SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-Q
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(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, 2001, or
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[ ] 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
ARMOR HOLDINGS, INC.
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(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
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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 _
The number of shares outstanding of the registrant's Common Stock as of May 7,
2001 is 23,042,468.
ARMOR HOLDINGS, INC.
FORM 10-Q
INDEX
Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS......................................... 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............. 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.......................................... 17
PART II - OTHER INFORMATION................................................ 18
ITEM 1. LEGAL PROCEEDINGS............................................ 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................. 18
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
of Armor Holdings, Inc. (the "Company") and its wholly-owned subsidiaries
include all adjustments (consisting only of normal recurring accruals and the
elimination of all intercompany items and transactions) which management
considers necessary for a fair presentation of operating results as of March 31,
2001 and for the three month period ended March 31, 2001 and March 31, 2000.
These unaudited condensed consolidated financial statements should be
read in conjunction with the financial statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2000.
3
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
2001 2000
--------------- ------------------
(UNAUDITED) *
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $1,751 $7,257
Accounts receivable (net of allowance for
doubtful accounts of $1,176 and $1,133) 46,202 44,590
Inventories 29,865 23,675
Prepaid expenses and other current assets 14,978 13,313
---------- ----------
Total current assets 92,796 88,835
PROPERTY AND EQUIPMENT, net 26,395 24,590
GOODWILL (net of accumulated amortization
of $6,450 and $6,451) 88,150 95,649
PATENTS, LICENSES AND TRADEMARKS
(net of accumulated amortization of $1,617 and $1,518) 6,786 6,907
OTHER ASSETS 11,461 9,976
---------- ----------
TOTAL ASSETS $225,588 $225,957
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 667 $ 1,072
Short-term debt 172 1,157
Accounts payable, accrued expenses and other
current liabilities 20,740 18,347
Income taxes payable 116 322
---------- ----------
Total current liabilities 21,695 20,898
LONG-TERM DEBT, less current portion 39,435 38,288
---------- ----------
Total liabilities 61,130 59,186
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares
authorized; no shares issued and outstanding - -
Common stock, $.01 par value; 50,000,000 shares
authorized; 25,332,731 and 25,063,534 issued; and
22,954,672 and 22,685,475 outstanding at
March 31, 2001 and December 31, 2000 respectively 253 250
Additional paid-in capital 151,736 150,254
Retained earnings 40,268 43,663
Accumulated other comprehensive loss (2,087) (1,684)
Treasury stock (25,712) (25,712)
---------- ----------
Total stockholders' equity 164,458 166,771
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 225,588 $225,957
========== ==========
* Condensed from audited financial statements.
See notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31, 2001 MARCH 31, 2000
-------------- --------------
REVENUES:
Products $ 28,813 $ 31,448
Services 22,061 18,418
---------- ----------
Total revenues $ 50,874 $ 49,866
---------- ----------
COSTS AND EXPENSES:
Cost of sales 31,300 31,108
Operating expenses 13,544 10,765
Amortization 890 712
Equity in earnings of investee - (34)
Restructuring and related charges 8,700 -
Integration and other non-recurring charges 474 691
---------- ----------
OPERATING INCOME (LOSS)
(4,034) 6,624
Interest expense, net (670) (47)
Other income, net 236 2
---------- ----------
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR
INCOME TAXES (4,468) 6,579
PROVISION (BENEFIT) FOR INCOME TAXES (1,073) 2,499
---------- ----------
NET INCOME (LOSS) $ (3,395) $ 4,080
========== ==========
BASIC EARNINGS (LOSS) PER SHARE $ (0.15) $ 0.18
========== ==========
DILUTED EARNINGS (LOSS) PER SHARE $ (0.15) $ 0.17
========== ==========
WEIGHTED AVERAGE SHARES - BASIC 22,861 23,034
========== ==========
WEIGHTED AVERAGE SHARES - DILUTED 23,650 23,733
========== ==========
See notes to condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
-------------------------
MARCH 31, MARCH 31,
2001 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(3,395) $4,080
Adjustments to reconcile net income (loss) to net cash used in
operating activities
Depreciation and amortization 1,595 1,348
Non-cash restructuring charges, primarily goodwill 8,084 -
Deferred income tax benefit (2,740) -
Equity in earnings of investee - (34)
Changes in operating assets and liabilities, net of acquisitions:
Increase in accounts receivable (1,692) (3,864)
Increase in inventories (6,190) (1,274)
Increase in prepaid expenses and other assets (2,668) (1,520)
Increase (Decrease) in accounts payable, accrued expenses
and other current liabilities 1,661 (1,759)
Decrease in income taxes payable (206) -
--------- ---------
Net cash used in operating activities (5,551) (3,023)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,637) (965)
Purchase of businesses, net of cash acquired - (3,866)
Proceeds from the sale of equity securities 843 -
--------- ---------
Net cash used in investing activities (794) (4,831)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercise of stock options 1,485 5
Repurchases of treasury shares - (6,065)
Borrowings under line of credit 8,865 5,050
Repayments under line of credit (9,108) (548)
--------- ---------
Net cash provided by (used in) financing activities 1,242 (1,558)
--------- ---------
Effect of exchange rate changes on cash and cash equivalents (403) (419)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,506) (9,831)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,257 13,246
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,751 $3,415
========= =========
See notes to condensed consolidated financial statements.
6
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - GENERAL
The accompanying condensed quarterly financial statements represent the
consolidation of Armor Holdings, Inc. (the "Company") and its wholly-owned
subsidiaries. These statements are unaudited and include all adjustments
(consisting only of normal recurring accruals) considered necessary by
management to present a fair statement of the results of operations, financial
position and cash flows. They have been prepared in accordance with the
instructions to Form 10-Q and accordingly, do not include all the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
The results of operations for the three-month period are not
necessarily indicative of the results to be expected for the full year and
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's 2000 Annual Report on Form 10-K. Certain
prior year amounts have been reclassified to conform with the current year
presentation.
NOTE 2 - COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss), net of taxes of $217,000
and $47,000 for the three months ended March 31, 2001 and 2000 respectively, are
listed below:
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2001 2000
-------- --------
(IN THOUSANDS)
Net income (loss) $ (3,395) $ 4,080
Other comprehensive loss:
Foreign currency translations (403) (87)
--------- ---------
Comprehensive income (loss) $ (3,798) $ 3,993
========= =========
7
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
NOTE 3 - INVENTORIES
The inventories are stated at the lower of cost or market using the
first-in, first-out (FIFO) method. The components of inventory are as follows:
MARCH 31, 2001 DECEMBER 31, 2000
-------------- -----------------
(IN THOUSANDS)
Raw material $17,649 $ 13,756
Work-in-process 2,942 1,999
Finished goods 9,274 7,920
---------- ----------
Total inventories $29,865 $23,675
========== ==========
NOTE 4 - ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT
LIABILITIES
Accounts payable, accrued expenses and other current liabilities
are summarized as follows:
March 31, December 31,
2001 2000
-------- --------
(IN THOUSANDS)
Trade and other payables............................... $8,420 $ 4,432
Accrued expenses....................................... 6,382 6,914
Additional purchase price for acquisition earnouts..... 3,000 3,000
Deferred consideration for acquisitions................ 1,300 1,550
Other.................................................. 1,638 2,451
--------- ---------
$ 20,740 $ 18,347
========= =========
NOTE 5 - RESTRUCTURING CHARGE
In January 2001, the Company's ArmorGroup Services division approved a
restructuring plan to close its U.S. investigative businesses, realign the
division's organization, eliminate excess facilities and reduce overhead in its
businesses worldwide. In connection with this restructuring plan, the division
performed a review of its long-lived assets to identify potential impairments.
Pursuant to this restructuring plan, ArmorGroup i) eliminated 15 employees,
primarily from it's investigative businesses, ii) will eliminate an additional
20 employees, iii) incurred lease and other exit costs as a result of the
closure of it's investigative businesses, and iv) wrote-down the value of both
tangible and intangible assets as a result of the impairment review. ArmorGroup
expects to substantially complete the initiatives in its restructuring plan
within nine months, with most significant actions expected to be completed by
June 30, 2001.
8
As a result of the restructuring plan, the Company will record a
pre-tax charge of approximately $9.7 million. The Company has recorded
approximately $8.7 million in the first quarter of fiscal 2001 which included
approximately i) $531,000 in employee termination and related costs including
severance, relocation, medical and other benefits, ii) $541,000 in lease
termination and other exit costs, iii) $291,000 in impairment charges related to
tangible assets, and iv) $7,337,000 in impairment charges related to intangible
assets, primarily goodwill. After subtracting payments of $531,000 and $85,000
made through March 31, 2001 for employee termination benefits and lease
termination and other exit costs, respectively, the Company had a remaining
liability of $456,000 relating to lease termination and other exit costs. This
has been classified in current liabilities on the consolidated balance sheet and
will be funded through cash provided by operating activities and the Company's
credit facility. The Company expects to record the balance of approximately
$1,000,000 in restructuring charges in the second quarter of 2001.
NOTE 6 - INFORMATION CONCERNING BUSINESS SEGMENTS AND GEOGRAPHICAL SALES
The Company is a leading global provider of security risk management
services and products to multi-national corporations, governmental agencies and
law enforcement personnel through two operating divisions -- Armor Holdings
Products and ArmorGroup Services. The Armor Holdings Products division
manufactures and sells a broad range of high quality branded law enforcement
equipment. The ArmorGroup Services division provides sophisticated security
planning and risk management, electronic security systems integration,
consulting and training services, as well as intellectual property asset
protection, business intelligence and investigative services.
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 services segment is conducted in emerging markets in Africa,
Asia 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. 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. Moreover, applicable agreements
relating to the Company's interests in it 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
9
enforce its rights. Accordingly, the Company may have little or no recourse upon
the occurrence of any of these developments.
Revenues, operating income and total assets for each of the Company's
segments for the three months ended March 31, 2001 and March 31, 2000 were as
follows:
MARCH 31, 2001 MARCH 31, 2000
---------------- ---------------
(IN THOUSANDS)
Revenues:
Products $28,813 $31,448
Services 22,061 18,418
---------- ----------
Total revenues $50,874 $49,866
========== ==========
Operating income (loss):
Products $ 4,412 $ 5,994
Services (7,367) 1,635
Corporate (1,079) (1,005)
---------- ----------
Total operating income (loss) $(4,034) $ 6,624
========== ==========
Total assets:
Products $135,700 $ 107,908
Services 55,300 35,417
Corporate 34,588 38,186
---------- ----------
Total assets $225,588 $ 181,511
========== ==========
The following unaudited information with respect to revenues and
operating income (operating income before amortization expense, equity in
earnings of investee, restructuring charges and integration expense) to
principal geographic areas for the three months ended March 31, 2001 and
March 31, 2000 were as follows:
MARCH 31, 2001 MARCH 31, 2000
--------------------------------
(IN THOUSANDS)
Revenues:
North America $30,437 $ 31,611
South America 5,701 4,460
Africa 5,207 4,681
Europe/Asia 9,529 9,114
--------- ----------
Total revenues $50,874 $49,866
========= ==========
Geographic operating income:
North America $ 4,084 $ 5,716
South America 868 380
Africa 608 828
Europe/Asia 470 1,069
--------- ----------
Total geographic operating income $ 6,030 $ 7,993
========= ==========
10
Total assets:
North America $167,514 $132,761
South America 7,973 9,676
Africa 11,698 3,692
Europe/Asia 38,403 35,382
--------- ----------
Total assets $225,588 $181,511
========= ==========
A reconciliation of consolidated geographic operating income (loss) to
consolidated operating income (loss) follows:
Three months ended
March 31,
---------------------
2001 2000
------- ------
Consolidated segment operating income $ 6,030 $7,993
Amortization (890) (712)
Equity in earnings of investee -- 34
Restructuring and related charges (8,700) --
Integration and other non-recurring charges (474) (691)
------- ------
Operating income (loss) $(4,034) $6,624
======= ======
NOTE 7 - EARNINGS PER SHARE
The company follows SFAS No. 128, Earnings per Share, which requires
the presentation of basic and diluted 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 (loss):
THREE MONTHS ENDED
MARCH 31, 2001 MARCH 31, 2000
------------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Numerator for basic and diluted
earnings per share:
Net income (loss) $ (3,395) $ 4,080
---------- ---------
Denominator for basic earnings per
share weighted average shares: 22,861 23,034
Dilutive effect of shares issuable under
stock option and stock grant plans,
based on the treasury stock method 789 699
---------- ---------
Denominator for diluted earnings per
share- adjusted weighted average
shares 23,650 23,733
---------- ---------
Basic earnings per share $ (0.15) $ 0.18
========== =========
Diluted earnings per share $ (0.15) $ 0.17
========== =========
NOTE 8 - SUBSEQUENT EVENT
On April 23, 2001, Armor Holdings, Inc. announced that it has signed a
definitive agreement to acquire the Security Products and Services Group (the
"SPSG") of The Kroll O'Gara Company for an aggregate purchase price of up to
$56.5 million, of which (i) up to $15.0 million may be paid, at Armor's option,
in shares of its common stock
11
valued at the time of closing, with the balance payable in cash, and (ii) a
contingent payment of up to $2,000,000 will be paid based upon the gross
profit generated by the SPSG for the year ended December 31, 2001. The purchase
price will be reduced dollar for dollar to the extent that net tangible assets,
as defined in the stock purchase agreement, are less than approximately $37.4
million. The transaction is subject to a number of conditions, including
regulatory approval and certain contractual requirements.
On April 27, 2001, the Board of Directors approved an award of 63,341
restricted shares of the Company's common stock to certain employees. These
share vest over a period of three years and will result in a charge to earnings
of $1,074,256 over the vesting period.
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 results of operations and analysis
of financial condition for the three months ended March 31, 2001. The results of
operations for purchase business combinations 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 for the year ended December 31, 2000, 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 before tax
loss of approximately $3.1 million as of March 31, 2001 and $2.6 million as of
December 31, 2000.
13
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000.
Products revenues. Products revenues decreased by $2.6 million, or
8.4%, to $28.8 million in the three months ended March 31, 2001 compared to
$31.4 million in the three months ended March 31, 2000. This decrease was
primarily due to delays in shipping an international order in the quarter and
timing of funding under certain government programs.
Services revenues. Services revenues increased by $3.6 million, or
19.8%, to $22.0 million in the three months ended March 31, 2001 compared to
$18.4 million in the three months ended March 31, 2000. This increase was due to
13% internal growth in the Company's security consulting business as well as the
acquisitions of OVG/Traqair and Alpha B acquired in the second quarter of 2000,
which were not included in the results for the three months ended March 31,
2000.
Cost of sales. Cost of sales increased by $192,000, or 0.6%, to $31.3
million in the three months ended March 31, 2001 compared to $31.1 million in
the three months ended March 31, 2000. This decrease was primarily due to
increased revenues in the services business in the three months ended March 31,
2001 compared to the three months ended March 31, 2000. As a percentage of total
revenues, cost of sales decreased to 61.5% of total revenues for the three
months ended March 31, 2001 from 62.4% for the three months ended March 31, 2000
due to a change in the mix of products and services sold.
Operating expenses. Operating expenses increased by $2.8 million, or
25.8%, to $13.6 million (26.6% of total revenues) in the three months ended
March 31, 2001 compared to $10.8 million (21.6% of total revenues) in the three
months ended March 31, 2000. This increase was primarily due to acquisitions,
which are not reflected in the three month period ended March 31, 2000. The
increase as a percentage of total revenue is reflective of the lower revenues
and fixed nature of certain expenses.
Amortization. Amortization expense increased by $178,000, or 25.0%, to
$890,000 in the three months ended March 31, 2001 compared to $712,000 in the
three months ended March 31, 2000. This increase was primarily due to additional
amortization of intangible assets acquired as a result of the acquisitions of
Alpha B, OVG/Traqair, Monadnock and Lightning Powder, which are not reflected
in the quarter ended March 31, 2000.
14
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
Equity in earnings of investee. The equity in earnings relates to the
Company's 20% investment in Jardine Securicor Gurkha Services Limited ("JSGS"),
which was sold in the three month period ended June 30, 2000.
Restructuring and related charges. In January 2001, the Company's
ArmorGroup Services division approved a restructuring plan to close its U.S.
investigative businesses, realign the division's organization, eliminate excess
facilities and reduce overhead in its businesses worldwide. In connection with
this restructuring plan, the division performed a review of its long-lived
assets to identify potential impairments. Pursuant to this restructuring plan,
ArmorGroup i) eliminated 15 employees, primarily from it's investigative
businesses, ii) will eliminate an additional 20 employees, iii) incurred lease
and other exit costs as a result of the closure of it's investigative
businesses, and iv) wrote-down the value of both tangible and intangible assets
as a result of the impairment review. ArmorGroup expects to substantially
complete the initiatives in its restructuring plan within nine months, with most
significant actions expected to be completed by June 30, 2001.
As a result of the restructuring plan, the Company will record a
pre-tax charge of approximately $9.7 million. The Company has recorded
approximately $8.7 million in the first quarter of fiscal 2001 which included
approximately i) $531,000 in employee termination and related costs including
severance, relocation, medical and other benefits, ii) $541,000 in lease
termination and other exit costs, iii) $291,000 in impairment charges related to
tangible assets, and iv) $7,337,000 in impairment charges related to intangible
assets, primarily goodwill. The Company expects to record the balance of
approximately $1,000,000 in restructuring charges in the second quarter of 2001.
Integration and other non-recurring charges. In the three month period
ended March 31, 2001, the Company incurred $474,000 in expenses and costs
associated with the integration of the Company's recent acquisitions. The
Company incurred $691,000 in such fees in the three months ended March 31, 2000.
Operating income (loss). The operating loss was $4.0 million in the
three months ended March 31, 2001, compared to operating income of $6.6 million
in the three months ended March 31, 2000. This decrease was the result of the
items discussed above.
Interest expense, net. Net interest expense increased by $623,000, to
$670,000 in the three months ended March 31, 2001 compared to $47,000 in the
three months ended March 21, 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.
Other income, net. Other income, net was $236,000 in the three months
ended March 31, 2001 compared to $2,000 for the three months ended March 31,
2000. This other income resulted from the sale of the Company's investment in
JSGS.
Income (Loss) before provision (benefit) for income taxes. The loss
before provision (benefit) for income taxes was $4.5 million in the three months
ended March 31, 2001, compared to income of $6.6 million in the three months
ended March 31, 2000, due to the factors discussed above.
Provision (benefit) for income taxes. The provision for income taxes
decreased by $3.6 million, to a benefit of $1.1 million in the three months
ended March 31, 2001 compared to an expense $2.5 million in the three months
ended March 31, 2000. The effective tax rate for the three months ended March
31, 2001 was a benefit of 24.0% compared to an expense of 38.0% for the three
months ended March 31, 2000. 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.
15
Net (loss) income. The net loss of $3.4 million, in the three months
ended March 31, 2001 compared to income of $4.1 million for the three months
ended March 31, 2000 is primarily due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that cash generated from operations and
borrowings under the Company's credit facility 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, including the acquisition of SPSG.
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 2001 capital expenditures will be
approximately $4.0 million, of which the Company has already spent approximately
$1.6 million.
As of March 31, 2001 and December 31, 2000, the Company had working
capital of $71.1 million and $67.9 million, respectively.
FORWARD LOOKING STATEMENT; FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL
CONDITION
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 as,
among others, whose future success may be difficult to predict. You should read
forward-looking statements carefully because they discuss our future
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.
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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 and foreign currency
exchange rates, 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 do not utilize financial instruments for trading or
other speculative purposes, nor do we utilize leveraged financial instruments or
other derivatives.
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. We do not use derivative financial instruments for
speculative or trading purposes.
Interest Rate Risk. Our exposure to market rate risk for changes in
interest rates relate primarily to borrowings under our Credit Agreement and our
short-term monetary investments. Borrowings under our Credit Agreement are
variable based upon the lender's base rate or Eurodollar rate. Assuming our
current level of borrowings, a hypothetical one-percentage point increase in the
base rate or Eurodollar rate would increase our annual interest expense by
approximately $390,000. There is a market rate risk for changes in interest
rates earned on short-term money market instruments. There is inherent roll-over
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 no risk of loss of principal in the
short-term money market instruments, only a risk related to a potential
reduction in future interest income. Derivative instruments are not presently
used to adjust the Company's interest rate risk profile. We do not use
derivative financial instruments to hedge this interest rate risk.
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. We partially
manage our foreign currency risk related to those payments by maintaining
operating accounts in these foreign countries, and by having several customers
pay us in those local currencies.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company does business in numerous countries, including emerging
markets in Africa, Asia, South America, Russia, and CIS. The Company has
invested substantial resources
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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.
PART II
ITEM 1. LEGAL PROCEEDINGS
References made to Item 3, Legal Proceedings, in the Company's
Annual Report on Form 10-K for the year ended 12/31/00 for a
description of legal proceedings.
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.
None
(b) Reports on Form 8-K
None
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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 18, 2001
/s/ Robert R. Schiller
----------------------------------
Robert R. Schiller
Executive Vice President and Chief Financial Officer
Dated: May 18, 2001
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