SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2000, or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 0-18863
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ARMOR HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 59-3392443
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1400 MARSH LANDING PARKWAY, SUITE 112
JACKSONVILLE, FLORIDA 32250
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 741-5400
----------------
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 _
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes __ No __
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the registrant's Common Stock as of May 1,
2000 is 22,448,977.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
THREE MONTH PERIODS ENDED MARCH 31, 2000 AND MARCH 31, 1999
The accompanying unaudited condensed consolidated financial statements of Armor
Holdings, Inc. (the "Company") and its direct and indirect wholly owned
subsidiaries include all adjustments (consisting only of normal recurring
accruals and the elimination of all significant intercompany items and
transactions) management considers necessary for a fair presentation
of its financial position as of March 31, 2000 and results of its operations
for the three month periods ended March 31, 2000 and March 31, 1999.
These condensed consolidated financial statements should be read in conjunction
with the financial statements included in the Company's Annual Report on Form
10-K/A for the year ended December 31, 1999.
2
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
2000 1999
------------ --------------
(UNAUDITED) *
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,415 $ 13,246
Accounts receivable (net of allowance for
Doubtful accounts of $ and $1,691) 40,090 35,528
Inventories 18,326 16,452
Prepaid expenses and other current assets 9,259 7,215
------------ --------------
Total current assets 71,090 72,441
PROPERTY, PLANT AND EQUIPMENT (net
of accumulated depreciation of $6,994
and $6,279) 18,273 16,367
GOODWILL (net of accumulated amortization
of $4,116 and $3,593) 76,865 74,586
REORGANIZATION VALUE IN EXCESS OF AMOUNTS
ALLOCABLE TO IDENTIFIABLE ASSETS (net of
accumulated Amortization of $2,576 and $2,564) 1,499 1,511
PATENTS, LICENSES AND TRADEMARKS (net of
accumulated amortization of $1,222 and
$1,124) 6,910 7,008
OTHER ASSETS 6,874 7,009
------------ --------------
TOTAL ASSETS $181,511 $178,922
============ ==============
* Condensed from audited financial statements.
See notes to condensed consolidated financial statements.
3
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
2000 1999
------------- --------------
(UNAUDITED) *
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capitalized
lease obligations $ 622 $ 509
Short-term debt 6,974 1,924
Accounts payable, accrued expenses and other
current liabilities 14,061 15,974
------------- --------------
Total current liabilities 21,657 18,407
LONG-TERM DEBT AND CAPITALIZED LEASE OBLIGATIONS,
less current portion 2,292 2,453
------------- --------------
Total liabilities 23,949 20,860
MINORITY INTEREST 183 179
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares
authorized; 0 shares issued and outstanding - -
Common stock, $.01 par value; 50,000,000 shares
authorized; 24,687,549 and 24,513,830 issued and
22,896,377 and 23,302,958 outstanding 247 245
Additional paid-in capital 147,378 145,480
Retained earnings 30,695 26,615
Accumulated other comprehensive income:
Cumulative translation adjustments (1,770) (1,351)
Treasury stock (19,171) (13,106)
------------- --------------
Total stockholders' equity 157,379 157,883
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $181,511 $178,922
============= ==============
* Condensed from audited financial statements.
See notes to condensed consolidated financial statements.
4
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share amounts)
Three Months Ended
March 31, March 31,
2000 1999
------------- --------------
REVENUES:
Services $ 18,418 $ 12,815
Products 31,448 14,025
------------- --------------
Total Revenues $ 49,866 $ 26,840
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COSTS AND EXPENSES:
Cost of sales 31,108 16,290
Operating expenses 10,765 6,493
Amortization 712 379
Equity in earnings of investees (34) (140)
Merger and integration expense 691 -
Interest (income) expense, net 47 (44)
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OPERATING INCOME 6,577 3,862
Other income 2 513
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INCOME BEFORE PROVISION FOR INCOME TAXES 6,579 4,375
------------- --------------
PROVISION FOR INCOME TAXES 2,499 1,635
------------- --------------
============= ==============
NET INCOME $ 4,080 $ 2,740
============= ==============
BASIC EARNINGS PER SHARE $ 0.18 $ $0.17
============= ==============
============= ==============
DILUTED EARNINGS PER SHARE $ 0.17 $ 0.16
============= ==============
============= ==============
WEIGHTED AVERAGE SHARES - BASIC 23,034 16,284
============= ==============
WEIGHTED AVERAGE SHARES - DILUTED 23,733 17,476
============= ==============
See notes to condensed consolidated financial statements.
5
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
-------------------------
MARCH 31, MARCH 31,
2000 1999
---------- -----------
OPERATING ACTIVITIES:
Net income $ 4,080 $ 2,740
Adjustments to reconcile net income to cash used in
operating activities, net of effects of
acquisitions:
Depreciation and amortization 1,348 791
Earnings from investees (34) (140)
Increase in accounts receivable (3,864) (555)
Increase in inventories (1,274) (156)
Increase in prepaid expenses and other assets (1,520) (2,825)
Decrease in accounts payable, accrued
Liabilities and other current liabilities (1,763) (473)
Increase in minority interest 4 8
---------- -----------
Net cash used in operating activities (3,023) (610)
---------- -----------
INVESTING ACTIVITIES:
Purchase of property and equipment (965) (695)
Purchase of businesses, net of cash acquired (3,866) -
Dividends received from associated companies - 86
---------- -----------
Net cash used in investing activities (4,831) (609)
---------- -----------
FINANCING ACTIVITIES:
Proceeds from the exercise of stock options 5 444
Repurchases of treasury shares (6,065) -
Borrowings (repayments) under line of credit 5,050 (1,554)
Repayments of long-term debt (548) (272)
---------- -----------
Net cash used in financing activities (1,558) (1,382)
---------- -----------
Net effect of translation of foreign currencies (419) (99)
---------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (9,831) (2,700)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 13,246 6,789
---------- -----------
========== ===========
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,415 $ 4,089
========== ===========
See notes to condensed consolidated financial statements.
6
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Armor Holdings, Inc. (the "Company") and its direct and indirect
wholly owned subsidiaries. The financial statements have been prepared in
accordance with the instructions to Form 10-Q. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. All adjustments (consisting only
of normal recurring accruals and the elimination of all significant intercompany
items and transactions) which management considers necessary for a fair
representation of operating results, have been included in the statements.
Operating results for the quarter are not necessarily indicative of the results
that may be expected for the year ending December 31, 2000.
These condensed consolidated financial statements should be read in
conjunction with the financial statements, and notes thereto, included in the
Company's Annual Report on Form 10-K/A for the year ended December 31, 1999. All
amounts are reported in thousands except per share amounts.
2. ADOPTION OF NEW ACCOUNTING STANDARDS
In December 1999, the staff of the Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in
Financial Statements". SAB No. 101 summarizes the SEC staff's view in applying
generally accepted accounting principles to the recognition of revenues. The
Company has evaluated the impact of the reporting requirements of SAB No. 101
and has determined that there will be no material impact on its consolidated
results of operations, financial position or cash flows.
3. COMPREHENSIVE INCOME
Comprehensive income includes net income and several other items that
current accounting standards require to be recognized outside of net income.
During the three months ended March 31, 2000 and March 31, 1999, comprehensive
income was approximately $3.7 million and $2.6 million respectively, consisting
of net income and the change in unrealized gains
7
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
CONTINUED
or losses on the Company's foreign currency translation adjustments net of tax,
of $262,000 and $97,000, respectively.
4. INVENTORIES
Inventories are stated at the lower of cost or market using the
first-in, first-out (FIFO) method and are summarized as follows (dollars in
thousands):
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
Raw material $ 10,028 $ 8,812
Work-in-process 1,953 1,243
Finished goods 6,345 6,397
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Total inventories $ 18,326 $ 16,452
============== =================
5. SIGNIFICANT DEVELOPMENTS
INCREASE IN OUR LINE OF CREDIT
On February 25, 2000, the Company amended its credit agreement with CIBC,
Inc., NationsBank, N.A., First Union National Bank and SunTrust Bank, North
Florida, N.A. as lenders, NationsBank, N.A., as documentation agent and Canadian
Imperial Bank of Commerce, as administrative agent. According to the terms of
the amended credit facility, the several lenders established a five-year
$100,000,000 line of credit for the Company.
6. ACQUISITIONS
The Company completed the acquisitions of Safariland Ltd., Inc.
("Safariland"), The Parvus Company ("Parvus"), Alarm Systems Holding Company
("ASH") and Fire Alarm Service Corporation ("FAS"), subsequent to the quarter
ended March 31, 1999. The March 31, 1999 unaudited consolidated results of
operations of the Company on a pro forma basis, as if the Company had
consummated the acquisitions of Safariland, Parvus, ASH and FAS, at the
beginning of the period shown is follows:
Revenues $41,152
Net income $ 2,584
Diluted earnings per share $ 0.14
Weighted average shares - diluted 18,184
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
CONTINUED
7. INFORMATION CONCERNING BUSINESS SEGMENTS AND GEOGRAPHICAL SALES
The Company is a leading global provider of security risk management
services and security products. Through its Armor Group Services division, the
Company provides a broad range of sophisticated security risk management
services to multi-national corporations and to governmental and non-governmental
agencies including: (1) security planning, advisory and management, (2)
intellectual property asset protection, (3) business due diligence and
investigations, and (4) electronic security systems integration. Through its
Armor Holdings Products division, the Company manufactures and sells a broad
range of high quality branded law enforcement equipment including ballistic
resistant vests and tactical armor, police duty gear, less-than-lethal
munitions, anti-riot products and narcotics identification kits.
The Company has invested substantial resources outside of the United States
and plans to continue to do so in the future. Substantially all of the
operations of the Company's services segment are conducted in emerging markets
in Africa, Asia, CIS and South America. These 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.
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
CONTINUED
Revenues, income from operations (operating income before amortization
expense, equity in earnings of investee, merger and integration expenses, and
interest expense (income), net), and total assets for each of the Company's
segments for the three months ended March 31, 1999 and March 31, 1998 were as
follows:
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
(IN THOUSANDS)
Revenues:
Services $ 18,418 $12,815
Products 31,448 14,025
-------------- --------------
Total revenues $ 49,866 $26,840
============== ==============
Income from operations:
Services $ 2,052 $ 1,220
Products 6,858 3,352
Corporate (917) (515)
-------------- --------------
Total income from operations $ 7,993 $ 4,057
============== ==============
Total assets:
Services $ 35,417 $27,415
Products 107,908 43,927
Corporate 38,186 24,289
-------------- --------------
Total assets $181,511 $95,631
============== ==============
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
CONTINUED
The following unaudited information with respect to sales to principal
geographic areas for the three months ended March 31, 2000 and March 31, 1999 is
as follows:
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
(IN THOUSANDS)
Sales to unaffiliated customers:
North America $ 31,611 $ 12,325
South America 4,460 3,685
Africa 4,681 5,683
Europe/Asia 9,114 5,147
-------------- --------------
Total revenues $ 49,866 $ 26,840
============== ==============
Operating profit:
North America $ 5,716 $ 1,790
South America 380 760
Africa 828 919
Europe/Asia 1,069 729
-------------- --------------
Total operating profit $ 7,993 $ 4,198
============== ==============
Total assets:
North America $133,361 $ 54,280
South America 9,676 5,458
Africa 3,692 2,712
Europe/Asia 35,382 32,632
-------------- --------------
Total assets $181,511 $ 95,082
============== ==============
11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
CONTINUED
8. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations for net income:
THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Numerator for basic and diluted earnings per
share:
Net income $ 4,080 $ 2,740
-------------- --------------
Denominator for basic earnings per share
(weighted average shares outstanding): 23,034 16,284
Dilutive effect of shares issuable under stock
option and stock grant plans, based on the
treasury stock method 699 1,192
-------------- --------------
Denominator for diluted earnings per share 23,733 17,476
-------------- --------------
Basic earnings per share $ 0.18 $ 0.17
============== ==============
Diluted earnings per share $ 0.17 $ 0.16
============== ==============
12
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of the our results of operations and analysis
of financial condition for the three months ended March 31, 2000. The results of
operations for the business combinations accounted for as purchase transactions
are included since their effective acquisition dates. The following discussion
may be understood more fully by reference to the financial statements, notes to
the financial statements, and management's discussion and analysis contained in
the our Annual Report on Form 10-K/A for the year ended December 31, 1999, as
filed with the Securities and Exchange Commission.
Revenue Recognition. We record product revenues at gross amounts to be
received including amounts to be paid to agents as commissions, at the time the
product is shipped to the distributor. Although product returns are permitted in
certain circumstances within 30 days from the date of purchase, these returns
are minimal and usually consist of minor modifications to the ordered product.
We record services revenue as the service is provided on a contract by contract
basis.
Foreign Currency Translation. In accordance with Statement of Financial
Accounting Standard No. 52, "Foreign Currency Translation," assets and
liabilities denominated in a foreign currency are translated into U.S. dollars
at the current rate of exchange as of the balance sheet date and revenues and
expenses are translated at the average monthly exchange rates. The cumulative
change in the translation adjustment, which represents the effect of translating
assets and liabilities of the Company's foreign operations, was a loss of
approximately $1.8 million as of March 31, 2000 and $1.4 million as of December
31, 1999.
13
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31,
1999
Service revenues. Service revenues increased by $5.6 million, or 43.7%, to
$18.4 million in the three months ended March 31, 2000 compared to $12.8 million
in the three months ended March 31, 1999. This increase was due to internal
growth and the inclusion of the acquisitions of Parvus, ASH and FAS acquired on
May 4, 1999 and June 30, 1999, respectively. These acquisitions were accounted
for as purchases and the results of their operations are recorded only for the
period the Company owned them. Internal growth within the Services division was
over 15% in the first quarter of 2000 compared to the first quarter of 1999.
Products revenues. Product revenues increased by $17.4 million, or 124.2%,
to $31.4 million in the three months ended March 31, 2000 compared to $14.0
million in the three months ended March 31, 1999. This increase was primarily
due to internal growth of 23% and the increase resulting from the acquisition
and integration of Safariland completed in 1999. This acquisition was accounted
for as a purchase and the results of its operations are recorded only for the
period the Company owned it.
Cost of sales. Cost of sales increased by $14.8 million, or 91.0%, to
$31.1 million in the three months ended March 31, 2000 compared to $16.3 million
in the three months ended March 31, 1999. This increase was primarily due to
increased revenues for in the three months ended March 31, 2000 compared to the
three months ended March 31, 1999 resulting from the internal growth as well as
the acquisitions of Parvus, ASH, FAS and Safariland. As a percentage of total
revenues, cost of sales increased to 62.4% of total revenues for the three
months ended March 31, 2000 from 60.7% for the three months ended March 31, 1999
due to a change in the mix of products and services sold and the shipments of
several large international and governmental orders for products at margins
below our typical margins.
Operating expenses. Operating expenses increased by $4.3 million, or 65.8%,
to $10.8 million (21.6% of total revenues) in the three months ended March 31,
2000 compared to $6.5 million (24.2% of total revenues) in the three months
ended March 31, 1999. This increase was primarily due to the acquisitions of
Safariland, Parvus, ASH and FAS which are reflected in the three month period
ended March 31, 2000, but not in the three month period ending March 31, 1999.
The decrease as a percentage of total revenue is reflective of the increasing
revenue base and fixed nature of certain of these expenses.
14
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
Amortization. Amortization expense increased by $333,000, or 87.9%, to
$712,000 in the three months ended March 31, 2000 compared to $379,000 in the
three months ended March 31, 1999. This increase was primarily due to additional
amortization of intangible assets acquired as a result of the acquisitions of
Safariland, Parvus, ASH and FAS during the second and third quarters of 1999
which would not have been reflected in the quarter ended March 31, 1999.
Equity in earnings of investees. Equity in earnings of investees decreased
by $106,000 to $34,000 in the three months ended March 31, 2000 compared to
$140,000 in the three months ended March 31, 1999. The equity in earnings
relates to the Company's 20% investment in Jardine Securicor Gurkha Services
Limited ("JSGS").
Merger and integration expense. In the three month period ended March 31,
2000, the Company incurred $691,000 in expenses and costs associated with
the integration of the Company's recent acquisitions. The Company did not incur
such fees in the three months ended March 31, 1999.
Interest (income) expense, net. Net interest expense increased by $91,000,
to $47,000 in the three months ended March 31, 2000, This increase was the
result of interest on and amortization of the fees associated with the Company's
$100 million credit facility, and the amortization of the discount on certain
liabilities acquired as part of the Safariland acquisition.
Operating Income. Operating income increased $2.7 million or 70.3% to $6.6
million in the three months ended March 31, 2000, compared to $3.9 million in
the three months ended March 31, 1999, primarily due to the factors discussed
above.
Other income. Other income decreased from $513,000 in the three months
ended March 31, 1999 to $2,000 in the three months ended March 31, 2000. The
1999 quarter included a gain from the sale of the Company's investment in MACE
Security International. No such gain occurred in the first quarter of 2000.
Income before provision for income taxes. Income before provision for
income taxes increased by $2.2 million or 50.4% to $6.6 million in the three
months ended March 31, 2000, compared to $4.4 million in the three months ended
March 31, 1999, primarily due to the factors discussed above.
Provision for income taxes. Provision for income taxes totaled $2.5 million
in the three months ended March 31, 2000, as compared to $1.6 million in the
three months ended March 31, 1999. The increase in the Company's effective tax
rate to 38.0% from 37.4% last year is a result of the increased amortization of
the goodwill generated by the Safariland, Parvus, ASH and FAS acquisitions that
is not tax deductible. The provision was based on the Company's U.S. federal and
state statutory income tax rates of approximately 39% for its U.S.-based
companies and a 37% blended effective tax rate for
15
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
foreign operations of the Company. The effective tax rate for the Company's
foreign operations is not necessarily indicative of continued tax rates due to
continually changing concentration of income in each country in which the
Company operates.
Net income. Net income increased $1.3 million, or 48.9%, to $4.1 million in
the three months ended March 31, 2000 compared to $2.7 million for the three
months ended March 31, 1999. The increase is primarily due to a combination of
acquisitions made during the period being successfully integrated, coupled with
strong internal growth.
16
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that cash generated from operations, borrowings
under the Company's credit facility and the net proceeds of its recently
completed public offering will enable the Company to meet its liquidity, working
capital and capital expenditure requirements during the next 12 months. The
Company, however, may require additional financing to pursue its strategy of
growth through acquisitions. 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 the Company or on a basis that is not dilutive to
stockholders.
The Company's spending for its fiscal 2000 capital expenditures will be
approximately $3.0 million, of which the Company has already spent
approximately $965,000.
As of March 31, 2000 and December 31, 1999, the Company had working capital
of $49.4 million and $54.0 million, respectively.
Year 2000 Activities
As described in the Form 10-K for the year ended December 31, 1999, we had
developed plans to address our potential exposures to our systems related to the
Year 2000. Since entering the Year 2000, we have not experienced any significant
disruptions to our business nor are we aware of any significant Year 2000
related disruptions impacting our customers and suppliers. We will continue to
monitor our systems and operations until we are reasonably assured that no
significant business interruptions will occur as a result of any Year 2000
issues.
We spent a total of approximately $50,000 on the Year 2000 Project with no
significant additional expenses expected in 2000.
FORWARD LOOKING STATEMENTS
We believe that it is important to communicate our expectations to our
investors. Accordingly, this report contains discussion of events or results
that have not yet occurred or been realized. You can identify this type of
discussion, which is often termed "forward-looking statements", by such words
and phrases as "expects", "anticipates", "intends", "plans", "believes",
"estimates" and "could be". Execution of acquisition strategies, expansion of
product lines and increase of distribution networks or product sales are are as,
among others, whose future success may be difficult to predict. You should read
forward-looking statements carefully because they discuss our future
17
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
expectations, contain projections of our future results of operations or of our
financial position, or state other expectations of future performance. The
actions of current and potential new competitors, changes in technology,
seasonality, business cycles and new regulatory requirements are factors that
impact greatly upon strategies and expectations and are outside our direct
control. There may be events in the future that we are not able accurately to
predict or to control. Any cautionary language in this report provide examples
of risks, uncertainties and events that may cause our actual results to differ
from the expectations we express in our forward-looking statements. Before you
invest in our common stock, you should be aware that the occurrence of certain
of the events described in this report could adversely affect our business,
results of operations and financial position.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company does business in numerous countries, including emerging markets
in Africa, Asia and South America. The Company has invested substantial
resources outside of the United States and plans to continue to do so in the
future. The Company's 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 the Company and its operating
companies. The Company does not have political risk insurance in the countries
in which it currently conducts business, but does periodically analyze the need
for and cost associated with this type of policy. Moreover, applicable
agreements relating to the Company's interests in its operating companies are
frequently governed by foreign law. As a result, in the event of a dispute, it
may be difficult for the Company to enforce its rights. Accordingly, the Company
may have little or no recourse upon the occurrence of any of these developments.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company, as a result of its global operating and financial activities,
is exposed to changes in raw material prices, interest rates and foreign
currency exchange rates which may adversely affect its results of operations and
financial position. In seeking to minimize the risks and/or costs associated
with such activities, the Company manages exposures to changes in raw material
prices, interest rates and foreign currency exchange rates through its regular
operating and financing activities. The Company does
18
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
not utilize financial instruments for trading or other speculative purposes, nor
does it utilize leveraged financial instruments.
The Company is exposed to interest rate risk primarily through its
short-term investments and short or long-term borrowings under its credit
agreement. There is inherent roll-over risk for marketable securities as they
mature and are renewed at current market rates, and the interest rate under the
credit agreement adjusts periodically. 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 no risk of loss of
principal on its short-term investments, only a risk related to potential
reduction in future interest income. Derivative instruments are not presently
used to adjust the Company's interest rate risk profile.
The majority of the Company's business is denominated in U.S. dollars.
There are costs related to the London headquarters which are denominated in the
British currency. Several other currencies are used by the Company for various
transactions, but their effect on the total business is minimal. By maintaining
a sterling bank account, the Company is able to eliminate any foreign currency
exchange gains or losses arising under cash paid out in British currency.
19
PART II
ITEM 1. LEGAL PROCEEDINGS
On January 16, 1998, our ArmorGroup Services division ceased operations in
the country of Angola. The cessation of operations in Angola was dictated by
that government's decision to deport all of ArmorGroup's expatriate management
and supervisors. As a result of the cessation of operations in Angola, our
ArmorGroup Services division is involved in various disputes with SHRM S.A.
("SHRM"), its minority joint venture partner relating to the Angolan business.
On March 6, 1998, SLA (a subsidiary of SHRM) filed a complaint against Defense
Systems France, SA ("DSF") before the Commercial Court of Nanterre (Tribunal de
Commerce de Nanterre) seeking to be paid $577,286 corresponding to an alleged
debt DSIA to SIA. Such dispute is pending before the Commercial Court of Paris.
On March 5, 1999, DSF and Defense Systems Limited ("DSL"), a subsidiary of
the Company, filed a claim seeking to obtain damages from SHRM in the amount of
$16.1 million. No court hearing is a scheduled yet. The procedure is pending
before the Commercial Court of Nanterre; a hearing has been scheduled for June
9, 2000.
On September 20, 1999, the Company was notified that SHRM and SIA filed a
complaint before the chamber of the Commercial Court of Paris against the
Company, several of its subsidiaries, several current and past members of the
board of DSIA, seeking to obtain damages in the amount of $20 million.
In addition to the above, the Company, in the normal course of business, is
subjected to claims and litigation in the areas of product and general
liability. Management does not believe any of such claims will have a material
impact on the Company's financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are hereby filed as part of this Quarterly Report on
Form 10-Q.
EXHIBIT NO. DESCRIPTION
----------- -----------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ Jonathan M. Spiller
----------------------------------
Jonathan M. Spiller
President, Chief Executive Officer
and Director
Dated: May 15, 2000
/s/ Nicholas Winiewicz
-------------------------------------
Nicholas Winiewicz
Chief Financial Officer
Dated: May 15, 2000
21
EXHIBIT INDEX
The following Exhibits are filed herewith:
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27.1 Financial Data Schedule
22