SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-Q/A
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 1999, or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
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COMMISSION FILE NUMBER 0-18863
ARMOR HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 59-3392443
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
13386 INTERNATIONAL PARKWAY
JACKSONVILLE, FLORIDA 32218
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 741-5400
----------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of the registrant's Common Stock as of May 14,
1999 is 22,938,776.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
THREE MONTH PERIODS ENDED MARCH 31, 1999 AND MARCH 31, 1998
The accompanying unaudited condensed consolidated financial statements of Armor
Holdings, Inc. (the "Company") and its direct and indirect wholly owned
subsidiaries include all adjustments (consisting only of normal recurring
accruals and the elimination of all significant intercompany items and
transactions) for which management considers necessary for a fair presentation
of operating results as of March 31, 1999 and for the three month periods ended
March 31, 1999 and March 31, 1998.
These condensed consolidated financial statements should be read in conjunction
with the financial statements included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
2
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
1999 1998
------- -------
(UNAUDITED) *
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,089 $ 6,789
Accounts receivable (net of allowance for
doubtful accounts of $1,327 and $1,380) 21,918 21,363
Inventories 9,259 9,103
Prepaid expenses and other current assets 8,034 5,910
------- -------
Total current assets 43,300 43,165
PROPERTY, PLANT AND EQUIPMENT (net
of accumulated depreciation of $4,604
and $4,172) 12,729 12,173
GOODWILL (net of accumulated amortization
of $1,827 and $1,577) 25,504 25,820
REORGANIZATION VALUE IN EXCESS
OF AMOUNTS ALLOCABLE TO
IDENTIFIABLE ASSETS (net of accumulated
Amortization of $2,526 and $2,513) 1,549 1,562
PATENTS, LICENSES AND TRADEMARKS
(net of accumulated amortization of $823
and $728) 7,086 7,180
OTHER ASSETS 4,914 4,453
------- -------
TOTAL ASSETS $95,082 $94,353
======= =======
* Condensed from audited financial statements.
See notes to condensed consolidated financial statements.
3
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
1999 1998
---------- ----------
(UNAUDITED) *
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capitalized
lease obligations 336 433
Short-term debt 3,487 5,041
Accounts payable, accrued expenses and other
current liabilities 12,852 13,325
-------- --------
Total current liabilities 16,675 18,799
MINORITY INTEREST 116 108
LONG-TERM DEBT AND CAPITALIZED LEASE
OBLIGATIONS, less current portion 168 344
-------- --------
Total liabilities 16,959 19,251
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares
authorized; 0 shares issued and outstanding -- --
Common stock, $.01 par value; 50,000,000 shares
authorized; 16,677,085 and 16,497,808 issued and
16,406,357 and 16,227,080 outstanding 167 165
Additional paid-in capital 65,851 65,408
Cumulative comprehensive income excluded from net
income, net of tax (737) (574)
Retained earnings 16,158 13,419
Treasury stock (3,316) (3,316)
-------- --------
Total stockholders' equity 78,123 75,102
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY
$ 95,082 $ 94,353
======== ========
* Condensed from audited financial statements.
See notes to condensed consolidated financial statements.
4
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
--------------------------
MARCH 31, MARCH 31,
1999 1998
-------- --------
REVENUES:
Services $ 12,815 $ 11,800
Products 14,025 7,835
-------- --------
Total Revenues $ 26,840 $ 19,635
-------- --------
COSTS AND EXPENSES:
Cost of sales 16,290 13,601
Operating expenses 6,493 3,454
Amortization 379 228
Equity in earnings of investees (140) (155)
Interest income, net (44) (242)
-------- --------
OPERATING INCOME 3,862 2,749
Other income 513 --
-------- --------
INCOME BEFORE PROVISION FOR
INCOME TAXES 4,375 2,749
PROVISION FOR INCOME TAXES 1,635 975
======== ========
NET INCOME APPLICABLE TO
COMMON SHAREHOLDERS $ 2,740 $ 1,774
======== ========
BASIC EARNINGS PER SHARE $ 0.17 $ 0.11
======== ========
DILUTED EARNINGS PER SHARE $ 0.16 $ 0.10
======== ========
WEIGHTED AVERAGE SHARES -
BASIC 16,284 16,037
======== ========
WEIGHTED AVERAGE SHARES -
DILUTED 17,476 17,154
======== ========
See notes to condensed consolidated financial statements.
5
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
-----------------------------
MARCH 31, MARCH 31,
1999 1998
---------- ----------
OPERATING ACTIVITIES:
Net income 2,740 1,774
Adjustments to reconcile net income to cash (used in)
provided by operating activities:
Depreciation and amortization 791 435
Earnings from investees (140) (155)
Increase in accounts receivable (555) (649)
Increase in inventories (156) (101)
Increase in prepaid expenses and other assets (2,825) (882)
Decrease in accounts payable, accrued liabilities
and other current liabilities (473) (419)
Increase (decrease) in minority interest 8 (130)
---------- ----------
Net cash used in operating activities (610) (127)
---------- ----------
INVESTING ACTIVITIES:
Purchase of property and equipment (695) (1,073)
Purchase of businesses, net of assets acquired - (975)
Dividends received from equity investees 86 77
---------- ----------
Net cash used in investing activities (609) (1,971)
---------- ----------
FINANCING ACTIVITIES:
Proceeds from the exercise of stock options 444 -
Net repayments under line of credit (1,554) -
Net repayments of long-term debt (272) (12)
---------- ----------
Net cash used in financing activities (1,382) (12)
---------- ----------
Net effect of translation of foreign currencies (99) 101
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,700) (2,009)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,789 19,300
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD 4,089 $ 17,291
========== ==========
See notes to condensed consolidated financial statements.
6
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include
the accounts of Armor Holdings, Inc. (the "Company") and its direct and indirect
wholly owned subsidiaries. The financial statements have been prepared in
accordance with the instructions to Form 10-Q. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. All adjustments (consisting only
of normal recurring accruals and the elimination of all significant intercompany
items and transactions) which management considers necessary for a fair
representation of operating results, have been included in the statements.
Operating results for the quarter are not necessarily indicative of the results
that may be expected for the year ending December 31, 1999.
These condensed consolidated financial statements should be read in
conjunction with the financial statements, and notes thereto, included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
2. ADOPTION OF NEW ACCOUNTING STANDARDS
SFAS No. 130
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income."
Comprehensive income includes net income and several other items that
current accounting standards require to be recognized outside of net income.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997,
and the Company has adopted the standard for its fiscal year beginning December
28, 1997. During the three months ended March 31, 1999 and March 31, 1998, total
comprehensive income amounted to approximately $2,637,000 and $1,839,000
respectively, and includes unrealized gains or losses on the Company's foreign
currency translation adjustments, which prior to adoption were only reported
separately on a cumulative basis in shareholders' equity.
3. SIGNIFICANT DEVELOPMENTS
On February 12, 1999, the Company entered into a new credit agreement
with CIBC, Inc., NationsBank, N.A., First Union National Bank and Sun Trust
Bank, North Florida, N.A. as lenders, NationsBank, N.A., as documentation agent
and Canadian Imperial Bank of Commerce, as administrative agent. This credit
agreement replaces a $20 million revolving credit facility with NationsBank.
According to the terms of this new credit facility, several lenders established
a five-year $60,000,000 line of credit for the Company's benefit. The
indebtedness under the credit agreement is evidenced by (1) Five Year Revolving
Credit Notes of up to $40,000,000 and
7
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
3. SIGNIFICANT DEVELOPMENTS (CONTINUED)
(2) 364-Day Revolving Credit Notes of up to $20,000,000, convertible at our
option at the end of 364 days into four-year term notes. All borrowings under
the credit facility will bear interest at either (1) the base rate, plus an
applicable margin ranging from .125% to .375% depending on certain conditions,
or (2) the eurodollar rate, plus an applicable margin ranging from 1.375% to
1.625% depending on certain conditions. In addition, the credit agreement
provides that NationsBank, N.A. shall make swing-line loans of up to $5,000,000
available to us be used for working capital purposes. CIBC, Inc. and
NationsBank, N.A. will also issue letters of credit of up to $5,000,000 to the
Company.
As part of the credit facility, all of the Company's direct and
indirect domestic subsidiaries agreed to guarantee the Company's obligations
under the credit facility pursuant to a Subsidiaries Guarantee. The credit
facility is secured by (1) a pledge by the Company of all of the issued and
outstanding shares of stock of the Direct Domestic Subsidiaries pursuant to a
Borrower Pledge Agreement and (2) a pledge by the Company of 65% of the issued
and outstanding shares of our foreign subsidiary, Armor Holdings Limited,
organized under the laws of England and Wales.
4. SUBSEQUENT EVENTS
On April 12, 1999, the Company acquired all of the outstanding stock of
Safari Land Ltd., Inc., a leading U.S. manufacturer of law enforcement and
military equipment based in Ontario, California, for an aggregate purchase price
of $39.9 million, subject to certain adjustments. The purchase price consisted
of approximately $35.6 million in cash and $4 million (300,752 shares) of the
Company's common stock. As part of the transaction, the Company repaid
approximately $5.1 million of Safariland's indebtedness. The transaction was
financed with borrowings of approximately $39.2 million. The transaction will be
accounted for as a purchase.
On May 4, 1999, the Company acquired all of the outstanding capital
stock of The Parvus Company, a Washington, D.C. based consulting firm
specializing in international investigations, corporate intelligence and
security services. The purchase price was approximately $1.3 million, subject
to adjustments, consisting of 64,876 shares of common stock, the repayment
of approximately $297,389 of Parvus' indebtedness and approximately $150,000
in cash. Up to an aggregate of 54,449 additional shares may be issued to the
seller in the event certain revenue targets of Parvus are achieved.
On April 15, 1999, the Company announced it had signed Letters of
Intent to acquire two affiliated systems integrators, Alarm Systems Holding
Company of Lyndhurst, New Jersey ("ASH") and Fire Alarm Service Corporation of
Tampa, Florida ("FAS"). Both transactions will be accounted for as Pooling of
Interests and each conditioned upon customary closing conditions, including,
among other things, due diligence satisfactory to Armor Holdings, Inc.
Both ASH and FAS design, integrate and service commercial and
industrial security systems, including access control systems, burglar and fire
alarm systems, closed circuit television and other engineered low voltage
systems in the Metropolitan New York City area, New Jersey, Orlando, Florida,
Tampa, Florida and Charleston, South Carolina. Collectively, ASH and FAS employ
36 technicians, and 135 employees in total. For the 12 months ended December 31,
1998,
8
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
ASH and FAS had combined revenues of $12.0 million. The companies' shareholders
will receive approximately $14.2 million of Armor Holdings common stock.
On May 7, 1999, the Company completed a public offering of 6,125,000
shares of common stock at a price of $11.00 per share. The net proceeds to the
Company from the offering were approximately $62 million, after all fees and
expenses, and will be used to pay down indebtedness on the Company's credit
facilities, working capital and potentially to finance future acquisitions.
5. INFORMATION CONCERNING BUSINESS SEGMENTS AND GEOGRAPHICAL SALES
The Company is a leading global provider of security risk management
services and security products. Through its ArmorGroup Services division, the
Company provides a broad range of sophisticated security risk management
services to multi-national corporations and to governmental and non-governmental
agencies including: (1) security planning, advisory and management, (2)
intellectual property asset protection, (3) business due diligence and
investigations, and (4) electronic security systems integration. Through its
Armor Holdings Products division, the Company manufactures and sells a broad
range of high quality branded law enforcement equipment including ballistic
resistant vests and tactical armor, police duty gear, less-than-lethal
munitions, anti-riot products and narcotics identification kits.
The Company has invested substantial resources outside of the United
States and plans to continue to do so in the future. Substantially all of the
operations of the Company's services segment are conducted in emerging markets
in Africa, Asia, CIS and South America. These operations are subject to the risk
of new and different legal and regulatory requirements in local jurisdictions,
tariffs and trade barriers, potential difficulties in staffing and managing
local operations, potential imposition of restrictions on investments,
potentially adverse tax consequences, including imposition or increase of
withholding and other taxes on remittances and other payments by subsidiaries,
and local economic, political and social conditions.
9
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
5. INFORMATION CONCERNING BUSINESS SEGMENTS AND GEOGRAPHICAL SALES (CONTINUED)
The unaudited revenues, income from operations and total assets for
each of the Company's segments for the three months ended March 31, 1999 and
March 31, 1998 were as follows:
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
(IN THOUSANDS)
Revenues:
Services $12,815 $11,800
Products 14,025 7,835
------- -------
Total revenues $26,840 $19,635
======= =======
Income from operations:
Services $ 1,660 $ 1,854
Products 3,052 1,307
------- -------
Total income from operations $ 4,712 $ 3,161
======= =======
Total assets:
Services $27,415 $31,979
Products 43,927 21,575
Corporate 23,740 24,028
------- -------
Total assets $95,082 $77,582
======= =======
The following unaudited information with respect to sales to principal
geographic areas for the three months ended March 31, 1999 and March 31, 1998 is
as follows:
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
(IN THOUSANDS)
Sales to unaffiliated customers:
North America $12,325 $ 6,278
South America 3,685 4,020
Africa 5,683 4,560
Europe/Asia 5,147 4,777
------- -------
Total revenues $26,840 $19,635
======= =======
Operating profit:
North America $ 1,790 $ 723
South America 760 630
Africa 919 717
Europe/Asia 729 677
------- -------
Total operating profit $ 4,198 $ 2,747
======= =======
Total assets:
North America $54,280 $40,171
South America 5,458 4,554
Africa 2,712 7,098
Europe/Asia 32,632 25,759
------- -------
Total assets $95,082 $77,582
======= =======
10
6. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of
the basic and diluted earnings per share computations for net income:
THREE MONTHS ENDED
---------------------------------------
MARCH 31, 1999 MARCH 31, 1998
---------------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Numerator for basic and diluted earnings per share:
Net income $ 2,740 $ 1,774
------- -------
Denominator for basic earnings per
share weighted average shares: 16,284 16,037
Effect of dilutive securities: - -
------- -------
Effect of shares issuable under stock
option and stock grant plans, based
on the treasury stock method 1,192 1,117
------- -------
Dilutive potential common shares
Denominator for diluted earnings per
share- adjusted weighted average
shares 17,476 17,154
------- -------
Basic earnings per share $ 0.17 $ 0.11
======= =======
Diluted earnings per share $ 0.16 $ 0.10
======= =======
11
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of the our results of operations and
analysis of financial condition for the three months ended March 31, 1999. The
results of operations for the business combinations accounted for as purchase
transactions are included since their effective acquisition dates. The following
discussion may be understood more fully by reference to the financial
statements, notes to the financial statements, and management's discussion and
analysis contained in the Annual Report on Form 10-K for the year ended
December 31, 1998, as filed with the Securities and Exchange Commission.
Revenue Recognition. We record product revenues at gross amounts to be
received including amounts to be paid to agents as commissions, at the time the
product is shipped to the distributor. Although product returns are permitted in
certain circumstances within 30 days from the date of purchase, these returns
are minimal and usually consist of minor modifications to the ordered product.
We record services revenue as the service is provided on a contract by contract
basis.
Foreign Currency Translation. In accordance with Statement of Financial
Accounting Standard No. 52, "Foreign Currency Translation," assets and
liabilities denominated in a foreign currency are translated into U.S. dollars
at the current rate of exchange as of the balance sheet date and revenues and
expenses are translated at the average monthly exchange rates. The cumulative
translation adjustment, which represents the effect of translating assets and
liabilities of the Company's foreign operations, was a loss of approximately
$737,000 as of March 31, 1999 and $574,000 as of December 31, 1998.
12
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Service revenues. Service revenues increased by $1.0 million, or 8.6%,
to $12.8 million in the three months ended March 31, 1999 compared to $11.8
million in the three months ended March 31, 1998. This increase was primarily
due to the integration of Asmara, CDR and APS acquired on April 14, 1998, June
11, 1998 and July 15, 1998 respectively. These acquisitions were accounted for
as purchases and the results of their operations are recorded only for the
period the Company owned them.
Products revenues. Product revenues increased by $ 6.2 million, or 79%,
to $14.0 million in the three months ended March 31, 1999 compared to $7.8
million in the three months ended March 31, 1998. This increase was primarily
due to internal growth and the increase resulting from the integration of the
acquisitions of Pro-Tech and Fed Labs completed in 1998. These acquisitions were
accounted for as purchases and the results of their operations are recorded only
for the period the Company owned them.
Cost of sales. Cost of sales increased by $2.7 million, or 19.8%, to
$16.3 million in the three months ended March 31, 1999 compared to $13.6 million
in the three months ended March 31, 1998. This increase was primarily due to
increased revenues for the three months ended March 31, 1999 compared to the
three months ended March 31, 1998 net of a reclassification to operating
expenses in 1999 of $1.6 million related to the field operations of the
ArmorGroup Services division. As a percentage of total revenues, cost of sales
decreased to 60.7% of total revenues for the three months ended March 31, 1999
from 69.3% for the three months ended March 31, 1998 reflecting a greater
proportion of total revenues generated by our Armor Holdings Products division
in the period ended March 31, 1999, which has higher gross margins than our
ArmorGroup Services division and the previously mentioned reclassification.
Operating expenses. Operating expenses increased by $3.0 million, or
88.0%, to $6.5 million (24.2% of total revenues) in the three months ended March
31, 1999 compared to $3.5 million (17.6% of total revenues) in the three months
ended March 31, 1998. This increase was primarily due to higher selling expenses
associated with the greater proportion of total revenues generated by our Armor
Holdings Products division in the period ended March 31, 1999 compared to March
31, 1998 as well as the reclassification in 1999 of certain operating expenses
related to the field operations of ArmorGroup Services division mentioned
previously.
13
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
Amortization. Amortization expense increased by $151,000, or 66.2%, to
$379,000 in the three months ended March 31, 1999 compared to $228,000 in the
three months ended March 31, 1998. This increase was primarily due to additional
amortization of intangible assets acquired during the last three quarters of
1998 which would not have been reflected in the quarter ended March 31, 1998.
Equity in earnings of investees. Equity in earnings of investees
decreased by $15,000 or 9.7%, to $140,000 in the three months ended March 31,
1999 compared to $155,000 in the three months ended March 31, 1998. The equity
in earnings relates to the Company's 20% investment in Jardine Securicor Gurkha
Services Limited ("JSGS").
Interest income, net. Interest income decreased $198,000, or 81.8%, to
interest income of $44,000 for the three months ended March 31, 1999 from
interest income of $242,000 for the three months ended March 31, 1998.
OPERATING INCOME. Operating income increased by $1.1 million, or 40.4%,
to $3.9 million in the three months ended March 31, 1999 compared to $2.7
million in the three months ended March 31, 1998 primarily due to factors
discussed above.
Other income. Other income increased $513,000 to $513,000 for the three
months ended March 31, 1999. There was no such income for the three months ended
March 31, 1998. The other income resutls primarily from the gain on sale of
stock in MACE Security International acquired through warrants received as part
of the acquisition of certain assets of the Law Enforcement Division of MACE
Security International in July of 1998.
Income before provision for income taxes. Income before provision for
income taxes increased $1.6 million, or 59.1%, to $4.4 million in the three
months ended March 31, 1999 from $2.8 million in the first quarter of 1998. The
increase is primarily due to the internal growth of the business of the Company
as well as the successful integration of the Company's acquisitions consummated
during 1998.
Provision for income taxes. Provision for income taxes totaled $1.6
million in the three months ended March 31, 1999, as compared to $975,000 in the
three months ended March 31, 1998. The provision was based on the Company's U.S.
federal and state statutory income tax rates of approximately 39% for its
U.S.-based companies and a 37% blended effective tax rate for foreign operations
of the Company. The effective tax rate for the Company's foreign operations is
not necessarily indicative of continued tax rates due to continually changing
concentration of income in each country in which the Company operates.
Net income. Net income increased $966,000, or 54.4 %, to $2.7 million
in the three months ended March 31, 1999 compared to $1.8 million for the three
months ended March 31, 1998. The increase is primarily due to a combination of
acquisitions made during the period being successfully integrated, coupled with
internal growth.
14
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that cash generated from operations, borrowings
under the Company's credit facility and the net proceeds of its recently
completed public offering will enable the Company to meet its liquidity, working
capital and capital expenditure requirements during the next 12 months. The
Company, however, may require additional financing to pursue its strategy of
growth through acquisitions. If such financing is required, there are no
assurances that it will be available, or if available, that it can be obtained
on terms favorable to the Company or on a basis that is not dilutive to
stockholders.
The Company's spending for its fiscal 1999 capital expenditures will be
approximately $2.4 million, of which the Company has already spent approximately
$695,000.
As of March 31, 1999 and December 31, 1998, the Company had working
capital of $26.6 million and $24.4 million, respectively.
YEAR 2000 COMPUTER READINESS
Many older computer software programs refer to years in terms of their
final two digits only. Such programs may interpret the year 2000 to mean the
year 1900 instead. If not corrected, those programs could cause date-related
transaction failures.
The Company developed a Y2K Initiative to address this concern. A
project team has performed a detailed assessment of all internal computer
systems and, as discussed below, is developing and implementing plans to correct
the problems. The Company expects these projects to be successfully completed
during 1999.
15
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
Year 2000 readiness could affect many of the Company's research and
development, production, financial, administrative and communication operations.
Systems critical to the Company's business which have been identified as
non-Year 2000 compliant are either being replaced or corrected through
programming modifications. In addition, a separate team is looking at Year 2000
readiness from other aspects of the Company's business, including customer
order-taking, manufacturing, raw materials supply and plant process equipment.
The Company's goal is to have the remedied and replaced systems operational by
the second quarter of 1999 to allow time for testing and verification. In
addition to the Company's in-house efforts, the Company is asking vendors, major
customers, suppliers, communications providers and banks whose systems failures
potentially could have a significant impact on the Company's operations to
verify their Year 2000 readiness. The Company is testing such systems where
appropriate and possible.
As part of the Y2K Initiative, the Company is developing Business
Continuity Plans for those areas that are critical to the Company's business.
These Business Continuity Plans will be designed to mitigate serious disruptions
to the Company's business flow beyond the end of 1999, and will operate
independent of the external providers' Year 2000 compliance. The major drive for
contingency planning will be in the first half of 1999, with the expectation
that the Company's business groups will have plans in place by the end of the
second quarter of 1999. Based on the Company's current plans and efforts to
date, the Company does not anticipate that Year 2000 problems will have a
material effect on the Company's results of operations or financial condition.
External and internal costs specifically associated with modifying
internal use software for Year 2000 compliance are expensed as incurred. To
date, the Company has spent $19,300 on this project. Costs to be incurred for
the remainder of 1999 to fix the Year 2000 problems are estimated at
approximately $33,000. Such costs do not include normal system upgrades and
replacements. The Company does not expect the costs relating to Year 2000 remedy
to have a material effect on the results of operations or financial condition.
The above expectations are subject to uncertainties. For example, if
the Company is unsuccessful in identifying or fixing all Year 2000 problems in
critical operations, or if the Company is affected by the inability of suppliers
or major customers to continue operations due to such a problem, results of
operations or financial condition could be materially impacted.
The total costs that the Company incurs in connection with Year 2000
problems will be influenced by the ability to successfully identify Year 2000
system flaws, the nature and amount of programming required to fix the affected
programs, the related labor and/or consulting costs for such remediation, and
the ability of third parties with whom the Company has business relationships to
successfully address their own Year 2000 concerns. These and other unforeseen
factors could have a material adverse effect on the Company's results of
operations or financial condition.
16
ARMOR HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
FORWARD-LOOKING INFORMATION
Certain statements in this Form 10-Q and elsewhere (such as in other
filings by the Company with the Securities and Exchange Commission, press
releases, presentations by the Company or its management and oral statements)
may constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
include those relating to future opportunities, the outlook of the Company's
clients and customers, the reception of new products and services, the success
of new initiatives and acquisitions and the likelihood of incremental revenues
offsetting expenses related to such new initiatives and acquisitions. In
addition, such forward-looking statements involve known and unknown risks,
uncertainties, and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results expressed or implied by such forward-looking statements. Such factors
include: (i) the inherent volatility of currency fluctuations; (ii) demand for
the Company's products and services; (iii) the actions of current and potential
new competitors; (iv) rapid changes in technology; (v) the ability to realize
cost reductions and operating efficiencies; (vi) overall economic conditions;
(vii) political risks in the countries in which the Company operates; and (viii)
other risks detailed from time to time in the Company's periodic earnings
releases and reports filed with the Securities and Exchange Commission, as well
as the risks and uncertainties discussed in this Form 10-Q.
17
PART II
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are hereby filed as part of this Quarterly
Report on Form 10-Q.
EXHIBIT NO. DESCRIPTION
----------- -----------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K under Item 5, dated
May 3, 1999.
The Company filed a Current Report on Form 8-K under Item 2, dated
April 26, 1999.
The Company filed a Current Report on Form 8-K dated March 10, 1999.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ARMOR HOLDINGS, INC.
/s/ Jonathan M. Spiller
----------------------------------
Jonathan M. Spiller
President, Chief Executive Officer
and Director
Dated: May 17, 1999
/s/ Nicholas Winiewicz
-----------------------------------
Nicholas Winiewicz
Chief Financial Officer
Dated: May 17, 1999
19
EXHIBIT INDEX
The following Exhibits are filed herewith:
EXHIBIT NO. DESCRIPTION
- ----------- ------------
27.1 Financial Data Schedule
20