because the first quarter ended April 2, 2004 is a 14 week quarter and the first quarter ended March 28, 2003 was a 13 week quarter. For presentation purposes, all fiscal periods presented or discussed in this report have been presented as ending on the last day of the nearest calendar month. For example, our first quarter ended on April 2, 2004, but we present our quarter as ending on March 31, 2004.
The information as of March 31, 2004, and for the three months ended March 31, 2003 and 2004 is unaudited. In the opinion of management, these unaudited consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results of operations for the interim periods presented. Interim operating results are not necessarily indicative of operating results expected in subsequent periods or for the year as a whole. These unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes included in WFI’s annual consolidated financial statements for the year ended December 26, 2003, filed on Form 10-K on March 8, 2004, with the United States Securities and Exchange Commission.
The unaudited consolidated financial statements include the accounts of WFI and its wholly-owned and majority-owned subsidiaries. WFI and its subsidiaries are collectively referred to herein as the “Company.”
(c) Use of Estimates
The preparation of financial statements in conformity with Generally Accepted Accounting Principles in the United States (US GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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. In the future, the Company may realize actual results that differ from the current reported estimates.
6
WIRELESS FACILITIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(d) Reclassifications