UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial statements for the
periods indicated below show the effect of the acquisition of Simula. The
unaudited pro forma condensed consolidated balance sheet presents the financial
position of Armor Holdings at September 30, 2003 giving effect to the
acquisition of Simula as if it had occurred on such date. The unaudited pro
forma condensed consolidated statements of continuing operations for the nine
months ended September 30, 2003 and for the year ended December 31, 2002 give
effect to the acquisition of Simula as if it had occurred on January 1, 2002.
The unaudited pro forma balance sheet as of September 30, 2003 has been
prepared by combining the historical condensed consolidated balance sheet of
Armor Holdings with the historical condensed consolidated balance sheet of
Simula as of September 30, 2003. The unaudited pro forma condensed consolidated
statements of continuing operations for the year ended December 31, 2002 have
been prepared by combining Armor Holdings' historical condensed consolidated
statement of continuing operations for the year ended December 31, 2002 with the
historical condensed consolidated statement of continuing operations of Simula
for the year ended December 31, 2002. The interim unaudited pro forma condensed
consolidated statements of continuing operations for the nine months ended
September 30, 2003 have been prepared by combining Armor Holdings' historical
condensed consolidated statement of continuing operations for the nine months
ended September 30, 2003 with Simula's historical condensed consolidated
statement of continuing operations for the nine months ended September 30, 2003.
Appropriate pro forma adjustments have been applied to the historical accounts.
The unaudited pro forma condensed consolidated financial information is
presented for informational purposes only and it is not necessarily indicative
of the financial position and results of operations that would have been
achieved had the acquisition been completed as of the dates indicated and is not
necessarily indicative of our future financial position or results of
operations.
The acquisition of Simula was structured as a merger, pursuant to which a
wholly-owned subsidiary of Armor Holdings was merged with and into Simula, with
Simula surviving the merger and becoming a wholly-owned subsidiary of Armor
Holdings. The acquisition is accounted for under the purchase method of
accounting with the assets acquired and liabilities assumed recorded at their
estimated fair values. Goodwill is generated to the extent that the merger
consideration, including transaction and closing costs, exceeds the fair value
of net assets acquired. We are in the process of determining the purchase price
allocation, which will allocate the excess of purchase price, including
transaction costs, over the fair value of the tangible and identifiable
intangible assets to be acquired to goodwill. We have not finished this purchase
price allocation. As a result, the final allocation of the excess purchase price
over the fair value of the assets to be acquired could differ from what is
presented herein.
The unaudited pro forma condensed consolidated financial statements should
be read in conjunction with the historical consolidated financial statements of
Armor Holdings and Simula, respectively, including related notes thereto, which
are included or referenced elsewhere in this prospectus.
On December 9, 2003, we completed our acquisition of Simula for $110.5
million in cash, subject to adjustment, including adjustments for certain
transaction fees and costs. A portion of the $110.5 million was used to retire a
majority of Simula's outstanding indebtedness. Approximately $31 million
principal amount of 8% debentures will remain outstanding for approximately 30
days at which time we will repay these debentures, plus accrued interest, in
their entirety. As of the date of this prospectus, Simula's outstanding 8%
debentures have been paid in full. After payment of 100% of the outstanding
indebtedness and transaction expenses, the merger consideration paid to
1
Simula's shareholders at closing pursuant to the merger agreement was
approximately $43.5 million.
2
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
CONTINUING OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
100% CASH PAID TO SIMULA
SHAREHOLDERS
-----------------------------------
HISTORICAL HISTORICAL PRO FORMA
ARMOR SIMULA(1) ADJUSTMENTS PRO FORMA
------------ ----------- -------------- --------------
Revenues
Products $179,946 $ -- $ -- $ 179,946
Mobile Security 125,171 -- -- 125,171
Simula -- 75,556 (1,152)(2) 74,404
------------ ----------- -------------- -------------
Total revenues 305,117 75,556 (1,152) 379,521
Costs and expenses
Cost of sales 210,745 48,168 2,572(2) 261,485
Operating expenses 50,081 16,977 1,632(3)(4)(5) 68,690
Integration and other
non-recurring charges 5,926 -- -- 5,926
------------ ----------- -------------- -------------
Operating income 38,365 10,411 (5,356) 43,420
Interest expense, net 923 10,411 (3,240)(6) 8,094
Other expense, net 51 81 -- 132
------------ ----------- -------------- -------------
Income (loss) from continuing
operations before provision
for income taxes 37,391 (81) (2,116) 35,194
Provision for income taxes 16,054 37,960 (38,754)(7) 15,260
------------ ----------- -------------- -------------
Income (loss) from continuing
operations $21,337 $ (38,041) $ 36,638 $19,934
============ =========== ============== =============
Earnings per common share for
continuing operations:
Basic $0.70 (8) $0.66
Diluted $0.69 (8) $0.64
Weighted average common shares
outstanding:
Basic 30,341 30,341
Diluted 30,957 30,957
3
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF CONTINUING
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002
(1) Simula's condensed consolidated statement of continuing operations as
adjusted for the sale of its automotive safety business is presented for
the year ended December 31, 2002.
(2) Reflects a change of Simula's revenue recognition policy to conform to
accounting policy used by Armor Holdings on long-term contracts from
percentage completion based on the cost incurred basis to Armor Holdings'
policy of percentage completion based on the units completed basis. For the
year ended December 31, 2002, this change in revenue recognition would have
resulted in a decrease in revenues of approximately $1.2 million and an
increase in cost of sales of approximately $2.6 million including reduction
in margin for opening in-process inventory.
(3) Reflects a reduction to depreciation expense of $168,000 due to an increase
in the weighted average estimated useful lives of property and equipment to
six years and leasehold improvements to 12 years, which exceeds the
remaining useful life on a historical basis.
(4) Reflects an increase to amortization expense of $3.1 million due to an
increase from purchase accounting in the fair value of identifiable
intangible assets over their estimated useful lives. See Note 5 to the Pro
Forma Condensed Consolidated Balance Sheet.
(5) Reflects a reduction for transactions costs of approximately $1.3 million
related to the costs to sell Simula.
(6) Reflects interest expense of $7.2 million related to the acquisition debt
used to fund the acquisition of Simula, net of the elimination of Simula's
historical interest expense of $10.4 million. If interest rates were to
increase or decrease by 1/8%, pro forma income from continuing operations
would be $19.7 million and $20.1 million, respectively. The acquisition
debt was issued by Armor Holdings in August of 2003 and matures in August
of 2013. The acquisition debt carries a current variable interest rate of
six-month LIBOR, set in arrears, plus a spread ranging from 2.735% to 2.75%
as a result of interest rate hedge transactions. Pro forma interest expense
for the acquisition debt was based on historical six-month LIBOR rates of
2.07%, or 4.82%, for the two-month period ended February 2002, 1.82%, or
4.57%, for the six-month period ended August 2002 and 1.37%, or 4.12%, for
the four-month period ended December 31, 2002.
(7) Reflects the adjustment to the provision for taxes by applying Armor
Holdings' statutory tax rate of approximately 37.7% to the pro forma
adjustments and eliminating the provision of $37.9 million that Simula
recognized in 2002, which principally related to providing a valuation
allowance for deferred tax assets resulting from net operating loss
carry-forward deductions.
(8) Basic earnings per common share for continuing operations is computed as
follows: Income from continuing operations divided by basic weighted
average common shares outstanding. Diluted earnings per common share for
continuing operations is computed as follows: Income from continuing
operations divided by diluted weighted average common shares outstanding.
4
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
CONTINUING OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
100% CASH PAID TO SIMULA
SHAREHOLDERS
-----------------------------------
HISTORICAL HISTORICAL PRO FORMA
ARMOR SIMULA(1) ADJUSTMENTS PRO FORMA
------------- -------------- ----------------- --------------
Revenues
Products $144,140 $ -- $ -- $ 144,140
Mobile Security 108,875 -- -- 108,875
Simula -- 50,615 8,165(2) 58,780
------------- -------------- ----------------- --------------
Total revenues 253,015 50,615 8,165 311,795
Costs and expenses
Cost of sales 176,396 32,228 5,661(2) 214,285
Operating expenses 44,706 12,614 860(3)(4)(5) 58,180
Integration and other
non--recurring charges 4,565 599 -- 5,164
------------- -------------- ----------------- --------------
Operating income 27,348 5,174 1,644 34,166
Interest expense, net 2,291 8,277 (4,691)(6) 5,877
Other expense, net 181 1,000 (1,000)(7) 181
------------- -------------- ----------------- --------------
Income (loss) from continuing
operations before provision for
income taxes 24,876 (4,103) 7,335 28,108
Provision for income taxes 10,044 17 1,256(8) 11,317
------------- -------------- ----------------- --------------
Income (loss) from continuing
operations $14,832 $(4,120) $6,079 $16,791
============= ============== ================= ==============
Earnings per common share for
continuing operations:
Basic $0.52 (9) $0.60
Diluted $0.52 (9) $0.59
Weighted average common shares
outstanding:
Basic 28,106 28,106
Diluted 28,438 28,438
5
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF CONTINUING
OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(1) Simula's condensed consolidated statement of continuing operations as
adjusted for the sale of its automotive safety division is presented for
the nine months ended September 30, 2003.
(2) Reflects a change of Simula's revenue recognition policy to conform to the
accounting policy used by Armor Holdings on long-term contracts from
percentage completion based on the cost incurred basis to Armor Holding's
policy of percentage completion based on the units completed basis. For the
nine-months ended September 30, 2003, this change in revenue recognition
would have resulted in an increase in revenues of approximately $8.2
million and an increase in cost of sales of approximately $5.7 million.
(3) Reflects a reduction to depreciation expense of $137,000 due to an increase
in the weighted average estimated useful lives of property and equipment to
six years and leasehold improvements to 12 years, which exceeds the
remaining useful life on a historical basis.
(4) Reflects an increase to amortization expense of $2.4 million from purchase
accounting due to an increase in the fair value of identifiable intangible
assets over their estimated useful lives. See Note 5 to the Pro forma
Condensed Consolidated Balance Sheet.
(5) Reflects a reduction for transactions costs of approximately $1.4 million
related to the sale of Simula's automotive safety division and costs to
sell Simula.
(6) Reflects interest expense of $4.9 million (net of $1.3 million previously
recognized in Armor Holding's historical financial statements) related to
the acquisition debt used to fund the acquisition of Simula, net of the
elimination of Simula's allocated interest expense of $8.3 million. If
interest rates were to increase or decrease by 1/8%, pro forma income from
continuing operations would be $16.7 million and $16.9 million,
respectively. The acquisition debt was issued by Armor Holdings in August
of 2003 and matures in August of 2013. The acquisition debt carries a
current variable interest rate of six-month LIBOR, set in arrears, plus a
spread ranging from 2.735% to 2.75% as a result of interest rate hedge
transactions. Pro forma interest expense for the acquisition debt was based
on historical six-month LIBOR rates of 1.37%, or 4.12%, for the two-month
period ended February 2003 and 1.19%, or 3.94%, for the seven-month period
ended August 2003.
(7) Reflects the elimination of the $1.0 million performance fee paid related
to Simula's default on a certain non-monetary financial covenant under
their Senior Secured Note.
(8) Reflects the adjustment to the provision for taxes by applying Armor
Holdings' statutory tax rate of approximately 37.7% to the pro forma
adjustments and to Simula's historical losses.
(9) Basic earnings per common share for continuing operations is computed as
follows: Income from continuing operations divided by basic weighted
average common shares outstanding. Diluted earnings per common share for
continuing operations is computed as follows: Income from continuing
operations divided by diluted weighted average common shares outstanding.
6
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2003
(AMOUNTS IN THOUSANDS)
100% CASH PAID TO SIMULA SHAREHOLDERS
--------------------------------------
HISTORICAL HISTORICAL PRO FORMA
ARMOR SIMULA(1) ADJUSTMENTS PRO FORMA
------------- -------------- ----------------- -----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $154,766 $12 $(81,259)(2) $73,519
Accounts receivable (net of
allowance for doubtful
accounts) 59,215 8,836 -- 68,051
Costs and earned gross profit 1,088 10,324 (10,324)(3) 1,088
Inventories 60,068 2,491 8,583(3) 71,142
Prepaid expenses and other
current assets 21,321 1,199 (1,036)(7) 21,484
Current assets of
discontinued operations 47,958 -- -- 47,958
------------- -------------- ----------------- -----------------
Total Current Assets 344,416 22,862 (84,036) 283,242
Property and Equipment (net of
accumulated depreciation) 49,531 6,151 -- 55,682
Goodwill (net of accumulated 98,934 -- 66,323(4) 165,257
Patents, Licenses & Trademarks
(net of accumulated
amortization) 7,419 1,388 35,654(5) 44,461
Other Assets 21,048 1,175 (704)(7) 21,519
Long--Term Assets of Discontinued
Operations 20,045 -- -- 20,045
------------- -------------- ----------------- -----------------
TOTAL ASSETS $541,393 $31,576 $17,237 $590,206
============= ============== ================= =================
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Current portion of long--term
debt $765 $56,086 (24,898)(8) $31,953
Short--term debt 608 3,543 (3,543)(8) 608
Accounts payable 22,013 5,010 -- 27,023
Accrued expenses and other 38,965 7,102 3,892(3)(6) 49,959
Income taxes payable 3,914 -- -- 3,914
Current liabilities of
discontinued operations 23,942 -- -- 23,942
------------- -------------- ----------------- -----------------
Total current liabilities 90,207 71,741 (24,549) 137,399
LONG--TERM DEBT, LESS CURRENT
PORTION 159,921 1,765 (144)(8) 161,542
LONG--TERM LIABILITIES OF
DISCONTINUED OPERATIONS 125 -- -- 125
------------- -------------- ----------------- -----------------
Total Liabilities 250,253 73,506 (24,693) 299,066
STOCKHOLDERS' EQUITY
Common stock 342 132 (132)(9) 342
Additional paid--in capital 315,148 63,015 (63,015)(9) 315,148
Retained earnings 49,871 (102,285) 102,285(9)
Accumulated other
comprehensive loss (1,904) (2,792) 2,792(9) (1,904)
Treasury stock (72,317) -- -- (72,317)
------------- -------------- ----------------- -----------------
Total stockholders' equity 291,140 (41,930) 41,930 291,140
------------- -------------- ----------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $541,393 $31,576 $17,237 $ 590,206
============= ============== ================= =================
7
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
SEPTEMBER 30, 2003
(1) Simula's condensed consolidated balance sheet as of
September 30, 2003.
(2) The estimated total purchase price is $112.8 million, including $2.3
million of estimated transaction costs for Armor Holdings. The cash
proceeds from the issuance of $147.5 million in debt were used as follows:
Repayment of Simula debt and purchase adjustments $ 31,747
Cash paid for Simula's transaction costs 4,262
Cash paid to Simula's common shareholders 42,950
Armor Holdings' transaction costs 2,300
---------------
Total pro-forma adjustment 81,259
8% Senior Subordinated Bonds to be redeemed in January 2004 32,214
Other non-cash purchase price adjustments (673)
---------------
Total purchase price $ 112,800
===============
(3) Reflects the adjustment of Simula's historical costs in excess of billings
and inventory resulting from a change in Simula's revenue recognition
policy to conform to the accounting policy used by Armor Holdings on
long-term contracts from percentage completion based on the cost incurred
basis to Armor Holdings' policy of percentage completion on the units
completed basis. This change in revenue recognition results in a decrease
in costs in excess of billings of $10.3 million, increase in inventory of
$8.6 million (includes $630,000 related to the application of purchase
accounting), increase of accrued expenses and other current liabilities of
$3.0 million and a decrease in retained earnings of $4.7 million.
(4) The excess of the amount paid to acquire 100% of Simula, Inc. common stock
over the fair value of the net tangible and identifiable intangible assets
(see note 5) of $66.3 million is reported as goodwill.
(5) Reflects the estimated fair value of identifiable intangible assets
acquired of $35.7 million. These assets consist of $25.2 million in
customer relationships, $8.8 million in technology and $1.7 million in
licensing agreements. We estimate these identifiable intangible asset
categories have weighted average useful lives of 14, 8 and 10 years,
respectively.
(6) Reflects an increase of $915,000 in Simula's pension obligation to adjust
the obligation to the difference between the fair market value of the plan
assets and the projected benefit obligation.
(7) Other long-term assets were reduced by the elimination of Simula's
capitalized debt issuance costs of $704,000 related to the Revolving Line
of Credit, 9.5% Senior Subordinated Notes, and other long-term debt.
(8) Reflects Simula's repayment of $144,000 of outstanding debt under the
Revolving Line of Credit, 9.5% Senior Subordinated Notes, as well as other
long-term debt upon completion of the acquisition.
(9) Reflects the elimination of the historical shareholders' equity of Simula.
8