UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
| x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004
OR
| ¨ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
COMMISSION FILE NUMBER: 333-13105
FIREARMS TRAINING SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
| DELAWARE | 57-0777018 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
7340 MCGINNIS FERRY ROAD
SUWANEE, GEORGIA 30024
(Address of principal executive offices)
TELEPHONE NUMBER (770) 813-0180
(Registrant’s telephone number, including area code)
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 Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of August 13, 2004, there were 70,205,639 shares of the Registrant’s Class A Common Stock outstanding.
FIREARMS TRAINING SYSTEMS, INC.
INDEX
2
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FIREARMS TRAINING SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited and in thousands, except per share amounts)
| Three Months Ended June 30 |
||||||||
| 2004 |
2003 |
|||||||
| Revenue |
$ | 18,012 | $ | 15,618 | ||||
| Cost of revenue |
11,866 | 11,347 | ||||||
| Gross margin |
6,146 | 4,271 | ||||||
| Operating expenses |
||||||||
| Selling, general and administrative |
3,339 | 2,897 | ||||||
| Research and development |
1,018 | 523 | ||||||
| Depreciation and amortization |
112 | 125 | ||||||
| Total operating expenses |
4,469 | 3,545 | ||||||
| Operating income |
1,677 | 726 | ||||||
| Other income (expense), net |
||||||||
| Interest expense, net |
||||||||
| Debt, net |
(1,399 | ) | (1,070 | ) | ||||
| Dividends on mandatorily redeemable preferred stock |
(762 | ) | (691 | ) | ||||
| Other, net |
(90 | ) | 42 | |||||
| Total other expense |
(2,251 | ) | (1,719 | ) | ||||
| Loss before provision (benefit) for income taxes |
(574 | ) | (993 | ) | ||||
| Provision (benefit) for income taxes |
40 | (103 | ) | |||||
| Net loss |
(614 | ) | (890 | ) | ||||
| Loss per share |
||||||||
| Basic and diluted loss per share |
$ | (0.01 | ) | $ | (0.01 | ) | ||
| Weighted average common shares outstanding - basic |
70,154 | 70,153 | ||||||
The accompanying notes are an integral part of these condensed consolidated statements.
3
FIREARMS TRAINING SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2004 |
March 31, 2004 |
|||||||
| (in thousands) |
||||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 2,321 | $ | 2,367 | ||||
| Restricted cash |
2,484 | 2,502 | ||||||
| Accounts receivable, net of allowance of $350 |
22,759 | 23,317 | ||||||
| Income taxes receivable |
91 | 104 | ||||||
| Costs and estimated earnings in excess of billings on uncompleted contracts |
5,891 | 4,268 | ||||||
| Unbilled receivables |
1,816 | 62 | ||||||
| Inventories, net |
11,102 | 12,221 | ||||||
| Deferred income taxes |
770 | 770 | ||||||
| Prepaid expenses and other current assets |
2,991 | 1,020 | ||||||
| Total current assets |
50,225 | 46,631 | ||||||
| Property and equipment, net |
2,288 | 2,398 | ||||||
| Other noncurrent assets |
||||||||
| Deferred income taxes |
1,941 | 2,004 | ||||||
| Deferred financing costs, net |
504 | 187 | ||||||
| Total assets |
$ | 54,958 | $ | 51,220 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities |
||||||||
| Long-term debt due within one year |
$ | 3,555 | $ | 2,953 | ||||
| Accounts payable |
5,008 | 3,679 | ||||||
| Accrued liabilities |
6,824 | 7,002 | ||||||
| Accrued interest |
958 | 949 | ||||||
| Income taxes payable |
158 | 214 | ||||||
| Billings in excess of costs and estimated earnings on uncompleted contracts |
1,322 | 1,428 | ||||||
| Deferred revenue |
4,044 | 1,239 | ||||||
| Warranty and contract cost provision reserve - current |
818 | 1,074 | ||||||
| Total current liabilities |
22,687 | 18,538 | ||||||
| Long-term debt |
37,689 | 38,168 | ||||||
| Warranty and contract cost provision reserve - noncurrent |
325 | 356 | ||||||
| Other noncurrent liabilities |
645 | 587 | ||||||
| Manditorily redeemable preferred stock |
31,247 | 30,485 | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ deficit |
||||||||
| Class A common stock, $0.000006 par value; 100,000 shares authorized, 70,206 and 70,153 shares issued and outstanding |
— | — | ||||||
| Additional paid-in capital |
123,244 | 123,215 | ||||||
| Stock warrants |
613 | 613 | ||||||
| Accumulated deficit |
(161,795 | ) | (161,181 | ) | ||||
| Accumulated other comprehensive income |
303 | 439 | ||||||
| Total stockholders’ deficit |
(37,635 | ) | (36,914 | ) | ||||
| Total liabilities and stockholders’ deficit |
$ | 54,958 | $ | 51,220 | ||||
The accompanying notes are an integral part of these condensed consolidated statements.
4
FIREARMS TRAINING SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited and in thousands)
| Three Months Ended June 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities |
||||||||
| Net loss |
$ | (614 | ) | $ | (890 | ) | ||
| Adjustments for non-cash items |
||||||||
| Non-cash interest and financing costs |
1,212 | 799 | ||||||
| Depreciation and amortization |
237 | 269 | ||||||
| Change in inventory reserve |
104 | 96 | ||||||
| Change in warranty and contract cost provision reserve |
(287 | ) | (288 | ) | ||||
| Gain (loss) on sale of assets |
1 | (5 | ) | |||||
| Deferred income taxes |
38 | — | ||||||
| Changes in assets and liabilities |
||||||||
| Accounts receivable, net |
558 | 6,602 | ||||||
| Income taxes receivable |
13 | 459 | ||||||
| Costs and estimated earnings in excess of billings on uncompleted contracts |
(1,623 | ) | (1,417 | ) | ||||
| Unbilled receivables |
(1,754 | ) | 45 | |||||
| Inventories |
1,015 | 40 | ||||||
| Prepaid expenses and other current assets |
(1,971 | ) | 213 | |||||
| Accounts payable |
1,329 | (2,133 | ) | |||||
| Accrued liabilities |
(574 | ) | (159 | ) | ||||
| Income taxes payable |
(56 | ) | (157 | ) | ||||
| Billings in excess of costs and estimated earnings on uncompleted contracts |
(106 | ) | 57 | |||||
| Deferred revenue |
2,805 | (1,005 | ) | |||||
| Noncurrent liabilities |
58 | 27 | ||||||
| Total adjustments |
999 | 3,443 | ||||||
| Net cash provided by operating activities |
385 | 2,553 | ||||||
| Cash flows from investing activities |
||||||||
| Change in restricted cash |
18 | (1,607 | ) | |||||
| Purchase of property and equipment |
(146 | ) | (293 | ) | ||||
| Proceeds from disposal of property and equipment |
1 | 5 | ||||||
| Net cash used by investing activities |
(127 | ) | (1,895 | ) | ||||
| Cash flows from financing activities |
||||||||
| Proceeds from long-term debt |
295 | — | ||||||
| Payments on long-term debt |
(534 | ) | (19 | ) | ||||
| Payment of deferred financing costs |
— | (409 | ) | |||||
| Exercise of stock options |
29 | |||||||
| Net cash used by financing activities |
(210 | ) | (428 | ) | ||||
| Effect of exchange rate changes on cash |
(94 | ) | 253 | |||||
| Net increase (decrease) in cash and cash equivalents |
(46 | ) | 483 | |||||
| Cash and cash equivalents, beginning of period |
2,367 | 3,457 | ||||||
| Cash and cash equivalents, end of period |
$ | 2,321 | $ | 3,940 | ||||
The accompanying notes are an integral part of these condensed consolidated statements.
5
FIREARMS TRAINING SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of presentation
The unaudited condensed consolidated financial statements of Firearms Training Systems, Inc. and subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended June 30, 2004 are not necessarily indicative of the results that may be expected for the full year ending March 31, 2005. We suggest that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto for the year ended March 31, 2004, included in our 2004 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”).
2. Revenue recognition
A significant amount of the Company’s revenue is derived from the sale of small and supporting arms training simulators and accessories. Revenue from sales to commercial customers and small governmental agencies is primarily recognized upon shipment when title passes, as all material commitments have been fulfilled, the sales price is fixed and determinable and collectibility is reasonably assured.
A large portion of the Company’s small and supporting arms training simulator revenue is derived from contracts with various large governmental agencies. Governmental contracts that involve high volume purchases of the Company’s standard systems and related accessories are accounted for as multiple-element arrangements. These contracts require