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We are also voluntarily cooperating with a request for documents and data received from the Department of Justice, which is reviewing the entire body armor industry’s use of Zylon®, and a subpoena served by the General Services Administration for information relating to Zylon®. On March 27, 2006, we entered into a tolling agreement with the Department of Justice to toll the statute of limitations until September 30, 2006, with regard to possible civil claims the United States could assert against the Company with respect to certain body armor products made by us which contain Zylon®. On September 26, 2006, we entered into an amendment to this tolling agreement with the Department of Justice that extends the period of the tolling agreement through January 31, 2007.
Aerospace & Defense selling, general and administrative expenses increased $13 million, or 156%, to $22 million (4.7% of Aerospace & Defense revenues) for the three months ended September 30, 2006, compared to $8 million (2.4% of Aerospace & Defense revenues) for the three months ended September 30, 2005. The increase in selling, general and administrative expenses was due primarily to the acquisition of Stewart and Stevenson, increased research and development expense, increased legal related expenses, and other administrative expenses as a result of the increased size of the business. The increase in selling, general and administrative expenses as a percentage of revenue was primarily due to the addition of Stewart & Stevenson, which currently operates at a higher expense level as a percentage of revenues than our legacy business as well as increased spending on research and development. We expect Stewart & Stevenson’s operating expenses as a percentage of sales to decrease over the next 12 months as we eliminate overhead associated with Stewart & Stevenson’s legacy businesses, which have been sold or discontinued, and the old public company infrastructure.
Products selling, general and administrative expenses increased $4 million, or 28%, to $18 million (23.0% of Products revenues) for the three months ended September 30, 2006, compared to $14 million (20.2% of Products revenues) for the three months ended September 30, 2005. This increase reflects the impact of acquisitions which amounted to $2 million, and our decisions earlier this year to expand our sales force and increase our investment in sales training and marketing.
Mobile Security selling, general and administrative expenses increased $1 million, or 14%, to $5 million (19.3% of Mobile Security revenues) for the three months ended September 30, 2006, compared to $4 million (12.8% of Mobile Security revenues) for the three months ended September 30, 2005. The increase in selling, general and administrative expense was primarily due to increased investment in research and development and expansion of our sales force. The increase in selling, general and administrative expenses as a percentage of revenues was due to the items listed above and the decrease in revenues.
Corporate general and administrative expenses increased $1 million, or 13%, to $9 million (1.6% of total revenues) for the three months ended September 30, 2006, compared to $8 million (1.8% of
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total revenues) for the three months ended September 30, 2005. This increase in general and administrative expenses is primarily associated with an expanding and more complex business, as well as $300,000 of stock option expense associated with our current-year adoption of FAS 123(R).
Amortization. Amortization expense increased $5 million, or 244%, to $7 million for the three months ended September 30, 2006, compared to $2 million for the three months ended September 30, 2005, primarily due to the acquisitions of Stewart & Stevenson in May 2006, Projectina in April 2006, and Second Chance in July 2005. Amortization expense is related to patents and trademarks with finite lives, and acquired amortizable intangible assets that meet the criteria for recognition as an asset apart from goodwill under SFAS 141.
Integration. Integration decreased $293,000, or 44%, to $380,000 for the three months ended September 30, 2006, compared to $673,000 for the three months ended September 30, 2005. Included in integration in the third quarter of 2006 were charges for the integration of ITS, Projectina and Stewart & Stevenson and costs related to accounting, legal and other due diligence costs related to acquisitions that were not consummated. Included in integration in the third quarter of 2005 were charges primarily for Specialty Defense and Bianchi, which were acquired in the fourth quarter of 2004, and Second Chance, which was acquired in July 2005.
Operating income. Operating income decreased $2 million, or 4%, to $41 million for the three months ended September 30, 2006, compared to $42 million in the three months ended September 30, 2005, due to the factors discussed above.
Interest expense, net. Interest expense, net, increased $9 million, or 623%, to $10 million for the three months ended September 30, 2006, compared to $1.4 million for the three months ended September 30, 2005. This increase is primarily due to: (1) additional borrowings under our new credit facility for the acquisition of Stewart and Stevenson, (2) the use of the majority of our investment balances to acquire Stewart & Stevenson, and (3) the increase in interest expense on our variable rate debt as a result of the increase in the six-month LIBOR. On September 2, 2003, we entered into interest rate swap agreements that effectively exchanged the 8.25% fixed rate on the 8.25% Notes for a variable rate of six-month LIBOR (5.36% at September 30, 2006, and 4.23% at September 30, 2005), set in arrears, plus a spread of 2.735% to 2.75%.
Other income, net. Other income, net, increased $1 million, or 67%, to $2 million for the three months ended September 30, 2006, compared to $1 million for the three months ended September 30, 2005. Other income, net, for the three months ended September 30, 2006, relates primarily to the gain on disposal of a parcel of land. Other income, net, for the three months ended September 30, 2005, relates primarily to an increase in the fair market value of our previously announced put option contracts, net of a non-operating asset write-off.
Income before provision for income taxes. Income before provision for income taxes decreased $10 million, or 23%, to $33 million for the three months ended September 30, 2006, compared to $42 million for the three months ended September 30, 2005, due to the reasons discussed above.
Provision for income taxes. Provision for income taxes was $12 million for the three months ended September 30, 2006, compared to $16 million for the three months ended September 30, 2005. The effective tax rate was 35.4% for the three months ended September 30, 2006, compared to 37.7% for the three months ended September 30, 2005. The decreased tax rate relates primarily to the benefit associated with the reduction in the capital loss carryforward valuation allowance related to the gain on the sale of land in the three month period ended September 30, 2006.
Net income. Net income decreased $5 million, or 20%, to $21 million in the three months ended September 30, 2006, compared to $26 million in the three months ended in September 30, 2005, due to the factors discussed above.
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NINE MONTHS ENDED SEPTEMBER 30, 2006, COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2005.
Net income. Net income increased $2 million, or 2%, to $97 million in the nine months ended September 30, 2006, compared to $95 million in the nine months ended September 30, 2005.
Total revenues. Total revenues increased $376 million, or 32%, to $1,560 million in the nine months ended September 30, 2006, compared to $1,184 million in the nine months ended September 30, 2005. For the nine months ended September 30, 2006, total revenue increased 10% internally, including period-over-period changes in acquired businesses, 22% from acquisitions, with no effect from foreign currency movements. Internal revenue growth represents period-over-period increases in revenue from businesses that were either owned or acquired by us during the periods presented. Our calculation of internal revenue growth takes into consideration pro-forma revenue for relevant periods of acquired entities in determining period-over-period growth.
Aerospace & Defense revenues. Aerospace & Defense revenues increased $378 million, or 43%, to $1,252 million in the nine months ended September 30, 2006, compared to $874 million in the nine months ended September 30, 2005. Aerospace & Defense revenues increased 16% internally, including period-over-period changes in acquired businesses and increased $240 million, or 28%, from the acquisition of Stewart & Stevenson in May 2006. Internal growth was primarily due to the following factors:
(1) We experienced strong demand for the Up-Armored HMMWV, including spare part revenues, as we shipped 7,693 Up-Armored HMMWVs (includes both M1114 and M1151/52 models) in the nine months ended September 30, 2006, compared to 4,822 in the nine months ended September 30, 2005, a 60% increase. There continues to be new orders under our current M1114 Up-Armored HMMWV contract and additional orders for the next-generation versions known as the M1151/52 Up-Armored HMMWVs. We believe the U.S. military’s plans include procurement of a replacement military light transport vehicle which would include the JLTV, with current status being in the early development stage. While the U.S. Military’s current acquisition strategies plan for possible production of new light and medium support vehicles beginning as early as 2008, there is no assurance as to when a replacement for the HMMWV may be selected, and furthermore, we believe that the HMMWV will continue for some time to be one of the primary transport vehicles in the U.S. military. In the event the HMMWV is replaced, based on U.S. military procurement plans, it is anticipated that vehicle armoring for a replacement vehicle would be provided to the vehicle OEM for inclusion in the manufacturing process as components to be integrated with the vehicle while additional armor components would be provided for attachment to the vehicle at a later time when warranted by threat conditions. We anticipate that procurements for the potential HMMWV replacement models would be competitive and could be awarded to multiple armor suppliers based on full and open competition. Although we anticipate continuation of developmental efforts and enhancement of manufacturing capabilities, at this time, there is no certainty of obtaining armoring contracts for any HMMWV replacement vehicles selected by the U.S. military, and if successful in competitive programs, we cannot determine the specific levels of effort likely under such military contracts.
An additional consideration and risk factor regarding the introduction of new vehicle versions for tactical wheeled vehicles is the U.S. military’s recent pronouncements that it is the U.S. Government’s preference to own technical data rights for new major end items of equipment and sub-systems, including the vehicle armoring packages. The U.S. Government’s intent to mitigate risk of limitations on producibility and to ensure commonality of armor components produced by multiple sources may negatively influence future manufacturing content and product pricing.
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See risk factor ‘‘A Replacement of the HMMWV in the U.S. military may affect our results of operations’’ under Item 1A in Part II of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.
(2) During the nine months ended September 30, 2006, we shipped 1,715 FMTV trucks subsequent to the May 25, 2006, Stewart & Stevenson closing date. This compares with 791 FMTV trucks shipped by Stewart & Stevenson in the same period last year as we continue to increase production to meet customer demand.
(3) SAPI plate volume increased as a result of: (1) increasing requirements by the U.S. military, (2) the ability of our industrial base to increase production capacity, (3) our ability to qualify additional sources of supply and (4) partially offset by changing design specifications.
Continued growth in the SAPI plate business is dependent upon the continued level of hostilities in the Middle East as well as the U.S. Government’s requirements for improved technology and performance of the SAPI plate. Future revenues may be constrained by our ability to procure certain raw materials necessary for the manufacture of the SAPI plate. See the risk factor ‘‘There are Limited Sources for Some of Our raw materials, which may significantly curtail our manufacturing operations’’ under Item 1A in Part II of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.
(4) OTV units, helmet units, and MOLLE revenue increased due to a general increase in demand spurred by the continuing conflict in the Middle East.
The previously mentioned revenue increases were partially offset by:
(5) During the nine months ended September 30, 2006, revenue from add-on armor components for fielded vehicles including add-on armor kits for the light, medium and heavy tactical truck fleet decreased 50%, compared to the nine months ended September 30, 2005. Although we may receive additional add-on armor kit business in the future, the majority of armoring of fielded trucks has been completed. We believe, however, that the U.S. Military’s tactical wheeled vehicle procurement strategy includes replacement or additional production of current type medium or heavy trucks and these vehicles are also planned to receive armor subsystems in the future.
Products revenues. Products revenues increased $30 million, or 15%, to $234 million in the nine months ended September 30, 2006, compared to $204 million in the nine months ended September 30, 2005. For the nine months ended September 30, 2006, Products revenue increased 4% internally, including period-over-period changes in acquired businesses and increased $23 million, or 11%, from the acquisition of the law enforcement business of Second Chance, acquired in July 2005, Projectina, acquired in April 2006, and Hiatts, acquired in July 2006. Internal growth was primarily driven by strong domestic sales of body armor resulting primarily from our investment in an expanded sales force. Also, contributing to the internal growth were strong sales within our automotive and forensics’ product lines. This overall growth was offset in part by declining international sales of body armor into Iraq and the decline of gas masks sales as we made the transition to a new supplier of these products.
Mobile Security revenues. Mobile Security revenues decreased $32 million, or 30%, to $74 million in the nine months ended September 30, 2006, compared to $107 million in the nine months ended September 30, 2005. Commercial vehicle shipments decreased 14%, to 1,073 vehicles in the nine months ended September 30, 2006, compared to 1,250 vehicles in the nine months ended September 30, 2005. The Mobile Security’s internal revenue decline was primarily the result of the change in model year for the Suburban and the S-Class Mercedes and delayed spending by the Department of State and the Iraqi government.
Cost of revenues. Cost of revenues increased $340 million, or 38%, to $1,238 million for the nine months ended September 30, 2006, compared to $898 million for the nine months ended
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September 30, 2005. As a percentage of total revenues, cost of revenues increased to 79.4% of total revenues for the nine months ended September 30, 2006, from 75.8% for the nine months ended September 30, 2005.
Gross margins in Aerospace & Defense were 17.1% for the nine months ended September 30, 2006, compared to 21.2% for the nine months ended September 30, 2005. This reduction was primarily due to the acquisition of Stewart & Stevenson, which operates at lower gross margins.
Gross margins in Products were 39.7% for the nine months ended September 30, 2006, compared to 37.4% for the nine months ended September 30, 2005. Gross margin improvement reflects select selling price increases, continued expansion of lean manufacturing initiatives, increased utilization of our lower-cost manufacturing plants, and improved outsourcing of externally manufactured products.
Gross margins in Mobile Security were 19.5% in the nine months ended September 30, 2006, compared to 23.4% for the nine months ended September 30, 2005. The decrease in margins was primarily due to decreased overhead absorption caused by reduced production throughput and also a less profitable sales mix.
Costs of exchange program/warranty revision. As a result of our voluntary Zylon® Vest Exchange Program relating to our Zylon®-vests, we recorded a pre-tax charge of $3 million and $19 million in the nine months ended September 30, 2006 and 2005, respectively. The $3 million charge incurred in the nine months ended September 2006 resulted from higher redemption rate estimates on our existing Zylon® vest replacement program. The $19 million charge incurred in the nine months ended September 2005 includes estimated exchange program costs and inventory write-offs. This liability has been classified in accrued expenses and other current liabilities on the condensed consolidated balance sheet. As a result of our warranty revision and product exchange program relating to our Zylon®-containing vests, we recorded a pre-tax charge of $5 million in the three months ended September 30, 2004, and includes all the legal costs associated with the class action lawsuits settled in 2004. The warranty revision and product exchange program has been superseded by the vest exchange program.
Selling, general and administrative expenses. Selling, general and administrative expenses increased $30 million, or 30%, to $135 million (8.7% of total revenues) for the nine months ended September 30, 2006, compared to $104 million (8.8% of total revenues) for the nine months ended September 30, 2005. The increase was primarily due to: (1) the acquisitions of Stewart & Stevenson, Second Chance Body Armor and Projectina, which added $19 million; (2) increased selling and marketing expenses; (3) increased research and development expense; and (4) an increase in legal related expense.
Aerospace & Defense selling, general and administrative expenses increased $20 million, or 78%, to $46 million (3.7% of Aerospace & Defense revenues) for the nine months ended September 30, 2006, compared to $26 million (3.0% of Aerospace & Defense revenues) for the nine months ended September 30, 2005. The increase in selling, general and administrative expenses was due primarily to the acquisition of Stewart and Stevenson, increased research and development expense, an increase in legal related expenses, and other administrative expenses as a result of the increased size of the business. We expect Stewart & Stevenson’s operating expenses as a percentage of sales to decrease over the next 12 months as we eliminate overhead associated with Stewart & Stevenson’s legacy businesses, which have been sold or discontinued and the old public company infrastructure.
Products selling, general and administrative expenses increased $10 million, or 24%, to $52 million (22.3% of Products revenues) for the nine months ended September 30, 2006, compared to $42 million (20.6% of Products revenues) for the nine months ended September 30, 2005. This increase reflects the impact of acquisitions, which amounted to $5 million, and our decisions earlier this year to expand our sales force and increase our investment in sales training and marketing.
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Mobile Security selling, general and administrative expenses increased $3 million, or 25%, to $14 million (19.2% of Mobile Security revenues) for the nine months ended September 30, 2006, compared to $11 million (10.8% of Mobile Security revenues) for the nine months ended September 30, 2005. The increase in selling, general and administrative expense was primarily due to increased selling and marketing programs launched globally with the introduction of the new brand, Centigon. The increase in selling, general and administrative expenses as a percentage of revenues was due to the items listed above and the decrease in revenues.
Corporate general and administrative expenses decreased $2 million, or 10%, to $22 million (1.4% of total revenues) for the nine months ended September 30, 2006, compared to $25 million (2.1% of total revenues) for the nine months ended September 30, 2005. This decrease in general and administrative expenses is primarily associated with reduced bonus provisions; partially offset with increased expenses associated with operating an expanding and more complex business, the adoption of FAS 123(R) (expensing of stock options) and SERP plan.
Amortization. Amortization expense increased $8 million, or 132%, to $14 million for the nine months ended September 30, 2006, compared to $6 million for the nine months ended September 30, 2005, primarily due to the acquisition of Stewart and Stevenson in May 2006, Projectina in April 2006 Hiatts , in July 2006 and Second Chance in July 2005. Amortization expense is related to patents and trademarks with finite lives, and acquired amortizable intangible assets that meet the criteria for recognition as an asset apart from goodwill under SFAS 141.
Integration. Integration decreased $1 million, or 46%, to $1 million for the nine months ended September 30, 2006, compared to $2 million for the nine months ended September 30, 2005. Included in integration in the first nine months of 2006 were charges for the integration of Projectina, which was acquired April 2006, Second Chance, which was acquired in the third quarter of 2005, Stewart & Stevenson, which was acquired in May 2006, Hiatts, which was acquired July 2006, and costs related to accounting, legal and other due diligence costs related to acquisitions that were not consummated. Included in integration in the first nine months of 2005 were charges primarily for Specialty Defense and Bianchi, which were acquired in the fourth quarter of 2004.
Other charges. Other charges (credits) for the nine months ended September 30, 2006 included ($2 million) for a reversal of a previously recorded expense accrual relating to an export fine that we recently settled for an inconsequential amount.
Operating income. Operating income increased $15 million, or 10%, to $170 million for the nine months ended September 30, 2006, compared to $155 million in the nine months ended September 30, 2005, due to the factors discussed above.
Interest expense, net. Interest expense, net, increased $15 million, or 283%, to $20 million for the nine months ended September 30, 2006, compared to $5 million for the nine months ended September 30, 2005. This increase is primarily due to: (1) additional borrowings under our new credit facility for the acquisition of Stewart and Stevenson, (2) the use of the majority of our investment balances to acquire Stewart & Stevenson, (3) the write-off of $5 million of loan costs related to our convertible debenture, and (4) the increase in interest expense on our variable rate debt as a result of the increase in the six-month LIBOR. In the three months ended March 31, 2006, the average of the closing prices of our common stock on each of the last ten trading days of the quarter exceeded our conversion price of $54.01, effectively accelerating the first put date to the first quarter of 2006. During the nine months ended September 30, 2006, we wrote off $5 million of previously capitalized loan costs on our 2% Convertible Notes. On September 2, 2003, we entered into interest rate swap agreements that effectively exchanged the 8.25% fixed rate on the 8.25% Notes for a variable rate of six-month LIBOR (5.36% at September 30, 2006, and 4.23% at September 30, 2005), set in arrears, plus a spread of 2.735% to 2.75%.
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Other income, net. Other income, net, decreased $100,000, or 3%, to $3 million for the nine months ended September 30, 2006, compared to $3 million for the nine months ended September 30, 2005. Other income, net for the nine months ended September 30, 2006, relates primarily to a gain on sale of land and the expiration of our unexercised 1 million previously announced put option contracts on Company stock and dividends received on our equity based securities. Other income, net, for the nine months ended September 30, 2005, relates primarily to an increase in the fair market value of our previously announced put option contracts, net of a non-operating asset write-off.
Income before provision for income taxes. Income before provision for income taxes increased $1 million, or 1%, to $153 million for the nine months ended September 30, 2006, compared to $153 million for the nine months ended September 30, 2005, due to the reasons discussed above.
Provision for income taxes. Provision for income taxes was $57 million for the nine months ended September 30, 2006, compared to $58 million for the nine months ended September 30, 2005. The effective tax rate was 36.9% for the nine months ended September 30, 2006, compared to 37.9% for the nine months ended September 30, 2005. The decreased tax rate relates primarily to the benefit associated with the reduction in the capital loss carryforward valuation allowance related to the gain on the sale of land and the reversal of a previously non-deductible accrual in the three month period ended June 30, 2006.
Net income. Net income increased $2 million, or 2%, to $97 million in the nine months ended September 30, 2006, compared to $95 million in the nine months ended in September 30, 2005, due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
On June 20, 2006, we announced our proposed $400 million Senior Subordinated Notes offering. Due to volatile market conditions surrounding the June 28, 2006 Federal Open Market Committee meeting, a spike in the ten year treasury and widening spreads, we chose not to complete the transaction that was offered to us. However, we are currently monitoring the interest rate environment for the appropriate opportunity. On June 20, 2006, Standard & Poor’s affirmed their BB corporate rating and revised the outlook to positive from stable. On June 22, 2006, Moody’s affirmed their Ba3 corporate rating and classified the outlook as stable. Standard and Poor’s and Moody’s assigned a B+/B1 rating, respectively, to our potential $400 million Senior Subordinated Notes offering.
On May 25, 2006, we terminated our prior senior secured credit facility and entered into a new senior secured credit facility (the ‘‘Credit Facility’’) with Wachovia Bank, National Association, as administrative agent, Bank of America, N.A. and Suntrust Bank, as co-syndication agents, Key Bank National Association and JPMorgan Chase Bank, as co-documentation agents, and the other lenders party thereto.
The Credit Facility establishes a commitment to the Company to provide up to $825 million in the aggregate of loans and other financial accommodations consisting of (i) a five year senior secured revolving credit facility in an aggregate principal amount of up to $425 million (the ‘‘Revolving Facility’’), (ii) a five year senior secured term loan in an aggregate principal amount of $100 million (the ‘‘Term Loan’’), and (iii) a thirty day senior secured interim term loan in aggregate principal amount of $300 million (the ‘‘Interim Term Loan’’). The Revolving Facility, Term Loan and Interim Term Loan make up the ‘‘Senior Secured Facilities’’. The Revolving Facility includes a sublimit of up to an aggregate amount of $75 million in letters of credit and a sublimit of up to an aggregate of $20 million in swing line loans. As of September 30, 2006, we had $285 million in availability under our credit facility excluding $20 million in outstanding letters of credit.
All borrowings under the Credit Facility will bear interest at either (i) a rate equal to LIBOR, plus an applicable margin ranging from 0.875% to 1.5%, depending on certain conditions, or (ii) an
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alternate base rate which will be the higher of (a) the Federal Funds rate plus 0.50% or (b) the Wachovia prime rate, plus an additional margin ranging from 0.0% to 0.25% depending on certain conditions.
The Credit Facility is guaranteed by certain of our direct and indirect domestic subsidiaries and is secured by, among other things, (a) a pledge of (i) all of the issued and outstanding shares of stock or other equity interests of certain of our direct and indirect domestic subsidiaries, (ii) 65% of the issued and outstanding shares of voting stock or other voting equity interests of certain of Armor's direct and indirect foreign subsidiaries, and (iii) 100% of the issued and outstanding shares of nonvoting stock or other nonvoting equity interests of certain of our direct and indirect foreign subsidiaries pursuant to a pledge agreement delivered in connection with the Credit Facility (the ‘‘Pledge Agreement’’) and (b) a first priority perfected security interest on certain of our domestic assets and certain domestic assets of certain of our direct and indirect domestic subsidiaries pursuant to a security agreement delivered in connection with the Credit Facility (the ‘‘Security Agreement’’).
Armor has made customary representations, warranties and covenants in the Credit Agreement, Pledge Agreement and Security Agreement. The Credit Facility is subject to customary rights of the lenders and the administrative agent upon the occurrence and during the continuance of an Event of Default, including, under certain circumstances, the right to accelerate payment of the loans made under the Credit Facility and the right to charge a default rate of interest on amounts outstanding under the Credit Facility.
In March 2002, our Board of Directors approved a stock repurchase program authorizing the repurchase of up to a maximum 3.2 million shares of our common stock. In February 2003, the Board of Directors increased this stock repurchase program to authorize the repurchase, from time to time depending upon market conditions and other factors, of up to an additional 4.4 million shares. On March 25, 2005, our Board of Directors increased our existing stock repurchase program to enable us to repurchase, from time to time depending upon market conditions and other factors, up to an additional 3.5 million shares of its outstanding common stock. Through October 26, 2006, we repurchased 3.8 million shares of our common stock under the stock repurchase program at an average price of $12.49 per share, leaving us with the ability to repurchase up to an additional 7.3 million shares of our common stock. We did not repurchase any shares in the third quarter of fiscal 2006 or fiscal 2005. Repurchases may be made in the open market, in privately negotiated transactions utilizing various hedging mechanisms including, among others, the sale to third parties of put options on our common stock, or otherwise. At September 30, 2006, we had 35.5 million shares of common stock outstanding.
During fiscal 2005, we sold put options in various private transactions covering 3.5 million shares of Company stock for $7 million in premiums. During fiscal 2005, put options covering 2.5 million shares of Company stock expired unexercised leaving outstanding put options covering 1 million shares outstanding (2.8% of outstanding shares at December 31, 2005) at a weighted average strike price of $40.00 per share. In February 2006, the remaining outstanding put options covering 1 million shares expired unexercised. Accordingly, we recognized $710,000 in other income, net, in the nine months ended September 30, 2006. In the three and nine months ended September 30, 2005, we recognized fair value gains of $1 million and $5 million recorded in other income, net, related to outstanding put options on Company stock. The fair values of the put options of Company stock are obtained from our counter-parties and represent the estimated amount we would have received or paid to terminate the put options, taking into account the consideration we received for the sale of the put options. We had no outstanding put options on Company stock remaining as of September 30, 2006.
We expect to continue our policy of repurchasing our common stock from time to time, subject to the restrictions contained in our senior credit facility; the indenture governing the 8.25% Notes, the
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indenture governing the Convertible Notes and applicable law. Our senior secured credit facility permits us to repurchase shares of our common stock with no limitation if, on a pro forma basis (as such term is defined in the senior secured credit facility) after giving effect to a repurchase, (i) our total leverage ratio (as such term is defined in the senior secured credit facility) is not more than 4.25 to 1.0, (ii) our senior leverage ratio (as such term is defined in the senior secured credit facility) is no more than 3.00 to 1.0 and (iii) no default or event of default exists or would exist under the senior secured credit facility after giving effect to such repurchase. As of September 30, 2006 such ratios were 2.90, and 1.05 respectively. Our existing indentures governing the 8.25% Notes and the 2% Convertible Notes also permit us to repurchase shares of our common stock, subject to certain limitations, as long as we satisfy the conditions to such repurchase contained therein.
On June 22, 2005, we implemented the 2005 Stock Incentive Plan. The 2005 Stock Incentive Plan authorizes the issuance of up to 2,500,000 shares of our common stock. Any shares of our common stock granted as restricted stock, performance stock or other stock-based awards will be counted against the shares authorized as one and eight-tenths (1.8) shares for every one share issued in connection with such award. The 2005 Stock Incentive Plan authorizes the granting of stock options, restricted stock, performance awards and other stock-based awards to employees, officers, directors and consultants, independent contractors and advisors of the Company and its subsidiaries. Upon adoption of our 2005 Stock Incentive Plan, we agreed to not grant awards under any of our pre-existing stock incentive plans.
On June 22, 2004, our stockholders approved an amendment to our Certificate of Incorporation, as amended, that increased the number of shares of our authorized capital stock to 80,000,000, of which 75,000,000 shares are designated as common stock and 5,000,000 shares are designated as preferred stock.
On October 29, 2004, we completed the placement of the 2% Convertible Notes, due November 2024. On November 5, 2004, Goldman, Sachs & Co. exercised its option to purchase an additional $45 million principal amount of the 2% Convertible Notes. The 2% Convertible Notes provide the holders with a seven year put option and are guaranteed by most of our domestic subsidiaries on a senior subordinated basis. The 2% Convertible Notes were initially rated B1/B+ by Moody’s Investors’ Service and Standard & Poor’s Rating Services, respectively. The 2% Convertible Notes provide for interest at a rate of 2.00% per year, payable on November 1 and May 1 of each year beginning on May 1, 2005, and ending on November 1, 2011. The 2% Convertible Notes provide for accretion of the principal amount beginning on November 1, 2011, at a rate that provides holders with an aggregate annual yield to maturity of 2.00%, as defined in the agreement. The 2% Convertible Notes provide for interest during any six-month period beginning November 1, 2011, of 15 basis points paid in cash if the average trading price of the notes is above certain levels. The 2% Convertible Notes are convertible, at the bond holder’s option at any time, initially at a conversion rate of 18.5151 shares of our common stock per $1,000 principal amount of notes, which is the equivalent conversion price of approximately $54.01 per share, subject to adjustment. Upon conversion, we are obligated to satisfy our conversion obligation with respect to the accreted principal amount of the notes to be converted in cash, with any remaining amount to be satisfied in shares of our common stock. The conversion rate is subject to adjustment, without duplication, upon the occurrence of any of the following events: (1) stock dividends in common stock, (2) issuance of rights and warrants, (3) stock splits and combinations, (4) distribution of indebtedness, securities or assets, (5) cash distributions, (6) tender or exchange offers, and (7) repurchases of common stock. In accordance with U.S. GAAP, the 2% Convertible Notes are classified as short term debt as they can be converted at any time prior to maturity. We used a portion of the proceeds of the offering to fund the acquisition of Second Chance in July 2005, and for general corporate and working capital purposes, including the funding of capital expenditures. Funds that are not immediately used are invested in money market funds and other investment grade securities until needed.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
On August 12, 2003, we completed a private placement of $150 million aggregate principal amount of the 8.25% Notes. The 8.25% Notes are guaranteed by most of our domestic subsidiaries on a senior subordinated basis. The 8.25% Notes were sold to qualified institutional investors in reliance on Rule 144A of the Securities Act of 1933, as amended, and to non-U.S. persons in reliance on Regulation S under the Securities Act of 1933, as amended. In 2004, after the completion of the private placement of the 8.25% Notes, we conducted an exchange offer pursuant to which holders of the privately placed 8.25% Notes exchanged such notes for 8.25% Notes registered under the Securities Act of 1933, as amended. The 8.25% Notes were initially rated B1/B+ by Moody’s Investors’ Service and Standard & Poor’s Rating Services, respectively. On March 29, 2004, we completed a registered exchange offer for the 8.25% Notes and exchanged the 8.25% Notes for new 8.25% Notes that were registered under the Securities Act of 1933, as amended.
On September 2, 2003, we entered into interest rate swap agreements, which have been designated as fair value hedges as defined under SFAS 133 with a notional amount totaling $150 million. The agreements were entered into to exchange the fixed interest rate on our 8.25% Notes for a variable interest rate equal to six-month LIBOR, set in arrears, plus a spread ranging from 2.735% to 2.75% fixed semi-annually on the fifteenth day of February and August. The agreements are subject to other terms and conditions common to transactions of this type. In accordance with SFAS 133, changes in the fair value of the interest rate swap agreements offset changes in the fair value of the fixed rate debt due to changes in the market interest rate. For the three months ended September 30, 2006, the fair value for interest swaps changed in value by $1 million. At December 31, 2005, there was a $1 million asset included in other assets, which, as a result of the change in fair value, is a $201,000 hedge asset at September 30, 2006. The agreements are deemed to be a perfectly effective fair value hedge, and, therefore, qualify for the short-cut method of accounting under SFAS 133. As a result, no ineffectiveness is expected to be recognized in our earnings associated with the interest rate swap agreements.
As of September 30, 2006, we were in compliance with all of our negative and affirmative covenants contained in the Credit Facility and the indentures governing the 8.25% and the 2% Convertible Notes.
Working capital was ($164) million and $387 million as of September 30, 2006, and December 31, 2005, respectively. The decrease in working capital is a function of the reduction in cash from the purchase of Stewart & Stevenson and the increase in accrued liabilities from unearned revenue at Stewart & Stevenson. In addition, the short-term classification of our $344 million in Convertible Notes due November 1, 2024 in accordance with U.S. GAAP, reduces our working capital.
Net cash provided by operating activities was $110 million for the nine months ended September 30, 2006, compared to $59 million for the nine months ended September 30, 2005. Net cash provided by operating activities increased as a result of a reduction in uses of working capital. Net cash used in investing activities was $787 million for the nine months ended September 30, 2006, compared to $412 million for the nine months ended September 30, 2005. The increase was primarily due to the acquisition of Stewart & Stevenson and increased capital expenditures to support the revenue growth in the Aerospace & Defense Group. Net cash provided by financing activities was $212 million for the nine months ended September 30, 2006, compared to $4 million for the nine months ended September 30, 2005. The increase in the nine months ended September 30, 2006, was primarily due to increased borrowings under our new Senior Credit facility. We repaid net $110 million on our revolving line of credit during the three months ended September 30, 2006.
Our capital expenditures for the nine months ended September 30, 2006, were $23 million. Such expenditures included additional manufacturing, office space, manufacturing machinery and equipment, leasehold improvements, information technology and communications infrastructure equipment. Our fiscal 2006 capital expenditures are expected to be approximately $30 to $34 million.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
We anticipate that the cash on hand, cash generated from operations, and available borrowings under the Credit Facility will enable us to meet liquidity, working capital and capital expenditure requirements during the next 12 months. We may, however, require additional financing to pursue our strategy of growth through acquisitions and we are continuously exploring alternatives. If such financing is required, there are no assurances that it will be available, or if available, that it can be obtained on terms favorable to us or on a basis that is not dilutive to our stockholders.
See Part II, Item 1- Legal Proceedings regarding outstanding legal matters.
FORWARD LOOKING AND CAUTIONARY STATEMENTS
Except for the historical information and discussions contained herein, statements contained in this Quarterly Report on Form 10-Q may constitute ‘‘forward looking statements’’ within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including, but not limited to, our failure to continue to develop and market new and innovative products and services and to keep pace with technological changes; competitive pressures; failure to obtain or protect intellectual property rights; the ultimate effect of various domestic and foreign political and economic issues on our business, financial condition or results of operations; quarterly fluctuations in revenues and volatility of stock prices; contract delays; cost overruns; our ability to attract and retain key personnel; currency and customer financing risks; dependence on certain suppliers, customers and availability of raw materials; changes in the financial or business condition of our distributors or resellers; our ability to successfully identify, negotiate and conclude acquisitions, alliances and other business combinations, and integrate past and future business combinations; regulatory, legal, political and economic changes; an adverse determination in connection with the Zylon® investigation being conducted by the U.S. Department of Justice and certain state agencies and/or other Zylon®-related litigation; and other risks, uncertainties and factors inherent in our business and otherwise discussed elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the Securities and Exchange Commission or in materials incorporated therein by reference.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
As a result of our global operating and financial activities, we are exposed to changes in raw material prices, interest rates, foreign currency exchange rates and our stock price, which may adversely affect our results of operations and financial position. In seeking to minimize the risks and/or costs associated with such activities, we manage exposure to changes in raw material prices, interest rates, and foreign currency exchange rates through our regular operating and financing activities. We have entered into interest rate swap agreements to reduce our overall interest expense.
MARKET RATE RISK
The following discussion about our market rate risk involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. We are exposed to market risk related to changes in interest rates, foreign currency exchange rates, and equity security price risk as a result of the sale of put options on our Company stock.
Interest Rate Risk. Our exposure to market rate risk for changes in interest rates relates primarily to borrowings under our $150 million senior subordinated notes, our credit facilities and our short-term monetary investments. To the extent that, from time to time, we hold short-term money market instruments, there is a market rate risk for changes in interest rates on such instruments. To that extent, there is inherent rollover risk in the short-term money market instruments as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable, because of the variability of future interest rates and business financing requirements. However, there is only a remote risk of loss of principal in the short-term money market instruments. The main risk is related to a potential reduction in future interest income.
On September 2, 2003, we entered into interest rate swap agreements in which we effectively exchanged the $150 million fixed rate 8.25% interest on the senior subordinated notes for variable rates in the notional amount of $80 million, $50 million, and $20 million at six-month LIBOR, set in arrears, plus 2.75%, 2.75%, and 2.735%, respectively. The agreements involve receipt of fixed rate amounts in exchange for floating rate interest payments over the life of the agreement without an exchange of the underlying principal amount. The variable interest rates are fixed semi-annually on the fifteenth day of February and August each year through maturity. The six-month LIBOR rate was 5.39% on October 17, 2006. The maturity dates of the interest rate swap agreements match those of the underlying debt. Our objective for entering into these interest rate swaps was to reduce our exposure to changes in the fair value of senior subordinated notes and to obtain variable rate financing at an attractive cost. Changes in the six-month LIBOR would affect our earnings either positively or negatively. An assumed 100 basis point increase in the six-month LIBOR would increase our interest obligations under the interest rate swaps and Senior Credit facility by approximately $2 million and $2 million, respectively, for a twelve month period.
In accordance with SFAS 133, we designated the interest rate swap agreements as perfectly effective fair value hedges and, accordingly, use the short-cut method of evaluating effectiveness. As permitted by the short-cut method, the change in fair value of the interest rate swaps will be reflected in earnings and an equivalent amount will be reflected as a change in the carrying value of the swaps, with an offset to earnings. There is no ineffectiveness to be recorded. At December 31, 2005, there was a $1 million asset included in other assets, which, as a result of the change in fair value, is a $201,000 hedge asset at September 30, 2006.
We are exposed to credit-related losses in the event of nonperformance by counterparties to these financial instruments. However, counterparties to these agreements are major financial institutions and the risk of loss due to nonperformance is considered by management to be minimal. We do not hold or issue interest rate swap agreements or other derivative instruments for trading purposes.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
— CONTINUED
Foreign Currency Exchange Rate Risk. The majority of our business is denominated in U.S. dollars. There are costs associated with our operations in foreign countries that require payments in the local currency. Where appropriate and to partially manage our foreign currency risk related to those payments, we receive payment from customers in local currencies in amounts sufficient to meet our local currency obligations. We do not use derivatives or other financial instruments to hedge foreign currency risk.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
We do business in numerous countries, including emerging markets in South America. We have invested resources outside of the United States and plan to continue to do so in the future. Our international operations are subject to the risk of new and different legal and regulatory requirements in local jurisdictions, tariffs and trade barriers, potential difficulties in staffing and managing local operations, potential imposition of restrictions on investments, potentially adverse tax consequences, including imposition or increase of withholding and other taxes on remittances and other payments by subsidiaries, and local economic, political and social conditions. Governments of many developing countries have exercised and continue to exercise substantial influence over many aspects of the private sector. Government actions in the future could have a significant adverse effect on economic conditions in a developing country or may otherwise have a material adverse effect on us and our operating companies. We do not have political risk insurance in the countries in which we currently conduct business, but periodically analyze the need for and cost associated with this type of policy. Moreover, applicable agreements relating to our interests in our operating companies are frequently governed by foreign law. As a result, in the event of a dispute, it may be difficult for us to enforce our rights. Accordingly, we may have little or no recourse upon the occurrence of any of these developments.
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| ITEM 4. | CONTROLS AND PROCEDURES |
Our management, including Warren B. Kanders, Chairman and Chief Executive Officer, and Glenn J. Heiar, Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on that evaluation, the Chairman and Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the period covered by this quarterly report, our disclosure controls and procedures, which are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable Securities and Exchange Commission rules and forms, were effective.
Our management, including our Chairman and Chief Executive Officer and Chief Financial Officer, has also evaluated our internal control over financial reporting to determine whether any changes occurred during the fiscal quarter covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there has been no such change during the fiscal quarter covered by this quarterly report.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Zylon®
In April, 2004, two class action lawsuits were filed against us in Florida state court by police organizations and individual police officers, alleging that ballistic-resistant soft body armor (vests) containing Zylon®, manufactured and sold by American Body Armor(TM), Safariland® and PROTECH®, failed to meet the warranties provided with the vests. On November 5, 2004, the Jacksonville, Florida (Duval County) Circuit Court gave final approval to a settlement reached with the Southern States Police Benevolent Association (‘‘SSPBA’’) which provided that (i) purchasers of certain Zylon®-containing vest models could exchange their vests for other vests manufactured by Armor and, (ii) the Company would continue its internal used-vest testing program (VestCheck(TM)). The other class action suit filed by the National Association of Police Organizations, Inc. (‘‘NAPO’’), in Ft. Myers, Florida (Lee County), was voluntarily dismissed with prejudice on November 16, 2004.
On August 24, 2005, the United States Department of Justice, National Institute of Justice (‘‘NIJ’’), released its Third Status Report to the Attorney General on Body Armor Safety Initiative Testing and Activities (the ‘‘Third NIJ Report’’). The Third NIJ Report contained, among other items, information and testing data on Zylon® and Zylon®-containing vests, and substantially modified compliance standards for all ballistic-resistant vests with the implementation of the NIJ 2005 Interim Requirements for Ballistic-Resistant Body Armor. As a result of the actions of the NIJ, the Company halted all sales or shipment of any Zylon®-containing vest models effective August 25, 2005, and immediately established a Supplemental Relief (renamed the Zylon® Vest Exchange (‘‘ZVE’’)) Program that provides either a cash or voucher option to those who purchased any Zylon®-containing vests from us through August 29, 2005. The ZVE Program, with the consent of the SSPBA, was given final approval by the Jacksonville, Florida Court on October 27, 2005. (See also Note 16 for information regarding the estimated cost of the ZVE program.)
We are also voluntarily cooperating with a request for documents and data received from the Department of Justice, which is reviewing the entire body armor industry’s use of Zylon®, and a subpoena served by the General Services Administration for information relating to Zylon®. On March 27, 2006, we entered into a tolling agreement with the Department of Justice to toll the statute of limitations until September 30, 2006, with regard to possible civil claims the United States could assert against the Company with respect to certain body armor products made by us which contain Zylon®. On September 26, 2006, we entered into an amendment to this tolling agreement with the Department of Justice that extends the period of the tolling agreement through January 31, 2007.
STEWART & STEVENSON MATTERS
The matters listed below relate to Stewart & Stevenson, which was acquired by the Company on May 25, 2006.
Klickitat Litigation
Stewart & Stevenson and several of its subsidiaries in the Distributed Energy Solutions business were defendants in a suit filed by the Klickitat County Public Utility District No. 1 (‘‘KPUD’’) on December 11, 2003, arising out of claims relating to a landfill gas power generation facility in Roosevelt, Washington (the ‘‘Project’’), Cause No. CY-03-3175-LRS ; Klickitat County Public Utility District No. 1 v. Stewart & Stevenson Services, Inc., Stewart & Stevenson Power, Inc., Sierra Detroit Diesel Allison, Inc., Pamco International, Inc. and Waukesha Engine Dresser, Inc .; in the U.S. District Court for the Eastern District of Washington. On June 14, 2006, Stewart & Stevenson and KPUD entered into a confidential settlement agreement, the terms of which had no material impact on our results of operations, financial condition or cash flow. Pursuant to that agreement, the Court entered a formal dismissal of the claims against Stewart & Stevenson on July 19, 2006.
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ITEM 1. LEGAL PROCEEDINGS — CONTINUED
Actions involving the Stewart & Stevenson Acquisition
(i) Oshkosh Truck Corporation v. Stewart & Stevenson Services, Inc., District Court of Harris County, Texas. On May 12, 2006, Oshkosh Truck Corporation (‘‘Oshkosh’’) filed a petition seeking to declare void and unenforceable certain ‘‘standstill’’ provisions contained in a confidentiality agreement between Oshkosh and Stewart & Stevenson, and to enjoin the merger of Stewart & Stevenson with the Company. On or about July 25, 2006, Oshkosh and Stewart & Stevenson agreed, among other things, and subject to certain conditions, to nonsuit without prejudice their respective claims against each other pending in Texas state court.
(ii) Marron v. Ream, et al., United States District Court for the Southern District of Texas. On April 11, 2006, this lawsuit was filed as a shareholder class action against former Stewart & Stevenson directors and Stewart & Stevenson as a nominal defendant, claiming, among other things, breach of fiduciary duty in connection with the Armor merger in failing to maximize shareholder value, favoring the Company in lieu of superior offers and failing to disclose material information or disclosing materially false information in proxy materials relating to the Stewart & Stevenson shareholders meeting. We believe that this action is without merit and intend to vigorously defend the claims. The lawsuit was first filed in Texas state court and then removed to federal court. The Company intervened in the action and cross-claimed against Stewart & Stevenson for a declaratory judgment that Stewart & Stevenson cannot waive the prohibitions set forth in its confidentiality agreement with Oshkosh. Marron subsequently filed an amended complaint to restructure his claims as a shareholder derivative suit, but that pleading was dismissed without prejudice for failure to make the required demand on directors. Marron may re-file his complaint after the expiration of the waiting period specified by Article 5.14 of the Texas Business Corporation Act. The parties have agreed to suspend this requirement pending settlement discussions.
(iii) Green Meadows Partners LLP v. Ream, et al., District Court of Harris County, Texas. On May 24, 2006, this shareholder class and derivative petition was filed against Stewart & Stevenson's former directors and Stewart & Stevenson as a nominal defendant, claiming, among other things, breach of fiduciary duty in connection with the Armor merger in failing to maximize shareholder value, favoring the Company in lieu of superior offers and failing to disclose material information or disclosing materially false information in proxy materials relating to the Stewart & Stevenson shareholders meeting (the ‘‘Petition’’). The Petition seeks an injunction and declaratory judgment challenging the proposed merger of Stewart & Stevenson with the Company, rescission of the acquisition agreement and a constructive trust upon any benefits received as a result of the acquisition. We believe that this action is without merit and intend to vigorously defend the claims. On July 31, 2006, Stewart & Stevenson filed its answer denying the material allegations of the Petition. Stewart & Stevenson has also filed a motion to abate the Petition on the ground, among others, that the plaintiff failed to comply with the demand prerequisites of Article 5.14 of the Texas Business Corporation Act, and because the Petition asks for relief in excess of that requested in plaintiff’s demand. The parties have agreed to suspend this requirement pending settlement discussions.
OTHER MATTERS
In addition to the above, in the normal course of business and as a result of previous acquisitions, we are subjected to various types of claims and currently have on-going litigation in the areas of product liability, general liability and intellectual property. Our products are used in a wide variety of law enforcement situations and environments. Some of our products can cause serious personal or property injury or death if not carefully and properly used by adequately trained personnel. We believe that we have adequate insurance coverage for most claims that are incurred in the normal course of business. In such cases, the effect on our financial statements is generally limited to the amount of our insurance deductible or self-insured retention. Our annual insurance premiums and self insurance retention amounts have risen significantly over the past several years and may continue to do so to the extent we are able to purchase insurance coverage. At this time, we do not believe any existing claims or pending litigation will have a material impact on our financial position, operations and liquidity.
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ITEM 6. EXHIBITS
(a) Exhibits
The following exhibits are filed as part of this quarterly report on Form 10-Q:
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| Exhibit No. | | | Description |
| 31 | .1 | | | | Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a)). |
| 31 | .2 | | | | Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a)). |
| 32 | .1 | | | | Certification of Principal Executive Officer Pursuant to Rule 13a-14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350). |
| 32 | .2 | | | | Certification of Principal Financial Officer Pursuant to Rule 13a-14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350). |
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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.
ARMOR HOLDINGS, INC.
/s/ Warren B. Kanders
Warren B. Kanders
Chairman and Chief Executive Officer
Dated: October 30, 2006
/s/ Glenn J. Heiar
Glenn J. Heiar
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
Dated: October 30, 2006
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Exhibit Index
| | | | | | |
| Exhibit No. | | | Description |
| 31 | .1 | | | | Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a)). |
| 31 | .2 | | | | Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a)). |
| 32 | .1 | | | | Certification of Principal Executive Officer Pursuant to Rule 13a-14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350). |
| 32 | .2 | | | | Certification of Principal Financial Officer Pursuant to Rule 13a-14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350). |
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