Exhibit 99.2
SIMULA, INC.
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report.........................................................................F-2
Consolidated Balance Sheets as of December 31, 2002 and 2001.........................................F-3
Consolidated Statements of Operations for each of the three years ended December 31, 2002.........F-4
Consolidated Statements of Shareholders' Deficit and Comprehensive Loss
for each of the three years ended December 31, 2002..........................................F-5
Consolidated Statements of Cash Flows for each of the three years ended December 31, 2002...F-6 - F-7
Notes to Consolidated Financial Statements....................................................F-8 - F-25
Interim Unaudited Consolidated Financial Statements Consolidated Unaudited Balance Sheets
as of September 30, 2003 and December 31, 2002..............................................F-26
Consolidated Unaudited Statements of Operations for the Three Month and Nine Month Periods
Ended September 30, 2003 and 2002 ..........................................................F-27
Consolidated Unaudited Statement of Shareholders' Deficit for the Nine Month Period
Ended September 30, 2003 ...................................................................F-28
Consolidated Unaudited Statements of Cash Flows for the Nine Month Periods
Ended September 30, 2003 and 2002 ..........................................................F-29
Notes to Interim Unaudited Consolidated Financial Statements ................................F-30 - F-35
F-1
INDEPENDENT AUDITORS' REPORT
Directors and Shareholders
Simula, Inc. and Subsidiaries
Phoenix, Arizona
We have audited the accompanying consolidated balance sheets of Simula, Inc. and
subsidiaries (the "Company") as of December 31, 2002 and 2001, and the related
consolidated statements of operations, shareholders' deficit and comprehensive
loss, and cash flows for each of the three years in the period ended December
31, 2002. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Simula, Inc. and subsidiaries at
December 31, 2002 and 2001, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2002 in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the uncertainty relating to the Company's ability to
refinance certain of its debt raises substantial doubt about its ability to
continue as a going concern. Management's plans concerning these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Deloitte & Touche LLP
March 21, 2003, except for Notes 7 and 8, as to which dates are March 25, 2003
and April 9, 2003
Phoenix, Arizona
F-2
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
- ----------------------------------------------------------------------------------------------------
2002 2001
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 212,053 $ 362,319
Contract and trade receivables - Net (including costs and estimated
earnings in excess of billings of $14,216,255 and $10,620,110,
respectively) 27,381,930 26,441,295
Inventories 5,767,604 7,384,222
Deferred income taxes -- 2,596,000
Prepaid expenses and other 1,704,873 915,547
------------ ------------
Total current assets 35,066,460 37,699,383
PROPERTY, EQUIPMENT, and LEASEHOLD IMPROVEMENTS -Net 11,773,247 10,545,449
DEFERRED INCOME TAXES -- 34,985,000
DEFERRED FINANCING COSTS 2,419,054 4,059,630
INTANGIBLES - Net 3,534,478 3,333,896
OTHER ASSETS 2,086,245 2,029,933
------------ ------------
TOTAL $ 54,879,484 $ 92,653,291
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Revolving line of credit $ 11,283,393 $ 11,488,639
Trade accounts payable 6,170,585 6,972,576
Other accrued liabilities 9,247,644 8,394,234
Deferred revenue 898,503 1,540,247
Accrued restructuring costs 1,140,444 1,313,931
Liabilities of discontinued operations 20,672 --
Advances on contracts 940,752 2,049,645
Current portion of long-term debt 29,995,905 993,682
------------ ------------
Total current liabilities 59,697,898 32,752,954
DEFERRED REVENUE 489,582 1,367,002
DEFERRED LEASE COST 807,156 400,914
LONG-TERM DEBT - Less current portion 32,313,087 60,772,414
------------ ------------
Total liabilities 93,307,723 95,293,284
------------ ------------
SHAREHOLDERS' DEFICIT
Preferred stock, $.05 par value- authorized 50,000,000 shares;
none outstanding
Common stock, $.01 par value- authorized 50,000,000 shares;
issued 13,014,395 and 12,892,858 respectively 130,144 128,929
Additional paid-in-capital 62,715,713 62,412,546
Accumulated deficit (97,412,584) (63,377,118)
Accumulated other comprehensive loss (3,861,512) (1,804,350)
------------ ------------
Total shareholders' deficit (38,428,239) (2,639,993)
------------ ------------
TOTAL $ 54,879,484 $ 92,653,291
============ ============
See notes to consolidated financial statements.
F-3
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE YEARS ENDED DECEMBER 31, 2002
- ----------------------------------------------------------------------------------------------------------------
2002 2001 2000
--------------- --------------- ---------------
Revenue $ 114,553,968 $ 106,794,159 $ 97,295,471
Cost of revenue 74,555,569 70,294,828 65,224,828
--------------- --------------- ---------------
Gross margin 39,998,399 36,499,331 32,070,643
Administrative expenses 18,515,624 16,907,571 20,163,228
Research and development 5,108,172 4,775,966 4,659,875
Restructuring charges 851,465 367,000 375,000
Executive severance expense -- 473,000 2,222,619
Write-off of long-lived assets 417,449 -- 4,167,386
Loss on sale of assets -- 543,000 --
--------------- --------------- ---------------
Operating income (loss) 15,105,689 13,432,794 482,535
Interest expense, net (10,438,307) (10,350,188) (9,974,864)
--------------- --------------- ---------------
Income (loss) before income taxes, discontinued operations
and extraordinary items 4,667,382 3,082,606 (9,492,329)
Income tax (expense) benefit (38,355,848) (1,933,000) 2,584,000
--------------- --------------- ---------------
(Loss) income before discontinued operations and
extraordinary items (33,688,466) 1,149,606 (6,908,329)
(Loss) income from discontinued operations, net of related
income tax benefit (expense) of $303,000 and ($751,000) (347,000) -- 879,000
Extraordinary (loss) gain on early retirement of debt, net of
related income tax benefit (expense) of $1,633,000 and
($415,000) -- (2,182,900) 1,108,933
--------------- --------------- ---------------
Net loss (34,035,466) (1,033,294) (4,920,396)
Dividends on preferred stock -- -- 1,082,802
--------------- --------------- ---------------
Net loss attributable to common shareholders $ (34,035,466) $ (1,033,294) $ (6,003,198)
=============== =============== ===============
(Loss) income per common share - basic:
(Loss) income before discontinued operations and
extraordinary item $ (2.61) $ 0.09 $ (0.70)
(Loss) income from discontinued operations (0.03) -- 0.08
Extraordinary (loss) gain on early extinguishment of debt -- (0.18) 0.10
--------------- --------------- ---------------
Net loss $ (2.64) $ (0.09) $ (0.52)
=============== =============== ===============
(Loss) income per common share - diluted:
(Loss) income before discontinued operations and
extraordinary item $ (2.61) $ 0.09 $ (0.70)
(Loss) income from discontinued operations (0.03) -- 0.08
Extraordinary (loss) gain on early extinguishment of debt -- (0.17) 0.10
--------------- --------------- ---------------
Net loss $ (2.64) $ (0.08) $ (0.52)
=============== =============== ===============
See notes to consolidated financial statements.
F-4
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT AND COMPREHENSIVE LOSS
THREE YEARS ENDED DECEMBER 31, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Common Stock Additional Other Total
------------------------
Paid-in Accumulated Comprehensive Shareholders' Comprehensive
Shares Amount Capital Deficit Loss Deficit Loss
------------ ----------- -------------- --------------- --------------- --------------- --------------
Balance, January 1, 2000 11,103,827 $ 111,038 $ 59,987,309 $(56,340,626) $ (382,815) $ 3,374,906
Net loss (4,920,396) (4,920,396) $ (4,920,396)
Issuance of common shares 180,584 1,806 323,151 324,957
Conversion of redeemable
convertible Series A
Preferred Stock and accrued
dividends thereon 905,600 9,056 1,298,095 1,307,151
Preferred Stock dividends (1,082,802) (1,082,802)
Minimum pension liability
adjustment (94,969) (94,969) (94,969)
Stock option compensation 129,726 129,726
Warrants repriced 407,000 407,000
Tax benefit from employee
stock option plans 4,000 4,000
Currency translation
adjustment (110,609) (110,609) (110,609)
------------ ----------- -------------- --------------- ---------------- --------------- -------------
Balance, December 31, 2000 12,190,011 121,900 62,149,281 (62,343,824) (588,393) (661,036) $ (5,125,974)
=============
Net loss (1,033,294) (1,033,294) $ (1,033,294)
Issuance of common shares,
net of expenses of $12,000 702,847 7,029 202,865 209,894
Minimum pension liability
adjustment (1,215,411) (1,215,411) (1,215,411)
Stock option compensation 79,400 79,400
Repurchase stock options (19,000) (19,000)
Currency translation
adjustment (546) (546) (546)
------------ ----------- -------------- --------------- ---------------- --------------- -------------
Balance, December 31, 2001 12,892,858 128,929 62,412,546 (63,377,118) (1,804,350) (2,639,993) $ (2,249,251)
=============
Net loss (34,035,466) (34,035,466) $(34,035,466)
Issuance of common shares 121,537 1,215 303,167 304,382
Minimum pension liability
adjustment (1,438,444) (1,438,444) (1,438,444)
Gain (loss) on cash flow
hedge (11,605) (11,605) (11,605)
Currency translation
adjustment (607,113) (607,113) (607,113)
------------ ----------- -------------- --------------- ---------------- --------------- -------------
Balance, December 31, 2002 13,014,395 $ 130,144 $ 62,715,713 $(97,412,584) $ (3,861,512) $(38,428,239) $(36,092,628)
============ =========== ============== =============== ================ =============== =============
See notes to consolidated financial statements.
F-5
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
THREE YEARS ENDED DECEMBER 31, 2002
- --------------------------------------------------------------------------------------------------------------------------
2002 2001 2000
------------- ------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(34,035,466) $ (1,033,294) $ (4,920,396)
Adjustment to reconcile net loss to net cash from operating activities:
Depreciation and amortization 4,424,334 4,403,870 5,605,714
Deferred income taxes 37,581,000 2,000 (1,524,000)
Loss (gain) on disposal of discontinued operations 650,000 -- (1,630,000)
Currency translation adjustment (607,113) (546) (110,609)
Restructuring charge 851,465 367,000 375,000
Recovery of bad debts (132,934) -- --
Write-down of fixed assets and intangibles 417,449 -- 3,981,615
Loss (gain) on early extinguishment of debt -- 3,815,900 (1,523,933)
Non-cash equity compensation 149,886 79,400 129,727
Capitalized interest 1,535,096 365,246 463,952
Loss on disposal of assets 104,182 543,000 --
Changes in net assets and liabilities:
Contract and trade receivables - net of advances (1,916,594) (1,247,983) (1,257,718)
Inventories 1,616,618 (2,001,081) 1,613,431
Prepaid expenses and other (789,326) (183,159) (10,525)
Other assets (56,312) (1,122,396) (552,105)
Trade accounts payable (801,991) 1,174,121 (138,580)
Other accrued liabilities (587,322) (3,540,121) 408,467
Deferred revenue (1,519,164) (2,011,695) 2,632,271
Deferred lease costs 406,242 257,915 142,999
Restructuring reserve (1,024,952) (913,672) --
Liabilities of discontinued operations (629,328) -- --
Net assets held for sale -- -- (637,648)
------------- ------------- --------------
Net cash provided by (used in) operating activities 5,635,770 (1,045,495) 3,047,662
------------- ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,714,952) (4,477,977) (1,231,275)
Costs incurred to obtain intangibles (1,028,134) (1,237,409) (1,009,338)
Proceeds from sale of property, equipment, and intangibles -- 861,848 12,326,521
------------- ------------- --------------
Net cash (used in) provided by investing activities (4,743,086) (4,853,538) 10,085,908
------------- ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line of credit (205,246) 6,159,210 (7,422,166)
New borrowings - net of expenses -- 22,515,546 --
Repayments under other debt arrangements (992,200) (23,350,376) (9,430,717)
Issuance of common shares - net of expenses 154,496 209,894 324,957
Preferred stock dividends -- -- (1,082,802)
Repurchased stock options -- (19,000) --
------------- ------------- --------------
Net cash (used in) provided by financing activities (1,042,950) 5,515,274 (17,610,728)
------------- ------------- --------------
NET DECREASE IN CASH (150,266) (383,759) (4,477,158)
CASH AT BEGINNING OF PERIOD 362,319 746,078 5,223,236
------------- ------------- --------------
CASH AT END OF PERIOD $ 212,053 $ 362,319 $ 746,078
============= ============= ==============
(Continued)
See notes to consolidated financial statements.
F-6
SIMULA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 2002
- ------------------------------------------------------------------------------------------------------------------------
2002 2001 2000
------------- ------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $6,823,953 $8,004,117 $7,541,143
============= ============ ============
Taxes paid $ 484,254 $ 140,827 $ 45,002
============= ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Tax benefits from employee stock plans $ - $ - $ 4,000
============= ============ ============
In 2001, 608,734 shares of common stock were issued in exchange for an
outstanding stock warrant for 850,000 shares of common stock with an
exercise price of $1.625.
In 2000, a note payable in the amount of $800,000 was executed in Exchange for
the termination of our facility operating lease related to the airliner seat
operation which was disposed of in January 2000.
In 2000, a note payable was executed for the remaining balance of Purchased
intellectual property in the amount of $950,000.
In 2000, $1,301,756 of Series A Preferred Stock plus accrued Dividends of
$5,375 were exchanged for 905,600 shares of Common stock.
See notes to consolidated financial statements.
F-7
SIMULA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 2002
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY -- Simula is a world-recognized safety technology company and
supplier of human safety and survival systems. We provide high-technology
products and services to all branches of the United States military, major
aerospace and defense prime contractors, international military forces, and
consumer markets. We have served the defense industry for almost 30 years. We
are a provider of military helicopter seating systems, aircraft and land vehicle
armor systems, protective equipment for military personnel, safety systems and
devices utilized in the automotive industry, and other technologies used in
commercial markets to protect humans in a variety of life-threatening or
catastrophic situations.
BASIS OF PRESENTATION -- The accompanying consolidated financial statements
have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
The consolidated financial statements do not include any adjustments relating to
recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should the Company be unable to continue
as a going concern.
Current maturities of our debt as of December 31, 2002 are $41.3 million
and primarily consists of $11.3 million with our revolving line of credit
("RLC") due September 30, 2003, $3.2 million with our Senior Subordinated Notes
due September 30, 2003 and $26.6 million for our Senior Secured Note due
December 31, 2003. In order to meet future quarterly covenants and long-term
debt maturities we will need asset sales proceeds or recapitalization
transactions.
Throughout 2002, Simula was exploring its strategic options to address its
leverage issues including sale of assets or refinancing of the Company. In
December 2002, Company management added the sale or merger of the entire Company
as a potential strategy for dealing with the upcoming debt maturities in 2003.
We have retained investments bankers, structured a process, completed
preliminary steps, and have received considerable interest in pursuing a
transaction. In the event that the Company is successful in completing a sale,
merger or refinancing, the term of the new structure or financing would allow
the Company to refinance or repay the current debt. Because Simula's ability to
achieve the potential transactions cannot be assured the impact on liquidity
raises substantial doubt about the ability to continue as a going concern.
For the year ended December 31, 2002, Simula incurred a net loss of $34.0
million. This loss is due to the additional valuation allowance of $35.9 million
placed on our deferred tax assets in the fourth quarter of 2002. In the event
the Company cannot continue as a going concern, the deferred tax asset may not
be fully usable in the future and, therefore, the full valuation allowance was
recorded.
The consolidated financial statements include the accounts of Simula, Inc.
and its subsidiaries (collectively "we" and "our"). All of the subsidiaries are
wholly owned. All intercompany transactions are eliminated in consolidation.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Described below are those
generally accepted accounting principles particularly significant to us,
including those selected from acceptable alternatives.
a. Revenue - Revenues related to government contracts results principally
from fixed price contracts and is recognized on the
percentage-of-completion method calculated utilizing the cost-to-cost
approach. The percent deemed to be complete is calculated by comparing
the costs incurred to date to estimated total costs for each contract.
This method is used because management considers costs incurred to be
the best available measure of progress on these contracts. Adjustments
to this measurement are made when management believes that costs
incurred materially differ from effort expended. Contract costs include
all direct material and labor costs, along with certain overhead costs
related to contract production. Provisions for any estimated total
contract losses on uncompleted contracts are recorded in the period in
which it is determined that such losses will occur.
F-8
Revenue derived from the sale of commercial products is recognized when
persuasive evidence of an arrangement exists, delivery has occurred,
the fee is fixed and determinable and collectibility probable.
Generally, all of these conditions are met when the company ships
products to its customers. Revenue related to nonrefundable license
fees that are payable at the initiation of a licensing agreement are
recognized immediately in income when received or when collectibility
is reasonably assured, provided that there are no future obligations or
performance requirements.
Revenue related to nonrefundable license fees that are payable at the
initiation of a licensing agreement are recognized immediately in
income when received or when collectibility is reasonably assured,
provided that there are no future obligations or performance
requirements. Nonrefundable license fees that are in essence, a
prepayment of future royalties, are recognized as revenue on a
straight-line basis over the term of the initial license.
b. Concentration of Credit Risk - Financial instruments which potentially
subject the Company to concentrations of credit risk consist
principally of contract and trade accounts receivable. The U.S.
military comprise a significant portion of our Aerospace and Defense
segment customer base. Contracts and accounts receivable from the U.S.
Military at December 31, 2002 were approximately $10.6 million and at
December 31, 2001 were $10.0 million. We have performed work for the
U.S. military since 1975. The work performed is procured from virtually
all branches of the military on numerous individual contract awards.
Historically we have not experienced significant bad debts.
c. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
d. Foreign currency assets and liabilities are translated into United
States dollars using the exchange rates in effect at the balance sheet
date. The effects of exchange rate fluctuations on translation of
assets and liabilities are reported as a separate component of
shareholders' equity.
e. Asset impairment - We review the carrying value of our long-lived
assets and identifiable intangibles for possible impairment whenever
events or changes in circumstances indicate that the carrying amounts
may not be recoverable in accordance with the provisions of Statement
of Financial Accounting Standard ("SFAS") No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." Impairment losses, if
any, are recorded as a component of earnings from operations.
f. Derivative instruments - On January 1, 2001, we adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards requiring us to
recognize derivatives as either assets or liabilities on the balance
sheet and to measure those instruments at fair value. The adoption of
SFAS No. 133 did not have a material impact on our financial position
or results of operations. We use derivatives to manage exposures to
foreign currency fluctuations. The only type of derivative we use is
foreign currency contracts. Our objective for holding these forward
contracts are to decrease the potential volatility of earnings and cash
flows associated with changes in foreign currency exchange rates (See
Note 13).
g. Stock based compensation - We have three stock-based employee
compensation plans, which are described more fully in Note 10. We
account for those plans under the recognition and measurement
principles of APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and related Interpretations. Accordingly, compensation
expense in the amount of $79,400 for the year ended 2001 and $129,726
for the year ended 2000, has been recognized in relation to fully
vesting option grants, which were unvested at the time of resignation
of certain executive management. No other stock-based employee
compensation cost is reflected in net income, as all options granted
under those plans had an exercise price equal to the market value of
the underlying common stock on the date of grant. The following table
illustrates the effect on net
F-9
income and earnings per share if we had applied the fair value
recognition provisions of FASB Statement No. 123, "Accounting for
Stock-Based Compensation", to stock-based employee compensation for the
three years ended December 31, 2002:
2002 2001 2000
------------------ ---------------- -----------------
Net loss - as reported $ (34,035,466) $ (1,033,294) $ (6,003,198)
================== ================ =================
Deduct: Total stock based employee compensation
expense determined under fair value based
method for all awards (1,288,701) (379,176) (2,158,191)
------------------ ---------------- -----------------
Net loss - pro forma $ (35,324,167) $ (1,412,470) $ (8,161,389)
================== ================ =================
Loss per share - basic and diluted - as reported $ (2.63) $ (0.09) $ (0.52)
================== ================ =================
Loss per share - basic and diluted - pro forma $ (2.73) $ (0.11) $ (0.71)
================== ================ =================
The estimated fair value of options granted during 2002, 2001 and
2000 was $2.15, $1.26, and $2.30 respectively, per share. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes options pricing model and the following table illustrates
the assumptions used for grants for the three years ended December
31,2002:
2002 2001 2000
------------------ ---------------- ---------------
Dividend yield None None None
Expected volatility 98% 68% 74%
Risk-free interest rate 3.6% 4.2% 5.5%
Expected lives 3.25 3.25 3.25
h. Inventories include raw materials not yet applied to contracts and raw
materials, work-in-process and finished goods applicable to commercial
products. Inventories are recorded at cost and are carried at the lower
of cost or net realizable value. Amounts are relieved from inventory
using the first-in first-out method.
i. Property, equipment and leasehold improvements are stated at cost, net
of accumulated depreciation and impairment write-downs pursuant to SFAS
No. 144. Amortization of capital leases and leasehold improvements is
calculated on a straight-line basis over the life of the asset or term
of the lease, whichever is shorter. Depreciation on buildings and
equipment is calculated on a straight-line basis. Listed below are the
ranges of useful lives by property and equipment category:
Buildings 30 years
Equipment 3 to 7 years
j. Intangibles are recorded at cost, net of accumulated amortization and
impairment write-downs pursuant to SFAS No. 144. We acquire intangible
assets in the normal course of business. Intangibles are amortized on a
straight-line basis over 7 to 20 years.
k. Deferred financing costs are amortized over the life of the related
debt using the effective interest method.
l. Research and Development - We perform internal research and development
activities as well as research and development activities contracted by
our customers. Research and development costs are expensed as incurred.
Research and development costs of customer contracted research and
development activities are included in cost of goods sold.
m. Income taxes are accounted for under the provisions of SFAS No. 109,
"Accounting for Income Taxes." SFAS 109 requires recognition of
deferred tax assets and liabilities for the estimated future tax
consequences of events attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the year in which the
F-10
differences are expected to be recovered or settled. Net deferred tax
assets are reduced through the establishment of a valuation allowance
at such time as, based upon available evidence, it is more likely than
not that the deferred tax assets will not be realized. At December 31,
2002, we established a full valuation allowance for all remaining
deferred tax assets.
n. (Loss) earnings per common share - SFAS No. 128, "Earnings Per Share,"
requires the dual presentation of basic and diluted earnings per share
on the face of the income statement and the disclosure of the
reconciliation between the numerators and denominators of basic and
diluted earnings per share calculations. Basic earnings per share
amounts, for the year ended December 31, 2002, are calculated using the
weighted average outstanding shares of 12,926,967. Diluted earnings per
share amounts, for the year ended December 31, 2002, does not include
the effect of 227,142 weighted average outstanding shares related to
stock options to purchase common stock and does not include the effect
of 1,774,074 shares of common stock to be issued upon conversion of the
8% Notes because the result would be anti-dilutive. Earnings per share
amounts for the years ended December 31, 2001 and 2000 are calculated
using weighted average outstanding shares of 12,299,996 and 11,450,810,
respectively. Diluted earnings per share amounts, for the year ended
December 31, 2001, include the effect of 381,893 weighted average
outstanding shares related to stock options and warrants to purchase
common stock and does not include the effect of 1,774,074 shares of
common stock to be issued upon conversion of the 8% Notes because the
result would be anti-dilutive. Options and stock warrants to purchase
common stock and shares to be issued upon conversion of the 8% Notes
totaling 7,134,621 for the year ended December 31, 2000 were not used
for computing diluted earnings per share because the results would be
anti-dilutive.
o. New accounting pronouncements - In April 2002, the Financial Accounting
Standards Board ("FASB") issued SFAS 145, "Rescission of FASB
Statements No. 4, 44 and 64, amendment of FASB Statement No.13, and
Technical Corrections", which, among other things, no longer allows for
the classification of gains and losses from extinguishment of debt as
extraordinary. We will adopt SFAS No. 145 effective January 1, 2003 and
upon adoption, gains and losses on certain future debt extinguishment,
if any, will be recorded in pre-tax income. In addition, the $2.2
million extraordinary loss and the $1.1 million extraordinary gain from
early extinguishment of debt for the years ended December 31, 2001 and
2000, respectively, will be reclassified to income before extraordinary
loss to conform to the requirements under SFAS 145.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities", which addresses financial
accounting and reporting for costs associated with exit or disposal
activities. SFAS No. 146 also nullifies Emerging Issues Task Force
("EITF") No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)". SFAS No. 146 is effective
for exit or disposal activities initiated after December 31, 2002, with
early application encouraged. We will adopt SFAS No. 146 effective
January 1, 2003 and do not anticipate that the new standard will have a
material impact on our financial position or results of operations.
In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." This
Interpretation addresses the disclosures to be made by a guarantor in
its financial statements and its obligations under guarantees. The
Interpretation also clarifies the requirements related to the
recognition of a liability by the guarantor at the inception of a
guarantee. Per the interpretation, initial recognition of a liability
shall be applied only on a prospective basis to guarantees issued or
modified after December 31, 2002. We have adopted the disclosure
provisions of the interpretation as of December 31, 2002, as discussed
in Note 14, concerning our guarantees on certain leases.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation--Transition and Disclosure". This Statement
amends SFAS No. 123 to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based
employee compensation. Specifically, SFAS No. 148 prohibits companies
from utilizing the prospective method of
F-11
transition, the only method offered under the original SFAS No. 123, in
fiscal years beginning after December 15, 2003. However, the statement
permits two additional transition methods for companies that adopt the
fair value method of accounting for stock-based compensation, which
include the modified prospective and retroactive restatement methods.
Under the prospective method, expense is recognized for all employee
awards granted, modified, or settled after the beginning of the fiscal
year in which the recognition provisions are first applied. The
modified prospective method recognizes stock-based employee
compensation cost from the beginning of the fiscal year in which the
provisions are first applied, as if the fair value method had been used
to account for all employee awards granted, modified, or settled in
fiscal years beginning after December 15, 1994. Under the retroactive
restatement method, all periods presented are restated to reflect
stock-based employee compensation cost under the fair value method for
all employee awards granted, modified, or settled in fiscal years
beginning after December 15, 1994. In addition, this Statement amends
the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the
effect of the method used on reported results using a prescribed
specific tabular format and requiring disclosure in the "Summary of
Significant Accounting Policies" or its equivalent. We have adopted the
new disclosure requirements for 2002, and are currently evaluating the
impact if we were to adopt the fair value method of accounting for
stock-based employee compensation under all three methods.
2. RECEIVABLES
Costs and estimated earnings in excess of billings on uncompleted contracts
represent revenue recognized on long-term contracts in excess of billings
because under the terms of the contract the amounts were not billable at the
balance sheet date. Amounts receivable from the United States Government or
receivable under United States Government related subcontracts will generally be
billed in the following month or when the contract and all options thereunder
are completed. Amounts due on other contracts are generally billed as shipments
are made. It is estimated that substantially all of such amounts will be billed
and collected within one year, although contract extensions may delay certain
collections beyond one year.
At December 31, receivables include the following:
2002 2001
-------------- --------------
United States Government:
Billed receivables $ 3,956,426 $ 6,857,997
Cost and estimated earnings in excess of billings 11,188,928 6,454,932
-------------- --------------
Total United States Government 15,145,354 13,312,929
-------------- --------------
Other contracts:
Billed receivables 1,503,283 2,341,534
Costs and estimated earnings in excess of billings 3,027,327 4,165,178
-------------- --------------
Total other contracts 4,530,610 6,506,712
-------------- --------------
Other trade receivables 7,810,966 6,858,654
Less allowance for doubtful accounts (105,000) (237,000)
-------------- --------------
Contract and trade receivables - net $ 27,381,930 $ 26,441,295
============== ==============
Activity in the allowance for doubtful accounts for the year ended December 31:
2002 2001 2000
-------------- -------------- --------------
Allowance for doubtful accounts beginning balance $ (237,000) $ (423,000) $ (200,000)
Provision (477,000) (237,000) (250,000)
Usage 329,000 403,000 27,000
Recoveries 280,000 20,000 --
-------------- ------------------------------
Allowance for doubtful accounts ending balance $ (105,000) $ (237,000) $ (423,000)
============== ============== ==============
F-12
3. INVENTORIES
At December 31, inventories consisted of the following:
2002 2001
---------------- ----------------
Raw materials $ 4,420,174 $ 5,330,934
Work in progress 774,822 1,717,528
Finished goods 844,557 357,738
Inventory reserve (271,949) (21,978)
---------------------------------
Total Inventories $ 5,767,604 $ 7,384,222
================ ================
4. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
At December 31, property, equipment and leasehold improvements consisted of the following:
2002 2001
---------------- -----------------
Land $ 816,888 $ 816,888
Buildings and leasehold improvements 4,593,765 4,585,152
Equipment 20,508,363 17,471,592
---------------- -----------------
Total 25,919,016 22,873,632
Less accumulated depreciation and amortization (14,145,769) (12,328,183)
---------------- -----------------
Property, equipment and leasehold improvements - net $ 11,773,247 $ 10,545,449
================ =================
5. INTANGIBLES
In January 2002, we adopted Statement of Financial Accounting Standards
(SFAS) No. 142 "Goodwill and Other Intangible Assets." SFAS No. 142 specifies
that goodwill and certain intangible assets with indefinite lives no longer be
amortized but instead be subject to periodic impairment testing. Intangible
assets with finite lives will continue to be amortized over their respective
useful lives and will be tested for impairment in accordance with SFAS No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144,
adopted January 1, 2002, supersedes SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the
accounting and reporting provisions of Accounting Principles Board (APB) Opinion
No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions."
All of our intangible assets with finite lives ranging from 15 to 20 years
were principally comprised of technology patents with a total cost at December
31 as follows:
2002 2001
--------------- -----------------
Patents and licenses $ 4,194,603 $ 3,695,462
Other 566,010 577,148
--------------- -----------------
Total 4,760,613 4,272,610
Less accumulated amortization (1,226,135) (938,714)
--------------- -----------------
Intangibles - net $ 3,534,478 $ 3,333,896
=============== =================
Intangible asset amortization expense for the year ended December 31, 2002 and
2001 was approximately $287,000 and $259,000, respectively. Estimated
amortization expense for the five succeeding fiscal years is as follows:
2003 $ 336,000
2004 336,000
2005 336,000
2006 336,000
2007 336,000
6. DEFERRED REVENUE
In connection with a Settlement Agreement reached with Autoliv in September
2000, we licensed certain technologies related to our automotive airbag
business. In exchange for these licenses, we received $7.0 million, of which
approximately $0.7 million was applied against royalties earned and unpaid under
our previous marketing and license agreement with Autoliv, $3.0 million was
recognized as technology revenue in September 2000 and $3.3 million was deferred
and will be recognized into revenue on a straight-line basis over three years.
In addition, we
F-13
received $3.0 million in prepayments to be applied to product delivered in the
future. Deferred license revenue was $827,008 at December 31, 2002 and was
$1,929,676 at December 31, 2001. Prepaid product was $0 at December 31, 2002 and
was $377,571 at December 31, 2001.
Other deferred revenue consists of amounts received or receivable in
connection with nonrefundable license fees which are required to be recognized
over the term of the underlying license agreement. Other deferred revenue as of
December 31, 2002 and 2001 was $540,000 and $600,000, respectively. Other
deferred revenue will be recognized in revenue on a straight-line basis over the
next nine years.
7. REVOLVING LINE OF CREDIT
On December 31, 1999, we executed a Financing Agreement with an asset-based
lender which provided for a $17,000,000 revolving line of credit ("RLC") and a
$5,000,000 Senior Secured term note payable. The $5,000,000 Senior Secured term
note was subsequently repaid with the proceeds received from the sale of our
airline seat manufacturing operation in February 2000. The RLC accrues interest
at the Chase Manhattan prime rate or LIBOR plus 2.4% based upon the rate we
select, matures September 30, 2003 and renews automatically unless terminated by
either party with proper notice.
Our availability under the RLC is dependent upon the relative balances of
trade accounts receivable, contract costs and estimated earnings in excess of
billings and inventories and each of their relative advance percentages and
advance limits. During the third quarter 2001, we amended our RLC to increase
the advance rate related to contract costs and estimated earnings in excess of
billings from 15% to 40% subject to a maximum advance limit of $3.5 million.
This maximum advance limit was subject to a subsequent reduction of $0.5 million
each quarter beginning with December 2001, until it was reduced to its original
advance limit of $1.5 million in September 2002. During the first quarter 2002,
we amended our RLC to increase the amount we are limited to incur in annual
operating lease commitments effective for our fiscal year ending December 31,
2001. Also during the third quarter of 2002 we again modified and amended
certain provisions of the RLC to increase the costs and revenues in excess of
billing loan cap back to $3.5 million with scheduled reductions of $0.5 million
quarterly commencing January 1, 2003. At December 31, 2002, the RLC had an
outstanding balance of $11.3 million with an average interest rate of 5.25% and
additional borrowing availability of $1.3 million. At December 31, 2001, the RLC
had an outstanding balance of $11.5 million with an average interest rate of
5.5% and additional borrowing availability of $3.7 million.
The Financing Agreement contains covenants that require the maintenance of
certain defined financial ratios and income and limits additional borrowings and
capital expenditures. On March 25, 2003, we completed an amendment for certain
provisions of the RLC to increase allowable capital expenditures for the fourth
quarter 2002. Additionally, due to the increase in the deferred tax asset
valuation allowance previously discussed, the Company was not in compliance with
the net income covenant for the fourth quarter 2002. On April 9, 2003 we
received a waiver for this technical, non-monetary default. During the first
quarter of 2003, Simula was in technical, non-monetary default of certain
monthly covenants with its RLC. We are currently negotiating for waivers for the
covenant non-compliance and anticipate successful resolution.
The Financing Agreement may be terminated with 60-days notice prior to each
anniversary date of the agreement at no additional cost. If the Financing
Agreement is terminated at any other time, an early termination fee may be
assessed. The Financing Agreement, as amended, provides for an early termination
fee of 1.75% if terminated prior to September 30, 2002 and 1% if the early
termination occurs thereafter. The Financing Agreement is secured by a lien on
substantially all of our assets and is subject to a intercreditor agreement with
the holder of the Senior Secured Note.
8. LONG-TERM DEBT
Long-term debt at December 31 consisted of the following:
2002 2001
---------------- ----------------
Senior Secured $ 26,551,535 $ 25,016,439
8% Senior Subordinated Convertible Notes 31,135,000 31,135,000
9 1/2% Senior Subordinated Notes 3,238,000 3,238,000
F-14
Loans payable, secured by property and equipment - 778,178
Mortgage note payable, secured by land and buildings 939,771 970,266
Loan payable, unsecured 437,096 590,071
Obligations under capital leases (Note 13) 7,590 38,142
---------------- ----------------
Total 62,308,992 61,766,096
Less current portion (29,995,905) (993,682)
---------------- ----------------
Long-term debt $ 32,313,087 $ 60,772,414
================ ================
On September 26, 2001, we completed a financing with an accredited investor
of $25,000,000 in a Senior Secured Note due December 31, 2003. The financing
allowed us to repay the lender under our previous Term Notes for which we had
been in non-monetary default since December 31, 2000. In connection with the
repayment of this debt, an extraordinary loss on early extinguishment of debt of
$2,182,900, net of an income tax benefit of $1,633,000, has been recorded. The
pre-tax extraordinary loss of $3,815,900 included pre-payment penalties and
interest charges of $1,361,590 and unamortized deferred finance fees and loan
discounts totaling $2,454,310.
The $25,000,000 Senior Secured Note accrues interest payable quarterly at
12.5% and accrues principal in kind ("PIK") interest at 6%, which at our option
may be paid quarterly, provided we are in compliance with certain covenants, or
capitalized into the note balance. The PIK rate may also be reduced as our
leverage ratio is reduced. The PIK rate was 6% throughout 2002. At December 31,
2002, due to addition of PIK each quarter, the balance of the note was
$26,551,535. The Senior Secured Note contains covenants that require the
maintenance of certain defined financial ratios and limits additional borrowings
and capital expenditures. In addition to other remedies, the Senior Secured Note
provides for a fee of $1,000,000 if we are unable to meet our debt leverage
ratio requirement as of June 30, 2003. On March 25, 2003, we completed an
amendment for certain provisions of the Senior Secured Note to increase allowed
capital expenditures for the fourth quarter 2002. The Senior Secured Note is
secured by a lien on substantially all of our assets and is subject to a
intercreditor agreement with our asset based lender under the RLC.
In 1997, we completed a public offering of $34.5 million of 8% Senior
Subordinated Convertible Notes (the "8% Notes"). The 8% Notes are due May 1,
2004 and bear interest at 8% per annum, payable semi-annually. The 8% Notes are
convertible into shares of our common stock at a price of $17.55 per share of
common stock. The 8% Notes may be redeemed at our option in whole or in part on
a pro rata basis, on and after May 1, 1999, at certain specified redemption
prices plus accrued interest payable to the redemption date. In August,
September and October 2000, we repurchased in the open market 8% Notes totaling
$3,365,000 at an average discount of 45%, resulting in a pre-tax gain on early
extinguishment of debt net of transaction costs of $1,523,933.
In 1998, we completed a private placement to accredited investors of
$3,238,000 of our 9 1/2% Senior Subordinated Notes (the "9 1/2% Notes") and
received proceeds of $1,025,000 and exchanged $2,213,000 of our 12% Notes. The 9
1/2% Notes are due on September 30, 2003 and bear interest at 9 1/2% per annum,
payable semi-annually. The 9 1/2% Notes may be redeemed at our option, upon at
least 30-days notice, in whole or in part on a pro rata basis, on and after
April 30, 1999, at 102% of par value plus accrued interest payable to the
redemption date.
The indenture relating to the 9 1/2% Notes and the 8% Notes contains
certain covenants including limitations on additional indebtedness, the sale of
assets, liens securing indebtedness other than senior indebtedness, payment
restrictions affecting subsidiaries, transactions with affiliates, future senior
subordinated indebtedness and mergers and consolidations. In accordance with the
indenture, we may incur indebtedness under senior credit facilities up to $50
million and may incur other indebtedness based upon a specified ratio of cash
flow, as defined, to interest expense. The 9 1/2% Notes and the 8% Notes become
due upon successful acceleration of $10 million or more in senior debt. We were
in compliance with all of the covenants of this indenture at December 31, 2002.
The mortgage note payable of $939,771 relates to our 55,000 square foot office
and manufacturing facility in Asheville, North Carolina. In connection with the
move of operations to Phoenix, we completed a sales transaction of this facility
on April 8, 2003.
F-15
The loans payable, secured by property and equipment with a zero balance at
December 31, 2002, listed above related to the manufacturing facility in
Ashington, England and a note for purchased technology. Both balances were paid
off in 2002.
In August 2000, we executed an agreement to purchase certain intellectual
property in exchange for $350,000 paid in cash and the issuance of a $950,000
note payable. The note payable provided for principal payments on December 31,
2000, June 29, 2001 and June 28, 2002 of $500,000, $250,000 and $200,000,
respectively, each with accrued interest earned thereon. The interest earned
under this note accrued at the SunTrust Bank of St. Petersburg prime rate plus
3.5%. At December 31, 2002, no outstanding balance remains on this note.
In June 2000, we executed a note payable in the amount of $800,000 in
exchange for the termination of one of our facility operating leases related to
the airline new seat manufacturing operation, which was disposed of in January
2000. The note requires payments of monthly principal and interest at 8% of
approximately $16,000 and matures in June 2005 and is unsecured. At December 31,
2002, approximately $437,000 remains unpaid on this note.
The aggregate principal payments required for the five years subsequent to
December 31, 2002 are presented in the table below.
2003 $ 29,995,905
2004 31,350,123
2005 962,964
----------------
Total $ 62,308,992
================
Interest expense for the year ended December 31 is comprised of the
following:
2002 2001 2000
--------------- --------------- ---------------
Interest $ 8,353,701 $ 8,167,092 $ 7,234,201
Amortization of deferred financing costs 2,084,606 2,183,096 2,740,663
--------------- --------------- ---------------
Interest expense $ 10,438,307 $ 10,350,188 $ 9,974,864
=============== =============== ===============
Based on borrowing rates currently available to us and quoted market prices
for the 8% Notes, the fair value of long-term debt at December 31, 2002 is
approximately $55,567,461.
9. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In 1999, we completed a private placement to an accredited investor of $7.5
million of Series A Convertible Preferred Stock (the "Series A"). The Series A
had a dividend rate of 6% per annum payable quarterly in cash, or in stock
valued at 90% of fair market value at the time of payment. The Series A also
provided for a mandatory redemption of the remaining outstanding shares on May
1, 2004.
During the year ended December 31, 2000, $2,250,000 of the Series A
Preferred Stock plus accrued dividends of $5,375 were tendered for conversion
into common stock. As a result of the common share conversion limit of 1,982,681
shares, we could satisfy the conversion of $1,307,151 and issued 905,600 shares
of common stock and we were not able to convert $952,772 of the tendered
preferred stock and accrued dividends into shares of our common stock. In
accordance with the provisions of the Preferred Stock Securities Purchase
Agreement, we were required to redeem the remaining balance of tendered
preferred stock and accrued dividends in accordance with the redemption formula
and paid the holder $1,934,831.
10. STOCK OPTIONS AND STOCK PLANS
In 1992, we adopted the 1992 Stock Option Plan, which provided for the
issuance of up to 360,000 shares of common stock. All options available under
the 1992 Plan have been granted. In August 1994, we adopted the 1994 Stock
Option Plan, as amended, which reserved up to 2,500,000 shares of common stock
for issuance under the Plan.
F-16
In June 1999, we adopted the 1999 Stock Option Plan which reserved up to
2,000,000 shares of common stock for issuance under the Plan and for which an
additional 450,000 shares of common stock were approved by the shareholders in
June 2001. Options granted under the 1994 and 1999 Plans as of December 31, 2002
were 4,820,410. Information with respect to the Plans is as follows:
WEIGHTED
AVERAGE
OPTION SHARES OPTION PRICE
----------------- -----------------
Outstanding at December 31, 1999 2,991,496 $ 10.06
Granted 1,532,150 $ 4.65
Canceled (14,899) $ 6.57
-----------------
Outstanding at December 31, 2000 4,508,747 $ 8.24
Granted 169,000 $ 2.57
Exercised (42,000) 1.46
Canceled (182,700) $ 12.14
-----------------
Outstanding at December 31, 2001 4,453,047 $ 7.87
Granted 353,000 $ 3.36
Exercised (5,500) $ 2.74
Canceled (113,333) $ 7.18
-----------------
Outstanding at December 31, 2002 4,687,214 $ 7.54
=================
Options are generally exercisable one year from the date of grant for up to
ten years at a price equal to 100% of the fair market value on the date of
grant, or 85% of fair market value in the case of non-statutory options. As of
December 31, 2002, 2001 and 2000, exercisable options were 4,473,714, 4,127,047,
and 3,875,297, respectively.
The following information, aggregated by option price ranges, is applicable to
options outstanding at December 31, 2002:
Range of exercise prices .........................................$1.31 - $8.187 $11.25 - $18.563
Shares outstanding in range ...................................... 3,324,264 1,362,950
Weighted-average exercise price .................................. $5.03 $13.65
Weighted-average remaining contractual life in years ............. 6.79 3.84
Shares currently exercisable ..................................... 3,110,764 1,362,950
Weighted-average exercise price of shares currently exercisable .. $5.08 $13.65
RESTRICTED STOCK PLAN - In 1992, we adopted the 1992 Restricted Stock Plan
authorizing us to issue to key employees an aggregate of 19,500 shares of common
stock. We have reserved 19,500 shares of common stock for issuance pursuant to
the Restricted Stock Plan, of which 4,623 shares have been awarded. As of
February 25, 2002, no further awards can be granted under this plan.
EMPLOYEE STOCK PURCHASE PLAN - On June 20, 1996, we adopted the Employee
Stock Purchase Plan (the "ESPP") to allow eligible employees to acquire shares
of common stock at periodic intervals, paid for with accumulated payroll
deductions over a six month offering period. A total of 400,000 shares of common
stock were initially reserved and in June 2001 an additional 200,000 shares of
common stock were reserved for issuance under the ESPP. The first offering
period under the ESPP began October 1, 1996.
11. BENEFIT PLANS
We have a noncontributory defined benefit pension plan (the "Plan") for
employees. To be eligible to participate, employees must have completed six
months of continuous employment and have attained the age of 21. Benefits are
based on length of service and the employee's final pay (averaged over the five
highest consecutive years of the last ten years of participation). We make
contributions to the Plan based upon actuarially determined amounts. Effective
July 1, 1999, we froze the Plan for new participants.
F-17
The Plan's funded status and amounts recognized in our balance sheet at
December 31 are as follows:
2002 2001
---------------- -----------------
Actuarial present value of benefit obligation:
Accumulated benefit obligation $ 7,159,456 $ 5,639,712
Effect of projected future compensation increases 1,288,616 866,876
---------------- -----------------
Projected benefit obligation 8,448,072 6,506,588
Plan assets at fair value 4,495,455 4,007,062
Contributions after measurement date 254,220 -
---------------- -----------------
Unfunded status 3,698,397 2,499,526
Unrecognized prior service cost (131,758) (140,770)
Unrecognized loss (4,230,783) (2,376,556)
Unrecognized transition liability 56,530 62,182
---------------- -----------------
Accrued benefit cost (607,614) 44,382
Additional minimum liability 3,017,395 1,588,268
---------------- -----------------
Accrued benefit liability 2,409,781 1,632,650
Intangible asset 132,669 141,986
Accumulated other comprehensive income adjustments 2,884,726 1,446,282
---------------- -----------------
Net amount recognized $ (607,614) $ 44,382
================ =================
Reconciliation of the Plan's projected benefit obligation is as follows:
2002 2001
---------------- ---------------
Projected benefit obligation at beginning of year $ 6,506,588 $ 5,378,909
Service Cost 461,635 496,371
Interest Cost 469,834 418,699
Actuarial gain 1,294,801 412,320
Benefits paid (284,786) (199,711)
---------------- -----------------
Projected benefit obligation at end of year $ 8,448,072 $ 6,506,588
================ =================
Reconciliation of the fair value of plan assets is as follows:
2002 2001
---------------- ---------------
Fair value of plan assets at beginning of year $ 4,007,062 $ 3,448,775
Employer contributions 1,411,314 1,327,760
Actual loss (383,915) (569,762)
Benefits paid (284,786) (199,711)
---------------- -----------------
Fair value of plan assets at end of year $ 4,749,675 $ 4,007,062
================ =================
Net periodic pension cost includes the following:
2002 2001 2000
---------------- -------------- ----------------
Service Cost $ 461,635 $ 496,371 $ 490,036
Interest Cost 469,834 418,699 338,861
Expected loss on assets (355,069) (314,211) (230,469)
Transition asset recognition (5,652) (5,652) (5,652)
Prior service cost 9,012 9,010 (12,298)
Net loss recognition 179,560 65,851 79,615
------------------ ---------------- ------------------
Net periodic pension cost $ 759,320 $ 670,068 $ 660,093
================== ================ ==================
Assumptions at December 31 used in the accounting for the Plan were as
follows:
2002 2001 2000
---------------- -------------- -------------
Discount or settlement rate 6.75% 7.25% 7.75%
Rate of increase in compensation levels 3.25% 3.25% 3.75%
Expected long-term rate of return on Plan assets 8.00% 8.00% 8.00%
The Plan's assets consist of money market accounts and investments in
common stocks, bonds and mutual funds. We also have a 401(k) plan for
substantially all employees. Employer contributions to the 401(k) plan were
$141,141, $106,613, and $90,683 for the years ended December 31, 2002, 2001 and
2000, respectively.
F-18
12. INCOME TAXES
The income tax (benefit) provision including amounts related to
discontinued operations and extraordinary items, for the years ended December 31
are as follows:
2002 2001 2000
----------------- --------------- -----------------
$ 471,848 $ 298,000 $ 106,000
Current
Deferred 37,581,000 2,000 (1,524,000)
----------------- ---------------- -----------------
Provision (benefit) for income taxes $ 38,052,848 $ 300,000 $ 1,418,000
================= ================ =================
2002 2001 2000
---------------- -------------- ---------------
Federal statutory income tax rate 34.0% 34.0% 34.0%
State income tax rate 3.4 24.8 1.5
Foreign tax paid 8.9 - -
Unutilized state tax losses - (18.0) (5.8)
Valuation reserve 769.6 (103.2) (7.5)
Tax credits and other 5.9 21.5 5.0
---------------- -------------- ---------------
Effective rate 821.8% (40.9)% 27.2%
================ ============== ===============
The provision for deferred income taxes consists of the following:
2002 2001 2000
------------------ ---------------- ----------------
Accruals and reserves $ 2,549,000 $ 1,314,000 $ 7,700,000
Depreciation and amortization expense 118,000 1,058,000 (36,000)
Net operating loss carryforward (711,000) (2,854,000) (9,650,000)
Minimum tax credit carryforwards (273,000) (273,000) (268,000)
Change in valuation allowance 35,898,000 757,000 730,000
------------------ ---------------- ----------------
Total $ 37,581,000 $ 2,000 $ (1,524,000)
=====================================================
The significant tax effected temporary differences comprising deferred
taxes at December 31 are as follows:
2002 2001
---------------- ------------------
Current:
Extraordinary loss $ (171,000) $ 320,000
Accrued vacation and self-insurance 257,000 353,000
Inventory and warranty reserves 12,000 240,000
Other 544,000 1,683,000
---------------- ------------------
Total current deferred tax asset 642,000 2,596,000
---------------- ------------------
Long-term:
Excess of tax over book depreciation and amortization (1,121,000) (1,003,000)
Net operating loss carryforwards 35,480,000 34,328,000
Minimum tax credit carryforwards 1,777,000 1,604,000
Deferred start-up costs 120,000 120,000
Other 634,000 1,570,000
---------------- ------------------
Total long-term deferred tax asset 36,890,000 36,619,000
---------------- ------------------
Valuation allowance (37,532,000) (1,634,000)
================ ==================
Net deferred tax asset $ - $ 37,581,000
================ ==================
Statement of Financial Accounting Standards No. 109 requires the recording
of a deferred tax asset valuation allowance if the weight of available evidence
indicates that some or all of the deferred tax asset is more likely than not to
be realized. As previously discussed, the Company has very significant debt
obligations becoming due during 2003. In December 2002, the Company announced
its strategy to provide for these debt maturities through either a refinancing
of existing debt or a sale or merger of the Company. As a result of the
uncertainty concerning the Company's ability to either obtain refinancing or
complete a sale or merger of the Company, which may provide the Company the
opportunity to utilize its deferred tax assets, the Company has increased its
allowance against its deferred tax assets by $35.9 million representing the
total balance of its deferred tax assets at December 31, 2002.
F-19
We increased our deferred tax valuation allowance $35.9 million in 2002,
$0.8 million in 2001 and $0.7 million in 2000. Valuation allowance increases in
2001 and 2000 were due to certain tax credits and operating loss carryforwards,
primarily related to states in which we no longer have operations, that were
unlikely to be utilized. As discussed earlier, in the event the Company cannot
continue as a going concern, the deferred tax asset may not be usable in the
future and, therefore, the full valuation allowance was recorded. At December
31, 2002, we had approximately $100 million of federal net operating loss
carryforwards which expire through 2022 and approximately $43.8 million of state
net operating loss carryforward, which expire through 2022.
13. COMMITMENTS AND CONTINGENCIES
We lease certain equipment under capital lease agreements and certain
facilities under noncancellable operating leases with various renewal options.
Leased assets of $100,534 and $119,745 (net of accumulated depreciation of
$63,165 and $57,043) are included in property and equipment as of December 31,
2002 and 2001, respectively.
The following is a schedule of minimum rental payments due under the leases
described above and for other operating leases for the years ending December 31:
Capital Leases Operating Leases
------------------- -------------------
2003 $ 7,832 $ 2,159,149
2004 1,955,563
2005 1,791,433
2006 1,725,566
2007 1,587,043
Thereafter 4,802,285
------------------- -------------------
Total minimum lease payments 7,832 $ 14,021,039
===================
Less amounts representing interest (242)
-------------------
Present value of net minimum lease payments $ 7,590
===================
Rent expense was $2,635,295, $2,765,869, and $2,378,617 for the years ended
December 31, 2002, 2001 and 2000, respectively.
Aggregate operating lease commitments guaranteed total approximately
$50,000 at December 31, 2002 related to the disposal of the Company's rail and
mass transit business, which were settled subsequent to December 31, 2002.
From time to time we are involved in litigation in the ordinary course of
business. We presently are not a party to any threatened or pending litigation,
the negative outcome of which would be material to us.
DERIVATIVE INSTRUMENTS - We have certain receivables and payables
denominated in Euros. To eliminate our exposure to changes in the U.S.
dollar/Euro exchange rate, we have entered into forward contracts to protect our
future cash flows. Our forward contracts generally range from one to three
months in original maturity.
In accordance with SFAS No. 133, we designate such forward contracts as
cash flow hedges. We account for changes in the fair value of our forward
contracts, based on changes in the forward exchange rate, with all such changes
in fair value reported in other comprehensive income. Amounts in other
comprehensive income are reclassified into earnings upon settlement of the
forward contract at an amount that will offset the related transaction gain or
loss arising from the re-measurement and adjust earnings for the cost of the
forward contracts. During 2002, there were no significant gains or losses
recognized in earnings for hedge ineffectiveness and we did not discontinue any
hedges because it was probable that the original forecasted transaction would
not occur. We have eight open contracts through March 31, 2003 totaling
$3,856,944 as of December 31, 2002.
RETENTION AGREEMENTS - In contemplation of a potential sale, merger or
other transfer of the Company, we have entered into retention agreements ("the
agreements") with certain key employees whereby the Company agreed to pay either
a bonus payment, or a retention payment and insurance benefit under the terms
provided within the agreements. The potential range for the bonus or retention
payment is between $2.6 million and $3.2 million
F-20
14. DISCONTINUED OPERATIONS
Our board of directors adopted a plan to dispose of our rail and mass
transit seating operations in 1998. Accordingly, the operating results of this
operation, including a provision for loss upon disposition, was segregated from
continuing operations and was reported as discontinued operations.
On April 25, 2002, the purchaser of our rail and mass transit seating
business filed for Chapter 7 Bankruptcy. Although the purchaser assumed all
obligations at the time of the sale in August 1999, we remained liable as
guarantor under the facility lease and certain equipment operating leases.
During the year ended December 31, 2002, we recorded a reserve of $650,000 for
potential settlements of the facility and equipment leases under guarantees and
recorded a loss of $347,000, net of related taxes in discontinued operations. We
have reached an agreement on the principal leases and subsequent to December 31,
2002 negotiated settlements for the remaining guarantees. Such settlement was
included in the amount reserved at December 31, 2002.
In August 2000, we agreed to amend and restate the Asset Purchase and Sale
Agreement for our disposed rail and mass transit seating operation. The amended
and restated agreement adjusted the total sales price to $4,062,500 to be paid
in $2,000,000 cash and a promissory note in the amount of $2,062,500. The
promissory note provided for interest at 8 1/2% payable quarterly with the
outstanding principal and accrued interest due on August 31, 2004. The
$2,000,000 cash receipt was recorded as a recovery in discontinued operations
and the remaining note balance continued to be accounted for under the cost
recovery method of accounting. The $2,000,000 cash recovery, offset by
additional settlement charges of $370,000 resulted in a gain on disposal of
discontinued operations of $879,000, net of tax expense of $751,000, during the
year ended December 31, 2000.
Under the Asset Purchase and Sale Agreement, as amended and restated, as
noted above, we retained the liability for claims incurred through August 31,
1999 under its self-funded health insurance plan and have agreed to indemnify
the acquiring company for any customary warranty and litigation claims. In
January 2001, we entered into a Settlement Agreement and Release of Claims with
a prior customer in order to dispose of outstanding litigation and reduce legal
fees. The settlement agreement for the customer claims required us to pay
$815,000 in four equal installments of $203,750 plus accrued interest at 7 1/2%
beginning January 20, 2001. This obligation was satisfied at December 31, 2001.
In exchange for the settlement, we received dismissal of lawsuits with
prejudice, mutual release of liabilities and extinguishment of any future
warranty claims. There are no outstanding obligations under the self-funded
health insurance plan.
15. RESTRUCTURING AND OTHER CHARGES
In December 1999, we adopted a plan of restructuring that included the
divestiture of our commercial airline seat manufacturing operation. In 2000 and
2001 we incurred additional severance restructuring expense. In July 2002, we
adopted a plan of restructuring focused on reducing our workforce to align with
a newly developed strategic focus, and in December of 2002 we incurred
additional severance as we completed additional reductions and re-alignments. At
December 31, 2002, there was $1,140,444 of remaining liability, which
principally relates to lease obligations associated with the closed airline
facility and other contracts associated with the 1999 restructuring and
severance obligations associated with the 2002 restructuring.
A summary of the change in accrued restructuring for each of years ended
December 31 is as follows:
Facility Other
Closure Contracts Severance Total
------------ -------------- ------------- -------------
January 1, 2000 $ 3,542,000 $ 1,900,000 $ 1,300,000 $ 6,742,000
2000 restructuring -- -- 2,597,619 2,597,619
Cash payments (2,370,603) (1,327,885) (3,730,016) (7,428,504)
------------ -------------- ------------- -------------
Balance at December 31, 2000 1,171,397 572,115 167,603 1,911,115
2001 restructuring -- -- 940,000 940,000
Reversal of charges -- -- (100,000) (100,000)
Cash payments (337,466) (92,115) (1,007,603) (1,437,184)
------------ -------------- ------------- -------------
F-21
Balance at December 31, 2001 833,931 480,000 -- 1,313,931
2002 restructuring -- -- 851,465 851,465
Cash payments (298,646) (148,059) (578,247) (1,024,952)
------------ -------------- ------------- -------------
Balance at December 31, 2002 $ 535,285 $ 331,941 $ 273,218 $ 1,140,444
============ ============== ============= =============
During 2002, in addition to the charges in accrued restructuring, we wrote
off assets in the amount of $359,363 comprised of $48,266 and $311,097,
classified in write-off of long lived assets related to moving manufacturing for
our Automotive business to Mexico and the closing and subsequent sale of our
Asheville facility, respectively.
In November 2001, we sold the net assets of our commercial airline
soft-goods manufacturer and received cash consideration of $984,391 and
assumption of approximately $170,000 in liabilities and recognized a net loss on
the sale of $543,000. The commercial airline seat manufacturing operation had
sales of $3.7 million and operating losses of $.6 million during the year ended
December 31, 2000.
During the year ended December 31, 2000, we recorded additional charges
related to the write-down of certain long-lived assets. The write-down of
long-lived assets totaled $4.2 million and primarily represented assembly
equipment for our automotive airbag, which was no longer needed due to
technological changes in the raw material utilized in airbag production.
16. RESEARCH AND DEVELOPMENT
Our research and development efforts arise from funded development
contracts and proprietary research and development. Amounts arising from such
efforts for the years ended December 31, were as follows:
2002 2001 2000
----------------- ------------------ ------------------
Research and development expenses $ 5,108,172 $ 4,775,966 $ 4,659,875
================= ================== ==================
Funded contracts:
Revenue funded by customers $ 3,463,296 $ 6,261,472 $ 7,164,227
Research and development expenses classified as cost
of such revenue (2,834,540) (6,414,143) (9,296,957)
----------------- ------------------ ------------------
Income (loss) on funded contracts $ 628,756 $ (152,671) $ (2,132,730)
================= ================== ==================
17. SEGMENT REPORTING
Simula is a holding company for wholly owned subsidiaries, which operate in
two primary business segments. The Aerospace and Defense segment includes
operations that design and manufacture crash resistant components, energy
absorbing devices and ballistic armor principally for branches of the United
States armed forces. The Commercial Products segment in 2002 includes operations
encompassing inflatable restraints and related technology for automobiles,
products derived from our proprietary technology and polymer material and in
2001 and 2000 also includes the airline soft goods manufacturing operation. All
other activity, included in Other, represents general corporate operations,
including unallocated interest and technology sales and royalties.
For the years ended December 31, 2002, 2001 and 2000, inter-segment sales
were insignificant and total inter-company sales of $171,721, $1,217,412 and
$2,141,185, respectively, have been eliminated.
2002
----------------------------------------------------------------------------
AEROSPACE AND COMMERCIAL
DEFENSE PRODUCTS OTHER TOTAL
------------------ ----------------- ------------------ --------------------
Revenue:
Contract revenue $ 73,367,529 $ $ $ 73,367,529
Product sales:
Automotive safety systems 35,126,765 35,126,765
Other 2,966,417 2,966,417
Technology sales and royalties 1,141,523 1,951,734 3,093,257
F-22
------------------ ----------------- ------------------ --------------------
Total revenue $ 73,367,529 $ 39,234,705 $ 1,951,734 $ 114,553,968
================== ================= ================== ====================
Operating income (loss) $ 11,984,813 $ 4,150,099 $ (1,029,223) $ 15,105,689
Identifiable assets 30,496,164 16,281,218 8,102,102 54,879,484
Depreciation and amortization 994,624 1,094,730 2,334,980 4,424,334
Capital expenditures 954,792 1,944,990 815,170 3,714,952
Revenue from two major customers accounted for approximately 49% of total
revenue for the year ended December 31, 2002. Contract and trade receivables
from these customers accounted for approximately 43% of the total contract and
trade receivables at December 31, 2002. The Commercial Products segment
recognized revenue from Autoliv that accounted for approximately 20% of total
revenue. The Aerospace and Defense segment recognized revenue from all branches
of the United States Armed Forces that accounted for approximately 29% of total
revenue for the year ended December 31, 2002.
Our external sales based upon the customers' country of origin and investment in
long-lived assets by geographic area are as follows:
2002
--------------------------------------
LONG-LIVED
REVENUES ASSETS
------------------- ----------------
United States $ 72,592,253 $ 17,602,846
Germany 29,100,542
United Kingdom 6,013,123 2,210,178
Other foreign countries 6,848,050
------------------- -----------------
Total $ 114,553,968 $ 19,813,024
=================== =================
2001
----------------------------------------------------------------------------
AEROSPACE AND COMMERCIAL
DEFENSE PRODUCTS OTHER TOTAL
------------------- ------------------ -------------------- -------------------
Revenue:
Contract revenue $ 63,921,947 $ $ $ 63,921,947
Product sales:
Automotive safety systems 35,644,420 35,644,420
Other 5,527,313 5,527,313
Technology sales and royalties 115,231 1,158,912 426,336 1,700,479
----------------- ---------------- ----------------- -------------------
Total revenue $ 64,037,178 $ 42,330,645 $ 426,336 $ 106,794,159
================= ================ ================= ===================
Operating income (loss) $ 10,965,541 $ 3,776,993 $ (1,309,740) $ 13,432,794
Identifiable assets 31,831,627 15,296,580 45,525,084 92,653,291
Depreciation and amortization 1,054,235 983,692 2,365,943 4,403,870
Capital expenditures 3,290,908 1,173,823 13,246 4,477,977
Revenue from three major customers accounted for approximately 61% of total
revenue for the year ended December 31, 2001. Contract and trade receivables
from these customers accounted for approximately 46% of the total contract and
trade receivables at December 31, 2001. The Commercial Products segment
recognized revenue from Autoliv that accounted for approximately 28% of total
revenue for the year ended December 31, 2001. The Aerospace and Defense segment
recognized revenue from all branches of the United States Armed Forces and the
Naval Air Warfare Center which accounted for approximately 23% and 10%,
respectively, of total revenue for the year ended December 31, 2001.
F-23
Our external sales based upon the customers' country of origin and
investment in long-lived assets by geographic area are as follows:
2001
----------------------------------
LONG-LIVED
REVENUES ASSETS
---------------- ---------------
United States $ 62,117,511 $ 53,442,533
Germany 31,910,496
United Kingdom 5,178,285 1,511,375
Other foreign countries 7,587,867
---------------- -----------------
Total $ 106,794,159 $ 54,953,908
================ =================
2000
----------------------------------------------------------------------------
AEROSPACE AND COMMERCIAL
DEFENSE PRODUCTS OTHER TOTAL
------------------ ------------------ ----------------- --------------------
Revenue:
Contract revenue $ 50,577,337 $ $ $ 50,577,337
Product sales:
Automotive safety systems 32,942,835 32,942,835
Other 9,001,115 9,001,115
Technology sales and royalties 213,309 4,170,875 390,000 4,774,184
---------------- ------------------ ----------------- ---------------------
Total revenue $ 50,790,646 $ 46,114,825 $ 390,000 $ 97,295,471
================= ================== ================= =====================
Operating income (loss) $ 1,502,780 $ 2,931,395 $ (3,951,640) $ 482,535
Identifiable assets 27,012,059 14,047,323 44,839,020 85,898,402
Depreciation and amortization 1,143,121 2,022,605 2,439,988 5,605,714
Capital expenditures 498,669 642,055 90,551 1,231,275
Revenue from three major customers accounted for approximately 56% of total
revenue for the year ended December 31, 2000. Contract and trade receivables
from these customers accounted for approximately 34% of the total contract and
trade receivables at December 31, 2000. The Commercial Products segment
recognized revenue from Autoliv and Boeing Aircraft that accounted for
approximately 35% and 11%, respectively, of total revenue for the year ended
December 31, 2000. The Government and Defense segment recognized revenue from
all branches of the United States Armed Forces that accounted for approximately
10% of total revenue for the year ended December 31, 2000.
Our external sales based upon the customers' country of origin and
investment in long-lived assets by geographic area are as follows:
2000
----------------------------------
LONG-LIVED
REVENUES ASSETS
---------------- -----------------
United States $ 49,034,065 $ 48,663,872
Germany 35,664,628
United Kingdom 6,839,429 1,586,570
Other foreign countries 5,757,349
---------------- -----------------
Total $ 97,295,471 $ 50,250,442
================ =================
18. UNAUDITED QUARTERLY FINANCIAL INFORMATION
2002
---------------- ---------------- ------------------------------------
First Second Third Fourth
---------------- ---------------- ------------------ ------------------
Revenue $ 29,102,288 $ 30,181,492 $ 27,582,979 $ 27,687,209
Cost of revenue 19,491,597 20,645,901 19,122,652 15,295,419
---------------- ---------------- ------------------ ------------------
Gross margin $ 9,610,691 $ 9,535,591 $ 8,460,327 $ 12,391,790
================ ================ ================== ==================
Income (loss) before discontinued
operations $ 373,360 $ 509,256 $ (393,802) $ (34,177,280)
Loss from discontinued operations, net of tax - - (347,000) -
---------------- ---------------- ------------------ ------------------
Net income (loss) 373,360 509,256 (740,802) (34,177,280)
---------------- ---------------- ------------------ ------------------
F-24
Earnings (loss) available for common
shareholders $ 373,360 $ 509,256 $ (740,802) $ (34,177,280)
================ ================ ================== ==================
Net earnings per common share - basic
and assuming dilution $ 0.03 $ 0.04 $ (0.06) $ (2.64)
================ ================ ================== ==================
The third and fourth quarters of 2002 include restructuring charges and
write-downs of assets $0.8 million and $0.5 million, respectively. Fourth
quarter revenues in 2002 include a settlement with a Tier 1 automotive supplier
in the amount of $3.0 million. During the fourth quarter of 2002, we placed an
additional valuation allowance on the deferred tax asset in the amount of $35.9
million.
CHUN
2001
-----------------------------------------------------------------------
First Second Third Fourth
---------------- ----------------- ----------------- ------------------
Revenue $ 25,535,767 $ 25,956,898 $ 27,078,541 $ 28,222,953
Cost of revenue 16,383,598 16,204,171 17,923,855 19,783,204
---------------- ----------------- ----------------- ------------------
Gross margin $ 9,152,169 $ 9,752,727 $ 9,154,686 $ 8,439,749
================ ================= ================= ==================
Net earnings (loss) before discontinued
operations and extraordinary item $ 322,461 $ 577,425 $ 148,940 $ 100,780
Extraordinary loss on early extinguishment
of debt, net of tax - - (2,182,900) -
---------------- ----------------- ----------------- ------------------
Net income (loss) 322,461 577,425 (2,033,960) 100,780
---------------- ----------------- ----------------- ------------------
Earnings (loss) available for common
shareholders $ 322,461 $ 577,425 $ (2,033,960) $ 100,780
================ ================= ================= ==================
Net earnings per common share - basic
and assuming dilution $ 0.03 $ 0.05 $ (0.17) $ 0.01
================ ================= ================= ==================
The fourth quarter of 2001 includes $0.1 million for the reversal of 2000
restructuring reserves and $0.8 million for the reversal of a 2000 medical
reserve related to the termination of our self-funded employee health plan.
F-25
SIMULA, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2003 AND DECEMBER 31, 2002
2003 2002
----------------- --------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 12,130 $ 147,842
Contract and trade receivables - Net (including costs and estimated earnings
in excess of billings of $10,324,236 and $14,216,255, respectively) 19,159,489 20,446,665
Inventories 2,491,032 3,953,837
Prepaid expenses and other 1,199,111 1,402,252
Current assets of discontinued operations -- 9,115,864
-------------- -------------
Total current assets 22,861,762 35,066,460
PROPERTY, EQUIPMENT, and LEASEHOLD IMPROVEMENTS -Net 6,151,065 7,737,356
DEFERRED FINANCING COSTS 704,478 2,419,054
INTANGIBLES - Net 1,388,400 1,311,857
OTHER ASSETS 469,800 --
LONG-TERM ASSETS OF DISCONTINUED OPERATIONS -- 7,908,655
-------------- -------------
TOTAL $ 31,575,505 $ 54,879,484
============== =============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Revolving line of credit $ 3,542,601 $ 11,283,393
Trade accounts payable 5,010,539 3,555,552
Other accrued liabilities 5,139,572 6,355,349
Deferred revenue 60,000 60,000
Accrued restructuring costs 759,077 1,140,444
Advances on contracts 1,143,890 940,752
Current portion of long-term debt 56,085,537 29,988,315
Current liabilities of discontinued operations -- 6,374,093
-------------- -------------
Total current liabilities 71,741,216 59,697,898
DEFERRED REVENUE 435,000 480,000
DEFERRED LEASE COST 1,101,150 807,156
LONG-TERM DEBT - Less current portion 228,099 32,313,087
LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS -- 9,582
-------------- -------------
Total liabilities 73,505,465 93,307,723
-------------- -------------
SHAREHOLDERS' DEFICIT
Preferred stock, $.05 par value- authorized 50,000,000 shares; none
outstanding Common stock, $.01 par value- authorized 50,000,000
shares; issued 13,153,870
and 13,014,395, respectively 131,539 130,144
Additional paid-in-capital 63,015,447 62,715,713
Accumulated deficit (102,284,533) (97,412,354)
Accumulated other comprehensive loss (2,792,413) (3,861,742)
-------------- -------------
Total shareholders' deficit (41,929,960) (38,428,239)
-------------- -------------
TOTAL $ 31,575,505 $ 54,879,484
============== =============
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
F-26
SIMULA, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATION
THREE MONTH PERIOD ENDED NINE MONTH PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------- ----------------------------------
2003 2002 2003 2002
----------------- ----------------- ---------------- -----------------
REVENUE $ 18,193,516 $ 18,881,105 $ 50,615,351 $ 60,290,863
COST OF REVENUE 11,836,289 12,802,633 32,228,438 39,495,660
------------- ------------- ------------- -------------
GROSS MARGIN 6,357,227 6,078,472 18,386,913 20,795,203
ADMINISTRATIVE EXPENSES 3,655,778 3,269,192 10,891,606 10,119,760
RESEARCH AND DEVELOPMENT 593,303 597,232 1,722,590 1,310,791
RESTRUCTURING CHARGES -- 762,459 598,921 762,459
------------- ------------- ------------- -------------
OPERATING INCOME 2,108,146 1,449,589 5,173,796 8,602,193
INTEREST EXPENSE 2,520,390 2,623,171 8,277,363 7,737,789
OTHER EXPENSE (Note 7) -- -- 1,000,000 --
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES (412,244) (1,173,582) (4,103,567) 864,404
INCOME TAX EXPENSE (BENEFIT) -- (463,458) 17,011 402,812
------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE DISCONTINUED
OPERATIONS (412,244) (710,124) (4,120,578) 461,592
LOSS FROM DISCONTINUED OPERATIONS (937,008) (30,679) (751,601) (319,780)
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (1,349,252) $ (740,803) $ (4,872,179) $ 141,812
============= ============= ============= =============
INCOME (LOSS) PER COMMON SHARE - Basic
INCOME(LOSS) BEFORE DISCONTINUED OPERATIONS (0.03) (0.05) (0.32) 0.04
LOSS FROM DISCONTINUED OPERATIONS (0.07) (0.01) (0.05) (0.03)
------------- ------------- ------------- -------------
INCOME (LOSS) PER COMMON SHARE - Basic $ (0.10) $ (0.06) $ (0.37) $ 0.01
============= ============= ============= =============
INCOME (LOSS) PER COMMON SHARE - Diluted
INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS (0.03) (0.05) (0.32) 0.04
LOSS FROM DISCONTINUED OPERATIONS (0.07) (0.01) (0.05) (0.03)
------------- ------------- ------------- -------------
INCOME (LOSS) PER COMMON SHARE - Diluted $ (0.10) $ (0.06) $ (0.37) $ 0.01
============= ============= ============= =============
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
F-27
SIMULA, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT AND COMPREHENSIVE
LOSS NINE MONTHS ENDED SEPTEMBER 30, 2003
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
---------------------- PAID-IN ACCUMULATED COMPREHENSIVE SHAREHOLDERS' COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT LOSS DEFICIT LOSS
---------- --------- ------------ ------------- ------------- ------------- -------------
Balance, January 1, 2003 13,014,395 $ 130,144 $ 62,715,713 $ (97,412,354) $(3,861,742) $(38,428,239) $ --
Net loss (4,872,179) (4,872,179) (4,872,179)
Issuance of common shares 139,475 1,395 299,734 301,129 --
2003 currency translation
adjustment -- (814,223) (814,223) (814,223)
2003 currency translation
adjustment write off
(note 11) -- 1,883,552 1,883,552 1,883,552
---------- --------- ------------ ------------- ----------- ------------ -----------
Balance, September 30,
2003 13,153,870 $ 131,539 $ 63,015,447 $(102,284,533) $(2,792,413) $(41,929,960) $(3,802,850)
========== ========= ============ ============= =========== ============ ===========
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
F-28
SIMULA, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTH PERIODS ENDED SEPTEMBER 30, 2003 AND 2002
2003 2002
---------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (4,872,179) $ 141,812
Adjustment to reconcile net (loss) income to net cash provided by operating activities:
Loss from discontinued operations 751,601 --
Depreciation and amortization 2,645,289 2,443,862
Deferred income taxes -- 158,136
Capitalized interest 1,174,937 1,139,532
Loss on disposal of assets 155,785 --
Restructuring charge 598,921 --
Currency translation adjustment -- (411,138)
Bad debt expense -- 391,066
Non-cash equity compensation -- 144,525
Write down of intangibles 99,754 --
Changes in net assets and liabilities:
Contract and trade receivables - net of advances 1,490,314 950,751
Inventories 1,462,805 618,933
Prepaid expenses and other (40,917) 427,993
Other assets 113,224 21,290
Trade accounts payable 1,454,987 719,173
Deferred revenue (45,000) (15,693)
Deferred lease costs 293,994 308,244
Accrued restructuring costs (980,288) 797,362
Other accrued liabilities (2,637,194) (1,642,443)
Net assets of discontinued operations -- (2,189,577)
------------- ------------
Net cash provided by operating activities 1,666,033 4,003,828
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (1,376,572) (1,185,691)
Costs incurred to obtain intangibles (353,156) (326,003)
Proceeds from sale of discontinued operations, property, equipment and intangibles 14,530,349 --
------------- ------------
Net cash provided by (used in) investing activities 12,800,621 (1,511,694)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments under line of credit (7,740,792) (2,503,266)
Principal payments under other debt arrangements (7,162,703) (136,216)
Issuance of common stock 301,129 210,977
------------- ------------
Net cash (used in) provided by financing activities (14,602,366) (2,428,505)
------------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (135,712) 63,629
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 147,842 461,502
------------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 12,130 $ 525,131
============= ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest Paid $ 5,346,870 $ 5,109,268
============= ============
Income Taxes Paid $ 163,422 $ 484,254
============= ============
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
F-29
NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Simula, Inc.
and its subsidiaries (collectively "we" and "our"). All of the subsidiaries are
wholly-owned. All intercompany transactions are eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. As noted
in the accompanying financial statements, current maturities of debt are
approximately $59.6 million as of September 30, 2003 and there is uncertainty
relating to the Company's ability to refinance certain of its debt. These
factors, among others, indicate that the Company may be unable to continue as a
going concern. The accompanying financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. As part of the plan
to meet future quarterly covenants and current and long-term debt maturities, we
sold our automotive safety business during July 2003 and subsequently entered
into an Agreement and Plan of Merger to be acquired by Armor Holdings, Inc., a
Delaware corporation ("Armor Holdings") as discussed in Note 11 -- Transactions
and Subsequent Events.
As permitted by rules of the Securities and Exchange Commission for interim
reporting, we have prepared the accompanying interim consolidated financial
statements in accordance with accounting principles generally accepted in the
United States of America ("GAAP") for interim financial information and with the
instructions to Form 10-Q. As permitted by these rules, certain information and
notes required by GAAP for complete financial statements are condensed or
omitted. In the opinion of management, all adjustments and reclassifications
considered necessary for a fair and comparable presentation have been included
and are of a normal recurring nature. Operating results for the three and
nine-month periods ended September 30, 2003 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2003. Such
interim financial statements should be read in conjunction with our consolidated
financial statements and notes thereto included in our 2002 Form 10-K.
Certain reclassifications have been made to the financial statements for the
prior periods to conform with current year's presentation.
NOTE 2 - RECENTLY ISSUED ACCOUNTING STANDARDS
In April 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 149, "Amendment of
Statement No. 133 on Derivative Instruments and Hedging Activities", which
amended and refined certain characteristics of derivative instruments and
hedges. The application of SFAS No. 149 did not have a material effect on the
Company's financial statements.
In May 2003, the FASB issued a SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity",
which requires the classification of certain financial instruments, previously
classified within the equity section of the balance sheet, to be included in
liabilities. SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003 and June 15, 2003 for all other instruments. The
application of SFAS No. 150 did not have a material effect on the Company's
financial statements
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, amendment of FASB Statement No.13, and Technical Corrections",
which, among other things, no longer allows for the classification of gains and
losses from extinguishment of debt as extraordinary. We adopted SFAS No. 145
effective January 1, 2003 and upon adoption, gains and losses on certain future
debt extinguishment, if any, will be recorded in pre-tax income. In addition any
previously recorded extraordinary gains or losses from early extinguishment of
debt will be reclassified to income before extraordinary income or loss to
conform to the requirements under SFAS 145.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities", which addresses financial accounting and
reporting for costs associated with exit or disposal activities. SFAS No. 146
also nullifies Emerging Issues Task Force ("EITF") No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)". SFAS No. 146 is
effective for exit or disposal activities initiated after December 31, 2002. We
adopted SFAS No. 146 effective January 1, 2003 and do not anticipate that the
new standard
F-30
will have a material impact on our financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure". This Statement amends SFAS No. 123 to
provide alternative methods of transition for a voluntary change to the fair
value method of accounting for stock-based employee compensation. We adopted the
new disclosure requirements of SFAS No. 148 in 2002. We continue to account for
stock-based compensation under the recognition and measurement principles of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees", and related Interpretations.
In November 2002, the FASB issued Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." The interpretation requires a
guarantor to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee and expands the
disclosures required. Initial recognition and measurement provisions of FIN No.
45 are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The adoption of FIN No. 45 had no effect on our financial
position, results of operations or cash flows.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities - an Interpretation of ARB No. 51." FIN No. 46 clarifies the
consolidation requirements of variable interest entities. We have adopted the
interpretation. We have no interests in any variable interest entities and,
consequently, adoption of FIN No. 46 had no effect on our financial position,
results of operations or cash flows.
NOTE 3 - EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of
basic and diluted per share computations. For the three month period and nine
month periods ended September 30, 2003 the effect of 176,741 and 138,833 shares
related to stock options were not used because the result would have been
anti-dilutive. Additionally, for the three and nine month periods ended
September 30, 2003 and 2002, the effect of 1,774,074 shares to be issued upon
conversion of the 8% Senior Subordinated Convertible Notes was not used in
determining dilutive earnings per share because the result would have been
anti-dilutive.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net (loss) earnings
available to common
shareholders $ (1,349,252) $ (740,803) $ (4,872,179) $ 141,812
============ ============ ============ ============
Basic weighted average
shares outstanding 13,076,853 12,939,056 13,037,460 12,914,148
Effect of dilutive
securities -- -- -- 262,727
------------ ------------ ------------ ------------
Diluted weighted average
shares outstanding 13,076,853 12,939,056 13,037,460 13,176,874
============ ============ ============ ============
Basic per share amounts $ (0.10) $ (0.06) $ (0.37) $ 0.01
============ ============ ============ ============
Diluted per share amounts $ (0.10) $ (0.06) $ (0.37) $ 0.01
============ ============ ============ ============
NOTE 4 - STOCK BASED COMPENSATION
We have three stock-based employee compensation plans. We account for those
plans under the recognition and measurement principles of APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and related Interpretations under
which no compensation cost has been recognized. However, we have computed
compensation cost, for pro forma disclosure purposes, based on the fair value of
all options awarded on the date of grant, utilizing the Black-Scholes option
pricing method. The following table illustrates the effect on net income and
earnings per share if we had applied the fair value recognition provisions of
FASB Statement No. 123, "Accounting for Stock-Based Compensation", to
stock-based employee compensation for the three month and nine month periods
ended September 30:
F-31
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- --------------------------
2003 2002 2003 2002
------------ ---------- ------------ ----------
Net (loss) income - as
reported $ (1,349,252) $ (740,803) $ (4,872,179) $ 141,812
============ ========== ============ ==========
Deduct: Total stock based
employee compensation
expense determined under
fair value based method (6,096) (60,264) (42,470) (292,895)
------------ ---------- ------------ ----------
Net (loss) income - pro
forma $ (1,355,348) $ (801,067) $ (4,914,649) $ (151,083)
============ ========== ============ ==========
(Loss) income per share:
basic and diluted as
reported $ (0.10) $ (0.06) $ (0.37) $ 0.01
============ ========== ============ ==========
(Loss) income per share:
basic and diluted - pro
forma $ (0.10) $ (0.06) $ (0.38) $ (0.01)
============ ========== ============ ==========
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes options pricing model and the following table illustrates the
assumptions used for grants for the three month and nine-month periods ended
September 30:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- ----------------------------------
2003 2002 2003 2002
----------------- ---------------- ----------------- ----------------
Dividend yield None None None None
Expected volatility 116% 96% 116% 98%
Risk-free interest rate 3.6% 3.6% 3.6% 3.6%
Expected lives 3.25 3.25 3.25 3.25
NOTE 5 - INVENTORIES
At September 30, 2003 and December 31, 2002, inventories consisted of the
following:
2003 2002
----------- -----------
Raw Materials $ 2,647,830 $ 3,298,676
Work in Progress 205,151 636,980
Finished Goods -- 258,181
Inventory Reserve (361,949) (240,000)
----------- -----------
Total Inventories $ 2,491,032 $ 3,953,837
=========== ===========
NOTE 6 - PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
At September 30, 2003 and December 31, 2002 property, equipment and
leasehold improvements consisted of the following:
2003 2002
------------ -------------
Land $ -- $ 816,888
Buildings and leasehold improvements 2,429,746 3,885,263
Equipment 13,552,245 13,229,244
------------ -------------
Total 15,981,991 17,931,395
Less accumulated depreciation and amortization (9,860,460) (10,194,039)
------------ -------------
Property, equipment and leasehold
improvements - net $ 6,151,065 $ 7,737,356
============ =============
F-32
NOTE 7 - DEBT
On September 30, 2003, we were not in compliance with certain non-monetary
financial covenants under our Revolving Line of Credit (the "RLC") and our
Senior Secured Note. On November 12, 2003, we received waivers of the
non-compliance at September 30, 2003. As of June 30, 2003, we were not in
compliance with a certain non-monetary financial covenant under our Senior
Secured Note which, provided for a performance fee of $1.0 million. Our RLC had
outstanding borrowings of $ 3.5 million and remaining borrowing availability of
$ 3.5 million at September 30, 2003 as compared to outstanding borrowings of
$11.3 million and a remaining borrowing availability of $1.3 million at December
31, 2002.
NOTE 8 - OTHER INTANGIBLE ASSETS
All of our intangible assets with finite lives ranging from 15 to 20 years
were principally comprised of technology patents with a total cost at September
30, 2003 and December 31, 2002 as follows:
2003 2002
----------- -----------
Patents and licenses $ 1,648,910 $ 1,686,456
Other 132,669 566,010
----------- -----------
Total 1,781,579 2,252,466
Less accumulated amortization (393,179) (940,609)
----------- -----------
Intangibles - net $ 1,388,400 $ 1,311,857
=========== ===========
Intangible asset amortization expense for the three month periods ended
September 30, 2003 and 2002 were approximately $24,000 and $51,000, respectively
and $106,000 and $134,000 for the nine month periods ended September 30, 2003
and 2002, respectively. Additionally, during the nine month period ended
September 30, 2003 we wrote off approximately $100,000 of intangibles. Estimated
amortization expense for the five succeeding fiscal years is as follows:
2003 $ 116,000
2004 100,000
2005 100,000
2006 100,000
2007 100,000
NOTE 9 - RESEARCH AND DEVELOPMENT
Our research and development efforts arise from funded development contracts
and proprietary research and development. Amounts arising from such efforts are
as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT 30, SEPT 30, SEPT 30, SEPT 30,
2003 2002 2003 2002
--------- ----------- ----------- ------------
Research and development expenses $ 593,303 $ 597,232 $ 1,722,590 $ 1,310,791
========= =========== =========== ============
Funded contracts:
Revenue funded by customers $ 71,711 $ 1,168,976 $ 543,288 $ 2,998,081
Research and development expenses
classified as cost of such revenue (32,328) (571,227) (299,638) (1,807,629)
--------- ----------- ----------- ------------
Income of funded contracts $ 39,383 $ 597,749 $ 243,650 $ 1,190,452
========= =========== =========== ============
NOTE 10 - RESTRUCTURING
In December 1999, we adopted a plan of restructuring that included the
divestiture of our commercial airline seat manufacturing operation. In July
2002, we adopted a plan of restructuring focused on reducing workforce to align
with a newly developed strategic focus and in January 2003, we adopted a plan to
restructure our Aerospace and Defense business by reducing workforce and closing
our Asheville facility and consolidating those operations into our Phoenix
facility. The Asheville facility was closed and all operations were moved to the
Phoenix location as of March 31, 2003. We completed the sale of the Asheville
facility on April 8, 2003 and retired
F-33
the mortgage note payable related to that facility. At September 30, 2003, there
was $759,077 of remaining restructuring liability, which principally relates to
lease obligations associated with the closed airline facility, which run through
May of 2008. Severance obligations as part of the 2002 and 2003 restructuring,
which are expected to be fully paid by December 2004. A summary of the change in
accrued restructuring is as follows:
FACILITY OTHER
CLOSURE CONTRACTS SEVERANCE TOTAL
--------- ---------- ---------- -----------
Balance at December 31, 2002 $ 535,285 $ 331,941 $ 273,218 $ 1,140,444
Nine Months restructuring -- -- 598,921 598,921
Reclassification of charges 294,279 (294,279) -- --
Cash payments (181,061) (8,268) (790,959) (980,288)
--------- ---------- ---------- -----------
Balance at September 30, 2003 $ 648,503 $ 29,394 $ 81,180 $ 759,077
========= ========== ========== ===========
NOTE 11 - TRANSACTIONS AND SUBSEQUENT EVENTS
On July 22, 2003, we completed the sale of all the assets of our Automotive
Safety division to Zodiac, S.A. at a selling price of approximately $14.5
million in cash. Customary closing and purchase price adjustments increased the
previously announced selling price by approximately $0.2 million. After
deducting closing costs and related fees, we received net proceeds of
approximately $12.9 million. The transaction resulted in a gain on sale of
approximately $0.6 million, which includes approximately $0.3 million related to
an escrow account, from which we can potentially recover a maximum of $0.5
million in 18 months from the closing of the transaction, before the impact of
the one-time charge to write off accumulated foreign currency translation losses
of approximately $1.9 million. We applied the net proceeds to repay a portion of
our outstanding debt.
On September 2, 2003, we announced that we signed an Agreement and Plan of
Merger (the "Merger Agreement") to be acquired by Armor Holdings, Inc., a
Delaware corporation ("Armor Holdings"). The Merger Agreement states that Armor
Holdings shall acquire all outstanding common stock of Simula, retire
outstanding indebtedness, and assume all liabilities of Simula for total
consideration of $110.5 million. Consideration to Simula's shareholders will, at
Armor Holdings' discretion, consist of cash or a combination of cash and
registered shares of Armor Holdings' common stock, with at least 20% of the
value of the payment to shareholders to be in cash. The transaction is
structured as a merger and is expected to be taxable to Simula's shareholders.
NOTE 12 - SEGMENT REPORTING
We are a holding company for wholly-owned subsidiaries, which now operate in
one primary business segment. Our Commercial segment consisted of our Automotive
Safety division, which was sold as discussed in Note 11, above. Our Aerospace
and Defense segment includes operations that design and manufacture crash
resistant components, energy absorbing devices, and ballistic armor products,
which are sold principally to branches of the United States armed forces. All
other activity, included in Other, represents general corporate operations,
including unallocated interest and technology sales and royalties and operations
from our business derived from proprietary technology and polymer materials.
For the three-month periods ended September 30, 2003 and 2002, inter-segment
sales were insignificant and total intercompany sales of $20,696 and $4,081,
respectively, have been eliminated. For the three-month periods ended September
30, 2003 and 2002 sales to the branches of the United States Armed Forces were
86% and 85%, respectively of total sales.
2003
--------------------------------------------
AEROSPACE AND
DEFENSE OTHER TOTAL
------------- ------------ ------------
Revenue:
Contract revenue $ 17,893,236 $ -- $ 17,893,236
Product sales: Other -- 58,200 58,200
Technology sales and royalties -- 242,080 242,080
------------ ------------ ------------
Total revenue $ 17,893,236 $ 300,280 $ 18,193,516
============ ============ ============
Operating income (loss) $ 3,192,493 $ (1,084,347) $ 2,108,146
F-34
2002
------------- ------------ ------------
AEROSPACE AND
DEFENSE OTHER TOTAL
------------- ------------ ------------
Revenue:
Contract revenue $ 18,665,971 $ -- $ 18,665,971
Product sales: Other -- 30,442 30,442
Technology sales and royalties -- 184,692 184,692
------------ ------------ ------------
Total revenue $ 18,665,971 $ 215,134 $ 18,881,105
============ ============ ============
Operating income (loss) $ 2,482,387 $ (1,032,798) $ 1,449,589
For the nine-month periods ended September 30, 2003 and 2002, inter-segment
sales were insignificant and total intercompany sales of $231,748 and $48,917,
respectively, have been eliminated. For the nine-month periods ended September
30, 2003 and 2002 sales to the branches of the United States Armed Forces were
86% and 85%, respectively of total sales.
2003
------------- ------------ ------------
AEROSPACE AND
DEFENSE OTHER TOTAL
------------- ------------ ------------
Revenue:
Contract revenue $ 49,832,281 $ -- $ 49,832,281
Product sales:
Other -- 97,096 97,096
Technology sales and royalties -- 685,974 685,974
------------ ------------ ------------
Total revenue $ 49,832,281 $ 783,070 $ 50,615,351
============ ============ ============
Operating income (loss) $ 7,976,949 $ (2,803,153) $ 5,173,796
2002
------------- ------------ ------------
AEROSPACE AND
DEFENSE OTHER TOTAL
------------- ------------ ------------
Revenue:
Contract revenue $ 59,039,168 $ -- $ 59,039,168
Product sales:
Other -- 214,814 214,814
Technology sales and royalties -- 1,036,881 1,036,881
------------ ------------ ------------
Total revenue $ 59,039,168 $ 1,251,695 $ 60,290,863
============ ============ ============
Operating income (loss) $ 9,868,013 $ (1,265,820) $ 8,602,193
F-35