<PAGE>
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 MARCH 31, 2000
--------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
Commission file number 0-27231
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Wireless Facilities, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 13-3818604
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9805 Scranton Road, Suite 100
San Diego, CA 92121
(858) 824-2929
(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 .
--- ___
As of April 25, 2000 there were 40,957,298 shares of the Registrant's $0.001
par value Common Stock outstanding.
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WIRELESS FACILITIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - December 31, 1999 and March 31, 2000 (unaudited)................................ 3
Consolidated Statements of Operations for the Three Months Ended March 31, 1999 and 2000 (unaudited).......... 4
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1999 and 2000 (unaudited).......... 5
Notes to Consolidated Financial Statements (unaudited)........................................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................................................... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................................... 11
Item 2. Changes in Securities and Use of Proceeds....................................................................... 11
Item 6. Exhibits and Reports on Form 8-K................................................................................ 12
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WIRELESS FACILITIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
________________________________________________________________________________
<TABLE>
<CAPTION>
December 31, March 31,
1999 2000
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(unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents.......................................... $34,322 $24,907
Investments in marketable securities............................... 37,965 29,551
Accounts receivable, net........................................... 32,633 53,040
Contract management receivables.................................... 13,993 16,880
Other current assets............................................... 3,200 3,950
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Total current assets......................................... 122,113 128,328
Property and equipment, net........................................ 5,069 8,983
Goodwill, net...................................................... 7,098 37,185
Other assets, net.................................................. 712 2,672
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Total assets....................................................... $134,992 $177,168
============= ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable................................................. $5,428 $6,152
Accrued expenses................................................. 5,961 2,098
Contract management payables..................................... 8,258 5,241
Billings in excess of costs and profits.......................... 5,170 11,083
Line of credit................................................... - 14,432
Capital lease obligations - current portion...................... 137 1,180
Income taxes payable............................................. 5,641 208
Deferred income tax liability.................................... - 2,182
------------- ------------
Total current liabilities.................................... 30,595 42,576
Long-term liabilities:
Notes payable, net of current portion............................ 909 409
Capital lease obligations, net of current portion................ 1,652 2,865
Other long-term liabilities...................................... 59 59
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Total liabilities.................................................. 33,215 45,909
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Minority interest.................................................. 338 71
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Stockholders' equity:
Common stock, $0.001 par value, 195,000,000 shares authorized;
39,705,590 and 40,783,332 shares issued and outstanding at
December 31, 1999 and March 31, 2000 (unaudited), respectively. 40 41
Additional paid-in capital....................................... 90,245 114,020
Retained earnings................................................ 11,171 16,992
Accumulated other comprehensive(loss)/income..................... (17) 135
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Total stockholders' equity................................... 101,439 131,188
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Total liabilities and stockholders' equity......................... $134,992 $177,168
============= ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
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WIRELESS FACILITIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, March 31,
1999 2000
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<S> <C> <C>
Revenues.................................................. $15,028 $43,333
Cost of revenues.......................................... 9,204 25,330
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Gross profit............................................ 5,824 18,003
Selling, general and administrative expenses.............. 2,314 7,633
Depreciation and amortization of goodwill................. 953 1,113
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Operating income........................................ 2,557 9,257
Other (expense)/income, net............................... (399) 551
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Income before income taxes and minority interest.... 2,158 9,808
Minority interest......................................... - (64)
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Income before income taxes.......................... 2,158 9,744
Provision for income taxes................................ (571) (3,923)
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Net income.......................................... $ 1,587 $ 5,821
============= ===========
Earnings per share data:
Net income per common share:
Basic................................................... $ 0.06 $ 0.14
Diluted................................................. $ 0.05 $ 0.12
Weighted-average common shares outstanding:
Basic................................................... 27,077 40,478
Diluted................................................. 32,008 48,885
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
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WIRELESS FACILITIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, 1999 March 31, 2000
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<S> <C> <C>
Net cash used in operating activities..................... $(8,059) $(20,964)
Investing activities:
Capital expenditures................................... (377) (333)
Cash paid for acquisitions, net of cash acquired....... (1,530) (11,960)
Proceeds from sales of investments..................... - 8,414
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Net cash used in investing activities..................... $(1,907) $(3,879)
--------- --------
Financing activities:
Proceeds from issuance of preferred stock.............. $15,000 -
Proceeds from issuance of common stock................. - $ 927
Purchase of treasury stock............................. (95) -
Net (repayments)/borrowings under line of credit....... (3,000) 14,432
Net repayments to officers............................. (2,095) -
Repayments of stockholder notes payable................ (1,384) -
Principal payments on capital lease obligation......... - (81)
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Net cash provided by financing activities................. $ 8,426 $ 15,278
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Effect of exchange rates on cash and cash equivalents..... $ 15 $ 150
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Net decrease in cash and cash equivalents................. (1,525) (9,415)
Cash and cash equivalents at beginning of period.......... 2,866 34,322
------- --------
Cash and cash equivalents at end of period................ $ 1,341 $ 24,907
======= ========
Noncash transactions:
Issuance of stock for acquisitions...................... - $ 22,349
Issuance of warrants for acquisition.................... $ 104 -
Issuance of notes for acquisition....................... $ 827 -
Issuance of common stock through reduction of note
payable............................................... - $ 500
Property and equipment purchased under capital leases... - $ 2,337
Supplemental disclosure of cash flow information:
Cash paid during the period for interest................ $ 518 $ 48
Cash paid during the period for income taxes............ $ 4,566 $ 4,153
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
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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 formed in the state of New York on
December 19, 1994, began operations in March 1995 and was reincorporated on
August 30, 1998, in Delaware. WFI provides a full suite of outsourcing services
to wireless carriers and equipment vendors, including the design, deployment
and management of client networks.
(b) Basis of Presentation
The information as of March 31, 2000, and for the three month periods ended
March 31, 1999 and 2000 is unaudited. In the opinion of management, these
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 consolidated financial statements should be read
in conjunction with the consolidated financial statements and the related notes
included in the Company's annual consolidated financial statements for the
fiscal year ended December 31, 1999, filed on Form 10-K with the Securities and
Exchange Commission.
The consolidated financial statements include the accounts of WFI and its
majority-owned subsidiaries. During 1998, WFI acquired a wholly-owned subsidiary
(Entel Technologies, Inc.), formed a subsidiary under WFI's control in Mexico
(WFI de Mexico), and formed a wholly-owned subsidiary in Brazil (Wireless
Facilities Latin America Ltda). In January 1999, WFI acquired wholly-owned
subsidiary, B. Communication International, Inc. In June 1999, WFI acquired
wholly-owned subsidiary C.R.D. Inc. In March 2000, the Company acquired the
assets of a network operations center located in Dallas Texas. In conjunction
with this purchase, the Company formed WFI Network Management Services
Corporation, a wholly-owned subsidiary incorporated in the state of Delaware, to
operate the center. WFI and its subsidiaries are collectively referred to herein
as the "Company." All intercompany transactions have been eliminated in
consolidation. Investments accounted for using the cost method include companies
in which the Company owns less than 20% and for which the Company has no
significant influence.
(c) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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. Actual results could differ from those estimates.
(d) Reclassifications
Certain prior period amounts have been reclassified to conform with the
current period presentation.
(2) Recent Events
On January 11, 2000, the Company acquired The Walter Group ("TWG"), a
Washington corporation and a privately-held provider of management consulting
and network development services to the wireless communications market. The
acquisition was effective as of January 1, 2000. Consideration consisted of $5.5
million in cash and stock valued at $4.1 million. The excess purchase price paid
over the fair value of net assets acquired was approximately $7.7 million and
will be amortized over ten years. Results from operations for the three months
ended March 31, 2000 include amortization expense of approximately $192,000
related to this acquisition. The Company accounted for this acquisition using
6
<PAGE>
the purchase method of accounting. Thus, results of operations from this
acquired entity are included in the Company's consolidated financial statements
from the acquisition date.
On January 21, 2000, the Company acquired 6% of the existing 8% minority
ownership interest in its subsidiary company, WFI de Mexico, from the General
Manager of that subsidiary. The purchase was made under terms of a Restricted
Stock Agreement, by which the Company issued shares of stock valued at $18.2
million. The acquisition price was recorded first to reduce the General
Manager's minority interest as recorded by the Company at December 31, 1999,
with the excess of approximately $17.9 million recorded as goodwill, which will
be amortized over 20 years. The General Manager is the brother of both the
President and the Chief Executive Officer of the Company. Results from
operations for the three months ended March 31, 2000 include amortization
expense of approximately $224,000 for this acquisition. The Company accounted
for this acquisition using the purchase method of accounting. Thus, results of
operations from this acquired entity are included in the Company's consolidated
financial statements from the acquisition date.
On March 13, 2000, the Company acquired the assets of a network operations
center from Ericsson Inc., for $6.35 million in cash. The center is located in
Dallas, Texas. The excess purchase price paid over the fair value of the net
assets acquired was approximately $5.2 million and will be amortized over ten
years. The Company accounted for this acquisition using the purchase method of
accounting. Thus, results of operations from this acquired entity are included
in the Company's consolidated financial statements from the acquisition date.
The results of operations from January 1, 2000 to the acquisition date were not
significant to the Company's operations.
(3) Net Income Per Common Share
The Company calculates net income per share in accordance with SFAS No.
128, Earnings Per Share. Under SFAS No. 128, basic net income per common share
is calculated by dividing net income by the weighted-average number of common
shares outstanding during the reporting period. Diluted net income per common
share reflects the effects of potentially dilutive securities. Weighted average
shares used to compute net income per share are presented below (in thousands):
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, 1999 March 31, 2000
-------------- --------------
<S> <C> <C>
Weighted-average shares, basic 27,077 40,478
Dilutive effect of stock options 4,293 7,402
Dilutive effect of warrants 638 1,005
-------------- --------------
Weighted-average shares, diluted 32,008 48,885
============== ==============
</TABLE>
Options to purchase 319,712 and 364,561 shares of common stock at March
31, 1999 and 2000, respectively, were not included in the calculation of diluted
net income per share because the effect of these instruments was anti-dilutive.
7
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(4) Segment Information
Prior to January 1, 1999, the Company provided only design and deployment
services. In the last fiscal quarter of 1999, the Company added network
maintenance and business consulting services. Due to the nature of these
services, the amount of capital assets used in providing services to customers
is not significant. Revenue and operating income provided by the Company's
industry segments for the three month periods ended March 31, 1999 and 2000 are
as follows (in thousands):
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, 1999 March 31, 2000
-------------- --------------
<S> <C> <C>
Revenues:
Design and deployment $ 15,028 40,117
Network management -- 2,429
Business consulting -- 787
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Total revenues $ 15,028 43,333
============== ==============
Operating income:
Design and deployment $ 2,557 7,993
Network management -- 868
Business consulting -- 396
-------------- --------------
Total operating income $ 2,557 9,257
============== ==============
</TABLE>
Revenues derived by geographic segments are as follows (in thousands):
Three months Three months
ended ended
March 31, 1999 March 31, 2000
---------------------------------
U.S................... $10,543 $31,399
Foreign............... $ 4,485 $11,934
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Total Revenues $15,028 $43,333
======= =======
8
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A")
This report contains forward-looking statements. These statements relate to
future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "except," "plan," "anticipate," "believe," "estimate," "predict,"
"potential" or "continue," the negative such terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of the forward-looking
statements. We are under no obligation to update any of the forward-looking
statements after the filing of the Form 10-Q to conform such statements to
actual results or to changes in our expectations.
The following discussion should be read in conjunction with our
consolidated financial statements and the related notes and other financial
information appearing elsewhere in this Form 10-Q. Readers are also urged to
carefully review and consider the various disclosures made by us which attempt
to advise interested parties of the factors which affect our business, including
without limitation the disclosures made under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations", under
the caption "Risk Factors", and the audited consolidated financial statements
and related footnotes included in the Company's Annual Report filed on Form 10-K
for the year ended December 31, 1999 and other reports and filings made with the
Securities and Exchange Commission.
Overview
Wireless Facilities, Inc. (the "Company") offers network business
consulting, network planning, design and deployment services for the wireless
telecommunications industry. For the three months ended March 31, 1999 and March
31, 2000, we increased both the number of our contracts as well as the scope of
our services. In the final months of 1999, we entered into our first contracts
for network planning which contributed to increased revenues and net income
during the three months ended March 31, 2000. We expect to generate increased
revenue from our network management services as we cross-sell to our existing
customers and make this service available to new customers.
Revenues on network planning, design and deployment contracts are
recognized using the percentage-of-completion method. Under the
percentage-of-completion method, expenses on each project are recognized as
incurred, and revenues are recognized based on a comparison of the current costs
incurred for the project to date compared to the then estimated total costs of
the project from start to completion. Accordingly, revenue recognized in a given
period depends on the costs incurred on each individual project and the current
estimate of the total costs to complete a project, determined at that time. As a
result, gross margins for any single project may fluctuate from period to
period. The full amount of an estimated loss is charged to operations in the
period it is determined that a loss will be realized from the performance of a
contract. For network planning, design and deployment contracts offered on a
time and expense basis, we recognize revenues as services are performed. We
typically charges a fixed monthly fee for ongoing radio frequency optimization
and network operations and maintenance services. With respect to these services,
we recognize revenue as services are performed.
9
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Cost of revenues includes direct compensation and benefits, living and
travel expenses, payments to third-party sub-contractors, allocation of
overhead, costs of expendable computer software and equipment, and other direct
project-related expenses.
Selling, general and administrative expenses include compensation and
benefits, computer software and equipment, facilities expenses and other
expenses not related directly to projects. Our sales personnel have, as part of
their compensation package, incentives based on their productivity. During the
three months ended March 31, 2000, we completed the first phase of implementing
a new financial management and accounting software program in our domestic
operations. Such software was implemented to better accommodate our growth. We
expect to incur expenses in subsequent periods related to licensing the software
package and related personnel costs associated with phasing in its
implementation in our domestic and international operations. We may incur
expenses related to a given project in advance of the project beginning as we
increase our personnel to work on the project. New hires typically undergo
training on our systems and project management process prior to being deployed
on a project.
On November 10, 1999, we completed an initial public offering of common
stock. In conjunction with the closing of that offering, we issued 4,600,000
shares of common stock (including an underwriter's over-allotment) for proceeds
(after underwriter discounts) of $64.2 million in cash, which was partially used
to pay down advances on a line of credit, as well as to payoff approximately
$2.5 million of short term debt.
Results of Operations
Revenues. Revenues increased 188% from $15.0 million for the three months
ended March 31, 1999 to $43.3 million for the three months ended March 31, 2000.
The $28.3 million increase was primarily attributable to the addition of new
contracts, including contracts in our business development and network
management segments, not included in the three months ended March 31, 1999.
During the three months ended March 31, 2000, revenues include contract work for
three significant customers representing 28%, 12% and 11% of total revenues. The
most significant of these includes work on a broadband wireless systems
implementation, a new and emerging technology in the wireless telecom industry.
Cost of Revenues. Cost of revenues increased 175% from $9.2 million for the
three months ended March 31, 1999 to $25.3 million for the three months ended
March 31, 2000, primarily due to increased staffing in support of new contracts.
Gross margin was 42% of revenues for the three months ended March 31, 2000
compared to 39% for the three months ended March 31, 1999. Improvements in our
budgeting of turnkey projects contributed to the higher gross margin for the
three months ended March 31, 2000 compared to the same period in 1999. This was
slightly offset by an increased usage of subcontractors which accelerated work
in certain turnkey projects and which had a slight decreasing affect on the
gross margins for the three months ended March 31, 2000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 230% from $2.3 million for the three months
ended March 31, 1999 to $7.6 million for the three months ended March 31, 2000.
As a percentage of revenues, selling, general and administrative expenses
increased from 15% for the three months ended March 31, 1999 to 18% for the
three months ended March 31, 2000. The increase is due to staffing increases in
overhead departments to support our growth in operations as well as the
increased support required for a public company. Higher utilization rates had a
slight offsetting effect on the overall increase.
10
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Depreciation and Amortization Expense. Depreciation and amortization
expense increased 17% from $1.0 million for the three months ended March 31,
1999 to $1.1 million for the three months ended March 31, 2000. The increase is
primarily due to goodwill and other indentifiable intangibles purchased in our
recent acquisitions, which contributed to our increase in contracts, revenues
and overall operations. In January 2000, we acquired The Walter Group, a
provider of management consulting and network deployment services for
approximately $5.5 million in cash and stock valued at $4.1 million. Also in
January 2000, we purchased 6% of the minority interest in our largest
subsidiary, WFI de Mexico, for stock valued at approximately $18 million from a
related party, leaving a 2% minority interest in WFI de Mexico. In March of
2000, we acquired the assets of a network operations center, in conjunction with
the development of the networking and maintenance segment of the business, for
$6.4 million in cash.
Net Other Income (Expense). For the three months ended March 31, 2000, net
other income was $0.6 million as compared to a net expense of $0.4 million for
the three months ended March 31, 1999. This increase totaling $1.0 million was
primarily attributable to interest earned on our investments in marketable
securities from the proceeds of our November 1999 initial public offering and
lower interest expense due to decreased debt outstanding during the periods
under comparison.
Net Income. Net income increased 267% from $1.6 million for the three
months ended March 31, 1999 to $5.8 for the three months ended March 31, 2000.
The $4.2 million increase was primarily due to revenue and margin increases on
new contracts, offset in part by higher general and administrative expenses as a
percentage of revenues and an increase in our provision for income taxes based
on higher taxable income.
Liquidity and Capital Resources
As of March 31, 2000, the latest date which information was available, we
had cash and cash equivalents totaling approximately $54.5 million. Of this,
approximately $29.6 million was invested in short-term investment grade
securities.
Future capital requirements will depend upon many factors, including our
plans for future acquisitions, the timing of payments under contracts and our
increase in personnel in advance of new contracts.
Cash used in operations is primarily derived from our contracts in process
and changes in working capital. Cash used in operations was $21.0 million for
the three months ended March 31, 2000 and $8.1 million for the three months
ended March 31, 1999.
Cash used in investing activities was $3.9 million for the three months
ended March 31, 2000, and $1.9 million for the three months ended March 31,
1999. Investing activities for the three months ended March 31, 1999 consisted
primarily of cash paid for the acquisition of B. Communications International.
Investing activities for the three months ended March 31, 2000 consist primarily
of $11.9 million paid for the acquisitions of The Walter Group and a network
operations center in January and March of 2000, respectively.
Cash provided by financing activities for the three months ended March 31,
2000 was $15.3 million, which was primarily derived from borrowings under the
Company's $20 million line of credit facility. At March 31, 2000, $14.4 million
was outstanding under this facility. The credit facility is due on August 17,
2000 and bears interest at either the bank prime rate plus 0.25% (8.5% at
December 31, 1999) or at the London Interbank Offering Rate (LIBOR) plus 2.25%
(10.4% at December 31, 1999) at our discretion. The line of credit is secured by
substantially all of our assets. The agreement contains restrictive covenants,
which, among other things, require maintenance of certain financial ratios. Cash
provided by financing activities for the three months ended March 31, 1999 was
$8.4 million. In February of 1999, we issued and sold 2,727,273 shares of Series
B preferred stock for $15.0 million. These shares were converted to common stock
at the conversion rate of 1 to 1 upon the closing of our initial public offering
in November of 1999, in accordance with the preferred stock agreement. The cash
provided by this financing was partially offset by the repayments of the line of
credit, and repayments of notes to officers and stockholders.
11
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The Company has no material commitments other than obligations under its
credit facilities, operating and capital leases. Future capital requirements
will depend upon many factors, including the timing of payments under contracts
and increases in personnel in advance of new contracts.
On November 10, 1999, we completed an initial public offering of common
stock. In conjunction with the closing of that offering, we issued 4,600,000
shares of common stock for approximately $64.2 million in cash (net of
underwriting discounts), which was partially used to pay down advances on a line
of credit, finance acquisitions, and to payoff approximately $2.5 million of
short term debt. The remaining amounts are invested in short-term, investment
grade securities.
12
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to foreign currency risks due to both transactions
and translations between a functional and reporting currency. The Company
currently does not hedge any of these risks because (1) cash flows from foreign
operations in Mexico are generally reinvested locally, (2) foreign operations in
Brazil and the United Kingdom are minimal, and (3) we do not believe that to do
so is justified by the current exposure or the cost at this time. The Company is
exposed to the impact of foreign currency fluctuations due to the operations of
and intercompany transactions with its consolidated subsidiaries in Mexico,
Brazil and the United Kingdom. While these intercompany balances are eliminated
in consolidation, exchange rate changes do affect consolidated earnings. At
March 31, 2000, there were $5.2 million, $1.2 million and $0.1 million owed to
the Company from its Mexican, Brazilian and United Kingdom subsidiaries,
respectively. These intercompany receivables were denominated in US dollars. The
potential foreign currency translation losses from a hypothetical 10% adverse
change in the exchange rates from these intercompany balances are approximately
$524,000, $117,000 and $12,000 from Mexico, Brazil and the United Kingdom,
respectively. In addition, we estimate that a 10% change in foreign exchange
rates would impact reported operating profit for the three months ended March
31, 2000 by approximately $319,000. This was estimated using a 10% deterioration
factor to the average monthly exchange rates applied to net income or loss for
each of the subsidiaries in the respective period. Operations with and net
income of foreign subsidiaries were not significant at March 31, 1999.
As of March 31, 2000, the latest date for which detailed information was
available, we had cash or cash equivalents of approximately $54.5 million. Of
this, $29.6 million was invested in interest-bearing investment grade
securities, primarily short-term, highly liquid investments with maturities at
the date of purchase of less than 90 days. We have the ability to hold these
investments until maturity, and therefore we do not expect the value of these
investments to be affected to any significant degree by the effect of a sudden
change in market interest rates. The Company does not utilize derivative
financial instruments, derivative commodity instruments or other market risk
sensitive instruments, positions or transactions in any material fashion.
Accordingly, management believes that, while the investment-grade securities the
Company holds are subject to changes in the financial standing of the issuer of
such securities, it is not subject to any material risks arising from changes in
interest rates, foreign currency exchange rates, commodity prices, equity prices
or other market changes that affect market risk sensitive instruments.
13
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Subsequent to the Company's initial public offering in November 1999, the
Company received correspondence from certain former employees (or their
stockbrokers) who presented stock certificates of a predecessor of the Company
delivered in 1996 as part of an employee benefit plan. The Company did not
register these shares in its books and records because it believed them to have
been forfeited in accordance with the terms of the plan. However, these former
employees claimed that such certificates represented outstanding shares of the
Company's common stock issued to them for services rendered in 1996.
On March 6, 2000, the Company filed a Complaint for Declaratory Relief in the
Superior Court of the State of California for the County of San Diego, against
six former employees who had sold or who had attempted to sell unregistered
certificates purportedly representing 97,500 shares of the Company. The
Complaint seeks a declaration that the subject certificates were invalid due to
forfeiture provisions of the applicable employee benefit plan. The Complaint had
not been served as of May 9, 2000, pending settlement discussions with the
defendants.
The Company has agreements to settle the demands of each of the former employees
named in the Complaint and certain of their brokers. The terms of the
settlements call for the Company to recognize a certain number of the shares
represented by these certificates as having been properly issued in 1996 for
services rendered prior to issuance. The terms of some of the settlements remain
subject to final documentation.
The total number of shares represented by such unregistered certificates
(including shares subject to the settlement agreements and those not yet been
presented to the Company) is estimated to be approximately 532,500 shares of
common stock. Recognition of any of these shares will depend on the facts and
circumstances relating to the issuance and delivery of each such certificate.
The Company is therefore not certain at this time how many of the subject shares
will be recognized.
As a result of the foregoing circumstances, the Company underreported the number
of shares of common stock outstanding during each of the years ended December
31, 1996 through December 31, 1999. The impact of the additional shares was not
material to the financial statements for the years ended December 31, 1996
through December 31, 1999.
Massih Tayebi, the Company's Chief Executive Officer, and Masood Tayebi, the
Company's President, were the executive officers and directors of the Company's
predecessor entity during 1996, and collectively owned the substantial majority
of outstanding shares of that entity during that time. They have agreed to
transfer shares of common stock owned by them to the Company for cancellation,
share for share, for any shares represented by unregistered certificates which
are recognized by the Company as issued and outstanding. Each will transfer to
the Company one-half of the number of shares recognized. Consequently, the
Company expects no increase in the number of currently outstanding shares of the
Company's common stock and no impact on the financial statements in future
periods as a result of the Company recognizing any of the unregistered
certificates. Such cancellation of outstanding shares held by the Tayebis is not
expected to materially diminish the ownership interests of either of them in the
Company.
The Company does not believe demands or litigation associated with the
unregistered certificates will have a material effect on the Company's financial
position or results of operations. However, there can be no guarantee that any
litigation that might arise out of these circumstances can be settled or
disposed of in the manner anticipated, and therefore no guarantee that other
outcomes would not have a material adverse effect on the Company's financial
position or results of operations.
Other than as described above, the Company is not subject to any legal
proceedings other than ordinary routine matters incidental to the business, none
of which are expected to have a material adverse effect on the Company's
financial position or results of operations. However, litigation is subject to
inherent uncertainties, and an adverse result in existing or other matters may
arise from time to time that may harm the Company's business.
14
<PAGE>
Item 2. Changes in Securities and Use of Proceeds
(a). Use of Proceeds from Sales of Registered Securities
---------------------------------------------------
On November 10, 1999, the Company completed an initial public offering of its
Common Stock, $0.001 par value per share. The managing underwriters in the
offering were Credit Suisse First Boston, Hambrecht & Quist and Thomas Weisel
Partners LLC. The shares of Common Stock sold in the offering were registered
under the Securities Act of 1933, as amended, on a Registration Statement on
Form S-1 (Reg. No. 333-85515) ("the "Registration Statement") that was declared
effective by the Commission on November 4, 1999. All 4,600,000 shares of Common
Stock registered under the Registration Statement, including shares covered by
an overallotment option, were sold at a price to the public of $15.00 per share.
The offering resulted in gross proceeds of $69,000,000, of which $4,830,000 was
applied toward commissions to the underwriters. Expenses related to the offering
were approximately $2,250,000. After deducting the underwriter's commissions,
the Company received net proceeds of approximately $64,170,000. As of March 31,
2000, the Company has used the net proceeds from the offering to (i) repay
$2,535,210 of short-term debt, (ii) invest in interest-bearing, investment guide
securities, and (iii) finance acquisitions. The offering proceeds are available
to be used for working capital and general corporate purposes. None of the net
proceeds of the offering were paid directly or indirectly to any director or
officer of the Company or their associates, persons owning ten percent (10%) or
more of any class of equity securities of the Company, or an affiliate of the
Company.
15
<PAGE>
Item 6. Exhibits and Reports on Form 8-K:
(a). Exhibits:
--------
27 Financial Data Schedule
(b). Reports on Form 8-K:
--------------------
None.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WIRELESS FACILITIES, INC.
Date: May 12, 2000 By: /s/ MASSIH TAYEBI
Massih Tayebi
Chief Executive Officer and
Director
By: /s/ THOMAS A. MUNRO
Thomas A. Munro
Chief Financial Officer
17
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Document
27 Financial Data Schedule
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 MAR-31-2000
<PERIOD-START> JAN-01-1999 JAN-01-2000
<PERIOD-END> MAR-31-1999 MAR-31-2000
<CASH> 34,322 24,907
<SECURITIES> 37,965 29,551
<RECEIVABLES> 47,544 70,942
<ALLOWANCES> (918) (1,022)
<INVENTORY> 0 0
<CURRENT-ASSETS> 112,113 128,328
<PP&E> 6,903 11,157
<DEPRECIATION> (1,834) (2,174)
<TOTAL-ASSETS> 134,992 177,168
<CURRENT-LIABILITIES> 30,595 42,576
<BONDS> 0 0
0 0
0 0
<COMMON> 40 41
<OTHER-SE> 101,399 131,147
<TOTAL-LIABILITY-AND-EQUITY> 134,992 177,168
<SALES> 15,028 43,333
<TOTAL-REVENUES> 15,028 43,333
<CGS> 9,204 25,330
<TOTAL-COSTS> 3,267 8,746
<OTHER-EXPENSES> 75 31
<LOSS-PROVISION> 57 156
<INTEREST-EXPENSE> 337 170
<INCOME-PRETAX> 2,158 9,744
<INCOME-TAX> 571 3,923
<INCOME-CONTINUING> 1,587 5,821
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,587 5,821
<EPS-BASIC> 0.06 0.14
<EPS-DILUTED> 0.05 0.12
</TABLE>
